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FINANCIAL REVIEW SOUTHERN COMPANY AND SUBSIDIARY COMPANIES 2004 ANNUAL REPORT 20 Management’s report on internal control over 42 Consolidated statements of income financial reporting 43 Consolidated statements of cash flows 21 Report of Independent Registered Public Accounting 44 Consolidated balance sheets Firm–Internal Control over Financial Reporting 46 Consolidated statements of capitalization 22 Report of Independent Registered Public Accounting 48 Consolidated statements of common stockholders’ equity Firm–Consolidated Financial Statements 48 Consolidated statements of comprehensive income 23 Management’s discussion and analysis of results 49 Notes to financial statements of operations and financial condition 74 Selected consolidated financial and operating data 2000-2004 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Southern Company’s management is responsible for establishing financial reporting as of December 31, 2004. Deloitte & Touche and maintaining an adequate system of internal control over finan- LLP’s report, which expresses unqualified opinions on management’s cial reporting as required by the Sarbanes-Oxley Act of 2002 and assessment and on the effectiveness of Southern Company’s internal as defined in Exchange Act Rule 13a-15(f). A control system can control over financial reporting, is included herein. provide only reasonable, not absolute, assurance that the objectives of the control system are met. Under management’s supervision, an evaluation of the design and effectiveness of Southern Company’s internal control over financial reporting was conducted based on the framework in Internal David M. Ratcliffe Control–Integrated Framework issued by the Committee of Sponsor- Chairman, President, and Chief Executive Officer ing Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that Southern Company’s internal control over financial reporting was effective as of December 31, 2004. Deloitte & Touche LLP, an independent registered public Thomas A. Fanning accounting firm, as auditors of Southern Company’s financial state- Executive Vice President, Chief Financial Officer, and Treasurer ments, has issued an attestation report on management’s assessment of the effectiveness of Southern Company’s internal control over February 28, 2005 20 INTERNAL CONTROL OVER FINANCIAL REPORTING SOUTHERN COMPANY AND SUBSIDIARY COMPANIES 2004 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Southern Company We have audited management’s assessment, included in the accom- receipts and expenditures of the company are being made only in panying Management Report (page 20), that Southern Company accordance with authorizations of management and directors of the (the “Company”) maintained effective internal control over financial company; and (3) provide reasonable assurance regarding prevention reporting as of December 31, 2004, based on criteria established or timely detection of unauthorized acquisition, use, or disposition in Internal Control–Integrated Framework issued by the Committee of the company’s assets that could have a material effect on the finan- of Sponsoring Organizations of the Treadway Commission. The cial statements. Company’s management is responsible for maintaining effective Because of the inherent limitations of internal control over internal control over financial reporting and for its assessment of the financial reporting, including the possibility of collusion or improper effectiveness of internal control over financial reporting. Our respon- management override of controls, material misstatements due to sibility is to express an opinion on management’s assessment and an error or fraud may not be prevented or detected on a timely basis. opinion on the effectiveness of the Company’s internal control over Also, projections of any evaluation of the effectiveness of the internal financial reporting based on our audit. control over financial reporting to future periods are subject to the We conducted our audit in accordance with the standards of risk that the controls may become inadequate because of changes the Public Company Accounting Oversight Board (United States). in conditions, or that the degree of compliance with the policies or Those standards require that we plan and perform the audit to procedures may deteriorate. obtain reasonable assurance about whether effective internal control In our opinion, management’s assessment that the Company over financial reporting was maintained in all material respects. Our maintained effective internal control over financial reporting as of audit included obtaining an understanding of internal control over December 31, 2004, is fairly stated, in all material respects, based financial reporting, evaluating management’s assessment, testing and on the criteria established in Internal Control–Integrated Framework evaluating the design and operating effectiveness of internal control, issued by the Committee of Sponsoring Organizations of the Tread- and performing such other procedures as we considered necessary in way Commission. Also in our opinion, the Company maintained, the circumstances. We believe that our audit provides a reasonable in all material respects, effective internal control over financial basis for our opinions. reporting as of December 31, 2004, based on the criteria established A company’s internal control over financial reporting is a process in Internal Control–Integrated Framework issued by the Committee designed by, or under the supervision of, the company’s principal ex- of Sponsoring Organizations of the Treadway Commission. ecutive and principal financial officers, or persons performing similar We have also audited, in accordance with the standards of functions, and effected by the company’s board of directors, manage- the Public Company Accounting Oversight Board (United States), ment, and other personnel to provide reasonable assurance regarding the consolidated financial statements as of and for the year ended the reliability of financial reporting and the preparation of financial December 31, 2004 of the Company and our report dated statements for external purposes in accordance with generally accept- February 28, 2005 expressed an unqualified opinion on those ed accounting principles. A company’s internal control over financial financial statements. reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in Atlanta, Georgia accordance with generally accepted accounting principles, and that February 28, 2005 21 CONSOLIDATED FINANCIAL STATEMENTS SOUTHERN COMPANY AND SUBSIDIARY COMPANIES 2004 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Southern Company We have audited the accompanying consolidated balance sheets and for each of the three years in the period ended December 31, 2004, consolidated statements of capitalization of Southern Company and in conformity with accounting principles generally accepted in the Subsidiary Companies (the “Company”) as of December 31, 2004 United States of America. and 2003, and the related consolidated statements of income, com- As discussed in Note 1 to the financial statements, in 2003 the prehensive income, common stockholders’ equity, and cash flows Southern Company changed its method of accounting for asset for each of the three years in the period ended December 31, 2004. retirement obligations. These financial statements are the responsibility of the Company’s We have also audited, in accordance with the standards of the management. Our responsibility is to express an opinion on these Public Company Accounting Oversight Board (United States), financial statements based on our audits. the effectiveness of the Company’s internal control over financial We conducted our audits in accordance with the standards of reporting as of December 31, 2004, based on the criteria established the Public Company Accounting Oversight Board (United States). in Internal Control–Integrated Framework issued by the Committee Those standards require that we plan and perform the audit to of Sponsoring Organizations of the Treadway Commission and our obtain reasonable assurance about whether the financial statements report dated February 28, 2005 expressed an unqualified opinion are free of material misstatement. An audit includes examining, on on management’s assessment of the effectiveness of the Company’s a test basis, evidence supporting the amounts and disclosures in the internal control over financial reporting and an unqualified opinion financial statements. An audit also includes assessing the accounting on the effectiveness of the Company’s internal control over principles used and significant estimates made by management, as financial reporting. 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 42 to 73) present fairly, in all material respects, the financial position of Southern Company and Subsidiary Companies at December 31, Atlanta, Georgia 2004 and 2003, and the results of its operations and its cash flows February 28, 2005 22 MANAGEMENT’S DISCUSSION

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