Edgar Filing: SOUTHERN CO

Second Quarter 2014 vs. Second Quarter 2013

Year-to-Date 2014 vs. Year-to-Date 2013

(change in millions)

(% change)

(change in millions)

(% change)

SO_10Q_6.30.2014

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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 June 30, 2014

¨ 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 June 30, 2014
The Southern Company	Par Value $5 Per Share	895,696,608
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	5,442,717
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.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

June 30, 2014



		Page Number
DEFINITIONS		4
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION		6

	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	9
	Condensed Consolidated Statements of Comprehensive Income	10
	Condensed Consolidated Statements of Cash Flows	11
	Condensed Consolidated Balance Sheets	12
	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
	Alabama Power Company
	Condensed Statements of Income	36
	Condensed Statements of Comprehensive Income	36
	Condensed Statements of Cash Flows	37
	Condensed Balance Sheets	38
	Management's Discussion and Analysis of Financial Condition and Results of Operations	40
	Georgia Power Company
	Condensed Statements of Income	53
	Condensed Statements of Comprehensive Income	53
	Condensed Statements of Cash Flows	54
	Condensed Balance Sheets	55
	Management's Discussion and Analysis of Financial Condition and Results of Operations	57
	Gulf Power Company
	Condensed Statements of Income	74
	Condensed Statements of Comprehensive Income	74
	Condensed Statements of Cash Flows	75
	Condensed Balance Sheets	76
	Management's Discussion and Analysis of Financial Condition and Results of Operations	78
	Mississippi Power Company
	Condensed Statements of Operations	92
	Condensed Statements of Comprehensive Income (Loss)	92
	Condensed Statements of Cash Flows	93
	Condensed Balance Sheets	94
	Management's Discussion and Analysis of Financial Condition and Results of Operations	96
	Southern Power Company and Subsidiary Companies
	Condensed Consolidated Statements of Income	120
	Condensed Consolidated Statements of Comprehensive Income	120
	Condensed Consolidated Statements of Cash Flows	121
	Condensed Consolidated Balance Sheets	122
	Management's Discussion and Analysis of Financial Condition and Results of Operations	124
	Notes to the Condensed Financial Statements	133
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34
Item 4.	Controls and Procedures	34



		Page Number
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	172
Item 1A.	Risk Factors	172
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	Inapplicable
Item 3.	Defaults Upon Senior Securities	Inapplicable
Item 4.	Mine Safety Disclosures	Inapplicable
Item 5.	Other Information	Inapplicable
Item 6.	Exhibits	172
	Signatures	175

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DEFINITIONS



Term	Meaning

2012 MPSC CPCN Order	A detailed order issued by the Mississippi PSC in April 2012 confirming the CPCN originally approved by the Mississippi PSC in 2010 authorizing the acquisition, construction, and operation of the Kemper IGCC
2013 ARP	Alternative Rate Plan approved by the Georgia PSC for Georgia Power for the years 2014 through 2016
2013 IRP	Georgia Power's triennial Integrated Resource Plan as approved by the Georgia PSC
AFUDC	Allowance for Funds Used During Construction
Alabama Power	Alabama Power Company
ASC	Accounting Standards Codification
Baseload Act	State of Mississippi legislation designed to enhance the Mississippi PSC's authority to facilitate development and construction of baseload generation in the State of Mississippi
Chancery Court	Chancery Court of Harrison County, Mississippi
Clean Air Act	Clean Air Act Amendments of 1990
Contractor	Westinghouse and Stone & Webster, Inc.
CO₂	Carbon dioxide
CPCN	Certificate of Public Convenience and Necessity
CWIP	Construction work in progress
DOE	U.S. Department of Energy
ECO Plan	Mississippi Power's Environmental Compliance Overview Plan
EPA	U.S. Environmental Protection Agency
FERC	Federal Energy Regulatory Commission
FFB	Federal Financing Bank
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, 2013
GAAP	Generally accepted accounting principles
Georgia Power	Georgia Power Company
GHG	Greenhouse gas
Gulf Power	Gulf Power Company
IGCC	Integrated coal gasification combined cycle
IIC	Intercompany Interchange Contract
Internal Revenue Code	Internal Revenue Code of 1986, as amended
IRS	Internal Revenue Service
ITCs	Investment tax credits
Kemper IGCC	IGCC facility under construction in Kemper County, Mississippi
KWH	Kilowatt-hour
LIBOR	London Interbank Offered Rate
Mississippi Power	Mississippi Power Company
mmBtu	Million British thermal unit
Moody's	Moody's Investors Service, Inc.
MW	Megawatt
NCCR	Nuclear Construction Cost Recovery
NRC	U.S. Nuclear Regulatory Commission
OCI	Other comprehensive income
Owners	Georgia Power, Oglethorpe Power Corporation, the Municipal Electric Authority of Georgia, and the City of Dalton, Georgia, an incorporated municipality in the State of Georgia acting by and through its Board of Water, Light, and Sinking Fund Commissioners
PEP	Mississippi Power's Performance Evaluation Plan

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Plant Vogtle Units 3 and 4	Two new nuclear generating units under construction at Plant Vogtle
power pool	The operating arrangement whereby the integrated generating resources of the traditional operating companies and Southern Power are subject to joint commitment and dispatch in order to serve their combined load obligations
PPA	Power purchase agreement
PSC	Public Service Commission
Rate CNP	Alabama Power's Rate Certificated New Plant
Rate CNP Environmental	Alabama Power's Rate Certificated New Plant Environmental
Rate CNP PPA	Alabama Power's Rate Certificated New Plant Power Purchase Agreement
registrants	Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power
ROE	Return on equity
scrubber	Flue gas desulfurization system
SEC	U.S. Securities and Exchange Commission
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 and its subsidiaries
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 rates, the strategic goals for the wholesale business, economic recovery, fuel and environmental cost recovery and other rate actions, current and proposed environmental regulations and related compliance plans and estimated expenditures, access to sources of capital, projections for the qualified pension plan, postretirement benefit plans, and nuclear decommissioning trust fund contributions, financing activities, completion dates of construction projects, plans and estimated costs for new generation resources, filings with state and federal regulatory authorities, impact of the American Taxpayer Relief Act of 2012, estimated sales and purchases under power sale and purchase agreements, and estimated construction and other capital 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, environmental laws including regulation of water, coal combustion residuals, and emissions of sulfur, nitrogen, carbon, soot, particulate matter, hazardous air pollutants, including mercury, and other substances, and also changes in tax and other laws and regulations to which Southern Company and its subsidiaries are subject, as well as changes in application of existing laws and regulations;


•	current and future litigation, regulatory investigations, proceedings, or inquiries, including the pending EPA civil actions against certain Southern Company subsidiaries, FERC matters, 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, including from the development and deployment of alternative energy sources such as self-generation and distributed generation technologies, and any potential economic impacts resulting from federal fiscal 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 include the development and construction of generating facilities with designs that have not been finalized or previously constructed, including changes in labor costs and productivity factors, adverse weather conditions, shortages and inconsistent quality of equipment, materials, and labor, contractor or supplier delay, non-performance under construction or other agreements, operational performance, operational readiness, unforeseen engineering or design problems, delays associated with start-up activities (including major equipment failure and system integration), and/or operations;


•	ability to construct facilities in accordance with the requirements of permits and licenses, to satisfy any operational and environmental performance standards, including any PSC requirements and the requirements of tax credits and other incentives, and to integrate facilities into the Southern Company system upon completion of construction;


•	investment performance of Southern Company's employee and retiree benefit plans and the Southern Company system's 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;


•	legal proceedings and regulatory approvals and actions related to Plant Vogtle Units 3 and 4, including Georgia PSC approvals and NRC actions and litigation proceedings involving the Owners and the Contractor;

•

actions related to cost recovery for the Kemper IGCC, including actions relating to proposed securitization, Mississippi PSC approval of Mississippi Power's proposed rate recovery plan, as ultimately amended, which currently includes the ability to complete the proposed sale of an interest in the Kemper IGCC to SMEPA, the ability to utilize bonus depreciation, which currently requires that assets be placed in service in 2014, and satisfaction of requirements to utilize ITCs and grants;


•	Mississippi PSC review of the prudence of Kemper IGCC costs;


•	the outcome of any legal or regulatory proceedings regarding the Mississippi PSC's issuance of the CPCN for the Kemper IGCC, the settlement agreement between Mississippi Power and the Mississippi PSC, the March 2013 rate order approving retail rate increases consistent with the terms of the settlement agreement, or the Baseload Act;

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•	the inherent risks involved in operating and constructing nuclear generating facilities, including environmental, health, regulatory, natural disaster, terrorism, and financial risks;


•	the performance of projects undertaken by the non-utility businesses and the success of efforts to invest in and develop new opportunities;


•	internal restructuring or other restructuring options that may be pursued;


•	potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial to Southern Company or its subsidiaries;


•	the ability of counterparties of Southern Company and its subsidiaries to make payments as and when due and to perform as required;


•	the ability to obtain new short- and long-term contracts with 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 benefits of the 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 (including the Form 10-K) 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 June 30,						For the Six Months Ended June 30,
	2014			2013			2014			2013
	(in millions)						(in millions)
Operating Revenues:
Retail revenues	$	3,770		$	3,620		$	7,628		$	6,918
Wholesale revenues	515			454			1,119			886
Other electric revenues	169			156			334			311
Other revenues	13			16			30			28
Total operating revenues	4,467			4,246			9,111			8,143
Operating Expenses:
Fuel	1,462			1,374			3,109			2,636
Purchased power	133			127			320			222
Other operations and maintenance	1,019			947			2,005			1,921
Depreciation and amortization	504			476			1,001			942
Taxes other than income taxes	246			232			493			467
Estimated loss on Kemper IGCC	—			450			380			990
Total operating expenses	3,364			3,606			7,308			7,178
Operating Income	1,103			640			1,803			965
Other Income and (Expense):
Allowance for equity funds used during construction	62			45			119			86
Interest expense, net of amounts capitalized	(210		)	(215		)	(416		)	(426		)
Other income (expense), net	(6		)	1			(13		)	(26		)
Total other income and (expense)	(154		)	(169		)	(310		)	(366		)
Earnings Before Income Taxes	949			471			1,493			599
Income taxes	321			158			497			189
Consolidated Net Income	628			313			996			410
Dividends on Preferred and Preference Stock of Subsidiaries	17			16			34			32
Consolidated Net Income After Dividends on Preferred and Preference Stock of Subsidiaries	$	611		$	297		$	962		$	378
Common Stock Data:
Earnings per share (EPS) -
Basic EPS	$	0.68		$	0.34		$	1.08		$	0.43
Diluted EPS	$	0.68		$	0.34		$	1.07		$	0.43
Average number of shares of common stock outstanding (in millions)
Basic	895			874			892			872
Diluted	899			879			896			877
Cash dividends paid per share of common stock	$	0.5250		$	0.5075		$	1.0325		$	0.9975

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 June 30,						For the Six Months Ended June 30,
	2014			2013			2014			2013
	(in millions)						(in millions)
Consolidated Net Income	$	628		$	313		$	996		$	410
Other comprehensive income (loss):
Qualifying hedges:
Reclassification adjustment for amounts included in net income, net of tax of $-, $2, $2 and $4, respectively	1			3			2			6
Pension and other post retirement benefit plans:
Reclassification adjustment for amounts included in net income, net of tax of $1, $1, $1 and $2, respectively	1			2			2			3
Total other comprehensive income (loss)	2			5			4			9
Dividends on preferred and preference stock of subsidiaries	(17		)	(16		)	(34		)	(32		)
Comprehensive Income	$	613		$	302		$	966		$	387

The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	For the Six Months Ended June 30,
	2014			2013
	(in millions)
Operating Activities:
Consolidated net income	$	996		$	410
Adjustments to reconcile consolidated net income to net cash provided from operating activities —
Depreciation and amortization, total	1,182			1,140
Deferred income taxes	46			(141		)
Allowance for equity funds used during construction	(119		)	(86		)
Stock based compensation expense	40			37
Estimated loss on Kemper IGCC	380			990
Other, net	22			48
Changes in certain current assets and liabilities —
-Receivables	(579		)	(325		)
-Fossil fuel stock	419			185
-Materials and supplies	(20		)	52
-Other current assets	(88		)	(55		)
-Accounts payable	(231		)	(52		)
-Accrued taxes	72			6
-Accrued compensation	(40		)	(257		)
-Other current liabilities	(10		)	(5		)
Net cash provided from operating activities	2,070			1,947
Investing Activities:
Property additions	(2,692		)	(2,597		)
Investment in restricted cash	—			(98		)
Distribution of restricted cash	11			23
Nuclear decommissioning trust fund purchases	(445		)	(548		)
Nuclear decommissioning trust fund sales	443			546
Cost of removal, net of salvage	(54		)	(56		)
Change in construction payables, net	89			114
Prepaid long-term service agreement	(93		)	(57		)
Other investing activities	(28		)	44
Net cash used for investing activities	(2,769		)	(2,629		)
Financing Activities:
Increase in notes payable, net	339			767
Proceeds —
Long-term debt issuances	1,314			1,197
Interest-bearing refundable deposit related to asset sale	75			—
Preference stock	—			50
Common stock issuances	318			161
Redemptions —
Long-term debt	(431		)	(792		)
Common stock repurchased	(5		)	(18		)
Payment of common stock dividends	(920		)	(870		)
Payment of dividends on preferred and preference stock of subsidiaries	(34		)	(32		)
Other financing activities	(33		)	15
Net cash provided from financing activities	623			478
Net Change in Cash and Cash Equivalents	(76		)	(204		)
Cash and Cash Equivalents at Beginning of Period	659			628
Cash and Cash Equivalents at End of Period	$	583		$	424
Supplemental Cash Flow Information:
Cash paid (received) during the period for —
Interest (net of $47 and $37 capitalized for 2014 and 2013, respectively)	$	365		$	384
Income taxes, net	212			142
Noncash transactions — accrued property additions at end of period	509			637

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 June 30, 2014			At December 31, 2013
	(in millions)
Current Assets:
Cash and cash equivalents	$	583		$	659
Receivables —
Customer accounts receivable	1,237			1,027
Unbilled revenues	532			448
Under recovered regulatory clause revenues	86			58
Other accounts and notes receivable	281			304
Accumulated provision for uncollectible accounts	(17		)	(18		)
Fossil fuel stock, at average cost	920			1,339
Materials and supplies, at average cost	981			959
Vacation pay	171			171
Prepaid expenses	422			489
Other regulatory assets, current	117			124
Other current assets	63			39
Total current assets	5,376			5,599
Property, Plant, and Equipment:
In service	67,235			66,021
Less accumulated depreciation	23,492			23,059
Plant in service, net of depreciation	43,743			42,962
Other utility plant, net	226			240
Nuclear fuel, at amortized cost	868			855
Construction work in progress	7,927			7,151
Total property, plant, and equipment	52,764			51,208
Other Property and Investments:
Nuclear decommissioning trusts, at fair value	1,531			1,465
Leveraged leases	675			665
Miscellaneous property and investments	230			218
Total other property and investments	2,436			2,348
Deferred Charges and Other Assets:
Deferred charges related to income taxes	1,467			1,432
Prepaid pension costs	431			419
Unamortized debt issuance expense	200			139
Unamortized loss on reacquired debt	281			293
Other regulatory assets, deferred	2,642			2,557
Other deferred charges and assets	803			551
Total deferred charges and other assets	5,824			5,391
Total Assets	$	66,400		$	64,546

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 June 30, 2014			At December 31, 2013
	(in millions)
Current Liabilities:
Securities due within one year	$	585		$	469
Interest-bearing refundable deposit related to asset sale	225			150
Notes payable	1,817			1,482
Accounts payable	1,320			1,376
Customer deposits	386			380
Accrued taxes —
Accrued income taxes	58			13
Other accrued taxes	391			456
Accrued interest	268			251
Accrued vacation pay	213			217
Accrued compensation	282			303
Other regulatory liabilities, current	92			92
Other current liabilities	337			347
Total current liabilities	5,974			5,536
Long-term Debt	22,121			21,344
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes	10,644			10,563
Deferred credits related to income taxes	194			202
Accumulated deferred investment tax credits	1,014			966
Employee benefit obligations	1,428			1,461
Asset retirement obligations	2,026			2,006
Other cost of removal obligations	1,332			1,270
Other regulatory liabilities, deferred	537			475
Other deferred credits and liabilities	573			584
Total deferred credits and other liabilities	17,748			17,527
Total Liabilities	45,843			44,407
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 — June 30, 2014: 897 million shares
— December 31, 2013: 893 million shares
Treasury — June 30, 2014: 0.9 million shares
— December 31, 2013: 5.7 million shares
Par value	4,480			4,461
Paid-in capital	5,499			5,362
Treasury, at cost	(35		)	(250		)
Retained earnings	9,553			9,510
Accumulated other comprehensive loss	(71		)	(75		)
Total Common Stockholders' Equity	19,426			19,008
Preferred and Preference Stock of Subsidiaries	756			756
Total Stockholders' Equity	20,182			19,764
Total Liabilities and Stockholders' Equity	$	66,400		$	64,546

The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.

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SOUTHERN COMPANY AND SUBSIDIARY COMPANIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SECOND QUARTER 2014 vs. SECOND QUARTER 2013

AND

YEAR-TO-DATE 2014 vs. YEAR-TO-DATE 2013

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.

In addition, subsidiaries of Southern Company are constructing Plant Vogtle Units 3 and 4 (45.7% ownership interest by Georgia Power in two units, each with approximately 1,100 MWs) and the Kemper IGCC (in which Mississippi Power is ultimately expected to hold an 85% ownership interest in the 582-MW facility). See RESULTS OF OPERATIONS – "Estimated Loss on Kemper IGCC," FUTURE EARNINGS POTENTIAL – "Construction Program," 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.

Southern Company continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, execution of major construction projects, 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. See Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for information regarding the revision to the cost estimate for the Kemper IGCC that has negatively impacted Southern Company's earnings per share, one of its key performance indicators, for 2014, as compared to the target.

RESULTS OF OPERATIONS

Net Income

Southern Company's second quarter 2014 net income after dividends on preferred and preference stock of subsidiaries was $611 million ($0.68 per share) compared to $297 million ($0.34 per share) for the second quarter 2013. The increase was primarily the result of a $450 million pre-tax charge ($278 million after tax) recorded in the second quarter 2013 with respect to a revision of the estimated costs expected to be incurred on Mississippi Power's construction of the Kemper IGCC. In addition, the increase was related to an increase in revenues due to warmer weather in the second quarter 2014 compared to the corresponding period in 2013 as well as retail base rate increases, partially offset by increases in non-fuel operations and maintenance expenses.

Southern Company's year-to-date 2014 net income after dividends on preferred and preference stock of subsidiaries was $962 million ($1.08 per share) compared to $378 million ($0.43 per share) for the corresponding period in 2013. The increase was primarily the result of a $380 million pre-tax charge ($235 million after tax) recorded in the first quarter 2014 compared to $990 million in pre-tax charges ($611 million after tax) in the first half of 2013 for

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revisions of estimated costs expected to be incurred on Mississippi Power's construction of the Kemper IGCC. The increase was also related to an increase in revenues due to colder weather in the first quarter 2014 and warmer weather in the second quarter 2014 compared to the corresponding periods in 2013 as well as retail base rate increases, partially offset by increases in non-fuel operations and maintenance expenses.

Retail Revenues

In the second quarter 2014, retail revenues were $3.8 billion compared to $3.6 billion for the corresponding period in 2013. For year-to-date 2014, retail revenues were $7.6 billion compared to $6.9 billion for the corresponding period in 2013.

Details of the changes in retail revenues were as follows:



	Second Quarter 2014				Year-to-Date 2014
	(in millions)		(% change)		(in millions)		(% change)
Retail – prior year	$	3,620			$	6,918
Estimated change resulting from –
Rates and pricing	68		1.9		152		2.2
Sales growth	7		0.2		21		0.3
Weather	34		0.9		151		2.2
Fuel and other cost recovery	41		1.1		386		5.6
Retail – current year	$	3,770	4.1	%	$	7,628	10.3	%

Revenues associated with changes in rates and pricing increased in the second quarter 2014 when compared to the corresponding period in 2013 primarily due to retail rate increases at Alabama Power, Georgia Power, and Gulf Power effective January 1, 2014. The increase in revenues at Georgia Power was primarily due to base tariff increases, as approved by the Georgia PSC in the 2013 ARP, and increases in collections for financing costs related to the construction of Plant Vogtle Units 3 and 4 through the NCCR tariff. Also contributing to the increase were increased revenues at Alabama Power associated with Rate CNP Environmental primarily resulting from the inclusion of pre-2005 environmental assets and increased revenues at Gulf Power primarily resulting from the retail base rate increase, as approved by the Florida PSC.

Revenues associated with changes in rates and pricing increased year-to-date 2014 when compared to the corresponding period in 2013 primarily due to retail rate increases at all of the traditional operating companies. The increase in revenues at Georgia Power was primarily due to base tariff increases effective January 1, 2014, as approved by the Georgia PSC in the 2013 ARP, and increases in collections for financing costs related to the construction of Plant Vogtle Units 3 and 4 through the NCCR tariff as well as higher contributions from market-driven rates from commercial and industrial customers. Also contributing to the increase were increased revenues at Alabama Power associated with Rate CNP Environmental primarily resulting from the inclusion of pre-2005 environmental assets, increased revenues at Mississippi Power related to a PEP base rate increase and the recognition as revenue of a portion of the rate increase related to Kemper IGCC cost recovery, which both became effective March 19, 2013, and increased revenues at Gulf Power primarily resulting from the retail base rate increase effective January 2014, as approved by the Florida PSC.

See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Rate Plans," "Retail Regulatory Matters – Alabama Power – Rate CNP," and "Retail Regulatory Matters – Gulf Power – Retail Base Rate Case" in Item 8 of the Form 10-K for additional information. Also see Note (B) to the

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Condensed Financial Statements under "Retail Regulatory Matters – Mississippi Power – Performance Evaluation Plan" and "Integrated Coal Gasification Combined Cycle" herein for additional information.

Revenues attributable to changes in sales increased in the second quarter 2014 when compared to the corresponding period in 2013. The increase was due to a 3.0% increase in industrial KWH sales, partially offset by a 0.6% decrease in weather-adjusted residential KWH sales while weather-adjusted commercial KWH sales remained flat. The increase in industrial KWH sales for the second quarter 2014 was primarily due to increased sales in the chemicals, paper, primary metals, transportation, and stone, clay, and glass sectors. The decrease in weather-adjusted residential KWH sales for the second quarter 2014 was primarily due to decreased customer usage, partially offset by customer growth.

Revenues attributable to changes in sales increased for year-to-date 2014 when compared to the corresponding period in 2013. The increase was due to a 2.9% increase in industrial KWH sales and a 0.3% increase in weather-adjusted residential KWH sales, partially offset by a 0.1% decrease in weather-adjusted commercial KWH sales. The increase in industrial KWH sales for year-to-date 2014 was primarily due to increased sales in the primary metals, chemicals, paper, transportation, and stone, clay, and glass sectors. The increase in weather-adjusted residential KWH sales for year-to-date 2014 was primarily due to customer growth, partially offset by decreased customer usage. The decrease in weather-adjusted commercial KWH sales for year-to-date 2014 was primarily due to decreased customer usage, partially offset by customer growth.

Fuel and other cost recovery revenues increased $41 million in the second quarter 2014 when compared to the corresponding period in 2013 primarily due to increased energy sales. Fuel and other cost recovery revenues increased $386 million for year-to-date 2014 when compared to the corresponding period in 2013 primarily due to higher fuel costs and increased energy sales.

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. The traditional operating companies may also have one or more regulatory mechanisms to recover other costs such as environmental, storm damage, new plants, and PPAs.

Wholesale Revenues

Wholesale revenues consist of PPAs primarily with investor-owned utilities and electric cooperatives and short-term opportunity sales. Wholesale revenues from PPAs 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 second quarter 2014, wholesale revenues were $515 million compared to $454 million for the corresponding period in 2013 primarily related to a $66 million increase in energy revenues. The increase in energy revenues was primarily related to new solar PPAs and requirements contracts, increased revenue under existing contracts, and an increase in KWH sales resulting from utilization of the Southern Company system's lower cost generation.

For year-to-date 2014, wholesale revenues were $1.12 billion compared to $886 million for the corresponding period in 2013, reflecting a $221 million increase in energy revenues and a $12 million increase in capacity

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revenues. The increase in energy revenues was primarily related to increased demand resulting from colder weather in the first quarter 2014 compared to the corresponding period in 2013 and an increase in the average cost of natural gas. Also contributing to the increase in energy revenues were increased revenue under existing contracts as well as new solar PPAs and requirements contracts. The increase in capacity revenues was primarily due to wholesale base rate increases at Mississippi Power.

Other Electric Revenues

In the second quarter 2014, other electric revenues were $169 million compared to $156 million for the corresponding period in 2013. For year-to-date 2014, other electric revenues were $334 million compared to $311 million for the corresponding period in 2013. The increases were primarily due to increases in transmission revenues at Alabama Power and Georgia Power related to the open access transmission tariff and solar application fee revenue at Georgia Power.

Fuel and Purchased Power Expenses



	Second Quarter 2014 vs. Second Quarter 2013			Year-to-Date 2014 vs. Year-to-Date 2013
	(change in millions)		(% change)	(change in millions)		(% change)
Fuel	$	88	6.4	$	473	17.9
Purchased power	6		4.7	98		44.1
Total fuel and purchased power expenses	$	94		$	571

In the second quarter 2014, total fuel and purchased power expenses were $1.6 billion compared to $1.5 billion for the corresponding period in 2013. The increase was primarily the result of a $104 million increase in the volume of KWHs generated primarily due to increased demand resulting from warmer weather in the second quarter 2014 compared to the corresponding period in 2013 and a $49 million increase in the average cost of purchased power, partially offset by a $40 million decrease in the volume of KWHs purchased as the marginal cost of the Southern Company system's generation available was lower than the market cost of available energy and a $19 million decrease in the average cost of fuel.

For year-to-date 2014, total fuel and purchased power expenses were $3.4 billion compared to $2.9 billion for the corresponding period in 2013. The increase was primarily the result of a $313 million increase in the average cost of fuel and purchased power primarily due to higher natural gas prices and a $312 million increase in the volume of KWHs generated primarily due to increased demand resulting from colder weather in the first quarter 2014 and warmer weather in the second quarter 2014 compared to the corresponding periods in 2013. These increases were partially offset by a $54 million decrease in the volume of KWHs purchased as the marginal cost of the Southern Company system's generation available was lower than the market cost of available energy.

Fuel and purchased power energy transactions at the traditional operating companies are generally offset by fuel 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:



	Second Quarter 2014	Second Quarter 2013	Year-to-Date 2014	Year-to-Date 2013
Total generation (billions of KWHs)	47	44	94	86
Total purchased power (billions of KWHs)	2	3	5	6
Sources of generation (percent) —
Coal	44	41	45	37
Nuclear	17	17	16	17
Gas	36	37	35	41
Hydro	3	5	4	5
Cost of fuel, generated (cents per net KWH) —
Coal	3.79	4.06	4.00	4.10
Nuclear	0.89	0.88	0.89	0.86
Gas	3.82	3.56	4.00	3.32
Average cost of fuel, generated (cents per net KWH)	3.28	3.30	3.46	3.19
Average cost of purchased power (cents per net KWH)^(a)	7.41	5.32	8.20	4.98


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

Fuel

In the second quarter 2014, fuel expense was $1.5 billion compared to $1.4 billion for the corresponding period in 2013. The increase was primarily due to a 14.0% increase in the volume of KWHs generated by coal and a 25.2% decrease in the volume of KWHs generated by hydro facilities resulting from less rainfall.

For year-to-date 2014, fuel expense was $3.1 billion compared to $2.6 billion for the corresponding period in 2013. The increase was primarily due to a 31.4% increase in the volume of KWHs generated by coal, a 20.5% increase in the average cost of natural gas per KWH generated, and an 18.4% decrease in the volume of KWHs generated by hydro facilities resulting from less rainfall, partially offset by an 11.4% decrease in the volume of KWHs generated by natural gas.

Purchased Power

In the second quarter 2014, purchased power expense was $133 million compared to $127 million for the corresponding period in 2013. The increase was primarily due to a 39.3% increase in the average cost per KWH purchased, partially offset by a 23.9% decrease in the volume of KWHs purchased as the marginal cost of the Southern Company system's generation available was lower than the market cost of available energy primarily due to higher natural gas prices.

For year-to-date 2014, purchased power expense was $320 million compared to $222 million for the corresponding period in 2013. The increase was primarily due to a 64.7% increase in the average cost per KWH purchased, partially offset by a 17.5% decrease in the volume of KWHs purchased as the marginal cost of the Southern Company system's generation available was lower than the market cost of available energy primarily due to higher natural gas prices.

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 second quarter 2014, other operations and maintenance expenses were $1.02 billion compared to $947 million for the corresponding period in 2013. The increase was primarily due to a $30 million increase in scheduled outage and maintenance costs at generation facilities, a $19 million increase in transmission and distribution costs primarily related to overhead line maintenance, a $14 million net increase in employee compensation and benefits including pension, a $9 million increase in commodity and contract labor costs, and a $7 million increase in customer accounts, service, and sales costs primarily related to customer incentive and demand-side management programs. The increase in scheduled outage and maintenance costs was partially offset by a $16 million deferral of certain non-nuclear outage expenditures under an accounting order at Alabama Power.

For year-to-date 2014, other operations and maintenance expenses were $2.0 billion compared to $1.9 billion for the corresponding period in 2013. The increase was primarily due to a $57 million increase in scheduled outage and maintenance costs at generation facilities, a $23 million increase in transmission and distribution costs primarily related to overhead line maintenance, a $23 million increase in commodity and contract labor costs, and a $10 million increase in litigation expense. The increase in scheduled outage and maintenance costs was partially offset by a $41 million deferral of certain non-nuclear outage expenditures under an accounting order at Alabama Power.

See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Alabama Power – Non-Nuclear Outage Accounting Order" in Item 8 of the Form 10-K for additional information related to non-nuclear outage expenditures. Also see Note (F) to the Condensed Financial Statements herein for additional information related to pension costs.

Depreciation and Amortization

In the second quarter 2014, depreciation and amortization was $504 million compared to $476 million for the corresponding period in 2013. For year-to-date 2014, depreciation and amortization was $1.0 billion compared to $942 million for the corresponding period in 2013. The increases were primarily due to an increase in depreciation rates related to environmental assets at Alabama Power, an increase in plant in service at Southern Power related to the additions of Plants Campo Verde and Spectrum in the second half of 2013 as well as equipment retirements resulting from accelerated outage work in 2014, and the completion of amortization related to state income tax credits in December 2013 at Georgia Power. These increases were partially offset by a decrease in depreciation and amortization at Georgia Power, as authorized in the 2013 ARP. The increase for year-to-date 2014 was also partially offset by reductions in depreciation at Gulf Power, as approved by the Florida PSC. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "PSC Matters – Alabama Power – Rate CNP" of Southern Company in Item 7 of the Form 10-K for additional information regarding Alabama Power's revision to Rate CNP Environmental.

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Taxes Other Than Income Taxes

In the second quarter 2014, taxes other than income taxes were $246 million compared to $232 million for the corresponding period in 2013. For year-to-date 2014, taxes other than income taxes were $493 million compared to $467 million for the corresponding period in 2013. The increases were primarily the result of an increase in municipal franchise fees related to higher retail revenues in 2014.

Estimated Loss on Kemper IGCC

In the second quarter 2013, an estimated probable loss on the Kemper IGCC of $450 million was recorded at Southern Company. For year-to-date 2014 and 2013, estimated probable losses on the Kemper IGCC of $380 million and $990 million, respectively, were recorded at Southern Company. These losses reflect revisions of estimated costs expected to be incurred on Mississippi Power's construction of the Kemper IGCC in excess of the $2.88 billion cost cap established by the Mississippi PSC, net of $245 million of grants awarded to the project by the DOE under the Clean Coal Power Initiative Round 2 (DOE Grants) and excluding the cost of the lignite mine and equipment, the cost of the CO₂ pipeline facilities, AFUDC, and certain general exceptions, including change of law, force majeure, and beneficial capital (which exists when Mississippi Power demonstrates that the purpose and effect of the construction cost increase is to produce efficiencies that will result in a neutral or favorable effect on customers relative to the original proposal for the CPCN) (Cost Cap Exceptions). See FUTURE EARNINGS POTENTIAL – "Construction Program" and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information.

Allowance for Equity Funds Used During Construction

In the second quarter 2014, AFUDC equity was $62 million compared to $45 million for the corresponding period in 2013. For year-to-date 2014, AFUDC equity was $119 million compared to $86 million for the corresponding period in 2013. The increases were primarily due to an increase in CWIP related to Mississippi Power's Kemper IGCC. See Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information regarding the Kemper IGCC.

Interest Expense, Net of Amounts Capitalized

In the second quarter 2014, interest expense, net of amounts capitalized was $210 million compared to $215 million in the corresponding period in 2013. For year-to-date 2014, interest expense, net of amounts capitalized was $416 million compared to $426 million in the corresponding period in 2013. The decreases were primarily related to the refinancing of long-term debt at lower rates and capitalized interest at Mississippi Power, partially offset by an

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increase in outstanding long-term debt and an increase in interest expense at Mississippi Power resulting from the SMEPA deposit received in January 2014 related to its pending purchase of an undivided interest in the Kemper IGCC. See Note (E) to the Condensed Financial Statements herein for additional information.

Other Income (Expense), Net

N/M – Not meaningful

In the second quarter 2014, other income (expense), net was $(6) million compared to $1 million for the corresponding period in 2013. The change was primarily due to a decrease in sales of non-utility property at Alabama Power.

For year-to-date 2014, other income (expense), net was $(13) million compared to $(26) million for the corresponding period in 2013. The decrease in expense was primarily due to a $26 million charge related to the restructuring of a leveraged lease investment in the first quarter 2013, partially offset by a decrease in sales of non-utility property at Alabama Power.

Income Taxes

In the second quarter 2014, income taxes were $321 million compared to $158 million for the corresponding period in 2013. The increase was primarily due to a tax benefit related to the estimated probable loss recorded in 2013 on Mississippi Power's construction of the Kemper IGCC.

For year-to-date 2014, income taxes were $497 million compared to $189 million for the corresponding period in 2013. The increase was primarily due to higher pre-tax earnings and a lower tax benefit related to the estimated probable losses recorded on Mississippi Power's construction of the Kemper IGCC.

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 and the completion and subsequent operation of the Kemper IGCC and Plant Vogtle Units 3 and 4 as well as other ongoing construction projects. Another major factor is the profitability of the competitive wholesale business. Future earnings for the electricity business in the near term will depend, in part, upon maintaining and growing sales which is subject to a number of factors. These factors include weather, competition, new energy contracts with other 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 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 regional and global economic conditions may impact sales for the traditional operating companies and Southern Power as 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

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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.

Environmental Statutes and Regulations

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations" and – "PSC Matters – Alabama Power – Environmental Accounting Order" of Southern Company in Item 7 of the Form 10-K and "PSC Matters – Alabama Power – Environmental Accounting Order" herein for additional information regarding Alabama Power's plan for compliance with environmental statutes and regulations.

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 regarding the Cross State Air Pollution Rule (CSAPR) and the EPA's proposed rules regarding the regulation of excess emissions during periods of startup, shutdown, or malfunction (SSM).

On April 29, 2014, the U.S. Supreme Court overturned the U.S. Court of Appeals for the District of Columbia Circuit's August 2012 decision to vacate CSAPR and remanded the case back to the U.S. Court of Appeals for the District of Columbia Circuit for further proceedings. On June 26, 2014, the EPA requested that the U.S. Court of Appeals for the District of Columbia Circuit lift the stay on CSAPR and approve a revised schedule with compliance to begin on January 1, 2015.

On June 10, 2014, the EPA entered into a revised settlement agreement requiring it to issue a supplemental proposed SSM rule by September 5, 2014 and finalize the proposed rule by May 22, 2015.

The ultimate outcome of these matters cannot be determined at this time.

Water Quality

On April 21, 2014, the EPA and the U.S. Army Corps of Engineers jointly published a proposed rule to revise the regulatory definition of waters of the U.S. for all Clean Water Act (CWA) programs, significantly expanding the scope of federal jurisdiction under the CWA. If finalized as proposed, this rule could significantly increase permitting and regulatory requirements and costs associated with the siting of new facilities and the installation, expansion, and maintenance of transmission and distribution lines. In addition, the rule as proposed could have significant impacts on economic development projects which could affect customer demand growth. The ultimate impact of the proposed rule will depend on the specific requirements of the final rule and the outcome of any legal challenges and cannot be determined at this time.

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Water Quality" of Southern Company in Item 7 of the Form 10-K for additional information regarding the EPA's rulemaking for cooling water intake structures.

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On May 19, 2014, the EPA signed a final rule establishing standards for reducing effects on fish and other aquatic life caused by new and existing cooling water intake structures at existing power plants and manufacturing facilities. The ultimate outcome of this final rule will depend on the results of additional studies and implementation of the rule by state regulators, but could result in additional capital and operational costs associated with changes to existing intake structures and cooling systems and increased costs associated with the construction of new generating units. The ultimate impact of this rule will depend on the outcome of any legal challenges and cannot be determined at this time.

Global Climate Issues

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Global Climate Issues" of Southern Company in Item 7 of the Form 10-K for additional information regarding the EPA's current and proposed regulation of GHG emissions under the Clean Air Act.

On June 18, 2014, the EPA published the proposed Clean Power Plan, setting forth guidelines for states to develop plans to address CO₂ emissions from existing fossil fuel-fired electric generating units. The EPA's proposed guidelines establish state-specific interim and final CO₂ emission rate goals to be achieved between 2020 and 2029 and in 2030 and thereafter. The EPA also published the proposed CO₂ performance standards for modified and reconstructed fossil fuel-fired electric generating units. If finalized as proposed, the proposed guidelines and standards could result in operational restrictions and material compliance costs, including capital expenditures, that could impact unit retirement and replacement decisions. Also, additional compliance costs could affect results of operations, cash flows, and financial condition if such costs are not recovered through regulated rates or through market-based contracts. Further, any resulting higher costs that are recovered through regulated rates could contribute to reduced demand for electricity, which could negatively impact results of operations, cash flows, and financial condition. The ultimate impact of these proposals will depend on the specific requirements of the final guidelines and performance standards, implementation by states, and the outcome of any legal challenges and cannot be determined at this time.

On June 23, 2014, the U.S. Supreme Court struck down a portion of the EPA's program for GHG permitting under the Prevention of Significant Deterioration and Title V operating permit programs, holding that a facility's GHG emissions alone could not trigger a requirement to obtain a permit and that the EPA did not have the authority to tailor the statutory permitting thresholds. The ultimate impact of this decision cannot be determined at this time.

PSC Matters

Retail Fuel Cost Recovery

The traditional operating companies each have established fuel cost recovery rates approved by their respective state PSCs. 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 cash flow. The traditional operating companies continuously monitor their under or over recovered fuel cost balances. At June 30, 2014, Georgia Power, Gulf Power, and Mississippi Power had total under recovered fuel costs included on Southern Company's Condensed Balance Sheet herein of approximately $302 million. At December 31, 2013, Gulf Power had under recovered fuel costs included on Southern Company's Condensed Balance Sheet herein of approximately $21 million. The total over recovered fuel balance at Alabama Power included on Southern Company's Condensed Balance Sheet herein was approximately $19 million at June 30, 2014 compared to the total over recovered fuel balance at Alabama Power, Georgia Power, and Mississippi Power at December 31, 2013 of approximately $115 million.

See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Alabama Power – Retail Energy Cost Recovery" and "Retail Regulatory Matters – Georgia Power – Fuel Cost Recovery" in Item 8 of the Form 10-K for additional information.

Georgia Power's under recovered fuel balance exceeded the $200 million threshold, triggering the Interim Fuel Rider mechanism. Therefore, on July 7, 2014, Georgia Power filed a plan with the Georgia PSC recommending that

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the Georgia PSC defer any action on the under recovered fuel balance until the next fuel case which is expected to be filed by February 27, 2015. The Georgia PSC took no action on Georgia Power's filing within 30 days; therefore, the existing fuel rates remain in place. See Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Fuel Cost Recovery" herein for additional information.

Alabama Power

Environmental Accounting Order

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations" and – "PSC Matters – Alabama Power – Environmental Accounting Order" of Southern Company in Item 7 of the Form 10-K for additional information regarding Alabama Power's plan for compliance with environmental statutes and regulations.

As part of its environmental compliance strategy, Alabama Power plans to retire Plant Gorgas Units 6 and 7. These units represent 200 MWs of Alabama Power's approximately 12,200 MWs of generating capacity. Alabama Power also plans to cease using coal at Plant Barry Units 1 and 2 (250 MWs), but such units will remain available on a limited basis with natural gas as the fuel source. Additionally, Alabama Power expects to cease using coal at Plant Barry Unit 3 (225 MWs) and Plant Greene County Units 1 and 2 (300 MWs) and begin operating those units solely on natural gas. These plans are expected to be effective no later than April 2016.

In accordance with an accounting order from the Alabama PSC, Alabama Power will transfer the unrecovered plant asset balances to a regulatory asset at their respective retirement dates. The regulatory asset will be amortized over the remaining useful lives, as established prior to the decision for retirement. As a result, these decisions will not have a significant impact on Southern Company's financial statements.

Nuclear Waste Fund Accounting Order

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Other Matters" of Southern Company in Item 7 of the Form 10-K and "Other Matters" herein for additional information regarding the court order for the DOE to set the spent fuel depositary fees at zero.

On August 5, 2014, the Alabama PSC issued an order to provide for the continued recovery from customers of amounts associated with the permanent disposal of nuclear waste from the operation of Plant Farley. In accordance with the order, effective May 16, 2014, Alabama Power is authorized to recover from customers an amount equal to the prior fee and to record the amounts in a regulatory liability account (approximately $14 million annually). Upon the DOE meeting the requirements of the Nuclear Waste Policy Act of 1982 and a new spent fuel depositary fee being put in place, the accumulated balance in the regulatory liability account will be available for purposes of the associated cost responsibility. In the event the balance is later determined to be more than needed, those amounts would be used for the benefit of customers subject to the approval of the Alabama PSC. The ultimate outcome of this matter cannot be determined at this time.

Georgia Power

Renewables Development

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

On May 20, 2014, the Georgia PSC approved Georgia Power's application for the certification of two PPAs executed in April 2013 for the purchase of energy from two wind farms in Oklahoma with capacity totaling 250 MWs that will begin in 2016 and end in 2035.

As a result of biomass PPA amendments executed by Georgia Power during the second and third quarters of 2014, contractual obligations related to PPAs decreased $491 million from December 31, 2013. Estimated purchased

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power contractual obligations have been updated for Southern Company to $689 million for 2015 and 2016, $748 million for 2017 and 2018, and $3.8 billion after 2018. Estimated purchased power contractual obligations did not change for 2014. The counterparties of the aforementioned PPAs have posted collateral as required. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations – Contractual Obligations" of Southern Company in Item 7 of the Form 10-K for additional information.

Integrated Resource Plan

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

Georgia Power filed a request with the Georgia PSC on January 10, 2014 to cancel the proposed biomass fuel conversion of Plant Mitchell Unit 3 (155 MWs) because it would not be cost effective for customers. On July 1, 2014, the Georgia PSC approved Georgia Power's request. The January 10, 2014 filing also notified the Georgia PSC of Georgia Power's plan to seek decertification later this year. Georgia Power now expects to request decertification of Plant Mitchell Unit 3 in connection with the triennial Integrated Resource Plan in 2016. Georgia Power plans to continue to operate the unit as needed until the Mercury and Air Toxics Standards rule becomes effective in April 2015.

Storm Damage Recovery

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "PSC Matters – Georgia Power – Storm Damage Recovery" of Southern Company in Item 7 of the Form 10-K for additional information.

Georgia Power defers and recovers certain costs related to damages from major storms as mandated by the Georgia PSC. As of June 30, 2014 and December 31, 2013, the balance in the regulatory asset related to storm damage was $107 million and $37 million, respectively. The increase was primarily the result of an ice storm in February 2014. As a result of the regulatory treatment, costs related to storms are generally not expected to have a material impact on Southern Company's financial statements.

Income Tax Matters

Bonus Depreciation

In January 2013, the American Taxpayer Relief Act of 2012 (ATRA) was signed into law. The ATRA retroactively extended several tax credits through 2013 and extended 50% bonus depreciation for property placed in service in 2013 (and for certain long-term production-period projects to be placed in service in 2014), which is currently expected to apply primarily to the combined cycle and associated common facilities portion of the Kemper IGCC. The estimated cash flow benefit of approximately $120 million is dependent upon placing the assets in service in 2014. As discussed in Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein, the remainder of the Kemper IGCC, including the gasification system, would not qualify for bonus depreciation under the ATRA if placed in service after 2014.

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, 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

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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.

The two largest construction projects currently underway in the Southern Company system are Plant Vogtle Units 3 and 4 (45.7% ownership interest by Georgia Power in two units, each with approximately 1,100 MWs) and the 582-MW Kemper IGCC (in which Mississippi Power is ultimately expected to hold an 85% ownership interest). See FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" herein for the cost estimate of the Southern Company system's construction program, which includes the current construction cost estimate to complete the Kemper IGCC. Also see Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Nuclear 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.

From 2013 through June 30, 2014, Southern Company has recorded pre-tax charges totaling $1.56 billion ($963.3 million after tax) for revisions of estimated costs expected to be incurred on Mississippi Power's construction of the Kemper IGCC above the $2.88 billion cost cap established by the Mississippi PSC, net of the DOE Grants and excluding the Cost Cap Exceptions. In subsequent periods, any further changes in the estimated costs to complete construction of the Kemper IGCC subject to the $2.88 billion cost cap, net of the DOE Grants and excluding the Cost Cap Exceptions, will be reflected in Southern Company's statements of income and these changes could be material.

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, property damage, and other claims for damages alleged to have been caused by CO₂ and other emissions, coal combustion residuals, and alleged exposure to hazardous materials, and/or requests for injunctive relief in connection with such matters, 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) to the Condensed Financial Statements 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 NRC's performance of additional operational and safety reviews of nuclear facilities in the U.S. following the major earthquake and tsunami that struck Japan in 2011.

Additionally, there are 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 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 court order for the DOE to set the spent fuel depositary fees at zero. On March 18, 2014, the U.S. Court of Appeals for the District of

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Columbia Circuit denied the DOE's request for rehearing of the November 2013 panel decision ordering that the DOE propose the nuclear waste fund fee be changed to zero. The DOE formally set the fee to zero effective May 16, 2014. On June 17, 2014, the Georgia PSC approved Georgia Power's request to credit customers the portion of fuel cost related to the nuclear waste fund fee. The nuclear waste fund rider was implemented July 1, 2014. See "PSC Matters – Alabama Power – Nuclear Waste Fund Accounting Order" herein for information regarding an accounting order issued by the Alabama PSC which provides for continued recovery from customers of amounts associated with the permanent disposal of nuclear waste from the operation of Plant Farley. The ultimate outcome of this matter cannot be determined at this time.

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, and Pension and Other Postretirement Benefits.

Kemper IGCC Estimated Construction Costs, Project Completion Date, and Rate Recovery

During 2014, Mississippi Power further extended the scheduled in-service date for the Kemper IGCC to the second quarter 2015 and revised its cost estimate to complete construction and start-up of the Kemper IGCC to an amount that exceeds the $2.88 billion cost cap, net of the DOE Grants and excluding the Cost Cap Exceptions. Mississippi Power does not intend to seek any rate recovery or any joint owner contributions for any related costs that exceed the $2.88 billion cost cap, net of the DOE Grants and excluding the Cost Cap Exceptions.

As a result of the revisions to the cost estimate, Southern Company recorded total pre-tax charges to income for the estimated probable losses on the Kemper IGCC of $380.0 million ($234.7 million after tax) in the first quarter 2014, $40.0 million ($24.7 million after tax) in the fourth quarter 2013, $150.0 million ($92.6 million after tax) in the third quarter 2013, $450.0 million ($277.9 million after tax) in the second quarter 2013, and $540.0 million ($333.5 million after tax) in the first quarter 2013. In the aggregate, Southern Company has incurred charges of $1.56 billion ($963.3 million after tax) as a result of changes in the cost estimate for the Kemper IGCC through June 30, 2014.

Mississippi Power has experienced, and may continue to experience, material volatility in the cost estimate for the Kemper IGCC. In subsequent periods, any further changes in the estimated costs to complete construction and start-up of the Kemper IGCC subject to the $2.88 billion cost cap, net of the DOE Grants and excluding the Cost Cap Exceptions, will be reflected in Southern Company's statements of income and these changes could be material. Any further cost increases and/or extensions of the in-service date with respect to the Kemper IGCC may result from factors including, but not limited to, labor costs and productivity, adverse weather conditions, shortages and inconsistent quality of equipment, materials, and labor, contract or supplier delay, non-performance under construction or other agreements, operational performance, operational readiness, unforeseen engineering or design problems, start-up activities for this first-of-a-kind technology (including major equipment failure and system integration), and/or operations.

Mississippi Power's revised cost estimate includes costs through May 31, 2015. Any further extension of the in-service date is currently estimated to result in additional costs of approximately $20 million per month, which includes maintaining necessary levels of start-up labor, materials, and fuel, as well as operational resources required to execute start-up and commissioning activities.

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Given the significant judgment involved in estimating the future costs to complete construction, the project completion date, the ultimate rate recovery for the Kemper IGCC, and the potential impact on Southern Company's results of operations, Southern Company considers these items to be critical accounting estimates. See Note 3 to the financial statements of Southern Company under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information.

Recently Issued Accounting Standards

On May 28, 2014, the Financial Accounting Standards Board issued ASC 606, Revenue from Contracts with Customers. ASC 606 revises the accounting for revenue recognition and is effective for fiscal years beginning after December 15, 2016. Southern Company is currently evaluating the requirements of ASC 606. The ultimate impact of the new standard has not yet been determined.

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. Although earnings for the six months ended June 30, 2014 were negatively affected by revisions to the cost estimate for the Kemper IGCC, Southern Company's financial condition remained stable at June 30, 2014. Through June 30, 2014, Southern Company has incurred non-recoverable cash expenditures of $925 million and is expected to incur approximately $635 million in additional non-recoverable cash expenditures through completion of the Kemper IGCC. 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 "Capital Requirements and Contractual Obligations," "Sources of Capital," and "Financing Activities" herein for additional information.

Net cash provided from operating activities totaled $2.1 billion for the first six months of 2014, an increase of $123 million from the corresponding period in 2013. The increase in net cash provided from operating activities was primarily due to an increase in revenue due to rate increases and the effects of weather and a reduction in fossil fuel stock resulting from an increase in KWH generation, partially offset by a decrease in receivables due to under recovered fuel costs. Net cash used for investing activities totaled $2.8 billion for the first six months of 2014 primarily due to property additions to utility plant. Net cash provided from financing activities totaled $623 million for the first six months of 2014. This was primarily due to issuances of long-term debt and common stock, partially offset by common stock dividend payments. Fluctuations in cash flow from financing activities vary from period to period based on capital needs and the maturity or redemption of securities.

Significant balance sheet changes for the first six months of 2014 include an increase of $1.6 billion in total property, plant, and equipment for construction of generation, transmission, and distribution facilities. Other significant changes include a $777 million increase in long-term debt (excluding amounts due within a year) to repay short-term debt and to fund the Southern Company subsidiaries' continuous construction programs, an increase of $335 million in notes payable due to an increase in commercial paper, an increase of $215 million in treasury stock issuances, an increase of $137 million in paid-in capital due to additional common stock issuances, and an increase of $116 million in securities due within one year.

At the end of the second quarter 2014, the market price of Southern Company's common stock was $45.38 per share (based on the closing price as reported on the New York Stock Exchange) and the book value was $21.69 per share, representing a market-to-book ratio of 209%, compared to $41.11, $21.43, and 192%, respectively, at the end of 2013. Southern Company's common stock dividend for the second quarter 2014 was $0.5250 per share compared to $0.5075 per share in the second quarter 2013.

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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 for new generating facilities and to comply with existing environmental statutes and regulations, scheduled maturities of long-term debt, as well as related interest, derivative obligations, preferred and preference stock dividends, leases, purchase commitments, trust funding requirements, and unrecognized tax benefits. Approximately $585 million will be required through June 30, 2015 to fund maturities of long-term debt.

The Southern Company system's construction program is currently estimated to be $6.9 billion for 2014, $5.6 billion for 2015, and $4.5 billion for 2016, which includes expenditures related to construction and start-up of the Kemper IGCC of $1.3 billion for 2014 and $208 million for 2015. The amounts related to the construction and start-up of the Kemper IGCC exclude SMEPA's proposed acquisition of a 15% ownership share of the Kemper IGCC for approximately $572 million (including construction costs for all prior periods relating to its proposed ownership interest). The Southern Company system's amounts include capital expenditures related to contractual purchase commitments for nuclear fuel and capital expenditures covered under long-term service agreements.

Southern Company anticipates that the Southern Company system's capital expenditure requirements will continue to decline through the middle of the decade, before rising again to meet additional requirements for environmental compliance and new generation.

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 regulatory requirements; changes in FERC rules and regulations; PSC approvals; changes in the expected environmental compliance program; 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. See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Nuclear 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 information regarding additional factors that may impact construction expenditures.

Sources of Capital

Southern Company intends to meet its future capital needs through internal cash flow, short-term debt, and external security issuances. Equity capital can be provided from any combination of Southern Company's stock plans, private placements, or public offerings. The amount and timing of additional equity capital to be raised in 2014, as well as in subsequent years, will be contingent on Southern Company's investment opportunities and the Southern Company system's capital requirements.

Except as described herein, the traditional operating companies and Southern Power plan to obtain the funds required for construction and other purposes from operating cash flows, security issuances, term loans, short-term borrowings, and equity contributions or loans 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.

On February 20, 2014, Georgia Power and the DOE entered into a loan guarantee agreement (Loan Guarantee Agreement), pursuant to which the DOE agreed to guarantee borrowings to be made by Georgia Power under a multi-advance credit facility (FFB Credit Facility) among Georgia Power, the DOE, and the FFB. Georgia Power is

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obligated to reimburse the DOE for any payments the DOE is required to make to the FFB under the guarantee. Georgia Power's reimbursement obligations to the DOE are secured by a first priority lien on (i) Georgia Power's 45.7% ownership interest in Plant Vogtle Units 3 and 4 (primarily the units under construction, the related real property, and any nuclear fuel loaded in the reactor core) and (ii) Georgia Power's rights and obligations under the principal contracts relating to Plant Vogtle Units 3 and 4. Under the FFB Credit Facility, Georgia Power may make term loan borrowings through the FFB. Proceeds of borrowings made under the FFB Credit Facility will be used to reimburse Georgia Power for a portion of certain costs of construction relating to Plant Vogtle Units 3 and 4 that are eligible for financing under the Loan Guarantee Agreement (Eligible Project Costs). Aggregate borrowings under the FFB Credit Facility may not exceed the lesser of (i) 70% of Eligible Project Costs or (ii) approximately $3.46 billion. See Note 6 to the financial statements of Southern Company in Item 8 of the Form 10-K for additional information regarding the Loan Guarantee Agreement and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" herein for additional information regarding Plant Vogtle Units 3 and 4.

Eligible Project Costs incurred through June 30, 2014 would allow for borrowings of up to $1.9 billion under the FFB Credit Facility. Through June 30, 2014, Georgia Power has borrowed $1.0 billion under the FFB Credit Facility, leaving $0.9 billion of currently available borrowing ability.

Mississippi Power has received $245 million of DOE Grants that were used for the construction of the Kemper IGCC. An additional $25 million of DOE Grants is expected to be received for commercial operation of the Kemper IGCC. In addition, see Note 3 to the financial statements of Southern Company under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for information regarding legislation related to the securitization of certain costs 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 June 30, 2014, Southern Company and its subsidiaries had approximately $583 million of cash and cash equivalents. Committed credit arrangements with banks at June 30, 2014 were as follows:



	Expires														Executable Term Loans				Due Within One Year
Company	2014		2015		2016		2017		2018		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	163		110		—		—		1,030		1,303		1,303		53		—		53		185
Georgia Power	—		—		150		—		1,600		1,750		1,736		—		—		—		—
Gulf Power	20		60		165		30		—		275		275		50		—		50		30
Mississippi Power	40		95		165		—		—		300		300		25		40		65		70
Southern Power	—		—		—		—		500		500		499		—		—		—		—
Other	—		70		—		—		—		70		70		20		—		20		25
Total	$	223	$	335	$	480	$	30	$	4,130	$	5,198	$	5,183	$	148	$	40	$	188	$	310

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.

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

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rate pollution control revenue bonds outstanding requiring liquidity support as of June 30, 2014 was approximately $1.7 billion. Subsequent to June 30, 2014, an additional $40 million of variable rate pollution control revenue bonds, previously purchased and held by Georgia Power, were remarketed to the public and currently require liquidity support. In addition, at June 30, 2014, the traditional operating companies had $495 million of fixed rate pollution control revenue bonds that were required to be remarketed within the next 12 months. Subsequent to June 30, 2014, $45 million of these fixed rate pollution control revenue bonds were remarketed to the public and currently are not required to be remarketed within the next 12 months.

Southern Company and its subsidiaries expect to renew their bank credit arrangements as needed, prior to expiration.

Most of these bank credit arrangements contain covenants that limit debt levels and contain cross default provisions to other indebtedness (including guarantee obligations) that are restricted only to the indebtedness of the individual company. Such cross default provisions to other indebtedness would trigger an event of default if the applicable borrower defaulted on indebtedness or guarantee obligations over a specified threshold. Southern Company, the traditional operating companies, and Southern Power are currently in compliance with all such covenants. None of the arrangements contain material adverse change clauses at the time of borrowings.

Southern Company, the traditional operating companies, and Southern Power make short-term borrowings primarily through commercial paper programs that have the liquidity support of committed bank credit arrangements. Southern Company, the traditional operating companies, and Southern Power may also borrow through various other arrangements with banks. Commercial paper and short-term bank loans are included in notes payable in the balance sheets.

Details of short-term borrowings were as follows:



	Short-term Debt at June 30, 2014			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	$	1,567	0.2%	$	1,004	0.2%	$	1,582
Short-term bank debt	250		0.8%	19		0.8%	250
Total	$	1,817	0.3%	$	1,023	0.2%

(a) Average and maximum amounts are based upon daily balances during the three-month period ended June 30, 2014.

Management believes the need for working capital can be adequately met by utilizing commercial paper programs, lines of credit, short-term bank notes, and cash.

Credit Rating Risk

Southern Company and its subsidiaries do 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, energy price risk management, and construction of new generation at Georgia Power's Plant Vogtle Units 3 and 4.

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The maximum potential collateral requirements under these contracts at June 30, 2014 were as follows:



Credit Ratings	Maximum Potential Collateral Requirements
	(in millions)
At BBB and Baa2	$	9
At BBB- and/or Baa3	448
Below BBB- and/or Baa3	2,246

Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, any credit rating downgrade could impact the ability of Southern Company and its subsidiaries to access capital markets, particularly the short-term debt market and the variable rate pollution control revenue bond market.

Financing Activities

During the first six months of 2014, Southern Company issued approximately 3.9 million shares of common stock for approximately $132.5 million through the employee and director stock plans, of which 150,000 shares related to Southern Company's performance share plan.

Since August 2013, Southern Company has used shares held in treasury, to the extent available, and newly-issued shares to satisfy the requirements under the Southern Investment Plan and the employee savings plan and, during the first six months of 2014, issued approximately 4.7 million shares for approximately $204.2 million.

The following table outlines the long-term debt financing activities for Southern Company and its subsidiaries for the first six months of 2014:



Company^(a)	Senior Note Maturities		Revenue Bond Issuances and Remarketings of Purchased Bonds^(b)		Revenue Bond Redemptions		Other Long-Term Debt Issuances			Other Long-Term Debt Redemptions^(c)
	(in millions)
Southern Company	$	350	$	—	$	—	$	—		$	—
Georgia Power	—		—		37		1,000			3
Gulf Power	—		42		29		—			—
Mississippi Power	—		—		—		482			1
Southern Power	—		—		—		10			1
Other	—		—		—		—			10
Elimination^(d)	—		—		—		(220		)	—
Total	$	350	$	42	$	66	$	1,272		$	15


(a)	Alabama Power did not issue or redeem any long-term debt during the first six months of 2014.


(b)	Includes remarketing by Gulf Power of $13 million aggregate principal amount of revenue bonds previously purchased and held by Gulf Power since December 2013.


(c)	Includes reductions in capital lease obligations resulting from cash payments under capital leases.


(d)	Intercompany loan from Southern Company to Mississippi Power eliminated in Southern Company's Condensed Consolidated Financial Statements.

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

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In addition to the amounts reflected in the table above, in June 2014, Southern Company entered into a 90-day floating rate bank loan bearing interest based on one-month LIBOR. This short-term loan was for $250 million aggregate principal amount and the proceeds were used for working capital and other general corporate purposes, including the investment by Southern Company in its subsidiaries.

In addition to the amounts reflected in the table above, in January 2014, Mississippi Power received an additional $75 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. See Note 3 to the financial statements of Southern Company in Item 8 of the Form 10-K under "Integrated Coal Gasification Combined Cycle – Proposed Sale of Undivided Interest to SMEPA" for additional information.

Georgia Power's "Other Long-Term Debt Issuances" reflected in the table above include initial borrowings under the FFB Credit Facility in an aggregate principal amount of $1.0 billion in February 2014. The interest rate applicable to $500 million of the initial advance under the FFB Credit Facility is 3.860% for an interest period that extends to February 20, 2044 (the final maturity date) and the interest rate applicable to the remaining $500 million is 3.488% for an interest period that extends to February 20, 2029 and is expected to be reset from time to time thereafter through the final maturity date. The final maturity date for all advances under the FFB Credit Facility is February 20, 2044. The proceeds of the initial borrowings under the FFB Credit Facility were used to reimburse Georgia Power for Eligible Project Costs relating to the construction of Plant Vogtle Units 3 and 4.

Under the Loan Guarantee Agreement, Georgia Power is subject to customary events of default, as well as cross-defaults to other indebtedness and events of default relating to any failure to make payments under the engineering, procurement, and construction contract, as amended, relating to Plant Vogtle Units 3 and 4 or certain other agreements providing intellectual property rights for Plant Vogtle Units 3 and 4. The Loan Guarantee Agreement also includes events of default specific to the DOE loan guarantee program, including the failure of Georgia Power or Southern Nuclear to comply with requirements of law or DOE loan guarantee program requirements. See Note 6 to the financial statements of Southern Company in Item 8 of the Form 10-K under "DOE Loan Guarantee Borrowings" for additional information.

In February 2014, Georgia Power repaid three four-month floating rate bank loans in an aggregate principal amount of $400 million.

Subsequent to June 30, 2014, Georgia Power reoffered to the public $40 million aggregate principal amount of Development Authority of Monroe County (Georgia) Pollution Control Revenue Bonds (Georgia Power Company Plant Scherer Project), First Series 2009, which had been previously purchased and held by Georgia Power since 2010.

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.

During the six months ended June 30, 2014, there were no material changes to each registrant's disclosures about market risk. For an in-depth discussion of each registrant's market risks, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Market Price Risk" of each registrant in Item 7 of the Form 10-K 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 Company 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 Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the second quarter 2014 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 Company'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 June 30,						For the Six Months Ended June 30,
	2014			2013			2014			2013
	(in millions)						(in millions)
Operating Revenues:
Retail revenues	$	1,249		$	1,221		$	2,546		$	2,362
Wholesale revenues, non-affiliates	65			61			150			120
Wholesale revenues, affiliates	68			60			137			116
Other revenues	55			50			112			102
Total operating revenues	1,437			1,392			2,945			2,700
Operating Expenses:
Fuel	414			401			846			773
Purchased power, non-affiliates	39			28			96			48
Purchased power, affiliates	37			41			86			72
Other operations and maintenance	330			319			655			649
Depreciation and amortization	172			159			347			317
Taxes other than income taxes	88			87			177			177
Total operating expenses	1,080			1,035			2,207			2,036
Operating Income	357			357			738			664
Other Income and (Expense):
Allowance for equity funds used during construction	11			8			21			16
Interest expense, net of amounts capitalized	(63		)	(65		)	(125		)	(131		)
Other income (expense), net	(3		)	2			(8		)	1
Total other income and (expense)	(55		)	(55		)	(112		)	(114		)
Earnings Before Income Taxes	302			302			626			550
Income taxes	119			119			246			216
Net Income	183			183			380			334
Dividends on Preferred and Preference Stock	10			10			20			20
Net Income After Dividends on Preferred and Preference Stock	$	173		$	173		$	360		$	314

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2014		2013		2014		2013
	(in millions)				(in millions)
Net Income	$	183	$	183	$	380	$	334
Other comprehensive income (loss):
Qualifying hedges:
Reclassification adjustment for amounts included in net income, net of tax of $-, $-, $- and $-, respectively	—		1		1		1
Total other comprehensive income (loss)	—		1		1		1
Comprehensive Income	$	183	$	184	$	381	$	335

The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.

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ALABAMA POWER COMPANY

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)



	For the Six Months Ended June 30,
	2014			2013
	(in millions)
Operating Activities:
Net income	$	380		$	334
Adjustments to reconcile net income to net cash provided from operating activities —
Depreciation and amortization, total	416			403
Deferred income taxes	49			53
Allowance for equity funds used during construction	(21		)	(16		)
Regulatory deferrals	(44		)	(9		)
Other, net	4			(3		)
Changes in certain current assets and liabilities —
-Receivables	(120		)	(65		)
-Fossil fuel stock	94			76
-Materials and supplies	(2		)	22
-Other current assets	(57		)	(45		)
-Accounts payable	(94		)	(93		)
-Accrued taxes	104			60
-Accrued compensation	(17		)	(54		)
-Retail fuel cost over recovery	(23		)	12
-Other current liabilities	5			4
Net cash provided from operating activities	674			679
Investing Activities:
Property additions	(637		)	(518		)
Nuclear decommissioning trust fund purchases	(121		)	(120		)
Nuclear decommissioning trust fund sales