THE SOUTHERN COMPANY
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
         
Commission   Registrant, State of Incorporation,   I.R.S. Employer
File Number   Address and Telephone Number   Identification No.
1-3526  
The Southern Company
(A Delaware Corporation)
30 Ivan Allen Jr. Boulevard, N.W.
Atlanta, Georgia 30308
(404) 506-5000
  58-0690070
   
 
   
1-3164  
Alabama Power Company
(An Alabama Corporation)
600 North 18th Street
Birmingham, Alabama 35291
(205) 257-1000
  63-0004250
   
 
   
1-6468  
Georgia Power Company
(A Georgia Corporation)
241 Ralph McGill Boulevard, N.E.
Atlanta, Georgia 30308
(404) 506-6526
  58-0257110
   
 
   
0-2429  
Gulf Power Company
(A Florida Corporation)
One Energy Place
Pensacola, Florida 32520
(850) 444-6111
  59-0276810
   
 
   
001-11229  
Mississippi Power Company
(A Mississippi Corporation)
2992 West Beach
Gulfport, Mississippi 39501
(228) 864-1211
  64-0205820
   
 
   
333-98553  
Southern Power Company
(A Delaware Corporation)
30 Ivan Allen Jr. Boulevard, N.W.
Atlanta, Georgia 30308
(404) 506-5000
  58-2598670

 


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     Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files). Yes o No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
                 
    Large           Smaller
    Accelerated   Accelerated   Non-accelerated   Reporting
Registrant   Filer   Filer   Filer   Company
The Southern Company
  X            
Alabama Power Company
          X    
Georgia Power Company
          X    
Gulf Power Company
          X    
Mississippi Power Company
          X    
Southern Power Company
          X    
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No þ (Response applicable to all registrants.)
             
    Description of   Shares Outstanding
Registrant   Common Stock   at June 30, 2009
The Southern Company
  Par Value $5 Per Share     796,051,643  
Alabama Power Company
  Par Value $40 Per Share     25,475,000  
Georgia Power Company
  Without Par Value     9,261,500  
Gulf Power Company
  Without Par Value     3,142,717  
Mississippi Power Company
  Without Par Value     1,121,000  
Southern 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, and Southern Power Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants.

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INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2009
             
        Page
        Number
DEFINITIONS     5  
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION     7  
   
 
       
PART I — FINANCIAL INFORMATION
   
 
       
Item 1.  
Financial Statements (Unaudited)
       
Item 2.  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
       
           
        9  
        10  
        11  
        13  
        14  
           
        34  
        34  
        35  
        36  
        38  
           
        54  
        54  
        55  
        56  
        58  
           
        73  
        73  
        74  
        75  
        77  
           
        93  
        93  
        94  
        95  
        97  
           
        115  
        115  
        116  
        117  
        119  
        132  
Item 3.       32  
Item 4.       32  
Item 4T.       32  

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INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2009
             
        Page
        Number
PART II — OTHER INFORMATION
   
 
       
Item 1.         162
Item 1A.         162
Item 2.  
Unregistered Sales of Equity Securities and Use of Proceeds
  Inapplicable
Item 3.  
Defaults Upon Senior Securities
  Inapplicable
Item 4.         162
Item 5.  
Other Information
  Inapplicable
Item 6.         166
          170

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DEFINITIONS
     
Term   Meaning
2007 Retail Rate Plan
  Georgia Power’s retail rate plan for the years 2008 through 2010
Alabama Power
  Alabama Power Company
Clean Air Act
  Clean Air Act Amendments of 1990
DOE
  U.S. Department of Energy
Duke Energy
  Duke Energy Corporation
ECO Plan
  Mississippi Power’s Environmental Compliance Overview Plan
EPA
  U.S. Environmental Protection Agency
FASB
  Financial Accounting Standards Board
FERC
  Federal Energy Regulatory Commission
Form 10-K
  Combined Annual Report on Form 10-K of Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power for the year ended December 31, 2008 and, with respect to Southern Company, the subsequently revised audited financial statements included in the Current Report on Form 8-K filed May 8, 2009
Georgia Power
  Georgia Power Company
Gulf Power
  Gulf Power Company
IGCC
  Integrated coal gasification combined cycle
IIC
  Intercompany Interchange Contract
Internal Revenue Code
  Internal Revenue Code of 1986, as amended
IRS
  Internal Revenue Service
KWH
  Kilowatt-hour
LIBOR
  London Interbank Offered Rate
Mirant
  Mirant Corporation
Mississippi Power
  Mississippi Power Company
mmBtu
  Million British thermal unit
MW
  Megawatt
MWH
  Megawatt-hour
NRC
  Nuclear Regulatory Commission
NSR
  New Source Review
OCI
  Other Comprehensive Income
PEP
  Performance Evaluation Plan
Power Pool
  The operating arrangement whereby the integrated generating resources of the traditional operating companies and Southern Power are subject to joint commitment and dispatch in order to serve their combined load obligations
PPA
  Power Purchase Agreement
PSC
  Public Service Commission
Rate ECR
  Alabama Power’s energy cost recovery rate mechanism
registrants
  Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power
SCS
  Southern Company Services, Inc.
SEC
  Securities and Exchange Commission
Southern Company
  The Southern Company
Southern Company system
  Southern Company, the traditional operating companies, Southern Power, and other subsidiaries

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DEFINITIONS
(continued)
     
Term   Meaning
SouthernLINC Wireless
  Southern Communications Services, Inc.
Southern Nuclear
  Southern Nuclear Operating Company, Inc.
Southern Power
  Southern Power Company
traditional operating companies
  Alabama Power, Georgia Power, Gulf Power, and Mississippi Power
wholesale revenues
  revenues generated from sales for resale

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements include, among other things, statements concerning the strategic goals for the wholesale business, retail sales, customer growth, storm damage cost recovery and repairs, fuel cost recovery and other rate actions, environmental regulations and expenditures, retail return on equity projections, access to sources of capital, projections for postretirement benefit and nuclear decommissioning trust contributions, financing activities, completion of construction projects, plans and estimated costs for new generation resources, impacts of adoption of new accounting rules, potential exemptions from ad valorem taxation of the Kemper IGCC project, unrecognized tax benefits related to leveraged lease transactions, impact of the American Recovery and Reinvestment Act of 2009, estimated sales and purchases under new power sale and purchase agreements, and 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 similar terminology. There are various factors that could cause actual results to differ materially from those suggested by 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, implementation of the Energy Policy Act of 2005, environmental laws including regulation of water quality and emissions of sulfur, nitrogen, mercury, carbon, soot, or particulate matter and other substances, and also changes in tax and other laws and regulations to which Southern Company and its subsidiaries are subject, as well as changes in application of existing laws and regulations;
 
  current and future litigation, regulatory investigations, proceedings, or inquiries, including the pending EPA civil actions against certain Southern Company subsidiaries, FERC matters, IRS audits, and Mirant matters;
 
  the effects, extent, and timing of the entry of additional competition in the markets in which Southern Company’s subsidiaries operate;
 
  variations in demand for electricity, including those relating to weather, the general economy, population and business growth (and declines), and the effects of energy conservation measures;
 
  available sources and costs of fuels;
 
  effects of inflation;
 
  ability to control costs and avoid cost overruns during the development and construction of facilities;
 
  investment performance of Southern Company’s employee benefit plans;
 
  advances in technology;
 
  state and federal rate regulations and the impact of pending and future rate cases and negotiations, including rate actions relating to fuel and storm restoration cost recovery and including Georgia Power’s pending accounting order request;
 
  regulatory approvals related to the potential Plant Vogtle expansion, including Georgia PSC and NRC approvals;
 
  the performance of projects undertaken by the non-utility businesses and the success of efforts to invest in and develop new opportunities;
 
  internal restructuring or other restructuring options that may be pursued;
 
  potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial to Southern Company or its subsidiaries;
 
  the ability of counterparties of Southern Company and its subsidiaries to make payments as and when due and to perform as required;
 
  the ability to obtain new short- and long-term contracts with neighboring utilities and other wholesale customers;
 
  the direct or indirect effect on Southern Company’s business resulting from terrorist incidents and the threat of terrorist incidents;
 
  interest rate fluctuations and financial market conditions and the results of financing efforts, including Southern Company’s and its subsidiaries’ credit ratings;
 
  the ability of Southern Company and its subsidiaries to obtain additional generating capacity at competitive prices;
 
  catastrophic events such as fires, earthquakes, explosions, floods, hurricanes, droughts, pandemic health events such as an avian or other influenza, or other similar occurrences;
 
  the direct or indirect effects on Southern Company’s business resulting from incidents similar to the August 2003 power outage in the Northeast;
 
  the effect of accounting pronouncements issued periodically by standard setting bodies; and
 
  other factors discussed elsewhere herein and in other reports (including the Form 10-K) filed by the registrants from time to time with the SEC.
Each registrant expressly disclaims any obligation to update any forward-looking statements.

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THE SOUTHERN COMPANY AND
SUBSIDIARY COMPANIES

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2009     2008     2009     2008  
    (in thousands)     (in thousands)  
Operating Revenues:
                               
Retail revenues
  $ 3,293,012     $ 3,449,878     $ 6,357,671     $ 6,455,492  
Wholesale revenues
    437,750       591,802       889,164       1,105,464  
Other electric revenues
    128,403       141,162       251,201       271,352  
Other revenues
    25,999       32,345       53,435       65,789  
 
                       
Total operating revenues
    3,885,164       4,215,187       7,551,471       7,898,097  
 
                       
Operating Expenses:
                               
Fuel
    1,449,138       1,622,074       2,855,405       3,074,017  
Purchased power
    133,188       197,260       240,832       290,164  
Other operations and maintenance
    831,214       914,998       1,702,295       1,811,815  
MC Asset Recovery litigation settlement
                202,000        
Depreciation and amortization
    377,341       358,745       767,099       702,630  
Taxes other than income taxes
    208,089       198,042       407,969       387,314  
 
                       
Total operating expenses
    2,998,970       3,291,119       6,175,600       6,265,940  
 
                       
Operating Income
    886,194       924,068       1,375,871       1,632,157  
Other Income and (Expense):
                               
Allowance for equity funds used during construction
    47,500       35,486       90,112       76,071  
Interest income
    4,870       1,188       11,778       10,993  
Equity in income (losses) of unconsolidated subsidiaries
    680       1,097       (296 )     1,425  
Leveraged lease income (losses)
    8,676       (70,879 )     18,117       (59,954 )
Gain on disposition of lease termination
    26,300             26,300        
Loss on extinguishment of debt
    (17,184 )           (17,184 )      
Interest expense, net of amounts capitalized
    (232,830 )     (228,948 )     (458,557 )     (446,057 )
Other income (expense), net
    (3,681 )     (4,483 )     (16,531 )     (3,569 )
 
                       
Total other income and (expense)
    (165,669 )     (266,539 )     (346,261 )     (421,091 )
 
                       
Earnings Before Income Taxes
    720,525       657,529       1,029,610       1,211,066  
Income taxes
    225,717       224,952       392,886       403,090  
 
                       
Consolidated Net Income
    494,808       432,577       636,724       807,976  
Dividends on Preferred and Preference Stock of Subsidiaries
    16,195       16,195       32,390       32,390  
 
                       
Consolidated Net Income After Dividends on Preferred and Preference Stock of Subsidiaries
  $ 478,613     $ 416,382     $ 604,334     $ 775,586  
 
                       
Common Stock Data:
                               
Earnings per share (EPS) —
                               
Basic EPS
  $ 0.61     $ 0.54     $ 0.77     $ 1.01  
Diluted EPS
  $ 0.60     $ 0.54     $ 0.77     $ 1.00  
Average number of shares of common stock outstanding (in thousands)
                               
Basic
    790,748       769,122       785,303       767,636  
Diluted
    792,068       773,140       786,865       771,727  
Cash dividends paid per share of common stock
  $ 0.4375     $ 0.4200     $ 0.8575     $ 0.8225  
The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    For the Six Months  
    Ended June 30,  
    2009     2008  
    (in thousands)  
Operating Activities:
               
Consolidated net income
  $ 636,724     $ 807,976  
Adjustments to reconcile consolidated net income to net cash provided from operating activities —
               
Depreciation and amortization, total
    895,354       831,790  
Deferred income taxes and investment tax credits
    (13,807 )     (79,033 )
Deferred revenues
    (26,295 )     57,768  
Allowance for equity funds used during construction
    (90,112 )     (76,071 )
Equity in income (losses) of unconsolidated subsidiaries
    296       (1,425 )
Leveraged lease income (losses)
    (18,117 )     59,954  
Gain on disposition of lease termination
    (26,300 )      
Loss on extinguishment of debt
    17,184        
Pension, postretirement, and other employee benefits
    (10,939 )     24,596  
Stock option expense
    18,956       15,734  
Hedge settlements
    (16,167 )     17,289  
Other, net
    27,948       (3,969 )
Changes in certain current assets and liabilities —
               
-Receivables
    74,770       (317,403 )
-Fossil fuel stock
    (375,888 )     (121,823 )
-Materials and supplies
    (20,079 )     (28,609 )
-Other current assets
    (96,394 )     (54,536 )
-Accounts payable
    14,711       161,703  
-Accrued taxes
    (140,308 )     181,105  
-Accrued compensation
    (298,670 )     (185,500 )
-Other current liabilities
    66,748       121,337  
 
           
Net cash provided from operating activities
    619,615       1,410,883  
 
           
Investing Activities:
               
Property additions
    (2,192,959 )     (1,983,177 )
Investment in restricted cash from pollution control revenue bonds
    (49,478 )     (161 )
Distribution of restricted cash from pollution control revenue bonds
    59,741       32,908  
Nuclear decommissioning trust fund purchases
    (823,416 )     (405,999 )
Nuclear decommissioning trust fund sales
    788,690       399,119  
Proceeds from property sales
    339,903       5,495  
Cost of removal, net of salvage
    (63,705 )     (40,757 )
Change in construction payables
    128,101       3,174  
Other investing activities
    8,063       (34,547 )
 
           
Net cash used for investing activities
    (1,805,060 )     (2,023,945 )
 
           
Financing Activities:
               
Increase (decrease) in notes payable, net
    148,090       (151,513 )
Proceeds —
               
Long-term debt issuances
    1,785,474       1,684,935  
Common stock issuances
    539,088       235,454  
Redemptions —
               
Long-term debt
    (199,929 )     (361,263 )
Redeemable preferred stock
          (125,000 )
Payment of common stock dividends
    (670,226 )     (630,594 )
Payment of dividends on preferred and preference stock of subsidiaries
    (32,465 )     (33,273 )
Other financing activities
    (19,327 )     (12,267 )
 
           
Net cash provided from financing activities
    1,550,705       606,479  
 
           
Net Change in Cash and Cash Equivalents
    365,260       (6,583 )
Cash and Cash Equivalents at Beginning of Period
    416,581       200,550  
 
           
Cash and Cash Equivalents at End of Period
  $ 781,841     $ 193,967  
 
           
Supplemental Cash Flow Information:
               
Cash paid during the period for —
               
Interest (net of $38,594 and $39,434 capitalized for 2009 and 2008, respectively)
  $ 386,729     $ 389,466  
Income taxes (net of refunds)
  $ 468,278     $ 280,902  
The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Assets   2009     2008  
    (in thousands)  
Current Assets:
               
Cash and cash equivalents
  $ 781,841     $ 416,581  
Restricted cash and cash equivalents
    96,540       102,537  
Receivables —
               
Customer accounts receivable
    1,149,309       1,053,674  
Unbilled revenues
    453,022       320,439  
Under recovered regulatory clause revenues
    547,927       646,318  
Other accounts and notes receivable
    335,712       301,028  
Accumulated provision for uncollectible accounts
    (27,273 )     (26,326 )
Fossil fuel stock, at average cost
    1,387,738       1,018,314  
Materials and supplies, at average cost
    773,721       756,746  
Vacation pay
    134,958       140,283  
Prepaid expenses
    364,463       301,570  
Other regulatory assets, current
    322,790       275,424  
Other current assets
    68,622       51,044  
 
           
Total current assets
    6,389,370       5,357,632  
 
           
Property, Plant, and Equipment:
               
In service
    51,880,917       50,618,219  
Less accumulated depreciation
    18,739,799       18,285,800  
 
           
Plant in service, net of depreciation
    33,141,118       32,332,419  
Nuclear fuel, at amortized cost
    546,217       510,274  
Construction work in progress
    3,810,611       3,035,795  
 
           
Total property, plant, and equipment
    37,497,946       35,878,488  
 
           
Other Property and Investments:
               
Nuclear decommissioning trusts, at fair value
    940,499       864,396  
Leveraged leases
    599,569       897,338  
Miscellaneous property and investments
    227,196       226,757  
 
           
Total other property and investments
    1,767,264       1,988,491  
 
           
Deferred Charges and Other Assets:
               
Deferred charges related to income taxes
    1,010,624       972,781  
Unamortized debt issuance expense
    215,437       207,763  
Unamortized loss on reacquired debt
    260,614       270,919  
Deferred under recovered regulatory clause revenues
    364,728       606,483  
Other regulatory assets, deferred
    2,553,505       2,636,217  
Other deferred charges and assets
    357,561       428,432  
 
           
Total deferred charges and other assets
    4,762,469       5,122,595  
 
           
 
Total Assets
  $ 50,417,049     $ 48,347,206  
 
           
The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Liabilities and Stockholders’ Equity   2009     2008  
    (in thousands)  
Current Liabilities:
               
Securities due within one year
  $ 1,095,586     $ 616,415  
Notes payable
    1,093,217       953,437  
Accounts payable
    1,419,534       1,249,694  
Customer deposits
    319,842       302,495  
Accrued taxes —
               
Accrued income taxes
    95,345       195,922  
Unrecognized tax benefits
    150,344       131,641  
Other accrued taxes
    301,852       396,206  
Accrued interest
    222,382       195,500  
Accrued vacation pay
    168,273       178,519  
Accrued compensation
    162,969       446,718  
Liabilities from risk management activities
    267,977       260,977  
Other current liabilities
    365,441       298,711  
 
           
Total current liabilities
    5,662,762       5,226,235  
 
           
Long-term Debt
    17,921,409       16,816,438  
 
           
Deferred Credits and Other Liabilities:
               
Accumulated deferred income taxes
    6,151,050       6,080,104  
Deferred credits related to income taxes
    261,840       259,156  
Accumulated deferred investment tax credits
    443,128       455,398  
Employee benefit obligations
    2,029,596       2,057,424  
Asset retirement obligations
    1,217,956       1,182,769  
Other cost of removal obligations
    1,327,726       1,320,558  
Other regulatory liabilities, deferred
    217,020       261,970  
Other deferred credits and liabilities
    319,029       329,534  
 
           
Total deferred credits and other liabilities
    11,967,345       11,946,913  
 
           
Total Liabilities
    35,551,516       33,989,586  
 
           
Redeemable Preferred Stock of Subsidiaries
    374,496       374,496  
 
           
Stockholders’ Equity:
               
Common Stockholders’ Equity:
               
Common stock, par value $5 per share —
               
Authorized — 1 billion shares
               
Issued — June 30, 2009: 796,509,669 Shares;
               
— December 31, 2008: 777,615,751 Shares
               
Treasury — June 30, 2009: 458,026 Shares;
               
— December 31, 2008: 423,477 Shares
               
Par value
    3,982,521       3,888,041  
Paid-in capital
    2,356,636       1,892,802  
Treasury, at cost
    (13,299 )     (12,279 )
Retained earnings
    7,546,424       7,611,977  
Accumulated other comprehensive loss
    (88,612 )     (104,784 )
 
           
Total Common Stockholders’ Equity
    13,783,670       13,275,757  
Preferred and Preference Stock of Subsidiaries
    707,367       707,367  
 
           
Total Stockholders’ Equity
    14,491,037       13,983,124  
 
           
Total Liabilities and Stockholders’ Equity
  $ 50,417,049     $ 48,347,206  
 
           
The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.

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Table of Contents

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2009     2008     2009     2008  
    (in thousands)     (in thousands)  
Consolidated Net Income
  $ 494,808     $ 432,577     $ 636,724     $ 807,976  
Other comprehensive income (loss):
                               
Qualifying hedges:
                               
Changes in fair value, net of tax of $(1,744), $2,571, $(982), and $(11,417), respectively
    (2,811 )     4,338       (1,664 )     (17,913 )
Reclassification adjustment for amounts included in net income, net of tax of $4,630, $2,371, $8,463, and $4,149, respectively
    7,370       3,733       13,468       6,508  
Marketable securities:
                               
Change in fair value, net of tax of $1,204, $(319), $1,295, and $(2,456), respectively
    2,935       (925 )     3,669       (4,026 )
Pension and other post retirement benefit plans:
                               
Reclassification adjustment for amounts included in net income, net of tax of $221, $277, $443, and $536, respectively
    349       471       699       882  
 
                       
Total other comprehensive income (loss)
    7,843       7,617       16,172       (14,549 )
 
                       
Dividends on preferred and preference stock of subsidiaries
    (16,195 )     (16,195 )     (32,390 )     (32,390 )
 
                       
Comprehensive Income
  $ 486,456     $ 423,999     $ 620,506     $ 761,037  
 
                       
The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.

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Table of Contents

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 2009 vs. SECOND QUARTER 2008
AND
YEAR-TO-DATE 2009 vs. YEAR-TO-DATE 2008
OVERVIEW
Discussion of the results of operations is focused on Southern Company’s primary business of electricity sales in the Southeast by the traditional operating companies – Alabama Power, Georgia Power, Gulf Power, and Mississippi Power – and Southern Power. The traditional operating companies are vertically integrated utilities providing electric service in four Southeastern states. Southern Power constructs, acquires, owns, and manages generation assets and sells electricity at market-based rates in the wholesale market. Southern Company’s other business activities include investments in leveraged lease projects, telecommunications, and energy-related services. For additional information on these businesses, see BUSINESS – The Southern Company System – “Traditional Operating Companies,” “Southern Power,” and “Other Businesses” in Item 1 of the Form 10-K.
Southern Company continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, and earnings per share. For additional information on these indicators, see MANAGEMENT’S DISCUSSION AND ANALYSIS – OVERVIEW – “Key Performance Indicators” of Southern Company in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$62.2
  14.9   $(171.3)   (22.1)
 
Southern Company’s second quarter 2009 net income after dividends on preferred and preference stock of subsidiaries was $478.6 million ($0.61 per share) compared to $416.4 million ($0.54 per share) for the second quarter 2008. The increase for the second quarter 2009 when compared to the corresponding period in 2008 was primarily the result of an increase in customer charges at Alabama Power, increased recognition of environmental compliance cost recovery revenues at Georgia Power, lower operations and maintenance expenses, a 2008 charge related to tax treatment of leveraged lease investments, and a gain on the early termination of two international leveraged lease investments. The increase for the second quarter 2009 was partially offset by a decrease in revenues from lower KWH sales, a decrease in revenues from market-response rates to large commercial and industrial customers, and higher depreciation and amortization.
Southern Company’s year-to-date 2009 net income after dividends on preferred and preference stock of subsidiaries was $604.3 million ($0.77 per share) compared to $775.6 million ($1.01 per share) for year-to-date 2008. The decrease for year-to-date 2009 when compared to the corresponding period in 2008 was primarily the result of a litigation settlement with MC Asset Recovery, LLC (MC Asset Recovery), a decrease in revenues from lower KWH sales, a decrease in revenues from market-response rates to large commercial and industrial customers, and higher depreciation and amortization. The decrease for year-to-date 2009 was partially offset by an increase in customer charges at Alabama Power, increased recognition of environmental compliance cost recovery revenues at Georgia Power, lower operations and maintenance expenses, a 2008 charge related to tax treatment of leveraged lease investments, and a gain on the early termination of two international leveraged lease investments.

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Table of Contents

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Retail Revenues
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(156.9)   (4.5)   $(97.8)   (1.5)
 
In the second quarter 2009, retail revenues were $3.29 billion compared to $3.45 billion for the corresponding period in 2008.
For year-to-date 2009, retail revenues were $6.36 billion compared to $6.46 billion for the corresponding period in 2008.
Details of the change to retail revenues are as follows:
                                 
    Second Quarter   Year-to-Date
    2009   2009
    (in millions)   (% change)   (in millions)   (% change)
Retail – prior year
  $ 3,449.9             $ 6,455.5          
Estimated change in —
                               
Rates and pricing
    7.7       0.2       85.7       1.3  
Sales growth (decline)
    (82.6 )     (2.4 )     (139.1 )     (2.2 )
Weather
    8.3       0.3       4.4       0.1  
Fuel and other cost recovery
    (90.3 )     (2.6 )     (48.8 )     (0.7 )
 
Retail – current year
  $ 3,293.0       (4.5 )%   $ 6,357.7       (1.5 )%
 
Revenues associated with changes in rates and pricing increased in the second quarter and for year-to-date 2009 when compared to the corresponding periods in 2008 primarily as a result of an increase in customer charges at Alabama Power and increased recognition of environmental compliance cost recovery revenues at Georgia Power in accordance with its 2007 Retail Rate Plan, partially offset by a decrease in revenues from market-response rates to large commercial and industrial customers.
Revenues attributable to changes in sales declined in the second quarter and for year-to-date 2009 when compared to the corresponding periods in 2008 due to decreases in weather-adjusted retail KWH sales of 6.8% and 6.5%, respectively, resulting primarily from recessionary economic conditions. For the second quarter 2009, weather-adjusted residential KWH sales decreased 1.6%, weather-adjusted commercial KWH sales decreased 0.5%, and weather-adjusted industrial KWH sales decreased 17.7%. For year-to-date 2009, weather-adjusted residential KWH sales decreased 1.0%, weather-adjusted commercial KWH sales decreased 0.9%, and weather-adjusted industrial KWH sales decreased 17.3%. Reduced demand in the primary metals and chemical sectors contributed to the decreases in weather-adjusted industrial KWH sales in the second quarter and for year-to-date 2009 when compared to the corresponding periods in 2008. Reduced demand in the stone, clay, and glass sector also contributed to the second quarter 2009 decrease in weather-adjusted industrial KWH sales.
Revenues resulting from changes in weather increased in the second quarter 2009 and for year-to-date 2009 as a result of more favorable weather when compared to the corresponding periods in 2008.
Fuel and other cost recovery revenues decreased $90.3 million in the second quarter 2009 and $48.8 million for year-to-date 2009 when compared to the corresponding periods in 2008. Electric rates for the traditional operating companies include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these provisions, fuel revenues generally equal fuel expenses, including the fuel component of purchased power costs, and do not affect net income.

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wholesale Revenues
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(154.0)
  (26.0)   $(216.3)   (19.6)
 
In the second quarter 2009, wholesale revenues were $437.8 million compared to $591.8 million for the corresponding period in 2008. Wholesale fuel revenues, which are generally offset by wholesale fuel expenses and do not affect net income, decreased $143.3 million in the second quarter 2009 when compared to the corresponding period in 2008. Excluding wholesale fuel revenues, wholesale revenues decreased $10.7 million in the second quarter 2009 when compared to the corresponding period in 2008. The decrease was primarily the result of fewer short-term opportunity sales due to lower energy prices, partially offset by additional revenues associated with Plant Franklin Unit 3 at Southern Power which went into service in June 2008.
For year-to-date 2009, wholesale revenues were $889.2 million compared to $1.11 billion for the corresponding period in 2008. Wholesale fuel revenues, which are generally offset by wholesale fuel expenses and do not affect net income, decreased $225.2 million for year-to-date 2009 when compared to the corresponding period in 2008. Excluding wholesale fuel revenues, wholesale revenues increased $8.9 million for year-to-date 2009 when compared to the corresponding period in 2008. The increase was primarily the result of additional revenues associated with Plant Franklin Unit 3 at Southern Power, returns on new and existing wholesale contracts, and changes in mark-to-market positions on sales of uncontracted generating capacity. Fewer short-term opportunity sales due to lower energy prices partially offset this increase.
Short-term opportunity sales are made at market-based rates that generally provide a margin above Southern Company’s variable cost to produce the energy.
Other Electric Revenues
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(12.8)   (9.0)   $(20.2)   (7.4)
 
In the second quarter 2009, other electric revenues were $128.4 million compared to $141.2 million for the corresponding period in 2008. The decrease was primarily the result of a $15.3 million decrease in co-generation revenues due to lower gas prices and a decline in sales volume, partially offset by a $4.4 million increase in transmission revenues.
For year-to-date 2009, other electric revenues were $251.2 million compared to $271.4 million for the corresponding period in 2008. The decrease was the result of a $21.6 million decrease in co-generation revenues due to lower gas prices and a decline in sales volume.
Revenues from co-generation are generally offset by related expenses and do not affect net income.

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Revenues
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(6.3)   (19.6)   $(12.4)   (18.8)
 
In the second quarter 2009, other revenues were $26.0 million compared to $32.3 million for the corresponding period in 2008. The decrease was primarily the result of a $6.4 million decrease in revenues at SouthernLINC Wireless related to lower average revenue per subscriber and fewer subscribers as a result of increased competition in the industry when compared to the corresponding period in 2008.
For year-to-date 2009, other revenues were $53.4 million compared to $65.8 million for the corresponding period in 2008. The decrease was primarily the result of a $12.1 million decrease in revenues at SouthernLINC Wireless related to lower average revenue per subscriber and fewer subscribers as a result of increased competition in the industry when compared to the corresponding period in 2008.
Fuel and Purchased Power Expenses
                                 
    Second Quarter 2009     Year-to-Date 2009  
    vs.     vs.  
    Second Quarter 2008     Year-to-Date 2008  
    (change in millions)   (% change)   (change in millions)   (% change)
Fuel
  $ (172.9 )     (10.7 )   $ (218.6 )     (7.1 )
Purchased power
    (64.1 )     (32.5 )     (49.3 )     (17.0 )
                         
Total fuel and purchased power expenses
  $ (237.0 )           $ (267.9 )        
                         
Fuel and purchased power expenses for the second quarter 2009 were $1.58 billion compared to $1.82 billion for the corresponding period in 2008. The decrease was primarily the result of a $204.3 million net decrease related to total KWHs generated and purchased and a $32.7 million net decrease in the average cost of fuel and purchased power when compared to the corresponding period in 2008. The net decrease in the average cost of fuel and purchased power for the second quarter 2009 resulted from lower fossil fuel prices when compared to the corresponding period in 2008.
For year-to-date 2009, fuel and purchased power expenses were $3.10 billion compared to $3.36 billion for the corresponding period in 2008. The decrease was primarily the result of a $326.3 million net decrease related to total KWHs generated and purchased, partially offset by a $58.4 million net increase in the average cost of fuel and purchased power, primarily related to a 23.7% increase in the cost of coal per net KWH generated, when compared to the corresponding period in 2008.
Fuel expenses at the traditional operating companies are generally offset by fuel revenues and do not affect net income. See FUTURE EARNINGS POTENTIAL – “FERC and State PSC Matters – Retail Fuel Cost Recovery” herein for additional information. Fuel expenses incurred under Southern Power’s PPAs are generally the responsibility of the counterparties and do not significantly affect net income.

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Table of Contents

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of Southern Company’s cost of generation and purchased power are as follows:
                                                 
    Second Quarter   Second Quarter   Percent   Year-to-Date   Year-to-Date   Percent
Average Cost   2009   2008   Change   2009   2008   Change
    (cents per net KWH)           (cents per net KWH)        
Fuel
    3.29       3.29             3.34       3.18       5.0  
Purchased power
    7.79       9.61       (18.9 )     6.31       8.28       (23.8 )
 
Energy purchases will vary depending on demand for energy within the Southern Company service area, the market cost of available energy as compared to the cost of Southern Company system-generated energy, and the availability of Southern Company system generation.
Other Operations and Maintenance Expenses
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(83.8)
  (9.2)   $(109.5)   (6.0)
       
In the second quarter 2009, other operations and maintenance expenses were $831.2 million compared to $915.0 million for the corresponding period in 2008. The decrease was primarily the result of a $28.2 million decrease in fossil and hydro expenses mainly due to less planned spending on outages and maintenance; a $27.2 million decrease in transmission and distribution expenses mainly due to lower maintenance expenses; a $10.8 million decrease in administrative and general expenses primarily related to employee medical expenses; a $5.8 million decrease in expenses related to lower advertising, litigation, and property insurance costs; a $5.5 million decrease in expenses primarily related to lower sales volume at SouthernLINC Wireless; and a $5.3 million decrease in expenses related to customer service and sales.
For year-to-date 2009, other operations and maintenance expenses were $1.70 billion compared to $1.81 billion for the corresponding period in 2008. The decrease was primarily the result of a $53.2 million decrease in fossil and hydro expenses mainly due to less planned spending on outages and maintenance; a $41.2 million decrease in transmission and distribution expenses mainly due to lower maintenance and metering expenses; a $13.1 million decrease in expenses related to lower advertising, litigation, and property insurance costs; a $10.1 million decrease in expenses primarily related to lower sales volume at SouthernLINC Wireless; and a $6.9 million decrease in expenses related to customer service and sales. This decrease was partially offset by a $16.3 million increase in administration and general expenses largely related to the $29.4 million charge in the first quarter 2009 in connection with a voluntary attrition program at Georgia Power under which 579 employees elected to resign their positions effective March 31, 2009. In the second quarter 2009, approximately one-third of the $29.4 million charge was offset by lower salary and employee benefits costs, and the other two-thirds will be offset during the remainder of the year. This charge is not expected to have a material impact on Southern Company’s financial statements for the year ending December 31, 2009.
MC Asset Recovery Litigation Settlement
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
    $202.0   N/M
 
N/M — Not Meaningful
In the first quarter 2009, Southern Company entered into a litigation settlement agreement with MC Asset Recovery which resulted in a charge of $202.0 million. See Note (B) to the Condensed Financial Statements under “Mirant Matters – MC Asset Recovery Litigation” herein for additional information.

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Depreciation and Amortization
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$18.6   5.2   $64.5   9.2
 
In the second quarter 2009, depreciation and amortization was $377.3 million compared to $358.7 million for the corresponding period in 2008. The increase was primarily the result of an increase in plant in service related to environmental, transmission, and distribution projects at Georgia Power; an increase in depreciation rates at Southern Power; and the completion of Southern Power’s Plant Franklin Unit 3 in June 2008.
For year-to-date 2009, depreciation and amortization was $767.1 million compared to $702.6 million for the corresponding period in 2008. The increase was primarily the result of an increase in plant in service related to environmental, transmission, and distribution projects at Alabama Power and Georgia Power; an increase in depreciation rates at Southern Power; and the completion of Southern Power’s Plant Franklin Unit 3 in June 2008.
Taxes Other Than Income Taxes
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$10.1   5.1   $20.7   5.3
 
In the second quarter 2009, taxes other than income taxes were $208.1 million compared to $198.0 million for the corresponding period in 2008.
For year-to-date 2009, taxes other than income taxes were $408.0 million compared to $387.3 million for the corresponding period in 2008.
The second quarter and year-to-date 2009 increases were primarily the result of increases in state and municipal public utility license tax bases at Alabama Power, higher ad valorem taxes at Georgia Power, and increases in franchise fees at Gulf Power. Increases in franchise fees are associated with increases in revenues from retail energy sales.
Allowance for Equity Funds Used During Construction
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$12.0   33.9   $14.0   18.5
 
In the second quarter 2009, allowance for equity funds used during construction (AFUDC) was $47.5 million compared to $35.5 million for the corresponding period in 2008.
For year-to-date 2009, AFUDC was $90.1 million compared to $76.1 million for the corresponding period in 2008.
The second quarter and year-to-date 2009 increases were primarily the result of additional investments in environmental projects mainly at Alabama Power and Gulf Power.

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Table of Contents

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Leveraged Lease Income (Losses)
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$79.6   112.2   $78.1   130.2
 
In the second quarter 2009, leveraged lease income (losses) was $8.7 million compared to $(70.9) million for the corresponding period in 2008.
For year-to-date 2009, leveraged lease income (losses) was $18.1 million compared to $(60.0) million for the corresponding period in 2008.
Southern Company has several leveraged lease investments in international and domestic energy generation, distribution, and transportation assets. Southern Company receives federal income tax deductions for depreciation and amortization, as well as interest on long-term debt related to these investments. The second quarter and year-to-date 2009 increases were primarily the result of the 2008 application of certain accounting standards related to leveraged leases, including a second quarter 2008 after tax charge of $51.2 million. See Note (B) to the Condensed Financial Statements under “Income Tax Matters — Leveraged Leases” herein for additional information.
Gain on Disposition of Lease Termination
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$26.3   N/M   $26.3   N/M
 
N/M — Not Meaningful
In the second quarter 2009, Southern Company terminated two international leveraged lease investments early which resulted in a gain of $26.3 million.
Loss on Extinguishment of Debt
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$17.2   N/M   $17.2   N/M
       
N/M — Not Meaningful
In the second quarter 2009, Southern Company terminated two international leveraged lease investments early. The proceeds from the terminations were used to extinguish all debt related to leveraged lease investments, a portion of which had make-whole redemption provisions which resulted in a loss of $17.2 million.
Interest Expense, Net of Amounts Capitalized
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$3.9   1.7   $12.5   2.8
 
In the second quarter 2009, interest expense, net of amounts capitalized was $232.8 million compared to $228.9 million for the corresponding period in 2008. The increase when compared to the corresponding period in 2008 was not material.

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For year-to-date 2009, interest expense, net of amounts capitalized was $458.6 million compared to $446.1 million for the corresponding period in 2008. The increase was primarily due to a $53.0 million increase associated with $2.46 billion in additional debt outstanding at June 30, 2009 compared to June 30, 2008. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Financing Activities” of Southern Company in Item 7 of the Form 10-K and herein for additional information. Partially offsetting this increase was $30.2 million related to lower average interest rates on existing variable rate debt and an $11.2 million decrease related to other interest charges.
Other Income (Expense), Net
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$0.8   17.9   $(12.9)   N/M
 
N/M — Not Meaningful
In the second quarter 2009, other income (expense), net was $(3.7) million compared to $(4.5) million for the corresponding period in 2008. The decrease in expense when compared to the corresponding period in 2008 is not material.
For year-to-date 2009, other income (expense), net was $(16.5) million compared to $(3.6) million for the corresponding period in 2008. The increase in expense was primarily the result of the first quarter 2008 recognition of a $6.4 million fee received for participating in an asset auction and a $6.0 million gain on the sale of an undeveloped tract of land to the Orlando Utilities Commission.
Income Taxes
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$0.7   0.3   $(10.2)   (2.5)
 
In the second quarter 2009, income taxes were $225.7 million compared to $225.0 million for the corresponding period in 2008. The increase was the result of taxes on higher pre-tax earnings, largely offset by lower tax expenses associated with the early termination of one of the international leveraged lease investments and the extinguishment of the associated debt discussed previously under “Gain on Disposition of Lease Termination” and “Loss on Extinguishment of Debt.” See Note (G) to the Condensed Financial Statements under “Effective Tax Rate” herein for details regarding the impact of the early lease termination on the effective tax rate.
For year-to-date 2009, income taxes were $392.9 million compared to $403.1 million for the corresponding period in 2008. The decrease was primarily the result of lower tax expenses associated with the early termination of one of the international leveraged lease investments and the extinguishment of the associated debt discussed previously under “Gain on Disposition of Lease Termination” and “Loss on Extinguishment of Debt.” See Note (G) to the Condensed Financial Statements under “Effective Tax Rate” herein for details regarding the impact of the MC Asset Recovery litigation settlement and the early lease termination on the effective tax rate.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Southern Company’s future earnings potential. The level of Southern Company’s future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Southern Company’s primary business of selling electricity. These factors include the traditional operating companies’ ability to maintain a constructive regulatory environment that continues to allow for the recovery of prudently incurred costs during a time of increasing costs. Other major factors include profitability of the competitive wholesale supply business and federal regulatory policy, which may impact Southern Company’s level of participation in this market. Future earnings for the electricity

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
business in the near term will depend, in part, upon maintaining energy sales, which is subject to a number of factors. These factors include weather, competition, new energy contracts with neighboring utilities and other wholesale customers, energy conservation practiced by customers, the price of electricity, the price elasticity of demand, and the rate of economic growth or decline in the service area. In addition, the level of future earnings for the wholesale supply business also depends on numerous factors including creditworthiness of customers, total generating capacity available in the Southeast, and the successful remarketing of capacity as current contracts expire. Recent recessionary conditions have negatively impacted sales for the traditional operating companies and have negatively impacted wholesale capacity revenues at Southern Power. The current economic recession is expected to continue to have a negative impact on energy sales, particularly to industrial customers. The timing and extent of the economic recovery will impact future earnings. For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL of Southern Company in Item 7 of the Form 10-K.
Environmental Matters
Compliance costs related to the Clean Air Act and other environmental statutes and regulations could affect earnings if such costs cannot continue to be fully recovered in rates on a timely basis. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Environmental Matters” in Item 8 of the Form 10-K for additional information.
Water Quality
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters – Environmental Statutes and Regulations – Water Quality” of Southern Company in Item 7 of the Form 10-K for additional information regarding the EPA’s regulation of cooling water intake structures. On April 1, 2009, the U.S. Supreme Court reversed the U.S. Court of Appeals for the Second Circuit’s decision with respect to the rule’s use of cost-benefit analysis and held that the EPA could consider costs in arriving at its standards and in providing variances from those standards for existing power plant cooling water intake structures. Other aspects of the court’s decision were not appealed and remain unaffected by the U.S. Supreme Court’s ruling. While the U.S. Supreme Court’s decision may ultimately result in greater flexibility for demonstrating compliance with the standards, the full scope of the regulations will depend on subsequent legal proceedings, further rulemaking by the EPA, the results of studies and analyses performed as part of the rules’ implementation, and the actual requirements established by state regulatory agencies and, therefore, cannot be determined at this time.
Global Climate Issues
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters – Global Climate Issues” of Southern Company in Item 7 of the Form 10-K for information regarding the potential for legislation and regulation addressing greenhouse gas emissions. On April 17, 2009, the EPA released a proposed finding that certain greenhouse gas emissions from new motor vehicles endanger public health and welfare due to climate change. The ultimate outcome of the proposed endangerment finding cannot be determined at this time and will depend on additional regulatory action and potential legal challenges. However, regulatory decisions that may follow from such a finding could have implications for both new and existing stationary sources, such as power plants. In addition, federal legislative proposals that would impose mandatory requirements related to greenhouse gas emissions, renewable energy standards, and energy efficiency standards continue to be actively considered in Congress, and the reduction of greenhouse gas emissions has been identified as a high priority by the current Administration. On June 26, 2009, the American Clean Energy and Security Act of 2009, which would impose mandatory greenhouse gas restrictions through implementation of a cap and trade program, a renewable energy standard, and other measures, was passed by the House of Representatives and is expected to now be considered by the Senate. The ultimate outcome of these matters cannot be determined at this time; however, mandatory restrictions on

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Southern Company’s greenhouse gas emissions, or requirements relating to renewable energy or energy efficiency, could result in significant additional compliance costs that could affect future unit retirement and replacement decisions and results of operations, cash flows, and financial condition if such costs are not recovered through regulated rates.
FERC and State PSC Matters
Market-Based Rate Authority
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters – Market-Based Rate Authority” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “FERC Matters – Market-Based Rate Authority” in Item 8 of the Form 10-K for information regarding market-based rate authority. In October 2008, Southern Company filed with the FERC a revised market-based rate (MBR) tariff and a new cost-based rate (CBR) tariff. The revised MBR tariff provides for a “must offer” energy auction whereby Southern Company offers all of its available energy for sale in a day-ahead auction and an hour-ahead auction with reserve prices not to exceed the CBR tariff price, after considering Southern Company’s native load requirements, reliability obligations, and sales commitments to third parties. All sales under the energy auction would be at market clearing prices established under the auction rules. The new CBR tariff provides for a cost-based price for wholesale sales of less than a year. On March 5, 2009, the FERC accepted Southern Company’s CBR tariff for filing. On March 25, 2009, the FERC accepted Southern Company’s compliance filing related to the MBR tariff and directed Southern Company to commence the energy auction in 30 days. Southern Company commenced the energy auction on April 23, 2009. The FERC has determined that implementation of the energy auction in accordance with the MBR tariff order adequately mitigates going forward any presumption of market power that Southern Company may have in the Southern Company retail service territory and adjacent market areas. The original generation dominance proceeding initiated by the FERC in December 2004 remains pending before the FERC. The ultimate outcome of this matter cannot be determined at this time.
Retail Fuel Cost Recovery
The traditional operating companies each have established fuel cost recovery rates approved by their respective state PSCs. Over the past several years, the traditional operating companies have experienced higher than expected fuel costs for coal, natural gas, and uranium. These higher fuel costs have resulted in under recovered fuel costs included in the balance sheets of approximately $882 million at June 30, 2009 as compared to $1.2 billion at December 31, 2008. Operating revenues are adjusted for differences in actual recoverable fuel costs and amounts billed in current regulated rates. Accordingly, changes to the billing factors will have no significant effect on Southern Company’s revenues or net income but will affect cash flow. The traditional operating companies continuously monitor the under recovered fuel cost balance in light of these higher fuel costs. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Fuel Cost Recovery” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Alabama Power Retail Regulatory Matters,” “Georgia Power Retail Regulatory Matters,” and “Gulf Power Retail Regulatory Matters” in Item 8 of the Form 10-K for additional information.
On March 10, 2009, the Georgia PSC granted Georgia Power’s request to delay its fuel case filing until September 4, 2009. The extension was requested as a result of difficulty in establishing a forward-looking fuel rate due to volatile coal and gas prices, uncertain sales forecasts, and a continuing decline in the State of Georgia’s economy. The ultimate outcome of this matter cannot now be determined.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Retail Rate Matters
Under the 2007 Retail Rate Plan, Georgia Power’s earnings are evaluated against a retail return on equity (ROE) range of 10.25% to 12.25%. In connection with the 2007 Retail Rate Plan, the Georgia PSC ordered that Georgia Power file its next general base rate case by July 1, 2010; however, the 2007 Retail Rate Plan provides that Georgia Power may file for a general base rate increase in the event its projected retail ROE falls below 10.25%.
The economic recession has significantly reduced Georgia Power’s revenues upon which retail rates were set under the 2007 Retail Rate Plan. Despite stringent efforts to reduce expenses, current projections indicate Georgia Power’s retail ROE will be less than 10.25% in both 2009 and 2010. However, in lieu of filing to increase customer rates as allowed under the 2007 Retail Rate Plan, on June 29, 2009, Georgia Power filed a request with the Georgia PSC for an accounting order that would allow Georgia Power to amortize approximately $324 million of its regulatory liability related to other cost of removal obligations. Under Georgia Power’s proposal, the regulatory liability would be amortized ratably over the 18-month period from July 1, 2009 through December 31, 2010 as a reduction to operating expenses. Even if the Georgia PSC approves the accounting order request as filed, Georgia Power currently expects its retail ROE will remain below the 10.25% low end of its allowed retail ROE range in 2009 and 2010. The accounting order request is subject to the review and approval of the Georgia PSC. The ultimate outcome of this matter cannot be determined at this time.
Legislation
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA). Major tax incentives in the ARRA include an extension of bonus depreciation and multiple renewable energy incentives, which could have a significant impact on the future cash flow and net income of Southern Company. Southern Company estimates the cash flow reduction to 2009 tax payments as a result of the bonus depreciation provisions of the ARRA to be between approximately $225 million and $275 million. Southern Company and its subsidiaries have also filed an application under the ARRA for a grant of approximately $360 million to be used primarily for the advanced metering infrastructure program and other transmission and distribution automation and modernization projects. Southern Company continues to assess the other financial implications of the ARRA. The ultimate impact cannot be determined at this time.
Construction Projects
Integrated Coal Gasification Combined Cycle
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Construction Projects – Integrated Coal Gasification Combined Cycle” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Integrated Coal Gasification Combined Cycle” in Item 8 of the Form 10-K for information regarding the Kemper IGCC.
On May 11, 2009, Mississippi Power received notification from the IRS formally certifying the Internal Revenue Code Section 48A tax credits of $133 million to Mississippi Power. The utilization of these credits is dependent upon meeting the certification requirements for the Kemper IGCC, including an in-service date no later than May 2014.
On April 6, 2009, the Governor of the State of Mississippi signed into law a bill that will provide an ad valorem tax exemption for a portion of the assessed value of all property utilized in certain electric generating facilities with integrated gasification process facilities. This tax exemption, which may not exceed 50% of the total value of the project, is for projects with a capital investment from private sources of $1 billion or more. Mississippi

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Power expects the Kemper IGCC to be a qualifying project under the law and the gasification portion of the Kemper IGCC to be exempt from ad valorem taxation.
On April 6, 2009, Mississippi Power received an accounting order from the Mississippi PSC directing Mississippi Power to continue to charge all generation resource planning, evaluation, and screening costs to regulatory assets including those costs associated with activities to obtain a certificate of public convenience and necessity and costs necessary and prudent to preserve the availability, economic viability, and/or required schedule of the Kemper IGCC generation resource planning, evaluation, and screening activities until the Mississippi PSC makes findings and determination as to the recovery of Mississippi Power’s prudent expenditures. The Mississippi PSC’s determination of prudence for Mississippi Power’s pre-construction costs is scheduled to occur by May 2010. As of June 30, 2009, Mississippi Power had spent a total of $56.4 million associated with Mississippi Power’s generation resource planning, evaluation, and screening activities, including regulatory filing costs. Costs incurred for the six months ended June 30, 2009 totaled $14.1 million as compared to $13.0 million for the six months ended June 30, 2008. Of the total $56.4 million, $51.9 million was deferred in other regulatory assets, $3.7 million was related to land purchases capitalized, and $0.8 million was previously expensed.
Several motions were filed by intervenors, most of which were procedural in nature and sought to stay or delay the timely and orderly administration of the docket. In addition to these procedural motions, a motion was filed by the Attorney General for the State of Mississippi which questioned whether the Mississippi PSC had authority to approve the gasification portion of the Kemper IGCC. On June 5, 2009, all of these motions were denied by the Mississippi PSC.
On June 5, 2009, the Mississippi PSC issued an order initiating an evaluation of the Kemper IGCC and establishing a two-phase procedural schedule. During Phase I, the Mississippi PSC will determine if a need exists for new generating resources. Hearings for Phase I are scheduled for October 2009 with a decision in November 2009. If it is determined a need exists in Phase I, the appropriate resource to fill the need as well as the cost recovery of that resource through application of the State of Mississippi’s Baseload Act of 2008 will be determined during Phase II. Hearings regarding Phase II issues are scheduled for February 2010 with a decision by May 2010. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Mississippi Base Load Construction Legislation” of Southern Company in Item 7 of the Form 10-K for information regarding the Baseload Act of 2008.
The ultimate outcome of these matters cannot now be determined.
Nuclear
See Note (B) to the Condensed Financial Statements under “Construction Projects – Nuclear” herein for information regarding the potential expansion of Plant Vogtle.
On March 17, 2009, the Georgia PSC voted to certify construction of Plant Vogtle Units 3 and 4 at an in-service cost of $6.4 billion. In addition, the Georgia PSC voted to approve inclusion of the related construction work in progress accounts in rate base and to recover financing costs during the construction period beginning in 2011, which is expected to reduce the in-service cost to approximately $4.5 billion.
On April 21, 2009, the Governor of the State of Georgia signed into law the Georgia Nuclear Energy Financing Act that will allow Georgia Power to recover financing costs for nuclear construction projects by including the related construction work in progress accounts in rate base during the construction period. The cost recovery provisions will become effective January 1, 2011.
On June 15, 2009, an environmental group filed a petition in the Superior Court of Fulton County, Georgia seeking review of the Georgia PSC’s certification order and challenging the constitutionality of the Georgia Nuclear Energy Financing Act. Georgia Power believes there is no meritorious basis for this petition and intends to vigorously defend against the requested actions. The ultimate outcome of this matter cannot be determined at this time.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nuclear Relicensing
The NRC operating licenses for Plant Vogtle Units 1 and 2 were scheduled to expire in January 2027 and February 2029, respectively. In June 2007, Georgia Power filed an application with the NRC to extend the licenses for Plant Vogtle Units 1 and 2 for an additional 20 years. On June 3, 2009, the NRC approved the extension of the licenses as requested.
Other Matters
Southern Company is involved in various other matters being litigated, regulatory matters, and certain tax-related issues that could affect future earnings. In addition, Southern Company is subject to certain claims and legal actions arising in the ordinary course of business. 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, common law nuisance, and citizen enforcement of environmental requirements such as opacity and air and water quality standards, 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 pending or potential litigation against Southern Company and its subsidiaries cannot be predicted at this time; however, for current proceedings not specifically reported herein or in Note 3 to the financial statements of Southern Company in Item 8 of the Form 10-K, 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 other contingencies, regulatory matters, and other matters being litigated which may affect future earnings potential.
ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates
Southern Company prepares its consolidated 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 MANAGEMENT’S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES – “Application of Critical Accounting Policies and Estimates” of Southern Company in Item 7 of 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 Unbilled Revenues.
New Accounting Standards
Variable Interest Entities
In June 2009, the FASB issued new guidance on the consolidation of variable interest entities, which replaces the quantitative-based risks and rewards calculation for determining whether an enterprise is the primary beneficiary in a variable interest entity with an approach that is primarily qualitative, requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity, and requires additional disclosures about an enterprise’s involvement in variable interest entities. Southern Company is required to adopt this new guidance effective January 1, 2010 and is evaluating the impact, if any, it will have on its financial statements.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
Overview
Southern Company’s financial condition remained stable at June 30, 2009. Throughout the turmoil in the financial markets, Southern Company and its subsidiaries have maintained adequate access to capital without drawing on any committed bank credit arrangements used to support commercial paper programs and variable rate pollution control revenue bonds. Southern Company intends to continue to monitor its access to short-term and long-term capital markets as well as its bank credit arrangements to meet future capital and liquidity needs. Market rates for committed credit have increased, and Southern Company and its subsidiaries have been and expect to continue to be subject to higher costs as existing facilities are replaced or renewed. Total committed credit fees for Southern Company and its subsidiaries currently average less than 1/4 of 1% per year. Southern Company’s interest cost for short-term debt has decreased as market short-term interest rates have declined from 2008 levels. The ultimate impact on future financing costs as a result of financial turmoil cannot be determined at this time. Southern Company experienced no material counterparty credit losses as a result of the turmoil in the financial markets. See “Sources of Capital” and “Financing Activities” herein for additional information.
Southern Company’s investments in pension and nuclear decommissioning trust funds stabilized during the second quarter 2009. Southern Company expects that the earliest that cash may have to be contributed to the pension trust fund is 2012 and such contribution could be significant; however, projections of the amount vary significantly depending on interpretations of and decisions related to federal legislation passed during 2008 as well as other key variables including future trust fund performance and cannot be determined at this time. Southern Company does not expect any changes to funding obligations to the nuclear decommissioning trusts prior to 2011.
For the first six months of 2009, net cash provided from operating activities totaled $620 million, a decrease of $791 million from the corresponding period in 2008. Significant changes in operating cash flow for the first six months of 2009 as compared to the corresponding period in 2008 include a reduction to net income as previously discussed and increased outflows of funds used for federal tax and property tax payments of $321 million and fuel purchases of $254 million. These uses of funds were partially offset by increased cash inflows as a result of higher fuel rates included in customer billings. Net cash used for investing activities totaled $1.8 billion for the first six months of 2009 as compared to $2.0 billion for the corresponding period in 2008. While the cash outflows in each of these periods were primarily related to property additions to utility plant, the decrease in the current period as compared to the corresponding period in 2008 was primarily due to approximately $340 million in cash received from the early termination of two leveraged lease investments. For the first six months of 2009, net cash provided from financing activities totaled $1.6 billion as compared to $606 million for the corresponding period in 2008 primarily due to higher levels of short-term borrowings, the issuance of new long-term debt, and common stock issuances.
Significant balance sheet changes for the first six months of 2009 include an increase of $365 million in cash and cash equivalents primarily due to cash received from the early termination of two leveraged lease investments; an increase of $1.6 billion in total property, plant, and equipment for the installation of equipment to comply with environmental standards and construction of generation, transmission, and distribution facilities; and purchases of nuclear fuel. Other significant changes include an increase in long-term debt, excluding amounts due within one year, of $1.1 billion used primarily for construction expenditures and general corporate purposes.
The market price of Southern Company’s common stock at June 30, 2009 was $31.16 per share (based on the closing price as reported on the New York Stock Exchange) and the book value was $17.32 per share, representing a market-to-book ratio of 180%, compared to $37.00, $17.08, and 217%, respectively, at the end of 2008. The dividend for the second quarter 2009 was $0.4375 per share compared to $0.42 per share in the second quarter 2008.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Requirements and Contractual Obligations
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Capital Requirements and Contractual Obligations” of Southern Company in Item 7 of the Form 10-K for a description of Southern Company’s capital requirements for its construction programs and other funding requirements associated with scheduled maturities of long-term debt, as well as the related interest, preferred and preference stock dividends, leases, trust funding requirements, other purchase commitments, unrecognized tax benefits and interest, and derivative obligations. Approximately $1.1 billion will be required through June 30, 2010 to fund maturities and announced redemptions of long-term debt. The construction programs are subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; changes in environmental statutes and regulations; changes in nuclear plants to meet new regulatory requirements; changes in FERC rules and regulations; PSC approvals; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered.
Sources of Capital
Southern Company intends to meet its future capital needs through internal cash flow and external security issuances. Equity capital can be provided from any combination of Southern Company’s stock plans, private placements, or public offerings. The amount and timing of additional equity capital to be raised in 2009, as well as in subsequent years, will be contingent on Southern Company’s investment opportunities. The traditional 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, term loans, short-term borrowings, and equity contributions from Southern Company.
However, the amount, type, and timing of any financings, if needed, will depend upon prevailing market conditions, regulatory approval, and other factors. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Sources of Capital” of Southern Company in Item 7 of the Form 10-K for additional information.
Southern Company’s current liabilities frequently 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, Southern Company has substantial cash flow from operating activities and access to capital markets, including commercial paper programs (which are backed by bank credit facilities), to meet liquidity needs. At June 30, 2009, Southern Company and its subsidiaries had approximately $782 million of cash and cash equivalents and approximately $4.7 billion of unused credit arrangements with banks, of which $484 million expire in 2009, $965 million expire in 2010, $25 million expire in 2011, and $3.2 billion expire in 2012. Approximately $44 million of the credit facilities expiring in 2009 and 2010 allow for the execution of term loans for an additional two-year period, and $501 million contain provisions allowing one-year term loans. At June 30, 2009, approximately $1.3 billion of the credit facilities were dedicated to providing liquidity support to the traditional operating companies’ variable rate pollution control revenue bonds and such credit facilities also serve as liquidity support for the commercial paper programs. Subsequent to June 30, 2009, financings at Georgia Power increased the total amount of variable rate pollution control bonds requiring liquidity support to $1.5 billion. See Note 6 to the financial statements of Southern Company under “Bank Credit Arrangements” in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under “Bank Credit Arrangements” herein for additional information. The traditional operating companies may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper at the request and for the benefit of each of the traditional operating companies. At June 30, 2009, the Southern Company system had outstanding commercial paper of $1.1 billion. Management believes that the

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need for working capital can be adequately met by utilizing commercial paper programs, lines of credit, and cash.
Off-Balance Sheet Financing Arrangements
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Off-Balance Sheet Financing Arrangements” of Southern Company in Item 7 and Note 7 to the financial statements of Southern Company 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
Southern Company does not have any credit arrangements 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 of certain subsidiaries to BBB and Baa2, or BBB- and/or Baa3 or below. These contracts are for physical electricity purchases and sales, fuel purchases, fuel transportation and storage, emissions allowances, energy price risk management, and construction of new generation. At June 30, 2009, the maximum potential collateral requirements under these contracts at a BBB and Baa2 rating were approximately $9 million and at a BBB- and/or Baa3 rating were approximately $413 million. At June 30, 2009, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $2.0 billion. In addition, certain nuclear fuel agreements could require collateral of up to $251 million in the event of a rating change to below investment grade for Southern Company. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, any credit rating downgrade could impact Southern Company’s ability to access capital markets, particularly the short-term debt market.
Market Price Risk
Southern Company’s market risk exposure relative to interest rate changes has not changed materially compared with the December 31, 2008 reporting period. Since a significant portion of outstanding indebtedness is at fixed rates, Southern Company is not aware of any facts or circumstances that would significantly affect exposures on existing indebtedness in the near term. However, the impact on future financing costs cannot now be determined.
Due to cost-based rate regulation, the traditional operating companies continue to have limited exposure to market volatility in interest rates, commodity fuel prices, and prices of electricity. In addition, Southern Power’s exposure to market volatility in commodity fuel prices and prices of electricity is limited because its long-term sales contracts shift substantially all fuel cost responsibility to the purchaser. However, during 2009, Southern Power is exposed to market volatility in energy-related commodity prices as a result of sales of uncontracted generating capacity. The traditional operating companies continue to manage fuel-hedging programs implemented per the guidelines of their respective state PSCs. To mitigate residual risks relative to movements in electricity prices, the traditional operating companies enter into physical fixed-price contracts for the purchase and sale of electricity through the wholesale electricity market. To mitigate residual risks relative to movements in gas prices, Southern Company’s subsidiaries may enter into fixed-price contracts for natural gas purchases; however, a significant portion of contracts are priced at market. As such, the traditional operating companies have no material change in market risk exposure when compared with the December 31, 2008 reporting period.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The changes in fair value of energy-related derivative contracts for the three and six months ended June 30, 2009 were as follows:
                 
    Second Quarter   Year-to-Date
    2009   2009
    Changes   Changes
    Fair Value
    (in millions)
 
Contracts outstanding at the beginning of the period, assets (liabilities), net
  $ (423 )   $ (285 )
Contracts realized or settled
    127       187  
Current period changes(a)
    (6 )     (204 )
 
Contracts outstanding at the end of the period, assets (liabilities), net
  $ (302 )   $ (302 )
 
 
(a)   Current period changes also include the changes in fair value of new contracts entered into during the period, if any.
The changes in the fair value positions of the energy-related derivative contracts for the three months and six months ended June 30, 2009 were an increase of $121 million and a decrease of $17 million, respectively, substantially all of which is due to natural gas positions. These changes are attributable to both the volume and prices of natural gas. At June 30, 2009, Southern Company had a net hedge volume of 173 million mmBtu (includes location basis of 2 million mmBtu) with a weighted average contract cost approximately $1.78 per mmBtu above market prices, compared to 173 million mmBtu (includes location basis of 2 million mmBtu) at March 31, 2009 with a weighted average contract cost approximately $2.53 per mmBtu above market prices and compared to 149 million mmBtu at December 31, 2008 with a weighted average contract cost approximately $1.97 per mmBtu above market prices. The majority of the natural gas hedge settlements are recovered through the traditional operating companies’ fuel cost recovery clauses.
At June 30, 2009 and December 31, 2008, the fair value of energy-related derivative contracts by hedge designation was reflected in the financial statements as follows:
                 
    June 30, 2009   December 31, 2008
    (in millions)
Regulatory hedges
  $ (305 )   $ (288 )
Cash flow hedges
          (1 )
Not designated
    3       4  
 
Total fair value
  $ (302 )   $ (285 )
 
Energy-related derivative contracts which are designated as regulatory hedges relate to the traditional operating companies’ fuel hedging programs, where gains and losses are initially recorded as regulatory liabilities and assets, respectively, and then are included in fuel expense as they are recovered through the fuel cost recovery clauses. Gains and losses on energy-related derivatives designated as cash flow hedges are mainly used to hedge anticipated purchases and sales and are initially deferred in OCI before being recognized in income in the same period as the hedged transaction. Gains and losses on energy-related derivative contracts that are not designated or fail to qualify as hedges are recognized in the statements of income as incurred.
Total net unrealized pre-tax losses recognized in the statements of income for the six months ended June 30, 2009 for energy-related derivative contracts that are not hedges were $(1) million and were not material for the three months ended June 30, 2009. For the three and six months ended June 30, 2008, the total net unrealized gains (losses) recognized in the statements of income were $7 million and $(7) million, respectively. See Note (E) to the Condensed Financial Statements herein for further details of these gains (losses).

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The maturities of the energy-related derivative contracts and the level of the fair value hierarchy in which they fall at June 30, 2009 are as follows:
                                   
    June 30, 2009
    Fair Value Measurements
    Total   Maturity  
    Fair Value   Year 1   Years 2&3   Years 4&5  
    (in millions)
Level 1
  $     $     $     $    
Level 2
    (302 )     (234 )     (66 )     (2 )  
Level 3
                         
 
Fair value of contracts outstanding at end of period
  $ (302 )   $ (234 )   $ (66 )   $ (2 )  
 
Southern Company uses over-the-counter contracts that are not exchange traded but are fair valued using prices which are actively quoted, and thus fall into Level 2. See Note (C) to the Condensed Financial Statements herein for further discussion on fair value measurements.
For additional information, see MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Market Price Risk” of Southern Company in Item 7 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 (E) to the Condensed Financial Statements herein.
Financing Activities
In the first six months of 2009, Southern Company issued $350 million of Series 2009A 4.15% Senior Notes due May 15, 2014, and its subsidiaries issued $1.3 billion of senior notes and incurred obligations of $183 million related to the issuance of pollution control revenue bonds. Southern Company also issued 14 million shares of common stock for $399 million through the Southern Investment Plan and employee and director stock plans. In addition, during the three months ended June 30, 2009, Southern Company issued 5 million shares of common stock through at-the-market issuances pursuant to sales agency agreements related to Southern Company’s continuous equity offering program and received cash proceeds of $140 million, net of $1.4 million in fees and commissions. The proceeds were primarily used to fund ongoing construction projects, to repay short-term and long-term indebtedness, and for general corporate purposes.
Subsequent to June 30, 2009, Georgia Power incurred obligations in connection with the issuance of $154.3 million of variable rate pollution control revenue bonds. The proceeds of the bonds were used to retire $154.3 million of fixed rate pollution control revenue bonds. Also, subsequent to June 30, 2009, Georgia Power issued a notice to redeem on August 21, 2009 its $55 million of Series D 5.50% Senior Insured Quarterly Notes due November 15, 2017.
Subsequent to June 30, 2009, Gulf Power entered into a forward starting interest rate swap to mitigate exposure to interest rate changes related to anticipated debt issuances. The notional amount of the swap is $50 million, and the swap has been designated as a cash flow hedge.
Subsequent to June 30, 2009, Southern Company used a portion of the cash received from the early termination of two leveraged lease investments to extinguish $252.7 million of debt which included all debt related to leveraged lease investments and to pay make-whole redemption premiums of $17.2 million associated with such debt.
In addition to any financings that may be necessary to meet capital requirements and contractual obligations, Southern Company and its subsidiaries plan to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit.

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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 Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power under “Financial Instruments” in Item 8 of the Form 10-K. Also, see Note (E) to the Condensed Financial Statements herein for information relating to derivative instruments.
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 conducted an evaluation under the supervision and with the participation of Southern Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation 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 this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures are effective.
     (b) Changes in internal controls.
There have been no changes in Southern Company’s internal control 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 second quarter 2009 that have materially affected or are reasonably likely to materially affect Southern Company’s internal control over financial reporting.
Item 4T. Controls and Procedures.
     (a) Evaluation of disclosure controls and procedures.
As of the end of the period covered by this quarterly report, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, 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 design and operation 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 these evaluations, the Chief Executive Officer and the Chief Financial Officer, in each case, concluded that the disclosure controls and procedures are effective.
     (b) Changes in internal controls.
There have been no changes in Alabama Power’s, Georgia Power’s, Gulf Power’s, Mississippi Power’s, or Southern Power’s internal control 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 second quarter 2009 that have materially affected or are reasonably likely to materially affect Alabama Power’s, Georgia Power’s, Gulf Power’s, Mississippi Power’s, or Southern Power’s internal control over financial reporting.

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ALABAMA POWER COMPANY

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ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2009     2008     2009     2008  
    (in thousands)     (in thousands)  
Operating Revenues:
                               
Retail revenues
  $ 1,119,606     $ 1,147,786     $ 2,177,743     $ 2,182,040  
Wholesale revenues, non-affiliates
    153,912       169,971       312,607       340,011  
Wholesale revenues, affiliates
    52,493       96,421       136,845       180,113  
Other revenues
    40,505       55,635       79,087       104,328  
 
                       
Total operating revenues
    1,366,516       1,469,813       2,706,282       2,806,492  
 
                       
Operating Expenses:
                               
Fuel
    447,486       523,348       930,719       976,497  
Purchased power, non-affiliates
    26,123       38,450       41,667       49,669  
Purchased power, affiliates
    56,570       75,789       98,130       164,496  
Other operations and maintenance
    278,298       306,543       555,157       616,093  
Depreciation and amortization
    126,487       130,630       269,903       255,267  
Taxes other than income taxes
    82,039       75,614       162,320       151,385  
 
                       
Total operating expenses
    1,017,003       1,150,374       2,057,896       2,213,407  
 
                       
Operating Income
    349,513       319,439       648,386       593,085  
Other Income and (Expense):
                               
Allowance for equity funds used during construction
    19,153       9,235       35,878       20,539  
Interest income
    4,148       4,258       8,270       8,900  
Interest expense, net of amounts capitalized
    (76,768 )     (69,646 )     (148,975 )     (138,622 )
Other income (expense), net
    (4,491 )     (6,707 )     (10,863 )     (13,929 )
 
                       
Total other income and (expense)
    (57,958 )     (62,860 )     (115,690 )     (123,112 )
 
                       
Earnings Before Income Taxes
    291,555       256,579       532,696       469,973  
Income taxes
    105,357       93,798       190,366       167,226  
 
                       
Net Income
    186,198       162,781       342,330       302,747  
Dividends on Preferred and Preference Stock
    9,866       9,866       19,732       19,732  
 
                       
Net Income After Dividends on Preferred and Preference Stock
  $ 176,332     $ 152,915     $ 322,598     $ 283,015  
 
                       
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2009     2008     2009     2008  
    (in thousands)     (in thousands)  
Net Income After Dividends on Preferred and Preference Stock
  $ 176,332     $ 152,915     $ 322,598     $ 283,015  
Other comprehensive income (loss):
                               
Qualifying hedges:
                               
Changes in fair value, net of tax of $(700), $1,171, $(1,586), and $(1,039), respectively
    (1,152 )     1,927       (2,609 )     (1,710 )
Reclassification adjustment for amounts included in net income, net of tax of $1,178, $443, $2,239, and $628, respectively
    1,938       728       3,683       1,033  
 
                       
Total other comprehensive income (loss)
    786       2,655       1,074       (677 )
 
                       
Comprehensive Income
  $ 177,118     $ 155,570     $ 323,672     $ 282,338  
 
                       
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.

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ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    For the Six Months  
    Ended June 30,  
    2009     2008  
    (in thousands)  
Operating Activities:
               
Net income
  $ 342,330     $ 302,747  
Adjustments to reconcile net income to net cash provided from operating activities —
               
Depreciation and amortization, total
    311,868       297,792  
Deferred income taxes and investment tax credits, net
    5,182       20,648  
Allowance for equity funds used during construction
    (35,878 )     (20,539 )
Pension, postretirement, and other employee benefits
    (16,568 )     (12,958 )
Stock option expense
    3,168       2,520  
Tax benefit of stock options
    42       460  
Other, net
    638       14,499  
Changes in certain current assets and liabilities —
               
-Receivables
    206,523       34,056  
-Fossil fuel stock
    (59,418 )     (21,879 )
-Materials and supplies
    (9,094 )     (6,887 )
-Other current assets
    (62,618 )     (42,632 )
-Accounts payable
    (133,138 )     (68,407 )
-Accrued taxes
    25,199       64,490  
-Accrued compensation
    (56,429 )     (47,094 )
-Other current liabilities
    18,302       26,481  
 
           
Net cash provided from operating activities
    540,109       543,297  
 
           
Investing Activities:
               
Property additions
    (641,598 )     (714,878 )
Investment in restricted cash from pollution control revenue bonds
    (290 )     (161 )
Distribution of restricted cash from pollution control revenue bonds
    32,758       19,687  
Nuclear decommissioning trust fund purchases
    (124,057 )     (180,522 )
Nuclear decommissioning trust fund sales
    124,057       180,522  
Cost of removal, net of salvage
    (13,004 )     (18,157 )
Other investing activities
    (1,583 )     (11,489 )
 
           
Net cash used for investing activities
    (623,717 )     (724,998 )
 
           
Financing Activities:
               
Increase (decrease) in notes payable, net
    (24,995 )     24,980  
Proceeds —
               
Common stock issued to parent
          150,000  
Capital contributions from parent company
    11,510       12,178  
Gross excess tax benefit of stock options
    81       858  
Pollution control revenue bonds
    53,000        
Senior notes issuances
    500,000       600,000  
Redemptions —
               
Preferred stock
          (125,000 )
Senior notes
          (250,000 )
Payment of preferred and preference stock dividends
    (19,740 )     (21,142 )
Payment of common stock dividends
    (261,400 )     (245,650 )
Other financing activities
    (6,114 )     (5,523 )
 
           
Net cash provided from financing activities
    252,342       140,701  
 
           
Net Change in Cash and Cash Equivalents
    168,734       (41,000 )
Cash and Cash Equivalents at Beginning of Period
    28,181       73,616  
 
           
Cash and Cash Equivalents at End of Period
  $ 196,915     $ 32,616  
 
           
Supplemental Cash Flow Information:
               
Cash paid during the period for —
               
Interest (net of $15,005 and $9,322 capitalized for 2009 and 2008, respectively)
  $ 122,624     $ 126,502  
Income taxes (net of refunds)
  $ 203,248     $ 124,050  
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.

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ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Assets   2009     2008  
    (in thousands)  
Current Assets:
               
Cash and cash equivalents
  $ 196,915     $ 28,181  
Restricted cash and cash equivalents
    47,611       80,079  
Receivables —
               
Customer accounts receivable
    375,523       350,410  
Unbilled revenues
    137,895       98,921  
Under recovered regulatory clause revenues
    125,583       153,899  
Other accounts and notes receivable
    34,923       44,645  
Affiliated companies
    21,122       70,612  
Accumulated provision for uncollectible accounts
    (9,125 )     (8,882 )
Fossil fuel stock, at average cost
    375,978       322,089  
Materials and supplies, at average cost
    313,297       305,880  
Vacation pay
    52,825       52,577  
Prepaid expenses
    146,665       88,219  
Other regulatory assets, current
    78,371       74,825  
Other current assets
    17,451       12,915  
 
           
Total current assets
    1,915,034       1,674,370  
 
           
Property, Plant, and Equipment:
               
In service
    17,897,911       17,635,129  
Less accumulated provision for depreciation
    6,429,812       6,259,720  
 
           
Plant in service, net of depreciation
    11,468,099       11,375,409  
Nuclear fuel, at amortized cost
    244,057       231,862  
Construction work in progress
    1,419,838       1,092,516  
 
           
Total property, plant, and equipment
    13,131,994       12,699,787  
 
           
Other Property and Investments:
               
Equity investments in unconsolidated subsidiaries
    57,071       50,912  
Nuclear decommissioning trusts, at fair value
    420,053       403,966  
Miscellaneous property and investments
    65,735       62,782  
 
           
Total other property and investments
    542,859       517,660  
 
           
Deferred Charges and Other Assets:
               
Deferred charges related to income taxes
    380,116       362,596  
Prepaid pension costs
    186,893       166,334  
Deferred under recovered regulatory clause revenues
          180,874  
Other regulatory assets, deferred
    710,265       732,367  
Other deferred charges and assets
    198,258       202,018  
 
           
Total deferred charges and other assets
    1,475,532       1,644,189  
 
           
Total Assets
  $ 17,065,419     $ 16,536,006  
 
           
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.

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ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Liabilities and Stockholder's Equity   2009     2008  
    (in thousands)  
Current Liabilities:
               
Securities due within one year
  $ 250,000     $ 250,079  
Notes payable
          24,995  
Accounts payable —
               
Affiliated
    169,684       178,708  
Other
    252,902       358,176  
Customer deposits
    84,880       77,205  
Accrued taxes —
               
Accrued income taxes
    35,767       18,299  
Other accrued taxes
    73,653       30,372  
Accrued interest
    69,044       56,375  
Accrued vacation pay
    44,217       44,217  
Accrued compensation
    43,219       91,856  
Liabilities from risk management activities
    87,888       83,873  
Other current liabilities
    45,075       53,777  
 
           
Total current liabilities
    1,156,329       1,267,932  
 
           
Long-term Debt
    6,156,915       5,604,791  
 
           
Deferred Credits and Other Liabilities:
               
Accumulated deferred income taxes
    2,248,530       2,243,117  
Deferred credits related to income taxes
    89,884       90,083  
Accumulated deferred investment tax credits
    168,668       172,638  
Employee benefit obligations
    396,440       396,923  
Asset retirement obligations
    476,038       461,284  
Other cost of removal obligations
    657,939       634,792  
Other regulatory liabilities, deferred
    57,749       79,151  
Other deferred credits and liabilities
    40,428       45,857  
 
           
Total deferred credits and other liabilities
    4,135,676       4,123,845  
 
           
Total Liabilities
    11,448,920       10,996,568  
 
           
Redeemable Preferred Stock
    341,716       341,716  
 
           
Preference Stock
    343,412       343,412  
 
           
Common Stockholder’s Equity:
               
Common stock, par value $40 per share —
               
Authorized - 40,000,000 shares
               
Outstanding - 25,475,000 shares
    1,019,000       1,019,000  
Paid-in capital
    2,106,259       2,091,462  
Retained earnings
    1,814,987       1,753,797  
Accumulated other comprehensive loss
    (8,875 )     (9,949 )
 
           
Total common stockholder’s equity
    4,931,371       4,854,310  
 
           
Total Liabilities and Stockholder’s Equity
  $ 17,065,419     $ 16,536,006  
 
           
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 2009 vs. SECOND QUARTER 2008
AND
YEAR-TO-DATE 2009 vs. YEAR-TO-DATE 2008
OVERVIEW
Alabama Power operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located within the State of Alabama and to wholesale customers in the Southeast. Many factors affect the opportunities, challenges, and risks of Alabama Power’s primary business of selling electricity. These factors include the ability to maintain a constructive regulatory environment, to maintain energy sales in the midst of the current economic downturn, and to effectively manage and secure timely recovery of rising costs. These costs include those related to projected long-term demand growth, increasingly stringent environmental standards, fuel prices, capital expenditures, and restoration following major storms. Appropriately balancing the need to recover these increasing costs with customer prices will continue to challenge Alabama Power for the foreseeable future.
Alabama Power continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, and net income after dividends on preferred and preference stock. For additional information on these indicators, see MANAGEMENT’S DISCUSSION AND ANALYSIS – OVERVIEW – “Key Performance Indicators” of Alabama Power in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$23.4
  15.3   $39.6   14.0
 
Alabama Power’s financial performance remained stable in the second quarter 2009 despite the continued challenges of a recessionary economy. Alabama Power’s net income after dividends on preferred and preference stock for the second quarter 2009 was $176.3 million compared to $152.9 million for the corresponding period in 2008. The increase was primarily due to the corrective rate package providing for adjustments associated with customer charges effective in January 2009 and a decrease in other operations and maintenance expenses primarily due to a reduction in transmission and distribution, steam power, and administrative and general expenses. The increase was partially offset by a decrease in retail revenues attributable to a decline in KWH sales and an increase in interest expense, net of amounts capitalized.
Alabama Power’s net income after dividends on preferred and preference stock for year-to-date 2009 was $322.6 million compared to $283.0 million for the corresponding period in 2008. The increase was primarily due to the corrective rate package providing for adjustments associated with customer charges effective in January 2009 and a decrease in other operations and maintenance expenses primarily related to steam power. The increase was partially offset by a decrease in retail revenues attributable to a decline in KWH sales, increases in income taxes, and an increase in depreciation related to property, plant, and equipment associated with environmental mandates and transmission and distribution projects.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Retail Revenues
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(28.2)   (2.5)   $(4.3)   (0.2)
 
In the second quarter 2009, retail revenues were $1.12 billion compared to $1.15 billion for the corresponding period in 2008. For year-to-date 2009, retail revenues were $2.18 billion compared to $2.18 billion for the corresponding period in 2008.
Details of the change to retail revenues are as follows:
                                 
    Second Quarter   Year-to-Date
    2009   2009
    (in millions)   (% change)   (in millions)   (% change)
Retail – prior year
  $ 1,147.8             $ 2,182.0          
Estimated change in —
                               
Rates and pricing
    40.8       3.5       90.4       4.1  
Sales growth (decline)
    (40.5 )     (3.5 )     (72.8 )     (3.3 )
Weather
    3.4       0.3       2.7       0.1  
Fuel and other cost recovery
    (31.9 )     (2.8 )     (24.6 )     (1.1 )
 
Retail – current year
  $ 1,119.6       (2.5 )%   $ 2,177.7       (0.2 )%
 
Revenues associated with changes in rates and pricing increased in the second quarter 2009 and year-to-date 2009 when compared to the corresponding periods in 2008 primarily due to the corrective rate package increase effective January 2009, which mainly provided for adjustments associated with customer charges to certain existing rate structures. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Retail Rate Adjustments” of Alabama Power in Item 7 and Note 3 to the financial statements of Alabama Power under “Retail Regulatory Matters” in Item 8 of the Form 10-K for additional information.
Revenues attributable to changes in sales declined in the second quarter 2009 when compared to the corresponding period in 2008 due to a recessionary economy. Additionally, based on a change in the historical trend in the timing of customers’ meter readings, Alabama Power changed the estimate related to the meter read date assumption used in the unbilled revenue calculation. This change in estimate resulted in a one-time increase in revenue of $13.4 million and a 1.8% increase in retail KWH energy sales for the quarter. Industrial KWH energy sales decreased 24.3% due to a decline in demand across all industrial segments. Weather-adjusted residential KWH energy sales decreased 1.9% driven by a decline in customer demand related to customer energy efficiency efforts in addition to a recessionary economy. Weather-adjusted commercial KWH energy sales decreased 1.0% due to a decline in customer demand.
For year-to-date 2009, revenues attributable to changes in sales declined due to a recessionary economy when compared to the corresponding period in 2008. Industrial KWH energy sales decreased 23.0% due to a decline in demand across all industrial segments. Weather-adjusted residential KWH energy sales decreased 2.3% driven by a decline in customer demand related to customer energy efficiency efforts in addition to a recessionary economy. Weather-adjusted commercial KWH energy sales decreased 1.7% due to a decline in customer demand.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues resulting from changes in weather were relatively insignificant in the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008.
Fuel and other cost recovery revenues decreased in the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008 primarily due to decreases in fuel costs. Electric rates include provisions to recognize the full recovery of fuel costs, purchased power costs, PPAs certificated by the Alabama PSC, and costs associated with the natural disaster reserve. Under these provisions, fuel and other cost recovery revenues generally equal fuel and other cost recovery expenses and do not impact net income.
Wholesale Revenues – Non-Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(16.1)
  (9.4)   $(27.4)   (8.1)
 
Wholesale revenues from non-affiliates will vary depending on the market cost of available energy compared to the cost of Alabama Power and Southern Company system-owned generation, demand for energy within the Southern Company service territory, and availability of Southern Company system generation.
In the second quarter 2009, wholesale revenues from non-affiliates were $153.9 million compared to $170.0 million for the corresponding period in 2008. This decrease was due to a 7.0% decrease in KWH sales and a 2.6% reduction in price.
For year-to-date 2009, wholesale revenues from non-affiliates were $312.6 million compared to $340.0 million for the corresponding period in 2008. This decrease was due to a 5.1% reduction in price and a 3.1% decrease in KWH sales.
Wholesale Revenues – Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(43.9)   (45.6)   $(43.3)   (24.0)
 
Wholesale revenues from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These affiliate sales are made in accordance with the IIC, as approved by the FERC. These transactions do not have a significant impact on earnings since the energy is generally sold at marginal cost.
In the second quarter 2009, wholesale revenues from affiliates were $52.5 million compared to $96.4 million for the corresponding period in 2008. This decrease was primarily due to a 43.2% decrease in fuel prices.
For year-to-date 2009, wholesale revenues from affiliates were $136.8 million compared to $180.1 million for the corresponding period in 2008. This decrease was due to a 34.3% decrease in fuel prices, partially offset by a 15.7% increase in KWH sales.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Revenues
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(15.1)   (27.2)   $(25.2)   (24.2)
 
In the second quarter 2009, other revenues were $40.5 million compared to $55.6 million for the corresponding period in 2008. This decrease was primarily due to a $17.2 million decrease in revenues from gas-fueled co-generation steam facilities resulting from lower gas prices and a decline in sales volume.
For year-to-date 2009, other revenues were $79.1 million compared to $104.3 million for the corresponding period in 2008. This decrease was primarily due to a $26.6 million decrease in revenues from gas-fueled co-generation steam facilities resulting from lower gas prices and a decline in sales volume.
Co-generation steam fuel revenues do not have a significant impact on earnings since they are generally offset by fuel expense.
Fuel and Purchased Power Expenses
                                 
    Second Quarter 2009   Year-to-Date 2009
    vs.   vs.
    Second Quarter 2008   Year-to-Date 2008
    (change in millions)   (% change)   (change in millions)   (% change)
Fuel
  $ (75.9 )     (14.5 )   $ (45.8 )     (4.7 )
Purchased power – non-affiliates
    (12.3 )     (32.1 )     (8.0 )     (16.1 )
Purchased power – affiliates
    (19.2 )     (25.4 )     (66.4 )     (40.3 )
                     
Total fuel and purchased power expenses
  $ (107.4 )           $ (120.2 )        
                     
In the second quarter 2009, total fuel and purchased power expenses were $530.2 million compared to $637.6 million for the corresponding period in 2008. This decrease was primarily due to a $71.8 million decrease in total KWHs generated and purchased and a $35.6 million decrease in the cost of energy primarily resulting from a decrease in the average cost of natural gas.
For year-to-date 2009, total fuel and purchased power expenses were $1.07 billion compared to $1.19 billion for the corresponding period in 2008. This decrease was primarily due to a $151.6 million decrease in total KWHs generated and purchased, partially offset by a $31.4 million increase in the cost of energy primarily resulting from an increase in the average cost of coal.
Fuel and purchased power transactions do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Rate ECR. See FUTURE EARNINGS POTENTIAL – “FERC and Alabama PSC Matters – Retail Fuel Cost Recovery” herein for additional information.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of Alabama Power’s cost of generation and purchased power are as follows:
                                                 
    Second Quarter   Second Quarter   Percent   Year-to-Date   Year-to-Date   Percent
Average Cost   2009   2008   Change   2009   2008   Change
    (cents per net KWH)           (cents per net KWH)        
Fuel
    2.78       2.72       2.2       2.85       2.66       7.1  
Purchased power
    6.01       8.61       (30.2 )     6.06       6.97       (13.1 )
 
In the second quarter 2009, fuel expense was $447.4 million compared to $523.3 million for the corresponding period in 2008. The total decline in fuel expense was driven by a decrease in generation and lower natural gas prices. The decrease was primarily related to a 21.0% decrease in KWHs generated by coal and a 49.8% decrease in the average cost of KWHs generated by natural gas, resulting in a change in the fuel mix.
For year-to-date 2009, fuel expense was $930.6 million compared to $976.4 million for the corresponding period in 2008. Total fuel expense decreased due to a 38.3% decrease in the average cost of KWHs generated by natural gas and an 8.9% decrease in total KWHs generated. These decreases were partially offset by a 22.9% increase in the average cost of KWHs generated by coal.
Non-Affiliates
In the second quarter 2009, purchased power expense from non-affiliates was $26.2 million compared to $38.5 million for the corresponding period in 2008. This decrease was primarily related to a 21.0% decrease in price.
For year-to-date 2009, purchased power expense from non-affiliates was $41.7 million compared to $49.7 million for the corresponding period in 2008. This decrease was primarily related to a 22.2% decrease in price, partially offset by a 7.8% volume increase in the KWHs purchased due to the availability of lower-priced market energy alternatives.
Energy purchases from non-affiliates will vary depending on the market cost of available energy being lower than the cost of Southern Company system-generated energy, demand for energy within the Southern Company system service territory, and availability of Southern Company system generation.
Affiliates
In the second quarter 2009, purchased power expense from affiliates was $56.6 million compared to $75.8 million for the corresponding period in 2008. This decrease was primarily related to a 26.9% decrease in price.
For year-to-date 2009, purchased power expense from affiliates was $98.1 million compared to $164.5 million for the corresponding period in 2008. This decrease was primarily related to a 33.2% decrease in the amount of energy purchased and a 10.8% decrease in price.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Energy purchases from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC, as approved by the FERC.
Other Operations and Maintenance Expenses
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(28.2)
  (9.2)   $(60.9)   (9.9)
 
In the second quarter 2009, other operations and maintenance expenses were $278.3 million compared to $306.5 million for the corresponding period in 2008. This decrease was primarily a result of a $10.9 million decrease in transmission and distribution expenses related to a reduction in overhead line clearing costs, an $8.6 million decrease in steam power expense associated with fewer scheduled outages, and a $7.2 million decrease in administrative and general expenses primarily related to a reduction in employee medical and other expenses.
For year-to-date 2009, other operations and maintenance expenses were $555.2 million compared to $616.1 million for the corresponding period in 2008. This decrease was primarily a result of a $44.5 million decrease in steam power expense associated with fewer scheduled outages and a $15.0 million decrease in transmission and distribution expenses related to a reduction in overhead line clearing.
Depreciation and Amortization
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(4.1)   (3.2)   $14.6   5.7
             
In the second quarter 2009, depreciation and amortization was $126.5 million compared to $130.6 million for the corresponding period in 2008. This change was the result of an increase in property, plant, and equipment primarily related to environmental mandates and transmission and distribution projects. This was offset by an adjustment to depreciation of $8.4 million, resulting from the offer of settlement to the FERC discussed below.
On June 25, 2009, Alabama Power submitted an offer of settlement and stipulation to the FERC relating to the 2008 depreciation study that was filed in October 2008. The settlement offer withdraws the requests for authorization to use updated depreciation rates. In lieu of the new rates, Alabama Power will use those depreciation rates employed prior and up to January 1, 2009 that were previously approved by the FERC. The settlement offer is pending FERC approval.
For year-to-date 2009, depreciation and amortization was $269.9 million compared to $255.3 million for the corresponding period in 2008. This change was the result of an increase in property, plant, and equipment primarily related to environmental mandates and transmission and distribution projects.
See MANAGEMENT’S DISCUSSION AND ANALYSIS – RESULTS OF OPERATIONS – “Depreciation and Amortization” of Alabama Power in Item 7 of the Form 10-K for additional information.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Taxes Other than Income Taxes
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$6.4   8.5   $10.9   7.2
 
In the second quarter 2009, taxes other than income taxes were $82.0 million compared to $75.6 million in the corresponding period in 2008. For year-to-date 2009, taxes other than income taxes were $162.3 million compared to $151.4 million for the corresponding period in 2008. These increases were primarily due to increases in state and municipal public utility license tax bases.
Allowance for Equity Funds Used During Construction
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$9.9   107.4   $15.3   74.7
 
In the second quarter 2009, allowance for equity funds used during construction (AFUDC) was $19.1 million compared to $9.2 million for the corresponding period in 2008. For year-to-date 2009, AFUDC was $35.8 million compared to $20.5 million for the corresponding period in 2008. These increases were primarily due to increases in the amount of construction work in progress at generating facilities related to environmental mandates.
Interest Expense, Net of Amounts Capitalized
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$7.1   10.2   $10.4   7.5
 
In the second quarter 2009, interest expense, net of amounts capitalized was $76.7 million compared to $69.6 million for the corresponding period in 2008. For year-to-date 2009, interest expense, net of amounts capitalized was $149.0 million compared to $138.6 million for the corresponding period in 2008. These increases were primarily due to the issuance of additional long-term debt. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Financing Activities” of Alabama Power in Item 7 of the Form 10-K and FINANCIAL CONDITION AND LIQUIDITY – “Financing Activities” herein for additional information.
Income Taxes
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$11.6   12.3   $23.1   13.8
 
In the second quarter 2009, income taxes were $105.4 million compared to $93.8 million for the corresponding period in 2008. For year-to-date 2009, income taxes were $190.3 million compared to $167.2 million for the corresponding period in 2008. These increases were primarily due to higher pre-tax income and a decrease in the tax benefit from the production activities deduction, partially offset by the increase in non-taxable AFUDC.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Alabama Power’s future earnings potential. The level of Alabama Power’s future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Alabama Power’s primary business of selling electricity. These factors include Alabama Power’s ability to maintain a constructive regulatory environment that continues to allow for the recovery of prudently incurred costs during a time of increasing costs. Future earnings in the near term will depend, in part, upon maintaining energy sales, which 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 or decline in Alabama Power’s service area. Recent recessionary conditions have negatively impacted sales and are expected to continue to have a negative impact, particularly to industrial customers. The timing and extent of the economic recovery will impact future earnings.
For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL of Alabama Power in Item 7 of the Form 10-K.
Environmental Matters
Compliance costs related to the Clean Air Act and other environmental statutes and regulations could affect earnings if such costs cannot continue to be fully recovered in rates on a timely basis. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters” of Alabama Power in Item 7 and Note 3 to the financial statements of Alabama Power under “Environmental Matters” in Item 8 of the Form 10-K for additional information.
Water Quality
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters – Environmental Statutes and Regulations – Water Quality” of Alabama Power in Item 7 of the Form 10-K for additional information regarding the EPA’s regulation of cooling water intake structures. On April 1, 2009, the U.S. Supreme Court reversed the U.S. Court of Appeals for the Second Circuit’s decision with respect to the rule’s use of cost-benefit analysis and held that the EPA could consider costs in arriving at its standards and in providing variances from those standards for existing power plant cooling water intake structures. Other aspects of the court’s decision were not appealed and remain unaffected by the U.S. Supreme Court’s ruling. While the U.S. Supreme Court’s decision may ultimately result in greater flexibility for demonstrating compliance with the standards, the full scope of the regulations will depend on subsequent legal proceedings, further rulemaking by the EPA, the results of studies and analyses performed as part of the rules’ implementation, and the actual requirements established by state regulatory agencies and, therefore, cannot be determined at this time.
Global Climate Issues
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters – Global Climate Issues” of Alabama Power in Item 7 of the Form 10-K for information regarding the potential for legislation and regulation addressing greenhouse gas emissions. On April 17, 2009, the EPA released a proposed finding that certain greenhouse gas emissions from new motor vehicles endanger public health and welfare due to climate change. The ultimate outcome of the proposed endangerment finding cannot be determined at this time and will depend on additional regulatory action and potential legal challenges. However, regulatory decisions that may follow from such a finding could have implications for both new and existing stationary sources, such as power plants. In addition, federal legislative

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
proposals that would impose mandatory requirements related to greenhouse gas emissions, renewable energy standards, and energy efficiency standards continue to be actively considered in Congress, and the reduction of greenhouse gas emissions has been identified as a high priority by the current Administration. On June 26, 2009, the American Clean Energy and Security Act of 2009, which would impose mandatory greenhouse gas restrictions through implementation of a cap and trade program, a renewable energy program, and other measures, was passed by the House of Representatives and is expected to now be considered by the Senate. The ultimate outcome of these matters cannot be determined at this time; however, mandatory restrictions on Alabama Power’s greenhouse gas emissions, or requirements relating to renewable energy or energy efficiency, could result in significant additional compliance costs that could affect future unit retirement and replacement decisions and results of operations, cash flows, and financial condition if such costs are not recovered through regulated rates.
FERC and Alabama PSC Matters
Market-Based Rate Authority
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters – Market-Based Rate Authority” of Alabama Power in Item 7 and Note 3 to the financial statements of Alabama Power under “FERC Matters – Market-Based Rate Authority” in Item 8 of the Form 10-K for information regarding market-based rate authority. In October 2008, Southern Company filed with the FERC a revised market-based rate (MBR) tariff and a new cost-based rate (CBR) tariff. The revised MBR tariff provides for a “must offer” energy auction whereby Southern Company offers all of its available energy for sale in a day-ahead auction and an hour-ahead auction with reserve prices not to exceed the CBR tariff price, after considering Southern Company’s native load requirements, reliability obligations, and sales commitments to third parties. All sales under the energy auction would be at market clearing prices established under the auction rules. The new CBR tariff provides for a cost-based price for wholesale sales of less than a year. On March 5, 2009, the FERC accepted Southern Company’s CBR tariff for filing. On March 25, 2009, the FERC accepted Southern Company’s compliance filing related to the MBR tariff and directed Southern Company to commence the energy auction in 30 days. Southern Company commenced the energy auction on April 23, 2009. The FERC has determined that implementation of the energy auction in accordance with the MBR tariff order adequately mitigates going forward any presumption of market power that Southern Company may have in the Southern Company retail service territory and adjacent market areas. The original generation dominance proceeding initiated by the FERC in December 2004 remains pending before the FERC. The ultimate outcome of this matter cannot be determined at this time.
Retail Fuel Cost Recovery
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Retail Fuel Cost Recovery” of Alabama Power in Item 7 and Note 3 to the financial statements of Alabama Power under “Retail Regulatory Matters – Fuel Cost Recovery” in Item 8 of the Form 10-K for information regarding Alabama Power’s fuel cost recovery. Alabama Power’s under recovered fuel costs as of June 30, 2009 totaled $102.1 million as compared to $305.8 million at December 31, 2008. These under recovered fuel costs at June 30, 2009 are included in under recovered regulatory clause revenues on Alabama Power’s Condensed Balance Sheets herein. This classification is based on an estimate which includes such factors as weather, generation availability, energy demand, and the price of energy. A change in any of these factors could have a material impact on the timing of the recovery of the under recovered fuel costs.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On June 2, 2009, the Alabama PSC approved a decrease in Alabama Power’s Rate ECR factor from 3.983 cents per KWH to 3.733 cents per KWH for billings beginning June 9, 2009 through October 8, 2010, which will have no significant effect on Alabama Power’s revenues or net income, but will decrease annual cash flow. Thereafter, the Rate ECR factor will be 5.910 cents per KWH, absent a contrary order by the Alabama PSC. Rate ECR revenues, as recorded on the financial statements, are adjusted for differences in actual recoverable fuel costs and amounts billed in current regulated rates. Alabama Power will be allowed to continue to include a carrying charge associated with the under recovered fuel costs in the fuel expense calculation. In the event the Rate ECR factor results in an over recovered position, Alabama Power will accrue interest on any such over recovered balance at the same rate used to derive the carrying cost.
Natural Disaster Cost Recovery
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Natural Disaster Cost Recovery” of Alabama Power in Item 7 and Note 3 to the financial statements of Alabama Power under “Retail Regulatory Matters – Natural Disaster Cost Recovery” in Item 8 of the Form 10-K for information regarding natural disaster cost recovery. At June 30, 2009, Alabama Power had accumulated a balance of $30.6 million in the target reserve for future storms, which is included in the Condensed Balance Sheets herein under “Other Regulatory Liabilities.”
Steam Service
On February 5, 2009, the Alabama PSC granted a Certificate of Abandonment of Steam Service in the downtown area of the City of Birmingham. The order allows Alabama Power to discontinue steam service by the earlier of three years from May 14, 2008 or when it has no remaining steam service customers. Currently, Alabama Power has contractual obligations to provide steam service until 2013. Impacts related to the abandonment of steam service are recognized in operating income and are not material to the earnings of Alabama Power.
Legislation
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA). Major tax incentives in the ARRA include an extension of bonus depreciation and multiple renewable energy incentives, which could have a significant impact on the future cash flow and net income of Alabama Power. Alabama Power estimates the cash flow reduction to 2009 tax payments as a result of the bonus depreciation provisions of the ARRA to be between approximately $75 million and $90 million. Southern Company and its subsidiaries have also filed an application under the ARRA for a grant, of which approximately $120 million relates to Alabama Power, to be used primarily for the advanced metering infrastructure program and other transmission and distribution automation and modernization projects. Alabama Power continues to assess the other financial implications of the ARRA. The ultimate impact cannot be determined at this time.
Other Matters
Alabama Power is involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Alabama Power is subject to certain claims and legal actions arising in the ordinary course of business. 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, common law nuisance, and citizen enforcement of environmental requirements such as opacity and air and water quality standards, has increased generally throughout the United

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
States. In particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent. The ultimate outcome of such pending or potential litigation against Alabama Power cannot be predicted at this time; however, for current proceedings not specifically reported herein or in Note 3 to the financial statements of Alabama Power in Item 8 of the Form 10-K, 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 other contingencies, regulatory matters, and other matters being litigated 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 MANAGEMENT’S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES – “Application of Critical Accounting Policies and Estimates” of Alabama Power in Item 7 of the Form 10-K for a complete discussion of Alabama Power’s critical accounting policies and estimates related to Electric Utility Regulation, Contingent Obligations, and Unbilled Revenues.
New Accounting Standards
Variable Interest Entities
In June 2009, the FASB issued new guidance on the consolidation of variable interest entities, which replaces the quantitative-based risks and rewards calculation for determining whether an enterprise is the primary beneficiary in a variable interest entity with an approach that is primarily qualitative, requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity, and requires additional disclosures about an enterprise’s involvement in variable interest entities. Alabama Power is required to adopt this new guidance effective January 1, 2010 and is evaluating the impact, if any, it will have on its financial statements.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Alabama Power’s financial condition remained stable at June 30, 2009. Throughout the turmoil in the financial markets, Alabama Power has maintained adequate access to capital without drawing on any of its committed bank credit arrangements used to support its commercial paper programs and variable rate pollution control revenue bonds. Alabama Power intends to continue to monitor its access to short-term and long-term capital markets as well as its bank credit arrangements to meet future capital and liquidity needs. Market rates for committed credit have increased, and Alabama Power has been and expects to continue to be subject to higher costs as its existing facilities are replaced or renewed. Total committed credit fees currently average less than 1/4 of 1% per year for Alabama Power. Alabama Power’s interest cost for short-term debt has decreased as market short-term interest rates have declined from 2008 levels. The ultimate impact on future financing costs as a result of financial turmoil cannot be determined at this time. Alabama Power experienced no material

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
counterparty credit losses as a result of the turmoil in the financial markets. See “Sources of Capital” and “Financing Activities” herein for additional information.
Alabama Power’s investments in pension and nuclear decommissioning trust funds stabilized during the second quarter 2009. Alabama Power expects that the earliest that cash may have to be contributed to the pension trust fund is 2012. The projections of the amount vary significantly depending on interpretations of and decisions related to federal legislation passed during 2008 as well as other key variables including future trust fund performance and cannot be determined at this time. Alabama Power does not expect any changes to the funding obligations to the nuclear decommissioning trust at this time.
Net cash provided from operating activities totaled $540.1 million for the first six months of 2009, compared to $543.3 million for the corresponding period in 2008. Changes in operating cash flow were not material. Net cash used for investing activities totaled $623.7 million compared to $725.0 million for the corresponding period in 2008. The $101.3 million decrease was primarily due to a decline in gross property additions related to nuclear refueling outages. Net cash provided from financing activities totaled $252.3 million for the first six months of 2009, compared to $140.7 million for the corresponding period in 2008. The $111.6 million increase was primarily due to no redemptions or maturities offset by fewer issuances of securities in the first six months of 2009 as compared to the first six months of 2008. Fluctuations in cash flow from financing activities vary from year-to-year based on capital needs and the maturity or redemption of securities.
Significant balance sheet changes for the first six months of 2009 include an increase of $168.7 million in cash and cash equivalents and an increase of $262.8 million in gross plant primarily due to increases in transmission and distribution projects. Long-term debt increased $552.1 million.
Capital Requirements and Contractual Obligations
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Capital Requirements and Contractual Obligations” of Alabama Power in Item 7 of the Form 10-K for a description of Alabama Power’s capital requirements for its construction program, scheduled maturities of long-term debt, as well as the related interest, derivative obligations, preferred and preference stock dividends, leases, purchase commitments, and trust funding requirements. Approximately $250 million will be required through June 30, 2010 for maturities of long-term debt. The construction program is subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; changes in environmental statutes and regulations; changes in nuclear plants to meet new regulatory requirements; changes in FERC rules and regulations; Alabama PSC approvals; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered.
Sources of Capital
 
Alabama Power plans to obtain the funds required for construction and other purposes from sources similar to those utilized in the past. Recently, Alabama Power has primarily utilized funds from operating cash flows, unsecured debt, common stock, preferred stock, and preference stock. However, the amount, type, and timing of any future financings, if needed, will depend upon regulatory approval, prevailing market conditions, and other factors. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Sources of Capital” of Alabama Power in Item 7 of the Form 10-K for additional information.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Alabama Power’s current liabilities sometimes exceed current assets because of Alabama Power’s debt due within one year and the periodic use of short-term debt as a funding source primarily to meet scheduled maturities of long-term debt as well as cash needs which can fluctuate significantly due to the seasonality of the business. To meet short-term cash needs and contingencies, Alabama Power had at June 30, 2009 cash and cash equivalents of approximately $196.9 million, unused committed lines of credit of approximately $1.3 billion, and commercial paper programs. The credit facilities provide liquidity support to Alabama Power’s commercial paper borrowings and $582 million are dedicated to funding purchase obligations related to variable rate pollution control revenue bonds. Of the unused credit facilities, $325 million will expire in 2009, $145 million will expire in 2010, $25 million will expire in 2011, and $765 million will expire in 2012. Of the facilities that expire in 2009 and 2010, $361 million allow for one-year term loans. Alabama Power expects to renew its credit facilities, as needed, prior to expiration. See Note 6 to the financial statements of Alabama Power under “Bank Credit Arrangements” in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under “Bank Credit Arrangements” herein for additional information. Alabama Power may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper at the request and for the benefit of Alabama Power and other Southern Company subsidiaries. At June 30, 2009, Alabama Power had no commercial paper outstanding and no outstanding borrowings under its committed lines of credit. Management believes that the need for working capital can be adequately met by utilizing commercial paper programs, lines of credit, and cash.
Credit Rating Risk
Alabama Power does not have any credit arrangements 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 BBB- and/or Baa3 or below. These contracts are primarily for physical electricity purchases and sales, fuel purchases, fuel transportation and storage, emissions allowances, and energy price risk management. At June 30, 2009, the maximum potential collateral requirements under these contracts at a BBB- and/or Baa3 rating were approximately $16 million. At June 30, 2009, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $175 million. Included in these amounts are certain agreements that could require collateral in the event that one or more Power Pool participants has a credit rating change to below investment grade. In addition, certain nuclear fuel agreements could require collateral of up to $64 million in the event of a rating change to below investment grade for Southern Company. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, any credit rating downgrade could impact Alabama Power’s ability to access capital markets, particularly the short-term debt market.
Market Price Risk
Alabama Power’s market risk exposure relative to interest rate changes has not changed materially compared with the December 31, 2008 reporting period. Since a significant portion of outstanding indebtedness is at fixed rates, Alabama Power is not aware of any facts or circumstances that would significantly affect exposures on existing indebtedness in the near term. However, the impact on future financing costs cannot now be determined.
Due to cost-based rate regulation, Alabama Power continues to 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, Alabama Power enters into physical fixed-price contracts for the purchase and sale of electricity through the wholesale electricity market. Alabama Power continues to manage a retail fuel-hedging program implemented per the guidelines of the Alabama PSC. As such, Alabama Power has no material change in market risk exposure when compared with the December 31, 2008 reporting period.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The changes in fair value of energy-related derivative contracts for the three and six months ended June 30, 2009 were as follows:
                 
    Second Quarter   Year-to-Date
    2009   2009
    Changes   Changes
    Fair Value
    (in millions)
Contracts outstanding at the beginning of the period, assets (liabilities), net
  $ (130.2 )   $ (91.9 )
Contracts realized or settled
    40.6       63.9  
Current period changes(a)
    (1.9 )     (63.5 )
 
Contracts outstanding at the end of the period, assets (liabilities), net
  $ (91.5 )   $ (91.5 )
 
 
(a)   Current period changes also include the changes in fair value of new contracts entered into during the period, if any.
The increases in the fair value positions of the energy-related derivative contracts for the three months and six months ended June 30, 2009 were $39 million and $0.4 million, respectively, substantially all of which is due to natural gas positions. These changes are attributable to both the volume and prices of natural gas. At June 30, 2009, Alabama Power had a net hedge volume of 49 million mmBtu with a weighted average contract cost approximately $1.89 per mmBtu above market prices, compared to 49 million mmBtu at March 31, 2009 with a weighted average contract cost approximately $2.70 per mmBtu above market prices and compared to 45 million mmBtu at December 31, 2008 with a weighted average contract cost approximately $2.12 per mmBtu above market prices. The majority of the natural gas hedge settlements are recovered through the fuel cost recovery clause.
At June 30, 2009 and December 31, 2008, the fair value of energy-related derivative contracts by hedge designation was reflected in the financial statements as follows:
                 
    June 30,   December 31,
    2009   2008
    (in millions)
Regulatory hedges
    $(91.5 )     $(91.9 )
Cash flow hedges
           
Not designated
           
 
Total fair value
    $(91.5 )     $(91.9 )
 
Energy-related derivative contracts which are designated as regulatory hedges relate to Alabama Power’s fuel hedging program where gains and losses are initially recorded as regulatory liabilities and assets, respectively, and then are included in fuel expense as they are recovered through the fuel cost recovery clauses. Certain other gains and losses on energy-related derivatives, designated as cash flow hedges, are initially deferred in OCI before being recognized in income in the same period as the hedged transaction. Gains and losses on energy-related derivative contracts that are not designated or fail to qualify as hedges are recognized in the statements of income as incurred.
Unrealized pre-tax gains and losses recognized in income for the three months and six months ended June 30, 2009 and 2008 for energy-related derivative contracts that are not hedges were not material.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The maturities of the energy-related derivative contracts and the level of the fair value hierarchy in which they fall at June 30, 2009 are as follows:
                                 
    June 30, 2009
    Fair Value Measurements
    Total   Maturity
    Fair Value   Year 1   Years 2&3   Years 4&5
    (in millions)
Level 1
  $     $     $     $  
Level 2
    (91.5 )     (77.0 )     (14.6 )     0.1  
Level 3
                       
 
Fair value of contracts outstanding at end of period
  $ (91.5 )   $ (77.0 )   $ (14.6 )   $ 0.1  
 
Alabama Power uses over-the-counter contracts that are not exchange traded but are fair valued using prices which are actively quoted, and thus fall into Level 2. See Note (C) to the Condensed Financial Statements herein for further discussion on fair value measurements.
For additional information, see MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Market Price Risk” of Alabama Power in Item 7 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 (E) to the Condensed Financial Statements herein.
Financing Activities
In March 2009, Alabama Power issued $500 million of Series 2009A 6.00% Senior Notes due March 1, 2039. The proceeds were used to repay short-term indebtedness and for other general corporate purposes, including Alabama Power’s continuous construction program.
In June 2009, Alabama Power incurred obligations related to the issuance of $53 million of The Industrial Development Board of the City of Mobile Pollution Control Revenue Bonds (Alabama Power Barry Plant Project), First Series 2009. The proceeds were used to fund pollution control and environmental improvement facilities at Plant Barry.
Subsequent to June 30, 2009, Alabama Power issued 3,375,000 shares of common stock to Southern Company at $40 a share ($135 million aggregate purchase price). The proceeds were used for general corporate purposes.
In addition to any financings that may be necessary to meet capital requirements and contractual obligations, Alabama 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.

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GEORGIA POWER COMPANY

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GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2009     2008     2009     2008  
    (in thousands)     (in thousands)  
Operating Revenues:
                               
Retail revenues
  $ 1,682,225     $ 1,830,753     $ 3,274,620     $ 3,405,760  
Wholesale revenues, non-affiliates
    96,570       142,276       192,556       294,968  
Wholesale revenues, affiliates
    29,623       72,164       44,833       146,074  
Other revenues
    65,896       65,969       128,146       129,207  
 
                       
Total operating revenues
    1,874,314       2,111,162       3,640,155       3,976,009  
 
                       
Operating Expenses:
                               
Fuel
    652,889       683,299       1,253,379       1,321,222  
Purchased power, non-affiliates
    70,817       107,723       132,770       165,754  
Purchased power, affiliates
    172,418       247,842       369,641       500,777  
Other operations and maintenance
    353,562       391,781       744,055       760,596  
Depreciation and amortization
    175,080       159,204       342,191       309,812  
Taxes other than income taxes
    81,008       79,485       157,256       150,771  
 
                       
Total operating expenses
    1,505,774       1,669,334       2,999,292       3,208,932  
 
                       
Operating Income
    368,540       441,828       640,863       767,077  
Other Income and (Expense):
                               
Allowance for equity funds used during construction
    22,313       23,981       43,067       51,738  
Interest income
    (197 )     1,050       1,033       1,837  
Interest expense, net of amounts capitalized
    (99,425 )     (83,727 )     (197,815 )     (170,065 )
Other income (expense), net
    2,531       1,371       (4,189 )     (1,922 )
 
                       
Total other income and (expense)
    (74,778 )     (57,325 )     (157,904 )     (118,412 )
 
                       
Earnings Before Income Taxes
    293,762       384,503       482,959       648,665  
Income taxes
    99,682       132,279       162,310       216,080  
 
                       
Net Income
    194,080       252,224       320,649       432,585  
Dividends on Preferred and Preference Stock
    4,346       4,346       8,691       8,691  
 
                       
Net Income After Dividends on Preferred and Preference Stock
  $ 189,734     $ 247,878     $ 311,958     $ 423,894  
 
                       
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2009     2008     2009     2008  
    (in thousands)     (in thousands)  
Net Income After Dividends on Preferred and Preference Stock
  $ 189,734     $ 247,878     $ 311,958     $ 423,894  
Other comprehensive income (loss):
                               
Qualifying hedges:
                               
Changes in fair value, net of tax of $(905), $6,027, $275, and $(16), respectively
    (1,435 )     9,556       435       (24 )
Reclassification adjustment for amounts included in net income, net of tax of $2,427, $489, $4,170, and $695, respectively
    3,848       774       6,611       1,101  
 
                       
Total other comprehensive income (loss)
    2,413       10,330       7,046       1,077  
 
                       
Comprehensive Income
  $ 192,147     $ 258,208     $ 319,004     $ 424,971  
 
                       
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.

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GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    For the Six Months  
    Ended June 30,  
    2009     2008  
    (in thousands)  
Operating Activities:
               
Net income
  $ 320,649     $ 432,585  
Adjustments to reconcile net income to net cash provided from operating activities —
               
Depreciation and amortization, total
    402,086       367,910  
Deferred income taxes and investment tax credits
    54,721       29,175  
Deferred revenues
    (20,929 )     60,875  
Deferred expenses
    20,523       27,059  
Allowance for equity funds used during construction
    (43,067 )     (51,738 )
Pension, postretirement, and other employee benefits
    (11,543 )     6,304  
Hedge settlements
    (16,167 )     (20,486 )
Other, net
    42,135       (25,801 )
Changes in certain current assets and liabilities —
               
-Receivables
    (126,080 )     (193,372 )
-Fossil fuel stock
    (222,837 )     (40,214 )
-Prepaid income taxes
    (20,298 )     4,302  
-Other current assets
    (14,914 )     (14,874 )
-Accounts payable
    120,228       102,384  
-Accrued taxes
    (74,291 )     (12,300 )
-Accrued compensation
    (103,764 )     (49,119 )
-Other current liabilities
    31,345       54,941  
 
           
Net cash provided from operating activities
    337,797       677,631  
 
           
Investing Activities:
               
Property additions
    (1,208,114 )     (992,317 )
Distribution of restricted cash from pollution control revenue bonds
    15,566       13,221  
Nuclear decommissioning trust fund purchases
    (699,359 )     (225,477 )
Nuclear decommissioning trust fund sales
    664,633       218,597  
Cost of removal, net of salvage
    (33,041 )     (15,957 )
Change in construction payables, net of joint owner portion
    103,558       7,200  
Other investing activities
    43,910       (16,754 )
 
           
Net cash used for investing activities
    (1,112,847 )     (1,011,487 )
 
           
Financing Activities:
               
Increase (decrease) in notes payable, net
    114,439       (347,612 )
Proceeds —
               
Capital contributions from parent company
    602,968       251,262  
Pollution control revenue bonds issuances
          94,935  
Senior notes issuances
    500,000       500,000  
Other long-term debt issuances
    750       300,000  
Redemptions —
               
Pollution control revenue bonds
          (41,935 )
Senior notes
    (151,928 )     (45,812 )
Payment of preferred and preference stock dividends
    (8,758 )     (8,309 )
Payment of common stock dividends
    (369,450 )     (360,600 )
Other financing activities
    (7,963 )     (8,430 )
 
           
Net cash provided from financing activities
    680,058       333,499  
 
           
Net Change in Cash and Cash Equivalents
    (94,992 )     (357 )
Cash and Cash Equivalents at Beginning of Period
    132,739       15,392  
 
           
Cash and Cash Equivalents at End of Period
  $ 37,747     $ 15,035  
 
           
Supplemental Cash Flow Information:
               
Cash paid during the period for —
               
Interest (net of $18,986 and $21,619 capitalized for 2009 and 2008, respectively)
  $ 167,890     $ 154,225  
Income taxes (net of refunds)
  $ 79,141     $ 130,091  
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.

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GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Assets   2009     2008  
    (in thousands)  
Current Assets:
               
Cash and cash equivalents
  $ 37,747     $ 132,739  
Restricted cash and cash equivalents
    11,081       22,381  
Receivables —
               
Customer accounts receivable
    575,753       554,219  
Unbilled revenues
    212,550       147,978  
Under recovered regulatory clause revenues
    346,608       338,780  
Joint owner accounts receivable
    146,544       43,858  
Other accounts and notes receivable
    44,913       54,041  
Affiliated companies
    15,784       13,091  
Accumulated provision for uncollectible accounts
    (11,679 )     (10,732 )
Fossil fuel stock, at average cost
    707,594       484,757  
Materials and supplies, at average cost
    362,530       356,537  
Vacation pay
    65,644       71,217  
Prepaid income taxes
    86,285       65,987  
Other regulatory assets, current
    151,044       118,961  
Other current assets
    52,240       63,464  
 
           
Total current assets
    2,804,638       2,457,278  
 
           
Property, Plant, and Equipment:
               
In service
    24,779,503       23,975,262  
Less accumulated provision for depreciation
    9,301,959       9,101,474  
 
           
Plant in service, net of depreciation
    15,477,544       14,873,788  
Nuclear fuel, at amortized cost
    302,160       278,412  
Construction work in progress
    1,759,917       1,434,989  
 
           
Total property, plant, and equipment
    17,539,621       16,587,189  
 
           
Other Property and Investments:
               
Equity investments in unconsolidated subsidiaries
    63,450       57,163  
Nuclear decommissioning trusts, at fair value
    520,445       460,430  
Miscellaneous property and investments
    37,058       40,945  
 
           
Total other property and investments
    620,953       558,538  
 
           
Deferred Charges and Other Assets:
               
Deferred charges related to income taxes
    586,370       572,528  
Deferred under recovered regulatory clause revenues
    364,728       425,609  
Other regulatory assets, deferred
    1,361,027       1,449,352  
Other deferred charges and assets
    204,552       265,174  
 
           
Total deferred charges and other assets
    2,516,677       2,712,663  
 
           
Total Assets
  $ 23,481,889     $ 22,315,668  
 
           
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.

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GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Liabilities and Stockholder's Equity   2009     2008  
    (in thousands)  
Current Liabilities:
               
Securities due within one year
  $ 435,372     $ 280,443  
Notes payable
    471,533       357,095  
Accounts payable —
               
Affiliated
    240,279       260,545  
Other
    678,495       422,485  
Customer deposits
    193,851       186,919  
Accrued taxes —
               
Accrued income taxes
    78,877       70,916  
Unrecognized tax benefits
    148,686       128,712  
Other accrued taxes
    155,370       278,172  
Accrued interest
    91,215       79,432  
Accrued vacation pay
    49,248       57,643  
Accrued compensation
    38,556       135,191  
Liabilities from risk management activities
    109,522       113,432  
Other current liabilities
    207,789       136,176  
 
           
Total current liabilities
    2,898,793       2,507,161  
 
           
Long-term Debt
    7,196,675       7,006,275  
 
           
Deferred Credits and Other Liabilities:
               
Accumulated deferred income taxes
    3,161,017       3,064,580  
Deferred credits related to income taxes
    134,470       140,933  
Accumulated deferred investment tax credits
    249,357       256,218  
Employee benefit obligations
    870,699       882,965  
Asset retirement obligations
    706,933       688,019  
Other cost of removal obligations
    378,462       396,947  
Other regulatory liabilities, deferred
    75,293       115,865  
Other deferred credits and liabilities
    108,498       111,505  
 
           
Total deferred credits and other liabilities
    5,684,729       5,657,032  
 
           
Total Liabilities
    15,780,197       15,170,468  
 
           
Preferred Stock
    44,991       44,991  
 
           
Preference Stock
    220,966       220,966  
 
           
Common Stockholder’s Equity:
               
Common stock, without par value—
               
Authorized - 20,000,000 shares
               
Outstanding - 9,261,500 shares
    398,473       398,473  
Paid-in capital
    4,262,668       3,655,731  
Retained earnings
    2,800,298       2,857,789  
Accumulated other comprehensive loss
    (25,704 )     (32,750 )
 
           
Total common stockholder’s equity
    7,435,735       6,879,243  
 
           
Total Liabilities and Stockholder’s Equity
  $ 23,481,889     $ 22,315,668  
 
           
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.

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GEORGIA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 2009 vs. SECOND QUARTER 2008
AND
YEAR-TO-DATE 2009 vs. YEAR-TO-DATE 2008
OVERVIEW
Georgia Power operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located within the State of Georgia and to wholesale customers in the Southeast. Many factors affect the opportunities, challenges, and risks of Georgia Power’s business of selling electricity. These factors include the ability to maintain a constructive regulatory environment, to maintain energy sales in the midst of the current economic downturn, and to effectively manage and secure timely recovery of rising costs. These costs include those related to projected long-term demand growth, increasingly stringent environmental standards, capital expenditures, and fuel prices. Appropriately balancing the need to recover these increasing costs with customer prices will continue to challenge Georgia Power for the foreseeable future. Georgia Power is required to file a general rate case by July 1, 2010, which will determine whether the 2007 Retail Rate Plan should be continued, modified, or discontinued. On June 29, 2009, Georgia Power filed a request with the Georgia PSC for an accounting order that would allow Georgia Power to amortize approximately $324 million of its regulatory liability related to other cost of removal obligations in lieu of filing a request for a base rate increase. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Retail Rate Matters” herein for additional information.
Georgia Power continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, and net income after dividends on preferred and preference stock. For additional information on these indicators, see MANAGEMENT’S DISCUSSION AND ANALYSIS – OVERVIEW – “Key Performance Indicators” of Georgia Power in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(58.2)
  (23.5)   $(111.9)   (26.4)
 
Georgia Power’s second quarter 2009 net income after dividends on preferred and preference stock was $189.7 million compared to $247.9 million for the corresponding period in 2008. Georgia Power’s year-to-date 2009 net income after dividends on preferred and preference stock was $312.0 million compared to $423.9 million for the corresponding period in 2008. These decreases were primarily due to lower industrial base revenues resulting from the recessionary economy. Also contributing to the year-to-date decrease was a charge in the first quarter 2009 in connection with a voluntary attrition plan under which 579 employees resigned from their positions effective March 31, 2009.
Retail Revenues
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(148.5)   (8.1)   $(131.1)   (3.9)
 
In the second quarter 2009, retail revenues were $1.68 billion compared to $1.83 billion for the corresponding period in 2008. For year-to-date 2009, retail revenues were $3.27 billion compared to $3.41 billion for the corresponding period in 2008.

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GEORGIA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of the change to retail revenues are as follows:
                                 
    Second Quarter   Year-to-Date
    2009   2009
    (in millions)   (% change)   (in millions)   (% change)
Retail – prior year
  $ 1,830.8             $ 3,405.8          
Estimated change in —
                               
Rates and pricing
    (42.1 )     (2.3 )     (22.5 )     (0.7 )
Sales growth (decline)
    (42.4 )     (2.3 )     (60.4 )     (1.8 )
Weather
    5.1       0.3       4.5       0.1  
Fuel cost recovery
    (69.2 )     (3.8 )     (52.8 )     (1.5 )
 
Retail – current year
  $ 1,682.2       (8.1 )%   $ 3,274.6       (3.9 )%
 
Revenues associated with changes in rates and pricing decreased in the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008 due to decreased revenues from market-response rates to large commercial and industrial customers of $78.6 million and $105.2 million for the second quarter and year-to-date 2009, respectively, partially offset by increased recognition of environmental compliance cost recovery revenues of $36.7 million and $83.0 million for the second quarter and year-to-date 2009, respectively, in accordance with the 2007 Retail Rate Plan.
Revenues attributable to changes in sales declined in the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008. These decreases were primarily due to the recessionary economy, partially offset by a 0.3% increase in retail customers. Weather-adjusted residential KWH sales decreased 1.1%, weather-adjusted commercial KWH sales decreased 0.8%, and weather-adjusted industrial KWH sales decreased 14.6% for the second quarter 2009 when compared to the corresponding period in 2008. Weather-adjusted residential KWH sales increased 0.1%, weather-adjusted commercial KWH sales decreased 0.7%, and weather-adjusted industrial KWH sales decreased 14.3% year-to-date 2009 when compared to the corresponding period in 2008. Weather-adjusted industrial KWH sales decreased due to a broad decline in demand across all industrial segments for the second quarter and year-to-date 2009.
Revenues attributable to changes in weather for the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008 were not material.
Fuel revenues and costs are allocated between retail and wholesale jurisdictions. Retail fuel cost recovery revenues decreased by $69.2 million in the second quarter 2009 and by $52.8 million year-to-date 2009 when compared to the corresponding periods in 2008 due to decreased KWH sales and fuel and purchased power expenses. Electric rates include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these provisions, fuel revenues generally equal fuel expenses, including the fuel component of purchased power costs, and do not impact net income.
Wholesale Revenues – Non-Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(45.7)
  (32.1)   $(102.4)   (34.7)
 
Wholesale revenues from non-affiliates will vary depending on the market cost of available energy compared to the cost of Georgia Power and Southern Company system-owned generation, demand for energy within the Southern Company service territory, and the availability of Southern Company system generation.

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In the second quarter 2009, wholesale revenues from non-affiliates were $96.6 million compared to $142.3 million for the corresponding period in 2008. For year-to-date 2009, wholesale revenues from non-affiliates were $192.6 million compared to $295.0 million for the corresponding period in 2008. These decreases were due to a 44.7% decrease and a 49.2% decease in KWH sales for the second quarter and year-to-date 2009, respectively, due to lower demand primarily caused by the recessionary economy.
Wholesale Revenues – Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(42.6)   (59.0)   $(101.3)   (69.3)
 
Wholesale revenues from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These affiliate sales are made in accordance with the IIC, as approved by the FERC. These transactions do not have a significant impact on earnings since the energy is generally sold at marginal cost.
In the second quarter 2009, wholesale revenues from affiliates were $29.6 million compared to $72.2 million for the corresponding period in 2008. For year-to-date 2009, wholesale revenues from affiliates were $44.8 million compared to $146.1 million for the corresponding period in 2008. These decreases were due to a 19.6% decrease and a 58.7% decrease in KWH sales in the second quarter and year-to-date 2009, respectively, due to lower demand primarily caused by the recessionary economy.
Fuel and Purchased Power Expenses
                                 
    Second Quarter 2009   Year-to-Date 2009
    vs.   vs.
    Second Quarter 2008   Year-to-Date 2008
    (change in millions)   (% change)   (change in millions)   (% change)
Fuel
  $ (30.4 )     (4.5 )   $ (67.8 )     (5.1 )
Purchased power – non-affiliates
    (36.9 )     (34.3 )     (33.0 )     (19.9 )
Purchased power – affiliates
    (75.4 )     (30.4 )     (131.2 )     (26.2 )
                     
Total fuel and purchased power expenses
  $ (142.7 )           $ (232.0 )        
                     
In the second quarter 2009, total fuel and purchased power expenses were $896.1 million compared to $1.04 billion for the corresponding period in 2008. The decrease was due to an $82.6 million decrease related to fewer KHWs generated and purchased and a $60.1 million decrease in the average cost of purchased power, partially offset by an increase in the average cost of fuel.
For year-to-date 2009, total fuel and purchased power expenses were $1.76 billion compared to $1.99 billion for the corresponding period in 2008. The decrease was due to a $190.3 million decrease related to fewer KWHs generated and purchased and a $41.7 million decrease in the average cost of purchased power, partially offset by an increase in the average cost of fuel.

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Details of Georgia Power’s cost of generation and purchased power are as follows:
                                                 
    Second Quarter   Second Quarter   Percent                   Percent
Average Cost   2009   2008   Change   Year-to-Date 2009   Year-to-Date 2008   Change
    (cents per net KWH)           (cents per net KWH)        
Fuel
    3.40       3.03       12.2       3.32       2.94       12.9  
Purchased power
    6.41       8.90       (28.0 )     6.41       8.07       (20.6 )
 
In the second quarter 2009, fuel expense was $652.9 million compared to $683.3 million for the corresponding period in 2008. For year-to-date 2009, fuel expense was $1.25 billion compared to $1.32 billion for the corresponding period in 2008. These decreases were due to lower natural gas prices and decreases of 14.3% and 16.2% in KWHs generated in the second quarter and year-to-date 2009, respectively, as a result of lower KWH demand. These decreases were partially offset by increases of 22.6% and 25.5% in the average cost of coal per KWH generated in the second quarter and year-to-date 2009, respectively.
Fuel and purchased power transactions 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. See FUTURE EARNINGS POTENTIAL – “FERC and Georgia PSC Matters – Retail Fuel Cost Recovery” herein for additional information.
Non-Affiliates
In the second quarter 2009, purchased power from non-affiliates was $70.8 million compared to $107.7 million for the corresponding period in 2008. For year-to-date 2009, purchased power from non-affiliates was $132.8 million compared to $165.8 million for the corresponding period in 2008. These decreases were due to 44.9% and 38.4% decreases in the average cost per KWH purchased in the second quarter and year-to-date 2009, respectively, over the corresponding periods in 2008. These decreases were partially offset by a 24.6% increase and a 33.1% increase in the volume of KWHs purchased from available lower-priced market energy alternatives in the second quarter and year-to-date 2009, respectively, over the corresponding periods in 2008.
Energy purchases from non-affiliates will vary depending on the market cost of available energy being lower than the cost of Southern Company system-generated energy, demand for energy within the Southern Company system service territory, and availability of Southern Company system generation.
Affiliates
In the second quarter 2009, purchased power from affiliates was $172.4 million compared to $247.8 million for the corresponding period in 2008. For year-to-date 2009, purchased power from affiliates was $369.6 million compared to $500.8 million for the corresponding period in 2008. These decreases were primarily due to 21.6% and 15.4% decreases in the average cost per KWH purchased for the second quarter and year-to-date 2009, respectively. These decreases were partially offset by a 20.5% increase and a 5.0% increase in the volume of KWHs purchased in the second quarter and year-to-date 2009, respectively.
Energy purchases from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC, as approved by the FERC.

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Other Operations and Maintenance Expenses
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(38.2)
  (9.8)   $(16.5)   (2.2)
 
In the second quarter 2009, other operations and maintenance expenses were $353.6 million compared to $391.8 million for the corresponding period in 2008. The decrease was due to a $19.1 million decrease in power generation, a $13.9 million decrease in transmission and distribution, and a decrease of $7.1 million in customer accounting, service, and sales costs all of which are related to cost containment activities in an effort to offset the effects of the recessionary economy.
For year-to-date 2009, other operations and maintenance expenses were $744.1 million compared to $760.6 million for the corresponding period in 2008. The decrease was due to a $20.1 million decrease in power generation, an $18.3 million decrease in transmission and distribution, and a $13.3 million decrease in customer accounting, service, and sales costs primarily due to the cost containment activities described above, partially offset by a $4.5 million increase in uncollectible accounts and a $29.4 million charge in the first quarter 2009 in connection with a voluntary attrition plan under which 579 employees elected to resign their positions effective March 31, 2009. In the second quarter 2009, approximately one-third of the $29.4 million charge was offset by lower salary and employee benefits costs, and the other two-thirds will be offset during the remainder of the year. This charge is not expected to have a material impact on Georgia Power’s financial statements for the year ending December 31, 2009.
Depreciation and Amortization
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$15.9   10.0   $32.4   10.5
 
In the second quarter 2009, depreciation and amortization was $175.1 million compared to $159.2 million for the corresponding period in 2008. For year-to-date 2009, depreciation and amortization was $342.2 million compared to $309.8 million for the corresponding period in 2008. These increases were primarily due to additional plant in service related to transmission, distribution, and environmental projects.
Allowance for Equity Funds Used During Construction
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(1.7)   (7.0)   $(8.6)   (16.8)
 
In the second quarter 2009, allowance for equity funds used during construction (AFUDC) when compared to the corresponding period in 2008 was not material.
For year-to-date 2009, AFUDC was $43.1 million compared to $51.7 million for the corresponding period in 2008. The decrease was due to a decrease in the average construction work in progress balances for year-to-date 2009 compared to the corresponding period in 2008 as a result of projects completed in 2008.

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Interest Expense, Net of Amount Capitalized
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$15.7   18.7   $27.7   16.3
 
In the second quarter 2009, interest expense, net of amounts capitalized was $99.4 million compared with $83.7 million for the corresponding period in 2008. For year-to-date 2009, interest expense, net of amounts capitalized was $197.8 million compared to $170.1 million for the corresponding period in 2008. These increases were primarily due to an increase in long-term debt levels resulting from the issuance of additional senior notes in the last 12 months, partially offset by lower average interest rates on existing variable rate debt.
Income Taxes
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(32.6)   (24.6)   $(53.8)   (24.9)
 
In the second quarter 2009, income taxes were $99.7 million compared with $132.3 million for the corresponding period in 2008. For year-to-date 2009, income taxes were $162.3 million compared with $216.1 million for the corresponding period in 2008. The decreases were primarily due to lower pre-tax net income.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Georgia Power’s future earnings potential. The level of Georgia Power’s future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Georgia Power’s business of selling electricity. These factors include Georgia Power’s ability to maintain a constructive regulatory environment that continues to allow for the recovery of prudently incurred costs during a time of increasing costs. Future earnings in the near term will depend, in part, upon maintaining energy sales, which 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 or decline in Georgia Power’s service area. Recent recessionary conditions have negatively impacted sales and are expected to continue to have a negative impact, particularly to industrial customers. The timing and extent of the economic recovery will impact future earnings. For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL of Georgia Power in Item 7 of the Form 10-K.
Environmental Matters
Compliance costs related to the Clean Air Act and other environmental statutes and regulations could affect earnings if such costs cannot continue to be fully recovered in rates on a timely basis. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters” of Georgia Power in Item 7 and Note 3 to the financial statements of Georgia Power under “Environmental Matters” in Item 8 of the Form 10-K for additional information.
Water Quality
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters – Environmental Statutes and Regulations – Water Quality” of Georgia Power in Item 7 of the Form 10-K for additional information regarding the EPA’s regulation of cooling water intake structures. On April 1, 2009, the U.S. Supreme Court reversed the U.S. Court of Appeals for the Second Circuit’s decision

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with respect to the rule’s use of cost-benefit analysis and held that the EPA could consider costs in arriving at its standards and in providing variances from those standards for existing power plant cooling water intake structures. Other aspects of the court’s decision were not appealed and remain unaffected by the U.S. Supreme Court’s ruling. While the U.S. Supreme Court’s decision may ultimately result in greater flexibility for demonstrating compliance with the standards, the full scope of the regulations will depend on subsequent legal proceedings, further rulemaking by the EPA, the results of studies and analyses performed as part of the rules’ implementation, and the actual requirements established by state regulatory agencies and, therefore, cannot be determined at this time.
Global Climate Issues
See MANAGEMENT’S DISCUSSION AND ANALYSIS — FUTURE EARNINGS POTENTIAL – “Environmental Matters – Global Climate Issues” of Georgia Power in Item 7 of the Form 10-K for information regarding the potential for legislation and regulation addressing greenhouse gas emissions. On April 17, 2009, the EPA released a proposed finding that certain greenhouse gas emissions from new motor vehicles endanger public health and welfare due to climate change. The ultimate outcome of the proposed endangerment finding cannot be determined at this time and will depend on additional regulatory action and potential legal challenges. However, regulatory decisions that may follow from such a finding could have implications for both new and existing stationary sources, such as power plants. In addition, federal legislative proposals that would impose mandatory requirements related to greenhouse gas emissions, renewable energy standards, and energy efficiency standards continue to be actively considered in Congress, and the reduction of greenhouse gas emissions has been identified as a high priority by the current Administration. On June 26, 2009, the American Clean Energy and Security Act of 2009, which would impose mandatory greenhouse gas restrictions through implementation of a cap and trade program, a renewable energy standard, and other measures, was passed by the House of Representatives and is expected to now be considered by the Senate. The ultimate outcome of these matters cannot be determined at this time; however, mandatory restrictions on Georgia Power’s greenhouse gas emissions, or requirements relating to renewable energy or energy efficiency, could result in significant additional compliance costs that could affect future unit retirement and replacement decisions and results of operations, cash flows, and financial condition if such costs are not recovered through regulated rates.
FERC and Georgia PSC Matters
Market-Based Rate Authority
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters – Market-Based Rate Authority” of Georgia Power in Item 7 and Note 3 to the financial statements of Georgia Power under “FERC Matters – Market-Based Rate Authority” in Item 8 of the Form 10-K for information regarding market-based rate authority. In October 2008, Southern Company filed with the FERC a revised market-based rate (MBR) tariff and a new cost-based rate (CBR) tariff. The revised MBR tariff provides for a “must offer” energy auction whereby Southern Company offers all of its available energy for sale in a day-ahead auction and an hour-ahead auction with reserve prices not to exceed the CBR tariff price, after considering Southern Company’s native load requirements, reliability obligations, and sales commitments to third parties. All sales under the energy auction would be at market clearing prices established under the auction rules. The new CBR tariff provides for a cost-based price for wholesale sales of less than a year. On March 5, 2009, the FERC accepted Southern Company’s CBR tariff for filing. On March 25, 2009, the FERC accepted Southern Company’s compliance filing related to the MBR tariff and directed Southern Company to commence the energy auction in 30 days. Southern Company commenced the energy auction on April 23, 2009. The FERC has determined that implementation of the energy auction in accordance with the MBR tariff order adequately mitigates going forward any presumption of market power that Southern Company may have in the Southern Company retail service territory and adjacent market areas. The original generation dominance

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proceeding initiated by the FERC in December 2004 remains pending before the FERC. The ultimate outcome of this matter cannot be determined at this time.
Retail Fuel Cost Recovery
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Fuel Cost Recovery” of Georgia Power in Item 7 and Note 3 to the financial statements of Georgia Power under “Retail Regulatory Matters – Fuel Cost Recovery” in Item 8 of the Form 10-K for additional information. In May 2008, the Georgia PSC approved an additional increase of approximately $222 million effective June 2008. On March 10, 2009, the Georgia PSC granted Georgia Power’s request to delay its fuel case filing until September 4, 2009. The extension was requested as a result of difficulty in establishing a forward-looking fuel rate due to volatile coal and gas prices, uncertain sales forecasts, and a continuing decline in the State of Georgia’s economy. As of June 30, 2009, Georgia Power had a total under recovered fuel cost balance of approximately $711 million compared to $764 million at December 31, 2008. The ultimate outcome of this matter cannot be determined at this time.
Fuel cost recovery revenues as recorded on the financial statements are adjusted for differences in actual recoverable fuel costs and amounts billed in current regulated rates. Accordingly, any changes in the billing factor will not have a significant effect on Georgia Power’s revenues or net income, but will affect cash flow.
Retail Rate Matters
Under the 2007 Retail Rate Plan, Georgia Power’s earnings are evaluated against a retail return on equity (ROE) range of 10.25% to 12.25%. In connection with the 2007 Retail Rate Plan, the Georgia PSC ordered that Georgia Power file its next general base rate case by July 1, 2010; however, the 2007 Retail Rate Plan provides that Georgia Power may file for a general base rate increase in the event its projected retail ROE falls below 10.25%.
The economic recession has significantly reduced Georgia Power’s revenues upon which retail rates were set under the 2007 Retail Rate Plan. Despite stringent efforts to reduce expenses, current projections indicate Georgia Power’s retail ROE will be less than 10.25% in both 2009 and 2010. However, in lieu of filing to increase customer rates as allowed under the 2007 Retail Rate Plan, on June 29, 2009, Georgia Power filed a request with the Georgia PSC for an accounting order that would allow Georgia Power to amortize approximately $324 million of its regulatory liability related to other cost of removal obligations. Under Georgia Power’s proposal, the regulatory liability would be amortized ratably over the 18-month period from July 1, 2009 through December 31, 2010 as a reduction to operating expenses. Even if the Georgia PSC approves the accounting order request as filed, Georgia Power currently expects its retail ROE will remain below the 10.25% low end of its allowed retail ROE range in 2009 and 2010. The accounting order request is subject to the review and approval of the Georgia PSC. The ultimate outcome of this matter cannot be determined at this time.
Legislation
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA). Major tax incentives in the ARRA include an extension of bonus depreciation and multiple renewable energy incentives, which could have a significant impact on the future cash flow and net income of Georgia Power. Georgia Power estimates the cash flow reduction to 2009 tax payments as a result of the bonus depreciation provisions of the ARRA to be between approximately $120 million and $150 million. Southern Company and its subsidiaries have also filed an application under the ARRA for a grant, of which approximately $140 million relates to Georgia Power, to be used primarily for the advanced metering

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infrastructure program and other transmission and distribution automation and modernization projects. Georgia Power continues to assess the other financial implications of the ARRA. The ultimate impact cannot be determined at this time.
Construction
Nuclear
See Note (B) to the Condensed Financial Statements under “Construction Projects – Nuclear” herein for information regarding the potential expansion of Plant Vogtle.
On March 17, 2009, the Georgia PSC voted to certify construction of Plant Vogtle Units 3 and 4 at an in-service cost of $6.4 billion. In addition, the Georgia PSC voted to approve inclusion of the related construction work in progress accounts in rate base and to recover financing costs during the construction period beginning in 2011, which is expected to reduce the in-service cost to approximately $4.5 billion.
On April 21, 2009, the Governor of the State of Georgia signed into law the Georgia Nuclear Energy Financing Act that will allow Georgia Power to recover financing costs for nuclear construction projects by including the related construction work in progress accounts in rate base during the construction period. The cost recovery provisions will become effective January 1, 2011.
On June 15, 2009, an environmental group filed a petition in the Superior Court of Fulton County, Georgia seeking review of the Georgia PSC’s certification order and challenging the constitutionality of the Georgia Nuclear Energy Financing Act. Georgia Power believes there is no meritorious basis for this petition and intends to vigorously defend against the requested actions. The ultimate outcome of this matter cannot be determined at this time.
Other
On March 17, 2009, the Georgia PSC approved Georgia Power’s request to convert Plant Mitchell from coal-fueled to wood biomass-fueled at an in-service cost of approximately $103 million. The conversion is expected to be completed in 2012. The Georgia PSC also approved Georgia Power’s plan to install additional environmental controls at Plants Branch and Yates.
Nuclear Relicensing
The NRC operating licenses for Plant Vogtle Units 1 and 2 were scheduled to expire in January 2027 and February 2029, respectively. In June 2007, Georgia Power filed an application with the NRC to extend the licenses for Plant Vogtle Units 1 and 2 for an additional 20 years. On June 3, 2009, the NRC approved the extension of the licenses as requested.
Other Matters
Georgia Power is involved in various other matters being litigated, regulatory matters, and certain tax-related issues that could affect future earnings. In addition, Georgia Power is subject to certain claims and legal actions arising in the ordinary course of business. 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, common law nuisance, and citizen enforcement of environmental requirements such as opacity and air and water quality standards, 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 pending or potential litigation against Georgia Power cannot be predicted at this time; however, for current proceedings not specifically reported herein or in Note 3 to the financial statements of Georgia Power in Item 8 of the Form 10-K, 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.

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See the Notes to the Condensed Financial Statements herein for discussion of various other contingencies, regulatory matters, and other matters being litigated 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 MANAGEMENT’S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES – “Application of Critical Accounting Policies and Estimates” of Georgia Power in Item 7 of the Form 10-K for a complete discussion of Georgia Power’s critical accounting policies and estimates related to Electric Utility Regulation, Contingent Obligations, and Unbilled Revenues.
New Accounting Standards
Variable Interest Entities
In June 2009, the FASB issued new guidance on the consolidation of variable interest entities, which replaces the quantitative-based risks and rewards calculation for determining whether an enterprise is the primary beneficiary in a variable interest entity with an approach that is primarily qualitative, requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity, and requires additional disclosures about an enterprise’s involvement in variable interest entities. Georgia Power is required to adopt this new guidance effective January 1, 2010 and is evaluating the impact, if any, it will have on its financial statements.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Georgia Power’s financial condition remained stable at June 30, 2009. Throughout the turmoil in the financial markets, Georgia Power has maintained adequate access to capital without drawing on any of its committed bank credit arrangements used to support its commercial paper borrowings and variable rate pollution control revenue bonds. Georgia Power intends to continue to monitor its access to short-term and long-term capital markets as well as its bank credit arrangements to meet future capital and liquidity needs. Market rates for committed credit have increased, and Georgia Power has been and expects to continue to be subject to higher costs as its existing facilities are replaced or renewed. Total committed credit fees at Georgia Power currently average less than 3/8 of 1% per year. Georgia Power’s interest cost for short-term debt has decreased as market short-term interest rates have declined from 2008 levels. The ultimate impact on future financing costs as a result of financial turmoil cannot be determined at this time. Georgia Power experienced no material counterparty credit losses as a result of the turmoil in the financial markets. See “Sources of Capital” and “Financing Activities” herein for additional information.

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Georgia Power’s investments in pension and nuclear decommissioning trust funds stabilized during the second quarter 2009. Georgia Power expects that the earliest that cash may have to be contributed to the pension trust fund is 2012 and such contribution could be significant; however, projections of the amount vary significantly depending on interpretations of and decisions related to federal legislation passed during 2008 as well as other key variables including future trust fund performance and cannot be determined at this time. Georgia Power does not expect any changes to funding obligations to the nuclear decommissioning trusts prior to 2011.
Net cash provided from operating activities totaled $337.8 million for the first six months of 2009, compared to $677.6 million for the corresponding period in 2008. The $339.8 million decrease in cash provided from operating activities in the first six months of 2009 was primarily due to the $112 million decrease in net income and an increase of $182 million in fuel and materials inventory additions. Net cash used for investing activities totaled $1.1 billion for the first six months of 2009, compared to $1.0 billion for the corresponding period in 2008, primarily due to gross property additions to utility plant. Net cash provided from financing activities totaled $680.1 million for the first six months of 2009, compared to $333.5 million for the corresponding period in 2008. The $346.6 million increase was primarily due to higher capital contributions from Southern Company.
Significant balance sheet changes for the first six months of 2009 include an increase of $1.0 billion in total property, plant, and equipment.
Capital Requirements and Contractual Obligations
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY “Capital Requirements and Contractual Obligations” of Georgia Power in Item 7 of the Form 10-K for a description of Georgia Power’s capital requirements for its construction program, scheduled maturities of long-term debt, as well as related interest, derivative obligations, preferred and preference stock dividends, leases, purchase commitments, trust funding requirements, and unrecognized tax benefits. Approximately $435 million will be required through June 30, 2010 to fund maturities and announced redemptions of long-term debt. The construction program is subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; changes in environmental statutes and regulations; changes in nuclear plants to meet new regulatory requirements; changes in FERC rules and regulations; Georgia PSC approvals; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered.
Sources of Capital
Georgia Power plans to obtain the funds required for construction and other purposes from sources similar to those utilized in the past. Recently, Georgia Power has primarily utilized funds from operating cash flows, short-term debt, security issuances, term loans, and equity contributions from Southern Company. However, the amount, type, and timing of any future financings, if needed, will depend upon regulatory approval, prevailing market conditions, and other factors. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Sources of Capital” of Georgia Power in Item 7 of 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 scheduled maturities of long-term debt as well as 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 June 30, 2009 approximately $37.7 million of cash and cash equivalents and approximately $1.7 billion of unused credit arrangements with banks. See Note 6 to the financial statements of

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GEORGIA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Georgia Power under “Bank Credit Arrangements” in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under “Bank Credit Arrangements” herein for additional information. Of the unused credit arrangements in place at June 30, 2009, $555 million expire in 2010 and $1.1 billion expire in 2012. Subsequent to June 30, 2009, Georgia Power entered into a new $40 million credit arrangement. The agreement expires in 2010 and contains a two-year term loan executable at expiration. Georgia Power expects to renew its credit facilities, as needed, prior to expiration.
Credit arrangements provide liquidity support to Georgia Power’s purchase obligations related to variable rate pollution control revenue bonds and commercial paper borrowings. At June 30, 2009, Georgia Power had $636.3 million of variable rate pollution control revenue bonds. Subsequent to June 30, 2009, Georgia Power incurred an additional $154.3 million of obligations related to variable rate pollution control revenue bonds and converted another $20.8 million from a fixed rate mode to a variable rate mode, increasing the total outstanding variable rate pollution control bonds to $811.4 million. Georgia Power may meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper at the request and for the benefit of Georgia Power and other Southern Company subsidiaries. At June 30, 2009, Georgia Power had approximately $471 million of commercial paper outstanding. Management believes that the need for working capital can be adequately met by utilizing commercial paper programs, lines of credit, and cash.
Credit Rating Risk
Georgia Power does not have any credit arrangements 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 BBB- and/or Baa3 or below. These contracts are for physical electricity purchases and sales, fuel purchases, fuel transportation and storage, emissions allowances, energy price risk management, and construction of new generation. At June 30, 2009, the maximum potential collateral requirements under these contracts at a BBB- and/or Baa3 rating were approximately $39 million. At June 30, 2009, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $1.1 billion. Included in these amounts are certain agreements that could require collateral in the event that one or more Power Pool participants has a credit rating change to below investment grade. In addition, certain nuclear fuel agreements could require collateral of up to $187 million in the event of a rating change to below investment grade for Southern Company. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, any credit rating downgrade could impact Georgia Power’s ability to access capital markets, particularly the short-term debt market.
Market Price Risk
Georgia Power’s market risk exposure relative to interest rate changes has not changed materially compared with the December 31, 2008 reporting period. Since a significant portion of outstanding indebtedness is at fixed rates, Georgia Power is not aware of any facts or circumstances that would significantly affect exposures on existing indebtedness in the near term. However, the impact on future financing costs cannot now be determined.
Due to cost-based rate regulation, Georgia Power continues to 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, Georgia Power enters into physical fixed-price contracts for the purchase and sale of electricity through the wholesale electricity market. Georgia Power continues to manage a fuel-hedging program implemented per the guidelines of the Georgia PSC. As such, Georgia Power has no material change in market risk exposure when compared with the December 31, 2008 reporting period.

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GEORGIA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The changes in fair value of energy-related derivative contracts for the three and six months ended June 30, 2009 were as follows:
                 
    Second Quarter   Year-to-Date
    2009   2009
    Changes   Changes
    Fair Value
    (in millions)
Contracts outstanding at the beginning of the period, assets (liabilities), net
  $ (176.6 )   $ (113.2 )
Contracts realized or settled
    54.3       74.1  
Current period changes(a)
    (3.1 )     (86.3 )
 
Contracts outstanding at the end of the period, assets (liabilities), net
  $ (125.4 )   $ (125.4 )
 
 
(a)   Current period changes also include the changes in fair value of new contracts entered into during the period, if any.
The changes in the fair value positions of the energy-related derivative contracts for the three months and six months ended June 30, 2009 were an increase of $51 million and a decrease of $12 million, respectively, substantially all of which is due to natural gas positions. These changes are attributable to both the volume and prices of natural gas. At June 30, 2009, Georgia Power had a net hedge volume of 75 million mmBtu with a weighted average contract cost approximately $1.69 per mmBtu above market prices, compared to 72 million mmBtu at March 31, 2009 with a weighted average contract cost approximately $2.53 per mmBtu above market prices and compared to 59 million mmBtu at December 31, 2008 with a weighted average contract cost approximately $1.96 per mmBtu above market prices. The natural gas hedge settlements are recovered through the fuel cost recovery mechanism.
At June 30, 2009 and December 31, 2008, the fair value of energy-related derivative contracts by hedge designation was reflected in the financial statements as follows:
                 
    June 30,   December 31,
    2009   2008
    (in millions)
Regulatory hedges
  $ (125.4 )   $ (113.2 )
Not designated
           
 
Total fair value
  $ (125.4 )   $ (113.2 )
 
Energy-related derivative contracts which are designated as regulatory hedges relate to Georgia Power’s fuel hedging program where gains and losses are initially recorded as regulatory liabilities and assets, respectively, and then are included in fuel expense as they are recovered through the fuel cost recovery mechanism. Gains and losses on energy-related derivative contracts that are not designated or fail to qualify as hedges are recognized in the statements of income as incurred.
Unrealized pre-tax gains and losses recognized in income for the three and six months ended June 30, 2009 and 2008 for energy-related derivative contracts that are not hedges were not material.

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GEORGIA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The maturities of the energy-related derivative contracts and the level of the fair value hierarchy in which they fall at June 30, 2009 are as follows:
                                 
    June 30, 2009
    Fair Value Measurements
    Total   Maturity
    Fair Value   Year 1   Years 2&3   Years 4&5
            (in millions)                
Level 1
  $     $     $     $  
Level 2
    (125.4 )     (100.6 )     (25.1 )     0.3  
Level 3
                       
 
Fair value of contracts outstanding at end of period
  $ (125.4 )   $ (100.6 )   $ (25.1 )   $ 0.3  
 
Georgia Power uses over-the-counter contracts that are not exchange traded but are fair valued using prices which are actively quoted, and thus fall into Level 2. See Note (C) to the Condensed Financial Statements herein for further discussion on fair value measurements.
For additional information, see MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Market Price Risk” of Georgia Power in Item 7 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 (E) to the Condensed Financial Statements herein.
Financing Activities
During the first quarter 2009, Georgia Power issued $500 million of Series 2009A 5.95% Senior Notes due February 1, 2039. The proceeds were used to repay at maturity $150 million aggregate principal amount of Series U Floating Rate Senior Notes due February 7, 2009, to repay a portion of short-term indebtedness, and for general corporate purposes, including Georgia Power’s continuous construction program. Georgia Power settled $100 million of hedges related to the Series 2009A issuance at a loss of approximately $16 million, and this loss will be amortized to interest expense, in earnings, together with a previously settled loss of approximately $2 million, over 10 years.
Subsequent to June 30, 2009, Georgia Power incurred obligations in connection with the issuance of $154.3 million of variable rate pollution control revenue bonds. The proceeds of the bonds were used to retire $154.3 million of fixed rate pollution control revenue bonds.
Subsequent to June 30, 2009, Georgia Power issued a notice to redeem on August 21, 2009 its $55 million of Series D 5.50% Senior Insured Quarterly Notes due November 15, 2017.
In addition to any financings that may be necessary to meet capital requirements and contractual obligations, 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.

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GULF POWER COMPANY

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GULF POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                                         
            For the Three Months     For the Six Months  
            Ended June 30,     Ended June 30,  
            2009     2008     2009     2008  
            (in thousands)     (in thousands)  
Operating Revenues:
                                       
Retail revenues
          $ 290,050     $ 284,218     $ 528,441     $ 512,182  
Wholesale revenues, non-affiliates
            22,700       25,052       44,666       50,708  
Wholesale revenues, affiliates
            10,727       26,524       16,087       69,464  
Other revenues
            17,618       14,073       36,185       29,048  
 
                               
Total operating revenues
            341,095       349,867       625,379       661,402  
 
                               
Operating Expenses:
                                       
Fuel
            156,195       165,999       271,748       316,126  
Purchased power, non-affiliates
            6,051       6,086       10,489       9,212  
Purchased power, affiliates
            13,240       16,685       28,621       25,428  
Other operations and maintenance
            64,983       65,774       137,474       132,205  
Depreciation and amortization
            23,317       22,206       46,376       43,910  
Taxes other than income taxes
            22,989       20,803       45,437       41,499  
 
                               
Total operating expenses
            286,775       297,553       540,145       568,380  
 
                               
Operating Income
            54,320       52,314       85,234       93,022  
Other Income and (Expense):
                                       
Allowance for equity funds used during construction
            5,707       2,040       10,525       3,523  
Interest income
            85       709       294       1,418  
Interest expense, net of amounts capitalized
            (9,907 )     (10,678 )     (19,739 )     (21,674 )
Other income (expense), net
            (487 )     (344 )     (1,103 )     (1,010 )
 
                               
Total other income and (expense)
            (4,602 )     (8,273 )     (10,023 )     (17,743 )
 
                               
Earnings Before Income Taxes
            49,718       44,041       75,211       75,279  
Income taxes
            15,899       15,499       23,299       25,656  
 
                               
Net Income
            33,819       28,542       51,912       49,623  
Dividends on Preference Stock
            1,550       1,550       3,101       3,101  
 
                               
Net Income After Dividends on Preference Stock
          $ 32,269     $ 26,992     $ 48,811     $ 46,522  
 
                               
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2009     2008     2009     2008  
    (in thousands)     (in thousands)  
Net Income After Dividends on Preference Stock
  $ 32,269     $ 26,992     $ 48,811     $ 46,522  
Other comprehensive income (loss):
                               
Qualifying hedges:
                               
Changes in fair value, net of tax of $-, $403, $-, and $(1,077), respectively
          643             (1,715 )
Reclassification adjustment for amounts included in net income, net of tax of $104, $103, $209, and $157, respectively
    167       162       334       249  
 
                       
Total other comprehensive income (loss)
    167       805       334       (1,466 )
 
                       
Comprehensive Income
  $ 32,436     $ 27,797     $ 49,145     $ 45,056  
 
                       
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.

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GULF POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    For the Six Months  
    Ended June 30,  
    2009     2008  
    (in thousands)  
Operating Activities:
               
Net income
  $ 51,912     $ 49,623  
Adjustments to reconcile net income to net cash provided from operating activities —
               
Depreciation and amortization, total
    48,831       46,438  
Deferred income taxes
    (10,224 )     9,215  
Allowance for equity funds used during construction
    (10,525 )     (3,523 )
Pension, postretirement, and other employee benefits
    (597 )     554  
Stock option expense
    637       537  
Tax benefit of stock options
    3       109  
Hedge settlements
          (5,220 )
Other, net
    (1,762 )     (60 )
Changes in certain current assets and liabilities —
               
-Receivables
    (3,606 )     (27,073 )
-Fossil fuel stock
    (50,999 )     (26,432 )
-Materials and supplies
    (459 )     6,669  
-Prepaid income taxes
    416        
-Property damage cost recovery
    10,816       12,463  
-Other current assets
    1,319       1,339  
-Accounts payable
    (1,002 )     6,419  
-Accrued taxes
    13,591       4,433  
-Accrued compensation
    (9,347 )     (6,952 )
-Other current liabilities
    10,640       2,838  
 
           
Net cash provided from operating activities
    49,644       71,377  
 
           
Investing Activities:
               
Property additions
    (240,336 )     (149,760 )
Investment in restricted cash from pollution control revenue bonds
    (49,188 )      
Distribution of restricted cash from pollution control revenue bonds
    11,417        
Cost of removal, net of salvage
    (5,439 )     (4,519 )
Construction payables
    9,661       5,754  
Other investing activities
    (3,375 )     (2,885 )
 
           
Net cash used for investing activities
    (277,260 )     (151,410 )
 
           
Financing Activities:
               
Decrease in notes payable, net
    (73,944 )     (40,801 )
Proceeds —
               
Common stock issued to parent
    135,000        
Capital contributions from parent company
    1,897       73,060  
Gross excess tax benefit of stock options
    9       212  
Pollution control revenue bonds
    130,400        
Senior notes
    140,000        
Other long-term debt issuances
          110,000  
Redemptions —
               
Senior notes
    (722 )     (651 )
Payment of preference stock dividends
    (3,101 )     (2,956 )
Payment of common stock dividends
    (44,650 )     (40,850 )
Other financing activities
    (1,556 )     (2,141 )
 
           
Net cash provided from financing activities
    283,333       95,873  
 
           
Net Change in Cash and Cash Equivalents
    55,717       15,840  
Cash and Cash Equivalents at Beginning of Period
    3,443       5,348  
 
           
Cash and Cash Equivalents at End of Period
  $ 59,160     $ 21,188  
 
           
Supplemental Cash Flow Information:
               
Cash paid during the period for —
               
Interest (net of $4,195 and $1,404 capitalized for 2009 and 2008, respectively)
  $ 19,502     $ 19,831  
Income taxes (net of refunds)
  $ 25,642     $ 17,744  
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.

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GULF POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Assets   2009     2008  
    (in thousands)  
Current Assets:
               
Cash and cash equivalents
  $ 59,160     $ 3,443  
Restricted cash and cash equivalents
    37,771        
Receivables —
               
Customer accounts receivable
    91,578       69,531  
Unbilled revenues
    71,132       48,742  
Under recovered regulatory clause revenues
    54,573       98,644  
Other accounts and notes receivable
    5,943       7,201  
Affiliated companies
    4,205       8,516  
Accumulated provision for uncollectible accounts
    (2,120 )     (2,188 )
Fossil fuel stock, at average cost
    159,084       108,129  
Materials and supplies, at average cost
    37,295       36,836  
Other regulatory assets, current
    37,791       38,908  
Other current assets
    25,320       25,655  
 
           
Total current assets
    581,732       443,417  
 
           
Property, Plant, and Equipment:
               
In service
    2,872,680       2,785,561  
Less accumulated provision for depreciation
    993,670       971,464  
 
           
Plant in service, net of depreciation
    1,879,010       1,814,097  
Construction work in progress
    540,019       391,987  
 
           
Total property, plant, and equipment
    2,419,029       2,206,084  
 
           
Other Property and Investments
    15,779       15,918  
 
           
Deferred Charges and Other Assets:
               
Deferred charges related to income taxes
    31,556       24,220  
Other regulatory assets, deferred
    172,345       170,836  
Other deferred charges and assets
    24,569       18,550  
 
           
Total deferred charges and other assets
    228,470       213,606  
 
           
Total Assets
  $ 3,245,010     $ 2,879,025  
 
           
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.

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GULF POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Liabilities and Stockholder's Equity   2009     2008  
    (in thousands)  
Current Liabilities:
               
Securities due within one year
  $ 140,000     $  
Notes payable
    65,986       148,239  
Accounts payable —
               
Affiliated
    58,777       50,304  
Other
    93,742       90,381  
Customer deposits
    30,571       28,017  
Accrued taxes —
               
Accrued income taxes
    23,610       39,983  
Other accrued taxes
    18,064       11,855  
Accrued interest
    9,363       8,959  
Accrued compensation
    6,319       15,667  
Other regulatory liabilities, current
    17,799       4,602  
Liabilities from risk management activities
    23,734       26,928  
Other current liabilities
    21,254       29,047  
 
           
Total current liabilities
    509,219       453,982  
 
           
Long-term Debt
    979,177       849,265  
 
           
Deferred Credits and Other Liabilities:
               
Accumulated deferred income taxes
    275,861       254,354  
Accumulated deferred investment tax credits
    10,454       11,255  
Employee benefit obligations
    95,660       97,389  
Other cost of removal obligations
    185,098       180,325  
Other regulatory liabilities, deferred
    41,668       28,597  
Other deferred credits and liabilities
    85,743       83,768  
 
           
Total deferred credits and other liabilities
    694,484       655,688  
 
           
Total Liabilities
    2,182,880       1,958,935  
 
           
Preference Stock
    97,998       97,998  
 
           
Common Stockholder’s Equity:
               
Common stock, without par value—
               
Authorized - 20,000,000 shares
               
Outstanding - June 30, 2009: 3,142,717 shares
               
- December 31, 2008: 1,792,717 shares
    253,060       118,060  
Paid-in capital
    514,091       511,547  
Retained earnings
    201,579       197,417  
Accumulated other comprehensive loss
    (4,598 )     (4,932 )
 
           
Total common stockholder’s equity
    964,132       822,092  
 
           
Total Liabilities and Stockholder’s Equity
  $ 3,245,010     $ 2,879,025  
 
           
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.

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GULF POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 2009 vs. SECOND QUARTER 2008
AND
YEAR-TO-DATE 2009 vs. YEAR-TO-DATE 2008
OVERVIEW
Gulf Power operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located in northwest Florida and to wholesale customers in the Southeast. Many factors affect the opportunities, challenges, and risks of Gulf Power’s business of selling electricity. These factors include the ability to maintain a constructive regulatory environment, to maintain energy sales in the midst of the current economic downturn, and to effectively manage and secure timely recovery of rising costs. These costs include those related to projected long-term demand growth, increasingly stringent environmental standards, fuel prices, and storm restoration costs. Appropriately balancing the need to recover these increasing costs with customer prices will continue to challenge Gulf Power for the foreseeable future.
Gulf Power continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, and net income after dividends on preference stock. For additional information on these indicators, see MANAGEMENT’S DISCUSSION AND ANALYSIS – OVERVIEW – “Key Performance Indicators” of Gulf Power in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$5.3
  19.6   $2.3   4.9
 
Gulf Power’s net income after dividends on preference stock for the second quarter 2009 was $32.3 million compared to $27.0 million for the corresponding period in 2008. The increase was primarily due to increased allowance for equity funds used during construction (AFUDC), which is non-taxable, and a decrease in other operations and maintenance expenses.
Gulf Power’s net income after dividends on preference stock for year-to-date 2009 was $48.8 million compared to $46.5 million for the corresponding period in 2008. The increase was primarily due to increased AFUDC, partially offset by a decline in sales, less favorable weather, and increased other operations and maintenance expenses.
Retail Revenues
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$5.9   2.1   $16.2   3.1
 
In the second quarter 2009, retail revenues were $290.1 million compared to $284.2 million for the corresponding period in 2008. For year-to-date 2009, retail revenues were $528.4 million compared to $512.2 million for the corresponding period in 2008.

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Details of the change to retail revenues are as follows:
                                 
    Second Quarter   Year-to-Date
    2009   2009
 
    (in millions)   (% change)   (in millions)   (% change)
Retail – prior year
  $ 284.2             $ 512.2          
Estimated change in –
                               
Rates and pricing
    8.0       2.9       15.3       3.0  
Sales growth (decline)
    0.6       0.2       (3.5 )     (0.7 )
Weather
    (1.4 )     (0.5 )     (3.0 )     (0.6 )
Fuel and other cost recovery
    (1.3 )     (0.5 )     7.4       1.4  
 
Retail – current year
  $ 290.1       2.1 %   $ 528.4       3.1 %
 
Revenues associated with changes in rates and pricing increased in the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008 primarily due to increased revenue associated with higher projected environmental compliance costs in 2009. Annually, Gulf Power petitions the Florida PSC for recovery of projected costs including any true-up amount from prior periods, and approved rates are implemented each January. These recovery provisions include related expenses and a return on average net investment. See Note 1 to the financial statements of Gulf Power under “Revenues” and Note 3 to the financial statements of Gulf Power under “Environmental Matters – Environmental Remediation” and “Retail Regulatory Matters – Environmental Cost Recovery” in Item 8 of the Form 10-K for additional information.
Revenues attributable to changes in sales increased in the second quarter 2009 when compared to the corresponding period in 2008. Weather-adjusted KWH energy sales to residential and commercial customers increased 3.6% and 1.9%, respectively, primarily due to increased customer usage. KWH energy sales to industrial customers decreased 22.1% as a result of recessionary economic conditions and increased customer co-generation due to the lower cost of natural gas.
Revenues attributable to changes in sales declined year-to-date 2009 when compared to the corresponding period in 2008. Weather-adjusted KWH energy sales to residential customers increased 0.4% primarily due to increased customer usage. Weather-adjusted KWH energy sales to commercial customers decreased 0.9% primarily due to decreased customer usage driven by the recession. KWH energy sales to industrial customers decreased 21.2% as a result of recessionary economic conditions and increased customer co-generation due to the lower cost of natural gas.
Revenues attributable to changes in weather decreased in the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008. These decreases were due to less favorable weather in 2009.
Fuel and other cost recovery revenues decreased in the second quarter 2009 when compared to the corresponding period in 2008 due to overall decreased customer usage primarily resulting from decreased industrial usage. Fuel and other cost recovery revenues increased year-to-date 2009 when compared to the corresponding period in 2008 primarily due to higher projected fuel and purchased power costs. Fuel and other cost recovery revenues include fuel expenses, the energy component of purchased power costs, purchased power capacity costs, and revenues related to the recovery of storm damage restoration costs. Annually, Gulf Power petitions the Florida PSC for recovery of projected fuel and purchased power costs including any true-up amount from prior periods, and approved rates are implemented each January. The recovery provisions generally equal the related expenses and have no material impact on net income. See FUTURE EARNINGS POTENTIAL – “FERC and Florida PSC Matters – Retail Fuel Cost Recovery” herein and MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Fuel Cost Recovery” of Gulf Power in Item 7 and Note 1 to the financial statements of Gulf Power under “Revenues” and

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“Property Damage Reserve” and Note 3 to the financial statements of Gulf Power under “Retail Regulatory Matters – Storm Damage Cost Recovery” and “Fuel Cost Recovery” in Item 8 of the Form 10-K for additional information.
Wholesale Revenues – Non-Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(2.3)
  (9.4)   $(6.0)   (11.9)
 
Wholesale revenues from non-affiliates will vary depending on the market cost of available energy compared to the cost of Gulf Power and Southern Company system-owned generation, demand for energy within the Southern Company service territory, and availability of Southern Company system generation. Wholesale revenues from non-affiliates are predominantly unit power sales under long-term contracts to other Florida utilities. Revenues from these contracts have both capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost.
In the second quarter 2009, wholesale revenues from non-affiliates were $22.7 million compared to $25.0 million for the corresponding period in 2008. The decrease was primarily a result of lower energy revenues related to 17.5% decrease in KWH sales.
For year-to-date 2009, wholesale revenues from non-affiliates were $44.7 million compared to $50.7 million for the corresponding period in 2008. The decrease was primarily a result of lower energy revenues related to 21.5% decrease in KWH sales.
Wholesale Revenues – Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(15.8)   (59.6)   $(53.4)   (76.8)
 
Wholesale revenues from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These affiliate sales are made in accordance with the IIC, as approved by the FERC. These transactions do not have a significant impact on earnings since the energy is generally sold at marginal cost.
In the second quarter 2009, wholesale revenues from affiliates were $10.7 million compared to $26.5 million for the corresponding period in 2008. The decrease was due to reduced customer demand resulting in a 30.4% decrease in KWH sales and a 41.9% decrease in price related to lower Power Pool interchange energy rates.
For year-to-date 2009, wholesale revenues from affiliates were $16.1 million compared to $69.5 million for the corresponding period in 2008. The decrease was due to reduced customer demand resulting in a 66.9% decrease in KWH sales and a 30.0% decrease in price related to lower Power Pool interchange energy rates.

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Other Revenues
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$3.5   25.2   $7.2   24.6
 
In the second quarter 2009, other revenues were $17.6 million compared to $14.1 million for the corresponding period in 2008. For year-to-date 2009, other revenues were $36.2 million compared to $29.0 million for the corresponding period in 2008. These increases were primarily due to other energy services and higher franchise fees. The increased revenues from other energy services did not have a material impact on net income since they were generally offset by associated expenses. Franchise fees have no impact on net income.
Fuel and Purchased Power Expenses
                                 
    Second Quarter 2009   Year-to-Date 2009
    vs.   vs.
    Second Quarter 2008   Year-to-Date 2008
    (change in millions)   (% change)   (change in millions)   (% change)
Fuel
  $ (9.8 )     (5.9 )   $ (44.4 )     (14.0 )
Purchased power – non-affiliates
    (0.1 )     (0.6 )     1.3       13.9  
Purchased power – affiliates
    (3.4 )     (20.6 )     3.2       12.6  
                     
Total fuel and purchased power expenses
  $ (13.3 )           $ (39.9 )        
                     
In the second quarter 2009, total fuel and purchased power expenses were $175.5 million compared to $188.8 million for the corresponding period in 2008. The net decrease in fuel and purchased power expenses was due to an $18.1 million decrease related to fewer KWHs generated and a $5.6 million decrease in the average cost of fuel and purchased power, partially offset by a $10.4 million increase related to KWHs purchased.
For year-to-date 2009, total fuel and purchased power expenses were $310.8 million compared to $350.7 million for the corresponding period in 2008. The net decrease in fuel and purchased power expenses was due to a $68.2 million decrease related to fewer KWHs generated, partially offset by a $26.9 million increase related to KWHs purchased as well as a $1.4 million increase in the average cost of fuel and purchased power.
Fuel and purchased power transactions do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Gulf Power’s fuel cost recovery clause. See FUTURE EARNINGS POTENTIAL – “FERC and Florida PSC Matters – Retail Fuel Cost Recovery” herein for additional information.
Details of Gulf Power’s cost of generation and purchased power are as follows:
                                                 
    Second Quarter   Second Quarter   Percent   Year-to-Date   Year-to-Date   Percent
Average Cost   2009   2008   Change   2009   2008   Change
 
    (cents per net KWH)           (cents per net KWH)        
Fuel
    4.45       4.26       4.5       4.39       4.03       8.9  
Purchased power
    6.71       10.73       (37.5 )     5.87       8.90       (34.0 )
 

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In the second quarter 2009, fuel expense was $156.2 million compared to $166.0 million for the corresponding period in 2008. The decrease was due to a decrease of 10.9% in KWHs generated as a result of lower KWH demand, and lower natural gas prices of 47.7%. The decrease was partially offset by an increase of 27.5% in the average cost of coal per KWH generated.
For year-to-date 2009, fuel expense was $271.7 million compared to $316.1 million for the corresponding period in 2008. The decrease was due to a decrease of 21.6% in KWHs generated as a result of lower KWH demand, and lower natural gas prices of 38.3%. The decrease was partially offset by an increase of 25.1% in the average cost of coal per KWH generated.
Non-Affiliates
In the second quarter 2009, purchased power from non-affiliates was $6.0 million compared to $6.1 million for the corresponding period in 2008. The decrease was not material.
For year-to-date 2009, purchased power from non-affiliates was $10.5 million compared to $9.2 million for the corresponding period in 2008. The increase was due to a 30.4% increase in the volume of KWHs purchased from available lower-priced market energy alternatives. The increase was partially offset by a 1.6% decrease in the average cost per KWH purchased.
Energy purchases from non-affiliates will vary depending on the market cost of available energy being lower than the cost of Southern Company system-generated energy, demand for energy within the Southern Company system service territory, and the availability of Southern Company system generation.
Affiliates
In the second quarter 2009, purchased power from affiliates was $13.3 million compared to $16.7 million for the corresponding period in 2008. The decrease was due to a 51.7% decrease in average cost per KWH purchased, partially offset by a 66.3% increase in the volume of KWHs purchased from available lower-priced market energy alternatives.
For year-to-date 2009, purchased power from affiliates was $28.6 million compared to $25.4 million for the corresponding period in 2008. The increase was due to a 106.9% increase in the volume of KWHs purchased from available lower-priced market energy alternatives, partially offset by a 45.3% decrease in the average cost per KWH purchased.
Energy purchases from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC, as approved by the FERC.
Other Operations and Maintenance Expenses
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(0.8)
  (1.2)   $5.3   4.0
 
In the second quarter 2009, other operations and maintenance expenses when compared to the corresponding period in 2008 were not material.

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For year-to-date 2009, other operations and maintenance expenses were $137.5 million compared to $132.2 million for the corresponding period in 2008. The increase was primarily due to a $5.5 million increase in other energy services and a $1.5 million increase in scheduled maintenance at generation facilities, partially offset by a $1.7 million decrease in storm recovery costs. The increased expense from other energy services and the decreased storm recovery costs did not have a material impact on earnings since they were offset by increased associated revenues.
Depreciation and Amortization
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$1.1   5.0   $2.5   5.6
 
In the second quarter 2009, depreciation and amortization was $23.3 million compared to $22.2 million for the corresponding period in 2008. For year-to-date 2009, depreciation and amortization was $46.4 million compared to $43.9 million for the corresponding period in 2008. The increases were primarily due to net additions to generation and distribution facilities.
Taxes Other Than Income Taxes
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$2.2   10.5   $3.9   9.5
 
In the second quarter 2009, taxes other than income taxes were $23.0 million compared to $20.8 million for the corresponding period in 2008. For year-to-date 2009, taxes other than income taxes were $45.4 million compared to $41.5 million for the corresponding period in 2008. The increases were primarily due to increases in franchise fees and gross receipt taxes, which were directly related to increased retail revenues.
Allowance for Equity Funds Used During Construction
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$3.7   N/M   $7.0   N/M
 
N/M-Not Meaningful
In the second quarter 2009, AFUDC was $5.7 million compared to $2.0 million for the corresponding period in 2008. For year-to-date 2009, AFUDC was $10.5 million compared to $3.5 million for the corresponding period in 2008. These increases were primarily due to the construction of environmental control projects.
Interest Income
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(0.6)   (88.0)   $(1.1)   (79.3)
 
In the second quarter 2009, interest income was $0.1 million compared to $0.7 million for the corresponding period in 2008. For year-to-date 2009, interest income was $0.3 million compared to $1.4 million for the corresponding period in 2008. These decreases were primarily due to decreases in interest received related to the recovery of financing costs associated with the fuel clause and interest on investments.

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Interest Expense, Net of Amounts Capitalized
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(0.8)   (7.2)   $(1.9)   (8.9)
 
In the second quarter 2009, interest expense, net of amounts capitalized was $9.9 million compared to $10.7 million for the corresponding period in 2008. For year-to-date 2009, interest expense, net of amounts capitalized was $19.8 million compared to $21.7 million for the corresponding period in 2008. These decreases were primarily the result of an increase in capitalization of AFUDC related to the construction of environmental control projects.
Income Taxes
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$0.4   2.6   $(2.4)   (9.2)
 
In the second quarter 2009, income taxes were $15.9 million compared to $15.5 million for the corresponding period in 2008. The increase was primarily due to higher earnings before income taxes, partially offset by an increase in the tax benefit associated with an increase in AFUDC, which is non-taxable, and state tax credits.
For year-to-date 2009, income taxes were $23.3 million compared to $25.7 million for the corresponding period in 2008. The decrease was primarily due to an increase in the tax benefit associated with an increase in AFUDC, which is non-taxable, and state tax credits, partially offset by a decrease in the federal production activities deduction.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Gulf Power’s future earnings potential. The level of Gulf Power’s future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Gulf Power’s business of selling electricity. These factors include Gulf Power’s ability to maintain a constructive regulatory environment that continues to allow for the recovery of prudently incurred costs during a time of increasing costs. Future earnings in the near term will depend, in part, upon maintaining energy sales, which 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 or decline in Gulf Power’s service area. Recent recessionary conditions have negatively impacted sales and are expected to continue to have a negative impact, particularly to industrial customers. The timing and extent of the economic recovery will impact future earnings. For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL of Gulf Power in Item 7 of the Form 10-K.
Environmental Matters
Compliance costs related to the Clean Air Act and other environmental statutes and regulations could affect earnings if such costs cannot continue to be fully recovered in rates on a timely basis. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters” of Gulf Power in Item 7 and Note 3 to the financial statements of Gulf Power under “Environmental Matters” in Item 8 of the Form 10-K for additional information.

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Water Quality
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters – Environmental Statutes and Regulations – Water Quality” of Gulf Power in Item 7 of the Form 10-K for additional information regarding the EPA’s regulation of cooling water intake structures. On April 1, 2009, the U.S. Supreme Court reversed the U.S. Court of Appeals for the Second Circuit’s decision with respect to the rule’s use of cost-benefit analysis and held that the EPA could consider costs in arriving at its standards and in providing variances from those standards for existing power plant cooling water intake structures. Other aspects of the court’s decision were not appealed and remain unaffected by the U.S. Supreme Court’s ruling. While the U.S. Supreme Court’s decision may ultimately result in greater flexibility for demonstrating compliance with the standards, the full scope of the regulations will depend on subsequent legal proceedings, further rulemaking by the EPA, the results of studies and analyses performed as part of the rules’ implementation, and the actual requirements established by state regulatory agencies and, therefore, cannot be determined at this time.
Global Climate Issues
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters – Global Climate Issues” of Gulf Power in Item 7 of the Form 10-K for information regarding the potential for legislation and regulation addressing greenhouse gas emissions. On April 17, 2009, the EPA released a proposed finding that certain greenhouse gas emissions from new motor vehicles endanger public health and welfare due to climate change. The ultimate outcome of the proposed endangerment finding cannot be determined at this time and will depend on additional regulatory action and potential legal challenges. However, regulatory decisions that may follow from such a finding could have implications for both new and existing stationary sources, such as power plants. In addition, federal legislative proposals that would impose mandatory requirements related to greenhouse gas emissions, renewable energy standards, and energy efficiency standards continue to be actively considered in Congress, and the reduction of greenhouse gas emissions has been identified as a high priority by the current Administration. On June 26, 2009, the American Clean Energy and Security Act of 2009, which would impose mandatory greenhouse gas restrictions through implementation of a cap and trade program, a renewable energy standard, and other measures, was passed by the House of Representatives and is expected to now be considered by the Senate. The ultimate outcome of these matters cannot be determined at this time; however, mandatory restrictions on Gulf Power’s greenhouse gas emissions, or requirements relating to renewable energy or energy efficiency, could result in significant additional compliance costs that could affect future unit retirement and replacement decisions and results of operations, cash flows, and financial condition if such costs are not recovered through regulated rates.
FERC and Florida PSC Matters
Market-Based Rate Authority
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters – Market-Based Rate Authority” of Gulf Power in Item 7 and Note 3 to the financial statements of Gulf Power under “FERC Matters – Market-Based Rate Authority” in Item 8 of the Form 10-K for information regarding market-based rate authority. In October 2008, Southern Company filed with the FERC a revised market-based rate (MBR) tariff and a new cost-based rate (CBR) tariff. The revised MBR tariff provides for a “must offer” energy auction whereby Southern Company offers all of its available energy for sale in a day-ahead auction and an hour-ahead auction with reserve prices not to exceed the CBR tariff price, after considering Southern Company’s native load requirements, reliability obligations, and sales commitments to third parties. All sales under the energy auction would be at market clearing prices established under the auction rules. The new CBR tariff provides for a cost-based price for wholesale sales of less than a year. On March 5, 2009, the FERC accepted Southern Company’s CBR tariff for filing. On March 25, 2009, the FERC accepted Southern

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Company’s compliance filing related to the MBR tariff and directed Southern Company to commence the energy auction in 30 days. Southern Company commenced the energy auction on April 23, 2009. The FERC has determined that implementation of the energy auction in accordance with the MBR tariff order adequately mitigates going forward any presumption of market power that Southern Company may have in the Southern Company retail service territory and adjacent market areas. The original generation dominance proceeding initiated by the FERC in December 2004 remains pending before the FERC. The ultimate outcome of this matter cannot be determined at this time.
Retail Fuel Cost Recovery
Gulf Power has established fuel cost recovery rates approved by the Florida PSC. In recent years, Gulf Power has experienced higher than expected fuel costs for coal and natural gas. If the projected fuel cost over or under recovery balance at year-end exceeds 10% of the projected fuel revenue applicable for the period, Gulf Power is required to notify the Florida PSC and indicate if an adjustment to the fuel cost recovery factor is being requested.
Under recovered fuel costs at June 30, 2009 totaled $52.7 million, compared to $96.7 million at December 31, 2008. This amount is included in under recovered regulatory clause revenues on Gulf Power’s Condensed Balance Sheets herein. Fuel cost recovery revenues, as recorded on the financial statements, are adjusted for differences in actual recoverable costs and amounts billed in current regulated rates. Accordingly, any change in the billing factor would have no significant effect on Gulf Power’s revenues or net income, but would affect cash flow. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Fuel Cost Recovery” of Gulf Power in Item 7 and Notes 1 and 3 to the financial statements of Gulf Power under “Revenues” and “Retail Regulatory Matters – Fuel Cost Recovery,” respectively, in Item 8 of the Form 10-K for additional information.
Legislation
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA). Major tax incentives in the ARRA include an extension of bonus depreciation and multiple renewable energy incentives, which could have a significant impact on the future cash flow and net income of Gulf Power. Gulf Power estimates the cash flow reduction to 2009 tax payments as a result of the bonus depreciation provisions of the ARRA to be between approximately $13 million and $16 million. Southern Company and its subsidiaries have also filed an application under the ARRA for a grant, of which approximately $38 million relates to Gulf Power, to be used primarily for the advanced metering infrastructure program and other transmission and distribution automation and modernization projects. Gulf Power continues to assess the other financial implications of the ARRA. The ultimate impact cannot be determined at this time.
Other Matters
On March 16, 2009, Gulf Power entered into a PPA (the Agreement) with Shell Energy North America (US), L.P. (Shell). Under the terms of the Agreement, Gulf Power will be entitled to all of the capacity and energy from an approximately 885 MW combined cycle power plant (the Plant) located in Autauga County, Alabama that is owned and operated by Tenaska Alabama II Partners, L.P. (Tenaska). Shell is entitled to all of the capacity and energy from the Plant under a 20-year Energy Conversion Agreement between Shell and Tenaska that expires on May 24, 2023. On July 14, 2009, the Florida PSC approved the Agreement. The Agreement will commence on the first day of the month after the Florida PSC’s approval becomes a final, non-appealable order. The earliest possible effective date for the Agreement is October 1, 2009. Unless earlier terminated in accordance with its terms, the Agreement will terminate on May 24, 2023. Payments

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under the Agreement will be material; however these costs have been approved by the Florida PSC for recovery through Gulf Power’s fuel clause and purchased power capacity clause; therefore, no material impact is expected on Gulf Power’s net income. The ultimate outcome of this matter cannot now be determined.
Gulf Power is involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Gulf Power is subject to certain claims and legal actions arising in the ordinary course of business. 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, common law nuisance, and citizen enforcement of environmental requirements such as opacity and air and water quality standards, 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 pending or potential litigation against Gulf Power cannot be predicted at this time; however, for current proceedings not specifically reported herein or in Note 3 to the financial statements of Gulf Power in Item 8 of the Form 10-K, 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 other contingencies, regulatory matters, and other matters being litigated 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 MANAGEMENT’S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES – “Application of Critical Accounting Policies and Estimates” of Gulf Power in Item 7 of the Form 10-K for a complete discussion of Gulf Power’s critical accounting policies and estimates related to Electric Utility Regulation, Contingent Obligations, and Unbilled Revenues.
New Accounting Standards
Variable Interest Entities
In June 2009, the FASB issued new guidance on the consolidation of variable interest entities, which replaces the quantitative-based risks and rewards calculation for determining whether an enterprise is the primary beneficiary in a variable interest entity with an approach that is primarily qualitative, requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity, and requires additional disclosures about an enterprise’s involvement in variable interest entities. Gulf Power is required to adopt this new guidance effective January 1, 2010 and is evaluating the impact, if any, it will have on its financial statements.

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FINANCIAL CONDITION AND LIQUIDITY
Overview
Gulf Power’s financial condition remained stable at June 30, 2009. Throughout the turmoil in the financial markets, Gulf Power has maintained adequate access to capital without drawing on any of its committed bank credit arrangements used to support its commercial paper borrowings and variable rate pollution control revenue bonds. Gulf Power intends to continue to monitor its access to short-term and long-term capital markets as well as its bank credit arrangements to meet future capital and liquidity needs. Market rates for committed credit have increased, and Gulf Power has been and expects to continue to be subject to higher costs as its existing facilities are replaced or renewed. In the second quarter 2009, Gulf Power renewed $20 million of expiring credit facilities and entered into an additional $80 million of credit facilities. Total committed credit fees at Gulf Power currently average less than 1/2 of 1% per year. Gulf Power’s interest cost for short-term debt has decreased as market short-term interest rates have declined from 2008 levels. The ultimate impact on future financing costs as a result of financial turmoil cannot be determined at this time. Gulf Power experienced no material counterparty credit losses as a result of the turmoil in the financial markets. See “Sources of Capital” and “Financing Activities” herein for additional information.
Gulf Power’s investments in pension trust funds stabilized during the second quarter 2009. Gulf Power expects that the earliest that cash may have to be contributed to the pension trust fund is 2012 and such contribution could be significant; however, projections of the amount vary significantly depending on interpretations of and decisions related to federal legislation passed during 2008 as well as other key variables including future trust fund performance and cannot be determined at this time.
Net cash provided from operating activities totaled $49.6 million for the first six months of 2009 compared to $71.4 million for the corresponding period in 2008. The $21.8 million decrease in cash provided from operating activities was primarily due to a $22.4 million increase in customer receivables. Net cash used for investing activities in the first six months of 2009 totaled $277.3 million primarily due to gross property additions to utility plant. These additions were primarily related to installation of equipment to comply with environmental requirements. Net cash provided from financing activities totaled $283.3 million for the first six months of 2009, compared to $95.9 million for the corresponding period in 2008. The $187.4 million increase in cash provided from financing activities was primarily due to the issuances of $140.0 million of senior notes, $135.0 million of common stock to Southern Company, and $130.4 million of pollution control revenue bonds in 2009, partially offset by an issuance of $110 million of long-term debt in 2008, a $71.2 million decrease of capital contributions from Southern Company, and a $33.1 million increase in cash payments related to notes payable.
Significant balance sheet changes for the first six months of 2009 include a net increase of $212.9 million in property, plant, and equipment, primarily related to environmental control projects; the issuance of $140.0 million in senior notes; the issuance of common stock to Southern Company for $135.0 million; the issuance of $130.4 million of pollution control revenue bonds, with a related restricted cash balance of $37.8 million; an increase in customer accounts receivable and unbilled revenues of $44.4 million; and a $44.0 million decrease in under recovered regulatory clause revenues related to fuel.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Requirements and Contractual Obligations
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY “Capital Requirements and Contractual Obligations” of Gulf Power in Item 7 of the Form 10-K for a description of Gulf Power’s capital requirements for its construction program, maturities of long-term debt, leases, derivative obligations, preference stock dividends, purchase commitments, and trust funding requirements. Approximately $140 million will be required through June 30, 2010 to fund maturities of debt. The construction program is subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; storm impacts; changes in environmental statutes and regulations; changes in FERC rules and regulations; Florida PSC approvals; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered.
Sources of Capital
Gulf Power plans to obtain the funds required for construction and other purposes from sources similar to those utilized in the past. Recently, Gulf Power has utilized funds from operating cash flows, short-term debt, security offerings, a long-term bank note, and equity contributions from Southern Company. However, the amount, type, and timing of any future financings, if needed, will depend upon regulatory approval, prevailing market conditions, and other factors. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Sources of Capital” of Gulf Power in Item 7 of the Form 10-K for additional information.
Gulf 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, Gulf Power had at June 30, 2009 approximately $59.2 million of cash and cash equivalents and $220 million of unused committed lines of credit with banks. Of these credit agreements, $90 million expire in 2009, $130 million expire in 2010, and $70 million of these facilities contain provisions allowing one-year term loans executable at expiration. Gulf Power expects to renew its credit facilities, as needed, prior to expiration. See Note 6 to the financial statements of Gulf Power under “Bank Credit Arrangements” in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under “Bank Credit Arrangements” herein for additional information. These credit arrangements provide liquidity support to Gulf Power’s commercial paper borrowings and $69 million are dedicated to funding purchase obligations related to variable rate pollution control revenue bonds. Gulf Power may meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper at the request and for the benefit of Gulf Power and other Southern Company subsidiaries. At June 30, 2009, Gulf Power had $66 million of commercial paper outstanding. Management believes that the need for working capital can be adequately met by utilizing the commercial paper program, lines of credit, and cash.
Credit Rating Risk
Gulf Power does not have any credit arrangements 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 BBB- and/or Baa3 or below. These contracts are for physical electricity purchases and sales, fuel purchases, fuel transportation and storage, emissions allowances, and energy price risk management. At June 30, 2009, the maximum potential collateral requirements under these contracts at a BBB- and/or Baa3 rating were approximately $62 million. At June 30, 2009, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $246 million. Included in these amounts are certain agreements that could require collateral

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
in the event that one or more Power Pool participants has a credit rating change to below investment grade. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, any credit rating downgrade could impact Gulf Power’s ability to access capital markets, particularly the short-term debt market.
Market Price Risk
Gulf Power’s market risk exposure relative to interest rate changes has not changed materially compared with the December 31, 2008 reporting period. Since a significant portion of outstanding indebtedness is at fixed rates, Gulf Power is not aware of any facts or circumstances that would significantly affect exposures on existing indebtedness in the near term. However, the impact on future financing costs cannot now be determined.
Due to cost-based rate regulation, Gulf Power continues to 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, Gulf Power enters into physical fixed-price contracts for the purchase and sale of electricity through the wholesale electricity market. Gulf Power continues to manage a fuel-hedging program implemented per the guidelines of the Florida PSC. As such, Gulf Power has no material change in market risk exposure when compared with the December 31, 2008 reporting period.
The changes in fair value of energy-related derivative contracts for the three and six months ended June 30, 2009 were as follows:
                 
    Second Quarter   Year-to-Date
    2009   2009
    Changes   Changes
 
    Fair Value
 
    (in millions)
Contracts outstanding at the beginning of the period, assets (liabilities), net
  $ (43.2 )   $ (31.2 )
Contracts realized or settled
    15.2       23.2  
Current period changes(a)
    (0.2 )     (20.2 )
 
Contracts outstanding at the end of the period, assets (liabilities), net
  $ (28.2 )   $ (28.2 )
 
 
(a)   Current period changes also include the changes in fair value of new contracts entered into during the period, if any.
The increases in the fair value positions of the energy-related derivative contracts for the three months and six months ended June 30, 2009 were $15 million and $3 million, respectively, substantially all of which is due to natural gas positions. These changes are attributable to both the volume and prices of natural gas. At June 30, 2009, Gulf Power had a net hedge volume of 15 million mmBtu with a weighted average contract cost approximately $1.95 per mmBtu above market prices, compared to 16 million mmBtu at March 31, 2009 with a weighted average contract cost approximately $2.76 per mmBtu above market prices and compared to 14 million mmBtu at December 31, 2008 with a weighted average contract cost approximately $2.24 per mmBtu above market prices. Natural gas hedge settlements are recovered through the fuel cost recovery clause.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At June 30, 2009 and December 31, 2008, the fair value of energy-related derivative contracts by hedge designation was reflected in the financial statements as follows:
                 
    June 30,   December 31,
    2009   2008
 
    (in millions)
Regulatory hedges
  $ (28.2 )   $ (31.2 )
Not designated
           
 
Total fair value
  $ (28.2 )   $ (31.2 )
 
Energy-related derivative contracts which are designated as regulatory hedges relate to Gulf Power’s fuel hedging program where gains and losses are initially recorded as regulatory liabilities and assets, respectively, and then are included in fuel expense as they are recovered through the fuel cost recovery clause. Gains and losses on energy-related derivative contracts that are not designated or fail to qualify as hedges are recognized in the statements of income as incurred.
Unrealized pre-tax gains and losses recognized in income for the three and six months ended June 30, 2009 and 2008 for energy-related derivative contracts that are not hedges were not material.
The maturities of the energy-related derivative contracts and the level of the fair value hierarchy in which they fall at June 30, 2009 are as follows:
                                 
    June 30, 2009
    Fair Value Measurements
 
    Total   Maturity
    Fair Value   Year 1   Years 2&3   Years 4&5
 
    (in millions)
Level 1
  $     $     $     $  
Level 2
    (28.2 )     (23.4 )     (4.8 )      
Level 3
                       
 
Fair value of contracts outstanding at end of period
  $ (28.2 )   $ (23.4 )   $ (4.8 )   $  
 
Gulf Power uses over-the-counter contracts that are not exchange traded but are fair valued using prices which are actively quoted, and thus fall into Level 2. See Note (C) to the Condensed Financial Statements herein for further discussion on fair value measurements.
For additional information, see MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Market Price Risk” of Gulf Power in Item 7 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 (E) to the Condensed Financial Statements herein.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financing Activities
On January 22, 2009, Gulf Power issued to Southern Company 1,350,000 shares of Gulf Power common stock, without par value, and realized proceeds of $135 million. The proceeds were used to repay a portion of Gulf Power’s short-term debt and for other general corporate purposes, including Gulf Power’s continuous construction program.
Also during the first quarter 2009, Gulf Power incurred obligations related to the issuance of $130.4 million of pollution control revenue bonds. The proceeds are being used for the acquisition, construction, installation, and equipping of certain solid waste disposal facilities located at Plant Crist.
In June 2009, Gulf Power issued $140 million of Series 2009A Floating Rate Senior Notes due June 28, 2010. The proceeds were used to repay a portion of short-term indebtedness and for other general corporate purposes, including Gulf Power’s continuous construction program.
Subsequent to June 30, 2009, Gulf Power entered into a forward starting interest rate swap to mitigate exposure to interest rate changes related to anticipated debt issuances. The notional amount of the swap is $50 million, and the swap has been designated as a cash flow hedge.
In addition to any financings that may be necessary to meet capital requirements, contractual obligations, and storm-recovery, Gulf 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.

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CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2009     2008     2009     2008  
    (in thousands)     (in thousands)  
Operating Revenues:
                               
Retail revenues
  $ 201,132     $ 187,121     $ 376,867     $ 355,510  
Wholesale revenues, non-affiliates
    73,693       83,595       153,847       168,401  
Wholesale revenues, affiliates
    7,963       22,546       17,381       50,925  
Other revenues
    3,893       4,670       7,309       8,512  
 
                       
Total operating revenues
    286,681       297,932       555,404       583,348  
 
                       
Operating Expenses:
                               
Fuel
    125,832       138,857       245,797       268,973  
Purchased power, non-affiliates
    2,873       5,426       5,708       7,681  
Purchased power, affiliates
    21,595       17,484       43,400       43,482  
Other operations and maintenance
    61,601       63,368       121,362       128,141  
Depreciation and amortization
    17,660       17,101       35,675       35,098  
Taxes other than income taxes
    16,221       16,286       31,145       31,851  
 
                       
Total operating expenses
    245,782       258,522       483,087       515,226  
 
                       
Operating Income
    40,899       39,410       72,317       68,122  
Other Income and (Expense):
                               
Interest income
    163       184       795       593  
Interest expense, net of amounts capitalized
    (6,254 )     (4,391 )     (11,016 )     (8,832 )
Other income (expense), net
    1,136       2,899       2,765       4,518  
 
                       
Total other income and (expense)
    (4,955 )     (1,308 )     (7,456 )     (3,721 )
 
                       
Earnings Before Income Taxes
    35,944       38,102       64,861       64,401  
Income taxes
    13,578       13,664       24,091       23,358  
 
                       
Net Income
    22,366       24,438       40,770       41,043  
Dividends on Preferred Stock
    433       433       866       866  
 
                       
Net Income After Dividends on Preferred Stock
  $ 21,933     $ 24,005     $ 39,904     $ 40,177  
 
                       
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2009     2008     2009     2008  
    (in thousands)     (in thousands)  
Net Income After Dividends on Preferred Stock
  $ 21,933     $ 24,005     $ 39,904     $ 40,177  
Other comprehensive income (loss):
                               
Qualifying hedges:
                               
Changes in fair value, net of tax of $(139), $(144), $27, and $(1,454), respectively
    (224 )     (233 )     44       (2,347 )
 
                       
Comprehensive Income
  $ 21,709     $ 23,772     $ 39,948     $ 37,830  
 
                       
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.

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CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    For the Six Months  
    Ended June 30,  
    2009     2008  
    (in thousands)  
Operating Activities:
               
Net income
  $ 40,770     $ 41,043  
Adjustments to reconcile net income to net cash provided from operating activities —
               
Depreciation and amortization, total
    39,202       37,232  
Deferred income taxes and investment tax credits, net
    (11,019 )     (8,732 )
Pension, postretirement, and other employee benefits
    2,852       3,765  
Stock option expense
    747       555  
Tax benefit of stock options
    14       95  
Generation construction screening expense
    (14,049 )     (8,780 )
Other, net
    2,078       (1,861 )
Changes in certain current assets and liabilities —
               
-Receivables
    13,274       (22,108 )
-Fossil fuel stock
    (44,024 )     (30,521 )
-Materials and supplies
    (1,464 )     (13,569 )
-Prepaid income taxes
    (446 )     1,607  
-Other current assets
    (12,644 )     273  
-Other accounts payable
    (14,103 )     14,948  
-Accrued taxes
    (14,243 )     (20,369 )
-Accrued compensation
    (12,990 )     (12,379 )
-Other current liabilities
    2,260       19,801  
 
           
Net cash provided from (used for) operating activities
    (23,785 )     1,000  
 
           
Investing Activities:
               
Property additions
    (50,943 )     (57,404 )
Cost of removal, net of salvage
    (7,287 )     (424 )
Construction payables
    (4,709 )     (7,275 )
Hurricane Katrina capital grant proceeds
          7,314  
Other investing activities
    (1,412 )     (998 )
 
           
Net cash used for investing activities
    (64,351 )     (58,787 )
 
           
Financing Activities:
               
Increase in notes payable, net
    20,501       10,669  
Proceeds —
               
Capital contributions from parent company
    2,101       2,714  
Gross excess tax benefit of stock options
    60       253  
Senior notes issuances
    125,000        
Other long-term debt issuances
          80,000  
Redemptions —
               
Senior notes
    (40,000 )      
Payment of preferred stock dividends
    (866 )     (866 )
Payment of common stock dividends
    (34,250 )     (34,200 )
Other financing activities
    (1,780 )     (1,471 )
 
           
Net cash provided from financing activities
    70,766       57,099  
 
           
Net Change in Cash and Cash Equivalents
    (17,370 )     (688 )
Cash and Cash Equivalents at Beginning of Period
    22,413       4,827  
 
           
Cash and Cash Equivalents at End of Period
  $ 5,043     $ 4,139  
 
           
Supplemental Cash Flow Information:
               
Cash paid during the period for —
               
Interest (net of $117 and $58 capitalized for 2009 and 2008, respectively)
  $ 8,873     $ 7,844  
Income taxes (net of refunds)
  $ 27,149     $ 32,628  
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.

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CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Assets   2009     2008  
    (in thousands)  
Current Assets:
               
Cash and cash equivalents
  $ 5,043     $ 22,413  
Receivables —
               
Customer accounts receivable
    52,477       40,262  
Unbilled revenues
    31,445       24,798  
Under recovered regulatory clause revenues
    21,163       54,994  
Other accounts and notes receivable
    11,355       8,995  
Affiliated companies
    23,443       24,108  
Accumulated provision for uncollectible accounts
    (919 )     (1,039 )
Fossil fuel stock, at average cost
    129,562       85,538  
Materials and supplies, at average cost
    28,607       27,143  
Other regulatory assets, current
    72,074       59,220  
Other current assets
    22,497       10,898  
 
           
Total current assets
    396,747       357,330  
 
           
Property, Plant, and Equipment:
               
In service
    2,296,298       2,234,573  
Less accumulated provision for depreciation
    932,020       923,269  
 
           
Plant in service, net of depreciation
    1,364,278       1,311,304  
Construction work in progress
    40,180       70,665  
 
           
Total property, plant, and equipment
    1,404,458       1,381,969  
 
           
Other Property and Investments
    7,606       8,280  
 
           
Deferred Charges and Other Assets:
               
Deferred charges related to income taxes
    8,807       9,566  
Other regulatory assets, deferred
    182,882       171,680  
Other deferred charges and assets
    24,355       23,870  
 
           
Total deferred charges and other assets
    216,044       205,116  
 
           
Total Assets
  $ 2,024,855     $ 1,952,695  
 
           
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.

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CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Liabilities and Stockholder's Equity   2009     2008  
    (in thousands)  
Current Liabilities:
               
Securities due within one year
  $ 1,279     $ 41,230  
Notes payable
    46,794       26,293  
Accounts payable —
               
Affiliated
    38,537       36,847  
Other
    43,203       63,704  
Customer deposits
    10,539       10,354  
Accrued taxes —
               
Accrued income taxes
    8,128       8,842  
Other accrued taxes
    28,965       50,700  
Accrued interest
    5,524       3,930  
Accrued compensation
    7,614       20,604  
Other regulatory liabilities, current
    9,695       9,718  
Liabilities from risk management activities
    37,851       29,291  
Other current liabilities
    20,290       19,144  
 
           
Total current liabilities
    258,419       320,657  
 
           
Long-term Debt
    494,073       370,460  
 
           
Deferred Credits and Other Liabilities:
               
Accumulated deferred income taxes
    222,470       222,324  
Deferred credits related to income taxes
    12,592       14,074  
Accumulated deferred investment tax credits
    13,419       14,014  
Employee benefit obligations
    143,513       142,188  
Other cost of removal obligations
    96,497       96,191  
Other regulatory liabilities, deferred
    54,359       51,340  
Other deferred credits and liabilities
    51,662       52,216  
 
           
Total deferred credits and other liabilities
    594,512       592,347  
 
           
Total Liabilities
    1,347,004       1,283,464  
 
           
Redeemable Preferred Stock
    32,780       32,780  
 
           
Common Stockholder’s Equity:
               
Common stock, without par value —
               
Authorized - 1,130,000 shares
               
Outstanding - 1,121,000 shares
    37,691       37,691  
Paid-in capital
    322,880       319,958  
Retained earnings
    284,456       278,802  
Accumulated other comprehensive income (loss)
    44        
 
           
Total common stockholder’s equity
    645,071       636,451  
 
           
Total Liabilities and Stockholder’s Equity
  $ 2,024,855     $ 1,952,695  
 
           
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 2009 vs. SECOND QUARTER 2008
AND
YEAR-TO-DATE 2009 vs. YEAR-TO-DATE 2008
OVERVIEW
Mississippi Power operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located within the State of Mississippi and to wholesale customers in the Southeast. Many factors affect the opportunities, challenges, and risks of Mississippi Power’s business of selling electricity. These factors include the ability to maintain a constructive regulatory environment, to maintain energy sales in the midst of the current economic downturn, and to effectively manage and secure timely recovery of rising costs. These costs include those related to projected long-term demand growth, increasingly stringent environmental standards, fuel prices, capital expenditures, and restoration following major storms. Mississippi Power has various regulatory mechanisms that operate to address cost recovery. Appropriately balancing required costs and capital expenditures with reasonable retail rates will continue to challenge Mississippi Power for the foreseeable future.
Mississippi Power continues to focus on several key performance indicators. In recognition that Mississippi Power’s long-term financial success is dependent upon how well it satisfies its customers’ needs, Mississippi Power’s retail base rate mechanism, PEP, includes performance indicators that directly tie customer service indicators to Mississippi Power’s allowed return. In addition to the PEP performance indicators, Mississippi Power focuses on other performance measures, including broader measures of customer satisfaction, plant availability, system reliability, and net income after dividends on preferred stock. For additional information on these indicators, see MANAGEMENT’S DISCUSSION AND ANALYSIS — OVERVIEW — “Key Performance Indicators” of Mississippi Power in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(2.1)
  (8.6)   $(0.3)   (0.7)
 
Mississippi Power’s net income after dividends on preferred stock for the second quarter 2009 was $21.9 million compared to $24.0 million for the corresponding period in 2008. Mississippi Power’s net income after dividends on preferred stock for year-to-date 2009 was $39.9 million compared to $40.2 million for the corresponding period in 2008. The decreases in net income after dividends for the second quarter 2009 and year-to-date 2009 were primarily due to decreases in wholesale energy revenues, total other income and (expense), and other revenues. These decreases were partially offset by an increase in territorial base revenues primarily resulting from an increase in territorial wholesale demand and a wholesale base rate increase as well as a decrease in other operations and maintenance expenses.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Retail Revenues
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$14.0   7.5   $21.4   6.0
 
In the second quarter 2009, retail revenues were $201.1 million compared to $187.1 million for the corresponding period in 2008. For year-to-date 2009, retail revenues were $376.9 million compared to $355.5 million for the corresponding period in 2008.
Details of the change to retail revenues are as follows:
                                 
    Second Quarter   Year-to-Date
    2009   2009
 
    (in millions)   (% change)   (in millions)   (% change)
Retail – prior year
  $ 187.1             $ 355.5          
Estimated change in —
                               
Rates and pricing
    0.9       0.5       2.5       0.7  
Sales growth (decline)
    (0.3 )     (0.2 )     (2.5 )     (0.7 )
Weather
    1.3       0.7       0.2       0.0  
Fuel and other cost recovery
    12.1       6.5       21.2       6.0  
 
Retail – current year
  $ 201.1       7.5 %   $ 376.9       6.0 %
 
Revenues associated with changes in rates and pricing increased in the second quarter 2009 when compared to the corresponding period in 2008 due to a $1.1 million increase related to the reclassification of 2008 System Restoration Rider (SRR) revenue reductions to expense pursuant to an order from the Mississippi PSC dated January 9, 2009, partially offset by decreases in retail revenues of approximately $0.2 million related to the ECO Plan rate.
Revenues associated with changes in rates and pricing increased year-to-date 2009 when compared to the corresponding period in 2008 due to a $2.1 million increase related to the reclassification of 2008 SRR revenue reductions to expense pursuant to an order from the Mississippi PSC dated January 9, 2009 and an increase in base rates of $0.9 million related to a rate change effective in mid-January 2008. These increases were partially offset by a decrease of $0.5 million related to the ECO Plan rate.
For additional information on SRR, see MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – System Restoration Rider” of Mississippi Power in Item 7 of the Form 10-K.
Revenues attributable to changes in sales declined in the second quarter 2009 when compared to the corresponding period in 2008. Weather-adjusted KWH energy sales to residential and commercial customers decreased 5.2% and 0.2%, respectively. KWH energy sales to industrial customers increased 3.2%. The decrease in weather-adjusted KWH sales to residential and commercial customers is primarily due to a recessionary economy. The increase in industrial sales is primarily due to maintenance outages experienced by some industrial customers in 2008.
Revenues attributable to changes in sales declined for year-to-date 2009 when compared to the corresponding period in 2008. Weather-adjusted KWH energy sales to residential and commercial customers decreased 4.1% and 0.5%, respectively. KWH energy sales to industrial customers decreased 1.6%. The decrease in weather-adjusted KWH sales to residential and commercial customers is primarily due to a recessionary economy. The decrease in industrial sales is primarily due to lower production levels experienced by industrial customers resulting from a recessionary economy.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues attributable to changes in weather increased slightly in the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008. Revenues resulting from changes in weather were minimal as overall weather conditions were similar in 2009 when compared to the corresponding periods in 2008.
Fuel and other cost recovery revenues increased in the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008, primarily as a result of higher recoverable fuel costs. Recoverable fuel costs include fuel and purchased power expenses reduced by the fuel portion of wholesale revenues from energy sold to customers outside Mississippi Power’s service territory. Electric rates include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these provisions, fuel revenues generally equal fuel expenses, including the fuel component of purchased power costs, and do not affect net income.
Wholesale Revenues – Non-Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(9.9)
  (11.8)   $(14.6)   (8.6)
 
Wholesale revenues from non-affiliates will vary depending on the market cost of available energy compared to the cost of Mississippi Power and Southern Company system-owned generation, demand for energy within the Southern Company service territory, and availability of Southern Company system generation.
In the second quarter 2009, wholesale revenues from non-affiliates were $73.7 million compared to $83.6 million for the corresponding period in 2008. The decrease was due to decreased revenues from customers outside Mississippi Power’s service territory of $15.5 million, partially offset by $5.6 million increased revenues from customers inside Mississippi Power’s service territory. The $15.5 million decrease in revenues from customers outside Mississippi Power’s service territory was primarily due to a $17.5 million decrease associated with lower prices resulting from lower marginal cost of fuel, partially offset by a $2.0 million increase in sales. The $5.6 million increase in revenues from customers inside Mississippi Power’s service territory was due to a $3.0 million increase in recoverable fuel costs and a $2.6 million increase due to higher demands by customers and a base rate increase that was effective January 2009.
For year-to-date 2009, wholesale revenues to non-affiliates were $153.8 million compared to $168.4 million for the corresponding period in 2008. The decrease was due to decreased revenues from customers outside Mississippi Power’s service territory of $27.4 million, partially offset by $12.8 million increased revenues from customers inside Mississippi Power’s service territory. The $27.4 million decrease in revenues from customers outside Mississippi Power’s service territory was primarily due to a $24.1 million decrease associated with lower prices resulting from lower marginal cost of fuel, a $3.0 million decrease in sales, and a $0.3 million decrease in capacity revenues. The $12.8 million increase in revenues from customers inside Mississippi Power’s service territory was due to a $6.9 million increase in recoverable fuel costs and a $5.9 million increase due to higher demands by customers and a base rate increase that was effective January 2009.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wholesale Revenues – Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(14.5)   (64.7)   $(33.5)   (65.9)
 
Wholesale revenues from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These affiliate sales are made in accordance with the IIC, as approved by the FERC. These transactions do not have a significant impact on earnings since the energy is generally sold at marginal cost.
In the second quarter 2009, wholesale revenues from affiliates were $8.0 million compared to $22.5 million for the corresponding period in 2008. The decrease was primarily due to a $14.9 million decrease in energy revenues, of which $11.6 million was associated with decreased sales and $3.3 million was associated with lower prices. Capacity revenues increased $0.4 million.
For year-to-date 2009, wholesale revenues from affiliates were $17.4 million compared to $50.9 million for the corresponding period in 2008. The decrease was primarily due to a $34.1 million decrease in energy revenues, of which $29.9 million was associated with decreased sales and $4.2 million was associated with lower prices. Capacity revenues increased $0.6 million.
Other Revenues
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(0.8)   (16.6)   $(1.2)   (14.1)
 
In the second quarter 2009, other revenues were $3.9 million compared to $4.7 million for the corresponding period in 2008. The decrease was primarily due to a $0.6 million transmission contract buyout that occurred in 2008.
For year-to-date 2009, other revenues were $7.3 million compared to $8.5 million for the corresponding period in 2008. The decrease was primarily due to a $0.6 million decrease in transmission revenues and a $0.6 million transmission contract buyout that occurred in 2008.
Fuel and Purchased Power Expenses
                                 
    Second Quarter 2009   Year-to-Date 2009
    vs.   vs.
    Second Quarter 2008   Year-to-Date 2008
    (change in millions)   (% change)   (change in millions)   (% change)
Fuel
  $ (13.1 )     (9.4 )   $ (23.2 )     (8.6 )
Purchased power – non-affiliates
    (2.5 )     (47.1 )     (2.0 )     (25.7 )
Purchased power – affiliates
    4.1       23.5       (0.1 )     (0.2 )
                     
Total fuel and purchased power expenses
  $ (11.5 )           $ (25.3 )        
                     
In the second quarter 2009, total fuel and purchased power expenses were $150.3 million compared to $161.8 million for the corresponding period in 2008. This decrease was primarily due to a $19.4 million decrease in the cost of fuel and purchased power, partially offset by a $7.9 million increase in total KWHs generated and purchased.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For year-to-date 2009, total fuel and purchased power expenses were $294.9 million compared to $320.1 million for the corresponding period in 2008. This decrease was primarily due to a $13.5 million decrease in total KWHs generated and purchased and an $11.7 million decrease in the cost of fuel and purchased power.
Fuel and purchased power transactions do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Mississippi Power’s fuel cost recovery clause. See FUTURE EARNINGS POTENTIAL – “FERC and Mississippi PSC Matters – Retail Regulatory Matters” herein for additional information.
Details of Mississippi Power’s cost of generation and purchased power are as follows:
                                                 
    Second Quarter   Second Quarter   Percent   Year-to-Date   Year-to-Date   Percent
Average Cost   2009   2008   Change   2009   2008   Change
 
    (cents per net KWH)           (cents per net KWH)        
Fuel
    4.21       4.03       4.5       4.32       3.97       8.8  
Purchased power
    3.36       6.77       (50.4 )     3.62       5.94       (39.1 )
 
In the second quarter 2009, fuel expense was $125.8 million compared to $138.9 million for the corresponding period for 2008. The decrease was primarily due to a 13.2% decrease in generation from Mississippi Power facilities resulting from purchased power available at lower cost and lower energy sales, partially offset by a 4.5% increase in the price of fuel primarily due to an increase in coal prices.
For year-to-date 2009, fuel expense was $245.8 million compared to $269.0 million for the corresponding period for 2008. The decrease was primarily due to a 16.0% decrease in generation from Mississippi Power facilities resulting from purchased power available at lower cost and lower energy sales, partially offset by an 8.8% increase in the price of fuel primarily due to an increase in coal prices.
Non-Affiliates
In the second quarter 2009, purchased power expense from non-affiliates was $2.9 million compared to $5.4 million for the corresponding period in 2008. The decrease was primarily the result of a 74.4% decrease in the average cost of purchased power per KWH, partially offset by a 107.0% increase in KWH volume purchased. The decrease in prices was due to a lower marginal cost of fuel while the increase in volume was a result of lower cost opportunity purchases.
For year-to-date 2009, purchased power expense from non-affiliates was $5.7 million compared to $7.7 million for the corresponding period in 2008. The decrease was primarily the result of a 61.1% decrease in the average cost of purchased power per KWH, partially offset by a 91.2% increase in KWH volume purchased. The decrease in prices was due to a lower marginal cost of fuel while the increase in volume was a result of lower cost opportunity purchases.
Energy purchases from non-affiliates will vary depending on the market cost of available energy being lower than the cost of Southern Company system-generated energy, demand for energy within the Southern Company system service territory, and availability of Southern Company system generation.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Affiliates
In the second quarter 2009, purchased power from affiliates was $21.6 million compared to $17.5 million for the corresponding period in 2008. The increase was primarily due to a 118.1% increase in KWH volume purchased, partially offset by a 43.4% decrease in the average cost of purchased power per KWH.
For year-to-date 2009, purchased power from affiliates was $43.4 million compared to $43.5 million for the corresponding period in 2008. The decrease was primarily due to a 32.2% decrease in the average cost of purchased power per KWH, partially offset by a 47.2% increase in KWH volume purchased.
Energy purchases from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC, as approved by the FERC.
Other Operations and Maintenance Expenses
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(1.8)
  (2.8)   $(6.7)   (5.3)
 
In the second quarter 2009, other operations and maintenance expenses were $61.6 million compared to $63.4 million for the corresponding period in 2008. The decrease in other operations and maintenance expenses was primarily due to generation construction screening expenses of $2.5 million incurred in the second quarter 2008 which were originally expensed and subsequently reclassified in the fourth quarter 2008 to a regulatory asset upon the FERC’s acceptance of the wholesale rate filing in October 2008. Also contributing to the change was a $2.2 million decrease in transmission and distribution expenses as a result of the timing of projects and overall reductions in spending and a $0.3 million decrease in customer accounting, service, and sales expenses. These decreases were partially offset by a $2.6 million increase in production expenses primarily due to outage work in 2009 and a $0.6 million increase in administrative and general expenses primarily due to an increase in property insurance expense.
For year-to-date 2009, other operations and maintenance expenses were $121.4 million compared to $128.1 million for the corresponding period in 2008. The decrease in other operations and maintenance expenses was primarily due to generation construction screening expenses of $4.2 million incurred in the first six months of 2008 which were originally expensed and subsequently reclassified in the fourth quarter 2008 to a regulatory asset upon the FERC’s acceptance of the wholesale rate filing in October 2008. Also contributing to the change was a $4.0 million decrease in transmission and distribution expenses as a result of timing of projects and overall reductions in spending and a $1.5 million decrease in generation-related environmental expenses. These decreases were partially offset by a $3.0 million increase in production expenses primarily due to outage work in 2009.
See Note 3 to the financial statements of Mississippi Power under “FERC Matters” in Item 8 of the Form 10-K for additional information.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest Expense, Net of Amounts Capitalized
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$1.9   42.4   $2.2   24.7
 
In the second quarter 2009, interest expense, net of amounts capitalized was $6.3 million compared to $4.4 million for the corresponding period in 2008. The increase was primarily due to a $1.6 million increase in interest expense associated with the issuance of long-term debt in November 2008 and March 2009.
For year-to-date 2009, interest expense, net of amounts capitalized was $11.0 million compared to $8.8 million for the corresponding period in 2008. The increase was primarily due to a $2.3 million increase in interest expense associated with the issuance of long-term debt in November 2008 and March 2009.
For additional information, see MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Financing Activities” of Mississippi Power in Item 7 of the Form 10-K and FINANCIAL CONDITION AND LIQUIDITY – “Financing Activities” herein for additional information.
Other Income (Expense), Net
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(1.8)   (60.8)   $(1.7)   (38.8)
 
In the second quarter 2009, other income (expense), net was $1.1 million compared to $2.9 million for the corresponding period in 2008. The decrease was primarily due to a $1.8 million decrease due to mark-to-market losses on energy-related derivative positions.
For year-to-date 2009, other income (expense), net was $2.8 million compared to $4.5 million for the corresponding period in 2008. The decrease was primarily due to a $1.9 million decrease in income due to mark-to-market losses on energy-related derivative positions and amounts collected from customers for construction of substation projects which had a tax effect of $0.8 million, partially offset by a $0.7 million increase in customer projects.
Income Taxes
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(0.1)   (0.6)   $0.7   3.1
 
In the second quarter 2009, income taxes were $13.6 million compared to $13.7 million for the corresponding period in 2008. The change was primarily due to a $0.6 million decrease resulting from the decrease in pre-tax income, partially offset by an increase in income taxes resulting from fully amortizing a regulatory liability through income taxes in 2008 of $0.4 million pursuant to a December 2007 regulatory accounting order from the Mississippi PSC.
For year-to-date 2009, income taxes were $24.1 million compared to $23.4 million for the corresponding period in 2008. The change was primarily due to a $0.4 million increase resulting from the increase in pre-tax income and a $0.7 million increase resulting from fully amortizing a regulatory liability through income taxes in 2008 pursuant to a December 2007 regulatory accounting order from the Mississippi PSC.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See Note 3 to the financial statements of Mississippi Power under “Retail Regulatory Matters” in Item 8 of the Form 10-K for additional information.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Mississippi Power’s future earnings potential. The level of Mississippi Power’s future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Mississippi Power’s business of selling electricity. These factors include Mississippi Power’s ability to maintain a constructive regulatory environment that continues to allow for the recovery of prudently incurred costs during a time of increasing costs. Future earnings in the near term will depend, in part, upon maintaining energy sales, which 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 or decline in Mississippi Power’s service area. Recent recessionary conditions have negatively impacted sales and are expected to continue to have a negative impact, particularly to industrial customers. The timing and extent of the economic recovery will impact future earnings. For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL of Mississippi Power in Item 7 of the Form 10-K.
Environmental Matters
Compliance costs related to the Clean Air Act and other environmental statutes and regulations could affect earnings if such costs cannot continue to be fully recovered in rates on a timely basis. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters” of Mississippi Power in Item 7 and Note 3 to the financial statements of Mississippi Power under “Environmental Matters” in Item 8 of the Form 10-K for additional information.
Water Quality
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters – Environmental Statutes and Regulations – Water Quality” of Mississippi Power in Item 7 of the Form 10-K for additional information regarding the EPA’s regulation of cooling water intake structures. On April 1, 2009, the U.S. Supreme Court reversed the U.S. Court of Appeals for the Second Circuit’s decision with respect to the rule’s use of cost-benefit analysis and held that the EPA could consider costs in arriving at its standards and in providing variances from those standards for existing power plant cooling water intake structures. Other aspects of the court’s decision were not appealed and remain unaffected by the U.S. Supreme Court’s ruling. While the U.S. Supreme Court’s decision may ultimately result in greater flexibility for demonstrating compliance with the standards, the full scope of the regulations will depend on subsequent legal proceedings, further rulemaking by the EPA, the results of studies and analyses performed as part of the rules’ implementation, and the actual requirements established by state regulatory agencies and, therefore, cannot be determined at this time.
Global Climate Issues
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters – Global Climate Issues” of Mississippi Power in Item 7 of the Form 10-K for information regarding the potential for legislation and regulation addressing greenhouse gas emissions. On April 17, 2009, the EPA released a proposed finding that certain gr