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




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Indicate by check mark whether the registrants (1) have filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrants were required to file such reports), and (2) have been
subject to such filing requirements for the past 90 days. Yes þ No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
 LargeAccelerated
    
    Accelerated
    
    Non-acceleratedRegistrant
    
    Filer
    
    Filer
    
    FilerThe Southern Company
    
    
    üAlabama Power Company
    
    
    
    
    
    
    
    
    
    
    üGeorgia Power Company
    
    
    
    
    
    
    
    
    
    
    üGulf Power Company
    
    
    
    
    
    
    
    
    
    
    üMississippi Power Company
    
    
    
    
    
    
    
    
    
    
    üSouthern Power Company
    
    
    
    
    
    
    
    
    
    
    ü
 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, 2006The Southern Company
    
    Par Value $5 Per Share
    
    

    
    742,740,228Alabama Power Company
    
    Par Value $40 Per Share
    
    

    
    10,250,000Georgia Power Company
    
    Without Par Value
    
    

    
    9,261,500Gulf Power Company
    
    Without Par Value
    
    

    
    992,717Mississippi Power Company
    
    Without Par Value
    
    

    
    1,121,000Southern Power Company
    
    Par Value $0.01 Per Share
    
    

    
    1,000
  2




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INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2006
 PageNumberDEFINITIONS
    
    
    5CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
    
    
    6PART I  FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsThe Southern Company and Subsidiary Companies
    
    
    7Condensed Consolidated Statements of Income
    
    
    8Condensed Consolidated Statements of Cash Flows
    
    
    9Condensed Consolidated Balance Sheets
    
    
    10Condensed Consolidated Statements of Comprehensive Income
    
    
    12Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Alabama Power Company
    
    
    33Condensed Statements of Income
    
    
    34Condensed Statements of Comprehensive Income
    
    
    34Condensed Statements of Cash Flows
    
    
    35Condensed Balance Sheets
    
    
    36Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    38Georgia Power Company
    
    
    52Condensed Statements of Income
    
    
    53Condensed Statements of Comprehensive Income
    
    
    53Condensed Statements of Cash Flows
    
    
    54Condensed Balance Sheets
    
    
    55Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    57Gulf Power Company
    
    
    71Condensed Statements of Income
    
    
    72Condensed Statements of Comprehensive Income
    
    
    72Condensed Statements of Cash Flows
    
    
    73Condensed Balance Sheets
    
    
    74Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    76Mississippi Power Company
    
    
    88Condensed Statements of Income
    
    
    89Condensed Statements of Comprehensive Income
    
    
    89Condensed Statements of Cash Flows
    
    
    90Condensed Balance Sheets
    
    
    91Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    93Southern Power Company and Subsidiary Companies
    
    
    105Condensed Consolidated Statements of Income
    
    
    106Condensed Consolidated Statements of Comprehensive Income
    
    
    106Condensed Consolidated Statements of Cash Flows
    
    
    107Condensed Consolidated Balance Sheets
    
    
    108Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    110Notes to the Condensed Financial Statements
    
    
    120Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    32Item 4. Controls and Procedures
    
    
    32
 3




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INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2006
 PageNumberPART II - OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    139Item 1A.
    
    Risk Factors
    
    
    139Item 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
    
    
    140Signatures
    
    
    143
 4




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DEFINITIONS
 TERM
    
    MEANINGAlabama Power
    
    Alabama Power CompanyALJ
    
    Administrative law judgeBMA
    
    Bond Market AssociationClean Air Act
    
    Clean Air Act Amendments of 1990DOE
    
    U.S. Department of EnergyECO Plan
    
    Environmental Compliance Overview PlanEPA
    
    U.S. Environmental Protection AgencyERISA
    
    Employee Retirement Income Security Act of 1974, as amendedFASB
    
    Financial Accounting Standards BoardFERC
    
    Federal Energy Regulatory CommissionForm 10-K
    
    Combined Annual Report on Form 10-K of Southern Company,
Alabama Power, Georgia Power, Gulf Power, Mississippi Power,
Savannah Electric, and Southern Power for the year ended
December 31, 2005 and, with respect to Southern Company,
Amendment No. 1 and Amendment No. 2 theretoGeorgia Power
    
    Georgia Power CompanyGulf Power
    
    Gulf Power CompanyIIC
    
    Intercompany Interchange ContractIRC
    
    Internal Revenue Code of 1986, as amendedIRS
    
    Internal Revenue ServiceKWH
    
    Kilowatt-hourLIBOR
    
    London Interbank Offered RateMirant
    
    Mirant CorporationMississippi Power
    
    Mississippi Power CompanyMW
    
    MegawattNOx
    
    Nitrous oxideNRC
    
    Nuclear Regulatory CommissionNSR
    
    New Source ReviewPEP
    
    Performance Evaluation PlanPower Pool
    
    The operating arrangement whereby the integrated generating
resources of the retail operating companies and Southern
Power are subject to joint commitment and dispatch in order
to serve their combined load obligations, thereby promoting
system reliability and economics.PPA
    
    Power Purchase AgreementPSC
    
    Public Service Commissionretail operating companies
    
    Alabama Power, Georgia Power, Gulf Power, and Mississippi
PowerSavannah Electric
    
    Savannah Electric and Power Company (merged into Georgia
Power on July 1, 2006)SCS
    
    Southern Company Services, Inc.SEC
    
    Securities and Exchange CommissionSO2
    
    Sulfur dioxideSouthern Company
    
    The Southern CompanySouthern Company system
    
    Southern Company, the retail operating companies, Southern
Power, and other subsidiariesSouthern Power
    
    Southern Power Company
 5




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
  
    
    the impact of recent and future federal and state regulatory change, including legislative and
regulatory initiatives regarding deregulation and restructuring of the electric utility industry, implementation of
the Energy Policy Act of 2005, and also changes in environmental, tax, and other laws and regulations to which
Southern Company and its subsidiaries are subject, as well as changes in application of existing laws and
regulations;
    
    current and future litigation, regulatory investigations, proceedings, or inquiries, including the pending
EPA civil actions against certain Southern Company subsidiaries, FERC matters, IRS audits, and Mirant matters;
    
    the effects, extent, and timing of the entry of additional competition in the markets in which Southern
Companys subsidiaries operate;
    
    variations in demand for electricity, including those relating to weather, the general economy and
population, and business growth (and declines);
    
    available sources and costs of fuels;
    
    ability to control costs;
    
    investment performance of Southern Companys employee benefit plans;
    
    advances in technology;
    
    state and federal rate regulations and the impact of pending and future rate cases and negotiations,
including rate actions relating to fuel and storm restoration cost recovery;
    
    the performance of projects undertaken by the non-utility businesses and the success of efforts to invest
in and develop new opportunities;
    
    fluctuations in the level of oil prices;
    
    the level of production, if any, by the synthetic fuel operations at Carbontronics Synfuels Investors LP
and Alabama Fuel Products, LLC for the remainder of fiscal year 2006 and 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, or other similar
occurrences;
    
    the direct or indirect effects on Southern Companys business resulting from incidents similar to the
August 2003 power outage in the Northeast;
    
    the effect of accounting pronouncements issued periodically by standard setting bodies; and
    
    other factors discussed elsewhere herein and in other reports filed by the registrants from time to time
with the SEC.
 Each registrant expressly disclaims any obligation to update any forward-looking statements.
 6




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THE SOUTHERN COMPANY
AND SUBSIDIARY COMPANIES
 7




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    3,853,423
    
    
    $
    3,672,355
    
    
    $
    9,295,223
    
    
    $
    8,496,255Sales for resale
    
    
    506,326
    
    
    
    505,851
    
    
    
    1,361,097
    
    
    
    1,237,973Other electric revenues
    
    
    120,001
    
    
    
    110,628
    
    
    
    347,086
    
    
    
    321,071Other revenues
    
    
    69,628
    
    
    
    69,049
    
    
    
    200,735
    
    
    
    209,260Total operating revenues
    
    
    4,549,378
    
    
    
    4,357,883
    
    
    
    11,204,141
    
    
    
    10,264,559Operating Expenses:Fuel
    
    
    1,625,046
    
    
    
    1,408,222
    
    
    
    3,981,241
    
    
    
    3,266,084Purchased power
    
    
    239,891
    
    
    
    347,330
    
    
    
    483,145
    
    
    
    569,223Other operations
    
    
    603,346
    
    
    
    641,098
    
    
    
    1,753,719
    
    
    
    1,729,717Maintenance
    
    
    236,647
    
    
    
    206,823
    
    
    
    793,569
    
    
    
    760,890Depreciation and amortization
    
    
    300,104
    
    
    
    298,385
    
    
    
    896,562
    
    
    
    875,869Taxes other than income taxes
    
    
    186,631
    
    
    
    179,049
    
    
    
    540,834
    
    
    
    504,731Total operating expenses
    
    
    3,191,665
    
    
    
    3,080,907
    
    
    
    8,449,070
    
    
    
    7,706,514Operating Income
    
    
    1,357,713
    
    
    
    1,276,976
    
    
    
    2,755,071
    
    
    
    2,558,045Other Income and (Expense):Allowance for equity funds used during construction
    
    
    11,847
    
    
    
    9,974
    
    
    
    33,772
    
    
    
    40,844Interest income
    
    
    12,748
    
    
    
    9,104
    
    
    
    25,657
    
    
    
    20,599Equity in losses of unconsolidated subsidiaries
    
    
    (133
    )
    
    
    (36,891
    )
    
    
    (44,985
    )
    
    
    (89,569
    )Leveraged lease income
    
    
    16,787
    
    
    
    18,666
    
    
    
    52,489
    
    
    
    55,591Impairment loss on equity method investments
    
    
    (695
    )
    
    
    
    
    
    
    (15,969
    )
    
    
    Interest expense, net of amounts capitalized
    
    
    (185,189
    )
    
    
    (162,176
    )
    
    
    (542,259
    )
    
    
    (455,378
    )Interest expense to affiliate trusts
    
    
    (30,550
    )
    
    
    (31,930
    )
    
    
    (91,819
    )
    
    
    (95,791
    )Preferred and preference dividends of subsidiaries
    
    
    (9,120
    )
    
    
    (7,425
    )
    
    
    (26,141
    )
    
    
    (22,229
    )Other income (expense), net
    
    
    (29,994
    )
    
    
    6,182
    
    
    
    (25,487
    )
    
    
    (941
    )Total other income and (expense)
    
    
    (214,299
    )
    
    
    (194,496
    )
    
    
    (634,742
    )
    
    
    (546,874
    )Earnings From Continuing Operations
Before Income Taxes
    
    
    1,143,414
    
    
    
    1,082,480
    
    
    
    2,120,329
    
    
    
    2,011,171Income taxes
    
    
    405,331
    
    
    
    351,436
    
    
    
    734,602
    
    
    
    573,770Earnings From Continuing Operations
    
    
    738,083
    
    
    
    731,044
    
    
    
    1,385,727
    
    
    
    1,437,401Earnings from discontinued operations, net of income taxes
of $(62), $(5,574), $(587), and
$(3,398), respectively
    
    
    (98
    )
    
    
    (8,840
    )
    
    
    (912
    )
    
    
    (5,416
    )Consolidated Net Income
    
    $
    737,985
    
    
    $
    722,204
    
    
    $
    1,384,815
    
    
    $
    1,431,985Common Stock Data:Earnings per share from continuing operations-Basic
    
    $
    0.99
    
    
    $
    0.98
    
    
    $
    1.87
    
    
    $
    1.93Diluted
    
    $
    0.99
    
    
    $
    0.98
    
    
    $
    1.86
    
    
    $
    1.92Earnings per share including discontinued operations-Basic
    
    $
    0.99
    
    
    $
    0.97
    
    
    $
    1.86
    
    
    $
    1.92Diluted
    
    $
    0.99
    
    
    $
    0.97
    
    
    $
    1.85
    
    
    $
    1.91Average number of basic shares of common
stock outstanding (in thousands)
    
    
    742,884
    
    
    
    743,214
    
    
    
    742,532
    
    
    
    744,654Average number of diluted shares of common
stock outstanding (in thousands)
    
    
    747,560
    
    
    
    747,817
    
    
    
    746,983
    
    
    
    749,379Cash dividends paid per share of common stock
    
    $
    0.3875
    
    
    $
    0.3725
    
    
    $
    1.1475
    
    
    $
    1.1025
  8




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 
  For the Nine MonthsEnded September 30,2006
    
    
    2005(in thousands)Operating Activities:Consolidated net income
    
    $
    1,384,815
    
    
    $
    1,431,985Adjustments to reconcile consolidated net income
to net cash provided from operating activities Depreciation and amortization
    
    
    1,059,567
    
    
    
    1,050,873Deferred income taxes and investment tax credits
    
    
    344,062
    
    
    
    376,474Allowance for equity funds used during construction
    
    
    (33,772
    )
    
    
    (40,844
    )Equity in losses of unconsolidated subsidiaries
    
    
    44,985
    
    
    
    89,569Leveraged lease income
    
    
    (52,489
    )
    
    
    (55,591
    )Pension, postretirement, and other employee benefits
    
    
    74,033
    
    
    
    31,584Stock option expense
    
    
    25,045
    
    
    
    Tax benefit of stock options
    
    
    1,739
    
    
    
    48,464Hedge settlements
    
    
    18,006
    
    
    
    (19,860
    )Storm damage accounting order
    
    
    
    
    
    
    59,333Other, net
    
    
    45,321
    
    
    
    (52,541
    )Changes in certain current assets and liabilities Receivables
    
    
    (460,092
    )
    
    
    (975,754
    )Fossil fuel stock
    
    
    (136,720
    )
    
    
    (41,240
    )Materials and supplies
    
    
    (56,559
    )
    
    
    (41,753
    )Other current assets
    
    
    61,019
    
    
    
    10,482Accounts payable
    
    
    (319,564
    )
    
    
    24,023Accrued taxes
    
    
    185,626
    
    
    
    207,394Accrued compensation
    
    
    (162,455
    )
    
    
    (107,313
    )Other current liabilities
    
    
    (42,382
    )
    
    
    84,567Net cash provided from operating activities
    
    
    1,980,185
    
    
    
    2,079,852Investing Activities:Property additions
    
    
    (2,112,780
    )
    
    
    (1,628,744
    )Nuclear decommissioning trust fund purchases
    
    
    (572,932
    )
    
    
    (473,585
    )Nuclear decommissioning trust fund sales
    
    
    566,052
    
    
    
    464,886Proceeds from property sales
    
    
    148,427
    
    
    
    9,470Investment in unconsolidated subsidiaries
    
    
    (55,884
    )
    
    
    (86,110
    )Cost of removal, net of salvage
    
    
    (53,605
    )
    
    
    (64,023
    )Other
    
    
    (67,749
    )
    
    
    (61,588
    )Net cash used for investing activities
    
    
    (2,148,471
    )
    
    
    (1,839,694
    )Financing Activities:Increase in notes payable, net
    
    
    788,744
    
    
    
    426,615Proceeds Long-term debt
    
    
    1,075,845
    
    
    
    930,695Common stock
    
    
    30,804
    
    
    
    208,722Gross excess tax benefit of stock options
    
    
    3,713
    
    
    
    Redemptions Long-term debt
    
    
    (550,176
    )
    
    
    (576,109
    )Long-term debt to affiliate trusts
    
    
    (67,457
    )
    
    
    Preferred and preference stock
    
    
    (14,569
    )
    
    
    Common stock repurchased
    
    
    (117
    )
    
    
    (331,420
    )Special deposits  redemption funds
    
    
    
    
    
    
    (2,481
    )Payment of common stock dividends
    
    
    (851,991
    )
    
    
    (821,262
    )Other
    
    
    (30,524
    )
    
    
    (27,028
    )Net cash provided from (used for) financing activities
    
    
    384,272
    
    
    
    (192,268
    )Net Change in Cash and Cash Equivalents
    
    
    215,986
    
    
    
    47,890Cash and Cash Equivalents at Beginning of Period
    
    
    202,111
    
    
    
    368,449Cash and Cash Equivalents at End of Period
    
    $
    418,097
    
    
    $
    416,339Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $16,604 and $16,139 capitalized for 2006 and 2005,
respectively)
    
    $
    638,380
    
    
    $
    501,622Income taxes (net of refunds)
    
    $
    245,941
    
    
    $
    35,014
  9




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 
  At September 30,
    
    
    At December 31,Assets
    
    
    2006
    
    
    2005(in thousands)Current Assets:Cash and cash equivalents
    
    $
    418,097
    
    
    $
    202,111Receivables Customer accounts receivable
    
    
    1,174,710
    
    
    
    868,665Unbilled revenues
    
    
    336,283
    
    
    
    303,782Under recovered regulatory clause revenues
    
    
    751,812
    
    
    
    754,522Other accounts and notes receivable
    
    
    314,466
    
    
    
    409,685Accumulated provision for uncollectible accounts
    
    
    (37,709
    )
    
    
    (37,510
    )Fossil fuel stock, at average cost
    
    
    557,180
    
    
    
    402,579Vacation pay
    
    
    117,639
    
    
    
    116,699Materials and supplies, at average cost
    
    
    715,746
    
    
    
    665,754Assets from risk management activities
    
    
    33,772
    
    
    
    124,607Prepaid expenses
    
    
    192,295
    
    
    
    131,324Other
    
    
    208,247
    
    
    
    262,659Total current assets
    
    
    4,782,538
    
    
    
    4,204,877Property, Plant, and Equipment:In service
    
    
    45,157,362
    
    
    
    43,578,501Less accumulated depreciation
    
    
    16,406,713
    
    
    
    15,727,30028,750,649
    
    
    
    27,851,201Nuclear fuel, at amortized cost
    
    
    312,714
    
    
    
    261,997Construction work in progress
    
    
    1,512,290
    
    
    
    1,367,255Total property, plant, and equipment
    
    
    30,575,653
    
    
    
    29,480,453Other Property and Investments:Nuclear decommissioning trusts, at fair value
    
    
    1,009,465
    
    
    
    953,554Leveraged leases
    
    
    1,122,106
    
    
    
    1,082,100Other
    
    
    325,107
    
    
    
    337,236Total other property and investments
    
    
    2,456,678
    
    
    
    2,372,890Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    915,905
    
    
    
    936,729Prepaid pension costs
    
    
    1,026,359
    
    
    
    1,021,797Unamortized debt issuance expense
    
    
    169,883
    
    
    
    161,583Unamortized loss on reacquired debt
    
    
    296,578
    
    
    
    309,409Deferred under recovered regulatory clause revenues
    
    
    720,224
    
    
    
    530,668Other regulatory assets
    
    
    542,375
    
    
    
    519,005Other
    
    
    549,526
    
    
    
    339,294Total deferred charges and other assets
    
    
    4,220,850
    
    
    
    3,818,485Total Assets
    
    $
    42,035,719
    
    
    $
    39,876,705
  10




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2006
    
    
    2005(in thousands)Current Liabilities:Securities due within one year
    
    $
    1,291,934
    
    
    $
    900,699Notes payable
    
    
    2,046,173
    
    
    
    1,257,428Accounts payable
    
    
    853,673
    
    
    
    1,229,253Customer deposits
    
    
    241,503
    
    
    
    219,781Accrued taxes Income taxes
    
    
    106,619
    
    
    
    103,925Other
    
    
    407,449
    
    
    
    318,978Accrued interest
    
    
    220,302
    
    
    
    204,292Accrued vacation pay
    
    
    144,110
    
    
    
    143,816Accrued compensation
    
    
    298,371
    
    
    
    458,573Other
    
    
    374,470
    
    
    
    403,606Total current liabilities
    
    
    5,984,604
    
    
    
    5,240,351Long-term Debt
    
    
    10,989,564
    
    
    
    10,957,903Long-term Debt Payable to Affiliated Trusts
    
    
    1,893,187
    
    
    
    1,888,469Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    6,393,074
    
    
    
    5,735,502Deferred credits related to income taxes
    
    
    293,097
    
    
    
    311,083Accumulated deferred investment tax credits
    
    
    509,100
    
    
    
    527,172Employee benefit obligations
    
    
    1,028,553
    
    
    
    929,908Asset retirement obligations
    
    
    1,164,126
    
    
    
    1,117,280Other cost of removal obligations
    
    
    1,306,724
    
    
    
    1,295,215Other regulatory liabilities
    
    
    283,384
    
    
    
    323,180Other
    
    
    307,640
    
    
    
    265,838Total deferred credits and other liabilities
    
    
    11,285,698
    
    
    
    10,505,178Total Liabilities
    
    
    30,153,053
    
    
    
    28,591,901Preferred and Preference Stock of Subsidiaries
    
    
    596,713
    
    
    
    595,626Common Stockholders Equity:Common stock, par value $5 per share Authorized  1 billion sharesIssued
 September 30, 2006: 751,862,546 Shares;        December 31, 2005: 751,810,927 SharesTreasury
 September 30, 2006: 9,122,318 Shares;            December 31, 2005: 10,362,970 SharesPar value
    
    
    3,759,313
    
    
    
    3,759,055Paid-in capital
    
    
    1,102,333
    
    
    
    1,084,799Treasury, at cost
    
    
    (316,462
    )
    
    
    (358,892
    )Retained earnings
    
    
    6,865,153
    
    
    
    6,332,023Accumulated other comprehensive loss
    
    
    (124,384
    )
    
    
    (127,807
    )Total Common Stockholders Equity
    
    
    11,285,953
    
    
    
    10,689,178Total Liabilities and Stockholders Equity
    
    $
    42,035,719
    
    
    $
    39,876,705
  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 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Consolidated Net Income
    
    $
    737,985
    
    
    $
    722,204
    
    
    $
    1,384,815
    
    
    $
    1,431,985Other comprehensive income (loss)  continuing operations:Change in fair value of marketable securities, net of tax
of $365, $(917), $4,772, and $(2,992), respectively
    
    
    866
    
    
    
    (2,140
    )
    
    
    7,721
    
    
    
    (6,064
    )Changes in fair value of qualifying hedges, net of tax
of $(18,019), $17,007, $(3,634), and $5,622, respectively
    
    
    (28,556
    )
    
    
    27,442
    
    
    
    (5,645
    )
    
    
    9,072Reclassification adjustment for amounts included in net income,
net of tax of $(646), $1,038, $(340), and $3,438, respectively
    
    
    1,059
    
    
    
    1,597
    
    
    
    1,347
    
    
    
    5,002Total other comprehensive income  continuing operations
    
    
    (26,631
    )
    
    
    26,899
    
    
    
    3,423
    
    
    
    8,010Other comprehensive income  discontinued operations:Changes in fair value of qualifying hedges,
net of tax of $1,369 and $2,010, respectively
    
    
    
    
    
    
    2,169
    
    
    
    
    
    
    
    3,187Reclassification adjustment for amounts included in net income,
net of tax of $(198) and $400, respectively
    
    
    
    
    
    
    (314
    )
    
    
    
    
    
    
    634Total other comprehensive income  discontinued operations
    
    
    
    
    
    
    1,855
    
    
    
    
    
    
    
    3,821COMPREHENSIVE INCOME
    
    $
    711,354
    
    
    $
    750,958
    
    
    $
    1,388,238
    
    
    $
    1,443,816
  12




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##### Table of Contents



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




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Increase (Decrease)Third Quarter 2006
    
    Year-to-Date 2006(in thousands)
    
    
    %
    
    (in thousands)
    
    
    %Retail
revenues
    
    
    $181,068
    
    
    
    4.9
    
    
    $
    798,968
    
    
    
    9.4Sales for
resale
    
    
    475
    
    
    
    0.1
    
    
    
    123,124
    
    
    
    9.9Other electric
revenues
    
    
    9,373
    
    
    
    8.5
    
    
    
    26,015
    
    
    
    8.1Fuel
expense
    
    
    216,824
    
    
    
    15.4
    
    
    
    715,157
    
    
    
    21.9Purchased power
expense
    
    
    (107,439
    )
    
    
    (30.9
    )
    
    
    (86,078
    )
    
    
    (15.1
    )Other operations
expense
    
    
    (37,752
    )
    
    
    (5.9
    )
    
    
    24,002
    
    
    
    1.4Maintenance
expense
    
    
    29,824
    
    
    
    14.4
    
    
    
    32,679
    
    
    
    4.3Depreciation and
amortization
    
    
    1,719
    
    
    
    0.6
    
    
    
    20,693
    
    
    
    2.4Taxes other than
income
taxes
    
    
    7,582
    
    
    
    4.2
    
    
    
    36,103
    
    
    
    7.2Allowance for
equity funds used
during
construction
    
    
    1,873
    
    
    
    18.8
    
    
    
    (7,072
    )
    
    
    (17.3
    )Equity in losses of
unconsolidated
subsidiaries
    
    
    (36,758
    )
    
    
    (99.6
    )
    
    
    (44,584
    )
    
    
    (49.8
    )Impairment loss on
equity method
investments
    
    
    695
    
    
    
    N/M
    
    
    
    15,969
    
    
    
    N/MInterest expense,
net of amounts
capitalized
    
    
    23,013
    
    
    
    14.2
    
    
    
    86,881
    
    
    
    19.1Other income
(expense),
net
    
    
    (36,176
    )
    
    
    N/M
    
    
    
    (24,546
    )
    
    
    N/MIncome
taxes
    
    
    53,895
    
    
    
    15.3
    
    
    
    160,832
    
    
    
    28.0
 N/M  Not meaningful
 Retail revenues
     Third Quarter
    
    Year-to-Date2006
    
    2006(in millions)
    
    % change
    
    (in millions)
    
    % changeRetail  prior year
    
    $
    3,672
    
    
    
    
    
    
    $
    8,496Change in Base rates
    
    
    17
    
    
    
    0.4
    
    
    
    49
    
    
    
    0.6Sales growth
    
    
    (4
    )
    
    
    (0.1
    )
    
    
    53
    
    
    
    0.6Weather
    
    
    7
    
    
    
    0.2
    
    
    
    62
    
    
    
    0.7Fuel cost recovery
    
    
    139
    
    
    
    3.8
    
    
    
    574
    
    
    
    6.8Other cost recovery
    
    
    22
    
    
    
    0.6
    
    
    
    61
    
    
    
    0.7Retail  current year
    
    $
    3,853
    
    
    
    4.9
    %
    
    $
    9,295
    
    
    
    9.4
    %
 14




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 Sales for resale
   Other electric revenues
    Fuel expense and Purchased power expense
    Other operations expense
    Maintenance expense
  15




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
    Depreciation and amortization
   Taxes other than income taxes
  Allowance for equity funds used during construction
   Equity in losses of unconsolidated subsidiaries
  16




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Impairment loss on equity method investments
   Interest expense, net of amounts capitalized
   Other income (expense), net
   Income taxes
  17




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   FUTURE EARNINGS POTENTIAL
  Environmental Matters
  New Source Review Litigation
  18




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  New Source Review Reform Rules
  Fine Particulate Matter Regulations
 2
 Plant Wansley Environmental Litigation
  Birmingham Area Eight-Hour Ozone Attainment Redesignation
  19




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  FERC and State PSC Matters
 Market-Based Rate Authority
 
   Intercompany Interchange Contract
  20




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  
 Retail Fuel Cost Recovery
   21




---



##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Storm Damage Cost Recovery
   22




---



##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Mirant Matters
  Mirant Bankruptcy Litigation
  Mirant Securities Litigation
  23




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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
   Synthetic Fuel Tax Credits
  24




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   Other Matters
     25




---



##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  New Accounting Standards
 Stock Options
  Income Taxes
  26




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 Leveraged Leases
  Fair Value Measurement
  Pensions and Other Postretirement Plans
  Guidance on Considering the Materiality of Misstatements
  27




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 FINANCIAL CONDITION AND LIQUIDITY
 Overview
     Capital Requirements and Contractual Obligations
  Sources of Capital
  28




---



##### Table of Contents



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




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   Third Quarter
    
    Year-to-Date2006
    
    2006Changes
    
    ChangesFair Value(in millions)Contracts beginning of period
    
    $
    (57.6
    )
    
    $
    100.5Contracts realized or settled
    
    
    50.0
    
    
    
    62.4New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (79.9
    )
    
    
    (250.4
    )Contracts at September 30, 2006
    
    $
    (87.5
    )
    
    $
    (87.5
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered
into during the period.
 Source of September 30, 2006Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in millions)Actively quoted
    
    $
    (91.3
    )
    
    $
    (76.2
    )
    
    $
    (15.1
    )External sources
    
    
    3.8
    
    
    
    3.8
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at September 30, 2006
    
    $
    (87.5
    )
    
    $
    (72.4
    )
    
    $
    (15.1
    )
  Amounts(in millions)Regulatory assets, net
    
    $
    (86.9
    )Accumulated other comprehensive
income
    
    
    1.9Net income
    
    
    (2.5
    )Total fair value loss
    
    $
    (87.5
    )
   30




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   Financing Activities
    31




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##### Table of Contents



PART I
 
 Item 3. Quantitative And Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
     32




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##### Table of Contents



ALABAMA POWER COMPANY
 33




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##### Table of Contents



ALABAMA POWER COMPANY
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    1,333,021
    
    
    $
    1,172,295
    
    
    $
    3,161,873
    
    
    $
    2,744,536Sales for resale Non-affiliates
    
    
    167,066
    
    
    
    165,923
    
    
    
    469,748
    
    
    
    410,935Affiliates
    
    
    29,138
    
    
    
    73,551
    
    
    
    134,551
    
    
    
    228,771Other revenues
    
    
    43,182
    
    
    
    46,201
    
    
    
    128,366
    
    
    
    129,303Total operating revenues
    
    
    1,572,407
    
    
    
    1,457,970
    
    
    
    3,894,538
    
    
    
    3,513,545Operating Expenses:Fuel
    
    
    521,507
    
    
    
    419,306
    
    
    
    1,282,450
    
    
    
    1,042,454Purchased power Non-affiliates
    
    
    66,690
    
    
    
    96,190
    
    
    
    121,394
    
    
    
    154,372Affiliates
    
    
    88,407
    
    
    
    90,298
    
    
    
    234,145
    
    
    
    200,083Other operations
    
    
    182,508
    
    
    
    180,574
    
    
    
    527,580
    
    
    
    495,851Maintenance
    
    
    81,287
    
    
    
    60,335
    
    
    
    287,734
    
    
    
    264,747Depreciation and amortization
    
    
    114,052
    
    
    
    108,634
    
    
    
    336,209
    
    
    
    318,144Taxes other than income taxes
    
    
    59,692
    
    
    
    59,256
    
    
    
    190,635
    
    
    
    184,790Total operating expenses
    
    
    1,114,143
    
    
    
    1,014,593
    
    
    
    2,980,147
    
    
    
    2,660,441Operating Income
    
    
    458,264
    
    
    
    443,377
    
    
    
    914,391
    
    
    
    853,104Other Income and (Expense):Allowance for equity funds used during construction
    
    
    3,921
    
    
    
    5,372
    
    
    
    13,285
    
    
    
    15,811Interest income
    
    
    4,931
    
    
    
    5,110
    
    
    
    12,973
    
    
    
    12,679Interest expense, net of amounts capitalized
    
    
    (61,786
    )
    
    
    (50,797
    )
    
    
    (174,079
    )
    
    
    (147,519
    )Interest expense to affiliate trusts
    
    
    (4,059
    )
    
    
    (4,059
    )
    
    
    (12,178
    )
    
    
    (12,178
    )Other income (expense), net
    
    
    (7,866
    )
    
    
    (7,082
    )
    
    
    (17,599
    )
    
    
    (10,919
    )Total other income and (expense)
    
    
    (64,859
    )
    
    
    (51,456
    )
    
    
    (177,598
    )
    
    
    (142,126
    )Earnings Before Income Taxes
    
    
    393,405
    
    
    
    391,921
    
    
    
    736,793
    
    
    
    710,978Income taxes
    
    
    149,379
    
    
    
    149,764
    
    
    
    280,376
    
    
    
    241,782Net Income
    
    
    244,026
    
    
    
    242,157
    
    
    
    456,417
    
    
    
    469,196Dividends on Preferred Stock
    
    
    6,072
    
    
    
    6,072
    
    
    
    18,216
    
    
    
    18,216Net Income After Dividends on Preferred Stock
    
    $
    237,954
    
    
    $
    236,085
    
    
    $
    438,201
    
    
    $
    450,980
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred Stock
    
    $
    237,954
    
    
    $
    236,085
    
    
    $
    438,201
    
    
    $
    450,980Other comprehensive income (loss):Changes in fair value of qualifying hedges, net of tax
of $(2,049), $8,521, $334, and $3,318, respectively
    
    
    (3,369
    )
    
    
    14,016
    
    
    
    551
    
    
    
    5,458Reclassification adjustment for amounts included in net income,
net of tax of $(854), $(350), $(2,869), and $(631), respectively
    
    
    (1,406
    )
    
    
    (576
    )
    
    
    (4,720
    )
    
    
    (1,037
    )COMPREHENSIVE INCOME
    
    $
    233,179
    
    
    $
    249,525
    
    
    $
    434,032
    
    
    $
    455,401
  34




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##### Table of Contents



ALABAMA POWER COMPANY
 
  For the Nine MonthsEnded September 30,2006
    
    
    2005(in thousands)Operating Activities:Net income
    
    $
    456,417
    
    
    $
    469,196Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    391,422
    
    
    
    375,607Deferred income taxes and investment tax credits, net
    
    
    17,157
    
    
    
    79,621Deferred revenues
    
    
    (564
    )
    
    
    (9,939
    )Allowance for equity funds used during construction
    
    
    (13,285
    )
    
    
    (15,811
    )Pension, postretirement, and other employee benefits
    
    
    8,795
    
    
    
    (10,543
    )Stock option expense
    
    
    4,518
    
    
    
    Tax benefit of stock options
    
    
    267
    
    
    
    16,790Hedge settlements
    
    
    18,006
    
    
    
    (21,445
    )Storm damage accounting order
    
    
    
    
    
    
    45,000Other, net
    
    
    (7,819
    )
    
    
    (16,951
    )Changes in certain current assets and liabilities Receivables
    
    
    (144,475
    )
    
    
    (248,234
    )Fossil fuel stock
    
    
    (37,858
    )
    
    
    (38,942
    )Materials and supplies
    
    
    (13,683
    )
    
    
    (9,356
    )Other current assets
    
    
    33,980
    
    
    
    12,454Accounts payable
    
    
    (152,179
    )
    
    
    (18,226
    )Accrued taxes
    
    
    134,349
    
    
    
    64,162Accrued compensation
    
    
    (34,658
    )
    
    
    (11,086
    )Other current liabilities
    
    
    32,894
    
    
    
    55,914Net cash provided from operating activities
    
    
    693,284
    
    
    
    718,211Investing Activities:Property additions
    
    
    (618,568
    )
    
    
    (583,722
    )Nuclear decommissioning trust fund purchases
    
    
    (206,480
    )
    
    
    (174,715
    )Nuclear decommissioning trust fund sales
    
    
    206,480
    
    
    
    174,715Cost of removal, net of salvage
    
    
    (28,089
    )
    
    
    (40,689
    )Other
    
    
    (19,054
    )
    
    
    8,962Net cash used for investing activities
    
    
    (665,711
    )
    
    
    (615,449
    )Financing Activities:Decrease in notes payable, net
    
    
    (315,278
    )
    
    
    Proceeds Common stock issued to parent
    
    
    40,000
    
    
    
    40,000Capital contributions
    
    
    
    
    
    
    (304
    )Senior notes
    
    
    950,000
    
    
    
    250,000Gross excess tax benefit of stock options
    
    
    530
    
    
    
    Redemptions Pollution control bonds
    
    
    (2,950
    )
    
    
    Capital leases
    
    
    
    
    
    
    546Senior notes
    
    
    (196,500
    )
    
    
    Payment of preferred stock dividends
    
    
    (18,210
    )
    
    
    (16,684
    )Payment of common stock dividends
    
    
    (330,450
    )
    
    
    (307,425
    )Other
    
    
    (21,469
    )
    
    
    (2,459
    )Net cash provided from (used for) financing activities
    
    
    105,673
    
    
    
    (36,326
    )Net Change in Cash and Cash Equivalents
    
    
    133,246
    
    
    
    66,436Cash and Cash Equivalents at Beginning of Period
    
    
    22,472
    
    
    
    79,711Cash and Cash Equivalents at End of Period
    
    $
    155,718
    
    
    $
    146,147Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $5,652 and $5,802 capitalized for 2006 and 2005, respectively)
    
    $
    174,568
    
    
    $
    115,505Income taxes (net of refunds)
    
    $
    165,266
    
    
    $
    111,473
  35




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ALABAMA POWER COMPANY
 
  At September 30,
    
    
    At December 31,Assets
    
    2006
    
    
    2005(in thousands)Current Assets:Cash and cash equivalents
    
    $
    155,718
    
    
    $
    22,472Receivables Customer accounts receivable
    
    
    409,146
    
    
    
    275,702Unbilled revenues
    
    
    99,189
    
    
    
    95,039Under recovered regulatory clause revenues
    
    
    108,104
    
    
    
    132,139Other accounts and notes receivable
    
    
    57,068
    
    
    
    50,008Affiliated companies
    
    
    37,226
    
    
    
    77,304Accumulated provision for uncollectible accounts
    
    
    (8,286
    )
    
    
    (7,560
    )Fossil fuel stock, at average cost
    
    
    154,742
    
    
    
    102,420Vacation pay
    
    
    45,171
    
    
    
    44,893Materials and supplies, at average cost
    
    
    243,636
    
    
    
    244,417Prepaid expenses
    
    
    52,237
    
    
    
    58,845Other regulatory assets
    
    
    59,072
    
    
    
    43,621Other
    
    
    12,599
    
    
    
    54,885Total current assets
    
    
    1,425,622
    
    
    
    1,194,185Property, Plant, and Equipment:In service
    
    
    15,859,529
    
    
    
    15,300,346Less accumulated provision for depreciation
    
    
    5,565,214
    
    
    
    5,313,73110,294,315
    
    
    
    9,986,615Nuclear fuel, at amortized cost
    
    
    134,885
    
    
    
    127,199Construction work in progress
    
    
    424,100
    
    
    
    469,018Total property, plant, and equipment
    
    
    10,853,300
    
    
    
    10,582,832Other Property and Investments:Equity investments in unconsolidated subsidiaries
    
    
    46,997
    
    
    
    46,913Nuclear decommissioning trusts, at fair value
    
    
    490,310
    
    
    
    466,963Other
    
    
    43,331
    
    
    
    41,457Total other property and investments
    
    
    580,638
    
    
    
    555,333Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    377,715
    
    
    
    388,634Prepaid pension costs
    
    
    532,961
    
    
    
    515,281Deferred under recovered regulatory clause revenues
    
    
    268,465
    
    
    
    186,864Other regulatory assets
    
    
    106,621
    
    
    
    122,378Other
    
    
    185,170
    
    
    
    144,400Total deferred charges and other assets
    
    
    1,470,932
    
    
    
    1,357,557Total Assets
    
    $
    14,330,492
    
    
    $
    13,689,907
  36




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##### Table of Contents



ALABAMA POWER COMPANY
 At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2006
    
    
    2005(in thousands)Current Liabilities:Securities due within one year
    
    $
    518,674
    
    
    $
    546,645Notes payable
    
    
    
    
    
    
    315,278Accounts payable Affiliated
    
    
    147,899
    
    
    
    190,744Other
    
    
    167,525
    
    
    
    266,174Customer deposits
    
    
    61,138
    
    
    
    56,709Accrued taxes Income taxes
    
    
    69,163
    
    
    
    63,844Other
    
    
    93,590
    
    
    
    31,692Accrued interest
    
    
    64,922
    
    
    
    46,018Accrued vacation pay
    
    
    37,646
    
    
    
    37,646Accrued compensation
    
    
    58,126
    
    
    
    92,784Other
    
    
    76,568
    
    
    
    72,991Total current liabilities
    
    
    1,295,251
    
    
    
    1,720,525Long-term Debt
    
    
    4,335,678
    
    
    
    3,560,186Long-term Debt Payable to Affiliated Trusts
    
    
    309,279
    
    
    
    309,279Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    2,144,295
    
    
    
    2,070,746Deferred credits related to income taxes
    
    
    98,876
    
    
    
    101,678Accumulated deferred investment tax credits
    
    
    190,583
    
    
    
    196,585Employee benefit obligations
    
    
    241,899
    
    
    
    208,663Asset retirement obligations
    
    
    466,620
    
    
    
    446,268Other cost of removal obligations
    
    
    595,809
    
    
    
    600,104Other regulatory liabilities
    
    
    204,918
    
    
    
    194,135Other
    
    
    40,520
    
    
    
    23,966Total deferred credits and other liabilities
    
    
    3,983,520
    
    
    
    3,842,145Total Liabilities
    
    
    9,923,728
    
    
    
    9,432,135Preferred Stock
    
    
    465,046
    
    
    
    465,046Common Stockholders Equity:Common stock, par value $40 per share Authorized  September 30, 2006: 25,000,000 shares December 31, 2005: 15,000,000 sharesOutstanding  September 30, 2006: 10,250,000 shares December 31, 2005: 9,250,000 shares
    
    
    410,000
    
    
    
    370,000Paid-in capital
    
    
    2,000,460
    
    
    
    1,995,056Retained earnings
    
    
    1,546,901
    
    
    
    1,439,144Accumulated other comprehensive loss
    
    
    (15,643
    )
    
    
    (11,474
    )Total common stockholders equity
    
    
    3,941,718
    
    
    
    3,792,726Total Liabilities and Stockholders Equity
    
    $
    14,330,492
    
    
    $
    13,689,907
  37




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ALABAMA POWER COMPANY
 
 
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Earnings
   38




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##### Table of Contents



ALABAMA POWER COMPANY
  Increase (Decrease)Third Quarter 2006
    
    Year-to-Date 2006(in thousands)
    
    %
    
    (in thousands)
    
    %Retail revenues
    
    $
    160,726
    
    
    
    13.7
    
    
    $
    417,337
    
    
    
    15.2Sales for resale-non-affiliates
    
    
    1,143
    
    
    
    0.7
    
    
    
    58,813
    
    
    
    14.3Sales for resale-affiliates
    
    
    (44,413
    )
    
    
    (60.4
    )
    
    
    (94,220
    )
    
    
    (41.2
    )Fuel expense
    
    
    102,201
    
    
    
    24.4
    
    
    
    239,996
    
    
    
    23.0Purchased power-non-affiliates
    
    
    (29,500
    )
    
    
    (30.7
    )
    
    
    (32,978
    )
    
    
    (21.4
    )Purchased power-affiliates
    
    
    (1,891
    )
    
    
    (2.1
    )
    
    
    34,062
    
    
    
    17.0Other operations expense
    
    
    1,934
    
    
    
    1.1
    
    
    
    31,729
    
    
    
    6.4Maintenance expense
    
    
    20,952
    
    
    
    34.7
    
    
    
    22,987
    
    
    
    8.7Depreciation and amortization
    
    
    5,418
    
    
    
    5.0
    
    
    
    18,065
    
    
    
    5.7Interest expense, net of amounts capitalized
    
    
    10,989
    
    
    
    21.6
    
    
    
    26,560
    
    
    
    18.0Other income (expense), net
    
    
    (784
    )
    
    
    (11.1
    )
    
    
    (6,680
    )
    
    
    (61.2
    )Income taxes
    
    
    (385
    )
    
    
    (0.3
    )
    
    
    38,594
    
    
    
    16.0
 Retail revenues
   39




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##### Table of Contents



ALABAMA POWER COMPANY
  Third Quarter
    
    Year-to-Date2006
    
    2006(in millions)
    
    % change
    
    (in millions)
    
    % changeRetail  prior year
    
    $
    1,172
    
    
    
    
    
    
    $
    2,745Change in Base rates
    
    
    8
    
    
    
    0.7
    
    
    
    26
    
    
    
    0.9Sales growth
    
    
    10
    
    
    
    0.9
    
    
    
    29
    
    
    
    1.1Weather
    
    
    9
    
    
    
    0.8
    
    
    
    33
    
    
    
    1.2Energy cost recovery
    
    
    122
    
    
    
    10.4
    
    
    
    291
    
    
    
    10.6Other cost recovery
    
    
    12
    
    
    
    0.9
    
    
    
    38
    
    
    
    1.4Retail  current year
    
    $
    1,333
    
    
    
    13.7
    %
    
    $
    3,162
    
    
    
    15.2
    %
 Sales for resale  non-affiliates
    Sales for resale  affiliates
    Fuel expense, Purchased power  non-affiliates, and Purchased power  affiliates
    40




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##### Table of Contents



ALABAMA POWER COMPANY
        Other operations expense
   Maintenance expense
   41




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##### Table of Contents



ALABAMA POWER COMPANY
  Depreciation and amortization
  Interest expense, net of amounts capitalized
  Other income (expense), net
   Income taxes
   FUTURE EARNINGS POTENTIAL
  42




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##### Table of Contents



ALABAMA POWER COMPANY
  Environmental Matters
  New Source Review Litigation
  New Source Review Reform Rules
  43




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##### Table of Contents



ALABAMA POWER COMPANY
 Birmingham Area Eight-Hour Ozone Attainment Redesignation
  Fine Particulate Matter Regulations
 2
 FERC and Alabama PSC Matters
 Market-Based Rate Authority
 
  44




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##### Table of Contents



ALABAMA POWER COMPANY
   Intercompany Interchange Contract
  
 Retail Fuel Cost Recovery
  45




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##### Table of Contents



ALABAMA POWER COMPANY
  Other Matters
   ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
 
 New Accounting Standards
 Stock Options
  46




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##### Table of Contents



ALABAMA POWER COMPANY
 Income Taxes
  Fair Value Measurement
  Pensions and Other Postretirement Plans
  Guidance on Considering the Materiality of Misstatements
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  47




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##### Table of Contents



ALABAMA POWER COMPANY
  Capital Requirements and Contractual Obligations
 
   Sources of Capital
   48




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##### Table of Contents



ALABAMA POWER COMPANY
  Credit Rating Risk
  Market Price Risk
    Third Quarter
    
    Year-to-Date2006
    
    2006Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    (29,674
    )
    
    $
    28,978Contracts realized or settled
    
    
    24,095
    
    
    
    31,759New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (30,712
    )
    
    
    (97,028
    )Contracts at September 30, 2006
    
    $
    (36,291
    )
    
    $
    (36,291
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts
entered into during the period, if any. 49




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##### Table of Contents



ALABAMA POWER COMPANY
 Source of September 30, 2006Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    (37,477
    )
    
    $
    (31,836
    )
    
    $
    (5,641
    )External sources
    
    
    1,186
    
    
    
    1,186
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at September
30, 2006
    
    $
    (36,291
    )
    
    $
    (30,650
    )
    
    $
    (5,641
    )
  Amounts(in thousands)Regulatory assets, net
    
    $
    (36,883
    )Accumulated other comprehensive
income
    
    
    1,186Net income
    
    
    (594
    )Total fair value loss
    
    $
    (36,291
    )
  
 Financing Activities
   50




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##### Table of Contents



ALABAMA POWER COMPANY
   51




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##### Table of Contents



GEORGIA POWER COMPANY
 52




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##### Table of Contents



GEORGIA POWER COMPANY
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    2,001,938
    
    
    $
    2,031,955
    
    
    $
    4,885,404
    
    
    $
    4,620,425Sales for resale Non-affiliates
    
    
    135,647
    
    
    
    148,320
    
    
    
    404,014
    
    
    
    388,985Affiliates
    
    
    78,249
    
    
    
    134,328
    
    
    
    203,791
    
    
    
    218,016Other revenues
    
    
    59,471
    
    
    
    54,890
    
    
    
    173,746
    
    
    
    154,604Total operating revenues
    
    
    2,275,305
    
    
    
    2,369,493
    
    
    
    5,666,955
    
    
    
    5,382,030Operating Expenses:Fuel
    
    
    698,703
    
    
    
    663,378
    
    
    
    1,750,638
    
    
    
    1,416,717Purchased power Non-affiliates
    
    
    145,495
    
    
    
    205,358
    
    
    
    288,459
    
    
    
    327,086Affiliates
    
    
    186,669
    
    
    
    243,902
    
    
    
    572,642
    
    
    
    669,769Other operations
    
    
    258,055
    
    
    
    274,099
    
    
    
    744,858
    
    
    
    728,240Maintenance
    
    
    116,320
    
    
    
    110,387
    
    
    
    374,203
    
    
    
    366,688Depreciation and amortization
    
    
    125,352
    
    
    
    133,489
    
    
    
    372,850
    
    
    
    392,464Taxes other than income taxes
    
    
    82,701
    
    
    
    77,683
    
    
    
    227,431
    
    
    
    204,787Total operating expenses
    
    
    1,613,295
    
    
    
    1,708,296
    
    
    
    4,331,081
    
    
    
    4,105,751Operating Income
    
    
    662,010
    
    
    
    661,197
    
    
    
    1,335,874
    
    
    
    1,276,279Other Income and (Expense):Allowance for equity funds used during construction
    
    
    7,802
    
    
    
    4,516
    
    
    
    20,324
    
    
    
    23,850Interest income
    
    
    1,039
    
    
    
    1,050
    
    
    
    1,613
    
    
    
    1,587Interest expense, net of amounts capitalized
    
    
    (65,770
    )
    
    
    (61,928
    )
    
    
    (193,442
    )
    
    
    (174,350
    )Interest expense to affiliate trusts
    
    
    (14,878
    )
    
    
    (14,878
    )
    
    
    (44,633
    )
    
    
    (44,633
    )Other income (expense), net
    
    
    7,772
    
    
    
    13,651
    
    
    
    9,666
    
    
    
    13,642Total other income and (expense)
    
    
    (64,035
    )
    
    
    (57,589
    )
    
    
    (206,472
    )
    
    
    (179,904
    )Earnings Before Income Taxes
    
    
    597,975
    
    
    
    603,608
    
    
    
    1,129,402
    
    
    
    1,096,375Income taxes
    
    
    214,102
    
    
    
    227,824
    
    
    
    413,832
    
    
    
    410,802Net Income
    
    
    383,873
    
    
    
    375,784
    
    
    
    715,570
    
    
    
    685,573Dividends on Preferred Stock
    
    
    1,790
    
    
    
    866
    
    
    
    4,150
    
    
    
    2,551Net Income After Dividends on Preferred Stock
    
    $
    382,083
    
    
    $
    374,918
    
    
    $
    711,420
    
    
    $
    683,022
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred Stock
    
    $
    382,083
    
    
    $
    374,918
    
    
    $
    711,420
    
    
    $
    683,022Other comprehensive income (loss):Change in fair value of marketable securities, net of tax
of $(296), $(155), $(459), and $(52), respectively
    
    
    (471
    )
    
    
    (247
    )
    
    
    (729
    )
    
    
    (83
    )Changes in fair value of qualifying hedges, net of tax
of $(10,765), $9,496, $254, and $3,389, respectively
    
    
    (17,066
    )
    
    
    15,055
    
    
    
    398
    
    
    
    5,372Reclassification adjustment for amounts included in net income,
net of tax of $(236), $371, $(194), and $897, respectively
    
    
    (373
    )
    
    
    585
    
    
    
    (308
    )
    
    
    1,120COMPREHENSIVE INCOME
    
    $
    364,173
    
    
    $
    390,311
    
    
    $
    710,781
    
    
    $
    689,431
  53




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##### Table of Contents



GEORGIA POWER COMPANY
 
  For the Nine MonthsEnded September 30,2006
    
    
    2005(in thousands)Operating Activities:Net income
    
    $
    715,570
    
    
    $
    685,573Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    439,197
    
    
    
    464,934Deferred income taxes and investment tax credits
    
    
    35,865
    
    
    
    198,244Deferred expenses  affiliates
    
    
    (19,721
    )
    
    
    (18,682
    )Allowance for equity funds used during construction
    
    
    (20,324
    )
    
    
    (23,850
    )Pension, postretirement, and other employee benefits
    
    
    32,140
    
    
    
    15,484Stock option expense
    
    
    5,237
    
    
    
    Tax benefit of stock options
    
    
    437
    
    
    
    16,444Other, net
    
    
    (685
    )
    
    
    (43,722
    )Changes in certain current assets and liabilities Receivables
    
    
    (213,235
    )
    
    
    (655,181
    )Fossil fuel stock
    
    
    (76,805
    )
    
    
    23,833Materials and supplies
    
    
    (43,252
    )
    
    
    (31,839
    )Prepaid income taxes
    
    
    62,164
    
    
    
    20,987Other current assets
    
    
    (786
    )
    
    
    (11,482
    )Accounts payable
    
    
    (162,226
    )
    
    
    52,737Accrued taxes
    
    
    151,042
    
    
    
    168,596Accrued compensation
    
    
    (56,274
    )
    
    
    (21,770
    )Other current liabilities
    
    
    8,272
    
    
    
    26,533Net cash provided from operating activities
    
    
    856,616
    
    
    
    866,839Investing Activities:Property additions
    
    
    (781,134
    )
    
    
    (583,614
    )Nuclear decommissioning trust fund purchases
    
    
    (366,452
    )
    
    
    (298,870
    )Nuclear decommissioning trust fund sales
    
    
    359,572
    
    
    
    290,171Cost of removal, net of salvage
    
    
    (18,363
    )
    
    
    (16,596
    )Change in construction payables, net of joint owner portion
    
    
    (13,133
    )
    
    
    (42,110
    )Other
    
    
    (7,328
    )
    
    
    833Net cash used for investing activities
    
    
    (826,838
    )
    
    
    (650,186
    )Financing Activities:Increase in notes payable, net
    
    
    371,480
    
    
    
    33,777Proceeds Senior notes
    
    
    
    
    
    
    375,000Capital contributions from parent company
    
    
    265,777
    
    
    
    108,021Pollution control bonds
    
    
    125,845
    
    
    
    185,000Redemptions Senior notes
    
    
    (150,000
    )
    
    
    (300,000
    )First mortgage bonds
    
    
    (20,000
    )
    
    
    Pollution control bonds
    
    
    (125,845
    )
    
    
    (185,000
    )Preferred stock
    
    
    (14,569
    )
    
    
    Payment of preferred stock dividends
    
    
    (2,126
    )
    
    
    (2,406
    )Payment of common stock dividends
    
    
    (472,500
    )
    
    
    (437,100
    )Other
    
    
    (1,891
    )
    
    
    (20,042
    )Net cash used for financing activities
    
    
    (23,829
    )
    
    
    (242,750
    )Net Change in Cash and Cash Equivalents
    
    
    5,949
    
    
    
    (26,097
    )Cash and Cash Equivalents at Beginning of Period
    
    
    11,138
    
    
    
    42,360Cash and Cash Equivalents at End of Period
    
    $
    17,087
    
    
    $
    16,263Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $8,177 and $9,835 capitalized for 2006
and 2005, respectively)
    
    $
    226,368
    
    
    $
    199,555Income taxes (net of refunds)
    
    $
    177,486
    
    
    $
    56,762
  54




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##### Table of Contents



GEORGIA POWER COMPANY
 
  At September 30,
    
    
    At December 31,Assets
    
    2006
    
    
    2005(in thousands)Current Assets:Cash and cash equivalents
    
    $
    17,087
    
    
    $
    11,138Receivables Customer accounts receivable
    
    
    587,479
    
    
    
    447,270Unbilled revenues
    
    
    170,141
    
    
    
    148,526Under recovered regulatory clause revenues
    
    
    499,934
    
    
    
    483,673Other accounts and notes receivable
    
    
    90,121
    
    
    
    112,452Affiliated companies
    
    
    29,598
    
    
    
    81,474Accumulated provision for uncollectible accounts
    
    
    (12,354
    )
    
    
    (9,563
    )Fossil fuel stock, at average cost
    
    
    274,560
    
    
    
    197,754Vacation pay
    
    
    59,853
    
    
    
    59,190Materials and supplies, at average cost
    
    
    378,893
    
    
    
    335,684Prepaid expenses
    
    
    157,312
    
    
    
    73,216Other
    
    
    77,529
    
    
    
    59,373Total current assets
    
    
    2,330,153
    
    
    
    2,000,187Property, Plant, and Equipment:In service
    
    
    21,139,667
    
    
    
    20,636,505Less accumulated provision for depreciation
    
    
    8,274,203
    
    
    
    7,972,91312,865,464
    
    
    
    12,663,592Nuclear fuel, at amortized cost
    
    
    177,829
    
    
    
    134,798Construction work in progress
    
    
    734,598
    
    
    
    584,470Total property, plant, and equipment
    
    
    13,777,891
    
    
    
    13,382,860Other Property and Investments:Equity investments in unconsolidated subsidiaries
    
    
    70,758
    
    
    
    70,664Nuclear decommissioning trusts, at fair value
    
    
    519,155
    
    
    
    486,591Other
    
    
    73,609
    
    
    
    73,271Total other property and investments
    
    
    663,522
    
    
    
    630,526Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    508,482
    
    
    
    512,337Prepaid pension costs
    
    
    466,949
    
    
    
    455,514Deferred under recovered regulatory clause revenues
    
    
    451,759
    
    
    
    343,804Other regulatory assets
    
    
    336,915
    
    
    
    340,938Other
    
    
    252,275
    
    
    
    231,719Total deferred charges and other assets
    
    
    2,016,380
    
    
    
    1,884,312Total Assets
    
    $
    18,787,946
    
    
    $
    17,897,885
  55




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GEORGIA POWER COMPANY
 At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2006
    
    
    2005(in thousands)Current Liabilities:Securities due within one year
    
    $
    302,879
    
    
    $
    188,319Notes payable
    
    
    697,993
    
    
    
    326,513Accounts payable Affiliated
    
    
    190,905
    
    
    
    305,754Other
    
    
    320,404
    
    
    
    379,810Customer deposits
    
    
    150,893
    
    
    
    136,360Accrued taxes Income taxes
    
    
    152,836
    
    
    
    128,560Other
    
    
    223,913
    
    
    
    206,687Dividends payable to parent
    
    
    157,500
    
    
    
    Accrued interest
    
    
    90,428
    
    
    
    92,109Accrued vacation pay
    
    
    48,007
    
    
    
    48,388Accrued compensation
    
    
    89,384
    
    
    
    143,255Other
    
    
    148,327
    
    
    
    132,547Total current liabilities
    
    
    2,573,469
    
    
    
    2,088,302Long-term Debt
    
    
    4,094,375
    
    
    
    4,396,250Long-term Debt Payable to Affiliated Trusts
    
    
    969,073
    
    
    
    969,073Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    3,148,334
    
    
    
    2,849,727Deferred credits related to income taxes
    
    
    157,718
    
    
    
    166,736Accumulated deferred investment tax credits
    
    
    285,308
    
    
    
    295,024Employee benefit obligations
    
    
    452,958
    
    
    
    391,854Asset retirement obligations
    
    
    663,879
    
    
    
    634,932Other cost of removal obligations
    
    
    444,958
    
    
    
    445,189Other regulatory liabilities
    
    
    70,637
    
    
    
    99,385Other
    
    
    76,930
    
    
    
    65,981Total deferred credits and other liabilities
    
    
    5,300,722
    
    
    
    4,948,828Total Liabilities
    
    
    12,937,639
    
    
    
    12,402,453Preferred Stock
    
    
    45,000
    
    
    
    43,909Common Stockholders Equity:Common stock, without par valueAuthorized   September 30, 2006: 20,000,000 shares December 31, 2005: 15,000,000 sharesOutstanding  September 30, 2006: 9,261,500 shares December 31, 2005: 7,761,500 shares
    
    
    398,473
    
    
    
    398,473Paid-in capital
    
    
    2,990,018
    
    
    
    2,717,539Retained earnings
    
    
    2,454,021
    
    
    
    2,372,077Accumulated other comprehensive loss
    
    
    (37,205
    )
    
    
    (36,566
    )Total common stockholders equity
    
    
    5,805,307
    
    
    
    5,451,523Total Liabilities and Stockholders Equity
    
    $
    18,787,946
    
    
    $
    17,897,885
  56




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##### Table of Contents



GEORGIA POWER COMPANY
 
 
 
 OVERVIEW
    RESULTS OF OPERATIONS
 Earnings
   57




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##### Table of Contents



GEORGIA POWER COMPANY
  Increase(Decrease)Third Quarter 2006
    
    Year-to-Date 2006(in thousands)
    
    %
    
    (in thousands)
    
    %Retail
revenues
    
    $
    (30,017
    )
    
    
    (1.5
    )
    
    $
    264,979
    
    
    
    5.7Sales for resale 
non-affiliates
    
    
    (12,673
    )
    
    
    (8.5
    )
    
    
    15,029
    
    
    
    3.9Sales for resale 
affiliates
    
    
    (56,079
    )
    
    
    (41.7
    )
    
    
    (14,225
    )
    
    
    (6.5
    )Other
revenues
    
    
    4,581
    
    
    
    8.3
    
    
    
    19,142
    
    
    
    12.4Fuel
expense
    
    
    35,325
    
    
    
    5.3
    
    
    
    333,921
    
    
    
    23.6Purchased power expense 
non-affiliates
    
    
    (59,863
    )
    
    
    (29.2
    )
    
    
    (38,627
    )
    
    
    (11.8
    )Purchased power expense 
affiliates
    
    
    (57,233
    )
    
    
    (23.5
    )
    
    
    (97,127
    )
    
    
    (14.5
    )Depreciation and
amortization
    
    
    (8,137
    )
    
    
    (6.1
    )
    
    
    (19,614
    )
    
    
    (5.0
    )Taxes other than income
taxes
    
    
    5,018
    
    
    
    6.5
    
    
    
    22,644
    
    
    
    11.1Allowance for equity funds
used during
construction
    
    
    3,286
    
    
    
    72.8
    
    
    
    (3,526
    )
    
    
    (14.8
    )Interest expense, net of
amounts
capitalized
    
    
    3,842
    
    
    
    6.2
    
    
    
    19,092
    
    
    
    11.0Other income (expense), net
    
    
    (5,879
    )
    
    
    (43.1
    )
    
    
    (3,976
    )
    
    
    (29.1
    )Income
taxes
    
    
    (13,722
    )
    
    
    (6.0
    )
    
    
    3,030
    
    
    
    0.7
 Retail revenues
    Third Quarter
    
    Year-to-Date2006
    
    2006(in millions)
    
    % change
    
    (in millions)
    
    % changeRetail  prior year
    
    $
    2,032
    
    
    
    
    
    
    $
    4,620Change in Base rates
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    0.1Sales growth
    
    
    (26
    )
    
    
    (1.3
    )
    
    
    23
    
    
    
    0.5Weather
    
    
    2
    
    
    
    0.1
    
    
    
    20
    
    
    
    0.3Fuel cost recovery
    
    
    (6
    )
    
    
    (0.3
    )
    
    
    219
    
    
    
    4.8Retail  current year
    
    $
    2,002
    
    
    
    (1.5
    )%
    
    $
    4,885
    
    
    
    5.7
    %
 58




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##### Table of Contents



GEORGIA POWER COMPANY
 Sales for resale  non-affiliates
   Sales for resale  affiliates
    Other revenues
  Fuel expense and Purchased power expense
     59




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##### Table of Contents



GEORGIA POWER COMPANY
       Depreciation and amortization
  Taxes other than income taxes
   Allowance for equity funds used during construction
   Interest expense, net of amounts capitalized
   60




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##### Table of Contents



GEORGIA POWER COMPANY
 Other income (expense), net
  Income taxes
   FUTURE EARNINGS POTENTIAL
  Environmental Matters
  New Source Review Reform Rules
  61




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##### Table of Contents



GEORGIA POWER COMPANY
  Fine Particulate Matter Regulations
 2
 Plant Wansley Environmental Litigation
  FERC and Georgia PSC Matters
 Market-Based Rate Authority
 
  62




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##### Table of Contents



GEORGIA POWER COMPANY
   Intercompany Interchange Contract
  
 63




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##### Table of Contents



GEORGIA POWER COMPANY
 Retail Fuel Cost Recovery
  Merger
  Nuclear
  64




---



##### Table of Contents



GEORGIA POWER COMPANY
 Other Matters
     ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  65




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##### Table of Contents



GEORGIA POWER COMPANY
 New Accounting Standards
 Stock Options
  Income Taxes
  Fair Value Measurement
  Pensions and Other Postretirement Plans
  Guidance on Considering the Materiality of Misstatements
 66
    Table of Contents   GEORGIA POWER COMPANY
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
 
  Sources of Capital
   67




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##### Table of Contents



GEORGIA POWER COMPANY
  Credit Rating Risk
  Market Price Risk
    Third Quarter
    
    Year-to-Date2006
    
    2006Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    (25,943
    )
    
    $
    35,310Contracts realized or settled
    
    
    21,474
    
    
    
    27,853New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (33,466
    )
    
    
    (101,098
    )Contracts at September 30, 2006
    
    $
    (37,935
    )
    
    $
    (37,935
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts
entered into during the period. 68




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##### Table of Contents



GEORGIA POWER COMPANY
 Source of September 30, 2006Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    (39,498
    )
    
    $
    (33,244
    )
    
    $
    (6,254
    )External sources
    
    
    1,563
    
    
    
    1,563
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at September
30, 2006
    
    $
    (37,935
    )
    
    $
    (31,681
    )
    
    $
    (6,254
    )
  Amounts(in thousands)Regulatory assets, net
    
    $
    (37,152
    )Accumulated other comprehensive
income
    
    
    Net income
    
    
    (783
    )Total fair value loss
    
    $
    (37,935
    )
   Financing Activities
   69




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GEORGIA POWER COMPANY
      70




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##### Table of Contents



GULF POWER COMPANY
 71




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##### Table of Contents



GULF POWER COMPANY
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    317,591
    
    
    $
    294,267
    
    
    $
    742,564
    
    
    $
    663,659Sales for resale Non-affiliates
    
    
    22,994
    
    
    
    23,321
    
    
    
    64,176
    
    
    
    62,647Affiliates
    
    
    19,323
    
    
    
    14,137
    
    
    
    87,348
    
    
    
    61,180Other revenues
    
    
    13,122
    
    
    
    12,355
    
    
    
    34,706
    
    
    
    32,488Total operating revenues
    
    
    373,030
    
    
    
    344,080
    
    
    
    928,794
    
    
    
    819,974Operating Expenses:Fuel
    
    
    165,774
    
    
    
    118,892
    
    
    
    407,930
    
    
    
    306,336Purchased power Non-affiliates
    
    
    5,837
    
    
    
    12,342
    
    
    
    15,164
    
    
    
    22,408Affiliates
    
    
    28,814
    
    
    
    42,441
    
    
    
    50,941
    
    
    
    59,282Other operations
    
    
    47,210
    
    
    
    45,459
    
    
    
    137,461
    
    
    
    120,376Maintenance
    
    
    13,238
    
    
    
    13,346
    
    
    
    43,952
    
    
    
    47,231Depreciation and amortization
    
    
    22,313
    
    
    
    21,433
    
    
    
    66,679
    
    
    
    63,515Taxes other than income taxes
    
    
    23,333
    
    
    
    21,596
    
    
    
    62,015
    
    
    
    56,873Total operating expenses
    
    
    306,519
    
    
    
    275,509
    
    
    
    784,142
    
    
    
    676,021Operating Income
    
    
    66,511
    
    
    
    68,571
    
    
    
    144,652
    
    
    
    143,953Other Income and (Expense):Interest income
    
    
    1,938
    
    
    
    1,673
    
    
    
    3,488
    
    
    
    2,372Interest expense, net of amounts capitalized
    
    
    (10,031
    )
    
    
    (9,033
    )
    
    
    (29,088
    )
    
    
    (26,284
    )Interest expense to affiliate trusts
    
    
    (1,148
    )
    
    
    (1,148
    )
    
    
    (3,443
    )
    
    
    (3,443
    )Other income (expense), net
    
    
    (324
    )
    
    
    (266
    )
    
    
    (1,221
    )
    
    
    (234
    )Total other income and (expense)
    
    
    (9,565
    )
    
    
    (8,774
    )
    
    
    (30,264
    )
    
    
    (27,589
    )Earnings Before Income Taxes
    
    
    56,946
    
    
    
    59,797
    
    
    
    114,388
    
    
    
    116,364Income taxes
    
    
    21,544
    
    
    
    22,546
    
    
    
    42,896
    
    
    
    42,901Net Income
    
    
    35,402
    
    
    
    37,251
    
    
    
    71,492
    
    
    
    73,463Dividends on Preferred and Preference Stock
    
    
    825
    
    
    
    54
    
    
    
    2,475
    
    
    
    162Net
Income After Dividends on Preferred and Preference Stock
    
    $
    34,577
    
    
    $
    37,197
    
    
    $
    69,017
    
    
    $
    73,301
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred and
Preference Stock
    
    $
    34,577
    
    
    $
    37,197
    
    
    $
    69,017
    
    
    $
    73,301Other comprehensive income (loss):Changes in fair value of qualifying hedges, net of tax
of $(1,382) and $(1,573), respectively
    
    
    (2,201
    )
    
    
    
    
    
    
    (2,505
    )
    
    
    Reclassification adjustment for amounts included in net income,
net of tax of $31, $31, $94, and $94, respectively
    
    
    51
    
    
    
    51
    
    
    
    151
    
    
    
    151COMPREHENSIVE INCOME
    
    $
    32,427
    
    
    $
    37,248
    
    
    $
    66,663
    
    
    $
    73,452
  72




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##### Table of Contents



GULF POWER COMPANY
 
  For the Nine MonthsEnded September 30,2006
    
    
    2005(in thousands)Operating Activities:Net income
    
    $
    71,492
    
    
    $
    73,463Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    70,691
    
    
    
    67,874Deferred income taxes
    
    
    6,392
    
    
    
    34,719Pension, postretirement, and other employee benefits
    
    
    2,783
    
    
    
    952Stock option expense
    
    
    880
    
    
    
    Tax benefit of stock options
    
    
    118
    
    
    
    3,357Other, net
    
    
    3,513
    
    
    
    (2,979
    )Changes in certain current assets and liabilities Receivables
    
    
    (53,771
    )
    
    
    (43,974
    )Fossil fuel stock
    
    
    (26,151
    )
    
    
    (5,812
    )Materials and supplies
    
    
    (3,909
    )
    
    
    1,734Prepaid income taxes
    
    
    (603
    )
    
    
    24,266Property damage cost recovery
    
    
    19,285
    
    
    
    14,333Other current assets
    
    
    909
    
    
    
    6,114Accounts payable
    
    
    14,621
    
    
    
    (39,322
    )Accrued taxes
    
    
    12,972
    
    
    
    12,160Accrued compensation
    
    
    (8,794
    )
    
    
    (4,066
    )Other current liabilities
    
    
    6,918
    
    
    
    1,701Net cash provided from operating activities
    
    
    117,346
    
    
    
    144,520Investing Activities:Property additions
    
    
    (108,524
    )
    
    
    (107,399
    )Cost of removal, net of salvage
    
    
    (3,349
    )
    
    
    (4,586
    )Construction payables
    
    
    (4,212
    )
    
    
    (7,526
    )Other
    
    
    (9,543
    )
    
    
    19Net cash used for investing activities
    
    
    (125,628
    )
    
    
    (119,492
    )Financing Activities:Increase (decrease) in notes payable, net
    
    
    57,241
    
    
    
    (30,000
    )Proceeds Capital contributions from parent company
    
    
    21,140
    
    
    
    (2,258
    )Senior notes
    
    
    
    
    
    
    60,000Gross excess tax benefit of stock options
    
    
    240
    
    
    
    Redemptions First mortgage bonds
    
    
    
    
    
    
    (30,000
    )Pollution control bonds
    
    
    (12,075
    )
    
    
    Payment of preferred and preference stock dividends
    
    
    (2,475
    )
    
    
    (162
    )Payment of common stock dividends
    
    
    (52,725
    )
    
    
    (51,300
    )Other
    
    
    (287
    )
    
    
    (2,802
    )Net cash provided from (used for) financing activities
    
    
    11,059
    
    
    
    (56,522
    )Net Change in Cash and Cash Equivalents
    
    
    2,777
    
    
    
    (31,494
    )Cash and Cash Equivalents at Beginning of Period
    
    
    3,847
    
    
    
    64,829Cash and Cash Equivalents at End of Period
    
    $
    6,624
    
    
    $
    33,335Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $59 and $483 capitalized for 2006 and 2005, respectively)
    
    $
    25,412
    
    
    $
    25,997Income taxes (net of refunds)
    
    $
    36,164
    
    
    $
    (20,889
    )
  73




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GULF POWER COMPANY
 
  At September 30,
    
    
    At December 31,Assets
    
    
    2006
    
    
    2005(in thousands)Current Assets:Cash and cash equivalents
    
    $
    6,624
    
    
    $
    3,847Receivables Customer accounts receivable
    
    
    74,803
    
    
    
    51,567Unbilled revenues
    
    
    41,335
    
    
    
    39,951Under recovered regulatory clause revenues
    
    
    75,594
    
    
    
    33,205Other accounts and notes receivable
    
    
    13,058
    
    
    
    10,533Affiliated companies
    
    
    8,718
    
    
    
    24,001Accumulated provision for uncollectible accounts
    
    
    (1,257
    )
    
    
    (1,134
    )Fossil fuel stock, at average cost
    
    
    70,891
    
    
    
    44,740Materials and supplies, at average cost
    
    
    36,885
    
    
    
    32,976Property damage cost recovery
    
    
    28,416
    
    
    
    28,744Other regulatory assets
    
    
    16,300
    
    
    
    9,895Other
    
    
    6,568
    
    
    
    19,636Total current assets
    
    
    377,935
    
    
    
    297,961Property, Plant, and Equipment:In service
    
    
    2,552,877
    
    
    
    2,502,057Less accumulated provision for depreciation
    
    
    888,033
    
    
    
    865,9891,664,844
    
    
    
    1,636,068Construction work in progress
    
    
    46,098
    
    
    
    28,177Total property, plant, and equipment
    
    
    1,710,942
    
    
    
    1,664,245Other Property and Investments
    
    
    16,280
    
    
    
    6,736Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    16,716
    
    
    
    17,379Prepaid pension costs
    
    
    46,407
    
    
    
    46,374Other regulatory assets
    
    
    103,569
    
    
    
    123,258Other
    
    
    17,537
    
    
    
    19,844Total deferred charges and other assets
    
    
    184,229
    
    
    
    206,855Total Assets
    
    $
    2,289,386
    
    
    $
    2,175,797
  74




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##### Table of Contents



GULF POWER COMPANY
 At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2006
    
    
    2005(in thousands)Current Liabilities:Securities due within one year
    
    $
    25,000
    
    
    $
    37,075Notes payable
    
    
    146,705
    
    
    
    89,465Accounts payable Affiliated
    
    
    48,276
    
    
    
    36,717Other
    
    
    40,618
    
    
    
    44,139Customer deposits
    
    
    20,943
    
    
    
    18,834Accrued taxes Income taxes
    
    
    30,088
    
    
    
    12,823Other
    
    
    24,075
    
    
    
    11,689Accrued interest
    
    
    7,914
    
    
    
    7,713Accrued compensation
    
    
    11,393
    
    
    
    20,336Other regulatory liabilities
    
    
    11,497
    
    
    
    15,671Other
    
    
    31,642
    
    
    
    21,844Total current liabilities
    
    
    398,151
    
    
    
    316,306Long-term Debt
    
    
    544,681
    
    
    
    544,388Long-term Debt Payable to Affiliated Trusts
    
    
    72,166
    
    
    
    72,166Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    245,922
    
    
    
    256,490Accumulated deferred investment tax credits
    
    
    15,171
    
    
    
    16,569Employee benefit obligations
    
    
    59,050
    
    
    
    56,235Other cost of removal obligations
    
    
    162,880
    
    
    
    153,665Other regulatory liabilities
    
    
    23,906
    
    
    
    26,795Other
    
    
    74,912
    
    
    
    76,948Total deferred credits and other liabilities
    
    
    581,841
    
    
    
    586,702Total Liabilities
    
    
    1,596,839
    
    
    
    1,519,562Preference Stock
    
    
    53,887
    
    
    
    53,891Common Stockholders Equity:Common stock, without par valueAuthorized - 20,000,000 sharesOutstanding - 992,717 shares
    
    
    38,060
    
    
    
    38,060Paid-in capital
    
    
    423,193
    
    
    
    400,815Retained earnings
    
    
    182,571
    
    
    
    166,279Accumulated other comprehensive loss
    
    
    (5,164
    )
    
    
    (2,810
    )Total common stockholders equity
    
    
    638,660
    
    
    
    602,344Total Liabilities and Stockholders Equity
    
    $
    2,289,386
    
    
    $
    2,175,797
  75




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GULF POWER COMPANY
 
 
 
 OVERVIEW
    RESULTS OF OPERATIONS
 Earnings
   76




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##### Table of Contents



GULF POWER COMPANY
  Increase (Decrease)Third Quarter 2006
    
    Year-to-Date 2006(in thousands)
    
    %
    
    (in thousands)
    
    %Retail revenues
    
    $
    23,324
    
    
    
    7.9
    
    
    
    78,905
    
    
    
    11.9Sales for resale  affiliates
    
    
    5,186
    
    
    
    36.7
    
    
    
    26,168
    
    
    
    42.8Other revenues
    
    
    767
    
    
    
    6.2
    
    
    
    2,218
    
    
    
    6.8Fuel expense
    
    
    46,882
    
    
    
    39.4
    
    
    
    101,594
    
    
    
    33.2Purchased power  non-affiliates
    
    
    (6,505
    )
    
    
    (52.7
    )
    
    
    (7,244
    )
    
    
    (32.3
    )Purchased power  affiliates
    
    
    (13,627
    )
    
    
    (32.1
    )
    
    
    (8,341
    )
    
    
    (14.1
    )Other operations expense
    
    
    1,751
    
    
    
    3.9
    
    
    
    17,085
    
    
    
    14.2Maintenance expense
    
    
    (108
    )
    
    
    (0.8
    )
    
    
    (3,279
    )
    
    
    (6.9
    )Depreciation and amortization
    
    
    880
    
    
    
    4.1
    
    
    
    3,164
    
    
    
    5.0Taxes other than income taxes
    
    
    1,737
    
    
    
    8.0
    
    
    
    5,142
    
    
    
    9.0Interest expense, net of amounts
capitalized
    
    
    998
    
    
    
    11.0
    
    
    
    2,804
    
    
    
    10.7
 Retail revenues
   77




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GULF POWER COMPANY
  Third Quarter
    
    Year-to-Date2006
    
    2006(in thousands)
    
    % change
    
    (in thousands)
    
    % changeRetail  prior year
    
    $
    294,267
    
    
    
    
    
    
    $
    663,659Change in Sales growth
    
    
    2,345
    
    
    
    0.8
    
    
    
    2,006
    
    
    
    0.3Weather
    
    
    (3,902
    )
    
    
    (1.3
    )
    
    
    4,088
    
    
    
    0.6Fuel cost recovery
    
    
    15,276
    
    
    
    5.2
    
    
    
    49,217
    
    
    
    7.4Other cost recovery
    
    
    9,605
    
    
    
    3.2
    
    
    
    23,594
    
    
    
    3.6Retail  current year
    
    $
    317,591
    
    
    
    7.9
    %
    
    $
    742,564
    
    
    
    11.9
    %
 Sales for resale  affiliates
   Other revenues
  Fuel expense
   Purchased power  non-affiliates
    78




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##### Table of Contents



GULF POWER COMPANY
 Purchased power  affiliates
    Other operations expense
  Maintenance expense
   Depreciation and amortization
  Taxes other than income taxes
  Interest expense, net of amounts capitalized
  FUTURE EARNINGS POTENTIAL
  79




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##### Table of Contents



GULF POWER COMPANY
  Environmental Matters
  New Source Review Reform Rules
  Fine Particulate Matter Regulations
 2
 FERC and Florida PSC Matters
 Market-Based Rate Authority
 
 80




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##### Table of Contents



GULF POWER COMPANY
    Intercompany Interchange Contract
   81




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##### Table of Contents



GULF POWER COMPANY
 
 Storm Damage Cost Recovery
        82




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##### Table of Contents



GULF POWER COMPANY
  Fuel Cost Recovery
  Other Matters
    ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  83




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##### Table of Contents



GULF POWER COMPANY
  New Accounting Standards
 Stock Options
  Income Taxes
  Fair Value Measurement
  Pensions and Other Postretirement Plans
  Guidance on Considering the Materiality of Misstatements
  84




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##### Table of Contents



GULF POWER COMPANY
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
 
 Sources of Capital
 
  85




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##### Table of Contents



GULF POWER COMPANY
  Credit Rating Risk
  Market Price Risk
    Third Quarter
    
    Year-to-Date2006
    
    2006Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    (6,033
    )
    
    $
    11,526Contracts realized or settled
    
    
    5,809
    
    
    
    5,784New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (7,022
    )
    
    
    (24,556
    )Contracts at September 30, 2006
    
    $
    (7,246
    )
    
    $
    (7,246
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts
entered into during the period.
 86




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##### Table of Contents



GULF POWER COMPANY
 Source of September 30, 2006Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    (7,489
    )
    
    $
    (6,056
    )
    
    $
    (1,433
    )External sources
    
    
    243
    
    
    
    243
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at September
30, 2006
    
    $
    (7,246
    )
    
    $
    (5,813
    )
    
    $
    (1,433
    )
  Amounts(in thousands)Regulatory assets, net
    
    $
    (7,124
    )Accumulated other comprehensive
income
    
    
    Net income
    
    
    (122
    )Total fair value loss
    
    $
    (7,246
    )
   Financing Activities
   87




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MISSISSIPPI POWER COMPANY
 88




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    200,873
    
    
    $
    176,288
    
    
    $
    505,382
    
    
    $
    474,679Sales for resale Non-affiliates
    
    
    76,523
    
    
    
    82,960
    
    
    
    204,451
    
    
    
    210,272Affiliates
    
    
    29,541
    
    
    
    14,606
    
    
    
    52,094
    
    
    
    43,526Other revenues
    
    
    3,810
    
    
    
    4,053
    
    
    
    12,681
    
    
    
    13,222Total operating revenues
    
    
    310,747
    
    
    
    277,907
    
    
    
    774,608
    
    
    
    741,699Operating Expenses:Fuel
    
    
    147,979
    
    
    
    88,961
    
    
    
    330,628
    
    
    
    270,639Purchased power Non-affiliates
    
    
    5,793
    
    
    
    12,896
    
    
    
    15,110
    
    
    
    23,525Affiliates
    
    
    8,851
    
    
    
    43,981
    
    
    
    45,268
    
    
    
    78,504Other operations
    
    
    43,204
    
    
    
    40,515
    
    
    
    121,615
    
    
    
    119,749Maintenance
    
    
    16,122
    
    
    
    15,619
    
    
    
    49,897
    
    
    
    52,840Depreciation and amortization
    
    
    10,586
    
    
    
    8,320
    
    
    
    34,908
    
    
    
    24,572Taxes other than income taxes
    
    
    15,997
    
    
    
    15,640
    
    
    
    45,847
    
    
    
    44,932Total operating expenses
    
    
    248,532
    
    
    
    225,932
    
    
    
    643,273
    
    
    
    614,761Operating Income
    
    
    62,215
    
    
    
    51,975
    
    
    
    131,335
    
    
    
    126,938Other Income and (Expense):Interest income
    
    
    2,831
    
    
    
    120
    
    
    
    2,902
    
    
    
    186Interest expense
    
    
    (3,644
    )
    
    
    (2,751
    )
    
    
    (12,156
    )
    
    
    (6,874
    )Interest expense to affiliate trusts
    
    
    (649
    )
    
    
    (649
    )
    
    
    (1,948
    )
    
    
    (1,948
    )Other income (expense), net
    
    
    (1,291
    )
    
    
    (2,371
    )
    
    
    1,202
    
    
    
    (1,725
    )Total other income and (expense)
    
    
    (2,753
    )
    
    
    (5,651
    )
    
    
    (10,000
    )
    
    
    (10,361
    )Earnings Before Income Taxes
    
    
    59,462
    
    
    
    46,324
    
    
    
    121,335
    
    
    
    116,577Income taxes
    
    
    22,391
    
    
    
    17,647
    
    
    
    45,350
    
    
    
    44,455Net Income
    
    
    37,071
    
    
    
    28,677
    
    
    
    75,985
    
    
    
    72,122Dividends on Preferred Stock
    
    
    433
    
    
    
    433
    
    
    
    1,299
    
    
    
    1,299Net Income After Dividends on Preferred Stock
    
    $
    36,638
    
    
    $
    28,244
    
    
    $
    74,686
    
    
    $
    70,823
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred Stock
    
    $
    36,638
    
    
    $
    28,244
    
    
    $
    74,686
    
    
    $
    70,823Other comprehensive income (loss):Changes in fair value of qualifying hedges, net of tax
of $106, $(1,043), $310, and $(1,168), respectively
    
    
    171
    
    
    
    (1,682
    )
    
    
    501
    
    
    
    (1,885
    )COMPREHENSIVE INCOME
    
    $
    36,809
    
    
    $
    26,562
    
    
    $
    75,187
    
    
    $
    68,938
  89




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MISSISSIPPI POWER COMPANY
 
  For the Nine MonthsEnded September 30,2006
    
    
    2005(in thousands)Operating Activities:Net income
    
    $
    75,985
    
    
    $
    72,122Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    50,835
    
    
    
    46,888Deferred income taxes and investment tax credits, net
    
    
    34,853
    
    
    
    87,640Plant Daniel capacity
    
    
    (9,756
    )
    
    
    (18,844
    )Pension, postretirement, and other employee benefits
    
    
    4,527
    
    
    
    1,899Stock option expense
    
    
    957
    
    
    
    Tax benefit of stock options
    
    
    71
    
    
    
    3,715Other, net
    
    
    (3,583
    )
    
    
    (910
    )Changes in certain current assets and liabilities Receivables
    
    
    24,714
    
    
    
    (73,225
    )Fossil fuel stock
    
    
    4,591
    
    
    
    (12,980
    )Materials and supplies
    
    
    (387
    )
    
    
    (2,911
    )Other current assets
    
    
    31,046
    
    
    
    (33,009
    )Hurricane Katrina accounts payable
    
    
    (42,418
    )
    
    
    Other accounts payable
    
    
    (43,375
    )
    
    
    14,104Accrued taxes
    
    
    11,601
    
    
    
    (6,800
    )Accrued compensation
    
    
    (8,703
    )
    
    
    (11,098
    )Over recovered regulatory clause revenues
    
    
    (26,188
    )
    
    
    11,717Other current liabilities
    
    
    (1,682
    )
    
    
    6,176Net cash provided from operating activities
    
    
    103,088
    
    
    
    84,484Investing Activities:Property additions
    
    
    (106,490
    )
    
    
    (51,972
    )Cost of removal, net of salvage
    
    
    (2,866
    )
    
    
    (1,257
    )Other
    
    
    (13,207
    )
    
    
    (6,765
    )Net cash used for investing activities
    
    
    (122,563
    )
    
    
    (59,994
    )Financing Activities:Increase in notes payable, net
    
    
    83,283
    
    
    
    22,753Proceeds Senior notes
    
    
    
    
    
    
    30,000Gross excess tax benefit of stock options
    
    
    90
    
    
    
    Redemptions  First mortgage bonds
    
    
    
    
    
    
    (30,000
    )Special deposits  Redemption fund
    
    
    
    
    
    
    (2,482
    )Capital distributions to parent company
    
    
    (2,378
    )
    
    
    Payment of preferred stock dividends
    
    
    (1,299
    )
    
    
    (1,299
    )Payment of common stock dividends
    
    
    (48,900
    )
    
    
    (46,500
    )Net cash provided from (used for) financing activities
    
    
    30,796
    
    
    
    (27,528
    )Net Change in Cash and Cash Equivalents
    
    
    11,321
    
    
    
    (3,038
    )Cash and Cash Equivalents at Beginning of Period
    
    
    14,301
    
    
    
    6,945Cash and Cash Equivalents at End of Period
    
    $
    25,622
    
    
    $
    3,907Supplemental Cash Flow Information:Cash paid during the period for Interest
    
    $
    23,257
    
    
    $
    9,314Income taxes (net of refunds)
    
    $
    (43,365
    )
    
    $
    (13,948
    )
  90




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 
  At September 30,
    
    
    At December 31,Assets
    
    2006
    
    
    2005(in thousands)Current Assets:Cash and cash equivalents
    
    $
    25,622
    
    
    $
    14,301Receivables Customer accounts receivable
    
    
    50,487
    
    
    
    36,747Unbilled revenues
    
    
    25,618
    
    
    
    20,267Under recovered regulatory clause revenues
    
    
    68,180
    
    
    
    105,505Other accounts and notes receivable
    
    
    7,175
    
    
    
    21,507Insurance receivable
    
    
    19,389
    
    
    
    60,163Affiliated companies
    
    
    35,279
    
    
    
    19,595Accumulated provision for uncollectible accounts
    
    
    (999
    )
    
    
    (2,321
    )Fossil fuel stock, at average cost
    
    
    45,853
    
    
    
    50,444Materials and supplies, at average cost
    
    
    29,064
    
    
    
    28,678Prepaid income taxes
    
    
    7,514
    
    
    
    42,278Other regulatory assets
    
    
    34,095
    
    
    
    23,042Other
    
    
    14,731
    
    
    
    25,160Total current assets
    
    
    362,008
    
    
    
    445,366Property, Plant, and Equipment:In service
    
    
    2,034,422
    
    
    
    1,987,294Less accumulated provision for depreciation
    
    
    836,961
    
    
    
    803,7541,197,461
    
    
    
    1,183,540Construction work in progress
    
    
    54,508
    
    
    
    52,225Total property, plant, and equipment
    
    
    1,251,969
    
    
    
    1,235,765Other Property and Investments
    
    
    7,158
    
    
    
    6,821Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    9,395
    
    
    
    9,863Prepaid pension costs
    
    
    15,645
    
    
    
    17,264Deferred property damage
    
    
    264,345
    
    
    
    209,324Other
    
    
    46,083
    
    
    
    56,866Total deferred charges and other assets
    
    
    335,468
    
    
    
    293,317Total Assets
    
    $
    1,956,603
    
    
    $
    1,981,269
  91




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2006
    
    
    2005(in thousands)Current Liabilities:Notes payable
    
    $
    285,407
    
    
    $
    202,124Accounts payable Affiliated
    
    
    26,577
    
    
    
    122,899Other
    
    
    59,793
    
    
    
    89,598Customer deposits
    
    
    8,377
    
    
    
    7,298Accrued taxes Income taxes
    
    
    36,879
    
    
    
    17,736Other
    
    
    40,645
    
    
    
    48,296Accrued interest
    
    
    2,883
    
    
    
    3,408Accrued compensation
    
    
    15,884
    
    
    
    24,587Over recovered regulatory clause revenues
    
    
    
    
    
    
    26,188Plant Daniel capacity
    
    
    7,496
    
    
    
    13,008Other
    
    
    30,692
    
    
    
    40,334Total current liabilities
    
    
    514,633
    
    
    
    595,476Long-term Debt
    
    
    242,551
    
    
    
    242,548Long-term Debt Payable to Affiliated Trusts
    
    
    36,082
    
    
    
    36,082Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    302,514
    
    
    
    266,629Deferred credits related to income taxes
    
    
    17,804
    
    
    
    19,003Accumulated deferred investment tax credits
    
    
    16,574
    
    
    
    17,465Employee benefit obligations
    
    
    61,226
    
    
    
    58,318Other cost of removal obligations
    
    
    86,995
    
    
    
    81,284Other regulatory liabilities
    
    
    2,550
    
    
    
    13,755Other
    
    
    56,706
    
    
    
    56,769Total deferred credits and other liabilities
    
    
    544,369
    
    
    
    513,223Total Liabilities
    
    
    1,337,635
    
    
    
    1,387,329Preferred 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
    
    
    298,276
    
    
    
    299,536Retained earnings
    
    
    253,488
    
    
    
    227,701Accumulated other comprehensive loss
    
    
    (3,267
    )
    
    
    (3,768
    )Total common stockholders equity
    
    
    586,188
    
    
    
    561,160Total Liabilities and Stockholders Equity
    
    $
    1,956,603
    
    
    $
    1,981,269
  92




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MISSISSIPPI POWER COMPANY
 
      OVERVIEW
   RESULTS OF OPERATIONS
 Earnings
   93




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  Increase (Decrease)Third Quarter 2006
    
    Year-to-Date 2006(in thousands)
    
    %
    
    (in thousands)
    
    %Retail
revenues
    
    $
    24,585
    
    
    
    13.9
    
    
    $
    30,703
    
    
    
    6.5Sales for resale  non-affiliates
    
    
    (6,437
    )
    
    
    (7.8
    )
    
    
    (5,821
    )
    
    
    (2.8
    )Sales for resale  affiliates
    
    
    14,935
    
    
    
    102.3
    
    
    
    8,568
    
    
    
    19.7Fuel
expense
    
    
    59,018
    
    
    
    66.3
    
    
    
    59,989
    
    
    
    22.2Purchased power expense  non-affiliates
    
    
    (7,103
    )
    
    
    (55.1
    )
    
    
    (8,415
    )
    
    
    (35.8
    )Purchased power expense  affiliates
    
    
    (35,130
    )
    
    
    (79.9
    )
    
    
    (33,236
    )
    
    
    (42.3
    )Other operations expense
    
    
    2,689
    
    
    
    6.6
    
    
    
    1,866
    
    
    
    1.6Maintenance expense
    
    
    503
    
    
    
    3.2
    
    
    
    (2,943
    )
    
    
    (5.6
    )Depreciation and amortization
    
    
    2,266
    
    
    
    27.2
    
    
    
    10,336
    
    
    
    42.1Interest income
    
    
    2,711
    
    
    
    N/M
    
    
    
    2,716
    
    
    
    N/MInterest
expense
    
    
    893
    
    
    
    32.5
    
    
    
    5,282
    
    
    
    76.8Other income (expense), net
    
    
    1,080
    
    
    
    45.6
    
    
    
    2,927
    
    
    
    169.7Income
taxes
    
    
    4,744
    
    
    
    26.9
    
    
    
    895
    
    
    
    2.0
 
  Retail revenues
    Third Quarter
    
    Year-to-Date2006
    
    2006(in thousands)
    
    % change
    
    (in thousands)
    
    % changeRetail  prior year
    
    $
    176,288
    
    
    
    
    
    
    $
    474,679Change in Base rates
    
    
    9,432
    
    
    
    5.3
    
    
    
    19,160
    
    
    
    4.1Sales growth and weather
    
    
    6,727
    
    
    
    3.8
    
    
    
    (3,781
    )
    
    
    (0.8
    )Fuel cost recovery
    
    
    8,041
    
    
    
    4.6
    
    
    
    15,151
    
    
    
    3.2Other cost recovery
    
    
    385
    
    
    
    0.2
    
    
    
    173
    
    
    
    Retail  current year
    
    $
    200,873
    
    
    
    13.9
    %
    
    $
    505,382
    
    
    
    6.5
    %
 94




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Sales for resale  non-affiliates
   Sales for resale affiliates
   Fuel expense and Purchased power expense
        Other operations
  95




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  Maintenance expense
   Depreciation and amortization
  Interest income
  Interest expense
   Other income (expense), net
   Income taxes
  FUTURE EARNINGS POTENTIAL
  96




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MISSISSIPPI POWER COMPANY
  Environmental Matters
  New Source Review Reform Rules
  FERC and Mississippi PSC Matters
 Market-Based Rate Authority
 
 97




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MISSISSIPPI POWER COMPANY
   Intercompany Interchange Contract
   98




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Storm Damage Cost Recovery
     99




---



##### Table of Contents



MISSISSIPPI POWER COMPANY
 Retail Regulatory Matters
   Fuel Cost Recovery
  Other Matters
   ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  100




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  New Accounting Standards
 Stock Options
  Income Taxes
  Fair Value Measurement
  Pensions and Other Postretirement Plans
  101




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MISSISSIPPI POWER COMPANY
 Guidance on Considering the Materiality of Misstatements
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
  Sources of Capital
   102




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MISSISSIPPI POWER COMPANY
  Off-Balance Sheet Financing Arrangements
  Credit Rating Risk
  Market Price Risk
    Third Quarter
    
    Year-to-Date2006
    
    2006Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    1,572
    
    
    $
    27,106Contracts realized or settled
    
    
    2,066
    
    
    
    (2,309
    )New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (9,021
    )
    
    
    (30,180
    )Contracts at September 30, 2006
    
    $
    (5,383
    )
    
    $
    (5,383
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts
entered into during the period.
 103




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Source of September 30, 2006Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    (5,922
    )
    
    $
    (4,120
    )
    
    $
    (1,802
    )External sources
    
    
    539
    
    
    
    539
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at September
30, 2006
    
    $
    (5,383
    )
    
    $
    (3,581
    )
    
    $
    (1,802
    )
  Amounts(in thousands)Regulatory assets, net
    
    $
    (5,759
    )Accumulated other comprehensive
income
    
    
    499Net income
    
    
    (123
    )Total fair value loss
    
    $
    (5,383
    )
   Financing Activities
  104




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SOUTHERN POWER COMPANYAND SUBSIDIARY COMPANIES
 105




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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 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Operating Revenues:Sales for resale Non-affiliates
    
    $
    104,097
    
    
    $
    85,327
    
    
    $
    218,709
    
    
    $
    165,134Affiliates
    
    
    163,764
    
    
    
    179,950
    
    
    
    381,034
    
    
    
    401,504Other revenues
    
    
    2,170
    
    
    
    334
    
    
    
    3,756
    
    
    
    1,020Total operating revenues
    
    
    270,031
    
    
    
    265,611
    
    
    
    603,499
    
    
    
    567,658Operating Expenses:Fuel
    
    
    62,989
    
    
    
    82,202
    
    
    
    117,493
    
    
    
    143,476Purchased power Non-affiliates
    
    
    16,412
    
    
    
    20,611
    
    
    
    43,067
    
    
    
    40,245Affiliates
    
    
    48,403
    
    
    
    40,960
    
    
    
    94,172
    
    
    
    78,073Other operations
    
    
    17,810
    
    
    
    15,390
    
    
    
    52,109
    
    
    
    41,923Maintenance
    
    
    4,333
    
    
    
    4,041
    
    
    
    15,737
    
    
    
    12,239Depreciation and amortization
    
    
    16,943
    
    
    
    14,171
    
    
    
    47,514
    
    
    
    40,063Taxes other than income taxes
    
    
    3,838
    
    
    
    3,681
    
    
    
    11,299
    
    
    
    9,728Total operating expenses
    
    
    170,728
    
    
    
    181,056
    
    
    
    381,391
    
    
    
    365,747Operating Income
    
    
    99,303
    
    
    
    84,555
    
    
    
    222,108
    
    
    
    201,911Other Income and (Expense):Interest expense, net of amounts capitalized
    
    
    (19,503
    )
    
    
    (20,294
    )
    
    
    (60,501
    )
    
    
    (59,473
    )Other income (expense), net
    
    
    (2,216
    )
    
    
    (100
    )
    
    
    1,086
    
    
    
    194Total other income and (expense)
    
    
    (21,719
    )
    
    
    (20,394
    )
    
    
    (59,415
    )
    
    
    (59,279
    )Earnings Before Income Taxes
    
    
    77,584
    
    
    
    64,161
    
    
    
    162,693
    
    
    
    142,632Income taxes
    
    
    31,713
    
    
    
    24,934
    
    
    
    65,101
    
    
    
    55,098Net Income
    
    $
    45,871
    
    
    $
    39,227
    
    
    $
    97,592
    
    
    $
    87,534CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Net Income
    
    $
    45,871
    
    
    $
    39,227
    
    
    $
    97,592
    
    
    $
    87,534Other comprehensive income (loss):Changes in fair value of qualifying hedges, net of tax
of $(3,929), $33, $(2,960), and $83, respectively
    
    
    (6,019
    )
    
    
    54
    
    
    
    (4,516
    )
    
    
    126Reclassification adjustment for amounts included in net income,
net of tax of $422, $985, $2,659, and $3,076, respectively
    
    
    2,806
    
    
    
    1,537
    
    
    
    6,274
    
    
    
    4,769COMPREHENSIVE INCOME
    
    $
    42,658
    
    
    $
    40,818
    
    
    $
    99,350
    
    
    $
    92,429
  106




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 
  For the Nine MonthsEnded September 30,2006
    
    
    2005(in thousands)Operating Activities:Net income
    
    $
    97,592
    
    
    $
    87,534Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    57,802
    
    
    
    50,708Deferred income taxes and investment tax credits, net
    
    
    7,786
    
    
    
    9,208Deferred revenues
    
    
    32,433
    
    
    
    26,672Tax benefit of stock options
    
    
    
    
    
    
    693Other, net
    
    
    4,518
    
    
    
    (1,527
    )Changes in certain current assets and liabilities Receivables
    
    
    (2,236
    )
    
    
    (69,872
    )Fossil fuel stock
    
    
    (496
    )
    
    
    (4,173
    )Materials and supplies
    
    
    4,116
    
    
    
    (2,623
    )Other current assets
    
    
    40,296
    
    
    
    12,156Accounts payable
    
    
    (39,327
    )
    
    
    30,571Accrued taxes
    
    
    10,371
    
    
    
    41,355Accrued interest
    
    
    (14,812
    )
    
    
    (15,135
    )Net cash provided from operating activities
    
    
    198,043
    
    
    
    165,567Investing Activities:Property additions
    
    
    (457,313
    )
    
    
    (244,963
    )Sale of property to affiliate
    
    
    15,674
    
    
    
    Other
    
    
    (9,548
    )
    
    
    (92
    )Net cash used for investing activities
    
    
    (451,187
    )
    
    
    (245,055
    )Financing Activities:Increase in notes payable, net
    
    
    216,268
    
    
    
    102,164Proceeds  Capital contributions
    
    
    105,000
    
    
    
    721Redemptions  Other long term debt
    
    
    (200
    )
    
    
    (200
    )Payment of common stock dividends
    
    
    (58,275
    )
    
    
    (36,200
    )Other
    
    
    (366
    )
    
    
    (958
    )Net cash provided from financing activities
    
    
    262,427
    
    
    
    65,527Net Change in Cash and Cash Equivalents
    
    
    9,283
    
    
    
    (13,961
    )Cash and Cash Equivalents at Beginning of Period
    
    
    27,631
    
    
    
    25,241Cash and Cash Equivalents at End of Period
    
    $
    36,914
    
    
    $
    11,280Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $2,709 and $0 capitalized for 2006 and 2005, respectively)
    
    $
    64,786
    
    
    $
    63,692Income taxes (net of refunds)
    
    $
    16,057
    
    
    $
    6,614
  107




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 
  At September 30,
    
    
    At December 31,Assets
    
    2006
    
    
    2005(in thousands)Current Assets:Cash and cash equivalents
    
    $
    36,914
    
    
    $
    27,631Receivables Customer accounts receivable
    
    
    21,925
    
    
    
    20,953Other accounts receivable
    
    
    195
    
    
    
    93Affiliated companies
    
    
    60,584
    
    
    
    60,505Fossil fuel stock, at average cost
    
    
    11,134
    
    
    
    7,221Materials and supplies, at average cost
    
    
    19,452
    
    
    
    15,628Prepaid service agreements  current
    
    
    40,414
    
    
    
    6,178Other prepaid expenses
    
    
    3,598
    
    
    
    4,610Other
    
    
    660
    
    
    
    251Total current assets
    
    
    194,876
    
    
    
    143,070Property, Plant, and Equipment:In service
    
    
    2,429,934
    
    
    
    2,030,996Less accumulated provision for depreciation
    
    
    201,637
    
    
    
    161,3582,228,297
    
    
    
    1,869,638Construction work in progress
    
    
    231,677
    
    
    
    218,812Total property, plant, and equipment
    
    
    2,459,974
    
    
    
    2,088,450Deferred Charges and Other Assets:Prepaid long-term service agreements
    
    
    37,738
    
    
    
    46,447OtherAffiliated
    
    
    4,564
    
    
    
    4,496Other
    
    
    18,094
    
    
    
    20,513Total deferred charges and other assets
    
    
    60,396
    
    
    
    71,456Total Assets
    
    $
    2,715,246
    
    
    $
    2,302,976
  108




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2006
    
    
    2005(in thousands)Current Liabilities:Securities due within one year
    
    $
    1,209
    
    
    $
    200Notes payable
    
    
    326,960
    
    
    
    110,692Accounts payable Affiliated
    
    
    29,679
    
    
    
    65,262Other
    
    
    4,192
    
    
    
    7,651Accrued taxes Income taxes
    
    
    44,367
    
    
    
    3,477Other
    
    
    14,074
    
    
    
    2,524Accrued interest
    
    
    14,350
    
    
    
    29,161Other
    
    
    7,519
    
    
    
    71Total current liabilities
    
    
    442,350
    
    
    
    219,038Long-term Debt
    
    
    1,098,540
    
    
    
    1,099,520Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    77,095
    
    
    
    68,535Deferred capacity revenues  Affiliated
    
    
    62,598
    
    
    
    37,534OtherAffiliated
    
    
    8,944
    
    
    
    10,792Other
    
    
    13,300
    
    
    
    1,214Total deferred credits and other liabilities
    
    
    161,937
    
    
    
    118,075Total Liabilities
    
    
    1,702,827
    
    
    
    1,436,633Common Stockholders Equity:Common stock, par value $.01 per share Authorized - 1,000,000 sharesOutstanding - 1,000 shares
    
    
    
    
    
    
    Paid-in capital
    
    
    851,244
    
    
    
    746,243Retained earnings
    
    
    203,842
    
    
    
    164,525Accumulated other comprehensive loss
    
    
    (42,667
    )
    
    
    (44,425
    )Total common stockholders equity
    
    
    1,012,419
    
    
    
    866,343Total Liabilities and Stockholders Equity
    
    $
    2,715,246
    
    
    $
    2,302,976
  109




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 
 
 
 OVERVIEW
 -
  RESULTS OF OPERATIONS
 Earnings
   110




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
  Increase (Decrease)Third Quarter 2006
    
    Year-to-Date 2006(in thousands)
    
    %
    
    (in thousands)
    
    %Sales for
resale -
non-affiliates
    
    $
    18,770
    
    
    
    22.0
    
    
    $
    53,575
    
    
    
    32.4Sales for resale -
affiliates
    
    
    (16,186
    )
    
    
    (9.0
    )
    
    
    (20,470
    )
    
    
    (5.1
    )Fuel
expense
    
    
    (19,213
    )
    
    
    (23.4
    )
    
    
    (25,983
    )
    
    
    (18.1
    )Purchased power
expense -
non-affiliates
    
    
    (4,199
    )
    
    
    (20.4
    )
    
    
    2,822
    
    
    
    7.0Purchased power
expense -
affiliates
    
    
    7,443
    
    
    
    18.2
    
    
    
    16,099
    
    
    
    20.6Other operations
expense
    
    
    2,420
    
    
    
    15.7
    
    
    
    10,186
    
    
    
    24.3Maintenance
expense
    
    
    292
    
    
    
    7.2
    
    
    
    3,498
    
    
    
    28.6Depreciation and
amortization
expense
    
    
    2,772
    
    
    
    19.6
    
    
    
    7,451
    
    
    
    18.6Income
taxes
    
    
    6,779
    
    
    
    27.2
    
    
    
    10,003
    
    
    
    18.2
 Sales for resale affiliates and Sales for resale non-affiliates
   Fuel expense
   Purchased power expense  affiliates and Purchased power expense  non-affiliates
  111




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 Other operations expense
   Maintenance expense
  Depreciation and amortization expense
   Income tax expense
  FUTURE EARNINGS POTENTIAL
  112




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##### Table of Contents



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




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
  . 
 Franklin Unit 3 Construction Activities
  Plant Acquisitions
   114




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
  Power Sales Agreements
    Other Matters
    115




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
   ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
 
 New Accounting Standards
 Income Taxes
  Fair Value Measurement
  Guidance on Considering the Materiality of Misstatements
  116




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
  Sources of Capital
   117




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 Credit Rating Risk
  Market Price Risk
     Third Quarter
    
    Year-to-Date2006
    
    2006Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    4,395
    
    
    $
    223Contracts realized or settled
    
    
    (4,235
    )
    
    
    (4,706
    )New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    301
    
    
    
    4,944Contracts at September 30, 2006
    
    $
    461
    
    
    $
    461
 118




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered
into during the period.
 Source of September 30, 2006Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    210
    
    
    $
    221
    
    
    $
    (11
    )External sources
    
    
    251
    
    
    
    251
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at September 30, 2006
    
    $
    461
    
    
    $
    472
    
    
    $
    (11
    )
   Amounts(in thousands)Net Income
    
    $
    264Accumulated other comprehensive income
    
    
    197Total fair value gain
    
    $
    461
  Financing Activities
  119




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##### Table of Contents



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




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 NOTES TO THE CONDENSED FINANCIAL STATEMENTS:
 (A)
    
    The condensed quarterly financial statements of the registrants included herein have
been prepared by each registrant, without audit, pursuant to the rules and regulations of
the SEC. The condensed balance sheets as of December 31, 2005 have been derived from the
audited financial statements. In the opinion of each registrants management, the
information regarding such registrant furnished herein reflects all adjustments necessary
to present fairly the results of operations for the periods ended September 30, 2006 and
2005. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to such rules and regulations,
although each registrant believes that the disclosures regarding such registrant are
adequate to make the information presented not misleading. Disclosure which would
substantially duplicate the disclosure in the Form 10-K and details which have not changed
significantly in amount or composition since the filing of the Form 10-K are omitted from
this Quarterly Report on Form 10-Q. Therefore, these condensed financial statements should
be read in conjunction with the financial statements and the notes thereto included in the
Form 10-K. Certain prior period amounts have been reclassified to conform to current
period presentation. Due to seasonal variations in the demand for energy, operating
results for the periods presented do not necessarily indicate operating results for the
entire year.(B)
    
    See Note 3 to the financial statements of Southern Company and the retail operating
companies and Note 2 to the financial statements of Southern Power in Item 8 of the Form
10-K for information relating to various lawsuits and other contingencies.NEW SOURCE REVIEW ACTIONSNew Source Review LitigationSee MANAGEMENTS DISCUSSION AND ANALYSIS  FUTURE EARNINGS POTENTIAL  Environmental
Matters  New Source Review Actions of Southern Company and Alabama Power in Item 7 and
Note 3 to the financial statements of Southern Company and Alabama Power under
Environmental Matters  New Source Review Actions in Item 8 of the Form 10-K for
additional information regarding a civil action brought by the EPA alleging that Alabama
Power had violated the NSR provisions of the Clean Air Act and related state laws with
respect to certain of its coal-fired generating facilities. On June 19, 2006, the U.S.
District Court for the Northern District of Alabama entered a consent decree between Alabama
Power and the EPA, resolving alleged NSR violations at Plant Miller. The consent decree
required Alabama Power to pay $100,000 to resolve the governments claim for a civil penalty
and donate $4.9 million of sulfur dioxide emission allowances to a nonprofit charitable
organization. As a result, Alabama Power has recognized $5 million in other income
(expense), net related to the consent decree. The consent decree also formalizes specific
emissions reductions to be accomplished by Alabama Power, consistent with other Clean Air
Act programs that require emissions reductions. On August 14, 2006, the district court
granted Alabama Powers motion for summary judgment and entered a final judgment in favor of
Alabama Power on the EPAs claims related to Plants Barry, Gaston, Gorgas, and Greene
County, based on the district courts previous ruling regarding the correct legal tests and
stipulations entered between the parties. The plaintiffs have appealed this decision to the
U.S. Court of Appeals for the Eleventh Circuit. The final resolution of
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 these claims is dependent on these appeals and possible further court action and, therefore,
cannot be determined at this time.New Source Review Reform RulesOn March 17, 2006, the U.S. Court of Appeals for the District of Columbia Circuit vacated
the EPAs October 2003 proposed rule which sought to clarify the scope of the existing
Routine Maintenance, Repair, and Replacement Exclusion. Because this rule was not yet in
effect, the courts ruling is not anticipated to have any impact on Southern Company or its
subsidiaries. In September 2006, the EPA also proposed additional rules intended to clarify
the test for determining when an emissions increase subject to the NSR permitting
requirements has occurred. The potential impact of these proposed rules will depend on the
adoption of final rules by the EPA.PLANT WANSLEY ENVIRONMENTAL LITIGATIONOn March 30, 2006, the U.S. Court of Appeals for the Eleventh Circuit ruled in favor of
Georgia Power on its appeal and reversed the district courts order regarding certain
alleged opacity violations at Plant Wansley. The court of appeals remanded the case to the
U.S. District Court for the Northern District of Georgia for further proceedings consistent
with its decision. The ultimate outcome of this matter cannot now be determined. See 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.BIRMINGHAM AREA EIGHT-HOUR OZONE ATTAINMENT REDESIGNATIONOn May 12, 2006, the EPA published a final rule approving the State of Alabamas request to
redesignate the Birmingham eight-hour ozone nonattainment area to attainment under the
standard. The EPA also approved a revision to the Alabama state implementation plan,
containing a maintenance plan to ensure the areas continued compliance with the standard
and to address any future exceedances of the standard. The EPAs redesignation
determination became effective on June 12, 2006.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 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.Mirant Bankruptcy LitigationSee Note 3 to the financial statements of Southern Company under Mirant Matters  Mirant
Bankruptcy Litigation in Item 8 of the Form 10-K for information regarding the complaint
filed in June 2005 against Southern Company alleging fraudulent activities and payments of
illegal dividends prior to the spin-off. In May 2006, Southern Company filed a motion for
summary judgment on all claims in the case. The ultimate outcome of this matter cannot be
determined at this time.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 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. In March
2006, the plaintiffs filed a Motion for Reconsideration requesting that the court vacate
that portion of its July 2003 order dismissing the plaintiffs claims based upon Mirants
alleged improper energy trading and marketing activities involving the California energy
market. Southern Company and the other defendants have opposed the plaintiffs motion. The
plaintiffs have also stated that they intend to request that the court grant leave for them
to amend the complaint to add allegations based upon claims asserted against Southern
Company in the Mirant bankruptcy litigation. See Note 3 to the financial statements of
Southern Company under Mirant Matters  Mirant Bankruptcy Litigation in Item 8 of the Form
10-K for additional information. The ultimate outcome of these matters 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 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. In April 2006, the U.S. District Court
for the Northern District of Georgia granted summary judgment in favor of Southern Company
and all individually named defendants in the case. The plaintiff has filed an appeal of the
ruling. The final outcome of this matter cannot be determined at this time.FERC MATTERSMarket-Based Rate AuthoritySee Note 3 to the financial statements of Southern Company, Alabama Power, Georgia Power,
Gulf Power, and Mississippi Power under FERC Matters  Market-Based Rate Authority and
Note 2 to the financial statements of Southern Power under FERC Matters  Market-Based Rate
Authority in Item 8 of the Form 10-K for information on the FERCs April 2004 order
adopting a new interim analysis for measuring generation market power and a proceeding
initiated by the FERC in December 2004 to assess Southern Companys generation dominance
within its retail service territory. Each of the retail operating companies and Southern
Power has authorization from the FERC to sell power to non-affiliates, including short-term
opportunity sales, at market-based prices. Specific FERC approval must be obtained with
respect to a market-based sale to an affiliate. On February 15, 2005, Southern Company
submitted additional information related to generation dominance in its retail service
territory. Any new market-based rate sales by any subsidiary of Southern Company in its
retail service territory entered into after February 27, 2005 will be subject to refund to
the level of the default cost-based rates, pending the outcome of the proceeding. Such
sales through May 27, 2006, the end of the 15-month refund period, were approximately $19.7
million for the Southern Company system. In the event that the FERCs default mitigation
measures for entities that are found to have market power are ultimately applied, the retail
operating companies and Southern Power may be required to charge cost-based rates for
certain wholesale sales in the Southern Company retail service territory, which may be lower
than negotiated market-based rates. The final outcome of this matter will depend on the
form in which the final methodology for assessing generation market power and mitigation
rules may be ultimately adopted and cannot be determined at this time.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 In addition, in May 2005, the FERC initiated an investigation 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.
The FERC established a new 15-month refund period related to this expanded investigation.
Any new market-based rate sales involving any Southern Company subsidiary will be subject to
refund to the extent the FERC orders lower rates as a result of this new investigation, with
the refund period beginning July 19, 2005. The impact of all such sales through September
30, 2006 is not expected to exceed $54.2 million, of which $15.5 million relates to sales
inside the retail service territory discussed above. The FERC also directed that this
expanded proceeding be held in abeyance pending the outcome of the proceeding on the IIC
discussed below. In its order in the IIC proceeding of October 5, 2006, pertaining to
issues that overlap those in this proceeding, the FERC indicated that it would issue an
order in this expanded proceeding within 90 days, seeking comment on the issues that may remain appropriate for
investigation as well as procedures for addressing those issues.Southern Company and its subsidiaries believe that there is no meritorious basis for this
proceeding and are vigorously defending themselves in this matter. However, the final
outcome of this matter, including any remedies to be applied in the event of an adverse
ruling in this proceeding, cannot now be determined.Intercompany Interchange ContractAlso in May 2005, the FERC initiated a new proceeding to examine (1) the provisions of the
IIC among Alabama Power, Georgia Power, Gulf Power, Mississippi Power, Savannah Electric,
Southern Power, and SCS, as agent, under the terms of which the power pool of Southern
Company 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. In connection with the
formation of Southern Power, the FERC authorized Southern Powers inclusion in the IIC in
2000. The FERC also previously approved Southern Companys code of conduct. The FERC order
directs that the ALJ who presided over a proceeding involving approval of PPAs between
Southern Power and Georgia Power and Savannah Electric be assigned to preside over the
hearing in this proceeding and that the testimony and exhibits presented in that proceeding
be preserved to the extent appropriate. Effective July 19, 2005, revenues from transactions
under the IIC involving any Southern Company subsidiaries will be subject to refund to the
extent the FERC orders any changes to the IIC.On April 11, 2006, Southern Company, Calpine Corporation, Coral Energy, and Dalton Utilities
filed a settlement offer that would resolve the proceeding, and does not require any
refunds. The ALJ certified the settlement to the FERC, which on October 5, 2006 issued an
order accepting the settlement subject to Southern Companys agreement to accept certain
modifications to its terms. On October 20, 2006, Southern Company notified the FERC that it
accepted the modifications. The modifications largely involve functional separation and
information restrictions related to marketing activities conducted on behalf of Southern
Power. Southern Company filed with the FERC on November 6, 2006 an implementation
plan to comply with the modifications set forth in the order. The
impact of the modifications is currently being
assessed but is not expected to be material. See Note 3 to the financial
statements of Southern Company, Alabama Power, Georgia Power, Gulf Power, and Mississippi
Power under FERC Matters  Intercompany Interchange Contract and Note 2 to the financial
statements of Southern Power under FERC Matters  Intercompany Interchange Contract in
Item 8 of the Form 10-K for additional information.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 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 audit of Southern Companys 2000 and 2001 tax returns. If the IRS is
ultimately successful in disallowing the tax deductions related to these transactions
beginning with the 2000 tax year, Southern Company could be subject to additional interest
charges of up to $47 million. Discussions to settle the issue with the IRS have ended
without resolution. 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 and 2001 and
has filed a claim for refund. The disputed tax amount is $79 million and the related
interest is approximately $24 million for these tax years. Southern Company has accounted
for this payment as a deposit. This payment along with the anticipated disallowance of the
claim will close the issue with the IRS and Southern Company plans to then proceed to
litigate this matter.The IRS has also raised the SILO issue for tax years 2002 and 2003. The estimated amount of
disputed tax and interest for these years is approximately $90 million and $17 million,
respectively, along with a related penalty of approximately $9 million. A current liability
of $107 million was recorded in the third quarter 2006 to reflect the probable payment of
tax and interest for these tax years to the IRS in the fourth quarter 2006. Southern
Company believes these transactions are valid leases for U.S. tax purposes and will continue
to defend this position through administrative appeals or litigation.In July 2006, the FASB released new guidance for the accounting for both leveraged leases
and uncertain tax positions that will be effective beginning in 2007. For the
lease-in-lease-out transaction settled with the IRS in February 2005, FSP 13-2, the new
standard for leveraged leases, will require Southern
Company to change the timing of income recognized under the lease, including a cumulative
effect upon adoption of the change. Southern Company estimates such cumulative effect will
reduce Southern Companys retained earnings by approximately $17 million. The impact of
these proposed changes related to the SILO transactions would be dependent on the outcome of
pending litigation, but could be significant, and potentially material, to Southern
Companys net income. Southern Company believes these transactions are valid leases for U.S.
tax purposes and the related deductions are allowable. Southern Company is continuing to
pursue resolution of these matters through administrative appeals or litigation; however,
the ultimate outcome of these matters cannot now be determined.Synthetic Fuel Tax CreditsSouthern Company has made investments in two entities that produce synthetic fuel and
receive 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 these investments, has continued to monitor oil prices. Reserves against
these tax credits of $27 million have been recorded in the first nine months of 2006 due to
projected phase-outs of the credits in 2006 as a result of current and projected future oil
prices. See Note (J) herein for additional information regarding the impact of these
reserves on the effective tax rate.In May 2006, production at one of the synthetic fuel investments was idled due to continued
uncertainty over the value of tax credits. In addition, Southern Company entered into an
agreement in June 2006 which terminated its ownership interest in its other synthetic fuel
investment, effective July 1, 2006. As a result of these actions and the projected
continued phase out of tax credits because of high oil prices, the investments in these two
synthetic fuel entities were considered fully impaired and approximately $16 million was
written off and is reflected in the line item Impairment loss on equity method
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 investments on Southern Companys income statement herein. In September 2006, due to
reduced oil prices in the third quarter, production was restarted at the synthetic fuel
facility in which Southern Company still has an ownership interest. See Note (F) herein for
additional information. The final outcome of these matters cannot now be determined.SOUTHERN COMPANY GAS SALEOn January 4, 2006, Southern Company completed the sale of substantially all the assets of
Southern Company Gas, its competitive retail natural gas marketing subsidiary, including
natural gas inventory, accounts receivable, and customer list, to Gas South, LLC, an
affiliate of Cobb Electric Membership Corporation. Southern Company Gas sale of such
assets was pursuant to a Purchase and Sale Agreement dated November 18, 2005 between
Southern Company Gas and Gas South. The gross proceeds from the sale were approximately
$126 million, after working capital adjustments. This sale had no material impact on
Southern Companys net income for the nine months ended September 30, 2006. As a result of
the sale, Southern Companys financial statements and related information reflect Southern
Company Gas as discontinued operations.GEORGIA POWER FAIR LABOR STANDARDS ACT LITIGATIONOn February 23, 2006, approximately 170 current and former employees of Georgia Power filed
a collective action against Georgia Power in the U.S. District Court for the Northern
District of Georgia, alleging that Georgia Power violated the Fair Labor Standards Act by
failing to properly compensate certain employees (primarily linemen and crew leaders whose
work is governed by a union collective bargaining agreement) while the employees were
subject to being called back into work under on-call work rules and regulations. During the
discovery period, approximately 40 of the plaintiffs asked to be dismissed from the case.
After reaching agreement that Georgia Power will not seek to recover fees and costs from the
plaintiffs, all of the remaining plaintiffs had dismissed their claims as of October 24,
2006. The matter is now concluded.RIGHT OF WAY LITIGATIONSouthern Company and certain of its subsidiaries, including Georgia Power, Gulf Power,
Mississippi Power, and Southern Telecom, have been named as defendants in numerous lawsuits
brought by landowners since 2001 alleging that the defendants may not use, or sublease to
third parties, some or all of the fiber optic communications lines on the rights of way that
cross the plaintiffs properties and that such actions exceed the easements or other
property rights held by the defendants. See Note 3 to the financial statements of Southern
Company, Georgia Power, and Gulf Power under Right of Way Litigation in Item 8 of the Form 10-K for
additional information.After the Georgia Court of Appeals
decision reversing, in part, the trial courts January 2005 order, the plaintiffs filed a motion for reconsideration, which was denied, and a
petition for certiorari to the Georgia Supreme Court, which was denied. On October 10,
2006, the Superior Court of Decatur County, Georgia granted Georgia Powers motion for
summary judgment. The plaintiffs have 30 days to appeal. The final outcome
of this matter cannot now be determined.On October 26, 2006, the Florida First District Court of
Appeal issued an order dismissing Gulf Powers December 2005 appeal on the
basis that the trial courts order was a non-final order and
therefore not subject to review on appeal at this time. After the
period for rehearing has expired, the case will be returned to the
trial court for further proceedings. The final outcome of this matter
cannot now be determined.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 (C)
    
    See Note 1 to the financial statements of Southern Company and the retail operating
companies under Stock Options and Note 8 to the financial statements of Southern Company
and the retail operating companies under Stock Option Plan in Item 8 of the Form 10-K for
information regarding non-qualified employee stock options provided by Southern Company.
Southern Company and the retail operating companies have not modified any of their stock option plans or outstanding stock
options, nor have they changed the underlying valuation assumptions used in valuing the
stock options. Employee stock options vest proportionately over a three-year service
period, which each company recognizes on a straight-line basis. Prior to January 1, 2006,
Southern Company accounted for options granted in accordance with Accounting Principles
Board Opinion No. 25; thus, no compensation expense was recognized because the exercise
price of all options granted equaled the fair market value on the date of the grant.Effective January 1, 2006, Southern Company and the retail operating companies adopted the
fair value recognition provisions of FASB Statement No. 123(R), using the modified
prospective method. Under that method, compensation cost recognized in the nine-month period
ended September 30, 2006 is recognized as the requisite service is rendered and includes:
(a) compensation cost for the portion of share-based awards granted prior to and that are
outstanding as of January 1, 2006, for which the requisite service has not been rendered,
based on the grant-date fair value of those awards as calculated in accordance with the
original provisions of Statement 123, and (b) compensation cost for all share-based awards
granted subsequent to January 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of Statement No. 123(R). Results for prior periods have not
been restated.
For Southern Company and each of the retail operating companies, the adoption of Statement
No. 123(R) has resulted in a reduction in earnings from continuing operations before income
taxes, net income, and operating cash flows as follows (in millions):
 Three months ended
    
    Nine months endedSeptember 30, 2006
    
    September 30, 2006Earnings
    
    
    
    
    
    
    
    
    
    EarningsBefore
    
    
    
    
    
    Operating
    
    Before
    
    
    
    
    
    OperatingIncome
    
    Net
    
    Cash
    
    Income
    
    Net
    
    CashTaxes
    
    Income
    
    Flows1
    
    Taxes
    
    Income
    
    Flows1Southern Company
    
    $
    2.8
    
    
    $
    1.7
    
    
    $
    1.2
    
    
    $
    25.0
    
    
    $
    15.4
    
    
    $
    3.7Alabama Power
    
    
    0.5
    
    
    
    0.4
    
    
    
    0.1
    
    
    
    4.5
    
    
    
    2.8
    
    
    
    0.5Georgia Power
    
    
    0.6
    
    
    
    0.4
    
    
    
    0.4
    
    
    
    5.2
    
    
    
    3.2
    
    
    
    1.0Gulf Power
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    0.5
    
    
    
    0.2Mississippi Power
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    1.0
    
    
    
    0.6
    
    
    
    0.1
 
 1
    
    Financing cash flows have increased by the stated amount for Southern
Company and each retail operating company, respectively. Basic earnings per share from continuing operations for the three-month period ended
September 30, 2006 would have been $1.00 compared to reported basic earnings per share of
$0.99 if Southern Company had not adopted Statement No. 123(R). Diluted earnings per share
from continuing operations would have remained as reported. For the nine-month period ended
September 30, 2006, basic and diluted earnings per share from continuing operations would
have been $1.89 and $1.88, respectively, compared to reported basic and diluted earnings per
share of $1.87 and $1.86, respectively.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 
 For the periods prior to the adoption of Statement No. 123(R), the pro forma impact of
fair-value accounting for options granted on earnings from continuing operations and basic
and diluted earnings per share is as follows:
 Three Months ended
    
    Nine months endedSeptember 30, 2005
    
    September 30, 2005Options
    
    
    
    
    
    
    
    
    
    OptionsAs
    
    Impact
    
    Pro
    
    As
    
    Impact
    
    ProReported
    
    After Tax
    
    Forma
    
    Reported
    
    After Tax
    
    FormaNet income after dividends on preferred stock (in millions):Southern Company
    
    $
    731.0
    
    
    $
    1.4
    
    
    $
    729.6
    
    
    $
    1,437.4
    
    
    $
    15.1
    
    
    $
    1,422.3Alabama Power
    
    
    236.1
    
    
    
    0.2
    
    
    
    235.9
    
    
    
    451.0
    
    
    
    2.6
    
    
    
    448.4Georgia Power
    
    
    374.9
    
    
    
    0.4
    
    
    
    374.5
    
    
    
    683.0
    
    
    
    3.4
    
    
    
    679.6Gulf Power
    
    
    37.2
    
    
    
    
    
    
    
    37.2
    
    
    
    73.3
    
    
    
    0.5
    
    
    
    72.8Mississippi Power
    
    
    28.2
    
    
    
    0.1
    
    
    
    28.1
    
    
    
    70.8
    
    
    
    0.6
    
    
    
    70.2Earnings per share (Dollars):Basic
    
    $
    0.98
    
    
    
    
    
    
    $
    0.98
    
    
    $
    1.93
    
    
    
    
    
    
    $
    1.91Diluted
    
    $
    0.98
    
    
    
    
    
    
    $
    0.97
    
    
    $
    1.92
    
    
    
    
    
    
    $
    1.90
 The estimated fair values of stock options granted in 2006 and 2005 were derived using the
Black-Scholes stock option pricing model. Expected volatility is based on historical
volatility of Southern Companys stock over a period equal to the expected term. Southern
Company uses historical exercise data to estimate the expected term that represents the
period of time that options granted to employees are expected to be outstanding. The
risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant that
covers the expected term of the stock options. The following table shows the assumptions
used in the pricing model and the weighted average grant-date fair value of stock options
granted:
 Three months
    
    Nine monthsended
    
    endedSeptember 30
    
    September 302006
    
    2005
    
    2006
    
    2005Expected volatility
    
    
    16.7
    %
    
    
    17.3
    %
    
    
    16.9
    %
    
    
    17.9
    %Expected term (in years)
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5Interest rate
    
    
    4.9
    %
    
    
    4.1
    %
    
    
    4.6
    %
    
    
    3.9
    %Dividend yield
    
    
    4.6
    %
    
    
    4.3
    %
    
    
    4.4
    %
    
    
    4.4
    %Weighted average grant-date fair value
    
    $
    4.17
    
    
    $
    4.21
    
    
    $
    4.15
    
    
    $
    3.90
 Southern Company and each of the retail operating companies activity under the stock option
plan as of September 30, 2006, and changes during the nine months then ended, is summarized
below:
 Southern
    
    
    Alabama
    
    
    Georgia
    
    
    Gulf
    
    
    MississippiShares
Subject to Option
    
    Company
    
    
    Power
    
    
    Power
    
    
    Power
    
    
    PowerOutstanding at December 31,
2005
    
    
    31,347,355
    
    
    
    5,227,985
    
    
    
    7,223,875
    
    
    
    1,099,549
    
    
    
    1,444,438Granted
    
    
    6,648,750
    
    
    
    1,150,137
    
    
    
    1,429,904
    
    
    
    242,273
    
    
    
    253,870Exercised
    
    
    (1,329,145
    )
    
    
    (225,431
    )
    
    
    (299,517
    )
    
    
    (86,028
    )
    
    
    (38,779
    )Canceled
    
    
    (144,634
    )
    
    
    (9,275
    )
    
    
    (12,148
    )
    
    
    (460
    )
    
    
    (569
    )Outstanding at September 30,
2006
    
    
    36,522,326
    
    
    
    6,143,416
    
    
    
    8,342,114
    
    
    
    1,255,334
    
    
    
    1,658,960Exercisable at September 30,
2006
    
    
    23,905,616
    
    
    
    3,975,502
    
    
    
    5,611,464
    
    
    
    785,507
    
    
    
    1,169,887
 The number of stock options vested and expected to vest at September 30, 2006 is not
significantly different from the number of stock options outstanding as detailed above.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 
 Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    MississippiWeighted-Average
Exercise Price
    
    Company
    
    Power
    
    Power
    
    Power
    
    PowerOutstanding at December 31, 2005
    
    $
    27.13
    
    
    $
    27.09
    
    
    $
    26.87
    
    
    $
    27.07
    
    
    $
    26.86Granted
    
    
    33.80
    
    
    
    33.81
    
    
    
    33.81
    
    
    
    33.81
    
    
    
    33.81Exercised
    
    
    23.35
    
    
    
    23.63
    
    
    
    23.33
    
    
    
    23.21
    
    
    
    23.37Canceled
    
    
    31.27
    
    
    
    29.35
    
    
    
    30.78
    
    
    
    32.66
    
    
    
    32.71Outstanding at September 30, 2006
    
    $
    28.47
    
    
    $
    28.48
    
    
    $
    28.18
    
    
    $
    28.63
    
    
    $
    28.01Exercisable at September 30, 2006
    
    $
    26.20
    
    
    $
    26.15
    
    
    $
    25.97
    
    
    $
    26.17
    
    
    $
    26.04At September 30, 2006
    
    Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    Mississippi(in millions unless stated)
    
    Company
    
    Power
    
    Power
    
    Power
    
    PowerWeighted-Average Remaining
Contractual Term -
Outstanding (in years)
    
    
    6.6
    
    
    
    6.8
    
    
    
    6.5
    
    
    
    6.9
    
    
    
    6.2Weighted-Average Remaining
Contractual Term  Exercisable
(in years)
    
    
    5.4
    
    
    
    5.7
    
    
    
    5.5
    
    
    
    5.7
    
    
    
    5.1Aggregate Intrinsic Value -
Outstanding
    
    $
    218.9
    
    
    $
    36.8
    
    
    $
    52.4
    
    
    $
    7.3
    
    
    $
    10.7Aggregate Intrinsic Value -
Exercisable
    
    $
    197.5
    
    
    $
    33.0
    
    
    $
    47.6
    
    
    $
    6.5
    
    
    $
    9.9Nine-month periodTotal intrinsic value of
options exercised during 2006
    
    $
    14.0
    
    
    $
    2.0
    
    
    $
    3.8
    
    
    $
    0.9
    
    
    $
    0.4Total intrinsic value of
options exercised during 2005
    
    $
    126.7
    
    
    $
    20.9
    
    
    $
    20.5
    
    
    $
    4.2
    
    
    $
    4.2Southern Company and each of the retail operating companies total pre-tax compensation cost
related to non-vested awards is expected to be recognized over the remaining three-year
service period from the grant dates and is approximately (in
millions):Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    MississippiCompany
    
    Power
    
    Power
    
    Power
    
    PowerUnrecognized compensation
    
    $
    12.4
    
    
    $
    1.8
    
    
    $
    3.0
    
    
    $
    0.6
    
    
    $
    0.5
 Southern Company has a policy of issuing shares to satisfy share option exercises.
Historically, this has been satisfied by the issuance of new common shares; however, during
January 2006, Southern Company started reissuing treasury shares that it had previously
repurchased. Cash received from issuances related to option exercise under the share-based
payment arrangements for the nine-month periods ended September 30, 2006 and 2005 was $30.7
million and $206.9 million, respectively.
 129




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 (D)
    
    See Note 1 to the financial statements of Southern Company, Alabama Power, Georgia
Power, Gulf Power, and Mississippi Power under Asset Retirement Obligations and Other
Costs of Removal in Item 8 of the Form 10-K. The following table reflects the details of
the asset retirement obligations included in the Condensed Balance Sheets (in millions).
 Balance at
    
    Liabilities
    
    Liabilities
    
    
    
    
    
    Cash Flow
    
    Balance at12/31/05
    
    Incurred
    
    Settled
    
    Accretion
    
    Revisions
    
    9/30/06Southern Company
    
    $
    1,117.3
    
    
    $
    (0.1
    )
    
    $
    (3.8
    )
    
    $
    54.3
    
    
    $
    (3.6
    )
    
    $
    1,164.1Alabama Power
    
    
    446.3
    
    
    
    
    
    
    
    (2.3
    )
    
    
    22.6
    
    
    
    
    
    
    
    466.6Georgia Power
    
    
    634.9
    
    
    
    
    
    
    
    (1.5
    )
    
    
    30.5
    
    
    
    
    
    
    
    663.9Gulf Power
    
    
    15.3
    
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    (3.4
    )
    
    
    12.5Mississippi Power
    
    
    15.4
    
    
    
    
    
    
    
    (0.1
    )
    
    
    0.6
    
    
    
    (0.3
    )
    
    
    15.6
 (E)
    
    For Southern Company, the only difference in computing basic and diluted earnings per
share is attributable to exercised options and outstanding options under the stock option
plan. See Note 8 to the financial statements of Southern Company in Item 8 of the Form
10-K for further information on the stock option plan. The effect of the stock options was
determined using the treasury stock method. Shares used to compute diluted earnings per
share are as follows (in thousands):
 Three Months
    
    Three Months
    
    Nine months
    
    Nine monthsEnded
    
    Ended
    
    Ended
    
    EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005As reported shares
    
    
    742,884
    
    
    
    743,214
    
    
    
    742,532
    
    
    
    744,654Effect of options
    
    
    4,676
    
    
    
    4,603
    
    
    
    4,451
    
    
    
    4,725Diluted shares
    
    
    747,560
    
    
    
    747,817
    
    
    
    746,983
    
    
    
    749,379
 (F)
    
    See Note 6 to the financial statements of Southern Company, Alabama Power, Georgia
Power, Gulf Power, and Mississippi Power and Note 5 to the financial statements of Southern
Power under Financial Instruments in Item 8 of the Form 10-K. At September 30, 2006, the
fair value gains/(losses) of derivative energy contracts was reflected in the financial
statements as follows (in millions):
 Southern
    
    
    Alabama
    
    
    Georgia
    
    
    Gulf
    
    
    Mississippi
    
    
    SouthernCompany
    
    
    Power
    
    
    Power
    
    
    Power
    
    
    Power
    
    
    PowerRegulatory
(assets)/liabilities, net
    
    $
    (86.9
    )
    
    $
    (36.9
    )
    
    $
    (37.1
    )
    
    $
    (7.1
    )
    
    $
    (5.8
    )
    
    $
    Accumulated other
comprehensive
income (loss)
    
    
    1.9
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    0.2Net income (loss)
    
    
    (2.5
    )
    
    
    (0.6
    )
    
    
    (0.8
    )
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    0.3Total fair value
gain/(loss)
    
    $
    (87.5
    )
    
    $
    (36.3
    )
    
    $
    (37.9
    )
    
    $
    (7.2
    )
    
    $
    (5.4
    )
    
    $
    0.5
 For the three months ended September 30, 2006, the unrealized loss recognized in income for
derivative energy contracts that are not hedges was $2.9 million for Southern Power and was
immaterial for the other registrants. For all the other periods reported, the amounts were
immaterial for all registrants.The amounts reclassified from other comprehensive income to fuel expense for the three
months and nine months ended September 30, 2006 were immaterial for each registrant.
Additionally, no material ineffectiveness has been recorded in net income for the three
months and nine months ended September 30, 2006 and 2005. The amounts expected to be
reclassified from other comprehensive income to
 130




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 revenue for the next twelve-month period to September 30, 2007 is a $2.0 million gain for
Southern Company and is immaterial for the other registrants.During the period from June to September 2006, Southern Company entered into derivative
transactions with net initial premiums received of $1.4 million to reduce its exposure to a
potential phase-out of certain income tax credits in 2006. In accordance with Section 45K
of the IRC, these tax credits are subject to limitation as the annual average price of oil
increases. At September 30, 2006, the fair value of the derivatives was a $20.8 million net
liability. For the three months and nine months ended September 30, 2006, the fair value
loss recognized in income to mark the transactions to market was $23.3 million and $19.4
million, respectively. For the three months and nine months ended September 30, 2005, the
fair value gain recognized in income for similar derivative transactions was $5.1 million
and $3.9 million, respectively. In October 2006, Southern Company entered into additional
derivative transactions with net initial premiums paid of $21.7 million to reduce its
exposure to the potential phase-out of these income tax credits in 2007.
 At September 30, 2006, Southern Company had $2.8 billion notional amount of interest rate
derivatives outstanding with net fair value losses of $10.8 million as follows:
 Fair Value Hedges
 Fair Value GainHedge
    
(Loss)Notional
    
Fixed Rate
    
    Variable Rate
    
    Maturity
    
September 30, 2006Amount
    
Received
    
    Paid
    
    Date
    
(in millions)Southern Company
    
    $400 million
    
    
    5.30
    %
    
    6-month LIBOR 
(in arrears) 
less 0.10%
    
    February 2007
    
    $
    0.2
 Cash Flow Hedges
 Fair ValueGain (Loss)Weighted Average
    
Hedge
    
September 30,Notional
    
Variable Rate
    
Fixed Rate
    
Maturity
    
2006Amount
    
Received
    
Paid
    
Date
    
(in millions)Alabama Power
    
    $536 million
    
    BMA Index
    

2.01%

    
    January 2007
    
    $
    2.9Alabama Power*
    
    $100 million
    
    3-month LIBOR
    

6.15%

    
    November 2017
    
    
    (2.0
    )Alabama Power*
    
    $100 million
    
    3-month LIBOR
    

6.15%

    
    December 2017
    
    
    (2.0
    )Georgia Power*
    
    $300 million
    
    3-month LIBOR
    

    5.75%

    
    July 2037
    
    
    1.9Georgia Power**
    
    $400 million
    
    Floating
    

    3.20 - 3.85%

    
    December 2007
    
    
    1.0Georgia Power
    
    $225 million
    
    3-month LIBOR
    

5.29%

    
    March 2017
    
    
    (2.2
    )Georgia Power
    
    $150 million
    
    3-month LIBOR
    

5.30%

    
    December 2016
    
    
    (1.5
    )Georgia Power
    
    $300 million
    
    1-month LIBOR
    

2.67%

    
    June 2007
    
    
    2.1Georgia Power
    
    $  14 million
    
    BMA Index
    

2.50%

    
    December 2007
    
    
    0.2Gulf Power
    
    $  80 million
    
    3-month LIBOR
    

5.82%

    
    December 2016
    
    
    (4.1
    )Southern Power
    
    $200 million
    
    3-month LIBOR
    

5.64%

    
    November 2016
    
    
    (7.3
    )
 
 *
    
    Interest rate collar (showing only the rate cap percentage)**
    
    Series of interest rate collars with variable rate based on one-month LIBOR (showing
range of rate caps) No material ineffectiveness has been recorded in net income for any of the periods
reported.
 131




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 
 For the next twelve-month period ending September 30, 2007, the following table reflects the
estimated pre-tax gains/(losses) that will be reclassified from Accumulated Other
Comprehensive Income to Interest Expense (in millions):
 Southern Company
    
    $
    (10.7
    )Alabama Power
    
    $
    2.4Georgia Power
    
    
    0.6Gulf Power
    
    
    (0.7
    )Southern Power
    
    
    (13.2
    )
 (G)
    
    See Note 2 to the financial statements of Southern Company, Alabama Power, Georgia
Power, Gulf Power, and Mississippi Power in Item 8 of the Form 10-K. Components of the
pension plans and postretirement plans net periodic costs for the three-month and
nine-month periods ended September 30, 2006 and 2005 are as follows (in millions):
 Southern
    
    Alabama
    
    Georgia
    
    
    
    
    
    MississippiPENSION PLANS
    
    Company
    
    Power
    
    Power
    
    Gulf Power
    
    PowerThree 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
    )Recognized net (gain)/loss
    
    
    4
    
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    Net amortization
    
    
    6
    
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    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
    )Recognized net (gain)/loss
    
    
    12
    
    
    
    2
    
    
    
    4
    
    
    
    
    
    
    
    1Net amortization
    
    
    20
    
    
    
    7
    
    
    
    6
    
    
    
    1
    
    
    
    1Net cost (income)
    
    $
    30
    
    
    $
    (10
    )
    
    $
    
    
    
    $
    1
    
    
    $
    3Three Months Ended
September 30, 2005Service cost
    
    $
    33
    
    
    $
    8
    
    
    $
    11
    
    
    $
    2
    
    
    $
    2Interest cost
    
    
    71
    
    
    
    18
    
    
    
    28
    
    
    
    3
    
    
    
    3Expected return on plan assets
    
    
    (111
    )
    
    
    (34
    )
    
    
    (45
    )
    
    
    (5
    )
    
    
    (4
    )Recognized net (gain)/loss
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    Net amortization
    
    
    6
    
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    1
    
    
    $
    (5
    )
    
    $
    (3
    )
    
    $
    
    
    
    $
    1Nine Months Ended
September 30, 2005Service cost
    
    $
    104
    
    
    $
    25
    
    
    $
    36
    
    
    $
    5
    
    
    $
    5Interest cost
    
    
    214
    
    
    
    56
    
    
    
    83
    
    
    
    10
    
    
    
    10Expected return on plan assets
    
    
    (342
    )
    
    
    (105
    )
    
    
    (139
    )
    
    
    (16
    )
    
    
    (14
    )Recognized net (gain)/loss
    
    
    8
    
    
    
    2
    
    
    
    3
    
    
    
    
    
    
    
    Net amortization
    
    
    17
    
    
    
    6
    
    
    
    6
    
    
    
    
    
    
    
    1Net cost (income)
    
    $
    1
    
    
    $
    (16
    )
    
    $
    (11
    )
    
    $
    (1
    )
    
    $
    2
 132




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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, 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
    
    
    $
    5Three Months Ended
September 30, 2005Service cost
    
    $
    7
    
    
    $
    2
    
    
    $
    3
    
    
    $
    
    
    
    $
    Interest cost
    
    
    24
    
    
    
    6
    
    
    
    11
    
    
    
    1
    
    
    
    1Expected return on plan assets
    
    
    (11
    )
    
    
    (4
    )
    
    
    (6
    )
    
    
    
    
    
    
    Net amortization
    
    
    9
    
    
    
    3
    
    
    
    5
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    29
    
    
    $
    7
    
    
    $
    13
    
    
    $
    1
    
    
    $
    1Nine Months Ended
September 30, 2005Service cost
    
    $
    21
    
    
    $
    5
    
    
    $
    8
    
    
    $
    1
    
    
    $
    1Interest cost
    
    
    72
    
    
    
    20
    
    
    
    33
    
    
    
    3
    
    
    
    3Expected return on plan assets
    
    
    (34
    )
    
    
    (12
    )
    
    
    (18
    )
    
    
    (1
    )
    
    
    (1
    )Net amortization
    
    
    29
    
    
    
    8
    
    
    
    15
    
    
    
    1
    
    
    
    1Net cost (income)
    
    $
    88
    
    
    $
    21
    
    
    $
    38
    
    
    $
    4
    
    
    $
    4
 (H)
    
    See Note 3 to the financial statements of Southern Company under Georgia Power Retail
Regulatory Matters and Merger of Georgia Power and Savannah Electric and Georgia Power
under Retail Regulatory Matters  Merger and   Fuel Cost Recovery in Item 8 of the
Form 10-K for information on the merger of Savannah Electric into Georgia Power and its
impact on retail fuel cost recovery.All required shareholder and regulatory approvals for the merger were received and,
effective July 1, 2006, Savannah Electric was merged into Georgia Power. Prior to the
merger, Southern Company was the sole common shareholder of both Georgia Power and Savannah
Electric. At the time of the merger, each outstanding share of Savannah Electric common
stock was cancelled, and Southern Company was issued an additional 1,500,000 shares of
Georgia Power common stock, no par value per share. In addition, at the time of the merger,
each outstanding share of Savannah Electrics preferred stock was cancelled and converted
into the right to receive one share of Georgia Power 6 1/8% Series Class A Preferred Stock,
Non-Cumulative, Par Value $25 Per Share.Following completion of the merger, the outstanding capital stock of Georgia Power consists
of 9,261,500 shares of common stock, all of which are held by Southern Company, and
1,800,000 shares of Class A Preferred Stock. In connection with the merger, Georgia Power
also assumed all of the outstanding liabilities of Savannah Electric, including Savannah
Electrics obligations under five series of senior notes outstanding at July 1, 2006,
totaling $195 million, and the obligations of three series related to pollution control
revenue bonds, totaling $18 million. In addition, Georgia Power assumed Savannah Electrics
commercial paper and extendible commercial note obligations of $84 million.Georgia Power accounted for the merger in a manner similar to a pooling of interests.
Georgia Powers Condensed Financial Statements give effect to the merger as if it had
occurred on January 1, 2005 and
 133




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 include the elimination of all material intercompany transactions between Georgia Power and
Savannah Electric for the periods presented. Along with Southern Companys other retail
operating companies, Georgia Power and Savannah Electric were both members of the Southern
Company Power Pool prior to the merger. The operation of the Power Pool is regulated by the
FERC and administered by SCS. Each member of the Power Pool has the first call on its own
generating resources, but if lower cost generation resources are available or if a member of
the Power Pool is unable to meet its obligations with its own generation, energy may be
purchased from the Power Pool. Each companys sales and purchases to the Power Pool are
determined each hour on an economic dispatch basis to meet the aggregate customer load
requirements of all Power Pool members. Since the power pool energy sales are at marginal
cost and energy purchases are generally offset by energy revenues through the fuel cost
recovery clauses of both Georgia Power and Savannah Electric, these transactions did not
have a significant impact on the historical net income of either company. If the merger had
been effective as of January 1, 2005, such power pool sales and purchases would not be
materially different; therefore, no adjustments for the impact of such changes in operating
revenues or operating expenses have been made in the accompanying Georgia Power financial
statements.In March 2006, Georgia Power and Savannah Electric filed a combined request with the Georgia
PSC to change the fuel cost recovery rate effective July 1, 2006. On June 15, 2006, the
Georgia PSC ruled on the request and approved an increase in Georgia Powers total annual
fuel billings of approximately $400 million. The Georgia PSC order provided for a combined
ongoing fuel forecast but reduced the requested increase related to such forecast by $200
million. The Georgia PSC order included no disallowances of previously incurred fuel costs.
Estimated under recovered fuel costs are to be recovered over 35 months ending May 2009 for
customers in the former Georgia Power territory and over 41 months ending November 2009 for
customers in the former Savannah Electric territory. The order also required Georgia Power
to file for a new fuel cost recovery rate on a semi-annual basis, beginning in September
2006. Accordingly, on September 15, 2006, Georgia Power filed a request to recover fuel
costs incurred through August 2006, by increasing the fuel cost recovery rate. In October
2006, Georgia Power agreed with the Georgia PSC to file a supplementary request, by November
13, 2006, reflecting a forecast of annual fuel costs, as well as updated information for
previously incurred fuel costs. The Georgia PSC is scheduled to rule on the entire request
in February 2007, with the new rates to become effective on March 1, 2007. As of September
30, 2006, Georgia Power had an under recovered fuel balance of approximately $952 million,
of which $762 million is currently included in the fuel cost recovery rate.Fuel cost recovery revenues as recorded on the financial statements are adjusted for
differences in actual recoverable costs and amounts billed in current regulated rates.
Accordingly, any increase in the billing factor will have no significant effect on Georgia
Powers revenues or net income but will increase cash flow.The June Georgia PSC order also set a Merger Transition Adjustment (MTA) applicable to
customers in the former Savannah Electric service territory so that the new fuel rate plus
the MTA equals the applicable fuel rate paid by such customer as of June 30, 2006. Amounts
collected under the MTA are being credited to customers in the former Georgia Power service
territory through a Merger Transition Credit (MTC). The MTA and the MTC will be in effect
until December 31, 2007, when Georgia Powers base rates are scheduled to be adjusted.(I)
    
    See Note 1 to the financial statements of Southern Company and Mississippi Power
under Storm Damage Reserves and Provision for Property Damage, respectively, and Note 3
to the financial statements of Southern Company and Mississippi Power under Storm Damage
Cost Recovery in Item 8 of the Form 10-K for information on how Mississippi Power
maintains a reserve for property damage to cover the cost of damages from major storms to
its transmission and distribution lines and the cost of uninsured damages to its generation
facilities and other property, as well as the specific impact of Hurricane Katrina on that
reserve.
 134




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 In June 2006, the Mississippi PSC issued an order based upon a stipulation between
Mississippi Power and the Mississippi Public Utilities Staff. The stipulation and the
associated order certified actual storm restoration costs relating to Hurricane Katrina
through April 30, 2006 of $267.9 million and affirmed estimated additional costs through
December 31, 2007 of $34.5 million, for total storm restoration costs of $302.4 million,
without offset for the property damage reserve of $3.0 million. Of the total amount, $292.8
million applies to Mississippi Powers retail jurisdiction. The order directed Mississippi
Power to file an application with the Mississippi Development Authority (MDA) for Community
Development Block Grants (CDBG). The MDA has indicated that $360 million of CDBG will be
available to utilities within the State of Mississippi impacted by Hurricane Katrina. All
CDBG proceeds received by Mississippi Power will be applied to both retail and wholesale
storm restoration costs and will be used to significantly mitigate the impacts of the cost
of storm restoration on Mississippi Powers customers. The retail portion of any certified
restoration costs not covered by the CDBG program are expected to be funded through the
state bond program previously approved by the State of Mississippi legislature. The
Mississippi PSC order also indicated that the state bond program would be appropriate
funding for all or a portion of a new storm operations center if approved and for an
appropriate storm reserve, both of which require additional Mississippi PSC action. If
state bonds are used for any portion of the Hurricane Katrina restoration costs, periodic
true-up mechanisms will be structured to comply with terms and requirements from the
legislation.The Mississippi PSC order also granted continuing authority to record a regulatory asset in
an amount equal to the retail portion of the recorded Hurricane Katrina restoration costs.
The balance in the regulatory asset account at September 30, 2006 is $264.3 million, which
is net of the retail portion of insurance proceeds of $79.7 million. These costs include
approximately $144.8 million of capital additions and $119.5 million of operation and
maintenance expenditures. Mississippi Power continues to report actual storm expenses to the Mississippi
PSC periodically. For any future event causing damage to property beyond the balance in the
reserve, the order also granted Mississippi Power the authority to record a regulatory
asset. Mississippi Power would then apply to the Mississippi PSC for recovery of such
amounts or for authority to otherwise dispose of the regulatory asset.Mississippi Power filed the CDBG application with the MDA in September 2006. On October 30,
2006, Mississippi Power received from the MDA a CDBG in the amount of $276.4 million.
Mississippi Power filed an application for a financing order with the Mississippi PSC on
July 3, 2006 for restoration costs under the state bond program, including the property
damage reserve funding and the construction of the storm operations center. On October 27,
2006, the Mississippi PSC issued a financing order that authorizes the issuance of $121.2
million of system restoration bonds. This amount includes $25.2 million for the retail
storm recovery costs not covered by the CDBG, $60 million for a property damage reserve, and
$36 million for the retail portion of the construction of the storm operations facility.
The bonds will be issued by the Mississippi State Bond Commission and will represent an
obligation of the State of Mississippi. The final outcome of this
matter cannot now be determined.(J)
    
    See Note 5 to the financial statements of Southern Company and Alabama Power in Item
8 of the Form 10-K for information on each companys effective income tax rate. In
accordance with an Alabama PSC-approved accounting order to restore the natural disaster
reserve, Alabama Power returned approximately $27.7 million of excess deferred income
taxes to its retail customers in 2005. The impact of this entry was a lower effective
income tax rate for the nine months ended September 30, 2005 when compared to the nine
months ended September 30, 2006 for Alabama Power and Southern Company. For additional
information on Alabama Powers accounting order, see Note 3 to the financial statements of
Southern Company and Alabama Power under Storm Damage Recovery and Natural Disaster
Cost Recovery, respectively, in Item 8 of the Form 10-K.In September 2006, Georgia Power filed its 2005 income tax returns, which included certain
state income tax credits that resulted in a lower effective income tax rate for the three
and nine months ended September 30, 2006 when compared to the same periods in 2005. Georgia
Power has also filed similar claims for the years
2001 through 2004. Amounts recorded in Georgia Powers financial
statements for the three and nine months ended September 30,
2006 related to these claims are not material. The Georgia Department of Revenue is currently reviewing these claims.
If approved as filed, such claims could have a significant, and
possibly material, effect on Georgia Powers net income.  The ultimate outcome of this matter cannot now be determined.
 135




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Southern Company has recorded reserves associated with a potential phase out of its
synthetic fuel tax credits of $27 million in 2006. The fuel tax credits recorded as of the
nine months ended September 30, 2006 are $60 million less than the fuel tax credits recorded
for the same period in 2005. See Note (B) herein for additional information regarding the reduced production of fuel tax credits in
2006. The impact of the reduction in fuel tax credits and these reserves is an increase in
Southern Companys effective tax rate for the nine months ended September 30, 2006 as
compared to the same period in 2005.(K)
    
    See Note 1 to the financial statements of Southern Company and Gulf Power under Storm
Damage Reserves and Property Damage Reserve, respectively, and Note 3 to the financial
statements of Southern Company and Gulf Power under Storm Damage Cost Recovery and
Retail Regulatory Matters  Storm Damage Cost Recovery, respectively, in Item 8 of the
Form 10-K for information on how Gulf Power maintains a reserve for property damage to
cover the cost of damages from major storms to its transmission and distribution facilities
and the cost of uninsured damages to its generation facilities and other property, and the
impact of recent hurricanes on that reserve. In September 2004, Hurricane Ivan hit the
Gulf Coast of Florida and Alabama and caused significant damage to Gulf Powers service
area. In July 2005 and August 2005, Hurricanes Dennis and Katrina, respectively, hit the
Gulf Coast of the United States also causing significant damage within Gulf Powers service
area. As a result, Gulf Power has a deficit balance in the reserve at September 30, 2006
of $43.1 million.In July 2006, the Florida PSC issued its order approving a stipulation and settlement
between Gulf Power and several consumer groups that resolved all matters relating to Gulf
Powers request for recovery of incurred costs for storm-recovery activities, the
replenishment of Gulf Powers property damage reserve, and the related request for
permission to issue $87.2 million in securitized storm-recovery bonds. The
order provides for an extension of the storm-recovery surcharge currently being collected by
Gulf Power for an additional 27 months, expiring in June 2009, in lieu of the requested
issuance of storm-recovery bonds.According to the stipulation, the funds resulting from the extension of the current
surcharge will first be credited to the unrecovered balance of storm-recovery costs
associated with Hurricane Ivan until these costs have been fully recovered. The funds will
then be credited to the property reserve for recovery of the storm-recovery costs of $52.6
million associated with Hurricanes Dennis and Katrina that were previously charged to the
reserve. Should revenues collected by Gulf Power through the extension of the
storm-recovery surcharge exceed the storm-recovery costs associated with Hurricanes Dennis
and Katrina, the excess revenues will be credited to the reserve.The annual accrual to the reserve of $3.5 million and Gulf Powers limited discretionary
authority to make additional accruals to the reserve will continue as previously approved by
the Florida PSC. As part of the March 2005 agreement regarding Hurricane Ivan costs that
established the existing surcharge, Gulf Power agreed that it would not seek any additional
increase in its base rates and charges to become effective on or before March 1, 2007. The
terms of the stipulation do not alter or affect that portion of the prior agreement.According to the order, in the case of future storms, if Gulf Power incurs cumulative costs
for storm-recovery activities in excess of $10 million during any calendar year, Gulf Power
will be permitted to file a streamlined formal request for an interim surcharge. Any
interim surcharge would provide for the recovery, subject to refund, of up to 80% of the
claimed costs for storm-recovery activities. Gulf Power would then petition the Florida PSC
for full recovery through an additional surcharge or other cost recovery mechanism.
 136




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 (L)
    
    See Note 3 to the financial statements of Southern Company under Plant Franklin
Construction Project and Note 2 to the financial statements of Southern Power under Plant
Franklin Unit 3 Construction Project in Item 8 of the Form 10-K for information on the suspension of construction
activities. On May 6, 2006, Southern Power signed a PPA with Progress Ventures, Inc. for 621
MW of capacity from Plant Franklin. The PPA term is from 2009 through 2015. To provide
this capacity, Southern Power expects to complete construction of Franklin Unit 3 at a total
cost of approximately $351 million, of which $176 million has been spent as of September 30,
2006. Construction is expected to be complete in 2008.Effective June 1, 2006, Southern Power acquired all of the outstanding membership
interests of DeSoto County Generating Company, LLC (DeSoto) from Progress Genco Ventures,
LLC, a subsidiary of Progress Energy, Inc. The results of DeSotos operations have been
included in Southern Powers consolidated financial statements since that date. Southern
Powers acquisition of the membership interests in DeSoto was pursuant to an agreement dated
May 8, 2006 for an aggregate purchase price of $79.2 million. The total purchase price was
allocated to property, plant, and equipment and materials and supplies based on a
preliminary assessment. Southern Power is in the process of obtaining third-party valuations
of certain intangible assets; thus, the allocation of the purchase price is subject to
future refinement. The impact of these refinements is not known at this time. DeSoto owns
a dual-fired generating plant near Arcadia, Florida with a nameplate capacity of 340 MW.
The plants capacity and associated energy is sold under PPAs with Florida Power & Light
Company that expire in 2007. The DeSoto acquisition was in accordance with Southern
Powers overall regional growth strategy.Effective September 1, 2006, Southern Power acquired all of the outstanding membership
interests of Rowan County Power, LLC (Rowan) from the same subsidiary of Progress Energy,
Inc. The results of Rowans operations have been included in Southern Powers consolidated
financial statements since that date. Southern Powers acquisition of the membership
interests in Rowan was pursuant to an agreement dated May 8, 2006 for an aggregate purchase
price of $328.8 million. The total purchase price was allocated to property, plant, and
equipment and materials and supplies based on a preliminary assessment. Southern Power is
in the process of obtaining third-party valuations of certain intangible assets; thus, the
allocation of the purchase price is subject to future refinement. The impact of these
refinements is not known at this time. Rowan owns a dual fired generating plant near
Salisbury, North Carolina with a nameplate capacity of 985 MW. Portions of Plant Rowan
capacity and associated energy are sold under PPAs with Duke Power Company, North Carolina
Municipal Power Agency No. 1, and Energy United Electric Membership Corporation.
Substantially all of Plant Rowans capacity is under contract from 2011 through 2025. The
Rowan acquisition was in accordance with Southern Powers overall regional growth strategy.The pro forma data of Southern Power set forth below is unaudited and gives effect to the
DeSoto and Rowan plant acquisitions as if they had occurred at January 1, 2005. The unaudited pro
forma financial information is not intended to represent or be indicative of the
consolidated results of operations or financial condition of Southern Power that would have
been reported had the acquisitions been completed as of the dates presented, and should not
be taken as representative of the future consolidated results of operations or financial
condition of Southern Power.
 For the Three Months
    
    For the Nine MonthsEnded September 30,
    
    Ended September 30,2006
    
    2005
    
    2006
    
    2005(in thousands)
    
    (in thousands)Pro forma revenues
    
    $
    279,537
    
    
    $
    289,414
    
    
    $
    622,152
    
    
    $
    608,059Pro forma net income
    
    
    46,493
    
    
    
    46,875
    
    
    
    91,826
    
    
    
    93,008
 137




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Southern Power revised its depreciation rates in March 2006. This change in estimate arises
from changes in useful life assumptions of certain components of plant in service based on
an engineering study completed in the first quarter of 2006. Depreciation rates by
generating facility increased from a range of 2.5% to 2.9% to a range of 2.7% to 3.8%.
These changes increase depreciation expense and
reduce net income. As a result of these changes, net income was decreased by $0.9 million
and $2.1 million for the third quarter and year-to-date 2006, respectively. The expected
total impact on Southern Powers net income for 2006 is a decrease of $3.0 million.(M)
    
    Southern Companys reportable business segment is the sale of electricity in the
Southeast by the retail operating companies and Southern Power. Net income and total
assets for discontinued operations are included in the Reconciling Eliminations column.
The All Other column includes parent Southern Company, which does not allocate operating
expenses to business segments. Also, this category includes segments below the
quantitative threshold for separate disclosure. These segments include investments in
synthetic fuels and leveraged lease projects, telecommunications, and energy-related
services. Southern Powers revenues from sales to the retail operating companies were $164
million and $381 million for the three months and nine months ended September 30, 2006,
respectively, and $180 million and $402 million for the three months and nine months ended
September 30, 2005, respectively. All other intersegment revenues are not material.
Financial data for business segments and products and services are as follows:
 Electric UtilitiesRetailOperating
    
    
    
    
    
    
    
    
    
    
    
    
    
    All
    
    ReconcilingCompanies
    
    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 September 30, 2006
    
    $
    37,968
    
    
    $
    2,715
    
    
    $
    (168
    )
    
    $
    40,515
    
    
    $
    2,204
    
    
    $
    (683
    )
    
    $
    42,036
 Electric UtilitiesRetailOperating
    
    
    
    
    
    
    
    
    
    
    
    
    
    All
    
    ReconcilingCompanies
    
    Southern Power
    
    Eliminations
    
    Total
    
    Other
    
    Eliminations
    
    Consolidated(in millions)Three Months Ended September 30,
2005:Operating revenues
    
    $
    4,244
    
    
    $
    266
    
    
    $
    (221
    )
    
    $
    4,289
    
    
    $
    99
    
    
    $
    (30
    )
    
    $
    4,358Segment net income (loss)
    
    
    676
    
    
    
    40
    
    
    
    
    
    
    
    716
    
    
    
    16
    
    
    
    (10
    )
    
    
    722Nine Months Ended September 30,
2005:Operating revenues
    
    
    9,967
    
    
    
    568
    
    
    
    (480
    )
    
    
    10,055
    
    
    
    297
    
    
    
    (87
    )
    
    
    10,265Segment net income (loss)
    
    
    1,274
    
    
    
    88
    
    
    
    
    
    
    
    1,362
    
    
    
    77
    
    
    
    (7
    )
    
    
    1,432Total assets at December 31, 2005
    
    $
    36,335
    
    
    $
    2,303
    
    
    $
    (179
    )
    
    $
    38,459
    
    
    $
    1,751
    
    
    $
    (333
    )
    
    $
    39,877
 Products and Services
 Electric Utilities RevenuesPeriod
    
    Retail
    
    Wholesale
    
    Other
    
    Total(in millions)Three Months Ended September 30, 2006
    
    $
    3,853
    
    
    $
    506
    
    
    $
    120
    
    
    $
    4,479Three Months Ended September 30, 2005
    
    
    3,672
    
    
    
    506
    
    
    
    111
    
    
    
    4,289Nine Months Ended September 30, 2006
    
    $
    9,295
    
    
    $
    1,361
    
    
    $
    347
    
    
    $
    11,003Nine Months Ended September 30, 2005
    
    
    8,496
    
    
    
    1,238
    
    
    
    321
    
    
    
    10,055
 138




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  139




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Item 6. Exhibits.
 (10) Material Contracts
Southern Company
 (a)1
    
    
    
    Southern Company Deferred Compensation Plan, Amended and
Restated as of January 1, 2005.(a)2
    
    
    
    Summary of Non-Employee Director Compensation Arrangements.Alabama Power(b)1
    
    
    
    Southern Company Deferred Compensation Plan, Amended and
Restated as of January 1, 2005. See Exhibit 10(a)1 herein.Georgia Power(c)1
    
    
    
    Southern Company Deferred Compensation Plan, Amended and
Restated as of January 1, 2005. See Exhibit 10(a)1 herein.Gulf Power(d)1
    
    
    
    Southern Company Deferred Compensation Plan, Amended and
Restated as of January 1, 2005. See Exhibit 10(a)1 herein.Mississippi Power(e)1
    
    
    
    Southern Company Deferred Compensation Plan, Amended and
Restated as of January 1, 2005. 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, 2005, File No. 1-3526 as
Exhibit 24(a) and incorporated herein by reference.)Alabama Power(b)1
    
    
    
    Power of Attorney and resolution. (Designated in the Form
10-K for the year ended December 31, 2005, File No. 1-3164 as
Exhibit 24(b) and incorporated herein by reference.)Georgia Power(c)1
    
    
    
    Power of Attorney and resolution. (Designated in the Form
10-K for the year ended December 31, 2005, File No. 1-6468 as
Exhibit 24(c) and incorporated herein by reference.)Gulf Power(d)1
    
    
    
    Power of Attorney and resolution. (Designated in the Form
10-K for the year ended December 31, 2005, File No. 0-2429 as
Exhibit 24(d) and incorporated herein by reference.)
 140




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##### Table of Contents



Item 6. Exhibits. (continued)
 Mississippi Power
 (e)1
    
    
    
    Power of Attorney and resolution. (Designated in the
Form 10-K for the year ended December 31, 2005, File No.
001-11229 as Exhibit 24(e) and incorporated herein by
reference.)Southern Power(f)1
    
    
    
    Power of Attorney and resolution. (Designated in the
Form 10-K for the year ended December 31, 2005, File No.
333-98553 as Exhibit 24(g) and incorporated herein by
reference.)(31) Section 302 CertificationsSouthern Company(a)1
    
    
    
    Certificate of Southern Companys Chief Executive
Officer required by Section 302 of the Sarbanes-Oxley Act
of 2002.(a)2
    
    
    
    Certificate of Southern Companys Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley Act
of 2002.Alabama Power(b)1
    
    
    
    Certificate of Alabama Powers Chief Executive Officer
required by Section 302 of the Sarbanes-Oxley Act of
2002.(b)2
    
    
    
    Certificate of Alabama Powers Chief Financial Officer
required by Section 302 of the Sarbanes-Oxley Act of
2002.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.
 141




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##### Table of Contents



Item 6. Exhibits. (continued)(e)2
    
    
    
    Certificate of Mississippi Powers Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley Act
of 2002.Southern Power(f)1
    
    
    
    Certificate of Southern Powers Chief Executive Officer
required by Section 302 of the Sarbanes-Oxley Act of
2002.(f)2
    
    
    
    Certificate of Southern Powers Chief Financial Officer
required by Section 302 of the Sarbanes-Oxley Act of
2002.(32) Section 906 CertificationsSouthern Company(a)
    
    
    
    Certificate of Southern Companys Chief Executive
Officer and Chief Financial Officer required by Section
906 of the Sarbanes-Oxley Act of 2002.Alabama Power(b)
    
    
    
    Certificate of Alabama Powers Chief Executive Officer
and Chief Financial Officer required by Section 906 of
the Sarbanes-Oxley Act of 2002.Georgia Power(c)
    
    
    
    Certificate of Georgia Powers Chief Executive Officer
and Chief Financial Officer required by Section 906 of
the Sarbanes-Oxley Act of 2002.Gulf Power(d)
    
    
    
    Certificate of Gulf Powers Chief Executive Officer and
Chief Financial Officer required by Section 906 of the
Sarbanes-Oxley Act of 2002.Mississippi Power(e)
    
    
    
    Certificate of Mississippi Powers Chief Executive
Officer and Chief Financial Officer required by Section
906 of the Sarbanes-Oxley Act of 2002.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.
 142




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THE SOUTHERN COMPANY
 
 SIGNATURES
  THE SOUTHERN COMPANYBy
    
    David M. RatcliffeChairman, President and Chief Executive Officer(Principal Executive Officer)By
    
    Thomas A. FanningExecutive Vice President, Chief Financial Officer and Treasurer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
  143




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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)
  144




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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)
  145




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GULF POWER COMPANY
 SIGNATURES
  GULF POWER COMPANYBy
    
    Susan N. StoryPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Ronnie R. LabratoVice President and Chief Financial Officer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
  146




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 SIGNATURES
  MISSISSIPPI POWER COMPANYBy
    
    Anthony J. TopaziPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Frances V. TurnageVice President, Treasurer and Chief Financial Officer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
  147




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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)
  148