Fitch Rates $250MM Series 2008B 5.80% Alabama Power Company Senior Notes 'A+'

Business Wire, Nov 17, 2008

NEW YORK -- Fitch Ratings assigns an 'A ' rating to Alabama Power Company's (APC) $250 million series 2008B 5.80% senior notes due Nov. 15, 2013. The new notes are unsecured and rank equally with existing and future unsecured debt of APC. The proceeds from these notes will be used to repay a portion of its outstanding short-term indebtedness and for the general corporate purposes including APC's continuous construction program. The Rating Outlook is Stable.

Fitch's rating of APC reflects the continued strong operating performance of a mostly low-cost coal and nuclear fleet, strong liquidity, stable financial condition and a constructive regulatory environment in Alabama. APC had cash on hand of $218 million and $1.3 billion in unused credit facilities as of Sept. 30, 2008, including $582.4 million of credit lines that were dedicated to funding purchase obligations related to variable rate pollution control revenue bonds. APC has had on-going access to commercial paper markets during the recent credit market turmoil and has not drawn on its credit lines.

Fitch's credit concerns include risks associated with the higher-than-average concentration of industrial customers in a weakening economic environment, uncertainty surrounding future carbon emissions, and cost recovery lags if actual fuel and operating costs exceed the projected amounts included in cost recovery mechanisms. APC's under recovered fuel costs totaled $300.8 million as of Sept. 30, 2008 compared to $279.8 million at Dec. 31, 2007 and APC can recover these deferred fuel costs over a two year period beginning Oct. 9, 2008. APC plans capital expenditures of approximately $1.57 billion and $1.08 billion in 2009 and 2010, respectively. APC agreed to defer collection during 2009 of any increase in rates under the portion of rate certificated new plant (CNP), which permits recovery of costs associated with environmental laws and regulations until 2010.

The Alabama PSC approved a corrective rate package primarily providing for adjustments associated with customer charges to certain existing rate structures in Oct. 2008. This package, effective in January 2009, is expected to generate additional annual revenues of approximately $168 million. APC expects that these additional revenues will preclude the need for a rate adjustment under the rate stabilization and equalization (RSE) in 2009 and agreed to a moratorium on any increase in 2009 under Rate RSE.

Fitch's Stable Rating Outlook assumes APC will supplement internal cash flows with a balanced mix of debt and equity to fund capital spending and other cash needs. APC issued 1,875,000 shares of common stock to Southern Company at $40 a share ($75 million aggregate purchase price) early in the fourth quarter of 2008.

APC (IDR 'A', Stable Outlook) is a vertically integrated utility subsidiary of Southern Company (IDR 'A', Stable Outlook) providing electricity to retail customers within the State of Alabama. APC serves approximately 1.4 million retail customers. For further information, see Fitch Credit Analysis dated Feb. 19, 2008 available on Fitch Research.

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