EFFECTIVE TAX RATE AND UNRECOGNIZED TAX BENEFITS

Effective Tax Rate

See Note 5 to the financial statements of each registrant (other than Mississippi Power) in Item 8 of the Form 10-K and Note 5 to the financial statements of Mississippi Power in Item 8 of the Form 10-K/A for information on the effective income tax rate.

Southern Company

Southern Company's effective tax rate is typically lower than the statutory rate due to its employee stock plans' dividend deduction and non-taxable AFUDC equity.

Southern Company's effective tax rate was 24.5% for the three months ended March 31, 2013 compared to 34.2% for the corresponding period in 2012. The American Jobs Creation Act of 2004 created a tax deduction for a portion of income attributable to U.S. production activities as defined in Section 199 of the Internal Revenue Code (production activities deduction). The decrease was primarily due to an increase in non-taxable AFUDC equity primarily related to Mississippi Power's construction of the Kemper IGCC combined with lower net income. The decrease was partially offset by the recognition in 2012 of previously unrecognized tax benefits as a result of a settlement with the IRS related to the methodology used to calculate the production activities deduction.

Alabama Power

Alabama Power's effective tax rate was 39.2% for the three months ended March 31, 2013 compared to 38.3% for the corresponding period in 2012. The increase was primarily due to the recognition in 2012 of previously unrecognized tax benefits as a result of a settlement with the IRS related to the production activities deduction.

Georgia Power

Georgia Power's effective tax rate was 38.1% for the three months ended March 31, 2013 compared to 34.9% for the corresponding period in 2012. The increase was primarily due to an increase in non-deductible book depreciation, the recognition in 2012 of previously unrecognized tax benefits as a result of a settlement with the IRS related to the production activities deduction, and a decrease in non-taxable AFUDC equity.

Gulf Power

Gulf Power's effective tax rate was 37.6% for the three months ended March 31, 2013 compared to 34.6% for the corresponding period in 2012. The increase was primarily due to the recognition in 2012 of previously unrecognized tax benefits as a result of a settlement with the IRS related to the production activities deduction.

Mississippi Power

Mississippi Power's effective tax rate was (40.8)% for the three months ended March 31, 2013 compared to 24.7% for the corresponding period in 2012. The decrease was primarily due to a net loss for the current period and an increase in non-taxable AFUDC equity related to construction of the Kemper IGCC.

Southern Power

Southern Power's effective tax rate was 33.5% for the three months ended March 31, 2013 compared to 31.3% for the corresponding period in 2012. The increase was primarily due to the recognition in 2012 of previously unrecognized tax benefits as a result of a settlement with the IRS related to the production activities deduction.

Unrecognized Tax Benefits

Changes during 2013 for unrecognized tax benefits were as follows:



	Southern Company		Alabama Power		Georgia Power		Gulf Power		Mississippi Power		Southern Power
	(in millions)
Unrecognized tax benefits as of December 31, 2012	$	70	$	31	$	23	$	5	$	6	$	3
Tax positions from current periods	3		1		1		—		—		—
Balance as of March 31, 2013	$	73	$	32	$	24	$	5	$	6	$	3

The tax positions from current periods relate primarily to the tax accounting method change for repairs-generation assets. See "Tax Method of Accounting for Property Related Expenditures" herein for additional information.

The impact on the effective tax rate, if recognized, was as follows:



	As of March 31, 2013			As of December 31, 2012
		Southern Company
	(in millions)
Tax positions impacting the effective tax rate		$	5	$	5
Tax positions not impacting the effective tax rate		68		65
Balance of unrecognized tax benefits		$	73	$	70

The tax positions impacting the effective tax rate primarily relate to state income tax credits. The tax positions not impacting the effective tax rate relate to the timing difference associated with the tax accounting method change for repairs-generation assets. See "Tax Method of Accounting for Property Related Expenditures" herein for additional information. These amounts are presented on a gross basis without considering the related federal or state income tax impact.

All of the registrants classify interest on tax uncertainties as interest expense. Accrued interest for unrecognized tax benefits at March 31, 2013 and December 31, 2012 was not material.

None of the registrants accrued any penalties on uncertain tax positions.

It is reasonably possible that the amount of the unrecognized tax benefits associated with a majority of the registrants' unrecognized tax positions will significantly increase or decrease within 12 months. The resolution of the tax accounting method change for repairs-generation assets, as well as the conclusion or settlement of state audits, could impact the balances significantly. At this time, an estimate of the range of reasonably possible outcomes cannot be determined.

Tax Method of Accounting for Property Related Expenditures

Southern Company submitted a tax accounting method change related to the deductibility of repair costs associated with its subsidiaries' generation, transmission, and distribution systems effective for the 2009 consolidated federal income tax return in 2010. In August 2011, the IRS issued a revenue procedure, which provides a safe harbor method of accounting that taxpayers may use to determine repair costs for transmission and distribution property. Consequently, Southern Company incorporated into its federal income tax returns changes that conform to the new regulations and reversed all unrecognized tax positions related to transmission and distribution property.

In December 2011, the IRS published regulations on the deduction and capitalization of expenditures related to tangible property that generally apply for tax years beginning on or after January 1, 2014. The utility industry anticipates more detailed guidance concerning these regulations. Additionally, on April 30, 2013, the IRS issued Revenue Procedure 2013-24, which provides guidance for taxpayers related to the deductibility of repair costs associated with generation assets. Southern Company is currently reviewing this new guidance. Due to uncertainty regarding the ultimate resolution of the repair costs for generation assets, an unrecognized tax position was recorded for the tax accounting method change for repairs-generation assets. The ultimate outcome of these matters cannot be determined at this time; however, implementing these regulations is not expected to have a material impact on net income.