86940--2/27/2006--SOUTHERN

related topics

{capital, credit, financial}

{financial, litigation, operation}

{competitive, industry, competition}

{operation, natural, condition}

{debt, indebtedness, cash}

{cost, regulation, environmental}

{tax, income, asset}

{gas, price, oil}

{condition, economic, financial}

Certain events in the energy markets that are beyond the control of Southern Company and its subsidiaries have increased the level of public and regulatory scrutiny in the energy industry and in the capital markets. The reaction to these events may result in new laws or regulations related to the business operations or the accounting treatment of the existing operations of Southern Company and its subsidiaries which could have a negative impact on the net income or access to capital of Southern Company and its subsidiaries. Deregulation or restructuring in the electric industry may result in increased competition and unrecovered costs which could negatively impact the net income of Southern Company and the retail operating companies and the value of their respective assets. Potential changes to the criteria used by the FERC for approval of market-based contracts may negatively impact the retail operating companies and Southern Power s ability to charge market-based rates. Risks Related to Environmental Regulation Southern Company s and the retail operating companies costs of compliance with environmental laws are significant. The costs of compliance with future environmental laws and the incurrence of environmental liabilities could harm the net income and cash flows of Southern Company, the retail operating companies or Southern Power. Risks Related to Southern Company and its Business Southern Company may be unable to meet its ongoing and future financial obligations and to pay dividends on its common stock if its subsidiaries are unable to pay upstream dividends or repay funds to Southern Company. The financial performance of Southern Company and its subsidiaries may be adversely affected if its subsidiaries are unable to successfully operate their facilities. The revenues of Southern Company, the retail operating companies and Southern Power depend in part on sales under PPAs. The failure of a counterparty to one of these PPAs to perform its obligations, or the failure to renew the PPAs, could have a negative impact on the net income and cash flows of the affected retail operating company or Southern Power and of Southern Company. Southern Company, the retail operating companies and Southern Power may incur additional costs or delays in power plant construction and may not be able to recover their investment. The facilities of Southern Company, the retail operating companies and Southern Power require ongoing capital expenditures. Changes in technology may make Southern Company s electric generating facilities owned by the retail operating companies and Southern Power less competitive. Operation of nuclear facilities involves inherent risks, including environmental, health, regulatory, terrorism and financial risks that could result in fines or the closure of Southern Company s nuclear units owned by Alabama Power or Georgia Power, and which may present potential exposures in excess of insurance coverage. The generation and energy marketing operations of Southern Company, the retail operating companies and Southern Power are subject to risks, many of which are beyond their control, including changes in power prices and fuel costs, that may reduce Southern Company s, the retail operating companies and Southern Power s revenues and increase costs. The use of derivative contracts by Southern Company and its subsidiaries in the normal course of business could result in financial losses that negatively impact the net income of Southern Company and its subsidiaries. The retail operating companies and Southern Power may not be able to obtain adequate fuel supplies, which could limit their ability to operate their facilities. Demand for power could exceed supply capacity, resulting in increased costs for purchasing capacity in the open market or building additional generation capabilities. The operating results of Southern Company, the retail operating companies and Southern Power are affected by weather conditions and may fluctuate on a seasonal and quarterly basis. Mirant and The Official Committee of Unsecured Creditors of Mirant Corporation have filed a claim against Southern Company seeking substantial monetary damages in connection with transfers made by Mirant to Southern Company prior to the Mirant spin-off. IRS challenges to Southern Company s income tax deductions taken in connection with four international leveraged lease transactions could result in the payment of substantial additional interest and penalties and could materially impact Southern Company s cash flow and net income. Risks Related to Market and Economic Volatility The business of Southern Company, the retail operating companies and Southern Power is dependent on their ability to successfully access capital markets. The inability of Southern Company, any retail operating company or Southern Power to access capital may limit its ability to execute its business plan or pursue improvements and make acquisitions that Southern Company, the retail operating companies or Southern Power may otherwise rely on for future growth. Southern Company, the retail operating companies and Southern Power are subject to risks associated with a changing economic environment, including their ability to obtain insurance, the financial stability of their respective customers and their ability to raise capital. Certain of the retail operating companies have substantial investments in the Gulf Coast region which can be subject to major storm activity. The ability of the retail operating companies to recover costs and replenish reserves in the event of a major storm, other natural disaster, terrorist attack or other catastrophic event generally will require regulatory action.

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86940--2/27/2006--SOUTHERN_CO