Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Line Items]

INCOME TAXES

INCOME TAXES

Southern Company files a consolidated federal income tax return and combined state income tax returns for the States of Alabama, Georgia, Mississippi, and Texas. Under a joint consolidated income tax allocation agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis and no subsidiary is allocated more current expense than would be paid if it filed a separate income tax return. In accordance with IRS regulations, each company is jointly and severally liable for the federal tax liability.

Current and Deferred Income Taxes

Details of income tax provisions are as follows:

	2012		2011		2010
	(in millions)
Federal —
Current	$	177	$	57	$	42
Deferred	1,011		1,035		898
	1,188		1,092		940
State —
Current	61		8		(54		)
Deferred	85		119		140
	146		127		86
Total	$	1,334	$	1,219	$	1,026

Net cash payments/(refunds) for income taxes in 2012, 2011, and 2010 were $38 million, $(401) million, and $276 million, respectively.

The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows:

	2012			2011
	(in millions)
Deferred tax liabilities —
Accelerated depreciation	$	9,022		$	7,882
Property basis differences	1,254			1,256
Leveraged lease basis differences	278			277
Employee benefit obligations	536			499
Under recovered fuel clause	16			82
Premium on reacquired debt	84			111
Regulatory assets associated with employee benefit obligations	988			1,198
Regulatory assets associated with asset retirement obligations	1,108			546
Other	333			276
Total	13,619			12,127
Deferred tax assets —
Federal effect of state deferred taxes	394			393
Employee benefit obligations	1,678			1,594
Over recovered fuel clause	135			33
Other property basis differences	134			134
Deferred costs	39			55
Cost of removal	29			40
Tax credit carryforward	256			129
Unbilled revenue	101			110
Other comprehensive losses	84			81
Asset retirement obligations	720			546
Other	362			358
Total	3,932			3,473
Total deferred tax liabilities, net	9,687			8,654
Portion included in prepaid expenses (accrued income taxes), net	237			125
Deferred state tax assets	68			86
Valuation allowance	(54		)	(56		)
Accumulated deferred income taxes	$	9,938		$	8,809

At December 31, 2012, Southern Company had subsidiaries with State of Georgia net operating loss (NOL) carryforwards totaling $827 million, which could result in net state income tax benefits of $48 million, if utilized. However, the subsidiaries have established a valuation allowance for the potential $48 million tax benefit due to the remote likelihood that the tax benefit will be realized. These NOLs expire between 2013 and 2021. Beginning in 2002, the State of Georgia allowed Southern Company to file a combined return, which has prevented the creation of any additional NOL carryforwards.

At December 31, 2012, the tax-related regulatory assets to be recovered from customers were $1.4 billion. These assets are primarily attributable to tax benefits that flowed through to customers in prior years, to deferred taxes previously recognized at rates lower than the current enacted tax law, and to taxes applicable to capitalized interest.

At December 31, 2012, the tax-related regulatory liabilities to be credited to customers were $211 million. These liabilities are primarily attributable to deferred taxes previously recognized at rates higher than the current enacted tax law and to unamortized investment tax credits.

In accordance with regulatory requirements, deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the statements of income. Credits amortized in this manner amounted to $23 million in 2012, $19 million in 2011, and $23 million in 2010. At December 31, 2012, all investment tax credits available to reduce federal income taxes payable had not been utilized. The remaining investment tax credits will be carried forward and utilized in future years.

In 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act) was signed into law. Major tax incentives in the Tax Relief Act include 100% bonus depreciation for property placed in service after September 8, 2010 and through 2011 (and for certain long-term production-period projects placed in service in 2012) and 50% bonus depreciation for property placed in service in 2012 (and for certain long-term production-period projects to be placed in service in 2013). The application of the bonus depreciation provisions in the Tax Relief Act significantly increased deferred tax liabilities related to accelerated depreciation.

Effective Tax Rate

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

	2012		2011		2010
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income tax, net of federal deduction	2.5		2.4		1.8
Employee stock plans dividend deduction	(1.0	)	(1.1	)	(1.2	)
Non-deductible book depreciation	0.9		0.7		0.8
Difference in prior years' deferred and current tax rate	(0.1	)	(0.1	)	(0.1	)
AFUDC-Equity	(1.3	)	(1.5	)	(2.2	)
ITC basis difference	(0.3	)	(0.2	)	(0.4	)
Other	(0.1	)	(0.2	)	(0.2	)
Effective income tax rate	35.6	%	35.0	%	33.5	%

Southern Company's effective tax rate is typically lower than the statutory rate due to its employee stock plans' dividend deduction and non-taxable AFUDC equity.

Unrecognized Tax Benefits

For 2012, the total amount of unrecognized tax benefits decreased by $50 million, resulting in a balance of $70 million as of December 31, 2012.

Changes during the year in unrecognized tax benefits were as follows:

	2012			2011			2010
	(in millions)
Unrecognized tax benefits at beginning of year	$	120		$	296		$	199
Tax positions from current periods	13			46			62
Tax positions increase from prior periods	7			1			62
Tax positions decrease from prior periods	(56		)	(111		)	(27		)
Reductions due to settlements	(10		)	(112		)	—
Reductions due to expired statute of limitations	(4		)	—			—
Balance at end of year	$	70		$	120		$	296

The tax positions from current periods for 2012 relate primarily to the tax accounting method change for repairs-generation assets. See "Tax Method of Accounting for Repairs" herein for additional information. The decreases in tax positions from prior periods primarily relate to state income tax credits and the 2009 MC Asset Recovery, LLC refund claim. The American Jobs Creation Act of 2004 created a tax deduction for a portion of income attributable to U.S. production activities as defined in Section 199 of the Internal Revenue Code (production activities deduction). The reductions due to settlements relate to a settlement with the IRS of the calculation methodology for the production activities deduction.

The impact on Southern Company's effective tax rate, if recognized, was as follows:

	2012		2011		2010
	(in millions)
Tax positions impacting the effective tax rate	$	5	$	69	$	217
Tax positions not impacting the effective tax rate	65		51		79
Balance of unrecognized tax benefits	$	70	$	120	$	296

The tax positions impacting the effective tax rate for 2012 primarily relate to state income tax credits. The tax positions not impacting the effective tax rate for 2012 relate to the timing difference associated with the tax accounting method change for repairs-generation assets. See "Tax Method of Accounting for Repairs" herein for additional information. These amounts are presented on a gross basis without considering the related federal or state income tax impact.

Accrued interest for unrecognized tax benefits was as follows:

	2012			2011			2010
	(in millions)
Interest accrued at beginning of year	$	10		$	29		$	21
Interest reclassified due to settlements	(9		)	(24		)	—
Interest accrued during the year	—			5			8
Balance at end of year	$	1		$	10		$	29

Southern Company classifies interest on tax uncertainties as interest expense. The interest reclassified due to settlements in 2012 is primarily associated with state income tax credits and a settlement with the IRS related to the calculation methodology for the production activities deduction.

Southern Company did not accrue any penalties on uncertain tax positions.

It is reasonably possible that the amount of the unrecognized tax benefits associated with a majority of Southern Company's unrecognized tax positions will significantly increase or decrease within 12 months. The resolution of the tax accounting method change for repairs-generation assets, as well as the conclusion or settlement of state audits, could impact the balances significantly. At this time, an estimate of the range of reasonably possible outcomes cannot be determined.

The IRS has audited and closed all of Southern Company's consolidated federal income tax returns prior to 2009 and has settled its audits of Southern Company's consolidated federal income tax returns for 2009 and 2010, in principle, pending final approval. Additionally, the IRS has audited and closed Southern Company's 2011 consolidated federal income tax return. For tax years 2010 through 2013, Southern Company is a participant in the Compliance Assurance Process of the IRS. The audits for Southern Company's state income tax returns have either been concluded, or the statute of limitations has expired, for years prior to 2007.

Tax Method of Accounting for Repairs

Southern Company submitted a tax accounting method change related to the deductibility of repair costs associated with its subsidiaries' generation, transmission, and distribution systems effective for the 2009 consolidated federal income tax return in 2010. In August 2011, the IRS issued a revenue procedure, which provides a safe harbor method of accounting that taxpayers may use to determine eligible repair costs for transmission and distribution property. The IRS continues to work with the utility industry in an effort to define eligible repair costs for generation assets in a consistent manner for all utilities. The IRS published regulations on the deduction and capitalization of expenditures related to tangible property that generally apply for tax years beginning on or after January 1, 2014. The utility industry anticipates more detailed guidance concerning these regulations. Due to the uncertainty regarding the ultimate resolution of the repair costs for generation assets, an unrecognized tax position has been recorded for the tax accounting method change for repairs-generation assets. The ultimate outcome of this matter cannot be determined at this time; however, it is not expected to materially impact net income.

Alabama Power [Member]

Income Tax Disclosure [Line Items]

INCOME TAXES

INCOME TAXES

On behalf of the Company, Southern Company files a consolidated federal income tax return and combined state income tax returns for the States of Alabama, Georgia, and Mississippi. In addition, the Company files a separate company income tax return for the State of Tennessee. Under a joint consolidated income tax allocation agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis and no subsidiary is allocated more current expense than would be paid if it filed a separate income tax return. In accordance with IRS regulations, each company is jointly and severally liable for the federal tax liability.

Current and Deferred Income Taxes

Details of income tax provisions are as follows:

	2012		2011			2010
	(in millions)
Federal —
Current	$	262	$	20		$	52
Deferred	137		377			333
	399		397			385
State —
Current	51		(1		)	1
Deferred	27		82			77
	78		81			78
Total	$	477	$	478		$	463

The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows:

	2012		2011
	(in millions)
Deferred tax liabilities —
Accelerated depreciation	$	2,989	$	2,820
Property basis differences	420		439
Premium on reacquired debt	36		33
Employee benefit obligations	218		217
Under recovered energy clause	16		26
Regulatory assets associated with employee benefit obligations	378		343
Regulatory assets associated with asset retirement obligations	248		233
Other	114		94
Total	4,419		4,205
Deferred tax assets —
Federal effect of state deferred taxes	194		186
State effect of federal deferred taxes	—		—
Unbilled fuel revenue	39		38
Storm reserve	34		38
Employee benefit obligations	408		373
Other comprehensive losses	19		14
Asset retirement obligations	248		233
Other	98		97
Total	1,040		979
Total deferred tax liabilities, net	3,379		3,226
Portion included in current assets (liabilities), net	25		31
Accumulated deferred income taxes	$	3,404	$	3,257

At December 31, 2012, the Company's tax-related regulatory assets to be recovered from customers were $525 million. These assets are primarily attributable to tax benefits that flowed through to customers in prior years, to deferred taxes previously recognized at rates lower than the current enacted tax law, and to taxes applicable to capitalized interest.

At December 31, 2012, the Company's tax-related regulatory liabilities to be credited to customers were $79 million. These liabilities are primarily attributable to unamortized investment tax credits.

In accordance with regulatory requirements, deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the statements of income. Credits amortized in this manner amounted to $8 million in each of 2012, 2011, and 2010. At December 31, 2012, all investment tax credits available to reduce federal income taxes payable had been utilized.

In 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act) was signed into law. Major tax incentives in the Tax Relief Act include 100% bonus depreciation for property placed in service after September 8, 2010 and through 2011 (and for certain long-term production-period projects placed in service in 2012) and 50% bonus depreciation for property placed in service in 2012 (and for certain long-term production-period projects to be placed in service in 2013). The application of the bonus depreciation provisions in the Tax Relief Act significantly increased deferred tax liabilities related to accelerated depreciation.

Effective Tax Rate

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

	2012	2011	2010
Federal statutory rate	35.0%	35.0%	35.0%
State income tax, net of federal deduction	4.1	4.3	4.2
Non-deductible book depreciation	0.9	0.8	0.8
Differences in prior years' deferred and current tax rates	(0.1)	(0.1)	(0.1)
AFUDC equity	(0.5)	(0.6)	(1.0)
Other	(0.3)	(0.4)	(0.6)
Effective income tax rate	39.1%	39.0%	38.3%

The increase in the Company's 2012 effective tax rate was not material.

The increase in the Company's 2011 effective tax rate was due to a decrease in the tax benefit of AFUDC equity due to a decrease in AFUDC, resulting from the completion of construction projects related to environmental mandates at generating facilities. See Note 1 under "Allowance for Funds Used During Construction" for additional information.

Unrecognized Tax Benefits

For 2012, the total amount of unrecognized tax benefits decreased by $1 million, resulting in a balance of $31 million as of December 31, 2012.

Changes during the year in unrecognized tax benefits were as follows:

	2012			2011			2010
				(in millions)
Unrecognized tax benefits at beginning of year	$	32		$	43		$	6
Tax positions from current periods	5			6			6
Tax positions from prior periods	(4		)	(17		)	31
Reductions due to settlements	(2		)	—			—
Balance at end of year	$	31		$	32		$	43

The tax positions from current periods for 2012 relate primarily to the tax accounting method change for repairs-generation assets. See "Tax Method of Accounting for Repairs" herein for additional information. The American Jobs Creation Act of 2004 created a tax deduction for a portion of income attributable to U.S. production activities as defined in Section 199 of the Internal Revenue Code (production activities deduction). The tax positions decrease from prior periods and the reductions due to settlements for 2012 relate to a settlement with the IRS of the calculation methodology for the production activities deduction.

The impact on the Company's effective tax rate, if recognized, was as follows:

	2012		2011		2010
			(in millions)
Tax positions impacting the effective tax rate	$	—	$	5	$	6
Tax positions not impacting the effective tax rate	31		27		37
Balance of unrecognized tax benefits	$	31	$	32	$	43

The tax positions not impacting the effective tax rate for 2012 relate to the timing difference associated with the tax accounting method change for repairs-generation assets. See "Tax Method of Accounting for Repairs" herein for additional information. These amounts are presented on a gross basis without considering the related federal or state income tax impact.

Accrued interest for unrecognized tax benefits was as follows:

	2012			2011		2010
				(in millions)
Interest accrued at beginning of year	$	1.9		$	1.5	$	0.3
Interest reclassified due to settlements	(1.9		)	—		—
Interest accrued during the year	—			0.4		1.2
Balance at end of year	$	—		$	1.9	$	1.5

The Company classifies interest on tax uncertainties as interest expense. The Company did not accrue any penalties on uncertain tax positions.

It is reasonably possible that the amount of the unrecognized tax benefits associated with a majority of the Company's unrecognized tax positions will significantly increase or decrease within 12 months. The resolution of the tax accounting method change for repairs-generation assets, as well as the conclusion or settlement of state audits, could impact the balances significantly. At this time, an estimate of the range of reasonably possible outcomes cannot be determined.

The IRS has audited and closed all of Southern Company's consolidated federal income tax returns prior to 2009 and has settled its audits of Southern Company's consolidated federal income tax returns for 2009 and 2010, in principle, pending final approval. Additionally, the IRS has audited and closed Southern Company's 2011 consolidated federal income tax return. For tax years 2010 through 2013, Southern Company is a participant in the Compliance Assurance Process of the IRS. The audits for the Company's state income tax returns have either been concluded, or the statute of limitations has expired, for years prior to 2007.

Tax Method of Accounting for Repairs

Southern Company submitted a tax accounting method change related to the deductibility of repair costs associated with its subsidiaries' generation, transmission, and distribution systems effective for the 2009 consolidated federal income tax return in 2010. In August 2011, the IRS issued a revenue procedure, which provides a safe harbor method of accounting that taxpayers may use to determine eligible repair costs for transmission and distribution property. The IRS continues to work with the utility industry in an effort to define eligible repair costs for generation assets in a consistent manner for all utilities. The IRS published regulations on the deduction and capitalization of expenditures related to tangible property that generally apply for tax years beginning on or after January 1, 2014. The utility industry anticipates more detailed guidance concerning these regulations. Due to the uncertainty regarding the ultimate resolution of the repair costs for generation assets, an unrecognized tax position has been recorded for the tax accounting method change for repairs-generation assets. The ultimate outcome of this matter cannot be determined at this time; however, it is not expected to materially impact net income.

Georgia Power [Member]

Income Tax Disclosure [Line Items]

INCOME TAXES

INCOME TAXES

On behalf of the Company, Southern Company files a consolidated federal income tax return and combined state income tax returns for the States of Alabama, Georgia, and Mississippi. Under a joint consolidated income tax allocation agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis and no subsidiary is allocated more current expense than would be paid if it filed a separate income tax return. In accordance with IRS regulations, each company is jointly and severally liable for the federal tax liability.

Current and Deferred Income Taxes

Details of income tax provisions are as follows:

	2012		2011		2010
	(in millions)
Federal –
Current	$	273	$	106	$	147
Deferred	370		479		312
	643		585		459
State –
Current	38		19		(36		)
Deferred	7		21		30
	45		40		(6		)
Total	$	688	$	625	$	453

The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows:

	2012		2011
	(in millions)
Deferred tax liabilities –
Accelerated depreciation	$	4,201	$	3,687
Property basis differences	757		804
Employee benefit obligations	255		257
Under-recovered fuel costs	—		56
Premium on reacquired debt	77		72
Regulatory assets associated with employee benefit obligations	536		481
Asset retirement obligations	446		299
Other	93		103
Total	6,365		5,759
Deferred tax assets –
Federal effect of state deferred taxes	142		157
Employee benefit obligations	644		585
Other property basis differences	100		106
Other deferred costs	39		55
Cost of removal obligations	29		40
State tax credit carry forward	86		52
Over-recovered fuel costs	89		—
Unbilled fuel revenue	39		45
Asset retirement obligations	446		299
Other	42		63
Total	1,656		1,402
Total deferred tax liabilities, net	4,709		4,357
Portion included in current assets/(liabilities), net	152		31
Accumulated deferred income taxes	$	4,861	$	4,388

At December 31, 2012, tax-related regulatory assets were $738 million. These assets are primarily attributable to tax benefits that flowed through to customers in prior years, to deferred taxes previously recognized at rates lower than the current enacted tax law, and to taxes applicable to capitalized interest.

At December 31, 2012, tax-related regulatory liabilities to be credited to customers were $151 million. These liabilities are primarily attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. In 2011, the Company recorded a regulatory liability of $62 million related to a settlement with the Georgia Department of Revenue resolving claims for certain tax credits in 2005 through 2009. Amortization of the regulatory liability is occurring ratably over the period from April 2012 through December 2013.

In accordance with regulatory requirements, deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the statements of income. Credits amortized in this manner amounted to $13 million in 2012, $9 million in 2011, and $13 million in 2010. At December 31, 2012, all investment tax credits available to reduce federal income taxes payable had been utilized, and the Company has $86 million in state investment tax credits that will expire by 2021.

In 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act) was signed into law. Major tax incentives in the Tax Relief Act include 100% bonus depreciation for property placed in service after September 8, 2010 and through 2011 (and for certain long-term production-period projects placed in service in 2012) and 50% bonus depreciation for property placed in service in 2012 (and for certain long-term production-period projects to be placed in service in 2013). The application of the bonus depreciation provisions in the Tax Relief Act significantly increased deferred tax liabilities related to accelerated depreciation.

Effective Tax Rate

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

	2012		2011		2010
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income tax, net of federal deduction	1.6		1.5		(0.3	)
Non-deductible book depreciation	1.2		0.8		1.0
AFUDC equity	(1.0	)	(1.9	)	(3.6	)
Other	(0.1	)	(0.5	)	(0.2	)
Effective income tax rate	36.7	%	34.9	%	31.9	%

The increase in the Company's 2012 effective tax rate is primarily the result of an increase in non-deductible book depreciation and a decrease in non-taxable AFUDC equity. The increase in the Company's 2011 effective tax rate is primarily the result of decreases in non-taxable AFUDC equity and state tax credits.

Unrecognized Tax Benefits

For 2012, the total amount of unrecognized tax benefits decreased by $24 million, resulting in a balance of $23 million as of December 31, 2012.

Changes during the year in unrecognized tax benefits were as follows:

	2012			2011			2010
	(in millions)
Unrecognized tax benefits at beginning of year	$	47		$	237		$	181
Tax positions from current periods	3			9			52
Tax positions increase from prior periods	3			—			27
Tax positions decrease from prior periods	(19		)	(87		)	(23		)
Reductions due to settlements	(8		)	(112		)	—
Reductions due to expired statute of limitations	(3		)	—			—
Balance at end of year	$	23		$	47		$	237

The tax positions from current periods for 2012 relate primarily to the tax accounting method change for repairs-generation assets. See "Tax Method of Accounting for Repairs" herein for additional information. The American Jobs Creation Act of 2004 created a tax deduction for a portion of income attributable to U.S. production activities as defined in Section 199 of the Internal Revenue Code (production activities deduction). The tax positions decrease from prior periods and reductions due to settlements for 2012 primarily relate to Georgia's manufacturer's investment tax credits and the production activities deduction.

In addition, the tax reductions due to expired statute of limitations for 2012 relate to the Georgia jobs and retraining tax credits and the Georgia manufacturer's investment tax credits.

The impact on the Company's effective tax rate, if recognized, was as follows:

	2012		2011		2010
	(in millions)
Tax positions impacting the effective tax rate	$	—	$	28	$	202
Tax positions not impacting the effective tax rate	23		19		35
Balance of unrecognized tax benefits	$	23	$	47	$	237

The tax positions not impacting the effective tax rate for 2012 relate to the timing difference associated with the tax accounting method change for repairs-generation assets. See "Tax Method of Accounting for Repairs" herein for additional information. These amounts are presented on a gross basis without considering the related federal or state income tax impact.

Accrued interest for unrecognized tax benefits was as follows:

	2012			2011			2010
	(in millions)
Interest accrued at beginning of year	$	6		$	27		$	20
Interest reclassified due to settlements	(6		)	(24		)	—
Interest accrued during the year	—			3			7
Balance at end of year	$	—		$	6		$	27

The Company classifies interest on tax uncertainties as interest expense. The Company did not accrue any penalties on uncertain tax positions.

It is reasonably possible that the amount of the unrecognized tax benefits associated with a majority of the Company's unrecognized tax positions will significantly increase or decrease within 12 months. The resolution of the tax accounting method change for repairs - generation assets, as well as the conclusion or settlement of state audits, could impact the balances significantly. At this time, an estimate of the range of reasonably possible outcomes cannot be determined.

The IRS has audited and closed all of Southern Company's consolidated federal income tax returns prior to 2009 and has settled its audits of Southern Company's consolidated federal income tax returns for 2009 and 2010 in principle, pending final approval. Additionally, the IRS has audited and closed Southern Company's 2011 consolidated federal income tax return. For tax years 2010 through 2013, Southern Company is a participant in the Compliance Assurance Process of the IRS. The audits for the Company's state income tax returns have either been concluded, or the statute of limitations has expired, for years prior to 2007.

Tax Method of Accounting for Repairs

Southern Company submitted a tax accounting method change related to the deductibility of repair costs associated with its subsidiaries' generation, transmission, and distribution systems effective for the 2009 consolidated federal income tax return in 2010. In August 2011, the IRS issued a revenue procedure, which provides a safe harbor method of accounting that taxpayers may use to determine eligible repair costs for transmission and distribution property. The IRS continues to work with the utility industry in an effort to define eligible repair costs for generation assets in a consistent manner for all utilities. The IRS published regulations on the deduction and capitalization of expenditures related to tangible property that generally apply for tax years beginning on or after January 1, 2014. The utility industry anticipates more detailed guidance concerning these regulations. Due to the uncertainty regarding the ultimate resolution of the repair costs for generation assets, an unrecognized tax position has been recorded for the tax accounting method change for repairs-generation assets. The ultimate outcome of this matter cannot be determined at this time; however, it is not expected to materially impact net income.

Gulf Power [Member]

Income Tax Disclosure [Line Items]

INCOME TAXES

INCOME TAXES

On behalf of the Company, Southern Company files a consolidated federal income tax return and combined state income tax returns for the States of Alabama, Georgia, and Mississippi. In addition, the Company files a separate company income tax return for the State of Florida. Under a joint consolidated income tax allocation agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis and no subsidiary is allocated more current expense than would be paid if it filed a separate income tax return. In accordance with Internal Revenue Service (IRS) regulations, each company is jointly and severally liable for the federal tax liability.

Current and Deferred Income Taxes

Details of income tax provisions are as follows:

	2012			2011			2010
	(in thousands)
Federal -
Current	$	(92,610	)	$	(1,548	)	$	(14,115	)
Deferred	161,096			56,087			77,452
	68,486			54,539			63,337
State -
Current	(2,484		)	(412		)	2,948
Deferred	13,209			7,141			5,229
	10,725			6,729			8,177
Total	$	79,211		$	61,268		$	71,514

The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows:

	2012		2011
	(in thousands)
Deferred tax liabilities-
Accelerated depreciation	$	696,502	$	496,392
Pension and other employee benefits	28,579		25,268
Regulatory assets associated with employee benefit obligations	57,279		44,871
Regulatory assets associated with asset retirement obligations	6,502		4,345
Other	16,019		14,804
Total	804,881		585,680
Deferred tax assets-
Federal effect of state deferred taxes	20,656		16,684
Postretirement benefits	17,905		16,769
Fuel recovery clause	6,922		2,531
Pension and other employee benefits	61,939		49,116
Property reserve	13,773		13,159
Other comprehensive loss	993		1,353
Asset retirement obligations	6,502		4,345
Alternative minimum tax carryforward	938		7,151
Other	28,273		20,191
Total	157,901		131,299
Net deferred tax liabilities	646,980		454,381
Portion included in current assets (liabilities), net	1,972		4,597
Accumulated deferred income taxes	$	648,952	$	458,978

At December 31, 2012, the tax-related regulatory assets to be recovered from customers were $50.5 million. These assets are primarily attributable to tax benefits that flowed through to customers in prior years, to deferred taxes previously recognized at rates lower than the current enacted tax law, and to taxes applicable to capitalized AFUDC.

At December 31, 2012, the tax-related regulatory liabilities to be credited to customers were $6.5 million. These liabilities are primarily attributable to deferred taxes previously recognized at rates higher than the current enacted tax law and to unamortized investment tax credits.

In accordance with regulatory requirements, deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the statements of income. Credits amortized in this manner amounted to $1.4 million in 2012, $1.3 million in 2011, and $1.5 million in 2010. At December 31, 2012, all investment tax credits available to reduce federal income taxes payable had been utilized.

In 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act) was signed into law. Major tax incentives in the Tax Relief Act include 100% bonus depreciation for property placed in service after September 8, 2010 and through 2011 (and for certain long-term production-period projects placed in service in 2012) and 50% bonus depreciation for property placed in service in 2012 (and for certain long-term production-period projects to be placed in service in 2013). The application of the bonus depreciation provisions in the Tax Relief Act significantly increased deferred tax liabilities related to accelerated depreciation.

Effective Tax Rate

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

	2012		2011		2010
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income tax, net of federal deduction	3.3		2.5		2.7
Non-deductible book depreciation	0.5		0.5		0.3
Differences in prior years' deferred and current tax rates	(0.2	)	(0.3	)	(0.3	)
AFUDC equity	(0.9	)	(2.0	)	(1.3	)
Other, net	(0.2	)	(0.2	)	(0.5	)
Effective income tax rate	37.5	%	35.5	%	35.9	%

The increase in the 2012 effective tax rate is primarily the result of a decrease in AFUDC equity, which is not taxable, and a decrease in state tax credits.

Unrecognized Tax Benefits

For 2012, the total amount of unrecognized tax benefits increased by $2.1 million, resulting in a balance of $5.0 million as of December 31, 2012.

Changes during the year in unrecognized tax benefits were as follows:

	2012			2011			2010
	(in thousands)
Unrecognized tax benefits at beginning of year	$	2,892		$	3,870		$	1,639
Tax positions from current periods	2,630			540			1,027
Tax positions from prior periods	515			(1,518		)	1,204
Reductions due to settlements	(1,030		)	—			—
Balance at end of year	$	5,007		$	2,892		$	3,870

The tax positions increase from current periods for 2012 relates primarily to the tax accounting method change for repairs-generation assets. The tax positions increase from prior periods for 2012 also relates primarily to the tax accounting method change for repairs-generation assets. See "Tax Method of Accounting for Repairs" herein for additional information. The American Jobs Creation Act of 2004 created a tax deduction for a portion of income attributable to U.S. production activities as defined in Section 199 of the Internal Revenue Code (production activities deduction). The reductions due to settlements for 2012 relate to a settlement with the IRS of the calculation methodology for the production activities deduction.

The impact on the Company's effective tax rate, if recognized, was as follows:

	2012		2011		2010
	(in thousands)
Tax positions impacting the effective tax rate	$	45	$	1,804	$	1,826
Tax positions not impacting the effective tax rate	4,962		1,088		2,044
Balance of unrecognized tax benefits	$	5,007	$	2,892	$	3,870

The tax positions impacting the effective tax rate for 2012 relate primarily to the research and development credit. The tax positions not impacting the effective tax rate for 2012 relate to the timing difference associated with the tax accounting method change for repairs-generation assets. See "Tax Method of Accounting for Repairs" herein for additional information. These amounts are presented on a gross basis without considering the related federal or state income tax impact.

Accrued interest for unrecognized tax benefits was as follows:

	2012			2011		2010
	(in thousands)
Interest accrued at beginning of year	$	283		$	210	$	90
Interest reclassified due to settlements	(283		)	—		—
Interest accrued during the year	—			73		120
Balance at end of year	$	—		$	283	$	210

The Company classifies interest on tax uncertainties as interest expense. The Company did not accrue any penalties on uncertain tax positions.

It is reasonably possible that the amount of the unrecognized tax benefits associated with a majority of the Company's unrecognized tax positions will significantly increase or decrease within 12 months. The resolution of the tax accounting method change for repairs-generation assets, as well as the conclusion or settlement of state audits, could impact the balances significantly. At this time, an estimate of the range of reasonably possible outcomes cannot be determined.

The IRS has audited and closed all of Southern Company's consolidated federal income tax returns prior to 2009 and has settled its audits of Southern Company's consolidated federal income tax returns for 2009 and 2010, in principle, pending final approval. Additionally, the IRS has audited and closed Southern Company's 2011 consolidated federal income tax return. For tax years 2010 through 2013, Southern Company is a participant in the Compliance Assurance Process of the IRS. The audits for the Company's state income tax returns have either been concluded, or the statute of limitations has expired, for years prior to 2007.

Tax Method of Accounting for Repairs

Southern Company submitted a tax accounting method change related to the deductibility of repair costs associated with its subsidiaries' generation, transmission, and distribution systems effective for the 2009 consolidated federal income tax return in 2010. In August 2011, the IRS issued a revenue procedure, which provides a safe harbor method of accounting that taxpayers may use to determine eligible repair costs for transmission and distribution property. The IRS continues to work with the utility industry in an effort to define eligible repair costs for generation assets in a consistent manner for all utilities. The IRS published regulations on the deduction and capitalization of expenditures related to tangible property that generally apply for tax years beginning on or after January 1, 2014. The utility industry anticipates more detailed guidance concerning these regulations. Due to the uncertainty regarding the ultimate resolution of the repair costs for generation assets, an unrecognized tax position has been recorded for the tax accounting method change for repairs-generation assets. The ultimate outcome of this matter cannot be determined at this time; however, it is not expected to materially impact net income.

Mississippi Power [Member]

Income Tax Disclosure [Line Items]

INCOME TAXES

INCOME TAXES

On behalf of the Company, Southern Company files a consolidated federal income tax return and combined state income tax returns for the States of Alabama and Mississippi. Under a joint consolidated income tax allocation agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis and no subsidiary is allocated more current expense than would be paid if it filed a separate income tax return. In accordance with IRS regulations, each company is jointly and severally liable for the federal tax liability.

Current and Deferred Income Taxes

Details of income tax provisions are as follows:

	2012		2011			2010
	(in thousands)
Federal —
Current	$	1,212	$	(27,099	)	$	5,399
Deferred	42,929		65,206			35,367
	44,141		38,107			40,766
State —
Current	1,656		(2,473		)	3,319
Deferred	4,594		6,559			2,190
	6,250		4,086			5,509
Total	$	50,391	$	42,193		$	46,275

The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows:

	2012		2011
	(in thousands)
Deferred tax liabilities —
Accelerated depreciation	$	385,899	$	356,857
Property basis differences	72,451		48,268
Energy cost management clause under recovered	9,492		7,880
Regulatory assets associated with asset retirement obligations	16,851		7,557
Pensions and other benefits	33,756		18,283
Regulatory assets associated with employee benefit obligations	68,717		52,410
Regulatory assets associated with the Kemper IGCC	10,492		4,618
Long-term service agreement	—		5,231
Rate differential	27,270		8,400
Other	33,886		23,802
Total	658,814		533,306
Deferred tax assets —
Federal effect of state deferred taxes	9,097		10,899
Fuel clause over recovered	38,955		30,050
Other property basis differences	980		2,918
Pension and other benefits	87,416		70,255
Property insurance	23,171		25,349
Premium on long-term debt	26,778		29,820
Unbilled fuel	11,642		14,951
Long-term service agreement	5,544		—
Asset retirement obligations	16,851		7,557
Interest rate hedges	5,644		5,763
Investment tax credit carryforward	170,938		77,400
Other	22,820		21,571
Total	419,836		296,533
Total deferred tax liabilities, net	238,978		236,773
Portion included in (accrued) prepaid income taxes, net	35,815		33,624
Accumulated deferred income taxes	$	274,793	$	270,397

At December 31, 2012, the tax-related regulatory assets were $73.0 million. These assets are primarily attributable to tax benefits that flowed through to customers in prior years, to deferred taxes previously recognized at rates lower than the current enacted tax law, and to taxes applicable to capitalized interest.

At December 31, 2012, the tax-related regulatory liabilities were $11.2 million. These liabilities are primarily attributable to deferred taxes previously recognized at rates higher than the current enacted tax law and to unamortized investment tax credits.

In accordance with regulatory requirements, deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the statements of income. Credits for non-Kemper IGCC related deferred investment tax credits amortized in this manner amounted to $1.2 million, $1.3 million, and $1.3 million for 2012, 2011, and 2010, respectively. At December 31, 2012, all non-Kemper IGCC investment tax credits available to reduce federal income taxes payable had been utilized.

In 2010, the Company began recognizing investment tax credits associated with the construction expenditures related to the Kemper IGCC. At December 31, 2012, the Company had $361.6 million in unamortized investment tax credits associated with the Kemper IGCC, which will be amortized over the life of the Kemper IGCC once placed in service. As a result of 100% bonus tax depreciation on certain assets placed, or to be placed, in service in 2012 and 2013, and the subsequent reduction in federal taxable income, the Company estimates that it will not be able to utilize $170.9 million of these tax credits until after 2013. IRS guidelines allow the resultant unused credits to be carried forward for 20 years expiring at the end of 2031, if not utilized before then.

In 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act) was signed into law. Major tax incentives in the Tax Relief Act include100% bonus depreciation for property placed in service after September 8, 2010 and through 2011 (and for certain long-term production-period projects placed in service in 2012) and 50% bonus depreciation for property placed in service in 2012 (and for certain long-term production-period projects to be placed in service in 2013).

Effective Tax Rate

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

	2012		2011		2010
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income tax, net of federal deduction	2.0		1.9		2.8
Non-deductible book depreciation	0.2		0.3		0.3
Medicare subsidy	(0.1	)	(0.1	)	(0.2	)
AFUDC-equity	(11.3	)	(6.3	)	(1.0	)
Other	(0.7	)	(0.2	)	(0.8	)
Effective income tax rate	25.1	%	30.6	%	36.1	%

The Company's 2012 effective tax rate decreased from 2011 primarily due to the increase in non-taxable AFUDC equity related to increased construction expenditures.

Unrecognized Tax Benefits

For 2012, the total amount of unrecognized tax benefits increased by $0.8 million, resulting in a balance of $5.8 million as of December 31, 2012.

Changes during the year in unrecognized tax benefits were as follows:

	2012			2011			2010
	(in thousands)
Unrecognized tax benefits at beginning of year	$	4,964		$	4,288		$	3,026
Tax positions from current periods	1,186			1,486			868
Tax positions from prior periods	(26		)	(810		)	611
Reductions due to expired statute of limitations	—			—			(217		)
Settlements with taxing authorities	(369		)	—			—
Balance at end of year	$	5,755		$	4,964		$	4,288

The change in tax positions from current periods for 2012 relates primarily to the tax accounting method change for repairs-generation assets and State of Mississippi tax credits. The tax positions decrease from prior periods for 2012 relates to the uncertain tax position for the tax accounting method change for repairs-transmission and distribution assets. See "Tax Method of Accounting for Repairs" below for additional information.

The impact on the Company's effective tax rate, if recognized, was as follows:

	2012		2011		2010
	(in thousands)
Tax positions impacting the effective tax rate	$	3,656	$	4,144	$	3,058
Tax positions not impacting the effective tax rate	2,099		820		1,230
Balance of unrecognized tax benefits	$	5,755	$	4,964	$	4,288

The tax positions impacting the effective tax rate for 2012 primarily relate to the State of Mississippi Investment Tax Credit. The tax positions not impacting the effective tax rate for 2012 relate to the timing difference associated with the tax accounting method change for repairs - generation assets. See "Tax Method of Accounting for Repairs" herein for additional information. These amounts are presented on a gross basis without considering the related federal or state income tax impact.

Accrued interest for unrecognized tax benefits was as follows:

	2012		2011		2010
	(in thousands)
Interest accrued at beginning of year	$	680	$	413	$	230
Interest accrued during the year	92		267		183
Balance at end of year	$	772	$	680	$	413

The Company classifies interest on tax uncertainties as interest expense. The Company did not accrue any penalties on uncertain tax positions.

It is reasonably possible that the amount of the unrecognized tax benefits associated with a majority of the Company's unrecognized tax positions will significantly increase or decrease within 12 months. The resolution of the tax accounting method change for repairs-generation assets, as well as the conclusion or settlement of state audits, could impact the balances significantly. At this time, an estimate of the range of reasonably possible outcomes cannot be determined.

The IRS has audited and closed all of Southern Company's consolidated federal income tax returns prior to 2009 and has settled its audits of Southern Company's consolidated federal income tax returns for 2009 and 2010, in principle, pending final approval. Additionally, the IRS has audited and closed Southern Company's 2011 consolidated federal income tax return. For tax years 2010 through 2013, Southern Company is a participant in the Compliance Assurance Process of the IRS. The audits for the Company's state income tax returns have either been concluded, or the statute of limitations has expired, for years prior to 2007.

Tax Method of Accounting for Repairs

Southern Company submitted a tax accounting method change related to the deductibility of repair costs associated with its subsidiaries' generation, transmission, and distribution systems effective for the 2009 consolidated federal income tax return in 2010. In August 2011, the IRS issued a revenue procedure, which provides a safe harbor method of accounting that taxpayers may use to determine eligible repair costs for transmission and distribution property. The IRS continues to work with the utility industry in an effort to define eligible repair costs for generation assets in a consistent manner for all utilities. The IRS published regulations on the deduction and capitalization of expenditures related to tangible property that generally apply for tax years beginning on or after January 1, 2014. The utility industry anticipates more detailed guidance concerning these regulations. Due to the uncertainty regarding the ultimate resolution of the repair costs for generation assets, an unrecognized tax position has been recorded for the tax accounting method change for repairs-generation assets. The ultimate outcome of this matter cannot be determined at this time; however, it is not expected to materially impact net income.

Southern Power [Member]

Income Tax Disclosure [Line Items]

INCOME TAXES

INCOME TAXES

On behalf of the Company, Southern Company files a consolidated federal income tax return and combined state income tax returns for the States of Alabama, Georgia, Mississippi, and Texas. In addition, the Company files separate company income tax returns for the States of Florida, New Mexico, North Carolina, and South Carolina. Under a joint consolidated income tax allocation agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis and no subsidiary is allocated more current expense than would be paid if it filed a separate income tax return. In accordance with Internal Revenue Service (IRS) regulations, each company is jointly and severally liable for the federal tax liability.

Current and Deferred Income Taxes

Details of income tax provisions are as follows:

	2012			2011			2010
	(in millions)
Federal —
Current	$	(133.1	)	$	61.6		$	4.3
Deferred	210.4			12.4			46.5
	77.3			74.0			50.8
State —
Current	(3.0		)	9.8			6.5
Deferred	18.3			(7.9		)	18.1
	15.3			1.9			24.6
Total	$	92.6		$	75.9		$	75.4

The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows:

	2012		2011
	(in millions)
Deferred tax liabilities —
Accelerated depreciation and other property basis differences	$	632.9	$	394.8
Basis difference on asset transfers	3.1		3.3
Other	6.2		4.6
Total	642.2		402.7
Deferred tax assets —
Federal effect of state deferred taxes	25.2		18.6
Net basis difference on investment tax credits	28.6		21.8
Basis difference on asset transfers	3.9		4.9
Alternative minimum tax carryforward	1.1		1.1
Unrealized loss on interest rate swaps	15.7		19.1
Levelized capacity revenues	4.5		8.2
Other	12.7		11.1
Total	91.7		84.8
Total deferred tax liabilities, net	550.5		317.9
Portion included in current income taxes	0.2		1.9
Accumulated deferred income taxes	$	550.7	$	319.8

Deferred tax liabilities are the result of property related timing differences primarily due to bonus depreciation. The transfer of the Plant McIntosh construction project to GPC in 2004 resulted in a deferred gain for federal income tax purposes. GPC is reimbursing the Company for the related tax liability balance of $3.1 million. Of this total, $0.3 million is included in the balance sheets in "Receivables – Affiliated companies" and the remainder is included in "Other deferred charges and assets – affiliated."

Deferred tax assets consist primarily of timing differences related to net basis differences on ITCs, the recognition of capacity revenues, and the unrealized loss on interest rate swaps reflected in AOCI. The transfer of Plants Dahlberg, Wansley, and Franklin to the Company from GPC in 2001 also resulted in a deferred gain for federal income tax purposes. The Company will reimburse GPC for the related tax asset of $3.9 million. Of this total, $1.3 million is included in the balance sheets in "Accounts payable – Affiliated" and the remainder is included in "Other deferred credits and liabilities – affiliated."

At December 31, 2012 and December 31, 2011, the Company had a State of New Mexico net operating loss (NOL) carryforward of $117.7 million and $88.7 million, respectively. The NOL carryforward resulted in a deferred tax asset as of December 31, 2012 and December 31, 2011 of $5.4 million and $4.0 million, respectively. However, the Company has established a valuation allowance due to the remote likelihood that the full tax benefit will be realized. During 2012, the estimated amount of NOL utilization decreased resulting in a $1.0 million increase in the valuation allowance. The valuation allowance was $4.0 million as of December 31, 2012 and $3.0 million as of December 31, 2011. Of the NOL balance at December 31, 2012, $4.2 million and $1.2 million will expire in 2015 and 2017, respectively.

In 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act) was signed into law. Major tax incentives in the Tax Relief Act include 100% bonus depreciation for property placed in service after September 8, 2010 and through 2011 (and for certain long-term production-period projects placed in service in 2012) and 50% bonus depreciation for property placed in service in 2012 (and for certain long-term production-period projects to be placed in service in 2013). The application of the bonus depreciation provisions in the Tax Relief Act significantly increased deferred tax liabilities related to accelerated depreciation.

Effective Tax Rate

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

	2012		2011		2010
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income tax, net of federal deduction	3.7		0.6		7.7
Amortization of ITC	(1.0	)	(0.4	)	—
ITC basis difference	(2.6	)	(3.1	)	(5.6	)
Other	(0.6	)	(0.3	)	(0.7	)
Effective income tax rate	34.5	%	31.8	%	36.4	%

The Company's effective tax rate increased in 2012 primarily as a result of a decrease in the Alabama income tax deduction for federal income taxes paid.

In February 2009, President Obama signed into law the ARRA. Major tax incentives in the ARRA included renewable energy incentives. The Company received ITCs under the renewable energy incentives related to Plant Nacogdoches, Plant Cimarron, Plant Apex, and Plant Granville which had a material impact on cash flows and net income.

ITCs received in 2012 for the construction of Plant Nacogdoches, Plant Cimarron, Plant Apex, and Plant Granville were $45.0 million. The tax benefit of the basis difference reduced income tax expense by $6.9 million in 2012. See Note 1 under "Investment Tax Credits" for additional information.

ITCs received in 2011 for the construction of Plant Nacogdoches and Plant Cimarron were $84.7 million, which includes $42.9 million earned in 2010. The tax benefit of the basis difference reduced income tax expense by $7.3 million in 2011.

ITCs received in 2010 for the construction of Plant Nacogdoches were $26.4 million; the tax benefit of the basis difference reduced income tax expense by $6.9 million. The tax benefit of the basis difference related to ITCs associated with the construction of Plant Cimarron reduced tax expense by $4.6 million in 2010.

Unrecognized Tax Benefits

For 2012, the total amount of unrecognized tax benefits increased $0.3 million, resulting in a balance of $2.9 million as of December 31, 2012.

Changes during the year in unrecognized tax benefits were as follows:

	2012			2011			2010
	(in millions)
Unrecognized tax benefits at beginning of year	$	2.6		$	2.3		$	0.1
Tax positions from current periods	0.7			0.4			0.7
Tax positions from prior periods	(0.2		)	(0.1		)	1.5
Reductions due to settlements	(0.2		)	—			—
Balance at end of year	$	2.9		$	2.6		$	2.3

The increase in unrecognized tax benefits from current periods for 2012 relates primarily to the tax accounting method change for repairs-generation assets. See "Tax Method of Accounting for Repairs" herein for additional information. The American Jobs Creation Act of 2004 created a tax deduction for a portion of income attributable to U.S. production activities as defined in Section 199 of the Internal Revenue Code (production activities deduction). The decrease in unrecognized tax benefits from prior periods relates to the settlement of the production activities deduction.

The impact on the Company's effective tax rate, if recognized, was as follows:

	2012		2011		2010
	(in millions)
Tax positions impacting the effective tax rate	$	0.3	$	0.5	$	0.6
Tax positions not impacting the effective tax rate	2.6		2.1		1.7
Balance of unrecognized tax benefits	$	2.9	$	2.6	$	2.3

The tax positions impacting the effective tax rate for 2012 primarily relate to the investment tax credits realized in 2012. The tax positions not impacting the effective tax rate for 2012 relate to the timing difference associated with the tax accounting method change for repairs-generation assets. See "Tax Method of Accounting for Repairs" herein for additional information. These amounts are presented on a gross basis without considering the related federal or state income tax impact.

Accrued interest for unrecognized tax benefits was as follows:

	2012			2011		2010
	(in millions)
Interest accrued at beginning of year	$	0.1		$	—	$	—
Interest accrued during the year	(0.1		)	0.1		—
Balance at end of year	$	—		$	0.1	$	—

The Company classifies interest on tax uncertainties as interest expense. The Company did not accrue any penalties on uncertain tax positions.

It is reasonably possible that the amount of the unrecognized tax benefits associated with a majority of the Company's unrecognized tax positions will significantly increase or decrease within 12 months. The resolution of the tax accounting method change for repairs-generation assets, as well as the conclusion or settlement of state audits, could impact the balances significantly. At this time, an estimate of the range of reasonably possible outcomes cannot be determined.

The IRS has audited and closed all of Southern Company's consolidated federal income tax returns prior to 2009 and has settled its audits of Southern Company's consolidated federal income tax returns for 2009 and 2010, in principle, pending final approval. Additionally, the IRS has audited and closed Southern Company's 2011 consolidated federal income tax return. For tax years 2010 through 2013, Southern Company is a participant in the Compliance Assurance Process of the IRS. The audits for the Company's state income tax returns have either been concluded, or the statute of limitations has expired, for years prior to 2007.

Tax Method of Accounting for Repairs

Southern Company submitted a tax accounting method change related to the deductibility of repair costs associated with its subsidiaries' generation, transmission, and distribution systems effective for the 2009 consolidated federal income tax return in 2010. In August 2011, the IRS issued a revenue procedure, which provides a safe harbor method of accounting that taxpayers may use to determine eligible repair costs for transmission and distribution property. The IRS continues to work with the utility industry in an effort to define eligible repair costs for generation assets in a consistent manner for all utilities. The IRS published regulations on the deduction and capitalization of expenditures related to tangible property that generally apply for tax years beginning on or after January 1, 2014. The utility industry anticipates more detailed guidance concerning these regulations. Due to the uncertainty regarding the ultimate resolution of the repair costs for generation assets, an unrecognized tax position has been recorded for the tax accounting method change for repairs-generation assets. The ultimate outcome of this matter cannot be determined at this time; however, it is not expected to materially impact net income.