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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 10-Q (X) QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarter Ended March 31,
2004OR( ) 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 or15(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 X No___ 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 March 31, 2004The Southern Company
    
    Par Value $5 Per Share
    
    
    737,463,215Alabama Power Company
    
    Par Value $40 Per Share
    
    
    7,750,000Georgia 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
 This combined Form 10-Q is separately filed by The Southern Company,
Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi
Power Company, Savannah Electric and Power Company and Southern Power Company.
Information contained herein relating to any individual company is filed by
such company on its own behalf. Each company makes no representation as to
information relating to the other companies. 2




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INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2004 PageNumberDEFINITIONS
    
    
    
    
    5PART I  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Item 2.
    
    Managements Discussion and Analysis of Results of Operations and Financial ConditionThe 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 Results of Operations and Financial
Condition
    
    
    13Alabama Power CompanyCondensed
Statements of Income
    
    
    25Condensed
Statements of Cash Flows
    
    
    26Condensed
Balance Sheets
    
    
    27Condensed
Statements of Comprehensive Income
    
    
    29Managements
Discussion and Analysis of Results of Operations and Financial
Condition
    
    
    30Georgia Power CompanyCondensed
Statements of Income
    
    
    38Condensed
Statements of Cash Flows
    
    
    39Condensed
Balance Sheets
    
    
    40Condensed
Statements of Comprehensive Income
    
    
    42Managements
Discussion and Analysis of Results of Operations and Financial
Condition
    
    
    43Gulf Power CompanyCondensed
Statements of Income
    
    
    52Condensed
Statements of Cash Flows
    
    
    53Condensed
Balance Sheets
    
    
    54Condensed
Statements of Comprehensive Income
    
    
    56Managements
Discussion and Analysis of Results of Operations and Financial
Condition
    
    
    57Mississippi Power CompanyCondensed
Statements of Income
    
    
    64Condensed
Statements of Cash Flows
    
    
    65Condensed
Balance Sheets
    
    
    66Condensed
Statements of Comprehensive Income
    
    
    68Managements
Discussion and Analysis of Results of Operations and Financial
Condition
    
    
    69Savannah Electric and Power CompanyCondensed
Statements of Income
    
    
    77Condensed
Statements of Cash Flows
    
    
    78Condensed
Balance Sheets
    
    
    79Condensed
Statements of Comprehensive Income
    
    
    81Managements
Discussion and Analysis of Results of Operations and Financial
Condition
    
    
    82Southern
Power CompanyCondensed
Statements of Income
    
    
    89Condensed
Statements of Cash Flows
    
    
    90Condensed
Balance Sheets
    
    
    91Condensed
Statements of Comprehensive Income
    
    
    93Managements
Discussion and Analysis of Results of Operations and Financial
Condition
    
    
    94Notes
to the Condensed Financial Statements
    
    
    100Item
3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item
4.
    
    Controls and Procedures
    
    
    23
  3




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INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2004 PageNumberPART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    109Item
2.
    
    Changes in
Securities, Unregistered Sales of Equity Securities and Use of
Proceeds
    
    
    109Item 3.
    
    Defaults Upon Senior Securities
    
    InapplicableItem 4.
    
    Submission of Matters to a Vote of Security Holders
    
    InapplicableItem 5.
    
    Other Information
    
    InapplicableItem
6.
    
    Exhibits and Reports on Form 8-K
    
    
    109Signatures
    
    
    113
  4




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DEFINITIONS TERM
    
    MEANINGAlabama Power
    
    Alabama Power CompanyClean Air Act
    
    Clean Air Act Amendments of 1990Dynegy
    
    Dynegy, Inc.ECO Plan
    
    Environmental Compliance Overview PlanEITF
    
    Emerging Issues Task ForceEnergy Act
    
    Energy Policy Act of 1992EPA
    
    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 ended December 31, 2003Georgia Power
    
    Georgia Power CompanyGulf Power
    
    Gulf Power CompanyIRC
    
    Internal Revenue CodeIRS
    
    Internal Revenue ServiceLIBOR
    
    London Interbank Offered RateMirant
    
    Mirant CorporationMississippi Power
    
    Mississippi Power CompanyMobile Energy
    
    Mobile Energy Services Company, L.L.C. and
Mobile Energy Services Holdings, Inc.Moodys
    
    Moodys Investors Service, Inc.NRC
    
    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 CommissionSMA
    
    Supply Margin AssessmentSouthern Company
    
    The Southern CompanySouthern Company GAS
    
    Southern Company Gas LLCSouthern Company system
    
    Southern Company, the retail operating
companies, Southern Power and other
subsidiariesSouthern LINC
    
    Southern Communications Services, Inc.Southern 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 VirginiaTVA
    
    Tennessee Valley Authority
 5




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This Quarterly Report on Form 10-Q contains forward-looking statements in
addition to historical information. Forward-looking information includes,
among other things, statements concerning the strategic goals for Southern
Companys wholesale business, estimated construction and other expenditures. In
some cases, forward-looking statements can be identified by terminology such as
may, will, could, should, expects, plans, anticipates,
believes, estimates, projects, predicts, potential or continue or
the negative of these terms or other comparable terminology. The registrants
caution that there are various important factors that could cause actual
results to differ materially from those indicated in the forward-looking
statements; accordingly, there can be no assurance that such indicated results
will be realized. These factors include:  
    
    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 and current IRS audits;  
    
    the effects, extent and timing of the entry of additional competition in the markets in which Southern Companys
subsidiaries operate;  
    
    the impact of fluctuations in commodity prices, interest rates and customer demand;  
    
    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 pending and future rate cases and negotiations;  
    
    effects of and changes in political, legal and economic conditions and developments in the United States, including the
current state of the economy;  
    
    the performance of projects undertaken by the non-traditional business 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 the terrorist incidents on September 11, 2001,
or any similar incidents or responses to such incidents;  
    
    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;  
    
    weather and other natural phenomena;  
    
    the direct or indirect effects on Southern Companys business resulting from the August 2003 power outage in the Northeast,
or any similar incidents;  
    
    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. 6




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THE SOUTHERN COMPANYAND SUBSIDIARY COMPANIES 7




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Operating Revenues:Retail sales
    
    $
    2,144,089
    
    
    $
    1,973,844Sales for resale
    
    
    350,798
    
    
    
    334,613Other electric revenues
    
    
    93,420
    
    
    
    91,877Other revenues
    
    
    165,743
    
    
    
    148,020Total operating revenues
    
    
    2,754,050
    
    
    
    2,548,354Operating Expenses:Fuel
    
    
    807,619
    
    
    
    692,758Purchased power
    
    
    119,758
    
    
    
    132,554Other operations
    
    
    535,772
    
    
    
    493,866Maintenance
    
    
    237,497
    
    
    
    229,710Depreciation and amortization
    
    
    240,654
    
    
    
    244,988Taxes other than income taxes
    
    
    158,484
    
    
    
    148,826Total operating expenses
    
    
    2,099,784
    
    
    
    1,942,702Operating Income
    
    
    654,266
    
    
    
    605,652Other Income and (Expense):Allowance for equity funds used during construction
    
    
    8,184
    
    
    
    7,851Interest income
    
    
    7,654
    
    
    
    4,498Equity in losses of unconsolidated subsidiaries
    
    
    (56,447
    )
    
    
    (44,736
    )Leveraged lease income
    
    
    15,927
    
    
    
    17,715Interest expense, net of amounts capitalized
    
    
    (130,585
    )
    
    
    (123,761
    )Distributions on mandatorily redeemable preferred securities
    
    
    (31,168
    )
    
    
    (39,586
    )Preferred dividends of subsidiaries
    
    
    (5,472
    )
    
    
    (4,750
    )Other income (expense), net
    
    
    (8,162
    )
    
    
    (4,283
    )Total other income and (expense)
    
    
    (200,069
    )
    
    
    (187,052
    )Earnings Before Income Taxes
    
    
    454,197
    
    
    
    418,600Income taxes
    
    
    123,055
    
    
    
    121,168Earnings Before
Cumulative Effect of Accounting Change
    
    
    331,142
    
    
    
    297,432Cumulative effect of accounting change 
less income taxes of $231
    
    
    
    
    
    
    367Consolidated Net Income
    
    $
    331,142
    
    
    $
    297,799Common Stock Data:Consolidated basic earnings per share
    
    $
    0.45
    
    
    $
    0.41Consolidated diluted earnings per share
    
    $
    0.45
    
    
    $
    0.41Average number of basic shares of common
stock outstanding (in thousands)
    
    
    736,638
    
    
    
    718,943Average number of diluted shares of common
stock outstanding (in thousands)
    
    
    741,603
    
    
    
    724,891Cash dividends paid per share of common stock
    
    $
    0.35
    
    
    $
    0.3425
 The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements. 8




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Operating Activities:Consolidated net income
    
    $
    331,142
    
    
    $
    297,799Adjustments to reconcile consolidated net income
to net cash provided from operating activities Depreciation and amortization
    
    
    293,828
    
    
    
    294,146Deferred income taxes and investment tax credits
    
    
    135,801
    
    
    
    78,032Equity in losses of unconsolidated subsidiaries
    
    
    25,316
    
    
    
    27,167Leveraged lease income
    
    
    (15,927
    )
    
    
    (17,715
    )Pension, postretirement, and other employee benefits
    
    
    10,208
    
    
    
    1,040Tax benefit of stock options
    
    
    11,731
    
    
    
    10,758Other, net
    
    
    (44,543
    )
    
    
    (3,790
    )Changes in certain current assets and liabilities Receivables, net
    
    
    101,118
    
    
    
    200,043Fossil fuel stock
    
    
    23,978
    
    
    
    6,831Materials and supplies
    
    
    (2,932
    )
    
    
    (9,542
    )Other current assets
    
    
    (70,044
    )
    
    
    (125,293
    )Accounts payable
    
    
    (26,804
    )
    
    
    (76,526
    )Accrued taxes
    
    
    (159,123
    )
    
    
    (8,259
    )Accrued compensation
    
    
    (240,163
    )
    
    
    (263,560
    )Other current liabilities
    
    
    (65,595
    )
    
    
    (43,736
    )Net cash provided from operating activities
    
    
    307,991
    
    
    
    367,395Investing Activities:Gross property additions
    
    
    (512,667
    )
    
    
    (530,642
    )Cost of removal net of salvage
    
    
    (9,767
    )
    
    
    (20,656
    )Other
    
    
    (32,395
    )
    
    
    (52,443
    )Net cash used for investing activities
    
    
    (554,829
    )
    
    
    (603,741
    )Financing Activities:Increase in notes payable, net
    
    
    107,398
    
    
    
    533,363Proceeds Long-term debt
    
    
    597,717
    
    
    
    1,104,870Mandatorily redeemable preferred securities
    
    
    200,000
    
    
    
    Preferred stock
    
    
    100,000
    
    
    
    125,000Common stock
    
    
    48,702
    
    
    
    110,903Redemptions Long-term debt
    
    
    (280,732
    )
    
    
    (1,299,768
    )Mandatorily redeemable preferred securities
    
    
    (240,000
    )
    
    
    (40,000
    )Payment of common stock dividends
    
    
    (257,506
    )
    
    
    (245,745
    )Other
    
    
    (14,524
    )
    
    
    (15,892
    )Net cash provided from financing activities
    
    
    261,055
    
    
    
    272,731Net Change in Cash and Cash Equivalents
    
    
    14,217
    
    
    
    36,385Cash and Cash Equivalents at Beginning of Period
    
    
    311,274
    
    
    
    273,010Cash and Cash Equivalents at End of Period
    
    $
    325,491
    
    
    $
    309,395Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $11,962 and $18,066 capitalized for 2004 and 2003, respectively)
    
    $
    139,478
    
    
    $
    117,458Income taxes (net of refunds)
    
    $
    25,884
    
    
    
    ($117
    )
 The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements. 9




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) At March 31,
    
    At December 31,Assets
    
    2004
    
    2003(in thousands)Current Assets:Cash and cash equivalents
    
    $
    325,491
    
    
    $
    311,274Receivables Customer accounts receivable
    
    
    629,415
    
    
    
    695,042Unbilled revenues
    
    
    256,938
    
    
    
    275,395Under recovered regulatory clause revenues
    
    
    247,055
    
    
    
    187,866Other accounts and notes receivable
    
    
    255,328
    
    
    
    338,557Accumulated provision for uncollectible accounts
    
    
    (33,817
    )
    
    
    (30,155
    )Fossil fuel stock, at average cost
    
    
    292,148
    
    
    
    316,126Vacation pay
    
    
    101,361
    
    
    
    96,700Materials and supplies, at average cost
    
    
    573,274
    
    
    
    570,787Prepaid expenses
    
    
    177,886
    
    
    
    125,477Other
    
    
    69,782
    
    
    
    30,380Total current assets
    
    
    2,894,861
    
    
    
    2,917,449Property, Plant, and Equipment:In service
    
    
    40,532,540
    
    
    
    40,339,785Less accumulated depreciation
    
    
    14,495,666
    
    
    
    14,303,51626,036,874
    
    
    
    26,036,269Nuclear fuel, at amortized cost
    
    
    210,041
    
    
    
    222,667Construction work in progress
    
    
    1,496,049
    
    
    
    1,274,888Total property, plant, and equipment
    
    
    27,742,964
    
    
    
    27,533,824Other Property and Investments:Nuclear decommissioning trusts, at fair value
    
    
    830,817
    
    
    
    807,893Leveraged leases
    
    
    853,770
    
    
    
    837,843Other
    
    
    317,691
    
    
    
    238,193Total other property and investments
    
    
    2,002,278
    
    
    
    1,883,929Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    870,348
    
    
    
    874,443Prepaid pension costs
    
    
    928,624
    
    
    
    911,442Unamortized debt issuance expense
    
    
    150,173
    
    
    
    151,558Unamortized loss on reacquired debt
    
    
    331,974
    
    
    
    326,389Other
    
    
    446,075
    
    
    
    446,149Total deferred charges and other assets
    
    
    2,727,194
    
    
    
    2,709,981Total Assets
    
    $
    35,367,297
    
    
    $
    35,045,183
 The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements. 10




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) At March 31,
    
    
    
    
    
    At December 31,Liabilities and Stockholders' Equity
    
    2004
    
    
    
    
    
    2003(in thousands)Current Liabilities:Securities due within one year
    
    $
    1,070,362
    
    
    $
    
    
    
    
    741,073Notes payable
    
    
    674,992
    
    
    
    
    
    
    
    567,771Accounts payable
    
    
    658,576
    
    
    
    
    
    
    
    699,524Customer deposits
    
    
    189,934
    
    
    
    
    
    
    
    189,000Accrued taxes Income taxes
    
    
    126,048
    
    
    
    
    
    
    
    153,757Other
    
    
    135,731
    
    
    
    
    
    
    
    248,937Accrued interest
    
    
    170,373
    
    
    
    
    
    
    
    186,935Accrued vacation pay
    
    
    131,758
    
    
    
    
    
    
    
    128,505Accrued compensation
    
    
    137,480
    
    
    
    
    
    
    
    436,854Other
    
    
    283,855
    
    
    
    
    
    
    
    264,688Total current liabilities
    
    
    3,579,109
    
    
    
    
    
    
    
    3,617,044Long-term Debt
    
    
    10,111,378
    
    
    
    
    
    
    
    10,164,018Long-term Debt Payable to Affiliated Trusts
    
    
    1,960,644
    
    
    
    
    
    
    
    Mandatorily Redeemable Preferred Securities
    
    
    
    
    
    
    
    
    
    
    1,900,486Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    4,706,611
    
    
    
    
    
    
    
    4,586,377Deferred credits related to income taxes
    
    
    400,496
    
    
    
    
    
    
    
    409,339Accumulated deferred investment tax credits
    
    
    572,638
    
    
    
    
    
    
    
    579,490Employee benefit obligations
    
    
    803,275
    
    
    
    
    
    
    
    764,624Asset retirement obligations
    
    
    859,251
    
    
    
    
    
    
    
    845,392Other cost of removal obligations
    
    
    1,268,682
    
    
    
    
    
    
    
    1,268,729Miscellaneous regulatory liabilities
    
    
    541,232
    
    
    
    
    
    
    
    576,393Other
    
    
    262,573
    
    
    
    
    
    
    
    262,579Total deferred credits and other liabilities
    
    
    9,414,758
    
    
    
    
    
    
    
    9,292,923Total Liabilities
    
    
    25,065,889
    
    
    
    
    
    
    
    24,974,471Cumulative Preferred Stock of Subsidiaries
    
    
    523,126
    
    
    
    
    
    
    
    423,126Common Stockholders Equity:Common stock, par value $5 per share Authorized  1 billion sharesIssued   March 31, 2004: 737,666,597 Shares; December 31, 2003: 735,021,270 SharesTreasury   March 31, 2004: 203,382 Shares; December 31, 2003: 192,691 SharesPar value
    
    
    3,688,333
    
    
    
    
    
    
    
    3,675,106Paid-in capital
    
    
    793,458
    
    
    
    
    
    
    
    746,080Treasury, at cost
    
    
    (4,378
    )
    
    
    
    
    
    
    (4,066
    )Retained earnings
    
    
    5,415,465
    
    
    
    
    
    
    
    5,343,471Accumulated other comprehensive loss
    
    
    (114,596
    )
    
    
    
    
    
    
    (113,005
    )Total Common Stockholders Equity
    
    
    9,778,282
    
    
    
    
    
    
    
    9,647,586Total Liabilities and Stockholders Equity
    
    $
    35,367,297
    
    
    
    
    
    
    $
    35,045,183
 The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements. 11




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Net Income After Dividends on Preferred Stock
    
    $
    331,142
    
    
    $
    297,799Other comprehensive loss:Change in fair value of marketable securities, net of tax
of $4,061 and $-, respectively
    
    
    7,623
    
    
    
    112Changes in fair value of qualifying hedges, net of tax
of $(7,711) and $(641), respectively
    
    
    (12,704
    )
    
    
    (717
    )Less: Reclassification adjustment for amounts included in net
income, net of tax of $2,171 and $(4,698), respectively
    
    
    3,490
    
    
    
    (7,367
    )COMPREHENSIVE INCOME
    
    $
    329,551
    
    
    $
    289,827
 The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements. 12




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 2004 vs. FIRST QUARTER 2003 OVERVIEW Discussion of the results of operations is focused on Southern Companys
primary business of electricity sales in the Southeast by the retail operating
companies  Alabama Power, Georgia Power, Gulf Power, Mississippi Power and
Savannah Electric  and Southern Power. Southern Power is an electric
wholesale generation subsidiary with market-based rate authority. Southern
Companys other business activities include investments in synthetic fuels and
leveraged lease projects, telecommunications, energy-related services and
natural gas marketing. For additional information on these businesses, see
Item 1  Business  The SOUTHERN System  Retail Operating Companies,
Southern Power and Other Business in the Form 10-K. Earnings Southern Companys first quarter 2004 earnings were $331 million ($0.45
per share) compared with $298 million ($0.41 per share) in the first quarter
2003. Earnings in the first quarter 2004 increased due to a number of positive
factors including growth in the number of customers in the Southern Company
service area, successful efforts to control costs and strong results from
Southern Companys competitive generation business. Southern Companys
regulated retail business results were positively impacted by customer growth,
increased residential consumption per customer and increased demand by
industrial customers, as well as favorable weather conditions. Earnings from
the competitive generation business continued to favorably affect Southern
Companys net income due to new generating capacity available for sale in
wholesale markets. This new capacity led to increases in capacity revenues
from new contracts and sales of uncontracted capacity in those wholesale
markets. RESULTS OF OPERATIONS Significant income statement items appropriate for discussion include the
following: Increase (Decrease)First Quarter(in thousands)
    
    %Retail sales
    
    $
    170,245
    
    
    
    8.6Sales for resale
    
    
    16,185
    
    
    
    4.8Other revenues
    
    
    17,723
    
    
    
    12.0Fuel expense
    
    
    114,861
    
    
    
    16.6Purchased power
    
    
    (12,796
    )
    
    
    (9.7
    )Other operation and maintenance expenses
    
    
    49,693
    
    
    
    6.9Taxes other than income taxes
    
    
    9,658
    
    
    
    6.5Equity in losses of unconsolidated subsidiaries
    
    
    11,711
    
    
    
    26.2Interest expense, net of amounts capitalized
    
    
    6,824
    
    
    
    5.5Distributions on mandatorily redeemable
preferred securities
    
    
    (8,418
    )
    
    
    (21.3
    )
 Retail sales.Excluding fuel revenues, which generally do not affect net
income, retail base revenues increased by $72 million, or 5.2%, in the first
quarter 2004 when compared to the same period in 2003. In the first quarter,
retail kilowatt-hour energy sales increased by 4.5% over the same period a year
ago, primarily due 13




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION to customer and demand growth and the improving economy evidenced by increases
in residential and industrial kilowatt-hour energy sales of 5.3% and 5.0%,
respectively, when compared to the same period in 2003.
The number of retail customers increased by 1.7% and weather-adjusted average
consumption by residential customers increased by 4.4% in the first quarter
2004 when compared with the first quarter 2003. Sales for resale.During the first quarter 2004, sales for resale
kilowatt-hours decreased by 2.6% when compared to the same period in the prior
year. Sales for resale revenues increased $16.2 million, or 4.8%, when
compared to the same period in the prior year. The increase in revenues
reflected new wholesale contracts and increases in fuel revenues. An
additional 2,407 megawatts of generating capacity were added in June and
October 2003 by Southern Power. A portion of this new capacity contributed to
the increase in sales for resale revenues for the first quarter 2004 as a
result of capacity revenues from PPAs with neighboring utilities. In addition,
sales from uncontracted capacity provided increased energy revenues. These
increases in sales for resale revenues more than offset the reduction in
revenues resulting from the termination of contracts with subsidiaries of
Dynegy, Inc. in May 2003. See Note 3 to the financial
statements of Southern Company under Uncontracted Generating
Capacity in Item 8 of the Form 10-K for additional
information on these contract terminations. Other revenues.In the first quarter 2004, other revenues increased $17.7
million, or 12.0%. Revenues from Southern Companys investments in synthetic
fuels increased $18 million, primarily as a result of shifting 2004 production
schedules to accelerate production earlier in the year, and retail gas
marketing revenues increased $5 million, primarily as a result of colder than
normal weather. These increases were partially offset by a decrease in
revenues from energy-related services of $3 million. Fuel expense. During the first quarter 2004, fuel expense was higher due
to an increase in the average unit cost of fuel, as well as increased
generating capacity at Southern Power. Total generation increased 3.1% for
the first quarter 2004, when compared to the same period in the prior year. For
the first quarter 2004, the average unit cost of fuel per net kilowatt-hour
generated increased 3.0% when compared to the same period in the prior year.
Increases in fuel expense at the retail operating companies are generally
offset by fuel revenues and do not affect net income. Purchased power.The decrease in the first quarter 2004 for purchased
power compared with the same period last year is primarily a result of lower
demand for energy. These expenses do not have a significant impact on earnings
since energy expenses are generally offset by energy revenues. Other operations and maintenance expenses.The increase in other
operations and maintenance expenses in the first quarter 2004 is mainly
attributable to increases in administrative and general, transmission and
distribution maintenance and other production expenses. Administrative and
general expenses increased $33.3 million, or 15.6%, primarily as a result of
payroll and employee benefits costs as well as an increase of $12.2 million in
freight costs related to the production of synthetic fuel. Transmission and
distribution maintenance expenses increased $8.8 million as a result of
completing work delayed from 2003. Other production expenses were up $7.0
million, or 5.4%, due to increased expenses primarily resulting from the
operation of Southern Powers new generating facilities. Taxes other than income taxes.The first quarter 2004 increase in taxes
other than income taxes over the comparable period last year is primarily a
result of increases in payroll taxes and property taxes on new facilities. 14




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Equity in losses of unconsolidated subsidiaries.Losses from
unconsolidated subsidiaries increased in the first quarter 2004 when compared
to the corresponding period in 2003. These losses relate primarily to Southern
Companys investments in entities that produce synthetic fuel. Changes between
periods are a result of fluctuations in production levels and are generally
offset by income tax credits generated by such entities. Interest expense, net of amounts capitalized.The increase in interest
expense, net of amounts capitalized in the first quarter 2004 when compared to
the same period in 2003 is mainly attributable to an increase in the amount of
senior notes outstanding and lower amounts of interest capitalized as projects
have reached completion, partially offset by refinancing long-term debt with
lower interest-rate debt. See Financial Condition and Liquidity  Financing
Activities herein for additional information. Capitalized interest decreased
by $6.1 million, or 33.8%, during the first quarter 2004 when compared to the
corresponding period in 2003. Distributions on mandatorily redeemable preferred securities.The
decrease in distributions on mandatorily redeemable preferred securities is a
result of refinancing a portion of those securities with proceeds from
long-term senior notes issuances or equity funds. See Accounting Policies 
New Accounting Standards herein for related information regarding Southern
Companys adoption of FASB Interpretation No. 46R, Consolidation of Variable
Interest Entities. Future Earnings Potential The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors. These factors include the retail operating companies ability to
maintain a stable regulatory environment, to achieve energy sales growth while
containing costs and to recover costs related to growing demand and
increasingly stricter environmental standards. Another major factor is
the profitability of the competitive market-based wholesale generating business
and federal regulatory policy, which may impact Southern Companys level of
participation in this market. Future earnings for the electricity business in
the near term will depend, in part, upon growth in energy sales, which is
subject to a number of factors, including weather, competition, new energy
contracts with neighboring utilities, energy conservation practiced by
customers, the price of electricity, the price elasticity of demand and the
rate of economic growth in the service area. For additional information
relating to these issues, see Item 1  Business  The SOUTHERN System  Risk
Factors and Item 7  Managements Discussion and Analysis  Future Earnings
Potential of Southern Company in the
Form 10-K. Environmental Matters Compliance costs related to the Clean Air Act and other environmental
regulations could affect earnings if such costs cannot be recovered. For
additional information, including information on certain environmental
litigation, see Item 7  Managements Discussion and Analysis  Future
Earnings Potential  Environmental Matters of Southern Company and Note 3 to
the financial statements of Southern Company in Item 8 of the Form 10-K under
New Source Review Actions and Plant Wansley Environmental Litigation. As
of March 15, 2004, civil penalties under the Clean Air Act were increased
prospectively to a maximum of $32,500 per day, per violation. To the extent
alleged violations under either the New Source Review Litigation or Plant
Wansley Environmental Litigation are deemed to be continuing, this increased
civil penalty amount could apply to such violations found to continue after
that date. On May 3, 2004, the U.S. Supreme Court denied the EPAs petition to
review the Eleventh Circuit Court of Appeals decision in the EPAs similar New 15




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Source Review action against the TVA. The cases against Alabama Power, Georgia
Power and Savannah Electric have been effectively stayed pending final
resolution of the TVA appeal. With the denial of the EPAs petition for review,
the Court of Appeals decision is now final. An adverse outcome in any one of
these cases could require substantial capital expenditures that cannot be
determined at this time and could possibly require payment of substantial
penalties. This could affect future results of operations, cash flows, and
possibly financial condition if such costs are not recovered through regulated
rates. On March 12, 2004, the EPA redesignated the Birmingham, Alabama area from
nonattainment to attainment under the one-hour ozone national ambient air
quality standard. On April 30, 2004, the EPA published its eight-hour ozone
nonattainment designations and a portion of the rules implementing the new
eight-hour standard. Areas within the Southern Companys service area that
have been designated as nonattainment under the eight-hour ozone standard
include Birmingham, Macon (Georgia), and a 20-county area within metropolitan
Atlanta. Under the implementation provisions of the new rule, the EPA
announced that the one-hour ozone standard will be revoked on June 15, 2005. Areas
classified as severe nonattainment areas under the one-hour standard will not
be required to impose emissions fees as a result of nonattainment. Georgia
Power, therefore, will no longer be subject to imposition of emissions fees if
the Atlanta area does not come into attainment with the one-hour standard. The
impact of the eight-hour designations and the new standards will depend on the
development and implementation of applicable state regulations and therefore
cannot be determined at this time. On April 21, 2004, the EPA published the final regional nitrogen oxide
reduction rules applicable to Georgia. These rules specify that Georgia must
submit a revised state implementation plan by April 2005, and affected sources
must comply with the reduction requirements by May 1, 2007. The impact of
these regulations will depend on the development and approval of Georgias
state implementation plan and cannot be determined at this time. Additionally, on April 15, 2004, the EPA announced proposed amendments to
its Regional Haze rules with respect to Best Available Retrofit Technology
(BART) guidelines and requirements. The impact of these regulations will depend
on the development and implementation of the final rules and implementation by
the states, and therefore cannot be determined at this time. FERC Matters See Managements Discussion and Analysis  Future Earnings Potential  FERC
Matters  Market-Based Rate Authority in Item 7 and Note 3 to the financial
statements of Southern Company under FERC Matters
in Item 8 of the Form 10-K. On April 14, 2004, the FERC issued an order that
abandoned the SMA test and adopted a new interim analysis for measuring
generation market power. The FERC also initiated a new rulemaking proceeding
that, among other things, will adopt a final methodology for assessing
generation market power. See Note (B) to the Condensed Financial Statements
under FERC Matters herein for additional information. Southern Company
anticipates filing a request for rehearing of the order. The final outcome of
this matter cannot be determined at this time. 16




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Plant McIntosh Units 10 and 11 are currently under construction by
Southern Power and are scheduled to be completed in June 2005. See Note 3 to
Southern Companys financial statements under FERC Matters in Item 8 of the
Form 10-K and Note (C) to the Condensed Financial Statements herein for
information regarding the FERC approval process for Southern Powers PPAs with
Georgia Power and Savannah Electric for Plant McIntosh Units 10 and 11. See Item 7  Managements Discussion and Analysis  Future Earnings
Potential  FERC Matters of Southern Company in the Form 10-K for information
on the FERCs order related to RTOs and the FERCs notice of proposed
rulemaking regarding open access transmission service and standard electricity
market design. Mirant Related Matters See Note 3 to the financial statements of Southern Company under Mirant
Related Matters in Item 8 and Managements Discussion and Analysis  Future
Earnings Potential  Other Matters in Item 7 of the Form 10-K and Note (B) to
the Condensed Financial Statements herein under Mirant Related Matters. In
July 2003, Mirant filed for voluntary reorganization under Chapter 11 of the
Federal Bankruptcy Code. Southern Company has various 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. The ultimate outcome of such
contingent liabilities cannot now be determined. Income Tax Matters See Item 7
Managements Discussion and Analysis  Future Earnings Potential
 Income Tax Matters of Southern Company and Note 3 to the financial
statements of Southern Company under Income Tax Issues in Item 8 of the Form
10-K for information regarding IRS and other challenges to Southern Companys
transactions related to synthetic fuel tax credits and international leveraged
leases. See Note (B) to the Condensed Financial Statements herein for
information on potential additional challenges related to the international
leveraged leases. The ultimate outcome of these matters cannot now be
determined. Other Matters In January 2002, Georgia Power began operating under a three-year retail rate
order. Under the terms of the order, earnings are evaluated annually against a
retail return on common equity range of 10 percent to 12.95 percent.
Two-thirds of any earnings above the 12.95 percent return will be applied to
rate refunds, with the remaining one-third retained by Georgia Power. Georgia
Power is required to file a general rate case on July 1, 2004, in response to
which the Georgia PSC would be expected to determine whether the rate order
should be continued, modified, or discontinued. See Item 7  Managements
Discussion and Analysis  Future Earnings Potential  Other Matters and Note
3 to the financial statements of Southern Company under Georgia Power Retail
Rate Orders in Item 8 of the Form 10-K for additional information. See Note 3 to Southern Companys financial statements under Mississippi
Power Regulatory Filing in Item 8 of the Form 10-K and Note (I) to the
Condensed Financial Statements herein for information on Mississippi Powers
request to include 266 megawatts of Plant Daniel Units 3 and 4 generating
capacity in jurisdictional cost of service. The final outcome of this matter
cannot now be determined. 17




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Southern Power is completing limited construction activities on Plant
Franklin Unit 3 to preserve the long-term viability of the project
but has deferred final completion until the 2008-2011 period. See Note 3 to
Southern Companys financial statements under Uncontracted Generating
Capacity in Item 8 of the Form 10-K for additional information. The final
outcome of these matters cannot now be determined. See Managements Discussion and Analysis  Future Earnings Potential 
Other Matters in Item 7 of the Form 10-K for information on nuclear security
measures. Implementation plans for the measures ordered by the NRC to be in
effect by October 29, 2004 have been finalized based on current interpretations
of the requirements. Alabama Power and Georgia Power  based on its ownership
interest  currently estimate their respective expenditures related to these
security measures to total $9.6 million and $9.3 million, of which $9.3 million
and $1.3 million will be capitalized. These estimates are subject to change in
the event additional NRC guidance is provided. Southern Company is subject to certain claims and legal actions arising in
the ordinary course of business. In addition, Southern Companys business
activities are subject to extensive governmental regulation related to public
health and the environment. Litigation over environmental issues and claims of
various types, including property damage, personal injury and citizen
enforcement of environmental requirements, has increased generally throughout
the United States. In particular, personal injury claims for damages caused by
alleged exposure to hazardous materials have become more frequent. The
ultimate outcome of such litigation against Southern Company and its
subsidiaries cannot be predicted at this time; however, management does not
anticipate that the liabilities, if any, arising from such current proceedings
would have a material adverse effect on Southern Companys financial
statements. See the Notes to the Condensed Financial Statements herein for discussion
of various contingencies and other matters which may affect future earnings potential. ACCOUNTING POLICIES Application of Critical Accounting Policies and Estimates Southern Company prepares its financial statements in accordance with
accounting principles generally accepted in the United States. Significant
accounting policies are described in Note 1 to the financial statements of
Southern Company in Item 8 of the Form 10-K. In the application of these
policies, certain estimates are made that may have a material impact on
Southern Companys results of operations and related disclosures. Different
assumptions and measurements could produce estimates that are significantly
different from those recorded in the financial statements. See Item 7 -
Managements Discussion and Analysis  Accounting
Policies  Application of Critical Accounting
Policies and Estimates of Southern Company in the Form 10-K for a complete
discussion of Southern Companys critical accounting policies and estimates
related to Electric Utility
Regulation, Contingent Obligations, and Plant Daniel Capacity. Also see Note
(I) to the Condensed Financial Statements herein for additional information
related to Mississippi Powers request to include the Plant Daniel capacity in
jurisdictional cost of service. New Accounting Standards On March 31, 2004, Southern Company prospectively adopted FASB Interpretation
No. 46R, Consolidation of Variable Interest Entities, which requires the
primary beneficiary of a variable interest entity to consolidate the
related assets and liabilities. The adoption of Interpretation No. 46R had no
impact on Southern Companys net income. However, as a result of the adoption,
Southern Company and the retail operating companies 18




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION deconsolidated certain wholly-owned trusts established to issue preferred
securities since Southern Company and the retail operating companies do not
meet the definition of primary beneficiary established by Interpretation No.
46R. In addition, Southern Company consolidated its 85% limited partnership
investment in an energy/telecom venture capital fund that was previously
accounted for under the equity method. See Note (E) to the Condensed Financial
Statements herein for additional information related to the adoption of
Interpretation No. 46R. FINANCIAL CONDITION AND LIQUIDITY Overview Major changes in Southern Companys financial condition during the first three
months of 2004 included $513 million used for gross property additions to
utility plant. The funds for these additions and other capital requirements
were primarily obtained from operating activities and net proceeds from
security issuances of approximately $533 million. See Southern Companys
Condensed Consolidated Statements of Cash Flows and Financing Activities herein for further details. Capital Requirements and Contractual Obligations See Item 7  Managements Discussion and Analysis 
Capital Requirements and
Contractual Obligations of Southern Company in the Form 10-K for a description
of Southern Companys capital requirements for its construction program, and
other funding requirements associated with scheduled maturities of long-term
debt, as well as the related interest, preferred stock dividends, leases, trust
funding requirements and other purchase commitments. Approximately $1.1
billion will be required by March 31, 2005 for redemptions and maturities of
long-term debt. Sources of Capital Southern Company intends to meet its future capital needs through internal cash
flow and external security issuances. The amounts and timing of additional
equity capital to be raised will be contingent on Southern Companys investment
opportunities. The retail operating companies and Southern Power plan to
obtain the funds required for construction and other purposes from sources
similar to those used in the past, which were primarily from operating cash
flows, security issuances and term loan and short-term borrowings. However,
the amount, type and timing of any financings, if needed, will depend upon
market conditions and regulatory approval. See Item 1  Business  Financing
Programs and Item 7  Managements Discussion and Analysis  Financial
Condition And Liquidity  Sources of Capital of Southern Company in the Form
10-K for additional information. Southern Companys current liabilities exceed current assets because of
the continued use of short-term debt as a funding source to meet cash needs, as
well as scheduled maturities of long-term debt. To meet short-term cash needs
and contingencies, the Southern Company system had at March 31, 2004
approximately $325 million of cash and cash equivalents and approximately $3.5
billion of unused credit arrangements with banks, of which $2.8 billion expire
in 2004, $10 million expire in 2005 and $660 million expire in 2006 and beyond.
Of the
facilities maturing in 2004 and 2005, $2.2 billion contain provisions allowing
two-year term loans executable at the expiration date and $225 million contain
provisions allowing one-year term loans executable at the expiration date.
These unused credit arrangements also provide liquidity support to variable
rate pollution control bonds and commercial paper programs. Southern Company
expects to  renew its credit facilities, as 19




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION needed, prior to expiration. The retail operating companies may also meet
short-term cash needs through a Southern Company subsidiary organized to issue
and sell commercial paper and extendible commercial notes at the request and
for the benefit of each of the retail operating companies. At March 31, 2004,
the Southern Company system had outstanding extendible commercial notes of $4
million and outstanding commercial paper of $671 million. Management believes
that the need for working capital can be adequately met by utilizing commercial
paper programs and lines of credit without maintaining large cash balances. Off-Balance Sheet Financing Arrangements See Item 7  Managements Discussion and Analysis  Financial Condition and
Liquidity  Off-Balance Sheet Financing Arrangements of Southern Company and
Note 7 to the financial statements of Southern Company in Item 8 of the Form
10-K under Operating Leases for information related to Mississippi Powers
lease of a combined cycle generating facility at Plant Daniel. Credit Rating Risk Southern Company and its subsidiaries do not have any credit agreements that
would require material changes in payment schedules or terminations as a result
of a credit rating downgrade. There are certain contracts that could require
collateral  but not accelerated payment  in the event of a credit rating
change to below investment grade. These contracts are primarily for physical
electricity purchases and sales, fixed-price physical gas purchases and
agreements covering interest rate swaps. At March 31, 2004, the maximum
potential collateral requirements were approximately $426 million. Generally,
collateral may be provided for by a Southern Company guaranty, letter of credit
or cash. Market Price Risk Southern Companys market risk exposures relative to interest rate changes have
not changed materially compared with the December 31, 2003 reporting period.
In addition, Southern Company is not aware of any facts or circumstances that
would significantly affect such exposures in the near term. Due to cost-based rate regulations, the retail operating companies have
limited exposure to market volatility in interest rates, commodity fuel prices
and prices of electricity. To mitigate residual risks relative to movements in
electricity prices, the retail operating companies and Southern Power enter
into fixed price contracts for the purchase and sale of electricity through the
wholesale electricity market and, to a lesser extent, similar contracts for gas
purchases. Also, the retail operating companies have each implemented
fuel-hedging programs at the instruction of their respective PSCs. The fair
value of derivative energy contracts at March 31, 2004 was as follows: First Quarter2004ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    15,825Contracts realized or settled
    
    
    (5,647
    )New contracts at inception
    
    
    Changes in valuation techniques
    
    
    Current period changes
    
    
    33,334Contracts at March 31, 2004
    
    $
    43,512
 20




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Source of March 31, 2004Valuation PricesMaturityTotalFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    43,512
    
    
    $
    39,093
    
    
    
    4,419External sources
    
    
    
    
    
    
    
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at March 31, 2004
    
    $
    43,512
    
    
    $
    39,093
    
    
    $
    4,419
 For additional information, see Item 7  Managements
Discussion and Analysis  Financial Condition and Liquidity  Market Price
Risk of Southern Company in the Form 10-K and Notes 1 and 6 to the financial
statements of Southern Company under Financial Instruments in Item 8 of the
Form 10-K and Note (G) to the Condensed Financial Statements herein. Financing Activities During the first quarter of 2004, Southern Company subsidiaries issued $590
million of senior notes, $208 million of other long-term debt, $100 million of preferred stock and $49 million of common stock through employee
and directors stock plans. The issuances were primarily used to refund senior
notes and other long-term debt. The remainder was used to repay short-term
debt and fund ongoing construction programs. See Southern Companys Condensed
Consolidated Statements of Cash Flows herein for further details on financing
activities during the first three months of 2004. In January 2004, Georgia Power issued $100 million of Series S 4.00%
Senior Notes due January 15, 2011 and $100 million of Series T 5.75% Senior
Public Income Notes due January 15, 2044. The proceeds from these sales were
used in March 2004 to redeem all of its outstanding Series H 6.70% Senior
Insured Quarterly Notes due March 1, 2011 and Series D 6 5/8% Senior Notes due
March 31, 2039. Further in January 2004, Georgia Power Capital Trust VII, a statutory
trust, sold $200 million of its 5 7/8% Trust Preferred Securities,
which are guaranteed by Georgia Power. The net proceeds from this issuance
were used to redeem 6.85% Trust Preferred Securities of Georgia Power Capital
Trust IV. In connection with this transaction, Georgia Power issued $206
million of its junior subordinated debentures to Georgia Power Capital Trust
VII. In February 2004, Alabama Power issued 4,000,000 shares ($100 million
aggregate stated capital) of 5.30% Class A Preferred Stock, Cumulative, Par
Value $1 Per Share (Stated Capital $25 Per Share) and $200 million of Series Z
5.125% Senior Notes due February 15, 2019. The proceeds from these sales were
used to repay a portion of Alabama Powers outstanding short-term indebtedness
and for other general corporate purposes, including Alabama Powers continuous
construction program. 21




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Also in February 2004, Georgia Power issued $150 million of Series U
Floating Rate Senior Notes due February 17, 2009. The proceeds of this sale
were used for general corporate purposes. In March 2004, Mississippi Power issued $40 million of Series F Floating
Rate Senior Notes due March 9, 2009. The proceeds from this sale, along with
other monies of Mississippi Power were used to repay $80 million aggregate
principal amount of Mississippi Powers Series D Floating Rate Senior Notes due
March 12, 2004. Additionally, in April 2004, Alabama Power issued $150 million of Series
AA 5.625% Senior Notes due April 15, 2034. The proceeds from the sale will be
used together with other funds to redeem, in May 2004, $200 million in
aggregate principal amount of Alabama Powers Series J 6.75% Senior Notes due
June 30, 2039. Also in April 2004, Gulf Power issued $35 million of Series J 5.875%
Senior Notes due April 1, 2044. The proceeds from this issue were used for
general corporate purposes, including Gulf Powers continuous construction
program. Further, in April 2004, Mississippi Power issued 1,200,000 Depositary
Shares ($30 million aggregate stated capital) each representing one-fourth of a
share of 5.25% Series Preferred Stock cumulative, par value $100 per share.
The proceeds from this sale were primarily used to redeem various issues of
preferred stock and the remainder was used for general corporate purposes. Southern Company and its subsidiaries plan to continue, to the extent
possible, a program to retire higher-cost debt and replace these securities
with lower-cost capital. The market price of Southern Companys common stock at March 31, 2004 was
$30.50 per share and the book value was $13.26 per share, representing a
market-to-book ratio of 230%, compared to $30.25, $13.13 and 230%,
respectively, at the end of 2003. The dividend for the first quarter 2004 was
$0.35 per share compared to $0.3425 per share in the first quarter 2003. PART I 
 Item 3. Quantitative And Qualitative Disclosures About Market Risk. See
Managements Discussion and Analysis  Financial Condition and Liquidity -
Market Price Risk herein for each registrant and Notes 1 and 6 to the
financial statements of each registrant under Financial
Instruments in Item 8 of the Form 10-K. Also, see Note (G) to the Condensed
Financial Statements herein for information relating to derivative instruments. 22




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION 
 Item 4. Controls and Procedures. (a) Evaluation of disclosure controls and procedures. As of the end of the period covered by this quarterly report, Southern Company,
the retail operating companies and Southern Power conducted separate
evaluations under the supervision and with the participation of each companys
management, including the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the disclosure controls and procedures (as
defined in Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of
1934). Based upon those evaluations, the Chief Executive Officer and the Chief
Financial Officer, in each case, concluded that the disclosure controls and
procedures are effective in alerting them in a timely manner to material
information relating to each company (including its consolidated subsidiaries)
required to be included in periodic filings with the SEC. (b) Changes in internal controls. There have been no changes in Southern Companys, the retail operating
companies or Southern Powers internal controls over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934) during the first quarter of 2004 that have materially
affected or are reasonably likely to materially affect, Southern Companys, the
retail operating companies or Southern Powers internal controls over
financial reporting. 23




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##### Table of Contents



ALABAMA POWER COMPANY 24




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##### Table of Contents



ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Operating Revenues:Retail sales
    
    $
    744,633
    
    
    $
    670,829Sales for resale Non-affiliates
    
    
    111,945
    
    
    
    119,281Affiliates
    
    
    65,788
    
    
    
    61,987Other revenues
    
    
    37,328
    
    
    
    38,024Total operating revenues
    
    
    959,694
    
    
    
    890,121Operating Expenses:Fuel
    
    
    271,979
    
    
    
    239,744Purchased power Non-affiliates
    
    
    28,642
    
    
    
    28,830Affiliates
    
    
    59,932
    
    
    
    41,496Other operations
    
    
    146,386
    
    
    
    134,543Maintenance
    
    
    80,387
    
    
    
    74,575Depreciation and amortization
    
    
    105,353
    
    
    
    100,211Taxes other than income taxes
    
    
    64,447
    
    
    
    60,085Total operating expenses
    
    
    757,126
    
    
    
    679,484Operating Income
    
    
    202,568
    
    
    
    210,637Other Income and (Expense):Allowance for equity funds used during construction
    
    
    4,110
    
    
    
    4,737Interest income
    
    
    4,439
    
    
    
    3,276Interest expense, net of amounts capitalized
    
    
    (50,079
    )
    
    
    (54,573
    )Distributions on mandatorily redeemable preferred securities
    
    
    (3,938
    )
    
    
    (3,441
    )Other income (expense), net
    
    
    (4,338
    )
    
    
    (5,719
    )Total other income and (expense)
    
    
    (49,806
    )
    
    
    (55,720
    )Earnings Before Income Taxes
    
    
    152,762
    
    
    
    154,917Income taxes
    
    
    57,268
    
    
    
    59,073Net Income
    
    
    95,494
    
    
    
    95,844Dividends on Preferred Stock
    
    
    4,747
    
    
    
    4,025Net Income After Dividends on Preferred Stock
    
    $
    90,747
    
    
    $
    91,819
 The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements. 25




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##### Table of Contents



ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Operating Activities:Net income
    
    $
    95,494
    
    
    $
    95,844Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    124,220
    
    
    
    121,910Deferred income taxes and investment tax credits, net
    
    
    35,416
    
    
    
    14,105Deferred revenues
    
    
    (3,080
    )
    
    
    (14,577
    )Pension, postretirement, and other employee benefits
    
    
    (12,907
    )
    
    
    (10,633
    )Tax benefit of stock options
    
    
    4,091
    
    
    
    4,195Other, net
    
    
    (7,712
    )
    
    
    15,062Changes in certain current assets and liabilities Receivables, net
    
    
    29,613
    
    
    
    80,795Fossil fuel stock
    
    
    9,043
    
    
    
    (3,949
    )Materials and supplies
    
    
    (3,448
    )
    
    
    (2,920
    )Other current assets
    
    
    (46,030
    )
    
    
    (58,344
    )Accounts payable
    
    
    (89,966
    )
    
    
    (112,134
    )Accrued taxes
    
    
    29,758
    
    
    
    60,108Accrued compensation
    
    
    (47,924
    )
    
    
    (58,677
    )Other current liabilities
    
    
    6,368
    
    
    
    35,666Net cash provided from operating activities
    
    
    122,936
    
    
    
    166,451Investing Activities:Gross property additions
    
    
    (204,249
    )
    
    
    (185,102
    )Cost of removal net of salvage
    
    
    (9,272
    )
    
    
    (10,865
    )Other
    
    
    14,048
    
    
    
    2,160Net cash used for investing activities
    
    
    (199,473
    )
    
    
    (193,807
    )Financing Activities:Increase (decrease) in notes payable, net
    
    
    
    
    
    
    (36,991
    )Proceeds Senior notes
    
    
    200,000
    
    
    
    620,000Preferred stock
    
    
    100,000
    
    
    
    125,000Common stock
    
    
    20,000
    
    
    
    Redemptions Senior notes
    
    
    
    
    
    
    (560,800
    )Other long-term debt
    
    
    (1,438
    )
    
    
    (236
    )Payment of preferred stock dividends
    
    
    (4,636
    )
    
    
    (3,200
    )Payment of common stock dividends
    
    
    (109,325
    )
    
    
    (107,550
    )Other
    
    
    (4,807
    )
    
    
    (2,949
    )Net cash provided from financing activities
    
    
    199,794
    
    
    
    33,274Net Change in Cash and Cash Equivalents
    
    
    123,257
    
    
    
    5,918Cash and Cash Equivalents at Beginning of Period
    
    
    42,752
    
    
    
    22,685Cash and Cash Equivalents at End of Period
    
    $
    166,009
    
    
    $
    28,603Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $1,648 and $2,507 capitalized for 2004 and 2003, respectively)
    
    $
    36,445
    
    
    $
    31,313Income taxes (net of refunds)
    
    $
    2,140
    
    
    $
    
 The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements. 26




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ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED) At March 31,
    
    At December 31,Assets
    
    2004
    
    2003(in thousands)Current Assets:Cash and cash equivalents
    
    $
    166,009
    
    
    $
    42,752Receivables Customer accounts receivable
    
    
    212,369
    
    
    
    240,562Unbilled revenues
    
    
    83,130
    
    
    
    95,953Under recovered regulatory clause revenues
    
    
    38,403
    
    
    
    Other accounts and notes receivable
    
    
    39,994
    
    
    
    53,547Affiliated companies
    
    
    34,413
    
    
    
    48,876Accumulated provision for uncollectible accounts
    
    
    (5,868
    )
    
    
    (4,756
    )Fossil fuel stock, at average cost
    
    
    77,950
    
    
    
    86,993Vacation pay
    
    
    35,530
    
    
    
    35,530Materials and supplies, at average cost
    
    
    215,138
    
    
    
    211,690Prepaid expenses
    
    
    82,297
    
    
    
    44,608Other
    
    
    27,797
    
    
    
    19,454Total current assets
    
    
    1,007,162
    
    
    
    875,209Property, Plant, and Equipment:In service
    
    
    14,289,720
    
    
    
    14,224,117Less accumulated provision for depreciation
    
    
    4,956,474
    
    
    
    4,905,9209,333,246
    
    
    
    9,318,197Nuclear fuel, at amortized cost
    
    
    86,907
    
    
    
    93,611Construction work in progress
    
    
    410,615
    
    
    
    321,316Total property, plant, and equipment
    
    
    9,830,768
    
    
    
    9,733,124Other Property and Investments:Equity investments in unconsolidated subsidiaries
    
    
    47,279
    
    
    
    47,811Nuclear decommissioning trusts, at fair value
    
    
    395,607
    
    
    
    384,574Other
    
    
    25,495
    
    
    
    16,992Total other property and investments
    
    
    468,381
    
    
    
    449,377Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    320,166
    
    
    
    321,077Prepaid pension costs
    
    
    456,669
    
    
    
    446,256Unamortized loss on reacquired debt
    
    
    108,886
    
    
    
    110,946Other
    
    
    130,315
    
    
    
    134,635Total deferred charges and other assets
    
    
    1,016,036
    
    
    
    1,012,914Total Assets
    
    $
    12,322,347
    
    
    $
    12,070,624
 The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements. 27




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##### Table of Contents



ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED) At March 31,
    
    At December 31,Liabilities and Stockholder's Equity
    
    2004
    
    2003(in thousands)Current Liabilities:Securities due within one year
    
    $
    725,011
    
    
    $
    526,019Accounts payable Affiliated
    
    
    120,047
    
    
    
    135,017Other
    
    
    92,781
    
    
    
    162,314Customer deposits
    
    
    48,513
    
    
    
    47,507Accrued taxes Income taxes
    
    
    68,524
    
    
    
    83,544Other
    
    
    44,169
    
    
    
    22,273Accrued interest
    
    
    56,710
    
    
    
    46,489Accrued vacation pay
    
    
    35,530
    
    
    
    35,530Accrued compensation
    
    
    27,697
    
    
    
    75,620Other
    
    
    43,945
    
    
    
    34,513Total current liabilities
    
    
    1,262,927
    
    
    
    1,168,826Long-term Debt
    
    
    3,376,165
    
    
    
    3,377,148Long-term Debt Payable to Affiliated Trusts
    
    
    309,279
    
    
    
    Mandatorily Redeemable Preferred Securities
    
    
    
    
    
    
    300,000Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    1,626,767
    
    
    
    1,571,076Deferred credits related to income taxes
    
    
    158,555
    
    
    
    162,168Accumulated deferred investment tax credits
    
    
    213,570
    
    
    
    216,309Employee benefit obligations
    
    
    178,466
    
    
    
    180,960Deferred capacity revenues
    
    
    33,486
    
    
    
    36,567Asset retirement obligations
    
    
    364,775
    
    
    
    358,759Asset retirement obligation regulatory liability
    
    
    136,356
    
    
    
    127,346Other cost of removal obligations
    
    
    580,389
    
    
    
    574,445Miscellaneous regulatory liabilities
    
    
    78,556
    
    
    
    86,323Other
    
    
    34,873
    
    
    
    37,525Total deferred credits and other liabilities
    
    
    3,405,793
    
    
    
    3,351,478Total Liabilities
    
    
    8,354,164
    
    
    
    8,197,452Cumulative Preferred Stock
    
    
    472,512
    
    
    
    372,512Common Stockholders Equity:Common stock, par value $40 per share Authorized -
15,000,000 sharesOutstanding -
March 31, 2004: 7,750,000 Shares- December 31, 2003: 7,250,000 Shares
    
    
    310,000
    
    
    
    290,000Paid-in capital
    
    
    1,931,060
    
    
    
    1,926,970Premium on preferred stock
    
    
    99
    
    
    
    99Retained earnings
    
    
    1,271,210
    
    
    
    1,291,558Accumulated other comprehensive loss
    
    
    (16,698
    )
    
    
    (7,967
    )Total common stockholders equity
    
    
    3,495,671
    
    
    
    3,500,660Total Liabilities and Stockholders Equity
    
    $
    12,322,347
    
    
    $
    12,070,624
 The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements. 28




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##### Table of Contents



ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Net Income After Dividends on Preferred Stock
    
    $
    90,747
    
    
    $
    91,819Other comprehensive loss:Changes in fair value of qualifying hedges, net of tax
of $(6,162) and $(796), respectively
    
    
    (10,136
    )
    
    
    (1,308
    )Less: Reclassification adjustment for amounts included in net
income, net of tax of $854 and $752, respectively
    
    
    1,405
    
    
    
    1,236COMPREHENSIVE INCOME
    
    $
    82,016
    
    
    $
    91,747
 The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements. 29




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##### Table of Contents



ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 2004 vs. FIRST QUARTER 2003 RESULTS OF OPERATIONS Earnings Alabama Powers net income after dividends on preferred stock for the first
quarter 2004 was $90.7 million compared to $91.8 million for the corresponding
period of 2003. Earnings in the first quarter of 2004 decreased by $1.1
million, or 1.2%, primarily due to higher operation and maintenance expenses,
depreciation expense and taxes other than income taxes. These increases were
partially offset by an increase in retail base-rate revenues and a decrease in
interest expense. Significant income statement items appropriate for discussion include the
following: Increase (Decrease)First Quarter(in thousands)
    
    %Retail sales
    
    $
    73,804
    
    
    
    11.0Sales for resale  non-affiliates
    
    
    (7,336
    )
    
    
    (6.2
    )Sales for resale  affiliates
    
    
    3,801
    
    
    
    6.1Fuel expense
    
    
    32,235
    
    
    
    13.4Purchased power  affiliates
    
    
    18,436
    
    
    
    44.3Other operation expense
    
    
    11,843
    
    
    
    8.8Maintenance expense
    
    
    5,812
    
    
    
    7.8Depreciation and amortization
    
    
    5,142
    
    
    
    5.1Taxes other than income taxes
    
    
    4,362
    
    
    
    7.3Interest expense, net of amounts capitalized
    
    
    (4,494
    )
    
    
    (8.2
    )
 Retail sales. Excluding energy cost recovery revenues and revenues
associated with PPAs certificated by the Alabama PSC, which generally do not
affect net income, retail sales revenues increased by $21.6 million, or 4.3%,
for the first quarter 2004 when compared to the corresponding period in 2003.
See Note 3 to Alabama Powers financial statements under Retail Rate
Adjustment Procedures in Item 8 of the Form 10-K for additional information.
Kilowatt-hour energy sales to residential, commercial, and industrial customers
increased 4.4%, 2.6%, and 8.9%, respectively, for the first quarter 2004 when
compared to the corresponding period of 2003 primarily due to favorable weather
conditions and improved industrial sales mainly in the primary metal and
automotive sectors. Sales for resale  non-affiliates.During the first quarter 2004, the
revenues associated with sales for resale to non-affiliates decreased due to a
5.7% reduction in kilowatt-hour sales of energy while market based prices
remained flat when compared to the first quarter of 2003. Kilowatt-hour sales
of energy will vary depending on demand, market based prices and the
availability of Southern Company system generation. These transactions did not
have a significant impact on earnings since the energy is usually sold at
variable cost. 30




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##### Table of Contents



ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Sales for resale  affiliates and Purchased power  affiliates. Sales for
resale to affiliates increased in the first quarter 2004 when compared to the
corresponding period in 2003 due to a $1.0 million increase in capacity
payments received in accordance with the affiliated company interchange
agreement as a result of Alabama Powers increased share of the total
interchange capacity. Purchases of energy will vary depending on demand and
the availability and cost of generating resources at each company. Purchased
power from affiliates increased in the first quarter 2004 principally due to a
PPA between Alabama Power and Southern Power that began in June 2003. The
capacity component of these transactions was $9.4 million in the first quarter
2004. Excluding the capacity revenue received under the interchange agreement,
these transactions did not have a significant impact on earnings since the
related energy is sold at marginal cost, and energy purchases are generally
offset by energy revenues through Alabama Powers energy cost recovery clause. Fuel expense.Fuel expense was higher in the first quarter 2004 when
compared to the corresponding period in 2003 mainly due to a 26.7% increase in
natural gas prices and a 36.3% increase in generation from natural gas-fired
generating facilities. The increase in generation from gas-fired facilities in
the first quarter 2004 when compared to the first quarter 2003 is mainly due to
a 27.1% decrease in generation from Alabama Powers hydroelectric facilities.
Since energy expenses are generally offset by energy revenues, these expenses
do not have a significant impact on earnings. Other operation expense.The increase in other operation expense in the
first quarter 2004 is a result of an $11.1 million increase in administrative
and general expenses. This increase primarily relates to a $4.9 million
increase in employee payroll and benefits, and legal expenses, a $1.9 million
increase in property insurance, a $1.9 million increase in accrued expense for
liability insurance, litigation and workers compensation and a $1.8 million
increase in pension expense. Maintenance expense.The increase in maintenance expense for the first
quarter 2004 when compared to the same period in 2003 is attributed to a $3.3
million increase in distribution expense and a $1.7 million increase in
transmission expense. These increases are mainly related to scheduled work
performed on overhead lines. Depreciation and amortization expense.The increase in depreciation and
amortization expense during the first quarter 2004 is attributed to an increase
in utility plant-in-service when compared to the same period in 2003. See Note
7 to Alabama Powers financial statements under Construction Program in Item
8 of the Form 10-K for additional information. Taxes other than income taxes.The first quarter 2004 increase in taxes
other than income taxes is due to a $2.3 million increase in payroll taxes and
a $1.3 million increase in property taxes when compared to the corresponding
period in 2003. Interest expense, net of amounts capitalized.The decrease in interest
expense, net of amounts capitalized during the first quarter 2004 when compared
to the same period in 2003 is the result of refinancing higher cost debt. For
additional information, see Financial Condition and Liquidity  Financing
Activities herein. 31




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ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Future Earnings Potential The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors including Alabama Powers ability to maintain a stable regulatory
environment, to achieve energy sales growth while containing costs and to
recover costs related to growing demand and increasingly strict environmental
standards. Growth in energy sales is subject to a number of factors. These
factors include weather, competition, new energy contracts with neighboring
utilities, energy conservation practiced by customers, the price of
electricity, the price elasticity of demand and the rate of economic growth in
Alabama Powers service area. For additional information relating to these
issues, see Item 1  Business  The SOUTHERN System  Risk Factors and Item 7
 Managements Discussion and Analysis  Future Earnings Potential of Alabama
Power in the Form 10-K. Environmental Matters Compliance costs related to the Clean Air Act and other environmental
regulations could affect earnings if such costs cannot be recovered. For
additional information about these issues, including the EPA litigation, see
Item 7  Managements Discussion and Analysis  Future Earnings Potential -
Environmental Matters and Note 3 to the financial statements of Alabama Power
under New Source Review Actions in Item 8 of the Form 10-K. As of March 15,
2004, civil penalties under the Clean Air Act were increased prospectively to a
maximum of $32,500 per day, per violation. To the extent alleged violations
under the New Source Review Litigation are deemed to be continuing, this
increased civil penalty amount could apply to such violations found to continue
after that date. On May 3, 2004, the U.S. Supreme Court denied the EPAs petition
to review the Eleventh Circuit Court of Appeals decision in the EPAs similar New
Source Review action against the TVA. The case against Alabama Power has been
effectively stayed pending final resolution of the TVA appeal. With the denial
of the EPAs petition for review, the Court of Appeals decision is now final. An
adverse outcome in this case could require substantial capital expenditures
that cannot be determined at this time and could possibly require payment of
substantial penalties. This could affect future results of operations, cash
flows, and possibly financial condition if such costs are not recovered through
regulated rates. On March 12, 2004, the EPA redesignated the Birmingham, Alabama area from
nonattainment to attainment under the one-hour ozone national ambient air
quality standard. On April 30, 2004, the EPA published its eight-hour ozone
nonattainment designations and a portion of the rules implementing the new
eight-hour standard. Within Alabama Powers service area, Birmingham has been
designated as nonattainment under the eight-hour ozone standard. Under the
implementation provisions of the new rule, the EPA announced that the one-hour
ozone standard will be revoked on June 15, 2005. The impact of the eight-hour designations
and the new standards will depend on the development and implementation of
applicable state regulations and therefore cannot be determined at this time.
Additionally, on April 15, 2004, the EPA announced proposed amendments to its
Regional Haze rules with respect to Best Available Retrofit Technology (BART)
guidelines and requirements. The impact of these regulations will depend on the
development and implementation of the final rules and implementation by the
states, and therefore cannot be determined at this time. FERC Matters See Managements
Discussion and Analysis  Future Earnings Potential  FERC
Matters  Market-Based Rate Authority in Item 7 and Note 3 to the financial
statements of Alabama Power under FERC 32




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ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Matters in Item 8 of the Form 10-K. On April 14, 2004, the FERC issued an
order that abandoned the SMA test and adopted a new interim analysis for
measuring generation market power. The FERC also initiated a new rulemaking
proceeding that, among other things, will adopt a final methodology for
assessing generation market
power. See Note (B) to the Condensed Financial Statements under FERC Matters
herein for additional information. Southern Company is filing a
request for rehearing of the FERCs order. The final outcome of this matter
cannot be determined at this time. See Item 7  Managements Discussion and Analysis  Future Earnings
Potential  FERC Matters of Alabama Power in the Form 10-K for information on
the FERCs order related to RTOs and the FERCs notice of proposed rulemaking
regarding open access transmission service. Other Matters See Item 7 
Managements Discussion and Analysis  Future Earnings Potential  Other
Matters of Alabama Power in Item 7 of the Form 10-K for information on nuclear security
measures. Implementation plans for the measures ordered by the NRC to be in
effect by October 29, 2004 have been finalized based on current interpretations
of the requirements. Alabama Power currently estimates its expenditures related to
these security measures to total $9.6 million of which $9.3 million will be
capitalized. These estimates are subject to change in the event additional NRC
guidance is provided. Alabama Power is subject to certain claims and legal actions arising in
the ordinary course of business. In addition, Alabama Powers business
activities are subject to extensive governmental regulation related to public
health and the environment. Litigation over environmental issues and claims of
various types, including property damage, personal injury and citizen
enforcement of environmental requirements, has increased generally throughout
the United States. In particular, personal injury claims for damages caused by
alleged exposure to hazardous materials have become more frequent. The
ultimate outcome of such litigation against Alabama Power cannot be predicted
at this time; however, management does not anticipate that the liabilities, if
any, arising from such current proceedings would have a material adverse effect
on Alabama Powers financial statements. See the Notes to the Condensed Financial Statements herein for discussion
of various contingencies and other matters which may affect future earnings potential. ACCOUNTING POLICIES Application of Critical Accounting Policies and Estimates Alabama Power prepares its financial statements in accordance with accounting
principles generally accepted in the United States. Significant accounting policies are described in Note 1 to the financial statements of Alabama Power
in Item 8 of the Form 10-K. In the application of these policies, certain
estimates are made that may have a material impact on Alabama Powers results
of operations and related disclosures. Different assumptions and measurements
could produce estimates that are significantly different from those recorded in
the financial statements. See Item 7  Managements Discussion and Analysis -
Accounting Policies  Application of Critical Accounting Policies and Estimates of Alabama Power in
the Form 10-K for a complete discussion of Alabama Powers critical accounting policies and estimates related to Electric Utility Regulation and Contingent
Obligations. 33




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ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION New Accounting Standards On March 31, 2004, Alabama Power prospectively adopted FASB Interpretation No.
46R, Consolidation of Variable Interest Entities, which requires the primary
beneficiary of a variable interest entity to consolidate the related assets and
liabilities. The adoption of Interpretation No. 46R had no impact on Alabama
Powers net income. However, as a result of the adoption, Alabama Power
deconsolidated certain wholly-owned trusts established to issue preferred
securities since Alabama Power does not meet the definition of primary
beneficiary established by Interpretation No. 46R. See Note (E) to the
Condensed Financial Statements herein for additional information related to the
adoption of Interpretation No. 46R. FINANCIAL CONDITION AND LIQUIDITY Overview Major changes in Alabama Powers financial condition during the first three
months of 2004 included the addition of approximately $204 million to utility
plant. The funds for these additions and other capital requirements were
derived primarily from operating activities and net proceeds from security
issuances of $319 million. See Alabama Powers Condensed Statements of Cash
Flows herein for further details. Capital Requirements and Contractual Obligations See Item 7  Managements
Discussion and Analysis  Financial Condition And Liquidity   Capital
Requirements and Contractual Obligations of Alabama Power in of the Form 10-K
for a description of Alabama Powers capital requirements for its construction
program, lease obligations, purchase commitments and trust funding
requirements. Approximately $725 million will be required by March 31, 2005
for redemptions and maturities of long-term debt. Sources of Capital In addition to the financing activities described below,
Alabama Power plans to obtain the funds required for construction and other
purposes from sources similar to those used in the past. The amount, type and
timing of any financings  if needed  will depend upon maintenance of
adequate earnings, regulatory approval, prevailing market conditions and other
factors. See Item 1  Business  Financing Programs in the Form
10-K for additional information. Alabama Powers current liabilities exceed current assets primarily
because of scheduled maturities of long-term debt. To meet short-term cash
needs and contingencies, at March 31, 2004 Alabama Power had $166 million of
cash and cash equivalents, unused committed lines of credit of approximately
$865 million (including $504 million of such lines which are dedicated to
funding purchase obligations relating to variable rate pollution control bonds)
and an extendible commercial note program. These lines of credit will
expire at various times during 2004. Alabama Power expects to renew
its credit facilities, as needed, prior to expiration. Alabama Power may also
meet short-term cash needs through a Southern Company subsidiary organized to
issue and sell commercial paper and extendible commercial notes at the request
and for the benefit of Alabama Power and other Southern Company subsidiaries.
Alabama Power has regulatory authority for up to $1 billion of short-term
borrowings. At March 31, 2004, Alabama Power had no commercial paper or notes
payable outstanding. Management believes that the need for working capital can
be adequately met by issuing commercial paper or utilizing lines of credit
without maintaining large cash balances. 34




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ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Credit Rating Risk Alabama Power does not have any credit agreements that would require material
changes in payment schedules or terminations as a result of a credit rating
downgrade. There are contracts that could require collateral  but not
accelerated payment  in the event of a credit rating change to below
investment grade. These contracts are primarily for physical electricity
purchases and sales, fixed price physical gas purchases and agreements covering
interest rate swaps. At March 31, 2004, the maximum potential collateral
requirements were approximately $27 million. Market Price Risk Alabama Powers market risk exposures relative to interest rate changes have
not changed materially compared with the December 31, 2003 reporting period.
In addition, Alabama Power is not aware of any facts or circumstances that
would significantly affect such exposures in the near term. Due to cost-based rate regulations, Alabama Power has limited exposure to
market volatility in interest rates, commodity fuel prices and prices of
electricity. To mitigate residual risks relative to movements in electricity
prices, Alabama Power enters into fixed price contracts for the purchase and
sale of electricity through the wholesale electricity market and, to a lesser
extent, similar contracts for gas purchases. Alabama Power has also
implemented a retail fuel hedging program at the instruction of the Alabama
PSC. The fair value of derivative energy contracts at March 31, 2004 was as
follows: First Quarter2004ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    6,413Contracts realized or settled
    
    
    (3,189
    )New contracts at inception
    
    
    Changes in valuation techniques
    
    
    Current period changes
    
    
    14,634Contracts at March 31, 2004
    
    $
    17,858
 Source of March 31, 2004Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    17,858
    
    
    $
    16,432
    
    
    $
    1,426External sources
    
    
    
    
    
    
    
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at March 31, 2004
    
    $
    17,858
    
    
    $
    16,432
    
    
    $
    1,426
 35




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ALABAMA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION For additional information, see Item 7  Managements Discussion and
Analysis  Financial Condition And Liquidity  Market Price Risk of Alabama
Power in the Form 10-K and Notes 1 and 6 to the financial statements of Alabama
Power under Financial Instruments in Item 8 of the Form 10-K and Note (G) to
the Condensed Financial Statements herein. Financing Activities In February 2004, Alabama Power issued 500,000 shares of common stock to
Southern Company at $40.00 a share ($20 million aggregate purchase price). The
proceeds from the sale were used by Alabama Power for general corporate
purposes. Also in February 2004, Alabama Power issued 4,000,000 shares ($100 million
aggregate stated capital) of 5.30% Class A Preferred Stock, Cumulative, Par
Value $1 per share (Stated Capital $25 Per Share) and $200 million of Series Z
5.125% Senior Notes due February 15, 2019. The proceeds from the sale were
used to repay a portion of Alabama Powers outstanding short-term indebtedness
and for other general corporate purposes, including Alabama Powers continuous
construction program. In April 2004, Alabama Power issued $150 million of Series AA 5.625%
Senior Notes due April 15, 2034. The proceeds from the sale will be used
together with other funds to redeem in May 2004 $200 million in aggregate
principal amount of the Series J 6.75% Senior Notes due June 30, 2039. Alabama Power plans to continue, when economically feasible, a program to
retire higher-cost debt and replace these obligations with lower-cost capital
if market conditions permit. 36




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GEORGIA POWER COMPANY 37




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GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Operating Revenues:Retail sales
    
    $
    1,037,795
    
    
    $
    965,707Sales for resale Non-affiliates
    
    
    65,456
    
    
    
    73,986Affiliates
    
    
    54,142
    
    
    
    47,486Other revenues
    
    
    41,996
    
    
    
    39,259Total operating revenues
    
    
    1,199,389
    
    
    
    1,126,438Operating Expenses:Fuel
    
    
    285,214
    
    
    
    242,503Purchased
power Non-affiliates
    
    
    62,689
    
    
    
    72,036Affiliates
    
    
    135,142
    
    
    
    113,843Other operations
    
    
    198,393
    
    
    
    185,990Maintenance
    
    
    108,468
    
    
    
    110,944Depreciation and amortization
    
    
    67,737
    
    
    
    85,742Taxes other than income taxes
    
    
    56,432
    
    
    
    53,175Total operating expenses
    
    
    914,075
    
    
    
    864,233Operating Income
    
    
    285,314
    
    
    
    262,205Other Income and (Expense):Allowance for equity funds used during construction
    
    
    3,347
    
    
    
    2,956Interest income
    
    
    2,352
    
    
    
    115Interest expense, net of amounts capitalized
    
    
    (45,650
    )
    
    
    (44,363
    )Distributions on mandatorily redeemable preferred securities
    
    
    (15,839
    )
    
    
    (14,919
    )Other income (expense), net
    
    
    (4,395
    )
    
    
    2,912Total other income and (expense)
    
    
    (60,185
    )
    
    
    (53,299
    )Earnings Before Income Taxes
    
    
    225,129
    
    
    
    208,906Income taxes
    
    
    81,120
    
    
    
    75,468Net Income
    
    
    144,009
    
    
    
    133,438Dividends on Preferred Stock
    
    
    168
    
    
    
    168Net Income After Dividends on Preferred Stock
    
    $
    143,841
    
    
    $
    133,270
 The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements. 38




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GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Operating Activities:Net income
    
    $
    144,009
    
    
    $
    133,438Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    91,462
    
    
    
    102,770Deferred income taxes and investment tax credits, net
    
    
    56,823
    
    
    
    29,956Pension, postretirement, and other employee benefits
    
    
    (7,342
    )
    
    
    (7,633
    )Tax benefit of stock options
    
    
    4,523
    
    
    
    2,750Other, net
    
    
    (15,288
    )
    
    
    (8,924
    )Changes in certain current assets and liabilities Receivables,
net
    
    
    42,798
    
    
    
    114,048Fossil fuel stock
    
    
    (3,808
    )
    
    
    (11,235
    )Materials and supplies
    
    
    773
    
    
    
    (2,166
    )Other current assets
    
    
    24,430
    
    
    
    24,309Accounts payable
    
    
    5,576
    
    
    
    (97,095
    )Accrued taxes
    
    
    (131,794
    )
    
    
    (56,058
    )Accrued compensation
    
    
    (93,468
    )
    
    
    (92,624
    )Other current liabilities
    
    
    (262
    )
    
    
    413Net cash provided from operating activities
    
    
    118,432
    
    
    
    131,949Investing Activities:Gross property additions
    
    
    (158,743
    )
    
    
    (190,895
    )Cost of removal net of salvage
    
    
    2,059
    
    
    
    (4,950
    )Change in construction payables, net of joint owner portion
    
    
    (20,809
    )
    
    
    (53,462
    )Other
    
    
    5,210
    
    
    
    6,865Net cash used for investing activities
    
    
    (172,283
    )
    
    
    (242,442
    )Financing Activities:Increase in notes payable, net
    
    
    55,044
    
    
    
    171,742Proceeds Senior notes
    
    
    350,000
    
    
    
    400,000Mandatorily redeemable preferred securities
    
    
    200,000
    
    
    
    Redemptions Senior notes
    
    
    (200,000
    )
    
    
    (315,000
    )Mandatorily redeemable preferred securities
    
    
    (200,000
    )
    
    
    Payment of common stock dividends
    
    
    (141,375
    )
    
    
    (141,450
    )Other
    
    
    (11,567
    )
    
    
    (8,371
    )Net cash provided from financing activities
    
    
    52,102
    
    
    
    106,921Net Change in Cash and Cash Equivalents
    
    
    (1,749
    )
    
    
    (3,572
    )Cash and Cash Equivalents at Beginning of Period
    
    
    8,699
    
    
    
    16,873Cash and Cash Equivalents at End of Period
    
    $
    6,950
    
    
    $
    13,301Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $1,180 and $1,846 capitalized for 2004 and 2003, respectively)
    
    $
    62,923
    
    
    $
    54,160Income taxes (net of refunds)
    
    $
    16,494
    
    
    $
    (3,896
    )
 The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements. 39




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GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED) At March 31,
    
    At December 31,Assets
    
    2004
    
    2003(in thousands)Current Assets:Cash and cash equivalents
    
    $
    6,950
    
    
    $
    8,699Receivables Customer accounts receivable
    
    
    235,414
    
    
    
    261,771Unbilled revenues
    
    
    118,218
    
    
    
    117,327Under recovered regulatory clause revenues
    
    
    177,935
    
    
    
    151,447Other accounts and notes receivable
    
    
    66,067
    
    
    
    101,783Affiliated companies
    
    
    38,004
    
    
    
    52,413Accumulated provision for uncollectible accounts
    
    
    (5,350
    )
    
    
    (5,350
    )Fossil fuel stock, at average cost
    
    
    141,345
    
    
    
    137,537Vacation pay
    
    
    54,811
    
    
    
    50,150Materials and supplies, at average cost
    
    
    270,267
    
    
    
    271,040Prepaid expenses
    
    
    16,787
    
    
    
    46,157Other
    
    
    9,867
    
    
    
    83Total current assets
    
    
    1,130,315
    
    
    
    1,193,057Property, Plant, and Equipment:In service
    
    
    18,272,064
    
    
    
    18,171,862Less accumulated provision for depreciation
    
    
    6,978,797
    
    
    
    6,898,72511,293,267
    
    
    
    11,273,137Nuclear fuel, at amortized cost
    
    
    123,133
    
    
    
    129,056Construction work in progress
    
    
    354,607
    
    
    
    341,783Total property, plant, and equipment
    
    
    11,771,007
    
    
    
    11,743,976Other Property and Investments:Equity investments in unconsolidated subsidiaries
    
    
    67,965
    
    
    
    38,714Nuclear decommissioning trusts, at fair value
    
    
    435,210
    
    
    
    423,319Other
    
    
    37,253
    
    
    
    37,142Total other property and investments
    
    
    540,428
    
    
    
    499,175Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    506,916
    
    
    
    509,887Prepaid pension costs
    
    
    416,031
    
    
    
    405,164Unamortized debt issuance expense
    
    
    75,625
    
    
    
    75,245Unamortized loss on reacquired debt
    
    
    185,024
    
    
    
    177,707Other
    
    
    166,029
    
    
    
    177,817Total deferred charges and other assets
    
    
    1,349,625
    
    
    
    1,345,820Total Assets
    
    $
    14,791,375
    
    
    $
    14,782,028
 The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements. 40




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##### Table of Contents



GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED) At March 31,
    
    At December 31,Liabilities and Stockholders Equity
    
    2004
    
    2003(in thousands)Current Liabilities:Securities due within one year
    
    $
    252,352
    
    
    $
    2,304Notes payable
    
    
    192,322
    
    
    
    137,277Accounts
payable Affiliated
    
    
    118,025
    
    
    
    121,928Other
    
    
    220,435
    
    
    
    238,069Customer deposits
    
    
    106,604
    
    
    
    103,756Accrued taxes Income taxes
    
    
    116,667
    
    
    
    107,532Other
    
    
    56,628
    
    
    
    166,892Accrued interest
    
    
    70,102
    
    
    
    70,844Accrued vacation pay
    
    
    42,749
    
    
    
    38,206Accrued compensation
    
    
    40,536
    
    
    
    134,004Other
    
    
    97,671
    
    
    
    105,234Total current liabilities
    
    
    1,314,091
    
    
    
    1,226,046Long-term Debt
    
    
    3,661,712
    
    
    
    3,762,333Long-term Debt Payable to Affiliated Trusts
    
    
    969,073
    
    
    
    Mandatorily Redeemable Preferred Securities
    
    
    
    
    
    
    940,000Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    2,322,259
    
    
    
    2,303,085Deferred credits related to income taxes
    
    
    182,806
    
    
    
    186,625Accumulated deferred investment tax credits
    
    
    309,384
    
    
    
    312,506Employee benefit obligations
    
    
    299,314
    
    
    
    295,788Asset retirement obligations
    
    
    482,593
    
    
    
    475,585Other cost of removal obligations
    
    
    413,875
    
    
    
    412,161Miscellaneous regulatory liabilities
    
    
    208,084
    
    
    
    249,687Other
    
    
    66,732
    
    
    
    63,432Total deferred credits and other liabilities
    
    
    4,285,047
    
    
    
    4,298,869Total Liabilities
    
    
    10,229,923
    
    
    
    10,227,248Cumulative Preferred Stock
    
    
    14,569
    
    
    
    14,569Common Stockholders Equity:Common
stock, without par value 
Authorized  15,000,000 shares
Outstanding  7,761,500 shares
    
    
    344,250
    
    
    
    344,250Paid-in capital
    
    
    2,213,021
    
    
    
    2,208,498Premium on preferred stock
    
    
    40
    
    
    
    40Retained earnings
    
    
    2,012,764
    
    
    
    2,010,297Accumulated other comprehensive loss
    
    
    (23,192
    )
    
    
    (22,874
    )Total common stockholders equity
    
    
    4,546,883
    
    
    
    4,540,211Total Liabilities and Stockholders Equity
    
    $
    14,791,375
    
    
    $
    14,782,028
 The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements. 41




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GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Net Income After Dividends on Preferred Stock
    
    $
    143,841
    
    
    $
    133,270Other comprehensive loss:Changes in fair value of qualifying hedges, net of tax
of $(880) and $(966), respectively
    
    
    (1,395
    )
    
    
    (1,532
    )Less: Reclassification adjustment for amounts included in net
income, net of tax of $679 and $-, respectively
    
    
    1,077
    
    
    
    (7
    )COMPREHENSIVE INCOME
    
    $
    143,523
    
    
    $
    131,731
 The accompanying notes as
they relate to Georgia Power are an integral part of these condensed
financial statements. 42




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GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 2004 vs. FIRST QUARTER 2003 RESULTS OF OPERATIONS Earnings Georgia Powers net income after dividends on preferred stock for the
first quarter 2004 was $143.9 million compared to $133.3 million for the
corresponding period in 2003. Earnings in the first quarter 2004 increased by
$10.6 million, or 7.9%, primarily due to higher retail revenues that were
partially offset by higher non-fuel operating expenses when compared to the
same period in 2003. Significant income statement items appropriate for discussion include the
following: Increase (Decrease)First Quarter(in thousands)
    
    %Retail sales
    
    $
    72,088
    
    
    
    7.5Sales for resale  non-affiliates
    
    
    (8,530
    )
    
    
    (11.5
    )Sales for resale  affiliates
    
    
    6,656
    
    
    
    14.0Other revenues
    
    
    2,737
    
    
    
    7.0Fuel expense
    
    
    42,711
    
    
    
    17.6Purchased power  non-affiliates
    
    
    (9,347
    )
    
    
    (13.0
    )Purchased power  affiliates
    
    
    21,299
    
    
    
    18.7Other operation expense
    
    
    12,403
    
    
    
    6.7Depreciation and amortization
    
    
    (18,005
    )
    
    
    (21.0
    )Interest income
    
    
    2,237
    
    
    
    N/MOther income (expense), net
    
    
    (7,307
    )
    
    
    (250.9
    )
   N/M Not meaningful Retail sales.Excluding fuel revenues, which generally do not affect net
income, retail sales revenue increased by $31.8 million, or 4.7%, in the first
quarter 2004 compared to the corresponding period in 2003. In the first
quarter 2004, kilowatt-hour energy sales to residential, commercial and
industrial customers increased by 5.3%, 3.9% and 2.1%, respectively, when
compared to the same period in 2003. These increases in the retail sectors
during the first quarter 2004 are mainly due to customer growth of 2% and an
improving economy. Sales for resale  non-affiliates. The decrease in revenues from sales
for resale to non-affiliates in the first quarter 2004 is mainly attributed to
lower demand for energy by these customers when compared to the same period in
2003. These transactions did not have a significant impact on earnings since
the energy is usually sold at variable cost. 43




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##### Table of Contents



GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Sales for resale  affiliates. Revenues from sales for resale to
affiliates increased in the first quarter 2004 when compared to the same period
in 2003 despite lower demand for energy due to higher fuel costs associated
with generating electricity. These transactions did not have a significant
impact on earnings since this energy is generally sold at marginal cost. Other revenues.The increase in other revenues during the first quarter
2004 when compared to the corresponding period of 2003 is primarily attributed
to a $1.4 million increase in outdoor lighting revenues and a $0.7 million
increase in electric property rental revenues. Fuel expense. During the first quarter 2004, fuel expenses increased as a
result of a 15.1% increase in the unit cost of fuel when compared to the
corresponding period in 2003 and an increase of 2.5% in generation due to
increased retail sales. These expenses do not have a significant impact on
earnings since fuel expenses are generally offset by fuel revenues through
Georgia Powers fuel cost recovery clause. Purchased power  non-affiliates.The first quarter 2004 decrease in
purchased power from non-affiliates is primarily due to fluctuations in
off-system energy purchases used to meet off-system sales commitments. These
expenses do not have a significant impact on earnings since energy expenses are
generally offset by energy revenues through Georgia Powers fuel cost recovery
clause. Purchased power  affiliates. Purchased power from affiliates
increased in the first quarter 2004 when compared to the first quarter 2003 due
to a PPA between Georgia Power and Southern Power that began in June 2003. The
capacity component of these transactions totaled $10.7 million in the first
quarter 2004. The energy component of power purchased from affiliated
companies within the Southern Company system will vary depending on demand and
the availability and cost of generating resources at each company and will have
no significant impact on earnings since energy expenses are generally offset by
energy revenues through Georgia Powers fuel cost recovery clause. Other operation expense.Other operation expense in the first quarter
2004 was higher when compared to the same period in 2003 due to increased
administrative and general expenses of $10.8 million related to employee
payroll and benefits and $3.2 million in workers compensation benefits. Depreciation and amortization.In the first quarter 2004, depreciation
and amortization expense was lower compared to the first quarter of 2003. This
decrease was caused primarily by lower regulatory charges needed to levelize
purchased power capacity costs under the terms of the retail rate order
effective January 1, 2002. This decrease was offset by an increase in
affiliated purchased power costs discussed above. See Note 1 to the financial
statements under Depreciation and Amortization of Georgia Power in Item 8 of
the Form 10-K for additional information. Interest income.During the first quarter 2004, interest income increased
when compared to the corresponding period in 2003 due mainly to interest
received from the State of Georgia for a favorable sales and use tax
settlement. Other income (expense), net.The change in this item in the first quarter 2004
when compared to the first quarter 2003 reflects decreased income from a new
electricity pricing program. 44




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GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Future Earnings Potential The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors including Georgia Powers ability to maintain a stable regulatory
environment, to achieve energy sales growth while containing costs, and to
recover costs related to growing demand and increasingly stricter environmental
standards. Growth in energy sales is subject to a number of factors, which
include weather, competition, new energy contracts with neighboring utilities,
energy conservation practiced by customers, the price of electricity, the price
elasticity of demand, and the rate of economic growth in the service area. For
additional information relating to these issues, see Item 1  Business  The
SOUTHERN System  Risk Factors and Item 7  Managements Discussion and
Analysis  Future Earnings Potential of Georgia Power in the Form 10-K. Environmental Matters Compliance costs related to the Clean Air Act and other environmental
regulations could affect earnings if such costs cannot be recovered. For
additional information, including information on certain environmental
litigation, see Item 7  Managements Discussion and Analysis  Future
Earnings Potential  Environmental Matters of Georgia Power and Note 3 to the
financial statements of Georgia Power in Item 8 of the Form 10-K under New
Source Review Actions and Plant Wansley Environmental Litigation. As of
March 15, 2004, civil penalties under the Clean Air Act were increased
prospectively to a maximum of $32,500 per day, per violation. To the extent
alleged violations under either the New Source Review litigation or Plant
Wansley Environmental litigation are deemed to be continuing, this increased
civil penalty amount could apply to such violations found to continue after
that date. On May 3, 2004, the U.S. Supreme Court denied the EPAs petition to
review the Eleventh Circuit Court of Appeals decision in the EPAs similar New
Source Review action against the TVA. The case
against Georgia Power has been effectively stayed pending final resolution of
the TVA appeal. With the denial of the EPAs petition for review, the Court of
Appeals decision is now final. An adverse outcome in either of these cases
could require substantial capital expenditures that cannot be determined at
this time and could possibly require payment of substantial
penalties. This could affect future results of operations, cash flows
and possibly financial condition if such costs are not recovered
through regulated rates. On April 30, 2004, the EPA published its eight-hour ozone nonattainment
designations and a portion of the rules implementing the new eight-hour
standard. Areas within Georgia Powers service area that have been designated
as nonattainment under the eight-hour ozone standard include Macon and a
20-county area within metropolitan Atlanta. Under the implementation
provisions of the new rule, the EPA announced that the one-hour ozone standard
will be revoked on June 15, 2005. Areas classified as severe nonattainment areas
under the one-hour standard will not be required to impose emissions fees as a
result of nonattainment. Georgia Power, therefore, will no longer be subject
to imposition of emissions fees if the Atlanta area does not come into
attainment with the one-hour standard. The impact of the eight-hour
designations and the new standards will depend on the development and
implementation of applicable state regulations and therefore cannot be
determined at this time. On April 21, 2004, the EPA published the final regional nitrogen oxide
reduction rules applicable to the State of Georgia. These rules specify that
Georgia must submit a revised state implementation plan by April 2005, and
affected sources must comply with the reduction requirements by May 1, 2007.
The impact of these regulations will depend on the development and approval of
Georgias state implementation plan and cannot be determined at this time. 45




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GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Additionally, on April 15, 2004, the EPA announced proposed amendments to
its Regional Haze rules with respect to Best Available Retrofit Technology
(BART) guidelines and requirements. The impact of these regulations will depend
on the development and implementation of the final rules and implementation by
the states, and therefore cannot be determined at this time. FERC Matters See Managements Discussion And Analysis  Future Earnings Potential  FERC
Matters  Market-Based Rate Authority in Item 7 and Note 3 to the financial
statements of Georgia Power under FERC Matters in Item 8 of the Form 10-K.
On April 14, 2004, the FERC issued an order that abandoned the SMA test and
adopted a new interim analysis for measuring generation market power. The FERC
also initiated a new rulemaking proceeding that, among other things, will adopt
a final methodology for assessing generation market
power. See Note (B) to the Condensed Financial Statements under FERC Matters
herein for additional information. Southern Company is filing a
request for rehearing the FERCs
order. The final outcome of this matter cannot be determined at this time. See Note 3 to the financial statements of Georgia Power under FERC
Matters in Item 8 of the Form 10-K and Note (C) to the Condensed Financial
Statements herein for information regarding the FERC approval process for
Southern Powers PPAs with Georgia Power and Savannah Electric for Plant
McIntosh Units 10 and 11. See Item 7  Managements Discussion and Analysis  Future Earnings
Potential  FERC Matters and Note 3 to the financial statements of Georgia
Power under FERC Matters in Item 8 of the Form 10-K for information on the
FERCs order related to RTOs and the FERCs notice of proposed rulemaking
regarding open access transmission service. Other Matters In January 2002, Georgia Power began operating under a three-year retail rate
order. Under the terms of the order, earnings will be evaluated annually
against a retail return on common equity range of 10 percent to 12.95 percent.
Two-thirds of any earnings above the 12.95 percent return will be applied to
rate refunds, with the remaining one-third retained by Georgia Power. Retail
rates were decreased by $118 million effective January 1, 2002. Purchases
under PPAs are required by the order to be reflected in rates evenly over the
three year period ending December 31, 2004. Georgia Power is required to file
a general rate case on July 1, 2004, in response to which the Georgia PSC would
be expected to determine whether the rate order should be continued, modified,
or discontinued. See Item 7  Managements Discussion and Analysis  Future
Earnings Potential  Other Matters and Note 3 to the financial statements of
Georgia Power under Retail Rate Orders in Item 8 of the Form 10-K for
additional information. In August 2003, the Georgia PSC issued an order allowing Georgia Power to
increase customer fuel rates to recover existing under-recovered deferred fuel
costs over the period October 1, 2003 through March 31, 2005. See Note 3 to
the financial statements of Georgia Power under Fuel Cost Recovery in Item 8
of the Form 10-K for additional information. 46




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GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION See
Managements Discussion and Analysis  Future Earnings Potential 
Other Matters in Item 7 of the Form 10-K for information on nuclear security
measures. Implementation plans for the measures ordered by the NRC to be in
effect by October 29, 2004 have been finalized based on current interpretations
of the requirements. Georgia Power, based on its ownership interest,
currently estimates
its expenditures related to these security measures will total
$9.3 million, of
which $1.3 million will be capitalized. These estimates are subject to change
in the event additional NRC guidance is provided. In June 2002, Georgia Power entered into a fifteen-year PPA beginning in
June 2005 with Southern Power to purchase 1,040 megawatts of capacity from
Southern Powers Plant McIntosh. See Managements Discussion and Analysis 
Future Earnings Potential  FERC Matters  Market-Based Rate Authority in
Item 7 of the Form 10-K and Note 3 to the financial statements of Georgia Power
under FERC Matters in Item 8 of the Form 10-K and Note (C) to the Condensed
Financial Statements herein for information regarding the FERC approval process
for this PPA. Georgia Power is subject to certain claims and legal actions arising in
the ordinary course of business. In addition, Georgia Powers business
activities are subject to extensive governmental regulation related to public
health and the environment. Litigation over environmental issues and claims of
various types, including property damage, personal injury and citizen
enforcement of environmental requirements, has increased generally throughout
the United States. In particular, personal injury claims for damages caused by
alleged exposure to hazardous materials have become more frequent. The
ultimate outcome of such litigation against Georgia Power cannot be predicted
at this time; however, management does not anticipate that the liabilities, if
any, arising from such current proceedings would have a material adverse effect
on Georgia Powers financial statements. See the Notes to the Condensed Financial Statements herein for discussion
of various contingencies and other matters which may affect future earnings potential. ACCOUNTING POLICIES Application of Critical Accounting Policies and Estimates Georgia Power prepares its financial statements in accordance with accounting
principles generally accepted in the United States. Significant accounting policies are described in Note 1 to the financial statements of Georgia Power
in Item 8 of the Form 10-K. In the application of these policies, certain
estimates are made that may have a material impact on Georgia Powers results
of operations and related disclosures. Different assumptions and measurements
could produce estimates that are significantly different from those recorded in
the financial statements. See Item 7  Managements Discussion and Analysis 
Accounting Policies  Application of Critical Accounting Policies and Estimates of Georgia Power in
the Form 10-K for a complete discussion of Georgia Powers critical accounting policies and estimates related to Electric Utility Regulation and Contingent
Obligations. New Accounting Standards On March 31, 2004,
Georgia Power prospectively adopted FASB Interpretation No.
46R, Consolidation of Variable Interest Entities, which requires the primary
beneficiary of a variable interest entity to consolidate the related assets and
liabilities. The adoption of Interpretation No. 46R had no impact on Georgia
Powers net income. However, as a result of the adoption, Georgia Power
deconsolidated certain wholly-owned trusts 47




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GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION established to issue preferred securities since Georgia Power does not meet the
definition of primary beneficiary established by Interpretation No. 46R. See
Note (E) to the Condensed Financial Statements herein for additional
information related to the adoption of Interpretation No. 46R. FINANCIAL CONDITION AND LIQUIDITY Overview The major change in Georgia Powers
financial condition during the first three months of 2004 was the addition of
approximately $159 million to utility plant. The funds for these additions and
other capital requirements were derived primarily from operating activities.
See Georgia Powers Condensed Statements of Cash Flows herein for further
details. Capital Requirements and Contractual Obligations See Item 7  Managements Discussion and Analysis  Financial Condition and
Liquidity  Capital Requirements and Contractual Obligations of Georgia Power
in the Form 10-K for a description of Georgia Powers capital requirements for
its construction program, lease obligations, purchase commitments and trust
funding requirements. Approximately $252 million will be required by March 31,
2005 for redemptions and maturities of long-term debt. Sources of Capital Georgia Power plans to obtain the funds required for construction and other
purposes from sources similar to those used in the past, including funds from
operations and new security issuances. The amount, type and timing of
additional security issuances  if needed  will depend upon maintenance of
adequate earnings, regulatory approval, prevailing market conditions and other
factors. See Item 1  Business  Financing Programs in the Form 10-K for
additional information. Georgia Powers current liabilities frequently exceed current assets
because of the continued use of short-term debt as a funding source to meet
cash needs, which can fluctuate significantly due to the seasonality of the
business. To meet short-term cash needs and contingencies, Georgia Power had
at March 31, 2004 approximately $7.0 million of cash and cash equivalents and
$725 million of unused credit arrangements with banks. These credit
arrangements expire in June 2004 and contain provisions allowing two-year term
loans executable at the expiration. Georgia Power expects to renew its credit
facilities, as needed, prior to expiration. The credit arrangements provide
liquidity support to Georgia Powers obligations with respect to variable rate
pollution control bonds and commercial paper. Georgia Power may also meet
short-term cash needs through a Southern Company subsidiary organized to issue
and sell commercial paper and extendible commercial notes at the request and
for the benefit of Georgia Power and other Southern Company subsidiaries. At
March 31, 2004, Georgia Power had outstanding $192 million in notes payable.
Management believes that the need for working capital can be adequately met by
utilizing lines of credit without maintaining large cash balances. 48




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GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Credit Rating Risk Georgia Power does not have any credit agreements that would require material
changes in payment schedules or terminations as a result of a credit rating
downgrade. There are contracts that could require collateral  but not
accelerated payment  in the event of a credit rating change to below
investment grade. These contracts are primarily for physical electricity
purchases and sales, fixed-price physical gas purchases, and agreements
covering interest rate swaps. At March 31, 2004, the maximum potential
collateral requirements were approximately $227 million. Market Price Risk Georgia Powers market risk exposures relative to interest
rate changes have not changed materially compared with the December 31, 2003
reporting period. In addition, Georgia Power is not aware of any facts or
circumstances that would significantly affect such exposures in the near term. Due to cost-based rate regulations, Georgia Power has limited exposure to
market volatility in interest rates, commodity fuel prices and prices of
electricity. To mitigate residual risks relative to movements in electricity
prices, Georgia Power enters into fixed price contracts for the purchase and
sale of electricity through the wholesale electricity market and, to a lesser
extent, similar contracts for gas purchases. Georgia Power has also
implemented a retail fuel hedging program at the instruction of the Georgia
PSC. The fair value of derivative energy contracts at March 31, 2004 was as
follows: First Quarter2004ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    3,155Contracts realized or settled
    
    
    (98
    )New contracts at inception
    
    
    Changes in valuation techniques
    
    
    Current period changes
    
    
    7,476Contracts at March 31, 2004
    
    $
    10,533
 Source of March 31, 2004Valuation PricesMaturityTotalFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    10,533
    
    
    $
    9,238
    
    
    $
    1,295External sources
    
    
    
    
    
    
    
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at March 31, 2004
    
    $
    10,533
    
    
    $
    9,238
    
    
    $
    1,295
 49




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`

GEORGIA POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION For additional information, see Item 7  Managements Discussion and
Analysis  Financial Condition and Liquidity   Market Price Risk of Georgia
Power in the Form 10-K and Notes 1 and 6 to the financial statements of Georgia
Power under Financial Instruments in Item 8 of the Form 10-K and Note (G) to
the Condensed Financial Statements herein. Financing Activities In January 2004, Georgia Power issued $100 million of
Series S 4.00% Senior Notes due January 15, 2011 and $100 million of Series T
5.75% Senior Public Income Notes due January 15, 2044. The proceeds from these
sales were used in March 2004 to redeem all of its outstanding Series H 6.70%
Senior Insured Quarterly Notes due March 1, 2011 and Series D 6 5/8% Senior
Notes due March 31, 2039. Further in January 2004, Georgia Power Capital Trust VII, a statutory
trust, sold $200 million of its 5 7/8% Trust Preferred Securities, which are
guaranteed by Georgia Power. The net proceeds from this issuance were used to
redeem the 6.85% Trust Preferred Securities of Georgia Power Capital Trust IV. In connection with this transaction, Georgia Power issued $206
million of its junior subordinated debentures to Georgia Power Capital Trust
VII. In February 2004, Georgia Power issued $150 million of Series U Floating
Rate Senior Notes due February 17, 2009. The proceeds of this sale were used
for general corporate purposes. Georgia Power plans to continue, when economically feasible, a program to
retire higher-cost securities and replace these obligations with lower-cost
capital if market conditions permit. 50




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GULF POWER COMPANY 51




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GULF POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Operating Revenues:Retail sales
    
    $
    165,084
    
    
    $
    159,793Sales for resale Non-affiliates
    
    
    19,488
    
    
    
    18,725Affiliates
    
    
    20,695
    
    
    
    10,217Other revenues
    
    
    9,652
    
    
    
    9,103Total operating revenues
    
    
    214,919
    
    
    
    197,838Operating Expenses:Fuel
    
    
    78,416
    
    
    
    63,267Purchased power Non-affiliates
    
    
    6,433
    
    
    
    5,956Affiliates
    
    
    7,428
    
    
    
    12,587Other operations
    
    
    33,018
    
    
    
    30,011Maintenance
    
    
    16,206
    
    
    
    16,580Depreciation and amortization
    
    
    20,552
    
    
    
    20,252Taxes other than income taxes
    
    
    17,063
    
    
    
    16,388Total operating expenses
    
    
    179,116
    
    
    
    165,041Operating Income
    
    
    35,803
    
    
    
    32,797Other Income and (Expense):Interest expense, net of amounts capitalized
    
    
    (7,894
    )
    
    
    (8,055
    )Distributions on mandatorily redeemable preferred securities
    
    
    (1,113
    )
    
    
    (2,028
    )Other income (expense), net
    
    
    18
    
    
    
    (423
    )Total other income and (expense)
    
    
    (8,989
    )
    
    
    (10,506
    )Earnings Before Income Taxes
    
    
    26,814
    
    
    
    22,291Income taxes
    
    
    9,921
    
    
    
    8,265Net Income
    
    
    16,893
    
    
    
    14,026Dividends on Preferred Stock
    
    
    54
    
    
    
    54Net Income After Dividends on Preferred Stock
    
    $
    16,839
    
    
    $
    13,972
 The
accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements. 52




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GULF POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Operating Activities:Net income
    
    $
    16,893
    
    
    $
    14,026Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    22,084
    
    
    
    21,656Deferred income taxes
    
    
    5
    
    
    
    1,621Pension, postretirement, and other employee benefits
    
    
    1,427
    
    
    
    1,981Tax benefit of stock options
    
    
    932
    
    
    
    943Other, net
    
    
    1,939
    
    
    
    5,081Changes in certain current assets and liabilities Receivables, net
    
    
    16,812
    
    
    
    16,220Fossil fuel stock
    
    
    2,303
    
    
    
    (3,127
    )Materials and supplies
    
    
    624
    
    
    
    (1,451
    )Other current assets
    
    
    (2,248
    )
    
    
    7,798Accounts payable
    
    
    (4,899
    )
    
    
    (7,211
    )Accrued taxes
    
    
    7,199
    
    
    
    (6,544
    )Accrued compensation
    
    
    (8,591
    )
    
    
    (7,854
    )Other current liabilities
    
    
    1,999
    
    
    
    5,819Net cash provided from operating activities
    
    
    56,479
    
    
    
    48,958Investing Activities:Gross property additions
    
    
    (33,145
    )
    
    
    (22,070
    )Cost of removal net of salvage
    
    
    (3,067
    )
    
    
    (3,559
    )Investment
in property damage fund
    
    
    (6,700
    )
    
    
    (1,100
    )Other
    
    
    (1,327
    )
    
    
    (4,463
    )Net cash used for investing activities
    
    
    (44,239
    )
    
    
    (31,192
    )Financing Activities:Decrease in notes payable, net
    
    
    (19,682
    )
    
    
    (489
    )Proceeds Senior notes
    
    
    
    
    
    
    65,000Capital contributions from parent company
    
    
    25,000
    
    
    
    10,000Redemptions Senior notes
    
    
    
    
    
    
    (32
    )Mandatorily redeemable preferred securities
    
    
    
    
    
    
    (40,000
    )Payment of preferred stock dividends
    
    
    (54
    )
    
    
    (54
    )Payment of common stock dividends
    
    
    (17,500
    )
    
    
    (17,550
    )Other
    
    
    (203
    )
    
    
    (3,729
    )Net cash provided from (used for) financing activities
    
    
    (12,439
    )
    
    
    13,146Net Change in Cash and Cash Equivalents
    
    
    (199
    )
    
    
    30,912Cash and Cash Equivalents at Beginning of Period
    
    
    2,548
    
    
    
    13,278Cash and Cash Equivalents at End of Period
    
    $
    2,349
    
    
    $
    44,190Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $233 and $20 capitalized for 2004 and 2003, respectively)
    
    $
    8,915
    
    
    $
    9,957Income taxes (net of refunds)
    
    $
    1,849
    
    
    
    ($21
    )
 The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements. 53




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GULF POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED) At March 31,
    
    At December 31,Assets
    
    2004
    
    2003(in thousands)Current Assets:Cash and cash equivalents
    
    $
    2,349
    
    
    $
    2,548Receivables Customer accounts receivable
    
    
    39,313
    
    
    
    44,001Unbilled revenues
    
    
    28,284
    
    
    
    31,548Under recovered regulatory clause revenues
    
    
    17,136
    
    
    
    21,812Other accounts and notes receivable
    
    
    2,918
    
    
    
    6,179Affiliated companies
    
    
    9,104
    
    
    
    9,826Accumulated provision for uncollectible accounts
    
    
    (1,147
    )
    
    
    (947
    )Fossil fuel stock, at average cost
    
    
    33,052
    
    
    
    35,354Vacation pay
    
    
    5,254
    
    
    
    5,254Materials and supplies, at average cost
    
    
    35,306
    
    
    
    35,930Prepaid expenses
    
    
    5,937
    
    
    
    6,310Other
    
    
    7,571
    
    
    
    4,985Total current assets
    
    
    185,077
    
    
    
    202,800Property, Plant, and Equipment:In service
    
    
    2,311,976
    
    
    
    2,306,959Less accumulated provision for depreciation
    
    
    860,541
    
    
    
    847,5191,451,435
    
    
    
    1,459,440Construction work in progress
    
    
    72,876
    
    
    
    49,438Total property, plant, and equipment
    
    
    1,524,311
    
    
    
    1,508,878Other Property and Investments
    
    
    21,530
    
    
    
    12,597Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    18,366
    
    
    
    18,263Prepaid pension costs
    
    
    42,809
    
    
    
    42,014Unamortized debt issuance expense
    
    
    6,853
    
    
    
    6,877Unamortized premium on reacquired debt
    
    
    18,942
    
    
    
    19,389Other
    
    
    28,857
    
    
    
    28,235Total deferred charges and other assets
    
    
    115,827
    
    
    
    114,778Total Assets
    
    $
    1,846,745
    
    
    $
    1,839,053
 The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements. 54




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GULF POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED) At March 31,
    
    At December 31,Liabilities and Stockholder's Equity
    
    2004
    
    2003(in thousands)Current Liabilities:Securities due within one year
    
    $
    50,000
    
    
    $
    50,000Notes payable
    
    
    17,985
    
    
    
    37,666Accounts payable Affiliated
    
    
    24,166
    
    
    
    26,945Other
    
    
    18,134
    
    
    
    21,952Customer deposits
    
    
    18,790
    
    
    
    18,271Accrued taxes Income taxes
    
    
    10,681
    
    
    
    6,405Other
    
    
    8,688
    
    
    
    8,621Accrued interest
    
    
    7,534
    
    
    
    8,077Accrued vacation pay
    
    
    5,254
    
    
    
    5,254Accrued compensation
    
    
    4,865
    
    
    
    13,456Other
    
    
    13,905
    
    
    
    9,694Total current liabilities
    
    
    180,002
    
    
    
    206,341Long-term Debt
    
    
    515,946
    
    
    
    515,827Long-term Debt Payable to Affiliated Trusts
    
    
    72,166
    
    
    
    Mandatorily Redeemable Preferred Securities
    
    
    
    
    
    
    70,000Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    179,409
    
    
    
    175,685Deferred credits related to income taxes
    
    
    25,815
    
    
    
    26,545Accumulated deferred investment tax credits
    
    
    19,960
    
    
    
    20,451Employee benefit obligations
    
    
    54,616
    
    
    
    52,395Other cost of removal obligations
    
    
    153,220
    
    
    
    151,229Miscellaneous regulatory liabilities
    
    
    28,455
    
    
    
    27,903Other
    
    
    26,241
    
    
    
    27,083Total deferred credits and other liabilities
    
    
    487,716
    
    
    
    481,291Total Liabilities
    
    
    1,255,830
    
    
    
    1,273,459Cumulative Preferred Stock
    
    
    4,236
    
    
    
    4,236Common Stockholders Equity:Common
stock, without par value 
Authorized  992,717 shares
Outstanding  992,717 shares
    
    
    38,060
    
    
    
    38,060Paid-in capital
    
    
    390,784
    
    
    
    364,852Premium on preferred stock
    
    
    12
    
    
    
    12Retained earnings
    
    
    160,547
    
    
    
    161,208Accumulated other comprehensive loss
    
    
    (2,724
    )
    
    
    (2,774
    )Total common stockholders equity
    
    
    586,679
    
    
    
    561,358Total Liabilities and Stockholders Equity
    
    $
    1,846,745
    
    
    $
    1,839,053
 The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements. 55




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GULF POWER COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Net Income After Dividends on Preferred Stock
    
    $
    16,839
    
    
    $
    13,972Other comprehensive income (loss):Less: Reclassification adjustment for amounts included in net
income, net of tax of $31
    
    
    50
    
    
    
    COMPREHENSIVE INCOME
    
    $
    16,889
    
    
    $
    13,972
 The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements. 56




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GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 2004 vs. FIRST QUARTER 2003 RESULTS OF OPERATIONS Earnings Gulf Powers net income after dividends on preferred stock for the first
quarter 2004 was $16.8 million compared to $14.0 million for the corresponding
period in 2003. First quarter 2004 net income increased by $2.8 million, or
21.0%, primarily due to higher operating revenues when compared to the same
period in 2003. Significant income statement items appropriate for discussion include the
following: Increase (Decrease)First Quarter(in thousands)
    
    %Retail sales
    
    $
    5,291
    
    
    
    3.3Sales for resale  affiliates
    
    
    10,478
    
    
    
    102.5Fuel expense
    
    
    15,149
    
    
    
    23.9Purchased power  affiliates
    
    
    (5,159
    )
    
    
    (41.0
    )Other operations expense
    
    
    3,008
    
    
    
    10.0Distributions on mandatorily redeemable
preferred securities
    
    
    (915
    )
    
    
    (45.1
    )
 Retail sales.Excluding the recovery of fuel expense and certain other
expenses that do not affect net income, retail sales increased by $4.1 million,
or 4.3%, for the first quarter 2004 when compared to the corresponding period
in 2003. Energy sales to residential, commercial and industrial customers were
higher by 5.2%, 3.6%, and 2.9%, respectively, in the first quarter 2004 as
compared to the same period in 2003. The increase in retail sales revenue
during the first quarter 2004 is primarily due to a 2.5% increase in customer
growth and favorable weather conditions when compared to the same period in
2003. Sales for resale  affiliates and Purchased power  affiliates. Revenues
from sales for resale to affiliates and purchases of energy by affiliates will
vary depending on demand and the availability and cost of generating resources
at each company within the Southern Company system. These transactions do not
have a significant impact on earnings since this energy is generally sold at
marginal cost and energy purchases are generally offset by energy revenues
through Gulf Powers fuel cost recovery mechanism. The increase in sales for
resale to affiliates is due to available generation being sold to affiliate
companies. The decrease in purchased power from affiliates is the result of a
decrease in the demand for purchased power due to increased self-generation. Fuel expense.In the first quarter 2004, fuel expense was higher than the
same period in 2003 due primarily to a 23.3% increase in generation to meet
additional demand for energy as well as a 4.8% increase in coal prices and a
1.3% increase in natural gas prices. Since energy expenses are generally
offset by energy revenues through Gulf Powers fuel cost recovery mechanism,
these expenses do not have a material impact on net income. 57




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GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Other operation expense. The increase in other operations expense during
the first quarter 2004 is due to a $1.0 million increase in marketing
expenses and a $1.3 million increase in employee benefit expenses when compared
to the same period in 2003. Distributions on mandatorily redeemable preferred securities.The
decrease in distributions on mandatorily redeemable preferred securities is
due to the redemption of $40 million of 7.625% trust preferred
securities during the first quarter 2003 and the redemption of $45 million of
7.000% trust preferred securities during the fourth quarter 2003. Future Earnings Potential The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors, including Gulf Powers ability to maintain a stable regulatory
environment, to achieve energy sales growth while containing costs, and to
recover costs related to growing demand and increasingly stricter environmental
standards. Growth in energy sales is subject to a number of factors, which
include weather, competition, new energy contracts with neighboring utilities,
energy conservation practiced by customers, the price of electricity, the price
elasticity of demand, and the rate of economic growth in the service area. For
additional information relating to these issues, see Item 1  Business  The
SOUTHERN System  Risk Factors and Item 7  Managements Discussion and
Analysis  Future Earnings Potential of Gulf Power in the Form 10-K. Environmental Matters Compliance costs related to the Clean Air Act and other environmental
regulations could affect earnings if such costs are not fully recovered through
Gulf Powers Environmental Cost Recovery Clause. See Managements Discussion
and Analysis  Future Earnings Potential  Environmental Matters in Item 7
of the Form 10-K and Note 3 to the financial statements of Gulf Power under
New Source Review Actions in Item 8 of the Form 10-K. As of March 15, 2004,
civil penalties under the Clean Air Act were increased prospectively to a
maximum of $32,500 per day, per violation. To the extent alleged violations
under the New Source Review litigation are deemed to be continuing, this
increased civil penalty amount could apply to such violations found to continue
after that date. On May 3, 2004, the U.S. Supreme Court denied the EPAs
petition to review the Eleventh Circuit Court of Appeals decision in the EPAs
similar New Source Review action against the TVA.
With the denial of the EPAs petition for review, the Court of Appeals
decision is now final. An adverse outcome of this matter could require
substantial capital expenditures that cannot be determined at this time and
could possibly require payment of substantial penalties. This could affect
future results of operations, cash flows, and possibly financial condition if
such costs are not recovered through regulated rates. Additionally, on April 15, 2004, the EPA announced proposed amendments to
its Regional Haze rules with respect to Best Available Retrofit Technology
(BART) guidelines and requirements. The impact of these regulations will depend
on the development and implementation of the final rules and implementation by
the states, and therefore cannot be determined at this time. 58




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GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION FERC Matters See Managements
Discussion and Analysis  Future Earnings Potential 
FERC Matters  Market-Based Rate Authority in Item 7 and Note 3 to the
financial statements of Gulf Power under FERC Matters in Item 8 of the Form
10-K. On April 14, 2004, the FERC issued an order that abandoned the SMA test
and adopted a new interim analysis for measuring generation market power. The
FERC also initiated a new rulemaking proceeding that, among other things, will
adopt a final methodology for assessing generation market power. See Note (B)
to the Condensed Financial Statements under FERC Matters herein for
additional information. Southern Company is filing a request for
rehearing of the FERCs order. The final outcome of this matter cannot be determined
at this time. See Item 7  Managements Discussion and Analysis  Future Earnings
Potential  FERC Matters of Gulf Power in the Form 10-K for information on the
FERCs order related to RTOs and notice of proposed rulemaking regarding open
access transmission service. Other Matters Gulf Power is subject to certain claims and legal actions arising in the
ordinary course of business. In addition, Gulf Powers business activities are
subject to extensive governmental regulation related to public health and the
environment. Litigation over environmental issues and claims of various types,
including property damage, personal injury and citizen enforcement of
environmental requirements, has increased generally throughout the United
States. In particular, personal injury claims for damages caused by alleged
exposure to hazardous materials have become more frequent. The ultimate
outcome of such litigation against Gulf Power cannot be predicted at this time;
however, management does not anticipate that the liabilities, if any, arising
from such current proceedings would have a material adverse effect on Gulf
Powers financial statements. See the Notes to the Condensed Financial Statements herein for discussion
of various contingencies and other matters which may affect future
earnings potential. ACCOUNTING POLICIES Application of Critical Accounting Policies and Estimates Gulf Power prepares its financial statements in accordance with accounting
principles generally accepted in the United States. Significant
accounting policies are described in Note 1 to the financial statements of Gulf Power in
Item 8 of the Form 10-K. In the application of these policies, certain
estimates are made that may have a material impact on Gulf Powers results of
operations and related disclosures. Different assumptions and measurements
could produce estimates that are significantly different from those recorded in
the financial statements. See Item 7  Managements
Discussion and Analysis 
Accounting Policies  Application of Critical Accounting Policies and Estimates of Gulf Power in
the Form 10-K for a complete discussion of Gulf Powers critical
accounting policies and estimates related to Electric Utility Regulation and Contingent
Obligations. 59




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GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION New Accounting Standards On March 31, 2004, Gulf Power prospectively adopted FASB Interpretation No.
46R, Consolidation of Variable Interest Entities, which requires the primary
beneficiary of a variable interest entity to consolidate the related assets and
liabilities. The adoption of Interpretation No. 46R had no impact on Gulf
Powers net income. However, as a result of the adoption, Gulf Power
deconsolidated certain wholly-owned trusts established to issue preferred
securities since Gulf Power does not meet the definition of primary beneficiary
established by Interpretation No. 46R. See Note (E) to the Condensed Financial
Statements herein for additional information related to the adoption of
Interpretation No. 46R. FINANCIAL CONDITION AND LIQUIDITY Overview Major changes in Gulf Powers financial condition during the first three months
of 2004 included the addition of approximately $33.1 million to utility plant.
The funds for these additions and other capital requirements were derived
primarily from operating activities. See Gulf Powers Condensed Statements of
Cash Flows herein for further details. Capital Requirements and Contractual Obligations Reference is made to Item 7  Managements Discussion and Analysis  Financial
Condition and Liquidity  Capital Requirements and Contractual Obligations of
Gulf Power in the Form 10-K for a description of Gulf Powers capital
requirements for its construction program, lease obligations, purchase
commitments and trust funding requirements. Sources of Capital In addition to the financing activities described herein, Gulf Power plans to
obtain the funds required for construction and other purposes from sources
similar to those used in the past. These sources include cash flows from
operating activities, issuances of unsecured debt and pollution control bonds
issued for Gulf Powers benefit by public authorities. The amount, type and
timing of any future financings  if needed  will depend upon market
conditions and regulatory approval. See Item 1  Business  Financing
Programs in the Form 10-K for additional information. To meet short-term cash needs and contingencies, Gulf Power has various
internal and external sources of liquidity. At March 31, 2004, Gulf Power had
approximately $2.3 million of cash and cash equivalents and $56 million of
unused committed lines of credit with banks that expire in 2004. Gulf Power
expects to renew its credit facilities, as needed, prior to expiration. In addition,
Gulf Power has substantial cash flow from operating activities. The credit
arrangements provide liquidity support to Gulf Powers obligations with respect
to variable rate pollution control bonds and commercial paper. Gulf Power may
also meet short-term cash needs through a Southern Company subsidiary organized
to issue and sell commercial paper and extendible commercial notes at the
request and for the benefit of Gulf Power and other Southern Company
subsidiaries. At March 31, 2004, Gulf Power had $18 million of commercial
paper outstanding. Management believes that the need for working capital can
be adequately met by utilizing lines of credit without maintaining large cash
balances. 60




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GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Credit Rating Risk Gulf Power does not have any credit agreements that would require material
changes in payment schedules or terminations as a result of a credit rating
downgrade. Market Price Risk Gulf Powers market risk exposures relative to interest rate changes have not
changed materially compared with the December 31, 2003 reporting period. In
addition, Gulf Power is not aware of any facts or circumstances that would
significantly affect such exposures in the near term. Due to cost-based rate regulations, Gulf Power has limited exposure to
market volatility in interest rates, commodity fuel prices and prices of
electricity. To mitigate residual risks relative to movements in electricity
prices, Gulf Power enters into fixed price contracts for purchase of coal
supplies, the purchase and sale of electricity through the wholesale
electricity market and, to a lesser extent, similar contracts for gas
purchases. Gulf Power has received approval from the Florida PSC to recover
prudently incurred costs related to its fuel hedging program through the fuel
cost recovery mechanism. The fair value of derivative energy contracts at
March 31, 2004 was as follows: First Quarter2004ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    2,504Contracts realized or settled
    
    
    (1,079
    )New contracts at inception
    
    
    Changes in valuation techniques
    
    
    Current period changes
    
    
    4,249Contracts at March 31, 2004
    
    $
    5,674
 Source of March 31, 2004Valuation PricesMaturityTotalFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    5,674
    
    
    $
    5,154
    
    
    $
    520External sources
    
    
    
    
    
    
    
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at March 31, 2004
    
    $
    5,674
    
    
    $
    5,154
    
    
    $
    520
 See
Item 7  Managements Discussion and Analysis 
Financial Condition and Liquidity  Market Price Risk of
Gulf Power in the Form 10-K and Notes 1 and 6 to the financial statements of
Gulf Power under Financial Instruments in Item 8 of the Form 10-K and Note
(G) to the Condensed Financial Statements herein for further information. 61




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GULF POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Financing Activities In April 2004, Gulf Power issued $35 million of Series J 5.875% Senior Notes
due April 1, 2044. The proceeds from this issue were used for general corporate
purposes, including Gulf Powers continuous construction program. Gulf Power plans to evaluate, and to the extent possible, retire
higher-cost securities and replace these obligations with lower-cost capital if
market conditions permit. 62




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MISSISSIPPI POWER COMPANY 63




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MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Operating Revenues:Retail sales
    
    $
    128,555
    
    
    $
    113,970Sales for resale Non-affiliates
    
    
    65,800
    
    
    
    70,425Affiliates
    
    
    11,809
    
    
    
    6,223Other revenues
    
    
    3,564
    
    
    
    3,268Total operating revenues
    
    
    209,728
    
    
    
    193,886Operating Expenses:Fuel
    
    
    76,525
    
    
    
    51,124Purchased power Non-affiliates
    
    
    6,955
    
    
    
    6,817Affiliates
    
    
    17,316
    
    
    
    20,332Other operations
    
    
    34,978
    
    
    
    35,163Maintenance
    
    
    15,072
    
    
    
    14,260Depreciation and amortization
    
    
    14,143
    
    
    
    13,073Taxes other than income taxes
    
    
    13,139
    
    
    
    13,367Total operating expenses
    
    
    178,128
    
    
    
    154,136Operating Income
    
    
    31,600
    
    
    
    39,750Other Income and (Expense):Interest expense
    
    
    (2,803
    )
    
    
    (3,770
    )Distributions on mandatorily redeemable preferred securities
    
    
    (630
    )
    
    
    (630
    )Other income (expense), net
    
    
    571
    
    
    
    12Total other income and (expense)
    
    
    (2,862
    )
    
    
    (4,388
    )Earnings Before Income Taxes
    
    
    28,738
    
    
    
    35,362Income taxes
    
    
    10,916
    
    
    
    13,463Net Income
    
    
    17,822
    
    
    
    21,899Dividends on Preferred Stock
    
    
    503
    
    
    
    503Net Income After Dividends on Preferred Stock
    
    $
    17,319
    
    
    $
    21,396
 The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial
statements. 64




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MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Operating Activities:Net income
    
    $
    17,822
    
    
    $
    21,899Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    15,247
    
    
    
    15,910Deferred income taxes and investment tax credits, net
    
    
    5,872
    
    
    
    (1,267
    )Pension, postretirement, and other employee benefits
    
    
    (272
    )
    
    
    250Tax benefit of stock options
    
    
    293
    
    
    
    606Other, net
    
    
    869
    
    
    
    (1,351
    )Changes in certain current assets and liabilities Receivables, net
    
    
    6,776
    
    
    
    26,326Fossil fuel stock
    
    
    4,732
    
    
    
    2,204Materials and supplies
    
    
    571
    
    
    
    (529
    )Other current assets
    
    
    (244
    )
    
    
    (4,940
    )Accounts payable
    
    
    (7,781
    )
    
    
    (21,039
    )Accrued taxes
    
    
    (28,379
    )
    
    
    (18,080
    )Accrued compensation
    
    
    (14,552
    )
    
    
    (17,686
    )Other current liabilities
    
    
    (11,883
    )
    
    
    (7,884
    )Net cash used for operating activities
    
    
    (10,929
    )
    
    
    (5,581
    )Investing Activities:Gross property additions
    
    
    (15,611
    )
    
    
    (11,806
    )Cost of removal net of salvage
    
    
    2,463
    
    
    
    (1,236
    )Other
    
    
    (1,651
    )
    
    
    1,532Net cash used for investing activities
    
    
    (14,799
    )
    
    
    (11,510
    )Financing Activities:Increase in notes payable, net
    
    
    34,939
    
    
    
    19,975Proceeds 
Senior notes
    
    
    40,000
    
    
    
    Redemptions First
mortgage bonds
    
    
    
    
    
    
    (33,350
    )Pollution control bonds
    
    
    
    
    
    
    (850
    )Senior notes
    
    
    (80,000
    )
    
    
    (73
    )Payment of preferred stock dividends
    
    
    (503
    )
    
    
    (503
    )Payment of common stock dividends
    
    
    (16,550
    )
    
    
    (16,500
    )Other
    
    
    
    
    
    
    (1,178
    )Net cash used for financing activities
    
    
    (22,114
    )
    
    
    (32,479
    )Net Change in Cash and Cash Equivalents
    
    
    (47,842
    )
    
    
    (49,570
    )Cash and Cash Equivalents at Beginning of Period
    
    
    69,120
    
    
    
    62,695Cash and Cash Equivalents at End of Period
    
    $
    21,278
    
    
    $
    13,125Supplemental Cash Flow Information:Cash paid during the period for Interest
    
    $
    2,468
    
    
    $
    2,612Income taxes (net of refunds)
    
    $
    1,615
    
    
    $
    (226
    )
 The accompanying notes as they relate to Mississippi Power are an integral part of these condensed
financial statements. 65




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MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED) At March 31,
    
    At December 31,Assets
    
    2004
    
    2003(in thousands)Current Assets:Cash and cash equivalents
    
    $
    21,278
    
    
    $
    69,120Receivables Customer accounts receivable
    
    
    27,103
    
    
    
    30,514Unbilled revenues
    
    
    16,853
    
    
    
    19,278Under recovered regulatory clause revenues
    
    
    13,581
    
    
    
    14,607Other accounts and notes receivable
    
    
    7,194
    
    
    
    8,088Affiliated companies
    
    
    12,693
    
    
    
    12,160Accumulated provision for uncollectible accounts
    
    
    (451
    )
    
    
    (897
    )Fossil fuel stock, at average cost
    
    
    20,501
    
    
    
    25,233Vacation pay
    
    
    5,766
    
    
    
    5,766Materials and supplies, at average cost
    
    
    23,099
    
    
    
    23,670Prepaid income taxes
    
    
    20,887
    
    
    
    27,415Prepaid expenses
    
    
    5,775
    
    
    
    4,517Other
    
    
    7,480
    
    
    
    2,857Total current assets
    
    
    181,759
    
    
    
    242,328Property, Plant, and Equipment:In service
    
    
    1,844,475
    
    
    
    1,841,668Less accumulated provision for depreciation
    
    
    676,236
    
    
    
    672,7301,168,239
    
    
    
    1,168,938Construction work in progress
    
    
    40,427
    
    
    
    25,844Total property, plant, and equipment
    
    
    1,208,666
    
    
    
    1,194,782Other Property and Investments
    
    
    3,847
    
    
    
    2,750Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    11,941
    
    
    
    12,125Prepaid pension costs
    
    
    18,375
    
    
    
    18,167Unamortized debt issuance expense
    
    
    6,912
    
    
    
    6,993Unamortized loss on reacquired debt
    
    
    10,000
    
    
    
    10,201Prepaid rent
    
    
    14,287
    
    
    
    14,758Other
    
    
    8,854
    
    
    
    16,280Total deferred charges and other assets
    
    
    70,369
    
    
    
    78,524Total Assets
    
    $
    1,464,641
    
    
    $
    1,518,384
 The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements. 66




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MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED) At March 31,
    
    At December 31,Liabilities and Stockholders Equity
    
    2004
    
    2003(in thousands)Current Liabilities:Securities due within one year
    
    $
    
    
    
    $
    80,000Notes payable
    
    
    34,939
    
    
    
    Accounts payable Affiliated
    
    
    26,113
    
    
    
    21,259Other
    
    
    44,302
    
    
    
    55,309Customer deposits
    
    
    8,215
    
    
    
    11,863Accrued taxes Income taxes
    
    
    945
    
    
    
    1,696Other
    
    
    13,241
    
    
    
    42,834Accrued interest
    
    
    3,466
    
    
    
    3,223Accrued vacation pay
    
    
    5,766
    
    
    
    5,766Accrued compensation
    
    
    9,287
    
    
    
    23,832Regulatory clauses over recovery
    
    
    26,439
    
    
    
    31,118Other
    
    
    6,874
    
    
    
    4,867Total current liabilities
    
    
    179,587
    
    
    
    281,767Long-term Debt
    
    
    242,491
    
    
    
    202,488Long-term Debt Payable to Affiliated Trusts
    
    
    36,082
    
    
    
    Mandatorily Redeemable Preferred Securities
    
    
    
    
    
    
    35,000Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    145,043
    
    
    
    142,088Deferred credits related to income taxes
    
    
    22,894
    
    
    
    23,279Accumulated deferred investment tax credits
    
    
    19,538
    
    
    
    19,841Employee benefit obligations
    
    
    53,704
    
    
    
    54,830Plant Daniel lease guarantee obligation, at fair value
    
    
    14,287
    
    
    
    14,758Plant Daniel capacity
    
    
    60,300
    
    
    
    60,300Other cost of removal obligations
    
    
    83,291
    
    
    
    80,588Miscellaneous regulatory liabilities
    
    
    15,511
    
    
    
    11,899Other
    
    
    27,319
    
    
    
    27,248Total deferred credits and other liabilities
    
    
    441,887
    
    
    
    434,831Total Liabilities
    
    
    900,047
    
    
    
    954,086Cumulative Preferred Stock
    
    
    31,809
    
    
    
    31,809Common Stockholders Equity:Common stock, without par value Authorized - 1,130,000 sharesOutstanding - 1,121,000 shares
    
    
    37,691
    
    
    
    37,691Paid-in capital
    
    
    292,807
    
    
    
    292,515Premium on preferred stock
    
    
    326
    
    
    
    326Retained earnings
    
    
    204,188
    
    
    
    203,419Accumulated other comprehensive loss
    
    
    (2,227
    )
    
    
    (1,462
    )Total common stockholders equity
    
    
    532,785
    
    
    
    532,489Total Liabilities and Stockholders Equity
    
    $
    1,464,641
    
    
    $
    1,518,384
 The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements. 67




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MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Net Income After Dividends on Preferred Stock
    
    $
    17,319
    
    
    $
    21,396Other comprehensive income (loss):Changes in fair value of qualifying hedges, net of tax
of $(474)
    
    
    (765
    )
    
    
    COMPREHENSIVE INCOME
    
    $
    16,554
    
    
    $
    21,396
 The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements. 68




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MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 2004 vs. FIRST QUARTER 2003 RESULTS OF OPERATIONS Earnings Mississippi Powers net income after dividends on preferred stock for the first
quarter 2004 was $17.3 million compared to $21.4 million for the corresponding
period of 2003. Earnings in the first quarter 2004 decreased by $4.1 million,
or 19%, primarily due to lower wholesale revenues as a result of the
termination of a contract with a subsidiary of Dynegy, Inc. in October 2003.
See Note 3 to the financial statements of Mississippi Power under Contract
Termination in Item 8 of the Form 10-K for additional information. Significant income statement items appropriate for discussion include the
following: Increase (Decrease)First Quarter(in thousands)
    
    %Retail sales
    
    
    14,585
    
    
    
    12.8Sales for resale  non-affiliates
    
    
    (4,625
    )
    
    
    (6.6
    )Sales for resale  affiliates
    
    
    5,586
    
    
    
    89.8Fuel expense
    
    
    25,401
    
    
    
    49.7Purchased power  affiliates
    
    
    (3,016
    )
    
    
    (14.8
    )Maintenance expense
    
    
    812
    
    
    
    5.7Depreciation and amortization
    
    
    1,070
    
    
    
    8.2Interest expense
    
    
    (967
    )
    
    
    (25.6
    )Income taxes
    
    
    (2,547
    )
    
    
    (18.9
    )
 Retail sales.Retail sales revenue for the first quarter 2004 increased
when compared to the same period in 2003 primarily as a result of a $13.6
million increase in fuel revenues, which generally do not have an effect on
income. Retail sales revenues, excluding fuel revenues, for the first quarter
2004 to residential, commercial and industrial customers increased 2.7%, 2.5%
and 2.3%, respectively, primarily as a result of economic growth in the service
area when compared to the same period in 2003. Sales for resale  non-affiliates.The decrease in sales for resale to
non-affiliates in the first quarter 2004 as compared to the same period in 2003
is primarily due to the termination of a contract with a subsidiary of Dynegy,
Inc. in October 2003. See Note 3 to the financial statements of Mississippi
Power under Contract Termination in Item 8 of the Form 10-K for additional
information. 69




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MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Sales for resale  affiliates and Purchased power  affiliates. Revenues
from sales for resale to affiliates, as well as purchases of energy from
affiliates will vary depending on demand and the availability and cost of
generating resources at each company within the Southern Company system. These
transactions do not have a significant impact on earnings since the energy is
generally sold at marginal cost and energy purchases are generally offset by
energy revenues through Mississippi Powers retail and wholesale fuel cost
recovery clauses. The increase in sales for resale to affiliates and the
decrease in purchased power from affiliates is a result of
Mississippi Powers more
economical generating costs when compared to others. Fuel expense.In the first quarter 2004, fuel expense increased when
compared to the same period in 2003 as a result of a 16.5% increase in
generation and a 57.6% increase in cost of oil and gas. Since energy expenses
are generally offset by energy revenues through Mississippi Powers retail and
wholesale fuel cost recovery clauses, these expenses do not have a significant
impact on earnings. Maintenance expense.The first quarter 2004 increase in maintenance
expense when compared to the same period in 2003 is a result of increased
generation by the combined cycle units at Plant Daniel. Maintenance expense for
the combined cycle units is based on fired operating hours which were 36.8%
higher in the first quarter 2004 when compared to the same period in 2003. Depreciation and amortization.The first quarter 2004 increase in
depreciation and amortization expense when compared to the same period in 2003
is primarily the result of a true-up in 2003 related to the Environmental
Compliance Overview (ECO) Plan. See Note 3 to Mississippi Powers financial
statements under Environmental Compliance Overview Plan in Item 8 of the Form
10-K for additional information. Interest expense.The decreased interest expense for the first quarter
2004 as compared to the same period in 2003 is a result of lower interest rates
on securities outstanding and a reduction in accrued interest expense related
to prior years income tax adjustments. See Item 7  Managements Discussion
and Analysis  Financial Condition and Liquidity  Financing Activities of
Mississippi Power in the Form 10-K and Financial Condition and Liquidity 
Financing Activities herein for further information on efforts to reduce
interest rates. Income taxes.The decrease in income taxes of $2.5 million, or 18.9%, is
a result of the $6.7 million reduction in pretax net income when compared to
the same period in 2003. Future Earnings Potential The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors including Mississippi Powers ability to maintain a stable regulatory
environment, to achieve energy sales growth while containing costs, and to
recover costs related to growing demand and increasingly stricter environmental
standards. Growth in energy sales is subject to a number of factors, which
include weather, competition, new energy contracts with neighboring utilities,
energy conservation practiced by customers, the price of electricity, the price
elasticity of demand, and the rate of economic growth in the service area.
For additional information relating to these issues, see Item 1  Business 
The SOUTHERN System  Risk Factors and Item 7  Managements Discussion and
Analysis  Future Earnings Potential of Mississippi Power in the Form 10-K. 70




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MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Environmental Matters Mississippi Powers 2004 ECO Plan filing was approved, as filed, by the
Mississippi PSC on March 15, 2004 and resulted in a slight decrease in rates
effective April 2004. Compliance costs related to the Clean Air Act and other
environmental regulations could affect earnings if such costs cannot continue
to be recovered. See Item 7  Managements Discussion and Analysis  Future
Earnings Potential  Environmental Matters and Note 3 to the financial
statements of Mississippi Power under New Source Review Actions in Item 8 of
the Form 10-K. As of March 15, 2004, civil penalties under the Clean Air Act
were increased prospectively to a maximum of $32,500 per day, per violation.
To the extent alleged violations under the New Source Review litigation are
deemed to be continuing, this increased civil penalty amount could apply to
such violations found to continue after that date. On May 3, 2004, the U.S.
Supreme Court denied the EPAs petition to review the Eleventh Circuit Court of
Appeals decision in the EPAs similar New Source Review action against the
TVA. With the denial of the EPAs petition for
review, the Court of Appeals decision is now final. An adverse outcome of
this matter could require substantial capital expenditures and could possibly
require substantial penalties. This could affect future results of operations,
cash flows, and possibly financial condition if such costs are not recovered
through regulated rates. Additionally, on April 15, 2004, the EPA announced proposed amendments to
its Regional Haze rules with respect to Best Available Retrofit Technology
(BART) guidelines and requirements. The impact of these regulations will depend
on the development and implementation of the final rules and implementation by
the states, and therefore cannot be determined at this time. FERC Matters See Item 7 
Managements Discussion and Analysis  Future Earnings Potential
 FERC Matters  Market-Based Rate Authority and Note 3 to the financial
statements of Mississippi Power under FERC Matters in Item 8 of the Form
10-K. On April 14, 2004, the FERC issued an order that abandoned the SMA test
and adopted a new interim analysis for measuring generation market power. The
FERC also initiated a new rulemaking proceeding that, among other things, will
adopt a final methodology for assessing generation market power. See Note (B)
to the Condensed Financial Statements under FERC Matters herein for
additional information. Southern Company is filing a request for
rehearing of the FERCs order. The
final outcome of this matter cannot be determined at this time. See Item 7  Managements Discussion and Analysis  Future Earnings
Potential  FERC Matters of Mississippi Power in the Form 10-K for information
on the FERCs order related to RTOs and the notice of proposed rulemaking
regarding open access transmission service. Other Matters See Note 3 to Mississippi
Powers financial statements under Retail Regulatory
Filing in Item 8 of the Form 10-K and Note (I) to the Condensed Financial
Statements herein for information on Mississippi Powers request to include 266
megawatts of Plant Daniel Units 3 and 4 generating capacity in jurisdictional
cost of service. The final outcome of this matter cannot now be determined. Mississippi Power is subject to certain claims and legal actions arising
in the ordinary course of business. In addition, Mississippi Powers business
activities are subject to extensive governmental regulation related to 71




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MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION public health and the environment. Litigation over environmental issues and
claims of various types, including property damage, personal injury and citizen
enforcement of environmental requirements, has increased generally throughout
the United States. In particular, personal injury claims for damages caused by
alleged exposure to hazardous materials have become more frequent. The
ultimate outcome of such litigation against Mississippi Power cannot be
predicted at this time; however, management does not anticipate that the
liabilities, if any, arising from any such current proceedings would have a
material adverse effect on Mississippi Powers financial statements. See the Notes to the Condensed Financial Statements herein for discussion
of various contingencies and other matters which may affect future
earnings potential. ACCOUNTING POLICIES Application of Critical Accounting Policies and Estimates Mississippi Power prepares its financial statements in accordance with
accounting principles generally accepted in the United States. Significant
accounting policies are described in Note 1 to the financial statements of
Mississippi Power in Item 8 of the Form 10-K. In the application of these
policies, certain estimates are made that may have a material impact on
Mississippi Powers results of operations and related disclosures. Different
assumptions and measurements could produce estimates that are significantly
different from those recorded in the financial statements. See
Item 7  Managements Discussion and Analysis 
Accounting Policies  Application of Critical
Accounting Policies and Estimates of the Form 10-K for a complete discussion
of Mississippi Powers critical accounting policies and estimates related to
Electric Utility Regulation, Contingent Obligations, Plant Daniel Capacity and
Plant Daniel Operating Lease. Also see Note (I) to the condensed financial
statements herein for additional information related to Mississippi Powers
request to include the additional Plant Daniel capacity in jurisdictional cost
of service. New Accounting Standards On March 31, 2004, Mississippi Power prospectively adopted FASB Interpretation
No. 46R, Consolidation of Variable Interest Entities, which requires the
primary beneficiary of a variable interest entity to consolidate the related
assets and liabilities. The adoption of Interpretation No. 46R had no impact
on Mississippi Powers net income. However, as a result of the adoption,
Mississippi Power deconsolidated certain wholly-owned trusts established to
issue preferred securities since Mississippi Power does not meet the definition
of primary beneficiary established by Interpretation No. 46R. See Note (E) to
the Condensed Financial Statements herein for additional information related to
the adoption of Interpretation No. 46R. Financial Condition and Liquidity Overview Major changes in Mississippi Powers financial condition during the first three
months of 2004 included the addition of approximately $15.6 million to utility
plant financed primarily from operating activities, a reduction in current
liabilities of $102.5 million and a $40.1 million increase in long-term debt as
a result of re-financing activities. See Mississippi Powers Condensed
Statements of Cash Flows and Financing Activities herein for further details. 72




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MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Capital Requirements and Contractual Obligations See Item 7  Managements Discussion and Analysis  Financial Condition and
Liquidity  Capital Requirements and Contractual Obligations of Mississippi
Power in the Form 10-K for a description of Mississippi Powers capital
requirements for its construction program, lease obligations, purchase
commitments and trust funding requirements. Sources of Capital In addition to the financing activities described herein, Mississippi Power
plans to obtain the funds required for construction and other purposes from
sources similar to those used in the past. The amount, type and timing of any
financings  if needed  will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. See Item
1  Business  Financing Programs in the Form 10-K for additional
information. To meet short-term cash needs and contingencies, Mississippi Power had at
March 31, 2004, approximately $21.3 million of cash and cash equivalents and
$100 million of unused committed credit arrangements with banks that expire in
2004. Approximately $37.5 million of these credit arrangements contain
provisions allowing two-year term loans executable at the expiration date.
Mississippi Power expects to renew its credit facilities, as needed, prior to
expiration. The credit arrangements provide liquidity support to Mississippi
Powers obligations with respect to variable rate pollution control bonds and
commercial paper. Mississippi Power may also meet short-term cash needs
through a Southern Company subsidiary organized to issue and sell commercial
paper and extendible commercial notes at the request and for the benefit of
Mississippi Power and other Southern Company subsidiaries. At March 31, 2004,
Mississippi Power had $34.9 million in outstanding notes payable. Management
believes that the need for working capital can be adequately met by utilizing
lines of credit without maintaining large cash balances. Off-Balance Sheet
Financing Arrangements See Item 7  Managements Discussion and Analysis  Financial Condition and
Liquidity  Off-Balance Sheet Financing Arrangements and Note 7 to the
financial statements of Mississippi Power under Operating Leases in Item 8 of
the Form 10-K for information related to Mississippi Powers lease of a
combined cycle generating facility at Plant Daniel. Credit Rating Risk Mississippi Power does not have any credit agreements that would require
material changes in payment schedules or terminations as a result of a credit
rating downgrade. Market Price Risk Mississippi Powers market risk exposures relative to interest rate changes
have not changed materially compared with the December 31, 2003 reporting
period. In addition, Mississippi Power is not aware of any facts or
circumstances that would significantly affect such exposures in the near term. 73




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MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Due to cost-based rate regulation, Mississippi Power has limited exposure
to market volatility in interest rates, commodity fuel prices and prices of
electricity. To mitigate residual risks relative to movements in electricity
prices, Mississippi Power enters into fixed price contracts for the purchase
and sale of electricity through the wholesale electricity market. Mississippi
Power has also implemented retail fuel hedging programs at the instruction of
its PSC and wholesale fuel hedging programs under agreements with wholesale
customers. The fair values of derivative, fuel and energy contracts at March
31, 2004 were as follows: First Quarter2004ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    2,470Contracts realized or settled
    
    
    (733
    )New contracts at inception
    
    
    Changes in valuation techniques
    
    
    Current period changes
    
    
    3,884Contracts at March 31, 2004
    
    $
    5,621
 Source of March 31, 2004Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    5,621
    
    
    $
    4,645
    
    
    $
    976External sources
    
    
    
    
    
    
    
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at March 31, 2004
    
    $
    5,621
    
    
    $
    4,645
    
    
    $
    976
 For additional information, see
Item 7  Managements Discussion and
Analysis  Financial Condition and Liquidity  Market Price Risk of
Mississippi Power in the Form 10-K and Notes 1 and 6 to the financial
statements under  Financial Instruments of Mississippi Power in Item 8 of the
Form 10-K and Note (G) to the Condensed Financial Statements herein. Financing Activities In March 2004, Mississippi Power issued $40 million of Series F Floating Rate
Senior Notes due March 9, 2009. The proceeds from this sale, along with other
monies of Mississippi Power were used to repay at maturity $80 million
aggregate principal amount of Mississippi Powers Series D Floating Rate Senior
Notes due March 12, 2004. 74




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MISSISSIPPI POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION In April 2004, Mississippi Power issued 1,200,000 Depositary Shares ($30
million aggregate stated capital) each representing one-fourth of a share of
5.25% Series Preferred Stock cumulative, par value $100 per share. The
proceeds from this sale were primarily used to redeem various issues of higher
cost preferred stock and the remainder was used for general corporate purposes. Mississippi Power plans to continue, to the extent possible, a program to
retire higher-cost securities and replace these securities with lower-cost
capital. 75




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SAVANNAH ELECTRIC
AND
POWER COMPANY 76




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SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Operating Revenues:Retail sales
    
    $
    68,023
    
    
    $
    63,546Sales for resale Non-affiliates
    
    
    1,410
    
    
    
    1,926Affiliates
    
    
    2,437
    
    
    
    2,324Other revenues
    
    
    965
    
    
    
    1,078Total operating revenues
    
    
    72,835
    
    
    
    68,874Operating Expenses:Fuel
    
    
    10,484
    
    
    
    11,425Purchased power Non-affiliates
    
    
    2,342
    
    
    
    1,904Affiliates
    
    
    22,130
    
    
    
    19,013Other operations
    
    
    14,101
    
    
    
    13,099Maintenance
    
    
    6,431
    
    
    
    5,910Depreciation and amortization
    
    
    5,204
    
    
    
    5,061Taxes other than income taxes
    
    
    3,597
    
    
    
    3,447Total operating expenses
    
    
    64,289
    
    
    
    59,859Operating Income
    
    
    8,546
    
    
    
    9,015Other Income and (Expense):Interest expense, net of amounts capitalized
    
    
    (3,144
    )
    
    
    (2,621
    )Distributions on mandatorily redeemable preferred securities
    
    
    (109
    )
    
    
    (685
    )Other income (expense), net
    
    
    (347
    )
    
    
    (209
    )Total other income and (expense)
    
    
    (3,600
    )
    
    
    (3,515
    )Earnings Before Income Taxes
    
    
    4,946
    
    
    
    5,500Income taxes
    
    
    1,798
    
    
    
    1,991Net Income
    
    $
    3,148
    
    
    $
    3,509
 The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial
statements. 77




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SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Operating Activities:Net income
    
    $
    3,148
    
    
    $
    3,509Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    5,739
    
    
    
    5,582Deferred income taxes and investment tax credits, net
    
    
    1,516
    
    
    
    (439
    )Pension, postretirement, and other employee benefits
    
    
    1,713
    
    
    
    1,670Tax benefit of stock options
    
    
    263
    
    
    
    101Other, net
    
    
    2,479
    
    
    
    2,143Changes in certain current assets and liabilities Receivables, net
    
    
    5,420
    
    
    
    5,284Fossil fuel stock
    
    
    122
    
    
    
    (1,620
    )Materials and supplies
    
    
    (967
    )
    
    
    16Other current assets
    
    
    (2,193
    )
    
    
    (65
    )Accounts payable
    
    
    (2,275
    )
    
    
    (5,911
    )Accrued taxes
    
    
    790
    
    
    
    (46
    )Accrued compensation
    
    
    (3,129
    )
    
    
    (4,107
    )Other current liabilities
    
    
    1,017
    
    
    
    3,112Net cash provided from operating activities
    
    
    13,643
    
    
    
    9,229Investing Activities:Gross property additions
    
    
    (11,743
    )
    
    
    (10,798
    )Other
    
    
    (796
    )
    
    
    3,342Net cash used for investing activities
    
    
    (12,539
    )
    
    
    (7,456
    )Financing Activities:Increase (decrease) in notes payable, net
    
    
    6,695
    
    
    
    (2,897
    )Proceeds Pollution control bonds
    
    
    
    
    
    
    13,870Capital contributions from parent company
    
    
    
    
    
    
    5,000Redemptions Pollution control bonds
    
    
    
    
    
    
    (13,870
    )Other long-term debt
    
    
    281
    
    
    
    (225
    )Mandatorily redeemable preferred securities
    
    
    (40,000
    )
    
    
    Payment of common stock dividends
    
    
    (5,800
    )
    
    
    (5,750
    )Other
    
    
    1,105
    
    
    
    (71
    )Net cash used for financing activities
    
    
    (37,719
    )
    
    
    (3,943
    )Net Change in Cash and Cash Equivalents
    
    
    (36,615
    )
    
    
    (2,170
    )Cash and Cash Equivalents at Beginning of Period
    
    
    37,943
    
    
    
    3,978Cash and Cash Equivalents at End of Period
    
    $
    1,328
    
    
    $
    1,808Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $95 and $27 capitalized for 2004 and 2003, respectively)
    
    $
    1,392
    
    
    $
    1,724Income taxes (net of refunds)
    
    $
    774
    
    
    $
    
 The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial
statements. 78




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SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED) At March 31,
    
    At December 31,Assets
    
    2004
    
    2003(in thousands)Current Assets:Cash and cash equivalents
    
    $
    1,328
    
    
    $
    37,943Receivables Customer accounts receivable
    
    
    17,687
    
    
    
    19,674Unbilled revenues
    
    
    10,452
    
    
    
    11,288Other accounts and notes receivable
    
    
    1,073
    
    
    
    1,138Affiliated companies
    
    
    2,464
    
    
    
    4,872Accumulated provision for uncollectible accounts
    
    
    (765
    )
    
    
    (641
    )Fossil fuel stock, at average cost
    
    
    8,530
    
    
    
    8,652Materials and supplies, at average cost
    
    
    10,038
    
    
    
    9,070Prepaid income taxes
    
    
    24,982
    
    
    
    24,419Prepaid expenses
    
    
    2,061
    
    
    
    1,377Other
    
    
    2,131
    
    
    
    623Total current assets
    
    
    79,981
    
    
    
    118,415Property, Plant, and Equipment:In service
    
    
    916,068
    
    
    
    912,504Less accumulated provision for depreciation
    
    
    407,060
    
    
    
    402,394509,008
    
    
    
    510,110Construction work in progress
    
    
    22,517
    
    
    
    14,121Total property, plant, and equipment
    
    
    531,525
    
    
    
    524,231Other Property and Investments
    
    
    2,265
    
    
    
    2,248Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    9,462
    
    
    
    9,611Cash surrender value of life insurance for
deferred compensation plans
    
    
    23,969
    
    
    
    23,866Unamortized debt issuance expense
    
    
    4,481
    
    
    
    5,652Unamortized loss on reacquired debt
    
    
    8,479
    
    
    
    7,488Other
    
    
    17,499
    
    
    
    18,410Total deferred charges and other assets
    
    
    63,890
    
    
    
    65,027Total Assets
    
    $
    677,661
    
    
    $
    709,921
 The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial
statements. 79




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SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED) At March 31,
    
    At December 31,Liabilities and Stockholder's Equity
    
    2004
    
    2003(in thousands)Current Liabilities:Securities due within one year
    
    $
    958
    
    
    $
    40,910Notes payable
    
    
    6,695
    
    
    
    Accounts payable Affiliated
    
    
    10,751
    
    
    
    13,797Other
    
    
    14,015
    
    
    
    13,147Customer deposits
    
    
    7,012
    
    
    
    6,922Accrued taxes Income taxes
    
    
    521
    
    
    
    1,172Other
    
    
    2,913
    
    
    
    1,473Accrued
interest
    
    
    4,222
    
    
    
    2,802Accrued vacation pay
    
    
    2,547
    
    
    
    2,530Accrued compensation
    
    
    2,523
    
    
    
    5,652Other
    
    
    4,609
    
    
    
    5,107Total current liabilities
    
    
    56,766
    
    
    
    93,512Long-term Debt
    
    
    222,725
    
    
    
    222,493Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    85,911
    
    
    
    83,852Deferred credits related to income taxes
    
    
    9,550
    
    
    
    9,804Accumulated deferred investment tax credits
    
    
    8,459
    
    
    
    8,625Employee benefit obligations
    
    
    41,546
    
    
    
    39,833Other cost of removal obligations
    
    
    37,907
    
    
    
    36,843Miscellaneous regulatory liabilities
    
    
    13,968
    
    
    
    12,932Other
    
    
    16,935
    
    
    
    15,735Total deferred credits and other liabilities
    
    
    214,276
    
    
    
    207,624Total Liabilities
    
    
    493,767
    
    
    
    523,629Common 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
    
    
    24,680
    
    
    
    24,417Retained earnings
    
    
    107,204
    
    
    
    109,856Accumulated other comprehensive loss
    
    
    (2,213
    )
    
    
    (2,204
    )Total common stockholders equity
    
    
    183,894
    
    
    
    186,292Total Liabilities and Stockholders Equity
    
    $
    677,661
    
    
    $
    709,921
 The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial
statements. 80




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SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Net Income After Dividends on Preferred Stock
    
    $
    3,148
    
    
    $
    3,509Other comprehensive income (loss):Changes in fair value of qualifying hedges, net of tax
of $(20)
    
    
    (33
    )
    
    
    Less: Reclassification adjustment for amounts included in net
income, net of tax of $15
    
    
    24
    
    
    
    COMPREHENSIVE INCOME
    
    $
    3,139
    
    
    $
    3,509
 The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial statements. 81




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SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 2004 vs. FIRST QUARTER 2003 RESULTS OF OPERATIONS Earnings Savannah Electrics net income for the first quarter 2004 was $3.1 million
compared to $3.5 million for the corresponding period of 2003. Earnings
decreased by $0.4 million, or 10.3%, in the first quarter 2004, primarily due
to higher operating expenses, partially offset by higher operating revenues. Significant income statement items appropriate for discussion include the
following: Increase (Decrease)First Quarter(in thousands)
    
    %Retail sales
    
    
    4,477
    
    
    
    7.0Sales for resale  non-affiliates
    
    
    (516
    )
    
    
    (26.8
    )Fuel expense
    
    
    (941
    )
    
    
    (8.2
    )Purchased
power  non-affiliates
    
    
    438
    
    
    
    23.0Purchased
power  affiliates
    
    
    3,117
    
    
    
    16.4Other operation expense
    
    
    1,002
    
    
    
    7.6Maintenance expense
    
    
    521
    
    
    
    8.8
 Retail sales. Excluding fuel revenues, which do not affect net income,
retail sales revenue increased by $2.0 million, or 5.2%, in the first quarter
2004 when compared to the corresponding period in 2003. The first quarter 2004
increase in retail sales revenue is mainly attributed to a 3.4% increase in
retail kilowatt-hour energy sales. Energy sales to residential and commercial
customers were higher by 16.4% and 1.9%, respectively, mainly due to colder
weather and growth in the number of customers when compared to the same period
in 2003. Energy sales to industrial customers were lower by 16.6% in the first
quarter 2004 compared to the first quarter 2003 primarily due to the
installation of a cogeneration facility by one customer. Sales for resale  non-affiliates.In the first quarter 2004, revenues
from sales for resale to non-affiliates is lower primarily due to fluctuations
in off-system sale transactions that were generally offset by corresponding
purchase transactions. These transactions had no significant effect on net
income. Fuel expense.Fuel expense decreased in the first quarter 2004 primarily
as a result of certain billing credits relating to the Plant McIntosh
combustion turbines. Since fuel expenses are generally offset by fuel revenues
through Savannah Electrics fuel cost recovery clause, these expenses do not
have a significant impact on net income. Purchased power  non-affiliates.In the first quarter 2004, the increase
in purchased power from non-affiliates resulted from purchases used to meet a
103.1% increase in demand for energy from non-affiliates offset somewhat by a
lower cost per kilowatt-hour. These transactions do not have a significant
impact on earnings, as energy costs are generally recovered through Savannah
Electrics fuel cost recovery clause. 82




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SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Purchased power  affiliates. Purchased power from affiliates increased
in the first quarter 2004 as compared to the same period in the prior year
partially as the result of an accounting order approved by the Georgia PSC in
December 2002 which allows Savannah Electric to write-down a portion of the
approximately $3.8 million annual deferral in Plant Wansley purchased power
costs, which the Georgia PSC had ruled to be outside the test period in
Savannah Electrics base rate order. See Note 3 to the financial statements of
Savannah Electric under Retail Regulatory Matters in Item 8 of the Form 10-K
for additional information. The net impact of these transactions compared to
the prior year was a $0.3 million increase to expense. Purchased power from
affiliates also includes energy purchases which will vary depending on demand
and cost of generation resources at each company and higher energy costs.
These energy costs are recovered through the fuel cost recovery clause and have
no significant impact on earnings. Other operation expense. The increase for the first quarter 2004 as
compared to the same period in the prior year in other operation expense is
attributed to an increase in administrative and general expenses primarily
relating to accounting and auditing services, employee benefits expenses and
regulatory expenses. Maintenance expense.The increase in the first quarter 2004 as compared
to the same period in the prior year is mainly due to scheduled generating
plant maintenance and an increase in maintenance on distribution facilities. Future Earnings Potential The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors including Savannah Electrics ability to maintain a stable regulatory
environment, to achieve energy sales growth while containing costs, and to
recover costs related to growing demand and increasingly stricter environmental
standards. Growth in energy sales is subject to a number of factors, which
include weather, competition, new energy contracts with neighboring utilities,
energy conservation practiced by customers, the price of electricity, the price
elasticity of demand, and the rate of economic growth in the service area. For
additional information relating to these issues, see Item 1
 Business  The
SOUTHERN System  Risk Factors and Item 7  Managements Discussion and
Analysis  Future Earnings Potential of Savannah Electric in the Form 10-K. Environmental Matters Compliance costs related to the Clean Air Act and other environmental
regulations could affect earnings if such costs cannot be recovered. See
Managements Discussion and Analysis  Future
Earnings Potential 
Environmental Matters in Item 7 of the Form 10-K and Note 3 to the financial
statements of Savannah Electric under New Source Review Actions in Item 8 of
the Form 10-K. As of March 15, 2004, civil penalties under the Clean Air Act
were increased prospectively to a maximum of $32,500 per day, per violation.
To the extent alleged violations under the New Source Review litigation are
deemed to be continuing, this increased civil penalty amount could apply to
such violations found to continue after that date. On May 3, 2004, the U.S.
Supreme Court denied the EPAs petition to review the Eleventh Circuit Court of
Appeals decision in the EPAs similar New Source Review action against the
TVA. The case against Savannah Electric has been
effectively stayed pending final resolution of the TVA appeal. With the denial
of the EPAs petition for review, the Court of Appeals decision is now final. An
adverse outcome 83




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SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION in this case could require substantial capital expenditures that cannot be
determined at this time and could possibly require payment of substantial
penalties. This could affect future results of operations, cash flows, and
possibly financial condition if such costs are not recovered through regulated
rates. On April 21, 2004, the EPA published the final regional nitrogen oxide
reduction rules applicable to the State of Georgia. These rules specify that
Georgia must submit a revised state implementation plan by April 2005, and
affected sources must comply with the reduction requirements by May 1, 2007.
The impact of these regulations will depend on the development and approval of
Georgias state implementation plan and cannot be determined at this time.
Additionally, on April 15, 2004, the EPA announced proposed amendments to its
Regional Haze rules with respect to Best Available Retrofit Technology (BART)
guidelines and requirements. The impact of these regulations will depend on
the development and implementation of the final rules and implementation by the
states, and therefore cannot be determined at this time. FERC Matters See Managements
Discussion and Analysis  Future Earnings Potential  FERC
Matters  Market-Based Rate Authority in Item 7 and Note 3 to the financial
statements of Savannah Electric under FERC Matters in Item 8 of the Form
10-K. On April 14, 2004, the FERC issued an order that abandoned the SMA test
and adopted a new interim analysis for measuring generation market power. The
FERC also initiated a new rulemaking proceeding that, among other things, will
adopt a final methodology for assessing generation market power. See Note (B)
to the Condensed Financial Statements under FERC Matters herein for
additional information. Southern Company is filing a request for
rehearing of the FERCs order. The final outcome of this matter cannot be determined
at this time. See to Item 7  Managements Discussion and Analysis  Future Earnings
Potential  FERC Matters of Savannah Electric in the Form 10-K for
information on plans to retire a 102 megawatt peaking facility in May 2005 and
a fifteen-year PPA with Southern Power to purchase 200 megawatts of capacity
beginning in June 2005 from the planned combined-cycle plant at Plant McIntosh
to be built and owned by Southern Power. The annual capacity cost is expected
to be approximately $15 million. See Note (C) to the Condensed Financial
Statements herein for information regarding the FERC approval process for this
PPA. See Item 7  Managements Discussion and Analysis  Future Earnings
Potential  FERC Matters of Savannah Electric in the Form
10-K for information on the FERCs order related to RTOs and the FERCs notice
of proposed rulemaking regarding open access transmission service. Other Matters Savannah Electric is subject to certain claims and legal actions arising in the
ordinary course of business. In addition, Savannah Electrics business
activities are subject to extensive governmental regulation related to public
health and the environment. Litigation over environmental issues and claims of
various types, including property damage, personal injury and citizen
enforcement of environmental requirements, has increased generally throughout
the United States. In particular, personal injury claims for damages caused by
alleged exposure to hazardous materials have become more frequent. The
ultimate outcome of such litigation against Savannah Electric cannot be
predicted at this time; however, management does not anticipate that the
liabilities, if any, arising from such current proceedings would have a
material adverse effect on Savannah Electrics financial statements. 84




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SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Savannah Electric anticipates filing a base rate case in late 2004. See
the Notes to the Condensed Financial Statements herein for discussion of
various contingencies and other matters which may affect future earnings potential. ACCOUNTING POLICIES Application of Critical Accounting Policies and Estimates Savannah Electric prepares its financial statements in accordance with
accounting principles generally accepted in the United States. Significant
accounting policies are described in Note 1 to the financial statements of
Savannah Electric in Item 8 of the Form 10-K. In the application of these
policies, certain estimates are made that may have a material impact on
Savannah Electrics results of operations and related disclosures. Different
assumptions and measurements could produce estimates that are significantly
different from those recorded in
the financial statements. See Item 7  Managements
Discussion and Analysis 
Accounting Policies  Application of Critical Accounting Policies and Estimates of Savannah
Electric in the Form 10-K for a complete discussion of Savannah Electrics
critical accounting policies and estimates related to Electric Utility
Regulation and Contingent Obligations. New Accounting Standards On March 31, 2004, Savannah Electric prospectively adopted FASB Interpretation
No. 46R, Consolidation of Variable Interest Entities, which requires the
primary beneficiary of a variable interest entity to consolidate the related
assets and liabilities. See Note 6 to the financial statements of Savannah
Electric under Mandatorily Redeemable Preferred Securities in Item 8 of the
Form 10-K regarding Savannah Electrics redemption of all outstanding preferred securities
in January 2004 and the dissolution of the issuing trust. Therefore, the adoption of
Interpretation No. 46R had no impact on Savannah Electrics financial
statements. FINANCIAL CONDITION AND LIQUIDITY Overview Major changes in Savannah Electrics financial condition during the first three
months of 2004 included the addition of approximately $11.7 million to utility
plant. The funds for these additions and other capital requirements were
derived primarily from operating activities and short-term debt. See Savannah
Electrics Condensed Statements of Cash Flows herein for further details. Capital Requirements and Contractual Obligations Reference is made to
Item 7  Managements Discussion and Analysis  Financial Condition and Liquidity of Savannah
Electric under Capital Requirements and Contractual Obligations, in the Form
10-K for a description of Savannah Electrics capital requirements for its
construction program, lease obligations, purchase commitments and trust funding
requirements. 85




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SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Sources of Capital Savannah Electric plans to obtain the funds required for construction and other
purposes from sources similar to those used in the past including both internal
and external funds. The amount, type and timing of any future financings  if
needed  will depend upon market conditions and regulatory approval. See Item
1  Business  Financing Programs in the Form 10-K for additional
information. To meet short-term cash needs and contingencies, Savannah Electric had at
March 31, 2004 approximately $1.3 million of cash and cash equivalents and $60
million of unused committed credit arrangements with banks, of which $40
million expires in 2004, $10 million expires in 2005 and $10 million expires in
2006 and beyond. Of the unused credit arrangements expiring in 2004 and 2005,
$40 million include two year term loan options executable at the expiration
date. The credit arrangements provide liquidity support to some of
Savannah Electrics obligations with respect to its variable rate debt and its
commercial paper. Savannah Electric expects to renew its credit facilities, as
needed, prior to expiration. Savannah Electric may also meet short-term cash
needs through a Southern Company subsidiary organized to issue and sell
commercial paper and extendible commercial notes at the request and for the
benefit of Savannah Electric and other Southern Company subsidiaries. At March
31, 2004, Savannah Electric had $6.7 million of outstanding commercial paper.
Since Savannah Electric has no major generating plants under construction,
management believes that the need for working capital can be adequately met by
utilizing lines of credit. Credit Rating Risk Savannah Electric does not have any credit agreements that would require
material changes in payment schedules or terminations as a result of a credit
rating downgrade. Market Price Risk Savannah Electrics market risk exposures relative to interest rate changes
have not changed materially compared with the December 31, 2003 reporting
period. In addition, Savannah Electric is not aware of any facts or
circumstances that would significantly affect such exposures in the near term. Due to cost-based rate regulations, Savannah Electric has limited exposure
to market volatility in interest rates, commodity fuel prices and prices of
electricity. To mitigate residual risks relative to movements in electricity
prices, Savannah Electric enters into fixed price contracts for the purchase
and sale of electricity through the wholesale electricity market and, to a
lesser extent, similar contracts for gas and oil purchases. Savannah Electric
has also implemented a retail fuel hedging program at the instruction of the
Georgia PSC. 86




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SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION The fair value of derivative energy contracts at March 31, 2004
was as follows: First Quarter2004ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    463Contracts realized or settled
    
    
    (1
    )New contracts at inception
    
    
    Changes in valuation techniques
    
    
    Current period changes
    
    
    1,497Contracts at March 31, 2004
    
    $
    1,959
 Source of March 31, 2004Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    1,959
    
    
    $
    1,757
    
    
    $
    202External sources
    
    
    
    
    
    
    
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at March 31, 2004
    
    $
    1,959
    
    
    $
    1,757
    
    
    $
    202
 For additional information, see Item 7  Managements Discussion and
Analysis  Financial Condition and Liquidity  Market Price Risk of Savannah Electric and Notes 1 and 6 to the
financial statements of Savannah Electric under Financial Instruments in Item
8 of the Form 10-K and Note (G) to the Condensed Financial Statements herein. Financing Activities Savannah Electric plans to evaluate, and to the extent possible, retire
higher-cost debt and replace these securities with lower-cost capital. 87




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SOUTHERN POWER COMPANY 88




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SOUTHERN POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Operating Revenues:Sales for
resale Non-affiliates
    
    $
    86,699
    
    
    $
    50,269Affiliates
    
    
    86,795
    
    
    
    55,290Other revenues
    
    
    2,111
    
    
    
    1,880Total Operating Revenues
    
    
    175,605
    
    
    
    107,439Operating Expenses:Fuel
    
    
    30,335
    
    
    
    20,038Purchased
power Non-affiliates
    
    
    13,605
    
    
    
    15,323Affiliates
    
    
    42,056
    
    
    
    17,932Other operations
    
    
    14,725
    
    
    
    5,908Maintenance
    
    
    3,012
    
    
    
    2,177Depreciation and amortization
    
    
    12,778
    
    
    
    6,544Taxes other than income taxes
    
    
    2,679
    
    
    
    1,300Total operating expenses
    
    
    119,190
    
    
    
    69,222Operating Income
    
    
    56,415
    
    
    
    38,217Other Income and (Expense):Interest expense, net of amounts capitalized
    
    
    (12,586
    )
    
    
    (1,399
    )Other income (expense), net
    
    
    493
    
    
    
    303Total other income and (expense)
    
    
    (12,093
    )
    
    
    (1,096
    )Earnings Before Income Taxes
    
    
    44,322
    
    
    
    37,121Income taxes
    
    
    17,137
    
    
    
    14,363Earnings Before Cumulative Effect of
Accounting Change
    
    
    27,185
    
    
    
    22,758Cumulative effect of accounting change 
less income taxes of $231 thousand
    
    
    
    
    
    
    367Net Income
    
    $
    27,185
    
    
    $
    23,125
 The accompanying notes as they relate to Southern Power are an integral part of these condensed
financial statements. 89




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SOUTHERN POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Operating Activities:Net income
    
    $
    27,185
    
    
    $
    23,125Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    15,267
    
    
    
    6,544Deferred income taxes and investment tax credits, net
    
    
    16,525
    
    
    
    9,062Deferred capacity revenues
    
    
    (19,235
    )
    
    
    (12,392
    )Tax benefit of stock options
    
    
    109
    
    
    
    41Other, net
    
    
    (4,957
    )
    
    
    844Changes in certain current assets and liabilities Receivables, net
    
    
    (9,435
    )
    
    
    (1,857
    )Fossil fuel stock
    
    
    2,867
    
    
    
    7,917Materials and supplies
    
    
    (508
    )
    
    
    (79
    )Other current assets
    
    
    (161
    )
    
    
    (1,544
    )Accounts payable
    
    
    (9,961
    )
    
    
    (10,629
    )Accrued taxes
    
    
    2,884
    
    
    
    1,764Accrued interest
    
    
    (16,166
    )
    
    
    (12,618
    )Net cash provided from operating activities
    
    
    4,414
    
    
    
    10,178Investing Activities:Gross property additions
    
    
    (68,779
    )
    
    
    (103,974
    )Change in construction payables, net
    
    
    (6,589
    )
    
    
    (8,042
    )Other
    
    
    185
    
    
    
    239Net cash used for investing activities
    
    
    (75,183
    )
    
    
    (111,777
    )Financing Activities:Increase (decrease) in notes payable, net  affiliated
    
    
    67,411
    
    
    
    11,950Increase (decrease) in notes payable, net
    
    
    94
    
    
    
    446,485Proceeds 
Capital contributions from parent company
    
    
    
    
    
    
    113Redemptions 
Other long-term debt
    
    
    
    
    
    
    (373,979
    )Other
    
    
    933
    
    
    
    234Net cash provided from financing activities
    
    
    68,438
    
    
    
    84,803Net Change in Cash and Cash Equivalents
    
    
    (2,331
    )
    
    
    (16,796
    )Cash and Cash Equivalents at Beginning of Period
    
    
    2,798
    
    
    
    19,474Cash and Cash Equivalents at End of Period
    
    $
    467
    
    
    $
    2,678Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $8,739 and $13,526 capitalized for
2004 and 2003, respectively)
    
    $
    25,114
    
    
    $
    12,767Income taxes (net of refunds)
    
    $
    1,684
    
    
    $
    4,018
 The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements. 90




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SOUTHERN POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED) At March 31,
    
    At December 31,Assets
    
    2004
    
    2003(in thousands)Current Assets:Cash and cash equivalents
    
    $
    467
    
    
    $
    2,798Receivables Customer accounts receivable
    
    
    10,501
    
    
    
    10,772Affiliated companies
    
    
    23,506
    
    
    
    14,130Accumulated provision for uncollectible accounts
    
    
    (350
    )
    
    
    (350
    )Other accounts receivable
    
    
    600
    
    
    
    270Fossil fuel stock, at average cost
    
    
    2,931
    
    
    
    5,798Materials and supplies, at average cost
    
    
    8,632
    
    
    
    8,123Prepaid income taxes
    
    
    12,432
    
    
    
    11,222Prepaid expenses
    
    
    1,478
    
    
    
    2,528Other
    
    
    534
    
    
    
    1,174Total current assets
    
    
    60,731
    
    
    
    56,465Property, Plant, and Equipment:In service
    
    
    1,830,846
    
    
    
    1,831,139Less accumulated provision for depreciation
    
    
    72,810
    
    
    
    60,0051,758,036
    
    
    
    1,771,134Construction work in progress
    
    
    573,169
    
    
    
    504,097Total property, plant, and equipment
    
    
    2,331,205
    
    
    
    2,275,231Deferred Charges and Other Assets:Unamortized debt issuance expense
    
    
    17,433
    
    
    
    18,315Accumulated deferred income taxes
    
    
    4,921
    
    
    
    21,911Prepaid maintenance expenses
    
    
    24,224
    
    
    
    21,728Prepaid transmission expenses  affiliated
    
    
    13,690
    
    
    
    12,790Other
    
    
    2,885
    
    
    
    2,845Total deferred charges and other assets
    
    
    63,153
    
    
    
    77,589Total Assets
    
    $
    2,455,089
    
    
    $
    2,409,285
 The accompanying notes as they relate to Southern Power are an integral part of these condensed financial
statements. 91




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SOUTHERN POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED) At March 31,
    
    At December 31,Liabilities and Stockholders Equity
    
    2004
    
    2003(in thousands)Current Liabilities:Securities due within one year
    
    $
    200
    
    
    $
    200Notes payable
    
    
    114,339
    
    
    
    114,347Notes payable to parent
    
    
    67,411
    
    
    
    Accounts payable Affiliated
    
    
    35,335
    
    
    
    51,442Other
    
    
    6,149
    
    
    
    6,591Accrued taxes other than income taxes
    
    
    4,173
    
    
    
    1,289Accrued interest
    
    
    13,846
    
    
    
    30,012Other
    
    
    717
    
    
    
    489Total current liabilities
    
    
    242,170
    
    
    
    204,370Long-term Debt
    
    
    1,149,266
    
    
    
    1,149,112Deferred Credits and Other Liabilities:Deferred capacity revenuesAffiliated
    
    
    9,727
    
    
    
    28,799Other
    
    
    91
    
    
    
    256OtherAffiliated
    
    
    14,281
    
    
    
    15,061Other
    
    
    143
    
    
    
    211Total deferred credits and other liabilities
    
    
    24,242
    
    
    
    44,327Total Liabilities
    
    
    1,415,678
    
    
    
    1,397,809Common Stockholders Equity:Common
stock, par value $.01 per share Authorized - 1,000,000
sharesOutstanding - 1,000 sharesPaid-in capital
    
    
    850,421
    
    
    
    850,312Retained earnings
    
    
    244,811
    
    
    
    217,626Accumulated other comprehensive loss
    
    
    (55,821
    )
    
    
    (56,462
    )Total common stockholders equity
    
    
    1,039,411
    
    
    
    1,011,476Total Liabilities and Stockholders Equity
    
    $
    2,455,089
    
    
    $
    2,409,285
 The accompanying notes as they relate to Southern Power are an integral part of these condensed financial
statements. 92




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SOUTHERN POWER COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three MonthsEnded March 31,2004
    
    2003(in thousands)Net Income After Dividends on Preferred Stock
    
    $
    27,185
    
    
    $
    23,125Other comprehensive income (loss):Changes in fair value of qualifying hedges, net of tax
of $(522) and $(2,400), respectively
    
    
    (928
    )
    
    
    (3,833
    )Less: Reclassification adjustment for amounts included in net
income, net of tax of $987 and $166, respectively
    
    
    1,569
    
    
    
    264COMPREHENSIVE INCOME
    
    $
    27,826
    
    
    $
    19,556
 The accompanying notes as they relate to Southern Power are an integral part of these condensed financial
statements. 93




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SOUTHERN POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 2004 vs. FIRST QUARTER 2003 RESULTS OF OPERATIONS Earnings Southern Powers net income for first quarter 2004 was $27.2 million compared
to $23.1 million for the corresponding period of 2003. The increase in first
quarter 2004 earnings of $4.1 million, or 17.6%, was due primarily to increased
wholesale capacity and energy revenues from units placed in service during 2003
(Plant Franklin Unit 2, Plant Harris Units 1 and 2 and Plant Stanton A). The
increased revenues came from new PPAs with Alabama Power and Georgia Power for
Plants Harris Unit 1 and Franklin Unit 2 that began in June 2003 and with the
Stanton joint owners for Stanton A that began in October 2003. Additional
sales of uncontracted capacity from Plant Harris Unit 2 also contributed to the
increase. Significant income statement items appropriate for discussion include the
following: Increase (Decrease)First Quarter(in thousands)
    
    %Sales for resale  non-affiliates
    
    $
    36,430
    
    
    
    72.5Sales for resale  affiliates
    
    
    31,505
    
    
    
    57.0Fuel expense
    
    
    10,297
    
    
    
    51.4Purchased power  non-affiliates
    
    
    (1,718
    )
    
    
    (11.2
    )Purchased power  affiliates
    
    
    24,124
    
    
    
    134.5Other operation expense
    
    
    8,817
    
    
    
    149.2Depreciation and amortization
    
    
    6,234
    
    
    
    95.3Interest expense, net of amounts capitalized
    
    
    11,187
    
    
    
    799.6
 Sales for resale  non-affiliates. In the first quarter 2004, revenues
from sales for resale to non-affiliates were higher when compared to the
corresponding period in 2003. This increase was due primarily to additional
wholesale capacity and energy sales to non-affiliates as a result of commercial
operation of Plant Harris Unit 2, which was placed into commercial operation in
June 2003 and Plant Stanton A, which was placed into commercial operation in
October 2003. Sales for resale  affiliates.During the first quarter 2004, sales for
resale to affiliates increased primarily due to energy and capacity sales
through PPAs with Alabama Power and Georgia Power that commenced in June 2003.
Revenues from sales to affiliated companies through the Southern Company system
power pool and energy sales under PPAs will vary depending on
demand and the availability and cost of generating resources accessible
throughout the Southern Company system. 94




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SOUTHERN POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION Fuel expense. Fuel expense in the first quarter 2004 increased
significantly when compared to the same period in 2003. The first quarter 2004
increase resulted primarily from commercial operation of Plant Harris Unit 2,
and higher natural gas prices. Purchased power  non-affiliates. The decrease in purchased power from
non-affiliates during the first quarter 2004 when compared to the first quarter
2003 is primarily due to the availability of lower cost energy from affiliates. Purchased power  affiliates. The availability of power at prices lower
than Southern Powers self-generation, which is primarily natural gas-fired,
accounted for the first quarter 2004 increase in purchased power from
affiliates when compared to the same period in the prior year. Expenses from
purchased power transactions will vary depending on demand, availability and
the cost of generating resources accessible throughout the Southern Company
system. Other operation expense.During the first quarter 2004, other operation
expense increased when compared to the same period in the prior year due mainly
to administrative and general expenses associated with the commercial operation
of Plant Franklin Unit 2 and Plant Harris Units 1 and 2, which were all placed
into commercial operation in June 2003, and Plant Stanton A which was placed
into commercial operation in October 2003. Depreciation and amortization.New generating units placed into service
in June and October 2003, are the main drivers for the increases in
depreciation and amortization in the first quarter 2004 as compared to the
corresponding period in the prior year. Interest expense, net of amounts capitalized.In the first quarter 2004,
interest expense, net of amounts capitalized increased when compared to the
same period in 2003 due to an increase in the amount of senior notes
outstanding and a lower percentage of interest costs being capitalized as
projects have reached completion. Future Earnings Potential The results of operations are not necessarily indicative of future earnings.
The level of future earnings depends on numerous factors including completion
of construction on new generating facilities, regulatory matters including
those related to affiliate contracts, energy sales, creditworthiness of
customers, total generating capacity available in the Super Southeast and the
remarketing of capacity. Another major factor is federal regulatory policy,
which may impact Southern Powers level of participation in the wholesale
energy market. For additional information relating to these issues, see Item 1
- Business  The SOUTHERN System  Risk Factors and Item 7  Managements
Discussion and Analysis  Future Earnings Potential of Southern Power in the
Form 10-K. See Item 7  Managements Discussion and Analysis  Future Earnings
Potential  General and Power Sales Agreements of Southern Power in the Form
10-K for additional information on long-term power sales agreements and PPAs.
Southern Powers PPAs with non-affiliated counterparties have provisions that
require the posting of collateral or an acceptable substitute guarantee in the
event that S&P or Moodys downgrades the credit ratings of such counterparty to
below-investment grade, or, if the counterparty is not rated, fails to maintain
a minimum coverage ratio. The PPAs are expected to provide Southern Power with
a stable source of revenue during their respective terms. 95




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SOUTHERN POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION In June 2003, Southern Power placed Plant Franklin Unit 2 and Plant Harris
Units 1 and 2 into commercial operation. In October 2003, Southern Power placed
Plant Stanton A into commercial operation. In June 2004, the PPA with Georgia
Power for the remaining 200 MW of uncontracted capacity at Plant Franklin Unit
2 will begin. Also, in June 2004, the PPA with Georgia Power for Plant Harris
Unit 2 will begin. PPAs for the other units became effective upon commercial
operation. As these PPAs become effective, the opportunity for external sales
out of uncontracted capacity will decline significantly. Plant McIntosh Units
10 and 11 are under construction and are scheduled to be completed in June
2005. See Note 3 to Southern Powers financial statements under FERC Matters
in Item 8 of the Form 10-K and Note (C) to the Condensed Financial Statements
herein for information regarding the FERC approval process for Southern Powers
PPAs with Georgia Power and Savannah Electric for Plant McIntosh Units 10 and
11. Southern Power is also completing limited construction activities on Plant
Franklin Unit 3 to preserve the long-term viability of the project
but has deferred final completion until the 2008-2011 period. See Note 3 to
Southern Powers financial statements under Uncontracted Generating Capacity
in Item 8 of the Form 10-K for additional information. The final outcome of
these matters cannot now be determined. See Item 7  Managements Discussion and Analysis  Future Earnings
Potential  FERC Matters of Southern Power in the Form 10-K for information on
the FERCs order related to RTOs and the FERCs notice of proposed rulemaking
regarding open access transmission service. See
Managements Discussion and Analysis  Future Earnings Potential 
FERC Matters  Market-Based Rate Authority in Item 7 and Note 3 to the
financial statements of Southern Power under FERC Matters in Item 8 of the
Form 10-K. On April 14, 2004, the FERC issued an order that abandoned the SMA
test and adopted a new interim analysis for measuring generation market power.
The FERC also initiated a new rulemaking proceeding that, among other things,
will adopt a final methodology for assessing generation market power. See Note
(B) to the Condensed Financial Statements under FERC Matters herein for
additional information. Southern Company is filing a request for
rehearing of the FERCs order. The
final outcome of this matter cannot be determined at this time. See Item 7  Managements Discussion and Analysis  Future Earnings
Potential   Environmental Matters of Southern Power in the Form 10-K for
information on the development by federal and state environmental regulatory
agencies of additional control strategies for emission of air pollution from
industrial sources, including electric generating facilities. Compliance costs
related to current and future environmental laws and regulations could affect
earnings if such costs are not fully recovered. Southern Power is subject to certain claims and legal actions arising in
the ordinary course of business. In addition, Southern Powers business
activities are subject to extensive governmental regulation related to public
health and the environment. Litigation over environmental issues and claims of
various types, including property damage, personal injury and citizen
enforcement of environmental requirements, has increased generally throughout
the United States; in particular, personal injury claims for damages caused by
alleged exposure to hazardous materials have become more frequent. No such
litigation is currently pending against Southern Power. See also the Notes to the Condensed Financial Statements herein for
discussion of various contingencies and other matters which may
affect future earnings potential. 96




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SOUTHERN POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION ACCOUNTING POLICIES Application of Critical Accounting Policies and Estimates Southern Power prepares its financial statements in accordance with accounting
principles generally accepted in the United States. Significant accounting policies are described in Note 1 to the financial statements of Southern Power
in Item 8 of the Form 10-K. In the application of these policies, certain
estimates are made that may have a material impact on Southern Powers results
of operations and related disclosures. Different assumptions and measurements
could produce estimates that are significantly different from those recorded in
the financial statements. See Item 7 Managements Discussion and Analysis 
Accounting Policies  Application of Critical Accounting Policies and Estimates of Southern Power
in the Form 10-K for a complete discussion of Southern Powers critical
accounting policies and estimates related to Revenue Recognition and Asset
Impairments. FINANCIAL CONDITION AND LIQUIDITY Overview The major change in Southern Powers financial condition during the first three
months of 2004 was the addition of approximately $69 million to utility plant
related to on-going construction of Southern Powers combined-cycle units. The
funds for these additions were provided by subordinated loans from Southern
Company and ongoing operations. See Southern Powers Condensed Statements of
Cash Flows herein for further details. Capital Requirements and Contractual Obligations Reference is made to
Item 7  Managements Discussion and Analysis 
Financial Condition and Liquidity  Capital
Requirements and Contractual Obligations of Southern Power in the Form 10-K
for a description of Southern Powers capital requirements for its construction
program, maturing debt, purchase commitments and long-term service agreements. Sources of Capital Southern Powers current liabilities exceed current assets because of the
continued use of short-term debt as an interim funding source for Southern
Powers ongoing construction program and the seasonality of the electricity
business. In February 2003, Southern Power initiated a commercial paper
program to fund a portion of the construction costs of new generating
facilities. The amount of commercial paper initially represented approximately
45% of total debt, but is forecasted to be less than 20% at year-end 2005.
Southern Powers strategy is to refinance most of such short-term borrowings
with long-term securities following commercial operation of the generating
facilities. At March 31, 2004, Southern Power had outstanding $114.3 million
in commercial paper. See Note 6 to the financial statements of Southern Power
under Commercial Paper in Item 8 of the Form 10-K for additional information. 97




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SOUTHERN POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION To meet liquidity and capital resource requirements, Southern Power had at
March 31, 2004 approximately $650 million of an unused committed credit
arrangement with banks expiring in 2006. This arrangement also provides
liquidity support for Southern Powers commercial paper program (as discussed
above). Amounts drawn under the arrangements may be used to finance
acquisition and construction costs related to gas-fired electric generating
facilities and for general corporate purposes, subject to borrowing limitations
for each generating facility. The arrangements permit Southern Power to fund
construction of future generating facilities upon meeting certain requirements.
Southern Power expects to renew its credit facility, as needed, prior to
expiration. Financing of construction at the McIntosh facility is subject to
FERC approval of the related PPAs. Reference is made to Note (C) to the
Condensed Financial Statements herein for information regarding the FERC
approval process for Southern Powers PPAs with Georgia Power and Savannah
Electric for Plant McIntosh Units 10 and 11. Southern Power also has access to
loans from Southern Company to meet any additional Plant McIntosh funding needs
should other funding sources not be adequate. Credit Rating Risk Southern Power does not have any credit agreements that would require material
changes in payment schedules or terminations as a result of a credit rating
downgrade. There are contracts that could require collateral  but not
accelerated payment  in the event of a credit rating change to below
investment grade. These contracts are primarily for physical electricity
purchases and sales, fixed-price physical gas purchases and agreements covering
interest rate swaps. Generally, collateral may be provided by a Southern
Company guaranty, letter of credit or cash. At March 31, 2004, the maximum
potential collateral requirements were approximately $172 million. Market Price Risk Southern Powers market risk exposures relative to interest rate changes have
not changed materially compared with the December 31, 2003 reporting period.
In addition, Southern Power is not aware of any facts or circumstances that
would significantly affect such exposures in the near term. Because energy from Southern Powers generating facilities is primarily
sold under long-term PPAs with tolling agreements and provisions shifting
substantially all of the responsibility for fuel cost to the purchasers,
Southern Powers exposure to market volatility in commodity fuel prices and
prices of electricity is limited. To mitigate residual risks in those areas,
Southern Power enters into fixed-price contracts for the sale of electricity.
Unrealized gains and losses on electric and gas contracts qualifying as cash
flow hedges of anticipated purchases and sales are deferred in Other
Comprehensive Income. 98




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SOUTHERN POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION The fair values of derivative energy contracts
at March 31, 2004 were as follows: First Quarter2004ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    665Contracts realized or settled
    
    
    (665
    )New contracts at inception
    
    
    Current period changes
    
    
    (203
    )Contracts at March 31, 2004
    
    $
    (203
    )
 At March 31, 2004, all of these contracts mature within one year and are
based on actively quoted market prices. For additional information, see Item 7
- Managements Discussion and Analysis  Financial Condition and Liquidity
Market Price Risk and Notes 1 and 6 to the financial statements under
Financial Instruments of Southern Power in Item 8 of the Form 10-K and Note
(G) to the Condensed Financial Statements herein. 99




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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 INDEX TO APPLICABLE NOTES TO
FINANCIAL STATEMENTS BY REGISTRANT Registrant
    
    Applicable NotesSouthern Company
    
    A, B, C, D, E, F, G, H, I, J, LAlabama Power
    
    A, B, D, E, G, HGeorgia Power
    
    A, B, C, D, E, G, HGulf Power
    
    A, B, D, E, G, HMississippi Power
    
    A, B, D, E, G, H, ISavannah Electric
    
    A, B, C, D, G, H, KSouthern Power
    
    A, B, C, G
 100




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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 March 31, 2004 and 2003. 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 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 each of the registrants in Item
8 and Legal Proceedings in Item 3 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, Alabama Power,
Georgia Power, Gulf Power, Mississippi Power and Savannah Electric under
New Source Review Actions and of Southern Company and Georgia Power
under Plant Wansley Environmental Litigation in Item 8 of the Form 10-K.
As of March 15, 2004, civil penalties under the Clean Air Act were
increased prospectively to a maximum of $32,500 per day, per violation.
To the extent alleged violations under either the New Source Review
Litigation or Plant Wansley Environmental Litigation are deemed to be
continuing, this increased civil penalty amount could apply to such
violations found to continue after that date. On May 3, 2004, the U.S.
Supreme Court denied the EPAs petition to review the Eleventh Circuit Court
of Appeals decision in the EPAs similar New Source Review action against the
TVA. The cases against Alabama Power, Georgia
Power and Savannah Electric have been effectively stayed pending final
resolution of the TVA appeal. With the denial of the EPAs petition for
review, the Court of Appeals decision is now final. An adverse outcome
in any one of these cases could require substantial capital expenditures
that cannot be determined at this time and could possibly require payment
of substantial penalties. This could affect future results of operations,
cash flows, and possibly financial condition if such costs are not
recovered through regulated rates. 101




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)  MIRANT RELATED MATTERSSee Note 3 to the financial statements of Southern Company under Mirant
Related Matters  Mirant Bankruptcy in Item 8 and Managements
Discussion and Analysis  Future Earnings Potential  Other Matters of
Southern Company in Item 7 of the Form 10-K. On April 7, 2004, the U.S.
Bankruptcy Court judge presiding over Mirants proceedings ordered that an
examiner be appointed and identified a number of duties for the examiner,
including preliminary investigation of potential causes of action against
insiders, past or present, of Mirant. On April 13, 2004, the judge
approved the appointment of William K. Snyder as examiner. In an April
29, 2004 Order, the judge further defined the duties of the examiner,
including the investigation of any potential causes of action or any basis
for
objecting to or subordinating any claim that may be available to Mirant
against any past or present insider or any member of a committee appointed
in Mirants bankruptcy proceeding. As a former shareholder of Mirant,
Southern Company could be considered a past insider. The final
outcome of these matters cannot now be determined.See Note 3 to Southern Companys financial statements in Item 8 of the
Form 10-K under Mirant Bankruptcy and Note 5 to Southern Companys
financial statements in Item 8 of the Form 10-K for information related to
potential contingent liabilities as a result of Mirants inclusion in the
consolidated federal income tax return prior to the spin-off. In
connection with the audit of tax years 2000 and 2001, the IRS has
preliminarily indicated that they may challenge certain tax deductions
arising from Mirants operations prior to the spin-off. The ultimate
outcome of this matter cannot now be determined.See Note 3 to the financial statements of Southern Company under Mobile
Energy Services Petition for Bankruptcy in Item 8 of the Form 10-K. On
April 29, 2004, Mobile Energy Services Holdings (MESH) sold the electric
generating facility. In connection with the sale, the pulp and paper
complex owners released Southern Company from its contingent obligations
associated with the guarantee of certain potential environmental
obligations and with the potential obligation to fund a maintenance
reserve account. Southern Company simultaneously released MESH from its
indemnification obligations.FERC MATTERSSee Note 3 to the financial statements of Southern Company, Alabama Power,
Georgia Power, Gulf Power, Mississippi Power, Savannah Electric and
Southern Power under FERC Matters in Item 8 of the Form 10-K. On April
14, 2004, the FERC issued an order that abandoned the SMA test and adopted
a new interim analysis for measuring generation market power. This new
interim approach includes a pivotal supplier analysis and a wholesale
market share analysis, the results of which provide a rebuttable
presumption regarding generation market power. The FERCs order also sets
forth procedures for rebutting these presumptions and addresses mitigation
measures for those entities that are found to have market power. In the
absence of specific mitigation measures, the order includes several
cost-based mitigation measures that would apply by default. The FERC also
initiated a new rulemaking proceeding that, among other things, will adopt
a final methodology for assessing generation market power. Southern
Company, the retail operating companies, and Southern Power believe that
it may be difficult for a traditional utility company, or affiliate
thereof, with a significant load service obligation and generation to
satisfy that obligation to pass all aspects of the market power screens as
currently designed; however, each of the companies believes that it has
appropriate basis to rebut the generation market power presumption. In
the event that FERCs default mitigation measures are ultimately applied,
Southern Power and the retail operating companies may be required to
charge cost-based rates, which may be lower than negotiated market-based
rates. Southern Company is filing a request for 102




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)  rehearing of the FERCs order. 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.INCOME TAX MATTERSSee Note 3 to Southern Companys financial statements under Income Tax
Issues  Leveraged Lease Transactions in Item 8 of the Form 10-K. In
connection with their current audits of Southern Companys consolidated
federal income tax returns for the 2000 and 2001 tax years, the IRS has
indicated that they intend to propose a similar adjustment of $18 million
to disallow the tax losses associated with the international leveraged
lease transaction originally challenged in their 1996-1999 audits. The
IRS has also preliminarily indicated that they may challenge Southern
Companys other three international leveraged lease transactions
(so-called SILO or sale-in-lease-out transactions). See Note 1 to
Southern Companys financial statements under Leveraged Leases in Item 8
of the Form 10-K for additional details of the deferred taxes related to
these transactions. The ultimate outcome of these matters cannot now be
determined(C)
    
    See Note 3 under FERC Matters to the financial statements of Georgia
Power, Savannah Electric and Southern Power, in Item 8 of the Form 10-K
for information regarding PPAs between Southern Power and Georgia Power
and Savannah Electric for Plant McIntosh capacity.In April 2003, Southern Power applied for FERC approval of these PPAs. In
July 2003, the FERC accepted the PPAs to become effective June 1, 2005,
subject to refund, and ordered that hearings be held. The hearings
previously scheduled to commence on March 1, 2004 were postponed pending
the outcome of settlement negotiations. Settlement negotiations have been
terminated and hearings have been rescheduled to begin on May 25, 2004.
Management believes that the PPAs should be approved by the FERC; however,
the ultimate outcome of this matter cannot now be determined.(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. Balance at
    
    Liabilities
    
    Liabilities
    
    
    
    
    
    Cash Flow
    
    Balance at12/31/03
    
    Incurred
    
    Settled
    
    Accretion
    
    Revisions
    
    03/31/04(in millions)Alabama Power
    
    $
    359
    
    
    $
    
    
    
    $
    
    
    
    $
    6
    
    
    $
    
    
    
    $
    365Georgia Power
    
    
    476
    
    
    
    
    
    
    
    (1
    )
    
    
    8
    
    
    
    
    
    
    
    483Gulf Power
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Mississippi Power
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    3Savannah Electric
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Southern Company
    
    $
    845
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    14
    
    
    $
    1
    
    
    $
    859
  (E)
    
    On March 31, 2004, Southern Company prospectively adopted FASB
Interpretation No. 46R, Consolidation of Variable Interest Entities,
which requires the primary beneficiary of a variable interest entity to
consolidate the related assets and liabilities. The adoption of
Interpretation No. 46R had no impact on Southern Companys net income.
However, as a result of the adoption, Southern Company and the retail
operating companies deconsolidated certain wholly-owned trusts established
to issue preferred securities since Southern Company and the retail
operating companies do not meet the 103




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)  definition of primary beneficiary established by Interpretation No. 46R.
Therefore, the investments in these trusts are reflected as Equity
Investments in Unconsolidated Subsidiaries for Alabama Power and Georgia
Power and as Other Investments for Southern Company, Gulf Power and
Mississippi Power. The related loans from the trusts to Southern Company
and the retail operating companies are reflected as Notes Payable to
Affiliated Trusts on the accompanying Balance Sheets. This treatment
resulted in the following increases in both total assets and total
liabilities as of March 31, 2004 (in millions): Alabama Power
    
    $
    9Georgia Power
    
    
    29Gulf Power
    
    
    2Mississippi Power
    
    
    1Southern Company
    
    $
    60
  In addition, Southern Company consolidated its 85% limited partnership
investment in an energy/telecom venture capital fund that was previously
accounted for under the equity method. At March 31, 2004, Southern
Companys investment totaled $25 million; Southern Company has committed
to a maximum investment of $75 million. The assets of the venture capital
fund are included in Cash and Other Investments on the accompanying
Condensed Balance Sheets.(F)
    
    See Note 1 under Stock Options and Note 8 under Stock Option Plan to
the financial statements of Southern Company 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 the date of the grant.
The estimated fair values of stock options granted during the three-month
periods ending March 31, 2004 and 2003 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: Three Months Ended
    
    Three Months EndedMarch 31, 2004
    
    March 31, 2003Interest Rate
    
    
    3.1
    %
    
    
    2.7
    %Average expected life of stock options (in years)
    
    
    5.0
    
    
    
    4.3Expected volatility of common stock
    
    
    19.7
    %
    
    
    23.6
    %Expected annual dividends on common stock
    
    $
    1.40
    
    
    $
    1.37Weighted average fair value of stock options granted
    
    $
    3.29
    
    
    $
    3.59
 The pro forma impact of fair-value accounting for options granted on net income is as follows: As Reported
    
    Pro FormaThree Months Ended March 31, 2004Net income (in millions)
    
    $
    331
    
    
    $
    326Earnings per share (dollars):Basic
    
    $
    0.45
    
    
    $
    0.44Diluted
    
    $
    0.45
    
    
    $
    0.44Three Months Ended March 31, 2003Net income (in millions)
    
    $
    298
    
    
    $
    294Earnings per share (dollars):Basic
    
    $
    0.41
    
    
    $
    0.41Diluted
    
    $
    0.41
    
    
    $
    0.41
 104




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)  Diluted Earnings Per Share Three Months Ended
    
    Three Months EndedMarch 31, 2004
    
    March 31, 2003(in thousands)As Reported Shares
    
    
    736,638
    
    
    
    718,943Effect of options
    
    
    4,965
    
    
    
    5,948Diluted Shares
    
    
    741,603
    
    
    
    724,891
  (G)
    
    See Note 6 to the financial statements of Southern Company, Alabama
Power, Georgia Power, Gulf Power, Mississippi Power, Savannah Electric and
Southern Power under Financial Instruments in Item 8 of the Form 10-K.
At March 31, 2004, the fair value of derivative energy contracts was
reflected in the financial statements as follows: Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    Mississippi
    
    Savannah
    
    SouthernCompany
    
    Power
    
    Power
    
    Power
    
    Power
    
    Electric
    
    PowerAmounts(in thousands)Regulatory liabilities, net
    
    $
    43,110
    
    
    $
    18,078
    
    
    $
    10,526
    
    
    $
    5,673
    
    
    $
    6,859
    
    
    $
    1,974
    
    
    $
    Other comprehensive income
(loss)
    
    
    606
    
    
    
    (226
    )
    
    
    
    
    
    
    
    
    
    
    (1,239
    )
    
    
    (15
    )
    
    
    (216
    )Net income
    
    
    (204
    )
    
    
    6
    
    
    
    7
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    13Total fair value
    
    $
    43,512
    
    
    $
    17,858
    
    
    $
    10,533
    
    
    $
    5,674
    
    
    $
    5,621
    
    
    $
    1,959
    
    
    $
    (203
    )
  For the three months ended March 31, 2004 and 2003, the amounts recognized
in income for Southern Company, Alabama Power, Georgia, Power, Gulf Power,
Mississippi Power, Savannah Electric and Southern Power were immaterial.In addition, approximately $2.7 million in pre-tax gains will be
reclassified from Other Comprehensive Income to Fuel Expense by Southern
Company for the twelve month period ended March 31, 2005.At March 31, 2004, Southern Company had $3.4 billion notional amount of
interest rate swaps outstanding with net fair value gains of $21.1 million
as follows:Fair Value Hedges Notional
    
    Fixed Rate
    
    Variable Rate
    
    Maturity
    
    Fair Value Gain (Loss)Amount
    
    Received
    
    Paid
    
    Date
    
    March 31, 2004(in millions)Southern Company
    
    $400 million
    
    
    5.3
    %
    
    6-monthLIBOR (inarrears)less 0.103%
    
    February 2007
    
    $
    31.3Southern Company
    
    $40 million
    
    
    7.625
    %
    
    6-monthLIBOR (inarrears) plus2.9225%
    
    December 2009
    
    $
    2.2
 105




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)  Cash Flow Hedges WeightedVariable
    
    Average
    
    
    
    Fair ValueNotional
    
    Rate
    
    Fixed Rate
    
    Maturity
    
    Gain (Loss)Amount
    
    Received
    
    Paid
    
    Date
    
    March 31, 2004(in millions)Variable
Rate SecuritiesSouthern Company
    
    $200 million
    
    1-month LIBOR
    
    
    3.1975
    %
    
    June 2004
    
    $
    (1.0
    )Alabama Power
    
    $536 million
    
    BMA Index
    
    
    2.007
    %
    
    January 2007
    
    $
    (1.6
    )Alabama Power
    
    $195 million
    
    3-month LIBOR
    
    
    1.89
    %
    
    April 2006
    
    $
    (0.3
    )Alabama Power
    
    $250 million
    
    3-month LIBOR
    
    
    3.9198
    %
    
    September 2009
    
    $
    (5.0
    )Alabama Power
    
    $220 million
    
    3-month LIBOR
    
    
    3.4145
    %
    
    November 2007
    
    $
    (3.0
    )Alabama Power
    
    $150 million
    
    3-month LIBOR
    
    
    5.051
    %
    
    April 2034
    
    $
    1.0Georgia Power
    
    $250 million
    
    3-month LIBOR plus 0.125%
    
    
    1.96
    %
    
    February 2005
    
    $
    (1.4
    )Georgia Power
    
    $50 million
    
    3-month LIBOR plus 0.10%
    
    
    1.5625
    %
    
    January 2005
    
    $
    (0.1
    )Georgia Power
    
    $873 million
    
    BMA Index
    
    
    1.3878
    %
    
    December 2004
    
    $
    (1.5
    )Georgia Power
    
    $250 million
    
    3-month LIBOR
    
    
    4.6629
    %
    
    February 2015
    
    $
    0.6Savannah Electric
    
    $20 million
    
    3-month LIBOR plus 0.375%
    
    
    2.055
    %
    
    December 2004
    
    $
    (0.1
    )
  For the twelve month period ended March 31, 2005, the following table
reflects the estimated pre-tax losses that will be reclassified from Other
Comprehensive Income to Interest Expense. (in Millions)Alabama Power
    
    $
    (11.6
    )Georgia Power
    
    
    (4.1
    )Gulf Power
    
    
    (0.3
    )Mississippi Power
    
    
    Savannah Electric
    
    
    (0.1
    )Southern Power
    
    
    (10.6
    )Southern Company
    
    $
    (27.8
    )
 106




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)  (H)
    
    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 periods ending March 31, 2004 and 2003 are as follows: Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    Mississippi
    
    SavannahCompany
    
    Power
    
    Power
    
    Power
    
    Power
    
    ElectricPENSION PLANS (in millions)Three Months Ended March 31, 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
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Net amortization
    
    
    4
    
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    (10
    )
    
    $
    (9
    )
    
    $
    (8
    )
    
    $
    (1
    )
    
    $
    
    
    
    $
    1Three Months Ended March 31, 2003Service cost
    
    $
    29
    
    
    $
    7
    
    
    $
    10
    
    
    $
    1
    
    
    $
    1
    
    
    $
    1Interest cost
    
    
    65
    
    
    
    17
    
    
    
    25
    
    
    
    3
    
    
    
    3
    
    
    
    1Expected return on plan assets
    
    
    (112
    )
    
    
    (35
    )
    
    
    (45
    )
    
    
    (5
    )
    
    
    (4
    )
    
    
    (1
    )Recognized net gain
    
    
    (11
    )
    
    
    (3
    )
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    Net amortization
    
    
    4
    
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    (25
    )
    
    $
    (13
    )
    
    $
    (13
    )
    
    $
    (1
    )
    
    $
    
    
    
    $
    1POSTRETIREMENT PLANS (in millions)Three Months Ended March 31, 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
    
    
    $
    1Three Months Ended March 31, 2003Service cost
    
    $
    6
    
    
    $
    2
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest cost
    
    
    23
    
    
    
    6
    
    
    
    10
    
    
    
    1
    
    
    
    1
    
    
    
    1Expected return on plan assets
    
    
    (12
    )
    
    
    (4
    )
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    Net amortization
    
    
    8
    
    
    
    2
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    25
    
    
    $
    6
    
    
    $
    10
    
    
    $
    1
    
    
    $
    1
    
    
    $
    1
 107




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)  (I)
    
    See Note 3 to the financial statements in Item 8 of the Form 10-K for
Southern Company under Mississippi Power Regulatory
Filing and Mississippi Power under Retail Regulatory
Filing in Item 8 of the Form 10-K regarding Mississippi Powers
request with the Mississippi PSC to include 266 megawatts of Plant Daniel
Units 3 and 4 generating capacity not currently included in jurisdictional
cost of service. The Mississippi PSC held hearings in April 2004 and a
final decision in this matter is pending. The ultimate outcome of this
matter cannot now be determined.(J)
    
    See Note 1 to Southern Companys financial statements under Leveraged
Leases in Item 8 of the Form 10-K. In April 2004, Southern Company
entered into a commitment with KeySpan Corporation for the purchase and
subsequent leaseback of the Ravenswood Expansion Facility, a 250 megawatt
combined cycle gas turbine facility in New York, New York. The cost of the
facility is estimated at $375 million. Southern Companys net investment
in the leveraged lease is currently anticipated to be approximately $70
million. The transaction is projected to close in the second quarter of
2004.(K)
    
    On March 23, 2004, Savannah Electric submitted a request to the Georgia
PSC for an accounting order which, if approved by the Georgia PSC, would
allow for the cost of a coal transloader currently under construction to
be amortized over twenty-four months through fuel expense and recovered
through Savannah Electrics fuel cost recovery clause. This transloader
will allow foreign coal to be off-loaded from ships at Savannah Electrics
Plant Kraft dock, and then transferred by rail to Savannah Electrics
Plant McIntosh. The total cost of the transloader, including carrying
costs, is expected to be approximately $4.0 million.(L)
    
    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. Intersegment revenues are not material. Financial
data for business segments and products and services for the periods
covered in the Form 10-Q are as follows: Electric UtilitiesRetailOperating
    
    Southern
    
    
    
    
    
    
    
    
    
    All
    
    ReconcilingCompanies
    
    Power
    
    Eliminations
    
    Total
    
    Other
    
    Eliminations
    
    Consolidated(in millions)Three Months Ended March 31, 2004:Operating revenues
    
    $
    2,542
    
    
    $
    176
    
    
    $
    (130
    )
    
    $
    2,588
    
    
    $
    173
    
    
    $
    (7
    )
    
    $
    2,754Segment net income (loss)
    
    
    272
    
    
    
    27
    
    
    
    
    
    
    
    299
    
    
    
    33
    
    
    
    (1
    )
    
    
    331Total assets at March 31, 2004
    
    $
    31,602
    
    
    $
    2,455
    
    
    $
    (96
    )
    
    $
    33,961
    
    
    $
    1,825
    
    
    $
    (419
    )
    
    $
    35,367Three Months Ended March 31, 2003:Operating revenues
    
    $
    2,366
    
    
    $
    107
    
    
    $
    (73
    )
    
    $
    2,400
    
    
    $
    153
    
    
    $
    (5
    )
    
    $
    2,548Segment net income (loss)
    
    
    264
    
    
    
    23
    
    
    
    
    
    
    
    287
    
    
    
    11
    
    
    
    
    
    
    
    298Total assets at December 31, 2003
    
    $
    31,412
    
    
    $
    2,409
    
    
    $
    (122
    )
    
    $
    33,699
    
    
    $
    1,671
    
    
    $
    (325
    )
    
    $
    35,045
  Products and Services Electric Utilities RevenuesPeriod
    
    Retail
    
    Wholesale
    
    Other
    
    Total(in millions)Three Months Ended March 31, 2004
    
    $
    2,144
    
    
    $
    351
    
    
    $
    93
    
    
    $
    2,588Three Months Ended March 31, 2003
    
    
    1,974
    
    
    
    334
    
    
    
    92
    
    
    
    2,400
 108




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##### Table of Contents



PART II- OTHER INFORMATION 
  Item 1.
    Legal Proceedings.  See the Notes to the Condensed Financial Statements herein for information regarding certain legal and
administrative proceedings in which Southern Company and its reporting subsidiaries are involved. 
  Item 2.
    Changes in Securities, Unregistered Sales of Equity Securities and Use of Proceeds.  On February 17, 2004, Alabama Power issued to Southern Company, in a private placement, 500,000 shares of
Alabama Powers common stock, $40.00 par value per share, for a price of $40.00 per share ($20,000,000 aggregate
purchase price). There were no underwriting discounts or commissions. The issuance to Southern Company was
exempt from registration under the Securities Act of 1933, as amended (the Act), pursuant to Section 4(2) of
the Act because it was a transaction by an issuer that did not involve a public offering. The proceeds from the
sale were used by Alabama Power for general corporate purposes. 
  Item 6.
    Exhibits and Reports on Form 8-K.  (a)
    
    Exhibits.(3)
    
    Articles of Incorporation and By-LawsGeorgia Power (c) 1
    
    -
    
    By-laws of Georgia Power as amended effective August 20, 2003, and as presently in effect.
  (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, 2003, File No.
1-3526 as Exhibit 24(a) and incorporated herein by reference.)
  Alabama Power (b) 1
    
    -
    
    Power of Attorney and resolution. (Designated in
the Form 10-K for the year ended December 31, 2003, 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, 2003, File No.
1-6468 as Exhibit 24(c) and incorporated herein by reference.)
 109




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##### Table of Contents



Item 6.
    Exhibits and Reports on Form 8-K.  (a)
    
    Exhibits. (Continued)Gulf Power (d) 1
    
    -
    
    Power of Attorney and resolution. (Designated in
the Form 10-K for the year ended December 31, 2003, 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, 2003, 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, 2003, 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, 2003, File No.
333-98553 as Exhibit 24(g) and incorporated herein by
reference.)
  (31)
    
    Section 302 Certifications  Southern 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.
 110




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##### Table of Contents



Item 6.
    Exhibits and Reports on Form 8-K.  (a)
    
    Exhibits. (Continued) (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.
  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 Certifications  Southern 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.
 111




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##### Table of Contents



Item 6.
    Exhibits and Reports on Form 8-K.  (a)
    
    Exhibits. (Continued)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.
  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.
  (b)
    
    Reports on Form 8-K.  The registrants collectively and separately furnished Current Reports on Form 8-K
dated January 29, 2004: Item reported:
Financial statements filed:
    
    Item 12None
  Alabama Power filed Current Reports on Form 8-K dated February 5, 2004 and February 10, 2004: Items reported:
Financial statements filed:
    
    Items 5 and 7
None
  Georgia Power filed Current Reports on Form 8-K dated January 12, 2004, January 15,
2004 and February 12, 2004: Item reported:
Financial statements filed:
    
    Items 5 and 7
None
  Mississippi Power filed Current Reports on Form 8-K both dated March 3, 2004: Items reported:
Financial statements filed:
    
    Items 5 and 7
None
 112




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##### Table of Contents



THE SOUTHERN COMPANY 
 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned
company shall be deemed to relate only to matters having reference to such
company and any subsidiaries thereof. THE SOUTHERN COMPANYBy
    
    Allen FranklinChairman and Chief Executive Officer(Principal Executive Officer)By
    
    Thomas A. FanningExecutive Vice President, Chief Financial Officer and Treasurer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
 Date: May 6, 2004 113




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##### Table of Contents



ALABAMA POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned
company shall be deemed to relate only to matters having reference to such
company and any subsidiaries thereof. ALABAMA POWER COMPANYBy
    
    Charles D. McCraryPresident and Chief Executive Officer(Principal Executive Officer)By
    
    William B. Hutchins, IIIExecutive Vice President, Chief Financial Officer and Treasurer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
 Date: May 6, 2004 114




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##### Table of Contents



GEORGIA POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned
company shall be deemed to relate only to matters having reference to such
company and any subsidiaries thereof. GEORGIA POWER COMPANYBy
    
    Michael D. GarrettPresident and Chief Executive Officer(Principal Executive Officer)By
    
    C. B. HarreldExecutive Vice President, Chief Financial Officer and Treasurer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
 Date: May 6, 2004 115




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GULF POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned
company shall be deemed to relate only to matters having reference to such
company and any subsidiaries thereof. 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)
 Date: May 6, 2004 116




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MISSISSIPPI POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned
company shall be deemed to relate only to matters having reference to such
company and any subsidiaries thereof. MISSISSIPPI POWER COMPANYBy
    
    Anthony J. TopaziPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Michael W. SouthernVice President, Chief Financial Officer and Treasurer(Principal Financial and Accounting Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
 Date: May 6, 2004 117




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SAVANNAH ELECTRIC AND POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned
company shall be deemed to relate only to matters having reference to such
company and any subsidiaries thereof. SAVANNAH ELECTRIC AND POWER COMPANYBy
    
    A. R. JamesPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Kirby R. WillisVice President, Chief Financial Officer and Treasurer(Principal Financial and Accounting Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
 Date: May 6, 2004 118




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SOUTHERN POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned
company shall be deemed to relate only to matters having reference to such
company and any subsidiaries thereof. SOUTHERN POWER COMPANYBy
    
    William P. BowersPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Cliff S. ThrasherSenior Vice President, Comptroller and Chief Financial Officer(Principal Financial and Accounting Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
 Date: May 6, 2004 119