SO_10Q_3.31.2014
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from           to            
 
Commission
File Number
 
Registrant, State of Incorporation,
Address and Telephone Number
 
I.R.S. Employer
Identification No.
1-3526
 
The Southern Company
(A Delaware Corporation)
30 Ivan Allen Jr. Boulevard, N.W.
Atlanta, Georgia 30308
(404) 506-5000
 
58-0690070
 
 
 
 
 
1-3164
 
Alabama Power Company
(An Alabama Corporation)
600 North 18th Street
Birmingham, Alabama 35203
(205) 257-1000
 
63-0004250
 
 
 
 
 
1-6468
 
Georgia Power Company
(A Georgia Corporation)
241 Ralph McGill Boulevard, N.E.
Atlanta, Georgia 30308
(404) 506-6526
 
58-0257110
 
 
 
 
 
001-31737
 
Gulf Power Company
(A Florida Corporation)
One Energy Place
Pensacola, Florida 32520
(850) 444-6111
 
59-0276810
 
 
 
 
 
001-11229
 
Mississippi Power Company
(A Mississippi Corporation)
2992 West Beach Boulevard
Gulfport, Mississippi 39501
(228) 864-1211
 
64-0205820
 
 
 
 
 
333-98553
 
Southern Power Company
(A Delaware Corporation)
30 Ivan Allen Jr. Boulevard, N.W.
Atlanta, Georgia 30308
(404) 506-5000
 
58-2598670


Table of Contents

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Registrant
 
Large
Accelerated
Filer
 
Accelerated
Filer
 
Non-
accelerated
Filer
 
Smaller
Reporting
Company
The Southern Company
 
X
 
 
 
 
 
 
Alabama Power Company
 
 
 
 
 
X
 
 
Georgia Power Company
 
 
 
 
 
X
 
 
Gulf Power Company
 
 
 
 
 
X
 
 
Mississippi Power Company
 
 
 
 
 
X
 
 
Southern Power Company
 
 
 
 
 
X
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No þ (Response applicable to all registrants.)
 
Registrant
 
Description of
Common Stock
 
Shares Outstanding at March 31, 2014

The Southern Company
 
Par Value $5 Per Share
 
890,811,428

Alabama Power Company
 
Par Value $40 Per Share
 
30,537,500

Georgia Power Company
 
Without Par Value
 
9,261,500

Gulf Power Company
 
Without Par Value
 
5,442,717

Mississippi Power Company
 
Without Par Value
 
1,121,000

Southern Power Company
 
Par Value $0.01 Per Share
 
1,000

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

2
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2014


 
 
Page
    Number
 
 
 
 
PART I—FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements (Unaudited)
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3.
Item 4.

3
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2014


 
 
Page
    Number
 
 
Item 1.
Item 1A.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Inapplicable
Item 3.
Defaults Upon Senior Securities
Inapplicable
Item 4.
Mine Safety Disclosures
Inapplicable
Item 5.
Other Information
Inapplicable
Item 6.
 


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DEFINITIONS
 
Term
Meaning
 
 
2012 MPSC CPCN Order
A detailed order issued by the Mississippi PSC in April 2012 confirming the CPCN originally approved by the Mississippi PSC in 2010 authorizing the acquisition, construction, and operation of the Kemper IGCC
2013 ARP
Alternative Rate Plan approved by the Georgia PSC for Georgia Power for the years 2014 through 2016
2013 IRP
Georgia Power's triennial Integrated Resource Plan as approved by the Georgia PSC
AFUDC
Allowance for Funds Used During Construction
Alabama Power
Alabama Power Company
Baseload Act
State of Mississippi legislation designed to enhance the Mississippi PSC's authority to facilitate development and construction of baseload generation in the State of Mississippi
Chancery Court
Chancery Court of Harrison County, Mississippi
Clean Air Act
Clean Air Act Amendments of 1990
Contractor
Westinghouse and Stone & Webster, Inc.
CO2
Carbon dioxide
CPCN
Certificate of Public Convenience and Necessity
CWIP
Construction work in progress
DOE
U.S. Department of Energy
ECO Plan
Mississippi Power's Environmental Compliance Overview Plan
EPA
U.S. Environmental Protection Agency
FERC
Federal Energy Regulatory Commission
FFB
Federal Financing Bank
Form 10-K
Combined Annual Report on Form 10-K of Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power for the year ended December 31, 2013
GAAP
Generally accepted accounting principles
Georgia Power
Georgia Power Company
Gulf Power
Gulf Power Company
IGCC
Integrated coal gasification combined cycle
IIC
Intercompany Interchange Contract
Internal Revenue Code
Internal Revenue Code of 1986, as amended
IRS
Internal Revenue Service
ITCs
Investment tax credits
Kemper IGCC
IGCC facility under construction in Kemper County, Mississippi
KWH
Kilowatt-hour
LIBOR
London Interbank Offered Rate
MATS rule
Mercury and Air Toxics Standards rule
Mississippi Power
Mississippi Power Company
mmBtu
Million British thermal unit
Moody's
Moody's Investors Service, Inc.
MW
Megawatt
MWH
Megawatt-hour
NCCR
Nuclear Construction Cost Recovery
NDR
Natural Disaster Reserve
NRC
U.S. Nuclear Regulatory Commission
OCI
Other comprehensive income

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Owners
Georgia Power, Oglethorpe Power Corporation, the Municipal Electric Authority of Georgia, and the City of Dalton, Georgia, an incorporated municipality in the State of Georgia acting by and through its Board of Water, Light, and Sinking Fund Commissioners
PEP
Mississippi Power's Performance Evaluation Plan
Plant Vogtle Units 3 and 4
Two new nuclear generating units under construction at Plant Vogtle
power pool
The operating arrangement whereby the integrated generating resources of the traditional operating companies and Southern Power are subject to joint commitment and dispatch in order to serve their combined load obligations
PPA
Power purchase agreement
PSC
Public Service Commission
Rate CNP
Rate Certificated New Plant
Rate CNP Environmental
Rate Certificated New Plant Environmental
Rate CNP PPA
Rate Certificated New Plant Power Purchase Agreement
registrants
Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power
ROE
Return on equity
scrubber
Flue gas desulfurization system
SEC
U.S. Securities and Exchange Commission
SMEPA
South Mississippi Electric Power Association
Southern Company
The Southern Company
Southern Company system
Southern Company, the traditional operating companies, Southern Power, and other subsidiaries
Southern Nuclear
Southern Nuclear Operating Company, Inc.
Southern Power
Southern Power Company and its subsidiaries
S&P
Standard and Poor's Ratings Services, a division of The McGraw Hill Companies, Inc.
traditional operating companies
Alabama Power, Georgia Power, Gulf Power, and Mississippi Power
Westinghouse
Westinghouse Electric Company LLC
wholesale revenues
revenues generated from sales for resale


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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements include, among other things, statements concerning retail sales, retail rates, the strategic goals for the wholesale business, customer growth, economic recovery, fuel and environmental cost recovery and other rate actions, current and proposed environmental regulations and related estimated expenditures, access to sources of capital, projections for the qualified pension plan, postretirement benefit plans, and nuclear decommissioning trust fund contributions, financing activities, completion dates of construction projects, plans and estimated costs for new generation resources, filings with state and federal regulatory authorities, impact of the American Taxpayer Relief Act of 2012, estimated sales and purchases under power sale and purchase agreements, and estimated construction and other capital expenditures. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "should," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential," or "continue" or the negative of these terms or other similar terminology. There are various factors that could cause actual results to differ materially from those suggested by the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include:

•
the impact of recent and future federal and state regulatory changes, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry, environmental laws including regulation of water, coal combustion residuals, and emissions of sulfur, nitrogen, carbon, soot, particulate matter, hazardous air pollutants, including mercury, and other substances, and also changes in tax and other laws and regulations to which Southern Company and its subsidiaries are subject, as well as changes in application of existing laws and regulations;
•
current and future litigation, regulatory investigations, proceedings, or inquiries, including the pending EPA civil actions against certain Southern Company subsidiaries, FERC matters, and IRS and state tax audits;
•
the effects, extent, and timing of the entry of additional competition in the markets in which Southern Company's subsidiaries operate;
•
variations in demand for electricity, including those relating to weather, the general economy and recovery from the recent recession, population and business growth (and declines), the effects of energy conservation measures, including from the development and deployment of alternative energy sources such as self-generation and distributed generation technologies, and any potential economic impacts resulting from federal fiscal decisions;
•
available sources and costs of fuels;
•
effects of inflation;
•
ability to control costs and avoid cost overruns during the development and construction of facilities, which include the development and construction of generating facilities with designs that have not been finalized or previously constructed, including changes in labor costs and productivity factors, adverse weather conditions, shortages and inconsistent quality of equipment, materials, and labor, contractor or supplier delay or non-performance under construction or other agreements, operational performance, delays associated with start-up activities, including major equipment failure, system integration, and operations, and/or unforeseen engineering problems;
•
ability to construct facilities in accordance with the requirements of permits and licenses, to satisfy any operational and environmental performance standards, including any PSC requirements and the requirements of tax credits and other incentives, and to integrate facilities into the Southern Company system upon completion of construction;
•
investment performance of Southern Company's employee and retiree benefit plans and the Southern Company system's nuclear decommissioning trust funds;
•
advances in technology;
•
state and federal rate regulations and the impact of pending and future rate cases and negotiations, including rate actions relating to fuel and other cost recovery mechanisms;
•
regulatory approvals and actions related to Plant Vogtle Units 3 and 4, including Georgia PSC approvals and NRC actions;
•
actions related to cost recovery for the Kemper IGCC, including actions relating to proposed securitization, Mississippi PSC approval of Mississippi Power's proposed rate recovery plan, as ultimately amended, which includes the ability to complete the proposed sale of an interest in the Kemper IGCC to SMEPA, the ability to utilize bonus depreciation, which currently requires that assets be placed in service in 2014, and satisfaction of requirements to utilize ITCs and grants;
•
Mississippi PSC review of the prudence of Kemper IGCC costs;

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•
the outcome of any legal or regulatory proceedings regarding the Mississippi PSC's issuance of the CPCN for the Kemper IGCC, the settlement agreement between Mississippi Power and the Mississippi PSC, or the Baseload Act;
•
the inherent risks involved in operating and constructing nuclear generating facilities, including environmental, health, regulatory, natural disaster, terrorism, and financial risks;
•
the performance of projects undertaken by the non-utility businesses and the success of efforts to invest in and develop new opportunities;
•
internal restructuring or other restructuring options that may be pursued;
•
potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial to Southern Company or its subsidiaries;
•
the ability of counterparties of Southern Company and its subsidiaries to make payments as and when due and to perform as required;
•
the ability to obtain new short- and long-term contracts with wholesale customers;
•
the direct or indirect effect on the Southern Company system's business resulting from terrorist incidents and the threat of terrorist incidents, including cyber intrusion;
•
interest rate fluctuations and financial market conditions and the results of financing efforts, including Southern Company's and its subsidiaries' credit ratings;
•
the impacts of any potential U.S. credit rating downgrade or other sovereign financial issues, including impacts on interest rates, access to capital markets, impacts on currency exchange rates, counterparty performance, and the economy in general, as well as potential impacts on the benefits of the DOE loan guarantees;
•
the ability of Southern Company and its subsidiaries to obtain additional generating capacity at competitive prices;
•
catastrophic events such as fires, earthquakes, explosions, floods, hurricanes, droughts, pandemic health events such as influenzas, or other similar occurrences;
•
the direct or indirect effects on the Southern Company system's business resulting from incidents affecting the U.S. electric grid or operation of generating resources;
•
the effect of accounting pronouncements issued periodically by standard setting bodies; and
•
other factors discussed elsewhere herein and in other reports (including the Form 10-K) filed by the registrants from time to time with the SEC.
The registrants expressly disclaim any obligation to update any forward-looking statements.


8
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THE SOUTHERN COMPANY
AND SUBSIDIARY COMPANIES

9
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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
 
For the Three Months
Ended March 31,
 
2014
 
2013
 
(in millions)
Operating Revenues:
 
 
 
Retail revenues
$
3,858

 
$
3,298

Wholesale revenues
604

 
432

Other electric revenues
165

 
155

Other revenues
17

 
12

Total operating revenues
4,644

 
3,897

Operating Expenses:
 
 
 
Fuel
1,647

 
1,262

Purchased power
187

 
95

Other operations and maintenance
986

 
974

Depreciation and amortization
497

 
466

Taxes other than income taxes
247

 
235

Estimated loss on Kemper IGCC
380

 
540

Total operating expenses
3,944

 
3,572

Operating Income
700

 
325

Other Income and (Expense):
 
 
 
Allowance for equity funds used during construction
57

 
41

Interest expense, net of amounts capitalized
(206
)
 
(211
)
Other income (expense), net
(7
)
 
(27
)
Total other income and (expense)
(156
)
 
(197
)
Earnings Before Income Taxes
544

 
128

Income taxes
176

 
31

Consolidated Net Income
368

 
97

Dividends on Preferred and Preference Stock of Subsidiaries
17

 
16

Consolidated Net Income After Dividends on Preferred and Preference Stock of Subsidiaries
$
351

 
$
81

Common Stock Data:
 
 
 
Earnings per share (EPS) -
 
 
 
Basic EPS
$
0.39

 
$
0.09

Diluted EPS
$
0.39

 
$
0.09

Average number of shares of common stock outstanding (in millions)
 
 
 
Basic
890

 
870

Diluted
893

 
875

Cash dividends paid per share of common stock
$
0.5075

 
$
0.4900

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 STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
 
For the Three Months
Ended March 31,
 
2014
 
2013
 
(in millions)
Consolidated Net Income
$
368

 
$
97

Other comprehensive income (loss):
 
 
 
Qualifying hedges:
 
 
 
Reclassification adjustment for amounts included in net income, net
of tax of $1 and $2, respectively
1

 
3

Pension and other post retirement benefit plans:
 
 
 
Reclassification adjustment for amounts included in net income, net
of tax of $- and $1, respectively
1

 
1

Total other comprehensive income (loss)
2

 
4

Dividends on preferred and preference stock of subsidiaries
(17
)
 
(16
)
Comprehensive Income
$
353

 
$
85

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 STATEMENTS OF CASH FLOWS (UNAUDITED)
 
For the Three Months
Ended March 31,
 
2014
 
2013
 
(in millions)
Operating Activities:
 
 
 
Consolidated net income
$
368

 
$
97

Adjustments to reconcile consolidated net income to net cash provided from operating activities —
 
 
 
Depreciation and amortization, total
587

 
568

Deferred income taxes
(37
)
 
(92
)
Allowance for equity funds used during construction
(57
)
 
(41
)
Stock based compensation expense
28

 
26

Estimated loss on Kemper IGCC
380

 
540

Other, net
(8
)
 
(19
)
Changes in certain current assets and liabilities —
 
 
 
-Receivables
(128
)
 
29

-Fossil fuel stock
441

 
36

-Materials and supplies
(5
)
 
52

-Other current assets
(114
)
 
(72
)
-Accounts payable
(109
)
 
(47
)
-Accrued taxes
(44
)
 
(98
)
-Accrued compensation
(144
)
 
(282
)
-Other current liabilities
(55
)
 
40

Net cash provided from operating activities
1,103

 
737

Investing Activities:
 
 
 
Property additions
(1,180
)
 
(1,197
)
Investment in restricted cash
—

 
(78
)
Distribution of restricted cash
9

 
1

Nuclear decommissioning trust fund purchases
(231
)
 
(262
)
Nuclear decommissioning trust fund sales
229

 
261

Cost of removal, net of salvage
(22
)
 
(30
)
Change in construction payables, net
51

 
6

Prepaid long-term service agreement
(64
)
 
(31
)
Other investing activities
(7
)
 
51

Net cash used for investing activities
(1,215
)
 
(1,279
)
Financing Activities:
 
 
 
Increase (decrease) in notes payable, net
(884
)
 
468

Proceeds —
 
 
 
Long-term debt issuances
1,251

 
1,035

Interest-bearing refundable deposit related to asset sale
75

 
—

Common stock issuances
128

 
42

Redemptions —
 
 
 
Long-term debt
(9
)
 
(656
)
Common stock repurchased
(4
)
 
(18
)
Payment of common stock dividends
(451
)
 
(426
)
Payment of dividends on preferred and preference stock of subsidiaries
(17
)
 
(16
)
Other financing activities
(46
)
 
—

Net cash provided from financing activities
43

 
429

Net Change in Cash and Cash Equivalents
(69
)
 
(113
)
Cash and Cash Equivalents at Beginning of Period
659

 
628

Cash and Cash Equivalents at End of Period
$
590

 
$
515

Supplemental Cash Flow Information:
 
 
 
Cash paid (received) during the period for —
 
 
 
Interest (net of $22 and $17 capitalized for 2014 and 2013, respectively)
$
186

 
$
187

Income taxes, net
(7
)
 
4

Noncash transactions — accrued property additions at end of period
450

 
501

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)
 
Assets
 
At March 31,
2014
 
At December 31,
2013
 
 
(in millions)
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
590

 
$
659

Receivables —
 
 
 
 
Customer accounts receivable
 
1,063

 
1,027

Unbilled revenues
 
382

 
448

Under recovered regulatory clause revenues
 
72

 
58

Other accounts and notes receivable
 
306

 
304

Accumulated provision for uncollectible accounts
 
(17
)
 
(18
)
Fossil fuel stock, at average cost
 
898

 
1,339

Materials and supplies, at average cost
 
963

 
959

Vacation pay
 
171

 
171

Prepaid expenses
 
525

 
489

Other regulatory assets, current
 
117

 
124

Other current assets
 
70

 
39

Total current assets
 
5,140

 
5,599

Property, Plant, and Equipment:
 
 
 
 
In service
 
66,369

 
66,021

Less accumulated depreciation
 
23,329

 
23,059

Plant in service, net of depreciation
 
43,040

 
42,962

Other utility plant, net
 
234

 
240

Nuclear fuel, at amortized cost
 
874

 
855

Construction work in progress
 
7,425

 
7,151

Total property, plant, and equipment
 
51,573

 
51,208

Other Property and Investments:
 
 
 
 
Nuclear decommissioning trusts, at fair value
 
1,513

 
1,465

Leveraged leases
 
670

 
665

Miscellaneous property and investments
 
224

 
218

Total other property and investments
 
2,407

 
2,348

Deferred Charges and Other Assets:
 
 
 
 
Deferred charges related to income taxes
 
1,448

 
1,432

Prepaid pension costs
 
423

 
419

Unamortized debt issuance expense
 
202

 
139

Unamortized loss on reacquired debt
 
286

 
293

Other regulatory assets, deferred
 
2,654

 
2,557

Other deferred charges and assets
 
705

 
551

Total deferred charges and other assets
 
5,718

 
5,391

Total Assets
 
$
64,838

 
$
64,546

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)
 
Liabilities and Stockholders' Equity
 
At March 31,
2014
 
At December 31,
2013
 
 
(in millions)
Current Liabilities:
 
 
 
 
Securities due within one year
 
$
768

 
$
469

Interest-bearing refundable deposit related to asset sale
 
225

 
150

Notes payable
 
598

 
1,482

Accounts payable
 
1,386

 
1,376

Customer deposits
 
384

 
380

Accrued taxes —
 
 
 
 
Accrued income taxes
 
114

 
13

Other accrued taxes
 
243

 
456

Accrued interest
 
253

 
251

Accrued vacation pay
 
213

 
217

Accrued compensation
 
177

 
303

Other regulatory liabilities, current
 
116

 
92

Other current liabilities
 
358

 
347

Total current liabilities
 
4,835

 
5,536

Long-term Debt
 
22,288

 
21,344

Deferred Credits and Other Liabilities:
 
 
 
 
Accumulated deferred income taxes
 
10,558

 
10,563

Deferred credits related to income taxes
 
197

 
202

Accumulated deferred investment tax credits
 
962

 
966

Employee benefit obligations
 
1,446

 
1,461

Asset retirement obligations
 
2,004

 
2,006

Other cost of removal obligations
 
1,298

 
1,270

Other regulatory liabilities, deferred
 
481

 
475

Other deferred credits and liabilities
 
568

 
584

Total deferred credits and other liabilities
 
17,514

 
17,527

Total Liabilities
 
44,637

 
44,407

Redeemable Preferred Stock of Subsidiaries
 
375

 
375

Stockholders' Equity:
 
 
 
 
Common Stockholders' Equity:
 
 
 
 
Common stock, par value $5 per share —
 
 
 
 
Authorized — 1.5 billion shares
 
 
 
 
Issued — March 31, 2014: 894 million shares
 
 
 
 
      — December 31, 2013: 893 million shares
 
 
 
 
Treasury — March 31, 2014: 3.3 million shares
 
 
 
 
          — December 31, 2013: 5.7 million shares
 
 
 
 
Par value
 
4,467

 
4,461

Paid-in capital
 
5,405

 
5,362

Treasury, at cost
 
(139
)
 
(250
)
Retained earnings
 
9,410

 
9,510

Accumulated other comprehensive loss
 
(73
)
 
(75
)
Total Common Stockholders' Equity
 
19,070

 
19,008

Preferred and Preference Stock of Subsidiaries
 
756

 
756

Total Stockholders' Equity
 
19,826

 
19,764

Total Liabilities and Stockholders' Equity
 
$
64,838

 
$
64,546

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

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

FIRST QUARTER 2014 vs. FIRST QUARTER 2013


OVERVIEW
Southern Company is a holding company that owns all of the common stock of the traditional operating companies – Alabama Power, Georgia Power, Gulf Power, and Mississippi Power – and Southern Power and other direct and indirect subsidiaries. Discussion of the results of operations is focused on the Southern Company system's primary business of electricity sales by the traditional operating companies and Southern Power. The four traditional operating companies are vertically integrated utilities providing electric service in four Southeastern states. Southern Power constructs, acquires, owns, and manages generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. Southern Company's other business activities include investments in leveraged lease projects and telecommunications. For additional information on these businesses, see BUSINESS – The Southern Company System – "Traditional Operating Companies," "Southern Power," and "Other Businesses" in Item 1 of the Form 10-K.
In addition, subsidiaries of Southern Company are constructing Plant Vogtle Units 3 and 4 (45.7% ownership interest by Georgia Power in two units, each with approximately 1,100 MWs) and the Kemper IGCC (in which Mississippi Power is ultimately expected to hold an 85% ownership interest in the 582-MW facility). See RESULTS OF OPERATIONS – "Estimated Loss on Kemper IGCC," FUTURE EARNINGS POTENTIAL – "Construction Program," and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Integrated Coal Gasification Combined Cycle" herein for additional information.
Southern Company continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, execution of major construction projects, and earnings per share. For additional information on these indicators, see MANAGEMENT'S DISCUSSION AND ANALYSIS – OVERVIEW – "Key Performance Indicators" of Southern Company in Item 7 of the Form 10-K. See Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for information regarding the revision to the cost estimate for the Kemper IGCC that has negatively impacted Southern Company's earnings per share, one of its key performance indicators, for the first quarter 2014, as compared to the target.
RESULTS OF OPERATIONS
Net Income
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$270
 
N/M
N/M – Not meaningful
Southern Company's first quarter 2014 net income after dividends on preferred and preference stock of subsidiaries was $351 million ($0.39 per share) compared to $81 million ($0.09 per share) for the first quarter 2013. The increase was primarily related to an increase in revenues due to colder weather in the first quarter 2014 compared to the corresponding period in 2013 as well as retail base rate increases. In addition, in the first quarter 2014, Southern Company recorded a $380 million pre-tax charge ($235 million after tax) compared to a $540 million pre-tax charge ($333 million after tax) in the first quarter 2013 for revisions of estimated costs expected to be incurred on Mississippi Power's construction of the Kemper IGCC above the $2.88 billion cost cap established by the Mississippi PSC, net of $245 million of grants awarded to the project by the DOE under the Clean Coal Power Initiative Round 2 (DOE Grants) and excluding the cost of the lignite mine and equipment, the cost of the CO2 pipeline facilities, AFUDC, and certain general exceptions, including change of law, force majeure, and beneficial capital (which exists when Mississippi Power demonstrates that the purpose and effect of the construction cost

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increase is to produce efficiencies that will result in a neutral or favorable effect on customers relative to the original proposal for the CPCN) (Cost Cap Exceptions).
Retail Revenues
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$560
 
17.0
In the first quarter 2014, retail revenues were $3.9 billion compared to $3.3 billion for the corresponding period in 2013.
Details of the changes in retail revenues were as follows:
 
 
First Quarter
2014
 
 
(in millions)
 
(% change)
Retail – prior year
 
$
3,298

 
 
Estimated change resulting from –
 
 
 
 
Rates and pricing
 
84

 
2.5
Sales growth
 
14

 
0.4
Weather
 
117

 
3.6
Fuel and other cost recovery
 
345

 
10.5
Retail – current year
 
$
3,858

 
17.0%
Revenues associated with changes in rates and pricing increased in the first quarter 2014 when compared to the corresponding period in 2013 primarily due retail rate increases at all of the traditional operating companies. The increase at Georgia Power was primarily due to base tariff increases effective January 1, 2014, as approved by the Georgia PSC in the 2013 ARP, and collecting financing costs related to the construction of Plant Vogtle Units 3 and 4 through the NCCR tariff as well as higher contributions from market-driven rates from commercial and industrial customers. Also contributing to the increase were increased revenues at Alabama Power associated with Rate CNP Environmental primarily resulting from the inclusion of pre-2005 environmental assets, increased revenues at Mississippi Power related to a PEP base rate increase and a rate increase related to Kemper IGCC cost recovery, which both became effective March 19, 2013, and increased revenues at Gulf Power primarily resulting from the retail base rate increase effective January 2014. See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Rate Plans," "Retail Regulatory Matters – Alabama Power – Rate CNP," and "Retail Regulatory Matters – Gulf Power – Retail Base Rate Case" in Item 8 of the Form 10-K for additional information. Also see Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Mississippi Power – Performance Evaluation Plan" and "Integrated Coal Gasification Combined Cycle" herein for additional information.
Revenues attributable to changes in sales increased in the first quarter 2014 when compared to the corresponding period in 2013. The increase was due to a 2.8% increase in industrial KWH sales and a 1.2% increase in weather-adjusted residential KWH sales, partially offset by a 0.2% decrease in weather-adjusted commercial KWH sales. The increase in industrial KWH sales for the first quarter 2014 was primarily due to increases in the primary metals, transportation, stone, clay, and glass, and lumber sectors. The increase in weather-adjusted residential KWH sales for the first quarter 2014 was primarily due to customer growth and increased customer usage. The decrease in weather-adjusted commercial KWH sales for the first quarter 2014 was primarily due to decreased customer usage, partially offset by customer growth.
Fuel and other cost recovery revenues increased $345 million in the first quarter 2014 when compared to the corresponding period in 2013 primarily due to higher fuel costs and increased energy sales.

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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 energy component of purchased power costs, and do not affect net income. The traditional operating companies may also have one or more regulatory mechanisms to recover other costs such as environmental, storm damage, new plants, and PPAs.
Wholesale Revenues
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$172
 
39.8
Wholesale revenues consist of PPAs primarily with investor-owned utilities and electric cooperatives and short-term opportunity sales. Wholesale revenues from PPAs have both capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment. Energy revenues will vary depending on fuel prices, the market prices of wholesale energy compared to the Southern Company system's generation, demand for energy within the Southern Company system's service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not have a significant impact on net income. Short-term opportunity sales are made at market-based rates that generally provide a margin above the Southern Company system's variable cost to produce the energy.
In the first quarter 2014, wholesale revenues were $604 million compared to $432 million for the corresponding period in 2013, reflecting a $174 million increase in energy revenues, partially offset by a $2 million decrease in capacity revenues. The increase in energy revenues was primarily related to increased demand resulting from colder weather in the first quarter 2014 compared to the corresponding period in 2013 and an increase in the average cost of natural gas. Also contributing to the increase in energy revenues were increased revenue under existing contracts as well as new solar and requirements contracts.
Other Electric Revenues
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$10
 
6.5
In the first quarter 2014, other electric revenues were $165 million compared to $155 million for the corresponding period in 2013. The increase was primarily due to an increase in transmission revenues related to the open access transmission tariff.
Fuel and Purchased Power Expenses
 
 
 First Quarter 2014
vs.
First Quarter 2013
 
 
(change in millions)
 
(% change)
Fuel
 
$
385

 
30.5
Purchased power
 
92

 
96.8
Total fuel and purchased power expenses
 
$
477

 
 
In the first quarter 2014, total fuel and purchased power expenses were $1.83 billion compared to $1.36 billion for the corresponding period in 2013. The increase was primarily the result of a $283 million increase in the average cost of fuel and purchased power primarily due to higher natural gas prices and a $209 million increase in the volume of KWHs generated primarily due to increased demand resulting from colder weather in the first quarter

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2014 compared to the corresponding period in 2013, partially offset by a $15 million decrease in the volume of KWHs purchased as the marginal cost of generation available was lower than the market cost of available energy.
Fuel and purchased power energy transactions at the traditional operating companies are generally offset by fuel revenues and do not have a significant impact on net income. See FUTURE EARNINGS POTENTIAL – "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 impact net income.
Details of the Southern Company system's generation and purchased power were as follows:
 
 
First Quarter
2014
 
First Quarter
2013
Total generation (billions of KWHs)
 
47
 
43
Total purchased power (billions of KWHs)
 
3
 
3
Sources of generation (percent) —
 
 
 
 
Coal
 
47
 
34
Nuclear
 
16
 
17
Gas
 
33
 
44
Hydro
 
4
 
5
Cost of fuel, generated (cents per net KWH) —
 
 
 
 
Coal
 
4.19
 
4.14
Nuclear
 
0.89
 
0.85
Gas
 
4.19
 
3.11
Average cost of fuel, generated (cents per net KWH)
 
3.63
 
3.08
Average cost of purchased power (cents per net KWH)(a)
 
8.89
 
4.64
(a) Average cost of purchased power includes fuel purchased by the Southern Company system for tolling agreements where power is generated by the provider.
Fuel
In the first quarter 2014, fuel expense was $1.65 billion compared to $1.26 billion for the corresponding period in 2013. The increase was primarily due to a 34.7% increase in the average cost of natural gas per KWH generated and a 52.8% increase in the volume of KWHs generated by coal, partially offset by a 19.9% decrease in the volume of KWHs generated by natural gas.
Purchased Power
In the first quarter 2014, purchased power expense was $187 million compared to $95 million for the corresponding period in 2013. The increase was primarily due to a 91.6% increase in the average cost per KWH purchased, partially offset by a 10.8% decrease in the volume of KWHs purchased as the marginal cost of generation available was lower than the market cost of available energy.
Energy purchases will vary depending on demand for energy within the Southern Company system's service territory, the market prices of wholesale energy as compared to the cost of the Southern Company system's generation, and the availability of the Southern Company system's generation.

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Other Operations and Maintenance Expenses
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$12
 
1.2
In the first quarter 2014, other operations and maintenance expenses were $986 million compared to $974 million for the corresponding period in 2013. The increase was primarily due to a $27 million increase in scheduled outage and maintenance costs, a $17 million increase in commodity and labor costs, and a $7 million increase in transmission and distribution costs, partially offset by a $25 million deferral of certain non-nuclear outage expenditures under an accounting order at Alabama Power and a $14 million decrease in pension costs. See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Alabama Power – Non-Nuclear Outage Accounting Order" in Item 8 of the Form 10-K for additional information related to non-nuclear outage expenditures. Also see Note (F) to the Condensed Financial Statements herein for additional information related to pension costs.
Depreciation and Amortization
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$31
 
6.7
In the first quarter 2014, depreciation and amortization was $497 million compared to $466 million for the corresponding period in 2013. The increase was primarily due to an increase in depreciation rates related to environmental assets at Alabama Power, an increase in plant in service at Southern Power related to the additions of Plants Campo Verde and Spectrum in 2013 as well as accelerated outage work in 2014, and the completion of amortization related to state income tax credits in December 2013 at Georgia Power. These increases were partially offset by a decrease in depreciation and amortization at Georgia Power, as authorized in the 2013 ARP, and reductions in depreciation at Gulf Power, as approved by the Florida PSC.
Taxes Other Than Income Taxes
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$12
 
5.1
In the first quarter 2014, taxes other than income taxes were $247 million compared to $235 million for the corresponding period in 2013. The increase was primarily the result of an increase in municipal franchise fees related to higher retail revenues in 2014.
Estimated Loss on Kemper IGCC
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$(160)
 
(29.6)
In the first quarters of 2014 and 2013, estimated probable losses on the Kemper IGCC of $380 million and $540 million, respectively, were recorded at Southern Company to reflect revisions of estimated costs expected to be incurred on Mississippi Power's construction of the Kemper IGCC in excess of the $2.88 billion cost cap established by the Mississippi PSC, net of the DOE Grants and excluding the Cost Cap Exceptions. See FUTURE EARNINGS POTENTIAL – "Construction Program" and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information.

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Allowance for Equity Funds Used During Construction
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$16
 
39.0
In the first quarter 2014, AFUDC equity was $57 million compared to $41 million for the corresponding period in 2013. The increase was primarily due to an increase in CWIP related to Mississippi Power's Kemper IGCC. See Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information regarding the Kemper IGCC.
Other Income (Expense), Net
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$20
 
74.1
In the first quarter 2014, other income (expense), net was $(7) million compared to $(27) million for the corresponding period in 2013. The decrease in expense was primarily due to a $26 million charge related to the restructuring of a leveraged lease investment in the first quarter 2013.
Income Taxes
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$145
 
N/M
N/M – Not meaningful
In the first quarter 2014, income taxes were $176 million compared to $31 million for the corresponding period in 2013. The increase was primarily due to higher pre-tax earnings and a lower tax benefit related to the estimated probable losses recorded on Mississippi Power's construction of the Kemper IGCC.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Southern Company's future earnings potential. The level of Southern Company's future earnings depends on numerous factors that affect the opportunities, challenges, and risks of the Southern Company system's primary business of selling electricity. These factors include the traditional operating companies' ability to maintain a constructive regulatory environment that continues to allow for the timely recovery of prudently-incurred costs during a time of increasing costs and the completion and operation of the Kemper IGCC and Plant Vogtle Units 3 and 4 as well as other ongoing construction projects. Another major factor is the profitability of the competitive wholesale supply business. Future earnings for the electricity business in the near term will depend, in part, upon maintaining energy sales which is subject to a number of factors. These factors include weather, competition, new energy contracts with other utilities and other wholesale customers, energy conservation practiced by customers, the price of electricity, the price elasticity of demand, and the rate of economic growth or decline in the service territory. In addition, the level of future earnings for the wholesale supply business also depends on numerous factors including creditworthiness of customers, total generating capacity available and related costs, future acquisitions and construction of generating facilities, and the successful remarketing of capacity as current contracts expire. Changes in regional and global economic conditions may impact sales for the traditional operating companies and Southern Power as the pace of the economic recovery remains uncertain. The timing and extent of the economic recovery will impact growth and may impact future earnings. For additional information relating to these issues, see RISK FACTORS in Item 1A and

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MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL of Southern Company in Item 7 of the Form 10-K.
Environmental Matters
Compliance costs related to federal and state environmental statutes and regulations could affect earnings if such costs cannot continue to be fully recovered in rates on a timely basis. Environmental compliance spending over the next several years may differ materially from the amounts estimated. The timing, specific requirements, and estimated costs could change as environmental statutes and regulations are adopted or modified. Further, higher costs that are recovered through regulated rates could contribute to reduced demand for electricity, which could negatively affect results of operations, cash flows, and financial condition. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under "Environmental Matters" in Item 8 of the Form 10-K for additional information.
Environmental Statutes and Regulations
Air Quality
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Air Quality" of Southern Company in Item 7 of the Form 10-K for additional information regarding the Cross State Air Pollution Rule (CSAPR). On April 29, 2014, the U.S. Supreme Court overturned the U.S. Court of Appeals for the District of Columbia Circuit's August 2012 decision to vacate CSAPR and remanded the case back to the U.S. Court of Appeals for the District of Columbia Circuit for further proceedings. Pending such further proceedings, it is anticipated that CSAPR will remain stayed and the EPA will continue to administer the Clean Air Interstate Rule. The ultimate outcome of this matter cannot be determined at this time.
Water Quality
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Water Quality" of Southern Company in Item 7 of the Form 10-K for additional information regarding the EPA's proposed rule for cooling water intake structures.
On April 16, 2014, the EPA requested an extension of its deadline for issuing a final rule for cooling water intake structures until May 16, 2014.
On April 21, 2014, the EPA and the U.S. Army Corps of Engineers jointly published a proposed rule to revise the regulatory definition of waters of the U.S. for all Clean Water Act (CWA) programs, significantly expanding the scope of federal jurisdiction under the CWA. If finalized as proposed, this rule could significantly increase permitting and regulatory requirements and costs associated with the siting of new facilities and the installation, expansion, and maintenance of transmission and distribution lines. In addition, the rule as proposed could have significant impacts on economic development projects which could affect customer demand growth. The ultimate impact of the proposed rule will depend on the specific requirements of the final rule and the outcome of any legal challenges and cannot be determined at this time.
PSC Matters
Retail Fuel Cost Recovery
The traditional operating companies each have established fuel cost recovery rates approved by their respective state PSCs. Fuel cost recovery revenues are adjusted for differences in actual recoverable fuel costs and amounts billed in current regulated rates. Accordingly, changes in the billing factor will not have a significant effect on Southern Company's revenues or net income, but will affect cash flow. The traditional operating companies continuously monitor their under or over recovered fuel cost balances. At March 31, 2014, Georgia Power, Gulf Power, and Mississippi Power had total under recovered fuel costs included on Southern Company's Condensed Balance Sheet

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herein of approximately $195 million. At December 31, 2013, Gulf Power had under recovered fuel costs included on Southern Company's Condensed Balance Sheet herein of approximately $21 million. The total over recovered fuel balance at Alabama Power included on Southern Company's Condensed Balance Sheets herein was approximately $22 million at March 31, 2014 compared to the total over recovered fuel balance at Alabama Power, Georgia Power, and Mississippi Power at December 31, 2013 of approximately $115 million.
See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Alabama Power – Retail Energy Cost Recovery" and "Retail Regulatory Matters – Georgia Power – Fuel Cost Recovery" in Item 8 of the Form 10-K for additional information.
Georgia Power
Storm Damage Recovery
Georgia Power defers and recovers certain costs related to damages from major storms as mandated by the Georgia PSC. As of March 31, 2014 and December 31, 2013, the balance in the regulatory asset related to storm damage was $110 million and $37 million, respectively. The increase was primarily the result of an ice storm in February 2014. As a result of the regulatory treatment, costs related to storms are generally not expected to have a material impact on Southern Company's financial statements.
Income Tax Matters
Bonus Depreciation
In January 2013, the American Taxpayer Relief Act of 2012 (ATRA) was signed into law. The ATRA retroactively extended several tax credits through 2013 and extended 50% bonus depreciation for property placed in service in 2013 (and for certain long-term production-period projects to be placed in service in 2014), which is currently expected to apply primarily to the combined cycle and associated common facilities portion of the Kemper IGCC. The estimated cash flow benefit of approximately $170 million is dependent upon placing the assets in service in 2014. As discussed in Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle," the remainder of the Kemper IGCC, including the gasification system, would not qualify for bonus depreciation under the ATRA if placed in service after 2014.
Construction Program
The subsidiary companies of Southern Company are engaged in continuous construction programs to accommodate existing and estimated future loads on their respective systems. The Southern Company system intends to continue its strategy of developing and constructing new generating facilities, as well as adding or changing fuel sources for certain existing units, adding environmental control equipment, and expanding the transmission and distribution systems. For the traditional operating companies, major generation construction projects are subject to state PSC approvals in order to be included in retail rates. While Southern Power generally constructs and acquires generation assets covered by long-term PPAs, any uncontracted capacity could negatively affect future earnings.
The two largest construction projects currently underway in the Southern Company system are Plant Vogtle Units 3 and 4 (45.7% ownership interest by Georgia Power in two units, each with approximately 1,100 MWs) and the 582-MW Kemper IGCC (in which Mississippi Power is ultimately expected to hold an 85% ownership interest). See FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" herein for the cost estimate of the Southern Company system's construction program, which includes the current construction cost estimate to complete the Kemper IGCC. Also see Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Integrated Coal Gasification Combined Cycle" herein for additional information.

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Through March 31, 2014, Southern Company incurred pre-tax charges of $1.6 billion ($963 million after tax) for revisions of estimated costs expected to be incurred on Mississippi Power's construction of the Kemper IGCC above the $2.88 billion cost cap established by the Mississippi PSC, net of the DOE Grants and excluding the Cost Cap Exceptions. In subsequent periods, any further changes in the estimated costs to complete construction of the Kemper IGCC subject to the $2.88 billion cost cap will be reflected in Southern Company's statements of income and these changes could be material.
Other Matters
Southern Company and its subsidiaries are involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Southern Company and its subsidiaries are subject to certain claims and legal actions arising in the ordinary course of business. The business activities of Southern Company's subsidiaries are subject to extensive governmental regulation related to public health and the environment, such as regulation of air emissions and water discharges. Litigation over environmental issues and claims of various types, including property damage, personal injury, common law nuisance, and citizen enforcement of environmental requirements, such as air quality and water standards, has increased generally throughout the U.S. In particular, personal injury, property damage, and other claims for damages alleged to have been caused by CO2 and other emissions, coal combustion residuals, and alleged exposure to hazardous materials, and/or requests for injunctive relief in connection with such matters, have become more frequent.
The ultimate outcome of such pending or potential litigation against Southern Company and its subsidiaries cannot be predicted at this time; however, for current proceedings not specifically reported in Note (B) to the Condensed Financial Statements herein or in Note 3 to the financial statements of Southern Company in Item 8 of the Form 10-K, management does not anticipate that the ultimate liabilities, if any, arising from such current proceedings would have a material effect on Southern Company's financial statements. See the Notes to the Condensed Financial Statements herein for a discussion of various other contingencies, regulatory matters, and other matters being litigated which may affect future earnings potential.
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Other Matters" of Southern Company in Item 7 of the Form 10-K for additional information regarding the NRC's performance of additional operational and safety reviews of nuclear facilities in the U.S. following the major earthquake and tsunami that struck Japan in 2011.
Additionally, there are certain risks associated with the licensing, construction, and operation of nuclear generating units, including potential impacts that could result from a major incident at a nuclear facility anywhere in the world. The ultimate outcome of these events cannot be determined at this time.
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Other Matters" of Southern Company in Item 7 of the Form 10-K for additional information regarding the court order for the DOE to set the spent fuel depositary fees at zero. On March 18, 2014, the U.S. Court of Appeals for the District of Columbia Circuit denied the DOE's request for rehearing of the November 2013 panel decision ordering that the DOE propose the Nuclear Waste Fund fee be changed to zero. Currently, Alabama Power and Georgia Power are paying the fee of approximately $13 million and $15 million annually, respectively, based on their ownership interest. The ultimate outcome of this matter cannot be determined at this time.
ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates
Southern Company prepares its consolidated financial statements in accordance with GAAP. 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

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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 Pension and Other Postretirement Benefits.
Kemper IGCC Estimated Construction Costs, Project Completion Date, and Rate Recovery
Mississippi Power has extended the scheduled in-service date for the Kemper IGCC to the first half of 2015 and revised its cost estimate to complete construction and start-up of the Kemper IGCC to an amount that exceeds the $2.88 billion cost cap, net of the DOE Grants and excluding the Cost Cap Exceptions. Mississippi Power does not intend to seek any rate recovery or any joint owner contributions for any related costs that exceed the $2.88 billion cost cap, net of the DOE Grants and excluding the Cost Cap Exceptions. As a result of the revised cost estimate, Southern Company recorded total pre-tax charges to income for the estimated probable losses on the Kemper IGCC of $380.0 million ($234.7 million after tax) in the first quarter 2014, in addition to charges totaling $1.18 billion ($728.7 million after tax) recognized through December 31, 2013. In subsequent periods, any further changes in the estimated costs to complete construction and start-up of the Kemper IGCC subject to the $2.88 billion cost cap and/or any amount in excess of the $1.0 billion securitization limit will be reflected in Southern Company’s statements of income and these changes could be material. Any further cost increases and/or extensions of the in-service date with respect to the Kemper IGCC may result from factors including, but not limited to, labor costs and productivity, adverse weather conditions, shortages and inconsistent quality of equipment, materials, and labor, contract or supplier delay, non-performance under construction or other agreements, operational performance, and/or start-up activities for this "first-of-a-kind" technology, including major equipment failure, system integration, and operations, and/or unforeseen engineering problems.
Given the significant judgment involved in estimating the future costs to complete construction, the project completion date, the ultimate rate recovery for the Kemper IGCC, and the potential impact on Southern Company's results of operations, Southern Company considers these items to be critical accounting estimates. See Note 3 to the financial statements of Southern Company under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information.
FINANCIAL CONDITION AND LIQUIDITY
Overview
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Overview" of Southern Company in Item 7 of the Form 10-K for additional information. Although earnings for the three months ended March 31, 2014 were negatively affected by revisions to the cost estimate for the Kemper IGCC, Southern Company's financial condition remained stable at March 31, 2014. Through March 31, 2014, Southern Company has incurred non-recoverable cash expenditures of $636 million and is expected to incur approximately $924 million in additional non-recoverable cash expenditures through completion of the Kemper IGCC. Southern Company intends to continue to monitor its access to short-term and long-term capital markets as well as its bank credit arrangements to meet future capital and liquidity needs. See "Capital Requirements and Contractual Obligations," "Sources of Capital," and "Financing Activities" herein for additional information.
Net cash provided from operating activities totaled $1.1 billion for the first three months of 2014, an increase of $366 million from the corresponding period in 2013. The increase in net cash provided from operating activities was primarily due to a reduction in fossil fuel stock resulting from an increase in KWH generation. Net cash used for investing activities totaled $1.2 billion for the first three months of 2014 primarily due to property additions to utility plant. Net cash used for financing activities totaled $43 million for the first three months of 2014. This was primarily due to a decrease in notes payable, net and payments of common stock dividends, partially offset by issuances of long-term debt. Fluctuations in cash flow from financing activities vary from year to year based on capital needs and the maturity or redemption of securities.

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

Significant balance sheet changes for the first three months of 2014 include an increase of $365 million in total property, plant, and equipment for construction of generation, transmission, and distribution facilities. Other significant changes include a $944 million increase in long-term debt (excluding amounts due within a year) to repay maturing debt and to fund the Southern Company subsidiaries' continuous construction programs and an increase of $299 million in securities due within one year, partially offset by a decrease of $884 million in notes payable due to bank note redemptions and reductions in commercial paper.
At the end of the first quarter 2014, the market price of Southern Company's common stock was $43.94 per share (based on the closing price as reported on the New York Stock Exchange) and the book value was $21.41 per share, representing a market-to-book ratio of 205%, compared to $41.11, $21.43, and 192%, respectively, at the end of 2013. The dividend for the first quarter 2014 was $0.5075 per share compared to $0.49 per share in the first quarter 2013. In April 2014, the quarterly dividend payable in June 2014 was increased to $0.5250 per share.
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 the construction programs of the Southern Company system, including estimated capital expenditures for new generating facilities and to comply with existing environmental statutes and regulations, and other funding requirements associated with scheduled maturities of long-term debt, as well as related interest, preferred and preference stock dividends, leases, trust funding requirements, other purchase commitments, unrecognized tax benefits and interest, and derivative obligations. Approximately $797 million will be required through March 31, 2015 to fund maturities and announced redemptions of long-term debt.
The Southern Company system's construction program is currently estimated to be $6.9 billion for 2014, $5.6 billion for 2015, and $4.5 billion for 2016, which includes expenditures related to construction and start-up of the Kemper IGCC of $1.3 billion for 2014 and $208 million for 2015. The amounts related to the construction and start-up of the Kemper IGCC exclude SMEPA's proposed acquisition of a 15% ownership share of the Kemper IGCC for approximately $572 million (including construction costs for all prior years relating to its proposed ownership interest). These amounts include capital expenditures related to contractual purchase commitments for nuclear fuel and capital expenditures covered under long-term service agreements.
Southern Company anticipates that the Southern Company system's capital expenditure requirements will continue to decline through the middle of the decade, before rising again to meet additional requirements for environmental compliance and new generation.
The construction programs are subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; changes in the expected environmental compliance program; changes in environmental statutes and regulations; the outcome of any legal challenges to the environmental rules; changes in generating plants, including unit retirements and replacements and adding or changing fuel sources at existing units, to meet regulatory requirements; changes in FERC rules and regulations; PSC approvals; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; project scope and design changes; storm impacts; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "PSC Matters – Georgia Power – Nuclear Construction" and "Integrated Coal Gasification Combined Cycle" herein for additional information.
Sources of Capital
Southern Company intends to meet its future capital needs through internal cash flow and external security issuances. Equity capital can be provided from any combination of Southern Company's stock plans, private

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

placements, or public offerings. The amount and timing of additional equity capital to be raised in 2014, as well as in subsequent years, will be contingent on Southern Company's investment opportunities and capital requirements.
Except as described herein, the traditional operating companies and Southern Power plan to obtain the funds required for construction and other purposes from operating cash flows, security issuances, term loans, short-term borrowings, and equity contributions or loans from Southern Company. However, the amount, type, and timing of any future financings, if needed, will depend upon prevailing market conditions, regulatory approval, and other factors. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" of Southern Company in Item 7 of the Form 10-K for additional information.
On February 20, 2014, Georgia Power and the DOE entered into a loan guarantee agreement (Loan Guarantee Agreement), pursuant to which the DOE agreed to guarantee borrowings to be made by Georgia Power under a multi-advance credit facility (FFB Credit Facility) among Georgia Power, the DOE, and the FFB. Georgia Power is obligated to reimburse the DOE for any payments the DOE is required to make to the FFB under the guarantee. Georgia Power's reimbursement obligations to the DOE are secured by a first priority lien on (i) Georgia Power's 45.7% undivided ownership interest in Plant Vogtle Units 3 and 4 (primarily the units under construction, the related real property, and any nuclear fuel loaded in the reactor core) and (ii) Georgia Power's rights and obligations under the principal contracts relating to Plant Vogtle Units 3 and 4. Under the FFB Credit Facility, Georgia Power may make term loan borrowings through the FFB. Proceeds of borrowings made under the FFB Credit Facility will be used to reimburse Georgia Power for a portion of certain costs of construction relating to Plant Vogtle Units 3 and 4 that are eligible for financing under the Loan Guarantee Agreement (Eligible Project Costs). Aggregate borrowings under the FFB Credit Facility may not exceed the lesser of (i) 70% of Eligible Project Costs or (ii) approximately $3.46 billion. See Note 6 to the financial statements of Southern Company in Item 8 of the Form 10-K for additional information regarding the Loan Guarantee Agreement and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" herein for additional information regarding Plant Vogtle Units 3 and 4.
In 2011, Mississippi Power received $245 million of DOE Grants that were used for the construction of the Kemper IGCC. An additional $25 million of DOE Grants is expected to be received for commercial operation of the Kemper IGCC. See Note 3 to the financial statements of Southern Company and Mississippi Power under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for information regarding legislation related to the securitization of certain costs of the Kemper IGCC.
Southern Company's current liabilities frequently exceed current assets because of the continued use of short-term debt as a funding source to meet scheduled maturities of long-term debt, as well as cash needs, which can fluctuate significantly due to the seasonality of the business of the Southern Company system. To meet short-term cash needs and contingencies, Southern Company has substantial cash flow from operating activities and access to capital markets, including commercial paper programs which are backed by bank credit facilities.

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

At March 31, 2014, Southern Company and its subsidiaries had approximately $590 million of cash and cash equivalents. Committed credit arrangements with banks at March 31, 2014 were as follows:
 
 
Expires(a)
 
 
 
Executable Term
Loans
 
Due Within One
Year
Company
 
2014
 
2015
 
2016
 
2018
 
Total
 
Unused
 
One
Year
 
Two
Years
 
Term
Out
 
No Term
Out
 
 
(in millions)
 
(in millions)
 
(in millions)
 
(in millions)
Southern Company
 
$
—

 
$
—

 
$
—

 
$
1,000

 
$
1,000

 
$
1,000

 
$
—

 
$
—

 
$
—

 
$
—

Alabama Power
 
238

 
35

 
—

 
1,030

 
1,303

 
1,303

 
53

 
—

 
53

 
185

Georgia Power
 
—

 
—

 
150

 
1,600

 
1,750

 
1,736

 
—

 
—

 
—

 
—

Gulf Power
 
75

 
35

 
165

 
—

 
275

 
275

 
50

 
—

 
50

 
60

Mississippi Power
 
135

 
—

 
165

 
—

 
300

 
300

 
25

 
40

 
65

 
70

Southern Power
 
—

 
—

 
—

 
500

 
500

 
500

 
—

 
—

 
—

 
—

Other
 
75

 
25

 
—

 
—

 
100

 
100

 
25

 
—

 
25

 
50

Total
 
$
523

 
$
95

 
$
480

 
$
4,130

 
$
5,228

 
$
5,214

 
$
153

 
$
40

 
$
193

 
$
365

(a)
No credit arrangements expire in 2017.
See Note 6 to the financial statements of Southern Company under "Bank Credit Arrangements" in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under "Bank Credit Arrangements" herein for additional information.
A portion of the unused credit with banks is allocated to provide liquidity support to the traditional operating companies' variable rate pollution control revenue bonds and commercial paper programs. The amount of variable rate pollution control revenue bonds outstanding requiring liquidity support as of March 31, 2014 was approximately $1.8 billion. In addition, at March 31, 2014, the traditional operating companies had $559 million of fixed rate pollution control revenue bonds that were required to be remarketed within the next 12 months. Subsequent to March 31, 2014, $234 million of these fixed rate pollution control revenue bonds were remarketed to the public and currently are not required to be remarketed within the next 12 months.
Southern Company and its subsidiaries expect to renew their credit arrangements as needed, prior to expiration.
Most of these arrangements contain covenants that limit debt levels and contain cross default provisions to other indebtedness (including guarantee obligations) that are restricted only to the indebtedness of the individual company. Such cross default provisions to other indebtedness would trigger an event of default if the applicable borrower defaulted on indebtedness or guarantee obligations over a specified threshold. Southern Company, the traditional operating companies, and Southern Power are currently in compliance with all such covenants. None of the arrangements contain material adverse change clauses at the time of borrowings.
Southern Company, the traditional operating companies, and Southern Power make short-term borrowings primarily through commercial paper programs that have the liquidity support of committed bank credit arrangements. Southern Company, the traditional operating companies, and Southern Power may also borrow through various other arrangements with banks. Commercial paper and short-term bank loans are included in notes payable in the balance sheets.

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

Details of short-term borrowings were as follows:
 
 
Short-term Debt at
March 31, 2014
 
Short-term Debt During the Period(a)
 
 
Amount
Outstanding
 
Weighted
Average
Interest
Rate
 
Average
Outstanding
 
Weighted
Average
Interest
Rate
 
Maximum
Amount
Outstanding
 
 
(in millions)
 
 
 
(in millions)
 
 
 
(in millions)
Commercial paper
 
$
598

 
0.2%
 
$
776

 
0.2%
 
$
1,104

Short-term bank debt
 
—

 
—%
 
227

 
0.9%
 
400

Total
 
$
598

 
0.2%
 
$
1,003

 
0.3%
 
 
(a)    Average and maximum amounts are based upon daily balances during the three-month period ended March 31, 2014.
Management believes that the need for working capital can be adequately met by utilizing commercial paper programs, lines of credit, and cash.
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 of certain subsidiaries to BBB and Baa2, or BBB- and/or Baa3 or below. These contracts are for physical electricity purchases and sales, fuel purchases, fuel transportation and storage, emissions allowances, energy price risk management, and construction of new generation.
The maximum potential collateral requirements under these contracts at March 31, 2014 were as follows:
Credit Ratings
Maximum Potential
Collateral
Requirements
 
(in millions)
At BBB and Baa2
$
9

At BBB- and/or Baa3
473

Below BBB- and/or Baa3
2,381

Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, any credit rating downgrade could impact the ability of Southern Company and its subsidiaries to access capital markets, particularly the short-term debt market and the variable rate pollution control revenue bond market.
Financing Activities
During the first quarter 2014, Southern Company issued approximately 1.3 million shares of common stock for approximately $35.3 million through the employee and director stock plans, of which 150,000 shares related to Southern Company's performance share plan.
In August 2013, Southern Company began using shares held in treasury to satisfy the requirements under the Southern Investment Plan and the employee savings plan and, during the first quarter 2014, issued approximately 2.4 million shares for approximately $101.0 million.

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

The following table outlines the long-term debt financing activities for Southern Company and its subsidiaries for the first three months of 2014:
Company(a)
Other
Long-Term
Debt
Issuances
 
Other
Long-Term Debt Redemptions(b)
 
(in millions)
Georgia Power
$
1,000

 
$
1

Mississippi Power
250

 
1

Southern Power
1

 
1

Other
—

 
6

Total
$
1,251

 
$
9

(a) Southern Company, Alabama Power, and Gulf Power did not issue or redeem any long-term debt during the first three months of 2014.
(b) Includes reductions in capital lease obligations resulting from cash payments under capital leases.
Southern Company's subsidiaries used the proceeds of the debt issuances shown in the table above for their respective redemptions and maturities shown in the table above, to repay short-term indebtedness, and for general corporate purposes, including their respective continuous construction programs.
In addition to the amounts reflected in the table above, in January 2014, Mississippi Power received an additional $75 million interest-bearing refundable deposit from SMEPA to be applied to the sale price for the pending sale of an undivided interest in the Kemper IGCC. See Note 3 to the financial statements of Southern Company in Item 8 of the Form 10-K under "Integrated Coal Gasification Combined Cycle – Proposed Sale of Undivided Interest to SMEPA" for additional information.
Georgia Power's "Other Long-Term Debt Issuances" reflected in the table above include initial borrowings under the FFB Credit Facility in an aggregate principal amount of $1.0 billion in February 2014. The interest rate applicable to $500 million of the initial advance under the FFB Credit Facility is 3.860% for an interest period that extends to February 20, 2044 (the final maturity date) and the interest rate applicable to the remaining $500 million is 3.488% for an interest period that extends to February 20, 2029 and will be reset from time to time thereafter through the final maturity date. The final maturity date for all advances under the FFB Credit Facility is February 20, 2044. The proceeds of the initial borrowings under the FFB Credit Facility were used to reimburse Georgia Power for Eligible Project Costs relating to the construction of Plant Vogtle Units 3 and 4.
Under the Loan Guarantee Agreement, Georgia Power is subject to customary events of default, as well as cross-defaults to other indebtedness and events of default relating to any failure to make payments under the engineering, procurement, and construction contract, as amended, relating to Plant Vogtle Units 3 and 4 or certain other agreements providing intellectual property rights for Plant Vogtle Units 3 and 4. The Loan Guarantee Agreement also includes events of default specific to the DOE loan guarantee program, including the failure of Georgia Power or Southern Nuclear to comply with requirements of law or DOE loan guarantee program requirements. See Note 6 to the financial statements of Southern Company in Item 8 of the Form 10-K under "DOE Loan Guarantee Borrowings" for additional information.
In February 2014, Georgia Power repaid three four-month floating rate bank loans in an aggregate principal amount of $400 million.
Subsequent to March 31, 2014, Gulf Power executed a loan agreement with Mississippi Business Finance Corporation (MBFC) related to MBFC's issuance of $29.075 million aggregate principal amount of Pollution Control Revenue Refunding Bonds, First Series 2014 (Gulf Power Company Project) due April 1, 2044 for the benefit of Gulf Power. The proceeds will be used for the announced redemption, on May 15, 2014, of $29.075 million aggregate principal amount of MBFC Pollution Control Revenue Refunding Bonds, Series 2003 (Gulf Power Company Project).

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

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

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PART I
Item 3. Quantitative And Qualitative Disclosures About Market Risk.
During the three months ended March 31, 2014, there were no material changes to each registrant's disclosures about market risk. For an in-depth discussion of each registrant's market risks, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Market Price Risk" of each registrant in Item 7 of the Form 10-K and Note 1 to the financial statements of each registrant under "Financial Instruments," Note 11 to the financial statements of Southern Company, Alabama Power, and Georgia Power, Note 10 to the financial statements of Gulf Power and Mississippi Power, and Note 9 to the financial statements of Southern Power in Item 8 of the Form 10-K. Also, see Note (H) 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, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power Company 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 design and operation 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 these evaluations, the Chief Executive Officer and the Chief Financial Officer, in each case, concluded that the disclosure controls and procedures are effective.
(b)
Changes in internal controls.
There have been no changes in Southern Company's, Alabama Power's, Georgia Power's, Gulf Power's, Mississippi Power's, or Southern Power Company'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 first quarter 2014 that have materially affected or are reasonably likely to materially affect Southern Company's, Alabama Power's, Georgia Power's, Gulf Power's, Mississippi Power's, or Southern Power Company's internal control over financial reporting.

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ALABAMA POWER COMPANY

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ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
 
 
For the Three Months
Ended March 31,
 
2014
 
2013
 
(in millions)
Operating Revenues:
 
 
 
Retail revenues
$
1,297

 
$
1,141

Wholesale revenues, non-affiliates
85

 
59

Wholesale revenues, affiliates
69

 
56

Other revenues
57

 
52

Total operating revenues
1,508

 
1,308

Operating Expenses:
 
 
 
Fuel
432

 
372

Purchased power, non-affiliates
57

 
20

Purchased power, affiliates
49

 
31

Other operations and maintenance
325

 
330

Depreciation and amortization
175

 
158

Taxes other than income taxes
89

 
90

Total operating expenses
1,127

 
1,001

Operating Income
381

 
307

Other Income and (Expense):
 
 
 
Allowance for equity funds used during construction
10

 
8

Interest expense, net of amounts capitalized
(62
)
 
(66
)
Other income (expense), net
(5
)
 
(1
)
Total other income and (expense)
(57
)
 
(59
)
Earnings Before Income Taxes
324

 
248

Income taxes
127

 
97

Net Income
197

 
151

Dividends on Preferred and Preference Stock
10

 
10

Net Income After Dividends on Preferred and Preference Stock
$
187

 
$
141


CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
 
For the Three Months
Ended March 31,
 
2014
 
2013
 
(in millions)
Net Income
$
197

 
$
151

Other comprehensive income (loss):
 
 
 
Qualifying hedges:
 
 
 
Changes in fair value, net of tax of $- and $-,
respectively
—

 
—

Total other comprehensive income (loss)
—

 
—

Comprehensive Income
$
197

 
$
151

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
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
For the Three Months
Ended March 31,
 
2014
 
2013
 
(in millions)
Operating Activities:
 
 
 
Net income
$
197

 
$
151

Adjustments to reconcile net income to net cash provided from operating activities —
 
 
 
Depreciation and amortization, total
210

 
206

Deferred income taxes
25

 
25

Allowance for equity funds used during construction
(10
)
 
(8
)
Other, net
(22
)
 
9

Changes in certain current assets and liabilities —
 
 
 
-Receivables
(17
)
 
(13
)
-Fossil fuel stock
99

 
28

-Materials and supplies
3

 
16

-Other current assets
(81
)
 
(71
)
-Accounts payable
(139
)
 
(124
)
-Accrued taxes
147

 
90

-Accrued compensation
(37
)
 
(61
)
-Retail fuel cost over recovery
(20
)
 
21

-Other current liabilities
(3
)
 
1

Net cash provided from operating activities
352

 
270

Investing Activities:
 
 
 
Property additions
(287
)
 
(274
)
Nuclear decommissioning trust fund purchases
(56
)
 
(57
)
Nuclear decommissioning trust fund sales
56

 
57

Cost of removal, net of salvage
(12
)
 
(9
)
Change in construction payables
49

 
(1
)
Other investing activities
(5
)
 
37

Net cash used for investing activities
(255
)
 
(247
)
Financing Activities:
 
 
 
Increase in notes payable, net
—

 
45

Capital contributions from parent company
7

 
5

Payment of preferred and preference stock dividends
(10
)
 
(10
)
Payment of common stock dividends
(137
)
 
(132
)
Other financing activities
—

 
(3
)
Net cash used for financing activities
(140
)
 
(95
)
Net Change in Cash and Cash Equivalents
(43
)
 
(72
)
Cash and Cash Equivalents at Beginning of Period
295

 
137

Cash and Cash Equivalents at End of Period
$
252

 
$
65

Supplemental Cash Flow Information:
 
 
 
Cash paid (received) during the period for —
 
 
 
Interest (net of $4 and $3 capitalized for 2014 and 2013, respectively)
$
61

 
$
64

Income taxes, net
(28
)
 
(3
)
Noncash transactions—accrued property additions at end of period
66

 
30

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
CONDENSED BALANCE SHEETS (UNAUDITED)
 
Assets
 
At March 31,
2014
 
At December 31,
2013
 
 
(in millions)
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
252

 
$
295

Receivables —
 
 
 
 
Customer accounts receivable
 
363

 
341

Unbilled revenues
 
116

 
142

Other accounts and notes receivable
 
33

 
30

Affiliated companies
 
63

 
54

Accumulated provision for uncollectible accounts
 
(8
)
 
(8
)
Fossil fuel stock, at average cost
 
230

 
329

Materials and supplies, at average cost
 
373

 
375

Vacation pay
 
63

 
63

Prepaid expenses
 
146

 
57

Other regulatory assets, current
 
5

 
7

Other current assets
 
13

 
6

Total current assets
 
1,649

 
1,691

Property, Plant, and Equipment:
 
 
 
 
In service
 
22,234

 
22,092

Less accumulated provision for depreciation
 
8,226

 
8,114

Plant in service, net of depreciation
 
14,008

 
13,978

Nuclear fuel, at amortized cost
 
342

 
332

Construction work in progress
 
829

 
748

Total property, plant, and equipment
 
15,179

 
15,058

Other Property and Investments:
 
 
 
 
Equity investments in unconsolidated subsidiaries
 
56

 
54

Nuclear decommissioning trusts, at fair value
 
727

 
714

Miscellaneous property and investments
 
81

 
80

Total other property and investments
 
864

 
848

Deferred Charges and Other Assets:
 
 
 
 
Deferred charges related to income taxes
 
522

 
519

Prepaid pension costs
 
279

 
276

Deferred under recovered regulatory clause revenues
 
36

 
25

Other regulatory assets, deferred
 
707

 
692

Other deferred charges and assets
 
126

 
142

Total deferred charges and other assets
 
1,670

 
1,654

Total Assets
 
$
19,362

 
$
19,251

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
CONDENSED BALANCE SHEETS (UNAUDITED)
 
Liabilities and Stockholder's Equity
 
At March 31,
2014
 
At December 31,
2013
 
 
(in millions)
Current Liabilities:
 
 
 
 
Accounts payable —
 
 
 
 
Affiliated
 
$
191

 
$
198

Other
 
259

 
339

Customer deposits
 
86

 
85

Accrued taxes —
 
 
 
 
Accrued income taxes
 
137

 
11

Other accrued taxes
 
57

 
33

Accrued interest
 
58

 
61

Accrued vacation pay
 
53

 
53

Accrued compensation
 
40

 
74

Other regulatory liabilities, current
 
36

 
37

Other current liabilities
 
39

 
41

Total current liabilities
 
956

 
932

Long-term Debt
 
6,233

 
6,233

Deferred Credits and Other Liabilities:
 
 
 
 
Accumulated deferred income taxes
 
3,623

 
3,603

Deferred credits related to income taxes
 
74

 
75

Accumulated deferred investment tax credits
 
131

 
133

Employee benefit obligations
 
193

 
195

Asset retirement obligations
 
741

 
730

Other cost of removal obligations
 
843

 
828

Other regulatory liabilities, deferred
 
255

 
259

Deferred over recovered regulatory clause revenues
 
—

 
15

Other deferred credits and liabilities
 
65

 
61

Total deferred credits and other liabilities
 
5,925

 
5,899

Total Liabilities
 
13,114

 
13,064

Redeemable Preferred Stock
 
342

 
342

Preference Stock
 
343

 
343

Common Stockholder's Equity:
 
 
 
 
Common stock, par value $40 per share —
 
 
 
 
Authorized - 40,000,000 shares
 
 
 
 
Outstanding - 30,537,500 shares
 
1,222

 
1,222

Paid-in capital
 
2,273

 
2,262

Retained earnings
 
2,093

 
2,044

Accumulated other comprehensive loss
 
(25
)
 
(26
)
Total common stockholder's equity
 
5,563

 
5,502

Total Liabilities and Stockholder's Equity
 
$
19,362

 
$
19,251

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

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Table of Contents
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



FIRST QUARTER 2014 vs. FIRST QUARTER 2013


OVERVIEW
Alabama Power operates as a vertically integrated utility providing electricity to retail and wholesale customers within its traditional service territory located within the State of Alabama in addition to wholesale customers in the Southeast.
Many factors affect the opportunities, challenges, and risks of Alabama Power's business of selling electricity. These factors include the ability to maintain a constructive regulatory environment, to maintain and grow energy sales given economic conditions, and to effectively manage and secure timely recovery of costs. These costs include those related to projected long-term demand growth, increasingly stringent environmental standards, reliability, fuel, capital expenditures, and restoration following major storms. Appropriately balancing required costs and capital expenditures with customer prices will continue to challenge Alabama Power for the foreseeable future.
Alabama Power continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, and net income after dividends on preferred and preference stock. For additional information on these indicators, see MANAGEMENT'S DISCUSSION AND ANALYSIS – OVERVIEW – "Key Performance Indicators" of Alabama Power in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$46
 
32.6
Alabama Power's net income after dividends on preferred and preference stock for the first quarter 2014 was $187 million compared to $141 million for the corresponding period in 2013. The increase in net income was related to an increase in revenue primarily due to colder weather in the first quarter 2014 as compared to the corresponding period in 2013, partially offset by increases in operating expenses.
Retail Revenues
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$156
 
13.7
In the first quarter 2014, retail revenues were $1.30 billion compared to $1.14 billion for the corresponding period in 2013.

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Details of the changes in retail revenues were as follows:
 
 
First Quarter
2014
 
 
(in millions)
 
(% change)
Retail – prior year
 
$
1,141

 
 
Estimated change resulting from –
 
 
 
 
Rates and pricing
 
20

 
1.8
Sales growth
 
1

 
—
Weather
 
52

 
4.6
Fuel and other cost recovery
 
83

 
7.3
Retail – current year
 
$
1,297

 
13.7%
Revenues associated with changes in rates and pricing increased in the first quarter 2014 when compared to the corresponding period in 2013 due to increased revenues associated with Rate CNP Environmental primarily resulting from the inclusion of pre-2005 environmental assets. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "PSC Matters – Rate CNP" of Alabama Power in Item 7 of the Form 10-K for additional information regarding the revision to Rate CNP Environmental.
Revenues attributable to changes in sales were not material in the first quarter 2014 when compared to the corresponding period in 2013. Industrial KWH energy sales increased 3.6% in the first quarter 2014 as a result of an increase in demand resulting from changes in production levels primarily in the primary metals, forest products, and automotive and plastics sectors. Weather-adjusted residential and commercial KWH energy sales decreased 0.1% and 0.3%, respectively, in the first quarter 2014 when compared to the corresponding period in 2013.
Revenues resulting from changes in weather increased in the first quarter 2014 due to colder weather experienced in Alabama Power's service territory compared to the corresponding period in 2013. For the first quarter 2014, the resulting increases were 8.1% and 3.6% for residential and commercial sales revenue, respectively.
Fuel and other cost recovery revenues increased in the first quarter 2014 when compared to the corresponding period in 2013 primarily due to an increase in fuel costs associated with an increase in KWH generation and the average cost of fuel. Electric rates include provisions to recognize the full recovery of fuel costs, purchased power costs, PPAs certificated by the Alabama PSC, and costs associated with the NDR. Under these provisions, fuel and other cost recovery revenues generally equal fuel and other cost recovery expenses and do not affect net income.
Wholesale Revenues – Non-Affiliates
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$26
 
44.1
Wholesale revenues from sales to non-affiliates will vary depending on the market prices of available wholesale energy compared to the cost of Alabama Power's and the Southern Company system's generation, demand for energy within the Southern Company system's service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not have a significant impact on net income.
In the first quarter 2014, wholesale revenues from sales to non-affiliates were $85 million compared to $59 million for the corresponding period in 2013. The increase was primarily due to a 32.3% increase in KWH sales resulting from increased demand due to colder weather in the first quarter 2014 as compared to the corresponding period in 2013 and an 8.7% increase in the price of energy primarily due to higher natural gas prices.

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Wholesale Revenues – Affiliates
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$13
 
23.2
Wholesale revenues from sales to affiliated companies will vary depending on demand and the availability and cost of generating resources at each company. These affiliate sales are made in accordance with the IIC, as approved by the FERC. These transactions do not have a significant impact on earnings since this energy is generally sold at marginal cost and energy purchases are generally offset by energy revenues through Alabama Power's energy cost recovery clauses.
In the first quarter 2014, wholesale revenues from sales to affiliates were $69 million compared to $56 million for the corresponding period in 2013. The increase was primarily due to a 27.9% increase in the price of energy primarily due to higher natural gas prices, partially offset by a 4.5% decrease in KWH sales.
Other Revenues
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$5
 
9.6
In the first quarter 2014, other revenues were $57 million compared to $52 million for the corresponding period in 2013. The increase was primarily due to an increase in transmission revenues related to open access transmission agreements.
Fuel and Purchased Power Expenses
 
 
 First Quarter 2014
vs.
First Quarter 2013
 
 
(change in millions)
 
(% change)
Fuel
 
$
60

 
16.1
Purchased power – non-affiliates
 
37

 
185.0
Purchased power – affiliates
 
18

 
58.1
Total fuel and purchased power expenses
 
$
115

 
 
In the first quarter 2014, total fuel and purchased power expenses were $538 million compared to $423 million for the corresponding period in 2013. The increase was primarily due to a $31 million increase related to the volume of KWHs generated, as a result of colder weather in the first quarter 2014, a $31 million increase in the volume of KWHs purchased, a $29 million increase in the average cost of fuel primarily due to an increase in the price of natural gas, and a $24 million increase in the average cost of purchased power.
Fuel and purchased power energy transactions do not have a significant impact on earnings, since energy expenses are generally offset by energy revenues through Alabama Power's energy cost recovery clauses. Alabama Power, along with the Alabama PSC, continuously monitors the under/over recovered balance to determine whether adjustments to billings rates are required. See FUTURE EARNINGS POTENTIAL – "PSC Matters – Retail Energy Cost Recovery" herein for additional information.

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Details of Alabama Power's generation and purchased power were as follows:
 
 
First Quarter
2014
 
First Quarter
2013
Total generation (billions of KWHs)
 
16
 
16
Total purchased power (billions of KWHs)
 
2
 
1
Sources of generation (percent) —
 
 
 
 
Coal
 
53
 
47
Nuclear
 
23
 
24
Gas
 
15
 
17
Hydro
 
9
 
12
Cost of fuel, generated (cents per net KWH) —
 
 
 
 
Coal
 
3.40
 
3.35
Nuclear
 
0.87
 
0.81
Gas
 
4.19
 
3.31
Average cost of fuel, generated (cents per net KWH)(a)
 
2.89
 
2.65
Average cost of purchased power (cents per net KWH)(b)
 
6.41
 
4.96
(a)
KWHs generated by hydro are excluded from the average cost of fuel, generated.
(b)
Average cost of purchased power includes fuel purchased by Alabama Power for tolling agreements where power is generated by the provider.
Fuel
In the first quarter 2014, fuel expense was $432 million compared to $372 million for the corresponding period in 2013. The increase was primarily due to a 26.6% increase in the average cost of natural gas per KWH generated, which excludes fuel associated with tolling agreements, a 15.3% increase in the volume of KWHs generated by coal, and a 19.0% decrease in the volume of KWHs generated by hydro facilities. These increases in fuel expense were offset by a 7.5% decrease in the volume of KWHs generated by natural gas.
Purchased Power – Non-Affiliates
In the first quarter 2014, purchased power expense from non-affiliates was $57 million compared to $20 million for the corresponding period in 2013. The increase was related to a 130.5% increase in the average cost per KWH purchased primarily due to timing of demand during peak periods and a 24.1% increase in the volume of KWHs purchased to meet the demand created by colder weather in the first quarter 2014 compared to the corresponding period in 2013.
Energy purchases from non-affiliates will vary depending on the market prices of wholesale energy as compared to the cost of the Southern Company system's generation, demand for energy within the Southern Company system's service territory, and the availability of the Southern Company system's generation.
Purchased Power – Affiliates
In the first quarter 2014, purchased power expense from affiliates was $49 million compared to $31 million for the corresponding period in 2013. The increase was related to a 108.4% increase in the volume of KWHs purchased to meet the demand created by colder weather in the first quarter 2014 compared to the corresponding period in 2013, partially offset by a 23.8% decrease in the average cost per KWH purchased, due to the availability of Southern Company system resources.
Energy purchases from affiliates will vary depending on demand for energy and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC or other contractual agreements, as approved by the FERC.

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Other Operations and Maintenance Expenses
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$(5)
 
(1.5)
In the first quarter 2014, other operations and maintenance expenses were $325 million compared to $330 million for the corresponding period in 2013. In accordance with an accounting order, Alabama Power deferred approximately $25 million of non-nuclear outage expenditures during the first quarter 2014. Alabama Power expensed $16 million in non-nuclear outage costs during the first quarter 2013; therefore, the net impact in the first quarter 2014 was a $16 million decrease in other operations and maintenance expenses. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "PSC Matters – Non-Nuclear Outage Accounting Order" of Alabama Power in Item 7 of the Form 10-K for additional information. The decrease was partially offset by increases of $7 million in steam production expenses and $4 million in nuclear production expenses primarily related to labor costs.
Depreciation and Amortization
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$17
 
10.8
In the first quarter 2014, depreciation and amortization was $175 million compared to $158 million for the corresponding period in 2013. The increase was primarily due to an increase in depreciation rates related to environmental assets and the deferral in 2013 of certain costs under an accounting order. Depreciation related to environmental assets is offset by revenues associated with Rate CNP Environmental. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "PSC Matters – Rate CNP" in Item 7 of the Form 10-K for additional information regarding Alabama Power's revision to Rate CNP Environmental. See also MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "PSC Matters – Compliance and Cost Accounting Order" of Alabama Power in Item 7 of the Form 10-K for additional information regarding Alabama Power's deferral of costs under this accounting order.
Income Taxes
First Quarter 2014 vs. First Quarter 2013
(change in millions)
 
(% change)
$30
 
30.9
In the first quarter 2014, income taxes were $127 million compared to $97 million for the corresponding period in 2013. The increase was primarily due to higher pre-tax earnings.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Alabama Power's future earnings potential. The level of Alabama Power's future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Alabama Power's primary business of selling electricity. These factors include Alabama Power's ability to maintain a constructive regulatory environment that continues to allow for the timely recovery of prudently-incurred costs during a time of increasing costs. Future earnings in the near term will depend, in part, upon maintaining energy sales which is subject to a number of factors. These factors include weather, competition, new energy contracts with other utilities, energy conservation practiced by customers, the price of electricity, the price elasticity of demand, and the rate of economic growth or decline in Alabama Power's service territory. Changes in regional and global economic conditions may impact sales for Alabama Power as the pace of the

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economic recovery remains uncertain. The timing and extent of the economic recovery will impact growth and may impact future earnings. For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL of Alabama Power in Item 7 of the Form 10-K.
Environmental Matters
Compliance costs related to federal and state environmental statutes and regulations could affect earnings if such costs cannot continue to be fully recovered in rates on a timely basis. Environmental compliance spending over the next several years may differ materially from the amounts estimated. The timing, specific requirements, and estimated costs could change as environmental statutes and regulations are adopted or modified. Further, higher costs that are recovered through regulated rates could contribute to reduced demand for electricity, which could negatively affect results of operations, cash flows, and financial condition. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Alabama Power in Item 7 and Note 3 to the financial statements of Alabama Power under "Environmental Matters" in Item 8 of the Form 10-K for additional information.
Environmental Statutes and Regulations
Air Quality
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Air Quality" of Alabama Power in Item 7 of the Form 10-K for additional information regarding the Cross State Air Pollution Rule (CSAPR). On April 29, 2014, the U.S. Supreme Court overturned the U.S. Court of Appeals for the District of Columbia Circuit's August 2012 decision to vacate CSAPR and remanded the case back to the U.S. Court of Appeals for the District of Columbia Circuit for further proceedings. Pending such further proceedings, it is anticipated that CSAPR will remain stayed and the EPA will continue to administer the Clean Air Interstate Rule. The ultimate outcome of this matter cannot be determined at this time.
Water Quality
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Water Quality" of Alabama Power in Item 7 of the Form 10-K for additional information regarding the EPA's proposed rule for cooling water intake structures.
On April 16, 2014, the EPA requested an extension of its deadline for issuing a final rule for cooling water intake structures until May 16, 2014.
On April 21, 2014, the EPA and the U.S. Army Corps of Engineers jointly published a proposed rule to revise the regulatory definition of waters of the U.S. for all Clean Water Act (CWA) programs, significantly expanding the scope of federal jurisdiction under the CWA. If finalized as proposed, this rule could significantly increase permitting and regulatory requirements and costs associated with the siting of new facilities and the installation, expansion, and maintenance of transmission and distribution lines. In addition, the rule as proposed could have significant impacts on economic development projects which could affect customer demand growth. The ultimate impact of the proposed rule will depend on the specific requirements of the final rule and the outcome of any legal challenges and cannot be determined at this time.
PSC Matters
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "PSC Matters" of Alabama Power in Item 7 of the Form 10-K for additional information regarding Alabama Power's recovery of retail costs through various regulatory clauses and accounting orders. The recovery balance of each regulatory clause for Alabama Power is reported in Note (B) to the Condensed Financial Statements herein.

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Other Matters
Alabama Power is involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Alabama Power is subject to certain claims and legal actions arising in the ordinary course of business. Alabama Power's business activities are subject to extensive governmental regulation related to public health and the environment, such as regulation of air emissions and water discharges. Litigation over environmental issues and claims of various types, including property damage, personal injury, common law nuisance, and citizen enforcement of environmental requirements, such as air quality and water standards, has increased generally throughout the U.S. In particular, personal injury, property damage, and other claims for damages alleged to have been caused by CO2 and other emissions, coal combustion residuals, and alleged exposure to hazardous materials, and/or requests for injunctive relief in connection with such matters, have become more frequent.
The ultimate outcome of such pending or potential litigation against Alabama Power cannot be predicted at this time; however, for current proceedings not specifically reported in Note (B) to the Condensed Financial Statements herein or in Note 3 to the financial statements of Alabama Power in Item 8 of the Form 10-K, management does not anticipate that the ultimate liabilities, if any, arising from such current proceedings would have a material effect on Alabama Power's financial statements. See the Notes to the Condensed Financial Statements herein for a discussion of various other contingencies, regulatory matters, and other matters being litigated which may affect future earnings potential.
See MANAGEMENT'S DISCUSSION AND ANALYSIS –