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 33.9% for the nine months ended September 30, 2013 compared to 35.3% for the corresponding period in 2012. The decrease was primarily due to an increase in non-taxable AFUDC equity at Mississippi Power and increased investment tax credits at Southern Power, combined with lower net income for Southern Company as a whole. The decrease was partially offset by a decrease in state income tax credits and a settlement with the IRS in 2012 related to the methodology used to calculate the production activities deduction as defined in Section 199 of the Internal Revenue Code.

Alabama Power

Alabama Power's effective tax rate was 39.3% for the nine months ended September 30, 2013 compared to 38.8% for the corresponding period in 2012. The increase was primarily due to the recognition in 2012 of tax benefits related to a settlement with the IRS related to the production activities deduction.

Georgia Power

Georgia Power's effective tax rate was 38.0% for the nine months ended September 30, 2013 compared to 35.8% for the corresponding period in 2012. The increase was due to an increase in non-deductible book depreciation, a decrease in state income tax credits, a settlement with the IRS in 2012 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 nine months ended September 30, 2013 compared to 37.3% for the corresponding period in 2012.

Mississippi Power

Mississippi Power's effective tax rate was (42.1)% for the nine months ended September 30, 2013 compared to 26.7% 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 the construction of the Kemper IGCC.

Southern Power

Southern Power's effective tax rate was 20.5% for the nine months ended September 30, 2013 compared to 34.4% for the corresponding period in 2012. The decrease was primarily due to an increase in investment tax credits.

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			—			—			—			—			2
Tax positions from prior periods	(66		)	(31		)	(23		)	(5		)	(2		)	(3		)
Balance as of September 30, 2013	$	7		$	—		$	—		$	—		$	4		$	2

The tax positions from prior 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 September 30, 2013			As of December 31, 2012
		Southern Company
	(in millions)
Tax positions impacting the effective tax rate		$	7	$	5
Tax positions not impacting the effective tax rate		—		65
Balance of unrecognized tax benefits		$	7	$	70

The tax positions impacting the effective tax rate primarily relate to state income tax credits. 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 September 30, 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 settlement of federal and 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. 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. Based on a review of the regulations, Southern Company incorporated provisions related to repair costs for generation assets into its consolidated 2012 federal income tax return and reversed all related unrecognized tax positions. In September 2013, the IRS issued final tangible property regulations. Southern Company is currently reviewing this new guidance. The ultimate outcome of this matter cannot be determined at the time; however, these regulations are not expected to have a material impact on net income.