1.0.0.3 false (B) CONTINGENCIES AND REGULATORY MATTERS false 1 $ false false Shares Standard http://www.xbrl.org/2003/instance shares xbrli 0 USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 2 (B) CONTINGENCIES AND REGULATORY MATTERS 0 so_ContingenciesAndRegulatoryMatters so false na duration string The abstract element for Note B to the financial statements. false false false false false true false false false 1 false false 0 0 false false The abstract element for Note B to the financial statements. false 3 Commitments and Contingencies Disclosure [Text Block] 1 us-gaap_CommitmentsAndContingenciesDisclosureTextBlock us-gaap true na duration string No definition available. false false false false false false false false false 1 false false 0 0 <div><div><a name="_AUC364c7a8ec5434bd9973db3526c243cbb">(B) CONTINGENCIES AND REGULATORY MATTERS</a> See Note 3 to the financial statements of the registrants in Item 8 of the Form 10-K for information relating to various lawsuits, other contingencies, and regulatory matters.   General Litigation Matters   Each registrant is subject to certain claims and legal actions arising in the ordinary course of business.  In addition, each registrant’s business activities are subject to extensive governmental regulation related to public health and the environment, 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 opacity and air and water quality standards, has increased generally throughout the United States.  In particular, personal injury claims for damages caused by alleged exposure to hazardous materials, and common law nuisance claims for injunctive relief and property damage allegedly caused by greenhouse gas emissions, have become more frequent.  The ultimate outcome of such pending or potential litigation against the registrants and any of their subsidiaries cannot be predicted at this time; however, for current proceedings not specifically reported herein or in Note 3 to the financial statements of each registrant in Item 8 of the Form 10-K, management does not anticipate that the liabilities, if any, arising from such <a name="OLE_LINK65">current</a> proceedings would have a material adverse effect on such registrant’s financial statements.   Mirant Matters   Mirant was an energy company with businesses that included independent power projects and energy trading and risk management companies in the United States and selected other countries.  It was a wholly-owned subsidiary of Southern Company until its initial public offering in October 2000.  In April 2001, Southern Company completed a spin-off to its shareholders of its remaining ownership, and Mirant became an independent corporate entity.   Mirant Bankruptcy   In July 2003, Mirant and certain of its affiliates filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Texas.  The Bankruptcy Court entered an order confirming Mirant’s plan of reorganization in December 2005, and Mirant announced that this plan became effective in January 2006.  As part of the plan, Mirant transferred substantially all of its assets and its restructured debt to a new corporation that adopted the name Mirant Corporation (Reorganized Mirant).   Southern Company has certain contingent liabilities associated with guarantees of contractual commitments made by Mirant’s subsidiaries discussed under “Guarantees” in Note 7 to the financial statements of Southern Company in Item 8 of the Form 10-K and with various lawsuits related to Mirant discussed below.  Also, Southern Company has joint and several liability with Mirant regarding the joint consolidated federal income tax returns through 2001, as discussed in Note 5 to the financial statements of Southern Company in Item 8 of the Form 10-K.  In December 2004, as a result of concluding an IRS audit for the tax years 2000 and 2001, Southern Company paid approximately $39 million in additional tax and interest related to Mirant tax items and filed a claim in Mirant’s bankruptcy case for that amount.  Southern Company has received from the IRS approximately $38 million in refunds related to Mirant.  Southern Company believes it has a right to recoup the $39 million tax payment owed by Mirant from such tax refunds.  As a result, Southern Company intends to retain the tax refunds and reduce its claim against Mirant for the payment of Mirant taxes by the amount of such refunds.  MC Asset Recovery, LLC, a special purpose subsidiary of Reorganized Mirant (MC Asset Recovery), has objected to and sought to equitably subordinate the Southern Company tax claim in its fraudulent transfer litigation against Southern Company.  Southern Company’s proofs of claim filed in the Mirant bankruptcy survive the settlement of the MC Asset Recovery litigation.  Southern Company has reserved the remaining amount with respect to its Mirant tax claim.   Under the terms of the separation agreements entered into in connection with the spin-off, Mirant agreed to indemnify Southern Company for costs associated with these guarantees, lawsuits, and additional IRS assessments.  As a result of Mirant’s bankruptcy, Southern Company sought reimbursement as an unsecured creditor in Mirant’s Chapter 11 proceeding.  As part of a complaint filed against Southern Company in June 2005 and amended thereafter, Mirant and The Official Committee of Unsecured Creditors of Mirant Corporation (Unsecured Creditors’ Committee) objected to and sought equitable subordination of Southern Company’s claims, and Mirant moved to reject the separation agreements entered into in connection with the spin-off, which motion was granted on June 4, 2009.  MC Asset Recovery has been substituted as plaintiff in the complaint.  If Southern Company’s claims for indemnification with respect to these, or any additional future payments, are allowed, then Mirant’s indemnity obligations to Southern Company would constitute unsecured claims against Mirant entitled to stock in Reorganized Mirant.  The final outcome of this matter cannot now be determined.   MC Asset Recovery Litigation   In June 2005, Mirant, as a debtor in possession, and the Unsecured Creditors’ Committee filed a complaint against Southern Company in the U.S. Bankruptcy Court for the Northern District of Texas, which was amended in July 2005, February 2006, May 2006, and March 2007.    <a name="_DV_C25">In December 2005, the Bankruptcy Court entered an order authorizing the transfer of this proceeding, along with certain other actions, to MC Asset Recovery.  Under that order, Reorganized Mirant was obligated to fund up to $20 million in professional fees in connection with the lawsuits, as well as certain additional amounts.  Any net recoveries from these lawsuits would be distributed to, and shared equally by, certain unsecured creditors and the original equity holders.  In January 2006, the U.S. District Court for the Northern District of Texas substituted MC Asset Recovery as plaintiff.</a>    The complaint, as amended in March 2007, alleged that Southern Company caused Mirant to engage in certain fraudulent transfers and to pay illegal dividends to Southern Company prior to the spin-off.  The alleged fraudulent transfers and illegal dividends included without limitation: (1) certain dividends from Mirant to Southern Company in the aggregate amount of $668 million, (2) the repayment of certain intercompany loans and accrued interest in an aggregate amount of $1.035 billion, and (3) the dividend distribution of one share of Series B Preferred Stock and its subsequent redemption in exchange for Mirant’s 80% interest in a holding company that owned SE Finance Capital Corporation and Southern Company Capital Funding, Inc., which transfer plaintiff asserted was valued at over $200 million.  The complaint also sought to recharacterize certain advances from Southern Company to Mirant for investments in energy facilities from debt to equity.  The complaint further alleged that Southern Company was liable to Mirant’s creditors for the full amount of Mirant’s liability under an alter ego theory of recovery and that Southern Company breached its fiduciary duties to Mirant and its creditors, caused Mirant to breach its fiduciary duties to creditors, and aided and abetted breaches of fiduciary duties by Mirant’s directors and officers.  The complaint also sought recoveries under the theories of restitution and unjust enrichment.  In addition, the complaint alleged a claim under the Federal Debt Collection Procedure Act (FDCPA) to avoid certain transfers from Mirant to Southern Company; however, in July 2008, the court ruled that the FDCPA does not apply and that Georgia law should apply instead.  The complaint sought monetary damages in excess of $2 billion plus interest, punitive damages, attorneys’ fees, and costs.  Finally, the complaint included an objection to Southern Company’s pending claims against Mirant in the Bankruptcy Court (which relate to reimbursement under the separation agreements of payments such as income taxes, interest, legal fees, and other guarantees described in Note 7 to the financial statements of Southern Company in Item 8 of the Form 10-K) and sought equitable subordination of Southern Company’s claims to the claims of all other creditors.  Southern Company served an answer to the complaint in April 2007.   In January 2006, the U.S. District Court for the Northern District of Texas granted Southern Company’s motion to withdraw this action from the Bankruptcy Court and, in February 2006, granted Southern Company’s motion to transfer the case to the U.S. District Court for the Northern District of Georgia.  In May 2006, Southern Company filed a motion for summary judgment seeking entry of judgment against the plaintiff as to all counts of the complaint.  In December 2006, the U.S. District Court for the Northern District of Georgia granted in part and denied in part the motion.  As a result, certain breach of fiduciary duty claims alleged in earlier versions of the complaint were barred; all other claims in the complaint were allowed to proceed.  In August 2008, Southern Company filed a second motion for summary judgment.  MC Asset Recovery filed its response to Southern Company’s motion for summary judgment in October 2008.  On February 5, 2009, the court denied the summary judgment motion in connection with the fraudulent conveyance and illegal dividend claims concerning certain advance return/loan repayments in 1999, dividends in 1999 and 2000, and transfers in connection with Mirant’s separation from Southern Company.  The court granted Southern Company’s motion for summary judgment with respect to certain claims, including claims for unjust enrichment, claims that Southern Company aided and abetted Mirant’s directors’ breach of fiduciary duties to Mirant, and claims that Southern Company used Mirant as an alter ego.  In addition, the court granted Southern Company’s motion in connection with the fraudulent transfer and illegal dividend claims concerning certain turbine termination payments.    On March 31, 2009, Southern Company entered into a settlement agreement with MC Asset Recovery to resolve the action.  The settlement includes an agreement by Southern Company to pay MC Asset Recovery $202 million and requires MC Asset Recovery to release Southern Company and certain other designated avoidance actions assigned to MC Asset Recovery in connection with Mirant’s plan of reorganization, as well as to release all actions against current or former officers and directors of Mirant and Southern Company that have or could have been filed.  Pursuant to the settlement, Southern Company recorded a charge in the first quarter 2009 of $202 million, which was paid in the second quarter 2009.  The settlement has been completed and resolves all claims by MC Asset Recovery against Southern Company.  On June 29, 2009, the case was dismissed with prejudice.  Southern Company’s claims in the Mirant bankruptcy remain pending.  Southern Company is currently evaluating potential recovery of the settlement payment through various means.  The degree to which any recovery is realized will determine, in part, the final income tax treatment of the settlement payment.  The ultimate outcome of any such recovery and/or income tax treatment cannot be determined at this time.   Environmental Matters   New Source Review Actions   In November 1999, the EPA brought a civil action in the U.S. District Court for the Northern District of Georgia against certain Southern Company subsidiaries, including Alabama Power and Georgia Power, alleging that these subsidiaries had violated the NSR provisions of the Clean Air Act and related state laws at certain coal-fired generating facilities.  Through subsequent amendments and other legal procedures, the EPA filed a separate action in January 2001 against Alabama Power in the U.S. District Court for the Northern District of Alabama after Alabama Power was dismissed from the original action.  In these lawsuits, the EPA alleged that NSR violations occurred at eight coal-fired generating facilities operated by Alabama Power and Georgia Power, including one facility co-owned by Mississippi Power.  The civil actions request penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units.  The EPA concurrently issued notices of violation to Gulf Power and Mississippi Power relating to Gulf Power’s Plant Crist and Mississippi Power’s Plant Watson.  In early 2000, the EPA filed a motion to amend its complaint to add Gulf Power and Mississippi Power as defendants based on the allegations in the notices of violation.  However, in March 2001, the Court denied the motion based on lack of jurisdiction, and the EPA has not refiled.  The action against Georgia Power has been administratively closed since the spring of 2001, and the case has not been reopened.   In June 2006, the U.S. District Court for the Northern District of Alabama entered a consent decree between Alabama Power and the EPA, resolving a portion of the Alabama Power lawsuit relating to the alleged NSR violations at Plant Miller.  The consent decree required Alabama Power to pay $100,000 to resolve the government’s claim for a civil penalty and to donate $4.9 million of sulfur dioxide emission allowances to a nonprofit charitable organization.  It also formalized specific emissions reductions to be accomplished by Alabama Power, consistent with other Clean Air Act programs that require emissions reductions.  In August 2006, the district court in Alabama granted Alabama Power’s motion for summary judgment and entered final judgment in favor of Alabama Power on the EPA’s claims related to all of the remaining plants:  Plants Barry, Gaston, Gorgas, and Greene County.    The plaintiffs appealed the district court’s decision to the U.S. Court of Appeals for the Eleventh Circuit, where the appeal was stayed, pending the U.S. Supreme Court’s decision in a similar case against Duke Energy.  The Supreme Court issued its decision in the Duke Energy case in April 2007, and in December 2007, the Eleventh Circuit vacated the district court’s decision in the Alabama Power case and remanded the case back to the district court for consideration of the legal issues in light of the Supreme Court’s decision in the Duke Energy case.  In July 2008, the U.S. District Court for the Northern District of Alabama granted partial summary judgment in favor of Alabama Power regarding the proper legal test for determining whether projects are routine maintenance, repair, and replacement and therefore are excluded from NSR permitting.  The decision did not resolve the case, and the ultimate outcome of these matters cannot be determined at this time.   Southern Company and the traditional operating companies believe they have complied with applicable laws and the EPA regulations and interpretations in effect at the time the work in question took place.  The Clean Air Act authorizes maximum civil penalties of $25,000 to $37,500 per day, per violation at each generating unit, depending on the date of the alleged violation.  An adverse outcome in these matters could require substantial capital expenditures or affect the timing of currently budgeted capital expenditures that cannot be determined at this time and could possibly require payment of substantial penalties.  Such expenditures could affect future results of operations, cash flows, and financial condition if such costs are not recovered through regulated rates.   Carbon Dioxide Litigation   New York Case             In July 2004, three environmental groups and attorneys general from eight states, each outside of Southern Company’s service territory, and the corporation counsel for New York City filed complaints in the U.S. District Court for the Southern District of New York against Southern Company and four other electric power companies.  The complaints allege that the companies’ emissions of carbon dioxide, a greenhouse gas, contribute to global warming, which the plaintiffs assert is a public nuisance.  Under common law public and private nuisance theories, the plaintiffs seek a judicial order (1) holding each defendant jointly and severally liable for creating, contributing to, and/or maintaining global warming and (2) requiring each of the defendants to cap its emissions of carbon dioxide and then reduce those emissions by a specified percentage each year for at least a decade.  The plaintiffs have not, however, requested that damages be awarded in connection with their claims.  Southern Company believes these claims are without merit and notes that the complaint cites no statutory or regulatory basis for the claims.  In September 2005, the U.S. District Court for the Southern District of New York granted Southern Company’s and the other defendants’ motions to dismiss these cases.  The plaintiffs filed an appeal to the U.S. Court of Appeals for the Second Circuit in October 2005 and, on September 21, 2009, the U.S. Court of Appeals for the Second Circuit reversed the district court’s ruling, vacating the dismissal of the plaintiffs’ claim, and remanding the case to the district court.  This ruling is subject to potential reconsideration and appeal.  Therefore, the ultimate outcome of these matters cannot be determined at this time.   Kivalina Case   In February 2008, the Native Village of Kivalina and the City of Kivalina filed a suit in the U.S. District Court for the Northern District of California against several electric utilities (including Southern Company), several oil companies, and a coal company.  The plaintiffs are the governing bodies of an Inupiat village in Alaska.  The plaintiffs contend that the village is being destroyed by erosion allegedly caused by global warming that the plaintiffs attribute to emissions of greenhouse gases by the defendants.  The plaintiffs assert claims for public and private nuisance and contend that the defendants have acted in concert and are therefore jointly and severally liable for the plaintiffs’ damages.  The suit seeks damages for lost property values and for the cost of relocating the village, which is alleged to be $95 million to $400 million.  Southern Company believes that these claims are without merit and notes that the complaint cites no statutory or regulatory basis for the claims.  On September 30, 2009, the U.S. District Court for the Northern District of California granted the defendants’ motions to dismiss the case based on lack of jurisdiction and ruled that the claims were barred by the political question doctrine and by the plaintiffs’ failure to establish the standard for determining that the defendants’ conduct caused the injury alleged.  The ultimate outcome of this matter may depend on appeals or other legal proceedings and cannot be determined at this time.   Environmental Remediation   The registrants must comply with environmental laws and regulations that cover the handling and disposal of waste and releases of hazardous substances.  Under these various laws and regulations, the subsidiaries may also incur substantial costs to clean up properties.  The traditional operating companies have each received authority from their respective state PSCs to recover approved environmental compliance costs through regulatory mechanisms.  Within limits approved by the state PSCs, these rates are adjusted annually or as necessary.   Georgia Power’s environmental remediation liability at September 30, 2009 was $13.6 million.  Georgia Power has been designated or identified as a potentially responsible party (PRP) at sites governed by the Georgia Hazardous Site Response Act and/or by the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), including a large site in Brunswick, Georgia on the CERCLA National Priorities List (NPL).  The parties have completed the removal of wastes from the Brunswick site as ordered by the EPA.  Additional claims for recovery of natural resource damages at this site or for the assessment and potential cleanup of other sites on the Georgia Hazardous Sites Inventory and CERCLA NPL are anticipated.   By letter dated September 30, 2008, the EPA advised Georgia Power that it has been designated as a PRP at the Ward Transformer Superfund site located in Raleigh, North Carolina.  Numerous other entities have also received notices from the EPA.  Georgia Power, along with other named PRPs, is negotiating with the EPA to address cleanup of the site and reimbursement for past expenditures related to work performed at the site.  In addition, on April 30, 2009, two PRPs filed separate actions in the U.S. District Court for the Eastern District of North Carolina against numerous other PRPs, including Georgia Power, seeking contribution from the defendants for expenses incurred by the plaintiffs related to work performed at a portion of the site.  The ultimate outcome of these matters will depend upon further environmental assessment and the ultimate number of PRPs and cannot be determined at this time; however, it is not expected to have a material impact on Georgia Power’s financial statements.    Gulf Power’s environmental remediation liability includes estimated costs of environmental remediation projects of approximately $66.6 million at September 30, 2009.  These estimated costs relate to site closure criteria by the Florida Department of Environmental Protection (FDEP) for potential impacts to soil and groundwater from herbicide applications at Gulf Power substations.  The schedule for completion of the remediation projects will be subject to FDEP approval.  The projects have been approved by the Florida PSC for recovery through Gulf Power’s environmental cost recovery clause; therefore, there was no impact on net income as a result of these estimates.   In 2003, the Texas Commission on Environmental Quality (TCEQ) designated Mississippi Power as a PRP at a site in Texas.  The site was owned by an electric transformer company that handled Mississippi Power’s transformers as well as those of many other entities.  The site owner is now in bankruptcy and the State of Texas has entered into an agreement with Mississippi Power and several other utilities to investigate and remediate the site.  Amounts expensed related to this work have not been material.  Hundreds of entities have received notices from the TCEQ requesting their participation in the anticipated site remediation.  The final impact of this matter on Mississippi Power will depend upon further environmental assessment and the ultimate number of PRPs.  The remediation expenses incurred by Mississippi Power are expected to be recovered through the ECO Plan.  See Note 3 to the financial statements of Mississippi Power under “Retail Regulatory Matters – Environmental Compliance Overview Plan” in Item 8 of the Form 10-K for additional information.   The final outcome of these matters cannot now be determined.  However, based on the currently known conditions at these sites and the nature and extent of activities relating to these sites, Southern Company, Georgia Power, Gulf Power, and Mississippi Power do not believe that additional liabilities, if any, at these sites would be material to their respective financial statements. <a name="OLE_LINK1"> </a> FERC Matters   Market-Based Rate Authority   Each of the traditional operating companies and Southern Power has authorization from the FERC to sell power to non-affiliates, including short-term opportunity sales, at market-based prices.  Specific FERC approval must be obtained with respect to a market-based contract with an affiliate.   In December 2004, the FERC initiated a proceeding to assess Southern Company’s generation dominance within its retail service territory.  The ability to charge market-based rates in other markets is not an issue in the proceeding.  Any new market-based rate sales by any subsidiary of Southern Company in Southern Company’s retail service territory entered into during a 15-month refund period that ended in May 2006 could be subject to refund to a cost-based rate level.   In November 2007, the presiding administrative law judge issued an initial decision regarding the methodology to be used in the generation dominance tests.  The proceedings are ongoing.  The ultimate outcome of this generation dominance proceeding cannot now be determined, but an adverse decision by the FERC in a final order could require the traditional operating companies and Southern Power to charge cost-based rates for certain wholesale sales in the Southern Company retail service territory, which may be lower than negotiated market-based rates and could also result in total refunds of up to $19.7 million, plus interest.  The potential refunds include $3.9 million for Alabama Power, $5.8 million for Georgia Power, $0.8 million for Gulf Power, $8.4 million for Mississippi Power, and $0.7 million for Southern Power, in each case plus interest.  Southern Company and its subsidiaries believe that there is no meritorious basis for an adverse decision in this proceeding and are vigorously defending themselves in this matter.    In June 2007, the FERC issued its final rule in Order No. 697 regarding market-based rate authority.  The FERC generally retained its current market-based rate standards.  Responding to a number of requests for rehearing, the FERC issued Order No. 697-A on April 21, 2008, Order No. 697-B on December 12, 2008, and Order No. 697-C on June 16, 2009.  These orders largely affirmed and clarified the FERC’s prior revision and codification of the regulations governing market-based rates for public utilities.  In accordance with the orders, Southern Company submitted to the FERC an updated market power analysis in September 2008 related to its continued market-based rate authority.  <a name="OLE_LINK12"> </a> In October 2008, Southern Company filed with the FERC a revised market-based rate (MBR) tariff and a new cost-based rate (CBR) tariff.   The revised MBR tariff provides for a “must offer” energy auction whereby Southern Company offers all of its available energy for sale in a day-ahead auction and an hour-ahead auction with reserve prices not to exceed the CBR tariff price, after considering Southern Company’s native load requirements, reliability obligations, and sales commitments to third parties.  All sales under the energy auction would be at market clearing prices established under the auction rules.  The new CBR tariff provides for a cost-based price for wholesale sales of less than a year.  On March 5, 2009, the FERC accepted Southern Company’s CBR tariff for filing.  On March 25, 2009, the FERC accepted Southern Company’s compliance filing related to the MBR tariff and directed Southern Company to commence the energy auction within 30 days.  Southern Company commenced the energy auction on April 23, 2009.  The FERC has determined that implementation of the energy auction in accordance with the MBR tariff order adequately mitigates going forward any presumption of market power that Southern Company may have in the Southern Company retail service territory and adjacent market areas.   Intercompany Interchange Contract   Southern Company’s generation fleet in its retail service territory is operated under the IIC as approved by the FERC.  In May 2005, the FERC initiated a new proceeding to examine (1) the provisions of the IIC among the traditional operating companies, Southern Power, and SCS, as agent, under the terms of which the Power Pool is operated, (2) whether any parties to the IIC have violated the FERC’s standards of conduct applicable to utility companies that are transmission providers, and (3) whether Southern Company’s code of conduct defining Southern Power as a “system company” rather than a “marketing affiliate” is just and reasonable.  In connection with the formation of Southern Power, the FERC authorized Southern Power’s inclusion in the IIC in 2000.  The FERC also previously approved Southern Company’s code of conduct.   In October 2006, the FERC issued an order accepting a settlement resolving the proceeding subject to Southern Company’s agreement to accept certain modifications to the settlement’s terms and Southern Company notified the FERC that it accepted the modifications.  The modifications largely involve functional separation and information restrictions related to marketing activities conducted on behalf of Southern Power.  In November 2006, Southern Company filed with the FERC a compliance plan in connection with the order.  In April 2007, the FERC approved, with certain modifications, the plan submitted by Southern Company.  Implementation of the plan did not have a material impact on Southern Company’s or the traditional operating companies’ financial statements.  Southern Power’s annual cost of implementing the compliance plan is approximately $7.0 million.  In November 2007, Southern Company notified the FERC that the plan had been implemented.  In December 2008, the FERC division of audits issued for public comment its final audit report pertaining to compliance implementation and related matters.  No comments challenging the audit report’s findings were submitted.  A decision is now pending from the FERC.    Generation Interconnection Agreements   In November 2004, generator company subsidiaries of Tenaska, Inc. (Tenaska), as counterparties to three previously executed interconnection agreements with subsidiaries of Southern Company, filed complaints at the FERC requesting that the FERC modify the agreements and that those Southern Company subsidiaries refund a total of $19 million previously paid for interconnection facilities, of which $11 million would be refunded by Alabama Power and $8 million by Georgia Power.  No other similar complaints are pending with the FERC.     In January 2007, the FERC issued an order granting Tenaska’s requested relief.  Although the FERC’s order required the modification of Tenaska’s interconnection agreements, under the provisions of the order, Southern Company determined that no refund was payable to Tenaska.  Southern Company requested rehearing asserting that the FERC retroactively applied a new principle to existing interconnection agreements.  Tenaska requested rehearing of FERC’s methodology for determining the amount of refunds.  The requested rehearings were denied, and Southern Company and Tenaska appealed the orders to the U.S. Circuit Court for the District of Columbia.  On July 7, 2009, the court affirmed the FERC’s January 2007 order and, on September 9, 2009, denied Tenaska’s petitions for rehearing of such order.  The ultimate outcome of these matters cannot now be determined.   Right of Way Litigation   Southern Company and certain of its subsidiaries, including Mississippi Power, have been named as defendants in numerous lawsuits brought by landowners since 2001.  The plaintiffs’ lawsuits claim that defendants may not use, or sublease to third parties, some or all of the fiber optic communications lines on the rights of way that cross the plaintiffs’ properties and that such actions exceed the easements or other property rights held by defendants.  The plaintiffs assert claims for, among other things, trespass and unjust enrichment and seek compensatory and punitive damages and injunctive relief.  Management of Southern Company and Mississippi Power believe that they have complied with applicable laws and that the plaintiffs’ claims are without merit.   To date, Mississippi Power has entered into agreements with plaintiffs in approximately 95% of the actions pending against Mississippi Power to clarify its easement rights in the State of Mississippi.  These agreements have been approved by the Circuit Courts of Harrison County and Jasper County, Mississippi (First Judicial Circuit), and dismissals of the related cases are in progress.  These agreements have not resulted in any material effects on Southern Company’s or Mississippi Power’s financial statements.   In addition, in late 2001, certain subsidiaries of Southern Company, including Mississippi Power, were named as defendants in a lawsuit brought in Troup County, Georgia, Superior Court by Interstate Fibernet, Inc., a subsidiary of telecommunications company ITC DeltaCom, Inc. that uses rights of way.  This lawsuit alleges, among other things, that the defendants are contractually obligated to indemnify, defend, and hold harmless the telecommunications company from any liability that may be assessed against it in pending and future right of way litigation.  Southern Company and Mississippi Power believe that the plaintiff’s claims are without merit.  In the fall of 2004, the trial court stayed the case until resolution of the underlying landowner litigation discussed above.  In January 2005, the Georgia Court of Appeals dismissed the telecommunications company’s appeal of the trial court’s order for lack of jurisdiction.  An adverse outcome in this matter, combined with an adverse outcome against the telecommunications company in one or more of the right of way lawsuits, could result in substantial judgments; however, the final outcome of these matters cannot now be determined.   Nuclear Fuel Disposal Cost Litigation   See Note 3 to the financial statements of Southern Company, Alabama Power, and Georgia Power under “Nuclear Fuel Disposal Costs” in Item 8 of the Form 10-K for information regarding the litigation brought by Alabama Power and Georgia Power against the government for breach of contracts related to the disposal of spent nuclear fuel.  In July 2007, the U.S. Court of Federal Claims awarded Georgia Power a total of $30 million, based on its ownership interests, and awarded Alabama Power $17.3 million, representing all of the direct costs of the expansion of spent nuclear fuel storage facilities from 1998 through 2004.  In August 2007, the government filed a motion for reconsideration, which was denied in November 2007.  In January 2008, the government filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit.  In February 2008, the government filed a motion to stay the appeal pending the court’s decisions in three other cases already on appeal.  In April 2008, the court granted the government’s motion to stay the appeal pending the court’s decisions in three other similar cases already on appeal.  Those cases were decided in August 2008.  The Court of Appeals has left the stay of appeals in place pending appeals in two other cases involving spent nuclear fuel contracts.   In April 2008, a second claim against the government was filed for damages incurred after December 31, 2004 (the court-mandated cut-off in the original claim), due to the government’s alleged continuing breach of contract.  In October 2008, the court denied a similar request by the government to stay this proceeding.  The complaint does not contain any specific dollar amount for recovery of damages.  Damages will continue to accumulate until the issue is resolved or the storage is provided.  No amounts have been recognized in the financial statements as of September 30, 2009 for either claim.  The final outcome of these matters cannot be determined at this time; however, no material impact on net income is expected as any damage amounts collected from the government are expected to be returned to customers.   Income Tax Matters   Leveraged Leases   In 2002, the IRS began the examination of three sale-in-lease-out (SILO) transactions entered into by Southern Company.  As a result of this examination, the IRS challenged the deductions related to these transactions.  Southern Company disagreed with the IRS’s conclusion, went through all administrative appeals, paid approximately $168 million of the additional tax, and sued the IRS for the refund of such taxes.   During the second quarter 2008, decisions in favor of the IRS were reached in several court cases involving other taxpayers with similar leveraged lease investments.  Pursuant to the application of certain accounting standards related to leveraged leases, management is required to assess on a periodic basis the likely outcome of the uncertain tax positions related to the SILO transactions.  Based on these accounting standards and management’s review of the recent court decisions, Southern Company recorded an after-tax charge of approximately $67 million in the second quarter 2008.    In December 2008, Southern Company received from the Commissioner of the IRS an invitation to participate in a global settlement initiative related to the SILO transactions.  Southern Company accepted the settlement offer on January 8, 2009.  Pursuant to the settlement offer, Southern Company recorded an additional after-tax charge in the fourth quarter 2008 of $16 million.  Including the charge recorded in the second quarter 2008, total after-tax charges related to settling the SILO litigation amounted to $83 million in 2008.  Of the total, approximately $7 million represented interest and $76 million represented non-cash charges related to the reallocation of lease income and will be recognized in income over the remaining term of the affected leases.  All additional taxes due as a result of the settlement have now been paid.  A final closing agreement with the IRS was signed on June 19, 2009.  This agreement ends the dispute with the IRS.  Subsequent to the settlement, Southern Company terminated one of the SILOs and one other international leveraged lease.  Of the $76 million non-cash charges related to the IRS settlement, approximately $30 million related to the SILO which was terminated on June 29, 2009.   Georgia State Income Tax Credits   Georgia Power’s 2005 through 2008 income tax filings for the State of Georgia include state income tax credits for increased activity through Georgia ports.  Georgia Power has also filed similar claims for the years 2002 through 2004.  The Georgia Department of Revenue has not responded to these claims.  In July 2007, Georgia Power filed a complaint in the Superior Court of Fulton County to recover the credits claimed for the years 2002 through 2004.  An unrecognized tax benefit has been recorded related to these credits.  If Georgia Power prevails, these claims could have a significant, and possibly material, positive effect on Southern Company’s and Georgia Power’s net income.  If Georgia Power is not successful, payment of the related state tax could have a significant, and possibly material, negative effect on Southern Company’s and Georgia Power’s cash flow.  The ultimate outcome of this matter cannot now be determined.   Retail Rate Matters   Under the 2007 Retail Rate Plan, Georgia Power’s earnings are evaluated against a retail return on equity (ROE) range of 10.25% to 12.25%.  In connection with the 2007 Retail Rate Plan, the Georgia PSC ordered that Georgia Power file its next general base rate case by July 1, 2010; however, the 2007 Retail Rate Plan provided that Georgia Power may file for a general base rate increase in the event its projected retail ROE falls below 10.25%.    The economic recession has significantly reduced Georgia Power’s revenues upon which retail rates were set under the 2007 Retail Rate Plan.  Despite stringent efforts to reduce expenses, current projections indicate Georgia Power’s retail ROE will be less than 10.25% in both 2009 and 2010.  However, in lieu of filing to increase customer rates as allowed under the 2007 Retail Rate Plan, on June 29, 2009, Georgia Power filed a request with the Georgia PSC for an accounting order that would allow Georgia Power to amortize approximately $324 million of its regulatory liability related to other cost of removal obligations.   On August 27, 2009, the Georgia PSC approved the accounting order.  Under the terms of the accounting order, if Georgia Power does not file for a retail base rate increase in 2009, Georgia Power will be entitled to amortize up to one-third of the regulatory liability ($108 million) in 2009.  Through September 30, 2009, Georgia Power has amortized $54 million of the regulatory liability.  In addition, Georgia Power will be entitled to amortize up to two-thirds of the regulatory liability ($216 million) in 2010.  In the event Georgia Power files for a retail base rate increase prior to July 1, 2010, then the amortization of the regulatory liability in 2010 would be reduced by one-sixth for each month that such rate case is filed prior to July 1, 2010.   Furthermore, the amortization of the regulatory liability is limited to only the amount that would allow Georgia Power to earn a retail ROE not more than 9.75% in 2009 and 10.15% in 2010.  In addition, Georgia Power may not file for a base rate increase prior to July 1, 2010 unless economic conditions beyond its control continue to reduce Georgia Power’s projected retail ROE and in no event unless Georgia Power’s projected retail ROE for 2009 or 2010 is less than 9.25% after taking into consideration amortization of the regulatory liability.   Construction Projects   Integrated Coal Gasification Combined Cycle   On January 16, 2009, Mississippi Power filed for a Certificate of Public Convenience and Necessity with the Mississippi PSC to allow construction of a new electric generating plant located in Kemper County, Mississippi.  The plant would utilize an advanced integrated coal gasification combined cycle technology with an output capacity of 582 MWs.  The Kemper IGCC will use locally mined lignite (an abundant, lower heating value coal) from a proposed mine adjacent to the plant as fuel.  This certificate, if approved by the Mississippi PSC, would authorize Mississippi Power to acquire, construct and operate the Kemper IGCC and related facilities.  The Kemper IGCC, subject to federal and state reviews and certain regulatory approvals, is expected to begin commercial operation in May 2014.  As part of its filing, Mississippi Power has requested certain rate recovery treatment in accordance with the base load construction legislation.   Mississippi Power filed an application in June 2006 with the DOE for certain tax credits available to projects using clean coal technologies under the Energy Policy Act of 2005.  The DOE subsequently certified the Kemper IGCC, and in November 2006 the IRS allocated Internal Revenue Code Section 48A tax credits of $133 million to Mississippi Power.  On May 11, 2009, Mississippi Power received notification from the IRS formally certifying these tax credits.  The utilization of these credits is dependent upon meeting the certification requirements for the Kemper IGCC, including an in-service date no later than May 2014.  Mississippi Power has secured all environmental reviews and permits necessary to commence construction of the Kemper IGCC and has entered into a binding contract for the steam turbine generator, completing two milestone requirements for the Section 48A credits.   On February 14, 2008, Mississippi Power also requested that the DOE transfer the remaining funds previously granted to a cancelled Southern Company project that would have been located in Orlando, Florida.  On December 12, 2008, an agreement was reached to assign the remaining funds to the Kemper IGCC.  The estimated construction cost of the Kemper IGCC is approximately $2.2 billion, which is net of $220 million related to funding to be received from the DOE related to project construction.  The remaining DOE funding of $50 million is projected to be used for demonstration over the first few years of operation.   On April 6, 2009, the Governor of the State of Mississippi signed into law a bill that will provide an ad valorem tax exemption for a portion of the assessed value of all property utilized in certain electric generating facilities with integrated gasification process facilities.  This tax exemption, which may not exceed 50% of the total value of the project, is for projects with a capital investment from private sources of $1 billion or more.  Mississippi Power expects the Kemper IGCC, including the gasification portion, to be a qualifying project under the law.   Beginning in December 2006, the Mississippi PSC has approved Mississippi Power’s requested accounting treatment to defer the costs associated with Mississippi Power’s generation resource planning, evaluation, and screening activities as a regulatory asset.  On December 22, 2008, Mississippi Power requested an amendment to its original order that would allow these costs to continue to be charged to and remain in a regulatory asset until January 1, 2010.  On April 6, 2009, Mississippi Power received an accounting order from the Mississippi PSC directing Mississippi Power to continue to charge all generation resource planning, evaluation, and screening costs to regulatory assets including those costs associated with activities to obtain a certificate of public convenience and necessity and costs necessary and prudent to preserve the availability, economic viability, and/or required schedule of the Kemper IGCC generation resource planning, evaluation, and screening activities until the Mississippi PSC makes findings and determination as to the recovery of Mississippi Power’s prudent expenditures.  The Mississippi PSC’s determination of prudence for Mississippi Power’s pre-construction costs is scheduled to occur by May 2010.  As of September 30, 2009, Mississippi Power had spent a total of $64.5 million associated with Mississippi Power’s generation resource planning, evaluation, and screening activities, including regulatory filing costs.  Costs incurred for the nine months ended September 30, 2009 totaled $22.2 million as compared to $18.1 million for the nine months ended September 30, 2008.  Of the total $64.5 million, $59.8 million was deferred in other regulatory assets, $3.9 million was related to land purchases capitalized, and $0.8 million was previously expensed.   Several motions were filed by intervenors, most of which were procedural in nature and sought to stay or delay the timely and orderly administration of the docket.  In addition to these procedural motions, a motion was filed by the Attorney General for the State of Mississippi which questioned whether the Mississippi PSC had authority to approve the gasification portion of the Kemper IGCC.  On June 5, 2009, all of these motions were denied by the Mississippi PSC.   On June 5, 2009, the Mississippi PSC issued an order initiating an evaluation of the Kemper IGCC and establishing a two-phase procedural schedule.  During Phase I, the Mississippi PSC will determine if a need exists for new generating resources.  Hearings for Phase I were held in October 2009, and a decision is expected in November 2009.  If it is determined a need exists in Phase I, the appropriate resource to fill the need as well as the cost recovery of that resource through application of the State of Mississippi’s Baseload Act of 2008 will be determined during Phase II.  Hearings regarding Phase II issues are scheduled for February 2010 with a decision by May 2010.    On September 15, 2009, South Mississippi Electric Power Association (SMEPA) signed a non-binding letter of intent to explore the acquisition of an interest in the Kemper IGCC.  Mississippi Power and SMEPA are evaluating a combination of a joint ownership arrangement and a PPA which would provide SMEPA with up to 20% of the capacity and associated energy output from the Kemper IGCC.   The ultimate outcome of these matters cannot now be determined.   Nuclear   In August 2006, Southern Nuclear, on behalf of Georgia Power, Oglethorpe Power Corporation (OPC), the Municipal Electric Authority of Georgia (MEAG Power), 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 (collectively, Owners), filed an application with the NRC for an early site permit relating to two additional nuclear units on the site of Plant Vogtle.  On August 26, 2009, the NRC issued the Early Site Permit and Limited Work Authorization for Plant Vogtle Units 3 and 4.  See Note 4 to the financial statements of Southern Company and Georgia Power in Item 8 of the Form 10-K for additional information on these co-owners.  On March 31, 2008, Southern Nuclear filed an application with the NRC for a combined construction and operating license (COL) for the new units.  If licensed by the NRC, Plant Vogtle Units 3 and 4 are scheduled to be placed in service in 2016 and 2017, respectively.    On April 8, 2008, Georgia Power, acting for itself and as agent for the Owners, and a consortium consisting of Westinghouse and Stone & Webster, Inc. (collectively, Consortium) entered into an engineering, procurement, and construction agreement to design, engineer, procure, construct, and test two AP1000 nuclear units with electric generating capacity of approximately 1,100 MWs each and related facilities, structures, and improvements at Plant Vogtle (Vogtle 3 and 4 Agreement).   The Vogtle 3 and 4 Agreement is an arrangement whereby the Consortium supplies and constructs the entire facility with the exception of certain items provided by the Owners.  Under the terms of the Vogtle 3 and 4 Agreement, the Owners will pay a purchase price that will be subject to certain price escalation and adjustments, adjustments for change orders, and performance bonuses.  Each Owner is severally (and not jointly) liable for its proportionate share, based on its ownership interest, of all amounts owed to the Consortium under the Vogtle 3 and 4 Agreement.  Georgia Power’s proportionate share, based on its current ownership interest, is 45.7%.    On March 17, 2009, the Georgia PSC voted to certify construction of Plant Vogtle Units 3 and 4 at an in-service cost of $6.4 billion.  In addition, the Georgia PSC voted to approve inclusion of the related construction work in progress accounts in rate base and to recover financing costs during the construction period beginning in 2011, which reduces the projected in-service cost to approximately $4.5 billion.   On April 21, 2009, the Governor of the State of Georgia signed into law the Georgia Nuclear Energy Financing Act that will allow Georgia Power to recover financing costs for nuclear construction projects by including the related construction work in progress accounts in rate base during the construction period.  The cost recovery provisions will become effective January 1, 2011.   On June 15, 2009, an environmental group filed a petition in the Superior Court of Fulton County, Georgia seeking review of the Georgia PSC’s certification order and challenging the constitutionality of the Georgia Nuclear Energy Financing Act.  Georgia Power believes there is no meritorious basis for this petition and intends to vigorously defend against the requested actions.  The ultimate outcome of this matter cannot be determined at this time.   On August 31, 2009, Georgia Power filed with the Georgia PSC its first semi-annual construction monitoring report for Plant Vogtle Units 3 and 4 for the period ended June 30, 2009 which did not include any change to the estimated construction cost as certified by the Georgia PSC in March 2009.  The Georgia PSC will conduct hearings between November 2009 and January 2010 in review of this report and is scheduled to render its decision on February 18, 2010.  The ultimate outcome of this matter cannot be determined at this time.   The Owners and the Consortium have agreed to certain liquidated damages upon the Consortium’s failure to comply with the schedule and performance guarantees. The Owners and the Consortium also have agreed to certain bonuses payable to the Consortium for early completion and unit performance. The Consortium’s liability to the Owners for schedule and performance liquidated damages and warranty claims is subject to a cap.   The obligations of Westinghouse Electric Company LLC and Stone & Webster, Inc. under the Vogtle 3 and 4 Agreement are guaranteed by Toshiba Corporation and The Shaw Group, Inc., respectively. In the event of certain credit rating downgrades of any Owner, such Owner will be required to provide a letter of credit or other credit enhancement.   In addition, the Owners may terminate the Vogtle 3 and 4 Agreement at any time for their convenience, provided that the Owners will be required to pay certain termination costs and, at certain stages of the work, cancellation fees to the Consortium. The Consortium may terminate the Vogtle 3 and 4 Agreement under certain circumstances, including delays in receipt of the COL or delivery of full notice to proceed, certain Owner suspension or delays of work, action by a governmental authority to permanently stop work, certain breaches of the Vogtle 3 and 4 Agreement by the Owners, Owner insolvency, and certain other events.     There are pending technical and procedural challenges to the construction and licensing of Plant Vogtle Units 3 and 4.  Similar additional challenges at the state and federal level are expected as construction proceeds.   The ultimate outcome of these matters cannot now be determined.   Southern Company is also exploring other possibilities relating to additional nuclear power projects, both on its own or in partnership with other utilities.  The final outcome of these matters cannot now be determined. </div></div> (B) CONTINGENCIES AND REGULATORY MATTERS See Note 3 to the financial statements of the registrants in Item 8 of the Form 10-K for information relating to false false No definition available. 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