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Rating Action:

Moody's Downgrades Southern Company and Three Utilities

12 Aug 2010

Approximately $12 Billion of Debt Securities Downgraded

New York, August 12, 2010 -- Moody's Investors Service downgraded the ratings of The Southern Company (Senior Unsecured to Baa1 from A3); Georgia Power Company (Senior Unsecured to A3 from A2); Gulf Power Company (Senior Unsecured to A3 from A2); Mississippi Power Company (Senior Unsecured to A2 from A1); and Southern Company Capital Funding, Inc. (Senior Unsecured to Baa1 from A3). Moody's downgraded the short-term ratings for commercial paper of The Southern Company and Southern Company Funding Corporation to Prime-2 from Prime-1 and the variable rate demand obligation ratings of Georgia Power Company, Gulf Power Company, and Mississippi Power Company to VMIG-2 from VMIG-1. The rating outlook of Southern Company, Georgia Power , Gulf Power, Mississippi Power, and Southern Company Capital Funding is stable. These rating actions conclude the review for possible downgrade that was initiated on June 17, 2010.

"The downgrade of The Southern Company and three of its utility subsidiaries considers financial metrics that are weak for the single A rating category; a higher business and operating risk profile emanating from new nuclear and IGCC construction; a less supportive Florida regulatory and political environment; regulatory risk in Georgia with a large pending rate case; a weak regional economy, and longer-term pressures from potential carbon controls and renewable portfolio standards" said Michael G. Haggarty, Senior Vice President.

The downgrade of Georgia Power reflects cash flow coverage metrics that are weak for the A rating category, particularly considering the utility's high capital spending levels and rapidly increasing investment in new nuclear generation. Moody's has indicated that utilities pursuing new nuclear generation would be ascribed a higher business and operating risk profile and be expected to exhibit commensurately stronger cash flow coverage metrics to offset this higher risk profile. Instead, Georgia Power's cash flow from operations pre-working capital to debt ratio has declined over the last three years and at 19.7% in 2009 is now well below our 22% minimum guideline for an A credit rating and below most other A rated vertically integrated utility peers. The downgrade also considers the potential regulatory risk associated with a substantial rate case pending at a time when the Georgia economy remains weak. Because of the size of the rate request and a sensitivity to economic conditions, the Georgia Public Service Commission has announced plans to hold several public hearings on the rate case throughout the state. The rating action also reflects longer-term risks to this predominantly coal-fired utility from potential carbon controls and renewable portfolio standards, and a more constrained liquidity profile with over half of its bank credit facilities supporting put-able variable rate demand bond obligations.

The downgrade of Gulf Power reflects cash flow coverage metrics that are weak for the A rating category; high capital expenditure requirements for environmental compliance that are expected to remain elevated; a continued weak Florida economy; and the recent decline in the political and regulatory environment for investor-owned utilities in Florida. The company's cash flow from operations pre-working capital to debt was 18% in 2008 and 21% in 2009, both below our parameters for an A rating. Moody's believes that material improvement in cash flow coverage metrics is less likely considering the recent decline in the credit supportiveness in the current perceived Florida political and regulatory environment. Like Southern's other utility subsidiaries, Gulf Power is highly reliant on coal as a generation source and is thus also vulnerable to potential carbon controls and renewable portfolio standards. The utility's liquidity is reliant exclusively on 364-day bank facilities (some with term-out provisions), most of which is used to provide liquidity support to outstanding commercial paper and put-able variable rate demand obligations.

The downgrade of Mississippi Power is prompted by its decision to construct the large, complex Kemper County Integrated Gasification Combined Cycle (IGCC) plant which, at a currently estimated cost of $2.4 billion, is larger than current the $2.1 billion asset size of the utility. Construction of the plant will dramatically increase the utility's capital expenditures and will put pressure on coverage metrics as well , although the utility is expected to continue to exhibit metrics well within our parameters for an A rating. The Mississippi Public Service Commission has approved cost recovery up to $2.88 billion, a 20% contingency, although Moody's notes that at least one other IGCC plant under construction by another IOU has experienced cost overruns well in excess of this level.

The downgrade of the ratings of The Southern Company reflects the downgrade of three of its four utility subsidiaries; the higher business and operating risk profile of these utilities; a potentially growing renewable energy business outside of the Southeast region; and consolidated cash flow coverage metrics that are within our Baa rating range parameters and similar to most other mid to high-Baa rated utility holding company peers. The downgrade of the rating of Southern Company Capital Funding reflects the guarantee of its debt by The Southern Company. The downgrade of the rating of Southern Company Funding Corporation reflects the downgrades of Georgia Power, Gulf Power, and Mississippi Power, three of the four utilities participating in this finance subsidiary's commercial paper program.

Ratings downgraded include:

The Southern Company's senior unsecured and Issuer Rating, to Baa1 from A3; and short-term rating for commercial paper, to Prime-2 from Prime-1;

Georgia Power Company's senior unsecured and Issuer Rating, to A3 from A2; preferred stock, to Baa2 from Baa1; variable rate demand obligation, to VMIG-2 from VMIG-1, and the trust preferred rating of Georgia Power Capital Trust VII, to Baa1 from A3;

Gulf Power Company's senior unsecured and Issuer Rating, to A3 from A2; preferred stock, to Baa2 from Baa1; and variable rate demand obligation, to VMIG-2 from VMIG-1;

Mississippi Power Company's senior unsecured and Issuer Rating, to A2 from A1; preferred stock, to Baa1 from A3; and variable rate demand obligation, to VMIG-2 from VMIG-1;

Southern Company Capital Funding's senior unsecured, to Baa1 from A3;

Southern Company Funding Corporation's short-term rating for commercial paper, to Prime-2 from Prime-1.

The last rating action on The Southern Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company and Southern Company Capital Funding was on June 17, 2010, when their ratings were placed on review for possible downgrade. The principal methodology used in rating these issuers was Moody's Regulated Electric and Gas Utilities, published in August 2009, and available on www.moodys.com in the Ratings Methodologies sub-directory under the Research and Ratings tab. Other methodologies and factors that may have been considered in the process of rating these issuers can also be found in the Ratings Methodologies sub-directory on Moody's website.

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
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

Moody's Downgrades Southern Company and Three Utilities
No Related Data.
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