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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20202021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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| Commission File Number | | Registrant, State of Incorporation, Address and Telephone Number | | I.R.S. Employer Identification No. | |
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| 1-3526 | | The Southern Company | | 58-0690070 | |
(A Delaware Corporation)
30 Ivan Allen Jr. Boulevard, N.W.
Atlanta, Georgia 30308
(404) 506-5000
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| 1-3164 | | Alabama Power Company | | 63-0004250 | |
(An Alabama Corporation)
600 North 18th Street
Birmingham, Alabama 35203
(205) 257-1000
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| 1-6468 | | Georgia Power Company | | 58-0257110 | |
(A Georgia Corporation)
241 Ralph McGill Boulevard, N.E.
Atlanta, Georgia 30308
(404) 506-6526
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| 001-11229 | | Mississippi Power Company | | 64-0205820 | |
(A Mississippi Corporation)
2992 West Beach Boulevard
Gulfport, Mississippi 39501
(228) 864-1211
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| 001-37803 | | Southern Power Company | | 58-2598670 | |
(A Delaware Corporation)
30 Ivan Allen Jr. Boulevard, N.W.
Atlanta, Georgia 30308
(404) 506-5000
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| 1-14174 | | Southern Company Gas | | 58-2210952 | |
(A Georgia Corporation)
Ten Peachtree Place, N.E.
Atlanta, Georgia 30309
(404) 584-4000
Securities registered pursuant to Section 12(b) of the Act:
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Registrant | Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
The Southern Company | Common Stock, par value $5 per share | SO | New York Stock Exchange |
(NYSE) |
The Southern Company | Series 2015A 6.25% Junior Subordinated Notes due 2075 | SOJA | NYSE |
The Southern Company | Series 2016A 5.25% Junior Subordinated Notes due 2076 | SOJB | NYSE |
The Southern Company | Series 2017B 5.25% Junior Subordinated Notes due 2077 | SOJC | NYSE |
The Southern Company | 2019 Series A Corporate Units | SOLN | NYSE |
The Southern Company | Series 2020A 4.95% Junior Subordinated Notes due 2080 | SOJD | NYSE |
The Southern Company | Series 2020C 4.20% Junior Subordinated Notes due 2060 | SOJE | NYSE |
Alabama Power Company | 5.00% Series Class A Preferred Stock | ALP PR Q | NYSE |
Georgia Power Company | Series 2017A 5.00% Junior Subordinated Notes due 2077 | GPJA | NYSE |
Southern Power Company | Series 2016A 1.000% Senior Notes due 2022 | SO/22B | NYSE |
Southern Power Company | Series 2016B 1.850% Senior Notes due 2026 | SO/26A | NYSE |
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Registrant | Large Accelerated Filer | Accelerated Filer | Non-accelerated Filer | Smaller Reporting Company | Emerging Growth Company |
The Southern Company | X | | | | |
Alabama Power Company | | | X | | |
Georgia Power Company | | | X | | |
Mississippi Power Company | | | X | | |
Southern Power Company | | | X | | |
Southern Company Gas | | | X | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ (Response applicable to all registrants.)
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Registrant | Description of Common Stock | Shares Outstanding at SeptemberJune 30, 20202021 |
The Southern Company | Par Value $5 Per Share | 1,056,241,9931,058,825,814 | |
Alabama Power Company | Par Value $40 Per Share | 30,537,500 | |
Georgia Power Company | Without Par Value | 9,261,500 | |
Mississippi Power Company | Without Par Value | 1,121,000 | |
Southern Power Company | Par Value $0.01 Per Share | 1,000 | |
Southern Company Gas | Par Value $0.01 Per Share | 100 | |
This combined Form 10-Q is separately filed by The Southern Company, Alabama Power Company, Georgia Power Company, Mississippi Power Company, Southern Power Company, and Southern Company Gas. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants.
TABLE OF CONTENTS
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| PART I—FINANCIAL INFORMATION | |
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Item 1. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
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| PART II—OTHER INFORMATION | |
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Item 1. | | |
Item 1A. | | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | Inapplicable |
Item 3. | Defaults Upon Senior Securities | Inapplicable |
Item 4. | Mine Safety Disclosures | Inapplicable |
Item 5. | Other Information | Inapplicable |
Item 6. | | |
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Term | Meaning |
2013 ARP | Alternate Rate Plan approved by the Georgia PSC in 2013 for Georgia Power for the years 2014 through 2016 and subsequently extended through 2019 |
2019 ARP | Alternate Rate Plan approved by the Georgia PSC in 2019 for Georgia Power for the years 2020 through 2022 |
AFUDC | Allowance for funds used during construction |
Alabama Power | Alabama Power Company |
Amended and Restated Loan Guarantee Agreement | Loan guarantee agreement entered into by Georgia Power with the DOE in 2014, as amended and restated in March 2019, under which the proceeds of borrowings may be used to reimburse Georgia Power for Eligible Project Costs incurred in connection with its construction of Plant Vogtle Units 3 and 4 |
ARO | Asset retirement obligation |
ASU | Accounting Standards Update |
Atlanta Gas Light | Atlanta Gas Light Company, a wholly-owned subsidiary of Southern Company Gas |
Atlantic Coast Pipeline | Atlantic Coast Pipeline, LLC, a joint venture to construct and operate a natural gas pipeline in which Southern Company Gas held a 5% interest through March 24, 2020 |
Autauga Combined Cycle Acquisition | Alabama Power's August 31, 2020 acquisition of the Central Alabama Generation Station, an approximately 885-MW combined cycle generation facility in Autauga County, Alabama |
Bechtel | Bechtel Power Corporation, the primary contractor for the remaining construction activities for Plant Vogtle Units 3 and 4 |
Bechtel Agreement | The October 23, 2017 construction completion agreement between the Vogtle Owners and Bechtel |
CCR | Coal combustion residuals |
CCR Rule | Disposal of Coal Combustion Residuals from Electric Utilities final rule published by the EPA in 2015 |
Chattanooga Gas | Chattanooga Gas Company, a wholly-owned subsidiary of Southern Company Gas |
COD | Commercial operation date |
Contractor Settlement Agreement | The December 31, 2015 agreement between Westinghouse and the Vogtle Owners resolving disputes between the Vogtle Owners and the EPC Contractor under the Vogtle 3 and 4 Agreement |
COVID-19 | The novel coronavirus disease declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention in March 2020 |
CWIP | Construction work in progress |
Dalton | City of Dalton, Georgia, an incorporated municipality in the State of Georgia, acting by and through its Board of Water, Light, and Sinking Fund Commissioners |
Dalton Pipeline | A pipeline facility in Georgia in which Southern Company Gas has a 50% undivided ownership interest |
DOE | U.S. Department of Energy |
ECCR | Georgia Power's Environmental Compliance Cost Recovery tariff |
ECO Plan | Mississippi Power's environmental compliance overview plan |
ELG Rules | The EPA's steam electric effluent limitations guidelines (ELG) rule (finalized in 2015) and the ELG reconsideration rule (finalized in October 2020) |
Eligible Project Costs | Certain costs of construction relating to Plant Vogtle Units 3 and 4 that are eligible for financing under the loan guarantee program established under Title XVII of the Energy Policy Act of 2005 |
EPA | U.S. Environmental Protection Agency |
EPC Contractor | Westinghouse and its affiliate, WECTEC Global Project Services Inc.; the former engineering, procurement, and construction contractor for Plant Vogtle Units 3 and 4 |
FASB | Financial Accounting Standards Board |
FERC | Federal Energy Regulatory Commission |
FFB | Federal Financing Bank |
FFB Credit Facilities | Note purchase agreements among the DOE, Georgia Power, and the FFB and related promissory notes which provide for two multi-advance term loan facilities |
Fitch | Fitch Ratings, Inc. |
Form 10-K | Annual Report on Form 10-K of Southern Company, Alabama Power, Georgia Power, Mississippi Power, Southern Power, and Southern Company Gas for the year ended December 31, 2020, as applicable |
GAAP | U.S. generally accepted accounting principles |
Georgia Power | Georgia Power Company |
GRAM | Atlanta Gas Light's Georgia Rate Adjustment Mechanism |
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Term | Meaning |
Form 10-K | Annual Report on Form 10-K of Southern Company, Alabama Power, Georgia Power, Mississippi Power, Southern Power, and Southern Company Gas for the year ended December 31, 2019, as applicable |
GAAP | U.S. generally accepted accounting principles |
Georgia Power | Georgia Power Company |
GRAM | Atlanta Gas Light's Georgia Rate Adjustment Mechanism |
Guarantee Settlement Agreement | The June 9, 2017 settlement agreement between the Vogtle Owners and Toshiba related to certain payment obligations of the EPC Contractor guaranteed by Toshiba |
Gulf Power | Gulf Power Company, until January 1, 2019 a wholly-owned subsidiary of Southern Company; effective January 1, 2021, Gulf Power Company merged with and into Florida Power and Light Company, with Florida Power and Light Company remaining as the surviving company |
Heating Degree Days | A measure of weather, calculated when the average daily temperatures are less than 65 degrees Fahrenheit |
Heating Season | The period from November through March when Southern Company Gas' natural gas usage and operating revenues are generally higher |
HLBV | Hypothetical liquidation at book value |
IGCC | Integrated coal gasification combined cycle, the technology originally approved for Mississippi Power's Kemper County energy facility |
IIC | Intercompany Interchange Contract |
IRP | Integrated resource plan |
ITAAC | Inspections, Tests, Analyses, and Acceptance Criteria, standards established by the NRC |
ITC | Investment tax credit |
JEA | Jacksonville Electric Authority |
Jefferson Island | Jefferson Island Storage and Hub, L.L.C, which owns a natural gas storage facility in Louisiana consisting of two salt dome caverns; a subsidiary of Southern Company Gas through December 1, 2020 |
KWH | Kilowatt-hour |
LIBOR | London Interbank Offered Rate |
LIFO | Last-in, first-out |
LOCOM | Lower of weighted average cost or current market price |
LTSA | Long-term service agreement |
Marketers | Marketers selling retail natural gas in Georgia and certificated by the Georgia PSC |
MEAG Power | Municipal Electric Authority of Georgia |
Mississippi Power | Mississippi Power Company |
Mississippi Power Rate Case Settlement Agreement | Settlement agreement between Mississippi Power and the Mississippi Public Utilities Staff approved by the Mississippi PSC in March 2020 related to Mississippi Power's base rate case filed in 2019 |
mmBtu | Million British thermal units |
Moody's | Moody's Investors Service, Inc. |
MRA | Municipal and Rural Associations |
MW | Megawatt |
natural gas distribution utilities | Southern Company Gas' natural gas distribution utilities (Nicor Gas, Atlanta Gas Light, Virginia Natural Gas, and Chattanooga Gas) |
NCCR | Georgia Power's Nuclear Construction Cost Recovery |
NDR | Alabama Power's Natural Disaster Reserve |
NextEra Energy | NextEra Energy, Inc. |
Nicor Gas | Northern Illinois Gas Company, a wholly-owned subsidiary of Southern Company Gas |
NRC | U.S. Nuclear Regulatory Commission |
NYMEX | New York Mercantile Exchange, Inc. |
OCI | Other comprehensive income |
Part A CCR Rule | Holistic Approach to Closure Part A final rule published by the EPA on August 28, 2020 |
PennEast Pipeline | PennEast Pipeline Company, LLC, a joint venture to construct and operate a natural gas pipeline in which Southern Company Gas has a 20% ownership interest |
PEP | Mississippi Power's Performance Evaluation Plan |
Pivotal LNG | Pivotal LNG, Inc., through March 24, 2020, a wholly-owned subsidiary of Southern Company Gas |
PowerSecure | PowerSecure, Inc., a wholly-owned subsidiary of Southern Company |
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Term | Meaning |
PowerSecurePowerSouth | PowerSecure, Inc., a wholly-owned subsidiary of Southern CompanyPowerSouth Energy Cooperative |
PPA | Power purchase agreements, as well as, for Southern Power, contracts for differences that provide the owner of a renewable facility a certain fixed price for the electricity sold to the grid |
PSC | Public Service Commission |
PTC | Production tax credit |
Rate CNP | Alabama Power's Rate Certificated New Plant, consisting of Rate CNP New Plant, Rate CNP Compliance, and Rate CNP PPA |
Rate ECR | Alabama Power's Rate Energy Cost Recovery |
Rate NDR | Alabama Power's Rate Natural Disaster Reserve |
Rate RSE | Alabama Power's Rate Stabilization and Equalization |
Registrants | Southern Company, Alabama Power, Georgia Power, Mississippi Power, Southern Power Company, and Southern Company Gas |
ROE | Return on equity |
S&P | S&P Global Ratings, a division of S&P Global Inc. |
SAVE | Steps to Advance Virginia's Energy, an infrastructure replacement program at Virginia Natural Gas |
SCS | Southern Company Services, Inc., the Southern Company system service company and a wholly-owned subsidiary of Southern Company |
SEC | U.S. Securities and Exchange Commission |
SEGCO | Southern Electric Generating Company, 50% owned by each of Alabama Power and Georgia Power |
Sequent | Sequent Energy Management, L.P. and Sequent Energy Canada Corp., until July 1, 2021, wholly-owned subsidiaries of Southern Company Gas |
SNG | Southern Natural Gas Company, L.L.C., a pipeline system in which Southern Company Gas has a 50% ownership interest |
Southern Company | The Southern Company |
Southern Company Gas | Southern Company Gas and its subsidiaries |
Southern Company Gas Capital | Southern Company Gas Capital Corporation, a 100%-owned subsidiary of Southern Company Gas |
Southern Company power pool | The operating arrangement whereby the integrated generating resources of the traditional electric operating companies and Southern Power (excluding subsidiaries) are subject to joint commitment and dispatch in order to serve their combined load obligations |
Southern Company system | Southern Company, the traditional electric operating companies, Southern Power, Southern Company Gas, Southern Electric Generating Company, Southern Nuclear, SCS, Southern Communications Services, Inc., PowerSecure, and other subsidiaries |
Southern Holdings | Southern Company Holdings, Inc., a wholly-owned subsidiary of Southern Company |
Southern Nuclear | Southern Nuclear Operating Company, Inc., a wholly-owned subsidiary of Southern Company |
Southern Power | Southern Power Company and its subsidiaries |
SouthStar | SouthStar Energy Services, LLC (a Marketer), a wholly-owned subsidiary of Southern Company Gas |
SP Solar | SP Solar Holdings I, LP, a limited partnership indirectly owning substantially all of Southern Power's solar facilities, in which Southern Power has a 67% ownership interest |
SP Wind | SP Wind Holdings II, LLC, a holding company owning a portfolio of eight operating wind facilities, in which Southern Power is the controlling partner in a tax equity arrangement |
Subsidiary Registrants | Alabama Power, Georgia Power, Mississippi Power, Southern Power, and Southern Company Gas |
Tax Reform | The impact of the Tax Cuts and Jobs Act, which became effective on January 1, 2018 |
Toshiba | Toshiba Corporation, the parent company of Westinghouse |
traditional electric operating companies | Alabama Power, Georgia Power, and Mississippi Power |
Triton | Triton Container Investments, LLC, an investment of Southern Company Gas through May 29, 2019 |
VCM | Vogtle Construction Monitoring |
VIE | Variable interest entity |
Virginia Commission | Virginia State Corporation Commission |
Virginia Natural Gas | Virginia Natural Gas, Inc., a wholly-owned subsidiary of Southern Company Gas |
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Term | Meaning |
VIE | Variable interest entity |
Virginia Commission | Virginia State Corporation Commission |
Virginia Natural Gas | Virginia Natural Gas, Inc., a wholly-owned subsidiary of Southern Company Gas |
Vogtle 3 and 4 Agreement | Agreement entered into with the EPC Contractor in 2008 by Georgia Power, acting for itself and as agent for the Vogtle Owners, and rejected in bankruptcy in July 2017, pursuant to which the EPC Contractor agreed to design, engineer, procure, construct, and test Plant Vogtle Units 3 and 4 |
Vogtle Owners | Georgia Power, Oglethorpe Power Corporation, MEAG Power, and Dalton |
Vogtle Services Agreement | The June 2017 services agreement between the Vogtle Owners and the EPC Contractor, as amended and restated in July 2017, for the EPC Contractor to transition construction management of Plant Vogtle Units 3 and 4 to Southern Nuclear and to provide ongoing design, engineering, and procurement services to Southern Nuclear |
WACOG | Weighted average cost of gas |
Westinghouse | Westinghouse Electric Company LLC |
XcelWilliams Field Services Group | Xcel Energy Inc.Williams Field Services Group, LLC |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements include, among other things, statements concerning the potential and expected effects of the COVID-19 pandemic, statements concerning regulated rates, the strategic goals for the business, customer and sales growth, economic conditions, fuel and environmental cost recovery and other rate actions, projected equity ratios, current and proposed environmental regulations and related compliance plans and estimated expenditures, pending or potential litigation matters, access to sources of capital, financing activities, completion dates and costs of construction projects, matters related to the abandonment of the Kemper IGCC, completion of announced acquisitions, filings with state and federal regulatory authorities, and estimated construction plans and expenditures. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "would," "should," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential," or "continue" or the negative of these terms or other similar terminology. There are various factors that could cause actual results to differ materially from those suggested by the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include:
•the impact of recent and future federal and state regulatory changes, including tax, environmental, and other laws and regulations to which Southern Company and its subsidiaries are subject, as well as changes in application of existing laws and regulations;
•the potential effects of the continued COVID-19 pandemic, including, but not limited to, those described in Item 1A "Risk Factors" herein;of the Form 10-K;
•the extent and timing of costs and legal requirements related to CCR;
•current and future litigation or regulatory investigations, proceedings, or inquiries, including litigation and other disputes related to the Kemper County energy facility;
•the effects, extent, and timing of the entry of additional competition in the markets in which Southern Company's subsidiaries operate, including from the development and deployment of alternative energy sources;
•variations in demand for electricity and natural gas;
•available sources and costs of natural gas and other fuels;
•the ability to complete necessary or desirable pipeline expansion or infrastructure projects, limits on pipeline capacity, and operational interruptions to natural gas distribution and transmission activities;
•transmission constraints;
•effects of inflation;
•the ability to control costs and avoid cost and schedule overruns during the development, construction, and operation of facilities or other projects, including Plant Vogtle Units 3 and 4 which(which includes components based on new technology that only within the last few years began initial operation in the global nuclear industry at this scale,scale) and includingPlant Barry Unit 8, due to current and future challenges which include, but are not limited to, changes in labor costs, availability, and productivity; challenges with management of contractors or vendors; subcontractor performance; adverse weather conditions; shortages, delays, increased costs, or inconsistent quality of equipment, materials, and labor; contractor or supplier delay; delays due to judicial or regulatory action; nonperformance under construction, operating, or other agreements; operational readiness, including specialized operator training and required site safety programs; engineering or design problems; design and other licensing-based compliance matters, including, for nuclear units, inspections and the timely submittal by Southern Nuclear of the ITAAC documentation for each unit and the related investigations, reviews, and approvals by the NRC necessary to support NRC authorization to load fuel; challenges with start-up activities, including major equipment failure, or system integration; and/or operational performance; and challenges related to the COVID-19 pandemic;
•the ability to overcome or mitigate the current challenges at Plant Vogtle Units 3 and 4, including, but not limited to, those related to COVID-19, as described in Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" in Item 1 herein, that could further impact the cost and schedule for the project;
•legal proceedings and regulatory approvals and actions related to construction projects, such as Plant Vogtle Units 3 and 4, Plant Barry Unit 8, and pipeline projects, including PSC approvals and FERC and NRC actions;
•under certain specified circumstances, a decision by holders of more than 10% of the ownership interests of Plant Vogtle Units 3 and 4 not to proceed with construction and the ability of other Vogtle Owners to tender a portion of their ownership interests to Georgia Power following certain construction cost increases;
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
(continued)
•in the event Georgia Power becomes obligated to provide funding to MEAG Power with respect to the portion of MEAG Power's ownership interest in Plant Vogtle Units 3 and 4 involving JEA, any inability of Georgia Power to receive repayment of such funding;
•the ability to construct facilities in accordance with the requirements of permits and licenses (including satisfaction of NRC requirements), to satisfy any environmental performance standards and the requirements of tax credits and other incentives, and to integrate facilities into the Southern Company system upon completion of construction;
•investment performance of the employee and retiree benefit plans and nuclear decommissioning trust funds;
•advances in technology;technology, including the pace and extent of development of low- to no-carbon energy technologies and negative carbon concepts;
•performance of counterparties under ongoing renewable energy partnerships and development agreements;
•state and federal rate regulations and the impact of pending and future rate cases and negotiations, including rate actions relating to ROE, equity ratios, additional generating capacity, and fuel and other cost recovery mechanisms;
•the ability to successfully operate the electric utilities' generating, transmission, and distribution facilities and Southern Company Gas' natural gas distribution and storage facilities and the successful performance of necessary corporate functions;
•the inherent risks involved in operating and constructing nuclear generating facilities;
•the inherent risks involved in transporting and storing natural gas;
•the performance of projects undertaken by the non-utility businesses and the success of efforts to invest in and develop new opportunities;
•internal restructuring or other restructuring options that may be pursued;
•potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial to Southern Company or its subsidiaries;
•the ability of counterparties of Southern Company and its subsidiaries to make payments as and when due and to perform as required;
•the ability to obtain new short- and long-term contracts with wholesale customers;
•the direct or indirect effect on the Southern Company system's business resulting from cyber intrusion or physical attack and the threat of physical attacks;
•interest rate fluctuations and financial market conditions and the results of financing efforts;
•access to capital markets and other financing sources;
•changes in Southern Company's and any of its subsidiaries' credit ratings;
•changes in the method of determining LIBOR or the replacement of LIBOR with an alternative reference rate;
•the ability of Southern Company's electric utilities to obtain additional generating capacity (or sell excess generating capacity) at competitive prices;
•catastrophic events such as fires, earthquakes, explosions, floods, tornadoes, hurricanes and other storms, droughts, pandemic health events, political unrest, or other similar occurrences;
•the direct or indirect effects on the Southern Company system's business resulting from incidents affecting the U.S. electric grid, natural gas pipeline infrastructure, or operation of generating or storage resources;
•impairments of goodwill or long-lived assets;
•the effect of accounting pronouncements issued periodically by standard-setting bodies; and
•other factors discussed elsewhere herein and in other reports (including the Form 10-K) filed by the Registrants from time to time with the SEC.
The Registrants expressly disclaim any obligation to update any forward-looking statements.
PART I
Item 1. Financial Statements (Unaudited).
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| | (in millions) | | (in millions) | | (in millions) | | (in millions) |
Operating Revenues: | Operating Revenues: | | Operating Revenues: | |
Retail electric revenues | Retail electric revenues | $ | 4,243 | | | $ | 4,512 | | | $ | 10,503 | | | $ | 11,136 | | Retail electric revenues | $ | 3,599 | | | $ | 3,182 | | | $ | 6,941 | | | $ | 6,260 | |
Wholesale electric revenues | Wholesale electric revenues | 584 | | | 625 | | | 1,473 | | | 1,667 | | Wholesale electric revenues | 546 | | | 472 | | | 1,091 | | | 889 | |
Other electric revenues | Other electric revenues | 164 | | | 163 | | | 484 | | | 492 | | Other electric revenues | 175 | | | 168 | | | 346 | | | 320 | |
Natural gas revenues (includes alternative revenue programs of $(1), $0, $6, and $0, respectively) | 477 | | | 498 | | | 2,362 | | | 2,661 | | |
Natural gas revenues (includes alternative revenue programs of $2, $(2), $4, and $7, respectively) | | Natural gas revenues (includes alternative revenue programs of $2, $(2), $4, and $7, respectively) | 677 | | | 636 | | | 2,371 | | | 1,885 | |
Other revenues | Other revenues | 152 | | | 197 | | | 436 | | | 549 | | Other revenues | 201 | | | 162 | | | 359 | | | 284 | |
Total operating revenues | Total operating revenues | 5,620 | | | 5,995 | | | 15,258 | | | 16,505 | | Total operating revenues | 5,198 | | | 4,620 | | | 11,108 | | | 9,638 | |
Operating Expenses: | Operating Expenses: | | | | | | | | Operating Expenses: | | | | | | | |
Fuel | Fuel | 933 | | | 1,072 | | | 2,190 | | | 2,836 | | Fuel | 848 | | | 621 | | | 1,696 | | | 1,257 | |
Purchased power | Purchased power | 230 | | | 254 | | | 611 | | | 625 | | Purchased power | 217 | | | 200 | | | 424 | | | 381 | |
Cost of natural gas | Cost of natural gas | 71 | | | 79 | | | 654 | | | 956 | | Cost of natural gas | 231 | | | 144 | | | 814 | | | 583 | |
Cost of other sales | Cost of other sales | 72 | | | 114 | | | 201 | | | 316 | | Cost of other sales | 103 | | | 74 | | | 185 | | | 129 | |
Other operations and maintenance | Other operations and maintenance | 1,286 | | | 1,296 | | | 3,785 | | | 3,898 | | Other operations and maintenance | 1,438 | | | 1,203 | | | 2,810 | | | 2,498 | |
Depreciation and amortization | Depreciation and amortization | 889 | | | 760 | | | 2,619 | | | 2,267 | | Depreciation and amortization | 891 | | | 873 | | | 1,762 | | | 1,730 | |
Taxes other than income taxes | Taxes other than income taxes | 304 | | | 303 | | | 932 | | | 931 | | Taxes other than income taxes | 313 | | | 298 | | | 657 | | | 629 | |
Estimated loss on Plant Vogtle Units 3 and 4 | Estimated loss on Plant Vogtle Units 3 and 4 | 0 | | | 0 | | | 149 | | | 0 | | Estimated loss on Plant Vogtle Units 3 and 4 | 460 | | | 149 | | | 508 | | | 149 | |
| Impairment charges | 0 | | | 110 | | | 0 | | | 142 | | |
| (Gain) loss on dispositions, net | (Gain) loss on dispositions, net | 0 | | | (6) | | | (39) | | | (2,512) | | (Gain) loss on dispositions, net | (11) | | | 0 | | | (54) | | | (39) | |
Total operating expenses | Total operating expenses | 3,785 | | | 3,982 | | | 11,102 | | | 9,459 | | Total operating expenses | 4,490 | | | 3,562 | | | 8,802 | | | 7,317 | |
Operating Income | Operating Income | 1,835 | | | 2,013 | | | 4,156 | | | 7,046 | | Operating Income | 708 | | | 1,058 | | | 2,306 | | | 2,321 | |
Other Income and (Expense): | Other Income and (Expense): | | Other Income and (Expense): | |
Allowance for equity funds used during construction | Allowance for equity funds used during construction | 38 | | | 33 | | | 106 | | | 96 | | Allowance for equity funds used during construction | 45 | | | 35 | | | 90 | | | 68 | |
Earnings from equity method investments | 33 | | | 39 | | | 105 | | | 120 | | |
Earnings (loss) from equity method investments | | Earnings (loss) from equity method investments | (40) | | | 30 | | | 5 | | | 72 | |
Interest expense, net of amounts capitalized | Interest expense, net of amounts capitalized | (443) | | | (434) | | | (1,343) | | | (1,294) | | Interest expense, net of amounts capitalized | (450) | | | (444) | | | (901) | | | (900) | |
Impairment of leveraged lease | 0 | | | 0 | | | (154) | | | 0 | | |
Impairment of leveraged leases | | Impairment of leveraged leases | (7) | | | (154) | | | (7) | | | (154) | |
Other income (expense), net | Other income (expense), net | 113 | | | 61 | | | 319 | | | 239 | | Other income (expense), net | 108 | | | 101 | | | 167 | | | 204 | |
Total other income and (expense) | Total other income and (expense) | (259) | | | (301) | | | (967) | | | (839) | | Total other income and (expense) | (344) | | | (432) | | | (646) | | | (710) | |
Earnings Before Income Taxes | Earnings Before Income Taxes | 1,576 | | | 1,712 | | | 3,189 | | | 6,207 | | Earnings Before Income Taxes | 364 | | | 626 | | | 1,660 | | | 1,611 | |
Income taxes | 293 | | | 367 | | | 443 | | | 1,872 | | |
Income taxes (benefit) | | Income taxes (benefit) | (12) | | | 5 | | | 178 | | | 150 | |
Consolidated Net Income | Consolidated Net Income | 1,283 | | | 1,345 | | | 2,746 | | | 4,335 | | Consolidated Net Income | 376 | | | 621 | | | 1,482 | | | 1,461 | |
| Dividends on preferred stock of subsidiaries | Dividends on preferred stock of subsidiaries | 4 | | | 4 | | | 11 | | | 11 | | Dividends on preferred stock of subsidiaries | 4 | | | 4 | | | 7 | | | 7 | |
Net income attributable to noncontrolling interests | 28 | | | 25 | | | 3 | | | 26 | | |
Net income (loss) attributable to noncontrolling interests | | Net income (loss) attributable to noncontrolling interests | 0 | | | 5 | | | (33) | | | (26) | |
Consolidated Net Income Attributable to Southern Company | Consolidated Net Income Attributable to Southern Company | $ | 1,251 | | | $ | 1,316 | | | $ | 2,732 | | | $ | 4,298 | | Consolidated Net Income Attributable to Southern Company | $ | 372 | | | $ | 612 | | | $ | 1,508 | | | $ | 1,480 | |
Common Stock Data: | Common Stock Data: | | | | | | | | Common Stock Data: | | | | | | | |
Earnings per share - | Earnings per share - | | Earnings per share - | |
Basic | Basic | $ | 1.18 | | | $ | 1.26 | | | $ | 2.58 | | | $ | 4.12 | | Basic | $ | 0.35 | | | $ | 0.58 | | | $ | 1.42 | | | $ | 1.40 | |
Diluted | Diluted | $ | 1.18 | | | $ | 1.25 | | | $ | 2.57 | | | $ | 4.09 | | Diluted | $ | 0.35 | | | $ | 0.58 | | | $ | 1.41 | | | $ | 1.39 | |
Average number of shares of common stock outstanding (in millions) | Average number of shares of common stock outstanding (in millions) | | Average number of shares of common stock outstanding (in millions) | |
Basic | Basic | 1,058 | | | 1,048 | | | 1,058 | | | 1,043 | | Basic | 1,061 | | | 1,058 | | | 1,060 | | | 1,057 | |
Diluted | Diluted | 1,064 | | | 1,057 | | | 1,064 | | | 1,051 | | Diluted | 1,067 | | | 1,063 | | | 1,066 | | | 1,065 | |
The accompanying notes as they relate to Southern Company are an integral part of these condensed consolidated financial statements.
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| | (in millions) | | (in millions) | | (in millions) | | (in millions) |
Consolidated Net Income | Consolidated Net Income | $ | 1,283 | | | $ | 1,345 | | | $ | 2,746 | | | $ | 4,335 | | Consolidated Net Income | $ | 376 | | | $ | 621 | | | $ | 1,482 | | | $ | 1,461 | |
Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
Qualifying hedges: | Qualifying hedges: | | Qualifying hedges: | |
Changes in fair value, net of tax of $17, $(33), $(9), and $(54), respectively | 49 | | | (92) | | | (26) | | | (152) | | |
Reclassification adjustment for amounts included in net income, net of tax of $(11), $17, $(1), and $25, respectively | (32) | | | 50 | | | (3) | | | 74 | | |
Changes in fair value, net of tax of $5, $4, $(5), and $(26), respectively | | Changes in fair value, net of tax of $5, $4, $(5), and $(26), respectively | 14 | | | 10 | | | (16) | | | (75) | |
Reclassification adjustment for amounts included in net income, net of tax of $(1), $(3), $17, and $10, respectively | | Reclassification adjustment for amounts included in net income, net of tax of $(1), $(3), $17, and $10, respectively | (5) | | | (9) | | | 50 | | | 29 | |
Pension and other postretirement benefit plans: | Pension and other postretirement benefit plans: | | Pension and other postretirement benefit plans: | |
| Reclassification adjustment for amounts included in net income, net of tax of $1, $0, $3, and $0, respectively | 3 | | | 1 | | | 6 | | | 2 | | |
Reclassification adjustment for amounts included in net income, net of tax of $2, $1, $3, and $2, respectively | | Reclassification adjustment for amounts included in net income, net of tax of $2, $1, $3, and $2, respectively | 3 | | | 3 | | | 6 | | | 3 | |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | 20 | | | (41) | | | (23) | | | (76) | | Total other comprehensive income (loss) | 12 | | | 4 | | | 40 | | | (43) | |
Comprehensive Income | Comprehensive Income | 1,303 | | | 1,304 | | | 2,723 | | | 4,259 | | Comprehensive Income | 388 | | | 625 | | | 1,522 | | | 1,418 | |
| Dividends on preferred stock of subsidiaries | Dividends on preferred stock of subsidiaries | 4 | | | 4 | | | 11 | | | 11 | | Dividends on preferred stock of subsidiaries | 4 | | | 4 | | | 7 | | | 7 | |
Comprehensive income attributable to noncontrolling interests | 28 | | | 25 | | | 3 | | | 26 | | |
Comprehensive income (loss) attributable to noncontrolling interests | | Comprehensive income (loss) attributable to noncontrolling interests | 0 | | | 5 | | | (33) | | | (26) | |
Consolidated Comprehensive Income Attributable to Southern Company | Consolidated Comprehensive Income Attributable to Southern Company | $ | 1,271 | | | $ | 1,275 | | | $ | 2,709 | | | $ | 4,222 | | Consolidated Comprehensive Income Attributable to Southern Company | $ | 384 | | | $ | 616 | | | $ | 1,548 | | | $ | 1,437 | |
The accompanying notes as they relate to Southern Company are an integral part of these condensed consolidated financial statements.
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | For the Nine Months Ended September 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| | (in millions) | | (in millions) |
Operating Activities: | Operating Activities: | | Operating Activities: | |
Consolidated net income | Consolidated net income | $ | 2,746 | | | $ | 4,335 | | Consolidated net income | $ | 1,482 | | | $ | 1,461 | |
Adjustments to reconcile consolidated net income to net cash provided from operating activities — | Adjustments to reconcile consolidated net income to net cash provided from operating activities — | | Adjustments to reconcile consolidated net income to net cash provided from operating activities — | |
Depreciation and amortization, total | Depreciation and amortization, total | 2,903 | | | 2,514 | | Depreciation and amortization, total | 1,949 | | | 1,916 | |
Deferred income taxes | Deferred income taxes | (196) | | | 253 | | Deferred income taxes | (101) | | | (218) | |
Utilization of federal investment tax credits | Utilization of federal investment tax credits | 319 | | | 722 | | Utilization of federal investment tax credits | 224 | | | 0 | |
Allowance for equity funds used during construction | (106) | | | (96) | | |
| Mark-to-market adjustments | | Mark-to-market adjustments | 136 | | | 36 | |
Pension, postretirement, and other employee benefits | Pension, postretirement, and other employee benefits | (190) | | | (114) | | Pension, postretirement, and other employee benefits | (115) | | | (119) | |
Settlement of asset retirement obligations | Settlement of asset retirement obligations | (315) | | | (225) | | Settlement of asset retirement obligations | (228) | | | (193) | |
Stock based compensation expense | Stock based compensation expense | 99 | | | 87 | | Stock based compensation expense | 105 | | | 84 | |
| Estimated loss on Plant Vogtle Units 3 and 4 | Estimated loss on Plant Vogtle Units 3 and 4 | 149 | | | 0 | | Estimated loss on Plant Vogtle Units 3 and 4 | 508 | | | 149 | |
| Storm damage reserve accruals | 171 | | | 34 | | |
Storm damage accruals | | Storm damage accruals | 112 | | | 117 | |
Impairment charges | Impairment charges | 154 | | | 142 | | Impairment charges | 89 | | | 154 | |
(Gain) loss on dispositions, net | (36) | | | (2,517) | | |
| Natural gas cost under recovery – long-term | | Natural gas cost under recovery – long-term | (119) | | | 0 | |
Other, net | Other, net | 93 | | | (20) | | Other, net | (60) | | | (96) | |
Changes in certain current assets and liabilities — | Changes in certain current assets and liabilities — | | Changes in certain current assets and liabilities — | |
-Receivables | -Receivables | 125 | | | 588 | | -Receivables | 29 | | | 292 | |
-Prepayments | -Prepayments | (39) | | | 61 | | -Prepayments | (79) | | | (102) | |
| -Materials and supplies | (141) | | | (31) | | |
| -Natural gas for sale, net of temporary LIFO liquidation | | -Natural gas for sale, net of temporary LIFO liquidation | 375 | | | 182 | |
-Natural gas cost under recovery | | -Natural gas cost under recovery | (485) | | | 0 | |
-Other current assets | -Other current assets | (80) | | | (31) | | -Other current assets | 36 | | | (253) | |
-Accounts payable | -Accounts payable | (428) | | | (1,155) | | -Accounts payable | (177) | | | (467) | |
-Accrued taxes | -Accrued taxes | 289 | | | 679 | | -Accrued taxes | (157) | | | 258 | |
-Accrued compensation | -Accrued compensation | (183) | | | (191) | | -Accrued compensation | (238) | | | (347) | |
| -Retail fuel cost over recovery | -Retail fuel cost over recovery | 158 | | | 31 | | -Retail fuel cost over recovery | (146) | | | 174 | |
| -Customer refunds | -Customer refunds | (226) | | | (30) | | -Customer refunds | (59) | | | (223) | |
-Other current liabilities | -Other current liabilities | (46) | | | (155) | | -Other current liabilities | (177) | | | 42 | |
Net cash provided from operating activities | Net cash provided from operating activities | 5,220 | | | 4,881 | | Net cash provided from operating activities | 2,904 | | | 2,847 | |
Investing Activities: | Investing Activities: | | | | Investing Activities: | | | |
| Business acquisitions, net of cash acquired | | Business acquisitions, net of cash acquired | (345) | | | (81) | |
| Property additions | Property additions | (5,365) | | | (5,417) | | Property additions | (3,384) | | | (3,202) | |
| Nuclear decommissioning trust fund purchases | Nuclear decommissioning trust fund purchases | (714) | | | (683) | | Nuclear decommissioning trust fund purchases | (930) | | | (524) | |
Nuclear decommissioning trust fund sales | Nuclear decommissioning trust fund sales | 708 | | | 678 | | Nuclear decommissioning trust fund sales | 926 | | | 519 | |
Proceeds from dispositions and asset sales | 987 | | | 5,036 | | |
Proceeds from dispositions | | Proceeds from dispositions | 25 | | | 983 | |
Cost of removal, net of salvage | Cost of removal, net of salvage | (233) | | | (290) | | Cost of removal, net of salvage | (184) | | | (130) | |
Change in construction payables, net | Change in construction payables, net | (40) | | | (132) | | Change in construction payables, net | (55) | | | (103) | |
Investment in unconsolidated subsidiaries | (79) | | | (141) | | |
| Payments pursuant to LTSAs | Payments pursuant to LTSAs | (139) | | | (139) | | Payments pursuant to LTSAs | (114) | | | (91) | |
Other investing activities | Other investing activities | (17) | | | 15 | | Other investing activities | 35 | | | (26) | |
Net cash used for investing activities | Net cash used for investing activities | (4,892) | | | (1,073) | | Net cash used for investing activities | (4,026) | | | (2,655) | |
Financing Activities: | Financing Activities: | | | | Financing Activities: | | | |
Decrease in notes payable, net | (1,534) | | | (773) | | |
Increase (decrease) in notes payable, net | | Increase (decrease) in notes payable, net | 492 | | | (1,170) | |
Proceeds — | Proceeds — | | Proceeds — | |
Long-term debt | Long-term debt | 7,543 | | | 4,737 | | Long-term debt | 4,646 | | | 4,293 | |
| Common stock | Common stock | 63 | | | 623 | | Common stock | 24 | | | 59 | |
| Short-term borrowings | Short-term borrowings | 615 | | | 250 | | Short-term borrowings | 325 | | | 615 | |
Redemptions and repurchases — | Redemptions and repurchases — | | Redemptions and repurchases — | |
Long-term debt | Long-term debt | (2,472) | | | (3,216) | | Long-term debt | (2,477) | | | (2,444) | |
| Short-term borrowings | Short-term borrowings | (840) | | | (1,850) | | Short-term borrowings | (25) | | | (190) | |
Capital contributions from noncontrolling interests | | Capital contributions from noncontrolling interests | 343 | | | 172 | |
Distributions to noncontrolling interests | Distributions to noncontrolling interests | (164) | | | (125) | | Distributions to noncontrolling interests | (113) | | | (118) | |
Capital contributions from noncontrolling interests | 173 | | | 11 | | |
Purchase of membership interests from noncontrolling interests | (60) | | | 0 | | |
| Payment of common stock dividends | Payment of common stock dividends | (2,008) | | | (1,919) | | Payment of common stock dividends | (1,377) | | | (1,332) | |
| Other financing activities | Other financing activities | (239) | | | (130) | | Other financing activities | (167) | | | (170) | |
Net cash provided from (used for) financing activities | Net cash provided from (used for) financing activities | 1,077 | | | (2,392) | | Net cash provided from (used for) financing activities | 1,671 | | | (285) | |
Net Change in Cash, Cash Equivalents, and Restricted Cash | Net Change in Cash, Cash Equivalents, and Restricted Cash | 1,405 | | | 1,416 | | Net Change in Cash, Cash Equivalents, and Restricted Cash | 549 | | | (93) | |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 1,978 | | | 1,519 | | Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 1,068 | | | 1,978 | |
Cash, Cash Equivalents, and Restricted Cash at End of Period | Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 3,383 | | | $ | 2,935 | | Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 1,617 | | | $ | 1,885 | |
Supplemental Cash Flow Information: | Supplemental Cash Flow Information: | | | | Supplemental Cash Flow Information: | | | |
Cash paid during the period for — | | |
Interest (net of $61 and $55 capitalized for 2020 and 2019, respectively) | $ | 1,346 | | | $ | 1,318 | | |
Cash paid (received) during the period for — | | Cash paid (received) during the period for — | |
Interest (net of $43 and $41 capitalized for 2021 and 2020, respectively) | | Interest (net of $43 and $41 capitalized for 2021 and 2020, respectively) | $ | 884 | | | $ | 852 | |
Income taxes, net | Income taxes, net | 66 | | | 265 | | Income taxes, net | 88 | | | (8) | |
Noncash transactions — | Noncash transactions — | | Noncash transactions — | |
Accrued property additions at end of period | Accrued property additions at end of period | 917 | | | 953 | | Accrued property additions at end of period | 943 | | | 828 | |
Right-of-use assets obtained under operating leases | 158 | | | 76 | | |
Right-of-use assets obtained under finance leases | 8 | | | 31 | | |
Contributions from noncontrolling interests | | Contributions from noncontrolling interests | 89 | | | 9 | |
Contributions of wind turbine equipment | | Contributions of wind turbine equipment | 82 | | | 17 | |
Right-of-use assets obtained under leases | | Right-of-use assets obtained under leases | 90 | | | 94 | |
|
The accompanying notes as they relate to Southern Company are an integral part of these condensed consolidated financial statements.
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| Assets | Assets | | At September 30, 2020 | | At December 31, 2019 | Assets | | At June 30, 2021 | | At December 31, 2020 |
| | | (in millions) | | | (in millions) |
Current Assets: | Current Assets: | | Current Assets: | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 3,379 | | | $ | 1,975 | | Cash and cash equivalents | | $ | 1,582 | | | $ | 1,065 | |
| Receivables — | Receivables — | | Receivables — | |
Customer accounts receivable | | 1,778 | | | 1,614 | | |
Energy marketing receivables | | 328 | | | 428 | | |
Customer accounts | | Customer accounts | | 1,683 | | | 1,753 | |
Energy marketing | | Energy marketing | | 0 | | | 516 | |
Unbilled revenues | Unbilled revenues | | 503 | | | 599 | | Unbilled revenues | | 643 | | | 672 | |
| Other accounts and notes receivable | | 506 | | | 817 | | |
Other accounts and notes | | Other accounts and notes | | 488 | | | 512 | |
Accumulated provision for uncollectible accounts | Accumulated provision for uncollectible accounts | | (99) | | | (49) | | Accumulated provision for uncollectible accounts | | (88) | | | (118) | |
Materials and supplies | Materials and supplies | | 1,522 | | | 1,388 | | Materials and supplies | | 1,469 | | | 1,478 | |
Fossil fuel for generation | Fossil fuel for generation | | 506 | | | 521 | | Fossil fuel for generation | | 475 | | | 550 | |
Natural gas for sale | Natural gas for sale | | 448 | | | 479 | | Natural gas for sale | | 178 | | | 460 | |
| Prepaid expenses | Prepaid expenses | | 299 | | | 314 | | Prepaid expenses | | 538 | | | 276 | |
| Assets from risk management activities, net of collateral | Assets from risk management activities, net of collateral | | 135 | | | 183 | | Assets from risk management activities, net of collateral | | 175 | | | 147 | |
Regulatory assets – asset retirement obligations | Regulatory assets – asset retirement obligations | | 246 | | | 287 | | Regulatory assets – asset retirement obligations | | 224 | | | 214 | |
Natural gas cost under recovery | | Natural gas cost under recovery | | 485 | | | 0 | |
Assets held for sale | | Assets held for sale | | 787 | | | 60 | |
Other regulatory assets | Other regulatory assets | | 813 | | | 885 | | Other regulatory assets | | 728 | | | 810 | |
Assets held for sale | | 0 | | | 188 | | |
Other current assets | Other current assets | | 210 | | | 188 | | Other current assets | | 184 | | | 222 | |
Total current assets | Total current assets | | 10,574 | | | 9,817 | | Total current assets | | 9,551 | | | 8,617 | |
Property, Plant, and Equipment: | Property, Plant, and Equipment: | | | | | Property, Plant, and Equipment: | | | | |
In service | In service | | 108,831 | | | 105,114 | | In service | | 112,783 | | | 110,516 | |
Less: Accumulated depreciation | Less: Accumulated depreciation | | 32,099 | | | 30,765 | | Less: Accumulated depreciation | | 33,240 | | | 32,397 | |
Plant in service, net of depreciation | Plant in service, net of depreciation | | 76,732 | | | 74,349 | | Plant in service, net of depreciation | | 79,543 | | | 78,119 | |
| Nuclear fuel, at amortized cost | Nuclear fuel, at amortized cost | | 804 | | | 851 | | Nuclear fuel, at amortized cost | | 816 | | | 818 | |
Construction work in progress | Construction work in progress | | 8,861 | | | 7,880 | | Construction work in progress | | 9,264 | | | 8,697 | |
Total property, plant, and equipment | Total property, plant, and equipment | | 86,397 | | | 83,080 | | Total property, plant, and equipment | | 89,623 | | | 87,634 | |
Other Property and Investments: | Other Property and Investments: | | | | | Other Property and Investments: | | | | |
Goodwill | Goodwill | | 5,280 | | | 5,280 | | Goodwill | | 5,280 | | | 5,280 | |
Nuclear decommissioning trusts, at fair value | | Nuclear decommissioning trusts, at fair value | | 2,457 | | | 2,303 | |
Equity investments in unconsolidated subsidiaries | Equity investments in unconsolidated subsidiaries | | 1,358 | | | 1,303 | | Equity investments in unconsolidated subsidiaries | | 1,287 | | | 1,362 | |
Other intangible assets, net of amortization of $316 and $280 at September 30, 2020 and December 31, 2019, respectively | | 499 | | | 536 | | |
Nuclear decommissioning trusts, at fair value | | 2,109 | | | 2,036 | | |
Other intangible assets, net of amortization of $286 and $328, respectively | | Other intangible assets, net of amortization of $286 and $328, respectively | | 466 | | | 487 | |
Leveraged leases | Leveraged leases | | 653 | | | 788 | | Leveraged leases | | 569 | | | 556 | |
Miscellaneous property and investments | Miscellaneous property and investments | | 403 | | | 391 | | Miscellaneous property and investments | | 494 | | | 398 | |
Total other property and investments | Total other property and investments | | 10,302 | | | 10,334 | | Total other property and investments | | 10,553 | | | 10,386 | |
Deferred Charges and Other Assets: | Deferred Charges and Other Assets: | | | | | Deferred Charges and Other Assets: | | | | |
Operating lease right-of-use assets, net of amortization | Operating lease right-of-use assets, net of amortization | | 1,791 | | | 1,800 | | Operating lease right-of-use assets, net of amortization | | 1,775 | | | 1,802 | |
Deferred charges related to income taxes | Deferred charges related to income taxes | | 799 | | | 798 | | Deferred charges related to income taxes | | 806 | | | 796 | |
| Unamortized loss on reacquired debt | Unamortized loss on reacquired debt | | 285 | | | 300 | | Unamortized loss on reacquired debt | | 269 | | | 280 | |
Regulatory assets – asset retirement obligations, deferred | Regulatory assets – asset retirement obligations, deferred | | 4,984 | | | 4,094 | | Regulatory assets – asset retirement obligations, deferred | | 4,931 | | | 4,934 | |
Other regulatory assets, deferred | Other regulatory assets, deferred | | 6,502 | | | 6,805 | | Other regulatory assets, deferred | | 7,092 | | | 7,198 | |
| Assets held for sale, deferred | | 0 | | | 601 | | |
| Other deferred charges and assets | Other deferred charges and assets | | 1,524 | | | 1,071 | | Other deferred charges and assets | | 1,307 | | | 1,288 | |
Total deferred charges and other assets | Total deferred charges and other assets | | 15,885 | | | 15,469 | | Total deferred charges and other assets | | 16,180 | | | 16,298 | |
Total Assets | Total Assets | | $ | 123,158 | | | $ | 118,700 | | Total Assets | | $ | 125,907 | | | $ | 122,935 | |
The accompanying notes as they relate to Southern Company are an integral part of these condensed consolidated financial statements.
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| Liabilities and Stockholders' Equity | Liabilities and Stockholders' Equity | | At September 30, 2020 | | At December 31, 2019 | Liabilities and Stockholders' Equity | | At June 30, 2021 | | At December 31, 2020 |
| | | (in millions) | | | (in millions) |
Current Liabilities: | Current Liabilities: | | Current Liabilities: | |
Securities due within one year | Securities due within one year | | $ | 4,378 | | | $ | 2,989 | | Securities due within one year | | $ | 2,829 | | | $ | 3,507 | |
| Notes payable | Notes payable | | 171 | | | 2,055 | | Notes payable | | 1,402 | | | 609 | |
Energy marketing trade payables | Energy marketing trade payables | | 361 | | | 442 | | Energy marketing trade payables | | 0 | | | 494 | |
Accounts payable | Accounts payable | | 1,924 | | | 2,115 | | Accounts payable | | 2,075 | | | 2,312 | |
Customer deposits | Customer deposits | | 496 | | | 496 | | Customer deposits | | 467 | | | 487 | |
Accrued taxes — | Accrued taxes — | | Accrued taxes — | |
Accrued income taxes | Accrued income taxes | | 75 | | | 0 | | Accrued income taxes | | 40 | | | 130 | |
| Other accrued taxes | Other accrued taxes | | 742 | | | 659 | | Other accrued taxes | | 589 | | | 699 | |
Accrued interest | Accrued interest | | 421 | | | 474 | | Accrued interest | | 510 | | | 513 | |
| Accrued compensation | Accrued compensation | | 843 | | | 992 | | Accrued compensation | | 770 | | | 1,025 | |
Asset retirement obligations | Asset retirement obligations | | 640 | | | 504 | | Asset retirement obligations | | 684 | | | 585 | |
| Other regulatory liabilities | | 616 | | | 756 | | |
| Liabilities held for sale | Liabilities held for sale | | 0 | | | 5 | | Liabilities held for sale | | 677 | | | 0 | |
Operating lease obligations | Operating lease obligations | | 235 | | | 229 | | Operating lease obligations | | 245 | | | 241 | |
Other regulatory liabilities | | Other regulatory liabilities | | 416 | | | 509 | |
Other current liabilities | Other current liabilities | | 848 | | | 830 | | Other current liabilities | | 956 | | | 968 | |
Total current liabilities | Total current liabilities | | 11,750 | | | 12,546 | | Total current liabilities | | 11,660 | | | 12,079 | |
Long-term Debt | Long-term Debt | | 45,581 | | | 41,798 | | Long-term Debt | | 47,828 | | | 45,073 | |
Deferred Credits and Other Liabilities: | Deferred Credits and Other Liabilities: | | | | | Deferred Credits and Other Liabilities: | | | | |
Accumulated deferred income taxes | Accumulated deferred income taxes | | 8,342 | | | 7,888 | | Accumulated deferred income taxes | | 8,710 | | | 8,175 | |
Deferred credits related to income taxes | Deferred credits related to income taxes | | 5,763 | | | 6,078 | | Deferred credits related to income taxes | | 5,593 | | | 5,767 | |
Accumulated deferred ITCs | Accumulated deferred ITCs | | 2,251 | | | 2,291 | | Accumulated deferred ITCs | | 2,247 | | | 2,235 | |
Employee benefit obligations | Employee benefit obligations | | 1,753 | | | 1,814 | | Employee benefit obligations | | 2,004 | | | 2,213 | |
Operating lease obligations, deferred | Operating lease obligations, deferred | | 1,570 | | | 1,615 | | Operating lease obligations, deferred | | 1,604 | | | 1,611 | |
Asset retirement obligations, deferred | Asset retirement obligations, deferred | | 10,020 | | | 9,282 | | Asset retirement obligations, deferred | | 9,983 | | | 10,099 | |
| Accrued environmental remediation | Accrued environmental remediation | | 220 | | | 234 | | Accrued environmental remediation | | 208 | | | 216 | |
Other cost of removal obligations | Other cost of removal obligations | | 2,231 | | | 2,239 | | Other cost of removal obligations | | 2,190 | | | 2,211 | |
Other regulatory liabilities, deferred | Other regulatory liabilities, deferred | | 315 | | | 256 | | Other regulatory liabilities, deferred | | 256 | | | 251 | |
| Other deferred credits and liabilities | Other deferred credits and liabilities | | 571 | | | 609 | | Other deferred credits and liabilities | | 587 | | | 480 | |
Total deferred credits and other liabilities | Total deferred credits and other liabilities | | 33,036 | | | 32,306 | | Total deferred credits and other liabilities | | 33,382 | | | 33,258 | |
Total Liabilities | Total Liabilities | | 90,367 | | | 86,650 | | Total Liabilities | | 92,870 | | | 90,410 | |
Redeemable Preferred Stock of Subsidiaries | Redeemable Preferred Stock of Subsidiaries | | 291 | | | 291 | | Redeemable Preferred Stock of Subsidiaries | | 291 | | | 291 | |
| Total Stockholders' Equity (See accompanying statements) | Total Stockholders' Equity (See accompanying statements) | | 32,500 | | | 31,759 | | Total Stockholders' Equity (See accompanying statements) | | 32,746 | | | 32,234 | |
Total Liabilities and Stockholders' Equity | Total Liabilities and Stockholders' Equity | | $ | 123,158 | | | $ | 118,700 | | Total Liabilities and Stockholders' Equity | | $ | 125,907 | | | $ | 122,935 | |
The accompanying notes as they relate to Southern Company are an integral part of these condensed consolidated financial statements.
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
| | | Southern Company Common Stockholders' Equity | | | | Southern Company Common Stockholders' Equity | | |
| | Number of Common Shares | | Common Stock | | Accumulated Other Comprehensive Income (Loss) | | | | Number of Common Shares | | Common Stock | | Accumulated Other Comprehensive Income (Loss) | | |
| | Issued | | Treasury | | Par Value | | Paid-In Capital | | Treasury | | Retained Earnings | | Noncontrolling Interests | | Total | | Issued | | Treasury | | Par Value | | Paid-In Capital | | Treasury | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | | Total |
| | (in millions) | | (in millions) |
Balance at December 31, 2018 | 1,035 | | | (1) | | | $ | 5,164 | | | $ | 11,094 | | | $ | (38) | | | $ | 8,706 | | | $ | (203) | | | | $ | 4,316 | | | $ | 29,039 | | |
Balance at December 31, 2019 | | Balance at December 31, 2019 | 1,054 | | | (1) | | | $ | 5,257 | | | $ | 11,734 | | | $ | (42) | | | $ | 10,877 | | | $ | (321) | | | | $ | 4,254 | | | $ | 31,759 | |
Consolidated net income (loss) | Consolidated net income (loss) | — | | | — | | | — | | | — | | | — | | | 2,084 | | | — | | | | (29) | | | 2,055 | | Consolidated net income (loss) | — | | | — | | | — | | | — | | | — | | | 868 | | | — | | | | (31) | | | 837 | |
| Stock issued | 6 | | | — | | | 28 | | | 196 | | | — | | | — | | | — | | | | — | | | 224 | | |
Stock-based compensation | — | | | — | | | — | | | 24 | | | — | | | — | | | — | | | | — | | | 24 | | |
| Cash dividends of $0.60 per share | — | | | — | | | — | | | — | | | — | | | (623) | | | — | | | | — | | | (623) | | |
| Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 3 | | | 3 | | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | (41) | | | (41) | | |
| Other | — | | | — | | | — | | | 7 | | | (2) | | | — | | | — | | | | 1 | | | 6 | | |
Balance at March 31, 2019 | 1,041 | | | (1) | | | 5,192 | | | 11,321 | | | (40) | | | 10,167 | | | (203) | | | | 4,250 | | | 30,687 | | |
Consolidated net income | — | | | — | | | — | | | — | | | — | | | 899 | | | — | | | | 29 | | | 928 | | |
Other comprehensive income (loss) | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | (35) | | | | — | | | (35) | | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | (47) | | | | — | | | (47) | |
Stock issued | Stock issued | 5 | | | — | | | 25 | | | 203 | | | — | | | — | | | — | | | | — | | | 228 | | Stock issued | 3 | | | — | | | 9 | | | 43 | | | — | | | — | | | — | | | | — | | | 52 | |
Stock-based compensation | Stock-based compensation | — | | | — | | | — | | | 11 | | | — | | | — | | | — | | | | — | | | 11 | | Stock-based compensation | — | | | — | | | — | | | 5 | | | — | | | — | | | — | | | | — | | | 5 | |
| Cash dividends of $0.62 per share | Cash dividends of $0.62 per share | — | | | — | | | — | | | — | | | — | | | (646) | | | — | | | | — | | | (646) | | Cash dividends of $0.62 per share | — | | | — | | | — | | | — | | | — | | | (655) | | | — | | | | — | | | (655) | |
| Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 2 | | | 2 | | |
Capital contributions from noncontrolling interests | | Capital contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 16 | | | 16 | |
Distributions to noncontrolling interests | | Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | (48) | | | (48) | |
| Other | | Other | — | | | — | | | — | | | — | | | (2) | | | (2) | | | 1 | | | | — | | | (3) | |
Balance at March 31, 2020 | | Balance at March 31, 2020 | 1,057 | | | (1) | | | 5,266 | | | 11,782 | | | (44) | | | 11,088 | | | (367) | | | | 4,191 | | | 31,916 | |
Consolidated net income | | Consolidated net income | — | | | — | | | — | | | — | | | — | | | 612 | | | — | | | | 5 | | | 617 | |
Other comprehensive income | | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 4 | | | | — | | | 4 | |
Stock issued | | Stock issued | — | | | — | | | — | | | 7 | | | — | | | — | | | — | | | | — | | | 7 | |
Stock-based compensation | | Stock-based compensation | — | | | — | | | — | | | 11 | | | — | | | — | | | — | | | | — | | | 11 | |
| Cash dividends of $0.64 per share | | Cash dividends of $0.64 per share | — | | | — | | | — | | | — | | | — | | | (677) | | | — | | | | — | | | (677) | |
| Capital contributions from noncontrolling interests | | Capital contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 165 | | | 165 | |
Distributions to noncontrolling interests | Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | (47) | | | (47) | | Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | (70) | | | (70) | |
| Other | Other | — | | | — | | | — | | | 5 | | | (1) | | | — | | | — | | | | (1) | | | 3 | | Other | — | | | — | | | — | | | (13) | | | — | | | 1 | | | — | | | | — | | | (12) | |
Balance at June 30, 2019 | 1,046 | | | (1) | | | 5,217 | | | 11,540 | | | (41) | | | 10,420 | | | (238) | | | | 4,233 | | | 31,131 | | |
Consolidated net income | — | | | — | | | — | | | — | | | — | | | 1,316 | | | — | | | | 25 | | | 1,341 | | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | (41) | | | | — | | | (41) | | |
Issuance of equity units | — | | | — | | | — | | | (198) | | | — | | | — | | | — | | | | — | | | (198) | | |
Stock issued | 4 | | | — | | | 17 | | | 154 | | | — | | | — | | | — | | | | — | | | 171 | | |
Stock-based compensation | — | | | — | | | — | | | 12 | | | — | | | — | | | — | | | | — | | | 12 | | |
| Cash dividends of $0.62 per share | — | | | — | | | — | | | — | | | — | | | (649) | | | — | | | | — | | | (649) | | |
| Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 63 | | | 63 | | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | (43) | | | (43) | | |
Balance at June 30, 2020 | | Balance at June 30, 2020 | 1,057 | | | (1) | | | $ | 5,266 | | | $ | 11,787 | | | $ | (44) | | | $ | 11,024 | | | $ | (363) | | | | $ | 4,291 | | | $ | 31,961 | |
| Other | — | | | — | | | — | | | 4 | | | 0 | | | — | | | — | | | | 0 | | | 4 | | |
Balance at September 30, 2019 | 1,050 | | | (1) | | | $ | 5,234 | | | $ | 11,512 | | | $ | (41) | | | $ | 11,087 | | | $ | (279) | | | | $ | 4,278 | | | $ | 31,791 | | |
| |
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
| | | Southern Company Common Stockholders' Equity | | | | Southern Company Common Stockholders' Equity | | |
| | Number of Common Shares | | Common Stock | | Accumulated Other Comprehensive Income (Loss) | | | | Number of Common Shares | | Common Stock | | Accumulated Other Comprehensive Income (Loss) | | |
| | Issued | | Treasury | | Par Value | | Paid-In Capital | | Treasury | | Retained Earnings | | Noncontrolling Interests | | Total | | Issued | | Treasury | | Par Value | | Paid-In Capital | | Treasury | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | | Total |
| | (in millions) | | (in millions) |
Balance at December 31, 2019 | 1,054 | | | (1) | | | $ | 5,257 | | | $ | 11,734 | | | $ | (42) | | | $ | 10,877 | | | $ | (321) | | | | $ | 4,254 | | | $ | 31,759 | | |
Balance at December 31, 2020 | | Balance at December 31, 2020 | 1,058 | | | (1) | | | $ | 5,268 | | | $ | 11,834 | | | $ | (46) | | | $ | 11,311 | | | $ | (395) | | | | $ | 4,262 | | | $ | 32,234 | |
Consolidated net income (loss) | Consolidated net income (loss) | — | | | — | | | — | | | — | | | — | | | 868 | | | — | | | | (31) | | | 837 | | Consolidated net income (loss) | — | | | — | | | — | | | — | | | — | | | 1,135 | | | — | | | | (32) | | | 1,103 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | (47) | | | | — | | | (47) | | |
Stock issued | 3 | | | — | | | 9 | | | 43 | | | — | | | — | | | — | | | | — | | | 52 | | |
Stock-based compensation | — | | | — | | | — | | | 5 | | | — | | | — | | | — | | | | — | | | 5 | | |
| Cash dividends of $0.62 per share | — | | | — | | | — | | | — | | | — | | | (655) | | | — | | | | — | | | (655) | | |
| Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 16 | | | 16 | | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | (48) | | | (48) | | |
| Other | — | | | — | | | — | | | — | | | (2) | | | (2) | | | 1 | | | | — | | | (3) | | |
Balance at March 31, 2020 | 1,057 | | | (1) | | | 5,266 | | | 11,782 | | | (44) | | | 11,088 | | | (367) | | | | 4,191 | | | 31,916 | | |
Consolidated net income | — | | | — | | | — | | | — | | | — | | | 612 | | | — | | | | 5 | | | 617 | | |
Other comprehensive income | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 4 | | | | — | | | 4 | | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 28 | | | | — | | | 28 | |
Stock issued | Stock issued | — | | | — | | | — | | | 7 | | | — | | | — | | | — | | | | — | | | 7 | | Stock issued | 2 | | | — | | | 5 | | | 9 | | | — | | | — | | | — | | | | — | | | 14 | |
Stock-based compensation | Stock-based compensation | — | | | — | | | — | | | 11 | | | — | | | — | | | — | | | | — | | | 11 | | Stock-based compensation | — | | | — | | | — | | | 9 | | | — | | | — | | | — | | | | — | | | 9 | |
| Cash dividends of $0.64 per share | Cash dividends of $0.64 per share | — | | | — | | | — | | | — | | | — | | | (677) | | | — | | | | — | | | (677) | | Cash dividends of $0.64 per share | — | | | — | | | — | | | — | | | — | | | (678) | | | — | | | | — | | | (678) | |
| Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 165 | | | 165 | | |
Capital contributions from noncontrolling interests | | Capital contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 403 | | | 403 | |
Distributions to noncontrolling interests | | Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | (46) | | | (46) | |
| Other | | Other | — | | | — | | | — | | | 2 | | | — | | | — | | | — | | | | (1) | | | 1 | |
Balance at March 31, 2021 | | Balance at March 31, 2021 | 1,060 | | | (1) | | | 5,273 | | | 11,854 | | | (46) | | | 11,768 | | | (367) | | | | 4,586 | | | 33,068 | |
Consolidated net income | | Consolidated net income | — | | | — | | | — | | | — | | | — | | | 372 | | | — | | | | — | | | 372 | |
Other comprehensive income | | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 12 | | | | — | | | 12 | |
Stock issued | | Stock issued | — | | | — | | | 1 | | | 9 | | | — | | | — | | | — | | | | — | | | 10 | |
Stock-based compensation | | Stock-based compensation | — | | | — | | | — | | | 22 | | | — | | | — | | | — | | | | — | | | 22 | |
| Cash dividends of $0.66 per share | | Cash dividends of $0.66 per share | — | | | — | | | — | | | — | | | — | | | (699) | | | — | | | | — | | | (699) | |
| Capital contributions from noncontrolling interests | | Capital contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 29 | | | 29 | |
Distributions to noncontrolling interests | Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | (70) | | | (70) | | Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | (68) | | | (68) | |
| Other | Other | — | | | — | | | — | | | (13) | | | — | | | 1 | | | — | | | | — | | | (12) | | Other | — | | | — | | | — | | | 1 | | | (2) | | | 1 | | | — | | | | — | | | 0 | |
Balance at June 30, 2020 | 1,057 | | | (1) | | | 5,266 | | | 11,787 | | | (44) | | | 11,024 | | | (363) | | | | 4,291 | | | 31,961 | | |
Consolidated net income | — | | | — | | | — | | | — | | | — | | | 1,251 | | | — | | | | 28 | | | 1,279 | | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 20 | | | | — | | | 20 | | |
| Stock issued | — | | | — | | | 1 | | | 3 | | | — | | | — | | | — | | | | — | | | 4 | | |
Stock-based compensation | — | | | — | | | — | | | 15 | | | — | | | — | | | — | | | | — | | | 15 | | |
| Cash dividends of $0.64 per share | — | | | — | | | — | | | — | | | — | | | (676) | | | — | | | | — | | | (676) | | |
| Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 2 | | | 2 | | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | (51) | | | (51) | | |
Purchase of membership interests from noncontrolling interests | — | | | — | | | — | | | 5 | | | — | | | — | | | — | | | | (60) | | | (55) | | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | 1,060 | | | (1) | | | $ | 5,274 | | | $ | 11,886 | | | $ | (48) | | | $ | 11,442 | | | $ | (355) | | | | $ | 4,547 | | | $ | 32,746 | |
| Other | — | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | (1) | | | | 1 | | | 1 | | |
Balance at September 30, 2020 | 1,057 | | | (1) | | | $ | 5,267 | | | $ | 11,810 | | | $ | (44) | | | $ | 11,600 | | | $ | (344) | | | | $ | 4,211 | | | $ | 32,500 | | |
|
The accompanying notes as they relate to Southern Company are an integral part of these condensed consolidated financial statements.
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| | (in millions) | | (in millions) | | (in millions) | | (in millions) |
Operating Revenues: | Operating Revenues: | | Operating Revenues: | |
Retail revenues | Retail revenues | $ | 1,575 | | | $ | 1,694 | | | $ | 4,003 | | | $ | 4,286 | | Retail revenues | $ | 1,354 | | | $ | 1,223 | | | $ | 2,706 | | | $ | 2,427 | |
Wholesale revenues, non-affiliates | Wholesale revenues, non-affiliates | 73 | | | 71 | | | 184 | | | 194 | | Wholesale revenues, non-affiliates | 85 | | | 54 | | | 178 | | | 111 | |
Wholesale revenues, affiliates | Wholesale revenues, affiliates | 11 | | | 2 | | | 36 | | | 66 | | Wholesale revenues, affiliates | 24 | | | 7 | | | 55 | | | 26 | |
Other revenues | Other revenues | 70 | | | 74 | | | 222 | | | 216 | | Other revenues | 93 | | | 81 | | | 176 | | | 152 | |
Total operating revenues | Total operating revenues | 1,729 | | | 1,841 | | | 4,445 | | | 4,762 | | Total operating revenues | 1,556 | | | 1,365 | | | 3,115 | | | 2,716 | |
Operating Expenses: | Operating Expenses: | | | | | | | | Operating Expenses: | | | | | | | |
Fuel | Fuel | 306 | | | 310 | | | 721 | | | 864 | | Fuel | 263 | | | 199 | | | 554 | | | 415 | |
Purchased power, non-affiliates | Purchased power, non-affiliates | 64 | | | 77 | | | 153 | | | 160 | | Purchased power, non-affiliates | 48 | | | 49 | | | 97 | | | 89 | |
Purchased power, affiliates | Purchased power, affiliates | 44 | | | 73 | | | 93 | | | 164 | | Purchased power, affiliates | 39 | | | 30 | | | 69 | | | 49 | |
Other operations and maintenance | Other operations and maintenance | 387 | | | 409 | | | 1,078 | | | 1,221 | | Other operations and maintenance | 413 | | | 342 | | | 775 | | | 690 | |
Depreciation and amortization | Depreciation and amortization | 205 | | | 195 | | | 606 | | | 593 | | Depreciation and amortization | 214 | | | 202 | | | 425 | | | 402 | |
Taxes other than income taxes | Taxes other than income taxes | 103 | | | 101 | | | 311 | | | 301 | | Taxes other than income taxes | 101 | | | 102 | | | 203 | | | 208 | |
Total operating expenses | Total operating expenses | 1,109 | | | 1,165 | | | 2,962 | | | 3,303 | | Total operating expenses | 1,078 | | | 924 | | | 2,123 | | | 1,853 | |
Operating Income | Operating Income | 620 | | | 676 | | | 1,483 | | | 1,459 | | Operating Income | 478 | | | 441 | | | 992 | | | 863 | |
Other Income and (Expense): | Other Income and (Expense): | | Other Income and (Expense): | |
Allowance for equity funds used during construction | Allowance for equity funds used during construction | 12 | | | 13 | | | 34 | | | 41 | | Allowance for equity funds used during construction | 12 | | | 11 | | | 24 | | | 22 | |
Interest expense, net of amounts capitalized | Interest expense, net of amounts capitalized | (84) | | | (83) | | | (255) | | | (248) | | Interest expense, net of amounts capitalized | (84) | | | (83) | | | (168) | | | (171) | |
Other income (expense), net | Other income (expense), net | 30 | | | 11 | | | 78 | | | 36 | | Other income (expense), net | 33 | | | 26 | | | 62 | | | 48 | |
Total other income and (expense) | Total other income and (expense) | (42) | | | (59) | | | (143) | | | (171) | | Total other income and (expense) | (39) | | | (46) | | | (82) | | | (101) | |
Earnings Before Income Taxes | Earnings Before Income Taxes | 578 | | | 617 | | | 1,340 | | | 1,288 | | Earnings Before Income Taxes | 439 | | | 395 | | | 910 | | | 762 | |
Income taxes | Income taxes | 130 | | | 144 | | | 307 | | | 295 | | Income taxes | 104 | | | 93 | | | 213 | | | 177 | |
Net Income | Net Income | 448 | | | 473 | | | 1,033 | | | 993 | | Net Income | 335 | | | 302 | | | 697 | | | 585 | |
Dividends on Preferred Stock | Dividends on Preferred Stock | 4 | | | 4 | | | 11 | | | 11 | | Dividends on Preferred Stock | 4 | | | 4 | | | 7 | | | 7 | |
Net Income After Dividends on Preferred Stock | Net Income After Dividends on Preferred Stock | $ | 444 | | | $ | 469 | | | $ | 1,022 | | | $ | 982 | | Net Income After Dividends on Preferred Stock | $ | 331 | | | $ | 298 | | | $ | 690 | | | $ | 578 | |
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| | (in millions) | | (in millions) | | (in millions) | | (in millions) |
Net Income | Net Income | $ | 448 | | | $ | 473 | | | $ | 1,033 | | | $ | 993 | | Net Income | $ | 335 | | | $ | 302 | | | $ | 697 | | | $ | 585 | |
Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
Qualifying hedges: | Qualifying hedges: | | Qualifying hedges: | |
| Reclassification adjustment for amounts included in net income, net of tax of $0, $0, $1, and $1, respectively | Reclassification adjustment for amounts included in net income, net of tax of $0, $0, $1, and $1, respectively | 1 | | | 1 | | | 3 | | | 3 | | Reclassification adjustment for amounts included in net income, net of tax of $0, $0, $1, and $1, respectively | 1 | | | 1 | | | 2 | | | 2 | |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | 1 | | | 1 | | | 3 | | | 3 | | Total other comprehensive income (loss) | 1 | | | 1 | | | 2 | | | 2 | |
Comprehensive Income | Comprehensive Income | $ | 449 | | | $ | 474 | | | $ | 1,036 | | | $ | 996 | | Comprehensive Income | $ | 336 | | | $ | 303 | | | $ | 699 | | | $ | 587 | |
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | For the Nine Months Ended September 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| | (in millions) | | (in millions) |
Operating Activities: | Operating Activities: | | Operating Activities: | |
Net income | Net income | $ | 1,033 | | | $ | 993 | | Net income | $ | 697 | | | $ | 585 | |
Adjustments to reconcile net income to net cash provided from operating activities — | Adjustments to reconcile net income to net cash provided from operating activities — | | Adjustments to reconcile net income to net cash provided from operating activities — | |
Depreciation and amortization, total | Depreciation and amortization, total | 731 | | | 756 | | Depreciation and amortization, total | 496 | | | 484 | |
Deferred income taxes | Deferred income taxes | 71 | | | 148 | | Deferred income taxes | 87 | | | 38 | |
Allowance for equity funds used during construction | (34) | | | (41) | | |
| Pension, postretirement, and other employee benefits | Pension, postretirement, and other employee benefits | (71) | | | (30) | | Pension, postretirement, and other employee benefits | (39) | | | (50) | |
Settlement of asset retirement obligations | Settlement of asset retirement obligations | (157) | | | (76) | | Settlement of asset retirement obligations | (104) | | | (100) | |
| Other, net | Other, net | 69 | | | 18 | | Other, net | (35) | | | 24 | |
Changes in certain current assets and liabilities — | Changes in certain current assets and liabilities — | | Changes in certain current assets and liabilities — | |
-Receivables | -Receivables | (130) | | | (115) | | -Receivables | (85) | | | 6 | |
| -Fossil fuel stock | | -Fossil fuel stock | 21 | | | (38) | |
-Prepayments | -Prepayments | (32) | | | (30) | | -Prepayments | (53) | | | (62) | |
-Materials and supplies | -Materials and supplies | (55) | | | 11 | | -Materials and supplies | (7) | | | (38) | |
-Other current assets | -Other current assets | (32) | | | (30) | | -Other current assets | (37) | | | (34) | |
-Accounts payable | -Accounts payable | (248) | | | (267) | | -Accounts payable | (236) | | | (232) | |
-Accrued taxes | -Accrued taxes | 142 | | | 149 | | -Accrued taxes | 20 | | | 197 | |
-Accrued compensation | -Accrued compensation | (55) | | | (55) | | -Accrued compensation | (60) | | | (75) | |
-Retail fuel cost over recovery | -Retail fuel cost over recovery | 74 | | | 21 | | -Retail fuel cost over recovery | (18) | | | 66 | |
-Customer refunds | (64) | | | (28) | | |
| -Other current liabilities | -Other current liabilities | (13) | | | 47 | | -Other current liabilities | (63) | | | (97) | |
Net cash provided from operating activities | Net cash provided from operating activities | 1,229 | | | 1,471 | | Net cash provided from operating activities | 584 | | | 674 | |
Investing Activities: | Investing Activities: | | | | Investing Activities: | | | |
Property additions | Property additions | (1,460) | | | (1,239) | | Property additions | (844) | | | (686) | |
Nuclear decommissioning trust fund purchases | Nuclear decommissioning trust fund purchases | (213) | | | (201) | | Nuclear decommissioning trust fund purchases | (473) | | | (160) | |
Nuclear decommissioning trust fund sales | Nuclear decommissioning trust fund sales | 213 | | | 201 | | Nuclear decommissioning trust fund sales | 473 | | | 160 | |
Cost of removal, net of salvage | Cost of removal, net of salvage | (68) | | | (79) | | Cost of removal, net of salvage | (56) | | | (29) | |
Change in construction payables | Change in construction payables | (46) | | | (99) | | Change in construction payables | 25 | | | (53) | |
Other investing activities | Other investing activities | (17) | | | (22) | | Other investing activities | (18) | | | (15) | |
Net cash used for investing activities | Net cash used for investing activities | (1,591) | | | (1,439) | | Net cash used for investing activities | (893) | | | (783) | |
Financing Activities: | Financing Activities: | | | | Financing Activities: | | | |
| Proceeds — | Proceeds — | | Proceeds — | |
Senior notes | Senior notes | 600 | | | 600 | | Senior notes | 600 | | | 0 | |
Capital contributions from parent company | 649 | | | 1,252 | | |
| Pollution control revenue bonds | Pollution control revenue bonds | 87 | | | 0 | | Pollution control revenue bonds | 0 | | | 87 | |
| Redemptions — | Redemptions — | | Redemptions — | |
| Senior notes | | Senior notes | (200) | | | 0 | |
Pollution control revenue bonds | Pollution control revenue bonds | (87) | | | 0 | | Pollution control revenue bonds | 0 | | | (87) | |
Senior notes | 0 | | | (200) | | |
| Capital contributions from parent company | | Capital contributions from parent company | 624 | | | 610 | |
Payment of common stock dividends | Payment of common stock dividends | (718) | | | (633) | | Payment of common stock dividends | (492) | | | (479) | |
Other financing activities | Other financing activities | (26) | | | (27) | | Other financing activities | (26) | | | (15) | |
Net cash provided from financing activities | Net cash provided from financing activities | 505 | | | 992 | | Net cash provided from financing activities | 506 | | | 116 | |
Net Change in Cash, Cash Equivalents, and Restricted Cash | Net Change in Cash, Cash Equivalents, and Restricted Cash | 143 | | | 1,024 | | Net Change in Cash, Cash Equivalents, and Restricted Cash | 197 | | | 7 | |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 894 | | | 313 | | Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 530 | | | 894 | |
Cash, Cash Equivalents, and Restricted Cash at End of Period | Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 1,037 | | | $ | 1,337 | | Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 727 | | | $ | 901 | |
Supplemental Cash Flow Information: | Supplemental Cash Flow Information: | | | | Supplemental Cash Flow Information: | | | |
Cash paid during the period for — | Cash paid during the period for — | | Cash paid during the period for — | |
Interest (net of $11 and $15 capitalized for 2020 and 2019, respectively) | $ | 249 | | | $ | 246 | | |
Interest (net of $7 capitalized for both 2021 and 2020) | | Interest (net of $7 capitalized for both 2021 and 2020) | $ | 154 | | | $ | 161 | |
Income taxes, net | Income taxes, net | 203 | | | 89 | | Income taxes, net | 171 | | | 0 | |
Noncash transactions — | Noncash transactions — | | Noncash transactions — | |
Accrued property additions at end of period | Accrued property additions at end of period | 154 | | | 173 | | Accrued property additions at end of period | 191 | | | 147 | |
Right-of-use assets obtained under operating leases | 63 | | | 7 | | |
Right-of-use assets obtained under finance leases | 2 | | | 1 | | |
Right-of-use assets obtained under leases | | Right-of-use assets obtained under leases | 2 | | | 3 | |
|
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
| Assets | Assets | | At September 30, 2020 | | At December 31, 2019 | Assets | | At June 30, 2021 | | At December 31, 2020 |
| | | (in millions) | | | (in millions) |
Current Assets: | Current Assets: | | Current Assets: | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 1,037 | | | $ | 894 | | Cash and cash equivalents | | $ | 727 | | | $ | 530 | |
Receivables — | Receivables — | | Receivables — | |
Customer accounts receivable | | 499 | | | 425 | | |
Customer accounts | | Customer accounts | | 402 | | | 429 | |
Unbilled revenues | Unbilled revenues | | 138 | | | 134 | | Unbilled revenues | | 180 | | | 152 | |
| Affiliated | Affiliated | | 37 | | | 37 | | Affiliated | | 40 | | | 31 | |
Other accounts and notes receivable | | 84 | | | 72 | | |
Other accounts and notes | | Other accounts and notes | | 80 | | | 66 | |
Accumulated provision for uncollectible accounts | Accumulated provision for uncollectible accounts | | (32) | | | (22) | | Accumulated provision for uncollectible accounts | | (25) | | | (43) | |
Fossil fuel stock | Fossil fuel stock | | 208 | | | 212 | | Fossil fuel stock | | 214 | | | 235 | |
Materials and supplies | Materials and supplies | | 562 | | | 512 | | Materials and supplies | | 550 | | | 546 | |
| Prepaid expenses | Prepaid expenses | | 71 | | | 50 | | Prepaid expenses | | 94 | | | 42 | |
Other regulatory assets | Other regulatory assets | | 207 | | | 242 | | Other regulatory assets | | 221 | | | 226 | |
Other current assets | Other current assets | | 42 | | | 30 | | Other current assets | | 88 | | | 33 | |
Total current assets | Total current assets | | 2,853 | | | 2,586 | | Total current assets | | 2,571 | | | 2,247 | |
Property, Plant, and Equipment: | Property, Plant, and Equipment: | | | | | Property, Plant, and Equipment: | | | | |
In service | In service | | 31,355 | | | 30,023 | | In service | | 32,390 | | | 31,816 | |
Less: Accumulated provision for depreciation | Less: Accumulated provision for depreciation | | 9,920 | | | 9,540 | | Less: Accumulated provision for depreciation | | 10,229 | | | 10,009 | |
Plant in service, net of depreciation | Plant in service, net of depreciation | | 21,435 | | | 20,483 | | Plant in service, net of depreciation | | 22,161 | | | 21,807 | |
| Nuclear fuel, at amortized cost | Nuclear fuel, at amortized cost | | 257 | | | 296 | | Nuclear fuel, at amortized cost | | 254 | | | 270 | |
Construction work in progress | Construction work in progress | | 926 | | | 890 | | Construction work in progress | | 978 | | | 866 | |
Total property, plant, and equipment | Total property, plant, and equipment | | 22,618 | | | 21,669 | | Total property, plant, and equipment | | 23,393 | | | 22,943 | |
Other Property and Investments: | Other Property and Investments: | | | | | Other Property and Investments: | | | | |
Nuclear decommissioning trusts, at fair value | | Nuclear decommissioning trusts, at fair value | | 1,251 | | | 1,157 | |
Equity investments in unconsolidated subsidiaries | Equity investments in unconsolidated subsidiaries | | 63 | | | 66 | | Equity investments in unconsolidated subsidiaries | | 64 | | | 63 | |
Nuclear decommissioning trusts, at fair value | | 1,039 | | | 1,023 | | |
Miscellaneous property and investments | Miscellaneous property and investments | | 130 | | | 128 | | Miscellaneous property and investments | | 127 | | | 131 | |
Total other property and investments | Total other property and investments | | 1,232 | | | 1,217 | | Total other property and investments | | 1,442 | | | 1,351 | |
Deferred Charges and Other Assets: | Deferred Charges and Other Assets: | | | | | Deferred Charges and Other Assets: | | | | |
Operating lease right-of-use assets, net of amortization | Operating lease right-of-use assets, net of amortization | | 162 | | | 132 | | Operating lease right-of-use assets, net of amortization | | 130 | | | 151 | |
Deferred charges related to income taxes | Deferred charges related to income taxes | | 242 | | | 244 | | Deferred charges related to income taxes | | 237 | | | 235 | |
| Deferred under recovered regulatory clause revenues | | 62 | | | 40 | | |
| Regulatory assets – asset retirement obligations | Regulatory assets – asset retirement obligations | | 1,475 | | | 1,019 | | Regulatory assets – asset retirement obligations | | 1,437 | | | 1,441 | |
Other regulatory assets, deferred | Other regulatory assets, deferred | | 1,923 | | | 1,976 | | Other regulatory assets, deferred | | 2,168 | | | 2,162 | |
Other deferred charges and assets | Other deferred charges and assets | | 402 | | | 269 | | Other deferred charges and assets | | 313 | | | 273 | |
Total deferred charges and other assets | Total deferred charges and other assets | | 4,266 | | | 3,680 | | Total deferred charges and other assets | | 4,285 | | | 4,262 | |
Total Assets | Total Assets | | $ | 30,969 | | | $ | 29,152 | | Total Assets | | $ | 31,691 | | | $ | 30,803 | |
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
| Liabilities and Stockholder's Equity | Liabilities and Stockholder's Equity | | At September 30, 2020 | | At December 31, 2019 | Liabilities and Stockholder's Equity | | At June 30, 2021 | | At December 31, 2020 |
| | | (in millions) | | | (in millions) |
Current Liabilities: | Current Liabilities: | | Current Liabilities: | |
Securities due within one year | Securities due within one year | | $ | 496 | | | $ | 251 | | Securities due within one year | | $ | 616 | | | $ | 311 | |
| Accounts payable — | Accounts payable — | | Accounts payable — | |
Affiliated | Affiliated | | 272 | | | 316 | | Affiliated | | 290 | | | 316 | |
Other | Other | | 353 | | | 514 | | Other | | 378 | | | 545 | |
Customer deposits | Customer deposits | | 104 | | | 100 | | Customer deposits | | 106 | | | 104 | |
| Accrued taxes | Accrued taxes | | 210 | | | 78 | | Accrued taxes | | 173 | | | 152 | |
Accrued interest | Accrued interest | | 83 | | | 92 | | Accrued interest | | 93 | | | 90 | |
| Accrued compensation | Accrued compensation | | 172 | | | 216 | | Accrued compensation | | 176 | | | 212 | |
| Asset retirement obligations | Asset retirement obligations | | 251 | | | 195 | | Asset retirement obligations | | 296 | | | 254 | |
Other regulatory liabilities | Other regulatory liabilities | | 144 | | | 193 | | Other regulatory liabilities | | 37 | | | 108 | |
Other current liabilities | Other current liabilities | | 116 | | | 105 | | Other current liabilities | | 119 | | | 107 | |
Total current liabilities | Total current liabilities | | 2,201 | | | 2,060 | | Total current liabilities | | 2,284 | | | 2,199 | |
Long-term Debt | Long-term Debt | | 8,622 | | | 8,270 | | Long-term Debt | | 8,649 | | | 8,558 | |
Deferred Credits and Other Liabilities: | Deferred Credits and Other Liabilities: | | | | | Deferred Credits and Other Liabilities: | | | | |
Accumulated deferred income taxes | Accumulated deferred income taxes | | 3,372 | | | 3,260 | | Accumulated deferred income taxes | | 3,390 | | | 3,273 | |
Deferred credits related to income taxes | Deferred credits related to income taxes | | 1,917 | | | 1,960 | | Deferred credits related to income taxes | | 1,988 | | | 2,016 | |
Accumulated deferred ITCs | Accumulated deferred ITCs | | 96 | | | 100 | | Accumulated deferred ITCs | | 91 | | | 94 | |
Employee benefit obligations | Employee benefit obligations | | 191 | | | 206 | | Employee benefit obligations | | 173 | | | 214 | |
Operating lease obligations | Operating lease obligations | | 121 | | | 107 | | Operating lease obligations | | 100 | | | 119 | |
Asset retirement obligations, deferred | Asset retirement obligations, deferred | | 3,707 | | | 3,345 | | Asset retirement obligations, deferred | | 3,651 | | | 3,720 | |
Other cost of removal obligations | Other cost of removal obligations | | 360 | | | 412 | | Other cost of removal obligations | | 291 | | | 335 | |
Other regulatory liabilities, deferred | Other regulatory liabilities, deferred | | 137 | | | 146 | | Other regulatory liabilities, deferred | | 93 | | | 124 | |
| Other deferred credits and liabilities | Other deferred credits and liabilities | | 39 | | | 40 | | Other deferred credits and liabilities | | 53 | | | 50 | |
Total deferred credits and other liabilities | Total deferred credits and other liabilities | | 9,940 | | | 9,576 | | Total deferred credits and other liabilities | | 9,830 | | | 9,945 | |
Total Liabilities | Total Liabilities | | 20,763 | | | 19,906 | | Total Liabilities | | 20,763 | | | 20,702 | |
Redeemable Preferred Stock | Redeemable Preferred Stock | | 291 | | | 291 | | Redeemable Preferred Stock | | 291 | | | 291 | |
| Common Stockholder's Equity (See accompanying statements) | Common Stockholder's Equity (See accompanying statements) | | 9,915 | | | 8,955 | | Common Stockholder's Equity (See accompanying statements) | | 10,637 | | | 9,810 | |
Total Liabilities and Stockholder's Equity | Total Liabilities and Stockholder's Equity | | $ | 30,969 | | | $ | 29,152 | | Total Liabilities and Stockholder's Equity | | $ | 31,691 | | | $ | 30,803 | |
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY (UNAUDITED)
| | | Number of Common Shares Issued | | Common Stock | | Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total | | Number of Common Shares Issued | | Common Stock | | Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
| (in millions) | |
Balance at December 31, 2018 | 31 | | | $ | 1,222 | | | $ | 3,508 | | | $ | 2,775 | | | $ | (28) | | | $ | 7,477 | | |
Net income after dividends on preferred stock | — | | | — | | | — | | | 217 | | | — | | | 217 | | |
| Capital contributions from parent company | — | | | — | | | 1,236 | | | — | | | — | | | 1,236 | | |
Other comprehensive income | — | | | — | | | — | | | — | | | 1 | | | 1 | | |
Cash dividends on common stock | — | | | — | | | — | | | (211) | | | — | | | (211) | | |
| Balance at March 31, 2019 | 31 | | | 1,222 | | | 4,744 | | | 2,781 | | | (27) | | | 8,720 | | |
Net income after dividends on preferred stock | — | | | — | | | — | | | 296 | | | — | | | 296 | | |
| Capital contributions from parent company | — | | | — | | | 23 | | | — | | | — | | | 23 | | |
Other comprehensive income | — | | | — | | | — | | | — | | | 1 | | | 1 | | |
Cash dividends on common stock | — | | | — | | | — | | | (211) | | | — | | | (211) | | |
| Balance at June 30, 2019 | 31 | | | 1,222 | | | 4,767 | | | 2,866 | | | (26) | | | 8,829 | | |
Net income after dividends on preferred stock | — | | | — | | | — | | | 469 | | | — | | | 469 | | |
| Return of capital to parent company | — | | | — | | | (2) | | | — | | | — | | | (2) | | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 1 | | | 1 | | |
Cash dividends on common stock | — | | | — | | | — | | | (211) | | | — | | | (211) | | |
| Balance at September 30, 2019 | 31 | | | $ | 1,222 | | | $ | 4,765 | | | $ | 3,124 | | | $ | (25) | | | $ | 9,086 | | |
| | | (in millions) |
Balance at December 31, 2019 | Balance at December 31, 2019 | 31 | | | $ | 1,222 | | | $ | 4,755 | | | $ | 3,001 | | | $ | (23) | | | $ | 8,955 | | Balance at December 31, 2019 | 31 | | | $ | 1,222 | | | $ | 4,755 | | | $ | 3,001 | | | $ | (23) | | | $ | 8,955 | |
Net income after dividends on preferred stock | Net income after dividends on preferred stock | — | | | — | | | — | | | 280 | | | — | | | 280 | | Net income after dividends on preferred stock | — | | | — | | | — | | | 280 | | | — | | | 280 | |
| Capital contributions from parent company | Capital contributions from parent company | — | | | — | | | 612 | | | — | | | — | | | 612 | | Capital contributions from parent company | — | | | — | | | 612 | | | — | | | — | | | 612 | |
Other comprehensive income | Other comprehensive income | — | | | — | | | — | | | — | | | 1 | | | 1 | | Other comprehensive income | — | | | — | | | — | | | — | | | 1 | | | 1 | |
Cash dividends on common stock | Cash dividends on common stock | — | | | — | | | — | | | (239) | | | — | | | (239) | | Cash dividends on common stock | — | | | — | | | — | | | (239) | | | — | | | (239) | |
| Balance at March 31, 2020 | Balance at March 31, 2020 | 31 | | | 1,222 | | | 5,367 | | | 3,042 | | | (22) | | | 9,609 | | Balance at March 31, 2020 | 31 | | | 1,222 | | | 5,367 | | | 3,042 | | | (22) | | | 9,609 | |
Net income after dividends on preferred stock | Net income after dividends on preferred stock | — | | | — | | | — | | | 298 | | | — | | | 298 | | Net income after dividends on preferred stock | — | | | — | | | — | | | 298 | | | — | | | 298 | |
| Capital contributions from parent company | Capital contributions from parent company | — | | | — | | | 1 | | | — | | | — | | | 1 | | Capital contributions from parent company | — | | | — | | | 1 | | | — | | | — | | | 1 | |
Other comprehensive income | Other comprehensive income | — | | | — | | | — | | | — | | | 1 | | | 1 | | Other comprehensive income | — | | | — | | | — | | | — | | | 1 | | | 1 | |
Cash dividends on common stock | Cash dividends on common stock | — | | | — | | | — | | | (239) | | | — | | | (239) | | Cash dividends on common stock | — | | | — | | | — | | | (239) | | | — | | | (239) | |
| Balance at June 30, 2020 | Balance at June 30, 2020 | 31 | | | 1,222 | | | 5,368 | | | 3,101 | | | (21) | | | 9,670 | | Balance at June 30, 2020 | 31 | | | $ | 1,222 | | | $ | 5,368 | | | $ | 3,101 | | | $ | (21) | | | $ | 9,670 | |
| | Balance at December 31, 2020 | | Balance at December 31, 2020 | 31 | | | $ | 1,222 | | | $ | 5,413 | | | $ | 3,194 | | | $ | (19) | | | $ | 9,810 | |
Net income after dividends on preferred stock | Net income after dividends on preferred stock | — | | | — | | | — | | | 444 | | | — | | | 444 | | Net income after dividends on preferred stock | — | | | — | | | — | | | 359 | | | — | | | 359 | |
| Capital contributions from parent company | Capital contributions from parent company | — | | | — | | | 40 | | | — | | | — | | | 40 | | Capital contributions from parent company | — | | | — | | | 602 | | | — | | | — | | | 602 | |
Other comprehensive income | Other comprehensive income | — | | | — | | | — | | | — | | | 1 | | | 1 | | Other comprehensive income | — | | | — | | | — | | | — | | | 1 | | | 1 | |
Cash dividends on common stock | Cash dividends on common stock | — | | | — | | | — | | | (240) | | | — | | | (240) | | Cash dividends on common stock | — | | | — | | | — | | | (246) | | | — | | | (246) | |
| Balance at September 30, 2020 | 31 | | | $ | 1,222 | | | $ | 5,408 | | | $ | 3,305 | | | $ | (20) | | | $ | 9,915 | | |
Balance at March 31, 2021 | | Balance at March 31, 2021 | 31 | | | 1,222 | | | 6,015 | | | 3,307 | | | (18) | | | 10,526 | |
Net income after dividends on preferred stock | | Net income after dividends on preferred stock | — | | | — | | | — | | | 331 | | | — | | | 331 | |
| Capital contributions from parent company | | Capital contributions from parent company | — | | | — | | | 26 | | | — | | | — | | | 26 | |
Other comprehensive income | | Other comprehensive income | — | | | — | | | — | | | — | | | 1 | | | 1 | |
Cash dividends on common stock | | Cash dividends on common stock | — | | | — | | | — | | | (246) | | | — | | | (246) | |
Other | | Other | — | | | — | | | — | | | (1) | | | — | | | (1) | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | 31 | | | $ | 1,222 | | | $ | 6,041 | | | $ | 3,391 | | | $ | (17) | | | $ | 10,637 | |
|
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| | (in millions) | | (in millions) | | (in millions) | | (in millions) |
Operating Revenues: | Operating Revenues: | | Operating Revenues: | |
Retail revenues | Retail revenues | $ | 2,435 | | | $ | 2,567 | | | $ | 5,870 | | | $ | 6,181 | | Retail revenues | $ | 2,026 | | | $ | 1,760 | | | $ | 3,813 | | | $ | 3,435 | |
Wholesale revenues | Wholesale revenues | 34 | | | 39 | | | 85 | | | 107 | | Wholesale revenues | 36 | | | 25 | | | 80 | | | 51 | |
| Other revenues | Other revenues | 148 | | | 149 | | | 416 | | | 418 | | Other revenues | 163 | | | 143 | | | 302 | | | 268 | |
Total operating revenues | Total operating revenues | 2,617 | | | 2,755 | | | 6,371 | | | 6,706 | | Total operating revenues | 2,225 | | | 1,928 | | | 4,195 | | | 3,754 | |
Operating Expenses: | Operating Expenses: | | | | | | | | Operating Expenses: | | | | | | | |
Fuel | Fuel | 368 | | | 443 | | | 826 | | | 1,132 | | Fuel | 343 | | | 226 | | | 656 | | | 458 | |
Purchased power, non-affiliates | Purchased power, non-affiliates | 146 | | | 151 | | | 409 | | | 393 | | Purchased power, non-affiliates | 144 | | | 133 | | | 288 | | | 262 | |
Purchased power, affiliates | Purchased power, affiliates | 142 | | | 150 | | | 393 | | | 460 | | Purchased power, affiliates | 149 | | | 122 | | | 285 | | | 251 | |
Other operations and maintenance | Other operations and maintenance | 483 | | | 473 | | | 1,411 | | | 1,385 | | Other operations and maintenance | 542 | | | 463 | | | 1,015 | | | 928 | |
Depreciation and amortization | Depreciation and amortization | 358 | | | 250 | | | 1,064 | | | 733 | | Depreciation and amortization | 342 | | | 354 | | | 680 | | | 707 | |
Taxes other than income taxes | Taxes other than income taxes | 123 | | | 127 | | | 344 | | | 348 | | Taxes other than income taxes | 118 | | | 108 | | | 235 | | | 221 | |
Estimated loss on Plant Vogtle Units 3 and 4 | Estimated loss on Plant Vogtle Units 3 and 4 | 0 | | | 0 | | | 149 | | | 0 | | Estimated loss on Plant Vogtle Units 3 and 4 | 460 | | | 149 | | | 508 | | | 149 | |
Total operating expenses | Total operating expenses | 1,620 | | | 1,594 | | | 4,596 | | | 4,451 | | Total operating expenses | 2,098 | | | 1,555 | | | 3,667 | | | 2,976 | |
Operating Income | Operating Income | 997 | | | 1,161 | | | 1,775 | | | 2,255 | | Operating Income | 127 | | | 373 | | | 528 | | | 778 | |
Other Income and (Expense): | Other Income and (Expense): | | Other Income and (Expense): | |
| Allowance for equity funds used during construction | | Allowance for equity funds used during construction | 30 | | | 20 | | | 61 | | | 40 | |
Interest expense, net of amounts capitalized | Interest expense, net of amounts capitalized | (106) | | | (103) | | | (322) | | | (304) | | Interest expense, net of amounts capitalized | (106) | | | (105) | | | (210) | | | (216) | |
Other income (expense), net | Other income (expense), net | 54 | | | 36 | | | 156 | | | 113 | | Other income (expense), net | 42 | | | 31 | | | 83 | | | 63 | |
Total other income and (expense) | Total other income and (expense) | (52) | | | (67) | | | (166) | | | (191) | | Total other income and (expense) | (34) | | | (54) | | | (66) | | | (113) | |
Earnings Before Income Taxes | Earnings Before Income Taxes | 945 | | | 1,094 | | | 1,609 | | | 2,064 | | Earnings Before Income Taxes | 93 | | | 319 | | | 462 | | | 665 | |
Income taxes | 172 | | | 255 | | | 198 | | | 466 | | |
Income taxes (benefit) | | Income taxes (benefit) | (50) | | | 11 | | | (32) | | | 27 | |
Net Income | Net Income | $ | 773 | | | $ | 839 | | | $ | 1,411 | | | $ | 1,598 | | Net Income | $ | 143 | | | $ | 308 | | | $ | 494 | | | $ | 638 | |
|
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| | (in millions) | | (in millions) | | (in millions) | | (in millions) |
Net Income | Net Income | $ | 773 | | | $ | 839 | | | $ | 1,411 | | | $ | 1,598 | | Net Income | $ | 143 | | | $ | 308 | | | $ | 494 | | | $ | 638 | |
Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
Qualifying hedges: | Qualifying hedges: | | Qualifying hedges: | |
Changes in fair value, net of tax of $0, $(12), $(1), and $(21), respectively | 0 | | | (35) | | | (2) | | | (62) | | |
Reclassification adjustment for amounts included in net income, net of tax of $0, $0, $2, and $0, respectively | 2 | | | 0 | | | 4 | | | 1 | | |
Changes in fair value, net of tax of $0, $0, $0, and $(1), respectively | | Changes in fair value, net of tax of $0, $0, $0, and $(1), respectively | 0 | | | 0 | | | 0 | | | (2) | |
Reclassification adjustment for amounts included in net income, net of tax of $1, $1, $1, and $1, respectively | | Reclassification adjustment for amounts included in net income, net of tax of $1, $1, $1, and $1, respectively | 1 | | | 2 | | | 3 | | | 3 | |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | 2 | | | (35) | | | 2 | | | (61) | | Total other comprehensive income (loss) | 1 | | | 2 | | | 3 | | | 1 | |
Comprehensive Income | Comprehensive Income | $ | 775 | | | $ | 804 | | | $ | 1,413 | | | $ | 1,537 | | Comprehensive Income | $ | 144 | | | $ | 310 | | | $ | 497 | | | $ | 639 | |
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | For the Nine Months Ended September 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| | (in millions) | | (in millions) |
Operating Activities: | Operating Activities: | | Operating Activities: | |
Net income | Net income | $ | 1,411 | | | $ | 1,598 | | Net income | $ | 494 | | | $ | 638 | |
Adjustments to reconcile net income to net cash provided from operating activities — | Adjustments to reconcile net income to net cash provided from operating activities — | | Adjustments to reconcile net income to net cash provided from operating activities — | |
Depreciation and amortization, total | Depreciation and amortization, total | 1,206 | | | 887 | | Depreciation and amortization, total | 772 | | | 800 | |
Deferred income taxes | Deferred income taxes | (167) | | | 145 | | Deferred income taxes | (309) | | | (202) | |
Allowance for equity funds used during construction | Allowance for equity funds used during construction | (63) | | | (49) | | Allowance for equity funds used during construction | (61) | | | (40) | |
| Pension, postretirement, and other employee benefits | Pension, postretirement, and other employee benefits | (98) | | | (85) | | Pension, postretirement, and other employee benefits | (59) | | | (55) | |
| Settlement of asset retirement obligations | Settlement of asset retirement obligations | (130) | | | (110) | | Settlement of asset retirement obligations | (100) | | | (78) | |
Storm damage reserve accruals | 160 | | | 22 | | |
Storm damage accruals | | Storm damage accruals | 107 | | | 107 | |
| Estimated loss on Plant Vogtle Units 3 and 4 | Estimated loss on Plant Vogtle Units 3 and 4 | 149 | | | 0 | | Estimated loss on Plant Vogtle Units 3 and 4 | 508 | | | 149 | |
Other, net | Other, net | 12 | | | 40 | | Other, net | 90 | | | 19 | |
Changes in certain current assets and liabilities — | Changes in certain current assets and liabilities — | | Changes in certain current assets and liabilities — | |
-Receivables | -Receivables | (168) | | | (128) | | -Receivables | (73) | | | (73) | |
-Fossil fuel stock | | -Fossil fuel stock | 55 | | | (52) | |
| -Prepaid income taxes | 0 | | | 102 | | |
-Materials and supplies | -Materials and supplies | (74) | | | (2) | | -Materials and supplies | (46) | | | (61) | |
-Contract assets | (34) | | | (33) | | |
| -Other current assets | -Other current assets | (31) | | | (13) | | -Other current assets | 15 | | | (26) | |
-Accounts payable | -Accounts payable | 25 | | | (134) | | -Accounts payable | 83 | | | 0 | |
-Accrued taxes | -Accrued taxes | 44 | | | 138 | | -Accrued taxes | 14 | | | 87 | |
-Accrued compensation | -Accrued compensation | (36) | | | (12) | | -Accrued compensation | (39) | | | (69) | |
-Retail fuel cost over recovery | -Retail fuel cost over recovery | 84 | | | 0 | | -Retail fuel cost over recovery | (113) | | | 109 | |
-Customer refunds | -Customer refunds | (162) | | | 18 | | -Customer refunds | (6) | | | (159) | |
-Other current liabilities | -Other current liabilities | (3) | | | (19) | | -Other current liabilities | (19) | | | 30 | |
Net cash provided from operating activities | Net cash provided from operating activities | 2,125 | | | 2,365 | | Net cash provided from operating activities | 1,313 | | | 1,124 | |
Investing Activities: | Investing Activities: | | | | Investing Activities: | | | |
Property additions | Property additions | (2,519) | | | (2,581) | | Property additions | (1,575) | | | (1,650) | |
Nuclear decommissioning trust fund purchases | Nuclear decommissioning trust fund purchases | (500) | | | (483) | | Nuclear decommissioning trust fund purchases | (458) | | | (365) | |
Nuclear decommissioning trust fund sales | Nuclear decommissioning trust fund sales | 495 | | | 477 | | Nuclear decommissioning trust fund sales | 453 | | | 359 | |
Cost of removal, net of salvage | Cost of removal, net of salvage | (93) | | | (136) | | Cost of removal, net of salvage | (73) | | | (62) | |
Change in construction payables, net of joint owner portion | Change in construction payables, net of joint owner portion | (14) | | | (75) | | Change in construction payables, net of joint owner portion | (72) | | | (48) | |
Payments pursuant to LTSAs | (44) | | | (17) | | |
Proceeds from dispositions and asset sales | 143 | | | 9 | | |
| Proceeds from dispositions | | Proceeds from dispositions | 3 | | | 143 | |
| Other investing activities | Other investing activities | 6 | | | 13 | | Other investing activities | (8) | | | (36) | |
Net cash used for investing activities | Net cash used for investing activities | (2,526) | | | (2,793) | | Net cash used for investing activities | (1,730) | | | (1,659) | |
Financing Activities: | Financing Activities: | | | | Financing Activities: | | | |
Decrease in notes payable, net | (115) | | | (294) | | |
Increase (decrease) in notes payable, net | | Increase (decrease) in notes payable, net | 250 | | | (25) | |
Proceeds — | Proceeds — | | Proceeds — | |
FFB loan | 519 | | | 835 | | |
Senior notes | Senior notes | 1,500 | | | 750 | | Senior notes | 750 | | | 1,500 | |
Pollution control revenue bonds | Pollution control revenue bonds | 53 | | | 584 | | Pollution control revenue bonds | 0 | | | 53 | |
FFB loan | | FFB loan | 371 | | | 519 | |
Short-term borrowings | Short-term borrowings | 250 | | | 250 | | Short-term borrowings | 0 | | | 250 | |
Capital contributions from parent company | 1,379 | | | 82 | | |
| Redemptions and repurchases — | Redemptions and repurchases — | | Redemptions and repurchases — | |
| Senior notes | Senior notes | (950) | | | 0 | | Senior notes | (325) | | | (950) | |
Pollution control revenue bonds | Pollution control revenue bonds | (148) | | | (223) | | Pollution control revenue bonds | (69) | | | (148) | |
Short-term borrowings | (375) | | | 0 | | |
| FFB loan | FFB loan | (55) | | | 0 | | FFB loan | (45) | | | (32) | |
| Capital contributions from parent company | | Capital contributions from parent company | 368 | | | 500 | |
Payment of common stock dividends | Payment of common stock dividends | (1,156) | | | (1,182) | | Payment of common stock dividends | (824) | | | (771) | |
| Other financing activities | Other financing activities | (35) | | | (37) | | Other financing activities | (19) | | | (27) | |
Net cash provided from financing activities | Net cash provided from financing activities | 867 | | | 765 | | Net cash provided from financing activities | 457 | | | 869 | |
Net Change in Cash, Cash Equivalents, and Restricted Cash | Net Change in Cash, Cash Equivalents, and Restricted Cash | 466 | | | 337 | | Net Change in Cash, Cash Equivalents, and Restricted Cash | 40 | | | 334 | |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 52 | | | 112 | | Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 9 | | | 52 | |
Cash, Cash Equivalents, and Restricted Cash at End of Period | Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 518 | | | $ | 449 | | Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 49 | | | $ | 386 | |
Supplemental Cash Flow Information: | Supplemental Cash Flow Information: | | | | Supplemental Cash Flow Information: | | | |
Cash paid during the period for — | Cash paid during the period for — | | Cash paid during the period for — | |
Interest (net of $34 and $25 capitalized for 2020 and 2019, respectively) | $ | 316 | | | $ | 296 | | |
Interest (net of $30 and $22 capitalized for 2021 and 2020, respectively) | | Interest (net of $30 and $22 capitalized for 2021 and 2020, respectively) | $ | 182 | | | $ | 180 | |
Income taxes, net | Income taxes, net | 311 | | | 45 | | Income taxes, net | 139 | | | 0 | |
Noncash transactions — | Noncash transactions — | | Noncash transactions — | |
Accrued property additions at end of period | Accrued property additions at end of period | 523 | | | 589 | | Accrued property additions at end of period | 476 | | | 478 | |
Right-of-use assets obtained under operating leases | Right-of-use assets obtained under operating leases | 30 | | | 18 | | Right-of-use assets obtained under operating leases | 3 | | | 29 | |
Right-of-use assets obtained under finance leases | 0 | | | 24 | | |
|
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
| Assets | Assets | | At September 30, 2020 | | At December 31, 2019 | Assets | | At June 30, 2021 | | At December 31, 2020 |
| | | (in millions) | | | (in millions) |
Current Assets: | Current Assets: | | Current Assets: | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 518 | | | $ | 52 | | Cash and cash equivalents | | $ | 49 | | | $ | 9 | |
| Receivables — | Receivables — | | Receivables — | |
Customer accounts receivable | | 715 | | | 533 | | |
Customer accounts | | Customer accounts | | 601 | | | 621 | |
Unbilled revenues | Unbilled revenues | | 237 | | | 203 | | Unbilled revenues | | 334 | | | 233 | |
| Joint owner accounts receivable | | 120 | | | 136 | | |
Joint owner accounts | | Joint owner accounts | | 98 | | | 123 | |
| Affiliated | Affiliated | | 17 | | | 21 | | Affiliated | | 27 | | | 21 | |
Other accounts and notes receivable | | 39 | | | 209 | | |
Other accounts and notes | | Other accounts and notes | | 40 | | | 67 | |
Accumulated provision for uncollectible accounts | Accumulated provision for uncollectible accounts | | (29) | | | (2) | | Accumulated provision for uncollectible accounts | | (3) | | | (26) | |
Fossil fuel stock | Fossil fuel stock | | 269 | | | 272 | | Fossil fuel stock | | 223 | | | 278 | |
Materials and supplies | Materials and supplies | | 572 | | | 501 | | Materials and supplies | | 631 | | | 592 | |
| Regulatory assets – storm damage reserves | | 213 | | | 213 | | |
Regulatory assets – storm damage | | Regulatory assets – storm damage | | 150 | | | 213 | |
Regulatory assets – asset retirement obligations | Regulatory assets – asset retirement obligations | | 209 | | | 254 | | Regulatory assets – asset retirement obligations | | 183 | | | 166 | |
Other regulatory assets | Other regulatory assets | | 251 | | | 263 | | Other regulatory assets | | 240 | | | 248 | |
Other current assets | Other current assets | | 162 | | | 140 | | Other current assets | | 140 | | | 143 | |
Total current assets | Total current assets | | 3,293 | | | 2,795 | | Total current assets | | 2,713 | | | 2,688 | |
Property, Plant, and Equipment: | Property, Plant, and Equipment: | | | | | Property, Plant, and Equipment: | | | | |
In service | In service | | 39,170 | | | 38,137 | | In service | | 40,408 | | | 39,682 | |
Less: Accumulated provision for depreciation | Less: Accumulated provision for depreciation | | 12,139 | | | 11,753 | | Less: Accumulated provision for depreciation | | 12,540 | | | 12,251 | |
Plant in service, net of depreciation | Plant in service, net of depreciation | | 27,031 | | | 26,384 | | Plant in service, net of depreciation | | 27,868 | | | 27,431 | |
| Nuclear fuel, at amortized cost | Nuclear fuel, at amortized cost | | 547 | | | 555 | | Nuclear fuel, at amortized cost | | 562 | | | 548 | |
Construction work in progress | Construction work in progress | | 6,752 | | | 5,650 | | Construction work in progress | | 7,062 | | | 6,857 | |
Total property, plant, and equipment | Total property, plant, and equipment | | 34,330 | | | 32,589 | | Total property, plant, and equipment | | 35,492 | | | 34,836 | |
Other Property and Investments: | Other Property and Investments: | | | | | Other Property and Investments: | | | | |
Nuclear decommissioning trusts, at fair value | | Nuclear decommissioning trusts, at fair value | | 1,207 | | | 1,145 | |
Equity investments in unconsolidated subsidiaries | Equity investments in unconsolidated subsidiaries | | 50 | | | 52 | | Equity investments in unconsolidated subsidiaries | | 51 | | | 51 | |
Nuclear decommissioning trusts, at fair value | | 1,070 | | | 1,013 | | |
Miscellaneous property and investments | Miscellaneous property and investments | | 67 | | | 64 | | Miscellaneous property and investments | | 66 | | | 63 | |
Total other property and investments | Total other property and investments | | 1,187 | | | 1,129 | | Total other property and investments | | 1,324 | | | 1,259 | |
Deferred Charges and Other Assets: | Deferred Charges and Other Assets: | | | | | Deferred Charges and Other Assets: | | | | |
Operating lease right-of-use assets, net of amortization | Operating lease right-of-use assets, net of amortization | | 1,345 | | | 1,428 | | Operating lease right-of-use assets, net of amortization | | 1,236 | | | 1,308 | |
Deferred charges related to income taxes | Deferred charges related to income taxes | | 522 | | | 519 | | Deferred charges related to income taxes | | 535 | | | 527 | |
| Regulatory assets – asset retirement obligations, deferred | Regulatory assets – asset retirement obligations, deferred | | 3,307 | | | 2,865 | | Regulatory assets – asset retirement obligations, deferred | | 3,281 | | | 3,291 | |
Other regulatory assets, deferred | Other regulatory assets, deferred | | 2,521 | | | 2,716 | | Other regulatory assets, deferred | | 2,550 | | | 2,692 | |
Other deferred charges and assets | Other deferred charges and assets | | 541 | | | 500 | | Other deferred charges and assets | | 494 | | | 479 | |
Total deferred charges and other assets | Total deferred charges and other assets | | 8,236 | | | 8,028 | | Total deferred charges and other assets | | 8,096 | | | 8,297 | |
Total Assets | Total Assets | | $ | 47,046 | | | $ | 44,541 | | Total Assets | | $ | 47,625 | | | $ | 47,080 | |
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
| Liabilities and Stockholder's Equity | Liabilities and Stockholder's Equity | | At September 30, 2020 | | At December 31, 2019 | Liabilities and Stockholder's Equity | | At June 30, 2021 | | At December 31, 2020 |
| | | (in millions) | | | (in millions) |
Current Liabilities: | Current Liabilities: | | Current Liabilities: | |
Securities due within one year | Securities due within one year | | $ | 531 | | | $ | 1,025 | | Securities due within one year | | $ | 627 | | | $ | 542 | |
Notes payable | Notes payable | | 0 | | | 365 | | Notes payable | | 310 | | | 60 | |
Accounts payable — | Accounts payable — | | Accounts payable — | |
Affiliated | Affiliated | | 561 | | | 512 | | Affiliated | | 587 | | | 597 | |
Other | Other | | 731 | | | 711 | | Other | | 755 | | | 753 | |
Customer deposits | Customer deposits | | 280 | | | 283 | | Customer deposits | | 268 | | | 276 | |
| Accrued taxes | Accrued taxes | | 415 | | | 407 | | Accrued taxes | | 322 | | | 407 | |
Accrued interest | Accrued interest | | 100 | | | 118 | | Accrued interest | | 138 | | | 130 | |
| Accrued compensation | Accrued compensation | | 198 | | | 233 | | Accrued compensation | | 164 | | | 233 | |
Operating lease obligations | Operating lease obligations | | 151 | | | 144 | | Operating lease obligations | | 152 | | | 151 | |
Asset retirement obligations | Asset retirement obligations | | 351 | | | 265 | | Asset retirement obligations | | 321 | | | 287 | |
| Over recovered fuel clause revenues | Over recovered fuel clause revenues | | 84 | | | 0 | | Over recovered fuel clause revenues | | 0 | | | 113 | |
Other regulatory liabilities | Other regulatory liabilities | | 302 | | | 447 | | Other regulatory liabilities | | 277 | | | 228 | |
| Other current liabilities | Other current liabilities | | 201 | | | 187 | | Other current liabilities | | 230 | | | 254 | |
Total current liabilities | Total current liabilities | | 3,905 | | | 4,697 | | Total current liabilities | | 4,151 | | | 4,031 | |
Long-term Debt | Long-term Debt | | 12,314 | | | 10,791 | | Long-term Debt | | 13,023 | | | 12,428 | |
Deferred Credits and Other Liabilities: | Deferred Credits and Other Liabilities: | | | | | Deferred Credits and Other Liabilities: | | | | |
Accumulated deferred income taxes | Accumulated deferred income taxes | | 3,296 | | | 3,257 | | Accumulated deferred income taxes | | 3,138 | | | 3,272 | |
Deferred credits related to income taxes | Deferred credits related to income taxes | | 2,664 | | | 2,862 | | Deferred credits related to income taxes | | 2,463 | | | 2,588 | |
Accumulated deferred ITCs | Accumulated deferred ITCs | | 272 | | | 255 | | Accumulated deferred ITCs | | 322 | | | 273 | |
Employee benefit obligations | Employee benefit obligations | | 486 | | | 540 | | Employee benefit obligations | | 518 | | | 586 | |
Operating lease obligations, deferred | Operating lease obligations, deferred | | 1,163 | | | 1,282 | | Operating lease obligations, deferred | | 1,111 | | | 1,156 | |
Asset retirement obligations, deferred | Asset retirement obligations, deferred | | 5,901 | | | 5,519 | | Asset retirement obligations, deferred | | 5,962 | | | 5,978 | |
| Other deferred credits and liabilities | Other deferred credits and liabilities | | 339 | | | 273 | | Other deferred credits and liabilities | | 391 | | | 267 | |
Total deferred credits and other liabilities | Total deferred credits and other liabilities | | 14,121 | | | 13,988 | | Total deferred credits and other liabilities | | 13,905 | | | 14,120 | |
Total Liabilities | Total Liabilities | | 30,340 | | | 29,476 | | Total Liabilities | | 31,079 | | | 30,579 | |
| Common Stockholder's Equity (See accompanying statements) | Common Stockholder's Equity (See accompanying statements) | | 16,706 | | | 15,065 | | Common Stockholder's Equity (See accompanying statements) | | 16,546 | | | 16,501 | |
Total Liabilities and Stockholder's Equity | Total Liabilities and Stockholder's Equity | | $ | 47,046 | | | $ | 44,541 | | Total Liabilities and Stockholder's Equity | | $ | 47,625 | | | $ | 47,080 | |
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY (UNAUDITED)
| | | Number of Common Shares Issued | | Common Stock | | Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total | | Number of Common Shares Issued | | Common Stock | | Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
| (in millions) | |
Balance at December 31, 2018 | 9 | | | $ | 398 | | | $ | 10,322 | | | $ | 3,612 | | | $ | (9) | | | $ | 14,323 | | |
Net income | — | | | — | | | — | | | 311 | | | — | | | 311 | | |
| Capital contributions from parent company | — | | | — | | | 29 | | | — | | | — | | | 29 | | |
Other comprehensive income | — | | | — | | | — | | | — | | | 1 | | | 1 | | |
Cash dividends on common stock | — | | | — | | | — | | | (394) | | | — | | | (394) | | |
Other | — | | | — | | | (1) | | | — | | | — | | | (1) | | |
Balance at March 31, 2019 | 9 | | | 398 | | | 10,350 | | | 3,529 | | | (8) | | | 14,269 | | |
Net income | — | | | — | | | — | | | 448 | | | — | | | 448 | | |
| Capital contributions from parent company | — | | | — | | | 20 | | | — | | | — | | | 20 | | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (27) | | | (27) | | |
Cash dividends on common stock | — | | | — | | | — | | | (394) | | | — | | | (394) | | |
Other | — | | | — | | | 1 | | | (1) | | | — | | | 0 | | |
Balance at June 30, 2019 | 9 | | | 398 | | | 10,371 | | | 3,582 | | | (35) | | | 14,316 | | |
Net income | — | | | — | | | — | | | 839 | | | — | | | 839 | | |
| Capital contributions from parent company | — | | | — | | | 38 | | | — | | | — | | | 38 | | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (35) | | | (35) | | |
Cash dividends on common stock | — | | | — | | | — | | | (394) | | | — | | | (394) | | |
Other | — | | | — | | | (1) | | | 1 | | | — | | | 0 | | |
Balance at September 30, 2019 | 9 | | | $ | 398 | | | $ | 10,408 | | | $ | 4,028 | | | $ | (70) | | | $ | 14,764 | | |
| | | (in millions) |
Balance at December 31, 2019 | Balance at December 31, 2019 | 9 | | | $ | 398 | | | $ | 10,962 | | | $ | 3,756 | | | $ | (51) | | | $ | 15,065 | | Balance at December 31, 2019 | 9 | | | $ | 398 | | | $ | 10,962 | | | $ | 3,756 | | | $ | (51) | | | $ | 15,065 | |
Net income | Net income | — | | | — | | | — | | | 331 | | | — | | | 331 | | Net income | — | | | — | | | — | | | 331 | | | — | | | 331 | |
| Capital contributions from parent company | Capital contributions from parent company | — | | | — | | | 502 | | | — | | | — | | | 502 | | Capital contributions from parent company | — | | | — | | | 502 | | | — | | | — | | | 502 | |
Other comprehensive income (loss) | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (1) | | | (1) | | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Cash dividends on common stock | Cash dividends on common stock | — | | | — | | | — | | | (385) | | | — | | | (385) | | Cash dividends on common stock | — | | | — | | | — | | | (385) | | | — | | | (385) | |
| Balance at March 31, 2020 | Balance at March 31, 2020 | 9 | | | 398 | | | 11,464 | | | 3,702 | | | (52) | | | 15,512 | | Balance at March 31, 2020 | 9 | | | 398 | | | 11,464 | | | 3,702 | | | (52) | | | 15,512 | |
Net income | Net income | — | | | — | | | — | | | 308 | | | — | | | 308 | | Net income | — | | | — | | | — | | | 308 | | | — | | | 308 | |
| Capital contributions from parent company | Capital contributions from parent company | — | | | — | | | 1 | | | — | | | — | | | 1 | | Capital contributions from parent company | — | | | — | | | 1 | | | — | | | — | | | 1 | |
Other comprehensive income | Other comprehensive income | — | | | — | | | — | | | — | | | 2 | | | 2 | | Other comprehensive income | — | | | — | | | — | | | — | | | 2 | | | 2 | |
Cash dividends on common stock | Cash dividends on common stock | — | | | — | | | — | | | (386) | | | — | | | (386) | | Cash dividends on common stock | — | | | — | | | — | | | (386) | | | — | | | (386) | |
| Balance at June 30, 2020 | Balance at June 30, 2020 | 9 | | | 398 | | | 11,465 | | | 3,624 | | | (50) | | | 15,437 | | Balance at June 30, 2020 | 9 | | | $ | 398 | | | $ | 11,465 | | | $ | 3,624 | | | $ | (50) | | | $ | 15,437 | |
| | Balance at December 31, 2020 | | Balance at December 31, 2020 | 9 | | | $ | 398 | | | $ | 12,361 | | | $ | 3,789 | | | $ | (47) | | | $ | 16,501 | |
Net income | Net income | — | | | — | | | — | | | 773 | | | — | | | 773 | | Net income | — | | | — | | | — | | | 351 | | | — | | | 351 | |
| Capital contributions from parent company | Capital contributions from parent company | — | | | — | | | 880 | | | — | | | — | | | 880 | | Capital contributions from parent company | — | | | — | | | 332 | | | — | | | — | | | 332 | |
Other comprehensive income | Other comprehensive income | — | | | — | | | — | | | — | | | 2 | | | 2 | | Other comprehensive income | — | | | — | | | — | | | — | | | 2 | | | 2 | |
Cash dividends on common stock | Cash dividends on common stock | — | | | — | | | — | | | (386) | | | — | | | (386) | | Cash dividends on common stock | — | | | — | | | — | | | (412) | | | — | | | (412) | |
| Balance at September 30, 2020 | 9 | | | $ | 398 | | | $ | 12,345 | | | $ | 4,011 | | | $ | (48) | | | $ | 16,706 | | |
Balance at March 31, 2021 | | Balance at March 31, 2021 | 9 | | | 398 | | | 12,693 | | | 3,728 | | | (45) | | | 16,774 | |
Net income | | Net income | — | | | — | | | — | | | 143 | | | — | | | 143 | |
| Capital contributions from parent company | | Capital contributions from parent company | — | | | — | | | 40 | | | — | | | — | | | 40 | |
Other comprehensive income | | Other comprehensive income | — | | | — | | | — | | | — | | | 1 | | | 1 | |
Cash dividends on common stock | | Cash dividends on common stock | — | | | — | | | — | | | (412) | | | — | | | (412) | |
| Balance at June 30, 2021 | | Balance at June 30, 2021 | 9 | | | $ | 398 | | | $ | 12,733 | | | $ | 3,459 | | | $ | (44) | | | $ | 16,546 | |
|
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| | (in millions) | | (in millions) | | (in millions) | | (in millions) |
Operating Revenues: | Operating Revenues: | | Operating Revenues: | |
Retail revenues | Retail revenues | $ | 232 | | | $ | 251 | | | $ | 630 | | | $ | 669 | | Retail revenues | $ | 219 | | | $ | 199 | | | $ | 422 | | | $ | 398 | |
Wholesale revenues, non-affiliates | Wholesale revenues, non-affiliates | 61 | | | 64 | | | 164 | | | 178 | | Wholesale revenues, non-affiliates | 54 | | | 52 | | | 117 | | | 103 | |
Wholesale revenues, affiliates | Wholesale revenues, affiliates | 36 | | | 51 | | | 82 | | | 109 | | Wholesale revenues, affiliates | 25 | | | 25 | | | 57 | | | 47 | |
Other revenues | Other revenues | 7 | | | 4 | | | 19 | | | 14 | | Other revenues | 5 | | | 7 | | | 14 | | | 11 | |
Total operating revenues | Total operating revenues | 336 | | | 370 | | | 895 | | | 970 | | Total operating revenues | 303 | | | 283 | | | 610 | | | 559 | |
Operating Expenses: | Operating Expenses: | | | | | | | | Operating Expenses: | | | | | | | |
Fuel | Fuel | 103 | | | 121 | | | 266 | | | 319 | | Fuel | 91 | | | 83 | | | 192 | | | 162 | |
Purchased power | Purchased power | 6 | | | 6 | | | 18 | | | 15 | | Purchased power | 11 | | | 7 | | | 16 | | | 12 | |
| Other operations and maintenance | Other operations and maintenance | 62 | | | 72 | | | 202 | | | 204 | | Other operations and maintenance | 76 | | | 67 | | | 144 | | | 142 | |
Depreciation and amortization | Depreciation and amortization | 47 | | | 48 | | | 135 | | | 144 | | Depreciation and amortization | 44 | | | 46 | | | 91 | | | 88 | |
Taxes other than income taxes | Taxes other than income taxes | 31 | | | 30 | | | 90 | | | 85 | | Taxes other than income taxes | 32 | | | 30 | | | 63 | | | 59 | |
| Total operating expenses | Total operating expenses | 249 | | | 277 | | | 711 | | | 767 | | Total operating expenses | 254 | | | 233 | | | 506 | | | 463 | |
Operating Income | Operating Income | 87 | | | 93 | | | 184 | | | 203 | | Operating Income | 49 | | | 50 | | | 104 | | | 96 | |
Other Income and (Expense): | Other Income and (Expense): | | Other Income and (Expense): | |
| Interest expense, net of amounts capitalized | Interest expense, net of amounts capitalized | (14) | | | (17) | | | (45) | | | (52) | | Interest expense, net of amounts capitalized | (14) | | | (15) | | | (29) | | | (31) | |
Other income (expense), net | Other income (expense), net | 6 | | | 4 | | | 19 | | | 15 | | Other income (expense), net | 11 | | | 6 | | | 20 | | | 14 | |
Total other income and (expense) | Total other income and (expense) | (8) | | | (13) | | | (26) | | | (37) | | Total other income and (expense) | (3) | | | (9) | | | (9) | | | (17) | |
Earnings Before Income Taxes | Earnings Before Income Taxes | 79 | | | 80 | | | 158 | | | 166 | | Earnings Before Income Taxes | 46 | | | 41 | | | 95 | | | 79 | |
Income taxes | Income taxes | 12 | | | 15 | | | 20 | | | 27 | | Income taxes | 8 | | | 2 | | | 12 | | | 8 | |
Net Income | Net Income | $ | 67 | | | $ | 65 | | | $ | 138 | | | $ | 139 | | Net Income | $ | 38 | | | $ | 39 | | | $ | 83 | | | $ | 71 | |
|
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| | (in millions) | | (in millions) | | (in millions) | | (in millions) |
Net Income | Net Income | $ | 67 | | | $ | 65 | | | $ | 138 | | | $ | 139 | | Net Income | $ | 38 | | | $ | 39 | | | $ | 83 | | | $ | 71 | |
Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
Qualifying hedges: | Qualifying hedges: | | Qualifying hedges: | |
| Changes in fair value, net of tax of $0, $0, $0, and $0, respectively | | Changes in fair value, net of tax of $0, $0, $0, and $0, respectively | 0 | | | 0 | | | 0 | | | (1) | |
Reclassification adjustment for amounts included in net income, net of tax of $0, $0, $0, and $0, respectively | Reclassification adjustment for amounts included in net income, net of tax of $0, $0, $0, and $0, respectively | 0 | | | 0 | | | 1 | | | 1 | | Reclassification adjustment for amounts included in net income, net of tax of $0, $0, $0, and $0, respectively | 0 | | | 0 | | | 1 | | | 1 | |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | 0 | | | 0 | | | 1 | | | 1 | | Total other comprehensive income (loss) | 0 | | | 0 | | | 1 | | | 0 | |
Comprehensive Income | Comprehensive Income | $ | 67 | | | $ | 65 | | | $ | 139 | | | $ | 140 | | Comprehensive Income | $ | 38 | | | $ | 39 | | | $ | 84 | | | $ | 71 | |
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | For the Nine Months Ended September 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| | (in millions) | | (in millions) |
Operating Activities: | Operating Activities: | | Operating Activities: | |
Net income | Net income | $ | 138 | | | $ | 139 | | Net income | $ | 83 | | | $ | 71 | |
Adjustments to reconcile net income to net cash provided from operating activities — | Adjustments to reconcile net income to net cash provided from operating activities — | | Adjustments to reconcile net income to net cash provided from operating activities — | |
Depreciation and amortization, total | Depreciation and amortization, total | 142 | | | 148 | | Depreciation and amortization, total | 106 | | | 92 | |
Deferred income taxes | (19) | | | 10 | | |
| | Settlement of asset retirement obligations | Settlement of asset retirement obligations | (16) | | | (28) | | Settlement of asset retirement obligations | (12) | | | (9) | |
| Other, net | Other, net | 9 | | | 8 | | Other, net | (16) | | | (4) | |
Changes in certain current assets and liabilities — | Changes in certain current assets and liabilities — | | Changes in certain current assets and liabilities — | |
-Receivables | (3) | | | (11) | | |
| | -Other current assets | -Other current assets | (7) | | | 18 | | -Other current assets | (3) | | | (13) | |
-Accounts payable | -Accounts payable | (54) | | | (26) | | -Accounts payable | (33) | | | (19) | |
-Accrued taxes | -Accrued taxes | 15 | | | (12) | | -Accrued taxes | (51) | | | (21) | |
| -Accrued compensation | -Accrued compensation | (8) | | | (10) | | -Accrued compensation | (10) | | | (15) | |
-Retail fuel cost over recovery | | -Retail fuel cost over recovery | (15) | | | (1) | |
| -Other current liabilities | -Other current liabilities | (11) | | | 6 | | -Other current liabilities | (8) | | | (10) | |
Net cash provided from operating activities | Net cash provided from operating activities | 186 | | | 242 | | Net cash provided from operating activities | 41 | | | 71 | |
Investing Activities: | Investing Activities: | | | | Investing Activities: | | | |
Property additions | Property additions | (174) | | | (134) | | Property additions | (90) | | | (111) | |
Construction payables | Construction payables | 7 | | | (16) | | Construction payables | (3) | | | (14) | |
| Payments pursuant to LTSAs | Payments pursuant to LTSAs | (20) | | | (18) | | Payments pursuant to LTSAs | (14) | | | (10) | |
Other investing activities | Other investing activities | (13) | | | (30) | | Other investing activities | (10) | | | (10) | |
Net cash used for investing activities | Net cash used for investing activities | (200) | | | (198) | | Net cash used for investing activities | (117) | | | (145) | |
Financing Activities: | Financing Activities: | | | | Financing Activities: | | | |
| Increase (decrease) in notes payable, net | | Increase (decrease) in notes payable, net | (25) | | | 4 | |
Proceeds — | Proceeds — | | Proceeds — | |
| Capital contributions from parent company | 80 | | | 2 | | |
Senior notes | | Senior notes | 525 | | | 0 | |
Short-term borrowings | Short-term borrowings | 40 | | | 0 | | Short-term borrowings | 0 | | | 40 | |
Pollution control revenue bonds | Pollution control revenue bonds | 34 | | | 43 | | Pollution control revenue bonds | 0 | | | 34 | |
| Other long-term debt | Other long-term debt | 100 | | | 0 | | Other long-term debt | 0 | | | 100 | |
Redemptions — | Redemptions — | | Redemptions — | |
Senior notes | Senior notes | (275) | | | 0 | | Senior notes | 0 | | | (275) | |
| Short-term borrowings | Short-term borrowings | (40) | | | 0 | | Short-term borrowings | 0 | | | (40) | |
Pollution control revenue bonds | Pollution control revenue bonds | (41) | | | 0 | | Pollution control revenue bonds | 0 | | | (41) | |
| Capital contributions from parent company | | Capital contributions from parent company | 101 | | | 75 | |
Return of capital to parent company | Return of capital to parent company | (74) | | | (113) | | Return of capital to parent company | 0 | | | (74) | |
Payment of common stock dividends | Payment of common stock dividends | (37) | | | 0 | | Payment of common stock dividends | (79) | | | 0 | |
Other financing activities | Other financing activities | (1) | | | (1) | | Other financing activities | (7) | | | (1) | |
Net cash used for financing activities | (214) | | | (69) | | |
Net cash provided from (used for) financing activities | | Net cash provided from (used for) financing activities | 515 | | | (178) | |
Net Change in Cash, Cash Equivalents, and Restricted Cash | Net Change in Cash, Cash Equivalents, and Restricted Cash | (228) | | | (25) | | Net Change in Cash, Cash Equivalents, and Restricted Cash | 439 | | | (252) | |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 286 | | | 293 | | Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 39 | | | 286 | |
Cash, Cash Equivalents, and Restricted Cash at End of Period | Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 58 | | | $ | 268 | | Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 478 | | | $ | 34 | |
Supplemental Cash Flow Information: | Supplemental Cash Flow Information: | | | | Supplemental Cash Flow Information: | | | |
Cash paid during the period for — | Cash paid during the period for — | | Cash paid during the period for — | |
Interest (net of $0 and $(1) capitalized for 2020 and 2019, respectively) | $ | 49 | | | $ | 55 | | |
Interest (net of $0 capitalized for both 2021 and 2020) | | Interest (net of $0 capitalized for both 2021 and 2020) | $ | 31 | | | $ | 33 | |
Income taxes, net | Income taxes, net | 9 | | | 0 | | Income taxes, net | 7 | | | 0 | |
| Noncash transactions — Accrued property additions at end of period | Noncash transactions — Accrued property additions at end of period | 42 | | | 20 | | Noncash transactions — Accrued property additions at end of period | 31 | | | 21 | |
|
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
| Assets | Assets | | At September 30, 2020 | | At December 31, 2019 | Assets | | At June 30, 2021 | | At December 31, 2020 |
| | | (in millions) | | | (in millions) |
Current Assets: | Current Assets: | | Current Assets: | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 58 | | | $ | 286 | | Cash and cash equivalents | | $ | 478 | | | $ | 39 | |
Receivables — | Receivables — | | Receivables — | |
Customer accounts receivable | | 46 | | | 35 | | |
Customer accounts, net | | Customer accounts, net | | 38 | | | 34 | |
Unbilled revenues | Unbilled revenues | | 40 | | | 39 | | Unbilled revenues | | 42 | | | 38 | |
| Affiliated | Affiliated | | 14 | | | 27 | | Affiliated | | 26 | | | 32 | |
Other accounts and notes receivable | | 34 | | | 26 | | |
Other accounts and notes | | Other accounts and notes | | 30 | | | 32 | |
| Fossil fuel stock | Fossil fuel stock | | 19 | | | 26 | | Fossil fuel stock | | 25 | | | 24 | |
Materials and supplies | Materials and supplies | | 63 | | | 61 | | Materials and supplies | | 68 | | | 65 | |
Other regulatory assets | Other regulatory assets | | 60 | | | 99 | | Other regulatory assets | | 53 | | | 60 | |
| Other current assets | Other current assets | | 19 | | | 10 | | Other current assets | | 41 | | | 20 | |
Total current assets | Total current assets | | 353 | | | 609 | | Total current assets | | 801 | | | 344 | |
Property, Plant, and Equipment: | Property, Plant, and Equipment: | | | | | Property, Plant, and Equipment: | | | | |
In service | In service | | 4,966 | | | 4,857 | | In service | | 5,053 | | | 5,011 | |
Less: Accumulated provision for depreciation | Less: Accumulated provision for depreciation | | 1,553 | | | 1,463 | | Less: Accumulated provision for depreciation | | 1,556 | | | 1,545 | |
Plant in service, net of depreciation | Plant in service, net of depreciation | | 3,413 | | | 3,394 | | Plant in service, net of depreciation | | 3,497 | | | 3,466 | |
Construction work in progress | Construction work in progress | | 140 | | | 126 | | Construction work in progress | | 126 | | | 146 | |
Total property, plant, and equipment | Total property, plant, and equipment | | 3,553 | | | 3,520 | | Total property, plant, and equipment | | 3,623 | | | 3,612 | |
Other Property and Investments | Other Property and Investments | | 149 | | | 131 | | Other Property and Investments | | 180 | | | 151 | |
Deferred Charges and Other Assets: | Deferred Charges and Other Assets: | | | | | Deferred Charges and Other Assets: | | | | |
| Deferred charges related to income taxes | Deferred charges related to income taxes | | 32 | | | 32 | | Deferred charges related to income taxes | | 31 | | | 32 | |
Regulatory assets – asset retirement obligations | Regulatory assets – asset retirement obligations | | 202 | | | 210 | | Regulatory assets – asset retirement obligations | | 213 | | | 201 | |
Other regulatory assets, deferred | Other regulatory assets, deferred | | 357 | | | 360 | | Other regulatory assets, deferred | | 375 | | | 388 | |
Accumulated deferred income taxes | Accumulated deferred income taxes | | 130 | | | 139 | | Accumulated deferred income taxes | | 123 | | | 129 | |
| Other deferred charges and assets | Other deferred charges and assets | | 72 | | | 34 | | Other deferred charges and assets | | 66 | | | 55 | |
Total deferred charges and other assets | Total deferred charges and other assets | | 793 | | | 775 | | Total deferred charges and other assets | | 808 | | | 805 | |
Total Assets | Total Assets | | $ | 4,848 | | | $ | 5,035 | | Total Assets | | $ | 5,412 | | | $ | 4,912 | |
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
| Liabilities and Stockholder's Equity | Liabilities and Stockholder's Equity | | At September 30, 2020 | | At December 31, 2019 | Liabilities and Stockholder's Equity | | At June 30, 2021 | | At December 31, 2020 |
| | | (in millions) | | | (in millions) |
Current Liabilities: | Current Liabilities: | | Current Liabilities: | |
Securities due within one year | Securities due within one year | | $ | 0 | | | $ | 281 | | Securities due within one year | | $ | 421 | | | $ | 406 | |
| Notes payable | | Notes payable | | 0 | | | 25 | |
| Accounts payable — | Accounts payable — | | Accounts payable — | |
Affiliated | Affiliated | | 54 | | | 76 | | Affiliated | | 71 | | | 63 | |
Other | Other | | 50 | | | 75 | | Other | | 66 | | | 109 | |
| Accrued taxes | Accrued taxes | | 120 | | | 105 | | Accrued taxes | | 63 | | | 114 | |
| Accrued interest | Accrued interest | | 14 | | | 15 | | Accrued interest | | 15 | | | 15 | |
Accrued compensation | Accrued compensation | | 28 | | | 35 | | Accrued compensation | | 24 | | | 34 | |
| Asset retirement obligations | Asset retirement obligations | | 23 | | | 33 | | Asset retirement obligations | | 36 | | | 27 | |
Over recovered regulatory clause liabilities | Over recovered regulatory clause liabilities | | 31 | | | 29 | | Over recovered regulatory clause liabilities | | 12 | | | 34 | |
Other regulatory liabilities | Other regulatory liabilities | | 56 | | | 21 | | Other regulatory liabilities | | 62 | | | 49 | |
| Other current liabilities | Other current liabilities | | 42 | | | 64 | | Other current liabilities | | 51 | | | 40 | |
Total current liabilities | Total current liabilities | | 418 | | | 734 | | Total current liabilities | | 821 | | | 916 | |
| Long-term Debt | Long-term Debt | | 1,402 | | | 1,308 | | Long-term Debt | | 1,512 | | | 1,013 | |
Deferred Credits and Other Liabilities: | Deferred Credits and Other Liabilities: | | | | | Deferred Credits and Other Liabilities: | | | | |
Accumulated deferred income taxes | Accumulated deferred income taxes | | 422 | | | 424 | | Accumulated deferred income taxes | | 460 | | | 447 | |
Deferred credits related to income taxes | Deferred credits related to income taxes | | 299 | | | 352 | | Deferred credits related to income taxes | | 283 | | | 287 | |
| Employee benefit obligations | Employee benefit obligations | | 95 | | | 99 | | Employee benefit obligations | | 102 | | | 113 | |
| Asset retirement obligations, deferred | Asset retirement obligations, deferred | | 158 | | | 157 | | Asset retirement obligations, deferred | | 135 | | | 150 | |
| Other cost of removal obligations | Other cost of removal obligations | | 195 | | | 189 | | Other cost of removal obligations | | 193 | | | 194 | |
Other regulatory liabilities, deferred | Other regulatory liabilities, deferred | | 64 | | | 76 | | Other regulatory liabilities, deferred | | 26 | | | 15 | |
Other deferred credits and liabilities | Other deferred credits and liabilities | | 35 | | | 44 | | Other deferred credits and liabilities | | 31 | | | 35 | |
Total deferred credits and other liabilities | Total deferred credits and other liabilities | | 1,268 | | | 1,341 | | Total deferred credits and other liabilities | | 1,230 | | | 1,241 | |
Total Liabilities | Total Liabilities | | 3,088 | | | 3,383 | | Total Liabilities | | 3,563 | | | 3,170 | |
| Common Stockholder's Equity (See accompanying statements) | Common Stockholder's Equity (See accompanying statements) | | 1,760 | | | 1,652 | | Common Stockholder's Equity (See accompanying statements) | | 1,849 | | | 1,742 | |
Total Liabilities and Stockholder's Equity | Total Liabilities and Stockholder's Equity | | $ | 4,848 | | | $ | 5,035 | | Total Liabilities and Stockholder's Equity | | $ | 5,412 | | | $ | 4,912 | |
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY (UNAUDITED)
| | | Number of Common Shares Issued | | Common Stock | | Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total | | Number of Common Shares Issued | | Common Stock | | Paid-In Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Total |
| (in millions) | |
Balance at December 31, 2018 | 1 | | | $ | 38 | | | $ | 4,546 | | | $ | (2,971) | | | $ | (4) | | | $ | 1,609 | | |
Net income | — | | | — | | | — | | | 37 | | | — | | | 37 | | |
| Return of capital to parent company | — | | | — | | | (38) | | | — | | | — | | | (38) | | |
Capital contributions from parent company | — | | | — | | | 2 | | | — | | | — | | | 2 | | |
| Balance at March 31, 2019 | 1 | | | 38 | | | 4,510 | | | (2,934) | | | (4) | | | 1,610 | | |
Net income | — | | | — | | | — | | | 37 | | | — | | | 37 | | |
| Return of capital to parent company | — | | | — | | | (38) | | | — | | | — | | | (38) | | |
Capital contributions from parent company | — | | | — | | | 8 | | | — | | | — | | | 8 | | |
| Balance at June 30, 2019 | 1 | | | 38 | | | 4,480 | | | (2,897) | | | (4) | | | 1,617 | | |
Net income | — | | | — | | | — | | | 65 | | | — | | | 65 | | |
| Return of capital to parent company | — | | | — | | | (43) | | | — | | | — | | | (43) | | |
| Balance at September 30, 2019 | 1 | | | $ | 38 | | | $ | 4,437 | | | $ | (2,832) | | | $ | (4) | | | $ | 1,639 | | |
| | | (in millions) |
Balance at December 31, 2019 | Balance at December 31, 2019 | 1 | | | $ | 38 | | | $ | 4,449 | | | $ | (2,832) | | | $ | (3) | | | $ | 1,652 | | Balance at December 31, 2019 | 1 | | | $ | 38 | | | $ | 4,449 | | | $ | (2,832) | | | $ | (3) | | | $ | 1,652 | |
Net income | Net income | — | | | — | | | — | | | 32 | | | — | | | 32 | | Net income | — | | | — | | | — | | | 32 | | | — | | | 32 | |
| Capital contributions from parent company | | Capital contributions from parent company | — | | | — | | | 76 | | | — | | | — | | | 76 | |
Return of capital to parent company | Return of capital to parent company | — | | | — | | | (37) | | | — | | | — | | | (37) | | Return of capital to parent company | — | | | — | | | (37) | | | — | | | — | | | (37) | |
Capital contributions from parent company | — | | | — | | | 76 | | | — | | | — | | | 76 | | |
| Other | Other | — | | | — | | | (1) | | | — | | | — | | | (1) | | Other | — | | | — | | | (1) | | | — | | | — | | | (1) | |
Balance at March 31, 2020 | Balance at March 31, 2020 | 1 | | | 38 | | | 4,487 | | | (2,800) | | | (3) | | | 1,722 | | Balance at March 31, 2020 | 1 | | | 38 | | | 4,487 | | | (2,800) | | | (3) | | | 1,722 | |
Net income | Net income | — | | | — | | | — | | | 39 | | | — | | | 39 | | Net income | — | | | — | | | — | | | 39 | | | — | | | 39 | |
| Return of capital to parent company | Return of capital to parent company | — | | | — | | | (37) | | | — | | | — | | | (37) | | Return of capital to parent company | — | | | — | | | (37) | | | — | | | — | | | (37) | |
| Balance at June 30, 2020 | Balance at June 30, 2020 | 1 | | | 38 | | | 4,450 | | | (2,761) | | | (3) | | | 1,724 | | Balance at June 30, 2020 | 1 | | | $ | 38 | | | $ | 4,450 | | | $ | (2,761) | | | $ | (3) | | | $ | 1,724 | |
| | Balance at December 31, 2020 | | Balance at December 31, 2020 | 1 | | | $ | 38 | | | $ | 4,460 | | | $ | (2,754) | | | $ | (2) | | | $ | 1,742 | |
Net income | Net income | — | | | — | | | — | | | 67 | | | — | | | 67 | | Net income | — | | | — | | | — | | | 45 | | | — | | | 45 | |
| Capital contributions from parent company | Capital contributions from parent company | — | | | — | | | 6 | | | — | | | — | | | 6 | | Capital contributions from parent company | — | | | — | | | 100 | | | — | | | — | | | 100 | |
| Cash dividends on common stock | Cash dividends on common stock | — | | | — | | | — | | | (37) | | | — | | | (37) | | Cash dividends on common stock | — | | | — | | | — | | | (39) | | | — | | | (39) | |
| Balance at September 30, 2020 | 1 | | | $ | 38 | | | $ | 4,456 | | | $ | (2,731) | | | $ | (3) | | | $ | 1,760 | | |
Balance at March 31, 2021 | | Balance at March 31, 2021 | 1 | | | 38 | | | 4,560 | | | (2,748) | | | (2) | | | 1,848 | |
Net income | | Net income | — | | | — | | | — | | | 38 | | | — | | | 38 | |
| Capital contributions from parent company | | Capital contributions from parent company | — | | | — | | | 2 | | | — | | | — | | | 2 | |
| Cash dividends on common stock | | Cash dividends on common stock | — | | | — | | | — | | | (39) | | | — | | | (39) | |
Other | | Other | — | | | — | | | — | | | (1) | | | 1 | | | 0 | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | 1 | | | $ | 38 | | | $ | 4,562 | | | $ | (2,750) | | | $ | (1) | | | $ | 1,849 | |
|
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| | (in millions) | | (in millions) | | (in millions) | | (in millions) |
Operating Revenues: | Operating Revenues: | | Operating Revenues: | |
Wholesale revenues, non-affiliates | Wholesale revenues, non-affiliates | $ | 418 | | | $ | 455 | | | $ | 1,047 | | | $ | 1,197 | | Wholesale revenues, non-affiliates | $ | 373 | | | $ | 343 | | | $ | 728 | | | $ | 629 | |
Wholesale revenues, affiliates | Wholesale revenues, affiliates | 101 | | | 116 | | | 279 | | | 320 | | Wholesale revenues, affiliates | 112 | | | 92 | | | 193 | | | 178 | |
Other revenues | Other revenues | 4 | | | 3 | | | 11 | | | 10 | | Other revenues | 5 | | | 4 | | | 9 | | | 7 | |
Total operating revenues | Total operating revenues | 523 | | | 574 | | | 1,337 | | | 1,527 | | Total operating revenues | 490 | | | 439 | | | 930 | | | 814 | |
Operating Expenses: | Operating Expenses: | | | | | | | | Operating Expenses: | | | | | | | |
Fuel | Fuel | 137 | | | 166 | | | 346 | | | 449 | | Fuel | 140 | | | 102 | | | 281 | | | 209 | |
Purchased power | Purchased power | 19 | | | 26 | | | 52 | | | 82 | | Purchased power | 25 | | | 18 | | | 46 | | | 32 | |
| Other operations and maintenance | Other operations and maintenance | 89 | | | 85 | | | 245 | | | 250 | | Other operations and maintenance | 111 | | | 77 | | | 211 | | | 156 | |
Depreciation and amortization | Depreciation and amortization | 129 | | | 120 | | | 367 | | | 357 | | Depreciation and amortization | 132 | | | 121 | | | 251 | | | 239 | |
Taxes other than income taxes | Taxes other than income taxes | 10 | | | 10 | | | 29 | | | 32 | | Taxes other than income taxes | 12 | | | 10 | | | 24 | | | 19 | |
| (Gain) loss on dispositions, net | (Gain) loss on dispositions, net | 0 | | | 0 | | | (39) | | | (23) | | (Gain) loss on dispositions, net | 0 | | | 0 | | | (39) | | | (39) | |
Total operating expenses | Total operating expenses | 384 | | | 407 | | | 1,000 | | | 1,147 | | Total operating expenses | 420 | | | 328 | | | 774 | | | 616 | |
Operating Income | Operating Income | 139 | | | 167 | | | 337 | | | 380 | | Operating Income | 70 | | | 111 | | | 156 | | | 198 | |
Other Income and (Expense): | Other Income and (Expense): | | Other Income and (Expense): | |
Interest expense, net of amounts capitalized | Interest expense, net of amounts capitalized | (36) | | | (43) | | | (114) | | | (127) | | Interest expense, net of amounts capitalized | (37) | | | (38) | | | (75) | | | (77) | |
Other income (expense), net | Other income (expense), net | 13 | | | 6 | | | 19 | | | 48 | | Other income (expense), net | 1 | | | 1 | | | 8 | | | 4 | |
Total other income and (expense) | Total other income and (expense) | (23) | | | (37) | | | (95) | | | (79) | | Total other income and (expense) | (36) | | | (37) | | | (67) | | | (73) | |
Earnings Before Income Taxes | Earnings Before Income Taxes | 116 | | | 130 | | | 242 | | | 301 | | Earnings Before Income Taxes | 34 | | | 74 | | | 89 | | | 125 | |
Income taxes (benefit) | Income taxes (benefit) | 14 | | | 19 | | | 27 | | | (41) | | Income taxes (benefit) | (2) | | | 6 | | | (11) | | | 13 | |
Net Income | Net Income | 102 | | | 111 | | | 215 | | | 342 | | Net Income | 36 | | | 68 | | | 100 | | | 112 | |
Net income attributable to noncontrolling interests | 28 | | | 25 | | | 3 | | | 26 | | |
Net income (loss) attributable to noncontrolling interests | | Net income (loss) attributable to noncontrolling interests | 0 | | | 5 | | | (33) | | | (26) | |
Net Income Attributable to Southern Power | Net Income Attributable to Southern Power | $ | 74 | | | $ | 86 | | | $ | 212 | | | $ | 316 | | Net Income Attributable to Southern Power | $ | 36 | | | $ | 63 | | | $ | 133 | | | $ | 138 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| | (in millions) | | (in millions) | | (in millions) | | (in millions) |
Net Income | Net Income | $ | 102 | | | $ | 111 | | | $ | 215 | | | $ | 342 | | Net Income | $ | 36 | | | $ | 68 | | | $ | 100 | | | $ | 112 | |
Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
Qualifying hedges: | Qualifying hedges: | | Qualifying hedges: | |
Changes in fair value, net of tax of $15, $(18), $(2), and $(28), respectively | 44 | | | (53) | | | (6) | | | (84) | | |
Reclassification adjustment for amounts included in net income, net of tax of $(13), $15, $(8), and $21, respectively | (36) | | | 45 | | | (24) | | | 64 | | |
Changes in fair value, net of tax of $2, $4, $(8), and $(17), respectively | | Changes in fair value, net of tax of $2, $4, $(8), and $(17), respectively | 6 | | | 11 | | | (26) | | | (50) | |
Reclassification adjustment for amounts included in net income, net of tax of $(3), $(5), $13, and $5, respectively | | Reclassification adjustment for amounts included in net income, net of tax of $(3), $(5), $13, and $5, respectively | (9) | | | (15) | | | 38 | | | 13 | |
Pension and other postretirement benefit plans: | Pension and other postretirement benefit plans: | | Pension and other postretirement benefit plans: | |
| Reclassification adjustment for amounts included in net income, net of tax of $0, $0, $0, and $0, respectively | 0 | | | 0 | | | 2 | | | 0 | | |
Reclassification adjustment for amounts included in net income, net of tax of $1, $0, $1, and $0, respectively | | Reclassification adjustment for amounts included in net income, net of tax of $1, $0, $1, and $0, respectively | 0 | | | 1 | | | 1 | | | 1 | |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | 8 | | | (8) | | | (28) | | | (20) | | Total other comprehensive income (loss) | (3) | | | (3) | | | 13 | | | (36) | |
Comprehensive Income | Comprehensive Income | 110 | | | 103 | | | 187 | | | 322 | | Comprehensive Income | 33 | | | 65 | | | 113 | | | 76 | |
Comprehensive income attributable to noncontrolling interests | 28 | | | 25 | | | 3 | | | 26 | | |
Comprehensive income (loss) attributable to noncontrolling interests | | Comprehensive income (loss) attributable to noncontrolling interests | 0 | | | 5 | | | (33) | | | (26) | |
Comprehensive Income Attributable to Southern Power | Comprehensive Income Attributable to Southern Power | $ | 82 | | | $ | 78 | | | $ | 184 | | | $ | 296 | | Comprehensive Income Attributable to Southern Power | $ | 33 | | | $ | 60 | | | $ | 146 | | | $ | 102 | |
The accompanying notes as they relate to Southern Power are an integral part of these condensed consolidated financial statements.
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | For the Nine Months Ended September 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| | (in millions) | | (in millions) |
Operating Activities: | Operating Activities: | | Operating Activities: | |
Net income | Net income | $ | 215 | | | $ | 342 | | Net income | $ | 100 | | | $ | 112 | |
Adjustments to reconcile net income to net cash provided from operating activities — | Adjustments to reconcile net income to net cash provided from operating activities — | | Adjustments to reconcile net income to net cash provided from operating activities — | |
Depreciation and amortization, total | Depreciation and amortization, total | 386 | | | 377 | | Depreciation and amortization, total | 264 | | | 251 | |
Deferred income taxes | Deferred income taxes | (59) | | | (122) | | Deferred income taxes | (20) | | | (34) | |
Utilization of federal investment tax credits | Utilization of federal investment tax credits | 318 | | | 705 | | Utilization of federal investment tax credits | 205 | | | 0 | |
Amortization of investment tax credits | Amortization of investment tax credits | (44) | | | (136) | | Amortization of investment tax credits | (29) | | | (30) | |
| (Gain) loss on dispositions, net | (Gain) loss on dispositions, net | (39) | | | (24) | | (Gain) loss on dispositions, net | (39) | | | (39) | |
Other, net | Other, net | (16) | | | (19) | | Other, net | (18) | | | (31) | |
Changes in certain current assets and liabilities — | Changes in certain current assets and liabilities — | | Changes in certain current assets and liabilities — | |
-Receivables | -Receivables | (28) | | | 15 | | -Receivables | (91) | | | (67) | |
| -Prepaid income taxes | -Prepaid income taxes | 74 | | | 33 | | -Prepaid income taxes | 28 | | | 73 | |
-Other current assets | -Other current assets | (17) | | | (3) | | -Other current assets | 2 | | | (8) | |
-Accounts payable | -Accounts payable | (12) | | | (5) | | -Accounts payable | 14 | | | (29) | |
-Accrued taxes | -Accrued taxes | 21 | | | 66 | | -Accrued taxes | 8 | | | 16 | |
| -Other current liabilities | -Other current liabilities | (25) | | | (8) | | -Other current liabilities | (13) | | | (19) | |
Net cash provided from operating activities | Net cash provided from operating activities | 774 | | | 1,221 | | Net cash provided from operating activities | 411 | | | 195 | |
Investing Activities: | Investing Activities: | | | | Investing Activities: | | | |
Business acquisitions, net of cash acquired | Business acquisitions, net of cash acquired | (81) | | | (50) | | Business acquisitions, net of cash acquired | (345) | | | (81) | |
Property additions | Property additions | (135) | | | (284) | | Property additions | (224) | | | (101) | |
Proceeds from dispositions and asset sales | 663 | | | 572 | | |
Proceeds from dispositions | | Proceeds from dispositions | 17 | | | 660 | |
| Change in construction payables | | Change in construction payables | (14) | | | (4) | |
| Investment in unconsolidated subsidiaries | 0 | | | (116) | | |
Payments pursuant to LTSAs | Payments pursuant to LTSAs | (61) | | | (85) | | Payments pursuant to LTSAs | (47) | | | (31) | |
| Other investing activities | Other investing activities | 38 | | | (1) | | Other investing activities | 12 | | | 47 | |
Net cash provided from investing activities | 424 | | | 36 | | |
Net cash provided from (used for) investing activities | | Net cash provided from (used for) investing activities | (601) | | | 490 | |
Financing Activities: | Financing Activities: | | | | Financing Activities: | | | |
Decrease in notes payable, net | Decrease in notes payable, net | (449) | | | 0 | | Decrease in notes payable, net | (56) | | | (357) | |
| Proceeds — Senior notes | | Proceeds — Senior notes | 400 | | | 0 | |
| Proceeds — Capital contributions from parent company | 0 | | | 59 | | |
| Redemptions — | Redemptions — | | Redemptions — | |
Short-term borrowings | Short-term borrowings | (100) | | | (100) | | Short-term borrowings | 0 | | | (100) | |
Senior notes | Senior notes | (300) | | | 0 | | Senior notes | 0 | | | (300) | |
| Return of capital to parent company | Return of capital to parent company | 0 | | | (755) | | Return of capital to parent company | (271) | | | 0 | |
Capital contributions from noncontrolling interests | | Capital contributions from noncontrolling interests | 343 | | | 172 | |
Distributions to noncontrolling interests | Distributions to noncontrolling interests | (164) | | | (125) | | Distributions to noncontrolling interests | (113) | | | (118) | |
Capital contributions from noncontrolling interests | 173 | | | 11 | | |
Purchase of membership interests from noncontrolling interests | (60) | | | 0 | | |
| Payment of common stock dividends | Payment of common stock dividends | (151) | | | (154) | | Payment of common stock dividends | (102) | | | (100) | |
Other financing activities | Other financing activities | (9) | | | (6) | | Other financing activities | (5) | | | (5) | |
Net cash used for financing activities | (1,060) | | | (1,070) | | |
Net cash provided from (used for) financing activities | | Net cash provided from (used for) financing activities | 196 | | | (808) | |
Net Change in Cash, Cash Equivalents, and Restricted Cash | Net Change in Cash, Cash Equivalents, and Restricted Cash | 138 | | | 187 | | Net Change in Cash, Cash Equivalents, and Restricted Cash | 6 | | | (123) | |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 279 | | | 181 | | Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 183 | | | 279 | |
Cash, Cash Equivalents, and Restricted Cash at End of Period | Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 417 | | | $ | 368 | | Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 189 | | | $ | 156 | |
Supplemental Cash Flow Information: | Supplemental Cash Flow Information: | | | | Supplemental Cash Flow Information: | | | |
Cash paid (received) during the period for — | Cash paid (received) during the period for — | | Cash paid (received) during the period for — | |
Interest (net of $10 and $11 capitalized for 2020 and 2019, respectively) | $ | 123 | | | $ | 133 | | |
Interest (net of $2 and $7 capitalized for 2021 and 2020, respectively) | | Interest (net of $2 and $7 capitalized for 2021 and 2020, respectively) | $ | 91 | | | $ | 96 | |
Income taxes, net | Income taxes, net | (278) | | | (612) | | Income taxes, net | (189) | | | (5) | |
Noncash transactions — | Noncash transactions — | | Noncash transactions — | |
Contributions from noncontrolling interests | | Contributions from noncontrolling interests | 89 | | | 9 | |
Contributions of wind turbine equipment | | Contributions of wind turbine equipment | 82 | | | 17 | |
Accrued property additions at end of period | Accrued property additions at end of period | 44 | | | 41 | | Accrued property additions at end of period | 59 | | | 38 | |
Right-of-use assets obtained under operating leases | Right-of-use assets obtained under operating leases | 30 | | | 0 | | Right-of-use assets obtained under operating leases | 65 | | | 30 | |
The accompanying notes as they relate to Southern Power are an integral part of these condensed consolidated financial statements.
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| Assets | Assets | | At September 30, 2020 | | At December 31, 2019 | Assets | | At June 30, 2021 | | At December 31, 2020 |
| | | (in millions) | | | (in millions) |
Current Assets: | Current Assets: | | Current Assets: | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 416 | | | $ | 279 | | Cash and cash equivalents | | $ | 165 | | | $ | 182 | |
Receivables — | Receivables — | | Receivables — | |
Customer accounts receivable | | 135 | | | 107 | | |
Customer accounts, net | | Customer accounts, net | | 168 | | | 125 | |
Affiliated | Affiliated | | 41 | | | 30 | | Affiliated | | 52 | | | 37 | |
Other | Other | | 37 | | | 73 | | Other | | 48 | | | 27 | |
| Materials and supplies | Materials and supplies | | 204 | | | 191 | | Materials and supplies | | 101 | | | 157 | |
| Prepaid income taxes | Prepaid income taxes | | 33 | | | 36 | | Prepaid income taxes | | 153 | | | 11 | |
| Other current assets | Other current assets | | 37 | | | 43 | | Other current assets | | 56 | | | 36 | |
Total current assets | Total current assets | | 903 | | | 759 | | Total current assets | | 743 | | | 575 | |
Property, Plant, and Equipment: | Property, Plant, and Equipment: | | | | | Property, Plant, and Equipment: | | | | |
In service | In service | | 13,600 | | | 13,270 | | In service | | 14,372 | | | 13,904 | |
Less: Accumulated provision for depreciation | Less: Accumulated provision for depreciation | | 2,776 | | | 2,464 | | Less: Accumulated provision for depreciation | | 2,991 | | | 2,842 | |
Plant in service, net of depreciation | Plant in service, net of depreciation | | 10,824 | | | 10,806 | | Plant in service, net of depreciation | | 11,381 | | | 11,062 | |
Construction work in progress | Construction work in progress | | 335 | | | 515 | | Construction work in progress | | 250 | | | 127 | |
| Total property, plant, and equipment | Total property, plant, and equipment | | 11,159 | | | 11,321 | | Total property, plant, and equipment | | 11,631 | | | 11,189 | |
Other Property and Investments: | Other Property and Investments: | | | | | Other Property and Investments: | | | | |
| Intangible assets, net of amortization of $84 and $69 at September 30, 2020 and December 31, 2019, respectively | | 307 | | | 322 | | |
Intangible assets, net of amortization of $99 and $89, respectively | | Intangible assets, net of amortization of $99 and $89, respectively | | 292 | | | 302 | |
Equity investments in unconsolidated subsidiaries | Equity investments in unconsolidated subsidiaries | | 19 | | | 28 | | Equity investments in unconsolidated subsidiaries | | 84 | | | 19 | |
Total other property and investments | Total other property and investments | | 326 | | | 350 | | Total other property and investments | | 376 | | | 321 | |
Deferred Charges and Other Assets: | Deferred Charges and Other Assets: | | | | | Deferred Charges and Other Assets: | | | | |
Operating lease right-of-use assets, net of amortization | Operating lease right-of-use assets, net of amortization | | 395 | | | 369 | | Operating lease right-of-use assets, net of amortization | | 476 | | | 415 | |
Prepaid LTSAs | Prepaid LTSAs | | 160 | | | 128 | | Prepaid LTSAs | | 179 | | | 155 | |
Accumulated deferred income taxes | Accumulated deferred income taxes | | 231 | | | 551 | | Accumulated deferred income taxes | | 0 | | | 262 | |
Income taxes receivable, non-current | Income taxes receivable, non-current | | 13 | | | 5 | | Income taxes receivable, non-current | | 31 | | | 25 | |
| Assets held for sale | | 0 | | | 601 | | |
| Other deferred charges and assets | Other deferred charges and assets | | 237 | | | 216 | | Other deferred charges and assets | | 272 | | | 293 | |
Total deferred charges and other assets | Total deferred charges and other assets | | 1,036 | | | 1,870 | | Total deferred charges and other assets | | 958 | | | 1,150 | |
Total Assets | Total Assets | | $ | 13,424 | | | $ | 14,300 | | Total Assets | | $ | 13,708 | | | $ | 13,235 | |
The accompanying notes as they relate to Southern Power are an integral part of these condensed consolidated financial statements.
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| Liabilities and Stockholders' Equity | Liabilities and Stockholders' Equity | | At September 30, 2020 | | At December 31, 2019 | Liabilities and Stockholders' Equity | | At June 30, 2021 | | At December 31, 2020 |
| | | (in millions) | | | (in millions) |
Current Liabilities: | Current Liabilities: | | Current Liabilities: | |
Securities due within one year | Securities due within one year | | $ | 525 | | | $ | 824 | | Securities due within one year | | $ | 1,012 | | | $ | 299 | |
Notes payable | Notes payable | | 0 | | | 549 | | Notes payable | | 119 | | | 175 | |
Accounts payable — | Accounts payable — | | Accounts payable — | |
Affiliated | Affiliated | | 49 | | | 56 | | Affiliated | | 75 | | | 65 | |
Other | Other | | 69 | | | 85 | | Other | | 90 | | | 92 | |
Accrued taxes — | Accrued taxes — | | Accrued taxes — | |
Accrued income taxes | Accrued income taxes | | 9 | | | 0 | | Accrued income taxes | | 7 | | | 8 | |
Other accrued taxes | Other accrued taxes | | 31 | | | 26 | | Other accrued taxes | | 20 | | | 22 | |
Accrued interest | Accrued interest | | 26 | | | 32 | | Accrued interest | | 24 | | | 32 | |
| Other current liabilities | Other current liabilities | | 104 | | | 132 | | Other current liabilities | | 116 | | | 132 | |
Total current liabilities | Total current liabilities | | 813 | | | 1,704 | | Total current liabilities | | 1,463 | | | 825 | |
Long-term Debt | Long-term Debt | | 3,630 | | | 3,574 | | Long-term Debt | | 3,036 | | | 3,393 | |
Deferred Credits and Other Liabilities: | Deferred Credits and Other Liabilities: | | | | | Deferred Credits and Other Liabilities: | | | | |
Accumulated deferred income taxes | Accumulated deferred income taxes | | 117 | | | 115 | | Accumulated deferred income taxes | | 221 | | | 123 | |
Accumulated deferred ITCs | Accumulated deferred ITCs | | 1,687 | | | 1,731 | | Accumulated deferred ITCs | | 1,643 | | | 1,672 | |
| Operating lease obligations | Operating lease obligations | | 404 | | | 376 | | Operating lease obligations | | 488 | | | 426 | |
Other deferred credits and liabilities | Other deferred credits and liabilities | | 162 | | | 178 | | Other deferred credits and liabilities | | 167 | | | 165 | |
Total deferred credits and other liabilities | Total deferred credits and other liabilities | | 2,370 | | | 2,400 | | Total deferred credits and other liabilities | | 2,519 | | | 2,386 | |
Total Liabilities | Total Liabilities | | 6,813 | | | 7,678 | | Total Liabilities | | 7,018 | | | 6,604 | |
| Total Stockholders' Equity (See accompanying statements) | Total Stockholders' Equity (See accompanying statements) | | 6,611 | | | 6,622 | | Total Stockholders' Equity (See accompanying statements) | | 6,690 | | | 6,631 | |
Total Liabilities and Stockholders' Equity | Total Liabilities and Stockholders' Equity | | $ | 13,424 | | | $ | 14,300 | | Total Liabilities and Stockholders' Equity | | $ | 13,708 | | | $ | 13,235 | |
The accompanying notes as they relate to Southern Power are an integral part of these condensed consolidated financial statements.
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
| | | | Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Common Stockholders' Equity | | Noncontrolling Interests | | Total | | | Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Common Stockholders' Equity | | Noncontrolling Interests | | Total |
| | | (in millions) | | | (in millions) |
Balance at December 31, 2018 | | $ | 1,600 | | | $ | 1,352 | | | $ | 16 | | | $ | 2,968 | | | $ | 4,316 | | | $ | 7,284 | | |
Balance at December 31, 2019 | | Balance at December 31, 2019 | | $ | 909 | | | $ | 1,485 | | | $ | (26) | | | $ | 2,368 | | | $ | 4,254 | | | $ | 6,622 | |
Net income (loss) | Net income (loss) | | — | | | 56 | | | — | | | 56 | | | (29) | | | 27 | | Net income (loss) | | — | | | 75 | | | — | | | 75 | | | (31) | | | 44 | |
Capital contributions from parent company | | 1 | | | — | | | — | | | 1 | | | — | | | 1 | | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | — | | | — | | | (4) | | | (4) | | | — | | | (4) | | Other comprehensive income (loss) | | — | | | — | | | (33) | | | (33) | | | — | | | (33) | |
Cash dividends on common stock | Cash dividends on common stock | | — | | | (51) | | | — | | | (51) | | | — | | | (51) | | Cash dividends on common stock | | — | | | (50) | | | — | | | (50) | | | — | | | (50) | |
| Capital contributions from noncontrolling interests | Capital contributions from noncontrolling interests | | — | | | — | | | — | | | — | | | 3 | | | 3 | | Capital contributions from noncontrolling interests | | — | | | — | | | — | | | — | | | 16 | | | 16 | |
Distributions to noncontrolling interests | Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | (41) | | | (41) | | Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | (48) | | | (48) | |
| Other | | (1) | | | (1) | | | — | | | (2) | | | 1 | | | (1) | | |
Balance at March 31, 2019 | | 1,600 | | | 1,356 | | | 12 | | | 2,968 | | | 4,250 | | | 7,218 | | |
| Balance at March 31, 2020 | | Balance at March 31, 2020 | | 909 | | | 1,510 | | | (59) | | | 2,360 | | | 4,191 | | | 6,551 | |
Net income | Net income | | — | | | 174 | | | — | | | 174 | | | 29 | | | 203 | | Net income | | — | | | 63 | | | — | | | 63 | | | 5 | | | 68 | |
Return of capital to parent company | | (505) | | | — | | | — | | | (505) | | | — | | | (505) | | |
Capital contributions from parent company | | 7 | | | — | | | — | | | 7 | | | — | | | 7 | | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | — | | | — | | | (8) | | | (8) | | | — | | | (8) | | Other comprehensive income (loss) | | — | | | — | | | (3) | | | (3) | | | — | | | (3) | |
Cash dividends on common stock | Cash dividends on common stock | | — | | | (52) | | | — | | | (52) | | | — | | | (52) | | Cash dividends on common stock | | — | | | (50) | | | — | | | (50) | | | — | | | (50) | |
| Capital contributions from noncontrolling interests | Capital contributions from noncontrolling interests | | — | | | — | | | — | | | — | | | 2 | | | 2 | | Capital contributions from noncontrolling interests | | — | | | — | | | — | | | — | | | 165 | | | 165 | |
Distributions to noncontrolling interests | Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | (47) | | | (47) | | Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | (70) | | | (70) | |
| Other | Other | | — | | | 1 | | | — | | | 1 | | | (1) | | | 0 | | Other | | (2) | | | — | | | — | | | (2) | | | — | | | (2) | |
Balance at June 30, 2019 | | 1,102 | | | 1,479 | | | 4 | | | 2,585 | | | 4,233 | | | 6,818 | | |
Net income | | — | | | 86 | | | — | | | 86 | | | 25 | | | 111 | | |
Return of capital to parent company | | (250) | | | — | | | — | | | (250) | | | — | | | (250) | | |
Capital contributions from parent company | | 53 | | | — | | | — | | | 53 | | | — | | | 53 | | |
Other comprehensive income (loss) | | — | | | — | | | (8) | | | (8) | | | — | | | (8) | | |
Cash dividends on common stock | | — | | | (51) | | | — | | | (51) | | | — | | | (51) | | |
| Capital contributions from noncontrolling interests | | — | | | — | | | — | | | — | | | 63 | | | 63 | | |
Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | (43) | | | (43) | | |
Balance at June 30, 2020 | | Balance at June 30, 2020 | | $ | 907 | | | $ | 1,523 | | | $ | (62) | | | $ | 2,368 | | | $ | 4,291 | | | $ | 6,659 | |
| Balance at September 30, 2019 | | $ | 905 | | | $ | 1,514 | | | $ | (4) | | | $ | 2,415 | | | $ | 4,278 | | | $ | 6,693 | | |
|
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
| | | | Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Common Stockholders' Equity | | Noncontrolling Interests | | Total | | | Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Common Stockholders' Equity | | Noncontrolling Interests | | Total |
| | | (in millions) | | | (in millions) |
Balance at December 31, 2019 | | $ | 909 | | | $ | 1,485 | | | $ | (26) | | | $ | 2,368 | | | $ | 4,254 | | | $ | 6,622 | | |
Balance at December 31, 2020 | | Balance at December 31, 2020 | | $ | 914 | | | $ | 1,522 | | | $ | (67) | | | $ | 2,369 | | | $ | 4,262 | | | $ | 6,631 | |
Net income (loss) | Net income (loss) | | — | | | 75 | | | — | | | 75 | | | (31) | | | 44 | | Net income (loss) | | — | | | 97 | | | — | | | 97 | | | (32) | | | 65 | |
Return of capital to parent company | | Return of capital to parent company | | (271) | | | — | | | — | | | (271) | | | — | | | (271) | |
| Other comprehensive income (loss) | | — | | | — | | | (33) | | | (33) | | | — | | | (33) | | |
Other comprehensive income | | Other comprehensive income | | — | | | — | | | 16 | | | 16 | | | — | | | 16 | |
Cash dividends on common stock | Cash dividends on common stock | | — | | | (50) | | | — | | | (50) | | | — | | | (50) | | Cash dividends on common stock | | — | | | (51) | | | — | | | (51) | | | — | | | (51) | |
| Capital contributions from noncontrolling interests | Capital contributions from noncontrolling interests | | — | | | — | | | — | | | — | | | 16 | | | 16 | | Capital contributions from noncontrolling interests | | — | | | — | | | — | | | — | | | 403 | | | 403 | |
Distributions to noncontrolling interests | Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | (48) | | | (48) | | Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | (46) | | | (46) | |
| Balance at March 31, 2020 | | 909 | | | 1,510 | | | (59) | | | 2,360 | | | 4,191 | | | 6,551 | | |
Other | | Other | | (2) | | | 1 | | | (1) | | | (2) | | | (1) | | | (3) | |
Balance at March 31, 2021 | | Balance at March 31, 2021 | | 641 | | | 1,569 | | | (52) | | | 2,158 | | | 4,586 | | | 6,744 | |
Net income | Net income | | — | | | 63 | | | — | | | 63 | | | 5 | | | 68 | | Net income | | — | | | 36 | | | — | | | 36 | | | — | | | 36 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | — | | | — | | | (3) | | | (3) | | | — | | | (3) | | Other comprehensive income (loss) | | — | | | — | | | (3) | | | (3) | | | — | | | (3) | |
Cash dividends on common stock | Cash dividends on common stock | | — | | | (50) | | | — | | | (50) | | | — | | | (50) | | Cash dividends on common stock | | — | | | (51) | | | — | | | (51) | | | — | | | (51) | |
| Capital contributions from noncontrolling interests | Capital contributions from noncontrolling interests | | — | | | — | | | — | | | — | | | 165 | | | 165 | | Capital contributions from noncontrolling interests | | — | | | — | | | — | | | — | | | 29 | | | 29 | |
Distributions to noncontrolling interests | Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | (70) | | | (70) | | Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | (68) | | | (68) | |
| Other | Other | | (2) | | | 0 | | | 0 | | | (2) | | | 0 | | | (2) | | Other | | 2 | | | — | | | 1 | | | 3 | | | — | | | 3 | |
Balance at June 30, 2020 | | 907 | | | 1,523 | | | (62) | | | 2,368 | | | 4,291 | | | 6,659 | | |
Net income | | — | | | 74 | | | — | | | 74 | | | 28 | | | 102 | | |
Return of capital to parent company | | (4) | | | — | | | — | | | (4) | | | — | | | (4) | | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | | $ | 643 | | | $ | 1,554 | | | $ | (54) | | | $ | 2,143 | | | $ | 4,547 | | | $ | 6,690 | |
| Other comprehensive income | | — | | | — | | | 8 | | | 8 | | | — | | | 8 | | |
Cash dividends on common stock | | — | | | (51) | | | — | | | (51) | | | — | | | (51) | | |
| Capital contributions from noncontrolling interests | | — | | | — | | | — | | | — | | | 2 | | | 2 | | |
Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | (51) | | | (51) | | |
Purchase of membership interests from noncontrolling interests | | 5 | | | — | | | — | | | 5 | | | (60) | | | (55) | | |
| Other | | 0 | | | 0 | | | — | | | 0 | | | 1 | | | 1 | | |
Balance at September 30, 2020 | | $ | 908 | | | $ | 1,546 | | | $ | (54) | | | $ | 2,400 | | | $ | 4,211 | | | $ | 6,611 | | |
|
The accompanying notes as they relate to Southern Power are an integral part of these condensed consolidated financial statements.
SOUTHERN COMPANY GAS AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| | (in millions) | | (in millions) | | (in millions) | | (in millions) |
Operating Revenues: | Operating Revenues: | | Operating Revenues: | |
Natural gas revenues (includes revenue taxes of $10, $10, $79, and $88, respectively) | $ | 478 | | | $ | 498 | | | $ | 2,356 | | | $ | 2,661 | | |
Natural gas revenues (includes revenue taxes of $23, $22, $77, and $69, respectively) | | Natural gas revenues (includes revenue taxes of $23, $22, $77, and $69, respectively) | $ | 675 | | | $ | 638 | | | $ | 2,367 | | | $ | 1,878 | |
Alternative revenue programs | Alternative revenue programs | (1) | | | 0 | | | 6 | | | 0 | | Alternative revenue programs | 2 | | | (2) | | | 4 | | | 7 | |
| Total operating revenues | Total operating revenues | 477 | | | 498 | | | 2,362 | | | 2,661 | | Total operating revenues | 677 | | | 636 | | | 2,371 | | | 1,885 | |
Operating Expenses: | Operating Expenses: | | | | | | | | Operating Expenses: | | | | | | | |
Cost of natural gas | Cost of natural gas | 71 | | | 79 | | | 654 | | | 956 | | Cost of natural gas | 231 | | | 144 | | | 814 | | | 583 | |
| Other operations and maintenance | Other operations and maintenance | 217 | | | 208 | | | 696 | | | 642 | | Other operations and maintenance | 233 | | | 220 | | | 532 | | | 479 | |
Depreciation and amortization | Depreciation and amortization | 125 | | | 121 | | | 368 | | | 359 | | Depreciation and amortization | 133 | | | 123 | | | 263 | | | 243 | |
Taxes other than income taxes | Taxes other than income taxes | 35 | | | 33 | | | 154 | | | 161 | | Taxes other than income taxes | 49 | | | 47 | | | 130 | | | 118 | |
Impairment charges | 0 | | | 92 | | | 0 | | | 92 | | |
| | Total operating expenses | Total operating expenses | 448 | | | 533 | | | 1,872 | | | 2,210 | | Total operating expenses | 646 | | | 534 | | | 1,739 | | | 1,423 | |
Operating Income (Loss) | 29 | | | (35) | | | 490 | | | 451 | | |
Operating Income | | Operating Income | 31 | | | 102 | | | 632 | | | 462 | |
Other Income and (Expense): | Other Income and (Expense): | | Other Income and (Expense): | |
Earnings from equity method investments | 33 | | | 35 | | | 106 | | | 115 | | |
Earnings (loss) from equity method investments | | Earnings (loss) from equity method investments | (52) | | | 30 | | | (11) | | | 72 | |
Interest expense, net of amounts capitalized | Interest expense, net of amounts capitalized | (57) | | | (56) | | | (171) | | | (174) | | Interest expense, net of amounts capitalized | (59) | | | (57) | | | (118) | | | (114) | |
Other income (expense), net | Other income (expense), net | 12 | | | 5 | | | 33 | | | 16 | | Other income (expense), net | (14) | | | 12 | | | (78) | | | 21 | |
Total other income and (expense) | Total other income and (expense) | (12) | | | (16) | | | (32) | | | (43) | | Total other income and (expense) | (125) | | | (15) | | | (207) | | | (21) | |
Earnings (Loss) Before Income Taxes | Earnings (Loss) Before Income Taxes | 17 | | | (51) | | | 458 | | | 408 | | Earnings (Loss) Before Income Taxes | (94) | | | 87 | | | 425 | | | 441 | |
Income taxes (benefit) | Income taxes (benefit) | 3 | | | (22) | | | 98 | | | 61 | | Income taxes (benefit) | (29) | | | 16 | | | 92 | | | 95 | |
Net Income (Loss) | Net Income (Loss) | $ | 14 | | | $ | (29) | | | $ | 360 | | | $ | 347 | | Net Income (Loss) | $ | (65) | | | $ | 71 | | | $ | 333 | | | $ | 346 | |
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| (in millions) | | (in millions) |
Net Income (Loss) | $ | 14 | | | $ | (29) | | | $ | 360 | | | $ | 347 | |
Other comprehensive income (loss): | | | | | | | |
Qualifying hedges: | | | | | | | |
Changes in fair value, net of tax of $1, $(3), $(6), and $(4), respectively | 4 | | | (3) | | | (17) | | | (6) | |
Reclassification adjustment for amounts included in net income, net of tax of $0, $0, $2, and $0, respectively | 1 | | | 0 | | | 7 | | | 0 | |
Pension and other postretirement benefit plans: | | | | | | | |
| | | | | | | |
Reclassification adjustment for amounts included in net income, net of tax of $0, $0, $1, and $(1), respectively | 0 | | | 0 | | | 0 | | | (1) | |
Total other comprehensive income (loss) | 5 | | | (3) | | | (10) | | | (7) | |
Comprehensive Income | $ | 19 | | | $ | (32) | | | $ | 350 | | | $ | 340 | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (in millions) | | (in millions) |
Net Income (Loss) | $ | (65) | | | $ | 71 | | | $ | 333 | | | $ | 346 | |
Other comprehensive income (loss): | | | | | | | |
Qualifying hedges: | | | | | | | |
Changes in fair value, net of tax of $3, $(1), $3, and $(8), respectively | 8 | | | (1) | | | 9 | | | (21) | |
Reclassification adjustment for amounts included in net income, net of tax of $0, $0, $1, and $2, respectively | 0 | | | 1 | | | 3 | | | 6 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total other comprehensive income (loss) | 8 | | | 0 | | | 12 | | | (15) | |
Comprehensive Income (Loss) | $ | (57) | | | $ | 71 | | | $ | 345 | | | $ | 331 | |
| | | | | | | |
| | | | | | | |
The accompanying notes as they relate to Southern Company Gas are an integral part of these condensed consolidated financial statements.
SOUTHERN COMPANY GAS AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | For the Nine Months Ended September 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| | (in millions) | | (in millions) |
Operating Activities: | Operating Activities: | | Operating Activities: | |
Net income | Net income | $ | 360 | | | $ | 347 | | Net income | $ | 333 | | | $ | 346 | |
Adjustments to reconcile net income to net cash provided from operating activities — | Adjustments to reconcile net income to net cash provided from operating activities — | | Adjustments to reconcile net income to net cash provided from operating activities — | |
Depreciation and amortization, total | Depreciation and amortization, total | 368 | | | 359 | | Depreciation and amortization, total | 263 | | | 243 | |
Deferred income taxes | Deferred income taxes | (1) | | | 96 | | Deferred income taxes | 110 | | | 40 | |
| Mark-to-market adjustments | Mark-to-market adjustments | 104 | | | 44 | | Mark-to-market adjustments | 137 | | | 34 | |
Impairment charges | 0 | | | 92 | | |
Impairment of PennEast Pipeline investment | | Impairment of PennEast Pipeline investment | 82 | | | 0 | |
| Natural gas cost under recovery – long-term | | Natural gas cost under recovery – long-term | (119) | | | 0 | |
Other, net | Other, net | (20) | | | (58) | | Other, net | 15 | | | 11 | |
Changes in certain current assets and liabilities — | Changes in certain current assets and liabilities — | | Changes in certain current assets and liabilities — | |
-Receivables | -Receivables | 403 | | | 832 | | -Receivables | 262 | | | 344 | |
-Natural gas for sale | 26 | | | 49 | | |
| -Natural gas for sale, net of temporary LIFO liquidation | | -Natural gas for sale, net of temporary LIFO liquidation | 375 | | | 182 | |
-Prepaid income taxes | | -Prepaid income taxes | (129) | | | 14 | |
-Natural gas cost under recovery | | -Natural gas cost under recovery | (485) | | | 0 | |
-Other current assets | -Other current assets | (45) | | | 45 | | -Other current assets | 7 | | | (8) | |
-Accounts payable | -Accounts payable | (75) | | | (607) | | -Accounts payable | (42) | | | (176) | |
-Accrued taxes | 7 | | | (68) | | |
| -Accrued compensation | -Accrued compensation | (17) | | | (34) | | -Accrued compensation | 17 | | | (31) | |
-Other current liabilities | -Other current liabilities | 12 | | | (48) | | -Other current liabilities | (104) | | | 47 | |
Net cash provided from operating activities | Net cash provided from operating activities | 1,122 | | | 1,049 | | Net cash provided from operating activities | 722 | | | 1,046 | |
Investing Activities: | Investing Activities: | | | | Investing Activities: | | | |
Property additions | Property additions | (1,045) | | | (1,008) | | Property additions | (635) | | | (647) | |
Cost of removal, net of salvage | Cost of removal, net of salvage | (60) | | | (59) | | Cost of removal, net of salvage | (44) | | | (31) | |
Change in construction payables, net | 25 | | | 57 | | |
| Investment in unconsolidated subsidiaries | Investment in unconsolidated subsidiaries | (79) | | | (25) | | Investment in unconsolidated subsidiaries | (3) | | | (78) | |
| Proceeds from dispositions and asset sales | 178 | | | 32 | | |
Proceeds from dispositions | | Proceeds from dispositions | 0 | | | 178 | |
Other investing activities | Other investing activities | 8 | | | 14 | | Other investing activities | 14 | | | 8 | |
Net cash used for investing activities | Net cash used for investing activities | (973) | | | (989) | | Net cash used for investing activities | (668) | | | (570) | |
Financing Activities: | Financing Activities: | | | | Financing Activities: | | | |
Decrease in notes payable, net | (500) | | | (383) | | |
Proceeds — | | |
First mortgage bonds | 150 | | | 200 | | |
Capital contributions from parent company | 215 | | | 820 | | |
Senior notes | 500 | | | 0 | | |
Increase (decrease) in notes payable, net | | Increase (decrease) in notes payable, net | 210 | | | (321) | |
| Proceeds — Short-term borrowings | | Proceeds — Short-term borrowings | 300 | | | 0 | |
| Redemptions — | Redemptions — | | Redemptions — | |
| First mortgage bonds | 0 | | | (50) | | |
| Senior notes | Senior notes | 0 | | | (300) | | Senior notes | (300) | | | 0 | |
| Medium-term notes | | Medium-term notes | (30) | | | 0 | |
Capital contributions from parent company | | Capital contributions from parent company | 60 | | | 186 | |
Payment of common stock dividends | Payment of common stock dividends | (399) | | | (353) | | Payment of common stock dividends | (265) | | | (266) | |
Other financing activities | (3) | | | (2) | | |
| Net cash used for financing activities | Net cash used for financing activities | (37) | | | (68) | | Net cash used for financing activities | (25) | | | (401) | |
Net Change in Cash, Cash Equivalents, and Restricted Cash | Net Change in Cash, Cash Equivalents, and Restricted Cash | 112 | | | (8) | | Net Change in Cash, Cash Equivalents, and Restricted Cash | 29 | | | 75 | |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 49 | | | 70 | | Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 19 | | | 49 | |
Cash, Cash Equivalents, and Restricted Cash at End of Period | Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 161 | | | $ | 62 | | Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 48 | | | $ | 124 | |
Supplemental Cash Flow Information: | Supplemental Cash Flow Information: | | | | Supplemental Cash Flow Information: | | | |
Cash paid during the period for — | | |
Interest (net of $5 capitalized for both 2020 and 2019) | $ | 162 | | | $ | 180 | | |
Cash paid (received) during the period for — | | Cash paid (received) during the period for — | |
Interest (net of $3 and $4 capitalized for 2021 and 2020, respectively) | | Interest (net of $3 and $4 capitalized for 2021 and 2020, respectively) | $ | 127 | | | $ | 119 | |
Income taxes, net | Income taxes, net | 45 | | | 48 | | Income taxes, net | 100 | | | (4) | |
Noncash transactions — Accrued property additions at end of period | Noncash transactions — Accrued property additions at end of period | 146 | | | 154 | | Noncash transactions — Accrued property additions at end of period | 137 | | | 123 | |
The accompanying notes as they relate to Southern Company Gas are an integral part of these condensed consolidated financial statements.
SOUTHERN COMPANY GAS AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| Assets | Assets | | At September 30, 2020 | | At December 31, 2019 | Assets | | At June 30, 2021 | | At December 31, 2020 |
| | | (in millions) | | | (in millions) |
Current Assets: | Current Assets: | | | | | Current Assets: | | | | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 157 | | | $ | 46 | | Cash and cash equivalents | | $ | 37 | | | $ | 17 | |
Receivables — | Receivables — | | | | | Receivables — | | | | |
Energy marketing receivables | | 328 | | | 428 | | |
Customer accounts receivable | | 214 | | | 323 | | |
Energy marketing | | Energy marketing | | 0 | | | 516 | |
Customer accounts | | Customer accounts | | 283 | | | 353 | |
Unbilled revenues | Unbilled revenues | | 60 | | | 183 | | Unbilled revenues | | 74 | | | 219 | |
| Affiliated | Affiliated | | 3 | | | 5 | | Affiliated | | 3 | | | 4 | |
Other accounts and notes receivable | | 42 | | | 114 | | |
Other accounts and notes | | Other accounts and notes | | 31 | | | 51 | |
Accumulated provision for uncollectible accounts | Accumulated provision for uncollectible accounts | | (34) | | | (18) | | Accumulated provision for uncollectible accounts | | (45) | | | (40) | |
| Natural gas for sale | Natural gas for sale | | 448 | | | 479 | | Natural gas for sale | | 178 | | | 460 | |
| Prepaid expenses | Prepaid expenses | | 92 | | | 65 | | Prepaid expenses | | 162 | | | 48 | |
Assets from risk management activities, net of collateral | Assets from risk management activities, net of collateral | | 75 | | | 177 | | Assets from risk management activities, net of collateral | | 22 | | | 118 | |
Other regulatory assets | | 110 | | | 92 | | |
Natural gas cost under recovery | | Natural gas cost under recovery | | 485 | | | 0 | |
| Assets held for sale | Assets held for sale | | 0 | | | 171 | | Assets held for sale | | 736 | | | 0 | |
Other regulatory assets | | Other regulatory assets | | 97 | | | 102 | |
Other current assets | Other current assets | | 43 | | | 41 | | Other current assets | | 40 | | | 38 | |
Total current assets | Total current assets | | 1,538 | | | 2,106 | | Total current assets | | 2,103 | | | 1,886 | |
Property, Plant, and Equipment: | Property, Plant, and Equipment: | | | | | Property, Plant, and Equipment: | | | | |
In service | In service | | 17,202 | | | 16,344 | | In service | | 18,051 | | | 17,611 | |
Less: Accumulated depreciation | Less: Accumulated depreciation | | 4,761 | | | 4,650 | | Less: Accumulated depreciation | | 4,942 | | | 4,821 | |
Plant in service, net of depreciation | Plant in service, net of depreciation | | 12,441 | | | 11,694 | | Plant in service, net of depreciation | | 13,109 | | | 12,790 | |
Construction work in progress | Construction work in progress | | 655 | | | 613 | | Construction work in progress | | 790 | | | 648 | |
Total property, plant, and equipment | Total property, plant, and equipment | | 13,096 | | | 12,307 | | Total property, plant, and equipment | | 13,899 | | | 13,438 | |
Other Property and Investments: | Other Property and Investments: | | | | | Other Property and Investments: | | | | |
Goodwill | Goodwill | | 5,015 | | | 5,015 | | Goodwill | | 5,015 | | | 5,015 | |
Equity investments in unconsolidated subsidiaries | Equity investments in unconsolidated subsidiaries | | 1,301 | | | 1,251 | | Equity investments in unconsolidated subsidiaries | | 1,189 | | | 1,290 | |
Other intangible assets, net of amortization of $191 and $176 at September 30, 2020 and December 31, 2019, respectively | | 55 | | | 70 | | |
Other intangible assets, net of amortization of $138 and $195, respectively | | Other intangible assets, net of amortization of $138 and $195, respectively | | 44 | | | 51 | |
Miscellaneous property and investments | Miscellaneous property and investments | | 20 | | | 20 | | Miscellaneous property and investments | | 19 | | | 19 | |
Total other property and investments | Total other property and investments | | 6,391 | | | 6,356 | | Total other property and investments | | 6,267 | | | 6,375 | |
Deferred Charges and Other Assets: | Deferred Charges and Other Assets: | | | | | Deferred Charges and Other Assets: | | | | |
Operating lease right-of-use assets, net of amortization | Operating lease right-of-use assets, net of amortization | | 85 | | | 93 | | Operating lease right-of-use assets, net of amortization | | 72 | | | 81 | |
| Other regulatory assets, deferred | Other regulatory assets, deferred | | 580 | | | 618 | | Other regulatory assets, deferred | | 697 | | | 615 | |
| Other deferred charges and assets | Other deferred charges and assets | | 242 | | | 207 | | Other deferred charges and assets | | 197 | | | 235 | |
Total deferred charges and other assets | Total deferred charges and other assets | | 907 | | | 918 | | Total deferred charges and other assets | | 966 | | | 931 | |
Total Assets | Total Assets | | $ | 21,932 | | | $ | 21,687 | | Total Assets | | $ | 23,235 | | | $ | 22,630 | |
The accompanying notes as they relate to Southern Company Gas are an integral part of these condensed consolidated financial statements.
SOUTHERN COMPANY GAS AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| | | | | | | | | | | | | | |
Liabilities and Stockholder's Equity | | At September 30, 2020 | | At December 31, 2019 |
| | (in millions) |
Current Liabilities: | | | | |
Securities due within one year | | $ | 334 | | | $ | 0 | |
Notes payable | | 150 | | | 650 | |
Energy marketing trade payables | | 361 | | | 442 | |
Accounts payable — | | | | |
Affiliated | | 46 | | | 41 | |
Other | | 341 | | | 315 | |
Customer deposits | | 94 | | | 96 | |
| | | | |
| | | | |
Accrued taxes | | 78 | | | 71 | |
Accrued interest | | 66 | | | 52 | |
| | | | |
Accrued compensation | | 83 | | | 100 | |
| | | | |
Liabilities from risk management activities, net of collateral | | 31 | | | 21 | |
Other regulatory liabilities | | 112 | | | 94 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Other current liabilities | | 128 | | | 128 | |
Total current liabilities | | 1,824 | | | 2,010 | |
Long-term Debt | | 6,127 | | | 5,845 | |
Deferred Credits and Other Liabilities: | | | | |
Accumulated deferred income taxes | | 1,213 | | | 1,219 | |
Deferred credits related to income taxes | | 854 | | | 874 | |
| | | | |
Employee benefit obligations | | 247 | | | 265 | |
| | | | |
| | | | |
Operating lease obligations | | 70 | | | 78 | |
Other cost of removal obligations | | 1,642 | | | 1,606 | |
Accrued environmental remediation | | 220 | | | 233 | |
| | | | |
| | | | |
| | | | |
Other deferred credits and liabilities | | 50 | | | 51 | |
Total deferred credits and other liabilities | | 4,296 | | | 4,326 | |
Total Liabilities | | 12,247 | | | 12,181 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Common Stockholder's Equity (See accompanying statements) | | 9,685 | | | 9,506 | |
Total Liabilities and Stockholder's Equity | | $ | 21,932 | | | $ | 21,687 | |
| | | | | | | | | | | | | | |
Liabilities and Stockholder's Equity | | At June 30, 2021 | | At December 31, 2020 |
| | (in millions) |
Current Liabilities: | | | | |
Securities due within one year | | $ | 48 | | | $ | 333 | |
Notes payable | | 834 | | | 324 | |
Energy marketing trade payables | | 0 | | | 494 | |
Accounts payable — | | | | |
Affiliated | | 50 | | | 56 | |
Other | | 311 | | | 373 | |
Customer deposits | | 75 | | | 90 | |
| | | | |
| | | | |
Accrued taxes | | 79 | | | 83 | |
Accrued interest | | 55 | | | 58 | |
| | | | |
Accrued compensation | | 105 | | | 106 | |
| | | | |
| | | | |
| | | | |
| | | | |
Temporary LIFO liquidation | | 182 | | | 0 | |
Liabilities held for sale | | 677 | | | 0 | |
Other regulatory liabilities | | 39 | | | 122 | |
Other current liabilities | | 125 | | | 150 | |
Total current liabilities | | 2,580 | | | 2,189 | |
Long-term Debt | | 6,234 | | | 6,293 | |
Deferred Credits and Other Liabilities: | | | | |
Accumulated deferred income taxes | | 1,413 | | | 1,265 | |
Deferred credits related to income taxes | | 831 | | | 847 | |
| | | | |
Employee benefit obligations | | 267 | | | 283 | |
| | | | |
| | | | |
Operating lease obligations | | 59 | | | 67 | |
Other cost of removal obligations | | 1,673 | | | 1,649 | |
Accrued environmental remediation | | 208 | | | 216 | |
| | | | |
| | | | |
| | | | |
Other deferred credits and liabilities | | 41 | | | 54 | |
Total deferred credits and other liabilities | | 4,492 | | | 4,381 | |
Total Liabilities | | 13,306 | | | 12,863 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Common Stockholder's Equity (See accompanying statements) | | 9,929 | | | 9,767 | |
Total Liabilities and Stockholder's Equity | | $ | 23,235 | | | $ | 22,630 | |
The accompanying notes as they relate to Southern Company Gas are an integral part of these condensed consolidated financial statements.
SOUTHERN COMPANY GAS AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (UNAUDITED)
| | | | Paid-In Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Total | | | Paid-In Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Total |
| | (in millions) | |
Balance at December 31, 2018 | | $ | 8,856 | | | $ | (312) | | | $ | 26 | | | $ | 8,570 | | |
Net income | | —�� | | | 270 | | | — | | | 270 | | |
| Capital contributions from parent company | | 17 | | | — | | | — | | | 17 | | |
Other comprehensive income (loss) | | — | | | — | | | (1) | | | (1) | | |
Cash dividends on common stock | | — | | | (118) | | | — | | | (118) | | |
| Balance at March 31, 2019 | | 8,873 | | | (160) | | | 25 | | | 8,738 | | |
Net income | | — | | | 106 | | | — | | | 106 | | |
| Capital contributions from parent company | | 35 | | | — | | | — | | | 35 | | |
Other comprehensive income (loss) | | — | | | — | | | (3) | | | (3) | | |
Cash dividends on common stock | | — | | | (117) | | | — | | | (117) | | |
| Balance at June 30, 2019 | | 8,908 | | | (171) | | | 22 | | | 8,759 | | |
Net loss | | — | | | (29) | | | — | | | (29) | | |
| Capital contributions from parent company | | 784 | | | — | | | — | | | 784 | | |
Other comprehensive income (loss) | | — | | | — | | | (3) | | | (3) | | |
Cash dividends on common stock | | — | | | (118) | | | — | | | (118) | | |
| Balance at September 30, 2019 | | $ | 9,692 | | | $ | (318) | | | $ | 19 | | | $ | 9,393 | | |
| | | | | | (in millions) |
Balance at December 31, 2019 | Balance at December 31, 2019 | | $ | 9,697 | | | $ | (198) | | | $ | 7 | | | $ | 9,506 | | Balance at December 31, 2019 | | $ | 9,697 | | | $ | (198) | | | $ | 7 | | | $ | 9,506 | |
Net income | Net income | | — | | | 275 | | | — | | | 275 | | Net income | | — | | | 275 | | | — | | | 275 | |
| Return of capital to parent company | Return of capital to parent company | | (2) | | | — | | | — | | | (2) | | Return of capital to parent company | | (2) | | | — | | | — | | | (2) | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | — | | | — | | | (15) | | | (15) | | Other comprehensive income (loss) | | — | | | — | | | (15) | | | (15) | |
Cash dividends on common stock | Cash dividends on common stock | | — | | | (133) | | | — | | | (133) | | Cash dividends on common stock | | — | | | (133) | | | — | | | (133) | |
| Balance at March 31, 2020 | Balance at March 31, 2020 | | 9,695 | | | (56) | | | (8) | | | 9,631 | | Balance at March 31, 2020 | | 9,695 | | | (56) | | | (8) | | | 9,631 | |
Net income | Net income | | — | | | 71 | | | — | | | 71 | | Net income | | — | | | 71 | | | — | | | 71 | |
| Capital contributions from parent company | Capital contributions from parent company | | 200 | | | — | | | — | | | 200 | | Capital contributions from parent company | | 200 | | | — | | | — | | | 200 | |
| Cash dividends on common stock | Cash dividends on common stock | | — | | | (133) | | | — | | | (133) | | Cash dividends on common stock | | — | | | (133) | | | — | | | (133) | |
| Balance at June 30, 2020 | Balance at June 30, 2020 | | 9,895 | | | (118) | | | (8) | | | 9,769 | | Balance at June 30, 2020 | | $ | 9,895 | | | $ | (118) | | | $ | (8) | | | $ | 9,769 | |
| | Balance at December 31, 2020 | | Balance at December 31, 2020 | | $ | 9,930 | | | $ | (141) | | | $ | (22) | | | $ | 9,767 | |
Net income | Net income | | — | | | 14 | | | — | | | 14 | | Net income | | — | | | 398 | | | — | | | 398 | |
| | Capital contributions from parent company | Capital contributions from parent company | | 30 | | | — | | | — | | | 30 | | Capital contributions from parent company | | 57 | | | �� | | | — | | | 57 | |
Other comprehensive income | Other comprehensive income | | — | | | — | | | 5 | | | 5 | | Other comprehensive income | | — | | | — | | | 4 | | | 4 | |
Cash dividends on common stock | Cash dividends on common stock | | — | | | (133) | | | — | | | (133) | | Cash dividends on common stock | | — | | | (132) | | | — | | | (132) | |
| Balance at September 30, 2020 | | $ | 9,925 | | | $ | (237) | | | $ | (3) | | | $ | 9,685 | | |
Balance at March 31, 2021 | | Balance at March 31, 2021 | | 9,987 | | | 125 | | | (18) | | | 10,094 | |
Net loss | | Net loss | | — | | | (65) | | | — | | | (65) | |
| Capital contributions from parent company | | Capital contributions from parent company | | 25 | | | — | | | — | | | 25 | |
Other comprehensive income | | Other comprehensive income | | — | | | — | | | 8 | | | 8 | |
Cash dividends on common stock | | Cash dividends on common stock | | — | | | (133) | | | — | | | (133) | |
| Balance at June 30, 2021 | | Balance at June 30, 2021 | | $ | 10,012 | | | $ | (73) | | | $ | (10) | | | $ | 9,929 | |
|
The accompanying notes as they relate to Southern Company Gas are an integral part of these condensed consolidated financial statements.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
MISSISSIPPI POWER COMPANY
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
SOUTHERN COMPANY GAS AND SUBSIDIARY COMPANIES
(UNAUDITED)
INDEX TO THE NOTES TO THE CONDENSED FINANCIAL STATEMENTS
INDEX TO APPLICABLE NOTES TO FINANCIAL STATEMENTS BY REGISTRANT
The following unaudited notes to the condensed financial statements are a combined presentation; however, information contained herein relating to any individual Registrant is filed by such Registrant on its own behalf and each Registrant makes no representation as to information related to the other Registrants. The list below indicates the Registrants to which each footnote applies.
| | | | | |
Registrant | Applicable Notes |
Southern Company | A, B, C, D, E, F, G, H, I, J, K, L |
Alabama Power | A, B, C, D, F, G, H, I, J K |
Georgia Power | A, B, C, D, F, G, H, I, J |
Mississippi Power | A, B, C, D, F, G, H, I, J |
Southern Power | A, C, D, E, F, G, H, I, J, K |
Southern Company Gas | A, B, C, D, E, F, G, H, I, J, K, L |
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(A) INTRODUCTION
The condensed quarterly financial statements of each Registrant included herein have been prepared by such Registrant, without audit, pursuant to the rules and regulations of the SEC. The Condensed Balance Sheets as ofat December 31, 20192020 have been derived from the audited financial statements of each Registrant. In the opinion of each Registrant's management, the information regarding such Registrant furnished herein reflects all adjustments, which, except as otherwise disclosed, are of a normal recurring nature, necessary to present fairly the results of operations for the periods ended SeptemberJune 30, 20202021 and 2019.2020. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although each Registrant believes that the disclosures regarding such Registrant are adequate to make the information presented not misleading. Disclosures which would substantially duplicate the disclosures in the Form 10-K and details which have not changed significantly in amount or composition since the filing of the Form 10-K are generally omitted from this Quarterly Report on Form 10-Q unless specifically required by GAAP. Therefore, these Condensed Financial Statements should be read in conjunction with the financial statements and the notes thereto included in the Form 10-K. Due to the seasonal variations in the demand for energy and other factors, including the impacts of the COVID-19 pandemic, operating results for the periods presented are not necessarily indicative of the operating results to be expected for the full year.
Certain prior year data presented in the financial statements have been reclassified to conform to the current year presentation. These reclassifications had no impact on the overall results of operations, financial position, or cash flows of any Registrant.
Goodwill and Other Intangible Assets
Goodwill at SeptemberJune 30, 20202021 and December 31, 20192020 was as follows:
| | | | | | |
| Goodwill | |
| (in millions) |
Southern Company | $ | 5,280 | | |
Southern Company Gas: | | |
Gas distribution operations | $ | 4,034 | | |
Gas marketing services | 981 | | |
Southern Company Gas total | $ | 5,015 | | |
Goodwill is not amortized but is subject to an annual impairment test in the fourth quarter of the year and on an interim basis as events and changes in circumstances occur, including, but not limited to, a significant change in operating performance, the business climate, legal or regulatory factors, or a planned sale or disposition of a significant portion of the business. The continued COVID-19 pandemic and related responses continue to disrupt supply chains, reduce labor availability and productivity, and reduce economic activity. These effects could have a variety of adverse impacts on Southern Company and its subsidiaries, including the $263 million of goodwill recorded at PowerSecure. If the impact of the COVID-19 pandemic becomes significant to the operating results of PowerSecure and its businesses, a portion of the associated goodwill may become impaired. The ultimate outcome of this matter cannot be determined at this time.occur.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Other intangible assets were as follows:
| | | At September 30, 2020 | | At December 31, 2019 | | At June 30, 2021 | | At December 31, 2020 |
| | Gross Carrying Amount | Accumulated Amortization | Other Intangible Assets, Net | | Gross Carrying Amount | Accumulated Amortization | Other Intangible Assets, Net | | Gross Carrying Amount | Accumulated Amortization | Other Intangible Assets, Net | | Gross Carrying Amount | Accumulated Amortization | Other Intangible Assets, Net |
| | (in millions) | | (in millions) | | (in millions) | | (in millions) |
Southern Company | Southern Company | | Southern Company | |
Other intangible assets subject to amortization: | Other intangible assets subject to amortization: | | Other intangible assets subject to amortization: | |
Customer relationships | Customer relationships | $ | 212 | | $ | (130) | | $ | 82 | | | $ | 212 | | $ | (116) | | $ | 96 | | Customer relationships | $ | 212 | | $ | (142) | | $ | 70 | | | $ | 212 | | $ | (135) | | $ | 77 | |
Trade names | Trade names | 64 | | (30) | | 34 | | | 64 | | (25) | | 39 | | Trade names | 64 | | (35) | | 29 | | | 64 | | (31) | | 33 | |
Storage and transportation contracts | 64 | | (64) | | 0 | | | 64 | | (62) | | 2 | | |
Storage and transportation contracts(*) | | Storage and transportation contracts(*) | 0 | | 0 | | 0 | | | 64 | | (64) | | 0 | |
PPA fair value adjustments | PPA fair value adjustments | 390 | | (84) | | 306 | | | 390 | | (69) | | 321 | | PPA fair value adjustments | 390 | | (99) | | 291 | | | 390 | | (89) | | 301 | |
Other | Other | 10 | | (8) | | 2 | | | 11 | | (8) | | 3 | | Other | 11 | | (10) | | 1 | | | 10 | | (9) | | 1 | |
Total other intangible assets subject to amortization | Total other intangible assets subject to amortization | $ | 740 | | $ | (316) | | $ | 424 | | | $ | 741 | | $ | (280) | | $ | 461 | | Total other intangible assets subject to amortization | $ | 677 | | $ | (286) | | $ | 391 | | | $ | 740 | | $ | (328) | | $ | 412 | |
Other intangible assets not subject to amortization: | Other intangible assets not subject to amortization: | | | | Other intangible assets not subject to amortization: | | | |
Federal Communications Commission licenses | Federal Communications Commission licenses | 75 | | — | | 75 | | | 75 | | — | | 75 | | Federal Communications Commission licenses | 75 | | — | | 75 | | | 75 | | — | | 75 | |
Total other intangible assets | Total other intangible assets | $ | 815 | | $ | (316) | | $ | 499 | | | $ | 816 | | $ | (280) | | $ | 536 | | Total other intangible assets | $ | 752 | | $ | (286) | | $ | 466 | | | $ | 815 | | $ | (328) | | $ | 487 | |
| Southern Power | Southern Power | | Southern Power | |
Other intangible assets subject to amortization: | Other intangible assets subject to amortization: | | Other intangible assets subject to amortization: | |
PPA fair value adjustments | PPA fair value adjustments | $ | 390 | | $ | (84) | | $ | 306 | | | $ | 390 | | $ | (69) | | $ | 321 | | PPA fair value adjustments | $ | 390 | | $ | (99) | | $ | 291 | | | $ | 390 | | $ | (89) | | $ | 301 | |
| Southern Company Gas | Southern Company Gas | | Southern Company Gas | |
Other intangible assets subject to amortization: | Other intangible assets subject to amortization: | | Other intangible assets subject to amortization: | |
Gas marketing services | Gas marketing services | | Gas marketing services | |
Customer relationships | Customer relationships | $ | 156 | | $ | (115) | | $ | 41 | | | $ | 156 | | $ | (104) | | $ | 52 | | Customer relationships | $ | 156 | | $ | (124) | | $ | 32 | | | $ | 156 | | $ | (119) | | $ | 37 | |
Trade names | Trade names | 26 | | (12) | | 14 | | | 26 | | (10) | | 16 | | Trade names | 26 | | (14) | | 12 | | | 26 | | (12) | | 14 | |
Wholesale gas services | Wholesale gas services | | Wholesale gas services | |
Storage and transportation contracts | 64 | | (64) | | 0 | | | 64 | | (62) | | 2 | | |
Storage and transportation contracts(*) | | Storage and transportation contracts(*) | 0 | | 0 | | 0 | | | 64 | | (64) | | 0 | |
Total other intangible assets subject to amortization | Total other intangible assets subject to amortization | $ | 246 | | $ | (191) | | $ | 55 | | | $ | 246 | | $ | (176) | | $ | 70 | | Total other intangible assets subject to amortization | $ | 182 | | $ | (138) | | $ | 44 | | | $ | 246 | | $ | (195) | | $ | 51 | |
(*)See Note (K) under "Southern Company Gas" for information regarding the sale of Sequent.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Amortization associated with other intangible assets was as follows:
| | | Three Months Ended | Nine Months Ended | | Three Months Ended | Six Months Ended |
| | September 30, 2020 | | June 30, 2021 |
| | (in millions) | | (in millions) |
Southern Company(a) | Southern Company(a) | $ | 12 | | $ | 37 | | Southern Company(a) | $ | 10 | | $ | 21 | |
Southern Power(b) | Southern Power(b) | $ | 5 | | $ | 15 | | Southern Power(b) | 5 | | 10 | |
Southern Company Gas(c) | Southern Company Gas(c) | | Southern Company Gas(c) | 3 | | 7 | |
Gas marketing services | $ | 4 | | $ | 13 | | |
Wholesale gas services(b) | 1 | | 2 | | |
Southern Company Gas total | $ | 5 | | $ | 15 | | |
(a)Includes $6$5 million and $17$10 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, recorded as a reduction to operating revenues.
(b)Recorded as a reduction to operating revenues.
(c)Relates to gas marketing services.
Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed balance sheets that total to the amountsamount shown in the condensed statements of cash flows for the Registrants that had restricted cash at September 30, 2020 and/or December 31, 2019:applicable Registrants:
| | | Southern Company | | Southern Power | | Southern Company Gas | | Southern Company | | Southern Power | | Southern Company Gas |
| | At September 30, 2020 | | At December 31, 2019 | | At September 30, 2020 | | At September 30, 2020 | At December 31, 2019 | | June 30, 2021 | | December 31, 2020 | | June 30, 2021 | | June 30, 2021 | December 31, 2020 |
| | (in millions) | | (in millions) | | (in millions) | | (in millions) | | (in millions) | | (in millions) |
Cash and cash equivalents | Cash and cash equivalents | $ | 3,379 | | | $ | 1,975 | | | $ | 416 | | | $ | 157 | | $ | 46 | | Cash and cash equivalents | $ | 1,582 | | | $ | 1,065 | | | $ | 165 | | | $ | 37 | | $ | 17 | |
Cash and cash equivalents classified as held for sale | | Cash and cash equivalents classified as held for sale | 8 | | | 0 | | | 0 | | | 8 | | 0 | |
Restricted cash(a): | Restricted cash(a): | | Restricted cash(a): | |
Other accounts and notes receivable | 0 | | | 3 | | | 0 | | | 0 | | 3 | | |
Other current assets | Other current assets | 4 | | | 0 | | | 0 | | | 4 | | 0 | | Other current assets | 2 | | | 2 | | | 0 | | | 2 | | 2 | |
Other deferred charges and assets | Other deferred charges and assets | 1 | | | 0 | | | 1 | | | 0 | | 0 | | Other deferred charges and assets | 24 | | | 0 | | | 24 | | | 0 | | 0 | |
Total cash, cash equivalents, and restricted cash(b) | Total cash, cash equivalents, and restricted cash(b) | $ | 3,383 | | (b) | $ | 1,978 | | | $ | 417 | | | $ | 161 | | $ | 49 | | Total cash, cash equivalents, and restricted cash(b) | $ | 1,617 | | | $ | 1,068 | | | $ | 189 | | | $ | 48 | | $ | 19 | |
(a)For Southern Company Gas, reflects restricted cash held as collateral for workers' compensation, life insurance, and long-term disability insurance. For Southern Power, reflects restricted cash held for construction payables.
(b)Total doesmay not add due to rounding.
Natural Gas for Sale
Southern Company Gas, withWith the exception of Nicor Gas, carriesSouthern Company Gas' natural gas inventorydistribution utilities record natural gas inventories on a WACOG basis. For any declines in market prices below the WACOG considered to be other than temporary, an adjustment is recorded to reduce the value of natural gas inventories to market value. Nicor Gas' natural gas inventory is carried at cost on a LIFO basis. Inventory decrements occurring during the year that are restored prior to year end are charged to cost of natural gas at the estimated annual replacement cost. Inventory decrements that are not restored prior to year end are charged to cost of natural gas at the actual LIFO cost of the inventory layers liquidated.
Southern Company Gas recorded no material adjustments to natural gas inventories for the three and nine months ended September 30, 2020 or the three months ended September 30, 2019 and recorded an adjustment of $10
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
million for the nine months ended September 30, 2019.either period presented. Nicor Gas' inventory decrement at SeptemberJune 30, 20202021 is expected to be restored prior to year end.
Asset Retirement Obligations
See Note 6 to the financial statements in Item 8 of the Form 10-K for additional information.
Details of changes in AROs for Southern Company, Alabama Power, and Georgia Power during the first nine months of 2020 are shown in the following table. There were no material changes in AROs for the other Registrants during the first nine months of 2020.
| | | | | | | | | | | |
| Southern Company | Alabama Power | Georgia Power |
| (in millions) |
Balance at December 31, 2019 | $ | 9,786 | | $ | 3,540 | | $ | 5,784 | |
Liabilities incurred | 15 | | 0 | | 10 | |
Liabilities settled | (315) | | (157) | | (130) | |
Accretion | 308 | | 113 | | 177 | |
Cash flow revisions | 866 | | 462 | | 411 | |
Balance at September 30, 2020 | $ | 10,660 | | $ | 3,958 | | $ | 6,252 | |
In June 2020, Alabama Power recorded an increase of approximately $462 million to its AROs related to the CCR Rule and the related state rule primarily due to management's completion of a feasibility study and the related cost estimates during the second quarter 2020 for 1 of its ash ponds. Alabama Power's increase also reflects costs associated with the addition of a water treatment system to the design of another ash pond. The additional estimated costs to close these ash ponds under the planned closure-in-place methodology primarily relate to inputs from contractor bids, design revisions, and changes in the expected volume of ash handling.
During the third quarter 2020, Georgia Power completed an assessment of its plans to close the ash ponds at all of its generating plants in compliance with the CCR Rule and the related state rule. The related cost estimates were further refined, including updates to long-term post-closure care requirements, market pricing, and timing of future cash outlays. As a result, in September 2020, Georgia Power recorded an increase of approximately $411 million to its AROs related to the CCR Rule and the related state rule.
The traditional electric operating companies expect to continue updating their cost estimates and ARO liabilities periodically as additional information related to ash pond closure methodologies, schedules, and/or costs becomes available, and the changes could be material. Additionally, the closure designs and plans in the States of Alabama and Georgia are subject to approval by environmental regulatory agencies. Absent continued recovery of ARO costs through regulated rates, results of operations, cash flows, and financial condition for Southern Company and the traditional electric operating companies could be materially impacted. See Note (B) and Note 2 to the financial statements in Item 8 of the Form 10-K under "Georgia Power – Integrated Resource Plan" for additional information. The ultimate outcome of these matters cannot be determined at this time.
Depreciation and Amortization
See Note 5 to the financial statements under "Depreciation and Amortization – Southern Power" in Item 8 of the Form 10-K for additional information.
Effective January 1, 2020, Southern Power revised the depreciable lives of its natural gas generating facilities from up to 45 years to up to 50 years. This revision resulted in an immaterial decrease in depreciation for the three and nine months ended September 30, 2020 and is expected to result in an immaterial decrease in annual depreciation for 2020.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
(B) REGULATORY MATTERS
See Note 2 to the financial statements in Item 8 of the Form 10-K for additional information relating to regulatory matters.
The recovery balances for certain retail regulatory clauses of the traditional electric operating companies and Southern Company Gas at SeptemberJune 30, 20202021 and December 31, 20192020 were as follows:
| Regulatory Clause | Regulatory Clause | Balance Sheet Line Item | September 30, 2020 | December 31, 2019 | Regulatory Clause | Balance Sheet Line Item | June 30, 2021 | December 31, 2020 |
| | (in millions) | | (in millions) |
Alabama Power | Alabama Power | | Alabama Power | |
Rate CNP Compliance | Rate CNP Compliance | Other regulatory liabilities, current | $ | 12 | | $ | 55 | | Rate CNP Compliance | Other regulatory liabilities, current | $ | 1 | | $ | 28 | |
| | Other regulatory liabilities, deferred | 38 | | 7 | | |
| Rate CNP PPA | Rate CNP PPA | Deferred under recovered regulatory clause revenues | 62 | | 40 | | Rate CNP PPA | Other regulatory assets, deferred | 64 | | 58 | |
Retail Energy Cost Recovery | Retail Energy Cost Recovery | Other regulatory liabilities, current | 107 | | 32 | | Retail Energy Cost Recovery | Other regulatory liabilities, current | 0 | | 18 | |
| | Other regulatory liabilities, deferred | 16 | | 17 | | |
| | | Other regulatory assets, deferred | 54 | | 0 | |
| Natural Disaster Reserve | Natural Disaster Reserve | Other regulatory liabilities, current | 7 | | 37 | | Natural Disaster Reserve | Other regulatory liabilities, deferred | 36 | | 77 | |
| Other regulatory liabilities, deferred | 51 | | 113 | | |
Georgia Power | Georgia Power | | Georgia Power | |
Fuel Cost Recovery | Fuel Cost Recovery | Over recovered fuel clause revenues | $ | 84 | | $ | 0 | | Fuel Cost Recovery | Over recovered fuel clause revenues | $ | 0 | | $ | 113 | |
| | | Other deferred charges and assets | 21 | | 0 | |
| | Other deferred credits and liabilities | 67 | | 73 | | |
Mississippi Power | Mississippi Power | | Mississippi Power | |
Fuel Cost Recovery | Fuel Cost Recovery | Over recovered regulatory clause liabilities | $ | 23 | | $ | 23 | | Fuel Cost Recovery | Over recovered regulatory clause liabilities | $ | 9 | | $ | 24 | |
Ad Valorem Tax | Ad Valorem Tax | Other regulatory assets | 11 | | 47 | | Ad Valorem Tax | Other regulatory assets, current | 12 | | 11 | |
| | Other regulatory assets, deferred | 36 | | 0 | | | Other regulatory assets, deferred | 45 | | 41 | |
Property Damage Reserve | Property Damage Reserve | Other regulatory liabilities, deferred | 48 | | 54 | | Property Damage Reserve | Other regulatory liabilities, deferred | 0 | | 4 | |
| | | Other regulatory assets, deferred | 5 | | 0 | |
Southern Company Gas | Southern Company Gas | | Southern Company Gas | |
Natural Gas Cost Recovery | Other regulatory liabilities | $ | 84 | | $ | 74 | | |
Natural Gas Cost Recovery(*) | | Natural Gas Cost Recovery(*) | Other regulatory liabilities | $ | 5 | | $ | 88 | |
| | | Natural gas cost under recovery | 485 | | 0 | |
| | | Other regulatory assets, deferred | 119 | | 0 | |
(*)The significant change during the six months ended June 30, 2021 was primarily driven by an increase in the cost of gas purchased in February 2021 resulting from Winter Storm Uri.
Alabama Power
Petition for Certificate of Convenience and Necessity
On August 14, 2020,Energy Alabama, Gasp, Inc., and the Sierra Club filed requests for reconsideration and rehearing with the Alabama PSC issued its order regarding Alabama Power's petition for athe certificate of convenience and necessity (CCN), issued to Alabama Power in August 2020, which authorized, Alabama Power to (i) construct an approximately 720-MW combined cycle facility at Alabama Power's Plant Barry (Plant Barry Unit 8), which is expected to be placed in service by the end of 2023, (ii) complete the Autauga Combined Cycle Acquisition, which occurred on August 31, 2020, (iii) purchase approximately 240 MWs of combined cycle generation under a long-term PPA, which began on September 1, 2020, and (iv) pursue up to approximately 200 MWs of cost-effective demand-side management and distributed energy resource programs.
The Alabama PSC authorized the recovery of actual costs foramong other things, the construction of Plant Barry Unit 8 up to 5% aboveand the estimated in-service costacquisition of $652 million.the Central Alabama Generating Station. In so doing, it recognized the potential for developments that could cause the project costs to exceed the capped amount, in which case Alabama Power would provide documentation toDecember 2020, the Alabama PSC issued an order denying the requests. On January 7, 2021, Energy Alabama and Gasp, Inc. filed a judicial appeal regarding both the Alabama PSC's August 2020 CCN order and the December 2020 order denying reconsideration and rehearing. On March 9, 2021, the Circuit Court of Montgomery County, Alabama granted a motion by Alabama Power to explain and justify potential recoveryintervene in the appeal. At June 30, 2021, expenditures associated with the construction of Plant Barry Unit 8 included in CWIP totaled approximately $188 million. The ultimate outcome of this matter cannot be determined at this time.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Plant Greene County
Alabama Power jointly owns Plant Greene County with an affiliate, Mississippi Power. See Note 5 under "Joint Ownership Agreements" in Item 8 of the Form 10-K for additional costs.information.
On April 15, 2021, Mississippi Power filed its 2021 IRP with the Mississippi PSC, which includes a schedule to retire its 40% ownership interest in Plant Greene County Units 1 and 2 in December 2025 and 2026, respectively, consistent with each unit's remaining useful life. Mississippi Power's IRP is subject to a review period during which the Mississippi PSC may note any deficiencies which could require re-evaluation or resubmission of the IRP. If no deficiencies are noted, the Mississippi PSC's review will conclude on August 13, 2021.
The Plant Greene County unit retirements identified by Mississippi Power require the completion of transmission and system reliability improvements, as well as agreement by Alabama Power. Alabama Power will continue to monitor the status of Mississippi Power's IRP and associated regulatory processes, as well as the transmission and system reliability improvements. Currently, Alabama Power plans to retire Plant Greene County Units 1 and 2 at the dates indicated. The ultimate outcome of this matter cannot be determined at this time.
Rate NDR
Based on an order from the Alabama PSC, further directed thatwhen Alabama Power's NDR balance falls below $50 million, a reserve establishment charge will be activated and the proposed solar generationongoing reserve maintenance charge will be concurrently suspended until the NDR balance reaches $75 million. At June 30, 2021, Alabama Power's NDR balance was $36 million. As a result, effective with October 2021 billings, the reserve maintenance charge component of Rate NDR will be suspended and the reserve establishment charge will be activated. Alabama Power expects to collect approximately $4 million in the fourth quarter 2021 and $16 million annually under Rate NDR until the NDR balance is restored to $75 million.
Georgia Power
Rate Plan
Effective January 1, 2021, Georgia Power reduced its amortization of costs associated with CCR AROs by approximately $90 million as approved by the Georgia PSC in conjunction with Georgia Power's annual compliance filings.
In February 2020, the Georgia PSC denied a motion for reconsideration filed by the Sierra Club regarding the Georgia PSC's decision in the 2019 ARP allowing Georgia Power to recover compliance costs for CCR AROs, and, in December 2020, the Superior Court of Fulton County affirmed the decision of the Georgia PSC. On January 5, 2021, the Sierra Club filed a notice of appeal with the Georgia Court of Appeals. The ultimate outcome of this matter cannot be determined at this time.
See Note 6 to the financial statements in Item 8 of the Form 10-K for additional information regarding Georgia Power's AROs.
Plant Vogtle Unit 3 and Common Facilities Rate Proceeding
On June 15, 2021, Georgia Power filed an application with the Georgia PSC to adjust retail base rates to include the portion of costs related to its investment in Plant Vogtle Unit 3 and common facilities shared between Plant Vogtle Units 3 and 4 (Common Facilities) previously deemed prudent by the Georgia PSC ($2.38 billion), as well as the related costs of operation.
The request includes an annual rate increase totaling approximately $370 million to be effective the month after Unit 3 is placed in service. Unit 3 is projected to be placed in service in the second quarter 2022. This increase will be partially offset by a decrease in the NCCR tariff of approximately 400 MWs, coupled with battery energy storage systems (solar/battery systems),$116 million expected to be evaluated undereffective January 1, 2022. In addition, an existing Renewable Generationestimated $45 million of fuel cost savings related to Unit 3 is already incorporated in Georgia Power's current fuel cost recovery rates.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Certificate (RGC) issued byGeorgia Power also is requesting to defer some of its 2022 financing costs (approximately $42 million) relating to the Alabama PSC in September 2015. The contracts proposed inremaining portion of the CCN petition expired on July 31, 2020. Any future requests for solar/battery systems will be evaluated under the RGC process.
Energy Alabama, Gasp, Inc.,total Unit 3 and the Sierra Club filed petitions for reconsideration and rehearing with the Alabama PSC. Alabama PSC action on these petitions is expected by November 10, 2020. Upon issuance of a written order reflecting such action, affected parties would have 30 days to pursue an appealCommon Facilities construction costs not being recovered through the State of Alabama court system.NCCR tariff until Unit 4 costs are placed in retail base rates.
Alabama Power expectsThe Georgia PSC is scheduled to recover all approved costs associated with the CCN through existing rate mechanisms as outlinedissue a final order in Notethis proceeding on November 2, to the financial statements in Item 8 of the Form 10-K.
2021. The ultimate outcome of these mattersthis matter cannot be determined at this time. See "Nuclear Construction" herein for additional information on Plant Vogtle Units 3 and 4.
Rate ECRDeferral of Incremental COVID-19 Costs
On August 7, 2020,In June 2021, Georgia Power performed a review of bad debt amounts deferred under the Alabama PSC issued an order authorizing Alabama Power to reduce its over-collected fuel balanceGeorgia PSC-approved methodology, including consideration of actual amounts repaid by $100 millioncustomers from arrears and return that amount to customersinstallment plans after the disconnection moratorium period ended in the form of bill credits for the billing month of OctoberJuly 2020. Any portionAs a result of the $100 million undistributed following the bill credit process will remain in the Rate ECR regulatory liability for the benefit of customers.
Rate NDR
In the third quarter 2020, Alabamareview, Georgia Power recorded $44 million against the NDR for damages incurred to its transmission and distribution facilities from Hurricane Sally. The NDR balance available for storm damages was $51 million as of September 30, 2020. Ifreduced the balance falls below $50 million, a reserve establishment charge would be activated (and the ongoing reserve maintenance charge concurrently suspended) until the reserve balance reaches $75 million.
Georgia Power
Rate Plans
2019 ARP
In accordance with the terms of the 2019 ARP, on October 1, 2020, Georgia Power filed the following tariff adjustments to become effective January 1, 2021 pending approval by the Georgia PSC:
•increase traditional base tariffsdeferred incremental costs by approximately $120 million;
•increase$20 million. At June 30, 2021, the Environmental Compliance Cost Recovery tariff byincremental costs deferred totaled approximately $20 million, including approximately $2 million;
•decrease Demand-Side Management tariffs by approximately $15 million;million of incremental bad debt costs and
•increase Municipal Franchise Fee tariffs by approximately $4 million.
$18 million of other incremental costs. The period over which these costs will be recovered is expected to be determined in Georgia Power's next base rate case. The ultimate outcome of this matter cannot be determined at this time.
2013 ARP
Nuclear Construction
In 2019, Georgia Power's retail ROE exceeded 12.00% and, under the modified sharing mechanism pursuant to the 2019 ARP, Georgia Power reduced regulatory assets by approximately $60 million and accrued refunds for retail customers of approximately $60 million. On September 1, 2020,2009, the Georgia PSC authorizedcertified construction of Plant Vogtle Units 3 and 4, in which Georgia Power holds a 45.7% ownership interest. In 2012, the NRC issued the related combined construction and operating licenses, which allowed full construction of the 2 AP1000 nuclear units (with electric generating capacity of approximately 1,100 MWs each) and related facilities to issue customers bill creditsbegin. Until March 2017, construction on Plant Vogtle Units 3 and 4 continued under the Vogtle 3 and 4 Agreement, which was a substantially fixed price agreement.
In connection with the EPC Contractor's bankruptcy filing in March 2017, Georgia Power, acting for itself and as agent for the other Vogtle Owners, entered into several transitional arrangements to allow construction to continue. In July 2017, Georgia Power, acting for itself and as agent for the other Vogtle Owners, entered into the Vogtle Services Agreement, whereby Westinghouse provides facility design and engineering services, procurement and technical support, and staff augmentation on a time and materials cost basis. The Vogtle Services Agreement provides that it will continue until the start-up and testing of Plant Vogtle Units 3 and 4 are complete and electricity is generated and sold from both units. The Vogtle Services Agreement is terminable by the Vogtle Owners upon 30 days' written notice.
In October 2017, Georgia Power, acting for itself and as agent for the other Vogtle Owners, executed the Bechtel Agreement, a cost reimbursable plus fee arrangement, whereby Bechtel is reimbursed for actual costs plus a base fee and an at-risk fee, which is subject to adjustment based on Bechtel's performance against cost and schedule targets. Each Vogtle Owner is severally (not jointly) liable for its proportionate share, based on its ownership interest, of all amounts owed to Bechtel under the Bechtel Agreement. The Vogtle Owners may terminate the Bechtel Agreement at any time for their convenience, provided that the Vogtle Owners will be required to pay amounts related to work performed prior to final reviewthe termination (including the applicable portion of the 2019 Annual Surveillance Reportbase fee), certain termination-related costs, and, at certain stages of the work, the applicable portion of the at-risk fee. Bechtel may terminate the Bechtel Agreement under certain circumstances, including certain Vogtle Owner suspensions of work, certain breaches of the Bechtel Agreement by the staffVogtle Owners, Vogtle Owner insolvency, and certain other events.
See Note 8 to the financial statements under "Long-term Debt – DOE Loan Guarantee Borrowings" in Item 8 of the Georgia PSC. Georgia Power issuedForm 10-K for information on the bill credits in October 2020.
DeferralAmended and Restated Loan Guarantee Agreement, including applicable covenants, events of Incremental COVID-19 Costs
On April 7, 2020default, mandatory prepayment events, and June 2, 2020, in responseconditions to the COVID-19 pandemic, the Georgia PSC approved orders directing Georgia Power to continue its previous, voluntary suspension of customer disconnections through July 14, 2020 and to defer the resulting incremental bad debt as a regulatory asset. On June 16, 2020 and July 7, 2020, the Georgia PSC approved orders establishing a methodology for identifying incremental bad debt and allowing theborrowing.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
deferralCost and Schedule
Georgia Power's approximate proportionate share of the remaining estimated capital cost to complete Plant Vogtle Units 3 and 4, including contingency, through June 2022 and March 2023, respectively, is as follows:
| | | | | |
| (in millions) |
Base project capital cost forecast(a)(b) | $ | 9,096 | |
Construction contingency estimate | 119 | |
| |
Total project capital cost forecast(a)(b) | 9,215 | |
Net investment at June 30, 2021(b) | (7,856) | |
Remaining estimate to complete | $ | 1,359 | |
(a) Includes approximately $570 million of costs that are not shared with the other incrementalVogtle Owners. Excludes financing costs expected to be capitalized through AFUDC of approximately $290 million, of which $143 million had been accrued through June 30, 2021.
(b) Net of $1.7 billion received from Toshiba under the Guarantee Settlement Agreement and approximately $188 million in related customer refunds.
Georgia Power estimates that its financing costs for construction of Plant Vogtle Units 3 and 4 will total approximately $3.2 billion, of which $2.7 billion had been incurred through June 30, 2021.
As part of its ongoing processes, Southern Nuclear continues to evaluate cost and schedule forecasts on a regular basis to incorporate current information available, particularly in the areas of engineering support, commodity installation, system turnovers and related test results, and workforce statistics. Southern Nuclear establishes aggressive target values for monthly construction production and system turnover activities. Southern Nuclear's site work plans continue to reflect this approach in support of safely completing Units 3 and 4, while achieving the required construction quality.
In mid-March 2020, Southern Nuclear began implementing policies and procedures designed to mitigate the risk of transmission of COVID-19 at the construction site, including worker distancing measures; isolating individuals who tested positive for COVID-19, showed symptoms consistent with COVID-19, were being tested for COVID-19, or were in close contact with such persons; requiring self-quarantine; and adopting additional precautionary measures. Since March 2020, the number of active cases at the site has fluctuated and impacted productivity levels and pace of activity completion. The site has experienced an overall decline in the number of active cases since a peak in January 2021. The lower productivity levels and slower pace of activity completion experienced since March 2020 contributed to a backlog to the aggressive site work plan established at the beginning of 2020. Georgia Power estimates the productivity impacts of the COVID-19 pandemic have consumed approximately three to four months of schedule margin previously embedded in the site work plan for Unit 3 and Unit 4. In addition, the project continued to face challenges including, but not limited to, higher than expected absenteeism; overall construction and subcontractor labor productivity; system turnover and testing activities; and electrical equipment and commodity installation. As a result of these factors, in January 2021, Southern Nuclear further extended certain milestone dates, including the start of hot functional testing and fuel load for Unit 3, from those established in October 2020.
Following the January 2021 milestone extensions, Southern Nuclear has been performing additional construction remediation work necessary to ensure quality and design standards are met as system turnovers are completed to support hot functional testing and fuel load for Unit 3. Hot functional testing for Unit 3 was completed in July 2021. As a result of challenges including, but not limited to, construction productivity, construction remediation work, the pace of system turnovers, spent fuel pool repairs, and the timeframe and duration for hot functional and other testing, at the end of the second quarter 2021, Southern Nuclear further extended certain milestone dates, including the fuel load for Unit 3, from those established in January 2021. The site work plan currently targets fuel load for Unit 3 in the fourth quarter 2021 and an in-service date of March 2022. As the site work plan includes minimal margin to these milestone dates, an in-service date in the second quarter 2022 for Unit 3 is projected, although any further delays could result in a later in-service date.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
As the result of productivity challenges, at the end of the second quarter 2021, Southern Nuclear also further extended milestone dates for Unit 4 from those established in January 2021. The site work plan targets an in-service date of November 2022 and primarily depends on overall construction productivity and production levels significantly improving as well as appropriate levels of craft laborers, particularly electricians and pipefitters, being added and maintained. As the site work plan includes minimal margin to the milestone dates, an in-service date in the first quarter 2023 for Unit 4 is projected, although any further delays could result in a later in-service date.
As of March 31, 2021, approximately $84 million of the construction contingency established in the fourth quarter 2020 was assigned to the base capital cost forecast for costs primarily associated with the schedule extension for Unit 3 to December 2021, construction productivity, support resources, and construction remediation work. Georgia Power increased its total capital cost forecast as of March 31, 2021 by adding $48 million to the remaining construction contingency. Considering the factors above, during the second quarter 2021, all of the remaining construction contingency previously established and an additional $341 million was assigned to the base capital cost forecast for costs primarily associated with the schedule extensions for Units 3 and 4 described above, construction remediation work for Unit 3, and construction productivity and support resources for Units 3 and 4. Georgia Power also increased its total capital cost forecast as of June 30, 2021 by adding $119 million to replenish construction contingency.
After considering the significant level of uncertainty that exists regarding the future recoverability of these costs since the ultimate outcome of these matters is subject to the outcome of future assessments by management, as well as Georgia PSC decisions in future regulatory proceedings, Georgia Power recorded pre-tax charges to income in the first quarter 2021 and the second quarter 2021 of $48 million ($36 million after tax) and $460 million ($343 million after tax), respectively, for the increases in the total project capital cost forecast. As and when these amounts are spent, Georgia Power may request the Georgia PSC to evaluate those expenditures for rate recovery.
In addition, the continuing effects of the COVID-19 pandemic. The period over which such costs will be recoveredpandemic could further disrupt or delay construction and testing activities at Plant Vogtle Units 3 and 4. Georgia Power's proportionate share of the estimated incremental cost associated with COVID-19 mitigation actions and impacts on construction productivity is expectedcurrently estimated to be determinedbetween $160 million and $200 million and is included in Georgia Power's next base rate case. Atthe total project capital cost forecast.
As construction, including subcontract work, continues and testing and system turnover activities increase, ongoing or future challenges with management of contractors and vendors; subcontractor performance; supervision of craft labor and related productivity, particularly in the installation of electrical, mechanical, and instrumentation and controls commodities, ability to attract and retain craft labor, and/or related cost escalation; procurement, fabrication, delivery, assembly, installation, system turnover, and the initial testing and start-up, including any required engineering changes or any remediation related thereto, of plant systems, structures, or components (some of which are based on new technology that only within the last few years began initial operation in the global nuclear industry at this scale), including the spent fuel pools, any of which may require additional labor and/or materials; or other issues could continue or arise and change the projected schedule and estimated cost.
There have been technical and procedural challenges to the construction and licensing of Plant Vogtle Units 3 and 4 at the federal and state level and additional challenges may arise. Processes are in place that are designed to ensure compliance with the requirements specified in the Westinghouse Design Control Document and the combined construction and operating licenses, including inspections by Southern Nuclear and the NRC that occur throughout construction. In connection with the additional construction remediation work described above, Southern Nuclear reviewed the project's construction quality programs and, where needed, is implementing improvement plans consistent with these processes. In June 2021, the NRC began a special inspection to review the root cause of this additional construction remediation work and the corresponding corrective action plans. Findings resulting from this or other inspections could require additional remediation and/or further NRC oversight. In addition, certain license amendment requests have been filed and approved or are pending before the NRC. On March 15, 2021, the NRC denied the Blue Ridge Environmental Defense League's (BREDL) December 2020 motion to reopen proceedings on BREDL's petition challenging a requested license amendment, which has been issued by the NRC staff.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
In September 30, 2020, Southern Nuclear notified the incremental costs deferred totaled approximately $38 million. NRC of its intent to load fuel for Unit 3 in 2021. Various design and other licensing-based compliance matters, including the timely submittal by Southern Nuclear of the ITAAC documentation for each unit and the related reviews and approvals by the NRC necessary to support NRC authorization to load fuel, have arisen or may arise, which may result in additional license amendments or require other resolution. If any license amendment requests or other licensing-based compliance issues, including inspections and ITAACs, are not resolved in a timely manner, there may be delays in the project schedule that could result in increased costs.
The ultimate outcome of this matterthese matters cannot be determined at this time. However, any extension of the in-service date beyond the second quarter 2022 for Unit 3 or the first quarter 2023 for Unit 4 is currently estimated to result in additional base capital costs for Georgia Power of approximately $25 million per month for Unit 3 and approximately $15 million per month for Unit 4, as well as the related AFUDC. While Georgia Power is not precluded from seeking recovery of any future capital cost forecast increase, management will ultimately determine whether or not to seek recovery. Any further changes to the capital cost forecast that are not expected to be recoverable through regulated rates will be required to be charged to income and such charges could be material.
Joint Owner Contracts
In November 2017, the Vogtle Owners entered into an amendment to their joint ownership agreements for Plant Vogtle Units 3 and 4 to provide for, among other conditions, additional Vogtle Owner approval requirements. Effective in August 2018, the Vogtle Owners further amended the joint ownership agreements to clarify and provide procedures for certain provisions of the joint ownership agreements related to adverse events that require the vote of the holders of at least 90% of the ownership interests in Plant Vogtle Units 3 and 4 to continue construction (as amended, and together with the November 2017 amendment, the Vogtle Joint Ownership Agreements). The Vogtle Joint Ownership Agreements also confirm that the Vogtle Owners' sole recourse against Georgia Power or Southern Nuclear for any action or inaction in connection with their performance as agent for the Vogtle Owners is limited to removal of Georgia Power and/or Southern Nuclear as agent, except in cases of willful misconduct.
As a result of an increase in the total project capital cost forecast and Georgia Power's decision not to seek rate recovery of the increase in the base capital costs in conjunction with the nineteenth VCM report in 2018, the holders of at least 90% of the ownership interests in Plant Vogtle Units 3 and 4 were required to vote to continue construction. In September 2018, the Vogtle Owners unanimously voted to continue construction of Plant Vogtle Units 3 and 4.
Amendments to the Vogtle Joint Ownership Agreements
In connection with the vote to continue construction, Georgia Power entered into (i) a binding term sheet (Vogtle Owner Term Sheet) with the other Vogtle Owners and MEAG Power's wholly-owned subsidiaries MEAG Power SPVJ, LLC (MEAG SPVJ), MEAG Power SPVM, LLC (MEAG SPVM), and MEAG Power SPVP, LLC (MEAG SPVP) to take certain actions which partially mitigate potential financial exposure for the other Vogtle Owners, including additional amendments to the Vogtle Joint Ownership Agreements and the purchase of PTCs from the other Vogtle Owners at pre-established prices, and (ii) a term sheet (MEAG Term Sheet) with MEAG Power and MEAG SPVJ to provide up to $300 million of funding with respect to MEAG SPVJ's ownership interest in Plant Vogtle Units 3 and 4 under certain circumstances. In January 2019, Georgia Power, MEAG Power, and MEAG SPVJ entered into an agreement to implement the provisions of the MEAG Term Sheet. In February 2019, Georgia Power, the other Vogtle Owners, and MEAG Power's wholly-owned subsidiaries MEAG SPVJ, MEAG SPVM, and MEAG SPVP entered into certain amendments to the Vogtle Joint Ownership Agreements to implement the provisions of the Vogtle Owner Term Sheet (Global Amendments).
As previously disclosed, pursuant to the Global Amendments: (i) each Vogtle Owner must pay its proportionate share of qualifying construction costs for Plant Vogtle Units 3 and 4 based on its ownership percentage up to the estimated cost at completion (EAC) for Plant Vogtle Units 3 and 4 which formed the basis of Georgia Power's forecast of $8.4 billion in the nineteenth VCM plus $800 million; (ii) Georgia Power will be responsible for 55.7% of actual qualifying construction costs between $800 million and $1.6 billion over the EAC in the nineteenth VCM
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
(resulting in $80 million of potential additional costs to Georgia Power), with the remaining Vogtle Owners responsible for 44.3% of such costs pro rata in accordance with their respective ownership interests; and (iii) Georgia Power will be responsible for 65.7% of qualifying construction costs between $1.6 billion and $2.1 billion over the EAC in the nineteenth VCM (resulting in a further $100 million of potential additional costs to Georgia Power), with the remaining Vogtle Owners responsible for 34.3% of such costs pro rata in accordance with their respective ownership interests. If the EAC is revised and exceeds the EAC in the nineteenth VCM by more than $2.1 billion, each of the other Vogtle Owners will have a one-time option at the time the project budget forecast is so revised to tender a portion of its ownership interest to Georgia Power in exchange for Georgia Power's agreement to pay 100% of such Vogtle Owner's remaining share of total construction costs in excess of the EAC in the nineteenth VCM plus $2.1 billion.
In addition, pursuant to the Global Amendments, the holders of at least 90% of the ownership interests in Plant Vogtle Units 3 and 4 must vote to continue construction if certain adverse events occur, including, among other events: (i) the bankruptcy of Toshiba; (ii) the termination or rejection in bankruptcy of certain agreements, including the Vogtle Services Agreement, the Bechtel Agreement, or the agency agreement with Southern Nuclear; (iii) Georgia Power's public announcement of its intention not to submit for rate recovery any portion of its investment in Plant Vogtle Units 3 and 4 or the Georgia PSC determines that any of Georgia Power's costs relating to the construction of Plant Vogtle Units 3 and 4 will not be recovered in retail rates, excluding any additional amounts paid by Georgia Power on behalf of the other Vogtle Owners pursuant to the Global Amendments described above and the first 6% of costs during any six-month VCM reporting period that are disallowed by the Georgia PSC for recovery, or for which Georgia Power elects not to seek cost recovery, through retail rates; and (iv) an incremental extension of one year or more over the most recently approved schedule.
The ultimate outcome of these matters cannot be determined at this time.
Regulatory Matters
In 2009, the Georgia PSC voted to certify construction of Plant Vogtle Units 3 and 4 with a certified capital cost of $4.418 billion. In addition, in 2009 the Georgia PSC approved inclusion of the Plant Vogtle Units 3 and 4 related CWIP accounts in rate base, and the State of Georgia enacted the Georgia Nuclear Energy Financing Act, which allows Georgia Power to recover financing costs for Plant Vogtle Units 3 and 4. Financing costs are recovered on all applicable certified costs through annual adjustments to the NCCR tariff up to the certified capital cost of $4.418 billion. At June 30, 2021, Georgia Power had recovered approximately $2.6 billion of financing costs. Financing costs related to capital costs above $4.418 billion are being recognized through AFUDC and are expected to be recovered through retail rates over the life of Plant Vogtle Units 3 and 4; however, Georgia Power will not record AFUDC related to any capital costs in excess of the total deemed reasonable by the Georgia PSC (currently $7.3 billion) and not requested for rate recovery. In November 2020, the Georgia PSC approved Georgia Power's request to decrease the NCCR tariff by $142 million annually, effective January 1, 2021.
Georgia Power is required to file semi-annual VCM reports with the Georgia PSC by February 28 and August 31 of each year. In 2013, in connection with the eighth VCM report, the Georgia PSC approved a stipulation between Georgia Power and the staff of the Georgia PSC to waive the requirement to amend the Plant Vogtle Units 3 and 4 certificate in accordance with the 2009 certification order until the completion of Plant Vogtle Unit 3, or earlier if deemed appropriate by the Georgia PSC and Georgia Power.
In 2016, the Georgia PSC voted to approve a settlement agreement (Vogtle Cost Settlement Agreement) resolving certain prudency matters in connection with the fifteenth VCM report. In December 2017, the Georgia PSC voted to approve (and issued its related order on January 11, 2018) Georgia Power's seventeenth VCM report and modified the Vogtle Cost Settlement Agreement. The Vogtle Cost Settlement Agreement, as modified by the January 11, 2018 order, resolved the following regulatory matters related to Plant Vogtle Units 3 and 4: (i) none of the $3.3 billion of costs incurred through December 31, 2015 and reflected in the fourteenth VCM report should be disallowed from rate base on the basis of imprudence; (ii) the Contractor Settlement Agreement was reasonable and prudent and none of the $0.3 billion paid pursuant to the Contractor Settlement Agreement should be disallowed from rate base on the basis of imprudence; (iii) (a) capital costs incurred up to $5.68 billion would be presumed to
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
be reasonable and prudent with the burden of proof on any party challenging such costs, (b) Georgia Power would have the burden to show that any capital costs above $5.68 billion were prudent, and (c) a revised capital cost forecast of $7.3 billion (after reflecting the impact of payments received under the Guarantee Settlement Agreement and related customer refunds) was found reasonable; (iv) construction of Plant Vogtle Units 3 and 4 should be completed, with Southern Nuclear serving as project manager and Bechtel as primary contractor; (v) approved and deemed reasonable Georgia Power's revised schedule placing Plant Vogtle Units 3 and 4 in service in November 2021 and November 2022, respectively; (vi) confirmed that the revised cost forecast does not represent a cost cap and that a prudence proceeding on cost recovery will occur following Unit 4 fuel load, consistent with applicable Georgia law; (vii) reduced the ROE used to calculate the NCCR tariff (a) from 10.95% (the ROE rate setting point authorized by the Georgia PSC in the 2013 alternate rate plan) to 10.00% effective January 1, 2016, (b) from 10.00% to 8.30%, effective January 1, 2020, and (c) from 8.30% to 5.30%, effective January 1, 2021 (provided that the ROE in no case will be less than Georgia Power's average cost of long-term debt); (viii) reduced the ROE used for AFUDC equity for Plant Vogtle Units 3 and 4 from 10.00% to Georgia Power's average cost of long-term debt, effective January 1, 2018; and (ix) agreed that upon Unit 3 reaching commercial operation, retail base rates would be adjusted to include the costs related to Unit 3 and common facilities deemed prudent in the Vogtle Cost Settlement Agreement. The January 11, 2018 order also stated that if Plant Vogtle Units 3 and 4 are not commercially operational by June 1, 2021 and June 1, 2022, respectively, the ROE used to calculate the NCCR tariff will be further reduced by 10 basis points each month (but not lower than Georgia Power's average cost of long-term debt) until the respective Unit is commercially operational. The ROE reductions negatively impacted earnings by approximately $150 million in 2020 and are estimated to have negative earnings impacts of approximately $270 million, $270 million, and $90 million in 2021, 2022, and 2023, respectively. In its January 11, 2018 order, the Georgia PSC also stated if other conditions change and assumptions upon which Georgia Power's seventeenth VCM report are based do not materialize, the Georgia PSC reserved the right to reconsider the decision to continue construction.
The Georgia PSC has approved 23 VCM reports covering periods through June 30, 2020 and is scheduled to vote on the twenty-fourth VCM report in August 2021, including total construction capital costs incurred through December 31, 2020 of $8.7 billion (before $1.7 billion of payments received under the Guarantee Settlement Agreement and approximately $188 million in related customer refunds). On July 28, 2021, Georgia Power and the staff of the Georgia PSC reached a stipulated agreement providing for approval of the twenty-fourth VCM report as well as a change to future VCM proceedings. Beginning with its twenty-fifth VCM report, which Georgia Power expects to file with the Georgia PSC by August 31, 2021, Georgia Power will continue to report to the Georgia PSC all costs incurred during the period for review and will include a request for approval of costs up to the $7.3 billion determined to be reasonable in the Georgia PSC's seventeenth VCM order. Under the stipulation, Georgia Power will not seek verification or approval of costs above $7.3 billion prior to the Georgia PSC's prudence review contemplated by the seventeenth VCM order. The twenty-fifth VCM report will reflect the revised capital cost forecast discussed above. See "Plant Vogtle Unit 3 and Common Facilities Rate Proceeding" herein for information on Georgia Power's request to adjust retail base rates to include a portion of costs related to its investment in Plant Vogtle Unit 3 and Common Facilities.
The ultimate outcome of these matters cannot be determined at this time.
Mississippi Power
Performance Evaluation Plan
On June 8, 2021, the Mississippi PSC approved Mississippi Power's annual retail PEP filing for 2021, resulting in an annual increase in revenues of approximately $16 million, or 1.8%, which became effective with the first billing cycle of April 2021 in accordance with the PEP rate schedule.
Integrated ResourcePerformance Evaluation Plan
On March 5, 2020, the Sierra Club filed a petition for judicial review in the Superior Court of Fulton County to appeal the Georgia PSC's decision in the 2019 ARP allowing Georgia Power to recover compliance costs for CCR AROs. Georgia Power intervened in the appeal on June 22, 2020. The ultimate outcome of this matter cannot be determined at this time.
Fuel Cost Recovery
On May 28, 2020, the Georgia PSC approved a stipulation agreement among Georgia Power, the staff of the Georgia PSC, and certain intervenors to lower total fuel billings by approximately $740 million over a two-year period effective June 1, 2020. In addition, Georgia Power further lowered fuel billings by approximately $44 million under an interim fuel rider effective June 1, 2020 through September 30, 2020. Georgia Power continues to be allowed to adjust its fuel cost recovery rates under an interim fuel rider prior to its next fuel case if the under or over recovered fuel balance exceeds $200 million. Georgia Power is scheduled to file its next fuel case no later than February 28, 2023.
Nuclear Construction
In 2009, the Georgia PSC certified construction of Plant Vogtle Units 3 and 4, in which Georgia Power holds a 45.7% ownership interest. In 2012, the NRC issued the related combined construction and operating licenses, which allowed full construction of the 2 AP1000 nuclear units (with electric generating capacity of approximately 1,100 MWs each) and related facilities to begin. Until March 2017, construction on Plant Vogtle Units 3 and 4 continued under the Vogtle 3 and 4 Agreement, which was a substantially fixed price agreement. In March 2017, the EPC Contractor filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code.
In connection with the EPC Contractor's bankruptcy filing, Georgia Power, acting for itself and as agent for the other Vogtle Owners, entered into several transitional arrangements to allow construction to continue. In July 2017, Georgia Power, acting for itself and as agent for the other Vogtle Owners, entered into the Vogtle Services Agreement, whereby Westinghouse provides facility design and engineering services, procurement and technical support, and staff augmentation on a time and materials cost basis. The Vogtle Services Agreement provides that it will continue until the start-up and testing of Plant Vogtle Units 3 and 4 are complete and electricity is generated and sold from both units. The Vogtle Services Agreement is terminable by the Vogtle Owners upon 30 days' written notice.
In October 2017, Georgia Power, acting for itself and as agent for the other Vogtle Owners, executed the Bechtel Agreement, a cost reimbursable plus fee arrangement, whereby Bechtel is reimbursed for actual costs plus a base fee and an at-risk fee, which is subject to adjustment based on Bechtel's performance against cost and schedule targets. Each Vogtle Owner is severally (not jointly) liable for its proportionate share, based on its ownership interest, of all amounts owed to Bechtel under the Bechtel Agreement. The Vogtle Owners may terminate the Bechtel Agreement at any time for their convenience, provided that the Vogtle Owners will be required to pay amounts related to work performed prior to the termination (including the applicable portion of the base fee), certain termination-related costs, and, at certain stages of the work, the applicable portion of the at-risk fee. Bechtel may terminate the Bechtel Agreement under certain circumstances, including certain Vogtle Owner suspensions of work, certain breaches of the Bechtel Agreement by the Vogtle Owners, Vogtle Owner insolvency, and certain other events.
See Note 8, to the financial statements under "Long-term Debt – DOE Loan Guarantee Borrowings" in Item 8 of the Form 10-K for information on the Amended and Restated Loan Guarantee Agreement, including applicable covenants, events of default, mandatory prepayment events, and conditions to borrowing.
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Cost and Schedule
Georgia Power's approximate proportionate share of the remaining estimated capital cost to complete Plant Vogtle Units 3 and 4 by the expected in-service dates of November 2021, and November 2022, respectively, is as follows:
| | | | | |
| (in billions) |
Base project capital cost forecast(a)(b)
| $ | 8.4 | |
Construction contingency estimate | 0.1 | |
| |
Total project capital cost forecast(a)(b)
| 8.5 | |
Net investment as of September 30, 2020(b)
| (6.9) | |
Remaining estimate to complete(a)
| $ | 1.6 | |
(a) Excludes financing costs expected to be capitalized through AFUDC of approximately $240 million, of which $71 million had been accrued through September 30, 2020.
(b) Net of $1.7 billion received from Toshiba under the Guarantee Settlement Agreement and approximately $188 million in related customer refunds.
Georgia Power estimates that its financing costs for construction of Plant Vogtle Units 3 and 4 will total approximately $3.0 billion, of which $2.5 billion had been incurred through September 30, 2020.
As part of its ongoing processes, Southern Nuclear continues to evaluate cost and schedule forecasts on a regular basis to incorporate current information available, particularly in the areas of engineering support, commodity installation, system turnovers and related test results, and workforce statistics.
As of June 30, 2020, assignments of contingency exceeded the remaining balance of the $366 million construction contingency originally established in the second quarter 2018 by approximately $34 million. This contingency was used to address cost risks related to construction productivity, including the April 2020 reduction in workforce designed to mitigate impacts of the COVID-19 pandemic described below; craft labor incentives; adding resources for supervision, field support, project management, initial test program, start-up, and operations and engineering support; subcontracts; and procurement, among other factors. As a result of these factors, Georgia Power established $115 million of additional construction contingency as of June 30, 2020 for further potential risks including, among other factors, construction productivity and expected impacts of the COVID-19 pandemic; additional resources for supervision, field support, project management, initial test program, start-up, and operations and engineering support; subcontracts; and procurement.
After considering the significant level of uncertainty that exists regarding the future recoverability of these costs since the ultimate outcome of these matters is subject to the outcome of future assessments by management, as well as Georgia PSC decisions in future regulatory proceedings, Georgia Power recorded a total pre-tax charge to income of $149 million ($111 million after tax) for the increase in the total project capital cost forecast as of June 30, 2020. As and when these amounts are spent, Georgia Power may request the Georgia PSC to evaluate those expenditures for rate recovery.
During the third quarter 2020, approximately $5 million of the construction contingency established in the second quarter 2020 was assigned to the base capital cost forecast for cost risks primarily associated with construction productivity and field support.
In April 2019, Southern Nuclear established aggressive target values for monthly construction production and system turnover activities as part of a strategy to maintain and, where possible, build margin to the regulatory-approved in-service dates of November 2021 for Unit 3 and November 2022 for Unit 4. Through early 2020, the project faced challenges with the April 2019 aggressive strategy targets including, but not limited to, electrical and pipefitting labor productivity and work package closure rates, which resulted in a backlog of activities and completion percentages below the April 2019 aggressive strategy targets.
In February 2020, Southern Nuclear updated its cost and schedule forecast, which, at that time, did not change the total project capital cost forecast and confirmed the expected in-service dates of November 2021 for Unit 3 and
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November 2022 for Unit 4. This update included initiatives to improve productivity while refining and extending system turnover plans and certain near-term milestone dates. Other milestone dates did not change. Achievement of the February 2020 aggressive site work plan relied on meeting increased monthly production and activity target values during 2020.
In mid-March 2020, Southern Nuclear began implementing policies and procedures designed to mitigate the risk of transmission of COVID-19 at the construction site, including worker distancing measures, isolating individuals who have tested positive for COVID-19, are showing symptoms consistent with COVID-19, are being tested for COVID-19, or have been in close contact with such persons, requiring self-quarantine, and adopting additional precautionary measures.
In April 2020, Georgia Power, acting for itself and as agent for the other Vogtle Owners, announced a reduction in workforce at Plant Vogtle Units 3 and 4, which totaled approximately 20% of the then-existing site workforce. This reduction in workforce was a mitigation action intended to address the impact of the COVID-19 pandemic on the Plant Vogtle Units 3 and 4 workforce and construction site, including challenges with labor productivity that were exacerbated by the impact of the COVID-19 pandemic. The April 2020 workforce reduction was intended to provide operational efficiencies by increasing productivity of the remaining workforce and reducing workforce fatigue and absenteeism. Further, it was also intended to allow for increased social distancing by the workforce and facilitate compliance with the recommendations from the Centers for Disease Control and Prevention. The April 2020 workforce reduction did reduce absenteeism, providing an improvement in operational efficiency and allowing for increased social distancing. From the initial peak in April 2020, the number of active cases at the site declined significantly during May and early June, but began increasing again from mid-June through July, and continued to impact productivity levels and pace of activity completion. As a result of these factors, overall production improvements were not achieved at the levels anticipated, contributing to the June 30, 2020 allocation of, and increase in, construction contingency described above. Through mid-July 2020, Unit 3 mechanical, electrical, and subcontract activities continued to build a backlog to Southern Nuclear's February 2020 aggressive site work plan.
To address these issues, in July 2020, Southern Nuclear updated its aggressive site work plan for both Unit 3 and Unit 4. Through October 2020, the project has faced challenges in meeting the July 2020 aggressive site work plan targets including, but not limited to, overall construction and subcontractor labor productivity, which has resulted in a backlog of activities and completion percentages below the July 2020 aggressive site work plan targets. In addition, while the number of active COVID-19 cases at the site has declined since July 2020, the COVID-19 pandemic continues to impact productivity and the pace of activity completion. After considering these factors, Southern Nuclear has further extended milestone dates from the July 2020 aggressive site work plan. Achievement of these extended milestone dates depends on absenteeism rates continuing to normalize and overall construction productivity and production levels, including subcontractors, significantly improving and being sustained above pre-pandemic levels. In addition, appropriate levels of craft laborers, particularly electrical and pipefitter craft labor, need to be added and maintained. Georgia Power still expects to achieve the regulatory-approved in-service dates of November 2021 and November 2022 for Plant Vogtle Units 3 and 4, respectively. Southern Nuclear and Georgia Power continue to believe that pursuit of an aggressive site work plan is an appropriate strategy to achieve completion of the units by their regulatory-approved in-service dates.
As construction, including subcontract work, continues and testing and system turnover activities increase, challenges with management of contractors and vendors; subcontractor performance; supervision of craft labor and related productivity, particularly in the installation of electrical, mechanical, and instrumentation and controls commodities, ability to attract and retain craft labor, and/or related cost escalation; procurement, fabrication, delivery, assembly, installation, system turnover, and the initial testing and start-up, including any required engineering changes or any remediation related thereto, of plant systems, structures, or components (some of which are based on new technology that only within the last few years began initial operation in the global nuclear industry at this scale), any of which may require additional labor and/or materials; or other issues could arise and change the projected schedule and estimated cost.
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In addition, the continuing effects of the COVID-19 pandemic could further disrupt or delay construction, testing, supervisory, and support activities at Plant Vogtle Units 3 and 4. Georgia Power's proportionate share of the estimated incremental cost associated with COVID-19 mitigation actions and impacts on construction productivity is currently estimated to be between $70 million and $115 million, which is included in the total project capital cost forecast and assumes (i) absenteeism rates continue to normalize and (ii) the intended productivity efficiencies and production targets assumed in Southern Nuclear's July 2020 aggressive site work plan are realized in the coming months. However, the ultimate impact of the COVID-19 pandemic on the construction schedule and budget for Plant Vogtle Units 3 and 4 cannot be determined at this time.
There have been technical and procedural challenges to the construction and licensing of Plant Vogtle Units 3 and 4 at the federal and state level and additional challenges may arise. Processes are in place that are designed to assure compliance with the requirements specified in the Westinghouse Design Control Document and the combined construction and operating licenses, including inspections by Southern Nuclear and the NRC that occur throughout construction. As a result of such compliance processes, certain license amendment requests have been filed and approved or are pending before the NRC. Various design and other licensing-based compliance matters, including the timely submittal by Southern Nuclear of the ITAAC documentation for each unit and the related reviews and approvals by the NRC necessary to support NRC authorization to load fuel, may arise, which may result in additional license amendments or require other resolution. As part of the aggressive site work plan, in January 2020, Southern Nuclear notified the NRC of its intent to load fuel in 2020. On June 15, 2020, the NRC rejected Nuclear Watch South's April 20, 2020 petition requesting a hearing and challenging the closure of certain ITAAC. On August 10, 2020, the Atomic Safety and Licensing Board rejected the Blue Ridge Environmental Defense League's (BREDL) May 11, 2020 petition challenging a license amendment request. The staff of the NRC has issued the requested amendment to the combined construction and operating license for Plant Vogtle Unit 3. BREDL appealed the Atomic Safety and Licensing Board decision to the NRC. If any license amendment requests or other licensing-based compliance issues are not resolved in a timely manner, there may be delays in the project schedule that could result in increased costs.
The ultimate outcome of these matters cannot be determined at this time. However, any extension of the regulatory-approved project schedule is currently estimated to result in additional base capital costs of approximately $50 million per month, based on Georgia Power's ownership interests, and AFUDC of approximately $10 million per month. While Georgia Power is not precluded from seeking recovery of any future capital cost forecast increase, management will ultimately determine whether or not to seek recovery. Any further changes to the capital cost forecast that are not expected to be recoverable through regulated rates will be required to be charged to income and such charges could be material.
Joint Owner Contracts
In November 2017, the Vogtle Owners entered into an amendment to their joint ownership agreements for Plant Vogtle Units 3 and 4 to provide for, among other conditions, additional Vogtle Owner approval requirements. Effective in August 2018, the Vogtle Owners further amended the joint ownership agreements to clarify and provide procedures for certain provisions of the joint ownership agreements related to adverse events that require the vote of the holders of at least 90% of the ownership interests in Plant Vogtle Units 3 and 4 to continue construction (as amended, and together with the November 2017 amendment, the Vogtle Joint Ownership Agreements). The Vogtle Joint Ownership Agreements also confirm that the Vogtle Owners' sole recourse against Georgia Power or Southern Nuclear for any action or inaction in connection with their performance as agent for the Vogtle Owners is limited to removal of Georgia Power and/or Southern Nuclear as agent, except in cases of willful misconduct.
As a result of an increase in the total project capital cost forecast and Georgia Power's decision not to seek rate recovery of the increase in the base capital costs in conjunction with the nineteenth VCM report in 2018, the holders of at least 90% of the ownership interests in Plant Vogtle Units 3 and 4 were required to vote to continue construction. In September 2018, the Vogtle Owners unanimously voted to continue construction of Plant Vogtle Units 3 and 4.
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Amendments to the Vogtle Joint Ownership Agreements
In connection with the vote to continue construction, Georgia Power entered into (i) a binding term sheet (Vogtle Owner Term Sheet) with the other Vogtle Owners and MEAG Power's wholly-owned subsidiaries MEAG Power SPVJ, LLC (MEAG SPVJ), MEAG Power SPVM, LLC (MEAG SPVM), and MEAG Power SPVP, LLC (MEAG SPVP) to take certain actions which partially mitigate potential financial exposure for the other Vogtle Owners, including additional amendments to the Vogtle Joint Ownership Agreements and the purchase of PTCs from the other Vogtle Owners at pre-established prices, and (ii) a term sheet (MEAG Term Sheet) with MEAG Power and MEAG SPVJ to provide up to $300 million of funding with respect to MEAG SPVJ's ownership interest in Plant Vogtle Units 3 and 4 under certain circumstances. In January 2019, Georgia Power, MEAG Power, and MEAG SPVJ entered into an agreement to implement the provisions of the MEAG Term Sheet. In February 2019, Georgia Power, the other Vogtle Owners, and MEAG Power's wholly-owned subsidiaries MEAG SPVJ, MEAG SPVM, and MEAG SPVP entered into certain amendments to the Vogtle Joint Ownership Agreements to implement the provisions of the Vogtle Owner Term Sheet (Global Amendments).
As previously disclosed, pursuant to the Global Amendments: (i) each Vogtle Owner must pay its proportionate share of qualifying construction costs for Plant Vogtle Units 3 and 4 based on its ownership percentage up to the estimated cost at completion (EAC) for Plant Vogtle Units 3 and 4 which formed the basis of Georgia Power's forecast of $8.4 billion in the nineteenth VCM plus $800 million; (ii) Georgia Power will be responsible for 55.7% of actual qualifying construction costs between $800 million and $1.6 billion over the EAC in the nineteenth VCM (resulting in $80 million of potential additional costs to Georgia Power), with the remaining Vogtle Owners responsible for 44.3% of such costs pro rata in accordance with their respective ownership interests; and (iii) Georgia Power will be responsible for 65.7% of qualifying construction costs between $1.6 billion and $2.1 billion over the EAC in the nineteenth VCM (resulting in a further $100 million of potential additional costs to Georgia Power), with the remaining Vogtle Owners responsible for 34.3% of such costs pro rata in accordance with their respective ownership interests. If the EAC is revised and exceeds the EAC in the nineteenth VCM by more than $2.1 billion, each of the other Vogtle Owners will have a one-time option at the time the project budget forecast is so revised to tender a portion of its ownership interest to Georgia Power in exchange for Georgia Power's agreement to pay 100% of such Vogtle Owner's remaining share of total construction costs in excess of the EAC in the nineteenth VCM plus $2.1 billion.
In addition, pursuant to the Global Amendments, the holders of at least 90% of the ownership interests in Plant Vogtle Units 3 and 4 must vote to continue construction if certain adverse events occur, including, among other events: (i) the bankruptcy of Toshiba; (ii) the termination or rejection in bankruptcy of certain agreements, including the Vogtle Services Agreement, the Bechtel Agreement, or the agency agreement with Southern Nuclear; (iii) Georgia Power's public announcement of its intention not to submit for rate recovery any portion of its investment in Plant Vogtle Units 3 and 4 or the Georgia PSC determines that any of Georgia Power's costs relating to the construction of Plant Vogtle Units 3 and 4 will not be recovered in retail rates, excluding any additional amounts paid by Georgia Power on behalf of the other Vogtle Owners pursuant to the Global Amendments described above and the first 6% of costs during any six-month VCM reporting period that are disallowed by the Georgia PSC for recovery, or for which Georgia Power elects not to seek cost recovery, through retail rates; and (iv) an incremental extension of one year or more over the most recently approved schedule.
The ultimate outcome of these matters cannot be determined at this time.
Regulatory Matters
In 2009, the Georgia PSC voted to certify construction of Plant Vogtle Units 3 and 4 with a certified capital cost of $4.418 billion. In addition, in 2009 the Georgia PSC approved inclusion of the Plant Vogtle Units 3 and 4 related CWIP accounts in rate base, and the State of Georgia enacted the Georgia Nuclear Energy Financing Act, which allows Georgia Power to recover financing costs for Plant Vogtle Units 3 and 4. Financing costs are recovered on all applicable certified costs through annual adjustments to the NCCR tariff up to the certified capital cost of $4.418 billion. At September 30, 2020, Georgia Power had recovered approximately $2.5 billion of financing costs. Financing costs related to capital costs above $4.418 billion are being recognized through AFUDC and are expected
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to be recovered through retail rates over the life of Plant Vogtle Units 3 and 4; however, Georgia Power will not record AFUDC related to any capital costs in excess of the total deemed reasonable by the Georgia PSC (currently $7.3 billion) and not requested for rate recovery. On October 1, 2020, Georgia Power filed a request to decrease the NCCR tariff by $142 million annually, effective January 1, 2021, pending Georgia PSC approval.
Georgia Power is required to file semi-annual VCM reports with the Georgia PSC by February 28 and August 31 of each year. In 2013, in connection with the eighth VCM report, the Georgia PSC approved a stipulation between Georgia Power and the staff of the Georgia PSC to waive the requirement to amend the Plant Vogtle Units 3 and 4 certificate in accordance with the 2009 certification order until the completion of Plant Vogtle Unit 3, or earlier if deemed appropriate by the Georgia PSC and Georgia Power.
In 2016, the Georgia PSC voted to approve a settlement agreement (Vogtle Cost Settlement Agreement) resolving certain prudency matters in connection with the fifteenth VCM report. In December 2017, the Georgia PSC voted to approve (and issued its related order on January 11, 2018) Georgia Power's seventeenth VCM report and modified the Vogtle Cost Settlement Agreement. The Vogtle Cost Settlement Agreement, as modified by the January 11, 2018 order, resolved the following regulatory matters related to Plant Vogtle Units 3 and 4: (i) none of the $3.3 billion of costs incurred through December 31, 2015 and reflected in the fourteenth VCM report should be disallowed from rate base on the basis of imprudence; (ii) the Contractor Settlement Agreement was reasonable and prudent and none of the amounts paid pursuant to the Contractor Settlement Agreement should be disallowed from rate base on the basis of imprudence; (iii) (a) capital costs incurred up to $5.68 billion would be presumed to be reasonable and prudent with the burden of proof on any party challenging such costs, (b) Georgia Power would have the burden to show that any capital costs above $5.68 billion were prudent, and (c) a revised capital cost forecast of $7.3 billion (after reflecting the impact of payments received under the Guarantee Settlement Agreement and related customer refunds) was found reasonable; (iv) construction of Plant Vogtle Units 3 and 4 should be completed, with Southern Nuclear serving as project manager and Bechtel as primary contractor; (v) approved and deemed reasonable Georgia Power's revised schedule placing Plant Vogtle Units 3 and 4 in service in November 2021 and November 2022, respectively; (vi) confirmed that the revised cost forecast does not represent a cost cap and that prudence decisions on cost recovery will be made at a later date, consistent with applicable Georgia law; (vii) reduced the ROE used to calculate the NCCR tariff (a) from 10.95% (the ROE rate setting point authorized by the Georgia PSC in the 2013 ARP) to 10.00% effective January 1, 2016, (b) from 10.00% to 8.30%, effective January 1, 2020, and (c) from 8.30% to 5.30%, effective January 1, 2021 (provided that the ROE in no case will be less than Georgia Power's average cost of long-term debt); (viii) reduced the ROE used for AFUDC equity for Plant Vogtle Units 3 and 4 from 10.00% to Georgia Power's average cost of long-term debt, effective January 1, 2018; and (ix) agreed that upon Unit 3 reaching commercial operation, retail base rates would be adjusted to include carrying costs on those capital costs deemed prudent in the Vogtle Cost Settlement Agreement. The January 11, 2018 order also stated that if Plant Vogtle Units 3 and 4 are not commercially operational by June 1, 2021 and June 1, 2022, respectively, the ROE used to calculate the NCCR tariff will be further reduced by 10 basis points each month (but not lower than Georgia Power's average cost of long-term debt) until the respective Unit is commercially operational. The ROE reductions negatively impacted earnings by approximately $75 million in 2019 and are estimated to have negative earnings impacts of approximately $145 million, $255 million, and $200 million in 2020, 2021, and 2022, respectively. In its January 11, 2018 order, the Georgia PSC also stated if other conditions change and assumptions upon which Georgia Power's seventeenth VCM report are based do not materialize, the Georgia PSC reserved the right to reconsider the decision to continue construction.
In February 2018, Georgia Interfaith Power & Light, Inc. (GIPL) and Partnership for Southern Equity, Inc. (PSE) filed a petition appealing the Georgia PSC's January 11, 2018 order with the Fulton County Superior Court. In March 2018, Georgia Watch filed a similar appeal to the Fulton County Superior Court for judicial review of the Georgia PSC's decision and denial of Georgia Watch's motion for reconsideration. In December 2018, the Fulton County Superior Court granted Georgia Power's motion to dismiss the 2 appeals. In January 2019, GIPL, PSE, and Georgia Watch filed an appeal of this decision with the Georgia Court of Appeals. In October 2019, the Georgia Court of Appeals issued an opinion affirming the Fulton County Superior Court's ruling that the Georgia PSC's January 11, 2018 order was not a final, appealable decision. In addition, the Georgia Court of Appeals remanded the
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
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case to the Fulton County Superior Court to clarify its ruling as to whether the petitioners showed that review of the Georgia PSC's final order would not provide them an adequate remedy. On April 21, 2020, the Fulton County Superior Court granted Georgia Power's motion to dismiss the 2 appeals. The petitioners filed a notice of appeal of the dismissal on May 20, 2020, which was withdrawn on August 20, 2020. This matter is now concluded.
The Georgia PSC has approved 22 VCM reports covering the periods through December 31, 2019, including total construction capital costs incurred through that date of $7.4 billion (before $1.7 billion of payments received under the Guarantee Settlement Agreement and approximately $188 million in related customer refunds). Georgia Power filed its twenty-third VCM report with the Georgia PSC on August 31, 2020, which reflects the capital cost forecast discussed above and requests approval of $701 million of construction capital costs incurred from January 1, 2020 through June 30, 2020.
The ultimate outcome of these matters cannot be determined at this time.
Mississippi Power
2019 Base Rate Case
On March 17, 2020, the Mississippi PSC approved a settlement agreement between Mississippi Power and the Mississippi Public Utilities Staff related to Mississippi Power's base rate case filed in November 2019 (Mississippi Power Rate Case Settlement Agreement).
Under the terms of the Mississippi Power Rate Case Settlement Agreement, annual retail rates decreasedPEP filing for 2021, resulting in an annual increase in revenues of approximately $16.7$16 million, or 1.85%1.8%, which became effective forwith the first billing cycle of April 2020, based on a test year period of January 1, 2020 through December 31, 2020, a 53% average equity ratio, an allowed maximum actual equity ratio of 55% by the end of 2020, and a 7.57% return on investment.
Additionally, the approved Mississippi Power Rate Case Settlement Agreement: (i) established common amortization periods of four years for regulatory assets and three years for regulatory liabilities included2021 in the approved revenue requirement, including those related to unprotected deferred income taxes; (ii) established new depreciation rates reflecting an annual increase in depreciation of approximately $10 million; and (iii) excluded certain compensation costs totaling approximately $3.9 million. It also eliminated separate rates for costs associated with Plant Ratcliffe and energy efficiency initiatives and includes such costs in the PEP, ECO Plan, and ad valorem tax adjustment factor, as applicable. In accordance with the previous order of the Mississippi PSC suspending the operation of PEP and the ECO Plan for 2018 through 2020, Mississippi Power plans to resume PEP proceedings and ECO Plan filings for 2021.rate schedule.
Performance Evaluation Plan
On July 24, 2020,June 8, 2021, the Mississippi PSC approved Mississippi Power's July 14, 2020annual retail PEP filing for 2021, resulting in an annual increase in revenues of its PEP compliance rate clause reflecting revisions agreed toapproximately $16 million, or 1.8%, which became effective with the first billing cycle of April 2021 in accordance with the Mississippi Power Rate Case Settlement Agreement. These revisions include, among other things, changing the filing date for the annual PEP rate filing from November of the immediately preceding year to March of the current year, utilizing a historic test year adjusted for "known and measurable" changes, using discounted cash flow and regression formulas to determine base return on equity, and moving all embedded ad valorem property taxes currently collected in PEP to the ad valorem tax adjustment clause.schedule.
Deferral of Incremental COVID-19 CostsIntegrated Resource Plan
On April 14,In December 2020, and May 12, 2020, in order to mitigate the economic impact of the COVID-19 pandemic on customers, the Mississippi PSC approved orders directingissued an order in the Reserve Margin Plan docket requiring Mississippi Power to continueincorporate into its previous, voluntary suspension2021 IRP a schedule reflecting the retirement of customer disconnections through May 26, 2020 and to defer as a regulatory asset all necessary and reasonable incremental costs or expenses to plan, prepare, stage, or react to protect and keep safe its employees and customers, and to reliably operate its utility system during the COVID-19 pandemic. The period over which such costs will be recovered is expected to be determined in a future PEP filing. At September 30, 2020, the incremental costs deferred totaled approximately $2 million. The ultimate outcome950 MWs of this matter cannot be determined at this time.fossil-steam generation
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Municipal and Rural Associations Tariff
On June 25, 2020, the FERC accepted Mississippi Power's April 27, 2020 request for an increase in wholesale base revenues under the MRA tariff as agreed upon in a settlement agreement reached with its wholesale customers. The MRA settlement agreement resulted in a $2 million annual increase in base rates effective June 1, 2020.
Southern Company Gas
Rate Proceedings
On June 1, 2020, Virginia Natural Gas filed a general rate case with the Virginia Commission seeking an increase in rates of$49.6 million primarily to recover investments and increased costs associated with infrastructure, technology, and workforce development. The requested increase is based on a projected 12-month test year beginning November 1, 2020, a ROE of 10.35%, and an equity ratio of 54%. Rate adjustments are expected to be effective November 1, 2020, subject to refund. The Virginia Commission is expected to rule on the requested increase in the second quarter 2021.
On July 1, 2020, Atlanta Gas Light filed its 2020 GRAM filing with the Georgia PSC. The filing requests an annual base rate increase of $37.6 million based on the projected 12-month period beginning January 1, 2021, which does not exceed the 5% limitation established by the Georgia PSC in its December 2019 approval of Atlanta Gas Light's general base rate case. Resolution of the 2020 GRAM filing is expected by December 31, 2020, with rates effective January 1, 2021.
The ultimate outcome of these matters cannot be determined at this time.
Deferral of Incremental COVID-19 Costs
Atlanta Gas Light
On April 30, 2020, in response to the COVID-19 pandemic, the Georgia PSC approved orders directing Atlanta Gas Light to continue its previous, voluntary suspension of customer disconnections. On June 22, 2020, the Georgia PSC ordered Atlanta Gas Light to resume customer disconnections beginning July 1, 2020, with exceptions for customers still covered by a shelter-in-place order. The orders provide the Marketers, including SouthStar, with a mechanism to receive credits from Atlanta Gas Light for the base rates it charged to the Marketers of non-paying customers during the suspension. Atlanta Gas Light expects to recover these credits through the annual revenue true-up process within its future GRAM filings, which would impact rates starting on January 1, 2022. The ultimate outcome of this matter cannot be determined at this time.
Nicor Gas
On March 18, 2020, in response to the COVID-19 pandemic, the Illinois Commission issued an order directing utilities to cease disconnections for non-payment and to suspend the imposition of late payment fees or penalties. In response to this order, on March 27, 2020, Nicor Gas and other utilities in Illinois filed their plans seeking cost recovery and providing more flexible credit and collection plans.
On June 18, 2020, the Illinois Commission approved a stipulation pursuant to which the utilities will provide more flexible credit and collection procedures to assist customers with financial hardship and which authorizes a special purpose rider for recovery of the following COVID-19 pandemic-related impacts: incremental costs directly associated with the COVID-19 pandemic, net of the offset for COVID-19 pandemic-related credits received, foregone late fees, foregone reconnection charges, and the costs associated with a bill payment assistance program. Nicor Gas resumed late payment fees on July 27, 2020 and, on October 1, 2020, began recovery of the COVID-19 pandemic-related impacts through the special purpose rider, which will continue over a 24-month period. In response to an Illinois Commission request, Nicor Gas will continue to voluntarily suspend residential customer disconnections for non-payment through March 31, 2021. At September 30, 2020, Nicor Gas' related regulatory asset was $13 million.
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Virginia Natural Gas
In responseby year-end 2027 to the COVID-19 pandemic, the Virginia Commission issued orders requiring Virginia Natural Gas to suspend disconnections beginning on March 16, 2020 and also to suspend late payment and reconnection fees beginning on April 9, 2020, both of which expired on October 5, 2020.reduce Mississippi Power's excess reserve margin. On April 29, 2020, the Virginia Commission authorized Virginia Natural Gas to defer the following COVID-19 pandemic-related costs as a regulatory asset: incremental uncollectible expense incurred, suspended late fees, suspended reconnection charges, carrying costs, and other incremental prudently incurred costs associated15, 2021, Mississippi Power filed its 2021 IRP with the COVID-19 pandemic. Specific recoveryMississippi PSC. The filing includes a schedule to retire Plant Watson Unit 4 (268 MWs) and Mississippi Power's 40% ownership interest in Plant Greene County Units 1 and 2 (103 MWs each) in December 2023, 2025, and 2026, respectively, consistent with each unit's remaining useful life in the most recent approved depreciation studies. In addition, the schedule reflects the early retirement of Mississippi Power's 50% undivided ownership interest in Plant Daniel Units 1 and 2 (502 MWs) by the amounts deferred inend of 2027. The Plant Greene County unit retirements require the completion by Alabama Power of transmission and system reliability improvements, as well as agreement by Alabama Power.
The remaining net book value of Plant Daniel Units 1 and 2 was approximately $522 million at June 30, 2021. Mississippi Power expects to reclassify the net book value remaining at retirement to a regulatory asset to be amortized over a period to be determined by the Mississippi PSC in future proceedings, consistent with the December 2020 order. The Plant Watson and Greene County units are expected to be fully depreciated upon retirement.
The 2021 IRP is subject to a review period during which the Mississippi PSC may note any deficiencies which could require re-evaluation or resubmission of the IRP. If no deficiencies are noted, the Mississippi PSC's review will be addressed in a future rate proceeding. At September 30, 2020, Virginia Natural Gas' related regulatory asset was $1 million. conclude on August 13, 2021.
The ultimate outcome of this matter cannot be determined at this time.
Environmental Compliance Overview Plan
On June 8, 2021, the Mississippi PSC approved Mississippi Power's ECO Plan filing for 2021, resulting in an annual decrease in revenues of approximately $9 million, primarily due to a change in the amortization periods of certain regulatory assets and liabilities. The rate decrease became effective with the first billing cycle of July 2021.
Ad Valorem Tax Adjustment
On April 6, 2021, the Mississippi PSC approved Mississippi Power's annual ad valorem tax adjustment filing for 2021, which requested an annual increase in revenues of approximately $28 million, including approximately $19 million of ad valorem taxes previously recovered through PEP in accordance with the Mississippi Power Rate Case Settlement Agreement. The rate increase became effective with the first billing cycle of May 2021.
Southern Company Gas
Infrastructure Replacement Programs and Capital Projects
In December 2019, Capital expenditures incurred under specific infrastructure replacement programs during the first six months of 2021 were as follows:
| | | | | | | | |
Utility | Program | Six Months Ended June 30, 2021 |
| | (in millions) |
Nicor Gas | Investing in Illinois | $ | 179 | |
Virginia Natural Gas | Steps to Advance Virginia's Energy | 22 | |
Total | | $ | 201 | |
Atlanta Gas Light
On April 28, 2021, Atlanta Gas Light filed an applicationits first Integrated Capacity and Delivery Plan (i-CDP) with the Virginia CommissionGeorgia PSC, which includes a series of ongoing and proposed pipeline safety, reliability, and growth programs for a 24.1-mile header improvement projectthe next 10 years (2022 through 2031), as well as the required capital investments and related costs to improve resiliency and increaseimplement the supplyprograms. The i-CDP reflects capital investments totaling approximately $0.5 billion to $0.6 billion annually.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Recovery of the project's primary customer before rulingrelated revenue requirements will be included in either subsequent annual GRAM filings or the new System Reinforcement Rider for authorized large pressure improvement and system reliability projects. The Georgia PSC is scheduled to vote on the December 2019 application.this matter in November 2021. The ultimate outcome of this matter cannot be determined at this time.
Virginia Natural Gas
On April 6, 2021, the Virginia Commission approved a motion filed by Virginia Natural Gas to withdraw the application for its 9.5-mile interconnect project due to a change in the capacity needs of one of the project's customers. No further action is necessary and this matter is now concluded.
Rate Proceedings
Virginia Natural Gas
On May 10, 2021, Virginia Natural Gas, the Virginia Commission staff, and other intervenors entered into a stipulation agreement related to Virginia Natural Gas' June 2020 general rate case filing, which allows for a $43 million increase in annual base rate revenues, including $14 million related to the recovery of investments under the SAVE program, based on a ROE of 9.5% and an equity ratio of 51.9%. On July 8, 2021, the hearing examiner issued a report recommending adoption of the stipulation agreement. The Virginia Commission is expected to rule on this matter by September 2021. Interim rate adjustments became effective as of November 1, 2020, subject to refund, based on Virginia Natural Gas' original request for an increase of approximately $50 million. The ultimate outcome of this matter cannot be determined at this time.
Atlanta Gas Light
On July 21, 2021, Atlanta Gas Light filed its annual GRAM filing with the Georgia PSC. The filing requests an annual base rate increase of $49 million based on the projected 12-month period beginning January 1, 2022. The proposed rate increase may be updated pending the resolution of Atlanta Gas Light's i-CDP filing. Resolution of the GRAM filing is expected by December 31, 2021, with the new rates to become effective January 1, 2022. The ultimate outcome of this matter cannot be determined at this time. See "Infrastructure Replacement Programs and Capital Projects – Atlanta Gas Light" herein for additional information.
Deferral of Incremental COVID-19 Costs
Nicor Gas
On March 18, 2021, the Illinois Commission approved a phased-in schedule for disconnections related to non-payment. Nicor Gas began certain disconnections in late April 2021 and resumed normal disconnections in June 2021. Nicor Gas will continue certain flexible credit and collection procedures through the third quarter 2021.
(C) CONTINGENCIES
See Note 3 to the financial statements in Item 8 of the Form 10-K for information relating to various lawsuits and other contingencies.
General Litigation Matters
The Registrants are involved in various other matters being litigated and regulatory matters. The ultimate outcome of such pending or potential litigation or regulatory matters against each Registrant and any subsidiaries cannot be determined at this time; however, for current proceedings not specifically reported herein, management does not anticipate that the ultimate liabilities, if any, arising from such current proceedings would have a material effect on such Registrant's financial statements.
The Registrants believe the pending legal challenges discussed below have no merit; however, the ultimate outcome of these matters cannot be determined at this time.
Southern Company
In January 2017, a securities class action complaint was filed in the U.S. District Court for the Northern District of Georgia by Monroe County Employees' Retirement System on behalf of all persons who purchased shares of Southern Company's common stock between April 25, 2012 and October 29, 2013. The complaint names as defendants Southern Company, certain of its current and former officers, and certain former Mississippi Power officers and alleges that the defendants made materially false and misleading statements regarding the Kemper County energy facility in violation of certain provisions under the Securities Exchange Act of 1934, as amended. The complaint seeks, among other things, compensatory damages and litigation costs and attorneys' fees. In 2017, the plaintiffs filed an amended complaint that provided additional detail about their claims, increased the purported class period by one day, and added certain other former Mississippi Power officers as defendants. Also in 2017, the defendants filed a motion to dismiss the plaintiffs' amended complaint with prejudice, to which the plaintiffs filed an opposition. In 2018, the court issued an order dismissing certain claims against certain officers of Southern Company and Mississippi Power and dismissing the allegations related to a number of the statements that plaintiffs challenged as being false or misleading. In 2018, the court denied the defendants' motion for reconsideration and also denied a motion to certify the issue for interlocutory appeal. In the third quarter 2019, the court certified the plaintiffs' proposed class and the defendants filed a petition for interlocutory appeal of the class certification order with the U.S. Court of Appeals for the Eleventh Circuit. In December 2019, the U.S. District Court for the Northern
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
District of Georgia entered an order staying all deadlines in the case pending mediation. The stay automatically expired on March 31, 2020; however, in light of the COVID-19 pandemic, the U.S. District Court for the Northern District of Georgia vacated all existing discovery deadlines until June 15, 2020. On June 30, 2020, the court entered a revised scheduling order, which resumed discovery and set out remaining case deadlines. On August 15, 2020, the parties reached a settlement. On September 8, 2020, the plaintiffs filed a stipulation of settlement and motion for preliminary approval to resolve the case on a class-wide basis, which the court granted on October 1, 2020. The settlement amount will be paid entirely through existing insurance policies and is not expected to have a material impact on Southern Company's financial statements.Company
In February 2017, Jean Vineyard and Judy Mesirov each filed a shareholder derivative lawsuit in the U.S. District Court for the Northern District of Georgia. Each of these lawsuits names as defendants Southern Company, certain of its directors, certain of its current and former officers, and certain former Mississippi Power officers. In 2017, these 2 shareholder derivative lawsuits were consolidated in the U.S. District Court for the Northern District of Georgia. The complaints allege that the defendants caused Southern Company to make false or misleading statements regarding the Kemper County energy facility cost and schedule. Further, the complaints allege that the defendants were unjustly enriched and caused the waste of corporate assets and also allege that the individual defendants violated their fiduciary duties. Each plaintiff seeks to recover, on behalf of Southern Company, unspecified actual damages and, on each plaintiff's own behalf, attorneys' fees and costs in bringing the lawsuit. Each plaintiff also seeks certain changes to Southern Company's corporate governance and internal processes. In 2018, the court entered an order staying this lawsuit until 30 days after the resolution of any dispositive motions or any settlement, whichever is earlier, in the securities class action. On September 25, 2020, the plaintiffs filed a status report noting the settlement of the securities class action and informing the court that the parties have scheduled mediation of this case later in the fourth quarter 2020.
In May 2017, Helen E. Piper Survivor's Trust filed a shareholder derivative lawsuit in the Superior Court of Gwinnett County, Georgia that names as defendants Southern Company, certain of its directors, certain of its current and former officers, and certain former Mississippi Power officers. The complaint alleges that the individual defendants, among other things, breached their fiduciary duties in connection with schedule delays and cost overruns associated with the construction of the Kemper County energy facility. The complaint further alleges that the individual defendants authorized or failed to correct false and misleading statements regarding the Kemper County energy facility schedule and cost and failed to implement necessary internal controls to prevent harm to Southern Company. The plaintiff seeks to recover, on behalf of Southern Company, unspecified actual damages and disgorgement of profits and, on its behalf, attorneys' fees and costs in bringing the lawsuit. The plaintiff also seeks certain unspecified changes to Southern Company's corporate governance and internal processes. In 2018, the court entered an order staying this lawsuit until 30 days after the resolution of any dispositive motions or any settlement, whichever is earlier, in the securities class action. In August 2019, the court granted a motion filed by the plaintiff in July 2019 to substitute a new named plaintiff, Martin J. Kobuck, in place of Helen E. Piper Survivor's Trust. On
The plaintiffs in each of these cases seek to recover, on behalf of Southern Company, unspecified actual damages and, on each plaintiff's own behalf, attorneys' fees and costs in bringing the lawsuit. The plaintiffs also seek certain changes to Southern Company's corporate governance and internal processes. In 2018, the court in each case entered an order staying each lawsuit until 30 days after the settlement of a securities class action filed in January 2017 against Southern Company, certain of its current and former officers, and certain former Mississippi Power officers. In September 30, 2020, the plaintiffs in each case filed a status report noting the settlement of the securities class action and informing the court that the parties havehad scheduled mediation, of thiswhich occurred in November 2020. The parties in each case later indid not reach settlement but continue to explore possible resolution. Each case is stayed while the fourth quarter 2020.parties discuss potential resolution.
Georgia Power
In 2011, plaintiffs filed a putative class action against Georgia Power in the Superior Court of Fulton County, Georgia alleging that Georgia Power's collection in rates of amounts for municipal franchise fees (which fees are paid to municipalities) exceeded the amounts allowed in orders of the Georgia PSC and alleging certain state law claims. This case has been ruled upon and appealed numerous times over the last several years. In one recent appeal, the Georgia Supreme Court remanded the case and noted that the trial court could refer the matter to the Georgia PSC to interpret its tariffs. Following a motion by Georgia Power, in February 2019, the Superior Court of Fulton County ordered the parties to submit petitions to the Georgia PSC for a declaratory ruling and also conditionally certified the proposed class. In March 2019, Georgia Power and the plaintiffs filed petitions with the Georgia PSC seeking confirmation of the proper application of the municipal franchise fee schedule pursuant to the Georgia PSC's orders. Also in March 2019, Georgia Power appealed the class certification decision to the Georgia Court of Appeals. In October 2019, the Georgia PSC issued an order that found Georgia Power has appropriately implemented the municipal franchise fee schedule. In March 2020, the Georgia Court of Appeals vacated the Superior Court of Fulton County's February 2019 order granting conditional class certification and remanded the case to the Superior Court of Fulton County for further proceedings. In September 2020, the plaintiffs and Georgia Power each filed motions for summary judgment and the plaintiffs renewed their motion for class certification. On March 16, 2021, the Superior Court of Fulton County granted class certification and Georgia Power's motion for summary judgment. On March 22, 2021, the plaintiffs filed a notice of appeal, and, on April 2, 2021, Georgia Power filed a notice of cross appeal on the issue of class certification. The amount of any possible losses cannot be estimated at this time because, among other factors, it is unknown whether any losses would be subject to recovery from any municipalities.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Appeals. In October 2019, the Georgia PSC issued an order that found Georgia Power has appropriately implemented the municipal franchise fee schedule. On March 11, 2020, the Georgia Court of Appeals vacated the Superior Court of Fulton County's February 2019 order granting conditional class certification. The Court of Appeals remanded the case to the Superior Court of Fulton County for further proceedings. In September 2020, the plaintiffs and Georgia Power each filed motions for summary judgment on all claims and the plaintiffs renewed their motion for class certification. The amount of any possible losses cannot be calculated at this time because, among other factors, it is unknown whether a class will be certified, the ultimate composition of any class, and whether any losses would be subject to recovery from any municipalities.
On July 29, 2020, a group of individual plaintiffs filed a complaint in the Superior Court of Fulton County, Georgia against Georgia Power alleging that releases from Plant Scherer have impacted groundwater, surface water, and air, resulting in alleged personal injuries and property damage. The plaintiffs seek an unspecified amount of monetary damages including punitive damages, a medical monitoring fund, and injunctive relief. In September 2020, Georgia Power filed a motion to dismiss. The amount of any possible losses cannot be estimated at this time.
Mississippi Power
In May 2018, Southern Company and Mississippi Power received a notice of dispute and arbitration demand filed by Martin Product Sales, LLC (Martin) based on 2 agreements, both related to Kemper IGCC byproducts for which Mississippi Power provided termination notices in 2017. Martin alleges breach of contract, breach of good faith and fair dealing, fraud and misrepresentation, and civil conspiracy and makes a claim for damages in the amount of approximately $143 million, as well as additional unspecified damages, attorney's fees, costs, and interest. A portion of the claim for damages was on behalf of Martin Transport, Inc. (Martin Transport), an affiliate of Martin. In May 2019, the arbitration panel denied Mississippi Power's and Southern Company's motions to dismiss. In September 2019, Martin Transport filed a separate complaint against Mississippi Power in the Circuit Court of Kemper County, Mississippi alleging claims of fraud, negligent misrepresentation, promissory estoppel, and equitable estoppel, each arising out of the same alleged facts and circumstances that underlie Martin's arbitration demand. Martin Transport seeks compensatory damages of $5 million and punitive damages of $50 million. In November 2019, Martin Transport's claim was combined with the Martin arbitration case and the separate court case was dismissed. In December 2019, Southern Company and Mississippi Power each filed motions for summary judgment on all claims. On February 17, 2020, the arbitration panel granted Southern Company's motion and dismissed Southern Company from the arbitration. On March 12, 2020, the arbitration panel denied Mississippi Power's motions for summary judgment. During the third quarter 2020, the plaintiffs reduced their claim for damages to approximately $76 million. On October 12, 2020, the arbitration panel issued a unanimous award in favor of Mississippi Power on all claims. This matter is now concluded.
In November 2018, Ray C. Turnage and 10 other individual plaintiffs filed a putative class action complaint against Mississippi Power and the 3 then-serving members of the Mississippi PSC in the U.S. District Court for the Southern District of Mississippi. Mississippi Power received Mississippi PSC approval in 2013 to charge a mirror CWIP rate premised upon including in its rate base pre-construction and construction costs for the Kemper IGCC prior to placing the Kemper IGCC into service. The Mississippi Supreme Court reversed that approval and ordered Mississippi Power to refund the amounts paid by customers under the previously-approved mirror CWIP rate. The plaintiffs allege that the initial approval process, and the amount approved, were improper. They also allege that Mississippi Power underpaid customers by up to $23.5 million in the refund process by applying an incorrect interest rate. The plaintiffs seek to recover, on behalf of themselves and their putative class, actual damages, punitive damages, pre-judgment interest, post-judgment interest, attorney's fees, and costs. In response to Mississippi Power and the Mississippi PSC each filing a motion to dismiss, the plaintiffs filed an amended complaint in March 2019. The amended complaint included 4 additional plaintiffs and additional claims for gross negligence, reckless conduct, and intentional wrongdoing. Mississippi Power and the Mississippi PSC have each filed a motion to dismiss the amended complaint. Oncomplaint, which occurred in May 2020 and March 27, 2020, the Mississippi PSC's motion to dismiss was granted.respectively. Also onin March 27, 2020, the plaintiffs filed a motion seeking to name the new members of the Mississippi PSC, the Mississippi Development Authority, and Southern Company as additional defendants and add a cause of action against all defendants based on a dormant commerce clause theory under the U.S. Constitution. On April 9, 2020 and April 10, 2020, Mississippi Power and the Mississippi PSC, respectively, filed responses opposing the
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
motion for leave to file a second amended complaint. On May 26, 2020, the court granted Mississippi Power's motion to dismiss the first amended complaint filed in 2019. OnIn July 6, 2020, the plaintiffs filed a motion for revision of the court's decision. The plaintiffs' motion for leave to file a second amended complaint also remains pending before the court. On July 28, 2020, the plaintiffs filed a motion for leave to file a third amended complaint, which includesincluded the same federal claims as the proposed second amended complaint, as well as several additional state law claims based on the allegation that Mississippi Power failed to disclose the annual percentage rate of interest applicable to refunds. In November 2020, the court denied each of the plaintiffs' pending motions and entered final judgment in favor of Mississippi Power. On January 22, 2021, the court denied further motions by the plaintiffs to vacate the judgment and to file a revised second amended complaint. On February 19, 2021, the plaintiffs filed a notice of appeal with the U.S. Court of Appeals for the Fifth Circuit. An adverse outcome in this proceeding could have a material impact on Mississippi Power's financial statements.
See Note 23 to the financial statements under "Mississippi"Other Matters – Mississippi Power – Kemper County Energy Facility" in Item 8 of the Form 10-K for additional information.
Environmental Remediation
The Southern Company system must comply with environmental laws and regulations governing the handling and disposal of waste and releases of hazardous substances. Under these various laws and regulations, the Southern Company system could incur substantial costs to clean up affected sites. The traditional electric operating companies and the natural gas distribution utilities in Illinois and Georgia have each received authority from their respective state PSCs or other applicable state regulatory agencies to recover approved environmental complianceremediation costs through regulatory mechanisms. These regulatory mechanisms are adjusted annually or as necessary within limits approved by the state PSCs or other applicable state regulatory agencies.
Georgia Power's environmental remediation liability was $15 million at both SeptemberJune 30, 20202021 and December 31, 2019.2020. Georgia Power has been designated or identified as a potentially responsible party at sites governed by the Georgia Hazardous Site Response Act and/or by the federal Comprehensive Environmental Response, Compensation, and Liability Act, and assessment and potential cleanup of such sites is expected.
In December 2019, Mississippi Power entered into an agreement with the Mississippi Commission on Environmental Quality related
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Southern Company Gas' environmental remediation liability was $252$247 million and $269$245 million as of Septemberat June 30, 20202021 and December 31, 2019,2020, respectively, based on the estimated cost of environmental investigation and remediation associated with known current and former manufactured gas plant operating sites. These environmental remediation expenditures are generally recoverable from customers through rate mechanisms approved by the applicable state regulatory agencies of the natural gas distribution utilities.
The ultimate outcome of these matters cannot be determined at this time; however, as a result of the regulatory treatment for environmental remediation expenses described above, the final disposition of these matters is not expected to have a material impact on the financial statements of the applicable Registrants.
Nuclear Fuel Disposal Costs
On August 13, 2020, Alabama Power and Georgia Power filed amended complaints in each of the lawsuits against the U.S. government in the Court of Federal Claims for the costs of continuing to store spent nuclear fuel at Plants Farley, Hatch, and Vogtle Units 1 and 2. The amended complaints add damages from January 1, 2018 to December 31, 2019 to the claim period. Damages will continue to accumulate until the issue is resolved, the U.S. government disposes of Alabama Power's and Georgia Power's spent nuclear fuel pursuant to its contractual obligations, or alternative storage is otherwise provided. No amounts have been recognized in the financial statements as of September 30, 2020 for any potential recoveries from the pending lawsuits. The final outcome of these matters cannot be determined at this time. However, Alabama Power and Georgia Power expect to credit any recoveries for
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
the benefit of customers in accordance with direction from their respective PSC; therefore, no material impact on Southern Company's, Alabama Power's, or Georgia Power's net income is expected.
Other Matters
Southern Company
See Notes 1 and 3 under "Leveraged Leases" and "Other Matters – Southern Company," respectively, in Item 8 of the Form 10-K for discussion of challenges associated with a leveraged lease agreement with a subsidiary of Southern Holdings. While all required lease payments through September 30, 2020 have been paid in full, the operational and remarketing risks and the resulting cash liquidity challenges persist and significant concerns continue regarding the lessee's ability to make the remaining required semi-annual lease payments to the Southern Holdings subsidiary through the term of the lease.
In its annual impairment analysis of the expected residual value of the generation assets and the overall collectability of the related lease receivable, Southern Company uses multiple scenarios of long-term market energy prices to estimate the cash flows expected to be received from remarketing the generation assets following the expiration of the existing PPA in 2032 and the residual value of the generation assets at the end of the lease in 2047. Southern Company received the latest annual forecasts of natural gas prices during the second quarter 2020 and considered the significant decline in forecasted prices to be an indicator of potential impairment that required an interim impairment assessment. Accordingly, consistent with prior years, Southern Company evaluated the recoverability of the lease receivable and the expected residual value of the generation assets under various natural gas price scenarios. Based on the current forecasts of energy prices in the years following the expiration of the existing PPA, Southern Company concluded that it is no longer probable that any of the associated rental payments will be received, because it is no longer probable the generation assets will be successfully remarketed and continue to operate after that date. During the second quarter 2020, Southern Company revised the estimated cash flows to be received under the leveraged lease to reflect this conclusion, which resulted in a full impairment of the lease investment and a pre-tax charge to earnings of $154 million ($74 million after tax).
If any future lease payment due prior to the expiration of the associated PPA is not paid in full, the Southern Holdings subsidiary may be unable to make its corresponding payment to the holders of the underlying non-recourse debt related to the generation assets. Failure to make the required payment to the debtholders could represent an event of default that would give the debtholders the right to foreclose on, and take ownership of, the generation assets, in effect terminating the lease. As the remaining amount of the lease investment was charged against earnings in the second quarter 2020, termination would not be expected to result in additional charges. Southern Company will continue to monitor the operational performance of the underlying assets and evaluate the ability of the lessee to continue to make the required lease payments and meet its obligations associated with a future closure or retirement of the generation assets and associated properties, including the dry ash landfill.
Mississippi Power
Kemper County Energy Facility
See Note 2 to the financial statements under "Mississippi Power – Kemper County Energy Facility" in Item 8 of the Form 10-K for additional information.
As the mining permit holder, Liberty Fuels Company, LLC has a legal obligation to perform mine reclamation and Mississippi Power has a contractual obligation to fund all reclamation activities related to the lignite mine and equipment and mineral reserves located around the Kemper County energy facility site. As a result of the abandonment of the Kemper IGCC, final mine reclamation began in 2018 and is expected to be substantially completed in 2020, with monitoring expected to continue through 2027. See Note 6 to the financial statements in Item 8 of the Form 10-K for additional information.
For year-to-date 2020, Mississippi Power recorded pre-tax (and after-tax) charges to income totaling $2 million primarily associated with abandonment and related closure costs and ongoing period costs, net of salvage proceeds,
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
for the mine and gasifier-related assets at the Kemper County energy facility. Dismantlement of the abandoned gasifier-related assets and site restoration activities are expected to be completed in 2025. The additional pre-tax period costs associated with dismantlement and site restoration activities, including related costs for compliance and safety, ARO accretion, and property taxes, net of salvage, are estimated to total $3 million for the remainder of 2020 and $10 million to $15 million annually for 2021 through 2025.
In December 2019, Mississippi Power transferred ownership of the CO2 pipeline to an unrelated gas pipeline company, with no resulting impact on income. In conjunction with the transfer of the CO2 pipeline, the parties agreed to enter into a 15-year firm transportation agreement, which is expected to be signed by the end of 2020, providing for the conversion by the pipeline company of the CO2 pipeline to a natural gas pipeline to be used for the delivery of natural gas to Plant Ratcliffe. The agreement is expected to be treated as a finance lease for accounting purposes upon commencement.
On September 3, 2020, Mississippi Power and Southern Company executed an agreement with the DOE completing Mississippi Power's request for property closeout certification under the contract related to the DOE grants received for the Kemper County energy facility, which enables Mississippi Power to proceed with full dismantlement of the abandoned gasifier-related assets and site restoration activities. The execution of the agreement had no material impact on Mississippi Power's financial statements. In connection with the DOE closeout discussions, in April 2019, the Civil Division of the Department of Justice informed Southern Company and Mississippi Power of an investigation related to the $387 million of DOE grants received. The ultimate outcome of this matter cannot be determined at this time; however, it could have a material impact on Southern Company's and Mississippi Power's financial statements.
Plant Daniel
In conjunction with Southern Company's sale of Gulf Power, Mississippi Power and Gulf Power agreed to seek a restructuring of their 50% undivided ownership interests in Plant Daniel such that each of them would, after the restructuring, own 100% of a generating unit. On April 24, 2020, Mississippi Power and Gulf Power amended the terms of the agreement to extend the deadline from May 1, 2020 to August 1, 2020 for Mississippi Power to notify Gulf Power of which generating unit it has selected for 100% ownership. The parties agreed not to select a specific unit by August 1, 2020 and are continuing negotiations on a mutually acceptable revised operating agreement. The impacts of operating the units on an individual basis continue to be evaluated by Mississippi Power and any transfer of ownership would be subject to approval by the FERC and the Mississippi PSC. The ultimate outcome of this matter cannot be determined at this time.
Southern Company Gas
See Notes 3PennEast Pipeline Project
Work continues with state and 7federal agencies to obtain the financial statements in Item 8required permits to begin construction of the Form 10-K under "Other Matters – Southern Company Gas" and "Southern Company Gas," respectively, and Note (E) under "Southern Company Gas" for additional information.
PennEast Pipeline. On March 24, 2020, Southern Company Gas completedJune 29, 2021, the saleU.S. Supreme Court ruled in favor of its interest in Atlantic Coast Pipeline. See Note (K) under "Southern Company Gas" for additional information.
On February 20, 2020, the FERC approved a two-year extension for PennEast Pipeline to complete the project by January 19, 2022.
In September 2019, an appellate court ruled that the PennEast Pipeline does not haveregarding its federal eminent domain authority over lands in which a state has property rights interests. On June 29, 2020,
Southern Company Gas tests its equity method investments for impairment whenever events or changes in circumstances indicate that the investment may be impaired. Following the U.S. Supreme Court requestedruling, during the U.S. Solicitor General to provide an opinion on PennEast Pipeline's petition for a writ of certiorari seeking its review of the appellate court's decision.
Expected project costs related to the PennEast Pipeline forsecond quarter 2021, Southern Company Gas total approximately $300management reassessed the project construction timing, including the anticipated timing for receipt of the FERC certificate and all remaining state and local permits for both Phase 1 (the construction of 68 miles of pipe entirely within Pennsylvania) and Phase 2 (the construction of the remaining 50 miles in Pennsylvania and New Jersey), as well as potential challenges thereto, and performed an impairment analysis. The outcome of the analysis resulted in a pre-tax impairment charge of $82 million excluding financing costs.($58 million after tax). The ultimate outcome of the PennEast Pipeline construction project cannot be determined at this time; however, any work delays, whether caused by judicial or regulatory action, abnormal weather, or other conditions, may resulttime. See Note (E) under "Southern Company Gas" for additional information.
SNG
As a 50% equity investor in additional cost or schedule modifications or, ultimately, in project
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
cancellation, any of which could result in impairment ofSNG, Southern Company Gas' investment and could have a significant impact on Southern Company's financial statements and a material impact onGas is required to make additional capital contributions as necessary pursuant to the terms of its operating agreement with SNG. Southern Company Gas' financial statements.Gas previously committed to fund up to $150 million as a contingent capital contribution if SNG was unable to refinance or otherwise satisfy $300 million of debt maturing in June 2021. On April 29, 2021, SNG successfully refinanced the debt obligation. See Note (E) under "Southern Company Gas" for additional information.
(D) REVENUE FROM CONTRACTS WITH CUSTOMERS AND LEASE INCOME
Revenue from Contracts with Customers
The Registrants generate revenues from a variety of sources, some of which are not accounted for as revenue from contracts with customers, such as leases, derivatives, and certain cost recovery mechanisms. See Note 1 to the financial statements under "Revenues" in Item 8 of the Form 10-K for additional information on the revenue policies of the Registrants. See "Lease Income" herein and Note (J) for additional information on revenue accounted for under lease and derivative accounting guidance, respectively.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The following table disaggregates revenue from contracts with customers for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019:2020:
| | | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas | | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas |
| | (in millions) | | (in millions) |
Three Months Ended September 30, 2020 | | |
Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2021 | |
Operating revenues | Operating revenues | | Operating revenues | |
Retail electric revenues | Retail electric revenues | | Retail electric revenues | |
Residential | Residential | $ | 2,019 | | $ | 752 | | $ | 1,183 | | $ | 84 | | $ | 0 | | $ | 0 | | Residential | $ | 1,469 | | $ | 553 | | $ | 852 | | $ | 64 | | $ | 0 | | $ | 0 | |
Commercial | Commercial | 1,354 | | 447 | | 833 | | 74 | | 0 | | 0 | | Commercial | 1,176 | | 386 | | 724 | | 66 | | 0 | | 0 | |
Industrial | Industrial | 783 | | 358 | | 352 | | 73 | | 0 | | 0 | | Industrial | 728 | | 334 | | 321 | | 73 | | 0 | | 0 | |
Other | Other | 22 | | 5 | | 15 | | 2 | | 0 | | 0 | | Other | 23 | | 4 | | 17 | | 2 | | 0 | | 0 | |
Total retail electric revenues | Total retail electric revenues | 4,178 | | 1,562 | | 2,383 | | 233 | | 0 | | 0 | | Total retail electric revenues | 3,396 | | 1,277 | | 1,914 | | 205 | | 0 | | 0 | |
Natural gas distribution revenues | Natural gas distribution revenues | | Natural gas distribution revenues | |
Residential | Residential | 170 | | 0 | | 0 | | 0 | | 0 | | 170 | | Residential | 311 | | 0 | | 0 | | 0 | | 0 | | 311 | |
Commercial | Commercial | 41 | | 0 | | 0 | | 0 | | 0 | | 41 | | Commercial | 73 | | 0 | | 0 | | 0 | | 0 | | 73 | |
Transportation | Transportation | 224 | | 0 | | 0 | | 0 | | 0 | | 224 | | Transportation | 247 | | 0 | | 0 | | 0 | | 0 | | 247 | |
Industrial | Industrial | 4 | | 0 | | 0 | | 0 | | 0 | | 4 | | Industrial | 8 | | 0 | | 0 | | 0 | | 0 | | 8 | |
Other | Other | 35 | | 0 | | 0 | | 0 | | 0 | | 35 | | Other | 59 | | 0 | | 0 | | 0 | | 0 | | 59 | |
Total natural gas distribution revenues | Total natural gas distribution revenues | 474 | | 0 | | 0 | | 0 | | 0 | | 474 | | Total natural gas distribution revenues | 698 | | 0 | | 0 | | 0 | | 0 | | 698 | |
Wholesale electric revenues | Wholesale electric revenues | | Wholesale electric revenues | |
PPA energy revenues | PPA energy revenues | 214 | | 40 | | 13 | | 2 | | 165 | | 0 | | PPA energy revenues | 209 | | 38 | | 16 | | 2 | | 158 | | 0 | |
PPA capacity revenues | PPA capacity revenues | 136 | | 26 | | 15 | | 1 | | 95 | | 0 | | PPA capacity revenues | 118 | | 29 | | 14 | | 1 | | 75 | | 0 | |
Non-PPA revenues | Non-PPA revenues | 59 | | 10 | | 3 | | 93 | | 68 | | 0 | | Non-PPA revenues | 55 | | 25 | | 3 | | 75 | | 78 | | 0 | |
Total wholesale electric revenues | Total wholesale electric revenues | 409 | | 76 | | 31 | | 96 | | 328 | | 0 | | Total wholesale electric revenues | 382 | | 92 | | 33 | | 78 | | 311 | | 0 | |
Other natural gas revenues | Other natural gas revenues | | Other natural gas revenues | |
| Wholesale gas services | Wholesale gas services | 431 | | 0 | | 0 | | 0 | | 0 | | 431 | | Wholesale gas services | 578 | | 0 | | 0 | | 0 | | 0 | | 578 | |
Gas marketing services | Gas marketing services | 38 | | 0 | | 0 | | 0 | | 0 | | 38 | | Gas marketing services | 63 | | 0 | | 0 | | 0 | | 0 | | 63 | |
Other natural gas revenues | Other natural gas revenues | 7 | | 0 | | 0 | | 0 | | 0 | | 7 | | Other natural gas revenues | 10 | | 0 | | 0 | | 0 | | 0 | | 10 | |
Total natural gas revenues | Total natural gas revenues | 476 | | 0 | | 0 | | 0 | | 0 | | 476 | | Total natural gas revenues | 651 | | 0 | | 0 | | 0 | | 0 | | 651 | |
Other revenues | Other revenues | 218 | | 33 | | 115 | | 6 | | 4 | | 0 | | Other revenues | 295 | | 52 | | 137 | | 7 | | 5 | | 0 | |
Total revenue from contracts with customers | Total revenue from contracts with customers | 5,755 | | 1,671 | | 2,529 | | 335 | | 332 | | 950 | | Total revenue from contracts with customers | 5,422 | | 1,421 | | 2,084 | | 290 | | 316 | | 1,349 | |
Other revenue sources(a) | Other revenue sources(a) | 968 | | 58 | | 88 | | 1 | | 191 | | 630 | | Other revenue sources(a) | 1,179 | | 135 | | 141 | | 13 | | 174 | | 731 | |
Other adjustments(b) | Other adjustments(b) | (1,103) | | 0 | | 0 | | 0 | | 0 | | (1,103) | | Other adjustments(b) | (1,403) | | 0 | | 0 | | 0 | | 0 | | (1,403) | |
Total operating revenues | Total operating revenues | $ | 5,620 | | $ | 1,729 | | $ | 2,617 | | $ | 336 | | $ | 523 | | $ | 477 | | Total operating revenues | $ | 5,198 | | $ | 1,556 | | $ | 2,225 | | $ | 303 | | $ | 490 | | $ | 677 | |
|
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
| | | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas | | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas |
| | (in millions) | | (in millions) |
Nine Months Ended September 30, 2020 | | |
Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 | |
Operating revenues | Operating revenues | | Operating revenues | |
Retail electric revenues | Retail electric revenues | | Retail electric revenues | |
Residential | Residential | $ | 4,802 | | $ | 1,839 | | $ | 2,760 | | $ | 203 | | $ | 0 | | $ | 0 | | Residential | $ | 2,936 | | $ | 1,181 | | $ | 1,627 | | $ | 128 | | $ | 0 | | $ | 0 | |
Commercial | Commercial | 3,589 | | 1,152 | | 2,242 | | 195 | | 0 | | 0 | | Commercial | 2,294 | | 758 | | 1,410 | | 126 | | 0 | | 0 | |
Industrial | Industrial | 2,081 | | 956 | | 907 | | 218 | | 0 | | 0 | | Industrial | 1,397 | | 654 | | 606 | | 137 | | 0 | | 0 | |
Other | Other | 68 | | 16 | | 46 | | 6 | | 0 | | 0 | | Other | 47 | | 9 | | 34 | | 4 | | 0 | | 0 | |
Total retail electric revenues | Total retail electric revenues | 10,540 | | 3,963 | | 5,955 | | 622 | | 0 | | 0 | | Total retail electric revenues | 6,674 | | 2,602 | | 3,677 | | 395 | | 0 | | 0 | |
Natural gas distribution revenues | Natural gas distribution revenues | | Natural gas distribution revenues | |
Residential | Residential | 906 | | 0 | | 0 | | 0 | | 0 | | 906 | | Residential | 925 | | 0 | | 0 | | 0 | | 0 | | 925 | |
Commercial | Commercial | 229 | | 0 | | 0 | | 0 | | 0 | | 229 | | Commercial | 243 | | 0 | | 0 | | 0 | | 0 | | 243 | |
Transportation | Transportation | 723 | | 0 | | 0 | | 0 | | 0 | | 723 | | Transportation | 536 | | 0 | | 0 | | 0 | | 0 | | 536 | |
Industrial | Industrial | 21 | | 0 | | 0 | | 0 | | 0 | | 21 | | Industrial | 24 | | 0 | | 0 | | 0 | | 0 | | 24 | |
Other | Other | 179 | | 0 | | 0 | | 0 | | 0 | | 179 | | Other | 155 | | 0 | | 0 | | 0 | | 0 | | 155 | |
Total natural gas distribution revenues | Total natural gas distribution revenues | 2,058 | | 0 | | 0 | | 0 | | 0 | | 2,058 | | Total natural gas distribution revenues | 1,883 | | 0 | | 0 | | 0 | | 0 | | 1,883 | |
Wholesale electric revenues | Wholesale electric revenues | | Wholesale electric revenues | |
PPA energy revenues | PPA energy revenues | 550 | | 94 | | 38 | | 7 | | 425 | | 0 | | PPA energy revenues | 422 | | 81 | | 30 | | 7 | | 313 | | 0 | |
PPA capacity revenues | PPA capacity revenues | 339 | | 78 | | 30 | | 3 | | 231 | | 0 | | PPA capacity revenues | 237 | | 58 | | 27 | | 4 | | 150 | | 0 | |
Non-PPA revenues | Non-PPA revenues | 159 | | 33 | | 7 | | 235 | | 184 | | 0 | | Non-PPA revenues | 119 | | 57 | | 12 | | 162 | | 139 | | 0 | |
Total wholesale electric revenues | Total wholesale electric revenues | 1,048 | | 205 | | 75 | | 245 | | 840 | | 0 | | Total wholesale electric revenues | 778 | | 196 | | 69 | | 173 | | 602 | | 0 | |
Other natural gas revenues | Other natural gas revenues | | Other natural gas revenues | |
| Wholesale gas services | Wholesale gas services | 1,168 | | 0 | | 0 | | 0 | | 0 | | 1,168 | | Wholesale gas services | 2,168 | | 0 | | 0 | | 0 | | 0 | | 2,168 | |
Gas marketing services | Gas marketing services | 258 | | 0 | | 0 | | 0 | | 0 | | 258 | | Gas marketing services | 257 | | 0 | | 0 | | 0 | | 0 | | 257 | |
Other natural gas revenues | Other natural gas revenues | 22 | | 0 | | 0 | | 0 | | 0 | | 22 | | Other natural gas revenues | 17 | | 0 | | 0 | | 0 | | 0 | | 17 | |
Total natural gas revenues | Total natural gas revenues | 1,448 | | 0 | | 0 | | 0 | | 0 | | 1,448 | | Total natural gas revenues | 2,442 | | 0 | | 0 | | 0 | | 0 | | 2,442 | |
Other revenues | Other revenues | 677 | | 117 | | 329 | | 19 | | 11 | | 0 | | Other revenues | 542 | | 97 | | 249 | | 14 | | 9 | | 0 | |
Total revenue from contracts with customers | Total revenue from contracts with customers | 15,771 | | 4,285 | | 6,359 | | 886 | | 851 | | 3,506 | | Total revenue from contracts with customers | 12,319 | | 2,895 | | 3,995 | | 582 | | 611 | | 4,325 | |
Other revenue sources(a) | Other revenue sources(a) | 2,604 | | 160 | | 12 | | 9 | | 486 | | 1,973 | | Other revenue sources(a) | 2,488 | | 220 | | 200 | | 28 | | 319 | | 1,745 | |
Other adjustments(b) | Other adjustments(b) | (3,117) | | 0 | | 0 | | 0 | | 0 | | (3,117) | | Other adjustments(b) | (3,699) | | 0 | | 0 | | 0 | | 0 | | (3,699) | |
Total operating revenues | Total operating revenues | $ | 15,258 | | $ | 4,445 | | $ | 6,371 | | $ | 895 | | $ | 1,337 | | $ | 2,362 | | Total operating revenues | $ | 11,108 | | $ | 3,115 | | $ | 4,195 | | $ | 610 | | $ | 930 | | $ | 2,371 | |
|
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
| | | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas | | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas |
| | (in millions) | | (in millions) |
Three Months Ended September 30, 2019 | | |
Three Months Ended June 30, 2020 | | Three Months Ended June 30, 2020 | |
Operating revenues | Operating revenues | | Operating revenues | |
Retail electric revenues | Retail electric revenues | | Retail electric revenues | |
Residential | Residential | $ | 2,119 | | $ | 820 | | $ | 1,211 | | $ | 88 | | $ | 0 | | $ | 0 | | Residential | $ | 1,430 | | $ | 549 | | $ | 817 | | $ | 64 | | $ | 0 | | $ | 0 | |
Commercial | Commercial | 1,563 | | 512 | | 965 | | 86 | | 0 | | 0 | | Commercial | 1,103 | | 353 | | 689 | | 61 | | 0 | | 0 | |
Industrial | Industrial | 953 | | 421 | | 450 | | 82 | | 0 | | 0 | | Industrial | 642 | | 302 | | 273 | | 67 | | 0 | | 0 | |
Other | Other | 26 | | 7 | | 16 | | 3 | | 0 | | 0 | | Other | 23 | | 6 | | 15 | | 2 | | 0 | | 0 | |
Total retail electric revenues | Total retail electric revenues | 4,661 | | 1,760 | | 2,642 | | 259 | | 0 | | 0 | | Total retail electric revenues | 3,198 | | 1,210 | | 1,794 | | 194 | | 0 | | 0 | |
Natural gas distribution revenues | Natural gas distribution revenues | | Natural gas distribution revenues | |
Residential | Residential | 162 | | 0 | | 0 | | 0 | | 0 | | 162 | | Residential | 239 | | 0 | | 0 | | 0 | | 0 | | 239 | |
Commercial | Commercial | 42 | | 0 | | 0 | | 0 | | 0 | | 42 | | Commercial | 58 | | 0 | | 0 | | 0 | | 0 | | 58 | |
Transportation | Transportation | 204 | | 0 | | 0 | | 0 | | 0 | | 204 | | Transportation | 234 | | 0 | | 0 | | 0 | | 0 | | 234 | |
Industrial | Industrial | 3 | | 0 | | 0 | | 0 | | 0 | | 3 | | Industrial | 5 | | 0 | | 0 | | 0 | | 0 | | 5 | |
Other | Other | 30 | | 0 | | 0 | | 0 | | 0 | | 30 | | Other | 49 | | 0 | | 0 | | 0 | | 0 | | 49 | |
Total natural gas distribution revenues | Total natural gas distribution revenues | 441 | | 0 | | 0 | | 0 | | 0 | | 441 | | Total natural gas distribution revenues | 585 | | 0 | | 0 | | 0 | | 0 | | 585 | |
Wholesale electric revenues | Wholesale electric revenues | | Wholesale electric revenues | |
PPA energy revenues | PPA energy revenues | 245 | | 43 | | 19 | | 2 | | 188 | | 0 | | PPA energy revenues | 167 | | 28 | | 7 | | 2 | | 134 | | 0 | |
PPA capacity revenues | PPA capacity revenues | 134 | | 25 | | 13 | | 1 | | 100 | | 0 | | PPA capacity revenues | 108 | | 25 | | 13 | | 1 | | 71 | | 0 | |
Non-PPA revenues | Non-PPA revenues | 62 | | 2 | | 3 | | 111 | | 81 | | 0 | | Non-PPA revenues | 50 | | 5 | | 2 | | 73 | | 59 | | 0 | |
Total wholesale electric revenues | Total wholesale electric revenues | 441 | | 70 | | 35 | | 114 | | 369 | | 0 | | Total wholesale electric revenues | 325 | | 58 | | 22 | | 76 | | 264 | | 0 | |
Other natural gas revenues | Other natural gas revenues | | Other natural gas revenues | |
| Wholesale gas services | Wholesale gas services | 425 | | 0 | | 0 | | 0 | | 0 | | 425 | | Wholesale gas services | 341 | | 0 | | 0 | | 0 | | 0 | | 341 | |
Gas marketing services | Gas marketing services | 37 | | 0 | | 0 | | 0 | | 0 | | 37 | | Gas marketing services | 57 | | 0 | | 0 | | 0 | | 0 | | 57 | |
Other natural gas revenues | Other natural gas revenues | 10 | | 0 | | 0 | | 0 | | 0 | | 10 | | Other natural gas revenues | 8 | | 0 | | 0 | | 0 | | 0 | | 8 | |
Total natural gas revenues | Total natural gas revenues | 472 | | 0 | | 0 | | 0 | | 0 | | 472 | | Total natural gas revenues | 406 | | 0 | | 0 | | 0 | | 0 | | 406 | |
Other revenues | Other revenues | 267 | | 36 | | 113 | | 4 | | 3 | | 0 | | Other revenues | 251 | | 44 | | 119 | | 6 | | 4 | | 0 | |
Total revenue from contracts with customers | Total revenue from contracts with customers | 6,282 | | 1,866 | | 2,790 | | 377 | | 372 | | 913 | | Total revenue from contracts with customers | 4,765 | | 1,312 | | 1,935 | | 276 | | 268 | | 991 | |
Other revenue sources(a) | Other revenue sources(a) | 855 | | (25) | | (35) | | (7) | | 202 | | 727 | | Other revenue sources(a) | 728 | | 53 | | (7) | | 7 | | 171 | | 518 | |
Other adjustments(b) | Other adjustments(b) | (1,142) | | 0 | | 0 | | 0 | | 0 | | (1,142) | | Other adjustments(b) | (873) | | 0 | | 0 | | 0 | | 0 | | (873) | |
Total operating revenues | Total operating revenues | $ | 5,995 | | $ | 1,841 | | $ | 2,755 | | $ | 370 | | $ | 574 | | $ | 498 | | Total operating revenues | $ | 4,620 | | $ | 1,365 | | $ | 1,928 | | $ | 283 | | $ | 439 | | $ | 636 | |
|
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
| | | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas | | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas |
| | (in millions) | | (in millions) |
Nine Months Ended September 30, 2019 | | |
Six Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | |
Operating revenues | Operating revenues | | Operating revenues | |
Retail electric revenues | Retail electric revenues | | Retail electric revenues | |
Residential | Residential | $ | 4,939 | | $ | 1,971 | | $ | 2,751 | | $ | 217 | | $ | 0 | | $ | 0 | | Residential | $ | 2,801 | | $ | 1,103 | | $ | 1,577 | | $ | 121 | | $ | 0 | | $ | 0 | |
Commercial | Commercial | 3,951 | | 1,301 | | 2,427 | | 223 | | 0 | | 0 | | Commercial | 2,247 | | 717 | | 1,409 | | 121 | | 0 | | 0 | |
Industrial | Industrial | 2,428 | | 1,128 | | 1,074 | | 226 | | 0 | | 0 | | Industrial | 1,323 | | 623 | | 555 | | 145 | | 0 | | 0 | |
Other | Other | 69 | | 20 | | 41 | | 8 | | 0 | | 0 | | Other | 46 | | 11 | | 31 | | 4 | | 0 | | 0 | |
Total retail electric revenues | Total retail electric revenues | 11,387 | | 4,420 | | 6,293 | | 674 | | — | | 0 | | Total retail electric revenues | 6,417 | | 2,454 | | 3,572 | | 391 | | 0 | | 0 | |
Natural gas distribution revenues | Natural gas distribution revenues | | Natural gas distribution revenues | |
Residential | Residential | 992 | | 0 | | 0 | | 0 | | 0 | | 992 | | Residential | 736 | | 0 | | 0 | | 0 | | 0 | | 736 | |
Commercial | Commercial | 277 | | 0 | | 0 | | 0 | | 0 | | 277 | | Commercial | 188 | | 0 | | 0 | | 0 | | 0 | | 188 | |
Transportation | Transportation | 673 | | 0 | | 0 | | 0 | | 0 | | 673 | | Transportation | 499 | | 0 | | 0 | | 0 | | 0 | | 499 | |
Industrial | Industrial | 25 | | 0 | | 0 | | 0 | | 0 | | 25 | | Industrial | 17 | | 0 | | 0 | | 0 | | 0 | | 17 | |
Other | Other | 191 | | 0 | | 0 | | 0 | | 0 | | 191 | | Other | 144 | | 0 | | 0 | | 0 | | 0 | | 144 | |
Total natural gas distribution revenues | Total natural gas distribution revenues | 2,158 | | 0 | | 0 | | 0 | | 0 | | 2,158 | | Total natural gas distribution revenues | 1,584 | | 0 | | 0 | | 0 | | 0 | | 1,584 | |
Wholesale electric revenues | Wholesale electric revenues | | Wholesale electric revenues | |
PPA energy revenues | PPA energy revenues | 648 | | 110 | | 47 | | 8 | | 508 | | 0 | | PPA energy revenues | 326 | | 55 | | 15 | | 4 | | 259 | | 0 | |
PPA capacity revenues | PPA capacity revenues | 350 | | 77 | | 41 | | 2 | | 272 | | 0 | | PPA capacity revenues | 213 | | 52 | | 25 | | 2 | | 136 | | 0 | |
Non-PPA revenues | Non-PPA revenues | 174 | | 65 | | 5 | | 275 | | 190 | | 0 | | Non-PPA revenues | 100 | | 24 | | 4 | | 142 | | 117 | | 0 | |
Total wholesale electric revenues | Total wholesale electric revenues | 1,172 | | 252 | | 93 | | 285 | | 970 | | 0 | | Total wholesale electric revenues | 639 | | 131 | | 44 | | 148 | | 512 | | 0 | |
Other natural gas revenues | Other natural gas revenues | | Other natural gas revenues | |
| Wholesale gas services | Wholesale gas services | 1,590 | | 0 | | 0 | | 0 | | 0 | | 1,590 | | Wholesale gas services | 737 | | 0 | | 0 | | 0 | | 0 | | 737 | |
Gas marketing services | Gas marketing services | 313 | | 0 | | 0 | | 0 | | 0 | | 313 | | Gas marketing services | 220 | | 0 | | 0 | | 0 | | 0 | | 220 | |
Other natural gas revenues | Other natural gas revenues | 32 | | 0 | | 0 | | 0 | | 0 | | 32 | | Other natural gas revenues | 15 | | 0 | | 0 | | 0 | | 0 | | 15 | |
Total natural gas revenues | Total natural gas revenues | 1,935 | | 0 | | 0 | | 0 | | 0 | | 1,935 | | Total natural gas revenues | 972 | | 0 | | 0 | | 0 | | 0 | | 972 | |
Other revenues | Other revenues | 763 | | 119 | | 298 | | 14 | | 10 | | 0 | | Other revenues | 441 | | 78 | | 214 | | 13 | | 7 | | 0 | |
Total revenue from contracts with customers | Total revenue from contracts with customers | 17,415 | | 4,791 | | 6,684 | | 973 | | 980 | | 4,093 | | Total revenue from contracts with customers | 10,053 | | 2,663 | | 3,830 | | 552 | | 519 | | 2,556 | |
Other revenue sources(a) | Other revenue sources(a) | 3,266 | | (29) | | 22 | | (3) | | 547 | | 2,744 | | Other revenue sources(a) | 1,599 | | 53 | | (76) | | 7 | | 295 | | 1,343 | |
Other adjustments(b) | Other adjustments(b) | (4,176) | | 0 | | 0 | | 0 | | 0 | | (4,176) | | Other adjustments(b) | (2,014) | | 0 | | 0 | | 0 | | 0 | | (2,014) | |
Total operating revenues | Total operating revenues | $ | 16,505 | | $ | 4,762 | | $ | 6,706 | | $ | 970 | | $ | 1,527 | | $ | 2,661 | | Total operating revenues | $ | 9,638 | | $ | 2,716 | | $ | 3,754 | | $ | 559 | | $ | 814 | | $ | 1,885 | |
(a)Other revenue sources primarily relate to revenues from customers accounted for as derivatives and leases, as well as alternative revenue programs at Southern Company Gas, and other cost recovery mechanisms and revenues that meet other scope exceptions for revenues from contracts with customers at the traditional electric operating companies.
(b)Other adjustments relate to the cost of Southern Company Gas' energy and risk management activities. Wholesale gas services revenues are presented net of the related costs of those activities on the statement of income. See NoteNotes (K) and (L) under "Southern Company Gas" for additional information on the sale of Sequent and components of wholesale gas services' operating revenues.revenues, respectively.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Contract Balances
The following table reflects the closing balances of receivables, contract assets, and contract liabilities related to revenues from contracts with customers at SeptemberJune 30, 20202021 and December 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | | |
| Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas |
| (in millions) |
Accounts Receivables | | | | | | |
As of September 30, 2020 | $ | 2,344 | | $ | 686 | | $ | 901 | | $ | 93 | | $ | 100 | | $ | 385 | |
As of December 31, 2019 | 2,413 | | 586 | | 688 | | 79 | | 97 | | 749 | |
Contract Assets | | | | | | |
As of September 30, 2020 | $ | 159 | | $ | 5 | | $ | 103 | | $ | 0 | | $ | 0 | | $ | 0 | |
As of December 31, 2019 | 117 | | 0 | | 69 | | 0 | | 0 | | 0 | |
Contract Liabilities | | | | | | |
As of September 30, 2020 | $ | 56 | | $ | 1 | | $ | 24 | | $ | 0 | | $ | 3 | | $ | 1 | |
As of December 31, 2019 | 52 | | 10 | | 13 | | 0 | | 1 | | 1 | |
| | | | | | | | | | | | | | | | | | | | |
| Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas |
| (in millions) |
Accounts Receivable | | | | | | |
At June 30, 2021 | $ | 2,271 | | $ | 633 | | $ | 887 | | $ | 85 | | $ | 129 | | $ | 368 | |
At December 31, 2020 | 2,614 | | 632 | | 806 | | 77 | | 112 | | 788 | |
Contract Assets | | | | | | |
At June 30, 2021 | $ | 98 | | $ | 0 | | $ | 36 | | $ | 0 | | $ | 1 | | $ | 0 | |
At December 31, 2020 | 158 | | 2 | | 71 | | 0 | | 0 | | 0 | |
Contract Liabilities | | | | | | |
At June 30, 2021 | $ | 67 | | $ | 5 | | $ | 37 | | $ | 1 | | $ | 1 | | $ | 0 | |
At December 31, 2020 | 61 | | 6 | | 27 | | 1 | | 1 | | 1 | |
As of SeptemberAt June 30, 20202021 and December 31, 2019,2020, Georgia Power had contract assets primarily related to unregulated service agreements, where payment is contingent on project completion, as well as, at December 31, 2020, contract assets related to fixed retail customer bill programs, where the payment is contingent upon Georgia Power's continued performance and the customer's continued participation in the program over a one-year contract term, and unregulated service agreements, where payment is contingent on project completion.term. Contract liabilities for Georgia Power relate to cash collections recognized in advance of revenue for certain unregulated service agreements. Alabama Power had contract liabilities for outstanding performance obligations primarily related to extended service agreements. Southern Company's unregulated distributed generation business had $47$60 million and $40$81 million of contract assets and $22$24 million and $28$27 million of contract liabilities at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively, for outstanding performance obligations.
Revenues recognized by Southern Company in the three and ninesix months ended SeptemberJune 30, 2020,2021, which were included in contract liabilities at December 31, 2019,2020, were $8$12 million and $29$21 million, respectively, and immaterial for all other applicable Registrants.
Remaining Performance Obligations
The traditional electric operating companies and Southern Power have long-term contracts with customers in which revenues are recognized as performance obligations are satisfied over the contract term. These contracts primarily relate to PPAs whereby the traditional electric operating companies and Southern Power provide electricity and generation capacity to a customer. The revenue recognized for the delivery of electricity is variable; however, certain PPAs include a fixed payment for fixed generation capacity over the term of the contract. Southern Company's unregulated distributed generation business also has partially satisfied performance obligations related to certain fixed price contracts. RevenueRevenues from contracts with customers related to these performance obligations remaining at SeptemberJune 30, 20202021 are expected to be recognized as follows:
| | | 2020 (remaining) | 2021 | 2022 | 2023 | 2024 | 2025 and Thereafter | | 2021 (remaining) | 2022 | 2023 | 2024 | 2025 | Thereafter |
| | (in millions) | | (in millions) |
Southern Company | Southern Company | $ | 170 | | $ | 487 | | $ | 362 | | $ | 339 | | $ | 319 | | $ | 3,062 | | Southern Company | $ | 354 | | $ | 464 | | $ | 343 | | $ | 327 | | $ | 307 | | $ | 2,667 | |
Alabama Power | Alabama Power | 7 | | 33 | | 31 | | 24 | | 7 | | 5 | | Alabama Power | 23 | | 31 | | 24 | | 7 | | 5 | | 0 | |
Georgia Power | Georgia Power | 20 | | 71 | | 43 | | 35 | | 24 | | 62 | | Georgia Power | 41 | | 58 | | 39 | | 23 | | 21 | | 41 | |
| Southern Power | Southern Power | 60 | | 290 | | 292 | | 282 | | 290 | | 3,013 | | Southern Power | 165 | | 323 | | 281 | | 297 | | 281 | | 2,644 | |
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Revenue expected to be recognized for performance obligations remaining at SeptemberJune 30, 20202021 was immaterial for Mississippi Power.Power and Southern Company Gas.
Lease Income
Lease income for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 is as follows:
| | | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas | | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas |
| | (in millions) | | (in millions) |
For the Three Months Ended September 30, 2020 | |
For the Three Months Ended June 30, 2021 | | For the Three Months Ended June 30, 2021 |
Lease income - interest income on sales-type leases | Lease income - interest income on sales-type leases | $ | 3 | | $ | 0 | | $ | 0 | | $ | 3 | | $ | 0 | | $ | 0 | | Lease income - interest income on sales-type leases | $ | 4 | | $ | 0 | | $ | 0 | | $ | 4 | | $ | 0 | | $ | 0 | |
Lease income - operating leases | Lease income - operating leases | 50 | | 11 | | 14 | | 0 | | 21 | | 9 | | Lease income - operating leases | 56 | | 21 | | 10 | | 0 | | 21 | | 9 | |
Variable lease income | Variable lease income | 145 | | 0 | | 0 | | 0 | | 153 | | 0 | | Variable lease income | 128 | | (1) | | 0 | | 0 | | 138 | | 0 | |
Total lease income | Total lease income | $ | 198 | | $ | 11 | | $ | 14 | | $ | 3 | | $ | 174 | | $ | 9 | | Total lease income | $ | 188 | | $ | 20 | | $ | 10 | | $ | 4 | | $ | 159 | | $ | 9 | |
| For the Nine Months Ended September 30, 2020 | |
For the Six Months Ended June 30, 2021 | | For the Six Months Ended June 30, 2021 |
Lease income - interest income on sales-type leases | Lease income - interest income on sales-type leases | $ | 8 | | $ | 0 | | $ | 0 | | $ | 8 | | $ | 0 | | $ | 0 | | Lease income - interest income on sales-type leases | $ | 7 | | $ | 0 | | $ | 0 | | $ | 7 | | $ | 0 | | $ | 0 | |
Lease income - operating leases | Lease income - operating leases | 148 | | 24 | | 44 | | 1 | | 66 | | 26 | | Lease income - operating leases | 112 | | 41 | | 21 | | 1 | | 42 | | 17 | |
Variable lease income | Variable lease income | 345 | | 0 | | 0 | | 0 | | 368 | | 0 | | Variable lease income | 212 | | 0 | | 0 | | 0 | | 228 | | 0 | |
Total lease income | Total lease income | $ | 501 | | $ | 24 | | $ | 44 | | $ | 9 | | $ | 434 | | $ | 26 | | Total lease income | $ | 331 | | $ | 41 | | $ | 21 | | $ | 8 | | $ | 270 | | $ | 17 | |
| For the Three Months Ended September 30, 2019 | |
For the Three Months Ended June 30, 2020 | | For the Three Months Ended June 30, 2020 |
Lease income - interest income on sales-type leases | Lease income - interest income on sales-type leases | $ | 2 | | $ | 0 | | $ | 0 | | $ | 2 | | $ | 0 | | $ | 0 | | Lease income - interest income on sales-type leases | $ | 3 | | $ | 0 | | $ | 0 | | $ | 3 | | $ | 0 | | $ | 0 | |
Lease income - operating leases | Lease income - operating leases | 64 | | 5 | | 18 | | 0 | | 31 | | 9 | | Lease income - operating leases | 47 | | 6 | | 15 | | 0 | | 21 | | 9 | |
Variable lease income | Variable lease income | 141 | | 0 | | 0 | | 0 | | 151 | | 0 | | Variable lease income | 126 | | 0 | | 0 | | 0 | | 136 | | 0 | |
Total lease income | Total lease income | $ | 207 | | $ | 5 | | $ | 18 | | $ | 2 | | $ | 182 | | $ | 9 | | Total lease income | $ | 176 | | $ | 6 | | $ | 15 | | $ | 3 | | $ | 157 | | $ | 9 | |
| For the Nine Months Ended September 30, 2019 | |
For the Six Months Ended June 30, 2020 | | For the Six Months Ended June 30, 2020 |
Lease income - interest income on sales-type leases | Lease income - interest income on sales-type leases | $ | 7 | | $ | 0 | | $ | 0 | | $ | 7 | | $ | 0 | | $ | 0 | | Lease income - interest income on sales-type leases | $ | 6 | | $ | 0 | | $ | 0 | | $ | 5 | | $ | 0 | | $ | 0 | |
Lease income - operating leases | Lease income - operating leases | 216 | | 19 | | 57 | | 0 | | 111 | | 26 | | Lease income - operating leases | 97 | | 13 | | 30 | | 0 | | 45 | | 17 | |
Variable lease income | Variable lease income | 324 | | 0 | | 0 | | 0 | | 349 | | 0 | | Variable lease income | 200 | | 0 | | 0 | | 0 | | 215 | | 0 | |
Total lease income | Total lease income | $ | 547 | | $ | 19 | | $ | 57 | | $ | 7 | | $ | 460 | | $ | 26 | | Total lease income | $ | 303 | | $ | 13 | | $ | 30 | | $ | 5 | | $ | 260 | | $ | 17 | |
Lease income for Southern Power is included in wholesale revenues. Lease payments received under tolling arrangements and PPAs consist of either scheduled payments or variable payments based on the amount of energy produced by the underlying electric generating units.
As part of the Autauga Combined Cycle Acquisition, Lease income for Alabama Power assumed an existing power sales agreement under which the full output of the generating facility remains committed to another third party for its remaining term of approximately three years. These revenues areand Southern Power is included above as lease income from operating leases. See Note (B) and Note 15 to the financial statements in Item 8 of the Form 10-K under "Alabama Power" for additional information.wholesale revenues.
Lease Receivables
Mississippi Power completed construction of additional leased assets under an existing sales-type lease during the thirdsecond quarter 2020.2021. Upon completion of construction, the book value of $25$35 million was transferred from CWIP to lease receivables of which $22 million and $3 million is primarily included in other property and investments and other accounts and notes receivable, respectively, at SeptemberJune 30, 2020.2021. The transfer represents a non-cashnoncash investing transaction for purposes of the statements of cash flows.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
(E) CONSOLIDATED ENTITIES AND EQUITY METHOD INVESTMENTS
See Note 7 to the financial statements in Item 8 of the Form 10-K for additional information.
Southern Power
Variable Interest Entities
Southern Power has certain subsidiaries that are determined to be VIEs. Southern Power is considered the primary beneficiary of these VIEs because it controls the most significant activities of the VIEs, including operating and maintaining the respective assets, and has the obligation to absorb expected losses of these VIEs to the extent of its equity interests.
SP Solar and SP Wind
At SeptemberJune 30, 20202021 and December 31, 2019,2020, SP Solar had total assets of $6.3$6.2 billion and $6.4$6.1 billion, respectively, and total liabilities of $382 million. Noncontrollingmillion and $387 million, respectively, and noncontrolling interests totaledof $1.1 billion at both September 30, 2020 and December 31, 2019.billion. Cash distributions from SP Solar are allocated 67% to Southern Power and 33% to Global Atlantic in accordance with their partnership interest percentage. Under the terms of the limited partnership agreement, distributions without limited partner consent are limited to available cash and SP Solar is obligated to distribute all such available cash to its partners each quarter. Available cash includes all cash generated in the quarter subject to the maintenance of appropriate operating reserves.
At SeptemberJune 30, 20202021 and December 31, 2019,2020, SP Wind had total assets of $2.4$2.3 billion and $2.5$2.4 billion, respectively, total liabilities of $129$140 million and $128$138 million, respectively, and noncontrolling interests of $44$42 million and $45$43 million, respectively. Under the terms of the limited liability agreement, distributions without Class A member consent are limited to available cash and SP Wind is obligated to distribute all such available cash to its members each quarter. Available cash includes all cash generated in the quarter subject to the maintenance of appropriate operating reserves. Cash distributions from SP Wind are generally allocated 60% to Southern Power and 40% to the 3 financial investors in accordance with the limited liability agreement.
Southern Power consolidates both SP Solar and SP Wind, as the primary beneficiary, since it controls the most significant activities of each entity, including operating and maintaining their assets. Certain transfers and sales of the assets in the VIEs are subject to partner consent and the liabilities are non-recourse to the general credit of Southern Power. Liabilities consist of customary working capital items and do not include any long-term debt.
Other Variable Interest Entities
Southern Power has other consolidated VIEs that relate to certain subsidiaries that have either sold noncontrolling interests to tax-equity investors or acquired less than a 100% interest from facility developers. These entities are considered VIEs because the arrangements are structured similar to a limited partnership and the noncontrolling members do not have substantive kick-out rights.
At SeptemberJune 30, 20202021 and December 31, 2019,2020, the other VIEs had total assets of $1.9 billion and $1.1 billion, respectively, total liabilities of $109$249 million and $104$110 million, respectively, and noncontrolling interests of $471$913 million and $409$454 million, respectively. Under the terms of the partnership agreements, distributions of all available cash are required each month or quarter and additional distributions require partner consent.
Equity Method Investments
At SeptemberJune 30, 20202021 and December 31, 2019,2020, Southern Power had equity method investments in wind and battery storage projects totaling $19$84 million and $28$19 million, respectively.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Southern Company Gas
Equity Method Investments
The carrying amounts of Southern Company Gas' equity method investments at June 30, 2021 and December 31, 2020 and related earnings (loss) from those investments for the three and six months ended June 30, 2021 and 2020 were as follows:
| | | | | | | | |
Investment Balance | June 30, 2021 | December 31, 2020 |
| (in millions) |
SNG | $ | 1,143 | | $ | 1,167 | |
PennEast Pipeline(*) | 13 | | 91 | |
Other | 33 | | 32 | |
Total | $ | 1,189 | | $ | 1,290 | |
(*)Investment balance at June 30, 2021 reflects a pre-tax impairment charge of $82 million ($58 million after tax) recorded in the second quarter 2021. See Note (C) under "Other Matters – Southern Company Gas" for additional information.
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
Earnings (Loss) from Equity Method Investments | 2021 | 2020 | | 2021 | 2020 |
| (in millions) |
SNG | $ | 28 | | $ | 28 | | | $ | 66 | | $ | 65 | |
PennEast Pipeline(a)(b) | (81) | | 1 | | | (79) | | 3 | |
Other(a)(c) | 1 | | 1 | | | 2 | | 4 | |
Total | $ | (52) | | $ | 30 | | | $ | (11) | | $ | 72 | |
(a)Earnings primarily result from AFUDC equity recorded by the project entity.
(b)Includes a pre-tax impairment charge of $82 million ($58 million after tax) for the three and six months ended June 30, 2021. See Note (C) under "Other Matters – Southern Company Gas" for additional information.
(c)On March 24, 2020, Southern Company Gas completed the sale of its interests in Pivotal LNG and Atlantic Coast Pipeline. See Note (K) under "Southern Company Gas" for additional information.
The carrying amounts of Southern Company Gas' equity method investments as of September 30, 2020 and December 31, 2019 and related income from those investments for the three and nine months ended September 30, 2020 and 2019 were as follows:
| | | | | | | | |
Investment Balance | September 30, 2020 | December 31, 2019(a) |
| (in millions) |
SNG(b) | $ | 1,180 | | $ | 1,137 | |
PennEast Pipeline(c) | 89 | | 82 | |
Other | 32 | | 32 | |
Total | $ | 1,301 | | $ | 1,251 | |
(a)Excludes investments in Atlantic Coast Pipeline and Pivotal JAX LNG classified as held for sale at December 31, 2019.LNG. See Note 15 to the financial statements under "Assets Held for Sale""Southern Company Gas" in Item 8 of the Form 10-K for additional information.
(b)Increase primarily relates to a capital contribution, partially offset by the continued amortization of deferred tax assets established upon acquisition.
(c)See Note (C) under "Other Matters – Southern Company Gas" for additional information on the PennEast Pipeline.
| | | | | | | | | | | | | | |
Earnings from Equity Method Investments | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 |
| (in millions) |
SNG | $ | 30 | | $ | 30 | | $ | 95 | | $ | 104 | |
Atlantic Coast Pipeline(a)(b) | 0 | | 3 | | 3 | | 9 | |
PennEast Pipeline(a) | 2 | | 2 | | 5 | | 5 | |
Other | 1 | | 0 | | 3 | | (3) | |
Total | $ | 33 | | $ | 35 | | $ | 106 | | $ | 115 | |
(a)Amounts primarily result from AFUDC equity recorded by the project entity.
(b)On March 24, 2020, Southern Company Gas completed the sale of its interest in Atlantic Coast Pipeline. See Note (K) under "Southern Company Gas" for additional information.
SNG
Selected financial information of SNG for the three and nine months ended September 30, 2020 and 2019 is as follows:
| | | | | | | | | | | | | | |
Income Statement Information | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 |
| (in millions) |
Revenues | $ | 150 | | $ | 152 | | $ | 457 | | $ | 473 | |
Operating income | 85 | | 82 | | 262 | | 274 | |
Net income | 59 | | 60 | | 189 | | 208 | |
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
(F) FINANCING
Bank Credit Arrangements
See Note 8 to the financial statements under "Bank Credit Arrangements" in Item 8 of the Form 10-K for additional information.
At SeptemberJune 30, 2020,2021, committed credit arrangements with banks were as follows:
| | | | Expires | | | | | | Expires | | | | |
Company | Company | | 2021 | 2022 | 2023 | 2024 | | Total | | Unused | | Due within One Year | Company | 2021 | 2022 | 2023 | 2024 | 2026 | | Total | | Unused | | Due within One Year |
| | | (in millions) | | (in millions) |
Southern Company parent | Southern Company parent | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 2,000 | | | $ | 2,000 | | | $ | 1,999 | | | $ | 0 | | Southern Company parent | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 2,000 | | | $ | 2,000 | | | $ | 1,999 | | | $ | 0 | |
Alabama Power | Alabama Power | | 3 | | 525 | | 0 | | 800 | | | 1,328 | | | 1,328 | | | 3 | | Alabama Power | 3 | | 525 | | 0 | | 0 | | 700 | | | 1,228 | | | 1,228 | | | 3 | |
Georgia Power | Georgia Power | | 0 | | 0 | | 0 | | 1,750 | | | 1,750 | | | 1,728 | | | 0 | | Georgia Power | 0 | | 0 | | 0 | | 0 | | 1,750 | | | 1,750 | | | 1,728 | | | 0 | |
Mississippi Power | Mississippi Power | | 0 | | 150 | | 125 | | 0 | | | 275 | | | 250 | | | 0 | | Mississippi Power | 0 | | 0 | | 125 | | 150 | | 0 | | | 275 | | | 250 | | | 0 | |
Southern Power(a) | Southern Power(a) | | 0 | | 0 | | 0 | | 600 | | | 600 | | | 591 | | | 0 | | Southern Power(a) | 0 | | 0 | | 0 | | 0 | | 600 | | | 600 | | | 568 | | | 0 | |
Southern Company Gas(b) | Southern Company Gas(b) | | 0 | | 0 | | 0 | | 1,750 | | | 1,750 | | | 1,745 | | | 0 | | Southern Company Gas(b) | 0 | | 250 | | 0 | | 0 | | 1,500 | | | 1,750 | | | 1,747 | | | 250 | |
SEGCO | SEGCO | | 30 | | 0 | | 0 | | 0 | | | 30 | | | 30 | | | 30 | | SEGCO | 0 | | 30 | | 0 | | 0 | | 0 | | | 30 | | | 30 | | | 30 | |
Southern Company | Southern Company | | $ | 33 | | $ | 675 | | $ | 125 | | $ | 6,900 | | | $ | 7,733 | | | $ | 7,671 | | | $ | 33 | | Southern Company | $ | 3 | | $ | 805 | | $ | 125 | | $ | 150 | | $ | 6,550 | | | $ | 7,633 | | | $ | 7,550 | | | $ | 283 | |
(a)Does not include Southern Power Company's $120$75 million and $60 million continuing letter of credit facilities for standby letters of credit expiring in 2021 and 2023, respectively, of which $23 million and $40$1 million, respectively, was unused at SeptemberJune 30, 2020.2021. Southern Power's subsidiaries are not parties to its bank credit arrangements or letter of credit facilities.
(b)Southern Company Gas, as the parent entity, guarantees the obligations of Southern Company Gas Capital, which is the borrower of $1.25 billion$800 million of this arrangement.the arrangement expiring in 2026 and all $250 million of the arrangement expiring in 2022. Southern Company Gas' committed credit arrangement expiring in 2026 also includes $500$700 million for which Nicor Gas is the borrower and which is restricted for working capital needs of Nicor Gas. Pursuant to thisthe multi-year credit arrangement expiring in 2026, the allocations between Southern Company Gas Capital and Nicor Gas may be adjusted.
As reflected in the table above, in March 2020, MississippiMay 2021, Southern Company, Alabama Power, Georgia Power, and Southern Power each amended and restated certain of its multi-year credit arrangements, which, among other things, extended the maturity dates from 2024 to 2026. Alabama Power also decreased the borrowing capacity under its credit arrangement now maturing in 2026 from $800 million to $700 million. Also in May 2021, Southern Company Gas Capital, along with Nicor Gas, amended and restated their multi-year credit arrangement to extend the maturity date from 2024 to 2026 and decrease the aggregate borrowing capacity from $1.75 billion to $1.5 billion. In addition, Southern Company Gas Capital entered into a $125new $250 million revolving credit facilityarrangement, which is guaranteed by Southern Company Gas, that matures in March 2023.2022. In June 2021, Mississippi Power amended and restated certain of its multi-year credit arrangements aggregating $150 million, which, among other things, extended the maturity dates from 2022 to 2024.
Subject to applicable market conditions, Southern Company and its subsidiaries expect to renew or replace their bank credit arrangements as needed, prior to expiration. In connection therewith, Southern Company and its subsidiaries may extend the maturity dates and/or increase or decrease the lending commitments thereunder.
These bank credit arrangements, as well as the term loan arrangements of the Registrants, Nicor Gas, and SEGCO, contain covenants that limit debt levels and contain cross-acceleration or, in the case of Southern Power, cross-default provisions to other indebtedness (including guarantee obligations) that are restricted only to the indebtedness of the individual company. Such cross-default provisions to other indebtedness would trigger an event of default if Southern Power defaulted on indebtedness or guarantee obligations over a specified threshold. Such cross-acceleration provisions to other indebtedness would trigger an event of default if the applicable borrower defaulted on indebtedness, the payment of which was then accelerated. At SeptemberJune 30, 2020,2021, the Registrants, Nicor Gas, and
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
SEGCO were in compliance with all such covenants. None of the bank credit arrangements contain material adverse change clauses at the time of borrowings.
A portion of the unused credit with banks is allocated to provide liquidity support to the revenue bonds of the traditional electric operating companies and the commercial paper programs of the Registrants, Nicor Gas, and SEGCO. The amount of variable rate revenue bonds of the traditional electric operating companies outstanding requiring liquidity support at SeptemberJune 30, 20202021 was approximately $1.4 billion (comprised of approximately $854 million at Alabama Power, $550 million at Georgia Power, and $34 million at Mississippi Power). In addition, at SeptemberJune 30, 2020,2021, Georgia Power and Mississippi Power had approximately $257$105 million and $50 million, respectively, of fixed rate revenue bonds outstanding that are required to be remarketed within the next 12 months.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Earnings per Share
For Southern Company, the only differences in computing basic and diluted earnings per share are attributable to awards outstanding under stock-based compensation plans and the equity units issued in August 2019. Earnings per share dilution resulting from stock-based compensation plans and the equity units issuance is determined using the treasury stock method. See Note 8 to the financial statements under "Equity Units" in Item 8 of the Form 10-K for information on the August 2019 equity units issuance and Note 12 to the financial statements in Item 8 of the Form 10-K for information on stock-based compensation plans. Shares used to compute diluted earnings per share were as follows:
| | | | | | | | | | | | | | | | | Three Months Ended June 30, | Six Months Ended June 30, |
| | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | | 2021 | 2020 | 2021 | 2020 |
| | (in millions) | | (in millions) |
As reported shares | As reported shares | 1,058 | | 1,048 | | 1,058 | | 1,043 | | As reported shares | 1,061 | | 1,058 | | 1,060 | | 1,057 | |
Effect of stock-based compensation | Effect of stock-based compensation | 6 | | 9 | | 6 | | 8 | | Effect of stock-based compensation | 6 | | 5 | | 6 | | 7 | |
| Effect of equity units | | Effect of equity units | 0 | | 0 | | 0 | | 1 | |
Diluted shares | Diluted shares | 1,064 | | 1,057 | | 1,064 | | 1,051 | | Diluted shares | 1,067 | | 1,063 | | 1,066 | | 1,065 | |
AnFor all periods presented, an immaterial number of stock-based compensation awards was not included in the diluted earnings per share calculation because the awards were anti-dilutive for the three and nine months ended September 30, 2020. There were 0 such amounts for the three and nine months ended September 30, 2019.
An immaterial number of shares related to the equity units issued in August 2019 was included in the calculation of diluted earnings per share for the nine months ended September 30, 2020. There were no such amounts for all other periods presented.
(G) INCOME TAXES
See Note 10 to the financial statements in Item 8 of the Form 10-K for additional tax information.
Current and Deferred Income Taxes
Tax Credit and Net Operating Loss Carryforwards
Southern Company had federal ITC and PTC carryforwards (primarily related to Southern Power) totaling $1.5$1.3 billion as of Septemberat June 30, 20202021 compared to $1.8$1.4 billion as ofat December 31, 2019.2020.
The federal ITC and PTC carryforwards begin expiring in 2034 and 2032, respectively, but are expected to be fully utilized by 2024. The utilization of each Registrants'Registrant's estimated tax credit and state net operating loss carryforwards and related valuation allowances could be impacted by numerous factors, including the acquisition of additional renewable projects, the purchase of rights to additional PTCs of Plant Vogtle Units 3 and 4 pursuant to certain joint ownership agreements, potential impacts of the COVID-19 pandemic, and changes in taxable income projections.projections, and potential income tax rate changes. See Note (B) and Note 2 to the financial statements in Item 8 of the Form 10-K under "Georgia Power – Nuclear Construction" for additional information on Plant Vogtle Units 3 and 4.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Effective Tax Rate
Details of significant changes in the effective tax rate for the applicable Registrants are provided herein.
Southern Company
Southern Company's effective tax rate is typically lower than the statutory rate due to employee stock plans' dividend deduction, non-taxable AFUDC equity at the traditional electric operating companies, flowback of excess deferred income taxes at the regulated utilities, and federal income tax benefits from ITCs and PTCs primarily at Southern Power.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Southern Company'ssignificant changes in the effective tax rate was 13.9% for the nineapplicable Registrants are provided herein.
Georgia Power
Georgia Power's effective tax benefit rate was (6.9)% for the six months ended SeptemberJune 30, 20202021 compared to 30.2%an effective tax rate of 4.0% for the corresponding period in 2019.2020. The effective tax rate decrease was primarily due to the tax impact from the sale of Gulf Powerhigher charges to earnings in 2019, as well as an increase in the flowback of excess deferred income taxes in 2020 primarily at Georgia Power. See Note 15 to the financial statements under "Southern Company" in Item 8 of the Form 10-K for additional information.
Georgia Power
Georgia Power's effective tax rate was 12.3% for the nine months ended September 30, 2020 compared to 22.6% for the corresponding period in 2019. The effective tax rate decrease was primarily due to an increase in the flowback of excess deferred income taxes in 2020 as authorized in the 2019 ARP, as well as the second quarter 2020 charge to earnings2021 associated with the construction of Plant Vogtle Units 3 and 4. See Note (B) under "Georgia Power – Nuclear Construction" and Note 2 to the financial statements under "Georgia Power" in Item 8 of the Form 10-K for additional information.
Mississippi Power
Mississippi Power's effective tax rate was 12.7% for the nine months ended September 30, 2020 compared to 16.3% for the corresponding period in 2019. The effective tax rate decrease was primarily due to an increase in the flowback of excess deferred income taxes in 2020 as authorized in the Mississippi Power Rate Case Settlement Agreement. See Note (B) under "Mississippi Power – 2019 Base Rate Case" for additional information.
Southern Power
Southern Power's effective tax benefit rate was 11.3%(12.8)% for the ninesix months ended SeptemberJune 30, 20202021 compared to a benefitan effective tax rate of (13.6)%10.5% for the corresponding period in 2019.2020. The effective tax rate increasedecrease was primarily due to tax benefitschanges in state apportionment methodology resulting from ITCs recognized upontax legislation enacted by the State of Alabama in February 2021, as well as the tax impact from the sale of Plant NacogdochesMankato in 2019.January 2020. See Note (K) under "Southern Power" for additional information.
Southern Company Gas
Southern Company Gas' effective tax rate was 21.4% for the nine months ended September 30, 2020 compared to 15.0% for the corresponding period in 2019. The effective tax rate increase was primarily due to higher flowback of excess deferred income taxes in 2019, primarily at Atlanta Gas Light as previously authorized by the Georgia PSC, and the reversal of a federal tax valuation allowance in connection with Southern Company Gas' sale of its investment in Triton in 2019. See Notes 2 and 15 to the financial statements under "Southern Company Gas"Power" in Item 8 of the Form 10-K for additional information.
(H) RETIREMENT BENEFITS
The Southern Company system has a qualified defined benefit, trusteed, pension plan covering substantially all employees, with the exception of employees at PowerSecure. The qualified pension plan is funded in accordance with requirements of the Employee Retirement Income Security Act of 1974, as amended (ERISA). NaN mandatory contributions to the qualified pension plan are anticipated for the year ending December 31, 2020.2021. The Southern Company system also provides certain non-qualified defined benefits for a select group of management and highly compensated employees, which are funded on a cash basis. In addition, the Southern Company system provides certain medical care and life insurance benefits for retired employees through other postretirement benefit plans. The traditional electric operating companies fund other postretirement trusts to the extent required by their respective regulatory commissions. Southern Company Gas has a separate unfunded supplemental retirement health care plan that provides medical care and life insurance benefits to employees of discontinued businesses.
See Note 11 to the financial statements in Item 8 of the Form 10-K for additional information.
Effective January 1, 2020, Southern Company adopted a change in method of calculating the market-related value of the liability-hedging securities included in its pension plan assets. The market-related value is used to determine the expected return on plan assets component of net periodic pension cost. Southern Company previously used the
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
calculated value approach for all plan assets, which smoothed asset returns and deferred gains and losses by amortizing them into the calculation of the market-related value over five years. Southern Company changed to the fair value approach for liability-hedging securities, which includes measuring the market-related value of that portion of the plan assets at fair value for purposes of determining the expected return on plan assets. The remaining asset classes of plan assets will continue to use the calculated value approach in determining the market-related value. Southern Company considers the fair value approach to be preferable because it results in a current reflection of changes in the value of plan assets in the measurement of net periodic pension cost. Southern Company evaluated the effect of this change in accounting method and deemed it immaterial to the historical and current financial statements of all Registrants and therefore did not account for the change retrospectively. The change in accounting principle was recorded through earnings as a prior period adjustment for the amounts related to the unregulated businesses of Southern Company and Southern Power. Amounts related to the traditional electric operating companies and the natural gas distribution utilities have been reflected as adjustments to regulatory assets as appropriate, consistent with the expected regulatory treatment.
On each Registrant's condensed statements of income, the service cost component of net periodic benefit costs is included in other operations and maintenance expenses and all other components of net periodic benefit costs are included in other income (expense), net. Components of the net periodic benefit costs for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 are presented in the following tables.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2020 | Southern Company | | Alabama Power | | Georgia Power | | Mississippi Power | | Southern Power | | Southern Company Gas |
| (in millions) |
Pension Plans |
Service cost | $ | 94 | | | $ | 23 | | | $ | 24 | | | $ | 3 | | | $ | 2 | | | $ | 8 | |
Interest cost | 108 | | | 25 | | | 33 | | | 5 | | | 1 | | | 8 | |
Expected return on plan assets | (274) | | | (66) | | | (87) | | | (13) | | | (4) | | | (20) | |
Amortization: | | | | | | | | | | | |
Prior service costs | 0 | | | 1 | | | 0 | | | 0 | | | 0 | | | (1) | |
Regulatory asset | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 4 | |
Net (gain)/loss | 67 | | | 17 | | | 22 | | | 4 | | | 1 | | | 2 | |
Net periodic pension cost (income) | $ | (5) | | | $ | 0 | | | $ | (8) | | | $ | (1) | | | $ | 0 | | | $ | 1 | |
Postretirement Benefits |
Service cost | $ | 6 | | | $ | 1 | | | $ | 2 | | | $ | (1) | | | $ | 1 | | | $ | 0 | |
Interest cost | 13 | | | 4 | | | 5 | | | 1 | | | 0 | | | 2 | |
Expected return on plan assets | (18) | | | (7) | | | (7) | | | 0 | | | 0 | | | (2) | |
Amortization: | | | | | | | | | | | |
Prior service costs | 0 | | | 0 | | | (1) | | | 0 | | | 0 | | | 0 | |
Regulatory asset | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2 | |
Net (gain)/loss | 1 | | | 0 | | | 1 | | | 0 | | | 0 | | | (1) | |
Net periodic postretirement benefit cost | $ | 2 | | | $ | (2) | | | $ | 0 | | | $ | 0 | | | $ | 1 | | | $ | 1 | |
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
| Nine Months Ended September 30, 2020 | Southern Company | | Alabama Power | | Georgia Power | | Mississippi Power | | Southern Power | | Southern Company Gas | |
| | (in millions) | | Southern Company | | Alabama Power | | Georgia Power | | Mississippi Power | | Southern Power | | Southern Company Gas |
| | | (in millions) |
Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2021 | |
Pension Plans | Pension Plans | Pension Plans | |
Service cost | Service cost | $ | 282 | | | $ | 67 | | | $ | 72 | | | $ | 11 | | | $ | 6 | | | $ | 24 | | Service cost | $ | 108 | | | $ | 25 | | | $ | 28 | | | $ | 5 | | | $ | 3 | | | $ | 9 | |
Interest cost | Interest cost | 324 | | | 75 | | | 100 | | | 15 | | | 4 | | | 23 | | Interest cost | 86 | | | 21 | | | 26 | | | 4 | | | 1 | | | 6 | |
Expected return on plan assets | Expected return on plan assets | (824) | | | (198) | | | (261) | | | (38) | | | (10) | | | (59) | | Expected return on plan assets | (297) | | | (71) | | | (94) | | | (13) | | | (4) | | | (22) | |
Amortization: | Amortization: | | Amortization: | |
Prior service costs | Prior service costs | 1 | | | 1 | | | 1 | | | 0 | | | 0 | | | (2) | | Prior service costs | 0 | | | 0 | | | 1 | | | 0 | | | 0 | | | 0 | |
Regulatory asset | Regulatory asset | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 12 | | Regulatory asset | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 4 | |
Net (gain)/loss | Net (gain)/loss | 201 | | | 53 | | | 65 | | | 10 | | | 2 | | | 7 | | Net (gain)/loss | 79 | | | 20 | | | 25 | | | 3 | | | 1 | | | 3 | |
Net periodic pension cost (income) | Net periodic pension cost (income) | $ | (16) | | | $ | (2) | | | $ | (23) | | | $ | (2) | | | $ | 2 | | | $ | 5 | | Net periodic pension cost (income) | $ | (24) | | | $ | (5) | | | $ | (14) | | | $ | (1) | | | $ | 1 | | | $ | 0 | |
| Postretirement Benefits | Postretirement Benefits | Postretirement Benefits | |
Service cost | Service cost | $ | 17 | | | $ | 4 | | | $ | 5 | | | $ | 0 | | | $ | 1 | | | $ | 1 | | Service cost | $ | 6 | | | $ | 2 | | | $ | 1 | | | $ | 0 | | | $ | 0 | | | $ | 1 | |
Interest cost | Interest cost | 40 | | | 10 | | | 15 | | | 2 | | | 0 | | | 5 | | Interest cost | 9 | | | 2 | | | 3 | | | 1 | | | 0 | | | 1 | |
Expected return on plan assets | Expected return on plan assets | (54) | | | (21) | | | (20) | | | (1) | | | 0 | | | (5) | | Expected return on plan assets | (19) | | | (7) | | | (6) | | | (1) | | | 0 | | | (2) | |
Amortization: | Amortization: | | Amortization: | |
Prior service costs | Prior service costs | (1) | | | 0 | | | (1) | | | 0 | | | 0 | | | 0 | | Prior service costs | (1) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Regulatory asset | Regulatory asset | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 5 | | Regulatory asset | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | |
Net (gain)/loss | Net (gain)/loss | 2 | | | 0 | | | 2 | | | 0 | | | 0 | | | (2) | | Net (gain)/loss | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Net periodic postretirement benefit cost | $ | 4 | | | $ | (7) | | | $ | 1 | | | $ | 1 | | | $ | 1 | | | $ | 4 | | |
Net periodic postretirement benefit cost (income) | | Net periodic postretirement benefit cost (income) | $ | (4) | | | $ | (3) | | | $ | (2) | | | $ | 0 | | | $ | 0 | | | $ | 1 | |
| Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 | |
Pension Plans | | Pension Plans |
Service cost | | Service cost | $ | 217 | | | $ | 51 | | | $ | 56 | | | $ | 9 | | | $ | 5 | | | $ | 18 | |
Interest cost | | Interest cost | 173 | | | 41 | | | 52 | | | 8 | | | 2 | | | 12 | |
Expected return on plan assets | | Expected return on plan assets | (595) | | | (143) | | | (188) | | | (27) | | | (7) | | | (43) | |
Amortization: | | Amortization: | |
Prior service costs | | Prior service costs | 0 | | | 0 | | | 1 | | | 0 | | | 0 | | | (1) | |
Regulatory asset | | Regulatory asset | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 8 | |
Net (gain)/loss | | Net (gain)/loss | 157 | | | 41 | | | 50 | | | 7 | | | 2 | | | 6 | |
Net periodic pension cost (income) | | Net periodic pension cost (income) | $ | (48) | | | $ | (10) | | | $ | (29) | | | $ | (3) | | | $ | 2 | | | $ | 0 | |
| Postretirement Benefits | | Postretirement Benefits |
Service cost | | Service cost | $ | 12 | | | $ | 3 | | | $ | 3 | | | $ | 0 | | | $ | 0 | | | $ | 1 | |
Interest cost | | Interest cost | 17 | | | 4 | | | 6 | | | 1 | | | 0 | | | 2 | |
Expected return on plan assets | | Expected return on plan assets | (38) | | | (14) | | | (13) | | | (1) | | | 0 | | | (4) | |
Amortization: | | Amortization: | |
Prior service costs | | Prior service costs | (1) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Regulatory asset | | Regulatory asset | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3 | |
Net (gain)/loss | | Net (gain)/loss | 2 | | | 0 | | | 1 | | | 0 | | | 0 | | | (1) | |
Net periodic postretirement benefit cost (income) | | Net periodic postretirement benefit cost (income) | $ | (8) | | | $ | (7) | | | $ | (3) | | | $ | 0 | | | $ | 0 | | | $ | 1 | |
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
| Three Months Ended September 30, 2019 | Southern Company | | Alabama Power | | Georgia Power | | Mississippi Power | | Southern Power | | Southern Company Gas | |
| | (in millions) | | Southern Company | | Alabama Power | | Georgia Power | | Mississippi Power | | Southern Power | | Southern Company Gas |
| | | (in millions) |
Three Months Ended June 30, 2020 | | Three Months Ended June 30, 2020 | |
Pension Plans | Pension Plans | Pension Plans |
Service cost | Service cost | $ | 73 | | | $ | 17 | | | $ | 19 | | | $ | 3 | | | $ | 2 | | | $ | 7 | | Service cost | $ | 94 | | | $ | 22 | | | $ | 24 | | | $ | 4 | | | $ | 2 | | | $ | 8 | |
Interest cost | Interest cost | 123 | | | 28 | | | 38 | | | 6 | | | 1 | | | 9 | | Interest cost | 108 | | | 25 | | | 34 | | | 5 | | | 2 | | | 7 | |
Expected return on plan assets | Expected return on plan assets | (222) | | | (51) | | | (73) | | | (10) | | | (2) | | | (15) | | Expected return on plan assets | (275) | | | (66) | | | (87) | | | (12) | | | (3) | | | (20) | |
Amortization: | Amortization: | | Amortization: | |
Prior service costs | Prior service costs | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | | Prior service costs | 0 | | | 0 | | | 1 | | | 0 | | | 0 | | | 0 | |
Regulatory asset | Regulatory asset | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3 | | Regulatory asset | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 4 | |
Net (gain)/loss | Net (gain)/loss | 30 | | | 9 | | | 11 | | | 1 | | | 0 | | | 1 | | Net (gain)/loss | 67 | | | 18 | | | 21 | | | 3 | | | 0 | | | 3 | |
Net periodic pension cost (income) | Net periodic pension cost (income) | $ | 5 | | | $ | 3 | | | $ | (5) | | | $ | 0 | | | $ | 1 | | | $ | 4 | | Net periodic pension cost (income) | $ | (6) | | | $ | (1) | | | $ | (7) | | | $ | 0 | | | $ | 1 | | | $ | 2 | |
Postretirement Benefits | Postretirement Benefits | Postretirement Benefits | |
Service cost | Service cost | $ | 5 | | | $ | 1 | | | $ | 2 | | | $ | 1 | | | $ | 0 | | | $ | 0 | | Service cost | $ | 6 | | | $ | 1 | | | $ | 2 | | | $ | 1 | | | $ | 0 | | | $ | 1 | |
Interest cost | Interest cost | 18 | | | 4 | | | 6 | | | 0 | | | 0 | | | 2 | | Interest cost | 14 | | | 3 | | | 5 | | | 1 | | | 0 | | | 4 | |
Expected return on plan assets | Expected return on plan assets | (16) | | | (6) | | | (7) | | | 0 | | | 0 | | | (1) | | Expected return on plan assets | (18) | | | (7) | | | (6) | | | (1) | | | 0 | | | (2) | |
Amortization: | Amortization: | | Amortization: | |
Prior service costs | Prior service costs | 0 | | | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | Prior service costs | (1) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Regulatory asset | Regulatory asset | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | Regulatory asset | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | |
Net (gain)/loss | Net (gain)/loss | (1) | | | 0 | | | 1 | | | 0 | | | 0 | | | 0 | | Net (gain)/loss | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | |
Net periodic postretirement benefit cost | $ | 6 | | | $ | 0 | | | $ | 2 | | | $ | 1 | | | $ | 0 | | | $ | 2 | | |
Net periodic postretirement benefit cost (income) | | Net periodic postretirement benefit cost (income) | $ | 1 | | | $ | (3) | | | $ | 1 | | | $ | 1 | | | $ | 0 | | | $ | 3 | |
| Six Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | |
Pension Plans | | Pension Plans |
Service cost | | Service cost | $ | 188 | | | $ | 44 | | | $ | 48 | | | $ | 8 | | | $ | 4 | | | $ | 16 | |
Interest cost | | Interest cost | 216 | | | 50 | | | 67 | | | 10 | | | 3 | | | 15 | |
Expected return on plan assets | | Expected return on plan assets | (550) | | | (132) | | | (174) | | | (25) | | | (6) | | | (39) | |
Amortization: | | Amortization: | |
Prior service costs | | Prior service costs | 1 | | | 0 | | | 1 | | | 0 | | | 0 | | | (1) | |
Regulatory asset | | Regulatory asset | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 8 | |
Net (gain)/loss | | Net (gain)/loss | 134 | | | 36 | | | 43 | | | 6 | | | 1 | | | 5 | |
Net periodic pension cost (income) | | Net periodic pension cost (income) | $ | (11) | | | $ | (2) | | | $ | (15) | | | $ | (1) | | | $ | 2 | | | $ | 4 | |
Postretirement Benefits | | Postretirement Benefits |
Service cost | | Service cost | $ | 11 | | | $ | 3 | | | $ | 3 | | | $ | 1 | | | $ | 0 | | | $ | 1 | |
Interest cost | | Interest cost | 27 | | | 6 | | | 10 | | | 1 | | | 0 | | | 6 | |
Expected return on plan assets | | Expected return on plan assets | (36) | | | (14) | | | (13) | | | (1) | | | 0 | | | (4) | |
Amortization: | | Amortization: | |
Prior service costs | | Prior service costs | (1) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Regulatory asset | | Regulatory asset | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3 | |
Net (gain)/loss | | Net (gain)/loss | 1 | | | 0 | | | 1 | | | 0 | | | 0 | | | (2) | |
Net periodic postretirement benefit cost (income) | | Net periodic postretirement benefit cost (income) | $ | 2 | | | $ | (5) | | | $ | 1 | | | $ | 1 | | | $ | 0 | | | $ | 4 | |
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2019 | Southern Company | | Alabama Power | | Georgia Power | | Mississippi Power | | Southern Power | | Southern Company Gas |
| (in millions) |
Pension Plans |
Service cost | $ | 219 | | | $ | 51 | | | $ | 56 | | | $ | 9 | | | $ | 5 | | | $ | 19 | |
Interest cost | 369 | | | 85 | | | 116 | | | 17 | | | 4 | | | 27 | |
Expected return on plan assets | (664) | | | (154) | | | (219) | | | (30) | | | (7) | | | (45) | |
Amortization: | | | | | | | | | | | |
Prior service costs | 2 | | | 1 | | | 1 | | | 0 | | | 0 | | | (2) | |
Regulatory asset | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 10 | |
Net (gain)/loss | 90 | | | 27 | | | 33 | | | 4 | | | 0 | | | 2 | |
Net periodic pension cost (income) | $ | 16 | | | $ | 10 | | | $ | (13) | | | $ | 0 | | | $ | 2 | | | $ | 11 | |
Postretirement Benefits |
Service cost | $ | 14 | | | $ | 3 | | | $ | 4 | | | $ | 1 | | | $ | 0 | | | $ | 1 | |
Interest cost | 52 | | | 12 | | | 19 | | | 2 | | | 0 | | | 7 | |
Expected return on plan assets | (49) | | | (19) | | | (19) | | | (1) | | | 0 | | | (4) | |
Amortization: | | | | | | | | | | | |
Prior service costs | 2 | | | 3 | | | 0 | | | 0 | | | 0 | | | 0 | |
Regulatory asset | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 4 | |
Net (gain)/loss | (2) | | | 0 | | | 1 | | | 0 | | | 0 | | | (2) | |
Net periodic postretirement benefit cost | $ | 17 | | | $ | (1) | | | $ | 5 | | | $ | 2 | | | $ | 0 | | | $ | 6 | |
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
(I) FAIR VALUE MEASUREMENTS
As of SeptemberAt June 30, 2020,2021, assets and liabilities measured at fair value on a recurring basis during the period, together with their associated level of the fair value hierarchy, were as follows:
| | | Fair Value Measurements Using: | | | Fair Value Measurements Using: | |
As of September 30, 2020: | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Net Asset Value as a Practical Expedient (NAV) | | Total | |
At June 30, 2021 | | At June 30, 2021 | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Net Asset Value as a Practical Expedient (NAV) | | Total |
| | (in millions) | | (in millions) |
Southern Company | Southern Company | | Southern Company | |
Assets: | Assets: | | Assets: | |
Energy-related derivatives(a) | Energy-related derivatives(a) | $ | 488 | | | $ | 218 | | | $ | 117 | | | $ | — | | | $ | 823 | | Energy-related derivatives(a) | $ | 656 | | | $ | 436 | | | $ | 28 | | | $ | — | | | $ | 1,120 | |
Interest rate derivatives | Interest rate derivatives | 0 | | | 20 | | | 0 | | | — | | | 20 | | Interest rate derivatives | 0 | | | 17 | | | 0 | | | — | | | 17 | |
Foreign currency derivatives | Foreign currency derivatives | 0 | | | 29 | | | 0 | | | — | | | 29 | | Foreign currency derivatives | 0 | | | 55 | | | 0 | | | — | | | 55 | |
Investments in trusts:(b)(c) | Investments in trusts:(b)(c) | | Investments in trusts:(b)(c) | |
Domestic equity | Domestic equity | 754 | | | 137 | | | 0 | | | — | | | 891 | | Domestic equity | 812 | | | 236 | | | 0 | | | — | | | 1,048 | |
Foreign equity | Foreign equity | 71 | | | 220 | | | 0 | | | — | | | 291 | | Foreign equity | 171 | | | 191 | | | 0 | | | — | | | 362 | |
U.S. Treasury and government agency securities | U.S. Treasury and government agency securities | 0 | | | 268 | | | 0 | | | — | | | 268 | | U.S. Treasury and government agency securities | 0 | | | 311 | | | 0 | | | — | | | 311 | |
Municipal bonds | Municipal bonds | 0 | | | 99 | | | 0 | | | — | | | 99 | | Municipal bonds | 0 | | | 45 | | | 0 | | | — | | | 45 | |
Pooled funds – fixed income | Pooled funds – fixed income | 0 | | | 17 | | | 0 | | | — | | | 17 | | Pooled funds – fixed income | 0 | | | 18 | | | 0 | | | — | | | 18 | |
Corporate bonds | Corporate bonds | 15 | | | 376 | | | 0 | | | — | | | 391 | | Corporate bonds | 4 | | | 453 | | | 0 | | | — | | | 457 | |
Mortgage and asset backed securities | Mortgage and asset backed securities | 0 | | | 79 | | | 0 | | | — | | | 79 | | Mortgage and asset backed securities | 0 | | | 92 | | | 0 | | | — | | | 92 | |
Private equity | Private equity | 0 | | | 0 | | | 0 | | | 68 | | | 68 | | Private equity | 0 | | | 0 | | | 0 | | | 102 | | | 102 | |
Cash and cash equivalents | 1 | | | 0 | | | 0 | | | — | | | 1 | | |
| Other | Other | 25 | | | 6 | | | 0 | | | — | | | 31 | | Other | 29 | | | 23 | | | 0 | | | — | | | 52 | |
Cash equivalents | Cash equivalents | 2,750 | | | 11 | | | 0 | | | — | | | 2,761 | | Cash equivalents | 1,039 | | | 13 | | | 0 | | | — | | | 1,052 | |
Other investments | Other investments | 9 | | | 19 | | | 0 | | | — | | | 28 | | Other investments | 9 | | | 30 | | | 0 | | | — | | | 39 | |
Total | Total | $ | 4,113 | | | $ | 1,499 | | | $ | 117 | | | $ | 68 | | | $ | 5,797 | | Total | $ | 2,720 | | | $ | 1,920 | | | $ | 28 | | | $ | 102 | | | $ | 4,770 | |
Liabilities: | Liabilities: | | Liabilities: | |
Energy-related derivatives(a) | Energy-related derivatives(a) | $ | 521 | | | $ | 155 | | | $ | 75 | | | $ | — | | | $ | 751 | | Energy-related derivatives(a) | $ | 664 | | | $ | 333 | | | $ | 10 | | | $ | — | | | $ | 1,007 | |
| Interest rate derivatives | | Interest rate derivatives | 0 | | | 9 | | | 0 | | | — | | | 9 | |
Foreign currency derivatives | Foreign currency derivatives | 0 | | | 23 | | | 0 | | | — | | | 23 | | Foreign currency derivatives | 0 | | | 10 | | | 0 | | | — | | | 10 | |
Contingent consideration | Contingent consideration | 0 | | | 0 | | | 19 | | | — | | | 19 | | Contingent consideration | 0 | | | 0 | | | 16 | | | — | | | 16 | |
Total | Total | $ | 521 | | | $ | 178 | | | $ | 94 | | | $ | — | | | $ | 793 | | Total | $ | 664 | | | $ | 352 | | | $ | 26 | | | $ | — | | | $ | 1,042 | |
|
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
| | | Fair Value Measurements Using: | | | Fair Value Measurements Using: | |
As of September 30, 2020: | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Net Asset Value as a Practical Expedient (NAV) | | Total | |
At June 30, 2021 | | At June 30, 2021 | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Net Asset Value as a Practical Expedient (NAV) | | Total |
| | (in millions) | | (in millions) |
Alabama Power | Alabama Power | | Alabama Power | |
Assets: | Assets: | | Assets: | |
Energy-related derivatives | Energy-related derivatives | $ | 0 | | | $ | 23 | | | $ | 0 | | | $ | — | | | $ | 23 | | Energy-related derivatives | $ | 0 | | | $ | 46 | | | $ | 0 | | | $ | — | | | $ | 46 | |
Nuclear decommissioning trusts:(b) | Nuclear decommissioning trusts:(b) | | Nuclear decommissioning trusts:(b) | |
Domestic equity | Domestic equity | 477 | | | 128 | | | 0 | | | — | | | 605 | | Domestic equity | 453 | | | 226 | | | 0 | | | — | | | 679 | |
Foreign equity | Foreign equity | 71 | | | 64 | | | 0 | | | — | | | 135 | | Foreign equity | 171 | | | 0 | | | 0 | | | — | | | 171 | |
U.S. Treasury and government agency securities | U.S. Treasury and government agency securities | 0 | | | 21 | | | 0 | | | — | | | 21 | | U.S. Treasury and government agency securities | 0 | | | 22 | | | 0 | | | — | | | 22 | |
Municipal bonds | Municipal bonds | 0 | | | 1 | | | 0 | | | — | | | 1 | | Municipal bonds | 0 | | | 1 | | | 0 | | | — | | | 1 | |
Corporate bonds | Corporate bonds | 15 | | | 159 | | | 0 | | | — | | | 174 | | Corporate bonds | 4 | | | 241 | | | 0 | | | — | | | 245 | |
Mortgage and asset backed securities | Mortgage and asset backed securities | 0 | | | 27 | | | 0 | | | — | | | 27 | | Mortgage and asset backed securities | 0 | | | 24 | | | 0 | | | — | | | 24 | |
Private equity | Private equity | 0 | | | 0 | | | 0 | | | 68 | | | 68 | | Private equity | 0 | | | 0 | | | 0 | | | 102 | | | 102 | |
Other | Other | 6 | | | 0 | | | 0 | | | — | | | 6 | | Other | 6 | | | 0 | | | 0 | | | — | | | 6 | |
Cash equivalents | Cash equivalents | 825 | | | 11 | | | 0 | | | — | | | 836 | | Cash equivalents | 507 | | | 13 | | | 0 | | | — | | | 520 | |
Other investments | Other investments | 0 | | | 19 | | | 0 | | | — | | | 19 | | Other investments | 0 | | | 30 | | | 0 | | | — | | | 30 | |
Total | Total | $ | 1,394 | | | $ | 453 | | | $ | 0 | | | $ | 68 | | | $ | 1,915 | | Total | $ | 1,141 | | | $ | 603 | | | $ | 0 | | | $ | 102 | | | $ | 1,846 | |
Liabilities: | Liabilities: | | Liabilities: | |
Energy-related derivatives | Energy-related derivatives | $ | 0 | | | $ | 6 | | | $ | 0 | | | $ | — | | | $ | 6 | | Energy-related derivatives | $ | 0 | | | $ | 3 | | | $ | 0 | | | $ | — | | | $ | 3 | |
| | Georgia Power | Georgia Power | | Georgia Power | |
Assets: | Assets: | | Assets: | |
Energy-related derivatives | Energy-related derivatives | $ | 0 | | | $ | 31 | | | $ | 0 | | | $ | — | | | $ | 31 | | Energy-related derivatives | $ | 0 | | | $ | 73 | | | $ | 0 | | | $ | — | | | $ | 73 | |
| Nuclear decommissioning trusts:(b)(c) | Nuclear decommissioning trusts:(b)(c) | | Nuclear decommissioning trusts:(b)(c) | |
Domestic equity | Domestic equity | 277 | | | 1 | | | 0 | | | — | | | 278 | | Domestic equity | 359 | | | 1 | | | 0 | | | — | | | 360 | |
Foreign equity | Foreign equity | 0 | | | 153 | | | 0 | | | — | | | 153 | | Foreign equity | 0 | | | 188 | | | 0 | | | — | | | 188 | |
U.S. Treasury and government agency securities | U.S. Treasury and government agency securities | 0 | | | 247 | | | 0 | | | — | | | 247 | | U.S. Treasury and government agency securities | 0 | | | 289 | | | 0 | | | — | | | 289 | |
Municipal bonds | Municipal bonds | 0 | | | 98 | | | 0 | | | — | | | 98 | | Municipal bonds | 0 | | | 44 | | | 0 | | | — | | | 44 | |
Corporate bonds | Corporate bonds | 0 | | | 217 | | | 0 | | | — | | | 217 | | Corporate bonds | 0 | | | 212 | | | 0 | | | — | | | 212 | |
Mortgage and asset backed securities | Mortgage and asset backed securities | 0 | | | 52 | | | 0 | | | — | | | 52 | | Mortgage and asset backed securities | 0 | | | 68 | | | 0 | | | — | | | 68 | |
Other | Other | 19 | | | 6 | | | 0 | | | — | | | 25 | | Other | 23 | | | 23 | | | 0 | | | — | | | 46 | |
Cash equivalents | 485 | | | 0 | | | 0 | | | — | | | 485 | | |
| Total | Total | $ | 781 | | | $ | 805 | | | $ | 0 | | | $ | — | | | $ | 1,586 | | Total | $ | 382 | | | $ | 898 | | | $ | 0 | | | $ | — | | | $ | 1,280 | |
Liabilities: | Liabilities: | | Liabilities: | |
Energy-related derivatives | Energy-related derivatives | $ | 0 | | | $ | 9 | | | $ | 0 | | | $ | — | | | $ | 9 | | Energy-related derivatives | $ | 0 | | | $ | 4 | | | $ | 0 | | | $ | — | | | $ | 4 | |
| |
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
| | | Fair Value Measurements Using: | | | Fair Value Measurements Using: | |
As of September 30, 2020: | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Net Asset Value as a Practical Expedient (NAV) | | Total | |
At June 30, 2021 | | At June 30, 2021 | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Net Asset Value as a Practical Expedient (NAV) | | Total |
| | (in millions) | | (in millions) |
Mississippi Power | Mississippi Power | | Mississippi Power | |
Assets: | Assets: | | Assets: | |
Energy-related derivatives | Energy-related derivatives | $ | 0 | | | $ | 18 | | | $ | 0 | | | $ | — | | | $ | 18 | | Energy-related derivatives | $ | 0 | | | $ | 44 | | | $ | 0 | | | $ | — | | | $ | 44 | |
| Cash equivalents | Cash equivalents | 36 | | | 0 | | | 0 | | | — | | | 36 | | Cash equivalents | 455 | | | 0 | | | 0 | | | — | | | 455 | |
Total | Total | $ | 36 | | | $ | 18 | | | $ | 0 | | | $ | — | | | $ | 54 | | Total | $ | 455 | | | $ | 44 | | | $ | 0 | | | $ | — | | | $ | 499 | |
Liabilities: | Liabilities: | | Liabilities: | |
Energy-related derivatives | Energy-related derivatives | $ | 0 | | | $ | 7 | | | $ | 0 | | | $ | — | | | $ | 7 | | Energy-related derivatives | $ | 0 | | | $ | 3 | | | $ | 0 | | | $ | — | | | $ | 3 | |
| | Southern Power | Southern Power | | Southern Power | |
Assets: | Assets: | | Assets: | |
Energy-related derivatives | Energy-related derivatives | $ | 0 | | | $ | 5 | | | $ | 0 | | | $ | — | | | $ | 5 | | Energy-related derivatives | $ | 0 | | | $ | 4 | | | $ | 0 | | | $ | — | | | $ | 4 | |
Foreign currency derivatives | Foreign currency derivatives | 0 | | | 29 | | | 0 | | | — | | | 29 | | Foreign currency derivatives | 0 | | | 55 | | | 0 | | | — | | | 55 | |
Cash equivalents | 149 | | | 0 | | | 0 | | | — | | | 149 | | |
| Total | Total | $ | 149 | | | $ | 34 | | | $ | 0 | | | $ | — | | | $ | 183 | | Total | $ | 0 | | | $ | 59 | | | $ | 0 | | | $ | — | | | $ | 59 | |
Liabilities: | Liabilities: | | Liabilities: | |
Energy-related derivatives | $ | 0 | | | $ | 1 | | | $ | 0 | | | $ | — | | | $ | 1 | | |
| Foreign currency derivatives | Foreign currency derivatives | 0 | | | 23 | | | 0 | | | — | | | 23 | | Foreign currency derivatives | $ | 0 | | | $ | 10 | | | $ | 0 | | | $ | — | | | $ | 10 | |
Contingent consideration | Contingent consideration | 0 | | | 0 | | | 19 | | | — | | | 19 | | Contingent consideration | 0 | | | 0 | | | 16 | | | — | | | 16 | |
Total | Total | $ | 0 | | | $ | 24 | | | $ | 19 | | | $ | — | | | $ | 43 | | Total | $ | 0 | | | $ | 10 | | | $ | 16 | | | $ | — | | | $ | 26 | |
| Southern Company Gas | Southern Company Gas | | Southern Company Gas | |
Assets: | Assets: | | Assets: | |
Energy-related derivatives(a) | Energy-related derivatives(a) | $ | 488 | | | $ | 141 | | | $ | 117 | | | $ | — | | | $ | 746 | | Energy-related derivatives(a) | $ | 656 | | | $ | 269 | | | $ | 28 | | | $ | — | | | $ | 953 | |
| Interest rate derivatives | | Interest rate derivatives | 0 | | | 4 | | | 0 | | | — | | | 4 | |
Non-qualified deferred compensation trusts: | Non-qualified deferred compensation trusts: | | Non-qualified deferred compensation trusts: | |
Domestic equity | Domestic equity | 0 | | | 8 | | | 0 | | | — | | | 8 | | Domestic equity | 0 | | | 9 | | | 0 | | | — | | | 9 | |
Foreign equity | Foreign equity | 0 | | | 3 | | | 0 | | | — | | | 3 | | Foreign equity | 0 | | | 3 | | | 0 | | | — | | | 3 | |
Pooled funds – fixed income | Pooled funds – fixed income | 0 | | | 17 | | | 0 | | | — | | | 17 | | Pooled funds – fixed income | 0 | | | 18 | | | 0 | | | — | | | 18 | |
Cash equivalents | 1 | | | 0 | | | 0 | | | — | | | 1 | | |
Cash equivalents and restricted cash | 113 | | | 0 | | | 0 | | | — | | | 113 | | |
| | Total | Total | $ | 602 | | | $ | 169 | | | $ | 117 | | | $ | — | | | $ | 888 | | Total | $ | 656 | | | $ | 303 | | | $ | 28 | | | $ | — | | | $ | 987 | |
Liabilities: | Liabilities: | | Liabilities: | |
Energy-related derivatives(a) | Energy-related derivatives(a) | $ | 521 | | | $ | 132 | | | $ | 75 | | | $ | — | | | $ | 728 | | Energy-related derivatives(a) | $ | 664 | | | $ | 323 | | | $ | 10 | | | $ | — | | | $ | 997 | |
|
(a)Energy-related derivatives excludeIncludes assets ($626 million, $260 million, and $28 million categorized as Level 1, 2, and 3, respectively) and liabilities ($657 million, $323 million, and $10 million categorized as Level 1, 2, and 3, respectively) related to Sequent, which were classified as held for sale at June 30, 2021. See Note (K) under "Southern Company Gas" and "Assets and Liabilities Held for Sale" for additional information. Excludes cash collateral of $70$41 million.
(b)Excludes receivables related to investment income, pending investment sales, payables related to pending investment purchases, and currencies. See Note 6 to the financial statements in Item 8 of the Form 10-K for additional information.
(c)Includes investment securities pledged to creditors and collateral received and excludes payables related to the securities lending program. As of SeptemberAt June 30, 2020,2021, approximately $25$48 million of the fair market value of Georgia Power's nuclear decommissioning trust funds' securities were on loan to creditors under the funds' managers' securities lending program. See Note 6 to the financial statements in Item 8 of the Form 10-K for additional information.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
See Note (K) under "Assets and Liabilities Held for Sale" for information regarding assets recorded at fair value on a nonrecurring basis.
Southern Company, Alabama Power, and Georgia Power continue to elect the option to fair value investment securities held in the nuclear decommissioning trust funds. The fair value of the funds, including reinvested interest and dividends and excluding the funds' expenses, increased (decreased) by the amounts shown in the table below for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019.2020. The changes were recorded as a change to the regulatory assets and liabilities related to AROs for Georgia Power and Alabama Power, respectively.
| Fair value increases (decreases) | Fair value increases (decreases) | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | Fair value increases (decreases) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 |
| | (in millions) | | (in millions) |
Southern Company | Southern Company | $ | 108 | | $ | 27 | | $ | 85 | | $ | 255 | | Southern Company | $ | 125 | | $ | 223 | | $ | 164 | | $ | (23) | |
Alabama Power | Alabama Power | 66 | | 15 | | 24 | | 140 | | Alabama Power | 77 | | 124 | | 118 | | (42) | |
Georgia Power | Georgia Power | 42 | | 12 | | 61 | | 115 | | Georgia Power | 48 | | 99 | | 46 | | 19 | |
Valuation Methodologies
The energy-related derivatives primarily consist of exchange-traded and over-the-counter financial products for natural gas and physical power products, including, from time to time, basis swaps. These are standard products used within the energy industry and are valued using the market approach. The inputs used are mainly from observable market sources, such as forward natural gas prices, power prices, implied volatility, and overnight index swap interest rates. Interest rate derivatives are also standard over-the-counter products that are valued using observable market data and assumptions commonly used by market participants. The fair value of interest rate derivatives reflects the net present value of expected payments and receipts under the swap agreement based on the market's expectation of future interest rates. Additional inputs to the net present value calculation may include the contract terms, counterparty credit risk, and occasionally, implied volatility of interest rate options. The fair value of cross-currency swaps reflects the net present value of expected payments and receipts under the swap agreement based on the market's expectation of future foreign currency exchange rates. Additional inputs to the net present value calculation may include the contract terms, counterparty credit risk, and discount rates. The interest rate derivatives and cross-currency swaps are categorized as Level 2 under Fair Value Measurements as these inputs are based on observable data and valuations of similar instruments. See Note (J) for additional information on how these derivatives are used.
For fair value measurements of the investments within the nuclear decommissioning trusts and the non-qualified deferred compensation trusts, external pricing vendors are designated for each asset class with each security specifically assigned a primary pricing source. For investments held within commingled funds, fair value is determined at the end of each business day through the net asset value, which is established by obtaining the underlying securities' individual prices from the primary pricing source. A market price secured from the primary source vendor is then evaluated by management in its valuation of the assets within the trusts. As a general approach, fixed income market pricing vendors gather market data (including indices and market research reports) and integrate relative credit information, observed market movements, and sector news into proprietary pricing models, pricing systems, and mathematical tools. Dealer quotes and other market information, including live trading levels and pricing analysts' judgments, are also obtained when available.
The NRC requires licensees of commissioned nuclear power reactors to establish a plan for providing reasonable assurance of funds for future decommissioning. See Note 6 to the financial statements under "Nuclear Decommissioning" in Item 8 of the Form 10-K for additional information.
Southern Power has contingent payment obligations related to certain acquisitions whereby Southern Powerit is primarily obligated to make generation-based payments to the seller, which commenced at the commercial operation of the respective facility and continue through 2026. The obligation isobligations are categorized as Level 3 under Fair Value Measurements as
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
the fair value is determined using significant unobservable inputs for the forecasted facility generation in MW-hours, as well as other inputs such as a fixed dollar amount per MW-hour, and a discount rate.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The fair value of contingent consideration reflects the net present value of expected payments and any periodic change arising from forecasted generation is expected to be immaterial.
"Other investments" include investments traded in the open market that have maturities greater than 90 days, which are categorized as Level 2 under Fair Value Measurements and are comprised of corporate bonds, bank certificates of deposit, treasury bonds, and/or agency bonds.
As of SeptemberAt June 30, 2020,2021, the fair value measurements of private equity investments held in Alabama Power's nuclear decommissioning trusts that are calculated at net asset value per share (or its equivalent) as a practical expedient totaled $68$102 million and unfunded commitments related to the private equity investments totaled $67 million. Private equity investments include high-quality private equity funds across several market sectors and funds that invest in real estate assets. Private equity funds do not have redemption rights. Distributions from these funds will be received as the underlying investments in the funds are liquidated.
As of SeptemberAt June 30, 2020,2021, other financial instruments for which the carrying amount did not equal fair value were as follows:
| | | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas(*) | | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas(*) |
| | (in millions) | | (in billions) |
Long-term debt, including securities due within one year: | Long-term debt, including securities due within one year: | | Long-term debt, including securities due within one year: | |
Carrying amount | Carrying amount | $ | 49,743 | | $ | 9,113 | | $ | 12,700 | | $ | 1,402 | | $ | 4,155 | | $ | 6,461 | | Carrying amount | $ | 50.4 | | $ | 9.3 | | $ | 13.5 | | $ | 1.9 | | $ | 4.0 | | $ | 6.3 | |
Fair value | Fair value | 56,739 | | 10,741 | | 15,052 | | 1,562 | | 4,535 | | 7,640 | | Fair value | 56.2 | | 10.6 | | 15.2 | | 2.1 | | 4.5 | | 7.3 | |
(*)The long-term debt of Southern Company Gas is recorded at amortized cost, including the fair value adjustments at the effective date of the 2016 merger with Southern Company. Southern Company Gas amortizes the fair value adjustments over the remaining lives of the respective bonds.bonds, the latest being through 2043.
The fair values are determined using Level 2 measurements and are based on quoted market prices for the same or similar issues or on the current rates available to the Registrants.
Commodity Contracts with Level 3 Valuation Inputs
As of SeptemberAt June 30, 2020, the fair value of2021, Southern Company Gas'Gas had Level 3 physical natural gas forward contracts was $42 million.totaling $18 million related to Sequent, which were classified as held for sale. See Note (K) under "Southern Company Gas" and "Assets and Liabilities Held for Sale" for additional information. Since commodity contracts classified as Level 3 typically include a combination of observable and unobservable components, the changes in fair value may include amounts due in part to observable market factors, or changes to assumptions on the unobservable components. The following table includes transfers to Level 3, which represent the fair value of Southern Company Gas' commodity derivative contracts that include a significant unobservable component for the first time during the period.
| | | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 | | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 |
| | (in millions) | | (in millions) |
Beginning balance | Beginning balance | $ | 80 | | $ | 14 | | Beginning balance | $ | 28 | | $ | 28 | |
Transfers to Level 3 | 0 | | 70 | | |
Transfers from Level 3 | (2) | | (5) | | |
| Instruments realized or otherwise settled during period | Instruments realized or otherwise settled during period | (9) | | (16) | | Instruments realized or otherwise settled during period | (4) | | (6) | |
Changes in fair value | Changes in fair value | (27) | | (21) | | Changes in fair value | (6) | | (4) | |
Ending balance | Ending balance | $ | 42 | | $ | 42 | | Ending balance | $ | 18 | | $ | 18 | |
Changes in fair value of Level 3 instruments represent changes in gains and losses for the periods that are reported on Southern Company Gas' statements of income in natural gas revenues.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The valuation of certain commodity contracts requires the use of certain unobservable inputs. All forward pricing used in the valuation of such contracts is directly based on third-party market data, such as broker quotes and exchange settlements, when that data is available. If third-party market data is not available, then industry standard methodologies are used to develop inputs that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. Observable inputs, including some forward prices used for determining fair value, reflect the best available market information. Unobservable inputs are updated using industry standard techniques such as extrapolation, combining observable forward inputs supplemented by historical market and other relevant data. Level 3 physical natural gas forward contracts include unobservable forward price inputs (ranging from $(1.11)$(0.06) to $0.24 $0.38 per mmBtu). Forward price increases (decreases) as of Septemberat June 30, 20202021 would have resulted in higher (lower) values on a net basis.
(J) DERIVATIVES
Southern Company, the traditional electric operating companies, Southern Power, and Southern Company Gas are exposed to market risks, including commodity price risk, interest rate risk, weather risk, and occasionally foreign currency exchange rate risk. To manage the volatility attributable to these exposures, each company nets its exposures, where possible, to take advantage of natural offsets and enters into various derivative transactions for the remaining exposures pursuant to each company's policies in areas such as counterparty exposure and risk management practices. Through the sale of Sequent on July 1, 2021, Southern Company Gas' wholesale gas operations useused various contracts in its commercial activities that generally meet the definition of derivatives. For the traditional electric operating companies, Southern Power, and Southern Company Gas' other businesses, each company's policy is that derivatives are to be used primarily for hedging purposes and mandates strict adherence to all applicable risk management policies. Derivative positions are monitored using techniques including, but not limited to, market valuation, value at risk, stress testing, and sensitivity analysis. Derivative instruments are recognized at fair value in the balance sheets as either assets or liabilities and are presented on a net basis. See Note (I) for additional fair value information. In the statements of cash flows, any cash impacts of settled energy-related and interest rate derivatives are recorded as operating activities. Any cash impacts of settled foreign currency derivatives are classified as operating or financing activities to correspond with the classification of the hedged interest or principal, respectively. See Note 1 to the financial statements under "Financial Instruments" in Item 8 of the Form 10-K for additional information. See Note (K) under "Southern Company Gas" for information regarding Southern Company Gas' sale of Sequent.
Energy-Related Derivatives
The traditional electric operating companies, Southern Power, and Southern Company Gas enter into energy-related derivatives to hedge exposures to electricity, natural gas, and other fuel price changes. However, due to cost-based rate regulations and other various cost recovery mechanisms, the traditional electric operating companies and the natural gas distribution utilities have limited exposure to market volatility in energy-related commodity prices. Each of the traditional electric operating companies and certain of the natural gas distribution utilities of Southern Company Gas manage fuel-hedging programs, implemented per the guidelines of their respective state PSCs or other applicable state regulatory agencies, through the use of financial derivative contracts, which are expected to continue to mitigate price volatility. The traditional electric operating companies (with respect to wholesale generating capacity) and Southern Power have limited exposure to market volatility in energy-related commodity prices because their long-term sales contracts shift substantially all fuel cost responsibility to the purchaser. However, the traditional electric operating companies and Southern Power may be exposed to market volatility in energy-related commodity prices to the extent any uncontracted capacity is used to sell electricity. Southern Company Gas retains exposure to price changes that can, in a volatile energy market, be material and can adversely affect its results of operations.
Southern Company Gas also enters into weather derivative contracts as economic hedges of operating margins in the event of warmer-than-normal weather. Exchange-traded options are carried at fair value, with changes reflected in operating revenues. Non-exchange-traded options are accounted for using the intrinsic value method. Changes in the intrinsic value for non-exchange-traded contracts are reflected in operating revenues.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Energy-related derivative contracts are accounted for under one of three methods:
•Regulatory Hedges —– Energy-related derivative contracts designated as regulatory hedges relate primarily to the traditional electric operating companies' and the natural gas distribution utilities' fuel-hedging programs, where gains and losses are initially recorded as regulatory liabilities and assets, respectively, and then are included in fuel expense as the underlying fuel is used in operations and ultimately recovered through the respective fuelan approved cost recovery clauses.mechanism.
•Cash Flow Hedges —– Gains and losses on energy-related derivatives designated as cash flow hedges (which are mainly used to hedge anticipated purchases and sales) are initially deferred in accumulated OCI before being recognized in the statements of income in the same period and in the same income statement line item as the earnings effect of the hedged transactions.
•Not Designated —– Gains and losses on energy-related derivative contracts that are not designated or fail to qualify as hedges are recognized in the statements of income as incurred.
Some energy-related derivative contracts require physical delivery as opposed to financial settlement, and this type of derivative is both common and prevalent within the electric and natural gas industries. When an energy-related derivative contract is settled physically, any cumulative unrealized gain or loss is reversed and the contract price is recognized in the respective line item representing the actual price of the underlying goods being delivered.
At SeptemberJune 30, 2020,2021, the net volume of energy-related derivative contracts for natural gas positions, together with the longest hedge date over which the respective entity is hedging its exposure to the variability in future cash flows for forecasted transactions and the longest non-hedge date for derivatives not designated as hedges, were as follows:
| | | Net Purchased mmBtu | | Longest Hedge Date | | Longest Non-Hedge Date | | Net Purchased mmBtu | | Longest Hedge Date | | Longest Non-Hedge Date |
| | (in millions) | | | (in millions) | |
Southern Company(*) | Southern Company(*) | 877 | | 2024 | | 2031 | Southern Company(*) | 978 | | 2030 | | 2031 |
Alabama Power | Alabama Power | 78 | | 2024 | | — | Alabama Power | 73 | | 2024 | | — |
Georgia Power | Georgia Power | 131 | | 2023 | | — | Georgia Power | 125 | | 2024 | | — |
Mississippi Power | Mississippi Power | 86 | | 2024 | | — | Mississippi Power | 85 | | 2025 | | — |
Southern Power | Southern Power | 14 | | 2022 | | 2021 | Southern Power | 9 | | 2030 | | 2022 |
Southern Company Gas(*) | Southern Company Gas(*) | 568 | | 2023 | | 2031 | Southern Company Gas(*) | 686 | | 2024 | | 2031 |
(*)Southern Company Gas' derivative instruments include both long and short natural gas positions. A long position is a contract to purchase natural gas and a short position is a contract to sell natural gas. Southern Company Gas' volume represents the net of long natural gas positions of 4.6 billion mmBtu and short natural gas positions of 4.13.9 billion mmBtu as of Septemberat June 30, 2020,2021, which is also included in Southern Company's total volume.
At September 30, 2020, the net volume See Note (K) under "Southern Company Gas" for information regarding Southern Company Gas' sale of Southern Power's energy-related derivative contracts for power to be sold was 1 million MWHs, all of which expire in 2021.Sequent.
In addition to the volumes discussed above, the traditional electric operating companies and Southern Power enter into physical natural gas supply contracts that provide the option to sell back excess natural gas due to operational constraints. The maximum expected volume of natural gas subject to such a feature is 1244 million mmBtu for Southern Company, which includes 311 million mmBtu for Alabama Power, 413 million mmBtu for Georgia Power, 16 million mmBtu for Mississippi Power, and 414 million mmBtu for Southern Power.
For cash flow hedges of energy-related derivatives, the estimated pre-tax gains (losses) expected to be reclassified from accumulated OCI to earnings for the 12-month period ending SeptemberJune 30, 20212022 are immaterial for all Registrants.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Interest Rate Derivatives
Southern Company and certain subsidiaries may enter into interest rate derivatives to hedge exposure to changes in interest rates. The derivatives employed as hedging instruments are structured to minimize ineffectiveness. Derivatives related to existing variable rate securities or forecasted transactions are accounted for as cash flow hedges where the derivatives' fair value gains or losses are recorded in OCI and are reclassified into earnings at the same time and presented on the same income statement line item as the earnings effect of the hedged transactions. Derivatives related to existing fixed rate securities are accounted for as fair value hedges, where the derivatives' fair value gains or losses and hedged items' fair value gains or losses are both recorded directly to earnings on the same income statement line item. Fair value gains or losses on derivatives that are not designated or fail to qualify as hedges are recognized in the statements of income as incurred.
At SeptemberJune 30, 2020,2021, the following interest rate derivatives were outstanding:
| | | Notional Amount | | Interest Rate Received | Weighted Average Interest Rate Paid | Hedge Maturity Date | | Fair Value Gain (Loss) at September 30, 2020 | | Notional Amount | | Interest Rate Received | Weighted Average Interest Rate Paid | Hedge Maturity Date | | Fair Value Gain (Loss) at June 30, 2021 |
�� | (in millions) | | | | (in millions) | |
| | | (in millions) | | | | (in millions) |
| | Cash Flow Hedges of Existing Debt | Cash Flow Hedges of Existing Debt | | Cash Flow Hedges of Existing Debt | |
Mississippi Power | Mississippi Power | $ | 60 | | | 1-month LIBOR | 0.58% | December 2021 | | $ | 0 | | Mississippi Power | $ | 60 | | | 1-month LIBOR | 0.58% | December 2021 | | $ | 0 | |
Fair Value Hedges of Existing Debt | Fair Value Hedges of Existing Debt | | Fair Value Hedges of Existing Debt | |
Southern Company parent | Southern Company parent | 1,500 | | | 2.35% | 1-month LIBOR + 0.87% | July 2021 | | 20 | | Southern Company parent | 400 | | | 1.75% | 1-month LIBOR + 0.68% | March 2028 | | 0 | |
| Southern Company parent | | Southern Company parent | 1,000 | | | 3.70% | 1-month LIBOR + 2.36% | April 2030 | | 4 | |
Southern Company Gas | | Southern Company Gas | 500 | | | 1.75% | 1-month LIBOR + 0.38% | January 2031 | | 3 | |
Southern Company | Southern Company | $ | 1,560 | | | $ | 20 | | Southern Company | $ | 1,960 | | | $ | 7 | |
For cash flow hedge interest rate derivatives, the estimated pre-tax gains (losses) expected to be reclassified from accumulated OCI to interest expense for the 12-month period ending SeptemberJune 30, 20212022 total $(25)$(23) million for Southern Company and are immaterial for all other Registrants. Deferred gains and losses related to interest rate derivatives are expected to be amortized into earnings through 20462051 for the Southern Company parent entity, 20352051 for Alabama Power, 2044 for Georgia Power, 2028 for Mississippi Power, and 2046 for Southern Company Gas.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Foreign Currency Derivatives
Southern Company and certain subsidiaries, including Southern Power, may enter into foreign currency derivatives to hedge exposure to changes in foreign currency exchange rates, such as that arising from the issuance of debt denominated in a currency other than U.S. dollars. Derivatives related to forecasted transactions are accounted for as cash flow hedges where the derivatives' fair value gains or losses are recorded in OCI and are reclassified into earnings at the same time and on the same income statement line as the earnings effect of the hedged transactions, including foreign currency gains or losses arising from changes in the U.S. currency exchange rates. The derivatives employed as hedging instruments are structured to minimize ineffectiveness.
At SeptemberJune 30, 2020,2021, Southern Power had the following outstanding foreign currency derivatives were outstanding:designated as cash flow hedges of existing debt:
| | | | | | | | | | | | | | | | | | | | |
| Pay Notional | Pay Rate | Receive Notional | Receive Rate | Hedge Maturity Date | Fair Value Gain (Loss) at September 30, 2020 |
| (in millions) | | (in millions) | | | (in millions) |
Cash Flow Hedges of Existing Debt | | | | | |
Southern Power | $ | 677 | | 2.95% | € | 600 | | 1.00% | June 2022 | $ | 11 | |
Southern Power | 564 | | 3.78% | 500 | | 1.85% | June 2026 | (5) | |
Total | $ | 1,241 | | | € | 1,100 | | | | $ | 6 | |
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | |
| Pay Notional | Pay Rate | Receive Notional | Receive Rate | Hedge Maturity Date | Fair Value Gain (Loss) at June 30, 2021 |
| (in millions) | | (in millions) | | | (in millions) |
| $ | 677 | | 2.95% | € | 600 | | 1.00% | June 2022 | $ | 27 | |
| 564 | | 3.78% | 500 | | 1.85% | June 2026 | 18 | |
| $ | 1,241 | | | € | 1,100 | | | | $ | 45 | |
The estimated pre-tax gains (losses) related to Southern Power's foreign currency derivatives expected to be reclassified from accumulated OCI to earnings for the 12-month period ending SeptemberJune 30, 20212022 are $(14)$17 million.
Derivative Financial Statement Presentation and Amounts
Southern Company, the traditional electric operating companies, Southern Power, and Southern Company Gas enter into derivative contracts that may contain certain provisions that permit intra-contract netting of derivative receivables and payables for routine billing and offsets related to events of default and settlements. Southern Company and certain subsidiaries also utilize master netting agreements to mitigate exposure to counterparty credit risk. These agreements may contain provisions that permit netting across product lines and against cash collateral. The fair value amounts of derivative assets and liabilities on the balance sheet are presented net to the extent that there are netting arrangements or similar agreements with the counterparties.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The fair value of energy-related derivatives, interest rate derivatives, and foreign currency derivatives was reflected in the balance sheets as follows:
| | | As of September 30, 2020 | As of December 31, 2019 | | At June 30, 2021 | At December 31, 2020 |
Derivative Category and Balance Sheet Location | Derivative Category and Balance Sheet Location | Assets | Liabilities | Assets | Liabilities | Derivative Category and Balance Sheet Location | Assets | Liabilities | Assets | Liabilities |
| | (in millions) | | (in millions) |
Southern Company | Southern Company | | Southern Company | |
Derivatives designated as hedging instruments for regulatory purposes | Derivatives designated as hedging instruments for regulatory purposes | | Derivatives designated as hedging instruments for regulatory purposes | |
Energy-related derivatives: | Energy-related derivatives: | | Energy-related derivatives: | |
Other current assets/Other current liabilities | $ | 52 | | $ | 13 | | $ | 3 | | $ | 70 | | |
Assets from risk management activities/Other current liabilities | | Assets from risk management activities/Other current liabilities | $ | 130 | | $ | 2 | | $ | 24 | | $ | 11 | |
Other deferred charges and assets/Other deferred credits and liabilities | Other deferred charges and assets/Other deferred credits and liabilities | 30 | | 15 | | 6 | | 44 | | Other deferred charges and assets/Other deferred credits and liabilities | 54 | | 8 | | 18 | | 19 | |
| Total derivatives designated as hedging instruments for regulatory purposes | Total derivatives designated as hedging instruments for regulatory purposes | $ | 82 | | $ | 28 | | $ | 9 | | $ | 114 | | Total derivatives designated as hedging instruments for regulatory purposes | $ | 184 | | $ | 10 | | $ | 42 | | $ | 30 | |
Derivatives designated as hedging instruments in cash flow and fair value hedges | Derivatives designated as hedging instruments in cash flow and fair value hedges | | Derivatives designated as hedging instruments in cash flow and fair value hedges | |
Energy-related derivatives: | Energy-related derivatives: | | Energy-related derivatives: | |
Other current assets/Other current liabilities | $ | 8 | | $ | 3 | | $ | 1 | | $ | 6 | | |
Assets from risk management activities/Other current liabilities | | Assets from risk management activities/Other current liabilities | $ | 13 | | $ | 0 | | $ | 3 | | $ | 5 | |
Other deferred charges and assets/Other deferred credits and liabilities | Other deferred charges and assets/Other deferred credits and liabilities | 2 | | 0 | | 0 | | 0 | | Other deferred charges and assets/Other deferred credits and liabilities | 1 | | 0 | | 0 | | 0 | |
Interest rate derivatives: | Interest rate derivatives: | | Interest rate derivatives: | |
Other current assets/Other current liabilities | 19 | | 0 | | 2 | | 23 | | |
Assets from risk management activities/Other current liabilities | | Assets from risk management activities/Other current liabilities | 17 | | 0 | | 20 | | 0 | |
Other deferred charges and assets/Other deferred credits and liabilities | Other deferred charges and assets/Other deferred credits and liabilities | 0 | | 0 | | 0 | | 1 | | Other deferred charges and assets/Other deferred credits and liabilities | 0 | | 9 | | 0 | | 0 | |
Foreign currency derivatives: | Foreign currency derivatives: | | Foreign currency derivatives: | |
Other current assets/Other current liabilities | 0 | | 23 | | 0 | | 24 | | |
Assets from risk management activities/Other current liabilities | | Assets from risk management activities/Other current liabilities | 27 | | 10 | | 0 | | 23 | |
Other deferred charges and assets/Other deferred credits and liabilities | Other deferred charges and assets/Other deferred credits and liabilities | 29 | | 0 | | 16 | | 0 | | Other deferred charges and assets/Other deferred credits and liabilities | 28 | | 0 | | 87 | | 0 | |
Total derivatives designated as hedging instruments in cash flow and fair value hedges | Total derivatives designated as hedging instruments in cash flow and fair value hedges | $ | 58 | | $ | 26 | | $ | 19 | | $ | 54 | | Total derivatives designated as hedging instruments in cash flow and fair value hedges | $ | 86 | | $ | 19 | | $ | 110 | | $ | 28 | |
Derivatives not designated as hedging instruments | Derivatives not designated as hedging instruments | | Derivatives not designated as hedging instruments | |
Energy-related derivatives: | Energy-related derivatives: | | Energy-related derivatives: | |
Other current assets/Other current liabilities | $ | 392 | | $ | 428 | | $ | 461 | | $ | 358 | | |
Assets from risk management activities/Other current liabilities | | Assets from risk management activities/Other current liabilities | $ | 8 | | $ | 7 | | $ | 388 | | $ | 331 | |
Other deferred charges and assets/Other deferred credits and liabilities | Other deferred charges and assets/Other deferred credits and liabilities | 338 | | 291 | | 207 | | 225 | | Other deferred charges and assets/Other deferred credits and liabilities | 0 | | 0 | | 270 | | 232 | |
Assets held for sale, current/Liabilities held for sale, current | | Assets held for sale, current/Liabilities held for sale, current | 914 | | 990 | | 0 | | 0 | |
Total derivatives not designated as hedging instruments | Total derivatives not designated as hedging instruments | $ | 730 | | $ | 719 | | $ | 668 | | $ | 583 | | Total derivatives not designated as hedging instruments | $ | 922 | | $ | 997 | | $ | 658 | | $ | 563 | |
Gross amounts recognized | Gross amounts recognized | $ | 870 | | $ | 773 | | $ | 696 | | $ | 751 | | Gross amounts recognized | $ | 1,192 | | $ | 1,026 | | $ | 810 | | $ | 621 | |
Gross amounts offset(a) | Gross amounts offset(a) | (636) | | (706) | | (463) | | (562) | | Gross amounts offset(a) | (851) | | (892) | | (529) | | (557) | |
Net amounts recognized in the Balance Sheets(b) | Net amounts recognized in the Balance Sheets(b) | $ | 234 | | $ | 67 | | $ | 233 | | $ | 189 | | Net amounts recognized in the Balance Sheets(b) | $ | 341 | | $ | 134 | | $ | 281 | | $ | 64 | |
|
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
| | | As of September 30, 2020 | As of December 31, 2019 | | At June 30, 2021 | At December 31, 2020 |
Derivative Category and Balance Sheet Location | Derivative Category and Balance Sheet Location | Assets | Liabilities | Assets | Liabilities | Derivative Category and Balance Sheet Location | Assets | Liabilities | Assets | Liabilities |
| | (in millions) | | (in millions) |
Alabama Power | Alabama Power | | Alabama Power | |
Derivatives designated as hedging instruments for regulatory purposes | Derivatives designated as hedging instruments for regulatory purposes | | Derivatives designated as hedging instruments for regulatory purposes | |
Energy-related derivatives: | Energy-related derivatives: | | Energy-related derivatives: | |
Other current assets/Other current liabilities | Other current assets/Other current liabilities | $ | 14 | | $ | 2 | | $ | 2 | | $ | 14 | | Other current assets/Other current liabilities | $ | 31 | | $ | 1 | | $ | 7 | | $ | 2 | |
Other deferred charges and assets/Other deferred credits and liabilities | Other deferred charges and assets/Other deferred credits and liabilities | 9 | | 4 | | 2 | | 10 | | Other deferred charges and assets/Other deferred credits and liabilities | 15 | | 2 | | 5 | | 5 | |
Total derivatives designated as hedging instruments for regulatory purposes | Total derivatives designated as hedging instruments for regulatory purposes | $ | 23 | | $ | 6 | | $ | 4 | | $ | 24 | | Total derivatives designated as hedging instruments for regulatory purposes | $ | 46 | | $ | 3 | | $ | 12 | | $ | 7 | |
Gross amounts recognized | Gross amounts recognized | $ | 23 | | $ | 6 | | $ | 4 | | $ | 24 | | Gross amounts recognized | $ | 46 | | $ | 3 | | $ | 12 | | $ | 7 | |
Gross amounts offset | Gross amounts offset | (5) | | (5) | | (2) | | (2) | | Gross amounts offset | (3) | | (3) | | (7) | | (7) | |
Net amounts recognized in the Balance Sheets | Net amounts recognized in the Balance Sheets | $ | 18 | | $ | 1 | | $ | 2 | | $ | 22 | | Net amounts recognized in the Balance Sheets | $ | 43 | | $ | 0 | | $ | 5 | | $ | 0 | |
| Georgia Power | Georgia Power | | Georgia Power | |
Derivatives designated as hedging instruments for regulatory purposes | Derivatives designated as hedging instruments for regulatory purposes | | Derivatives designated as hedging instruments for regulatory purposes | |
Energy-related derivatives: | Energy-related derivatives: | | Energy-related derivatives: | |
Other current assets/Other current liabilities | Other current assets/Other current liabilities | $ | 18 | | $ | 3 | | $ | 1 | | $ | 32 | | Other current assets/Other current liabilities | $ | 52 | | $ | 1 | | $ | 7 | | $ | 5 | |
Other deferred charges and assets/Other deferred credits and liabilities | Other deferred charges and assets/Other deferred credits and liabilities | 13 | | 6 | | 3 | | 21 | | Other deferred charges and assets/Other deferred credits and liabilities | 21 | | 3 | | 8 | | 8 | |
Total derivatives designated as hedging instruments for regulatory purposes | Total derivatives designated as hedging instruments for regulatory purposes | $ | 31 | | $ | 9 | | $ | 4 | | $ | 53 | | Total derivatives designated as hedging instruments for regulatory purposes | $ | 73 | | $ | 4 | | $ | 15 | | $ | 13 | |
Derivatives designated as hedging instruments in cash flow and fair value hedges | | |
Interest rate derivatives: | | |
Other current assets/Other current liabilities | $ | 0 | | $ | 0 | | $ | 0 | | $ | 17 | | |
| Total derivatives designated as hedging instruments in cash flow and fair value hedges | $ | 0 | | $ | 0 | | $ | 0 | | $ | 17 | | |
| Gross amounts recognized | Gross amounts recognized | $ | 31 | | $ | 9 | | $ | 4 | | $ | 70 | | Gross amounts recognized | $ | 73 | | $ | 4 | | $ | 15 | | $ | 13 | |
Gross amounts offset | Gross amounts offset | (9) | | (9) | | (3) | | (3) | | Gross amounts offset | (4) | | (4) | | (12) | | (12) | |
Net amounts recognized in the Balance Sheets | Net amounts recognized in the Balance Sheets | $ | 22 | | $ | 0 | | $ | 1 | | $ | 67 | | Net amounts recognized in the Balance Sheets | $ | 69 | | $ | 0 | | $ | 3 | | $ | 1 | |
| Mississippi Power | | Mississippi Power | |
Derivatives designated as hedging instruments for regulatory purposes | | Derivatives designated as hedging instruments for regulatory purposes | |
Energy-related derivatives: | | Energy-related derivatives: | |
Other current assets/Other current liabilities | | Other current assets/Other current liabilities | $ | 28 | | $ | 0 | | $ | 4 | | $ | 3 | |
Other deferred charges and assets/Other deferred credits and liabilities | | Other deferred charges and assets/Other deferred credits and liabilities | 16 | | 3 | | 5 | | 6 | |
Total derivatives designated as hedging instruments for regulatory purposes | | Total derivatives designated as hedging instruments for regulatory purposes | $ | 44 | | $ | 3 | | $ | 9 | | $ | 9 | |
| Gross amounts recognized | | Gross amounts recognized | $ | 44 | | $ | 3 | | $ | 9 | | $ | 9 | |
Gross amounts offset | | Gross amounts offset | (3) | | (3) | | (7) | | (7) | |
Net amounts recognized in the Balance Sheets | | Net amounts recognized in the Balance Sheets | $ | 41 | | $ | 0 | | $ | 2 | | $ | 2 | |
|
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
| | | As of September 30, 2020 | As of December 31, 2019 | | At June 30, 2021 | At December 31, 2020 |
Derivative Category and Balance Sheet Location | Derivative Category and Balance Sheet Location | Assets | Liabilities | Assets | Liabilities | Derivative Category and Balance Sheet Location | Assets | Liabilities | Assets | Liabilities |
| (in millions) | |
Mississippi Power | | |
Derivatives designated as hedging instruments for regulatory purposes | | |
Energy-related derivatives: | | |
Other current assets/Other current liabilities | $ | 10 | | $ | 2 | | $ | 0 | | $ | 15 | | |
Other deferred charges and assets/Other deferred credits and liabilities | 8 | | 5 | | 1 | | 12 | | |
Total derivatives designated as hedging instruments for regulatory purposes | $ | 18 | | $ | 7 | | $ | 1 | | $ | 27 | | |
| Gross amounts recognized | $ | 18 | | $ | 7 | | $ | 1 | | $ | 27 | | |
Gross amounts offset | (7) | | (7) | | (1) | | (1) | | |
Net amounts recognized in the Balance Sheets | $ | 11 | | $ | 0 | | $ | 0 | | $ | 26 | | |
| | | (in millions) |
Southern Power | Southern Power | | Southern Power | |
Derivatives designated as hedging instruments in cash flow and fair value hedges | Derivatives designated as hedging instruments in cash flow and fair value hedges | | Derivatives designated as hedging instruments in cash flow and fair value hedges | |
Energy-related derivatives: | Energy-related derivatives: | | Energy-related derivatives: | |
Other current assets/Other current liabilities | Other current assets/Other current liabilities | $ | 4 | | $ | 1 | | $ | 1 | | $ | 2 | | Other current assets/Other current liabilities | $ | 4 | | $ | 0 | | $ | 2 | | $ | 2 | |
Other deferred charges and assets/Other deferred credits and liabilities | 1 | | 0 | | 0 | | 0 | | |
| Foreign currency derivatives: | Foreign currency derivatives: | | Foreign currency derivatives: | |
Other current assets/Other current liabilities | Other current assets/Other current liabilities | 0 | | 23 | | 0 | | 24 | | Other current assets/Other current liabilities | 27 | | 10 | | 0 | | 23 | |
Other deferred charges and assets/Other deferred credits and liabilities | Other deferred charges and assets/Other deferred credits and liabilities | 29 | | 0 | | 16 | | 0 | | Other deferred charges and assets/Other deferred credits and liabilities | 28 | | 0 | | 87 | | 0 | |
Total derivatives designated as hedging instruments in cash flow and fair value hedges | Total derivatives designated as hedging instruments in cash flow and fair value hedges | $ | 34 | | $ | 24 | | $ | 17 | | $ | 26 | | Total derivatives designated as hedging instruments in cash flow and fair value hedges | $ | 59 | | $ | 10 | | $ | 89 | | $ | 25 | |
Derivatives not designated as hedging instruments | Derivatives not designated as hedging instruments | | Derivatives not designated as hedging instruments | |
Energy-related derivatives: | Energy-related derivatives: | | Energy-related derivatives: | |
Other current assets/Other current liabilities | Other current assets/Other current liabilities | $ | 0 | | $ | 0 | | $ | 2 | | $ | 1 | | Other current assets/Other current liabilities | $ | 0 | | $ | 0 | | $ | 0 | | $ | 1 | |
| Total derivatives not designated as hedging instruments | Total derivatives not designated as hedging instruments | $ | 0 | | $ | 0 | | $ | 2 | | $ | 1 | | Total derivatives not designated as hedging instruments | $ | 0 | | $ | 0 | | $ | 0 | | $ | 1 | |
Gross amounts recognized | $ | 34 | | $ | 24 | | $ | 19 | | $ | 27 | | |
Gross amounts offset | (1) | | (1) | | 0 | | 0 | | |
| Net amounts recognized in the Balance Sheets | Net amounts recognized in the Balance Sheets | $ | 33 | | $ | 23 | | $ | 19 | | $ | 27 | | Net amounts recognized in the Balance Sheets | $ | 59 | | $ | 10 | | $ | 89 | | $ | 26 | |
|
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
| | | As of September 30, 2020 | As of December 31, 2019 | | At June 30, 2021 | At December 31, 2020 |
Derivative Category and Balance Sheet Location | Derivative Category and Balance Sheet Location | Assets | Liabilities | Assets | Liabilities | Derivative Category and Balance Sheet Location | Assets | Liabilities | Assets | Liabilities |
| | (in millions) | | (in millions) |
Southern Company Gas | Southern Company Gas | | Southern Company Gas | |
Derivatives designated as hedging instruments for regulatory purposes | Derivatives designated as hedging instruments for regulatory purposes | | Derivatives designated as hedging instruments for regulatory purposes | |
Energy-related derivatives: | Energy-related derivatives: | | Energy-related derivatives: | |
Assets from risk management activities/Liabilities from risk management activities-current | $ | 10 | | $ | 6 | | $ | 0 | | $ | 9 | | |
Assets from risk management activities/Other current liabilities | | Assets from risk management activities/Other current liabilities | $ | 19 | | $ | 0 | | $ | 6 | | $ | 1 | |
Other deferred charges and assets/Other deferred credits and liabilities | Other deferred charges and assets/Other deferred credits and liabilities | 0 | | 0 | | 0 | | 1 | | Other deferred charges and assets/Other deferred credits and liabilities | 2 | | 0 | | 0 | | 0 | |
Total derivatives designated as hedging instruments for regulatory purposes | Total derivatives designated as hedging instruments for regulatory purposes | $ | 10 | | $ | 6 | | $ | 0 | | $ | 10 | | Total derivatives designated as hedging instruments for regulatory purposes | $ | 21 | | $ | 0 | | $ | 6 | | $ | 1 | |
Derivatives designated as hedging instruments in cash flow and fair value hedges | Derivatives designated as hedging instruments in cash flow and fair value hedges | | Derivatives designated as hedging instruments in cash flow and fair value hedges | |
Energy-related derivatives: | Energy-related derivatives: | | Energy-related derivatives: | |
Assets from risk management activities/Liabilities from risk management activities-current | $ | 4 | | $ | 2 | | $ | 0 | | $ | 4 | | |
Assets from risk management activities/Other current liabilities | | Assets from risk management activities/Other current liabilities | $ | 9 | | $ | 0 | | $ | 1 | | $ | 3 | |
Other deferred charges and assets/Other deferred credits and liabilities | Other deferred charges and assets/Other deferred credits and liabilities | 1 | | 0 | | 0 | | 0 | | Other deferred charges and assets/Other deferred credits and liabilities | 1 | | 0 | | 0 | | 0 | |
Interest rate derivatives: | Interest rate derivatives: | | Interest rate derivatives: | |
Assets from risk management activities/Liabilities from risk management activities-current | Assets from risk management activities/Liabilities from risk management activities-current | 0 | | 0 | | 2 | | 0 | | Assets from risk management activities/Liabilities from risk management activities-current | 4 | | 0 | | 0 | | 0 | |
| Total derivatives designated as hedging instruments in cash flow and fair value hedges | Total derivatives designated as hedging instruments in cash flow and fair value hedges | $ | 5 | | $ | 2 | | $ | 2 | | $ | 4 | | Total derivatives designated as hedging instruments in cash flow and fair value hedges | $ | 14 | | $ | 0 | | $ | 1 | | $ | 3 | |
Derivatives not designated as hedging instruments | Derivatives not designated as hedging instruments | | Derivatives not designated as hedging instruments | |
Energy-related derivatives: | Energy-related derivatives: | | Energy-related derivatives: | |
Assets from risk management activities/Liabilities from risk management activities-current | $ | 392 | | $ | 428 | | $ | 459 | | $ | 357 | | |
Assets from risk management activities/Other current liabilities | | Assets from risk management activities/Other current liabilities | $ | 8 | | $ | 7 | | $ | 388 | | $ | 330 | |
Other deferred charges and assets/Other deferred credits and liabilities | Other deferred charges and assets/Other deferred credits and liabilities | 338 | | 291 | | 207 | | 225 | | Other deferred charges and assets/Other deferred credits and liabilities | 0 | | 0 | | 270 | | 232 | |
Assets held for sale, current/Liabilities held for sale, current | | Assets held for sale, current/Liabilities held for sale, current | 914 | | 990 | | 0 | | 0 | |
Total derivatives not designated as hedging instruments | Total derivatives not designated as hedging instruments | $ | 730 | | $ | 719 | | $ | 666 | | $ | 582 | | Total derivatives not designated as hedging instruments | $ | 922 | | $ | 997 | | $ | 658 | | $ | 562 | |
Gross amounts of recognized | Gross amounts of recognized | $ | 745 | | $ | 727 | | $ | 668 | | $ | 596 | | Gross amounts of recognized | $ | 957 | | $ | 997 | | $ | 665 | | $ | 566 | |
Gross amounts offset(a) | Gross amounts offset(a) | (614) | | (684) | | (456) | | (555) | | Gross amounts offset(a) | (841) | | (882) | | (503) | | (531) | |
Net amounts recognized in the Balance Sheets(b) | Net amounts recognized in the Balance Sheets(b) | $ | 131 | | $ | 43 | | $ | 212 | | $ | 41 | | Net amounts recognized in the Balance Sheets(b) | $ | 116 | | $ | 115 | | $ | 162 | | $ | 35 | |
(a)Gross amounts offset include cash collateral held on deposit in broker margin accounts of $70$41 million and $99$28 million as of Septemberat June 30, 20202021 and December 31, 2019,2020, respectively.
(b)Net amounts of derivative instruments outstanding exclude immaterial premium and intrinsic value associated with weather derivatives of $3 million and $4 million as of September 30, 2020 and December 31, 2019, respectively.for both periods presented.
The traditional electric operating companies had noimmaterial energy-related derivatives not designated as hedging instruments at SeptemberJune 30, 20202021 and immaterial amountsno such instruments at December 31, 2019.2020.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
At SeptemberJune 30, 20202021 and December 31, 2019,2020, the pre-tax effects of unrealized derivative gains (losses) arising from energy-related derivative instruments designated as regulatory hedging instruments and deferred were as follows:
| Regulatory Hedge Unrealized Gain (Loss) Recognized in the Balance Sheet | Regulatory Hedge Unrealized Gain (Loss) Recognized in the Balance Sheet | Regulatory Hedge Unrealized Gain (Loss) Recognized in the Balance Sheet |
Derivative Category and Balance Sheet Location | Derivative Category and Balance Sheet Location | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Company Gas | Derivative Category and Balance Sheet Location | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Company Gas |
| | (in millions) | | (in millions) |
At September 30, 2020: | | |
At June 30, 2021: | | At June 30, 2021: | |
Energy-related derivatives: | Energy-related derivatives: | | Energy-related derivatives: | |
Other regulatory assets, current | $ | (5) | | $ | 0 | | $ | 0 | | $ | 0 | | $ | (5) | | |
| | Other regulatory liabilities, current | Other regulatory liabilities, current | 41 | | 12 | | 15 | | 8 | | 6 | | Other regulatory liabilities, current | $ | 120 | | $ | 31 | | $ | 51 | | $ | 28 | | $ | 10 | |
Other regulatory liabilities, deferred | Other regulatory liabilities, deferred | 15 | | 5 | | 7 | | 3 | | 0 | | Other regulatory liabilities, deferred | 46 | | 13 | | 18 | | 14 | | 1 | |
Total energy-related derivative gains (losses) | Total energy-related derivative gains (losses) | $ | 51 | | $ | 17 | | $ | 22 | | $ | 11 | | $ | 1 | | Total energy-related derivative gains (losses) | $ | 166 | | $ | 44 | | $ | 69 | | $ | 42 | | $ | 11 | |
| At December 31, 2019: | | |
At December 31, 2020: | | At December 31, 2020: | |
Energy-related derivatives: | Energy-related derivatives: | | Energy-related derivatives: | |
Other regulatory assets, current | $ | (63) | | $ | (14) | | $ | (31) | | $ | (15) | | $ | (3) | | |
| Other regulatory assets, deferred | Other regulatory assets, deferred | (37) | | (8) | | (18) | | (11) | | 0 | | Other regulatory assets, deferred | $ | (2) | | $ | 0 | | $ | (1) | | $ | (1) | | $ | 0 | |
Other regulatory liabilities, current | Other regulatory liabilities, current | 6 | | 2 | | 0 | | 0 | | 4 | | Other regulatory liabilities, current | 12 | | 5 | | 2 | | 1 | | 4 | |
| Other regulatory liabilities, deferred | | Other regulatory liabilities, deferred | 2 | | 1 | | 1 | | 0 | | 0 | |
Total energy-related derivative gains (losses) | Total energy-related derivative gains (losses) | $ | (94) | | $ | (20) | | $ | (49) | | $ | (26) | | $ | 1 | | Total energy-related derivative gains (losses) | $ | 12 | | $ | 6 | | $ | 2 | | $ | 0 | | $ | 4 | |
For the three and ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, the pre-tax effects of cash flow hedge accounting on accumulated OCI were as follows:
| Gain (Loss) Recognized in OCI on Derivative | Gain (Loss) Recognized in OCI on Derivative | For the Three Months Ended September 30, | For the Nine Months Ended September 30, | Gain (Loss) Recognized in OCI on Derivative | For the Three Months Ended June 30, | For the Six Months Ended June 30, |
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 |
| | (in millions) | | (in millions) |
Southern Company | Southern Company | | Southern Company | |
Energy-related derivatives | Energy-related derivatives | $ | 9 | | $ | (5) | | $ | 2 | | $ | (11) | | Energy-related derivatives | $ | 16 | | $ | (2) | | $ | 20 | | $ | (6) | |
Interest rate derivatives | Interest rate derivatives | 1 | | (52) | | (27) | | (88) | | Interest rate derivatives | (1) | | (1) | | 2 | | (28) | |
Foreign currency derivatives | Foreign currency derivatives | 54 | | (68) | | (10) | | (107) | | Foreign currency derivatives | 4 | | 17 | | (43) | | (65) | |
Total | Total | $ | 64 | | $ | (125) | | $ | (35) | | $ | (206) | | Total | $ | 19 | | $ | 14 | | $ | (21) | | $ | (99) | |
| Georgia Power | | |
Interest rate derivatives | $ | 0 | | $ | (47) | | $ | (3) | | $ | (83) | | |
| | Southern Power | Southern Power | | Southern Power | |
Energy-related derivatives | Energy-related derivatives | $ | 5 | | $ | (3) | | $ | 2 | | $ | (5) | | Energy-related derivatives | $ | 5 | | $ | (2) | | $ | 8 | | $ | (2) | |
| Foreign currency derivatives | Foreign currency derivatives | 54 | | (68) | | (10) | | (107) | | Foreign currency derivatives | 4 | | 17 | | (43) | | (65) | |
Total | Total | $ | 59 | | $ | (71) | | $ | (8) | | $ | (112) | | Total | $ | 9 | | $ | 15 | | $ | (35) | | $ | (67) | |
Southern Company Gas | Southern Company Gas | | Southern Company Gas | |
Energy-related derivatives | Energy-related derivatives | $ | 4 | | $ | (2) | | $ | 0 | | $ | (6) | | Energy-related derivatives | $ | 11 | | $ | 0 | | $ | 12 | | $ | (4) | |
Interest rate derivatives | Interest rate derivatives | 1 | | (5) | | (24) | | (5) | | Interest rate derivatives | 0 | | (1) | | 0 | | (25) | |
Total | Total | $ | 5 | | $ | (7) | | $ | (24) | | $ | (11) | | Total | $ | 11 | | $ | (1) | | $ | 12 | | $ | (29) | |
For the three and ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, the pre-tax effects of energy-related derivatives and interest rate derivatives designated as cash flow hedging instruments on accumulated OCI were immaterial for the other Registrants.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
For the three and ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, the pre-tax effects of cash flow and fair value hedge accounting on income were as follows:
| Location and Amount of Gain (Loss) Recognized in Income on Cash Flow and Fair Value Hedging Relationships | Location and Amount of Gain (Loss) Recognized in Income on Cash Flow and Fair Value Hedging Relationships | For the Three Months Ended September 30, | For the Nine Months Ended September 30, | Location and Amount of Gain (Loss) Recognized in Income on Cash Flow and Fair Value Hedging Relationships | For the Three Months Ended June 30, | For the Six Months Ended June 30, |
| Location and Amount of Gain (Loss) Recognized in Income on Cash Flow and Fair Value Hedging Relationships | For the Three Months Ended June 30, | For the Six Months Ended June 30, | |
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 |
| | (in millions) | | (in millions) |
Southern Company | Southern Company | | Southern Company | |
Total cost of natural gas | Total cost of natural gas | $ | 71 | | $ | 79 | | $ | 654 | | $ | 956 | | Total cost of natural gas | $ | 231 | | $ | 144 | | $ | 814 | | $ | 583 | |
Gain (loss) on energy-related cash flow hedges(a) | Gain (loss) on energy-related cash flow hedges(a) | 0 | | 0 | | (8) | | 0 | | Gain (loss) on energy-related cash flow hedges(a) | 1 | | (1) | | (2) | | (8) | |
Total depreciation and amortization | Total depreciation and amortization | 889 | | 760 | | 2,619 | | 2,267 | | Total depreciation and amortization | 891 | | 873 | | 1,762 | | 1,730 | |
Gain (loss) on energy-related cash flow hedges(a) | Gain (loss) on energy-related cash flow hedges(a) | (1) | | (1) | | (3) | | (5) | | Gain (loss) on energy-related cash flow hedges(a) | 1 | | (1) | | 4 | | (2) | |
Total interest expense, net of amounts capitalized | Total interest expense, net of amounts capitalized | (443) | | (434) | | (1,343) | | (1,294) | | Total interest expense, net of amounts capitalized | (450) | | (444) | | (901) | | (900) | |
Gain (loss) on interest rate cash flow hedges(a) | Gain (loss) on interest rate cash flow hedges(a) | (6) | | (5) | | (19) | | (14) | | Gain (loss) on interest rate cash flow hedges(a) | (7) | | (6) | | (14) | | (13) | |
Gain (loss) on foreign currency cash flow hedges(a) | Gain (loss) on foreign currency cash flow hedges(a) | (6) | | (6) | | (18) | | (18) | | Gain (loss) on foreign currency cash flow hedges(a) | (6) | | (6) | | (12) | | (12) | |
Gain (loss) on interest rate fair value hedges(b) | Gain (loss) on interest rate fair value hedges(b) | (3) | | 10 | | 27 | | 43 | | Gain (loss) on interest rate fair value hedges(b) | (3) | | 1 | | (12) | | 30 | |
Total other income (expense), net | Total other income (expense), net | 113 | | 61 | | 319 | | 239 | | Total other income (expense), net | 108 | | 101 | | 167 | | 204 | |
Gain (loss) on foreign currency cash flow hedges(a)(c) | Gain (loss) on foreign currency cash flow hedges(a)(c) | 56 | | (54) | | 52 | | (62) | | Gain (loss) on foreign currency cash flow hedges(a)(c) | 17 | | 27 | | (43) | | (4) | |
| Southern Power | Southern Power | | Southern Power | |
Total depreciation and amortization | Total depreciation and amortization | $ | 129 | | $ | 120 | | $ | 367 | | $ | 357 | | Total depreciation and amortization | $ | 132 | | $ | 121 | | $ | 251 | | $ | 239 | |
Gain (loss) on energy-related cash flow hedges(a) | Gain (loss) on energy-related cash flow hedges(a) | (1) | | (1) | | (3) | | (5) | | Gain (loss) on energy-related cash flow hedges(a) | 1 | | (1) | | 4 | | (2) | |
Total interest expense, net of amounts capitalized | Total interest expense, net of amounts capitalized | (36) | | (43) | | (114) | | (127) | | Total interest expense, net of amounts capitalized | (37) | | (38) | | (75) | | (77) | |
Gain (loss) on foreign currency cash flow hedges(a) | Gain (loss) on foreign currency cash flow hedges(a) | (6) | | (6) | | (18) | | (18) | | Gain (loss) on foreign currency cash flow hedges(a) | (6) | | (6) | | (12) | | (12) | |
Total other income (expense), net | Total other income (expense), net | 13 | | 6 | | 19 | | 48 | | Total other income (expense), net | 1 | | 1 | | 8 | | 4 | |
Gain (loss) on foreign currency cash flow hedges(a)(c) | Gain (loss) on foreign currency cash flow hedges(a)(c) | 56 | | (54) | | 52 | | (62) | | Gain (loss) on foreign currency cash flow hedges(a)(c) | 17 | | 27 | | (43) | | (4) | |
|
(a)Reclassified from accumulated OCI into earnings.
(b)For fair value hedges, changes in the fair value of the derivative contracts are generally equal to changes in the fair value of the underlying debt and have no material impact on income.
(c)The reclassification from accumulated OCI into other income (expense), net completely offsets currency gains and losses arising from changes in the U.S. currency exchange rates used to record the euro-denominated notes.
For the three and ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, the pre-tax effects of cash flow and fair value hedge accounting on income for energy-related derivatives and interest rate derivatives were immaterial for the traditional electric operating companies and Southern Company Gas.
As of September 30, 2020 and December 31, 2019, the following amounts were recorded on the balance sheets related to cumulative basis adjustments for fair value hedges:
| | | | | | | | | | | | | | | | | |
| Carrying Amount of the Hedged Item | | Cumulative Amount of Fair Value Hedging Adjustment included in Carrying Amount of the Hedged Item |
Balance Sheet Location of Hedged Items | As of September 30, 2020 | As of December 31, 2019 | | As of September 30, 2020 | As of December 31, 2019 |
| (in millions) | | (in millions) |
Southern Company | | | | | |
Securities due within one year | $ | (1,513) | | $ | (599) | | | $ | (15) | | $ | 0 | |
Long-term debt | 0 | | (1,494) | | | 0 | | 3 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
At June 30, 2021 and December 31, 2020, the following amounts were recorded on the balance sheets related to cumulative basis adjustments for fair value hedges:
| | | | | | | | | | | | | | | | | |
| Carrying Amount of the Hedged Item | | Cumulative Amount of Fair Value Hedging Adjustment included in Carrying Amount of the Hedged Item |
Balance Sheet Location of Hedged Items | At June 30, 2021 | At December 31, 2020 | | At June 30, 2021 | At December 31, 2020 |
| (in millions) | | (in millions) |
Southern Company | | | | | |
Securities due within one year | $ | 0 | | $ | (1,509) | | | $ | 0 | | $ | (10) | |
Long-term debt | (1,883) | | 0 | | | 0 | | 0 | |
| | | | | |
Southern Company Gas | | | | | |
| | | | | |
Long-term debt | $ | (492) | | $ | 0 | | | $ | 3 | | $ | 0 | |
For the three and ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, the pre-tax effects of energy-related derivatives not designated as hedging instruments on the statements of income of Southern Company and Southern Company Gas were as follows:
| | | Gain (Loss) | | Gain (Loss) |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
Derivatives in Non-Designated Hedging Relationships | Derivatives in Non-Designated Hedging Relationships | Statements of Income Location | 2020 | 2019 | | 2020 | 2019 | Derivatives in Non-Designated Hedging Relationships | Statements of Income Location | 2021 | 2020 | | 2021 | 2020 |
| | (in millions) | | (in millions) | | (in millions) | | (in millions) |
| Energy-related derivatives: | Energy-related derivatives: | Natural gas revenues(*) | $ | (30) | | $ | (2) | | | $ | 54 | | $ | 81 | | Energy-related derivatives: | Natural gas revenues(*) | $ | (103) | | $ | 14 | | | $ | (120) | | $ | 84 | |
| | | Cost of natural gas | 5 | | 2 | | | 18 | | 5 | | | Cost of natural gas | 9 | | 5 | | | 16 | | 13 | |
Total derivatives in non-designated hedging relationships | Total derivatives in non-designated hedging relationships | $ | (25) | | $ | 0 | | | $ | 72 | | $ | 86 | | Total derivatives in non-designated hedging relationships | $ | (94) | | $ | 19 | | | $ | (104) | | $ | 97 | |
| |
(*)Excludes immaterial gains (losses) recorded in natural gas revenues associated with weather derivatives for all periods presented.
For the three and ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, the pre-tax effects of energy-related derivatives not designated as hedging instruments were immaterial for all other Registrants.
Contingent Features
Southern Company, the traditional electric operating companies, Southern Power, and Southern Company Gas do not have any credit arrangements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. There are certain derivatives that could require collateral, but not accelerated payment, in the event of various credit rating changes of certain Southern Company subsidiaries. At SeptemberJune 30, 2020,2021, the Registrants had 0 collateral posted with derivative counterparties to satisfy these arrangements.
ForAt June 30, 2021, the Registrants with interest rate derivatives at September 30, 2020, the fair value ofhad no interest rate derivative liabilities with contingent features and the maximum potential collateral requirements arising from the credit-risk-related contingent features, at a rating below BBB- and/or Baa3, was immaterial.features. At SeptemberJune 30, 2020,2021, the fair value of Southern Company Gas' energy-related derivative liabilities with contingent features and the maximum potential collateral requirements arising from the credit-risk-related contingent features, at a rating below BBB- and/or Baa3, were immaterial for all Registrants.immaterial. At June 30, 2021, the other Registrants had no energy-related derivative liabilities with contingent features. The maximum potential collateral requirements arising from the credit-risk-related contingent features for the traditional electric operating companies and Southern Power include certain agreements that could require collateral in the event that one or more Southern Company power pool participants has a credit rating change to below investment grade. Following the sale of Gulf Power to NextEra Energy, Inc.,
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Gulf Power is continuing to participate in the Southern Company power pool for a defined transition period that, subject to certain potential adjustments, is scheduled to end on January 1, 2024.
Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. If collateral is required, fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral are not offset against fair value amounts recognized for derivatives executed with the same counterparty.
Alabama Power and Southern Power maintain accounts with certain regional transmission organizations to facilitate financial derivative transactions. Basedtransactions and they may be required to post collateral based on the value of the positions in these accounts and the associated margin requirements, Alabama Power and Southern Power may be required to post collateral.requirements. At SeptemberJune 30, 2020,2021, cash collateral posted in these accounts was immaterial. Southern Company Gas maintains accounts with brokers or the clearing houses of certain exchanges to facilitate financial derivative transactions. Based on the value of the positions in these accounts and the associated margin requirements, Southern Company Gas may be required to deposit cash into these accounts. At SeptemberJune 30, 2020,2021, cash collateral held on deposit in broker margin accounts was $70$41 million.
The Registrants are exposed to losses related to financial instruments in the event of counterparties' nonperformance. The Registrants only enter into agreements and material transactions with counterparties that have
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
investment grade credit ratings by Moody's and S&P or with counterparties who have posted collateral to cover potential credit exposure. The Registrants have also established risk management policies and controls to determine and monitor the creditworthiness of counterparties in order to mitigate their exposure to counterparty credit risk.
Southern Company Gas uses established credit policies to determine and monitor the creditworthiness of counterparties, including requirements to post collateral or other credit security, as well as the quality of pledged collateral. Collateral or credit security is most often in the form of cash or letters of credit from an investment-grade financial institution, but may also include cash or U.S. government securities held by a trustee. Prior to entering into a physical transaction, Southern Company Gas assigns physical wholesaleits counterparties an internal credit rating and credit limit based on the counterparties' Moody's, S&P, and Fitch ratings, commercially available credit reports, and audited financial statements. Southern Company Gas may require counterparties to pledge additional collateral when deemed necessary.
In addition, Southern Company Gas conducts credit evaluations and obtains appropriate internal approvals for the counterparty's line of credit before any transaction with the counterparty is executed. In most cases, the counterparty must have an investment grade rating, which includes a minimum long-term debt rating of Baa3 from Moody's and BBB- from S&P. Generally, Southern Company Gas requires credit enhancements by way of a guaranty, cash deposit, or letter of credit for transaction counterparties that do not have investment grade ratings.
Southern Company Gas also utilizes master netting agreements whenever possible to mitigate exposure to counterparty credit risk. When Southern Company Gas is engaged in more than one outstanding derivative transaction with the same counterparty and it also has a legally enforceable netting agreement with that counterparty, the "net" mark-to-market exposure represents the netting of the positive and negative exposures with that counterparty and a reasonable measure of Southern Company Gas' credit risk. Southern Company Gas also uses other netting agreements with certain counterparties with whom it conducts significant transactions. Master nettingNetting agreements enable Southern Company Gas to net certain assets and liabilities by counterparty. Southern Company Gas also netscounterparty across product lines and against cash collateral, provided the master netting and cash collateral agreements include such provisions. Southern Company Gas may requireWhile the amounts due from, or owed to, counterparties to pledge additional collateral when deemed necessary.are settled net, they are recorded on a gross basis on the balance sheet as energy marketing receivables and energy marketing payables.
The Registrants do not anticipate a material adverse effect on their respective financial statements as a result of counterparty nonperformance.
(K) ACQUISITIONS AND DISPOSITIONS
See Note 15 to the financial statements in Item 8 of the Form 10-K for additional information, including details of assets and liabilities held for sale at December 31, 2019 for Southern Company, Southern Power, and Southern Company Gas. The Registrants had no material assets or liabilities held for sale at September 30, 2020.
Alabama Power
On August 31, 2020, Alabama Power completed the Autauga Combined Cycle Acquisition. The total purchase price was $461 million, of which $452 million was related to net assets recorded within property, plant, and equipment on the balance sheet and the remainder primarily related to inventory, current receivables, and accounts payable. Alabama Power assumed an existing power sales agreement under which the full output of the generating facility remains committed to another third party for its remaining term of approximately three years. During the remaining term, the estimated revenues from the power sales agreement are expected to offset the associated costs of operation. See Notes (B) and (D) under "Alabama Power" and "Lease Income," respectively, for additional information.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
(K) ACQUISITIONS AND DISPOSITIONS
See Note 15 to the financial statements in Item 8 of the Form 10-K for additional information.
Southern Power
Asset AcquisitionsAcquisition
During the ninesix months ended SeptemberJune 30, 2020,2021, Southern Power acquired a controlling membership interest in the wind facility listed below. Acquisition-related costs were expensed as incurred and were not material.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Project Facility | Resource | Seller | Approximate Nameplate Capacity (MW) | Location | Southern Power
Ownership Percentage | COD | | PPA Contract Period |
Beech Ridge IIDeuel Harvest(*)
| Wind | Invenergy Renewables, LLC | 56300 | GreenbrierDeuel County, West Virginia SD | 100% of Class A | (*)B | May 2020February 2021 | | 1225 years and 15 years |
(*)In May 2020,On March 26, 2021, Southern Power purchased 100% of the Class A membership interests and now owns theacquired a controlling interest in the project, withfacility and consolidates the project's operating results in its financial statements. On March 30, 2021, Southern Power completed a tax equity transaction whereby it received $220 million. The tax equity partner, which is the Class BA member, and Invenergy Renewables, LLC owning theeach own a noncontrolling interest.
In March 2020, Southern Power entered into an agreement to acquire a controlling membership interest in an approximately 300-MW wind facility located in South Dakota. The acquisition is subject to FERC approval and certain other customary conditions to closing, including commercial operation of the facility, which is expected to occur in the first quarter 2021. The facility's output is contracted under 2 long-term PPAs. The ultimate outcome of this matter cannot be determined at this time.
Construction Projects
During the ninesix months ended SeptemberJune 30, 2020,2021, Southern Power completed construction of and placed in service the Reading wind facility, continued construction of the Skookumchuck wind facility, and commenced construction of the Garland and Tranquillity battery energy storage facilities.facilities and the Glass Sands wind facility. Total aggregate construction costs, excluding acquisition costs, are expected to be between $475$390 million and $545$460 million for the facilities under construction. At SeptemberJune 30, 2020,2021, total costs of construction incurred for these projects were $244$208 million and are included in CWIP. The ultimate outcome of these matters cannot be determined at this time.
| | | | | | | | | | | | | | | | | |
Project Facility | Resource | Approximate Nameplate Capacity (MW) | Location | Actual/Expected COD | PPA Contract Period |
Projects Completed During the Nine Months Ended September 30, 2020 |
Reading(a)
| Wind | 200 | Osage and Lyon Counties, KS | May 2020 | 12 years |
Projects Under Construction as of Septemberat June 30, 2020 |
Skookumchuck(b)
| Wind | 136 | Lewis and Thurston Counties, WA | November 2020 | 20 years2021 |
Garland Solar Storage(c)(a) | Battery energy storage system | 88 | Kern County, CA | Second quarterAugust 2021 | 20 years |
Tranquillity Solar Storage(c)(a) | Battery energy storage system | 72 | Fresno County, CA | SecondFourth quarter 2021 | 20 years |
Glass Sands(b) | Wind | 118 | Murray County, OK | Fourth quarter 2021 | 12 years |
(a)In 2018,Subsequent to June 30, 2021, Southern Power purchased 100% of the membership interests of the Reading facility pursuant to a joint development arrangement. At the time the facility was placed in service, Southern Power recorded an operating lease right-of-use asset and an operating lease liability, eachfurther restructured its ownership in the amount of $24 million. In June 2020, Southern PowerGarland battery energy storage project and completed a tax equity transaction whereby it received $156initial proceeds of $11 million, and now owns 100% of the Class B membership interests.
(b)In October 2019, Southern Power purchased 100% of the membership interests of the Skookumchuck facility pursuant to a joint development arrangement. Southern Power expects to complete a tax equity transaction upon commercial operation and retain the Class B membership interests. Shortly after the completed tax equity transaction, Southern Power may sell a noncontrolling interest in these Class B membership interests to another partner. Southern Power would retainwhile retaining the controlling ownership interest in the facility. The ultimate outcome of these matters cannot be determined at this time.
(c)interest. Prior to commercial operation, Southern Power may enter into one or more partnerships,expects to further restructure its ownership in which case it would ultimately own less than 100% of the Class B membership interests,Tranquillity battery energy storage project and complete a tax equity transaction, but wouldexpects to retain ownership of the controlling interest. The ultimate outcome of this matter cannot be determined at this time.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Development Projects
Southern Power continues to evaluate and refine the deployment of the remaining wind turbine equipment purchased in 2016 and 2017 to development and construction projects. During the ninesix months ended SeptemberJune 30, 2020, certain2021, gains on wind turbine equipment was sold, resulting in an immaterial gain.contributed to various equity method investments totaled approximately $37 million.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Southern Company Gas and Biomass Plants
Sale of Sequent
On January 17, 2020,July 1, 2021, Southern PowerCompany Gas affiliates completed the sale of its equity interests in Plant Mankato (including the 385-MW expansion unit completed in May 2019)Sequent to a subsidiary of XcelWilliams Field Services Group for a total cash purchase price of approximately $663$150 million, including finalestimated working capital adjustments. The preliminary gain associated with the transaction is approximately $90 million, which will be recorded in the third quarter 2021.
Prior to the sale, resultedSouthern Company Gas had existing agreements in place in which it guaranteed the payment performance of Sequent. Southern Company Gas will continue to guarantee Sequent's payment performance for a gainperiod of approximately $39 million ($23 million after tax). time as Williams Field Services Group obtains releases from these obligations. At June 30, 2021, the obligations subject to the payment performance guarantee totaled $268 million. Changes in the price of natural gas, market conditions, and the number of open contracts may change the amount that Southern Company Gas is required to guarantee for Sequent each month. The maximum potential exposure over the period of the payment performance guarantee generally is capped at $1 billion. At closing, Williams Field Services Group issued a payment performance guarantee to Southern Company Gas, equal to the outstanding guarantee obligation throughout this period.
The assets and liabilities of Plant MankatoSequent were classified as held for sale on Southern Company's and Southern Power'sthe balance sheets at December 31, 2019.
Plants Nacogdoches (sold in June 2019) and Mankato represented individually significant components of Southern Power; therefore, pre-tax income for these components for the three months ended September 30, 2019Company and the nine months ended September 30, 2020 and 2019 is presented below:
| | | | | | | | | | | |
| Three Months Ended September 30, 2019 | Nine Months Ended September 30, |
| 2020 | 2019 |
| (in millions) |
Southern Power's earnings before income taxes:(*) | | | |
Plant Nacogdoches | $ | 0 | | N/A | $ | 16 | |
Plant Mankato | $ | 12 | | $ | 2 | | $ | 20 | |
(*)Earnings before income taxes for components reflect the cessation of depreciation and amortization on the long-lived assets being sold upon classification as held for sale in November 2018 and April 2019 for Plant Mankato and Plant Nacogdoches, respectively.
Southern Company Gas
On March 24, 2020, Southern Company Gas completed theat June 30, 2021. See "Assets and Liabilities Held for Sale" herein for additional information.
Sale of Pivotal LNG
In connection with its March 2020 sale of its interests in Pivotal LNG, and Atlantic Coast Pipeline to Dominion Modular LNG Holdings, Inc. and Dominion Atlantic Coast Pipeline, LLC, respectively, with aggregate proceeds of $178 million, including working capital adjustments. The loss associated with the transactions was immaterial. Southern Company Gas also expectswas entitled to receive payments in February 2021 and September 2021 of2 $5 million eachpayments contingent upon Dominion Modular LNG Holdings, Inc. meeting certain milestones related to Pivotal LNG. Southern Company Gas received the first payment on April 22, 2021 and expects to receive the second payment in February 2022.
Assets and Liabilities Held for Sale
The following table provides the major classes of assets and liabilities of Pivotal LNG and the interest in Atlantic Coast Pipeline were classified as held for sale by Southern Company and Southern Company Gas at June 30, 2021 and/or December 31, 2019.2020:
| | | | | | | | | | | | | | |
| Southern Company | | Southern Company Gas |
| At June 30, | At December 31, | | At June 30, |
| 2021 | 2020 | | 2021 |
| (in millions) |
Assets Held for Sale: | | | | |
Receivables – energy marketing | $ | 486 | | $ | 0 | | | $ | 486 | |
Natural gas for sale | 90 | | 0 | | | 90 | |
Other current assets | 76 | | 0 | | | 76 | |
Total property, plant, and equipment | 11 | | 8 | | | 5 | |
Leveraged leases | 45 | | 52 | | | 0 | |
Accumulated deferred income taxes | 30 | | 0 | | | 30 | |
Other non-current assets | 49 | | 0 | | | 49 | |
Total Assets Held for Sale | $ | 787 | | $ | 60 | | | $ | 736 | |
| | | | |
Liabilities Held for Sale: | | | | |
Energy marketing trade payables | $ | 491 | | $ | 0 | | | $ | 491 | |
Other current liabilities | 148 | | 0 | | | 148 | |
Other non-current liabilities | 38 | | 0 | | | 38 | |
Total Liabilities Held for Sale | $ | 677 | | $ | 0 | | | $ | 677 | |
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Southern Company Gas' assets and liabilities held for sale at June 30, 2021 were recorded based on their carrying value as the net carrying value of Sequent was lower than the agreed upon price in the sale agreement. See NotesNote (I) for information regarding Sequent's energy-related derivatives held for sale that are recorded at fair value on a recurring basis. Southern Company's other assets held for sale at June 30, 2021 and December 31, 2020 were recorded at fair value on a nonrecurring basis, based primarily on unobservable inputs (Level 3).
See Note 3 and 7to the financial statements under "Other Matters – Southern Company Gas – Gas Pipeline Projects" and "Southern Company Gas – Equity Method Investments," respectively,Company" in Item 8 of the Form 10-K for additional information regarding the leveraged lease investment held for sale.
Southern Company's and Notes (C) and (E) under "Other Matters – Southern Company Gas"Gas' asset sales, both individually and "Southern Company Gas," respectively.combined, do not represent a strategic shift in operations that has, or is expected to have, a major effect on operations and financial results; therefore, none of the assets have been classified as discontinued operations for any of the periods presented.
(L) SEGMENT AND RELATED INFORMATION
Southern Company
The primary businesses of the Southern Company system are electricity sales by the traditional electric operating companies and Southern Power and the distribution of natural gas by Southern Company Gas. The traditional electric operating companies – Alabama Power, Georgia Power, and Mississippi Power – are vertically integrated utilities providing electric service in 3 Southeastern states. Southern Power develops, constructs, acquires, owns, and manages power generation assets, including renewable energy and battery energy storage projects, and sells electricity at market-based rates in the wholesale market. Southern Company Gas distributes natural gas through its natural gas distribution utilities and is involved in several other complementary businesses including gas pipeline investments, wholesale gas services (through June 30, 2021), and gas marketing services.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Southern Company's reportable business segments are the sale of electricity by the traditional electric operating companies, the sale of electricity in the competitive wholesale market by Southern Power, and the sale of natural gas and other complementary products and services by Southern Company Gas. Revenues from sales by Southern Power to the traditional electric operating companies were $101$112 million and $279$193 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, and $116$92 million and $320$178 million for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively. Revenues from sales of natural gas from Southern Company Gas to the traditional electric operating companies were immaterial for the three and nine months ended September 30, 2020 and $9 million and $13 million for the three and nine months ended September 30, 2019, respectively.all periods presented. Revenues from sales of natural gas from Southern Company Gas to Southern Power were $9$6 million and $22$18 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, and $20$3 million and $53$13 million for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively. The "All Other" column includes the Southern Company parent entity, which does not allocate operating expenses to business segments. Also, this category includes segments below the quantitative threshold for separate disclosure. These segments include providing energy solutions to electric utilities and their customers in the areas of distributed generation, energy storage and renewables, and energy efficiency, as well as investments in telecommunications and leveraged lease projects. All other inter-segment revenues are not material.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Financial data for business segments and products and services for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 was as follows:
| | | Electric Utilities | | | Electric Utilities | |
| | Traditional Electric Operating Companies | Southern Power | Eliminations | Total | Southern Company Gas | All Other | Eliminations | Consolidated | | Traditional Electric Operating Companies | Southern Power | Eliminations | Total | Southern Company Gas | All Other | Eliminations | Consolidated |
| | (in millions) | | (in millions) |
Three Months Ended September 30, 2020 | | |
Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2021 | |
Operating revenues | Operating revenues | $ | 4,629 | | $ | 523 | | $ | (103) | | $ | 5,049 | | $ | 477 | | $ | 132 | | $ | (38) | | $ | 5,620 | | Operating revenues | $ | 4,031 | | $ | 490 | | $ | (114) | | $ | 4,407 | | $ | 677 | | $ | 154 | | $ | (40) | | $ | 5,198 | |
Segment net income (loss)(a)(d) | Segment net income (loss)(a)(d) | 1,284 | | 74 | | 0 | | 1,358 | | 14 | | (122) | | 1 | | 1,251 | | Segment net income (loss)(a)(d) | 511 | | 36 | | 0 | | 547 | | (65) | | (108) | | (2) | | 372 | |
Nine Months Ended September 30, 2020 | | |
Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 | |
Operating revenues | Operating revenues | $ | 11,576 | | $ | 1,337 | | $ | (285) | | $ | 12,628 | | $ | 2,362 | | $ | 380 | | $ | (112) | | $ | 15,258 | | Operating revenues | $ | 7,795 | | $ | 930 | | $ | (201) | | $ | 8,524 | | $ | 2,371 | | $ | 288 | | $ | (75) | | $ | 11,108 | |
Segment net income (loss)(d)(e) | Segment net income (loss)(d)(e) | 2,571 | | 212 | | 0 | | 2,783 | | 360 | | (420) | | 9 | | 2,732 | | Segment net income (loss)(d)(e) | 1,267 | | 133 | | 0 | | 1,400 | | 333 | | (216) | | (9) | | 1,508 | |
At September 30, 2020 | | |
At June 30, 2021 | | At June 30, 2021 | |
Goodwill | Goodwill | $ | 0 | | $ | 2 | | $ | 0 | | $ | 2 | | $ | 5,015 | | $ | 263 | | $ | 0 | | $ | 5,280 | | Goodwill | $ | 0 | | $ | 2 | | $ | 0 | | $ | 2 | | $ | 5,015 | | $ | 263 | | $ | 0 | | $ | 5,280 | |
Assets held for sale | | Assets held for sale | 2 | | 0 | | 0 | | 2 | | 736 | | 49 | | 0 | | 787 | |
Total assets | Total assets | 85,218 | | 13,424 | | (671) | | 97,971 | | 21,932 | | 4,116 | | (861) | | 123,158 | | Total assets | 87,330 | | 13,708 | | (693) | | 100,345 | | 23,235 | | 3,063 | | (736) | | 125,907 | |
Three Months Ended September 30, 2019 | | |
Three Months Ended June 30, 2020 | | Three Months Ended June 30, 2020 | |
Operating revenues | Operating revenues | $ | 4,908 | | $ | 574 | | $ | (119) | | $ | 5,363 | | $ | 498 | | $ | 146 | | $ | (12) | | $ | 5,995 | | Operating revenues | $ | 3,539 | | $ | 439 | | $ | (94) | | $ | 3,884 | | $ | 636 | | $ | 135 | | $ | (35) | | $ | 4,620 | |
Segment net income (loss)(a)(e)(f) | 1,373 | | 86 | | 0 | | 1,459 | | (29) | | (110) | | (4) | | 1,316 | | |
Nine Months Ended September 30, 2019 | | |
Segment net income (loss)(a)(b)(d) | | Segment net income (loss)(a)(b)(d) | 645 | | 63 | | 0 | | 708 | | 71 | | (177) | | 10 | | 612 | |
Six Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | |
Operating revenues | Operating revenues | $ | 12,252 | | $ | 1,527 | | $ | (331) | | $ | 13,448 | | $ | 2,661 | | $ | 514 | | $ | (118) | | $ | 16,505 | | Operating revenues | $ | 6,946 | | $ | 814 | | $ | (181) | | $ | 7,579 | | $ | 1,885 | | $ | 248 | | $ | (74) | | $ | 9,638 | |
Segment net income (loss)(a)(e)(f)(g) | 2,719 | | 316 | | 0 | | 3,035 | | 347 | | 931 | | (15) | | 4,298 | | |
At December 31, 2019 | | |
Segment net income (loss)(a)(b)(d)(f) | | Segment net income (loss)(a)(b)(d)(f) | 1,287 | | 138 | | 0 | | 1,425 | | 346 | | (299) | | 8 | | 1,480 | |
At December 31, 2020 | | At December 31, 2020 | |
Goodwill | Goodwill | $ | 0 | | $ | 2 | | $ | 0 | | $ | 2 | | $ | 5,015 | | $ | 263 | | $ | 0 | | $ | 5,280 | | Goodwill | $ | 0 | | $ | 2 | | $ | 0 | | $ | 2 | | $ | 5,015 | | $ | 263 | | $ | 0 | | $ | 5,280 | |
Assets held for sale | | Assets held for sale | 5 | | 0 | | 0 | | 5 | | 0 | | 55 | | 0 | | 60 | |
Total assets | Total assets | 81,063 | | 14,300 | | (713) | | 94,650 | | 21,687 | | 3,511 | | (1,148) | | 118,700 | | Total assets | 85,486 | | 13,235 | | (680) | | 98,041 | | 22,630 | | 3,168 | | (904) | | 122,935 | |
(a)Attributable to Southern Company.
(b)Segment net income (loss) forFor the traditional electric operating companies, includes a pre-tax chargecharges at Georgia Power for estimated losses associated with the construction of Plant Vogtle Units 3 and 4 of $460 million ($343 million after tax) and $508 million ($379 million after tax) for the three and six months ended June 30, 2021, respectively, and $149 million ($111 million after tax) related to Plant Vogtle Units 3for the three and 4.six months ended June 30, 2020. See Note (B) and Note 2 to the financial statements in Item 8 of the Form 10-K under "Georgia Power – Nuclear Construction" for additional information.
(c)Segment net income (loss) for the "All Other" columnFor Southern Company Gas, includes a pre-tax impairment charge of $82 million ($58 million after tax) related to its equity method investment in the PennEast Pipeline project. See Notes (C) and (E) under "Other Matters – Southern Company Gas" and "Southern Company Gas," respectively, for additional information.
(d)For the "All Other" column, includes pre-tax impairment charges related to leveraged lease investments of $7 million ($6 million after tax) for the three and six months ended June 30, 2021 and $154 million ($74 million after tax) related to a leveraged lease investment.for the three and six months ended June 30, 2020. See Note (C)3 to the financial statements in Item 8 of the Form 10-K under "Other Matters – Southern Company" for additional information.
(d)(e)Segment net income (loss)For Southern Power, includes gains on wind turbine equipment contributed to various equity method investments totaling approximately $37 million pre-tax ($28 million after tax). See Notes (E) and (K) under "Southern Power" for additional information.
(f)For Southern Power, includes a $39 million pre-tax gain ($23 million gain after tax) on the sale of Plant Mankato. See Note (K) under "Southern Power" for additional information.
(e)Segment net income (loss) for Southern Company Gas includes a pre-tax impairment charge of $92 million ($65 million after tax) related to a natural gas storage facility in Louisiana. See Note 3 to the financial statements under "Other Matters – Southern Company Gas – Natural Gas Storage Facilities" in Item 8 of the Form 10-K for additional information.
(f)Segment net income (loss) for the "All Other" column includes the preliminary pre-tax gain associated with the sale of Gulf Power of $2.5 billion ($1.3 billion after tax) for the nine months ended September 30, 2019, as well as impairment charges in contemplation of the sales of two of PowerSecure's business units totaling $18 million and $50 million for the three and nine months ended September 30, 2019, respectively. See Note 15 to the financial statements in Item 8 of the Form 10-K under "Southern Company" for additional information.
(g)Segment net income (loss) for Southern Power includes a $23 million pre-tax gain ($88 million gain after tax) on the sale of Plant Nacogdoches. See Note 15 to the financial statements in Item 8 of the Form 10-K under "Southern Power – Sale of Natural Gas and Biomass Plants"Power" for additional information.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Products and Services
| | | | | | | | | | | | | | |
| Electric Utilities' Revenues |
| Retail | Wholesale | Other | Total |
| (in millions) |
Three Months Ended September 30, 2020 | $ | 4,243 | | $ | 584 | | $ | 222 | | $ | 5,049 | |
Three Months Ended September 30, 2019 | 4,512 | | 625 | | 226 | | 5,363 | |
Nine Months Ended September 30, 2020 | $ | 10,503 | | $ | 1,473 | | $ | 652 | | $ | 12,628 | |
Nine Months Ended September 30, 2019 | 11,136 | | 1,667 | | 645 | | 13,448 | |
| | | | | | | | | | | | | | |
| Electric Utilities' Revenues |
| Retail | Wholesale | Other | Total |
| (in millions) |
Three Months Ended June 30, 2021 | $ | 3,599 | | $ | 546 | | $ | 262 | | $ | 4,407 | |
Three Months Ended June 30, 2020 | 3,182 | | 472 | | 230 | | 3,884 | |
Six Months Ended June 30, 2021 | $ | 6,941 | | $ | 1,091 | | $ | 492 | | $ | 8,524 | |
Six Months Ended June 30, 2020 | 6,260 | | 889 | | 430 | | 7,579 | |
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| Southern Company Gas' Revenues |
| Gas Distribution Operations | Wholesale Gas Services(*) | Gas Marketing Services | Other | Total |
| (in millions) |
Three Months Ended September 30, 2020 | $ | 476 | | $ | (51) | | $ | 39 | | $ | 13 | | $ | 477 | |
Three Months Ended September 30, 2019 | 445 | | (2) | | 39 | | 16 | | 498 | |
Nine Months Ended September 30, 2020 | $ | 2,072 | | $ | (19) | | $ | 272 | | $ | 37 | | $ | 2,362 | |
Nine Months Ended September 30, 2019 | 2,169 | | 132 | | 326 | | 34 | | 2,661 | |
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| Southern Company Gas' Revenues |
| Gas Distribution Operations | Wholesale Gas Services(*) | Gas Marketing Services | Other | Total |
| (in millions) |
Three Months Ended June 30, 2021 | $ | 706 | | $ | (110) | | $ | 64 | | $ | 17 | | $ | 677 | |
Three Months Ended June 30, 2020 | 583 | | (19) | | 56 | | 16 | | 636 | |
Six Months Ended June 30, 2021 | $ | 1,898 | | $ | 188 | | $ | 259 | | $ | 26 | | $ | 2,371 | |
Six Months Ended June 30, 2020 | 1,596 | | 32 | | 233 | | 24 | | 1,885 | |
(*)The revenues for wholesale gas services are netted with costs associated with its energy and risk management activities. See "Southern Company Gas" herein for additional information.
Southern Company Gas
Southern Company Gas manages its business through 4 reportable segments – gas distribution operations, gas pipeline investments, wholesale gas services, and gas marketing services. The non-reportable segments are combined and presented as all other. See Note 15 to the financial statements in Item 8 of the Form 10-K under "Southern Company Gas" for additional information on the disposition activities described herein.
Gas distribution operations is the largest component of Southern Company Gas' business and includes natural gas local distribution utilities that construct, manage, and maintain intrastate natural gas pipelines and gas distribution facilities in 4 states.
Gas pipeline investments consists of joint ventures in natural gas pipeline investments including a 50% interest in SNG, a 20% ownership interest in the PennEast Pipeline construction project, and a 50% joint ownership interest in the Dalton Pipeline, and a 5% ownership interest in the Atlantic Coast Pipeline construction project through its sale on March 24, 2020.Pipeline. These natural gas pipelines enable the provision of diverse sources of natural gas supplies to the customers of Southern Company Gas. Gas pipeline investments also included a 5% ownership interest in the Atlantic Coast Pipeline construction project prior to its sale on March 24, 2020.
Wholesale gas services provides(until the sale of Sequent on July 1, 2021) provided natural gas asset management and/or related logistics services for each of Southern Company Gas' utilities except Nicor Gas as well as for non-affiliated companies. The Virginia Natural Gas asset management agreement ended on March 31, 2021 and was not extended. Additionally, wholesale gas services engagesengaged in natural gas storage and gas pipeline arbitrage and related activities. See Note (K) under "Southern Company Gas" for information regarding the sale of Sequent on July 1, 2021.
Gas marketing services provides natural gas marketing to end-use customers primarily in Georgia Illinois, and OhioIllinois through SouthStar.
The all other column includes segments below the quantitative threshold for separate disclosure, including natural gas storage businesses, fuels operations through the sale of Southern Company Gas' interest in Pivotal LNG on March 24, 2020, the investment in Triton through its sale on May 29, 2019, and other subsidiaries that fall below the quantitative threshold for separate disclosure. See Notes (E)disclosure, including storage and (K) under "Southern Company Gas" for additional information.fuels operations. The all other column included Jefferson Island through its sale on December 1, 2020 and Pivotal LNG through its sale on March 24, 2020.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Business segment financial data for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 was as follows:
| | | Gas Distribution Operations | Gas Pipeline Investments | Wholesale Gas Services(a) | Gas Marketing Services | Total | All Other(b) | Eliminations | Consolidated | | Gas Distribution Operations | Gas Pipeline Investments | Wholesale Gas Services(a) | Gas Marketing Services | Total | All Other | Eliminations | Consolidated |
| | (in millions) | | (in millions) |
Three Months Ended September 30, 2020 | | |
Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2021 | |
Operating revenues | | Operating revenues | $ | 710 | | $ | 8 | | $ | (110) | | $ | 64 | | $ | 672 | | $ | 11 | | $ | (6) | | $ | 677 | |
Segment net income (loss)(b) | | Segment net income (loss)(b) | 80 | | (36) | | (112) | | 6 | | (62) | | (3) | | 0 | | (65) | |
Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 | |
Operating revenues | | Operating revenues | $ | 1,910 | | $ | 16 | | $ | 188 | | $ | 259 | | $ | 2,373 | | $ | 18 | | $ | (20) | | $ | 2,371 | |
Segment net income (loss)(b) | | Segment net income (loss)(b) | 263 | | (7) | | 14 | | 62 | | 332 | | 1 | | 0 | | 333 | |
Total assets at June 30, 2021 | | Total assets at June 30, 2021 | 20,245 | | 1,492 | | 807 | | 1,486 | | 24,030 | | 11,300 | | (12,095) | | 23,235 | |
Three Months Ended June 30, 2020 | | Three Months Ended June 30, 2020 | |
Operating revenues | Operating revenues | $ | 479 | | $ | 8 | | $ | (51) | | $ | 39 | | $ | 475 | | $ | 8 | | $ | (6) | | $ | 477 | | Operating revenues | $ | 587 | | $ | 8 | | $ | (19) | | $ | 56 | | $ | 632 | | $ | 8 | | $ | (4) | | $ | 636 | |
Segment net income (loss) | Segment net income (loss) | 46 | | 23 | | (45) | | (3) | | 21 | | (7) | | 0 | | 14 | | Segment net income (loss) | 74 | | 21 | | (23) | | 5 | | 77 | | (6) | | 0 | | 71 | |
Nine Months Ended September 30, 2020 | | |
Six Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | |
Operating revenues | Operating revenues | $ | 2,086 | | $ | 24 | | $ | (19) | | $ | 272 | | $ | 2,363 | | $ | 24 | | $ | (25) | | $ | 2,362 | | Operating revenues | $ | 1,607 | | $ | 16 | | $ | 32 | | $ | 233 | | $ | 1,888 | | $ | 16 | | $ | (19) | | $ | 1,885 | |
Segment net income (loss) | Segment net income (loss) | 284 | | 74 | | (45) | | 59 | | 372 | | (12) | | 0 | | 360 | | Segment net income (loss) | 238 | | 51 | | 0 | | 62 | | 351 | | (5) | | 0 | | 346 | |
Total assets at September 30, 2020 | 18,715 | | 1,609 | | 650 | | 1,461 | | 22,435 | | 10,979 | | (11,482) | | 21,932 | | |
Three Months Ended September 30, 2019 | | |
Operating revenues | $ | 448 | | $ | 8 | | $ | (2) | | $ | 39 | | $ | 493 | | $ | 10 | | $ | (5) | | $ | 498 | | |
Segment net income (loss) | 37 | | 6 | | (9) | | (4) | | 30 | | (59) | | 0 | | (29) | | |
Nine Months Ended September 30, 2019 | | |
Operating revenues | $ | 2,188 | | $ | 24 | | $ | 132 | | $ | 326 | | $ | 2,670 | | $ | 34 | | $ | (43) | | $ | 2,661 | | |
Segment net income (loss) | 228 | | 63 | | 61 | | 54 | | 406 | | (59) | | 0 | | 347 | | |
Total assets at December 31, 2019 | 18,204 | | 1,678 | | 850 | | 1,496 | | 22,228 | | 10,759 | | (11,300) | | 21,687 | | |
Total assets at December 31, 2020 | | Total assets at December 31, 2020 | 19,090 | | 1,597 | | 850 | | 1,503 | | 23,040 | | 11,336 | | (11,746) | | 22,630 | |
(a)The revenues for wholesale gas services are netted with costs associated with its energy and risk management activities. A reconciliation of operating revenues and intercompany revenues is shown in the following table.
| | | | | | | | | | | | | | | | | |
| Third Party Gross Revenues | Intercompany Revenues | Total Gross Revenues | Less Gross Gas Costs | Operating Revenues |
| (in millions) |
Three Months Ended September 30, 2020 | $ | 1,050 | | $ | 33 | | $ | 1,083 | | $ | 1,134 | | $ | (51) | |
Three Months Ended September 30, 2019 | 1,138 | | 72 | | 1,210 | | 1,212 | | (2) | |
Nine Months Ended September 30, 2020 | $ | 3,089 | | $ | 81 | | $ | 3,170 | | $ | 3,189 | | $ | (19) | |
Nine Months Ended September 30, 2019 | 4,287 | | 223 | | 4,510 | | 4,378 | | 132 | |
| | | | | | | | | | | | | | | | | |
| Third Party Gross Revenues | Intercompany Revenues | Total Gross Revenues | Less Gross Gas Costs | Operating Revenues |
| (in millions) |
Three Months Ended June 30, 2021 | $ | 1,292 | | $ | 27 | | $ | 1,319 | | $ | 1,429 | | $ | (110) | |
Three Months Ended June 30, 2020 | 854 | | 18 | | 872 | | 891 | | (19) | |
Six Months Ended June 30, 2021 | $ | 3,881 | | $ | 90 | | $ | 3,971 | | $ | 3,783 | | $ | 188 | |
Six Months Ended June 30, 2020 | 2,039 | | 47 | | 2,086 | | 2,054 | | 32 | |
(b)Segment net income (loss) for the "All Other" columnFor gas pipeline investments, includes a pre-tax impairment charge of $92$82 million ($6558 million after tax) for the three and nine months ended September 30, 2019 related to a natural gas storage facilitythe equity method investment in Louisiana.the PennEast Pipeline project. See Note 3 to the financial statementsNotes (C) and (E) under "Other Matters – Southern Company Gas" and "Southern Company Gas, – Natural Gas Storage Facilities" in Item 8 of the Form 10-K" respectively, for additional information.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
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The following Management's Discussion and Analysis of Financial Condition and Results of Operations is a combined presentation; however, information contained herein relating to any individual Registrant is filed by such Registrant on its own behalf and each Registrant makes no representation as to information related to the other Registrants.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Southern Company is a holding company that owns all of the common stock of three traditional electric operating companies (Alabama Power, Georgia Power, and Mississippi Power), as well as Southern Power and Southern Company Gas, and owns other direct and indirect subsidiaries. The primary businesses of the Southern Company system are electricity sales by the traditional electric operating companies and Southern Power and the distribution of natural gas by Southern Company Gas. Southern Company's reportable segments are the sale of electricity by the traditional electric operating companies, the sale of electricity in the competitive wholesale market by Southern Power, and the sale of natural gas and other complementary products and services by Southern Company Gas. Southern Company Gas' reportable segments are gas distribution operations, gas pipeline investments, wholesale gas services (through June 30, 2021), and gas marketing services. See NoteNotes (K) and (L) to the Condensed Financial Statements herein for additional information on the sale of Sequent and segment reporting.reporting, respectively. For additional information on the Registrants' primary business activities, see BUSINESS – "The Southern Company System" in Item 1 of the Form 10-K.
The Registrants continue to focus on several key performance indicators. For the traditional electric operating companies and Southern Company Gas, these indicators include, but are not limited to, customer satisfaction, plant availability, electric and natural gas system reliability, and execution of major construction projects. For Southern Power, these indicators include, but are not limited to, the equivalent forced outage rate and contract availability to evaluate operating results and help ensure its ability to meet its contractual commitments to customers. In addition, Southern Company and the Subsidiary Registrants focus on earnings per share and net income, respectively, as a key performance indicator.
Recent Developments
COVID-19
During March 2020, COVID-19 was declaredGeorgia Power
Plant Vogtle Unit 3 and Common Facilities Rate Proceeding
On June 15, 2021, Georgia Power filed an application with the Georgia PSC to adjust retail base rates to include a pandemic by the World Health Organization and the Centers for Disease Control and Prevention and has spread globally, including throughout the United States. The Southern Company system provides a critical serviceportion of costs related to its customers; therefore, it is essential that Southern Company system employees are able to continue to perform their critical duties safelyinvestment in Plant Vogtle Unit 3 and effectively. The Southern Company system has implemented applicable business continuity plans, including teleworking, canceling non-essential business travel, increasing cleaning frequency at business locations, implementing applicable safety and health guidelines issued by federal and state officials, and establishing protocols for required work on customer premises. To date, these procedures have been effective in maintaining the Southern Company system's critical operations. As a result of the COVID-19 pandemic, there have been economic disruptions in the Registrants' operating territories. The traditional electric operating companies and the natural gas distribution utilities temporarily suspended disconnections for non-payment by customers and waived late fees for certain periods. See FUTURE EARNINGS POTENTIAL – "Regulatory Matters" herein for information regarding deferral of certain incremental COVID-19-related costs, including bad debt, to a regulatory asset by certain of the traditional electric operating companies and the natural gas distribution utilities. In addition, the COVID-19 pandemic has resulted in a reduction in workforce atcommon facilities shared between Plant Vogtle Units 3 and 4, as discussed further herein. Additional information regardingwell as the related costs of operation. The request includes an annual rate increase totaling approximately $370 million to be effective the month after Unit 3 is placed in service, which will be partially offset by a decrease in the NCCR tariff of approximately $116 million expected to be effective January 1, 2022. In addition, an estimated $45 million of fuel cost savings related to Unit 3 is already incorporated in Georgia Power's current fuel cost recovery rates. The Georgia PSC is scheduled to issue a final order in this proceeding on November 2, 2021. The ultimate outcome of this matter cannot be determined at this time. See Note (B) to the Condensed Financial Statements under "Georgia Power – Plant Vogtle Unit 3 and Common Facilities Rate Proceeding" herein for additional information.
Plant Vogtle Units 3 and 4 Construction and Start-Up Status
Construction continues on Plant Vogtle Units 3 and 4 (with electric generating capacity of approximately 1,100 MWs each), in which Georgia Power holds a 45.7% ownership interest. Georgia Power's share of the total project capital cost forecast to complete Plant Vogtle Units 3 and 4, including contingency, through June 2022 and March 2023, respectively, is $9.22 billion.
Georgia Power estimates the productivity impacts of the COVID-19 pandemic have consumed approximately three to four months of schedule margin previously embedded in the site work plan for Unit 3 and its past and potential future impacts on the Registrants is providedUnit 4. In addition, throughout Management's Discussion and Analysis of Financial Condition and Results of Operations and in Item 1A herein.
Alabama Power
On August 14, 2020, the Alabama PSC issued an order granting Alabamaproject continued to face challenges as described in Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein. As a certificateresult of conveniencethese factors, in January 2021, Southern Nuclear further extended certain milestone dates, including the start of hot functional testing and necessity (CCN) to procure additional capacity, and, on August 31, 2020, Alabama Power completed the Autauga Combined Cycle Acquisition.
On August 7, 2020, the Alabama PSC issued an order authorizing Alabama Power to reduce its over-collected fuel balance by $100 million and return that amount to customersload for Unit 3, from those established in the form of bill credits for the billing month of October 2020.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
See FUTURE EARNINGS POTENTIAL – "Regulatory Matters – Alabama Power" hereinFollowing the January 2021 milestone extensions, Southern Nuclear has been performing additional construction remediation work necessary to ensure quality and design standards are met as system turnovers are completed to support hot functional testing and fuel load for additional information.Unit 3. Hot functional testing for Unit 3 was completed in July 2021. As a result of challenges including, but not limited to, construction productivity, construction remediation work, the pace of system turnovers, spent fuel pool repairs, and the timeframe and duration for hot functional and other testing, at the end of the second quarter 2021, Southern Nuclear further extended certain milestone dates, including the fuel load for Unit 3, from those established in January 2021. The site work plan currently targets fuel load for Unit 3 in the fourth quarter 2021 and an in-service date of March 2022. As the site work plan includes minimal margin to these milestone dates, an in-service date in the second quarter 2022 for Unit 3 is projected, although any further delays could result in a later in-service date.
Georgia Power
Plant Vogtle Units 3As the result of productivity challenges, at the end of the second quarter 2021, Southern Nuclear also further extended milestone dates for Unit 4 from those established in January 2021. The site work plan targets an in-service date of November 2022 and primarily depends on overall construction productivity and production levels significantly improving as well as appropriate levels of craft laborers, particularly electricians and pipefitters, being added and maintained. As the site work plan includes minimal margin to the milestone dates, an in-service date in the first quarter 2023 for Unit 4 Status
In 2009, the Georgia PSC certified construction of Plant Vogtle Units 3 and 4 (with electric generating capacity of approximately 1,100 MWs each),is projected, although any further delays could result in which Georgia Power holds a 45.7% ownership interest.later in-service date.
As of June 30,March 31, 2021, approximately $84 million of the construction contingency established in the fourth quarter 2020 assignments of contingencywas assigned to the base capital cost forecast exceededfor costs primarily associated with the schedule extension for Unit 3 to December 2021, construction productivity, support resources, and construction remediation work. Georgia Power increased its total capital cost forecast as of March 31, 2021 by adding $48 million to the remaining balance ofconstruction contingency. Considering the construction contingency originally established infactors above, during the second quarter 2018. As a result,2021, all of the remaining construction contingency previously established and an additional $341 million was assigned to the base capital cost forecast for costs primarily associated with the schedule extensions for Units 3 and 4 described above, construction remediation work for Unit 3, and construction productivity and support resources for Units 3 and 4. Georgia Power established $115 million of additional construction contingencyalso increased its total capital cost forecast as of June 30, 2020 for potential risks including, among other factors,2021 by adding $119 million to replenish construction productivity and expected impacts of the COVID-19 pandemic; additional resources for supervision, field support, project management, initial test program, start-up, and operations and engineering support; subcontracts; and procurement.contingency.
After considering the significant level of uncertainty that exists regarding the future recoverability of these costs since the ultimate outcome of these matters is subject to the outcome of future assessments by management, as well as Georgia PSC decisions in future regulatory proceedings, Georgia Power recorded a total pre-tax chargecharges to income in the first quarter 2021 and the second quarter 2021 of $149$48 million ($11136 million after tax) and $460 million ($343 million after tax), respectively, for the increaseincreases in the total project capital cost forecast as of June 30, 2020.forecast. As and when these amounts are spent, Georgia Power may request the Georgia PSC to evaluate those expenditures for rate recovery.
In mid-March 2020, Southern Nuclear began implementing policies and procedures designed to mitigate the risk of transmission of COVID-19 at the construction site. In April 2020, Georgia Power, acting for itself and as agent for the other Vogtle Owners, announced a reduction in workforce at Plant Vogtle Units 3 and 4, which totaled approximately 20% of the then-existing site workforce. This workforce reduction lowered absenteeism, providing an improvement in operational efficiency and allowing for increased social distancing. From the initial peak in April 2020, the number of active cases at the site declined significantly during May and early June, but began increasing again from mid-June through July, and continued to impact productivity levels and pace of activity completion. As a result, overall production improvements were not achieved at the levels anticipated, contributing to the June 30, 2020 allocation of, and increase in, construction contingency described above.
To address these issues, in July 2020, Southern Nuclear updated its aggressive site work plan for both Unit 3 and Unit 4. In October 2020, Southern Nuclear further extended milestone dates from the July 2020 aggressive site work plan. Georgia Power still expects to achieve the regulatory-approved in-service dates of November 2021 and November 2022 for Plant Vogtle Units 3 and 4, respectively.
The continuing effects of the COVID-19 pandemic could further disrupt or delay construction, testing, supervisory, and support activities at Plant Vogtle Units 3 and 4. Georgia Power's proportionate share of the estimated incremental cost associated with COVID-19 mitigation actions and impacts on construction productivity is currently estimated to be between $70 million and $115 million. However, the ultimate impact of the COVID-19 pandemic and other factors on the construction schedule and budget for Plant Vogtle Units 3 and 4 cannot be determined at this time.
See FUTURE EARNINGS POTENTIAL – "Construction ProgramsNote (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein for additional information.
Mississippi Power
On March 17, 2020,April 15, 2021, Mississippi Power filed its 2021 IRP with the Mississippi PSC approvedPSC. The filing includes a settlement agreement between Mississippi Powerschedule to retire Plant Watson Unit 4 (268 MWs) and the Mississippi Public Utilities Staff related to Mississippi Power's base rate case filed40% ownership interest in November 2019 (Mississippi Power Rate Case Settlement Agreement). UnderPlant Greene County Units 1 and 2 (103 MWs each) in December 2023, 2025, and 2026, respectively, consistent with each unit's remaining useful life in the termsmost recent approved depreciation studies. In addition, the schedule reflects the early retirement of Mississippi Power's 50% undivided ownership interest in Plant Daniel Units 1 and 2 (502 MWs) by the end of 2027. If no deficiencies are noted that would require re-evaluation or resubmission of the Mississippi Power Rate Case Settlement Agreement, annual retail rates decreased approximately $16.7 million, or 1.85%, effective forIRP, the first billing cycle of April 2020. See FUTURE EARNINGS POTENTIAL – "Regulatory Matters – Mississippi Power – 2019 Base Rate Case" herein for additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Southern Power
During the nine months ended September 30, 2020, Southern Power completed construction of and placed in service the 200-MW Reading wind facility, continued construction of the 136-MW Skookumchuck wind facility, and commenced construction of the Garland and Tranquillity battery energy storage facilities. See FUTURE EARNINGS POTENTIAL – "Construction Programs – Southern Power" herein for additional information.
On January 17, 2020, Southern Power completed the sale of its equity interests in Plant Mankato (including the 385-MW expansion unit completed in May 2019) to a subsidiary of Xcel for a purchase price of approximately $663 million, including final working capital adjustments.
In March 2020, Southern Power entered into an agreement to acquire a controlling membership interest in an approximately 300-MW wind facility located in South Dakota. The acquisition is subject to FERC approval and certain other customary conditions to closing, including commercial operation of the facility, which is expected to occur in the first quarterMississippi PSC's review period will conclude on August 13, 2021. The facility's output is contracted under two long-term PPAs. The ultimate outcome of this matter cannot be determined at this time.
During the first half of 2021, the Mississippi PSC approved the following rate changes related to Mississippi Power's annual rate filings for 2021:
•an annual increase in revenues related to the ad valorem tax adjustment factor of approximately $28 million, which became effective with the first billing cycle of May 2021,
•an annual increase in revenues related to PEP of approximately $16 million, or 1.8%, which became effective with the first billing cycle of April 2021 in accordance with the PEP rate schedule, and
•an annual decrease in revenues related to the ECO Plan of approximately $9 million, which became effective with the first billing cycle of July 2021.
See Note (B) to the Condensed Financial Statements under "Mississippi Power" herein for additional information.
Southern Power
During the six months ended June 30, 2021, Southern Power continued construction of the 88-MW Garland and 72-MW Tranquillity battery energy storage facilities and the 118-MW Glass Sands wind facility. On May 1, 2020,March 26, 2021, Southern Power purchased a controlling membership interest in the 56-MW Beech Ridge IIapproximately 300-MW Deuel Harvest wind facility located in GreenbrierDeuel County, West VirginiaSouth Dakota from Invenergy Renewables, LLC. The facility's output is contracted under a 12-year PPA. See Note (K) to the Condensed Financial Statements under "Southern Power" herein for additional information.
At SeptemberJune 30, 2020,2021, Southern Power's average investment coverage ratio for its generating assets, including those owned with various partners, based on the ratio of investment under contract to total investment using the respective generation facilities' net book value (or expected in-service value for facilities under construction) as the investment amount was 94%93% through 20242025 and 92%91% through 2029,2030, with an average remaining contract duration of approximately 14 years.
Southern Company Gas
On March 24,April 28, 2021, Atlanta Gas Light filed its first Integrated Capacity and Delivery Plan (i-CDP) with the Georgia PSC, which includes a series of ongoing and proposed pipeline safety, reliability, and growth programs for the next 10 years, as well as the required capital investments and related costs to implement the programs. The Georgia PSC is scheduled to vote on this matter in November 2021.
On May 10, 2021, Virginia Natural Gas, the Virginia Commission staff, and other intervenors entered into a stipulation agreement related to Virginia Natural Gas' June 2020 Southern Companygeneral rate case filing, which allows for a $43 million increase in annual base rate revenues, including $14 million related to the recovery of investments under the SAVE program, based on a ROE of 9.5% and an equity ratio of 51.9%. On July 8, 2021, the hearing examiner issued a report recommending adoption of the stipulation agreement. The Virginia Commission is expected to rule on this matter by September 2021. Interim rate adjustments became effective as of November 1, 2020, subject to refund, based on Virginia Natural Gas' original request for an increase of approximately $50 million.
On July 21, 2021, Atlanta Gas completedLight filed its annual GRAM filing with the saleGeorgia PSC requesting an annual base rate increase of its interests in Pivotal LNG and Atlantic Coast Pipeline$49 million. Resolution of the GRAM filing is expected by December 31, 2021, with aggregate proceeds of $178 million, including working capital adjustments. the new rates to become effective January 1, 2022.
See Note (K)(B) to the Condensed Financial Statements under "Southern Company Gas" herein for additional information.
On June 1, 2020, Virginia Natural Gas filed a general rate case with the Virginia Commission seeking an increase in rates ofapproximately $49.6 million based on a ROE of 10.35% and an equity ratio of 54%. Rate adjustments are expected to be effective November 1, 2020, subject to refund. The Virginia Commission is expected to rule on the requested increase in the second quarter 2021.
On July 1, 2020, Atlanta Gas Light filed its 2020 GRAM filing with the Georgia PSC requesting an increase in annual base rates of $37.6 million. Resolution of the 2020 GRAM filing is expected by December 31, 2020, with rates effective January 1, 2021.
See FUTURE EARNINGS POTENTIAL – "Regulatory Matters – Southern Company Gas" herein for additional information regarding Southern Company Gas' regulatory filings. The ultimate outcome of these matters cannot be determined at this time.
During the second quarter 2021, Southern Company Gas recorded a pre-tax impairment charge of $82 million ($58 million after tax) related to its equity method investment in the PennEast Pipeline project. See Notes (C) and (E) to
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
the Condensed Financial Statements herein under "Other Matters – Southern Company Gas" and "Southern Company Gas," respectively, for additional information.
On July 1, 2021, Southern Company Gas affiliates completed the sale of Sequent to Williams Field Services Group for a total cash purchase price of $150 million, including estimated working capital adjustments. The preliminary gain associated with the transaction is approximately $90 million, which will be recorded in the third quarter 2021. See Note (K) to the Condensed Financial Statements under "Southern Company Gas" herein for additional information.
RESULTS OF OPERATIONS
Southern Company
Net Income
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Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(65) | | (4.9) | | $(1,566) | | (36.4) |
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Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(240) | | (39.2) | | $28 | | 1.9 |
Consolidated net income attributable to Southern Company was $1.25 billion$372 million ($1.180.35 per share) for the thirdsecond quarter 20202021 compared to $1.32 billion$612 million ($1.260.58 per share) for the corresponding period in 2019.2020. The decrease was primarily due to a decrease$232 million increase in retail revenues associated with milder weather in the third quarter 2020 comparedafter-tax charges related to the corresponding period in 2019construction of Plant Vogtle Units 3 and higher depreciation4 at Georgia Power and amortization expenses, partially offset by an after-tax impairment charge in 2019 recordedrelated to the PennEast Pipeline project at Southern Company Gas, relatedpartially offset by a decrease in after-tax leveraged lease impairment charges. The decrease was also due to a natural gas storage facilityhigher non-fuel operations and lower income tax expense.maintenance costs, partially offset by higher retail electric revenues associated with rates and pricing and sales growth.
Consolidated net income attributable to Southern Company was $2.7$1.51 billion ($2.581.42 per share) for year-to-date 20202021 compared to $4.3$1.48 billion ($4.121.40 per share) for the corresponding period in 2019.2020. The decreaseincrease was primarily due to increases in both natural gas revenues and retail electric revenues associated with colder weather in the $2.5 billion ($1.3 billion after tax) gain on the sale of Gulf Power recorded in 2019. See Note 15first quarter 2021 as compared to the financial statements under "Southern Company"corresponding period in Item 82020, higher retail electric revenues associated with rates and pricing and sales growth, and higher wholesale electric capacity revenues, largely offset by higher non-fuel operations and maintenance costs and the net impact of the Form 10-K for additional information regardingcharges in the sale of Gulf Power.second quarter 2021 and 2020, as described previously.
Retail Electric Revenues
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Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(269) | | (6.0) | | $(633) | | (5.7) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$417 | | 13.1 | | $681 | | 10.9 |
In the thirdsecond quarter 2020,2021, retail electric revenues were $4.2$3.6 billion compared to $4.5$3.2 billion for the corresponding period in 2019.2020. For year-to-date 2020,2021, retail electric revenues were $10.5$6.9 billion compared to $11.1$6.3 billion for the corresponding period in 2019.
Details of the changes in retail electric revenues were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter 2020 | | Year-to-Date 2020 |
| (in millions) | | (% change) | | (in millions) | | (% change) |
Retail electric – prior year | $ | 4,512 | | | | | $ | 11,136 | | | |
Estimated change resulting from – | | | | | | | |
Rates and pricing | 32 | | | 0.7 | % | | 299 | | | 2.7 | % |
Sales decline | (23) | | | (0.5) | | | (122) | | | (1.1) | |
Weather | (141) | | | (3.1) | | | (300) | | | (2.7) | |
Fuel and other cost recovery | (137) | | | (3.0) | | | (510) | | | (4.6) | |
Retail electric – current year | $ | 4,243 | | | (5.9) | % | | $ | 10,503 | | | (5.7) | % |
Revenues associated with changes in rates and pricing increased in the third quarter and year-to-date 2020 when compared to the corresponding periods in 2019 primarily due to an increase in revenue at Georgia Power related to the recovery of environmental compliance costs and the impacts of accruals for customer refunds in 2019 related to Tax Reform, partially offset by lower contributions from commercial and industrial customers with variable demand-driven pricing. The year-to-date 2020 increase was also due to the rate pricing effects of decreased customer usage at Georgia Power and customer bill credits at Alabama Power in the first quarter 2019 related to Tax Reform. See Note 2 to the financial statements under "Alabama Power" and "Georgia Power" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein for additional information.2020.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Revenues attributable toDetails of the changes in sales decreasedretail electric revenues were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter 2021 | | Year-To-Date 2021 |
| (in millions) | | (% change) | | (in millions) | | (% change) |
Retail electric – prior year | $ | 3,182 | | | | | $ | 6,260 | | | |
Estimated change resulting from – | | | | | | | |
Rates and pricing | 112 | | | 3.5 | % | | 137 | | | 2.2 | % |
Sales growth | 86 | | | 2.7 | | | 72 | | | 1.2 | |
Weather | 18 | | | 0.6 | | | 106 | | | 1.7 | |
Fuel and other cost recovery | 201 | | | 6.3 | | | 366 | | | 5.8 | |
Retail electric – current year | $ | 3,599 | | | 13.1 | % | | $ | 6,941 | | | 10.9 | % |
Revenues associated with changes in rates and pricing increased in the thirdsecond quarter and year-to-date 20202021 when compared to the corresponding periods in 2019 largely2020 primarily due to work-from-home policies relatedan increase in Alabama Power's Rate RSE effective January 1, 2021 and increases at Georgia Power resulting from higher contributions by commercial and industrial customers with variable demand-driven pricing, higher pricing effects associated with decreased residential customer usage, and increased ECCR tariff revenues associated with higher KWH sales, partially offset by decreases in the NCCR tariff effective January 1, 2021. See Note 2 to the COVID-19 pandemicfinancial statements under "Alabama Power – Rate RSE" in Item 8 of the Form 10-K and reluctance of consumersNote (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction – Regulatory Matters" herein for additional information.
Revenues attributable to changes in sales increased in the second quarter and businessesyear-to-date 2021 when compared to resume pre-pandemic levels of activity.the corresponding periods in 2020. Weather-adjusted residential KWH sales increased 3.5%decreased 2.0% and 3.7%0.4% in the thirdsecond quarter and year-to-date 2020,2021, respectively, when compared to the corresponding periods in 20192020 as customer usage decreased, primarily due to shelter-in-place orders in effect during 2020, partially offset by customer growth and an increase in average customer usage, primarily due to the temporary suspension of customer disconnections for nonpayment and work-from-home policies.growth. Weather-adjusted commercial KWH sales decreased 5.1%increased 8.7% and 5.9%2.7% in the thirdsecond quarter and year-to-date 2020,2021, respectively, and industrial KWH sales increased 11.7% and 4.0% in the second quarter and year-to-date 2021, respectively, when compared to the corresponding periods in 20192020, primarily due to lower customer usage resulting from changes in consumer and business behavior in response to the COVID-19 pandemic. Industrial KWH sales decreased 7.3% and 7.8% in the third quarter and year-to-date 2020, respectively, when compared to the corresponding periods in 2019 primarily as a resultnegative impact of disruptions in supply chain and business operations related to the COVID-19 pandemic and the overall decreaseon energy demand in business activity due to the resulting recession.2020.
Fuel and other cost recovery revenues decreased $137increased $201 million and $510$366 million in the thirdsecond quarter and year-to-date 2020,2021, respectively, compared to the corresponding periods in 20192020 primarily due to decreases in generation and the average cost ofhigher fuel and purchased power.power costs. Electric rates for the traditional electric operating companies include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these provisions, fuel revenues generally equal fuel expenses,expenses, including the energy component of PPA costs, and do not affect net income. The traditional electric operating companies each have one or more regulatory mechanisms to recover other costs such as environmental and other compliance costs, storm damage, new plants, and PPA capacity costs.
Wholesale Electric Revenues
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Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(41) | | (6.6) | | $(194) | | (11.6) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$74 | | 15.7 | | $202 | | 22.7 |
Wholesale electric revenues consist of revenues from PPAs and short-term opportunity sales. Wholesale electric revenues from PPAs (other than solar and wind PPAs) have both capacity and energy components. Capacity revenues generally represent the greatest contribution to net income and are designed to provide recovery of fixed costs plus a return on investment. Energy revenues will vary depending on fuel prices, the market prices of wholesale energy compared to the Southern Company system's generation, demand for energy within the Southern Company system's electric service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are accompanied by an increase or
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
decrease in fuel costs and do not have a significant impact on net income. Energy sales from solar and wind PPAs do not have a capacity charge and customers either purchase the energy output of a dedicated renewable facility through an energy charge or through a fixed price related to the energy. As a result, the ability to recover fixed and variable operations and maintenance expenses is dependent upon the level of energy generated from these facilities, which can be impacted by weather conditions, equipment performance, transmission constraints, and other factors. Wholesale electric revenues at Mississippi Power include FERC-regulated municipal and rural association sales under cost-based tariffs as well as market-based sales. Short-term opportunity sales are made at market-based rates that generally provide a margin above the Southern Company system's variable cost to produce the energy.
In the thirdsecond quarter 2020,2021, wholesale electric revenues were $584$546 million compared to $625$472 million for the corresponding period in 2019.2020. For year-to-date 2020,2021, wholesale electric revenues were $1.5$1.1 billion compared to $1.7$0.9 billion for the corresponding period in 2019. These decreases reflect decreases of $31 million and $134 million2020. Increases in energy revenues of $51 million and $153 million for the thirdsecond quarter and year-to-date 2020,2021, respectively, of which $22 million and $88 million, respectively, is from Southern Power. The decreases in energy revenues primarily resulted from lowerreflect higher natural gas prices and a net decrease in the volume of KWHs sold, primarily as a result of milder weather in the Southeast U.S. when compared to the corresponding periods in 2019.2020. In addition, decreasesincreases in capacity revenues of $10$23 million and $60$49 million infor the thirdsecond quarter and year-to-date 2021, respectively, primarily resulted from a power sales agreement at Alabama Power that began in September 2020 respectively,and new natural gas PPAs at Southern Power that began subsequent to the second quarter 2020.
Other Electric Revenues
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Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$7 | | 4.2 | | $26 | | 8.1 |
For year-to-date 2021, other electric revenues were $346 million compared to $320 million for the corresponding period in 2020. The increase was primarily due to Southern Power's saleincreases of $16 million in customer fees largely resulting from the COVID-19 pandemic-related temporary suspensions of disconnections and late fees in 2020 for the traditional electric operating companies, $5 million related to outdoor lighting sales at Georgia Power, and $3 million in transmission services.
Natural Gas Revenues
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Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$41 | | 6.4 | | $486 | | 25.8 |
In the second quarter 2021, natural gas revenues were $677 million compared to $636 million for the corresponding period in 2020. For year-to-date 2021, natural gas revenues were $2.4 billion compared to $1.9 billion for the corresponding period in 2020.
Details of the changes in natural gas revenues were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter 2021 | | Year-To-Date 2021 |
| (in millions) | | (% change) | | (in millions) | | (% change) |
Natural gas revenues – prior year | $ | 636 | | | | | $ | 1,885 | | | |
Estimated change resulting from – | | | | | | | |
Infrastructure replacement programs and base rate changes | 41 | | | 6.4 | % | | 81 | | | 4.3 | % |
Gas costs and other cost recovery | 88 | | | 13.8 | | | 240 | | | 12.7 | |
| | | | | | | |
Wholesale gas services | (91) | | | (14.3) | | | 156 | | | 8.3 | |
Other | 3 | | | 0.5 | | | 9 | | | 0.5 | |
Natural gas revenues – current year | $ | 677 | | | 6.4 | % | | $ | 2,371 | | | 25.8 | % |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Plant Mankato in the first quarter 2020. The year-to-date 2020 capacity revenue decrease was also due to Southern Power's sale of Plant Nacogdoches in the second quarter 2019. See Note (K) to the Condensed Financial Statements under "Southern Power" herein and Note 15 to the financial statements under "Southern Power – Sales of Natural Gas and Biomass Plants" in Item 8 of the Form 10-K for additional information.
Natural Gas Revenues
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(21) | | (4.2) | | $(299) | | (11.2) |
In the third quarter 2020, natural gas revenues were $477 million compared to $498 million for the corresponding period in 2019. For year-to-date 2020, natural gas revenues were $2.4 billion compared to $2.7 billion for the corresponding period in 2019.
Details of the changes in natural gas revenues were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter 2020 | | Year-to-Date 2020 |
| (in millions) | | (% change) | | (in millions) | | (% change) |
Natural gas revenues – prior year | $ | 498 | | | | | $ | 2,661 | | | |
Estimated change resulting from – | | | | | | | |
Infrastructure replacement programs and base rate changes | 34 | | | 6.8 | % | | 153 | | | 5.7 | % |
Gas costs and other cost recovery | (8) | | | (1.6) | | | (298) | | | (11.2) | |
Weather | 2 | | | 0.4 | | | (6) | | | (0.2) | |
Wholesale gas services | (49) | | | (9.8) | | | (151) | | | (5.6) | |
Other | — | | | — | | | 3 | | | 0.1 | |
Natural gas revenues – current year | $ | 477 | | | (4.2) | % | | $ | 2,362 | | | (11.2) | % |
Revenues from infrastructure replacement programs and base rate changes at the natural gas distribution utilities increased in the thirdsecond quarter and year-to-date 20202021 compared to the corresponding periods in 20192020 primarily due to base rate increases at Nicor Gas and Atlanta Gas Light, Virginia Natural Gas, and Chattanooga Gas and continued investments recovered throughinvestment in infrastructure replacement programs.replacement. See Note 2 to the financial statements under "Southern Company Gas – Rate Proceedings" in Item 8 of the Form 10-K for additional information.
Revenues associated with gas costs and other cost recovery decreasedincreased in the thirdsecond quarter and year-to-date 20202021 compared to the corresponding periods in 20192020 primarily due to lower naturalhigher volumes sold and higher gas prices. The year-to-date decrease also reflects lower sales volumes in 2020 compared to the corresponding period in 2019 primarily as a result of warmer weather.cost recovery. Natural gas distribution rates include provisions to adjust billings for fluctuations in natural gas costs. Therefore, gas costs recovered through natural gas revenues generally equal the amount expensed in cost of natural gas and do not affect net income from the natural gas distribution utilities.
Revenues from Southern Company Gas' wholesale gas services business decreased in the thirdsecond quarter 20202021 compared to the corresponding period in 20192020 due to decreased commercial activity as a result of milder weather and derivative losses, andpartially offset by higher commercial activities. Revenues from wholesale gas services increased for year-to-date 20202021 compared to the corresponding period in 2019 primarily2020 due to decreasedhigher volumes sold and higher commercial activityactivities as a result of warmer weather and a decrease inWinter Storm Uri, partially offset by derivative gains.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Sequent on July 1, 2021.Other Revenues
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Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(45) | | (22.8) | | $(113) | | (20.6) |
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Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$39 | | 24.1 | | $75 | | 26.4 |
In the thirdsecond quarter 2020,2021, other revenues were $152$201 million compared to $197$162 million for the corresponding period in 2019.2020. For year-to-date 2020,2021, other revenues were $436$359 million compared to $549$284 million for the corresponding period in 2019. These decreases2020. The increases for the second quarter and year-to-date 2021 were primarily relatedue to the wind-downincreases of a segment$28 million and $38 million, respectively, in unregulated sales of PowerSecure'sproducts and services at Alabama Power and Georgia Power and increases of $15 million and $32 million, respectively, in distributed infrastructure business in the first quarter 2020. Additionally, the year-to-date 2020 decrease reflects the sale of PowerSecure's utility infrastructure services business in July 2019. See Note 15 to the financial statements under "Southern Company" in Item 8 of the Form 10-K for additional information.projects at PowerSecure.
Fuel and Purchased Power Expenses
| | | Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 | | Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
| | (change in millions) | | (% change) | | (change in millions) | | (% change) | | (change in millions) | | (% change) | | (change in millions) | | (% change) |
Fuel | Fuel | $ | (139) | | | (13.0) | | $ | (646) | | | (22.8) | Fuel | $ | 227 | | | 36.6 | | $ | 439 | | | 34.9 |
Purchased power | Purchased power | (24) | | | (9.4) | | (14) | | | (2.2) | Purchased power | 17 | | | 8.5 | | 43 | | | 11.3 |
Total fuel and purchased power expenses | Total fuel and purchased power expenses | $ | (163) | | | $ | (660) | | | Total fuel and purchased power expenses | $ | 244 | | | $ | 482 | | |
In the thirdsecond quarter 2020,2021, total fuel and purchased power expenses were $1.2$1.1 billion compared to $1.3$0.8 billion for the corresponding period in 2019.2020. The decreaseincrease was primarily the result of a $120$163 million decrease in the volume of KWHs generated and purchased and a $43 million decreaseincrease in the average cost of fuel and purchased power.power and an $81 million net increase in the volume of KWHs generated and purchased.
For year-to-date 2020,2021, total fuel and purchased power expenses were $2.8$2.1 billion compared to $3.5$1.6 billion for the corresponding period in 2019.2020. The decreaseincrease was primarily the result of a $329$322 million decreaseincrease in the average cost of fuel and purchased power and a $331$160 million net decreaseincrease in the volume of KWHs generated and purchased.
Fuel and purchased power energy transactions at the traditional electric operating companies are generally offset by fuel revenues and do not have a significant impact on net income. See FUTURE EARNINGS POTENTIAL – "Regulatory Matters" hereinNote 2 to the financial statements in Item 8 of the Form 10-K for additional information. Fuel expenses incurred under Southern Power's PPAs are generally the responsibility of the counterparties and do not significantly impact net income.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Details of the Southern Company system's generation and purchased power were as follows:
| | | Third Quarter 2020 | Third Quarter 2019 | Year-to-Date 2020 | Year-to-Date 2019 | | Second Quarter 2021 | Second Quarter 2020 | Year-To-Date 2021 | Year-To-Date 2020 |
Total generation (in billions of KWHs)(a) | Total generation (in billions of KWHs)(a) | 50 | 54 | 132 | 143 | Total generation (in billions of KWHs)(a) | 43 | 41 | 86 | 82 |
Total purchased power (in billions of KWHs) | Total purchased power (in billions of KWHs) | 5 | 6 | 14 | 14 | Total purchased power (in billions of KWHs) | 4 | 4 | 8 | 9 |
Sources of generation (percent) — | | |
Sources of generation (percent)(a) — | | Sources of generation (percent)(a) — | |
Gas | Gas | 52 | 54 | 53 | 51 | Gas | 47 | 55 | 46 | 54 |
Coal | | Coal | 22 | 19 | 23 | 19 |
Nuclear | Nuclear | 16 | 15 | 17 | 16 | Nuclear | 18 | 12 | 18 | 13 |
Hydro | | Hydro | 4 | 5 | 4 | 6 |
Wind, Solar, and Other | | Wind, Solar, and Other | 9 | 9 | 9 | 8 |
Cost of fuel, generated (in cents per net KWH)— | | Cost of fuel, generated (in cents per net KWH)— | |
Gas(a) | | Gas(a) | 2.58 | 1.89 | 2.56 | 1.92 |
Coal | Coal | 24 | 24 | 17 | 23 | Coal | 2.87 | 2.96 | 2.85 | 2.92 |
Hydro | 2 | 1 | 5 | 4 | |
Other | 6 | 6 | 8 | 6 | |
Cost of fuel, generated (in cents per net KWH)— | | |
Gas | 1.98 | 2.25 | 1.94 | 2.39 | |
Nuclear | Nuclear | 0.78 | 0.79 | 0.78 | 0.79 | Nuclear | 0.75 | 0.78 | 0.75 | 0.78 |
Coal | 3.01 | 2.85 | 2.96 | 2.93 | |
Average cost of fuel, generated (in cents per net KWH)(a) | Average cost of fuel, generated (in cents per net KWH)(a) | 2.04 | 2.18 | 1.91 | 2.24 | Average cost of fuel, generated (in cents per net KWH)(a) | 2.28 | 1.79 | 2.27 | 1.82 |
Average cost of purchased power (in cents per net KWH)(*) | 4.94 | 4.78 | 4.53 | 4.75 | |
Average cost of purchased power (in cents per net KWH)(b) | | Average cost of purchased power (in cents per net KWH)(b) | 5.65 | 4.74 | 5.37 | 4.30 |
(*)(a)Second quarter and year-to-date 2021 excludes Central Alabama Generating Station KWHs and associated cost of fuel as its fuel is provided by the purchaser under a power sales agreement. See Note 15 to the financial statements under "Alabama Power" in Item 8 of the Form 10-K for additional information.
(b)Average cost of purchased power includes fuel purchased by the Southern Company system for tolling agreements where power is generated by the provider.
Fuel
In the thirdsecond quarter 2020,2021, fuel expense was $0.9 billion$848 million compared to $1.1 billion$621 million for the corresponding period in 2019.2020. The decreaseincrease was primarily due to a 10.0% decreasean 84.8% increase in the volume of KWHs generated by coal and a 12.0% decrease36.5% increase in the average cost of natural gas per KWH generated, and a 6.3%partially offset by an 8.6% decrease in the volume of KWHs generated by natural gas, partially offset by a 5.6% increase in the average cost of coal per KWH generated.gas.
For year-to-date 2020,2021, fuel expense was $2.2$1.7 billion compared to $2.8$1.3 billion for the corresponding period in 2019.2020. The decreaseincrease was primarily due to an 81.8% increase in the volume of KWHs generated by coal, a 30.3%27.6% decrease in the volume of KWHs generated by coal, an 18.8% decreasehydro, and a 33.3% increase in the average cost of natural gas per KWH generated, and a 2.8%partially offset by an 8.9% decrease in the volume of KWHs generated by natural gas, partially offset by a 1.0% increase in the average cost of coal per KWH generated.gas.
Purchased Power
In the thirdsecond quarter 2020,2021, purchased power expense was $230$217 million compared to $254$200 million for the corresponding period in 2019.2020. The decreaseincrease was primarily due to a 15.6% decrease in the volume of KWHs purchased, partially offset by a 3.3%19.2% increase in the average cost per KWH purchased primarily due to higher natural gas prices, partially offset by a 4.5% decrease in the volume of KWHs purchased.
For year-to-date 2020,2021, purchased power expense was $611$424 million compared to $625$381 million for the corresponding period in 2019.2020. The decreaseincrease was primarily due to a 4.6% decrease24.9% increase in the average cost per KWH purchased primarily due to higher natural gas prices, partially offset by a 6.6% decrease in the volume of KWHs purchased.
Energy purchases will vary depending on demand for energy within the Southern Company system's electric service territory, the market prices of wholesale energy as compared to the cost of the Southern Company system's generation, and the availability of the Southern Company system's generation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Cost of Natural Gas
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Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(8) | | (10.1) | | $(302) | | (31.6) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$87 | | 60.4 | | $231 | | 39.6 |
Excluding Atlanta Gas Light, which does not sell natural gas to end-use customers, natural gas distribution rates include provisions to adjust billings for fluctuations in natural gas costs. Therefore, gas costs recovered through natural gas revenues generally equal the amount expensed in cost of natural gas and do not affect net income from
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
the natural gas distribution utilities. Cost of natural gas at the natural gas distribution utilities represented 80% and 86%87% of total cost of natural gas for both the thirdsecond quarter and year-to-date 2020, respectively.2021.
In the thirdsecond quarter 2020,2021, cost of natural gas was $71$231 million compared to $79$144 million for the corresponding period in 2019.2020. The decreaseincrease reflects an 11.3% decreasehigher gas cost recovery and a 65.0% increase in natural gas prices in the thirdsecond quarter 20202021 compared to the corresponding period in 2019.2020.
For year-to-date 2020,2021, cost of natural gas was $654$814 million compared to $956$583 million for the corresponding period in 2019.2020. The decreaseincrease reflects a 29.6% decrease in naturalhigher volumes sold due to colder weather and higher gas prices compared to 2019 and decreased volumes primarily as a result of warmer weather, as determined by Heating Degree Days,cost recovery for year-to-date 20202021 compared to the corresponding period in 2019.2020. The increase also reflects a 50.6% increase in natural gas prices for year-to-date 2021 compared to the corresponding period in 2020.
Cost of Other Sales
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Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(42) | | (36.8) | | $(115) | | (36.4) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$29 | | 39.2 | | $56 | | 43.4 |
In the thirdsecond quarter 2020,2021, cost of other sales was $72$103 million compared to $114$74 million for the corresponding period in 2019.2020. For year-to-date 2020,2021, cost of other sales was $201$185 million compared to $316$129 million for the corresponding period in 2019. These decreases2020. The increases for second quarter and year-to-date 2021 primarily relate to the wind-downincreases of a segment of PowerSecure's$16 million and $23 million, respectively, in unregulated power delivery construction and maintenance projects at Georgia Power and $12 million and $22 million, respectively, in distributed infrastructure business in the first quarter 2020. Additionally, the year-to-date 2020 decrease reflects the sale of PowerSecure's utility infrastructure services business in July 2019. See Note 15 to the financial statements under "Southern Company" in Item 8 of the Form 10-K for additional information.projects at PowerSecure.
Other Operations and Maintenance Expenses
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(10) | | (0.8) | | $(113) | | (2.9) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$235 | | 19.5 | | $312 | | 12.5 |
In the thirdsecond quarter 2020,2021, other operations and maintenance expenses were $1.29$1.4 billion compared to $1.30$1.2 billion for the corresponding period in 2019.2020. The decrease primarily results from decreasesincrease reflects increases of $38$68 million in scheduled generation outage and maintenance expenses, $44 million in transmission and distribution maintenance expenses, primarily at Alabama Power and Georgia Power, including $9$11 million of reliability NDR credits at Alabama Power, $23 million in scheduled generation outage and maintenance expenses, and $11$16 million in compliance and environmental expenses at the traditional electric operating companies, substantially offset by acompanies. These increases reflect the impacts of cost containment activities implemented for 2020 during the COVID-19 pandemic. Also contributing to the increase was an increase of $46 million increase in storm damage recovery at Georgia Power as authorized in its 2019 ARP and an increase in employee compensation and benefit expenses.
For year-to-date 2020,2021, other operations and maintenance expenses were $3.8$2.8 billion compared to $3.9$2.5 billion for the corresponding period in 2019.2020. The decreaseincrease reflects the impactsincreases of cost containment activities implemented in 2020 to help offset the effects of the recessionary economy resulting from the COVID-19 pandemic. The decrease primarily results from decreases of $128$58 million in scheduled generation outage and maintenance expenses, $81$52 million in transmission and distribution expenses, at the traditional electric operating companies, including $31$22 million of reliability NDR credits at Alabama Power, $37and $15 million in compliance and environmental expenses at the traditional electric operating companies, and $21 million primarily related tocompanies. These increases reflect the saleimpacts of PowerSecure's utility infrastructure services business in July 2019 and lighting business in December 2019, partially offset by a $138 million increase in storm damage recovery at Georgia Power as authorized in its 2019 ARP and a $54 million increase in employee compensation and benefit expenses. The decrease was also due to a $32 million increase in nuclear property insurance refunds at Alabama Power and Georgia Power.
See Note 2 to the financial statements under "Alabama Power – Rate NDR" and " – Rate CNP Compliance" and "Georgia Power – Storm Damage Recovery" and Note 15 to the financial statements under "Southern Company" in Item 8 of the Form 10-Kcost containment activities implemented for additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
2020 during the COVID-19 pandemic. Also contributing to the increase was an increase of $101 million in compensation and benefit expenses and an $18 million decrease in nuclear property insurance refunds.
Depreciation and Amortization
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$129 | | 17.0 | | $352 | | 15.5 |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$18 | | 2.1 | | $32 | | 1.8 |
In the thirdsecond quarter 2020,2021, depreciation and amortization was $889$891 million compared to $760$873 million for the corresponding period in 2019.2020. For year-to-date 2020,2021, depreciation and amortization was $2.6$1.8 billion compared to $2.3$1.7 billion for the corresponding period in 2019. These2020. The increases for the second quarter and year-to-date 2021 primarily reflect increasedincreases of $42 million and $79 million, respectively, in depreciation associated with additional plant in service, partially offset by decreased amortization of regulatory assets related to CCR AROs of $51$22 million and $152 million for the third quarter and year-to-date 2020, respectively, and higher depreciation of $44 million, and $133 million forrespectively, under the third quarter and year-to-date 2020, respectively, as authorized interms of Georgia Power's 2019 ARP. Also contributingSee Note (B) to the increases were $45 millionCondensed Financial Statements under "Georgia Power – Rate Plan" herein and $92 million increases in depreciation for the third quarter and year-to-date 2020, respectively, associated with additional plant in service. See Note 2 to the financial statements under "Georgia Power – Rate Plans" and "Plans – Integrated Resource Plan"2019 ARP" in Item 8 of the Form 10-K for additional information.information regarding Georgia Power's recovery of costs associated with CCR AROs.
Taxes Other Than Income Taxes
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$15 | | 5.0 | | $28 | | 4.5 |
In the second quarter 2021, taxes other than income taxes were $313 million compared to $298 million for the corresponding period in 2020. The increase primarily reflects increases at Georgia Power of $9 million in property taxes primarily from higher assessed values, including the impact of Plant Vogtle Units 3 and 4 construction, and $7 million in municipal franchise fees largely related to higher retail revenues.
For year-to-date 2021, taxes other than income taxes were $657 million compared to $629 million for the corresponding period in 2020. The increase primarily reflects increases of $18 million in property taxes primarily from higher assessed values, including the impact of Plant Vogtle Units 3 and 4 construction, and $10 million in revenue tax expenses as a result of higher natural gas revenues at Southern Company Gas.
Estimated Loss on Plant Vogtle Units 3 and 4
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$— | | N/M | | $149 | | N/M |
N/M - Not meaningful | | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$311 | | 208.7 | | $359 | | 240.9 |
In the second quarter 2021 and 2020, an estimated probable losslosses on Plant Vogtle Units 3 and 4 of $460 million and $149 million, wasrespectively, were recorded at Georgia PowerPower. For year-to-date 2021 and 2020, estimated probable losses on Plant Vogtle Units 3 and 4 of $508 million and $149 million, respectively, were recorded at Georgia Power. These losses reflect revisions to reflect its revisedthe total project capital cost forecast to complete construction and start-up of Plant Vogtle Units 3 and 4. See Note (B) to the Condensed Financial Statements under "Nuclear Construction" herein for additional information.
Impairment Charges
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(110) | | N/M | | $(142) | | N/M |
N/M - Not meaningful
In the third quarter 2019, an asset impairment charge of $92 million was recorded at Southern Company Gas related to a natural gas storage facility in Louisiana. In the third quarter and year-to-date 2019, goodwill and asset impairment charges totaling $18 million and $50 million, respectively, were recorded related to the sale of PowerSecure's utility infrastructure services business and in contemplation of the sale of its lighting business. See Notes 3 and 15Note 2 to the financial statements under "Other Matters – Southern Company Gas – Natural Gas Storage Facilities" and "Southern Company," respectively, in Item 8 of the Form 10-K for additional information.
(Gain) Loss on Dispositions, Net
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(6) | | N/M | | $(2,473) | | N/M |
N/M - Not meaningful
For year-to-date 2020, gain on dispositions, net was $39 million compared to $2.5 billion for the corresponding period in 2019. The decrease was primarily due to the $2.5 billion ($1.3 billion after tax) preliminary gain on the sale of Gulfunder "Georgia Power recorded in the first quarter 2019. See Note 15 to the financial statements under "Southern Company" in Item 8 of the Form 10-K– Nuclear Construction" for additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Interest Expense,(Gain) Loss on Dispositions, Net of Amounts Capitalized
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$9 | | 2.1 | | $49 | | 3.8 |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$11 | | N/M | | $15 | | 38.5 |
N/M - Not meaningful
In the thirdsecond quarter 2020, interest expense,2021, gain on dispositions, net of amounts capitalized was $443$11 million compared to $434an immaterial loss for the corresponding period in 2020. The increase primarily reflects $6 million in gains at Alabama Power primarily from property sales and a $5 million gain on the sale of Pivotal LNG at Southern Company Gas.
For year-to-date 2021, gain on dispositions, net was $54 million compared to $39 million for the corresponding period in 2019. For year-to-date 2020, interest expense, net2020. The increase primarily reflects $39 million in gains at Southern Power, primarily from contributions of amounts capitalized was $1.34 billion comparedwind turbine equipment to $1.29 billion forvarious equity method investments, $10 million in gains at Alabama Power primarily from property sales, and a $6 million gain on the corresponding periodsale of Pivotal LNG at Southern Company Gas, partially offset by a $39 million gain at Southern Power related to the sale of Plant Mankato in 2019. These increases were primarily duethe first quarter 2020.
See Note (E) to an increase in average outstanding long-term borrowings primarily at the parent company. See FINANCIAL CONDITION AND LIQUIDITY – "Financing Activities"Condensed Financial Statements under "Southern Power" herein, Note (K) to the Condensed Financial Statements under "Southern Power" and "Southern Company Gas" herein, and Note 815 to the financial statements under "Southern Power – Sales of Natural Gas and Biomass Plants" and "Southern Company Gas – Sale of Pivotal LNG and Atlantic Coast Pipeline" in Item 8 of the Form 10-K for additional information.
ImpairmentAllowance for Equity Funds Used During Construction
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$10 | | 28.6 | | $22 | | 32.4 |
In the second quarter 2021, allowance for equity funds used during construction was $45 million compared to $35 million for the corresponding period in 2020. For year-to-date 2021, allowance for equity funds used during construction was $90 million compared to $68 million for the corresponding period in 2020. The increases were primarily due to increases at Georgia Power, primarily associated with the construction of Leveraged LeasePlant Vogtle Units 3 and 4. See Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein for additional information regarding Plant Vogtle Units 3 and 4.
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$— | | N/M | | $154 | | N/M |
Earnings (Loss) from Equity Method Investments | | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(70) | | N/M | | $(67) | | N/M |
N/M - Not meaningful
For year-to-date 2020, an impairment charge of $154 million was recorded related to a leveraged lease investment at Southern Holdings. See Note (C) to the Condensed Financial Statements under "Other Matters – Southern Company" herein for additional information.
Other Income (Expense), Net
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$52 | | 85.2 | | $80 | | 33.5 |
In the thirdsecond quarter 2020, other income (expense), net2021, loss from equity method investments was $113$40 million compared to $61earnings of $30 million for the corresponding period in 2019.2020. For year-to-date 2020, other income (expense), net was $3192021, earnings from equity method investments were $5 million compared to $239$72 million for the corresponding period in 2019. These increases2020. The decreases were primarily relateddue to increases in non-service cost-related retirement benefits incomea pre-tax impairment charge of $30$82 million and $88 million for the third quarter and year-to-date 2020, respectively, as well as $12 million of additional benefits associated with a litigation settlement at Southern Power in the second quarter 2019.2021 related to the PennEast Pipeline project at Southern Company Gas. The year-to-date 2020 increase wasdecreases were partially offset by the $36increases in investment income at Southern Holdings of $12 million gain on the litigation settlement that was recorded inand $17 million for the second quarter 2019.and year-to-date 2021, respectively. See Note 3 to the financial statements under "General Litigation Matters – Southern Power" in Item 8 of the Form 10-KNotes (C) and Note (H)(E) to the Condensed Financial Statements herein for additional information.
Income Taxes
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(74) | | (20.2) | | $(1,429) | | (76.3) |
In the third quarter 2020, income taxes were $293 million compared to $367 million for the corresponding period in 2019. For year-to-date 2020, income taxes were $0.4 billion compared to $1.9 billion for the corresponding period in 2019. These decreases were primarily due to the flowback of excess deferred income taxes in 2020 as authorized in Georgia Power's 2019 ARP and lower pre-tax earnings. The year-to-date 2020 decrease also reflects the tax impacts of the sale of Gulf Power in 2019. See Notes 2, 3, and 15 to the financial statements under "Georgia Power – Rate Plans – Tax Reform Settlement Agreement," "Other Matters – Southern Company Gas – Natural Gas Storage Facilities,"Gas" and "Southern Company Gas," respectively, in Item 8 of the Form 10-K and Notes (B) and (G) to thefor additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Impairment of Leveraged Leases
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(147) | | N/M | | $(147) | | N/M |
N/M - Not meaningful
In the second quarter 2021 and 2020, impairment charges of $7 million and $154 million, respectively, were recorded related to leveraged lease investments at Southern Holdings. See Note (K) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction""Assets and "Effective Tax Rate," respectively,Liabilities Held for Sale" herein for additional information.
Net Income Attributable to Noncontrolling Interests
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$3 | | 12.0 | | $(23) | | (88.5) |
For year-to-date 2020, net income attributable to noncontrolling interests was $3 million compared to $26 million for the corresponding period in 2019. The change was primarily due to an allocation of approximately $26 million of income to the noncontrolling interest partner related to a litigation settlement at Southern Power in the second quarter 2019. Seeand Note 3 to the financial statements under "Other Matters – Southern Company" in Item 8 of the Form 10-K for additional information.
Other Income (Expense), Net
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$7 | | 6.9 | | $(37) | | (18.1) |
In the second quarter 2021, other income (expense), net was $108 million compared to $101 million for the corresponding period in 2020. The increase was primarily due to a $36 million increase in non-service cost-related retirement benefits income, partially offset by $26 million in charitable contributions in the second quarter 2021 at Southern Company Gas.
For year-to-date 2021, other income (expense), net was $167 million compared to $204 million for the corresponding period in 2020. The decrease was primarily due to $101 million in charitable contributions at Southern Company Gas, partially offset by a $71 million increase in non-service cost-related retirement benefits income.
See Note (H) to the Condensed Financial Statements herein for additional information.
Income Taxes (Benefit)
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(17) | | N/M | | $28 | | 18.7 |
N/M - Not meaningful
In the second quarter 2021, income tax benefit was $12 million compared to income tax expense of $5 million for the corresponding period in 2020. The change was primarily due to lower pre-tax earnings, partially offset by the tax impact of the second quarter 2020 charge to earnings associated with a leveraged lease investment.
For year-to-date 2021, income taxes were $178 million compared to $150 million for the corresponding period in 2020. The increase was primarily due to the tax impact of the second quarter 2020 charge to earnings associated with a leveraged lease investment.
See Note (G) to the Condensed Financial Statements herein and Note 3 to the financial statements under "General Litigation"Other Matters – Southern Power"Company" in Item 8 of the Form 10-K for additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Alabama Power
Net Income
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(25) | | (5.3) | | $40 | | 4.1 |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$33 | | 11.1 | | $112 | | 19.4 |
Alabama Power's net income after dividends on preferred stock for the thirdsecond quarter 20202021 was $444$331 million compared to $469$298 million for the corresponding period in 2019. This decrease was primarily due to a decrease in retail revenues associated with milder weather in the third quarter 2020 compared to the corresponding period in 2019 and lower customer usage, partially offset by a decrease in operations and maintenance expenses and an increase in non-service cost-related retirement benefits income.
2020. Alabama Power's net income after dividends on preferred stock for year-to-date 20202021 was $1.02 billion$690 million compared to $0.98 billion$578 million for the corresponding period in 2019. This increase was2020. The increases were primarily due to a decrease in operations and maintenance expenses, an increase in retail revenues associated with the impact ofa Rate RSE adjustment effective in January 2021 and higher customer bill credits issued in 2019usage, as well as additional wholesale capacity revenues related to Tax Reform, and ana power sales agreement that began in September 2020. Also contributing to the year-to-date 2021 increase in non-service cost-related retirement benefits income. These increases to income were partially offset by decreases in retail revenues associated with milderwas colder weather in 2020Alabama Power's service territory in the first quarter 2021 compared to the corresponding period in 20192020. The second quarter and lower customer usage.year-to-date 2021 increases were partially offset by an increase in operations and maintenance expenses and depreciation.
Retail Revenues
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$131 | | 10.7 | | $279 | | 11.5 |
In the second quarter 2021, retail revenues were $1.35 billion compared to $1.22 billion for the corresponding period in 2020. For year-to-date 2021, retail revenues were $2.71 billion compared to $2.43 billion for the corresponding period in 2020.
Details of the changes in retail revenues were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter 2021 | | Year-To-Date 2021 |
| (in millions) | | (% change) | | (in millions) | | (% change) |
Retail – prior year | $ | 1,223 | | | | | $ | 2,427 | | | |
Estimated change resulting from – | | | | | | | |
Rates and pricing | 66 | | | 5.4 | % | | 116 | | | 4.8 | % |
Sales growth | 16 | | | 1.3 | | | 13 | | | 0.5 | |
Weather | 3 | | | 0.2 | | | 42 | | | 1.7 | |
Fuel and other cost recovery | 46 | | | 3.8 | | | 108 | | | 4.5 | |
Retail – current year | $ | 1,354 | | | 10.7 | % | | $ | 2,706 | | | 11.5 | % |
Revenues associated with changes in rates and pricing increased in the second quarter and year-to-date 2021 when compared to the corresponding periods in 2020 primarily due to a Rate RSE increase effective January 1, 2021. See Note 2 to the financial statements under "Alabama Power – Rate RSE" in Item 8 of the Form 10-K for additional information.
Retail Revenues
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(119) | | (7.0) | | $(283) | | (6.6) |
In attributable to changes in sales increased in the thirdsecond quarter 2020, retail revenues were $1.58 billionand year-to-date 2021 when compared to $1.69 billion for the corresponding periodperiods in 2019. For2020. Weather-adjusted residential KWH sales decreased 3.9% and 2.0% in the second quarter and year-to-date 2020, retail revenues were $4.00 billion2021, respectively, when compared to $4.29 billion for the corresponding periodperiods in 2019.2020 primarily due to safer-at-home guidelines in effect during 2020. Weather-adjusted commercial KWH sales increased 7.8% and 2.8% in the second quarter and year-to-date 2021, respectively, and industrial KWH sales increased 10.0% and 1.8% in the second quarter and year-to-date 2021, respectively, when compared to the corresponding periods in 2020, primarily due to the negative impact of the COVID-19 pandemic on energy demand in 2020.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Details of the changes in retailFuel and other cost recovery revenues were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter 2020 | | Year-to-Date 2020 |
| (in millions) | | (% change) | | (in millions) | | (% change) |
Retail – prior year | $ | 1,694 | | | | | $ | 4,286 | | | |
Estimated change resulting from – | | | | | | | |
Rates and pricing | (9) | | | (0.5) | % | | 53 | | | 1.2 | % |
Sales decline | (9) | | | (0.5) | | | (54) | | | (1.3) | |
Weather | (51) | | | (3.0) | | | (104) | | | (2.4) | |
Fuel and other cost recovery | (50) | | | (3.0) | | | (178) | | | (4.1) | |
Retail – current year | $ | 1,575 | | | (7.0) | % | | $ | 4,003 | | | (6.6) | % |
Revenues associated with changes in rates and pricing decreasedincreased in the thirdsecond quarter 2020 and increased year-to-date 20202021 when compared to the corresponding periods in 2019. The third quarter 2020 decrease was due to a decrease in Rate CNP Compliance-related revenue. The year-to-date 2020 increase was primarily due to customer bill credits issued in the first quarter 2019 related to Tax Reform and an increase in year-to-date 2020 Rate CNP Compliance-related revenue.
Revenues attributable to changes in sales decreased in the third quarter and year-to-date 2020 when compared to the corresponding periods in 2019 largely due to social distancing and safer-at-home guidelines related to the COVID-19 pandemic and reluctance from consumers and businesses to resume pre-pandemic levels of activity. Weather-adjusted residential KWH sales increased 2.6% and 3.2% in the third quarter and year-to-date 2020, respectively, when compared to the corresponding periods in 2019 primarily due to customer growth and an increase in average customer usage primarily due to the temporary suspension of customer disconnections for nonpayment and safer-at-home guidelines related to the COVID-19 pandemic. Weather-adjusted commercial KWH sales decreased 4.8% and 6.3% in the third quarter and year-to-date 2020, respectively, when compared to the corresponding periods in 2019 primarily due to lower customer usage resulting from changes in consumer and business behavior in response to the COVID-19 pandemic. Industrial KWH sales decreased 10.7% and 9.4% in the third quarter and year-to-date 2020, respectively, when compared to the corresponding periods in 2019 primarily as a result of disruptions in supply chain and business operations driven by the COVID-19 pandemic and the overall decrease in business activity due to the resulting recession.
Fuel and other cost recovery revenues decreased in the third quarter and year-to-date 2020 when compared to the corresponding periods in 2019 primarily due to decreasesincreases in generation and the average cost of fuel.
Electric rates include provisions to recognize the recovery of fuel costs, purchased power costs, PPAs certificated by the Alabama PSC, and costs associated with the natural disaster reserve.NDR. Under these provisions, fuel and other cost recovery revenues generally equal fuel and other cost recovery expenses and do not affect net income. See Note 2 to the financial statements under "Alabama Power" in Item 8 of the Form 10-K for additional information.
Wholesale Revenues – Non-Affiliates
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$31 | | 57.4 | | $67 | | 60.4 |
Wholesale revenues from sales to non-affiliates will vary depending on fuel prices, the market prices of wholesale energy compared to the cost of Alabama Power's and the Southern Company system's generation, demand for energy within the Southern Company system's electric service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not affect net income. Short-term opportunity energy sales are also included in wholesale energy sales to non-affiliates. These opportunity sales are made at market-based rates that generally provide a margin above Alabama Power's variable cost to produce the energy.
In the second quarter 2021, wholesale revenues from sales to non-affiliates were $85 million compared to $54 million for the corresponding period in 2020. For year-to-date 2021, wholesale revenues from sales to non-affiliates were $178 million compared to $111 million for the corresponding period in 2020. The second quarter and year-to-date 2021 increases consisted of increases in capacity revenues of $18 million and $35 million, respectively, primarily related to a power sales agreement that began in September 2020 and increases in energy revenues of $13 million and $32 million, respectively, primarily due to higher natural gas prices.
Wholesale Revenues –Affiliates
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$9 | | N/M | | $(30) | | (45.5) |
N/M - Not meaningful | | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$17 | | 242.9 | | $29 | | 111.5 |
Wholesale revenues from sales to affiliated companies will vary depending on demand and the availability and cost of generating resources at each company. These affiliate sales are made in accordance with the IIC, as approved by the FERC. These transactions do not have a significant impact on earnings since this energy is generally sold at marginal cost and energy purchases are generally offset by energy revenues through Alabama Power's energy cost recovery clause.
In the second quarter 2021, wholesale revenues from sales to affiliates were $24 million compared to $7 million for the corresponding period in 2020. For year-to-date 2021, wholesale revenues from sales to affiliates were $55 million compared to $26 million for the corresponding period in 2020. The second quarter and year-to-date 2021 increases were primarily due to increases of 133.8% and 50.1%, respectively, in the price of energy as a result of higher natural gas prices and increases of 51.9% and 43.5%, respectively, in KWH sales due to increased demand for Alabama Power's available lower cost generation compared to the corresponding periods in 2020.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
For year-to-date 2020, wholesaleOther Revenues
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$12 | | 14.8 | | $24 | | 15.8 |
In the second quarter 2021, other revenues from sales to affiliates were $36$93 million compared to $66$81 million for the corresponding period in 2019. The decrease was primarily due2020. For year-to-date 2021, other revenues were $176 million compared to a 28.7% decrease in KWH sales as a result of decreased coal generation largely due to lower natural gas prices and a 22.5% decrease in the price of energy due to lower natural gas prices in 2020 compared to$152 million for the corresponding period in 2019.2020. The second quarter and year-to-date 2021 increases were primarily due to increases of $12 million and $15 million, respectively, in unregulated sales of products and services. In addition, the year-to-date 2021 increase included a $6 million increase in customer fees largely resulting from the COVID-19 pandemic-related temporary suspensions of disconnections and late fees in 2020.
Fuel and Purchased Power Expenses
| | | Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 | | Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
| | (change in millions) | | (% change) | | (change in millions) | | (% change) | | (change in millions) | | (% change) | | (change in millions) | | (% change) |
Fuel | Fuel | $ | (4) | | | (1.3) | | | $ | (143) | | | (16.6) | | Fuel | $ | 64 | | | 32.2 | | | $ | 139 | | | 33.5 | |
Purchased power – non-affiliates | Purchased power – non-affiliates | (13) | | | (16.9) | | | (7) | | | (4.4) | | Purchased power – non-affiliates | (1) | | | (2.0) | | | 8 | | | 9.0 | |
Purchased power – affiliates | Purchased power – affiliates | (29) | | | (39.7) | | | (71) | | | (43.3) | | Purchased power – affiliates | 9 | | | 30.0 | | | 20 | | | 40.8 | |
Total fuel and purchased power expenses | Total fuel and purchased power expenses | $ | (46) | | | $ | (221) | | | Total fuel and purchased power expenses | $ | 72 | | | $ | 167 | | |
In the thirdsecond quarter 2020,2021, total fuel and purchased power expenses were $414$350 million compared to $460$278 million for the corresponding period in 2019.2020. The decreaseincrease was primarily due to a $54$42 million decrease innet increase related to the volume of KWHs generated (excluding hydro) and purchased partially offset by an $8and a $30 million net increase in the average cost of generationfuel and purchased power.
For year-to-date 2020,2021, total fuel and purchased power expenses were $0.97 billion$720 million compared to $1.19 billion$553 million for the corresponding period in 2019.2020. The decreaseincrease was primarily due to a $193$98 million decrease inincrease related to the volume of KWHs generated (excluding hydro) and purchased and a $28$69 million net decreaseincrease in the average cost of generationfuel and purchased power.
Fuel and purchased power energy transactions do not have a significant impact on earnings, since energy expenses are generally offset by energy revenues through Alabama Power's energy cost recovery clause. See Note 2 to the financial statements under "Alabama Power – Rate ECR" in Item 8 of the Form 10-K for additional information.
Details of Alabama Power's generation and purchased power were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter 2020 | | Third Quarter 2019 | | Year-to-Date 2020 | | Year-to-Date 2019 |
Total generation (in billions of KWHs) | 15 | | 15 | | 41 | | 43 |
Total purchased power (in billions of KWHs) | 2 | | 4 | | 5 | | 8 |
Sources of generation (percent) — | | | | | | | |
Coal | 47 | | 48 | | 38 | | 45 |
Nuclear | 25 | | 26 | | 28 | | 25 |
Gas | 24 | | 24 | | 23 | | 21 |
Hydro | 4 | | 2 | | 11 | | 9 |
Cost of fuel, generated (in cents per net KWH) — | | | | | | | |
Coal | 2.86 | | 2.67 | | 2.78 | | 2.76 |
Nuclear | 0.76 | | 0.75 | | 0.76 | | 0.77 |
Gas | 1.80 | | 2.40 | | 1.96 | | 2.48 |
Average cost of fuel, generated (in cents per net KWH) | 2.04 | | 2.10 | | 1.93 | | 2.15 |
Average cost of purchased power (in cents per net KWH)(*) | 5.12 | | 4.35 | | 4.76 | | 4.40 |
(*)Average cost of purchased power includes fuel, energy, and transmission purchased by Alabama Power for tolling agreements where power is generated by the provider.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Details of Alabama Power's generation and purchased power were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter 2021 | | Second Quarter 2020 | | Year-To-Date 2021 | | Year-To-Date 2020 |
Total generation (in billions of KWHs)(a) | 13 | | 12 | | 28 | | 26 |
Total purchased power (in billions of KWHs) | 2 | | 2 | | 3 | | 3 |
Sources of generation (percent)(a) — | | | | | | | |
Coal | 43 | | 33 | | 45 | | 33 |
Nuclear | 25 | | 32 | | 25 | | 30 |
Gas | 22 | | 24 | | 20 | | 22 |
Hydro | 10 | | 11 | | 10 | | 15 |
Cost of fuel, generated (in cents per net KWH) — | | | | | | | |
Coal | 2.73 | | 2.82 | | 2.74 | | 2.72 |
Nuclear | 0.69 | | 0.75 | | 0.71 | | 0.75 |
Gas(a) | 2.47 | | 1.95 | | 2.49 | | 2.07 |
Average cost of fuel, generated (in cents per net KWH)(a) | 2.10 | | 1.85 | | 2.12 | | 1.86 |
Average cost of purchased power (in cents per net KWH)(b) | 5.57 | | 4.29 | | 5.99 | | 4.51 |
(a)Second quarter and year-to-date 2021 excludes Central Alabama Generating Station KWHs and associated cost of fuel as its fuel is provided by the purchaser under a power sales agreement. See Note 15 to the financial statements under "Alabama Power" in Item 8 of the Form 10-K for additional information.
(b)Average cost of purchased power includes fuel, energy, and transmission purchased by Alabama Power for tolling agreements where power is generated by the provider.
Fuel
In the thirdsecond quarter 2020,2021, fuel expense was $306$263 million compared to $310$199 million for the corresponding period in 2019.2020. The decreaseincrease was primarily due to a 64.0%44.6% increase in the volume of KWHs generated by coal and a 26.7% increase in the average cost of KWHs generated by natural gas, which excludes tolling agreements.
For year-to-date 2021, fuel expense was $554 million compared to $415 million for the corresponding period in 2020. The increase was primarily due to a 44.6% increase in the volume of KWHs generated by coal, a 26.9% decrease in the volume of KWHs generated by hydro, and a 25.0% decrease20.3% increase in the average cost of natural gas per KWH generated, which excludes fuel associated with tolling agreements, partially offset by an 8.0% increase in the volume of KWHs generated by natural gas, and a 7.1% increase in the average cost of coal per KWH generated.
For year-to-date 2020, fuel expense was $721 million compared to $864 million for the corresponding period in 2019. The decrease was primarily due to a 21.0% decrease in the average cost of natural gas per KWH generated, which excludes fuel associated with tolling agreements, an 18.6% decrease in the volume of KWHs generated by coal, and a 15.7% and an 8.5% increase in the volume of KWHs generated by hydro and nuclear, respectively.
Purchased Power – Non-Affiliates
In the third quarter 2020, purchased power expense from non-affiliates was $64 million compared to $77 million for the corresponding period in 2019. This decrease was primarily due to a 29.3% decrease in the amount of energy purchased due to milder weather in the third quarter 2020 as compared to the corresponding period in 2019, partially offset by a 14.1% increase in the average cost of purchased power per KWH as a result of fixed capacity costs for PPAs.agreements.
Purchased Power – Affiliates
In the thirdsecond quarter 2020,2021, purchased power expense from affiliates was $44$39 million compared to $73$30 million for the corresponding period in 2019.2020. For year-to-date 2020,2021, purchased power expense from affiliates was $93$69 million compared to $164$49 million for the corresponding period in 2019. These decreases2020. The second quarter and year-to-date 2021 increases were primarily due to reductionsincreases of 45.4%74.2% and 44.5%70.7%, respectively, in the amountaverage cost per KWH purchased as a result of energyhigher natural gas prices, partially offset by decreases of 27.0% and 17.2%, respectively, in the volume of KWH purchased due to milder weather during 2020 as a result of increased generation compared to 2019.the corresponding periods in 2020.
Energy purchases from affiliates will vary depending on demand for energy and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC or other contractual agreements, all as approved by the FERC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Other Operations and Maintenance Expenses
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(22) | | (5.4) | | $(143) | | (11.7) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$71 | | 20.8 | | $85 | | 12.3 |
In the thirdsecond quarter 2020,2021, other operations and maintenance expenses were $387$413 million compared to $409$342 million for the corresponding period in 2019. For year-to-date 2020, other operations and maintenance expenses were $1.08 billion compared2020. The increase was primarily due to $1.22 billion for the corresponding period in 2019. These decreases reflect the impactsan increase of cost containment activities implemented to help offset the effects of the recessionary economy resulting from the COVID-19 pandemic. The decreases primarily result from decreases of $22 million and $100$36 million in generation expenses associated with scheduled outages and Rate CNP Compliance-related expenses for the third quarter and year-to-date 2020, respectively. Also contributing were decreases of $15 million and $44 million in transmission and distribution maintenance expenses primarily related to the addition of new environmental systems in 2021. These increases reflect the impacts of cost containment activities implemented for 2020 during the COVID-19 pandemic. Also contributing to the increase were increases of $17 million in compensation and benefit expenses and $5 million related to unregulated services, as well as $11 million of reliability NDR credits applied in 2020.
For year-to-date 2021, other operations and maintenance expenses were $775 million compared to $690 million for the third quartercorresponding period in 2020. The increase was primarily due to an increase of $34 million in generation expenses associated with scheduled outages and year-to-dateRate CNP Compliance-related expenses primarily related to the addition of new environmental systems in 2021. These increases reflect the impacts of cost containment activities implemented for 2020 respectively. Partially offsettingduring the third quarterCOVID-19 pandemic. Also contributing to the increase were increases of $17 million in compensation and benefit expenses and $7 million related to unregulated services, as well as $22 million of reliability NDR credits applied in 2020 and a $10 million decrease was a $13in nuclear property insurance refunds. These increases were partially offset by gains of $10 million increaseprimarily related to property sales and an $8 million decrease in bad debt expense.
See Note 2 to the financial statements under "Alabama Power – Rate NDR" and " – Rate CNP Compliance" in Item 8 of the Form 10-K for additional information.
Depreciation and Amortization
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$12 | | 5.9 | | $23 | | 5.7 |
In the second quarter 2021, depreciation and amortization was $214 million compared to $202 million in the corresponding period in 2020. For year-to-date 2021, depreciation and amortization was $425 million compared to $402 million for the corresponding period in 2020. These increases were primarily due to additional plant in service, including the purchase of the Central Alabama Generating Station in August 2020. See Note 15 to the financial statements under "Alabama Power" in Item 8 of the Form 10-K for additional information.
Other Income (Expense), Net
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$7 | | 26.9 | | $14 | | 29.2 |
In the second quarter 2021, other income (expense), net was $33 million compared to $26 million for the corresponding period in 2020. For year-to-date 2021, other income (expense), net was $62 million compared to $48 million for the corresponding period in 2020. These increases were primarily due to an increase in non-service cost-related retirement benefits income. The year-to-date 2021 increase was partially offset by a decrease in interest income associated with lower interest rates. See Note (H) to the Condensed Financial Statements herein for additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Other Income (Expense), NetTaxes
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$19 | | 172.7 | | $42 | | 116.7 |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$11 | | 11.8 | | $36 | | 20.3 |
In the thirdsecond quarter 2020, other2021, income (expense), net was $30taxes were $104 million compared to $11$93 million for the corresponding period in 2019.2020. For year-to-date 2020, other2021, income (expense), net was $78taxes were $213 million compared to $36$177 million for the corresponding period in 2019. These2020. The increases were primarily due to an increase in non-service cost-related retirement benefits income. See Note (H) to the Condensed Financial Statements herein for additional information.
Income Taxes
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(14) | | (9.7) | | $12 | | 4.1 |
In the third quarter 2020, income taxes were $130 million compared to $144 million for the corresponding period in 2019. This decrease was primarily due to lower pre-tax earnings and the finalization of the 2019 tax return.
For year-to-date 2020, income taxes were $307 million compared to $295 million for the corresponding period in 2019. This increase was primarily due to higher pre-tax earnings.
Georgia Power
Net Income
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(66) | | (7.9) | | $(187) | | (11.7) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(165) | | (53.6) | | $(144) | | (22.6) |
Georgia Power's net income for the thirdsecond quarter 20202021 was $773$143 million compared to $839$308 million for the corresponding period in 2019. For year-to-date 2020, net income2020. The decrease was $1.41 billion compared to $1.60 billion for the corresponding period in 2019. These decreases were primarily due to lower retail revenues associated with milder weather as compared to the corresponding periodsa $232 million increase in 2019 and decreased customer usage resulting from the COVID-19 pandemic, partially offset by related cost containment activities. The year-to-date decrease was also due to a $111 million after-tax charge in the second quarter 2020charges related to the construction of Plant Vogtle Units 3 and 4. See Note (B)Also contributing to the Condensed Financial Statements under "Nuclear Construction" hereindecrease was higher non-fuel operations and maintenance costs, partially offset by higher retail revenues associated with sales growth and rates and pricing.
For year-to-date 2021, net income was $494 million compared to $638 million for additional information onthe corresponding period in 2020. The decrease was primarily due to a $268 million increase in after-tax charges related to the construction of Plant Vogtle Units 3 and 4. Also contributing to the decrease was higher non-fuel operations and maintenance costs, partially offset by higher retail revenues associated with colder weather in the first quarter 2021 as compared to the corresponding period in 2020 and sales growth.
See Note (B) to the Condensed Financial Statements herein and Note 2 to the financial statements in Item 8 of the Form 10-K under "Georgia Power – Nuclear Construction" for additional information regarding Plant Vogtle Units 3 and 4.
Retail Revenues
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(132) | | (5.1) | | $(311) | | (5.0) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$266 | | 15.1 | | $378 | | 11.0 |
In the thirdsecond quarter 2020,2021, retail revenues were $2.44$2.03 billion compared to $2.57$1.76 billion for the corresponding period in 2019.2020. For year-to-date 2020,2021, retail revenues were $5.87$3.81 billion compared to $6.18$3.44 billion for the corresponding period in 2019.2020.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Details of the changes in retail revenues were as follows:
| | | Third Quarter 2020 | | Year-to-Date 2020 | | Second Quarter 2021 | | Year-To-Date 2021 |
| | (in millions) | | (% change) | | (in millions) | | (% change) | | (in millions) | | (% change) | | (in millions) | | (% change) |
Retail – prior year | Retail – prior year | $ | 2,567 | | | $ | 6,181 | | | Retail – prior year | $ | 1,760 | | | $ | 3,435 | | |
Estimated change resulting from – | Estimated change resulting from – | | Estimated change resulting from – | |
Rates and pricing | Rates and pricing | 51 | | | 2.0 | % | | 260 | | | 4.2 | % | Rates and pricing | 38 | | | 2.2 | % | | 20 | | | 0.6 | % |
Sales decline | (9) | | | (0.4) | | | (56) | | | (0.9) | | |
Sales growth | | Sales growth | 64 | | | 3.6 | | | 59 | | | 1.7 | |
Weather | Weather | (87) | | | (3.4) | | | (194) | | | (3.1) | | Weather | 18 | | | 1.0 | | | 59 | | | 1.7 | |
Fuel cost recovery | Fuel cost recovery | (87) | | | (3.4) | | | (321) | | | (5.2) | | Fuel cost recovery | 146 | | | 8.3 | | | 240 | | | 7.0 | |
Retail – current year | Retail – current year | $ | 2,435 | | | (5.2) | % | | $ | 5,870 | | | (5.0) | % | Retail – current year | $ | 2,026 | | | 15.1 | % | | $ | 3,813 | | | 11.0 | % |
Revenues associated with changes in rates and pricing increased in the thirdsecond quarter and year-to-date 2020,2021 when compared to the corresponding periods in 2019.2020. These increases were primarily due to an increase in revenue recognized under the Environmental Compliance Cost Recovery (ECCR) tariff effective January 1, 2020 as authorized in the 2019 ARP and the impacts of accruals in 2019 for customer refunds related to Tax Reform. The increase for year-to-date 2020 was also due to the rate pricing effects of decreased customer usage in the first and second quarters 2020. Partially offsetting these increases were lowerhigher contributions from commercial and industrial customers with variable demand-driven pricing.pricing, pricing effects associated with decreased residential customer usage, and increased ECCR tariff revenues associated with higher KWH sales. The increases were partially offset by a decrease in the NCCR tariff effective January 1, 2021. See Note 2(B) to the financial statementsCondensed Financial Statements under "Georgia Power" in Item 8 of the Form 10-KPower – Nuclear Construction – Regulatory Matters" herein for additional information.
Revenues attributable to changes in sales decreasedincreased in the thirdsecond quarter and year-to-date 20202021 when compared to the corresponding periods in 2019 largely2020. Weather-adjusted residential KWH sales decreased 0.8% in the second quarter 2021 when compared to the corresponding period in 2020 as customer usage decreased, primarily due to work-from-home policies related toshelter-in-place orders in effect during the COVID-19 pandemic and reluctance of consumers and businesses to resume pre-pandemic levels of activity.second quarter 2020. Weather-adjusted residential KWH sales increased 4.0% and 4.1% in the third quarter and0.7% for year-to-date 2020, respectively,2021 when compared to the corresponding periodsperiod in 20192020 primarily due to customer growth, and an increase in averagepartially offset by decreased customer usage, primarily due to the temporary suspension of customer disconnections for nonpayment and work-from-home policies.shelter-in-place orders in effect during 2020. Weather-adjusted commercial KWH sales decreased 5.2%increased 9.0% and 5.6%2.6% in the thirdsecond quarter and year-to-date 2020,2021, respectively, and weather-adjusted industrial KWH sales increased 14.0% and 7.3% in the second quarter and year-to-date 2021, respectively, when compared to the corresponding periods in 20192020, primarily due to lower customer usage resulting from changes in consumer and business behavior in response to the COVID-19 pandemic. Weather-adjusted industrial KWH sales decreased 3.6% and 6.7% in the third quarter and year-to-date 2020, respectively, when compared to the corresponding periods in 2019 primarily as a resultnegative impact of disruptions in supply chain and business operations related to the COVID-19 pandemic and the overall decreaseon energy demand in business activity due to the resulting recession.2020.
Fuel revenues and costs are allocated between retail and wholesale jurisdictions. Retail fuel cost recovery revenues decreasedincreased in the thirdsecond quarter and year-to-date 20202021 when compared to the corresponding periods in 20192020 due to lowerhigher fuel and purchased power costs. Electric rates include provisions to periodically adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these fuel cost recovery provisions, fuel revenues generally equal fuel expenses and do not affect net income. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Regulatory Matters – GeorgiaNote 2 to the financial statements under "Georgia Power – Fuel Cost Recovery" in Item 78 of the Form 10-K for additional information.
Wholesale Revenues
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(5) | | (12.8) | | $(22) | | (20.6) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$11 | | 44.0 | | $29 | | 56.9 |
Wholesale revenues from sales to non-affiliates consist of PPAs and short-term opportunity sales. Wholesale revenues from PPAs have both capacity and energy components. Wholesale capacity revenues from PPAs are recognized in amounts billable under the contract terms and provide for recovery of fixed costs and a return on investment. Wholesale revenues from sales to non-affiliates will vary depending on fuel prices, the market prices of
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
wholesale energy compared to the cost of Georgia Power's and the Southern Company system's generation, demand for energy within the Southern Company system's electric service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
accompanied by an increase or decrease in fuel costs and do not have a significant impact on net income. Short-term opportunity sales are made at market-based rates that generally provide a margin above Georgia Power's variable cost of energy.
Wholesale revenues from sales to affiliated companies will vary depending on demand and the availability and cost of generating resources at each company. These affiliate sales are made in accordance with the IIC, as approved by the FERC. These transactions do not have a significant impact on earnings since this energy is generally sold at marginal costs.cost.
In the thirdsecond quarter 2020,2021, wholesale revenues were $34$36 million compared to $39$25 million for the corresponding period in 2019.2020. For year-to-date 2020,2021, wholesale revenues were $85$80 million compared to $107$51 million for the corresponding period in 2019. These decreases2020. The increases for the second quarter and year-to-date 2021 were primarily due to lowerincreases of 4.3% and 8.9%, respectively, in KWH sales as a result of higher market demand and higher natural gas prices.
Other Revenues
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$20 | | 14.0 | | $34 | | 12.7 |
In the second quarter 2021, other revenues were $163 million compared to $143 million for the corresponding period in 2020. For year-to-date 2021, other revenues were $302 million compared to $268 million for the corresponding period in 2020. The increases for the second quarter and year-to-date 2021 were primarily due to increases of $20 million and $30 million, respectively, in unregulated sales associated with power delivery construction and maintenance projects and $7 million and $8 million, respectively, in customer fees largely resulting from the expirationCOVID-19 pandemic-related temporary suspension of a non-affiliate PPAdisconnections and lowerlate fees in 2020. These increases were partially offset by decreases of $5 million and $7 million in the second quarter and year-to-date 2021, respectively, associated with the timing of certain unregulated energy prices.conservation projects.
Fuel and Purchased Power Expenses
| | | Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 | | Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
| | (change in millions) | | (% change) | | (change in millions) | | (% change) | | (change in millions) | | (% change) | | (change in millions) | | (% change) |
Fuel | Fuel | $ | (75) | | | (16.9) | | | $ | (306) | | | (27.0) | | Fuel | $ | 117 | | | 51.8 | | | $ | 198 | | | 43.2 | |
Purchased power – non-affiliates | Purchased power – non-affiliates | (5) | | | (3.3) | | | 16 | | | 4.1 | | Purchased power – non-affiliates | 11 | | | 8.3 | | | 26 | | | 9.9 | |
Purchased power – affiliates | Purchased power – affiliates | (8) | | | (5.3) | | | (67) | | | (14.6) | | Purchased power – affiliates | 27 | | | 22.1 | | | 34 | | | 13.5 | |
Total fuel and purchased power expenses | Total fuel and purchased power expenses | $ | (88) | | | $ | (357) | | | Total fuel and purchased power expenses | $ | 155 | | | $ | 258 | | |
In the thirdsecond quarter 2020,2021, total fuel and purchased power expenses were $656$636 million compared to $744$481 million for the corresponding period in 2019.2020. For year-to-date 2021, total fuel and purchased power expenses were $1.23 billion compared to $0.97 billion for the corresponding period in 2020. The decrease wasincreases for the second quarter and year-to-date 2021 were due to decreasesincreases of $44$108 million eachand $184 million, respectively, related to the average cost of fuel and purchased power and the net volumeincreases of KWHs generated$47 million and purchased.
For year-to-date 2020, total fuel and purchased power expenses were $1.63 billion compared to $1.99 billion for the corresponding period in 2019. The decrease was due to a decrease of $239$74 million, related to the average cost of fuel and purchased power and a net decrease of $118 millionrespectively, related to the volume of KWHs generated and purchased.
Fuel and purchased power energy transactions do not have a significant impact on earnings since these fuel expenses are generally offset by fuel revenues through Georgia Power's fuel cost recovery mechanism. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Regulatory Matters – GeorgiaNote 2 to the financial statements under "Georgia Power – Fuel Cost Recovery" in Item 78 of the Form 10-K for additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Details of Georgia Power's generation and purchased power were as follows:
| | | Third Quarter 2020 | | Third Quarter 2019 | | Year-to-Date 2020 | | Year-to-Date 2019 | | Second Quarter 2021 | | Second Quarter 2020 | | Year-To-Date 2021 | | Year-To-Date 2020 |
Total generation (in billions of KWHs) | Total generation (in billions of KWHs) | 17 | | 19 | | 42 | | 48 | Total generation (in billions of KWHs) | 15 | | 13 | | 30 | | 25 |
Total purchased power (in billions of KWHs) | Total purchased power (in billions of KWHs) | 8 | | 8 | | 25 | | 23 | Total purchased power (in billions of KWHs) | 7 | | 8 | | 14 | | 16 |
Sources of generation (percent) — | Sources of generation (percent) — | | | | Sources of generation (percent) — | | | |
Gas | Gas | 48 | | 46 | | 53 | | 47 | Gas | 46 | | 56 | | 47 | | 57 |
Nuclear | Nuclear | 24 | | 22 | | 27 | | 24 | Nuclear | 28 | | 32 | | 27 | | 30 |
Coal | Coal | 26 | | 31 | | 15 | | 26 | Coal | 22 | | 7 | | 22 | | 7 |
Hydro and other | 2 | | 1 | | 5 | | 3 | |
Hydro and solar | | Hydro and solar | 4 | | 5 | | 4 | | 6 |
Cost of fuel, generated (in cents per net KWH) — | Cost of fuel, generated (in cents per net KWH) — | | | | Cost of fuel, generated (in cents per net KWH) — | | | |
Gas | Gas | 2.14 | | 2.33 | | 2.12 | | 2.45 | Gas | 2.65 | | 2.11 | | 2.62 | | 2.11 |
Nuclear | Nuclear | 0.81 | | 0.82 | | 0.81 | | 0.81 | Nuclear | 0.80 | | 0.81 | | 0.79 | | 0.80 |
Coal | Coal | 3.19 | | 3.00 | | 3.31 | | 3.10 | Coal | 3.09 | | 3.37 | | 3.01 | | 3.60 |
Average cost of fuel, generated (in cents per net KWH) | Average cost of fuel, generated (in cents per net KWH) | 2.09 | | 2.20 | | 1.93 | | 2.21 | Average cost of fuel, generated (in cents per net KWH) | 2.21 | | 1.76 | | 2.18 | | 1.82 |
Average cost of purchased power (in cents per net KWH)(*) | Average cost of purchased power (in cents per net KWH)(*) | 3.76 | | 4.20 | | 3.50 | | 4.22 | Average cost of purchased power (in cents per net KWH)(*) | 4.77 | | 3.58 | | 4.49 | | 3.36 |
(*)Average cost of purchased power includes fuel purchased by Georgia Power for tolling agreements where power is generated by the provider.
Fuel
In the thirdsecond quarter 2020,2021, fuel expense was $368$343 million compared to $443$226 million for the corresponding period in 2019.2020. For year-to-date 2020,2021, fuel expense was $0.83 billion$656 million compared to $1.13 billion$458 million for the corresponding period in 2019.2020. The decreasesincreases for the thirdsecond quarter and year-to-date 20202021 were primarily due to decreasesincreases of 25.7%261.8% and 50.3%247.1%, respectively, in the volume of KWHs generated by coal and decreasesincreases of 8.2%25.6% and 13.5%24.2%, respectively, in the average cost of natural gas per KWH generated. The increase for year-to-date 2021 was partially offset by a 16.4% decrease in the average cost of coal per KWH generated.
Purchased Power – AffiliatesNon-Affiliates
For year-to-date 2020,In the second quarter 2021, purchased power expense from affiliatesnon-affiliates was $393$144 million compared to $460$133 million forin the corresponding period in 2019.2020. For year-to-date 2021, purchased power expense from non-affiliates was $288 million compared to $262 million in the corresponding period in 2020. The decrease wasincreases for the second quarter and year-to-date 2021 were primarily due to a decreaseincreases of 24.7%19.4% and 21.6%, respectively, in the average cost per KWH purchased primarily resulting from lower energydue to higher natural gas prices, as well as the expiration of a PPA, partially offset by an increasedecreases of 5.8%7.9% and 8.9%, respectively, in the volume of KWHs purchased as Georgia Power units generally dispatched at a higherlower cost than otheravailable market resources.
Energy purchases from non-affiliates will vary depending on the market prices of wholesale energy as compared to the cost of the Southern Company system's generation, demand for energy within the Southern Company system's electric service territory, and the availability of the Southern Company system's generation.
Purchased Power – Affiliates
In the second quarter 2021, purchased power expense from affiliates was $149 million compared to $122 million in the corresponding period in 2020. For year-to-date 2021, purchased power expense from affiliates was $285 million compared to $251 million in the corresponding period in 2020. The increases for the second quarter and year-to-date 2021 were primarily due to increases of 44.7% and 41.3%, respectively, in the average cost per KWH purchased primarily due to higher natural gas prices, partially offset by decreases of 15.2% and 19.1%, respectively, in the
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
volume of KWHs purchased due to higher cost Southern Company system resources.resources as compared to available Georgia Power-owned generation.
Energy purchases from affiliates will vary depending on the demand and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC or other contractual agreements, all as approved by the FERC.
Other Operations and Maintenance Expenses
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$10 | | 2.1 | | $26 | | 1.9 |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$79 | | 17.1 | | $87 | | 9.4 |
In the thirdsecond quarter 2020,2021, other operations and maintenance expenses were $483$542 million compared to $473$463 million for the corresponding period in 2019.2020. The increase was primarily due toassociated with increases of $46$27 million related to distribution maintenance activities, $14 million in storm damage recovery as authorizedgeneration expenses associated with non-outage maintenance costs and environmental projects, and $8 million in transmission overhead line costs. These increases reflect the 2019 ARPimpacts of cost containment activities implemented for 2020 during the COVID-19 pandemic. Also contributing to the increase were increases of $16 million related to unregulated power delivery construction and maintenance projects and $7 million in employeebenefit expenses.
For year-to-date 2021, other operations and maintenance expenses were $1.02 billion compared to $0.93 billion for the corresponding period in 2020. The increase was primarily associated with increases of $27 million related to distribution maintenance activities, $9 million in transmission overhead line costs, and $8 million in generation environmental projects. These increases reflect the impacts of cost containment activities implemented for 2020 during the COVID-19 pandemic. Also contributing to the increase were increases of $23 million related to unregulated power delivery construction and maintenance projects and $10 million in benefit expenses, as well as an $8 million decrease in nuclear property insurance refunds, partially offset by decreasesa decrease of $24$9 million in distribution- and transmission-related expenses and $11 million associated with generationthe timing of certain unregulated energy conservation projects.
Depreciation and Amortization
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(12) | | (3.4) | | $(27) | | (3.8) |
In the second quarter 2021, depreciation and amortization was $342 million compared to $354 million for the corresponding period in 2020. For year-to-date 2021, depreciation and amortization was $680 million compared to $707 million for the corresponding period in 2020. The decreases for the second quarter and year-to-date 2021 primarily reflect decreased amortization of regulatory assets related to CCR AROs of $22 million and $44 million, respectively, under the terms of the 2019 ARP, partially offset by increases of $10 million and $20 million, respectively, in depreciation associated with additional plant in service. See Note (B) to the Condensed Financial Statements under "Georgia Power – Rate Plan" herein and Note 2 to the financial statements under "Georgia Power – Rate Plans – 2019 ARP" in Item 8 of the Form 10-K for additional information regarding recovery of costs associated with CCR AROs.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
maintenance. These decreases reflectTaxes Other Than Income Taxes
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$10 | | 9.3 | | $14 | | 6.3 |
In the impacts of cost containment activities implemented to help offset the effects of the recessionary economy resulting from the COVID-19 pandemic. Also contributing to the offsetsecond quarter 2021, taxes other than income taxes was a decrease of $6$118 million in expenses from unregulated sales associated with new energy conservation projects.
For year-to-date 2020, other operations and maintenance expenses were $1.41 billion compared to $1.39 billion$108 million for the corresponding period in 2019.2020. For year-to-date 2021, taxes other than income taxes was $235 million compared to $221 million for the corresponding period in 2020. The increase wasincreases for the second quarter and year-to-date 2021 were primarily due to increases of $138$7 million and $9 million, respectively, in storm damage recovery as authorizedmunicipal franchise fees largely related to higher retail revenues and increases of $3 million and $7 million, respectively, in the 2019 ARP and $15 million in employee benefit expenses, partially offset by decreases of $42 million in distribution- and transmission-related expenses, $34 millionproperty taxes primarily associated with generation maintenancethe construction of Plant Vogtle Units 3 and scheduled outages,4. See Note (B) to the Condensed Financial Statements herein and $13 million associated with generation environmental projects. These decreases reflect the impacts of cost containment activities implemented to help offset the effects of the recessionary economy resulting from the COVID-19 pandemic. Other expense reductions include a decrease of $15 million related to an adjustment in 2019 for FERC fees following the conclusion of a multi-year audit of headwater benefits associated with hydro facilities, an $11 million increase in nuclear property insurance refunds, and a decrease of $9 million associated with workers compensation and legal expenses.
See Note 2 to the financial statements under "Georgia Power – Storm Damage Recovery" in Item 8 of the Form 10-K for additional information.
Depreciation and Amortization
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$108 | | 43.2 | | $331 | | 45.2 |
In the third quarter 2020, depreciation and amortization was $358 million compared to $250 million for the corresponding period in 2019. For year-to-date 2020, depreciation and amortization was $1.06 billion compared to $0.73 billion for the corresponding period in 2019. These increases primarily reflect increased amortization of regulatory assets related to CCR AROs of $51 million and $152 million for the third quarter and year-to-date 2020, respectively, and higher depreciation of $44 million and $133 million for the third quarter and year-to-date 2020, respectively, as authorized in the 2019 ARP. Also contributing to the increases were $16 million and $52 million increases in depreciation for the third quarter and year-to-date 2020, respectively, associated with additional plant in service. See Note 2 to the financial statements under "Georgia Power – Rate Plans" and " – Integrated Resource Plan" in Item 8 of the Form 10-KNuclear Construction" for additional information.
Estimated Loss on Plant Vogtle Units 3 and 4
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$— | | N/M | | $149 | | N/M |
N/M - Not meaningful | | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$311 | | 208.7 | | $359 | | 240.9 |
In the second quarter 2021 and 2020, anGeorgia Power recorded estimated probable losslosses on Plant Vogtle Units 3 and 4 of $460 million and $149 million, wasrespectively. For year-to-date 2021 and 2020, Georgia Power recorded estimated probable losses on Plant Vogtle Units 3 and 4 of $508 million and $149 million, respectively. These losses reflect revisions to reflect Georgia Power's revisedthe total project capital cost forecast to complete construction and start-up of Plant Vogtle Units 3 and 4. See Note (B) to the Condensed Financial Statements herein and Note 2 to the financial statements in Item 8 of the Form 10-K under "Nuclear"Georgia Power – Nuclear Construction" herein for additional information.
Interest Expense, Net of Amounts CapitalizedAllowance for Equity Funds Used During Construction
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$3 | | 2.9 | | $18 | | 5.9 |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$10 | | 50.0 | | $21 | | 52.5 |
For year-to-date 2020, interest expense, net of amounts capitalizedIn the second quarter 2021, allowance for equity funds used during construction was $322$30 million compared to $304$20 million for the corresponding period in 2019.2020. For year-to-date 2021, allowance for equity funds used during construction was $61 million compared to $40 million for the corresponding period in 2020. The increaseincreases were primarily associated with the construction of Plant Vogtle Units 3 and 4. See Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein for additional information regarding Plant Vogtle Units 3 and 4.
Other Income (Expense), Net
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$11 | | 35.5 | | $20 | | 31.7 |
In the second quarter 2021, other income (expense), net was $42 million compared to $31 million for the corresponding period in 2020. For year-to-date 2021, other income (expense), net was $83 million compared to $63 million for the corresponding period in 2020. The increases were primarily due to a $32increases of $12 million and $25 million, respectively, in non-service cost-related retirement benefits income. The increase in interest expense associated with an increase in average outstanding long-term borrowings, partially offset by a $15 million increasefor year-to-date 2021 was
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
partially offset by a $5 million decrease in amounts capitalized in connection with the construction of Plant Vogtle Units 3 and 4. See FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" and "Financing Activities" herein for additional information on borrowings and Note (B) to the Condensed Financial Statements under "Nuclear Construction" herein for additional information regarding Plant Vogtle Units 3 and 4.
Other Income (Expense), Net
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$18 | | 50.0 | | $43 | | 38.1 |
In the third quarter 2020, otherinterest income (expense), net was $54 million compared to $36 million for the corresponding period in 2019. For year-to-date 2020, other income (expense), net was $156 million compared to $113 million for the corresponding period in 2019. The third quarter and year-to-date 2020 increases were primarily due to increases of $10 million and $32 million, respectively, in non-service cost-related retirement benefits income and increases in AFUDC equity of $5 million and $14 million, respectively, primarily associated with the construction of Plant Vogtle Units 3 and 4.lower short-term cash investments. See Note (H) to the Condensed Financial Statements herein for additional information on retirement benefits and Note (B) to the Condensed Financial Statements under "Nuclear Construction" herein for additional information regarding Plant Vogtle Units 3 and 4.benefits.
Income Taxes (Benefit)
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(83) | | (32.5) | | $(268) | | (57.5) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(61) | | N/M | | $(59) | | N/M |
N/M - Not meaningful
In the thirdsecond quarter 2020,2021, income taxes were $172tax benefit was $50 million compared to $255income tax expense of $11 million for the corresponding period in 2019.2020. For year-to-date 2020,2021, income taxes were $198tax benefit was $32 million compared to $466income tax expense of $27 million for the corresponding period in 2019. These decreases2020. The changes were primarily due to the flowback of excess deferred income taxes in 2020 as authorized in the 2019 ARP and lower pre-tax earnings which includes, for year-to-date 2020,resulting from higher charges in 2021 compared to the chargecorresponding periods in the second quarter 2020 associated with the construction of Plant Vogtle Units 3 and 4. See Note (B) under "Nuclear Construction" and Note (G) to the Condensed Financial Statements herein and Note 2 to the financial statements under "Georgia Power – Rate Plans – Tax Reform Settlement Agreement" in Item 8 of the Form 10-K under "Georgia Power – Nuclear Construction" and Note (G) to the Condensed Financial Statements herein for additional information.
Mississippi Power
Net Income
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$2 | | 3.1 | | $(1) | | (0.7) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(1) | | (2.6) | | $12 | | 16.9 |
Mississippi Power'sIn the second quarter 2021, net income for the third quarter 2020 was $67$38 million compared to $65$39 million for the corresponding period in 2019.2020. The increasedecrease was primarily due to a decreasean increase in amortization associated with ECO Plan regulatory assets, a decrease inoperations and maintenance expenses and income taxes, associated with the flowback of excess deferred income taxes, and a decrease in scheduled generation outage costs, partiallylargely offset by a decreasean increase in revenues as a result of a base rate reduction rates that became effective for the first billing cycle of April 2020, as well as a decrease in2021 and higher customer usage duein the second quarter 2021 when compared to the COVID-19 pandemic, and an increasecorresponding period in depreciation.2020.
For year-to-date 2020,2021, net income was $138$83 million compared to $139$71 million for the corresponding period in 2019.2020. The decreaseincrease was primarily due to a decreasean increase in base revenues as a result of a base rate reduction that became effective forprimarily due to colder weather in the first billing cycle of Aprilquarter 2021 as compared to the corresponding period in 2020, as well as a decreasean increase in customer usage dueother income.
Retail Revenues
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$20 | | 10.1 | | $24 | | 6.0 |
In the second quarter 2021, retail revenues were $219 million compared to $199 million for the COVID-19 pandemic,corresponding period in 2020. For year-to-date 2021, retail revenues were $422 million compared to $398 million for the corresponding period in 2020.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
and an increase in depreciation, substantially offset by a decrease in amortization associated with ECO Plan regulatory assets and a decrease in income taxes associated with the flowback of excess deferred income taxes.
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Regulatory Matters – Mississippi Power – 2019 Base Rate Case" herein and Note 2 to the financial statements under "Mississippi Power – Environmental Compliance Overview Plan" in Item 8 of the Form 10-K for additional information.
Retail Revenues
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(19) | | (7.6) | | $(39) | | (5.8) |
In the third quarter 2020, retail revenues were $232 million compared to $251 million for the corresponding period in 2019. For year-to-date 2020, retail revenues were $630 million compared to $669 million for the corresponding period in 2019.
Details of the changes in retail revenues were as follows:
| | | Third Quarter 2020 | | Year-to-Date 2020 | | Second Quarter 2021 | | Year-To-Date 2021 |
| | (in millions) | | (% change) | | (in millions) | | (% change) | | (in millions) | | (% change) | | (in millions) | | (% change) |
Retail – prior year | Retail – prior year | $ | 251 | | | $ | 669 | | | Retail – prior year | $ | 199 | | | $ | 398 | | |
Estimated change resulting from – | Estimated change resulting from – | | Estimated change resulting from – | |
Rates and pricing | Rates and pricing | (10) | | | (4.0) | % | | (15) | | | (2.2) | % | Rates and pricing | 8 | | | 4.0 | % | | 1 | | | 0.3 | % |
Sales decline | (5) | | | (2.0) | | | (12) | | | (1.8) | | |
Sales growth | | Sales growth | 6 | | | 3.0 | | | — | | | — | |
Weather | Weather | (4) | | | (1.6) | | | (2) | | | (0.3) | | Weather | (3) | | | (1.5) | | | 5 | | | 1.3 | |
Fuel and other cost recovery | Fuel and other cost recovery | — | | | — | | | (10) | | | (1.5) | | Fuel and other cost recovery | 9 | | | 4.5 | | | 18 | | | 4.5 | |
Retail – current year | Retail – current year | $ | 232 | | | (7.6) | % | | $ | 630 | | | (5.8) | % | Retail – current year | $ | 219 | | | 10.0 | % | | $ | 422 | | | 6.1 | % |
Revenues associated with changes in rates and pricing decreasedincreased in the thirdsecond quarter 2021 when compared to the corresponding period in 2020 primarily due to an increase in revenues in accordance with new PEP rates that became effective for the first billing cycle of April 2021. See Note (B) to the Condensed Financial Statements under "Mississippi Power – Performance Evaluation Plan" herein for additional information.
Revenues attributable to changes in sales increased in the second quarter 2021 when compared to the corresponding period in 2020. Weather-adjusted residential KWH sales decreased 1.9% and 1.3% in the second quarter and year-to-date 20202021, respectively, when compared to the corresponding periods in 20192020 as customer usage decreased, primarily due to decreasesshelter-in-place orders in rates in accordance with the Mississippi Power Rate Case Settlement Agreement. The third quarter 2020 decrease was also due to a decrease in revenue associated with a tolling arrangement. See FUTURE EARNINGS POTENTIAL – "Regulatory Matters – Mississippi Power – 2019 Base Rate Case" herein for additional information.
Revenues attributable to changes ineffect during 2020. Weather-adjusted commercial KWH sales decreasedincreased 9.0% and 2.4% in the thirdsecond quarter and year-to-date 20202021, respectively, and industrial KWH sales increased 7.2% in the second quarter 2021 when compared to the corresponding periods in 2019 largely2020, primarily due to lower overall customer usage resulting from work-from-home policies related tothe negative impact of the COVID-19 pandemic and reluctance of consumers and businesses to resume pre-pandemic levels of activity.
Weather-adjusted residentialon energy demand in 2020. Industrial KWH sales increased 3.3% and 2.7%decreased 2.1% for year-to-date 2021 when compared to the corresponding period in the third quarter and year-to-date 2020 respectively, primarily due to customer growth and an increase in average customer usage as a result of changes indecreased customer behavior and work-from-home policies in response to the COVID-19 pandemic. Weather-adjusted commercial KWH sales decreased 5.8% and 7.1% in the third quarter and year-to-date 2020, respectively, primarilyusage due to lower customer usage resulting from changes in consumer and business behavior, including the temporary closurecontinued disruptions of casinos, in response to the COVID-19 pandemic. Industrial KWH sales decreased 7.9% and 3.6% in the third quarter and year-to-date 2020, respectively, as a result of disruptions in supply chain and business operations driven by the COVID-19 pandemic, and the overall decrease in business activity due to the resulting recession.as well as non-pandemic related customer outages.
Fuel and other cost recovery revenues decreased forincreased in the second quarter and year-to-date 20202021 when compared to the corresponding periodperiods in 20192020 primarily as a result of lowerhigher recoverable fuel costs. Recoverable fuel costs include fuel and purchased power expenses reduced by the fuel portion of wholesale revenues from energy sold to customers outside Mississippi Power's service territory. Electric rates include provisions to adjust billings for fluctuations in fuel costs,
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
including the energy component of purchased power costs. Under these provisions, fuel revenues generally equal fuel expenses, including the energy component of purchased power costs, and do not affect net income.
Wholesale Revenues – Non-Affiliates
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(3) | | (4.7) | | $(14) | | (7.9) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$2 | | 3.8 | | $14 | | 13.6 |
Wholesale revenues from sales to non-affiliates will vary depending on fuel prices, the market prices of wholesale energy compared to the cost of Mississippi Power's and the Southern Company system's generation, demand for energy within the Southern Company system's electric service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not have a significant impact on net income. In addition, Mississippi Power provides service under long-term contracts with rural electric cooperative associations and municipalities located in southeastern Mississippi under cost-based electric tariffs which are subject to regulation by the FERC. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Regulatory Matters – MississippiNote 2 to the financial statements under "Mississippi Power" in Item 78 of the Form 10-K for additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
For year-to-date 2020,2021, wholesale revenues from sales to non-affiliates were $164$117 million compared to $178$103 million for the corresponding period in 2019. This decrease2020. The increase was primarily due to decreaseshigher fuel costs and an increase in revenue from MRA customers and opportunity sales as a result of lower fuel costs, mildercolder weather and decreased customer usage as a result ofin the COVID-19 pandemic, and from fewer opportunity sales.first quarter 2021.
Wholesale Revenues – Affiliates
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(15) | | (29.4) | | $(27) | | (24.8) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$— | | — | | $10 | | 21.3 |
Wholesale revenues from sales to affiliated companies will vary depending on demand and the availability and cost of generating resources at each company. These affiliate sales are made in accordance with the IIC, as approved by the FERC. These transactions do not have a significant impact on earnings since this energy is generally sold at marginal cost.
In both the thirdsecond quarter 2021 and 2020, wholesale revenues from sales to affiliates were $36$25 million. Wholesale revenues from sales to affiliates in the second quarter 2021 reflected a decrease of $11 million compared to $51 million for the corresponding period in 2019. This decrease was primarily due to an $8 million decrease associated with lower KWH sales and a $7offset by an $11 million decrease primarilyincrease associated with lowerhigher natural gas prices.prices when compared to the corresponding period in 2020.
For year-to-date 2020,2021, wholesale revenues from sales to affiliates were $82$57 million compared to $109$47 million for the corresponding period in 2019. This decrease2020. The increase was primarily due to a $34$20 million decrease associated with lowerincrease related to higher natural gas prices, partially offset by a $7$10 million decrease related to lower KWH sales.
Fuel and Purchased Power Expenses
| | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
| (change in millions) | | (% change) | | (change in millions) | | (% change) |
Fuel | $ | 8 | | | 9.6 | | $ | 30 | | | 18.5 |
Purchased power | 4 | | | 57.1 | | 4 | | | 33.3 |
Total fuel and purchased power expenses | $ | 12 | | | | | $ | 34 | | | |
In the second quarter 2021, total fuel and purchased power expenses were $102 million compared to $90 million for the corresponding period in 2020. The increase was primarily due to a $17 million increase in the average cost of fuel, partially offset by a $5 million decrease associated with higher KWH salesthe volume of KWHs generated and purchased.
For year-to-date 2021, total fuel and purchased power expenses were $208 million compared to $174 million for the corresponding period in 2020. The increase was primarily due to an increase in the dispatchaverage cost of fuel.
Fuel and purchased power energy transactions do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Mississippi Power's lowerfuel cost generation resources to serve the Southern Company system's territorial load.recovery clause.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Fuel and Purchased Power Expenses
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
| (change in millions) | | (% change) | | (change in millions) | | (% change) |
Fuel | $ | (18) | | | (14.9) | | $ | (53) | | | (16.6) |
Purchased power | — | | | — | | 3 | | | 20.0 |
Total fuel and purchased power expenses | $ | (18) | | | | | $ | (50) | | | |
In the third quarter 2020, total fuel and purchased power expenses were $109 million compared to $127 million for the corresponding period in 2019. The decrease was primarily due to a $9 million decrease associated with the volume of KWHs generated and a $9 million decrease primarily related to the lower average cost of natural gas.
For year-to-date 2020, total fuel and purchased power expenses were $284 million compared to $334 million for the corresponding period in 2019. The decrease was primarily due to a $47 million decrease related to the cost of fuel and purchased power primarily due to the lower average cost of natural gas.
Fuel and purchased power energy transactions do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Mississippi Power's fuel cost recovery clause.
Details of Mississippi Power's generation and purchased power were as follows:
| | | Third Quarter 2020 | | Third Quarter 2019 | | Year-to-Date 2020 | | Year-to-Date 2019 | | Second Quarter 2021 | | Second Quarter 2020 | | Year-To-Date 2021 | | Year-To-Date 2020 |
Total generation (in millions of KWHs) | Total generation (in millions of KWHs) | 5,011 | | 5,554 | | 13,662 | | 14,125 | Total generation (in millions of KWHs) | 3,813 | | 4,484 | | 8,137 | | 8,651 |
Total purchased power (in millions of KWHs) | Total purchased power (in millions of KWHs) | 162 | | 161 | | 558 | | 403 | Total purchased power (in millions of KWHs) | 317 | | 208 | | 438 | | 396 |
Sources of generation (percent) – | Sources of generation (percent) – | | Sources of generation (percent) – | |
Gas | | Gas | 91 | | 96 | | 91 | | 96 |
Coal | Coal | 11 | | 8 | | 6 | | 7 | Coal | 9 | | 4 | | 9 | | 4 |
Cost of fuel, generated (in cents per net KWH) – | | Cost of fuel, generated (in cents per net KWH) – | |
Gas | Gas | 89 | | 92 | | 94 | | 93 | Gas | 2.50 | | 1.88 | | 2.45 | | 1.92 |
Cost of fuel, generated (in cents per net KWH) – | | | | | |
Coal | Coal | 3.52 | | 3.88 | | 3.70 | | 3.98 | Coal | 3.06 | | 3.82 | | 3.12 | | 4.02 |
Gas | 1.99 | | 2.16 | | 1.94 | | 2.29 | |
Average cost of fuel, generated (in cents per net KWH) | Average cost of fuel, generated (in cents per net KWH) | 2.16 | | 2.30 | | 2.06 | | 2.41 | Average cost of fuel, generated (in cents per net KWH) | 2.56 | | 1.97 | | 2.52 | | 2.00 |
Average cost of purchased power (in cents per net KWH) | Average cost of purchased power (in cents per net KWH) | 3.66 | | 3.96 | | 3.17 | | 3.84 | Average cost of purchased power (in cents per net KWH) | 3.38 | | 3.27 | | 3.57 | | 2.97 |
Fuel
In the thirdsecond quarter 2020,2021, fuel expense was $103$91 million compared to $121$83 million for the corresponding period in 2019. This decrease2020. The increase was primarily due to a 12.2% decrease93.4% increase in the volume of KWHs generated by natural gas, a 9.3% decrease in the average cost of coal per KWH generated, and a 7.8% decrease33.0% increase in the average cost of natural gas per KWH generated, partially offset by a 24.7%21.0% decrease in the volume of KWHs generated by natural gas and a 19.9% decrease in the average cost of coal per KWH generated.
For year-to-date 2021, fuel expense was $192 million compared to $162 million for the corresponding period in 2020. The increase was due to a 146.5% increase in the volume of KWHs generated by coal.
For year-to-date 2020, fuel expense was $266 million compared to $319 million for the corresponding period in 2019. This decrease was due tocoal and a 15.1% decrease27.6% increase in the average cost of natural gas per KWH generated, partially offset by a 10.8% decrease in the volume of KWHs generated by coal, a 6.9%22.4% decrease in the average cost of coal per KWH generated and a 2.0%12.5% decrease in the volume of KWHs generated by natural gas.
Purchased Power
In the second quarter 2021, purchased power expense was $11 million compared to $7 million for the corresponding period in 2020. For year-to-date 2021, purchased power expense was $16 million compared to $12 million for the corresponding period in 2020. The second quarter and year-to-date 2021 increases reflect increases of 52.4% and 10.6%, respectively, in the volume of KWHs purchased and increases of 3.4% and 20.2%, respectively, in the average cost per KWH purchased primarily due to higher natural gas prices.
Other Operations and Maintenance Expenses
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$9 | | 13.4 | | $2 | | 1.4 |
In the second quarter 2021, other operations and maintenance expenses were $76 million compared to $67 million for the corresponding period in 2020. The increase was primarily due to increases of $7 million related to planned generation outage and baseline costs and $2 million related to compensation and benefit costs.
Other Income (Expense), Net
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$5 | | 83.3 | | $6 | | 42.9 |
In the second quarter 2021, other income (expense), net was $11 million compared to $6 million for the corresponding period in 2020. For year-to-date 2021, other income (expense), net was $20 million compared to $14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Other Operations and Maintenance Expenses
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(10) | | (13.9) | | $(2) | | (1.0) |
In the third quarter 2020, other operations and maintenance expenses were $62 million compared to $72 million for the corresponding period in 2019.2020. The decrease was primarily due to a $6 million decrease associated with the Kemper IGCCsecond quarter and year-to-date 2021 increases were primarily related to an increase in salvage proceeds and the settlement of litigation and a decreaseincreases of $3 million and $2 million, respectively, in scheduled generation outage costs.contributions in aid of construction and $2 million and $3 million, respectively, in non-service cost-related retirement benefits income. See Note (H) to the Condensed Financial Statements herein for additional information.
For year-to-date 2020, other operations and maintenance expensesIncome Taxes
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$6 | | N/M | | $4 | | 50.0 |
N/M - Not meaningful
In the second quarter 2021, income taxes were $202$8 million compared to $204$2 million for the corresponding period in 2019.2020. The decrease was primarily due to an $8 million decrease associated with the Kemper IGCC primarily related to an increase in salvage proceeds, largely offset by increases of $3 million in certain employee compensation expenses deferred in 2019, $2 million in vegetation management expenses, and $2 million in scheduled generation outage costs.
See Note 2 to the financial statements under "Mississippi Power – Kemper County Energy Facility" in Item 8 of the Form 10-K and Note (C) to the Condensed Financial Statements under "Other Matters – Mississippi Power – Kemper County Energy Facility" herein for additional information.
Depreciation and Amortization
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(1) | | (2.1) | | $(9) | | (6.3) |
In the third quarter 2020, depreciation and amortization was $47 million compared to $48 million for the corresponding period in 2019. For year-to-date 2020, depreciation and amortization was $135 million compared to $144 million for the corresponding period in 2019. These decreases were related to decreases in amortization of $5 million and $17 million in the third quarter and year-to-date 2020, respectively, primarily as a result of the ECO Plan regulatory assets being fully amortized in 2019, partially offset by amortization of a regulatory asset associated with an ARO. These decreases were partially offset by increases in depreciation of $4 million and $8 million in the third quarter and year-to-date 2020, respectively, primarily related to additional plant in service and an increase in depreciation rates in accordance with the Mississippi Power Rate Case Settlement Agreement. See Note (B) to the Condensed Financial Statements under "Mississippi Power – 2019 Base Rate Case" herein and Note 2 to the financial statements under "Mississippi Power – Environmental Compliance Overview Plan" in Item 8 of the Form 10-K for additional information.
Interest Expense, Net of Amounts Capitalized
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(3) | | (17.6) | | $(7) | | (13.5) |
For year-to-date 2020, interest expense, net of amounts capitalized was $45 million compared to $52 million for the corresponding period in 2019. The decrease primarily resulted from a decrease in outstanding long-term borrowings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Income Taxes
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(3) | | (20.0) | | $(7) | | (25.9) |
For year-to-date 2020, income taxes were $20 million compared to $27 million for the corresponding period in 2019. The decrease was primarily due to a decrease of $9$4 million increase associated with the flowback of excess deferred income taxes as a result of the Mississippi Power Rate Case Settlement Agreement. See Note (G)and a $1 million increase due to higher pre-tax earnings.
For year-to-date 2021, income taxes were $12 million compared to $8 million for the Condensed Financial Statements herein for additional information.corresponding period in 2020. The increase was primarily due to higher pre-tax earnings.
Southern Power
Net Income Attributable to Southern Power
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(12) | | (14.0) | | $(104) | | (32.9) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(27) | | (42.9) | | $(5) | | (3.6) |
Net income attributable to Southern Power for the thirdsecond quarter 20202021 was $74$36 million compared to $86$63 million for the corresponding period in 2019. The decrease was primarily due to reduced net income related to the disposition of Plant Mankato in the first quarter 2020.
Net income attributable to Southern Power for year-to-date 20202021 was $212$133 million compared to $316$138 million for the corresponding period in 2019.2020. The decrease wasdecreases were primarily due to an increase in other operations and maintenance expenses associated with scheduled outages and maintenance. Partially offsetting the gain on the sale of Plant Nacogdochesyear-to-date 2021 decrease was a $16 million tax benefit due to changes in the second quarter 2019 of $88 million afterstate apportionment methodology resulting from tax partially offsetlegislation enacted by the gain on saleState of Plant MankatoAlabama in the first quarter 2020 of $23 million after tax. In addition, the decrease reflects the reduced net income related to these dispositions.
See Note (K) to the Condensed Financial Statements under "Southern Power" herein and Note 15 to the financial statements under "Southern Power" in Item 8 of the Form 10-K for additional information.February 2021.
Operating Revenues
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(51) | | (8.9) | | $(190) | | (12.4) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$51 | | 11.6 | | $116 | | 14.3 |
Total operating revenues include PPA capacity revenues, which are derived primarily from long-term contracts involving natural gas facilities, and a biomass generating facility (through the second quarter 2019 sale of Plant Nacogdoches), and PPA energy revenues from Southern Power's generation facilities. To the extent Southern Power has capacity not contracted under a PPA, it may sell power into an accessible wholesale market, or, to the extent those generation assets are part of the FERC-approved IIC, it may sell power into the Southern Company power pool.
Natural Gas and Biomass Capacity and Energy Revenue
Capacity revenues generally represent the greatest contribution to operating income and are designed to provide recovery of fixed costs plus a return on investment.
Energy is generally sold at variable cost or is indexed to published natural gas indices. Energy revenues will vary depending on the energy demand of Southern Power's customers and their generation capacity, as well as the market
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
prices of wholesale energy compared to the cost of Southern Power's energy. Energy revenues also include fees for support services, fuel storage, and unit start charges. Increases and decreases in energy revenues under PPAs that are driven by fuel or purchased power prices are accompanied by an increase or decrease in fuel and purchased power costs and do not have a significant impact on net income.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Solar and Wind Energy Revenue
Southern Power's energy sales from solar and wind generating facilities are predominantly through long-term PPAs that do not have capacity revenue. Customers either purchase the energy output of a dedicated renewable facility through an energy charge or pay a fixed price related to the energy generated from the respective facility and sold to the grid. As a result, Southern Power's ability to recover fixed and variable operations and maintenance expenses is dependent upon the level of energy generated from these facilities, which can be impacted by weather conditions, equipment performance, transmission constraints, and other factors.
See FUTURE EARNINGS POTENTIAL – "Southern Power's Power Sales Agreements" hereinin Item 7 of the Form 10-K for additional information regarding Southern Power's PPAs.
Operating Revenues Details
Details of Southern Power's operating revenues were as follows:
| | | Third Quarter 2020 | | Third Quarter 2019 | | Year-to-Date 2020 | | Year-to-Date 2019 | | Second Quarter 2021 | | Second Quarter 2020 | | Year-To-Date 2021 | | Year-To-Date 2020 |
| | (in millions) | | (in millions) |
PPA capacity revenues | PPA capacity revenues | $ | 116 | | | $ | 131 | | | $ | 297 | | | $ | 384 | | PPA capacity revenues | $ | 96 | | | $ | 92 | | | $ | 192 | | | $ | 181 | |
PPA energy revenues | PPA energy revenues | 319 | | | 339 | | | 794 | | | 857 | | PPA energy revenues | 296 | | | 270 | | | 541 | | | 475 | |
Total PPA revenues | Total PPA revenues | 435 | | | 470 | | | 1,091 | | | 1,241 | | Total PPA revenues | 392 | | | 362 | | | 733 | | | 656 | |
Non-PPA revenues | Non-PPA revenues | 84 | | | 101 | | | 235 | | | 276 | | Non-PPA revenues | 93 | | | 73 | | | 188 | | | 151 | |
Other revenues | Other revenues | 4 | | | 3 | | | 11 | | | 10 | | Other revenues | 5 | | | 4 | | | 9 | | | 7 | |
Total operating revenues | Total operating revenues | $ | 523 | | | $ | 574 | | | $ | 1,337 | | | $ | 1,527 | | Total operating revenues | $ | 490 | | | $ | 439 | | | $ | 930 | | | $ | 814 | |
In the thirdsecond quarter 2020,2021, total operating revenues were $523$490 million, reflecting a $51 million, or 9%12%, decreaseincrease from the corresponding period in 2019.2020. The decreaseincrease in operating revenues was primarily due to the following:
•PPA capacity revenues decreased $15increased $4 million, or 11%4%, primarily due to new natural gas PPAs, which began subsequent to the dispositionsecond quarter 2020, and increased capacity on existing contracts, partially offset by the contractual expiration of Plant Mankato in the first quarter 2020.natural gas PPAs.
•PPA energy revenues decreased $20increased $26 million, or 6%10%, primarily due to a $29$31 million decreaseincrease in sales from natural gas facilities resulting from a $26$39 million increase in the price of fuel and purchased power, partially offset by an $8 million decrease in the volume of KWHs sold due to reduced demand and a $3 million decrease in the average cost of fuel and purchased power. This decrease was partially offset by a $9 million increase in sales from a fuel cell project acquired in late 2019.sold.
•Non-PPA revenues decreased $17increased $20 million, or 17%27%, due to a $20$31 million decreaseincrease in the market price of energy, partially offset by a $3an $11 million increase in the volume of KWHs sold through short-term sales.
For year-to-date 2020, total operating revenues were $1.3 billion, reflecting a $190 million, or 12%, decrease from the corresponding period in 2019. The decrease in operating revenues was primarily due to the following:
•PPA capacity revenues decreased $87 million, or 23%, primarily due to decreases of $60 million related to the dispositions of Plant Nacogdoches in the second quarter 2019 and Plant Mankato in the first quarter 2020 and $24 million from the contractual expiration of an affiliate natural gas PPA.
•PPA energy revenues decreased $63 million, or 7%, due to a $115 million decrease in sales from natural gas facilities resulting from a $64 million decrease in the volume of KWHs sold due to decreased demand and a $51 million decrease in the price of fuel and purchased power. This decrease was partially offset by increases of $22 million in sales primarily driven by the volume of KWHs generated by solar and wind facilities and $29 million in sales from a fuel cell project acquired in late 2019.
•Non-PPA revenues decreased $41 million, or 15%, due to a $95 million decrease in the market price of energy, partially offset by a $54 million increase in the volume of KWHs sold through short-term sales.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
For year-to-date 2021, total operating revenues were $930 million, reflecting a $116 million, or 14%, increase from the corresponding period in 2020. The increase in operating revenues was primarily due to the following:
•PPA capacity revenues increased $11 million, or 6%, primarily due to new natural gas PPAs, which began subsequent to the second quarter 2020, and increased capacity on existing contracts, partially offset by the disposition of Plant Mankato in the first quarter 2020 and the contractual expiration of natural gas PPAs.
•PPA energy revenues increased $66 million, or 14%, due to a $66 million increase in sales from natural gas facilities resulting from an $82 million increase in the price of fuel and purchased power, partially offset by a $16 million decrease in the volume of KWHs sold.
•Non-PPA revenues increased $37 million, or 25%, due to a $69 million increase in the market price of energy, partially offset by a $32 million decrease in the volume of KWHs sold through short-term sales.
Fuel and Purchased Power Expenses
Details of Southern Power's generation and purchased power were as follows:
| | | Third Quarter 2020 | Third Quarter 2019 | | Year-to-Date 2020 | Year-to-Date 2019 | | Second Quarter 2021 | Second Quarter 2020 | | Year-To-Date 2021 | Year-To-Date 2020 |
| | (in billions of KWHs) | | (in billions of KWHs) |
Generation | Generation | 12.3 | 13.8 | | 34.3 | 35.7 | Generation | 10.3 | 11.3 | | 19.7 | 22.0 |
Purchased power | Purchased power | 0.7 | 0.8 | | 2.3 | 2.5 | Purchased power | 0.7 | 0.9 | | 1.3 | 1.5 |
Total generation and purchased power | Total generation and purchased power | 13.0 | 14.6 | | 36.6 | 38.2 | Total generation and purchased power | 11.0 | 12.2 | | 21.0 | 23.5 |
| Total generation and purchased power, excluding solar, wind, and tolling agreements | Total generation and purchased power, excluding solar, wind, and tolling agreements | 7.4 | 8.6 | | 21.9 | 22.3 | Total generation and purchased power, excluding solar, wind, and tolling agreements | 6.3 | 7.4 | | 12.4 | 14.5 |
Southern Power's PPAs for natural gas generation generally provide that the purchasers are responsible for either procuring the fuel (tolling agreements) or reimbursing Southern Power for substantially all of the cost of fuel relating to the energy delivered under such PPAs. Consequently, changes in such fuel costs are generally accompanied by a corresponding change in related fuel revenues and do not have a significant impact on net income. Southern Power is responsible for the cost of fuel for generating units that are not covered under PPAs. Power from these generating units is sold into the wholesale market or into the Southern Company power pool for capacity owned directly by Southern Power.
Purchased power expenses will vary depending on demand, availability, and the cost of generating resources throughout the Southern Company system and other contract resources. Load requirements are submitted to the Southern Company power pool on an hourly basis and are fulfilled with the lowest cost alternative, whether that is generation owned by Southern Power, an affiliate company, or external parties. Such purchased power costs are generally recovered through PPA revenues.
Details of Southern Power's fuel and purchased power expenses were as follows:
| | | Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 | | Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
| | (change in millions) | | (% change) | | (change in millions) | | (% change) | | (change in millions) | | (% change) | | (change in millions) | | (% change) |
Fuel | Fuel | $ | (29) | | | (17.5) | | $ | (103) | | | (22.9) | Fuel | $ | 38 | | | 37.3 | | $ | 72 | | | 34.4 |
Purchased power | Purchased power | (7) | | | (26.9) | | (30) | | | (36.6) | Purchased power | 7 | | | 38.9 | | 14 | | | 43.8 |
Total fuel and purchased power expenses | Total fuel and purchased power expenses | $ | (36) | | | $ | (133) | | | Total fuel and purchased power expenses | $ | 45 | | | $ | 86 | | |
In the thirdsecond quarter 2020,2021, total fuel and purchased power expenses decreased $36increased $45 million, or 19%38%, compared to the corresponding period in 2019.2020. Fuel expense decreased $29increased $38 million due to a $26$52 million decrease associated with the volume of KWHs generated and a $3 million decrease in the average cost of fuel per KWH generated. Purchased power expense decreased $7 million due to a $6 million decrease associated with the average cost of purchased power and a $1 million decrease associated with the volume of KWHs purchased.
For year-to-date 2020, total fuel and purchased power expenses decreased $133 million, or 25%, compared to the corresponding period in 2019. Fuel expense decreased $103 million due to a $97 million decreaseincrease in the average cost of fuel per KWH generated, andpartially offset by a $6$14 million decrease associated with the volume of KWHs generated. Purchased power expense decreased $30 million due to a $22 million decrease associated with the average cost of purchased power and an $8 million decrease associated with the volume of KWHs purchased.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
(Gain) Loss on Dispositions, Net
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$— | | N/M | | $(16) | | N/M |
N/M - Not meaningful
For year-to-date 2020, gain on dispositions, net was $39 million compared to $23 million for the corresponding period in 2019, reflecting the sale of Plant Mankato in the first quarter 2020 and the sale of Plant Nacogdoches in the second quarter 2019. See Note (K) to the Condensed Financial Statements herein and Note 15 to the financial statements in Item 8 of the Form 10-K under "Southern Power – Sales of Natural Gas and Biomass Plants" for additional information.
Interest Expense, Net of Amounts Capitalized
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(7) | | (16.3) | | $(13) | | (10.2) |
In the third quarter 2020, interest expense, net of amounts capitalized was $36 million compared to $43 million for the corresponding period in 2019. For year-to-date 2020, interest expense, net of amounts capitalized was $114 million compared to $127 million for the corresponding period in 2019. The decreases were primarily due to lower outstanding debt. See FINANCIAL CONDITION AND LIQUIDITY – "Financing Activities" herein for additional information.
Other Income (Expense), Net
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$7 | | 116.7 | | $(29) | | (60.4) |
In the third quarter 2020, other income (expense), net was $13 million compared to $6 million for the corresponding period in 2019. The increase was primarily due to the resolution of certain contingencies in the third quarter 2020 associated with the Roserock solar facility litigation settlement in 2019.
For year-to-date 2020, other income (expense), net was $19 million compared to $48 million for the corresponding period in 2019. The decrease was primarily due to a $36 million gain arising from the Roserock solar facility litigation settlement in the second quarter 2019, partially offset by the resolution of certain related contingencies in the third quarter 2020.
See Note 3 to the financial statements in Item 8 of the Form 10-K under "General Litigation Matters – Southern Power" for additional information.
Income Taxes (Benefit)
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(5) | | (26.3) | | $68 | | 165.9 |
For year-to-date 2020, income tax expense was $27 million compared to a $41 million benefit for the corresponding period in 2019. The change was primarily due to a $75 million income tax benefit in 2019 resulting from ITCs recognized upon the sale of Plant Nacogdoches, partially offset by a decrease in income tax expense as a result of lower pre-tax earnings. See Notes (G) and (K) to the Condensed Financial Statements herein for additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Net Income Attributablegenerated. Purchased power expense increased $7 million due to Noncontrolling Interests
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$3 | | N/M | | $(23) | | N/M |
a $10 million increase associated with the average cost of purchased power, partially offset by a $3 million decrease associated with the volume of KWHs purchased.For year-to-date 2020, net income attributable2021, total fuel and purchased power expenses increased $86 million, or 36%, compared to noncontrolling interests was $3the corresponding period in 2020. Fuel expense increased $72 million due to a $102 million increase in the average cost of fuel per KWH generated, partially offset by a $30 million decrease associated with the volume of KWHs generated. Purchased power expense increased $14 million due to a $19 million increase associated with the average cost of purchased power, partially offset by a $5 million decrease associated with the volume of KWHs purchased.
Other Operations and Maintenance Expenses
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$34 | | 44.2 | | $55 | | 35.3 |
In the second quarter 2021, other operations and maintenance expenses were $111 million compared to $26$77 million for the corresponding period in 2019.2020. The changeincrease was primarily due to an allocationincreases of approximately $26$20 million in scheduled outage and maintenance expenses and $4 million in expenses associated with new wind facilities placed in service in 2020 and 2021.
For year-to-date 2021, other operations and maintenance expenses were $211 million compared to $156 million for the corresponding period in 2020. The increase was primarily due to increases of income to the noncontrolling interest partner$27 million in scheduled outage and maintenance expenses, $6 million in expenses associated with new wind facilities placed in service in 2020 and 2021, and $6 million related to the Roserock solar facility litigation settlement inallocation of uncollected settlements by the Energy Reliability Council of Texas market as a result of Winter Storm Uri.
Depreciation and Amortization
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$11 | | 9.1 | | $12 | | 5.0 |
In the second quarter 2019.2021, depreciation and amortization was $132 million compared to $121 million for the corresponding period in 2020. For year-to-date 2021, depreciation and amortization was $251 million compared to $239 million for the corresponding period in 2020. The increases were primarily associated with new wind facilities placed in service in 2020 and 2021.
(Gain) Loss on Dispositions, Net
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$— | | — | | $— | | — |
For year-to-date 2021, gains on dispositions totaled $39 million primarily from contributions of wind turbine equipment to various equity method investments in the first quarter 2021. A $39 million gain was also recorded in the first quarter 2020 related to the sale of Plant Mankato. See Notes (E) and (K) to the Condensed Financial
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Statements under "Southern Power" herein and Note 315 to the financial statements under "Southern Power – Sales of Natural Gas and Biomass Plants" in Item 8 of the Form 10-K under "General Litigationfor additional information.
Income Taxes (Benefit)
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(8) | | (133.3) | | $(24) | | (184.6) |
In the second quarter 2021, income tax benefit was $2 million compared to income tax expense of $6 million for the corresponding period in 2020. The change was primarily due to lower pre-tax earnings.
For year-to-date 2021, income tax benefit was $11 million compared to income tax expense of $13 million for the corresponding period in 2020. The change was primarily due to changes in state apportionment methodology resulting from tax legislation enacted by the State of Alabama in February 2021 and the tax impact from the sale of Plant Mankato in January 2020.
See Note (G) to the Condensed Financial Statements herein, MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Income Tax Matters – SouthernAlabama State Tax Reform Legislation" in Item 7 of the Form 10-K, and Note 15 to the financial statements under "Southern Power" in Item 8 of the Form 10-K for additional information.
Southern Company Gas
Operating Metrics
Southern Company Gas continues to focus on several operating metrics, including Heating Degree Days, customer count, and volumes of natural gas sold.
Southern Company Gas measures weather and the effect on its business using Heating Degree Days. Generally, increased Heating Degree Days result in higher demand for natural gas on Southern Company Gas' distribution system. Southern Company Gas has various regulatory mechanisms, such as weather and revenue normalization and straight-fixed-variable rate design, which limit its exposure to weather changes within typical ranges in each of its utility's respective service territory, including Nicor Gas following the approval of a revenue decoupling mechanism for residential customers in its base rate case that concluded in 2019.territory. Southern Company Gas also utilizes weather hedges to limit the negative income impacts in the event of warmer-than-normal weather.
The number of customers served by gas distribution operations and gas marketing services can be impacted by natural gas prices, economic conditions, and competition from alternative fuels. Gas distribution operations and gas marketing services' customers are primarily located in Georgia Illinois, and Ohio.Illinois.
Southern Company Gas' natural gas volume metrics for gas distribution operations and gas marketing services illustrate the effects of weather and customer demand for natural gas. Wholesale gas services' physical sales volumes represent the daily average natural gas volumes sold to its customers.
Seasonality of Results
During the Heating Season, natural gas usage and operating revenues are generally higher as more customers are connected to the gas distribution systems and natural gas usage is higher in periods of colder weather. Occasionally inPrior to the summer,sale of Sequent, wholesale gas services' operating revenues areoccasionally were impacted due to peak usage by power generators in response to summer energy demands. Southern Company Gas' base operating expenses, excluding cost of natural gas, bad debt expense, and certain incentive compensation costs, are incurred relatively evenly throughout the year. Seasonality also affects the comparison of certain balance sheet items across quarters, including receivables, unbilled revenues, natural gas for sale, and notes payable. However, these items are comparable when reviewing Southern Company Gas' annual results. Thus, Southern Company Gas' operating results for the interim periods presented are not necessarily indicative of annual results and can vary significantly from quarter to quarter.
Net Income (Loss)
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$43 | | 148.3 | | $13 | | 3.7 |
In the third quarter 2020, net income was $14 million compared to a $29 million net loss for the corresponding period in 2019. This increase was primarily due to a $65 million after-tax impairment charge in 2019 related to a natural gas storage facility in Louisiana, partially offset by a $36 million decrease at wholesale gas services in 2020
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
as a resultNet Income (Loss)
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(136) | | (191.5) | | $(13) | | (3.8) |
In the second quarter 2021, net loss was $65 million compared to income of lower$71 million for the corresponding period in 2020. The decrease was primarily due to an $89 million decrease at wholesale gas services primarily due to an increase in derivative losses, partially offset by higher commercial activityactivities, and derivative losses. Also contributingan after-tax impairment charge of $58 million at gas pipeline investments related to the increase wasPennEast Pipeline project. These decreases were partially offset by a $9$6 million increase at gas distribution operations primarily due to base rate increases for Nicor Gas and Atlanta Gas Light and continued investment in infrastructure replacement programs, partially offset by reduced flowback of excess deferred income taxes at Atlanta Gas Light in 2020.replacement.
For year-to-date 2020,2021, net income was $360$333 million comparedcompared to $347$346 million for the corresponding period in 2019. This increase2020. The decrease was primarily due to a $65 millionan after-tax impairment charge in 2019of $58 million at gas pipeline investments related to the PennEast Pipeline project, partially offset by a natural gas storage facility in Louisiana and a $56$25 million increase at gas distribution operations primarily due to base rate increases for Nicor Gas and Atlanta Gas Light and continued investment in infrastructure replacement programs, partially offset by reduced flowback of excess deferred income taxes at Atlanta Gas Light in 2020. Theand a $14 million increase was partially offset by a $106 million decrease at wholesale gas services in 2020 primarily due to lowerhigher commercial activityactivities as a result of Winter Storm Uri, partially offset by derivative losses.
See Notes (C) and lower derivative gains.
See(E) to the Condensed Financial Statements herein under "Other Matters – Southern Company Gas" and "Southern Company Gas," respectively, as well as Note 2 to the financial statements under "Southern Company Gas" in Item 8 of the Form 10-K for additional information.
Natural Gas Revenues, including Alternative Revenue Programs
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(21) | | (4.2) | | $(299) | | (11.2) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$41 | | 6.4 | | $486 | | 25.8 |
In the thirdsecond quarter 2020,2021, natural gas revenues, including alternative revenue programs, were $477$677 million compared to $498$636 million for the corresponding period in 2019.2020. For year-to-date 2020,2021, natural gas revenues, including alternative revenue programs, were $2.4 billion compared to $2.7$1.9 billion for the corresponding period in 2019.2020.
Details of the changes in natural gas revenues, including alternative revenue programs, were as follows:
| | | Third Quarter 2020 | | Year-to-Date 2020 | | Second Quarter 2021 | | Year-To-Date 2021 |
| | (in millions) | | (% change) | | (in millions) | | (% change) | | (in millions) | | (% change) | | (in millions) | | (% change) |
Natural gas revenues – prior year | Natural gas revenues – prior year | $ | 498 | | | $ | 2,661 | | | Natural gas revenues – prior year | $ | 636 | | | $ | 1,885 | | |
Estimated change resulting from – | Estimated change resulting from – | | Estimated change resulting from – | |
Infrastructure replacement programs and base rate changes | Infrastructure replacement programs and base rate changes | 34 | | | 6.8 | % | | 153 | | | 5.7 | % | Infrastructure replacement programs and base rate changes | 41 | | | 6.4 | % | | 81 | | | 4.3 | % |
Gas costs and other cost recovery | Gas costs and other cost recovery | (8) | | | (1.6) | | | (298) | | | (11.2) | | Gas costs and other cost recovery | 88 | | | 13.8 | | | 240 | | | 12.7 | |
Weather | 2 | | | 0.4 | | | (6) | | | (0.2) | | |
| Wholesale gas services | Wholesale gas services | (49) | | | (9.8) | | | (151) | | | (5.6) | | Wholesale gas services | (91) | | | (14.3) | | | 156 | | | 8.3 | |
| Other | Other | — | | | — | | | 3 | | | 0.1 | | Other | 3 | | | 0.5 | | | 9 | | | 0.5 | |
Natural gas revenues – current year | Natural gas revenues – current year | $ | 477 | | | (4.2) | % | | $ | 2,362 | | | (11.2) | % | Natural gas revenues – current year | $ | 677 | | | 6.4 | % | | $ | 2,371 | | | 25.8 | % |
Revenues from infrastructure replacement programs and base rate changes increased in the thirdsecond quarter and year-to-date 20202021 compared to the corresponding periods in 20192020 primarily due to base rate increases at Nicor Gas and Atlanta Gas Light, Virginia Natural Gas, and Chattanooga Gas and continued investments recovered throughinvestment in infrastructure replacement programs.replacement. See Note 2 to the financial statements under "Southern Company Gas – Rate Proceedings" in Item 8 of the Form 10-K for additional information.
Revenues associated with gas costs and other cost recovery decreased in the third quarter and year-to-date 2020 compared to the corresponding periods in 2019 primarily due to lower natural gas prices. The year-to-date decrease also reflects lower sales volumes in 2020 compared to the corresponding period in 2019 primarily as a result of warmer weather. Natural gas distribution rates include provisions to adjust billings for fluctuations in natural gas costs. Therefore, gas costs recovered through natural gas revenues generally equal the amount expensed in cost of natural gas and do not affect net income from gas distribution operations. See "Cost of Natural Gas" herein for additional information. Revenue impacts from weather and customer growth are described further below.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Revenues associated with gas costs and other cost recovery increased in the second quarter and year-to-date 2021 compared to the corresponding periods in 2020 primarily due to higher volumes sold and higher gas cost recovery. See "Cost of Natural Gas" herein for additional information. Revenue impacts from weather and customer growth are described further below.
Revenues from wholesale gas services decreased in the thirdsecond quarter 20202021 compared to the corresponding period in 20192020 due to decreased commercial activity as a result of milder weather and derivative losses, andpartially offset by higher commercial activities. Revenues from wholesale gas services increased for year-to-date 20202021 compared to the corresponding period in 2019 primarily2020 due to decreasedhigher volumes sold and higher commercial activityactivities as a result of warmer weather and a decrease inWinter Storm Uri, partially offset by derivative gains.losses. See "Segment Information – Wholesale Gas Services"Services" herein for additional information. Also see Note (K) to the Condensed Financial Statements under "Southern Company Gas" herein for information regarding the sale of Sequent on July 1, 2021.
Southern Company Gas' natural gas distribution utilities have various regulatory mechanisms that limit their exposure to weather changes. Southern Company Gas hedged the majority of itsalso uses hedges for any remaining exposure to warmer-than-normal weather in Illinois for gas distribution operations and in Illinois and Georgia for gas marketing services. During Heating Season, natural gas usage and operating revenues are generally higher. Weatherservices; therefore, weather typically does not have a significant net income impact other than during the Heating Season.impact. The following table presents Heating Degree Days information for Illinois and Georgia, the primary locations where Southern Company Gas' operations are impacted by weather.
| | | Third Quarter | | 2020 vs. normal | 2020 vs. 2019 | | Year-to-Date | | 2020 vs. normal | 2020 vs. 2019 | | Second Quarter | | 2021 vs. normal | 2021 vs. 2020 | | Year-to-Date | | 2021 vs. normal | 2021 vs. 2020 |
| | Normal(*) | 2020 | 2019 | | colder | | Normal(*) | 2020 | 2019 | | (warmer) | | Normal(*) | 2021 | 2020 | | colder (warmer) | (warmer) | | Normal(*) | 2021 | 2020 | | (warmer) | colder |
| | (in thousands) | | (in thousands) | | | (in thousands) | | (in thousands) | |
Illinois | Illinois | 54 | | 54 | | 2 | | | — | % | N/M | | 3,773 | | 3,548 | | 3,958 | | | (6.0) | % | (10.4) | % | Illinois | 657 | | 634 | | 736 | | | (3.5) | % | (13.9) | % | | 3,681 | | 3,580 | | 3,495 | | | (2.7) | % | 2.4 | % |
Georgia | Georgia | 2 | | 15 | | — | | | N/M | — | % | | 1,530 | | 1,294 | | 1,298 | | | (15.4) | % | (0.3) | % | Georgia | 125 | | 142 | | 188 | | | 13.6 | % | (24.5) | % | | 1,451 | | 1,396 | | 1,279 | | | (3.8) | % | 9.1 | % |
(*)Normal represents the 10-year average from January 1, 20102011 through SeptemberJune 30, 20192020 for Illinois at Chicago Midway International Airport and for Georgia at Atlanta Hartsfield-Jackson International Airport, based on information obtained from the National Oceanic and Atmospheric Administration, National Climatic Data Center.
The following table provides the number of customers served by Southern Company Gas at SeptemberJune 30, 20202021 and 2019:2020:
| | | September 30, | | | June 30, | |
| | 2020 | | 2019 | | 2020 vs. 2019 | | 2021 | | 2020 | | 2021 vs. 2020 |
| | (in thousands, except market share %) | | (% change) | | (in thousands, except market share %) | | (% change) |
Gas distribution operations | Gas distribution operations | 4,258 | | | 4,208 | | | 1.2 | % | Gas distribution operations | 4,300 | | | 4,275 | | | 0.6 | % |
Gas marketing services | Gas marketing services | | Gas marketing services | |
Energy customers(*) | Energy customers(*) | 659 | | | 611 | | | 7.9 | % | Energy customers(*) | 612 | | | 671 | | | (8.8) | % |
Market share of energy customers in Georgia | Market share of energy customers in Georgia | 28.9 | % | | 28.5 | % | | 1.4 | % | Market share of energy customers in Georgia | 29.1 | % | | 29.0 | % | | 0.3 | % |
|
(*)Gas marketing services' customers are primarily located in Georgia Ohio, and Illinois. Also included as of SeptemberJune 30, 2020 werealso includes approximately 50,000 customers in Ohio contracted through an annual auction process to serve for 12 months beginning April 1, 2020.
Southern Company Gas anticipates continued customer growth as it expects continued low natural gas prices. The number of customers served by Southern Company Gas' natural gas distribution utilities at September 30, 2020 was positively impacted by the suspension of disconnections during the COVID-19 pandemic, which resulted in a higher than historical average year-over-year change. Southern Company Gas uses a variety of targeted marketing programs to attract new customers and to retain existing customers.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Cost of Natural Gas
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(8) | | (10.1) | | $(302) | | (31.6) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$87 | | 60.4 | | $231 | | 39.6 |
Excluding Atlanta Gas Light, which does not sell natural gas to end-use customers, natural gas distribution rates include provisions to adjust billings for fluctuations in natural gas costs. Therefore, gas costs recovered through natural gas revenues generally equal the amount expensed in cost of natural gas and do not affect net income from gas distribution operations. Cost of natural gas at gas distribution operations represented 80% and 86%87% of total cost
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
of natural gas for both the thirdsecond quarter and year-to-date 2020, respectively.2021. See MANAGEMENT'S DISCUSSION AND ANALYSIS – RESULTS OF OPERATIONS – "Southern Company Gas – Cost of Natural Gas" in Item 7 of the Form 10-K and "Natural Gas Revenues, including Alternative Revenue Programs" herein for additional information.
In the thirdsecond quarter 2020,2021, cost of natural gas was $71$231 million compared to $79$144 million for the corresponding period in 2019. This decrease2020. The increase reflects an 11.3% decreasehigher gas cost recovery and a 65.0% increase in natural gas prices in the thirdsecond quarter 20202021 compared to the corresponding period in 2019.2020.
For year-to-date 2020,2021, cost of natural gas was $654$814 million compared to $956$583 million for the corresponding period in 2019. This decrease2020. The increase reflects a 29.6% decrease in naturalhigher volumes sold due to colder weather and higher gas prices compared to 2019 and decreased volumes primarily as a result of warmer weathercost recovery for year-to-date 20202021 compared to the corresponding period in 2019.2020. The increase also reflects a 50.6% increase in natural gas prices for year-to-date 2021 compared to the corresponding period in 2020.
The following table details the volumes of natural gas sold duringduring all periods presented.
| | | Third Quarter | 2020 vs. 2019 | | Year-to-Date | 2020 vs. 2019 | | Second Quarter | 2021 vs. 2020 | | Year-to-Date | 2021 vs. 2020 |
| | 2020 | 2019 | | 2020 | 2019 | | 2021 | 2020 | | 2021 | 2020 |
Gas distribution operations (mmBtu in millions) | Gas distribution operations (mmBtu in millions) | | Gas distribution operations (mmBtu in millions) | |
Firm | Firm | 68 | | 66 | | 3.0 | % | | 425 | | 462 | | (8.0) | % | Firm | 103 | | 100 | | 3.0 | % | | 391 | | 357 | | 9.5 | % |
Interruptible | Interruptible | 21 | | 22 | | (4.5) | | | 67 | | 68 | | (1.5) | | Interruptible | 23 | | 21 | | 9.5 | | | 50 | | 45 | | 11.1 | |
Total | Total | 89 | | 88 | | 1.1 | % | | 492 | | 530 | | (7.2) | % | Total | 126 | | 121 | | 4.1 | % | | 441 | | 402 | | 9.7 | % |
Wholesale gas services (mmBtu in millions/day) | Wholesale gas services (mmBtu in millions/day) | | Wholesale gas services (mmBtu in millions/day) | |
Daily physical sales | Daily physical sales | 7.1 | | 6.3 | | 12.7 | % | | 6.8 | | 6.3 | | 7.9 | % | Daily physical sales | 6.1 | | 6.4 | | (4.7) | % | | 6.6 | | 6.6 | | — | % |
Gas marketing services (mmBtu in millions) | Gas marketing services (mmBtu in millions) | | Gas marketing services (mmBtu in millions) | |
Firm: | Firm: | | Firm: | |
Georgia | Georgia | 3 | | 3 | | — | % | | 21 | | 22 | | (4.5) | % | Georgia | 4 | | 4 | | — | % | | 23 | | 18 | | 27.8 | % |
Illinois | Illinois | 1 | | 1 | | — | | | 6 | | 8 | | (25.0) | | Illinois | 1 | | 1 | | — | | | 5 | | 6 | | (16.7) | |
| Ohio and other | 2 | | 1 | | 100.0 | | | 9 | | 11 | | (18.2) | | |
Other | | Other | 2 | | 3 | | (33.3) | | | 8 | | 7 | | 14.3 | |
Interruptible large commercial and industrial | Interruptible large commercial and industrial | 3 | | 3 | | — | | | 10 | | 10 | | — | | Interruptible large commercial and industrial | 3 | | 3 | | — | | | 7 | | 7 | | — | |
Total | Total | 9 | | 8 | | 12.5 | % | | 46 | | 51 | | (9.8) | % | Total | 10 | | 11 | | (9.1) | % | | 43 | | 38 | | 13.2 | % |
Other Operations and Maintenance Expenses
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$9 | | 4.3 | | $54 | | 8.4 |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$13 | | 5.9 | | $53 | | 11.1 |
In the thirdsecond quarter 2020,2021, other operations and maintenance expenses were $217$233 million compared to $208$220 million for the corresponding period in 2019.2020. For year-to-date 2020,2021, other operations and maintenance expenses were $696$532 million compared to $642$479 million for the corresponding period in 2019. These2020. The increases were primarily due to increases in compensation and benefit expenses and pipeline repair, compliance, and maintenance activities. The year-to-date 2020 increase also reflects an increase in expenses passed through directly to customers primarily related to bad debt.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
due to higher compensation expenses, primarily related to an increase in variable compensation at wholesale gas services.
Depreciation and Amortization
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$4 | | 3.3 | | $9 | | 2.5 |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$10 | | 8.1 | | $20 | | 8.2 |
For year-to-date 2020,In the second quarter 2021, depreciation and amortization was $368$133 million compared to $359$123 million for the corresponding period in 2019.2020. For year-to-date 2021, depreciation and amortization was $263 million compared to $243 million for the corresponding period in 2020. The increase wasincreases were primarily due to continued infrastructure investments at the natural gas distribution operations.utilities.
Taxes Other Than Income Taxes
| Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 | |
Second Quarter 2021 vs. Second Quarter 2020 | | Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | (change in millions) | | (% change) | | (change in millions) | | (% change) | (change in millions) | | (% change) | | (change in millions) | | (% change) |
$2 | $2 | | 6.1 | | $(7) | | (4.3) | $2 | | 4.3 | | $12 | | 10.2 |
For year-to-date 2020,In the second quarter 2021, taxes other than income taxes were $154$49 million compared to $161$47 million for the corresponding period in 2019.2020. For year-to-date 2021, taxes other than income taxes were $130 million compared to $118 million for the corresponding period in 2020. The decrease increases primarily relates to a decreasereflect an increase in revenue tax expenses as a result of lowerhigher natural gas revenues at Nicor Gas. These revenue tax expenses are passed through directly to customers and have no impact on net income.
Impairment Charges
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(92) | | (100.0) | | $(92) | | (100.0) |
In the third quarter 2019, a $92 million impairment charge was recorded related to a natural gas storage facility in Louisiana. See Note 3 to the financial statements under "Other Matters – Southern Company Gas – Natural Gas Storage Facilities" in Item 8 of the Form 10-K for additional information.
Earnings (Loss) from Equity Method Investments
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(2) | | (5.7) | | $(9) | | (7.8) |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(82) | | (273.3) | | $(83) | | (115.3) |
For year-to-date 2020, earningsIn the second quarter 2021, loss from equity method investments were $106was $52 million compared to $115earnings of $30 million for the corresponding period in 2019.2020. For year-to-date 2021, loss from equity method investments was $11 million compared to earnings of $72 million for the corresponding period in 2020. The decrease decreases were primarily relates to lower earnings at SNG due to lower demand and firm revenues, the salea pre-tax impairment charge of Atlantic Coast Pipeline in the first quarter 2020, and the sale of Triton$82 million recorded in the second quarter 2019. 2021 related to the PennEast Pipeline project. See NoteNotes (C) and (E) to the Condensed Financial Statements herein under "Other Matters – Southern Company Gas" and "Southern Company Gas," respectively, for additional information.
Other Income (Expense)(Expense), Net
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$7 | | 140.0 | | $17 | | 106.3 |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(26) | | (216.7) | | $(99) | | (471.4) |
In the thirdsecond quarter 2020,2021, other income (expense), net was $14 million of expense compared to $12 million compared to $5 millionof income for the corresponding period in 2019.2020. For year-to-date 2020,2021, other income (expense), net was $33$78 million comparedof expense compared to $16$21 million of income for the corresponding period in 2019. These2020. The increases werein other expense were primarily due to increasescharitable contributions of $26 million and $101 million in non-service cost-related retirement benefits income. See Note (H) to the Condensed Financial Statements herein for additional information.second quarter and year-to-date 2021, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Income Taxes (Benefit)
| | | | | | | | | | | | | | | | | | | | |
Third Quarter 2020 vs. Third Quarter 2019 | | Year-to-Date 2020 vs. Year-to-Date 2019 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$25 | | 113.6 | | $37 | | 60.7 |
| | | | | | | | | | | | | | | | | | | | |
Second Quarter 2021 vs. Second Quarter 2020 | | Year-To-Date 2021 vs. Year-To-Date 2020 |
(change in millions) | | (% change) | | (change in millions) | | (% change) |
$(45) | | (281.3) | | $(3) | | (3.2) |
In the thirdsecond quarter 2020,2021, income taxes were $3tax benefit was $29 million compared to a $22 million benefit for the corresponding period in 2019. For year-to-date 2020, income taxes were $98 million compared to $61tax expense of $16 million for the corresponding period in 2019. These increases were2020. The change was primarily duethe result of a pre-tax impairment charge at gas pipeline investments related to the PennEast Pipeline project and a decreasepre-tax loss at wholesale gas services in the flowback of excess deferredsecond quarter 2021. For year-to-date 2021, income taxestaxes were $92 million compared to $95 million for the corresponding period in 2020. The pre-tax impairment charge at Atlanta Gas Light as authorizedgas pipeline investments was largely offset by the Georgia PSC and higher pre-tax earnings. The year-to-date 2020 increase also includes the reversal of a federal income tax valuation allowance in connection with the sale of Triton in 2019.earnings at wholesale gas services and gas distribution operations. See Note (G)Notes (C) and (E) to the Condensed Financial Statements herein under "Other Matters – Southern Company Gas" and "Southern Company Gas," respectively, for additional information.
Performance and Non-GAAP Measures
Adjusted operating margin is a non-GAAP measure that is calculated as operating revenues less cost of natural gas, cost of other sales, and revenue tax expense. Adjusted operating margin excludes other operations and maintenance expenses, depreciation and amortization, and taxes other than income taxes, and impairment charges, which are included in the calculation of operating income as calculated in accordance with GAAP and reflected in the statements of income. The presentation of adjusted operating margin is believed to provide useful information regarding the contribution resulting from base rate changes, infrastructure replacement programs and capital projects, and customer growth at gas distribution operations since the cost of natural gas and revenue tax expense can vary significantly and are generally billed directly to customers. Southern Company Gas further believes that utilizing adjusted operating margin at gas pipeline investments, wholesale gas services, and gas marketing services allows it to focus on a direct measure of performance before overhead costs. The applicable reconciliation of operating income to adjusted operating margin is provided herein.
Adjusted operating margin should not be considered an alternative to, or a more meaningful indicator of, Southern Company Gas' operating performance than operating income as determined in accordance with GAAP. In addition, Southern Company Gas' adjusted operating margin may not be comparable to similarly titled measures of other companies.
Detailed variance explanations of Southern Company Gas' financial performance are provided herein.
Reconciliations of operating income to adjusted operating margin are as follows:
| | | Third Quarter 2020 | Third Quarter 2019 | | Year-to-Date 2020 | Year-to-Date 2019 | | Second Quarter 2021 | Second Quarter 2020 | | Year-To-Date 2021 | Year-To-Date 2020 |
| | (in millions) | | (in millions) |
Operating Income | Operating Income | $ | 29 | | $ | (35) | | | $ | 490 | | $ | 451 | | Operating Income | $ | 31 | | $ | 102 | | | $ | 632 | | $ | 462 | |
Other operating expenses(a) | Other operating expenses(a) | 377 | | 454 | | | 1,218 | | 1,254 | | Other operating expenses(a) | 415 | | 390 | | | 925 | | 840 | |
Revenue taxes(b) | Revenue taxes(b) | (10) | | (9) | | | (77) | | (85) | | Revenue taxes(b) | (22) | | (22) | | | (75) | | (67) | |
Adjusted Operating Margin | Adjusted Operating Margin | $ | 396 | | $ | 410 | | | $ | 1,631 | | $ | 1,620 | | Adjusted Operating Margin | $ | 424 | | $ | 470 | | | $ | 1,482 | | $ | 1,235 | |
(a)Includes other operations and maintenance, depreciation and amortization, and taxes other than income taxes, and impairment charges.taxes.
(b)Nicor Gas' revenue tax expenses, which are passed through directly to customers.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Segment Information
Adjusted operating margin, operating expenses, and net income for each segment are provided in the table below. See Note (L) to the Condensed Financial Statements under "Southern Company Gas" herein for additional information.
| | | Third Quarter 2020 | | Third Quarter 2019 | | Second Quarter 2021 | | Second Quarter 2020 |
| | Adjusted Operating Margin(*) | | Operating Expenses(*) | | Net Income (Loss) | | Adjusted Operating Margin(*) | | Operating Expenses(*) | | Net Income (Loss)(b) | | Adjusted Operating Margin(*) | | Operating Expenses(*) | | Net Income (Loss) | | Adjusted Operating Margin(*) | | Operating Expenses(*) | | Net Income (Loss) |
| | (in millions) | | (in millions) | | (in millions) | | (in millions) |
Gas distribution operations | Gas distribution operations | $ | 412 | | | $ | 317 | | | $ | 46 | | | $ | 376 | | | $ | 294 | | | $ | 37 | | Gas distribution operations | $ | 486 | | | $ | 340 | | | $ | 80 | | | $ | 441 | | | $ | 314 | | | $ | 74 | |
Gas pipeline investments | Gas pipeline investments | 8 | | | 3 | | | 23 | | | 8 | | | 3 | | | 6 | | Gas pipeline investments | 8 | | | 3 | | | (36) | | | 8 | | | 3 | | | 21 | |
Wholesale gas services | Wholesale gas services | (51) | | | 11 | | | (45) | | | (3) | | | 11 | | | (9) | | Wholesale gas services | (110) | | | 11 | | | (112) | | | (19) | | | 11 | | | (23) | |
Gas marketing services | Gas marketing services | 21 | | | 27 | | | (3) | | | 21 | | | 28 | | | (4) | | Gas marketing services | 35 | | | 25 | | | 6 | | | 35 | | | 28 | | | 5 | |
All other | All other | 8 | | | 11 | | | (7) | | | 9 | | | 110 | | | (59) | | All other | 6 | | | 15 | | | (3) | | | 7 | | | 14 | | | (6) | |
Intercompany eliminations | Intercompany eliminations | (2) | | | (2) | | | — | | | (1) | | | (1) | | | — | | Intercompany eliminations | (1) | | | (1) | | | — | | | (2) | | | (2) | | | — | |
Consolidated | Consolidated | $ | 396 | | | $ | 367 | | | $ | 14 | | | $ | 410 | | | $ | 445 | | | $ | (29) | | Consolidated | $ | 424 | | | $ | 393 | | | $ | (65) | | | $ | 470 | | | $ | 368 | | | $ | 71 | |
(*)Adjusted operating margin and operating expenses are adjusted for Nicor Gas' revenue tax expenses, which are passed through directly to customers.
| | | Year-to-Date 2020 | | Year-to-Date 2019 | | Year-To-Date 2021 | | Year-To-Date 2020 |
| | Adjusted Operating Margin(*) | | Operating Expenses(*) | | Net Income (Loss) | | Adjusted Operating Margin(*) | | Operating Expenses(*) | | Net Income (Loss) | | Adjusted Operating Margin(*) | | Operating Expenses(*) | | Net Income (Loss) | | Adjusted Operating Margin(*) | | Operating Expenses(*) | | Net Income (Loss) |
| | (in millions) | | (in millions) | | (in millions) | | (in millions) |
Gas distribution operations | Gas distribution operations | $ | 1,448 | | | $ | 971 | | | $ | 284 | | | $ | 1,294 | | | $ | 895 | | | $ | 228 | | Gas distribution operations | $ | 1,130 | | | $ | 697 | | | $ | 263 | | | $ | 1,036 | | | $ | 654 | | | $ | 238 | |
Gas pipeline investments | Gas pipeline investments | 24 | | | 9 | | | 74 | | | 24 | | | 9 | | | 63 | | Gas pipeline investments | 16 | | | 6 | | | (7) | | | 16 | | | 6 | | | 51 | |
Wholesale gas services | Wholesale gas services | (20) | | | 39 | | | (45) | | | 122 | | | 40 | | | 61 | | Wholesale gas services | 187 | | | 66 | | | 14 | | | 31 | | | 28 | | | — | |
Gas marketing services | Gas marketing services | 163 | | | 85 | | | 59 | | | 163 | | | 90 | | | 54 | | Gas marketing services | 139 | | | 54 | | | 62 | | | 142 | | | 58 | | | 62 | |
All other | All other | 21 | | | 42 | | | (12) | | | 22 | | | 140 | | | (59) | | All other | 13 | | | 30 | | | 1 | | | 13 | | | 30 | | | (5) | |
Intercompany eliminations | Intercompany eliminations | (5) | | | (5) | | | — | | | (5) | | | (5) | | | — | | Intercompany eliminations | (3) | | | (3) | | | — | | | (3) | | | (3) | | | — | |
Consolidated | Consolidated | $ | 1,631 | | | $ | 1,141 | | | $ | 360 | | | $ | 1,620 | | | $ | 1,169 | | | $ | 347 | | Consolidated | $ | 1,482 | | | $ | 850 | | | $ | 333 | | | $ | 1,235 | | | $ | 773 | | | $ | 346 | |
(*)Adjusted operating margin and operating expenses are adjusted for Nicor Gas' revenue tax expenses, which are passed through directly to customers.
Gas Distribution Operations
Gas distribution operations is the largest component of Southern Company Gas' business and is subject to regulation and oversight by regulatory agencies in each of the states it serves. These agencies approve natural gas rates designed to provide Southern Company Gas with the opportunity to generate revenues to recover the cost of natural gas delivered to its customers and its fixed and variable costs, including depreciation, interest expense, operations and maintenance, taxes, and overhead costs, and to earn a reasonable return on its investments.
With the exception of Atlanta Gas Light, Southern Company Gas' second largest utility that operates in a deregulated natural gas market and has a straight-fixed-variable rate design that minimizes the variability of its revenues based on consumption, the earnings of the natural gas distribution utilities can be affected by customer consumption patterns that are a function of weather conditions, price levels for natural gas, and general economic conditions that may impact customers' ability to pay for natural gas consumed. Southern Company Gas has various regulatory and other mechanisms, such as weather and revenue normalization mechanisms and weather derivative instruments, that limit its exposure to changes in customer consumption, including weather changes within typical ranges in its natural gas distribution utilities' service territories.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
instruments, that limit its exposure to changes in customer consumption, including weather changes within typical ranges in its natural gas distribution utilities' service territories.
In the thirdsecond quarter 2020,and year-to-date 2021, net income increased $9$6 million, or 24.3%8.1%, and $25 million, or 10.5%, respectively, when compared to the corresponding periodperiods in 2019. The $36 million increase in2020. In the second quarter and year-to-date 2021, adjusted operating margin increased $45 million and $94 million, respectively, when compared to the corresponding periods in 2020 primarily reflects basedue to rate increases for Nicor Gas and Atlanta Gas Light, Virginia Natural Gas, and Chattanooga Gas and continued investments recovered throughinvestment in infrastructure replacement programs. The $23 million increase inreplacement. In the second quarter and year-to-date 2021, operating expenses includes increases for compensationincreased $26 million and benefit expenses and pipeline repair and maintenance activities,$43 million, respectively, when compared to the corresponding periods in 2020 primarily due to higher depreciation resulting from additional assets placed in service, as well as higher depreciationcompensation expenses. In the second quarter and year-to-date 2021, interest expense, net of amounts capitalized increased $5 million and $10 million, respectively, when compared to the corresponding periods in 2020 primarily due to additional assets placeddebt issued to finance continued investments. In the second quarter and year-to-date 2021, income taxes increased $6 million and $12 million, respectively, when compared to the corresponding periods in service. The $8 million increase in other income is primarily due to an increase in non-service cost-related retirement benefits income. Income tax expense increased $12 million2020 primarily due to higher pre-tax earnings and a decrease in the flowback of excess deferred income taxes at Atlanta Gas Light as authorized by the Georgia PSC.
For year-to-date 2020, net income increased $56 million or 24.6%, compared to the corresponding period in 2019. The $154 million increase in adjusted operating margin primarily reflects base rate increases for Nicor Gas and Atlanta Gas Light and continued investments recovered through infrastructure replacement programs, partially offset by warmer weather, net of weather normalization mechanisms. The $76 million increase in operating expenses includes increases for compensation and benefit expenses and pipeline compliance and maintenance activities, as well as bad debt costs passed through directly to customers. The increase also reflects higher depreciation primarily due to additional assets placed in service, partially offset by lower revenue tax expense. The $20 million increase in other income is primarily due to an increase in non-service cost-related retirement benefits income. The $43 million increase in income tax expense is primarily due to higher pre-tax earnings and a decrease in the flowback of excess deferred income taxes at Atlanta Gas Light as authorized by the Georgia PSC.earnings.
See Note 2 to the financial statements under "Southern Company Gas" in Item 8 of the Form 10-K and Note (H) to the Condensed Financial Statements herein for additional information.
Gas Pipeline Investments
Gas pipeline investments consists primarily of joint ventures in natural gas pipeline investments including SNG, PennEast Pipeline, Dalton Pipeline, and Atlantic Coast Pipeline (until its sale on March 24, 2020). See NotesNote (E) and (K) to the Condensed Financial Statements under "Southern Company Gas" herein and Note 715 to the financial statements under "Southern Company Gas" in Item 8 of the Form 10-K for additional information.
InFor the thirdsecond quarter 2020,and year-to-date 2021, net income increased $17decreased $57 million or 283.3%,and $58 million, respectively, when compared to the corresponding periodperiods in 2019. This increase primarily relates2020. The decreases were due to an $18a pre-tax impairment charge of $82 million decrease in income taxes primarily($58 million after tax) related to a 2019 increase associated with changesthe equity method investment in state apportionment rates.
For year-to-date 2020, net income increased $11 million, or 17.5%, comparedthe PennEast Pipeline project. See Notes (C) and (E) to the corresponding period in 2019. This increase primarily relates to a $5 million decrease in interest expense, net of amounts capitalizedCondensed Financial Statements herein under "Other Matters – Southern Company Gas" and a $21 million decrease in income taxes primarily related to a 2019 increase associated with changes in state apportionment rates in 2019, partially offset by a $15 million decrease in earnings primarily at SNG."Southern Company Gas," respectively, for additional information.
Wholesale Gas Services
WholesalePrior to the sale of Sequent on July 1, 2021, wholesale gas services iswas involved in asset management and optimization, storage, transportation, producer and peaking services, natural gas supply, natural gas services, and wholesale gas marketing. Southern Company Gas has positioned the business to generate positive economic earnings on an annual basis even under low volatility market conditions that can result from a number of factors. When market price volatility increases,increased, wholesale gas services is wellwas positioned to capture significant value and generate stronger results. Operating expenses primarily reflect employee compensation and benefits. See Note (K) to the Condensed Financial Statements under "Southern Company Gas" herein for information regarding the sale of Sequent on July 1, 2021.
In the thirdsecond quarter 2020,2021, net incomeincome decreased $36$89 million or 400.0%,when compared to the corresponding period in 2019. This2020. The decrease primarily relates to a $48$91 million decrease in adjusted operating margin and a $26 million decrease in other income and (expense) related to higher charitable contributions, partially offset by a $12$27 million decrease in income tax expense due to lower pre-tax earnings.
For year-to-date 2020,2021, net income decreased $106increased $14 million or 173.8%,when compared to the corresponding period in 2019. This decrease2020. The increase primarily relates to a $142$156 million decreaseincrease in adjusted operating margin, partially offset by a $34$38 million increase in operating expenses primarily related to an increase in variable compensation. The increase was also partially offset by a $101 million decrease in other income and (expense) related to higher charitable contributions and a $4 million increase in income tax expense due to lowerhigher pre-tax earnings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Details of the changes in adjusted operating margin are provided in the table below.
| | | Third Quarter 2020 | Third Quarter 2019 | | Year-to-Date 2020 | Year-to-Date 2019 | | Second Quarter 2021 | Second Quarter 2020 | | Year-To-Date 2021 | Year-To-Date 2020 |
| | (in millions) | | (in millions) |
Commercial activity recognized | Commercial activity recognized | $ | (23) | | $ | 2 | | | $ | (55) | | $ | 43 | | Commercial activity recognized | $ | (6) | | $ | (33) | | | $ | 309 | | $ | (42) | |
Gain (loss) on storage derivatives | Gain (loss) on storage derivatives | (21) | | 2 | | | (33) | | 7 | | Gain (loss) on storage derivatives | (24) | | (5) | | | (26) | | (11) | |
Gain (loss) on transportation and forward commodity derivatives | Gain (loss) on transportation and forward commodity derivatives | (7) | | (4) | | | 69 | | 68 | | Gain (loss) on transportation and forward commodity derivatives | (80) | | 19 | | | (96) | | 85 | |
LOCOM adjustments, net of current period recoveries | — | | — | | | — | | (6) | | |
| Purchase accounting adjustments to fair value inventory and contracts | Purchase accounting adjustments to fair value inventory and contracts | — | | (3) | | | (1) | | 10 | | Purchase accounting adjustments to fair value inventory and contracts | — | | — | | | — | | (1) | |
Adjusted operating margin | Adjusted operating margin | $ | (51) | | $ | (3) | | | $ | (20) | | $ | 122 | | Adjusted operating margin | $ | (110) | | $ | (19) | | | $ | 187 | | $ | 31 | |
Change in Commercial Activity
The commercial activity at wholesale gas services includes recognition of storage and transportation values that were generatedgenerated in prior periods, which reflect the impact of prior period hedge gains and losses as associated physical transactions occur. The decreaseincrease in commercial activity in the thirdsecond quarter and year-to-date 20202021 compared to the corresponding periodsperiod in 20192020 was primarily due to warmer-than-normallarge losses in the second quarter 2020 driven by mild weather conditions and tighteningtight transportation spreads. The increase in commercial activity for year-to-date 2021 compared to the corresponding period in 2020 was primarily due to natural gas price volatility that was generated by cold weather, particularly in the Midwest and Texas, resulting in wider transportation spreads.
Change in Storage and Transportation Derivatives
Volatility in the natural gas market arises from a number of factors, such as weather fluctuations or changes in supply or demand for natural gas in different regions of the U.S. The volatility of natural gas commodity prices has a significant impact on Southern Company Gas' customer rates, long-term competitive position against other energy sources, and the ability of wholesale gas services to capture value from locational and seasonal spreads. Forward storage or time spreads applicable to the locations of wholesale gas services' specific storage positions in 20202021 resulted in storage derivative losses. Transportation and forward commodity derivative losses for the third quarter 2020 arein 2021 were a result of widening transportation spreads. Transportation and forward commodity derivative gains for year-to-date 2020 are primarily the result of narrowing transportation spreads due to supply constraints and increases in natural gas supply, which impacted forward prices at natural gas receipt and delivery points, primarily in the Northeast and Midwest regions.
Withdrawal Schedule and Physical Transportation Transactions
The expected natural gas withdrawals from storage and expected offset to prior hedge losses/gains associated with the transportation portfolio of wholesale gas services are presented in the following table, along with the net operating revenues expected at the time of withdrawal from storage and the physical flow of natural gas between contracted transportation receipt and delivery points. Wholesale gas services' expected net operating revenues exclude storage and transportation demand charges, as well as other variable fuel, withdrawal, receipt, and delivery charges, and exclude estimated profit sharing under asset management agreements. Further, the amounts that are realizable in future periods are based on the inventory withdrawal schedule, planned physical flow of natural gas between the transportation receipt and delivery points, and forward natural gas prices at September 30, 2020. A portion of wholesale gas services' storage inventory and transportation capacity is economically hedged with futures contracts, which results in the realization of substantially fixed net operating revenues.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
| | | | | | | | | | | | | | | | | |
| Storage withdrawal schedule | | |
| Total storage(a) | | Expected net operating gains(b) | | Physical transportation transactions – expected net operating losses(c) |
| (in mmBtu in millions) | | (in millions) | | (in millions) |
2020 | 10 | | | $ | 10 | | | $ | (5) | |
2021 and thereafter | 46 | | | 60 | | | (64) | |
Total at September 30, 2020 | 56 | | | $ | 70 | | | $ | (69) | |
(a)At September 30, 2020, the WACOG of wholesale gas services' expected natural gas withdrawals from storage was $1.72 per mmBtu.
(b)Represents expected operating gains from planned storage withdrawals associated with existing inventory positions and could change as wholesale gas services adjusts its daily injection and withdrawal plans in response to changes in future market conditions and forward NYMEX price fluctuations.
(c)Represents the transportation derivative gains and (losses) that will be settled during the period and the physical transportation transactions that offset the derivative gains and losses previously recognized.
The unrealized storage and transportation derivative gains do not change the underlying economic value of wholesale gas services' storage and transportation positions and will be reversed when the related transactions occur and are recognized. For more information on wholesale gas services' energy marketing and risk management activities, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Market Price Risk" in Item 7 of the Form 10-K.
Gas Marketing Services
Gas marketing services provides energy-related products and services to natural gas markets and participants in customer choice programs that were approved in various states to increase competition. These programs allow customers to choose their natural gas supplier while the local distribution utility continues to provide distribution and transportation services. Gas marketing services is weather sensitive and uses a variety of hedging strategies, such as weather derivative instruments and other risk management tools, to partially mitigate potential weather impacts.
For the third quarter and year-to-date 2020, net loss decreased $1 million, or 25%, and net income increased $5 million, or 9%, respectively, compared to the corresponding periods in 2019. These changes primarily relate to decreases in operating expenses.
All Other
All other includes natural gas storage businesses, including Jefferson Island through its sale on December 1, 2020, fuels operations through the sale of Southern Company Gas' interest in Pivotal LNG on March 24, 2020, the investment in Triton through its sale on May 29, 2019, AGL Services Company, and Southern Company Gas Capital, as well as various corporate operating expenses that are not allocated to the reportable segments and interest income (expense) associated with affiliate financing arrangements. See Note (K)15 to the Condensed Financial Statementsfinancial statements under "Southern Company Gas" hereinin Item 8 of the Form 10-K for additional information on the sale of its interest in Pivotal LNG.
In the third quarter 2020, net loss decreased $52 million compared to the corresponding period in 2019. This decrease primarily reflects a $99 million decrease in operating expenses primarily related to an impairment charge in 2019 related to a natural gas storage facility in Louisiana, partially offset by a $42 million increase in income taxes associated with changes in state apportionment rates in 2019LNG and the reversal of a related federal income tax valuation allowance in connection with the sale of Triton in 2019.
For year-to-date 2020, net loss decreased $47 million compared to the corresponding period in 2019. This decrease includes a $98 million decrease in operating expenses primarily related to an impairment charge in 2019 related to a natural gas storage facility in Louisiana and a $6 million increase in earnings from equity method investments primarily due to a pre-tax loss on the sale of Triton in 2019, partially offset by a $48 million increase in income taxes associated with changes in state apportionment rates in 2019 and the reversal of a related federal income tax valuation allowance in connection with the sale of Triton in 2019, a $3 million decrease in other income (expenses), and a $5 million increase in interest expense, net of amounts capitalized.Jefferson Island.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Segment Reconciliations
Reconciliations of operating income to adjusted operating margin for the thirdsecond quarter and year-to-date 20202021 and 20192020 are reflected in the following tables. See Note (L) to the Condensed Financial Statements herein for additional information.
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter 2020 |
| Gas Distribution Operations | Gas Pipeline Investments | Wholesale Gas Services | Gas Marketing Services | All Other | Intercompany Elimination | Consolidated |
| (in millions) |
Operating Income (Loss) | $ | 95 | | $ | 5 | | $ | (62) | | $ | (6) | | $ | (3) | | $ | — | | $ | 29 | |
Other operating expenses(a) | 327 | | 3 | | 11 | | 27 | | 11 | | (2) | | 377 | |
Revenue tax expense(b) | (10) | | — | | — | | — | | — | | — | | (10) | |
Adjusted Operating Margin | $ | 412 | | $ | 8 | | $ | (51) | | $ | 21 | | $ | 8 | | $ | (2) | | $ | 396 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter 2019 |
| Gas Distribution Operations | Gas Pipeline Investments | Wholesale Gas Services | Gas Marketing Services | All Other | Intercompany Elimination | Consolidated |
| (in millions) |
Operating Income (Loss) | $ | 82 | | $ | 5 | | $ | (14) | | $ | (7) | | $ | (101) | | $ | — | | $ | (35) | |
Other operating expenses(a) | 303 | | 3 | | 11 | | 28 | | 110 | | (1) | | 454 | |
Revenue tax expense(b) | (9) | | — | | — | | — | | — | | — | | (9) | |
Adjusted Operating Margin | $ | 376 | | $ | 8 | | $ | (3) | | $ | 21 | | $ | 9 | | $ | (1) | | $ | 410 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year-to-Date 2020 |
| Gas Distribution Operations | Gas Pipeline Investments | Wholesale Gas Services | Gas Marketing Services | All Other | Intercompany Elimination | Consolidated |
| (in millions) |
Operating Income (Loss) | $ | 477 | | $ | 15 | | $ | (59) | | $ | 78 | | $ | (21) | | $ | — | | $ | 490 | |
Other operating expenses(a) | 1,048 | | 9 | | 39 | | 85 | | 42 | | (5) | | 1,218 | |
Revenue tax expense(b) | (77) | | — | | — | | — | | — | | — | | (77) | |
Adjusted Operating Margin | $ | 1,448 | | $ | 24 | | $ | (20) | | $ | 163 | | $ | 21 | | $ | (5) | | $ | 1,631 | |
| | | Year-to-Date 2019 | | Gas Distribution Operations | Gas Pipeline Investments | Wholesale Gas Services | Gas Marketing Services | All Other | Intercompany Elimination | Consolidated |
| | Gas Distribution Operations | Gas Pipeline Investments | Wholesale Gas Services | Gas Marketing Services | All Other | Intercompany Elimination | Consolidated | | (in millions) |
| (in millions) | |
Second Quarter 2021 | | Second Quarter 2021 | |
Operating Income (Loss) | Operating Income (Loss) | $ | 399 | | $ | 15 | | $ | 82 | | $ | 73 | | $ | (118) | | $ | — | | $ | 451 | | Operating Income (Loss) | $ | 146 | | $ | 5 | | $ | (121) | | $ | 10 | | $ | (9) | | $ | — | | $ | 31 | |
Other operating expenses(a) | Other operating expenses(a) | 980 | | 9 | | 40 | | 90 | | 140 | | (5) | | 1,254 | | Other operating expenses(a) | 362 | | 3 | | 11 | | 25 | | 15 | | (1) | | 415 | |
Revenue tax expense(b) | Revenue tax expense(b) | (85) | | — | | — | | — | | — | | — | | (85) | | Revenue tax expense(b) | (22) | | — | | — | | — | | — | | — | | (22) | |
Adjusted Operating Margin | Adjusted Operating Margin | $ | 1,294 | | $ | 24 | | $ | 122 | | $ | 163 | | $ | 22 | | $ | (5) | | $ | 1,620 | | Adjusted Operating Margin | $ | 486 | | $ | 8 | | $ | (110) | | $ | 35 | | $ | 6 | | $ | (1) | | $ | 424 | |
| Second Quarter 2020 | | Second Quarter 2020 | |
Operating Income (Loss) | | Operating Income (Loss) | $ | 127 | | $ | 5 | | $ | (30) | | $ | 7 | | $ | (7) | | $ | — | | $ | 102 | |
Other operating expenses(a) | | Other operating expenses(a) | 336 | | 3 | | 11 | | 28 | | 14 | | (2) | | 390 | |
Revenue tax expense(b) | | Revenue tax expense(b) | (22) | | — | | — | | — | | — | | — | | (22) | |
Adjusted Operating Margin | | Adjusted Operating Margin | $ | 441 | | $ | 8 | | $ | (19) | | $ | 35 | | $ | 7 | | $ | (2) | | $ | 470 | |
| Year-To-Date 2021 | | Year-To-Date 2021 | |
Operating Income (Loss) | | Operating Income (Loss) | $ | 433 | | $ | 10 | | $ | 121 | | $ | 85 | | $ | (17) | | $ | — | | $ | 632 | |
Other operating expenses(a) | | Other operating expenses(a) | 772 | | 6 | | 66 | | 54 | | 30 | | (3) | | 925 | |
Revenue tax expense(b) | | Revenue tax expense(b) | (75) | | — | | — | | — | | — | | — | | (75) | |
Adjusted Operating Margin | | Adjusted Operating Margin | $ | 1,130 | | $ | 16 | | $ | 187 | | $ | 139 | | $ | 13 | | $ | (3) | | $ | 1,482 | |
| Year-To-Date 2020 | | Year-To-Date 2020 | |
Operating Income (Loss) | | Operating Income (Loss) | $ | 382 | | $ | 10 | | $ | 3 | | $ | 84 | | $ | (17) | | $ | — | | $ | 462 | |
Other operating expenses(a) | | Other operating expenses(a) | 721 | | 6 | | 28 | | 58 | | 30 | | (3) | | 840 | |
Revenue tax expense(b) | | Revenue tax expense(b) | (67) | | — | | — | | — | | — | | — | | (67) | |
Adjusted Operating Margin | | Adjusted Operating Margin | $ | 1,036 | | $ | 16 | | $ | 31 | | $ | 142 | | $ | 13 | | $ | (3) | | $ | 1,235 | |
(a)Includes other operations and maintenance, depreciation and amortization, and taxes other than income taxes, and impairment charges.taxes.
(b)Nicor Gas' revenue tax expenses, which are passed through directly to customers.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
FUTURE EARNINGS POTENTIAL
Each Registrant's results of operations are not necessarily indicative of its future earnings potential. Recent disposition activities described under "Acquisitions and Dispositions" herein, in Note (K) to the Condensed Financial Statements herein, and in Note 15 to the financial statements in Item 8 of the Form 10-K will impact future earnings for the applicable Registrants. The level of the Registrants' future earnings depends on numerous factors that affect the opportunities, challenges, and risks of the Registrants' primary businesses of selling electricity and/or distributing natural gas, as described further herein.
For the traditional electric operating companies, these factors include the ability to maintain constructive regulatory environments that allow for the timely recovery of prudently-incurred costs during a time of increasing costs, continued customer growth, and the trend of reduced electricity usage per customer, especially in residential and
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
commercial markets. Other major factors includeFor Georgia Power, completing construction of Plant Vogtle Units 3 and 4 and related cost recovery proceedings for Georgia Power and the ability to prevail against legal challenges associated with the Kemper County energy facility for Mississippi Power.is another major factor.
Earnings in the electricity business will also depend upon maintaining and growing sales, considering, among other things, the adoption and/or penetration rates of increasingly energy-efficient technologies and increasing volumes of electronic commerce transactions, which could contribute to a net reduction in customer usage.
Global and U.S. economic conditions have been significantly affected by a series of demand and supply shocks that have caused a global and national economic recession.recession in 2020. Most prominently, the COVID-19 pandemic has negatively impacted global supply chains and globalbusiness operations as suppliers continue to experience difficulties keeping up with strong demand for factory goods, which is being driven by low business inventories. The combination of rising inoculation rates in the U.S. population and services and public policy responses of social distancing and closing non-essential businesses have further restrictedthe recent federal COVID-19 relief package is expected to help boost economic activity.recovery in 2021. The drivers, speed, and depth of thisthe 2020 economic contraction arewere unprecedented and have reduced energy demand across the Southern Company system's service territory, primarily in the commercial and industrial classes. The negative impacts, which started in late-March 2020, of the COVID-19 pandemic and related recession on the Southern Company system's retail electric sales began to improve in the middle of May 2020;2020. Retail electric revenues attributable to changes in sales increased in the first half of 2021 when compared to the corresponding period in 2020 primarily due to the normalization of economic activity; however, retail electric revenues have declined slightlysales continued to be negatively impacted by the COVID-19 pandemic when compared to 2019.pre-pandemic trends. Recovery is expected to continue forin the remaindersecond half of 2020 and into 2021, but responses to the COVID-19 pandemic by both customers and governments could significantly affect the pace of recovery. The ultimate extent of the negative impact on revenues depends on the depth and duration of the economic contraction in the Southern Company system's service territory and cannot be determined at this time. See RESULTS OF OPERATIONS herein for information on COVID-19-related impacts on energy demand in the Southern Company system's service territory during the first nine monthshalf of 2020.
The traditional electric operating companies have established installment payment plans to allow customers to repay over a period of time past due accounts resulting from the COVID-19 pandemic. See "Regulatory Matters" herein for additional information on the status of disconnections and the deferral of costs resulting from the COVID-19 pandemic at Georgia Power, Mississippi Power, and the natural gas distribution utilities. The ultimate outcome of these matters cannot be determined at this time.2021.
The level of future earnings for Southern Power's competitive wholesale electric business depends on numerous factors including Southern Power's ability to execute its growth strategy through the development or acquisition of renewable facilities and other energy projects while containing costs, as well as regulatory matters, creditworthiness of customers, total electric generating capacity available in Southern Power's market areas, and Southern Power's ability to successfully remarket capacity as current contracts expire. In addition, renewable portfolio standards, availability of tax credits, transmission constraints, cost of generation from units within the Southern Company power pool, and operational limitations could influence Southern Power's future earnings.
The level of future earnings for Southern Company Gas' primary business of distributing natural gas and its complementary businesses in the gas pipeline investments wholesale gas services, and gas marketing services sectors depends on numerous factors. These factors include the natural gas distribution utilities' ability to maintain constructive regulatory environments that allow for the timely recovery of prudently-incurred costs, the completion and subsequent operation of ongoing infrastructure and other construction projects, creditworthiness of customers,
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
and Southern Company Gas' ability to optimize its transportation and storage positions and to re-contract storage rates at favorable prices. The volatility of natural gas prices has an impact on Southern Company Gas' customer rates, its long-term competitive position against other energy sources, and the ability of Southern Company Gas' gas marketing services and wholesale gas services businessesbusiness to capture value from locational and seasonal spreads. Additionally, changes in commodity prices subject a portion of Southern Company Gas' operations to earnings variability. Over the longer term, volatility is expected to be low to moderate and locational and/or transportation spreads are expected to decrease as new pipelines are built to reduce the existing supply constraints in the shale areas of the Northeast U.S. To the extent these pipelines are further delayed or not built, volatility could increase. See "Construction Programs"Note 3 to the financial statements in Item 8 of the Form 10-K and Note (C) to the Condensed Financial Statements herein under "Other Matters – Southern Company Gas" for additional information on permitting challenges experienced by the PennEast Pipeline.Pipeline project. Additional economic factors may contribute to this environment, including a significant drop in oil and natural gas prices, which could lead to consolidation of natural gas producers or reduced levels of natural gas production. In addition, if the COVID-19 pandemic results in a continued economic downturnuncertainty for a sustained
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
period, demand for natural gas may decrease, resulting in further downward pressure on natural gas prices and lower volatility in the natural gas markets on a longer-term basis.
Earnings for both the electricity and natural gas businesses are subject to a variety of other factors. These factors include weather, competition, developing new and maintaining existing energy contracts and associated load requirements with wholesale customers, energy conservation practiced by customers, the use of alternative energy sources by customers, government incentives to reduce overall energy usage, the prices of electricity and natural gas, and the price elasticity of demand. Demand for electricity and natural gas in the Registrants' service territories is primarily driven by the pace of economic growth or decline that may be affected by changes in regional and global economic conditions, which may impact future earnings.
As part of its ongoing effort to adapt to changing market conditions, Southern Company continues to evaluate and consider a wide array of potential business strategies. These strategies may include business combinations, partnerships, and acquisitions involving other utility or non-utility businesses or properties, disposition of certain assets or businesses, internal restructuring, or some combination thereof. Furthermore, Southern Company may engage in new business ventures that arise from competitive and regulatory changes in the utility industry. Pursuit of any of the above strategies, or any combination thereof, may significantly affect the business operations, risks, and financial condition of Southern Company. In addition, Southern Power and Southern Company Gas regularly consider and evaluate joint development arrangements as well as acquisitions and dispositions of businesses and assets as part of their business strategies. See Note 15 to the financial statements in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements herein for additional information.
For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL in Item 7 of the Form 10-K and RISK FACTORS in Item 1A herein.10-K.
Acquisitions and Dispositions
See Note 15 to the financial statements in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements herein for additional information.
Alabama Power
On August 31, 2020, Alabama Power completed the Autauga Combined Cycle Acquisition. See "Regulatory Matters – Alabama Power" herein and Note (K) to the Condensed Financial Statements under "Alabama Power" herein for additional information.
Southern Power
On January 17, 2020, Southern Power completed the sale of its equity interests in Plant Mankato (including the 385-MW expansion unit completed in May 2019) to a subsidiary of Xcel for a purchase price of approximately $663 million, including final working capital adjustments. The sale resulted in a gain of approximately $39 million ($23 million after tax). Pre-tax income for Plant Mankato was immaterial for all periods presented.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
In March 2020, Southern Power entered into an agreement to acquire a controlling membership interest in an approximately 300-MW wind facility located in South Dakota. The acquisition is subject to FERC approval and certain other customary conditions to closing, including commercial operation of the facility, which is expected to occur in the first quarter 2021. The facility's output is contracted under two long-term PPAs. The ultimate outcome of this matter cannot be determined at this time.
On May 1, 2020, Southern Power purchased a controlling interest in the 56-MW Beech Ridge II wind facility located in Greenbrier County, West Virginia from Invenergy Renewables LLC. The facility's output is contracted under a 12-year PPA. See Note (K) to the Condensed Financial Statements herein for additional information.
Southern Power continues to evaluate and refine the deployment of the remaining wind turbine equipment purchased in 2016 and 2017 to development and construction projects. During the nine months ended September 30, 2020, certain wind turbine equipment was sold, resulting in an immaterial gain.
Southern Company Gas
On March 24, 2020, Southern Company Gas completed the sale of its interests in Pivotal LNG and Atlantic Coast Pipeline to Dominion Modular LNG Holdings, Inc. and Dominion Atlantic Coast Pipeline, LLC, respectively, with aggregate proceeds of $178 million, including working capital adjustments. The loss associated with the transactions was immaterial. Southern Company Gas also expects to receive payments in February 2021 and September 2021 of $5 million each contingent upon Dominion Modular LNG Holdings, Inc. meeting certain milestones related to Pivotal LNG. See Note (K) to the Condensed Financial Statements under "Southern Company Gas" herein for additional information.
Environmental Matters
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" in Item 7 and Note 3 to the financial statements under "Environmental Remediation" in Item 8 of the Form 10-K, as well as Note (C) to the Condensed Financial Statements under "Environmental Remediation" herein, for additional information.
Environmental Laws and Regulations
Water Quality
On October 13, 2020,July 26, 2021, the EPA publishedannounced its intent to further revise the final effluent limitations guidelines reconsiderationELG Rules, with a proposed rule which extendsexpected in the latest applicability date to comply with the generally applicable limits for both flue gas desulfurization wastewater and bottom ash transport water to December 31, 2025.fall of 2022. The rule also provides exemptions for low utilization of electric generating units and permanent cessation of coal combustion. The impact of the final rule on the traditional electric operating companies and SEGCO will depend on the incorporation of these new requirements into each generating unit's National Pollutant Discharge Elimination System permit and theultimate outcome of any legal challenges andthis matter cannot be determined at this time.
Coal Combustion Residuals
On August 28, 2020, the EPA published the final Part A CCR Rule that requires facilities to cease placement of both CCR and non-CCR wastetime; however, any revisions could require changes in unlined surface impoundments as soon as technically feasible, but no later than April 11, 2021. The rule allows extensions beyond April 11, 2021, provided certain conditions are met. Impacts to the Southern Company system are expected to be limited, as the traditional electric operating companies and SEGCO stopped sending coal ash from most of their generating units to unlined ponds in April 2019 and expect to stop sending coal ash from the remaining generating units within the timeframes allowed in the rule.companies' compliance strategies.
In June 2020, Alabama Power recorded an increaseis assessing the viability of complying with the ELG Rules for certain of its coal units (totaling approximately $462 million to its AROs related2,000 MWs) due to the CCR Ruletiming and anticipated cost to comply with the related state rule primarily dueELG Rules. The results of the assessment could accelerate a determination to management's completiondiscontinue or modify operation of the units. Alabama Power will review all of the facts and circumstances and evaluate all alternatives prior to reaching a feasibility study and the related cost estimates during the second quarter 2020 for one of its ash ponds. Alabama Power's increase also reflectsfinal determination. The units under evaluation have net book values totaling approximately $2.3 billion at June 30, 2021. Additionally, net capitalized asset retirement costs associated with these facilities totaled approximately $900 million at June 30, 2021.
Based on an Alabama PSC order, Alabama Power is authorized to establish a regulatory asset to record the addition of a water treatment systemunrecovered investment costs, including the plant asset balance and the costs associated with site removal and closure, associated with future unit retirements caused by environmental regulations (Environmental Accounting Order). Under the Environmental Accounting Order, the regulatory asset would be amortized and recovered over an affected unit's remaining useful life, as established prior to the design of another ash pond. The additional estimateddecision regarding early retirement, through Rate CNP Compliance. See Note 2 to the financial statements under "Alabama Power – Rate CNP Compliance" and " –
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
costs to close these ash ponds under the planned closure-in-place methodology primarily relate to inputs from contractor bids, design revisions, and changes in the expected volume of ash handling.
During the third quarter 2020, Georgia Power completed an assessment of its plans to close the ash ponds at all of its generating plants in compliance with the CCR Rule and the related state rule. The related cost estimates were further refined, including updates to long-term post-closure care requirements, market pricing, and timing of future cash outlays. As a result, in September 2020, Georgia Power recorded an increase of approximately $411 million to its AROs related to the CCR Rule and the related state rule.
The traditional electric operating companies expect to continue updating their cost estimates and ARO liabilities periodically as additional information related to ash pond closure methodologies, schedules, and/or costs becomes available, and the changes could be material. Additionally, the closure designs and plans in the States of Alabama and Georgia are subject to approval by environmental regulatory agencies. Absent continued recovery of ARO costs through regulated rates, results of operations, cash flows, and financial condition for Southern Company and the traditional electric operating companies could be materially impacted. See Note 2 to the financial statementsEnvironmental Accounting Order" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein under "Georgia Power – Integrated Resource Plan" for additional information. The ultimate outcome of these mattersthis matter cannot be determined at this time. See Note 6 to the financial statements in Item 8 of the Form 10-K and Note (A) to the Condensed Financial Statements under "Asset Retirement Obligations" herein for additional information.
Regulatory Matters
See OVERVIEW – "Recent Developments" and Note 2 to the financial statements in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein for additional information.a discussion of regulatory matters related to Alabama Power, Georgia Power, Mississippi Power, and Southern Company Gas, including items that could impact the applicable registrants' future earnings, cash flows, and/or financial condition.
Alabama Power
Alabama Power's revenues from regulated retail operations are collected through various rate mechanisms subject to the oversight of the Alabama PSC.On July 16, 2021, Alabama Power currently recovers its costs from the regulated retail business primarily through Rate RSE, Rate CNP, Rate ECR, and Rate NDR. In addition, the Alabama PSC issues accounting orders to address current events impacting Alabama Power.
Petition for Certificate of Convenience and Necessity
On August 14, 2020, the Alabama PSC issued its order regarding Alabama Power'sfiled a petition for a CCN, which authorized Alabama Power to (i) construct an approximately 720-MW combined cycle facility at Alabama Power's Plant Barry (Plant Barry Unit 8), which is expected to be placed in service by the end of 2023, (ii) complete the Autauga Combined Cycle Acquisition, which occurred on August 31, 2020, (iii) purchase approximately 240 MWs of combined cycle generation under a long-term PPA, which began on September 1, 2020, and (iv) pursue up to approximately 200 MWs of cost-effective demand-side management and distributed energy resource programs.
The Alabama PSC authorized the recovery of actual costs for the construction of Plant Barry Unit 8 up to 5% above the estimated in-service cost of $652 million. In so doing, it recognized the potential for developments that could cause the project costs to exceed the capped amount, in which case Alabama Power would provide documentation towith the Alabama PSC to explain and justify potential recovery of the additional costs.
The Alabama PSC further directed that the proposed solar generation of approximately 400 MWs, coupled with battery energy storage systems (solar/battery systems), be evaluated under an existingextend its Renewable Generation Certificate (RGC) issued byexpiration from September 16, 2021 to September 16, 2027. The RGC currently in place authorizes Alabama Power to procure up to 500 MWs of capacity and energy from renewable energy resources and to separately market the related energy and environmental attributes to customers and other third parties. Alabama PSC in September 2015. The contracts proposed in the CCN petition expired on July 31, 2020. Any future requests for solar/battery systems will be evaluatedPower has four solar projects under the RGC process.
Energy Alabama, Gasp, Inc., and the Sierra Club filed petitions for reconsideration and rehearing with the Alabama PSC. Alabama PSC action on these petitions is expected by November 10, 2020. Upon issuance of a written order reflecting such action, affected parties would have 30 days to pursue an appeal through the State of Alabama court system.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Alabama Power expects to recover all approved costs associated with the CCN through existing rate mechanisms as outlined in Note 2 to the financial statements in Item 8 of the Form 10-K.
The ultimate outcome of these matters cannot be determined at this time.
Rate ECR
On August 7, 2020, the Alabama PSC issued an order authorizing Alabama Power to reduce its over-collected fuel balance by $100 million and return that amount to customers in the form of bill credits for the billing month of October 2020. Any portion of the $100 million undistributed following the bill credit process will remain in the Rate ECR regulatory liability for the benefit of customers.
Rate NDR
In the third quarter 2020, Alabama Power recorded $44 million against the NDR for damages incurred to its transmission and distribution facilities from Hurricane Sally. The NDR balance available for storm damages was $51 million as of September 30, 2020. If the balance falls below $50 million, a reserve establishment charge would be activated (and the ongoing reserve maintenance charge concurrently suspended) until the reserve balance reaches $75 million.
Georgia Power
Georgia Power's revenues from regulated retail operations are collected through various rate mechanisms subject to the oversight of the Georgia PSC. Georgia Power currently recovers its costs from the regulated retail business through an alternate rate plan, which includes traditional base tariffs, Demand-Side Management tariffs, the ECCR tariff, and Municipal Franchise Fee tariffs. In addition, financing costs on certified construction costs of Plant Vogtle Units 3 and 4 are being collected through the NCCR tariff and fuel costs are collected through a separate fuel cost recovery tariff.
Rate Plans
2019 ARP
In accordance with the terms of the 2019 ARP, on October 1, 2020, Georgia Power filed the following tariff adjustments to become effective January 1, 2021 pending approval by the Georgia PSC:
•increase traditional base tariffs bytotaling approximately $120 million;
•increase the ECCR tariff by approximately $2 million;
•decrease Demand-Side Management tariffs by approximately $15 million; and
•increase Municipal Franchise Fee tariffs by approximately $4 million.
170 MWs. The ultimate outcome of this matter cannot be determined at this time.
2013 ARP
Georgia Power
In 2021, as authorized in its 2019 Georgia Power's retail ROE exceeded 12.00% and, under the modified sharing mechanism pursuant to the 2019 ARP,IRP, Georgia Power reduced regulatory assets by approximately $60 millionrequested and accrued refunds for retail customers of approximately $60 million. On September 1, 2020,received certification from the Georgia PSC authorized Georgia Power to issue customers bill credits prior to final reviewfor 970 MWs of the 2019 Annual Surveillance Report by the staff of the Georgia PSC. Georgia Power issued the bill credits in October 2020.
Deferral of Incremental COVID-19 Costs
On April 7, 2020 and June 2, 2020, in response to the COVID-19 pandemic, the Georgia PSC approved orders directing Georgia Power to continue its previous, voluntary suspension of customer disconnections through July 14, 2020 and to defer the resulting incremental bad debt as a regulatory asset. On June 16, 2020 and July 7, 2020, the Georgia PSC approved orders establishing a methodologyutility-scale PPAs for identifying incremental bad debt and allowing the
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
deferral of other incremental costs associated with the COVID-19 pandemic. The period oversolar generation resources, which such costs will be recovered isare expected to be determined in Georgia Power's next base rate case. At September 30, 2020,operation by the incremental costs deferred totaled approximately $38 million.end of 2023. The ultimate outcome of this matter cannot be determined at this time.
Integrated Resource Plan
On March 5, 2020, the Sierra Club filed a petition for judicial review in the Superior Court of Fulton County to appeal the Georgia PSC's decision in the 2019 ARP allowing Georgia Power to recover compliance costs for CCR AROs. Georgia Power intervened in the appeal on June 22, 2020. The ultimate outcome of this matter cannot be determined at this time.
Fuel Cost Recovery
On May 28, 2020, the Georgia PSC approved a stipulation agreement among Georgia Power, the staff of the Georgia PSC, and certain intervenors to lower total fuel billings by approximately $740 million over a two-year period effective June 1, 2020. In addition, Georgia Power further lowered fuel billings by approximately $44 million under an interim fuel rider effective June 1, 2020 through September 30, 2020. Georgia Power continues to be allowed to adjust its fuel cost recovery rates under an interim fuel rider prior to its next fuel case if the under or over recovered fuel balance exceeds $200 million. Georgia Power is scheduled to file its next fuel case no later than February 28, 2023.
Mississippi Power
Mississippi Power's rates and charges for service to retail customers are subject to the regulatory oversight of the Mississippi PSC. Mississippi Power's rates are a combination of base rates and several separate cost recovery clauses for specific categories of costs. These separate cost recovery clauses address such items as fuel and purchased power, ad valorem taxes, property damage, and the costs of compliance with environmental laws and regulations. Costs not addressed through one of the specific cost recovery clauses are expected to be recovered through Mississippi Power's base rates.
2019 Base Rate Case
On March 17, 2020, the Mississippi PSC approved the Mississippi Power Rate Case Settlement Agreement between Mississippi Power and the Mississippi Public Utilities Staff related to Mississippi Power's base rate case filed in November 2019.
Under the terms of the Mississippi Power Rate Case Settlement Agreement, annual retail rates decreased approximately $16.7 million, or 1.85%, effective for the first billing cycle of April 2020, based on a test year period of January 1, 2020 through December 31, 2020, a 53% average equity ratio, an allowed maximum actual equity ratio of 55% by the end of 2020, and a 7.57% return on investment.
Additionally, the approved Mississippi Power Rate Case Settlement Agreement: (i) established common amortization periods of four years for regulatory assets and three years for regulatory liabilities included in the approved revenue requirement, including those related to unprotected deferred income taxes; (ii) established new depreciation rates reflecting an annual increase in depreciation of approximately $10 million; and (iii) excluded certain compensation costs totaling approximately $3.9 million. It also eliminated separate rates for costs associated with Plant Ratcliffe and energy efficiency initiatives and includes such costs in the PEP, ECO Plan, and ad valorem tax adjustment factor, as applicable. In accordance with the previous order of the Mississippi PSC suspending the operation of PEP and the ECO Plan for 2018 through 2020, Mississippi Power plans to resume PEP proceedings and ECO Plan filings for 2021.
Performance Evaluation Plan
On July 24, 2020, the Mississippi PSC approved Mississippi Power's July 14, 2020 filing of its PEP compliance rate clause reflecting revisions agreed to in the Mississippi Power Rate Case Settlement Agreement. These revisions
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
include, among other things, changing the filing date for the annual PEP rate filing from November of the immediately preceding year to March of the current year, utilizing a historic test year adjusted for "known and measurable" changes, using discounted cash flow and regression formulas to determine base return on equity, and moving all embedded ad valorem property taxes currently collected in PEP to the ad valorem tax adjustment clause.
Deferral of Incremental COVID-19 Costs
On April 14, 2020 and May 12, 2020, in order to mitigate the economic impact of the COVID-19 pandemic on customers, the Mississippi PSC approved orders directing Mississippi Power to continue its previous, voluntary suspension of customer disconnections through May 26, 2020 and to defer as a regulatory asset all necessary and reasonable incremental costs or expenses to plan, prepare, stage, or react to protect and keep safe its employees and customers, and to reliably operate its utility system during the COVID-19 pandemic. The period over which such costs will be recovered is expected to be determined in a future PEP filing. At September 30, 2020, the incremental costs deferred totaled approximately $2 million. The ultimate outcome of this matter cannot be determined at this time.
Municipal and Rural Associations Tariff
On June 25, 2020, the FERC accepted Mississippi Power's April 27, 2020 request for an increase in wholesale base revenues under the MRA tariff as agreed upon in a settlement agreement reached with its wholesale customers. The MRA settlement agreement resulted in a $2 million annual increase in base rates effective June 1, 2020.
Southern Company Gas
The natural gas distribution utilities are subject to regulation and oversight by their respective state regulatory agencies for the rates charged to their customers and other matters. With the exception of Atlanta Gas Light, which does not sell natural gas to end-use customers, the natural gas distribution utilities are authorized by the relevant regulatory agencies in the states in which they serve to use natural gas cost recovery mechanisms that adjust rates to reflect changes in the wholesale cost of natural gas and ensure recovery of all costs prudently incurred in purchasing natural gas for customers. Natural gas cost recovery revenues are adjusted for differences in actual recoverable natural gas costs and amounts billed in current regulated rates. Changes in the billing factor will not have a significant effect on revenues or net income, but will affect cash flows. In addition to natural gas cost recovery mechanisms, there are other cost recovery mechanisms, such as regulatory riders, which vary by utility but allow recovery of certain costs, such as those related to infrastructure replacement programs, as well as environmental remediation, energy efficiency plans, and bad debt.
The natural gas distribution utilities have various regulatory mechanisms to recover bad debt expense, which will mitigate potential increases in bad debt expense as a result of the COVID-19 pandemic. Nicor Gas fully recovers its bad debt expenses, both the gas and non-gas portions, through its purchased gas adjustment mechanism and separate bad debt rider. Virginia Natural Gas and Chattanooga Gas recover the gas portion of bad debt expense through their purchased gas adjustment mechanisms and the non-gas portion of bad debt expense through their base rates in accordance with established benchmarks. Atlanta Gas Light does not have material bad debt expense because its receivables are from Marketers, rather than end-use customers. Its tariff allows it to obtain credit security support from the Marketers in an amount equal to at least two times their estimated highest bill.
Rate Proceedings
On June 1, 2020, Virginia Natural Gas filed a general rate case with the Virginia Commission seeking an increase in rates of$49.6 million primarily to recover investments and increased costs associated with infrastructure, technology, and workforce development. The requested increase is based on a projected 12-month test year beginning November 1, 2020, a ROE of 10.35%, and an equity ratio of 54%. Rate adjustments are expected to be effective November 1, 2020, subject to refund. The Virginia Commission is expected to rule on the requested increase in the second quarter 2021.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
On July 1, 2020, Atlanta Gas Light filed its 2020 GRAM filing with the Georgia PSC. The filing requests an annual base rate increase of $37.6 million based on the projected 12-month period beginning January 1, 2021, which does not exceed the 5% limitation established by the Georgia PSC in its December 2019 approval of Atlanta Gas Light's general base rate case. Resolution of the 2020 GRAM filing is expected by December 31, 2020, with rates effective January 1, 2021.
The ultimate outcome of these matters cannot be determined at this time.
Deferral of Incremental COVID-19 Costs
Atlanta Gas Light
On April 30, 2020, in response to the COVID-19 pandemic, the Georgia PSC approved orders directing Atlanta Gas Light to continue its previous, voluntary suspension of customer disconnections. On June 22, 2020, the Georgia PSC ordered Atlanta Gas Light to resume customer disconnections beginning July 1, 2020, with exceptions for customers still covered by a shelter-in-place order. The orders provide the Marketers, including SouthStar, with a mechanism to receive credits from Atlanta Gas Light for the base rates it charged to the Marketers of non-paying customers during the suspension. Atlanta Gas Light expects to recover these credits through the annual revenue true-up process within its future GRAM filings, which would impact rates starting on January 1, 2022. The ultimate outcome of this matter cannot be determined at this time.
Nicor Gas
On March 18, 2020, in response to the COVID-19 pandemic, the Illinois Commission issued an order directing utilities to cease disconnections for non-payment and to suspend the imposition of late payment fees or penalties. In response to this order, on March 27, 2020, Nicor Gas and other utilities in Illinois filed their plans seeking cost recovery and providing more flexible credit and collection plans.
On June 18, 2020, the Illinois Commission approved a stipulation pursuant to which the utilities will provide more flexible credit and collection procedures to assist customers with financial hardship and which authorizes a special purpose rider for recovery of the following COVID-19 pandemic-related impacts: incremental costs directly associated with the COVID-19 pandemic, net of the offset for COVID-19 pandemic-related credits received, foregone late fees, foregone reconnection charges, and the costs associated with a bill payment assistance program. Nicor Gas resumed late payment fees on July 27, 2020 and, on October 1, 2020, began recovery of the COVID-19 pandemic-related impacts through the special purpose rider, which will continue over a 24-month period. In response to an Illinois Commission request, Nicor Gas will continue to voluntarily suspend residential customer disconnections for non-payment through March 31, 2021. At September 30, 2020, Nicor Gas' related regulatory asset was $13 million.
Virginia Natural Gas
In response to the COVID-19 pandemic, the Virginia Commission issued orders requiring Virginia Natural Gas to suspend disconnections beginning on March 16, 2020 and also to suspend late payment and reconnection fees beginning on April 9, 2020, both of which expired on October 5, 2020. On April 29, 2020, the Virginia Commission authorized Virginia Natural Gas to defer the following COVID-19 pandemic-related costs as a regulatory asset: incremental uncollectible expense incurred, suspended late fees, suspended reconnection charges, carrying costs, and other incremental prudently incurred costs associated with the COVID-19 pandemic. Specific recovery of the amounts deferred in a regulatory asset will be addressed in a future rate proceeding. At September 30, 2020, Virginia Natural Gas' related regulatory asset was $1 million. The ultimate outcome of this matter cannot be determined at this time.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Construction Programs
Overview
The Subsidiary Registrants are engaged in continuous construction programs to accommodate existing and estimated future loads on their respective systems. The Southern Company system intends to continue its strategy of developing and constructing new electric generating facilities, expanding and improving the electric transmission and electric and natural gas distribution systems, and undertaking projects to comply with environmental laws and regulations.
For the traditional electric operating companies, major generation construction projects are subject to state PSC approval in order to be included in retail rates. The largest construction project currently underway in the Southern Company system is Plant Vogtle Units 3 and 4. See "NuclearNote (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein for additional information. Also see Note 2 to the financial statements in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein under "Alabama Power" for information regarding Alabama Power's construction of Plant Barry Unit 8.
While Southern Power generally constructs and acquires generation assets covered by long-term PPAs, any uncontracted capacity could negatively affect future earnings. See "Southern Power" herein, "Acquisitions and Dispositions – Southern Power" herein,Note 15 to the financial statements in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements herein under "Southern Power" herein, as well as Note 15 to the financial statements under "Southern Power" in Item 8 of the Form 10-K, for additional information about costs relating to Southern Power's acquisitions that involve construction of renewable energy facilities.
Southern Company Gas is engaged in various infrastructure improvement programs designed to update or expand the natural gas distribution systems of the natural gas distribution utilities to improve reliability and meet operational flexibility and growth. The natural gas distribution utilities recover their investment and a return associated with these infrastructure programs through their regulated rates. See Notes 2 and 3 to the financial statements in Item 8 of the Form 10-K and Notes (B) and (C) to the Condensed Financial Statements herein under "Southern Company Gas" hereinand "Other Matters – Southern Company Gas – PennEast Pipeline Project," respectively, for additional information regarding infrastructure improvement programs at the natural gas distribution utilities and the PennEast Pipelineon Southern Company Gas' construction project.program.
See FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations""Cash Requirements" herein for additional information regarding the Registrants' capital requirements for their construction programs.
Nuclear Construction
See Note 2 to the financial statements under "Georgia Power – Nuclear Construction" in Item 8 of the Form 10-K for additional information regarding Georgia Power's construction of Plant Vogtle Units 3 and 4, the joint ownership agreements and related funding agreement, VCM reports, and the NCCR tariff.
In 2009, the Georgia PSC certified construction of Plant Vogtle Units 3 and 4, in which Georgia Power holds a 45.7% ownership interest. In 2012, the NRC issued the related combined construction and operating licenses, which allowed full construction of the two AP1000 nuclear units (with electric generating capacity of approximately 1,100 MWs each) and related facilities to begin. Until March 2017, construction on Plant Vogtle Units 3 and 4 continued under the Vogtle 3 and 4 Agreement, which was a substantially fixed price agreement. In March 2017, the EPC Contractor filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code.
In connection with the EPC Contractor's bankruptcy filing, Georgia Power, acting for itself and as agent for the other Vogtle Owners, entered into several transitional arrangements to allow construction to continue. In July 2017, Georgia Power, acting for itself and as agent for the other Vogtle Owners, entered into the Vogtle Services Agreement, whereby Westinghouse provides facility design and engineering services, procurement and technical support, and staff augmentation on a time and materials cost basis. The Vogtle Services Agreement provides that it will continue until the start-up and testing of Plant Vogtle Units 3 and 4 are complete and electricity is generated and sold from both units. The Vogtle Services Agreement is terminable by the Vogtle Owners upon 30 days' written notice.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
In October 2017, Georgia Power, acting for itselfGeneral Litigation and as agent for the other Vogtle Owners, executed the Bechtel Agreement, a cost reimbursable plus fee arrangement, whereby Bechtel is reimbursed for actual costs plus a base fee and an at-risk fee, which is subject to adjustment based on Bechtel's performance against cost and schedule targets. Each Vogtle Owner is severally (not jointly) liable for its proportionate share, based on its ownership interest, of all amounts owed to Bechtel under the Bechtel Agreement. The Vogtle Owners may terminate the Bechtel Agreement at any time for their convenience, provided that the Vogtle Owners will be required to pay amounts related to work performed prior to the termination (including the applicable portion of the base fee), certain termination-related costs, and, at certain stages of the work, the applicable portion of the at-risk fee. Bechtel may terminate the Bechtel Agreement under certain circumstances, including certain Vogtle Owner suspensions of work, certain breaches of the Bechtel Agreement by the Vogtle Owners, Vogtle Owner insolvency, and certain other events.
See Note 8 to the financial statements under "Long-term Debt – DOE Loan Guarantee Borrowings" in Item 8 of the Form 10-K for information on the Amended and Restated Loan Guarantee Agreement, including applicable covenants, events of default, mandatory prepayment events, and conditions to borrowing.
Cost and Schedule
Georgia Power's approximate proportionate share of the remaining estimated capital cost to complete Plant Vogtle Units 3 and 4 by the expected in-service dates of November 2021 and November 2022, respectively, is as follows:
| | | | | |
| (in billions) |
Base project capital cost forecast(a)(b)
| $ | 8.4 | |
Construction contingency estimate | 0.1 | |
| |
Total project capital cost forecast(a)(b)
| 8.5 | |
Net investment as of September 30, 2020(b)
| (6.9) | |
Remaining estimate to complete(a)
| $ | 1.6 | |
(a) Excludes financing costs expected to be capitalized through AFUDC of approximately $240 million, of which $71 million had been accrued through September 30, 2020.
(b) Net of $1.7 billion received from Toshiba under the Guarantee Settlement Agreement and approximately $188 million in related customer refunds.
Georgia Power estimates that its financing costs for construction of Plant Vogtle Units 3 and 4 will total approximately $3.0 billion, of which $2.5 billion had been incurred through September 30, 2020.
As part of its ongoing processes, Southern Nuclear continues to evaluate cost and schedule forecasts on a regular basis to incorporate current information available, particularly in the areas of engineering support, commodity installation, system turnovers and related test results, and workforce statistics.
As of June 30, 2020, assignments of contingency exceeded the remaining balance of the $366 million construction contingency originally established in the second quarter 2018 by approximately $34 million. This contingency was used to address cost risks related to construction productivity, including the April 2020 reduction in workforce designed to mitigate impacts of the COVID-19 pandemic described below; craft labor incentives; adding resources for supervision, field support, project management, initial test program, start-up, and operations and engineering support; subcontracts; and procurement, among other factors. As a result of these factors, Georgia Power established $115 million of additional construction contingency as of June 30, 2020 for further potential risks including, among other factors, construction productivity and expected impacts of the COVID-19 pandemic; additional resources for supervision, field support, project management, initial test program, start-up, and operations and engineering support; subcontracts; and procurement.
After considering the significant level of uncertainty that exists regarding the future recoverability of these costs since the ultimate outcome of these matters is subject to the outcome of future assessments by management, as well as Georgia PSC decisions in future regulatory proceedings, Georgia Power recorded a total pre-tax charge to income
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
of $149 million ($111 million after tax) for the increase in the total project capital cost forecast as of June 30, 2020. As and when these amounts are spent, Georgia Power may request the Georgia PSC to evaluate those expenditures for rate recovery.
During the third quarter 2020, approximately $5 million of the construction contingency established in the second quarter 2020 was assigned to the base capital cost forecast for cost risks primarily associated with construction productivity and field support.
In April 2019, Southern Nuclear established aggressive target values for monthly construction production and system turnover activities as part of a strategy to maintain and, where possible, build margin to the regulatory-approved in-service dates of November 2021 for Unit 3 and November 2022 for Unit 4. Through early 2020, the project faced challenges with the April 2019 aggressive strategy targets including, but not limited to, electrical and pipefitting labor productivity and work package closure rates, which resulted in a backlog of activities and completion percentages below the April 2019 aggressive strategy targets.
In February 2020, Southern Nuclear updated its cost and schedule forecast, which, at that time, did not change the total project capital cost forecast and confirmed the expected in-service dates of November 2021 for Unit 3 and November 2022 for Unit 4. This update included initiatives to improve productivity while refining and extending system turnover plans and certain near-term milestone dates. Other milestone dates did not change. Achievement of the February 2020 aggressive site work plan relied on meeting increased monthly production and activity target values during 2020.
In mid-March 2020, Southern Nuclear began implementing policies and procedures designed to mitigate the risk of transmission of COVID-19 at the construction site, including worker distancing measures, isolating individuals who have tested positive for COVID-19, are showing symptoms consistent with COVID-19, are being tested for COVID-19, or have been in close contact with such persons, requiring self-quarantine, and adopting additional precautionary measures.
In April 2020, Georgia Power, acting for itself and as agent for the other Vogtle Owners, announced a reduction in workforce at Plant Vogtle Units 3 and 4, which totaled approximately 20% of the then-existing site workforce. This reduction in workforce was a mitigation action intended to address the impact of the COVID-19 pandemic on the Plant Vogtle Units 3 and 4 workforce and construction site, including challenges with labor productivity that were exacerbated by the impact of the COVID-19 pandemic. The April 2020 workforce reduction was intended to provide operational efficiencies by increasing productivity of the remaining workforce and reducing workforce fatigue and absenteeism. Further, it was also intended to allow for increased social distancing by the workforce and facilitate compliance with the recommendations from the Centers for Disease Control and Prevention. The April 2020 workforce reduction did reduce absenteeism, providing an improvement in operational efficiency and allowing for increased social distancing. From the initial peak in April 2020, the number of active cases at the site declined significantly during May and early June, but began increasing again from mid-June through July, and continued to impact productivity levels and pace of activity completion. As a result of these factors, overall production improvements were not achieved at the levels anticipated, contributing to the June 30, 2020 allocation of, and increase in, construction contingency described above. Through mid-July 2020, Unit 3 mechanical, electrical, and subcontract activities continued to build a backlog to Southern Nuclear's February 2020 aggressive site work plan.
To address these issues, in July 2020, Southern Nuclear updated its aggressive site work plan for both Unit 3 and Unit 4. Through October 2020, the project has faced challenges in meeting the July 2020 aggressive site work plan targets including, but not limited to, overall construction and subcontractor labor productivity, which has resulted in a backlog of activities and completion percentages below the July 2020 aggressive site work plan targets. In addition, while the number of active COVID-19 cases at the site has declined since July 2020, the COVID-19 pandemic continues to impact productivity and the pace of activity completion. After considering these factors, Southern Nuclear has further extended milestone dates from the July 2020 aggressive site work plan. Achievement of these extended milestone dates depends on absenteeism rates continuing to normalize and overall construction productivity and production levels, including subcontractors, significantly improving and being sustained above pre-pandemic levels. In addition, appropriate levels of craft laborers, particularly electrical and pipefitter craft labor,
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
need to be added and maintained. Georgia Power still expects to achieve the regulatory-approved in-service dates of November 2021 and November 2022 for Plant Vogtle Units 3 and 4, respectively. Southern Nuclear and Georgia Power continue to believe that pursuit of an aggressive site work plan is an appropriate strategy to achieve completion of the units by their regulatory-approved in-service dates.
As construction, including subcontract work, continues and testing and system turnover activities increase, challenges with management of contractors and vendors; subcontractor performance; supervision of craft labor and related productivity, particularly in the installation of electrical, mechanical, and instrumentation and controls commodities, ability to attract and retain craft labor, and/or related cost escalation; procurement, fabrication, delivery, assembly, installation, system turnover, and the initial testing and start-up, including any required engineering changes or any remediation related thereto, of plant systems, structures, or components (some of which are based on new technology that only within the last few years began initial operation in the global nuclear industry at this scale), any of which may require additional labor and/or materials; or other issues could arise and change the projected schedule and estimated cost.
In addition, the continuing effects of the COVID-19 pandemic could further disrupt or delay construction, testing, supervisory, and support activities at Plant Vogtle Units 3 and 4. Georgia Power's proportionate share of the estimated incremental cost associated with COVID-19 mitigation actions and impacts on construction productivity is currently estimated to be between $70 million and $115 million, which is included in the total project capital cost forecast and assumes (i) absenteeism rates continue to normalize and (ii) the intended productivity efficiencies and production targets assumed in Southern Nuclear's July 2020 aggressive site work plan are realized in the coming months. However, the ultimate impact of the COVID-19 pandemic on the construction schedule and budget for Plant Vogtle Units 3 and 4 cannot be determined at this time.
There have been technical and procedural challenges to the construction and licensing of Plant Vogtle Units 3 and 4 at the federal and state level and additional challenges may arise. Processes are in place that are designed to assure compliance with the requirements specified in the Westinghouse Design Control Document and the combined construction and operating licenses, including inspections by Southern Nuclear and the NRC that occur throughout construction. As a result of such compliance processes, certain license amendment requests have been filed and approved or are pending before the NRC. Various design and other licensing-based compliance matters, including the timely submittal by Southern Nuclear of the ITAAC documentation for each unit and the related reviews and approvals by the NRC necessary to support NRC authorization to load fuel, may arise, which may result in additional license amendments or require other resolution. As part of the aggressive site work plan, in January 2020, Southern Nuclear notified the NRC of its intent to load fuel in 2020. On June 15, 2020, the NRC rejected Nuclear Watch South's April 20, 2020 petition requesting a hearing and challenging the closure of certain ITAAC. On August 10, 2020, the Atomic Safety and Licensing Board rejected the Blue Ridge Environmental Defense League's (BREDL) May 11, 2020 petition challenging a license amendment request. The staff of the NRC has issued the requested amendment to the combined construction and operating license for Plant Vogtle Unit 3. BREDL appealed the Atomic Safety and Licensing Board decision to the NRC. If any license amendment requests or other licensing-based compliance issues are not resolved in a timely manner, there may be delays in the project schedule that could result in increased costs.
The ultimate outcome of these matters cannot be determined at this time. However, any extension of the regulatory-approved project schedule is currently estimated to result in additional base capital costs of approximately $50 million per month, based on Georgia Power's ownership interests, and AFUDC of approximately $10 million per month. While Georgia Power is not precluded from seeking recovery of any future capital cost forecast increase, management will ultimately determine whether or not to seek recovery. Any further changes to the capital cost forecast that are not expected to be recoverable through regulated rates will be required to be charged to income and such charges could be material.
Joint Owner Contracts
In November 2017, the Vogtle Owners entered into an amendment to their joint ownership agreements for Plant Vogtle Units 3 and 4 to provide for, among other conditions, additional Vogtle Owner approval requirements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Effective in August 2018, the Vogtle Owners further amended the joint ownership agreements to clarify and provide procedures for certain provisions of the joint ownership agreements related to adverse events that require the vote of the holders of at least 90% of the ownership interests in Plant Vogtle Units 3 and 4 to continue construction (as amended, and together with the November 2017 amendment, the Vogtle Joint Ownership Agreements). The Vogtle Joint Ownership Agreements also confirm that the Vogtle Owners' sole recourse against Georgia Power or Southern Nuclear for any action or inaction in connection with their performance as agent for the Vogtle Owners is limited to removal of Georgia Power and/or Southern Nuclear as agent, except in cases of willful misconduct.
As a result of an increase in the total project capital cost forecast and Georgia Power's decision not to seek rate recovery of the increase in the base capital costs in conjunction with the nineteenth VCM report in 2018, the holders of at least 90% of the ownership interests in Plant Vogtle Units 3 and 4 were required to vote to continue construction. In September 2018, the Vogtle Owners unanimously voted to continue construction of Plant Vogtle Units 3 and 4.
Amendments to the Vogtle Joint Ownership Agreements
In connection with the vote to continue construction, Georgia Power entered into (i) a binding term sheet (Vogtle Owner Term Sheet) with the other Vogtle Owners and MEAG Power's wholly-owned subsidiaries MEAG Power SPVJ, LLC (MEAG SPVJ), MEAG Power SPVM, LLC (MEAG SPVM), and MEAG Power SPVP, LLC (MEAG SPVP) to take certain actions which partially mitigate potential financial exposure for the other Vogtle Owners, including additional amendments to the Vogtle Joint Ownership Agreements and the purchase of PTCs from the other Vogtle Owners at pre-established prices, and (ii) a term sheet (MEAG Term Sheet) with MEAG Power and MEAG SPVJ to provide up to $300 million of funding with respect to MEAG SPVJ's ownership interest in Plant Vogtle Units 3 and 4 under certain circumstances. In January 2019, Georgia Power, MEAG Power, and MEAG SPVJ entered into an agreement to implement the provisions of the MEAG Term Sheet. In February 2019, Georgia Power, the other Vogtle Owners, and MEAG Power's wholly-owned subsidiaries MEAG SPVJ, MEAG SPVM, and MEAG SPVP entered into certain amendments to the Vogtle Joint Ownership Agreements to implement the provisions of the Vogtle Owner Term Sheet (Global Amendments).
As previously disclosed, pursuant to the Global Amendments: (i) each Vogtle Owner must pay its proportionate share of qualifying construction costs for Plant Vogtle Units 3 and 4 based on its ownership percentage up to the estimated cost at completion (EAC) for Plant Vogtle Units 3 and 4 which formed the basis of Georgia Power's forecast of $8.4 billion in the nineteenth VCM plus $800 million; (ii) Georgia Power will be responsible for 55.7% of actual qualifying construction costs between $800 million and $1.6 billion over the EAC in the nineteenth VCM (resulting in $80 million of potential additional costs to Georgia Power), with the remaining Vogtle Owners responsible for 44.3% of such costs pro rata in accordance with their respective ownership interests; and (iii) Georgia Power will be responsible for 65.7% of qualifying construction costs between $1.6 billion and $2.1 billion over the EAC in the nineteenth VCM (resulting in a further $100 million of potential additional costs to Georgia Power), with the remaining Vogtle Owners responsible for 34.3% of such costs pro rata in accordance with their respective ownership interests. If the EAC is revised and exceeds the EAC in the nineteenth VCM by more than $2.1 billion, each of the other Vogtle Owners will have a one-time option at the time the project budget forecast is so revised to tender a portion of its ownership interest to Georgia Power in exchange for Georgia Power's agreement to pay 100% of such Vogtle Owner's remaining share of total construction costs in excess of the EAC in the nineteenth VCM plus $2.1 billion.
In addition, pursuant to the Global Amendments, the holders of at least 90% of the ownership interests in Plant Vogtle Units 3 and 4 must vote to continue construction if certain adverse events occur, including, among other events: (i) the bankruptcy of Toshiba; (ii) the termination or rejection in bankruptcy of certain agreements, including the Vogtle Services Agreement, the Bechtel Agreement, or the agency agreement with Southern Nuclear; (iii) Georgia Power's public announcement of its intention not to submit for rate recovery any portion of its investment in Plant Vogtle Units 3 and 4 or the Georgia PSC determines that any of Georgia Power's costs relating to the construction of Plant Vogtle Units 3 and 4 will not be recovered in retail rates, excluding any additional amounts paid by Georgia Power on behalf of the other Vogtle Owners pursuant to the Global Amendments described above
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
and the first 6% of costs during any six-month VCM reporting period that are disallowed by the Georgia PSC for recovery, or for which Georgia Power elects not to seek cost recovery, through retail rates; and (iv) an incremental extension of one year or more over the most recently approved schedule.
The ultimate outcome of these matters cannot be determined at this time.
Regulatory Matters
In 2009, the Georgia PSC voted to certify construction of Plant Vogtle Units 3 and 4 with a certified capital cost of $4.418 billion. In addition, in 2009 the Georgia PSC approved inclusion of the Plant Vogtle Units 3 and 4 related CWIP accounts in rate base, and the State of Georgia enacted the Georgia Nuclear Energy Financing Act, which allows Georgia Power to recover financing costs for Plant Vogtle Units 3 and 4. Financing costs are recovered on all applicable certified costs through annual adjustments to the NCCR tariff up to the certified capital cost of $4.418 billion. At September 30, 2020, Georgia Power had recovered approximately $2.5 billion of financing costs. Financing costs related to capital costs above $4.418 billion are being recognized through AFUDC and are expected to be recovered through retail rates over the life of Plant Vogtle Units 3 and 4; however, Georgia Power will not record AFUDC related to any capital costs in excess of the total deemed reasonable by the Georgia PSC (currently $7.3 billion) and not requested for rate recovery. On October 1, 2020, Georgia Power filed a request to decrease the NCCR tariff by $142 million annually, effective January 1, 2021, pending Georgia PSC approval.
Georgia Power is required to file semi-annual VCM reports with the Georgia PSC by February 28 and August 31 of each year. In 2013, in connection with the eighth VCM report, the Georgia PSC approved a stipulation between Georgia Power and the staff of the Georgia PSC to waive the requirement to amend the Plant Vogtle Units 3 and 4 certificate in accordance with the 2009 certification order until the completion of Plant Vogtle Unit 3, or earlier if deemed appropriate by the Georgia PSC and Georgia Power.
In 2016, the Georgia PSC voted to approve a settlement agreement (Vogtle Cost Settlement Agreement) resolving certain prudency matters in connection with the fifteenth VCM report. In December 2017, the Georgia PSC voted to approve (and issued its related order on January 11, 2018) Georgia Power's seventeenth VCM report and modified the Vogtle Cost Settlement Agreement. The Vogtle Cost Settlement Agreement, as modified by the January 11, 2018 order, resolved the following regulatory matters related to Plant Vogtle Units 3 and 4: (i) none of the $3.3 billion of costs incurred through December 31, 2015 and reflected in the fourteenth VCM report should be disallowed from rate base on the basis of imprudence; (ii) the Contractor Settlement Agreement was reasonable and prudent and none of the amounts paid pursuant to the Contractor Settlement Agreement should be disallowed from rate base on the basis of imprudence; (iii) (a) capital costs incurred up to $5.68 billion would be presumed to be reasonable and prudent with the burden of proof on any party challenging such costs, (b) Georgia Power would have the burden to show that any capital costs above $5.68 billion were prudent, and (c) a revised capital cost forecast of $7.3 billion (after reflecting the impact of payments received under the Guarantee Settlement Agreement and related customer refunds) was found reasonable; (iv) construction of Plant Vogtle Units 3 and 4 should be completed, with Southern Nuclear serving as project manager and Bechtel as primary contractor; (v) approved and deemed reasonable Georgia Power's revised schedule placing Plant Vogtle Units 3 and 4 in service in November 2021 and November 2022, respectively; (vi) confirmed that the revised cost forecast does not represent a cost cap and that prudence decisions on cost recovery will be made at a later date, consistent with applicable Georgia law; (vii) reduced the ROE used to calculate the NCCR tariff (a) from 10.95% (the ROE rate setting point authorized by the Georgia PSC in the 2013 ARP) to 10.00% effective January 1, 2016, (b) from 10.00% to 8.30%, effective January 1, 2020, and (c) from 8.30% to 5.30%, effective January 1, 2021 (provided that the ROE in no case will be less than Georgia Power's average cost of long-term debt); (viii) reduced the ROE used for AFUDC equity for Plant Vogtle Units 3 and 4 from 10.00% to Georgia Power's average cost of long-term debt, effective January 1, 2018; and (ix) agreed that upon Unit 3 reaching commercial operation, retail base rates would be adjusted to include carrying costs on those capital costs deemed prudent in the Vogtle Cost Settlement Agreement. The January 11, 2018 order also stated that if Plant Vogtle Units 3 and 4 are not commercially operational by June 1, 2021 and June 1, 2022, respectively, the ROE used to calculate the NCCR tariff will be further reduced by 10 basis points each month (but not lower than Georgia Power's average cost of long-term debt) until the respective Unit is commercially
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
operational. The ROE reductions negatively impacted earnings by approximately $75 million in 2019 and are estimated to have negative earnings impacts of approximately $145 million, $255 million, and $200 million in 2020, 2021, and 2022, respectively. In its January 11, 2018 order, the Georgia PSC also stated if other conditions change and assumptions upon which Georgia Power's seventeenth VCM report are based do not materialize, the Georgia PSC reserved the right to reconsider the decision to continue construction.
In February 2018, Georgia Interfaith Power & Light, Inc. (GIPL) and Partnership for Southern Equity, Inc. (PSE) filed a petition appealing the Georgia PSC's January 11, 2018 order with the Fulton County Superior Court. In March 2018, Georgia Watch filed a similar appeal to the Fulton County Superior Court for judicial review of the Georgia PSC's decision and denial of Georgia Watch's motion for reconsideration. In December 2018, the Fulton County Superior Court granted Georgia Power's motion to dismiss the two appeals. In January 2019, GIPL, PSE, and Georgia Watch filed an appeal of this decision with the Georgia Court of Appeals. In October 2019, the Georgia Court of Appeals issued an opinion affirming the Fulton County Superior Court's ruling that the Georgia PSC's January 11, 2018 order was not a final, appealable decision. In addition, the Georgia Court of Appeals remanded the case to the Fulton County Superior Court to clarify its ruling as to whether the petitioners showed that review of the Georgia PSC's final order would not provide them an adequate remedy. On April 21, 2020, the Fulton County Superior Court granted Georgia Power's motion to dismiss the two appeals. The petitioners filed a notice of appeal of the dismissal on May 20, 2020, which was withdrawn on August 20, 2020. This matter is now concluded.
The Georgia PSC has approved 22 VCM reports covering the periods through December 31, 2019, including total construction capital costs incurred through that date of $7.4 billion (before $1.7 billion of payments received under the Guarantee Settlement Agreement and approximately $188 million in related customer refunds). Georgia Power filed its twenty-third VCM report with the Georgia PSC on August 31, 2020, which reflects the capital cost forecast discussed above and requests approval of $701 million of construction capital costs incurred from January 1, 2020 through June 30, 2020.
See RISK FACTORS in Item 1A herein and in the Form 10-K for a discussion of certain risks associated with the licensing, construction, and operation of nuclear generating units, including potential impacts that could result from a major incident at a nuclear facility anywhere in the world.
The ultimate outcome of these matters cannot be determined at this time.
Southern Power
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Construction Programs – Southern Power" in Item 7 of the Form 10-K and FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" herein for additional information.
During the nine months ended September 30, 2020, Southern Power completed construction of and placed in service the Reading wind facility, continued construction of the Skookumchuck wind facility, and commenced construction of the Garland and Tranquillity battery energy storage facilities. Total aggregate construction costs, excluding acquisition costs, are expected to be between $475 million and $545 million for the facilities under construction. At September 30, 2020, total costs of construction incurred for these projects were $244 million and are included in CWIP. The ultimate outcome of these matters cannot be determined at this time.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
| | | | | | | | | | | | | | | | | | | | |
Project Facility | Resource | Approximate Nameplate Capacity (MW)
| Location | Actual/Expected COD | PPA Counterparties | PPA Contract Period |
Projects Completed During the Nine Months Ended September 30, 2020 | |
Reading(a)
| Wind | 200 | Osage and Lyon Counties, KS | May 2020 | Royal Caribbean Cruises LTD | 12 years |
Projects Under Construction as of September 30, 2020 | | |
Skookumchuck(b)
| Wind | 136 | Lewis and Thurston Counties, WA | November 2020 | Puget Sound Energy | 20 years |
Garland Solar Storage(c)
| Battery energy storage system | 88 | Kern County, CA | Second quarter 2021 | Southern California Edison | 20 years |
Tranquillity Solar Storage(c)
| Battery energy storage system | 72 | Fresno County, CA | Second quarter 2021 | Southern California Edison | 20 years |
(a)In 2018, Southern Power purchased 100% of the membership interests of the Reading facility pursuant to a joint development arrangement. At the time the facility was placed in service, Southern Power recorded an operating lease right-of-use asset and an operating lease liability, each in the amount of $24 million. In June 2020, Southern Power completed a tax equity transaction whereby it received $156 million and now owns 100% of the Class B membership interests.
(b)In October 2019, Southern Power purchased 100% of the membership interests of the Skookumchuck facility pursuant to a joint development arrangement. Southern Power expects to complete a tax equity transaction upon commercial operation and retain the Class B membership interests. Shortly after the completed tax equity transaction, Southern Power may sell a noncontrolling interest in these Class B membership interests to another partner. Southern Power would retain the controlling ownership interest in the facility. The ultimate outcome of these matters cannot be determined at this time.
(c)Prior to commercial operation, Southern Power may enter into one or more partnerships, in which case it would ultimately own less than 100% of the Class B membership interests, but would retain ownership of the controlling interest. The ultimate outcome of this matter cannot be determined at this time.
Southern Company Gas
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Construction Programs – Southern Company Gas" in Item 7 of the Form 10-K for additional information.
Infrastructure Replacement Programs and Capital Projects
In addition to capital expenditures recovered through base rates by each of the natural gas distribution utilities, Nicor Gas and Virginia Natural Gas have separate rate riders that provide timely recovery of capital expenditures for specific infrastructure replacement programs. Infrastructure expenditures incurred under these programs in the first nine months of 2020 were as follows:
| | | | | | | | |
Utility | Program | Year-to-Date 2020 |
| | (in millions) |
Nicor Gas | Investing in Illinois | $ | 294 | |
Virginia Natural Gas | Steps to Advance Virginia's Energy (SAVE) | 37 | |
Total | | $ | 331 | |
In December 2019, Virginia Natural Gas filed an application with the Virginia Commission for a 24.1-mile header improvement project to improve resiliency and increase the supply of natural gas delivered to energy suppliers, including Virginia Natural Gas. On June 26, 2020, the Virginia Commission issued an order requiring Virginia Natural Gas to submit additional information by December 31, 2020 related to the financing plans of the project's primary customer before ruling on the December 2019 application. The ultimate outcome of this matter cannot be determined at this time.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
See Note 2 to the financial statements under "Southern Company Gas – Infrastructure Replacement Programs and Capital Projects" in Item 8 of the Form 10-K for additional information.
Pipeline Construction Projects
On March 24, 2020, Southern Company Gas completed the sale of its interest in Atlantic Coast Pipeline. See Note (K) to the Condensed Financial Statements under "Southern Company Gas" herein for additional information.
On February 20, 2020, the FERC approved a two-year extension for PennEast Pipeline to complete the project by January 19, 2022.
In September 2019, an appellate court ruled that the PennEast Pipeline does not have federal eminent domain authority over lands in which a state has property rights interests. On June 29, 2020, the U.S. Supreme Court requested the U.S. Solicitor General to provide an opinion on PennEast Pipeline's petition for a writ of certiorari seeking its review of the appellate court's decision.
Expected project costs related to the PennEast Pipeline for Southern Company Gas total approximately $300 million, excluding financing costs. The ultimate outcome of the PennEast Pipeline construction project cannot be determined at this time; however, any work delays, whether caused by judicial or regulatory action, abnormal weather, or other conditions, may result in additional cost or schedule modifications or, ultimately, in project cancellation, any of which could result in impairment of Southern Company Gas' investment and could have a significant impact on Southern Company's financial statements and a material impact on Southern Company Gas' financial statements.
See Notes 3 and 7 to the financial statements in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements herein under "Southern Company Gas" for additional information.
Southern Power's Power Sales Agreements
See BUSINESS – "The Southern Company System – Southern Power" in Item 1 of the Form 10-K and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Southern Power's Power Sales Agreements" in Item 7 of the Form 10-K for additional information regarding Southern Power's PPAs. Generally, under the solar and wind generation PPAs, the purchasing party retains the right to keep or resell the renewable energy credits.
During the first quarter 2020, Southern Power received $15 million from Pacific Gas & Electric Company (PG&E) in accordance with a November 2019 bankruptcy court order granting payment of certain transmission interconnections. PG&E emerged from bankruptcy on July 1, 2020 and Southern Power's PPAs and transmission interconnection agreements continue in effect unchanged.
Tax Matters
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Income Tax Matters" in Item 7 of the Form 10-K and Note (G) to the Condensed Financial Statements herein for additional information.
On March 20, 2020 and April 9, 2020, the Treasury Department and the Internal Revenue Service issued Notices 2020-18 and 2020-23, respectively, providing relief to taxpayers by postponing to July 15, 2020 a variety of tax form filings and payment obligations that were due before July 15, 2020. Associated interest, additions to tax, and penalties for late filing or late payment were also suspended until July 16, 2020. These provisions had a modest positive impact on the Registrants' liquidity. However, Southern Power's expected utilization of tax credits in the first half of 2020 was delayed until July 15, 2020.
General Litigation Matters
The Registrants are involved in various other matters being litigated and/or regulatory and regulatoryother matters that could affect future earnings.earnings, cash flows, and/or financial condition. The ultimate outcome of such pending or potential litigation or regulatory matters against each Registrant
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
and any subsidiaries or regulatory and other matters cannot be determined at this time; however, for current proceedings and/or matters not specifically reported herein or in Notes (B) and (C) to the Condensed Financial Statements herein, management does not anticipate that the ultimate liabilities, if any, arising from such current proceedings and/or matters would have a material effect on such Registrant's financial statements. See Notes (B) and (C) to the Condensed Financial Statements for a discussion of various other contingencies, including matters being litigated, regulatory matters, and other matters being litigated which may affect future earnings potential.
Alabama Power
On March 10, 2021, Alabama Power executed a coordinated planning and operations agreement with PowerSouth, with a minimum term of 10 years. The Registrants believe the pending legal challenges discussed below have no merit; however, the ultimate outcome of these matters cannot be determined at this time.
Southern Company
In January 2017, a securities class action complaint was filed in the U.S. District Court for the Northern District of Georgia by Monroe County Employees' Retirement System on behalf of all persons who purchased shares of Southern Company's common stock between April 25, 2012agreement, which includes combined operations (including joint commitment and October 29, 2013. The complaint names as defendants Southern Company, certain of its current and former officers, and certain former Mississippi Power officers and alleges that the defendants made materially false and misleading statements regarding the Kemper County energy facility in violation of certain provisions under the Securities Exchange Act of 1934, as amended. The complaint seeks, among other things, compensatory damages and litigation costs and attorneys' fees. In 2017, the plaintiffs filed an amended complaint that provided additional detail about their claims, increased the purported class period by one day, and added certain other former Mississippi Power officers as defendants. Also in 2017, the defendants filed a motion to dismiss the plaintiffs' amended complaint with prejudice, to which the plaintiffs filed an opposition. In 2018, the court issued an order dismissing certain claims against certain officers of Southern Company and Mississippi Power and dismissing the allegations related to a number of the statements that plaintiffs challenged as being false or misleading. In 2018, the court denied the defendants' motion for reconsideration and also denied a motion to certify the issue for interlocutory appeal. In the third quarter 2019, the court certified the plaintiffs' proposed class and the defendants filed a petition for interlocutory appeal of the class certification order with the U.S. Court of Appeals for the Eleventh Circuit. In December 2019, the U.S. District Court for the Northern District of Georgia entered an order staying all deadlines in the case pending mediation. The stay automatically expired on March 31, 2020; however, in light of the COVID-19 pandemic, the U.S. District Court for the Northern District of Georgia vacated all existing discovery deadlines until June 15, 2020. On June 30, 2020, the court entered a revised scheduling order, which resumed discovery and set out remaining case deadlines. On August 15, 2020, the parties reached a settlement. On September 8, 2020, the plaintiffs filed a stipulation of settlement and motion for preliminary approval to resolve the case on a class-wide basis, which the court granted on October 1, 2020. The settlement amount will be paid entirely through existing insurance policies anddispatch), is not expected to have acreate energy cost savings and enhanced system reliability for both parties. Projected revenues are expected to offset any increased administrative costs incurred by Alabama Power; therefore, no material impact on Southern Company's financial statements.
In February 2017, Jean Vineyard and Judy Mesirov each filed a shareholder derivative lawsuit in the U.S. District Court for the Northern District of Georgia. Each of these lawsuits names as defendants Southern Company, certain of its directors, certain of its current and former officers, and certain former Mississippito net income is expected. Alabama Power officers. In 2017, these two shareholder derivative lawsuits were consolidated in the U.S. District Court for the Northern District of Georgia. The complaints allege that the defendants caused Southern Company to make false or misleading statements regarding the Kemper County energy facility cost and schedule. Further, the complaints allege that the defendants were unjustly enriched and caused the waste of corporate assets and also allege that the individual defendants violated their fiduciary duties. Each plaintiff seeks to recover, on behalf of Southern Company, unspecified actual damages and, on each plaintiff's own behalf, attorneys' fees and costs in bringing the lawsuit. Each plaintiff also seeks certain changes to Southern Company's corporate governance and internal processes. In 2018, the court entered an order staying this lawsuit until 30 days after the resolution of any dispositive motions or any settlement, whichever is earlier, in the securities class action. On September 25, 2020, the plaintiffs filed a status report noting the settlement of the securities class action and informing the court that the parties have scheduled mediation of this case later in the fourth quarter 2020.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
In May 2017, Helen E. Piper Survivor's Trust filed a shareholder derivative lawsuit in the Superior Court of Gwinnett County, Georgia that names as defendants Southern Company, certain of its directors, certain of its current and former officers, and certain former Mississippi Power officers. The complaint alleges that the individual defendants, among other things, breached their fiduciary duties in connection with schedule delays and cost overruns associated with the construction of the Kemper County energy facility. The complaint further alleges that the individual defendants authorized or failed to correct false and misleading statements regarding the Kemper County energy facility schedule and cost and failed to implement necessary internal controls to prevent harm to Southern Company. The plaintiff seeks to recover, on behalf of Southern Company, unspecified actual damages and disgorgement of profits and, on its behalf, attorneys' fees and costs in bringing the lawsuit. The plaintiff also seeks certain unspecified changes to Southern Company's corporate governance and internal processes. In 2018, the court entered an order staying this lawsuit until 30 days after the resolution of any dispositive motions or any settlement, whichever is earlier, in the securities class action. In August 2019, the court granted a motion filed by the plaintiff in July 2019 to substitute a new named plaintiff, Martin J. Kobuck, in place of Helen E. Piper Survivor's Trust. On September 30, 2020, the plaintiffs filed a status report noting the settlement of the securities class action and informing the court that the parties have scheduled mediation of this case later in the fourth quarter 2020.
Georgia Power
In 2011, plaintiffs filed a putative class action against Georgia Power in the Superior Court of Fulton County, Georgia alleging that Georgia Power's collection in rates of amounts for municipal franchise fees (which fees are paid to municipalities) exceeded the amounts allowed in orders of the Georgia PSC and alleging certain state law claims. This case has been ruled upon and appealed numerous times over the last several years. In one recent appeal, the Georgia Supreme Court remanded the case and noted that the trial court could refer the matter to the Georgia PSC to interpret its tariffs. Following a motion by Georgia Power, in February 2019, the Superior Court of Fulton County ordered the parties to submit petitions to the Georgia PSC for a declaratory ruling and also conditionally certified the proposed class. In March 2019, Georgia Power and the plaintiffs filed petitions with the Georgia PSC seeking confirmation of the proper application of the municipal franchise fee schedule pursuant to the Georgia PSC's orders. Also in March 2019, Georgia Power appealed the class certification decision to the Georgia Court of Appeals. In October 2019, the Georgia PSC issued an order that found Georgia Power has appropriately implemented the municipal franchise fee schedule. On March 11, 2020, the Georgia Court of Appeals vacated the Superior Court of Fulton County's February 2019 order granting conditional class certification. The Court of Appeals remanded the case to the Superior Court of Fulton County for further proceedings. In September 2020, the plaintiffs and Georgia Power each filed motions for summary judgment on all claims and the plaintiffs renewed their motion for class certification. The amount of any possible losses cannot be calculated at this time because, among other factors, it is unknown whether a class will be certified, the ultimate composition of any class, and whether any losses would be subject to recovery from any municipalities.
On July 29, 2020, a group of individual plaintiffs filed a complaint in the Superior Court of Fulton County, Georgia against Georgia Power alleging that releases from Plant Scherer have impacted groundwater, surface water, and air, resulting in alleged personal injuries and property damage. The plaintiffs seek an unspecified amount of monetary damages including punitive damages, a medical monitoring fund, and injunctive relief.
Mississippi Power
In May 2018, Southern Company and Mississippi Power received a notice of dispute and arbitration demand filed by Martin Product Sales, LLC (Martin) based on two agreements, both related to Kemper IGCC byproducts for which Mississippi Power provided termination notices in 2017. Martin alleges breach of contract, breach of good faith and fair dealing, fraud and misrepresentation, and civil conspiracy and makes a claim for damages in the amount of approximately $143 million, as well as additional unspecified damages, attorney's fees, costs, and interest. A portion of the claim for damages was on behalf of Martin Transport, Inc. (Martin Transport), an affiliate of Martin. In May 2019, the arbitration panel denied Mississippi Power's and Southern Company's motions to dismiss. In September 2019, Martin Transport filed a separate complaint against Mississippi Power in the Circuit Court of Kemper County, Mississippi alleging claims of fraud, negligent misrepresentation, promissory estoppel,
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
and equitable estoppel, each arising out of the same alleged facts and circumstances that underlie Martin's arbitration demand. Martin Transport seeks compensatory damages of $5 million and punitive damages of $50 million. In November 2019, Martin Transport's claim was combined with the Martin arbitration case and the separate court case was dismissed. In December 2019, Southern Company and Mississippi Power each filed motions for summary judgment on all claims. On February 17, 2020, the arbitration panel granted Southern Company's motion and dismissed Southern Company from the arbitration. On March 12, 2020, the arbitration panel denied Mississippi Power's motions for summary judgment. During the third quarter 2020, the plaintiffs reduced their claim for damages to approximately $76 million. On October 12, 2020, the arbitration panel issued a unanimous award in favor of Mississippi Power on all claims. This matter is now concluded.
In November 2018, Ray C. Turnage and 10 other individual plaintiffs filed a putative class action complaint against Mississippi Power and the three then-serving members of the Mississippi PSC in the U.S. District Court for the Southern District of Mississippi. Mississippi Power received Mississippi PSC approval in 2013 to charge a mirror CWIP rate premised upon including in its rate base pre-construction and construction costs for the Kemper IGCC prior to placing the Kemper IGCC into service. The Mississippi Supreme Court reversed that approval and ordered Mississippi Power to refund the amounts paid by customers under the previously-approved mirror CWIP rate. The plaintiffs allege that the initial approval process, and the amount approved, were improper. They also allege that Mississippi Power underpaid customers by up to $23.5 million in the refund process by applying an incorrect interest rate. The plaintiffs seek to recover, on behalf of themselves and their putative class, actual damages, punitive damages, pre-judgment interest, post-judgment interest, attorney's fees, and costs. In response to Mississippi Power and the Mississippi PSC each filing a motion to dismiss, the plaintiffs filed an amended complaint in March 2019. The amended complaint included four additional plaintiffs and additional claims for gross negligence, reckless conduct, and intentional wrongdoing. Mississippi Power and the Mississippi PSC have each filed a motion to dismiss the amended complaint. On March 27, 2020, the Mississippi PSC's motion to dismiss was granted. Also on March 27, 2020, the plaintiffs filed a motion seeking to name the new members of the Mississippi PSC, the Mississippi Development Authority, and Southern Company as additional defendants and add a cause of action against all defendants based on a dormant commerce clause theory under the U.S. Constitution. On April 9, 2020 and April 10, 2020, Mississippi Power and the Mississippi PSC, respectively, filed responses opposing the motion for leave to file a second amended complaint. On May 26, 2020, the court granted Mississippi Power's motion to dismiss the first amended complaint filed in 2019. On July 6, 2020, the plaintiffs filed a motion for revision of the court's decision. The plaintiffs' motion for leave to file a second amended complaint also remains pending before the court. On July 28, 2020, the plaintiffs filed a motion for leave to file a third amended complaint, which includes the same federal claims as the proposed second amended complaint, as well as several additional state law claims based on the allegation that Mississippi Power failed to disclose the annual percentage rate of interest applicable to refunds. An adverse outcome in this proceeding could have a material impact on Mississippi Power's financial statements.
See Note 2 to the financial statements under "Mississippi Power – Kemper County Energy Facility" in Item 8 of the Form 10-K for additional information.
Other Matters
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Other Matters" in Item 7 of the Form 10-K for additional information.
Southern Company
See Notes 1 and 3 under "Leveraged Leases" and "Other Matters – Southern Company," respectively, in Item 8 of the Form 10-K for discussion of challenges associated with a leveraged lease agreement with a subsidiary of Southern Holdings. While all required lease payments through September 30, 2020 have been paid in full, the operational and remarketing risks and the resulting cash liquidity challenges persist and significant concerns continue regarding the lessee's ability to make the remaining required semi-annual lease payments to the Southern Holdings subsidiary through the term of the lease.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
In its annual impairment analysis of the expected residual value of the generation assets and the overall collectability of the related lease receivable, Southern Company uses multiple scenarios of long-term market energy prices to estimate the cash flows expected to be received from remarketing the generation assets following the expiration of the existing PPA in 2032 and the residual value of the generation assets at the end of the lease in 2047. Southern Company received the latest annual forecasts of natural gas prices during the second quarter 2020 and considered the significant decline in forecasted prices to be an indicator of potential impairment that required an interim impairment assessment. Accordingly, consistent with prior years, Southern Company evaluated the recoverability of the lease receivable and the expected residual value of the generation assets under various natural gas price scenarios. Based on the current forecasts of energy prices in the years following the expiration of the existing PPA, Southern Company concluded that it is no longer probable that any of the associated rental payments will be received, because it is no longer probable the generation assets will be successfully remarketed and continue to operate after that date. During the second quarter 2020, Southern Company revised the estimated cash flows to be received under the leveraged lease to reflect this conclusion, which resulted in a full impairment of the lease investment and a pre-tax charge to earnings of $154 million ($74 million after tax).
If any future lease payment due prior to the expiration of the associated PPA is not paid in full, the Southern Holdings subsidiary may be unable to make its corresponding payment to the holders of the underlying non-recourse debt related to the generation assets. Failure to make the required payment to the debtholders could represent an event of default that would give the debtholders the right to foreclose on, and take ownershipparticipate in a portion of PowerSouth's future incremental load growth. Implementation of the generation assets, in effect terminating the lease. As the remaining amountagreement is subject to certain regulatory approvals, including approvals of the lease investment was charged against earnings inRural Utilities Service, the second quarter 2020, termination would not be expected to result in additional charges. Southern Company will continue to monitorSERC Reliability Corporation, and the operational performance of the underlying assets and evaluate the ability of the lessee to continue to make the required lease payments and meet its obligations associated with a future closure or retirement of the generation assets and associated properties, including the dry ash landfill.
Mississippi Power
Kemper County Energy Facility
See Note 2 to the financial statements under "Mississippi Power – Kemper County Energy Facility" in Item 8 of the Form 10-K for additional information.
As the mining permit holder, Liberty Fuels Company, LLC has a legal obligation to perform mine reclamation and Mississippi Power has a contractual obligation to fund all reclamation activities related to the lignite mine and equipment and mineral reserves located around the Kemper County energy facility site. As a result of the abandonment of the Kemper IGCC, final mine reclamation began in 2018FERC, and is expected to be substantially completed in 2020, with monitoring expected to continue through 2027. See Note 6 to the financial statements in Item 8 of the Form 10-K for additional information.
For year-to-date 2020, Mississippi Power recorded pre-tax (and after-tax) charges to income totaling $2 million primarily associated with abandonment and related closure costs and ongoing period costs, net of salvage proceeds, for the mine and gasifier-related assets at the Kemper County energy facility. Dismantlement of the abandoned gasifier-related assets and site restoration activities are expected to be completed in 2025. The additional pre-tax period costs associated with dismantlement and site restoration activities, including related costs for compliance and safety, ARO accretion, and property taxes, net of salvage, are estimated to total $3 million for the remainder of 2020 and $10 million to $15 million annually for 2021 through 2025.
In December 2019, Mississippi Power transferred ownership of the CO2 pipeline to an unrelated gas pipeline company, with no resulting impact on income. In conjunction with the transfer of the CO2 pipeline, the parties agreed to enter into a 15-year firm transportation agreement, which is expected to be signed by the end of 2020, providing for the conversion by the pipeline company of the CO2 pipeline to a natural gas pipeline to be used for the delivery of natural gas to Plant Ratcliffe. The agreement is expected to be treated as a finance lease for accounting purposes upon commencement.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
On September 3, 2020, Mississippi Power and Southern Company executed an agreement with the DOE completing Mississippi Power's request for property closeout certification under the contract related to the DOE grants received for the Kemper County energy facility, which enables Mississippi Power to proceed with full dismantlement of the abandoned gasifier-related assets and site restoration activities. The execution of the agreement had no material impact on Mississippi Power's financial statements. In connection with the DOE closeout discussions, in April 2019, the Civil Division of the Department of Justice informed Southern Company and Mississippi Power of an investigation related to the $387 million of DOE grants received. The ultimate outcome of this matter cannot be determined at this time; however, it could have a material impact on Southern Company's and Mississippi Power's financial statements.
Plant Daniel
In conjunction with Southern Company's sale of Gulf Power, Mississippi Power and Gulf Power agreed to seek a restructuring of their 50% undivided ownership interests in Plant Daniel such that each of them would, after the restructuring, own 100% of a generating unit. On April 24, 2020, Mississippi Power and Gulf Power amended the terms of the agreement to extend the deadline from May 1, 2020 to August 1, 2020 for Mississippi Power to notify Gulf Power of which generating unit it has selected for 100% ownership. The parties agreed not to select a specific unit by August 1, 2020 and are continuing negotiations on a mutually acceptable revised operating agreement. The impacts of operating the units on an individual basis continue to be evaluated by Mississippi Power and any transfer of ownership would be subject to approval by the FERC and the Mississippi PSC.March 2022. The ultimate outcome of this matter cannot be determined at this time.
ACCOUNTING POLICIES
See MANAGEMENT'S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES in Item 7 of the Form 10-K for a complete discussion of the Registrants' critical accounting policies and estimates, as well as recently issued accounting standards.
Application of Critical Accounting Policies and Estimates
The Registrants prepare their financial statements in accordance with GAAP. Significant accounting policies are described in the notes to the financial statements in Item 8 of the Form 10-K. In the application of these policies, certain estimates are made that may have a material impact on the Registrants' results of operations and related disclosures. Different assumptions and measurements could produce estimates that are significantly different from those recorded in the financial statements. See MANAGEMENT'S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES – "Application of Critical Accounting Policies and Estimates" in Item 7 of the Form 10-K for a complete discussion of the Registrants' critical accounting policies and estimates.
Estimated Cost, Schedule, and Rate Recovery for the Construction of Plant Vogtle Units 3 and 4
(Southern Company and Georgia Power)
InFollowing milestone extensions in January 2021, Southern Nuclear has been performing additional construction remediation work necessary to ensure quality and design standards are met as system turnovers are completed to support hot functional testing and fuel load for Unit 3. Hot functional testing for Unit 3 was completed in July 2021. As a result of challenges including, but not limited to, construction productivity, construction remediation work, the pace of system turnovers, spent fuel pool repairs, and the timeframe and duration for hot functional and other testing, at the end of the second quarter 2018,2021, Southern Nuclear further extended certain milestone dates, including the fuel load for Unit 3, from those established in January 2021. The site work plan currently targets fuel load for Unit 3 in the fourth quarter 2021 and an in-service date of March 2022. As the site work plan includes minimal margin to these milestone dates, an in-service date in the second quarter 2022 for Unit 3 is projected, although any further delays could result in a later in-service date.
As the result of productivity challenges, at the end of the second quarter 2021, Southern Nuclear also further extended milestone dates for Unit 4 from those established in January 2021. The site work plan targets an in-service date of November 2022 and primarily depends on overall construction productivity and production levels significantly improving as well as appropriate levels of craft laborers, particularly electricians and pipefitters, being
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
added and maintained. As the site work plan includes minimal margin to the milestone dates, an in-service date in the first quarter 2023 for Unit 4 is projected, although any further delays could result in a later in-service date.
As of March 31, 2021, approximately $84 million of the construction contingency established in the fourth quarter 2020 was assigned to the base capital cost forecast for costs primarily associated with the schedule extension for Unit 3 to December 2021, construction productivity, support resources, and construction remediation work. Georgia Power increased its total capital cost forecast as of March 31, 2021 by adding $48 million to the remaining construction contingency. Considering the factors above, during the second quarter 2021, all of the remaining construction contingency previously established and an additional $341 million was assigned to the base capital cost forecast for costs primarily associated with the schedule extensions for Units 3 and 4 described above, construction remediation work for Unit 3, and construction productivity and support resources for Units 3 and 4. Georgia Power also increased its total capital cost forecast as of June 30, 2021 by adding $119 million to replenish construction contingency. Georgia Power's revised its base capital cost forecast and contingency to complete construction and start-up of Plant Vogtle Units 3 and 4 to $8.0is $9.10 billion and $0.4$0.12 billion, respectively, for a total project capital cost forecast of $8.4$9.22 billion (net of $1.7 billion received under the Guarantee Settlement Agreement and approximately $188 million in related customer refunds). Through the second quarter 2020, assignments of construction contingency to the base capital cost forecast exceeded the amount originally established in the second quarter 2018 by approximately $34 million. As a result, Georgia Power established $115 million of additional construction contingency as of June 30, 2020.
After considering the significant level of uncertainty that exists regarding the future recoverability of these costs since the ultimate outcome of these matters is subject to the outcome of future assessments by management, as well as Georgia PSC decisions in these future regulatory proceedings, Georgia Power recorded a total pre-tax chargecharges to income of $1.1 billion ($0.8 billion after tax) in the first quarter 2021 and the second quarter 2018 and a total pre-tax charge to income2021 of $149$48 million ($11136 million after tax) and $460 million ($343 million after tax), respectively, for the increases in the second quarter 2020.
In July 2020, Southern Nuclear updated its aggressive site work plan for both Unit 3total project capital cost forecast. As and Unit 4. In October 2020, Southern Nuclear further extended milestone dates from the July 2020 aggressive site work plan. Achievement ofwhen these extended milestone dates depends on absenteeism rates continuing to normalize and overall construction productivity and production levels, including subcontractors, significantly improving and being sustained above
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
pre-pandemic levels. In addition, appropriate levels of craft laborers, particularly electrical and pipefitter craft labor, need to be added and maintained.amounts are spent, Georgia Power still expectsmay request the Georgia PSC to achieve the regulatory-approved in-service dates of November 2021 and November 2022evaluate those expenditures for Plant Vogtle Units 3 and 4, respectively. The continuing effects of the COVID-19 pandemic and other factors could further disrupt or delay construction, testing, supervisory, and support activities at Plant Vogtle Units 3 and 4.rate recovery.
The ultimate impact of these matters on the construction schedule and budget for Plant Vogtle Units 3 and 4 cannot be determined at this time. See Note (B) to the Condensed Financial Statements under "Nuclear"Georgia Power – Nuclear Construction" herein for additional information.
Recently Issued Accounting Standards
On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04) providing temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of LIBOR, which is currently expected to occur on December 31, 2021. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The new guidance provides the following optional expedients: (i) simplifies accounting analyses under current GAAP for contract modifications; (ii) simplifies the assessment of hedge effectiveness and allows hedging relationships affected by reference rate reform to continue; and (iii) allows a one-time election to sell or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform. An entity may elect to apply the amendments prospectively from March 12, 2020 through December 31, 2022 by accounting topic.
The Registrants currently reference LIBOR for certain debt and hedging arrangements. Contract language has been, or is expected to be, incorporated into each of these agreements to address the transition to an alternative rate for agreements that will be in place at the transition date. While existing effective hedging relationships are expected to continue, the Registrants will continue to evaluate the provisions of ASU 2020–04 and the impacts of transitioning to an alternative rate. The ultimate outcome of the transition cannot be determined at this time, but is not expected to have a material impact on the Registrants' financial statements. See FINANCIAL CONDITION AND LIQUIDITY – "Financing Activities" herein and Note (J) to the Condensed Financial Statements under "Interest Rate Derivatives" herein for additional information.
FINANCIAL CONDITION AND LIQUIDITY
Overview
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Overview" in Item 7 of the Form 10-K for additional information. The financial condition of each Registrant remained stable at SeptemberJune 30, 2020. The Registrants have maintained adequate access to capital throughout 2020, including through a period of volatility in the short-term financial markets during the first quarter. As a precautionary measure, in the first quarter 2020, Southern Company, Georgia Power, Mississippi Power, and Southern Company Gas increased their outstanding short-term debt while also increasing cash and cash equivalents by taking actions such as entering into new bank term loans, entering into and funding new committed and uncommitted credit facilities, and funding existing uncommitted credit facilities. During the third quarter 2020, most of these additional borrowings were repaid. No material changes occurred in the terms of the applicable Registrants' bank credit arrangements or their interest expense on short-term debt as a result of these actions.
The Registrants have experienced no material counterparty credit losses as a result of the volatility in the financial markets.2021. The Registrants intend to continue to monitor their access to short-term and long-term capital markets as well as their bank credit arrangements to meet future capital and liquidity needs. The impact on future financing costs as a result of continued financial market volatility cannot be determined at this time. See "Capital"Cash Requirements, and Contractual Obligations," "Sources of Capital," and "Financing Activities" herein and Note (K) to the Condensed Financial Statements herein for additional information.
At the end of the second quarter 2021, the market price of Southern Company's common stock was $60.51 per share (based on the closing price as reported on the NYSE) and the book value was $26.63 per share, representing a market-to-book ratio of 227%, compared to $61.43, $26.48, and 232%, respectively, at the end of 2020. Southern Company's common stock dividend for the second quarter 2021 was $0.66 per share compared to $0.64 per share in the second quarter 2020.
Cash Requirements
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Cash Requirements" in Item 7 of the Form 10-K for a description of the Registrants' significant cash requirements.
The Registrants' significant cash requirements include estimated capital expenditures associated with their construction programs. The construction programs are subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; changes in environmental laws and regulations; the outcome of any legal challenges to environmental rules; changes in electric generating plants, including unit retirements and
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Atreplacements and adding or changing fuel sources at existing electric generating units, to meet regulatory requirements; changes in FERC rules and regulations; state regulatory agency approvals; changes in the endexpected environmental compliance program; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; project scope and design changes; abnormal weather; delays in construction due to judicial or regulatory action; storm impacts; and the cost of capital. The continued impacts of the third quarter 2020,COVID-19 pandemic could also impair the ability to develop, construct, and operate facilities, as discussed further in Item 1A of the Form 10-K. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Additionally, expenditures associated with Southern Power's planned acquisitions may vary due to market priceopportunities and the execution of its growth strategy. See Note 15 to the financial statements in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements herein under "Southern Power" for additional information regarding Southern Power's plant acquisitions and construction projects.
The construction program of Georgia Power includes Plant Vogtle Units 3 and 4, which includes components based on new technology that only within the last few years began initial operation in the global nuclear industry at this scale and which may be subject to additional revised cost estimates during construction. See Note 2 to the financial statements in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein under "Georgia Power – Nuclear Construction" for information regarding Plant Vogtle Units 3 and 4 and additional factors that may impact construction expenditures.
Long-term debt maturities and the interest payable on long-term debt each represent a significant cash requirement for the Registrants. See "Financing Activities" herein for information on changes in the Registrants' long-term debt balances since December 31, 2020.
Sources of Capital
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" in Item 7 of the Form 10-K for additional information. Southern Company intends to meet its future capital needs through operating cash flows, borrowings from financial institutions, and debt and equity issuances. Equity capital can be provided from any combination of Southern Company's common stock was $54.22 per share (basedplans, private placements, or public offerings. Southern Company does not expect to issue any equity in the capital markets through 2025 but may issue equity through its stock plans during this time. See Note 8 to the financial statements under "Equity Units" in Item 8 of the Form 10-K for information on stock purchase contracts associated with Southern Company's equity units.
The Subsidiary Registrants plan to obtain the closing pricefunds to meet their future capital needs from sources similar to those they used in the past, which were primarily from operating cash flows, external securities issuances, borrowings from financial institutions, and equity contributions from Southern Company. In addition, Georgia Power plans to utilize borrowings from the FFB (as discussed further in Note 8 to the financial statements under "Long-term Debt – DOE Loan Guarantee Borrowings" in Item 8 of the Form 10-K) and Southern Power plans to utilize tax equity partnership contributions (as discussed further herein).
The amount, type, and timing of any financings in 2021, as reportedwell as in subsequent years, will be contingent on the NYSE)investment opportunities and the book value was $26.78 per share, representing a market-to-book ratioRegistrants' capital requirements and will depend upon prevailing market conditions, regulatory approvals (for certain of 202%the Subsidiary Registrants), comparedand other factors. See "Cash Requirements" and "Financing Activities" herein for additional information.
Southern Power utilizes tax equity partnerships as one of its financing sources, where the tax partner takes significantly all of the federal tax benefits. These tax equity partnerships are consolidated in Southern Power's financial statements and are accounted for using HLBV methodology to $63.70, $26.11,allocate partnership gains and 244%, respectively, at the end of 2019.losses. In March 2021, Southern Company's common stock dividendPower obtained tax equity funding for the third quarter 2020 was $0.64 per share comparedDeuel Harvest wind facility and received proceeds of $220 million. In addition, during the first six months of 2021, Southern Power received tax equity funding totaling $17 million from existing partnerships. Subsequent to $0.62 per shareJune 30, 2021, Southern Power obtained tax equity funding for the Garland battery energy storage facility and received initial proceeds of $11 million. See Note 1 to
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
the financial statements under "General" in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements under "Southern Power" herein for additional information.
By regulation, Nicor Gas is restricted, to the extent of its retained earnings balance, in the third quarter 2019.amount it can dividend or loan to affiliates and is not permitted to make money pool loans to affiliates. At June 30, 2021, the amount of subsidiary retained earnings restricted to dividend totaled $1.1 billion. This restriction did not impact Southern Company Gas' ability to meet its cash obligations, nor does management expect such restriction to materially impact Southern Company Gas' ability to meet its currently anticipated cash obligations.
Certain Registrants' current liabilities frequently exceed their current assets because of long-term debt maturities and the periodic use of short-term debt as a funding source, as well as significant seasonal fluctuations in cash needs. The Registrants generally plan to refinance long-term debt as it matures. The following table shows the amount by which current liabilities exceeded current assets at June 30, 2021 for the applicable Registrants:
| | | | | | | | | | | | | | | | | | |
At June 30, 2021 | Southern Company | | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas |
| (in millions) |
Current liabilities in excess of current assets | $ | 2,109 | | | $ | 1,438 | | $ | 20 | | $ | 720 | | $ | 477 | |
The Registrants believe the need for working capital can be adequately met by utilizing operating cash flows, as well as commercial paper, lines of credit, and short-term bank notes, as market conditions permit. In addition, under certain circumstances, the Subsidiary Registrants may utilize equity contributions and/or loans from Southern Company.
Bank Credit Arrangements
At June 30, 2021, the Registrants' unused committed credit arrangements with banks were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
At June 30, 2021 | Southern Company parent | Alabama Power | Georgia Power | Mississippi Power | Southern Power(a) | Southern Company Gas(b) | SEGCO | Southern Company |
| (in millions) |
Unused committed credit | $ | 1,999 | | $ | 1,228 | | $ | 1,728 | | $ | 250 | | $ | 568 | | $ | 1,747 | | $ | 30 | | $ | 7,550 | |
(a)At June 30, 2021, Southern Power also had two continuing letters of credit facilities for standby letters of credit, of which $24 million was unused. Southern Power's subsidiaries are not parties to its bank credit arrangements or letter of credit facilities.
(b)Includes $1.047 billion and $700 million at Southern Company Gas Capital and Nicor Gas, respectively.
Subject to applicable market conditions, the Registrants, Nicor Gas, and SEGCO expect to renew or replace their bank credit arrangements as needed, prior to expiration. In connection therewith, the Registrants, Nicor Gas, and SEGCO may extend the maturity dates and/or increase or decrease the lending commitments thereunder.
A portion of the unused credit with banks is allocated to provide liquidity support to the revenue bonds of the traditional electric operating companies and the commercial paper programs of the Registrants, Nicor Gas, and SEGCO. The amount of variable rate revenue bonds of the traditional electric operating companies outstanding requiring liquidity support at June 30, 2021 was approximately $1.4 billion (comprised of approximately $854 million at Alabama Power, $550 million at Georgia Power, and $34 million at Mississippi Power). In addition, at June 30, 2021, Georgia Power and Mississippi Power had approximately $105 million and $50 million, respectively, of fixed rate revenue bonds outstanding that are required to be remarketed within the next 12 months.
See Note 8 to the financial statements in Item 8 of the Form 10-K and Note (F) to the Condensed Financial Statements herein under "Bank Credit Arrangements" for additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Short-term Borrowings
The Registrants, Nicor Gas, and SEGCO make short-term borrowings primarily through commercial paper programs that have the liquidity support of the committed bank credit arrangements described above. Southern Power's subsidiaries are not issuers or obligors under its commercial paper program. Commercial paper and short-term bank term loans are included in notes payable in the balance sheets. Details of the Registrants' short-term borrowings were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Short-term Debt at June 30, 2021 | | Short-term Debt During the Period(*) |
| Amount Outstanding | | Weighted Average Interest Rate | | Average Amount Outstanding | | Weighted Average Interest Rate | | Maximum Amount Outstanding |
| (in millions) | | | | (in millions) | | | | (in millions) |
Southern Company | $ | 1,402 | | | 0.3 | % | | $ | 990 | | | 0.3 | % | | $ | 1,621 | |
Alabama Power | — | | | — | | | 50 | | | 0.1 | | | 200 | |
Georgia Power | 310 | | | 0.2 | | | 183 | | | 0.2 | | | 407 | |
Mississippi Power | — | | | — | | | 39 | | | 0.2 | | | 81 | |
Southern Power | 119 | | | 0.2 | | | 152 | | | 0.2 | | | 315 | |
Southern Company Gas: | | | | | | | | | |
Southern Company Gas Capital | $ | 444 | | | 0.2 | % | | $ | 85 | | | 0.2 | % | | $ | 485 | |
Nicor Gas | 390 | | | 0.5 | | | 396 | | | 0.5 | | | 512 | |
Southern Company Gas Total | $ | 834 | | | 0.3 | % | | $ | 481 | | | 0.5 | % | | |
(*)Average and maximum amounts are based upon daily balances during the three-month period ended June 30, 2021.
Analysis of Cash Flows
Net cash flows provided from (used for) operating, investing, and financing activities for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 are presented in the following table:
| Net cash provided from (used for): | Net cash provided from (used for): | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas | Net cash provided from (used for): | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas |
| | (in millions) | | (in millions) |
Nine Months Ended September 30, 2020 | | |
Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 | |
Operating activities | Operating activities | $ | 5,220 | | $ | 1,229 | | $ | 2,125 | | $ | 186 | | $ | 774 | | $ | 1,122 | | Operating activities | $ | 2,904 | | $ | 584 | | $ | 1,313 | | $ | 41 | | $ | 411 | | $ | 722 | |
Investing activities | Investing activities | (4,892) | | (1,591) | | (2,526) | | (200) | | 424 | | (973) | | Investing activities | (4,026) | | (893) | | (1,730) | | (117) | | (601) | | (668) | |
Financing activities | Financing activities | 1,077 | | 505 | | 867 | | (214) | | (1,060) | | (37) | | Financing activities | 1,671 | | 506 | | 457 | | 515 | | 196 | | (25) | |
| Nine Months Ended September 30, 2019 | | |
Six Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | |
Operating activities | Operating activities | $ | 4,881 | | $ | 1,471 | | $ | 2,365 | | $ | 242 | | $ | 1,221 | | $ | 1,049 | | Operating activities | $ | 2,847 | | $ | 674 | | $ | 1,124 | | $ | 71 | | $ | 195 | | $ | 1,046 | |
Investing activities | Investing activities | (1,073) | | (1,439) | | (2,793) | | (198) | | 36 | | (989) | | Investing activities | (2,655) | | (783) | | (1,659) | | (145) | | 490 | | (570) | |
Financing activities | Financing activities | (2,392) | | 992 | | 765 | | (69) | | (1,070) | | (68) | | Financing activities | (285) | | 116 | | 869 | | (178) | | (808) | | (401) | |
Fluctuations in cash flows from financing activities vary from year to year based on capital needs and the maturity or redemption of securities.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Southern Company
Net cash provided from operating activities increased $0.3$0.1 billion for the ninesix months ended SeptemberJune 30, 20202021 as compared to the corresponding period in 20192020 primarily due to the timing of vendor payments as well as lower income tax payments, partially offset by the timing of receivable collections and customer bill credits issued in 2020 at Georgia Power, partially offset by Alabama Powerunder recovered natural gas costs at Southern Company Gas resulting from Winter Storm Uri and Georgia Power. See Note 2 todecreased fuel cost recovery at the financial statements under "Alabama Power" and "Georgia Power"traditional electric operating companies resulting from an increase in Item 8the cost of the Form 10-K for additional information.fuel.
The net cash used for investing activities for the ninesix months ended SeptemberJune 30, 20202021 was primarily duerelated to the Subsidiary Registrants' construction programs, partially offset by proceeds from the sale transactions described in Note (K) to the Condensed Financial Statements herein.programs.
The net cash provided from financing activities for the ninesix months ended SeptemberJune 30, 20202021 was primarily duerelated to net issuances of long-term debt, commercial paper, and short-term bank loans, partially offset by common stock dividend payments and net repayments of short-term bank debt and commercial paper.payments.
Alabama Power
Net cash provided from operating activities decreased $242$90 million for the ninesix months ended SeptemberJune 30, 20202021 as compared to the corresponding period in 20192020 primarily due to the timing of income tax payments and decreased fuel cost recovery, partially offset by an increase in retail revenues associated with an increase in Rate RSE effective in January 2021 and colder weather in Alabama Power's service territory in the first quarter 2021 compared to the corresponding period in 2020, as well as the timing of fossil fuel stock purchases.
The net cash used for investing activities for the six months ended June 30, 2021 was primarily related to ARO settlements,gross property additions.
The net cash provided from financing activities for the six months ended June 30, 2021 was primarily related to a capital contribution from Southern Company and the net issuance of senior notes, partially offset by common stock dividend payments.
Georgia Power
Net cash provided from operating activities increased $189 million for the six months ended June 30, 2021 as compared to the corresponding period in 2020 primarily due to customer bill credits issued in 2020 associated with Tax Reform and 2018 earnings in excess of the allowed retail ROE range and the timing of fossil fuel stock purchases and vendor payments, partially offset by decreased fuel cost recovery.
The net cash used for investing activities for the six months ended June 30, 2021 was primarily related to gross property additions, including a total of materialsapproximately $640 million related to the construction of Plant Vogtle Units 3 and supplies, and Rate RSE customer refunds.4. See Note 2 to the financial statements under "Alabama Power – Rate RSE" in Item 8 of the Form 10-K and Note (A)(B) to the Condensed Financial Statements under "Asset Retirement Obligations""Georgia Power – Nuclear Construction" herein for additional information.information on construction of Plant Vogtle Units 3 and 4.
The net cash provided from financing activities for the six months ended June 30, 2021 was primarily related to net issuances of senior notes, borrowings from the FFB for construction of Plant Vogtle Units 3 and 4, capital contributions from Southern Company, and an increase in notes payable, partially offset by common stock dividend payments.
Mississippi Power
Net cash provided from operating activities decreased $30 million for the six months ended June 30, 2021 as compared to the corresponding period in 2020 primarily due to decreased fuel cost recovery and the timing of vendor payments.
The net cash used for investing activities for the six months ended June 30, 2021 was primarily related to gross property additions.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The net cash used for investing activities for the nine months ended September 30, 2020 was primarily due to gross property additions.
The net cash provided from financing activities for the ninesix months ended SeptemberJune 30, 20202021 was primarily duerelated to the issuance of senior notes and capital contributions from Southern Company, and a long-term debt issuance, partially offset by common stock dividend payments.
Georgia Power
Net cash provided from operating activities decreased $240 million for the nine months ended September 30, 2020 as compared to the corresponding period in 2019 primarily due to higher income tax payments and customer bill credits issued in 2020 associated with Tax Reform and 2018 earnings in excess of the allowed retail ROE range, partially offset by the timing of vendor payments. See Note 2 to the financial statements under "Georgia Power – Rate Plans" in Item 8 of the Form 10-K for additional information.
The net cash used for investing activities for the nine months ended September 30, 2020 was primarily due to gross property additions, including approximately $1.0 billion related to the construction of Plant Vogtle Units 3 and 4. See FUTURE EARNINGS POTENTIAL – "Construction Programs – Nuclear Construction" herein for additional information on construction of Plant Vogtle Units 3 and 4.
The net cash provided from financing activities for the nine months ended September 30, 2020 was primarily due to capital contributions from Southern Company, net issuances of senior notes, and borrowings from the FFB for construction of Plant Vogtle Units 3 and 4, partially offset by common stock dividend payments and net repayment of short-terma decrease in commercial paper borrowings.
Mississippi Power
Net cash provided from operating activities decreased $56 million for the nine months ended September 30, 2020 as compared to the corresponding period in 2019 primarily due to the timing of vendor payments, decreased fuel cost recovery, and higher income tax payments.
The net cash used for investing activities for the nine months ended September 30, 2020 was primarily due to gross property additions.
The net cash used for financing activities for the nine months ended September 30, 2020 was primarily due to the repayment of senior notes at maturity, redemption of pollution control revenue bonds, and repayment of short-term borrowings, partially offset by debt issuances and capital contributions from Southern Company.
Southern Power
Net cash provided from operating activities decreased $447increased $216 million for the ninesix months ended SeptemberJune 30, 20202021 as compared to the corresponding period in 20192020 primarily due to a reductionan increase in the utilization of tax credits in 2020.2021.
The net cash provided fromused for investing activities for the ninesix months ended SeptemberJune 30, 20202021 was primarily duerelated to proceeds from the disposition of Plant Mankato, partially offset by the acquisition of the Beech Ridge IIDeuel Harvest wind facility and ongoing construction activities. See Note (K) to the Condensed Financial StatementStatements under "Southern Power" herein for additional information.
The net cash provided from financing activities for the six months ended June 30, 2021 was primarily related to the issuance of senior notes and net capital contributions from noncontrolling interests, partially offset by a return of capital to Southern Company and common stock dividend payments.
Southern Company Gas
Net cash provided from operating activities decreased $324 million for the six months ended June 30, 2021 as compared to the corresponding period in 2020 primarily due to natural gas cost under recovery, reflecting an increase in the cost of gas purchased during Winter Storm Uri, and the timing of customer receivable collections, partially offset by the timing of vendor payments.
The net cash used for investing activities for the six months ended June 30, 2021 was primarily related to construction of transportation and distribution assets recovered through base rates and infrastructure investment recovered through replacement programs at gas distribution operations.
The net cash used for financing activities for the ninesix months ended SeptemberJune 30, 20202021 was primarily duerelated to net repayments of short-term bank debt and commercial paper, the repayment of senior notes at maturity, distributions to non-controlling interests,long-term debt and common stock dividend payments, partiallylargely offset by the issuance of short-term debt, an increase in commercial paper borrowings, and capital contributions from non-controlling interests.Southern Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Southern Company Gas
Net cash provided from operating activities increased $73 million for the nine months ended September 30, 2020 as compared to the corresponding period in 2019 primarily due to the timing of vendor payments, partially offset by the timing of customer receivable collections.
The net cash used for investing activities for the nine months ended September 30, 2020 was primarily due to construction of transportation and distribution assets recovered through base rates and infrastructure investments recovered through replacement programs at gas distribution operations and capital contributed to equity method investments, partially offset by proceeds from the sale of interests in Pivotal LNG and Atlantic Coast Pipeline. See Note (K) to the Condensed Financial Statements under "Southern Company Gas" herein for additional information.
The net cash used for financing activities for the nine months ended September 30, 2020 was primarily due to net repayments of short-term borrowings and common stock dividend payments, partially offset by debt issuances and capital contributions from Southern Company.
Significant Balance Sheet ChangesSources of Capital
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" in Item 7 of the Form 10-K for additional information. Southern Company
Significant balance sheet changes for intends to meet its future capital needs through operating cash flows, borrowings from financial institutions, and debt and equity issuances. Equity capital can be provided from any combination of Southern Company's stock plans, private placements, or public offerings. Southern Company does not expect to issue any equity in the nine months ended September 30, 2020 included:
•an increase of $5.2 billion in long-term debt (including amounts due within one year) related to new issuances;
•an increase of $3.3 billion in total property, plant, and equipment primarily relatedcapital markets through 2025 but may issue equity through its stock plans during this time. See Note 8 to the Subsidiary Registrants' construction programs;
•a decreasefinancial statements under "Equity Units" in Item 8 of $1.9 billion in notes payable related to net repayments of short-term bank debt and commercial paper;
•an increase of $1.4 billion in cash and cash equivalents primarily related tothe Form 10-K for information on stock purchase contracts associated with Southern Company's redemption of $1.0 billion of junior subordinated notesequity units.
The Subsidiary Registrants plan to obtain the funds to meet their future capital needs from sources similar to those they used in October 2020;
•increases of $0.9 billionthe past, which were primarily from operating cash flows, external securities issuances, borrowings from financial institutions, and $0.8 billion in AROs and regulatory assets associated with AROs, respectively, primarily related to cost estimate updates at Alabama Power andequity contributions from Southern Company. In addition, Georgia Power for ash pond facilities;
•a decrease of $0.8 billionplans to utilize borrowings from the FFB (as discussed further in assets held for sale relatedNote 8 to the completionfinancial statements under "Long-term Debt – DOE Loan Guarantee Borrowings" in Item 8 of Southern Power's sale of Plant Mankatothe Form 10-K) and Southern Company Gas' salePower plans to utilize tax equity partnership contributions (as discussed further herein).
The amount, type, and timing of its interestsany financings in Pivotal LNG2021, as well as in subsequent years, will be contingent on investment opportunities and Atlantic Coast Pipeline;the Registrants' capital requirements and
•an increase will depend upon prevailing market conditions, regulatory approvals (for certain of $0.5 billion in accumulated deferred income taxes related to the utilization of tax credits in 2020.
Subsidiary Registrants), and other factors. See "Cash Requirements" and "Financing Activities" herein and Notes (A) and (K) to the Condensed Financial Statements herein for additional information.
AlabamaSouthern Power
Significant balance sheet changes utilizes tax equity partnerships as one of its financing sources, where the tax partner takes significantly all of the federal tax benefits. These tax equity partnerships are consolidated in Southern Power's financial statements and are accounted for using HLBV methodology to allocate partnership gains and losses. In March 2021, Southern Power obtained tax equity funding for the nineDeuel Harvest wind facility and received proceeds of $220 million. In addition, during the first six months ended Septemberof 2021, Southern Power received tax equity funding totaling $17 million from existing partnerships. Subsequent to June 30, 2020 included:
•an increase2021, Southern Power obtained tax equity funding for the Garland battery energy storage facility and received initial proceeds of $960 million in common stockholder's equity primarily due$11 million. See Note 1 to capital contributions from Southern Company;
•an increase of $949 million in total property, plant, and equipment primarily related to the Autauga Combined Cycle Acquisition, construction of distribution and transmission facilities, and the installation of equipment to comply with environmental standards;
•an increase of $597 million in long-term debt (including securities due within one year) primarily due to an increase in outstanding senior notes; and
•increases of $456 million and $418 million in regulatory assets associated with AROs and AROs, respectively, primarily related to cost estimate updates for certain ash pond facilities.
See "Financing Activities – Alabama Power" herein and Notes (A) and (K) to the Condensed Financial Statements under "Asset Retirement Obligations" and "Alabama Power," respectively, herein for additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Georgia Power
Significant balance sheet changes for the nine months ended September 30, 2020 included:
•an increase of $1.7 billionfinancial statements under "General" in total property, plant, and equipment primarily related to the construction of generation, transmission, and distribution facilities;
•an increase of $1.6 billion in common stockholder's equity primarily due to capital contributions from Southern Company;
•an increase of $1.0 billion in long-term debt (including securities due within one year) primarily due to a net increase in outstanding senior notes and borrowings from the FFB for construction of Plant Vogtle Units 3 and 4; and
•increases of $468 million and $397 million in AROs and regulatory assets associated with AROs, respectively, primarily due to cost estimate updates for ash pond closures.
See "Financing Activities – Georgia Power" herein and Notes (A) and (B) to the Condensed Financial Statements under "Asset Retirement Obligations" and "Georgia Power – Nuclear Construction," respectively, herein for additional information.
Mississippi Power
Significant balance sheet changes for the nine months ended September 30, 2020 included:
•a decrease of $228 million in cash and cash equivalents and a decrease of $187 million in long-term debt (including amounts due within one year) primarily related to the repayment of senior notes at maturity;
•an increase of $108 million in common stockholder's equity primarily from net income and capital contributions from Southern Company, partially offset by dividends paid to Southern Company; and
•a decrease of $53 million in deferred credits related to income taxes due to reclassifying certain amounts to other regulatory liabilities, current for the expected flowback of excess deferred income taxes.
See "Financing Activities – Mississippi Power" herein for additional information.
Southern Power
Significant balance sheet changes for the nine months ended September 30, 2020 included:
•a decrease of $618 million in assets held for sale (of which $17 million related to current assets) due to completionItem 8 of the sale of Plant Mankato;
•a decrease of $549 million in notes payable due to net repayments of short-term bank debt and commercial paper;
•an increase of $330 million in property, plant, and equipment in service and a decrease of $180 million in construction work in progress primarily due to wind facilities acquired or placed in service;
•a decrease of $320 million in accumulated deferred income tax assets primarily related to the utilization of tax credits in 2020; and
•a decrease of $299 million in securities due within one year primarily related to the maturity of senior notes.
See FUTURE EARNINGS POTENTIAL – "Tax Matters" herein, "Financing Activities – Southern Power" herein,Form 10-K and Note (K) to the Condensed Financial Statements under "Southern Power" herein for additional information.
By regulation, Nicor Gas is restricted, to the extent of its retained earnings balance, in the amount it can dividend or loan to affiliates and is not permitted to make money pool loans to affiliates. At June 30, 2021, the amount of subsidiary retained earnings restricted to dividend totaled $1.1 billion. This restriction did not impact Southern Company Gas' ability to meet its cash obligations, nor does management expect such restriction to materially impact Southern Company Gas' ability to meet its currently anticipated cash obligations.
Certain Registrants' current liabilities frequently exceed their current assets because of long-term debt maturities and the periodic use of short-term debt as a funding source, as well as significant seasonal fluctuations in cash needs. The Registrants generally plan to refinance long-term debt as it matures. The following table shows the amount by which current liabilities exceeded current assets at June 30, 2021 for the applicable Registrants:
| | | | | | | | | | | | | | | | | | |
At June 30, 2021 | Southern Company | | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas |
| (in millions) |
Current liabilities in excess of current assets | $ | 2,109 | | | $ | 1,438 | | $ | 20 | | $ | 720 | | $ | 477 | |
The Registrants believe the need for working capital can be adequately met by utilizing operating cash flows, as well as commercial paper, lines of credit, and short-term bank notes, as market conditions permit. In addition, under certain circumstances, the Subsidiary Registrants may utilize equity contributions and/or loans from Southern Company.
Bank Credit Arrangements
At June 30, 2021, the Registrants' unused committed credit arrangements with banks were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
At June 30, 2021 | Southern Company parent | Alabama Power | Georgia Power | Mississippi Power | Southern Power(a) | Southern Company Gas(b) | SEGCO | Southern Company |
| (in millions) |
Unused committed credit | $ | 1,999 | | $ | 1,228 | | $ | 1,728 | | $ | 250 | | $ | 568 | | $ | 1,747 | | $ | 30 | | $ | 7,550 | |
(a)At June 30, 2021, Southern Power also had two continuing letters of credit facilities for standby letters of credit, of which $24 million was unused. Southern Power's subsidiaries are not parties to its bank credit arrangements or letter of credit facilities.
(b)Includes $1.047 billion and $700 million at Southern Company Gas Capital and Nicor Gas, respectively.
Subject to applicable market conditions, the Registrants, Nicor Gas, and SEGCO expect to renew or replace their bank credit arrangements as needed, prior to expiration. In connection therewith, the Registrants, Nicor Gas, and SEGCO may extend the maturity dates and/or increase or decrease the lending commitments thereunder.
A portion of the unused credit with banks is allocated to provide liquidity support to the revenue bonds of the traditional electric operating companies and the commercial paper programs of the Registrants, Nicor Gas, and SEGCO. The amount of variable rate revenue bonds of the traditional electric operating companies outstanding requiring liquidity support at June 30, 2021 was approximately $1.4 billion (comprised of approximately $854 million at Alabama Power, $550 million at Georgia Power, and $34 million at Mississippi Power). In addition, at June 30, 2021, Georgia Power and Mississippi Power had approximately $105 million and $50 million, respectively, of fixed rate revenue bonds outstanding that are required to be remarketed within the next 12 months.
See Note 8 to the financial statements in Item 8 of the Form 10-K and Note (F) to the Condensed Financial Statements herein under "Bank Credit Arrangements" for additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Short-term Borrowings
The Registrants, Nicor Gas, and SEGCO make short-term borrowings primarily through commercial paper programs that have the liquidity support of the committed bank credit arrangements described above. Southern Power's subsidiaries are not issuers or obligors under its commercial paper program. Commercial paper and short-term bank term loans are included in notes payable in the balance sheets. Details of the Registrants' short-term borrowings were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Short-term Debt at June 30, 2021 | | Short-term Debt During the Period(*) |
| Amount Outstanding | | Weighted Average Interest Rate | | Average Amount Outstanding | | Weighted Average Interest Rate | | Maximum Amount Outstanding |
| (in millions) | | | | (in millions) | | | | (in millions) |
Southern Company | $ | 1,402 | | | 0.3 | % | | $ | 990 | | | 0.3 | % | | $ | 1,621 | |
Alabama Power | — | | | — | | | 50 | | | 0.1 | | | 200 | |
Georgia Power | 310 | | | 0.2 | | | 183 | | | 0.2 | | | 407 | |
Mississippi Power | — | | | — | | | 39 | | | 0.2 | | | 81 | |
Southern Power | 119 | | | 0.2 | | | 152 | | | 0.2 | | | 315 | |
Southern Company Gas: | | | | | | | | | |
Southern Company Gas Capital | $ | 444 | | | 0.2 | % | | $ | 85 | | | 0.2 | % | | $ | 485 | |
Nicor Gas | 390 | | | 0.5 | | | 396 | | | 0.5 | | | 512 | |
Southern Company Gas Total | $ | 834 | | | 0.3 | % | | $ | 481 | | | 0.5 | % | | |
(*)Average and maximum amounts are based upon daily balances during the three-month period ended June 30, 2021.
Analysis of Cash Flows
Net cash flows provided from (used for) operating, investing, and financing activities for the six months ended June 30, 2021 and 2020 are presented in the following table:
| | | | | | | | | | | | | | | | | | | | |
Net cash provided from (used for): | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas |
| (in millions) |
Six Months Ended June 30, 2021 | | | | | | |
Operating activities | $ | 2,904 | | $ | 584 | | $ | 1,313 | | $ | 41 | | $ | 411 | | $ | 722 | |
Investing activities | (4,026) | | (893) | | (1,730) | | (117) | | (601) | | (668) | |
Financing activities | 1,671 | | 506 | | 457 | | 515 | | 196 | | (25) | |
| | | | | | |
Six Months Ended June 30, 2020 | | | | | | |
Operating activities | $ | 2,847 | | $ | 674 | | $ | 1,124 | | $ | 71 | | $ | 195 | | $ | 1,046 | |
Investing activities | (2,655) | | (783) | | (1,659) | | (145) | | 490 | | (570) | |
Financing activities | (285) | | 116 | | 869 | | (178) | | (808) | | (401) | |
Fluctuations in cash flows from financing activities vary from year to year based on capital needs and the maturity or redemption of securities.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Southern Company Gas
Significant balance sheet changesNet cash provided from operating activities increased $0.1 billion for the ninesix months ended SeptemberJune 30, 2021 as compared to the corresponding period in 2020 included:
•primarily due to the timing of vendor payments and customer bill credits issued in 2020 at Georgia Power, partially offset by under recovered natural gas costs at Southern Company Gas resulting from Winter Storm Uri and decreased fuel cost recovery at the traditional electric operating companies resulting from an increase in the cost of $789fuel.
The net cash used for investing activities for the six months ended June 30, 2021 was primarily related to the Subsidiary Registrants' construction programs.
The net cash provided from financing activities for the six months ended June 30, 2021 was primarily related to net issuances of long-term debt, commercial paper, and short-term bank loans, partially offset by common stock dividend payments.
Alabama Power
Net cash provided from operating activities decreased $90 million for the six months ended June 30, 2021 as compared to the corresponding period in 2020 primarily due to the timing of income tax payments and decreased fuel cost recovery, partially offset by an increase in retail revenues associated with an increase in Rate RSE effective in January 2021 and colder weather in Alabama Power's service territory in the first quarter 2021 compared to the corresponding period in 2020, as well as the timing of fossil fuel stock purchases.
The net cash used for investing activities for the six months ended June 30, 2021 was primarily related to gross property additions.
The net cash provided from financing activities for the six months ended June 30, 2021 was primarily related to a capital contribution from Southern Company and the net issuance of senior notes, partially offset by common stock dividend payments.
Georgia Power
Net cash provided from operating activities increased $189 million for the six months ended June 30, 2021 as compared to the corresponding period in 2020 primarily due to customer bill credits issued in 2020 associated with Tax Reform and 2018 earnings in excess of the allowed retail ROE range and the timing of fossil fuel stock purchases and vendor payments, partially offset by decreased fuel cost recovery.
The net cash used for investing activities for the six months ended June 30, 2021 was primarily related to gross property additions, including a total property, plant, and equipment primarilyof approximately $640 million related to the construction of transportationPlant Vogtle Units 3 and distribution assets recovered through base rates and infrastructure investments recovered through replacement programs;
•an increase of $616 million in long-term debt (including securities due within one year) due4. See Note (B) to the issuanceCondensed Financial Statements under "Georgia Power – Nuclear Construction" herein for additional information on construction of Plant Vogtle Units 3 and 4.
The net cash provided from financing activities for the six months ended June 30, 2021 was primarily related to net issuances of senior notes, borrowings from the FFB for construction of Plant Vogtle Units 3 and mortgage bonds;
•a decrease of $500 million in notes payable due to net repayments of short-term borrowings;
•an increase of $179 million in common stockholder's equity primarily from net income and4, capital contributions from Southern Company, and an increase in notes payable, partially offset by dividends paidcommon stock dividend payments.
Mississippi Power
Net cash provided from operating activities decreased $30 million for the six months ended June 30, 2021 as compared to Southern Company;
•a decrease of $171 millionthe corresponding period in assets held for sale2020 primarily due to the completed sale of interests in Pivotal LNGdecreased fuel cost recovery and Atlantic Coast Pipeline;
•a decrease of $123 million in unbilled revenues due to seasonality;
•an increase of $111 million in cash and cash equivalents primarily from long-term debt issuance proceeds;
•a decrease of $109 million in customer accounts receivable due to the timing of collections; andvendor payments.
•decreases of $100 million and $81 million in energy marketing receivables and payables, respectively, due to lower natural gas prices and volumes of natural gas sold.
See "Financing Activities – Southern Company Gas" herein and Note (K) toThe net cash used for investing activities for the Condensed Financial Statements herein for additional information.
Capital Requirements and Contractual Obligations
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements" and "Contractual Obligations" in Item 7 of the Form 10-K for a description of the Registrants' capital requirements and contractual obligations. The following table provides the applicable Registrants' maturities and announced redemptions of long-term debt through Septembersix months ended June 30, 2021:
| | | | | | | | | | | | | | | | | | |
At September 30, 2020: | Southern Company | Alabama Power | Georgia Power | | Southern Power | Southern Company Gas |
| (in millions) |
Securities due within one year | $ | 4,378 | | $ | 496 | | $ | 531 | | | $ | 525 | | $ | 334 | |
See "Sources of Capital" and "Financing Activities" herein for additional information.
In October 2020, Alabama Power's Board of Directors approved updates to its construction program that is currently estimated to total $1.9 billion for 2021 $1.8 billion for 2022, $1.7 billion for 2023, $1.6 billion for 2024, and $1.6 billion for 2025. These amounts include capital expenditureswas primarily related to Plant Barry Unit 8 and contractual purchase commitments for nuclear fuel and capital expenditures covered under LTSAs. These amounts also include estimated capital expenditures to comply with environmental laws and regulations, but do not include any potential compliance costs associated with pending regulation of CO2 emissions from fossil fuel-fired electric generating units. Estimated capital expenditures to comply with environmental laws and regulations included in these amounts are approximately $83 million for 2021, $98 million for 2022, $86 million for 2023, $99 million for 2024, and $70 million for 2025. See FUTURE EARNINGS POTENTIAL – "Regulatory Matters – Alabama Power" herein for information on Alabama Power's construction of Plant Barry Unit 8.
As a result of the second quarter 2020 increase in Alabama Power's AROs discussed herein under FUTURE EARNINGS POTENTIAL – "Environmental Matters," Alabama Power's costs through 2025 associated with closure and monitoring of ash ponds and landfills in accordance with the CCR Rule and the related state rule are currently estimated to be approximately $263 million for 2020, $247 million for 2021, $301 million for 2022, $330 million for 2023, $326 million for 2024, and $311 million for 2025. These costs are reflected in Alabama Power'sgross property additions.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
ARO liabilitiesThe net cash provided from financing activities for the six months ended June 30, 2021 was primarily related to the issuance of senior notes and are based on closure-in-placecapital contributions from Southern Company, partially offset by common stock dividend payments and a decrease in commercial paper borrowings.
Southern Power
Net cash provided from operating activities increased $216 million for allthe six months ended June 30, 2021 as compared to the corresponding period in 2020 primarily due to an increase in the utilization of its ash ponds. These anticipated costs are likelytax credits in 2021.
The net cash used for investing activities for the six months ended June 30, 2021 was primarily related to change, and could change materially, as assumptions and details pertaining to closure are refined and compliance activities continue. See FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Laws and Regulations – Coal Combustion Residuals" in Item 8the acquisition of the Form 10-KDeuel Harvest wind facility and Note (A) to the Condensed Financial Statements herein for additional information.
Theongoing construction program of Georgia Power includes Plant Vogtle Units 3 and 4, which includes components based on new technology that only within the last few years began initial operation in the global nuclear industry at this scale and which may be subject to additional revised cost estimates during construction.activities. See Note 2 to the financial statements under "Georgia Power – Nuclear Construction" in Item 8 of the Form 10-K, Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein, and Item 1A herein for information regarding Plant Vogtle Units 3 and 4 and additional factors that may impact construction expenditures.
The construction programs are subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; changes in environmental laws and regulations; the outcome of any legal challenges to environmental rules; changes in electric generating plants, including unit retirements and replacements and adding or changing fuel sources at existing electric generating units, to meet regulatory requirements; changes in FERC rules and regulations; state regulatory agency approvals; changes in the expected environmental compliance program; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; project scope and design changes; abnormal weather; delays in construction due to judicial or regulatory action; storm impacts; and the cost of capital. The continued COVID-19 pandemic could also impair the ability to develop, construct, and operate facilities, as discussed further in Item 1A herein. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Additionally, Southern Power's planned expenditures for plant acquisitions may vary due to market opportunities and Southern Power's ability to execute its growth strategy. See Note 15 to the financial statements under "Southern Power" in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements under "Southern Power" herein for additional information regardinginformation.
The net cash provided from financing activities for the six months ended June 30, 2021 was primarily related to the issuance of senior notes and net capital contributions from noncontrolling interests, partially offset by a return of capital to Southern Power's plant acquisitionsCompany and construction projects.common stock dividend payments.
Southern Company Gas
Net cash provided from operating activities decreased $324 million for the six months ended June 30, 2021 as compared to the corresponding period in 2020 primarily due to natural gas cost under recovery, reflecting an increase in the cost of gas purchased during Winter Storm Uri, and the timing of customer receivable collections, partially offset by the timing of vendor payments.
The net cash used for investing activities for the six months ended June 30, 2021 was primarily related to construction of transportation and distribution assets recovered through base rates and infrastructure investment recovered through replacement programs at gas distribution operations.
The net cash used for financing activities for the six months ended June 30, 2021 was primarily related to the repayment of long-term debt and common stock dividend payments, largely offset by the issuance of short-term debt, an increase in commercial paper borrowings, and capital contributions from Southern Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Sources of Capital
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" in Item 7 of the Form 10-K for additional information. Southern Company intends to meet its future capital needs through operating cash flows, borrowings from financial institutions, and debt and equity issuances in the capital markets.issuances. Equity capital can be provided from any combination of Southern Company's stock plans, private placements, or public offerings. Southern Company does not expect to issue any equity in the capital markets through 2024.2025 but may issue equity through its stock plans during this time. See Note 8 to the financial statements under "Equity Units" in Item 8 of the Form 10-K for information on stock purchase contracts associated with Southern Company's equity units.
The Subsidiary Registrants plan to obtain the funds to meet their future capital needs from sources similar to those they used in the past, which were primarily from operating cash flows, external securities issuances, borrowings from financial institutions, and equity contributions from Southern Company. In addition, Georgia Power plans to utilize borrowings from the FFB (as discussed further in Note 8 to the financial statements under "Long-term Debt – DOE Loan Guarantee Borrowings" in Item 8 of the Form 10-K) and Southern Power plans to utilize tax equity partnership contributions (as discussed further herein).
The traditional electric operating companies and the natural gas distribution utilities have experienced a reduction in operating cash flows as a result of the temporary suspension of disconnections for non-payment by customers resulting from the COVID-19 pandemic and the related overall economic contraction. To date, this reduction of operating cash flows has not had a material impact on the liquidity of any of the Registrants, and, during the third quarter 2020, most of the temporary measures in place expired. The U.S. House of Representatives has passed the Heroes Act, which would prohibit creditors, including utilities, from collecting consumer debts that are or become past-due, imposing late fees, or disconnecting customers for nonpayment. If the Heroes Act becomes law, its restrictions would apply until 120 days after the end of the presidential declared emergency related to the COVID-19 pandemic. The ultimate extent of the negative impact on the Registrants' liquidity depends on resolution of the Heroes Act and the duration of the COVID-19 pandemic and cannot be determined at this time. See Note (B)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
to the Condensed Financial Statements herein for information regarding suspended disconnections for non-payment by the traditional electric operating companies and the natural gas distribution utilities.
The amount, type, and timing of any financings in 2020,2021, as well as in subsequent years, will be contingent on investment opportunities and the Registrants' capital requirements and will depend upon prevailing market conditions, regulatory approvals (for certain of the Subsidiary Registrants), and other factors. See "Capital Requirements"Cash Requirements" and Contractual Obligations""Financing Activities" herein for additional information.
Southern Power utilizes tax equity partnerships as one of its financing sources, where the tax partner takes significantly all of the federal tax benefits. These tax equity partnerships are consolidated in Southern Power's financial statements and are accounted for using HLBV methodology to allocate partnership gains and losses. In June 2020,March 2021, Southern Power obtained tax equity funding for the ReadingDeuel Harvest wind projectfacility and received proceeds of $156$220 million. In addition, during the first ninesix months of 2020,2021, Southern Power received tax equity funding totaling $16$17 million from existing partnerships. Subsequent to June 30, 2021, Southern Power obtained tax equity funding for the Garland battery energy storage facility and received initial proceeds of $11 million. See Note 1 to
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
the financial statements under "General" in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements under "Southern Power" herein for additional information.
By regulation, Nicor Gas is restricted, to the extent of its retained earnings balance, in the amount it can dividend or loan to affiliates and is not permitted to make money pool loans to affiliates. At SeptemberJune 30, 2020,2021, the amount of subsidiary retained earnings restricted to dividend totaled $1.1 billion. This restriction did not impact Southern Company Gas' ability to meet its cash obligations, nor does management expect such restriction to materially impact Southern Company Gas' ability to meet its currently anticipated cash obligations.
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" in Item 7 of the Form 10-K for additional information.
TheCertain Registrants' current liabilities frequently exceed their current assets because of long-term debt maturities and the periodic use of short-term debt as a funding source, as well as significant seasonal fluctuations in cash needs. See "Financing Activities" herein for information on financing activities that occurred subsequentThe Registrants generally plan to September 30,
2020.refinance long-term debt as it matures. The following table shows the amount by which current liabilities exceeded current assets at SeptemberJune 30, 20202021 for the applicable Registrants:
| At September 30, 2020 | Southern Company | | Georgia Power | Mississippi Power | | Southern Company Gas | |
At June 30, 2021 | | At June 30, 2021 | Southern Company | | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas |
| | (in millions) | | (in millions) |
Current liabilities in excess of current assets | Current liabilities in excess of current assets | $ | 1,176 | | | $ | 612 | | $ | 65 | | | $ | 286 | | Current liabilities in excess of current assets | $ | 2,109 | | | $ | 1,438 | | $ | 20 | | $ | 720 | | $ | 477 | |
The Registrants believe the need for working capital can be adequately met by utilizing operating cash flows, as well as commercial paper, lines of credit, and short-term bank notes, as market conditions permit. In addition, under certain circumstances, the Subsidiary Registrants may utilize equity contributions and/or loans from Southern Company.
Bank Credit Arrangements
At SeptemberJune 30, 2020,2021, the Registrants' unused committed credit arrangements with banks were as follows:
| At September 30, 2020 | Southern Company parent | Alabama Power | Georgia Power | Mississippi Power | Southern Power(a) | Southern Company Gas(b) | SEGCO | Southern Company | |
At June 30, 2021 | | At June 30, 2021 | Southern Company parent | Alabama Power | Georgia Power | Mississippi Power | Southern Power(a) | Southern Company Gas(b) | SEGCO | Southern Company |
| | (in millions) | | (in millions) |
Unused committed credit | Unused committed credit | $ | 1,999 | | $ | 1,328 | | $ | 1,728 | | $ | 250 | | $ | 591 | | $ | 1,745 | | $ | 30 | | $ | 7,671 | | Unused committed credit | $ | 1,999 | | $ | 1,228 | | $ | 1,728 | | $ | 250 | | $ | 568 | | $ | 1,747 | | $ | 30 | | $ | 7,550 | |
(a)At SeptemberJune 30, 2020,2021, Southern Power also had two continuing letters of credit facilities for standby letters of credit, of which $63$24 million was unused. Southern Power's subsidiaries are not parties to its bank credit arrangementarrangements or to the letter of credit facilities.
(b)Includes $1.245$1.047 billion and $500$700 million at Southern Company Gas Capital and Nicor Gas, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Subject to applicable market conditions, the Registrants, Nicor Gas, and SEGCO expect to renew or replace their bank credit arrangements as needed, prior to expiration. In connection therewith, the Registrants, Nicor Gas, and SEGCO may extend the maturity dates and/or increase or decrease the lending commitments thereunder.
A portion of the unused credit with banks is allocated to provide liquidity support to the revenue bonds of the traditional electric operating companies and the commercial paper programs of the Registrants, Nicor Gas, and SEGCO. The amount of variable rate revenue bonds of the traditional electric operating companies outstanding requiring liquidity support at SeptemberJune 30, 20202021 was approximately $1.4 billion (comprised of approximately $854 million at Alabama Power, $550 million at Georgia Power, and $34 million at Mississippi Power). In addition, at SeptemberJune 30, 2020,2021, Georgia Power and Mississippi Power had approximately $257$105 million and $50 million, respectively, of fixed rate revenue bonds outstanding that are required to be remarketed within the next 12 months.
See Note 8 to the financial statements under "Bank Credit Arrangements" in Item 8 of the Form 10-K and Note (F) to the Condensed Financial Statements herein under "Bank Credit Arrangements" herein for additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Short-term Borrowings
The Registrants, Nicor Gas, and SEGCO make short-term borrowings primarily through commercial paper programs that have the liquidity support of the committed bank credit arrangements described above. Southern Power's subsidiaries are not issuers or obligors under its commercial paper program. Commercial paper and short-term bank term loans are included in notes payable in the balance sheets. Details of the Registrants' short-term borrowings were as follows:
| | | Short-term Debt at September 30, 2020 | | Short-term Debt During the Period(*) | | Short-term Debt at June 30, 2021 | | Short-term Debt During the Period(*) |
| | Amount Outstanding | | Weighted Average Interest Rate | | Average Amount Outstanding | | Weighted Average Interest Rate | | Maximum Amount Outstanding | | Amount Outstanding | | Weighted Average Interest Rate | | Average Amount Outstanding | | Weighted Average Interest Rate | | Maximum Amount Outstanding |
| | (in millions) | | | (in millions) | | (in millions) | | (in millions) | | | (in millions) | | (in millions) |
Southern Company | Southern Company | $ | 171 | | | 0.9 | % | | $ | 958 | | | 1.2 | % | | $ | 1,272 | | Southern Company | $ | 1,402 | | | 0.3 | % | | $ | 990 | | | 0.3 | % | | $ | 1,621 | |
Alabama Power | Alabama Power | — | | | — | | | 7 | | | 0.2 | | | 80 | | Alabama Power | — | | | — | | | 50 | | | 0.1 | | | 200 | |
Georgia Power | Georgia Power | — | | | — | | | 347 | | | 1.4 | | | 465 | | Georgia Power | 310 | | | 0.2 | | | 183 | | | 0.2 | | | 407 | |
Mississippi Power | Mississippi Power | — | | | — | | | 1 | | | 0.2 | | | 10 | | Mississippi Power | — | | | — | | | 39 | | | 0.2 | | | 81 | |
Southern Power | Southern Power | — | | | — | | | 19 | | | 0.3 | | | 114 | | Southern Power | 119 | | | 0.2 | | | 152 | | | 0.2 | | | 315 | |
Southern Company Gas: | Southern Company Gas: | | Southern Company Gas: | |
Southern Company Gas Capital | Southern Company Gas Capital | $ | 150 | | | 1.0 | % | | $ | 273 | | | 1.0 | % | | $ | 464 | | Southern Company Gas Capital | $ | 444 | | | 0.2 | % | | $ | 85 | | | 0.2 | % | | $ | 485 | |
Nicor Gas | Nicor Gas | — | | | — | | | 21 | | | 0.2 | | | 82 | | Nicor Gas | 390 | | | 0.5 | | | 396 | | | 0.5 | | | 512 | |
Southern Company Gas Total | Southern Company Gas Total | $ | 150 | | | 1.0 | % | | $ | 294 | | | 0.9 | % | | Southern Company Gas Total | $ | 834 | | | 0.3 | % | | $ | 481 | | | 0.5 | % | |
(*)Average and maximum amounts are based upon daily balances during the three-month period ended SeptemberJune 30, 2020.2021.
Analysis of Cash Flows
Net cash flows provided from (used for) operating, investing, and financing activities for the six months ended June 30, 2021 and 2020 are presented in the following table:
| | | | | | | | | | | | | | | | | | | | |
Net cash provided from (used for): | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas |
| (in millions) |
Six Months Ended June 30, 2021 | | | | | | |
Operating activities | $ | 2,904 | | $ | 584 | | $ | 1,313 | | $ | 41 | | $ | 411 | | $ | 722 | |
Investing activities | (4,026) | | (893) | | (1,730) | | (117) | | (601) | | (668) | |
Financing activities | 1,671 | | 506 | | 457 | | 515 | | 196 | | (25) | |
| | | | | | |
Six Months Ended June 30, 2020 | | | | | | |
Operating activities | $ | 2,847 | | $ | 674 | | $ | 1,124 | | $ | 71 | | $ | 195 | | $ | 1,046 | |
Investing activities | (2,655) | | (783) | | (1,659) | | (145) | | 490 | | (570) | |
Financing activities | (285) | | 116 | | 869 | | (178) | | (808) | | (401) | |
Fluctuations in cash flows from financing activities vary from year to year based on capital needs and the maturity or redemption of securities.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Southern Company
Net cash provided from operating activities increased $0.1 billion for the six months ended June 30, 2021 as compared to the corresponding period in 2020 primarily due to the timing of vendor payments and customer bill credits issued in 2020 at Georgia Power, partially offset by under recovered natural gas costs at Southern Company Gas resulting from Winter Storm Uri and decreased fuel cost recovery at the traditional electric operating companies resulting from an increase in the cost of fuel.
The net cash used for investing activities for the six months ended June 30, 2021 was primarily related to the Subsidiary Registrants' construction programs.
The net cash provided from financing activities for the six months ended June 30, 2021 was primarily related to net issuances of long-term debt, commercial paper, and short-term bank loans, partially offset by common stock dividend payments.
Alabama Power
Net cash provided from operating activities decreased $90 million for the six months ended June 30, 2021 as compared to the corresponding period in 2020 primarily due to the timing of income tax payments and decreased fuel cost recovery, partially offset by an increase in retail revenues associated with an increase in Rate RSE effective in January 2021 and colder weather in Alabama Power's service territory in the first quarter 2021 compared to the corresponding period in 2020, as well as the timing of fossil fuel stock purchases.
The net cash used for investing activities for the six months ended June 30, 2021 was primarily related to gross property additions.
The net cash provided from financing activities for the six months ended June 30, 2021 was primarily related to a capital contribution from Southern Company and the net issuance of senior notes, partially offset by common stock dividend payments.
Georgia Power
Net cash provided from operating activities increased $189 million for the six months ended June 30, 2021 as compared to the corresponding period in 2020 primarily due to customer bill credits issued in 2020 associated with Tax Reform and 2018 earnings in excess of the allowed retail ROE range and the timing of fossil fuel stock purchases and vendor payments, partially offset by decreased fuel cost recovery.
The net cash used for investing activities for the six months ended June 30, 2021 was primarily related to gross property additions, including a total of approximately $640 million related to the construction of Plant Vogtle Units 3 and 4. See Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein for additional information on construction of Plant Vogtle Units 3 and 4.
The net cash provided from financing activities for the six months ended June 30, 2021 was primarily related to net issuances of senior notes, borrowings from the FFB for construction of Plant Vogtle Units 3 and 4, capital contributions from Southern Company, and an increase in notes payable, partially offset by common stock dividend payments.
Mississippi Power
Net cash provided from operating activities decreased $30 million for the six months ended June 30, 2021 as compared to the corresponding period in 2020 primarily due to decreased fuel cost recovery and the timing of vendor payments.
The net cash used for investing activities for the six months ended June 30, 2021 was primarily related to gross property additions.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The net cash provided from financing activities for the six months ended June 30, 2021 was primarily related to the issuance of senior notes and capital contributions from Southern Company, partially offset by common stock dividend payments and a decrease in commercial paper borrowings.
Southern Power
Net cash provided from operating activities increased $216 million for the six months ended June 30, 2021 as compared to the corresponding period in 2020 primarily due to an increase in the utilization of tax credits in 2021.
The net cash used for investing activities for the six months ended June 30, 2021 was primarily related to the acquisition of the Deuel Harvest wind facility and ongoing construction activities. See Note (K) to the Condensed Financial Statements under "Southern Power" herein for additional information.
The net cash provided from financing activities for the six months ended June 30, 2021 was primarily related to the issuance of senior notes and net capital contributions from noncontrolling interests, partially offset by a return of capital to Southern Company and common stock dividend payments.
Southern Company Gas
Net cash provided from operating activities decreased $324 million for the six months ended June 30, 2021 as compared to the corresponding period in 2020 primarily due to natural gas cost under recovery, reflecting an increase in the cost of gas purchased during Winter Storm Uri, and the timing of customer receivable collections, partially offset by the timing of vendor payments.
The net cash used for investing activities for the six months ended June 30, 2021 was primarily related to construction of transportation and distribution assets recovered through base rates and infrastructure investment recovered through replacement programs at gas distribution operations.
The net cash used for financing activities for the six months ended June 30, 2021 was primarily related to the repayment of long-term debt and common stock dividend payments, largely offset by the issuance of short-term debt, an increase in commercial paper borrowings, and capital contributions from Southern Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Significant Balance Sheet Changes
Southern Company
Significant balance sheet changes for the six months ended June 30, 2021 included:
•an increase of $2.1 billion in long-term debt (including securities due within one year) related to new issuances;
•an increase of $2.0 billion in total property, plant, and equipment (net of pre-tax charges totaling $508 million recorded in the first half of 2021 for estimated probable losses associated with the construction of Plant Vogtle Units 3 and 4) primarily related to the Subsidiary Registrants' construction programs, as well as Southern Power's acquisition of the Deuel Harvest wind facility;
•an increase of $0.8 billion in notes payable related to net issuances of short-term bank debt and commercial paper;
•an increase of $0.7 billion in both assets and liabilities held for sale, due to the reclassification of assets and liabilities associated with Southern Company Gas' sale of Sequent, including $0.5 billion of energy marketing receivables and $0.5 billion of energy marketing trade payables;
•an increase of $0.5 billion in accumulated deferred income taxes primarily related to the utilization and expected further utilization of tax credits in 2021;
•an increase of $0.5 billion in cash and cash equivalents, as discussed further under "Analysis of Cash Flows – Southern Company" herein;
•an increase of $0.5 billion in natural gas cost under recovery, which was impacted by an increase in Southern Company Gas' cost of gas purchased during Winter Storm Uri; and
•an increase of $0.5 billion in total stockholders' equity primarily related to net income, partially offset by common stock dividend payments.
See "Financing Activities" herein and Notes (B), (G), and (K) to the Condensed Financial Statements herein for additional information.
Alabama Power
Significant balance sheet changes for the six months ended June 30, 2021 included:
•an increase of $827 million in common stockholder's equity primarily due to capital contributions from Southern Company;
•an increase of $450 million in total property, plant, and equipment primarily related to construction of Plant Barry Unit 8 and distribution and transmission facilities, as well as the installation of equipment to comply with environmental standards; and
•an increase of $396 million in long-term debt (including securities due within one year) primarily due to a net increase in outstanding senior notes.
See "Financing Activities – Alabama Power" herein for additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Georgia Power
Significant balance sheet changes for the six months ended June 30, 2021 included:
•an increase of $656 million in total property, plant, and equipment primarily related to the construction of generation, transmission, and distribution facilities, including $151 million for Plant Vogtle Units 3 and 4 (net of pre-tax charges totaling $508 million recorded in the first half of 2021 for estimated probable losses);
•an increase of $680 million in long-term debt (including securities due within one year) primarily due to a net increase in outstanding senior notes and borrowings from the FFB for construction of Plant Vogtle Units 3 and 4; and
•an increase of $250 million in notes payable related to net issuances of commercial paper.
See "Financing Activities – Georgia Power" herein and Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein for additional information.
Mississippi Power
Significant balance sheet changes for the six months ended June 30, 2021 included:
•an increase of $439 million in cash and cash equivalents and an increase of $514 million in long-term debt (including securities due within one year) primarily due to the issuance of senior notes;
•an increase of $107 million in common stockholder's equity primarily from capital contributions from Southern Company; and
•a decrease of $51 million in accrued taxes primarily due to the payment of ad valorem taxes.
See "Financing Activities – Mississippi Power" herein for additional information.
Southern Power
Significant balance sheet changes for the six months ended June 30, 2021 included:
•an increase of $468 million in property, plant, and equipment in service primarily due to the acquisition of the Deuel Harvest wind facility;
•an increase of $356 million in long-term debt (including securities due within one year) primarily related to the issuance of senior notes; and
•an increase of $142 million in prepaid income taxes, a decrease of $262 million in accumulated deferred income tax assets, and a $98 million increase in accumulated deferred income tax liabilities primarily related to the utilization and expected further utilization of ITCs in 2021.
See "Financing Activities – Southern Power" herein and Notes (G) and (K) to the Condensed Financial Statements herein for additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Southern Company Gas
Significant balance sheet changes for the six months ended June 30, 2021 included:
•increases of $736 million and $677 million in assets and liabilities held for sale, respectively, due to the reclassification of assets and liabilities associated with the sale of Sequent, including $516 million of energy marketing receivables and $494 million of energy marketing trade payables;
•an increase of $510 million in notes payable due to issuances of short-term debt and an increase in commercial paper borrowings;
•increases of $485 million in natural gas cost under recovery, $82 million in other regulatory assets, deferred, and $148 million in accumulated deferred income taxes, all primarily related to natural gas cost under recovery, reflecting an increase in the cost of gas purchased during Winter Storm Uri;
•an increase of $461 million in total property, plant, and equipment primarily related to the construction of transportation and distribution assets recovered through base rates and infrastructure investment recovered through replacement programs;
•a decrease of $344 million in long-term debt (including securities due within one year) primarily due to the redemption of senior notes;
•a decrease of $282 million in natural gas for sale primarily due to higher volumes of natural gas sold;
•an increase of $182 million in temporary LIFO liquidation due to higher natural gas prices during Winter Storm Uri;
•an increase of $162 million in common stockholder's equity primarily related to net income and capital contributions from Southern Company, partially offset by dividends paid to Southern Company;
•an increase of $114 million in prepaid expenses primarily due to the prepayment of income taxes; and
•a decrease of $101 million in equity investments in unconsolidated subsidiaries primarily due to an $82 million impairment charge related to the PennEast Pipeline project.
See "Financing Activities – Southern Company Gas" herein, Notes (B), (E), and (K) to the Condensed Financial Statements under "Southern Company Gas" herein, and Note (C) to the Condensed Financial Statements under "Other Matters – Southern Company Gas" herein for additional information.
Financing Activities
The following table outlines the Registrants' long-term debt financing activities for the first ninesix months of 2020:2021:
| | | Senior Notes | | Revenue Bonds | | Other Long-Term Debt | | Issuances | | | Maturities, Redemptions, and Repurchases |
Company | Company | Issuances | | Maturities, Redemptions, and Repurchases | | Issuances/ Remarketings | | Maturities, Redemptions, and Repurchases | | Issuances | | Redemptions and Maturities(a) | Company | Senior Notes | Other Long-Term Debt | | | Senior Notes | Revenue Bonds | Other Long-Term Debt(*) |
| | (in millions) | | (in millions) |
Southern Company parent | Southern Company parent | $ | 1,000 | | | $ | 600 | | | $ | — | | | $ | — | | | $ | 3,000 | | | $ | — | | Southern Company parent | $ | 1,000 | | $ | 1,000 | | | | $ | 1,500 | | $ | — | | $ | — | |
Alabama Power | Alabama Power | 600 | | | — | | | 87 | | | 87 | | | — | | | — | | Alabama Power | 600 | | — | | | | 200 | | — | | — | |
Georgia Power | Georgia Power | 1,500 | | | 950 | | | 53 | | | 148 | | | 519 | | | 65 | | Georgia Power | 750 | | 371 | | | | 325 | | 69 | | 46 | |
Mississippi Power | Mississippi Power | — | | | 275 | | | 34 | | | 41 | | | 100 | | | — | | Mississippi Power | 525 | | — | | | | — | | — | | — | |
Southern Power | Southern Power | — | | | 300 | | | — | | | — | | | — | | | — | | Southern Power | 400 | | — | | | | — | | — | | — | |
Southern Company Gas | Southern Company Gas | 500 | | | — | | | — | | | — | | | 150 | | | — | | Southern Company Gas | — | | — | | | | 300 | | — | | 30 | |
Other | Other | — | | | — | | | — | | | — | | | — | | | 12 | | Other | — | | — | | | | — | | — | | 7 | |
Elimination(b) | — | | | — | | | — | | | — | | | — | | | (6) | | |
| Southern Company | Southern Company | $ | 3,600 | | | $ | 2,125 | | | $ | 174 | | | $ | 276 | | | $ | 3,769 | | | $ | 71 | | Southern Company | $ | 3,275 | | $ | 1,371 | | | | $ | 2,325 | | $ | 69 | | $ | 83 | |
(a)(*)Includes reductions in finance lease obligations resulting from cash payments under finance leases and, for Georgia Power, principal amortization payments for FFB borrowings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Except as otherwise described herein, the Registrants used the proceeds of debt issuances for their redemptions and maturities shown in the table above, to repay short-term indebtedness, and for general corporate purposes, including working capital. The Subsidiary Registrants also used the proceeds for their construction programs.
In addition to any financings that may be necessary to meet capital requirements and contractual obligations, the Registrants plan to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit.
Southern Company
During the first ninesix months of 2020,2021, Southern Company issued approximately 3.02.4 million shares of common stock primarily through employee equity compensation plans and received proceeds of approximately $63$24 million.
In January 2020,2021, Southern Company borrowed $25 million pursuant to a short-term uncommitted bank credit arrangement, which it repaid in March 2021.
In February 2021, Southern Company issued $600 million aggregate principal amount of Series 2021A 0.60% Senior Notes due February 26, 2024 and $400 million aggregate principal amount of Series 2021B 1.75% Senior Notes due March 15, 2028.
In May 2021, Southern Company issued $1.0 billion aggregate principal amount of Series 2020A 4.95%2021A 3.75% Fixed-to-Fixed Reset Rate Junior Subordinated Notes due January 30, 2080.
In March 2020, Southern Company borrowed $250 million pursuant to a short-term uncommitted bank credit arrangement, bearing interest at a rate agreed upon by Southern Company and the bank from time to time. In April 2020 and September 2020, Southern Company repaid $50 million and $200 million, respectively, of the $250 million borrowed.15, 2051.
Also in March 2020,May 2021, Southern Company entered into a $75 million short-term floating rate bank loan bearing interest based on one-month LIBOR, which it repaid in September 2020.
In April 2020, Southern Company issued $1.0redeemed all of its $1.5 billion aggregate principal amount of Series 2020A 3.70%2.35% Senior Notes due April 30, 2030.July 1, 2021.
Alabama Power
In May 2020, Southern Company redeemed all $600March 2021, Alabama Power extended the maturity dates from March 2021 to March 2026 on its three bank term loan agreements with an aggregate principal amount of $45 million, bearing interest based on three-month LIBOR.
In June 2021, Alabama Power repaid at maturity $200 million aggregate principal amount of its Series 2015A 2.750%2011B 3.950% Senior Notes.
Also in June 2021, Alabama Power issued $600 million aggregate principal amount of Series 2021A 3.125% Senior Notes due July 15, 2051.
Subsequent to June 30, 2021, Alabama Power redeemed all of its approximately $206 million aggregate principal amount of Series E Junior Subordinated Notes due October 1, 2042. The Series E Junior Subordinated Notes were held by an affiliated trust, Alabama Power Capital Trust V, which applied the redemption proceeds to the simultaneous redemption of (i) its Flexible Trust Preferred Securities totaling approximately $200 million, which were guaranteed by Alabama Power, and (ii) shares of its common securities totaling approximately $6 million that were held by Alabama Power.
Georgia Power
In February 2021, Georgia Power issued $750 million aggregate principal amount of Series 2021A 3.25% Senior Notes due March 15, 2020.2051. An amount equal to the net proceeds of the senior notes is being allocated to finance or refinance, in whole or in part, one or more renewable energy projects and/or expenditures and programs related to enabling opportunities for diverse and small businesses/suppliers.
In March 2021, Georgia Power redeemed all $325 million aggregate principal amount of its Series 2016B 2.40% Senior Notes due April 1, 2021.
Also in March 2021, Georgia Power extended the maturity date of its $125 million term loan from June 2021 to June 2022.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
In September 2020, Southern Company issued $1.25 billion aggregate principal amount of Series 2020B 4.00% Fixed-to-Fixed Reset Rate Junior Subordinated Notes due January 15, 2051 and $750 million aggregate principal amount of Series 2020C 4.20% Junior Subordinated Notes due October 15, 2060.
Subsequent to September 30, 2020, Southern Company redeemed all of its $1.0 billion aggregate principal amount outstanding of Series 2015A 6.25% Junior Subordinated Notes due October 15, 2075.
Alabama Power
In March 2020, Alabama Power purchased and held approximately $87 million aggregate principal amount of The Industrial Development Board of the City of Mobile, Alabama Pollution Control Revenue Bonds (Alabama Power Company Plant Barry Project), Series 2007-A, which were remarketed to the public in June 2020.
In August 2020, Alabama Power issued $600 million aggregate principal amount of Series 2020A 1.45% Senior Notes due September 15, 2030.
Subsequent to September 30, 2020, Alabama Power repaid at maturity $250 million aggregate principal amount of its Series 2010A 3.375% Senior Notes.
Georgia Power
In January 2020, Georgia Power issued $700 million aggregate principal amount of Series 2020A 2.10% Senior Notes due July 30, 2023, $500 million aggregate principal amount of Series 2020B 3.70% Senior Notes due January 30, 2050, and an additional $300 million aggregate principal amount of Series 2019B 2.65% Senior Notes due September 15, 2029.
In February 2020, Georgia Power redeemed all $500 million aggregate principal amount of its Series 2017C 2.00% Senior Notes due September 8, 2020.
Also in February 2020,2021, Georgia Power purchased and held approximately $28 million, $49 million, and $18$69 million aggregate principal amountsamount of Development Authority of MonroeBurke County (Georgia) Pollution Control Revenue Bonds (Georgia Power Company Plant SchererVogtle Project), Second Series 2006, First Series 2012, and First Series 2013, respectively,2008, which may be remarketed to the public at a later date.
In March 2020, Georgia Power repaid at maturity $450 million aggregate principal amount of its Series 2017A 2.00% Senior Notes.
Also in March 2020, Georgia Power purchased and subsequently remarketed to the public approximately $53 million of pollution control revenue bonds.
Also in March 2020, Georgia Power borrowed $200 million pursuant to a $250 million short-term uncommitted bank credit arrangement, bearing interest at a rate agreed upon by Georgia Power and the bank from time to time. In April 2020, Georgia Power borrowed the remaining $50 million pursuant to this bank credit arrangement. In September 2020, Georgia Power repaid the full $250 million.
Also in March 2020, Georgia Power extended one of its $125 million short-term floating rate bank loans to a long-term term loan, which matures in June 2021.
In June 2020, Georgia Power extended its other $125 million short-term floating rate bank loan to mature in December 2020. In September 2020, Georgia Power repaid this $125 million bank loan.
Also in June 2020,2021, Georgia Power made additional borrowings under the FFB Credit Facilities in an aggregate principal amount of $519$371 million at an interest rate of 1.652%2.434% through the final maturity date of February 20, 2044. The proceeds were used to reimburse Georgia Power for Eligible Project Costs relating to the construction of Plant Vogtle Units 3 and 4. During the ninesix months ended SeptemberJune 30, 2020,2021, Georgia Power made principal amortization payments of $55$45 million under the FFB Credit Facilities. At SeptemberJune 30, 2020,2021, the outstanding principal balance under the FFB Credit Facilities was $4.3$4.9 billion. See Note 8 to the financial statements under "Long-Term Debt – DOE Loan Guarantee Borrowings" in Item 8 of the Form 10-K for additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Mississippi Power
In February 2020,June 2021, Mississippi Power entered intoissued $200 million aggregate principal amount of Series 2021A Floating Rate Senior Notes due June 28, 2024 and $325 million aggregate principal amount of Series 2021B 3.10% Senior Notes due July 30, 2051. An amount equal to the net proceeds of the Series 2021B Senior Notes is being allocated to finance or refinance, in whole or in part, one or more renewable energy projects and/or expenditures and programs related to enabling opportunities for diverse and small businesses/suppliers.
Also in June 2021, Mississippi Power announced the redemption in July 2021 of all $270 million aggregate principal amount of its Mississippi Business Finance Corporation Taxable Revenue Bonds, 7.13% Series 1999A due October 20, 2021 at par plus accrued interest and a make-whole premium.
Subsequent to June 30, 2021, Mississippi Power repaid its $60 million and $15 million floating rate bank term loans, which maturewith maturity dates in December 2021 and January 2022, respectively, each bearing interest based on one-month LIBOR.
Southern Power
In January 2021, Southern Power issued $400 million aggregate principal amount of Series 2021A 0.90% Senior Notes due January 15, 2026. An amount equal to the net proceeds of the senior notes was allocated to finance or refinance, in whole or in part, one or more renewable energy projects.
Southern Company Gas
In February 2021, Atlanta Gas Light repaid at maturity $30 million aggregate principal amount of 9.1% medium-term notes.
In March 2020, Mississippi Power2021, Nicor Gas entered into a $125three short-term floating rate bank loans in an aggregate principal amount of $300 million, revolving credit arrangement that matures in March 2023 and borrowed $40 million (short term) and $25 million (long term) pursuant to the arrangement, each bearing interest based on one-month LIBOR. In May 2020, Mississippi Power repaid the $40 million short-term portion.
In March 2020, Mississippi Power repaid at maturity the remaining $275 million aggregate principal amount of its Series 2018A Floating Rate Senior Notes.
In April 2020, Mississippi Power purchased and held approximately $11 million, $14 million, and $9 million aggregate principal amount of Mississippi Business Finance Corporation Solid Waste Disposal Facilities Revenue Bonds, Series 1995 (Mississippi Power Company Project), Solid Waste Disposal Facilities Revenue Refunding Bonds, Series 1998 (Mississippi Power Company Project), and Revenue Bonds, Series 1999 (Mississippi Power Company Project), respectively, which were remarketed to the public in May 2020.
Also in April 2020, Mississippi Power redeemed approximately $7 million aggregate principal amount of The Industrial Development Board of the City of Eutaw, Alabama Pollution Control Revenue Refunding Bonds, Series 1992 (Mississippi Power Greene County Plant Project) due December 1, 2020.
Southern Power
In February 2020, Southern Power repaid its $100 million short-term floating rate bank loan entered into in December 2019.
In June 2020,2021, Southern Power repaid at maturityCompany Gas Capital redeemed all $300 million aggregate principal amount of its Series 2015B 2.375% Senior Notes.
Southern Company Gas
In March 2020, Southern Company Gas Capital, as borrower, and Southern Company Gas, as guarantor, entered into a $150 million short-term floating rate bank loan bearing interest based on one-month LIBOR.
Also in March 2020, Southern Company Gas Capital borrowed approximately $95 million pursuant to a short-term uncommitted bank credit arrangement, guaranteed by Southern Company Gas, bearing interest at a rate agreed upon by Southern Company Gas Capital and the bank from time to time. In August 2020, Southern Company Gas Capital repaid the outstanding balance.
In August 2020, Southern Company Gas Capital, as borrower, and Southern Company Gas, as guarantor, issued $500 million aggregate principal amount of Series 2020A 1.75%3.50% Senior Notes due JanuarySeptember 15, 2031.
Also in August 2020, Nicor Gas issued $150 million aggregate principal amount of first mortgage bonds in a private placement and entered into an agreement to issue an additional $175 million aggregate principal amount of first mortgage bonds in November 2020.2021.
Credit Rating Risk
At SeptemberJune 30, 2020,2021, the Registrants did not have any credit arrangements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade.
There are certain contracts that could require collateral, but not accelerated payment, in the event of a credit rating change of certain subsidiariesRegistrants to BBB and/or Baa2 or below. These contracts are primarily for physical electricity and natural gas purchases and sales, fuel purchases, fuel transportation and storage, energy price risk management, transmission, interest rate management, and, for Georgia Power, construction of new generation at Plant Vogtle Units 3 and 4.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The maximum potential collateral requirements under these contracts at SeptemberJune 30, 20202021 were as follows:
| Credit Ratings | Credit Ratings | Southern Company(*) | Alabama Power | Georgia Power | Mississippi Power | Southern Power(*) | Southern Company Gas | Credit Ratings | Southern Company(*) | Alabama Power | Georgia Power | Mississippi Power | Southern Power(*) | Southern Company Gas |
| | (in millions) | | (in millions) |
At BBB and/or Baa2 | At BBB and/or Baa2 | $ | 36 | | $ | 1 | | $ | — | | $ | — | | $ | 35 | | $ | — | | At BBB and/or Baa2 | $ | 40 | | $ | 1 | | $ | — | | $ | — | | $ | 39 | | $ | — | |
At BBB- and/or Baa3 | At BBB- and/or Baa3 | 413 | | 2 | | 61 | | 1 | | 351 | | — | | At BBB- and/or Baa3 | 431 | | 2 | | 61 | | 1 | | 369 | | — | |
At BB+ and/or Ba1 or below | At BB+ and/or Ba1 or below | 1,935 | | 372 | | 956 | | 315 | | 1,195 | | 9 | | At BB+ and/or Ba1 or below | 1,942 | | 370 | | 968 | | 310 | | 1,216 | | 5 | |
(*)Southern Power has PPAs that could require collateral, but not accelerated payment, in the event of a downgrade of Southern Power's credit. The PPAs require credit assurances without stating a specific credit rating. The amount of collateral required would depend upon actual losses resulting from a credit downgrade. Southern Power had $105 million of cash collateral posted related to PPA requirements at SeptemberJune 30, 2020.2021.
The potential collateral requirement amounts in the previous table for the traditional electric operating companies and Southern Power include certain agreements that could require collateral in the event thatif either Alabama Power or Georgia Power has a credit rating change to below investment grade. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, a credit rating downgrade could impact the ability of the Registrants to access capital markets and would be likely to impact the cost at which they do so.
On August 27, 2020, Moody's upgraded Mississippi Power's senior unsecured long-term debt rating to Baa1 from Baa2 and revised its rating outlook to stable from positive.
On September 25, 2020, Fitch upgraded Mississippi Power's senior unsecured long-term debt rating to A- from BBB+ and revised its rating outlook to stable from positive.
Also on September 25, 2020, Fitch revised the ratings outlook of Southern Company and its subsidiaries (excluding Georgia Power and Mississippi Power) to stable from negative.
Market Price Risk
Other than the Southern Company Gas items discussed below, there were no material changes to the Registrants' disclosures about market price risk during the thirdsecond quarter 2020.2021. For an in-depth discussion of Southern Company Gas' market price risks, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Market Price Risk" in Item 7 of the Form 10-K. Also see "Overview" herein for information on volatility in the financial markets that has occurred at certain periods during 2020 resulting from the COVID-19 pandemic and Notes (I) and (J) to the Condensed Financial Statements herein for information relating to derivative instruments. See Note (K) to the Condensed Financial Statements under "Southern Company Gas" herein for information regarding Southern Company Gas' sale of Sequent on July 1, 2021.
Southern Company Gas is exposed to market risks, including commodity price risk, interest rate risk, and weather risk. Due to various cost recovery mechanisms, the natural gas distribution utilities that sell natural gas directly to end-use customers continue to have limited exposure to market volatility of natural gas prices. Certain of the natural gas distribution utilities may manage fuel-hedging programs implemented per the guidelines of their respective state regulatory agencies to hedge the impact of market fluctuations in natural gas prices for customers. In addition, certain of Southern Company Gas' non-regulated operations (primarily Sequent until its sale on July 1, 2021) routinely utilize various types of derivative instruments to economically hedge certain commodity price and weather risks inherent in the natural gas industry. These instruments include a variety of exchange-traded and over-the-counter energy contracts, such as forward contracts, futures contracts, options contracts, and swap agreements. Some of these economic hedge activities may not qualify, or may not be designated, for hedge accounting treatment.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
For the periods presented below, theThe changes in net fair value of Southern Company Gas' energy-related derivative contracts werefor the periods presented are provided in the table below. Contracts outstanding at the end of the period for Sequent's energy-related derivatives are included in the preliminary gain associated with the transaction, which will be recorded in the third quarter 2021, as follows:discussed further in Note (K) to the Condensed Financial Statements under "Southern Company Gas" herein.
| | | Third Quarter 2020 | Third Quarter 2019 | | Year-to-Date 2020 | Year-to-Date 2019 | | Second Quarter 2021 | Second Quarter 2020 | | Year-To-Date 2021 | Year-To-Date 2020 |
| | (in millions) | | (in millions) |
Contracts outstanding at beginning of period, assets (liabilities), net | Contracts outstanding at beginning of period, assets (liabilities), net | $ | 26 | | $ | (90) | | | $ | 72 | | $ | (167) | | Contracts outstanding at beginning of period, assets (liabilities), net | $ | 40 | | $ | 38 | | | $ | 101 | | $ | 70 | |
Contracts realized or otherwise settled | Contracts realized or otherwise settled | (8) | | 7 | | | (107) | | 7 | | Contracts realized or otherwise settled | (9) | | (8) | | | (58) | | (99) | |
Current period changes(*) | — | | (13) | | | 53 | | 64 | | |
Current period changes(a) | | Current period changes(a) | (75) | | 19 | | | (87) | | 78 | |
Contracts outstanding at the end of period, assets (liabilities), net | Contracts outstanding at the end of period, assets (liabilities), net | $ | 18 | | $ | (96) | | | $ | 18 | | $ | (96) | | Contracts outstanding at the end of period, assets (liabilities), net | $ | (44) | | $ | 49 | | | $ | (44) | | $ | 49 | |
Netting of cash collateral | Netting of cash collateral | 70 | | 166 | | | 70 | | 166 | | Netting of cash collateral | 41 | | 114 | | | 41 | | 114 | |
Cash collateral and net fair value of contracts outstanding at end of period(b) | Cash collateral and net fair value of contracts outstanding at end of period(b) | $ | 88 | | $ | 70 | | | $ | 88 | | $ | 70 | | Cash collateral and net fair value of contracts outstanding at end of period(b) | $ | (3) | | $ | 163 | | | $ | (3) | | $ | 163 | |
(*)(a)Current period changes also include the fair value of new contracts entered into during the period, if any.
The maturities of Southern Company Gas' derivative contracts at September 30, 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements |
| | | September 30, 2020 |
| Total Fair Value | | Maturity |
| | Year 1 | | Years 2 & 3 | | Years 4 and thereafter |
| (in millions) |
Level 1(a) | $ | (33) | | | $ | (14) | | | $ | (35) | | | $ | 16 | |
Level 2(b) | 9 | | | 6 | | 1 | | 2 |
Level 3(c) | 42 | | | — | | | 11 | | 31 |
Fair value of contracts outstanding at end of period(d) | $ | 18 | | | $ | (8) | | | $ | (23) | | | $ | 49 | |
(a)Valued using NYMEX futures prices.
(b)Valued using basis transactions that represent the costIncludes $(22) million of energy-related derivatives related to transport natural gas from a NYMEX delivery pointSequent, which are classified as held for sale at June 30, 2021. See Note (K) to the contract delivery point. These transactions are based on quotes obtained either through electronic trading platforms or directly from brokers.
(c)Valued using a combination of observableCondensed Financial Statements under "Southern Company Gas" and unobservable inputs.
(d)Excludes cash collateral of $70 million."Assets and Liabilities Held for Sale" herein for additional information.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
During the ninesix months ended SeptemberJune 30, 2020,2021, there were no material changes to Southern Company's, Alabama Power's, Georgia Power's, Mississippi Power's, and Southern Power's disclosures about market risk. See Note (K) to the Condensed Financial Statements under "Southern Company Gas" herein for information regarding Southern Company Gas' sale of Sequent on July 1, 2021. For additional market risk disclosures relating to Southern Company Gas, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Market Price Risk" herein. For an in-depth discussion of each Registrant's market risks, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Market Price Risk" in Item 7 of the Form 10-K and Note 1 to the financial statements under "Financial Instruments" and Notes 13 and 14 to the financial statements in Item 8 of the Form 10-K, as well as Notes (I) and (J) to the Condensed Financial Statements herein.
Item 4. Controls and Procedures.
(a)Evaluation of disclosure controls and procedures.
As of the end of the period covered by this Quarterly Report on Form 10-Q, Southern Company, Alabama Power, Georgia Power, Mississippi Power, Southern Power, and Southern Company Gas conducted separate evaluations under the supervision and with the participation of each company's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based upon these evaluations, the Chief Executive Officer and the Chief Financial Officer, in each case, concluded that the disclosure controls and procedures are effective.
(b) Changes in internal controls over financial reporting.
There have been no changes in Southern Company's, Alabama Power's, Georgia Power's, Mississippi Power's, Southern Power's, or Southern Company Gas' internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the thirdsecond quarter 20202021 that have materially affected or are reasonably likely to materially affect Southern Company's, Alabama Power's, Georgia Power's, Mississippi Power's, Southern Power's, or Southern Company Gas' internal control over financial reporting.
In July 2020, Southern Power implemented new financial accounting and reporting systems. As a result, there were certain changes to processes and procedures, which resulted in changes to Southern Power's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). These changes include automation of previously manual controls. These changes in internal controls were not made in response to an identified internal control deficiency.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
See the Notes to the Condensed Financial Statements herein for information regarding certain legal and administrative proceedings in which the Registrants are involved. The Registrants' threshold for disclosing material environmental legal proceedings involving a governmental authority where potential monetary sanctions are involved is $1 million.
Item 1A. Risk Factors.
See RISK FACTORS in Item 1A of the Form 10-K for a discussion of the risk factors of the Registrants. Except as described below, thereThere have been no material changes to these risk factors from those previously disclosed in the Form 10-K.
The Registrants are subject to risks related to the COVID-19 pandemic, including, but not limited to, disruption to the construction of Plant Vogtle Units 3 and 4 for Southern Company and Georgia Power.
COVID-19 has been declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention and has spread globally, including throughout the United States. In response, most jurisdictions, including in the United States, have instituted restrictions on travel, public gatherings, and non-essential business operations. While some jurisdictions, including some in the Southern Company system's service territory, have relaxed these restrictions, many of these restrictions remain and there is no guarantee restrictions will not be reimposed in the future. These restrictions have significantly disrupted economic activity in the service territories of the traditional electric operating companies and the natural gas distribution utilities and caused volatility in capital markets at certain periods during 2020. For example, retail electric revenues have declined slightly compared to 2019, as discussed further in RESULTS OF OPERATIONS – "Southern Company – Retail Electric Revenues" in Item 2 herein. In addition, the traditional electric operating companies and the natural gas distribution utilities temporarily suspended disconnections for non-payment by customers and waived late fees for certain periods. The U.S. House of Representatives has passed the Heroes Act, which would prohibit creditors, including utilities, from collecting consumer debts that are or become past-due, imposing late fees, or disconnecting customers for nonpayment. If the Heroes Act becomes law, its restrictions would apply until 120 days after the end of the presidential declared emergency related to the COVID-19 pandemic. The effects of the continued COVID-19 pandemic and related responses could include extended disruptions to supply chains and capital markets, further reduced labor availability and productivity, and a prolonged reduction in economic activity. These effects could have a variety of adverse impacts on the Registrants, including continued reduced demand for energy, particularly from commercial and industrial customers, reduced cash flows and liquidity, impairment of goodwill or long-lived assets, reductions in investments recorded at fair value, and further impairment of the ability of the Registrants to develop, construct, and operate facilities, including electric generation, transmission, and distribution assets, to perform necessary corporate and customer service functions, and to access funds from financial institutions and capital markets. In addition, the COVID-19 pandemic could cause delays or cancellations of regulatory proceedings.
Further, the effects of the COVID-19 pandemic could further disrupt or delay construction, testing, supervisory, and support activities at Plant Vogtle Units 3 and 4. In mid-March 2020, Southern Nuclear began implementing policies and procedures designed to mitigate the risk of transmission of COVID-19 at the construction site, including worker distancing measures, isolating individuals who have tested positive for COVID-19, are showing symptoms consistent with COVID-19, are being tested for COVID-19, or have been in close contact with such persons, requiring self-quarantine, and adopting additional precautionary measures. In April 2020, Georgia Power announced a reduction in workforce at Plant Vogtle Units 3 and 4, which totaled approximately 20% of the then-existing site workforce. This reduction in workforce was a mitigation action intended to address the impact of the COVID-19 pandemic on the Plant Vogtle Units 3 and 4 workforce and construction site, including challenges with labor productivity that were exacerbated by the impact of the COVID-19 pandemic. The April 2020 workforce reduction was intended to provide operational efficiencies by increasing productivity of the remaining workforce and reducing workforce fatigue and absenteeism. Further, it was also intended to allow for increased social distancing by the workforce and facilitate compliance with the recommendations from the Centers for Disease Control and Prevention. The April 2020 workforce reduction did reduce absenteeism, providing an improvement in operational efficiency and allowing for increased social distancing. From the initial peak in April 2020, the number of active cases at the site declined significantly during May and early June, but began increasing again from mid-June
through July. While the number of active cases at the site has declined since July 2020, the COVID-19 pandemic continues to impact productivity and the pace of activity completion. These factors contributed to the June 30, 2020 allocation of, and increase in, construction contingency described in Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein. Georgia Power's proportionate share of the estimated incremental cost associated with COVID-19 mitigation actions and impacts on construction productivity is currently estimated to be between $70 million and $115 million, which is included in the total project capital cost forecast and assumes (i) absenteeism rates continue to normalize and (ii) the intended productivity efficiencies and production targets assumed in Southern Nuclear's July 2020 aggressive site work plan are realized in the coming months. However, the ultimate impact of the COVID-19 pandemic on the construction schedule and budget for Plant Vogtle Units 3 and 4 cannot be determined at this time.
Item 6. Exhibits.
The exhibits below with an asterisk (*) preceding the exhibit number are filed herewith. The remaining exhibits have previously been filed with the SEC and are incorporated herein by reference. The exhibits marked with a pound sign (#) are management contracts or compensatory plans or arrangements.
| | | | | | | | | | | | | | |
| | (4) Instruments Describing Rights of Security Holders, Including Indentures |
| | | | |
| | Southern Company |
| | | | |
| | (a)1 | - | |
| | | | |
| | (a)2 | - | |
| | | | |
| | Alabama Power |
| | | | |
| | (b) | - | SixtiethSixty-First Supplemental Indenture to Senior Note Indenture dated as of August 27, 2020,June 11, 2021, providing for amendments to the Senior Note Indenture and the issuance of the Series 2020A 1.45%2021A 3.125% Senior Notes due SeptemberJuly 15, 2030.2051. (Designated in Form 8-K dated August 24, 2020,June 7, 2021, File No. 1-3164,1-3164, as Exhibit 4.64.6) |
| | | | |
| | Southern Company GasMississippi Power |
| | | | |
| | (f)(c)1 | - | Southern Company Gas Capital Corporation'sSixteenth Supplemental Indenture to Senior Note Indenture dated as of June 29, 2021, providing for amendments to the Senior Note Indenture and the issuance of the Series 2020A 1.750%2021A Floating Rate Senior Notes due January 15, 2031, Form of Note.June 28, 2024. (Designated in Form 8-K dated August 17, 2020,June 24, 2021, File No. 1-14174,001-11229, as Exhibit 4.14.2(a)) |
| | | | |
| | (f)(c)2 | - | Southern Company Gas' Guarantee relatedSeventeenth Supplemental Indenture to Senior Note Indenture dated as of June 29, 2021, providing for the issuance of the Series 2020A 1.750%2021B 3.10% Senior Notes due January 15, 2031, Form of Guarantee.July 30, 2051. (Designated in Form 8-K dated August 17, 2020,June 24, 2021, File No. 1-14174,001-11229, as Exhibit 4.34.2(b)) |
| | | | |
| | (10) Material Contracts |
| | | | |
| | Southern Company |
| | | | |
# | | (a)1 | - | |
| | | | |
# | * | (a)2 | - | |
| | | | |
| | Alabama Power |
| | | | |
# | | (b)1 | - | The Southern Company 2021 Equity and Incentive Compensation Plan, effective May 26, 2021. See Exhibit 10(a) herein. |
| | | | |
# | * | (b)2 | - | |
| | | | |
| | | | | | | | | | | | | | |
| | (24) Power of Attorney and Resolutions |
| | | | |
| | Southern Company |
| | | | |
| | (a) | - | |
| | | | |
| | Alabama Power |
| | | | |
| | (b) | - | |
| | | | |
| | | | | | | | | | | | | | |
| | Georgia Power |
| | | | |
| | (c)1 | - | |
| | | | |
| | (c)2 | - | |
| | | | |
| | Mississippi Power |
| | | | |
| | (d)1 | - | |
| | | | |
| | Southern Power |
| | | | |
| | (e)1 | - | |
| | | | |
| | (e)2 | - | |
| | | | |
| | Southern Company Gas |
| | | | |
| | (f)1 | - | |
| | | | |
| | (f)2 | - | |
| | | | |
| | (31) Section 302 Certifications |
| | | | |
| | Southern Company |
| | | | |
| * | (a)1 | - | |
| | | | |
| * | (a)2 | - | |
| | | | |
| | Alabama Power |
| | | | |
| * | (b)1 | - | |
| | | | |
| * | (b)2 | - | |
| | | | |
| | Georgia Power |
| | | | |
| * | (c)1 | - | |
| | | | |
| * | (c)2 | - | |
| | | | |
| | | | | | | | | | | | | | |
| | Mississippi Power |
| | | | |
| * | (d)1 | - | |
| | | | |
| * | (d)2 | - | |
| | | | |
| | Southern Power |
| | | | |
| * | (e)1 | - | |
| | | | |
| * | (e)2 | - | |
| | | | |
| | Southern Company Gas |
| | | | |
| * | (f)1 | - | |
| | | | |
| | | | | | | | | | | | | | |
| * | (f)2 | - | |
| | | | |
| | (32) Section 906 Certifications |
| | | | |
| | Southern Company |
| | | | |
| * | (a) | - | |
| | | | |
| | Alabama Power |
| | | | |
| * | (b) | - | |
| | | | |
| | Georgia Power |
| | | | |
| * | (c) | - | |
| | | | |
| | Mississippi Power |
| | | | |
| * | (d) | - | |
| | | | |
| | Southern Power |
| | | | |
| * | (e) | - | |
| | | | |
| | Southern Company Gas |
| | | | |
| * | (f) | - | |
| | | | |
| | | | | | | | | | | | | | |
| | (101) Interactive Data Files |
| | | | |
| * | INS | - | XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
| * | SCH | - | XBRL Taxonomy Extension Schema Document |
| * | CAL | - | XBRL Taxonomy Calculation Linkbase Document |
| * | DEF | - | XBRL Definition Linkbase Document |
| * | LAB | - | XBRL Taxonomy Label Linkbase Document |
| * | PRE | - | XBRL Taxonomy Presentation Linkbase Document |
| | | | |
| | (104) Cover Page Interactive Data File |
| * | | | Formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101. |
THE SOUTHERN COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof included in such company's report.
| | | | | | | | | | | |
| | THE SOUTHERN COMPANY |
| | | |
By | | Thomas A. Fanning |
| | Chairman, President, and Chief Executive Officer |
| | (Principal Executive Officer) |
| | | |
By | | Andrew W. Evans |
| | Executive Vice President and Chief Financial Officer |
| | (Principal Financial Officer) |
| | | |
By | | /s/ Melissa K. Caen | |
| | (Melissa K. Caen, Attorney-in-fact) | |
Date: OctoberJuly 28, 20202021
ALABAMA POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof included in such company's report.
| | | | | | | | | | | |
| | ALABAMA POWER COMPANY |
| | | |
By | | Mark A. Crosswhite | |
| | Chairman, President, and Chief Executive Officer |
| | (Principal Executive Officer) |
| | | |
By | | Philip C. Raymond |
| | Executive Vice President, Chief Financial Officer, and Treasurer |
| | (Principal Financial Officer) |
| | | |
By | | /s/ Melissa K. Caen | |
| | (Melissa K. Caen, Attorney-in-fact) | |
Date: OctoberJuly 28, 20202021
GEORGIA POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof included in such company's report.
| | | | | | | | | | | |
| | GEORGIA POWER COMPANY |
| | | |
By | | W. Paul BowersChristopher C. Womack |
| | Chairman, President, and Chief Executive Officer |
| | (Principal Executive Officer) |
| | | |
By | | David P. PorochDaniel S. Tucker |
| | Executive Vice President, Chief Financial Officer, and Treasurer |
| | (Principal Financial Officer) |
| | | |
By | | /s/ Melissa K. Caen | |
| | (Melissa K. Caen, Attorney-in-fact) | |
Date: OctoberJuly 28, 20202021
MISSISSIPPI POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof included in such company's report.
| | | | | | | | | | | |
| | MISSISSIPPI POWER COMPANY |
| | | |
By | | Anthony L. Wilson |
| | Chairman, President, and Chief Executive Officer |
| | (Principal Executive Officer) |
| | | |
By | | Moses H. Feagin |
| | Senior Vice President, Chief Financial Officer, and Treasurer |
| | (Principal Financial Officer) |
| | | |
By | | /s/ Melissa K. Caen | |
| | (Melissa K. Caen, Attorney-in-fact) | |
Date: OctoberJuly 28, 20202021
SOUTHERN POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof included in such company's report.
| | | | | | | | | | | |
| | SOUTHERN POWER COMPANY |
| | | |
By | | Christopher Cummiskey |
| | Chairman and Chief Executive Officer |
| | (Principal Executive Officer) |
| | | |
By | | Elliott L. Spencer |
| | Senior Vice President, Chief Financial Officer, and Treasurer |
| | (Principal Financial Officer) |
| | | |
By | | /s/ Melissa K. Caen | |
| | (Melissa K. Caen, Attorney-in-fact) | |
Date: OctoberJuly 28, 20202021
SOUTHERN COMPANY GAS
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof included in such company's report.
| | | | | | | | | | | |
| | SOUTHERN COMPANY GAS |
| | | |
By | | Kimberly S. Greene |
| | Chairman, President, and Chief Executive Officer |
| | (Principal Executive Officer) |
| | | |
By | | Daniel S. TuckerDavid P. Poroch |
| | Executive Vice President, Chief Financial Officer, and Treasurer |
| | (Principal Financial Officer) |
| | | |
By | | /s/ Melissa K. Caen | |
| | (Melissa K. Caen, Attorney-in-fact) | |
Date: OctoberJuly 28, 20202021