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Rating Action:

Moody's Changes Outlook of Southern and Three Subs to Negative

01 Sep 2009

New York, September 01, 2009 -- Moody's Investors Service affirmed the ratings and changed the rating outlooks of The Southern Company (A3 Senior Unsecured); Georgia Power Company (A2 Senior Unsecured); Mississippi Power Company (A1 Senior Unsecured); Gulf Power Company (A2 Senior Unsecured); and Southern Company Capital Funding, Inc. (A3 Senior Unsecured) to negative. Moody's affirmed the ratings and stable outlooks of Alabama Power Company (A2 Senior Unsecured); Southern Power Company (Baa1 Senior Unsecured); and Southern Electric Generating Company (A2 Senior Unsecured). Moody's also affirmed Southern Company Funding Corp.'s Prime-1 short-term rating for commercial paper.

"The negative rating outlook on Georgia Power Company considers cash flow coverage metrics that are weak for its rating category and those of peer utilities and the increasing business and operating risk profile of the company as it undertakes the construction of two new nuclear units at its existing Plant Vogtle nuclear generating facility," said Michael G. Haggarty, Vice President/Senior Credit Officer. The two new Vogtle units received an early site permit from the Nuclear Regulatory Commission last week and capital expenditures are expected to increase considerably over the next several years. Although Moody's views nuclear power as a viable long-term strategy for the utility to reduce its reliance on coal and a relatively manageable investment for a company of its size, building a new nuclear plant is a complex and risky endeavor during construction and may result in some modest ratings pressure over the construction period. This new nuclear construction will be in addition to substantial spending for new conventional and biomass generation, transmission, distribution and environmental compliance. The negative outlook also reflects the difficult economic conditions in its Georgia service territory. Because of the poor economy, the utility has experienced lower sales volumes among all classes of customers and will likely earn below its allowed return on equity in 2009 and 2010.

The negative rating outlook on Mississippi Power Company reflects lower cash flow coverage metrics and the risks associated with its proposed construction of a currently estimated $2.2 billion integrated gasification combined cycle (IGCC) plant in Kemper County, Mississippi. The plant represents a considerable undertaking for a utility of its size ($2 billion in total assets as of June 30, 2009) and will increase capital expenditures from a manageable $150 million in 2009 to approximately $1 billion in 2011. As a result, Moody's expects Mississippi Power's business and operating risk profile to increase during the construction period. The negative outlook also reflects recently increased regulatory uncertainty in Mississippi due to turnover at the Mississippi Public Service Commission and concerns raised by the Attorney General and various intervenors over the IGCC plant.

The negative rating outlook on Gulf Power Company considers declining cash flow coverage metrics that are relatively weak for its rating and high capital expenditure requirements for environmental compliance that are expected to remain elevated for the next several years. The company's cash from operations pre-working capital (CFO pre-W/C) to debt has fallen from the 25% range historically to 21.7% in 2008 and 17.7% for the twelve months ending June 30, 2009, and are now below the parameters typically required for its current A2 rating level. These lower metrics have been caused by higher costs and increased debt levels, trends that may continue over the next few years.

The negative rating outlook on The Southern Company is prompted by the negative outlooks on three of its four utility subsidiaries and the higher overall business and operating risk resulting from nuclear and IGCC construction and difficult economic conditions throughout its service territory. The negative outlook also reflects longer term challenges from increasingly stringent environmental mandates, including carbon, and national renewable portfolio standards, which could increase costs significantly for this mostly coal fired utility system.

The negative outlook on the rating of Southern Company Capital Funding reflects the guarantee of its debt by The Southern Company.

The stable rating outlook on Alabama Power Company reflects robust financial metrics that are strong for its rating and manageable capital expenditures, most notably since it is one of the few Southeast utilities without the need to construct major new generation over the near term. The stable outlook on the ratings of Southern Electric Generating Company reflects the guarantee if its debt by Alabama Power Company.

The stable rating outlook on Southern Power Company considers its high percentage of contracted revenues, strong counterparty quality, cash flow coverage metrics that are consistent, predictable, and adequate for its rating, and manageable capital expenditures barring major acquisitions or new construction plans.

The last rating action on Southern Company and Southern Company Capital Funding was on April 15, 2002 when a Prime-1 rating was assigned to their extendible commercial paper programs. The last rating action on Alabama Power Company was on September 17, 2007 when a Baa1 rating as assigned to its preferred stock. The last rating action on Georgia Power Company was on October 8, 2007 when a Baa1 rating was assigned to its preferred stock. The last rating action on Gulf Power Company and Mississippi Power Company was on April 17, 2000 when their ratings were confirmed. The last rating action on Southern Company Capital Funding, Inc. was on November 17, 2005 when an A3 rating was assigned to $250 million of senior unsecured notes. The last rating action on Southern Electric Generating Company was on May 21, 2003, when an A2 rating was assigned to $50 million of senior unsecured notes.

The principal methodology used in rating these issuers was Regulated Electric and Gas Utilities, which can be found at www.moodys.com in the Credit Policy and Methodologies directory, in the Rating Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating these issuers can also be found in the Credit Policy and Methodologies directory.

The Southern Company is a utility holding company headquartered in Atlanta, Georgia and the parent company of utility subsidiaries Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, Southern Electric Generating Company, wholesale power company Southern Power Company, financing subsidiary Southern Company Capital Funding, Inc., and commercial paper issuer Southern Company Funding Corporation.

New York
Michael G. Haggarty
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
William L. Hess
Managing Director
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Changes Outlook of Southern and Three Subs to Negative
No Related Data.
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