Fitch Rates Alabama Power Company's $500MM Sr. Notes 'A+'

Business Wire, March 05, 2009

NEW YORK -- Fitch Ratings assigns an 'A ' rating to Alabama Power Company's (APC) $500 million series 2009A 6% senior unsecured notes due March 1, 2039. The new notes are unsecured and rank equally with existing and future unsecured debt of APC (Fitch Issuer Default Rating (IDR) of 'A' with a Stable Outlook). The proceeds from these notes will be used to repay a portion of its outstanding short-term indebtedness and for general corporate purposes including APC's continuous construction program. The Rating Outlook is Stable.

The rating reflects APC's 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. The ratio of funds from operations (FFO) to interest expenses at the end of Dec. 31, 2008 and December 31, 2007 was 4.81 and 4.11 respectively. The FFO to debt ratio at the end of 2008 and 2007 was 23% and 22% respectively.

Fitch's credit concerns include: risks associated with the higher-than-average concentration of industrial customers in a weakening economic environment, uncertainty surrounding the future costs of carbon emissions, and cost recovery lags if actual fuel and operating costs exceed the projected amounts included in cost recovery mechanisms.

APC's revenues from retail sales increased by 10% to $4,862 million in 2008 over 2007 due to allowed recovery of past fuel costs and a base rate increase of 5.6%. These increases were partially off-set by decreases in Kwh sales volume of approximately 2.5% due to less favorable weather and weakening economy in the service territory. APC's under-recovered fuel costs as of Dec. 31, 2008 totaled $306 million compared to $280 million at Dec. 31, 2007. APC agreed to defer collection until 2010 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.

The Alabama PSC approved a corrective rate package primarily providing for adjustments associated with customer charges to certain existing rate structures in October 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 rate RSE in 2009 and agreed to a moratorium on any increase in 2009.

The Stable Outlook is based on Fitch's assumption that APC will supplement internal cash flows with a balanced mix of debt and equity to fund capital spending and other cash needs. APC's planned capital expenditures are approximately $1.4 billion and $1 billion in 2009 and 2010, respectively.

APC is a vertically integrated utility subsidiary of Southern Company (Fitch IDR of 'A' with 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's Credit Analysis dated Feb. 19, 2008 and available on Fitch's website at www.fitchratings.com.

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