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USD ($)
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>7. COMMITMENTS</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b>Construction Program</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The construction programs of the Company’s subsidiaries are currently estimated to include a base
level investment of $4.9 billion in 2011, $5.1 billion in 2012, and $4.5 billion in 2013. These
amounts include $335 million, $207 million, and $220 million in 2011, 2012, and 2013, respectively,
for construction expenditures related to contractual purchase commitments for nuclear fuel included
herein under “Fuel and Purchased Power Commitments.” Included in these estimated amounts are
environmental expenditures to comply with existing statutes and regulations of $341 million, $427
million, and $452 million for 2011, 2012, and 2013,
respectively. The capital budget amounts for 2011-2013 include
amounts for the construction of Plant Vogtle Units 3 and 4. Of
the estimated total $4.4 billion in capital costs for Plant
Vogtle Units 3 and 4, approximately $943 million is
expected to be incurred from 2014 through 2017. The construction programs are
subject to periodic review and revision, and actual construction costs may vary from these
estimates because of numerous factors. These factors include: changes in business conditions;
changes in load projections; changes in environmental statutes and regulations; changes in
generating plants, including unit retirement and replacement decisions, to meet new regulatory
requirements; changes in FERC rules and regulations; PSC approvals; changes in legislation; the
cost and efficiency of construction labor, equipment, and materials; project scope and design
changes; storm impacts; and the cost of capital. In addition, there can be no assurance that costs
related to capital expenditures will be fully recovered. At December 31, 2010, significant
purchase commitments were outstanding in connection with the ongoing construction program, which
includes new facilities and capital improvements to transmission, distribution, and generation
facilities, including those to meet environmental standards. See Note 3 under “Retail Regulatory
Matters – Georgia Power – Nuclear Construction,”
“Retail Regulatory Matters – Georgia Power –
Other Construction,” and “Retail Regulatory Matters – Mississippi Power Integrated Coal
Gasification Combined Cycle” for additional information.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Long-Term Service Agreements</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The traditional operating companies and Southern Power have entered into long-term service
agreements (LTSAs) with General Electric (GE), Alstom Power, Inc., Mitsubishi Power Systems
Americas, Inc., and Siemens AG for the purpose of securing maintenance support for the combined
cycle and combustion turbine generating facilities owned or under construction by the
subsidiaries. The LTSAs cover all planned inspections on the covered equipment, which generally
includes the cost of all labor and materials. The LTSAs are also obligated to cover the costs of
unplanned maintenance on the covered equipment subject to limits and scope specified in each
contract.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In general, these LTSAs are in effect through two major inspection cycles per unit. Scheduled
payments under the LTSAs, which are subject to price escalation, are made at various intervals
based on actual operating hours or number of gas turbine starts of the respective units. Total
remaining payments under these agreements for facilities owned are currently estimated at $2.1
billion over the remaining life of the agreements, which are currently estimated to range up to 23
years. However, the LTSAs contain various cancellation provisions at the option of the purchasers.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Georgia Power has also entered into a LTSA with GE through 2014 for neutron monitoring system parts
and electronics at Plant Hatch. Total remaining payments to GE under this agreement are currently
estimated at $6 million. The contract contains cancellation provisions at the option of Georgia
Power.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Payments made under the LTSAs prior to the performance of any work are recorded as a prepayment in
the balance sheets. All work performed is capitalized or charged to expense (net of any joint
owner billings), as appropriate based on the nature of the work.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Limestone Commitments</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">As part of Southern Company’s program to reduce sulfur dioxide emissions from its coal plants, the
traditional operating companies have entered into various long-term commitments for the procurement
of limestone to be used in flue gas desulfurization equipment. Limestone contracts are structured
with tonnage minimums and maximums in order to account for fluctuations in coal burn and sulfur
content. Southern Company has a minimum contractual obligation of 6.9 million tons, equating to
approximately $282 million, through 2019. Estimated expenditures (based on minimum contracted
obligated dollars) over the next five years are $39 million in 2011, $40 million in 2012, $42
million in 2013, $43 million in 2014, and $29 million in 2015.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Fuel and Purchased Power Commitments</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">To supply a portion of the fuel requirements of the generating plants, Southern Company has entered
into various long-term commitments for the procurement of fossil, biomass fuel, and nuclear fuel.
In most cases, these contracts contain provisions for price escalations, minimum purchase levels,
and other financial commitments. Coal commitments include forward contract purchases for sulfur
dioxide and nitrogen oxide emissions allowances. Natural gas purchase commitments contain fixed
volumes with prices based on various indices at the time of delivery; amounts included in the chart
below represent estimates based on New York Mercantile Exchange future prices at December 31, 2010.
Also, Southern Company has entered into various long-term commitments for the purchase of capacity
and electricity.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Total estimated minimum long-term obligations at December 31, 2010 were as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="40%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="19" style="border-bottom: 1px solid #000000"><b>Commitments</b></td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">Natural Gas</td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">Coal</td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">Nuclear Fuel</td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">Biomass Fuel</td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">Purchased Power*</td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="18"><i style="font-size: 8pt">(in millions)</i></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2011
</div></td>
<td> </td>
<td align="right">$</td>
<td align="right">1,357</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">3,810</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">335</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">260</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2012
</div></td>
<td> </td>
<td> </td>
<td align="right">1,226</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,882</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">207</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">14</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">269</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2013
</div></td>
<td> </td>
<td> </td>
<td align="right">1,054</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,362</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">220</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">18</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">237</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2014
</div></td>
<td> </td>
<td> </td>
<td align="right">908</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">873</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">208</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">18</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">268</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2015
</div></td>
<td> </td>
<td> </td>
<td align="right">779</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">783</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">141</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">18</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">291</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2016 and thereafter
</div></td>
<td> </td>
<td> </td>
<td align="right">3,413</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,798</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">807</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">110</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,439</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="21" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="right">$</td>
<td align="right">8,737</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">10,508</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">1,918</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">178</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">3,764</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="21" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div style="margin-top: 3pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td width="96%"></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left">*</td>
<td> </td>
<td>Certain PPAs reflected in the table are accounted for as operating leases.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Additional commitments for fuel will be required to supply Southern Company’s future
needs. Total charges for nuclear fuel included in fuel expense amounted to $184 million
in 2010, $160 million in 2009, and $147 million in 2008.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Coal commitments for Mississippi Power include a minimum annual management fee of $38 million
beginning in 2014 from the executed 40-year management contract with Liberty Fuels, LLC related to
the Kemper IGCC.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Operating Leases</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In 2001, Mississippi Power began the initial 10-year term of a lease agreement for a combined cycle
generating facility built at Plant Daniel for approximately $370 million. In 2003, the generating
facility was acquired by Juniper Capital L.P. (Juniper), a limited partnership whose investors are
unaffiliated with Mississippi Power. Simultaneously, Juniper entered into a restructured lease
agreement with Mississippi Power. Juniper has also entered into leases with other parties
unrelated to Mississippi Power. The assets leased by Mississippi Power comprise less than 50% of
Juniper’s assets. Mississippi Power is not required to consolidate the leased assets and related
liabilities, and the lease with Juniper is considered an operating lease. The lease agreement is
treated as an operating lease for accounting purposes as well as for both retail and wholesale rate
recovery purposes. The initial lease term ends in 2011, and the lease includes a purchase and
renewal option based on the cost of the facility at the inception of the lease. Mississippi Power
is required to amortize approximately 4% of the initial acquisition cost over the initial lease
term. In April 2010, Mississippi Power was required to notify the lessor, Juniper, if it intended
to terminate the lease at the end of the initial term expiring in October 2011. Mississippi Power
chose not to give notice to terminate the lease. Mississippi Power has the option to purchase the
Plant Daniel combined cycle generating units for approximately $354 million or renew the lease for
approximately $31 million annually for 10 years. Mississippi Power will have to provide notice of
its intent to either renew the lease or purchase the facility by July 2011. If the lease is
renewed, the agreement calls for Mississippi Power to amortize an additional 17% of the initial
completion cost over the renewal period. Upon termination of the lease, at Mississippi Power’s
option, it may either exercise its purchase option or the facility can be sold to a third party.
If Mississippi Power does not exercise either its purchase option or its renewal option,
Mississippi Power could lose its rights to some or all of the 1,064 MWs of capacity at that time.
The ultimate outcome of this matter cannot be determined at this time.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The lease provides for a residual value guarantee, approximately 73% of the acquisition cost, by
Mississippi Power that is due upon termination of the lease in the event that Mississippi Power
does not renew the lease or purchase the assets and that the fair market value is less than the
unamortized cost of the asset. A liability of approximately $2 million, $3 million, and $5 million
for the fair market value of this residual value guarantee is included in the balance sheets as of
December 31, 2010, 2009, and 2008, respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Southern Company also has other operating lease agreements with various terms and expiration dates.
Total operating lease expenses were $188 million, $186 million, and $184 million for 2010, 2009,
and 2008, respectively. Southern Company includes any step rents, escalations, and lease
concessions in its computation of minimum lease payments, which are recognized on a straight-line
basis over the minimum lease term.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">At December 31, 2010, estimated minimum lease payments for noncancelable operating leases were as
follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="15" style="border-bottom: 1px solid #000000"><b>Minimum Lease Payments</b></td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">Plant Daniel</td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">Barges & Rail Cars</td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">Other</td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">Total</td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="11"><i style="font-size: 8pt">(in millions)</i></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2011
</div></td>
<td> </td>
<td align="right">$</td>
<td align="right">28</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">74</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">52</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">154</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2012
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">58</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">35</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">93</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2013
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">48</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">29</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">77</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2014
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">39</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">24</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">63</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2015
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">14</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">17</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">31</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2016 and thereafter
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">16</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">87</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">103</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="right">$</td>
<td align="right">28</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">249</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">244</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">521</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">For the traditional operating companies, a majority of the barge and rail car lease expenses are
recoverable through fuel cost recovery provisions. In addition to the above rental commitments,
Alabama Power and Georgia Power have obligations upon expiration of certain leases with respect to
the residual value of the leased property. These leases expire in 2011, 2012, 2013, 2014, 2015,
and 2016 and the maximum obligations under these leases are $40 million, $1 million, $39 million,
$8 million, $5 million, and $4 million, respectively. At the termination of the leases, the lessee
may either exercise its purchase option, or the property can be sold to a third party. Alabama
Power and Georgia Power expect that the fair market value of the leased property would
substantially reduce or eliminate the payments under the residual value obligations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Guarantees</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">As discussed earlier in this Note under “Operating Leases,” Alabama Power, Georgia Power, and
Mississippi Power have entered into certain residual value guarantees.
</div>
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</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
</div>
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