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<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 5 - us-gaap:IncomeTaxDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>5. INCOME TAXES</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Southern Company files a consolidated federal income tax return and combined state income tax
returns for the States of Alabama, Georgia, and Mississippi. Under a joint consolidated income tax
allocation agreement, each subsidiary’s current and deferred tax expense is computed on a
stand-alone basis. In accordance with IRS regulations, each company is jointly and severally
liable for the tax liability.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Current and Deferred Income Taxes</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Details of income tax provisions 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="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: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="11" 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">Federal —
</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>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Current
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>771</b></td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">628</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">715</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Deferred
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>40</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">177</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">11</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 align="right"><b>811</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">805</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">726</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">State —
</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>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Current
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>100</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">72</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">114</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Deferred
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right"><b>(15</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td> </td>
<td align="right">38</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(5</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"> 
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>85</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">110</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">109</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"><b>$</b></td>
<td align="right"><b>896</b></td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">915</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">835</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">Net cash payments for income taxes in 2009, 2008, and 2007 were $975 million, $537 million, and
$732 million, respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The tax effects of temporary differences between the carrying amounts of assets and liabilities in
the financial statements and their respective tax bases, which give rise to deferred tax assets and
liabilities, are as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">2008</td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="font-size: 8pt"><i>(in millions)</i></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred tax
liabilities —
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Accelerated depreciation
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>5,938</b></td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">5,356</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Property basis differences
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>986</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">968</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Leveraged lease basis differences
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>251</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">306</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Employee benefit obligations
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>384</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">364</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Under recovered fuel clause
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>271</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">516</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Premium on reacquired debt
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>100</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">107</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Regulatory assets associated with employee benefit obligations
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>939</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">869</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Regulatory assets associated with asset retirement obligations
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>486</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">480</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Other
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>216</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">132</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
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>9,571</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,098</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">Deferred tax
assets —
</div></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:30px; text-indent:-15px">Federal effect of state deferred taxes
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>302</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">354</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">State effect of federal deferred taxes
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>108</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">105</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Employee benefit obligations
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>1,435</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,325</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Over recovered fuel clause
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>119</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Other property basis differences
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>132</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">144</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Deferred costs
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>65</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">99</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Cost of removal
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>109</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Unbilled revenue
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>96</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">100</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Other comprehensive losses
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>81</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">82</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Asset retirement obligations
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>486</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">480</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Other
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>458</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">279</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">Total
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>3,391</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,968</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 deferred tax liabilities, net
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>6,180</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6,130</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Portion included in prepaid expenses (accrued income taxes), net
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>229</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(90</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred state tax assets
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>105</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">103</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Valuation allowance
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right"><b>(59</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(63</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">Accumulated deferred income taxes
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>6,455</b></td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">6,080</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>
<!-- 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">At December 31, 2009, Southern Company had a State of Georgia net operating loss (NOL)
carryforward totaling $1.0 billion, which could result in net state income tax benefits of $55
million, if utilized. However, Southern Company has established a valuation allowance for the
potential $55 million tax benefit due to the remote likelihood that the tax benefit will be
realized. These NOLs expire between 2010 and 2021. During 2009, Southern Company utilized
$4 million in available NOLs, which resulted in a $0.2 million state income tax benefit. The State
of Georgia allows the filing of a combined return, which should substantially reduce any additional
NOL carryforwards.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">At December 31, 2009, the tax-related regulatory assets and liabilities were $1.05 billion and
$249 million, respectively. These assets are attributable to tax benefits flowed through to
customers in prior years and to taxes applicable to capitalized interest. These liabilities are
attributable to deferred taxes previously recognized at rates higher than the current enacted tax
law and to unamortized investment tax credits.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Effective Tax Rate</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The provision for income taxes differs from the amount of income taxes determined by applying the
applicable U.S. federal statutory rate to earnings before income taxes and preferred and preference
dividends of subsidiaries, as a result of the following:
</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>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Federal statutory rate
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right"><b>35.0</b></td>
<td nowrap="nowrap"><b>%</b></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">35.0</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">35.0</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">State income tax, net of federal deduction
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>2.1</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2.6</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2.7</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Synthetic fuel tax credits
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>—</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(1.4</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Employee stock plans dividend deduction
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right"><b>(1.4</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(1.3</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(1.3</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Non-deductible book depreciation
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>0.9</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">0.8</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">0.9</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Difference in prior years’ deferred and current tax rate
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right"><b>(0.1</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(0.2</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(0.2</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">AFUDC-Equity
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right"><b>(2.7</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(1.9</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(1.4</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Production activities deduction
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right"><b>(0.7</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(0.4</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(0.8</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Leveraged lease termination
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right"><b>(0.9</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right"><b>—</b></td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">MC Asset Recovery
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>2.7</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right"><b>—</b></td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Donations
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right"><b>(0.4</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(0.8</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right"><b>(0.1</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(1.0</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(0.8</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">Effective income tax rate
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right"><b>34.4</b></td>
<td nowrap="nowrap"><b>%</b></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">33.6</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">31.9</td>
<td nowrap="nowrap">%</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">Southern Company’s 2009 effective tax rate increased from 2008 primarily due to the $202 million
charge recorded for the MC Asset Recovery litigation settlement, which completed and resolved all
claims by MC Asset Recovery against Southern Company. Southern Company is currently evaluating
potential recovery of the settlement payment through various means. The degree to which any
recovery is realized will determine, in part, the final income tax treatment of the settlement
payment. The ultimate outcome of any such recovery and/or income tax treatment cannot be
determined at this time. The increase in Southern Company’s effective tax rate was partially
offset by the gain on the early termination of an international leveraged lease investment and the
increase in AFUDC related to increased construction expenditures.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The American Jobs Creation Act of 2004 created a tax deduction for a portion of income attributable
to U. S. production activities as defined in the Internal Revenue Code Section 199 (production
activities deduction). The deduction is equal to a stated percentage of qualified production
activities net income. The percentage is phased in over the years 2005 through 2010 with a 3% rate
applicable to the years 2005 and 2006, a 6% rate applicable for the years 2007 through 2009, and a
9% rate thereafter. The IRS has not clearly defined a methodology for calculating this deduction.
However, Southern Company reached an agreement with the IRS on a calculation methodology and signed
a closing agreement in December 2008. Therefore, in 2008, Southern Company reversed the
unrecognized tax benefit related to the calculation methodology and adjusted the deduction for all
previous years to conform to the agreement which resulted in a decrease in the 2008 deduction when
compared to the 2007 deduction. Certain aspects of the production activities deduction remain
unresolved. The net impact of the reversal of the unrecognized tax benefits combined with the
application of the new methodology had no material effect on the Company’s financial statements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">For 2009, Georgia Power donated 5,111 acres of land to the State of Georgia. In 2007, Georgia
Power donated 2,200 acres of land in the Tallulah Gorge State Park to the State of Georgia. The
estimated value of the donations lowered the effective income tax rate for the years ended December
31, 2009 and December 31, 2007.
</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>Unrecognized Tax Benefits</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">For 2009, the total amount of unrecognized tax benefits increased by $53 million, resulting in a
balance of $199 million as of December 31, 2009.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Changes during the year in unrecognized tax benefits were as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="64%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">2008</td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="11" style="font-size: 8pt"><i>(in millions)</i></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Unrecognized tax benefits at beginning of year
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>146</b></td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">264</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">211</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Tax positions from current periods
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>53</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">49</td>
<td> </td>
<td> </td>
<td align="right"> </td>
<td align="right">46</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Tax positions from prior periods
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>2</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">130</td>
<td> </td>
<td> </td>
<td align="right"> </td>
<td align="right">7</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Reductions due to settlements
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>—</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(297</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="right"> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Reductions due to expired statute of limitations
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right"><b>(2</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td> </td>
<td align="right"><b>—</b></td>
<td> </td>
<td> </td>
<td align="right"> </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">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at end of year
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>199</b></td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">146</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">264</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 tax positions from current periods increase for 2009 relate primarily to the Georgia state tax
credits litigation, the production activities deduction tax position, and other miscellaneous
uncertain tax positions. The tax positions increase from prior
periods for 2009 relates primarily to the
production activities deduction tax position. See Note 3 under “Income Tax Matters” for additional
information.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Impact on Southern Company’s effective tax rate, if recognized, is 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: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="11" style="font-size: 8pt"><i>(in millions)</i></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Tax positions impacting the effective tax rate
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>199</b></td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">143</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">96</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Tax positions not impacting the effective tax rate
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>—</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">168</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">Balance of unrecognized tax benefits
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>199</b></td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">146</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">264</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 tax positions impacting the effective tax rate primarily relate to
Georgia state tax credit litigation at Georgia Power and the production activities deduction tax
position. See Note 3 under “Income Tax Matters” for additional information.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Accrued interest for unrecognized tax benefits 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: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="11" style="font-size: 8pt"><i>(in millions)</i></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Interest accrued at beginning of year
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>15</b></td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">31</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">27</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Interest reclassified due to settlements
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>—</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(49</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="right"> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Interest accrued during the year
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>6</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">33</td>
<td> </td>
<td> </td>
<td align="right"> </td>
<td align="right">4</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">Balance at end of year
</div></td>
<td> </td>
<td align="right"><b>$</b></td>
<td align="right"><b>21</b></td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">15</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">31</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">Southern Company classifies interest on tax uncertainties as interest expense. The net amount of
interest accrued during 2009 was primarily associated with the Georgia state tax credit
litigation.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Southern Company did not accrue any penalties on uncertain tax positions.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">It is reasonably possible that the amount of the unrecognized benefit with respect to a majority of
Southern Company’s unrecognized tax positions will significantly increase or decrease within the
next 12 months. The possible settlement of the Georgia state tax credits litigation and/or the
conclusion or settlement of state audits could impact the balances significantly. At this time, an
estimate of the range of reasonably possible outcomes cannot be determined.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The IRS has audited and closed all tax returns prior to 2004. The audits for the state returns
have either been concluded, or the statute of limitations has expired, for years prior to 2006.
</div>
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</div>
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<div align="left" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
</div>
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