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SOUTHERN Co GAS (GAS)

Filed: 29 Jul 20, 8:00pm
0000092122 so:GeorgiaPowerMember so:OtherNaturalGasOtherNaturalGasRevenuesMember 2019-04-01 2019-06-30 0000092122 us-gaap:ShortTermDebtMember us-gaap:FairValueHedgingMember 2020-06-30
    Table of Contents                                Index to Financial Statements

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 June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from           to            
 
Commission
File Number
 
Registrant,
State of Incorporation,
Address and Telephone Number
 
I.R.S. Employer
Identification No.
 
 1-3526 The Southern Company 58-0690070 
(A Delaware Corporation)
30 Ivan Allen Jr. Boulevard, N.W.
Atlanta, Georgia 30308
(404) 506-5000
 1-3164 Alabama Power Company 63-0004250 
(An Alabama Corporation)
600 North 18th Street
Birmingham, Alabama 35203
(205) 257-1000
 1-6468 Georgia Power Company 58-0257110 
(A Georgia Corporation)
241 Ralph McGill Boulevard, N.E.
Atlanta, Georgia 30308
(404) 506-6526
 001-11229 Mississippi Power Company 64-0205820 
(A Mississippi Corporation)
2992 West Beach Boulevard
Gulfport, Mississippi 39501
(228) 864-1211
 001-37803 Southern Power Company 58-2598670 
(A Delaware Corporation)
30 Ivan Allen Jr. Boulevard, N.W.
Atlanta, Georgia 30308
(404) 506-5000
 1-14174 Southern Company Gas 58-2210952 
(A Georgia Corporation)
Ten Peachtree Place, N.E.
Atlanta, Georgia 30309
(404) 584-4000


    Table of Contents                                Index to Financial Statements

Securities registered pursuant to Section 12(b) of the Act:
RegistrantTitle of Each Class
Trading
Symbol(s)
Name of Each Exchange
on Which Registered
The Southern CompanyCommon Stock, par value $5 per shareSONew York Stock Exchange
(NYSE)
The Southern CompanySeries 2015A 6.25% Junior Subordinated Notes due 2075SOJANYSE
The Southern CompanySeries 2016A 5.25% Junior Subordinated Notes due 2076SOJBNYSE
The Southern CompanySeries 2017B 5.25% Junior Subordinated Notes due 2077SOJCNYSE
The Southern Company2019 Series A Corporate UnitsSOLNNYSE
The Southern CompanySeries 2020A 4.95% Junior Subordinated Notes due 2080SOJDNYSE
Alabama Power Company5.00% Series Class A Preferred StockALP PR QNYSE
Georgia Power CompanySeries 2017A 5.00% Junior Subordinated Notes due 2077GPJANYSE
Southern Power CompanySeries 2016A 1.000% Senior Notes due 2022SO/22BNYSE
Southern Power CompanySeries 2016B 1.850% Senior Notes due 2026SO/26ANYSE
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.
RegistrantLarge Accelerated Filer
Accelerated
Filer
Non-accelerated Filer
Smaller
Reporting
Company
Emerging
Growth
Company
The Southern CompanyX    
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.)
RegistrantDescription of Common StockShares Outstanding at June 30, 2020
The Southern CompanyPar Value $5 Per Share1,056,130,748
Alabama Power CompanyPar Value $40 Per Share30,537,500
Georgia Power CompanyWithout Par Value9,261,500
Mississippi Power CompanyWithout Par Value1,121,000
Southern Power CompanyPar Value $0.01 Per Share1,000
Southern Company GasPar Value $0.01 Per Share100
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.

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TABLE OF CONTENTS
  Page
   
 
 
   
 PART I—FINANCIAL INFORMATION 
   
Item 1.
Item 2.
Item 3.
Item 4.
   
 PART II—OTHER INFORMATION 
   
Item 1.
Item 1A.
Item 2.Unregistered Sales of Equity Securities and Use of ProceedsInapplicable
Item 3.Defaults Upon Senior SecuritiesInapplicable
Item 4.Mine Safety DisclosuresInapplicable
Item 5.Other InformationInapplicable
Item 6.
   
 

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    Table of Contents                                Index to Financial Statements

DEFINITIONS

TermMeaning
2013 ARPAlternate Rate Plan approved by the Georgia PSC in 2013 for Georgia Power for the years 2014 through 2016 and subsequently extended through 2019
2019 ARPAlternate Rate Plan approved by the Georgia PSC in 2019 for Georgia Power for the years 2020 through 2022
AFUDCAllowance for funds used during construction
Alabama PowerAlabama Power Company
Amended and Restated Loan Guarantee AgreementLoan 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
AROAsset retirement obligation
ASUAccounting Standards Update
Atlanta Gas LightAtlanta Gas Light Company, a wholly-owned subsidiary of Southern Company Gas
Atlantic Coast PipelineAtlantic 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 AcquisitionThe purchase and sale agreement entered into in September 2019 by Alabama Power to acquire all of the equity interest in Tenaska Alabama Partners, L.P., the owner and operator of an approximately 885-MW combined cycle generation facility in Autauga County, Alabama
BechtelBechtel Power Corporation, the primary contractor for the remaining construction activities for Plant Vogtle Units 3 and 4
Bechtel AgreementThe October 23, 2017 construction completion agreement between the Vogtle Owners and Bechtel
CCRCoal combustion residuals
CCR RuleDisposal of Coal Combustion Residuals from Electric Utilities final rule published by the EPA in 2015
Chattanooga GasChattanooga Gas Company, a wholly-owned subsidiary of Southern Company Gas
CODCommercial operation date
Contractor Settlement AgreementThe 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-19The novel coronavirus disease declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention in March 2020
CWIPConstruction work in progress
DaltonCity 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 PipelineA pipeline facility in Georgia in which Southern Company Gas has a 50% undivided ownership interest
DOEU.S. Department of Energy
ECO PlanMississippi Power's environmental compliance overview plan
Eligible Project CostsCertain 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
EPAU.S. Environmental Protection Agency
EPC ContractorWestinghouse and its affiliate, WECTEC Global Project Services Inc.; the former engineering, procurement, and construction contractor for Plant Vogtle Units 3 and 4
FASBFinancial Accounting Standards Board
FERCFederal Energy Regulatory Commission
FFBFederal Financing Bank
FFB Credit FacilitiesNote purchase agreements among the DOE, Georgia Power, and the FFB and related promissory notes which provide for two multi-advance term loan facilities

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DEFINITIONS
(continued)

TermMeaning
FitchFitch Ratings, Inc.
Form 10-KAnnual 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
GAAPU.S. generally accepted accounting principles
Georgia PowerGeorgia Power Company
GRAMAtlanta Gas Light's Georgia Rate Adjustment Mechanism
Guarantee Settlement AgreementThe June 9, 2017 settlement agreement between the Vogtle Owners and Toshiba related to certain payment obligations of the EPC Contractor guaranteed by Toshiba
Gulf PowerGulf Power Company, until January 1, 2019 a wholly-owned subsidiary of Southern Company
Heating Degree DaysA measure of weather, calculated when the average daily temperatures are less than 65 degrees Fahrenheit
Heating SeasonThe period from November through March when Southern Company Gas' natural gas usage and operating revenues are generally higher
HLBVHypothetical liquidation at book value
IGCCIntegrated coal gasification combined cycle, the technology originally approved for Mississippi Power's Kemper County energy facility
IICIntercompany Interchange Contract
ITAACInspections, Tests, Analyses, and Acceptance Criteria, standards established by the NRC
ITCInvestment tax credit
JEAJacksonville Electric Authority
KWHKilowatt-hour
LIBORLondon Interbank Offered Rate
LIFOLast-in, first-out
LOCOMLower of weighted average cost or current market price
LTSALong-term service agreement
MarketersMarketers selling retail natural gas in Georgia and certificated by the Georgia PSC
MEAG PowerMunicipal Electric Authority of Georgia
Mississippi PowerMississippi Power Company
mmBtuMillion British thermal units
Moody'sMoody's Investors Service, Inc.
MRAMunicipal and Rural Associations
MWMegawatt
natural gas distribution utilitiesSouthern Company Gas' natural gas distribution utilities (Nicor Gas, Atlanta Gas Light, Virginia Natural Gas, and Chattanooga Gas)
NCCRGeorgia Power's Nuclear Construction Cost Recovery
NDRAlabama Power's Natural Disaster Reserve
NextEra EnergyNextEra Energy, Inc.
Nicor GasNorthern Illinois Gas Company, a wholly-owned subsidiary of Southern Company Gas
NRCU.S. Nuclear Regulatory Commission
NYMEXNew York Mercantile Exchange, Inc.
OCIOther comprehensive income
PennEast PipelinePennEast Pipeline Company, LLC, a joint venture to construct and operate a natural gas pipeline in which Southern Company Gas has a 20% ownership interest
PEPMississippi Power's Performance Evaluation Plan
Pivotal LNGPivotal LNG, Inc., through March 24, 2020 a wholly-owned subsidiary of Southern Company Gas

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DEFINITIONS
(continued)

TermMeaning
PowerSecurePowerSecure, Inc., a wholly-owned subsidiary of Southern Company
PPAPower 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
PSCPublic Service Commission
PTCProduction tax credit
Rate CNPAlabama Power's Rate Certificated New Plant, consisting of Rate CNP New Plant, Rate CNP Compliance, and Rate CNP PPA
Rate ECRAlabama Power's Rate Energy Cost Recovery
Rate NDRAlabama Power's Rate Natural Disaster Reserve
Rate RSEAlabama Power's Rate Stabilization and Equalization
RegistrantsSouthern Company, Alabama Power, Georgia Power, Mississippi Power, Southern Power Company, and Southern Company Gas
ROEReturn on equity
S&PS&P Global Ratings, a division of S&P Global Inc.
SCSSouthern Company Services, Inc., the Southern Company system service company and a wholly-owned subsidiary of Southern Company
SECU.S. Securities and Exchange Commission
SNGSouthern Natural Gas Company, L.L.C., a pipeline system in which Southern Company Gas has a 50% ownership interest
Southern CompanyThe Southern Company
Southern Company GasSouthern Company Gas and its subsidiaries
Southern Company Gas CapitalSouthern Company Gas Capital Corporation, a 100%-owned subsidiary of Southern Company Gas
Southern Company power poolThe 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 systemSouthern 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 HoldingsSouthern Company Holdings, Inc., a wholly-owned subsidiary of Southern Company
Southern NuclearSouthern Nuclear Operating Company, Inc., a wholly-owned subsidiary of Southern Company
Southern PowerSouthern Power Company and its subsidiaries
SouthStarSouthStar Energy Services, LLC, a wholly-owned subsidiary of Southern Company Gas
SP SolarSP 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 WindSP 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 RegistrantsAlabama Power, Georgia Power, Mississippi Power, Southern Power, and Southern Company Gas
Tax ReformThe impact of the Tax Cuts and Jobs Act, which became effective on January 1, 2018
ToshibaToshiba Corporation, the parent company of Westinghouse
traditional electric operating companiesAlabama Power, Georgia Power, and Mississippi Power
TritonTriton Container Investments, LLC, an investment of Southern Company Gas through May 29, 2019
VCMVogtle Construction Monitoring
VIEVariable interest entity
Virginia CommissionVirginia State Corporation Commission
Virginia Natural GasVirginia Natural Gas, Inc., a wholly-owned subsidiary of Southern Company Gas

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DEFINITIONS
(continued)

TermMeaning
Vogtle 3 and 4 AgreementAgreement 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 OwnersGeorgia Power, Oglethorpe Power Corporation, MEAG Power, and Dalton
Vogtle Services AgreementThe 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
WACOGWeighted average cost of gas
WestinghouseWestinghouse Electric Company LLC
XcelXcel Energy Inc.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements include, among other things, 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;
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 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 including 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, 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; challenges with start-up activities, including major equipment failure, or system integration; and/or operational performance;
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 PowerNuclear 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 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;

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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;
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, 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.

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PART I
Item 1. Financial Statements (Unaudited).
 Page
 
  
 
  
 
  
 
  
 
  
 
  

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
 (in millions) (in millions)
Operating Revenues:       
Retail electric revenues$3,182
 $3,540
 $6,260
 $6,623
Wholesale electric revenues472
 542
 889
 1,041
Other electric revenues168
 161
 320
 331
Natural gas revenues (includes alternative revenue programs of
$(2), $1, $7, and $-, respectively)
636
 689
 1,885
 2,163
Other revenues162
 166
 284
 352
Total operating revenues4,620
 5,098
 9,638
 10,510
Operating Expenses:       
Fuel621
 914
 1,257
 1,764
Purchased power200
 201
 381
 371
Cost of natural gas144
 191
 583
 877
Cost of other sales74
 84
 129
 203
Other operations and maintenance1,203
 1,320
 2,498
 2,634
Depreciation and amortization873
 755
 1,730
 1,506
Taxes other than income taxes298
 299
 629
 628
Estimated loss on Plant Vogtle Units 3 and 4149
 
 149
 
(Gain) loss on dispositions, net
 (8) (39) (2,506)
Total operating expenses3,562
 3,756
 7,317
 5,477
Operating Income1,058
 1,342
 2,321
 5,033
Other Income and (Expense):       
Allowance for equity funds used during construction35
 31
 68
 63
Earnings from equity method investments30
 33
 72
 81
Interest expense, net of amounts capitalized(444) (429) (900) (859)
Impairment of leveraged lease(154) 
 (154) 
Other income (expense), net101
 99
 204
 176
Total other income and (expense)(432) (266) (710) (539)
Earnings Before Income Taxes626
 1,076
 1,611
 4,494
Income taxes5
 145
 150
 1,505
Consolidated Net Income621
 931
 1,461
 2,989
Dividends on preferred stock of subsidiaries4
 3
 7
 7
Net income (loss) attributable to noncontrolling interests5
 29
 (26) 
Consolidated Net Income Attributable to
Southern Company
$612
 $899
 $1,480
 $2,982
Common Stock Data:       
Earnings per share -       
Basic$0.58
 $0.86
 $1.40
 $2.86
Diluted$0.58
 $0.85
 $1.39
 $2.84
Average number of shares of common stock outstanding (in millions)       
Basic1,058
 1,044
 1,057
 1,041
Diluted1,063
 1,052
 1,065
 1,049
The accompanying notes as they relate to Southern Company are an integral part of these condensed consolidated financial statements.

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
 (in millions) (in millions)
Consolidated Net Income$621
 $931
 $1,461
 $2,989
Other comprehensive income (loss):       
Qualifying hedges:       
Changes in fair value, net of tax of
$4, $(11), $(26), and $(21), respectively
10
 (32) (75) (60)
Reclassification adjustment for amounts included in net income,
net of tax of $(3), $(1), $10, and $8, respectively
(9) (3) 29
 24
Pension and other postretirement benefit plans:       
Reclassification adjustment for amounts included in net income,
net of tax of $1, $-, $2, and $-, respectively
3
 
 3
 1
Total other comprehensive income (loss)4
 (35) (43) (35)
Comprehensive Income625
 896
 1,418
 2,954
Dividends on preferred stock of subsidiaries4
 3
 7
 7
Comprehensive income (loss) attributable to noncontrolling interests5
 29
 (26) 
Consolidated Comprehensive Income Attributable to
Southern Company
$616
 $864
 $1,437
 $2,947
The accompanying notes as they relate to Southern Company are an integral part of these condensed consolidated financial statements.


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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 For the Six Months Ended June 30,
 2020 2019
 (in millions)
Operating Activities:   
Consolidated net income$1,461
 $2,989
Adjustments to reconcile consolidated net income to net cash provided from operating activities —   
Depreciation and amortization, total1,916
 1,623
Deferred income taxes(218) 274
Utilization of federal investment tax credits
 427
Allowance for equity funds used during construction(68) (63)
Pension, postretirement, and other employee benefits(119) (65)
Settlement of asset retirement obligations(193) (143)
Stock based compensation expense84
 75
Estimated loss on Plant Vogtle Units 3 and 4149
 
Storm damage reserve accruals117
 23
Impairment charges154
 32
(Gain) loss on dispositions, net(35) (2,512)
Other, net43
 (3)
Changes in certain current assets and liabilities —   
-Receivables292
 653
-Prepayments(102) (53)
-Natural gas for sale182
 255
-Other current assets(253) (18)
-Accounts payable(467) (1,045)
-Accrued taxes258
 511
-Accrued compensation(347) (312)
-Retail fuel cost over recovery174
 2
-Customer refunds(223) (35)
-Other current liabilities42
 (102)
Net cash provided from operating activities2,847
 2,513
Investing Activities:   
Property additions(3,202) (3,484)
Nuclear decommissioning trust fund purchases(524) (405)
Nuclear decommissioning trust fund sales519
 400
Proceeds from dispositions and asset sales983
 5,000
Cost of removal, net of salvage(130) (197)
Change in construction payables, net(103) (107)
Investment in unconsolidated subsidiaries(78) (134)
Payments pursuant to LTSAs(91) (64)
Other investing activities(29) (7)
Net cash provided from (used for) investing activities(2,655) 1,002
Financing Activities:   
Increase (decrease) in notes payable, net(1,170) 83
Proceeds —   
Long-term debt4,293
 1,390
Common stock59
 452
Short-term borrowings615
 250
Redemptions and repurchases —   
Long-term debt(2,444) (2,560)
Short-term borrowings(190) (1,850)
Distributions to noncontrolling interests(118) (82)
Capital contributions from noncontrolling interests172
 5
Payment of common stock dividends(1,332) (1,269)
Other financing activities(170) (67)
Net cash used for financing activities(285) (3,648)
Net Change in Cash, Cash Equivalents, and Restricted Cash(93) (133)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period1,978
 1,519
Cash, Cash Equivalents, and Restricted Cash at End of Period$1,885
 $1,386
Supplemental Cash Flow Information:   
Cash paid (received) during the period for —   
Interest (net of $41 and $36 capitalized for 2020 and 2019, respectively)$852
 $844
Income taxes, net(8) 210
Noncash transactions —   
Accrued property additions at end of period828
 988
Right-of-use assets obtained under operating leases87
 55
Right-of-use assets obtained under finance leases7
 33
The accompanying notes as they relate to Southern Company are an integral part of these condensed consolidated financial statements.

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    Table of Contents                                Index to Financial Statements

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
Assets At June 30, 2020 At December 31, 2019
  (in millions)
Current Assets:    
Cash and cash equivalents $1,879
 $1,975
Receivables —    
Customer accounts receivable 1,613
 1,614
Energy marketing receivables 273
 428
Unbilled revenues 553
 599
Other accounts and notes receivable 549
 817
Accumulated provision for uncollectible accounts (89) (49)
Materials and supplies 1,490
 1,388
Fossil fuel for generation 609
 521
Natural gas for sale 282
 479
Prepaid expenses 502
 314
Assets from risk management activities, net of collateral 120
 183
Regulatory assets – asset retirement obligations 252
 287
Other regulatory assets 846
 885
Assets held for sale 
 188
Other current assets 190
 188
Total current assets 9,069
 9,817
Property, Plant, and Equipment:    
In service 107,320
 105,114
Less: Accumulated depreciation 31,477
 30,765
Plant in service, net of depreciation 75,843
 74,349
Nuclear fuel, at amortized cost 835
 851
Construction work in progress 8,351
 7,880
Total property, plant, and equipment 85,029
 83,080
Other Property and Investments:    
Goodwill 5,280
 5,280
Equity investments in unconsolidated subsidiaries 1,363
 1,303
Other intangible assets, net of amortization of $304 and $280
at June 30, 2020 and December 31, 2019, respectively
 511
 536
Nuclear decommissioning trusts, at fair value 2,014
 2,036
Leveraged leases 647
 788
Miscellaneous property and investments 379
 391
Total other property and investments 10,194
 10,334
Deferred Charges and Other Assets:    
Operating lease right-of-use assets, net of amortization 1,776
 1,800
Deferred charges related to income taxes 797
 798
Unamortized loss on reacquired debt 290
 300
Regulatory assets – asset retirement obligations, deferred 4,586
 4,094
Other regulatory assets, deferred 6,606
 6,805
Assets held for sale, deferred 
 601
Other deferred charges and assets 1,384
 1,071
Total deferred charges and other assets 15,439
 15,469
Total Assets $119,731
 $118,700
The accompanying notes as they relate to Southern Company are an integral part of these condensed consolidated financial statements.


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    Table of Contents                                Index to Financial Statements

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
Liabilities and Stockholders' Equity At June 30, 2020 At December 31, 2019
  (in millions)
Current Liabilities:    
Securities due within one year $1,596
 $2,989
Notes payable 1,185
 2,055
Energy marketing trade payables 284
 442
Accounts payable 1,787
 2,115
Customer deposits 490
 496
Accrued taxes —    
Accrued income taxes 27
 
Other accrued taxes 517
 659
Accrued interest 499
 474
Accrued compensation 666
 992
Asset retirement obligations 575
 504
Other regulatory liabilities 558
 756
Liabilities held for sale 
 5
Operating lease obligations 235
 229
Other current liabilities 915
 830
Total current liabilities 9,334
 12,546
Long-term Debt 45,138
 41,798
Deferred Credits and Other Liabilities:    
Accumulated deferred income taxes 8,298
 7,888
Deferred credits related to income taxes 5,860
 6,078
Accumulated deferred ITCs 2,271
 2,291
Employee benefit obligations 1,789
 1,814
Operating lease obligations, deferred 1,611
 1,615
Asset retirement obligations, deferred 9,699
 9,282
Accrued environmental remediation 220
 234
Other cost of removal obligations 2,258
 2,239
Other regulatory liabilities, deferred 371
 256
Other deferred credits and liabilities 630
 609
Total deferred credits and other liabilities 33,007
 32,306
Total Liabilities 87,479
 86,650
Redeemable Preferred Stock of Subsidiaries 291
 291
Total Stockholders' Equity (See accompanying statements)
 31,961
 31,759
Total Liabilities and Stockholders' Equity $119,731
 $118,700
The accompanying notes as they relate to Southern Company are an integral part of these condensed consolidated financial statements.

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    Table of Contents                                Index to Financial Statements

SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

 Southern Company Common Stockholders' Equity    
 Number of
Common Shares
 Common Stock   Accumulated
Other
Comprehensive Income
(Loss)
    
 Issued Treasury Par Value Paid-In Capital Treasury Retained Earnings  Noncontrolling Interests Total
 (in millions)
Balance at December 31, 20181,035
 (1) $5,164
 $11,094
 $(38) $8,706
 $(203) $4,316
 $29,039
Consolidated net income (loss)
 
 
 
 
 2,084
 
 (29) 2,055
Stock issued6
 
 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, 20191,041
 (1) 5,192
 11,321
 (40) 10,167
 (203) 4,250
 30,687
Consolidated net income
 
 
 
 
 899
 
 29
 928
Other comprehensive income (loss)
 
 
 
 
 
 (35) 
 (35)
Stock issued5
 
 25
 203
 
 
 
 
 228
Stock-based compensation
 
 
 11
 
 
 
 
 11
Cash dividends of $0.62 per share
 
 
 
 
 (646) 
 
 (646)
Contributions from noncontrolling interests
 
 
 
 
 
 
 2
 2
Distributions to noncontrolling interests
 
 
 
 
 
 
 (47) (47)
Other
 
 
 5
 (1) 
 
 (1) 3
Balance at June 30, 20191,046
 (1) $5,217
 $11,540
 $(41) $10,420
 $(238) $4,233
 $31,131

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    Table of Contents                                Index to Financial Statements

SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

 Southern Company Common Stockholders' Equity    
 Number of
Common Shares
 Common Stock   Accumulated
Other
Comprehensive Income
(Loss)
    
 Issued Treasury Par Value Paid-In Capital Treasury Retained Earnings  Noncontrolling Interests Total
 (in millions)
Balance at December 31, 20191,054
 (1) $5,257
 $11,734
 $(42) $10,877
 $(321) $4,254
 $31,759
Consolidated net income (loss)
 
 
 
 
 868
 
 (31) 837
Other comprehensive income (loss)
 
 
 
 
 
 (47) 
 (47)
Stock issued3
 
 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, 20201,057
 (1) 5,266
 11,782
 (44) 11,088
 (367) 4,191
 31,916
Consolidated net income
 
 
 
 
 612
 
 5
 617
Other comprehensive income
 
 
 
 
 
 4
 
 4
Stock issued
 
 
 7
 
 
 
 
 7
Stock-based compensation
 
 
 11
 
 
 
 
 11
Cash dividends of $0.64 per share
 
 
 
 
 (677) 
 
 (677)
Contributions from noncontrolling interests
 
 
 
 
 
 
 165
 165
Distributions to noncontrolling interests
 
 
 
 
 
 
 (70) (70)
Other
 
 
 (13) 
 1
 
 
 (12)
Balance at June 30, 20201,057
 (1) $5,266
 $11,787
 $(44) $11,024
 $(363) $4,291
 $31,961

The accompanying notes as they relate to Southern Company are an integral part of these condensed consolidated financial statements.


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    Table of Contents                                Index to Financial Statements


ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
 
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
 (in millions) (in millions)
Operating Revenues:       
Retail revenues$1,223
 $1,378
 $2,427
 $2,592
Wholesale revenues, non-affiliates54
 62
 111
 123
Wholesale revenues, affiliates7
 4
 26
 63
Other revenues81
 69
 152
 143
Total operating revenues1,365
 1,513
 2,716
 2,921
Operating Expenses:       
Fuel199
 252
 415
 553
Purchased power, non-affiliates49
 47
 89
 84
Purchased power, affiliates30
 69
 49
 90
Other operations and maintenance342
 402
 690
 812
Depreciation and amortization202
 200
 402
 399
Taxes other than income taxes102
 98
 208
 200
Total operating expenses924
 1,068
 1,853
 2,138
Operating Income441
 445
 863
 783
Other Income and (Expense):       
Allowance for equity funds used during construction11
 14
 22
 28
Interest expense, net of amounts capitalized(83) (82) (171) (165)
Other income (expense), net26
 11
 48
 25
Total other income and (expense)(46) (57) (101) (112)
Earnings Before Income Taxes395
 388
 762
 671
Income taxes93
 89
 177
 151
Net Income302
 299
 585
 520
Dividends on Preferred Stock4
 3
 7
 7
Net Income After Dividends on Preferred Stock$298
 $296
 $578
 $513

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
 (in millions) (in millions)
Net Income$302
 $299
 $585
 $520
Other comprehensive income (loss):       
Qualifying hedges:       
Reclassification adjustment for amounts included in net income,
net of tax of $-, $-, $1, and $1, respectively
1
 1
 2
 2
Total other comprehensive income (loss)1
 1
 2
 2
Comprehensive Income$303
 $300
 $587
 $522
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.

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    Table of Contents                                Index to Financial Statements

ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 For the Six Months Ended June 30,
 2020 2019
 (in millions)
Operating Activities:   
Net income$585
 $520
Adjustments to reconcile net income to net cash provided from operating activities —   
Depreciation and amortization, total484
 493
Deferred income taxes38
 138
Allowance for equity funds used during construction(22) (28)
Pension, postretirement, and other employee benefits(50) (13)
Settlement of asset retirement obligations(100) (43)
Other, net45
 (1)
Changes in certain current assets and liabilities —   
-Prepayments(62) (59)
-Materials and supplies(38) 5
-Other current assets(65) (4)
-Accounts payable(232) (246)
-Accrued taxes197
 8
-Accrued compensation(75) (88)
-Retail fuel cost over recovery66
 
-Customer refunds(64) (1)
-Other current liabilities(33) 14
Net cash provided from operating activities674
 695
Investing Activities:   
Property additions(686) (833)
Nuclear decommissioning trust fund purchases(160) (139)
Nuclear decommissioning trust fund sales160
 139
Cost of removal, net of salvage(29) (48)
Change in construction payables(53) (103)
Other investing activities(15) (18)
Net cash used for investing activities(783) (1,002)
Financing Activities:   
Proceeds —   
Capital contributions from parent company610
 1,254
Pollution control revenue bonds87
 
Redemptions —   
Pollution control revenue bonds(87) 
Senior notes
 (200)
Payment of common stock dividends(479) (422)
Other financing activities(15) (15)
Net cash provided from financing activities116
 617
Net Change in Cash, Cash Equivalents, and Restricted Cash7
 310
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period894
 313
Cash, Cash Equivalents, and Restricted Cash at End of Period$901
 $623
Supplemental Cash Flow Information:   
Cash paid during the period for —   
Interest (net of $7 and $10 capitalized for 2020 and 2019, respectively)$161
 $154
Income taxes, net
 63
Noncash transactions —   
Accrued property additions at end of period147
 168
Right-of-use assets obtained under operating leases2
 5
Right-of-use assets obtained under finance leases1
 1
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.

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    Table of Contents                                Index to Financial Statements

ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
 
Assets At June 30, 2020 At December 31, 2019
  (in millions)
Current Assets:    
Cash and cash equivalents $901
 $894
Receivables —    
Customer accounts receivable 407
 425
Unbilled revenues 153
 134
Affiliated 37
 37
Other accounts and notes receivable 51
 72
Accumulated provision for uncollectible accounts (21) (22)
Fossil fuel stock 250
 212
Materials and supplies 545
 512
Prepaid expenses 101
 50
Other regulatory assets 226
 242
Other current assets 55
 30
Total current assets 2,705
 2,586
Property, Plant, and Equipment:    
In service 30,619
 30,023
Less: Accumulated provision for depreciation 9,647
 9,540
Plant in service, net of depreciation 20,972
 20,483
Nuclear fuel, at amortized cost 275
 296
Construction work in progress 830
 890
Total property, plant, and equipment 22,077
 21,669
Other Property and Investments:    
Equity investments in unconsolidated subsidiaries 63
 66
Nuclear decommissioning trusts, at fair value 978
 1,023
Miscellaneous property and investments 131
 128
Total other property and investments 1,172
 1,217
Deferred Charges and Other Assets:    
Operating lease right-of-use assets, net of amortization 113
 132
Deferred charges related to income taxes 243
 244
Deferred under recovered regulatory clause revenues 41
 40
Regulatory assets – asset retirement obligations 1,491
 1,019
Other regulatory assets, deferred 1,922
 1,976
Other deferred charges and assets 362
 269
Total deferred charges and other assets 4,172
 3,680
Total Assets $30,126
 $29,152
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.


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    Table of Contents                                Index to Financial Statements

ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
 
Liabilities and Stockholder's Equity At June 30, 2020 At December 31, 2019
  (in millions)
Current Liabilities:    
Securities due within one year $496
 $251
Accounts payable —    
Affiliated 261
 316
Other 312
 514
Customer deposits 103
 100
Accrued taxes 274
 78
Accrued interest 93
 92
Accrued compensation 156
 216
Asset retirement obligations 254
 195
Other regulatory liabilities 73
 193
Other current liabilities 101
 105
Total current liabilities 2,123
 2,060
Long-term Debt 8,028
 8,270
Deferred Credits and Other Liabilities:    
Accumulated deferred income taxes 3,325
 3,260
Deferred credits related to income taxes 1,932
 1,960
Accumulated deferred ITCs 97
 100
Employee benefit obligations 200
 206
Operating lease obligations 91
 107
Asset retirement obligations, deferred 3,722
 3,345
Other cost of removal obligations 392
 412
Other regulatory liabilities, deferred 217
 146
Other deferred credits and liabilities 38
 40
Total deferred credits and other liabilities 10,014
 9,576
Total Liabilities 20,165
 19,906
Redeemable Preferred Stock 291
 291
Common Stockholder's Equity (See accompanying statements)
 9,670
 8,955
Total Liabilities and Stockholder's Equity $30,126
 $29,152
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.

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    Table of Contents                                Index to 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
 (in millions)
Balance at December 31, 201831
 $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, 201931
 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, 201931
 $1,222
 $4,767
 $2,866
 $(26) $8,829
            
Balance at December 31, 201931
 $1,222
 $4,755
 $3,001
 $(23) $8,955
Net income after dividends on
preferred stock

 
 
 280
 
 280
Capital contributions from parent company
 
 612
 
 
 612
Other comprehensive income
 
 
 
 1
 1
Cash dividends on common stock
 
 
 (239) 
 (239)
Balance at March 31, 202031
 1,222
 5,367
 3,042
 (22) 9,609
Net income after dividends on
preferred stock

 
 
 298
 
 298
Capital contributions from parent company
 
 1
 
 
 1
Other comprehensive income
 
 
 
 1
 1
Cash dividends on common stock
 
 
 (239) 
 (239)
Balance at June 30, 202031
 $1,222
 $5,368
 $3,101
 $(21) $9,670
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.


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    Table of Contents                                Index to Financial Statements


GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)

 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
 (in millions) (in millions)
Operating Revenues:       
Retail revenues$1,760
 $1,946
 $3,435
 $3,614
Wholesale revenues25
 36
 51
 67
Other revenues143
 135
 268
 270
Total operating revenues1,928
 2,117
 3,754
 3,951
Operating Expenses:       
Fuel226
 390
 458
 689
Purchased power, non-affiliates133
 124
 262
 242
Purchased power, affiliates122
 134
 251
 310
Other operations and maintenance463
 463
 928
 913
Depreciation and amortization354
 244
 707
 483
Taxes other than income taxes108
 115
 221
 220
Estimated loss on Plant Vogtle Units 3 and 4149
 
 149
 
Total operating expenses1,555
 1,470
 2,976
 2,857
Operating Income373
 647
 778
 1,094
Other Income and (Expense):       
Interest expense, net of amounts capitalized(105) (105) (216) (201)
Other income (expense), net51
 35
 103
 77
Total other income and (expense)(54) (70) (113) (124)
Earnings Before Income Taxes319
 577
 665
 970
Income taxes11
 129
 27
 211
Net Income$308
 $448
 $638
 $759
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
 (in millions) (in millions)
Net Income$308
 $448
 $638
 $759
Other comprehensive income (loss):       
Qualifying hedges:       
Changes in fair value, net of tax of $-, $(9), $(1), and $(9), respectively
 (28) (2) (28)
Reclassification adjustment for amounts included in net income,
net of tax of $1, $-, $1, and $-, respectively
2
 1
 3
 1
Total other comprehensive income (loss)2
 (27) 1
 (27)
Comprehensive Income$310
 $421
 $639
 $732
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.

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    Table of Contents                                Index to Financial Statements

GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
 For the Six Months Ended June 30,
 2020 2019
 (in millions)
Operating Activities:   
Net income$638
 $759
Adjustments to reconcile net income to net cash provided from operating activities —   
Depreciation and amortization, total800
 583
Deferred income taxes(202) 153
Allowance for equity funds used during construction(40) (31)
Pension, postretirement, and other employee benefits(55) (56)
Settlement of asset retirement obligations(78) (76)
Storm damage reserve accruals107
 15
Estimated loss on Plant Vogtle Units 3 and 4149
 
Other, net19
 17
Changes in certain current assets and liabilities —   
-Receivables(73) (43)
-Fossil fuel stock(52) (26)
-Prepaid income taxes
 63
-Materials and supplies(61) 2
-Other current assets(26) 19
-Accounts payable
 (94)
-Accrued taxes87
 (139)
-Accrued compensation(69) (32)
-Retail fuel cost over recovery109
 
-Customer refunds(159) (19)
-Other current liabilities30
 17
Net cash provided from operating activities1,124
 1,112
Investing Activities:   
Property additions(1,650) (1,712)
Nuclear decommissioning trust fund purchases(365) (266)
Nuclear decommissioning trust fund sales359
 260
Cost of removal, net of salvage(62) (107)
Change in construction payables, net of joint owner portion(48) (5)
Payments pursuant to LTSAs(41) (9)
Proceeds from dispositions and asset sales143
 9
Other investing activities5
 (4)
Net cash used for investing activities(1,659) (1,834)
Financing Activities:   
Increase (decrease) in notes payable, net(25) 11
Proceeds —   
FFB loan519
 835
Senior notes1,500
 
Pollution control revenue bonds53
 513
Short-term borrowings250
 250
Capital contributions from parent company500
 46
Redemptions and repurchases —   
Senior notes(950) 
Pollution control revenue bonds(148) (223)
FFB loan(32) 
Payment of common stock dividends(771) (788)
Other financing activities(27) (24)
Net cash provided from financing activities869
 620
Net Change in Cash, Cash Equivalents, and Restricted Cash334
 (102)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period52
 112
Cash, Cash Equivalents, and Restricted Cash at End of Period$386
 $10
Supplemental Cash Flow Information:   
Cash paid (received) during the period for —   
Interest (net of $22 and $16 capitalized for 2020 and 2019, respectively)$180
 $179
Income taxes, net
 (6)
Noncash transactions —   
Accrued property additions at end of period478
 650
Right-of-use assets obtained under operating leases29
 13
Right-of-use assets obtained under finance leases
 28
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.

24

    Table of Contents                                Index to Financial Statements

GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
 
Assets At June 30, 2020 At December 31, 2019
  (in millions)
Current Assets:    
Cash and cash equivalents $386
 $52
Receivables —    
Customer accounts receivable 580
 533
Unbilled revenues 261
 203
Joint owner accounts receivable 104
 136
Affiliated 28
 21
Other accounts and notes receivable 42
 209
Accumulated provision for uncollectible accounts (28) (2)
Fossil fuel stock 324
 272
Materials and supplies 558
 501
Prepaid expenses 58
 63
Regulatory assets – storm damage reserves 213
 213
Regulatory assets – asset retirement obligations 215
 254
Other regulatory assets 276
 263
Other current assets 62
 77
Total current assets 3,079
 2,795
Property, Plant, and Equipment:    
In service 38,852
 38,137
Less: Accumulated provision for depreciation 11,964
 11,753
Plant in service, net of depreciation 26,888
 26,384
Nuclear fuel, at amortized cost 560
 555
Construction work in progress 6,254
 5,650
Total property, plant, and equipment 33,702
 32,589
Other Property and Investments:    
Equity investments in unconsolidated subsidiaries 50
 52
Nuclear decommissioning trusts, at fair value 1,036
 1,013
Miscellaneous property and investments 65
 64
Total other property and investments 1,151
 1,129
Deferred Charges and Other Assets:    
Operating lease right-of-use assets, net of amortization 1,382
 1,428
Deferred charges related to income taxes 519
 519
Regulatory assets – asset retirement obligations, deferred 2,894
 2,865
Other regulatory assets, deferred 2,610
 2,716
Other deferred charges and assets 488
 500
Total deferred charges and other assets 7,893
 8,028
Total Assets $45,825
 $44,541
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.


25

    Table of Contents                                Index to Financial Statements

GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
 
Liabilities and Stockholder's Equity At June 30, 2020 At December 31, 2019
  (in millions)
Current Liabilities:    
Securities due within one year $536
 $1,025
Notes payable 465
 365
Accounts payable —    
Affiliated 493
 512
Other 672
 711
Customer deposits 284
 283
Accrued taxes 442
 407
Accrued interest 133
 118
Accrued compensation 152
 233
Operating lease obligations 150
 144
Asset retirement obligations 279
 265
Over recovered fuel clause revenues 109
 
Other regulatory liabilities 290
 447
Other current liabilities 206
 187
Total current liabilities 4,211
 4,697
Long-term Debt 12,337
 10,791
Deferred Credits and Other Liabilities:    
Accumulated deferred income taxes 3,190
 3,257
Deferred credits related to income taxes 2,730
 2,862
Accumulated deferred ITCs 273
 255
Employee benefit obligations 500
 540
Operating lease obligations, deferred 1,258
 1,282
Asset retirement obligations, deferred 5,556
 5,519
Other deferred credits and liabilities 333
 273
Total deferred credits and other liabilities 13,840
 13,988
Total Liabilities 30,388
 29,476
Common Stockholder's Equity (See accompanying statements)
 15,437
 15,065
Total Liabilities and Stockholder's Equity $45,825
 $44,541
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.

26

    Table of Contents                                Index to 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    
 (in millions)
Balance at December 31, 20189
 $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, 20199
 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) 
 
Balance at June 30, 20199
 $398
 $10,371
 $3,582
 $(35) $14,316
            
Balance at December 31, 20199
 $398
 $10,962
 $3,756
 $(51) $15,065
Net income
 
 
 331
 
 331
Capital contributions from parent company
 
 502
 
 
 502
Other comprehensive income (loss)
 
 
 
 (1) (1)
Cash dividends on common stock
 
 
 (385) 
 (385)
Balance at March 31, 20209
 398
 11,464
 3,702
 (52) 15,512
Net income
 
 
 308
 
 308
Capital contributions from parent company
 
 1
 
 
 1
Other comprehensive income
 
 
 
 2
 2
Cash dividends on common stock
 
 
 (386) 
 (386)
Balance at June 30, 20209
 $398
 $11,465
 $3,624
 $(50) $15,437
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.


27

    Table of Contents                                Index to Financial Statements


MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
 
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
 (in millions) (in millions)
Operating Revenues:       
Retail revenues$199
 $215
 $398
 $418
Wholesale revenues, non-affiliates52
 57
 103
 114
Wholesale revenues, affiliates25
 37
 47
 58
Other revenues7
 4
 11
 10
Total operating revenues283
 313
 559
 600
Operating Expenses:       
Fuel83
 105
 162
 198
Purchased power7
 6
 12
 9
Other operations and maintenance67
 72
 142
 133
Depreciation and amortization46
 48
 88
 95
Taxes other than income taxes30
 28
 59
 55
Total operating expenses233
 259
 463
 490
Operating Income50
 54
 96
 110
Other Income and (Expense):       
Interest expense, net of amounts capitalized(15) (17) (31) (35)
Other income (expense), net6
 5
 14
 11
Total other income and (expense)(9) (12) (17) (24)
Earnings Before Income Taxes41
 42
 79
 86
Income taxes2
 5
 8
 12
Net Income$39
 $37
 $71
 $74
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
 (in millions) (in millions)
Net Income$39
 $37
 $71
 $74
Other comprehensive income (loss):       
Qualifying hedges:       
Changes in fair value, net of tax of $-, $-, $-, and $-, respectively
 
 (1) 
Reclassification adjustment for amounts included in net income,
net of tax of $-, $-, $-, and $-, respectively

 
 1
 1
Total other comprehensive income (loss)
 
 
 1
Comprehensive Income$39
 $37
 $71
 $75
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.

28

    Table of Contents                                Index to Financial Statements

MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
 For the Six Months Ended June 30,
 2020 2019
 (in millions)
Operating Activities:   
Net income$71
 $74
Adjustments to reconcile net income to net cash provided from operating activities —   
Depreciation and amortization, total92
 98
Deferred income taxes(13) (16)
Settlement of asset retirement obligations(9) (17)
Other, net9
 12
Changes in certain current assets and liabilities —   
-Receivables(7) (8)
-Other current assets(6) (3)
-Accounts payable(19) (28)
-Accrued taxes(21) (43)
-Accrued compensation(15) (15)
-Other current liabilities(11) 6
Net cash provided from operating activities71
 60
Investing Activities:   
Property additions(111) (95)
Construction payables(14) (12)
Payments pursuant to LTSAs(10) (11)
Other investing activities(10) (10)
Net cash used for investing activities(145) (128)
Financing Activities:   
Proceeds —   
Capital contributions from parent company75
 7
Short-term borrowings40
 
Pollution control revenue bonds34
 43
Other long-term debt100
 
Redemptions —   
Senior notes(275) 
Short-term borrowings(40) 
Pollution control revenue bonds(41) 
Return of capital to parent company(74) (75)
Other financing activities3
 (1)
Net cash used for financing activities(178) (26)
Net Change in Cash, Cash Equivalents, and Restricted Cash(252) (94)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period286
 293
Cash, Cash Equivalents, and Restricted Cash at End of Period$34
 $199
Supplemental Cash Flow Information:   
Cash paid during the period for —   
Interest (net of $- and $(1) capitalized for 2020 and 2019, respectively)$33
 $36
Income taxes, net
 23
Noncash transactions — Accrued property additions at end of period21
 23
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.

29

    Table of Contents                                Index to Financial Statements

MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
 
Assets At June 30, 2020 At December 31, 2019
  (in millions)
Current Assets:    
Cash and cash equivalents $34
 $286
Receivables —    
Customer accounts receivable 39
 35
Unbilled revenues 41
 39
Affiliated 31
 27
Other accounts and notes receivable 24
 26
Fossil fuel stock 24
 26
Materials and supplies 62
 61
Other regulatory assets 73
 99
Other current assets 8
 10
Total current assets 336
 609
Property, Plant, and Equipment:    
In service 4,948
 4,857
Less: Accumulated provision for depreciation 1,522
 1,463
Plant in service, net of depreciation 3,426
 3,394
Construction work in progress 132
 126
Total property, plant, and equipment 3,558
 3,520
Other Property and Investments 129
 131
Deferred Charges and Other Assets:    
Deferred charges related to income taxes 32
 32
Regulatory assets – asset retirement obligations 200
 210
Other regulatory assets, deferred 376
 360
Accumulated deferred income taxes 134
 139
Other deferred charges and assets 56
 34
Total deferred charges and other assets 798
 775
Total Assets $4,821
 $5,035
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.


30

    Table of Contents                                Index to Financial Statements

MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
 
Liabilities and Stockholder's Equity At June 30, 2020 At December 31, 2019
  (in millions)
Current Liabilities:    
Securities due within one year $
 $281
Notes payable 4
 
Accounts payable —    
Affiliated 75
 76
Other 44
 75
Accrued taxes 84
 105
Accrued interest 15
 15
Accrued compensation 21
 35
Asset retirement obligations 28
 33
Over recovered regulatory clause liabilities 29
 29
Other regulatory liabilities 47
 21
Other current liabilities 59
 64
Total current liabilities 406
 734
Long-term Debt 1,404
 1,308
Deferred Credits and Other Liabilities:    
Accumulated deferred income taxes 422
 424
Deferred credits related to income taxes 310
 352
Employee benefit obligations 97
 99
Asset retirement obligations, deferred 157
 157
Other cost of removal obligations 193
 189
Other regulatory liabilities, deferred 66
 76
Other deferred credits and liabilities 42
 44
Total deferred credits and other liabilities 1,287
 1,341
Total Liabilities 3,097
 3,383
Common Stockholder's Equity (See accompanying statements)
 1,724
 1,652
Total Liabilities and Stockholder's Equity $4,821
 $5,035
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.

31

    Table of Contents                                Index to 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    
 (in millions)
Balance at December 31, 20181
 $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, 20191
 38
 4,510
 (2,934) (4) 1,610
Net income after dividends on
preferred stock

 
 
 37
 
 37
Return of capital to parent company
 
 (38) 
 
 (38)
Capital contributions from parent company
 
 8
 
 
 8
Balance at June 30, 20191
 $38
 $4,480
 $(2,897) $(4) $1,617
            
Balance at December 31, 20191
 $38
 $4,449
 $(2,832) $(3) $1,652
Net income
 
 
 32
 
 32
Return of capital to parent company
 
 (37) 
 
 (37)
Capital contributions from parent company
 
 76
 
 
 76
Other
 
 (1) 
 
 (1)
Balance at March 31, 20201
 38
 4,487
 (2,800) (3) 1,722
Net income
 
 
 39
 
 39
Return of capital to parent company
 
 (37) 
 
 (37)
Balance at June 30, 20201
 $38
 $4,450
 $(2,761) $(3) $1,724
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.


32

    Table of Contents                                Index to Financial Statements


SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
 (in millions) (in millions)
Operating Revenues:       
Wholesale revenues, non-affiliates$343
 $390
 $629
 $743
Wholesale revenues, affiliates92
 117
 178
 204
Other revenues4
 3
 7
 6
Total operating revenues439
 510
 814
 953
Operating Expenses:       
Fuel102
 139
 209
 284
Purchased power18
 32
 32
 55
Other operations and maintenance77
 79
 156
 166
Depreciation and amortization121
 119
 239
 237
Taxes other than income taxes10
 11
 19
 21
(Gain) loss on dispositions, net
 (23) (39) (23)
Total operating expenses328
 357
 616
 740
Operating Income111
 153
 198
 213
Other Income and (Expense):       
Interest expense, net of amounts capitalized(38) (41) (77) (84)
Other income (expense), net1
 40
 4
 41
Total other income and (expense)(37) (1) (73) (43)
Earnings Before Income Taxes74
 152
 125
 170
Income taxes (benefit)6
 (51) 13
 (60)
Net Income68
 203
 112
 230
Net income (loss) attributable to noncontrolling interests5
 29
 (26) 
Net Income Attributable to Southern Power$63
 $174
 $138
 $230
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
 (in millions) (in millions)
Net Income$68
 $203
 $112
 $230
Other comprehensive income (loss):       
Qualifying hedges:       
Changes in fair value, net of tax of
$4, $(1), $(17), and $(10), respectively
11
 (1) (50) (30)
Reclassification adjustment for amounts included in net income,
net of tax of $(5), $(2), $5, and $6, respectively
(15) (7) 13
 17
Pension and other postretirement benefit plans:       
Reclassification adjustment for amounts included in net income,
net of tax of $-, $-, $-, and $-, respectively
1
 
 1
 
Total other comprehensive income (loss)(3) (8) (36) (13)
Comprehensive Income65
 195
 76
 217
Comprehensive income (loss) attributable to noncontrolling interests5
 29
 (26) 
Comprehensive Income Attributable to Southern Power$60
 $166
 $102
 $217
The accompanying notes as they relate to Southern Power are an integral part of these condensed consolidated financial statements.

33

    Table of Contents                                Index to Financial Statements

SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 For the Six Months Ended June 30,
 2020 2019
 (in millions)
Operating Activities:   
Net income$112
 $230
Adjustments to reconcile net income to net cash provided from operating activities —   
Depreciation and amortization, total251
 251
Deferred income taxes(34) (63)
Utilization of federal investment tax credits
 427
Amortization of investment tax credits(30) (122)
(Gain) loss on dispositions, net(39) (23)
Other, net(31) (46)
Changes in certain current assets and liabilities —   
-Receivables(67) (9)
-Prepaid income taxes73
 93
-Other current assets(8) 4
-Accounts payable(29) (17)
-Accrued taxes16
 19
-Other current liabilities(19) (25)
Net cash provided from operating activities195
 719
Investing Activities:   
Business acquisitions, net of cash acquired(81) (2)
Property additions(101) (123)
Proceeds from dispositions and asset sales660
 540
Investment in unconsolidated subsidiaries
 (116)
Payments pursuant to LTSAs(31) (31)
Other investing activities43
 (14)
Net cash provided from investing activities490
 254
Financing Activities:   
Decrease in notes payable, net(357) 
Redemptions —   
Short-term borrowings(100) (100)
Senior notes(300) 
Return of capital to parent company
 (505)
Distributions to noncontrolling interests(118) (82)
Capital contributions from noncontrolling interests172
 5
Payment of common stock dividends(100) (103)
Other financing activities(5) 1
Net cash used for financing activities(808) (784)
Net Change in Cash, Cash Equivalents, and Restricted Cash(123) 189
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period279
 181
Cash, Cash Equivalents, and Restricted Cash at End of Period$156
 $370
Supplemental Cash Flow Information:   
Cash paid (received) during the period for —   
Interest (net of $7 capitalized for both 2020 and 2019)$96
 $106
Income taxes, net(5) (421)
Noncash transactions —   
Accrued property additions at end of period38
 31
Right-of-use assets obtained under operating leases30
 
The accompanying notes as they relate to Southern Power are an integral part of these condensed consolidated financial statements.

34

    Table of Contents                                Index to Financial Statements

SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
Assets At June 30, 2020 At December 31, 2019
  (in millions)
Current Assets:    
Cash and cash equivalents $154
 $279
Receivables —    
Customer accounts receivable 160
 107
Affiliated 46
 30
Other 55
 73
Materials and supplies 203
 191
Prepaid income taxes 402
 36
Other current assets 23
 43
Total current assets 1,043
 759
Property, Plant, and Equipment:    
In service 13,634
 13,270
Less: Accumulated provision for depreciation 2,689
 2,464
Plant in service, net of depreciation 10,945
 10,806
Construction work in progress 314
 515
Total property, plant, and equipment 11,259
 11,321
Other Property and Investments:    
Intangible assets, net of amortization of $79 and $69
at June 30, 2020 and December 31, 2019, respectively
 312
 322
Equity investments in unconsolidated subsidiaries 19
 28
Total other property and investments 331
 350
Deferred Charges and Other Assets:    
Operating lease right-of-use assets, net of amortization 397
 369
Prepaid LTSAs 140
 128
Accumulated deferred income taxes 156
 551
Income taxes receivable, non-current 11
 5
Assets held for sale 
 601
Other deferred charges and assets 220
 216
Total deferred charges and other assets 924
 1,870
Total Assets $13,557
 $14,300
The accompanying notes as they relate to Southern Power are an integral part of these condensed consolidated financial statements.

35

    Table of Contents                                Index to Financial Statements

SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
Liabilities and Stockholders' Equity At June 30, 2020 At December 31, 2019
  (in millions)
Current Liabilities:    
Securities due within one year $525
 $824
Notes payable 92
 549
Accounts payable —    
Affiliated 52
 56
Other 59
 85
Accrued taxes —    
Accrued income taxes 10
 
Other accrued taxes 26
 26
Accrued interest 23
 32
Other current liabilities 127
 132
Total current liabilities 914
 1,704
Long-term Debt 3,572
 3,574
Deferred Credits and Other Liabilities:    
Accumulated deferred income taxes 114
 115
Accumulated deferred ITCs 1,701
 1,731
Operating lease obligations 404
 376
Other deferred credits and liabilities 193
 178
Total deferred credits and other liabilities 2,412
 2,400
Total Liabilities 6,898
 7,678
Total Stockholders' Equity (See accompanying statements)
 6,659
 6,622
Total Liabilities and Stockholders' Equity $13,557
 $14,300
The accompanying notes as they relate to Southern Power are an integral part of these condensed consolidated financial statements.

36

    Table of Contents                                Index to 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
 (in millions)
Balance at December 31, 2018$1,600
 $1,352
 $16
 $2,968
 $4,316
 $7,284
Net income (loss)
 56
 
 56
 (29) 27
Capital contributions from parent company1
 
 
 1
 
 1
Other comprehensive income (loss)
 
 (4) (4) 
 (4)
Cash dividends on common stock
 (51) 
 (51) 
 (51)
Capital contributions from
noncontrolling interests

 
 
 
 3
 3
Distributions to noncontrolling interests
 
 
 
 (41) (41)
Other(1) (1) 
 (2) 1
 (1)
Balance at March 31, 20191,600
 1,356
 12
 2,968
 4,250
 7,218
Net income
 174
 
 174
 29
 203
Return of capital to parent company(505) 
 
 (505) 
 (505)
Capital contributions from parent company7
 
 
 7
 
 7
Other comprehensive income (loss)
 
 (8) (8) 
 (8)
Cash dividends on common stock
 (52) 
 (52) 
 (52)
Capital contributions from
noncontrolling interests

 
 
 
 2
 2
Distributions to noncontrolling interests
 
 
 
 (47) (47)
Other
 1
 
 1
 (1) 
Balance at June 30, 2019$1,102
 $1,479
 $4
 $2,585
 $4,233
 $6,818


37

    Table of Contents                                Index to 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
 (in millions)
Balance at December 31, 2019$909
 $1,485
 $(26) $2,368
 $4,254
 $6,622
Net income (loss)
 75
 
 75
 (31) 44
Other comprehensive income (loss)
 
 (33) (33) 
 (33)
Cash dividends on common stock
 (50) 
 (50) 
 (50)
Capital contributions from
noncontrolling interests

 
 
 
 16
 16
Distributions to noncontrolling interests
 
 
 
 (48) (48)
Balance at March 31, 2020909
 1,510
 (59) 2,360
 4,191
 6,551
Net income
 63
 
 63
 5
 68
Other comprehensive income (loss)
 
 (3) (3) 
 (3)
Cash dividends on common stock
 (50) 
 (50) 
 (50)
Capital contributions from
noncontrolling interests

 
 
 
 165
 165
Distributions to noncontrolling interests
 
 
 
 (70) (70)
Other(2) 
 
 (2) 
 (2)
Balance at June 30, 2020$907
 $1,523
 $(62) $2,368
 $4,291
 $6,659
The accompanying notes as they relate to Southern Power are an integral part of these condensed consolidated financial statements.

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SOUTHERN COMPANY GAS AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
 (in millions) (in millions)
Operating Revenues:       
Natural gas revenues (includes revenue taxes of
$22, $23, $69, and $78, respectively)
$638
 $688
 $1,878
 $2,163
Alternative revenue programs(2) 1
 7
 
Total operating revenues636
 689
 1,885
 2,163
Operating Expenses:       
Cost of natural gas144
 191
 583
 877
Other operations and maintenance220
 199
 479
 433
Depreciation and amortization123
 119
 243
 238
Taxes other than income taxes47
 46
 118
 128
Total operating expenses534
 555
 1,423
 1,676
Operating Income102
 134
 462
 487
Other Income and (Expense):       
Earnings from equity method investments30
 31
 72
 80
Interest expense, net of amounts capitalized(57) (59) (114) (118)
Other income (expense), net12
 6
 21
 10
Total other income and (expense)(15) (22) (21) (28)
Earnings Before Income Taxes87
 112
 441
 459
Income taxes16
 6
 95
 83
Net Income$71
 $106
 $346
 $376
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
 (in millions) (in millions)
Net Income$71
 $106
 $346
 $376
Other comprehensive income (loss):       
Qualifying hedges:       
Changes in fair value, net of tax of
$(1), $(1), $(8), and $(1), respectively
(1) (3) (21) (3)
Reclassification adjustment for amounts included in net income,
net of tax of $-, $-, $2, and $-, respectively
1
 
 6
 
Pension and other postretirement benefit plans:       
Reclassification adjustment for amounts included in net income,
net of tax of $-, $(1), $1, and $(1), respectively

 
 
 (1)
Total other comprehensive income (loss)
 (3) (15) (4)
Comprehensive Income$71
 $103
 $331
 $372
The accompanying notes as they relate to Southern Company Gas are an integral part of these condensed consolidated financial statements.

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SOUTHERN COMPANY GAS AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 For the Six Months Ended June 30,
 2020 2019
 (in millions)
Operating Activities:   
Net income$346
 $376
Adjustments to reconcile net income to net cash provided from operating activities —   
Depreciation and amortization, total243
 238
Deferred income taxes40
 59
Mark-to-market adjustments34
 30
Other, net11
 (26)
Changes in certain current assets and liabilities —   
-Receivables344
 717
-Natural gas for sale182
 256
-Other current assets6
 29
-Accounts payable(176) (604)
-Accrued taxes26
 (54)
-Accrued compensation(31) (34)
-Other current liabilities21
 (56)
Net cash provided from operating activities1,046
 931
Investing Activities:   
Property additions(647) (603)
Cost of removal, net of salvage(31) (33)
Investment in unconsolidated subsidiaries(78) (18)
Proceeds from dispositions and asset sales178
 32
Other investing activities8
 36
Net cash used for investing activities(570) (586)
Financing Activities:   
Decrease in notes payable, net(321) (158)
Proceeds — Capital contributions from parent company186
 38
Payment of common stock dividends(266) (235)
Net cash used for financing activities(401) (355)
Net Change in Cash, Cash Equivalents, and Restricted Cash75
 (10)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period49
 70
Cash, Cash Equivalents, and Restricted Cash at End of Period$124
 $60
Supplemental Cash Flow Information:   
Cash paid (received) during the period for —   
Interest (net of $4 and $3 capitalized for 2020 and 2019, respectively)$119
 $125
Income taxes, net(4) 96
Noncash transactions — Accrued property additions at end of period123
 123
The accompanying notes as they relate to Southern Company Gas are an integral part of these condensed consolidated financial statements.

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SOUTHERN COMPANY GAS AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
Assets At June 30, 2020 At December 31, 2019
  (in millions)
Current Assets:    
Cash and cash equivalents $120
 $46
Receivables —    
Energy marketing receivables 273
 428
Customer accounts receivable 269
 323
Unbilled revenues 57
 183
Affiliated 5
 5
Other accounts and notes receivable 117
 114
Accumulated provision for uncollectible accounts (35) (18)
Natural gas for sale 282
 479
Prepaid expenses 60
 65
Assets from risk management activities, net of collateral 103
 177
Other regulatory assets 86
 92
Assets held for sale 
 171
Other current assets 49
 41
Total current assets 1,386
 2,106
Property, Plant, and Equipment:    
In service 16,718
 16,344
Less: Accumulated depreciation 4,704
 4,650
Plant in service, net of depreciation 12,014
 11,694
Construction work in progress 770
 613
Total property, plant, and equipment 12,784
 12,307
Other Property and Investments:    
Goodwill 5,015
 5,015
Equity investments in unconsolidated subsidiaries 1,308
 1,251
Other intangible assets, net of amortization of $186 and $176
at June 30, 2020 and December 31, 2019, respectively
 60
 70
Miscellaneous property and investments 20
 20
Total other property and investments 6,403
 6,356
Deferred Charges and Other Assets:    
Operating lease right-of-use assets, net of amortization 88
 93
Other regulatory assets, deferred 581
 618
Other deferred charges and assets 258
 207
Total deferred charges and other assets 927
 918
Total Assets $21,500
 $21,687
The accompanying notes as they relate to Southern Company Gas are an integral part of these condensed consolidated financial statements.


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SOUTHERN COMPANY GAS AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

Liabilities and Stockholder's Equity At June 30, 2020 At December 31, 2019
  (in millions)
Current Liabilities:    
Securities due within one year $31
 $
Notes payable 329
 650
Energy marketing trade payables 284
 442
Accounts payable —    
Affiliated 50
 41
Other 290
 315
Customer deposits 86
 96
Accrued taxes —    
Accrued income taxes 32
 
Other accrued taxes 65
 71
Accrued interest 53
 52
Accrued compensation 68
 100
Liabilities from risk management activities, net of collateral 39
 21
Other regulatory liabilities 146
 94
Other current liabilities 122
 128
Total current liabilities 1,595
 2,010
Long-term Debt 5,796
 5,845
Deferred Credits and Other Liabilities:    
Accumulated deferred income taxes 1,256
 1,219
Deferred credits related to income taxes 859
 874
Employee benefit obligations 253
 265
Operating lease obligations 73
 78
Other cost of removal obligations 1,639
 1,606
Accrued environmental remediation 220
 233
Other deferred credits and liabilities 40
 51
Total deferred credits and other liabilities 4,340
 4,326
Total Liabilities 11,731
 12,181
Common Stockholder's Equity (See accompanying statements)
 9,769
 9,506
Total Liabilities and Stockholder's Equity $21,500
 $21,687
The accompanying notes as they relate to Southern Company Gas are an integral part of these condensed consolidated financial statements.



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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    
 (in millions)
Balance at December 31, 2018$8,856
 $(312) $26
 $8,570
Net income
 270
 
 270
Capital contributions from parent company17
 
 
 17
Other comprehensive income (loss)
 
 (1) (1)
Cash dividends on common stock
 (118) 
 (118)
Balance at March 31, 20198,873
 (160) 25
 8,738
Net income
 106
 
 106
Capital contributions from parent company35
 
 
 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
        
Balance at December 31, 2019$9,697
 $(198) $7
 $9,506
Net income
 275
 
 275
Return of capital to parent company(2) 
 
 (2)
Other comprehensive income (loss)
 
 (15) (15)
Cash dividends on common stock
 (133) 
 (133)
Balance at March 31, 20209,695
 (56) (8) 9,631
Net income
 71
 
 71
Capital contributions from parent company200
 
 
 200
Cash dividends on common stock
 (133) 
 (133)
Balance at June 30, 2020$9,895
 $(118) $(8) $9,769
The accompanying notes as they relate to Southern Company Gas are an integral part of these condensed consolidated financial statements.


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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.
RegistrantApplicable Notes
Southern CompanyA, B, C, D, E, F, G, H, I, J, K, L
Alabama PowerA, B, C, D, F, G, H, I, J, K
Georgia PowerA, B, C, D, F, G, H, I, J
Mississippi PowerA, B, C, D, F, G, H, I, J
Southern PowerA, C, D, E, F, G, H, I, J, K
Southern Company GasA, B, C, D, E, F, G, H, I, J, K, L


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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 of December 31, 2019 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 June 30, 2020 and 2019. 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 June 30, 2020 and December 31, 2019 was as follows:
 Goodwill
 (in millions)
Southern Company$5,280
Southern Company Gas: 
Gas distribution operations$4,034
Gas marketing services981
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 and capital markets, 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.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

Other intangible assets were as follows:
 At June 30, 2020 At December 31, 2019
 Gross Carrying AmountAccumulated Amortization
Other
Intangible Assets, Net
 Gross Carrying AmountAccumulated AmortizationOther
Intangible Assets, Net
 (in millions) (in millions)
Southern Company       
Other intangible assets subject to amortization:       
Customer relationships$212
$(126)$86
 $212
$(116)$96
Trade names64
(28)36
 64
(25)39
Storage and transportation contracts64
(63)1
 64
(62)2
PPA fair value adjustments390
(79)311
 390
(69)321
Other10
(8)2
 11
(8)3
Total other intangible assets subject to amortization$740
$(304)$436

$741
$(280)$461
Other intangible assets not subject to amortization:       
Federal Communications Commission licenses75

75
 75

75
Total other intangible assets$815
$(304)$511
 $816
$(280)$536
        
Southern Power       
Other intangible assets subject to amortization:       
PPA fair value adjustments$390
$(79)$311
 $390
$(69)$321
        
Southern Company Gas       
Other intangible assets subject to amortization:       
Gas marketing services       
Customer relationships$156
$(112)$44
 $156
$(104)$52
Trade names26
(11)15
 26
(10)16
Wholesale gas services       
Storage and transportation contracts64
(63)1
 64
(62)2
Total other intangible assets subject to amortization$246
$(186)$60
 $246
$(176)$70


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NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

Amortization associated with other intangible assets was as follows:
 Three Months EndedSix Months Ended
 June 30, 2020
 (in millions)
Southern Company(a)
$13
$25
Southern Power(b)
$5
$10
Southern Company Gas

 
Gas marketing services$5
$9
Wholesale gas services(b)

1
Southern Company Gas total$5
$10

(a)Includes $5 million and $11 million for the three and six months ended June 30, 2020, respectively, recorded as a reduction to operating revenues.
(b)Recorded as a reduction to operating revenues.
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 amounts shown in the condensed statements of cash flows for the Registrants that had restricted cash at June 30, 2020 and/or December 31, 2019:
 
Southern
Company
 Southern Power 
Southern
Company Gas
 
At June
30, 2020
At December 31, 2019 At June 30, 2020 At June
30, 2020
At December 31, 2019
 (in millions) (in millions) (in millions)
Cash and cash equivalents$1,879
$1,975
 $154
 $120
$46
Restricted cash(*):
       
Other accounts and notes receivable
3
 
 
3
Other current assets4

 
 4

Other deferred charges and assets2

 2
 

Total cash, cash equivalents, and restricted cash$1,885
$1,978
 $156
 $124
$49
(*)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.
Natural Gas for Sale
Southern Company Gas, with the exception of Nicor Gas, carries natural gas inventory 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. Southern Company Gas recorded no material adjustments for the three and six months ended June 30, 2020 and recorded adjustments of $7 million and $10 million for the three and six months ended June 30, 2019, respectively.
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

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

cost of the inventory layers liquidated. Nicor Gas' inventory decrement at June 30, 2020 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 and Alabama Power during the first six months of 2020 are shown in the following table. There were no material changes in AROs for the other Registrants during the first six months of 2020.
 Southern CompanyAlabama Power
 (in millions)
Balance at December 31, 2019$9,786
$3,540
Liabilities incurred15

Liabilities settled(193)(100)
Accretion204
74
Cash flow revisions462
462
Balance at June 30, 2020$10,274
$3,976

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.
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. 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) 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 six months ended June 30, 2020 and is expected to result in an immaterial decrease in annual depreciation for 2020.
(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.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

The recovery balances for certain retail regulatory clauses of the traditional electric operating companies and Southern Company Gas at June 30, 2020 and December 31, 2019 were as follows:
Regulatory ClauseBalance Sheet Line ItemJune 30,
2020
December 31,
2019
  (in millions)
Alabama Power   
Rate CNP ComplianceOther regulatory liabilities, current$25
$55
 Other regulatory liabilities, deferred
7
Rate CNP PPADeferred under recovered regulatory clause revenues41
40
Retail Energy Cost RecoveryOther regulatory liabilities, current22
32
 Other regulatory liabilities, deferred93
17
Natural Disaster ReserveOther regulatory liabilities, current16
37
 Other regulatory liabilities, deferred96
113
Georgia Power   
Fuel Cost RecoveryOther current liabilities$109
$
 Other deferred credits and liabilities95
73
Mississippi Power   
Fuel Cost RecoveryOver recovered regulatory clause liabilities$22
$23
Ad Valorem TaxOther regulatory assets11
47
 Other regulatory assets, deferred39

Property Damage ReserveOther regulatory liabilities, deferred50
54
Southern Company Gas   
Natural Gas Cost RecoveryOther regulatory liabilities$100
$74

Alabama Power
Petition for Certificate of Convenience and Necessity
On June 9, 2020, the Alabama PSC approved in part Alabama Power's petition for a certificate of convenience and necessity (CCN) which authorizes 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 was approved by the FERC on April 22, 2020 and is expected to close by September 1, 2020, (iii) purchase approximately 240 MWs of combined cycle generation under a long-term PPA expected to begin later in 2020 and (iv) pursue up to approximately 200 MWs of certain 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 to 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 existing Renewable Generation Certificate issued by the Alabama PSC in September 2015.
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 Alabama PSC's approval in part of

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

the CCN will be followed by a written order which is subject to any rehearing request or judicial appeal filed within 30 days of the date of such order.
The ultimate outcome of these matters cannot be determined at this time.
Georgia Power
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 methodology for identifying incremental bad debt and allowing the deferral of other incremental costs associated with the COVID-19 pandemic. The period over which such costs will be recovered is expected to be determined in Georgia Power's next base rate case. At June 30, 2020, the incremental costs deferred totaled approximately $34 million. 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 will further lower 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

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

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 estimate0.1
Total project capital cost forecast(a)(b)
8.5
Net investment as of June 30, 2020(b)
(6.6)
Remaining estimate to complete(a)
$1.9
(a)Excludes financing costs expected to be capitalized through AFUDC of approximately $260 million, of which $52 million had been accrued through June 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 $2.4 billion had been incurred through June 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 workforce statistics.
During the second quarter 2020, approximately $194 million of construction contingency was assigned to the base capital cost forecast for cost risks including, among other things, construction productivity, including the April 2020 reduction in workforce designed to mitigate impacts of the COVID-19 pandemic described below, field support, subcontracts, engineering resources, and procurement. The second quarter 2020 assignment of contingency exceeded the remaining balance of the $366 million construction contingency originally established in the second quarter 2018 by approximately $34 million. Through June 30, 2020, assignments of contingency for cost risks also have included, among other factors, construction productivity; craft labor incentives; adding resources for supervision, field support, project management, initial test program, start-up, and operations and engineering support; subcontracts; and procurement. As a result of these factors, Southern Nuclear recommended establishing additional construction contingency, of which Georgia Power's share is approximately $115 million, for further potential risks including, among other factors, construction productivity and expected impacts of the COVID-19 pandemic; adding 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

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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.
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 in mid-June and continues to impact productivity levels and pace of activity completion. As a result of these factors, overall production improvements have not been achieved at the levels anticipated, contributing to the 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. To meet the targets in the July 2020 aggressive site work plan, absenteeism rates must continue to normalize and overall construction productivity and production levels, including subcontractors, must significantly improve and be sustained above pre-pandemic levels. In addition, appropriate levels of craft laborers, particularly electrical and pipefitter craft labor, must be added and maintained. While Southern Nuclear's July 2020 aggressive site work plan extended milestone dates from the February 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. 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,

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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 May 11, 2020, the Blue Ridge Environmental Defense League filed a petition with the NRC that challenges a license amendment request. On June 15, 2020, the NRC issued an appealable order rejecting Nuclear Watch South's April 20, 2020 petition requesting a hearing and challenging the closure of certain ITAAC. 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

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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 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

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applicable certified costs through annual adjustments to the NCCR tariff up to the certified capital cost of $4.418 billion. At June 30, 2020, Georgia Power had recovered approximately $2.4 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 December 2019, the Georgia PSC approved Georgia Power's request to decrease the NCCR tariff by $62 million annually, effective January 1, 2020.
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,

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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 2 appeals. The petitioners filed a notice of appeal of the dismissal on May 20, 2020. Georgia Power believes the petitions have no merit; however, an adverse outcome in the litigation combined with subsequent adverse action by the Georgia PSC could have a material impact on Southern Company's and Georgia Power's results of operations, financial condition, and liquidity.
The Georgia PSC has approved 21 VCM reports covering the periods through June 30, 2019, including total construction capital costs incurred through that date of $6.7 billion (before $1.7 billion of payments received under the Guarantee Settlement Agreement and approximately $188 million in related customer refunds). On August 18, 2020, the Georgia PSC is scheduled to vote on Georgia Power's twenty-second VCM report, which requested approval of $674 million of construction capital costs incurred from July 1, 2019 through December 31, 2019.
Georgia Power expects to file its twenty-third VCM report with the Georgia PSC by August 31, 2020, which will reflect the revised capital cost forecast discussed above and request 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 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 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.

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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 25, 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 June 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
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 2021 GRAM filing, which would impact rates effective January 1, 2022. The ultimate outcome of this matter cannot be determined at this time.
Nicor Gas
On March 18, 2020, 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 until the Governor of Illinois announces the end of the COVID-19 state of emergency. In response to this order, on March 27, 2020, Nicor Gas and other utilities in Illinois filed their plans seeking cost recovery and 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

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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. The special purpose rider is proposed to be effective on October 1, 2020 and continue over a 24-month period. At June 30, 2020, Nicor Gas' related regulatory asset was $12 million. The ultimate outcome of this matter cannot be determined at this time.
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 continue in effect through August 31, 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 June 30, 2020, Virginia Natural Gas' related regulatory asset was $1 million. The ultimate outcome of this matter cannot be determined at this time.
Infrastructure Replacement Programs and Capital Projects
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.
(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

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(UNAUDITED)

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.
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.
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.
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

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(UNAUDITED)

Appeals remanded the case to the Superior Court of Fulton County for further proceedings. 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 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. An adverse outcome in this proceeding could have a material impact on Southern Company's and Mississippi Power's financial statements.
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. 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, Mississippi Power's motion to dismiss the first amended complaint filed in 2019 was granted. 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. An adverse outcome in this proceeding could have a material impact on Mississippi Power's financial statements.

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(UNAUDITED)

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.
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 compliance 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 $14 million and $15 million as of June 30, 2020 and December 31, 2019, respectively. 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 to groundwater conditions arising from the closed ash pond at Plant Watson. Mississippi Power will complete an assessment and remediation consistent with the requirements of the agreement and the CCR Rule. Potential remediation activities and related cost estimates are pending the result of further site assessment and cannot be determined at this time. Mississippi Power expects to recover the retail portion of remedial costs through the ECO Plan and the wholesale portion through MRA rates.
Southern Company Gas' environmental remediation liability was $253 million and $269 million as of June 30, 2020 and December 31, 2019, 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.
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 June 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

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(UNAUDITED)

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 full amount of the lease investment has been charged against earnings as of June 30, 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.
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, are estimated to total $5 million for the remainder of 2020, $16 million in 2021, and $11 million to $13 million annually in 2022 through 2025. In addition, closure costs for the mine and gasifier-related assets, currently estimated at up to $6 million pre-tax (excluding dismantlement costs, net of salvage), may be incurred during the remainder of 2020.
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 will be treated as a finance lease for accounting purposes upon commencement.
In 2018, Mississippi Power filed with the DOE its request for property closeout certification under the contract related to the $387 million of grants received for the Kemper County energy facility. Mississippi Power expects to close out the DOE contract in 2020. 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 Kemper County energy facility. 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

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

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. Mississippi Power and Gulf Power are continuing negotiations on a mutually acceptable revised operating agreement for Plant Daniel and, as a result, the parties have agreed not to select a specific unit on August 1, 2020. 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 3 and 7 to the financial statements in Item 8 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.
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.
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.
(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.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

The following table disaggregates revenue from contracts with customers for the three and six months ended June 30, 2020 and 2019:
 Southern CompanyAlabama PowerGeorgia PowerMississippi PowerSouthern PowerSouthern Company Gas
 (in millions)
Three Months Ended June 30, 2020      
Operating revenues      
Retail electric revenues      
Residential$1,430
$549
$817
$64
$
$
Commercial1,103
353
689
61


Industrial642
302
273
67


Other23
6
15
2


Total retail electric revenues3,198
1,210
1,794
194


Natural gas distribution revenues      
Residential239




239
Commercial58




58
Transportation234




234
Industrial5




5
Other49




49
Total natural gas distribution revenues585




585
Wholesale electric revenues      
PPA energy revenues167
28
7
2
134

PPA capacity revenues108
25
13
1
71

Non-PPA revenues50
5
2
73
59

Total wholesale electric revenues325
58
22
76
264

Other natural gas revenues      
Wholesale gas services341




341
Gas marketing services57




57
Other natural gas revenues8




8
Total natural gas revenues406




406
Other revenues251
44
119
6
4

Total revenue from contracts with customers4,765
1,312
1,935
276
268
991
Other revenue sources(a)
728
53
(7)7
171
518
Other adjustments(b)
(873)



(873)
Total operating revenues$4,620
$1,365
$1,928
$283
$439
$636
       

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

 Southern CompanyAlabama PowerGeorgia PowerMississippi PowerSouthern PowerSouthern Company Gas
 (in millions)
Six Months Ended June 30, 2020      
Operating revenues      
Retail electric revenues      
Residential$2,801
$1,103
$1,577
$121
$
$
Commercial2,247
717
1,409
121


Industrial1,323
623
555
145


Other46
11
31
4


Total retail electric revenues6,417
2,454
3,572
391


Natural gas distribution revenues      
Residential736




736
Commercial188




188
Transportation499




499
Industrial17




17
Other144




144
Total natural gas distribution revenues1,584




1,584
Wholesale electric revenues      
PPA energy revenues326
55
15
4
259

PPA capacity revenues213
52
25
2
136

Non-PPA revenues100
24
4
142
117

Total wholesale electric revenues639
131
44
148
512

Other natural gas revenues      
Wholesale gas services737




737
Gas marketing services220




220
Other natural gas revenues15




15
Total natural gas revenues972




972
Other revenues441
78
214
13
7

Total revenue from contracts with customers10,053
2,663
3,830
552
519
2,556
Other revenue sources(a)
1,599
53
(76)7
295
1,343
Other adjustments(b)
(2,014)



(2,014)
Total operating revenues$9,638
$2,716
$3,754
$559
$814
$1,885
       

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

 Southern CompanyAlabama PowerGeorgia PowerMississippi PowerSouthern PowerSouthern Company Gas
 (in millions)
Three Months Ended June 30, 2019      
Operating revenues      
Retail electric revenues      
Residential$1,491
$592
$831
$68
$
$
Commercial1,264
422
770
72


Industrial766
369
327
70


Other25
7
15
3


Total retail electric revenues3,546
1,390
1,943
213


Natural gas distribution revenues      
Residential229




229
Commercial65




65
Transportation213




213
Industrial5




5
Other45




45
Total natural gas distribution revenues557




557
Wholesale electric revenues      
PPA energy revenues208
35
17
3
163

PPA capacity revenues109
25
13
1
81

Non-PPA revenues53
3
1
89
68

Total wholesale electric revenues370
63
31
93
312

Other natural gas revenues      
Wholesale gas services444




444
Gas marketing services55




55
Other natural gas revenues12




12
Total natural gas revenues511




511
Other revenues238
37
95
4
3

Total revenue from contracts with customers5,222
1,490
2,069
310
315
1,068
Other revenue sources(a)
1,050
23
48
3
195
795
Other adjustments(b)
(1,174)



(1,174)
Total operating revenues$5,098
$1,513
$2,117
$313
$510
$689
       

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

 Southern CompanyAlabama PowerGeorgia PowerMississippi PowerSouthern PowerSouthern Company Gas
 (in millions)
Six Months Ended June 30, 2019      
Operating revenues      
Retail electric revenues      
Residential$2,818
$1,151
$1,539
$128
$
$
Commercial2,390
790
1,463
137


Industrial1,474
707
623
144


Other44
13
25
6


Total retail electric revenues6,726
2,661
3,650
415


Natural gas distribution revenues      
Residential830




830
Commercial235




235
Transportation469




469
Industrial22




22
Other161




161
Total natural gas distribution revenues1,717




1,717
       
Wholesale electric revenues      
PPA energy revenues398
67
28
5
314

PPA capacity revenues217
52
27
2
163

Non-PPA revenues108
62
3
164
109

Total wholesale electric revenues723
181
58
171
586

Other natural gas revenues      
Wholesale gas services1,165




1,165
Gas marketing services276




276
Other natural gas revenues22




22
Total natural gas revenues1,463




1,463
Other revenues502
83
186
10
6

Total revenue from contracts with customers11,131
2,925
3,894
596
592
3,180
Other revenue sources(a)
2,413
(4)57
4
361
2,017
Other adjustments(b)
(3,034)



(3,034)
Total operating revenues$10,510
$2,921
$3,951
$600
$953
$2,163
(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 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 Note (L) under "Southern Company Gas" for additional information on the components of wholesale gas services' operating revenues.

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(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 June 30, 2020 and December 31, 2019:
 Southern CompanyAlabama PowerGeorgia PowerMississippi PowerSouthern PowerSouthern Company Gas
 (in millions)
Accounts Receivables      
As of June 30, 2020$2,283
$592
$796
$84
$115
$523
As of December 31, 20192,413
586
688
79
97
749
Contract Assets      
As of June 30, 2020$103
$
$54
$1
$
$
As of December 31, 2019117

69



Contract Liabilities      
As of June 30, 2020$57
$6
$23
$
$1
$2
As of December 31, 201952
10
13

1
1
As of June 30, 2020 and December 31, 2019, Georgia Power had contract assets primarily related to unregulated service agreements, where payment is contingent on project completion, and 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. 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 $41 million and $40 million of contract assets and $26 million and $28 million of contract liabilities at June 30, 2020 and December 31, 2019, respectively, for outstanding performance obligations.
Revenues recognized by Southern Company in the three and six months ended June 30, 2020, which were included in contract liabilities at December 31, 2019, were $11 million and $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. Revenue from contracts with customers related to these performance obligations remaining at June 30, 2020 are expected to be recognized as follows:
 
2020
(remaining)
2021202220232024
2025 and
Thereafter
 (in millions)
Southern Company$319
$432
$362
$339
$319
$3,062
Alabama Power12
33
31
24
7
5
Georgia Power37
70
39
34
23
62
Southern Power156
290
292
282
290
3,013

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(UNAUDITED)

Revenue expected to be recognized for performance obligations remaining at June 30, 2020 was immaterial for Mississippi Power.
Lease Income
Lease income for the three and six months ended June 30, 2020 and 2019 is as follows:
 
Southern
Company
Alabama PowerGeorgia Power
Mississippi
Power
Southern PowerSouthern Company Gas
 (in millions)
For the Three Months Ended June 30, 2020      
Lease income - interest income on sales-type leases$3
$
$
$3
$
$
Lease income - operating leases47
6
15

21
9
Variable lease income126



136

Total lease income$176
$6
$15
$3
$157
$9
       
For the Six Months Ended June 30, 2020      
Lease income - interest income on sales-type leases$6
$
$
$5
$
$
Lease income - operating leases97
13
30

45
17
Variable lease income200



215

Total lease income$303
$13
$30
$5
$260
$17
       
For the Three Months Ended June 30, 2019      
Lease income - interest income on sales-type leases$2
$
$
$2
$
$
Lease income - operating leases67
7
19

44
9
Variable lease income115



129

Total lease income$184
$7
$19
$2
$173
$9
       
For the Six Months Ended June 30, 2019      
Lease income - interest income on sales-type leases$5
$
$
$5
$
$
Lease income - operating leases139
13
39

90
17
Variable lease income182



204

Total lease income$326
$13
$39
$5
$294
$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.
(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.

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(UNAUDITED)

SP Solar and SP Wind
At June 30, 2020 and December 31, 2019, SP Solar had total assets of $6.2 billion and $6.4 billion, respectively, and total liabilities of $381 million. Noncontrolling interests totaled $1.1 billion at both June 30, 2020 and December 31, 2019. 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 June 30, 2020 and December 31, 2019, SP Wind had total assets of $2.4 billion and $2.5 billion, respectively, total liabilities of $125 million and $128 million, respectively, and noncontrolling interests of $44 million and $45 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 June 30, 2020 and December 31, 2019, the other VIEs had total assets of $1.5 billion and $1.1 billion, respectively, total liabilities of $160 million and $104 million, respectively, and noncontrolling interests of $557 million and $409 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 June 30, 2020 and December 31, 2019, Southern Power had equity method investments in wind and battery storage projects totaling $19 million and $28 million, respectively.
Southern Company Gas
Equity Method Investments
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.

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(UNAUDITED)

The carrying amounts of Southern Company Gas' equity method investments as of June 30, 2020 and December 31, 2019 and related income from those investments for the three and six months ended June 30, 2020 and 2019 were as follows:
Investment BalanceJune 30, 2020
December 31, 2019(a)
 (in millions)
SNG(b)
$1,189
$1,137
PennEast Pipeline(c)
87
82
Other32
32
Total$1,308
$1,251

(a)Excludes investments in Atlantic Coast Pipeline and Pivotal JAX LNG classified as held for sale at December 31, 2019. See Note 15 to the financial statements under "Assets Held for Sale" 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 InvestmentsThree Months Ended June 30, 2020Three Months Ended June 30, 2019Six Months Ended June 30, 2020Six Months Ended June 30, 2019
 (in millions)
SNG$28
$32
$65
$74
Atlantic Coast Pipeline(a)(b)

3
3
6
PennEast Pipeline(a)
1
1
3
3
Other1
(5)1
(3)
Total$30
$31
$72
$80

(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 six months ended June 30, 2020 and 2019 is as follows:
Income Statement InformationThree Months Ended June 30, 2020Three Months Ended June 30, 2019Six Months Ended June 30, 2020Six Months Ended June 30, 2019
 (in millions)
Revenues$149
$155
$307
$321
Operating income78
86
176
192
Net income55
64
130
148

(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.

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(UNAUDITED)

At June 30, 2020, committed credit arrangements with banks were as follows:
 Expires   
Company20202021202220232024 Total UnusedDue within One Year
 (in millions)
Southern Company parent$
$
$
$
$2,000
 $2,000
 $1,999
$
Alabama Power3

525

800
 1,328
 1,328
3
Georgia Power



1,750
 1,750
 1,733

Mississippi Power

150
125

 275
 250

Southern Power(a)




600
 600
 590

Southern Company Gas(b)




1,750
 1,750
 1,745

SEGCO
30



 30
 30
30
Southern Company$3
$30
$675
$125
$6,900
 $7,733
 $7,675
$33

(a)Does not include Southern Power Company's $120 million and $60 million continuing letter of credit facilities for standby letters of credit expiring in 2021 and 2023, respectively, of which $19 million and $60 million, respectively, was unused at June 30, 2020. 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 of this arrangement. Southern Company Gas' committed credit arrangement also includes $500 million for which Nicor Gas is the borrower and which is restricted for working capital needs of Nicor Gas. Pursuant to this multi-year credit arrangement, the allocations between Southern Company Gas Capital and Nicor Gas may be adjusted.
As reflected in the table above, in March 2020, Mississippi Power entered into a $125 million revolving credit facility that matures in March 2023.
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 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 June 30, 2020, the Registrants, Nicor Gas, and 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 June 30, 2020 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, 2020, Georgia Power had approximately $257 million of fixed rate revenue bonds outstanding that are required to be remarketed within the next 12 months.
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, as a result of stock price volatility in the first six months of 2020, the equity units issued in August 2019. Earnings per share dilution resulting from stock-based

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(UNAUDITED)

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, 2020Three Months Ended June 30, 2019Six Months Ended June 30, 2020Six Months Ended June 30, 2019
 (in millions)
As reported shares1,058
1,044
1,057
1,041
Effect of stock-based compensation5
8
7
8
Effect of equity units

1

Diluted shares1,063
1,052
1,065
1,049

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 six months ended June 30, 2020. There were 0 such amounts for the three and six months ended June 30, 2019.
(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
The utilization of each Registrants' estimated tax credit and 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. 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.
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.
Southern Company's effective tax rate was 9.3% for the six months ended June 30, 2020 compared to 33.5% for the corresponding period in 2019. The effective tax rate decrease was primarily due to the tax impact from the sale of Gulf Power 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 4.0% for the six months ended June 30, 2020 compared to 21.7% 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

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(UNAUDITED)

earnings 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 10.6% for the six months ended June 30, 2020 compared to 14.0% 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 rate was 10.5% for the six months ended June 30, 2020 compared to a benefit rate of (35.5)% for the corresponding period in 2019. The effective tax rate increase was primarily due to tax benefits resulting from ITCs recognized upon the sale of Plant Nacogdoches in 2019. See Note (K) under "Southern Power" for additional information.
Southern Company Gas
Southern Company Gas' effective tax rate was 21.5% for the six months ended June 30, 2020 compared to 18.0% 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" 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. 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 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

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(UNAUDITED)

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 six months ended June 30, 2020 and 2019 are presented in the following tables.
Three Months Ended June 30, 2020
Southern
Company
 
Alabama
Power
 
Georgia
Power
 
Mississippi
Power
 Southern Power Southern Company Gas
 (in millions)
Pension Plans
Service cost$94
 $22
 $24
 $4
 $2
 $8
Interest cost108
 25
 34
 5
 2
 7
Expected return on plan assets(275) (66) (87) (12) (3) (20)
Amortization:           
Prior service costs
 
 1
 
 
 
Regulatory asset
 
 
 
 
 4
Net (gain)/loss67
 18
 21
 3
 
 3
Net periodic pension cost (income)$(6) $(1) $(7) $
 $1
 $2
Postretirement Benefits
Service cost$6
 $1
 $2
 $1
 $
 $1
Interest cost14
 3
 5
 1
 
 4
Expected return on plan assets(18) (7) (6) (1) 
 (2)
Amortization:           
Prior service costs(1) 
 
 
 
 
Regulatory asset
 
 
 
 
 1
Net (gain)/loss
 
 
 
 
 (1)
Net periodic postretirement benefit cost$1
 $(3) $1
 $1
 $
 $3
Six Months Ended June 30, 2020
Southern
Company
 
Alabama
Power
 
Georgia
Power
 
Mississippi
Power
 Southern Power Southern Company Gas
 (in millions)
Pension Plans
Service cost$188
 $44
 $48
 $8
 $4
 $16
Interest cost216
 50
 67
 10
 3
 15
Expected return on plan assets(550) (132) (174) (25) (6) (39)
Amortization:           
Prior service costs1
 
 1
 
 
 (1)
Regulatory asset
 
 
 
 
 8
Net (gain)/loss134
 36
 43
 6
 1
 5
Net periodic pension cost (income)$(11) $(2) $(15) $(1) $2
 $4
            

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(UNAUDITED)

Six Months Ended June 30, 2020
Southern
Company
 
Alabama
Power
 
Georgia
Power
 
Mississippi
Power
 Southern Power Southern Company Gas
 (in millions)
Postretirement Benefits
Service cost$11
 $3
 $3
 $1
 $
 $1
Interest cost27
 6
 10
 1
 
 6
Expected return on plan assets(36) (14) (13) (1) 
 (4)
Amortization:           
Prior service costs(1) 
 
 
 
 
Regulatory asset
 
 
 
 
 3
Net (gain)/loss1
 
 1
 
 
 (2)
Net periodic postretirement benefit cost$2
 $(5) $1
 $1
 $
 $4
Three Months Ended June 30, 2019
Southern
Company
 
Alabama
Power
 
Georgia
Power
 
Mississippi
Power
 Southern Power Southern Company Gas
 (in millions)
Pension Plans
Service cost$73

$17

$18

$3

$1

$6
Interest cost123

29

39

5

2

9
Expected return on plan assets(221)
(52)
(73)
(10)
(3)
(15)
Amortization:           
Prior service costs1

1

1






Regulatory asset
 
 
 
 
 4
Net (gain)/loss30

9

11

2




Net periodic pension cost (income)$6

$4

$(4)
$

$

$4
Postretirement Benefits
Service cost$4
 $1
 $1
 $
 $
 $
Interest cost17
 4
 6
 1
 
 3
Expected return on plan assets(17) (7) (6) (1) 
 (1)
Amortization:           
Prior service costs1
 1
 
 
 
 
Regulatory asset
 
 
 
 
 1
Net (gain)/loss
 
 
 
 
 (1)
Net periodic postretirement benefit cost$5
 $(1) $1
 $
 $
 $2

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(UNAUDITED)

Six Months Ended June 30, 2019
Southern
Company
 
Alabama
Power
 
Georgia
Power
 
Mississippi
Power
 Southern Power Southern Company Gas
 (in millions)
Pension Plans
Service cost$146
 $34
 $37
 $6
 $3
 $12
Interest cost246
 57
 78
 11
 3
 18
Expected return on plan assets(442) (103) (146) (20) (5) (30)
Amortization:           
Prior service costs1
 1
 1
 
 
 (1)
Regulatory asset
 
 
 
 
 7
Net (gain)/loss60
 18
 22
 3
 
 1
Net periodic pension cost (income)$11
 $7
 $(8) $
 $1
 $7
Postretirement Benefits
Service cost$9
 $2
 $2
 $
 $
 $1
Interest cost34
 8
 13
 2
 
 5
Expected return on plan assets(33) (13) (12) (1) 
 (3)
Amortization:           
Prior service costs2
 2
 
 
 
 
Regulatory asset
 
 
 
 
 3
Net (gain)/loss(1) 
 
 
 
 (2)
Net periodic postretirement benefit cost$11
 $(1) $3
 $1
 $
 $4


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(UNAUDITED)

(I) FAIR VALUE MEASUREMENTS
As of June 30, 2020, 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:  
As of June 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
 (in millions)
Southern Company         
Assets:         
Energy-related derivatives(a)
$388
 $181
 $143
 $
 $712
Interest rate derivatives
 23
 
 
 23
Investments in trusts:(b)(c)
         
Domestic equity703
 128
 
 
 831
Foreign equity65
 202
 
 
 267
U.S. Treasury and government agency securities
 268
 
 
 268
Municipal bonds
 106
 
 
 106
Pooled funds – fixed income
 16
 
 
 16
Corporate bonds19
 369
 
 
 388
Mortgage and asset backed securities
 75
 
 
 75
Private equity
 
 
 61
 61
Other26
 3
 
 
 29
Cash equivalents1,315
 13
 
 
 1,328
Other investments9
 21
 
 
 30
Total$2,525
 $1,405
 $143
 $61
 $4,134
Liabilities:         
Energy-related derivatives(a)
$468
 $187
 $63
 $
 $718
Interest rate derivatives
 23
 
 
 23
Foreign currency derivatives
 49
 
 
 49
Contingent consideration
 
 19
 
 19
Total$468
 $259
 $82
 $
 $809
          

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(UNAUDITED)

 Fair Value Measurements Using:  
As of June 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
 (in millions)
Alabama Power         
Assets:         
Energy-related derivatives$
 $11
 $
 $
 $11
Nuclear decommissioning trusts:(b)
        

Domestic equity442
 117
 
 
 559
Foreign equity65
 59
 
 
 124
U.S. Treasury and government agency securities
 22
 
 
 22
Municipal bonds
 1
 
 
 1
Corporate bonds19
 155
 
 
 174
Mortgage and asset backed securities
 28
 
 
 28
Private equity
 
 
 61
 61
Other8
 
 
 
 8
Cash equivalents692
 13
 
 
 705
Other investments
 21
 
 
 21
Total$1,226
 $427
 $
 $61
 $1,714
Liabilities:         
Energy-related derivatives$
 $19
 $
 $
 $19
          
Georgia Power         
Assets:         
Energy-related derivatives$
 $10
 $
 $
 $10
Nuclear decommissioning trusts:(b)(c)
         
Domestic equity261
 1
 
 
 262
Foreign equity
 141
 
 
 141
U.S. Treasury and government agency securities
 246
 
 
 246
Municipal bonds
 105
 
 
 105
Corporate bonds
 214
 
 
 214
Mortgage and asset backed securities
 47
 
 
 47
Other18
 3
 
 
 21
Cash equivalents349
 
 
 
 349
Total$628
 $767
 $
 $
 $1,395
Liabilities:         
Energy-related derivatives$
 $40
 $
 $
 $40
          

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

 Fair Value Measurements Using:  
As of June 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
 (in millions)
Mississippi Power         
Assets:         
Energy-related derivatives$
 $6
 $
 $
 $6
Liabilities:         
Energy-related derivatives$
 $22
 $
 $
 $22
          
Southern Power         
Assets:         
Energy-related derivatives$
 $2
 $
 $
 $2
Liabilities:         
Energy-related derivatives$
 $3
 $
 $
 $3
Foreign currency derivatives
 49
 
 
 49
Contingent consideration
 
 19
 
 19
Total$

$52

$19

$

$71
          
Southern Company Gas         
Assets:         
Energy-related derivatives(a)
$388
 $152
 $143
 $
 $683
Non-qualified deferred compensation trusts:         
Domestic equity
 10
 
 
 10
Foreign equity
 2
 
 
 2
Pooled funds – fixed income
 16
 
 
 16
Cash equivalents and restricted cash40
 
 
 
 40
Total$428

$180

$143

$

$751
Liabilities:         
Energy-related derivatives(a)
$468
 $103
 $63
 $
 $634
Interest rate derivatives
 23
 
 
 23
Total$468

$126

$63

$

$657
(a)Energy-related derivatives exclude cash collateral of $114 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 June 30, 2020, approximately $45 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.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

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 six months ended June 30, 2020 and 2019. 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)Three Months Ended June 30, 2020Three Months Ended June 30, 2019Six Months Ended June 30, 2020Six Months Ended June 30, 2019
 (in millions)
Southern Company$223
$75
$(23)$227
Alabama Power124
38
(42)125
Georgia Power99
37
19
102

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 Power 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 is categorized as Level 3 under Fair Value Measurements as 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.

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(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 June 30, 2020, 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 $61 million and unfunded commitments related to the private equity investments totaled $72 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 June 30, 2020, other financial instruments for which the carrying amount did not equal fair value were as follows:
 
Southern
Company
Alabama PowerGeorgia PowerMississippi PowerSouthern Power
Southern Company Gas(*)
 (in millions)
Long-term debt, including securities due within one year:    
Carrying amount$46,513
$8,519
$12,720
$1,404
$4,097
$5,827
Fair value53,079
10,008
15,092
1,571
4,423
6,817

(*)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 lives of the respective bonds.
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 June 30, 2020, the fair value of Southern Company Gas' Level 3 physical natural gas forward contracts was $80 million. 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 June 30, 2020Six Months Ended June 30, 2020
 (in millions)
Beginning balance$76
$14
Transfers to Level 3
70
Transfers from Level 3
(3)
Instruments realized or otherwise settled during period(6)(7)
Changes in fair value10
6
Ending balance$80
$80

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.

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(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 $(0.91) to $0.99 per mmBtu). Forward price increases (decreases) as of June 30, 2020 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. Southern Company Gas' wholesale gas operations use 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 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.
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.

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(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 fuel cost recovery clauses.
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 June 30, 2020, 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
 (in millions)    
Southern Company(*)
944 2024 2031
Alabama Power85 2024 
Georgia Power152 2023 
Mississippi Power91 2024 
Southern Power15 2022 2021
Southern Company Gas(*)
601 2022 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 4.0 billion mmBtu as of June 30, 2020, which is also included in Southern Company's total volume.
At June 30, 2020, the net volume of Southern Power's energy-related derivative contracts for power to be sold was 1 million MWHs, all of which expire in 2020.
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 16 million mmBtu for Southern Company, which includes 4 million mmBtu for Alabama Power, 5 million mmBtu for Georgia Power, 2 million mmBtu for Mississippi Power, and 5 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 June 30, 2021 are immaterial for all Registrants.

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(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 June 30, 2020, 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 June 30, 2020
 (in millions)     (in millions)
Cash Flow Hedges of Forecasted Debt      
Southern Company Gas$200
 3-month LIBOR1.81%September 2030 $(23)
Cash Flow Hedges of Existing Debt      
Mississippi Power60
 1-month LIBOR0.58%December 2021 
Fair Value Hedges of Existing Debt      
Southern Company parent1,500
 2.35%1-month LIBOR + 0.87%July 2021 23
Southern Company$1,760
     $

The estimated pre-tax gains (losses) related to interest rate derivatives expected to be reclassified from accumulated OCI to interest expense for the 12-month period ending June 30, 2021 total $(25) 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 2046 for the Southern Company parent entity, 2035 for Alabama Power, 2044 for Georgia Power, 2028 for Mississippi Power, and 2046 for Southern Company Gas.
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.

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(UNAUDITED)

At June 30, 2020, the following foreign currency derivatives were outstanding:
 Pay NotionalPay RateReceive NotionalReceive RateHedge
Maturity Date
Fair Value Gain (Loss) at June 30, 2020
 (in millions) (in millions)  (in millions)
Cash Flow Hedges of Existing Debt     
Southern Power$677
2.95%600
1.00%June 2022$(18)
Southern Power564
3.78%500
1.85%June 2026(31)
Total$1,241
 1,100
  $(49)

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 June 30, 2021 are $(24) 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.

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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 June 30, 2020As of December 31, 2019
Derivative Category and Balance Sheet LocationAssetsLiabilitiesAssetsLiabilities
 (in millions)(in millions)
Southern Company    
Derivatives designated as hedging instruments for regulatory purposes    
Energy-related derivatives:    
Other current assets/Other current liabilities$19
$64
$3
$70
Other deferred charges and assets/Other deferred credits and liabilities13
28
6
44
Total derivatives designated as hedging instruments for regulatory purposes$32
$92
$9
$114
Derivatives designated as hedging instruments in cash flow and fair value hedges    
Energy-related derivatives:    
Other current assets/Other current liabilities$3
$6
$1
$6
Interest rate derivatives:    
Other current assets/Other current liabilities12
23
2
23
Other deferred charges and assets/Other deferred credits and liabilities10


1
Foreign currency derivatives:    
Other current assets/Other current liabilities
24

24
Other deferred charges and assets/Other deferred credits and liabilities
25
16

Total derivatives designated as hedging instruments in cash flow and fair value hedges$25
$78
$19
$54
Derivatives not designated as hedging instruments    
Energy-related derivatives:    
Other current assets/Other current liabilities$361
$367
$461
$358
Other deferred charges and assets/Other deferred credits and liabilities316
253
207
225
Total derivatives not designated as hedging instruments$677
$620
$668
$583
Gross amounts recognized$734
$790
$696
$751
Gross amounts offset(a)
(520)(634)(463)(562)
Net amounts recognized in the Balance Sheets(b)
$214
$156
$233
$189
     

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(UNAUDITED)

 As of June 30, 2020As of December 31, 2019
Derivative Category and Balance Sheet LocationAssetsLiabilitiesAssetsLiabilities
 (in millions)(in millions)
Alabama Power    
Derivatives designated as hedging instruments for regulatory purposes    
Energy-related derivatives:    
Other current assets/Other current liabilities$7
$12
$2
$14
Other deferred charges and assets/Other deferred credits and liabilities4
7
2
10
Total derivatives designated as hedging instruments for regulatory purposes$11
$19
$4
$24
Gross amounts recognized$11
$19
$4
$24
Gross amounts offset(8)(8)(2)(2)
Net amounts recognized in the Balance Sheets$3
$11
$2
$22
     
Georgia Power    
Derivatives designated as hedging instruments for regulatory purposes    
Energy-related derivatives:    
Other current assets/Other current liabilities$5
$28
$1
$32
Other deferred charges and assets/Other deferred credits and liabilities5
12
3
21
Total derivatives designated as hedging instruments for regulatory purposes$10
$40
$4
$53
Derivatives designated as hedging instruments in cash flow and fair value hedges    
Interest rate derivatives:    
Other current assets/Other current liabilities$
$
$
$17
Total derivatives designated as hedging instruments in cash flow and fair value hedges$
$
$
$17
Gross amounts recognized$10
$40
$4
$70
Gross amounts offset(10)(10)(3)(3)
Net amounts recognized in the Balance Sheets$
$30
$1
$67
     

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(UNAUDITED)

 As of June 30, 2020As of December 31, 2019
Derivative Category and Balance Sheet LocationAssetsLiabilitiesAssetsLiabilities
 (in millions)(in millions)
Mississippi Power    
Derivatives designated as hedging instruments for regulatory purposes    
Energy-related derivatives:    
Other current assets/Other current liabilities$3
$13
$
$15
Other deferred charges and assets/Other deferred credits and liabilities3
9
1
12
Total derivatives designated as hedging instruments for regulatory purposes$6
$22
$1
$27
Gross amounts recognized$6
$22
$1
$27
Gross amounts offset(6)(6)(1)(1)
Net amounts recognized in the Balance Sheets$
$16
$
$26
     
Southern Power    
Derivatives designated as hedging instruments in cash flow and fair value hedges    
Energy-related derivatives:    
Other current assets/Other current liabilities$2
$3
$1
$2
Foreign currency derivatives:    
Other current assets/Other current liabilities
24

24
Other deferred charges and assets/Other deferred credits and liabilities
25
16

Total derivatives designated as hedging instruments in cash flow and fair value hedges$2
$52
$17
$26
Derivatives not designated as hedging instruments    
Energy-related derivatives:    
Other current assets/Other current liabilities$
$
$2
$1
Total derivatives not designated as hedging instruments$
$
$2
$1
Gross amounts recognized$2
$52
$19
$27
Gross amounts offset(1)(1)

Net amounts recognized in the Balance Sheets$1
$51
$19
$27
     

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(UNAUDITED)

 As of June 30, 2020As of December 31, 2019
Derivative Category and Balance Sheet LocationAssetsLiabilitiesAssetsLiabilities
 (in millions)(in millions)
Southern Company Gas    
Derivatives designated as hedging instruments for regulatory purposes    
Energy-related derivatives:    
Assets from risk management activities/Liabilities from risk management activities-current$4
$11
$
$9
Other deferred charges and assets/Other deferred credits and liabilities1


1
Total derivatives designated as hedging instruments for regulatory purposes$5
$11
$
$10
Derivatives designated as hedging instruments in cash flow and fair value hedges    
Energy-related derivatives:    
Assets from risk management activities/Liabilities from risk management activities-current$1
$3
$
$4
Interest rate derivatives:    
Assets from risk management activities/Liabilities from risk management activities-current
23
2

Total derivatives designated as hedging instruments in cash flow and fair value hedges$1
$26
$2
$4
Derivatives not designated as hedging instruments    
Energy-related derivatives:    
Assets from risk management activities/Liabilities from risk management activities-current$361
$367
$459
$357
Other deferred charges and assets/Other deferred credits and liabilities316
253
207
225
Total derivatives not designated as hedging instruments$677
$620
$666
$582
Gross amounts of recognized$683
$657
$668
$596
Gross amounts offset(a)
(495)(609)(456)(555)
Net amounts recognized in the Balance Sheets(b)
$188
$48
$212
$41
(a)Gross amounts offset include cash collateral held on deposit in broker margin accounts of $114 million and $99 million as of June 30, 2020 and December 31, 2019, respectively.
(b)Net amounts of derivative instruments outstanding exclude premium and intrinsic value associated with weather derivatives of $4 million as of December 31, 2019.
Energy-related derivatives not designated as hedging instruments were immaterial for the traditional electric operating companies at June 30, 2020 and December 31, 2019.

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(UNAUDITED)

At June 30, 2020 and December 31, 2019, 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
Derivative Category and Balance Sheet
Location
Southern
Company(*)
Alabama
Power
Georgia
Power
Mississippi
Power
Southern Company Gas(*)
 (in millions)
At June 30, 2020:     
Energy-related derivatives:     
Other regulatory assets, current$(42)$(8)$(23)$(10)$(1)
Other regulatory assets, deferred(16)(3)(7)(6)
Other regulatory liabilities, current10
3


7
Total energy-related derivative gains (losses)$(48)$(8)$(30)$(16)$6
      
At December 31, 2019:     
Energy-related derivatives:     
Other regulatory assets, current$(63)$(14)$(31)$(15)$(3)
Other regulatory assets, deferred(37)(8)(18)(11)
Other regulatory liabilities, current6
2


4
Total energy-related derivative gains (losses)$(94)$(20)$(49)$(26)$1

(*)Fair value gains and losses recorded in regulatory assets and liabilities include cash collateral held on deposit in broker margin accounts of $12 million and $11 million at June 30, 2020 and December 31, 2019, respectively.
For the three and six months ended June 30, 2020 and 2019, the pre-tax effects of cash flow hedge accounting on accumulated OCI were as follows:
Gain (Loss) Recognized in OCI on DerivativeFor the Three Months Ended June 30,For the Six Months Ended June 30,
2020201920202019
 (in millions)(in millions)
Southern Company    
Energy-related derivatives$(2)$(6)$(6)$(6)
Interest rate derivatives(1)(37)(28)(37)
Foreign currency derivatives17
(1)(65)(39)
Total$14
$(44)$(99)$(82)
Georgia Power    
Interest rate derivatives$
$(37)$(3)$(37)
Southern Power    
Energy-related derivatives$(2)$(2)$(2)$(2)
Foreign currency derivatives$17
$(1)(65)(39)
Total$15
$(3)$(67)$(41)
Southern Company Gas    
Energy-related derivatives$
$(4)$(4)$(4)
Interest rate derivatives(1)
(25)
Total$(1)$(4)$(29)$(4)

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(UNAUDITED)

For the three and six months ended June 30, 2020 and 2019, 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.
For the three and six months ended June 30, 2020 and 2019, 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 RelationshipsFor the Three Months Ended June 30,For the Six Months Ended June 30,
 
 2020201920202019
  (in millions)(in millions)
 Southern Company    
 Total cost of natural gas$144
$191
$583
$877
 
Gain (loss) on energy-related cash flow hedges(a)
(1)
(8)
 Total depreciation and amortization873
755
1,730
1,506
 
Gain (loss) on energy-related cash flow hedges(a)
(1)(1)(2)(4)
 Total interest expense, net of amounts capitalized(444)(429)(900)(859)
 
Gain (loss) on interest rate cash flow hedges(a)
(6)(5)(13)(9)
 
Gain (loss) on foreign currency cash flow hedges(a)
(6)(6)(12)(12)
 
Gain (loss) on interest rate fair value hedges(b)
1
19
30
33
 Total other income (expense), net101
99
204
176
 
Gain (loss) on foreign currency cash flow hedges(a)(c)
27
16
(4)(8)
 Southern Power    
 Total depreciation and amortization$121
$119
$239
$237
 
Gain (loss) on energy-related cash flow hedges(a)
(1)(1)(2)(4)
 Total interest expense, net of amounts capitalized(38)(41)(77)(84)
 
Gain (loss) on foreign currency cash flow hedges(a)
(6)(6)(12)(12)
 Total other income (expense), net1
40
4
41
 
Gain (loss) on foreign currency cash flow hedges(a)(c)
27
16
(4)(8)
(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 six months ended June 30, 2020 and 2019, 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.

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(UNAUDITED)

As of June 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 ItemsAs of June 30, 2020As of December 31, 2019
As of June 30, 2020As of December 31, 2019

(in millions) (in millions)
Southern Company     
Securities due within one year$
$(599) $
$
Long-term debt(1,517)(1,494) (20)3

For the three and six months ended June 30, 2020 and 2019, 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)
  Three Months Ended June 30, Six Months Ended June 30,
Derivatives in Non-Designated Hedging RelationshipsStatements of Income Location20202019 20202019
  (in millions) (in millions)
Energy-related derivatives:
Natural gas revenues(*)
$14
$50
 $84
$83
 Cost of natural gas5
(5) 13
3
Total derivatives in non-designated hedging relationships$19
$45
 $97
$86
(*)Excludes immaterial gains (losses) recorded in natural gas revenues associated with weather derivatives for all periods presented.
For the three and six months ended June 30, 2020 and 2019, the pre-tax effects of energy-related derivatives and interest rate 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 June 30, 2020, the Registrants had 0 collateral posted with derivative counterparties to satisfy these arrangements.
For the Registrants with interest rate derivatives at June 30, 2020, the fair value of 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. At June 30, 2020, the fair value of 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. 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, 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.

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    Table of Contents                                Index to Financial Statements

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

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. 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. At June 30, 2020, 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 June 30, 2020, cash collateral held on deposit in broker margin accounts was $114 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 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. Prior to entering into a physical transaction, Southern Company Gas assigns physical wholesale 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 netting agreements enable Southern Company Gas to net certain assets and liabilities by counterparty. Southern Company Gas also nets across product lines and against cash collateral provided the master netting and cash collateral agreements include such provisions. Southern Company Gas may require counterparties to pledge additional collateral when deemed necessary.
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 June 30, 2020.
Alabama Power
On April 22, 2020 and June 9, 2020, the FERC and the Alabama PSC