Southern Company's third quarter 2008 earnings were $780.4 million ($1.01 per share) compared to $762.0 million ($1.00 per share) for the third quarter 2007. The increase for third quarter 2008 when compared to the same period in 2007 was primarily the result of an increase in contributions from market-response rates to large commercial and industrial customers and retail base rate increases at Alabama Power and Georgia Power. This increase was partially offset by higher depreciation and amortization.
Southern Company's year-to-date 2008 earnings were $1.56 billion ($2.02 per share) compared to $1.53 billion ($2.03 per share) for year-to-date 2007. The increase for year-to-date 2008 when compared to the same period in 2007 was primarily the result of an increase in contributions from market-response rates to large commercial and industrial customers, retail base rate increases at Alabama Power and Georgia Power, and an increase in allowance for equity funds used during construction. This increase for year-to-date 2008 was partially offset by lower leveraged lease income related to a significant charge in the second quarter 2008, higher depreciation and amortization, and higher other operations and maintenance expenses.
Retail Revenues

In the third quarter 2008, retail revenues were $4.48 billion compared to $4.09 billion for the same period in 2007.

                 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For year-to-date 2008, retail revenues were $10.93 billion compared to
$9.93 billion for the same period in 2007.
Details of the change to retail revenues are as follows:

                                                        Third Quarter                              Year-to-Date
                                                             2008                                      2008
                                               (in millions)         (% change)          (in millions)         (% change)
Retail - prior year                           $       4,085.7                           $       9,934.6
Estimated change in -
Rates and pricing                                       194.4                4.8                  542.8                5.5
Sales growth                                            (21.5 )             (0.5 )                  1.9                0.0
Weather                                                 (84.4 )             (2.1 )                (97.8 )             (1.0 )
Fuel and other cost recovery                            304.1                7.4                  552.3                5.6

Retail - current year                         $       4,478.3                9.6 %      $      10,933.8               10.1 %

Revenues associated with changes in rates and pricing increased in the third quarter and year-to-date 2008 when compared to the same periods in 2007 primarily as a result of an increase in revenues from market-response rates to large commercial and industrial customers and retail base rate increases at Alabama Power and Georgia Power.
Revenues attributable to changes in sales growth decreased in the third quarter 2008 when compared to the same period in 2007 due to a 1.4% decrease in weather-adjusted retail KWH sales. This decrease resulted primarily from a 2.1% decrease in electricity usage mainly due to a slowing economy and lower home occupancy rates in Southern Company's service area as compared to the same period in 2007, partially offset by a 0.7% increase in customer growth. For the third quarter 2008, weather-adjusted residential KWH sales decreased 2.4%, weather-adjusted commercial KWH sales increased 1.1%, and weather-adjusted industrial KWH sales decreased 3.0%. Revenues attributable to changes in sales growth were insignificant for year-to-date 2008 when compared to the same period in 2007.
Revenues resulting from changes in weather decreased in the third quarter and year-to-date 2008 because of less favorable weather when compared to the same periods in 2007.
Fuel and other cost recovery revenues increased $304.1 million in the third quarter 2008 and $552.3 million for year-to-date 2008 when compared to the same periods in 2007. 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

In the third quarter 2008, wholesale revenues were $774.8 million compared to $563.2 million for the same period in 2007.
For year-to-date 2008, wholesale revenues were $1.88 billion compared to $1.53 billion for the same period in 2007.

In the third quarter 2008, other electric revenues were $142.5 million compared to $130.6 million for the same period in 2007. The increase was primarily the result of a $5.3 million increase in co-generation revenues due to higher natural gas prices, an increase in customer fees of $3.0 million, and a $2.0 million increase in transmission revenues.
For year-to-date 2008, other electric revenues were $413.8 million compared to $381.5 million for the same period in 2007. The increase was primarily the result of a $14.5 million increase in co-generation revenues due to higher natural gas prices, an increase in customer fees of $6.8 million, an increase in transmission revenues of $5.7 million, and an increase in outdoor lighting revenues of $5.2 million.
Co-generation revenues do not have a significant impact on earnings since they are generally offset by fuel expense.
Other Revenues

In the third quarter 2008, other revenues were $30.9 million compared to $52.5 million for the same period in 2007. The decrease was primarily the result of a $15.4 million decrease due to Southern Company ending its synthetic fuel production in December 2007.
For year-to-date 2008, other revenues were $96.7 million compared to $165.8 million for the same period in 2007. The decrease was primarily the result of a $47.2 million decrease due to Southern Company ending its synthetic fuel production in December 2007 and a $4.4 million decrease in revenues at a subsidiary that provides energy-related services.

Fuel and Purchased Power Expenses

                                                            Third Quarter 2008                                Year-to-Date 2008
                                                                   vs.                                               vs.
                                                            Third Quarter 2007                                Year-to-Date 2007
                                                 (change in millions)          (% change)          (change in millions)          (% change)
Fuel                                            $                414.1                23.8        $                714.1                15.8
Purchased power                                                   96.8                34.4                         222.7                50.0

Total fuel and purchased power expenses         $                510.9                            $                936.8

                                Third Quarter          Third Quarter          Percent         Year-to-Date         Year-to-Date          Percent
Average Cost                        2008                   2007               Change              2008                 2007              Change
                                        (cents per net KWH)                                          (cents per net KWH)
Fuel                                3.96                   3.01                31.6               3.46                 2.90               19.3
Purchased power                     10.19                  8.67                17.5               8.80                 7.75               13.6

Energy purchases will vary depending on demand for energy within the Southern Company service area, the market cost of available energy as compared to the cost of Southern Company system-generated energy, and the availability of Southern Company system generation.

Other Operations and Maintenance Expenses

                                                          Third Quarter 2008                             Year-to-Date 2008
                                                                  vs.                                           vs.
                                                          Third Quarter 2007                             Year-to-Date 2007
                                                (change in millions)        (% change)         (change in millions)        (% change)
Other operations                                  $         (6.9 )               (1.1 )          $         51.1                 2.8
Maintenance                                                  3.7                  1.4                      34.8                 4.2

Total other operations and maintenance            $         (3.2 )                               $         85.9

In the third quarter 2008, other operations and maintenance expenses were $908.4 million compared to $911.6 million for the same period in 2007. The third quarter 2008 variance when compared to the third quarter 2007 is not material. For year-to-date 2008, other operations and maintenance expenses were $2.72 billion compared to $2.63 billion for the same period in 2007. The increase was primarily due to a $62.6 million increase in fossil and hydro expenses due to costs incurred for scheduled outages, increases in commodity and labor costs, and expenses for new facilities; and a $27.5 million increase in nuclear expenses due to costs incurred for scheduled outages and increases in commodity and labor costs, partially offset by levelization of nuclear refueling outages.

In the third quarter 2008, depreciation and amortization was $367.0 million compared to $311.9 million for the same period in 2007.
For year-to-date 2008, depreciation and amortization was $1.07 billion compared to $928.6 million for the same period in 2007.
The increases for the third quarter and year-to-date 2008 when compared to the same periods in 2007 were primarily due to an increase in plant in service related to environmental projects at Alabama Power and environmental, transmission, and distribution projects at Georgia Power. An increase in depreciation rates at Georgia Power and Southern Power also contributed to the third quarter and year-to-date 2008 increases, as well as the completion of Southern Power's Plant Oleander Unit 5 in December 2007 and Plant Franklin Unit 3 in June 2008.
Taxes Other Than Income Taxes

In the third quarter 2008, taxes other than income taxes were $215.3 million compared to $206.8 million for the same period in 2007.
For year-to-date 2008, taxes other than income taxes were $602.6 million compared to $574.3 million for the same period in 2007.
The increases for the third quarter and year-to-date 2008 when compared to the same periods in 2007 were primarily due to increases in franchise fees and municipal gross receipt taxes associated with increases in revenues from energy sales.
Allowance for Equity Funds Used During Construction

In the third quarter 2008, allowance for equity funds used during construction was $35.5 million compared to $28.1 million for the same period in 2007. For year-to-date 2008, allowance for equity funds used during construction was $111.6 million compared to $71.8 million for the same period in 2007. The increases for the third quarter and year-to-date 2008 when compared to the same periods in 2007 were primarily due to additional investments in environmental projects mainly at Alabama Power, Georgia Power, and Gulf Power; transmission projects at Alabama Power and Georgia Power; generation facilities at Georgia Power; and distribution projects at Alabama Power.

In the third quarter 2008, interest income was $9.7 million compared to $11.6 million for the same period in 2007. The third quarter 2008 variance when compared to the third quarter 2007 is not material.
For year-to-date 2008, interest income was $20.7 million compared to $31.9 million for the same period in 2007. The decrease was primarily the result of the reversal of accrued interest income on IRS deposits related to sale-in-lease-out (SILO) transactions.
Equity in Income (Losses) of Unconsolidated Subsidiaries

N/M - Not Meaningful

In the third quarter 2008, equity in income (losses) of unconsolidated subsidiaries was $4.7 million compared to $(0.4) million for the same period in 2007. The third quarter 2008 variance when compared to the third quarter 2007 is not material.
For year-to-date 2008, equity in income (losses) of unconsolidated subsidiaries was $6.1 million compared to $(20.7) million for the same period in 2007. The increase was primarily the result of Southern Company ending its investment in synthetic fuel production facilities in December 2007. Leveraged Lease Income (Losses)

In the third quarter 2008, leveraged lease income (losses) were $6.3 million compared to $12.4 million for the same period in 2007.
For year-to-date 2008, leveraged lease income (losses) were $(53.6) million compared to $31.9 million for the same period in 2007.
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 decreases in leveraged lease income for the third quarter and year-to-date 2008 when compared to the same periods in 2007 were primarily the result of the application of FASB Staff Position No. 13-2, "Accounting for a Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction" (FSP 13-2), including a $51.2 million after tax adjustment in the second quarter 2008. 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.

In the third quarter 2008, interest expense, net of amounts capitalized was $219.1 million compared to $232.8 million for the same period in 2007. The decrease was primarily due to $25.5 million related to lower average interest rates on existing variable rate debt and a $5.6 million decrease related to other interest charges, partially offset by a $15.1 million increase associated with $1.37 billion in additional debt outstanding at September 30, 2008 compared to September 30, 2007. 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. Also partially offsetting this decrease was $2.3 million less capitalized interest in the third quarter 2008 compared to the third quarter 2007.
For year-to-date 2008, interest expense, net of amounts capitalized was $665.1 million compared to $673.2 million for the same period in 2007. The decrease was primarily due to $61.2 million related to lower average interest rates on existing variable rate debt and $10.2 million more capitalized interest year-to-date 2008 compared to year-to-date 2007. This decrease was partially offset by a $44.7 million increase associated with the additional debt outstanding and an $18.6 million increase related to other interest charges primarily resulting from a $15.7 million after tax adjustment in the second quarter 2008 relating to the application of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48). 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. Preferred and Preference Dividends of Subsidiaries

In the third quarter 2008, preferred and preference dividends of subsidiaries were $16.2 million compared to $10.5 million for the same period in 2007. For year-to-date 2008, preferred and preference dividends of subsidiaries were $48.6 million compared to $30.7 million for the same period in 2007. The increases for the third quarter and year-to-date 2008 resulted primarily from the issuance of $470 million of preference stock in September and October 2007, partially offset by the redemption of $125 million of preferred stock in January 2008. 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 further information. Other Income (Expense), Net

In the third quarter 2008, other income (expense), net was $(10.8) million compared to $17.3 million for the same period in 2007.

. . .