UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

OR

     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  x     No  o

     Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act of 1934).

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

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INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2004

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INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2004

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DEFINITIONS

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

     This Quarterly Report on Form 10-Q contains forward-looking statements in addition to historical information. Forward-looking information includes, among other things, statements concerning the strategic goals for Southern Company’s wholesale business, storm damage cost recovery, completion of construction projects 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 comparable terminology. The registrants caution that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include:

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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 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;

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

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

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the impact of fluctuations in commodity prices, interest rates and customer demand;

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available sources and costs of fuels;

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ability to control costs;

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investment performance of Southern Company’s employee benefit plans;

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advances in technology;

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state and federal rate regulations and pending and future rate cases and negotiations;

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effects of and changes in political, legal and economic conditions and developments in the United States, including the current state of the economy;

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

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internal restructuring or other restructuring options that may be pursued;

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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;

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

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

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the direct or indirect effect on Southern Company’s business resulting from the terrorist incidents on September 11, 2001, or any similar incidents or responses to such incidents;

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

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

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weather and other natural phenomena;

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

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

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other factors discussed elsewhere herein and in other reports filed by the registrants from time to time with the SEC.

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THE SOUTHERN COMPANY
AND SUBSIDIARY COMPANIES

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES

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

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES

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

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES

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

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES

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

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES

THIRD QUARTER 2004 vs. THIRD QUARTER 2003
AND
YEAR-TO-DATE 2004 vs. YEAR-TO-DATE 2003

OVERVIEW

Discussion of the results of operations is focused on Southern Company’s primary business of electricity sales in the Southeast by the retail operating companies — Alabama Power, Georgia Power, Gulf Power, Mississippi Power and Savannah Electric — 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, energy-related services and natural gas marketing. For additional information on these businesses, see BUSINESS — The SOUTHERN System — “Retail Operating Companies,” “Southern Power” and “Other Business” in Item 1 of the Form 10-K.

RESULTS OF OPERATIONS

Earnings

Southern Company’s third quarter and year-to-date 2004 earnings were $644 million ($0.87 per share) and $1.33 billion ($1.80 per share), respectively, compared with $619 million ($0.85 per share) and $1.35 billion ($1.86 per share) in the third quarter and year-to-date 2003. Earnings in the third quarter 2004 increased despite mild weather, primarily due to increased consumption of electricity by existing customers in the Southern Company service area reflecting continued improvement in the economy and continued customer growth. The decrease in year-to-date 2004 earnings is primarily attributed to a one-time after-tax gain of $88 million included in the second quarter 2003 from termination of capacity sales contracts with Dynegy. Excluding the Dynegy contract termination, year-to-date 2004 earnings increased primarily due to increased consumption of electricity by existing customers in the Southern Company service area reflecting continued improvement in the economy and continued customer growth. See Note 3 to the financial statements of Southern Company under “Uncontracted Generating Capacity” in Item 8 of the Form 10-K for additional information on these contract terminations.

     Significant income statement items appropriate for discussion include the following:

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

     Retail sales. Excluding fuel revenues, which generally do not affect net income, retail base revenues increased by $47 million, or 2.4%, in the third quarter 2004 and increased by $228 million, or 4.7%, year-to-date 2004 when compared to the same periods in 2003. In the third quarter and year-to-date 2004, retail kilowatt-hour energy sales increased by 0.8% and 3.4%, respectively, over the same periods in 2003, primarily due to growth in the number of customers and demand and the continued improvement in the economy. In the third quarter 2004, retail kilowatt-hour energy sales in the commercial and industrial sectors were up by 0.8% and 2.7%, respectively, while the residential sector was down slightly by 0.9%, reflecting the impact of hurricane related outages, when compared to the same period in 2003. Year-to-date 2004, retail kilowatt-hour energy sales to residential, commercial and industrial customers were up by 3.7%, 3% and 3.5%, respectively, from the amounts recorded in the corresponding period in 2003. The number of retail customers increased by 1.7% for the year-to-date 2004 when compared to year-to-date 2003.

     Sales for resale. In the third quarter 2004, sales for resale revenues decreased when compared to the same period in 2003 primarily due to lower opportunity sales in the wholesale generation business following the June 2004 start of a PPA for 618 megawatts, which significantly reduced the amount of uncontracted capacity available for such sales. The level of opportunity sales in 2003 was also higher as a result of an unusual combination of mild weather in Southern Company’s service territory making more coal-fired generation available for sale to utilities outside the service territory that depend heavily on gas-fired generation. Southern Power added 2,407 megawatts of generating capacity in June and October 2003. A portion of this new capacity contributed to the increase in sales for resale revenues year-to-date 2004 as a result of increased energy revenues from PPAs with neighboring utilities. These increases in sales for resale revenues offset the reduction in revenues resulting from the termination of contracts with subsidiaries of Dynegy in May 2003. See Note 3 to the financial statements of Southern Company under “Uncontracted Generating Capacity” in Item 8 of the Form 10-K for additional information on these contract terminations.

     Other electric revenues. Other electric revenues increased $9 million, or 9.9%, in the third quarter 2004 when compared to the same period in 2003 primarily due to increases of $3 million in transmission revenue, $2 million in rent from other electric property and $1.6 million in outdoor lighting revenue. Year-to-date 2004, other electric revenues decreased from 2003 as a result of the $142 million in contract termination revenues from Dynegy recorded in May 2003. See Note 3 to the financial statements of Southern Company under “Uncontracted Generating Capacity” in Item 8 of the Form 10-K for additional information on these contract terminations. Excluding these contract termination revenues, other electric revenues increased $18.8 million, or 7%, year-to-date 2004 when compared to the same period in 2003 primarily as a result of increases of $6 million in transmission revenue, $3.6 million in rent from other electric property, $3.4 million in revenues from cogeneration sales and $3.4 million in outdoor lighting revenue.

     Fuel expense. Fuel expense in the third quarter and year-to-date 2004 increased due to the higher average unit cost of fuel. The year-to-date 2004 increase in fuel expense was also impacted by increased generating capacity at Southern Power. For the third quarter and year-to-date periods in 2004, the average unit cost of fuel per kilowatt-hour generated increased 9.2% and 14%, respectively, when compared to the corresponding periods in 2003. Increases in fuel expense at the retail 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. In addition, Southern Power’s PPAs generally provide that the purchasers are responsible for substantially all of the costs of fuel.

     Purchased power expense. During the third quarter and year-to-date 2004, purchased power expense increased when compared with the same periods in 2003 mainly due to increased demand for energy by retail customers and purchased energy used to meet off-system sales commitments. In some instances, power was available for purchase from external parties at prices lower than Southern Company’s own system generation costs. These expenses do not have a significant impact on earnings since energy expenses are generally offset by energy revenues.

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

     Other operations and maintenance expenses. Other operations and maintenance expenses increased in the third quarter and year-to-date 2004 when compared to the same periods in 2003 due to higher scheduled transmission and distribution maintenance and other production expenses and year-to-date 2004 higher administrative expenses. Transmission and distribution expenses increased $1.9 million, or 1.3%, and $32.2 million, or 8.2%, for the third quarter and year-to-date 2004, respectively, due to completion of work postponed in 2003. Other production expenses were up $45.6 million, or 19.2%, and $60.1 million, or 7%, for the third quarter and year-to-date 2004, respectively, due to increased expenses primarily resulting from the operation of Southern Power’s new generating facilities. Administrative and general expenses increased $35 million, or 5.3%, year-to-date 2004 primarily as a result of payroll and employee benefits costs.

     Depreciation and amortization expense. Depreciation and amortization expense decreased in the third quarter and year-to-date 2004 as a direct result of increased amortization of regulatory liabilities at Georgia Power and Mississippi Power when compared to the corresponding periods in 2003. Georgia Power’s depreciation and amortization expenses decreased $19 million and $55 million for the third quarter and year-to-date 2004, respectively, primarily due to lower regulatory charges needed to levelize purchased power capacity costs under the terms of the retail rate order effective January 1, 2002. See Note 1 to the financial statements of Southern Company under “Depreciation and Amortization” in Item 8 of the Form 10-K for additional information. Mississippi Power’s decreases in depreciation and amortization expenses during the third quarter and year-to-date 2004 of $4 million and $11 million for the third quarter and year-to-date 2004, respectively, are primarily the result of the amortization of a $60 million regulatory liability as approved by the Mississippi PSC. See Note 3 to the financial statements of Southern Company under “Mississippi Power Regulatory Filing” in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements and “FERC and State PSC Matters” herein for additional information. The year-to-date 2004 decreases are partially offset by increases in depreciable plant in service, primarily as a result of Southern Power’s Stanton Unit A, which was placed in service in October 2003.

     Taxes other than income taxes. The third quarter and year-to-date 2004 increases in taxes other than income taxes over the comparable periods last year are primarily a result of increases in payroll taxes, property taxes on new facilities and higher tax assessments on property. Also, franchise and gross receipts taxes increased for the respective periods due to the increase in revenues from energy sales.

     Interest income. The year-to-date 2004 $9.8 million decrease in interest income when compared to the same period last year is primarily the result of $15.6 million of interest received from a federal income tax settlement in the second quarter of 2003 partially offset by $3.2 million of interest received in August 2004 from a state income tax settlement.

     Other income (expense), net. In the third quarter 2004, net expense decreased primarily as a result of a $10 million increase in income from customer growth, weather and changes in customer consumption related to a Georgia Power electricity pricing program that was partially offset by increased charitable donations and lower revenues from miscellaneous customer contracts when compared to the same period in 2003.

Future Earnings Potential

The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors. These factors include the retail operating companies’ ability to maintain a stable regulatory environment, to achieve energy sales growth while containing costs and to recover costs related to growing demand and increasingly stricter environmental standards. 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

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

factors, including 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 BUSINESS — The SOUTHERN System — “Risk Factors” in Item 1 and MANAGEMENT’S DISCUSSION AND ANALYSIS — RESULTS OF OPERATIONS — “Future Earnings Potential” of Southern Company in Item 7 of the Form 10-K.

Environmental Matters

New Source Review Actions and Plant Wansley Environmental Litigation

Compliance costs related to the Clean Air Act and other environmental regulations could affect earnings if such costs cannot be recovered. For additional information, including information on certain environmental litigation, see MANAGEMENT’S DISCUSSION AND ANALYSIS — RESULTS OF OPERATIONS - “Future Earnings Potential — Environmental Matters” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “New Source Review Actions” and “Plant Wansley Environmental Litigation” in Item 8 of the Form 10-K. As of March 15, 2004, civil penalties under the Clean Air Act were increased prospectively to a maximum of $32,500 per day, per violation. To the extent alleged violations under either the New Source Review litigation or Plant Wansley environmental litigation are deemed to be continuing, this increased civil penalty amount could apply to such violations found to continue after that date.

     On May 3, 2004, the U.S. Supreme Court denied the EPA’s petition to review the Eleventh Circuit Court of Appeals’ decision in the EPA’s similar New Source Review enforcement action against the TVA. The cases against Alabama Power, Georgia Power and Savannah Electric had been effectively stayed pending this final resolution of the TVA case. On June 16, 2004, the U.S. District Court for the Northern District of Alabama lifted the stay of the New Source Review litigation against Alabama Power, placing the case back onto the District Court’s active docket. At this time, no party to the case against Georgia Power and Savannah Electric has sought to reopen that case, which remains administratively closed in the District Court for the Northern District of Georgia. On June 10, 2004, the U.S. District Court for the Northern District of Georgia granted Georgia Power’s motion in the Plant Wansley environmental litigation for partial summary judgment regarding emissions offsets. The case has been removed from the court’s trial calendar due to pending motions for summary judgment, and a new trial date has not been scheduled. An adverse outcome in any one of these cases could require substantial capital expenditures and could possibly require payment of substantial penalties that cannot be determined at this time. This could affect future results of operations, cash flows and possibly financial condition if such costs are not recovered through regulated rates.

Global Warming Litigation

On July 21, 2004, attorneys general from eight states, each outside of Southern Company’s service territory, and the corporation counsel for New York City filed a complaint in the U.S. District Court for the Southern District of New York against Southern Company and four other electric power companies. A nearly identical complaint was filed by three environmental groups in the same court. The complaints allege that the companies’ emissions of carbon dioxide, a greenhouse gas, contribute to global warming, which the plaintiffs assert is a public nuisance. Plaintiffs seek relief under the federal common law or, in the alternative, under state law, of public nuisance. The environmental groups also seek relief under common law private nuisance theories. The plaintiffs seek a judicial order (1) holding each defendant jointly and severally liable for creating, contributing to, and/or maintaining an ongoing public nuisance, global warming and (2) permanently enjoining each of the defendants to abate its contribution to the nuisance by capping its emissions of carbon dioxide and then reducing those emissions by a specified percentage each year for at least a decade. Plaintiffs have not, however, requested that damages be awarded in connection with their claims. Southern Company believes these claims are without merit and notes that the complaint cites no statutory or regulatory basis for the claims. Southern Company and the other defendants have filed motions to dismiss both lawsuits. Southern Company intends to

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

vigorously defend against these claims. While the outcome of this matter cannot be determined at this time, an adverse judgment could result in substantial capital expenditures.

Other Environmental Matters

On March 12, 2004, the EPA redesignated the Birmingham, Alabama area from nonattainment to attainment under the one-hour ozone national ambient air quality standard. On April 30, 2004, the EPA published its eight-hour ozone nonattainment designations and a portion of the rules implementing the new eight-hour standard. Areas within the Southern Company’s service area that have been designated as nonattainment under the eight-hour ozone standard include Birmingham, Macon (Georgia) and a 20-county area within metropolitan Atlanta. Under the implementation provisions of the new rule, the EPA announced that the one-hour ozone standard will be revoked on June 15, 2005. Areas classified as “severe” nonattainment areas under the one-hour standard will not be required to impose emissions fees as a result of nonattainment. Georgia Power, therefore, will no longer be subject to imposition of emissions fees if the Atlanta area does not come into attainment with the one-hour standard. In any event, however, based on the last three years of data, the State of Georgia believes that the Atlanta area has attained the one-hour standard and is in the process of applying for redesignation from the EPA. The impact of the eight-hour designations and the new standards will depend on the development and implementation of applicable state regulations and therefore cannot be determined at this time.

     On May 5, 2004, the EPA published proposed amendments to its Regional Haze rules with respect to Best Available Retrofit Technology guidelines and requirements. The impact of these regulations will depend on the development and implementation of the final rules and implementation by the states and therefore cannot be determined at this time.

     In June 2004, the EPA issued its recommendations for areas to be designated “nonattainment” for the fine particle national ambient air quality standard. Areas within Southern Company’s service area that were included in the EPA’s proposed fine particulate matter designations include 24 counties in the metro-Atlanta area; counties surrounding Macon, Athens and Columbus, Georgia; counties surrounding Birmingham, Alabama; and counties in Alabama and Georgia near Chattanooga, Tennessee. Alabama Power, Georgia Power and Southern Power own several plants located within the counties proposed for the nonattainment designations. The EPA plans to make final nonattainment designations for fine particulate matter by the end of 2004.

     On April 21, 2004, the EPA published the final regional nitrogen oxide reduction rules applicable to Georgia. These rules specified that the State of Georgia must submit a revised state implementation plan by April 2005, and affected sources must comply with the reduction requirements by May 1, 2007. However, on October 22, 2004, the EPA announced it was granting a petition for reconsideration filed with the EPA by a coalition of Georgia industries. The EPA will stay implementation of the rule, as it relates to Georgia, while it initiates rulemakings to address the petition. The impact of the nitrogen oxide reduction rules will depend on the outcome of the petition for reconsideration and/or any subsequent development and approval of Georgia’s state implementation plan and cannot be determined at this time.

FERC and State PSC Matters

Market-Based Rate Authority

See MANAGEMENT’S DISCUSSION AND ANALYSIS — RESULTS OF OPERATIONS — “Future Earnings Potential — FERC Matters — Market-Based Rate Authority” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “FERC Matters” in Item 8 of the Form 10-K. On April 14,

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

2004, the FERC issued an order that abandoned the SMA test and adopted a new interim analysis for measuring generation market power. This new interim approach requires utilities to submit a pivotal supplier analysis and a wholesale market share analysis, the results of which provide a rebuttable presumption regarding generation market power. The FERC’s order also sets forth procedures for rebutting these presumptions and addresses mitigation measures for those entities that are found to have market power. In the absence of specific mitigation measures, the order includes several cost-based mitigation measures that would apply by default. The FERC also initiated a new rulemaking proceeding that, among other things, will adopt a final methodology for assessing generation market power.

     On July 8, 2004, the FERC denied Southern Company’s request for rehearing, along with a number of others, and reaffirmed the interim tests that it adopted in April. Southern Company submitted the required analyses on August 9, 2004. In that filing, Southern Company passed the pivotal supplier analysis for all markets and the wholesale market share analysis for all markets except the Southern Company control area. Southern Company also submitted other analyses to demonstrate that it lacks generation market power. This filing remains pending at the FERC. Southern Company, along with other utilities, has also filed an appeal of the FERC’s April 14, 2004 order with the Circuit Court of Appeals in Washington, D.C. In the event that the FERC’s default mitigation measures are ultimately applied, Southern Power and the retail operating companies may be required to charge cost-based rates for certain wholesale sales, which may be lower than negotiated market-based rates. The final outcome of this matter will depend on the form in which the final methodology for assessing generation market power and mitigation rules may be ultimately adopted and cannot be determined at this time.

Transmission

See MANAGEMENT’S DISCUSSION AND ANALYSIS — RESULTS OF OPERATIONS — “Future Earnings Potential — FERC Matters — Transmission” of Southern Company in Item 7 of the Form 10-K for information on the FERC’s order related to RTOs and the FERC’s notice of proposed rulemaking regarding open access transmission service and standard electricity market design.

Plant McIntosh Construction Project

See Note 3 to the financial statements of Southern Company under “FERC Matters” in Item 8 of the Form 10-K for information regarding PPAs between Southern Power and Georgia Power and Savannah Electric for Plant McIntosh capacity. In April 2003, Southern Power applied for FERC approval of these PPAs. In July 2003, the FERC accepted the PPAs to become effective June 1, 2005, subject to refund, and ordered that hearings be held. To ensure the timely completion of construction on Plant McIntosh Units 10 and 11 and their availability in the summer of 2005 as supply side resources for the retail customers in the State of Georgia, on May 7, 2004, Savannah Electric and Georgia Power requested the Georgia PSC to direct them to acquire the McIntosh construction project. Savannah Electric and Georgia Power proposed to place the units in rate base at a cost approved by the Georgia PSC and to recover the unit operation and maintenance costs as retail service expenses as may be approved by the Georgia PSC. The Georgia PSC issued such an order on May 18, 2004 and the transfer occurred on May 24, 2004. On May 20, 2004, Southern Power filed a request to withdraw the PPAs and to terminate the ongoing FERC proceedings. On August 4, 2004, the FERC issued a notice that it allowed the request to withdraw the PPAs to be accepted and to become effective by operation of law on July 20, 2004. However, the FERC made no determination on what additional steps may need to be taken with respect to testimony provided in the proceedings. The ultimate outcome of this matter cannot now be determined.

     The May 18, 2004 Georgia PSC order also directed Georgia Power and Savannah Electric to file an application within 10 days of completing such purchase to amend the resource certificate granted by the Georgia PSC in 2002 to describe the capacity resource as being the McIntosh Units 10 and 11 (as opposed to the McIntosh PPAs), the approximate construction schedule (which is not expected to change) and the proposed

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

rate base treatment. The application was filed on June 3, 2004 and the Georgia PSC will have 180 days to respond. The Georgia PSC is expected to review the application in accordance with its affiliate transaction guidelines, which require a lower cost or market approach unless otherwise determined by the Georgia PSC. Georgia Power and Savannah Electric have submitted information showing that the book cost of the McIntosh construction project is lower than its market value. In direct testimony filed on October 14, 2004, the Georgia PSC staff proposed a different valuation that shows the market value for the Plant McIntosh construction project is less than book value. Georgia Power and Savannah Electric disagree with the proposed valuation methodology. Georgia Power and Savannah Electric plan to file rebuttal testimony in November with hearings being held in that same month. The Georgia PSC is expected to issue a final order in this matter in December 2004. However, full recovery of the project costs depends on the outcome of the Georgia PSC’s review. In the event the Georgia PSC does not allow full recovery of the project costs, then part of such costs may have to be written off in accordance with FASB Statement No. 90, “Accounting for Abandonments and Disallowed Plant Costs.” At September 30, 2004, the investment in the McIntosh construction project totaled approximately $381.1 million and $74.2 million for Georgia Power and Savannah Electric, respectively. The ultimate outcome of the Georgia PSC’s review cannot now be determined. See Note (J) to the Condensed Financial Statements herein for additional information.

Georgia Power Retail Rate Case

On July 1, 2004, Georgia Power filed a request with the Georgia PSC for an approximate 7 percent increase in retail revenues, effective January 1, 2005. The requested increase is based on a future test year ending July 31, 2005 and a proposed retail return on common equity of 12.5 percent. Georgia Power is currently operating under a three-year retail rate order that expires December 31, 2004. Under the terms of the existing order, earnings are evaluated annually against a retail return on common equity range of 10 percent to 12.95 percent. Two-thirds of any earnings above the 12.95 percent return are applied to rate refunds, with the remaining one-third retained by Georgia Power. The order required Georgia Power to file a general rate case by July 1, 2004.

     The increase in retail revenues is being requested to cover the higher costs of purchased power; operating and maintenance expenses; environmental compliance; and continued investment in new generation, transmission and distribution facilities to support growth and ensure reliability. Hearings on Georgia Power’s filed testimony were held in September 2004. Testimony from Georgia PSC staff was filed and hearings held in October 2004. Georgia Power plans to file rebuttal testimony in November 2004 with hearings on that testimony being held in the same month. Georgia Power expects the Georgia PSC to issue a final order in this matter during December 2004. The final outcome of this matter cannot now be determined. See MANAGEMENT’S DISCUSSION AND ANALYSIS — RESULTS OF OPERATIONS — “Future Earnings Potential — Other Matters” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Georgia Power Retail Rate Orders” in Item 8 of the Form 10-K and Note (I) to the Condensed Financial Statements herein for additional information.

Alabama Power Environmental Rate Filing

On August 2, 2004, Alabama Power made a filing with the Alabama PSC to establish a specific rate mechanism for the recovery of retail costs associated with environmental laws, regulations or other such mandates. On October 5, 2004, the Alabama PSC voted to approve the rate mechanism as filed. The rate mechanism will begin operation in January 2005 and provide for the recovery of these costs pursuant to a factor that will be calculated annually. Environmental costs to be recovered will include operation and maintenance expense, depreciation and a return on invested capital. It is anticipated that for the first two years of the increase, retail rates will increase by approximately 1% ($33 million) in 2005 and approximately an additional 1% ($30 million) in 2006. In conjunction with the Alabama PSC’s approval, Alabama Power agreed to a moratorium until March 2007 on any retail rate increase under the previously approved Rate Stabilization and Equalization

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

Plan. Any increase in March 2007 would be based upon the earned return on retail common equity at December 31, 2006. See Note 3 to the financial statements of Southern Company under “Alabama Power Retail Rate Adjustment Procedures” in Item 8 of the Form 10-K for further information on Alabama Power’s Rate Stabilization and Equalization Plan.

Mississippi Power Retail Rate Filing

On December 5, 2003, Mississippi Power filed a request with the Mississippi PSC to include 266 megawatts of Plant Daniel Units 3 and 4 generating capacity not previously included in jurisdictional cost of service. As part of Mississippi Power’s proposal to include the additional Plant Daniel capacity in retail rates, the Mississippi PSC, at the time of such filing, issued an interim accounting order in December 2003 directing Mississippi Power to expense and record in 2003 a regulatory liability in the amount of approximately $60 million while the Mississippi PSC fully considered the entire request. On May 25, 2004, the Mississippi PSC issued an order related to this matter. The Mississippi PSC approved Mississippi Power’s request to reclassify the 266 megawatts of Plant Daniel Unit 3 and 4 capacity to jurisdictional cost of service effective January 1, 2004 and authorized Mississippi Power to include the related costs and revenue credits in jurisdictional rate base, cost of service and revenue requirement calculations for purposes of retail rate recovery. As directed by the Mississippi PSC, Mississippi Power will amortize the regulatory liability established pursuant to the Mississippi PSC’s interim order in December 2003 as an increase to earnings as follows: $16.5 million in 2004, $25.1 million in 2005, $13.0 million in 2006 and $5.7 million in 2007. This amortization increased after tax earnings for the third quarter and year-to-date 2004 by $2.5 million and $7.7 million, respectively.

     In addition, the Mississippi PSC also approved Mississippi Power’s requested changes to its PEP rate schedule, including the use of a forward-looking test year, with appropriate oversight; annual, rather than semi-annual, filings; and certain changes to the performance indicator mechanisms. Rate changes will be limited to 4% of retail revenues annually under the revised PEP. The Mississippi PSC will review all aspects of PEP in 2007. See Note 3 to the financial statements of Southern Company under “Mississippi Power Regulatory Filing” in Item 8 of the Form 10-K for additional information.

Retail Fuel Cost Recovery

The retail operating companies each have established fuel cost recovery rates approved by their respective state PSCs. In recent months, the retail operating companies have experienced higher than expected fuel costs for coal and gas. Those higher fuel costs have increased the under recovered fuel costs included in the Condensed Balance Sheets herein. The retail operating companies will continue to monitor the under recovered fuel cost balance in light of these higher fuel costs.

Storm Damage Cost Recovery

On September 15 and 16, 2004, Hurricane Ivan hit the Gulf Coast of Florida and Alabama and continued north through the Southern Company’s service territory causing substantial damage. Nearly 40% of Southern Company’s 4 million customers were without electric service immediately after the hurricane. Almost 95% of those without power had service restored within one week, and two weeks after the storm, power had been restored to all who could receive service.

     Each retail operating company maintains a reserve for property damage to cover the cost of damages from major storms to its transmission and distribution lines and the cost of uninsured damages to its generation facilities and other property. At Alabama Power, operation and maintenance expenses associated with repairing the damage to its facilities and restoring service to customers are preliminarily estimated to be $52 million. The

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

balance in Alabama Power’s natural disaster reserve was not sufficient to cover these costs. On October 19, 2004, Alabama Power received approval from the Alabama PSC to record its hurricane related operation and maintenance expenses in its natural disaster reserve, thereby deferring the approximately $41 million negative balance for recovery in future periods in a manner which minimizes the impact on customers. At Gulf Power, the estimated total amount of damage related to Hurricane Ivan charged to the property damage reserve as of September 30, 2004 was $75.5 million. Prior to Hurricane Ivan, Gulf Power’s reserve balance was approximately $28 million. Gulf Power’s current annual accrual to the property damage reserve, as approved by the Florida PSC, is $3.5 million. The Florida PSC has also approved additional accrual amounts at Gulf Power’s discretion. Gulf Power is currently reviewing alternatives that would potentially allow for more rapid recovery of these costs. See Notes (K), (M) and (O) to the Condensed Financial Statements herein for additional information on these reserves.

Mirant Related Matters

See MANAGEMENT’S DISCUSSION AND ANALYSIS — RESULTS OF OPERATIONS — “Future Earnings Potential — Other Matters” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Mirant Related Matters” in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein under “Mirant Related Matters.” In July 2003, Mirant filed for voluntary reorganization under Chapter 11 of the Federal Bankruptcy Code. Southern Company has various 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. The ultimate outcome of such contingent liabilities cannot now be determined.

Income Tax Matters

Leveraged Lease Transactions

See MANAGEMENT’S DISCUSSION AND ANALYSIS — RESULTS OF OPERATIONS — “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 Issues — Leveraged Lease Transactions” in Item 8 of the Form 10-K for information regarding IRS challenges to Southern Company’s transactions related to international leveraged leases. See Note (B) to the Condensed Financial Statements herein under “Income Tax Matters” for information on potential additional challenges and information related to the international leveraged leases that could have material impacts on Southern Company’s financial statements. The ultimate outcome of these matters cannot now be determined.

Synthetic Fuel Tax Credits

See MANAGEMENT’S DISCUSSION AND ANALYSIS — RESULTS OF OPERATIONS — “Future Earnings Potential — Income Tax Matters — Synthetic Fuel Tax Credits” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Income Tax Matters — Synthetic Fuel Tax Credits” in Item 8 of the Form 10-K for information related to Southern Company’s investments in two entities that produce synthetic fuel and receive tax credits under Section 29 of the Internal Revenue Code. In accordance with Section 29, these tax credits are subject to limitation as the annual average price of oil (as determined by the Department of Energy) increases over a specified, inflation-adjusted, dollar amount. Based on oil prices through October 31, 2004, Southern Company does not expect the recent oil price increases to result in any limitation to these credits in 2004. However, Southern Company, along with its partners in these investments, will continue to monitor oil prices. Any indicated potential limitation on these credits could affect either the timing or the amount of the credit recognition and could also require an impairment analysis of these investments by Southern Company.

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

American Jobs Creation Act of 2004

On October 22, 2004, President Bush signed the American Jobs Creation Act of 2004 (Jobs Act) into law. The Jobs Act represents the most significant revision to the Internal Revenue Code since 1986. Congress must still develop the regulations that will implement the requirements of the Jobs Act. Southern Company is currently assessing the impact of the Jobs Act on its taxable income. However, Southern Company currently does not expect the Jobs Act to have a material impact on its financial statements.

Other Construction Projects

In October 2004, a partnership between Southern Company and the Orlando Utilities Commission (OUC) was selected by the U.S. Department of Energy (DOE) to build and operate a 285 MW coal-gasification facility. The facility will be located at OUC’s Stanton Energy Center near Orlando, Florida, site of Plant Stanton A, an existing gas-fired 630 megawatt unit co-owned by Southern Power, OUC and others. Southern Power will own and operate the Southern Company portion of the project. The project will demonstrate a coal gasification technology that has been under development, in partnership with the DOE, at Southern Company’s power systems development facility near Birmingham, Alabama. The project is scheduled to begin commercial operation in early 2010, with a projected total cost of $557 million. The DOE will contribute approximately $235 million of the cost.

     In August 2004 Southern Power completed limited construction activities on Plant Franklin Unit 3 to preserve the long-term viability of the project. Final completion is not anticipated until the 2008-2011 period. See Note 3 to the financial statements of Southern Company under “Uncontracted Generating Capacity” in Item 8 of the Form 10-K for additional information. The final outcome of these matters cannot now be determined.

Power Sales Agreements

On August 12, 2004, Georgia Power and Gulf Power entered into a PPA and Southern Power entered into two PPAs with Florida Power & Light (FP&L). Under the agreements, for the period from June 2010 through December 2015, Georgia Power and Gulf Power will provide FP&L with 165 megawatts of capacity annually from the jointly owned Plant Scherer Unit 3, and Southern Power will provide FP&L with a total of 790 megawatts of capacity annually from Plant Harris Unit 1 and Plant Franklin Unit 1. The contracts provide for fixed capacity payments and variable energy payments based on actual energy delivered. Additionally, FP&L will make payments for firm gas transportation. These contracts are contingent upon certain events, including approval of the Florida PSC. The final outcome of this matter cannot now be determined. See MANAGEMENT’S DISCUSSION AND ANALYSIS — RESULTS OF OPERATIONS — “Revenues” of Southern Company in Item 7 of the Form 10-K for information on long-term power sales contracts.

Other Matters

See MANAGEMENT’S DISCUSSION AND ANALYSIS — RESULTS OF OPERATIONS — “Future Earnings Potential — Other Matters” of Southern Company in Item 7 of the Form 10-K for information on nuclear security measures. Both Alabama Power and Georgia Power have implemented plans for the measures ordered by the NRC to be in effect on October 29, 2004 and are in compliance with the requirements. Alabama Power and Georgia Power — based on its ownership interest — currently estimate their respective expenditures related to these security measures to total $9.7 million and $9.8 million, of which $9.3 million and $1.4 million will be capitalized. These estimates are subject to change in the event additional NRC guidance is provided.

     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

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

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, 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 litigation against Southern Company and its subsidiaries cannot be predicted at this time; however, 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 contingencies and other matters which may affect future earnings potential.

ACCOUNTING POLICIES

Application of Critical Accounting Policies and Estimates

Southern Company prepares its 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 Plant Daniel Capacity. Also see Note (K) to the Condensed Financial Statements herein for additional information related to Mississippi Power’s request to include the Plant Daniel capacity in jurisdictional cost of service and the related Mississippi PSC order.

New Accounting Standards

On March 31, 2004, Southern Company prospectively adopted FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities,” which requires the primary beneficiary of a variable interest entity to consolidate the related assets and liabilities. The adoption of FASB Interpretation No. 46R had no impact on Southern Company’s net income. However, as a result of the adoption, Southern Company and the retail operating companies deconsolidated certain wholly-owned trusts established to issue preferred securities since Southern Company and the retail operating companies do not meet the definition of primary beneficiary established by FASB Interpretation No. 46R. In addition, Southern Company consolidated its 85% limited partnership investment in an energy/telecom venture capital fund that was previously accounted for under the equity method. See Note (D) to the Condensed Financial Statements herein for additional information related to the adoption of FASB Interpretation No. 46R.

     In the third quarter 2004, Southern Company prospectively adopted FASB Staff Position (FSP) 106-2, Accounting and Disclosure Requirements related to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the Medicare Act). The Medicare Act provides a 28% prescription drug subsidy for Medicare eligible retirees. FSP 106-2 requires recognition of the impacts of the Medicare Act in the accumulated post-retirement benefit obligation (APBO) and future cost of service for post-retirement medical plans and may be applied retroactively to the enactment of the Medicare Act in December 2003 or prospectively effective for the third quarter 2004. Southern Company elected to apply this treatment prospectively. The effect of the subsidy reduced Southern Company’s expenses for the three months ended September 30, 2004 by approximately $5 million and is expected to have a similar impact on future expenses. The subsidy’s impact on the post-retirement medical plan APBO was a reduction of approximately $182

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

million. However, the ultimate impact on future periods is subject to federal regulations governing the subsidy created in the Medicare Act being finalized. See Note (G) to the Condensed Financial Statements herein for additional information.

FINANCIAL CONDITION AND LIQUIDITY

Overview

Major changes in Southern Company’s financial condition during the first nine months of 2004 included $1.5 billion used for gross property additions to utility plant. The funds for these additions and other capital requirements were primarily obtained from net proceeds from short- and long-term security issuances of approximately $331 million and operating activities. See Southern Company’s Condensed Consolidated Statements of Cash Flows and “Financing Activities” herein for further details.

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 stock dividends, leases, trust funding requirements and other purchase commitments. Approximately $455 million will be required by September 30, 2005 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. The amounts and timing of additional equity capital to be raised will be contingent on Southern Company’s investment opportunities. The retail 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 and term loan and short-term borrowings. However, the amount, type and timing of any financings, if needed, will depend upon market conditions and regulatory approval. See BUSINESS — “Financing Programs” in Item 1 and 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.

     To meet short term cash needs and contingencies, the Southern Company system had at September 30, 2004 approximately $284 million of cash and cash equivalents and approximately $3.2 billion of unused credit arrangements with banks, of which $73 million expire in 2004, $1.7 billion expire in 2005 and $1.4 billion expire in 2006 and beyond. Of the facilities maturing in 2004 and 2005, $1.2 billion contain provisions allowing two-year term loans executable at the expiration date and $275 million contain provisions allowing one-year term loans executable at the expiration date. These unused credit arrangements also provide liquidity support to variable rate pollution control bonds and commercial paper programs. Southern Company expects to renew its credit facilities, as needed, prior to expiration. The retail 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 retail operating companies. At September 30, 2004, the Southern Company system had outstanding commercial paper of $350 million and extendible commercial notes of $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.

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

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 and its subsidiaries do 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 below investment grade. These contracts are primarily for physical electricity purchases and sales and fixed-price physical gas purchases. At September 30, 2004, the maximum potential collateral requirements were approximately $433 million. Generally, collateral may be provided for by a Southern Company guaranty, letter of credit or cash.

     Southern Company and its 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. These agreements are primarily for natural gas price and interest rate risk management activities. At September 30, 2004, Southern Company and its subsidiaries’ maximum potential exposure to these contracts was $9 million.

Market Price Risk

Southern Company’s market risk exposures relative to interest rate changes have not changed materially compared with the December 31, 2003 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 retail operating companies have limited exposure to market volatility in interest rates, commodity fuel prices and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the retail operating companies and Southern Power enter into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market and, to a lesser extent, similar contracts for gas purchases. Also, the retail operating companies have each implemented fuel-hedging programs at the instruction of their respective PSCs.

     The fair value of derivative energy contracts at September 30, 2004 was as follows:

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

     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 nine months of 2004, Southern Company and its subsidiaries issued $1.35 billion of senior notes, $276 million of other long-term debt, $175 million of preferred stock and $90 million of common stock through employee and director stock plans. The proceeds were primarily used to refund senior notes and other long-term debt and to fund ongoing construction projects. The remainder was used to repay short-term indebtedness. See Southern Company’s Condensed Consolidated Statements of Cash Flows herein for further details on financing activities during the first nine months of 2004.

     Subsequent to September 30, 2004, Gulf Power entered into loan agreements for $50 million maturing October 21, 2005 and $100 million maturing October 28, 2005. Proceeds from these borrowings were used for general corporate purposes and to finance repairs to its electric system for damage suffered as a result of Hurricane Ivan.

     Also subsequent to September 30, 2004, Savannah Electric has entered into interest rate hedging transactions related to the anticipated issuance of senior notes totaling approximately $30 million. The notes are expected to be issued in 2004. Further, Savannah Electric also entered into an interest rate hedging transaction related to $13.9 million of its outstanding tax-exempt auction rate securities. The interest rate swap will fix Savannah Electric’s interest rate cost related to these securities through 2007.

     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 debt and replace these obligations with lower-cost capital if market conditions permit.

     The market price of Southern Company’s common stock at September 30, 2004 was $29.98 per share and the book value was $13.93 per share, representing a market-to-book ratio of 215%, compared to $30.25, $13.13 and 230%, respectively, at the end of 2003. The dividend for the third quarter 2004 was $0.3575 per share compared to $0.35 per share in the third quarter 2003.

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PART I

Item 3. Quantitative And Qualitative Disclosures About Market Risk.

See MANAGEMENT’S DISCUSSION AND ANALYSIS — FINANCIAL CONDITION AND LIQUIDITY — “Market Price Risk” herein for each registrant and Notes 1 and 6 to the financial statements of each registrant under “Financial Instruments” in Item 8 of the Form 10-K. Also, see Note (F) to the Condensed Financial Statements herein for information relating to derivative instruments.

Item 4. Controls and Procedures.

     (a) Evaluation of disclosure controls and procedures.

As of the end of the period covered by this quarterly report, Southern Company, the retail operating companies and Southern Power conducted separate evaluations under the supervision and with the participation of each company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based upon those evaluations, the Chief Executive Officer and the Chief Financial Officer, in each case, concluded that the disclosure controls and procedures are effective in alerting them in a timely manner to material information relating to each company (including its consolidated subsidiaries) required to be included in periodic filings with the SEC.

     (b) Changes in internal controls.

There have been no changes in Southern Company’s, the retail operating companies’ or Southern Power’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the third quarter of 2004 that have materially affected or are reasonably likely to materially affect Southern Company’s, the retail operating companies’ or Southern Power’s internal control over financial reporting.

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ALABAMA POWER COMPANY

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ALABAMA POWER COMPANY

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

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

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ALABAMA POWER COMPANY

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

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ALABAMA POWER COMPANY