Exhibit 10.7
                             FIRST AMENDMENT TO THE
                           EMPLOYEE MATTERS AGREEMENT
                          BETWEEN THE SOUTHERN COMPANY
                            AND SOUTHERN ENERGY, INC.

         THIS FIRST  AMENDMENT TO THE  EMPLOYEE  MATTERS  AGREEMENT  BETWEEN THE
SOUTHERN  COMPANY AND  SOUTHERN  ENERGY,  INC.  (the  "Agreement"),  is made and
entered  into by and  between  The  Southern  Company  ("Southern"),  a Delaware
corporation,   and  Southern  Energy,  Inc.  ("Southern   Energy"),  a  Delaware
corporation  (collectively,  the "Parties").  The capitalized terms used in this
First  Amendment  shall  have  the  same  meaning  as in the  Agreement,  unless
otherwise indicated herein.

                               W I T N E S S E T H
                               - - - - - - - - - -

         WHEREAS, Sections 11.07 of the Agreement provides that the Parties may,
by mutual agreement, amend the provisions of the Agreement at any time or times,
either prospectively or retroactively; and

         WHEREAS,  the Parties  desire to amend the Agreement to change the date
on which  Southern  Energy will cease  participation  in the  Southern  Deferred
Compensation  Plan,  from the  Group  Status  Change  Date to such  dates as the
Parties mutually agree; and

         WHEREAS,  the Parties  desire to amend the Agreement to change the date
on which  Southern  Energy  will cease  participation  in the  Southern  Company
Medical Reimbursement Plan and the Southern Company Dependent Care Reimbursement
Plan, from the Group Status Change Date, to midnight, December 31, 2000; and

         NOW,  THEREFORE,  effective  as of December 1, 2000,  the  Agreement is
amended as follows:
                                       1.

         Section  5.02 of the  Agreement  is hereby  deleted in its entirety and
replaced with the following:

                  (a)  Establishment  of Southern Energy  Deferred  Compensation
         Plan.  Upon such date as  Southern  and  Southern  Energy may  mutually
         agree,  Southern  Energy may  establish  the Southern  Energy  Deferred
         Compensation  Plan which shall be comparable  to the Southern  Deferred

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         Compensation Plan. As of the Group Status Change Date,  Southern Energy
         shall  assume all  Liabilities  to or relating to the  Southern  Energy
         Employees  under the Southern  Deferred  Compensation  Plan.  As of the
         Group Status Change Date,  Southern shall assume all  Liabilities to or
         relating  to  Southern  Energy  Retired  Employees  under the  Southern
         Deferred Compensation Plan.

                  (b)  Participation in Deferred Compensation  Plans.   Eligible
         Southern  Energy  Employees   determined   in  accordance  with   the
         requirements of ERISA shall only be  eligible  to  participate  in  the
         Southern Energy Deferred Compensation Plan.

                                       2.

         Section  6.01(a) of the  Agreement is hereby  amended by replacing  the
terms "Subsection 6.01(b)" with the term "Subsections 6.01(b) and (d)."

                                       3.

         A new Subsection 6.01(d) is added to the Agreement as follows:

                  (d)  TaxSaver   Plans.   Notwithstanding   the  provisions  of
         Subsection  6.01(a),  Southern  shall retain all  Liabilities  incurred
         through midnight,  December 31, 2000 under the Southern Company Medical
         Reimbursement  Plan (the "Southern MRP") and under the Southern Company
         Dependent Care Reimbursement Plan (the "Southern DCRP"), whether or not
         claims are filed before such date,  by or on behalf of Southern  Energy
         Employees. Effective as of midnight, December 31, 2000, Southern Energy
         Employees  shall not be eligible to  participate in the Southern MRP or
         the Southern  DCRP,  but shall be eligible to participate in comparable
         plans  established by Southern Energy.  Southern Energy shall be deemed
         to have  established  and  assumed  administrative  responsibility  for
         medical and dependent care spending  account plans effective  midnight,
         December 31, 2000.

                                       4.

         Section  6.03(a)(i)  of the  Agreement  is  amended to delete the first
sentence thereof and replace it with the following sentence:

         With  respect to Southern  Health and Welfare  Plans in which  Southern
         Energy Employees participate on the Group Status Change Date, as of the
         Group  Status  Change  Date,  Southern  Energy shall cause the Southern
         Energy  Health and Welfare  Plans to maintain  comparable  coverage and
         contribution  elections  made by Southern  Energy  Employees  under the
         Southern  Health and Welfare Plans and apply such  elections  under the
         Southern  Energy  Health and  Welfare  Plans for the  remainder  of the
         period  or  periods  for  which  such  elections  are  by  their  terms
         applicable.
<PAGE>

                                       5.

         Subsection 6.03(c) of the Agreement is deleted in its entirety.

                                       6.

         All  parts  of the  Agreement  not  inconsistent  herewith  are  hereby
ratified and affirmed.



         IN WITNESS  WHEREOF,  each of the Parties hereto have caused this First
Amendment to be executed on its behalf by its officers thereunto duly authorized
on the day and year first above written.


                                            THE SOUTHERN COMPANY


                                            By: ________________________________

                                            Its: _______________________________




                                            SOUTHERN ENERGY, INC.

                                            By: ________________________________

                                            Its: _______________________________