1.0.0.3falseSummary of Significant Accounting Policiesfalse1$falsefalseSharesStandardhttp://www.xbrl.org/2003/instancesharesxbrli0USDStandardhttp://www.xbrl.org/2003/iso4217USDiso42170USDEPSDividehttp://www.xbrl.org/2003/iso4217USDiso4217http://www.xbrl.org/2003/instancesharesxbrli020us-gaap_GeneralPoliciesAbstractus-gaaptruenadurationstringNo definition available.falsefalsefalsefalsefalsetruefalsefalsefalse1falsefalse00falsefalseNo definition available.false31us-gaap_SignificantAccountingPoliciesTextBlockus-gaaptruenadurationstringNo definition available.falsefalsefalsefalsefalsefalsefalsefalsefalse1falsefalse00<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
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<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b>General</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Southern Company (the Company) is the parent company of four traditional operating companies,
Southern Power Company (Southern Power), Southern Company Services, Inc. (SCS), Southern
Communications Services, Inc. (SouthernLINC Wireless), Southern Company Holdings, Inc. (Southern
Holdings), Southern Nuclear Operating Company, Inc. (Southern Nuclear), and other direct and
indirect subsidiaries. The traditional operating companies, Alabama Power Company (Alabama Power),
Georgia Power Company (Georgia Power), Gulf Power Company (Gulf Power), and Mississippi Power
Company (Mississippi Power), are vertically integrated utilities providing electric service in four
Southeastern states. Southern Power constructs, acquires, owns, and manages generation assets and
sells electricity at market-based rates in the wholesale market. SCS, the system service company,
provides, at cost, specialized services to Southern Company and its subsidiary companies.
SouthernLINC Wireless provides digital wireless communications for use by Southern Company and its
subsidiary companies and also markets these services to the public and provides fiber cable
services within the Southeast. Southern Holdings is an intermediate holding company subsidiary for
Southern Company’s investments in leveraged leases. Southern Nuclear operates and provides
services to Southern Company’s nuclear power plants.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The financial statements reflect Southern Company’s investments in the subsidiaries on a
consolidated basis. The equity method is used for entities in which the Company has significant
influence but does not control and for variable interest entities where the Company is not the
primary beneficiary. All material intercompany transactions have been eliminated in consolidation.
Certain prior years’ data presented in the financial statements have been reclassified to conform
to the current year presentation.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The traditional operating companies, Southern Power, and certain of their subsidiaries are subject
to regulation by the Federal Energy Regulatory Commission (FERC) and the traditional operating
companies are also subject to regulation by their respective state public service commissions
(PSC). The companies follow accounting principles generally accepted in the United States and
comply with the accounting policies and practices prescribed by their respective commissions. The
preparation of financial statements in conformity with accounting principles generally accepted in
the United States requires the use of estimates, and the actual results may differ from those
estimates.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Related Party Transactions</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Alabama Power and Georgia Power purchased synthetic fuel from Alabama Fuel Products, LLC (AFP), an
entity in which Southern Holdings held a 30% ownership interest until July 2006, when its ownership
interest was terminated. Synfuel Services, Inc. (SSI), another subsidiary of Southern Holdings,
provided fuel transportation services to AFP that were ultimately reflected in the cost of the
synthetic fuel billed to Alabama Power and Georgia Power. Subsequent to the termination of
Southern Company’s membership interest in AFP, Alabama Power and Georgia Power continued to
purchase an additional $6 million and $750 million in fuel from AFP in 2008 and 2007, respectively.
SSI continued to provide fuel transportation services of $131 million in 2007, which were
eliminated against fuel expense in the financial statements. SSI also provided other additional
services to AFP and a related party of AFP totaling $47 million in 2007. The synthetic fuel
investments and related party transactions were terminated on December 31, 2007.
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</b>
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<div align="left" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
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<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Regulatory Assets and Liabilities</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The traditional operating companies are subject to the provisions of the Financial Accounting
Standards Board in accounting for the effects of rate regulation. Regulatory assets represent
probable future revenues associated with certain costs that are expected to be recovered from
customers through the ratemaking process. Regulatory liabilities represent probable future
reductions in revenues associated with amounts that are expected to be credited to customers
through the ratemaking process. Regulatory assets and (liabilities) reflected in the balance
sheets at December 31 relate to:
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<tr valign="bottom">
<td width="64%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="right" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="right" colspan="2" style="border-bottom: 1px solid #000000">2008</td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="right" colspan="2" style="border-bottom: 1px solid #000000">Note</td>
<td style="border-bottom: 1px solid #000000"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="font-size: 8pt"><i>(in millions)</i></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
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<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred income tax charges
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>1,048</b></td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">972</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(a</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Asset retirement obligations-asset
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>125</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">236</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(a,i</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Asset retirement obligations-liability
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(47</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(5</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(a,i</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other cost of removal obligations
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(1,307</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,321</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(a</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred income tax credits
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(249</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(260</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(a</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Loss on reacquired debt
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>255</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">271</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(b</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Vacation pay
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>145</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">140</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(c,i</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Under recovered regulatory clause revenues
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>40</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">432</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(d</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Over recovered regulatory clause revenues
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(218</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(3</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(d</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Building leases
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>47</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">49</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(f</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Generating plant outage costs
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>39</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">45</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(d</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Under recovered storm damage costs
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>22</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">27</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(d</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Property damage reserves
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(157</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(97</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(h</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Fuel hedging-asset
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>187</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">314</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(d</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Fuel hedging-liability
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(2</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(10</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(d</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other assets
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>156</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">163</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(d</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Environmental remediation-asset
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>68</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">67</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(h,i</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Environmental remediation-liability
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(13</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(19</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(h</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Environmental compliance cost recovery
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(96</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(135</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(g</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other liabilities
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(51</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(43</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(j</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Underfunded retiree benefit plans
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>2,268</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,068</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(e,i</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td colspan="13" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total assets (liabilities), net
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>2,260</b></td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,891</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="13" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td colspan="3">Note: The recovery and amortization periods for these regulatory assets and (liabilities) are
as follows:</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left">(a)</td>
<td width="1%"> </td>
<td>Asset retirement and removal assets and liabilities are recorded, deferred income tax assets are recovered, other cost of removal, and deferred
tax liabilities are amortized over the related property lives, which may range up to 65 years. Asset retirement and removal assets and liabilities
will be settled and trued up following completion of the related activities. Other cost of removal obligations include $216 million at Georgia
Power that may be amortized during 2010 in accordance with the August 27, 2009 Georgia PSC order. See Note 3 under “Retail Regulatory Matters —
Georgia Power — Cost of Removal” for additional information.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left">(b)</td>
<td width="1%"> </td>
<td>Recovered over either the remaining life of the original issue or, if refinanced, over the life of the new issue, which may range up to 50 years.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left">(c)</td>
<td width="1%"> </td>
<td>Recorded as earned by employees and recovered as paid, generally within one year.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left">(d)</td>
<td width="1%"> </td>
<td>Recorded and recovered or amortized as approved by the appropriate state PSCs over periods not exceeding 10 years.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left">(e)</td>
<td width="1%"> </td>
<td>Recovered and amortized over the average remaining service period which may range up to 15 years. See Note 2 for additional information.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left">(f)</td>
<td width="1%"> </td>
<td>Recovered over the remaining lives of the buildings through 2026.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left">(g)</td>
<td width="1%"> </td>
<td>This balance represents deferred revenue associated with Georgia Power’s environmental compliance cost recovery (ECCR) tariff established in its
retail rate plan for the years 2008 through 2010 (2007 Retail Rate Plan). The recovery of the forecasted environmental compliance costs was
levelized to collect equal annual amounts between January 1, 2008 and December 31, 2010 under the tariff.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left">(h)</td>
<td width="1%"> </td>
<td>Recovered as storm restoration or environmental remediation expenses are incurred.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left">(i)</td>
<td width="1%"> </td>
<td>Not earning a return as offset in rate base by a corresponding asset or liability.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left">(j)</td>
<td width="1%"> </td>
<td>Recorded and recovered or amortized as approved by the appropriate state PSC over periods up to the life of the plant or the remaining life of
the original issue or, if refinanced, over the life of the new issue which may range up to 50 years.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In the event that a portion of a traditional operating company’s operations is no longer
subject to applicable accounting rules for rate regulation, such company would be required to write
off or reclassify to accumulated other comprehensive income related regulatory assets and
liabilities that are not specifically recoverable through regulated rates. In addition, the
traditional operating company would be required to determine if any impairment to other assets,
including plant, exists and write down the assets, if impaired, to their fair values. All
regulatory assets and liabilities are to be reflected in rates. See Note 3 under “Retail
Regulatory Matters — Alabama
Power,” “Retail Regulatory Matters — Georgia Power,” and “Retail Regulatory Matters — Integrated
Coal Gasification Combined Cycle” for additional information.
</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>Revenues</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Wholesale capacity revenues are generally recognized on a levelized basis over the appropriate
contract periods. Energy and other revenues are recognized as services are provided. Unbilled
revenues related to retail sales are accrued at the end of each fiscal period. Electric rates for
the traditional operating companies include provisions to adjust billings for fluctuations in fuel
costs, fuel hedging, the energy component of purchased power costs, and certain other costs.
Revenues are adjusted for differences between these actual costs and amounts billed in current
regulated rates. Under or over recovered regulatory clause revenues are recorded in the balance
sheets and are recovered or returned to customers through adjustments to the billing factors.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Retail fuel cost recovery mechanisms vary by each traditional operating company, but in general,
the process requires periodic filings with the appropriate state PSC. Alabama Power continuously
monitors the under/over recovered balance and files for a revised fuel rate when management deems
appropriate. Georgia Power filed a new fuel case on December 15, 2009. The new rates are expected
to become effective April 1, 2010. Gulf Power is required to notify the Florida PSC if the
projected fuel cost over or under recovery exceeds 10% of the projected fuel revenue applicable for
the period and indicate if an adjustment to the fuel cost recovery factor is being requested.
Mississippi Power is required to file for an adjustment to the fuel cost recovery factor annually.
See Note 3 under “Retail Regulatory Matters — Alabama Power — Fuel Cost Recovery” and “Retail
Regulatory Matters — Georgia Power — Fuel Cost Recovery” for additional information.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Southern Company has a diversified base of customers. No single customer or industry comprises 10%
or more of revenues. For all periods presented, uncollectible accounts averaged less than 1% of
revenues.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Fuel Costs</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Fuel costs are expensed as the fuel is used. Fuel expense generally includes the cost of purchased
emissions allowances as they are used. Fuel expense also includes the amortization of the cost of
nuclear fuel and a charge, based on nuclear generation, for the permanent disposal of spent nuclear
fuel. See Note 3 under “Nuclear Fuel Disposal Costs” for additional information.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Income and Other Taxes</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Southern Company uses the liability method of accounting for deferred income taxes and provides
deferred income taxes for all significant income tax temporary differences. Taxes that are
collected from customers on behalf of governmental agencies to be remitted to these agencies are
presented net on the statements of income.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In accordance with regulatory requirements, deferred investment tax credits (ITCs) for the
traditional operating companies are amortized over the lives of the related property with such
amortization normally applied as a credit to reduce depreciation in the statements of income.
Credits amortized in this manner amounted to $24 million in 2009, $23 million in 2008, and $23
million in 2007. At December 31, 2009, all ITCs available to reduce federal income taxes payable
had been utilized.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Under the American Recovery and Reinvestment Act of 2009, certain renewable projects at Southern
Company’s non-regulated subsidiaries are eligible for ITCs or cash grants. These non-regulated
companies have elected to receive ITCs. The credits are recorded as a
deferred credit, which will be amortized over the life of the asset,
and the tax basis of the asset is reduced by
50% of the credits received, resulting in a deferred tax asset. The non-regulated companies have
elected to recognize the tax benefit of this basis difference as a reduction to income tax expense
as costs are incurred during the construction period. This basis difference will reverse and be
recorded to income tax expense over the useful life of the asset once placed in service.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In accordance with accounting standards related to the uncertainty in income taxes, Southern
Company recognizes tax positions that are “more likely than not” of being sustained upon
examination by the appropriate taxing authorities. See Note 5 under “Unrecognized Tax Benefits”
for additional information.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Property, Plant, and Equipment</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Property, plant, and equipment is stated at original cost less regulatory disallowances and
impairments. Original cost includes: materials; labor; minor items of property; appropriate
administrative and general costs; payroll-related costs such as taxes, pensions, and other
benefits; and the interest capitalized and/or cost of funds used during construction.
</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: 6pt">Southern Company’s property, plant, and equipment consisted of the following at December 31:
</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="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</td>
<td style="border-bottom: 1px solid #000000"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="font-size: 8pt"><i>(in millions)</i></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Generation
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>28,204</b></td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">26,154</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Transmission
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>7,380</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7,085</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Distribution
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>14,335</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">13,856</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">General
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>2,917</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,750</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Plant acquisition adjustment
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>43</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">43</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Utility plant in service
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>52,879</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">49,888</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" 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">IT equipment and software
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>182</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">240</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Communications equipment
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>423</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">450</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Other
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>104</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">40</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other plant in service
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>709</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">730</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" 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 plant in service
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>53,588</b></td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">50,618</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" 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">The cost of replacements of property, exclusive of minor items of property, is capitalized. The
cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance
expense as incurred or performed with the exception of nuclear refueling costs, which are recorded
in accordance with specific state PSC orders. Alabama Power accrues estimated nuclear refueling
costs in advance of the unit’s next refueling outage. Georgia Power defers and amortizes nuclear
refueling costs over the unit’s operating cycle before the next refueling. The refueling cycles
for Alabama Power and Georgia Power range from 18 to 24 months for each unit. In accordance with a
Georgia PSC order, Georgia Power also defers the costs of certain significant inspection costs for
the combustion turbines at Plant McIntosh and amortizes such costs over 10 years, which
approximates the expected maintenance cycle.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Depreciation and Amortization</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Depreciation of the original cost of utility plant in service is provided primarily by using
composite straight-line rates, which approximated 3.2% in 2009, 3.2% in 2008, and 3.0% in 2007.
Depreciation studies are conducted periodically to update the composite rates. These studies are
filed with the respective state PSC for the traditional operating companies. Accumulated
depreciation for utility plant in service totaled $18.7 billion and $17.9 billion at December 31,
2009 and 2008, respectively. When property subject to composite depreciation is retired or
otherwise disposed of in the normal course of business, its original cost, together with the cost
of removal, less salvage, is charged to accumulated depreciation. For other property dispositions,
the applicable cost and accumulated depreciation is removed from the balance sheet accounts and a
gain or loss is recognized. Minor items of property included in the original cost of the plant are
retired when the related property unit is retired.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Under Georgia Power’s retail rate plan for the three years ended December 31, 2007 (2004 Retail
Rate Plan), Georgia Power was ordered to recognize Georgia PSC-certified capacity costs in rates
evenly over the three years covered by the 2004 Retail Rate Plan. Georgia Power recorded credits
to amortization of $19 million in 2007. The 2007 Retail Rate Plan did not include a similar order.
On August 27, 2009, the Georgia PSC approved an accounting order allowing Georgia Power to
amortize up to $324 million of its regulatory liability related to other cost of removal
obligations. See Note 3 under “Retail Regulatory Matters — Georgia Power — Cost of Removal” for
additional information.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In May 2004, the Mississippi PSC approved Mississippi Power’s request to reclassify 266 megawatts
(MWs) of Plant Daniel Units 3 and 4 capacity to jurisdictional cost of service effective January 1,
2004 and authorized Mississippi Power to include the related costs and revenue credits in
jurisdictional rate base, cost of service, and revenue requirement calculations for purposes of
retail rate recovery. Mississippi Power amortized the related regulatory liability, pursuant to
the Mississippi PSC’s order, by $6 million in 2007 resulting in an increase to earnings in that
year.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Depreciation of the original cost of other plant in service is provided primarily on a
straight-line basis over estimated useful lives ranging from three to 30 years. Accumulated
depreciation for other plant in service totaled $419 million and $433 million at December 31, 2009
and 2008, respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Asset Retirement Obligations and Other Costs of Removal</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Asset retirement obligations are computed as the present value of the ultimate costs for an asset’s
future retirement and are recorded in the period in which the liability is incurred. The costs are
capitalized as part of the related long-lived asset and depreciated over the asset’s useful life.
The Company has received accounting guidance from the various state PSCs allowing the continued
accrual of
other future retirement costs for long-lived assets that the Company does not have a legal
obligation to retire. Accordingly, the accumulated removal costs for these obligations are
reflected in the balance sheets as a regulatory liability. See Note 3 under “Retail Regulatory
Matters — Georgia Power — Cost of Removal” for additional information related to Georgia Power’s
cost of removal regulatory liability.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The liability recognized to retire long-lived assets primarily relates to the Company’s nuclear
facilities, Plants Farley, Hatch, and Vogtle. The fair value of assets legally restricted for
settling retirement obligations related to nuclear facilities as of December 31, 2009 was $1.1
billion. In addition, the Company has retirement obligations related to various landfill sites,
underground storage tanks, asbestos removal, and disposal of polychlorinated biphenyls in certain
transformers. The Company also has identified retirement obligations related to certain
transmission and distribution facilities, co-generation facilities, certain wireless communication
towers, and certain structures authorized by the U.S. Army Corps of Engineers. However,
liabilities for the removal of these assets have not been recorded because the range of time over
which the Company may settle these obligations is unknown and cannot be reasonably estimated. The
Company will continue to recognize in the statements of income allowed removal costs in accordance
with its regulatory treatment. Any differences between costs recognized in accordance with
accounting standards related to asset retirement and environmental obligations, and those reflected
in rates are recognized as either a regulatory asset or liability, as ordered by the various state
PSCs, and are reflected in the balance sheets. See “Nuclear Decommissioning” herein for further
information on amounts included in rates.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Details of the asset retirement obligations included in the balance sheets are 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="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="right" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="right" colspan="2" style="border-bottom: 1px solid #000000">2008</td>
<td style="border-bottom: 1px solid #000000"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="font-size: 8pt"><i>(in millions)</i></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance beginning of year
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>1,185</b></td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,203</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Liabilities incurred
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>2</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Liabilities settled
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(10</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(4</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Accretion
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>77</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">75</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash flow revisions
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(48</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(93</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance end of year
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>1,206</b></td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,185</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Nuclear Decommissioning</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Nuclear Regulatory Commission (NRC) requires licensees of commercial nuclear power reactors to
establish a plan for providing reasonable assurance of funds for future decommissioning. Alabama
Power and Georgia Power have external trust funds (the Funds) to comply with the NRC’s regulations.
Use of the Funds is restricted to nuclear decommissioning activities and the Funds are managed and
invested in accordance with applicable requirements of various regulatory bodies, including the
NRC, the FERC, and state PSCs, as well as the Internal Revenue Service (IRS). The Funds are
required to be held by one or more trustees with an individual net worth of at least $100 million.
The FERC requires the Funds’ managers to exercise the standard of care in investing that a “prudent
investor” would use in the same circumstances. The FERC regulations also require, except for
investments tied to market indices or other mutual funds, that the Funds’ managers may not invest
in any securities of the utility for which it manages funds or its affiliates. In addition, the
NRC prohibits investments in securities of power reactor licensees. While Southern Company is
allowed to prescribe an overall investment policy to the Funds’ managers, neither Southern Company
nor its subsidiaries or affiliates are allowed to engage in the day-to-day management of the Funds
or to mandate individual investment decisions. Day-to-day management of the investments in the
Funds is delegated to unrelated third party managers with oversight by Southern Company, Alabama
Power, and Georgia Power management. The Funds’ managers are authorized, within broad limits, to
actively buy and sell securities at their own discretion in order to maximize the investment return
on the Funds’ investments. The Funds are invested in a tax-efficient manner in a diversified mix
of equity and fixed income securities and are reported as trading securities.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Southern Company records the investment securities held in the Funds at fair value, as disclosed in
Note 10. Gains and losses, whether realized, unrealized, or identified as other-than-temporary,
are recorded in the regulatory liability for asset retirement obligations in the balance sheets and
are not included in net income or other comprehensive income. Fair value adjustments, realized
gains, and other-than-temporary impairment losses are determined on a specific identification
basis.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">At December 31, 2009, investment securities in the Funds totaled $1.1 billion consisting of equity
securities of $774 million, debt securities of $272 million, and $22 million of other securities.
At December 31, 2008, investment securities in the Funds totaled $862 million consisting of equity
securities of $518 million, debt securities of $323 million, and $21 million of other securities.
These
amounts exclude receivables related to investment income and pending investment sales, and payables
related to pending investment purchases.
</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: 6pt">Sales of the securities held in the Funds resulted in cash proceeds of $1.2 billion, $712
million, and $775 million in 2009, 2008, and 2007, respectively, all of which were reinvested. For
2009, fair value increases, including reinvested interest and dividends and excluding expenses,
were $215 million, of which $198 million related to securities held in the Funds at December 31,
2009. For 2008, fair value reductions, including reinvested interest and dividends and excluding
expenses, were $(278) million. Realized gains and other-than-temporary impairment losses were $78
million and $(76) million, respectively, in 2007. While the investment securities held in the
Funds are reported as trading securities, the Funds continue to be managed with a long-term focus.
Accordingly, all purchases and sales within the Funds are presented separately in the statement of
cash flows as investing cash flows, consistent with the nature of and purpose for which the
securities were acquired.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Amounts previously recorded in internal reserves are being transferred into the external trust
funds over periods approved by the Alabama PSC. The NRC’s minimum external funding requirements
are based on a generic estimate of the cost to decommission only the radioactive portions of a
nuclear unit based on the size and type of reactor. Alabama Power and Georgia Power have filed
plans with the NRC designed to ensure that, over time, the deposits and earnings of the external
trust funds will provide the minimum funding amounts prescribed by the NRC.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">At December 31, 2009, the accumulated provisions for decommissioning 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="64%"> </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 nowrap="nowrap" align="left" 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"><b>Plant Farley</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>Plant Hatch</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>Plant Vogtle</b></td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="font-size: 8pt"><i>(in millions)</i></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">External trust funds
</div></td>
<td> </td>
<td align="right">$</td>
<td align="right">490</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">360</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">206</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Internal reserves
</div></td>
<td> </td>
<td> </td>
<td align="right">25</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="13" 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">$</td>
<td align="right">515</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">360</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">206</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="13" 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">Site study cost is the estimate to decommission a specific facility as of the site study year. The
estimated costs of decommissioning based on the most current studies, which were performed in 2008
for Plant Farley and in 2009 for the Georgia Power plants, were as follows for Alabama Power’s
Plant Farley and Georgia Power’s ownership interests in Plants Hatch and Vogtle:
</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="64%"> </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="3" style="border-bottom: 1px solid #000000"><b>Plant Farley</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>Plant Hatch</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>Plant Vogtle</b></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Decommissioning periods:
</div></td>
<td> </td>
<td colspan="3" align="center"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:45px; text-indent:-15px">Beginning year
</div></td>
<td> </td>
<td> </td>
<td align="right">2037</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2034</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2047</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:45px; text-indent:-15px">Completion year
</div></td>
<td> </td>
<td> </td>
<td align="right">2065</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2063</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2067</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="13" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="3" align="center" style="font-size: 8pt"><i>(in millions)</i></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Site study costs:
</div></td>
<td> </td>
<td> </td>
<td align="right"></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:45px; text-indent:-15px">Radiated structures
</div></td>
<td> </td>
<td align="right">$</td>
<td align="right">1,060</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">583</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">500</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:45px; text-indent:-15px">Non-radiated structures
</div></td>
<td> </td>
<td> </td>
<td align="right">72</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">46</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">71</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="13" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="right">$</td>
<td align="right">1,132</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">629</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">571</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="13" 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">The decommissioning periods and site study costs for Plant Vogtle reflect the extended operating
license approved by the NRC on June 3, 2009. The decommissioning cost estimates are based on
prompt dismantlement and removal of the plant from service. The actual decommissioning costs may
vary from the above estimates because of changes in the assumed date of decommissioning, changes in
NRC requirements, or changes in the assumptions used in making these estimates.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">For ratemaking purposes, Alabama Power’s decommissioning costs are based on the site study, and
Georgia Power’s decommissioning costs are based on the NRC generic estimate to decommission the
radioactive portion of the facilities as of 2006. The estimates used in current rates are $531
million and $366 million for Plants Hatch and Vogtle, respectively. Amounts expensed were $3
million annually for 2009 and 2008 and $7 million for 2007 for Plant Vogtle. Significant
assumptions used to determine these costs for ratemaking were an inflation rate of 4.5% and 2.9%
for Alabama Power and Georgia Power, respectively, and a trust earnings rate of 7.0% and 4.9% for
Alabama Power and Georgia Power, respectively. As a result of license extensions, amounts
previously contributed to the external trust funds for Plants Hatch and Farley are currently
projected to be adequate to meet the decommissioning obligations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Allowance for Funds Used During Construction (AFUDC) and Interest Capitalized</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In accordance with regulatory treatment, the traditional operating companies record AFUDC, which
represents the estimated debt and equity costs of capital funds that are necessary to finance the
construction of new regulated facilities. While cash is not realized currently from such
allowance, it increases the revenue requirement over the service life of the plant through a higher
rate base and
higher depreciation. The equity component of AFUDC is not included in calculating taxable income.
Interest related to the construction of new facilities not included in the traditional operating
companies’ regulated rates is capitalized in accordance with
standard interest capitalization requirements. AFUDC and interest capitalized, net of income
taxes were 15.3%, 11.2%, and 8.4% of net income for 2009, 2008, and 2007, respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Cash payments for interest totaled $788 million, $787 million, and $798 million in 2009, 2008, and
2007, respectively, net of amounts capitalized of $84 million, $71 million, and $64 million,
respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Impairment of Long-Lived Assets and Intangibles</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Southern Company evaluates long-lived assets for impairment when events or changes in circumstances
indicate that the carrying value of such assets may not be recoverable. The determination of
whether an impairment has occurred is based on either a specific regulatory disallowance or an
estimate of undiscounted future cash flows attributable to the assets, as compared with the
carrying value of the assets. If an impairment has occurred, the amount of the impairment
recognized is determined by either the amount of regulatory disallowance or by estimating the fair
value of the assets and recording a loss if the carrying value is greater than the fair value. For
assets identified as held for sale, the carrying value is compared to the estimated fair value less
the cost to sell in order to determine if an impairment loss is required. Until the assets are
disposed of, their estimated fair value is re-evaluated when circumstances or events change.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Storm Damage Reserves</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Each traditional operating company maintains a reserve to cover the cost of damages from major
storms to its transmission and distribution lines and generally the cost of uninsured damages to
its generation facilities and other property. In accordance with their respective state PSC
orders, the traditional operating companies accrued $44 million in 2009. Alabama Power, Gulf
Power, and Mississippi Power also have discretionary authority from their state PSCs to accrue
certain additional amounts as circumstances warrant. In 2009, such additional accruals totaled $40
million. There were no material accruals for 2008 or 2007.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Leveraged Leases</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Southern Company has several leveraged lease agreements, with terms ranging up to 45 years, which
relate to international and domestic energy generation, distribution, and transportation assets.
Southern Company receives federal income tax deductions for depreciation and amortization, as well
as interest on long-term debt related to these investments. The Company reviews all important
lease assumptions at least annually, or more frequently if events or changes in circumstances
indicate that a change in assumptions has occurred or may occur. These assumptions include the
effective tax rate, the residual value, the credit quality of the lessees, and the timing of
expected tax cash flows.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Southern Company’s net investment in domestic leveraged leases consists of the following at
December 31:
</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="76%"> </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="3" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">2008</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="7"><i>(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">Net rentals receivable
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>487</b></td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">492</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Unearned income
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(218</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(230</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Investment in leveraged leases
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>269</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">262</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred taxes from leveraged leases
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(211</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(189</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net investment in leveraged leases
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>58</b></td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">73</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">A summary of the components of income from domestic leveraged leases was as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="64%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">2008</td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="11"><i>(in millions)</i></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Pretax leveraged lease income
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>12</b></td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">14</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">16</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Income tax expense
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(5</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(6</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(7</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td colspan="13" 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">Net leveraged lease income
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>7</b></td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">8</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">9</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="13" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Southern Company’s net investment in international leveraged leases consists of the following
at December 31:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">2008</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="7"><i>(in millions)</i></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net rentals receivable
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>734</b></td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">1,298</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Unearned income
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(393</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(663</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Investment in leveraged leases
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>341</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">635</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Current taxes payable
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>—</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(120</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred taxes from leveraged leases
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(40</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(117</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Net investment in leveraged leases
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>301</b></td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">398</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">A summary of the components of income from international leveraged leases was as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="64%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">2008</td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="11"><i>(in millions)</i></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Pretax leveraged lease income (loss)
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>19</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">$</td>
<td align="right">(99</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="right">$</td>
<td align="right">24</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Income tax benefit (expense)
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right"><b>(7</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td> </td>
<td align="right">35</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(8</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td colspan="13" 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">Net leveraged lease income (loss)
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>12</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">$</td>
<td align="right">(64</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="right">$</td>
<td align="right">16</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="13" 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">The Company terminated two international leveraged lease investments during 2009. The proceeds
were used to extinguish all debt related to leveraged lease investments, a portion of which had
make-whole redemption provisions. This resulted in a $17 million loss which partially offset a $26
million gain on the terminations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Cash and Cash Equivalents</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">For purposes of the financial statements, temporary cash investments are considered cash
equivalents. Temporary cash investments are securities with original maturities of 90 days or
less.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Materials and Supplies</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Generally, materials and supplies include the average costs of transmission, distribution, and
generating plant materials. Materials are charged to inventory when purchased and then expensed or
capitalized to plant, as appropriate, at weighted average cost when installed.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Fuel Inventory</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Fuel inventory includes the average costs of oil, coal, natural gas, and emissions allowances.
Fuel is charged to inventory when purchased and then expensed as used and recovered by the
traditional operating companies through fuel cost recovery rates approved by each state PSC.
Emissions allowances granted by the Environmental Protection Agency (EPA) are included in inventory
at zero cost.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Financial Instruments</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Southern Company uses derivative financial instruments to limit exposure to fluctuations in
interest rates, the prices of certain fuel purchases, and electricity purchases and sales. All
derivative financial instruments are recognized as either assets or liabilities (included in
“Other” or shown separately as “Risk Management Activities”) and are measured at fair value. See
Note 10 for additional information. Substantially all of Southern Company’s bulk energy purchases
and sales contracts that meet the definition of a derivative are excluded from fair value
accounting requirements because they qualify for the “normal” scope exception, and are accounted
for under the accrual method. Other derivative contracts qualify as cash flow hedges of
anticipated transactions or are recoverable through the traditional operating companies’ fuel
hedging programs. This results in the deferral of related gains and losses in other comprehensive
income or regulatory assets and liabilities, respectively, until the hedged transactions occur.
Any ineffectiveness arising from cash flow hedges is recognized currently in net income. Other
derivative contracts, including derivatives related to synthetic fuel investments, are marked to
market through current period income and are recorded on a net basis in the statements of income.
See Note 11 for additional information.
</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 align="left" style="font-size: 10pt; margin-top: 6pt">The Company does not offset fair value amounts recognized for multiple derivative instruments
executed with the same counterparty under a master netting arrangement. At December 31, 2009, the
amount included in “Accounts payable” in the balance sheets that the Company has recognized for the
obligation to return cash collateral arising from derivative instruments was not material.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Southern Company is exposed to losses related to financial instruments in the event of
counterparties’ nonperformance. The Company has established controls to determine and monitor the
creditworthiness of counterparties in order to mitigate the Company’s exposure to counterparty
credit risk.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Comprehensive Income</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The objective of comprehensive income is to report a measure of all changes in common stock equity
of an enterprise that result from transactions and other economic events of the period other than
transactions with owners. Comprehensive income consists of net income, changes in the fair value
of qualifying cash flow hedges and marketable securities, certain changes in pension and other
postretirement benefit plans, and reclassifications for amounts included in net income.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Accumulated other comprehensive income (loss) balances, net of tax effects, 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> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>Pension and Other</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>Accumulated Other</b></td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 0px solid #000000"><b>Qualifying</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>Marketable</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>Postretirement</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>Comprehensive</b></td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left" 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"><b>Hedges</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>Securities</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>Benefit Plans</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>Income (Loss)</b></td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="font-size: 8pt"><i>(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">Balance at December 31, 2008
</div></td>
<td> </td>
<td nowrap="nowrap" align="right">$</td>
<td align="right">(73</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="right">$</td>
<td align="right">6</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">$</td>
<td align="right">(38</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="right">$</td>
<td align="right">(105</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Current period change
</div></td>
<td> </td>
<td> </td>
<td align="right">24</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(11</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">17</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Balance at December 31, 2009</b>
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"><b>$</b></td>
<td align="right"><b>(49</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>10</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right"><b>$</b></td>
<td align="right"><b>(49</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="right"><b>$</b></td>
<td align="right"><b>(88</b></td>
<td nowrap="nowrap"><b>)</b></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: 12pt"><b>Variable Interest Entities</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The primary beneficiary of a variable interest entity must consolidate the related assets and
liabilities. Certain of the traditional operating companies have established certain wholly-owned
trusts to issue preferred securities. See Note 6 under “Long-Term Debt Payable to Affiliated
Trusts” for additional information. However, Southern Company and the applicable traditional
operating companies are not considered the primary beneficiaries of the trusts. Therefore, the
investments in these trusts are reflected as Other Investments, and the related loans from the
trusts are included in Long-term Debt in the balance sheets.
</div>
</div>
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