Edgar Filing: ALABAMA POWER CO

Third Quarter 2012 vs. Third Quarter 2011

Year-to-Date 2012 vs. Year-to-Date 2011

(change in millions)

(% change)

(change in millions)

(% change)

SO_10Q_9.30.2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to



Commission File Number	Registrant, State of Incorporation, Address and Telephone Number	I.R.S. Employer Identification No.
1-3526	The Southern Company (A Delaware Corporation) 30 Ivan Allen Jr. Boulevard, N.W. Atlanta, Georgia 30308 (404) 506-5000	58-0690070

1-3164	Alabama Power Company (An Alabama Corporation) 600 North 18^th Street Birmingham, Alabama 35203 (205) 257-1000	63-0004250

1-6468	Georgia Power Company (A Georgia Corporation) 241 Ralph McGill Boulevard, N.E. Atlanta, Georgia 30308 (404) 506-6526	58-0257110

001-31737	Gulf Power Company (A Florida Corporation) One Energy Place Pensacola, Florida 32520 (850) 444-6111	59-0276810

001-11229	Mississippi Power Company (A Mississippi Corporation) 2992 West Beach Boulevard Gulfport, Mississippi 39501 (228) 864-1211	64-0205820

333-98553	Southern Power Company (A Delaware Corporation) 30 Ivan Allen Jr. Boulevard, N.W. Atlanta, Georgia 30308 (404) 506-5000	58-2598670

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Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes þ No ¨

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 þ No ¨

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):



Registrant	Large Accelerated Filer	Accelerated Filer	Non- accelerated Filer	Smaller Reporting 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 ¨ No þ (Response applicable to all registrants.)



Registrant	Description of Common Stock	Shares Outstanding at September 30, 2012
The Southern Company	Par Value $5 Per Share	874,105,516
Alabama Power Company	Par Value $40 Per Share	30,537,500
Georgia Power Company	Without Par Value	9,261,500
Gulf Power Company	Without Par Value	4,542,717
Mississippi Power Company	Without Par Value	1,121,000
Southern Power Company	Par Value $0.01 Per Share	1,000

This combined Form 10-Q is separately filed by The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Southern Power Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants.

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INDEX TO QUARTERLY REPORT ON FORM 10-Q

September 30, 2012



		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
	The Southern Company and Subsidiary Companies
	Condensed Consolidated Statements of Income	10
	Condensed Consolidated Statements of Comprehensive Income	11
	Condensed Consolidated Statements of Cash Flows	12
	Condensed Consolidated Balance Sheets	13
	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
	Alabama Power Company
	Condensed Statements of Income	41
	Condensed Statements of Comprehensive Income	41
	Condensed Statements of Cash Flows	42
	Condensed Balance Sheets	43
	Management's Discussion and Analysis of Financial Condition and Results of Operations	45
	Georgia Power Company
	Condensed Statements of Income	63
	Condensed Statements of Comprehensive Income	63
	Condensed Statements of Cash Flows	64
	Condensed Balance Sheets	65
	Management's Discussion and Analysis of Financial Condition and Results of Operations	67
	Gulf Power Company
	Condensed Statements of Income	88
	Condensed Statements of Comprehensive Income	88
	Condensed Statements of Cash Flows	89
	Condensed Balance Sheets	90
	Management's Discussion and Analysis of Financial Condition and Results of Operations	92
	Mississippi Power Company
	Condensed Statements of Income	111
	Condensed Statements of Comprehensive Income	111
	Condensed Statements of Cash Flows	112
	Condensed Balance Sheets	113
	Management's Discussion and Analysis of Financial Condition and Results of Operations	115
	Southern Power Company and Subsidiary Companies
	Condensed Consolidated Statements of Income	140
	Condensed Consolidated Statements of Comprehensive Income	140
	Condensed Consolidated Statements of Cash Flows	141
	Condensed Consolidated Balance Sheets	142
	Management's Discussion and Analysis of Financial Condition and Results of Operations	144
	Notes to the Condensed Financial Statements	158
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	39

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INDEX TO QUARTERLY REPORT ON FORM 10-Q

September 30, 2012



		Page Number
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	195
Item 1A.	Risk Factors	195
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	195
Item 3.	Defaults Upon Senior Securities	Inapplicable
Item 4.	Mine Safety Disclosures	Inapplicable
Item 5.	Other Information	Inapplicable
Item 6.	Exhibits	196
	Signatures	199

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DEFINITIONS



Term	Meaning

2010 ARP	Alternate Rate Plan approved by the Georgia PSC for Georgia Power, which became effective January 1, 2011 and will continue through December 31, 2013
2011 IRP Update	Georgia Power's 2011 Integrated Resource Plan update filed with the Georgia PSC on August 4, 2011
AFUDC	Allowance for funds used during construction
Alabama Power	Alabama Power Company
ARO	Asset retirement obligation
Clean Air Act	Clean Air Act Amendments of 1990
CPCN	Certificate of public convenience and necessity
CWIP	Construction work in progress
DOE	U.S. Department of Energy
DSM	Georgia Power's Demand-Side Management
ECO Plan	Mississippi Power's Environmental Compliance Overview Plan
EPA	U.S. Environmental Protection Agency
FERC	Federal Energy Regulatory Commission
Fitch	Fitch, Inc.
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, 2011
GAAP	Generally accepted accounting principles
Georgia Power	Georgia Power Company
Gulf Power	Gulf Power Company
IFR	Georgia Power's Interim Fuel Rider
IIC	Intercompany Interchange Contract
Internal Revenue Code	Internal Revenue Code of 1986, as amended
IRS	Internal Revenue Service
Kemper IGCC	Integrated coal gasification combined cycle facility under construction in Kemper County, Mississippi
KWH	Kilowatt-hour
LIBOR	London Interbank Offered Rate
MFF	Georgia Power's Municipal Franchise Fee
Mississippi Power	Mississippi Power Company
mmBtu	Million British thermal unit
Moody's	Moody's Investors Service, Inc.
MW	Megawatt
MWH	Megawatt-hour
NCCR	Georgia Power's Nuclear Construction Cost Recovery
NDR	Alabama Power's natural disaster reserve
NRC	Nuclear Regulatory Commission
NSR	New Source Review
OCI	Other Comprehensive Income
PEP	Mississippi Power's Performance Evaluation Plan
Plant Vogtle Units 3 and 4	Two new nuclear generating units under construction at Plant Vogtle

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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
Progress Energy Carolinas	Carolina Power & Light Company, d/b/a Progress Energy Carolinas, Inc., a subsidiary of Duke Energy Corporation
PSC	Public Service Commission
Qualifying Facility	A small power production facility (80 MW or less) that is a qualifying facility under the Public Utility Regulatory Policies Act of 1978
registrants	Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power
ROE	Return on equity
SEC	Securities and Exchange Commission
SEGCO	Southern Electric Generating Company
SMEPA	South Mississippi Electric Power Association
Southern Company	The Southern Company
Southern Company system	Southern Company, the traditional operating companies, Southern Power, and other subsidiaries
Southern Nuclear	Southern Nuclear Operating Company, Inc.
Southern Power	Southern Power Company
S&P	Standard and Poor's Ratings Services, a division of The McGraw Hill Companies, Inc.
traditional operating companies	Alabama Power, Georgia Power, Gulf Power, and Mississippi Power
Westinghouse	Westinghouse Electric Company LLC
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 retail sales, retail rates, the strategic goals for the wholesale business, customer growth, economic recovery, fuel and environmental cost recovery and other rate actions, current and proposed environmental regulations and related estimated expenditures, access to sources of capital, projections for the qualified pension plan and other postretirement benefit plan contributions, financing activities, start and completion of construction projects, plans and estimated costs for new generation resources, filings with state and federal regulatory authorities, impact of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, 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 changes, 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, coal combustion byproducts, and emissions of sulfur, nitrogen, carbon, soot, particulate matter, hazardous air pollutants, including mercury, and other substances, financial reform legislation, 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, and IRS and state tax audits;


•	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 and recovery from the recent recession, population and business growth (and declines), the effects of energy conservation measures, and any potential economic impacts resulting from federal fiscal and budgetary decisions;


•	available sources and costs of fuels;


•	effects of inflation;


•	ability to control costs and avoid cost overruns during the development and construction of facilities, which includes projects involving facility designs that have not been finalized or previously constructed;


•	investment performance of Southern Company's employee benefit plans and nuclear decommissioning trust funds;


•	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 other cost recovery mechanisms;


•	regulatory approvals and actions related to Plant Vogtle Units 3 and 4, including Georgia PSC approvals, NRC actions, and potential DOE loan guarantees;


•	regulatory approvals and actions related to the Kemper IGCC, including Mississippi PSC approvals, potential DOE loan guarantees, the SMEPA purchase decision, satisfaction of requirements to utilize investment tax credits and grants, and the outcome of any further proceedings regarding the Mississippi PSC's issuance of the CPCN;


•	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;

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•	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 wholesale customers;


•	the direct or indirect effect on the Southern Company system's business resulting from terrorist incidents and the threat of terrorist incidents, including cyber intrusion;


•	interest rate fluctuations and financial market conditions and the results of financing efforts, including Southern Company's and its subsidiaries' credit ratings;


•	the impacts of any potential U.S. credit rating downgrade or other sovereign financial issues, including impacts on interest rates, access to capital markets, impacts on currency exchange rates, counterparty performance, and the economy in general, as well as potential impacts on the availability or benefits of proposed DOE loan guarantees;


•	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 influenzas, or other similar occurrences;


•	the direct or indirect effects on the Southern Company system's business resulting from incidents affecting the U.S. electric grid or operation of generating resources;


•	the effect of accounting pronouncements issued periodically by standard setting bodies; and


•	other factors discussed elsewhere herein and in other reports filed by the registrants from time to time with the SEC.

The registrants expressly disclaim any obligation to update any forward-looking statements.

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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 September 30,						For the Nine Months Ended September 30,
	2012			2011			2012			2011
	(in millions)						(in millions)
Operating Revenues:
Retail revenues	$	4,379		$	4,693		$	11,068		$	11,931
Wholesale revenues	497			557			1,261			1,513
Other electric revenues	157			161			459			464
Other revenues	16			17			46			53
Total operating revenues	5,049			5,428			12,834			13,961
Operating Expenses:
Fuel	1,553			1,908			3,907			5,057
Purchased power	164			215			455			460
Other operations and maintenance	906			983			2,817			2,837
MC Asset Recovery insurance settlement	—			—			(19		)	—
Depreciation and amortization	449			431			1,335			1,279
Taxes other than income taxes	237			239			690			686
Total operating expenses	3,309			3,776			9,185			10,319
Operating Income	1,740			1,652			3,649			3,642
Other Income and (Expense):
Allowance for equity funds used during construction	39			42			102			113
Interest expense, net of amounts capitalized	(218		)	(217		)	(649		)	(638		)
Other income (expense), net	1			(1		)	12			(3		)
Total other income and (expense)	(178		)	(176		)	(535		)	(528		)
Earnings Before Income Taxes	1,562			1,476			3,114			3,114
Income taxes	569			543			1,098			1,123
Consolidated Net Income	993			933			2,016			1,991
Dividends on Preferred and Preference Stock of Subsidiaries	17			17			49			49
Consolidated Net Income After Dividends on Preferred and Preference Stock of Subsidiaries	$	976		$	916		$	1,967		$	1,942
Common Stock Data:
Earnings per share (EPS) -
Basic EPS	$	1.11		$	1.07		$	2.26		$	2.27
Diluted EPS	$	1.11		$	1.06		$	2.23		$	2.26
Average number of shares of common stock outstanding (in millions)
Basic	876			860			872			854
Diluted	883			868			880			861
Cash dividends paid per share of common stock	$	0.4900		$	0.4725		$	1.4525		$	1.4000

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 COMPREHENSIVE INCOME (UNAUDITED)



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2012			2011			2012			2011
	(in millions)						(in millions)
Consolidated Net Income	$	993		$	933		$	2,016		$	1,991
Other comprehensive income (loss):
Qualifying hedges:
Changes in fair value, net of tax of $1, $(10), $(4) and $(8), respectively	(4		)	(17		)	(11		)	(14		)
Reclassification adjustment for amounts included in net income, net of tax of $1, $2, $4 and $4, respectively	3			3			7			6
Marketable securities:
Change in fair value, net of tax of $-, $(2), $- and $(1), respectively	—			(5		)	—			(3		)
Pension and other post retirement benefit plans:
Reclassification adjustment for amounts included in net income, net of tax of $-, $2, $1 and $2, respectively	1			—			3			—
Total other comprehensive income (loss)	—			(19		)	(1		)	(11		)
Dividends on preferred and preference stock of subsidiaries	(17		)	(17		)	(49		)	(49		)
Comprehensive Income	$	976		$	897		$	1,966		$	1,931

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 Nine Months Ended September 30,
	2012			2011
	(in millions)
Operating Activities:
Consolidated net income	$	2,016		$	1,991
Adjustments to reconcile consolidated net income to net cash provided from operating activities —
Depreciation and amortization, total	1,602			1,530
Deferred income taxes	645			914
Allowance for equity funds used during construction	(102		)	(113		)
Pension, postretirement, and other employee benefits	78			(1		)
Stock based compensation expense	45			35
Retail fuel cost over recovery—long-term	118			—
Other, net	17			11
Changes in certain current assets and liabilities —
-Receivables	(157		)	(118		)
-Fossil fuel stock	(232		)	229
-Other current assets	(5		)	(45		)
-Accounts payable	(240		)	(155		)
-Accrued taxes	311			440
-Accrued compensation	(142		)	(96		)
-Retail fuel cost over recovery—short-term	112			(14		)
-Other current liabilities	(22		)	(10		)
Net cash provided from operating activities	4,044			4,598
Investing Activities:
Property additions	(3,558		)	(3,115		)
Investment in restricted cash	(230		)	1
Distribution of restricted cash	234			61
Nuclear decommissioning trust fund purchases	(758		)	(1,946		)
Nuclear decommissioning trust fund sales	756			1,942
Proceeds from property sales	2			21
Cost of removal, net of salvage	(83		)	(90		)
Change in construction payables	(73		)	137
Other investing activities	(48		)	91
Net cash used for investing activities	(3,758		)	(2,898		)
Financing Activities:
Decrease in notes payable, net	(521		)	(1,160		)
Proceeds —
Long-term debt issuances	3,114			3,144
Interest-bearing refundable deposit related to asset sale	150			—
Common stock issuances	381			620
Redemptions —
Long-term debt	(2,098		)	(1,987		)
Common stock repurchased	(85		)	—
Payment of common stock dividends	(1,267		)	(1,193		)
Payment of dividends on preferred and preference stock of subsidiaries	(49		)	(49		)
Other financing activities	30			(6		)
Net cash provided from (used for) financing activities	(345		)	(631		)
Net Change in Cash and Cash Equivalents	(59		)	1,069
Cash and Cash Equivalents at Beginning of Period	1,315			447
Cash and Cash Equivalents at End of Period	$	1,256		$	1,516
Supplemental Cash Flow Information:
Cash paid (received) during the period for —
Interest (net of $62 and $54 capitalized for 2012 and 2011, respectively)	$	589		$	369
Income taxes, net	6			(358		)
Noncash transactions — accrued property additions at end of period	531			541

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)



Assets	At September 30, 2012			At December 31, 2011
	(in millions)
Current Assets:
Cash and cash equivalents	$	1,256		$	1,315
Restricted cash and cash equivalents	7			8
Receivables —
Customer accounts receivable	1,369			1,074
Unbilled revenues	428			376
Under recovered regulatory clause revenues	7			143
Other accounts and notes receivable	233			282
Accumulated provision for uncollectible accounts	(23		)	(26		)
Fossil fuel stock, at average cost	1,599			1,367
Materials and supplies, at average cost	931			903
Vacation pay	161			160
Prepaid expenses	519			385
Other regulatory assets, current	149			239
Other current assets	60			46
Total current assets	6,696			6,272
Property, Plant, and Equipment:
In service	61,980			59,744
Less accumulated depreciation	21,906			21,154
Plant in service, net of depreciation	40,074			38,590
Other utility plant, net	51			55
Nuclear fuel, at amortized cost	786			774
Construction work in progress	6,363			5,591
Total property, plant, and equipment	47,274			45,010
Other Property and Investments:
Nuclear decommissioning trusts, at fair value	1,281			1,207
Leveraged leases	665			649
Miscellaneous property and investments	213			262
Total other property and investments	2,159			2,118
Deferred Charges and Other Assets:
Deferred charges related to income taxes	1,389			1,365
Unamortized debt issuance expense	139			156
Unamortized loss on reacquired debt	302			285
Deferred under recovered regulatory clause revenues	27			48
Other regulatory assets, deferred	3,409			3,532
Other deferred charges and assets	568			481
Total deferred charges and other assets	5,834			5,867
Total Assets	$	61,963		$	59,267

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)



Liabilities and Stockholders' Equity	At September 30, 2012			At December 31, 2011
	(in millions)
Current Liabilities:
Securities due within one year	$	2,433		$	1,717
Interest-bearing refundable deposit related to asset sale	150			—
Notes payable	335			859
Accounts payable	1,280			1,553
Customer deposits	366			347
Accrued taxes —
Accrued income taxes	65			36
Other accrued taxes	490			425
Accrued interest	250			226
Accrued vacation pay	205			205
Accrued compensation	325			450
Liabilities from risk management activities	105			209
Other regulatory liabilities, current	139			125
Other current liabilities	426			425
Total current liabilities	6,569			6,577
Long-term Debt	18,955			18,647
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes	9,672			8,809
Deferred credits related to income taxes	213			224
Accumulated deferred investment tax credits	807			611
Employee benefit obligations	2,449			2,442
Asset retirement obligations	1,409			1,321
Other cost of removal obligations	1,214			1,165
Other regulatory liabilities, deferred	313			297
Other deferred credits and liabilities	641			514
Total deferred credits and other liabilities	16,718			15,383
Total Liabilities	42,242			40,607
Redeemable Preferred Stock of Subsidiaries	375			375
Stockholders' Equity:
Common Stockholders' Equity:
Common stock, par value $5 per share —
Authorized — 1.5 billion shares
Issued — September 30, 2012: 877 million shares
— December 31, 2011: 866 million shares
Treasury — September 30, 2012: 3.1 million shares
— December 31, 2011: 0.5 million shares
Par value	4,386			4,328
Paid-in capital	4,831			4,410
Treasury, at cost	(136		)	(17		)
Retained earnings	9,670			8,968
Accumulated other comprehensive loss	(112		)	(111		)
Total Common Stockholders' Equity	18,639			17,578
Preferred and Preference Stock of Subsidiaries	707			707
Total Stockholders' Equity	19,346			18,285
Total Liabilities and Stockholders' Equity	$	61,963		$	59,267

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

THIRD QUARTER 2012 vs. THIRD QUARTER 2011

AND

YEAR-TO-DATE 2012 vs. YEAR-TO-DATE 2011

OVERVIEW

Southern Company is a holding company that owns all of the common stock of the traditional operating companies – Alabama Power, Georgia Power, Gulf Power, and Mississippi Power – and Southern Power and other direct and indirect subsidiaries. Discussion of the results of operations is focused on the Southern Company system's primary business of electricity sales by the traditional operating companies and Southern Power. The four traditional operating companies are vertically integrated utilities providing electric service in four Southeastern states. Southern Power constructs, acquires, owns, and manages generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. Southern Company's other business activities include investments in leveraged lease projects and telecommunications. 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

Southern Company's third quarter 2012 net income after dividends on preferred and preference stock of subsidiaries was $976 million ($1.11 per share) compared to $916 million ($1.07 per share) for the third quarter 2011. The increase for the third quarter 2012 when compared to the corresponding period in 2011 was primarily the result of a net decrease in non-fuel operating expenses, partially offset by a net decrease in retail revenues. Retail revenues in the third quarter 2012 decreased primarily due to milder weather and a decrease in customer usage, largely offset by an increase in revenues associated with the elimination of a tax-related adjustment under Alabama Power's rate structure, an increase related to retail revenue rate effects at Georgia Power, and an increase in revenues due to increases in retail base rates at Gulf Power.

Southern Company's year-to-date 2012 net income after dividends on preferred and preference stock of subsidiaries was $1.97 billion ($2.26 per share) compared to $1.94 billion ($2.27 per share) for year-to-date 2011. The net income increase for year-to-date 2012 when compared to the corresponding period in 2011 was primarily the result of a net decrease in non-fuel operating expenses, including an insurance recovery received related to the litigation settlement with MC Asset Recovery, LLC, partially offset by a net decrease in retail revenues and lower energy revenues at Southern Power. Retail revenues for year-to-date 2012 decreased primarily due to milder weather and a decrease in customer usage, largely offset by increases in revenues associated with the elimination of a tax-related adjustment under Alabama Power's rate structure, an increase related to retail revenue rate effects at Georgia Power, an increase in revenues due to increases in retail base rates at Gulf Power, and an increase in customer growth.

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Retail Revenues

In the third quarter 2012, retail revenues were $4.38 billion compared to $4.69 billion for the corresponding period in 2011. For year-to-date 2012, retail revenues were $11.07 billion compared to $11.93 billion for the corresponding period in 2011.

Details of the change to retail revenues were as follows:



	Third Quarter 2012					Year-to-Date 2012
	(in millions)			(% change)		(in millions)			(% change)
Retail – prior year	$	4,693				$	11,931
Estimated change in –
Rates and pricing	118			2.5		252			2.1
Sales growth (decline)	(33		)	(0.7	)	7			0.1
Weather	(95		)	(2.0	)	(292		)	(2.4	)
Fuel and other cost recovery	(304		)	(6.5	)	(830		)	(7.0	)
Retail – current year	$	4,379		(6.7	)%	$	11,068		(7.2	)%

Revenues associated with changes in rates and pricing increased in the third quarter and year-to-date 2012 when compared to the corresponding periods in 2011 primarily due to the elimination of a tax-related adjustment under Alabama Power's rate structure that was effective with October 2011 billings and higher revenues due to increases in retail base rates at Gulf Power. Also contributing to the increase were increases in retail revenues at Georgia Power due to base tariff increases effective April 1, 2012 related to placing Plant McDonough-Atkinson Units 4 and 5 in service, the NCCR and demand-side management tariff increases effective January 1, 2012, as approved by the Georgia PSC, and for year-to-date 2012, the rate pricing effect of decreased customer usage. These increases at Georgia Power were partially offset by lower contributions from market-driven rates from commercial and industrial customers.

Revenues attributable to changes in sales decreased in the third quarter 2012 when compared to the corresponding period in 2011. For third quarter 2012, the decrease was due to a 2.1% decrease in weather-adjusted residential KWH sales and a 1.9% decrease in industrial KWH sales, while weather-adjusted commercial KWH sales remained flat. The decrease in weather-adjusted residential KWH sales for the third quarter 2012 was primarily due to a decrease in customer usage. The decrease in industrial KWH sales for the third quarter 2012 was primarily due to decreases in the chemical, paper, and textiles sectors, partially offset by increases in the non-manufacturing, transportation, and pipeline sectors. Revenues attributable to changes in sales remained relatively flat for all classes for year-to-date 2012 when compared to the corresponding period in 2011. While overall industrial KWH sales were relatively flat for year-to-date 2012, there were decreases in the chemical, paper, and textiles sectors, largely offset by increases in the non-manufacturing, transportation, and pipeline sectors.

Revenues resulting from changes in weather decreased $95 million in the third quarter 2012 and $292 million for year-to-date 2012 when compared to the corresponding periods in 2011 as a result of milder weather in 2012.

Fuel and other cost recovery revenues decreased $304 million in the third quarter 2012 and $830 million for year-to-date 2012 when compared to the corresponding periods in 2011. 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 energy component of purchased power costs, and do not affect net income.

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Wholesale Revenues

Wholesale revenues consist of PPAs with investor-owned utilities and electric cooperatives, unit power sales contracts, and short-term opportunity sales. Wholesale revenues from PPAs and unit power sales contracts have both capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment. Energy revenues will vary depending on fuel prices, the market prices of wholesale energy compared to the Southern Company system's generation, demand for energy within the Southern Company system's service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not have a significant impact on net income. Short-term opportunity sales are made at market-based rates that generally provide a margin above the Southern Company system's variable cost to produce the energy.

In the third quarter 2012, wholesale revenues were $497 million compared to $557 million for the corresponding period in 2011, reflecting a $87 million decrease in energy revenues, partially offset by a $27 million increase in capacity revenues. The decrease in energy revenues was primarily related to a reduction in the average price of energy and lower energy sales mainly due to lower customer demand.

For year-to-date 2012, wholesale revenues were $1.26 billion compared to $1.51 billion for the corresponding period in 2011, reflecting a $300 million decrease in energy revenues, partially offset by a $48 million increase in capacity revenues. The decrease in energy revenues was primarily related to a reduction in the average price of energy and lower energy sales mainly due to lower customer demand.

Fuel and Purchased Power Expenses



	Third Quarter 2012 vs. Third Quarter 2011					Year-to-Date 2012 vs. Year-to-Date 2011
	(change in millions)			(% change)		(change in millions)			(% change)
Fuel	$	(355	)	(18.6	)	$	(1,150	)	(22.7	)
Purchased power	(51		)	(23.7	)	(5		)	(1.1	)
Total fuel and purchased power expenses	$	(406	)			$	(1,155	)

In the third quarter 2012, total fuel and purchased power expenses were $1.72 billion compared to $2.12 billion for the corresponding period in 2011. The decrease was primarily the result of a $281 million decrease in the average cost of fuel and purchased power, a $119 million decrease in the volume of KWHs generated, and a $6 million decrease in the volume of KWHs purchased.

For year-to-date 2012, total fuel and purchased power expenses were $4.36 billion compared to $5.52 billion for the corresponding period in 2011. The decrease was primarily the result of a $997 million decrease in the average cost of fuel and purchased power and a $552 million decrease in the volume of KWHs generated, partially offset by a $394 million increase in the volume of KWHs purchased.

Fuel and purchased power energy transactions at the traditional operating companies are generally offset by energy revenues and do not have a significant impact on net income. See FUTURE EARNINGS POTENTIAL – "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 impact net income.

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Details of the Southern Company system's generation and purchased power were as follows:



	Third Quarter 2012	Third Quarter 2011	Year-to-Date 2012	Year-to-Date 2011
Total generation (billions of KWHs)	50	53	133	147
Total purchased power (billions of KWHs)	5	5	14	8
Sources of generation (percent) —
Coal	43	54	40	54
Nuclear	16	15	17	16
Gas	40	30	41	28
Hydro	1	1	2	2
Cost of fuel, generated (cents per net KWH) —
Coal	4.01	4.14	4.09	4.06
Nuclear	0.86	0.73	0.83	0.71
Gas	2.94	4.06	2.76	4.07
Average cost of fuel, generated (cents per net KWH)	3.09	3.59	2.97	3.52
Average cost of purchased power (cents per net KWH)^(a)	4.98	6.29	4.32	7.06


(a)	Average cost of purchased power includes fuel purchased by the electric utilities for tolling agreements where power is generated by the provider.

Fuel

In the third quarter 2012, fuel expense was $1.55 billion compared to $1.91 billion for the corresponding period in 2011. The decrease was primarily due to a 27.6% decrease in the average cost of gas per KWH generated, a higher percentage of generation from lower cost natural gas-fired resources, and lower customer demand mainly due to milder weather in 2012.

For year-to-date 2012, fuel expense was $3.91 billion compared to $5.06 billion for the corresponding period in 2011. The decrease was primarily due to a 32.2% decrease in the average cost of gas per KWH generated, a higher percentage of generation from lower cost natural gas-fired resources, and lower customer demand mainly due to milder weather in 2012.

Purchased Power

In the third quarter 2012, purchased power expense was $164 million compared to $215 million for the corresponding period in 2011. The decrease was primarily due to a 20.8% decrease in the average cost per KWH purchased.

For year-to-date 2012, purchased power expense was $455 million compared to $460 million for the corresponding period in 2011. The decrease was due to a 38.8% decrease in the average cost per KWH purchased, partially offset by a 67.4% increase in the volume of KWHs purchased as the market cost of available energy was lower than the marginal cost of generation available.

Energy purchases will vary depending on demand for energy within the Southern Company system's service territory, the market prices of wholesale energy as compared to the cost of the Southern Company system's generation, and the availability of the Southern Company system's generation.

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Other Operations and Maintenance Expenses

In the third quarter 2012, other operations and maintenance expenses were $906 million compared to $983 million for the corresponding period in 2011. The decrease was primarily the result of a $29 million decrease in transmission and distribution costs and a $19 million decrease related to scheduled outage and maintenance costs and commodity and labor costs, which were attributable to cost containment efforts to offset the effect of milder weather in 2012. Also contributing to the decrease were a $13 million decrease in administrative and general costs, a $13 million net decrease in customer accounts and sales related costs, and an $11 million decrease at Mississippi Power related to the expiration of an operating lease for Plant Daniel Units 3 and 4. The decrease was partially offset by an $11 million increase at Alabama Power related to the amortization of nuclear outage expenses.

For year-to-date 2012, other operations and maintenance expenses were $2.82 billion compared to $2.84 billion for the corresponding period in 2011. The decrease was primarily the result of a $50 million decrease related to scheduled outage and maintenance costs and commodity and labor costs and a $14 million decrease in distribution costs, which were attributable to cost containment efforts to offset the effect of milder weather in 2012. Also contributing to the decrease were a $32 million decrease at Mississippi Power related to the expiration of an operating lease for Plant Daniel Units 3 and 4 and a $7 million net decrease in customer accounts, sales, and customer service related costs. The decrease was partially offset by a $58 million increase in administrative and general costs primarily due to increases in pension costs and a $24 million increase at Alabama Power related to the amortization of nuclear outage expenses.

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Purchase of the Plant Daniel Combined Cycle Generating Units" and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "PSC Matters – Alabama Power – Nuclear Outage Accounting Order" of Southern Company in Item 7 of the Form 10-K for additional information.

MC Asset Recovery Insurance Settlement

N/M – Not meaningful

In the second quarter 2012, Southern Company received an insurance recovery related to the litigation settlement with MC Asset Recovery, LLC, which resulted in income of $19 million. See Note (B) to the Condensed Financial Statements under "Insurance Recovery" herein for additional information.

Depreciation and Amortization

In the third quarter 2012, depreciation and amortization was $449 million compared to $431 million for the corresponding period in 2011. For year-to-date 2012, depreciation and amortization was $1.34 billion compared to $1.28 billion for the corresponding period in 2011. The increases were primarily the result of an increase in depreciation due to additional plant in service related to new generation at Georgia Power's Plant McDonough-Atkinson Units 4 and 5, additional plant in service at Southern Power, as well as transmission, distribution, and environmental projects.

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Allowance for Equity Funds Used During Construction

In the third quarter 2012, AFUDC equity was $39 million compared to $42 million for the corresponding period in 2011. For year-to-date 2012, AFUDC equity was $102 million compared to $113 million for the corresponding period in 2011. The decreases were primarily due to the completion of Georgia Power's Plant McDonough-Atkinson Units 4 and 5 in December 2011 and April 2012, respectively, partially offset by increases in CWIP related to Mississippi Power's Kemper IGCC.

Interest Expense, Net of Amounts Capitalized

In the third quarter 2012, interest expense, net of amounts capitalized was $218 million compared to $217 million for the corresponding period in 2011. The increase when compared to the corresponding period in 2011 was not material. For year-to-date 2012, interest expense, net of amounts capitalized was $649 million compared to $638 million for the corresponding period in 2011. The increase was primarily due to a $23 million reduction in interest expense in 2011 at Georgia Power resulting from the settlement of litigation with the Georgia Department of Revenue and a net increase in interest expense related to senior notes. The increases were partially offset by a decrease related to the conclusion of certain state and federal income tax audits, a decrease in interest expense on existing variable rate pollution control revenue bonds, and an increase in capitalized interest associated with construction projects at Mississippi Power and Southern Power.

Other Income (Expense), Net

N/M – Not meaningful

In the third quarter 2012, other income (expense), net was $1 million compared to $(1) million for the corresponding period in 2011. The increase when compared to the corresponding period in 2011 was not material. For year-to-date 2012, other income (expense), net was $12 million compared to $(3) million for the corresponding period in 2011. The increase was primarily due to the conclusion of certain federal income tax audits.

Income Taxes

In the third quarter 2012, income taxes were $569 million compared to $543 million for the corresponding period in 2011. The increase was primarily due to higher pre-tax earnings.

For year-to-date 2012, income taxes were $1.10 billion compared to $1.12 billion for the corresponding period in 2011. The decrease was primarily due to state income tax credits. See Note (G) to the Condensed Financial Statements under "Unrecognized Tax Benefits" herein for additional information.

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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 the Southern Company system'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 timely recovery of prudently incurred costs during a time of increasing costs. Another major factor is the profitability of the competitive wholesale supply business. 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 territory. 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 and related costs, future acquisitions and construction of generating facilities, and the successful remarketing of capacity as current contracts expire. Changes in economic conditions impact sales for the traditional operating companies and Southern Power, and the pace of the economic recovery remains uncertain. The timing and extent of the economic recovery will impact growth and may 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 federal and state environmental statutes and regulations could affect earnings if such costs cannot continue to be fully recovered in rates on a timely basis. Environmental compliance spending over the next several years may differ materially from the amounts estimated. The timing, specific requirements, and estimated costs could change as environmental statutes and regulations are adopted or modified. Further, higher costs that are recovered through regulated rates could contribute to reduced demand for electricity, which could negatively affect results of operations, cash flows, and financial condition. 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.

New Source Review Actions

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – New Source Review Actions" of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under "Environmental Matters – New Source Review Actions" in Item 8 of the Form 10-K for additional information. On February 23, 2012, the EPA filed a motion in the U.S. District Court for the Northern District of Alabama seeking vacatur of the judgment and recusal of the judge in the case involving Alabama Power (including claims related to a unit co-owned by Mississippi Power). The U.S. District Court for the Northern District of Alabama has not ruled on the EPA's motion seeking vacatur of the judgment. The ultimate outcome of this matter cannot be determined at this time.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Climate Change Litigation

Kivalina Case

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Climate Change Litigation – Kivalina Case" of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under "Environmental Matters – Climate Change Litigation – Kivalina Case" in Item 8 of the Form 10-K for additional information. On September 21, 2012, the U.S. Court of Appeals for the Ninth Circuit upheld the U.S. District Court for the Northern District of California's dismissal of the case. On October 8, 2012, the plaintiffs filed for review of the decision by the U.S. Court of Appeals for the Ninth Circuit. The ultimate outcome of this matter cannot be determined at this time.

Hurricane Katrina Case

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Climate Change Litigation – Hurricane Katrina Case" of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under "Environmental Matters – Climate Change Litigation – Hurricane Katrina Case" in Item 8 of the Form 10-K for additional information. On March 20, 2012, the U.S. District Court for the Southern District of Mississippi dismissed the amended class action complaint filed in May 2011 by the plaintiffs. On April 16, 2012, the plaintiffs appealed the case to the U.S. Court of Appeals for the Fifth Circuit. The ultimate outcome of this matter cannot be determined at this time.

Environmental Statutes and Regulations

General

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – General" of Southern Company in Item 7 of the Form 10-K for information regarding the Southern Company system's estimated base level capital expenditures to comply with existing statutes and regulations for 2012 through 2014, as well as the Southern Company system's preliminary estimates for potential incremental environmental compliance investments associated with complying with the EPA's final Mercury and Air Toxics Standards (MATS) rule (formerly referred to as the Utility Maximum Achievable Control Technology rule) and the EPA's proposed water and coal combustion byproducts rules.

The Southern Company system is continuing to develop its compliance strategy and to assess the potential costs of complying with the MATS rule and the EPA's proposed water and coal combustion byproducts rules. As part of the development of its compliance strategy for the MATS rule, the Southern Company system has entered into agreements for the construction of baghouses to control the emissions of mercury and particulates from certain generating units. While the final MATS compliance plan is still being developed and the ultimate costs remain uncertain, the compliance decisions made in 2012 have allowed the Southern Company system to further develop its cost estimates for compliance with the MATS rule. As a result, estimated compliance costs for the MATS rule in the 2012 through 2014 period have been revised from up to $2.7 billion to approximately $1.8 billion as follows:



	2012		2013		2014
			(in millions)
MATS rule	$	150	$	440	$	1,215

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In addition, the Southern Company system has further developed its estimated capital expenditures and associated timing of these expenditures to comply with the proposed water and coal combustion byproducts rules, resulting in a reduction, due primarily to timing, in estimated compliance costs for 2012 through 2014. Potential incremental environmental compliance investments to comply with the proposed water and coal combustion byproducts rules have been revised from up to $1.5 billion to approximately $500 million over the 2012 through 2014 period based on the assumption that coal combustion byproducts will continue to be regulated as non-hazardous solid waste under the proposed rule. These potential incremental environmental compliance investments are estimated as follows:



	2012		2013		2014
			(in millions)
Proposed water and coal combustion byproducts rules	$	10	$	85	$	405

While the Southern Company system's ultimate costs of compliance with the MATS rule and the proposed water and coal combustion byproducts rules remain uncertain, the Southern Company system estimates that compliance costs through 2021 (assuming that coal combustion byproducts will continue to be regulated as non-hazardous solid waste under the proposed rule) will be at the low end of the $13 billion to $18 billion range provided in the Form 10-K. Included in this amount is approximately $750 million that is also included in the 2012 through 2014 base level capital investment of the traditional operating companies described in the Form 10-K in anticipation of these rules.

The Southern Company system's ultimate compliance strategy and actual future environmental capital expenditures are dependent on development of the final MATS compliance plan and will be affected by the final requirements of new or revised environmental regulations that are promulgated; the outcome of any legal challenges to the environmental rules; the cost, availability, and existing inventory of emissions allowances; and the fuel mix of the electric utilities. Compliance costs may arise from retirement and replacement of existing units, installation of additional environmental controls, upgrades to the transmission system, and changing fuel sources for certain existing units. The ultimate outcome of these matters cannot be determined at this time.

As part of SEGCO's environmental compliance strategy, the Board of Directors of SEGCO approved adding natural gas as the primary fuel source in 2015 for its 1,000 MWs of generating capacity and the construction of the necessary natural gas pipeline. SEGCO is jointly owned by Alabama Power and Georgia Power. The capacity of SEGCO's units is sold to Alabama Power and Georgia Power through a PPA. The impact of SEGCO's ultimate compliance strategy on the PPA costs cannot be determined at this time; however, if such costs cannot continue to be recovered through retail rates, they could have a material impact on Southern Company's financial statements.

Air Quality

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Air Quality" of Southern Company in Item 7 of the Form 10-K for additional information on the eight-hour ozone and fine particulate matter air quality standards, the MATS rule, the Cross-State Air Pollution Rule (CSAPR), and the Clean Air Visibility Rule (CAVR).

On May 21, 2012, the EPA published its final determination of nonattainment areas based on the 2008 eight-hour ozone air quality standards. The only area within the traditional operating companies' service territory designated as a nonattainment area was a 15-county area within metropolitan Atlanta. The potential impact of the revised standard and nonattainment designation will depend on further evaluation and implementation by the Georgia Environmental Protection Division and cannot be determined at this time.

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On June 14, 2012, the EPA proposed a rule that would increase the stringency of the fine particulate matter national ambient air quality standards. If adopted, the proposed standards could result in the designation of new nonattainment areas within the Southern Company system's service territory. As part of a related settlement, the EPA has agreed to finalize the proposed rule by December 14, 2012. The ultimate outcome of this rulemaking will depend on the final rule and the outcome of any legal challenges and cannot be determined at this time.

Numerous petitions for administrative reconsideration of the MATS rule, including a petition by Southern Company and its subsidiaries, have been filed with the EPA. Challenges to the final rule have also been filed in the U.S. District Court for the District of Columbia by numerous states, environmental organizations, industry groups, and others. The impact of the MATS rule will depend on the outcome of these and any other legal challenges and, therefore, cannot be determined at this time.

On August 21, 2012, the U.S. Court of Appeals for the District of Columbia Circuit vacated CSAPR in its entirety and directed the EPA to continue to administer the Clean Air Interstate Rule pending the EPA's development of a valid replacement. The vacatur of CSAPR creates additional uncertainty with respect to whether additional controls may be required for CAVR and best available retrofit technology compliance. On October 5, 2012, the EPA filed for review of the decision by the U.S. Court of Appeals for the District of Columbia Circuit. The ultimate outcome of this matter depends on the outcome of any legal challenges and further action by the EPA and cannot be determined at this time.

On August 29, 2012, the EPA published proposed revisions to the New Source Performance Standard (NSPS) for Stationary Combustion Turbines (CTs). If finalized, the revisions would apply the NSPS to all new, reconstructed, and modified CTs, including CTs at combined cycle units, during all periods of operation, including startup and shutdown, and alter the criteria for determining when an existing CT has been reconstructed. The ultimate outcome of this rulemaking will depend on the final rule and the outcome of any legal challenges and cannot be determined at this time.

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 on the proposed rules regarding certain cooling water intake structures. The EPA has entered into an amended settlement agreement to extend the deadline for issuing a final rule until June 27, 2013. The ultimate outcome of this rulemaking will depend on the final rule and the outcome of any legal challenges and cannot be determined at this time.

Coal Combustion Byproducts

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Coal Combustion Byproducts" of Southern Company in Item 7 of the Form 10-K for additional information. Environmental groups and other parties have filed lawsuits in the U.S. District Court for the District of Columbia seeking to require the EPA to complete its rulemaking process and issue final regulations pertaining to the regulation of coal combustion byproducts. The ultimate outcome of these matters cannot be determined at this time.

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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 additional information.

On April 13, 2012, the EPA published proposed regulations to establish standards of performance for greenhouse gas emissions from new fossil fuel steam electric generating units. As proposed, the standards would not apply to existing units. The EPA has delayed its plans to propose greenhouse gas emissions performance standards for modified sources and emissions guidelines for existing sources. The impact of this rulemaking will depend on the scope and specific requirements of the final rule and the outcome of any legal challenges and, therefore, cannot be determined at this time.

On June 26, 2012, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit unanimously rejected all challenges to four of the EPA's actions relating to the greenhouse gas permitting programs under the Clean Air Act. These rules may impact the amount of time it takes to obtain prevention of significant deterioration permits for new generation and major modifications to existing generating units and the requirements ultimately imposed by those permits. The ultimate impact of these rules cannot be determined at this time and will depend on the outcome of any other legal challenges.

PSC Matters

Retail Fuel Cost Recovery

The traditional operating companies each have established fuel cost recovery rates approved by their respective state PSCs. The traditional operating companies have experienced lower pricing for natural gas resulting in an increase in natural gas generation and a decrease in coal generation, which is currently more costly. The lower cost of natural gas has resulted in total over recovered fuel costs at Alabama Power, Georgia Power, Gulf Power, and Mississippi Power included in Southern Company's Condensed Balance Sheet herein of approximately $282 million at September 30, 2012. At December 31, 2011, total under recovered fuel costs at Alabama Power and Georgia Power included in Southern Company's Condensed Balance Sheet herein were approximately $169 million, and Gulf Power and Mississippi Power had a total over recovered fuel balance included in Southern Company's Condensed Balance Sheet herein of approximately $52 million. Fuel cost recovery revenues are adjusted for differences in actual recoverable fuel costs and amounts billed in current regulated rates. Accordingly, changes in the billing factor will not have a significant effect on Southern Company's revenues or net income, but will affect annual cash flow. The traditional operating companies continuously monitor their under or over recovered fuel cost balances.

On June 21, 2012, the Georgia PSC approved a decrease in Georgia Power's fuel cost recovery rates of 19%, which reduced annual billings by $567 million effective June 1, 2012. The decrease in fuel costs resulted from lower natural gas prices as a result of increased natural gas supplies.

As of September 30, 2012, Georgia Power's fuel cost over recovery balance totaled $199 million. This balance is slightly below the $200 million required to automatically trigger the Georgia PSC's approved IFR adjustment mechanism. On November 1, 2012, Georgia Power filed a request with the Georgia PSC to voluntarily trigger the IFR early and reduce fuel cost recovery rates effective January 1, 2013. The requested reduction would reduce annual billings by approximately $122 million. In accordance with the IFR process, the Georgia PSC will have 30 days to consider Georgia Power's request. The ultimate outcome of this matter cannot be determined at this time.

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 "Retail Regulatory Matters – Alabama Power – Fuel Cost Recovery" and "Retail Regulatory Matters – Georgia Power – Fuel Cost Recovery" in Item 8 of the Form 10-K for additional information.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Alabama Power

Rate CNP

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "PSC Matters – Alabama Power – Rate CNP" of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Alabama Power – Rate CNP" in Item 8 of the Form 10-K for additional information regarding Alabama Power's recovery of retail costs through Rate Certificated New Plant Power Purchase Agreement (Rate CNP) and Rate Certificated New Plant Environmental (Rate CNP Environmental). Alabama Power's under recovered Rate CNP balance as of September 30, 2012 was $14 million as compared to $6 million at December 31, 2011. Alabama Power's under recovered Rate CNP Environmental balance as of September 30, 2012 was $12 million as compared to $11 million at December 31, 2011. These under recovered balances at September 30, 2012 are included in deferred under recovered regulatory clause revenues on Southern Company's Condensed Balance Sheet herein. For Rate CNP, this classification is based on an estimate, which includes such factors as purchased power capacity and energy demand. For Rate CNP Environmental, this classification is based on an estimate, which includes such factors as costs to comply with environmental mandates and energy demand. A change in any of these factors could have a material impact on the timing of any recovery of the under recovered retail costs.

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 additional information. On September 17, 2012, the Alabama PSC approved and certificated the remaining PPA for the purchase of approximately 200 MWs of the approximately 400 MWs of energy from wind-powered generating facilities and all associated environmental attributes, including renewable energy credits. The terms of this PPA and the previously approved and certificated PPA permit Alabama Power to use the energy and retire the associated environmental attributes in service of its customers or to sell environmental attributes, separately or bundled with energy, to third parties.

Natural Disaster Cost Recovery

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "PSC Matters – Alabama Power – Natural Disaster Reserve" of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Alabama Power – Natural Disaster Reserve" in Item 8 of the Form 10-K for additional information regarding natural disaster cost recovery. At September 30, 2012, the NDR had an accumulated balance of $102 million as compared to $110 million at December 31, 2011, which are included in Southern Company's Condensed Balance Sheets herein under other regulatory liabilities, deferred. The accruals are reflected as operations and maintenance expenses in Southern Company's Condensed Statement of Income herein.

Compliance and Pension Cost Accounting Order

On November 6, 2012, the Alabama PSC approved an accounting order for certain compliance-related operations and maintenance expenditures for the years 2013 through 2017, as well as the incremental increase in operations expense related to pension cost for 2013. Under the accounting order, expenses from January 2013 through December 2017 related to compliance with standards addressing Critical Infrastructure Protection issued by the North American Electric Reliability Corporation and cyber security requirements issued by the NRC will be deferred to a regulatory asset account and amortized over a three-year period beginning in January 2015. Expenses from January 2013 through December 2017 related to compliance with NRC guidance addressing the readiness at nuclear facilities within the U.S., as prompted by the earthquake and tsunami that struck Japan in 2011, also will be deferred as a regulatory asset and recovered over the same amortization period. The compliance-related expenses to be afforded regulatory asset treatment over the five-year period are currently estimated to be approximately $43 million. See "Other Matters" herein for information regarding the NRC's guidance issued as a result of the earthquake and tsunami that struck Japan in 2011. In addition, the accounting order authorizes Alabama Power

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to defer an incremental increase in its pension cost for 2013. The increased pension cost is estimated to be approximately $17 million. During 2013, the actual incremental increase will be deferred to a regulatory asset account and will be amortized over a three-year period beginning in January 2015. Pursuant to the accounting order, Alabama Power has the ability to accelerate the amortization of the regulatory assets.

Alabama Power expects that the accounting order and other cost containment measures will preclude a need for a rate adjustment under Rate RSE.

Georgia Power

Rate Plans

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "PSC Matters – Georgia Power – Rate Plans" of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Rate Plans" in Item 8 of the Form 10-K for additional information on Georgia Power's 2010 ARP.

In accordance with the terms of the 2010 ARP, on November 1, 2012, Georgia Power filed the following tariff adjustments with the Georgia PSC to become effective on January 1, 2013:


•	Increase the DSM tariffs by approximately $16 million;

•

Increase the traditional base tariffs by approximately $58 million to recover the revenue requirements for Plant McDonough-Atkinson Units 4, 5, and 6 for the period through December 31, 2013, which also reflects a separate settlement agreement associated with the June 30, 2011 quarterly construction monitoring report for Plant McDonough-Atkinson (see Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Other Construction" in Item 8 of the Form 10-K for additional information); and


•	Increase the MFF tariff, consistent with the adjustments above, as well as those related to the IFR and NCCR tariff adjustments described under "Retail Fuel Cost Recovery" and Note B to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" herein.

2011 Integrated Resource Plan Update

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Air Quality," "– Water Quality," and "– Coal Combustion Byproducts" of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Rate Plans" and "– 2011 Integrated Resource Plan Update" in Item 8 of the Form 10-K for additional information regarding proposed and final EPA rules and regulations, including the MATS rule for coal- and oil-fired electric utility steam generating units, revisions to effluent guidelines for steam electric power plants, and additional regulation of coal combustion byproducts; the State of Georgia's Multi-Pollutant Rule; Georgia Power's analysis of the potential costs and benefits of installing the required controls on its fossil generating units in light of these regulations; the 2010 ARP; and the 2011 IRP Update.

On March 20, 2012, the Georgia PSC approved Georgia Power's request to decertify and retire two coal-fired generation units at Plant Branch as of October 31, 2013 and December 31, 2013 and an oil-fired unit at Plant Mitchell as of March 26, 2012, which was included in Georgia Power's 2011 IRP Update. The Georgia PSC also approved three PPAs totaling 998 MWs with Southern Power for capacity and energy that will commence in 2015 and end in 2030. The PPAs remain subject to FERC approval. The ultimate outcome of this matter cannot be determined at this time.

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Income Tax Matters

Bonus Depreciation

In December 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act) was signed into law. Major tax incentives in the Tax Relief Act include 100% bonus depreciation for property placed in service after September 8, 2010 and through 2011 (and for certain long-term construction projects to be placed in service in 2012) and 50% bonus depreciation for property placed in service in 2012 (and for certain long-term construction projects to be placed in service in 2013), which will have a positive impact on the future cash flows of Southern Company through 2013. Due to the significant amount of estimated bonus depreciation for 2012, a portion of Southern Company's tax credit utilization will be deferred. Consequently, Southern Company's positive cash flow benefit is estimated to be between $775 million and $860 million in 2012.

Construction Program

The subsidiary companies of Southern Company are engaged in continuous construction programs to accommodate existing and estimated future loads on their respective systems. The Southern Company system intends to continue its strategy of developing and constructing new generating facilities, including the ongoing construction of natural gas and solar units at Southern Power, Plant Vogtle Units 3 and 4 at Georgia Power, and the Kemper IGCC at Mississippi Power, as well as adding or changing fuel sources for certain existing units, adding environmental control equipment, and expanding the transmission and distribution systems. For the traditional operating companies, major generation construction projects are subject to state PSC approvals in order to be included in retail rates. While Southern Power generally constructs and acquires generation assets covered by long-term PPAs, any uncontracted capacity could negatively affect future earnings. See Note 7 to the financial statements of Southern Company under "Construction Program" in Item 8 of the Form 10-K for estimated construction expenditures for the next three years. In addition, see Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Nuclear Construction," "Retail Regulatory Matters – Georgia Power – Other Construction," and "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Integrated Coal Gasification Combined Cycle" herein for additional information.

Investments in Leveraged Leases

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Investments in Leveraged Leases" of Southern Company in Item 7 and Note 1 to the financial statements of Southern Company under "Leveraged Leases" in Item 8 of the Form 10-K for additional information.

The recent financial and operational performance of one of Southern Company's lessees and the associated generation assets has raised potential concerns on the part of Southern Company as to the credit quality of the lessee and the residual value of the assets. Current projections indicate significant uncertainty as to whether the lessee will be able to pay the December 2012 semi-annual rent payment in full. Southern Company continues to be engaged in discussions with the lessee and the holders of the project's nonrecourse debt to restructure the debt payments and the related rental payments to allow additional capital investment in the project to be made to improve the operation of the generation assets and the financial viability of the lease transaction. Southern Company continues to believe there is a reasonable possibility that it will be able to reach an agreement with the lessee and the debtholders to restructure the project prior to the end of 2012. However, due to continued poor performance of the generation assets and the uncertainties surrounding the receipt of the December 2012 semi-annual rent payment and its ability to successfully restructure the project, Southern Company has placed the lease on nonaccrual status whereby,

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effective July 2012, income associated with this investment is not recognized in the financial statements. If the attempts at restructuring the project are unsuccessful and the project is ultimately abandoned, the potential impairment loss that would be incurred is approximately $90 million on an after-tax basis. If the restructuring is successfully completed prior to the end of 2012, Southern Company will be required to record a reduction in leveraged lease income of up to approximately $20 million in the fourth quarter 2012. The ultimate outcome of this matter cannot be determined at this time.

Other Matters

Southern Company and its subsidiaries are involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Southern Company and its subsidiaries are subject to certain claims and legal actions arising in the ordinary course of business. The business activities of Southern Company's subsidiaries are subject to extensive governmental regulation related to public health and the environment, such as regulation of air emissions and water discharges. 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 air quality and water standards, has increased generally throughout the U.S. In particular, personal injury and other claims for damages caused by alleged exposure to hazardous materials, and common law nuisance claims for injunctive relief and property damage allegedly caused by greenhouse gas and other emissions, 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 in Note (B) 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 ultimate liabilities, if any, arising from such current proceedings would have a material effect on Southern Company's financial statements.

See the Notes to the Condensed Financial Statements herein for a discussion of various other contingencies, regulatory matters, and other matters being litigated which may affect future earnings potential.

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Other Matters" of Southern Company in Item 7 of the Form 10-K for additional information regarding the earthquake and tsunami that struck Japan in March 2011. On March 12, 2012, the NRC issued three orders and a request for information based on the NRC task force report recommendations that included, among other items, additional mitigation strategies for beyond-design-basis events, enhanced spent fuel pool instrumentation capabilities, hardened vents for certain classes of containment structures, including the one in use at Plant Hatch, site specific evaluations for seismic and flooding hazards, and various plant evaluations to ensure adequate coping capabilities during station blackout and other conditions. On August 29, 2012, the NRC staff issued the final interim staff guidance document, which offers acceptable approaches to meeting the requirements of the NRC's orders before the December 31, 2016 compliance deadline. The interim staff guidance is not mandatory, but licensees would be required to obtain NRC approval for taking an approach other than as outlined in the interim staff guidance. The final form and the resulting impact of any changes to safety requirements for nuclear reactors will be dependent on further review and action by the NRC and cannot be determined at this time. See RISK FACTORS of Southern Company in Item 1A of the Form 10-K for a discussion of certain risks associated with the licensing, construction, and operation of nuclear generating units, including potential impacts that could result from a major incident at a nuclear facility anywhere in the world. The ultimate outcome of these events cannot be determined at this time.

See "PSC Matters – Alabama Power – Compliance and Pension Cost Accounting Order" herein for additional information on Alabama Power's PSC approved accounting order, which allows the deferral of certain compliance-related operations and maintenance expenditures related to compliance with the NRC guidance.

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ACCOUNTING POLICIES

Application of Critical Accounting Policies and Estimates

Southern Company prepares its consolidated financial statements in accordance with GAAP. 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, Unbilled Revenues, and Pension and Other Postretirement Benefits.

Alabama Power and Georgia Power are now using automated meter readings to measure unbilled KWH sales for energy delivered through month end. Increased usage of actual data to compute unbilled revenues reduces the impact that estimates could have on Southern Company's results of operations; therefore, Southern Company no longer considers unbilled revenues a critical accounting estimate.

FINANCIAL CONDITION AND LIQUIDITY

Overview

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Overview" of Southern Company in Item 7 of the Form 10-K for additional information. Southern Company's financial condition remained stable at September 30, 2012. 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. See "Sources of Capital," "Financing Activities," and "Capital Requirements and Contractual Obligations" herein for additional information.

Net cash provided from operating activities totaled $4.0 billion for the first nine months of 2012, a decrease of $554 million from the corresponding period in 2011. The decrease in net cash provided from operating activities was primarily due to an increase in fossil fuel stock as a result of milder weather in the first nine months of 2012 and lower natural gas prices and a decrease in accrued taxes due to the timing of tax payments. Net cash used for investing activities totaled $3.8 billion for the first nine months of 2012 primarily due to property additions to utility plant. Net cash used for financing activities totaled $345 million for the first nine months of 2012. This was primarily due to redemptions of long-term debt, the repurchase of common stock, and payments of common stock dividends, offset by issuances of long-term debt. Fluctuations in cash flow from financing activities vary from year to year based on capital needs and the maturity or redemption of securities.

Significant balance sheet changes for the first nine months of 2012 include an increase of $2.3 billion in total property, plant, and equipment for the construction of generation, transmission, and distribution facilities. Other significant changes include an increase in deferred income taxes of $863 million due to bonus depreciation and an increase in equity of $1.1 billion.

The market price of Southern Company's common stock at the end of the third quarter 2012 was $46.09 per share (based on the closing price as reported on the New York Stock Exchange) and the book value was $21.32 per share, representing a market-to-book ratio of 216%, compared to $46.29, $20.32, and 228%, respectively, at the end of 2011. The dividend for the third quarter 2012 was $0.49 per share compared to $0.4725 per share in the third quarter 2011.

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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 the construction programs of the Southern Company system, including estimated capital expenditures to comply with existing environmental regulations, 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 $2.4 billion will be required through September 30, 2013 to fund maturities and announced redemptions of long-term debt.

See FUTURE EARNINGS POTENTIAL – "Environmental Statutes and Regulations – General" herein for a description of the Southern Company system's estimated capital expenditures to comply with the MATS rule and proposed water and coal combustion byproducts rules.

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; the outcome of any legal challenges to the environmental rules; changes in generating plants, including unit retirements and replacements and adding or changing fuel sources at existing units, 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; project scope and design changes; storm impacts; 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 will be contingent on Southern Company's investment opportunities.

Except as described below with respect to potential DOE loan guarantees, the traditional operating companies and Southern Power plan to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily from operating cash flows, security issuances, term loans, short-term borrowings, and equity contributions from Southern Company. However, the amount, type, and timing of any future 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.

In June 2010, Georgia Power reached an agreement with the DOE to accept terms for a conditional commitment for federal loan guarantees that would apply to future Georgia Power borrowings related to the construction of Plant Vogtle Units 3 and 4. Any borrowings guaranteed by the DOE would be full recourse to Georgia Power and secured by a first priority lien on Georgia Power's 45.7% undivided ownership interest in Plant Vogtle Units 3 and 4. Total guaranteed borrowings would not exceed the lesser of 70% of eligible project costs, or approximately $3.46 billion, and are expected to be funded by the Federal Financing Bank. Final approval and issuance of loan guarantees by the DOE are subject to negotiation of definitive agreements, completion of due diligence by the DOE, receipt of any necessary regulatory approvals, and satisfaction of other conditions. In the event that the DOE does not issue a loan guarantee or Georgia Power determines that the final terms and conditions of the loan guarantee by the DOE are not in the best interest of its customers, Georgia Power expects to finance the construction of Plant Vogtle Units 3 and 4 through traditional capital markets financings. There can be no assurance that the DOE will issue loan guarantees for Georgia Power.

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In addition, Mississippi Power has applied to the DOE for federal loan guarantees to finance a portion of the eligible construction costs of the Kemper IGCC. Mississippi Power is in advanced due diligence with the DOE. There can be no assurance that the DOE will issue federal loan guarantees for Mississippi Power. In the event that the DOE does not issue a conditional commitment or a final definitive loan guarantee, Mississippi Power expects to finance the construction of the Kemper IGCC through traditional capital markets financings. Mississippi Power also received DOE Clean Coal Power Initiative Round 2 (CCPI2) grant funds of $245 million that were used for the construction of the Kemper IGCC. An additional $25 million in CCPI2 grant funds is expected to be received for the initial operation of the Kemper IGCC.

Southern Company'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 of the Southern Company system. 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.

At September 30, 2012, Southern Company and its subsidiaries had approximately $1.3 billion of cash and cash equivalents. Committed credit arrangements with banks at September 30, 2012, including expiration dates, were as follows:



	Expires										Executable Term Loans				Due Within One Year^(a)
Company	2012		2013		2014 and Beyond^(b)		Total		Unused		One Year		Two Years		Term Out		No Term Out
	(in millions)						(in millions)				(in millions)				(in millions)
Southern Company	$	—	$	—	$	1,000	$	1,000	$	1,000	$	—	$	—	$	—	$	—
Alabama Power	—		157		1,150		1,307		1,307		55		—		55		102
Georgia Power	—		—		1,750		1,750		1,740		—		—		—		—
Gulf Power	20		60		195		275		275		45		—		45		35
Mississippi Power	16		120		165		301		301		25		41		66		70
Southern Power	—		—		500		500		500		—		—		—		—
Other	—		50		—		50		50		25		—		25		25
Total	$	36	$	387	$	4,760	$	5,183	$	5,173	$	150	$	41	$	191	$	232


(a)	Reflects facilities expiring on or before September 30, 2013.


(b)	All remaining Gulf Power and Mississippi Power credit agreements in this column expire in 2014.

See Note 6 to the financial statements of Southern Company under "Bank Credit Arrangements" in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under "Bank Credit Arrangements" herein for additional information.

Most of these arrangements contain covenants that limit debt levels and typically contain cross default provisions that are restricted only to the indebtedness of the individual company. Southern Company and its subsidiaries are currently in compliance with all such covenants.

A portion of the unused credit with banks is allocated to provide liquidity support to the traditional operating companies' variable rate pollution control revenue bonds and commercial paper programs. The amount of variable rate pollution control revenue bonds outstanding requiring liquidity support as of September 30, 2012 was approximately $1.8 billion.

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.

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Details of short-term borrowings were as follows:



	Short-term Debt at September 30, 2012				Short-term Debt During the Period^(a)
	Amount Outstanding		Weighted Average Interest Rate		Average Outstanding		Weighted Average Interest Rate		Maximum Amount Outstanding
	(in millions)				(in millions)				(in millions)
Commercial paper	$	329	0.3	%	$	463	0.3	%	$	592

(a) Average and maximum amounts are based upon daily balances during the three month period ended September 30, 2012.

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 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. The maximum potential collateral requirements under these contracts at September 30, 2012 were as follows:



Credit Ratings	Maximum Potential Collateral Requirements
	(in millions)
At BBB and Baa2	$	9
At BBB- and/or Baa3	635
Below BBB- and/or Baa3	2,583

On March 6, 2012, Mississippi Power received a $150 million interest-bearing refundable deposit from SMEPA to be applied to the sale price for the pending sale of an undivided interest in the Kemper IGCC. Until the acquisition is closed, the deposit bears interest at Mississippi Power's AFUDC rate adjusted for income taxes, which was 9.967% per annum at September 30, 2012, and is refundable to SMEPA upon termination of the asset purchase agreement related to such purchase, within 60 days of a request by SMEPA for a full or partial refund, or within 15 days at SMEPA's discretion in the event that Mississippi Power is assigned a senior unsecured credit rating of BBB+ or lower by S&P or Baa1 or lower by Moody's or ceases to be rated by either of these rating agencies.

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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Market Price Risk

Southern Company is exposed to market risks, primarily commodity price risk and interest rate risk. Southern Company may also occasionally have limited exposure to foreign currency exchange rates. To manage the volatility attributable to these exposures, Southern Company nets the exposures, where possible, to take advantage of natural offsets and enters into various derivative transactions for the remaining exposures pursuant to Southern Company's policies in areas such as counterparty exposure and risk management practices. Southern Company's policy is that derivatives are to be used primarily for hedging purposes and mandates strict adherence to all applicable risk management policies. Derivative positions are monitored using techniques including, but not limited to, market valuation, value at risk, stress testing, and sensitivity analysis.

Due to cost-based rate regulation and other various cost recovery mechanisms, the traditional operating companies continue to have limited exposure to market volatility in interest rates, foreign currency, 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, 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. 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 and, to a lesser extent, financial hedge contracts for natural gas purchases. The traditional operating companies continue to manage fuel-hedging programs implemented per the guidelines of their respective state PSCs. Southern Company had no material change in market risk exposure for the third quarter 2012 when compared with the December 31, 2011 reporting period.

The changes in fair value of energy-related derivative contracts, the majority of which are composed of regulatory hedges, for the three and nine months ended September 30, 2012 were as follows:



	Third Quarter 2012 Changes			Year-to-Date 2012 Changes
	Fair Value
	(in millions)
Contracts outstanding at the beginning of the period, assets (liabilities), net	$	(170	)	$	(231	)
Contracts realized or settled	56			184
Current period changes^(a)	51			(16		)
Contracts outstanding at the end of the period, assets (liabilities), net	$	(63	)	$	(63	)

(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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The changes in the fair value positions of the energy-related derivative contracts, which are substantially all attributable to both the volume and the price of natural gas, for the three and nine months ended September 30, 2012 were as follows:



	Third Quarter 2012 Changes		Year-to-Date 2012 Changes
	Fair Value
	(in millions)
Natural gas swaps	$	83	$	142
Natural gas options	24		27
Other energy-related derivatives	—		(1		)
Total changes	$	107	$	168

The net hedge volumes of energy-related derivative contracts were as follows:



	September 30, 2012	June 30, 2012	December 31, 2011
	mmBtu Volume
	(in millions)
Commodity – Natural gas swaps	158	141	123
Commodity – Natural gas options	111	101	66
Total hedge volume	269	242	189

The weighted average swap contract cost above market prices was approximately $0.33 per mmBtu as of September 30, 2012, $0.95 per mmBtu as of June 30, 2012, and $1.51 per mmBtu as of December 31, 2011. The change in option premiums is primarily attributable to the volatility of the market and the underlying change in the natural gas price. The majority of the natural gas hedge gains and losses are recovered through the traditional operating companies' fuel cost recovery clauses.

The net fair value of energy-related derivative contracts by hedge designation was reflected in the financial statements as follows:



Asset (Liability) Derivatives	September 30, 2012			December 31, 2011
	(in millions)
Regulatory hedges	$	(63	)	$	(221	)
Cash flow hedges	(1		)	(1		)
Not designated	1			(9		)
Total fair value	$	(63	)	$	(231	)

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 that are designated as cash flow hedges are mainly used by Southern Power to hedge anticipated purchases and sales and are initially deferred in OCI before being recognized in income in the same period as the hedged transaction. Gains and losses on energy-related derivative contracts that are not designated or fail to qualify as hedges are recognized in the statements of income as incurred.

Total net unrealized pre-tax gains recognized in income for the three and nine months ended September 30, 2012 were $5 million and $9 million, respectively, and were not material for the corresponding periods in 2011.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Southern Company uses over-the-counter contracts that are not exchange traded but are fair valued using prices which are market observable, and thus fall into Level 2. See Note (C) to the Condensed Financial Statements herein for further discussion on fair value measurements. The maturities of the energy-related derivative contracts and the level of the fair value hierarchy in which they fall at September 30, 2012 were as follows:



	September 30, 2012 Fair Value Measurements
	Total			Maturity
	Fair Value			Year 1			Years 2&3			Years 4&5
	(in millions)
Level 1	$	—		$	—		$	—		$	—
Level 2	(63		)	(54		)	(12		)	3
Level 3	—			—			—			—
Fair value of contracts outstanding at end of period	$	(63	)	$	(54	)	$	(12	)	$	3

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) enacted in July 2010 could impact the use of over-the-counter derivatives by Southern Company. Regulations to implement the Dodd-Frank Act will impose additional requirements on the use of over-the-counter derivatives for both Southern Company and its subsidiaries and their derivative counterparties, which could affect both the use and cost of over-the-counter derivatives. Although all relevant regulations have not been finalized, Southern Company does not expect the impact of these rules to be material.

For additional information, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Market Price Risk" of Southern Company in Item 7 and Note 1 under "Financial Instruments" and Note 11 to the financial statements of Southern Company in Item 8 of the Form 10-K and Note (H) to the Condensed Financial Statements herein.

Financing Activities

During the first nine months of 2012, Southern Company issued approximately 11.6 million shares of common stock for $381 million through employee and director stock plans. Since mid-2011, Southern Company has issued additional equity only through its employee and director stock plans. In July 2012, Southern Company announced a program to repurchase shares to partially offset the incremental shares issued under its employee and director stock plans. Under this program, approximately 2.6 million shares have been repurchased through September 30, 2012 at a total cost of $117 million. Pursuant to Board approval, Southern Company may repurchase shares through open market purchases or privately negotiated transactions, in accordance with applicable securities laws.

In addition, Southern Company is not currently issuing shares of common stock through the Southern Investment Plan or its employee savings plan. All sales under the Southern Investment Plan and the employee savings plan are currently being funded with shares acquired on the open market by the independent plan administrators.

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table outlines the debt financing activities during the first nine months of 2012:



Company	Senior Note Issuances		Senior Note Redemptions and Maturities		Pollution Control Bond Issuances		Pollution Control Bond Redemptions		Other Long-Term Debt Issuances		Other Long- Term Debt Redemptions and Maturities
					(in millions)
Southern Company	$	—	$	500	$	—	$	—	$	—	$	—
Alabama Power	250		250		—		1		—		—
Georgia Power	1,900		550		234		234		—		250
Gulf Power	100		91		—		—		—		—
Mississippi Power	600		90		—		—		26		115
Southern Power	—		—		—		—		5		1
Total	$	2,850	$	1,481	$	234	$	235	$	31	$	366

Southern Company's subsidiaries used the proceeds of the debt issuances shown in the table above for the redemptions and maturities shown in the table above, to repay short-term indebtedness, and for general corporate purposes, including their respective continuous construction programs.

On January 17, 2012, Southern Company's $500 million aggregate principal amount of Series 2007A 5.30% Senior Notes matured.

In August 2012, the Mississippi Business Finance Corporation entered into an agreement to issue up to $42.5 million aggregate principal amount of Mississippi Business Finance Corporation Taxable Revenue Bonds, Series 2012A (Mississippi Power Company Project), up to $21.25 million aggregate principal amount of Mississippi Business Finance Corporation Taxable Revenue Bonds, Series 2012B (Mississippi Power Company Project), and up to $21.25 million aggregate principal amount of Mississippi Business Finance Corporation Taxable Revenue Bonds, Series 2012C (Mississippi Power Company Project) for the benefit of Mississippi Power. As reflected in the table above, in August 2012, the Mississippi Business Finance Corporation issued $4.36 million aggregate principal amount of Mississippi Business Finance Corporation Taxable Revenue Bonds (Mississippi Power Company Project), Series 2012B and $21.25 million aggregate principal amount of Revenue Bonds (Mississippi Power Company Project), Series 2012C for the benefit of Mississippi Power. The proceeds were used to reimburse Mississippi Power for the cost of the acquisition, construction, equipping, installation, and improvement of certain equipment and facilities for the lignite mining facility related to the Kemper IGCC. Any future issuances of these bonds will be used for this same purpose.

Subsequent to September 30, 2012, Alabama Power issued $400 million aggregate principal amount of Series 2012B 0.550% Senior Notes due October 15, 2015. The proceeds were used to redeem, in October 2012, $200 million aggregate principal amount of Series 2007C 6.00% Senior Insured Monthly Notes due October 15, 2037 and for general corporate purposes, including Alabama Power's continuous construction program.

Subsequent to September 30, 2012, Georgia Power announced the redemption that will occur in December 2012 of $100 million aggregate principal amount of its Series 2007F 6.05% Senior Monthly Notes due December 1, 2038.

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 Note 1 to the financial statements of each registrant under "Financial Instruments," Note 11 to the financial statements of Southern Company, Alabama Power, and Georgia Power, Note 10 to the financial statements of Gulf Power and Mississippi Power, and Note 9 to the financial statements of Southern Power in Item 8 of the Form 10-K. Also, see Note (H) 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, 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 Southern Company's, 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 third quarter 2012 that have materially affected or are reasonably likely to materially affect Southern Company's, 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 September 30,				For the Nine Months Ended September 30,
	2012		2011		2012		2011
	(in millions)				(in millions)
Operating Revenues:
Retail revenues	$	1,476	$	1,489	$	3,822	$	3,859
Wholesale revenues, non-affiliates	79		80		210		218
Wholesale revenues, affiliates	31		52		51		202
Other revenues	51		50		147		152
Total operating revenues	1,637		1,671		4,230		4,431
Operating Expenses:
Fuel	469		512		1,118		1,335
Purchased power, non-affiliates	31		34		63		62
Purchased power, affiliates	41		49		147		152
Other operations and maintenance	307		309		944		896
Depreciation and amortization	161		160		478		476
Taxes other than income taxes	84		84		255		254
Total operating expenses	1,093		1,148		3,005		3,175
Operating Income	544		523		1,225		1,256
Other Income and (Expense):
Allowance for equity funds used during construction	4		7		13		18
Interest income	4