UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission		Registrant, State of Incorporation,		I.R.S. Employer
File Number		Address and Telephone Number		Identification No.
1-3526		The Southern Company		58-0690070
		(A Delaware Corporation)
		30 Ivan Allen Jr. Boulevard, N.W.
		Atlanta, Georgia 30308
		(404) 506-5000
1-3164		Alabama Power Company		63-0004250
		(An Alabama Corporation)
		600 North 18 th Street
		Birmingham, Alabama 35291
		(205) 257-1000
1-6468		Georgia Power Company		58-0257110
		(A Georgia Corporation)
		241 Ralph McGill Boulevard, N.E.
		Atlanta, Georgia 30308
		(404) 506-6526
0-2429		Gulf Power Company		59-0276810
		(A Florida Corporation)
		One Energy Place
		Pensacola, Florida 32520
		(850) 444-6111
001-11229		Mississippi Power Company		64-0205820
		(A Mississippi Corporation)
		2992 West Beach
		Gulfport, Mississippi 39501
		(228) 864-1211
333-98553		Southern Power Company		58-2598670
		(A Delaware Corporation)
		30 Ivan Allen Jr. Boulevard, N.W.
		Atlanta, Georgia 30308
		(404) 506-5000

      Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes þ No o

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No þ (Response applicable to all registrants.)

     This combined Form 10-Q is separately filed by The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Southern Power Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants.

INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2007

				Page
				Number
DEFINITIONS					5
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION					6
PART I — FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
		The Southern Company and Subsidiary Companies
		Condensed Consolidated Statements of Income			8
		Condensed Consolidated Statements of Cash Flows			9
		Condensed Consolidated Balance Sheets			10
		Condensed Consolidated Statements of Comprehensive Income			12
		Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
		Alabama Power Company
		Condensed Statements of Income			29
		Condensed Statements of Comprehensive Income			29
		Condensed Statements of Cash Flows			30
		Condensed Balance Sheets			31
		Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
		Georgia Power Company
		Condensed Statements of Income			44
		Condensed Statements of Comprehensive Income			44
		Condensed Statements of Cash Flows			45
		Condensed Balance Sheets			46
		Management’s Discussion and Analysis of Financial Condition and Results of Operations			48
		Gulf Power Company
		Condensed Statements of Income			60
		Condensed Statements of Comprehensive Income			60
		Condensed Statements of Cash Flows			61
		Condensed Balance Sheets			62
		Management’s Discussion and Analysis of Financial Condition and Results of Operations			64
		Mississippi Power Company
		Condensed Statements of Income			74
		Condensed Statements of Comprehensive Income			74
		Condensed Statements of Cash Flows			75
		Condensed Balance Sheets			76
		Management’s Discussion and Analysis of Financial Condition and Results of Operations			78
		Southern Power Company and Subsidiary Companies
		Condensed Consolidated Statements of Income			89
		Condensed Consolidated Statements of Comprehensive Income			89
		Condensed Consolidated Statements of Cash Flows			90
		Condensed Consolidated Balance Sheets			91
		Management’s Discussion and Analysis of Financial Condition and Results of Operations			93
		Notes to the Condensed Financial Statements			102
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			27
Item 4.		Controls and Procedures			27

INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2007

				Page
				Number
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings			112
Item 1A.		Risk Factors			112
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		Inapplicable
Item 3.		Defaults Upon Senior Securities		Inapplicable
Item 4.		Submission of Matters to a Vote of Security Holders		Inapplicable
Item 5.		Other Information		Inapplicable
Item 6.		Exhibits			113
		Signatures			118

DEFINITIONS

TERM		MEANING
Alabama Power		Alabama Power Company
ALJ		Administrative law judge
BMA		Bond Market Association
Clean Air Act		Clean Air Act Amendments of 1990
DOE		U.S. Department of Energy
Duke Energy		Duke Energy Corporation
ECO Plan		Environmental Compliance Overview Plan
EPA		U.S. Environmental Protection Agency
ERISA		Employee Retirement Income Security Act of 1974, as amended
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
Form 10-K		Combined Annual Report on Form 10-K of Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power for the year ended December 31, 2006 and, with respect to Gulf Power, Amendment No. 1 thereto
Georgia Power		Georgia Power Company
Gulf Power		Gulf Power Company
IIC		Intercompany Interchange Contract
IRC		Internal Revenue Code of 1986, as amended
IRS		Internal Revenue Service
KWH		Kilowatt-hour
LIBOR		London Interbank Offered Rate
Mirant		Mirant Corporation
Mississippi Power		Mississippi Power Company
MW		Megawatt
NRC		Nuclear Regulatory Commission
NSR		New Source Review
PEP		Performance Evaluation Plan
Power Pool		The operating arrangement whereby the integrated generating resources of the traditional operating companies and Southern Power are subject to joint commitment and dispatch in order to serve their combined load obligations
PPA		Power Purchase Agreement
PSC		Public Service Commission
Rate CNP		Alabama Power’s certified new plant rate mechanism
Rate ECR		Alabama Power’s energy cost recovery rate mechanism
Rate RSE		Alabama Power’s rate stabilization and equalization rate mechanism
Savannah Electric		Savannah Electric and Power Company (merged into Georgia Power on July 1, 2006)
SCS		Southern Company Services, Inc.
SEC		Securities and Exchange Commission
Southern Company		The Southern Company
Southern Company system		Southern Company, the traditional operating companies, Southern Power, and other subsidiaries
Southern Nuclear		Southern Nuclear Operating Company, Inc.
Southern Power		Southern Power Company
traditional operating companies		Alabama Power, Georgia Power, Gulf Power, and Mississippi Power
wholesale revenues		revenues generated from sales for resale

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

     This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements include, among other things, statements concerning the strategic goals for the wholesale business, retail sales growth, customer growth, storm damage cost recovery and repairs, fuel cost recovery, environmental regulations and expenditures, access to sources of capital, projections for postretirement benefit trust contributions, synthetic fuel investments, financing activities, completion or termination of construction projects, impacts of adoption of new accounting rules, PPA revenues, and estimated construction and other expenditures. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential,” or “continue” or the negative of these terms or other similar terminology. There are various factors that could cause actual results to differ materially from those suggested by the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include:

•

the impact of recent and future federal and state regulatory change, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry, implementation of the Energy Policy Act of 2005, and also changes in environmental, tax, and other laws and regulations to which Southern Company and its subsidiaries are subject, as well as changes in application of existing laws and regulations;

•

current and future litigation, regulatory investigations, proceedings or inquiries, including the pending EPA civil actions against certain Southern Company subsidiaries, FERC matters, IRS audits, and Mirant matters;

•

the effects, extent, and timing of the entry of additional competition in the markets in which Southern Company’s subsidiaries operate;

•

variations in demand for electricity, including those relating to weather, the general economy and population, and business growth (and declines);

•

available sources and costs of fuels;

•

ability to control costs;

•

investment performance of Southern Company’s employee benefit plans;

•

advances in technology;

•

state and federal rate regulations and the impact of pending and future rate cases and negotiations, including rate actions relating to fuel and storm restoration cost recovery;

•

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

•

fluctuations in the level of oil prices;

•

the level of production, if any, by the synthetic fuel operations at Carbontronics Synfuels Investors LP and Alabama Fuel Products, LLC for fiscal year 2007;

•

internal restructuring or other restructuring options that may be pursued;

•

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

•

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

•

the ability to obtain new short- and long-term contracts with neighboring utilities;

•

the direct or indirect effect on Southern Company’s business resulting from terrorist incidents and the threat of terrorist incidents;

•

interest rate fluctuations and financial market conditions and the results of financing efforts, including Southern Company’s and its subsidiaries’ credit ratings;

•

the ability of Southern Company and its subsidiaries to obtain additional generating capacity at competitive prices;

•

catastrophic events such as fires, earthquakes, explosions, floods, hurricanes, pandemic health events such as an avian influenza, or other similar occurrences;

•

the direct or indirect effects on Southern Company’s business resulting from incidents similar to the August 2003 power outage in the Northeast;

•

the effect of accounting pronouncements issued periodically by standard setting bodies; and

•

other factors discussed elsewhere herein and in other reports (including the Form 10-K) filed by the registrants from time to time with the SEC.

Each registrant expressly disclaims any obligation to update any forward-looking statements.

THE SOUTHERN COMPANY AND
SUBSIDIARY COMPANIES

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

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

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

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

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

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FIRST QUARTER 2007 vs. FIRST QUARTER 2006

OVERVIEW

Discussion of the results of operations is focused on Southern Company’s primary business of electricity sales in the Southeast by the traditional operating companies – Alabama Power, Georgia Power, Gulf Power, and Mississippi Power – and Southern Power. Southern Power is an electric wholesale generation subsidiary with market-based rate authority. Southern Company’s other business activities include investments in synthetic fuels and leveraged lease projects, telecommunications, and energy-related services. For additional information on these businesses, see BUSINESS – The Southern Company System – “Traditional operating companies,” “Southern Power,” and “Other Business” in Item 1 of the Form 10-K. For information regarding the synthetic fuel investment, see Note (B) to the Condensed Financial Statements under “INCOME TAX MATTERS – Synthetic Fuel Tax Credits” herein.

Southern Company continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, and earnings per share. For additional information on these indicators, see MANAGEMENT’S DISCUSSION AND ANALYSIS – OVERVIEW – “Key Performance Indicators” of Southern Company in Item 7 of the Form 10-K.

RESULTS OF OPERATIONS

Net Income

First Quarter 2007 vs. First Quarter 2006
(change in millions)		% change
$77.1		29.5

Southern Company’s first quarter 2007 earnings were $338.7 million ($0.45 per share) compared to $261.6 million ($0.35 per share) for first quarter 2006. The increase in earnings for the first quarter 2007 when compared to the same period in 2006 resulted primarily from higher revenues due to sustained economic strength and customer growth in the Southern Company service area, higher earnings in the synthetic fuel business, and a retail base rate increase at Alabama Power. The increase to earnings was partially offset by higher interest expense and a decrease in revenues associated with lower market-based rates to large commercial and industrial customers when compared to the same period in 2006.

Retail Revenues

First Quarter 2007 vs. First Quarter 2006
(change in millions)		% change
$272.4		11.0

In the first quarter 2007, retail revenues were $2.74 billion compared to $2.47 billion in the same period in 2006. Details of the change to retail revenues follow:

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Revenues associated with changes in rates and pricing increased in the first quarter of 2007 when compared to the same period in 2006 primarily as a result of an increase in retail base rates at Alabama Power, partially offset by a decrease in revenues associated with lower market-based rates to large commercial and industrial customers.

Revenues attributable to changes in sales growth increased in the first quarter of 2007 when compared to the same period in 2006 due to a 3.3% increase in retail KWH sales, resulting from continued customer growth and sustained economic strength in the Southeast. The number of retail customers increased by 1.7% as of March 2007 compared to March 2006.

Revenues resulting from changes in weather increased because of normal weather in the first quarter of 2007 compared to mild weather in the first quarter of 2006.

Fuel revenues increased $193.6 million in the first quarter of 2007 when compared to the same period in 2006. Electric rates for the traditional operating companies include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these provisions, fuel revenues generally equal fuel expenses, including the fuel component of purchased power costs, and do not affect net income.

Wholesale Revenues

First Quarter 2007 vs. First Quarter 2006
(change in millions)		% change
$65.8		15.9

In the first quarter 2007, wholesale revenues were $480.7 million compared to $414.9 million in the same period in 2006. The increase was primarily a result of a rise in fuel revenues due to a 13.8% increase in the average unit cost of fuel per net KWH generated. Short-term opportunity sales also contributed to the increase over the same period in 2006 due to favorable weather compared to neighboring territories and a favorable price differential between market prices and Southern Company’s marginal cost. Short-term opportunity sales are made at market-based rates that generally provide a margin above Southern Company’s variable cost to produce the energy.

Other Electric Revenues

First Quarter 2007 vs. First Quarter 2006
(change in millions)		% change
$10.3		9.3

In the first quarter 2007, other electric revenues were $121.3 million compared to $111.0 million in the same period in 2006. The increase was primarily a result of an increase in transmission revenues of $6.8 million, an increase in outdoor lighting revenues of $1.5 million, and an increase in customer fees of $1.5 million. Transmission revenues are generally offset by related expenses and do not significantly affect net income.

Fuel and Purchased Power Expenses

First Quarter 2007 vs. First Quarter 2006
		(change in millions)				% change
Fuel		$	268.0				25.6
Purchased power			(40.3	)			(38.6	)
Total fuel and purchased power expenses		$	227.7

Increases in fuel expense at the traditional operating companies are generally offset by fuel revenues and do not affect net income. See FUTURE EARNINGS POTENTIAL – “FERC and State PSC Matters – Retail Fuel Cost Recovery” herein for additional information. Fuel expenses incurred under Southern Power’s PPAs are generally the responsibility of the counterparties and do not significantly affect net income.

Allowance for Equity Funds Used During Construction

First Quarter 2007 vs. First Quarter 2006
(change in millions)		% change
$8.6		75.0

In the first quarter 2007, allowance for equity funds used during construction was $20.2 million compared to $11.6 million in the same period in 2006. The increase was a result of additional investment in environmental projects, primarily at Georgia Power.

Equity in Losses of Unconsolidated Subsidiaries

First Quarter 2007 vs. First Quarter 2006
(change in millions)		% change
$(25.8)		(79.3)

In the first quarter 2007, equity in losses of unconsolidated subsidiaries was $6.8 million compared to $32.6 million for the same period in 2006. Southern Company made investments in two synthetic fuel production facilities that generate operating losses. These investments also allow Southern Company to claim federal income tax credits that offset these operating losses and make the projects profitable. The decrease in equity in losses of unconsolidated subsidiaries in the first quarter when compared with the same period in 2006 was primarily the result of terminating Southern Company’s membership interest in one of the synthetic fuel entities in 2006 which eliminated the funding obligation and Southern Company’s share of losses for the first quarter 2007. See FUTURE EARNINGS POTENTIAL – “Income Tax Matters – Synthetic Fuel Tax Credits” and Note (B) to the Condensed Financial Statements under “INCOME TAX MATTERS – Synthetic Fuel Tax Credits” herein for further information.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Leveraged Lease Income

First Quarter 2007 vs. First Quarter 2006
(change in millions)		% change
$(8.2)		(45.5)

Leveraged lease income for the first quarter 2007 was $9.9 million compared to $18.1 million for the corresponding period in 2006. Southern Company has several leveraged lease agreements 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 adoption of FASB Staff Position No. FAS 13-2 (FSP 13-2), “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” resulted in a $6.5 million decrease to leveraged lease pre-tax income in the first quarter of 2007 when compared to the same period in 2006. See FUTURE EARNINGS POTENTIAL – “Income Tax Matters – Leveraged Lease Transactions” and Note (B) to the Condensed Financial Statements under “INCOME TAX MATTERS – Leveraged Lease Transactions” herein for further information.

Interest Expense, Net of Amounts Capitalized

First Quarter 2007 vs. First Quarter 2006
(change in millions)		% change
$17.6		10.0

Interest expense, net of amounts capitalized for the first quarter 2007 was $194.0 million compared to $176.4 million for the corresponding period in 2006. The increase was a result of a $13.6 million increase associated with $1.02 billion in additional debt outstanding at March 31, 2007 compared to March 31, 2006 and a $10.0 million increase associated with an increase in average interest rates on variable rate debt. These increases were partially offset by $7.3 million associated with capitalized interest and allowance for debt funds used during construction. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Financing Activities” of Southern Company in Item 7 of the Form 10-K and herein for additional information.

Interest Expense to Affiliate Trusts

First Quarter 2007 vs. First Quarter 2006
(change in millions)		% change
$(6.8)		(22.2)

Interest expense to affiliate trusts for the first quarter 2007 was $23.8 million compared to $30.6 million for the corresponding period in 2006. The decrease was a result of the redemption of long-term debt payable to affiliated trusts in January and December 2006.

Other Income (Expense), Net

First Quarter 2007 vs. First Quarter 2006
(change in millions)		% change
$5.5		65.2

In the first quarter 2007, other income (expense), net was $(2.9) million compared to $(8.4) million for the same period in 2006 primarily as a result of Alabama Power’s recognition of $5.0 million associated with the consent decree entered in the NSR litigation in 2006. See Note 3 to the financial statements of Southern Company under “Environmental Matters – New Source Review Actions” in Item 8 of the Form 10-K and Note (B) to the

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Condensed Financial Statements under “NEW SOURCE REVIEW LITIGATION” herein for further information.

Income Taxes

First Quarter 2007 vs. First Quarter 2006
(change in millions)		% change
$47.6		44.1

Income taxes for the first quarter 2007 were $155.6 million compared to $108.0 million for the corresponding period in 2006. The increase was due to higher pre-tax earnings and a $23.1 million decrease in synthetic fuel tax credits as a result of terminating the membership interest in one of the synthetic fuel entities in 2006. The increase in income tax expense was partially offset by a $17.3 million reduction to tax credit reserves in the first quarter of 2007 compared to the first quarter 2006 as a result of reduced credits and a lower projected phase-out. See FUTURE EARNINGS POTENTIAL – “Income Tax Matters – Synthetic Fuel Tax Credits” and Note (B) to the Condensed Financial Statements under “INCOME TAX MATTERS – Synthetic Fuel Tax Credits” herein for further information.

FUTURE EARNINGS POTENTIAL

The results of operations discussed above are not necessarily indicative of Southern Company’s future earnings potential. The level of Southern Company’s future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Southern Company’s primary business of selling electricity. These factors include the traditional operating companies’ ability to maintain a stable regulatory environment that continues to allow for the recovery of all prudently incurred costs during a time of increasing costs. Another major factor is the profitability of the competitive market-based wholesale generating business and federal regulatory policy, which may impact Southern Company’s level of participation in this market. Future earnings for the electricity business in the near term will depend, in part, upon growth in energy sales, which is subject to a number of factors. These factors include weather, competition, new energy contracts with neighboring utilities, energy conservation practiced by customers, the price of electricity, the price elasticity of demand, and the rate of economic growth in the service area. For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL of Southern Company in Item 7 of the Form 10-K.

Environmental Matters

Compliance costs related to the Clean Air Act and other environmental regulations could affect earnings if such costs cannot be fully recovered in rates on a timely basis. See MANAGEMENT’S DISCUSSION AND ANALYSIS — FUTURE EARNINGS POTENTIAL – “Environmental Matters” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Environmental Matters” in Item 8 of the Form 10-K for additional information.

New Source Review Litigation

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters – New Source Review Actions” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Environmental Matters – New Source Review Actions” in Item 8 of the Form 10-K for additional information regarding a civil action brought by the EPA alleging that Alabama Power had violated the NSR provisions of the Clean Air Act and related state laws with respect to certain of its coal-fired generating facilities. The plaintiffs’ appeal against Alabama Power was stayed by the U.S. Court of Appeals for the Eleventh Circuit pending the U.S. Supreme Court’s decision in a similar case

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

against Duke Energy. On April 2, 2007, the U.S. Supreme Court issued an opinion in the Duke Energy case. On April 11, 2007, Alabama Power filed a motion to lift the stay and to reset the briefing schedule. The plaintiffs have opposed the motion and have moved to vacate the district court’s decision and remand for further proceedings consistent with the Duke Energy decision. The final resolution of these claims is dependent on these appeals and possible further court action and, therefore, cannot be determined at this time.

Fine Particulate Matter Regulations

See MANAGEMENT’S DISCUSSION AND ANALYSIS - FUTURE EARNINGS POTENTIAL – “Environmental Matters – Environmental Statutes and Regulations – Air Quality” of Southern Company in Item 7 of the Form 10-K for additional information regarding nonattainment designations for the fine particulate matter air quality standard. In March 2007, the EPA finalized its fine particulate matter implementation rule, requiring submittal of state plans for addressing the nonattainment designations by April 2008. The ultimate outcome of this matter cannot be determined at this time.

Plant Wansley Environmental Litigation

See MANAGEMENT’S DISCUSSION AND ANALYSIS - FUTURE EARNINGS POTENTIAL – “Environmental Matters – Plant Wansley Environmental Litigation” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Environmental Matters — Plant Wansley Environmental Litigation” in Item 8 of the Form 10-K for additional information on litigation involving alleged violations of the Clean Air Act at four of the units at Plant Wansley. On March 30, 2007, the parties filed a joint motion seeking entry of a proposed consent decree resolving all remaining issues in the case. If the consent decree is approved as proposed, the resolution of this case will not have a material impact on Southern Company’s financial statements.

FERC and State PSC Matters

Intercompany Interchange Contract

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters – Intercompany Interchange Contract” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “FERC Matters – Intercompany Interchange Contract” in Item 8 of the Form 10-K for information regarding the proceeding initiated by the FERC in May 2005 to examine (1) the provisions of the IIC among Alabama Power, Georgia Power, Gulf Power, Mississippi Power, Savannah Electric, Southern Power, and SCS, as agent, under the terms of which the Power Pool is operated, and, in particular, the propriety of the continued inclusion of Southern Power as a party to the IIC, (2) whether any parties to the IIC have violated the FERC’s standards of conduct applicable to utility companies that are transmission providers, and (3) whether Southern Company’s code of conduct defining Southern Power as a “system company” rather than a “marketing affiliate” is just and reasonable.

On April 19, 2007, the FERC approved, with certain modifications, the compliance filing submitted by Southern Company on November 6, 2006. The compliance plan largely involves functional separation and information restrictions related to marketing activities conducted on behalf of Southern Power. The implementation of the plan is not expected to have a material impact on Southern Company’s financial statements. However, the ultimate outcome of this matter cannot now be determined.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Retail Fuel Cost Recovery

The traditional operating companies each have established fuel cost recovery rates approved by their respective state PSCs. Over the past several years, the traditional operating companies have experienced higher than expected fuel costs for coal, natural gas, and uranium. These higher fuel costs have resulted in under recovered fuel costs included in the balance sheets of approximately $1.3 billion at March 31, 2007. Operating revenues are adjusted for differences in actual recoverable fuel costs and amounts billed in current regulated rates. Accordingly, changes to the billing factors will have no significant effect on Southern Company’s revenues or net income but will affect cash flow. The traditional operating companies will continue to monitor the under recovered fuel cost balance in light of these higher fuel costs. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters - Fuel Cost Recovery” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Alabama Power Retail Regulatory Matters” and “Georgia Power Retail Regulatory Matters” in Item 8 of the Form 10-K for additional information.

Mirant Matters

Mirant was an energy company with businesses that included independent power projects and energy trading and risk management companies in the U.S. and selected other countries. It was a wholly-owned subsidiary of Southern Company until its initial public offering in October 2000. In April 2001, Southern Company completed a spin-off to its shareholders of its remaining ownership, and Mirant became an independent corporate entity. In July 2003, Mirant filed for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code. See Note 3 to the financial statements of Southern Company under “Mirant Matters – Mirant Bankruptcy” in Item 8 of the Form 10-K for information regarding Southern Company’s contingent liabilities associated with Mirant, including guarantees of contractual commitments, litigation, and joint and several liabilities in connection with the consolidated federal income tax return.

Mirant Securities Litigation

See Note 3 to the financial statements of Southern Company under “Mirant Matters – Mirant Securities Litigation” in Item 8 of the Form 10-K for information regarding a class action lawsuit that several Mirant shareholders (plaintiffs) originally filed against Mirant and certain Mirant officers in May 2002. In November 2002, Southern Company, certain former and current senior officers of Southern Company, and 12 underwriters of Mirant’s initial public offering were added as defendants. On March 24, 2006, the plaintiffs filed a motion for reconsideration requesting that the court vacate that portion of its July 14, 2003 order dismissing the plaintiffs’ claims based upon Mirant’s alleged improper energy trading and marketing activities involving the California energy market. On March 6, 2007, the court granted plaintiffs’ motion for reconsideration, reinstated the California energy market claims, and granted in part and denied in part defendants’ motion to compel certain class certification discovery. On March 21, 2007, defendants filed renewed motions to dismiss the California energy claims on grounds originally set forth in their 2003 motions to dismiss, but which were not addressed by the court. The ultimate outcome of this matter cannot be determined at this time.

MC Asset Recovery Litigation

See Note 3 to the financial statements of Southern Company under “Mirant Matters – MC Asset Recovery Litigation” in Item 8 of the Form 10-K for information regarding a suit between MC Asset Recovery, a special purpose subsidiary of Reorganized Mirant, and Southern Company. On March 28, 2007, MC Asset Recovery filed a Fourth Amended Complaint. Among other things, the Fourth Amended Complaint adds a claim under the Federal Debt Collection Procedure Act (FDCPA) to avoid certain transfers from Mirant to Southern Company and withdraws the breach of fiduciary duty claim the court struck as a result of Southern Company’s

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

motion for summary judgment. MC Asset Recovery claims to have standing to assert violations of the FDCPA and to recover property on behalf of the Mirant debtors’ estates. The ultimate outcome of this matter cannot be determined at this time.

Income Tax Matters

Leveraged Lease Transactions

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Income Tax Matters – Leveraged Lease Transactions” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Income Tax Matters” in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under “INCOME TAX MATTERS – Leveraged Lease Transactions” herein for information regarding IRS challenges to Southern Company’s transactions related to international leveraged leases that could have material impacts on Southern Company’s financial statements. Effective January 1, 2007, Southern Company adopted FSP 13-2, which amends FASB Statement No. 13, “Accounting for Leases” requiring recalculation of the rate of return and the allocation of income whenever the projected timing of the income tax cash flows generated by a leveraged lease is revised with recognition of the resulting gain or loss in the year of the revision. FSP 13-2 also requires that all recognized tax positions in a leveraged lease must be measured in accordance with the criteria in FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes,” and any changes resulting from FIN 48 must be reflected as a change in important lease assumptions as of the date of adoption. The cumulative effect of initially adopting FSP 13-2 was recorded as an adjustment to beginning retained earnings. For the lease-in-lease-out (LILO) transaction settled with the IRS in February 2005, the cumulative effect of adopting FSP 13-2 was a $17 million reduction in retained earnings. With respect to Southern Company’s sale-in-lease-out (SILO) transactions, the adoption of FSP 13-2 reduced retained earnings by $108 million. The adoption of FSP 13-2 also resulted in a reduction to net income in the first quarter 2007 of approximately $4 million. The adjustments to retained earnings are non-cash charges and will be recognized as income over the remaining terms of the affected leases. Any future changes in the projected or actual income tax cash flows will result in an additional recalculation of the net investment in the leases and will be recorded currently in income. The ultimate impact on Southern Company’s net income will be dependent on the outcome of pending litigation, but could be significant, and potentially material. Southern Company believes these transactions are valid leases for U.S. tax purposes and the related deductions are allowable. Southern Company is continuing to pursue resolution of these matters through administrative appeals and litigation; however, the ultimate outcome of these matters cannot now be determined.

Synthetic Fuel Tax Credits

As discussed in MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Income Tax Matters – Synthetic Fuel Tax Credits” of Southern Company in Item 7 of the Form 10-K, Southern Company has an investment in an entity that produces synthetic fuel and receives tax credits under Section 45K (formerly Section 29) of the IRC. In accordance with Section 45K of the IRC, these tax credits are subject to limitation as the annual average price of oil (as determined by the DOE) increases over a specified, inflation-adjusted dollar amount published in the spring of the subsequent year. Southern Company, along with its partners in this investment, has continued to monitor oil prices. Reserves against tax credits earned in 2007 of $2.8 million have been recorded in the first three months of 2007 due to projected phase-outs of the credits in 2007 as a result of current and projected future oil prices.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Construction Projects

Integrated Gasification Combined Cycle (IGCC) Project

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Construction Projects – Integrated Gasification Combined Cycle” of Southern Company in Item 7 of the Form 10-K for information regarding the development by Southern Power and the Orlando Utilities Commission (OUC) of an IGCC project in Orlando, Florida at OUC’s Stanton Energy site. Since the definitive agreements relating to the development of the project were executed in December 2005, the estimated costs of the gasifier portion have increased due primarily to increases in commodity costs and increased market demand for labor. Southern Power had the option under the original agreements to end its participation in the gasifier portion of the project at the end of the project definition phase, which has been completed. On March 29, 2007, Southern Power’s Board of Directors approved the continuation and the completion of the design, engineering, and construction of the gasifier portion of the project. This approval is contingent on the approval of a request for additional funding from the DOE of $58.75 million and OUC’s approval of amended agreements to share the remaining cost increases between Southern Power and OUC. Southern Power and OUC will share 65% and 35% of the estimated cost increase, respectively, under the proposed amended agreements. In April 2007, OUC approved its portion of the cost increase, subject to the DOE’s approval of the additional funding. The ultimate outcome of this matter cannot now be determined.

Nuclear

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Construction Projects – Nuclear” of Southern Company in Item 7 of the Form 10-K for information regarding a development agreement between Southern Nuclear and Duke Energy to evaluate the potential construction of a new two-unit nuclear plant at a jointly owned site in Cherokee County, South Carolina. In March 2007, the Southern Nuclear Board of Directors voted to withdraw from any further development of this project. A notice of withdrawal from the project has been provided to Duke Energy. Adjustments to the carrying value of the related assets were recorded in the first quarter 2007 and were not material to the financial statements. If Duke Energy chooses to continue the project independently, no additional adjustments are anticipated. Management does not expect the final outcome of this matter to have a material adverse effect on Southern Company’s financial statements. However, the ultimate outcome of this matter cannot now be determined.

Other Matters

Southern Company is subject to certain claims and legal actions arising in the ordinary course of business. In addition, Southern Company’s business activities are subject to extensive governmental regulation related to public health and the environment. Litigation over environmental issues and claims of various types, including property damage, personal injury, and citizen enforcement of environmental requirements such as opacity and other air quality standards, has increased generally throughout the United States. In particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent. The ultimate outcome of such pending or potential litigation against Southern Company and its subsidiaries cannot be predicted at this time; however, for current proceedings not specifically reported herein or in Note 3 to the financial statements of Southern Company in Item 8 of the Form 10-K, management does not anticipate that the liabilities, if any, arising from such current proceedings would have a material adverse effect on Southern Company’s financial statements.

See the Notes to the Condensed Financial Statements herein for discussion of various other contingencies, regulatory matters, and other matters being litigated which may affect future earnings potential.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ACCOUNTING POLICIES

Application of Critical Accounting Policies and Estimates

Southern Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States. Significant accounting policies are described in Note 1 to the financial statements of Southern Company in Item 8 of the Form 10-K. In the application of these policies, certain estimates are made that may have a material impact on Southern Company’s results of operations and related disclosures. Different assumptions and measurements could produce estimates that are significantly different from those recorded in the financial statements. See MANAGEMENT’S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES - “Application of Critical Accounting Policies and Estimates” of Southern Company in Item 7 of the Form 10-K for a complete discussion of Southern Company’s critical accounting policies and estimates related to Electric Utility Regulation, Contingent Obligations, and Unbilled Revenues.

New Accounting Standards

Income Taxes

On January 1, 2007, Southern Company adopted FIN 48, which requires companies to determine whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. It also provides guidance on the recognition, measurement, and classification of income tax uncertainties, along with any related interest and penalties. The provisions of FIN 48 were applied to all tax positions beginning January 1, 2007. The impact on Southern Company’s financial statements was a reduction to beginning 2007 retained earnings of approximately $15 million related to Southern Company’s SILO transactions. See Note (I) to the Condensed Financial Statements herein for details regarding the financial statement impact of the adoption.

Leveraged Leases

Effective January 1, 2007, Southern Company adopted FSP 13-2. The cumulative effect of initially adopting FSP 13-2 was recorded as an adjustment to beginning retained earnings. For the LILO transaction settled with the IRS in February 2005, the cumulative effect of adopting FSP 13-2 was a $17 million reduction in retained earnings. With respect to Southern Company’s SILO transactions, the adoption of FSP 13-2 reduced retained earnings by $108 million. The adoption of FSP 13-2 also resulted in a reduction to net income in the first quarter 2007 of approximately $4 million. The adjustments to retained earnings are non-cash charges and will be recognized as income over the remaining terms of the affected leases. Any future changes in the projected or actual income tax cash flows will result in an additional recalculation of the net investment in the leases and will be recorded currently in income. See FUTURE EARNINGS POTENTIAL — “Income Tax Matters – Leveraged Lease Transactions” and Note (B) to the Condensed Financial Statements under “INCOME TAX MATTERS – Leveraged Lease Transactions” herein for further details about the effect of FSP 13-2.

Fair Value Measurement

The FASB issued FASB Statement No. 157 (SFAS No. 157), “Fair Value Measurements” in September 2006. This standard provides guidance on how to measure fair value where it is permitted or required under other accounting pronouncements. SFAS No. 157 also requires additional disclosures about fair value measurements. Southern Company plans to adopt SFAS No. 157 on January 1, 2008 and is currently assessing the impact of this standard.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Fair Value Option

In February 2007, the FASB issued FASB Statement No. 159 (SFAS No. 159), “Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.” This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. Southern Company plans to adopt SFAS No. 159 on January 1, 2008 and is currently assessing its impact.

FINANCIAL CONDITION AND LIQUIDITY

Overview

Southern Company’s financial condition remained stable at March 31, 2007. Net cash provided from operating activities totaled $262 million for the first three months of 2007, compared to $58 million for the corresponding period in 2006. The $204 million increase is primarily due to the increase in net income as previously discussed and a reduction in the outflow of cash for accounts payable, primarily related to gas purchases. Gross property additions to utility plant were $770 million in the first three months of 2007.

Significant balance sheet changes for the first three months of the year include an $857 million increase in long-term debt, which was used primarily for the repayment of short-term debt, construction expenditures, and general corporate purposes. Total property, plant, and equipment, net of depreciation, increased $431 million during the first three months of 2007 primarily from the purchase and installation of environmental equipment and transmission and distribution construction.

The market price of Southern Company’s common stock at March 31, 2007 was $36.65 per share (based on the closing price as reported on the New York Stock Exchange) and the book value was $15.27 per share, representing a market-to-book ratio of 240%, compared to $36.86, $15.24, and 242%, respectively, at the end of 2006. The dividend for the first quarter 2007 was $0.3875 per share compared to $0.3725 per share in the first quarter 2006. In April 2007, the dividend was increased to $0.4025 for the dividend payable in June 2007.

Capital Requirements and Contractual Obligations

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Capital Requirements and Contractual Obligations” of Southern Company in Item 7 of the Form 10-K for a description of Southern Company’s capital requirements for its construction program and other funding requirements associated with scheduled maturities of long-term debt, as well as the related interest, preferred and preference stock dividends, leases, trust funding requirements, and other purchase commitments. Approximately $1.5 billion will be required by March 31, 2008 for redemptions and maturities of long-term debt.

Sources of Capital

Southern Company intends to meet its future capital needs through internal cash flow and external security issuances. Equity capital can be provided from any combination of Southern Company’s stock plans, private placements, or public offerings. The amount and timing of additional equity capital to be raised will be contingent on Southern Company’s investment opportunities. Southern Company does not currently anticipate any equity offerings in 2007 outside of its existing stock option plan, the employee savings plan, and the Southern Investment Plan. The traditional operating companies and Southern Power plan to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily from operating cash flows, security issuances, term loans, short-term borrowings, and equity contributions from Southern Company. However, the amount, type, and timing of any financings, if needed, will depend upon

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

prevailing market conditions, regulatory approval, and other factors. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Sources of Capital” of Southern Company in Item 7 of the Form 10-K for additional information.

Southern Company’s current liabilities frequently exceed current assets because of the continued use of short-term debt as a funding source to meet cash needs as well as scheduled maturities of long-term debt. To meet short-term cash needs and contingencies, Southern Company has substantial cash flow from operating activities and access to capital markets, including commercial paper programs. At March 31, 2007, Southern Company and its subsidiaries had approximately $161.5 million of cash and cash equivalents and approximately $3.3 billion of unused credit arrangements with banks, of which $656 million expire in 2007 and $2.7 billion expire in 2008 and beyond. Of the facilities expiring in 2008 and beyond, $2.4 billion does not expire until 2011. Approximately $79 million of the credit facilities expiring in 2007 allow for the execution of term loans for an additional two-year period, and $343 million contain provisions allowing one-year term loans. See Note 6 to the financial statements of Southern Company under “Bank Credit Arrangements” in Item 8 of the Form 10-K for additional information. The traditional operating companies may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper and extendible commercial notes at the request and for the benefit of each of the traditional operating companies. At March 31, 2007, the Southern Company system had outstanding commercial paper of $1.4 billion, bank notes of $150 million, and extendible commercial notes of $44.8 million. Management believes that the need for working capital can be adequately met by utilizing commercial paper programs and lines of credit without maintaining large cash balances.

Off-Balance Sheet Financing Arrangements

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Off-Balance Sheet Financing Arrangements” of Southern Company in Item 7 and Note 7 to the financial statements of Southern Company under “Operating Leases” in Item 8 of the Form 10-K for information related to Mississippi Power’s lease of a combined cycle generating facility at Plant Daniel.

Credit Rating Risk

Southern Company does not have any credit arrangements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. There are certain contracts that could require collateral, but not accelerated payment, in the event of a credit rating change to BBB and Baa2, or BBB- or Baa3 or below. These contracts are primarily for physical electricity purchases and sales. At March 31, 2007, the maximum potential collateral requirements at a BBB and Baa2 rating were approximately $9 million and at a BBB- or Baa3 rating were approximately $246 million. The maximum potential collateral requirements at a rating below BBB- or Baa3 were approximately $658 million. Subsequent to March 31, 2007, certain Southern Company subsidiaries entered into certain contracts for electric capacity and energy. These contracts also contain provisions that could require collateral, but not accelerated payment, in the event of a change in credit rating. Under these contracts, the maximum potential collateral requirement at a rating of BBB- is $33 million. The maximum potential collateral requirement at rating below BBB- is $201 million. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Southern Company’s operating subsidiaries are also party to certain derivative agreements that could require collateral and/or accelerated payment in the event of a credit rating change to below investment grade for Alabama Power and/or Georgia Power. These agreements are primarily for natural gas and power price risk management activities. At March 31, 2007, Southern Company’s total exposure to these types of agreements was not material.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Market Price Risk

Southern Company’s market risk exposures relative to interest rate changes have not changed materially compared with the December 31, 2006 reporting period. In addition, Southern Company is not aware of any facts or circumstances that would significantly affect such exposures in the near term.

Due to cost-based rate regulations, the traditional operating companies have limited exposure to market volatility in interest rates, commodity fuel prices, and prices of electricity. In addition, Southern Power’s exposure to market volatility in commodity fuel prices and prices of electricity is limited because its long-term sales contracts shift substantially all fuel cost responsibility to the purchaser. To mitigate residual risks relative to movements in electricity prices, the traditional operating companies and Southern Power enter into physical fixed-price contracts for the purchase and sale of electricity through the wholesale electricity market and, to a lesser extent, into financial hedge contracts for natural gas purchases. The traditional operating companies have implemented fuel-hedging programs at the instruction of their respective state PSCs.

The fair value of derivative energy contracts at March 31, 2007 was as follows:

(a)

Current period changes also include the changes in fair value of new contracts entered into during the period, if any.

Unrealized gains and losses from mark-to-market adjustments on derivative contracts related to the traditional operating companies’ fuel hedging programs are recorded as regulatory assets and liabilities. Realized gains and losses from these programs are included in fuel expense and are recovered through the traditional operating companies’ fuel cost recovery clauses. In addition, unrealized gains and losses on energy-related derivatives used by Southern Power to hedge anticipated purchases and sales are deferred in other comprehensive income. Gains and losses on derivative contracts that are not designated as hedges are recognized in the statements of

Unrealized pre-tax gains and losses recognized in income were not material for any period presented.

To reduce Southern Company’s exposure to changes in the value of synthetic fuel tax credits, which are impacted by changes in oil prices, Southern Company has entered into derivative transactions indexed to oil prices. Because these transactions are not designated as hedges, the gains and losses are recognized in the statements of income as incurred. In the first quarter of 2007, the fair value gains recognized in income to mark the transactions to market were $6.4 million.

For additional information, see MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Market Price Risk” of Southern Company in Item 7 and Notes 1 and 6 to the financial statements of Southern Company under “Financial Instruments” in Item 8 of the Form 10-K and Note (F) to the Condensed Financial Statements herein.

Financing Activities

In the first three months of 2007, Southern Company and its subsidiaries issued $1.4 billion of senior notes and issued $168 million of common stock, including treasury stock, through employee and director stock plans. Subsequent to March 31, 2007, Alabama Power issued $250 million of additional senior notes. The proceeds were primarily used to repay short-term indebtedness and to fund ongoing construction projects. See Southern Company’s Condensed Consolidated Statements of Cash Flows herein for further details on financing activities during the first three months of 2007. Southern Company and its subsidiaries also terminated interest rate derivatives related to these transactions at a cost of $3.9 million. These losses were deferred in other comprehensive income and will be amortized to income over a 10-year period. Also during the first three months of 2007, Southern Company and its subsidiaries redeemed $405.2 million in senior notes and other long-term debt. Subsequent to March 31, 2007, an additional $36.1 million in long-term debt was redeemed by Mississippi Power and $169 million of Alabama Power floating rate notes matured. Also subsequent to March 31, 2007, Georgia Power announced the planned redemption in June 2007 of $454 million of notes payable related to trust preferred securities.

During the first three months of 2007, Southern Company and its subsidiaries entered into additional derivative transactions designed to hedge interest rate risk of future debt issuances. The total notional amount of these derivatives was $740 million. Subsequent to March 31, 2007, Georgia Power entered into further derivative transactions designed to mitigate interest rate risk related to planned future debt issuances. The total notional amount of these derivatives was $300 million. See Note (F) to the Condensed Financial Statements herein for further details.

In addition to any financings that may be necessary to meet capital requirements and contractual obligations, Southern Company and its subsidiaries plan to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit.

PART I

ALABAMA POWER COMPANY

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

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

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