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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2005
 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)270 Peachtree Street, N.W.Atlanta, Georgia 30303(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 Maine Corporation)One Energy PlacePensacola, Florida 32520(850) 444-6111001-11229
    
    Mississippi Power Company
    
    64-0205820(A Mississippi Corporation)2992 West BeachGulfport, Mississippi 39501(228) 864-12111-5072
    
    Savannah Electric and Power Company
    
    58-0418070(A Georgia Corporation)600 East Bay StreetSavannah, Georgia 31401(912) 644-7171333-98553
    
    Southern Power Company
    
    58-2598670(A Delaware Corporation)270 Peachtree Street, N.W.Atlanta, Georgia 30303(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 an accelerated filer (as defined by Rule 12b-2 of the Securities
Exchange Act of 1934).
 Registrant
    
    Yes
    
    
    NoThe Southern Company
    
    
    xAlabama Power Company
    
    
    
    
    
    
    xGeorgia Power Company
    
    
    
    
    
    
    xGulf Power Company
    
    
    
    
    
    
    xMississippi Power Company
    
    
    
    
    
    
    xSavannah Electric and Power Company
    
    
    
    
    
    
    xSouthern Power Company
    
    
    
    
    
    
    x
 Description of
    
    Shares OutstandingRegistrant
    
    Common Stock
    
    at June 30, 2005The Southern Company
    
    Par Value $5 Per Share
    
    
    746,811,645Alabama Power Company
    
    Par Value $40 Per Share
    
    
    9,250,000Georgia Power Company
    
    Without Par Value
    
    
    7,761,500Gulf Power Company
    
    Without Par Value
    
    
    992,717Mississippi Power Company
    
    Without Par Value
    
    
    1,121,000Savannah Electric and Power Company
    
    Par Value $5 Per Share
    
    
    10,844,635Southern Power Company
    
    Par Value $0.01 Per Share
    
    
    1,000




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INDEX TO QUARTERLY REPORT ON FORM 10-Q
 June 30, 2005
 PageNumberDEFINITIONS
    
    
    5CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
    
    
    6PART I  FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsThe Southern Company and Subsidiary CompaniesCondensed Consolidated Statements of Income
    
    
    8Condensed Consolidated Statements of Cash Flows
    
    
    9Condensed Consolidated Balance Sheets
    
    
    10Condensed Consolidated Statements of Comprehensive Income
    
    
    12Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Alabama Power CompanyCondensed Statements of Income
    
    
    29Condensed Statements of Comprehensive Income
    
    
    29Condensed Statements of Cash Flows
    
    
    30Condensed Balance Sheets
    
    
    31Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    33Georgia Power CompanyCondensed Statements of Income
    
    
    46Condensed Statements of Comprehensive Income
    
    
    46Condensed Statements of Cash Flows
    
    
    47Condensed Balance Sheets
    
    
    48Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    50Gulf Power CompanyCondensed Statements of Income
    
    
    62Condensed Statements of Comprehensive Income
    
    
    62Condensed Statements of Cash Flows
    
    
    63Condensed Balance Sheets
    
    
    64Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    66Mississippi Power CompanyCondensed Statements of Income
    
    
    76Condensed Statements of Comprehensive Income
    
    
    76Condensed Statements of Cash Flows
    
    
    77Condensed Balance Sheets
    
    
    78Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    80Savannah Electric and Power CompanyCondensed Statements of Income
    
    
    90Condensed Statements of Comprehensive Income
    
    
    90Condensed Statements of Cash Flows
    
    
    91Condensed Balance Sheets
    
    
    92Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    94Southern Power CompanyCondensed Statements of Income
    
    
    104Condensed Statements of Comprehensive Income
    
    
    104Condensed Statements of Cash Flows
    
    
    105Condensed Balance Sheets
    
    
    106Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    108Notes to the Condensed Financial Statements
    
    
    114Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27
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INDEX TO QUARTERLY REPORT ON FORM 10-Q
 June 30, 2005
 PageNumberPART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    129Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    129Item 3. Defaults Upon Senior Securities
    
    InapplicableItem 4. Submission of Matters to a Vote of Security Holders
    
    
    130Item 5. Other Information
    
    InapplicableItem 6. Exhibits
    
    
    132Signatures
    
    
    137
  4




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DEFINITIONS
 TERM
    
    MEANINGAlabama Power
    
    Alabama Power CompanyAFUDC
    
    Allowance for funds used during constructionBMA
    
    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 AgencyFASB
    
    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 endedDecember 31, 2004Georgia Power
    
    Georgia Power CompanyGulf Power
    
    Gulf Power CompanyIIC
    
    Intercompany Interchange ContractIRC
    
    Internal Revenue Code of 1986, as amendedIRS
    
    Internal Revenue ServiceLIBOR
    
    London Interbank Offered RateMirant
    
    Mirant CorporationMississippi Power
    
    Mississippi Power CompanyMoodys
    
    Moodys Investors Service, Inc.MW
    
    MegawattsNRC
    
    Nuclear Regulatory CommissionPEP
    
    Performance Evaluation PlanPPA
    
    Purchase Power AgreementPSC
    
    Public Service CommissionPUHCA
    
    Public Utility Holding Company Act of 1935, as amendedretail operating companies
    
    Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Savannah ElectricRTO
    
    Regional Transmission OrganizationS&P
    
    Standard and Poors, a division of The McGraw-Hill Companies, Inc.Savannah Electric
    
    Savannah Electric and Power CompanySCS
    
    Southern Company Services, Inc.SEC
    
    Securities and Exchange CommissionSouthern Company
    
    The Southern CompanySouthern Company GAS
    
    Southern Company Gas LLCSouthern Company system
    
    Southern Company, the retail operating companies, Southern Power, and other subsidiariesSouthern Power
    
    Southern Power CompanySuper Southeast
    
    Southern Companys traditional
service territory, Alabama, Florida, Georgia, and Mississippi, plus the surrounding states of Kentucky, Louisiana, North Carolina, South Carolina, Tennessee, and Virginia
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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, 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 related 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 and gas, 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;
    
    the performance of projects undertaken by the non-utility businesses and the success of efforts to invest in and
develop new opportunities;
    
    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.
 The registrants expressly disclaim any obligation to update any forward-looking statements.
 6




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THE SOUTHERN COMPANY
 AND SUBSIDIARY COMPANIES
 7




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    2,555,091
    
    
    $
    2,477,856
    
    
    $
    4,823,900
    
    
    $
    4,621,945Sales for resale
    
    
    384,909
    
    
    
    343,793
    
    
    
    731,974
    
    
    
    694,530Other electric revenues
    
    
    109,347
    
    
    
    94,220
    
    
    
    210,442
    
    
    
    187,791Other revenues
    
    
    95,088
    
    
    
    93,026
    
    
    
    242,579
    
    
    
    236,944Total operating revenues
    
    
    3,144,435
    
    
    
    3,008,895
    
    
    
    6,008,895
    
    
    
    5,741,210Operating Expenses:Fuel
    
    
    1,012,474
    
    
    
    869,978
    
    
    
    1,933,858
    
    
    
    1,708,750Purchased power
    
    
    123,677
    
    
    
    218,066
    
    
    
    221,893
    
    
    
    337,824Other operations
    
    
    579,452
    
    
    
    569,443
    
    
    
    1,105,551
    
    
    
    1,083,458Maintenance
    
    
    259,975
    
    
    
    268,459
    
    
    
    554,067
    
    
    
    505,956Depreciation and amortization
    
    
    287,879
    
    
    
    233,449
    
    
    
    580,488
    
    
    
    474,103Taxes other than income taxes
    
    
    162,863
    
    
    
    154,583
    
    
    
    325,861
    
    
    
    313,067Total operating expenses
    
    
    2,426,320
    
    
    
    2,313,978
    
    
    
    4,721,718
    
    
    
    4,423,158Operating Income
    
    
    718,115
    
    
    
    694,917
    
    
    
    1,287,177
    
    
    
    1,318,052Other Income and (Expense):Allowance for equity funds used during construction
    
    
    14,011
    
    
    
    9,467
    
    
    
    30,870
    
    
    
    17,651Interest income
    
    
    6,223
    
    
    
    6,455
    
    
    
    11,495
    
    
    
    14,109Equity in losses of unconsolidated subsidiaries
    
    
    (29,574
    )
    
    
    (21,253
    )
    
    
    (52,678
    )
    
    
    (46,569
    )Leveraged lease income
    
    
    18,677
    
    
    
    17,005
    
    
    
    36,925
    
    
    
    32,932Interest expense, net of amounts capitalized
    
    
    (154,216
    )
    
    
    (138,613
    )
    
    
    (293,202
    )
    
    
    (269,198
    )Interest expense to affiliate trusts
    
    
    (31,931
    )
    
    
    (31,985
    )
    
    
    (63,861
    )
    
    
    (31,985
    )Distributions on mandatorily redeemable preferred
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,168
    )Preferred dividends of subsidiaries
    
    
    (7,402
    )
    
    
    (9,539
    )
    
    
    (14,804
    )
    
    
    (15,011
    )Other income (expense), net
    
    
    (1,895
    )
    
    
    (15,302
    )
    
    
    (7,631
    )
    
    
    (23,464
    )Total other income and (expense)
    
    
    (186,107
    )
    
    
    (183,765
    )
    
    
    (352,886
    )
    
    
    (352,703
    )Earnings Before Income Taxes
    
    
    532,008
    
    
    
    511,152
    
    
    
    934,291
    
    
    
    965,349Income taxes
    
    
    145,187
    
    
    
    159,020
    
    
    
    224,510
    
    
    
    282,075Consolidated Net Income
    
    $
    386,821
    
    
    $
    352,132
    
    
    $
    709,781
    
    
    $
    683,274Common Stock Data:Consolidated basic earnings per share
    
    $
    0.52
    
    
    $
    0.48
    
    
    $
    0.95
    
    
    $
    0.93Consolidated diluted earnings per share
    
    $
    0.52
    
    
    $
    0.47
    
    
    $
    0.95
    
    
    $
    0.92Average number of basic shares of common
stock outstanding (in thousands)
    
    
    746,823
    
    
    
    738,185
    
    
    
    745,424
    
    
    
    737,412Average number of diluted shares of common
stock outstanding (in thousands)
    
    
    751,016
    
    
    
    742,453
    
    
    
    749,360
    
    
    
    741,920Cash dividends paid per share of common stock
    
    $
    0.3725
    
    
    $
    0.350
    
    
    $
    0.7300
    
    
    $
    0.700
  8




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 For the Six MonthsEnded June 30,2005
    
    
    2004(in thousands)Operating Activities:Consolidated net income
    
    $
    709,781
    
    
    $
    683,274Adjustments to reconcile consolidated net income
to net cash provided from operating activities Depreciation and amortization
    
    
    687,205
    
    
    
    569,766Deferred income taxes and investment tax credits
    
    
    175,751
    
    
    
    325,804Allowance for equity funds used during construction
    
    
    (30,870
    )
    
    
    (17,651
    )Equity in losses of unconsolidated subsidiaries
    
    
    52,678
    
    
    
    46,569Leveraged lease income
    
    
    (36,925
    )
    
    
    (32,932
    )Pension, postretirement, and other employee benefits
    
    
    25,860
    
    
    
    8,794Tax benefit of stock options
    
    
    36,963
    
    
    
    15,110Hedge settlements
    
    
    (19,860
    )
    
    
    5,548Natural disaster reserve accounting order
    
    
    45,000
    
    
    
    Other, net
    
    
    (48,388
    )
    
    
    (53,537
    )Changes in certain current assets and liabilities Receivables, net
    
    
    (361,124
    )
    
    
    (282,363
    )Fossil fuel stock
    
    
    (112,968
    )
    
    
    (7,501
    )Materials and supplies
    
    
    (21,615
    )
    
    
    (9,699
    )Other current assets
    
    
    43,757
    
    
    
    (5,916
    )Accounts payable
    
    
    (109,448
    )
    
    
    (24,771
    )Accrued taxes
    
    
    (80,978
    )
    
    
    (138,495
    )Accrued compensation
    
    
    (210,061
    )
    
    
    (199,683
    )Other current liabilities
    
    
    47,384
    
    
    
    19,158Net cash provided from operating activities
    
    
    792,142
    
    
    
    901,475Investing Activities:Gross property additions
    
    
    (1,183,777
    )
    
    
    (1,039,120
    )Investment in unconsolidated subsidiaries
    
    
    (51,870
    )
    
    
    (49,276
    )Cost of removal net of salvage
    
    
    (41,485
    )
    
    
    (42,078
    )Construction receivables/payables, net
    
    
    (59,860
    )
    
    
    (20,768
    )Other
    
    
    44,808
    
    
    
    (12,566
    )Net cash used for investing activities
    

    
    (1,292,184
    )
    
    
    (1,163,808
    )Financing Activities:Increase in notes payable, net
    
    
    510,947
    
    
    
    170,439Proceeds Long-term debt
    
    
    870,695
    
    
    
    840,122Mandatorily redeemable preferred securities
    
    
    
    
    
    
    200,000Preferred stock
    
    
    
    
    
    
    175,000Common stock
    
    
    148,609
    
    
    
    62,059Redemptions Long-term debt
    
    
    (436,474
    )
    
    
    (493,836
    )Mandatorily redeemable preferred securities
    
    
    
    
    
    
    (240,000
    )Preferred stock
    
    
    
    
    
    
    (28,388
    )Common stock repurchased
    
    
    (62,321
    )
    
    
    Special deposits  redemption funds
    
    
    (102,481
    )
    
    
    Payment of common stock dividends
    
    
    (543,637
    )
    
    
    (515,824
    )Other
    
    
    (21,737
    )
    
    
    (27,348
    )Net cash provided from financing activities
    
    
    363,601
    
    
    
    142,224Net Change in Cash and Cash Equivalents
    
    
    (136,441
    )
    
    
    (120,109
    )Cash and Cash Equivalents at Beginning of Period
    
    
    373,199
    
    
    
    311,274Cash and Cash Equivalents at End of Period
    
    $
    236,758
    
    
    $
    191,165Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $12,589 and $22,613 capitalized for 2005 and 2004, respectively)
    
    $
    312,975
    
    
    $
    277,681Income taxes (net of refunds)
    
    $
    45,896
    
    
    $
    30,810
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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 At June 30,
    
    
    At December 31,Assets
    
    2005
    
    
    2004(in thousands)Current Assets:Cash and cash equivalents
    
    $
    236,758
    
    
    $
    373,199Receivables Customer accounts receivable
    
    
    827,910
    
    
    
    755,436Unbilled revenues
    
    
    357,901
    
    
    
    304,479Under recovered regulatory clause revenues
    
    
    372,617
    
    
    
    530,898Special deposits  redemption funds
    
    
    100,005
    
    
    
    5Other accounts and notes receivable
    
    
    306,626
    
    
    
    310,966Accumulated provision for uncollectible accounts
    
    
    (37,316
    )
    
    
    (46,100
    )Fossil fuel stock, at average cost
    
    
    438,338
    
    
    
    325,370Vacation pay
    
    
    105,292
    
    
    
    105,437Materials and supplies, at average cost
    
    
    623,434
    
    
    
    601,820Prepaid expenses
    
    
    140,770
    
    
    
    126,059Other
    
    
    113,662
    
    
    
    83,665Total current assets
    
    
    3,585,997
    
    
    
    3,471,234Property, Plant, and Equipment:In service
    
    
    42,905,926
    
    
    
    41,437,517Less accumulated depreciation
    
    
    15,289,111
    
    
    
    14,950,93927,616,815
    
    
    
    26,486,578Nuclear fuel, at amortized cost
    
    
    212,535
    
    
    
    218,133Construction work in progress
    
    
    1,065,888
    
    
    
    1,656,772Total property, plant, and equipment
    
    
    28,895,238
    
    
    
    28,361,483Other Property and Investments:Nuclear decommissioning trusts, at fair value
    
    
    920,020
    
    
    
    904,828Leveraged leases
    
    
    1,041,834
    
    
    
    976,000Other
    
    
    359,765
    
    
    
    380,904Total other property and investments
    
    
    2,321,619
    
    
    
    2,261,732Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    877,424
    
    
    
    864,477Prepaid pension costs
    
    
    1,004,737
    
    
    
    985,633Unamortized debt issuance expense
    
    
    164,459
    
    
    
    153,351Unamortized loss on reacquired debt
    
    
    316,101
    
    
    
    323,394Deferred under recovered regulatory clause revenues
    
    
    362,692
    
    
    
    Other regulatory assets
    
    
    199,314
    
    
    
    246,644Other
    
    
    342,561
    
    
    
    294,138Total deferred charges and other assets
    
    
    3,267,288
    
    
    
    2,867,637Total Assets
    
    $
    38,070,142
    
    
    $
    36,962,086
  10




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 At June 30,
    
    
    At December 31,Liabilities and Stockholders' Equity
    
    2005
    
    
    2004(in thousands)Current Liabilities:Securities due within one year
    
    $
    1,168,641
    
    
    $
    983,282Notes payable
    
    
    937,341
    
    
    
    426,394Accounts payable
    
    
    719,928
    
    
    
    884,240Customer deposits
    
    
    209,858
    
    
    
    200,454Accrued taxes Income taxes
    
    
    113,103
    
    
    
    47,237Other
    
    
    255,224
    
    
    
    243,200Accrued interest
    
    
    189,946
    
    
    
    179,301Accrued vacation pay
    
    
    137,186
    
    
    
    137,452Accrued compensation
    
    
    221,863
    
    
    
    431,023Other
    
    
    337,844
    
    
    
    278,477Total current liabilities
    
    
    4,290,934
    
    
    
    3,811,060Long-term Debt
    
    
    10,727,802
    
    
    
    10,488,076Long-term Debt Payable to Affiliated Trusts
    
    
    1,960,644
    
    
    
    1,960,644Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    5,331,754
    
    
    
    5,237,162Deferred credits related to income taxes
    
    
    327,646
    
    
    
    372,528Accumulated deferred investment tax credits
    
    
    539,266
    
    
    
    552,108Employee benefit obligations
    
    
    908,060
    
    
    
    864,216Asset retirement obligations
    
    
    932,397
    
    
    
    903,385Other cost of removal obligations
    
    
    1,317,722
    
    
    
    1,295,871Miscellaneous regulatory liabilities
    
    
    331,926
    
    
    
    327,710Other
    
    
    292,111
    
    
    
    311,167Total deferred credits and other liabilities
    
    
    9,980,882
    
    
    
    9,864,147Total Liabilities
    
    
    26,960,262
    
    
    
    26,123,927Preferred Stock of Subsidiaries
    
    
    560,442
    
    
    
    560,472Common Stockholders Equity:Common stock, par value $5 per share Authorized  1 billion sharesIssued  June 30, 2005: 748,895,394 Shares; December 31, 2004: 741,734,998 SharesTreasury  June 30, 2005: 2,083,749 Shares; December 31, 2004: 240,425 SharesPar value
    
    
    3,744,477
    
    
    
    3,708,675Paid-in capital
    
    
    1,018,964
    
    
    
    868,747Treasury, at cost
    
    
    (68,691
    )
    
    
    (5,557
    )Retained earnings
    
    
    6,004,775
    
    
    
    5,838,986Accumulated other comprehensive loss
    
    
    (150,087
    )
    
    
    (133,164
    )Total Common Stockholders Equity
    
    
    10,549,438
    
    
    
    10,277,687Total Liabilities and Stockholders Equity
    
    $
    38,070,142
    
    
    $
    36,962,086
  11




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Consolidated Net Income
    
    $
    386,821
    
    
    $
    352,132
    
    
    $
    709,781
    
    
    $
    683,274Other comprehensive income (loss):Change in fair value of marketable securities, net of tax
of $(346), $(754), $(2,075) and $3,307, respectively
    
    
    (598
    )
    
    
    (1,721
    )
    
    
    (3,924
    )
    
    
    5,902Changes in fair value of qualifying hedges, net of tax
of $(12,769), $15,514, $(10,744) and $7,803,
respectively
    
    
    (20,515
    )
    
    
    25,274
    
    
    
    (17,352
    )
    
    
    12,570Reclassification adjustment for amounts included in net
income,
net of tax of $988, $2,214, $2,998 and $4,385,
respectively
    
    
    1,202
    
    
    
    3,570
    
    
    
    4,353
    
    
    
    7,060COMPREHENSIVE INCOME
    
    $
    366,910
    
    
    $
    379,255
    
    
    $
    692,858
    
    
    $
    708,806
  12




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Earnings
   Increase (Decrease)Second Quarter
    
    Year-To-Date(in thousands)
    
    %
    
    (in thousands)
    
    %Retail revenues
    
    $
    77,235
    
    
    
    3.1
    
    
    $
    201,955
    
    
    
    4.4Sales for resale
    
    
    41,116
    
    
    
    12.0
    
    
    
    37,444
    
    
    
    5.4Other electric revenues
    
    
    15,127
    
    
    
    16.1
    
    
    
    22,651
    
    
    
    12.1Fuel expense
    
    
    142,496
    
    
    
    16.4
    
    
    
    225,108
    
    
    
    13.2Purchased power expense
    
    
    (94,389
    )
    
    
    (43.3
    )
    
    
    (115,931
    )
    
    
    (34.3
    )Maintenance expense
    
    
    (8,484
    )
    
    
    (3.2
    )
    
    
    48,111
    
    
    
    9.5Depreciation and amortization expense
    
    
    54,430
    
    
    
    23.3
    
    
    
    106,385
    
    
    
    22.4Allowance for equity funds used during
construction
    
    
    4,544
    
    
    
    48.0
    
    
    
    13,219
    
    
    
    74.9Interest expense, net of amounts capitalized
    
    
    15,603
    
    
    
    11.3
    
    
    
    24,004
    
    
    
    8.9Other income (expense), net
    
    
    13,407
    
    
    
    87.6
    
    
    
    15,833
    
    
    
    67.5Income taxes
    
    
    (13,833
    )
    
    
    (8.7
    )
    
    
    (57,565
    )
    
    
    (20.4
    )
 13




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Retail revenues.
  Second Quarter
    
    
    
    
    
    Year-to-Date2005
    
    
    
    
    
    2005(in millions)
    
    % change
    
    (in millions)
    
    % changeRetail  prior year
    
    $
    2,478
    
    
    
    
    
    
    $
    4,622Change in Base rates
    
    
    53
    
    
    
    2.1
    
    
    
    101
    
    
    
    2.2Sales growth
    
    
    28
    
    
    
    1.1
    
    
    
    64
    
    
    
    1.4Weather
    
    
    (47
    )
    
    
    (1.9
    )
    
    
    (73
    )
    
    
    (1.6
    )Fuel cost recovery
    
    
    31
    
    
    
    1.3
    
    
    
    95
    
    
    
    2.1Other cost recovery
    
    
    12
    
    
    
    0.5
    
    
    
    15
    
    
    
    0.3Retail  current year
    
    $
    2,555
    
    
    
    3.1
    %
    
    $
    4,824
    
    
    
    4.4
    %
 Sales for resale
 Other electric revenues.
 Fuel expense
 14




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Purchased power expense.
 Maintenance expense.
 Depreciation and amortization expense
 Allowance for equity funds used during construction
 Interest expense, net of amounts capitalized.
 Other income (expense), net.
 Income taxes.
 15




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  FUTURE EARNINGS POTENTIAL
  Environmental Matters
  New Source Review Actions
  16




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Plant Wansley Environmental Litigation
  Other Environmental Matters
 2 x x 2
    FERC and State PSC Matters
 Market-Based Rate Authority
 
 17




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    Intercompany Interchange Contract
   18




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Generation Interconnection Agreements
  Retail Fuel Cost Recovery
    Storm Damage Cost Recovery
  19




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    Mirant Related Matters
   20




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     Income Tax Matters
 Leveraged Lease Transactions
  21




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Synthetic Fuel Tax Credits
  Other Matters
     ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  22




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  New Accounting Standards
    FINANCIAL CONDITION AND LIQUIDITY
 Overview
    23




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Capital Requirements and Contractual Obligations
  Sources of Capital
   Off-Balance Sheet Financing Arrangements
  Credit Rating Risk
  24




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Market Price Risk
    Second Quarter2005
    
    Year-to-DateChanges
    
    ChangesFair Value(in millions)Contracts beginning of period
    
    $
    119.5
    
    
    $
    10.5Contracts realized or settled
    
    
    (45.1
    )
    
    
    (35.1
    )New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (10.4
    )
    
    
    88.6Contracts at June 30, 2005
    
    $
    64.0
    
    
    $
    64.0
 
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered
into during the period. 25




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Source of June 30, 2005Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    

13 Years(in millions)Actively quoted
    
    $
    64.9
    
    
    $
    40.1
    
    
    $
    24.8External sources
    
    
    (0.9
    )
    
    
    (0.9
    )
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2005
    
    $
    64.0
    
    
    $
    39.2
    
    
    $
    24.8
  Financing Activities
    26




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##### Table of Contents



PART I
 
 Item 3. Quantitative And Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
     27




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##### Table of Contents



ALABAMA POWER COMPANY
 28




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##### Table of Contents



ALABAMA POWER COMPANY
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    863,155
    
    
    $
    847,148
    
    
    $
    1,572,241
    
    
    $
    1,591,781Sales for resale Non-affiliates
    
    
    130,598
    
    
    
    120,491
    
    
    
    245,012
    
    
    
    232,436Affiliates
    
    
    47,934
    
    
    
    53,945
    
    
    
    155,220
    
    
    
    119,733Other revenues
    
    
    44,152
    
    
    
    37,233
    
    
    
    83,102
    
    
    
    74,561Total operating revenues
    
    
    1,085,839
    
    
    
    1,058,817
    
    
    
    2,055,575
    
    
    
    2,018,511Operating Expenses:Fuel
    
    
    323,328
    
    
    
    277,110
    
    
    
    623,148
    
    
    
    549,089Purchased power Non-affiliates
    
    
    34,316
    
    
    
    65,508
    
    
    
    58,182
    
    
    
    94,150Affiliates
    
    
    61,487
    
    
    
    60,400
    
    
    
    109,785
    
    
    
    120,332Other operations
    
    
    168,987
    
    
    
    160,889
    
    
    
    315,277
    
    
    
    307,275Maintenance
    
    
    80,858
    
    
    
    90,718
    
    
    
    204,412
    
    
    
    171,105Depreciation and amortization
    
    
    101,019
    
    
    
    106,146
    
    
    
    209,510
    
    
    
    211,499Taxes other than income taxes
    
    
    62,985
    
    
    
    59,328
    
    
    
    125,534
    
    
    
    123,775Total operating expenses
    
    
    832,980
    
    
    
    820,099
    
    
    
    1,645,848
    
    
    
    1,577,225Operating Income
    
    
    252,859
    
    
    
    238,718
    
    
    
    409,727
    
    
    
    441,286Other Income and (Expense):Allowance for equity funds used during construction
    
    
    4,785
    
    
    
    3,914
    
    
    
    10,439
    
    
    
    8,024Interest income
    
    
    4,001
    
    
    
    3,890
    
    
    
    7,569
    
    
    
    8,329Interest expense, net of amounts capitalized
    
    
    (50,415
    )
    
    
    (52,367
    )
    
    
    (96,722
    )
    
    
    (102,446
    )Interest expense to affiliate trusts
    
    
    (4,060
    )
    
    
    (4,181
    )
    
    
    (8,119
    )
    
    
    (4,181
    )Distributions on mandatorily redeemable preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,938
    )Other income (expense), net
    
    
    (1,032
    )
    
    
    (6,415
    )
    
    
    (3,837
    )
    
    
    (10,753
    )Total other income and (expense)
    
    
    (46,721
    )
    
    
    (55,159
    )
    
    
    (90,670
    )
    
    
    (104,965
    )Earnings Before Income Taxes
    
    
    206,138
    
    
    
    183,559
    
    
    
    319,057
    
    
    
    336,321Income taxes
    
    
    78,573
    
    
    
    72,567
    
    
    
    92,018
    
    
    
    129,835Net Income
    
    
    127,565
    
    
    
    110,992
    
    
    
    227,039
    
    
    
    206,486Dividends on Preferred Stock
    
    
    6,072
    
    
    
    6,705
    
    
    
    12,144
    
    
    
    11,452Net Income After Dividends on Preferred Stock
    
    $
    121,493
    
    
    $
    104,287
    
    
    $
    214,895
    
    
    $
    195,034
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred Stock
    
    $
    121,493
    
    
    $
    104,287
    
    
    $
    214,895
    
    
    $
    195,034Other comprehensive income (loss):Change in fair value of marketable securities, net of tax
of $285 and $285, respectively
    
    
    
    
    
    
    470
    
    
    
    
    
    
    
    470Changes in fair value of qualifying hedges, net of tax
of $(4,490), $11,847, $(5,203) and $5,685, respectively
    
    
    (7,386
    )
    
    
    19,486
    
    
    
    (8,558
    )
    
    
    9,350Reclassification adjustment for amounts included in net income,
net of tax of $(347), $718, $(281) and $1,572,
respectively
    
    
    (569
    )
    
    
    1,180
    
    
    
    (461
    )
    
    
    2,585COMPREHENSIVE INCOME
    
    $
    113,538
    
    
    $
    125,423
    
    
    $
    205,876
    
    
    $
    207,439
  29




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##### Table of Contents



ALABAMA POWER COMPANY
 For the Six MonthsEnded June 30,2005
    
    
    2004(in thousands)Operating Activities:Net income
    
    $
    227,039
    
    
    $
    206,486Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    247,403
    
    
    
    239,039Deferred income taxes and investment tax credits, net
    
    
    17,335
    
    
    
    85,355Deferred revenues
    
    
    (6,689
    )
    
    
    (5,552
    )Allowance for equity funds used during construction
    
    
    (10,439
    )
    
    
    (8,024
    )Pension, postretirement, and other employee benefits
    
    
    (1,769
    )
    
    
    (19,862
    )Tax benefit of stock options
    
    
    13,373
    
    
    
    5,419Hedge settlements
    
    
    (21,445
    )
    
    
    5,548Natural disaster reserve accounting order
    
    
    45,000
    
    
    
    Other, net
    
    
    (22,001
    )
    
    
    (28,587
    )Changes in certain current assets and liabilities Receivables, net
    
    
    (58,981
    )
    
    
    (105,447
    )Fossil fuel stock
    
    
    (59,524
    )
    
    
    (1,631
    )Materials and supplies
    
    
    (8,228
    )
    
    
    (3,800
    )Other current assets
    
    
    7,598
    
    
    
    11,088Accounts payable
    
    
    (73,305
    )
    
    
    (105,485
    )Accrued taxes
    
    
    (11,344
    )
    
    
    33,647Accrued compensation
    
    
    (29,589
    )
    
    
    (32,216
    )Other current liabilities
    
    
    26,527
    
    
    
    15,875Net cash provided from operating activities
    
    
    280,961
    
    
    
    291,853Investing Activities:Gross property additions
    
    
    (379,655
    )
    
    
    (376,205
    )Cost of removal net of salvage
    
    
    (25,453
    )
    
    
    (18,743
    )Other
    
    
    9,041
    
    
    
    14,567Net cash used for investing activities
    
    
    (396,067
    )
    
    
    (380,381
    )Financing Activities:Increase in notes payable, net
    
    
    
    
    
    
    45,978Proceeds Senior notes
    
    
    250,000
    
    
    
    350,000Preferred stock
    
    
    
    
    
    
    100,000Common stock
    
    
    40,000
    
    
    
    20,000Redemptions Senior notes
    
    
    
    
    
    
    (200,000
    )Other long-term debt
    
    
    (4
    )
    
    
    (1,443
    )Payment of preferred stock dividends
    
    
    (10,815
    )
    
    
    (9,274
    )Payment of common stock dividends
    
    
    (204,950
    )
    
    
    (218,650
    )Other
    
    
    (2,438
    )
    
    
    (13,035
    )Net cash provided from financing activities
    
    
    71,793
    
    
    
    73,576Net Change in Cash and Cash Equivalents
    
    
    (43,313
    )
    
    
    (14,952
    )Cash and Cash Equivalents at Beginning of Period
    
    
    84,461
    
    
    
    42,752Cash and Cash Equivalents at End of Period
    
    $
    41,148
    
    
    $
    27,800Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $4,133 and $3,343 capitalized for 2005 and 2004, respectively)
    
    $
    81,932
    
    
    $
    81,471Income taxes (net of refunds)
    
    $
    84,604
    
    
    $
    9,554
  30




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##### Table of Contents



ALABAMA POWER COMPANY
 At June 30,
    
    
    At December 31,Assets
    
    2005
    
    
    2004(in thousands)Current Assets:Cash and cash equivalents
    
    $
    41,148
    
    
    $
    84,461Receivables Customer accounts receivable
    
    
    267,864
    
    
    
    235,221Unbilled revenues
    
    
    109,008
    
    
    
    96,486Under recovered regulatory clause revenues
    
    
    134,705
    
    
    
    119,773Other accounts and notes receivable
    
    
    45,479
    
    
    
    52,145Affiliated companies
    
    
    49,064
    
    
    
    61,149Accumulated provision for uncollectible accounts
    
    
    (6,975
    )
    
    
    (5,404
    )Fossil fuel stock, at average cost
    
    
    117,312
    
    
    
    57,787Vacation pay
    
    
    36,494
    
    
    
    36,494Materials and supplies, at average cost
    
    
    246,147
    
    
    
    237,919Prepaid expenses
    
    
    56,400
    
    
    
    61,897Other
    
    
    25,424
    
    
    
    16,283Total current assets
    
    
    1,122,070
    
    
    
    1,054,211Property, Plant, and Equipment:In service
    
    
    15,054,722
    
    
    
    14,636,168Less accumulated provision for depreciation
    
    
    5,218,991
    
    
    
    5,097,9309,835,731
    
    
    
    9,538,238Nuclear fuel, at amortized cost
    
    
    82,968
    
    
    
    93,388Construction work in progress
    
    
    347,683
    
    
    
    470,844Total property, plant, and equipment
    
    
    10,266,382
    
    
    
    10,102,470Other Property and Investments:Equity investments in unconsolidated subsidiaries
    
    
    45,278
    
    
    
    45,455Nuclear decommissioning trusts, at fair value
    
    
    453,365
    
    
    
    445,634Other
    
    
    35,451
    
    
    
    36,192Total other property and investments
    
    
    534,094
    
    
    
    527,281Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    329,514
    
    
    
    316,528Prepaid pension costs
    
    
    501,005
    
    
    
    489,193Unamortized debt issuance expense
    
    
    28,797
    
    
    
    28,392Unamortized loss on reacquired debt
    
    
    105,300
    
    
    
    109,403Other regulatory assets
    
    
    9,045
    
    
    
    47,811Other
    
    
    112,402
    
    
    
    108,170Total deferred charges and other assets
    
    
    1,086,063
    
    
    
    1,099,497Total Assets
    
    $
    13,008,609
    
    
    $
    12,783,459
  31




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##### Table of Contents



ALABAMA POWER COMPANY
 At June 30,
    
    
    At December 31,Liabilities and Stockholder's Equity
    
    2005
    
    
    2004(in thousands)Current Liabilities:Securities due within one year
    
    $
    421,505
    
    
    $
    225,005Accounts payable Affiliated
    
    
    122,269
    
    
    
    141,096Other
    
    
    123,095
    
    
    
    198,834Customer deposits
    
    
    52,671
    
    
    
    49,598Accrued taxes Income taxes
    
    
    39,313
    
    
    
    28,498Other
    
    
    72,876
    
    
    
    29,688Accrued interest
    
    
    46,744
    
    
    
    40,029Accrued vacation pay
    
    
    36,494
    
    
    
    36,494Accrued compensation
    
    
    47,269
    
    
    
    76,858Other
    
    
    63,254
    
    
    
    34,290Total current liabilities
    
    
    1,025,490
    
    
    
    860,390Long-term Debt
    
    
    3,909,298
    
    
    
    3,855,257Long-term Debt Payable to Affiliated Trusts
    
    
    309,279
    
    
    
    309,279Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    1,881,285
    
    
    
    1,885,120Deferred credits related to income taxes
    
    
    111,720
    
    
    
    148,395Accumulated deferred investment tax credits
    
    
    200,604
    
    
    
    205,353Employee benefit obligations
    
    
    204,881
    
    
    
    194,837Deferred capacity revenues
    
    
    18,367
    
    
    
    25,056Asset retirement obligations
    
    
    396,172
    
    
    
    383,621Asset retirement obligation regulatory liability
    
    
    152,915
    
    
    
    159,230Other cost of removal obligations
    
    
    602,752
    
    
    
    597,147Miscellaneous regulatory liabilities
    
    
    50,032
    
    
    
    47,535Other
    
    
    16,166
    
    
    
    36,988Total deferred credits and other liabilities
    
    
    3,634,894
    
    
    
    3,683,282Total Liabilities
    
    
    8,878,961
    
    
    
    8,708,208Preferred Stock
    
    
    465,046
    
    
    
    465,047Common Stockholders Equity:Common stock, par value $40 per share Authorized - 15,000,000 sharesOutstanding - 9,250,000 shares
    
    
    370,000
    
    
    
    330,000Paid-in capital
    
    
    1,968,556
    
    
    
    1,955,183Retained earnings
    
    
    1,351,093
    
    
    
    1,341,049Accumulated other comprehensive loss
    
    
    (25,047
    )
    
    
    (16,028
    )Total common stockholders equity
    
    
    3,664,602
    
    
    
    3,610,204Total Liabilities and Stockholders Equity
    
    $
    13,008,609
    
    
    $
    12,783,459
  32




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ALABAMA POWER COMPANY
 
 
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Earnings
  33




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##### Table of Contents



ALABAMA POWER COMPANY
 
  Increase (Decrease)Second Quarter
    
    
    Year-To-Date(in thousands)
    
    
    %
    
    
    (in thousands)
    
    
    %Retail revenues
    
    $
    16,007
    
    
    
    1.9
    
    
    $
    (19,540
    )
    
    
    (1.2
    )Sales for resale-non-affiliates
    
    
    10,107
    
    
    
    8.4
    
    
    
    12,576
    
    
    
    5.4Sales for resale-affiliates
    
    
    (6,011
    )
    
    
    (11.1
    )
    
    
    35,487
    
    
    
    29.6Other revenues
    
    
    6,919
    
    
    
    18.6
    
    
    
    8,541
    
    
    
    11.5Fuel expense
    
    
    46,218
    
    
    
    16.7
    
    
    
    74,059
    
    
    
    13.5Purchased power -non-affiliates
    
    
    (31,192
    )
    
    
    (47.6
    )
    
    
    (35,968
    )
    
    
    (38.2
    )Purchased power -affiliates
    
    
    1,087
    
    
    
    1.8
    
    
    
    (10,547
    )
    
    
    (8.8
    )Maintenance expense
    
    
    (9,860
    )
    
    
    (10.9
    )
    
    
    33,307
    
    
    
    19.5Income taxes
    
    
    6,006
    
    
    
    8.3
    
    
    
    (37,817
    )
    
    
    (29.1
    )
 Retail revenues
  Second Quarter
    
    
    
    
    
    
    Year-to-Date2005
    
    
    
    
    
    
    2005(in millions)
    
    
    % change
    
    
    (in millions)
    
    
    % changeRetail  prior year
    
    $
    847
    
    
    
    
    
    
    $
    1,592Change in Base rates
    
    
    11
    
    
    
    1.3
    
    
    
    15
    
    
    
    0.9Sales growth
    
    
    13
    
    
    
    1.5
    
    
    
    20
    
    
    
    1.3Weather
    
    
    (17
    )
    
    
    (2.0
    )
    
    
    (29
    )
    
    
    (1.8
    )Energy cost recovery
    
    
    7
    
    
    
    0.8
    
    
    
    (28
    )
    
    
    (1.8
    )Rate CNP-PPA cost recovery
    
    
    2
    
    
    
    0.3
    
    
    
    2
    
    
    
    0.2Retail  current year
    
    $
    863
    
    
    
    1.9
    %
    
    $
    1,572
    
    
    
    (1.2
    )%
 Sales for resale  non-affiliates
 34




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##### Table of Contents



ALABAMA POWER COMPANY
 
  Sales for resale  affiliates.
 Other revenues.
 Fuel expense.
 Purchased power non-affiliates.
 Purchased power affiliates
 35




---



##### Table of Contents



ALABAMA POWER COMPANY
 
  Maintenance expense.
 Income tax expense.
 FUTURE EARNINGS POTENTIAL
  Environmental Matters
  36




---



##### Table of Contents



ALABAMA POWER COMPANY
 
 New Source Review Actions
  Environmental Statutes and Regulations
 2 x x 2
   FERC and Alabama PSC Matters
 Market-Based Rate Authority
 
 37




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##### Table of Contents



ALABAMA POWER COMPANY
 
    Intercompany Interchange Contract
   38




---



##### Table of Contents



ALABAMA POWER COMPANY
 
 Generation Interconnection Agreements
  Hydro Relicensing
  Nuclear Relicensing
  Environmental Rate Filing
  39




---



##### Table of Contents



ALABAMA POWER COMPANY
 
  Retail Fuel Cost Recovery
  Natural Disaster Cost Recovery
  Other Matters
   40




---



##### Table of Contents



ALABAMA POWER COMPANY
 
  ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
 
 New Accounting Standards
    FINANCIAL CONDITION AND LIQUIDITY
 Overview
  41




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##### Table of Contents



ALABAMA POWER COMPANY
 
  Capital Requirements and Contractual Obligations
 
 Sources of Capital
   Credit Rating Risk
  42




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##### Table of Contents



ALABAMA POWER COMPANY
 
 Market Price Risk
    Second Quarter2005
    
    
    Year-to-DateChanges
    
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    38,162
    
    
    $
    4,017Contracts realized or settled
    
    
    (15,190
    )
    
    
    (11,370
    )New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (3,717
    )
    
    
    26,608Contracts at June 30, 2005
    
    $
    19,255
    
    
    $
    19,255
 (a)
    
    Current period changes also include the changes in fair value of new contracts
entered into during the period.
 Source of June 30, 2005Valuation PricesTotal
    
    
    MaturityFair Value
    
    
    Year 1
    
    
    1-3 Years(in thousands)Actively quoted
    
    $
    19,300
    
    
    $
    12,569
    
    
    $
    6,731External sources
    
    
    (45
    )
    
    
    (45
    )
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2005
    
    $
    19,255
    
    
    $
    12,524
    
    
    $
    6,731
 
 Financing Activities
  43




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##### Table of Contents



ALABAMA POWER COMPANY
 
     44




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##### Table of Contents



GEORGIA POWER COMPANY
 45




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##### Table of Contents



GEORGIA POWER COMPANY
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    1,227,087
    
    
    $
    1,199,220
    
    
    $
    2,412,323
    
    
    $
    2,237,015Sales for resale Non-affiliates
    
    
    126,000
    
    
    
    61,597
    
    
    
    238,852
    
    
    
    127,053Affiliates
    
    
    54,743
    
    
    
    48,950
    
    
    
    80,374
    
    
    
    103,092Other revenues
    
    
    51,358
    
    
    
    43,395
    
    
    
    98,069
    
    
    
    85,391Total operating revenues
    
    
    1,459,188
    
    
    
    1,353,162
    
    
    
    2,829,618
    
    
    
    2,552,551Operating Expenses:Fuel
    
    
    412,050
    
    
    
    324,220
    
    
    
    721,316
    
    
    
    609,434Purchased power Non-affiliates
    
    
    64,523
    
    
    
    97,392
    
    
    
    117,497
    
    
    
    160,081Affiliates
    
    
    140,800
    
    
    
    139,319
    
    
    
    360,804
    
    
    
    274,461Other operations
    
    
    223,471
    
    
    
    220,799
    
    
    
    425,550
    
    
    
    419,192Maintenance
    
    
    123,575
    
    
    
    124,675
    
    
    
    240,225
    
    
    
    233,143Depreciation and amortization
    
    
    124,999
    
    
    
    68,542
    
    
    
    248,099
    
    
    
    136,279Taxes other than income taxes
    
    
    58,648
    
    
    
    56,488
    
    
    
    119,407
    
    
    
    112,920Total operating expenses
    
    
    1,148,066
    
    
    
    1,031,435
    
    
    
    2,232,898
    
    
    
    1,945,510Operating Income
    
    
    311,122
    
    
    
    321,727
    
    
    
    596,720
    
    
    
    607,041Other Income and (Expense):Allowance for equity funds used during construction
    
    
    7,935
    
    
    
    4,700
    
    
    
    17,192
    
    
    
    8,047Interest income
    
    
    31
    
    
    
    1,768
    
    
    
    502
    
    
    
    4,120Interest expense, net of amounts capitalized
    
    
    (55,174
    )
    
    
    (48,293
    )
    
    
    (105,594
    )
    
    
    (93,943
    )Interest expense to affiliate trusts
    
    
    (14,877
    )
    
    
    (14,810
    )
    
    
    (29,755
    )
    
    
    (14,810
    )Distributions on mandatorily redeemable preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,839
    )Other income (expense), net
    
    
    2,821
    
    
    
    (5,613
    )
    
    
    (21
    )
    
    
    (10,008
    )Total other income and (expense)
    
    
    (59,264
    )
    
    
    (62,248
    )
    
    
    (117,676
    )
    
    
    (122,433
    )Earnings Before Income Taxes
    
    
    251,858
    
    
    
    259,479
    
    
    
    479,044
    
    
    
    484,608Income taxes
    
    
    94,140
    
    
    
    103,597
    
    
    
    178,794
    
    
    
    184,717Net Income
    
    
    157,718
    
    
    
    155,882
    
    
    
    300,250
    
    
    
    299,891Dividends on Preferred Stock
    
    
    167
    
    
    
    167
    
    
    
    335
    
    
    
    335Net Income After Dividends on Preferred Stock
    
    $
    157,551
    
    
    $
    155,715
    
    
    $
    299,915
    
    
    $
    299,556
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred Stock
    
    $
    157,551
    
    
    $
    155,715
    
    
    $
    299,915
    
    
    $
    299,556Other comprehensive income (loss):Change in fair value of marketable securities, net of tax
of $28 and $103, respectively
    
    
    46
    
    
    
    
    
    
    
    164
    
    
    
    Changes in fair value of qualifying hedges, net of tax
of $(7,260), $4,590, $(5,890) and $3,710, respectively
    
    
    (11,510
    )
    
    
    7,277
    
    
    
    (9,338
    )
    
    
    5,882Reclassification adjustment for amounts included in net income,
net of tax of $345, $558, $521 and $1,237, respectively
    
    
    246
    
    
    
    884
    
    
    
    526
    
    
    
    1,961COMPREHENSIVE INCOME
    
    $
    146,333
    
    
    $
    163,876
    
    
    $
    291,267
    
    
    $
    307,399
  46




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##### Table of Contents



GEORGIA POWER COMPANY
 For the Six MonthsEnded June 30,2005
    
    
    2004(in thousands)Operating Activities:Net income
    
    $
    300,250
    
    
    $
    299,891Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    292,447
    
    
    
    177,927Deferred income taxes and investment tax credits
    
    
    89,724
    
    
    
    127,958Deferred expenses  affiliates
    
    
    20,302
    
    
    
    8,454Allowance for equity funds used during construction
    
    
    (17,192
    )
    
    
    (8,047
    )Pension, postretirement, and other employee benefits
    
    
    5,318
    
    
    
    1,616Tax benefit of stock options
    
    
    10,854
    
    
    
    5,570Other, net
    
    
    (11,912
    )
    
    
    (19,266
    )Changes in certain current assets and liabilities Receivables, net
    
    
    (247,991
    )
    
    
    (146,027
    )Fossil fuel stock
    
    
    (23,692
    )
    
    
    (6,309
    )Materials and supplies
    
    
    (16,024
    )
    
    
    (2,680
    )Other current assets
    
    
    14,055
    
    
    
    29,779Accounts payable
    
    
    (59,236
    )
    
    
    50,399Accrued taxes
    
    
    43,098
    
    
    
    (78,952
    )Accrued compensation
    
    
    (64,952
    )
    
    
    (67,828
    )Other current liabilities
    
    
    22,357
    
    
    
    25,648Net cash provided from operating activities
    
    
    357,406
    
    
    
    398,133Investing Activities:Gross property additions
    
    
    (408,120
    )
    
    
    (339,171
    )Purchase of property from affiliates
    
    
    
    
    
    
    (333,253
    )Cost of removal net of salvage
    
    
    (10,359
    )
    
    
    (14,236
    )Change in construction payables, net of joint owner portion
    
    
    (39,400
    )
    
    
    (23,743
    )Other
    
    
    24,356
    
    
    
    10,899Net cash used for investing activities
    
    
    (433,523
    )
    
    
    (699,504
    )Financing Activities:Increase in notes payable, net
    
    
    171,669
    
    
    
    234,749Proceeds Senior notes
    
    
    375,000
    
    
    
    350,000Pollution control bonds
    
    
    185,000
    
    
    
    Mandatorily redeemable preferred securities
    
    
    
    
    
    
    200,000Capital contributions from parent company
    
    
    100,000
    
    
    
    223,000Redemptions Senior notes
    
    
    (300,000
    )
    
    
    (200,000
    )Pollution control redemptions
    
    
    (85,000
    )
    
    
    Mandatorily redeemable preferred securities
    
    
    
    
    
    
    (200,000
    )Special deposits  redemption funds
    
    
    (100,000
    )
    
    
    Payment of preferred stock dividends
    
    
    (211
    )
    
    
    (209
    )Payment of common stock dividends
    
    
    (278,050
    )
    
    
    (282,750
    )Other
    
    
    (16,494
    )
    
    
    (11,860
    )Net cash provided from financing activities
    
    
    51,914
    
    
    
    312,930Net Change in Cash and Cash Equivalents
    
    
    (24,203
    )
    
    
    11,559Cash and Cash Equivalents at Beginning of Period
    
    
    33,497
    
    
    
    8,699Cash and Cash Equivalents at End of Period
    
    $
    9,294
    
    
    $
    20,258Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $6,996 and $2,804 capitalized
for 2005 and 2004, respectively)
    
    $
    123,323
    
    
    $
    120,449Income taxes (net of refunds)
    
    $
    3,310
    
    
    $
    35,078
  47




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##### Table of Contents



GEORGIA POWER COMPANY
 At June 30,
    
    
    At December 31,Assets
    
    2005
    
    
    2004(in thousands)Current Assets:Cash and cash equivalents
    
    $
    9,294
    
    
    $
    33,497Receivables Customer accounts receivable
    
    
    361,605
    
    
    
    317,937Unbilled revenues
    
    
    168,392
    
    
    
    140,027Under recovered regulatory clause revenues
    
    
    153,301
    
    
    
    345,542Special deposits  redemption funds
    
    
    100,000
    
    
    
    Other accounts and notes receivable
    
    
    85,223
    
    
    
    94,377Affiliated companies
    
    
    31,350
    
    
    
    17,042Accumulated provision for uncollectible accounts
    
    
    (6,575
    )
    
    
    (7,100
    )Fossil fuel stock, at average cost
    
    
    207,959
    
    
    
    184,267Vacation pay
    
    
    57,227
    
    
    
    57,372Materials and supplies, at average cost
    
    
    286,446
    
    
    
    270,422Prepaid expenses
    
    
    10,862
    
    
    
    32,695Other
    
    
    23,730
    
    
    
    28,262Total current assets
    
    
    1,488,814
    
    
    
    1,514,340Property, Plant, and Equipment:In service
    
    
    19,327,416
    
    
    
    18,681,533Less accumulated provision for depreciation
    
    
    7,392,744
    
    
    
    7,217,60711,934,672
    
    
    
    11,463,926Nuclear fuel, at amortized cost
    
    
    129,567
    
    
    
    124,745Construction work in progress
    
    
    443,904
    
    
    
    766,140Total property, plant, and equipment
    
    
    12,508,143
    
    
    
    12,354,811Other Property and Investments:Equity investments in unconsolidated subsidiaries
    
    
    65,949
    
    
    
    66,192Nuclear decommissioning trusts, at fair value
    
    
    466,656
    
    
    
    459,194Other
    
    
    64,472
    
    
    
    64,571Total other property and investments
    
    
    597,077
    
    
    
    589,957Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    506,259
    
    
    
    505,664Prepaid pension costs
    
    
    460,865
    
    
    
    450,270Unamortized debt issuance expense
    
    
    88,638
    
    
    
    77,925Unamortized loss on reacquired debt
    
    
    172,961
    
    
    
    176,825Deferred under recovered regulatory clause revenues
    
    
    362,692
    
    
    
    Other regulatory assets
    
    
    94,288
    
    
    
    69,637Other
    
    
    76,410
    
    
    
    82,909Total deferred charges and other assets
    
    
    1,762,113
    
    
    
    1,363,230Total Assets
    
    $
    16,356,147
    
    
    $
    15,822,338
  48




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##### Table of Contents



GEORGIA POWER COMPANY
 At June 30,
    
    
    At December 31,Liabilities and Stockholder's Equity
    
    2005
    
    
    2004(in thousands)Current Liabilities:Securities due within one year
    
    $
    402,603
    
    
    $
    452,498Notes payable
    
    
    379,902
    
    
    
    208,233Accounts payable Affiliated
    
    
    157,765
    
    
    
    194,253Other
    
    
    248,786
    
    
    
    310,763Customer deposits
    
    
    122,446
    
    
    
    115,661Accrued taxes Income taxes
    
    
    183,985
    
    
    
    78,269Other
    
    
    115,596
    
    
    
    129,520Accrued interest
    
    
    78,595
    
    
    
    74,529Accrued vacation pay
    
    
    44,179
    
    
    
    44,894Accrued compensation
    
    
    62,388
    
    
    
    127,340Other
    
    
    124,252
    
    
    
    83,632Total current liabilities
    
    
    1,920,497
    
    
    
    1,819,592Long-term Debt
    
    
    3,931,825
    
    
    
    3,709,852Long-term Debt Payable to Affiliated Trusts
    
    
    969,073
    
    
    
    969,073Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    2,598,783
    
    
    
    2,556,040Deferred credits related to income taxes
    
    
    164,588
    
    
    
    170,973Accumulated deferred investment tax credits
    
    
    293,872
    
    
    
    300,018Employee benefit obligations
    
    
    346,916
    
    
    
    331,002Asset retirement obligations
    
    
    520,298
    
    
    
    504,515Other cost of removal obligations
    
    
    416,431
    
    
    
    411,692Miscellaneous regulatory liabilities
    
    
    90,672
    
    
    
    84,678Other
    
    
    73,974
    
    
    
    59,733Total deferred credits and other liabilities
    
    
    4,505,534
    
    
    
    4,418,651Total Liabilities
    
    
    11,326,929
    
    
    
    10,917,168Preferred Stock
    
    
    14,609
    
    
    
    14,609Common Stockholders Equity:Common stock, without par valueAuthorized
  15,000,000 sharesOutstanding    7,761,500 shares
    
    
    344,250
    
    
    
    344,250Paid-in capital
    
    
    2,589,121
    
    
    
    2,478,268Retained earnings
    
    
    2,124,641
    
    
    
    2,102,798Accumulated other comprehensive loss
    
    
    (43,403
    )
    
    
    (34,755
    )Total common stockholders equity
    
    
    5,014,609
    
    
    
    4,890,561Total Liabilities and Stockholders Equity
    
    $
    16,356,147
    
    
    $
    15,822,338
  49




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##### Table of Contents



GEORGIA POWER COMPANY
 
 
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Earnings
  50




---



##### Table of Contents



GEORGIA POWER COMPANY
 
  Increase (Decrease)Second Quarter
    
    Year-To-Date(in thousands)
    
    
    
    %
    
    
    
    (in thousands)
    
    
    
    %Retail revenues
    
    $
    27,867
    
    
    
    2.3
    
    
    $
    175,308
    
    
    
    7.8Sales for
resale  non-affiliates
    
    
    64,403
    
    
    
    104.6
    
    
    
    111,799
    
    
    
    88.0Sales for
resale  affiliates
    
    
    5,793
    
    
    
    11.8
    
    
    
    (22,718
    )
    
    
    (22.0
    )Other revenues
    
    
    7,963
    
    
    
    18.4
    
    
    
    12,678
    
    
    
    14.8Fuel expense
    
    
    87,830
    
    
    
    27.1
    
    
    
    111,882
    
    
    
    18.4Purchased
power expense  non-affiliates
    
    
    (32,869
    )
    
    
    (33.7
    )
    
    
    (42,584
    )
    
    
    (26.6
    )Purchased
power expense  affiliates
    
    
    1,481
    
    
    
    1.1
    
    
    
    86,343
    
    
    
    31.5Depreciation and amortization expense
    
    
    56,457
    
    
    
    82.4
    
    
    
    111,820
    
    
    
    82.1Allowance for equity funds used during construction
    
    
    3,235
    
    
    
    68.8
    
    
    
    9,145
    
    
    
    113.6Interest expense, net of amounts capitalized
    
    
    6,881
    
    
    
    14.2
    
    
    
    11,651
    
    
    
    12.4Other income (expense), net
    
    
    8,434
    
    
    
    150.3
    
    
    
    9,987
    
    
    
    99.8
 Retail revenues.
  Second Quarter
    
    
    
    
    
    
    Year-to-Date2005
    
    
    
    
    
    
    2005(in millions)
    
    
    % change
    
    
    (in millions)
    
    
    % changeRetail  prior year
    
    $
    1,199
    
    
    
    
    
    
    $
    2,237Change in Base rates
    
    
    41
    
    
    
    3.4
    
    
    
    85
    
    
    
    3.8Sales growth
    
    
    12
    
    
    
    1.0
    
    
    
    34
    
    
    
    1.5Weather
    
    
    (23
    )
    
    
    (1.9
    )
    
    
    (30
    )
    
    
    (1.3
    )Fuel cost recovery
    
    
    (2
    )
    
    
    (0.2
    )
    
    
    86
    
    
    
    3.8Retail  current year
    
    $
    1,227
    
    
    
    2.3
    %
    
    $
    2,412
    
    
    
    7.8
    %
 51




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##### Table of Contents



GEORGIA POWER COMPANY
 
 Sales for resale  non-affiliates and Purchased power expense  non-affiliates.
 Sales for resale  affiliates and Purchased power expense  affiliates.
 Other revenues
 Fuel expense
 Depreciation and amortization expense.
 Allowance for equity funds used during construction
 52




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##### Table of Contents



GEORGIA POWER COMPANY
 
  Interest expense, net of amounts capitalized
 Other income (expense), net
 FUTURE EARNINGS POTENTIAL
  Environmental Matters
  Plant Wansley Environmental Litigation
  Other Environmental Matters
 2 x
 53




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##### Table of Contents



GEORGIA POWER COMPANY
 
 x 2
    FERC and Georgia PSC Matters
 Market-Based Rate Authority
 
  54




---



##### Table of Contents



GEORGIA POWER COMPANY
 
   Intercompany Interchange Contract
   Generation Interconnection Agreements
  Retail Fuel Cost Recovery
  55




---



##### Table of Contents



GEORGIA POWER COMPANY
 
  Other Matters
    ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  New Accounting Standards
  56




---



##### Table of Contents



GEORGIA POWER COMPANY
 
    FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
 
 Sources of Capital
   57




---



##### Table of Contents



GEORGIA POWER COMPANY
 
  Credit Rating Risk
  Market Price Risk
   58




---



##### Table of Contents



GEORGIA POWER COMPANY
 
  Second Quarter2005
    
    
    Year-to-DateChanges
    
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    37,132
    
    
    $
    5,777Contracts realized or settled
    
    
    (14,212
    )
    
    
    (12,962
    )New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (4,053
    )
    
    
    26,052Contracts at June 30, 2005
    
    $
    18,867
    
    
    $
    18,867
 (a)
    
    Current period changes also include the changes in fair value of new contracts
entered into during the period.
 Source of June 30, 2005Valuation PricesTotal
    
    
    MaturityFair Value
    
    
    Year 1
    
    
    1-3 Years(in thousands)Actively quoted
    
    $
    18,921
    
    
    $
    12,391
    
    
    $
    6,530External sources
    
    
    (54
    )
    
    
    (54
    )
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2005
    
    $
    18,867
    
    
    $
    12,337
    
    
    $
    6,530
  Financing Activities
    59




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GEORGIA POWER COMPANY
 
     60




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GULF POWER COMPANY


61



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##### Table of Contents



GULF POWER COMPANY
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    207,110
    
    
    $
    191,189
    
    
    $
    369,392
    
    
    $
    356,273Sales for resale Non-affiliates
    
    
    19,614
    
    
    
    18,470
    
    
    
    39,326
    
    
    
    37,958Affiliates
    
    
    14,443
    
    
    
    21,964
    
    
    
    47,043
    
    
    
    42,659Other revenues
    
    
    10,130
    
    
    
    9,547
    
    
    
    20,133
    
    
    
    19,199Total operating revenues
    
    
    251,297
    
    
    
    241,170
    
    
    
    475,894
    
    
    
    456,089Operating Expenses:Fuel
    
    
    94,814
    
    
    
    90,778
    
    
    
    187,444
    
    
    
    169,194Purchased power Non-affiliates
    
    
    4,958
    
    
    
    11,724
    
    
    
    10,066
    
    
    
    18,157Affiliates
    
    
    10,829
    
    
    
    7,843
    
    
    
    16,841
    
    
    
    15,271Other operations
    
    
    41,148
    
    
    
    36,430
    
    
    
    74,917
    
    
    
    69,448Maintenance
    
    
    16,286
    
    
    
    16,773
    
    
    
    33,885
    
    
    
    32,979Depreciation and amortization
    
    
    21,333
    
    
    
    20,722
    
    
    
    42,082
    
    
    
    41,274Taxes other than income taxes
    
    
    17,776
    
    
    
    17,076
    
    
    
    35,277
    
    
    
    34,139Total operating expenses
    
    
    207,144
    
    
    
    201,346
    
    
    
    400,512
    
    
    
    380,462Operating Income
    
    
    44,153
    
    
    
    39,824
    
    
    
    75,382
    
    
    
    75,627Other Income and (Expense):Allowance for equity funds used during construction
    
    
    310
    
    
    
    345
    
    
    
    1,029
    
    
    
    872Interest income
    
    
    444
    
    
    
    152
    
    
    
    699
    
    
    
    287Interest expense, net of amounts capitalized
    
    
    (8,991
    )
    
    
    (8,138
    )
    
    
    (17,251
    )
    
    
    (16,032
    )Interest expense to affiliate trusts
    
    
    (1,147
    )
    
    
    (1,147
    )
    
    
    (2,295
    )
    
    
    (1,147
    )Distributions on mandatorily redeemable preferred
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,113
    )Other income (expense), net
    
    
    (470
    )
    
    
    (588
    )
    
    
    (997
    )
    
    
    (1,232
    )Total other income and (expense)
    
    
    (9,854
    )
    
    
    (9,376
    )
    
    
    (18,815
    )
    
    
    (18,365
    )Earnings Before Income Taxes
    
    
    34,299
    
    
    
    30,448
    
    
    
    56,567
    
    
    
    57,262Income taxes
    
    
    12,787
    
    
    
    11,392
    
    
    
    20,355
    
    
    
    21,313Net Income
    
    
    21,512
    
    
    
    19,056
    
    
    
    36,212
    
    
    
    35,949Dividends on Preferred Stock
    
    
    54
    
    
    
    54
    
    
    
    108
    
    
    
    108Net Income After Dividends on Preferred Stock
    
    $
    21,458
    
    
    $
    19,002
    
    
    $
    36,104
    
    
    $
    35,841
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred Stock
    
    $
    21,458
    
    
    $
    19,002
    
    
    $
    36,104
    
    
    $
    35,841Other comprehensive income (loss):Change in fair value of marketable securities, net
of tax
of $40 and $40, respectively
    
    
    
    
    
    
    63
    
    
    
    
    
    
    
    63Reclassification adjustment for amounts included in net income,
net of tax of $32, $31, $63 and $62, respectively
    
    
    49
    
    
    
    51
    
    
    
    100
    
    
    
    101COMPREHENSIVE INCOME
    
    $
    21,507
    
    
    $
    19,116
    
    
    $
    36,204
    
    
    $
    36,005
  62




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##### Table of Contents



GULF POWER COMPANY
 For the Six MonthsEnded June 30,2005
    
    
    2004(in thousands)Operating Activities:Net income
    
    $
    36,212
    
    
    $
    35,949Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    45,007
    
    
    
    44,278Deferred income taxes
    
    
    (2,553
    )
    
    
    4,097Pension, postretirement, and other employee benefits
    
    
    1,123
    
    
    
    425Tax benefit of stock options
    
    
    2,659
    
    
    
    988Other, net
    
    
    5,571
    
    
    
    (1,880
    )Changes in certain current assets and liabilities Receivables, net
    
    
    (3,394
    )
    
    
    (7,591
    )Fossil fuel stock
    
    
    (17,991
    )
    
    
    (6,235
    )Materials and supplies
    
    
    1,270
    
    
    
    781Other current assets
    
    
    10,301
    
    
    
    338Accounts payable
    
    
    (38,761
    )
    
    
    6,155Accrued taxes
    
    
    6,256
    
    
    
    17,684Accrued compensation
    
    
    (7,837
    )
    
    
    (3,457
    )Other current liabilities
    
    
    7,987
    
    
    
    6,602Net cash provided from operating activities
    
    
    45,850
    
    
    
    98,134Investing Activities:Gross property additions
    
    
    (66,024
    )
    
    
    (66,828
    )Cost of removal net of salvage
    
    
    (2,668
    )
    
    
    (3,935
    )Other
    
    
    (19,009
    )
    
    
    (7,803
    )Net cash used for investing activities
    
    
    (87,701
    )
    
    
    (78,566
    )Financing Activities:Increase (decrease) in notes payable, net
    
    
    13,710
    
    
    
    (32,671
    )Proceeds Senior notes
    
    
    
    
    
    
    35,000Capital contributions from parent company
    
    
    
    
    
    
    25,000Payment of preferred stock dividends
    
    
    (108
    )
    
    
    (108
    )Payment of common stock dividends
    
    
    (34,200
    )
    
    
    (35,000
    )Other
    
    
    (270
    )
    
    
    (1,509
    )Net cash used for financing activities
    
    
    (20,868
    )
    
    
    (9,288
    )Net Change in Cash and Cash Equivalents
    
    
    (62,719
    )
    
    
    10,280Cash and Cash Equivalents at Beginning of Period
    
    
    64,829
    
    
    
    2,548Cash and Cash Equivalents at End of Period
    
    $
    2,110
    
    
    $
    12,828Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $454 and $385 capitalized for 2005 and 2004, respectively)
    
    $
    17,814
    
    
    $
    15,652Income taxes (net of refunds)
    
    $
    14,419
    
    
    $
    5,008
  63




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##### Table of Contents



GULF POWER COMPANY
 At June 30,
    
    
    At December 31,Assets
    
    2005
    
    
    2004(in thousands)Current Assets:Cash and cash equivalents
    
    $
    2,110
    
    
    $
    64,829Receivables Customer accounts receivable
    
    
    53,073
    
    
    
    44,255Unbilled revenues
    
    
    45,203
    
    
    
    35,889Under recovered regulatory clause revenues
    
    
    1,361
    
    
    
    9,283Other accounts and notes receivable
    
    
    12,095
    
    
    
    7,177Affiliated companies
    
    
    3,227
    
    
    
    16,218Accumulated provision for uncollectible accounts
    
    
    (885
    )
    
    
    (2,144
    )Fossil fuel stock, at average cost
    
    
    50,990
    
    
    
    32,999Vacation pay
    
    
    5,446
    
    
    
    5,446Materials and supplies, at average cost
    
    
    35,491
    
    
    
    36,761Prepaid income taxes
    
    
    33,540
    
    
    
    34,812Hurricane Ivan cost recovery
    
    
    28,152
    
    
    
    Other regulatory assets  current
    
    
    2,571
    
    
    
    7,097Other
    
    
    10,680
    
    
    
    5,198Total current assets
    
    
    283,054
    
    
    
    297,820Property, Plant, and Equipment:In service
    
    
    2,455,105
    
    
    
    2,367,189Less accumulated provision for depreciation
    
    
    847,215
    
    
    
    844,6171,607,890
    
    
    
    1,522,572Construction work in progress
    
    
    15,894
    
    
    
    74,004Total property, plant, and equipment
    
    
    1,623,784
    
    
    
    1,596,576Other Property and Investments
    
    
    6,577
    
    
    
    6,425Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    17,198
    
    
    
    17,566Prepaid pension costs
    
    
    45,431
    
    
    
    45,384Unamortized debt issuance expense
    
    
    6,528
    
    
    
    6,615Unamortized loss on reacquired debt
    
    
    18,330
    
    
    
    19,197Other regulatory assets
    
    
    78,558
    
    
    
    107,994Other
    
    
    13,503
    
    
    
    13,086Total deferred charges and other assets
    
    
    179,548
    
    
    
    209,842Total Assets
    
    $
    2,092,963
    
    
    $
    2,110,663
  64




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##### Table of Contents



GULF POWER COMPANY
 At June 30,
    
    
    At December 31,Liabilities and Stockholder's Equity
    
    2005
    
    
    2004(in thousands)Current Liabilities:Securities due within one year
    
    $
    112,075
    
    
    $
    100,000Notes payable
    
    
    63,710
    
    
    
    50,000Accounts payable Affiliated
    
    
    30,113
    
    
    
    35,359Other
    
    
    25,211
    
    
    
    77,452Customer deposits
    
    
    18,450
    
    
    
    18,470Accrued taxes Income taxes
    
    
    
    
    
    
    1,927Other
    
    
    15,506
    
    
    
    9,250Accrued interest
    
    
    7,111
    
    
    
    7,665Accrued vacation pay
    
    
    5,446
    
    
    
    5,446Accrued compensation
    
    
    9,861
    
    
    
    16,989Other regulatory liabilities  current
    
    
    20,423
    
    
    
    7,821Other
    
    
    4,433
    
    
    
    5,167Total current liabilities
    
    
    312,339
    
    
    
    335,546Long-term Debt
    
    
    539,168
    
    
    
    550,989Long-term Debt Payable to Affiliated Trusts
    
    
    72,166
    
    
    
    72,166Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    234,897
    
    
    
    229,909Deferred credits related to income taxes
    
    
    21,991
    
    
    
    23,354Accumulated deferred investment tax credits
    
    
    17,529
    
    
    
    18,489Employee benefit obligations
    
    
    56,040
    
    
    
    54,869Other cost of removal obligations
    
    
    161,263
    
    
    
    155,831Miscellaneous regulatory liabilities
    
    
    6,615
    
    
    
    2,048Other
    
    
    70,022
    
    
    
    71,192Total deferred credits and other liabilities
    
    
    568,357
    
    
    
    555,692Total Liabilities
    
    
    1,492,030
    
    
    
    1,514,393Preferred Stock
    
    
    4,098
    
    
    
    4,098Common Stockholders Equity:Common stock, without par valueAuthorized - 992,717 sharesOutstanding - 992,717 shares
    
    
    38,060
    
    
    
    38,060Paid-in capital
    
    
    400,054
    
    
    
    397,396Retained earnings
    
    
    161,486
    
    
    
    159,581Accumulated other comprehensive loss
    
    
    (2,765
    )
    
    
    (2,865
    )Total common stockholders equity
    
    
    596,835
    
    
    
    592,172Total Liabilities and Stockholders Equity
    
    $
    2,092,963
    
    
    $
    2,110,663
  65




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##### Table of Contents





GULF
POWER COMPANY












OVERVIEW






RESULTS OF OPERATIONS


Earnings
   Increase (Decrease)Second Quarter
    
    Year-To-Date(in thousands)
    
    % change
    
    (in thousands)
    
    % changeRetail revenues
    
    $
    15,921
    
    
    
    8.3
    
    
    $
    13,119
    
    
    
    3.7Sales for resale  affiliates
    
    
    (7,521
    )
    
    
    (34.2
    )
    
    
    4,384
    
    
    
    10.3Fuel expense
    
    
    4,036
    
    
    
    4.4
    
    
    
    18,250
    
    
    
    10.8Purchased power expense  non-affiliates
    
    
    (6,766
    )
    
    
    (57.7
    )
    
    
    (8,091
    )
    
    
    (44.6
    )Purchased power expense  affiliates
    
    
    2,986
    
    
    
    38.1
    
    
    
    1,570
    
    
    
    10.3Other operations expense
    
    
    4,718
    
    
    
    13.0
    
    
    
    5,469
    
    
    
    7.9
 Retail revenues.
 66




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##### Table of Contents



GULF POWER COMPANY
 
   Second Quarter
    
    
    
    
    
    
    Year-to-Date2005
    
    
    
    
    
    
    2005(in thousands)
    
    
    %
    
    
    (in thousands)
    
    
    %Retail  prior year
    
    $
    191,189
    
    
    
    
    
    
    $
    356,273Change in Sales growth
    
    
    1,893
    
    
    
    1.0
    
    
    
    3,396
    
    
    
    1.0Weather
    
    
    (1,943
    )
    
    
    (1.0
    )
    
    
    (7,755
    )
    
    
    (2.2
    )Fuel cost recovery
    
    
    6,088
    
    
    
    3.2
    
    
    
    5,708
    
    
    
    1.6Other cost recovery
    
    
    9,883
    
    
    
    5.1
    
    
    
    11,770
    
    
    
    3.3Retail  current year
    
    $
    207,110
    
    
    
    8.3
    
    
    $
    369,392
    
    
    
    3.7
 Sales for resale  affiliates and Purchased power expense affiliates
 Fuel expense.
 Purchased power expense  non-affiliates.
 Other operations expense
 67




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##### Table of Contents



GULF POWER COMPANY
 
 FUTURE EARNINGS POTENTIAL
 BUSINESS
 Environmental Matters
  2 x x 2
   68




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##### Table of Contents





GULF POWER COMPANY





FERC Matters


Market-Based Rate Authority









Intercompany Interchange Contract




69



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##### Table of Contents





GULF POWER COMPANY









Generation Interconnection Agreements




Storm Damage Cost Recovery






70



---



##### Table of Contents





GULF POWER COMPANY





Other Matters








ACCOUNTING POLICIES


Application of Critical Accounting Policies and Estimates




New Accounting Standards






71



---



##### Table of Contents





GULF POWER COMPANY









FINANCIAL CONDITION AND LIQUIDITY


Overview




Capital Requirements and Contractual Obligations


-


Sources of Capital







72



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##### Table of Contents





GULF POWER COMPANY





Credit Rating Risk




Market Price Risk






Second Quarter2005
    
    Year-to-DateChanges
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    11,916
    
    
    $
    317Contracts realized or settled
    
    
    (4,539
    )
    
    
    (3,104
    )New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (724
    )
    
    
    9,440Contracts at June 30, 2005
    
    $
    6,653
    
    
    $
    6,653


(a)
    
    Current period changes also include the changes in fair value of new contracts
entered into during the period.


Source of June 30, 2005Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    6,663
    
    
    $
    4,284
    
    
    $
    2,379External sources
    
    
    (10
    )
    
    
    (10
    )
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2005
    
    $
    6,653
    
    
    $
    4,274
    
    
    $
    2,379


73



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##### Table of Contents





GULF POWER COMPANY 
  Financing Activities
  74




---



##### Table of Contents



MISSISSIPPI POWER COMPANY
 75




---



##### Table of Contents



MISSISSIPPI POWER COMPANY
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    166,597
    
    
    $
    151,861
    
    
    $
    298,391
    
    
    $
    280,416Sales for resale Non-affiliates
    
    
    67,726
    
    
    
    68,935
    
    
    
    127,312
    
    
    
    134,735Affiliates
    
    
    9,988
    
    
    
    8,558
    
    
    
    28,920
    
    
    
    20,367Other revenues
    
    
    4,265
    
    
    
    3,431
    
    
    
    9,169
    
    
    
    6,995Total operating revenues
    
    $
    248,576
    
    
    
    232,785
    
    
    
    463,792
    
    
    
    442,513Operating Expenses:Fuel
    
    
    90,639
    
    
    
    76,343
    
    
    
    181,678
    
    
    
    152,890Purchased power Non-affiliates
    
    
    5,210
    
    
    
    13,093
    
    
    
    10,629
    
    
    
    20,048Affiliates
    
    
    24,919
    
    
    
    22,837
    
    
    
    34,523
    
    
    
    40,153Other operations
    
    
    39,723
    
    
    
    39,154
    
    
    
    79,234
    
    
    
    74,110Maintenance
    
    
    21,683
    
    
    
    18,144
    
    
    
    37,221
    
    
    
    33,216Depreciation and amortization
    
    
    8,195
    
    
    
    5,874
    
    
    
    16,252
    
    
    
    20,017Taxes other than income taxes
    
    
    15,146
    
    
    
    14,050
    
    
    
    29,292
    
    
    
    27,189Total operating expenses
    
    
    205,515
    
    
    
    189,495
    
    
    
    388,829
    
    
    
    367,623Operating Income
    
    
    43,061
    
    
    
    43,290
    
    
    
    74,963
    
    
    
    74,890Other Income and (Expense):Interest income
    
    
    31
    
    
    
    43
    
    
    
    66
    
    
    
    162Interest expense
    
    
    (597
    )
    
    
    (3,048
    )
    
    
    (4,123
    )
    
    
    (5,851
    )Interest expense to affiliate trusts
    
    
    (650
    )
    
    
    (649
    )
    
    
    (1,299
    )
    
    
    (649
    )Distributions on mandatorily redeemable preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (630
    )Other income (expense), net
    
    
    215
    
    
    
    (231
    )
    
    
    646
    
    
    
    221Total other income and (expense)
    
    
    (1,001
    )
    
    
    (3,885
    )
    
    
    (4,710
    )
    
    
    (6,747
    )Earnings Before Income Taxes
    
    
    42,060
    
    
    
    39,405
    
    
    
    70,253
    
    
    
    68,143Income taxes
    
    
    15,995
    
    
    
    15,051
    
    
    
    26,808
    
    
    
    25,967Net Income
    
    
    26,065
    
    
    
    24,354
    
    
    
    43,445
    
    
    
    42,176Dividends on Preferred Stock
    
    
    433
    
    
    
    2,463
    
    
    
    866
    
    
    
    2,966Net Income After Dividends on Preferred Stock
    
    $
    25,632
    
    
    $
    21,891
    
    
    $
    42,579
    
    
    $
    39,210
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred Stock
    
    $
    25,632
    
    
    $
    21,891
    
    
    $
    42,579
    
    
    $
    39,210Other comprehensive income (loss):Change in fair value of marketable securities, net of tax
of $49 and $49, respectively
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    80Changes in fair value of qualifying hedges,
net of tax of $47, $(926), $(125) and $(1,400),
respectively
    
    
    74
    
    
    
    (1,495
    )
    
    
    (203
    )
    
    
    (2,260
    )COMPREHENSIVE INCOME
    
    $
    25,706
    
    
    $
    20,476
    
    
    $
    42,376
    
    
    $
    37,030
  76




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 For the Six MonthsEnded June 30,2005
    
    
    2004(in thousands)Operating Activities:Net income
    
    $
    43,445
    
    
    $
    42,176Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    31,097
    
    
    
    30,481Deferred income taxes and investment tax credits, net
    
    
    27,486
    
    
    
    19,142Plant Daniel capacity
    
    
    (12,563
    )
    
    
    (8,254
    )Pension, postretirement, and other employee benefits
    
    
    1,259
    
    
    
    447Tax benefit of stock options
    
    
    2,676
    
    
    
    474Other, net
    
    
    (3,034
    )
    
    
    (1,324
    )Changes in certain current assets and liabilities Receivables, net
    
    
    (16,991
    )
    
    
    (18,606
    )Fossil fuel stock
    
    
    (15,097
    )
    
    
    (1,567
    )Materials and supplies
    
    
    2,491
    
    
    
    (864
    )Other current assets
    
    
    1,683
    
    
    
    (3,157
    )Accounts payable
    
    
    (10,540
    )
    
    
    (18,507
    )Accrued taxes
    
    
    (14,855
    )
    
    
    (14,649
    )Accrued compensation
    
    
    (11,305
    )
    
    
    (9,546
    )Over recovered regulatory clause revenues
    
    
    (1,851
    )
    
    
    (16,914
    )Other current liabilities
    
    
    551
    
    
    
    1,217Net cash provided from operating activities
    
    
    24,452
    
    
    
    549Investing Activities:Gross property additions
    
    
    (32,385
    )
    
    
    (32,023
    )Cost of removal net of salvage
    
    
    (1,366
    )
    
    
    (3,606
    )Other
    
    
    (1,167
    )
    
    
    (1,547
    )Net cash used for investing activities
    
    
    (34,918
    )
    
    
    (37,176
    )Financing Activities:Increase in notes payable, net
    
    
    37,887
    
    
    
    44,830Proceeds Senior notes
    
    
    30,000
    
    
    
    40,000Preferred stock
    
    
    
    
    
    
    30,000Redemptions First mortgage bonds
    
    
    (30,000
    )
    
    
    Senior notes
    
    
    
    
    
    
    (80,000
    )Preferred stock
    
    
    
    
    
    
    (28,388
    )Payment of preferred stock dividends
    
    
    (866
    )
    
    
    (962
    )Payment of common stock dividends
    
    
    (31,000
    )
    
    
    (33,100
    )Other
    
    
    (2,482
    )
    
    
    (931
    )Net cash provided from (used for) financing activities
    
    
    3,539
    
    
    
    (28,551
    )Net Change in Cash and Cash Equivalents
    
    
    (6,927
    )
    
    
    (65,178
    )Cash and Cash Equivalents at Beginning of Period
    
    
    6,945
    
    
    
    69,120Cash and Cash Equivalents at End of Period
    
    $
    18
    
    
    $
    3,942Supplemental Cash Flow Information:Cash paid during the period for Interest
    
    $
    6,783
    
    
    $
    5,836Income taxes (net of refunds)
    
    $
    (11,811
    )
    
    $
    1,615
  77




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 At June 30,
    
    
    At December 31,Assets
    
    2005
    
    
    2004(in thousands)Current Assets:Cash and cash equivalents
    
    $
    18
    
    
    $
    6,945Receivables Customer accounts receivable
    
    
    37,614
    
    
    
    32,978Unbilled revenues
    
    
    26,754
    
    
    
    20,803Under recovered regulatory clause revenues
    
    
    42,626
    
    
    
    32,499Other accounts and notes receivable
    
    
    3,505
    
    
    
    8,881Affiliated companies
    
    
    17,190
    
    
    
    15,769Accumulated provision for uncollectible accounts
    
    
    (542
    )
    
    
    (774
    )Fossil fuel stock, at average cost
    
    
    34,801
    
    
    
    19,704Vacation pay
    
    
    6,125
    
    
    
    6,125Materials and supplies, at average cost
    
    
    24,947
    
    
    
    27,438Assets from risk management activities
    
    
    8,789
    
    
    
    4,471Prepaid income taxes
    
    
    
    
    
    
    5,814Prepaid expenses
    
    
    3,953
    
    
    
    3,423Other
    
    
    1,472
    
    
    
    3,193Total current assets
    
    $
    207,252
    
    
    $
    187,269Property, Plant, and Equipment:In service
    
    
    1,900,834
    
    
    
    1,882,542Less accumulated provision for depreciation
    
    
    715,146
    
    
    
    697,8621,185,688
    
    
    
    1,184,680Construction work in progress
    
    
    32,013
    
    
    
    27,961Total property, plant, and equipment
    
    
    1,217,701
    
    
    
    1,212,641Other Property and Investments
    
    
    6,461
    
    
    
    6,402Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    10,326
    
    
    
    10,668Prepaid pension costs
    
    
    17,612
    
    
    
    19,158Unamortized debt issuance expense
    
    
    7,028
    
    
    
    6,955Unamortized loss on reacquired debt
    
    
    11,369
    
    
    
    9,437Prepaid rent
    
    
    11,932
    
    
    
    12,874Other
    
    
    20,941
    
    
    
    13,709Total deferred charges and other assets
    
    
    79,208
    
    
    
    72,801Total Assets
    
    $
    1,510,622
    
    
    $
    1,479,113
  78




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 At June 30,
    
    
    At December 31,Liabilities and Stockholder's Equity
    
    2005
    
    
    2004(in thousands)Current Liabilities:Notes payable
    
    $
    37,887
    
    
    $
    Accounts payable Affiliated
    
    
    24,372
    
    
    
    19,568Other
    
    
    37,930
    
    
    
    52,688Customer deposits
    
    
    8,467
    
    
    
    9,053Accrued taxes Income taxes
    
    
    3,979
    
    
    
    396Other
    
    
    25,800
    
    
    
    44,285Accrued interest
    
    
    1,820
    
    
    
    1,731Accrued vacation pay
    
    
    6,125
    
    
    
    6,125Accrued compensation
    
    
    12,608
    
    
    
    23,913Regulatory clauses over recovery
    
    
    3,505
    
    
    
    5,356Plant Daniel capacity
    
    
    19,067
    
    
    
    25,125Other regulatory liabilities  current
    
    
    16,901
    
    
    
    9,841Other
    
    
    7,461
    
    
    
    11,101Total current liabilities
    
    
    205,922
    
    
    
    209,182Long-term Debt
    
    
    242,545
    
    
    
    242,498Long-term Debt Payable to Affiliated Trusts
    
    
    36,082
    
    
    
    36,082Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    190,501
    
    
    
    167,345Deferred credits related to income taxes
    
    
    20,281
    
    
    
    20,261Accumulated deferred investment tax credits
    
    
    18,060
    
    
    
    18,654Employee benefit obligations
    
    
    56,987
    
    
    
    57,275Plant Daniel lease guarantee obligation, at fair value
    
    
    10,048
    
    
    
    10,990Plant Daniel capacity
    
    
    12,163
    
    
    
    18,667Other cost of removal obligations
    
    
    79,167
    
    
    
    76,228Miscellaneous regulatory liabilities
    
    
    7,361
    
    
    
    4,487Other
    
    
    38,834
    
    
    
    38,827Total deferred credits and other liabilities
    
    
    433,402
    
    
    
    412,734Total Liabilities
    
    
    917,951
    
    
    
    900,496Preferred 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
    
    
    298,515
    
    
    
    295,837Retained earnings
    
    
    227,472
    
    
    
    215,893Accumulated other comprehensive loss
    
    
    (3,787
    )
    
    
    (3,584
    )Total common stockholders equity
    
    
    559,891
    
    
    
    545,837Total Liabilities and Stockholders Equity
    
    $
    1,510,622
    
    
    $
    1,479,113
  79




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 
   
 OVERVIEW
   RESULTS OF OPERATIONS
 Earnings
  80




---



##### Table of Contents



MISSISSIPPI
POWER COMPANY
 
  Increase (Decrease)Second Quarter
    
    
    Year-To-Date(in thousands)
    
    
    %
    
    
    (in thousands)
    
    
    %Retail revenues
    
    $
    14,736
    
    
    
    9.7
    
    
    $
    17,975
    
    
    
    6.4Sales for resale  non-affiliates
    
    
    (1,209
    )
    
    
    (1.8
    )
    
    
    (7,423
    )
    
    
    (5.5
    )Sales for resale  affiliates
    
    
    1,430
    
    
    
    16.7
    
    
    
    8,553
    
    
    
    42.0Fuel expense
    
    
    14,296
    
    
    
    18.7
    
    
    
    28,788
    
    
    
    18.8Purchased power expense  non-affiliates
    
    
    (7,883
    )
    
    
    (60.2
    )
    
    
    (9,419
    )
    
    
    (47.0
    )Purchased power expense  affiliates
    
    
    2,082
    
    
    
    9.1
    
    
    
    (5,630
    )
    
    
    (14.0
    )Other operations expense
    
    
    569
    
    
    
    1.5
    
    
    
    5,124
    
    
    
    6.9Maintenance expense
    
    
    3,539
    
    
    
    19.5
    
    
    
    4,005
    
    
    
    12.1Depreciation and amortization
    
    
    2,321
    
    
    
    39.5
    
    
    
    (3,765
    )
    
    
    (18.8
    )Taxes other than income taxes
    
    
    1,096
    
    
    
    7.8
    
    
    
    2,103
    
    
    
    7.7Interest expense
    
    
    (2,451
    )
    
    
    (80.4
    )
    
    
    (1,728
    )
    
    
    (29.5
    )Dividends on preferred stock
    
    
    (2,030
    )
    
    
    (82.4
    )
    
    
    (2,100
    )
    
    
    (70.8
    )
 Retail revenues.
  Second Quarter
    
    
    
    
    
    
    Year-to-Date2005
    
    
    
    
    
    
    2005(in thousands)
    
    
    % change
    
    
    (in thousands)
    
    
    % changeRetail  prior year
    
    $
    151,861
    
    
    
    
    
    
    $
    280,416Change in Base rates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sales growth
    
    
    4,749
    
    
    
    3.1
    
    
    
    5,653
    
    
    
    2.0Weather
    
    
    (1,746
    )
    
    
    (1.1
    )
    
    
    (3,514
    )
    
    
    (1.3
    )Fuel cost recovery
    
    
    11,198
    
    
    
    7.4
    
    
    
    14,360
    
    
    
    5.1Other cost recovery
    
    
    535
    
    
    
    0.3
    
    
    
    1,476
    
    
    
    0.6Retail  current year
    
    $
    166,597
    
    
    
    9.7
    %
    
    $
    298,391
    
    
    
    6.4
    %
 81




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 
 Sales
for resale non-affiliates and Purchased power expense
 non-affiliates.
 Sales
for resale affiliates and Purchased power expense affiliates
 Fuel expense.
 Other operations expense.
 Maintenance expense.
 Depreciation and amortization.
 Taxes other than income taxes.
 82




---



##### Table of Contents



MISSISSIPPI
POWER COMPANY
 
 Interest expense.
 Dividends on preferred stock.
 FUTURE EARNINGS POTENTIAL
  Environmental Matters
  2 x x 2
   83




---



##### Table of Contents



MISSISSIPPI
POWER COMPANY
 
  FERC and Mississippi PSC Matters
 Market-Based Rate Authority
 
   Intercompany Interchange Contract
  84




---



##### Table of Contents



MISSISSIPPI
POWER COMPANY
 
   Environmental Compliance Overview Plan
  Other Matters
    ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  85




---



##### Table of Contents



MISSISSIPPI
POWER COMPANY
 
  New Accounting Standards
    FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
  Sources of Capital
  86




---



##### Table of Contents



MISSISSIPPI
POWER COMPANY
 
   Off-Balance Sheet Financing Arrangements
  Credit Rating Risk
  Market Price Risk
   87




---



##### Table of Contents



MISSISSIPPI
POWER COMPANY
 
  Second Quarter2005
    
    
    Year-to-DateChanges
    
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    23,180
    
    
    $
    889Contracts realized or settled
    
    
    (8,149
    )
    
    
    (6,144
    )New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (1,048
    )
    
    
    19,238Contracts at June 30, 2005
    
    $
    13,983
    
    
    $
    13,983
 (a)
    
    Current period changes also include the changes in fair value of new contracts
entered into during the period.
 Source of June 30, 2005Valuation PricesTotal
    
    
    MaturityFair Value
    
    
    Year 1
    
    
    1-3 Years(in thousands)Actively quoted
    
    $
    14,718
    
    
    $
    7,732
    
    
    $
    6,986External sources
    
    
    (735
    )
    
    
    (735
    )
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2005
    
    $
    13,983
    
    
    $
    6,997
    
    
    $
    6,986
  Financing Activities
   88




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##### Table of Contents



SAVANNAH ELECTRIC
AND
POWER COMPANY
 89




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##### Table of Contents



SAVANNAH ELECTRIC AND POWER COMPANY
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2004
    
    
    
    
    
    
    2004As Restated
    
    
    
    
    
    
    As Restated2005
    
    
    (Note N)
    
    
    2005
    
    
    (Note N)(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    91,143
    
    
    $
    87,516
    
    
    $
    176,147
    
    
    $
    155,025Sales for resale Non-affiliates
    
    
    1,355
    
    
    
    1,294
    
    
    
    1,813
    
    
    
    2,704Affiliates
    
    
    1,254
    
    
    
    1,653
    
    
    
    3,315
    
    
    
    4,090Other revenues
    
    
    2,836
    
    
    
    686
    
    
    
    3,901
    
    
    
    1,651Total operating revenues
    
    
    96,588
    
    
    
    91,149
    
    
    
    185,176
    
    
    
    163,470Operating Expenses:Fuel
    
    
    18,901
    
    
    
    14,123
    
    
    
    32,023
    
    
    
    24,607Purchased power Non-affiliates
    
    
    2,345
    
    
    
    4,387
    
    
    
    4,231
    
    
    
    6,729Affiliates
    
    
    28,783
    
    
    
    27,145
    
    
    
    65,062
    
    
    
    49,275Other operations
    
    
    15,612
    
    
    
    15,577
    
    
    
    29,936
    
    
    
    29,678Maintenance
    
    
    6,190
    
    
    
    6,905
    
    
    
    16,076
    
    
    
    13,336Depreciation and amortization
    
    
    5,528
    
    
    
    5,246
    
    
    
    10,876
    
    
    
    10,450Taxes other than income taxes
    
    
    3,898
    
    
    
    3,795
    
    
    
    7,697
    
    
    
    7,392Total operating expenses
    
    
    81,257
    
    
    
    77,178
    
    
    
    165,901
    
    
    
    141,467Operating Income
    
    
    15,331
    
    
    
    13,971
    
    
    
    19,275
    
    
    
    22,003Other Income and (Expense):Interest income
    
    
    18
    
    
    
    27
    
    
    
    35
    
    
    
    98Interest expense, net of amounts capitalized
    
    
    (3,606
    )
    
    
    (2,989
    )
    
    
    (6,829
    )
    
    
    (6,132
    )Distributions on mandatorily redeemable preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109
    )Other income (expense), net
    
    
    1,047
    
    
    
    (101
    )
    
    
    2,153
    
    
    
    (519
    )Total other income and (expense)
    
    
    (2,541
    )
    
    
    (3,063
    )
    
    
    (4,641
    )
    
    
    (6,662
    )Earnings Before Income Taxes
    
    
    12,790
    
    
    
    10,908
    
    
    
    14,634
    
    
    
    15,341Income taxes
    
    
    4,387
    
    
    
    3,974
    
    
    
    4,536
    
    
    
    5,574Net Income
    
    
    8,403
    
    
    
    6,934
    
    
    
    10,098
    
    
    
    9,767Dividends on Preferred Stock
    
    
    675
    
    
    
    150
    
    
    
    1,350
    
    
    
    150Net Income After Dividends on Preferred Stock
    
    $
    7,728
    
    
    $
    6,784
    
    
    $
    8,748
    
    
    $
    9,617
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2004
    
    
    
    
    
    
    2004As Restated
    
    
    
    
    
    
    As Restated2005
    
    
    (Note N)
    
    
    2005
    
    
    (Note N)(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred Stock
    
    $
    7,728
    
    
    $
    6,784
    
    
    $
    8,748
    
    
    $
    9,617Other comprehensive income (loss):Changes in fair value of qualifying hedges,
net of tax of $(667), $10, $(217) and
$(10), respectively
    
    
    (1,058
    )
    
    
    18
    
    
    
    (345
    )
    
    
    (15
    )Reclassification adjustment for amounts
included in net income, net of tax of $2,
$15, $5 and $30, respectively
    
    
    5
    
    
    
    23
    
    
    
    9
    
    
    
    47COMPREHENSIVE INCOME
    
    $
    6,675
    
    
    $
    6,825
    
    
    $
    8,412
    
    
    $
    9,649
  90




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##### Table of Contents



SAVANNAH ELECTRIC AND POWER COMPANY
 For the Six MonthsEnded June 30,2004As Restated2005
    
    
    (Note N)(in thousands)Operating Activities:Net income
    
    $
    10,098
    
    
    $
    9,767Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    12,045
    
    
    
    11,550Deferred income taxes and investment tax credits, net
    
    
    10,311
    
    
    
    5,716Allowance for equity funds used during construction
    
    
    (2,143
    )
    
    
    (553
    )Pension, postretirement, and other employee benefits
    
    
    3,938
    
    
    
    3,538Tax benefit of stock options
    
    
    1,087
    
    
    
    611Other, net
    
    
    5,307
    
    
    
    (5,783
    )Changes in certain current assets and liabilities Receivables, net
    
    
    (26,469
    )
    
    
    (12,243
    )Fossil fuel stock
    
    
    90
    
    
    
    (486
    )Materials and supplies
    
    
    (409
    )
    
    
    (750
    )Other current assets
    
    
    (6,739
    )
    
    
    (2,645
    )Accounts payable
    
    
    (8,081
    )
    
    
    2,604Accrued taxes
    
    
    (709
    )
    
    
    2,847Accrued compensation
    
    
    (2,538
    )
    
    
    (2,588
    )Other current liabilities
    
    
    (682
    )
    
    
    (1,631
    )Net cash provided from (used for) operating activities
    
    
    (4,894
    )
    
    
    9,954Investing Activities:Gross property additions
    
    
    (26,225
    )
    
    
    (28,761
    )Purchase of property from affiliates
    
    
    
    
    
    
    (67,093
    )Other
    
    
    (507
    )
    
    
    (1,211
    )Net cash used for investing activities
    
    
    (26,732
    )
    
    
    (97,065
    )Financing Activities:Increase in notes payable, net
    
    
    41,803
    
    
    
    17,586Proceeds Other long-term debt
    
    
    
    
    
    
    10,000Preferred stock
    
    
    
    
    
    
    45,000Capital contributions from parent company
    
    
    
    
    
    
    31,000Redemptions Other long-term debt
    
    
    (500
    )
    
    
    (500
    )Mandatorily redeemable preferred securities
    
    
    
    
    
    
    (40,000
    )Payment of preferred stock dividends
    
    
    (1,350
    )
    
    
    Payment of common stock dividends
    
    
    (13,350
    )
    
    
    (11,600
    )Other
    
    
    (80
    )
    
    
    109Net cash provided from financing activities
    
    
    26,523
    
    
    
    51,595Net Change in Cash and Cash Equivalents
    
    
    (5,103
    )
    
    
    (35,516
    )Cash and Cash Equivalents at Beginning of Period
    
    
    8,862
    
    
    
    37,943Cash and Cash Equivalents at End of Period
    
    $
    3,759
    
    
    $
    2,427Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $989 and $409 capitalized for
2005 and 2004, respectively)
    
    $
    5,932
    
    
    $
    5,295Income taxes (net of refunds)
    
    $
    (384
    )
    
    $
    774
  91




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##### Table of Contents



SAVANNAH ELECTRIC AND POWER COMPANY
 At June 30,
    
    
    At December 31,Assets
    
    2005
    
    
    2004(in thousands)Current Assets:Cash and cash equivalents
    
    $
    3,759
    
    
    $
    8,862Receivables Customer accounts receivable
    
    
    29,268
    
    
    
    22,875Unbilled revenues
    
    
    8,544
    
    
    
    6,681Under recovered regulatory clause revenues
    
    
    40,624
    
    
    
    23,800Other accounts and notes receivable
    
    
    1,539
    
    
    
    1,608Affiliated companies
    
    
    4,826
    
    
    
    3,392Accumulated provision for uncollectible accounts
    
    
    (854
    )
    
    
    (878
    )Fossil fuel stock, at average cost
    
    
    10,500
    
    
    
    10,590Materials and supplies, at average cost
    
    
    10,322
    
    
    
    9,913Prepaid income taxes
    
    
    23,684
    
    
    
    21,615Prepaid expenses
    
    
    1,690
    
    
    
    1,415Assets from risk management activities
    
    
    3,474
    
    
    
    2,287Total current assets
    
    
    137,376
    
    
    
    112,160Property, Plant, and Equipment:In service
    
    
    1,025,924
    
    
    
    945,359Less accumulated provision for depreciation
    
    
    391,096
    
    
    
    408,415634,828
    
    
    
    536,944Construction work in progress
    
    
    9,871
    
    
    
    91,275Total property, plant, and equipment
    
    
    644,699
    
    
    
    628,219Other Property and Investments
    
    
    3,993
    
    
    
    3,925Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    10,592
    
    
    
    10,588Cash surrender value of life insurance for
deferred compensation plans
    
    
    25,970
    
    
    
    25,335Unamortized debt issuance expense
    
    
    5,142
    
    
    
    5,303Unamortized loss on reacquired debt
    
    
    7,572
    
    
    
    7,935Other regulatory assets
    
    
    14,226
    
    
    
    15,592Other
    
    
    3,418
    
    
    
    3,534Total deferred charges and other assets
    
    
    66,920
    
    
    
    68,287Total Assets
    
    $
    852,988
    
    
    $
    812,591
  92




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##### Table of Contents



SAVANNAH ELECTRIC AND POWER COMPANY
 At June 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2005
    
    
    2004(in thousands)Current Liabilities:Securities due within one year
    
    $
    21,031
    
    
    $
    1,010Notes payable
    
    
    62,370
    
    
    
    20,567Accounts payable Affiliated
    
    
    13,928
    
    
    
    17,379Other
    
    
    9,868
    
    
    
    16,166Customer deposits
    
    
    7,114
    
    
    
    6,973Accrued taxes Income taxes
    
    
    
    
    
    
    148Other
    
    
    4,829
    
    
    
    5,390Accrued interest
    
    
    3,201
    
    
    
    3,050Accrued vacation pay
    
    
    2,705
    
    
    
    2,661Accrued compensation
    
    
    3,074
    
    
    
    5,612Other
    
    
    7,690
    
    
    
    6,765Total current liabilities
    
    
    135,810
    
    
    
    85,721Long-term Debt
    
    
    217,539
    
    
    
    237,769Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    96,432
    
    
    
    90,079Deferred credits related to income taxes
    
    
    8,228
    
    
    
    8,738Accumulated deferred investment tax credits
    
    
    7,629
    
    
    
    7,961Employee benefit obligations
    
    
    50,518
    
    
    
    46,580Other cost of removal obligations
    
    
    43,798
    
    
    
    41,890Miscellaneous regulatory liabilities
    
    
    12,168
    
    
    
    11,066Other
    
    
    8,630
    
    
    
    6,693Total deferred credits and other liabilities
    
    
    227,403
    
    
    
    213,007Total Liabilities
    
    
    580,752
    
    
    
    536,497Preferred Stock
    
    
    43,909
    
    
    
    43,938Common Stockholders Equity:Common stock, par value $5 per share Authorized - 16,000,000 sharesOutstanding - 10,844,635 shares
    
    
    54,223
    
    
    
    54,223Paid-in capital
    
    
    73,621
    
    
    
    72,533Retained earnings
    
    
    103,104
    
    
    
    107,685Accumulated other comprehensive loss
    
    
    (2,621
    )
    
    
    (2,285
    )Total common stockholders equity
    
    
    228,327
    
    
    
    232,156Total Liabilities and Stockholders Equity
    
    $
    852,988
    
    
    $
    812,591
 93




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##### Table of Contents



SAVANNAH ELECTRIC AND POWER COMPANY
 
 
 
 OVERVIEW
    RESULTS OF OPERATIONS
 Earnings
   Increase (Decrease)Second Quarter
    
    
    Year-To-Date(in thousands)
    
    
    %
    
    
    (in thousands)
    
    
    %Retail revenues
    
    $
    3,627
    
    
    
    4.1
    
    
    $
    21,122
    
    
    
    13.6Sales for resale  affiliates
    
    
    (399
    )
    
    
    (24.1
    )
    
    
    (775
    )
    
    
    (18.9
    )Other revenues
    
    
    2,150
    
    
    
    313.4
    
    
    
    2,250
    
    
    
    136.3Fuel expense
    
    
    4,778
    
    
    
    33.8
    
    
    
    7,416
    
    
    
    30.1Purchased
power expense  non-affiliates
    
    
    (2,042
    )
    
    
    (46.5
    )
    
    
    (2,498
    )
    
    
    (37.1
    )Purchased
power expense  affiliates
    
    
    1,638
    
    
    
    6.0
    
    
    
    15,787
    
    
    
    32.0Maintenance expense
    
    
    (715
    )
    
    
    (10.4
    )
    
    
    2,740
    
    
    
    20.5Interest
expense, net of amounts capitalized
    
    
    617
    
    
    
    20.6
    
    
    
    697
    
    
    
    11.4Other income (expense), net
    
    
    1,148
    
    
    
    N/M
    
    
    
    2,672
    
    
    
    N/MIncome taxes
    
    
    413
    
    
    
    10.4
    
    
    
    (1,038
    )
    
    
    (18.6
    )Dividends on preferred stock
    
    
    525
    
    
    
    N/M
    
    
    
    1,200
    
    
    
    N/M
 
 N/M
    
    Not meaningful 94




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##### Table of Contents



SAVANNAH ELECTRIC AND POWER COMPANY
 
 Retail revenues
  Second Quarter
    
    
    
    
    
    
    Year-to-Date2005
    
    
    
    
    
    
    2005(in thousands)
    
    
    % change
    
    
    (in thousands)
    
    
    % changeRetail  prior year
    
    $
    87,516
    
    
    
    
    
    
    $
    155,025Change in Base rates
    
    
    1,005
    
    
    
    1.1
    
    
    
    1,005
    
    
    
    0.6Sales growth
    
    
    560
    
    
    
    0.6
    
    
    
    938
    
    
    
    0.6Weather
    
    
    (2,919
    )
    
    
    (3.3
    )
    
    
    (3,126
    )
    
    
    (2.0
    )Fuel cost recovery
    
    
    4,981
    
    
    
    5.7
    
    
    
    22,305
    
    
    
    14.4Retail  current year
    
    $
    91,143
    
    
    
    4.1
    %
    
    $
    176,147
    
    
    
    13.6
    %
 Sales
for resale  affiliates and Purchased power expense affiliates.
 Other revenues.
 Fuel expense.
 95




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##### Table of Contents



SAVANNAH ELECTRIC AND POWER COMPANY
 
 Purchased
power expense non-affiliates.
 Maintenance expense.
 Interest expense, net of amounts capitalized.
 Other income (expense), net and income taxes.
 Dividends on preferred stock.
 FUTURE EARNINGS POTENTIAL
  96




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##### Table of Contents



SAVANNAH ELECTRIC AND POWER COMPANY
 
 Environmental Matters
  2 x x 2
   FERC and Georgia PSC Matters
 Market-Based Rate Authority
  97




---



##### Table of Contents



SAVANNAH ELECTRIC AND POWER COMPANY
 
    Intercompany Interchange Contract
   Retail Rate Case Filing
   98




---



##### Table of Contents



SAVANNAH ELECTRIC AND POWER COMPANY
 
   Retail Fuel Cost Recovery
  Other Matters
     ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  99




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##### Table of Contents



SAVANNAH ELECTRIC AND POWER COMPANY
 
  New Accounting Standards
    FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
  100




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##### Table of Contents



SAVANNAH ELECTRIC AND POWER COMPANY
 
 Sources of Capital
   Credit Rating Risk
  Market Price Risk
   101




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##### Table of Contents



SAVANNAH
ELECTRIC AND POWER COMPANY
 
  Second Quarter2005
    
    
    Year-to-DateChanges
    
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    8,034
    
    
    $
    1,474Contracts realized or settled
    
    
    (2,712
    )
    
    
    (2,733
    )New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (158
    )
    
    
    6,423Contracts at June 30, 2005
    
    $
    5,164
    
    
    $
    5,164
 (a)
    
    Current period changes also include the changes in fair value of new contracts
entered into during the period. Source of June 30, 2005Valuation PricesTotal
    
    
    MaturityFair Value
    
    
    Year 1
    
    
    1-3 Years(in thousands)Actively quoted
    
    $
    5,167
    
    
    $
    2,993
    
    
    $
    2,174External sources
    
    
    (3
    )
    
    
    (3
    )
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2005
    
    $
    5,164
    
    
    $
    2,990
    
    
    $
    2,174
  Financing Activities
   102




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##### Table of Contents



SOUTHERN POWER COMPANY
 103




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##### Table of Contents



SOUTHERN POWER COMPANY
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Operating Revenues:Sales for resale Non-affiliates
    
    $
    39,703
    
    
    $
    73,032
    
    
    $
    79,807
    
    
    $
    159,731Affiliates
    
    
    109,217
    
    
    
    107,218
    
    
    
    221,554
    
    
    
    194,013Other revenues
    
    
    306
    
    
    
    2,499
    
    
    
    686
    
    
    
    4,610Total operating revenues
    
    
    149,226
    
    
    
    182,749
    
    
    
    302,047
    
    
    
    358,354Operating Expenses:Fuel
    
    
    26,730
    
    
    
    43,998
    
    
    
    61,274
    
    
    
    74,333Purchased power Non-affiliates
    
    
    10,772
    
    
    
    25,813
    
    
    
    19,634
    
    
    
    39,418Affiliates
    
    
    16,159
    
    
    
    28,926
    
    
    
    37,113
    
    
    
    70,982Other operations
    
    
    13,814
    
    
    
    13,529
    
    
    
    26,533
    
    
    
    28,254Maintenance
    
    
    4,939
    
    
    
    4,407
    
    
    
    8,198
    
    
    
    7,419Depreciation and amortization
    
    
    13,109
    
    
    
    12,796
    
    
    
    25,892
    
    
    
    25,574Taxes other than income taxes
    
    
    3,092
    
    
    
    2,718
    
    
    
    6,047
    
    
    
    5,397Total operating expenses
    
    
    88,615
    
    
    
    132,187
    
    
    
    184,691
    
    
    
    251,377Operating Income
    
    
    60,611
    
    
    
    50,562
    
    
    
    117,356
    
    
    
    106,977Other Income and (Expense):Interest expense, net of amounts capitalized
    
    
    (19,935
    )
    
    
    (14,323
    )
    
    
    (39,179
    )
    
    
    (26,909
    )Other income (expense), net
    
    
    202
    
    
    
    1,271
    
    
    
    294
    
    
    
    1,764Total other income and (expense)
    
    
    (19,733
    )
    
    
    (13,052
    )
    
    
    (38,885
    )
    
    
    (25,145
    )Earnings Before Income Taxes
    
    
    40,878
    
    
    
    37,510
    
    
    
    78,471
    
    
    
    81,832Income taxes
    
    
    15,644
    
    
    
    15,093
    
    
    
    30,164
    
    
    
    32,230Net Income
    
    $
    25,234
    
    
    $
    22,417
    
    
    $
    48,307
    
    
    $
    49,602
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Net Income
    
    $
    25,234
    
    
    $
    22,417
    
    
    $
    48,307
    
    
    $
    49,602Other comprehensive income (loss):Changes in fair value of qualifying
hedges, net of tax of $50, $104,
$50 and $(418), respectively
    
    
    72
    
    
    
    166
    
    
    
    72
    
    
    
    (762
    )Reclassification adjustment for
amounts included in net income,
net of tax of $1,050, $886,
$2,091 and $1,873, respectively
    
    
    1,620
    
    
    
    1,414
    
    
    
    3,232
    
    
    
    2,983COMPREHENSIVE INCOME
    
    $
    26,926
    
    
    $
    23,997
    
    
    $
    51,611
    
    
    $
    51,823
  104




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##### Table of Contents



SOUTHERN POWER COMPANY
 For the Six MonthsEnded June 30,2005
    
    
    2004(in thousands)Operating Activities:Net income
    
    $
    48,307
    
    
    $
    49,602Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    33,271
    
    
    
    32,521Deferred income taxes and investment
tax credits, net
    
    
    23,272
    
    
    
    20,281Deferred revenues
    
    
    (26,309
    )
    
    
    (14,972
    )Tax benefit of stock options
    
    
    231
    
    
    
    100Other, net
    
    
    (1,205
    )
    
    
    483Changes in certain current assets
and liabilities Receivables, net
    
    
    (34,828
    )
    
    
    (32,912
    )Fossil fuel stock
    
    
    (3,092
    )
    
    
    2,880Materials and supplies
    
    
    (2,494
    )
    
    
    (1,493
    )Other current assets
    
    
    5,659
    
    
    
    10,480Accounts payable
    
    
    213
    
    
    
    (21,417
    )Accrued taxes
    
    
    6,794
    
    
    
    5,577Accrued interest
    
    
    49
    
    
    
    (291
    )Net cash provided from operating activities
    
    
    49,868
    
    
    
    50,839Investing Activities:Gross property additions
    
    
    (218,822
    )
    
    
    (94,991
    )Sale of property to affiliates
    
    
    
    
    
    
    400,346Change in construction payables, net
    
    
    (103
    )
    
    
    (9,463
    )Other
    
    
    
    
    
    
    778Net cash provided from (used for) investing activities
    
    
    (218,925
    )
    
    
    296,670Financing Activities:Increase (decrease) in notes payable, net
    
    
    163,090
    
    
    
    (90,218
    )Redemptions  Other long-term debt
    
    
    (200
    )
    
    
    Capital distributions to parent company
    
    
    
    
    
    
    (225,000
    )Other
    
    
    (958
    )
    
    
    Net cash provided from (used for) financing activities
    
    
    161,932
    
    
    
    (315,218
    )Net Change in Cash and Cash Equivalents
    
    
    (7,125
    )
    
    
    32,291Cash and Cash Equivalents at Beginning of Period
    
    
    25,241
    
    
    
    2,798Cash and Cash Equivalents at End of Period
    
    $
    18,116
    
    
    $
    35,089Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $0 and $15,544 capitalized for
2005 and 2004, respectively)
    
    $
    31,562
    
    
    $
    19,839Income taxes (net of refunds)
    
    $
    3,582
    
    
    $
    2,201
  105




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SOUTHERN POWER COMPANY
 At June 30,
    
    
    At December 31,Assets
    
    2005
    
    
    2004(in thousands)Current Assets:Cash and cash equivalents
    
    $
    18,116
    
    
    $
    25,241Receivables Customer accounts receivable
    
    
    16,705
    
    
    
    12,865Other accounts receivable
    
    
    1,134
    
    
    
    893Accumulated provision for uncollectible accounts
    
    
    (350
    )
    
    
    (350
    )Affiliated companies
    
    
    56,170
    
    
    
    25,423Fossil fuel stock, at average cost
    
    
    5,997
    
    
    
    2,904Materials and supplies, at average cost
    
    
    12,333
    
    
    
    9,839Prepaid income taxes
    
    
    6,575
    
    
    
    4,619Prepaid expenses
    
    
    3,440
    
    
    
    8,085Other
    
    
    83
    
    
    
    112Total current assets
    
    
    120,203
    
    
    
    89,631Property, Plant, and Equipment:In service
    
    
    2,028,502
    
    
    
    1,821,434Less accumulated provision for depreciation
    
    
    137,110
    
    
    
    111,2001,891,392
    
    
    
    1,710,234Construction work in progress
    
    
    202,243
    
    
    
    200,903Total property, plant, and equipment
    
    
    2,093,635
    
    
    
    1,911,137Deferred Charges and Other Assets:Unamortized debt issuance expense
    
    
    13,183
    
    
    
    14,078Prepaid long-term service agreements
    
    
    45,492
    
    
    
    34,800OtherAffiliated
    
    
    6,517
    
    
    
    6,455Other
    
    
    10,868
    
    
    
    10,912Total deferred charges and other assets
    
    
    76,060
    
    
    
    66,245Total Assets
    
    $
    2,289,898
    
    
    $
    2,067,013
  106




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##### Table of Contents



SOUTHERN POWER COMPANY
 At June 30,
    
    
    At December 31,Liabilities and
Stockholders Equity
    
    2005
    
    
    2004(in thousands)Current Liabilities:Securities due within one year
    
    $
    200
    
    
    $
    200Notes payable
    
    
    163,090
    
    
    
    Accounts payable Affiliated
    
    
    24,756
    
    
    
    19,265Other
    
    
    5,751
    
    
    
    11,024Accrued taxes Income taxes
    
    
    4,108
    
    
    
    Accrued taxes  Other
    
    
    9,159
    
    
    
    4,104Accrued interest
    
    
    28,675
    
    
    
    28,626Other
    
    
    11
    
    
    
    83Total current liabilities
    
    
    235,750
    
    
    
    63,302Long-term Debt
    
    
    1,099,423
    
    
    
    1,099,435Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    65,625
    
    
    
    40,212Deferred capacity revenues  Affiliated
    
    
    12,579
    
    
    
    39,118OtherAffiliated
    
    
    12,774
    
    
    
    13,333Other
    
    
    294
    
    
    
    2Total deferred credits and other liabilities
    
    
    91,272
    
    
    
    92,665Total Liabilities
    
    
    1,426,445
    
    
    
    1,255,402Common Stockholders Equity:Common stock, par value $.01 per share 
    
    
    
    
    
    
    Authorized - 1,000,000 sharesOutstanding - 1,000 sharesPaid-in capital
    
    
    740,766
    
    
    
    740,535Retained earnings
    
    
    170,441
    
    
    
    122,134Accumulated other comprehensive loss
    
    
    (47,754
    )
    
    
    (51,058
    )Total common stockholders equity
    
    
    863,453
    
    
    
    811,611Total Liabilities and Stockholders Equity
    
    $
    2,289,898
    
    
    $
    2,067,013
  107




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##### Table of Contents



SOUTHERN POWER COMPANY
 
 
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Earnings
   Increase (Decrease)Second Quarter
    
    Year-To-Date(in thousands)
    
    %
    
    (in thousands)
    
    %Sales for
resale  non-affiliates
    
    $
    (33,329
    )
    
    
    (45.6
    )
    
    $
    (79,924
    )
    
    
    (50.0
    )Sales for
resale  affiliates
    
    $
    1,999
    
    
    
    1.9
    
    
    
    27,541
    
    
    
    14.2Other revenues
    
    
    (2,193
    )
    
    
    (87.8
    )
    
    
    (3,924
    )
    
    
    (85.1
    )Fuel expense
    
    
    (17,268
    )
    
    
    (39.2
    )
    
    
    (13,059
    )
    
    
    (17.6
    )Purchased
power expense  non-affiliates
    
    
    (15,041
    )
    
    
    (58.3
    )
    
    
    (19,784
    )
    
    
    (50.2
    )Purchased
power expense  affiliates
    
    
    (12,767
    )
    
    
    (44.1
    )
    
    
    (33,869
    )
    
    
    (47.7
    )Interest expense, net of amounts
capitalized
    
    
    (5,612
    )
    
    
    (39.2
    )
    
    
    (12,270
    )
    
    
    (45.6
    )
 108




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##### Table of Contents



SOUTHERN
POWER COMPANY
 
 Sales
for resale affiliates and non-affiliates
 Other revenues
 Fuel expense
 Purchased
power expense affiliates and non-affiliates
 Interest expense, net of amounts capitalized.
 FUTURE EARNINGS POTENTIAL
  109




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SOUTHERN
POWER COMPANY
 
  FERC Matters
 
   Intercompany Interchange Contract
  110




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SOUTHERN
POWER COMPANY
 
   Other Matters
      111




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SOUTHERN
POWER COMPANY
 
  ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
 
 New Accounting Standards
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
  Sources of Capital
  112




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SOUTHERN
POWER COMPANY
 
   Credit Rating Risk
  Market Price Risk
    113




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SAVANNAH ELECTRIC AND POWER COMPANY
SOUTHERN POWER COMPANY
 
 Registrant
    
    Applicable NotesSouthern Company
    
    A, B, C, D, E, F, G, H, I, J, K, P, Q, RAlabama Power
    
    A, B, C, D, F, G, H, IGeorgia Power
    
    A, B, C, D, F, G, JGulf Power
    
    A, B, C, D, F, G, KMississippi Power
    
    A, B, C, D, F, G, LSavannah Electric
    
    A, B, C, D, F, G, H, M, NSouthern Power
    
    A, B, F, O
 114




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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
SAVANNAH ELECTRIC AND POWER COMPANY
SOUTHERN POWER COMPANY
 NOTES TO THE CONDENSED FINANCIAL STATEMENTS:
 (A)
    
    The condensed financial statements of the registrants included herein have been
prepared by each registrant, without audit, pursuant to the rules and regulations of the
SEC. In the opinion of each registrants management, the information regarding such
registrant furnished herein reflects all adjustments necessary to present fairly the
results of operations for the periods ended June 30, 2005 and 2004. 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 ACTIONSSee Note 3 to the financial statements of Southern Company
and Alabama Power under Environmental Matters  New Source Review Actions and Georgia Power, Gulf Power and
Savannah Electric under New Source Review Actions in Item 8 of the Form 10-K. On June 3,
2005, the U.S. District Court for the Northern District of Alabama issued its decision in
favor of Alabama Power on the two primary legal issues in the case: (1) the scope of the
routine maintenance repair and replacement exclusion under the New Source Review rules and
(2) the proper test for calculating emissions increases under those rules. The court
decided that routine maintenance repair and replacement must be defined with reference to
what is routine in the industry as opposed to what is routine at an individual unit and
emissions increases must be measured against the maximum hourly emission rate. The decision
does not resolve the case, nor does it address other legal issues associated with the EPAs
allegations involving Plant Miller Units 3 and 4. In separate orders, the court dismissed
Alabama Powers motion for summary judgment on the claims, stayed the entire case, and
referred the parties to mediation to be completed by September 9, 2005. Alabama Power may
refile its motion for summary judgment if the mediation proves unsuccessful. The Georgia
Power and Savannah Electric case, which is pending in federal district court in Georgia,
remains administratively closed. The ultimate outcome of these matters cannot now be
determined.
 115




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 PLANT WANSLEY ENVIRONMENTAL LITIGATIONSee Note 3 to the financial statements of Southern Company under Environmental Matters -
Plant Wansley Environmental Litigation and Georgia Power under Plant Wansley Environmental
Litigation in Item 8 of the Form 10-K. On March 11, 2005, the U.S. Circuit Court of
Appeals for the Eleventh Circuit accepted Georgia Powers petition for review of the U.S.
District Court for the Northern District of Georgias December 15, 2004 order related to the
Plant Wansley environmental litigation. Oral argument on that appeal has not been
scheduled. The final outcome of this matter cannot now be determined.MIRANT RELATED MATTERSSee Note 3 to the financial statements of Southern Company
under Mirant Related 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.
    116




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
   RACE DISCRIMINATION LITIGATIONSee Note 3 to the financial statements of Southern Company and Georgia Power under Race
Discrimination Litigation in Item 8 of the Form 10-K. On April 15, 2005, the U.S. Court of
Appeals for the Eleventh Circuit denied the plaintiffs petition for rehearing by the entire
Eleventh Circuit panel of judges. On July 13, 2005, the plaintiffs filed a petition for
writ of certiorari to the U.S. Supreme Court, asking the Court to review several adverse
rulings made by the trial court and the U.S. Court of Appeals for the Eleventh Circuit.
Georgia Power will file an opposition brief shortly. The final outcome of this matter
cannot now be determined.FERC MATTERSSee Note 3 to the financial statements of Southern Company, Alabama Power, Georgia Power,
Gulf Power, Mississippi Power, and Savannah Electric under 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 at market-based
prices. Through SCS, as agent, the retail operating companies and Southern Power also have
FERC authority to make short-term opportunity sales at market rates. Specific FERC approval
must be obtained with respect to a market-based contract with an affiliate. On February 15,
2005, Southern Company submitted additional information related to generation dominance in
its retail service territory. On July 8, 2005, the FERC initiated a hearing before an
administrative law judge to review the generation market power issues. Any new market-based
rate transactions in Southern Companys 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. In the event that the FERCs default mitigation measures are
ultimately applied, Southern Power and the retail operating companies 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 impact of such sales
through June 30, 2005 is not material to the net income of Southern Company, any of the
retail operating companies, or Southern Power. 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.
  117




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
   INCOME TAX MATTERSSee Note 3 to the financial statements of Southern Company under Income Tax Matters 
Leveraged Lease Transactions in Item 8 of the Form 10-K for information related to Southern
Companys deductions related to three international lease transactions (so-called SILO or
sale-in-lease-out transactions), which the IRS challenged 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 $25 million.
In addition, the IRS has proposed a penalty of approximately $16 million. Additionally,
although the payment of the tax liability, exclusive of interest and any penalties, would
not affect Southern Companys results of operations under current accounting standards, it
could have a material impact on cash flow. See Note 1 to the financial statements of
Southern Company under Leveraged Leases in Item 8 of the Form 10-K for additional details
of the deferred taxes related to these transactions. Furthermore, the FASB has recently
proposed changes to the accounting for both leveraged leases and uncertain tax positions.
If approved as proposed, these changes could require Southern Company to reflect the tax
deductions that the IRS is challenging as currently payable on the balance sheet and to
change the timing of the income recognized under the leases, including a cumulative effect
upon adoption of this change that 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, the related deductions are allowable, and the assessment of a
penalty is inappropriate. Southern Company is continuing to pursue resolution of these
matters with the IRS; however, the ultimate outcome of these matters cannot now be
determined.(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 accounts for options granted in accordance with Accounting Principles
Board Opinion No. 25; thus, no compensation expense is recognized because the exercise
price of all options granted equaled the fair market value on
 118




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 the date of the grant. The estimated fair values of stock options granted during the
three-month and six-month periods ending June 30, 2005 and 2004 have been derived using the
Black-Scholes stock option pricing model.The following table shows the assumptions and the weighted average fair values of these
stock options:
 SixSix
    
    MonthsMonths
    
    EndedThree Months Ended
    
    Three Months Ended
    
    Ended
    
    June 30,June 30, 2005
    
    June 30, 2004
    
    June 30, 2005
    
    2004Interest rate
    
    
    3.8
    %
    
    
    3.7
    %
    
    
    3.9
    %
    
    
    3.1
    %Average expected life of stock
options (in years)
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5Expected volatility of common stock
    
    
    17.7
    %
    
    
    19.6
    %
    
    
    17.9
    %
    
    
    19.7
    %Expected annual dividends on
common stock
    
    $
    1.49
    
    
    $
    1.40
    
    
    $
    1.43
    
    
    $
    1.40Weighted average fair value of
stock options
granted
    
    $
    3.78
    
    
    $
    3.41
    
    
    $
    3.90
    
    
    $
    3.29
  Three Months Ended
    
    Three Months EndedJune 30, 2005
    
    June 30, 2004As Reported
    
    Pro Forma
    
    As Reported
    
    Pro FormaEarnings per share (dollars):Basic
    
    $
    0.52
    
    
    $
    0.51
    
    
    $
    0.48
    
    
    $
    0.47Diluted
    
    $
    0.52
    
    
    $
    0.51
    
    
    $
    0.47
    
    
    $
    0.46
 Six Months Ended
    
    Six Months EndedJune 30, 2005
    
    June 30, 2004As Reported
    
    Pro Forma
    
    As Reported
    
    Pro FormaEarnings per share (dollars):Basic
    
    $
    0.95
    
    
    $
    0.93
    
    
    $
    0.93
    
    
    $
    0.91Diluted
    
    $
    0.95
    
    
    $
    0.93
    
    
    $
    0.92
    
    
    $
    0.90
 119




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
  Three Months Ended
    
    Three Months EndedJune 30, 2005
    
    June 30, 2004As Reported
    
    Pro Forma
    
    As Reported
    
    Pro FormaNet income after
dividends on
preferred stockAlabama Power
    
    $
    121
    
    
    $
    121
    
    
    $
    104
    
    
    $
    104Georgia Power
    
    
    158
    
    
    
    157
    
    
    
    156
    
    
    
    155Gulf Power
    
    
    21
    
    
    
    21
    
    
    
    19
    
    
    
    19Mississippi Power
    
    
    26
    
    
    
    26
    
    
    
    22
    
    
    
    22Savannah Electric
    
    
    8
    
    
    
    8
    
    
    
    7
    
    
    
    7Southern Company
    
    $
    387
    
    
    $
    385
    
    
    $
    352
    
    
    $
    350
 Six Months Ended
    
    Six Months EndedJune 30, 2005
    
    June 30, 2004As Reported
    
    Pro Forma
    
    As Reported
    
    Pro FormaNet income after
dividends on
preferred stockAlabama Power
    
    $
    215
    
    
    $
    213
    
    
    $
    195
    
    
    $
    193Georgia Power
    
    
    300
    
    
    
    297
    
    
    
    300
    
    
    
    297Gulf Power
    
    
    36
    
    
    
    36
    
    
    
    36
    
    
    
    35Mississippi Power
    
    
    43
    
    
    
    42
    
    
    
    39
    
    
    
    39Savannah Electric
    
    
    9
    
    
    
    8
    
    
    
    10
    
    
    
    9Southern Company
    
    $
    710
    
    
    $
    696
    
    
    $
    683
    
    
    $
    671
 (D)
    
    See Note 1 to the financial statements of Southern Company, Alabama Power, Georgia
Power, Gulf Power, Mississippi Power, and Savannah Electric 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 at12/31/04
    
    Incurred
    
    Settled
    
    Accretion
    
    Revisions
    
    6/30/05Alabama Power
    
    $
    383.6
    
    
    $
    
    
    
    $
    
    
    
    $
    13.0
    
    
    $
    (0.4
    )
    
    $
    396.2Georgia Power
    
    
    504.5
    
    
    
    
    
    
    
    (0.6
    )
    
    
    16.4
    
    
    
    
    
    
    
    520.3Gulf Power
    
    
    5.8
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    6.0Mississippi Power
    
    
    5.5
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    5.7Savannah Electric
    
    
    3.9
    
    
    
    0.5
    
    
    
    (0.3
    )
    
    
    0.1
    
    
    
    
    
    
    
    4.2Southern Company
    
    $
    903.3
    
    
    $
    0.5
    
    
    $
    (0.9
    )
    
    $
    29.9
    
    
    $
    (0.4
    )
    
    $
    932.4
 120




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 (E)
    
    For Southern Company, the only difference in computing basic and diluted earnings per
share is attributable to outstanding options under the stock option plan. See Note 8 to
the financial statements of Southern Company in Item 8 of the Form 10-K for further
information on the stock option plan. The effect of the stock options was determined
using the treasury stock method. Shares used to compute diluted earnings per share are as
follows (in thousands):
 Three Months
    
    Three Months

    
    Six Months
    
    Six MonthsEnded
    
    Ended

    
    Ended
    
    EndedJune 30, 2005
    
    June 30, 2004
    
    June 30, 2005
    
    June 30, 2004As reported shares
    
    
    746,823
    
    
    
    738,185
    
    
    
    745,424
    
    
    
    737,412Effect of options
    
    
    4,193
    
    
    
    4,268
    
    
    
    3,936
    
    
    
    4,508Diluted shares
    
    
    751,016
    
    
    
    742,453
    
    
    
    749,360
    
    
    
    741,920
 (F)
    
    See Note 6 to the financial statements of Southern Company, Alabama Power, Georgia
Power, Gulf Power, Mississippi Power, and Savannah Electric under Financial Instruments
in Item 8 of the Form 10-K. At June 30, 2005, the fair value of derivative energy
contracts was reflected in the financial statements as follows (in millions):
 Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    Mississippi
    
    SavannahCompany
    
    Power
    
    Power
    
    Power
    
    Power
    
    ElectricAmountsRegulatory liabilities, net
    
    $
    64.8
    
    
    $
    19.3
    
    
    $
    18.9
    
    
    $
    6.7
    
    
    $
    14.8
    
    
    $
    5.2Other comprehensive income
(loss)
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    Net income (loss)
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total fair value
    
    $
    64.0
    
    
    $
    19.3
    
    
    $
    18.9
    
    
    $
    6.7
    
    
    $
    14.0
    
    
    $
    5.2
   121




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
  Fair Value Hedges
 Fair Value GainHedge
    
    (Loss)Notional
    
    
    
    
    
    
    
    
    
    Maturity
    
    June 30, 2005Amount
    
    Fixed Rate Received
    
    Variable Rate Paid
    
    Date
    
    (in millions)6-month LIBOR(in arrears)Southern Company
    
    $400 million
    
    
    5.30
    %
    
    less 0.103%
    
    February 2007
    
    $
    10.8Southern Company
    
    $40 million
    
    
    7.625
    %
    
    6-month LIBOR
    
    December 2009
    
    
    0.7(in  arrears) plus2.9225
    %
 Cash Flow Hedges
 Fair ValueWeighted Average
    
    Hedge
    
    Gain (Loss)Notional
    
    Variable Rate
    
    Fixed Rate
    
    Maturity
    
    June 30, 2005Amount
    
    Received
    
    Paid
    
    Date
    
    (in millions)Alabama Power
    
    $536 million
    
    BMA Index
    
    
    2.007
    %
    
    January 2007
    
    $
    6.5Alabama Power
    
    $195 million
    
    3-month LIBOR
    
    
    1.89
    %
    
    April 2006
    
    
    3.4Alabama Power
    
    $300 million
    
    3-month LIBOR
    
    
    4.798
    %
    
    December 2015
    
    
    (9.8
    )Alabama Power
    
    $300 million
    
    3-month LIBOR
    
    
    4.418
    %
    
    February 2016
    
    
    (0.5
    )Georgia Power
    
    $100 million
    
    3-month LIBOR
    
    
    5.029
    %
    
    December 2015
    
    
    (5.1
    )Georgia Power*
    
    $150 million
    
    3-month LIBOR
    
    
    4.133  6.00
    %
    
    February 2016
    
    
    (1.3
    )Georgia Power**
    
    $400 million
    
    Floating
    
    
    2.35  3.85
    %
    
    December 2007
    
    
    0.6Georgia Power
    
    $300 million
    
    3-month LIBOR
    
    
    4.58  5.75
    %
    
    July 2037
    
    
    (10.0
    )Georgia Power
    
    $300 million
    
    1-month LIBOR
    
    
    2.6745
    %
    
    June 2007
    
    
    0.2Savannah Electric
    
    $  14 million
    
    BMA Index
    
    
    2.502
    %
    
    December 2007
    
    
    0.1Savannah Electric
    
    $  30 million
    
    3-month LIBOR
    
    
    4.686
    %
    
    May 2016
    
    
    (0.6
    )
 
 *
    
    Interest rate collar**
    
    Series of interest rate caps and collars with variable rate based on one-month LIBOR 122




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 For the twelve month period ended June 30, 2006, the following table reflects the
estimated pre-tax gains/(losses) that will be reclassified from Accumulated Other
Comprehensive Income to Interest Expense.
 (in millions)Alabama Power
    
    $
    4.8Georgia Power
    
    
    (2.1
    )Gulf Power
    
    
    (0.3
    )Savannah Electric
    
    
    Southern Power
    
    
    (11.5
    )Southern Company
    
    $
    (9.1
    )
 (G)
    
    See Note 2 to the financial statements of Southern Company, Alabama Power, Georgia
Power, Gulf Power, Mississippi Power, and Savannah Electric in Item 8 of the Form 10-K.
Components of the pension plans and postretirement plans net periodic costs for the
three-month and six-month periods ending June 30, 2005 and 2004 are as follows (in
millions):
 Southern
    
    Alabama
    
    Georgia
    
    
    
    
    
    Mississippi
    
    SavannahPENSION PLANS
    
    Company
    
    Power
    
    Power
    
    Gulf Power
    
    Power
    
    ElectricThree Months Ended
June 30, 2005Service cost
    
    $
    35
    
    
    $
    8
    
    
    $
    11
    
    
    $
    2
    
    
    $
    2
    
    
    $
    1Interest cost
    
    
    72
    
    
    
    19
    
    
    
    27
    
    
    
    3
    
    
    
    3
    
    
    
    1Expected return on plan assets
    
    
    (116
    )
    
    
    (35
    )
    
    
    (46
    )
    
    
    (5
    )
    
    
    (5
    )
    
    
    (1
    )Recognized net (gain)/loss
    
    
    3
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Net amortization
    
    
    6
    
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    
    
    
    $
    (5
    )
    
    $
    (5
    )
    
    $
    
    
    
    $
    
    
    
    $
    1Six Months Ended
June 30, 2005Service cost
    
    $
    71
    
    
    $
    17
    
    
    $
    23
    
    
    $
    4
    
    
    $
    3
    
    
    $
    2Interest cost
    
    
    143
    
    
    
    37
    
    
    
    53
    
    
    
    6
    
    
    
    7
    
    
    
    3Expected return on plan assets
    
    
    (231
    )
    
    
    (70
    )
    
    
    (92
    )
    
    
    (10
    )
    
    
    (9
    )
    
    
    (2
    )Recognized net (gain)/loss
    
    
    6
    
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Net amortization
    
    
    11
    
    
    
    4
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    
    
    
    $
    (11
    )
    
    $
    (11
    )
    
    $
    
    
    
    $
    1
    
    
    $
    3Three Months Ended
June 30, 2004Service cost
    
    $
    32
    
    
    $
    8
    
    
    $
    10
    
    
    $
    1
    
    
    $
    2
    
    
    $
    1Interest cost
    
    
    68
    
    
    
    18
    
    
    
    26
    
    
    
    3
    
    
    
    3
    
    
    
    1Expected return on plan assets
    
    
    (113
    )
    
    
    (35
    )
    
    
    (45
    )
    
    
    (5
    )
    
    
    (5
    )
    
    
    (1
    )Recognized net (gain)/loss
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Net amortization
    
    
    4
    
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    (10
    )
    
    $
    (9
    )
    
    $
    (8
    )
    
    $
    (1
    )
    
    $
    
    
    
    $
    1Six Months Ended
June 30, 2004Service cost
    
    $
    64
    
    
    $
    16
    
    
    $
    20
    
    
    $
    2
    
    
    $
    4
    
    
    $
    2Interest cost
    
    
    136
    
    
    
    36
    
    
    
    52
    
    
    
    6
    
    
    
    6
    
    
    
    2Expected return on plan assets
    
    
    (226
    )
    
    
    (70
    )
    
    
    (90
    )
    
    
    (10
    )
    
    
    (10
    )
    
    
    (2
    )Recognized net (gain)/loss
    
    
    (2
    )
    
    
    (2
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    Net amortization
    
    
    8
    
    
    
    2
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    (20
    )
    
    $
    (18
    )
    
    $
    (16
    )
    
    $
    (2
    )
    
    $
    
    
    
    $
    2
 123




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 POSTRETIREMENT PLANS
    
    Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    Mississippi
    
    SavannahCompany
    
    Power
    
    Power
    
    Power
    
    Power
    
    ElectricThree Months Ended
June 30, 2005Service cost
    
    $
    7
    
    
    $
    2
    
    
    $
    3
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest cost
    
    
    24
    
    
    
    7
    
    
    
    10
    
    
    
    1
    
    
    
    1
    
    
    
    1Expected return on plan assets
    
    
    (11
    )
    
    
    (4
    )
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    Net amortization
    
    
    10
    
    
    
    3
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    30
    
    
    $
    8
    
    
    $
    12
    
    
    $
    1
    
    
    $
    1
    
    
    $
    1Six Months Ended
June 30, 2005Service cost
    
    $
    14
    
    
    $
    4
    
    
    $
    5
    
    
    $
    1
    
    
    $
    1
    
    
    $
    Interest cost
    
    
    48
    
    
    
    13
    
    
    
    21
    
    
    
    2
    
    
    
    2
    
    
    
    1Expected return on plan assets
    
    
    (22
    )
    
    
    (8
    )
    
    
    (11
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    Net amortization
    
    
    19
    
    
    
    5
    
    
    
    9
    
    
    
    
    
    
    
    1
    
    
    
    1Net cost (income)
    
    $
    59
    
    
    $
    14
    
    
    $
    24
    
    
    $
    2
    
    
    $
    3
    
    
    $
    2Three Months Ended
June 30, 2004Service cost
    
    $
    7
    
    
    $
    2
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest cost
    
    
    24
    
    
    
    6
    
    
    
    11
    
    
    
    1
    
    
    
    1
    
    
    
    1Expected return on plan assets
    
    
    (12
    )
    
    
    (4
    )
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    Net amortization
    
    
    9
    
    
    
    2
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    28
    
    
    $
    6
    
    
    $
    12
    
    
    $
    1
    
    
    $
    1
    
    
    $
    1Six Months Ended
June 30, 2004Service cost
    
    $
    14
    
    
    $
    4
    
    
    $
    4
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest cost
    
    
    48
    
    
    
    12
    
    
    
    22
    
    
    
    2
    
    
    
    2
    
    
    
    2Expected return on plan assets
    
    
    (24
    )
    
    
    (8
    )
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    Net amortization
    
    
    18
    
    
    
    4
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    56
    
    
    $
    12
    
    
    $
    24
    
    
    $
    2
    
    
    $
    2
    
    
    $
    2
 (H)
    
    See Note 5 to the financial statements of Southern Company, Alabama Power, and
Savannah Electric 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 recorded a reduction in its income tax
expense of approximately $27.7 million for the six months ended June 30, 2005. In
addition, in connection with construction on the Plant McIntosh combined cycle units,
Savannah Electric recorded an increase of approximately $0.5 million and
$1.6 million in AFUDC equity, which is not taxable, for the three months and six months
ended June 30, 2005, respectively. The impact of these entries caused a significant
reduction in the effective income tax rate for the six months ended June 30, 2005 for
each of Southern Company, Alabama Power, and Savannah Electric. On an annual basis, the
effective income tax rate for 2005 is expected to be approximately 27% for Southern
Company, 35% for Alabama Power, and 35% for Savannah Electric. For additional
information on Alabama Powers accounting order, see Note 3 to the financial statements
of Southern Company and Alabama Power under Gulf Power and Alabama Power Storm Damage
Recovery and Natural Disaster Cost Recovery, respectively, in Item 8 of the Form 10-K.
For additional information on the Plant McIntosh construction, see Note 3 to the
financial statements of Southern Company and Savannah Electric under Plant McIntosh
Construction Project in Item 8 of the Form 10-K.
 124




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 (I)
    
    Alabama Power fuel costs are recovered under Rate ECR (Energy Cost Recovery), which
provides for the addition of a fuel and energy cost factor to base rates. In April 2005,
this factor was increased from 1.518 cents per kilowatt-hour to 1.788 cents per
kilowatt-hour, which should result in a 4.5% increase in annual retail revenues, or
approximately $148 million. Alabama Power will continue to monitor the under recovered
fuel cost balance to determine if an additional adjustment to billing rates should be
requested from the Alabama PSC. Alabama Powers under recovered fuel costs as of June 30,
2005 totaled $127.4 million. See Note 3 to the financial statements of Southern Company
and Alabama Power under Alabama Power Retail Regulatory Matters and Retail Regulatory
Matters, respectively, in Item 8 of the Form 10-K for additional information.
    (J)
    
    On May 17, 2005, the Georgia PSC voted to allow Georgia Power to increase customer
fuel rates to recover estimated under-recovered fuel costs of approximately $508 million as
of May 31, 2005 over the period from June 1, 2005 through May 31, 2009, as well as future
projected fuel costs based on a June 2005 through May 2006 test period. The new fuel rate
became effective June 1, 2005 and represents an
 125




---



##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 average annual increase in revenues of approximately 9.5%, or approximately $473 million.
Based on the order, a portion of the under-recovered regulatory clause revenues was
reclassified from current assets to deferred charges and other assets on the balance sheet.(K)
    
    See Note 3 to the financial statements of Southern Company and Gulf Power under Gulf
Power and Alabama Power Storm Damage Recovery and Retail Regulatory Matters,
respectively, in Item 8 of the Form 10-K for information on a Stipulation and Settlement
filed with the Florida PSC to resolve all matters regarding the effects of Hurricane Ivan
on Gulf Powers reserve for property damage. The Florida PSC approved the Stipulation and
Settlement as filed in March 2005 and Gulf Power began billing customers accordingly in
April 2005. In connection with the Stipulation, Gulf Power has agreed that it will not
seek any additional increase in its base rates and charges to become effective on or before
March 1, 2007.
  (L)
    
    On June 30, 2005, Mississippi Power issued $30 million of Series G 5.40% Senior Notes
due July 1, 2035. The proceeds were used to purchase Treasury securities for the legal
defeasance of $30 million principal amount of its First Mortgage Bonds, 6 7/8% Series. An
irrevocable trust agreement was executed by Mississippi Power and the trustee for the bond
holders under which the bonds will be redeemed in December 2005. As a result of this legal
defeasance, there are no longer any first mortgage bond liens on Mississippi Powers
property and Mississippi Power no longer has to comply with the covenants and restrictions
of the first mortgage bond indenture. The liability associated with the first mortgage
bonds has been extinguished on Mississippi Powers balance sheet since Mississippi Power
has been legally released from being the primary obligor by the bondholders.(M)
    
    On May 17, 2005, the Georgia PSC approved a new three-year retail rate plan for
Savannah Electric ending May 31, 2008 (2005 Plan). Under the terms of the 2005 Plan,
earnings will be evaluated against a retail return on common equity range of 9.75% to
11.75%. Two-thirds of any earnings above 11.75% will be applied to rate refunds with the
remaining one-third retained by Savannah Electric. Retail base rates were increased by
approximately $9.6 million, or 5.1%, on an annual basis effective in June 2005 to cover the
cost of new generation and PPAs; higher operating and maintenance expenses; and continued
investment in new transmission and distribution facilities to support growth and ensure
reliability.
  126




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
  (N)
    
    See Notes 9 and 10 to the financial statements of Savannah Electric in Item 8 of the
Form 10-K for information regarding Savannah Electrics restatement of its financial
statements for the three-month and six-month periods ended June 30, 2004 as the result of
errors in the estimate of unbilled revenues for the
period. A summary of the effects of those restatement adjustments for the three-month and
six-month periods ended June 30, 2004 is as follows (in thousands):
 Three Months Ended
    
    Six Months EndedJune 30, 2004
    
    June 30, 2004As Originally
    
    As
    
    As Originally
    
    AsReported
    
    Restated
    
    Reported
    
    RestatedRetail sales revenues
    
    $
    88,437
    
    
    $
    87,516
    
    
    $
    156,460
    
    
    $
    155,025Total operating revenues
    
    
    92,070
    
    
    
    91,149
    
    
    
    164,905
    
    
    
    163,470Operating income
    
    
    14,892
    
    
    
    13,971
    
    
    
    23,438
    
    
    
    22,003Earnings before income taxes
    
    
    11,830
    
    
    
    10,908
    
    
    
    16,776
    
    
    
    15,341Income taxes
    
    
    4,331
    
    
    
    3,974
    
    
    
    6,129
    
    
    
    5,574Net income
    
    
    7,499
    
    
    
    6,934
    
    
    
    10,647
    
    
    
    9,767Net income after dividends on
preferred stock
    
    
    7,349
    
    
    
    6,784
    
    
    
    10,497
    
    
    
    9,617Comprehensive income
    
    
    7,390
    
    
    
    6,825
    
    
    
    10,529
    
    
    
    9,649
 (O)
    
    On June 7, 2005, Southern Power, through certain of its wholly-owned subsidiaries,
acquired all of the outstanding general and limited partnership interests of Oleander Power
Project, L.P. (Oleander) from Constellation Power, Inc. and certain other subsidiaries of
Constellation Energy Group, Inc. The results of Oleanders operations have been included in
the financial statements since that date. Southern Powers acquisition of the general and
limited partnership interests in Oleander was pursuant to a Purchase and Sale Agreement
dated April 8, 2005, for an aggregate purchase price of approximately $206 million, plus
approximately $12 million of working capital and other adjustments. The total purchase
price of $206 million was allocated to property, plant, and
equipment, based on a preliminary assessment. Oleander owns a
dual-fueled generating plant in Brevard County, Florida with a nominal installed capacity
of 680 MW. The entire output of the plant is sold under separate PPAs with Florida Power &
Light Company and Seminole Electric Cooperative, Inc. The PPAs expire in 2007 and 2009,
respectively.(P)
    
    On July 8, 2005, Southern Company GAS signed a letter of intent to negotiate the sale
of substantially all of its assets to Cobb Electric Membership Corporation. At June 30,
2005, Southern Company GAS assets totaled $62.8 million. The proposed sale is subject to
the negotiation of a definitive sale agreement and receipt of necessary regulatory or
governmental approvals.(Q)
    
    In May 2005, Southern Company completed the purchase from Ormat Nevada, Inc. and
subsequent leaseback of the Puna Geothermal Facility, a 25 MW geothermal facility in Hilo,
Hawaii. The cost of the facility was approximately $71 million. Southern Companys net
investment in the leveraged lease is approximately $30 million.
 127




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 (R)
    
    Southern Companys reportable business segment is the sale of electricity in the
Southeast by the five retail operating companies and Southern Power. The All Other
column includes parent Southern Company, which does not allocate operating expenses to
business segments. Also, this category includes segments below the quantitative
threshold for separate disclosure. These segments include investments in synthetic
fuels and leveraged lease projects, telecommunications, energy-related services, and
natural gas marketing. Southern Powers revenues from sales to the retail operating
companies were $109 million and $222 million for the three months and six months ended
June 30, 2005, respectively, and $107 million and $194 million for the three months and
six months ended June 30, 2004, 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 June 30, 2005:Operating revenues
    
    $
    3,026
    
    
    $
    149
    
    
    $
    (126
    )
    
    $
    3,049
    
    
    $
    127
    
    
    $
    (31
    )
    
    $
    3,145Segment net income (loss)
    
    
    332
    
    
    
    25
    
    
    
    
    
    
    
    357
    
    
    
    29
    
    
    
    1
    
    
    
    387Six Months Ended June 30, 2005:Operating revenues
    
    $
    5,723
    
    
    $
    302
    
    
    $
    (259
    )
    
    $
    5,766
    
    
    $
    300
    
    
    
    (57
    )
    
    $
    6,009Segment net income (loss)
    
    
    598
    
    
    
    48
    
    
    
    
    
    
    
    646
    
    
    
    64
    
    
    
    
    
    
    
    710Total assets at June 30, 2005
    
    $
    34,391
    
    
    $
    2,290
    
    
    $
    (113
    )
    
    $
    36,568
    
    
    $
    1,899
    
    
    $
    (397
    )
    
    $
    38,070Three Months Ended June 30, 2004:Operating revenues
    
    $
    2,869
    
    
    $
    182
    
    
    $
    (135
    )
    
    $
    2,916
    
    
    $
    119
    
    
    $
    (26
    )
    
    $
    3,009Segment net income (loss)
    
    
    308
    
    
    
    23
    
    
    
    
    
    
    
    331
    
    
    
    21
    
    
    
    
    
    
    
    352Six Months Ended June 30, 2004:Operating revenues
    
    $
    5,411
    
    
    $
    358
    
    
    $
    (265
    )
    
    $
    5,504
    
    
    $
    292
    
    
    $
    (55
    )
    
    $
    5,741Segment net income (loss)
    
    
    580
    
    
    
    50
    
    
    
    
    
    
    
    630
    
    
    
    54
    
    
    
    (1
    )
    
    
    683Total assets at December 31, 2004
    
    $
    33,524
    
    
    $
    2,067
    
    
    $
    (103
    )
    
    $
    35,488
    
    
    $
    1,996
    
    
    $
    (522
    )
    
    $
    36,962
 Products and Services
 Electric Utilities RevenuesPeriod
    
    
    Retail
    
    Wholesale
    
    Other
    
    Total(in millions)Three Months Ended June 30, 2005
    
    $
    2,555
    
    
    $
    385
    
    
    $
    109
    
    
    $
    3,049Three Months Ended June 30, 2004
    
    
    2,478
    
    
    
    344
    
    
    
    94
    
    
    
    2,916Six Months Ended June 30, 2005
    
    $
    4,824
    
    
    $
    732
    
    
    $
    210
    
    
    $
    5,766Six Months Ended June 30, 2004
    
    
    4,622
    
    
    
    695
    
    
    
    187
    
    
    
    5,504
 128




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Maximum ApproximateTotal Number of
    
    Dollar Value ofShares Purchased as
    
    Shares that May YetTotal Number of
    
    
    
    
    
    Part of Publicly
    
    Be Purchased UnderShares
    
    Average Price
    
    Announced Plans or
    
    the Plans or2005
    
    Purchased (a)
    
    Paid Per Share
    
    Programs
    
    Programs (a)April 1 -
April 30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/AMay 1 -
May 31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/AJune 1 -
June 30
    
    
    1,813,637
    
    
    $
    34.34
    
    
    
    1,813,637
    
    
    
    N/ATotal
    
    
    1,813,637
    
    
    $
    34.34
    
    
    
    1,813,637
    
    
    
    N/A
 (a)
    
    In fiscal year 2004, Southern Company announced that it planned to engage an
agent in fiscal year 2005 to repurchase shares of its common stock to offset shares
issued in connection with the exercise of stock options under the Southern Omnibus
Incentive Compensation Plan (Omnibus Plan). In May 2005, Southern Company engaged an
agent to (i) begin repurchasing shares of Southern Company common stock to offset the
6,273,876 shares of common stock issued from January 2005 through May 2005 in
connection with the exercise of stock options under the Omnibus Plan and (ii)
repurchase shares of Southern Company common stock on an ongoing basis to offset
additional shares issued in connection with the exercise of stock options under the
Omnibus Plan. Southern Company has engaged the agent to effect such repurchases
through December 31, 2007.
 129




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
 Southern Company
  Nominees
    
    Shares For
    
    Shares Withhold VoteDaniel P. Amos
    
    
    574,671,959
    
    
    
    9,594,420Dorrit J. Bern
    
    
    574,668,187
    
    
    
    9,598,192Francis S. Blake
    
    
    547,962,884
    
    
    
    36,303,495Thomas F. Chapman
    
    
    548,131,611
    
    
    
    36,134,768Bruce S. Gordon
    
    
    572,993,728
    
    
    
    11,272,651Donald M. James
    
    
    547,558,282
    
    
    
    36,708,097Zack T. Pate
    
    
    575,144,117
    
    
    
    9,122,262J. Neal Purcell
    
    
    575,196,783
    
    
    
    9,069,596David M. Ratcliffe
    
    
    572,030,009
    
    
    
    12,236,370Gerald J. St. Pé
    
    
    574,874,447
    
    
    
    9,391,932
  Alabama Power
  Whit Armstrong
    
    Charles D. McCraryDavid J. Cooper, Sr.
    
    Malcolm PorteraR. Kent Henslee
    
    Robert D. PowersJohn D. Johns
    
    David M. RatcliffeCarl E. Jones, Jr.
    
    C. Dowd RitterPatricia M. King
    
    James H. SanfordJames K. Lowder
    
    John C. Webb, IVWallace D. Malone, Jr.
    
    James W. Wright
  130




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##### Table of Contents



Item 4.
    
    Submission of Matters to a Vote of Security Holders. (Continued)Georgia PowerGeorgia Power held its annual meeting of common shareholders and preferred shareholders on
May 18, 2005 and the following persons were elected to serve as directors of Georgia Power:
 Juanita Powell Baranco
    
    David M. RatcliffeRobert L. Brown, Jr.
    
    D. Gary ThompsonRonald D. Brown
    
    Richard W. UsseryAnna R. Cablik
    
    William Jerry VereenMichael D. Garrett
    
    E. Jenner Wood, III
 All of the 7,761,500 outstanding shares of Georgia Powers common stock are owned by
Southern Company and were voted in favor of the nominees for directors. Ten shares of
preferred stock were voted in favor of the nominees for directors.Gulf PowerGulf Power held its annual meeting of common shareholders and preferred shareholders on May
18, 2005 and the following persons were elected to serve as directors of Gulf Power:
 C. LeDon Anchors
    
    William A. PullumWilliam C. Cramer, Jr.
    
    Winston E. ScottFred C. Donovan, Sr.
    
    Susan N. Story
 All of the 992,717 outstanding shares of Gulf Powers common stock are owned by Southern
Company and were voted in favor of the nominees for directors. None of the shares of
preferred stock were voted.Mississippi PowerMississippi Power held its annual meeting of common shareholders and preferred shareholders
on May 18, 2005 and the following persons were elected to serve as directors of Mississippi
Power:
 Tommy E. Dulaney
    
    Philip J. TerrellWarren A. Hood, Jr.
    
    Anthony J. TopaziRobert C. Khayat
    
    N. Eugene WarrGeorge A. Schloegel
 All of the 1,121,000 outstanding shares of Mississippi Powers common stock are owned by
Southern Company and were voted in favor of the nominees for directors. None of the shares
of preferred stock were voted.
 131




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##### Table of Contents



Item 4.
    
    Submission of Matters to a Vote of Security Holders. (Continued)Savannah ElectricBy written consent, in lieu of the annual meeting of stockholders of Savannah Electric,
effective April 29, 2005, the following persons were elected to serve as directors of
Savannah Electric:
 Gus H. Bell, III
    
    Anthony R. JamesArchie H. Davis
    
    Robert B. Miller, IIIWalter D. Gnann
    
    Arnold M. Tenenbaum
 All of the 10,844,635 outstanding shares of Savannah Electrics common stock are owned by
Southern Company and were voted in favor of the nominees for directors.Southern PowerBy written consent, in lieu of the annual meeting of stockholders of Southern Power,
effective January 5, 2005, the number of directors constituting the board of directors was
set at six and the following persons were elected to serve as directors of Southern Power:
 W. Paul Bowers
    
    Charles D. McCraryThomas A. Fanning
    
    David M. RatcliffeMichael D. Garrett
 All of the 1,000 outstanding shares of Southern Powers common stock are owned by Southern
Company and were voted in favor of the nominees for directors.
 
 Item 6.
    
    Exhibits.(10)
    
    Material ContractsSouthern Power
 (g) 1
    
    -
    
    Multi-Year Credit Agreement among Southern Power,
Citibank N.A., as the administrative agent, and the
lenders listed therein dated as of June 10, 2005.(g) 2
    
    -
    
    Purchase and Sale Agreement, by and between CP Oleander,
LP and CP Oleander I, Inc., as Sellers, Constellation
Power, Inc. and SP Newco I LLC and SP Newco II LLC, as
Purchasers, and Southern Power, as Purchasers Parent,
for the Sale of Partnership Interests of Oleander Power
Project, LP, dated as of April 8, 2005. (Designated in
Form 8-K dated June 7, 2005, File No. 333-98553, as
Exhibit 2.1 and incorporated herein by reference.)
 (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, 2004, File
No. 1-3526 as Exhibit 24(a)
and incorporated herein by
reference.)
 132




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##### Table of Contents



Item 6.
    
    Exhibits. (continued)Alabama Power
 (b)1
    
    -
    
    Power of Attorney and
resolution. (Designated in
the Form 10-K for the year
ended December 31, 2004, 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, 2004,
File No. 1-6468 as Exhibit 24(c) and incorporated
herein by reference.)(c)2
    
    -
    
    Power of Attorney for Cliff S. Thrasher.
(Designated in the Form 10-Q for the quarter ended
March 31, 2005, File No. 1-6468 as Exhibit 24(c)2
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, 2004, File No. 0-2429 as Exhibit 24(d) and
incorporated herein by reference.)
 Mississippi Power
 (e)1
    
    -
    
    Power of Attorney and resolution. (Designated in the Form 10-K for
the year ended December 31, 2004, File No. 001-11229 as Exhibit 24(e) and
incorporated herein by reference.)
 Savannah Electric
 (f)1
    
    -
    
    Power of Attorney and resolution. (Designated in the Form 10-K for
the year ended December 31, 2004, File No. 1-5072 as Exhibit 24(f) and
incorporated herein by reference.)
 Southern Power
 (g)1
    
    -
    
    Power of Attorney and resolution. (Designated
in the Form 10-K for the year ended December 31, 2004, File No.
333-98553 as Exhibit 24(g) and incorporated herein by reference.)(g)2
    
    -
    
    Power of Attorney for Ronnie L. Bates.
(Designated in the Form 10-Q the quarter ended March 31, 2005,
File No. 333-98553 as Exhibit 24(g)2 and incorporated herein by
reference.)(g)3
    
    -
    
    Power of Attorney for Michael W. Southern.
(Designated in the Form 10-Q the quarter ended March 31, 2005,
File No. 333-98553 as Exhibit 24(g)3 and incorporated herein by
reference.)
 133




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Item 6.
    
    Exhibits. (continued)(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.(e)2
    
    -
    
    Certificate of Mississippi Powers Chief Financial Officer required
by Section 302 of the Sarbanes-Oxley Act of 2002.
 134




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Item 6.
    
    Exhibits. (continued)Savannah Electric
 (f)1
    
    -
    
    Certificate of Savannah
Electrics Chief Executive
Officer required by Section
302 of the Sarbanes-Oxley Act
of 2002.(f)2
    
    -
    
    Certificate of Savannah
Electrics Chief Financial
Officer required by Section
302 of the Sarbanes-Oxley Act
of 2002.
 Southern Power
 (g)1
    
    -
    
    Certificate of Southern Powers Chief Executive
Officer required by Section 302 of the
Sarbanes-Oxley Act of 2002.(g)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.
 135




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Item 6.
    
    Exhibits. (continued)Savannah Electric
 (f)
    
    -
    
    Certificate of Savannah Electrics Chief Executive Officer and Chief
Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
 Southern Power
 (g)
    
    -
    
    Certificate of Southern Powers Chief Executive Officer and Chief
Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
 136




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THE SOUTHERN COMPANY
 
 SIGNATURES
  THE SOUTHERN COMPANYBy
    
    David M. RatcliffeChairman 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)
  137




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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)
  138




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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)
  139




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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, Chief Financial Officer and Comptroller(Principal Financial and Accounting Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
  140




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MISSISSIPPI POWER COMPANY
 SIGNATURES
  MISSISSIPPI POWER COMPANYBy
    
    Anthony J. TopaziPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Frances V. TurnageVice President, Chief Financial Officer and Treasurer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
  141




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SAVANNAH ELECTRIC AND POWER COMPANY
 SIGNATURES
  SAVANNAH ELECTRIC AND POWER COMPANYBy
    
    A. R. JamesPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Kirby R. WillisVice President, Treasurer, Chief FinancialOfficer and Assistant Corporate Secretary(Principal Financial and Accounting Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
  142




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SOUTHERN POWER COMPANY
 SIGNATURES
  SOUTHERN POWER COMPANYBy
    
    Ronnie L. BatesPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Michael W. SouthernSenior Vice President and Chief Financial Officer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
  143