10-K 1 year2000_10k.txt =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. 1-3526 The Southern Company 58-0690070 (A Delaware Corporation) 270 Peachtree Street, N.W. Atlanta, Georgia 30303 (404) 506-5000 1-3164 Alabama Power Company 63-0004250 (An Alabama Corporation) 600 North 18th Street Birmingham, Alabama 35291 (205) 257-1000 1-6468 Georgia Power Company 58-0257110 (A Georgia Corporation) 241 Ralph McGill Boulevard, N.E. Atlanta, Georgia 30308 (404) 506-6526 0-2429 Gulf Power Company 59-0276810 (A Maine Corporation) One Energy Place Pensacola, Florida 32520 (850) 444-6111 0-6849 Mississippi Power Company 64-0205820 (A Mississippi Corporation) 2992 West Beach Gulfport, Mississippi 39501 (228) 864-1211 1-5072 Savannah Electric and Power Company 58-0418070 (A Georgia Corporation) 600 East Bay Street Savannah, Georgia 31401 (912) 644-7171 =============================================================================== Securities registered pursuant to Section 12(b) of the Act:1 Each of the following classes or series of securities registered pursuant to Section 12(b) of the Act is registered on the New York Stock Exchange. Title of each class Registrant Common Stock, $5 par value The Southern Company Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 7.75% Cumulative Quarterly Income Preferred Securities 2 7 1/8% Trust Originated Preferred Securities3 6.875% Cumulative Quarterly Income Preferred Securities4 --------------------------------------------------- Class A preferred, cumulative, $25 stated capital Alabama Power Company 5.20% Series 5.83% Series Senior Notes 7 1/8% Series A 7% Series C 7% Series B 6.75% Series J Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 7.375% Trust Preferred Securities5 7.60% Trust Originated Preferred Securities6 --------------------------------------------------- Senior Notes Georgia Power Company 6 7/8% Series A 6 5/8% Series D 6.60% Series B Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 7.75% Trust Preferred Securities7 7.60% Trust Preferred Securities8 7.75% Cumulative Quarterly Income 6.85% Trust Preferred Securities10 Preferred Securities9 ------------------------------------------------------ =============================================================================== 1 As of December 31, 2000. 2 Issued by Southern Company Capital Trust III and guaranteed by The Southern Company. 3 Issued by Southern Company Capital Trust IV and guaranteed by The Southern Company. 4 Issued by Southern Company Capital Trust V and guaranteed by The Southern Company. 5 Issued by Alabama Power Capital Trust I and guaranteed by Alabama Power Company. 6 Issued by Alabama Power Capital Trust II and guaranteed by Alabama Power Company. 7 Issued by Georgia Power Capital Trust I and guaranteed by Georgia Power Company. 8 Issued by Georgia Power Capital Trust II and guaranteed by Georgia Power Company. 9 Issued by Georgia Power Capital Trust III and guaranteed by Georgia Power Company. 10 Issued by Georgia Power Capital Trust IV and guaranteed by Georgia Power Company. Company obligated mandatorily redeemable Gulf Power Company preferred securities, $25 liquidation amount 7.625% Cumulative Quarterly Income Preferred Securities11 7.00% Cumulative Quarterly Income Preferred Securities12 ------------------------------------------------------ Depositary preferred shares, each representing Mississippi Power Company one-fourth of a share of preferred stock, cumulative, $100 par value 6.32% Series 6.65% Series Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 7.75% Trust Originated Preferred Securities13 --------------------------------------------------- Company obligated mandatorily redeemable Savannah Electric and Power Company preferred securities, $25 liquidation amount 6.85% Trust Preferred Securities14 Securities registered pursuant to Section 12(g) of the Act:15 Title of each class Registrant Preferred stock, cumulative, $100 par value Alabama Power Company 4.20% Series 4.60% Series 4.72% Series 4.52% Series 4.64% Series 4.92% Series Class A preferred, cumulative, $100,000 stated capital Auction (1993 Series) Class A preferred, cumulative, $100 stated capital Auction (1988 Series) ---------------------------------------------------------- Preferred stock, cumulative, $100 stated value Georgia Power Company $4.60 Series (1954) ---------------------------------------------------------- =============================================================================== -------- 11 Issued by Gulf Power Capital Trust I and guaranteed by Gulf Power Company. 12 Issued by Gulf Power Capital Trust II and guaranteed by Gulf Power Company. 13 Issued by Mississippi Power Capital Trust I and guaranteed by Mississippi Power Company. 14 Issued by Savannah Electric Capital Trust I and guaranteed by Savannah Electric and Power Company. 15 As of December 31, 2000. Preferred stock, cumulative, $100 par value Gulf Power Company 4.64% Series 5.44% Series 5.16% Series ---------------------------------------------------------- Preferred stock, cumulative, $100 par value Mississippi Power Company 4.40% Series 4.60% Series 4.72% Series 7.00% Series ---------------------------------------------------------- Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) Aggregate market value of voting stock held by non-affiliates of The Southern Company at February 28, 2001: $21.1 billion. Each of such other registrants is a wholly-owned subsidiary of The Southern Company. A description of registrants' common stock follows:

Description of Shares Outstanding Registrant Common Stock at February 28, 2001 The Southern Company Par Value $5 Per Share 681,946,097 Alabama Power Company Par Value $40 Per Share 5,608,955 Georgia Power Company No Par Value 7,761,500 Gulf Power Company No Par Value 992,717 Mississippi Power Company Without Par Value 1,121,000 Savannah Electric and Power Company Par Value $5 Per Share 10,844,635

Documents incorporated by reference: specified portions of The Southern Company's Proxy Statement relating to the 2001 Annual Meeting of Stockholders are incorporated by reference into PART III. In addition, specified portions of the Information Statements of Alabama Power Company, Georgia Power Company, Gulf Power Company and Mississippi Power Company relating to each of their respective 2001 Annual Meetings of Shareholders are incorporated by reference into PART III. This combined Form 10-K is separately filed by The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company and Savannah Electric and Power Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other companies. ===============================================================================

Table of Contents Page PART I Item 1 Business Mirant Corporation (formerly Southern Energy, Inc.)............................ I-1 The SOUTHERN System............................................................ I-2 Integrated Southeast Utilities................................................. I-2 Other Business................................................................. I-2 Certain Factors Affecting the Industry......................................... I-3 Construction Programs.......................................................... I-3 Financing Programs............................................................. I-5 Fuel Supply.................................................................... I-6 Territory Served by the Integrated Southeast Utilities......................... I-8 Competition.................................................................... I-11 Regulation..................................................................... I-12 Rate Matters................................................................... I-14 Employee Relations............................................................. I-15 Item 2 Properties....................................................................... I-17 Item 3 Legal Proceedings................................................................ I-21 Item 4 Submission of Matters to a Vote of Security Holders.............................. I-22 Executive Officers of SOUTHERN................................................... I-23 Executive Officers of ALABAMA.................................................... I-24 Executive Officers of GEORGIA.................................................... I-25 Executive Officers of GULF....................................................... I-26 Executive Officers of MISSISSIPPI................................................ I-27 PART II Item 5 Market for Registrants' Common Equity and Related Stockholder Matters............ II-1 Item 6 Selected Financial Data.......................................................... II-2 Item 7 Management's Discussion and Analysis of Results of Operations and Financial Condition........................................................ II-2 Item 7A Quantitative and Qualitative Disclosures about Market Risk....................... II-2 Item 8 Financial Statements and Supplementary Data...................................... II-3 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................ II-4 PART III Item 10 Directors and Executive Officers of the Registrants............................. III-1 Item 11 Executive Compensation.......................................................... III-1 Item 12 Security Ownership of Certain Beneficial Owners and Management.................................................................... III-1 Item 13 Certain Relationships and Related Transactions.................................. III-1 PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................................................... IV-1

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DEFINITIONS When used in Items 1 through 5 and Items 10 through 14, the following terms will have the meanings indicated. Term Meaning AEC........................................... Alabama Electric Cooperative, Inc. AFUDC......................................... Allowance for Funds Used During Construction ALABAMA....................................... Alabama Power Company AMEA.......................................... Alabama Municipal Electric Authority Clean Air Act................................. Clean Air Act Amendments of 1990 Dalton........................................ City of Dalton, Georgia DOE........................................... United States Department of Energy EMF........................................... Electromagnetic field Energy Act.................................... Energy Policy Act of 1992 Energy Solutions.............................. Southern Company Energy Solutions, Inc. Entergy Gulf States........................... Entergy Gulf States Utilities Company EPA........................................... United States Environmental Protection Agency FERC.......................................... Federal Energy Regulatory Commission FPC........................................... Florida Power Corporation FP&L.......................................... Florida Power & Light Company GEORGIA....................................... Georgia Power Company GULF.......................................... Gulf Power Company Holding Company Act........................... Public Utility Holding Company Act of 1935, as amended IBEW.......................................... International Brotherhood of Electrical Workers integrated Southeast utilities................ ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH IPP........................................... Independent power producer IRS........................................... Internal Revenue Service JEA........................................... Jacksonville Electric Authority MEAG.......................................... Municipal Electric Authority of Georgia MESH.......................................... Mobile Energy Services Holdings Mirant........................................ Mirant Corporation (formerly Southern Energy, Inc.) MISSISSIPPI................................... Mississippi Power Company NRC........................................... Nuclear Regulatory Commission OPC........................................... Oglethorpe Power Corporation PSC........................................... Public Service Commission RTO........................................... Regional Transmission Organization RUS........................................... Rural Utility Service (formerly Rural Electrification Administration)

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DEFINITIONS (continued) SAVANNAH...................................... Savannah Electric and Power Company SCS........................................... Southern Company Services, Inc. (the system service company) SEC........................................... Securities and Exchange Commission SEGCO......................................... Southern Electric Generating Company SEPA.......................................... Southeastern Power Administration SERC.......................................... Southeastern Electric Reliability Council SMEPA......................................... South Mississippi Electric Power Association SOUTHERN...................................... The Southern Company Southern LINC................................. Southern Communications Services, Inc. Southern Nuclear.............................. Southern Nuclear Operating Company, Inc. SOUTHERN system............................... SOUTHERN, the integrated Southeast utilities, SEGCO, Southern Nuclear, SCS, Southern LINC, Energy Solutions and other subsidiaries Southern Telecom.............................. Southern Telecom, Inc. SPC........................................... Southern Power Company TVA........................................... Tennessee Valley Authority

iii CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This Annual Report on Form 10-K contains forward-looking and historical information. Forward-looking information includes, among other things, statements concerning the strategic goals for SOUTHERN's new wholesale business and also SOUTHERN's earnings per share and earnings growth goals. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology. The registrants caution that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include the impact of recent and future federal and state regulatory change, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry and also changes in environmental and other laws and regulations to which SOUTHERN and its subsidiaries are subject, as well as changes in application of existing laws and regulations; current and future litigation, including the pending EPA civil action against certain of the integrated Southeast utilities and the race discrimination litigation against certain of SOUTHERN's subsidiaries; the extent and timing of the entry of additional competition in the markets of SOUTHERN's subsidiaries; potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial; internal restructuring or other restructuring options that may be pursued by SOUTHERN; state and federal rate regulation in the United States and in foreign countries in which SOUTHERN's subsidiaries operate; political, legal and economic conditions and developments in the United States and in foreign countries in which SOUTHERN's subsidiaries operate; financial market conditions and the results of financing efforts; the impact of fluctuations in commodity prices, interest rates and customer demand; weather and other natural phenomena; the performance of projects undertaken by the non-traditional business and the success of efforts to invest in and develop new opportunities; the timing and acceptance of SOUTHERN's new product and service offerings; the ability of SOUTHERN to obtain additional generating capacity at competitive prices; developments in the California power markets, including, but not limited to, governmental intervention, deterioration in the financial condition of counterparties, default on receivables due, adverse results in current or future litigation and adverse changes in the tariffs of the California Power Exchange Corporation or the California Independent System Operator Corporation; and other factors discussed elsewhere herein and in other reports filed from time to time with the SEC. iv PART I Item 1. BUSINESS SOUTHERN was incorporated under the laws of Delaware on November 9, 1945. SOUTHERN is domesticated under the laws of Georgia and is qualified to do business as a foreign corporation under the laws of Alabama. SOUTHERN owns all the outstanding common stock of ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH, each of which is an operating public utility company. The integrated Southeast utilities supply electric service in the states of Alabama, Georgia, Florida, Mississippi and Georgia, respectively. More particular information relating to each of the integrated Southeast utilities is as follows: ALABAMA is a corporation organized under the laws of the State of Alabama on November 10, 1927, by the consolidation of a predecessor Alabama Power Company, Gulf Electric Company and Houston Power Company. The predecessor Alabama Power Company had had a continuous existence since its incorporation in 1906. GEORGIA was incorporated under the laws of the State of Georgia on June 26, 1930, and admitted to do business in Alabama on September 15, 1948. GULF is a corporation which was organized under the laws of the State of Maine on November 2, 1925, and admitted to do business in Florida on January 15, 1926, in Mississippi on October 25, 1976, and in Georgia on November 20, 1984. MISSISSIPPI was incorporated under the laws of the State of Mississippi on July 12, 1972, was admitted to do business in Alabama on November 28, 1972, and effective December 21, 1972, by the merger into it of the predecessor Mississippi Power Company, succeeded to the business and properties of the latter company. The predecessor Mississippi Power Company was incorporated under the laws of the State of Maine on November 24, 1924, and was admitted to do business in Mississippi on December 23, 1924, and in Alabama on December 7, 1962. SAVANNAH is a corporation existing under the laws of the State of Georgia; its charter was granted by the Secretary of State on August 5, 1921. SOUTHERN also owns all the outstanding common stock of Southern LINC, Southern Nuclear, SCS, Energy Solutions, Southern Telecom, SPC and other direct and indirect subsidiaries. Southern LINC provides digital wireless communications services to SOUTHERN's integrated Southeast utilities and also markets these services to the public within the Southeast. Southern Nuclear provides services to ALABAMA's and GEORGIA's nuclear plants. Energy Solutions develops new business opportunities related to energy products and services. Southern Telecom provides wholesale fiber optic solutions to telecommunication providers in the Southeastern United States. SPC, formed in January 2001, will be the primary growth engine for SOUTHERN's market-based energy business. ALABAMA and GEORGIA each own 50% of the outstanding common stock of SEGCO. SEGCO owns electric generating units with an aggregate capacity of 1,019,680 kilowatts at Plant Gaston on the Coosa River near Wilsonville, Alabama, and ALABAMA and GEORGIA are each entitled to one-half of SEGCO's capacity and energy. ALABAMA acts as SEGCO's agent in the operation of SEGCO's units and furnishes coal to SEGCO as fuel for its units. SEGCO also owns three 230,000 volt transmission lines extending from Plant Gaston to the Georgia state line at which point connection is made with the GEORGIA transmission line system. Reference is also made to Note 12 to the financial statements of SOUTHERN in Item 8 herein for additional information regarding SOUTHERN's segment and related information. Mirant Corporation Previously, SOUTHERN owned all the outstanding common stock of Mirant. In April 2000, SOUTHERN announced an initial public offering of up to 19.9 percent of Mirant and its intentions to spin off the remaining ownership of Mirant to SOUTHERN's common stockholders within 12 months of the initial stock offering. On October 2, 2000, Mirant completed an initial public offering of 66.7 million shares. On February 19, 2001, SOUTHERN's board of directors approved the spin off of the remaining ownership of 272 million Mirant shares to be completed in a tax free distribution on April 2, 2001. As a result of the spin off, SOUTHERN's financial statements and related information in Item 8 herein reflect Mirant as discontinued operations. I-1 The SOUTHERN System Integrated Southeast Utilities The transmission facilities of each of the integrated Southeast utilities are connected to the respective company's own generating plants and other sources of power and are interconnected with the transmission facilities of the other integrated Southeast utilities and SEGCO by means of heavy-duty high voltage lines. (In the case of GEORGIA's integrated transmission system, see Item 1 - BUSINESS - "Territory Served by the Integrated Southeast Utilities" herein.) Operating contracts covering arrangements in effect with principal neighboring utility systems provide for capacity exchanges, capacity purchases and sales, transfers of economy energy and other similar transactions. Additionally, the integrated Southeast utilities have entered into voluntary reliability agreements with the subsidiaries of Entergy Corporation, Florida Electric Power Coordinating Group and TVA and with Carolina Power & Light Company, Duke Energy Corporation, South Carolina Electric & Gas Company and Virginia Electric and Power Company, each of which provides for the establishment and periodic review of principles and procedures for planning and operation of generation and transmission facilities, maintenance schedules, load retention programs, emergency operations, and other matters affecting the reliability of bulk power supply. The integrated Southeast utilities have joined with other utilities in the Southeast (including those referred to above) to form the SERC to augment further the reliability and adequacy of bulk power supply. Through the SERC, the integrated Southeast utilities are represented on the National Electric Reliability Council. An intra-system interchange agreement provides for coordinating operations of the power producing facilities of the integrated Southeast utilities and the capacities available to such companies from non-affiliated sources and for the pooling of surplus energy available for interchange. Coordinated operation of the entire interconnected system is conducted through a central power supply coordination office maintained by SCS. The available sources of energy are allocated to the integrated Southeast utilities to provide the most economical sources of power consistent with good operation. The resulting benefits and savings are apportioned among the integrated Southeast utilities. On December 20, 1999, the FERC issued its final rule on RTOs ("Order 2000"). The order encouraged utilities owning transmission systems to form RTOs on a voluntary basis. Utilities were required to make a filing with the FERC by October 16, 2000 explaining how they would respond to Order 2000 consistent with this requirement. On October 16, 2000, SOUTHERN filed its RTO proposal. The proposal is for the formation of a for-profit company that would have control of the bulk power transmission system of SOUTHERN and other participating utilities in the region. Participants would have the option to either maintain their ownership, divest, sell or lease their transmission assets to the proposed RTO. On March 14, 2001, the FERC rejected SOUTHERN's proposal on the grounds that the limitation of the scope of services to new wholesale transmission and the provision of incentives to passive owners were inconsistent with Order 2000. This order requires a status report from SOUTHERN by May 14, 2001, but does not establish a deadline for SOUTHERN to file a revised petition. Reference is made to each registrant's "Management's Discussion and Analysis - Future Earnings Potential" in Item 7 for additional information. SCS has contracted with SOUTHERN, each integrated Southeast utility, Mirant, various of the other subsidiaries, Southern Nuclear and SEGCO to furnish, at cost and upon request, the following services: general executive and advisory services, power pool operations, general engineering, design engineering, purchasing, accounting, finance and treasury, taxes, insurance and pensions, corporate, rates, budgeting, public relations, employee relations, systems and procedures and other services with respect to business and operations. Energy Solutions and Southern LINC have also secured from the integrated Southeast utilities certain services which are furnished at cost. Southern Nuclear has contracts with ALABAMA to operate the Farley Nuclear Plant, and with GEORGIA to operate Plants Hatch and Vogtle. See Item 1 - BUSINESS - "Regulation - Atomic Energy Act of 1954" herein. I-2 Other Business Energy Solutions focuses on new and existing programs to enhance customer satisfaction, efficiency and stockholder value. Examples are: Good Cents, an energy efficiency program for electric utility customers; Energy Services, an energy solutions consultant and contractor for industrial and large commercial customers; and Bill Payment Protection, an insurance product that protects a residential customer by paying the electric bill in the event the customer becomes involuntarily unemployed, disabled, or goes on unpaid leave. In 1996, Southern LINC began serving SOUTHERN's integrated Southeast utilities and marketing its services to non-affiliates within the Southeast. Its system covers approximately 127,000 square miles and combines the functions of two-way radio dispatch, cellular phone, short text and numeric messaging and wireless data transfer. These continuing efforts to invest in and develop new business opportunities offer the potential of earning returns which may exceed those of rate-regulated operations. However, these activities also involve a higher degree of risk. SOUTHERN expects to make substantial investments over the period 2001-2003 in these and other new businesses. In 1999, MESH, a subsidiary of SOUTHERN, filed a petition for Chapter 11 bankruptcy relief in the U.S. Bankruptcy Court. On August 4, 2000, MESH filed a proposed plan of reorganization with the bankruptcy court that was amended on September 15, 2000. The proposed plan of reorganization was again amended on February 21, 2001. Reference is made to Note 3 to the financial statements of SOUTHERN in Item 8 herein for additional information relating to this matter. Certain Factors Affecting the Industry Various factors are currently affecting the electric utility industry in general, including increasing competition and the regulatory changes related thereto, costs required to comply with environmental regulations, and the potential for new business opportunities (with their associated risks) outside of traditional rate-regulated operations. The effects of these and other factors on the SOUTHERN system are described herein. Particular reference is made to Item 1 - BUSINESS - "Other Business", "Competition" and "Environmental Regulation." See also "Cautionary Statement Regarding Forward-Looking Information." Construction Programs The subsidiary companies of SOUTHERN are engaged in continuous construction programs to accommodate existing and estimated future loads on their respective systems. Construction additions or acquisitions of property during 2001 through 2003 by the integrated Southeast utilities, SEGCO, SCS, Southern LINC and other subsidiaries are estimated as follows: (in millions) ------------------------------ -------- --------- ---------- 2001 2002 2003 -------- --------- ---------- ALABAMA $ 735 $ 891 $ 625 GEORGIA 1,613 1,349 785 GULF 279 96 76 MISSISSIPPI 62 60 69 SAVANNAH 33 31 32 SEGCO 16 17 16 SCS 29 21 21 Southern LINC 26 39 26 Other 111 60 1 --------------------------- ----------- --------- ---------- SOUTHERN system $2,904 $2,564 $1,651 =========================== =========== ========= ========== Included in these estimated totals are expenditures for construction of wholesale generation assets that may be transferred to SPC. Assuming such transfers are made, SPC's projected construction program expenditures are approximately $1.2 billion in 2001, $725 million in 2002, and $452 million in 2003. I-3

Estimated construction costs in 2001 are expected to be apportioned approximately as follows: (in millions) ---------------------------- ---------------- --------------- ------------- ---------- ---------------- ---------------- SOUTHERN system* ALABAMA GEORGIA GULF MISSISSIPPI SAVANNAH ---------------- --------------- ------------- ---------- ---------------- ---------------- New generation $ 940 $169 $ 596 $172 $ 3 $- Other generating facilities including associated plant substations 682 181 433 35 10 7 New business 368 129 188 22 19 10 Transmission 340 110 189 21 14 6 Joint line and substation 47 - 34 13 - - Distribution 184 68 85 12 11 8 Nuclear fuel 93 38 55 - - - General plant 250 40 33 4 5 2 ---------------- --------------- ------------- ---------- ---------------- ---------------- $2,904 $735 $1,613 $279 $62 $33 ================ =============== ============= ========== ================ ================

*Southern LINC, SCS, and other businesses plan capital additions to general plant in 2001 of $26 million, $29 million, and $111 million, respectively, while SEGCO plans capital additions of $16 million to generating facilities. (See Item 1 - BUSINESS - "Other Business" herein.) The construction programs are subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include: changes in business conditions; acquisitions of additional generating assets; revised load growth estimates; changes in environmental regulations; changes in existing nuclear plants to meet new regulatory requirements; increasing costs of labor, equipment and materials; and cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. SOUTHERN has approximately 6,600 megawatts of new generating capacity scheduled to be placed in service by 2003. Approximately 4,400 megawatts of additional new capacity will be dedicated to the wholesale market and owned by SPC. In 1991, the Georgia legislature passed legislation which requires GEORGIA and SAVANNAH each to file an Integrated Resource Plan for approval by the Georgia PSC. Under the plan rules, the Georgia PSC must pre-certify the construction of new power plants and new purchase power contracts. (See Item 1 - BUSINESS - "Rate Matters - Integrated Resource Planning" herein.) See Item 1 - BUSINESS - "Regulation - Environmental Regulation" herein for information with respect to certain existing and proposed environmental requirements and Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein for additional information concerning ALABAMA's and GEORGIA's joint ownership of certain generating units and related facilities with certain non-affiliated utilities. I-4 Financing Programs The amount and timing of additional equity capital to be raised in 2001, as well as subsequent years, will be contingent on SOUTHERN's investment opportunities. Equity capital can be provided from any combination of public offerings, private placements, or SOUTHERN's stock plans. The integrated Southeast utilities plan to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily from internal sources. However, the type and timing of any financings -- if needed -- will depend on market conditions and regulatory approval. Recently, the integrated Southeast utilities have relied on the issuance of unsecured debt and trust preferred securities, in addition to unsecured pollution control bonds issued for its benefit by public authorities to meet its long-term external financing requirements. In years past, the integrated Southeast utilities issued first mortgage bonds, mortgage backed pollution control bonds and preferred stock to fund its external requirements. The amount outstanding of the latter securities has been declining in recent years. If the integrated Southeast utilities were to choose to issue new first mortgage bonds or preferred stock once again, they would be required to meet certain coverage requirements. Short-term debt is often utilized as appropriate at SOUTHERN and the integrated Southeast utilities. The maximum amounts of short-term and term-loan indebtedness authorized by the appropriate regulatory authorities are shown on the following table: Amount Outstanding at Authorized December 31, 2000 -------------- --------------------- (in millions) ALABAMA $ 750 (1) $ 281 GEORGIA 1,700 (2) 704 GULF 300(1) 43 MISSISSIPPI 350(1) 56 SAVANNAH 160(2) 75 SOUTHERN 2,000(1) 550 ------------------ -------------- -- ------------------- Notes: (1) ALABAMA's authority is based on authorization received from the Alabama PSC, which expires December 31, 2001. No SEC authorization is required for ALABAMA. GULF, MISSISSIPPI and SOUTHERN have received SEC authorization to issue from time to time short-term and/or term-loan notes to banks and commercial paper to dealers in the amounts shown through December 31, 2003, December 31, 2002 and March 31, 2008, respectively. (2) GEORGIA and SAVANNAH have received SEC authorization to issue from time to time short-term and term-loan notes to banks and commercial paper to dealers in the amounts shown through December 31, 2002. Authorization for term-loan indebtedness is also required by the Georgia PSC. SAVANNAH received authority from the Georgia PSC for $70 million in term loans expiring January 31, 2002. Reference is made to Note 8 to the financial statements for SOUTHERN, Note 4 to the financial statements for ALABAMA, GULF, MISSISSIPPI and SAVANNAH and Note 9 to the financial statements for GEORGIA in Item 8 herein for information regarding the registrants' credit arrangements. I-5 Fuel Supply The integrated Southeast utilities' and SEGCO's supply of electricity is derived predominantly from coal. The sources of generation for the years 1998 through 2000 and the estimates for 2001 are shown below: Oil and ALABAMA Coal Nuclear Hydro Gas --------- ---------- --------- --------- 1998 72 18 8 2 1999 72 20 5 3 2000 72 19 3 6 2001 70 16 5 9 GEORGIA 1998 73 22 3 2 1999 75 22 1 2 2000 76 21 1 2 2001 75 21 3 1 GULF 1998 98 ** ** 2 1999 97 ** ** 3 2000 98 ** ** 2 2001 98 ** ** 2 MISSISSIPPI 1998 80 ** ** 20 1999 81 ** ** 19 2000 83 ** ** 17 2001 78 ** ** 22 SAVANNAH 1998 76 ** ** 24 1999 78 ** ** 22 2000 88 ** ** 12 2001 85 ** ** 15 SEGCO 1998 100 ** ** * 1999 100 ** ** * 2000 100 ** ** * 2001 100 ** ** * SOUTHERN system*** 1998 76 16 4 4 1999 78 17 2 3 2000 76 16 4 4 2001 76 15 3 6 ---------- ------- --------- ---------- --------- --------- *Less than 0.5%. **Not applicable. ***Amounts shown for the SOUTHERN system are weighted averages of the integrated Southeast utilities and SEGCO. The average costs of fuel in cents per net kilowatt-hour generated for 1998 through 2000 are shown below: 1998 1999 2000 ------------------- -------------- ------------- ------------- ALABAMA 1.54 1.44 1.54 GEORGIA 1.36 1.34 1.39 GULF 1.69 1.60 1.68 MISSISSIPPI 1.62 1.65 1.80 SAVANNAH 2.33 2.20 2.28 SEGCO 1.53 1.77 1.51 SOUTHERN System* 1.48 1.45 1.51 ------------------- -------------- ------------- ------------- * Amounts shown for the SOUTHERN system are weighted averages of the integrated Southeast utilities and SEGCO. See SELECTED FINANCIAL DATA in Item 6 herein for each registrant's source of energy supply. I-6 As of February 9, 2001, the integrated Southeast utilities had stockpiles of coal on hand at their respective coal-fired plants which represented an estimated 23 days of recoverable supply for bituminous coal and 31 days for sub-bituminous coal. It is estimated that approximately 68 million tons of coal will be consumed in 2001 by the integrated Southeast utilities (including those units GEORGIA owns jointly with OPC, MEAG and Dalton and operates for FP&L and JEA and the units ALABAMA owns jointly with AEC). The integrated Southeast utilities currently have 60 coal contracts. These contracts cover remaining terms of up to 12 years. Approximately 15% of 2001 estimated coal requirements will be purchased in the spot market. Additionally, it has been determined that approximately 34 normal full load days of recoverable supply is desirable at the beginning of the heavy burn season between June 1 and September 30 with 31 normal full load days being the average annual target. In 2000, the weighted average sulfur content of all coal purchased by the integrated Southeast utilities for use in the coal-fired facilities was 0.77% sulfur. This sulfur level, along with banked sulfur dioxide allowances, allowed the integrated Southeast utilities and SEGCO to remain within limits as set forth by Phase II of the Clean Air Act. As more and more strict environmental regulations are proposed that impact the utilization of coal, the fuel mix will be monitored to insure that sufficient quantities of the proper type of coal or natural gas are in place to remain in compliance with applicable laws and regulations. See Item 1 - BUSINESS - "Regulation - Environmental Regulation" herein. Changes in fuel prices are generally reflected in fuel adjustment clauses contained in rate schedules. See Item 1 - BUSINESS - "Rate Matters - Rate Structure" herein. ALABAMA and GEORGIA have numerous contracts covering a portion of their nuclear fuel needs for uranium, conversion services, enrichment services and fuel fabrication. These contracts have varying expiration dates and most are short to medium term (less than 10 years). Management believes that sufficient capacity for nuclear fuel supplies and processing exists to preclude the impairment of normal operations of the SOUTHERN system's nuclear generating units. ALABAMA and GEORGIA have contracts with the DOE that provide for the permanent disposal of spent nuclear fuel. The DOE failed to begin disposing of spent fuel in January 1998, as required by the contracts, and the companies are pursuing legal remedies against the government for breach of contract. Effective June 2000, an on-site dry storage facility for Plant Hatch became operational. Sufficient capacity is believed to be available to continue dry storage operations at Plant Hatch through the life of the plant. Sufficient fuel storage capacity currently is available at Plant Vogtle to maintain full-core discharge capability for both units into the year 2014. Sufficient fuel storage capacity is available at Plant Farley to maintain full-core discharge capability until the refueling outage scheduled in 2006 for Farley unit 1 and the refueling outage scheduled in 2008 for Farley unit 2. Procurement of on-site dry spent fuel storage capacity at Plant Farley is in progress, with the intent to place the capacity in operation as early as 2005. The Energy Act imposed upon utilities with nuclear plants, including ALABAMA and GEORGIA, obligations for the decontamination and decommissioning of federal nuclear fuel enrichment facilities. See Note 1 to SOUTHERN's, ALABAMA's and GEORGIA's financial statements in Item 8 herein. I-7 Territory Served by the Integrated Southeast Utilities The territory in which the integrated Southeast utilities provide electric service comprises most of the states of Alabama and Georgia together with the northwestern portion of Florida and southeastern Mississippi. In this territory there are non-affiliated electric distribution systems which obtain some or all of their power requirements either directly or indirectly from the integrated Southeast utilities. The territory has an area of approximately 120,000 square miles and an estimated population of approximately 11 million. ALABAMA is engaged, within the State of Alabama, in the generation and purchase of electricity and the distribution and sale of such electricity at retail in over 1,000 communities (including Anniston, Birmingham, Gadsden, Mobile, Montgomery and Tuscaloosa) and at wholesale to 15 municipally-owned electric distribution systems, 11 of which are served indirectly through sales to AMEA, and two rural distributing cooperative associations. ALABAMA also supplies steam service in downtown Birmingham. ALABAMA also sells, and cooperates with dealers in promoting the sale of, electric appliances. GEORGIA is engaged in the generation and purchase of electricity and the distribution and sale of such electricity within the State of Georgia at retail in over 600 communities, as well as in rural areas, and at wholesale currently to OPC, MEAG, the City of Dalton and the City of Hampton. GULF is engaged, within the northwestern portion of Florida, in the generation and purchase of electricity and the distribution and sale of such electricity at retail in 71 communities (including Pensacola, Panama City and Fort Walton Beach), as well as in rural areas, and at wholesale to a non-affiliated utility and a municipality. MISSISSIPPI is engaged in the generation and purchase of electricity and the distribution and sale of such energy within the 23 counties of southeastern Mississippi, at retail in 123 communities (including Biloxi, Gulfport, Hattiesburg, Laurel, Meridian and Pascagoula), as well as in rural areas, and at wholesale to one municipality, six rural electric distribution cooperative associations and one generating and transmitting cooperative. SAVANNAH is engaged, within a five-county area in eastern Georgia, in the generation and purchase of electricity and the distribution and sale of such electricity at retail and, as a member of the SOUTHERN system power pool, the transmission and sale of wholesale energy. For information relating to kilowatt-hour sales by classification for each registrant, reference is made to "Management's Discussion and Analysis-Results of Operations" in Item 7 herein. Also, for information relating to the sources of revenues for the SOUTHERN system and each of the integrated Southeast utilities, reference is made to Item 6 herein. A portion of the area served by the integrated Southeast utilities adjoins the area served by TVA and its municipal and cooperative distributors. An Act of Congress limits the distribution of TVA power, unless otherwise authorized by Congress, to specified areas or customers which generally were those served on July 1, 1957. The RUS has authority to make loans to cooperative associations or corporations to enable them to provide electric service to customers in rural sections of the country. There are 71 electric cooperative organizations operating in the territory in which the integrated Southeast utilities provide electric service at retail or wholesale. One of these, AEC, is a generating and transmitting cooperative selling power to several distributing cooperatives, municipal systems and other customers in south Alabama and northwest Florida. AEC owns generating units with approximately 840 megawatts of nameplate capacity, including an undivided ownership interest in ALABAMA's Plant Miller Units 1 and 2. AEC's facilities were financed with RUS loans secured by long-term contracts requiring distributing cooperatives to take their requirements from AEC to the extent such energy is available. Two of the 14 distributing cooperatives operating in ALABAMA's service territory obtain a portion of their power requirements directly from ALABAMA. I-8 Four electric cooperative associations, financed by the RUS, operate within GULF's service area. These cooperatives purchase their full requirements from AEC and SEPA (a federal power marketing agency). A non-affiliated utility also operates within GULF's service area and purchases its full requirements from GULF. ALABAMA and GULF have entered into separate agreements with AEC involving interconnection between the respective systems. The delivery of capacity and energy from AEC to certain distributing cooperatives in the service areas of ALABAMA and GULF is governed by the SOUTHERN/AEC Network Transmission Service Agreement. The rates for this service to AEC are based on the negotiated agreement on file with the FERC. See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein for details of ALABAMA's joint-ownership with AEC of a portion of Plant Miller. MISSISSIPPI has an interchange agreement with SMEPA, a generating and transmitting cooperative, pursuant to which various services are provided, including the furnishing of protective capacity by MISSISSIPPI to SMEPA. SMEPA has a generating capacity of 821 megawatts and a transmission system estimated to be 1,480 miles in length. There are 43 electric cooperative organizations operating in, or in areas adjoining, territory in the State of Georgia in which GEORGIA provides electric service at retail or wholesale. Three of these organizations obtain their power from TVA and one from other sources. Since July 1, 1975, OPC has supplied the requirements of the remaining 39 of these cooperative organizations from self-owned generation acquired from GEORGIA and, until September 1991, through partial requirements purchases from GEORGIA. GEORGIA entered into a power coordination agreement with OPC pursuant to which, effective in September 1991, OPC ceased to be partial requirements wholesale customer of GEORGIA. Instead, OPC began the purchase of 1,250 megawatts of capacity from GEORGIA through 1999, subject to reduction or extension by OPC, and may satisfy the balance of its needs through purchases from others. OPC decreased its purchases of capacity by 250 megawatts each in September 1997, 1998 and 1999. Under the amended 1995 Integrated Resource Plan approved by the Georgia PSC in March 1997, the resources associated with the decreased purchases by OPC in 1997, 1998 and 1999 will be used to meet the needs of GEORGIA's retail customers through 2004. In April 1999, a new power supply agreement was implemented between GEORGIA and OPC. Pursuant to this agreement, OPC will purchase 250 megawatts of steam capacity through March 2006, 250 megawatts of peaking capacity through August 2000, and 125 megawatts of peaking capacity from September 2000 through August 2001. There are 65 municipally-owned electric distribution systems operating in the territory in which the integrated Southeast utilities provide electric service at retail or wholesale. AMEA was organized under an act of the Alabama legislature and is comprised of 11 municipalities. In 1986, ALABAMA entered into a firm power purchase contract with AMEA entitling AMEA to scheduled amounts of capacity (to a maximum of 100 megawatts) for a period of 15 years commencing September 1, 1986. In October 1991, ALABAMA entered into a second firm power purchase contract with AMEA entitling AMEA to scheduled amounts of additional capacity (to a maximum 80 megawatts) for a period of 15 years commencing October 1, 1991. In both contracts, the power is being sold to AMEA for its member municipalities that previously were served directly by ALABAMA as wholesale customers. Under the terms of the contracts, ALABAMA received payments from AMEA representing the net present value of the revenues associated with the respective capacity entitlements. See Note 6 to ALABAMA's financial statements in Item 8 herein for further information on these contracts. Forty-eight municipally-owned electric distribution systems and one county-owned system receive their requirements through MEAG, which was established by a state statute in 1975. MEAG serves these requirements from self-owned generation facilities acquired from GEORGIA and purchases from others. In August 1997, a power coordination agreement was implemented between GEORGIA and MEAG that replaced the partial requirements tariff pursuant to which GEORGIA previously sold wholesale energy to MEAG. Since 1977, Dalton has filled its requirements from generation facilities acquired from GEORGIA and through partial requirements purchases. One municipally-owned electric distribution system's full requirements are served under a market-based contract by GEORGIA. (See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein.) I-9 GULF and MISSISSIPPI provide wholesale requirements for one municipal system each. GEORGIA has entered into substantially similar agreements with Georgia Transmission Corporation (formerly OPC's transmission division), MEAG and Dalton providing for the establishment of an integrated transmission system to carry the power and energy of each. The agreements require an investment by each party in the integrated transmission system in proportion to its respective share of the aggregate system load. (See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein.) SCS, acting on behalf of ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH, also has a contract with SEPA providing for the use of those companies' facilities at government expense to deliver to certain cooperatives and municipalities, entitled by federal statute to preference in the purchase of power from SEPA, quantities of power equivalent to the amounts of power allocated to them by SEPA from certain United States government hydroelectric projects. The retail service rights of all electric suppliers in the State of Georgia are regulated by the 1973 State Territorial Electric Service Act. Pursuant to the provisions of this Act, all areas within existing municipal limits were assigned to the primary electric supplier therein on March 29, 1973 (451 municipalities, including Atlanta, Columbus, Macon, Augusta, Athens, Rome and Valdosta, to GEORGIA; 115 to electric cooperatives; and 50 to publicly-owned systems). Areas outside of such municipal limits were either to be assigned or to be declared open for customer choice of supplier by action of the Georgia PSC pursuant to standards set forth in the Act. Consistent with such standards, the Georgia PSC has assigned substantially all of the land area in the state to a supplier. Notwithstanding such assignments, the Act provides that any new customer locating outside of 1973 municipal limits and having a connected load of at least 900 kilowatts may receive electric service from the supplier of its choice. (See also Item 1 - BUSINESS - "Competition" herein.) Under and subject to the provisions of its franchises and concessions and the 1973 State Territorial Electric Service Act, SAVANNAH has the full but nonexclusive right to serve the City of Savannah, the Towns of Bloomingdale, Pooler, Garden City, Guyton, Newington, Oliver, Port Wentworth, Rincon, Tybee Island, Springfield, Thunderbolt, Vernonburg, and in conjunction with a secondary supplier, the Town of Richmond Hill. In addition, SAVANNAH has been assigned certain unincorporated areas in Chatham, Effingham, Bryan, Bulloch and Screven Counties by the Georgia PSC. (See also Item 1 - BUSINESS - "Competition" herein.) Pursuant to the 1956 Utility Act, the Mississippi PSC issued "Grandfather Certificates" of public convenience and necessity to MISSISSIPPI and to six distribution rural cooperatives operating in southeastern Mississippi, then served in whole or in part by MISSISSIPPI, authorizing them to distribute electricity in certain specified geographically described areas of the state. The six cooperatives serve approximately 300,000 retail customers in a certificated area of approximately 10,300 square miles. In areas included in a "Grandfather Certificate," the utility holding such certificate may, without further certification, extend its lines up to five miles; other extensions within that area by such utility, or by other utilities, may not be made except upon a showing of, and a grant of a certificate of, public convenience and necessity. Areas included in such a certificate which are subsequently annexed to municipalities may continue to be served by the holder of the certificate, irrespective of whether it has a franchise in the annexing municipality. On the other hand, the holder of the municipal franchise may not extend service into such newly annexed area without authorization by the Mississippi PSC. Long-Term Power Sales and Lease Agreements Reference is made to Note 5 to the financial statements for SOUTHERN; Note 6 to the financial statements for ALABAMA, GULF and MISSISSIPPI, and Note 7 to the financial statements for GEORGIA in Item 8 herein for information regarding contracts for the sales and lease of capacity and energy to non-territorial customers. I-10 Competition The electric utility industry in the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Act. The Energy Act allows IPPs to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers, and sell energy generation to other utilities. Also, electricity sales for resale rates are being driven down by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. The integrated Southeast utilities are aggressively working to maintain and expand their share of wholesale sales in the Southeastern power markets. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been discussed in Alabama, Florida, Georgia, and Mississippi, none have been enacted. Enactment would require numerous issues to be resolved, including significant ones relating to recovery of any stranded investments, full cost recovery of energy produced, and other issues related to the current energy crisis in California. As a result of this crisis, many states have either discontinued or delayed implementation of initiatives involving retail deregulation. The inability of a company to recover its investments, including the regulatory assets described in Note 1 to each registrant's respective financial statements, could have a material adverse effect on such company's financial condition and results of operations. The integrated Southeast utilities are attempting to minimize or reduce their cost exposure. Reference is made to Note 3 to the financial statements for SOUTHERN under "Alabama Power Rate Adjustment Procedures" and "Georgia Power 1998 Retail Rate Order" for information regarding these efforts. Reference is made to Item 1 - BUSINESS - "Integrated Southeast Utilities" herein for information relating to an RTO filing with FERC. Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, if the integrated Southeast utilities do not remain low-cost producers and provide quality service, then energy sales growth could be limited, and this could significantly erode earnings. Reference is made to ALABAMA, GULF, MISSISSIPPI and SAVANNAH, "Management's Discussion and Analysis - Future Earnings Potential" in Item 7 herein for further discussion of competition. To adapt to a less regulated, more competitive environment, SOUTHERN continues to evaluate and consider a wide array of potential business strategies. These strategies may include business combinations, acquisitions involving other utility or non-utility businesses or properties, internal restructuring, disposition of certain assets, or some combination thereof. Furthermore, SOUTHERN may engage in other new business ventures that arise from competitive and regulatory changes in the utility industry. Pursuit of any of the above strategies, or any combination thereof, may significantly affect the business operations and financial condition of SOUTHERN. (See Item 1 - BUSINESS - "Other Business" herein.) As a result of the foregoing factors, SOUTHERN has experienced increasing competition for available off-system sales of capacity and energy from neighboring utilities and alternative sources of energy. Additionally, the future effect of cogeneration and small-power production facilities on the SOUTHERN system cannot currently be determined but may be adverse. I-11 ALABAMA currently has cogeneration contracts in effect with twelve industrial customers. Under the terms of these contracts, ALABAMA purchases excess generation of such companies. During 2000, ALABAMA purchased approximately 104.9 million kilowatt-hours from such companies at a cost of $3.1 million. GEORGIA currently has contracts in effect with eight small power producers whereby GEORGIA purchases their excess generation. During 2000, GEORGIA purchased 11.6 million kilowatt-hours from such companies at a cost of $482,000. GEORGIA has purchased power agreements for electricity with two cogeneration facilities. Payments are subject to reductions for failure to meet minimum capacity output. During 2000, GEORGIA purchased 698.3 million kilowatt-hours at a cost of $70.4 million from these facilities. Reference is made to Note 4 to the financial statements for GEORGIA in Item 8 herein for information regarding purchased power commitments. GULF currently has agreements in effect with four industrial customers pursuant to which GULF purchases "as available" energy from customer-owned generation. During 2000, GULF purchased 127 million kilowatt-hours from such companies for $5.2 million. SAVANNAH currently has cogeneration contracts in effect with five large customers. Under the terms of these contracts, SAVANNAH purchases excess generation of such companies. During 2000, SAVANNAH purchased 43.9 million kilowatt-hours from such companies at a cost of $2.7 million. The competition for retail energy sales among competing suppliers of energy is influenced by various factors, including price, availability, technological advancements and reliability. These factors are, in turn, affected by, among other influences, regulatory, political and environmental considerations, taxation and supply. The integrated Southeast utilities have experienced, and expect to continue to experience, competition in their respective retail service territories in varying degrees as the result of self-generation (as described above) and fuel switching by customers and other factors. (See also Item 1 - BUSINESS - "Territory Served by the Integrated Southeast Utilities" herein for information concerning suppliers of electricity operating within or near the areas served at retail by the integrated Southeast utilities.) Regulation State Commissions The integrated Southeast utilities are subject to the jurisdiction of their respective state regulatory commissions, which have broad powers of supervision and regulation over public utilities operating in the respective states, including their rates, service regulations, sales of securities (except for the Mississippi PSC) and, in the cases of the Georgia PSC and Mississippi PSC, in part, retail service territories. (See Item 1 - BUSINESS - "Rate Matters" and "Territory Served by the Integrated Southeast Utilities" herein.) Holding Company Act SOUTHERN is registered as a holding company under the Holding Company Act, and it and its subsidiary companies are subject to the regulatory provisions of said Act, including provisions relating to the issuance of securities, sales and acquisitions of securities and utility assets, services performed by SCS and Southern Nuclear, and the activities of certain of SOUTHERN's special purpose subsidiaries. While various proposals have been introduced in Congress regarding the Holding Company Act, the prospects for legislative reform or repeal are uncertain at this time. Federal Power Act The Federal Power Act subjects the integrated Southeast utilities and SEGCO to regulation by the FERC as companies engaged in the transmission or sale at wholesale of electric energy in interstate commerce, including regulation of accounting policies and practices. ALABAMA and GEORGIA are also subject to the provisions of the Federal Power Act or the earlier Federal Water Power Act applicable to licensees with respect to their hydroelectric developments. Among the hydroelectric projects subject to licensing by the FERC are 14 existing ALABAMA generating stations having an aggregate installed capacity of 1,593,600 kilowatts and 18 existing GEORGIA generating stations having an aggregate installed capacity of 1,074,696 kilowatts. I-12 GEORGIA has started the relicensing process for the Middle Chattahoochee Project. This project consists of the Goat Rock, Oliver, and North Highlands facilities. GEORGIA and OPC also have a license, expiring in 2027, for the Rocky Mountain Plant, a pure pumped storage facility of 847,800 kilowatt capacity which began commercial operation in 1995. (See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein and Note 3 to SOUTHERN's and GEORGIA's financial statements in Item 8 herein for additional information.) Licenses for all projects, excluding those discussed above, expire in the period 2007-2033 in the case of ALABAMA's projects and in the period 2005-2036 in the case of GEORGIA's projects. Upon or after the expiration of each license, the United States Government, by act of Congress, may take over the project, or the FERC may relicense the project either to the original licensee or to a new licensee. In the event of takeover or relicensing to another, the original licensee is to be compensated in accordance with the provisions of the Federal Power Act, such compensation to reflect the net investment of the licensee in the project, not in excess of the fair value of the property taken, plus reasonable damages to other property of the licensee resulting from the severance therefrom of the property taken. Atomic Energy Act of 1954 ALABAMA, GEORGIA and Southern Nuclear are subject to the provisions of the Atomic Energy Act of 1954, as amended, which vests jurisdiction in the NRC over the construction and operation of nuclear reactors, particularly with regard to certain public health and safety and antitrust matters. The National Environmental Policy Act has been construed to expand the jurisdiction of the NRC to consider the environmental impact of a facility licensed under the Atomic Energy Act of 1954, as amended. NRC operating licenses currently expire in June 2017 and March 2021 for Plant Farley units 1 and 2, respectively, in August 2014 and June 2018 for Plant Hatch units 1 and 2, respectively, and in January 2027 and February 2029 for Plant Vogtle units 1 and 2, respectively. On February 29, 2000, Southern Nuclear, on behalf of GEORGIA, filed a license renewal application with the NRC for Plant Hatch units 1 and 2. If approved, the operating license will be extended to 2034. Reference is made to Notes 1 and 10 to SOUTHERN's, Notes 1 and 11 to ALABAMA's and Notes 1 and 5 to GEORGIA's financial statements in Item 8 herein for information on nuclear decommissioning costs and nuclear insurance. Additionally, Note 3 to GEORGIA's financial statements contains information regarding nuclear performance standards imposed by the Georgia PSC that may impact retail rates. Environmental Regulation The integrated Southeast utilities' and SEGCO's operations are subject to federal, state and local environmental requirements which, among other things, control emissions of particulates, sulfur dioxide and nitrogen oxides into the air; the use, transportation, storage and disposal of hazardous and toxic waste; and discharges of pollutants, including thermal discharges, into waters of the United States. The integrated Southeast utilities and SEGCO expect to comply with such requirements, which generally are becoming increasingly stringent, through technical improvements, the use of appropriate combinations of low-sulfur fuel and chemicals, addition of environmental control facilities, changes in control techniques and reduction of the operating levels of generating facilities. Failure to comply with such requirements could result in the complete shutdown of individual facilities not in compliance as well as the imposition of civil and criminal penalties. Reference is made to each registrant's "Management's Discussion and Analysis" in Item 7 herein for a discussion of the Clean Air Act and other environmental legislation and proceedings, including a pending lawsuit brought on behalf of the EPA. I-13 The integrated Southeast utilities' and SEGCO's estimated capital expenditures for environmental quality control facilities for the years 2001, 2002 and 2003 are as follows: (in millions) --------------------- --- ---------- ---------- ----------- 2001 2002 2003 ---------- ---------- ----------- ALABAMA $ 76 $144 $ 48 GEORGIA 345 302 48 GULF 7 7 14 MISSISSIPPI 2 4 - SAVANNAH 2 1 4 SEGCO 1 1 1 --------------------- --- ---------- ---------- ----------- Total $433 $459 $115 ===================== === ========== ========== =========== The foregoing estimates are included in the current construction programs. (See Item 1 - BUSINESS - "Construction Programs" herein.) Additionally, each integrated Southeast utility and SEGCO has incurred costs for environmental remediation of various sites. Reference is made to each registrant's "Management's Discussion and Analysis" in Item 7 herein for information regarding the registrants' environmental remediation efforts. Also, see Note 3 to SOUTHERN's and GEORGIA's financial statements in Item 8 herein for information regarding the identification of sites that may require environmental remediation by GEORGIA. The integrated Southeast utilities and SEGCO are unable to predict at this time what additional steps they may be required to take as a result of the implementation of existing or future quality control requirements for air, water and hazardous or toxic materials, but such steps could adversely affect system operations and result in substantial additional costs. The outcome of the matters mentioned above under "Regulation" cannot now be determined, except that these developments may result in delays in obtaining appropriate licenses for generating facilities, increased construction and operating costs, or reduced generation, the nature and extent of which, while not determinable at this time, could be substantial. Rate Matters Rate Structure The rates and service regulations of the integrated Southeast utilities are uniform for each class of service throughout their respective service areas. Rates for residential electric service are generally of the block type based upon kilowatt-hours used and include minimum charges. Residential and other rates contain separate customer charges. Rates for commercial service are presently of the block type and, for large customers, the billing demand is generally used to determine capacity and minimum bill charges. These large customers' rates are generally based upon usage by the customer including those with special features to encourage off-peak usage. Additionally, the integrated Southeast utilities are allowed by their respective PSCs to negotiate the terms and compensation of service to large customers. Such terms and compensation of service, however, are subject to final PSC approval. ALABAMA, GEORGIA and SAVANNAH are allowed by state law to recover fuel and net purchased energy costs through fuel cost recovery provisions which are adjusted to reflect increases or decreases in such costs. GULF recovers from retail customers costs of fuel, net purchased power, energy conservation and environmental compliance through provisions which are adjusted to reflect increases or decreases in such costs. GULF's recovery of these costs is based upon an annual projection - any over/under recovery during such period is reflected in a subsequent annual period with interest. With respect to MISSISSIPPI's retail rates, fuel and purchased power costs are billed to such customers under the fuel and energy adjustment clause. The adjustment factors for MISSISSIPPI's retail and wholesale rates are generally levelized based on the estimated energy cost for the year, adjusted for any actual over/under collection from the previous year. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current rates. Rate Proceedings Reference is made to Note 3 to each registrant's financial statements in Item 8 herein for a discussion of rate matters. Reference is also made to GULF's "Management's Discussion and Analysis - Future Earnings Potential" in Item 7 herein for a discussion of recent Florida PSC matters. I-14 Integrated Resource Planning GEORGIA and SAVANNAH filed a new Integrated Resource Plan with the Georgia PSC on January 31, 2001. The plans specify how GEORGIA and SAVANNAH each intends to meet the future electrical needs of their customers through a combination of demand-side and supply-side resources. The Georgia PSC must pre-certify these new resources. Once certified, all prudently incurred construction costs and purchased power costs will be recoverable through rates. In July 1998, the Georgia PSC approved GEORGIA's and SAVANNAH's 1998 Integrated Resource Plans as filed, with minor modifications. The approved plans identify resource needs of approximately 800 megawatts to 1,200 megawatts starting in the summer of 2002. As a result, GEORGIA and SAVANNAH issued a joint request for proposals for their collective needs of 800 megawatts to 1,200 megawatts for 2002 and 2003. The bids were evaluated against self-build options, and a certification filing for the selected resources was approved by the Georgia PSC in March 2000. The selected resources for retail needs in Georgia are: (1) a 7-year purchased power agreement with the West Georgia Generating Company for 310 megawatts starting in 2002, increasing to 465 megawatts in 2005, and terminating at the end of 2009; and (2) a 7 1/2-year purchased power agreement for two 568 megawatt combined cycle units to be located at Plant Wansley starting in 2002 and terminating at the end of 2009. SAVANNAH has a 7-year purchased power agreement with GEORGIA for 200 megawatts of the 1,136 megawatt addition at Plant Wansley starting in 2002 and terminating in 2009. After 2009, this capacity will be available to the wholesale market. On December 15, 2000, GEORGIA filed a certification request for a 7-year purchased power agreement for 571 megawatts starting in 2003 and 610 megawatts starting in 2004 to be served from two combined cycle units at Plant Goat Rock; and 615 megawatts in 2004 to be served from a combined cycle unit at Plant Autaugaville. In addition, GEORGIA is seeking certification for upgrades from 3 megawatts to 9 megawatts at Plant Goat Rock Hydro units 1 and 2. GEORGIA expects the Georgia PSC to approve the 2001 Integrated Resource Plan and grant certification of the purchased power agreements in July 2001. Environmental Cost Recovery Plans GULF and MISSISSIPPI both have retail rate mechanisms that provide for recovery of environmental compliance costs. For a description of these plans, see Note 3 to each of GULF's and MISSISSIPPI's financial statements in Item 8 herein. Employee Relations The companies of the SOUTHERN system had a total of 26,021 employees on their payrolls at December 31, 2000. -------------------------------- --- ------------------------- Employees at December 31, 2000 ------------------------- ALABAMA 6,871 GEORGIA 8,855 GULF 1,327 MISSISSIPPI 1,319 SAVANNAH 554 SCS 3,431 Southern Nuclear 3,009 Other 655 -------------------------------- --- ------------------------- Total 26,021 ================================ === ========================= The integrated Southeast utilities have separate agreements with local unions of the IBEW generally covering wages, working conditions and procedures for handling grievances and arbitration. These agreements apply with certain exceptions to operating, maintenance and construction employees. ALABAMA has agreements with the IBEW on a three-year contract extending to August 14, 2001. Upon notice given at least 60 days prior to that date, negotiations may be initiated with respect to agreement terms to be effective after such date. I-15 GEORGIA has an agreement with the IBEW covering wages and working conditions, which is in effect through June 30, 2002. GULF has an agreement with the IBEW on a three-year contract extending to August 15, 2001. MISSISSIPPI has an agreement with the IBEW on a four-year contract extending to August 16, 2002. SAVANNAH has four-year labor agreements with the IBEW and the Office and Professional Employees International Union that expire April 15, 2003 and December 1, 2003, respectively. Southern Nuclear has agreements with the IBEW on separate three-year contracts extending to August 15, 2001 for Plant Farley and to June 30, 2002 for Plants Hatch and Vogtle. Upon notice given at least 60 days prior to these dates, negotiations may be initiated with respect to agreement terms to be effective after such dates. Southern Nuclear also has an agreement with the United Plant Guard Workers of America for security officers at Plant Hatch extending to September 30, 2001. Upon notice given at least 60 days prior to that date, negotiations may be initiated with respect to agreement terms to be effective after such date. The agreements also subject the terms of the pension plans for the companies discussed above to collective bargaining with the unions at five-year intervals. I-16 Item 2. PROPERTIES Electric Properties - The Integrated Southeast Utilities The integrated Southeast utilities and SEGCO, at December 31, 2000, operated 34 hydroelectric generating stations, 33 fossil fuel generating stations, three nuclear generating stations and four combined cycle/cogeneration stations. The amounts of capacity owned by each company are shown in the table below. ------------------------- ------------------------------------- Nameplate Generating Station Location Capacity (1) ------------------------- ------------------- ----------------- (Kilowatts) Fossil Steam Gadsden Gadsden, AL 120,000 Gorgas Jasper, AL 1,221,250 Barry Mobile, AL 1,525,000 Greene County Demopolis, AL 300,000 (2) Gaston Unit 5 Wilsonville, AL 880,000 Miller Birmingham, AL 2,532,288 (3) --------- ALABAMA Total 6,578,538 --------- Arkwright Macon, GA 160,000 Atkinson Atlanta, GA 180,000 Bowen Cartersville, GA 3,160,000 Branch Milledgeville, GA 1,539,700 Hammond Rome, GA 800,000 McDonough Atlanta, GA 490,000 McManus Brunswick, GA 115,000 Mitchell Albany, GA 170,000 Scherer Macon, GA 750,924 (4) Wansley Carrollton, GA 925,550 (5) Yates Newnan, GA 1,250,000 --------- GEORGIA Total 9,541,174 --------- Crist Pensacola, FL 1,045,000 Lansing Smith Panama City, FL 305,000 Scholz Chattahoochee, FL 80,000 Daniel Pascagoula, MS 500,000 (6) Scherer Unit 3 Macon, GA 204,500 (4) ----------- GULF Total 2,134,500 --------- Eaton Hattiesburg, MS 67,500 Sweatt Meridian, MS 80,000 Watson Gulfport, MS 1,012,000 Daniel Pascagoula, MS 500,000 (6) Greene County Demopolis, AL 200,000 (2) ----------- MISSISSIPPI Total 1,859,500 ----------- ---------------------------------------------- ---------------- ------------------------- ----------------------------------------- Nameplate Generating Station Location Capacity ---------------------- ------------------------- ------------------ (Kilowatts) McIntosh Effingham County, GA 163,117 Kraft Port Wentworth, GA 281,136 Riverside Savannah, GA 102,278 ----------- SAVANNAH Total 546,531 ----------- Gaston Units 1-4 Wilsonville, AL SEGCO Total 1,000,000 (7) ----------- Total Fossil Steam 21,660,243 ----------- Nuclear Steam Farley Dothan, AL ALABAMA Total 1,720,000 ----------- Hatch Baxley, GA 899,612 (8) Vogtle Augusta, GA 1,060,240 (9) ----------- GEORGIA Total 1,959,852 ---------- Total Nuclear Steam 3,679,852 ----------- Combustion Turbines Greene County Demopolis, AL ALABAMA Total 720,000 ----------- Arkwright Macon, GA 30,580 Atkinson Atlanta, GA 78,720 Bowen Cartersville, GA 39,400 Dahlberg Athens, GA 640,000 Intercession City Intercession City, FL 47,333 (10) McDonough Atlanta, GA 78,800 McIntosh Units 1,2,3,4,7,8 Effingham County, GA 480,000 McManus Brunswick, GA 481,700 Mitchell Albany, GA 118,200 Robins Warner Robins, GA 160,000 Wilson Augusta, GA 354,100 Wansley Carrollton, GA 26,322 (5) ----------- GEORGIA Total 2,535,155 --------- Lansing Smith Unit A Panama City, FL 39,400 Pea Ridge Units 1-3 Pea Ridge, FL 14,250 ------ GULF Total 53,650 ------ Chevron Cogenerating Station Pascagoula, MS 147,292 (11) Sweatt Meridian, MS 39,400 Watson Gulfport, MS 39,360 --------- MISSISSIPPI Total 226,052 --------- ------------------------------------------------- ----------------- I-17 --------------------------- -------------------- ----------------- Nameplate Generating Station Location Capacity --------------------------- -------------------- ----------------- (Kilowatts) Boulevard Savannah, GA 59,100 Kraft Port Wentworth, GA 22,000 McIntosh Units 5&6 Effingham County, GA 160,000 ------- SAVANNAH Total 241,100 ------- 241,100 Gaston (SEGCO) Wilsonville, AL 19,680 (7) ----------- Total Combustion Turbines 3,795,637 ---------- Cogeneration Washington County Washington County, AL 123,428 GE Plastics Project Burkeville, AL 104,800 Theodore Theodore, AL 236,418 ----------- ALABAMA Total 464,646 ----------- Combined Cycle Barry Mobile, AL ALABAMA Total 535,212 ------- Hydroelectric Facilities Weiss Leesburg, AL 87,750 Henry Ohatchee, AL 72,900 Logan Martin Vincent, AL 128,250 Lay Clanton, AL 177,000 Mitchell Verbena, AL 170,000 Jordan Wetumpka, AL 100,000 Bouldin Wetumpka, AL 225,000 Harris Wedowee, AL 135,000 Martin Dadeville, AL 154,200 Yates Tallassee, AL 32,000 Thurlow Tallassee, AL 60,000 Lewis Smith Jasper, AL 157,500 Bankhead Holt, AL 54,000 Holt Holt, AL 40,000 ----------- ALABAMA Total 1,593,600 ---------- --------------------------- -------------------- ----------------- --------------------------- -------------------- ----------------- Nameplate Generating Station Location Capacity --------------------------- -------------------- ----------------- Barnett Shoals (Leased) Athens, GA 2,800 Bartletts Ferry Columbus, GA 173,000 Goat Rock Columbus, GA 26,000 Lloyd Shoals Jackson, GA 14,400 Morgan Falls Atlanta, GA 16,800 North Highlands Columbus, GA 29,600 Oliver Dam Columbus, GA 60,000 Rocky Mountain Rome, GA 215,256 (12) Sinclair Dam Milledgeville, GA 45,000 Tallulah Falls Clayton, GA 72,000 Terrora Clayton, GA 16,000 Tugalo Clayton, GA 45,000 Wallace Dam Eatonton, GA 321,300 Yonah Toccoa, GA 22,500 6 Other Plants 18,080 ----------- GEORGIA Total 1,077,736 ---------- Total Hydroelectric Facilities 2,671,336 ----------- Total Generating Capacity 32,806,926 =========== ------------------------------------------------ ----------------- Notes: (1) For additional information regarding facilities jointly-owned with non-affiliated parties, see Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein. (2) Owned by ALABAMA and MISSISSIPPI as tenants in common in the proportions of 60% and 40%, respectively. (3) Excludes the capacity owned by AEC. (4) Capacity shown for GEORGIA is 8.4% of Units 1 and 2 and 75% of Unit 3. Capacity shown for GULF is 25% of Unit 3. (5) Capacity shown is GEORGIA's portion (53.5%) of total plant capacity. (6) Represents 50% of the plant which is owned as tenants in common by GULF and MISSISSIPPI. (7) SEGCO is jointly-owned by ALABAMA and GEORGIA. (See Item 1 - BUSINESS herein.) (8) Capacity shown is GEORGIA's portion (50.1%) of total plant capacity. (9) Capacity shown is GEORGIA's portion (45.7%) of total plant capacity. (10) Capacity shown represents 33-1/3% of total plant capacity. GEORGIA owns a 1/3 interest in the unit with 100% use of the unit from June through September. FPC operates the unit. (11) Generation is dedicated to a single industrial customer. (12) Capacity shown is GEORGIA's portion (25.4%) of total plant capacity. OPC operates the plant. I-18 Except as discussed below under "Titles to Property," the principal plants and other important units of the integrated Southeast utilities and SEGCO are owned in fee by the respective companies. It is the opinion of management of each such company that its operating properties are adequately maintained and are substantially in good operating condition. MISSISSIPPI owns a 79-mile length of 500-kilovolt transmission line which is leased to Entergy Gulf States. The line, completed in 1984, extends from Plant Daniel to the Louisiana state line. Entergy Gulf States is paying a use fee over a forty-year period covering all expenses and the amortization of the original $57 million cost of the line. At December 31, 2000, the unamortized portion of this cost was $34.8 million. The all-time maximum demand on the integrated Southeast utilities and SEGCO was 31,359,000 kilowatts and occurred in August 2000. This amount excludes demand served by capacity retained by MEAG and Dalton and excludes demand associated with power purchased from OPC and SEPA by its preference customers. The reserve margin for the integrated Southeast utilities and SEGCO at that time was 8.1%. For additional information on peak demands, reference is made to Item 6 - SELECTED FINANCIAL DATA herein. ALABAMA and GEORGIA will incur significant costs in decommissioning their nuclear units at the end of their useful lives. (See Item 1 - BUSINESS - "Regulation - Atomic Energy Act of 1954" and Note 1 to SOUTHERN's, ALABAMA's and GEORGIA's financial statements in Item 8 herein.) Jointly-Owned Facilities ALABAMA and GEORGIA have sold and GEORGIA has purchased undivided interests in certain generating plants and other related facilities to or from non-affiliated parties. The percentages of ownership resulting from these transactions are as follows:

Total Percentage Ownership ---------------- -------- ------------ -------- --------- ------------ -------- Capacity ALABAMA AEC GEORGIA OPC MEAG DALTON FPC -------------- ---------------- -------- ------------ -------- --------- ------------ -------- (Megawatts) Plant Miller Units 1 and 2 1,320 91.8% 8.2% -% -% -% -% -% Plant Hatch 1,796 - - 50.1 30.0 17.7 2.2 - Plant Vogtle 2,320 - - 45.7 30.0 22.7 1.6 - Plant Scherer Units 1 and 2 1,636 - - 8.4 60.0 30.2 1.4 - Plant Wansley 1,779 - - 53.5 30.0 15.1 1.4 - Rocky Mountain 848 - - 25.4 74.6 - - - Intercession City, FL 142 - - 33.3 - - - 66.7 ----------------------------- -------------- -- ---------------- -------- ------------ -------- --------- ------------ --------

ALABAMA and GEORGIA have contracted to operate and maintain the respective units in which each has an interest (other than Rocky Mountain and Intercession City, as described below) as agent for the joint owners. In addition, GEORGIA has commitments regarding a portion of a 5 percent interest in Plant Vogtle owned by MEAG that are in effect until the later of retirement of the plant or the latest stated maturity date of MEAG's bonds issued to finance such ownership interest. The payments for capacity are required whether any capacity is available. The energy cost is a function of each unit's variable operating costs. Except for the portion of the capacity payments related to the 1987 and 1990 write-offs of Plant Vogtle costs, the cost of such capacity and energy is included in purchased power from non-affiliates in GEORGIA's Statements of Income in Item 8 herein. I-19 Titles to Property The integrated Southeast utilities' and SEGCO's interests in the principal plants (other than certain pollution control facilities, one small hydroelectric generating station leased by GEORGIA and the land on which five combustion turbine generators of MISSISSIPPI are located, which is held by easement) and other important units of the respective companies are owned in fee by such companies, subject only to the liens of applicable mortgage indentures (except for SEGCO) and to excepted encumbrances as defined therein. The integrated Southeast utilities own the fee interests in certain of their principal plants as tenants in common. (See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein.) Properties such as electric transmission and distribution lines and steam heating mains are constructed principally on rights-of-way which are maintained under franchise or are held by easement only. A substantial portion of lands submerged by reservoirs is held under flood right easements. In substantially all of its coal reserve lands, SEGCO owns or will own the coal only, with adequate rights for the mining and removal thereof. I-20 Item 3. LEGAL PROCEEDINGS (1) United States of America v. ALABAMA (United States District Court for the Northern District of Alabama) Reference is made to Note 3 to ALABAMA's financial statements in Item 8 herein under the caption "Environmental Litigation." (2) United States of America v. GEORGIA and SAVANNAH (United States District Court for the Northern District of Georgia) On March 27, 2001, the U.S. District Court granted the EPA's motion to amend its complaint to add the alleged violations at SAVANNAH's Plant Kraft and to add SAVANNAH as a defendant and denied the EPA's motion to add GULF and MISSISSIPPI as defendants due to lack of jurisdiction. Reference is made to Note 3 to GEORGIA's financial statements in Item 8 herein under the caption "Environmental Litigation." (3) Cooper et al. v. GEORGIA, SOUTHERN, SCS and Energy Solutions (Superior Court of Fulton County, Georgia) Reference is made to Note 3 to SOUTHERN's and GEORGIA's financial statements in Item 8 herein under the caption "Race Discrimination Litigation." (4) GEORGIA has been designated as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act with respect to a site in Brunswick, Georgia. Reference is made to Note 3 to SOUTHERN's and GEORGIA's financial statements in Item 8 herein under the captions "Georgia Power Potentially Responsible Party Status" and "Other Environmental Contingencies," respectively. (5) In re: Mobile Energy Services Company, LLC; In re: Mobile Energy Services Holdings, Inc. (U.S. Bankruptcy Court for the Southern District of Alabama). Reference is made to Note 3 to SOUTHERN's financial statements in Item 8 herein under the caption "Mobile Energy Services' Petition for Bankruptcy." (6) Gordon v. SOUTHERN et al. (United States District Court for the Southern District of California) Reference is made to Note 3 to SOUTHERN"s financial statements in Item 8 herein under the caption "California Electricity Markets Litigation." (7) Pier 23 Restaurant v. SOUTHERN et al. (United States District Court for the Northern District of California) Reference is made to Note 3 to SOUTHERN"s financial statements in Item 8 herein under the caption "California Electricity Markets Litigation." See Item 1 - BUSINESS - "Construction Programs," "Fuel Supply," "Regulation - Federal Power Act" and "Rate Matters" as well as Note 3 to each registrant's financial statements in Item 8 herein for a description of certain other administrative and legal proceedings discussed therein. Additionally, each of the integrated Southeast utilities, SCS, Southern Nuclear, Energy Solutions and Southern LINC are, in the normal course of business, engaged in litigation or administrative proceedings that include, but are not limited to, acquisition of property, injuries and damages claims, and complaints by present and former employees. I-21 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. ALABAMA ALABAMA held a special meeting of shareholders on December 14, 2000, for the purpose of amending its charter to provide to the holders of Preferred Stock the right to vote at all elections of directors of ALABAMA. The amendment was passed and the vote tabulation was as follows: Shares For Against Abstain Common Stock 5,608,955 0 0 Preferred Stock 1,505,832 462,101 127,473 --------- ------- ------- Total 7,114,787 462,101 127,473 ========= ======= ======= GEORGIA By unanimous written consent effective December 14, 2000, GEORGIA's common shareholder authorized amending GEORGIA's charter to provide to the holders of Preferred Stock the right to vote at all elections of directors of GEORGIA. The vote tabulation was as follows: Shares For Against Abstain Common Stock 7,761,500 0 0 GULF GULF held a special meeting of shareholders on December 14, 2000, for the purpose of amending its charter to provide to the holders of Preferred Stock the right to vote at all elections of directors of GULF. The amendment was passed and the vote tabulation was as follows: Shares For Against Abstain Common Stock 992,717 0 0 Preferred Stock 26,842 1,321 21 ----------- ----- -- Total 1,019,559 1,321 21 =========== ===== == MISSISSIPPI MISSISSIPPI held a special meeting of shareholders on December 14, 2000, for the purpose of amending its charter to provide to the holders of Preferred Stock the right to vote at all elections of directors of MISSISSIPPI. The amendment was passed and the vote tabulation was as follows: Shares For Against Abstain Common Stock 1,121,000 0 0 Preferred Stock 196,119 10,363 11,762 ----------- ------ ------ Total 1,317,119 10,363 11,762 =========== ====== ====== I-22 EXECUTIVE OFFICERS OF SOUTHERN (Identification of executive officers of SOUTHERN is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 2000. A. W. Dahlberg Chairman and Director Age 60 Elected Director in 1985 and Chairman effective March 1995 through March 2001, and Chief Executive Officer effective March 1995 to March 2001. Also served as President from January 1994 to June 1999. H. Allen Franklin President, Chief Executive Officer and Director Age 56 Elected Director in 1988 and Chief Executive Officer effective March 1, 2001. Previously served as President and Chief Operating Officer of SOUTHERN from June 1999 to March 2001; and as President and Chief Executive Officer of GEORGIA from January 1994 to June 1999. Elmer B. Harris Executive Vice President and Director Age 61 Elected Director in 1989 and Executive Vice President in 1991. He also has served as President and Chief Executive Officer of ALABAMA since 1989. David M. Ratcliffe Executive Vice President Age 52 Elected in 1999. He also has served as President and Chief Executive Officer of GEORGIA since June 1999. Previously served as Executive Vice President, Treasurer and Chief Financial Officer of GEORGIA from March 1998 to June 1999; and as Senior Vice President of SOUTHERN from March 1995 to March 1998. Stephen A. Wakefield Senior Vice President and General Counsel Age 60 Elected in 1997. Previously, he was a partner at the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP from July 1991 through August 1997. Gale E. Klappa Financial Vice President, Chief Financial Officer and Treasurer Age 50 Elected effective March 1, 2001. Previously served as Chief Strategic Officer of SOUTHERN from October 1999 to March 2001; President of Mirant's North America Group and Senior Vice President of Mirant from December 1998 to October 1999; and as President and Chief Executive Officer of Western Power Distribution, a subsidiary of Mirant located in Bristol, England, from September 1995 to December 1998. Charles D. McCrary Vice President Age 49 Elected in 1998; serves as Chief Production Officer for the SOUTHERN system. He also has served as Executive Vice President of GEORGIA since May 1998. Previously, he served as Executive Vice President of ALABAMA from 1994 through April 1998. W. G. Hairston, III Age 56 President and Chief Executive Officer of Southern Nuclear since 1993. The officers of SOUTHERN were elected for a term running from the last annual meeting of the directors (May 24, 2000) for one year until the next annual meeting or until their successors are elected and have qualified, except for Mr. Franklin and Mr. Klappa, whose elections were effective on the date indicated. I-23 EXECUTIVE OFFICERS OF ALABAMA (Identification of executive officers of ALABAMA is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 2000. Elmer B. Harris President, Chief Executive Officer and Director Age 61 Elected in 1989. Served as President and Chief Executive Officer since 1989. Elected Executive Vice President of SOUTHERN in 1991. Served as a Director of SOUTHERN since 1989. Michael D. Garrett Executive Vice President Age 51 Elected in 1998. Served as Executive Vice President of Customer Service since January 2000. Previously served as Executive Vice President of External Affairs from March 1998 to January 2000; and Senior Vice President of External Affairs from February 1994 to March 1998. William B. Hutchins, III Executive Vice President, Chief Financial Officer and Treasurer Age 57 Elected in 1991. Served as Treasurer since 1998 in addition to Executive Vice President and Chief Financial Officer since 1991. C. Alan Martin Executive Vice President Age 52 Elected in 1999. Served as Executive Vice President of External Affairs since January 2000. Previously served as Executive Vice President and Chief Marketing Officer for SOUTHERN from 1998 to 1999; and Vice President of Human Resources for SOUTHERN from May 1995 to March 1998. Jerry L. Stewart Senior Vice President Age 51 Elected in 1999. Served as Senior Vice President of Fossil and Hydro Generation since 1999. Previously served as Vice President of SCS from 1992 to 1999. The officers of ALABAMA were elected for a term running from the last annual meeting of the directors (April 28, 2000) for one year until the next annual meeting or until their successors are elected and have qualified. I-24 EXECUTIVE OFFICERS OF GEORGIA (Identification of executive officers of GEORGIA is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 2000. David M. Ratcliffe President, Chief Executive Officer and Director Age 52 Elected as an Executive Officer in 1998 and as Director in 1999. Served as President and Chief Executive Officer since June 1999. Previously served as Executive Vice President, Treasurer and Chief Financial Officer of GEORGIA from 1998 to 1999; and as Senior Vice President of SOUTHERN from March 1995 to March 1998. William C. Archer, III Executive Vice President Age 52 Elected in 1995. Served as Executive Vice President of External Affairs since 1995. Previously served as Senior Vice President of External Affairs from April 1995 to September 1995. Thomas A. Fanning Executive Vice President, Treasurer and Chief Financial Officer Age 43 Elected in 1999. Previously served as Senior Vice President of SOUTHERN from June 1998 to June 1999; and Senior Vice President and Chief Information Officer for SOUTHERN from March 1995 to 1998. Gene R. Hodges Executive Vice President Age 62 Elected in 1986. Served as Executive Vice President of Customer Operations, Power Delivery and Safety since 1992. James K. Davis Senior Vice President Age 60 Elected in 1993. Served as Senior Vice President of Corporate Relations since 1993, with Employee Relations being added to his responsibilities in 2000. Robert H. Haubein Senior Vice President Age 60 Elected in 1992. Served as Senior Vice President of Fossil/Hydro Power since 1994. Leonard J. Haynes Senior Vice President Age 50 Elected in 1998. Served as Senior Vice President of Marketing since 1998. Previously served as Vice President of Retail Sales and Services from October 1995 to November 1998. Fred D. Williams Senior Vice President Age 56 Elected in 1992. Served as Senior Vice President of Resource Policy and Planning since 1998. Previously served as Senior Vice President of Wholesale Power Marketing from 1995 to 1998. The officers of GEORGIA were elected for a term running from the last annual meeting of the directors (May 17, 2000) for one year until the next annual meeting or until their successors are elected and have qualified. I-25 EXECUTIVE OFFICERS OF GULF (Identification of executive officers of GULF is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 2000. Travis J. Bowden President, Chief Executive Officer and Director Age 62 Elected in 1994. Served as President and Chief Executive Officer since 1994. Francis M. Fisher, Jr. Vice President Age 52 Elected in 1989. Served as Vice President of Power Delivery and Customer Operations since 1996. Previously served as Vice President of Employee and External Relations from 1989 to 1996. John E. Hodges, Jr. Vice President Age 57 Elected in 1989. Served as Vice President of Marketing and Employee/External Affairs since 1996. Previously served as Vice President of Customer Operations from 1989 to 1996. Ronnie R. Labrato Comptroller and Chief Financial Officer Age 47 Elected as an Executive Officer in July 2000. Previously served as Controller from 1992 to 2000. Robert G. Moore Vice President Age 51 Elected in 1997. Served as Vice President of Power Generation and Transmission of GULF and Vice President of Fossil Generation of SCS since 1997. Previously served as Plant Manager of Plant Bowen at GEORGIA from March 1993 to August 1997. Warren E. Tate Secretary/Treasurer and Regional Chief Information Officer Age 58 Elected as an Executive Officer in July 2000. Served as Secretary/Treasurer and Regional Chief Information Officer since 1996. The officers of GULF were elected for a term running from the last annual meeting of the directors (July 28, 2000) for one year until the next annual meeting or until their successors are elected and have qualified. I-26 EXECUTIVE OFFICERS OF MISSISSIPPI (Identification of executive officers of MISSISSIPPI is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 2000. Dwight H. Evans President, Chief Executive Officer and Director Age 52 Elected in 1995. Previously served as Executive Vice President of External Affairs of GEORGIA from 1989 to 1995. H. E. Blakeslee Vice President Age 60 Elected in 1984. Served as Vice President of Customer Services and Retail Marketing since 1984. Don E. Mason Vice President Age 59 Elected in 1983. Served as Vice President of External Affairs and Corporate Services since 1983. Michael W. Southern Vice President, Secretary, Treasurer and Chief Financial Officer Age 48 Elected in 1995. Served as Vice President, Secretary, Treasurer and Chief Financial Officer since 1995. Gene L. Ussery, Jr. Vice President Age 51 Elected in 2000. Served as Vice President of Power Generation and Delivery since September 2000. Previously served as Northern Cluster Manager at GEORGIA for Plants Hammond, Bowen and McDonough-Atkinson from July 2000 to September 2000. He served as Manager of Plant Bowen at GEORGIA from 1997 to 2000; and Manager of Plant McDonough at GEORGIA from 1996 to 1997. The officers of MISSISSIPPI were elected for a term running from the last annual meeting of the directors (April 26, 2000) for one year until the next annual meeting or until their successors are elected and have qualified, except for Mr. Ussery, whose election was effective on September 21, 2000. I-27 PART II Item 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) The common stock of SOUTHERN is listed and traded on the New York Stock Exchange. The stock is also traded on regional exchanges across the United States. High and low stock prices, per the New York Stock Exchange Composite Tape during each quarter for the past two years were as follows: ------------------------ ----------- --- -------------- High Low ----------- -------------- 2000 First Quarter $25-7/8 $20-3/8 Second Quarter 27-7/8 21-11/16 Third Quarter 35 23-13/32 Fourth Quarter 33-22/25 27-1/2 1999 First Quarter $29-5/8 $23-1/4 Second Quarter 29-3/16 22-3/4 Third Quarter 28 25 Fourth Quarter 27-1/8 22-1/16 -------------------- --------------- --- -------------- There is no market for the other registrants' common stock, all of which is owned by SOUTHERN. On February 28, 2001, the closing price of SOUTHERN's common stock was $30.95. (b) Number of SOUTHERN's common stockholders at December 31, 2000: 160,116 Each of the other registrants have one common stockholder, SOUTHERN. (c) Dividends on each registrant's common stock are payable at the discretion of their respective board of directors. The dividends on common stock declared by SOUTHERN and the integrated Southeast utilities to their stockholder(s) for the past two years were as follows: (in thousands) ------------------- --------- ------------- ---------- Registrant Quarter 2000 1999 ------------------- --------- ------------- ---------- SOUTHERN First $220,557 $233,879 Second 217,289 233,445 Third 217,289 228,690 Fourth 218,098 225,470 ALABAMA First 103,600 98,000 Second 105,200 98,400 Third 104,400 99,700 Fourth 103,900 103,500 GEORGIA First 136,500 133,100 Second 138,600 133,700 Third 137,600 135,500 Fourth 136,900 140,700 GULF First 14,600 15,000 Second 14,900 15,100 Third 14,800 15,300 Fourth 14,700 15,900 MISSISSIPPI First 13,600 13,800 Second 13,800 13,800 Third 13,700 14,000 Fourth 13,600 14,500 SAVANNAH First 6,100 6,200 Second 6,200 6,200 Third 6,000 6,300 Fourth 6,000 6,500 ------------------- --------- ------------- ---------- The dividend paid per share by SOUTHERN was 33.5(cent) for each quarter of 1999 and 2000. The dividend paid on SOUTHERN's common stock for the first quarter of 2001 was 33.5(cent) per share. The amount of dividends on their common stock that may be paid by the subsidiary registrants is restricted in accordance with their first mortgage bond indenture. The amounts of earnings retained in the business II-1 and the amounts restricted against the payment of cash dividends on common stock at December 31, 2000 were as follows: -------------------- ------------------ --- -------------- Retained Restricted Earnings Amount ------------------ -------------- (in millions) ALABAMA $1,228 $ 796 GEORGIA 1,788 891 GULF 156 127 MISSISSIPPI 173 118 SAVANNAH 110 68 Consolidated 4,672 2,000 -------------------- ------------------ --- -------------- Item 6. SELECTED FINANCIAL DATA SOUTHERN. Reference is made to information under the heading "Selected Consolidated Financial and Operating Data," contained herein at pages II-41 and II-42. ALABAMA. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-74 and II-75. GEORGIA. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-109 and II-110. GULF. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-138 and II-139. MISSISSIPPI. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-167 and II-168. SAVANNAH. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-194 and II-195. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SOUTHERN. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-8 through II-17. ALABAMA. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-46 through II-54. GEORGIA. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-79 through II-87. GULF. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-114 through II-122. MISSISSIPPI. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-143 through II-150. SAVANNAH. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-172 through II-178. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to information in SOUTHERN's "Management's Discussion and Analysis - Market Price Risk" and to Note 1 to SOUTHERN's financial statements under the heading "Financial Instruments for Non-Trading Activities" contained herein on pages II-13 through II-14 and II-28, respectively. Reference is also made to "Management's Discussion and Analysis - Exposure to Market Risks" in Item 7 of ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH contained herein at pages II-51, II-83. II-118, II-146, and II-175, respectively. II-2 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO 2000 FINANCIAL STATEMENTS

Page The Southern Company and Subsidiary Companies: Report of Independent Public Accountants................................................................ II-7 Consolidated Statements of Income for the Years Ended December 31, 2000, 1999 and 1998.................. II-18 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998.............. II-19 Consolidated Balance Sheets at December 31, 2000 and 1999............................................... II-20 Consolidated Statements of Capitalization at December 31, 2000 and 1999................................. II-22 Consolidated Statements of Common Stockholders' Equity for the Years Ended ..... December 31, 2000, 1999 and 1998................................................................ II-24 Consolidated Statements of Comprehensive Income for the Years Ended ..... December 31, 2000, 1999 and 1998................................................................ II-24 Notes to Financial Statements........................................................................... II-25 ALABAMA: Report of Independent Public Accountants .............................................................. II-45 Statements of Income for the Years Ended December 31, 2000, 1999 and 1998............................... II-55 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998........................... II-56 Balance Sheets at December 31, 2000 and 1999 ........................................................... II-57 Statements of Capitalization at December 31, 2000 and 1999 ............................................. II-59 Statements of Common Stockholder's Equity for the Years Ended ..... December 31, 2000, 1999 and 1998............................................................... II-61 Notes to Financial Statements........................................................................... II-62 GEORGIA: Report of Independent Public Accountants................................................................ II-78 Statements of Income for the Years Ended December 31, 2000, 1999 and 1998............................... II-88 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998........................... II-89 Balance Sheets at December 31, 2000 and 1999 ........................................................... II-90 Statements of Capitalization at December 31, 2000 and 1999 ............................................. II-92 Statements of Common Stockholder's Equity for the Years Ended ..... December 31, 2000, 1999 and 1998............................................................... II-94 Notes to Financial Statements........................................................................... II-95 GULF: Report of Independent Public Accountants................................................................ II-113 Statements of Income for the Years Ended December 31, 2000, 1999 and 1998............................... II-123 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998........................... II-124 Balance Sheets at December 31, 2000 and 1999 ........................................................... II-125 Statements of Capitalization at December 31, 2000 and 1999 ............................................. II-127 Statements of Common Stockholder's Equity for the Years Ended ..... December 31, 2000, 1999 and 1998............................................................... II-128 Notes to Financial Statements........................................................................... II-129 II-3 Page MISSISSIPPI: Report of Independent Public Accountants................................................................ II-142 Statements of Income for the Years Ended December 31, 2000, 1999 and 1998............................... II-151 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998........................... II-152 Balance Sheets at December 31, 2000 and 1999 ........................................................... II-153 Statements of Capitalization at December 31, 2000 and 1999 ............................................. II-155 Statements of Common Stockholder's Equity for the Years Ended ..... December 31, 2000, 1999 and 1998............................................................... II-157 Notes to Financial Statements........................................................................... II-158 SAVANNAH: Report of Independent Public Accountants................................................................ II-171 Statements of Income for the Years Ended December 31, 2000, 1999 and 1998............................... II-179 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998........................... II-180 Balance Sheets at December 31, 2000 and 1999 ........................................................... II-181 Statements of Capitalization at December 31, 2000 and 1999 ............................................. II-183 Statements of Common Stockholder's Equity for the Years Ended ..... December 31, 2000, 1999 and 1998............................................................... II-184 Notes to Financial Statements........................................................................... II-185

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. II-4 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES FINANCIAL SECTION II-5 MANAGEMENT'S REPORT Southern Company and Subsidiary Companies 2000 Annual Report The management of Southern Company has prepared -- and is responsible for -- the consolidated financial statements and related information included in this report. These statements were prepared in accordance with accounting principles generally accepted in the United States and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that the accounting records reflect only authorized transactions of the company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The company's system of internal accounting controls is evaluated on an ongoing basis by the company's internal audit staff. The company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of five independent directors provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the company's operations are conducted according to a high standard of business ethics. In management's opinion, the consolidated financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Southern Company and its subsidiary companies in conformity with accounting principles generally accepted in the United States. /s/H. Allen Franklin H. Allen Franklin President and Chief Executive Officer /s/Gale E. Klappa Gale E. Klappa Financial Vice President, Chief Financial Officer, and Treasurer II-6 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Southern Company: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of Southern Company (a Delaware corporation) and subsidiary companies as of December 31, 2000 and 1999, and the related consolidated statements of income, comprehensive income, common stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements (pages II-18 through II-40)referred to above present fairly, in all material respects, the financial position of Southern Company and subsidiary companies as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/Arthur Andersen LLP Atlanta, Georgia February 28, 2001 II-7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Southern Company and Subsidiary Companies 2000 Annual Report RESULTS OF OPERATIONS --------------------- OVERVIEW OF CONSOLIDATED EARNINGS Southern Company's solid financial performance resulted in record earnings for 2000. Higher earnings were driven by both strong growth of selling electricity in the Southeast and by the global subsidiary's competitive energy supply business outside the Southeast. Reported earnings in both 2000 and 1999 reflected significant items not related to the normal day-to-day business activities. After adjusting for these items, earnings per share for 2000 was $2.13 compared with $1.90 in 1999. Earnings as reported and the details of earnings as adjusted are shown in the following table. In April 2000, Southern Company announced an initial public offering of up to 19.9 percent of Mirant Corporation -- formerly Southern Energy, Inc. -- and its intentions to spin off the remaining ownership of Mirant to Southern Company stockholders within 12 months of the initial stock offering. On October 2, 2000, Mirant completed an initial public offering of 66.7 million shares of common stock. On February 19, 2001, Southern Company's board of directors approved the spin off of the remaining ownership of 272 million Mirant shares to be completed in a tax free distribution on April 2, 2001. As a result of the spin off, Southern Company financial statements and related information reflect Mirant as discontinued operations. A reconciliation of reported consolidated earnings, including discontinued operations, to earnings as adjusted -- which exclude non-day to day business items -- and the related explanations are as follows: Consolidated Earnings Net Income Per Share ---------------- -------------- 2000 1999 2000 1999 --------------- --------------- (in millions) Earnings from -- Continuing operations $ 994 $ 915 $1.52 $1.33 Discontinued operations 319 361 .49 .53 --------------------------------------------------------------- Earnings as reported 1,313 1,276 2.01 1.86 --------------------------------------------------------------- Mirant transition costs 80 - .12 - Mobile Energy write down 10 69 .01 .10 Gain on asset sale - (78) - (.11) Work force reductions - 50 - .07 Other (8) (14) (.01) (.02) --------------------------------------------------------------- Total adjustments 82 27 .12 .04 --------------------------------------------------------------- Earnings as adjusted $1,395 $1,303 $2.13 $1.90 =============================================================== Mirant's transition costs shown in the table include charges related to becoming a public company and changes in their tax strategy in Asia. In 2000 and 1999, Southern Company recorded asset impairment charges related to Mobile Energy Services -- see Note 3 to the financial statements. In 1999, Mirant sold a portion of its business in the United Kingdom. Work force reduction programs began in late 1999 for a German utility in which Mirant has an ownership interest. SOUTHERN COMPANY BUSINESS ACTIVITIES Discussion of the results of operations is focused on the traditional business of the integrated Southeast utilities. The remaining portion of Southern Company's other business activities include telecommunications, energy products and services, leveraged leasing activities, as well as the parent holding company. The impact of these other business activities on the consolidated results of operations is not significant. For more information, see Note 12. Integrated Southeast Utilities The five integrated Southeast utilities provide electric service in four states. These utilities are Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Savannah Electric. A condensed income statement for these companies is as follows: Increase (Decrease) Amount From Prior Year ------ -------------------- 2000 2000 1999 -------------------------------------------------------------- (in millions) Operating revenues $9,860 $735 $(238) --------------------------------------------------------------- Fuel 2,564 236 7 Purchased power 677 268 13 Other operation and maintenance 2,472 41 4 Depreciation and amortization 1,135 89 (277) Taxes other than income taxes 532 11 13 --------------------------------------------------------------- Total operating expenses 7,380 645 (240) --------------------------------------------------------------- Operating income 2,480 90 2 Other income, net (18) (11) (84) --------------------------------------------------------------- Earnings before interest and taxes 2,462 79 (82) Interest expenses and other 650 15 (44) Income taxes 703 28 (28) --------------------------------------------------------------- Net income $1,109 $ 36 $ (10) =============================================================== II-8 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2000 Annual Report Revenues Operating revenues for the integrated Southeast utilities in 2000 and the amount of change from the prior year are as follows: Increase (Decrease) Amount From Prior Year ------- -------------------- 2000 2000 1999 --------------------------------------------------------------- (in millions) Retail -- Base revenues $6,014 $174 $(262) Fuel cost recovery and other 2,599 353 76 --------------------------------------------------------------- Total retail 8,613 527 (186) --------------------------------------------------------------- Sales for resale -- Within service area 377 27 (24) Outside service area 600 127 (49) ---------------------------------------------------------------- Total sales for resale 977 154 (73) Other operating revenues 270 54 21 --------------------------------------------------------------- Operating revenues $9,860 $735 $(238) =============================================================== Percent change 8.1% (2.5)% --------------------------------------------------------------- Base revenues increased $174 million in 2000 as a result of continued customer growth in the traditional service area and the positive impact of weather on energy sales. However, total base revenues of $5.8 billion in 1999 declined as a result of a Georgia Power rate reduction and recorded revenue sharing in 1999. For additional information, see Note 3 to the financial statements under "Georgia Power 1998 Retail Rate Order." Customer growth in the Southeast somewhat offset the rate decrease. Electric rates include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Under these fuel cost recovery provisions, fuel revenues generally equal fuel expenses -- including the fuel component of purchased energy -- and do not affect net income. However, cash flow is affected by the economic loss from untimely recovery of these receivables. Each company has filed or will be filing for approval of new fuel rates to be more reflective of escalating fuel costs. Revenues from sales for resale within the service area were up as a result of additional demand during the hot summer of 2000. Sales for resale revenues within the service area were $350 million in 1999, down 6.5 percent from the prior year. This sharp decline resulted primarily from supplying less electricity under contractual agreements with certain wholesale customers in 1999. Energy sales for resale outside the service area are principally unit power sales under long-term contracts to Florida utilities. Economy energy and energy under short-term contracts are also sold for resale outside the service area. Revenues from long-term unit power contracts have both a capacity and energy component. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. The capacity and energy components of the unit power contracts were as follows: 2000 1999 1998 --------------------------------------------------------------- (in millions) Capacity $177 $174 $196 Energy 178 157 152 --------------------------------------------------------------- Total $355 $331 $348 =============================================================== Capacity revenues in 2000 and 1999 varied slightly compared with the prior year as a result of adjustments and true-ups related to contractual pricing. No significant declines in the amount of capacity are scheduled until the termination of the contracts in 2010. Energy Sales The changes in revenues for the traditional business in the Southeast are influenced heavily by the amount of energy sold each year. Kilowatt-hour sales for 2000 and the percent change by year were as follows: Amount Percent Change (billions of ------ --------------------------- kilowatt-hours) 2000 2000 1999 1998 --------------------------------------------------------------- Residential 46.2 6.5% (0.2)% 10.9% Commercial 46.2 6.6 4.0 7.2 Industrial 56.7 1.0 1.6 2.1 Other 1.0 2.7 1.6 3.1 ----- Total retail 150.1 4.3 1.7 6.2 Sales for resale -- Within service area 9.6 1.5 (4.1) (0.4) Outside service area 17.2 33.0 (0.4) (5.6) ----- Total 176.9 6.4 1.2 4.7 =============================================================== The rate of growth in 2000 total retail energy sales was very strong. Residential energy sales reflected a substantial increase as a result of the hotter-than-normal summer weather and the number of residential customers served increased by 59,000 during the year. Commercial and industrial sales, both in II-9 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2000 Annual Report 2000 and 1999, continued to show slight gains in excess of the national averages. This reflects the strength of business and economic conditions in Southern Company's traditional service area in the southeastern United States. The rate of increase in 1999 total retail energy sales was significantly lower than in 1998. Residential energy sales experienced a decline as a result of milder weather in 1999, which strongly affected the total retail sales increase of 1.7 percent. Energy sales to retail customers are projected to increase at an average annual rate of 2.1 percent during the period 2001 through 2011. Sales to customers outside the service area under long-term contracts for unit power sales increased 21 percent in 2000 and increased 19 percent in 1999. These changes in sales were influenced by weather and fluctuations in prices for oil and natural gas, the primary fuel sources for utilities with which the company has long-term contracts. However, these fluctuations in energy sales under long-term contracts have minimal effects on earnings because the energy is generally sold at variable cost. Expenses In 2000, operating expenses of $7.4 billion increased $645 million compared with the prior year. The costs to produce electricity for the traditional business in 2000 increased by $498 million to meet higher energy demands. Non-production operation and maintenance expenses increased $47 million in 2000. In 2000, depreciation and amortization expenses increased $89 million of which $50 million resulted from the 1998 Georgia Power rate order as referred to earlier. In 1999, operating expenses of $6.7 billion decreased $240 million. This decline was driven by a reduction of $277 million accelerated depreciation of plant being recorded primarily as a result of the 1998 Georgia Power rate order. The costs to produce electricity for the traditional business in the Southeast for 1999 increased by $68 million to meet higher energy demands. All other operation and maintenance expenses declined by $44 million. Fuel costs constitute the single largest expense for the integrated Southeast utilities. The mix of fuel sources for generation of electricity is determined primarily by system load, the unit cost of fuel consumed, and the availability of hydro and nuclear generating units. The amount and sources of generation and the average cost of fuel per net kilowatt-hour generated -- within the traditional business service area -- were as follows: 2000 1999 1998 ------------------------------------------------------------------- Total generation (billions of kilowatt-hours) 174 165 164 Sources of generation (percent) -- Coal 78 78 77 Nuclear 16 17 16 Hydro 2 2 4 Oil and gas 4 3 3 Average cost of fuel per net kilowatt-hour generated (cents) -- 1.51 1.45 1.48 ------------------------------------------------------------------- In 2000, fuel and purchased power costs increased $504 million as a result of 10.6 billion more kilowatt-hours being sold than in 1999. Demand was met with some 2.5 billion additional kilowatt-hours being purchased and using generation with higher unit fuel cost than last year. Total fuel and purchased power costs of $2.7 billion in 1999 increased only $20 million while total energy sales increased 2.0 billion kilowatt-hours compared with the amounts recorded in 1998. Continued efforts to control energy costs helped lower the average cost of fuel per net kilowatt-hour generated in 1999. Total interest charges and other financing costs in 2000 increased $15 million reflecting new generating units being constructed requiring some external financing. Total interest charges and other financing costs in 1999 decreased $44 million from amounts reported in the previous year. The decline reflected additional refinancing of debt in 1999. Discontinued Operations Mirant is a global energy company whose businesses include competitive electricity distribution companies, independent power projects, and energy trading and risk management companies. II-10 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2000 Annual Report On February 19, 2001, Southern Company's board of directors approved the spin off of Mirant, to be effective on April 2, 2001. As a result of this action, Mirant's financial and related information is shown as discontinued operations. All historical financial statements, footnotes, and related disclosures have been reclassified to conform with the current year presentation. Earnings from discontinued operations are shown net of income taxes and minority interest. Southern Company earnings per share as adjusted was $2.13 in 2000, of which Mirant's earnings as adjusted contributed approximately $0.60 per share. On the same basis in 1999, Southern Company earnings per share was $1.90, of which $0.47 was attributed to Mirant. Effects of Inflation Southern Company's traditional business of the integrated Southeast utilities is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on Southern Company because of the large investment in utility plant with long economic lives. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations such as long-term debt and preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential The results of continuing operations for the past three years are not necessarily indicative of future earnings potential. The level of Southern Company's future earnings depends on numerous factors. The two major factors are the ability of the regulated integrated Southeast utilities to achieve energy sales growth while containing cost in a more competitive environment; and the profitability of the new competitive market-based wholesale generating facilities being added. The traditional business or the five Southeast utilities currently operate as vertically integrated companies providing electricity to customers within the traditional service area of the southeastern United States. Prices for electricity provided to retail customers are set by state public service commissions under cost-based regulatory principles. Retail rates and earnings are reviewed and adjusted periodically within certain limitations based on earned return on equity. See Note 3 to the financial statements for additional information about these and other regulatory matters. Future earnings for the traditional business in the near term will depend upon growth in energy sales, which is subject to a number of factors. These factors include weather, competition, new short and long-term contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in the traditional service area. The electric utility industry in the United States is continuing to evolve as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers and sell energy generation to other utilities. Also, electricity sales for resale rates are affected by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been discussed in Alabama, Florida, Georgia, and Mississippi, none have been enacted. Enactment would require numerous issues to be resolved, including significant ones relating to recovery of any stranded investments, full cost recovery of energy produced, and other issues related to the current energy crisis in California. As a result of this crisis, many states II-11 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2000 Annual Report have either discontinued or delayed implementation of initiatives involving retail deregulation. The inability of a company to recover its investments, including the regulatory assets described in Note 1 to the financial statements, could have a material adverse effect on financial condition and results of operations. Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, if Southern Company's integrated Southeast utilities do not remain low-cost producers and provide quality service, then energy sales growth could be limited, and this could significantly erode earnings. To adapt to a less regulated, more competitive environment, Southern Company continues to evaluate and consider a wide array of potential business strategies. These strategies may include business combinations, acquisitions involving other utility or non-utility businesses or properties, internal restructuring, disposition of certain assets, or some combination thereof. Furthermore, Southern Company may engage in other new business ventures that arise from competitive and regulatory changes in the utility industry. Pursuit of any of the above strategies, or any combination thereof, may significantly affect the business operations and financial condition of Southern Company. On December 20, 1999, the Federal Energy Regulatory Commission (FERC) issued its final rule on Regional Transmission Organizations (RTOs). The order encouraged utilities owning transmission systems to form RTOs on a voluntary basis. After participating in regional conferences with customers and other members of the public to discuss the formation of RTOs, utilities were required to make a filing with the FERC. Southern Company filed on October 16, 2000, a proposal for the creation of an RTO. The proposal is for the formation of a for-profit company that would have control of the bulk power transmission system of Southern Company and any other participating utilities. Participants would have the option to either maintain their ownership, divest, sell, or lease their assets to the proposed RTO. If the FERC accepts the proposal as filed, the creation of an RTO is not expected to have a material impact on Southern Company's financial statements. The outcome of this matter cannot now be determined. The Energy Act amended the Public Utility Holding Company Act of 1935 (PUHCA) to allow holding companies to form exempt wholesale generators to sell power largely free of regulation under PUHCA. These entities are able to own and operate power generating facilities and sell power to affiliates -- under certain restrictions. Southern Company is aggressively working to maintain and expand its share of wholesale sales in the southeastern power markets. In January 2001, Southern Company announced the formation of a new subsidiary -- Southern Power Company. The new subsidiary will own, manage, and finance wholesale generating assets in the Southeast. Southern Power will be the primary growth engine for Southern Company's market-based energy business. Energy from its assets will be marketed to wholesale customers under the Southern Company name. By 2005, plans call for Southern Power to have developed or acquired more than 7,500 megawatts dedicated to the competitive wholesale business. Within 10 years, the new wholesale generating company's goal is to own more than 15,000 megawatts. In accordance with Financial Accounting Standards Board (FASB) Statement No. 87, Employers' Accounting for Pensions, Southern Company recorded non-cash income of approximately $130 million in 2000. Pension plan income in 2001 is expected to be less as a result of plan amendments. Future pension income is dependent on several factors including trust earnings and changes to the plan. For more information, see Note 2. Southern Company is involved in various matters being litigated. See Note 3 to the financial statements for information regarding material issues that could possibly affect future earnings. Compliance costs related to current and future environmental laws and regulations could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." The staff of the SEC has questioned certain of the current accounting practices of the electric utility industry -- including Southern Company's -- regarding the recognition, measurement, and classification in the financial statements of decommissioning costs for nuclear generating facilities. In response to these questions, the Financial Accounting Standards Board (FASB) is reviewing the accounting for liabilities related to the retirement of long-lived II-12 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2000 Annual Report assets, including nuclear decommissioning. If the FASB issues new accounting rules, the estimated costs of retiring Southern Company's nuclear and other facilities may be required to be recorded as liabilities in the Consolidated Balance Sheets. Also, the annual provisions for such costs could change. Because of the company's current ability to recover asset retirement costs through rates, these changes would not have a significant adverse effect on results of operations. See Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning" for additional information. The integrated Southeast utilities are subject to the provisions of FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of a company's operations is no longer subject to these provisions, the company would be required to write off related regulatory assets and liabilities that are not specifically recoverable, and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. New Accounting Standard In June 2000, FASB issued Statement No. 138, an amendment of Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Statement No. 133, as amended, establishes accounting and reporting standards for derivative instruments and for hedging activities. Statement No. 133 requires that certain derivative instruments be recorded in the balance sheet as either an asset or liability measured at fair value, and that changes in the fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Southern Company utilizes financial instruments to reduce its exposure to changes in interest rates and foreign currency exchange rates. Southern Company also enters into commodity related forward contracts to limit exposure to changing prices on certain fuel purchases and electricity purchases and sales. Substantially all of these bulk energy purchases and sales meet the definition of a derivative under Statement No. 133. In many cases, these transactions meet the normal purchase and sale exception and the related contracts will continue to be accounted for under the accrual method. Certain of these instruments qualify as cash flow hedges resulting in the deferral of related gains and losses in other comprehensive income until the hedged transactions occur. Any ineffectiveness will be recognized currently in net income. However, others will be required to be marked to market through current period income. Southern Company adopted Statement No. 133 effective January 1, 2001. The cumulative effect of adoption was a reduction of approximately $300 million in comprehensive income, which was all related to discontinued operations. The impact on net income was immaterial. The application of the new rules is still evolving and further guidance from FASB is expected, which could additionally impact Southern Company's financial statements. Also, as wholesale energy markets mature, the accounting for future transactions could be significantly impacted by Statement No. 133, resulting in more volatility in net income and comprehensive income. FINANCIAL CONDITION ------------------ Overview Southern Company's financial condition continues to remain strong. In 2000, the integrated Southeast utilities' earnings were at the high end of their respective allowed range of return on equity. Also, earnings from discontinued operations made a solid contribution. These factors drove the reported consolidated net income to a record $1.31 billion in 2000. The quarterly dividend declared in January 2001 was 33 1/2 cents per share, or $1.34 annually. Southern Company is committed to a goal of maintaining its current annual dividend of $1.34 per share and to grow the dividend over time consistent with earnings expectations. After the Mirant spin off, Southern Company's target will be to grow earnings per share at an average annual rate of 3 to 5 percent. Gross property additions to utility plant from continuing operations were $2.2 billion in 2000. The majority of funds needed for gross property additions since 1997 has been provided from operating activities. The Consolidated Statements of Cash Flows provide additional details. Market Price Risk Southern Company is exposed to market risks, including changes in interest rates, currency exchange rates, and certain commodity prices. To manage the II-13 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2000 Annual Report volatility attributable to these exposures, the company nets the exposures to take advantage of natural offsets and enters into various derivative transactions for the remaining exposures pursuant to the company's policies in areas such as counterparty exposure and hedging practices. Generally, company policy is that derivatives are to be used only for hedging purposes. Derivative positions are monitored using techniques that include market valuation and sensitivity analysis. The company's market risk exposures relative to interest rate changes have not changed materially versus the previous reporting period. In addition, the company is not aware of any facts or circumstances that would significantly impact such exposures in the near-term. If the company sustained a 100 basis point change in interest rates for all variable rate debt, the change would affect annualized interest expense by approximately $23 million at December 31, 2000. Based on the company's overall interest rate exposure at December 31, 2000, including derivative and other interest rate sensitive instruments, a near-term 100 basis point change in interest rates would not materially affect the consolidated financial statements. Due to cost-based rate regulations, the integrated Southeast utilities have limited exposure to market volatility in interest rates, commodity fuel prices, and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the companies enter into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statement as incurred. At December 31, 2000, exposure from these activities was not material to the consolidated financial statements. For additional information, see Note 1 to the financial statements under "Financial Instruments for Non-Trading Activities." Capital Structure During 2000, the integrated Southeast utilities sold, through public authorities, $79 million of pollution control revenue bonds. In addition, senior notes of $650 million were issued in 2000. The companies continued to reduce financing costs by retiring higher-cost securities. Retirements of bonds and senior notes, including maturities, totaled $298 million during 2000, $1.2 billion during 1999, and $1.7 billion during 1998. Retirements of preferred stock totaled $86 million during 1999 and $239 million during 1998. In December 2000, Southern Company issued 28 million treasury shares of common stock through a public offering. The offering raised $800 million and was priced at $28.50 per share. The proceeds were used to reduce debt. In April 1999, Southern Company announced the repurchase of up to 50 million shares of its common stock over a two-year period through open market or privately negotiated transactions. Under this program, 50 million shares were repurchased by February 2000 at an average price of $25.53. Funding for the program was provided from Southern Company's commercial paper program. At the close of 2000, the company's common stock market value was 33 1/4 per share, compared with book value of $15.69 per share. The market-to-book value ratio was 212 percent at the end of 2000, compared with 170 percent at year-end 1999, and 207 percent at year-end 1998. Capital Requirements for Construction The construction program of Southern Company is budgeted at $2.9 billion for 2001, $2.6 billion for 2002, and $1.7 billion for 2003. Actual construction costs may vary from this estimate because of changes in such factors as: business conditions; environmental regulations; nuclear plant regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Southern Company has approximately 6,300 megawatts of new generating capacity scheduled to be placed in service by 2003. Approximately 4,100 megawatts of additional new capacity will be dedicated to the wholesale market and owned by Southern Power. Significant construction of transmission and distribution facilities and upgrading of generating plants will be continuing for the traditional business in the Southeast. II-14 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2000 Annual Report Other Capital Requirements In addition to the funds needed for the construction program, approximately $1.4 billion will be required by the end of 2003 for present improvement fund requirements and maturities of long-term debt. Also, the subsidiaries will continue to retire higher-cost debt and preferred stock and replace these obligations with lower-cost capital if market conditions permit. Environmental Matters On November 3, 1999, the Environmental Protection Agency (EPA) brought a civil action in the U.S. District Court against Alabama Power, Georgia Power, and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. On August 1, 2000, the U.S. District Court granted Alabama Power's motion to dismiss for lack of jurisdiction in Georgia and granted the system service company's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. On January 12, 2001, the EPA re-filed its claims against Alabama Power in federal district court in Birmingham, Alabama. The EPA did not include the system service company in the new complaint. Southern Company believes that its integrated utilities complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. In November 1990, the Clean Air Act Amendments of 1990 (Clean Air Act) were signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- significantly affected Southern Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants were required in two phases. Phase I compliance began in 1995 and some 50 generating units were brought into compliance with Phase I requirements. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. Construction expenditures for Phase I nitrogen oxide and sulfur dioxide emissions compliance totaled approximately $300 million. Phase II sulfur dioxide compliance was required in 2000. Southern Company used emission allowances and fuel switching to comply with Phase II requirements. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired units as necessary to meet Phase II limits and ozone non-attainment requirements for metropolitan Atlanta through 2000. Compliance for Phase II and initial ozone non-attainment requirements increased total construction expenditures through 2000 by approximately $100 million. The one-hour ozone non-attainment standards for the Atlanta and Birmingham areas have been set and must be implemented in May 2003. Seven generating plants will be affected in the Atlanta area and two plants in the Birmingham area. Additional construction expenditures for compliance with these new rules are currently estimated at approximately $935 million. A significant portion of costs related to the acid rain and ozone non-attainment provisions of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. II-15 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2000 Annual Report In July 1997, the EPA revised the national ambient air quality standards for ozone and particulate matter. This revision made the standards significantly more stringent. In the subsequent litigation of these standards, the U.S. Supreme Court recently dismissed certain challenges but found the EPA's implementation program for the new ozone standard unlawful and remanded it to the EPA. In addition, the Federal District of Columbia Circuit Court of Appeals will address other legal challenges to these standards in mid-2001. If the standards are eventually upheld, implementation could be required by 2007 to 2010. In September 1998, the EPA issued the final regional nitrogen oxide reduction rules to the states for implementation. Compliance is required by May 31, 2004. The final rule affects 21 states, including Alabama and Georgia. Additional construction expenditures for compliance with these new rules are currently estimated at approximately $195 million. In December 2000, the EPA completed its utility studies for mercury and other hazardous air pollutants (HAPS) and issued a determination that an emission control program for mercury and, perhaps, other HAPS is warranted. The program is to be developed over the next four years under the Maximum Achievable Control Technology (MACT) provisions of the Clean Air Act. This determination is being challenged in the courts. In January 2001, the EPA proposed guidance for the determination of Best Available Retrofit Technology (BART) emission controls under the Regional Haze Regulations. Installation of BART controls is expected to take place around 2010. Litigation of the BART rules is probable in the near future. Implementation of the final state rules for these initiatives could require substantial further reductions in nitrogen oxide, sulfur dioxide, mercury, and other HAPS emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. Reviews by the new administration in Washington, D.C. add to the uncertainties associated with BART guidance and the MACT determination for mercury and other HAPS. The EPA and state environmental regulatory agencies are reviewing and evaluating various other matters including: control strategies to reduce regional haze; limits on pollutant discharges to impaired waters; water intake restrictions; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. Southern Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the subsidiaries could incur substantial costs to clean up properties. The subsidiaries conduct studies to determine the extent of any required cleanup costs and have recognized in their respective financial statements costs to clean up known sites. These costs for Southern Company amounted to $4 million in 2000, $4 million in 1999, and $6 million in 1998. Additional sites may require environmental remediation for which the subsidiaries may be liable for a portion or all required cleanup costs. See Note 3 to the financial statements for information regarding Georgia Power's potentially responsible party status at a site in Brunswick, Georgia. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of Southern Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect Southern Company. The impact of new legislation -- if any -- will depend on the subsequent development and implementation of II-16 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2000 Annual Report applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. Sources of Capital The amount and timing of additional equity capital to be raised in 2001 -- as well as in subsequent years -- will be contingent on Southern Company's investment opportunities. Equity capital can be provided from any combination of public offerings, private placements, or the company's stock plans. The integrated Southeast utilities plan to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily from internal sources. However, the type and timing of any financings -- if needed -- will depend on market conditions and regulatory approval. In recent years, financings primarily have utilized unsecured debt and trust preferred securities. Southern Power will use both external funds and equity capital from Southern Company to finance its construction program. To meet short-term cash needs and contingencies, Southern Company had at the beginning of 2001 approximately $199 million of cash and cash equivalents and $5.1 billion of unused credit arrangements with banks. Cautionary Statement Regarding Forward-Looking Information Southern Company's 2000 Annual Report includes forward-looking statements in addition to historical information. Forward-looking information includes, among other things, statements concerning the strategic goals for Southern Company's new wholesale business and also Southern Company's earnings per share and earnings growth goals. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology. Southern Company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include the impact of recent and future federal and state regulatory change, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry and also changes in environmental 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, including the pending EPA civil action against Georgia Power and potentially other of Southern Company's subsidiaries and the race discrimination litigation against certain of Southern Company's subsidiaries; the extent and timing of the entry of additional competition in the markets of Southern Company's subsidiaries; potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial; internal restructuring or other restructuring options, that may be pursued by Southern Company; state and federal rate regulation in the United States and in foreign countries in which Southern Company's subsidiaries operate; political, legal and economic conditions and developments in the United States and in foreign countries in which Southern Company's subsidiaries operate; financial market conditions and the results of financing efforts; the impact of fluctuations in commodity prices, interest rates and customer demand; weather and other natural phenomena; the performance of projects undertaken by the non-traditional business and the success of efforts to invest in and develop new opportunities; the timing and acceptance of Southern Company's new product and service offerings; the ability of Southern Company to obtain additional generating capacity at competitive prices; developments in the California power markets, including, but not limited to, governmental intervention, deterioration in the financial condition of counterparties, default on receivables due, adverse results in current or future litigation and adverse changes in the tariffs of the California Power Exchange Corporation or the California Independent System Operator Corporation; and other factors discussed elsewhere herein and in other reports (including Form 10-K) filed from time to time by Southern Company with the SEC. II-17 CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 2000, 1999, and 1998 Southern Company and Subsidiary Companies 2000 Annual Report

---------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 ---------------------------------------------------------------------------------------------------------------------------- (in millions) Operating Revenues: Retail sales $ 8,613 $8,086 $8,272 Sales for resale 977 823 896 Other revenues 476 408 331 ---------------------------------------------------------------------------------------------------------------------------- Total operating revenues 10,066 9,317 9,499 ---------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Fuel 2,564 2,328 2,321 Purchased power 677 409 396 Other operations 1,862 1,839 1,852 Maintenance 852 829 800 Depreciation and amortization 1,171 1,139 1,340 Taxes other than income taxes 536 523 511 ---------------------------------------------------------------------------------------------------------------------------- Total operating expenses 7,662 7,067 7,220 ---------------------------------------------------------------------------------------------------------------------------- Operating Income 2,404 2,250 2,279 Other Income: Interest income 51 70 154 Other, net (26) (55) (53) ---------------------------------------------------------------------------------------------------------------------------- Earnings From Continuing Operations Before Interest and Income Taxes 2,429 2,265 2,380 ---------------------------------------------------------------------------------------------------------------------------- Interest and Other: Interest expense, net 659 556 558 Distributions on capital and preferred securities of subsidiaries 169 175 141 Preferred dividends of subsidiaries 19 20 25 ---------------------------------------------------------------------------------------------------------------------------- Total interest and other 847 751 724 ---------------------------------------------------------------------------------------------------------------------------- Earnings From Continuing Operations Before Income Taxes 1,582 1,514 1,656 Income taxes 588 599 670 ---------------------------------------------------------------------------------------------------------------------------- Earnings From Continuing Operations 994 915 986 Earnings from discontinued operations, net of income taxes of $86, $127, and $(121) for 2000, 1999, and 1998, respectively 319 361 (9) ---------------------------------------------------------------------------------------------------------------------------- Consolidated Net Income $ 1,313 $1,276 $ 977 ============================================================================================================================ Common Stock Data:6 Basic and diluted earnings per share of common stock - Earnings per share from continuing operations $1.52 $1.33 $ 1.41 Earnings per share from discontinued operations (Note 11) 0.49 0.53 (0.01) ---------------------------------------------------------------------------------------------------------------------------- Consolidated Basic and Diluted Earnings Per Share $2.01 $1.86 $1.40 ============================================================================================================================ Average number of shares of common stock outstanding (in millions) 653 685 697 Cash dividends paid per share of common stock $1.34 $1.34 $ 1.34 ---------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.

II-18 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2000, 1999, and 1998 Southern Company and Subsidiary Companies 2000 Annual Report

------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------------- (in millions) Operating Activities: Consolidated net income $ 1,313 $ 1,276 $ 977 Adjustments to reconcile consolidated net income to net cash provided from operating activities -- Less income from discontinued operations (Note 11) 319 361 (9) Depreciation and amortization 1,337 1,216 1,530 Deferred income taxes and investment tax credits 97 10 21 Gain on asset sales 5 (2) (20) Other, net 455 888 (40) Changes in certain current assets and liabilities -- Receivables, net (379) (141) (49) Fossil fuel stock 78 (41) (24) Materials and supplies (15) (37) 10 Accounts payable 180 (65) 103 Other 66 244 (200) ------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities of continuing operations 2,818 2,987 2,317 ------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (2,225) (1,881) (1,356) Sales of property - - 83 Other (81) (400) (166) ------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities of continuing operations (2,306) (2,281) (1,439) ------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Increase (decrease) in notes payable, net (275) 831 (365) Proceeds -- Other long-term debt 743 1,469 2,496 Capital and preferred securities - 250 435 Preferred stock - - 200 Common stock 910 24 234 Redemptions -- First mortgage bonds (211) (890) (1,479) Other long-term debt (204) (483) (278) Capital and preferred securities - (100) - Preferred stock - (86) (239) Common stock repurchased (415) (862) (125) Payment of common stock dividends (873) (921) (933) Other (54) (76) (155) ------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities of continuing operations (379) (844) (209) ------------------------------------------------------------------------------------------------------------------------------- Cash used for discontinued operations (88) (20) (534) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 45 (158) 135 Cash and Cash Equivalents at Beginning of Year 154 312 177 ------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 199 $ 154 $ 312 =============================================================================================================================== Supplemental Cash Flow Information From Continuing Operations: Cash paid during the year for -- Interest (net of amount capitalized) $802 $684 $680 Income taxes $661 $656 $757 ------------------------------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of these statements.

II-19 CONSOLIDATED BALANCE SHEETS At December 31, 2000 and 1999 Southern Company and Subsidiary Companies 2000 Annual Report

------------------------------------------------------------------------------------------------------------------------- Assets 2000 1999 ------------------------------------------------------------------------------------------------------------------------- (in millions) Current Assets: Cash and cash equivalents $ 199 $ 154 Special deposits 6 22 Receivables, less accumulated provisions for uncollectible accounts of $22 in 2000 and $22 in 1999 1,312 1,043 Unrecovered retail fuel clause revenue 418 244 Fossil fuel stock, at average cost 195 274 Materials and supplies, at average cost 508 493 Other 187 132 ------------------------------------------------------------------------------------------------------------------------- Total current assets 2,825 2,362 ------------------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service 34,188 32,702 Less accumulated depreciation 14,350 13,655 ------------------------------------------------------------------------------------------------------------------------- 19,838 19,047 Nuclear fuel, at amortized cost 215 227 Construction work in progress 1,569 1,265 ------------------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 21,622 20,539 ------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Nuclear decommissioning trusts, at fair value 690 658 Net assets of discontinued operations (Note 11) 3,320 2,913 Leveraged leases 596 556 Other 165 156 ------------------------------------------------------------------------------------------------------------------------- Total other property and investments 4,771 4,283 ------------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes 957 987 Prepaid pension costs 498 368 Debt expense, being amortized 99 104 Premium on reacquired debt, being amortized 280 302 Other 310 346 ------------------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 2,144 2,107 ------------------------------------------------------------------------------------------------------------------------- Total Assets $31,362 $29,291 ========================================================================================================================= The accompanying notes are an integral part of these balance sheets. II-20

CONSOLIDATED BALANCE SHEETS (continued) At December 31, 2000 and 1999 Southern Company and Subsidiary Companies 2000 Annual Report

---------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity 2000 1999 ---------------------------------------------------------------------------------------------------------------------------- (in millions) Current Liabilities: Securities due within one year $ 67 $ 329 Notes payable 1,680 1,955 Accounts payable 869 669 Customer deposits 140 128 Taxes accrued -- Income taxes 88 107 Other 208 198 Interest accrued 121 139 Vacation pay accrued 119 113 Other 445 391 ---------------------------------------------------------------------------------------------------------------------------- Total current liabilities 3,737 4,029 ---------------------------------------------------------------------------------------------------------------------------- Long-term debt (See accompanying statements) 7,843 7,251 ---------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 4,074 3,884 Deferred credits related to income taxes 551 640 Accumulated deferred investment tax credits 664 693 Employee benefits provisions 478 465 Prepaid capacity revenues 58 80 Other 653 430 ---------------------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 6,478 6,192 ---------------------------------------------------------------------------------------------------------------------------- Company or subsidiary obligated mandatorily redeemable capital and preferred securities (See accompanying statements) 2,246 2,246 ---------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock of subsidiaries (See accompanying statements) 368 369 ---------------------------------------------------------------------------------------------------------------------------- Common stockholders' equity (See accompanying statements) 10,690 9,204 ---------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $31,362 $29,291 ============================================================================================================================ Commitments and Contingent Matters (Notes 1, 2, 3, 5, 8, 9, and 10) ---------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these balance sheets.

II-21 CONSOLIDATED STATEMENTS OF CAPITALIZATION At December 31, 2000 and 1999 Southern Company and Subsidiary Companies 2000 Annual Report

---------------------------------------------------------------------------------------------------------------------------- 2000 1999 2000 1999 ---------------------------------------------------------------------------------------------------------------------------- (in millions) (percent of total) Long-Term Debt of Subsidiaries: First mortgage bonds -- Maturity Interest Rates -------- -------------- 2000 6.00% $ - $ 200 2003 6.13% to 6.63% 325 325 2004 6.60% 35 35 2005 6.07% 10 10 2006 through 2010 6.50% to 6.90% 95 95 2021 through 2025 6.88% to 9.00% 635 646 2026 through 2030 6.88% 30 30 ---------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 1,130 1,341 ---------------------------------------------------------------------------------------------------------------------------- Long-term notes payable -- 5.35% to 9.75% due 2001-2004 766 584 5.38% to 8.58% due 2005-2008 744 964 6.25% to 7.63% due 2009-2017 170 170 6.38% to 8.12% due 2018-2038 793 801 6.63% to 7.13% due 2039-2048 1,029 1,029 Adjustable rates (5.79% to 7.75% at 1/1/01) due 2000-2005 734 148 ---------------------------------------------------------------------------------------------------------------------------- Total long-term notes payable 4,236 3,696 ---------------------------------------------------------------------------------------------------------------------------- Other long-term debt -- Pollution control revenue bonds -- Collateralized: 4.38% to 6.75% due 2000-2026 539 617 Variable rates (4.73% to 5.05% at 1/1/01) due 2015-2025 90 120 Non-collateralized: 4.53% to 6.75% due 2015-2034 406 263 Variable rates (3.50% to 5.35% at 1/1/01) due 2011-2037 1,475 1,510 ---------------------------------------------------------------------------------------------------------------------------- Total other long-term debt 2,510 2,510 ---------------------------------------------------------------------------------------------------------------------------- Capitalized lease obligations 95 97 ---------------------------------------------------------------------------------------------------------------------------- Unamortized debt (discount), net (61) (64) ---------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $509 million) 7,910 7,580 Less amount due within one year 67 329 ---------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 7,843 7,251 37.1% 38.0% ----------------------------------------------------------------------------------------------------------------------------

II-22 CONSOLIDATED STATEMENTS OF CAPITALIZATION (continued) At December 31, 2000 and 1999 Southern Company and Subsidiary Companies 2000 Annual Report

--------------------------------------------------------------------------------------------------------------------------- 2000 1999 2000 1999 --------------------------------------------------------------------------------------------------------------------------- (in millions) (percent of total) Company or Subsidiary Obligated Mandatorily Redeemable Capital and Preferred Securities: $25 liquidation value -- 6.85% to 7.00% 435 435 7.13% to 7.38% 297 297 7.60% to 7.63% 415 415 7.75% 649 649 8.14% to 8.19% 400 400 Auction rate (6.52% at 1/1/01) 50 50 --------------------------------------------------------------------------------------------------------------------------- Total company or subsidiary obligated mandatorily redeemable capital and preferred securities (annual distribution requirement -- $169 million) 2,246 2,246 10.6 11.8 --------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock of Subsidiaries: $100 par or stated value -- 4.20% to 7.00% 98 99 $25 par or stated value -- 5.20% to 5.83% 200 200 Adjustable and auction rates -- at 1/1/01: 5.14% to 5.25% 70 70 --------------------------------------------------------------------------------------------------------------------------- Total cumulative preferred stock of subsidiaries (annual dividend requirement -- $19 million) 368 369 1.7 1.9 --------------------------------------------------------------------------------------------------------------------------- Common Stockholders' Equity: Common stock, par value $5 per share -- Authorized -- 1 billion shares Issued -- 2000: 701 million shares -- 1999: 701 million shares Treasury -- 2000: 19 million shares -- 1999: 35 million shares Par value 3,503 3,503 Paid-in capital 3,153 2,480 Treasury, at cost (545) (919) Retained earnings 4,672 4,232 Accumulated other comprehensive income from discontinued operations (93) (92) --------------------------------------------------------------------------------------------------------------------------- Total common stockholders' equity 10,690 9,204 50.6 48.3 --------------------------------------------------------------------------------------------------------------------------- Total Capitalization $21,147 $19,070 100.0% 100.0% =========================================================================================================================== The accompanying notes are an integral part of these statements.

II-23 CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY For the Years Ended December 31, 2000, 1999, and 1998 Southern Company and Subsidiary Companies 2000 Annual Report

Accumulated Other Comprehensive Common Stock Income ------------------------------------- From Par Paid In Retained Discontinued Value Capital Treasury Earnings Operations Total ------------------------------------------------------------------------------------------------------------------------------- (in millions) Balance at January 1, 1998 $3,467 $2,331 $ - $3,842 $ 7 $ 9,647 Net income - - - 977 - 977 Other comprehensive income - - - - 8 8 Stock issued 32 132 70 - - 234 Stock repurchased, at cost - - (125) - - (125) Cash dividends - - - (933) - (933) Other - - (3) (8) - (11) ------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 3,499 2,463 (58) 3,878 15 9,797 Net income - - - 1,276 - 1,276 Other comprehensive income - - - - (107) (107) Stock issued 4 17 1 - - 22 Stock repurchased, at cost - - (861) - - (861) Cash dividends - - - (921) - (921) Other - - (1) (1) - (2) ------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 3,503 2,480 (919) 4,232 (92) 9,204 Net income - - - 1,313 - 1,313 Other comprehensive income - - - - (1) (1) Stock issued - - 910 - - 910 Stock repurchased, at cost - - (414) - - (414) Cash dividends - - - (873) - (873) Other - 673 (122) - - 551 ------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 $3,503 $3,153 $ (545) $4,672 $ (93) $10,690 ===============================================================================================================================

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended December 31, 2000, 1999, and 1998 Southern Company and Subsidiary Companies 2000 Annual Report

2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------------- (in millions) Consolidated Net Income $1,313 $1,276 $977 Other comprehensive income from discontinued operations, net of minority interest: Foreign currency translation adjustments (2) (165) 12 Less applicable income taxes (benefits) (1) (58) 4 ------------------------------------------------------------------------------------------------------------------------------- Consolidated Comprehensive Income $1,312 $1,169 $985 =============================================================================================================================== The accompanying notes are an integral part of these statements.

II-24 NOTES TO FINANCIAL STATEMENTS Southern Company and Subsidiary Companies 2000 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Southern Company is the parent company of five integrated Southeast utilities, a system service company, Southern Communications Services (Southern LINC), Southern Company Energy Solutions, Southern Nuclear Operating Company (Southern Nuclear), Mirant Corporation -- formerly Southern Energy, Inc. -- and other direct and indirect subsidiaries. The integrated Southeast utilities -- Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Savannah Electric -- provide electric service in four states. Contracts among the integrated Southeast utilities -- related to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) and/or the Securities and Exchange Commission (SEC). The system service company provides, at cost, specialized services to Southern Company and subsidiary companies. Southern LINC provides digital wireless communications services to the integrated Southeast utilities and also markets these services to the public within the Southeast. Southern Company Energy Solutions develops new business opportunities related to energy products and services. Southern Nuclear provides services to Southern Company's nuclear power plants. Mirant acquires, develops, builds, owns, and operates power production and delivery facilities and provides a broad range of energy-related services to utilities and industrial companies in selected countries around the world. Mirant businesses include independent power projects, integrated utilities, a distribution company, and energy trading and marketing businesses outside the southeastern United States. As a result of the approved spin off of Mirant, Southern Company's financial statements and related information, both current and historical, reflect Mirant as discontinued operations. For additional information, see Note 11. The financial statements reflect Southern Company's investments in the subsidiaries on a consolidated basis. All material intercompany items have been eliminated in consolidation. Certain prior years' data presented in the consolidated financial statements have been reclassified to conform with the current year presentation. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both the company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The integrated Southeast utilities also are subject to regulation by the FERC and their respective state public service commissions. The companies follow accounting principles generally accepted in the United States and comply with the accounting policies and practices prescribed by their respective commissions. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires the use of estimates, and the actual results may differ from those estimates. Regulatory Assets and Liabilities The integrated Southeast utilities are subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Consolidated Balance Sheets at December 31 relate to the following: 2000 1999 --------------------------------------------------------------- (in millions) Deferred income tax charges $ 957 $ 987 Premium on reacquired debt 280 302 Department of Energy assessments 46 52 Vacation pay 92 87 Postretirement benefits 30 33 Deferred income tax credits (551) (640) Accelerated amortization (220) (85) Storm damage reserves (34) (29) Other, net 116 144 --------------------------------------------------------------- Total $ 716 $ 851 =============================================================== In the event that a portion of a company's operations is no longer subject to the provisions of FASB Statement No. 71, the company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair value. II-25 NOTES (continued) Southern Company and Subsidiary Companies 2000 Annual Report Revenues and Fuel Costs Revenues are recognized as services are rendered. Unbilled revenues are accrued at the end of each fiscal period. Fuel costs are expensed as the fuel is used. Electric rates for the integrated Southeast utilities include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current regulated rates. Southern Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts continued to average less than 1 percent of revenues. Fuel expense includes the amortization of the cost of nuclear fuel and a charge, based on nuclear generation, for the permanent disposal of spent nuclear fuel. Total charges for nuclear fuel included in fuel expense amounted to $136 million in 2000, $137 million in 1999, and $133 million in 1998. Alabama Power and Georgia Power have contracts with the U.S. Department of Energy (DOE) that provide for the permanent disposal of spent nuclear fuel. The DOE failed to begin disposing of spent fuel in January 1998 as required by the contracts, and the companies are pursuing legal remedies against the government for breach of contract. Effective June 2000, an on-site dry storage facility for Plant Hatch became operational. Sufficient capacity is believed to be available to continue dry storage operations at Plant Hatch through the life of the plant. Sufficient fuel storage capacity currently is available at Plant Vogtle to maintain full-core discharge capability for both units into the year 2014. Sufficient fuel storage capacity is available at Plant Farley to maintain full-core discharge capability until the refueling outage scheduled in 2006 for Farley Unit 1 and the refueling outage scheduled in 2008 for Farley Unit 2. Procurement of on-site dry spent fuel storage capacity at Plant Farley is in progress, with the intent to place the capacity in operation as early as 2005. Also, the Energy Policy Act of 1992 required the establishment of a Uranium Enrichment Decontamination and Decommissioning Fund, which is funded in part by a special assessment on utilities with nuclear plants. This assessment is being paid over a 15-year period, which began in 1993. This fund will be used by the DOE for the decontamination and decommissioning of its nuclear fuel enrichment facilities. The law provides that utilities will recover these payments in the same manner as any other fuel expense. Alabama Power and Georgia Power -- based on its ownership interests -- estimate their respective remaining liability at December 31, 2000, under this law to be approximately $25 million and $19 million. These obligations are recorded in the Consolidated Balance Sheets. Depreciation and Nuclear Decommissioning Depreciation of the original cost of plant in service is provided primarily by using composite straight-line rates, which approximated 3.4 percent in both 2000 and 1999 and 3.3 percent in 1998. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its original cost -- together with the cost of removal, less salvage -- is charged to accumulated depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected costs of decommissioning nuclear facilities and removal of other facilities. Georgia Power recorded accelerated amortization and depreciation amounting to $135 million in 2000, $85 million in 1999, and $314 million in 1998. See Note 3 under "Georgia Power 1998 Retail Rate Order" for additional information. The Nuclear Regulatory Commission (NRC) requires all licensees operating commercial power reactors to establish a plan for providing, with reasonable assurance, funds for decommissioning. Alabama Power and Georgia Power have external trust funds to comply with the NRC's regulations. Amounts previously recorded in internal reserves are being transferred into the external trust funds over periods approved by the respective state public service commissions. The NRC's minimum external funding requirements are based on a generic estimate of the cost to decommission the radioactive portions of a nuclear unit based on the size and type of reactor. Alabama Power and Georgia Power have filed plans with the NRC to ensure that -- over time -- the deposits and earnings of the external trust funds will provide the minimum funding amounts prescribed by the NRC. Site study cost is the estimate to decommission a specific facility as of the site study year, and ultimate cost is the estimate to decommission a specific facility as of its retirement date. The estimated costs of decommissioning -- both site study costs and ultimate costs -- based on the most current study as II-26 NOTES (continued) Southern Company and Subsidiary Companies 2000 Annual Report of December 31, 2000, for Alabama Power's Plant Farley and Georgia Power's ownership interests in plants Hatch and Vogtle were as follows: Plant Plant Plant Farley Hatch Vogtle -------------------------------------------------------------- Site study basis (year) 1998 2000 2000 Decommissioning periods: Beginning year 2017 2014 2027 Completion year 2031 2042 2045 -------------------------------------------------------------- (in millions) Site study costs: Radiated structures $629 $486 $420 Non-radiated structures 60 37 48 -------------------------------------------------------------- Total $689 $523 $468 ============================================================== (in millions) Ultimate costs: Radiated structures $1,868 $1,004 $1,468 Non-radiated structures 178 79 166 -------------------------------------------------------------- Total $2,046 $1,083 $1,634 ============================================================== Significant assumptions: Inflation rate 4.5% 4.7% 4.7% Trust earning rate 7.0 6.5 6.5 -------------------------------------------------------------- The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The actual decommissioning costs may vary from the above estimates because of changes in the assumed date of decommissioning, changes in NRC requirements, or changes in the assumptions used in making these estimates. Georgia Power has filed with the NRC an application requesting a 20-year renewal of the licenses for both units at Plant Hatch, which would permit the operation of both units until 2034. Annual provisions for nuclear decommissioning are based on an annuity method as approved by the respective state public service commissions. The amount expensed in 2000 and fund balances were as follows: Plant Plant Plant Farley Hatch Vogtle --------------------------------------------------------------- (in millions) Amount expensed in 2000 $ 18 $ 19 $ 9 Accumulated provisions: External trust funds, at fair value $314 $230 $146 Internal reserves 38 20 12 --------------------------------------------------------------- Total $352 $250 $158 =============================================================== Alabama Power's decommissioning costs for ratemaking are based on the site study. Effective January 1, 1999, the Georgia Public Service Commission (GPSC) increased Georgia Power's annual provision for decommissioning expenses TO $28 million. This amount is based on the NRC generic estimate to decommission the radioactive portion of the facilities as of 1997. The estimates are $526 million and $438 million for plants Hatch and Vogtle, respectively. The ultimate costs associated with the 1997 NRC minimum funding requirements are $1.1 billion and $1.3 billion for plants Hatch and Vogtle, respectively. Alabama Power and Georgia Power expect their respective state public service commissions to periodically review and adjust, if necessary, the amounts collected in rates for the anticipated cost of decommissioning. Income Taxes Southern Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Property, Plant, and Equipment Property, plant, and equipment is stated at original cost less regulatory disallowances and impairments. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction. The cost of funds used during construction was $71 million in 2000, $36 million in 1999, and $19 million in 1998. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property -- exclusive of minor items of property -- is capitalized. Leveraged Leases Southern Company has several leveraged lease agreements -- ranging up to 30 years -- that primarily relate to energy generation, distribution, and transportation assets. The investment income earned from these leveraged leases is immaterial for all periods presented. II-27 NOTES (continued) Southern Company and Subsidiary Companies 2000 Annual Report Impairment of Long-Lived Assets and Intangibles Southern Company evaluates long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows attributable to the assets, as compared to the carrying value of the assets. If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value of the assets and recording a provision for loss if the carrying value is greater than the fair value. For assets identified as held for sale, the carrying value is compared to the estimated fair value less the cost to sell in order to determine if an impairment provision is required. Until the assets are disposed of, their estimated fair value is reevaluated when circumstances or events change. Cash and Cash Equivalents For purposes of the consolidated financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Materials and Supplies Generally, materials and supplies include the costs of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. Comprehensive Income Comprehensive income -- consisting of net income and foreign currency translation adjustments, net of taxes -- is presented in the consolidated financial statements. The objective of the statement is to report a measure of all changes in common stock equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners. Financial Instruments for Non-Trading Activities Southern Company uses derivative financial instruments to hedge exposures to fluctuations in interest rates, foreign currency exchange rates, and certain commodity prices. Gains and losses on qualifying hedges are deferred and recognized either in income or as an adjustment to the carrying amount of the hedged item when the transaction occurs. Southern Company is exposed to losses related to financial instruments in the event of counterparties' nonperformance. The company has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate the company's exposure to counterparty credit risk. The company is unaware of any counterparties that will fail to meet their obligations. Southern Company has firm purchase commitments for equipment that require payment in euros. As a hedge against fluctuations in the exchange rate for euros, the company entered into forward currency swaps. The notional amount is 32 million euros maturing in 2001 through 2002. At December 31, 2000, the unrecognized gain on these swaps was approximately $3 million. Other Southern Company financial instruments for which the carrying amount did not equal fair value at December 31 were as follows: Carrying Fair Amount Value ------------------------------------------------------------------ (in millions) Long-term debt: At December 31, 2000 $7,815 $7,702 At December 31, 1999 7,483 7,046 Capital and preferred securities: At December 31, 2000 2,246 2,190 At December 31, 1999 2,246 1,942 ------------------------------------------------------------------ The fair values for long-term debt and capital and preferred securities were based on either closing market price or closing price of comparable instruments. 2. Retirement Benefits Southern Company has defined benefit, trusteed, pension plans that cover substantially all employees. Southern Company provides certain medical care and life insurance benefits for retired employees. Substantially all these employees may become eligible for such benefits when they retire. The integrated Southeast utilities fund trusts to the extent required by their respective regulatory commissions. In late 2000, Southern Company adopted several pension and postretirement benefits plan changes that had the effect of increasing benefits to both current and future retirees. The effects of these changes will be to increase annual pension and postretirement benefits costs by approximately $28 million and $26 million, respectively. II-28 NOTES (continued) Southern Company and Subsidiary Companies 2000 Annual Report The measurement date for plan assets and obligations is September 30 for each year. The following disclosures exclude discontinued operations. Pension Plans Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations --------------------- 2000 1999 ---------------------------------------------------------------- (in millions) Balance at beginning of year $3,098 $3,084 Service cost 94 95 Interest cost 227 204 Benefits paid (145) (143) Actuarial (gain) loss (28) (142) ---------------------------------------------------------------- Balance at end of year $3,246 $3,098 ================================================================ Plan Assets ------------------- 2000 1999 ---------------------------------------------------------------- (in millions) Balance at beginning of year $5,266 $4,646 Actual return on plan assets 1,030 771 Benefits paid (139) (151) ---------------------------------------------------------------- Balance at end of year $6,157 $5,266 ================================================================ The accrued pension costs recognized in the Consolidated Balance as follows: 2000 1999 --------------------------------------------------------------- (in millions) Funded status $ 2,911 $ 2,168 Unrecognized transition obligation (64) (77) Unrecognized prior service cost 97 106 Unrecognized net gain (2,446) (1,829) --------------------------------------------------------------- Prepaid asset recognized in the Consolidated Balance Sheets $ 498 $ 368 =============================================================== Components of the pension plans' net periodic cost were as follows: 2000 1999 1998 -------------------------------------------------------------- (in millions) Service cost $ 94 $ 95 $ 86 Interest cost 227 204 204 Expected return on plan assets (384) (348) (320) Recognized net gain (64) (41) (47) Net amortization (3) (4) (3) -------------------------------------------------------------- Net pension cost (income) $(130) $ (94) $ (80) ============================================================== Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations -------------------- 2000 1999 --------------------------------------------------------------- (in millions) Balance at beginning of year $ 980 $1,029 Service cost 18 21 Interest cost 76 68 Benefits paid (43) (36) Actuarial (gain) loss 21 (102) --------------------------------------------------------------- Balance at end of year $1,052 $ 980 =============================================================== Plan Assets ------------------ 2000 1999 --------------------------------------------------------------- (in millions) Balance at beginning of year $395 $336 Actual return on plan assets 47 36 Employer contributions 59 60 Benefits paid (42) (37) --------------------------------------------------------------- Balance at end of year $459 $395 =============================================================== The accrued postretirement costs recognized in the Consolidated Balance Sheets were as follows: 2000 1999 --------------------------------------------------------------- (in millions) Funded status $(593) $(585) Unrecognized transition obligation 189 203 Unrecognized prior service cost 66 - Unrecognized net loss (gain) (53) 10 Fourth quarter contributions 35 26 --------------------------------------------------------------- Accrued liability recognized in the Consolidated Balance Sheets $(356) $(346) =============================================================== Components of the postretirement plans' net periodic cost were as follows: 2000 1999 1998 -------------------------------------------------------------- (in millions) Service cost $ 18 $ 21 $ 18 Interest cost 76 68 68 Expected return on plan assets (34) (26) (21) Recognized net gain - 2 2 Net amortization 18 15 15 -------------------------------------------------------------- Net postretirement cost $ 78 $ 80 $ 82 ============================================================== II-29 NOTES (continued) Southern Company and Subsidiary Companies 2000 Annual Report The weighted average rates assumed in the actuarial calculations for both the pension plans and postretirement benefits were: 2000 1999 --------------------------------------------------------------- Discount 7.50% 7.50% Annual salary increase 5.00 5.00 Long-term return on plan assets 8.50 8.50 --------------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement benefit obligation was a weighted average medical care cost trend rate of 7.29 percent for 2000, decreasing gradually to 5.50 percent through the year 2005, and remaining at that level thereafter. An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 2000 as follows: 1 Percent 1 Percent Increase Decrease --------------------------------------------------------------- (in millions) Benefit obligation $71 $63 Service and interest costs 6 6 --------------------------------------------------------------- Employee Savings Plan Southern Company also sponsors a 401(k) defined contribution plan covering substantially all employees. The company provides a 75 percent matching contribution up to 6 percent of an employee's base salary. Total matching contributions made to the plan for the years 2000, 1999, and 1998 were $49 million, $46 million, and $43 million, respectively. 3. CONTINGENCIES AND REGULATORY MATTERS Georgia Power Potentially Responsible Party Status In January 1995, Georgia Power and four other unrelated entities were notified by the Environmental Protection Agency (EPA) that they have been designated as potentially responsible parties under the Comprehensive Environmental Response, Compensation, and Liability Act with respect to a site in Brunswick, Georgia. As of December 31, 2000, Georgia Power had recorded approximately $5 million in cumulative expenses associated with Georgia Power's agreed-upon share of the removal and remedial investigation and feasibility study costs for this site. The final outcome of this matter cannot now be determined. However, based on the nature and extent of Georgia Power's activities relating to the site, management believes that the company's portion of any remaining remediation costs should not be material to the financial statements. Environmental Litigation On November 3, 1999, the EPA brought a civil action in the U.S. District Court against Alabama Power, Georgia Power, and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The Clean Air Act authorizes civil penalties of up to $27,500 per day, per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. On August 1, 2000, the U.S. District Court granted Alabama Power's motion to dismiss for lack of jurisdiction in Georgia and granted the system service company's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. On January 12, 2001, the EPA re-filed its claims against Alabama Power in federal district court in Birmingham, Alabama. The EPA did not include the system service company in the new complaint. Southern Company believes that its integrated utilities complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. II-30 NOTES (continued) Southern Company and Subsidiary Companies 2000 Annual Report An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. Mobile Energy Services' Petition for Bankruptcy Mobile Energy Services Holdings (MESH), a subsidiary of Southern Company, is the owner and operator of a facility that generates electricity, produces steam, and processes black liquor as part of a pulp and paper complex in Mobile, Alabama. On January 14, 1999, MESH filed a petition for Chapter 11 bankruptcy relief in the U.S. Bankruptcy Court. This action was in response to Kimberly-Clark Tissue Company's (Kimberly-Clark) announcement in May 1998 of plans to close its pulp mill, effective September 1, 1999. The pulp mill had historically provided 50 percent of MESH's revenues. As a result of settlement discussions with Kimberly-Clark and MESH's bondholders, Southern Company recorded in 1999 a $69 million after-tax write down of its investment in MESH. Southern Company recorded an additional $10 million after-tax write down in 2000. At December 31, 2000, MESH had total assets of $373 million and senior debt outstanding of $190 million of first mortgage bonds and $72 million related to tax-exempt bonds. In connection with the bond financings, Southern Company provided certain limited guarantees, in lieu of funding debt service and maintenance reserve accounts with cash. As of December 31, 2000, Southern Company had paid the full $41 million pursuant to the guarantees. Southern Company continues to have guarantees outstanding of certain potential environmental and other obligations of MESH that represent a maximum contingent liability of $19 million at December 31, 2000. Mirant has agreed to indemnify Southern Company for any future obligations incurred under such guarantees. On August 4, 2000, MESH filed a proposed plan of reorganization with the bankruptcy court. The proposed plan of reorganization was again amended on February 21, 2001. Changes in circumstances since the filing of the amended plan may require further modifications of the plan. Southern Company expects that approval of a plan of reorganization would result in a termination of Southern Company's ownership interest in MESH, but would not affect Southern Company's continuing guarantee obligations described earlier. The final outcome of this matter cannot now be determined. California Electricity Markets Litigation Five lawsuits have been filed in the superior courts of California alleging that certain owners of electric generation facilities in California, including Southern Company, engaged in various unlawful and anticompetitive acts that served to manipulate wholesale power markets and inflate wholesale electricity prices in California. Four of the suits seek class action status. One lawsuit naming Southern Company, Mirant, and other generators as defendants alleges that, as a result of the defendants' conduct, customers paid approximately $4 billion more for electricity than they otherwise would have and seeks an award of treble damages, as well as other injunctive and equitable relief. The other suits likewise seek treble damages and equitable relief. While two of the suits name Southern Company as a defendant, it appears that the allegations, as they may relate to Southern Company, are directed to activities of subsidiaries of Mirant. One such suit names Mirant itself as a defendant. Southern Company has notified Mirant of its claim for indemnification for costs associated with these actions under the terms of the master separation agreement that governs the spin off of Mirant. Mirant has undertaken the defense of all of the claims. The final outcome of these lawsuits cannot now be determined. Race Discrimination Litigation On July 28, 2000, a lawsuit alleging race discrimination was filed by three Georgia Power employees against Georgia Power, Southern Company, and the system service company in the United States District Court for the Northern District of Georgia. The lawsuit also raised claims on behalf of a purported class. The plaintiffs seek compensatory and punitive damages in an unspecified amount, as well as injunctive relief. On August 14, 2000, the lawsuit was amended to add four more plaintiffs and a new defendant, Southern Company Energy Solutions, Inc. The lawsuit is in the discovery phase. The final outcome of this matter cannot now be determined. Alabama Power Rate Adjustment Procedures In November 1982, the Alabama Public Service Commission (APSC) adopted rates that provide for periodic adjustments based upon Alabama Power's earned return II-31 NOTES (continued) Southern Company and Subsidiary Companies 2000 Annual Report on end-of-period retail common equity. The rates also provide for adjustments to recognize the placing of new generating facilities in retail service. Both increases and decreases have been placed into effect since the adoption of these rates. The rate adjustment procedures allow a return on common equity range of 13 percent to 14.5 percent and limit increases or decreases in rates to 4 percent in any calendar year. There is a moratorium on any periodic retail rate increases (but not decreases) until July 2001. In December 1995, the APSC issued an order authorizing Alabama Power to reduce balance sheet items -- such as plant and deferred charges -- at any time the company's actual base rate revenues exceed the budgeted revenues. In April 1997, the APSC issued an additional order authorizing Alabama Power to reduce balance sheet asset items. This order authorizes the reduction of such items up to an amount equal to five times the total estimated annual revenue reduction resulting from future rate reductions initiated by Alabama Power. In 1998, Alabama Power -- in accordance with the 1995 rate order -- recorded $33 million of additional amortization of premium on reacquired debt. Alabama Power did not record any additional amounts in 2000 or 1999. The ratemaking procedures will remain in effect until the APSC votes to modify or discontinue them. Georgia Power 1998 Retail Rate Order As required by the GPSC, Georgia Power filed a general rate case in 1998. On December 18, 1998, the GPSC approved a three-year rate order for Georgia Power ending December 31, 2001. Under the terms of the order, Georgia Power's earnings will continue to be evaluated against a retail return on common equity range of 10 percent to 12.5 percent. Georgia Power's annual retail rates were decreased by $262 million effective January 1, 1999, and by an additional $24 million effective January 1, 2000. In addition, the order provided for $85 million annually to be applied to accelerated amortization or depreciation of assets, and up to an additional $50 million annually in 2000 and 2001 of any earnings above the 12.5 percent return. In accordance with the rate order, Georgia Power recorded accelerated amortization of $135 million and $85 million in 2000 and 1999, respectively. In May 2000, the GPSC ordered that these funds be maintained in a regulatory liability account and ordered that interest be accrued on this account at the prime rate. In 2000, interest of $10 million was recorded. These amounts are reflected on the balance sheets in deferred credits and other liabilities, other. Two-thirds of any additional earnings above the 12.5 percent return in any year will be applied to rate reductions and the remaining one-third retained by Georgia Power. In both 2000 and 1999, Georgia Power's return was above 12.5 percent, and accordingly, it recorded in 1999 $79 million of revenues to be refunded to customers in 2000. In 2000, Georgia Power recorded $44 million as an estimate of revenues to be refunded in 2001. Georgia Power is required to file a general rate case on July 1, 2001. At that time, the GPSC is expected to determine whether the rate order should be continued, modified, or discontinued. 4. JOINT OWNERSHIP AGREEMENTS Alabama Power owns an undivided interest in units 1 and 2 of Plant Miller and related facilities jointly with Alabama Electric Cooperative, Inc. Georgia Power owns undivided interests in plants Vogtle, Hatch, Scherer, and Wansley in varying amounts jointly with Oglethorpe Power Corporation (OPC), the Municipal Electric Authority of Georgia, the city of Dalton, Georgia, Florida Power & Light Company (FP&L), and Jacksonville Electric Authority (JEA). In addition, Georgia Power has joint ownership agreements with OPC for the Rocky Mountain facilities and with Florida Power Corporation (FPC) for a combustion turbine unit at Intercession City, Florida. At December 31, 2000, Alabama Power's and Georgia Power's ownership and investment (exclusive of nuclear fuel) in jointly owned facilities with the above entities were as follows: Jointly Owned Facilities ---------------------------------------- Percent Amount of Accumulated Ownership Investment Depreciation ---------- ---------------------------- (in millions) Plant Vogtle (nuclear) 45.7% $3,301 $1,724 Plant Hatch (nuclear) 50.1 873 650 Plant Miller (coal) Units 1 and 2 91.8 743 312 Plant Scherer (coal) Units 1 and 2 8.4 112 53 Plant Wansley (coal) 53.5 300 150 Rocky Mountain (pumped storage) 25.4 169 72 Intercession City (combustion turbine) 33.3 11 1 --------------------------------------------------------------- II-32 NOTES (continued) Southern Company and Subsidiary Companies 2000 Annual Report Alabama Power and Georgia Power have contracted to operate and maintain the jointly owned facilities -- except for the Rocky Mountain project and Intercession City -- as agents for their respective co-owners. The companies' proportionate share of their plant operating expenses is included in the corresponding operating expenses in the Consolidated Statements of Income. 5. LONG-TERM POWER SALES AND LEASE AGREEMENTS The integrated Southeast utilities have long-term contractual agreements for the sale and lease of capacity to certain non-affiliated utilities located outside the system's service area. These agreements are firm and are related to specific generating units. Because the energy is generally provided at cost under these agreements, profitability is primarily affected by capacity revenues. Unit power from specific generating plants is currently being sold to FP&L, FPC, and JEA. Under these agreements, approximately 1,500 megawatts of capacity is scheduled to be sold annually unless reduced by FP&L, FPC, and JEA for the periods after 2000 with a minimum of three years notice -- until the expiration of the contracts in 2010. Capacity revenues from unit power sales amounted to $177 million in 2000, $174 million in 1999, and $196 million in 1998. During 2000, Georgia Power and Mississippi Power entered into certain operating leases for portions of their generating unit capacity. Capacity revenues from these operating leases amounted to $20 million in 2000 and are included in the financial statements as sales for resale. Minimum future capacity revenues from noncancelable operating leases as of December 31, 2000 are as follows: Year Amounts ----- ----------- (in millions) 2001 $ 53 2002 66 2003 66 2004 66 2005 27 2006 and thereafter 114 ---------------------------------------------------------------- Total $392 ================================================================ 6. Income Taxes At December 31, 2000, the tax-related regulatory assets and liabilities were $957 million and $551 million, respectively. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized interest. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. The following tables and disclosures exclude discontinued operations. Details of income tax provisions are as follows: 2000 1999 1998 --------------------------------------------------------------- (in millions) Total provision for income taxes: Federal -- Current $ 421 $ 504 $ 548 Deferred 95 11 23 --------------------------------------------------------------- 516 515 571 --------------------------------------------------------------- State -- Current 71 85 102 Deferred 1 (1) (3) --------------------------------------------------------------- 72 84 99 --------------------------------------------------------------- Total $ 588 $ 599 $ 670 =============================================================== The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 2000 1999 --------------------------------------------------------------- (in millions) Deferred tax liabilities: Accelerated depreciation $3,199 $3,088 Property basis differences 1,105 1,175 Other 650 444 --------------------------------------------------------------- Total 4,954 4,707 --------------------------------------------------------------- Deferred tax assets: Federal effect of state deferred taxes 111 113 Other property basis differences 206 221 Deferred costs 190 102 Pension and other benefits 125 121 Other 231 198 --------------------------------------------------------------- Total 863 755 --------------------------------------------------------------- Net deferred tax liabilities 4,091 3,952 Portion included in current assets, net (17) (68) --------------------------------------------------------------- Accumulated deferred income taxes in the Consolidated Balance Sheets $4,074 $3,884 =============================================================== In accordance with regulatory requirements, deferred investment tax credits are amortized over the lives of the related property with such amortization normally applied as a credit to reduce depreciation in the Consolidated Statements of Income. Credits amortized in this manner amounted to $30 million II-33 NOTES (continued) Southern Company and Subsidiary Companies 2000 Annual Report in 2000, $30 million in 1999, and $38 million in 1998. At December 31, 2000, all investment tax credits available to reduce federal income taxes payable had been utilized. The provision for income taxes differs from the amount of income taxes determined by applying the applicable U.S. Federal statutory rate to earnings before income taxes and preferred dividends of subsidiaries, as a result of the following: 2000 1999 1998 --------------------------------------------------------------- Federal statutory rate 35.0% 35.0% 35.0% State income tax, net of federal deduction 3.4 3.8 3.8 Non-deductible book depreciation 1.7 1.9 4.0 Difference in prior years' deferred and current tax rate (1.3) (1.3) (1.3) Other (2.1) (0.3) (1.6) --------------------------------------------------------------- Effective income tax rate 36.7% 39.1% 39.9% =============================================================== Southern Company files a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. 7. Common Stock Stock Issued and Repurchased The amount and timing of additional equity capital to be raised in 2001 -- as well as in subsequent years -- will be contingent on Southern Company's investment opportunities. Equity capital may be provided from any combination of public offerings, private placements, or the company's stock plans. In December 2000, Southern Company issued 28 million treasury shares of common stock through a public offering. The offering, which included an overallotment of 3 million shares, raised some $800 million and was priced at $28.50 per share. The proceeds were used to repay short-term commercial paper. In April 1999, Southern Company's Board of Directors approved the repurchase of up to 50 million shares of Southern Company's common stock over a two-year period through open market or privately negotiated transactions. Under this program, 50 million shares were repurchased by February 2000 at an average price of $25.53. Funding for the program was provided from Southern Company's commercial paper program. Shares Reserved At December 31, 2000, a total of 59 million shares was reserved for issuance pursuant to the Southern Investment Plan, the Employee Savings Plan, the Outside Directors Stock Plan, and the Performance Stock Plan. Performance Stock Plan The performance stock plan provides non-qualified stock options to a large segment of Southern Company's employees ranging from line management to executives. As of December 31, 2000, 5,744 current and former employees participated in the plan. The maximum number of shares of common stock that may be issued under the plan may not exceed 40 million. The prices of options granted to date have been at the fair market value of the shares on the dates of grant. Options granted to date become exercisable pro rata over a maximum period of three years from the date of grant. Options outstanding will expire no later than 10 years after the date of grant, unless terminated earlier by the Southern Company Board of Directors in accordance with the plan. Stock option activity in 1999 and 2000 for the plan is summarized below: Shares Average Subject Option Price To Option Per Share --------------------------------------------------------------- Balance at December 31, 1998 6,445,398 $22.77 Options granted 2,108,818 26.56 Options canceled (28,630) 25.48 Options exercised (56,708) 19.51 --------------------------------------------------------------- Balance at December 31, 1999 8,468,878 23.73 Options granted 6,977,038 23.25 Options canceled (226,597) 23.66 Options exercised (984,897) 21.63 --------------------------------------------------------------- Balance at December 31, 2000 14,234,422 $23.63 =============================================================== Shares reserved for future grants: At December 31, 1998 36,598,001 At December 31, 1999 34,515,156 At December 31, 2000 27,750,261 --------------------------------------------------------------- Options exercisable: At December 31, 1999 4,525,349 At December 31, 2000 5,898,698 --------------------------------------------------------------- Southern Company accounts for its stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25. Accordingly, no compensation expense has been recognized. II-34 NOTES (continued) Southern Company and Subsidiary Companies 2000 Annual Report The following table summarizes information about options outstanding at December 31, 2000: Price Range of Options -------------------------- 14-20 21-24 25-28 -------------------------------------------------------------- Outstanding: Shares (in thousands) 430 10,217 3,587 Average remaining life (in years) 2.5 8.2 8.1 Average exercise price $17.36 $22.79 $26.77 Exerciseable: Shares (in thousands) 424 3,653 1,822 Average exercise price $17.64 $21.96 $26.84 -------------------------------------------------------------- The estimated fair values of stock options granted in 2000, 1999 and 1998 were derived using the Black-Scholes stock option pricing model. The following table shows the assumptions and the weighted average fair values of stock options: 2000 1999 1998 ----------------------------------------------------------------- Interest rate 6.7% 5.8% 5.5% Average expected life of stock options (in years) 4.0 3.7 3.7 Expected volatility of common stock 20.9% 20.7% 19.2% Expected annual dividends on common stock $1.34 $1.34 $1.34 Weighted average fair value of stock options granted $3.36 $4.61 $4.27 ----------------------------------------------------------------- The pro forma impact on earnings of fair-value accounting for options granted -- as required by FASB Statement No. 123, Accounting for Stock-Based Compensation -- is 1.2 cents per share in 2000 and less than 1 cent in both 1999 and 1998. Diluted Earnings Per Share For Southern Company, the only difference in computing basic and diluted earnings per share is attributable to outstanding options under the Performance Stock Plan. The effect of the stock options was determined using the treasury stock method. Shares used to compute diluted earnings per share are as follows: Average Common Stock Shares ------------------------------- 2000 1999 1998 --------------------------------------------------------------- (in thousands) As reported shares 653,086 685,163 696,944 Effect of options 1,108 580 739 --------------------------------------------------------------- Diluted shares 654,194 685,743 697,683 =============================================================== Common Stock Dividend Restrictions The income of Southern Company is derived primarily from equity in earnings of its subsidiaries. At December 31, 2000, consolidated retained earnings included $3.5 billion of undistributed retained earnings of the subsidiaries. Of this amount, $2.0 billion was restricted against the payment by the subsidiary companies of cash dividends on common stock under terms of bond indentures. 8. FINANCING Capital and Preferred Securities Company or subsidiary obligated mandatorily redeemable capital and preferred securities have been issued by special purpose financing entities of Southern Company and its subsidiaries. Substantially all the assets of these special financing entities are junior subordinated notes issued by the related company seeking financing. Each of these companies considers that the mechanisms and obligations relating to the capital or preferred securities issued for its benefit, taken together, constitute a full and unconditional guarantee by it of the respective special financing entities' payment obligations with respect to the capital or preferred securities. At December 31, 2000, capital securities of $950 million and preferred securities of $1.3 billion were outstanding. Southern Company guarantees the notes related to $950 million of capital or preferred securities issued on its behalf. Long-Term Debt Due Within One Year A summary of the improvement fund requirements and scheduled maturities and redemptions of long-term debt due within one year at December 31 is as follows: 2000 1999 -------------------------------------------------------------- (in millions) Bond improvement fund requirements $11 $ 14 Less: Portion to be satisfied by certifying property additions 11 9 -------------------------------------------------------------- Cash requirements - 5 First mortgage bond maturities and redemptions - 200 Other long-term debt maturities 67 124 -------------------------------------------------------------- Total $67 $329 ============================================================== The first mortgage bond improvement fund requirements amount to 1 percent of each outstanding series of bonds authenticated under the indentures prior to II-35 NOTES (continued) Southern Company and Subsidiary Companies 2000 Annual Report January 1 of each year, other than those issued to collateralize pollution control revenue bonds and other obligations. The requirements may be satisfied by depositing cash or reacquiring bonds, or by pledging additional property equal to 166 2/3 percent of such requirements. With respect to the collateralized pollution control revenue bonds, the integrated Southeast utilities have authenticated and delivered to trustees a like principal amount of first mortgage bonds as security for obligations under installment sale or loan agreements. The principal and interest on the first mortgage bonds will be payable only in the event of default under the agreements. Improvement fund requirements and/or serial maturities through 2005 applicable to other long-term debt are as follows: $67 million in 2001; $489 million in 2002; $479 million in 2003; $323 million in 2004; and $600 million in 2005. Assets Subject to Lien Each of Southern Company's subsidiaries is organized as a legal entity, separate and apart from Southern Company and its other subsidiaries. The subsidiary companies' mortgages, which secure the first mortgage bonds issued by the companies, constitute a direct first lien on substantially all of the companies' respective fixed property and franchises. There are no agreements or other arrangements among the subsidiary companies under which the assets of one company have been pledged or otherwise made available to satisfy obligations of Southern Company or any of its other subsidiaries. Bank Credit Arrangements At the beginning of 2001, unused credit arrangements with banks totaled $5.1 billion, of which $3.2 billion expires during 2001, $1.0 billion during 2002, and $900 million during 2003 and 2004. The following table outlines the credit arrangements by company: Amount of Credit ----------------------------------- Expires --------------- 2002 & Company Total Unused 2001 beyond ------- ------------------------------------ (in millions) Alabama Power $ 925 $ 925 $ 535 $ 390 Georgia Power 1,765 1,765 1,265 500 Gulf Power 123 115 115 - Mississippi Power 117 117 117 - Savannah Electric 65 50 40 10 Southern Company 2,100 2,100 1,100 1,000 Other 60 51 51 - -------------------------------------------------------------- Total $5,155 $5,123 $3,223 $1,900 ============================================================== Approximately $2.9 billion of the credit facilities allows for term loans ranging from one to three years. Most of the agreements include stated borrowing rates but also allow for competitive bid loans. All of the credit arrangements require payment of commitment fees based on the unused portion of the commitments or the maintenance of compensating balances with the banks. These balances are not legally restricted from withdrawal. Of the total $5.1 billion in unused credit, $2.1 billion, $1.65 billion, and $780 million are syndicated credit arrangements of Southern Company, Georgia Power, and Alabama Power, respectively. These facilities also require the payment of agent fees. A portion of the $5.1 billion unused credit with banks is allocated to provide liquidity support to the companies' variable rate pollution control bonds. The amount of variable rate pollution control bonds requiring liquidity support as of December 31, 2000, was $1.6 billion. Southern Company, Alabama Power, and Georgia Power borrow through commercial paper programs that have the liquidity support of committed bank credit arrangements. In addition, the companies from time to time borrow under uncommitted lines of credit with banks. 9. COMMITMENTS Construction Program Southern Company is engaged in continuous construction programs, currently estimated to total $2.9 billion in 2001, $2.6 billion in 2002, and $1.7 billion in 2003. The construction programs are subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include: changes in business conditions; acquisition of additional generating assets; revised load growth estimates; changes in environmental regulations; changes in existing nuclear plants to meet new regulatory requirements; increasing costs of labor, equipment, and materials; and cost of capital. At December 31, 2000, significant purchase commitments were outstanding in connection with the construction program. Southern Company has approximately 6,300 megawatts of additional generating capacity scheduled to be placed in service by 2003. See Management's Discussion and Analysis under "Environmental Matters" for II-36 NOTES (continued) Southern Company and Subsidiary Companies 2000 Annual Report information on the impact of the Clean Air Act Amendments of 1990 and other environmental matters. Fuel and Purchased Power Commitments To supply a portion of the fuel requirements of the generating plants, Southern Company has entered into various long-term commitments for the procurement of fossil and nuclear fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. Also, Southern Company has entered into various long-term commitments for the purchase of electricity. Total estimated long-term obligations at December 31, 2000, were as follows: Purchased Year Fuel Power ---- ------------------------- (in millions) 2001 $ 2,481 $ 81 2002 1,897 97 2003 1,711 99 2004 1,328 95 2005 1,055 95 2006 and thereafter 3,764 693 -------------------------------------------------------------- Total commitments $12,236 $1,160 ============================================================== Operating Leases Southern Company has operating lease agreements with various terms and expiration dates. These expenses totaled $42 million, $35 million, and $26 million for 2000, 1999, and 1998, respectively. At December 31, 2000, estimated minimum rental commitments for noncancelable operating leases were as follows: Year Amounts ---- ------------ (in millions) 2001 $ 57 2002 71 2003 71 2004 68 2005 64 2006 and thereafter 388 -------------------------------------------------------------- Total minimum payments $719 ============================================================== Guarantees Southern Company has made separate guarantees to certain counterparties regarding performance of contractual commitments by Mirant's trading and marketing subsidiaries. At December 31, 2000, the total notional amount of guarantees was $419 million and the estimated fair value of net contractual commitments outstanding was approximately $259 million. Based upon a statistical analysis of credit risk, Southern Company's potential exposure under these contractual commitments would not materially differ from the estimated fair value. At December 31, 2000, Southern Company had guaranteed $11 million related to a Mirant purchase power agreement. The guarantee expires March 2001. Southern Company also has guaranteed certain of Mirant's foreign currency swap transactions. At December 31, 2000, notional amounts under these swaps were the differences between (pound)44 million and $68 million and between DM370 million and $206 million; however, due to favorable exchange ratesSouthern Company had no exposure under these guarantees. The sterling and deutsche mark swaps expire in 2002 and 2003, respectively. After the spin off, Mirant will pay Southern Company a monthly fee of 1 percent on the average aggregate maximum principal amount of all guarantees outstanding until they are replaced or expire. Southern Company's guarantees related to Mirant trading and marketing activities are limited to a maximum of $425 million, with any guarantees since October 2, 2000 expiring no later than October 2, 2001. Mirant must use reasonable efforts to release Southern Company from all such support arrangements and will indemnify Southern Company for any obligations incurred. 10. NUCLEAR INSURANCE Under the Price-Anderson Amendments Act of 1988, Alabama Power and Georgia Power maintain agreements of indemnity with the NRC that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at the companies' nuclear power plants. The act provides funds up to $9.5 billion for public liability claims that could arise from a single nuclear incident. Each nuclear plant is insured against this liability to a maximum of $200 million by private insurance, with the remaining coverage provided by a mandatory program of deferred premiums that could be assessed, after a nuclear incident, against all owners of nuclear reactors. A company could be assessed up to $88 million per incident for each licensed reactor it operates, but not more than an aggregate of $10 million per incident to be paid in a calendar year for each reactor. Such maximum assessment, excluding any applicable state premium taxes, for Alabama Power and Georgia Power -- based on its ownership and buyback interests -- is $176 million and $178 million, respectively, per incident, but not more than an aggregate of $20 million per company to be paid for each incident in any one year. II-37 NOTES (continued) Southern Company and Subsidiary Companies 2000 Annual Report Alabama Power and Georgia Power are members of Nuclear Electric Insurance Limited (NEIL), a mutual insurer established to provide property damage insurance in an amount up to $500 million for members' nuclear generating facilities. Additionally, both companies have policies that currently provide decontamination, excess property insurance, and premature decommissioning coverage up to $2.25 billion for losses in excess of the $500 million primary coverage. This excess insurance is also provided by NEIL. NEIL also covers the additional costs that would be incurred in obtaining replacement power during a prolonged accidental outage at a member's nuclear plant. Members can be insured against increased costs of replacement power in an amount up to $3.5 million per week -- starting 12 weeks after the outage -- for one year and up to $2.8 million per week for the second and third years. Under each of the NEIL policies, members are subject to assessments if losses each year exceed the accumulated funds available to the insurer under that policy. The current maximum annual assessments for Alabama Power and Georgia Power under the three NEIL policies would be $17 million and $19 million, respectively. For all on-site property damage insurance policies for commercial nuclear power plants, the NRC requires that the proceeds of such policies shall be dedicated first for the sole purpose of placing the reactor in a safe and stable condition after an accident. Any remaining proceeds are to be applied next toward the costs of decontamination and debris removal operations ordered by the NRC, and any further remaining proceeds are to be paid either to the company or to its bond trustees as may be appropriate under the policies and applicable trust indentures. All retrospective assessments -- whether generated for liability, property, or replacement power -- may be subject to applicable state premium taxes. 11. DISCONTINUED OPERATIONS In April 2000, Southern Company announced an initial public offering of up to 19.9 percent of Mirant and its intentions to spin off the remaining ownership of Mirant to Southern Company stockholders within 12 months of the initial stock offering. On October 2, 2000, Mirant completed an initial public offering of 66.7 million shares of common stock priced at $22 per share. This represented 19.7 percent of the 338.7 million shares outstanding. As a result of the stock offering, Southern Company recorded a $560 million increase in paid-in capital with no gain or loss being recognized. On February 19, 2001, Southern Company's board of directors approved the spin off of its remaining ownership of 272 million Mirant shares to be completed in a tax free distribution on April 2, 2001. Shares from the spin off will be distributed at a ratio of approximately 0.4 for every share of Southern Company common stock held at record date. As a result of the spin off, Southern Company's December 31, 2000, financial statements have been prepared with Mirant's results of operations and cash flows shown as discontinued operations. All historical financial statements presented and footnotes have been reclassified to conform to this presentation, with the historical assets and liabilities of Mirant presented on the balance sheet as net assets of discontinued operations. Summarized financial information for the discontinued operations is as follows at December 31: 2000 1999 1998 --------------------------------------------------------------- (in millions) Revenues $13,315 $2,265 $1,819 Income taxes 86 127 (121) Net income 319 361 (9) --------------------------------------------------------------- 2000 1999 --------------------------------------------------------------- (in millions) Current assets $ 9,057 $ 1,254 Total assets 22,377 12,191 Current liabilities 9,726 3,169 Total liabilities 17,585 8,473 Minority and other interests 1,472 805 Net assets of discontinued operations 3,320 2,913 --------------------------------------------------------------- 12. SEGMENT AND RELATED INFORMATION Southern Company's reportable business segment is the five integrated Southeast utilities that provide electric service in four states. Net income and total assets for discontinued operations are included in the reconciling eliminations column. The all other category includes parent Southern Company, which does not II-38 NOTES (continued) Southern Company and Subsidiary Companies 2000 Annual Report allocate operating expenses to business segments. Also, this category includes segments below the quantitative threshold for separate disclosure. These segments include telecommunications, energy products and services, and leasing and financing services. Intersegment revenues are not material. Financial data for business segments and products and services are as follows: Business Segments

Integrated Southeast All Reconciling Year Utilities Other Eliminations Consolidated ---- ------------------------------------------------------------------------------------ (in millions) 2000 ----- Operating revenues $ 9,860 $ 246 $ (40) $10,066 Depreciation and amortization 1,135 36 - 1,171 Interest income 43 9 (1) 51 Interest expense 631 197 - 828 Income taxes 703 (115) - 588 Segment net income (loss) 1,109 (115) 319 1,313 Total assets 26,917 2,200 2,245 31,362 Gross property additions 2,199 26 - 2,225 ------------------------------------------------------------------------------------------------------------------------------- Integrated Southeast All Reconciling Year Utilities Other Eliminations Consolidated ---- ------------------------------------------------------------------------------------ (in millions) 1999 ----- Operating revenues $ 9,125 $ 221 $ (29) $ 9,317 Depreciation and amortization 1,046 93 - 1,139 Interest income 64 50 (44) 70 Interest expense 613 155 (37) 731 Income taxes 675 (76) - 599 Segment net income (loss) 1,073 (154) 357 1,276 Total assets 25,336 2,127 1,828 29,291 Gross property additions 1,854 27 - 1,881 -------------------------------------------------------------------------------------------------------------------------------

II-39 NOTES (continued) Southern Company and Subsidiary Companies 2000 Annual Eeport

Integrated Southeast All Reconciling Year Utilities Other Eliminations Consolidated ----- ------------------------------------------------------------------------------------ (in millions) 1998 ---- Operating revenues $ 9,363 $ 167 $ (31) $ 9,499 Depreciation and amortization 1,323 17 - 1,340 Interest income 150 58 (54) 154 Interest expense 654 99 (54) 699 Income taxes 703 (33) - 670 Segment net income (loss) 1,083 (97) (9) 977 Total assets 24,420 2,817 1,486 28,723 Gross property additions 1,298 58 - 1,356 -------------------------------------------------------------------------------------------------------------------------------

Products and Services

Integrated Southeast Utilities Revenues -------------------------------------------------------------------------------------------- Year Retail Wholesale Other Total ---- ------------------------------------------------------------------------------------------- (in millions) 2000 $8,613 $977 $270 $9,860 1999 8,086 823 216 9,125 1998 8,272 896 195 9,363 -------------------------------------------------------------------------------------------------------------------------------

13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Summarized quarterly financial data for 2000 and 1999 -- including discontinued operations for net income and earnings per share -- are as follows:

Per Common Share ---------------------------------------------------- Operating Operating Consolidated Price Range Quarter Ended Revenues Income Net Income Earnings Dividends High Low ------------- ------------------------------------ ----------------------------------------------------- (in millions) March 2000 $2,052 $ 428 $245 $0.38 $0.335 25 7/8 20 3/8 June 2000 2,522 598 342 0.52 0.335 27 7/8 21 11/16 September 2000 3,198 1,041 614 0.95 0.335 35 23 13/32 December 2000 2,294 337 112 0.16 0.335 33 22/25 27 1/2 March 1999 $1,920 $ 408 $224 $0.32 $0.335 29 5/8 23 1/4 June 1999 2,288 569 314 0.45 0.335 29 3/16 22 3/4 September 1999 3,050 981 615 0.90 0.335 28 25 December 1999 2,059 292 123 0.19 0.335 27 1/8 22 1/16 ----------------------------------------------------------------------------------------------------------------------- Southern Company's business is influenced by seasonal weather conditions.

II-40 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1996-2000 Southern Company and Subsidiary Companies 2000 Annual Report

------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in millions) $10,066 $9,317 $9,499 $8,774 $8,675 Total Assets (in millions) $31,362 $29,291 $28,723 $27,898 $26,352 Gross Property Additions (in millions) $2,225 $1,881 $1,356 $1,138 $1,064 Return on Average Common Equity (percent) 13.20 13.43 10.04 10.30 12.53 Cash Dividends Paid Per Share of Common Stock $1.34 $1.34 $1.34 $1.30 $1.26 ------------------------------------------------------------------------------------------------------------------------------- Consolidated Net Income (in millions): Continuing operations $ 994 $ 915 $986 $990 $1,046 Discontinued operations 319 361 (9) (18) 81 ------------------------------------------------------------------------------------------------------------------------------- Total $1,313 $1,276 $977 $972 $1,127 =============================================================================================================================== Basic and Diluted Earnings Per Share of Common Stock: Continuing operations $1.52 $1.33 $ 1.41 $ 1.45 $1.56 Discontinued operations 0.49 0.53 (0.01) (0.03) 0.12 ------------------------------------------------------------------------------------------------------------------------------- Total $2.01 $1.86 $ 1.40 $1.42 $1.68 =============================================================================================================================== Capitalization (in millions): Common stock equity $10,690 $ 9,204 $ 9,797 $ 9,647 $ 9,216 Preferred stock and securities 2,614 2,615 2,465 2,155 1,402 Long-term debt 7,843 7,251 6,505 6,347 6,556 ------------------------------------------------------------------------------------------------------------------------------- Total excluding amounts due within one year $21,147 $19,070 $18,767 $18,149 $17,174 =============================================================================================================================== Capitalization Ratios (percent): Common stock equity 50.6 48.3 52.2 53.2 53.7 Preferred stock and securities 12.3 13.7 13.1 11.9 8.2 Long-term debt 37.1 38.0 34.7 34.9 38.1 ------------------------------------------------------------------------------------------------------------------------------- Total excluding amounts due within one year 100.0 100.0 100.0 100.0 100.0 =============================================================================================================================== Other Common Stock Data: Book value per share (year-end) $15.69 $13.82 $14.04 $13.91 $13.61 Market price per share: High 35 29 5/8 31 9/16 26 1/4 25 7/8 Low 20 3/8 22 1/16 23 15/16 19 7/8 21 1/8 Close 33 1/4 23 1/2 29 1/16 25 7/8 22 5/8 Market-to-book ratio (year-end) (percent) 211.9 170.0 207.0 186.0 166.2 Price-earnings ratio (year-end) (times) 16.5 12.6 20.8 18.2 13.5 Dividends paid (in millions) $873 $921 $933 $889 $846 Dividend yield (year-end) (percent) 4.0 5.7 4.6 5.0 5.6 Dividend payout ratio (percent) 66.5 72.2 95.6 91.5 75.1 Shares outstanding (in thousands): Average 653,087 685,163 696,944 685,033 672,590 Year-end 681,158 665,796 697,747 693,423 677,036 Stockholders of record (year-end) 160,116 174,179 187,053 200,508 215,246 ------------------------------------------------------------------------------------------------------------------------------- Customers (year-end) (in thousands): Residential 3,398 3,339 3,277 3,220 3,157 Commercial 527 513 497 479 464 Industrial 14 15 15 16 17 Other 5 4 5 5 5 ------------------------------------------------------------------------------------------------------------------------------- Total 3,944 3,871 3,794 3,720 3,643 =============================================================================================================================== Employees (year-end) 26,021 26,269 25,206 24,682 25,034 -------------------------------------------------------------------------------------------------------------------------------

II-41 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1996-2000 (continued) Southern Company and Subsidiary Companies 2000 Annual Report

----------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------------------------------------------------------------------------------------------------------------------- Operating Revenues (in millions): Residential $ 3,367 $3,105 $3,163 $2,837 $2,894 Commercial 2,922 2,743 2,763 2,595 2,559 Industrial 2,292 2,237 2,267 2,139 2,136 Other 32 1 79 76 76 ----------------------------------------------------------------------------------------------------------------------- Total retail 8,613 8,086 8,272 7,647 7,665 Sales for resale within service area 377 350 374 376 409 Sales for resale outside service area 600 473 522 510 429 ----------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 9,590 8,909 9,168 8,533 8,503 Other revenues 476 408 331 241 172 ----------------------------------------------------------------------------------------------------------------------- Total $10,066 $9,317 $9,499 $8,774 $8,675 ======================================================================================================================= Kilowatt-Hour Sales (in millions): Residential 46,213 43,402 43,503 39,217 40,117 Commercial 46,249 43,387 41,737 38,926 37,993 Industrial 56,746 56,210 55,331 54,196 52,798 Other 970 945 929 903 911 ----------------------------------------------------------------------------------------------------------------------- Total retail 150,178 143,944 141,500 133,242 131,819 Sales for resale within service area 9,579 9,440 9,847 9,884 10,935 Sales for resale outside service area 17,190 12,929 12,988 13,761 10,777 ----------------------------------------------------------------------------------------------------------------------- Total 176,947 166,313 164,335 156,887 153,531 ======================================================================================================================= Average Revenue Per Kilowatt-Hour (cents): Residential 7.29 7.15 7.27 7.23 7.21 Commercial 6.32 6.32 6.62 6.67 6.74 Industrial 4.04 3.98 4.10 3.95 4.04 Total retail 5.74 5.62 5.85 5.74 5.81 Sales for resale 3.65 3.68 3.92 3.75 3.86 Total sales 5.42 5.36 5.58 5.44 5.54 Average Annual Kilowatt-Hour Use Per Residential Customer 13,702 13,107 13,379 12,296 12,824 Average Annual Revenue Per Residential Customer $998.38 $937.81 $972.89 $889.50 $925.12 Plant Nameplate Capacity Owned (year-end) (megawatts) 32,807 31,425 31,161 31,146 31,076 Maximum Peak-Hour Demand (megawatts): Winter 26,370 25,203 21,108 22,969 22,631 Summer 31,359 30,578 28,934 27,334 27,190 System Reserve Margin (at peak) (percent) 8.1 8.5 12.8 15.0 14.0 Annual Load Factor (percent) 60.2 59.2 60.0 59.4 62.3 Plant Availability (percent): Fossil-steam 86.8 83.3 85.2 88.2 86.4 Nuclear 90.5 89.9 87.8 88.8 89.7 ----------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 72.3 73.1 72.8 74.7 73.3 Nuclear 15.1 15.7 15.4 16.5 16.7 Hydro 1.5 2.3 3.9 4.3 4.1 Oil and gas 4.0 2.8 3.3 1.7 1.5 Purchased power 7.1 6.1 4.6 2.8 4.4 ----------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 100.0 =======================================================================================================================

II-42 ALABAMA POWER COMPANY FINANCIAL SECTION II-43 MANAGEMENT'S REPORT Alabama Power Company 2000 Annual Report The management of Alabama Power Company has prepared -- and is responsible for -- the financial statements and related information included in this report. These statements were prepared in accordance with accounting principles generally accepted in the United States and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that the accounting records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The Company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of independent directors, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of Alabama Power Company in conformity with accounting principles generally accepted in the United States. /s/Elmer B. Harris Elmer B. Harris President and Chief Executive Officer /s/William B. Hutchins, III William B. Hutchins, III Executive Vice President, Chief Financial Officer, and Treasurer II-44 REPORT OF INDEPENDENT PUBLIC ACCOUNTANT To Alabama Power Company: We have audited the accompanying balance sheets and statements of capitalization of Alabama Power Company (an Alabama corporation and a wholly owned subsidiary of Southern Company) as of December 31, 2000 and 1999, and the related statements of income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages II-55 through II-73) referred to above present fairly, in all material respects, the financial position of Alabama Power Company as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/Arthur Andersen LLP Birmingham, Alabama February 28, 2001 II-45 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Alabama Power Company 2000 Annual Report RESULTS OF OPERATIONS Earnings Alabama Power Company's 2000 net income after dividends on preferred stock was $420 million, representing a $20 million (5 percent) increase from the prior year. This improvement is primarily attributable to an increase in territorial sales partially offset by increased non-fuel operating expenses. In 1999, earnings were $400 million, representing a 6 percent increase from the prior year. This increase was due to a decrease in amortization related to premiums paid to reacquire debt pursuant to an Alabama Public Service Commission (APSC) order. See Note 3 to the financial statements under "Retail Rate Adjustment Procedures" for additional details. The return on average common equity for 2000 was 13.58 percent compared to 13.85 percent in 1999, and 13.63 percent in 1998. Revenues Operating revenues for 2000 were $3.7 billion, reflecting an increase from 1999. The following table summarizes the principal factors that have affected operating revenues for the past two years: Increase (Decrease) Amount From Prior Year ---------------------------------------- 2000 2000 1999 ------------------------------------------------------------------- (in thousands) Retail -- Base revenues $2,108,939 $ 80,264 $ 10,022 Fuel cost recovery and other 843,768 61,326 20,418 ------------------------------------------------------------------- Total retail 2,952,707 141,590 30,440 ------------------------------------------------------------------- Sales for resale -- Non affiliates 461,730 46,353 (33,596) Affiliates 166,219 73,780 (11,123) ------------------------------------------------------------------- Total sales for resale 627,949 120,133 (44,719) Other operating revenues 86,805 20,264 13,380 ------------------------------------------------------------------- Total operating revenues $3,667,461 $281,987 $ (899) =================================================================== Percent change 8.33% (0.03)% -------------------------------------------------------------------- Retail revenues of $3.0 billion in 2000 increased $142 million (5 percent) from the prior year, compared with an increase of $30 million (1.1 percent) in 1999. The primary contributors to the increase in revenues in 2000 were the positive impact of weather on energy sales, continued economic growth in the Company's service territory, and an increase in fuel revenues. Fuel revenues have no effect on net income because they represent the recording of revenues to offset fuel expenses, including the fuel component of purchased energy. Fuel rates billed to customers are designed to fully recover fluctuating fuel costs over a period of time. Higher natural gas prices and decreased hydro production combined with increased costs of purchased power have resulted in a large under-recovery of fuel costs at December 31, 2000. Effective January 2001, the Company's fuel rate was increased to address this under-recovery. The Company expects to significantly reduce this balance over a three-year period. II-46 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2000 Annual Report The $20 million (30.5 percent) increase in other operating revenues in 2000 as compared to 1999 was due primarily to an increase in steam sales in conjunction with the operation of the Company's co-generation facilities. Retail revenues in 1999 increased $30 million (1.1 percent) over 1998. The predominant factors causing the rise in revenues in 1999 were continued growth in the Company's service territory, as well as an increase in fuel revenues. These increases were offset by the effect of milder temperatures in 1999 as compared to 1998. Energy sales for resale outside the service area are predominantly unit power sales under long-term contracts to Florida utilities. Economy energy and energy sold under short-term contracts are also sold for resale outside the service area. Revenues from long-term power contracts have both a capacity and energy component. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. These capacity and energy components of the unit power contracts were as follows: 2000 1999 1998 --------------------------------------- (in millions) Capacity $127 $122 $142 Energy 128 112 118 -------------------------------------------------------- Total $255 $234 $260 ======================================================== Capacity revenues from non-affiliates were relatively unchanged in 2000 compared to the prior year. Capacity revenues from non-affiliates in 1999 decreased 13.9 percent compared to 1998. This decrease was attributable to the lowering of the equity return under formula rate contracts, as well as other adjustments and true-ups related to contractual pricing. Revenues from sales to affiliated companies within the Southern electric system, as well as purchases of energy, will vary from year to year depending on demand and the availability and cost of generating resources at each company. These transactions did not have a significant impact on earnings. Kilowatt-hour (KWH) sales for 2000 and the percent change by year were as follows: KWH Percent Change -------------------------------------- 2000 2000 1999 -------------------------------------- (millions) Residential 16,772 6.8% (0.6)% Commercial 12,989 5.5 3.4 Industrial 22,101 0.7 1.7 Other 206 2.3 2.3 ------------ Total retail 52,068 3.8 1.4 Sales for resale - Non-affiliates 14,848 19.4 5.0 Affiliates 5,369 6.7 (15.8) ------------ Total 72,285 6.9% 0.5% --------------------------------------------------------------- The increases in 2000 and 1999 retail energy sales were primarily due to the strength of business and economic conditions in the Company's service area. In 2000, residential energy sales experienced a 6.8 percent increase over the prior year primarily as a result of warmer summer temperatures and cold winter weather conditions compared to 1999. Assuming normal weather, sales to retail customers are projected to grow approximately 2.9 percent annually on average during 2001 through 2005. Expenses In 2000, total operating expenses of $2.7 billion were up $235 million or 9.4 percent compared with the prior year. This increase was mainly due to a $183 million increase in fuel and purchased power costs, accompanied by a $23 million increase in maintenance expenses. In 1999, total operating expenses of $2.5 billion decreased $13 million or 0.5 percent compared with 1998. This decline was mainly due to a $15 million net decrease in fuel and purchased power costs and a $23 million decrease in maintenance expense, offset by an increase in taxes other than income taxes of $12 million. II-47 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2000 Annual Report Fuel costs constitute the single largest expense for the Company. The mix of fuel sources for generation of electricity is determined primarily by system load, the unit cost of fuel consumed, and the availability of hydro and nuclear generating units. The amount and sources of generation and the average cost of fuel per net KWH generated were as follows: -------------------------- 2000 1999 1998 -------------------------- Total generation (billions of KWHs) 65 63 63 Sources of generation (percent) -- Coal 72 72 72 Nuclear 19 20 18 Hydro 3 5 8 Oil & Gas 6 3 2 Average cost of fuel per net KWH generated (cents) -- 1.54 1.44 1.54 -------------------------------------------------------------- In 2000, total fuel and purchased power costs of $1.3 billion increased $183 million (16 percent), while total energy sales increased 4,658 million kilowatt hours (6.9 percent) compared with the amounts recorded in 1999. Fuel and purchased power costs in 1999 decreased $15 million (1 percent) compared to 1998. Purchased power consists of purchases from affiliates in the Southern electric system and non-affiliated companies. Purchased power transactions among the Company and its affiliates will vary from period to period depending on demand, the availability, and the variable production cost of generating resources at each company. During 2000, purchased power transactions among the Company and non-affiliates increased $72 million (77 percent) due to higher costs associated with these energy purchases and to offset decreased hydro generation, which was down significantly compared to 1999 as a result of lower stream flows. The 8.4 percent increase in maintenance expense in 2000 as compared to 1999 is primarily attributable to an increase in the maintenance of overhead distribution lines and additional accruals to partially replenish the natural disaster reserve. The 7.5 percent decrease in maintenance expenses in 1999 is primarily attributable to a decrease in distribution expenses. Depreciation and amortization expense increased 4.9 percent in 2000 and 2.6 percent in 1999. These increases reflect additions to property, plant, and equipment. Taxes other than income taxes increased $5 million (2.5 percent) in 2000 as compared to 1999. This increase is attributable to increases in real and personal property taxes and public utility license taxes. Total net interest and other charges increased $7 million (2.7 percent) in 2000. This increase results primarily from an increase in interest on long-term debt offset by a decrease in other interest charges. Total net interest and other charges decreased $38 million (12.3 percent) in 1999 primarily from a decrease in the amortization of premiums on reacquired debt pursuant to an APSC order. See Note 3 to the financial statements under "Retail Rate Adjustment Procedures" for additional details. Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in utility plant with long economic lives. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations, such as long-term debt and preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential The results of operations for the past three years are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors. The major factor is the ability of the Company to achieve energy sales growth while containing cost in a more competitive environment. The Company currently operates as a vertically integrated utility providing electricity to customers within its traditional service area located in the II-48 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2000 Annual Report state of Alabama. Prices for electricity provided by the Company to retail customers are set by the APSC under cost-based regulatory principles. Future earnings for the traditional business in the near term will depend upon growth in energy sales, which is subject to a number of factors. These factors include weather, competition, new short and long-term contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in the Company's traditional service area. The electric utility industry in the United States is continuing to evolve as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and/or commercial customers and sell excess energy generation to other utilities. Also, electricity sales for resale rates are affected by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been discussed in Alabama, none have been enacted. In October 2000, the APSC completed a two-year study of electric industry restructuring, concluding that (i) restructuring of the electric utility industry in Alabama was not in the public interest and (ii) the APSC itself would not mandate retail competition or electric industry restructuring without enabling state legislation. Electric utility restructuring would require numerous issues to be resolved, including significant ones relating to recovery of any stranded investments, full cost recovery of energy produced, and other issues related to the current energy crisis in California. As a result of this crisis, many states have either discontinued or delayed implementation of initiatives involving retail deregulation. The inability of the Company to recover its investments, including the regulatory assets described in Note 1 to the financial statements, could have a material adverse effect on the Company's financial statements. Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, if the Company does not remain a low-cost producer and provide quality service, then energy sales growth could be limited, and this could significantly erode earnings. On December 20, 1999, the Federal Energy Regulatory Commission (FERC) issued its final rule on Regional Transmission Organizations (RTOs). The order encouraged utilities owning transmission systems to form RTOs on a voluntary basis. After participating in the regional conferences with customers and other members of the public to discuss the formation of RTOs, utilities were required to make a filing with the FERC. Southern Company and its integrated southeast utility subsidiaries, including the Company, filed on October 16, 2000, a proposal for the creation of an RTO. The proposal is for the formation of a for-profit company that would have control of the bulk power transmission system of the Company and any other participating utilities. Participants would have the option to either maintain their ownership, divest, sell, or lease their assets to the proposed RTO. If the FERC accepts the proposal as filed, the creation of an RTO is not expected to have a material impact on the Company's financial statements. The outcome of this matter cannot now be determined. The Energy Act amended the Public Utility Holding Company Act of 1935 (PUHCA) to allow holding companies to form exempt wholesale generators to sell power largely free of regulation under PUHCA. These entities are able to own and operate power generating facilities and sell power to affiliates--under certain restrictions. The Company is constructing 1,230 megawatts of wholesale generating facilities in Autaugaville, Alabama to begin operation in 2003. Half of this capacity has been certified by the APSC to serve the Company's retail customers II-49 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2000 Annual Report for seven years. The other half of the capacity will be sold into the wholesale market and will not affect retail rates. Southern Company is aggressively working to maintain and expand its share of wholesale sales in the southeastern power markets. In January 2001, Southern Company announced the formation of a new subsidiary--Southern Power Company (SPC). The new subsidiary will own, manage, and finance wholesale generating assets in the Southeast. SPC will be the primary growth engine for Southern Company's market-based energy business. Energy from its assets will be marketed to wholesale customers under the Southern Company name. Currently, the Company plans to transfer the generating facilities under construction in Autaugaville to SPC in 2001. The Company will enter into a purchased power agreement for half of the capacity of these generating facilities to serve its territorial customers. In accordance with Financial Accounting Standards Board (FASB) Statement No. 87, Employers' Accounting for Pensions, the Company recorded non-cash income of approximately $54 million in 2000. Pension plan income in 2001 is expected to be less as a result of plan amendments. Future pension income is dependent on several factors including trust earnings and changes to the plan. For more information, see Note 2. Rates to retail customers served by the Company are regulated by the APSC. Rates for the Company can be adjusted periodically within certain limitations based on earned retail rate of return compared with an allowed return. There is a moratorium on any periodic retail rate increases (but not decreases) until July 2001. In December 1995, the APSC issued an order authorizing the Company to reduce balance sheet items -- such as plant and deferred charges -- at any time the Company's actual base rate revenues exceed the budgeted revenues. In April 1997, the APSC issued an additional order authorizing the Company to reduce balance sheet asset items. This order authorizes the reduction of such items up to an amount equal to five times the total estimated annual revenue reduction resulting from future rate reductions initiated by the Company. In April 2000, the APSC approved an amendment to the Company's existing rate structure to provide for the recovery of retail costs associated with certified purchased power agreements. In November 2000, the APSC certified a seven-year purchased power agreement pertaining to 615 megawatts of the Company's wholesale generating facilities under construction in Autaugaville, Alabama, all of which will be delivered in 2003. In addition, the APSC certified a seven-year purchased power agreement with a third party for approximately 630 megawatts; one half of the power will be delivered in 2003 while the remaining half is scheduled for delivery in 2004. The Company is involved in various matters being litigated. See Note 3 to the financial statements for information regarding material issues that could possibly affect future earnings. Compliance costs related to current and future environmental laws and regulations could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." The staff of the Securities and Exchange Commission (SEC) has questioned certain of the current accounting practices of the electric utility industry -- including the Company -- regarding the recognition, measurement, and classification in the financial statements of decommissioning costs for nuclear generating facilities. In response to these questions, the FASB is reviewing the accounting for liabilities related to the retirement of long-lived assets, including nuclear decommissioning. If the FASB issues new accounting rules, the estimated costs of retiring the Company's nuclear and other facilities may be required to be recorded as liabilities in the Balance Sheets. Also, the annual provisions for such costs could change. Because of the Company's current ability to recover asset retirement costs through rates, these changes would not have a significant adverse effect on results of operations. See Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning" for additional information. The Company is subject to the provisions of FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operations is no longer subject to these provisions, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable, and determine if any other assets have been impaired. See Note 1 to the financial statements under II-50 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2000 Annual Report "Regulatory Assets and Liabilities" for additional information. New Accounting Standard In June 2000, FASB issued Statement No. 138, an amendment of Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Statement No. 133, as amended, establishes accounting and reporting standards for derivative instruments and for hedging activities. Statement No. 133 requires that certain derivative instruments be recorded in the balance sheet as either an asset or liability measured at fair value, and that changes in the fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company utilizes financial instruments to reduce its exposure to changes in foreign currency exchange rates. The Company also enters into commodity related forward contracts to limit exposure to changing prices on certain fuel purchases and electricity purchases and sales. Substantially all of the Company's bulk energy purchases and sales meet the definition of a derivative under Statement No. 133. In many cases, these transactions meet the normal purchase and sale exception and the related contracts will continue to be accounted for under the accrual method. Certain of these instruments qualify as cash flow hedges resulting in the deferral of related gains and losses in other comprehensive income until the hedged transactions occur. Any ineffectiveness will be recognized currently in net income. However, others will be required to be marked to market through current period income. The Company adopted Statement No. 133 effective January 1, 2001, with no material impact. The application of the new rules is still evolving and further guidance from FASB is expected, which could additionally impact the Company's financial statements. Exposure to Market Risk Due to cost-based rate regulation, the Company has limited exposure to market volatility in interest rates, commodity fuel prices, and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statement as incurred. At December 31, 2000, exposure from these activities was not material to the Company's financial position, results of operations, or cash flows. Also, based on the Company's overall interest rate exposure at December 31, 2000, a near-term 100 basis point change in interest rates would not materially affect the financial statements. FINANCIAL CONDITION Overview The Company's financial condition remained stable in 2000. This stability is the continuation over recent years of growth in retail energy sales and cost control measures combined with a significant lowering of the cost of capital, achieved through the refinancing and/or redemption of higher-cost long-term debt and preferred stock. The Company had gross property additions of $871 million in 2000. The majority of funds needed for gross property additions for the last several years have been provided from operating activities, principally from earnings and non-cash charges to income such as depreciation and deferred income taxes. The Statements of Cash Flows provide additional details. Capital Structure The Company's ratio of common equity to total capitalization -- including short-term debt -- was 42.2 percent in 2000 and 42.4 percent in 1999 and 1998. During 2000, the Company issued $250 million of senior notes, the proceeds of which were used primarily to repay short-term indebtedness. Capital Requirements Capital expenditures are estimated to be $735 million for 2001, $891 million for 2002, and $625 million for 2003. See Note 4 to the financial statements for additional details. Actual construction costs may vary from estimates because of changes in such factors as: business conditions; environmental regulations; nuclear plant regulations; load projections; the cost and efficiency of construction labor, II-51 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2000 Annual Report equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Other Capital Requirements The Company will continue to retire higher-cost debt and preferred stock and replace these obligations with lower-cost capital if market conditions permit. Environmental Matters In November 1990, the Clean Air Act Amendments (Clean Air Act) were signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- significantly affected the integrated Southeast utility subsidiaries of Southern Company, including the Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants were required in two phases. Phase I compliance began in 1995 and some 50 generating plants within the operating companies of Southern Company were brought into compliance with Phase I requirements. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. Construction expenditures for Phase I compliance totaled approximately $25 million for the Company. Phase II sulfur dioxide compliance was required in 2000. The Company used emission allowances and fuel switching to comply with Phase II requirements. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired units as necessary to meet Phase II limits. Compliance with Phase II increased total construction expenditures through 2000 by $63 million The one-hour ozone non-attainment standards for the Birmingham area have been set and must be implemented in May 2003. Two generating plants will be affected in the Birmingham area. Additional construction expenditures for compliance with these new rules are currently estimated at approximately $230 million. In July 1997, the Environmental Protection Agency (EPA), revised the national ambient air quality standards for ozone and particulate matter. This revision made the standards significantly more stringent. In the subsequent litigation of these standards, the U. S. Supreme Court recently dismissed certain challenges but found the EPA's implementation program for the new ozone standard unlawful and remanded it to the EPA. In addition, the Federal District of Columbia Circuit Court of Appeals will address other legal challenges to these standards in mid-2001. If the standards are eventually upheld, implementation could be required by 2007 to 2010. In September 1998, the EPA issued the final regional nitrogen oxide reduction rules to the states for implementation. Compliance is required by May 31, 2004. The final rule affects 21 states including Alabama. If standards and rules for implementation are upheld, the additional construction expenditures for compliance are estimated at approximately $189 million. A significant portion of costs related to the acid rain and ozone non-attainment provisions of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. On November 3, 1999, the EPA brought a civil action against the Company in the U. S. District Court. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to coal-fired generating facilities at the Company's Plants Miller, Barry, and Gorgas. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued a notice of violation to the Company relating to these specific facilities, as well as Plants Greene County and Gaston. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. The complaint and notice of violation allege that the Company had failed to secure necessary permits or install additional pollution control equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. On August 1, 2000, the U.S. District Court granted the Company's motion to dismiss for lack of jurisdiction in Georgia and granted the system service II-52 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2000 Annual Report company's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. On January 12, 2001, the EPA re-filed its claims against the Company in federal district court in Birmingham, Alabama. The EPA did not include the system service company in the new complaint. The Company believes that it complied with applicable laws and EPA regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. In December 2000, the EPA completed its utility studies for mercury and other hazardous air pollutants (HAPS) and issued a determination that an emission control program for mercury and perhaps, other HAPS is warranted. The program is to be developed over the next four years under the Maximum Achievable Control Technology (MACT) provisions of the Clean Air Act. This determination is being challenged in the courts. In January 2001, the EPA proposed guidance for the determination of Best Available Retrofit Technology (BART) emission controls under the Regional Haze Regulations. Installation of BART controls would likely be required around 2010. Litigation of the BART rules is probable in the near future. Implementation of the final state rules for these initiatives could require substantial further reductions in nitrogen oxide, sulfur dioxide, mercury, and other HAPS emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. Reviews by the new administration in Washington, D.C. add to the uncertainties associated with BART guidance and the MACT determination for mercury and other HAPS. The EPA and state environmental regulatory agencies are reviewing and evaluating various other matters including: control strategies to reduce regional haze; limits on pollutant discharges to impaired waters; water intake restrictions; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur substantial costs to clean up properties. The Company conducts studies to determine the extent of any required cleanup costs and will recognize in the financial statements costs to clean up known sites. The Company has not incurred any cleanup costs to date. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect the Company. The impact of new legislation -- if any -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. Sources of Capital The Company plans to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily from internal sources. However, the type and timing of any financings - if needed - will depend on market conditions and regulatory approval. In recent years, financings primarily have utilized unsecured debt and trust preferred securities. II-53 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2000 Annual Report As required by the Nuclear Regulatory Commission and as ordered by the APSC, the Company has established external trust funds for nuclear decommissioning costs. In 1994, the Company also established an external trust fund for postretirement benefits as ordered by the APSC. The cumulative effect of funding these items over a long period will diminish internally funded capital and may require capital from other sources. For additional information concerning nuclear decommissioning costs, see Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning." Cautionary Statement Regarding Forward-Looking Information This Annual Report includes forward-looking statements in addition to historical information. Forward-looking information includes, among other things, statements concerning projected retail sales growth and scheduled completion of new generation. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology. The Company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include the impact of recent and future federal and state regulatory change, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry and also changes in environmental and other laws and regulations to which the Company is subject, as well as changes in application of existing laws and regulations; current and future litigation, including the pending EPA civil action against the Company; the extent and timing of the entry of additional competition in the markets of the Company; potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial; internal restructuring or other restructuring options, that may be pursued by the Company; state and federal rate regulation in the United States; political, legal and economic conditions and developments in the United States; financial market conditions and the results of financing efforts; the impact of fluctuations in commodity prices, interest rates and customer demand; weather and other natural phenomena; the ability of the Company to obtain additional generating capacity at competitive prices; and other factors discussed elsewhere herein and in other reports (including Form 10-K) filed from time to time by the Company with the SEC. II-54 STATEMENTS OF INCOME For the Years Ended December 31, 2000, 1999, and 1998 Alabama Power Company 2000 Annual Report

----------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 ----------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Retail sales $2,952,707 $2,811,117 $2,780,677 Sales for resale -- Non-affiliates 461,730 415,377 448,973 Affiliates 166,219 92,439 103,562 Other revenues 86,805 66,541 53,161 ----------------------------------------------------------------------------------------------------------------------------- Total operating revenues 3,667,461 3,385,474 3,386,373 ----------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 963,275 855,632 900,309 Purchased power -- Non-affiliates 164,881 93,204 92,998 Affiliates 184,014 180,563 150,897 Other 538,529 531,696 527,954 Maintenance 301,046 277,724 300,383 Depreciation and amortization 364,618 347,574 338,822 Taxes other than income taxes 209,673 204,645 193,049 ----------------------------------------------------------------------------------------------------------------------------- Total operating expenses 2,726,036 2,491,038 2,504,412 ----------------------------------------------------------------------------------------------------------------------------- Operating Income 941,425 894,436 881,961 Other Income (Expense): Interest income 38,167 55,896 68,553 Equity in earnings of unconsolidated subsidiaries (Note 5) 3,156 2,650 5,271 Other, net (7,909) (24,861) (37,050) ----------------------------------------------------------------------------------------------------------------------------- Earnings Before Interest and Income Taxes 974,839 928,121 918,735 ----------------------------------------------------------------------------------------------------------------------------- Interest and Other: Interest expense, net 251,663 245,235 285,940 Distributions on preferred securities of subsidiary (Note 8) 25,549 24,662 22,354 ----------------------------------------------------------------------------------------------------------------------------- Total interest and other, net 277,212 269,897 308,294 ----------------------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 697,627 658,224 610,441 Income taxes (Note 7) 261,555 241,880 218,575 ----------------------------------------------------------------------------------------------------------------------------- Net Income 436,072 416,344 391,866 Dividends on Preferred Stock 16,156 16,464 14,643 ----------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 419,916 $ 399,880 $ 377,223 ============================================================================================================================= The accompanying notes are an integral part of these statements.

II-55 STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2000, 1999, and 1998 Alabama Power Company 2000 Annual Report

--------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 --------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 436,072 $ 416,344 $ 391,866 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 412,998 403,332 425,167 Deferred income taxes and investment tax credits, net 66,166 29,039 79,430 Other, net (37,703) (12,661) (66,739) Changes in certain current assets and liabilities -- Receivables, net (125,652) 33,509 49,747 Fossil fuel stock 23,967 (1,344) (9,052) Materials and supplies (10,662) (17,968) 11,932 Accounts payable 107,702 (38,556) 26,583 Energy cost recovery, retail (69,190) (97,869) (95,427) Other 23,336 5,930 (9,803) ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 827,034 719,756 803,704 ---------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (870,581) (809,044) (610,132) Other (49,414) (72,218) (52,940) ---------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (919,995) (881,262) (663,072) ---------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Increase (decrease) in notes payable, net 184,519 96,824 (306,882) Proceeds -- Other long-term debt 250,000 751,650 1,462,990 Preferred securities - 50,000 - Preferred stock - - 200,000 Capital contributions from parent company 204,371 204,347 30,000 Redemptions -- First mortgage bonds (111,009) (470,000) (771,108) Other long-term debt (5,987) (104,836) (107,776) Preferred stock - (50,000) (88,000) Payment of preferred stock dividends (16,110) (15,788) (15,596) Payment of common stock dividends (417,100) (399,600) (367,100) Other (951) (15,864) (66,869) ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided from financing activities 87,733 46,733 (30,341) ---------------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (5,228) (114,773) 110,291 Cash and Cash Equivalents at Beginning of Period 19,475 134,248 23,957 ---------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 14,247 $ 19,475 $ 134,248 ================================================================================================================================== Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of amount capitalized) $237,066 $229,305 $234,360 Income taxes (net of refunds) 175,303 170,121 188,942 ---------------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.

II-56 BALANCE SHEETS At December 31, 2000 and 1999 Alabama Power Company 2000 Annual Report

--------------------------------------------------------------------------------------------------------------------------------- Assets 2000 1999 --------------------------------------------------------------------------------------------------------------------------------- (in thousands) Current Assets: Cash and cash equivalents $ 14,247 $ 19,475 Receivables -- Customer accounts receivable 337,870 265,900 Under-recovered retail fuel clause revenue 237,817 168,627 Other accounts and notes receivable 60,315 42,137 Affiliated companies 95,704 40,083 Accumulated provision for uncollectible accounts (6,237) (4,117) Refundable income taxes - 17,997 Fossil fuel stock, at average cost 60,615 84,582 Materials and supplies, at average cost 178,299 167,637 Other 52,624 46,011 --------------------------------------------------------------------------------------------------------------------------------- Total current assets 1,031,254 848,332 --------------------------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service 12,431,575 11,783,078 Less accumulated provision for depreciation 5,107,822 4,901,384 --------------------------------------------------------------------------------------------------------------------------------- 7,323,753 6,881,694 Nuclear fuel, at amortized cost 94,050 106,836 Construction work in progress 744,974 715,153 --------------------------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 8,162,777 7,703,683 --------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Equity investments in unconsolidated subsidiaries (Note 5) 38,623 34,891 Nuclear decommissioning trusts 313,895 286,653 Other 13,612 12,156 --------------------------------------------------------------------------------------------------------------------------------- Total other property and investments 366,130 333,700 --------------------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 7) 345,550 330,405 Prepaid pension costs 268,259 213,971 Debt expense, being amortized 8,758 9,563 Premium on reacquired debt, being amortized 76,020 83,895 Department of Energy assessments 24,588 27,685 Other 95,772 97,470 --------------------------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 818,947 762,989 --------------------------------------------------------------------------------------------------------------------------------- Total Assets $10,379,108 $9,648,704 ================================================================================================================================= The accompanying notes are an integral part of these balance sheets.

II-57 BALANCE SHEETS At December 31, 2000 and 1999 Alabama Power Company 2000 Annual Report

------------------------------------------------------------------------------------------------------------------------------ Liabilities and Stockholder's Equity 2000 1999 ------------------------------------------------------------------------------------------------------------------------------ (in thousands) Current Liabilities: Securities due within one year (Note 10) $ 844 $ 100,943 Notes payable 281,343 96,824 Accounts payable -- Affiliated 124,534 91,315 Other 209,205 140,842 Customer deposits 36,814 31,704 Taxes accrued -- Income taxes 65,505 100,569 Other 19,471 18,295 Interest accrued 33,186 26,365 Vacation pay accrued 31,711 30,112 Other 97,743 84,267 ------------------------------------------------------------------------------------------------------------------------------ Total current liabilities 900,356 721,236 ------------------------------------------------------------------------------------------------------------------------------ Long-term debt (See accompanying statements) 3,425,527 3,190,378 ------------------------------------------------------------------------------------------------------------------------------ Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 7) 1,401,424 1,240,344 Deferred credits related to income taxes (Note 7) 222,485 265,102 Accumulated deferred investment tax credits 249,280 260,367 Employee benefits provisions 84,816 82,298 Prepaid capacity revenues (Note 6) 58,377 79,703 Other 176,559 155,901 ------------------------------------------------------------------------------------------------------------------------------ Total deferred credits and other liabilities 2,192,941 2,083,715 ------------------------------------------------------------------------------------------------------------------------------ Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes (See accompanying statements) (Note 8) 347,000 347,000 ------------------------------------------------------------------------------------------------------------------------------ Cumulative preferred stock (See accompanying statements) 317,512 317,512 ------------------------------------------------------------------------------------------------------------------------------ Common stockholder's equity (See accompanying statements) 3,195,772 2,988,863 ------------------------------------------------------------------------------------------------------------------------------ Total Liabilities and Stockholder's Equity $10,379,108 $9,648,704 ============================================================================================================================== The accompanying notes are an integral part of these balance sheets.

II-58 STATEMENTS OF CAPITALIZATION At December 31, 2000 and 1999 Alabama Power Company 2000 Annual Report

---------------------------------------------------------------------------------------------------------------------------------- 2000 1999 2000 1999 ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Long-Term Debt: First mortgage bonds -- Maturity Interest Rates -------- -------------- March 1, 2000 6.00% $ - $ 100,000 2023 through 2024 7.30% - 9.00% 488,991 500,000 ---------------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 488,991 600,000 ---------------------------------------------------------------------------------------------------------------------------------- Senior notes -- 5.35% due November 15, 2003 156,200 156,200 7.850% due May 15, 2003 250,000 - 7.125% due August 15, 2004 250,000 250,000 5.49% due November 1, 2005 225,000 225,000 7.125% due October 1, 2007 200,000 200,000 5.375% due October 1, 2008 160,000 160,000 6.25% to 7.125% due 2010-2048 1,202,581 1,207,622 ---------------------------------------------------------------------------------------------------------------------------------- Total senior notes 2,443,781 2,198,822 ---------------------------------------------------------------------------------------------------------------------------------- Other long-term debt -- Pollution control revenue bonds -- Collateralized: 5.50% due 2024 24,400 24,400 Variable rates (4.73% to 5.05% at 1/1/01) due 2015-2017 89,800 89,800 Non-collateralized: 6.69% due 2021 65,000 - Variable rates (3.50% to 5.30% at 1/1/01) due 2021-2028 360,940 425,940 ---------------------------------------------------------------------------------------------------------------------------------- Total other long-term debt (Note 9) 540,140 540,140 ---------------------------------------------------------------------------------------------------------------------------------- Capitalized lease obligations 4,165 5,111 ---------------------------------------------------------------------------------------------------------------------------------- Unamortized debt premium (discount), net (50,706) (52,752) ---------------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $179.6 million) 3,426,371 3,291,321 Less amount due within one year 844 100,943 ---------------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year $3,425,527 $3,190,378 46.9% 46.6% ----------------------------------------------------------------------------------------------------------------------------------

II-59 STATEMENTS OF CAPITALIZATION (continued) At December 31, 2000 and 1999 Alabama Power Company 2000 Annual Report

---------------------------------------------------------------------------------------------------------------------------------- 2000 1999 2000 1999 ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Company Obligated Mandatorily Redeemable Preferred Securities: (Note 8) $25 liquidation value -- 7.375% $ 97,000 $ 97,000 7.60% 200,000 200,000 Auction rate (6.52% at 1/1/01) 50,000 50,000 ---------------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $25.6 million) 347,000 347,000 4.8 5.1 ---------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock: $100 par or stated value -- 4.20% to 4.92% 47,512 47,512 $25 par or stated value -- 5.20% to 5.83% 200,000 200,000 Auction rates -- at 1/1/01 5.14% to 5.25% 70,000 70,000 ---------------------------------------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $16.5 million) 317,512 317,512 4.4 4.6 ---------------------------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity: Common stock, par value $40 per share -- Authorized - 6,000,000 shares Outstanding - 5,608,955 shares in 2000 and 1999 Par value 224,358 224,358 Paid-in capital 1,743,363 1,538,992 Premium on Preferred Stock 99 99 Retained earnings 1,227,952 1,225,414 ---------------------------------------------------------------------------------------------------------------------------------- Total common stockholder's equity 3,195,772 2,988,863 43.9 43.7 ---------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $7,285,811 $6,843,753 100.0% 100.0% ================================================================================================================================== The accompanying notes are an integral part of these statements.

II-60 STATEMENTS OF COMMON STOCKHOLDER'S EQUITY For the Years Ended December 31, 2000, 1999, and 1998 Alabama Power Company 2000 Annual Report

--------------------------------------------------------------------------------------------------------------------------- Premium on Common Paid-In Preferred Retained Stock Capital Stock Earnings Total --------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at January 1, 1998 $224,358 $1,304,645 $99 $1,221,467 $2,750,569 Net income after dividends on preferred stock - - - 377,223 377,223 Capital contributions from parent company - 30,000 - - 30,000 Cash dividends on common stock - - - (367,100) (367,100) Other - - - (6,625) (6,625) ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 224,358 1,334,645 99 1,224,965 2,784,067 Net income after dividends on preferred stock - - - 399,880 399,880 Capital contributions from parent company - 204,347 - - 204,347 Cash dividends on common stock - - - (399,600) (399,600) Other - - - 169 169 ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 224,358 1,538,992 99 1,225,414 2,988,863 Net income after dividends on preferred stock - - - 419,916 419,916 Capital contributions from parent company - 204,371 - - 204,371 Cash dividends on common stock - - - (417,100) (417,100) Other - - - (278) (278) ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 $224,358 $1,743,363 $99 $1,227,952 $3,195,772 ============================================================================================================================ The accompanying notes are an integral part of these statements.

II-61 NOTES TO FINANCIAL STATEMENTS Alabama Power Company 2000 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Alabama Power Company (the Company) is a wholly owned subsidiary of Southern Company, which is the parent company of five integrated Southeast utilities, a system service company (SCS), Southern Communications Services (Southern LINC), Southern Company Energy Solutions, Southern Nuclear Operating Company (Southern Nuclear), Mirant Corporation--formerly Southern Energy, Inc.-- and other direct and indirect subsidiaries. The integrated Southeast utilities --Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric and Power Company-- provide electric service in four states. Contracts among the integrated Southeast utilities - related to jointly-owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) and/or the Securities and Exchange Commission (SEC). SCS provides, at cost, specialized services to Southern Company and its subsidiary companies. Southern LINC provides digital wireless communications services to the integrated Southeast utilities and also markets these services to the public within the Southeast. Southern Company Energy Solutions develops new business opportunities related to energy products and services. Southern Nuclear provides services to Southern Company's nuclear power plants. Mirant acquires, develops, builds, owns, and operates power production and delivery facilities and provides a broad range of energy-related services to utilities and industrial companies in selected countries around the world. Mirant businesses include independent power projects, integrated utilities, a distribution company, and energy trading and marketing businesses outside the southeastern United States. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The Company is also subject to regulation by the FERC and the Alabama Public Service Commission (APSC). The Company follows accounting principles generally accepted in the United States and complies with the accounting policies and practices prescribed by its respective regulatory commissions. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements have been reclassified to conform with current year presentation. Related-Party Transactions The Company has an agreement with SCS under which the following services are rendered to the Company at cost: general and design engineering, purchasing, accounting and statistical, finance and treasury, tax, information resources, marketing, auditing, insurance and pension administration, human resources, systems and procedures, and other services with respect to business and operations and power pool transactions. Costs for these services amounted to $187 million, $218 million, and $201 million during 2000, 1999, and 1998, respectively. The Company also has an agreement with Southern Nuclear to operate Plant Farley and provide the following nuclear-related services at cost: general executive and advisory services; general operations, management and technical services; administrative services including procurement, accounting, statistical, and employee relations; and other services with respect to business and operations. Costs for these services amounted to $148 million, $135 million, and $137 million during 2000, 1999, and 1998, respectively. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. II-62 NOTES (continued) Alabama Power Company 2000 Annual Report Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to the following: 2000 1999 ----------------------- (in millions) Deferred income tax charges $ 346 $ 330 Deferred income tax credits (222) (265) Premium on reacquired debt 76 84 Department of Energy assessments 25 28 Vacation pay 32 30 Natural disaster reserve (18) (19) Other, net 30 59 ---------------------------------------------------------------- Total $ 269 $ 247 ================================================================ In the event that a portion of the Company's operations is no longer subject to the provisions of FASB Statement No. 71, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair values. Revenues and Fuel Costs The Company currently operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located within the state of Alabama, and to wholesale customers in the southeast. Revenues are recognized as services are rendered. Unbilled revenues are accrued at the end of each fiscal period. Fuel revenues have no effect on net income because they represent the recording of revenues to offset fuel expenses, including the fuel component of purchased energy. Fuel rates billed to customers are designed to fully recover fluctuating fuel costs over a period of time. Higher natural gas prices and decreased hydro production combined with increased costs of purchased power have resulted in a large under-recovery of fuel costs at December 31, 2000. Effective January 2001, the Company's fuel rate was increased to address this under-recovery. The Company expects to significantly reduce this balance over a three-year period. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts continue to average less than 1 percent of revenues. Fuel expense includes the amortization of the cost of nuclear fuel and a charge, based on nuclear generation, for the permanent disposal of spent nuclear fuel. Total charges for nuclear fuel included in fuel expense amounted to $61 million in 2000, $63 million in 1999, and $59 million in 1998. The Company has a contract with the U.S. Department of Energy (DOE) that provides for the permanent disposal of spent nuclear fuel. The DOE failed to begin disposing of spent fuel in January 1998 as required by the contract, and the Company is pursuing legal remedies against the government for breach of contract. Sufficient fuel storage capacity is available at Plant Farley to maintain full-core discharge capability until the refueling outage scheduled in 2006 for Farley Unit 1 and the refueling outage scheduled in 2008 for Farley Unit 2. Procurement of on-site dry spent fuel storage capacity at Plant Farley is in progress, with the intent to place the capacity in operation as early as 2005. Also, the Energy Policy Act of 1992 required the establishment of a Uranium Enrichment Decontamination and Decommissioning Fund, which is funded in part by a special assessment on utilities with nuclear plants. This assessment is being paid over a 15-year period, which began in 1993. This fund will be used by the DOE for the decontamination and decommissioning of its nuclear fuel enrichment facilities. The law provides that utilities will recover these payments in the same manner as any other fuel expense. The Company estimates its remaining liability under this law to be approximately $25 million at December 31, 2000. This obligation is recognized in the accompanying Balance Sheets. Depreciation and Nuclear Decommissioning Depreciation of the original cost of depreciable utility plant in service is provided primarily by using composite straight-line rates, which approximated 3.2 percent in 2000, 1999 and 1998. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost -- together with the cost of removal, less salvage -- is charged to accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected cost of decommissioning nuclear facilities and removal of other facilities. II-63 NOTES (continued) Alabama Power Company 2000 Annual Report The Nuclear Regulatory Commission (NRC) requires all licensees operating commercial nuclear power reactors to establish a plan for providing, with reasonable assurance, funds for decommissioning. The Company has established external trust funds to comply with the NRC's regulations. Amounts previously recorded in internal reserves are being transferred into the external trust funds over periods approved by the APSC. The NRC's minimum external funding requirements are based on a generic estimate of the cost to decommission the radioactive portions of a nuclear unit based on the size and type of reactor. The Company has filed plans with the NRC to ensure that -- over time -- the deposits and earnings of the external trust funds will provide the minimum funding amounts prescribed by the NRC. Site study cost is the estimate to decommission the facility as of the site study year, and ultimate cost is the estimate to decommission the facility as of retirement date. The estimated costs of decommissioning -- both site study costs and ultimate costs - based on the most current study for Plant Farley were as follows: Site study basis (year) 1998 Decommissioning periods: Beginning year 2017 Completion year 2031 ------------------------------------------------------------- (in millions) Site study costs: Radiated structures $ 629 Non-radiated structures 60 ------------------------------------------------------------- Total $ 689 ============================================================= (in millions) Ultimate costs: Radiated structures $1,868 Non-radiated structures 178 ------------------------------------------------------------- Total $2,046 ============================================================= The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The actual decommissioning costs may vary from the above estimates because of changes in the assumed date of decommissioning, changes in NRC requirements, or changes in the assumptions used in making estimates. Annual provisions for nuclear decommissioning are based on an annuity method as approved by the APSC. The amount expensed in 2000 and fund balances as of December 31, 2000 were: (in millions) Amount expensed in 2000 $ 18 ---------------------------------------------------------- Accumulated provisions: External trust funds, at fair value $314 Internal reserves 38 ---------------------------------------------------------- Total $352 ========================================================== All of the Company's decommissioning costs are approved for recovery by the APSC through the ratemaking process. Significant assumptions include an estimated inflation rate of 4.5 percent and an estimated trust earnings rate of 7.0 percent. The Company expects the APSC to periodically review and adjust, if necessary, the amounts collected in rates for the anticipated cost of decommissioning. Income Taxes The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Allowance For Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. The amount of AFUDC capitalized was $43 million in 2000, $23 million in 1999, and $9 million in 1998. The composite rate used to determine the amount of allowance was 9.6 percent in 2000, 8.8 percent in 1999, and 9.0 percent in 1998. AFUDC, net of income tax, as a percent of net income after dividends on preferred stock was 8.4 percent in 2000, 4.7 percent in 1999, and 1.8 percent in 1998. II-64 NOTES (continued) Alabama Power Company 2000 Annual Report Property, Plant, and Equipment Property, plant, and equipment is stated at original cost. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction. The cost of maintenance, repairs and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property --exclusive of minor items of property -- is capitalized. Financial Instruments The Company uses derivative financial instruments to hedge exposures to fluctuations in foreign currency exchange rates and certain commodity prices. Gains and losses on qualifying hedges are deferred and recognized either in income or as an adjustment to the carrying amount of the hedged item when the transaction occurs. The Company is exposed to losses related to financial instruments in the event of counterparties' nonperformance. The Company has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate the Company's exposure to counterparty credit risk. The Company is unaware of any counterparties that will fail to meet their obligations. The Company has firm purchase commitments for equipment that require payment in euros. As a hedge against fluctuations in the exchange rate for euros, the Company entered into forward currency swaps. The notional amount is 16 million euros maturing in 2001 through 2002. At December 31, 2000, the unrecognized gain on these swaps was approximately $1 million. Other Company financial instruments for which the carrying amount did not equal fair value at December 31 are as follows: Carrying Fair Amount Value ------------------------- (in millions) Long-term debt: At December 31, 2000 $3,422 $3,375 At December 31, 1999 3,286 3,045 Preferred Securities: At December 31, 2000 347 344 At December 31, 1999 347 299 -------------------------------------------------------------- The fair value for long-term debt and preferred securities was based on either closing market prices or closing prices of comparable instruments. Cash and Cash Equivalents For purposes of the financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. Natural Disaster Reserve In accordance with an APSC order the Company has established a Natural Disaster Reserve. The Company is allowed to accrue $250 thousand per month, until the maximum accumulated provision of $32 million is attained. Higher accruals to restore the reserve to its authorized level are allowed whenever the balance in the reserve declines below $22.4 million. At December 31, 2000, the reserve balance was $18 million. 2. RETIREMENT BENEFITS The Company has defined benefit, trusteed, pension plans that cover substantially all employees. The Company provides certain medical care and life insurance benefits for retired employees. Substantially all employees may become eligible for such benefits when they retire. The Company funds trusts to the II-65 NOTES (continued) Alabama Power Company 2000 Annual Report extent deductible under federal income tax regulations or to the extent required by the APSC and FERC. In late 2000, the Company adopted several pension and postretirement benefit plan changes that had the effect of increasing benefits to both current and future retirees. The effects of these changes will be to increase annual pension and postretirement benefits cost by approximately $8 million and $12 million, respectively. The measurement date for plan assets and obligations is September 30 of each year. The weighted average rates assumed in the actuarial calculations for both the pension and postretirement benefit plans were: 2000 1999 ------------------------------------------------------------ Discount 7.50% 7.50% Annual salary increase 5.00 5.00 Long-term return on plan assets 8.50 8.50 ------------------------------------------------------------ Pension Plan Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations --------------------------- 2000 1999 --------------------------------------------------------------- (in millions) Balance at beginning of year $873 $868 Service cost 22 23 Interest cost 64 57 Benefits paid (51) (51) Actuarial gain and employee transfers (8) (24) --------------------------------------------------------------- Balance at end of year $900 $873 =============================================================== Plan Assets --------------------------- 2000 1999 --------------------------------------------------------------- (in millions) Balance at beginning of year $1,647 $1,461 Actual return on plan assets 302 245 Benefits paid (51) (51) Employee transfers 23 (8) --------------------------------------------------------------- Balance at end of year $1,921 $1,647 =============================================================== The accrued pension costs recognized in the Balance Sheets were as follows: 2000 1999 --------------------------------------------------------------- (in millions) Funded status $1,021 $ 774 Unrecognized transition obligation (21) (25) Unrecognized prior service cost 33 36 Unrecognized net actuarial gain (765) (571) --------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 268 $ 214 =============================================================== Components of the pension plans' net periodic cost were as follows: 2000 1999 1998 ------------------------------------------------------------------ (in millions) Service cost $ 23 $ 23 $ 22 Interest cost 64 57 59 Expected return on plan assets (119) (109) (102) Recognized net actuarial gain (20) (14) (16) Net amortization (2) (2) (2) ------------------------------------------------------------------ Net pension income $(54) $ (45) $(39) ================================================================== Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations --------------------------- 2000 1999 ---------------------------------------------------------------- (in millions) Balance at beginning of year $264 $278 Service cost 4 5 Interest cost 19 18 Benefits paid (12) (10) Actuarial gain and employee transfers (11) (27) --------------------------------------------------------------- Balance at end of year $264 $264 =============================================================== Plan Assets --------------------------- 2000 1999 --------------------------------------------------------------- (in millions) Balance at beginning of year $161 $137 Actual return on plan assets 25 18 Employer contributions 18 16 Benefits paid (12) (10) --------------------------------------------------------------- Balance at end of year $192 $161 =============================================================== II-66 NOTES (continued) Alabama Power Company 2000 Annual Report The accrued postretirement costs recognized in the Balance Sheets were as follows: 2000 1999 --------------------------------------------------------------- (in millions) Funded status $(72) $(103) Unrecognized transition obligation 49 53 Unrecognized net actuarial gain (35) (12) Fourth quarter contributions 4 8 --------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $(54) $ (54) =============================================================== Components of the plans' net periodic cost were as follows: 2000 1999 1998 --------------------------------------------------------------- (in millions) Service cost $ 4 $ 5 $ 5 Interest cost 19 18 18 Expected return on plan assets (13) (11) (9) Net amortization 4 4 4 --------------------------------------------------------------- Net postretirement cost $ 14 $ 16 $18 =============================================================== An additional assumption used in measuring the accumulated postretirement benefit obligations was a weighted average medical care cost trend rate of 7.29 percent for 2000, decreasing gradually to 5.50 percent through the year 2005, and remaining at that level thereafter. An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 2000 as follows: 1 Percent 1 Percent Increase Decrease --------------------------------------------------------------- (in millions) Benefit obligation $15 $14 Service and interest costs 1 1 =============================================================== Employee Savings Plan The Company also sponsors a 401(k) defined contribution plan covering substantially all employees. The Company provides a 75 percent matching contribution up to 6 percent of an employee's base salary. Total matching contributions made to the plan for the years 2000, 1999, and 1998 were $11 million, $10 million, and $10 million, respectively. Work Force Reduction Programs The Company has incurred costs for work force reduction programs totaling $2.6 million, $5.6 million and $19.4 million for the years 2000, 1999 and 1998, respectively. These costs were deferred and are being amortized in accordance with regulatory treatment. The unamortized balance of these costs was $1.4 million at December 31, 2000. 3. CONTINGENCIES AND REGULATORY MATTERS Environmental Litigation On November 3, 1999, the Environmental Protection Agency (EPA), brought a civil action against the Company in the U. S. District Court. The complaint alleges violations of the prevention of significant deterioration and new source review provision of the Clean Air Act with respect to coal-fired generating facilities at the Company's Plants Miller, Barry and Gorgas. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The Clean Air Act authorizes civil penalties of up to $27,500 per day, per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The EPA concurrently issued to the Company a notice of violation relating to these specific facilities, as well as Plants Greene County and Gaston. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation. The complaint and the notice of violation are similar to those brought against and issued to several other electric utilities. The complaint and the notice of violation allege that the Company failed to secure necessary permits or install additional pollution control equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. On August 1, 2000, the U.S. District Court granted the Company's motion to dismiss for lack of jurisdiction in Georgia and granted SCS's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. On January 12, 2001, the EPA re-filed its claims against the Company in federal district court in Birmingham, Alabama. The EPA did not include SCS in the new complaint. The Company believes that it complied with applicable laws and the EPA's II-67 NOTES (continued) Alabama Power Company 2000 Annual Report regulations and interpretations in effect at the time the work in question took place. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. Retail Rate Adjustment Procedures The APSC has adopted rates that provide for periodic adjustments based upon the Company's earned return on end-of-period retail common equity. The rates also provide for adjustments to recognize the placing of new generating facilities into retail service. Both increases and decreases have been placed into effect since the adoption of these rates. The rate adjustment procedures allow a return on common equity range of 13.0 percent to 14.5 percent and limit increases or decreases in rates to 4 percent in any calendar year. There is a moratorium on any periodic retail rate increases (but not decreases) until July 2001. In December 1995, the APSC issued an order authorizing the Company to reduce balance sheet items -- such as plant and deferred charges -- at any time the Company's actual base rate revenues exceed the budgeted revenues. In April 1997, the APSC issued an additional order authorizing the Company to reduce balance sheet asset items. This order authorizes the reduction of such items up to an amount equal to five times the total estimated annual revenue reduction resulting from future rate reductions initiated by the Company. In 1998, the Company - in accordance with the 1995 rate order - recorded $33 million of additional amortization of premium on reacquired debt. The Company did not record any additional amounts in 2000 or 1999. In April 2000, the APSC approved an amendment to the Company's existing rate structure to provide for the recovery of retail costs associated with certified purchased power agreements. In November 2000, the APSC certified a seven-year purchased power agreement pertaining to 615 megawatts of the Company's wholesale generating facilities under construction in Autaugaville, Alabama, all of which will be delivered in 2003. In addition, the APSC certified a seven-year purchased power agreement with a third party for approximately 630 megawatts; one half of the power will be delivered in 2003 while the remaining half is scheduled for delivery in 2004. The Company's ratemaking procedures will remain in effect until the APSC votes to modify or discontinue them. 4. FINANCING AND COMMITMENTS Construction Program To the extent possible, the Company's construction program is expected to be financed primarily from internal sources. Short-term debt is often utilized and the amounts available are discussed below. The Company may issue additional long-term debt and preferred securities for debt maturities, redeeming higher-cost securities, and meeting additional capital requirements. The Company currently estimates property additions to be $735 million in 2001, $891 million in 2002, and $625 million in 2003. The Company is constructing 1,230 megawatts of wholesale generating facilities in Autaugaville, Alabama to begin operation in 2003. Half of this capacity has been certified by the APSC to serve the Company's retail customers for seven years. The other half of the capacity will be sold into the wholesale market and will not affect retail rates. During 2001, the Company plans to transfer these generating facilities to Southern Power Company (SPC), the new wholesale subsidiary formed by Southern Company. If the Company transfers wholesale generation assets to SPC as planned, construction expenditures for the years 2001 through 2003 will be $598 million, $591 million and $583 million, respectively. During 2001, the Company expects to complete the replacement of the steam generators at Plant Farley, as well as the construction of new generating capacity at Plant Barry. In addition, significant construction will continue related to transmission and distribution facilities and the upgrading of generating plants, including the expenditures necessary to comply with environmental regulation. The capital budget is subject to periodic review and revision, and actual capital costs incurred may vary from estimates because of changes in such factors as: business conditions; environmental regulations; nuclear plant II-68 NOTES (continued) Alabama Power Company 2000 Annual Report regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Financing The ability of the Company to finance its capital budget depends on the amount of funds generated internally and the funds it can raise by external financing. The Company plans to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily from internal sources. However, the type and timing of any financings - if needed - will depend on market conditions and regulatory approval. In recent years, financings primarily have utilized unsecured debt and trust preferred securities. Bank Credit Arrangements The Company maintains committed lines of credit in the amount of $925 million (including $418 million of such lines which are dedicated to funding purchase obligations relating to variable rate pollution control bonds). Of these lines, $535 million expire at various times during 2001 and $390 million expire in 2004. In certain cases, such lines require payment of a commitment fee based on the unused portion of the commitment or the maintenance of compensating balances with the banks. Because the arrangements are based on an average balance, the Company does not consider any of its cash balances to be restricted as of any specific date. Moreover, the Company borrows from time to time pursuant to arrangements with banks for uncommitted lines of credit. At December 31, 2000, the Company had regulatory approval to have outstanding up to $750 million of short-term borrowings. Assets Subject to Lien The Company's mortgage, as amended and supplemented, securing the first mortgage bonds issued by the Company, constitutes a direct lien on substantially all of the Company's fixed property and franchises. Purchased Power Commitments The Company has entered into various long-term commitments for the purchase of electricity. Estimated total long-term obligations at December 31, 2000 were as follows: Year Commitments ---- --------------- (in millions) 2001 $ - 2002 - 2003 16 2004 34 2005 37 2006 and beyond 180 ----------------------------------------------------------- Total commitments $ 267 =========================================================== Fuel Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement of fossil and nuclear fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels and other financial commitments. Total estimated long-term obligations at December 31, 2000, were as follows: Year Commitments ---- --------------- (in millions) 2001 $ 998 2002 841 2003 722 2004 669 2005 525 2006 - 2024 2,287 ----------------------------------------------------------- Total commitments $6,042 =========================================================== II-69 NOTES (continued) Alabama Power Company 2000 Annual Report Operating Leases The Company has entered into coal rail car rental agreements with various terms and expiration dates. These expenses totaled $20.9 million in 2000, $17.8 million in 1999, and $5.8 million in 1998. At December 31, 2000, estimated minimum rental commitments for noncancellable operating leases were as follows: Year Commitments ---- ------------- (in millions) 2001 $ 22.2 2002 21.6 2003 21.2 2004 18.2 2005 15.5 2006 - 2017 44.7 ----------------------------------------------------------- Total minimum payments $143.4 =========================================================== 5. JOINT OWNERSHIP AGREEMENTS The Company and Georgia Power Company own equally all of the outstanding capital stock of Southern Electric Generating Company (SEGCO), which owns electric generating units with a total rated capacity of 1,020 megawatts, together with associated transmission facilities. The capacity of these units is sold equally to the Company and Georgia Power Company under a contract which, in substance, requires payments sufficient to provide for the operating expenses, taxes, interest expense and a return on equity, whether or not SEGCO has any capacity and energy available. The term of the contract extends automatically for two-year periods, subject to either party's right to cancel upon two year's notice. The Company's share of expenses totaled $85 million in 2000, $92 million in 1999 and $74 million in 1998, and is included in "Purchased power from affiliates" in the Statements of Income. In addition, the Company has guaranteed unconditionally the obligation of SEGCO under an installment sale agreement for the purchase of certain pollution control facilities at SEGCO's generating units, pursuant to which $24.5 million principal amount of pollution control revenue bonds are outstanding. Georgia Power Company has agreed to reimburse the Company for the pro rata portion of such obligation corresponding to its then proportionate ownership of stock of SEGCO if the Company is called upon to make such payment under its guaranty. At December 31, 2000, the capitalization of SEGCO consisted of $51 million of equity and $78 million of long-term debt on which the annual interest requirement is $5.3 million. SEGCO paid dividends totaling $5.1 million in 2000, $4.3 million in 1999, and $8.7 million in 1998, of which one-half of each was paid to the Company. SEGCO's net income was $5.9 million, $5.4 million, and $7.5 million for 2000, 1999 and 1998, respectively. The Company's percentage ownership and investment in jointly-owned generating plants at December 31, 2000, is as follows: Total Megawatt Company Facility (Type) Capacity Ownership --------------------- ------------ ------------- Greene County 500 60.00% (1) (coal) Plant Miller Units 1 and 2 1,320 91.84% (2) (coal) ----------------------------------------------------------- (1) Jointly owned with an affiliate, Mississippi Power Company. (2) Jointly owned with Alabama Electric Cooperative, Inc. Company Accumulated Facility Investment Depreciation --------------------- -------------- --------------- (in millions) Greene County $100 $ 46 Plant Miller Units 1 and 2 743 312 ---------------------------------------------------------- 6. LONG-TERM POWER SALES AGREEMENTS General The Company and the other integrated utility subsidiaries of Southern Company have entered into long-term contractual agreements for the sale of capacity and energy to certain non-affiliated utilities located outside the system's service area. These agreements -- expiring at various dates discussed below -- are firm and pertain to capacity related to specific generating units. Because the energy is generally sold at cost under these agreements, profitability is primarily affected by revenues from capacity sales. The Company's capacity revenues amounted to $127 million in 2000, $122 million in 1999, and $142 million in 1998. Unit power from Plant Miller is being sold to Florida Power Corporation (FPC), Florida Power & Light Company (FP&L), and Jacksonville Electric Authority (JEA). Under these agreements, approximately 1,235 megawatts of capacity are II-70 NOTES (continued) Alabama Power Company 2000 Annual Report scheduled to be sold through 2001. Thereafter, these sales will remain at that approximate level -- unless reduced by FP&L, FPC, and JEA for the periods after 2001 with a minimum of three years notice -- until the expiration of the contracts in 2010. No notices of cancellation have been received. Alabama Municipal Electric Authority (AMEA) Capacity Contracts In August 1986, the Company entered into a firm power sales contract with AMEA entitling AMEA to scheduled amounts of capacity (to a maximum 100 megawatts) for a period of 15 years commencing September 1, 1986 (1986 Contract). In October 1991, the Company entered into a second firm power sales contract with AMEA entitling AMEA to scheduled amounts of additional capacity (to a maximum 80 megawatts) for a period of 15 years commencing October 1, 1991 (1991 Contract). In both contracts the power will be sold to AMEA for its member municipalities that previously were served directly by the Company as wholesale customers. Under the terms of the contracts, the Company received payments from AMEA representing the net present value of the revenues associated with the respective capacity entitlements, discounted at effective annual rates of 9.96 percent and 11.19 percent for the 1986 and 1991 contracts, respectively. These payments are being recognized as operating revenues and the discounts are being amortized to other interest expense as scheduled capacity is made available over the terms of the contracts. In order to secure AMEA's advance payments and the Company's performance obligation under the contracts, the Company issued and delivered to an escrow agent first mortgage bonds representing the maximum amount of liquidated damages payable by the Company in the event of a default under the contracts. No principal or interest is payable on such bonds unless and until a default by the Company occurs. As the liquidated damages decline under the contracts, a portion of the bonds equal to the decreases is returned to the Company. At December 31, 2000, $61.3 million of such bonds were held by the escrow agent under the contracts. 7. INCOME TAXES At December 31, 2000, the tax-related regulatory assets and liabilities were $346 million and $222 million, respectively. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized interest. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the income tax provisions are as follows: 2000 1999 1998 -------------------------------- (in millions) Total provision for income taxes: Federal -- Current $168 $194 $123 Deferred 60 24 72 ----------------------------------------------------------------- 228 218 195 ----------------------------------------------------------------- State -- Current 27 19 16 Deferred 7 5 7 ------------------------------------------------------ ---------- 34 24 23 ----------------------------------------------------------------- Total $262 $242 $218 ================================================================= The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 2000 1999 ------------------ (in millions) Deferred tax liabilities: Accelerated depreciation $ 992 $884 Property basis differences 405 419 Fuel cost adjustment 93 65 Premium on reacquired debt 30 31 Pensions 75 60 Other 12 11 ----------------------------------------------------------------- Total 1,607 1,470 ----------------------------------------------------------------- Deferred tax assets: Capacity prepayments 18 24 Other deferred costs 14 25 Postretirement benefits 24 22 Unbilled revenue 23 13 Other 81 63 ----------------------------------------------------------------- Total 160 147 ----------------------------------------------------------------- Net deferred tax liabilities 1,447 1,323 Portion included in current liabilities, net (46) (83) ----------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $1,401 $1,240 ================================================================= II-71 NOTES (continued) Alabama Power Company 2000 Annual Report Deferred investment tax credits are amortized over the lives of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $11 million in 2000, 1999, and 1998. At December 31, 2000, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 2000 1999 1998 -------------------------- Federal statutory rate 35.0% 35.0% 35.0% State income tax, net of federal deduction 3.1 2.4 2.5 Non-deductible book depreciation 1.4 1.6 1.5 Differences in prior years' deferred and current tax rates (1.3) (1.3) (1.6) Other (0.7) (0.9) (1.6) --------------------------------------------------------------- Effective income tax rate 37.5% 36.8% 35.8% =============================================================== Southern Company files a consolidated federal and certain state income tax returns. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. 8. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES Statutory business trusts formed by the Company, of which the Company owns all the common securities, have issued mandatorily redeemable preferred securities as follows: Date of Maturity Issue Amount Rate Notes Date --------------------------------------------------- (millions) (millions) Trust I 1/1996 $ 97 7.375% $100 3/2026 Trust II 1/1997 200 7.60 206 12/2036 Trust III 2/1999 50 Auction 52 2/2029 Substantially all of the assets of each trust are junior subordinated notes issued by the Company in the respective approximate principal amounts set forth above. The distribution rate of Trust III's auction rate securities was 6.52% at January 1, 2001. The Company considers that the mechanisms and obligations relating to the preferred securities, taken together, constitute a full and unconditional guarantee by the Company of the Trusts' payment obligations with respect to the preferred securities. The Trusts are subsidiaries of the Company and, accordingly, are consolidated in the Company's financial statements. 9. OTHER LONG-TERM DEBT Pollution control obligations represent installment purchases of pollution control facilities financed by funds derived from sales by public authorities of revenue bonds. The Company is required to make payments sufficient for the authorities to meet principal and interest requirements of such bonds. With respect to $114.2 million of such pollution control obligations, the Company has authenticated and delivered to the trustees a like principal amount of first mortgage bonds as security for its obligations under the installment purchase agreements. No principal or interest on these first mortgage bonds is payable unless and until a default occurs on the installment purchase agreements. In May 2000, the Company issued $250 million of unsecured senior notes. The proceeds of this issuance were used to repay short-term indebtedness. All of the Company's senior notes are, in effect, subordinated to all secured debt of the Company, including its first mortgage bonds. The estimated aggregate annual maturities of capitalized lease obligations through 2005 are as follows: $0.8 million in 2001, $0.9 million in 2002, $0.9 million in 2003, $1.0 million in 2004 and $0.1 million in 2005. 10. SECURITIES DUE WITHIN ONE YEAR A summary of the improvement fund requirements and scheduled maturities and redemptions of long-term debt due within one year at December 31 is as follows: 2000 1999 ------------------------ (in thousands) First mortgage bond maturities and redemptions $ - $100,000 Other long-term debt maturities (Note 9) 844 943 ------------------------------------------------------------- Total long-term debt due within one year $844 $100,943 ============================================================= The annual first mortgage bond improvement fund requirement is 1 percent of the aggregate principal amount of bonds of each series authenticated, so long II-72 NOTES (continued) Alabama Power Company 2000 Annual Report as a portion of that series is outstanding, and may be satisfied by the deposit of cash and/or reacquired bonds, the certification of unfunded property additions, or a combination thereof. 11. NUCLEAR INSURANCE Under the Price-Anderson Amendments Act of 1988 (the Act), the Company maintains agreements of indemnity with the NRC that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at Plant Farley. The Act provides funds up to $9.5 billion for public liability claims that could arise from a single nuclear incident. Plant Farley is insured against this liability to a maximum of $200 million by private insurance, with the remaining coverage provided by a mandatory program of deferred premiums which could be assessed, after a nuclear incident, against all owners of nuclear reactors. The Company could be assessed up to $88 million per incident for each licensed reactor it operates but not more than an aggregate of $10 million per incident to be paid in a calendar year for each reactor. Such maximum assessment, excluding any applicable state premium taxes, for the Company is $176 million per incident but not more than an aggregate of $20 million to be paid for each incident in any one year. The Company is a member of Nuclear Electric Insurance Limited (NEIL), a mutual insurer established to provide property damage insurance in an amount up to $500 million for members' nuclear generating facilities. Additionally, the Company has policies that currently provide decontamination, excess property insurance, and premature decommissioning coverage up to $2.25 billion for losses in excess of the $500 million primary coverage. This excess insurance is also provided by NEIL. NEIL also covers the additional cost that would be incurred in obtaining replacement power during a prolonged accidental outage at a member's nuclear plant. Members can be insured against increased costs of replacement power in an amount up to $3.5 million per week (starting 12 weeks after the outage) for one year and up to $2.8 million per week for the second and third years. Under each of the NEIL policies, members are subject to assessments if losses each year exceed the accumulated funds available to the insurer under that policy. The current maximum annual assessments for the Company under the three NEIL policies would be $17 million. For all on-site property damage insurance policies for commercial nuclear power plants, the NRC requires that the proceeds of such policies shall be dedicated first for the sole purpose of placing the reactor in a safe and stable condition after an accident. Any remaining proceeds are to be applied next toward the costs of decontamination and debris removal operations ordered by the NRC, and any further remaining proceeds are to be paid either to the Company or to its bond trustees as may be appropriate under the policies and applicable trust indentures. All retrospective assessments, whether generated for liability, property or replacement power may be subject to applicable state premium taxes. 12. COMMON STOCK DIVIDEND RESTRICTIONS The Company's first mortgage bond indenture contains various common stock dividend restrictions that remain in effect as long as the bonds are outstanding. At December 31, 2000, retained earnings of $796 million were restricted against the payment of cash dividends on common stock under terms of the mortgage indenture. 13. QUARTERLY FINANCIAL INFORMATION (Unaudited) Summarized quarterly financial data for 2000 and 1999 are as follows: Net Income After Dividends Quarter Operating Operating on Preferred Ended Revenues Income Stock -------------------- ----------------------------------------- (in millions) March 2000 $ 746 $172 $ 68 June 2000 900 229 103 September 2000 1,137 390 209 December 2000 884 151 40 March 1999 $ 714 $162 $ 63 June 1999 823 209 93 September 1999 1,116 388 201 December 1999 733 136 43 ----------------------------------------------------------------- The Company's business is influenced by seasonal weather conditions. II-73 SELECTED FINANCIAL AND OPERATING DATA 1996-2000 Alabama Power Company 2000 Annual Report

--------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 --------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $3,667,461 $3,385,474 $3,386,373 $3,149,111 $3,120,775 Net Income after Dividends on Preferred Stock (in thousands) $419,916 $399,880 $377,223 $375,939 $371,490 Cash Dividends on Common Stock (in thousands) $417,100 $399,600 $367,100 $339,600 $347,500 Return on Average Common Equity (percent) 13.58 13.85 13.63 13.76 13.75 Total Assets (in thousands) $10,379,108 $9,648,704 $9,225,698 $8,812,867 $8,733,846 Gross Property Additions (in thousands) $870,581 $809,044 $610,132 $451,167 $425,024 --------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $3,195,772 $2,988,863 $2,784,067 $2,750,569 $2,714,277 Preferred stock 317,512 317,512 317,512 255,512 340,400 Company obligated mandatorily redeemable preferred securities 347,000 347,000 297,000 297,000 97,000 Long-term debt 3,425,527 3,190,378 2,646,566 2,473,202 2,354,006 --------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $7,285,811 $6,843,753 $6,045,145 $5,776,283 $5,505,683 ================================================================================================================================- Capitalization Ratios (percent): Common stock equity 43.9 43.7 46.1 47.6 49.3 Preferred stock 4.4 4.6 5.3 4.4 6.2 Company obligated mandatorily redeemable preferred securities 4.8 5.1 4.9 5.2 1.7 Long-term debt 46.9 46.6 43.7 42.8 42.8 --------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0 ================================================================================================================================- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 A1 Standard and Poor's A A+ A+ A+ A+ Fitch AA-* AA- AA- AA- AA- Preferred Stock - Moody's a2 a2 a2 a2 a2 Standard and Poor's BBB+ A- A A A Fitch A* A A A+ A+ Unsecured Long-Term Debt - Moody's A2 A2 A2 A2 - Standard and Poor's A A A A - Fitch A+* A+ A+ A+ - ================================================================================================================================- Customers (year-end): Residential 1,132,410 1,120,574 1,106,217 1,092,161 1,073,559 Commercial 193,106 188,368 182,738 177,362 171,827 Industrial 4,819 4,897 5,020 5,076 5,100 Other 745 735 733 728 732 --------------------------------------------------------------------------------------------------------------------------------- Total 1,331,080 1,314,574 1,294,708 1,275,327 1,251,218 ================================================================================================================================- Employees (year-end): 6,871 6,792 6,631 6,531 6,865 --------------------------------------------------------------------------------------------------------------------------------- *Effective 1/22/01 the Fitch Security Ratings for First Mortgage Bonds, Preferred Stock, and Unsecured Long-Term Debt are A+, A-, and A respectively.

II-74 SELECTED FINANCIAL AND OPERATING DATA 1996-2000 (continued) Alabama Power Company 2000 Annual Report

----------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $ 1,222,509 $1,145,646 $ 1,133,435 $ 997,507 $ 998,806 Commercial 854,695 807,098 779,169 724,148 696,453 Industrial 859,668 843,090 853,550 775,591 759,628 Other 15,835 15,283 14,523 13,563 13,729 ----------------------------------------------------------------------------------------------------------------------------------- Total retail 2,952,707 2,811,117 2,780,677 2,510,809 2,468,616 Sales for resale - non-affiliates 461,730 415,377 448,973 431,023 391,669 Sales for resale - affiliates 166,219 92,439 103,562 161,795 216,620 ----------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 3,580,656 3,318,933 3,333,212 3,103,627 3,076,905 Other revenues 86,805 66,541 53,161 45,484 43,870 ----------------------------------------------------------------------------------------------------------------------------------- Total $3,667,461 $3,385,474 $3,386,373 $3,149,111 $3,120,775 ==================================================================================================================================- Kilowatt-Hour Sales (in thousands): Residential 16,771,821 15,699,081 15,794,543 14,336,408 14,593,761 Commercial 12,988,728 12,314,085 11,904,509 11,330,312 10,904,476 Industrial 22,101,407 21,942,889 21,585,117 20,727,912 19,999,258 Other 205,827 201,149 196,647 180,389 192,573 ----------------------------------------------------------------------------------------------------------------------------------- Total retail 52,067,783 50,157,204 49,480,816 46,575,021 45,690,068 Sales for resale - non-affiliates 14,847,533 12,437,599 11,840,910 12,329,480 9,491,237 Sales for resale - affiliates 5,369,474 5,031,781 5,976,099 8,993,326 10,292,066 ----------------------------------------------------------------------------------------------------------------------------------- Total 72,284,790 67,626,584 67,297,825 67,897,827 65,473,371 ==================================================================================================================================- Average Revenue Per Kilowatt-Hour (cents): Residential 7.29 7.30 7.18 6.96 6.84 Commercial 6.58 6.55 6.55 6.39 6.39 Industrial 3.89 3.84 3.95 3.74 3.80 Total retail 5.67 5.60 5.62 5.39 5.40 Sales for resale 3.11 2.91 3.10 2.78 3.07 Total sales 4.95 4.91 4.95 4.57 4.70 Residential Average Annual Kilowatt-Hour Use Per Customer 14,875 14,097 14,370 13,254 13,705 Residential Average Annual Revenue Per Customer $1,084.26 $1,028.76 $1,031.21 $922.21 $937.95 Plant Nameplate Capacity Ratings (year-end) (megawatts) 12,122 11,379 11,151 11,151 11,151 Maximum Peak-Hour Demand (megawatts): Winter 9,478 8,863 7,757 8,478 8,413 Summer 11,019 10,739 10,329 9,778 9,912 Annual Load Factor (percent) 59.3 59.7 62.9 62.7 61.3 Plant Availability (percent): Fossil-steam 89.4 80.4 85.6 86.3 86.6 Nuclear 88.3 91.0 80.2 88.8 90.5 ----------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 63.0 64.1 65.3 65.7 67.0 Nuclear 16.9 17.8 16.3 17.9 18.5 Hydro 2.9 4.7 6.9 7.5 7.1 Oil and gas 4.9 1.1 1.5 0.7 0.4 Purchased power - From non-affiliates 4.6 4.5 3.3 2.4 2.4 From affiliates 7.7 7.8 6.7 5.8 4.6 ----------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 100.0 ==================================================================================================================================-

II-75 GEORGIA POWER COMPANY FINANCIAL SECTION II-76 MANAGEMENT'S REPORT Georgia Power Company 2000 Annual Report The management of Georgia Power Company has prepared this annual report and is responsible for the financial statements and related information. These statements were prepared in accordance with accounting principles generally accepted in the United States and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that the accounting records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls based upon the recognition that the cost of the system should not exceed its benefits. The Company believes that its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, which is composed of three independent directors, provides a broad overview of management's financial reporting and control functions. At least three times a year this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal control and financial reporting matters. The internal auditors and the independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted with a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of Georgia Power Company in conformity with accounting principles generally accepted in the United States. /s/ David M. Ratcliffe David M. Ratcliffe President and Chief Executive Officer /s/ Thomas A. Fanning Thomas A. Fanning Executive Vice President, Treasurer and Chief Financial Officer II-77 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Georgia Power Company: We have audited the accompanying balance sheets and statements of capitalization of Georgia Power Company (a Georgia corporation and a wholly owned subsidiary of Southern Company) as of December 31, 2000 and 1999, and the related statements of income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages II-88 through II-108) referred to above present fairly, in all material respects, the financial position of Georgia Power Company as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Atlanta, Georgia February 28, 2001 II-78 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Georgia Power Company 2000 Annual Report RESULTS OF OPERATIONS Earnings Georgia Power Company's 2000 earnings totaled $559 million, representing an $18 million (3.3 percent) increase over 1999. This earnings increase is primarily due to higher retail and wholesale sales and continued control of operating expenses, partially offset by additional accelerated amortization of regulatory assets allowed under the second year of a Georgia Public Service Commission (GPSC) three-year retail rate order. Georgia Power Company's 1999 earnings totaled $541 million, representing a $29 million (5.1 percent) decrease from 1998. This earnings decrease was primarily due to the recognition of interest income in 1998 as a result of the resolution of tax issues with the Internal Revenue Service (IRS). Earnings in 1999 from normal operations increased due primarily to lower accelerated depreciation under the GPSC retail rate order, sales growth, and decreased financing costs, partially offset by retail rate reductions under the new order and lower wholesale revenues. Revenues Operating revenues in 2000 and the amount of change from the prior year are as follows: Increase (Decrease) From Prior Year Amount ---------------------- 2000 2000 1999 ---- ----------------------- Retail - (in millions) Base revenues $3,119 $ 84 $(292) Fuel cost recovery 1,198 183 44 --------------------------------------------------------------------- Total retail 4,317 267 (248) --------------------------------------------------------------------- Sales for resale - Non-affiliates 298 88 (49) Affiliates 96 20 (5) --------------------------------------------------------------------- Total sales for resale 394 108 (54) --------------------------------------------------------------------- Other operating revenues 160 39 21 -------------------------------------------------------- ------------ Total operating revenues $4,871 $414 $(281) ===================================================================== Percent change 9.3% (5.9)% --------------------------------------------------------------------- Retail base revenues of $3.1 billion in 2000 increased $84 million (2.8 percent) primarily due to a 4.9 percent increase in sales. Under the GPSC retail rate order, the Company recorded $44 million of revenue subject to refund for estimated earnings above 12.5 percent retail return on common equity in 2000. Refunds will be made to customers in 2001. Retail base revenues of $3.0 billion in 1999 decreased $292 million (8.8 percent) primarily due to retail rate reductions under the GPSC retail rate order. Pursuant to the GPSC retail rate order, in 1999 the Company also recorded $79 million of revenue subject to refund for estimated earnings above 12.5 percent retail return on common equity. Revenue subject to refund is reflected in "Base revenues" in the chart above. The $79 million in refunds were made to customers in 2000. See Note 3 to the financial statements under "Retail Rate Order" for additional information. Electric rates include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Under these fuel cost recovery provisions, fuel revenues generally equal fuel expenses -- including the fuel component of purchased energy -- and do not affect net income. However cash flow is affected by the untimely recovery of these receivables. As of December 31, 2000, the Company had $132 million in underrecovered fuel costs. The Company currently plans to make a filing with the GPSC in early 2001 to establish a new fuel rate in order to better reflect current fuel cost and to collect the current underrecovered balance. Wholesale revenues from sales to non-affiliated utilities increased in 2000 and decreased in 1999 as follows: 2000 1999 1998 ------------------------------- (in millions) Outside service area - Long-term contracts $ 55 $ 55 $ 51 Other sales 162 74 93 Inside service area 81 81 115 --------------------------------------------------------------- Total $298 $210 $259 =============================================================== Revenues from long-term contracts outside the service area remained constant in 2000 and increased slightly in 1999 due to increased energy sales. See Note 7 to the financial statements for further information regarding these sales. Revenues from other sales outside the service area primarily represent wholesale sales from Plant Dahlberg which went into service during 2000 and increases in power marketing activities. These activities include the purchase and resale of energy. Consequently, changes in revenues are generally offset by corresponding changes in purchased power expense from non-affiliates. Wholesale II-79 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2000 Annual Report revenues from customers within the service area remained constant in 2000 but decreased in 1999 primarily due to a decrease in revenues under a power supply agreement with Oglethorpe Power Corporation (OPC). Revenues from sales to affiliated companies within the Southern electric system, as well as purchases of energy, will vary from year to year depending on demand and the availability and cost of generating resources at each company. These transactions do not have a significant impact on earnings. Other operating revenues in 2000 increased $39 million (33 percent) primarily due to increased revenues from the transmission of electricity and gains on the sale of generating plant emission allowances. Under a GPSC order, $28 million of the gains on emission allowance sales in 2000 were used to reduce recoverable fuel costs and as such, did not affect earnings. In 1999, other operating revenues increased $21 million or (21 percent) from the previous year due primarily to increased revenues from the rental of electric equipment and property. Kilowatt-hour (KWH) sales for 2000 and the percent change by year were as follows: Percent Change ---------------------- 2000 KWH 2000 1999 --------- ------------------------ (in billions) Residential 20.7 6.6% (0.4)% Commercial 25.6 8.1 3.7 Industrial 27.5 0.9 0.1 Other 0.6 3.2 1.5 --------- Total retail 74.4 4.9 1.1 --------- Sales for resale - Non-affiliates 6.5 27.7 (21.4) Affiliates 2.4 35.6 (11.9) --------- Total sales for resale 8.9 29.8 (19.1) --------- Total sales 83.3 7.1 (1.0) ========= ------------------------------------------------------------ Residential and commercial sales increased 6.6 percent and 8.1 percent, respectively, due to warmer summer temperatures and colder winter weather. Strong regional economic growth was also a factor in the increase in commercial sales. Industrial sales remained fairly constant. In 1999, residential sales decreased 0.4 percent due to moderate summer temperatures, while commercial sales increased 3.7 percent due to strong regional economic growth. Industrial sales remained fairly constant. Expenses Fuel costs constitute the single largest expense for the Company. The mix of fuel sources for generation of electricity is determined primarily by system load, the unit cost of fuel consumed, and the availability of hydro and nuclear generating units. The amount and sources of generation and the average cost of fuel per net KWH generated were as follows: 2000 1999 1998 ----------------------------- Total generation (billions of KWH) 73.6 69.3 69.1 Sources of generation (percent) -- Coal 75.8 75.5 73.3 Nuclear 21.2 21.6 21.6 Hydro 0.8 1.0 2.6 Oil and gas 2.2 1.9 2.5 Average cost of fuel per net KWH generated (cents) -- 1.39 1.34 1.36 ----------------------------------------------------------------- Fuel expense increased 10.7 percent in 2000 due to an increase in generation to meet higher energy demands, a decrease in generation from hydro plants, and a higher average cost of fuel. Fuel expense increased 0.3 percent in 1999 due to a slight increase in fossil and nuclear generation and a decrease in generation from hydro plants, partially offset by a lower average cost of fuel. Purchased power expense in 2000 increased $206 million (53 percent) over the prior year due to higher retail energy demands and power marketing activities. The majority of the increase was offset by increases in retail fuel revenues and power marketing revenues and therefore did not affect earnings. As discussed above, the expense associated with energy purchased for power marketing activities is generally offset by revenue when resold. Purchased power expense decreased slightly in 1999. Other operation and maintenance expenses in 2000 increased slightly over those in 1999. Increased line maintenance, customer assistance and sales expense and additional severance costs were partially offset by decreased generating plant maintenance and decreased employee benefit provisions. Other operation and II-80 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2000 Annual Report maintenance expenses increased 1.6 percent in 1999 primarily due to increased generating plant maintenance, partially offset by a reduction in the charges related to the implementation of a customer service system in 1998, decreased year 2000 readiness costs, and decreased employee benefit provisions. Depreciation and amortization increased $66 million in 2000 due to $50 million of additional accelerated amortization of regulatory assets required under the second year of the GPSC retail rate order and increased plant in service. Depreciation and amortization decreased $261 million in 1999 primarily due to higher depreciation charges recognized in 1998 under the prior GPSC accounting order and the completion in 1998 of the amortization of deferred Plant Vogtle costs. Interest income decreased $3 million in 2000 primarily due to decreased interest on temporary cash investments. Interest income decreased in 1999 primarily due to the 1998 recognition of $73 million in interest income resulting from the resolution of tax issues with the IRS and the State of Georgia. Other, net decreased in 2000 due to an increase in charitable contributions. In 1999, other, net decreased due primarily to increased bad debt expense related to consumer energy efficiency improvement financing. Interest expense, net increased in 2000 due to the issuance of an additional $300 million in senior notes during 2000. Interest expense, net decreased in 1999 due primarily to the refinancing or retirement of securities. The Company refinanced or retired $179 million and $775 million of securities in 2000 and 1999, respectively. Distributions on preferred securities of subsidiary companies decreased $7 million in 2000 due to the redemption of $100 million of preferred securities in December 1999. Distributions on preferred securities of subsidiary companies increased $11 million in 1999 due to the issuance of additional mandatorily redeemable preferred securities in January 1999. Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in utility plants with long economic life. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations such as long-term debt and preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. FUTURE EARNINGS POTENTIAL The results of operations for the past three years are not necessarily indicative of future earnings. The level of future earnings depends on numerous factors including regulatory matters and energy sales. The Company currently operates as a vertically integrated utility providing electricity to customers within its traditional service area located in the State of Georgia. Prices for electricity provided by the Company to retail customers are set by the GPSC under cost-based regulatory principles. On January 1, 1999, the Company began operating under a new three-year retail rate order. The Company's earnings are evaluated against a retail return on common equity range of 10 percent to 12.5 percent, with required rate reductions of $262 million on an annual basis effective in 1999 and an additional $24 million effective in 2000. The order provides for $85 million in each year, plus up to $50 million of any earnings above the 12.5 percent return during the second and third years, to be applied to accelerated amortization or depreciation of assets. Two-thirds of any additional earnings above the 12.5 percent return will be applied to rate reductions, with the remaining one-third retained by the Company. Pursuant to the GPSC retail rate order, in 2000 and 1999, the Company recorded $85 million in accelerated amortization of regulatory assets. In 2000, the Company also recorded the additional $50 million of accelerated amortization. The accelerated amortization is recorded in a regulatory liability account as mandated by the GPSC. In addition, the Company recorded $44 million and $79 million of revenue subject to refund for estimated earnings above 12.5 percent in 2000 and 1999, respectively. Refunds applicable to 1999 were made to customers in 2000. The Company will file a general rate case on July 2, 2001 in response to which the GPSC would be expected to II-81 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2000 Annual Report determine whether the retail rate order should be continued, modified, or discontinued. See Note 3 to the financial statements under "Retail Rate Order" for additional information. Growth in energy sales is subject to a number of factors which traditionally have included changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, weather, competition, initiatives to increase sales to existing customers, and the rate of economic growth in the Company's service area. Assuming normal weather, retail sales growth from 2000 is projected to be approximately 2.4 percent annually on average during 2001 through 2003. The Company has entered into purchase power agreements which will result in higher capacity and operating and maintenance payments in future years. See Note 4 to the financial statements under "Purchased Power Commitments" for additional information. The Company is constructing two 566 megawatt combined cycle units at Plant Wansley to begin operation in 2002. These units have been certified by the GPSC to serve the Company's retail customers for approximately seven years. Savannah Electric will have the rights to 200 megawatts of capacity from these units for the same seven-year period. The Company is also constructing a 571 megawatt combined cycle unit at Plant Goat Rock to begin operation in 2002, and a 610 megawatt combined cycle unit at Plant Goat Rock to begin operation in 2003. The power from these units will initially be sold into the wholesale market when they begin operation. The Company has filed with the GPSC for certification of these units to begin serving the Company's retail customers in 2003 and 2004, respectively, for a term of seven years each. In addition to seeking certification of Plant Goat Rock, the Company is also seeking certification of a seven year commitment to 615 megawatts beginning in 2004 at Plant Autaugaville to serve its retail customers. Plant Autaugaville is currently under construction by Alabama Power. Further, the Company is constructing Plant Dahlberg, a ten unit, 800 megawatt combustion turbine peaking power plant that will serve the wholesale market. Units one through eight began operation in May 2000; units nine and ten are expected to begin operation in June 2001. The Company has entered into wholesale contracts to sell all 800 megawatts of capacity. These contracts cover substantially all of the output of the plant for the first five years. Because these units are dedicated to the wholesale market, retail rates will not be affected. The Company is aggressively working to maintain and expand its share of wholesale sales in the Southeastern power markets. In January 2001, Southern Company announced the formation of a new subsidiary, Southern Power Company (SPC). SPC will own, manage, and finance wholesale generating assets in the Southeast. Energy from its assets will be marketed to wholesale customers under the Southern Company name. The current plan is for Georgia Power and Alabama Power to transfer Plant Dahlberg and the units under construction at Plants Wansley, Goat Rock, and Autaugaville to SPC in 2001. The Company will enter into purchased power capacity agreements with SPC for power from the units at Plants Wansley, Goat Rock, and Autaugaville to serve the Company's retail customers. In accordance with Financial Accounting Standards Board (FASB) Statement No. 87, Employers' Accounting for Pensions, the Company recorded non-cash income of approximately $59 million in 2000. Pension plan income in 2001 is expected to be less as a result of plan amendments. Future pension income is dependent on several factors including trust earnings and changes to the plan. For additional information see Note 2 to the financial statements. Compliance costs related to current and future environmental laws, regulations, and litigation could affect earnings if such costs are not fully recovered. See "Environmental Issues" for further discussion of these matters. The electric utility industry in the United States is continuing to evolve as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. Although the Energy Act II-82 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2000 Annual Report does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. On December 20, 1999, the Federal Energy Regulatory Commission (FERC) issued its final rule on Regional Transmission Organizations (RTOs). The order encouraged utilities owning transmission systems to form RTOs on a voluntary basis. After participating in regional conferences with customers and other members of the public to discuss the formation of RTOs, utilities were required to make a filing with the FERC. On October 16, 2000, Southern Company and its five integrated Southeast utilities, including the Company, filed with the FERC a proposal for the creation of an RTO. The proposal is for the formation of a for-profit company that would have control of the bulk power transmission system of participating utilities. Participants would have the option to either maintain their ownership, divest, sell, or lease their assets to the proposed RTO. If the FERC accepts the proposal as filed, the creation of the RTO is not expected to have a material impact on the financial statements of the Company. However, the ultimate outcome of this matter cannot now be determined. The Company continues to compete with other electric suppliers within the state. In Georgia, most new retail customers with at least 900 kilowatts of connected load may choose their electricity supplier. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition across the nation. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry could radically change. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While the GPSC has held workshops to discuss retail competition and industry restructuring, there has been no proposed or enacted legislation to date in Georgia. Enactment would require numerous issues to be resolved, including significant ones relating to transmission pricing and recovery of costs. The GPSC continues its assessment of the range of potential stranded costs. The inability of the Company to recover all its costs, including the regulatory assets described in Note 1 to the financial statements, could have a material effect on the financial condition of the Company. The Company is attempting to reduce regulatory assets through the GPSC retail rate order. See Note 3 to the financial statements under "Retail Rate Order" for additional information. The Company is subject to the provisions of FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operations is no longer subject to these provisions, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable, and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. The staff of the Securities and Exchange Commission (SEC) has questioned certain of the current accounting practices of the electric utility industry - including the Company's - regarding the recognition, measurement, and classification in the financial statements of decommissioning costs for nuclear generating facilities. In response to these questions, the FASB is reviewing the accounting for liabilities related to the retirement of long-lived assets, including nuclear decommissioning. If the FASB issues new accounting rules, the estimated costs of retiring the Company's nuclear and other facilities may be required to be recorded as liabilities in the Balance Sheets. Also, the annual provisions for such costs could change. Because of the Company's current ability to recover asset retirement costs through rates, these changes would not have a significant adverse effect on results of operations. See Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning" for additional information. Exposure to Market Risks Due to cost-based rate regulation, the Company currently has limited exposure to market volatility in interest rates, commodity fuel prices and prices of electricity. (See the discussion above for potential changes in industry structure.) To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statement as incurred. At December 31, 2000, exposure from these activities was not material to the Company's financial position, results of operations, or cash flows. Also, based on the Company's overall interest rate exposure at December 31, 2000, a near-term 100 basis point II-83 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2000 Annual Report change in interest rates would not materially affect the financial statements. New Accounting Standard In June 2000, the FASB issued Statement No. 138, an amendment of Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Statement No. 133, as amended, establishes accounting and reporting standards for derivative instruments and for hedging activities. Statement No. 133 requires that certain derivative instruments be recorded in the balance sheet as either an asset or liability measured at fair value and that changes in the fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Substantially all of the Company's bulk energy purchases and sales meet the definition of a derivative under Statement No. 133. In many cases, these transactions meet the normal purchase and sale exception and the related contracts will continue to be accounted for under the accrual method. Certain of these instruments qualify as cash flow hedges resulting in the deferral of related gains and losses in other comprehensive income until the hedged transactions occur. Any ineffectiveness will be recognized currently in net income. However, others will be required to be marked to market through current period income. The Company adopted the provisions of Statement No. 133 effective January 1, 2001. The impact on net income was immaterial. The application of the new rules is still evolving and further guidance from the FASB is expected, which could additionally impact the Company's financial statements. FINANCIAL CONDITION Plant Additions In 2000, gross utility plant additions were $1.1 billion. These additions were primarily related to transmission and distribution facilities, the purchase of nuclear fuel, and the construction of additional combustion turbine and combined cycle units. The funds needed for gross property additions are currently provided from operations, short-term and long-term debt, and capital contributions from Southern Company. The Statements of Cash Flows provide additional details. Financing Activities In 2000, the Company's financing costs increased due to the issuance of new debt during the year. New issues during 1998 through 2000 totaled $1.5 billion and retirement or repayment of higher-cost securities totaled $1.7 billion. Special purpose subsidiaries of the Company have issued mandatorily redeemable preferred securities. See Note 9 to the financial statements under "Preferred Securities" for additional information. Composite financing rates for long-term debt, preferred stock, and preferred securities for the years 1998 through 2000, as of year-end, were as follows: 2000 1999 1998 ---------------------------------- Composite interest rate on long-term debt 5.90% 5.48% 5.64% Composite preferred stock dividend rate 4.60 4.60 5.52 Composite preferred securities dividend rate 7.49 7.49 7.89 ------------------------------------------------------------------ Liquidity and Capital Requirements Cash provided from operations decreased by $135 million in 2000, primarily due to higher fuel and purchased power expenses related to increased energy demands. The Company estimates that construction expenditures for the years 2001 through 2003 will total $1.6 billion, $1.3 billion, and $0.8 billion, respectively. If the Company transfers wholesale generation assets to SPC in 2001 as contemplated, construction expenditures for the years 2001 through 2003 will total $1.0 billion, $0.9 billion, and $0.7 billion, respectively. Investments in additional combustion turbine and combined cycle generating units, transmission and distribution facilities, enhancements to existing generating plants, and equipment to comply with environmental requirements are planned. Cash requirements for redemptions announced and maturities of long-term debt are expected to total $581 million during 2001 through 2003. As a result of requirements by the Nuclear Regulatory Commission, the Company has established external trust funds for the purpose of funding nuclear II-84 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2000 Annual Report decommissioning costs. The amount to be funded is $30 million each year in 2001, 2002, and 2003. For additional information concerning nuclear decommissioning costs, see Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning." Sources of Capital The Company expects to meet future capital requirements primarily using funds generated from operations and equity funds from Southern Company and, if needed, by the issuance of new debt and equity securities, term loans, and short-term borrowings. To meet short-term cash needs and contingencies, the Company had approximately $1.8 billion of unused credit arrangements with banks at the beginning of 2001. See Note 9 to the financial statements under "Bank Credit Arrangements" for additional information. Recently, the Company has relied on the issuance of unsecured debt and trust preferred securities, in addition to unsecured pollution control bonds issued for its benefit by public authorities, to meet its long-term external financing requirements. In years past, the Company issued first mortgage bonds, mortgage backed pollution control bonds and preferred stock to fund its external requirements. The amount outstanding of the later securities has been steadily declining during the last four years. If the Company were to choose to issue new first mortgage bonds or preferred stock once again, it would be required to meet certain coverage requirements. ENVIRONMENTAL ISSUES Clean Air Act In November 1990, the Clean Air Act Amendments of 1990 (Clean Air Act) were signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- significantly affected Southern Company's subsidiaries, including the Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants are required in two phases. Phase I compliance began in 1995 and some 50 generating units within Southern Company's subsidiaries were brought into compliance with Phase I requirements. Southern Company's subsidiaries, including the Company, achieved Phase I sulfur dioxide compliance at the affected units by switching to low-sulfur coal, which required some equipment upgrades. Construction expenditures for the Company's Phase I compliance totaled approximately $167 million. Phase II sulfur dioxide compliance was required in 2000. Southern Company's subsidiaries, including the Company, used emission allowances and fuel switching to comply with Phase II requirements. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired units as necessary to meet Phase II limits and ozone non-attainment requirements for metropolitan Atlanta through 2000. Compliance for Phase II and initial ozone non-attainment requirements increased total construction expenditures for the Company through 2000 by approximately $39 million. The one-hour ozone non-attainment standards for the Atlanta area have been set and must be implemented in May 2003. Seven generating plants will be affected in the Atlanta area. Additional construction expenditures for the Company's compliance with these new rules are currently estimated at approximately $705 million. A significant portion of costs related to the acid rain and ozone non-attainment provisions of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. II-85 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2000 Annual Report Environmental Protection Agency Litigation On November 3, 1999, the EPA brought a civil action in the U.S. District Court for the Northern District of Georgia. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to coal-fired generating facilities at the Company's Bowen and Scherer plants. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued a notice of violation to the Company relating to these two plants. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation. The complaint and the notice of violation are similar to those brought against and issued to several other electric utilities. The complaint and the notice of violation allege that the Company failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. The Company believes that it complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition unless such costs can be recovered through regulated rates. Other Environmental Issues In July 1997, the EPA revised the national ambient air quality standards for ozone and particulate matter. This revision made the standards significantly more stringent. In the subsequent litigation of these standards, the U.S. Supreme Court recently dismissed certain challenges but found the EPA's implementation program for the new ozone standard unlawful and remanded it to the EPA. In addition, the Federal District of Columbia Circuit Court of Appeals will address other legal challenges to these standards in mid-2001. If the standards are eventually upheld, implementation could be required by 2007 to 2010. In September 1998, the EPA issued the final regional nitrogen oxide reduction rules to the states for implementation. Compliance is required by May 31, 2004. The final rule affects 21 states, including Georgia. In December 2000, the EPA completed its utility study for mercury and other hazardous air pollutants (HAPS) and issued a determination that an emission control program for mercury and, perhaps, other HAPS is warranted. The program is to be developed over the next four years under the Maximum Achievable Control Technology (MACT) provisions of the Clean Air Act. This determination is being challenged in the courts. In January 2001, the EPA proposed guidance for the determination of Best Available Retrofit Technology (BART) emission controls under the Regional Haze Regulations. Installation of BART controls would likely be required around 2010. Litigation of the BART rules is probable in the near future. Implementation of the final state rules for these initiatives could require substantial further reductions in nitrogen oxide, sulfur dioxide, mercury, and other HAPS emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. Reviews by the new administration in Washington, D.C. add to the uncertainties associated with BART guidance and the MACT determination for mercury and other HAPS. The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur costs to clean up properties currently or previously owned. The Company conducts studies to determine the extent of any required clean-up costs and has recognized in the financial statements costs to clean up known sites. These costs for the Company amounted to $4 million, $4 million, and $6 million in 2000, 1999, and 1998, respectively. Additional sites may require environmental remediation for which the Company may be liable for a portion of or all required clean-up costs. See Note 3 to the financial statements under "Other Environmental Contingencies" for information regarding the Company's potentially responsible party status at a site in Brunswick, Georgia, and the status of sites listed on the State of Georgia's hazardous site inventory. II-86 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2000 Annual Report The EPA and state environmental regulatory agencies are reviewing and evaluating various matters including: control strategies to reduce regional haze; limits on pollutant discharges to impaired waters; water intake restrictions; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect the Company. The impact of new legislation -- if any -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION The Company's 2000 Annual Report contains forward-looking and historical information. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology. The Company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include the impact of recent and future federal and state regulatory change, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry and also changes in environmental and other laws and regulations to which the Company is subject, as well as changes in application of existing laws and regulations; current and future litigation, including the pending EPA civil action and the race discrimination litigation against the Company; the extent and timing of the entry of additional competition in the Company's markets; potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial; internal restructuring or other restructuring options, that may be pursued by the Company; state and federal rate regulation in the United States; political, legal and economic conditions and developments in the United States; financial market conditions and the results of financing efforts; the impact of fluctuations in commodity prices, interest rates and customer demand; weather and other natural phenomena; the ability of the Company to obtain additional generating capacity at competitive prices; and other factors discussed elsewhere herein and in other reports (including Form 10-K) filed from time to time by the Company with the SEC. II-87

STATEMENTS OF INCOME For the Years Ended December 31, 2000, 1999, and 1998 Georgia Power Company 2000 Annual Report ------------------------------------------------------------------------------------------------------------ 2000 1999 1998 ------------------------------------------------------------------------------------------------------------ (in thousands) Operating Revenues: Retail sales $4,317,338 $4,050,088 $4,298,217 Sales for resale -- Non-affiliates 297,643 210,104 259,234 Affiliates 96,150 76,426 81,606 Other revenues 159,487 120,057 99,196 ------------------------------------------------------------------------------------------------------------ Total operating revenues 4,870,618 4,456,675 4,738,253 ------------------------------------------------------------------------------------------------------------ Operating Expenses: Operation -- Fuel 1,017,878 919,876 917,119 Purchased power -- Non-affiliates 356,189 214,573 229,960 Affiliates 239,815 174,989 161,003 Other 795,458 784,359 819,589 Maintenance 404,189 411,983 358,218 Depreciation and amortization 619,094 552,966 813,802 Taxes other than income taxes 204,527 202,853 204,623 Write down of Rocky Mountain plant - - 33,536 ------------------------------------------------------------------------------------------------------------ Total operating expenses 3,637,150 3,261,599 3,537,850 ------------------------------------------------------------------------------------------------------------ Operating Income 1,233,468 1,195,076 1,200,403 Other Income (Expense): Interest income 2,629 5,583 79,578 Equity in earnings of unconsolidated subsidiaries 3,051 2,721 3,735 Other, net (50,495) (47,986) (38,277) ------------------------------------------------------------------------------------------------------------ Earnings Before Interest and Income Taxes 1,188,653 1,155,394 1,245,439 ------------------------------------------------------------------------------------------------------------ Interest Charges and Other: Interest expense, net 208,868 194,869 216,313 Distributions on preferred securities of subsidiaries 59,104 65,774 54,327 ------------------------------------------------------------------------------------------------------------ Total interest charges and other, net 267,972 260,643 270,640 ------------------------------------------------------------------------------------------------------------ Earnings Before Income Taxes 920,681 894,751 974,799 Income taxes 360,587 351,639 398,632 ------------------------------------------------------------------------------------------------------------ Net Income 560,094 543,112 576,167 Dividends on Preferred Stock 674 1,729 5,939 ------------------------------------------------------------------------------------------------------------ Net Income After Dividends on Preferred Stock $ 559,420 $ 541,383 $ 570,228 ============================================================================================================ The accompanying notes are an integral part of these statements.

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STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2000, 1999, and 1998 Georgia Power Company 2000 Annual Report ------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 560,094 $ 543,112 $ 576,167 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 712,960 663,878 867,637 Deferred income taxes and investment tax credits, net (28,961) (34,930) (93,005) Other, net (51,501) (42,179) 40,396 Changes in certain current assets and liabilities -- Receivables, net (108,621) 21,665 (25,453) Fossil fuel stock 26,835 (22,165) (8,066) Materials and supplies (9,715) (10,417) (3,090) Accounts payables 64,412 13,095 47,862 Energy cost recovery, retail (95,235) (26,862) (7,649) Other (9,092) 90,788 6,997 ------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 1,061,176 1,195,985 1,401,796 ------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (1,078,163) (790,464) (499,053) Other (5,450) (27,454) 67,031 ------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (1,083,613) (817,918) (432,022) ------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Increase (decrease) in notes payable, net 67,598 295,389 (25,378) Proceeds -- Senior notes 300,000 100,000 495,000 Pollution control bonds 78,725 238,000 89,990 Preferred securities - 200,000 - Capital contributions from parent company 301,514 155,777 235 Retirements -- First mortgage bonds (100,000) (404,000) (558,250) Pollution control bonds (78,725) (235,000) (89,990) Preferred securities - (100,000) - Preferred stock (383) (36,231) (106,064) Capital distributions to parent company - - (270,000) Payment of preferred stock dividends (751) (984) (9,137) Payment of common stock dividends (549,600) (543,000) (536,600) Other (1,231) (29,630) (26,641) ------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities 17,147 (359,679) (1,036,835) ------------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (5,290) 18,388 (67,061) Cash and Cash Equivalents at Beginning of Year 34,660 16,272 83,333 ------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $29,370 $34,660 $16,272 ------------------------------------------------------------------------------------------------------------------------------- Supplemental Cash Flow Information: Cash paid during the year for -- Interest (net of amount capitalized) $ 265,373 $ 247,050 $ 269,524 Income taxes (net of refunds) 392,310 394,457 480,318 ------------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.

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BALANCE SHEETS At December 31, 2000 and 1999 Georgia Power Company 2000 Annual Report ------------------------------------------------------------------------------------------------------------------------------------ Assets 2000 1999 ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) Current Assets: Cash and cash equivalents $ 29,370 $ 34,660 Receivables -- Customer accounts receivable 465,249 401,773 Unrecovered retail fuel clause revenue 131,623 36,388 Other accounts and notes receivable 156,143 102,544 Affiliated companies 13,312 16,006 Accumulated provision for uncollectible accounts (5,100) (7,000) Fossil fuel stock, at average cost 99,463 126,298 Materials and supplies, at average cost 263,609 253,894 Other 97,515 63,990 ------------------------------------------------------------------------------------------------------------------------------------ Total current assets 1,251,184 1,028,553 ------------------------------------------------------------------------------------------------------------------------------------ Property, Plant, and Equipment: In service 16,469,706 15,798,624 Less accumulated provision for depreciation 6,914,512 6,538,574 ------------------------------------------------------------------------------------------------------------------------------------ 9,555,194 9,260,050 Nuclear fuel, at amortized cost 120,570 119,288 Construction work in progress (Note 4) 652,264 425,975 ------------------------------------------------------------------------------------------------------------------------------------ Total property, plant, and equipment 10,328,028 9,805,313 ------------------------------------------------------------------------------------------------------------------------------------ Other Property and Investments: Equity investments in unconsolidated subsidiaries (Note 4) 25,485 25,024 Nuclear decommissioning trusts 375,666 371,914 Other 33,829 33,766 ------------------------------------------------------------------------------------------------------------------------------------ Total other property and investments 434,980 430,704 ------------------------------------------------------------------------------------------------------------------------------------ Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 8) 565,982 590,893 Prepaid pension costs 205,113 145,801 Debt expense, being amortized 53,748 55,824 Premium on reacquired debt, being amortized 173,610 184,331 Other 120,964 120,441 ------------------------------------------------------------------------------------------------------------------------------------ Total deferred charges and other assets 1,119,417 1,097,290 ------------------------------------------------------------------------------------------------------------------------------------ Total Assets $13,133,609 $12,361,860 ==================================================================================================================================== The accompanying notes are an integral part of these balance sheets.

II-90

BALANCE SHEETS At December 31, 2000 and 1999 Georgia Power Company 2000 Annual Report --------------------------------------------------------------------------------------------------------------- Liabilities and Stockholder's Equity 2000 1999 --------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Securities due within one year (Note 9) $ 1,808 $ 155,772 Notes payable 703,839 636,241 Accounts payable -- Affiliated 117,168 76,591 Other 397,550 346,785 Customer deposits 78,540 74,695 Taxes accrued -- Income taxes 5,151 7,914 Other 137,511 127,414 Interest accrued 47,244 58,665 Vacation pay accrued 38,865 38,143 Other 153,400 153,767 --------------------------------------------------------------------------------------------------------------- Total current liabilities 1,681,076 1,675,987 --------------------------------------------------------------------------------------------------------------- Long-term debt (See accompanying statements) 3,041,939 2,688,358 --------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 2,182,783 2,202,565 Deferred credits related to income taxes (Note 8) 247,067 267,083 Accumulated deferred investment tax credits (Note 8) 352,282 367,114 Employee benefits provisions 177,444 181,529 Other 397,655 236,812 --------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 3,357,231 3,255,103 --------------------------------------------------------------------------------------------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes (See accompanying statements) 789,250 789,250 --------------------------------------------------------------------------------------------------------------- Cumulative preferred stock (See accompanying statements) 14,569 14,952 --------------------------------------------------------------------------------------------------------------- Common stockholder's equity (See accompanying statements) 4,249,544 3,938,210 --------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $13,133,609 $12,361,860 =============================================================================================================== The accompanying notes are an integral part of these balance sheets.

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STATEMENTS OF CAPITALIZATION At December 31, 2000 and 1999 Georgia Power Company 2000 Annual Report ---------------------------------------------------------------------------------------------------------------------------------- 2000 1999 2000 1999 ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Long-Term Debt: First mortgage bonds -- Maturity Interest Rates -------- -------------- March 1, 2000 6.00% $ - $ 100,000 April 1, 2003 6.625% 200,000 200,000 August 1, 2003 6.35% 75,000 75,000 2005 6.07% 10,000 10,000 2008 6.875% 50,000 50,000 2025 7.70% 57,000 57,000 ---------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 392,000 492,000 ---------------------------------------------------------------------------------------------------------------- Senior notes -- (Note 9) Variable rate (6.71375% at 1/1/01) due February 22, 2002 300,000 - 5.50% due December 1, 2005 150,000 150,000 6.60% due December 31, 2038 200,000 200,000 6.625% due March 31, 2039 100,000 100,000 6.875% due December 31, 2047 145,000 145,000 ---------------------------------------------------------------------------------------------------------------- Total senior notes payable 895,000 595,000 ---------------------------------------------------------------------------------------------------------------- Other long-term debt -- (Note 9) Pollution control revenue bonds -- Maturity Interest Rates -------- ------------- 2000 4.375% - 50,000 2005 5.00% 57,000 57,000 2011 Variable (5.10% at 1/1/01) 10,450 10,450 2018-2019 6.00% to 6.25% 13,100 13,100 2021-2025 5.40% to 6.75% 308,660 337,385 2022-2025 Variable (4.85% to 5.35% at 1/1/01) 622,075 622,075 2026-2030 Variable (5.00% to 5.10% at 1/1/01) 206,180 206,180 2030 4.53% 78,725 - 2032-2034 Variable (5.0% to 5.30% at 1/1/01) 140,000 140,000 2034 5.25% to 5.45% 238,000 238,000 ---------------------------------------------------------------------------------------------------------------- Total other long-term debt 1,674,190 1,674,190 ---------------------------------------------------------------------------------------------------------------- Capital lease obligations (Note 9) 85,179 85,851 ---------------------------------------------------------------------------------------------------------------- Unamortized debt discount, net (2,622) (2,911) ---------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $179.6 million) 3,043,747 2,844,130 Less amount due within one year (Note 9) 1,808 155,772 ----------------------------------------------------------------------------------------------------------------------------------- Total long-term debt excluding amount due within one year $ 3,041,939 $ 2,688,358 37.6 % 36.2 % -----------------------------------------------------------------------------------------------------------------------------------

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STATEMENTS OF CAPITALIZATION (continued) At December 31, 2000 and 1999 Georgia Power Company 2000 Annual Report ----------------------------------------------------------------------------------------------------------------------------------- 2000 1999 2000 1999 ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Company Obligated Mandatorily Redeemable Preferred Securities (Note 9): $25 liquidation value -- 6.85% $ 200,000 $ 200,000 $25 liquidation value -- 7.60% 175,000 175,000 $25 liquidation value -- 7.75% 189,250 189,250 $25 liquidation value -- 7.75% 225,000 225,000 ----------------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $59.1 million) 789,250 789,250 9.7 10.6 ----------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock, without par value: Authorized -- 55,000,000 shares Outstanding -- 145,689 shares at December 31, 2000 Outstanding -- 149,520 shares at December 31, 1999 $100 stated value -- 4.60% 14,569 14,952 ----------------------------------------------------------------------------------------------------------------------------------- Total cumulative preferred stock (annual dividend requirement -- $0.7 million) 14,569 14,952 0.2 0.2 ----------------------------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity: Common stock, without par value -- Authorized -- 15,000,000 shares Outstanding -- 7,761,500 shares 344,250 344,250 Paid-in capital 2,117,497 1,815,983 Premium on preferred stock 40 40 Retained earnings (Note 9) 1,787,757 1,777,937 ----------------------------------------------------------------------------------------------------------------------------------- Total common stockholder's equity (See accompanying statements) 4,249,544 3,938,210 52.5 53.0 ----------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $ 8,095,302 $ 7,430,770 100.0 % 100.0 % ----------------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.

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STATEMENTS OF COMMON STOCKHOLDER'S EQUITY For the Years Ended December 31, 2000, 1999, and 1998 Georgia Power Company 2000 Annual Report -------------------------------------------------------------------------------------------------------------------------------- Premium on Common Paid-In Preferred Retained Stock Capital Stock Earnings Total -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at January 1, 1998 $344,250 $1,929,971 $160 $1,745,347 $4,019,728 Net income after dividends on preferred stock - - - 570,228 570,228 Capital distributions to parent company - (270,000) - - (270,000) Capital contributions from parent company - 235 - - 235 Cash dividends on common stock - - - (536,600) (536,600) Preferred stock transactions, net - - (2) 583 581 -------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 344,250 1,660,206 158 1,779,558 3,784,172 Net income after dividends on preferred stock - - - 541,383 541,383 Capital contributions from parent company - 155,777 - - 155,777 Cash dividends on common stock - - - (543,000) (543,000) Preferred stock transactions, net - - (118) (4) (122) -------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 344,250 1,815,983 40 1,777,937 3,938,210 Net income after dividends on preferred stock - - - 559,420 559,420 Capital contributions from parent company - 301,514 - - 301,514 Cash dividends on common stock - - - (549,600) (549,600) -------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 $344,250 $2,117,497 $40 $1,787,757 $4,249,544 ================================================================================================================================ The accompanying notes are an integral part of these statements.

II-94 NOTES TO FINANCIAL STATEMENTS Georgia Power Company 2000 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General The Company is a wholly owned subsidiary of Southern Company, which is the parent company of five integrated Southeast utilities, Southern Company Services (SCS), the system service company, Southern Communications Services (Southern LINC), Mirant Corporation (formerly Southern Energy), Southern Nuclear Operating Company (Southern Nuclear), Southern Company Energy Solutions, and other direct and indirect subsidiaries. The integrated Southeast utilities (Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric and Power Company) provide electric service in four states. Contracts among the integrated Southeast utilities -- related to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) or the Securities and Exchange Commission (SEC). SCS provides, at cost, specialized services to Southern Company and subsidiary companies. Southern LINC provides digital wireless communications services to the subsidiary companies and also markets these services to the public within the Southeast. Southern Company Energy Solutions develops new business opportunities related to energy products and services. Southern Nuclear provides services to Southern Company's nuclear power plants. Mirant Corporation acquires, develops, builds, owns, and operates power production and delivery facilities and provides a broad range of energy-related services to utilities and industrial companies in selected countries around the world. Mirant Corporation's businesses include independent power projects, integrated utilities, a distribution company, and energy trading and marketing businesses outside the Southeastern United States. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The Company is also subject to regulation by the FERC and the Georgia Public Service Commission (GPSC). The Company follows accounting principles generally accepted in the United States and complies with the accounting policies and practices prescribed by the respective regulatory commissions. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates, and the actual results may differ from these estimates. Certain prior years' data presented in the financial statements have been reclassified to conform with current year presentation. Related-Party Transactions The Company has an agreement with SCS under which the following services are rendered to the Company at cost: general and design engineering, purchasing, accounting and statistical, finance and treasury, tax, information resources, marketing, auditing, insurance and pension, human resources, systems and procedures, and other services with respect to business and operations and power pool operations. Costs for these services amounted to $269 million, $253 million, and $251 million during 2000, 1999, and 1998, respectively. The Company has an agreement with Southern Nuclear under which the following nuclear-related services are rendered to the Company at cost: general executive and advisory services; general operations, management and technical services; administrative services including procurement, accounting and statistical, employee relations, and systems and procedures services; strategic planning and budgeting services; and other services with respect to business and operations. Costs for these services amounted to $281 million, $270 million, and $269 million during 2000, 1999, and 1998, respectively. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. Pursuant to the terms of the GPSC retail rate order, the Company recorded $135 million and $85 million in 2000 and 1999, respectively, of accelerated cost recovery of regulatory assets which have II-95 NOTES (continued) Georgia Power Company 2000 Annual Report been recorded on the balance sheet as a regulatory liability. See Note 3 under "Retail Rate Order" for additional information. Regulatory assets and (liabilities) reflected in the Company's Balance Sheets at December 31 relate to the following: 2000 1999 ---------------------- (in millions) Deferred income taxes $ 566 $ 591 Deferred income tax credits (247) (267) Premium on reacquired debt 174 184 Corporate building lease 55 54 Vacation pay 49 47 Postretirement benefits 30 33 Department of Energy assessments 21 24 Deferred nuclear outage costs 28 26 Accelerated cost recovery (220) (85) Interest, accelerated cost recovery (10) - Other, net 23 3 --------------------------------------------------------------- Total $ 469 $ 610 =============================================================== In the event that a portion of the Company's operations is no longer subject to the provisions of Statement No. 71, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair value. Revenues and Fuel Costs The Company currently operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located within the state of Georgia, and to wholesale customers in the Southeast. Revenues are recognized as services are rendered. Unbilled revenues are accrued at the end of each fiscal period. Fuel costs are expensed as the fuel is used. The Company's fuel cost recovery mechanism includes provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current rates. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts averaged less than 1 percent of revenues. Fuel expense includes the amortization of the cost of nuclear fuel and a charge, based on nuclear generation, for the permanent disposal of spent nuclear fuel. Total charges for nuclear fuel included in fuel expense amounted to $75 million in 2000, $74 million in 1999, and $74 million in 1998. The Company has a contract with the U.S. Department of Energy (DOE) that provides for the permanent disposal of spent nuclear fuel. The DOE failed to begin disposing of spent fuel in January 1998 as required by the contracts, and the Company is pursuing legal remedies against the government for breach of contract. Effective June 2000, the on-site dry storage facility for Plant Hatch became operational. Sufficient capacity is believed available to continue dry storage operations at Plant Hatch through the life of the plant. Sufficient fuel storage capacity currently is available at Plant Vogtle to maintain full-core discharge capability for both units into the year 2014. Also, the Energy Policy Act of 1992 required the establishment of a Uranium Enrichment Decontamination and Decommissioning Fund, which is to be funded in part by a special assessment on utilities with nuclear plants. The assessment will be paid over a 15-year period, which began in 1993. This fund will be used by the DOE for the decontamination and decommissioning of its nuclear fuel enrichment facilities. The law provides that utilities will recover these payments in the same manner as any other fuel expense. The Company -- based on its ownership interests -- estimates its remaining liability under this law at December 31, 2000 to be approximately $19 million. This obligation is recorded in the accompanying Balance Sheets. Depreciation and Nuclear Decommissioning Depreciation of the original cost of depreciable utility plant in service is provided primarily by using composite straight-line rates, which approximated 3.3 percent in 2000 and 1999, and 3.2 percent in 1998. In addition, pursuant to a GPSC retail rate order, the Company recorded accelerated depreciation of electric plant of $304 million in 1998. Total accelerated depreciation recorded under the GPSC retail rate order was $467 million. These charges are recorded in the accumulated provision for depreciation. When property subject to depreciation is retired or otherwise disposed of in the normal course of II-96 NOTES (continued) Georgia Power Company 2000 Annual Report business, its original cost -- together with the cost of removal, less salvage -- is charged to accumulated depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected costs of decommissioning nuclear facilities and removal of other facilities. Nuclear Regulatory Commission (NRC) regulations require all licensees operating commercial power reactors to establish a plan for providing, with reasonable assurance, funds for decommissioning. The Company has established external trust funds to comply with the NRC's regulations. Amounts previously recorded in internal reserves are being transferred into the external trust funds over a set period of time as ordered by the GPSC. Earnings on the trust funds are considered in determining decommissioning expense. The NRC's minimum external funding requirements are based on a generic estimate of the cost to decommission the radioactive portions of a nuclear unit based on the size and type of reactor. The Company has filed plans with the NRC to ensure that -- over time -- the deposits and earnings of the external trust funds will provide the minimum funding amounts prescribed by the NRC. The Company periodically conducts site-specific studies to estimate the actual cost of decommissioning its nuclear generating facilities. Site study cost is the estimate to decommission the facility as of the site study year, and ultimate cost is the estimate to decommission the facility as of its retirement date. The estimated site study costs based on the most current study and ultimate costs assuming an inflation rate of 4.7 percent for the Company's ownership interests are as follows: Plant Plant Hatch Vogtle -------------------- Site study basis (year) 2000 2000 Decommissioning periods: Beginning year 2014 2027 Completion year 2042 2045 ------------------------------------------------------------- (in millions) Site study costs: Radiated structures $486 $420 Non-radiated structures 37 48 ------------------------------------------------------------- Total $523 $468 ============================================================= (in millions) Ultimate costs: Radiated structures $1,004 $1,468 Non-radiated structures 79 166 ------------------------------------------------------------- Total $1,083 $1,634 ============================================================= The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The actual decommissioning costs may vary from the above estimates because of changes in the assumed date of decommissioning, changes in the NRC requirements, changes in the assumptions used in making the estimates, changes in regulatory requirements, changes in technology, and changes in costs of labor, materials, and equipment. The Company has filed with the NRC an application requesting a 20-year renewal of the licenses for both units at Plant Hatch which would permit the operation of both units until 2034. Annual provisions for nuclear decommissioning expense are based on an annuity method as approved by the GPSC. The amounts expensed in 2000 and fund balances as of December 31, 2000 were: Plant Plant Hatch Vogtle ---------------------------------------------------------------- (in millions) Amount expensed in 2000 $ 19 $ 9 ================================================================ (in millions) Accumulated provisions: External trust funds, at fair value $230 $146 Internal reserves 20 12 ---------------------------------------------------------------- Total $250 $158 ================================================================ Effective January 1, 1999, the GPSC increased the annual provision for decommissioning expenses to $28 million from $20 million in 1998. This amount is based on the NRC generic estimate to decommission the radioactive II-97 NOTES (continued) Georgia Power Company 2000 Annual Report portion of the facilities as of 1997 of $526 million and $438 million for Plants Hatch and Vogtle, respectively. The ultimate costs associated with the 1997 NRC minimum funding requirements are $1.1 billion and $1.3 billion for Plants Hatch and Vogtle, respectively. Significant assumptions include an estimated inflation rate of 3.6 percent and an estimated trust earnings rate of 6.5 percent. The Company expects the GPSC to periodically review and adjust, if necessary, the amounts collected in rates for the anticipated cost of decommissioning. Income Taxes The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Allowance for Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new regulated facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. For the years 2000, 1999, and 1998, the average AFUDC rates were 6.74 percent, 5.61 percent, and 6.71 percent, respectively. AFUDC, net of taxes, as a percentage of net income after dividends on preferred stock, was less than 2.0 percent for 2000, 1999 and 1998. Property, Plant, and Equipment Property, plant, and equipment is stated at original cost, less regulatory disallowances and impairments. Original cost includes: materials; labor; payroll-related costs such as taxes, pensions, and other benefits; and the cost of funds used during construction. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property (exclusive of minor items of property) is capitalized. Cash and Cash Equivalents For purposes of the financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Financial Instruments The Company has a firm commitment that requires payment in euros. As a hedge against fluctuations in the exchange rate for euros, the Company entered into forward currency swaps. The notional amount is 15.9 million euros maturing in 2001 through 2002. At December 31, 2000, the unrecognized gain on these swaps was approximately $1.3 million. The Company's financial instruments for which the carrying amounts did not approximate fair value at December 31 were as follows: Carrying Fair Amount Value ------------------------ Long-term debt: (in millions) At December 31, 2000 $2,959 $2,912 At December 31, 1999 $2,758 $2,604 Preferred securities: At December 31, 2000 $789 $761 At December 31, 1999 $789 $680 -------------------------------------------------------------- The fair values for securities were based on either closing market prices or closing prices of comparable instruments. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. 2. RETIREMENT BENEFITS The Company has defined benefit, trusteed pension plans that cover substantially all employees. The Company provides certain medical care and life insurance benefits for retired employees. Substantially all these employees may become eligible for such benefits when they retire. The Company funds postretirement trusts to the extent required by the GPSC and FERC. In late 2000, the Company adopted several pension and postretirement benefits plan changes that had the II-98 NOTES (continued) Georgia Power Company 2000 Annual Report effect of increasing benefits to both current and future retirees. The effects of these changes will be to increase annual pension and postretirement benefits costs by approximately $10 million and $6 million, respectively. The measurement date for plan assets and obligations is September 30 of each year. The weighted average rates assumed in the actuarial calculations for both the pension and postretirement benefit plans were: 2000 1999 ----------------------------------------------------------------- Discount 7.50% 7.50% Annual salary increase 5.00 5.00 Expected long-term return on plan assets 8.50 8.50 ----------------------------------------------------------------- Pension Plan Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations --------------------------- 2000 1999 ---------------------------------------------------------------- (in millions) Balance at beginning of year $1,205 $1,217 Service cost 32 33 Interest cost 88 80 Benefits paid (58) (57) Actuarial gain and employee transfers (14) (68) ---------------------------------------------------------------- Balance at end of year $1,253 $1,205 ================================================================ Plan Assets --------------------------- 2000 1999 ---------------------------------------------------------------- (in millions) Balance at beginning of year $2,107 $1,859 Actual return on plan assets 385 313 Benefits paid (58) (57) Employee transfers 30 (8) ---------------------------------------------------------------- Balance at end of year $2,464 $2,107 ================================================================ The accrued pension costs recognized in the Balance Sheets were as follows: 2000 1999 --------------------------------------------------------------- (in millions) Funded status $ 1,211 $ 902 Unrecognized transition obligation (26) (30) Unrecognized prior service cost 38 41 Unrecognized net actuarial gain (1,018) (767) --------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 205 $ 146 =============================================================== Components of the plan's net periodic cost were as follows: 2000 1999 1998 --------------------------------------------------------------- (in millions) Service cost $ 32 $ 33 $ 30 Interest cost 88 80 82 Expected return on plan assets (151) (137) (127) Recognized net actuarial gain (27) (17) (20) Net amortization (1) (1) (1) --------------------------------------------------------------- Net pension income $ (59) $ (42) $ (36) =============================================================== Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations --------------------------- 2000 1999 ---------------------------------------------------------------- (in millions) Balance at beginning of year $438 $464 Service cost 7 8 Interest cost 36 30 Benefits paid (21) (19) Actuarial gain and employee transfers (28) (45) Amendments 63 - ---------------------------------------------------------------- Balance at end of year $495 $438 ================================================================ II-99 NOTES (continued) Georgia Power Company 2000 Annual Report Plan Assets --------------------------- 2000 1999 ---------------------------------------------------------------- (in millions) Balance at beginning of year $177 $150 Actual return on plan assets 12 11 Employer contributions 30 35 Benefits paid (21) (19) ---------------------------------------------------------------- Balance at end of year $198 $177 ================================================================ The accrued postretirement costs recognized in the Balance Sheets were as follows: 2000 1999 --------------------------------------------------------------- (in millions) Funded status $ (297) $ (261) Unrecognized transition obligation 113 122 Unrecognized prior service cost 60 - Unrecognized gain (13) - Unrecognized net actuarial loss - 10 Fourth quarter contributions 27 14 --------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $ (110) $(115) =============================================================== Components of the plans' net periodic cost were as follows: 2000 1999 1998 --------------------------------------------------------------- (in millions) Service cost $ 7 $ 8 $ 7 Interest cost 36 30 32 Expected return on plan assets (16) (10) (9) Recognized net actuarial loss - 1 1 Net amortization 12 9 9 ------------------------------------------------------ -------- Net postretirement cost $ 39 $ 38 $40 =============================================================== An additional assumption used in measuring the accumulated postretirement benefit obligations was a weighted average medical care cost trend rate of 7.29 percent for 2000, decreasing gradually to 5.50 percent through the year 2005, and remaining at that level thereafter. An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 2000 as follows: 1 Percent 1 Percent Increase Decrease --------------------------------------------------------------- (in millions) Benefit obligation $ 39 $ 34 Service and interest costs 3 3 =============================================================== Employee Savings Plan The Company also sponsors a 401(k) defined contribution plan covering substantially all employees. The Company provides a 75 percent matching contribution up to 6 percent of an employee's base salary. Total matching contributions made to the plan for the years 2000, 1999, and 1998 were $15 million, $15 million, and $14 million, respectively. 3. CONTINGENCIES & REGULATORY MATTERS Retail Rate Order On December 18, 1998, the GPSC approved a three-year retail rate order for the Company ending December 31, 2001. Under the terms of the order, earnings are evaluated against a retail return on common equity range of 10 percent to 12.5 percent. Retail rates were decreased by $262 million on an annual basis effective January 1, 1999, and by an additional $24 million effective January 1, 2000. The order further provides for $85 million in each year, plus up to $50 million of any earnings above the 12.5 percent return during the second and third years, to be applied to accelerated amortization or depreciation of assets. Two-thirds of any additional earnings above the 12.5 percent return will be applied to rate reductions, with the remaining one-third retained by the Company. Pursuant to the order, in 2000 and 1999, the Company recorded $85 million each year in accelerated amortization of regulatory assets. In 2000, the Company also recorded the additional $50 million of accelerated amortization. The accelerated amortization is recorded in a regulatory liability account and, as mandated by the GPSC, the Company recorded $10 million of interest on the amounts in the regulatory liability account. In addition, the Company recorded $44 million and $79 million of revenue subject to refund for estimated earnings above 12.5 percent retail return on common equity in 2000 and 1999, respectively. Refunds applicable to 1999 were made to customers in 2000. The estimated 2000 refund is included in other current liabilities on the Balance Sheet. The Company will file a general rate case on July 2, 2001, in response to II-100 NOTES (continued) Georgia Power Company 2000 Annual Report which the GPSC would be expected to determine whether the rate order should be continued, modified, or discontinued. Environmental Protection Agency (EPA) Litigation On November 3, 1999, the EPA brought a civil action in the U.S. District Court for the Northern District of Georgia. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to coal-fired generating facilities at the Company's Bowen and Scherer plants. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units beginning at the point of the alleged violations. The Clean Air Act authorizes civil penalties of up to $27,500 per day, per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The EPA concurrently issued a notice of violation to the Company relating to these two plants. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation. The complaint and the notice of violation are similar to those brought against and issued to several other electric utilities. The complaint and the notice of violation allege that the Company failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. The Company believes that it complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition unless such costs can be recovered through regulated rates. Other Environmental Contingencies In January 1995, the Company and four other unrelated entities were notified by the EPA that they have been designated as potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act with respect to a site in Brunswick, Georgia. As of December 31, 2000, the Company has recognized approximately $5 million in cumulative expenses associated with the Company's agreed upon share of removal and remedial investigation and feasibility study costs for this site. The final outcome of this matter cannot now be determined. However, based on the nature and extent of the Company's activities relating to the site, management believes that the Company's portion of any remaining remediation costs should not be material to the financial statements. In compliance with the Georgia Hazardous Site Response Act of 1993, the State of Georgia was required to compile an inventory of all known or suspected sites where hazardous wastes, constituents, or substances have been disposed of or released in quantities deemed reportable by the State. In developing this list, the State identified several hundred properties throughout the State, including 34 sites which may require environmental remediation that were either previously or are currently owned by the Company. The majority of these sites are electrical power substations and power generation facilities. The Company has remediated ten electrical substations on the list at a cumulative cost of approximately $3 million through December 31, 2000. The State has removed from the list three power generation facilities following the assessment which indicated no remediation was necessary. In addition, the Company has recognized approximately $27.5 million in cumulative expenses through December 31, 2000 for the assessment of the remaining sites on the list and the anticipated clean-up cost for 14 sites that the Company plans to remediate. Any additional costs of remediating the remaining sites cannot presently be determined until such studies are completed for each site and the State determines whether remediation is required. If all listed sites were required to be remediated, the Company could incur expenses of up to approximately $5 million in additional clean-up costs and construction expenditures of up to approximately $37 million to develop new waste management facilities or install additional pollution control devices. Nuclear Performance Standards The GPSC has adopted a nuclear performance standard for the Company's nuclear generating units under which the performance of Plants Hatch and Vogtle is evaluated every three years. The performance standard is based on each unit's capacity factor as compared to the average of all comparable U.S. nuclear units II-101 NOTES (continued) Georgia Power Company 2000 Annual Report operating at a capacity factor of 50 percent or higher during the three-year period of evaluation. Depending on the performance of the units, the Company could receive a monetary award or penalty under the performance standards criteria. In January 1997, the GPSC approved a performance award of approximately $11.7 million for performance during the 1993-1995 period. This award was collected through the retail fuel cost recovery provision and recognized in income over the 36-month period ending in December 1999. In February 2000, the GPSC approved a performance award of approximately $7.8 million for performance during the 1996-1998 period. This award is being collected through the retail fuel cost recovery provision and recognized in income over a 36-month period that began in January 2000, as mandated by the GPSC. Race Discrimination Litigation On July 28, 2000, a lawsuit alleging race discrimination was filed by three Georgia Power employees against the Company, Southern Company, and SCS in the United States District Court for the Northern District of Georgia. The lawsuit also raised claims on behalf of a purported class. The plaintiffs seek compensatory and punitive damages in an unspecified amount, as well as injunctive relief. On August 14, 2000, the lawsuit was amended to add four more plaintiffs and a new defendant, Southern Company Energy Solutions, Inc. The lawsuit is in the discovery stage. The final outcome of this case cannot now be determined. 4. COMMITMENTS Construction Program The Company is constructing Plant Dahlberg, a ten unit, 800 megawatt combustion turbine peaking power plant. Units one through eight began operation in May 2000; units nine and ten are expected to begin operation in June 2001. The Company is also constructing a 571 megawatt combined cycle unit and a 610 megawatt combined cycle unit at Plant Goat Rock that will begin operation in 2002 and in 2003, respectively, and an addition of two 566 megawatt combined cycle units at Plant Wansley, to begin operation in 2002. During 2001, the Company plans to transfer the units at Plants Dahlberg, Goat Rock, and Wansley at net book value to Southern Power Company (SPC), a new subsidiary formed by Southern Company. Significant construction of transmission and distribution facilities, and projects to upgrade and extend the useful life of generating plants and to remain in compliance with environmental requirements will continue. The Company currently estimates property additions to be approximately $1.6 billion in 2001, $1.3 billion in 2002, and $0.8 billion in 2003. If the Company transfers wholesale generation assets to SPC in 2001 as contemplated, construction expenditures for the years 2001 through 2003 will total $1.0 billion, $0.9 billion, and $0.7 billion, respectively. The construction program is subject to periodic review and revision, and actual construction costs may vary from estimates because of numerous factors, including, but not limited to, changes in business conditions, load growth estimates, environmental regulations, and regulatory requirements. Fuel Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement of fossil and nuclear fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. Total estimated long-term fossil and nuclear fuel commitments at December 31, 2000 were as follows: Minimum Year Obligations ---- ----------------- (in millions) 2001 $1,006 2002 625 2003 586 2004 430 2005 342 2006 and beyond 873 ------------------------------------------------------------- Total minimum obligations $3,862 ============================================================= Additional commitments for coal and for nuclear fuel will be required in the future to supply the Company's fuel needs. Purchased Power Commitments The Company and an affiliate, Alabama Power Company, own equally all of the outstanding capital stock of Southern Electric Generating Company (SEGCO), which II-102 NOTES (continued) Georgia Power Company 2000 Annual Report owns electric generating units with a total rated capacity of 1,020 megawatts, as well as associated transmission facilities. The capacity of the units has been sold equally to the Company and Alabama Power Company under a contract which, in substance, requires payments sufficient to provide for the operating expenses, taxes, debt service, and return on investment, whether or not SEGCO has any capacity and energy available. The term of the contract extends automatically for two-year periods, subject to either party's right to cancel upon two year's notice. The Company's share of expenses included in purchased power from affiliates in the Statements of Income is as follows: 2000 1999 1998 --------------------------------- (in millions) Energy $57 $51 $45 Capacity 30 29 30 -------------------------------------------------------------- Total $87 $80 $75 ============================================================== Kilowatt-hours 3,835 3,338 3,146 -------------------------------------------------------------- The Company has commitments regarding a portion of a 5 percent interest in Plant Vogtle owned by Municipal Electric Authority of Georgia (MEAG) that are in effect until the latter of the retirement of the plant or the latest stated maturity date of MEAG's bonds issued to finance such ownership interest. The payments for capacity are required whether or not any capacity is available. The energy cost is a function of each unit's variable operating costs. Except as noted below, the cost of such capacity and energy is included in purchased power from non-affiliates in the Company's Statements of Income. Capacity payments totaled $58 million, $57 million, and $56 million in 2000, 1999, and 1998, respectively. The current projected Plant Vogtle capacity payments are: Year Capacity Payments ---------------------- (in millions) 2001 $ 59 2002 58 2003 58 2004 55 2005 55 2006 and beyond 539 ---------------------------------------------------------------- Total capacity payments $ 824 ================================================================ Portions of the payments noted above relate to costs in excess of Plant Vogtle's allowed investment for ratemaking purposes. The present value of these portions was written off in 1987 and 1990. The Company has entered into other various long-term commitments for the purchase of electricity. Estimated total long-term obligations at December 31, 2000 were as follows: Year Other Obligations ---------------------- (in millions) 2001 $ 22 2002 39 2003 41 2004 40 2005 40 2006 and beyond 154 ---------------------------------------------------------------- Total other obligations $336 ================================================================ Operating Leases The Company has entered into coal rail car rental agreements with various terms and expiration dates. These expenses totaled $16 million for 2000, $11 million for 1999, and $13 million for 1998. At December 31, 2000, estimated minimum rental commitments for these noncancelable operating leases were as follows: Year Minimum Obligations -------------------------- (in millions) 2001 $ 15 2002 15 2003 15 2004 16 2005 14 2006 and beyond 102 ----------------------------------------------------------------- Total minimum obligations $ 177 ================================================================= 5. NUCLEAR INSURANCE Under the Price-Anderson Amendments Act of 1988, the Company maintains agreements of indemnity with the NRC that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at the Company's nuclear power plants. The Act provides funds up to $9.5 billion for public liability claims that could arise from a single nuclear incident. Each nuclear plant is insured against this liability to a maximum of $200 million by private insurance, with the remaining coverage provided by a mandatory program II-103 NOTES (continued) Georgia Power Company 2000 Annual Report of deferred premiums that could be assessed, after a nuclear incident, against all owners of nuclear reactors. The Company could be assessed up to $88 million per incident for each licensed reactor it operates but not more than an aggregate of $10 million per incident to be paid in a calendar year for each reactor. Such maximum assessment for the Company, excluding any applicable state premium taxes -- based on its ownership and buyback interests -- is $178 million per incident but not more than an aggregate of $20 million to be paid for each incident in any one year. The Company is a member of Nuclear Electric Insurance Limited (NEIL), a mutual insurer established to provide property damage insurance in an amount up to $500 million for members' nuclear generating facilities. Additionally, the Company has policies that currently provide decontamination, excess property insurance, and premature decommissioning coverage up to $2.25 billion for losses in excess of the $500 million primary coverage. This excess insurance is also provided by NEIL. NEIL also covers the additional costs that would be incurred in obtaining replacement power during a prolonged accidental outage at a member's nuclear plant. Members can be insured against increased costs of replacement power in an amount up to $3.5 million per week -- starting 12 weeks after the outage -- for one year and up to $2.8 million per week for the second and third years. Under each of the NEIL policies, members are subject to assessments if losses each year exceed the accumulated funds available to the insurer under that policy. The current maximum annual assessments for the Company under the three NEIL policies would be $19 million. For all on-site property damage insurance policies for commercial nuclear power plants, the NRC requires that the proceeds of such policies should be dedicated first for the sole purpose of placing the reactor in a safe and stable condition after an accident. Any remaining proceeds are to be applied next toward the costs of decontamination and debris removal operations ordered by the NRC, and any further remaining proceeds are to be paid either to the Company or to its bond trustees as may be appropriate under the policies and applicable trust indentures. All retrospective assessments, whether generated for liability, property, or replacement power, may be subject to applicable state premium taxes. 6. JOINT OWNERSHIP AGREEMENTS Except as otherwise noted, the Company has contracted to operate and maintain all jointly owned generating facilities. The Company jointly owns the Rocky Mountain pumped storage hydroelectric plant with Oglethorpe Power Company who is the operator of the plant. The Company also jointly owns Plant McIntosh with Savannah Electric and Power Company who operates the plant. The Company and Florida Power Corporation (FPC) jointly own a combustion turbine unit (Intercession City) operated by FPC. The Company includes its proportionate share of plant operating expenses in the corresponding operating expenses in the Statements of Income. At December 31, 2000, the Company's percentage ownership and investment (exclusive of nuclear fuel) in jointly owned facilities in commercial operation were as follows: Company Accumulated Facility (Type) Ownership Investment Depreciation -------------------------------------------------------------------- (in millions) Plant Vogtle (nuclear) 45.7% $3,301* $1,724 Plant Hatch (nuclear) 50.1 873 650 Plant Wansley (coal) 53.5 300 150 Plant Scherer (coal) Units 1 and 2 8.4 112 53 Unit 3 75.0 545 207 Plant McIntosh Common Facilities 75.0 19 2 (combustion-turbine) Rocky Mountain 25.4 169* 72 (pumped storage) Intercession City 33.3 11 1 (combustion-turbine) -------------------------------------------------------------------- * Investment net of write-offs. 7. LONG-TERM POWER SALES AND LEASE AGREEMENTS The Company and the other integrated Southeast utilities of Southern Company have long-term contractual agreements for the sale of capacity and energy to non-affiliated utilities located outside the system's service area. These II-104 NOTES (continued) Georgia Power Company 2000 Annual Report agreements consist of firm unit power sales pertaining to capacity from specific generating units. Because energy is generally sold at cost under these agreements, it is primarily the capacity revenues that affect the Company's profitability. The Company's capacity revenues were as follows: Year Revenues Capacity ------------------------------------- (in millions) (megawatts) 2000 $ 30 124 1999 32 162 1998 32 162 ------------------------------------- Unit power from specific generating plants is being sold to Florida Power & Light Company, FPC, and Jacksonville Electric Authority. Under these agreements, approximately 102 megawatts of capacity is scheduled to be sold annually for periods after 2000 with a minimum of three years notice until the expiration of the contracts in 2010. During 2000, the Company entered into certain operating leases for portions of its generating unit capacity. Minimum future capacity revenues from noncancelable operating leases as of December 31, 2000 were as follows: Year Minimum Obligations -------------------------- (in millions) 2001 $ 41 2002 45 2003 45 2004 45 2005 5 2006 and beyond - ----------------------------------------------------------------- Total minimum obligations $181 ================================================================= 8. INCOME TAXES At December 31, 2000, tax-related regulatory assets were $566 million and tax-related regulatory liabilities were $247 million. The assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized interest. The liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the federal and state income tax provisions are as follows: 2000 1999 1998 ------------------------------- Total provision for income taxes: (in millions) Federal: Current $ 342 $333 $415 Deferred (34) (34) (87) Deferred investment tax credits - - 7 ----------------------------------------------------------------- 308 299 335 ----------------------------------------------------------------- State: Current 48 54 77 Deferred (5) (6) (13) Deferred investment tax credits 10 5 - ----------------------------------------------------------------- Total $361 $352 $399 ================================================================= The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 2000 1999 ------------------------ (in millions) Deferred tax liabilities: Accelerated depreciation $ 1,755 $1,766 Property basis differences 683 729 Other 243 155 ------------------------------------------------------------------ Total 2,681 2,650 ------------------------------------------------------------------ Deferred tax assets: Other property basis differences 189 200 Federal effect of state deferred taxes 91 93 Other deferred costs 208 109 Other 37 48 ------------------------------------------------------------------ Total 525 450 ------------------------------------------------------------------ Net deferred tax liabilities 2,156 2,200 Portion included in current assets 27 3 ------------------------------------------------------------------ Accumulated deferred income taxes in the Balance Sheets $ 2,183 $2,203 ================================================================== Deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $15 million in 2000 and 1999, and $22 million in 1998. At December 31, 2000, all investment tax credits available to reduce federal income taxes payable had been utilized. II-105 NOTES (continued) Georgia Power Company 2000 Annual Report A reconciliation of the federal statutory tax rate to the effective income tax rate is as follows: 2000 1999 1998 -------------------------- Federal statutory rate 35% 35% 35% State income tax, net of federal deduction 4 4 4 Non-deductible book depreciation 2 2 6 Other (2) (2) (4) --------------------------------------------------------------- Effective income tax rate 39% 39% 41% =============================================================== Southern Company and its subsidiaries file a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. 9. CAPITALIZATION First Mortgage Bond Indenture Restrictions The Company's first mortgage bond indenture contains various restrictions that remain in effect as long as the bonds are outstanding. At December 31, 2000, $891 million of retained earnings and paid-in capital was unrestricted for the payment of cash dividends or any other distributions under terms of the mortgage indenture. If additional first mortgage bonds are issued, supplemental indentures in connection with those issues may contain more stringent restrictions than those currently in effect. The Company has no restrictions on the amount of indebtedness it may incur. Preferred Securities Statutory business trusts formed by the Company, of which the Company owns all the common securities, have issued mandatorily redeemable preferred securities as follows: Date of Maturity Issue Amount Rate Notes Date --------------------------------------------------- (millions) (millions) Trust I 8/1996 $225.00 7.75% $232 6/2036 Trust II 1/1997 175.00 7.60 180 12/2036 Trust III 6/1997 189.25 7.75 195 3/2037 Trust IV 2/1999 200.00 6.85 206 3/2029 Substantially all of the assets of each trust are junior subordinated notes issued by the Company in the respective approximate principal amounts set forth above. The Company considers that the mechanisms and obligations relating to the preferred securities, taken together, constitute a full and unconditional guarantee by the Company of the Trusts' payment obligations with respect to the preferred securities. The Trusts are subsidiaries of the Company, and accordingly are consolidated in the Company's financial statements. Pollution Control Bonds The Company has incurred obligations in connection with the sale by public authorities of tax-exempt pollution control revenue bonds. The Company has authenticated and delivered to trustees an aggregate of $378.8 million of its first mortgage bonds outstanding at December 31, 2000, which are pledged as security for its obligations under pollution control revenue contracts. No interest on these first mortgage bonds is payable unless and until a default occurs on the installment purchase or loan agreements. Senior Notes In February 2000 and February 2001, the Company issued unsecured senior notes. The proceeds of these issues were used to redeem higher cost long-term debt and to reduce short-term borrowing. The senior notes are, in effect, subordinated to all secured debt of the Company, including its first mortgage bonds. Bank Credit Arrangements At the beginning of 2001, the Company had unused credit arrangements with banks totaling $1.8 billion, of which $1.3 billion expires at various times during 2001, and $500 million expires at April 24, 2003. Of the total $1.8 billion in unused credit, $1.65 billion is a syndicated credit arrangement with $1.15 billion expiring April 20, 2001, and $500 million expiring April 24, 2003. Upon expiration, the $1.15 billion agreement provides the option of converting borrowings into two-year term loans. Both agreements contain stated borrowing rates but also allow for competitive bid loans. In II-106 NOTES (continued) Georgia Power Company 2000 Annual Report addition, the agreements require payment of commitment fees based on the unused portions of the commitments. Annual fees are also paid to the agent bank. Approximately $115 million of the $1.3 billion arrangements expiring during 2001 allow for two-year term loans executable upon the expiration date of the facilities. All of the arrangements include stated borrowing rates but also allow for negotiated rates. These agreements also require payment of commitment fees based on the unused portion of the commitments or the maintenance of compensating balances with the banks. These balances are not legally restricted from withdrawal. This $1.8 billion in unused credit arrangements provides liquidity support to the Company's variable rate pollution control bonds. The amount of variable rate pollution control bonds outstanding requiring that liquidity support as of December 31, 2000 was $979 million. In addition, the Company borrows under uncommitted lines of credit with banks and through a $750 million commercial paper program that has the liquidity support of committed bank credit arrangements. Average compensating balances held under these committed facilities were not material in 2000. Other Long-Term Debt Assets acquired under capital leases are recorded in the Balance Sheets as utility plant in service, and the related obligations are classified as long-term debt. At December 31, 2000 and 1999, the Company had a capitalized lease obligation for its corporate headquarters building of $87 million with an interest rate of 8.1 percent. The lease agreement provides for payments that are minimal in early years and escalate through the first 21 years of the lease. For ratemaking purposes, the GPSC has treated the lease as an operating lease and has allowed only the lease payments in cost of service. The difference between the accrued expense and the lease payments allowed for ratemaking purposes is being deferred as a cost to be recovered in the future as ordered by the GPSC. At December 31, 2000 and 1999, the interest and lease amortization deferred on the Balance Sheets are $55 million and $54 million, respectively. Assets Subject to Lien The Company's mortgage dated as of March 1, 1941, as amended and supplemented, securing the first mortgage bonds issued by the Company, constitutes a direct lien on substantially all of the Company's fixed property and franchises. Securities Due Within One Year A summary of the improvement fund requirements and scheduled maturities and redemptions of securities due within one year at December 31 is as follows: 2000 1999 ------------------- (in millions) Bond improvement fund requirements $ - $ 5 Capital lease - current portion 2 1 First mortgage bond maturities and redemptions - 100 Pollution control bond maturities and redemptions - 50 --------------------------------------------------------------- Total long-term debt $2 $156 =============================================================== The Company's first mortgage bond indenture includes an improvement fund requirement that amounts to 1 percent of each outstanding series of bonds authenticated under the indenture prior to January 1 of each year, other than those issued to collateralize pollution control obligations. The requirement may be satisfied by June 1 of each year by depositing cash, reacquiring bonds, or by pledging additional property equal to 1 2/3 times the requirement. Redemption of Securities The Company plans to continue, to the extent possible, a program of redeeming or replacing debt and preferred securities in cases where opportunities exist to reduce financing costs. Issues may be repurchased in the open market or called at premiums as specified under terms of the issue. They may also be redeemed at face value to meet improvement fund requirements, to meet replacement provisions of the mortgage, or through use of proceeds from the sale of property pledged under the mortgage. II-107 NOTES (continued) Georgia Power Company 2000 Annual Report 10. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial information for 2000 and 1999 is as follows: Net Income After Operating Operating Dividends on Quarter Ended Revenues Income Preferred Stock --------------------------------------------------------------------- (in millions) -------------------------------------------- March 2000 $ 992 $223 $ 94 June 2000 1,221 311 148 September 2000 1,545 537 283 December 2000 1,113 162 34 March 1999 $ 931 $224 $ 92 June 1999 1,092 299 138 September 1999 1,466 557 296 December 1999 968 115 15 --------------------------------------------------------------------- Under the GPSC retail rate order, the Company recorded $135 million and $85 million of accelerated amortization in 2000 and 1999, respectively, which were recorded monthly as an operating expense. The fourth quarter December 1999 operating income has been restated to reflect the accelerated amortization as an operating expense rather than as amortization of premium on reacquired debt. See Note 3 to the financial statements under "Retail Rate Order" for additional information. The Company's business is influenced by seasonal weather conditions. II-108

SELECTED FINANCIAL AND OPERATING DATA 1996-2000 Georgia Power Company 2000 Annual Report -------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 -------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $4,870,618 $4,456,675 $4,738,253 $4,385,717 $4,416,779 Net Income after Dividends on Preferred Stock (in thousands) $559,420 $541,383 $570,228 $593,996 $580,327 Cash Dividends on Common Stock (in thousands) $549,600 $543,000 $536,600 $520,000 $475,500 Return on Average Common Equity (percent) 13.66 14.02 14.61 14.53 13.73 Total Assets (in thousands) $13,133,609 $12,361,860 $12,033,618 $12,573,728 $13,006,635 Gross Property Additions (in thousands) $1,078,163 $790,464 $499,053 $475,921 $428,220 -------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stockholder's equity $4,249,544 $3,938,210 $3,784,172 $4,019,728 $4,154,281 Preferred stock 14,569 14,952 15,527 157,247 464,611 Company obligated mandatorily redeemable preferred securities 789,250 789,250 689,250 689,250 325,000 Long-term debt 3,041,939 2,688,358 2,744,362 2,982,835 3,200,419 -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $8,095,302 $7,430,770 $7,233,311 $7,849,060 $8,144,311 ================================================================================================================================ Capitalization Ratios (percent): Common stockholder's equity 52.5 53.0 52.3 51.2 51.0 Preferred stock 0.2 0.2 0.2 2.0 5.7 Company obligated mandatorily redeemable preferred securities 9.7 10.6 9.5 8.8 4.0 Long-term debt 37.6 36.2 38.0 38.0 39.3 -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0 ================================================================================================================================ Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 A1 Standard and Poor's A A+ A+ A+ A+ Fitch AA- AA- AA- AA- AA- Preferred Stock - Moody's a2 a2 a2 a2 a2 Standard and Poor's BBB+ A- A A A Fitch A A+ A+ A+ A+ Unsecured Long-Term Debt - Moody's A2 A2 A2 A2 A2 Standard and Poor's A A A A A Fitch A+ A+ A+ A+ A+ ================================================================================================================================ Customers (year-end): Residential 1,669,566 1,632,450 1,596,488 1,561,675 1,531,453 Commercial 237,977 229,524 221,180 211,672 205,087 Industrial 8,533 8,958 9,485 9,988 10,424 Other 3,159 3,060 3,034 2,748 2,645 -------------------------------------------------------------------------------------------------------------------------------- Total 1,919,235 1,873,992 1,830,187 1,786,083 1,749,609 ================================================================================================================================ Employees (year-end): 8,855 8,961 8,371 8,354 10,346 --------------------------------------------------------------------------------------------------------------------------------

II-109

SELECTED FINANCIAL AND OPERATING DATA 1996-2000 (continued) Georgia Power Company 2000 Annual Report ------------------------------------------------------------------------------------------------------------------------------ 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands): Residential $ 1,535,684 $1,410,099 $ 1,486,699 $ 1,326,787 $ 1,371,033 Commercial 1,620,466 1,527,880 1,591,363 1,493,353 1,486,586 Industrial 1,154,789 1,143,001 1,170,881 1,110,311 1,118,633 Other 6,399 (30,892) 49,274 47,848 47,060 ------------------------------------------------------------------------------------------------------------------------------ Total retail 4,317,338 4,050,088 4,298,217 3,978,299 4,023,312 Sales for resale - non-affiliates 297,643 210,104 259,234 282,365 281,580 Sales for resale - affiliates 96,150 76,426 81,606 38,708 35,886 ------------------------------------------------------------------------------------------------------------------------------ Total revenues from sales of electricity 4,711,131 4,336,618 4,639,057 4,299,372 4,340,778 Other revenues 159,487 120,057 99,196 86,345 76,001 ------------------------------------------------------------------------------------------------------------------------------ Total $4,870,618 $4,456,675 $4,738,253 $4,385,717 $4,416,779 ============================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 20,693,481 19,404,709 19,481,486 17,295,022 17,826,451 Commercial 25,628,402 23,715,485 22,861,391 21,134,346 20,823,073 Industrial 27,543,265 27,300,355 27,283,147 26,701,685 26,191,831 Other 568,906 551,451 543,462 538,163 536,057 ------------------------------------------------------------------------------------------------------------------------------ Total retail 74,434,054 70,972,000 70,169,486 65,669,216 65,377,412 Sales for resale - non-affiliates 6,463,723 5,060,931 6,438,891 6,795,300 7,868,342 Sales for resale - affiliates 2,435,106 1,795,243 2,038,400 1,706,699 1,180,207 ------------------------------------------------------------------------------------------------------------------------------ Total 83,332,883 77,828,174 78,646,777 74,171,215 74,425,961 ============================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 7.42 7.27 7.63 7.67 7.69 Commercial 6.32 6.44 6.96 7.07 7.14 Industrial 4.19 4.19 4.29 4.16 4.27 Total retail 5.80 5.71 6.13 6.06 6.15 Sales for resale 4.43 4.18 4.02 3.78 3.51 Total sales 5.65 5.57 5.90 5.80 5.83 Residential Average Annual Kilowatt-Hour Use Per Customer 12,520 12,006 12,314 11,171 11,763 Residential Average Annual Revenue Per Customer $929.11 $872.47 $939.73 $857.01 $904.70 Plant Nameplate Capacity Ratings (year-end) (megawatts) 15,114 14,474 14,437 14,437 14,367 Maximum Peak-Hour Demand (megawatts): Winter 12,014 11,568 11,959 10,407 10,410 Summer 14,930 14,575 13,923 13,153 12,914 Annual Load Factor (percent) 61.6 58.9 58.7 57.4 62.2 Plant Availability (percent): Fossil-steam 86.1 84.3 86.0 85.8 85.2 Nuclear 91.5 89.3 91.6 88.8 89.3 ------------------------------------------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 62.3 63.0 62.3 64.3 60.4 Nuclear 17.4 18.0 18.3 18.8 18.2 Hydro 0.7 0.9 2.2 2.2 2.2 Oil and gas 1.8 1.6 2.2 0.6 0.5 Purchased power - From non-affiliates 8.1 6.6 6.5 2.7 5.6 From affiliates 9.7 9.9 8.5 11.4 13.1 ------------------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 100.0 100.0 100.0 ==============================================================================================================================

II-110 GULF POWER COMPANY FINANCIAL SECTION II-111 MANAGEMENT'S REPORT Gulf Power Company 2000 Annual Report The management of Gulf Power Company has prepared -- and is responsible for -- the financial statements and related information included in this report. These statements were prepared in accordance with accounting principles generally accepted in the United States and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that the accounting records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The Company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of independent directors provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Gulf Power Company in conformity with accounting principles generally accepted in the United States. /s/Travis J. Bowden Travis J. Bowden President and Chief Executive Officer /s/Ronnie R. Labrato Ronnie R. Labrato Comptroller and Chief Financial Officer II-112 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Gulf Power Company: We have audited the accompanying balance sheets and statements of capitalization of Gulf Power Company (a Maine corporation and a wholly owned subsidiary of Southern Company) as of December 31, 2000 and 1999, and the related statements of income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages II-123 through II-137) referred to above present fairly, in all material respects, the financial position of Gulf Power Company as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/Arthur Andersen LLP Atlanta, Georgia February 28, 2001 II-113 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Gulf Power Company 2000 Annual Report RESULTS OF OPERATIONS Earnings Gulf Power Company's 2000 net income after dividends on preferred stock was $51.8 million, a decrease of $1.9 million from the previous year. In 1999, earnings were $53.7 million, down $2.8 million when compared to 1998. The decrease in earnings in 2000, as well as 1999, was primarily a result of higher expenses than in the prior year. Revenues Operating revenues increased in 2000 when compared to 1999. The following table summarizes the change in operating revenues for the past two years: Increase (Decrease) Amount From Prior Year ------------------------------------- 2000 2000 1999 ------------------------------------- (in thousands) Retail -- Base Revenues $336,103 $3,771 $2,469 Regulatory cost recovery and other 226,059 45,631 1,173 ------------------------------------------------------------------ Total retail 562,162 49,402 3,642 ------------------------------------------------------------------ Sales for resale-- Non-affiliates 66,890 4,537 461 Affiliates 66,995 885 23,468 ------------------------------------------------------------------ Total sales for resale 133,885 5,422 23,929 Other operating revenues 18,272 (14,604) (3,990) ------------------------------------------------------------------ Total operating revenues $714,319 $40,220 $23,581 ================================================================== Percent change 6.0% 3.6% ------------------------------------------------------------------ Retail revenues of $562.2 million in 2000 increased $49.4 million, or 9.6 percent, from the prior year due primarily to the recovery of higher fuel and purchased power costs. Retail base rate revenues increased $3.8 million due to increased customer growth and hotter than normal weather, offset by a $10 million permanent annual rate reduction and $6.9 million of revenues subject to refund based upon the current retail revenue sharing plan (See Note 3 to the financial statements under "Retail Revenue Sharing Plan" for further information). Retail revenues for 1999 increased $3.6 million, or 0.7 percent, when compared to 1998 due primarily to an increase in the number of retail customers served by the Company. The 2000 increase in regulatory cost recovery and other retail revenues over 1999 is primarily attributable to higher fuel and purchased power costs. The 1999 increase in regulatory cost recovery and other retail revenues over 1998 is primarily attributable to the recovery of increased purchased power capacity costs. "Regulatory cost recovery and other" includes the following: recovery provisions for fuel expense and the energy component of purchased power costs; energy conservation costs; purchased power capacity costs; and environmental compliance costs. The recovery provisions generally equal the related expenses and have no material effect on net income. See Notes 1 and 3 to the financial statements under "Revenues and Regulatory Cost Recovery Clauses" and "Environmental Cost Recovery," respectively, for further information. Sales for resale were $133.9 million in 2000, an increase of $5.4 million, or 4.2 percent, over 1999 primarily due to additional energy sales. Revenues from sales to utilities outside the service area under long-term contracts consist of capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. The capacity and energy components under these long-term contracts were as follows: 2000 1999 1998 ---------------------------------------- (in thousands) Capacity $20,270 $19,792 $22,503 Energy 21,922 20,251 14,556 ------------------------------------------------------------- Total $42,192 $40,043 $37,059 ============================================================= Capacity revenues increased slightly in 2000 due to the recovery of higher operating expenses experienced during the year. Capacity revenues had been declining in prior years due to the decreasing net investment related to these sales. This downward trend accelerated during 1999 as a result of a reduction in the authorized rate of return on the equity component of the investment. Sales to affiliated companies vary from year to year depending on demand and the availability and cost of generating resources at each company. These sales have little impact on earnings. Other operating revenues decreased in 2000 and in 1999 due primarily to the retail recovery clause adjustments for the difference between recoverable costs and the amounts actually reflected in current rates. See Notes 1 and 3 to the financial statements under "Revenues and Regulatory Cost Recovery Clauses" and "Environmental Cost Recovery," respectively, for further discussion. II-114 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2000 Annual Report Energy Sales Kilowatt-hour sales for 2000 and the percent changes by year were as follows: KWH Percent Change ---------------------------------- 2000 2000 1999 ---------------------------------- (millions) Residential 4,790 7.1% 0.8% Commercial 3,379 4.9 3.6 Industrial 1,925 4.3 0.7 Other 19 0.0 0.0 -------- Total retail 10,113 5.8 1.7 Sales for resale Non-affiliates 1,705 9.2 16.4 Affiliates 1,917 (23.7) 42.9 -------- Total 13,735 0.7 9.0 ======================================================= In 2000, total retail energy sales increased when compared to 1999 due primarily to an increase in the total number of customers and hotter than normal weather. Total retail energy sales increased in 1999 when compared to 1998 due to increases in the number of customers. See "Future Earnings Potential" for information on the Company's initiatives to remain competitive and to meet conservation goals set by the Florida Public Service Commission (FPSC). An increase in energy sales for resale to non-affiliates of 9.2 percent in 2000 when compared to 1999 is primarily related to unit power sales under long-term contracts to other Florida utilities and bulk power sales under short-term contracts to other non-affiliated utilities. Energy sales to affiliated companies vary from year to year depending on demand and availability and cost of generating resources at each company. Expenses Total operating expenses in 2000 increased $39.5 million, or 7.1 percent, over the amount recorded in 1999 due primarily to higher fuel and purchased power expenses. In 1999, total operating expenses increased $26.8 million, or 5.1 percent, compared to 1998 due primarily to higher fuel, purchased power, and maintenance expenses offset by lower other operation expenses. Fuel expenses in 2000, when compared to 1999, increased $6.7 million, or 3.2 percent, due primarily to an increase in average fuel costs. In 1999, fuel expenses increased $11.5 million, or 5.9 percent, when compared to 1998. The increases were the result of increased generation resulting from a higher demand for energy. The amount and sources of generation and the average cost of fuel per net kilowatt-hour generated were as follows: 2000 1999 1998 ------------------------------- Total generation (millions of kilowatt-hours) 12,866 13,095 11,986 Sources of generation (percent) Coal 98.2 97.4 98.0 Oil and gas 1.8 2.6 2.0 Average cost of fuel per net kilowatt-hour generated (cents)-- 1.68 1.60 1.69 --------------------------------------------------------------------- Purchased power expenses increased in 2000 by $25.5 million, or 44.7 percent, over 1999 and purchased power expenses for 1999 increased over 1998 by $13.2 million, or 30.2 percent, due primarily to a higher demand for energy in both years. Depreciation and amortization expense increased $2.3 million, or 3.5 percent, in 2000 when compared to 1999, due to an increase in depreciable property and the amortization of a portion of a regulatory asset, which was allowed in the current retail revenue sharing plan. The $5.5 million, or 9.2 percent, increase in 1999 compared to 1998 was due primarily to a reduction in the amortization of gains from the 1998 sale of emission allowances. Interest on long-term debt, which is included in "Interest expense", increased $1.2 million, or 5.8 percent, in 2000 when compared to 1999 due primarily to the issuance of $50 million of senior notes in August 1999. In 1999 interest on long-term debt increased $1.7 million, or 8.4 percent, when compared to 1998 due primarily to the maturity of two first mortgage bond series in 1998 which were replaced by senior notes at a slightly higher interest rate, and the issuance of $50 million of senior notes in August 1999. Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its cost of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in II-115 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2000 Annual Report recent years, it continues to have an adverse effect on the Company because of the large investment in utility plant with long economic lives. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations, such as long-term debt and preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential The results of operations for the past three years are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors. The major factor is the ability to achieve energy sales growth while containing cost in a more competitive environment. In accordance with Financial Accounting Standards Board (FASB) Statement No. 87, Employers' Accounting for Pensions, the Company recorded non-cash income of approximately $5.8 million in 2000. Pension income in 2001 is expected to be less as a result of plan amendments. Future pension income is dependent on several factors including trust earnings and changes to the plan. The Company currently operates as a vertically integrated utility providing electricity to customers within its traditional service area located in northwest Florida. Prices for electricity provided by the Company to retail customers are set by the FPSC. Future earnings in the near term will depend upon growth in energy sales, which is subject to a number of factors. Traditionally, these factors have included weather, competition, changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in the Company's service area. In early 1999, the FPSC staff and the Company became involved in discussions primarily related to reducing the Company's authorized rate of return. On October 1, 1999, the Office of Public Counsel, the Coalition for Equitable Rates, the Florida Industrial Power Users Group, and the Company jointly filed a petition to resolve the issues. The stipulation included a reduction to retail base rates of $10 million annually and provides for revenues to be shared within set ranges for 1999 through 2002. Customers receive two-thirds of any revenue within the sharing range and the Company retains one-third. Any revenue above this range is refunded to the customers. The stipulation also included authorization for the Company, at its discretion, to accrue up to an additional $5 million to the property insurance reserve and $1 million to amortize a regulatory asset related to the corporate office. The Company also filed a request to prospectively reduce its authorized ROE range from 11 to 13 percent to 10.5 to 12.5 percent in order to help ensure that the FPSC would approve the stipulation. The FPSC approved both the stipulation and the ROE request with an effective date of November 4, 1999. The Company is currently planning to seek additional rate relief to recover costs related to the Smith Unit 3 combined cycle facility currently under construction and scheduled to be placed in-service in June of 2002. For calendar year 2000, the Company's retail revenue range for sharing was $352 million to $368 million. Actual retail revenues in 2000 were $362.4 million and the Company recorded revenues subject to refund of $6.9 million. The estimated refund with interest was reflected in customer billings in February 2001. For calendar year 2001, the Company's retail revenue range for sharing is $358 million to $374 million. For calendar year 2002, there are specified sharing ranges for each month from the expected in-service date of Smith Unit 3 until the end of the year. The sharing plan will expire at the earlier of the in-service date of Smith Unit 3 or December 31, 2002. The electric utility industry in the United States is continuing to evolve as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers and sell energy generation to other utilities. Also, electricity sales for resale rates are being driven down by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. The Company is aggressively working to maintain and expand its share of wholesale sales in the southeastern power markets. In 2000, Florida's Governor appointed a 17 member study commission to look at the state's electric industry, studying issues ranging from current and future reliability of electric and natural gas supply, electric industry retail and wholesale competition, environmental impacts of energy supply, conservation, and II-116 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2000 Annual Report tax issues. The commission's final report and recommendations are due to the Governor and legislature by December 1, 2001. The commission submitted an interim report to the state legislature that involves introducing more competition into the wholesale production of electricity in Florida. If approved by the legislature, the proposal would require utilities to turn over generating assets to an unregulated affiliate company over a 6-year transition period. The proposal would allow out of state companies to build merchant facilities and to bid on new generation needs. The effects of any proposed changes cannot presently be determined, but could have a material effect on the Company's financial statements. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been discussed in Florida, none have been enacted. Enactment would require numerous issues to be resolved, including significant ones relating to recovery of any stranded investments, full cost recovery of energy produced, and other issues related to the current energy crisis in California. As a result of this crisis, many states have either discontinued or delayed implementation of initiatives involving retail deregulation. The inability of a company to recover its investments, including the regulatory assets described in Note 1 to the financial statements, could have a material adverse effect on financial condition and results of operations. Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, if the Company does not remain a low-cost producer and provide quality service, then energy sales growth could be limited, and this could significantly erode earnings. In 1996, the FPSC approved a new optional Commercial/Industrial Service Rider (CISR), which is applicable to the rate schedules for the Company's largest existing and potential customers who are able to show they have viable alternatives to purchasing the Company's energy services. The CISR, approved as a pilot program, provides the flexibility needed to enable the Company to offer its services in a more competitive manner to these customers. The publicity of the CISR ruling, increased competitive pressures, and general awareness of customer choice pilots and proposals across the country have stimulated interest on the part of customers in custom tailored offerings. The Company has participated in one-on-one discussions with many of these customers, and has negotiated and executed two Contract Service Agreements within the CISR pilot program. The pilot program was scheduled to end in 2000; however, on February 6, 2001 the FPSC approved the Company's request to remove the original 48 month limitation and allow the program to continue. Every five years the FPSC establishes numeric demand side management goals. The Company proposed numeric goals for the ten-year period from 2000 to 2009. The proposed goals consisted of the total, cost-effective winter and summer peak demand (kilowatts) and annual energy (kilowatt-hour) savings reasonably achievable from demand side management for the residential and commercial/industrial classes. The Company submitted its 2001 Demand Side Management Plan to the FPSC on December 29, 2000. The plan describes the proposed programs the Company will employ to reach the numeric goals. The plan relies heavily on innovative pricing and energy efficient construction. On December 20, 1999, the Federal Energy Regulatory Commission (FERC) issued its final rule on Regional Transmission Organizations (RTOs). The order encouraged utilities owning transmission systems to form RTOs on a voluntary basis. After participating in regional conferences with customers and other members of the public to discuss the formation of RTOs, utilities were required to make a filing with the FERC. Southern Company and its integrated utility subsidiaries, including the Company, filed on October 16, 2000, a proposal for the creation of an RTO. The proposal is for the formation of a for-profit company that would have control of the bulk power transmission system of the Company and any other participating utilities. Participants would have the option to either maintain their ownership or divest, sell, or lease their assets to the proposed RTO. If the FERC accepts the proposal as filed, the creation of II-117 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2000 Annual Report an RTO is not expected to have a material impact on the Company's financial statements. The outcome of this matter cannot now be determined. The Energy Act amended the Public Utility Holding Company Act of 1935 (PUHCA) to allow holding companies to form exempt wholesale generators to sell power largely free of regulation under PUHCA. These entities are able to own and operate power generating facilities and sell power to affiliates -- under certain restrictions. Southern Company is aggressively working to maintain and expand its share of wholesale sales in the southeastern power markets. In January 2001, Southern Company announced the formation of a new subsidiary -- Southern Power Company. The new subsidiary will own, manage, and finance wholesale generating assets in the Southeast. Southern Power will be the primary growth engine for Southern Company's market-based energy business. Energy from its assets will be marketed to wholesale customers under the Southern Company name. Compliance costs related to current and future environmental laws and regulations could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." Also, Florida legislation adopted in 1993 that provides for recovery of prudent environmental compliance costs is discussed in Note 3 to the financial statements under "Environmental Cost Recovery." The Company is subject to the provisions of FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operations is no longer subject to these provisions, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable, and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. Exposure to Market Risks Due to cost-based rate regulation, the Company has limited exposure to market volatility in interest rates and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statements as incurred. At December 31, 2000, exposure from these activities was not material. New Accounting Standard In June 2000, FASB issued Statement No. 138, an amendment of Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Statement No. 133, as amended, establishes accounting and reporting standards for derivative instruments and for hedging activities. Statement No. 133 requires that certain derivative instruments be recorded in the balance sheet as either an asset or liability measured at fair value, and that changes in the fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company may utilize financial instruments to reduce its exposure to changes in interest rates depending on market conditions. The Company also enters into commodity related forward contracts to limit exposure to changing prices on certain fuel purchases and electricity purchases and sales. Substantially all of these bulk energy purchases and sales meet the definition of a derivative under Statement No. 133. In many cases, these transactions meet the normal purchase and sale exception and the related contracts will continue to be accounted for under the accrual method. Certain of these instruments qualify as cash flow hedges resulting in the deferral of related gains and losses in other comprehensive income until the hedged transactions occur. Any ineffectiveness will be recognized currently in net income. However, others will be required to be marked to market through current period income. The Company adopted Statement No. 133 effective January 1, 2001. The impact on net income was immaterial. The application of the new rules is still evolving and further guidance from FASB is expected, which could additionally impact the Company's financial statements. Also, as wholesale energy markets mature, future transactions could result in more volatility in net income and comprehensive income. 11-118 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2000 Annual Report Financial Condition Overview The Company's financial condition continues to be very solid. During 2000, gross property additions were $95.8 million. Funds for the property additions were provided by operating activities. See the Statements of Cash Flows for further details. Financing Activities In 2000, there were no issuances or retirements of long-term debt. In 1999, the Company sold $50 million of senior notes and long-term bank notes totaling $27 million were retired. See the Statements of Cash Flows for further details. Composite financing rates for the years 1998 through 2000 as of year end were as follows: 2000 1999 1998 ----------------------------- Composite interest rate on long-term debt 6.2% 6.0% 6.1% Composite rate on trust preferred securities 7.3% 7.3% 7.3% Composite preferred stock dividend rate 5.1% 5.1% 5.1% ----------------------------------------------------------------- The composite interest rate on long-term debt increased in 2000 due to higher interest rates on variable rate pollution control bonds. Capital Requirements for Construction The Company's gross property additions, including those amounts related to environmental compliance, are budgeted at $451 million for the three years beginning in 2001 ($279 million in 2001, $96 million in 2002, and $76 million in 2003). These amounts include $199.2 million for the years 2001 and 2002 for the estimated cost of a 574 megawatt combined cycle gas generating unit and related interconnections to be located in the eastern portion of the Company's service area. The unit is expected to have an in-service date of June 2002. The remaining property additions budget is primarily for maintaining and upgrading transmission and distribution facilities and generating plants. Actual construction costs may vary from this estimate because of changes in such factors as the following: business conditions; environmental regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Other Capital Requirements The Company will continue to retire higher-cost debt and preferred securities and replace these securities with lower-cost capital as market conditions and terms of the instruments permit. Environmental Matters In November 1990, the Clean Air Act Amendments of 1990 (Clean Air Act) was signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- significantly affected the Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants were required in two phases. Phase I compliance began in 1995. As a result of a systemwide compliance strategy, some 50 generating units of Southern Company were brought into compliance with Phase I requirements. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. Construction expenditures for Phase I nitrogen oxide and sulfur dioxide emissions compliance totaled approximately $300 million for Southern Company, including approximately $42 million for the Company. Phase II sulfur dioxide compliance was required in 2000. Southern Company used emission allowances and fuel switching to comply with Phase II requirements. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired units as necessary to meet Phase II limits and ozone non-attainment requirements for metropolitan Atlanta through 2000. Compliance for Phase II and initial ozone non-attainment requirements increased Southern Company's total construction expenditures through 2000 by approximately $100 million. Phase II compliance did not have a material impact on Gulf Power. A significant portion of costs related to the acid rain and ozone nonattainment provisions of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. II-119 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2000 Annual Report In 1993, the Florida Legislature adopted legislation that allows a utility to petition the FPSC for recovery of prudent environmental compliance costs that are not being recovered through base rates or any other recovery mechanism. The legislation is discussed in Note 3 to the financial statements under "Environmental Cost Recovery." Substantially all of the costs for the Clean Air Act and other new environmental legislation discussed below are expected to be recovered through the Environmental Cost Recovery Clause. In July 1997, the EPA revised the national ambient air quality standards for ozone and particulate matter. This revision made the standards significantly more stringent. In the subsequent litigation of these standards, the U.S. Supreme Court recently dismissed certain challenges but found the EPA's implementation program for the new ozone standard unlawful and remanded it to the EPA. In addition, the Federal District of Columbia Circuit Court of Appeals will address other legal challenges to these standards in mid-2001. If the standards are eventually upheld, implementation could be required by 2007 to 2010. In September 1998, the EPA issued the final regional nitrogen oxide reduction rule to the states for implementation. Compliance is required by May 31, 2004. The final rule affects 21 states, including Georgia. See Note 5 to the financial statements under "Joint Ownership Agreements" related to the Company's ownership interest in Georgia Power's Plant Scherer Unit No. 3. In December 2000, the EPA completed its utility study for mercury and other hazardous air pollutants (HAPS) and issued a determination that an emission control program for mercury and, perhaps, other HAPS is warranted. The program is to be developed over the next four years under the Maximum Achievable Control Technology (MACT) provisions of the Clean Air Act. This determination is being challenged in the courts. In January 2001, the EPA proposed guidance for the determination of Best Available Retrofit Technology (BART) emission controls under the Regional Haze Regulations. Installation of BART controls will likely be required around 2010. Litigation of the BART rules is probable in the near future. Implementation of the final state rules for these initiatives could require substantial further reductions in nitrogen oxide, sulfur dioxide, mercury, and other HAPS emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. Reviews by the new administration in Washington, D.C. add to the uncertainties associated with BART guidance and the MACT determination for mercury and other HAPS. The EPA and state environmental regulatory agencies are also reviewing and evaluating various other matters including: nitrogen oxide emission control strategies for ozone non-attainment areas; additional controls for hazardous air pollutant emissions; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. On November 3, 1999, the EPA brought a civil action in the U.S. District Court against Alabama Power, Georgia Power, and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, including the five facilities mentioned previously and the Company's Plants Crist and Scherer. See Note 5 to the financial statements under "Joint Ownership Agreements" related to the Company's ownership interest in Georgia Power's Plant Scherer Unit No. 3. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. On August 1, 2000, the U.S. District Court 11-120 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2000 Annual Report granted Alabama Power's motion to dismiss for lack of jurisdiction in Georgia and granted the system service company's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. On January 12, 2001, the EPA re-filed its claims against Alabama Power in federal district court in Birmingham, Alabama. The EPA did not include the system service company in the new complaint. Southern Company believes that its integrated utilities complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur substantial costs to clean up properties. The Company conducts studies to determine the extent of any required cleanup costs and has recognized in the financial statements costs to clean up known sites. For additional information, see Note 3 to the financial statements under "Environmental Cost Recovery." Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electric and magnetic fields, and other environmental health concerns could significantly affect the Company. The impact of new legislation -- if any -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electric and magnetic fields. Sources of Capital At December 31, 2000, the Company had approximately $4.4 million of cash and cash equivalents and $53.5 million of unused committed lines of credit with banks to meet its short-term cash needs. Refer to the Statements of Cash Flows for details related to the Company's financing activities. See Note 4 to the financial statements under "Bank Credit Arrangements" for additional information. The Company historically has relied on issuances of first mortgage bonds and preferred stock, in addition to pollution control revenue bonds issued for its benefit by public authorities, to meet its long-term external financing requirements. Recently, the Company's financings have consisted of unsecured debt and trust preferred securities. The Company has no restrictions on the amounts of unsecured indebtedness it may incur. However, in order to issue first mortgage bonds or preferred stock, the Company is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter. The Company's ability to satisfy all coverage requirements is such that it could issue new first mortgage bonds and preferred stock to provide sufficient funds for all anticipated requirements. Cautionary Statement Regarding Forward-Looking Information The Company's 2000 Annual Report contains forward looking and historical information. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology. The Company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include the impact of recent and future federal and state regulatory change, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry and also changes in environmental and other laws and regulations to which the Company is subject, as well as changes in application of existing laws and regulations; current and future litigation, including the pending EPA civil action; the extent and timing of the entry of additional competition in the markets of the Company; potential business strategies, including acquisitions or dispositions of assets or 11-121 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2000 Annual Report businesses, which cannot be assured to be completed or beneficial; internal restructuring or other restructuring options, that may be pursued by the registrants; state and federal rate regulation in the United States; political, legal and economic conditions and developments in the United States; financial market conditions and the results of financing efforts; the impact of fluctuations in commodity prices, interest rates and customer demand; weather and other natural phenomena; the ability of the Company to obtain additional generating capacity at competitive prices; and other factors discussed elsewhere herein and in other reports (including Form 10-K) filed from time to time by the Company with the SEC. II-122 STATEMENTS OF INCOME For the Years Ended December 31, 2000, 1999, and 1998 Gulf Power Company 2000 Annual Report

----------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 ----------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Retail sales $562,162 $512,760 $509,118 Sales for resale -- Non-affiliates 66,890 62,354 61,893 Affiliates 66,995 66,110 42,642 Other revenues 18,272 32,875 36,865 ----------------------------------------------------------------------------------------------------------------------------- Total operating revenues 714,319 674,099 650,518 ----------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 215,744 209,031 197,462 Purchased power -- Non-affiliates 73,846 46,332 29,369 Affiliates 8,644 10,703 14,445 Other 117,146 114,670 119,011 Maintenance 56,281 57,830 57,286 Depreciation and amortization 66,873 64,589 59,129 Taxes other than income taxes 55,904 51,782 51,462 ----------------------------------------------------------------------------------------------------------------------------- Total operating expenses 594,438 554,937 528,164 ----------------------------------------------------------------------------------------------------------------------------- Operating Income 119,881 119,162 122,354 Other Income (Expense): Interest income 1,137 1,771 931 Other, net (4,126) (1,357) (2,339) ----------------------------------------------------------------------------------------------------------------------------- Earnings Before Interest and Income Taxes 116,892 119,576 120,946 ----------------------------------------------------------------------------------------------------------------------------- Interest and Other: Interest expense, net 28,085 26,861 25,556 Distributions on preferred securities of subsidiary 6,200 6,200 6,034 ----------------------------------------------------------------------------------------------------------------------------- Total interest charges and other, net 34,285 33,061 31,590 ----------------------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 82,607 86,515 89,356 Income taxes (Note 7) 30,530 32,631 32,199 ----------------------------------------------------------------------------------------------------------------------------- Net Income 52,077 53,884 57,157 Dividends on Preferred Stock 234 217 636 ----------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 51,843 $ 53,667 $ 56,521 ============================================================================================================================= The accompanying notes are an integral part of these statements.

11-123 STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2000, 1999, and 1998 Gulf Power Company 2000 Annual Report

---------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 ---------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 52,077 $ 53,884 $ 57,157 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 69,915 68,721 69,633 Deferred income taxes and investment tax credits, net (12,516) (6,609) (4,684) Other, net 10,686 3,735 3,463 Changes in certain current assets and liabilities -- Receivables, net (20,212) (10,484) 11,308 Fossil fuel stock 13,101 (5,656) (4,917) Materials and supplies 1,055 (2,063) 609 Accounts payable 15,924 (2,023) 823 Provision for rate refund 7,203 - - Other 12,521 7,030 (18,471) ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 149,754 106,535 114,921 ---------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (95,807) (69,798) (69,731) Other (4,432) (8,856) 5,990 ---------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (100,239) (78,654) (63,741) ---------------------------------------------------------------------------------------------------------------------------- Financing Activities: Increase (decrease) in notes payable, net (12,000) 23,500 (15,500) Proceeds -- Other long-term debt - 50,000 50,000 Preferred securities - - 45,000 Capital contributions from parent company 12,222 2,294 522 Retirements -- First mortgage bonds - - (45,000) Other long-term debt (1,853) (27,074) (8,326) Preferred stock - - (9,455) Payment of preferred stock dividends (234) (271) (792) Payment of common stock dividends (59,000) (61,300) (67,200) Other (22) (246) (4,167) ---------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (60,887) (13,097) (54,918) ---------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (11,372) 14,784 (3,738) Cash and Cash Equivalents at Beginning of Period 15,753 969 4,707 ---------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 4,381 $ 15,753 $ 969 ============================================================================================================================ Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of amount capitalized) $32,277 $27,670 $28,044 Income taxes (net of refunds) 42,252 29,462 38,782 ---------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.

11-124 BALANCE SHEETS At December 31, 2000 and 1999 Gulf Power Company 2000 Annual Report

------------------------------------------------------------------------------------------------------------------------------ Assets 2000 1999 ------------------------------------------------------------------------------------------------------------------------------ (in thousands) Current Assets: Cash and cash equivalents $ 4,381 $ 15,753 Receivables -- Customer accounts receivable 69,820 55,108 Other accounts and notes receivable 2,179 4,325 Affiliated companies 15,026 7,104 Accumulated provision for uncollectible accounts (1,302) (1,026) Fossil fuel stock, at average cost 16,768 29,869 Materials and supplies, at average cost 29,033 30,088 Regulatory clauses under recovery 2,112 11,611 Other 6,543 5,354 ------------------------------------------------------------------------------------------------------------------------------ Total current assets 144,560 158,186 ------------------------------------------------------------------------------------------------------------------------------ Property, Plant, and Equipment: In service 1,892,023 1,853,664 Less accumulated provision for depreciation 867,260 821,970 ------------------------------------------------------------------------------------------------------------------------------ 1,024,763 1,031,694 Construction work in progress 71,008 34,164 ------------------------------------------------------------------------------------------------------------------------------ Total property, plant, and equipment 1,095,771 1,065,858 ------------------------------------------------------------------------------------------------------------------------------ Other Property and Investments 4,510 1,481 ------------------------------------------------------------------------------------------------------------------------------ Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 7) 15,963 25,264 Prepaid pension costs (Note 2) 23,491 17,734 Debt expense, being amortized 2,392 2,526 Premium on reacquired debt, being amortized 15,866 17,360 Other 12,943 20,086 ------------------------------------------------------------------------------------------------------------------------------ Total deferred charges and other assets 70,655 82,970 ------------------------------------------------------------------------------------------------------------------------------ Total Assets $1,315,496 $1,308,495 ============================================================================================================================== The accompanying notes are an integral part of these balance sheets.

II-125 BALANCE SHEETS At December 31, 2000 and 1999 Gulf Power Company 2000 Annual Report

---------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholder's Equity 2000 1999 ---------------------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Notes payable $ 43,000 $ 55,000 Accounts payable -- Affiliated 17,558 14,878 Other 38,153 22,581 Customer deposits 13,474 12,778 Taxes accrued -- Income taxes 3,864 4,889 Other 8,749 7,707 Interest accrued 8,324 9,255 Provision for rate refund 7,203 - Vacation pay accrued 4,512 4,199 Regulatory clauses over recovery 6,848 3,125 Other 1,584 1,836 ---------------------------------------------------------------------------------------------------------------------------- Total current liabilities 153,269 136,248 ---------------------------------------------------------------------------------------------------------------------------- Long-term debt (See accompanying statements) 365,993 367,449 ---------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 7) 155,074 162,776 Deferred credits related to income taxes (Note 7) 38,255 49,693 Accumulated deferred investment tax credits 25,792 27,712 Employee benefits provisions 34,507 31,735 Other 25,992 21,333 ---------------------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 279,620 293,249 ---------------------------------------------------------------------------------------------------------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes (See accompanying statements) 85,000 85,000 ---------------------------------------------------------------------------------------------------------------------------- Preferred stock (See accompanying statements) 4,236 4,236 ---------------------------------------------------------------------------------------------------------------------------- Common stockholder's equity (See accompanying statements) 427,378 422,313 ---------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $1,315,496 $1,308,495 ============================================================================================================================ The accompanying notes are an integral part of these balance sheets.

II-126 STATEMENTS OF CAPITALIZATION At December 31, 2000 and 1999 Gulf Power Company 2000 Annual Report

------------------------------------------------------------------------------------------------------------------------------------ 2000 1999 2000 1999 ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) (percent of total) Long Term Debt: First mortgage bonds -- Maturity Interest Rates -------- ------------- July 1, 2003 6.125% $ 30,000 $ 30,000 November 1, 2006 6.50% 25,000 25,000 January 1, 2026 6.875% 30,000 30,000 ------------------------------------------------------------------------------------------------------------------------------------ Total first mortgage bonds 85,000 85,000 ------------------------------------------------------------------------------------------------------------------------------------ Long-term notes payable -- 7.50% due June 30, 2037 20,000 20,000 6.70% due June 30, 2038 48,073 49,926 7.05% due August 15, 2004 50,000 50,000 ------------------------------------------------------------------------------------------------------------------------------------ Total long-term notes payable 118,073 119,926 ------------------------------------------------------------------------------------------------------------------------------------ Other long-term debt -- Pollution control revenue bonds -- Collateralized: 5.25% to 6.30% due 2006-2026 108,700 108,700 Variable rates (3.70% at 1/1/00) due 2024 - 20,000 Non-collateralized: Variable rates (5.10% to 5.30% at 1/1/01) due 2022-2024 60,930 40,930 ------------------------------------------------------------------------------------------------------------------------------------ Total other long-term debt 169,630 169,630 ------------------------------------------------------------------------------------------------------------------------------------ Unamortized debt premium (discount), net (6,710) (7,107) ------------------------------------------------------------------------------------------------------------------------------------ Total long-term debt (annual interest requirement -- $23.2 million) 365,993 367,449 41.5% 41.8% ------------------------------------------------------------------------------------------------------------------------------------ Cumulative Preferred Stock: $100 par value, 4.64% to 5.44% 4,236 4,236 ------------------------------------------------------------------------------------------------------------------------------------ Total (annual dividend requirement -- $0.2 million) 4,236 4,236 0.5% 0.5% ------------------------------------------------------------------------------------------------------------------------------------ Company Obligated Mandatorily Redeemable Preferred Securities: $25 liquidation value -- 7.00% 45,000 45,000 7.63% 40,000 40,000 ------------------------------------------------------------------------------------------------------------------------------------ Total (annual distribution requirement -- $6.2 million) 85,000 85,000 9.6% 9.7% ------------------------------------------------------------------------------------------------------------------------------------ Common Stockholder's Equity: Common stock, without par value -- Authorized and outstanding - 992,717 shares in 2000 and 1999 38,060 38,060 Paid-in capital 233,476 221,254 Premium on preferred stock 12 12 Retained earnings 155,830 162,987 ------------------------------------------------------------------------------------------------------------------------------------ Total common stockholder's equity 427,378 422,313 48.4% 48.0% ------------------------------------------------------------------------------------------------------------------------------------ Total Capitalization $882,607 $878,998 100.0% 100.0% ==================================================================================================================================== The accompanying notes are an integral part of these statements.

11-127 STATEMENTS OF COMMON STOCKHOLDER'S EQUITY For the Years Ended December 31, 2000, 1999, and 1998 Gulf Power Company 2000 Annual Report

------------------------------------------------------------------------------------------------------------------------------------ Premium on Common Paid-In Preferred Retained Stock Capital Stock Earnings Total ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) Balance at January 1, 1998 $38,060 $218,438 $12 $172,208 $428,718 Net income after dividends on preferred stock - - - 56,521 56,521 Capital contributions from parent company - 522 - - 522 Cash dividends on common stock - - - (57,200) (57,200) Other - - - (909) (909) ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1998 38,060 218,960 12 170,620 427,652 Net income after dividends on preferred stock - - - 53,667 53,667 Capital contributions from parent company - 2,294 - - 2,294 Cash dividends on common stock - - - (61,300) (61,300) Balance at December 31, 1999 38,060 221,254 12 162,987 422,313 ------------------------------------------------------------------------------------------------------------------------------------ Net income after dividends on preferred stock - - - 51,843 51,843 Capital contributions from parent company - 12,222 - - 12,222 Cash dividends on common stock - - - (59,000) (59,000) ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 2000 $38,060 $233,476 $12 $155,830 $427,378 ==================================================================================================================================== The accompanying notes are an integral part of these statements.

II-128 NOTES TO FINANCIAL STATEMENTS Gulf Power Company 2000 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Gulf Power Company is a wholly owned subsidiary of Southern Company, which is the parent company of five integrated Southeast utilities, Southern Company Services (SCS), Southern Communications Services (Southern LINC), Southern Company Energy Solutions, Mirant Corporation (Mirant) - formerly Southern Energy, Inc., -- Southern Nuclear Operating Company (Southern Nuclear), and other direct and indirect subsidiaries. The integrated Southeast utilities -- Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Savannah Electric -- provide electric service in four states. Gulf Power Company provides electric service to the northwest panhandle of Florida. Contracts among the integrated Southeast utilities -- related to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power --are regulated by the Federal Energy Regulatory Commission (FERC) and/or the Securities and Exchange Commission (SEC). The system service company provides, at cost, specialized services to Southern Company and subsidiary companies. Southern LINC provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Company Energy Solutions develops new business opportunities related to energy products and services. Southern Nuclear provides services to Southern Company's nuclear power plants. Mirant acquires, develops, builds, owns, and operates power production and delivery facilities and provides a broad range of energy-related services to utilities and industrial companies in selected countries around the world. Mirant businesses include independent power projects, integrated utilities, a distribution company, and energy trading and marketing businesses outside the southeastern United States. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The Company is also subject to regulation by the FERC and the Florida Public Service Commission (FPSC). The Company follows accounting principles generally accepted in the United States and complies with the accounting policies and practices prescribed by the FPSC and the FERC. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements have been reclassified to conform with current year presentation. Related-Party Transactions The Company has an agreement with SCS under which the following services are rendered to the Company at cost: general and design engineering, purchasing, accounting and statistical, finance and treasury, tax, information resources, marketing, auditing, insurance and pension administration, human resources, systems and procedures, and other services with respect to business and operations and power pool operations. Costs for these services amounted to $44 million, $43 million, and $40 million during 2000, 1999, and 1998, respectively. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the Company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to the following: 2000 1999 -------------------------- (in thousands) Deferred income tax charges $ 15,963 $ 25,264 Deferred loss on reacquired debt 15,866 17,360 Environmental remediation 7,638 5,745 Vacation pay 4,512 4,199 Regulatory clauses under (over) recovery, net (4,736) 8,486 Accumulated provision for rate refunds (7,203) - Accumulated provision for property damage (8,731) (5,528) Deferred income tax credits (38,255) (49,693) Other, net (1,074) (1,255) ------------------------------------------------------------------ Total $ (16,020) $ 4,578 ================================================================== II-129 NOTES (continued) Gulf Power Company 2000 Annual Report In the event that a portion of the Company's operations is no longer subject to the provisions of FASB Statement No. 71, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine any impairment to other assets, including plant, and write down the assets, if impaired, to their fair value. Revenues and Regulatory Cost Recovery Clauses The Company currently operates as a vertically integrated utility providing electricity to retail customers within its service area located in northwest Florida and to wholesale customers in the Southeast. Revenues are recognized as services are rendered. Unbilled revenues are accrued at the end of each fiscal period. Fuel costs are expensed as the fuel is used. The Company's retail electric rates include provisions to annually adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. The Company also has similar retail cost recovery clauses for energy conservation costs, purchased power capacity costs, and environmental compliance costs. Revenues are adjusted monthly for differences between recoverable costs and amounts actually reflected in current rates. The Company has a diversified base of customers and no single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts averaged significantly less than 1 percent of revenues. Depreciation and Amortization Depreciation of the original cost of plant in service is provided primarily by using composite straight-line rates, which approximated 3.8 percent in 2000, 1999, and 1998. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost -- together with the cost of removal, less salvage -- is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Also, the provision for depreciation expense includes an amount for the expected cost of removal of facilities. Income Taxes The Company uses the liability method of accounting for income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. The Company is included in the consolidated federal income tax return of Southern Company. Property, Plant, and Equipment Property, plant, and equipment is stated at original cost. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property (exclusive of minor items of property) is charged to utility plant. Cash and Cash Equivalents Temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Financial Instruments The Company's financial instruments for which the carrying amount did not equal fair value at December 31 were as follows: Carrying Fair Amount Value --------------------------- (in thousands) Long-term debt: At December 31, 2000 $365,993 $364,697 At December 31, 1999 $367,449 $349,791 Capital trust preferred securities: At December 31, 2000 $85,000 $80,988 At December 31, 1999 $85,000 $69,092 -------------------------------------------------------------- The fair values for long-term debt and preferred securities were based on either closing market prices or closing prices of comparable instruments. II-130 NOTES (continued) Gulf Power Company 2000 Annual Report Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. Provision for Injuries and Damages The Company is subject to claims and suits arising in the ordinary course of business. As permitted by regulatory authorities, the Company provides for the uninsured costs of injuries and damages by charges to income amounting to $1.2 million annually. The expense of settling claims is charged to the provision to the extent available. The accumulated provision of $1.2 million and $1.8 million at December 31, 2000 and 1999, respectively, is included in other current liabilities in the accompanying Balance Sheets. Provision for Property Damage The Company provides for the cost of repairing damages from major storms and other uninsured property damages. This includes the full cost of major storms and other damages to its transmission and distribution lines and the cost of uninsured damages to its generation and other property. The expense of such damages is charged to the provision account. At December 31, 2000 and 1999, the accumulated provision for property damage was $8.7 million and $5.5 million, respectively. The FPSC approved annual accrual to the accumulated provision for property damage is $3.5 million, with a target level for the accumulated provision account between $25.1 and $36.0 million. The FPSC has also given the Company the flexibility to increase its annual accrual amount above $3.5 million at the Company's discretion. The Company accrued $3.5 million in 2000, $5.5 million in 1999, and $6.5 million in 1998 to the accumulated provision for property damage. The Company charged $0.3 million, $1.6 million, and $4.2 million against the provision account in 2000, 1999, and 1998 respectively. 2. RETIREMENT BENEFITS The Company has a defined benefit, trusteed, non-contributory pension plan that covers substantially all regular employees. The Company provides certain medical care and life insurance benefits for retired employees. Substantially all employees may become eligible for these benefits when they retire. Trusts are funded to the extent required by the Company's regulatory commissions. In late 2000, the Company adopted several pension and postretirement benefit plan changes that had the effect of increasing benefits to both current and future retirees. The effects of these changes will be to increase the Company's annual pension and postretirement benefits costs by approximately $1.2 million and $0.6 million, respectively. The measurement date for plan assets and obligations is September 30 for each year. Pension Plan Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations --------------------------- 2000 1999 --------------------------------------------------------------- (in thousands) Balance at beginning of year $141,967 $143,012 Service cost 4,282 4,490 Interest cost 10,394 9,440 Benefits paid (6,973) (6,862) Actuarial gain and employee transfers, net (689) (8,113) --------------------------------------------------------------- Balance at end of year $148,981 $141,967 =============================================================== Plan Assets --------------------------- 2000 1999 --------------------------------------------------------------- (in thousands) Balance at beginning of year $241,485 $212,934 Actual return on plan assets 43,833 35,971 Benefits paid (6,973) (6,862) Employee transfers 4,921 (558) --------------------------------------------------------------- Balance at end of year $283,266 $241,485 =============================================================== The accrued pension costs recognized in the Balance Sheets were as follows: 2000 1999 --------------------------------------------------------------- (in thousands) Funded status $ 134,286 $ 99,518 Unrecognized transition obligation (3,602) (4,323) Unrecognized prior service cost 4,121 4,495 Unrecognized net gain (111,314) (81,956) --------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 23,491 $ 17,734 =============================================================== II-131 NOTES (continued) Gulf Power Company 2000 Annual Report Components of the pension plan's net periodic cost were as follows: 2000 1999 1998 ------------------------------------------------------------------- Service cost $ 4,282 $ 4,490 $ 4,107 Interest cost 10,394 9,440 9,572 Expected return on plan assets (17,504) (15,968) (14,827) Recognized net gain (2,582) (1,579) (1,891) Net amortization (347) (347) (347) ------------------------------------------------------------------- Net pension income $ (5,757) $ (3,964) $ (3,386) =================================================================== Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations --------------------------- 2000 1999 --------------------------------------------------------------- (in thousands) Balance at beginning of year $48,010 $49,303 Service cost 896 1,087 Interest cost 3,515 3,261 Benefits paid (1,462) (1,177) Actuarial gain and employee transfers, net (934) (4,464) --------------------------------------------------------------- Balance at end of year $50,025 $48,010 =============================================================== Plan Assets --------------------------- 2000 1999 --------------------------------------------------------------- (in thousands) Balance at beginning of year $11,196 $ 9,603 Actual return on plan assets 2,079 1,525 Employer contributions 1,575 1,245 Benefits paid (1,462) (1,177) --------------------------------------------------------------- Balance at end of year $13,388 $11,196 =============================================================== The accrued postretirement costs recognized in the Balance Sheets were as follows: 2000 1999 --------------------------------------------------------------- (in thousands) Funded status $(36,638) $(36,814) Unrecognized transition obligation 4,368 4,723 Unrecognized prior service cost 2,582 2,741 Unrecognized net loss 496 2,620 Fourth quarter contributions 316 300 --------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $(28,876) $(26,430) =============================================================== Components of the postretirement plan's net periodic cost were as follows: 2000 1999 1998 ---------------------------------------------------------------- Service cost $ 896 $1,087 $ 946 Interest cost 3,515 3,261 3,123 Expected return on plan assets (901) (794) (717) Transition obligation 355 356 356 Prior service cost 159 159 119 Recognized net loss 13 264 128 ---------------------------------------------------------------- Net postretirement cost $4,037 $4,333 $3,955 ================================================================ The weighted average rates assumed in the actuarial calculations for both the pension plan and postretirement benefits were: 2000 1999 -------------------------------------------------------- Discount 7.50% 7.50% Annual salary increase 5.00% 5.00% Long-term return on plan assets 8.50% 8.50% -------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement benefit obligations was a weighted average medical care cost trend rate of 7.3 percent for 2000, decreasing gradually to 5.5 percent through the year 2005, and remaining at that level thereafter. II-132 NOTES (continued) Gulf Power Company 2000 Annual Report An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 2000 as follows (in thousands): 1 Percent 1 Percent Increase Decrease --------------------------------------------------------------- Benefit obligation $3,187 $2,874 Service and interest costs $278 $247 =============================================================== Employee Savings Plan The Company also sponsors a 401(k) defined contribution plan covering substantially all employees. The Company provides a 75 percent matching contribution up to 6 percent of an employee's base salary. Total matching contributions made to the plan for the years 2000, 1999, and 1998 were $2.2 million, $2.0 million, and $2.0 million, respectively. Work Force Reduction Programs The Company recorded costs related to work force reduction programs of $0.6 million in 2000, $0.2 million in 1999, and $2.8 million in 1998. The Company has also incurred its pro rata share for the costs of affiliated companies' programs. The costs related to these programs were $1.2 million for 2000, $0.6 million for 1999, and $0.2 million for 1998. The Company has expensed all costs related to these work force reduction programs. 3. CONTINGENCIES AND REGULATORY MATTERS Environmental Cost Recovery In 1993, the Florida Legislature adopted legislation for an Environmental Cost Recovery Clause (ECRC), which allows a utility to petition the FPSC for recovery of all prudent environmental compliance costs that are not being recovered through base rates or any other recovery mechanism. Such environmental costs include operation and maintenance expense, emission allowance expense, depreciation, and a return on invested capital. In 1994, the FPSC approved the Company's initial petition under the ECRC for recovery of environmental costs. During 2000, 1999, and 1998, the Company recorded ECRC revenues of $9.9 million, $11.5 million, and $8.0 million, respectively. At December 31, 2000, the Company's liability for the estimated costs of environmental remediation projects for known sites was $7.6 million. These estimated costs are expected to be expended from 2001 through 2006. These projects have been approved by the FPSC for recovery through the ECRC discussed above. Therefore, the Company recorded $1.2 million in current assets and current liabilities and $6.4 million in deferred assets and deferred liabilities representing the future recoverability of these costs. Environmental Litigation On November 3, 1999, the Environmental Protection Agency (EPA) brought a civil action in the U.S. District Court against Alabama Power, Georgia Power, and SCS. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The Clean Air Act authorizes civil penalties of up to $27,500 per day, per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, including the five facilities mentioned previously and the Company's Plants Crist and Scherer. See Note 5 under "Joint Ownership Agreements" related to the Company's ownership interest in Georgia Power's Plant Scherer Unit No. 3. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. The Company believes that its integrated utilities complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash II-133 NOTES (continued) Gulf Power Company 2000 Annual Report flows, and possibly financial condition if such costs are not recovered through regulated rates. Retail Revenue Sharing Plan In early 1999, the FPSC staff and the Company became involved in discussions primarily related to reducing the Company's authorized rate of return. On October 1, 1999, the Office of Public Counsel, the Coalition for Equitable Rates, the Florida Industrial Power Users Group, and the Company jointly filed a petition to resolve the issues. The stipulation included a reduction to retail base rates of $10 million annually and provides for revenues to be shared within set ranges for 1999 through 2002. Customers receive two-thirds of any revenue within the sharing range and the Company retains one-third. Any revenue above this range is refunded to the customers. The stipulation also included authorization for the Company, at its discretion, to accrue up to an additional $5 million to the property insurance reserve and $1 million to amortize a regulatory asset related to the corporate office. The Company also filed a request to prospectively reduce its authorized ROE range from 11 to 13 percent to 10.5 to 12.5 percent in order to help ensure that the FPSC would approve the stipulation. The FPSC approved both the stipulation and the ROE request with an effective date of November 4, 1999. The Company is currently planning to seek additional rate relief to recover costs related to the Smith Unit 3 combined cycle facility scheduled to be placed in-service in June of 2002. For calendar year 2000, the Company's retail revenue range for sharing was $352 million to $368 million to be shared between the Company and its retail customers on the one-third/two-thirds basis. Actual retail revenues in 2000 were $362.4 million and the Company recorded revenues subject to refund of $6.9 million. The estimated refund with interest of $0.3 million was reflected in customer billings in February 2001. In addition to the refund the Company amortized $1 million of the regulatory assets related to the corporate office. For calendar year 2001, the Company's retail revenue range for sharing is $358 million to $374 million. For calendar year 2002, there are specified sharing ranges for each month from the expected in-service date of Smith Unit 3 until the end of the year. The sharing plan will expire at the earlier of the in-service date of Smith Unit 3 or December 31, 2002. 4. FINANCING AND COMMITMENTS Construction Program The Company is engaged in a continuous construction program, the cost of which is currently estimated to total $279 million in 2001, $96 million in 2002, and $76 million in 2003. The construction program is subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include changes in business conditions; revised load growth estimates; changes in environmental regulations; increasing costs of labor, equipment, and materials; and cost of capital. At December 31, 2000, significant purchase commitments were outstanding in connection with the construction program. The Company has budgeted $199.2 million for the years 2001 and 2002 for the estimated cost of a 574 megawatt combined cycle gas generating unit to be located in the eastern portion of its service area. The unit is expected to have an in-service date of June 2002. The Company's remaining construction program is related to maintaining and upgrading the transmission, distribution, and generating facilities. Bank Credit Arrangements At December 31, 2000, the Company had $61.5 million of lines of credit with banks subject to renewal June 1 of each year, of which $53.5 million remained unused. In addition, the Company has two unused committed lines of credit totaling $61.9 million that were established for liquidity support of its variable rate pollution control bonds. In connection with these credit lines, the Company has agreed to pay commitment fees and/or to maintain compensating balances with the banks. The compensating balances, which represent substantially all of the cash of the Company except for daily working funds and like items, are not legally restricted from withdrawal. In addition, the Company has bid-loan facilities with seven major money center banks that total $130 million, of which $35 million was committed at December 31, 2000. Assets Subject to Lien The Company's mortgage, which secures the first mortgage bonds issued by the Company, constitutes a direct first lien on substantially all of the Company's fixed property and franchises. II-134 NOTES (continued) Gulf Power Company 2000 Annual Report Fuel Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into contract commitments for the procurement of fuel. In some cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. Total estimated obligations at December 31, 2000 were as follows: Year Fuel --------- ---------------- (in millions) 2001 $139 2002 91 2003 90 2004 92 2005 93 2006-2024 473 ------------------------------------------------------------- Total commitments $978 ============================================================= Lease Agreements In 1989, the Company and Mississippi Power jointly entered into a twenty-two year operating lease agreement for the use of 495 aluminum railcars. In 1994, a second lease agreement for the use of 250 additional aluminum railcars was entered into for twenty-two years. Both of these leases are for the transportation of coal to Plant Daniel. At the end of each lease term, the Company has the option to renew the lease. In 1997, three additional lease agreements for 120 cars each were entered into for three years, with a monthly renewal option for up to an additional nine months. The Company, as a joint owner of Plant Daniel, is responsible for one half of the lease costs. The lease costs are charged to fuel inventory and are allocated to fuel expense as the fuel is used. The Company's share of the lease costs charged to fuel inventories was $2.1 million in 2000 and $2.8 million in 1999. The annual amounts for 2001 through 2005 are expected to be $1.9 million, $1.9 million, $1.9 million, $2.0 million, and $2.0 million, respectively, and after 2005 are expected to total $13.8 million. 5. JOINT OWNERSHIP AGREEMENTS The Company and Mississippi Power jointly own Plant Daniel, a steam-electric generating plant located in Jackson County, Mississippi. In accordance with the operating agreement, Mississippi Power acts as the Company's agent with respect to the construction, operation, and maintenance of the plant. The Company and Georgia Power jointly own Plant Scherer Unit No. 3. Plant Scherer is a steam-electric generating plant located near Forsyth, Georgia. In accordance with the operating agreement, Georgia Power acts as the Company's agent with respect to the construction, operation, and maintenance of the unit. The Company's pro rata share of expenses related to both plants is included in the corresponding operating expense accounts in the Statements of Income. At December 31, 2000, the Company's percentage ownership and its investment in these jointly owned facilities were as follows: Plant Scherer Plant Unit No. 3 Daniel (coal-fired) (coal-fired) ----------------------------- (in thousands) Plant In Service $185,778(1) $232,074 Accumulated Depreciation $70,207 $118,504 Construction Work in Progress $252 $2,006 Nameplate Capacity (2) (megawatts) 205 500 Ownership 25% 50% ------------------------------------------------------------------ (1) Includes net plant acquisition adjustment. (2) Total megawatt nameplate capacity: Plant Scherer Unit No. 3: 818 Plant Daniel: 1,000 6. LONG-TERM POWER SALES AGREEMENTS The Company and the other operating affiliates have long-term contractual agreements for the sale of capacity to certain non-affiliated utilities located outside the system's service area. The unit power sales agreements are firm and pertain to capacity related to specific generating units. Because the energy is generally sold at cost under these agreements, profitability is primarily affected by revenues from capacity sales. The capacity revenues from these sales were $20.3 million in 2000, $19.8 million in 1999, and $22.5 million in 1998. II-135 NOTES (continued) Gulf Power Company 2000 Annual Report Capacity revenues increased slightly in 2000 due to the recovery of higher operating expenses experienced during the year. Unit power from specific generating plants of Southern Company is currently being sold to Florida Power Corporation (FPC), Florida Power & Light Company (FP&L), and Jacksonville Electric Authority (JEA). Under these agreements, 209 megawatts of net dependable capacity were sold by the Company during 2000. Sales will increase slightly to 210 megawatts per year in 2001 and remain close to that level, unless reduced by FP&L, FPC, and JEA for the periods after 2001 with a minimum of three years notice, until the expiration of the contracts in 2010. 7. INCOME TAXES At December 31, 2000, the tax-related regulatory assets to be recovered from customers were $16.0 million. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized allowance for funds used during construction. At December 31, 2000, the tax-related regulatory liabilities to be credited to customers were $38.3 million. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the federal and state income tax provisions are as follows: 2000 1999 1998 ------------------------------------ (in thousands) Total provision for income taxes: Federal-- Current $37,250 $33,973 $31,746 Deferred (11,159) (6,107) (4,467) -------------------------------------------------------------------- 26,091 27,866 27,279 -------------------------------------------------------------------- State-- Current 5,796 5,267 5,137 Deferred (1,357) (502) (217) -------------------------------------------------------------------- 4,439 4,765 4,920 -------------------------------------------------------------------- Total $30,530 $32,631 $32,199 ==================================================================== The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 2000 1999 --------------------------- (in thousands) Deferred tax liabilities: Accelerated depreciation $172,646 $168,662 Other 14,262 24,272 --------------------------------------------------------------------- Total 186,908 192,934 --------------------------------------------------------------------- Deferred tax assets: Federal effect of state deferred taxes 8,703 9,293 Postretirement benefits 9,205 8,456 Other 14,742 12,526 --------------------------------------------------------------------- Total 32,650 30,275 --------------------------------------------------------------------- Net deferred tax liabilities 154,258 162,659 Less current portion, net (816) (117) --------------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $155,074 $162,776 ===================================================================== Deferred investment tax credits are amortized over the lives of the related property with such amortization normally applied as a credit to reduce depreciation and amortization in the Statements of Income. Credits amortized in this manner amounted to $1.9 million in 2000, 1999, and 1998. At December 31, 2000, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 2000 1999 1998 ---------------------------- Federal statutory rate 35% 35% 35% State income tax, net of federal deduction 4 4 4 Non-deductible book depreciation 1 1 1 Difference in prior years' deferred and current tax rate (2) (2) (2) Other, net (1) - (2) ---------------------------------------------------------------- Effective income tax rate 37% 38% 36% ================================================================ The Company and the other subsidiaries of Southern Company file a consolidated federal tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. II-136 NOTES (continued) Gulf Power Company 2000 Annual Report 8. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES In January 1997, Gulf Power Capital Trust I (Trust I), of which the Company owns all of the common securities, issued $40 million of 7.625 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust I are $41 million aggregate principal amount of the Company's 7.625 percent junior subordinated notes due December 31, 2036. In January 1998, Gulf Power Capital Trust II (Trust II), of which the Company owns all of the common securities, issued $45 million of 7.0 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust II are $46 million aggregate principal amount of the Company's 7.0 percent junior subordinated notes due December 31, 2037. The Company considers that the mechanisms and obligations relating to the preferred securities, taken together, constitute a full and unconditional guarantee by the Company of payment obligations with respect to the preferred securities of Trust I and Trust II. Trust I and Trust II are subsidiaries of the Company, and accordingly are consolidated in the Company's financial statements. 9. SECURITIES DUE WITHIN ONE YEAR At December 31, 2000, the Company had an improvement fund requirement of $850,000. The first mortgage bond improvement fund requirement amounts to 1 percent of each outstanding series of bonds authenticated under the indenture prior to January 1 of each year, other than those issued to collateralize pollution control revenue bond obligations. The requirement may be satisfied by depositing cash, reacquiring bonds, or by pledging additional property equal to 1 and 2/3 times the requirement. 10. COMMON STOCK DIVIDEND RESTRICTIONS The Company's first mortgage bond indenture contains various common stock dividend restrictions, which remain in effect as long as the bonds are outstanding. At December 31, 2000, retained earnings of $127 million were restricted against the payment of cash dividends on common stock under the terms of the mortgage indenture. 11. QUARTERLY FINANCIAL DATA (Unaudited) Summarized quarterly financial data for 2000 and 1999 are as follows: Net Income After Dividends Operating Operating on Preferred Quarter Ended Revenues Income Stock -------------------------------------------------------------------- (in thousands) March 2000 $138,498 $16,007 $4,653 June 2000 182,120 30,505 12,927 September 2000 232,533 52,614 26,438 December 2000 161,168 20,755 7,825 March 1999 $134,506 $15,665 $ 4,799 June 1999 166,815 29,253 13,226 September 1999 218,264 54,429 28,582 December 1989 154,514 19,815 7,060 -------------------------------------------------------------------- The Company's business is influenced by seasonal weather conditions and the timing of rate changes, among other factors. II-137 SELECTED FINANCIAL AND OPERATING DATA 1996-2000 Gulf Power Company 2000 Annual Report

----------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $714,319 $674,099 $650,518 $625,856 $634,365 Net Income after Dividends on Preferred Stock (in thousands) $51,843 $53,667 $56,521 $57,610 $57,845 Cash Dividends on Common Stock (in thousands) $59,000 $61,300 $57,200 $64,600 $58,300 Return on Average Common Equity (percent) 12.20 12.63 13.20 13.33 13.27 Total Assets (in thousands) $1,315,496 $1,308,495 $1,267,901 $1,265,612 $1,308,366 Gross Property Additions (in thousands) $95,807 $69,798 $69,731 $54,289 $61,386 ----------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $427,378 $422,313 $427,652 $428,718 $435,758 Preferred stock 4,236 4,236 4,236 13,691 65,102 Company obligated mandatorily redeemable preferred securities 85,000 85,000 85,000 40,000 - Long-term debt 365,993 367,449 317,341 296,993 331,880 ----------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $882,607 $878,998 $834,229 $779,402 $832,740 =================================================================================================================================== Capitalization Ratios (percent): Common stock equity 48.4 48.0 51.3 55.0 52.3 Preferred stock 0.5 0.5 0.5 1.8 7.8 Company obligated mandatorily redeemable preferred securities 9.6 9.7 10.2 5.1 - Long-term debt 41.5 41.8 38.0 38.1 39.9 ----------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0 =================================================================================================================================== Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 A1 Standard and Poor's A+ AA- AA- AA- A+ Fitch AA-* AA- AA- AA- AA- Preferred Stock - Moody's a2 a2 a2 a2 a2 Standard and Poor's BBB+ A- A A A Fitch A* A A+ A+ A+ Unsecured Long-Term Debt - Moody's A2 A2 A2 A2 - Standard and Poor's A A A A - Fitch A+* A+ A+ A+ - =================================================================================================================================== Customers (year-end): Residential 321,731 315,240 307,077 300,257 291,196 Commercial 47,666 47,728 46,370 44,589 43,196 Industrial 280 267 257 267 278 Other 442 316 268 264 162 ----------------------------------------------------------------------------------------------------------------------------------- Total 370,119 363,551 353,972 345,377 334,832 =================================================================================================================================== Employees (year-end): 1,327 1,339 1,328 1,328 1,384 ----------------------------------------------------------------------------------------------------------------------------------- *Effective 1/22/01 the Fitch Security Ratings for First Mortgage Bonds, Preferred Stock, and Unsecured Long-Term Debt are A+, A-, and A respectively.

II-138 SELECTED FINANCIAL AND OPERATING DATA 1996-2000 (continued) Gulf Power Company 2000 Annual Report

------------------------------------------------------------------------------------------------------------------------------ 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands): Residential $ 308,728 $277,311 $ 276,208 $ 277,609 $ 285,498 Commercial 181,584 165,871 160,960 164,435 164,181 Industrial 76,539 67,404 69,850 77,492 78,994 Other (4,689) 2,174 2,100 2,083 2,056 ------------------------------------------------------------------------------------------------------------------------------ Total retail 562,162 512,760 509,118 521,619 530,729 Sales for resale - non-affiliates 66,890 62,354 61,893 63,697 63,201 Sales for resale - affiliates 66,995 66,110 42,642 16,760 17,762 ------------------------------------------------------------------------------------------------------------------------------ Total revenues from sales of electricity 696,047 641,224 613,653 602,076 611,692 Other revenues 18,272 32,875 36,865 23,780 22,673 ------------------------------------------------------------------------------------------------------------------------------ Total $714,319 $674,099 $650,518 $625,856 $634,365 ============================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 4,790,038 4,471,118 4,437,558 4,119,492 4,159,924 Commercial 3,379,449 3,222,532 3,111,933 2,897,887 2,808,634 Industrial 1,924,749 1,846,237 1,833,575 1,903,050 1,808,086 Other 18,730 19,296 18,952 18,101 17,815 ------------------------------------------------------------------------------------------------------------------------------ Total retail 0,112,966 9,559,183 9,402,018 8,938,530 8,794,459 Sales for resale - non-affiliates 1,705,486 1,561,972 1,341,990 1,531,179 1,534,097 Sales for resale - affiliates 1,916,526 2,511,983 1,758,150 848,135 709,647 ------------------------------------------------------------------------------------------------------------------------------ Total 3,734,978 13,633,138 12,502,158 11,317,844 11,038,203 ============================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.45 6.20 6.22 6.74 6.86 Commercial 5.37 5.15 5.17 5.67 5.85 Industrial 3.98 3.65 3.81 4.07 4.37 Total retail 5.56 5.36 5.41 5.84 6.03 Sales for resale 3.70 3.15 3.37 3.38 3.61 Total sales 5.07 4.70 4.91 5.32 5.54 Residential Average Annual Kilowatt-Hour Use Per Customer 14,992 14,318 14,577 13,894 14,457 Residential Average Annual Revenue Per Customer $966.26 $888.01 $907.35 $936.30 $992.17 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,188 2,188 2,188 2,174 2,174 Maximum Peak-Hour Demand (megawatts): Winter 2,154 2,085 2,040 1,844 2,136 Summer 2,285 2,161 2,146 2,032 1,961 Annual Load Factor (percent) 55.4 55.2 55.3 55.5 51.4 Plant Availability Fossil-Steam (percent): 85.2 87.2 87.6 91.0 91.8 ------------------------------------------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 87.8 89.8 89.2 87.1 87.8 Oil and gas 1.6 2.5 2.0 0.4 0.5 Purchased power - From non-affiliates 7.6 5.9 5.5 3.5 2.7 From affiliates 3.0 1.8 3.3 9.0 9.0 ------------------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 100.0 100.0 100.0 ==============================================================================================================================

II-139 MISSISSIPPI POWER COMPANY FINANCIAL SECTION II-140 MANAGEMENT'S REPORT Mississippi Power Company 2000 Annual Report The management of Mississippi Power Company has prepared -- and is responsible for -- the financial statements and related information included in this report. These statements were prepared in accordance with accounting principles generally accepted in the United States and necessarily include amounts that are based on best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that the accounting records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based upon recognition that the cost of the system should not exceed its benefits. The Company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of four independent directors, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Mississippi Power Company in conformity with accounting principles generally accepted in the United States. /s/Dwight H. Evans Dwight H. Evans President and Chief Executive Officer /s/Michael W. Southern Michael W. Southern Vice President, Secretary, Treasurer and Chief Financial Officer II-141 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Mississippi Power Company: We have audited the accompanying balance sheets and statements of capitalization of Mississippi Power Company (a Mississippi corporation and a wholly owned subsidiary of Southern Company) as of December 31, 2000 and 1999, and the related statements of income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages 11-151 through II-166) referred to above present fairly, in all material respects, the financial position of Mississippi Power Company as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/Arthur Andersen LLP Atlanta, Georgia February 28, 2001 II-142 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Mississippi Power Company 2000 Annual Report RESULTS OF OPERATIONS Earnings Mississippi Power Company's 2000 net income after dividends on preferred stock of $55 million increased $0.2 million over 1999 earnings of $54.8 million, which were $0.3 million less than 1998 earnings of $55.1 million. Revenues Operating revenues for the Company in 2000 and the changes from the prior year are as follows: Increase (Decrease) Amount From Prior Year ------ ---------------------- 2000 2000 1999 --------------------------------------- (in millions) Retail -- Base Revenues $287,253 $ (5,854) $ 17,462 Fuel cost recovery and other 211,298 34,971 9,405 ---------------------------------------------------------------- Total retail 498,551 29,117 26,867 ---------------------------------------------------------------- Sales for resale -- Non-affiliates 145,931 14,927 9,779 Affiliates 27,915 8,469 1,161 ---------------------------------------------------------------- Total sales for resale 173,846 23,396 10,940 Other operating revenues 15,205 2,085 66 ---------------------------------------------------------------- Operating revenues $687,602 $54,598 $ 37,873 ================================================================== Percent change 8.6% 6.4% ------------------------------------------------------------------ Total retail revenues for 2000 increased approximately 6.2 percent when compared to 1999. The increase resulted primarily from continued growth in the service area, a positive impact of weather and additional fuel revenues. Retail revenues for 1999 reflected a 6.1 percent increase over the prior year due to the continued growth in the service area, increased fuel revenues, and a true-up of the unbilled revenue estimate. Fuel revenues generally represent the direct recovery of fuel expense including purchased power. Therefore, changes in recoverable fuel expenses are offset with corresponding changes in fuel revenues and have no effect on net income. Energy sales to non-affiliates include economy sales and amounts sold under short-term contracts. Sales for resale to non-affiliates are influenced by those utilities' own customer demand, plant availability, and the cost of their predominant fuels. Included in sales for resale to non-affiliates are revenues from rural electric cooperative associations and municipalities located in southeastern Mississippi. Energy sales to these customers increased 10.9 percent in 2000 and 10.2 percent in 1999, with the related revenues rising 10.8 percent and 12.1 percent, respectively. The customer demand experienced by these utilities is determined by factors very similar to those of the Company. Revenues from other sales outside the service area increased in 2000 and 1999 primarily due to power marketing activities. These increases were offset by increases in purchased power from non-affiliates and, as a result, had no significant effect on net income. Sales to affiliated companies within the Southern Company electric system will vary from year to year depending on demand and the availability and cost of generating resources at each company. These sales have no material impact on earnings. Below is a breakdown of kilowatt-hour sales for 2000 and the percent change for the last two years: 2000 Percent Change ------------- --------------------------- KWH 2000 1999 --------------------------- (in millions) Residential 2,286 1.7% - Commercial 2,883 1.3 8.5% Industrial 4,376 (0.7) 18.2 Other 41 2.5 0.8 ------- Total retail 9,586 0.5 10.4 Sales for Resale -- Non-affiliates 3,675 12.9 3.1 Affiliates 453 (16.2) (2.2) ------- Total 13,714 2.8 8.0 ================================================================== Total retail kilowatt-hour sales increased slightly in 2000 when compared to 1999 sales, which included an unbilled revenue true-up of approximately 3.5 percent. The increase primarily resulted from the continued growth in the service area and the positive impact of weather. Excluding the impact of the unbilled revenue true-up, all retail customer classes experienced growth in 2000 II-143 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 2000 Annual Report due to the positive impact of weather, increased tourism, and continued growth in the service area. In 1999, increased tourism and strong growth impacted commercial sales, while industrial sales were impacted by increased production by several larger industrial customers, including one which was shut down in 1998 by Hurricane Georges. Expenses Total operating expenses were $565 million in 2000 reflecting an increase of $52 million or 10.1 percent over the prior year. The increase was due primarily to higher fuel and purchased power expenses. In 1999, total operating expenses increased by 6.9 percent over the prior year due primarily to higher fuel expenses. Fuel costs are the single largest expense for the Company. Fuel expenses for 2000 and 1999 increased 10.7 percent and 10.3 percent, respectively. The increase for each year was due to increased generation and a higher average cost of fuel. The increased generation was due to higher demand for energy across the Southern Company electric system. In 2000, expenses related to purchased power from non-affiliates increased 40.0 percent, while expenses related to purchased power from affiliates increased 64.7 percent which, in total, resulted in a 51 percent increase when compared to 1999. This increase consisted mostly of energy purchased for power marketing activities which was resold to non-affiliated third parties and had no significant effect on net income. Sales and purchases among the Company and its affiliates will vary from period to period depending on demand and the availability and variable production cost of each generating unit in the Southern Company electric system. The amount and sources of generation and the average cost of fuel per net kilowatt-hour generated were as follows: 2000 1999 1998 ----------------------------- Total generation (millions of kilowatt hours) 11,688 11,599 10,610 Sources of generation (percent) -- Coal 83 81 80 Gas 17 19 20 Average cost of fuel per net kilowatt-hour generated (cents) -- 1.80 1.65 1.62 ----------------------------------------------------------------- Other operation expenses decreased 8.2 percent in 2000 primarily due to a decrease in administrative and general expenses. In 1999, other operation expense increased 13.9 percent primarily due to the amortization of costs associated with the workforce reduction plan and higher distribution expenses. Maintenance expense in 2000 increased due to additional scheduled maintenance, while maintenance expense in 1999 decreased due to reduced scheduled maintenance. In 2000, depreciation expenses increased slightly due to growth in plant investment and a new composite depreciation rate, which became effective January 2000. Comparisons of taxes other than income taxes for 2000 and 1999 show increases of 1.7 percent and 4.2 percent, respectively, due to higher municipal franchise taxes resulting from higher retail revenues. Interest on long-term debt increased in 2000 due to higher interest rates and increased debt outstanding. Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in utility plant with long economic lives. Conventional accounting for historical costs does not recognize this economic loss or the partially offsetting gain that arises through financing facilities with II-144 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 2000 Annual Report fixed-money obligations, such as long-term debt and preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential The results of operations for the past three years are not necessarily indicative of future earnings potential. The level of the Company's future earnings depends on numerous factors ranging from weather to energy sales growth to a less regulated and more competitive environment. Expenses are subject to constant review and cost control programs. The Company is also maximizing the utility of invested capital and minimizing the need for additional capital by refinancing, managing the size of its fuel stockpile, raising generating plant availability and efficiency, and aggressively controlling its construction budget. The Company currently operates as a vertically integrated utility providing electricity to customers within its traditional service area located in southeastern Mississippi. Prices for electricity provided by the Company to retail customers are set by the Mississippi Public Service Commission (MPSC) under cost-based regulatory principles. The Federal Energy Regulatory Commission (FERC) regulates the Company's wholesale rate schedules, power sales contracts and transmission facilities. Operating revenues will be affected by any changes in rates under the Performance Evaluation Plan (PEP) -- the Company's performance based ratemaking plan -- and the Environmental Compliance Overview Plan (ECO Plan). PEP has proven to be a stabilizing force on electric rates, with only moderate changes in rates taking place. The ECO Plan provides for recovery of costs (including costs of capital) associated with environmental projects approved by the MPSC, most of which are required to comply with Clean Air Act Amendments of 1990 (Clean Air Act) regulations. The ECO Plan is operated independently of PEP. Compliance costs related to the Clean Air Act could affect earnings if such costs cannot be recovered. The Company's 2000 ECO Plan filed in January 2000 was approved as filed, and resulted in a slight decrease in customer prices. The Company filed its 2001 ECO Plan in January 2001 and, if approved as filed, it will result in a slight increase in customer prices. Refer to Note 3 to the financial statements under "Litigation and Regulatory Matters" for additional information. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." Future earnings in the near term will depend upon growth in energy sales, which is subject to a number of factors. These factors include weather, competition, changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in the Company's service area. The Company anticipates somewhat slower growth in energy sales as the tourism industry stabilizes within its service area. In addition to tourism, the healthcare and retail trade sectors will provide most of the anticipated energy growth for the commercial class of customers, while shipbuilding, chemicals and the U.S. government will provide much of the basis for anticipated growth in the industrial sector. The electric utility industry in the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers and sell energy generation to other utilities. Also, electricity sales for resale rates are affected by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. Although the Energy Act does not permit retail transmission access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in various stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry could radically change. In May 2000, the MPSC ordered that its docket reviewing restructuring of the electric industry in the State of Mississippi be suspended. The MPSC found that retail competition may not be in the public interest at this time, and ordered that no further formal hearings would be held on this subject. It found that the current regulatory structure produced reliable low cost power and "should not be changed without clear and convincing demonstration that change II-145 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 2000 Annual Report would be in the public interest." The MPSC will continue to monitor retail and wholesale restructuring activities throughout the United States and reserves its right to order further formal hearings on the matter should new evidence demonstrate that retail competition would be in the public interest and all customers could receive a reduction in the total cost of their electric service. If the MPSC decides to hold future restructuring hearings on this matter, enactment would require numerous issues to be resolved, including significant ones relating to transmission, prices, and recovery of any stranded costs. The inability of the Company to recover its investment, including regulatory assets, could have a material adverse effect on the financial condition of the Company. The Company is attempting to minimize or reduce its cost exposure. The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operation is no longer subject to these provisions, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable, and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. Continuing to be a low-cost producer could provide significant opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, unless the Company remains a low-cost producer and provides quality service, the Company's energy sales growth could be limited, and this could significantly erode earnings. On December 20, 1999, the Federal Energy Regulatory Commission (FERC) issued its final ruling on Regional Transmission Organizations (RTOs). The order encourages utilities owning transmission systems to form RTOs on a voluntary basis. After participating in regional conferences with customers and other members of the public to discuss the formation of RTOs, utilities were required to make a filing with the FERC. On October 16, 2000, Southern Company and its integrated utilities including the Company filed a proposal for the creation of an RTO. The proposal is for the formation of a for-profit company that would have control of the bulk power transmission system of the Company and any other participating utilities. Participants would have the option to either maintain their ownership or divest, sell, or lease their assets to the proposed RTO. If the FERC accepts the proposal as filed, the creation of an RTO is not expected to have a material impact on the Company's financial statements. The outcome of this matter cannot now be determined. The Energy Act amended the Public Utility Holding Company Act of 1935 (PUHCA) to allow holding companies to form exempt wholesale generators to sell power largely free of regulation under PUHCA. These entities are able to own and operate power generating facilities and sell power to affiliates - under certain restrictions. Southern Company is aggressively working to maintain and expand its share of wholesale sales in the southeastern power markets. In January 2001, Southern Company announced the formation of a new subsidiary - Southern Power Company. The new subsidiary will own, manage, and finance wholesale generating assets in the Southeast. Southern Power will be the primary growth engine for Southern Company's market-based energy business. Energy from its assets will be marketed to wholesale customers under the Southern Company name. In accordance with FASB Statement No. 87, Employers' Accounting for Pensions, the Company recorded non-cash pension income of approximately $4.2 million in 2000. Pension income in 2001 is expected to be less as a result of plan amendments. Future pension income is dependent on several factors including trust earnings and changes to the plan. For more information, see Note 2. The Company is involved in various matters being litigated. See Note 3 to the financial statements for information regarding material issues that could possibly affect future earnings. Compliance costs related to current and future environmental laws and regulations could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." Exposure to Market Risks Due to cost-based rate regulations, the Company has limited exposure to market volatility in interest rates, commodity fuel prices, and prices of electricity. II-146 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 2000 Annual Report To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statements as incurred. At December 31, 2000, exposure from these activities was not material to the Company's financial statements. Also, based on the Company's overall interest rate exposure at December 31, 2000, a near-term 100 basis point change in interest rates would not materially affect the financial statements. New Accounting Standard In June 2000, FASB issued Statement No. 138, an amendment of Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Statement No. 133, as amended, establishes accounting and reporting standards for derivative instruments and for hedging activities. Statement No. 133 requires that certain derivative instruments be recorded in the balance sheet as either an asset or liability measured at fair value, and that changes in the fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Substantially all of the Company's bulk energy purchases and sales meet the definition of a derivative under Statement No. 133. In many cases, these transactions meet the normal purchase and sale exception and the related contracts will continue to be accounted for under the accrual method. Certain of these instruments qualify as cash flow hedges resulting in the deferral of related gains and losses in other comprehensive income until the hedged transactions occur. Any ineffectiveness will be recognized currently in net income. However, others will be required to be marked to market through current period income. The Company adopted Statement No. 133 effective January 1, 2001. The impact on net income was immaterial. The application of the new rules is still evolving and further guidance from FASB is expected, which could additionally impact the Company's financial statements. Also, as wholesale energy markets mature, future transactions could result in more volatility in net income and comprehensive income. FINANCIAL CONDITION Overview The principal change in the Company's financial condition during 2000 was the addition of approximately $81 million to utility plant. Funding for these additions and other capital requirements were derived primarily from operations. The Statements of Cash Flows provide additional details. Financing Activity In March 2000, the Company issued $100 million of floating rate senior notes due March 28, 2002. The proceeds were used to prepay bank loans of $45 million maturing in November 2001 and $5 million maturing in October 2002. The balance of the $100 million was used to repay a portion of the Company's outstanding short-term debt. The Company plans to continue, to the extent possible, a program to retire higher-cost debt and replace these securities with lower-cost capital. See the Statements of Cash Flows for further details. Composite financing rates increased for the year 2000 when compared to 1998 and 1999. As of year-end , the composite rates were as follows: 2000 1999 1998 ---------------------------- Composite interest rate on long-term debt 6.41% 6.19% 6.14% Composite preferred stock dividend rate 6.33% 6.33% 6.33% Composite interest rate on preferred securities 7.75% 7.75% 7.75% ------------------------------------------------------------ In 1999, the Company signed an Agreement for Lease and a Lease Agreement with Escatawpa Funding, Limited Partnership ("Escatawpa"), that calls for the Company to design and construct, as agent for Escatawpa, a 1,064 megawatt natural gas combined cycle facility. It is anticipated that the total project will cost approximately $400 million, and upon project completion in mid 2001, the Company intends to lease the facility for an initial term of approximately 10 years. It is anticipated that the annual lease payments will approximate $32 million during the initial term. II-147 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 2000 Annual Report Capital Structure At year-end 2000, the Company's ratio of common equity to total capitalization, excluding long-term debt due within one year, decreased from 50.2 percent in 1999, to 48.1 percent. Capital Requirements for Construction The Company's projected construction expenditures for the next three years total $191 million ($62 million in 2001, $60 million in 2002, and $69 million in 2003). The major emphasis within the construction program will be on the upgrade of existing facilities. Revisions to projected construction expenditures may be necessary because of factors such as changes in business conditions, revised load projections, the availability and cost of capital, changes in environmental regulations, and alternatives such as leasing. Other Capital Requirements In addition to the funds required for the Company's construction program, approximately $135 million will be required by the end of 2003 for present sinking fund requirements and maturities of long-term debt. The Company plans to continue, when economically feasible, to retire higher cost debt and preferred stock and replace these obligations with lower-cost capital if market conditions permit. Environmental Matters On November 3, 1999, the Environmental Protection Agency (EPA), brought a civil action in the U.S. District Court against Alabama Power Company, Georgia Power Company and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously, and the Company's plants Watson and Greene County. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Savannah Electric, and the Company as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. On August 1, 2000, the U.S. District Court granted Alabama Power's motion to dismiss for lack of jurisdiction in Georgia and granted the system service company's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. On January 12, 2001, the EPA re-filed its claims against Alabama Power in federal district court in Birmingham, Alabama. The EPA did not include SCS in the new complaint. The Company believes that it complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows and possibly financial condition unless such costs can be recovered through regulated rates. In November 1990, the Clean Air Act Amendments of 1990 (Clean Air Act) were signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- significantly affected Southern Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants were required in two phases. Phase I compliance began in 1995. As a result of a systemwide compliance strategy, some 50 generating units of Southern Company were brought into compliance with Phase I requirements. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. Construction expenditures for Phase I nitrogen oxide and sulfur dioxide emissions compliance totaled approximately $300 million for Southern Company, including approximately $65 million for the Company. II-148 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 2000 Annual Report Phase II sulfur dioxide compliance was required in 2000. Southern Company used emission allowances and fuel switching to comply with Phase II requirements. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired units as necessary to meet Phase II limits and ozone non-attainment requirements for metropolitan Atlanta through 2000. Compliance for Phase II and initial ozone non-attainment requirements increased the Company's total construction expenditures through 2000 by approximately $100 million. Phase II compliance did not have a material impact on the Company. The Company's ECO Plan is designed to allow recovery of costs of compliance with the Clean Air Act, as well as other environmental statutes and regulations. The MPSC reviews environmental projects and the Company's environmental policy through the ECO Plan. Under the ECO Plan, any increase in the annual revenue requirement is limited to 2 percent of retail revenues. The Company's management believes that the ECO Plan provides for recovery of the Clean Air Act costs. See Note 3 to the financial statements under "Environmental Compliance Overview Plan" for additional information. A significant portion of costs related to the acid rain and ozone non-attainment provisions of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. In July 1997, the EPA revised the national ambient air quality standards for ozone and fine particulate matter. This revision made the standards significantly more stringent. In the subsequent litigation of these standards, the U.S. Supreme Court recently dismissed certain challenges but found the EPA's implementation program for the new ozone standard unlawful and remanded it to the EPA. In addition, the Federal District of Columbia Circuit Court of Appeals will address other legal challenges to these standards in mid-2001. A decision is expected in the spring of 2001. If the standards are eventually upheld, implementation could be required by 2007 to 2010. In September 1998, the EPA issued the final regional nitrogen oxide reduction rules to the states for implementation. Compliance is required by May 31, 2004. The final rules affect 21 states that at present do not include Mississippi. The EPA is presently evaluating whether or not to bring an additional 15 states including Mississippi, under this regional nitrogen oxide rule. In December 2000, the EPA completed its utility study for mercury and other hazardous air pollutants (HAPS) and issued a determination that an emission control program for mercury and, perhaps, other HAPS is warranted. The program is to be developed over the next four years under the Maximum Achievable Control Technology (MACT) provisions of the Clean Air Act. This determination is being challenged in the courts. In January 2001, the EPA proposed guidance for the determination of Best Available Retrofit Technology (BART) emission controls under the Regional Haze Regulations. Installation of BART controls would likely be required around 2010. Litigation of the BART rules is probable in the near future. Implementation of the final state rules for these initiatives could require substantial further reductions in nitrogen oxide, sulfur dioxide, mercury, and other HAPS emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. Reviews by the new administration in Washington, D.C. add to the uncertainties associated with BART guidance and the MACT determination for mercury and other HAPS. The EPA and state environmental regulatory agencies are reviewing and evaluating various matters including: emission control strategies for ozone non-attainment areas; additional controls for hazardous air pollutant emissions; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur costs to clean up properties currently or previously owned. Upon identifying potential sites, the Company conducts studies, when possible, to determine the extent of any required cleanup costs. II-149 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 2000 Annual Report Should remediation be determined to be probable, reasonable estimates of costs to clean up such sites are developed and recognized in the financial statements. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect the Company. The impact of new legislation -- if any -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for lawsuits alleging damages caused by electromagnetic fields or other environmental concerns. The likelihood or outcome of such potential lawsuits cannot be determined at this time. Sources of Capital To meet short-term cash needs and contingencies, the Company had at December 31, 2000 approximately $7.5 million of cash and cash equivalents and approximately $117 million of unused committed credit agreements. The Company had $56 million of short-term notes payable outstanding at year-end 2000. It is anticipated that the funds required for construction and other purposes, including compliance with environmental regulations, will be derived from sources similar to those used in the past. These sources were primarily the issuance of first mortgage bonds and preferred securities, in addition to pollution control revenue bonds issued for the Company's benefit by public authorities. The Company also issued unsecured debt in 1998. The Company has no restrictions on the amounts of unsecured indebtedness it may incur. However, the Company is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter to issue new first mortgage bonds and preferred stock. The Company's coverage ratios are high enough to permit, at present interest rate levels, any foreseeable security sales. The amount of securities which the Company will be permitted to issue in the future will depend upon market conditions and other factors prevailing at that time. Cautionary Statement Regarding Forward-Looking Information This Annual Report includes forward-looking statements in addition to historical information. Forward-looking information includes, among other things, statements concerning projected sales growth and scheduled completion of new generation. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of these terms or other comparable terminology. The Company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include the impact of recent and future federal and state regulatory change, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry and also changes in environmental and other laws and regulations to which the Company is subject, as well as changes in application of existing laws and regulations; current and future litigation, including the pending EPA civil action against the Company; the extent and timing of the entry of additional competition in the markets of the Company; potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial; internal restructuring or other restructuring options, that may be pursued by the Company; state and federal rate regulation in the United States; political, legal and economic conditions and developments in the United States; financial market conditions and the results of financing efforts; the impact of fluctuations in commodity prices, interest rates and customer demand; weather and other natural phenomena; the ability of the Company to obtain additional generating capacity at competitive prices; and other factors discussed elsewhere herein and in other reports (including Form 10-K) filed from time to time by the Company with the SEC. II-150 STATEMENTS OF INCOME For the Years Ended December 31, 2000, 1999, and 1998 Mississippi Power Company 2000 Annual Report

--------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 --------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Retail sales $498,551 $469,434 $442,567 Sales for resale -- Non-affiliates 145,931 131,004 121,225 Affiliates 27,915 19,446 18,285 Other revenues 15,205 13,120 13,054 --------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 687,602 633,004 595,131 --------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 191,127 172,686 156,539 Purchased power -- Non-affiliates 56,082 40,080 33,872 Affiliates 51,057 31,007 36,037 Other 115,055 125,291 109,993 Maintenance 52,750 47,085 50,404 Depreciation and amortization 50,275 49,206 47,450 Taxes other than income taxes 48,686 47,893 45,965 --------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 565,032 513,248 480,260 --------------------------------------------------------------------------------------------------------------------------------- Operating Income 122,570 119,756 114,871 Other Income (Expense): Interest income 347 189 863 Other, net (647) 1,675 2,498 --------------------------------------------------------------------------------------------------------------------------------- Earnings Before Interest and Income Taxes 122,270 121,620 118,232 --------------------------------------------------------------------------------------------------------------------------------- Interest Expense and Other: Interest expense, net 28,101 27,969 23,746 Distributions on preferred securities of subsidiary 2,712 2,712 2,712 --------------------------------------------------------------------------------------------------------------------------------- Total interest charges and other, net 30,813 30,681 26,458 --------------------------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 91,457 90,939 91,774 Income taxes 34,356 34,117 34,664 --------------------------------------------------------------------------------------------------------------------------------- Net Income 57,101 56,822 57,110 Dividends on Preferred Stock 2,129 2,013 2,005 --------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 54,972 $ 54,809 $ 55,105 ================================================================================================================================= The accompanying notes are an integral part of these statements.

II-151 STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2000, 1999, and 1998 Mississippi Power Company 2000 Annual Report

----------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 ----------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 57,101 $ 56,822 $ 57,110 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 54,638 53,427 51,517 Deferred income taxes and investment tax credits, net 752 (4,143) 11,620 Other, net (1,747) 5,531 (12,175) Changes in certain current assets and liabilities -- Receivables, net (3,231) (39,304) (5,486) Fossil fuel stock 14,577 (9,379) (5,767) Materials and supplies (1,056) (1,903) 717 Accounts payable 1,309 1,391 (389) Other 2,952 14,206 (4,061) ----------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 125,295 76,648 93,086 ----------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (81,211) (75,888) (68,231) Other (9,153) 1,009 (324) ----------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (90,364) (74,879) (68,555) ----------------------------------------------------------------------------------------------------------------------------- Financing Activities: Increase (decrease) in notes payable, net (1,500) 44,500 13,000 Proceeds -- Other long-term debt 100,000 59,400 103,520 Capital contributions from parent company 12,659 2,028 85 Retirements -- First mortgage bonds - - (75,000) Other long-term debt (81,405) (50,456) (13,020) Preferred stock - - (87) Payment of preferred stock dividends (2,129) (2,013) (2,005) Payment of common stock dividends (54,700) (56,100) (51,700) Other (498) (282) (2,429) ----------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (27,573) (2,923) (27,636) ----------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents 7,358 (1,154) (3,105) Cash and Cash Equivalents at Beginning of Period 173 1,327 4,432 ----------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 7,531 $ 173 $ 1,327 ============================================================================================================================= Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of amount capitalized) $30,570 $25,486 $26,133 Income taxes (net of refunds) 28,418 39,729 26,847 ----------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.

II-152 BALANCE SHEETS At December 31, 2000 and 1999 Mississippi Power Company 2000 Annual Report

---------------------------------------------------------------------------------------------------------------------------- Assets 2000 1999 ---------------------------------------------------------------------------------------------------------------------------- (in thousands) Current Assets: Cash and cash equivalents $ 7,531 $ 173 Receivables -- Customer accounts receivable 72,064 61,274 Other accounts and notes receivable 21,843 23,490 Affiliated companies 10,071 16,097 Accumulated provision for uncollectible accounts (571) (697) Fossil fuel stock, at average cost 11,220 25,797 Materials and supplies, at average cost 21,694 20,638 Other 8,320 10,013 ---------------------------------------------------------------------------------------------------------------------------- Total current assets 152,172 156,785 ---------------------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service 1,665,879 1,601,399 Less accumulated provision for depreciation 652,891 626,841 ---------------------------------------------------------------------------------------------------------------------------- 1,012,988 974,558 Construction work in progress 60,951 68,721 ---------------------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 1,073,939 1,043,279 ---------------------------------------------------------------------------------------------------------------------------- Other Property and Investments 2,268 1,389 ---------------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes 13,860 21,557 Prepaid pension costs 6,724 2,488 Debt expense, being amortized 4,628 4,355 Premium on reacquired debt, being amortized 7,168 8,154 Other 14,312 13,129 ---------------------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 46,692 49,683 ---------------------------------------------------------------------------------------------------------------------------- Total Assets $1,275,071 $1,251,136 ============================================================================================================================ The accompanying notes are an integral part of these balance sheets.

II-153 BALANCE SHEETS At December 31, 2000 and 1999 Mississippi Power Company 2000 Annual Report

--------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholder's Equity 2000 1999 --------------------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Securities due within one year $ 20 $ 30,020 Notes payable 56,000 57,500 Accounts payable -- Affiliated 10,715 17,002 Other 48,146 43,105 Customer deposits 5,274 3,749 Taxes accrued -- Income taxes 8,769 6,865 Other 36,799 35,534 Interest accrued 4,482 6,733 Vacation pay accrued 5,701 5,218 Other 7,003 7,497 --------------------------------------------------------------------------------------------------------------------------- Total current liabilities 182,909 213,223 --------------------------------------------------------------------------------------------------------------------------- Long-term debt (See accompanying statements) 370,511 321,802 --------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 139,909 139,564 Deferred credits related to income taxes 25,603 34,765 Accumulated deferred investment tax credits 23,481 24,695 Employee benefits provisions 34,671 34,268 Workforce reduction plan 9,734 11,272 Other 16,546 12,770 --------------------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 249,944 257,334 --------------------------------------------------------------------------------------------------------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trust holding company junior subordinated notes (See accompanying statements) 35,000 35,000 --------------------------------------------------------------------------------------------------------------------------- Preferred stock (See accompanying statements) 31,809 31,809 --------------------------------------------------------------------------------------------------------------------------- Common stockholder's equity (See accompanying statements) 404,898 391,968 --------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $1,275,071 $1,251,136 =========================================================================================================================== The accompanying notes are an integral part of these balance sheets.

II-154 STATEMENTS OF CAPITALIZATION At December 31, 2000 and 1999 Mississippi Power Company 2000 Annual Report

------------------------------------------------------------------------------------------------------------------------------ 2000 1999 2000 1999 ------------------------------------------------------------------------------------------------------------------------------ (in thousands) (percent of total) Long-Term Debt: First mortgage bonds -- Maturity Interest Rates -------- -------------- June 1, 2023 7.45% $ 35,000 $ 35,000 March 1, 2004 6.60% 35,000 35,000 December 1, 2025 6.875% 30,000 30,000 ------------------------------------------------------------------------------------------------------------------------------ Total first mortgage bonds 100,000 100,000 ------------------------------------------------------------------------------------------------------------------------------ Long-term notes payable -- 6.05% due May 1, 2003 35,000 35,000 6.75% due June 30, 2038 53,179 54,564 Adjustable rates (6.61% to 6.78% at 1/1/01) due 2000-2002 100,000 80,000 ------------------------------------------------------------------------------------------------------------------------------ Total long-term notes payable 188,179 169,564 ------------------------------------------------------------------------------------------------------------------------------ Other long-term debt -- Pollution control revenue bonds -- Collateralized: 5.65% to 5.80% due 2007-2023 - 26,785 Variable rates (3.90% at 1/1/01) due 2020-2025 - 10,600 Non-collateralized: 5.65% to 5.80% due 2007-2023 26,765 Variable rates (3.90% to 5.20% at 1/1/01) due 2020-2028 56,820 46,220 ------------------------------------------------------------------------------------------------------------------------------ Total other long-term debt 83,585 83,605 ------------------------------------------------------------------------------------------------------------------------------ Unamortized debt premium (discount), net (1,233) (1,347) ------------------------------------------------------------------------------------------------------------------------------ Total long-term debt (annual interest requirement -- $23.8 million) 370,531 351,822 Less amount due within one year 20 30,020 ------------------------------------------------------------------------------------------------------------------------------ Long-term debt excluding amount due within one year $370,511 $321,802 43.9% 41.2% ------------------------------------------------------------------------------------------------------------------------------

II-155 STATEMENTS OF CAPITALIZATION (continued) At December 31, 2000 and 1999 Mississippi Power Company 2000 Annual Report

------------------------------------------------------------------------------------------------------------------------------- 2000 1999 2000 1999 ------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Company Obligated Mandatorily Redeemable Preferred Securities:(Note 8) $25 liquidation value -- 7.75% $ 35,000 $ 35,000 ------------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $2.7 million) 35,000 35,000 4.2 4.5 ------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock: $100 par value 4.40% to 7.00% 31,809 31,809 ------------------------------------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $2.0 million) 31,809 31,809 3.8 4.1 ------------------------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity: Common stock, without par value -- Authorized - 1,130,000 shares Outstanding - 1,121,000 shares in 2000 and 1999 37,691 37,691 Paid-in capital 194,161 181,502 Premium on preferred stock 326 326 Retained earnings 172,720 172,449 ------------------------------------------------------------------------------------------------------------------------------- Total common stockholder's equity 404,898 391,968 48.1 50.2 ------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $842,218 $780,579 100.0% 100.0% =============================================================================================================================== The accompanying notes are an integral part of these statements.

II-156 STATEMENTS OF COMMON STOCKHOLDER'S EQUITY For the Years Ended December 31, 2000, 1999, and 1998 Mississippi Power Company 2000 Annual Report

----------------------------------------------------------------------------------------------------------------------------- Premium on Common Paid-In Preferred Retained Stock Capital Stock Earnings Total ----------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at January 1, 1998 $37,691 $179,389 $327 $170,417 $387,824 Net income after dividends on preferred stock - - - 55,105 55,105 Capital contributions from parent company - 85 - - 85 Cash dividends on common stock - - - (51,700) (51,700) Other - - (1) (82) (83) ----------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 37,691 179,474 326 173,740 391,231 Net income after dividends on preferred stock - - - 54,809 54,809 Capital contributions from parent company - 2,028 - - 2,028 Cash dividends on common stock - - - (56,100) (56,100) ----------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 37,691 181,502 326 172,449 391,968 Net income after dividends on preferred stock - - - 54,972 54,972 Capital contributions from parent company - 12,659 - - 12,659 Cash dividends on common stock - - - (54,700) (54,700) Other - - - (1) (1) ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 $37,691 $194,161 $326 $172,720 $404,898 ============================================================================================================================= The accompanying notes are an integral part of these statements.

II-157 NOTES TO FINANCIAL STATEMENTS Mississippi Power Company 2000 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Mississippi Power Company is a wholly owned subsidiary of Southern Company, which is the parent company of five integrated Southeast utilities, a system service company (SCS), Southern Communications Services (Southern LINC), Southern Company Energy Solutions, Southern Nuclear Operating Company (Southern Nuclear), Mirant Corporation -- formerly Southern Energy, Inc. -- and other direct and indirect subsidiaries. The integrated Southeast utilities -- Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric and Power Company -- provide electric service in four states. Contracts among the integrated Southeast utilities -- related to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) and/or the Securities and Exchange Commission (SEC). SCS provides, at cost, specialized services to Southern Company and subsidiary companies. Southern LINC provides digital wireless communications services to the integrated Southeast utilities and also markets these services to the public within the Southeast. Southern Company Energy Solutions develops new business opportunities related to energy products and services. Southern Nuclear provides services to Southern Company's nuclear power plants. Mirant acquires, develops, builds, owns, and operates power production and delivery facilities and provides a broad range of energy-related services to utilities and industrial companies in selected countries around the world. Mirant businesses include independent power projects, integrated utilities, a distribution company, and energy trading and marketing businesses outside the southeastern United States. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both the Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The Company is also subject to regulation by the FERC and the Mississippi Public Service Commission (MPSC). The Company follows accounting principles generally accepted in the United States and complies with the accounting policies and practices prescribed by the respective commissions. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates, and the actual results may differ from those estimates. Prior years' data presented in the financial statements have been reclassified to conform with the current year presentation. Related-Party Transactions The Company has an agreement with SCS under which the following services are rendered to the Company at cost: general and design engineering, purchasing, accounting and statistical, finance and treasury, tax, information resources, marketing, auditing, insurance and pension administration, human resources, systems and procedures, and other services with respect to business and operations and power pool operations. Costs for these services amounted to $46.2 million, $45.5 million, and $43.9 million during 2000, 1999, and 1998, respectively. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the Company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to the following: 2000 1999 ------------------------- (in thousands) Deferred income tax charges $ 13,860 $ 21,557 Vacation pay 5,701 5,218 Premium on reacquired debt 7,168 8,154 Property damage reserve (3,519) (3,082) Deferred income tax credits (25,603) (34,765) Other, net (505) (349) ---------------------------------------------------------------- Total $ (2,898) $ (3,267) ================================================================ II-158 NOTES (continued) Mississippi Power Company 2000 Annual Report In the event that a portion of the Company's operations is no longer subject to the provisions of FASB Statement No. 71, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair value. Revenues and Fuel Costs The Company currently operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located within the state of Mississippi, and to wholesale customers in the Southeast. Revenues are recognized as services are rendered. Unbilled revenues are accrued at the end of each fiscal period. The Company's retail and wholesale rates include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Retail rates also include provisions to adjust billings for fluctuations in costs for ad valorem taxes and certain qualifying environmental costs. Revenues are adjusted for differences between actual allowable amounts and the amounts included in rates. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts continued to average less than 1 percent of revenues. Depreciation Depreciation of the original cost of plant in service is provided primarily by using composite straight-line rates, which approximated 3.5 percent in 2000 and 3.3 percent in 1999 and 1998. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its original cost -- together with the cost of removal, less salvage -- is charged to accumulated depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected cost of removal of facilities. Income Taxes The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Property, Plant and Equipment Property, plant, and equipment is stated at original cost. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction, if applicable. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense except for the maintenance of coal cars and a portion of the railway track maintenance, which are charged to fuel stock. The cost of replacements of property -- exclusive of minor items of property -- is capitalized. Cash and Cash Equivalents For purposes of the Statements of Cash Flows, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Financial Instruments The Company's financial instruments for which the carrying amount did not equal fair value at December 31 were as follows: Carrying Fair Amount Value --------------------------- (in millions) Long-term debt: At December 31, 2000 $371 $362 At December 31, 1999 $353 $334 Capital trust preferred securities: At December 31, 2000 $35 $34 At December 31, 1999 $35 $30 -------------------------------------------------------------- The fair values for long-term debt and preferred securities were based on either closing market price or closing price of comparable instruments. 11-159 NOTES (continued) Mississippi Power Company 2000 Annual Report Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when used or installed. Provision for Property Damage The Company is self-insured for the cost of storm, fire, and other uninsured casualty damage to its property, including transmission and distribution facilities. As permitted by regulatory authorities, the Company accrues for the cost of such damage by charging expense and crediting an accumulated provision. The cost of repairing damage resulting from such events that individually exceed $50 thousand is charged to the accumulated provision. In 1999, an order from the MPSC increased the maximum Property Damage Reserve from $18 million to $23 million and allows an annual accrual of up to $4.6 million. In 2000, the Company provided for such costs by charges to income of $3.5 million. In 1999 and 1998, the Company provided for such costs by charges to income of $4.4 million and $1.5 million, respectively. As of December 31, 2000, the accumulated provision amounted to $3.5 million. 2. RETIREMENT BENEFITS The Company has defined benefit, trusteed, pension plans that cover substantially all employees. The Company provides certain medical care and life insurance benefits for retired employees. Substantially all these employees may become eligible for such benefits when they retire. The Company funds trusts to the extent deductible under federal income tax regulations or the extent required by regulatory authorities. In late 2000, the Company adopted several pension and postretirement benefits plan changes that had the effect of increasing benefits to both current and future retirees. The effects of these changes will be to increase annual pension and postretirement benefits costs by approximately $1.3 and $0.4 million, respectively. The measurement date for plan assets and obligations is September 30 for each year. Pension Plan Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations -------------------------- 2000 1999 --------------------------------------------------------------------- (in thousands) Balance at beginning of year $139,930 $142,807 Service cost 4,272 4,415 Interest cost 10,196 9,377 Benefits paid (7,593) (8,050) Actuarial gain and employee transfers (1,419) (8,619) --------------------------------------------------------------------- Balance at end of year $145,386 $139,930 ===================================================================== Plan Assets -------------------------- 2000 1999 --------------------------------------------------------------------- (in thousands) Balance at beginning of year $221,487 $198,100 Actual return on plan assets 39,737 33,216 Benefits paid (7,593) (8,050) Employee transfers 3,017 (1,779) --------------------------------------------------------------------- Balance at end of year $256,648 $221,487 ===================================================================== The accrued pension costs recognized in the Balance Sheets were as follows: 2000 1999 --------------------------------------------------------------------- (in thousands) Funded status $111,263 $ 81,557 Unrecognized transition obligation (3,269) (3,814) Unrecognized prior service cost 4,577 4,991 Unrecognized net gain (105,847) (80,246) --------------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 6,724 $ 2,488 ===================================================================== II-160 NOTES (continued) Mississippi Power Company 2000 Annual Report Components of the plans' net periodic cost were as follows: 2000 1999 1998 ------------------------------------------------------------------ (in thousands) Service cost $ 4,272 $ 4,415 $ 3,848 Interest cost 10,196 9,377 9,613 Expected return on plan assets (15,910) (14,681) (13,817) Recognized net gain (2,663) (1,721) (1,956) Net amortization (131) (131) (131) ------------------------------------------------------------------ Net pension income $ (4,236) $ (2,741) $(2,443) ================================================================== Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations ---------------------------- 2000 1999 ----------------------------------------------------------------- (in thousands) Balance at beginning of year $45,390 $47,260 Service cost 830 982 Interest cost 3,309 3,105 Benefits paid (2,628) (2,256) Actuarial gain and employee transfers (1,949) (3,701) ----------------------------------------------------------------- Balance at end of year $44,952 $45,390 ================================================================= Plan Assets ---------------------------- 2000 1999 ------------------------------------------------------------------ (in thousands) Balance at beginning of year $14,998 $12,779 Actual return on plan assets 2,511 1,818 Employer contributions 2,961 2,657 Benefits paid (2,627) (2,256) ----------------------------------------------------------------- Balance at end of year $17,843 $14,998 ================================================================= The accrued postretirement costs recognized in the Balance Sheets were as follows: 2000 1999 ---------------------------------------------------------------------- (in thousands) Funded status $(27,109) $(30,392) Unrecognized transition obligation 4,275 4,621 Unrecognized net gain (6,632) (3,406) Fourth quarter contributions 1,065 931 ---------------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $(28,401) $(28,246) ====================================================================== Components of the plans' net periodic cost were as follows: 2000 1999 1998 -------------------------------------------------------------------- (in thousands) Service cost $ 830 $ 981 $ 806 Interest cost 3,309 3,105 3,162 Expected return on plan assets (1,235) (1,100) (989) Net amortization 346 346 346 -------------------------------------------------------------------- Net postretirement cost $ 3,250 $ 3,332 $3,325 ==================================================================== The weighted average rates assumed in the actuarial calculations for both the pension plans and postretirement benefits were: 2000 1999 --------------------------------------------------------------- Discount 7.50% 7.50% Annual salary increase 5.00 5.00 Long-term return on plan assets 8.50 8.50 --------------------------------------------------------------- II-161 NOTES (continued) Mississippi Power Company 2000 Annual Report An additional assumption used in measuring the accumulated postretirement benefit obligation was a weighted average medical care cost trend rate of 7.29 percent for 2000, decreasing gradually to 5.50 percent through the year 2005 and remaining at that level thereafter. An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 2000 as follows: 1 Percent 1 Percent Increase Decrease ----------------------------------------------------------------- (in thousands) Benefit obligation $2,669 $2,396 Service and interest costs 242 215 ----------------------------------------------------------------- Workforce Reduction Program In 1997, approximately one hundred employees of the Company accepted the terms of a workforce reduction plan. The cost incurred in connection with this voluntary plan was approximately $18 million. The MPSC approved the deferral and amortization of these program costs over a period not to exceed 60 months beginning no later than July 1998. As of December 31, 1999, the cost was fully amortized. Employee Savings Plan The Company also sponsors a 401(k) defined contribution plan covering substantially all employees. The Company provides a 75 percent matching contribution up to 6 percent of an employee's base salary. Total matching contributions made to the plan for the years 2000, 1999, and 1998 were $2.3 million, $2.2 million, and $2.1 million, respectively. 3. LITIGATION AND REGULATORY MATTERS Environmental Litigation On November 3, 1999, the Environmental Protection Agency (EPA) brought a civil action in the U.S. District Court against Alabama Power Company, Georgia Power Company and SCS. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously, and the Company's plants Watson and Greene County. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Savannah Electric and the Company as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. On August, 1, 2000, the U.S. District Court granted Alabama Power's motion to dismiss for lack of jurisdiction in Georgia and granted SCS's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. On January 12, 2001, the EPA re-filed its claims against Alabama Power in federal district court in Birmingham, Alabama. The EPA did not include SCS in the new complaint. The Company believes that it complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows and possibly financial condition unless such costs can be recovered through regulated rates. Retail Rate Adjustment Plans The Company's retail base rates are set under a Performance Evaluation Plan (PEP) approved by the MPSC in 1994. PEP was designed with the objective that the plan would reduce the impact of rate changes on the customer and provide incentives for the Company to keep customer prices low. PEP includes a mechanism for sharing rate adjustments based on the Company's ability to maintain low rates for customers and on the Company's performance as measured by three II-162 NOTES (continued) Mississippi Power Company 2000 Annual Report indicators that emphasize price and service to the customer. PEP provides for semiannual evaluations of the Company's performance-based return on investment. Any change in rates is limited to 2 percent of retail revenues per evaluation period. PEP will remain in effect until the MPSC modifies or terminates the plan. There were no PEP retail revenue changes for 2000, 1999, or 1998. Environmental Compliance Overview Plan The MPSC approved the Company's Environmental Compliance Overview Plan (ECO Plan) in 1992. The ECO Plan establishes procedures to facilitate the MPSC's overview of the Company's environmental strategy and provides for recovery of costs (including costs of capital) associated with environmental projects approved by the MPSC. Under the ECO Plan, any increase in the annual revenue requirement is limited to 2 percent of retail revenues. However, the ECO Plan also provides for carryover of any amount over the 2 percent limit into the next year's revenue requirement. The Company conducts studies, when possible, to determine the extent of any required environmental remediation. Should such remediation be determined to be probable, reasonable estimates of costs to clean up such sites are developed and recognized in the financial statements. The Company recovers such costs under the ECO Plan as they are incurred, as provided for in the Company's 1995 ECO Plan Order. The Company filed its 2001 ECO Plan in January and, if approved as filed, it will result in a slight increase in customer prices. Approval for New Capacity In January 1998, the Company was granted a Certificate of Public Convenience and Necessity by the MPSC to build approximately 1,064 megawatts of combined cycle generation at the Company's Plant Daniel site, to be placed in service by June 2001. In December 1998, the Company requested approval to transfer the ownership rights under the certificate to Escatawpa Funding, Limited Partnership ("Escatawpa"), which will lease the facility to the Company (see Note 4, Financing and Commitments). In September 2000, the Company and the Mississippi Public Utilities Staff entered, and the MPSC in October 2000 approved, a new stipulation that modifies a January 1999 stipulation and order covering cost allocation. The 1999 stipulation and MPSC order would have excluded the new capacity from retail ratebase and would have assigned the Company's existing generating facilities entirely to the retail jurisdiction. The new stipulation and MPSC order allocates a pro-rata share of the new capacity along with the Company's existing generating capacity to the retail jurisdiction. 4. FINANCING AND COMMITMENTS Construction Program The Company is engaged in continuous construction programs, the costs of which are currently estimated to total $62 million in 2001, $60 million in 2002, and $69 million in 2003. The construction program is subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include changes in business conditions; revised load growth estimates; changes in environmental regulations; increasing costs of labor, equipment and materials; and cost of capital. Significant construction will continue related to transmission and distribution facilities, and the upgrading of generating plants. Financing In 1999, the Company signed an Agreement for Lease and a Lease Agreement with Escatawpa, that calls for the Company to design and construct, as agent for Escatawpa, a 1,064 megawatt natural gas combined cycle facility. It is anticipated that the total project will cost approximately $400 million, and upon project completion in mid 2001, the Company intends to lease the facility for an initial term of approximately 10 years. It is anticipated that the annual lease payments will approximate $32 million during the initial term. Bank Credit Arrangements At December 31, 2000, the Company had total committed credit agreements with banks for approximately $117 million. At year-end 2000, the unused portion of these committed credit agreements was approximately $117 million. These credit agreements expire at various dates in 2001. Some of these agreements allow short-term borrowings to be converted into term loans, payable in 12 equal quarterly installments, with the first installment due at the end of the first calendar quarter after the applicable termination date or at an earlier date at the Company's option. In connection with these credit arrangements, the Company II-163 NOTES (continued) Mississippi Power Company 2000 Annual Report agrees to pay commitment fees based on the unused portions of the commitments or to maintain compensating balances with the banks. At December 31, 2000, the Company had $56 million of short-term borrowings outstanding. Assets Subject to Lien The Company's mortgage indenture dated as of September 1, 1941, as amended and supplemented, which secures the first mortgage bonds issued by the Company, constitutes a direct first lien on substantially all of the Company's fixed property and franchises. Lease Agreements In 1984, the Company and Entergy Corp. (formerly Gulf States Utilities) entered into a forty-year transmission facilities agreement whereby Entergy began paying a use fee to the Company covering all expenses relative to ownership and operation and maintenance of a 500 kV line, including amortization of its original $57 million cost. For the three years ended 2000, use fees collected under this agreement, net of related expenses, amounted to approximately $3 million each year, and are included within Other Income in the Statements of Income. In 1989, the Company entered into a twenty-two year operating lease agreement for the use of 495 aluminum railcars. In 1994, a second lease agreement for the use of 250 additional aluminum railcars was also entered into for twenty-two years. The Company has the option to purchase the 745 railcars at the greater of lease termination value or fair market value, or to renew the leases at the end of the lease term. In 1997, a third lease agreement for the use of 360 railcars was also entered into for three years, with a monthly renewal option for up to an additional nine months. All of these leases, totaling 1,105 railcars, were for the transport of coal to Plant Daniel. Gulf Power, as joint owner of Plant Daniel, is responsible for one half of the lease cost. The Company's share (50%) of the leases, charged to fuel stock, was $2.1 million in 2000, $2.8 million in 1999, and $2.8 million in 1998. The Company's annual lease payments for 2001 through 2005 will average approximately $2.0 million and after 2005, lease payments total in aggregate approximately $14 million. Fuel To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement of fuel. In most cases, these contracts contain provisions for price escalations, minimum production levels, and other financial commitments. Total estimated obligations at December 31, 2000 were as follows: Year Fuel ---- ---- (in millions) 2001 $ 294 2002 332 2003 313 2004 137 2005 95 2006 - 2024 131 Total commitments $1,302 Additional commitments for fuel will be required in the future to supply the Company's fuel needs. 5. JOINT OWNERSHIP AGREEMENTS The Company and Alabama Power own as tenants in common Units 1 and 2 at Plant Greene County located in Alabama. Additionally, the Company and Gulf Power own as tenants in common Units 1 and 2 at Plant Daniel located in Mississippi. At December 31, 2000, the Company's percentage ownership and investment in these jointly owned facilities were as follows: Company's Generating Total Percent Gross Accumulated Plant Capacity Ownership Investment Depreciation --------- ---------- --------- ------------- ------------ (Megawatts) (in thousands) Greene County Units 1 and 2 500 40% $63,346 $32,762 Daniel Units 1 and 2 1,000 50% $230,853 $115,472 ----------------------------------------------------------------------- The Company's share of plant operating expenses is included in the corresponding operating expenses in the Statements of Income. II-164 NOTES (continued) Mississippi Power Company 2000 Annual Report 6. LONG-TERM CAPACITY SALES AND LEASE AGREEMENTS The Company and the other utility affiliates of Southern Company have long-term contractual agreements for the sale of capacity and energy to certain non-affiliated utilities located outside the system's service area. Because the energy is generally sold at cost under these agreements, profitability is primarily affected by revenues from capacity sales. The Company's capacity revenues under these agreements were not material during the periods reported. During 2000, the Company entered into a 10 year capacity lease that begins in mid 2001. The minimum capacity lease revenue that the Company will receive will average approximately $21 million per year over the 10 year period. 7. INCOME TAXES At December 31, 2000, the tax-related regulatory assets and liabilities were $14 million and $26 million, respectively. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized interest. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the federal and state income tax provisions are shown below: 2000 1999 1998 ---------------------------------- (in thousands) Total provision for income taxes Federal -- Current $28,934 $33,379 $20,500 Deferred 622 (3,973) 9,442 ----------------------------------------------------------------- 29,556 29,406 29,942 ----------------------------------------------------------------- State -- Current 4,670 4,881 2,544 Deferred 130 (170) 2,178 ----------------------------------------------------------------- 4,800 4,711 4,722 ----------------------------------------------------------------- Total $34,356 $34,117 $34,664 ================================================================= The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities are as follows: 2000 1999 ----------------------------- (in thousands) Deferred tax liabilities: Accelerated depreciation $151,278 $154,698 Basis differences 8,559 8,967 Other 24,136 23,108 --------------------------------------------------------------- Total 183,973 186,773 --------------------------------------------------------------- Deferred tax assets: Other property basis differences 17,147 21,003 Pension and other benefits 9,528 9,608 Property insurance 3,558 3,419 Unbilled fuel 5,727 4,846 Other 9,669 11,071 --------------------------------------------------------------- Total 45,629 49,947 --------------------------------------------------------------- Net deferred tax liabilities 138,344 136,826 Portion included in current assets, net 1,565 2,738 --------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $139,909 $139,564 =============================================================== Deferred investment tax credits are amortized over the lives of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $1.2 million in 2000, 1999, and 1998. At December 31, 2000, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 2000 1999 1998 ---------------------------------- Federal statutory rate 35.0% 35.0% 35.0% State income tax, net of federal deduction 3.4 3.4 3.3 Non-deductible book depreciation .6 .7 .5 Other (1.5) (1.6) (1.0) ------------------------------------------------------------------ Effective income tax rate 37.5% 37.5% 37.8% ================================================================== II-165 NOTES (continued) Mississippi Power Company 2000 Annual Report Southern Company files a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. 8. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES In February 1997, Mississippi Power Capital Trust I (Trust I), of which the Company owns all the common securities, issued $35 million of 7.75 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust I are $36 million aggregate principal amount of the Company's 7.75 percent junior subordinated notes due February 15, 2037. The Company considers that the mechanisms and obligations relating to the preferred securities, taken together, constitute a full and unconditional guarantee by the Company of the Trusts' payment obligations with respect to the preferred securities. Trust I is a subsidiary of the Company, and accordingly is consolidated in the Company's financial statements. 9. LONG-TERM DEBT DUE WITHIN ONE YEAR A summary of the improvement fund requirements and scheduled maturities and redemptions of long-term debt due within one year is as follows: 2000 1999 --------------------- (in thousands) Bond improvement fund requirement $1,000 $1,000 Less: Portion to be satisfied by certifying property additions 1,000 1,000 --------------------------------------------------------------- Cash sinking fund requirement - - Current portion of other long-term debt - 30,000 Pollution control bond cash sinking fund requirements 20 20 --------------------------------------------------------------- Total $20 $30,020 =============================================================== The first mortgage bond improvement fund requirement is one percent of each outstanding series authenticated under the indenture of the Company prior to January 1 of each year, other than first mortgage bonds issued as collateral security for certain pollution control obligations. The requirement must be satisfied by June 1 of each year by depositing cash or reacquiring bonds, or by pledging additional property equal to 166-2/3 percent of such requirement. 10. COMMON STOCK DIVIDEND RESTRICTIONS The Company's first mortgage bond indenture and the corporate charter contain various common stock dividend restrictions. At December 31, 2000, approximately $118 million of retained earnings was restricted against the payment of cash dividends on common stock under the most restrictive terms of the mortgage indenture or corporate charter. 11. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for 2000 and 1999 are as follows: Net Income After Dividends Operating Operating On Preferred Quarter Ended Revenues Income Stock -------------------------------------------------------------------- (in thousands) March 2000 $134,705 $18,593 $6,722 June 2000 176,028 28,130 12,232 September 2000 220,119 53,943 28,762 December 2000 156,750 21,904 7,256 March 1999 $122,435 $18,122 $7,193 June 1999 158,590 31,289 14,953 September 1999 201,594 51,609 27,313 December 1999 150,385 18,736 5,350 -------------------------------------------------------------------- The Company's business is influenced by seasonal weather conditions and the timing of rate changes. II-166 SELECTED FINANCIAL AND OPERATING DATA 1996-2000 Mississippi Power Company 2000 Annual Report

----------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands)* $687,602 $633,004 $595,131 $543,588 $544,029 Net Income after Dividends on Preferred Stock (in thousands) $54,972 $54,809 $55,105 $54,010 $52,723 Cash Dividends on Common Stock (in thousands) $54,700 $56,100 $51,700 $49,400 $43,900 Return on Average Common Equity (percent) 13.80 14.00 14.15 14.00 13.90 Total Assets (in thousands) $1,275,071 $1,251,136 $1,189,605 $1,166,829 $1,142,327 Gross Property Additions (in thousands) $81,211 $75,888 $68,231 $55,375 $61,314 ----------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $404,898 $391,968 $391,231 $387,824 $383,734 Preferred stock 31,809 31,809 31,809 31,896 74,414 Company obligated mandatorily redeemable preferred securities 35,000 35,000 35,000 35,000 - Long-term debt 370,511 321,802 292,744 291,665 326,379 ----------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $842,218 $780,579 $750,784 $746,385 $784,527 ============================================================================================================================= Capitalization Ratios (percent): Common stock equity 48.1 50.2 52.1 52.0 48.9 Preferred stock 3.8 4.1 4.2 4.3 9.5 Company obligated mandatorily redeemable preferred securities 4.2 4.5 4.7 4.7 - Long-term debt 43.9 41.2 39.0 39.0 41.6 ----------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0 ============================================================================================================================= Security Ratings: First Mortgage Bonds - Moody's Aa3 Aa3 Aa3 Aa3 Aa3 Standard and Poor's A+ AA- AA- AA- A+ Fitch AA- AA- AA- AA- AA- Preferred Stock - Moody's a1 a1 a1 a1 a1 Standard and Poor's BBB+ A- A A A Fitch A A A+ A+ A+ ============================================================================================================================= Customers (year-end): Residential 158,253 157,592 156,530 156,650 154,630 Commercial 32,372 31,837 31,319 31,667 30,366 Industrial 517 546 587 642 639 Other 206 202 200 200 200 ----------------------------------------------------------------------------------------------------------------------------- Total 191,348 190,177 188,636 189,159 185,835 ============================================================================================================================= Employees (year-end): 1,319 1,328 1,230 1,245 1,363 ----------------------------------------------------------------------------------------------------------------------------- * 1999 data includes the true-up of the unbilled revenue estimates.

II-167 SELECTED FINANCIAL AND OPERATING DATA 1996-2000 (continued) Mississippi Power Company 2000 Annual Report

---------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands)*: Residential $ 170,729 $159,945 $157,642 $138,608 $137,055 Commercial 163,552 153,936 145,677 134,208 131,734 Industrial 159,705 151,244 135,039 140,233 141,324 Other 4,565 4,309 4,209 4,193 4,013 ---------------------------------------------------------------------------------------------------------------------------------- Total retail 498,551 469,434 442,567 417,242 414,126 Sales for resale - non-affiliates 145,931 131,004 121,225 105,141 99,596 Sales for resale - affiliates 27,915 19,446 18,285 10,143 21,830 ---------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 672,397 619,884 582,077 532,526 535,552 Other revenues 15,205 13,120 13,054 11,062 8,477 ---------------------------------------------------------------------------------------------------------------------------------- Total $687,602 $633,004 $595,131 $543,588 $544,029 ================================================================================================================================== Kilowatt-Hour Sales (in thousands)*: Residential 2,286,143 2,248,255 2,248,915 2,039,042 2,079,611 Commercial 2,883,197 2,847,342 2,623,276 2,407,520 2,315,860 Industrial 4,376,171 4,407,445 3,729,166 3,981,875 3,960,243 Other 41,153 40,091 39,772 40,508 39,297 ---------------------------------------------------------------------------------------------------------------------------------- Total retail 9,586,664 9,543,133 8,641,129 8,468,945 8,395,011 Sales for resale - non-affiliates 3,674,621 3,256,175 3,157,837 2,895,182 2,726,993 Sales for resale - affiliates 452,611 539,939 552,142 478,884 693,510 ---------------------------------------------------------------------------------------------------------------------------------- Total 13,713,896 13,339,247 12,351,108 11,843,011 11,815,514 ================================================================================================================================== Average Revenue Per Kilowatt-Hour (cents)*: Residential 7.47 7.11 7.01 6.80 6.59 Commercial 5.67 5.41 5.55 5.57 5.69 Industrial 3.65 3.43 3.62 3.52 3.57 Total retail 5.20 4.92 5.12 4.93 4.93 Sales for resale 4.21 3.96 3.76 3.42 3.55 Total sales 4.90 4.65 4.71 4.50 4.53 Residential Average Annual Kilowatt-Hour Use Per Customer * 14,445 14,301 14,376 13,132 13,469 Residential Average Annual Revenue Per Customer * $1,078.76 $1,017.42 $1,007.68 $892.68 $887.66 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,086 2,086 2,086 2,086 2,086 Maximum Peak-Hour Demand (megawatts): Winter 2,305 2,125 1,740 1,922 2,030 Summer 2,593 2,439 2,339 2,209 2,117 Annual Load Factor (percent) 59.3 59.6 58.0 59.1 60.7 Plant Availability Fossil-Steam (percent): 92.6 91.0 90.0 92.4 91.8 ---------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 67.8 69.4 66.5 70.5 70.4 Oil and gas 13.5 15.9 14.5 12.5 12.0 Purchased power - From non-affiliates 7.7 6.2 8.0 3.0 6.5 From affiliates 11.0 8.5 11.0 14.0 11.1 ---------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 100.0 ================================================================================================================================== * 1999 data includes the true-up of the unbilled revenue estimates.

II-168 SAVANNAH ELECTRIC AND POWER COMPANY FINANCIAL SECTION II-169 MANAGEMENT'S REPORT Savannah Electric and Power Company 2000 Annual Report The management of Savannah Electric and Power Company has prepared--and is responsible for--the financial statements and related information included in this report. These statements were prepared in accordance with accounting principles generally accepted in the United States and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that accounting records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The Company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of five independent directors who are not employees, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls and financial reporting matters. The internal auditors and the independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Savannah Electric and Power Company in conformity with accounting principles generally accepted in the United States. /s/G. Edison Holland, Jr. /s/K. R. Willis G. Edison Holland, Jr. K. R. Willis President Vice President, and Chief Executive Officer Treasurer, Chief Financial Officer and Assistant Secretary 11-170 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Savannah Electric and Power Company: We have audited the accompanying balance sheets and statements of capitalization of Savannah Electric and Power Company (a Georgia corporation and a wholly owned subsidiary of Southern Company) as of December 31, 2000 and 1999, and the related statements of income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages II-179 through II-193) referred to above present fairly, in all material respects, the financial position of Savannah Electric and Power Company as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/Arthur Andersen LLP Arthur Andersen LLP Atlanta, Georgia February 28, 2001 II-171 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Savannah Electric and Power Company 2000 Annual Report RESULTS OF OPERATIONS -------------------- Earnings Savannah Electric and Power Company's net income after dividends on preferred stock for 2000 totaled $23.0 million, representing no significant change from the prior year. In 1999, earnings were $23.1 million, representing a $0.6 million, or 2.4 percent decrease from the prior year. This was principally due to lower non-operating revenues. Revenues Total operating revenues for 2000 were $295.7 million, reflecting a 17.5 percent increase when compared to 1999. The following table summarizes the factors affecting operating revenues for the past two years: Increase (Decrease) From Prior Year ------------------------- Amount 2000 2000 1999 -------------------------------------- (in thousands) Retail -- Base Revenues $161,807 $ 9,272 $ 376 Fuel cost recovery and other 120,815 31,085 (438) ----------------------------------------------------------------- Total retail 282,622 40,357 (62) ----------------------------------------------------------------- Sales for resale -- Non-affiliates 4,748 1,353 (1,153) Affiliates 4,974 823 1,135 ----------------------------------------------------------------- Total sales for resale 9,722 2,176 (18) ----------------------------------------------------------------- Other operating revenues 3,374 1,591 (2,781) ----------------------------------------------------------------- Total operating revenues $295,718 $44,124 $(2,861) ================================================================= Percent change 17.5% (1.1)% ----------------------------------------------------------------- Retail revenues increased 16.7 percent or $40.4 million in 2000 as compared to 1999. The primary contributors to the increase were continued growth in the Company's service territory, the positive impact of weather on energy sales, and an increase in fuel revenues. Electric rates include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Under these fuel recovery provisions, fuel revenues generally equal fuel expenses--including the fuel component of purchased energy--and do not affect net income. However, cash flow is affected by the economic loss from untimely recovery of these receivables. The Company currently plans to make a filing with the Georgia Public Service Commission (GPSC) in early 2001 to establish a new fuel rate in order to better reflect current fuel cost and to collect the current under-recovered balance. Revenues from sales to utilities outside the service area under long-term contracts consist of capacity and energy components. Revenues from these sales were not material to the financial statements. Sales to affiliated companies within the Southern electric system vary from year to year depending on demand and the availability and cost of generating resources at each company. These energy sales do not have a significant impact on earnings. Energy Sales Changes in revenues are influenced heavily by the amount of energy sold each year. Kilowatt-hour (KWH) sales for 2000 and the percent change by year were as follows: KWH Percent Change ------------- ------------------- 2000 2000 1999 ------------- ------------------- (in millions) Residential 1,671 5.8% 2.6% Commercial 1,369 6.3 4.2 Industrial 800 12.2 (20.7) Other 137 2.5 1.1 ------- Total retail 3,977 7.1 (2.5) Sales for resale -- Non-affiliates 77 50.3 (3.3) Affiliates 89 15.1 31.8 -------- Total 4,143 7.8% (2.0)% =========================================================== Total retail energy sales in 2000 reflected increases in all customer classes. Industrial energy sales increased 12.2 percent reflecting the re-opening of an industrial facility under new ownership. Residential and commercial sales also increased reflecting weather related demand and customer growth. In 1999, total retail energy sales were down by 2.5 percent from the prior year reflecting reduced energy sales of 20.7 percent to industrial customers due to the shut-down of one industrial customer's facilities in late 1998 and II-172 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 2000 Annual Report completed construction of a steam turbine unit by another industrial customer. These reductions were partially mitigated by increased energy sales of 2.6 percent and 4.2 percent to residential and commercial customers, respectively. Expenses Total operating expenses for 2000 were $245.0 million, an increase of $42.0 million from the prior year due primarily to increases in purchased power from both affiliates and non-affiliates and generation fuel expense. The increase in fuel expense is attributable to an increase in generation and higher fuel costs. Purchased power increased due principally to higher energy costs. Other operation expense was higher reflecting increased benefit expenses. Maintenance expense increased from 1999 reflecting higher power delivery and power generation maintenance costs to support improved customer reliability and unit availability, respectively. Depreciation and amortization increased reflecting additional depreciation charges related to the GPSC accounting order. See Note 3 to the financial statements for additional information on the GPSC's 1998 accounting order. In 1999, total operating expenses were $203.0 million reflecting a slight increase of $1.4 million from the prior year. This increase was due primarily to increases in purchased power from non-affiliates and depreciation and amortization. Purchased power from non-affiliates increased due principally to higher demand for energy and increased costs associated with these power purchases. Depreciation and amortization increased reflecting additional depreciation charges related to the GPSC's accounting order. Fuel and purchased power costs constitute the single largest expense for the Company. The mix of energy supply is determined primarily by system load, the unit cost of fuel consumed, and the availability of units. The amount and sources of energy supply and the total average cost of energy supply were as follows: 2000 1999 1998 -------------------------- Total energy supply (millions of KWHs) 4,286 4,039 4,182 Sources of energy supply (percent) -- Coal 52 45 42 Oil 2 2 1 Gas 5 10 12 Purchased Power 41 43 45 Total average cost of energy supply (cents) 3.09 2.44 2.35 ----------------------------------------------------------------- Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in utility plant with long economic lives. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations such as long-term debt and trust preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential The results of operations for the past three years are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a less regulated, more competitive environment. The Company currently operates as a vertically integrated utility providing electricity to customers within the traditional service area of southeastern Georgia. Prices for electricity provided by the Company to retail customers are set by the GPSC. Prices for electricity relating to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power are set by the Federal Energy Regulatory Commission (FERC). II-173 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 2000 Annual Report Future earnings in the near term will depend upon growth in energy sales, which is subject to a number of factors. These factors include weather, competition, new short and long-term contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in the Company's service area. Georgia Power is currently constructing two 566 megawatt combined cycle units at Plant Wansley to begin operation in 2002. The GPSC has certified the Company's purchase of capacity from these units to serve its retail customers for approximately seven years. The electric utility industry in the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access the Company's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for industrial and commercial customers and sell energy generation to other utilities. Also, electricity sales for resale rates are affected by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. The Company is positioning the business to meet the challenge of this major change in the traditional practice of selling electricity. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry could radically change. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While the GPSC has held workshops to discuss retail competition and industry restructuring, there has been no proposed or enacted legislation to date in Georgia. Enactment would require numerous issues to be resolved, including significant ones relating to transmission pricing and recovery of costs. The GPSC continues its assessment of the range of potential stranded costs. The inability of the Company to recover its investments, including the regulatory assets described in Note 1 to the financial statements, could have a material adverse effect on the financial condition and results of operation. The Company is attempting to minimize or reduce its cost exposure. Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, if the Company does not remain a low-cost producer and provide quality service, then energy sales growth could be limited, and this could significantly erode earnings. Rates to retail customers served by the Company are regulated by the GPSC. As part of the Company's rate settlement in 1992, it was informally agreed that the Company's earned rate of return on common equity should be 12.95 percent. In 1998, the GPSC issued a four-year accounting order settling its review of the Company's earnings. See Note 3 to the financial statements for additional information. On December 20, 1999, FERC issued its final rule on Regional Transmission Organizations (RTOs). The order encouraged utilities owning transmission systems to form RTOs on a voluntary basis. After participating in regional conferences with customers and other members of the public to discuss the formation of RTOs, utilities were required to make a filing. On October 16, 2000, Southern Company and its integrated utility subsidiaries, including the Company, filed with FERC a proposal for the creation of an RTO. The proposal is for the formation of a for-profit company that would have control of the bulk power transmission system of Southern Company and any other participating utilities. Participants would have the option to maintain their ownership, divest, sell, or lease their assets to the proposed RTO. If the FERC accepts the proposal as filed, the creation of an RTO is not expected to have a material impact on Southern Company's financial statements. The outcome of this matter cannot now be determined. The Energy Act amended the Public Utility Holding Company Act of 1935 (PUCHA) to allow holding companies to form exempt wholesale generators to sell power largely free of regulation under PUCHA. These entities are able to own and II-174 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 2000 Annual Report operate power generating facilities and sell power to affiliates--under certain restrictions. Southern Company is aggressively working to maintain and expand its share of wholesale sales in the southeastern power markets. In January 2001, Southern Company announced formation of a new subsidiary--Southern Power Company. The new subsidiary will own, manage, and finance wholesale generating assets in the Southeast. Energy from its assets will be marketed to wholesale customers under the Southern Company name. Compliance costs related to current and future environmental laws and regulations could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed under "Environmental Matters." The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operations is no longer subject to these provisions, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable, and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. New Accounting Standard In June 2000, FASB issued Statement No. 138, an amendment of Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Statement No. 133, as amended, establishes accounting and reporting standards for derivative instruments and for hedging activities. Statement No. 133 requires that certain derivative instruments be recorded in the balance sheet as either an asset or liability measured at fair value, and that changes in the fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company enters into commodity related forward contracts to limit exposure to changing prices on electricity purchases and sales. Substantially all of the Company's bulk energy purchases and sales meet the definition of a derivative under Statement No. 133. In many cases, these transactions meet the normal purchase and sale exception and the related contracts will continue to be accounted for under the accrual method. Certain of these instruments qualify as cash flow hedges resulting in the deferral of related gains and losses in other comprehensive income until the hedged transactions occur. Any ineffectiveness will be recognized currently in net income. However, others will be required to be marked to market through current period income. The Company adopted Statement No. 133 effective January 1, 2001. The impact on net income was immaterial to the Company. The application of the new rules is still evolving and further guidance from FASB is expected, which could further impact the Company's financial statements. Also, as wholesale energy markets mature, future transactions could result in more volatility in net income and comprehensive income. FINANCIAL CONDITION ------------------ Overview The principal change in the Company's financial condition in 2000 was the addition of $27.3 million to utility plant. The funds needed for gross property additions are currently provided from operating activities, principally from earnings and non-cash charges to income such as depreciation and deferred income taxes and from financing activities. See Statements of Cash Flows for additional information. Exposure to Market Risks Due to cost-based regulation, the Company has limited exposure to market volatility in interest rate, commodity fuel prices, and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. At December 31, 2000, exposure from these activities was not material to the Company's financial statements. Also, based on the Company's overall interest rate exposure at December 31, 2000, a near-term 100 basis point change in interest rates would not materially affect the financial statements. II-175 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 2000 Annual Report Capital Structure As of December 31, 2000, the Company's capital structure consisted of 52.7 percent common stockholders' equity, 12.1 percent trust preferred securities, and 35.2 percent long-term debt, excluding amounts due within one year. The Company's long-term financial objective for capitalization ratios is to maintain a capital structure of common stockholders' equity at 48 percent, preferred securities at 10 percent and debt at 42 percent. Maturities and retirements of long-term debt were $0.4 million in 2000, $16.2 million in 1999, and $30.4 million in 1998. Included in the 1999 maturities and retirements is the purchase by the Company of all $15 million outstanding of its 7 7/8% Series First Mortgage Bonds due May 1, 2025. The composite interest rates and dividend rates for the years 1998 through 2000 as of year-end were as follows: 2000 1999 1998 ------------------------------- Composite interest rates on long-term debt 6.6% 6.4% 6.5% Trust preferred securities dividend rate 6.9% 6.9% 6.9% ----------------------------------------------------------------- Capital Requirements for Construction The Company's projected construction expenditures for the next three years total $95.9 million ($32.5 million in 2001, $31.5 million in 2002, and $31.9 million in 2003). Actual construction costs may vary from this estimate because of factors such as changes in: business conditions; environmental regulations; load projections; the cost and efficiency of construction labor, equipment and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Construction and upgrading of new and existing transmission and distribution facilities and upgrading of generating plants will be continuing. Other Capital Requirements In addition to the funds needed for the construction program, approximately $51.8 million will be needed by the end of 2003 for maturities of long-term debt and present sinking fund requirements. Environmental Matters On November 3, 1999, the Environmental Protection Agency (EPA) brought a civil action in the U.S. District Court against Alabama Power, Georgia Power, and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued to Southern Company's integrated Southeast utilities a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously and the Company's Plant Kraft. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. On August 1, 2000, the U.S. District Court granted Alabama Power's motion to dismiss for lack of jurisdiction in Georgia and granted the system service company's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. On January 12, 2001, the EPA re-filed its claims against Alabama Power in federal district court in Birmingham, Alabama. The EPA did not include the system service company in the new complaint. Southern Company believes that its integrated utilities complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this matter could II-176 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 2000 Annual Report require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. In November 1990, the Clean Air Act Amendments of 1990 (Clean Air Act) were signed into law. Title IV of the Clean Air Act--the acid rain compliance provision of the law--significantly affected the Company and other subsidiaries of Southern Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants were required in two phases. Phase I compliance began in 1995 and some 50 generating units of Southern Company were brought into compliance with Phase I requirements. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. The construction expenditures for Phase I nitrogen oxide and sulfur dioxide emissions compliance totaled approximately $2 million for Savannah Electric. Phase II sulfur dioxide compliance was required in 2000. Southern Company used emission allowances and fuel switching to comply with Phase II requirements. No significant dollars for Phase II compliance have been spent by Savannah Electric. A significant portion of costs related to the acid rain and ozone non-attainment provisions of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. In July 1997, the EPA revised the national ambient air quality standards for ozone and particulate matter. This revision made the standards significantly more stringent. In the subsequent litigation of these standards, the U.S. Supreme Court recently dismissed certain challenges but found the EPA's implementation program for the new ozone standard unlawful and remanded it to the EPA. In addition, the Federal District of Columbia Circuit Court of Appeals will address other legal challenges to these standards in mid-2001. If the standards are eventually upheld, implementation could be required by 2007 to 2010. In September 1998, the EPA issued the final regional nitrogen oxide reduction rules to the states for implementation. Compliance is required by May 31, 2004. The final rule affects 21 states, including Georgia. This rule remains involved in litigation in the federal courts. In December 2000, the EPA completed its utility studies for mercury and other hazardous air pollutants (HAPS) and issued a determination that an emission control program for mercury and, perhaps, other HAPS is warranted. The program is to be developed over the next four years under the Maximum Achievable Control Technology (MACT) provisions of the Clean Air Act. This determination is being challenged in the courts. In January 2001, the EPA proposed guidance for the determination of Best Available Retrofit Technology (BART) emission controls under the Regional Haze Regulations. Installation of BART controls is expected to take place around 2010. Litigation of the BART rules is probable in the near future. Implementation of the final state rules for these initiatives could require substantial further reductions in nitrogen oxide, sulfur dioxide, mercury, and other HAPS emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. Reviews by the new administration in Washington, D.C. add to the uncertainties associated with BART guidance and the MACT determination for mercury and other HAPS. The EPA and state environmental regulatory agencies are reviewing and evaluating various other matters including: control strategies to reduce regional haze; limits on pollutant discharges to impaired waters; water intake restrictions; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur substantial costs to clean up properties. II-177 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 2000 Annual Report The Company conducts studies to determine the extent of any required cleanup costs and will recognize in the financial statements costs to clean up known sites. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect the Company. The impact of new legislation--if any--will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. Sources of Capital At December 31, 2000, the Company had $50.1 million of unused short-term and revolving credit arrangements with banks to meet its short-term cash needs and to provide additional interim funding for the Company's construction program. Revolving credit arrangements total $20 million, of which $10 million expires April 30, 2003 and $10 million expires December 31, 2003. It is anticipated that the funds required for construction and other purposes, including compliance with environmental regulation, will be derived from sources similar to those used in the past. These sources were primarily from the issuances of first mortgage bonds, other long-term debt, and preferred stock, in addition to pollution control revenue bonds issued for the Company's benefit by public authorities, to meet long-term external financing requirements. Recently, the Company's financings have consisted of unsecured debt and trust preferred securities. The Company is required to meet certain earnings coverage requirements specified in its mortgage indenture and corporate charter to issue new first mortgage bonds and preferred stock. The Company's coverage ratios are sufficiently high to permit, at present interest rate levels, any foreseeable security sales. There are no restrictions on the amount of unsecured indebtedness allowed. The amount of securities which the Company will be permitted to issue in the future will depend upon market conditions and other factors prevailing at that time. Cautionary Statement Regarding Forward-Looking Information This Annual Report includes forward-looking statements in addition to historical information. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology. The Company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include the impact of recent and future federal and state regulatory change, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry and also changes in environmental and other laws and regulations to which the Company is subject, as well as changes in application of existing laws and regulations; current and future litigation, including the pending EPA civil action against the Company; the extent and timing of the entry of additional competition in the markets of the Company; potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial; internal restructuring or other restructuring options that may be pursued by the Company; state and federal rate regulation in the United States; political, legal and economic conditions and developments in the United States; financial market conditions and the results of financing efforts; the impact of fluctuations in commodity prices, interest rates and customer demand; weather and other natural phenomena; the ability of the Company to obtain additional generating capacity at competitive prices; and other factors discussed elsewhere herein and in other reports (including Form 10-K) filed from time to time by the Company with the SEC. II-178 STATEMENTS OF INCOME For the Years Ended December 31, 2000, 1999, and 1998 Savannah Electric and Power Company 2000 Annual Report

--------------------------------------------------------------------------------------------------------------- 2000 1999 1998 --------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Retail sales $282,622 $242,265 $242,327 Sales for resale -- Non-affiliates 4,748 3,395 4,548 Affiliates 4,974 4,151 3,016 Other revenues 3,374 1,783 4,564 --------------------------------------------------------------------------------------------------------------- Total operating revenues 295,718 251,594 254,455 --------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 57,177 50,530 53,021 Purchased power -- Non-affiliates 25,229 14,398 9,460 Affiliates 50,111 33,398 35,687 Other 54,829 51,802 50,321 Maintenance 19,334 16,333 18,711 Depreciation and amortization (Note 3) 25,240 23,841 22,032 Taxes other than income taxes 13,116 12,690 12,342 --------------------------------------------------------------------------------------------------------------- Total operating expenses 245,036 202,992 201,574 --------------------------------------------------------------------------------------------------------------- Operating Income 50,682 48,602 52,881 Other Income (Expense): Interest income 252 169 384 Other, net 1,086 798 (432) --------------------------------------------------------------------------------------------------------------- Earnings Before Interest and Income Taxes 52,020 49,569 52,833 --------------------------------------------------------------------------------------------------------------- Interest and Other: Interest expense, net 12,737 11,938 11,855 Distributions on preferred securities of subsidiary 2,740 2,740 167 --------------------------------------------------------------------------------------------------------------- Total interest and other, net 15,477 14,678 12,022 --------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 36,543 34,891 40,811 Income taxes (Note 5) 13,574 11,808 15,101 --------------------------------------------------------------------------------------------------------------- Net Income 22,969 23,083 25,710 Dividends on Preferred Stock - - 2,066 --------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 22,969 $ 23,083 $ 23,644 =============================================================================================================== The accompanying notes are an integral part of these statements.

II-179 STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2000, 1999, and 1998 Savannah Electric and Power Company 2000 Annual Report

------------------------------------------------------------------------------------------------------------------------------------ 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) Operating Activities: Net income $22,969 $23,083 $25,710 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 26,639 25,454 23,531 Deferred income taxes and investment tax credits, net 728 (3,353) 7,011 Other, net 3,835 (47) (89) Changes in certain current assets and liabilities -- Receivables, net (23,260) (5,999) (9,875) Fossil fuel stock (31) (2,125) 221 Materials and supplies (542) (1,906) 484 Accounts payable 8,881 1,133 470 Other (4,674) 1,731 (4,859) ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided from operating activities 34,545 37,971 42,604 ------------------------------------------------------------------------------------------------------------------------------------ Investing Activities: Gross property additions (27,290) (29,833) (18,071) Other (1,835) (1,715) 1,617 ------------------------------------------------------------------------------------------------------------------------------------ Net cash used for investing activities (29,125) (31,548) (16,454) ------------------------------------------------------------------------------------------------------------------------------------ Financing Activities: Increase in notes payable, net 11,100 34,300 - Proceeds -- Other long-term debt - - 30,000 Preferred securities - - 40,000 Capital contributions from parent company 1,478 1,099 - Retirements -- First mortgage bonds - (15,800) (30,000) Other long-term debt (251) (481) (478) Preferred stock - - (35,000) Payment of preferred stock dividends - - (2,556) Payment of common stock dividends (24,300) (25,200) (23,500) Other - 250 (4,798) ------------------------------------------------------------------------------------------------------------------------------------ Net cash used for financing activities (11,973) (5,832) (26,332) ------------------------------------------------------------------------------------------------------------------------------------ Net Change in Cash and Cash Equivalents (6,553) 591 (182) Cash and Cash Equivalents at Beginning of Period 6,553 5,962 6,144 ------------------------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents at End of Period $ - $ 6,553 $ 5,962 ==================================================================================================================================== Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of amount capitalized) $13,329 $14,212 $12,198 Income taxes (net of refunds) 19,939 12,647 9,666 ------------------------------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of these statements.

II-180 BALANCE SHEETS At December 31, 2000 and 1999 Savannah Electric and Power Company 2000 Annual Report

----------------------------------------------------------------------------------------------------------------- Assets 2000 1999 ----------------------------------------------------------------------------------------------------------------- (in thousands) Current Assets: Cash and cash equivalents $ - $ 6,553 Receivables -- Customer accounts receivable 28,189 20,752 Unrecovered retail fuel clause revenue 39,632 21,089 Other accounts and notes receivable 1,412 3,505 Affiliated companies 738 1,195 Accumulated provision for uncollectible accounts (407) (237) Fossil fuel stock, at average cost 7,140 7,109 Materials and supplies, at average cost 8,944 8,402 Prepaid taxes 8,651 2,434 Other 377 435 ----------------------------------------------------------------------------------------------------------------- Total current assets 94,676 71,237 ----------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service (Note 7) 829,270 804,096 Less accumulated provision for depreciation 382,030 360,639 ----------------------------------------------------------------------------------------------------------------- 447,240 443,457 Construction work in progress 6,782 6,561 ----------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 454,022 450,018 ----------------------------------------------------------------------------------------------------------------- Other Property and Investments 2,066 1,506 ----------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 5) 12,404 16,063 Cash surrender value of life insurance for deferred compensation plans 17,954 16,305 Prepaid pension costs (Note 2) - 1,201 Debt expense, being amortized 3,003 3,155 Premium on reacquired debt, being amortized 7,575 8,385 Other 2,527 2,348 ----------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 43,463 47,457 ----------------------------------------------------------------------------------------------------------------- Total Assets $594,227 $570,218 ================================================================================================================= The accompanying notes are an integral part of these balance sheets.

II-181 BALANCE SHEETS At December 31, 2000 and 1999 Savannah Electric and Power Company 2000 Annual Report

-------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholder's Equity 2000 1999 -------------------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Securities due within one year (Note 7) $ 30,698 $ 704 Notes payable 45,400 34,300 Accounts payable -- Affiliated 16,153 4,632 Other 7,738 11,118 Customer deposits 5,696 5,426 Taxes accrued -- Income taxes 3,450 3,046 Other 1,435 3,013 Interest accrued 4,541 3,237 Vacation pay accrued 2,276 2,142 Other 7,973 5,742 -------------------------------------------------------------------------------------------------------------------------- Total current liabilities 125,360 73,360 -------------------------------------------------------------------------------------------------------------------------- Long-term debt (See accompanying statements) 116,902 147,147 -------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 5) 79,756 80,318 Deferred credits related to income taxes (Note 5) 16,038 19,687 Accumulated deferred investment tax credits (Note 5) 10,616 11,280 Deferred compensation plans 11,968 10,624 Employee benefits provisions (Note 2) 8,127 7,805 Other 10,466 5,150 -------------------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 136,971 134,864 -------------------------------------------------------------------------------------------------------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes (See accompanying statements) (Note 6) 40,000 40,000 -------------------------------------------------------------------------------------------------------------------------- Common stockholder's equity (See accompanying statements) 174,994 174,847 -------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $594,227 $570,218 ========================================================================================================================== The accompanying notes are an integral part of these balance sheets.

II-182 STATEMENTS OF CAPITALIZATION At December 31, 2000 and 1999 Savannah Electric and Power Company 2000 Annual Report

----------------------------------------------------------------------------------------------------------------------------- 2000 1999 2000 1999 ----------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Long-Term Debt (Note 7): First mortgage bonds -- Maturity Interest Rates -------- -------------- July 1, 2003 6.375% $ 20,000 $ 20,000 May 1, 2006 6.90% 20,000 20,000 July 1, 2023 7.40% 24,200 24,200 ----------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 64,200 64,200 ----------------------------------------------------------------------------------------------------------------------------- Long-term notes payable -- 6.88% due June 1, 2001 10,000 10,000 6.625% due March 17, 2015 30,000 30,000 Adjustable rates (6.71% to 6.86% at 1/1/01) due 2001 20,000 20,000 ----------------------------------------------------------------------------------------------------------------------------- Total long-term notes payable 60,000 60,000 ----------------------------------------------------------------------------------------------------------------------------- Other long-term debt -- Pollution control revenue bonds -- Non-collateralized: Variable rates (5.10% at 1/1/01) due 2016-2037 17,955 17,955 ----------------------------------------------------------------------------------------------------------------------------- Total other long-term debt 17,955 17,955 ----------------------------------------------------------------------------------------------------------------------------- Capitalized lease obligations 5,445 5,696 ----------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $9.8 million) 147,600 147,851 Less amount due within one year (Note 7) 30,698 704 ----------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 116,902 147,147 35.2% 40.7% ----------------------------------------------------------------------------------------------------------------------------- Company Obligated Mandatorily Redeemable Preferred Securities (Note 6): $25 liquidation value -- 6.85% 40,000 40,000 ----------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $2.7 million) 40,000 40,000 12.1 11.0 ----------------------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity (Note 8): Common stock, par value $5 per share -- Authorized - 16,000,000 shares Outstanding - 10,844,635 shares in 2000 and 1999 Par value 54,223 54,223 Paid-in capital 11,265 9,787 Retained earnings 109,506 110,837 ----------------------------------------------------------------------------------------------------------------------------- Total common stockholder's equity 174,994 174,847 52.7 48.3 ----------------------------------------------------------------------------------------------------------------------------- Total Capitalization $331,896 $361,994 100.0% 100.0% ============================================================================================================================= The accompanying notes are an integral part of these statements.

II-183 STATEMENTS OF COMMON STOCKHOLDER'S EQUITY For the Years Ended December 31, 2000, 1999, and 1998 Savannah Electric and Power Company 2000 Annual Report

--------------------------------------------------------------------------------------------------------------------------------- Common Paid-In Retained Stock Capital Earnings Total --------------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at January 1, 1998 $54,223 $8,688 $112,720 $175,631 Net income after dividends on preferred stock - - 23,644 23,644 Cash dividends on common stock - - (23,500) (23,500) Other - - 90 90 --------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 54,223 8,688 112,954 175,865 Net income after dividends on preferred stock - - 23,083 23,083 Capital contributions from parent company - 1,099 - 1,099 Cash dividends on common stock - - (25,200) (25,200) --------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 54,223 9,787 110,837 174,847 Net income after dividends on preferred stock - - 22,969 22,969 Capital contributions from parent company - 1,478 - 1,478 Cash dividends on common stock - - (24,300) (24,300) --------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 (Note 8) $54,223 $11,265 $109,506 $174,994 ================================================================================================================================= The accompanying notes are an integral part of these statements.

II-184 NOTES TO FINANCIAL STATEMENTS Savannah Electric and Power Company 2000 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Savannah Electric and Power Company (the Company) is a wholly owned subsidiary of Southern Company, which is the parent company of five integrated Southeast utilities, a system service company (SCS), Southern Communications Services (Southern LINC), Southern Company Energy Solutions, Southern Nuclear Operating Company (Southern Nuclear), Mirant Corporation--formerly Southern Energy, Inc.--and other direct and indirect subsidiaries. The integrated Southeast utilities provide electric service in four states. Contracts among the integrated Southeast utilities--related to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power--are regulated by the Federal Energy Regulatory Commission (FERC) and/or the Securities and Exchange Commission. SCS provides, at cost, specialized services to Southern Company and subsidiary companies. Southern LINC provides digital wireless communications services to the integrated Southeast utilities and also markets these services to the public within the Southeast. Southern Company Energy Solutions develops new business opportunities related to energy products and services. Southern Nuclear provides services to Southern Company's nuclear power plants. Mirant acquires, develops, builds, owns and operates power production and delivery facilities, and provides a broad range of energy-related services to utilities and industrial companies in selected countries around the world. Mirant businesses include independent power projects, integrated utilities, a distribution company, and energy trading and marketing businesses outside the southeastern United States. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The Company also is subject to regulation by the FERC and the Georgia Public Service Commission (GPSC). The Company follows accounting principles generally accepted in the United States and complies with the accounting policies and practices prescribed by the GPSC. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements has been reclassified to conform with the current year presentation. Related-Party Transactions The Company has an agreement with SCS under which the following services are rendered to the Company at cost: general and design engineering, purchasing, accounting and statistical, finance and treasury, tax, information resources, marketing, auditing, insurance and pension, human resources, systems and procedures, and other administrative services with respect to business and operations and power pool operations. Costs for these services amounted to $15.1 million, $16.0 million, and $15.3 million during 2000, 1999, and 1998, respectively. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the Company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to: 2000 1999 -------------------------- (in thousands) Deferred income tax charges $12,404 $ 16,063 Premium on reacquired debt 7,575 8,385 Deferred income tax credits (16,038) (19,687) Storm damage reserves (2,733) (1,392) Accelerated depreciation (5,500) (3,000) --------------------------------------------------------------- Total $(4,292) $ 369 =============================================================== In the event that a portion of the Company's operations is no longer subject to the provisions of FASB Statement No. 71, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair value. II-185 NOTES (continued) Savannah Electric and Power Company 2000 Annual Report Revenues and Fuel Costs The Company currently operates as a vertically integrated utility providing electricity to retail customers within its traditional service area of southeastern Georgia and to wholesale customers in the Southeast. Revenues are recognized as services are rendered. Unbilled revenues are accrued at the end of each fiscal period. Fuel costs are expensed as the fuel is used. Electric rates for the Company include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current regulated rates. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts averaged less than 1 percent of revenues. In 2000, the GPSC approved an increase of slightly over one-third of a cent per kilowatt hour in the Company's fuel cost recovery rate. An increase of slightly over three-tenths of a cent per kilowatt-hour was approved in 1999. The Company currently plans to make a filing with the GPSC in early 2001 to establish a new fuel rate in order to better reflect current fuel costs and to collect the current under-recovered balance. Depreciation and Amortization Depreciation of the original cost of plant in service is provided primarily by using composite straight-line rates, which approximated 3.0 percent in 2000 and 1999, and 2.9 percent in 1998. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost--together with the cost of removal, less salvage--is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected cost of removal of certain facilities. In 1998, 1999 and 2000, the Company recorded accelerated depreciation of $1.0 million, $2.0 million and $2.5 million respectively, in accordance with the GPSC's 1998 rate order. See Note 3 to the financial statements for more information. Income Taxes The Company, which is included in the consolidated federal income tax return filed by Southern Company, uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Allowance for Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. The composite rates used by the Company to calculate AFUDC were 6.87 percent in 2000, 6.26 percent in 1999 and 8.00 percent in 1998. Property, Plant and Equipment Property, plant and equipment is stated at original cost less regulatory disallowances and impairments. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits, and the estimated cost of funds used during construction. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property exclusive of minor items of property is capitalized. Cash and Cash Equivalents For purposes of the financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Materials and Supplies Generally, materials and supplies include the costs of transmission, distribution, and generating plant materials. Materials are charged to inventory II-186 NOTES (continued) Savannah Electric and Power Company 2000 Annual Report when purchased and then expensed or capitalized to plant, as appropriate, when installed. Financial Instruments The Company's financial instruments for which the carrying amounts did not equal fair value at December 31 were as follows: Carrying Fair Amount Value -------------------------- (in millions) Long-term debt: At December 31, 2000 $142 $140 At December 31, 1999 $142 $136 Trust preferred securities: At December 31, 2000 $40 $36 At December 31, 1999 $40 $31 The fair values for long-term debt and trust preferred securities were based on either closing market prices or closing prices of comparable instruments. 2. RETIREMENT BENEFITS The Company has defined benefit, trusteed, non-contributory pension plans that cover substantially all employees. The Company provides certain medical care and life insurance benefits for retired employees. Substantially all these employees may become eligible for such benefits when they retire. The Company funds trusts to the extent required by the GPSC. The measurement date for plan assets and obligations is September 30 of each year. In late 2000, the Company adopted several pension and postretirement benefit plan changes that had the effect of increasing benefits to both current and future retirees. The effects of these changes will be to increase annual pension and postretirement benefits costs by approximately $0.5 million and $0.3 million, respectively. Pension Plans Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations --------------------------- 2000 1999 --------------------------------------------------------------- (in thousands) Balance at beginning of year $59,961 $59,207 Service cost 1,742 1,746 Interest cost 4,380 3,893 Benefits paid (3,210) (3,414) Actuarial (gain) loss and employee transfers 1,802 (1,856) Amendments 219 385 --------------------------------------------------------------- Balance at end of year $64,894 $59,961 =============================================================== Plan Assets --------------------------- 2000 1999 --------------------------------------------------------------- (in thousands) Balance at beginning of year $54,480 $49,630 Actual return on plan assets 10,493 8,168 Benefits paid (3,210) (3,414) Employee transfers 117 96 --------------------------------------------------------------- Balance at end of year $61,880 $54,480 =============================================================== The accrued pension costs recognized in the Balance Sheets were as follows: 2000 1999 --------------------------------------------------------------- (in thousands) Funded status $(3,014) $(5,481) Unrecognized transition obligation 89 178 Unrecognized prior service 2,929 2,996 cost Unrecognized net loss (gain) (1,127) 3,508 --------------------------------------------------------------- (Accrued liability) prepaid asset recognized in the Balance Sheets $(1,123) $1,201 =============================================================== II-187 NOTES (continued) Savannah Electric and Power Company 2000 Annual Report Components of the plans' net periodic cost were as follows: 2000 1999 1998 ----------------------------------------------------------------- (in thousands) Service cost $1,742 $1,746 $1,495 Interest cost 4,380 3,893 3,806 Expected return on plan assets (4,174) (4,063) (3,992) Recognized net loss - 152 2 Net amortization 376 352 334 ----------------------------------------------------------------- Net pension cost $2,324 $2,080 $1,645 ================================================================= Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations --------------------------- 2000 1999 --------------------------------------------------------------- (in thousands) Balance at beginning of year $22,904 $23,556 Service cost 376 404 Interest cost 1,865 1,549 Benefits paid (963) (756) Actuarial gain and employee transfers (1,367) (1,849) Amendments 3,309 - --------------------------------------------------------------- Balance at end of year $26,124 $22,904 =============================================================== Plan Assets --------------------------- 2000 1999 --------------------------------------------------------------- (in thousands) Balance at beginning of year $5,254 $3,803 Actual return on plan assets 606 476 Employer contributions 2,013 1,731 Benefits paid (963) (756) --------------------------------------------------------------- Balance at end of year $6,910 $5,254 =============================================================== The accrued postretirement costs recognized in the Balance Sheets were as follows: 2000 1999 --------------------------------------------------------------- (in thousands) Funded status $(19,214) $(17,650) Unrecognized transition obligation 5,925 6,419 Unamortized prior service cost 3,185 - Unrecognized net loss 1,701 3,311 Fourth quarter contributions 1,493 1,336 --------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $ (6,910) $ (6,584) =============================================================== Components of the postretirement plans' net periodic cost were as follows: 2000 1999 1998 ---------------------------------------------------------------- (in thousands) Service cost $ 376 $ 404 $ 348 Interest cost 1,865 1,549 1,528 Expected return on plan assets (429) (345) (276) Recognized net loss 66 152 104 Net amortization 618 494 494 ---------------------------------------------------------------- Net postretirement cost $2,496 $2,254 $2,198 ================================================================ The weighted average rates assumed in the actuarial calculations for both the pension and postretirement benefit plans were: 2000 1999 --------------------------------------------------------------- Discount 7.50% 7.50% Annual salary increase 5.00 5.00 Long-term return on plan assets 8.50 8.50 --------------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement benefit obligations was a weighted average medical care cost trend rate of 7.29 percent for 2000, decreasing gradually to 5.50 percent through the year 2005, and remaining at that level thereafter. An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 2000 as follows: II-188 NOTES (continued) Savannah Electric and Power Company 2000 Annual Report 1 Percent 1 Percent Increase Decrease --------------------------------------------------------------- (in thousands) Benefit obligation $1,417 $1,598 Service and interest costs 110 140 =============================================================== The Company has a supplemental retirement plan for certain executive employees. The plan is unfunded and payable from the general funds of the Company. The Company has purchased life insurance on participating executives, and plans to use these policies to satisfy this obligation. Employee Savings Plan The Company also sponsors a 401(k) defined contribution plan covering substantially all employees. The Company provides a 75 percent matching contribution up to 6 percent of an employee's base salary. Total matching contributions made to the plan for the years 2000, 1999, and 1998 were $0.9 million, $0.9 million, and $0.8 million, respectively. 3. CONTINGENCIES AND REGULATORY MATTERS Environmental Litigation On November 3, 1999, the EPA brought a civil action in the U.S. District Court against Alabama Power, Georgia Power, and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The Clean Air Act authorizes civil penalties of up to $27,500 per day, per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously and the Company's Plant Kraft. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. On August 1, 2000, the U.S. District Court granted Alabama Power's motion to dismiss for lack of jurisdiction in Georgia and granted the system service company's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. On January 12, 2001, the EPA re-filed its claims against Alabama Power in federal district court in Birmingham, Alabama. The EPA did not include the system service company in the new complaint. Southern Company believes that its integrated utilities complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. Retail Regulatory Matters Rates to retail customers served by the Company are regulated by the GPSC. As part of the Company's rate settlement in 1992, it was informally agreed that the Company's earned rate of return on common equity should be 12.95 percent. In 1998, the GPSC approved a four-year accounting order for the Company. Under this order, the Company will reduce the electric rates of its small business customers by approximately $11 million over four years. The Company will also expense an additional $1.95 million in storm damage accruals and accrue an additional $8 million in depreciation on generating assets over the term of the order. The additional depreciation will be accumulated in a regulatory liability account to be available to mitigate any potential stranded costs. In addition, the Company has discretionary authority to provide up to an II-189 NOTES (continued) Savannah Electric and Power Company 2000 Annual Report additional $0.3 million per year in storm damage accruals and up to an additional $4.0 million in depreciation expense over the four years. Total storm damages accrued under the order were $1.5 million in both 2000 and 1999 and $0.75 million in 1998. No discretionary depreciation was recorded in the last three years. Over the term of the order, the Company is precluded from asking for a rate increase except upon significant changes in economic conditions, new laws, or regulations. There is a quarterly monitoring of the Company's earnings performance. 4. COMMITMENTS Construction Program The Company is engaged in a continuous construction program, currently estimated to total $32.5 million in 2001, $31.5 million in 2002, and $31.9 million in 2003. The construction program is subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include: changes in business conditions; revised load growth estimates; changes in environmental regulations; increasing costs of labor, equipment, and materials; and changes in cost of capital. The Company does not have any traditional baseload generating plants under construction. However, construction related to new and upgrading of existing transmission and distribution facilities and the upgrading of generating plants will continue. To the extent possible, the Company's construction program is expected to be financed from internal sources and from the issuance of additional long-term debt and capital contributions from Southern Company. The amounts of long-term debt and trust preferred securities that can be issued in the future will be contingent on market conditions, the maintenance of adequate earnings levels, regulatory authorizations, and other factors. Bank Credit Arrangements At the end of 2000, unused credit arrangements with four banks totaled $50.1 million and expire at various times during 2001. The Company has revolving credit arrangements of $20 million, of which $10 million expires April 30, 2003 and $10 million expires December 31, 2003. One of these agreements allows short-term borrowings to be converted into term loans, payable in 12 equal quarterly installments, with the first installment due at the end of the first calendar quarter after the applicable termination date or at an earlier date at the Company's option. In connection with these credit arrangements, the Company agrees to pay commitment fees based on the unused portions of the commitments. Assets Subject to Lien As amended and supplemented, the Company's Indenture of Mortgage, which secures the first mortgage bonds issued by the Company, constitutes a direct first lien on substantially all of the Company's fixed property and franchises. A second lien for $10 million of bank debt is secured by a portion of the Plant Kraft property and a second lien for $34 million in bank notes is secured by a portion of the Plant McIntosh property. Fuel and Purchased Power Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into long-term commitments for the procurement of fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. The Company has fuel commitments of $44 million and $8 million for 2001 and 2002, respectively. The company has entered into various long-term commitments for the purchase of electricity. Estimated total long-term obligations at December 31, 2000 were as follows: Year Commitments ---- ------------- (in thousands) 2001 $ 0 2002 9,627 2003 13,245 2004 13,261 2005 13,277 2006 and beyond 53,283 --------------------------------------------------------------- Total commitments $102,693 =============================================================== II-190 NOTES (continued) Savannah Electric and Power Company 2000 Annual Report Operating Leases The Company has rental agreements with various terms and expiration dates. Rental expenses totaled $0.4 million for 2000, $0.5 million for 1999, and $1.1 million for 1998. At December 31, 2000, estimated future minimum lease payments for noncancelable operating leases were as follows: Rental Commitments -------------------- (in thousands) 2001 $433 2002 433 2003 433 2004 433 2005 433 2006 and thereafter $5,379 ------------------------------------------------------------- 5. INCOME TAXES At December 31, 2000, tax-related regulatory assets and liabilities were $12.4 million and $16.0 million, respectively. The assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized interest. The liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of income tax provisions are as follows: 2000 1999 1998 ------------------------------------------------------------------ (in thousands) Total provision for income taxes Federal -- Currently payable $11,102 $12,968 $ 6,763 Deferred 75 (3,329) 5,812 ------------------------------------------------------------------ 11,177 9,639 12,575 ------------------------------------------------------------------ State -- Currently payable 1,744 2,193 1,327 Deferred 653 (24) 1,199 ------------------------------------------------------------------ 2,397 2,169 2,526 ----------------------------------------------------------------- Total $13,574 $11,808 $15,101 ================================================================== The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 2000 1999 -------------------- (in thousands) Deferred tax liabilities: Accelerated depreciation $76,901 $76,282 Property basis differences 5,904 6,917 Other 17,807 12,031 ---------------------------------------------------------------- Total 100,612 95,230 ---------------------------------------------------------------- Deferred tax assets: Pension and other benefits 9,744 6,965 Other 7,662 5,777 ---------------------------------------------------------------- Total 17,406 12,742 ---------------------------------------------------------------- Net deferred tax liabilities 83,206 82,488 Portions included in current assets, net (3,450) (2,170) ---------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $79,756 $80,318 ================================================================ Deferred investment tax credits are amortized over the lives of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $ 0.7 million in 2000, 1999 and 1998. At December 31, 2000, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 2000 1999 1998 ----------------------------- Federal statutory tax rate 35% 35% 35% State income tax, net of federal income tax benefit 4 4 4 Other (2) (5) (2) ---------------------------------------------------------------- Effective income tax rate 37% 34% 37% ================================================================ Southern Company files a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. II-191 NOTES (continued) Savannah Electric and Power Company 2000 Annual Report 6. TRUST PREFERRED SECURITIES In December 1998, Savannah Electric Capital Trust I, of which the Company owns all of the common securities, issued $40 million of 6.85% mandatorily redeemable preferred securities. Substantially all of the assets of the Trust are $40 million aggregate principal amount of the Company's 6.85% junior subordinated notes due December 31, 2028. The Company considers that the mechanisms and obligations relating to the trust preferred securities, taken together, constitute a full and unconditional guarantee by the Company of payment obligations with respect to the preferred securities of Savannah Electric Capital Trust I. Savannah Electric Capital Trust I is a subsidiary of the Company, and accordingly is consolidated in the Company's financial statements. 7. LONG-TERM DEBT AND LONG-TERM DEBT DUE WITHIN ONE YEAR The Company's Indenture related to its First Mortgage Bonds is unlimited as to the authorized amount of bonds which may be issued, provided that required property additions, earnings and other provisions of such Indenture are met. Maturities and retirements of long-term debt were $0.4 million in 2000, $16.2 million in 1999 and $30.4 million in 1998. Included in the 1999 maturities and retirements is the purchase by the Company of all $15 million outstanding of its 7 7/8% Series First Mortgage Bonds due May 1, 2025. Assets acquired under capital leases are recorded as utility plant in service, and the related obligation is classified as other long-term debt. Leases are capitalized at the net present value of the future lease payments. However, for ratemaking purposes, these obligations are treated as operating leases, and as such, lease payments are charged to expense as incurred. A summary of the sinking fund requirements and scheduled maturities and redemptions of long-term debt due within one year at December 31 is as follows: 2000 1999 --------------------- (in thousands) Bond sinking fund requirement $ 642 $650 Less: Portion to be satisfied by certifying property additions 642 650 ------------------------------------------------------------------- Cash sinking fund requirement - - Other long-term debt maturities 30,698 704 ------------------------------------------------------------------- Total $30,698 $704 =================================================================== The first mortgage bond improvement (sinking) fund requirements amount to 1 percent of each outstanding series of bonds authenticated under the Indenture prior to January 1 of each year, other than those issued to collateralize pollution control and other obligations. The requirements may be satisfied by depositing cash or reacquiring bonds, or by pledging additional property equal to 1 2/3 times the requirements. The sinking fund requirements of first mortgage bonds were satisfied by certifying property additions in 2000 and by cash redemptions in 1999. It is anticipated that the 2001 requirement will be satisfied by certifying property additions. Sinking fund requirements and/or maturities through 2005 applicable to long-term debt are as follows: $30.7 million in 2001; $0.6 million in 2002; $20.5 million in 2003; $0.5 million in 2004; and $0.4 million in 2005. 8. COMMON STOCK DIVIDEND RESTRICTIONS The Company's Indenture contains certain limitations on the payment of cash dividends on common stock. At December 31, 2000, approximately $68 million of retained earnings was restricted against the payment of cash dividends on common stock under the terms of the Indenture. II-192 NOTES (continued) Savannah Electric and Power Company 2000 Annual Report 9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Summarized quarterly financial data for 2000 and 1999 are as follows (in thousands): Net Income After Operating Operating Dividends on Quarter Ended Revenues Income Preferred Stock --------------------------------------------------------------------- March 2000 $52,390 $ 6,583 $ 1,643 June 2000 72,780 14,100 6,287 September 2000 98,849 24,060 12,351 December 2000 71,699 5,939 2,688 March 1999 $47,098 $ 5,315 $ 1,209 June 1999 61,692 12,173 5,268 September 1999 91,849 26,759 13,705 December 1999 50,955 4,355 2,901 --------------------------------------------------------------------- The Company's business is influenced by seasonal weather conditions and a seasonal rate structure, among other factors. The quarterly operating income information above has been reclassified to reflect the Company's current presentation of income tax expense. 11-193 SELECTED FINANCIAL AND OPERATING DATA 1996-2000 Savannah Electric and Power Company 2000 Annual Report

---------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $295,718 $251,594 $254,455 $226,277 $234,074 Net Income after Dividends on Preferred Stock (in thousands) $22,969 $23,083 $23,644 $23,847 $23,940 Cash Dividends on Common Stock (in thousands) $24,300 $25,200 $23,500 $20,500 $19,600 Return on Average Common Equity (percent) 13.13 13.16 13.45 13.71 14.08 Total Assets (in thousands) $594,227 $570,218 $555,799 $547,352 $544,900 Gross Property Additions (in thousands) $27,290 $29,833 $18,071 $18,846 $28,950 ---------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $174,994 $174,847 $175,865 $175,631 $172,284 Preferred stock - - - 35,000 35,000 Company obligated mandatorily redeemable preferred securities 40,000 40,000 40,000 - - Long-term debt 116,902 147,147 163,443 142,846 164,406 ---------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $331,896 $361,994 $379,308 $353,477 $371,690 ============================================================================================================================ Capitalization Ratios (percent): Common stock equity 52.7 48.3 46.4 49.7 46.4 Preferred stock - - - 9.9 9.4 Company obligated mandatorily redeemable preferred securities 12.1 11.0 10.5 - - Long-term debt 35.2 40.7 43.1 40.4 44.2 ---------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0 ============================================================================================================================ Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 A1 Standard and Poor's A+ AA- AA- AA- A+ Preferred Stock - Moody's a2 a2 a2 a2 a2 Standard and Poor's BBB+ A- A A A ============================================================================================================================ Customers (year-end): Residential 115,646 112,891 110,437 109,092 106,657 Commercial 15,727 15,433 15,328 14,233 13,877 Industrial 75 67 63 64 65 Other 444 417 377 1,129 1,097 ---------------------------------------------------------------------------------------------------------------------------- Total 131,892 128,808 126,205 124,518 121,696 ============================================================================================================================ Employees (year-end): 554 533 542 535 571 ----------------------------------------------------------------------------------------------------------------------------

II-194 SELECTED FINANCIAL AND OPERATING DATA 1996-2000 (continued) Savannah Electric and Power Company 2000 Annual Report

---------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $129,520 $112,371 $109,393 $ 96,587 $101,607 Commercial 102,116 88,449 86,231 78,949 80,494 Industrial 40,839 32,233 37,865 35,301 37,077 Other 10,147 9,212 8,838 8,621 8,804 ---------------------------------------------------------------------------------------------------------------------------------- Total retail 282,622 242,265 242,327 219,458 227,982 Sales for resale - non-affiliates 4,748 3,395 4,548 3,467 1,998 Sales for resale - affiliates 4,974 4,151 3,016 2,052 3,130 ---------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 292,344 249,811 249,891 224,977 233,110 Other revenues 3,374 1,783 4,564 1,300 964 ---------------------------------------------------------------------------------------------------------------------------------- Total $295,718 $251,594 $254,455 $226,277 $234,074 ================================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 1,671,089 1,579,068 1,539,792 1,428,337 1,456,651 Commercial 1,369,448 1,287,832 1,236,337 1,156,078 1,141,218 Industrial 800,150 713,448 900,012 881,261 838,753 Other 135,824 132,555 131,142 124,490 126,215 ---------------------------------------------------------------------------------------------------------------------------------- Total retail 3,976,511 3,712,903 3,807,283 3,590,166 3,562,837 Sales for resale - non-affiliates 77,481 51,548 53,294 94,280 91,610 Sales for resale - affiliates 88,646 76,988 58,415 54,509 41,808 ---------------------------------------------------------------------------------------------------------------------------------- Total 4,142,638 3,841,439 3,918,992 3,738,955 3,696,255 ================================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 7.75 7.12 7.10 6.76 6.98 Commercial 7.46 6.87 6.97 6.83 7.05 Industrial 5.10 4.52 4.21 4.01 4.42 Total retail 7.11 6.52 6.36 6.11 6.40 Sales for resale 5.85 5.87 6.77 3.71 3.84 Total sales 7.06 6.50 6.38 6.02 6.31 Residential Average Annual Kilowatt-Hour Use Per Customer 14,593 14,100 14,061 13,231 13,771 Residential Average Annual Revenue Per Customer $1,131.08 $1,003.39 $998.94 $894.73 $960.58 Plant Nameplate Capacity Ratings (year-end) (megawatts) 788 788 788 788 788 Maximum Peak-Hour Demand (megawatts): Winter 724 719 582 625 666 Summer 878 875 846 802 811 Annual Load Factor (percent) 53.4 51.2 54.9 54.3 53.1 Plant Availability Fossil-Steam (percent): 78.5 72.8 72.9 93.7 77.6 ---------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 51.6 44.6 41.6 34.4 27.7 Oil and gas 6.9 12.3 12.9 5.2 3.1 Purchased power - From non-affiliates 7.7 5.3 3.4 1.4 2.1 From affiliates 33.8 37.8 42.1 59.0 67.1 ---------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 100.0 ==================================================================================================================================

II-195 PART III Items 10, 11, 12 and 13 for SOUTHERN are incorporated by reference to ELECTION OF DIRECTORS in SOUTHERN's definitive Proxy Statement relating to the 2001 Annual Meeting of Stockholders. Additionally, Items 10, 11, 12 and 13 for ALABAMA, GEORGIA, GULF and MISSISSIPPI are incorporated by reference to the Information Statements of ALABAMA, GEORGIA, GULF and MISSISSIPPI relating to each of their respective 2001 Annual Meetings of Shareholders. The ages of directors and executive officers in Item 10 set forth below are as of December 31, 2000. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Identification of directors of SAVANNAH. G. Edison Holland, Jr. President and Chief Executive Officer Age 48 Served as Director since 7-15-97 Gus H. Bell (1) Age 63 Served as Director since 7-20-99 Archie H. Davis (1) Age 59 Served as Director since 2-18-97 Walter D. Gnann (1) Age 65 Served as Director since 5-17-83 Robert B. Miller, III (1) Age 55 Served as Director since 5-17-83 Arnold M. Tenenbaum (1) Age 64 Served as Director since 5-17-77 (1) No position other than Director. Each of the above is currently a director of SAVANNAH, serving a term running from the last annual meeting of SAVANNAH's stockholder (May 17, 2000) for one year until the next annual meeting or until a successor is elected and qualified. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he or she was or is to be selected as a director or nominee, other than any arrangements or understandings with directors or officers of SAVANNAH acting solely in their capacities as such. Identification of executive officers of SAVANNAH. G. Edison Holland, Jr. President, Chief Executive Officer and Director Age 48 Served as Executive Officer since 7-15-97 Anthony R. James Vice President - Power Generation Age 50 Served as Executive Officer since 7-27-00 W. Miles Greer Vice President - Customer Operations and External Affairs Age 57 Served as Executive Officer since 11-20-85 Kirby R. Willis Vice President, Treasurer, Chief Financial Officer and Assistant Corporate Secretary Age 49 Served as Executive Officer since 1-1-94 Each of the above is currently an executive officer of SAVANNAH, serving a term running from the meeting of the directors held on July 27, 2000 for the ensuing year. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he was or is to be selected as an officer, other than any arrangements or understandings with officers of SAVANNAH acting solely in their capacities as such. Identification of certain significant employees. None. III-1 Family relationships. None. Business experience. G. Edison Holland, Jr. - President and Chief Executive Officer since 1997. He previously served as Vice President of Power Generation/Transmission and Corporate Counsel of GULF from 1995 to 1997. Served as a partner in the law firm of Beggs & Lane from 1979 to 1997. Director of SunTrust Bank of Savannah. Gus H. Bell, III - President and Chief Executive Officer of Hussey, Gay, Bell and DeYoung, Inc., (specializing in environmental, industrial, structural, architectural and civil engineering), Savannah, Georgia. Director of SunTrust Bank of Savannah. Archie H. Davis - President and Chief Executive Officer of The Savannah Bancorp and The Savannah Bank, N.A., Savannah, Georgia. Member of the Board of Directors of Thomaston Mills, Thomaston, Georgia. Walter D. Gnann - President of Walt's TV, Appliance and Furniture Co., Inc., Springfield, Georgia. Robert B. Miller, III - President of American Building Systems, Inc., Savannah, Georgia. Arnold M. Tenenbaum - President and Director of Chatham Steel Corporation. Director of First Union Bank of Georgia, First Union Bank of Savannah and Cerulean Corporation. W. Miles Greer - Vice President - Customer Operations and External Affairs since 1998. He previously served as Vice President of Marketing and Customer Service from 1994 to 1998. Responsible for customer services, transmission and distribution, engineering, system operation and external affairs. Anthony R. James - Vice President - Power Generation and Senior Production Officer since 2000. He also serves as Central Cluster Manager at GEORGIA's Plant Scherer. Responsible for operations and maintenance of Plants Kraft, Riverside and McIntosh. Kirby R. Willis - Vice President, Treasurer and Chief Financial Officer since 1994 and Assistant Corporate Secretary effective 1998. Responsible primarily for accounting, financial, labor relations, corporate services, corporate compliance, environmental and safety activities. Involvement in certain legal proceedings. None Section 16(a) Beneficial Ownership Reporting Compliance. No late filers. III-2 Item 11. EXECUTIVE COMPENSATION Summary Compensation Table. The following table sets forth information concerning any Chief Executive Officer and the four most highly compensated executive officers of SAVANNAH serving during 2000.

ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 ------------------------------------------------------------------------------------------------------------------------ G. Edison Holland, Jr. President, 2000 295,812 243,263 24,438 25,667 - 15,453 Chief Executive 1999 254,914 42,626 21,588 8,375 166,052 13,392 Officer, Director 1998 233,330 26,019 17,309 7,951 128,608 8,246 Anthony R. James4 2000 175,048 161,442 - 12,752 - 7,582 Vice President, 1999 - - - - - - 1998 - - - - - - W. Miles Greer 2000 177,013 100,923 601 13,416 - 16,982 Vice President 1999 168,713 21,322 1,874 6,130 79,476 15,150 1998 160,207 16,054 13 4,901 69,000 13,179 Kirby R. Willis Vice President, 2000 162,279 97,394 4,908 8,785 - 12,159 Chief Financial 1999 156,068 19,546 259 5,028 79,476 11,767 Officer, Treasurer 1998 155,236 15,554 13 4,748 69,000 10,581 Lewis A. Jeffers5 2000 142,850 96,835 2,856 7,543 - 7,245 Vice President 1999 134,538 19,023 379 3,809 63,146 6,972 1998 - - - - - -

1 Tax reimbursement by SAVANNAH on certain personal benefits, including membership fees of $11,669 for Mr. Holland, Jr. in 1998. 2 Payouts made in 1999 and 2000 for the four-year performance periods ending December 31, 1998 and 1999, respectively. 3 SAVANNAH contributions to the Employee Savings Plan (ESP), Employee Stock Ownership Plan (ESOP), Supplemental Benefit Plan (SBP) or Above-market earnings on deferred compensation (AME) and tax sharing benefits paid to participants who elected receipt of dividends on SOUTHERN's common stock held in the ESP are as follows:

Name ESP ESOP SBP or AME ESP Tax Benefit Sharing ---- --- ---- ---------- ----------------------- G. Edison Holland, Jr. $6,853 $810 $7,790 $489 Anthony R. James 6,772 810 - - W. Miles Greer 7,525 810 8,647 - Kirby R. Willis 5,954 810 5,395 - Lewis A. Jeffers 6,435 810 - -

4 Mr. James was named an executive officer effective July 27, 2000. 5 Mr. Jeffers was named an executive officer of SAVANNAH effective November 2, 1999 and transferred to ALABAMA effective June 24, 2000. III-3 STOCK OPTION GRANTS IN 2000 Stock Option Grants. The following table sets forth all stock option grants to the named executive officers of SAVANNAH during the year ending December 31, 2000.

Individual Grants Grant Date Value # of % of Total Securities Options Exercise Underlying Granted to or Options Employees in Base Price Expiration Grant Date Name Granted6 Fiscal Year7 ($/Sh)6 Date6 Present Value($)8 ----------------------------------------------------------------------------------------------------------------- SAVANNAH G. Edison Holland, Jr. 25,667 0.4 23.25 02/18/2010 147,842 Anthony R. James 12,752 0.2 23.25 02/18/2010 73,452 W. Miles Greer 13,416 0.2 23.25 02/18/2010 77,276 Kirby R. Willis 8,785 0.1 23.25 02/18/2010 50,602 Lewis A. Jeffers 7,543 0.1 23.25 02/18/2010 43,448

6 Performance Stock Plan grants were made on February 18, 2000, and vest annually at a rate of one-third on the anniversary date of the grant. Grants fully vest upon termination as a result of death, total disability, or retirement and expire five years after retirement, three years after death or total disability, or their normal expiration date if earlier. The exercise price is the average of the high and low fair market value of SOUTHERN's common stock on the date granted. Options may be transferred to family members, family trusts, and family limited partnerships. 7 A total of 6,977,038 stock options were granted in 2000. 8 Value was calculated using the Black-Scholes option valuation model. The actual value, if any, ultimately realized depends on the market value of SOUTHERN's common stock at a future date. Significant assumptions are shown below:

Risk-free Dividend Discount for forfeiture risk: Volatility rate of return opportunity Term before after vesting vesting ------------------------------------------------------------------------------------------------------------------- Black-Scholes Assumptions 22.14% 6.52% 50% 10 years 7.79% 12.40% These assumptions reflect the effects of cash dividend equivalents paid to participants under the Performance Dividend Plan assuming targets are met.

III-4 AGGREGATED STOCK OPTION EXERCISES IN 2000 AND YEAR-END OPTION VALUES Aggregated Stock Option Exercises. The following table sets forth information concerning options exercised during the year ending December 31, 2000 by the named executive officers and the value of unexercised options held by them as of December 31, 2000.

Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at Fiscal Fiscal Year-End (#) Year-End($)9 Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized($)10 Unexercisable Unexercisable ------------------------------------------------------------------------------------------------------------- SAVANNAH G. Edison Holland, Jr. 18,323 220,862 32,261/33,900 325,274/310,486 Anthony R. James - - 8,456/17,259 77,991/157,055 W. Miles Greer 8,654 76,354 10,235/19,136 93,074/171,646 Kirby R. Willis 4,038 37,604 13,574/13,720 128,819/120,111 Lewis A. Jeffers - - 1,270/10,082 8,493/92,410 9 This column represents the excess of the fair market value of SOUTHERN's common stock of $33.25 per share, as of December 31, 2000, above the exercise price of the options. The Exercisable column reports the "value" of options that are vested and therefore could be exercised. The Unexercisable column reports the "value" of options that are not vested and therefore could not be exercised as of December 31, 2000. 10 The "Value Realized" is ordinary income, before taxes, and represents the amount equal to the excess of the fair market value of the shares at the time of exercise above the exercise price.

III-5 DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE Pension Plan Table. The following table sets forth the estimated annual pension benefits payable at normal retirement age under SOUTHERN's qualified Pension Plan, as well as non-qualified supplemental benefits, based on the stated compensation and years of service with the SOUTHERN system for Messrs. Holland, James and Jeffers. Compensation for pension purposes is limited to the average of the highest three of the final 10 years' compensation -- base salary plus the excess of annual and long-term incentive compensation over 25 percent of base salary (reported under column titled "Salary", "Bonus", and "Long-Term Incentive Payouts" in the Summary Compensation Table on page III-3). The amounts shown in the table were calculated according to the final average pay formula and are based on a single life annuity without reduction for joint and survivor annuities (although married employees are required to have their pension benefits paid in one of various joint and survivor annuity forms, unless the employee elects otherwise with the spouse's consent) or computation of the Social Security offset which would apply in most cases. This offset amounts to one-half of the estimated Social Security benefit (primary insurance amount) in excess of $3,900 per year times the number of years of accredited service, divided by the total possible years of accredited service to normal retirement age.

Years of Accredited Service Remuneration 15 20 25 30 35 40 ------------ ----------------------------------------------------------------- $ 100,000 $ 25,500 $ 34,000 $ 42,500 $ 51,000 $ 59,500 $ 68,000 300,000 76,500 102,000 127,500 153,000 178,500 204,000 500,000 127,500 170,000 212,500 255,000 297,500 340,000 700,000 178,500 238,000 297,500 357,000 416,500 476,000 900,000 229,500 306,000 382,500 459,000 535,500 612,000 1,100,000 280,500 374,000 467,500 561,000 654,500 748,000 1,300,000 331,500 442,000 552,500 663,000 773,500 884,000

As of December 31, 2000, the applicable compensation levels and years of accredited service for SAVANNAH's named executives are presented in the following table: Compensation Accredited Name Level Years of Service G. Edison Holland, Jr.9 $431,348 17 Anthony R. James 246,604 21 W. Miles Greer10 237,392 16 Kirby R. Willis 225,952 26 Lewis A. Jeffers 197,400 21 9 The number of accredited years of service includes 9 years and 3 months credited to Mr. Holland pursuant to a supplemental pension agreement. 10 The number of accredited years of service includes 7 years and 6 months credited to Mr. Greer pursuant to a supplemental pension agreement. III-6 Effective January 1, 1998, SAVANNAH merged its pension plan into the SOUTHERN Pension Plan. SAVANNAH also has in effect a supplemental executive retirement plan for certain of its executive employees. The plan is designed to provide participants with a supplemental retirement benefit, which, in conjunction with social security and benefits under SOUTHERN's qualified pension plan, will equal 70 percent of the highest three of the final 10 years' average annual earnings (excluding incentive compensation). The following table sets forth the estimated combined annual pension benefits under SOUTHERN's pension and SAVANNAH's supplemental executive retirement plans in effect during 2000 which are payable to Messrs Greer and Willis, upon retirement at the normal retirement age after designated periods of accredited service and at a specified compensation level. Years of Accredited Service Remuneration 15 25 35 -------------------------- -- -- -- $150,000 105,000 105,000 105,000 180,000 126,000 126,000 126,000 210,000 147,000 147,000 147,000 260,000 182,000 182,000 182,000 280,000 196,000 196,000 196,000 300,000 210,000 210,000 210,000 350,000 245,000 245,000 245,000 400,000 280,000 280,000 280,000 430,000 301,000 301,000 301,000 460,000 322,000 322,000 322,000 Compensation of Directors. Standard Arrangements. The following table presents compensation paid to the directors during 2000 for service as a member of the board of directors and any board committee(s), except that employee directors received no fees or compensation for service as a member of the board of directors or any board committee. At the election of the director, all or a portion of the cash retainer may be payable in SOUTHERN's common stock, and all or a portion of the total fees may be deferred under the Deferred Compensation Plan until membership on the board is terminated. Cash Retainer Fee $10,000 Stock Retainer Fee 50 shares per quarter Meeting Fees: $750 for each Board or Committee meeting attended Effective January 1, 1997, the Outside Directors Pension Plan (the "Plan") was terminated and benefits payable under the Plan were frozen. Non-employee directors serving as of January 1, 1997 were given a one-time election to receive a Plan benefit buy-out equal to the actuarial present value of future Plan benefits or receive benefits under the terms of the Plan at the annual retainer rate in effect on December 31, 1996. Directors who elected to receive the benefit buy-out were required to defer receipt of that amount under the Deferred Compensation Plan until termination from board membership. Directors who elected to continue to participate under the terms of the Plan are entitled to benefits upon retirement from the board on the retirement date designated in the respective companies' by-laws. The annual benefit payable is based upon length of service and varies from 75 percent of the annual retainer in effect on December 31, 1996 if the participant has at least 60 months of service on the board of one or more system companies, to 100 percent if the participant has at least 120 months of such service. Payments will continue for the greater of the lifetime of the participant or 10 years. III-7 Other Arrangements. No director received other compensation for services as a director during the year ending December 31, 2000 in addition to or in lieu of that specified by the standard arrangements specified above. Employment Contracts and Termination of Employment and Change in Control Arrangements. ------------------------------------------------------------------------ SAVANNAH has adopted SOUTHERN's Change in Control Plan which is applicable to certain of its officers, and has entered into individual change in control agreements with its most highly compensated executive officers. If an executive is involuntarily terminated, other than for cause, within two years following a change in control of SOUTHERN the agreements provide for: o lump sum payment of two or three times annual compensation, o up to five years' coverage under group health and life insurance plans, o immediate vesting of all stock options, stock appreciation rights, and restricted stock previously granted, o payment of any accrued long-term and short-term bonuses and dividend equivalents, and o payment of any excise tax liability incurred as a result of payments made under any individual agreements. A SOUTHERN change in control is defined under the agreements as: o acquisition of at least 20 percent of the SOUTHERN's stock, o a change in the majority of the members of the SOUTHERN's board of directors, o a merger or other business combination that results in SOUTHERN's shareholders immediately before the merger owning less than 65 percent of the voting power after the merger, or o a sale of substantially all the assets of SOUTHERN. A change in control of SAVANNAH is defined under the agreements as: o acquisition of at least 50 percent of SAVANNAH's stock, o a merger or other business combination unless SOUTHERN controls the surviving entity or o a sale of substantially all the assets of SAVANNAH. If a change in control affects only a subsidiary of SOUTHERN, these payments would only be made to executives of the affected subsidiary who are involuntarily terminated as a result of that change in control. SOUTHERN also has amended its short- and long-term incentive plans to provide for pro-rata payments at not less than target-level performance if a change in control occurs and the plans are not continued or replaced with comparable plans. Report on Repricing of Options. None. Compensation Committee Interlocks and Insider Participation. None. III-8 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners. SOUTHERN is the beneficial owner of 100% of the outstanding common stock of SAVANNAH.

---------------------------------------------------------------------------------------------------------- Amount and Name and Address Nature of Percent of Beneficial Beneficial of Title of Class Owner Ownership Class ---------------------------------------------------------------------------------------------------------- Common Stock The Southern Company 100% 270 Peachtree Street, N.W. Atlanta, Georgia 30303 Registrant: SAVANNAH 10,844,635

Security Ownership of Management. The following table shows the number of shares of SOUTHERN common stock owned by the SAVANNAH's directors, nominees and executive officers as of December 31, 2000. It is based on information furnished by the directors, nominees and executive officers. The shares owned by all directors, nominees and executive officers as a group constitute less than one percent of the total number of shares outstanding on December 31, 2000. Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned (1) (2) ------------------ -------------- -------------------------- Gus H. Bell, III SOUTHERN Common 246 Archie H. Davis SOUTHERN Common 495 Walter D. Gnann SOUTHERN Common 2,689 G. Edison Holland, Jr. SOUTHERN Common 43,848 Robert B. Miller, III SOUTHERN Common 1,770 Arnold M. Tenenbaum SOUTHERN Common 1,124 Anthony R. James SOUTHERN Common 25,065 W. Miles Greer SOUTHERN Common 18,605 Kirby R. Willis SOUTHERN Common 23,240 The directors, nominees and executive officers as a group SOUTHERN Common 117,083 (1) As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security and/or investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). (2) The shares shown include shares of SOUTHERN common stock of which certain directors and executive officers have the right to acquire beneficial ownership within 60 days pursuant to the Executive Stock Plan and/or Performance Stock Plan, as follows: Mr. Greer, 14,707 shares; Mr. Holland, 40,817 shares; Mr. James 12,707 shares, and Mr. Willis, 16,503 shares. III-9 Changes in control. SOUTHERN and SAVANNAH know of no arrangements which may at a subsequent date result in any change in control. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with management and others. Mr. Archie Davis is President of The Savannah Bank, N.A., Savannah, Georgia. During 2000, this bank furnished a number of regular banking services in the ordinary course of business to SAVANNAH. SAVANNAH intends to maintain normal banking relations with the aforesaid bank in the future. Certain business relationships. None. Indebtedness of management. None. Transactions with promoters. None. III-10 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report on this Form 10-K: (1) Financial Statements: Reports of Independent Public Accountants on the financial statements for SOUTHERN and Subsidiary Companies, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are listed under Item 8 herein. The financial statements filed as a part of this report for SOUTHERN and Subsidiary Companies, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are listed under Item 8 herein. (2) Financial Statement Schedules: Reports of Independent Public Accountants as to Schedules for SOUTHERN and Subsidiary Companies, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are included herein on pages IV-12 through IV-17. Financial Statement Schedules for SOUTHERN and Subsidiary Companies, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are listed in the Index to the Financial Statement Schedules at page S-1. (3) Exhibits: Exhibits for SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are listed in the Exhibit Index at page E-1. (b) Reports on Form 8-K during the fourth quarter of 2000 were as follows: SOUTHERN filed Current Reports on Form 8-K: Date of event: November 27, 2000 Items reported: Items 5 and 7 Date of event: December 6, 2000 Items reported: Items 5 and 7 IV-1 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. THE SOUTHERN COMPANY By: H. Allen Franklin, President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 28, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. H. Allen Franklin President and Chief Executive Officer (Principal Executive Officer) Gale E. Klappa Financial Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) W. Dean Hudson Vice President, Comptroller and Chief Accounting Officer (Principal Accounting Officer) Directors: Daniel P. Amos L. G. Hardman III Dorrit J. Bern Donald M. James Thomas F. Chapman Zack T. Pate H. Allen Franklin Gerald J. St. Pe' By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 28, 2001 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. ALABAMA POWER COMPANY By: Elmer B. Harris, President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 28, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Elmer B. Harris President, Chief Executive Officer and Director (Principal Executive Officer) William B. Hutchins, III Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Art P. Beattie Vice President and Comptroller (Principal Accounting Officer) Directors: Whit Armstrong John T. Porter H. Allen Franklin Robert D. Powers R. Kent Henslee Andreas Renschler Carl E. Jones, Jr. C. Dowd Ritter James K. Lowder James H. Sanford Wallace D. Malone, Jr. John Cox Webb, IV Thomas C. Meredith James W. Wright William V. Muse By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 28, 2001 IV-2 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. GEORGIA POWER COMPANY By: David M. Ratcliffe, President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 28, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. David M. Ratcliffe President, Chief Executive Officer and Director (Principal Executive Officer) Thomas A. Fanning Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Cliff S. Thrasher Vice President, Comptroller and Chief Accounting Officer (Principal Accounting Officer) Directors: Daniel P. Amos James R. Lientz, Jr. Juanita P. Baranco G. Joseph Prendergast William A. Fickling, Jr. William Jerry Vereen H. Allen Franklin Carl Ware L. G. Hardman III E. Jenner Wood, III By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 28, 2001 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. GULF POWER COMPANY By: Travis J. Bowden, President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 28, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Travis J. Bowden President, Chief Executive Officer and Director (Principal Executive Officer) Ronnie R. Labrato Comptroller and Chief Financial Officer (Principal Financial and Accounting Officer) Directors: Fred C. Donovan, Sr. W. Deck Hull, Jr. H. Allen Franklin Barbara H. Thames By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 28, 2001 IV-3 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. MISSISSIPPI POWER COMPANY By: Dwight H. Evans, President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 28, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Dwight H. Evans President, Chief Executive Officer and Director (Principal Executive Officer) Michael W. Southern Vice President, Secretary, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) Directors: Robert S. Gaddis George A. Schloegel Linda T. Howard Philip J. Terrell Aubrey K. Lucas Gene Warr Malcolm Portera By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 28, 2001 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. SAVANNAH ELECTRIC AND POWER COMPANY By: G. Edison Holland, Jr., President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 28, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. G. Edison Holland, Jr. President, Chief Executive Officer and Director (Principal Executive Officer) Kirby R. Willis Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) Directors: Gus H. Bell, III Robert B. Miller, III Archie H. Davis Arnold M. Tenenbaum Walter D. Gnann By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 28, 2001 IV-4 Exhibit 21. Subsidiaries of the Registrants.* Jurisdiction of Name of Company Organization ----------------------------------------------------- -- --------------------- The Southern Company Delaware Southern Company Capital Trust I Delaware Southern Company Capital Trust II Delaware Southern Company Capital Trust III Delaware Southern Company Capital Trust IV Delaware Southern Company Capital Trust V Delaware Southern Company Capital Trust VI Delaware Southern Company Capital Trust VII Delaware Southern Company Capital Trust VIII Delaware Southern Company Capital Trust IX Delaware Alabama Power Company Alabama Alabama Power Capital Trust I Delaware Alabama Power Capital Trust II Delaware Alabama Power Capital Trust III Delaware Alabama Power Capital Trust IV Delaware Alabama Power Capital Trust V Delaware Alabama Property Company Alabama Southern Electric Generating Company Alabama Georgia Power Company Georgia Georgia Power Capital Trust I Delaware Georgia Power Capital Trust II Delaware Georgia Power Capital Trust III Delaware Georgia Power Capital Trust IV Delaware Georgia Power Capital Trust V Delaware Georgia Power Capital Trust VI Delaware Georgia Power L.P. Holdings Corp. Georgia Georgia Power Capital, L.P. Delaware Piedmont-Forrest Corporation Georgia Southern Electric Generating Company Alabama Gulf Power Company Maine Gulf Power Capital Trust I Delaware Gulf Power Capital Trust II Delaware Gulf Power Capital Trust III Delaware Mississippi Power Company Mississippi Mississippi Power Capital Trust I Delaware Mississippi Power Capital Trust II Delaware Mississippi Power Capital Trust III Delaware Savannah Electric and Power Company Georgia Savannah Electric Capital Trust I Delaware ----------------------------------------------------- -- --------------------- *This information is as of December 31, 2000. In addition, the list omits certain subsidiaries pursuant to paragraph (b)(21)(ii) of Regulation S-K Item 601. IV-5 ARTHUR ANDERSEN LLP Exhibit 23(a) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 28, 2001 on the financial statements of The Southern Company and its subsidiaries and the related financial statement schedule, included in this Form 10-K, into The Southern Company's previously filed Registration Statement File Nos. 2-78617, 33-3546, 33-30171, 33-54415, 33-57951, 33-58371, 33-60427, 333-09077, 333-44127, 333-44261, 333-64871 and 333-31808. /s/ Arthur Andersen LLP Atlanta, Georgia March 22, 2001 IV-6 ARTHUR ANDERSEN LLP Exhibit 23(b) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 28, 2001 on the financial statements of Alabama Power Company and the related financial statement schedule, included in this Form 10-K, into Alabama Power Company's previously filed Registration Statement File No. 333-67453. /s/ Arthur Andersen LLP Birmingham, Alabama March 22, 2001 IV-7 Exhibit 23(c) ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 28, 2001 on the financial statements of Georgia Power Company and the related financial statement schedule, included in this Form 10-K, into Georgia Power Company's previously filed Registration Statement File No. 333-75193. /s/ Arthur Andersen LLP Atlanta, Georgia March 22, 2001 IV-8 Exhibit 23(d) ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 28, 2001 on the financial statements of Gulf Power Company and the related financial statement schedule, included in this Form 10-K, into Gulf Power Company's previously filed Registration Statement File Nos. 33-50165 and 333-42033. /s/ Arthur Andersen LLP Atlanta, Georgia March 22, 2001 IV-9 ARTHUR ANDERSEN LLP Exhibit 23(e) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 28, 2001 on the financial statements of Mississippi Power Company and the related financial statement schedule, included in this Form 10-K, into Mississippi Power Company's previously filed Registration Statement File No. 333-45069. /s/ Arthur Andersen LLP Atlanta, Georgia March 22, 2001 IV-10 ARTHUR ANDERSEN LLP Exhibit 23(f) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 28, 2001 on the financial statements of Savannah Electric and Power Company and the related financial statement schedule, included in this Form 10-K, into Savannah Electric and Power Company's previously filed Registration Statement File No. 333-46171. /s/ Arthur Andersen LLP Atlanta, Georgia March 22, 2001 IV-11 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To The Southern Company: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of The Southern Company and its subsidiaries included in this Form 10-K, and have issued our report thereon dated February 28, 2001. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to The Southern Company and its subsidiaries (page S-2) is the responsibility of The Southern Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/ Arthur Andersen LLP Atlanta, Georgia February 28, 2001 IV-12 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To Alabama Power Company: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Alabama Power Company included in this Form 10-K, and have issued our report thereon dated February 28, 2001. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Alabama Power Company (page S-3) is the responsibility of Alabama Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Birmingham, Alabama February 28, 2001 IV-13 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To Georgia Power Company: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Georgia Power Company included in this Form 10-K, and have issued our report thereon dated February 28, 2001. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Georgia Power Company (page S-4) is the responsibility of Georgia Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Atlanta, Georgia February 28, 2001 IV-14 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To Gulf Power Company: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Gulf Power Company included in this Form 10-K, and have issued our report thereon dated February 28, 2001. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Gulf Power Company (page S-5) is the responsibility of Gulf Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Atlanta, Georgia February 28, 2001 IV-15 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To Mississippi Power Company: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Mississippi Power Company included in this Form 10-K, and have issued our report thereon dated February 28, 2001. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Mississippi Power Company (page S-6) is the responsibility of Mississippi Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Atlanta, Georgia February 28, 2001 IV-16 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To Savannah Electric and Power Company: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Savannah Electric and Power Company included in this Form 10-K, and have issued our report thereon dated February 28, 2001. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Savannah Electric and Power Company (page S-7) is the responsibility of Savannah Electric and Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Atlanta, Georgia February 28, 2001 IV-17 INDEX TO FINANCIAL STATEMENT SCHEDULES Schedule Page II Valuation and Qualifying Accounts and Reserves 2000, 1999 and 1998 The Southern Company and Subsidiary Companies................ S-2 Alabama Power Company........................................ S-3 Georgia Power Company........................................ S-4 Gulf Power Company........................................... S-5 Mississippi Power Company.................................... S-6 Savannah Electric and Power Company.......................... S-7 Schedules I through V not listed above are omitted as not applicable or not required. Columns omitted from schedules filed have been omitted because the information is not applicable or not required. S-1

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Stated in Thousands of Dollars) Additions ---------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ------------------------------ ------------------------ -------------- ------------------- ----------------- -------------- Provision for uncollectible accounts 2000................... $21,834 $31,329 $39 $31,403 (Note) $21,799 1999................... 11,268 35,476 - 24,910 (Note) 21,834 1998................... 9,613 31,707 - 30,052 (Note) 11,268 ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off.

S-2

ALABAMA POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Stated in Thousands of Dollars) Additions --------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ---------------------------------- -------------------------- --------------- ------------------ ----------------- --------------- Provision for uncollectible accounts 2000........................ $4,117 $9,093 $- $ 6,973 (Note) $6,237 1999........................ 1,855 13,995 - 11,733 (Note) 4,117 1998........................ 2,272 7,702 - 8,119 (Note) 1,855 ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off.

S-3

GEORGIA POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Stated in Thousands of Dollars) Additions --------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ----------------------------------- ----------------------- -------------- ------------------ ----------------- ---------------- Provision for uncollectible accounts 2000.......................... $7,000 $10,794 $- $12,694 (Note) $5,100 1999.......................... 5,500 14,406 - 12,906 (Note) 7,000 1998.......................... 3,000 17,856 - 15,356 (Note) 5,500 8,888 ($3 ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off.

S-4

GULF POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Stated in Thousands of Dollars) Additions -------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ------------------------------------ ------------------------ --------------- ------------------ ---------------- --------------- Provision for uncollectible accounts 2000.......................... $1,026 $2,702 $- $2,426 (Note) $1,302 1999.......................... 996 2,230 - 2,200(Note) 1,026 1998.......................... 796 2,288 - 2,088 (Note) 996 ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off.

S-5

MISSISSIPPI POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Stated in Thousands of Dollars) Additions -------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ------------------------------------ ------------------------- -------------- ------------------ ---------------- --------------- Provision for uncollectible accounts 2000.......................... $697 $1,156 $14 $1,296 (Note) $571 1999.......................... 621 1,964 - 1,888 (Note) 697 1998.......................... 698 1,510 31 1,618 (Note) 621 ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off.

S-6

SAVANNAH ELECTRIC AND POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Stated in Thousands of Dollars) Additions ------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period -------------------------------------- ---------------------- ------------ ------------------ --------------- ----------------- Provision for uncollectible accounts 2000.......................... $237 $999 $- $829 (Note) $407 1999.......................... 284 594 - 641 (Note) 237 1998.......................... 354 417 - 487 (Note) 284 ------------------- Note: Represents write-off of accounts receivable considered to be uncollectible, less recoveries of amounts previously written off.

S-7

EXHIBIT INDEX The following exhibits indicated by an asterisk preceding the exhibit number are filed herewith. The balance of the exhibits have heretofore been filed with the SEC, respectively, as the exhibits and in the file numbers indicated and are incorporated herein by reference. The exhibits marked with a pound sign are management contracts or compensatory plans or arrangements required to be filed herewith and required to be identified as such by Item 14 of Form 10-K. Reference is made to a duplicate list of exhibits being filed as a part of this Form 10-K, which list, prepared in accordance with Item 601 of Regulation S-K of the SEC, immediately precedes the exhibits being physically filed with this Form 10-K. (1) Underwriting Agreements GEORGIA (c) - Distribution Agreement dated November 29, 1995 between GEORGIA and Lehman Brothers Inc.; Donaldson, Lufkin & Jenrette Securities Corporation; J. P. Morgan Securities Inc.; Salomon Brothers Inc and Smith Barney Inc. relating to $300,000,000 First Mortgage Bonds Secured Medium-Term Notes. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1995, as Exhibit 1(c).) (3) Articles of Incorporation and By-Laws SOUTHERN (a) 1 - Composite Certificate of Incorporation of SOUTHERN, reflecting all amendments thereto through January 5, 1994. (Designated in Registration No. 33-3546 as Exhibit 4(a), in Certificate of Notification, File No. 70-7341, as Exhibit A and in Certificate of Notification, File No. 70-8181, as Exhibit A.) (a) 2 - By-laws of SOUTHERN as amended effective October 21, 1991, and as presently in effect. (Designated in Form U-1, File No. 70-8181, as Exhibit A-2.) ALABAMA (b) 1 - Charter of ALABAMA and amendments thereto through August 10, 1998.(Designated in Registration Nos. 2-59634 as Exhibit 2(b), 2-60209 as Exhibit 2(c), 2-60484 as Exhibit 2(b), 2-70838 as Exhibit 4(a)-2, 2-85987 as Exhibit 4(a)-2, 33-25539 as Exhibit 4(a)-2, 33-43917 as Exhibit 4(a)-2, in Form 8-K dated February 5, 1992, File No. 1-3164, as Exhibit 4(b)-3, in Form 8-K dated July 8, 1992, File No. 1-3164, as Exhibit 4(b)-3, in Form 8-K dated October 27, 1993, File No. 1-3164, as Exhibits 4(a) and 4(b), in Form 8-K dated November 16, 1993, File No. 1-3164, as Exhibit 4(a), in Certificate of Notification, File No. 70-8191, as Exhibit A, in ALABAMA's Form 10-K for the year ended December 31, 1997, File No. 1-3164, as Exhibit 3(b)2 and Form 8-K dated August 10, 1998, File No. 1-3164, as Exhibit 4.4.) * (b) 2 - Amendment to Charter of ALABAMA dated January 10, 2001. E-1 (b) 3 - By-laws of ALABAMA as amended effective July 23, 1993, and as presently in effect.(Designated in Form U-1, File No. 70-8191, as Exhibit A-2.) GEORGIA (c) 1 - Charter of GEORGIA and amendments thereto through January 26, 1998.(Designated in Registration Nos. 2-63392 as Exhibit 2(a)-2, 2-78913 as Exhibits 4(a)-(2) and 4(a)-(3), 2-93039 as Exhibit 4(a)-(2), 2-96810 as Exhibit 4(a)-2, 33-141 as Exhibit 4(a)-(2), 33-1359 as Exhibit 4(a)(2), 33-5405 as Exhibit 4(b)(2), 33-14367 as Exhibits 4(b)-(2) and 4(b)-(3), 33-22504 as Exhibits 4(b)-(2), 4(b)-(3) and 4(b)-(4), in GEORGIA's Form 10-K for the year ended December 31, 1991, File No. 1-6468, as Exhibits 4(a)(2) and 4(a)(3), in Registration No. 33-48895 as Exhibits 4(b)-(2) and 4(b)-(3), in Form 8-K dated December 10, 1992, File No. 1-6468 as Exhibit 4(b), in Form 8-K dated June 17, 1993, File No. 1-6468, as Exhibit 4(b), in Form 8-K dated October 20, 1993, File No. 1-6468, as Exhibit 4(b) and in GEORGIA's Form 10-K for the year ended December 31, 1997, File No. 1-6468, as Exhibit 3(c)2.) * (c) 2 - Amendment to Charter of GEORGIA dated February 16, 2001. * (c) 3 - By-laws of GEORGIA as amended effective November 15, 2000, and as presently in effect. GULF (d) 1 - Restated Articles of Incorporation of GULF and amendments thereto through January 28, 1998. (Designated in Registration No. 33-43739 as Exhibit 4(b)-1, in Form 8-K dated January 15, 1992, File No. 0-2429, as Exhibit 1(b), in Form 8-K dated August 18, 1992, File No. 0-2429, as Exhibit 4(b)-2, in Form 8-K dated September 22, 1993, File No. 0-2429, as Exhibit 4, in Form 8-K dated November 3, 1993, File No. 0-2429, as Exhibit 4 and in GULF's Form 10-K for the year ended December 31, 1997, File No. 0-2429, as Exhibit 3(d)2.) * (d) 2 - Amendment to Articles of Incorporation of GULF dated February 9, 2001. * (d) 3 - By-laws of GULF as amended effective July 28, 2000, and as presently in effect. MISSISSIPPI (e) 1 - Articles of Incorporation of MISSISSIPPI, articles of merger of Mississippi Power Company (a Maine corporation) into MISSISSIPPI and articles of amendment to the articles of incorporation of MISSISSIPPI through December 31, 1997. (Designated in Registration No. 2-71540 as Exhibit 4(a)-1, in Form U5S for 1987, File No. 30-222-2, as Exhibit B-10, in Registration No. 33-49320 as Exhibit 4(b)-(1), in Form 8-K dated August 5, 1992, File No. 0-6849, as Exhibits 4(b)-2 and 4(b)-3, in Form 8-K dated August 4, 1993, File No. 0-6849, as Exhibit 4(b)-3, in Form 8-K dated August 18, 1993, File No. 0-6849, as Exhibit 4(b)-3 and in MISSISSIPPI's Form 10-K for the year ended December 31, 1997, File No. 0-6849, as Exhibit 3(e)2.) E-2 * (e) 2 - Amendment to Articles of Incorporation of MISSISSIPPI dated March 8, 2001. (e) 3 - By-laws of MISSISSIPPI as amended effective April 2, 1996, and as presently in effect. (Designated in Form U5S for 1995, File No. 30-222-2, as Exhibit B-10.) SAVANNAH (f) 1 - Charter of SAVANNAH and amendments thereto through December 2, 1998. (Designated in Registration Nos. 33-25183 as Exhibit 4(b)-(1), 33-45757 as Exhibit 4(b)-(2), in Form 8-K dated November 9, 1993, File No. 1-5072, as Exhibit 4(b) and in SAVANNAH's Form 10-K for the year ended December 31, 1998, as Exhibit 3(f)2.) * (f) 2 - By-laws of SAVANNAH as amended effective May 17, 2000, and as presently in effect. (4) Instruments Describing Rights of Security Holders, Including Indentures SOUTHERN (a) 1 - Subordinated Note Indenture dated as of February 1, 1997, among SOUTHERN, Southern Company Capital Funding, Inc. and Bankers Trust Company, as Trustee, and indentures supplemental thereto dated as of February 4, 1997. (Designated in Registration Nos. 333-28349 as Exhibits 4.1 and 4.2 and 333-28355 as Exhibit 4.2.) (a) 2 - Subordinated Note Indenture dated as of June 1, 1997, among SOUTHERN, Southern Company Capital Funding, Inc. and Bankers Trust Company, as Trustee, and indentures supplemental thereto through that dated as of December 23, 1998. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit (4)(a)2, in Form 8-K dated June 18, 1998, File No. 1-3526, as Exhibit 4.2 and in Form 8-K dated December 18, 1998, File No. 1-3526, as Exhibit 4.4.) (a) 3 - Amended and Restated Trust Agreement of Southern Company Capital Trust I dated as of February 1, 1997. (Designated in Registration No. 333-28349 as Exhibit 4.6) (a) 4 - Amended and Restated Trust Agreement of Southern Company Capital Trust II dated as of February 1, 1997. (Designated in Registration No. 333-28355 as Exhibit 4.6) (a) 5 - Amended and Restated Trust Agreement of Southern Company Capital Trust III dated as of June 1, 1997. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit (4)(a)5.) (a) 6 - Amended and Restated Trust Agreement of Southern Company Capital Trust IV dated as of June 1, 1998. (Designated in Form 8-K dated June 18, 1998, File No. 1-3526, as Exhibit 4.5.) E-3 (a) 7 - Amended and Restated Trust Agreement of Southern Company Capital Trust V dated as of December 1, 1998. (Designated in Form 8-K dated December 18, 1998, File No. 1-3526, as Exhibit 4.7A.) (a) 8 - Capital Securities Guarantee Agreement relating to Southern Company Capital Trust I dated as of February 1, 1997. (Designated in Registration No. 333-28349 as Exhibit 4.10) (a) 9 - Capital Securities Guarantee Agreement relating to Southern Company Capital Trust II dated as of February 1, 1997. (Designated in Registration No. 333-28355 as Exhibit 4.10) (a) 10 - Preferred Securities Guarantee Agreement relating to Southern Company Capital Trust III dated as of June 1, 1997. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit (4)(a)8.) (a) 11 - Preferred Securities Guarantee Agreement relating to Southern Company Capital Trust IV dated as of June 1, 1998. (Designated in Form 8-K dated June 18, 1998, File No. 1-3626, as Exhibit 4.8.) (a) 12 - Preferred Securities Guarantee Agreement relating to Southern Company Capital Trust V dated as of December 1, 1998. (Designated in Form 8-K dated December 18, 1998, File No. 1-3526, as Exhibit 4.11A.) ALABAMA (b) 1 - Indenture dated as of January 1, 1942, between ALABAMA and The Chase Manhattan Bank (formerly Chemical Bank), as Trustee, and indentures supplemental thereto through that dated as of December 1, 1994. (Designated in Registration Nos. 2-59843 as Exhibit 2(a)-2, 2-60484 as Exhibits 2(a)-3 and 2(a)-4, 2-60716 as Exhibit 2(c), 2-67574 as Exhibit 2(c), 2-68687 as Exhibit 2(c), 2-69599 as Exhibit 4(a)-2, 2-71364 as Exhibit 4(a)-2, 2-73727 as Exhibit 4(a)-2, 33-5079 as Exhibit 4(a)-2, 33-17083 as Exhibit 4(a)-2, 33-22090 as Exhibit 4(a)-2, in ALABAMA's Form 10-K for the year ended December 31, 1990, File No. 1-3164, as Exhibit 4(c), in Registration Nos. 33-43917 as Exhibit 4(a)-2, 33-45492 as Exhibit 4(a)-2, 33-48885 as Exhibit 4(a)-2, 33-48917 as Exhibit 4(a)-2, in Form 8-K dated January 20, 1993, File No. 1-3164, as Exhibit 4(a)-3, in Form 8-K dated February 17, 1993, File No. 1-3164, as Exhibit 4(a)-3, in Form 8-K dated March 10, 1993, File No. 1-3164, as Exhibit 4(a)-3, in Certificate of Notification, File No. 70-8069, as Exhibits A and B, in Form 8-K dated June 24, 1993, File No. 1-3164, as Exhibit 4, in Certificate of Notification, File No. 70-8069, as Exhibit A, in Form 8-K dated November 16, 1993, File No. 1-3164, as Exhibit 4(b), in Certificate of Notification, File No. 70-8069, as Exhibits A and B, in Certificate of Notification, File No. 70-8069, as Exhibit A, in Certificate of Notification, File No. 70-8069, as Exhibit A and in Form 8-K dated November 30, 1994, File No. 1-3164, as Exhibit 4.) E-4 (b) 2 - Subordinated Note Indenture dated as of January 1, 1996, between ALABAMA and The Chase Manhattan Bank (formerly Chemical Bank), as Trustee, and indenture supplemental thereto dated as of January 1, 1996. (Designated in Certificate of Notification, File No. 70-8461, as Exhibits E and F.) (b) 3 - Subordinated Note Indenture dated as of January 1, 1997, between ALABAMA and The Chase Manhattan Bank, as Trustee, and indentures supplemental thereto through that dated as of February 25, 1999. (Designated in Form 8-K dated January 9, 1997, File No. 1-3164, as Exhibits 4.1 and 4.2 and in Form 8-K dated February 18, 1999, File No. 3164, as Exhibit 4.2.) (b) 4 - Senior Note Indenture dated as of December 1, 1997, between ALABAMA and The Chase Manhattan Bank, as Trustee, and indentures supplemental thereto through that dated May 18, 2000. (Designated in Form 8-K dated December 4, 1997, File No. 1-3164, as Exhibits 4.1 and 4.2, in Form 8-K dated February 20, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated April 17, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated August 11, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated September 8, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated September 16, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated October 7, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated October 28, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated November 12, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated May 19, 1999, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated August 13, 1999, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated September 21, 1999, File No. 1-3164, as Exhibit 4.2 and in Form 8-K dated May 11, 2000, File No. 1-3164, as Exhibit 4.2.) (b) 5 - Amended and Restated Trust Agreement of Alabama Power Capital Trust I dated as of January 1, 1996. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit D.) (b) 6 - Amended and Restated Trust Agreement of Alabama Power Capital Trust II dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-3164, as Exhibit 4.5.) (b) 7 - Amended and Restated Trust Agreement of Alabama Power Capital Trust III dated as of February 1, 1999. (Designated in Form 8-K dated February 18, 1999, File No. 1-3164, as Exhibit 4.5.) (b) 8 - Guarantee Agreement relating to Alabama Power Capital Trust I dated as of January 1, 1996. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit G.) (b) 9 - Guarantee Agreement relating to Alabama Power Capital Trust II dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-3164, as Exhibit 4.8.) (b) 10 - Guarantee Agreement relating to Alabama Power Capital Trust III dated as of February 1, 1999. (Designated in Form 8-K dated February 18, 1999, File No. 1-3164, as Exhibit 4.8.) E-5 GEORGIA (c) 1 - Indenture dated as of March 1, 1941, between GEORGIA and The Chase Manhattan Bank (formerly Chemical Bank), as Trustee, and indentures supplemental thereto dated as of March 1, 1941, March 3, 1941 (3 indentures), March 6, 1941 (139 indentures), March 1, 1946 (88 indentures) and December 1, 1947, through October 15, 1995. (Designated in Registration Nos. 2-4663 as Exhibits B-3 and B-3(a), 2-7299 as Exhibit 7(a)-2, 2-61116 as Exhibit 2(a)-3 and 2(a)-4, 2-62488 as Exhibit 2(a)-3, 2-63393 as Exhibit 2(a)-4, 2-63705 as Exhibit 2(a)-3, 2-68973 as Exhibit 2(a)-3, 2-70679 as Exhibit 4(a)-(2), 2-72324 as Exhibit 4(a)-2, 2-73987 as Exhibit 4(a)-(2), 2-77941 as Exhibits 4(a)-(2) and 4(a)-(3), 2-79336 as Exhibit 4(a)-(2), 2-81303 as Exhibit 4(a)-(2), 2-90105 as Exhibit 4(a)-(2), 33-5405 as Exhibit 4(a)-(2), 33-14367 as Exhibits 4(a)-(2) and 4(a)-(3), 33-22504 as Exhibits 4(a)-(2), 4(a)-(3) and 4(a)-(4), 33-32420 as Exhibit 4(a)-(2), 33-35683 as Exhibit 4(a)-(2), in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 4(a)(3), in Form 10-K for the year ended December 31, 1991, File No. 1-6468, as Exhibit 4(a)(5), in Registration No. 33-48895 as Exhibit 4(a)-(2), in Form 8-K dated August 26, 1992, File No. 1-6468, as Exhibit 4(a)-(3), in Form 8-K dated September 9, 1992, File No. 1-6468, as Exhibits 4(a)-(3) and 4(a)-(4), in Form 8-K dated September 23, 1992, File No. 1-6468, as Exhibit 4(a)-(3), in Form 8-A dated October 12, 1992, as Exhibit 2(b), in Form 8-K dated January 27, 1993, File No. 1-6468, as Exhibit 4(a)-(3), in Registration No. 33-49661 as Exhibit 4(a)-(2), in Form 8-K dated July 26, 1993, File No. 1-6468, as Exhibit 4, in Certificate of Notification, File No. 70-7832, as Exhibit M, in Certificate of Notification, File No. 70-7832, as Exhibit C, in Certificate of Notification, File No. 70-7832, as Exhibits K and L, in Certificate of Notification, File No. 70-8443, as Exhibit C, in Certificate of Notification, File No. 70-8443, as Exhibit C, in Certificate of Notification, File No. 70-8443, as Exhibit E, in Certificate of Notification, File No. 70-8443, as Exhibit E, in Certificate of Notification, File No. 70-8443, as Exhibit E, in GEORGIA's Form 10-K for the year ended December 31, 1994, File No. 1-6468, as Exhibits 4(c)2 and 4(c)3, in Certificate of Notification, File No. 70-8443, as Exhibit C, in Certificate of Notification, File No. 70-8443, as Exhibit C, in Form 8-K dated May 17, 1995, File No. 1-6468, as Exhibit 4 and in GEORGIA's Form 10-K for the year ended December 31, 1995, File No. 1-6468, as Exhibits 4(c)2, 4(c)3, 4(c)4, 4(c)5 and 4(c)6.) (c) 2 - Subordinated Note Indenture dated as of August 1, 1996, between GEORGIA and The Chase Manhattan Bank, as Trustee, and indentures supplemental thereto through January 1, 1997. (Designated in Form 8-K dated August 21, 1996, File No. 1-6468, as Exhibits 4.1 and 4.2 and in Form 8-K dated January 9, 1997, File No. 1-6468, as Exhibit 4.2.) (c) 3 - Subordinated Note Indenture dated as of June 1, 1997, between GEORGIA and The Chase Manhattan Bank, as Trustee, and indentures supplemental thereto through that dated as of February 25, 1999. (Designated in Certificate of Notification, File No. 70-8461, as Exhibits D and E and Form 8-K dated February 17, 1999, File No. 1-6468, as Exhibit 4.4.) E-6 (c) 4 - Senior Note Indenture dated as of January 1, 1998, between GEORGIA and The Chase Manhattan Bank, as Trustee, and indentures supplemental thereto through that dated as of February 23, 2001. (Designated in Form 8-K dated January 21, 1998, File No. 1-6468, as Exhibits 4.1 and 4.2, in Forms 8-K each dated November 19, 1998, File No. 1-6468, as Exhibit 4.2, in Form 8-K dated March 3, 1999, File No. 1-6469 as Exhibit 4.2, in Form 8-K dated February 15, 2000, File No. 1-6469 as Exhibit 4.2, in Form 8-K dated January 26, 2001, File No. 1-6469 as Exhibits 4.2(a) and 4.2(b) and in Form 8-K dated February 16, 2001, File No. 1-6469 as Exhibit 4.2.) (c) 5 - Amended and Restated Trust Agreement of Georgia Power Capital Trust I dated as of August 1, 1996. (Designated in Form 8-K dated August 21, 1996, File No. 1-6468, as Exhibit 4.5.) (c) 6 - Amended and Restated Trust Agreement of Georgia Power Capital Trust II dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-6468, as Exhibit 4.5.) (c) 7 - Amended and Restated Trust Agreement of Georgia Power Capital Trust III dated as of June 1, 1997. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit C.) (c) 8 - Amended and Restated Trust Agreement of Georgia Power Capital Trust IV dated as of February 1, 1999. (Designated in Form 8-K dated February 17, 1999, as Exhibit 4.7-A) (c) 9 - Guarantee Agreement relating to Georgia Power Capital Trust I dated as of August 1, 1996. (Designated in Form 8-K dated August 21, 1996, File No. 1-6468, as Exhibit 4.8.) (c) 10 - Guarantee Agreement relating to Georgia Power Capital Trust II dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-6468, as Exhibit 4.8.) (c) 11 - Guarantee Agreement relating to Georgia Power Capital Trust III dated as of June 1, 1997. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit F.) (c) 12 - Guarantee Agreement relating to Georgia Power Capital Trust IV dated as of February 1, 1999. (Designated in Form 8-K dated February 17, 1999, as Exhibit 4.11-A.) GULF (d) 1 - Indenture dated as of September 1, 1941, between GULF and The Chase Manhattan Bank (formerly The Chase Manhattan Bank (National Association)), as Trustee, and indentures supplemental thereto through November 1, 1996. (Designated in Registration Nos. 2-4833 as Exhibit B-3, 2-62319 as Exhibit 2(a)-3, 2-63765 as Exhibit 2(a)-3, 2-66260 as Exhibit 2(a)-3, 33-2809 as Exhibit 4(a)-2, E-7 33-43739 as Exhibit 4(a)-2, in GULF's Form 10-K for the year ended December 31, 1991, File No. 0-2429, as Exhibit 4(b), in Form 8-K dated August 18, 1992, File No. 0-2429, as Exhibit 4(a)-3, in Registration No. 33-50165 as Exhibit 4(a)-2, in Form 8-K dated July 12, 1993, File No. 0-2429, as Exhibit 4, in Certificate of Notification, File No. 70-8229, as Exhibit A, in Certificate of Notification, File No. 70-8229, as Exhibits E and F, in Form 8-K dated January 17, 1996, File No. 0-2429, as Exhibit 4, in Certificate of Notification, File No. 70-8229, as Exhibit A, in Certificate of Notification, File No. 70-8229, as Exhibit A and in Form 8-K dated November 6, 1996, File No. 0-2429, as Exhibit 4.) (d) 2 - Subordinated Note Indenture dated as of January 1, 1997, between GULF and The Chase Manhattan Bank, as Trustee, and indentures supplemental thereto through that dated as of January 1, 1998. (Designated in Form 8-K dated January 27, 1997, File No. 0-2429, as Exhibits 4.1 and 4.2, in Form 8-K dated July 28, 1997, File No. 0-2429, as Exhibit 4.2 and in Form 8-K dated January 13, 1998, File No. 0-2429, as Exhibit 4.2.) (d) 3 - Senior Note Indenture dated as of January 1, 1998, between GULF and The Chase Manhattan Bank, as Trustee, and indenture supplemental thereto dated as of August 24, 1999. (Designated in Form 8-K dated June 17, 1998, File No. 0-2429, as Exhibits 4.1 and 4.2 and in Form 8-K dated August 17, 1999, File No. 0-2429, as Exhibit 4.2.) (d) 4 - Amended and Restated Trust Agreement of Gulf Power Capital Trust I dated as of January 1, 1997. (Designated in Form 8-K dated January 27, 1997, File No. 0-2429, as Exhibit 4.5.) (d) 5 - Amended and Restated Trust Agreement of Gulf Power Capital Trust II dated as of January 1, 1998. (Designated in Form 8-K dated January 13, 1998, File No. 0-2429, as Exhibit 4.5.) (d) 6 - Guarantee Agreement relating to Gulf Power Capital Trust I dated as of January 1, 1997. (Designated in Form 8-K dated January 27, 1997, File No. 0-2429, as Exhibit 4.8.) (d) 7 - Guarantee Agreement relating to Gulf Power Capital Trust II dated as of January 1, 1998. (Designated in Form 8-K dated January 13, 1998, File No. 0-2429, as Exhibit 4.8.) MISSISSIPPI (e) 1 - Indenture dated as of September 1, 1941, between MISSISSIPPI and Bankers Trust Company, as Successor Trustee, and indentures supplemental thereto through December 1, 1995. (Designated in Registration Nos. 2-4834 as Exhibit B-3, 2-62965 as Exhibit 2(b)-2, 2-66845 as Exhibit 2(b)-2, 2-71537 as Exhibit 4(a)-(2), 33-5414 as Exhibit 4(a)-(2), 33-39833 as Exhibit 4(a)-2, in MISSISSIPPI's Form 10-K for the year ended December 31, 1991, File No. 0-6849, as Exhibit 4(b), in Form 8-K dated August 5, 1992, File No. 0-6849, as Exhibit 4(a)-2, in Second Certificate of Notification, File No. 70-7941, as Exhibit I, in MISSISSIPPI's Form 8-K dated February 26, 1993, File No. 0-6849, as Exhibit 4(a)-2, in Certificate of Notification, File No. 70-8127, as Exhibit A, in Form 8-K dated June 22, 1993, File No. 0-6849, as Exhibit 1, in Certificate of Notification, File No. 70-8127, as Exhibit A, in Form 8-K dated March 8, 1994, File No. 0-6849, as Exhibit 4, in Certificate of Notification, File No. 70-8127, as Exhibit C and in Form 8-K dated December 5, 1995, File No. 0-6849, as Exhibit 4.) E-8 (e) 2 - Senior Note Indenture dated as of May 1, 1998 between MISSISSIPPI and Bankers Trust Company, as Trustee and indentures supplemental thereto through March 28, 2000. (Designated in Form 8-K dated May 14, 1998, File No. 0-6849, as Exhibits 4.1, 4.2(a) and 4.2(b) and in Form 8-K dated March 22, 2000, File No. 0-6849, as Exhibit 4.2.) (e) 3 - Subordinated Note Indenture dated as of February 1, 1997, between MISSISSIPPI and Bankers Trust Company, as Trustee, and indenture supplemental thereto dated as of February 1, 1997. (Designated in Form 8-K dated February 20, 1997, File No. 0-6849, as Exhibits 4.1 and 4.2.) (e) 4 - Amended and Restated Trust Agreement of Mississippi Power Capital Trust I dated as of February 1, 1997. (Designated in Form 8-K dated February 20, 1997, File No. 0-6849, as Exhibit 4.5.) (e) 5 - Guarantee Agreement relating to Mississippi Power Capital Trust I dated as of February 1, 1997. (Designated in Form 8-K dated February 20, 1997, File No. 0-6849, as Exhibit 4.8.) SAVANNAH (f) 1 - Indenture dated as of March 1, 1945, between SAVANNAH and The Bank of New York, New York, as Trustee, and indentures supplemental thereto through May 1, 1996. (Designated in Registration Nos. 33-25183 as Exhibit 4(a)-(1), 33-41496 as Exhibit 4(a)-(2), 33-45757 as Exhibit 4(a)-(2), in SAVANNAH's Form 10-K for the year ended December 31, 1991, File No. 1-5072, as Exhibit 4(b), in Form 8-K dated July 8, 1992, File No. 1-5072, as Exhibit 4(a)-3, in Registration No. 33-50587 as Exhibit 4(a)-(2), in Form 8-K dated July 22, 1993, File No. 1-5072, as Exhibit 4, in Form 8-K dated May 18, 1995, File No. 1-5072, as Exhibit 4 and in Form 8-K dated May 23, 1996, File No. 1-5072, as Exhibit 4.) (f) 2 - Senior Note Indenture dated as of March 1, 1998 between SAVANNAH and The Bank of New York, as Trustee and indenture supplemental thereto dated as of March 1, 1998. (Designated in Form 8-K dated March 9, 1998, File No. 1-5072, as Exhibits 4.1 and 4.2.) (f) 3 - Subordinated Note Indenture dated as of December 1, 1998, between SAVANNAH and The Bank of New York, as Trustee, and indenture supplemental thereto dated as of December 9, 1998. (Designated in Form 8-K dated December 3, 1998, File No. 1-5072, as Exhibit 4.3 and 4.4.) (f) 4 - Amended and Restated Trust Agreement of Savannah Electric Capital Trust I dated as of December 1, 1998. (Designated in Form 8-K dated December 3, 1998, File No. 1-5072, as Exhibit 4.7.) E-9 (f) 5 - Guarantee Agreement relating to Savannah Electric Capital Trust I dated as of December 1, 1998. (Designated in Form 8-K dated December 3, 1998, File No. 1-5072, as Exhibit 4.11.) (10) Material Contracts SOUTHERN (a) 1 - Service contracts dated as of January 1, 1984, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN and Amendment No. 1 dated as of September 6, 1985 between SCS and SOUTHERN. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1984, File No. 1-3526, as Exhibit 10(a) and in SOUTHERN's Form 10-K for the year ended December 31, 1985, File No. 1-3526, as Exhibit 10(a)(3).) (a) 2 - Service contract dated as of July 17, 1981, between SCS and Mirant. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1985, File No. 1-3526, as Exhibit 10(a)(2).) (a) 3 - Service contract dated as of March 3, 1988, between SCS and SAVANNAH. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1987, File No. 1-5072, as Exhibit 10-p.) (a) 4 - Service contract dated as of January 15, 1991, between SCS and Southern Nuclear. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1991, File No. 1-3526, as Exhibit 10(a)(4).) (a) 5 - Service contract dated as of December 12, 1994, between SCS and Mobile Energy Services Company, Inc. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)58.) * (a) 6 - Interchange contract dated February 17, 2000, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, SPC and SCS. (a) 7 - Agreement dated as of January 27, 1959, Amendment No. 1 dated as of October 27, 1982 and Amendment No. 2 dated November 4, 1993 and effective June 1, 1994, among SEGCO, ALABAMA and GEORGIA. (Designated in Registration No. 2-59634 as Exhibit 5(c), in GEORGIA's Form 10-K for the year ended December 31, 1982, File No. 1-6468, as Exhibit 10(d)(2) and in ALABAMA's Form 10-K for the year ended December 31, 1994, File No. 1-3164, as Exhibit 10(b)18.) (a) 8 - Joint Committee Agreement dated as of August 27, 1976, among GEORGIA, OPC, MEAG and Dalton. (Designated in Registration No. 2-61116 as Exhibit 5(d).) (a) 9 - Edwin I. Hatch Nuclear Plant Purchase and Ownership Participation Agreement dated as of January 6, 1975, between GEORGIA and OPC. (Designated in Form 8-K for January, 1975, File No. 1-6468, as Exhibit (b)(1).) E-10 (a) 10 - Edwin I. Hatch Nuclear Plant Operating Agreement dated as of January 6, 1975, between GEORGIA and OPC. (Designated in Form 8-K for January, 1975, File No. 1-6468, as Exhibit (b)(3).) (a) 11 - Revised and Restated Integrated Transmission System Agreement dated as of November 12, 1990, between GEORGIA and OPC. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(g).) (a) 12 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of March 26, 1976, between GEORGIA and OPC. (Designated in Certificate of Notification, File No. 70-5592, as Exhibit A.) (a) 13 - Plant Hal Wansley Operating Agreement dated as of March 26, 1976, between GEORGIA and OPC. (Designated in Certificate of Notification, File No. 70-5592, as Exhibit B.) (a) 14 - Edwin I. Hatch Nuclear Plant Purchase and Ownership Participation Agreement dated as of August 27, 1976, between GEORGIA, MEAG and Dalton. (Designated in Form 8-K dated as of June 13, 1977, File No. 1-6468, as Exhibit (b)(1).) (a) 15 - Edwin I. Hatch Nuclear Plant Operating Agreement dated as of August 27, 1976, between GEORGIA, MEAG and Dalton. (Designated in Form 8-K for February 1977, File No. 1-6468, as Exhibit (b)(2).) (a) 16 - Alvin W. Vogtle Nuclear Units Number One and Two Purchase and Ownership Participation Agreement dated as of August 27, 1976 and Amendment No. 1 dated as of January 18, 1977, among GEORGIA, OPC, MEAG and Dalton. (Designated in Form U-1, File No. 70-5792, as Exhibit B-1 and in Form 8-K for January 1977, File No. 1-6468, as Exhibit (B)(3).) (a) 17 - Alvin W. Vogtle Nuclear Units Number One and Two Operating Agreement dated as of August 27, 1976, among GEORGIA, OPC, MEAG and Dalton. (Designated in Form U-1, File No. 70-5792, as Exhibit B-2.) (a) 18 - Alvin W. Vogtle Nuclear Units Number One and Two Purchase, Amendment, Assignment and Assumption Agreement dated as of November 16, 1983, between GEORGIA and MEAG. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1983, File No. 1-6468, as Exhibit 10(k)(4).) (a) 19 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of August 27, 1976, between GEORGIA and MEAG. (Designated in Form 8-K dated as of July 5, 1977, File No. 1-6468, as Exhibit (b)(2).) (a) 20 - Plant Hal Wansley Operating Agreement dated as of August 27, 1976, between GEORGIA and MEAG. (Designated in Form 8-K dated as of July 5, 1977, File No. 1-6468, as Exhibit (b)(4).) (a) 21 - Nuclear Operating Agreement between Southern Nuclear and GEORGIA dated as of July 1, 1993. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit 10(a)21.) E-11 (a) 22 - Pseudo Scheduling and Services Agreement between GEORGIA and MEAG dated as of April 8, 1997. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit 10(a)22.) (a) 23 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of April 19, 1977, between GEORGIA and Dalton. (Designated in Form 8-K dated as of June 13, 1977, File No. 1-6468, as Exhibit (b)(3).) (a) 24 - Plant Hal Wansley Operating Agreement dated as of April 19, 1977, between GEORGIA and Dalton. (Designated in Form 8-K dated as of June 13, 1977, File No. 1-6468, as Exhibit (b)(7).) (a) 25 - Plant Robert W. Scherer Units Number One and Two Purchase and Ownership Participation Agreement dated as of May 15, 1980, Amendment No. 1 dated as of December 30, 1985, Amendment No. 2 dated as of July 1, 1986, Amendment No. 3 dated as of August 1, 1988 and Amendment No. 4 dated as of December 31, 1990, among GEORGIA, OPC, MEAG and Dalton. (Designated in Form U-1, File No. 70-6481, as Exhibit B-3, in SOUTHERN's Form 10-K for the year ended December 31, 1987, File No. 1-3526, as Exhibit 10(o)(2), in SOUTHERN's Form 10-K for the year ended December 31, 1989, File No. 1-3526, as Exhibit 10(n)(2) and in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)54.) (a) 26 - Plant Robert W. Scherer Units Number One and Two Operating Agreement dated as of May 15, 1980, Amendment No. 1 dated as of December 3, 1985 and Amendment No. 2 dated as of December 31, 1990, among GEORGIA, OPC, MEAG and Dalton. (Designated in Form U-1, File No. 70-6481, as Exhibit B-4, in SOUTHERN's Form 10-K for the year ended December 31, 1987, File No. 1-3526, as Exhibit 10(o)(4) and in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)55.) (a) 27 - Plant Robert W. Scherer Purchase, Sale and Option Agreement dated as of May 15, 1980, between GEORGIA and MEAG. (Designated in Form U-1, File No. 70-6481, as Exhibit B-1.) (a) 28 - Plant Robert W. Scherer Purchase and Sale Agreement dated as of May 16, 1980, between GEORGIA and Dalton. (Designated in Form U-1, File No. 70-6481, as Exhibit B-2.) (a) 29 - Plant Robert W. Scherer Unit Number Three Purchase and Ownership Participation Agreement dated as of March 1, 1984, Amendment No. 1 dated as of July 1, 1986 and Amendment No. 2 dated as of August 1, 1988, between GEORGIA and GULF. (Designated in Form U-1, File No. 70-6573, as Exhibit B-4, in SOUTHERN's Form 10-K for the year ended December 31, 1987, as Exhibit 10(o)(2) and in SOUTHERN's Form 10-K for the year ended December 31, 1989, as Exhibit 10(n)(2).) (a) 30 - Plant Robert W. Scherer Unit Number Three Operating Agreement dated as of March 1, 1984, between GEORGIA and GULF. (Designated in Form U-1, File No. 70-6573, as Exhibit B-5.) E-12 (a) 31 - Plant Robert W. Scherer Unit No. Four Amended and Restated Purchase and Ownership Participation Agreement by and among GEORGIA, FP&L and JEA, dated as of December 31, 1990 and Amendment No. 1 dated as of June 15, 1994. (Designated in Form U-1, File No. 70-7843, as Exhibit B-1 and in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)60.) (a) 32 - Plant Robert W. Scherer Unit No. Four Operating Agreement by and among GEORGIA, FP&L and JEA, dated as of December 31, 1990 and Amendment No. 1 dated as of June 15, 1994. (Designated in Form U-1, File No. 70-7843, as Exhibit B-2 and in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)61.) (a) 33 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1988, File No. 1-5072, as Exhibit 10(d).) (a) 34 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1988, File No. 1-5072, as Exhibit 10(e).) (a) 35 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1988, File No. 1-5072, as Exhibit 10(f).) (a) 36 - Rocky Mountain Pumped Storage Hydroelectric Project Ownership Participation Agreement dated November 18, 1988, between OPC and GEORGIA. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1988, File No. 1-6468, as Exhibit 10(x).) (a) 37 - Rocky Mountain Pumped Storage Hydroelectric Project Operating Agreement dated November 18, 1988, between OPC and GEORGIA. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1988, File No. 1-6468, as Exhibit 10(y).) (a) 38 - Purchase and Ownership Agreement for Joint Ownership Interest in the James H. Miller, Jr. Steam Electric Generating Plant Units One and Two dated November 18, 1988, between ALABAMA and AEC. (Designated in Form U-1, File No. 70-7609, as Exhibit B-1.) (a) 39 - Operating Agreement for Joint Ownership Interest in the James H. Miller, Jr. Steam Electric Generating Plant Units One and Two dated November 18, 1988, between ALABAMA and AEC. (Designated in Form U-1, File No. 70-7609, as Exhibit B-2.) E-13 (a) 40 - Transmission Facilities Agreement dated February 25, 1982, Amendment No. 1 dated May 12, 1982 and Amendment No. 2 dated December 6, 1983, between Gulf States and MISSISSIPPI. (Designated in MISSISSIPPI's Form 10-K for the year ended December 31, 1981, File No. 0-6849, as Exhibit 10(f), in MISSISSIPPI's Form 10-K for the year ended December 31, 1982, File No. 0-6849, as Exhibit 10(f)(2) and in MISSISSIPPI's Form 10-K for the year ended December 31, 1983, File No. 0-6849, as Exhibit 10(f)(3).) (a) 41 - Long Term Transaction Service Agreement between GEORGIA and OPC dated as of February 26, 1999. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1999, File No. 1-3526, as Exhibit 10(a)46.) (a) 42 - Revised and Restated Coordination Services Agreement between and among GEORGIA, OPC and Georgia Systems Operations Corporation dated as of September 10, 1997. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit 10(a)48.) (a) 43 - Amended and Restated Nuclear Managing Board Agreement for Plant Hatch and Plant Vogtle among GEORGIA, OPC, MEAG and Dalton dated as of July 1, 1993. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)49.) (a) 44 - Integrated Transmission System Agreement, Power Sale and Coordination Umbrella Agreement between GEORGIA and OPC dated as of November 12, 1990. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(ff).) (a) 45 - Revised and Restated Integrated Transmission System Agreement between GEORGIA and Dalton dated as of December 7, 1990. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(gg).) (a) 46 - Revised and Restated Integrated Transmission System Agreement between GEORGIA and MEAG dated as of December 7, 1990. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(hh).) (a) 47 - Long Term Transmission Service Agreement between Entergy Power, Inc. and ALABAMA, MISSISSIPPI and SCS. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1992, File No. 1-3526, as Exhibit 10(a)53.) (a) 48 - Plant Scherer Managing Board Agreement dated as of December 31, 1990 among GEORGIA, OPC, MEAG, Dalton, GULF, FP&L and JEA. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)56.) (a) 49 - Plant McIntosh Combustion Turbine Purchase and Ownership Participation Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)57.) E-14 (a) 50 - Plant McIntosh Combustion Turbine Operating Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)58.) (a) 51 - Operating Agreement for the Joseph M. Farley Nuclear Plant between ALABAMA and Southern Nuclear dated as of December 23, 1991. (Designated in Form U-1, File No. 70-7530, as Exhibit B-7.) # * (a) 52 - The Southern Company Executive Productivity Improvement Plan, Amended and Restated effective January 1, 2001. (a) 53 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Five. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)61 and in SOUTHERN's Form 10-K for the year ended December 31, 1999, File No. 1-3526, as Exhibit 10(a)61.) * (a) 54 - Amendment Number Six to The Southern Company Employee Savings Plan. (a) 55 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Three. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)62 and in SOUTHERN's Form 10-K for the year ended December 31, 1999, File No. 1-3526, as Exhibit 10(a)63.) * (a) 56 - Amendment Number Four to The Southern Company Employee Stock Ownership Plan. * (a) 57 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 2000. * (a) 58 - Southern Company Performance Pay Plan (Shareholder Approved) effective January 1, 2000. # * (a) 59 - The Deferred Compensation Plan for the Directors of The Southern Company, Amended and Restated effective February 19, 2001. # (a) 60 - The Southern Company Outside Directors Pension Plan. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)77.) # * (a) 61 - The Southern Company Deferred Compensation Plan, Amended and Restated effective February 23, 2001. # (a) 62 - The Southern Company Outside Directors Stock Plan and First Amendment thereto. (Designated in Registration No. 33-54415 as Exhibit 4(c) and in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)79.) E-15 # * (a) 63 - Outside Directors Stock Plan for Subsidiaries of The Southern Company, Amended and Restated effective January 1, 2000. # * (a) 64 - The Southern Company Performance Dividend Plan, Amended and Restated effective December 11, 2000. (a) 65 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Four. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1996, File No. 1-3526, as Exhibit 10(a)83, in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit 10(a)79, in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)71 and in SOUTHERN's Form 10-K for the year ended December 31, 1999, File No. 1-3526, as Exhibit 10(a)72.) * (a) 66 - Amendment Number Five and Amendment Number Six to The Southern Company Pension Plan. # * (a) 67 - The Southern Company Performance Stock Plan, Amended and Restated effective January 1, 2000. # * (a) 68 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective July 10, 2000. # (a) 69 - The Southern Company Performance Sharing Plan effective January 1, 1997 and all amendments thereto through Amendment Number Seven. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit 10(a)82, in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)76 and in SOUTHERN's Form 10-K for the year ended December 31, 1999, File No. 1-3526, as Exhibit 10(a)76.) # * (a) 70 - Amendment Number Eight to The Southern Company Performance Sharing Plan. # * (a) 71 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective July 10, 2000. * (a) 72 - Southern Company Change in Control Severance Plan, Amended and Restated effective July 10, 2000. # * (a) 73 - Southern Company Executive Change in Control Severance Plan, Amended and Restated effective July 10, 2000. # (a) 74 - Deferred Compensation Agreement between SOUTHERN, GEORGIA and Henry Allen Franklin and First Amendment and Assignment to SCS. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)80 and in SOUTHERN's Form 10-K for the year ended December 31, 1999, File No. 1-3526, as Exhibit 10(a)84.) # (a) 75 - Deferred Compensation Agreement between SOUTHERN, Southern Nuclear and William G. Hairston III. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)81.) E-16 # (a) 76 - Deferred Compensation Agreement between SOUTHERN, GEORGIA and Warren Y. Jobe. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)82.) # (a) 77 - Deferred Compensation Agreement between SOUTHERN, Southern Energy Resources, Inc. and Gale E. Klappa and First Amendment and Assignment to SCS. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1999, File No. 1-3526, as Exhibit 10(a)87.) # (a) 78 - Deferred Compensation Agreement between SOUTHERN, Southern Energy Resources, Inc. and S. Marce Fuller. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1999, File No. 1-3526, as Exhibit 10(a)88.) # * (a) 79 - Amended and Restated Change in Control Agreement between SOUTHERN, GULF and Travis J. Bowden. # * (a) 80 - Amended and Restated Change in Control Agreement between SOUTHERN, SCS and A. W. Dahlberg. # * (a) 81 - Amended and Restated Change in Control Agreement between SOUTHERN, MISSISSIPPI and Dwight H. Evans. # (a) 82 - Change in Control Agreement between SOUTHERN, ALABAMA and Banks Harry Farris. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)88.) # * (a) 83 - Amended and Restated Change in Control Agreement between SOUTHERN, SCS and Henry Allen Franklin. # * (a) 84 - Amended and Restated Change in Control Agreement between SOUTHERN, Southern Nuclear and William G. Hairston, III. # * (a) 85 - Amended and Restated Change in Control Agreement between SOUTHERN, ALABAMA and Elmer B. Harris. # * (a) 86 - Amended and Restated Change in Control Agreement between SOUTHERN, SAVANNAH and G. Edison Holland, Jr. # * (a) 87 - Amended and Restated Change in Control Agreement between SOUTHERN, SCS and C. Alan Martin. # * (a) 88 - Amended and Restated Change in Control Agreement between SOUTHERN, SCS and Charles Douglas McCrary. # * (a) 89 - Amended and Restated Change in Control Agreement between SOUTHERN, GEORGIA and David M. Ratcliffe. # * (a) 90 - Amended and Restated Change in Control Agreement between SOUTHERN, SCS and Stephen A. Wakefield. E-17 # * (a) 91 - Amended and Restated Change in Control Agreement between SOUTHERN, SCS and W. Lawrence Westbrook. # * (a) 92 - Amended and Restated Change in Control Agreement between SOUTHERN, SCS and Gale E. Klappa. # (a) 93 - Change in Control Agreement between SOUTHERN, Southern Energy Resources, Inc. and S. Marce Fuller and First Amendment thereto. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1999, File No. 1-3526, as Exhibit 10(a)103.) # * (a) 94 - Deferred Compensation Agreement between SOUTHERN and William L. Westbrook. # * (a) 95 - Deferred Compensation Agreement between SOUTHERN and Alfred W. Dahlberg, III. # * (a) 96 - Southern Company Change in Control Benefit Plan Determination Policy, effective July 10, 2000. # * (a) 97 - Change in Control Agreement between SOUTHERN, SCS and Robert H. Haubein, Jr.. # * (a) 98 - Deferred Compensation Agreement between SOUTHERN, SCS and Stephen A. Wakefield. # * (a) 99 - Deferred Compensation Agreement between SOUTHERN and Wayne T. Dalke. # * (a) 100 - Master Separation and Distribution Agreement dated as of September 1, 2000 between SOUTHERN and Mirant. # * (a) 101 - Indemnification and Insurance Matters Agreement dated as of September 1, 2000 between SOUTHERN and Mirant. # * (a) 102 - Tax Indemnification Agreement dated as of September 1, 2000 among SOUTHERN and its affiliated companies and Mirant and its affiliated companies. # * (a) 103 - Southern Company Deferred Compensation Trust Agreement dated as of January 1, 2001 between Wachovia Bank, N.A., SOUTHERN, SCS, ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, Southern Communications, Energy Solutions, Mirant and Southern Nuclear. # * (a) 104 - Deferred Stock Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Reliance Trust Company, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI, and SAVANNAH. # * (a) 105 - Deferred Cash Compensation Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Wachovia Bank, N.A, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI, and SAVANNAH. E-18 ALABAMA (b) 1 - Service contracts dated as of January 1, 1984, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN and Amendment No. 1 dated as of September 6, 1985 between SCS and SOUTHERN. See Exhibit 10(a)1 herein. * (b) 2 - Interchange contract dated February 17, 2000, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, SPC and SCS. See Exhibit 10(a)6 herein. (b) 3 - Agreement dated as of January 27, 1959, Amendment No. 1 dated as of October 27, 1982 and Amendment No. 2 dated November 4, 1993 and effective June 1, 1994, among SEGCO, ALABAMA and GEORGIA. See Exhibit 10(a)7 herein. (b) 4 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)33 herein. (b) 5 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)34 herein. (b) 6 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (b) 7 - Firm Power Purchase Contract between ALABAMA and AMEA. (Designated in Certificate of Notification, File No. 70-7212, as Exhibit B.) (b) 8 - 1991 Firm Power Purchase Contract between ALABAMA and AMEA. (Designated in Form U-1, File No. 70-7873, as Exhibit B-1.) (b) 9 - Purchase and Ownership Agreement for Joint Ownership Interest in the James H. Miller, Jr. Steam Electric Generating Plant Units One and Two dated November 18, 1988, between ALABAMA and AEC. See Exhibit 10(a)38 herein. (b) 10 - Operating Agreement for Joint Ownership Interest in the James H. Miller, Jr. Steam Electric Generating Plant Units One and Two dated November 18, 1988, between ALABAMA and AEC. See Exhibit 10(a)39 herein. (b) 11 - Long Term Transmission Service Agreement between Entergy Power, Inc. and ALABAMA, MISSISSIPPI and SCS. See Exhibit 10(a)47 herein. (b) 12 - Operating Agreement for the Joseph M. Farley Nuclear Plant between ALABAMA and Southern Nuclear dated as of December 23, 1991. See Exhibit 10(a)51 herein. # * (b) 13 - The Southern Company Executive Productivity Improvement Plan, Amended and Restated effective January 1, 2001. See Exhibit 10(a)52 herein. (b) 14 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Five. See Exhibit 10(a)53 herein. E-19 * (b) 15 - Amendment Number Six to The Southern Company Employee Savings Plan. See Exhibit 10(a)54 herein. (b) 16 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)55 herein. * (b) 17 - Amendment Number Four to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)56 herein. * (b) 18 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 2000. See Exhibit 10(a)57 herein. * (b) 19 - Southern Company Performance Pay Plan (Shareholder Approved) effective January 1, 2000. See Exhibit 10(a)58 herein. # * (b) 20 - The Southern Company Deferred Compensation Plan, Amended and Restated effective February 23, 2001. See Exhibit 10(a)61 herein. # (b) 21 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)60 herein. # * (b) 22 - Outside Directors Stock Plan for Subsidiaries of The Southern Company, Amended and Restated effective January 1, 2000. See Exhibit 10(a)63 herein. (b) 23 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Four. See Exhibit 10(a)65 herein. * (b) 24 - Amendment Number Five and Amendment Number Six to The Southern Company Pension Plan. See Exhibit 10(a)66 herein. # * (b) 25 - The Southern Company Performance Stock Plan, Amended and Restated effective January 1, 2000. See Exhibit 10(a)67 herein. # * (b) 26 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)68 herein. # * (b) 27 - The Southern Company Performance Dividend Plan, Amended and Restated effective December 11, 2000. See Exhibit 10(a)64 herein. # (b) 28 - The Southern Company Performance Sharing Plan effective January 1, 1997 and all amendments thereto through Amendment Number Seven. See Exhibit 10(a)69 herein. # * (b) 29 - Amendment Number Eight to The Southern Company Performance Sharing Plan. See Exhibit 10(a)70 herein. # * (b) 30 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)71 herein. E-20 * (b) 31 - Southern Company Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)72 herein. # (b) 32 - Southern Company Executive Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)73 herein. # (b) 33 - Change in Control Agreement between SOUTHERN, ALABAMA and Banks Harry Farris. See Exhibit 10(a)82 herein. # * (b) 34 - Amended and Restated Change in Control Agreement between SOUTHERN, ALABAMA and Elmer B. Harris. See Exhibit 10(a)85 herein. # (b) 35 - Supplemental Pension Agreement between ALABAMA, GULF and Travis J. Bowden. (Designated in ALABAMA's Form 10-K for the year ended December 31, 1998, File No. 1-3164, as Exhibit 10(b)40.) # * (b) 36 - Deferred Compensation Plan for Directors of Alabama Power Company, Amended and Restated as of January 1, 2000. # * (b) 37 - Southern Company Change in Control Benefit Plan Determination Policy, effective July 10, 2000. See Exhibit 10(a)96 herein. # * (b) 38 - Southern Company Deferred Compensation Trust Agreement dated as of January 1, 2001 between Wachovia Bank, N.A., SOUTHERN, SCS, ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, Southern Communications, Energy Solutions, Mirant and Southern Nuclear. See Exhibit 10(a)103 herein. # * (b) 39 - Deferred Stock Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Reliance Trust Company, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI, and SAVANNAH. See Exhibit 10(b) 104 herein. # * (b) 40 - Deferred Cash Compensation Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Wachovia Bank, N.A, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI, and SAVANNAH. See Exhibit 10(a)105 herein. GEORGIA (c) 1 - Service contracts dated as of January 1, 1984, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN and Amendment No. 1 dated as of September 6, 1985, between SCS and SOUTHERN. See Exhibit 10(a)1 herein. * (c) 2 - Interchange contract dated February 17, 2000, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, SPC and SCS. See Exhibit 10(a)6 herein. (c) 3 - Agreement dated as of January 27, 1959, Amendment No. 1 dated as of October 27, 1982 and Amendment No. 2 dated November 4, 1993 and effective June 1, 1994, among SEGCO, ALABAMA and GEORGIA. See Exhibit 10(a)7 herein. (c) 4 - Joint Committee Agreement dated as of August 27, 1976, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)8 herein. E-21 (c) 5 - Edwin I. Hatch Nuclear Plant Purchase and Ownership Participation Agreement dated as of January 6, 1975, between GEORGIA and OPC. See Exhibit 10(a)9 herein. (c) 6 - Edwin I. Hatch Nuclear Plant Operating Agreement dated as of January 6, 1975, between GEORGIA and OPC. See Exhibit 10(a)10 herein. (c) 7 - Revised and Restated Integrated Transmission System Agreement dated as of November 12, 1990, between GEORGIA and OPC. See Exhibit 10(a)11 herein. (c) 8 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of March 26, 1976, between GEORGIA and OPC. See Exhibit 10(a)12 herein. (c) 9 - Plant Hal Wansley Operating Agreement dated as of March 26, 1976, between GEORGIA and OPC. See Exhibit 10(a)13 herein. (c) 10 - Edwin I. Hatch Nuclear Plant Purchase and Ownership Participation Agreement dated as of August 27, 1976, between GEORGIA, MEAG and Dalton. See Exhibit 10(a)14 herein. (c) 11 - Edwin I. Hatch Nuclear Plant Operating Agreement dated as of August 27, 1976, between GEORGIA, MEAG and Dalton. See Exhibit 10(a)15 herein. (c) 12 - Alvin W. Vogtle Nuclear Units Number One and Two Purchase and Ownership Participation Agreement dated as of August 27, 1976 and Amendment No. 1 dated as of January 18, 1977, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)16 herein. (c) 13 - Alvin W. Vogtle Nuclear Units Number One and Two Operating Agreement dated as of August 27, 1976, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)17 herein. (c) 14 - Alvin W. Vogtle Nuclear Units Number One and Two Purchase, Amendment, Assignment and Assumption Agreement dated as of November 16, 1983, between GEORGIA and MEAG. See Exhibit 10(a)18 herein. (c) 15 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of August 27, 1976, between GEORGIA and MEAG. See Exhibit 10(a)19 herein. (c) 16 - Plant Hal Wansley Operating Agreement dated as of August 27, 1976, between GEORGIA and MEAG. See Exhibit 10(a)20 herein. (c) 17 - Nuclear Operating Agreement between Southern Nuclear and GEORGIA dated as of July 1, 1993. See Exhibit 10(a)21 herein. (c) 18 - Pseudo Scheduling and Services Agreement between GEORGIA and MEAG dated as of April 8, 1997. See Exhibit 10(a)22 herein. (c) 19 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of April 19, 1977, between GEORGIA and Dalton. See Exhibit 10(a)23 herein. E-22 (c) 20 - Plant Hal Wansley Operating Agreement dated as of April 19, 1977, between GEORGIA and Dalton. See Exhibit 10(a)24 herein. (c) 21 - Plant Robert W. Scherer Units Number One and Two Purchase and Ownership Participation Agreement dated as of May 15, 1980, Amendment No. 1 dated as of December 30, 1985, Amendment No. 2 dated as of July 1, 1986, Amendment No. 3 dated as of August 1, 1988 and Amendment No. 4 dated as of December 31, 1990, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)25 herein. (c) 22 - Plant Robert W. Scherer Units Number One and Two Operating Agreement dated as of May 15, 1980, Amendment No. 1 dated as of December 3, 1985 and Amendment No. 2 dated as of December 31, 1990, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)26 herein. (c) 23 - Plant Robert W. Scherer Purchase, Sale and Option Agreement dated as of May 15, 1980, between GEORGIA and MEAG. See Exhibit 10(a)27 herein. (c) 24 - Plant Robert W. Scherer Purchase and Sale Agreement dated as of May 16, 1980, between GEORGIA and Dalton. See Exhibit 10(a)28 herein. (c) 25 - Plant Robert W. Scherer Unit Number Three Purchase and Ownership Participation Agreement dated as of March 1, 1984, Amendment No. 1 dated as of July 1, 1986 and Amendment No. 2 dated as of August 1, 1988, between GEORGIA and GULF. See Exhibit 10(a)29 herein. (c) 26 - Plant Robert W. Scherer Unit Number Three Operating Agreement dated as of March 1, 1984, between GEORGIA and GULF. See Exhibit 10(a)30 herein. (c) 27 - Plant Robert W. Scherer Unit No. Four Amended and Restated Purchase and Ownership Participation Agreement by and among GEORGIA, FP&L and JEA dated as of December 31, 1990 and Amendment No. 1 dated as of June 15, 1994. See Exhibit 10(a)31 herein. (c) 28 - Plant Robert W. Scherer Unit No. Four Operating Agreement by and among GEORGIA, FP&L and JEA dated as of December 31, 1990 and Amendment No. 1 dated as of June 15, 1994. See Exhibit 10(a)32 herein. (c) 29 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)33 herein. (c) 30 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)34 herein. (c) 31 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (c) 32 - Rocky Mountain Pumped Storage Hydroelectric Project Ownership Participation Agreement dated November 18, 1988, between OPC and GEORGIA. See Exhibit 10(a)36 herein. E-23 (c) 33 - Rocky Mountain Pumped Storage Hydroelectric Project Operating Agreement dated November 18, 1988, between OPC and GEORGIA. See Exhibit 10(a)37 herein. (c) 34 - Long Term Transaction Service Agreement between GEORGIA and OPC dated as of February 26, 1999. See Exhibit 10(a)41 herein. (c) 35 - Revised and Restated Coordination Services Agreement between and among GEORGIA, OPC and Georgia Systems Operations Corporation dated as of September 10, 1997. See Exhibit 10(a)42 herein. (c) 36 - Amended and Restated Nuclear Managing Board Agreement for Plant Hatch and Plant Vogtle among GEORGIA, OPC, MEAG and Dalton dated as of July 1, 1993. See Exhibit 10(a)43 herein. (c) 37 - Integrated Transmission System Agreement, Power Sale and Coordination Umbrella Agreement between GEORGIA and OPC dated as of November 12, 1990. See Exhibit 10(a)44 herein. (c) 38 - Revised and Restated Integrated Transmission System Agreement between GEORGIA and Dalton dated as of December 7, 1990. See Exhibit 10(a)45 herein. (c) 39 - Revised and Restated Integrated Transmission System Agreement between GEORGIA and MEAG dated as of December 7, 1990. See Exhibit 10(a)46 herein. (c) 40 - Plant Scherer Managing Board Agreement dated as of December 31, 1990 among GEORGIA, OPC, MEAG, Dalton, GULF, FP&L and JEA. See Exhibit 10(a)48 herein. (c) 41 - Plant McIntosh Combustion Turbine Purchase and Ownership Participation Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. See Exhibit 10(a)49 herein. (c) 42 - Plant McIntosh Combustion Turbine Operating Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. See Exhibit 10(a)50 herein. (c) 43 - Certificate of Limited Partnership of Georgia Power Capital. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit B.) (c) 44 - Amended and Restated Agreement of Limited Partnership of Georgia Power Capital, dated as of December 1, 1994. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit C.) (c) 45 - Action of General Partner of Georgia Power Capital creating the Series A Preferred Securities. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit D.) (c) 46 - Guarantee Agreement of GEORGIA dated as of December 1, 1994, for the benefit of the holders from time to time of the Series A Preferred Securities. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit G.) E-24 # * (c) 47 - The Southern Company Executive Productivity Improvement Plan, Amended and Restated effective January 1, 2001. See Exhibit 10(a)52 herein. (c) 48 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Five. See Exhibit 10(a)53 herein. * (c) 49 - Amendment Number Six to The Southern Company Employee Savings Plan. See Exhibit 10(a)54 herein. (c) 50 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)55 herein. * (c) 51 - Amendment Number Four to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)56 herein. * (c) 52 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 2000. See Exhibit 10(a)57 herein. * (c) 53 - Southern Company Performance Pay Plan (Shareholder Approved) effective January 1, 2000. See Exhibit 10(a)58 herein. # * (c) 54 - The Southern Company Deferred Compensation Plan, Amended and Restated effective February 23, 2001. See Exhibit 10(a)61 herein. # (c) 55 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)60 herein. # * (c) 56 - Outside Directors Stock Plan for Subsidiaries of The Southern Company, Amended and Restated effective January 1, 2000. See Exhibit 10(a)63 herein. (c) 57 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Four. See Exhibit 10(a)65 herein. * (c) 58 - Amendment Number Five and Amendment Number Six to The Southern Company Pension Plan. See Exhibit 10(a)66 herein. # * (c) 59 - The Southern Company Performance Stock Plan, Amended and Restated effective January 1, 2000. See Exhibit 10(a)67 herein. # * (c) 60 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)68 herein. # * (c) 61 - The Southern Company Performance Dividend Plan, Amended and Restated effective December 11, 2000. See Exhibit 10(a)64 herein. # (c) 62 - The Southern Company Performance Sharing Plan effective January 1, 1997 and all amendments thereto through Amendment Number Seven. See Exhibit 10(a)69 herein. E-25 # * (c) 63 - Amendment Number Eight to The Southern Company Performance Sharing Plan. See Exhibit 10(a)70 herein. # * (c) 64 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)71 herein. * (c) 65 - Southern Company Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)72 herein. # * (c) 66 - Southern Company Executive Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)73 herein. # (c) 67 - Deferred Compensation Agreement between SOUTHERN, GEORGIA and Henry Allen Franklin and First Amendment and Assignment to SCS. See Exhibit 10(a)74 herein. # (c) 68 - Deferred Compensation Agreement between SOUTHERN, GEORGIA and Warren Y. Jobe. See Exhibit 10(a)76 herein. # * (c) 69 - Amended and Restated Change in Control Agreement between SOUTHERN, GEORGIA and David M. Ratcliffe. See Exhibit 10(a)89 herein. # (c) 70 - Supplemental Pension Agreement between GEORGIA and Warren Y. Jobe. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1998, File No. 1-6468, as Exhibit 10(c)77.) # * (c) 71 - Deferred Compensation Plan For Directors of Georgia Power Company, Amended and Restated Effective February 21, 2001. # * (c) 72 - Southern Company Change in Control Benefit Plan Determination Policy, effective July 10, 2000. See Exhibit 10(a)96 herein. # * (c) 73 - Southern Company Deferred Compensation Trust Agreement dated as of January 1, 2001 between Wachovia Bank, N.A., SOUTHERN, SCS, ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, Southern Communications, Energy Solutions, Mirant and Southern Nuclear. See Exhibit 10(a)103 herein. # * (c) 74 - Deferred Stock Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Reliance Trust Company, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI, and SAVANNAH. See Exhibit 10(a)104 herein. # * (c) 75 - Deferred Cash Compensation Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Wachovia Bank, N.A, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI, and SAVANNAH. See Exhibit 10 (a)105 herein. GULF (d) 1 - Service contracts dated as of January 1, 1984, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN and Amendment No. 1 dated as of September 6, 1985, between SCS and SOUTHERN. See Exhibit 10(a)1 herein. E-26 * (d) 2 - Interchange contract dated February 17, 2000, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, SPC and SCS. See Exhibit 10(a)6 herein. (d) 3 - Plant Robert W. Scherer Unit Number Three Purchase and Ownership Participation Agreement dated as of March 1, 1984, Amendment No. 1 dated as of July 1, 1986 and Amendment No. 2 dated as of August 1, 1988, between GEORGIA and GULF. See Exhibit 10(a)29 herein. (d) 4 - Plant Robert W. Scherer Unit Number Three Operating Agreement dated as of March 1, 1984, between GEORGIA and GULF. See Exhibit 10(a)30 herein. (d) 5 - Plant Scherer Managing Board Agreement dated as of December 31, 1990 among GEORGIA, OPC, MEAG, Dalton, GULF, FP&L and JEA. See Exhibit 10(a)48 herein. (d) 6 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)33 herein. (d) 7 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)34 herein. (d) 8 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (d) 9 - Agreement between GULF and AEC, effective August 1, 1985. (Designated in GULF's Form 10-K for the year ended December 31, 1985, File No. 0-2429, as Exhibit 10(g).) # * (d) 10 - The Southern Company Executive Productivity Improvement Plan, Amended and Restated effective January 1, 2000. See Exhibit 10(a)52 herein. (d) 11 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Five. See Exhibit 10(a)53 herein. * (d) 12 - Amendment Number Six to The Southern Company Employee Savings Plan. See Exhibit 10(a)54 herein. (d) 13 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)55 herein. * (d) 14 - Amendment Number Four to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)56 herein. * (d) 15 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 2000. See Exhibit 10(a)57 herein. E-27 * (d) 16 - Southern Company Performance Pay Plan (Shareholder Approved) effective January 1, 2000. See Exhibit 10(a)58 herein. # * (d) 17 - The Southern Company Deferred Compensation Plan, Amended and Restated effective February 23, 2001. See Exhibit 10(a)61 herein. # (d) 18 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)60 herein. # * (d) 19 - Outside Directors Stock Plan for Subsidiaries of The Southern Company, Amended and Restated effective January 1, 2000. See Exhibit 10(a)63 herein. (d) 20 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Four. See Exhibit 10(a)65 herein. * (d) 21 - Amendment Number Five and Amendment Number Six to The Southern Company Pension Plan. See Exhibit 10(a)66 herein. # * (d) 22 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)71 herein. * (d) 23 - Southern Company Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)72 herein. # * (d) 24 - Southern Company Executive Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)73 herein. # * (d) 25 - Amended and Restated Change in Control Agreement between SOUTHERN, GULF and Travis J. Bowden. See Exhibit 10(a)79 herein. # * (d) 26 - The Southern Company Performance Stock Plan, Amended and Restated effective January 1, 2000. See Exhibit 10(a)67 herein. # * (d) 27 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)68 herein. # * (d) 28 - The Southern Company Performance Dividend Plan, Amended and Restated effective December 11, 2000. See Exhibit 10(a)64 herein. # (d) 29 - The Southern Company Performance Sharing Plan effective January 1, 1997 and all amendments thereto through Amendment Number Seven. See Exhibit 10(a)69 herein. # * (d) 30 - Amendment Number Eight to The Southern Company Performance Sharing Plan. See Exhibit 10(a)70 herein. # (d) 31 - Supplemental Pension Agreement between SAVANNAH, GULF and G. Edison Holland, Jr. (Designated in GULF's Form 10-K for the year ended December 31, 1998, File No. 0-2429, as Exhibit 10(d)35.) E-28 # (d) 32 - Supplemental Pension Agreement between ALABAMA, GULF and Travis J. Bowden. See Exhibit 10(b)35 herein. # * (d) 33 - Deferred Compensation Plan For Directors of Gulf Power Company, Amended and Restated Effective January 1, 2000 and First Amendment thereto. # * (d) 34 - Southern Company Change in Control Benefit Plan Determination Policy, effective July 10, 2000. See Exhibit 10(a)96 herein. # * (d) 35 - Southern Company Deferred Compensation Trust Agreement dated as of January 1, 2001 between Wachovia Bank, N.A., SOUTHERN, SCS, ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, Southern Communications, Energy Solutions, Mirant and Southern Nuclear. See Exhibit 10(a)103 herein. # * (d) 36 - Deferred Stock Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Reliance Trust Company, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI, and SAVANNAH. See Exhibit 10(a)104 herein. # * (d) 37 - Deferred Cash Compensation Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Wachovia Bank, N.A, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI, and SAVANNAH. See Exhibit 10(a)105 herein. MISSISSIPPI (e) 1 - Service contracts dated as of January 1, 1984, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN and Amendment No. 1 dated as of September 6, 1985, between SCS and SOUTHERN. See Exhibit 10(a)1 herein. * (e) 2 - Interchange contract dated February 17, 2000, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, SPC and SCS. See Exhibit 10(a)6 herein. (e) 3 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)33 herein. (e) 4 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)34 herein. (e) 5 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (e) 6 - Transmission Facilities Agreement dated February 25, 1982, Amendment No. 1 dated May 12, 1982 and Amendment No. 2 dated December 6, 1983, between Gulf States and MISSISSIPPI. See Exhibit 10(a)40 herein. (e) 7 - Long Term Transmission Service Agreement between Entergy Power, Inc. and ALABAMA, MISSISSIPPI and SCS. See Exhibit 10(a)47 herein. E-29 # * (e) 8 - The Southern Company Executive Productivity Improvement Plan, Amended and Restated effective January 1, 2001. See Exhibit 10(a)52 herein. (e) 9 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Five. See Exhibit 10(a)53 herein. * (e) 10 - Amendment Number Six to The Southern Company Employee Savings Plan. See Exhibit 10(a)54 herein. (e) 11 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)55 herein. * (e) 12 - Amendment Number Four to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)56 herein. (e) 13 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 2000. See Exhibit 10(a)57 herein. * (e) 14 - Southern Company Performance Pay Plan (Shareholder Approved) effective January 1, 2000. See Exhibit 10(a)58 herein. # * (e) 15 - The Southern Company Deferred Compensation Plan, Amended and Restated effective February 23, 2001. See Exhibit 10(a)61 herein. # (e) 16 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)60 herein. # * (e) 17 - Outside Directors Stock Plan for Subsidiaries of The Southern Company, Amended and Restated effective January 1, 2000. See Exhibit 10(a)63 herein. (e) 18 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Four. See Exhibit 10(a)65 herein. * (e) 19 - Amendment Number Five and Amendment Number Six to The Southern Company Pension Plan. See Exhibit 10(a)66 herein. # * (e) 20 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)71 herein. * (e) 21 - Southern Company Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)72 herein. # * (e) 22 - Southern Company Executive Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)73 herein. # * (e) 23 - Amended and Restated Change in Control Agreement between SOUTHERN, MISSISSIPPI and Dwight H. Evans. See Exhibit 10(a)81 herein. E-30 # * (e) 24 - The Southern Company Performance Stock Plan, Amended and Restated effective January 1,2000. See Exhibit 10(a)67 herein. # * (e) 25 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)68 herein. # * (e) 26 - The Southern Company Performance Dividend Plan, Amended and Restated effective December 11, 2000. See Exhibit 10(a)64 herein. # (e) 27 - The Southern Company Performance Sharing Plan effective January 1, 1997 and all amendments thereto through Amendment Number Seven. See Exhibit 10(a)69 herein. # * (e) 28 - Amendment Number Eight to The Southern Company Performance Sharing Plan. See Exhibit 10(a)70 herein. # (e) 29 - Deferred Compensation Plan for Directors of Mississippi Power Company, Amended and Restated Effective January 1, 2000. (Designated in MISSISSIPPI's Form 10-K for the year ended December 31, 1999, File No. 0-6849, as Exhibit 10(e)37.) # * (e) 30 - Amendment Number One to the Deferred Compensation Plan for Directors of Mississippi Power Company. # * (e) 31 - Southern Company Change in Control Benefit Plan Determination Policy, effective July 10, 2000. See Exhibit 10(a)96 herein. # * (e) 32 - Southern Company Deferred Compensation Trust Agreement dated as of January 1, 2001 between Wachovia Bank, N.A., SOUTHERN, SCS, ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, Southern Communications, Energy Solutions, Mirant and Southern Nuclear. See Exhibit 10(a)103 herein. # * (e) 33 - Deferred Stock Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Reliance Trust Company, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI, and SAVANNAH. See Exhibit 10(a)104 herein. # * (e) 34 - Deferred Cash Compensation Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Wachovia Bank, N.A, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI, and SAVANNAH. See Exhibit 10(a)105 herein. SAVANNAH (f) 1 - Service contract dated as of March 3, 1988, between SCS and SAVANNAH. See Exhibit 10(a)3 herein. * (f) 2 - Interchange contract dated February 17, 2000, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, SPC and SCS. See Exhibit 10(a)6 herein. (f) 3 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)33 herein. E-31 (f) 4 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)34 herein. (f) 5 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (f) 6 - Plant McIntosh Combustion Turbine Purchase and Ownership Participation Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. See Exhibit 10(a)49 herein. (f) 7 - Plant McIntosh Combustion Turbine Operating Agreement between GEORGIA and SAVANNAH dated December 15, 1992. See Exhibit 10(a)50 herein. # * (f) 8 - The Southern Company Executive Productivity Improvement Plan, Amended and Restated effective January 1, 2000. See Exhibit 10(a)52 herein. (f) 9 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Five. See Exhibit 10(a)53 herein. * (f) 10 - Amendment Number Six to The Southern Company Employee Savings Plan. See Exhibit 10(a)54 herein. (f) 11 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)55 herein. * (f) 12 - Amendment Number Four to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)56 herein. # * (f) 13 - Supplemental Executive Retirement Plan of SAVANNAH, Amended and Restated effective October 26, 2000. # * (f) 14 - Deferred Compensation Plan for Key Employees of SAVANNAH, Amended and Restated effective October 26, 2000. (f) 15 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 2000. See Exhibit 10(a)57 herein. * (f) 16 - Southern Company Performance Pay Plan (Shareholder Approved) effective January 1, 2000. See Exhibit 10(a)58 herein. # (f) 17 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)60 herein. # * (f) 18 - Deferred Compensation Plan for Directors of SAVANNAH, Amended and Restated effective October 26, 2000. # * (f) 19 - Outside Directors Stock Plan for Subsidiaries of The Southern Company, Amended and Restated effective January 1, 2000. See Exhibit 10(a)63 herein. E-32 (f) 20 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Four. See Exhibit 10(a)65 herein. * (f) 21 - Amendment Number Five and Amendment Number Six to The Southern Company Pension Plan. See Exhibit 10(a)66 herein. # * (f) 22 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)76 herein. * (f) 23 - Southern Company Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)72 herein. # * (f) 24 - Southern Company Executive Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)73 herein. # * (f) 25 - Amended and Restated Change in Control Agreement between SOUTHERN, SAVANNAH and G. Edison Holland, Jr. See Exhibit 10(a)86 herein. # * (f) 26 - The Southern Company Deferred Compensation Plan, Amended and Restated effective February 23, 2001. See Exhibit 10(a)61 herein. # * (f) 27 - The Southern Company Performance Stock Plan, Amended and Restated effective January 1, 2000. See Exhibit 10(a)67 herein. # * (f) 28 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)68 herein. # * (f) 29 - The Southern Company Performance Dividend Plan, Amended and Restated effective December 11, 2000. See Exhibit 10(a)64 herein. # (f) 30 - The Southern Company Performance Sharing Plan effective January 1, 1997 and all amendments thereto through Amendment Number Seven. See Exhibit 10(a)69 herein. # * (f) 31 - Amendment Number Eight to The Southern Company Performance Sharing Plan. See Exhibit 10(a)70 herein. # (f) 32 - Supplemental Pension Agreement between SAVANNAH, GULF and G. Edison Holland, Jr. See Exhibit 10(d)31 herein. # * (f) 33 - Southern Company Change in Control Benefit Plan Determination Policy, effective July 10, 2000. See Exhibit 10(a)96 herein. # * (f) 34 - Agreement for supplemental pension benefits between SAVANNAH and William Miles Greer. # * (f) 35 - Agreement crediting additional service between SAVANNAH and William Miles Greer. # * (f) 36 - Southern Company Deferred Compensation Trust Agreement dated as of January 1, 2001 between Wachovia Bank, N.A., SOUTHERN, SCS, ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, Southern Communications, Energy Solutions, Mirant and Southern Nuclear. See Exhibit 10(a)103 herein. E-33 # * (f) 37 - Deferred Stock Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Reliance Trust Company, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI, and SAVANNAH. See Exhibit 10(a)104 herein. # * (f) 38 - Deferred Cash Compensation Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Wachovia Bank, N.A, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI, and SAVANNAH. See Exhibit 10(a)105 herein. (21) Subsidiaries of Registrants SOUTHERN * (a) - Subsidiaries of Registrant is contained herein at page IV-5. ALABAMA * (b) - Subsidiaries of Registrant is contained herein at page IV-5. GEORGIA * (c) - Subsidiaries of Registrant is contained herein at page IV-5. GULF * (d) - Subsidiaries of Registrant is contained herein at page IV-5. MISSISSIPPI * (e) - Subsidiaries of Registrant is contained herein at page IV-5. SAVANNAH * (f) - Subsidiaries of Registrant is contained herein at page IV-5. (23) Consents of Experts and Counsel SOUTHERN * (a) - The consent of Arthur Andersen LLP is contained herein at page IV-6. ALABAMA * (b) - The consent of Arthur Andersen LLP is contained herein at page IV-7. GEORGIA * (c) - The consent of Arthur Andersen LLP is contained herein at page IV-8. E-34 GULF * (d) - The consent of Arthur Andersen LLP is contained herein at page IV-9. MISSISSIPPI * (e) - The consent of Arthur Andersen LLP is contained herein at page IV-10. SAVANNAH * (f) - The consent of Arthur Andersen LLP is contained herein at page IV-11. (24) Powers of Attorney and Resolutions SOUTHERN * (a) - Power of Attorney and resolution. ALABAMA * (b) - Power of Attorney and resolution. GEORGIA * (c) - Power of Attorney and resolution. GULF * (d) - Power of Attorney and resolution. MISSISSIPPI * (e) - Power of Attorney and resolution. SAVANNAH * (f) - Power of Attorney and resolution. E-35