Southern Company's second quarter 2009 net income after dividends on preferred and preference stock of subsidiaries was $478.6 million ($0.61 per share) compared to $416.4 million ($0.54 per share) for the second quarter 2008. The increase for the second quarter 2009 when compared to the corresponding period in 2008 was primarily the result of an increase in customer charges at Alabama Power, increased recognition of environmental compliance cost recovery revenues at Georgia Power, lower operations and maintenance expenses, a 2008 charge related to tax treatment of leveraged lease investments, and a gain on the early termination of two international leveraged lease investments. The increase for the second quarter 2009 was partially offset by a decrease in revenues from lower KWH sales, a decrease in revenues from market-response rates to large commercial and industrial customers, and higher depreciation and amortization. Southern Company's year-to-date 2009 net income after dividends on preferred and preference stock of subsidiaries was $604.3 million ($0.77 per share) compared to $775.6 million ($1.01 per share) for year-to-date 2008. The decrease for year-to-date 2009 when compared to the corresponding period in 2008 was primarily the result of a litigation settlement with MC Asset Recovery, LLC (MC Asset Recovery), a decrease in revenues from lower KWH sales, a decrease in revenues from market-response rates to large commercial and industrial customers, and higher depreciation and amortization. The decrease for year-to-date 2009 was partially offset by an increase in customer charges at Alabama Power, increased recognition of environmental compliance cost recovery revenues at Georgia Power, lower operations and maintenance expenses, a 2008 charge related to tax treatment of leveraged lease investments, and a gain on the early termination of two international leveraged lease investments.

In the second quarter 2009, retail revenues were $3.29 billion compared to $3.45 billion for the corresponding period in 2008.
For year-to-date 2009, retail revenues were $6.36 billion compared to $6.46 billion for the corresponding period in 2008. Details of the change to retail revenues are as follows:

                                                         Second Quarter                            Year-to-Date
                                                              2009                                     2009
                                                 (in millions)         (% change)         (in millions)         (% change)
Retail - prior year                             $     3,449.9                            $     6,455.5
Estimated change in -
Rates and pricing                                         7.7               0.2                   85.7               1.3
Sales growth (decline)                                  (82.6 )            (2.4 )               (139.1 )            (2.2 )
Weather                                                   8.3               0.3                    4.4               0.1
Fuel and other cost recovery                            (90.3 )            (2.6 )                (48.8 )            (0.7 )

Retail - current year                           $     3,293.0              (4.5 )%       $     6,357.7              (1.5 )%

Revenues associated with changes in rates and pricing increased in the second quarter and for year-to-date 2009 when compared to the corresponding periods in 2008 primarily as a result of an increase in customer charges at Alabama Power and increased recognition of environmental compliance cost recovery revenues at Georgia Power in accordance with its 2007 Retail Rate Plan, partially offset by a decrease in revenues from market-response rates to large commercial and industrial customers.
Revenues attributable to changes in sales declined in the second quarter and for year-to-date 2009 when compared to the corresponding periods in 2008 due to decreases in weather-adjusted retail KWH sales of 6.8% and 6.5%, respectively, resulting primarily from recessionary economic conditions. For the second quarter 2009, weather-adjusted residential KWH sales decreased 1.6%, weather-adjusted commercial KWH sales decreased 0.5%, and weather-adjusted industrial KWH sales decreased 17.7%. For year-to-date 2009, weather-adjusted residential KWH sales decreased 1.0%, weather-adjusted commercial KWH sales decreased 0.9%, and weather-adjusted industrial KWH sales decreased 17.3%. Reduced demand in the primary metals and chemical sectors contributed to the decreases in weather-adjusted industrial KWH sales in the second quarter and for year-to-date 2009 when compared to the corresponding periods in 2008. Reduced demand in the stone, clay, and glass sector also contributed to the second quarter 2009 decrease in weather-adjusted industrial KWH sales.
Revenues resulting from changes in weather increased in the second quarter 2009 and for year-to-date 2009 as a result of more favorable weather when compared to the corresponding periods in 2008.
Fuel and other cost recovery revenues decreased $90.3 million in the second quarter 2009 and $48.8 million for year-to-date 2009 when compared to the corresponding periods in 2008. 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.

In the second quarter 2009, wholesale revenues were $437.8 million compared to $591.8 million for the corresponding period in 2008. Wholesale fuel revenues, which are generally offset by wholesale fuel expenses and do not affect net income, decreased $143.3 million in the second quarter 2009 when compared to the corresponding period in 2008. Excluding wholesale fuel revenues, wholesale revenues decreased $10.7 million in the second quarter 2009 when compared to the corresponding period in 2008. The decrease was primarily the result of fewer short-term opportunity sales due to lower energy prices, partially offset by additional revenues associated with Plant Franklin Unit 3 at Southern Power which went into service in June 2008.
For year-to-date 2009, wholesale revenues were $889.2 million compared to $1.11 billion for the corresponding period in 2008. Wholesale fuel revenues, which are generally offset by wholesale fuel expenses and do not affect net income, decreased $225.2 million for year-to-date 2009 when compared to the corresponding period in 2008. Excluding wholesale fuel revenues, wholesale revenues increased $8.9 million for year-to-date 2009 when compared to the corresponding period in 2008. The increase was primarily the result of additional revenues associated with Plant Franklin Unit 3 at Southern Power, returns on new and existing wholesale contracts, and changes in mark-to-market positions on sales of uncontracted generating capacity. Fewer short-term opportunity sales due to lower energy prices partially offset this increase. 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

In the second quarter 2009, other electric revenues were $128.4 million compared to $141.2 million for the corresponding period in 2008. The decrease was primarily the result of a $15.3 million decrease in co-generation revenues due to lower gas prices and a decline in sales volume, partially offset by a $4.4 million increase in transmission revenues.
For year-to-date 2009, other electric revenues were $251.2 million compared to $271.4 million for the corresponding period in 2008. The decrease was the result of a $21.6 million decrease in co-generation revenues due to lower gas prices and a decline in sales volume.
Revenues from co-generation are generally offset by related expenses and do not affect net income.

In the second quarter 2009, other revenues were $26.0 million compared to $32.3 million for the corresponding period in 2008. The decrease was primarily the result of a $6.4 million decrease in revenues at SouthernLINC Wireless related to lower average revenue per subscriber and fewer subscribers as a result of increased competition in the industry when compared to the corresponding period in 2008.
For year-to-date 2009, other revenues were $53.4 million compared to $65.8 million for the corresponding period in 2008. The decrease was primarily the result of a $12.1 million decrease in revenues at SouthernLINC Wireless related to lower average revenue per subscriber and fewer subscribers as a result of increased competition in the industry when compared to the corresponding period in 2008.
Fuel and Purchased Power Expenses

                                  Second Quarter 2009                              Year-to-Date 2009
                                          vs.                                             vs.
                                  Second Quarter 2008                              Year-to-Date 2008
                          (change in millions)       (% change)           (change in millions)       (% change)
Fuel                        $         (172.9 )            (10.7 )           $         (218.6 )             (7.1 )
Purchased power                        (64.1 )            (32.5 )                      (49.3 )            (17.0 )

Total fuel and
purchased power
expenses                    $         (237.0 )                              $         (267.9 )

Fuel and purchased power expenses for the second quarter 2009 were $1.58 billion compared to $1.82 billion for the corresponding period in 2008. The decrease was primarily the result of a $204.3 million net decrease related to total KWHs generated and purchased and a $32.7 million net decrease in the average cost of fuel and purchased power when compared to the corresponding period in 2008. The net decrease in the average cost of fuel and purchased power for the second quarter 2009 resulted from lower fossil fuel prices when compared to the corresponding period in 2008.
For year-to-date 2009, fuel and purchased power expenses were $3.10 billion compared to $3.36 billion for the corresponding period in 2008. The decrease was primarily the result of a $326.3 million net decrease related to total KWHs generated and purchased, partially offset by a $58.4 million net increase in the average cost of fuel and purchased power, primarily related to a 23.7% increase in the cost of coal per net KWH generated, when compared to the corresponding period in 2008.
Fuel expenses 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.

                 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of Southern Company's cost of generation and purchased power are as
follows:

                              Second Quarter         Second Quarter          Percent         Year-to-Date        Year-to-Date         Percent
Average Cost                       2009                   2008               Change              2009                2008             Change
                                       (cents per net KWH)                                         (cents per net KWH)
Fuel                                   3.29                   3.29                -                3.34                3.18              5.0
Purchased power                        7.79                   9.61            (18.9 )              6.31                8.28            (23.8 )

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

In the second quarter 2009, other operations and maintenance expenses were $831.2 million compared to $915.0 million for the corresponding period in 2008. The decrease was primarily the result of a $28.2 million decrease in fossil and hydro expenses mainly due to less planned spending on outages and maintenance; a $27.2 million decrease in transmission and distribution expenses mainly due to lower maintenance expenses; a $10.8 million decrease in administrative and general expenses primarily related to employee medical expenses; a $5.8 million decrease in expenses related to lower advertising, litigation, and property insurance costs; a $5.5 million decrease in expenses primarily related to lower sales volume at SouthernLINC Wireless; and a $5.3 million decrease in expenses related to customer service and sales.
For year-to-date 2009, other operations and maintenance expenses were $1.70 billion compared to $1.81 billion for the corresponding period in 2008. The decrease was primarily the result of a $53.2 million decrease in fossil and hydro expenses mainly due to less planned spending on outages and maintenance; a $41.2 million decrease in transmission and distribution expenses mainly due to lower maintenance and metering expenses; a $13.1 million decrease in expenses related to lower advertising, litigation, and property insurance costs; a $10.1 million decrease in expenses primarily related to lower sales volume at SouthernLINC Wireless; and a $6.9 million decrease in expenses related to customer service and sales. This decrease was partially offset by a $16.3 million increase in administration and general expenses largely related to the $29.4 million charge in the first quarter 2009 in connection with a voluntary attrition program at Georgia Power under which 579 employees elected to resign their positions effective March 31, 2009. In the second quarter 2009, approximately one-third of the $29.4 million charge was offset by lower salary and employee benefits costs, and the other two-thirds will be offset during the remainder of the year. This charge is not expected to have a material impact on Southern Company's financial statements for the year ending December 31, 2009. MC Asset Recovery Litigation Settlement

N/M - Not Meaningful
In the first quarter 2009, Southern Company entered into a litigation settlement agreement with MC Asset Recovery which resulted in a charge of $202.0 million. See Note (B) to the Condensed Financial Statements under "Mirant Matters - MC Asset Recovery Litigation" herein for additional information.

In the second quarter 2009, depreciation and amortization was $377.3 million compared to $358.7 million for the corresponding period in 2008. The increase was primarily the result of an increase in plant in service related to environmental, transmission, and distribution projects at Georgia Power; an increase in depreciation rates at Southern Power; and the completion of Southern Power's Plant Franklin Unit 3 in June 2008.
For year-to-date 2009, depreciation and amortization was $767.1 million compared to $702.6 million for the corresponding period in 2008. The increase was primarily the result of an increase in plant in service related to environmental, transmission, and distribution projects at Alabama Power and Georgia Power; an increase in depreciation rates at Southern Power; and the completion of Southern Power's Plant Franklin Unit 3 in June 2008. Taxes Other Than Income Taxes

In the second quarter 2009, taxes other than income taxes were $208.1 million compared to $198.0 million for the corresponding period in 2008. For year-to-date 2009, taxes other than income taxes were $408.0 million compared to $387.3 million for the corresponding period in 2008.
The second quarter and year-to-date 2009 increases were primarily the result of increases in state and municipal public utility license tax bases at Alabama Power, higher ad valorem taxes at Georgia Power, and increases in franchise fees at Gulf Power. Increases in franchise fees are associated with increases in revenues from retail energy sales.
Allowance for Equity Funds Used During Construction

In the second quarter 2009, allowance for equity funds used during construction (AFUDC) was $47.5 million compared to $35.5 million for the corresponding period in 2008.
For year-to-date 2009, AFUDC was $90.1 million compared to $76.1 million for the corresponding period in 2008.
The second quarter and year-to-date 2009 increases were primarily the result of additional investments in environmental projects mainly at Alabama Power and Gulf Power.

In the second quarter 2009, leveraged lease income (losses) was $8.7 million compared to $(70.9) million for the corresponding period in 2008. For year-to-date 2009, leveraged lease income (losses) was $18.1 million compared to $(60.0) million for the corresponding period in 2008. Southern Company has several leveraged lease investments in 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 second quarter and year-to-date 2009 increases were primarily the result of the 2008 application of certain accounting standards related to leveraged leases, including a second quarter 2008 after tax charge of $51.2 million. See Note (B) to the Condensed Financial Statements under "Income Tax Matters - Leveraged Leases" herein for additional information. Gain on Disposition of Lease Termination

N/M - Not Meaningful
In the second quarter 2009, Southern Company terminated two international leveraged lease investments early which resulted in a gain of $26.3 million. Loss on Extinguishment of Debt

N/M - Not Meaningful
In the second quarter 2009, Southern Company terminated two international leveraged lease investments early. The proceeds from the terminations were used to extinguish all debt related to leveraged lease investments, a portion of which had make-whole redemption provisions which resulted in a loss of $17.2 million.
Interest Expense, Net of Amounts Capitalized

In the second quarter 2009, interest expense, net of amounts capitalized was $232.8 million compared to $228.9 million for the corresponding period in 2008. The increase when compared to the corresponding period in 2008 was not material.

N/M - Not Meaningful
In the second quarter 2009, other income (expense), net was $(3.7) million . . .