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 March 31, 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)
  58-0690070
 
  30 Ivan Allen Jr. Boulevard, N.W.    
 
  Atlanta, Georgia 30308    
 
  (404) 506-5000    
 
       
1-3164
  Alabama Power Company   63-0004250
 
  (An Alabama Corporation)    
 
  600 North 18th Street    
 
  Birmingham, Alabama 35291    
 
  (205) 257-1000    
 
       
1-6468
  Georgia Power Company   58-0257110
 
  (A Georgia Corporation)    
 
  241 Ralph McGill Boulevard, N.E.    
 
  Atlanta, Georgia 30308    
 
  (404) 506-6526    
 
       
0-2429
  Gulf Power Company   59-0276810
 
  (A Florida Corporation)    
 
  One Energy Place    
 
  Pensacola, Florida 32520    
 
  (850) 444-6111    
 
       
001-11229
  Mississippi Power Company   64-0205820
 
  (A Mississippi Corporation)    
 
  2992 West Beach    
 
  Gulfport, Mississippi 39501    
 
  (228) 864-1211    
 
       
333-98553
  Southern Power Company   58-2598670
 
  (A Delaware Corporation)    
 
  30 Ivan Allen Jr. Boulevard, N.W.    
 
  Atlanta, Georgia 30308    
 
  (404) 506-5000    

 


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     Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark whether the 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 March 31, 2009
The Southern Company
  Par Value $5 Per Share     782,433,682  
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.

2


 

INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 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  
           
        30  
        30  
        31  
        32  
        34  
           
        47  
        47  
        48  
        49  
        51  
           
        64  
        64  
        65  
        66  
        68  
           
        82  
        82  
        83  
        84  
        86  
           
        100  
        100  
        101  
        102  
        104  
        115  
Item 3.       28  
Item 4.       28  
Item 4T.       28  

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INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2009
         
        Page
        Number
       
   
 
   
Item 1.      141
Item 1A.      141
Item 2.  
Unregistered Sales of Equity Securities and Use of Proceeds
  Inapplicable
Item 3.  
Defaults Upon Senior Securities
  Inapplicable
Item 4.  
Submission of Matters to a Vote of Security Holders
  Inapplicable
Item 5.  
Other Information
  Inapplicable
Item 6.      142
       145

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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
Bcf
  Billion cubic feet
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
Georgia Power
  Georgia Power Company
Gulf Power
  Gulf Power Company
IGCC
  Integrated coal gasification combined cycle
IIC
  Intercompany Interchange Contract
IRC
  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
SFAS No. 157
  FASB Statement No. 157, “Fair Value Measurement”
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 growth, customer growth, storm damage cost recovery and repairs, fuel cost recovery and other rate actions, environmental regulations and expenditures, earnings growth, dividend payout ratios, 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, 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;
 
  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  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Operating Revenues:
               
Retail revenues
  $ 3,064,659     $ 3,005,614  
Wholesale revenues
    451,414       513,662  
Other electric revenues
    122,798       130,190  
Other revenues
    27,436       33,444  
 
           
Total operating revenues
    3,666,307       3,682,910  
 
           
Operating Expenses:
               
Fuel
    1,406,267       1,451,943  
Purchased power
    107,644       92,904  
Other operations and maintenance
    871,081       896,817  
MC Asset Recovery litigation settlement
    202,000        
Depreciation and amortization
    389,758       343,885  
Taxes other than income taxes
    199,880       189,272  
 
           
Total operating expenses
    3,176,630       2,974,821  
 
           
Operating Income
    489,677       708,089  
 
           
Other Income and (Expense):
               
Allowance for equity funds used during construction
    42,612       40,585  
Interest income
    6,908       9,805  
Equity in income (losses) of unconsolidated subsidiaries
    (976 )     328  
Leveraged lease income (losses)
    9,441       10,925  
Interest expense, net of amounts capitalized
    (225,727 )     (217,109 )
Other income (expense), net
    (12,850 )     914  
 
           
Total other income and (expense)
    (180,592 )     (154,552 )
 
           
Earnings Before Income Taxes
    309,085       553,537  
Income taxes
    167,169       178,138  
 
           
Consolidated Net Income
    141,916       375,399  
Dividends on Preferred and Preference Stock of Subsidiaries
    16,195       16,195  
 
           
Consolidated Net Income After Dividends on
Preferred and Preference Stock of Subsidiaries
  $ 125,721     $ 359,204  
 
           
Common Stock Data:
               
Earnings per share—
               
Basic
  $ 0.16     $ 0.47  
Diluted
  $ 0.16     $ 0.47  
Average number of shares of common stock outstanding (in thousands)
               
Basic
    779,858       766,150  
Diluted
    781,645       770,322  
Cash dividends paid per share of common stock
  $ 0.4200     $ 0.4025  
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 Three Months  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Operating Activities:
               
Consolidated net income
  $ 141,916     $ 375,399  
Adjustments to reconcile consolidated net income to net cash provided from operating activities —
               
Depreciation and amortization
    456,833       407,689  
Deferred income taxes and investment tax credits
    (30,386 )     (2,342 )
Deferred revenues
    (10,732 )     33,446  
Allowance for equity funds used during construction
    (42,612 )     (40,585 )
Equity in income (losses) of unconsolidated subsidiaries
    976       (328 )
Leveraged lease income (losses)
    (9,441 )     (10,925 )
Pension, postretirement, and other employee benefits
    7,974       30,916  
Stock option expense
    16,955       13,427  
Derivative fair value adjustments
    659       14,380  
Hedge settlements
    (16,167 )     27,180  
MC Asset Recovery litigation settlement
    202,000        
Other, net
    6,915       (6,372 )
Changes in certain current assets and liabilities —
               
Receivables
    292,162       188,538  
Fossil fuel stock
    (160,992 )     (53,305 )
Materials and supplies
    (12,648 )     (22,762 )
Other current assets
    (67,717 )     (61,320 )
Accounts payable
    80,995       (114,636 )
Accrued taxes
    (185,215 )     13,865  
Accrued compensation
    (319,715 )     (265,386 )
Other current liabilities
    49,371       10,212  
 
           
Net cash provided from operating activities
    401,131       537,091  
 
           
Investing Activities:
               
Property additions
    (1,136,212 )     (1,012,907 )
Investment in restricted cash from pollution control revenue bonds
    (49,348 )     (145 )
Distribution of restricted cash from pollution control revenue bonds
    23,079       35,716  
Nuclear decommissioning trust fund purchases
    (379,332 )     (160,752 )
Nuclear decommissioning trust fund sales
    381,280       153,872  
Investment in unconsolidated subsidiaries
    (1,800 )     (2,780 )
Cost of removal, net of salvage
    (30,231 )     (25,581 )
Other
    70,534       17,336  
 
           
Net cash used for investing activities
    (1,122,030 )     (995,241 )
 
           
Financing Activities:
               
Increase (decrease) in notes payable, net
    121,274       (100,215 )
Proceeds —
               
Long-term debt
    1,255,925       930,000  
Common stock
    151,379       132,107  
Redemptions —
               
Long-term debt
    (193,417 )     (4,653 )
Preferred and preference stock
          (125,000 )
Payment of common stock dividends
    (326,780 )     (307,960 )
Payment of dividends on preferred and preference stock of subsidiaries
    (16,265 )     (17,060 )
Other
    (15,618 )     (770 )
 
           
Net cash provided from financing activities
    976,498       506,449  
 
           
Net Change in Cash and Cash Equivalents
    255,599       48,299  
Cash and Cash Equivalents at Beginning of Period
    416,581       200,550  
 
           
Cash and Cash Equivalents at End of Period
  $ 672,180     $ 248,849  
 
           
Supplemental Cash Flow Information:
               
Cash paid during the period for —
               
Interest (net of $18,298 and $21,800 capitalized for 2009 and 2008, respectively)
  $ 178,560     $ 197,570  
Income taxes (net of refunds)
  $ 172,517     $ 3,719  
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 March 31,     At December 31,  
Assets   2009     2008  
    (in thousands)  
Current Assets:
               
Cash and cash equivalents
  $ 672,180     $ 416,581  
Restricted cash and cash equivalents
    131,609       102,537  
Receivables —
               
Customer accounts receivable
    996,427       1,053,674  
Unbilled revenues
    287,126       320,439  
Under recovered regulatory clause revenues
    677,665       646,318  
Other accounts and notes receivable
    353,119       301,028  
Accumulated provision for uncollectible accounts
    (26,308 )     (26,326 )
Fossil fuel stock, at average cost
    1,175,688       1,018,314  
Materials and supplies, at average cost
    768,777       756,746  
Vacation pay
    134,581       140,283  
Prepaid expenses
    337,898       301,570  
Other regulatory assets
    378,662       275,424  
Other
    61,324       51,044  
 
           
Total current assets
    5,948,748       5,357,632  
 
           
Property, Plant, and Equipment:
               
In service
    51,127,521       50,618,219  
Less accumulated depreciation
    18,517,683       18,285,800  
 
           
 
    32,609,838       32,332,419  
Nuclear fuel, at amortized cost
    547,981       510,274  
Construction work in progress
    3,609,909       3,035,795  
 
           
Total property, plant, and equipment
    36,767,728       35,878,488  
 
           
Other Property and Investments:
               
Nuclear decommissioning trusts, at fair value
    809,181       864,396  
Leveraged leases
    906,805       897,338  
Other
    223,069       226,757  
 
           
Total other property and investments
    1,939,055       1,988,491  
 
           
Deferred Charges and Other Assets:
               
Deferred charges related to income taxes
    989,180       972,781  
Unamortized debt issuance expense
    215,783       207,763  
Unamortized loss on reacquired debt
    265,711       270,919  
Deferred under recovered regulatory clause revenues
    366,045       606,483  
Other regulatory assets
    2,670,820       2,636,217  
Other
    394,044       428,432  
 
           
Total deferred charges and other assets
    4,901,583       5,122,595  
 
           
 
               
Total Assets
  $ 49,557,114     $ 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 March 31,     At December 31,  
Liabilities and Stockholders’ Equity   2009     2008  
    (in thousands)  
Current Liabilities:
               
Securities due within one year
  $ 686,441     $ 616,415  
Notes payable
    1,074,711       953,437  
Accounts payable
    1,639,403       1,249,694  
Customer deposits
    312,993       302,495  
Accrued taxes —
               
Income taxes
    221,875       195,922  
Unrecognized tax benefits
    143,858       131,641  
Other
    183,549       396,206  
Accrued interest
    225,139       195,500  
Accrued vacation pay
    169,121       178,519  
Accrued compensation
    131,092       446,718  
Liabilities from risk management activities
    354,349       260,977  
Other
    315,766       298,711  
 
           
Total current liabilities
    5,458,297       5,226,235  
 
           
Long-term Debt
    17,805,963       16,816,438  
 
           
Deferred Credits and Other Liabilities:
               
Accumulated deferred income taxes
    6,064,938       6,080,104  
Deferred credits related to income taxes
    254,883       259,156  
Accumulated deferred investment tax credits
    449,263       455,398  
Employee benefit obligations
    2,056,981       2,057,424  
Asset retirement obligations
    1,199,752       1,182,769  
Other cost of removal obligations
    1,333,078       1,320,558  
Other regulatory liabilities
    251,438       261,970  
Other
    347,950       329,534  
 
           
Total deferred credits and other liabilities
    11,958,283       11,946,913  
 
           
Total Liabilities
    35,222,543       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 — March 31, 2009: 782,865,285 Shares;
               
— December 31, 2008: 777,615,751 Shares
               
Treasury — March 31, 2009: 431,603 Shares;
               
— December 31, 2008: 423,477 Shares
               
Par value
    3,914,294       3,888,041  
Paid-in capital
    2,036,731       1,892,802  
Treasury, at cost
    (12,949 )     (12,279 )
Retained earnings
    7,411,087       7,611,977  
Accumulated other comprehensive loss
    (96,455 )     (104,784 )
 
           
Total Common Stockholders’ Equity
    13,252,708       13,275,757  
Preferred and Preference Stock of Subsidiaries
    707,367       707,367  
 
           
Total Stockholders’ Equity
    13,960,075       13,983,124  
 
           
Total Liabilities and Stockholders’ Equity
  $ 49,557,114     $ 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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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
                 
    For the Three Months  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Consolidated Net Income
  $ 141,916     $ 375,399  
Other comprehensive income (loss):
               
Qualifying hedges:
               
Changes in fair value, net of tax of $762 and $(13,988), respectively
    1,147       (22,251 )
Reclassification adjustment for amounts included in net income, net of tax of $3,833 and $1,778, respectively
    6,098       2,775  
Marketable securities:
               
Change in fair value, net of tax of $91 and $(2,137), respectively
    734       (3,101 )
Pension and other post retirement benefit plans:
               
Reclassification adjustment for amounts included in net income, net of tax of $222 and $259, respectively
    350       411  
 
           
Total other comprehensive income (loss)
    8,329       (22,166 )
 
           
Dividends on preferred and preference stock of subsidiaries
    (16,195 )     (16,195 )
 
           
Comprehensive Income
  $ 134,050     $ 337,038  
 
           
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
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER 2009 vs. FIRST QUARTER 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
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$(233.5)   (65.0)
 
Southern Company’s first quarter 2009 net income after dividends on preferred and preference stock of subsidiaries was $125.7 million ($0.16 per share) compared to $359.2 million ($0.47 per share) for the first quarter 2008. The decrease for the first quarter 2009 when compared to the same period in 2008 was primarily the result of a litigation settlement agreement with MC Asset Recovery, LLC (MC Asset Recovery); a decrease in contributions from market-response rates to large commercial and industrial customers; and higher depreciation and amortization. The decrease for the first quarter 2009 was partially offset by an increase in customer charges at Alabama Power, increased environmental compliance cost recovery revenues at Georgia Power, and lower other operations and maintenance expenses.
Retail Revenues
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$59.0   2.0
 
In the first quarter 2009, retail revenues were $3.06 billion compared to $3.01 billion for the same period in 2008. Details of the change to retail revenues follow:
                 
    First Quarter  
    2009  
    (in millions)   (% change)
Retail – prior year
  $ 3,005.6          
Estimated change in —
               
Rates and pricing
    78.4       2.6  
Sales growth (decline)
    (56.8 )     (1.9 )
Weather
    (4.0 )     (0.1 )
Fuel and other cost recovery
    41.5       1.4  
 
Retail – current year
  $ 3,064.7       2.0 %
 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues associated with changes in rates and pricing increased in the first quarter 2009 when compared to the same period in 2008 primarily as a result of an increase in customer charges at Alabama Power and increased environmental compliance cost recovery revenues at Georgia Power in accordance with its 2007 Retail Rate Plan, partially offset by a decrease in contributions from market-response rates to large commercial and industrial customers.
Revenues attributable to changes in sales growth declined in the first quarter 2009 when compared to the same period in 2008 due to a 6.3% decrease in weather-adjusted retail KWH sales mainly due to recessionary economic conditions. For the first quarter 2009, weather-adjusted residential KWH sales decreased 0.4%, weather-adjusted commercial KWH sales decreased 1.3%, and weather-adjusted industrial KWH sales decreased 16.9%. Reduced demand in the primary and fabricated metal sectors, as well as in the chemicals, textiles, and transportation sectors, contributed to the decrease in weather-adjusted industrial KWH sales in the first quarter 2009 when compared to the same period in 2008.
Revenues resulting from changes in weather were not material in the first quarter 2009 when compared to the same period in 2008 due to near normal weather in both periods.
Fuel and other cost recovery revenues increased $41.5 million in the first quarter 2009 when compared to the same period 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.
Wholesale Revenues
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$(62.3)   (12.1)
 
In the first quarter 2009, wholesale revenues were $451.4 million compared to $513.7 million for the same period in 2008. Wholesale fuel revenues, which are generally offset by wholesale fuel expenses and do not affect net income, decreased $81.7 million in the first quarter 2009 when compared to the same period in 2008. Excluding wholesale fuel revenues, wholesale revenues increased $19.4 million in the first quarter 2009 when compared to the same period in 2008. The increase for the first quarter 2009 was primarily the result of additional revenues associated with Plant Franklin Unit 3 at Southern Power, renegotiated wholesale contracts, and changes in mark-to-market positions on sales of uncontracted generating capacity. Decreases in energy revenues and fewer short-term opportunity sales due to lower energy prices partially offset the first quarter 2009 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
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$(7.4)   (5.7)
 
In the first quarter 2009, other electric revenues were $122.8 million compared to $130.2 million for the same period in 2008. The decrease for the first quarter 2009 when compared to the same period in 2008 was primarily the result of a $9.5 million decrease in co-generation revenues due to lower natural gas prices and a $6.5 million decrease in transmission revenues. The decrease for the first quarter 2009 was partially offset by an increase in revenues from other energy services of $3.3 million, an increase in customer fees of $2.5 million,

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
and an increase in outdoor lighting revenues of $1.3 million. Revenues from co-generation and other energy services are generally offset by related expenses and do not affect net income.
Other Revenues
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$(6.0)   (18.0)
 
In the first quarter 2009, other revenues were $27.4 million compared to $33.4 million for the same period in 2008. The decrease for the first quarter 2009 when compared to the same period in 2008 was primarily the result of a $5.7 million decrease in revenues at SouthernLINC Wireless related to lower average revenue per subscriber and fewer subscribers due to increased competition in the industry.
Fuel and Purchased Power Expenses
                 
  First Quarter 2009
vs.
First Quarter 2008
    (change in millions)     (% change)  
Fuel
  $ (45.7 )     (3.1 )
Purchased power
    14.7       15.9  
         
Total fuel and purchased power expenses
  $ (31.0 )        
         
Fuel and purchased power expenses for the first quarter 2009 were $1.51 billion compared to $1.54 billion for the same period in 2008. The decrease for the first quarter 2009 when compared to the same period in 2008 was primarily the result of a $139.0 million net decrease related to total KWHs generated and purchased, partially offset by a $108.0 million net increase in the average cost of fuel and purchased power, primarily related to a 27.9% increase in the cost of coal per net KWH generated.
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.
Details of Southern Company’s cost of generation and purchased power are as follows:
                         
    First Quarter     First Quarter     Percent  
Average Cost   2009     2008     Change  
    (cents per net KWH)          
Fuel
    3.40       3.07       10.8  
Purchased power
    5.09       6.35       (19.8)  
 
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
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$(25.7)   (2.9)
 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the first quarter 2009, other operations and maintenance expenses were $871.1 million compared to $896.8 million for the same period in 2008. The decrease for the first quarter 2009 when compared to the same period in 2008 was primarily the result of a $25.3 million decrease in fossil and hydro expenses mainly due to fewer scheduled and unplanned outages; a $13.3 million decrease in transmission and distribution expenses mainly due to lower maintenance expenses; a $7.1 million decrease in expenses primarily related to lower advertising, litigation, and property insurance costs; and a $4.5 million decrease in expenses primarily related to lower sales volume at SouthernLINC Wireless. The decrease for the first quarter 2009 was partially offset by a $27.1 million increase in administration and general expenses largely related to the voluntary attrition program at Georgia Power under which 579 employees elected to resign their positions effective March 31, 2009. The related charge will be largely offset by lower salary costs for the remainder of the year and 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
     
First Quarter 2009 vs. First Quarter 2008
 
(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.
Depreciation and Amortization
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$45.9   13.3
 
In the first quarter 2009, depreciation and amortization was $389.8 million compared to $343.9 million for the same period in 2008. The increase for the first quarter 2009 when compared to the same period in 2008 was primarily the result of an increase in plant in service related to environmental and transmission projects at Alabama Power and environmental, transmission, and distribution projects at Georgia Power. An increase in depreciation rates at Southern Power also contributed to the first quarter 2009 increase, as well as the completion of Southern Power’s Plant Franklin Unit 3 in June 2008.
Taxes Other Than Income Taxes
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$10.6   5.6
 
In the first quarter 2009, taxes other than income taxes were $199.9 million compared to $189.3 million for the same period in 2008. The increase for the first quarter 2009 when compared to the same period in 2008 was primarily the result of increases in franchise fees and municipal gross receipt taxes associated with increases in revenues from retail energy sales. Higher ad valorem taxes at Georgia Power also contributed to the first quarter 2009 increase.
Other Income (Expense), Net
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$(13.8)   N/M
 
N/M — Not Meaningful

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the first quarter 2009, other income (expense), net was $(12.9) million compared to $0.9 million for the same period in 2008. The decrease for the first quarter 2009 when compared to the same period in 2008 was primarily the result of the 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
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$(10.9)   (6.2)
 
In the first quarter 2009, income taxes were $167.2 million compared to $178.1 million for the same period in 2008. The decrease for the first quarter 2009 when compared to the same period in 2008 was primarily the result of lower pre-tax earnings, partially offset by a decrease in the IRC Section 199 production activities deduction. See Note (H) to the Condensed Financial Statements under “Effective Tax Rate” herein for details regarding the impact of the MC Asset Recovery litigation settlement 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 all 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 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 growth 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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. The ultimate outcome of these matters cannot be determined at this time; however, mandatory restrictions on 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. Implementation of the energy auction in accordance with the MBR tariff order is expected to adequately mitigate going forward any presumption of market power that Southern Company may have in the Southern

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company retail service territory. 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 $1.0 billion at March 31, 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. New fuel rates are expected to become effective January 1, 2010. The ultimate outcome of this matter cannot now be determined.
Income Tax Matters
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 is currently assessing 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 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.
On April 6, 2009, Mississippi Power received an accounting order from the Mississippi PSC directing Mississippi Power to continue to charge all Kemper IGCC generation resources planning, evaluation, and

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 selected generation resource until the Mississippi PSC makes findings and determination as to the recovery of Mississippi Power’s prudent expenditures.
As of March 31, 2009, Mississippi Power had spent a total of $50.7 million associated with Mississippi Power’s generation resource planning, evaluation, and screening activities, including regulatory filings costs. Costs incurred during the first quarter 2009 totaled $8.4 million as compared to $7.2 million during the first quarter 2008. Of the total $50.7 million, $46.2 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 have been filed by intervenors in this proceeding, most of which are procedural in nature and seek to stay or delay the timely and orderly administration of the docket. In addition to these procedural motions, a motion has been filed by the Attorney General for the State of Mississippi which questions whether the Mississippi PSC has authority to approve the gasification portion of the Kemper IGCC. All of these motions were heard by the Mississippi PSC on May 5, 2009.
The ultimate outcome of these matters cannot now be determined.
Nuclear
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Construction Projects – Nuclear” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Nuclear” in Item 8 of the Form 10-K 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.
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.
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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Southern Company’s financial condition remained stable at March 31, 2009. Throughout the recent turmoil in the financial markets, Southern Company 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. Southern Company and the other registrants have continued to issue commercial paper at reasonable rates. 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. Of the $215 million of facilities expiring in the first quarter 2009, $160 million of them were replaced or renewed. In addition, Gulf Power entered into a $20 million facility and Mississippi Power increased an existing facility by $10 million. Subsequent to March 31, 2009, Georgia Power, Gulf Power, and Mississippi Power entered into new credit arrangements resulting in a net increase of $425 million, $75 million, and $40 million, respectively. These additional facilities all expire in 2010. Total committed credit fees at Southern Company and its subsidiaries 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 the 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 have continued to decline in value during the first quarter 2009. Southern Company expects that the earliest that cash may have to be contributed to the pension trust fund is 2011 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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net cash provided from operating activities totaled $401 million for the first quarter 2009, a decrease of $136 million from the same period in 2008. Significant changes in operating cash flow for the first quarter 2009 as compared to the prior period include increases in the use of funds for federal tax and property tax payments of $199 million and fuel purchases of $108 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 $1.12 billion for the first quarter 2009, an increase of $127 million over the prior period, primarily due to property additions to utility plant. For the first quarter 2009, net cash provided from financing activities totaled $976 million compared to $506 million for the first quarter 2008. The $470 million increase is primarily due to higher levels of short-term borrowings and the issuance of new long-term debt.
Significant balance sheet changes for the first quarter 2009 include an increase of $256 million in cash and cash equivalents primarily due to an increase in temporary cash investments and an increase of $889 million in total property, plant, and equipment for the installation of equipment to comply with environmental standards, 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 $990 million used primarily for construction expenditures and general corporate purposes.
The market price of Southern Company’s common stock at March 31, 2009 was $30.62 per share (based on the closing price as reported on the New York Stock Exchange) and the book value was $16.94 per share, representing a market-to-book ratio of 181%, compared to $37.00, $17.08, and 217%, respectively, at the end of 2008. The dividend for the first quarter 2009 was $0.42 per share compared to $0.4025 per share in the first quarter 2008. In April 2009, the quarterly dividend payable in June 2009 was increased to $0.4375 per share.
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 program 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 $686 million will be required through March 31, 2010 for maturities 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.

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 March 31, 2009, Southern Company and its subsidiaries had approximately $672 million of cash and cash equivalents and approximately $4.2 billion of unused credit arrangements with banks, of which $775 million expire in 2009, $160 million expire in 2010, $25 million expire in 2011, and $3.2 billion expire in 2012. Approximately $94 million of the credit facilities expiring in 2009 and 2010 allow for the execution of term loans for an additional two-year period, and $504 million contain provisions allowing one-year term loans. At March 31, 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. See Note 6 to the financial statements of Southern Company under “Bank Credit Arrangements” in Item 8 of the Form 10-K and Note (F) 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 March 31, 2009, the Southern Company system had outstanding commercial paper of $915.6 million and short-term bank notes of $150 million. Management believes that the 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 March 31, 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 $403 million. At March 31, 2009, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $1.9 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.

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, the registrants 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.
The changes in fair value of energy-related derivative contracts for the three months ended March 31, 2009 were as follows:
         
    First Quarter
    2009
    Changes
    Fair Value
    (in millions)
Contracts outstanding at the beginning of the period, assets (liabilities), net
  $ (285 )
Contracts realized or settled
    60  
Current period changes(a)
    (198 )
 
Contracts outstanding at the end of the period, assets (liabilities), net
  $ (423 )
 
(a)   Current period changes also include the changes in fair value of new contracts entered into during the period, if any.
The decrease in the fair value positions of the energy-related derivative contracts for the three months ended March 31, 2009 was $138 million, substantially all of which is due to natural gas positions. This change is attributable to both the volume and prices of natural gas. At March 31, 2009, Southern Company had a net hedge volume of 172.6 Bcf (includes location basis of 2 Bcf) with a weighted average contract cost approximately $2.53 per mmBtu above market prices, compared to 148.8 Bcf at December 31, 2008 with a weighted average contract cost approximately $1.97 per mmBtu above market prices. The majority of the natural gas hedges are recovered through the traditional operating companies’ fuel cost recovery clauses.

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At March 31, 2009, the fair value of energy-related derivative contracts by hedge designation was reflected in the financial statements as follows:
         
    March 31, 2009
    (in millions)
Regulatory hedges
  $ (427 )
Cash flow hedges
    1  
Not designated
    3  
 
Total fair value
  $ (423 )
 
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 by Southern Power to hedge anticipated purchases and sales and are initially deferred in other comprehensive income 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 three months ended March 31, 2009 for energy-related derivative contracts that are not hedges were $1 million. For the three months ended March 31, 2008, the total net unrealized losses recognized in the statements of income were $14 million. See Note (F) to the Condensed Financial Statements herein for further details of these losses.
The maturities of the energy-related derivative contracts and the level of the fair value hierarchy in which they fall at March 31, 2009 are as follows:
                                 
    March 31, 2009
    Fair Value Measurements
    Total   Maturity
    Fair Value   Year 1   Years 2&3   Years 4&5
    (in millions)
Level 1
  $     $     $     $  
Level 2
    (423 )     (319 )     (99 )     (5 )
Level 3
                       
 
Fair value of contracts outstanding at end of period
  $ (423 )   $ (319 )   $ (99 )   $ (5 )
 
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 (F) to the Condensed Financial Statements herein.

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financing Activities
In the first three months of 2009, Southern Company’s subsidiaries issued $1.1 billion of senior notes, and Southern Company issued $151 million of common stock through the Southern Investment Plan and employee and director stock plans. The proceeds were primarily used to fund ongoing construction projects and to repay short-term and long-term indebtedness. Alabama Power issued $500 million of Series 2009A 6.00% Senior Notes due March 1, 2039. Alabama Power used the proceeds to repay short-term indebtedness and for other general corporate purposes, including Alabama Power’s continuous construction program. Georgia Power issued $500 million of Series 2009A 5.95% Senior Notes due February 1, 2039. Georgia Power used the proceeds to repay $150 million aggregate principal amount of its Series U Floating Rate Senior Notes at maturity, 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. Mississippi Power issued $125 million of Series 2009A 5.55% Senior Notes due March 1, 2019. Mississippi Power used the proceeds to repay at maturity Mississippi Power’s $40 million aggregate principal amount of Series F Floating Rate Senior Notes due March 9, 2009, to repay a portion of short-term indebtedness, and for general corporate purposes, including Mississippi Power’s continuous construction program. Gulf Power also incurred obligations related to the issuance of pollution control revenue bonds totaling approximately $130 million. Gulf Power is using the proceeds for acquisition, construction, installation, and equipping of certain solid waste disposal facilities located at Plant Crist. See Southern Company’s Condensed Consolidated Statements of Cash Flows herein for further details regarding financing activities during the first three months of 2009.
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 (F) 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 first 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 first 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  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Operating Revenues:
               
Retail revenues
  $ 1,058,137     $ 1,034,254  
Wholesale revenues —
               
Non-affiliates
    158,695       170,040  
Affiliates
    84,352       83,692  
Other revenues
    38,582       48,693  
 
           
Total operating revenues
    1,339,766       1,336,679  
 
           
Operating Expenses:
               
Fuel
    483,233       453,149  
Purchased power —
               
Non-affiliates
    15,544       11,219  
Affiliates
    41,560       88,707  
Other operations and maintenance
    276,859       309,550  
Depreciation and amortization
    143,416       124,637  
Taxes other than income taxes
    80,281       75,771  
 
           
Total operating expenses
    1,040,893       1,063,033  
 
           
Operating Income
    298,873       273,646  
Other Income and (Expense):
               
Allowance for equity funds used during construction
    16,725       11,304  
Interest income
    4,122       4,642  
Interest expense, net of amounts capitalized
    (72,207 )     (68,976 )
Other income (expense), net
    (6,372 )     (7,222 )
 
           
Total other income and (expense)
    (57,732 )     (60,252 )
 
           
Earnings Before Income Taxes
    241,141       213,394  
Income taxes
    85,009       73,428  
 
           
Net Income
    156,132       139,966  
Dividends on Preferred and Preference Stock
    9,866       9,866  
 
           
Net Income After Dividends on Preferred and Preference Stock
  $ 146,266     $ 130,100  
 
           
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
                 
    For the Three Months  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Net Income After Dividends on Preferred and Preference Stock
  $ 146,266     $ 130,100  
Other comprehensive income (loss):
               
Qualifying hedges:
               
Changes in fair value, net of tax of $(886) and $(2,211), respectively
    (1,457 )     (3,637 )
Reclassification adjustment for amounts included in net income, net of tax of $1,061 and $185, respectively
    1,745       305  
 
           
Total other comprehensive income (loss)
    288       (3,332 )
 
           
COMPREHENSIVE INCOME
  $ 146,554     $ 126,768  
 
           
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 Three Months  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Operating Activities:
               
Net income
  $ 156,132     $ 139,966  
Adjustments to reconcile net income to net cash provided from operating activities —
               
Depreciation and amortization
    164,488       146,208  
Deferred income taxes and investment tax credits, net
    (25,795 )     4,513  
Allowance for equity funds used during construction
    (16,725 )     (11,304 )
Pension, postretirement, and other employee benefits
    (4,933 )     (3,995 )
Stock option expense
    2,851       2,178  
Tax benefit of stock options
    24       347  
Other, net
    8,834       9,223  
Changes in certain current assets and liabilities —
               
Receivables
    173,032       62,227  
Fossil fuel stock
    (11,654 )     (34,750 )
Materials and supplies
    (6,775 )     (7,751 )
Other current assets
    (73,518 )     (63,757 )
Accounts payable
    (136,678 )     (124,727 )
Accrued taxes
    123,746       79,338  
Accrued compensation
    (64,030 )     (64,851 )
Other current liabilities
    7,928       9,357  
 
           
Net cash provided from operating activities
    296,927       142,222  
 
           
Investing Activities:
               
Property additions
    (337,984 )     (349,683 )
Investment in restricted cash from pollution control revenue bonds
    (160 )     (145 )
Distribution of restricted cash from pollution control revenue bonds
    13,774       19,622  
Nuclear decommissioning trust fund purchases
    (60,600 )     (46,941 )
Nuclear decommissioning trust fund sales
    60,600       46,941  
Cost of removal, net of salvage
    (5,109 )     (8,863 )
Other
    3,025       13,453  
 
           
Net cash used for investing activities
    (326,454 )     (325,616 )
 
           
Financing Activities:
               
Decrease in notes payable, net
    (24,995 )      
Proceeds —
               
Common stock issued to parent
          150,000  
Capital contributions
    6,682       6,016  
Gross excess tax benefit of stock options
    47       607  
Senior notes
    500,000       300,000  
Redemptions —
               
Preferred stock
          (125,000 )
Payment of preferred and preference stock dividends
    (9,868 )     (11,275 )
Payment of common stock dividends
    (130,700 )     (122,825 )
Other
    (5,869 )     (1,684 )
 
           
Net cash provided from financing activities
    335,297       195,839  
 
           
Net Change in Cash and Cash Equivalents
    305,770       12,445  
Cash and Cash Equivalents at Beginning of Period
    28,181       73,616  
 
           
Cash and Cash Equivalents at End of Period
  $ 333,951     $ 86,061  
 
           
Supplemental Cash Flow Information:
               
Cash paid during the period for —
               
Interest (net of $6,992 and $5,130 capitalized for 2009 and 2008, respectively)
  $ 54,875     $ 63,324  
Income taxes (net of refunds)
  $ (640 )   $ 1,550  
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 March 31,     At December 31,  
Assets   2009     2008  
    (in thousands)  
Current Assets:
               
Cash and cash equivalents
  $ 333,951     $ 28,181  
Restricted cash and cash equivalents
    66,466       80,079  
Receivables —
               
Customer accounts receivable
    343,870       350,410  
Unbilled revenues
    89,450       98,921  
Under recovered regulatory clause revenues
    204,804       153,899  
Other accounts and notes receivable
    29,649       44,645  
Affiliated companies
    60,765       70,612  
Accumulated provision for uncollectible accounts
    (9,161 )     (8,882 )
Fossil fuel stock, at average cost
    330,134       322,089  
Materials and supplies, at average cost
    312,416       305,880  
Vacation pay
    52,701       52,577  
Prepaid expenses
    130,271       88,219  
Other regulatory assets
    105,654       74,825  
Other
    12,772       12,915  
 
           
Total current assets
    2,063,742       1,674,370  
 
           
Property, Plant, and Equipment:
               
In service
    17,789,435       17,635,129  
Less accumulated provision for depreciation
    6,346,622       6,259,720  
 
           
 
    11,442,813       11,375,409  
Nuclear fuel, at amortized cost
    255,818       231,862  
Construction work in progress
    1,243,412       1,092,516  
 
           
Total property, plant, and equipment
    12,942,043       12,699,787  
 
           
Other Property and Investments:
               
Equity investments in unconsolidated subsidiaries
    51,745       50,912  
Nuclear decommissioning trusts, at fair value
    376,606       403,966  
Other
    63,496       62,782  
 
           
Total other property and investments
    491,847       517,660  
 
           
Deferred Charges and Other Assets:
               
Deferred charges related to income taxes
    369,991       362,596  
Prepaid pension costs
    176,613       166,334  
Deferred under recovered regulatory clause revenues
          180,874  
Other regulatory assets
    761,831       732,367  
Other
    206,178       202,018  
 
           
Total deferred charges and other assets
    1,514,613       1,644,189  
 
           
Total Assets
  $ 17,012,245     $ 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 March 31,     At December 31,  
Liabilities and Stockholder’s Equity   2009     2008  
    (in thousands)  
Current Liabilities:
               
Securities due within one year
  $ 250,040     $ 250,079  
Notes payable
          24,995  
Accounts payable —
               
Affiliated
    140,190       178,708  
Other
    272,427       358,176  
Customer deposits
    81,730       77,205  
Accrued taxes —
               
Income taxes
    143,306       18,299  
Other
    49,447       30,372  
Accrued interest
    67,393       56,375  
Accrued vacation pay
    44,217       44,217  
Accrued compensation
    26,973       91,856  
Liabilities from risk management activities
    116,330       83,873  
Other
    43,075       53,777  
 
           
Total current liabilities
    1,235,128       1,267,932  
 
           
Long-term Debt
    6,103,870       5,604,791  
 
           
Deferred Credits and Other Liabilities:
               
Accumulated deferred income taxes
    2,192,025       2,243,117  
Deferred credits related to income taxes
    90,806       90,083  
Accumulated deferred investment tax credits
    170,653       172,638  
Employee benefit obligations
    399,844       396,923  
Asset retirement obligations
    468,632       461,284  
Other cost of removal obligations
    655,389       634,792  
Other regulatory liabilities
    79,371       79,151  
Other
    51,638       45,858  
 
           
Total deferred credits and other liabilities
    4,108,358       4,123,846  
 
           
Total Liabilities
    11,447,356       10,996,569  
 
           
Preferred and Preference Stock
    685,127       685,127  
 
           
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
    2,101,062       2,091,462  
Retained earnings
    1,769,361       1,753,797  
Accumulated other comprehensive loss
    (9,661 )     (9,949 )
 
           
Total common stockholder’s equity
    4,879,762       4,854,310  
 
           
Total Liabilities and Stockholder’s Equity
  $ 17,012,245     $ 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
FIRST QUARTER 2009 vs. FIRST QUARTER 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
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$16.2
  12.4
 
Alabama Power’s financial performance remained stable in the first quarter 2009 despite the continued challenges of a recessionary economy. Alabama Power’s net income after dividends on preferred and preference stock for the first quarter 2009 was $146.3 million compared to $130.1 million for the same period in 2008. The increase was primarily due to the corrective rate package providing for adjustments associated with customer charges to certain existing rate structures effective in January 2009, and a decrease in other operations and maintenance expenses related to steam power associated with fewer scheduled outages. The increase was partially offset by a decline in sales growth and increases in income taxes and depreciation and amortization resulting from additional plant in service.
Retail Revenues
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$23.9   2.3
 
In the first quarter 2009, retail revenues were $1.06 billion compared to $1.03 billion for the same period in 2008.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of the change to retail revenues are as follows:
                 
    First Quarter
    2009
 
    (in millions)   (% change)
Retail – prior year
  $ 1,034.3          
Estimated change in —
               
Rates and pricing
    49.6       4.8  
Sales growth (decline)
    (32.4 )     (3.1 )
Weather
    (0.7 )     (0.1 )
Fuel and other cost recovery
    7.3       0.7  
 
Retail – current year
  $ 1,058.1       2.3 %
     
Revenues associated with changes in rates and pricing increased in the first quarter 2009 when compared to the same period 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 growth declined due to a recessionary economy in the first quarter 2009 when compared to the same period in 2008. Weather-adjusted residential KWH energy sales decreased 2.6% driven by a decline in customer demand related to customer energy efficiency efforts in addition to a recessionary economy. Industrial KWH energy sales decreased 21.6% due to a broad decline in demand across all industrial segments. Weather-adjusted commercial KWH energy sales decreased 2.5% due to a decline in customer demand.
Revenues resulting from changes in weather were relatively flat in the first quarter 2009 when compared to the same period in 2008.
Fuel and other cost recovery revenues increased in the first quarter 2009 when compared to the same period in 2008 due to increases 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
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$(11.3)
  (6.7)
 
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 first quarter 2009, wholesale revenues from non-affiliates were $158.7 million compared to $170.0 million for the same period in 2008. This decrease was primarily due to a 7.8% reduction in price.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Revenues
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$(10.1)   (20.8)
 
In the first quarter 2009, other revenues were $38.6 million compared to $48.7 million for the same period in 2008. This decrease was primarily due to a decrease of $9.5 million in revenues from gas-fueled co-generation steam facilities resulting from lower gas prices.
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
                 
    First Quarter 2009
vs.
First Quarter 2008
    (change in millions)   (% change)
Fuel
  $ 30.1       6.6  
Purchased power – non-affiliates
    4.3       38.6  
Purchased power – affiliates
    (47.1 )     (53.1 )
         
Total fuel and purchased power expenses
  $ (12.7 )        
         
In the first quarter 2009, total fuel and purchased power expenses were $540.4 million compared to $553.1 million for the same period in 2008. This decrease was primarily due to a $68.8 million decrease in total KWHs generated and purchased, partially offset by a $56.1 million increase in the cost of energy 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.
Details of Alabama Power’s cost of generation and purchased power are as follows:
                         
    First Quarter   First Quarter   Percent
Average Cost   2009   2008   Change
    (cents per net KWH)        
Fuel
    2.92       2.60       12.3  
Purchased power
    6.14       5.67       8.3  
 
                       
In the first quarter 2009, fuel expense was $483.3 million compared to $453.2 million for the same period in 2008. The increase was due to a 12.3% increase in the average cost of fuel per KWH generated, primarily due to the price of fuels. The average cost of coal per KWH generated increased 33.3% primarily as a result of increases in commodity and transportation costs. The average cost of natural gas per KWH generated decreased 25.1% primarily as a result of decreases in commodity prices.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Non-Affiliates
In the first quarter 2009, purchased power expense from non-affiliates was $15.5 million compared to $11.2 million for the same period in 2008. This increase was primarily related to a 37.8% volume increase in KWHs purchased from available 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 first quarter 2009, purchased power expense from affiliates was $41.6 million compared to $88.7 million for the same period in 2008. This decrease was primarily related to a 57.5% decrease in the amount of energy purchased because of the availability of lower-priced market energy alternatives, partially offset by a 10.4% increase in price.
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
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$(32.7)
  (10.6)
   
In the first quarter 2009, other operations and maintenance expenses were $276.8 million compared to $309.5 million for the same period in 2008. This decrease was primarily a result of a $35.9 million decrease in steam power expense associated with fewer scheduled outages, primarily offset by a $5.0 million increase in nuclear production expense related to operations and scheduled outage cost.
Depreciation and Amortization
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$18.8   15.1
   
For the first quarter 2009, depreciation and amortization was $143.4 million compared to $124.6 million for the same period in 2008. This increase was the result of an increase in plant in service due to additions to property, plant, and equipment primarily related to steam power, environmental mandates, and transmission 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
Allowance for Equity Funds Used During Construction
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$5.4   48.0
   
For the first quarter 2009, allowance for equity funds used during construction (AFUDC) was $16.7 million compared to $11.3 million for the same period in 2008. This increase was primarily due to increases in the amount of construction work in progress at generating facilities related to environmental mandates.
Income Taxes
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$11.6   15.8
   
For the first quarter 2009, income taxes were $85.0 million compared to $73.4 million for the same period in 2008. This increase was 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 and a decrease in expense related to tax contingencies.
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 all 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 growth and are 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 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.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 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. 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

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the energy auction in 30 days. Southern Company commenced the energy auction on April 23, 2009. Implementation of the energy auction in accordance with the MBR tariff order is expected to adequately mitigate going forward any presumption of market power that Southern Company may have in the Southern Company retail service territory. 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 March 31, 2009 totaled $189.0 million as compared to $305.8 million at December 31, 2008. These under recovered fuel costs at March 31, 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.
Rate ECR revenues, as recorded on the financial statements, are adjusted for differences in actual recoverable costs and amounts billed in current regulated rates.
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 March 31, 2009, Alabama Power had accumulated a balance of $37.1 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.
Income Tax Matters
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. Alabama

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Power is currently assessing 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 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.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Alabama Power’s financial condition remained stable at March 31, 2009. Throughout the recent 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 has continued to issue commercial paper at reasonable rates. 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

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
facilities are replaced or renewed. Total committed credit fees 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 the financial turmoil cannot be determined at this time. Alabama 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.
Alabama Power’s investments in pension and nuclear decommissioning trust funds have continued to decline in value during the first quarter 2009. Alabama Power expects that the earliest that cash may have to be contributed to the pension trust fund is 2011 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. 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 $296.9 million for the first three months of 2009, compared to $142.2 million for the corresponding period in 2008. Significant changes in operating cash flow for the first three months of 2009 include a lower receivables balance from increased collections and lower cash outflows for fossil fuel inventory as compared to the first three months of 2008. Net cash used for investing activities totaled $326.5 million primarily due to gross property additions to utility plant of $338.0 million in the first three months of 2009. These additions were primarily related to construction of transmission and distribution facilities, replacement of steam generation equipment, purchases of nuclear fuel, and construction related to environmental mandates. Net cash provided from financing activities totaled $335.3 million for the first three months of 2009, compared to $195.8 million for the corresponding period in 2008. The $139.5 million increase is primarily due to greater issuances of securities and no redemption of securities in the first three months of 2009 as compared to the first three months of 2008. Fluctuations in cash flow from financing activities vary from year-to-year based on capital needs and securities redeemed.
Significant balance sheet changes for the first quarter 2009 include an increase of $305.8 million in cash and cash equivalents primarily due to an increase in temporary cash investments, an increase of $154.3 million in gross plant primarily due to increases in transmission and distribution projects and other production expenses. Long-term debt increased $499.1 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 $250.0 million will be required through March 31, 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; revised load growth estimates; changes in environmental statutes and regulations; changes in nuclear plants to meet new regulatory requirements; changes in FERC rules and regulations; Alabama PSC approvals; 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.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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 March 31, 2009 cash and cash equivalents of approximately $334 million, unused committed lines of credit of approximately $1.3 billion (including $582 million of such lines which are dedicated to funding purchase obligations related to variable rate pollution control revenue bonds), and commercial paper programs. Of the unused credit facilities, $466 million will expire in 2009, $25 million will expire in 2011, and $765 million will expire in 2012. Of the facilities that expire in 2009, $379 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 (F) 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 March 31, 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 fuel purchases, fuel transportation and storage, emissions allowances, and energy price risk management. At March 31, 2009, the maximum potential collateral requirements under these contracts at a BBB- and/or Baa3 rating were approximately $4 million. At March 31, 2009, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $203 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

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
The changes in fair value of energy-related derivative contracts for the three months ended March 31, 2009 were as follows:
         
    First Quarter
    2009
    Changes
    Fair Value
   
    (in millions)
Contracts outstanding at the beginning of the period, assets (liabilities), net
  $ (91.9 )
Contracts realized or settled
    23.2  
Current period changes(a)
    (61.5 )
   
Contracts outstanding at the end of the period, assets (liabilities), net
  $ (130.2 )
   
 
(a)   Current period changes also include the changes in fair value of new contracts entered into during the period, if any.
The decrease in the fair value positions of the energy-related derivative contracts for the three months ended March 31, 2009 was $38 million, substantially all of which is due to natural gas positions. This change is attributable to both the volume and prices of natural gas. At March 31, 2009, Alabama Power had a net hedge volume of 49.3 Bcf with a weighted average contract cost approximately $2.70 per mmBtu above market prices, compared to 44.5 Bcf at December 31, 2008 with a weighted average contract cost approximately $2.12 per mmBtu above market prices. The majority of the natural gas hedges are recovered through the fuel cost recovery clause.
At March 31, 2009, the fair value of energy-related derivative contracts by hedge designation was reflected in the financial statements as follows:
         
    March 31, 2009
   
    (in millions)
Regulatory hedges
  $ (130.2 )
Cash flow hedges
     
Not designated
     
  -
Total fair value
  $ (130.2 )
   
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 other comprehensive income 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.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unrealized pre-tax gains and losses recognized in income for the three months ended March 31, 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 March 31, 2009 are as follows:
                                 
    March 31, 2009
    Fair Value Measurements
   
    Total   Maturity
    Fair Value   Year 1   Years 2&3   Years 4&5
   
    (in millions)
Level 1
  $     $     $     $  
Level 2
    (130.2 )     (105.4 )     (24.8 )      
Level 3
                       
 
Fair value of contracts outstanding at end of period
  $ (130.2 )   $ (105.4 )   $ (24.8 )   $  
         
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 (F) 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 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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Table of Contents

GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                 
    For the Three Months  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Operating Revenues:
               
Retail revenues
  $ 1,592,395     $ 1,575,007  
Wholesale revenues —
               
Non-affiliates
    95,986       152,692  
Affiliates
    15,210       73,910  
Other revenues
    62,250       63,238  
 
           
Total operating revenues
    1,765,841       1,864,847  
 
           
Operating Expenses:
               
Fuel
    600,490       637,923  
Purchased power —
               
Non-affiliates
    61,953       58,031  
Affiliates
    197,223       252,935  
Other operations and maintenance
    390,493       368,815  
Depreciation and amortization
    167,111       150,608  
Taxes other than income taxes
    76,248       71,286  
 
           
Total operating expenses
    1,493,518       1,539,598  
 
           
Operating Income
    272,323       325,249  
Other Income and (Expense):
               
Allowance for equity funds used during construction
    20,754       27,757  
Interest income
    1,230       787  
Interest expense, net of amounts capitalized
    (98,390 )     (86,338 )
Other income (expense), net
    (6,720 )     (3,293 )
 
           
Total other income and (expense)
    (83,126 )     (61,087 )
 
           
Earnings Before Income Taxes
    189,197       264,162  
Income taxes
    62,628       83,801  
 
           
Net Income
    126,569       180,361  
Dividends on Preferred and Preference Stock
    4,345       4,345  
 
           
Net Income After Dividends on Preferred and Preference Stock
  $ 122,224     $ 176,016  
 
           
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
                 
    For the Three Months  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Net Income After Dividends on Preferred and Preference Stock
  $ 122,224     $ 176,016  
Other comprehensive income (loss):
               
Qualifying hedges:
               
Changes in fair value, net of tax of $1,180 and $(6,043), respectively
    1,870       (9,580 )
Reclassification adjustment for amounts included in net income, net of tax of $1,743 and $206, respectively
    2,763       327  
 
           
Total other comprehensive income (loss)
    4,633       (9,253 )
 
           
COMPREHENSIVE INCOME
  $ 126,857     $ 166,763  
 
           
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 Three Months  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Operating Activities:
               
Net income
  $ 126,569     $ 180,361  
Adjustments to reconcile net income to net cash provided from operating activities —
               
Depreciation and amortization
    199,773       178,735  
Deferred income taxes and investment tax credits
    (7,130 )     (5,709 )
Deferred revenues
    (7,685 )     35,046  
Deferred expenses
    26,387       27,996  
Allowance for equity funds used during construction
    (20,754 )     (27,757 )
Pension, postretirement, and other employee benefits
    (386 )     9,863  
Hedge settlements
    (16,167 )     (15,816 )
Other, net
    26,708       (25,593 )
Changes in certain current assets and liabilities —
               
Receivables
    13,563       77,074  
Fossil fuel stock
    (112,255 )     1,293  
Prepaid income taxes
    (5,139 )     22,380  
Other current assets
    4,562       (4,042 )
Accounts payable
    174,347       (44,570 )
Accrued taxes
    (135,100 )     (79,097 )
Accrued compensation
    (96,144 )     (72,174 )
Other current liabilities
    61,917       22,630  
 
           
Net cash provided from operating activities
    233,066       280,620  
 
           
Investing Activities:
               
Property additions
    (640,486 )     (517,606 )
Distribution of restricted cash from pollution control revenue bonds
    9,305       16,094  
Nuclear decommissioning trust fund purchases
    (318,732 )     (113,811 )
Nuclear decommissioning trust fund sales
    320,681       106,931  
Cost of removal, net of salvage
    (16,368 )     (11,346 )
Change in construction payables, net of joint owner portion
    55,767       8,608  
Other
    14,125       (11,239 )
 
           
Net cash used for investing activities
    (575,708 )     (522,369 )
 
           
Financing Activities:
               
Decrease in notes payable, net
    (76,509 )     (359,113 )
Proceeds —
               
Capital contributions from parent company
    280,016       241,800  
Senior notes
    500,000       250,000  
Other long-term debt
    750       300,000  
Redemptions —
               
Senior notes
    (150,361 )     (417 )
Payment of preferred and preference stock dividends
    (4,413 )     (3,947 )
Payment of common stock dividends
    (184,725 )     (180,300 )
Other
    (7,554 )     (3,313 )
 
           
Net cash provided from financing activities
    357,204       244,710  
 
           
Net Change in Cash and Cash Equivalents
    14,562       2,961  
Cash and Cash Equivalents at Beginning of Period
    132,739       15,392  
 
           
Cash and Cash Equivalents at End of Period
  $ 147,301     $ 18,353  
 
           
Supplemental Cash Flow Information:
               
Cash paid during the period for —
               
Interest (net of $9,143 and $11,837 capitalized for 2009 and 2008, respectively)
  $ 60,905     $ 70,452  
Income taxes (net of refunds)
  $ 13,330     $ 450  
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 March 31,     At December 31,  
Assets   2009     2008  
    (in thousands)  
Current Assets:
               
Cash and cash equivalents
  $ 147,301     $ 132,739  
Restricted cash and cash equivalents
    15,879       22,381  
Receivables —
               
Customer accounts receivable
    505,440       554,219  
Unbilled revenues
    131,520       147,978  
Under recovered regulatory clause revenues
    351,964       338,780  
Other accounts and notes receivable
    228,555       97,899  
Affiliated companies
    20,874       13,091  
Accumulated provision for uncollectible accounts
    (11,291 )     (10,732 )
Fossil fuel stock, at average cost
    597,012       484,757  
Materials and supplies, at average cost
    361,226       356,537  
Vacation pay
    65,390       71,217  
Prepaid income taxes
    71,126       65,987  
Other regulatory assets
    164,748       118,961  
Other
    45,489       63,464  
 
           
Total current assets
    2,695,233       2,457,278  
 
           
Property, Plant, and Equipment:
               
In service
    24,266,916       23,975,262  
Less accumulated provision for depreciation
    9,204,865       9,101,474  
 
           
 
    15,062,051       14,873,788  
Nuclear fuel, at amortized cost
    292,163       278,412  
Construction work in progress
    1,773,995       1,434,989  
 
           
Total property, plant, and equipment
    17,128,209       16,587,189  
 
           
Other Property and Investments:
               
Equity investments in unconsolidated subsidiaries
    57,796       57,163  
Nuclear decommissioning trusts, at fair value
    432,575       460,430  
Other
    37,970       40,945  
 
           
Total other property and investments
    528,341       558,538  
 
           
Deferred Charges and Other Assets:
               
Deferred charges related to income taxes
    578,218       572,528  
Deferred under recovered regulatory clause revenues
    366,045       425,609  
Other regulatory assets
    1,435,775       1,449,352  
Other
    205,278       265,174  
 
           
Total deferred charges and other assets
    2,585,316       2,712,663  
 
           
Total Assets
  $ 22,937,099     $ 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 March 31,     At December 31,  
Liabilities and Stockholder’s Equity   2009     2008  
    (in thousands)  
Current Liabilities:
               
Securities due within one year
  $ 380,323     $ 280,443  
Notes payable
    280,586       357,095  
Accounts payable —
               
Affiliated
    195,395       260,545  
Other
    748,629       422,485  
Customer deposits
    191,356       186,919  
Accrued taxes —
               
Income taxes
    102,591       70,916  
Unrecognized tax benefits
    141,095       128,712  
Other
    91,672       278,172  
Accrued interest
    107,411       79,432  
Accrued vacation pay
    51,563       57,643  
Accrued compensation
    43,734       135,191  
Liabilities from risk management activities
    143,271       113,432  
Other
    186,851       136,176  
 
           
Total current liabilities
    2,664,477       2,507,161  
 
           
Long-term Debt
    7,254,092       7,006,275  
 
           
Deferred Credits and Other Liabilities:
               
Accumulated deferred income taxes
    3,076,923       3,064,580  
Deferred credits related to income taxes
    136,630       140,933  
Accumulated deferred investment tax credits
    252,788       256,218  
Employee benefit obligations
    882,380       882,965  
Asset retirement obligations
    696,930       688,019  
Other cost of removal obligations
    385,140       396,947  
Other regulatory liabilities
    97,502       115,865  
Other
    119,370       111,505  
 
           
Total deferred credits and other liabilities
    5,647,663       5,657,032  
 
           
Total Liabilities
    15,566,232       15,170,468  
 
           
Preferred and Preference Stock
    265,957       265,957  
 
           
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
    3,939,265       3,655,731  
Retained earnings
    2,795,289       2,857,789  
Accumulated other comprehensive loss
    (28,117 )     (32,750 )
 
           
Total common stockholder’s equity
    7,104,910       6,879,243  
 
           
Total Liabilities and Stockholder’s Equity
  $ 22,937,099     $ 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
FIRST QUARTER 2009 vs. FIRST QUARTER 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, 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. Georgia Power also expects to file a fuel cost recovery case in the third quarter 2009.
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
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$(53.8)
  (30.6)
 
Georgia Power’s net income after dividends on preferred and preference stock for the first quarter 2009 was $122.2 million compared to $176.0 million for the corresponding period in 2008. The decrease was primarily due to lower industrial base revenues resulting from the recessionary economy and a charge in the first quarter 2009 in connection with a voluntary attrition plan under which 579 employees elected to resign from their positions effective March 31, 2009.
Retail Revenues
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$17.4   1.1
 
In the first quarter 2009, retail revenues were $1.59 billion compared to $1.57 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:
                 
    First Quarter
    2009
    (in millions)   (% change)
Retail – prior year
  $ 1,575.0          
Estimated change in —
               
Rates and pricing
    19.7       1.3  
Sales growth (decline)
    (18.1 )     (1.2 )
Weather
    (0.6 )      
Fuel cost recovery
    16.4       1.0  
 
Retail – current year
  $ 1,592.4       1.1 %
 
Revenues associated with changes in rates and pricing increased in the first quarter 2009 when compared to the corresponding period in 2008 due to increased environmental compliance cost recovery revenues of $49.4 million in accordance with the 2007 Retail Rate Plan, partially offset by decreased revenues from market-response rates to large commercial and industrial customers.
Revenues attributable to changes in sales growth declined in the first quarter 2009 when compared to the corresponding period for 2008. This decrease was primarily due to the recessionary economy, partially offset by a 0.4% increase in retail customers. Weather-adjusted residential KWH sales increased 1.3%, weather-adjusted commercial KWH sales decreased 0.6%, and weather-adjusted industrial KWH sales decreased 13.9% for the first quarter 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.
Fuel revenues and costs are allocated between retail and wholesale jurisdictions. Retail fuel cost recovery revenues increased by $16.4 million in the first quarter 2009 when compared to the corresponding period in 2008 due to a higher proportion of retail fuel revenues compared to wholesale fuel revenues during the period, partially offset by decreased 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 affect net income.
Wholesale Revenues – Non-Affiliates
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$(56.7)
  (37.1)
     
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. In the first quarter 2009, wholesale revenues from non-affiliates were $96.0 million compared to $152.7 million in the same period in 2008. This decrease was due to a 53.1% decrease in KWH sales due to lower demand.

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GEORGIA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wholesale Revenues – Affiliates
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$(58.7)   (79.4)
 
Wholesale revenues from affiliated companies 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 first quarter 2009, wholesale revenues from affiliates were $15.2 million compared to $73.9 million in the same period in 2008. This decrease was due to an 83.6% decrease in KWH sales due to lower demand primarily caused by the recessionary economy.
Fuel and Purchased Power Expenses
                 
    First Quarter 2009
vs.
First Quarter 2008
    (change in millions)   (% change)
Fuel
  $ (37.4 )     (5.9 )
Purchased power – non-affiliates
    3.9       6.8  
Purchased power – affiliates
    (55.7 )     (22.0 )
         
Total fuel and purchased power expenses
  $ (89.2 )        
         
In the first quarter 2009, total fuel and purchased power expenses were $859.7 million compared to $948.9 million in the same period in 2008. This decrease was due to a $104.8 million decrease related to fewer KWHs generated and purchased, partially offset by a $15.6 million net increase in the average cost of fuel and purchased power.
Details of Georgia Power’s cost of generation and purchased power are as follows:
                         
    First Quarter   First Quarter   Percent
Average Cost   2009   2008   Change
    (cents per net KWH)        
Fuel
    3.23       2.84       13.7  
Purchased power
    6.40       7.32       (12.6 )
 
In the first quarter 2009, fuel expense was $600.5 million compared to $637.9 million in the same period in 2008. This decrease was due to an 18.2% decrease in volume of KWHs generated primarily as a result of the lower KWH demand and lower natural gas prices, partially offset by a 28.8% increase in the average cost of coal per KWH generated.
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.

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GEORGIA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Non-Affiliates
In the first quarter 2009, purchased power expense from non-affiliates was $62.0 million compared to $58.0 million in the same period in 2008. This increase was due to a 45.9% volume increase in KWHs purchased from available lower-priced market energy alternatives partially offset by a 26.9% 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 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 first quarter 2009, purchased power expense from affiliates was $197.2 million compared to $252.9 million in the same period in 2008. This decrease was due to a 9.5% decrease in the average cost per KWH purchased and a 7.6% volume decrease in KWHs purchased because of the availability of lower-priced market energy alternatives within the Power Pool.
Energy purchases from affiliated companies 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
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$21.7
  5.9
 
In the first quarter 2009, other operations and maintenance expenses were $390.5 million compared to $368.8 million in the same period in 2008. This increase was primarily due to 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. The first quarter 2009 charge will be largely offset by lower salary costs for the remainder of the year and is not expected to have a material impact on Georgia Power’s financial statements for the year ending December 31, 2009. This increase was partially offset by an $8.5 million decrease in fossil and distribution maintenance as a result of the timing of maintenance activities.
Depreciation and Amortization
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$16.5   11.0
 
In the first quarter 2009, depreciation and amortization was $167.1 million compared to $150.6 million in the same period in 2008. This increase was due primarily to additional plant in service related to completed transmission, distribution, and environmental projects.

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GEORGIA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Allowance for Equity Funds Used During Construction
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$(7.0)   (25.2)
 
In the first quarter 2009, allowance for equity funds used during construction was $20.8 million compared to $27.8 million in the same period in 2008. This decrease was primarily due to a decrease in the average construction work in progress balances in the first quarter 2009 compared to the same period in 2008 as a result of projects completed during 2008.
Taxes Other Than Income Taxes
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$4.9   7.0
 
In the first quarter 2009, taxes other than income taxes were $76.2 million compared to $71.3 million in the same period in 2008. This increase is primarily due to increased ad valorem taxes.
Income Taxes
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$(21.2)   (25.3)
 
In the first quarter 2009, income taxes were $62.6 million compared to $83.8 million in the same period in 2008. This decrease was 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 all 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 growth and are 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 Georgia Power in Item 7 of the Form 10-K.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 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. 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

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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. Implementation of the energy auction in accordance with the MBR tariff order is expected to adequately mitigate going forward any presumption of market power that Southern Company may have in the Southern Company retail service territory. 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 – 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. New fuel rates are expected to become effective January 1, 2010. As of March 31, 2009, Georgia Power had a total under recovered fuel cost balance of approximately $718 million compared to $764 million at December 31, 2008.
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.
Income Tax Matters
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. Georgia Power is currently assessing the other financial implications of the ARRA. The ultimate impact cannot be determined at this time.
Construction
Nuclear
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Nuclear – Construction” of Georgia Power in Item 7 of the Form 10-K for information regarding the potential expansion of Plant Vogtle.

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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.
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.
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.
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.
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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
Overview
Georgia Power’s financial condition remained stable at March 31, 2009. Throughout the recent 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 programs and variable rate pollution control revenue bonds. Georgia Power has continued to issue commercial paper at reasonable rates. 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. Of the $185 million of facilities expiring in the first quarter 2009, $130 million were replaced or renewed. Subsequent to March 31, 2009, Georgia Power entered into additional credit agreements totaling $425 million. Total committed credit fees at Georgia Power 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. The ultimate impact on future financing costs as a result of the 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.
Georgia Power’s investments in pension and nuclear decommissioning trust funds have continued to decline in value during the first quarter 2009. Georgia Power expects that the earliest that cash may have to be contributed to the pension trust fund is 2011 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 $233.1 million for the first three months of 2009, compared to $280.6 million for the corresponding period in 2008. The $47.5 million decrease in cash provided from operating activities in the first three months of 2009 is primarily due to a decrease in net income and higher fuel and materials inventory additions. Net cash used for investing activities totaled $575.7 million primarily due to gross property additions to utility plant in the first three months of 2009. Net cash provided from financing activities totaled $357.2 million for the first three months of 2009, compared to $244.7 million for the corresponding period in 2008. The $112.5 million increase is primarily due to higher capital contributions from Southern Company and a smaller decrease in short-term debt compared to the corresponding period in 2008.
Significant balance sheet changes for the first three months of 2009 include an increase of $541.0 million in total property, plant, and equipment and an increase of $247.8 million in long-term debt to replace short-term debt and provide funds for Georgia Power’s continuous construction program.
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 $380.3 million will be required through March 31, 2010 to fund maturities 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; revised load growth estimates; changes in environmental statutes and regulations; changes in nuclear plants to meet new

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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 March 31, 2009 approximately $147.3 million of cash and cash equivalents and approximately $1.3 billion of unused credit arrangements with banks. See Note 6 to the financial statements of Georgia Power under “Bank Credit Arrangements” in Item 8 of the Form 10-K and Note (F) to the Condensed Financial Statements under “Bank Credit Arrangements” herein for additional information. Of the unused credit arrangements in place at March 31, 2009, $40 million expire in 2009, $130 million expire in 2010, and $1.1 billion expire in 2012. As described above, Georgia Power entered into additional credit agreements totaling $425 million subsequent to March 31, 2009. These facilities all expire in 2010. Of the facilities that expire in 2009 and 2010, $40 million contain provisions allowing two-year term loans 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 commercial paper program and purchase obligations related to variable rate pollution control revenue bonds. Georgia 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 Georgia Power and other Southern Company subsidiaries. At March 31, 2009, Georgia Power had approximately $179.7 million of commercial paper and $100 million of short-term bank loans 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 March 31, 2009, the maximum potential collateral requirements under these contracts at a BBB- and/or Baa3 rating were approximately $27 million. At March 31, 2009, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $1.0 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

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
The changes in fair value of energy-related derivative contracts for the three months ended March 31, 2009 were as follows:
         
    First Quarter
    2009
    Changes
    Fair Value
    (in millions)
Contracts outstanding at the beginning of the period, assets (liabilities), net
  $ (113.2 )
Contracts realized or settled
    19.8  
Current period changes(a)
    (83.2 )
 
Contracts outstanding at the end of the period, assets (liabilities), net
  $ (176.6 )
 
(a)   Current period changes also include the changes in fair value of new contracts entered into during the period, if any.
The decrease in the fair value positions of the energy-related derivative contracts for the three months ended March 31, 2009 was $63 million, substantially all of which is due to natural gas positions. This change is attributable to both the volume and prices of natural gas. At March 31, 2009, Georgia Power had a net hedge volume of 71.5 Bcf with a weighted average contract cost approximately $2.53 per mmBtu above market prices, compared to 59.3 Bcf at December 31, 2008 with a weighted average contract cost approximately $1.96 per mmBtu above market prices. The natural gas hedges are recovered through the fuel cost recovery mechanism.
At March 31, 2009, the fair value of energy-related derivative contracts by hedge designation was reflected in the financial statements as follows:
         
    March 31,
2009
    (in millions)
Regulatory hedges
  $ (176.6 )
Not designated
     
 
Total fair value
  $ (176.6 )
 

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 months ended March 31, 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 March 31, 2009 are as follows:
                                 
    March 31, 2009
    Fair Value Measurements
    Total   Maturity
    Fair Value   Year 1   Years 2&3   Years 4&5
    (in millions)
Level 1
  $     $     $     $  
Level 2
    (176.6 )     (135.8 )     (40.8 )      
Level 3
                       
 
Fair value of contracts outstanding at end of period
  $ (176.6 )   $ (135.8 )   $ (40.8 )   $  
 
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 (F) 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.
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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CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                 
    For the Three Months  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Operating Revenues:
               
Retail revenues
  $ 238,391     $ 227,964  
Wholesale revenues —
               
Non-affiliates
    21,966       25,656  
Affiliates
    5,360       42,940  
Other revenues
    18,567       14,975  
 
           
Total operating revenues
    284,284       311,535  
 
           
Operating Expenses:
               
Fuel
    115,553       150,127  
Purchased power —
               
Non-affiliates
    4,438       3,126  
Affiliates
    15,381       8,743  
Other operations and maintenance
    72,491       66,431  
Depreciation and amortization
    23,059       21,704  
Taxes other than income taxes
    22,448       20,696  
 
           
Total operating expenses
    253,370       270,827  
 
           
Operating Income
    30,914       40,708  
Other Income and (Expense):
               
Allowance for equity funds used during construction
    4,818       1,483  
Interest income
    209       709  
Interest expense, net of amounts capitalized
    (9,832 )     (10,996 )
Other income (expense), net
    (616 )     (666 )
 
           
Total other income and (expense)
    (5,421 )     (9,470 )
 
           
Earnings Before Income Taxes
    25,493       31,238  
Income taxes
    7,400       10,157  
 
           
Net Income
    18,093       21,081  
Dividends on Preference Stock
    1,551       1,551  
 
           
Net Income After Dividends on Preference Stock
  $ 16,542     $ 19,530  
 
           
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
                 
    For the Three Months  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Net Income After Dividends on Preference Stock
  $ 16,542     $ 19,530  
Other comprehensive income (loss):
               
Qualifying hedges:
               
Changes in fair value, net of tax of $- and $(1,481), respectively
          (2,358 )
Reclassification adjustment for amounts included in net income, net of tax of $105 and $54, respectively
    167       87  
 
           
Total other comprehensive income (loss)
    167       (2,271 )
 
           
COMPREHENSIVE INCOME
  $ 16,709     $ 17,259  
 
           
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.

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CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    For the Three Months  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Operating Activities:
               
Net income
  $ 18,093     $ 21,081  
Adjustments to reconcile net income to net cash provided from operating activities —
               
Depreciation and amortization
    24,269       22,981  
Deferred income taxes
    (4,022 )     569  
Allowance for equity funds used during construction
    (4,818 )     (1,483 )
Pension, postretirement, and other employee benefits
    (391 )     1,319  
Stock option expense
    479       408  
Tax benefit of stock options
    3       85  
Other, net
    (5,325 )     430  
Changes in certain current assets and liabilities —
               
Receivables
    32,887       11,189  
Fossil fuel stock
    (18,231 )     (13,622 )
Materials and supplies
    (205 )     (1,005 )
Prepaid income taxes
    416        
Property damage cost recovery
    5,428       5,742  
Other current assets
    916       1,063  
Accounts payable
    (13,344 )     (1,438 )
Accrued taxes
    6,361       6,094  
Accrued compensation
    (11,576 )     (9,847 )
Other current liabilities
    5,761       6,230  
 
           
Net cash provided from operating activities
    36,701       49,796  
 
           
Investing Activities:
               
Property additions
    (109,737 )     (76,305 )
Investment in restricted cash from pollution control revenue bonds
    (49,188 )      
Cost of removal, net of salvage
    (2,330 )     (3,583 )
Contruction payables
    2,362       1,014  
Other
    (1,578 )     (54 )
 
           
Net cash used for investing activities
    (160,471 )     (78,928 )
 
           
Financing Activities:
               
Decrease in notes payable, net
    (89,930 )     (21,413 )
Proceeds —
               
Common stock issued to parent
    135,000        
Capital contributions from parent company
    1,106       72,106  
Gross excess tax benefit of stock options
    9       194  
Pollution control revenue bonds
    130,400        
Payment of preference stock dividends
    (1,551 )     (1,406 )
Payment of common stock dividends
    (22,350 )     (20,425 )
Other
    (847 )     (271 )
 
           
Net cash provided from financing activities
    151,837       28,785  
 
           
Net Change in Cash and Cash Equivalents
    28,067       (347 )
Cash and Cash Equivalents at Beginning of Period
    3,443       5,348  
 
           
Cash and Cash Equivalents at End of Period
  $ 31,510     $ 5,001  
 
           
Supplemental Cash Flow Information:
               
Cash paid during the period for —
               
Interest (net of $1,920 and $654 capitalized for 2009 and 2008, respectively)
  $ 8,347     $ 8,241  
Income taxes (net of refunds)
  $ 3,281     $ 1,200  
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.

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CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At March 31,     At December 31,  
Assets   2009     2008  
    (in thousands)  
Current Assets:
               
Cash and cash equivalents
  $ 31,510     $ 3,443  
Restricted cash and cash equivalents
    49,188        
Receivables —
               
Customer accounts receivable
    67,112       69,531  
Unbilled revenues
    42,597       48,742  
Under recovered regulatory clause revenues
    78,850       98,644  
Other accounts and notes receivable
    10,300       7,201  
Affiliated companies
    1,015       8,516  
Accumulated provision for uncollectible accounts
    (1,557 )     (2,188 )
Fossil fuel stock, at average cost
    126,352       108,129  
Materials and supplies, at average cost
    37,041       36,836  
Other regulatory assets
    48,058       38,908  
Other
    24,030       25,655  
 
           
Total current assets
    514,496       443,417  
 
           
Property, Plant, and Equipment:
               
In service
    2,835,502       2,785,561  
Less accumulated provision for depreciation
    982,542       971,464  
 
           
 
    1,852,960       1,814,097  
Construction work in progress
    453,749       391,987  
 
           
Total property, plant, and equipment
    2,306,709       2,206,084  
 
           
Other Property and Investments
    15,904       15,918  
 
           
Deferred Charges and Other Assets:
               
Deferred charges related to income taxes
    27,888       24,220  
Other regulatory assets
    174,115       170,836  
Other
    19,945       18,550  
 
           
Total deferred charges and other assets
    221,948       213,606  
 
           
Total Assets
  $ 3,059,057     $ 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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CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At March 31,     At December 31,  
Liabilities and Stockholder’s Equity   2009     2008  
    (in thousands)  
Current Liabilities:
               
Pollution control revenue bonds
  $ 9,930     $  
Notes payable
    58,309       148,239  
Accounts payable —
               
Affiliated
    35,822       50,304  
Other
    94,762       90,381  
Customer deposits
    29,371       28,017  
Accrued taxes —
               
Income taxes
    36,718       39,983  
Other
    10,504       11,855  
Accrued interest
    11,113       8,959  
Accrued compensation
    4,346       15,667  
Other regulatory liabilities
    12,199       4,602  
Liabilities from risk management activities
    35,309       26,928  
Other
    22,603       29,047  
 
           
Total current liabilities
    360,986       453,982  
 
           
Long-term Debt
    969,843       849,265  
 
           
Deferred Credits and Other Liabilities:
               
Accumulated deferred income taxes
    265,516       254,354  
Accumulated deferred investment tax credits
    10,855       11,255  
Employee benefit obligations
    96,436       97,389  
Other cost of removal obligations
    183,002       180,325  
Other regulatory liabilities
    34,367       28,597  
Other
    86,981       83,768  
 
           
Total deferred credits and other liabilities
    677,157       655,688  
 
           
Total Liabilities
    2,007,986       1,958,935  
 
           
Preference Stock
    97,998       97,998  
 
           
Common Stockholder’s Equity:
               
Common stock, without par value—
               
Authorized - 20,000,000 shares
               
Outstanding - March 31, 2009: 3,142,717 shares
               
- December 31, 2008: 1,792,717 shares
    253,060       118,060  
Paid-in capital
    513,143       511,547  
Retained earnings
    191,635       197,417  
Accumulated other comprehensive loss
    (4,765 )     (4,932 )
 
           
Total common stockholder’s equity
    953,073       822,092  
 
           
Total Liabilities and Stockholder’s Equity
  $ 3,059,057     $ 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
FIRST QUARTER 2009 vs. FIRST QUARTER 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
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$(3.0)
  (15.3)
 
Gulf Power’s net income after dividends on preference stock for the first quarter 2009 was $16.5 million compared to $19.5 million for the corresponding period in 2008. The decrease was primarily due to a decline in sales growth, less favorable weather, and increased other operations and maintenance expenses, partially offset by increased allowance for equity funds used during construction (AFUDC).
Retail Revenues
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$10.4   4.6
 
In the first quarter 2009, retail revenues were $238.4 million compared to $228.0 million for the corresponding period in 2008.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of the change to retail revenues are as follows:
                 
    First Quarter
    2009
    (in millions)   (% change)
Retail – prior year
  $ 228.0          
Estimated change in —
               
Rates and pricing
    7.4       3.2  
Sales growth (decline)
    (4.1 )     (1.8 )
Weather
    (1.6 )     (0.7 )
Fuel and other cost recovery
    8.7       3.8  
 
Retail – current year
  $ 238.4       4.5 %
 
Revenues associated with changes in rates and pricing increased in the first quarter 2009 when compared to the same period 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 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 growth declined in the first quarter 2009 when compared to the same period in 2008. Weather-adjusted KWH energy sales to residential and commercial customers decreased 3.0% and 4.1%, respectively, due to decreased customer usage driven by the recession. KWH energy sales to industrial customers decreased 20.1% 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 weather decreased in the first quarter 2009 when compared to the corresponding period for 2008 due to less favorable weather.
Fuel and other cost recovery revenues increased in the first quarter 2009 when compared to the corresponding period for 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 effect 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 “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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wholesale Revenues – Non-Affiliates
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$(3.7)
  (14.4)
 
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 first quarter 2009, wholesale revenues from non-affiliates were $22.0 million compared to $25.7 million for the corresponding period in 2008. The decrease was primarily a result of lower energy revenues related to a 25.1% decrease in KWH sales.
Wholesale Revenues – Affiliates
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$(37.6)   (87.5)
 
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 first quarter 2009, wholesale revenues from affiliates were $5.3 million compared to $42.9 million for the corresponding period in 2008. The decrease was due to reduced customer demand resulting in an 85.5% decrease in KWH sales and a 13.8% decrease in price resulting from lower Power Pool interchange energy rates.
Other Revenues
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$3.6   24.0
 
In the first quarter 2009, other revenues were $18.6 million compared to $15.0 million for the corresponding period in 2008. The increase was primarily due to other energy services. The increased revenues from other energy services did not have a material impact on earnings since they were generally offset by associated expenses.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fuel and Purchased Power Expenses
                 
    First Quarter 2009
vs.
First Quarter 2008
    (change in millions)   (% change)
Fuel
  $ (34.5 )     (23.0 )
Purchased power – non-affiliates
    1.3       42.0  
Purchased power – affiliates
    6.6       75.9  
         
Total fuel and purchased power expenses
  $ (26.6 )        
         
In the first quarter 2009, total fuel and purchased power expenses were $135.4 million compared to $162.0 million for the corresponding period in 2008. The net decrease in fuel and purchased power expenses was due to a $48.1 million decrease related to KWHs generated and a $5.8 million decrease in the average cost of purchased power, partially offset by a $13.7 million increase related to KWHs purchased and a $13.6 million increase in the average cost of fuel.
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:
                         
    First Quarter   First Quarter   Percent
Average Cost   2009   2008   Change
    (cents per net KWH)        
Fuel
    4.31       3.80       13.4  
Purchased power
    5.19       6.70       (22.5 )
 
In the first quarter 2009, fuel expense was $115.6 million compared to $150.1 million in the same period in 2008. The decrease was due to a $48.1 million decrease related to total KWHs generated, offset by a $13.6 million increase in the average cost of fuel. The average cost of coal per KWH generated increased 20.6% primarily as a result of increases in commodity and transportation costs. The average cost of oil and natural gas per KWH generated decreased 25.9% primarily as a result of decreases in commodity prices.
Non-Affiliates
In the first quarter 2009, purchased power expense from non-affiliates was $4.4 million compared to $3.1 million for the same period in 2008. The increase was due to a $1.6 million increase related to total KWHs purchased, partially offset by a $0.3 million decrease resulting from the lower average cost per KWH.
Energy purchases from non-affiliates will vary depending on the market cost of available energy being lower than 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 first quarter 2009, purchased power expense from affiliates was $15.3 million compared to $8.7 million for the same period in 2008. The increase was due to a $13.4 million increase related to total KWHs purchased, partially offset by a $6.8 million decrease resulting from the lower average cost per KWH.

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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
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$6.1
  9.1
 
In the first quarter 2009, other operations and maintenance expenses were $72.5 million compared to $66.4 million for the corresponding period in 2008. The increase was primarily due to a $4.0 million increase in scheduled maintenance at generation facilities and a $3.0 million increase in other energy services, partially offset by a $0.4 million decrease related to the storm recovery costs associated with previous hurricanes. The increased expenses 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
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$1.4   6.2
 
For the first quarter 2009, depreciation and amortization was $23.1 million compared to $21.7 million for the corresponding period in 2008. The increase was primarily due to net additions to generation and distribution facilities.
Taxes Other Than Income Taxes
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$1.7   8.5
 
For the first quarter 2009, taxes other than income taxes were $22.4 million compared to $20.7 million for the corresponding period in 2008. The increase was primarily due to increases in franchise and gross receipts taxes, which were directly related to the increase in retail revenues.
Allowance for Equity Funds Used During Construction
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$3.3   N/M
 
N/M-Not Meaningful
In the first quarter 2009, allowance for equity funds used during construction was $4.8 million compared to $1.5 million for the corresponding period in 2008. The increase was primarily due to construction of environmental control projects.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest Expense, Net of Amounts Capitalized
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$(1.2)   (10.6)
 
In the first quarter 2009, interest expense, net of amounts capitalized was $9.8 million compared to $11.0 million for the corresponding period in 2008. The decrease was primarily the result of an increase in capitalization of AFUDC related to the construction of environmental control projects.
Income Taxes
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$(2.8)   (27.1)
 
In the first quarter 2009, income taxes were $7.4 million compared to $10.2 million for the corresponding period in 2008. The decrease was primarily due to lower earnings before income taxes and an increase in the tax benefit associated with an increase in AFUDC, which is non-taxable, 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 all 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 growth and are 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 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.
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

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. 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 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. Implementation of the energy auction in accordance with the MBR tariff order is expected to adequately mitigate going forward any presumption of market power that Southern Company may have in the Southern Company retail service territory. 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.

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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 March 31, 2009 totaled $76.9 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.
Income Tax Matters
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. Gulf Power is currently assessing 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 April 3, 2009, Gulf Power filed a petition with the Florida PSC requesting approval of the Agreement. The Agreement will commence on the later of June 1, 2009 or the first day of the month following receipt by Gulf Power of a final, non-appealable order of the Florida PSC approving the Agreement. Unless earlier terminated in accordance with its terms, the Agreement will terminate on May 24, 2023. Gulf Power may terminate the Agreement if the Florida PSC approval imposes material qualifications or conditions that are not acceptable to Gulf Power. Payments under the Agreement will be material but are expected to be recovered 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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Gulf Power’s financial condition remained stable at March 31, 2009. Throughout the recent 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 programs and variable rate pollution control revenue bonds. Gulf Power has continued to issue commercial paper at reasonable rates. 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 first quarter 2009, Gulf Power renewed $30 million of expiring credit facilities. In addition, Gulf Power entered into a $20 million facility. Subsequent to March 31, 2009, Gulf Power entered into additional credit arrangements totaling $75 million. Total committed credit fees at Gulf Power 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 the 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.

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GULF POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Gulf Power’s investments in pension trust funds have continued to decline in value during the first quarter 2009. Gulf Power expects that the earliest that cash may have to be contributed to the pension trust fund is 2011 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 $36.7 million for the first three months of 2009 compared to $49.8 million for the corresponding period in 2008. The $13.1 million decrease in cash provided from operating activities was primarily due to an $18.0 million increase in payments to affiliates related to higher fuel cost; an increase of $4.6 million in the use of funds for fossil fuel inventory; a decrease of $4.6 million in deferred income taxes; and a decrease of $3.0 million in net income, as previously discussed. These changes were partially offset by a decrease of $19.0 million in under recovered regulatory clause revenues related to fuel. Net cash used for investing activities in the first three months of 2009 totaled $160.5 million primarily due to gross property additions to utility plant of $114.9 million and the issuance of pollution control revenue bonds, the proceeds of which are restricted for installation of certain solid waste disposal facilities. These additions were primarily related to installation of equipment to comply with environmental requirements. Net cash provided from financing activities totaled $151.8 million for the first three months of 2009, compared to $28.8 million for the corresponding period in 2008. The $123.0 million increase in cash provided from financing activities was primarily due to the issuances of $135.0 million in common stock and $130.4 million in pollution control revenue bonds in 2009, partially offset by a $68.5 million increase in cash payments related to notes payable and a $71 million decrease in capital contributions from Southern Company.
Significant balance sheet changes for the first quarter 2009 include a net increase of $100.6 million in property, plant, and equipment, primarily related to environmental control projects; the issuance of common stock to Southern Company for $135 million; the issuance of $130.4 million in pollution control revenue bonds, with a related restricted cash balance of $49.2 million; a $19.8 million decrease in under recovered regulatory clause revenues related to fuel; and a $12.0 million change in energy-related derivative contracts.
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. 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; revised load growth estimates; storm impacts; changes in environmental statutes and regulations; changes in FERC rules and regulations; Florida PSC approvals; 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.

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GULF POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 March 31, 2009 approximately $31.5 million of cash and cash equivalents and $140 million of unused committed lines of credit with banks. Of these credit agreements, $110 million expire in 2009, $30 million expire in 2010, and $60 million of these facilities contain provisions allowing one-year term loans executable at expiration. Subsequent to March 31, 2009, Gulf Power entered into an additional $75 million of credit agreements that expire in 2010. 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 (F) to the Condensed Financial Statements under “Bank Credit Arrangements” herein for additional information. These credit arrangements provide liquidity support to Gulf Power’s obligations with respect to variable rate pollution control revenue bonds and commercial paper. Gulf Power may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper at the request and for the benefit of Gulf Power and other Southern Company subsidiaries. At March 31, 2009, Gulf Power had $50 million of short-term bank debt outstanding and no 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 transportation and storage, emissions allowances, and energy price risk management. At March 31, 2009, the maximum potential collateral requirements under these contracts at a BBB- and/or Baa3 rating were approximately $50 million. At March 31, 2009, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $271 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. 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.

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GULF 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 months ended March 31, 2009 were as follows:
         
    First Quarter
    2009
    Changes
    Fair Value
    (in millions)
Contracts outstanding at the beginning of the period, assets (liabilities), net
  $ (31.2 )
Contracts realized or settled
    8.0  
Current period changes(a)
    (20.0 )
 
Contracts outstanding at the end of the period, assets (liabilities), net
  $ (43.2 )
 
(a)   Current period changes also include the changes in fair value of new contracts entered into during the period, if any.
The decrease in the fair value positions of the energy-related derivative contracts for the three months ended March 31, 2009 was $12 million, substantially all of which is due to natural gas positions. This change is attributable to both the volume and prices of natural gas. At March 31, 2009, Gulf Power had a net hedge volume of 16.0 Bcf with a weighted average contract cost approximately $2.76 per mmBtu above market prices, compared to 14.2 Bcf at December 31, 2008 with a weighted average contract cost approximately $2.24 per mmBtu above market prices. Natural gas hedges are recovered through the fuel cost recovery clause.
At March 31, 2009, the fair value of energy-related derivative contracts by hedge designation was reflected in the financial statements as follows:
         
    March 31,
2009
    (in millions)
Regulatory hedges
  $ (43.2 )
Not designated
     
 
Total fair value
  $ (43.2 )
 
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 months ended March 31, 2009 and 2008 for energy-related derivative contracts that are not hedges were not material.

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GULF 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 March 31, 2009 are as follows:
                                 
    March 31, 2009
    Fair Value Measurements
    Total   Maturity
    Fair Value   Year 1   Years 2&3   Years 4&5
    (in millions)
Level 1
  $     $     $     $  
Level 2
    (43.2 )     (35.2 )     (7.7 )     (0.3 )
Level 3
                       
 
Fair value of contracts outstanding at end of period
  $ (43.2 )   $ (35.2 )   $ (7.7 )   $ (0.3 )
 
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 (F) to the Condensed Financial Statements herein.
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.
Also during the first quarter 2009, Gulf Power incurred obligations related to the issuance of $130.4 million in pollution control revenue bonds. As of March 31, 2009, $9.9 million of these pollution control revenue bonds have been classified as current liabilities, since short-term credit facilities are being used to provide liquidity support for these bonds. The proceeds are being used for the acquisition, construction, installation, and equipping of certain solid waste disposal facilities located at Plant Crist.
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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MISSISSIPPI POWER COMPANY

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MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                 
    For the Three Months  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Operating Revenues:
               
Retail revenues
  $ 175,735     $ 168,389  
Wholesale revenues —
               
Non-affiliates
    80,154       84,806  
Affiliates
    9,418       28,379  
Other revenues
    3,416       3,842  
 
           
Total operating revenues
    268,723       285,416  
 
           
Operating Expenses:
               
Fuel
    119,965       130,116  
Purchased power —
               
Non-affiliates
    2,835       2,255  
Affiliates
    21,805       25,998  
Other operations and maintenance
    59,761       64,773  
Depreciation and amortization
    18,015       17,997  
Taxes other than income taxes
    14,924       15,565  
 
           
Total operating expenses
    237,305       256,704  
 
           
Operating Income
    31,418       28,712  
Other Income and (Expense):
               
Interest income
    632       409  
Interest expense, net of amounts capitalized
    (4,762 )     (4,441 )
Other income (expense), net
    1,629       1,619  
 
           
Total other income and (expense)
    (2,501 )     (2,413 )
 
           
Earnings Before Income Taxes
    28,917       26,299  
Income taxes
    10,513       9,694  
 
           
Net Income
    18,404       16,605  
Dividends on Preferred Stock
    433       433  
 
           
Net Income After Dividends on Preferred Stock
  $ 17,971     $ 16,172  
 
           
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
                 
    For the Three Months  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Net Income After Dividends on Preferred Stock
  $ 17,971     $ 16,172  
Other comprehensive income (loss):
               
Qualifying hedges:
               
Changes in fair value, net of tax of $166 and $(1,310), respectively
    268       (2,114 )
 
           
Total other comprehensive income (loss)
    268       (2,114 )
 
           
COMPREHENSIVE INCOME
  $ 18,239     $ 14,058  
 
           
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.

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MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    For the Three Months  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Operating Activities:
               
Net income
  $ 18,404     $ 16,605  
Adjustments to reconcile net income to net cash provided from operating activities —
               
Depreciation and amortization
    19,479       18,556  
Deferred income taxes and investment tax credits, net
    (4,562 )     (4,498 )
Pension, postretirement, and other employee benefits
    1,902       1,606  
Stock option expense
    657       458  
Tax benefit of stock options
    10       80  
Other, net
    (8,523 )     (4,878 )
Changes in certain current assets and liabilities —
               
Receivables
    32,327       (4,768 )
Fossil fuel stock
    (20,315 )     (3,852 )
Materials and supplies
    (379 )     (12,769 )
Prepaid income taxes
    1,061       4,305  
Other current assets
    (2,592 )     1,775  
Other accounts payable
    (17,890 )     8,247  
Accrued taxes
    (18,604 )     (21,608 )
Accrued compensation
    (15,483 )     (15,825 )
Other current liabilities
    1,629       2,109  
 
           
Net cash used for operating activities
    (12,879 )     (14,457 )
 
           
Investing Activities:
               
Property additions
    (26,476 )     (25,983 )
Cost of removal, net of salvage
    (2,941 )     (151 )
Construction payables
    1,082       2,410  
Other
    (506 )     (565 )
 
           
Net cash used for investing activities
    (28,841 )     (24,289 )
 
           
Financing Activities:
               
Increase (decrease) in notes payable, net
    (26,293 )     1,850  
Proceeds —
               
Capital contributions
    1,294       1,180  
Gross excess tax benefit of stock options
    50       215  
Senior notes
    125,000        
Other long-term debt
          80,000  
Redemptions —
               
Senior notes
    (40,000 )      
Payment of preferred stock dividends
    (433 )     (433 )
Payment of common stock dividends
    (17,125 )     (17,100 )
Other
    (1,792 )      
 
           
Net cash provided from financing activities
    40,701       65,712  
 
           
Net Change in Cash and Cash Equivalents
    (1,019 )     26,966  
Cash and Cash Equivalents at Beginning of Period
    22,413       4,827  
 
           
Cash and Cash Equivalents at End of Period
  $ 21,394     $ 31,793  
 
           
Supplemental Cash Flow Information:
               
Cash paid during the period for —
               
Interest (net of $125 and $29 capitalized for 2009 and 2008, respectively)
  $ 3,847     $ 3,847  
Income taxes (net of refunds)
  $ (2,325 )   $ (35 )
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.

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MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At March 31,     At December 31,  
Assets   2009     2008  
    (in thousands)  
Current Assets:
               
Cash and cash equivalents
  $ 21,394     $ 22,413  
Receivables —
               
Customer accounts receivable
    39,623       40,262  
Unbilled revenues
    23,558       24,798  
Under recovered regulatory clause revenues
    42,047       54,994  
Other accounts and notes receivable
    5,243       8,995  
Affiliated companies
    10,360       24,108  
Accumulated provision for uncollectible accounts
    (842 )     (1,039 )
Fossil fuel stock, at average cost
    105,853       85,538  
Materials and supplies, at average cost
    27,523       27,143  
Other regulatory assets
    76,691       59,220  
Other
    12,782       10,898  
 
           
Total current assets
    364,232       357,330  
 
           
Property, Plant, and Equipment:
               
In service
    2,244,657       2,234,573  
Less accumulated provision for depreciation
    932,791       923,269  
 
           
 
    1,311,866       1,311,304  
Construction work in progress
    80,809       70,665  
 
           
Total property, plant, and equipment
    1,392,675       1,381,969  
 
           
Other Property and Investments
    7,976       8,280  
 
           
Deferred Charges and Other Assets:
               
Deferred charges related to income taxes
    9,260       9,566  
Other regulatory assets
    185,461       171,680  
Other
    24,742       23,870  
 
           
Total deferred charges and other assets
    219,463       205,116  
 
           
Total Assets
  $ 1,984,346     $ 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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MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At March 31,     At December 31,  
Liabilities and Stockholder’s Equity   2009     2008  
    (in thousands)  
Current Liabilities:
               
Securities due within one year
  $ 1,254     $ 41,230  
Notes payable
          26,293  
Accounts payable —
               
Affiliated
    37,175       36,847  
Other
    46,569       63,704  
Customer deposits
    10,536       10,354  
Accrued taxes —
               
Income taxes
    19,815       8,842  
Other
    17,148       50,700  
Accrued interest
    4,683       3,930  
Accrued compensation
    5,120       20,604  
Other regulatory liabilities
    8,846       9,718  
Liabilities from risk management activities
    47,045       29,291  
Other
    17,964       19,144  
 
           
Total current liabilities
    216,155       320,657  
 
           
Long-term Debt
    494,360       370,460  
 
           
Deferred Credits and Other Liabilities:
               
Accumulated deferred income taxes
    222,009       222,324  
Deferred credits related to income taxes
    13,854       14,074  
Accumulated deferred investment tax credits
    13,716       14,014  
Employee benefit obligations
    143,308       142,188  
Other cost of removal obligations
    97,243       96,191  
Other regulatory liabilities
    52,714       51,340  
Other
    58,632       52,216  
 
           
Total deferred credits and other liabilities
    601,476       592,347  
 
           
Total Liabilities
    1,311,991       1,283,464  
 
           
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
    321,968       319,958  
Retained earnings
    279,648       278,802  
Accumulated other comprehensive income (loss)
    268        
 
           
Total common stockholder’s equity
    639,575       636,451  
 
           
Total Liabilities and Stockholder’s Equity
  $ 1,984,346     $ 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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MISSISSIPPI POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER 2009 vs. FIRST QUARTER 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. 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
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$1.8   11.1
 
Mississippi Power’s net income after dividends on preferred stock for the first quarter 2009 was $18.0 million compared to $16.2 million for the corresponding period in 2008. The increase was primarily due to a decrease in operations and maintenance expenses, an 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, and an increase in territorial base revenues resulting from an increase in wholesale demand, partially offset by a decrease in wholesale energy revenues.
Retail Revenues
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$7.3   4.4
 
In the first quarter 2009, retail revenues were $175.7 million compared to $168.4 million for the same period in 2008.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of the change to retail revenues are as follows:
                 
    First Quarter
    2009
    (in millions)   (% change)
 
Retail – prior year
  $ 168.4          
Estimated change in —
               
Rates and pricing
    1.6       1.0  
Sales growth (decline)
    (2.2 )     (1.3 )
Weather
    (1.1 )     (0.7 )
Fuel and other cost recovery
    9.0       5.4  
 
Retail – current year
  $ 175.7       4.4 %
 
Revenues associated with changes in rates and pricing increased in the first quarter 2009 when compared to the same period in 2008 due to a $1.0 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 decreases in retail revenues of approximately $0.3 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 growth declined in the first quarter 2009 when compared to the same period in 2008 due to 3.0% and 0.9% decreases in weather-adjusted KWH sales to residential and commercial customers, respectively, and a 6.6% decrease in KWH sales to industrial customers. 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.
Revenues resulting from changes in weather were minimal although weather conditions were milder for the first quarter 2009 when compared to the first quarter 2008.
Fuel and other cost recovery revenues increased in the first quarter 2009 when compared to the same period 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
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$(4.6)   (5.5)
 
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.

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MISSISSIPPI POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the first quarter 2009, wholesale revenues from non-affiliates were $80.2 million compared to $84.8 million for the same period in 2008. The decrease was due to decreased revenues from customers outside Mississippi Power’s service territory of $11.9 million, partially offset by $7.3 million increased revenues from customers inside Mississippi Power’s service territory. The $11.9 million decrease in revenues from customers outside Mississippi Power’s service territory was due to a $7.4 million decrease associated with lower prices resulting from lower marginal cost of fuel, a $4.2 million decrease in sales, and a $0.3 million decrease in capacity revenues. The $7.3 million increase in revenues from customers inside Mississippi Power’s service territory was due to a $3.9 million increase in recoverable fuel costs and higher demand by customers of approximately $3.4 million.
Wholesale Revenues – Affiliates
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$(19.0)   (66.8)
 
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 first quarter 2009, wholesale revenues from affiliates were $9.4 million compared to $28.4 million for the same period in 2008. The decrease was primarily due to a $19.2 million decrease in energy revenues, of which $18.0 million was associated with decreased sales and $1.2 million was associated with lower prices. Capacity revenues increased $0.2 million.
Fuel and Purchased Power Expenses
                 
    First Quarter 2009
    vs.
    First Quarter 2008
    (change in millions)   (% change)
 
Fuel
  $ (10.1 )     (7.8 )
Purchased power – non-affiliates
    0.5       25.7  
Purchased power – affiliates
    (4.2 )     (16.1 )
         
Total fuel and purchased power expenses
  $ (13.8 )        
         
In the first quarter 2009, total fuel and purchased power expenses were $144.6 million compared to $158.4 million for the same period in 2008. This decrease was primarily due to an $18.7 million decrease in total KWHs generated and purchased, partially offset by a $4.9 million net increase 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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of Mississippi Power’s cost of generation and purchased power are as follows:
                         
    First Quarter   First Quarter   Percent
Average Cost   2009   2008   Change
    (cents per net KWH)        
 
Fuel
    4.44       3.91       13.6  
Purchased power
    3.91       5.40       (27.6 )
 
In the first quarter 2009, fuel expense was $120.0 million compared to $130.1 million for the same period in 2008. The decrease was primarily due to an 18.8% decrease in generation from Mississippi Power facilities resulting from lower energy sales and purchased power available at a lower cost, partially offset by a 13.6% increase in the price of fuel primarily due to an increase in coal prices.
Non-Affiliates
In the first quarter 2009, purchased power expense from non-affiliates was $2.8 million compared to $2.3 million for the same period in 2008. The increase was primarily the result of a 77.0% increase in KWH volume purchased, partially offset by a 29.0% decrease in the average cost of purchased power per KWH. The increase in volume was a result of lower cost opportunity purchases, while the decrease in prices was due to a lower marginal cost of fuel.
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 first quarter 2009, purchased power expense from affiliates was $21.8 million compared to $26.0 million for the same period in 2008. The decrease was primarily due to a 20.7% decrease in the average cost of purchased power per KWH, partially offset by a 5.8% 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
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$(4.9)   (7.7)
 
In the first quarter 2009, other operations and maintenance expenses were $59.8 million compared to $64.7 million for the same period in 2008. This decrease was primarily due to generation construction screening expenses of $1.7 million incurred in the first 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 decrease were a $1.6 million decrease in generation related environmental expenses and a $1.5 million decrease in distribution expenses as a result of the timing of normal maintenance activities.
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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MISSISSIPPI POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Taxes Other Than Income Taxes
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$(0.7)   (4.1)
 
In the first quarter 2009, taxes other than income taxes were $14.9 million compared to $15.6 million for the same period in 2008. The decrease was primarily due to a decrease in ad valorem taxes. The retail portion of the decrease in ad valorem taxes is recoverable under Mississippi Power’s ad valorem tax cost recovery clause and, therefore, does not affect net income.
Income Taxes
     
First Quarter 2009 vs. First Quarter 2008
 
(change in millions)   (% change)
$0.8   8.4
 
In the first quarter 2009, income taxes were $10.5 million compared to $9.7 million for the same period in 2008. The change of $0.8 million was primarily due to an increase in pre-tax income.
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 all 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 growth and are 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 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.

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MISSISSIPPI POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 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. The ultimate outcome of these matters cannot be determined at this time; however, mandatory restrictions on Mississippi 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 Mississippi PSC Matters
Market-Based Rate Authority
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters – Market-Based Rate Authority” of Mississippi Power in Item 7 and Note 3 to the financial statements of Mississippi 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.

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MISSISSIPPI POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Implementation of the energy auction in accordance with the MBR tariff order is expected to adequately mitigate going forward any presumption of market power that Southern Company may have in the Southern Company retail service territory. 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 Regulatory Matters
Performance Evaluation Plan
The Mississippi Public Utilities Staff, pursuant to the Mississippi PSC’s 2004 order approving the current PEP, is reviewing the PEP to determine if any modifications should be made. On March 2, 2009, concurrent with this review, the annual PEP evaluation filing for 2009 was suspended. Mississippi Power anticipates that, as a result of this required review, changes to the PEP will be made. Annual evaluations will resume for 2010 under the current PEP or a revised PEP. Mississippi Power does not anticipate that the suspension of the PEP filing for 2009 will have a material impact on 2009 earnings. While the final outcome is not known, it is likely that any modifications made to the PEP will result in a lower performance incentive under the PEP and therefore smaller and/or less frequent rate changes in the future. See Note 3 to the financial statements of Mississippi Power under “Retail Regulatory Matters – Performance Evaluation Plan” in Item 8 of the Form 10-K for additional information regarding Mississippi Power’s base rates.
On March 16, 2009, Mississippi Power submitted its annual PEP lookback filing for 2008, which recommended no surcharge or refund. The ultimate outcome of this matter cannot now be determined.
Fuel Cost Recovery
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Fuel Cost Recovery” of Mississippi Power in Item 7 of the Form 10-K for information regarding Mississippi Power’s fuel cost recovery. The Mississippi PSC approved the retail fuel cost recovery factor on March 3, 2009, with the new rates effective in March 2009. The retail fuel cost recovery factor will result in an annual increase in an amount equal to 10.3% of total 2008 retail revenues based on ten months of recovery under the new rate. At March 31, 2009, the amount of under recovered retail fuel costs included in the balance sheet was $32.4 million compared to $36.0 million at December 31, 2008. Mississippi Power also has a wholesale Municipal and Rural Associations (MRA) and Market Base (MB) fuel cost recovery factor. Effective January 1, 2009, the wholesale MRA fuel rate increased resulting in an annual increase in an amount equal to 13.9% of total 2008 MRA revenues. Effective February 1, 2009, the wholesale MB fuel rate increased resulting in an annual increase in an amount equal to 16.7% of total 2008 MB revenues. At March 31, 2009, the amount of under recovered wholesale MRA and MB fuel costs included in the balance sheet was $7.0 million and $2.6 million compared to $15.4 million and $3.7 million, respectively, at December 31, 2008. Mississippi Power’s operating revenues are adjusted for differences in actual recoverable fuel cost and amounts billed in accordance with the currently approved cost recovery rate. Accordingly, this increase to the billing factor will have no significant effect on Mississippi Power’s revenues or net income, but will increase annual cash flow.
In October 2008, the Mississippi PSC opened a docket to investigate and review interest and carrying charges under the fuel adjustment clause for utilities within the State of Mississippi including Mississippi Power. A hearing was held in November 2008 to hear testimony regarding the method of calculating carrying charges on over and under recoveries of fuel-related costs. On March 4, 2009, the Mississippi PSC issued an order to apply the prime rate in calculating the carrying costs on the retail over or under recovery balances related to fuel cost recovery. The order also requires Mississippi Power to file a proposed carrying cost calculation methodology as part of its compliance filing. Mississippi Power is currently in the process of submitting the compliance filing. The ultimate outcome of this matter cannot now be determined.

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MISSISSIPPI POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Integrated Coal Gasification Combined Cycle
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Integrated Coal Gasification Combined Cycle” of Mississippi Power in Item 7 and Note 3 to the financial statements of Mississippi Power under “Integrated Coal Gasification Combined Cycle” in Item 8 of the Form 10-K for information regarding the Kemper IGCC.
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.
On April 6, 2009, Mississippi Power received an accounting order from the Mississippi PSC directing Mississippi Power to continue to charge all Kemper IGCC generation resources 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 selected generation resource until the Mississippi PSC makes findings and determination as to the recovery of Mississippi Power’s prudent expenditures.
As of March 31, 2009, Mississippi Power had spent a total of $50.7 million associated with Mississippi Power’s generation resource planning, evaluation, and screening activities, including regulatory filings costs. Costs incurred during the first quarter 2009 totaled $8.4 million as compared to $7.2 million during the first quarter 2008. Of the total $50.7 million, $46.2 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 have been filed by intervenors in this proceeding, most of which are procedural in nature and seek to stay or delay the timely and orderly administration of the docket. In addition to these procedural motions, a motion has been filed by the Attorney General for the State of Mississippi which questions whether the Mississippi PSC has authority to approve the gasification portion of the Kemper IGCC. All of these motions were heard by the Mississippi PSC on May 5, 2009.
The ultimate outcome of these matters cannot now be determined.
Income Tax Matters
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 Mississippi Power. Mississippi 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 $11 million and $14 million. Mississippi Power is currently assessing the other financial implications of the ARRA. The ultimate impact cannot be determined at this time.

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MISSISSIPPI POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Matters
Mississippi Power is involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Mississippi Power is subject to certain claims and legal actions arising in the ordinary course of business. Mississippi 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 Mississippi Power cannot be predicted at this time; however, for current proceedings not specifically reported herein or in Note 3 to the financial statements of Mississippi 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 Mississippi 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
Mississippi Power prepares its financial statements in accordance with accounting principles generally accepted in the United States. Significant accounting policies are described in Note 1 to the financial statements of Mississippi Power in Item 8 of the Form 10-K. In the application of these policies, certain estimates are made that may have a material impact on Mississippi Power’s results of operations and related disclosures. Different assumptions and measurements could produce estimates that are significantly different from those recorded in the financial statements. See MANAGEMENT’S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES – “Application of Critical Accounting Policies and Estimates” of Mississippi Power in Item 7 of the Form 10-K for a complete discussion of Mississippi Power’s critical accounting policies and estimates related to Electric Utility Regulation, Contingent Obligations, Unbilled Revenues, and Plant Daniel Operating Lease.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Mississippi Power’s financial condition remained stable at March 31, 2009. Throughout the recent turmoil in the financial markets, Mississippi 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. Mississippi Power has continued to issue commercial paper at reasonable rates. Mississippi 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 Mississippi Power has been and expects to continue to be subject to higher costs as its existing facilities are replaced or renewed. In the first quarter 2009, Mississippi Power increased an existing facility by $10 million. Subsequent to March 31, 2009, Mississippi Power entered into an additional committed credit facility resulting in a net increase of $40 million. Total committed credit fees at Mississippi Power average less than 1/4 of 1% per year. Mississippi Power’s interest cost for short-term debt has decreased as market short-term interest rates have declined from 2008 levels. Mississippi Power experienced no material counterparty credit losses as a result of the turmoil in the financial markets. The ultimate impact on future financing costs as a result of the financial turmoil cannot be determined at this time. See “Sources of Capital” and “Financing Activities” herein for additional information.

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MISSISSIPPI POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Mississippi Power’s investments in pension trust funds have continued to decline in value during the first quarter 2009. Mississippi Power expects that the earliest that cash may have to be contributed to the pension trust fund is 2011 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 used for operating activities totaled $12.9 million for the first three months of 2009, compared to $14.5 million for the corresponding period in 2008. The $1.6 million decrease in cash used for operating activities is primarily due to increases in joint ownership billings of $13.7 million and cash inflows resulting from fuel cost recovery of $12.9 million, partially offset by cash outflows in other accounts payable of $9.6 million related to fuel purchases and increases in fossil fuel stock of $15.7 million. The $4.6 million increase in net cash used for investing activities is primarily due to a $2.8 million cash outflow for cost of removal. The $25.0 million decrease in net cash provided from financing activities was primarily due to cash outflows resulting from $40 million of long-term senior notes that matured on March 9, 2009 and a $26 million decrease in borrowings from commercial paper in 2009, partially offset by an increase in the issuance of long-term debt in the first quarter 2009 of $45 million as compared to the same period in 2008.
Significant balance sheet changes for the first three months of 2009 include a decrease in under recovered regulatory clause revenues of $12.9 million primarily due to lower fuel costs and the implementation of a higher fuel cost recovery factor in 2009. Receivables from affiliated companies decreased by $13.7 million primarily due to a decrease in joint owner billings related to Plants Daniel and Greene County. Fossil fuel inventory increased $20.3 million primarily due to increases in coal inventory and emissions allowances of $15.7 million and $6.0 million, respectively. Other regulatory assets increased $31.2 million primarily due to mark-to-market losses on forward gas contracts. Securities due within one year decreased by $40.0 million due to senior notes maturing during the first quarter 2009. Notes payable decreased by $26.3 million primarily due to a decrease in commercial paper borrowings. Accrued taxes, other decreased by $33.6 million primarily due to property tax payments of $39.8 million in the first quarter 2009. Long-term debt increased by $124 million primarily due to the issuance of senior notes in the first quarter 2009.
Capital Requirements and Contractual Obligations
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Capital Requirements and Contractual Obligations” of Mississippi Power in Item 7 of the Form 10-K for a description of Mississippi Power’s capital requirements for its construction program, lease obligations, purchase commitments, derivative obligations, preferred stock dividends, and trust funding requirements. Approximately $1.3 million will be required through March 31, 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; revised load growth estimates; storm impacts; changes in environmental statutes and regulations; changes in FERC rules and regulations; Mississippi 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.

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MISSISSIPPI POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sources of Capital
Mississippi Power plans to obtain the funds required for construction and other purposes from sources similar to those utilized in the past. Mississippi Power has primarily utilized funds from operating cash flows, short-term borrowings, external security offerings, and capital 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 Mississippi Power in Item 7 of the Form 10-K for additional information.
Mississippi Power’s current liabilities sometimes 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, Mississippi Power had at March 31, 2009 approximately $21.4 million of cash and cash equivalents and $108.5 million of unused committed credit arrangements with banks. All expire in 2009; however, approximately $53.5 million of these credit arrangements contain provisions allowing two-year term loans executable at expiration and $15 million contain provisions allowing one-year term loans executable at expiration. Mississippi Power expects to renew its credit facilities, as needed, prior to expiration. Subsequent to March 31, 2009, Mississippi Power entered into an additional committed credit facility resulting in a net increase of $40 million. The new credit facility expires in 2010. See Note 6 to the financial statements of Mississippi Power under “Bank Credit Arrangements” in Item 8 of the Form 10-K and Note (F) to the Condensed Financial Statements under “Bank Credit Arrangements” herein for additional information. These credit arrangements provide liquidity support to Mississippi Power’s commercial paper program and $40 million are dedicated to funding purchase obligations related to variable rate pollution control revenue bonds. Mississippi 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 Mississippi Power and other Southern Company subsidiaries. At March 31, 2009, Mississippi Power had no commercial paper outstanding. Management believes that the need for working capital can be adequately met by utilizing commercial paper, 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 Mississippi Power in Item 7 and Note 7 to the financial statements of Mississippi Power under “Operating Leases” in Item 8 of the Form 10-K for information related to Mississippi Power’s lease of a combined cycle generating facility at Plant Daniel.
Credit Rating Risk
Mississippi Power does not have any credit 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 March 31, 2009, the maximum potential collateral requirements under these contracts at a BBB- and/or Baa3 rating were approximately $9 million. At March 31, 2009, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $231 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. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, any credit rating downgrade could impact Mississippi Power’s ability to access capital markets, particularly the short-term debt market.

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MISSISSIPPI POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Market Price Risk
Mississippi 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, Mississippi 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, Mississippi 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, Mississippi Power enters into physical fixed-price contracts for the purchase and sale of electricity through the wholesale electricity market. Mississippi Power continues to manage retail fuel-hedging programs implemented per the guidelines of the Mississippi PSC and wholesale fuel-hedging programs under agreements with wholesale customers. As such, Mississippi 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 months ended March 31, 2009 were as follows:
         
    First Quarter
    2009
    Changes
    Fair Value
    (in millions)
Contracts outstanding at the beginning of the period, assets (liabilities), net
  $ (52.0 )
Contracts realized or settled
    9.0  
Current period changes(a)
    (33.0 )
 
Contracts outstanding at the end of the period, assets (liabilities), net
  $ (76.0 )
 
(a)   Current period changes also include the changes in fair value of new contracts entered into during the period, if any.
The decrease in the fair value positions of the energy-related derivative contracts for the three months ended March 31, 2009 was $24 million, substantially all of which is due to natural gas positions. This change is attributable to both the volume and prices of natural gas. At March 31, 2009, Mississippi Power had a net hedge volume of 30.3 Bcf with a weighted average contract cost approximately $2.60 per mmBtu above market prices, compared to 28.9 Bcf at December 31, 2008 with a weighted average contract cost approximately $1.89 per mmBtu above market prices. The majority of the natural gas hedges are recovered through the energy cost management clause.
At March 31, 2009, the fair value of energy-related derivative contracts by hedge designation was reflected in the financial statements as follows:
         
    March 31, 2009
    (in millions)
Regulatory hedges
  $ (76.4 )
Cash flow hedges
    0.4  
Not designated
     
 
Total fair value
  $ (76.0 )
 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Energy-related derivative contracts which are designated as regulatory hedges relate to Mississippi 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 energy cost management clause. Certain other gains and losses on energy-related derivatives, designated as cash flow hedges, are initially deferred in other comprehensive income 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 ended March 31, 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 March 31, 2009 are as follows:
                                 
    March 31, 2009
    Fair Value Measurements
    Total   Maturity
    Fair Value   Year 1   Years 2&3   Years 4&5
    (in millions)
 
Level 1
  $     $     $     $  
Level 2
    (76.0 )     (45.2 )     (26.1 )     (4.7 )
Level 3
                       
 
Fair value of contracts outstanding at end of period
  $ (76.0 )   $ (45.2 )   $ (26.1 )   $ (4.7 )
 
Mississippi 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 Mississippi Power in Item 7 and Notes 1 and 6 to the financial statements of Mississippi Power under “Financial Instruments” in Item 8 of the Form 10-K and Note (F) to the Condensed Financial Statements herein.
Financing Activities
During the first quarter 2009, Mississippi Power issued $125 million of Series 2009A 5.55% Senior Notes due March 1, 2019. The proceeds were used to repay at maturity Mississippi Power’s $40 million aggregate principal amount of Series F Floating Rate Senior Notes due March 9, 2009, to repay a portion of short-term indebtedness, and for general corporate purposes including Mississippi Power’s continuous construction program.
In addition to any financings that may be necessary to meet capital requirements, contractual obligations, and storm restoration costs, Mississippi 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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AND SUBSIDIARY COMPANIES

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                 
    For the Three Months  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Operating Revenues:
               
Wholesale revenues —
               
Non-affiliates
    94,612       80,469  
Affiliates
    135,284       133,493  
Other revenues
    1,621       1,570  
 
           
Total operating revenues
    231,517       215,532  
 
           
Operating Expenses:
               
Fuel
    65,781       36,047  
Purchased power —
               
Non-affiliates
    21,482       16,556  
Affiliates
    15,202       50,708  
Other operations and maintenance
    32,973       35,031  
Depreciation and amortization
    24,339       19,987  
Taxes other than income taxes
    4,759       4,542  
 
           
Total operating expenses
    164,536       162,871  
 
           
Operating Income
    66,981       52,661  
Other Income and (Expense):
               
Interest expense, net of amounts capitalized
    (21,559 )     (19,357 )
Other income (expense), net
    (211 )     12,580  
 
           
Total other income and (expense)
    (21,770 )     (6,777 )
 
           
Earnings Before Income Taxes
    45,211       45,884  
Income taxes
    17,295       16,909  
 
           
Net Income
  $ 27,916     $ 28,975  
 
           
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
                 
    For the Three Months  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Net Income
  $ 27,916     $ 28,975  
Other comprehensive income (loss):
               
Qualifying hedges:
               
Changes in fair value, net of tax of $302 and $(2,944), respectively
    466       (4,561 )
Reclassification adjustment for amounts included in net income, net of tax of $935 and $1,342, respectively
    1,440       2,073  
 
           
Total other comprehensive income (loss)
    1,906       (2,488 )
 
           
COMPREHENSIVE INCOME
  $ 29,822     $ 26,487  
 
           
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    For the Three Months  
    Ended March 31,  
    2009     2008  
    (in thousands)  
Operating Activities:
               
Net income
  $ 27,916     $ 28,975  
Adjustments to reconcile net income to net cash provided from operating activities —
               
Depreciation and amortization
    27,371       24,016  
Deferred income taxes
    18,763       11,067  
Deferred revenues
    (22,020 )     (26,767 )
Mark-to-market adjustments
    883       14,406  
Accumulated billings on construction contract
    11,520       18,737  
Accumulated costs on construction contract
    (20,145 )     (18,630 )
Gain on sale of property
          (6,029 )
Other, net
    (134 )     1,660  
Changes in certain current assets and liabilities —
               
Receivables
    2,439       (2,355 )
Fossil fuel stock
    1,464       (2,375 )
Materials and supplies
    (497 )     (155 )
Prepaid income taxes
    7,870        
Other current assets
    652       (214 )
Accounts payable
    (19,840 )     (5,718 )
Accrued taxes
    3,628       8,356  
Accrued interest
    (12,194 )     (12,210 )
Other current liabilities
    88       (2,881 )
 
           
Net cash provided from operating activities
    27,764       29,883  
 
           
Investing Activities:
               
Property additions
    (4,632 )     (24,332 )
Sale of property
          4,999  
Change in construction payables, net
    (271 )     4,854  
Payments pursuant to long-term service agreements
    (6,136 )     (5,671 )
Other
          (726 )
 
           
Net cash used for investing activities
    (11,039 )     (20,876 )
 
           
Financing Activities:
               
Increase in notes payable, net
          13,720  
Proceeds — Capital contributions
    1,060       897  
Payment of common stock dividends
    (26,525 )     (23,625 )
 
           
Net cash used for financing activities
    (25,465 )     (9,008 )
 
           
Net Change in Cash and Cash Equivalents
    (8,740 )     (1 )
Cash and Cash Equivalents at Beginning of Period
    37,894       5  
 
           
Cash and Cash Equivalents at End of Period
  $ 29,154     $ 4  
 
           
Supplemental Cash Flow Information:
               
Cash paid during the period for —
               
Interest (net of $78 and $4,142 capitalized for 2009 and 2008, respectively)
  $ 30,791     $ 27,717  
Income taxes (net of refunds)
  $ (10,003 )   $ 495  
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                 
    At March 31,     At December 31,  
Assets   2009     2008  
    (in thousands)  
Current Assets:
               
Cash and cash equivalents
  $ 29,154     $ 37,894  
Receivables —
               
Customer accounts receivable
    25,777       23,640  
Other accounts receivable
    1,795       2,162  
Affiliated companies
    31,651       33,401  
Fossil fuel stock, at average cost
    16,337       17,801  
Materials and supplies, at average cost
    27,024       26,527  
Prepaid service agreements — current
    18,423       26,304  
Prepaid income taxes
    13,602       18,066  
Other prepaid expenses
    2,109       2,756  
Assets from risk management activities
    15,563       10,799  
Other
    4,532       4,532  
 
           
Total current assets
    185,967       203,882  
 
           
Property, Plant, and Equipment:
               
In service
    2,865,524       2,847,757  
Less accumulated provision for depreciation
    376,361       351,193  
 
           
 
    2,489,163       2,496,564  
Construction work in progress
    11,117       8,775  
 
           
Total property, plant, and equipment
    2,500,280       2,505,339  
 
           
Deferred Charges and Other Assets:
               
Prepaid long-term service agreements
    78,525       81,542  
Other—
               
Affiliated
    3,756       3,827  
Other
    18,354       18,550  
 
           
Total deferred charges and other assets
    100,635       103,919  
 
           
Total Assets
  $ 2,786,882     $ 2,813,140  
 
           
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                 
    At March 31,     At December 31,  
Liabilities and Stockholder’s Equity   2009     2008  
    (in thousands)  
Current Liabilities:
               
Accounts payable —
               
Affiliated
  $ 43,185     $ 62,732  
Other
    9,767       11,278  
Accrued taxes —
               
Income taxes
    3,394       88  
Other
    5,910       2,343  
Accrued interest
    17,722       29,916  
Liabilities from risk management activities
    12,394       7,452  
Billings in excess of cost on construction contract
    3,283       11,907  
Other
    310       224  
 
           
Total current liabilities
    95,965       125,940  
 
           
Long-term Debt
    1,297,416       1,297,353  
 
           
Deferred Credits and Other Liabilities:
               
Accumulated deferred income taxes
    229,973       209,960  
Deferred capacity revenues — Affiliated
    12,884       32,211  
Other—
               
Affiliated
    6,408       6,667  
Other
    1,518       2,648  
 
           
Total deferred credits and other liabilities
    250,783       251,486  
 
           
Total Liabilities
    1,644,164       1,674,779  
 
           
Common Stockholder’s Equity:
               
Common stock, par value $.01 per share —
               
Authorized - 1,000,000 shares
               
Outstanding - 1,000 shares
           
Paid-in capital
    863,169       862,109  
Retained earnings
    303,700       302,309  
Accumulated other comprehensive loss
    (24,151 )     (26,057 )
 
           
Total common stockholder’s equity
    1,142,718       1,138,361  
 
           
Total Liabilities and Stockholder’s Equity
  $ 2,786,882     $ 2,813,140  
 
           
The accompanying notes as they relate to Southern 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
FIRST QUARTER 2009 vs. FIRST QUARTER 2008
OVERVIEW
Southern Power and its wholly-owned subsidiaries construct, acquire, own, and manage generation assets and sell electricity at market-based prices in the southeastern wholesale market. Southern Power continues to execute its regional strategy through a combination of acquiring and constructing new power plants and by entering into PPAs with investor owned utilities, independent power producers, municipalities, and electric cooperatives.
To evaluate operating results and to ensure Southern Power’s ability to meet its contractual commitments to customers, Southern Power focuses on several key performance indicators. These indicators include peak season equivalent forced outage rate (EFOR), return on invested capital (ROIC), and net income. EFOR defines the hours during peak demand times when Southern Power’s generating units are not available due to forced outages (the lower the better). ROIC is focused on earning a return on all invested capital that meets or exceeds Southern Power’s weighted average cost of capital. For additional information on these indicators, see MANAGEMENT’S DISCUSSION AND ANALYSIS – OVERVIEW – “Key Performance Indicators” of Southern Power in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$(1.1)
  (3.7)
 
Southern Power’s net income for the first quarter 2009 was $27.9 million compared to $29.0 million for the corresponding period in 2008. The decrease was primarily due to a gain on the sale of an undeveloped tract of land in Orange County, Florida to the Orlando Utilities Commission (OUC) and the receipt of a fee for participating in an asset auction that were both recognized in income in the first quarter 2008. The decrease was also due to increased depreciation associated with Plant Franklin Unit 3 being placed into commercial operation in June 2008 and increased depreciation associated with an increase in depreciation rates. These unfavorable impacts were partially offset by increased revenues associated with Plant Franklin Unit 3 being placed into commercial operation in June 2008 and increased generation from Southern Power’s combined cycle units due to lower natural gas prices.
Wholesale Revenues Affiliates and Wholesale Revenues Non-Affiliates
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$15.9   7.4
 
Wholesale revenues for the first quarter 2009 were $229.9 million compared to $214.0 million for the corresponding period in 2008. Wholesale energy sales to non-affiliates will vary depending on the energy demand of those customers and their generation capacity, as well as the market cost of available

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
energy compared to the cost of Southern Power’s energy. Energy sales to affiliated companies within the Southern Company system will vary depending on demand and the availability and cost of generating resources at each company. Sales to affiliate companies that are not covered by PPAs are made in accordance with the IIC, as approved by the FERC. Wholesale revenues from non-affiliates increased $14.1 million during the period, primarily due to revenues from Plant Franklin Unit 3 of $8.6 million and mark-to-market gains on sales of uncontracted generating capacity of $4.5 million in the first quarter 2009. Southern Power recognized $28.3 million in mark-to-market losses in the first quarter 2008. Decreases in revenues of $27.3 million due to lower natural gas prices and reduced sales of uncontracted generating capacity partially offset these increases in the first quarter 2009. Wholesale revenues from affiliates increased $1.8 million during the period, primarily due to increased energy revenues from non-PPA power sales under the IIC.
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Power Sales Agreements” of Southern Power in Item 7 of the Form 10-K and FUTURE EARNINGS POTENTIAL – “Power Sales Agreements” herein for additional information.
Fuel and Purchased Power Expenses
                 
    First Quarter 2009
vs.
First Quarter 2008
    (change in millions)   (% change)
Fuel
  $ 29.7       82.5  
Purchased power – non-affiliates
    4.9       29.8  
Purchased power – affiliates
    (35.5 )     (70.0 )
         
Total fuel and purchased power expenses
  $ (0.8 )        
         
In the first quarter 2009, total fuel and purchased power expenses were $102.5 million compared to $103.3 million for the corresponding period in 2008. Fuel expense increased $67.0 million due to a 40.7% increase in generation associated with Plant Franklin Unit 3 being placed into commercial operation in June 2008 and increased generation at Southern Power’s other combined cycle units due to lower natural gas prices. Additionally, $11.9 million in mark-to-market gains were recognized in the first quarter 2008 versus $3.9 million in mark-to-market losses recognized in the first quarter 2009. These increases were offset by a $51.4 million reduction in fuel expense due to a 24.7% decrease in the average cost of natural gas. Purchased power decreased $30.6 million due to increased generation at Southern Power’s combined cycle units during the first quarter 2009 due to the lower natural gas prices.
Other Operations and Maintenance Expenses
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$(2.1)
  (5.9)
 
In the first quarter 2009, other operations and maintenance expenses were $33.0 million compared to $35.0 million for the same period in 2008. The decrease was primarily due to transmission tariff penalties of $3.6 million recognized in 2008, partially offset by an increase in plant maintenance activities of $1.5 million.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Depreciation and Amortization
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$4.3   21.8
 
In the first quarter 2009, depreciation and amortization was $24.3 million compared to $20.0 million for the corresponding period in 2008. The increase was primarily due to completion of Plant Franklin Unit 3 in June 2008 and higher depreciation rates implemented in January 2009. See Note 1 to the financial statements of Southern Power under “Depreciation” in Item 8 of the Form 10-K and Note (A) to the Condensed Financial Statements under “Southern Power Depreciation Policy” herein for additional information.
Interest Expense, Net of Amounts Capitalized
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$2.2   11.4
 
In the first quarter 2009, interest expense, net of amounts capitalized was $21.6 million compared to $19.4 million for the corresponding period in 2008. The increase was primarily the result of a decrease in capitalized interest as a result of the completion of Plant Franklin Unit 3 in June 2008, partially offset by a decrease in short-term borrowing levels in the first quarter 2009.
Other Income (Expense), Net
     
First Quarter 2009 vs. First Quarter 2008
(change in millions)   (% change)
$(12.8)   (101.7)
 
In the first quarter 2009, other income (expense), net was $(0.2) million compared to $12.6 million for the corresponding period in 2008. The change was primarily due to a $6.0 million gain on the sale of an undeveloped tract of land in Orange County, Florida to the OUC and a $6.4 million fee received for participating in an asset auction that were both recognized in the first quarter 2008. Southern Power was not a successful bidder in the auction.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Southern Power’s future earnings potential. The level of Southern Power’s future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Southern Power’s competitive wholesale business. These factors include Southern Power’s ability to achieve sales growth while containing costs. Another major factor is federal regulatory policy, which may impact Southern Power’s level of participation in the market. The level of future earnings also depends on numerous factors including regulatory matters (such as those related to affiliate contracts), creditworthiness of customers, total generating capacity

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
available in the Southeast, the successful remarketing of capacity as current contracts expire, and Southern Power’s ability to execute its acquisition strategy. Recent recessionary conditions have negatively impacted capacity revenues. 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 Power in Item 7 of the Form 10-K.
Environmental Matters
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters” of Southern Power in Item 7 of the Form 10-K for information on the development by federal and state environmental regulatory agencies of additional control strategies for emissions of air pollution from industrial sources, including electric generating facilities. Compliance with possible additional federal or state legislation or regulations related to global climate change, air quality, or other environmental and health concerns could also affect earnings. While Southern Power’s PPAs generally contain provisions that permit charging the counterparty with some of the new costs incurred as a result of changes in environmental laws and regulations, the full impact of any such regulatory or legislative changes 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 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. The ultimate outcome of these matters cannot be determined at this time; however, mandatory restrictions on Southern 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 results of operations, cash flows, and financial condition.
FERC Matters
Market-Based Rate Authority
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters – Market-Based Rate Authority” of Southern Power in Item 7 and Note 3 to the financial statements of Southern 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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. Implementation of the energy auction in accordance with the MBR tariff order is expected to adequately mitigate going forward any presumption of market power that Southern Company may have in the Southern Company retail service territory. 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.
Income Tax Matters
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. Southern Power estimates the cash flow reduction to 2009 tax payments as a result of the bonus depreciation provisions of the ARRA to be immaterial. Southern Power is currently assessing the other financial implications of the ARRA. The ultimate impact cannot be determined at this time.
Construction Projects
Cleveland County Units 1-4
In December 2008, Southern Power announced that it will build an electric generating plant in Cleveland County, North Carolina. The plant will consist of four combustion turbine natural gas generating units with a total generating capacity of 720 MW. The units are expected to go into commercial operation in 2012. Costs incurred through March 31, 2009 were $7.1 million. The total estimated construction cost is expected to be between $350 million and $400 million.
Power Sales Agreements
Southern Power has entered into PPAs with North Carolina Electric Membership Corporation (NCEMC) and North Carolina Municipal Power Agency No. 1 (NCMPA1) for a portion of the generating capacity from the Cleveland County plant that will begin in 2012 and expire in 2036 and 2031, respectively. NCEMC will purchase 180 MW of capacity that will be supported by one unit at the plant and will purchase capacity from a second unit at the plant that will increase to 180 MW over a seven-year phase-in period. NCMPA1 will purchase 180 MW from a third unit at the plant.
The NCEMC PPAs were approved by Rural Utilities Service on March 6, 2009.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Potential Acquisition
On April 2, 2009, Southern Power signed an agreement to acquire all of the outstanding general and limited partnership interests of Hartwell Energy Limited Partnership (Hartwell). Hartwell owns a dual fueled generating plant near Hartwell, Georgia with installed capacity of 318 MWs. The plant consists of two combustion turbine natural gas generating units with oil back-up. The entire output of the plant is sold under a PPA with Oglethorpe Power Corporation (Oglethorpe) through May 31, 2019.
The acquisition is subject to a right of first refusal held by Oglethorpe, certain regulatory approvals, and other conditions. Oglethorpe’s right of first refusal expires July 31, 2009. The ultimate outcome of this matter cannot be determined at this time.
Other Matters
Southern Power is involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Southern Power is subject to certain claims and legal actions arising in the ordinary course of business. Southern Power’s business activities are subject to extensive governmental regulation related to public health and the environment. Litigation over environmental issues and claims of various types, including property damage, personal injury, 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 potential litigation against Southern Power 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 Power in Item 8 of the Form 10-K, management does not anticipate that the liabilities, if any, arising from any such proceedings would have a material adverse effect on Southern Power’s financial statements.
See Note (B) 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 Power 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 Power in Item 8 of the Form 10-K. In the application of these policies, certain estimates are made that may have a material impact on Southern Power’s results of operations and related disclosures. Different assumptions and measurements could produce estimates that are significantly different from those recorded in the financial statements. See MANAGEMENT’S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES – “Application of Critical Accounting Policies and Estimates” of Southern Power in Item 7 of the Form 10-K for a complete discussion of Southern Power’s critical accounting policies and estimates related to Revenue Recognition, Normal Sale and Non-Derivative Transactions, Cash Flow Hedge Transactions, Mark-to-Market Transactions, Percentage of Completion, Asset Impairments, Acquisition Accounting, Contingent Obligations, and Depreciation.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
Overview
Southern Power’s financial condition remained stable at March 31, 2009. Throughout the recent turmoil in the financial markets, Southern Power has maintained cash balances to cover the majority of its capital needs and has had limited need to issue commercial paper or draw on committed credit arrangements. During the first quarter 2009, Southern Power successfully accessed the commercial paper market when needed. There was no commercial paper outstanding at March 31, 2009. Southern Power intends to continue to monitor its access to short-term and long-term capital markets as well as its bank credit arrangements as needed to meet future capital and liquidity needs. Market rates for committed credit have increased, and Southern Power may be subject to higher costs as its existing facilities are replaced or renewed. The current facility expires in 2012 and the commitment fee is less than 1/8 of 1%. Southern Power experienced no material counterparty credit losses as a result of the turmoil in the financial markets. The ultimate impact on future financing costs as a result of the financial turmoil cannot be determined at this time. See “Sources of Capital” herein for additional information on lines of credit.
Net cash provided from operating activities totaled $27.8 million for the first three months of 2009, compared to $29.9 million for the corresponding period in 2008. The $2.1 million decrease in cash provided from operating activities was primarily due to cash outflows for engineering, procurement, and construction services to build a combined cycle unit for the OUC. The OUC contract is not expected to have any positive or negative impacts to Southern Power over the term of the contract as Southern Power is not anticipating any profit or loss from this transaction at this time. Additionally, a fee for participating in an asset auction was received in the first quarter 2008. These decreases were partially offset by the receipt of an income tax refund in 2009 and collection of accounts receivable balances from 2008. Net cash used for investing activities totaled $11.0 million for the first three months of 2009, compared to $20.9 million for the corresponding period in 2008. The $9.9 million decrease is primarily due to reduced property additions as Plant Franklin Unit 3 was completed in June 2008. Net cash used in financing activities totaled $25.5 million for the first three months of 2009 compared to $9.0 million for the corresponding period in 2008. The increase was primarily due to a reduction in short-term borrowing in 2009 and an increase in dividends paid to Southern Company.
Significant asset changes in the balance sheet for the first three months of 2009 include a reduction in affiliate accounts receivable due to reduced energy sales under the IIC, a reduction in prepaid long-term service agreements due to completion of scheduled outages.
Significant liability and stockholder’s equity changes in the balance sheet for the first three months of 2009 include a reduction in affiliate accounts payable due to timing of payments to SCS, a reduction in accrued interest due to interest payments, a reduction in billings in excess of cost due to increased spending on the OUC construction contract, and a reduction in deferred capacity revenues due to levelization.
Capital Requirements and Contractual Obligations
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Capital Requirements and Contractual Obligations” of Southern Power in Item 7 of the Form 10-K for a description of Southern Power’s capital requirements for its construction program,

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
maturing debt, interest, leases, derivative obligations, purchase commitments, and long-term service agreements. The construction programs are subject to periodic review and revision; these amounts include estimates for potential plant acquisitions and new construction as well as ongoing capital improvements. Planned expenditures for plant acquisitions may vary due to market opportunities and Southern Power’s ability to execute its growth strategy. Actual construction costs may vary from these estimates because of changes in factors such as: business conditions; environmental statutes and regulations; FERC rules and regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital.
Sources of Capital
Southern Power may use operating cash flows, external funds, equity capital, or loans from Southern Company to finance any new projects, acquisitions, and ongoing capital requirements. Southern Power expects to generate external funds from the issuance of unsecured senior debt and commercial paper or utilization of credit arrangements from banks. 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 Power in Item 7 of the Form 10-K for additional information.
Southern Power’s current liabilities frequently exceed current assets due to the use of short-term indebtedness as a funding source, as well as cash needs which can fluctuate significantly due to the seasonality of the business. To meet liquidity and capital resource requirements, Southern Power had at March 31, 2009 $400 million in committed credit arrangements with banks that will expire in 2012. Proceeds from these credit arrangements may be used for working capital and general corporate purposes as well as liquidity support for Southern Power’s commercial paper program. See Note 6 to the financial statements of Southern Power under “Bank Credit Arrangements” in Item 8 of the Form 10-K and Note (F) to the Condensed Financial Statements under “Bank Credit Arrangements” herein for additional information.
Southern Power’s commercial paper program is used to finance acquisition and construction costs related to electric generating facilities and for general corporate purposes.
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
Southern 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 Baa2, or BBB- and/or Baa3 or below. These contracts are for physical electricity purchases and sales, fuel purchases, fuel transportation and storage, and energy price risk management. At March 31, 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 $338 million. At March 31, 2009, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $798 million. Included in these amounts are certain agreements that

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
could require collateral 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 Southern Power’s ability to access capital markets, particularly the short-term debt market.
In addition, through the acquisition of Plant Rowan, Southern Power assumed a PPA with Duke Energy that could require collateral, but not accelerated payment, in the event of a downgrade to Southern Power’s credit rating to below BBB- or Baa3. The amount of collateral required would depend upon actual losses, if any, resulting from a credit downgrade.
Market Price Risk
Southern Power is exposed to market risks, including changes in interest rates and certain energy-related commodity prices. To manage the volatility attributable to these exposures, Southern Power takes advantage of natural offsets and enters into various derivative transactions for the remaining exposures pursuant to Southern Power’s policies in areas such as counterparty exposure and hedging practices. It is Southern Power’s policy that derivatives be used primarily for hedging purposes. Derivative positions are monitored using techniques that include market valuation and sensitivity analysis.
Southern 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, Southern Power is not aware of any facts or circumstances that would significantly affect exposure on existing indebtedness in the near term. However, the impact on future financing costs cannot now be determined.
Because energy from Southern Power’s facilities is primarily sold under long-term PPAs with tolling agreements and provisions shifting substantially all of the responsibility for fuel cost to the counterparties, Southern Power’s exposure to market volatility in commodity fuel prices and prices of electricity is generally limited. However, Southern Power has been and may continue to be exposed to market volatility in energy-related commodity prices as a result of sales of uncontracted generating capacity.
The changes in fair value of energy-related derivative contracts for the three months ended March 31, 2009 were as follows:
         
    First Quarter
    2009
    Changes
    Fair Value
    (in millions)
Contracts outstanding at the beginning of the period, assets (liabilities), net
  $ 3.4  
Contracts realized or settled
    0.1  
Current period changes(a)
    (0.2 )
 
Contracts outstanding at the end of the period, assets (liabilities), net
  $ 3.3  
 
(a)   Current period changes also include the changes in fair value of new contracts entered into during the period, if any.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The decrease in the fair value positions of the energy-related derivative contracts for the three months ended March 31, 2009 was $0.1 million, which is due to both power and natural gas positions. This change is attributable to both the volume and prices of power and natural gas as follows:
         
    March 31,
2009
 
Power (net sold)
       
 
MWHs (in millions)
    0.7  
Weighted average contract cost per MWH above (below) market prices (in dollars)
  $ 3.71  
 
Natural gas (net purchase)
       
 
Commodity – Bcf
    3.5  
Location basis – Bcf
    2.0  
 
Commodity – Weighted average contract cost per mmBtu above (below) market prices (in dollars)
  $ (0.27 )
 
Location basis – Weighted average contract cost per mmBtu above (below) market prices (in dollars)
  $ 0.06  
 
At March 31, 2009, the fair value of energy-related derivative contracts by hedge designation was reflected in the financial statements as follows:
         
    March 31,
2009
    (in millions)
Cash flow hedges
  $  
Not designated
    3.3  
 
Total fair value
  $ 3.3  
 
Gains and losses on energy-related derivatives used by Southern Power to hedge anticipated purchases and sales are initially deferred in other comprehensive income before being recognized in income in the same period as the hedged transaction. Gains and losses on derivative contracts that are not designated 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 three months ended March 31, 2009 for energy-related derivative contracts that are not hedges was $1 million and will continue to be marked to market until the settlement date. For the three months ended March 31, 2008, the total net unrealized losses recognized in the statements of income were $14 million. See Note (F) to the Condensed Financial Statements herein for further details of these losses.
The maturities of the energy-related derivative contracts and the level of the fair value hierarchy in which they fall at March 31, 2009 are as follows:
                                 
    March 31, 2009
    Fair Value Measurements
    Total   Maturity
    Fair Value   Year 1   Years 2&3   Years 4&5
    (in millions)
Level 1
  $     $     $     $  
Level 2
    3.3       3.2       0.1        
Level 3
                       
 
Fair value of contracts outstanding at end of period
  $ 3.3     $ 3.2     $ 0.1     $  
 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Southern 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 Southern Power in Item 7 and Notes 1 and 6 to the financial statements of Southern Power under “Financial Instruments” in Item 8 of the Form 10-K and Note (F) to the Condensed Financial Statements herein.
Financing Activities
Southern Power did not issue or redeem any long-term securities during the three months ended March 31, 2009.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
INDEX TO APPLICABLE NOTES TO
FINANCIAL STATEMENTS BY REGISTRANT
     
Registrant
  Applicable Notes
 
   
Southern Company
  A, B, C, D, E, F, G, H, I
 
   
Alabama Power
  A, B, C, F, G, H
 
   
Georgia Power
  A, B, C, D, F, G, H
 
   
Gulf Power
  A, B, C, F, G, H
 
   
Mississippi Power
  A, B, C, D, F, G, H
 
   
Southern Power
  A, B, C, F, H

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
NOTES TO THE CONDENSED FINANCIAL STATEMENTS:
  (A)   INTRODUCTION
 
      The condensed quarterly financial statements of each registrant included herein have been prepared by such registrant, without audit, pursuant to the rules and regulations of the SEC. The Condensed Balance Sheets as of December 31, 2008 have been derived from the audited financial statements of each registrant. In the opinion of each registrant’s management, the information regarding such registrant furnished herein reflects all adjustments, which, except as otherwise disclosed, are of a normal recurring nature, necessary to present fairly the results of operations for the periods ended March 31, 2009 and 2008. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although each registrant believes that the disclosures regarding such registrant are adequate to make the information presented not misleading. Disclosures which would substantially duplicate the disclosures in the Form 10-K and details which have not changed significantly in amount or composition since the filing of the Form 10-K are generally omitted from this Quarterly Report on Form 10-Q. Therefore, these Condensed Financial Statements should be read in conjunction with the financial statements and the notes thereto included in the Form 10-K. Due to the seasonal variations in the demand for energy, operating results for the periods presented do not necessarily indicate operating results for the entire year.
 
      Reclassifications
 
      Certain prior period data presented in the financial statements have been reclassified to conform to the current year presentation.
 
      For comparative purposes, each registrant’s statement of income for the three months ended March 31, 2008 was modified within the operating expenses section to combine the line items “Other operations” and “Maintenance” into a single line item entitled “Other operations and maintenance.” The balance sheets at December 31, 2008 of Southern Company, Alabama Power, and Georgia Power were modified to present a separate line item for “Other regulatory assets” previously included in “Other.” In addition, Georgia Power’s balance sheet was modified to reflect a new line item “Liabilities from risk management activities” previously included in “Other.” Within the operating activities of Georgia Power’s statements of cash flows, “Deferred revenues” and “Deferred expenses” previously included in “Other, net” in the prior period are now shown as separate line items. Also, within the financing activities of the same statement, the line item “Capital leases” was collapsed into “Other.” Mississippi Power’s balance sheet was modified to combine the line item “Prepaid income taxes” with “Other current assets.” Southern Power’s consolidated statement of cash flows for the three months ended March 31, 2008 was modified within the investing activities to present separately the amount of “Payments pursuant to long-term service agreements” previously included in “Property additions.”
 
      These reclassifications had no effect on total assets, net income, cash flows, or earnings per share.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
      Effective January 1, 2009, Southern Company and its subsidiaries adopted retrospectively FASB Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” which is an amendment of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” (SFAS No. 160). In connection with the adoption of SFAS No. 160, Southern Company evaluated the requirements of Emerging Issues Task Force Topic No. 98, “Classification and Measurement of Redeemable Securities” (Topic D-98) with respect to the presentation of preferred and preference stock of subsidiaries. Based on the guidance in Topic D-98 and SFAS No. 160, the preferred and preference stock at Georgia Power and the preference stock at Alabama Power and Gulf Power are required to be shown as “noncontrolling interests,” separately presented as a component of “Stockholders’ Equity” on Southern Company’s consolidated balance sheets. The preferred stock of Alabama Power and Mississippi Power contains a feature that allows the holders to elect a majority of such subsidiary’s board of directors if dividends are not paid for four consecutive quarters. Because such a potential redemption-triggering event is not solely within the control of Alabama Power and Mississippi Power, this preferred stock is presented as “Redeemable Preferred Stock of Subsidiaries” in a manner consistent with temporary equity as defined in Topic D-98. The preferred and preference stock at Georgia Power and the preference stock at Alabama Power and Gulf Power do not contain such a provision that would allow the holders to elect a majority of such subsidiary’s board.
 
      In addition, SFAS No. 160 requires that preferred and preference dividends of subsidiaries previously presented within Southern Company’s consolidated statements of income as a component of “Other Income and (Expense)” be presented as a deduction from “Consolidated Net Income” to arrive at “Consolidated Net Income After Dividends on Preferred and Preference Stock.” In Southern Company’s consolidated statements of cash flows, the preferred and preference dividends previously classified in operating activities are now classified in financing activities.
 
      Southern Power Depreciation Policy
 
      See Note 1 to the financial statements of Southern Power under “Depreciation” in Item 8 of the Form 10-K for information regarding Southern Power’s depreciation policy. Southern Power revised its depreciation rates in 2009. The change in estimate is due to revised useful life assumptions for certain components of plant in service. The expected total impact on Southern Power’s income from continuing operations and net income for 2009 is a decrease of approximately $8.0 million and $5.0 million, respectively.
 
  (B)   CONTINGENCIES AND REGULATORY MATTERS
 
      See Note 3 to the financial statements of the registrants in Item 8 of the Form 10-K for information relating to various lawsuits, other contingencies, and regulatory matters.
 
      General Litigation Matters
 
      Each registrant is subject to certain claims and legal actions arising in the ordinary course of business. In addition, each registrant’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 the registrants and any of their subsidiaries cannot be predicted at this time; however, for current proceedings not specifically reported herein or in Note 3 to the financial statements of each registrant 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 such registrant’s financial statements.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
      Mirant Matters
 
      Mirant was an energy company with businesses that included independent power projects and energy trading and risk management companies in the United States and selected other countries. It was a wholly-owned subsidiary of Southern Company until its initial public offering in October 2000. In April 2001, Southern Company completed a spin-off to its shareholders of its remaining ownership, and Mirant became an independent corporate entity.
 
      Mirant Bankruptcy
 
      In July 2003, Mirant and certain of its affiliates filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Texas. The Bankruptcy Court entered an order confirming Mirant’s plan of reorganization in December 2005, and Mirant announced that this plan became effective in January 2006. As part of the plan, Mirant transferred substantially all of its assets and its restructured debt to a new corporation that adopted the name Mirant Corporation (Reorganized Mirant).
 
      Southern Company has certain contingent liabilities associated with guarantees of contractual commitments made by Mirant’s subsidiaries discussed under “Guarantees” in Note 7 to the financial statements of Southern Company in Item 8 of the Form 10-K and with various lawsuits related to Mirant discussed below. Also, Southern Company has joint and several liability with Mirant regarding the joint consolidated federal income tax returns through 2001, as discussed in Note 5 to the financial statements of Southern Company in Item 8 of the Form 10-K. In December 2004, as a result of concluding an IRS audit for the tax years 2000 and 2001, Southern Company paid approximately $39 million in additional tax and interest related to Mirant tax items and filed a claim in Mirant’s bankruptcy case for that amount. To date, Southern Company has received from the IRS approximately $38 million in refunds related to Mirant. Southern Company believes it has a right to recoup the $39 million tax payment owed by Mirant from such tax refunds. As a result, Southern Company intends to retain the tax refunds and reduce its claim against Mirant for the payment of Mirant taxes by the amount of such refunds. MC Asset Recovery, LLC, a special purpose subsidiary of Reorganized Mirant (MC Asset Recovery), has objected to and sought to equitably subordinate the Southern Company tax claim in its fraudulent transfer litigation against Southern Company. Southern Company’s proofs of claim filed in the Mirant bankruptcy survive the settlement of the MC Asset Recovery litigation. Southern Company has reserved the remaining amount with respect to its Mirant tax claim.
 
      Under the terms of the separation agreements entered into in connection with the spin-off, Mirant agreed to indemnify Southern Company for costs associated with these guarantees, lawsuits, and additional IRS assessments. As a result of Mirant’s bankruptcy, Southern Company sought reimbursement as an unsecured creditor in Mirant’s Chapter 11 proceeding. As part of a complaint filed against Southern Company in June 2005 and amended thereafter, Mirant and The Official Committee of Unsecured Creditors of Mirant Corporation (Unsecured Creditors’ Committee) objected to and sought equitable subordination of Southern Company’s claims, and Mirant moved to reject the separation agreements entered into in connection with the spin-off as discussed in the preceding paragraph. MC Asset Recovery has been substituted as plaintiff in the complaint. If Southern Company’s claims for indemnification with respect to these, or any additional future payments, are allowed, then Mirant’s indemnity obligations to Southern Company would constitute unsecured claims against Mirant entitled to stock in Reorganized Mirant. The final outcome of this matter cannot now be determined.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
      MC Asset Recovery Litigation
 
      In June 2005, Mirant, as a debtor in possession, and the Unsecured Creditors’ Committee filed a complaint against Southern Company in the U.S. Bankruptcy Court for the Northern District of Texas, which was amended in July 2005, February 2006, May 2006, and March 2007.
 
      In December 2005, the Bankruptcy Court entered an order authorizing the transfer of this proceeding, along with certain other actions, to MC Asset Recovery. Under that order, Reorganized Mirant was obligated to fund up to $20 million in professional fees in connection with the lawsuits, as well as certain additional amounts. Any net recoveries from these lawsuits would be distributed to, and shared equally by, certain unsecured creditors and the original equity holders. In January 2006, the U.S. District Court for the Northern District of Texas substituted MC Asset Recovery as plaintiff.
 
      The complaint, as amended in March 2007, alleged that Southern Company caused Mirant to engage in certain fraudulent transfers and to pay illegal dividends to Southern Company prior to the spin-off. The alleged fraudulent transfers and illegal dividends included without limitation: (1) certain dividends from Mirant to Southern Company in the aggregate amount of $668 million, (2) the repayment of certain intercompany loans and accrued interest in an aggregate amount of $1.035 billion, and (3) the dividend distribution of one share of Series B Preferred Stock and its subsequent redemption in exchange for Mirant’s 80% interest in a holding company that owned SE Finance Capital Corporation and Southern Comp