Acquisitions

6 Months Ended

Jun. 30, 2016

Business Combinations [Abstract]

ACQUISITIONS

ACQUISITIONS

Southern Company

Merger with Southern Company Gas

Southern Company Gas, formerly known as AGL Resources Inc., is an energy services holding company whose primary business is the distribution of natural gas through natural gas distribution utilities. On July 1, 2016, Southern Company completed the Merger for a total purchase price of approximately $8.0 billion and Southern Company Gas became a wholly-owned, direct subsidiary of Southern Company.

The Merger will be accounted for using the acquisition method of accounting whereby the assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. The excess of the purchase price over the fair values of Southern Company Gas' assets and liabilities will be recorded as goodwill. The following table presents the preliminary purchase price allocation:

Southern Company Gas Purchase Price	June 30, 2016
	(in millions)
Current assets	$	1,474
Property, plant, and equipment	9,795
Goodwill	6,333
Intangible assets	436
Regulatory assets	846
Other assets	273
Current liabilities	(2,205		)
Other liabilities	(4,529		)
Long-term debt	(4,261		)
Noncontrolling interests	(160		)
Total purchase price	$	8,002

The estimated fair values noted above are preliminary and are subject to change upon finalization of the purchase accounting assessment as additional information related to the fair value of assets and liabilities becomes available. Subsequent adjustments to the preliminary purchase price allocation may have a material impact on the results of operations and financial position of Southern Company.

During the three and six months ended June 30, 2016, Southern Company recorded in its statements of income external transaction costs for financing, legal, and consulting services associated with the Merger of approximately $43.4 million and $63.3 million, respectively, of which $26.9 million and $32.9 million is included in operating expenses and $16.5 million and $30.4 million is included in other income and (expense), respectively.

See Note 12 to the financial statements of Southern Company under "Southern Company – Proposed Merger with AGL Resources" in Item 8 of the Form 10-K for additional information.

Acquisition of PowerSecure International, Inc.

On May 9, 2016, Southern Company acquired all of the outstanding stock of PowerSecure, a leading provider of products and services in the areas of distributed generation, energy efficiency, and utility infrastructure, for $18.75 per common share in cash, resulting in an aggregate purchase price of $429 million. As a result, PowerSecure became a wholly-owned subsidiary of Southern Company.

The aggregate purchase price was allocated on a preliminary basis to the assets acquired and liabilities assumed based upon the current determination of fair values at the date of acquisition. The preliminary allocation of the purchase price is as follows:

PowerSecure Purchase Price	June 30, 2016
	(in millions)
Current assets	$	174
Property, plant, and equipment	48
Goodwill	262
Intangible assets	99
Other assets	8
Current liabilities	(111		)
Long-term debt, including current portion	(47		)
Deferred credits and other liabilities	(4		)
Total purchase price	$	429

The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed of $262 million was recognized as goodwill, which is primarily attributable to the expected business expansion opportunities for PowerSecure. Southern Company anticipates that the majority of the value assigned to goodwill will not be deductible for tax purposes. Assumptions and estimates underlying the fair value adjustments are subject to change pending further review of the assets acquired and liabilities assumed.

The preliminary valuation of identifiable intangible assets included customer relationships, trade names, patents, and backlog with estimated lives of three to 26 years. The estimated fair value measurements of identifiable intangible assets were primarily based on significant unobservable inputs (Level 3).

The results of operations for PowerSecure have been included in the consolidated financial statements from the date of acquisition and are immaterial to the consolidated financial results of Southern Company. Pro forma results of operations have not been presented for the acquisition because the effects of the acquisition were immaterial to Southern Company's consolidated financial results for all periods presented.

Natural Gas Pipeline Venture

On July 10, 2016, Southern Company and Kinder Morgan, Inc. (Kinder Morgan) entered into a definitive agreement under which Southern Company will acquire a 50% equity interest in Southern Natural Gas Company, L.L.C. (SNG), which is the owner of a 7,600-mile pipeline system connecting natural gas supply basins in Texas, Louisiana, Mississippi, Alabama, and the Gulf of Mexico to markets in Louisiana, Mississippi, Alabama, Florida, Georgia, South Carolina, and Tennessee. Southern Company expects to finance the purchase price of approximately $1.5 billion with a mix of equity and debt in a credit-supportive manner. Southern Company's investment in SNG will be accounted for under the equity method of accounting.

The transaction is subject to the notification and clearance and reporting requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Southern Company and Kinder Morgan expect to complete the transaction in the third quarter or early in the fourth quarter 2016. The ultimate outcome of this matter cannot be determined at this time.

Southern Power

See Note 2 to the financial statements of Southern Power and Note 12 to the financial statements of Southern Company under "Southern Power" in Item 8 of the Form 10-K for additional information. During the six months ended June 30, 2016, the fair values of the assets and liabilities acquired of Garland, Garland A, Lost Hills Blackwell, Morelos, North Star, and Roserock were finalized and there were no changes.

During 2016, in accordance with its overall growth strategy, Southern Power acquired or contracted to acquire through its wholly-owned subsidiaries, Southern Renewable Partnerships, LLC or Southern Renewable Energy, Inc., the projects discussed below. Acquisition-related costs were expensed as incurred and were not material. The acquisitions do not include any contingent consideration unless specifically noted.

Project Facility	Resource	Seller; Acquisition Date	Approx. Nameplate Capacity	Location	Southern Power Percentage Ownership			Expected/Actual COD	PPA Counterparties for Plant Output	PPA Contract Period
			(MW)
Acquisitions for the Six Months Ended June 30, 2016
Calipatria	Solar	Solar Frontier Americas Holding LLC February 11, 2016	20	Imperial County, CA	90	%		February 2016	San Diego Gas & Electric Company	20 years
East Pecos	Solar	First Solar, Inc. March 4, 2016	120	Pecos County, TX	100	%		Fourth quarter 2016	Austin Energy	15 years
Grant Wind	Wind	Apex Clean Energy Holdings, LLC April 7, 2016	151	Grant County, OK	100	%		April 2016	Western Farmers, East Texas, and Northeast Texas Electric Cooperative	20 years
Passadumkeag	Wind	Quantum Utility Generation, LLC June 30, 2016	42	Penobscot County, ME	100	%		July 2016	Western Massachusetts Electric Company	15 years
Acquisitions Subsequent to June 30, 2016
Henrietta	Solar	SunPower Corp. July 1, 2016	102	Kings County, CA	51	%	(*)	July 2016	Pacific Gas and Electric Company	20 years
Lamesa	Solar	RES America Developments Inc. July 1, 2016	102	Dawson County, TX	100	%		Second quarter 2017	City of Garland, Texas	15 years
Rutherford	Solar	Cypress Creek Renewables, LLC July 1, 2016	74	Rutherford County, NC	90	%		Fourth quarter 2016	Duke Energy Carolinas, LLC	15 years

(*) Southern Power owns 100% of the class A membership interests and a wholly-owned subsidiary of the seller owns 100% of the class B membership interests. Southern Power and the class B member are entitled to 51% and 49%, respectively, of all cash distributions from the project. In addition, Southern Power is entitled to substantially all of the federal tax benefits with respect to the transaction.

Acquisitions During the Six Months Ended June 30, 2016

Southern Power's aggregate purchase price for the project facilities acquired during the six months ended June 30, 2016 is approximately $477 million, which includes $6 million of contingent consideration. Including the minority owner Turner Renewable Energy, LLC's (TRE) 10% ownership interest in Calipatria, the total aggregate purchase price is approximately $483 million for the project facilities acquired during the six months ended June 30, 2016. The fair values of the assets and liabilities acquired through the business combinations were recorded as follows: $426 million as CWIP, $58 million as property, plant, and equipment, $4 million as other assets, and $7 million as accounts payable; however, the allocations of the purchase price to individual assets have not been finalized. For East Pecos, which is currently under construction, total construction costs, excluding the acquisition costs, are expected to be approximately $160 million to $180 million. The ultimate outcome of this matter cannot be determined at this time.

Acquisitions Subsequent to June 30, 2016

Southern Power's aggregate purchase price for acquisitions subsequent to June 30, 2016 is approximately $275 million. Including the minority owner, SunPower Corp.'s 49% ownership interest in Henrietta, and TRE's 10% ownership interest in Rutherford, the aggregate total purchase price is approximately $447 million for the project facilities acquired subsequent to June 30, 2016. The aggregate purchase price includes the assumption of $217 million in construction debt (non-recourse to Southern Power). For Lamesa and Rutherford, which are currently under construction, total aggregate construction costs, excluding the acquisition costs, are expected to be approximately $260 million to $300 million. The ultimate outcome of these matters cannot be determined at this time.

Acquisition Agreements Executed but Not Yet Closed

During the six months ended June 30, 2016 and subsequent to that date, Southern Power entered into agreements to acquire the following projects for an aggregate purchase price of $1.1 billion: 100% ownership interests in two wind facilities totaling 299 MWs in Texas, significantly covered with PPAs for the first 12 to 14 years of operation; a 51% ownership interest (through 100% ownership of the Class A membership interests entitling Southern Power to 51% of all cash distributions and significantly all of the federal tax benefits) in a 100-MW solar facility in Nevada with a 20-year PPA; and a 90.1% ownership interest in a 257-MW wind facility in Texas significantly covered with a 12-year PPA. These acquisitions are expected to close in the third and fourth quarters of 2016. The ultimate outcome of these matters cannot be determined at this time.

The aggregate amount of revenue recognized by Southern Power related to the project facilities acquired during the six months ended June 30, 2016 included in the consolidated statement of income for year-to-date 2016 is $4 million. The aggregate amount of net income, excluding impacts of ITCs and PTCs, attributable to Southern Power related to the project facilities acquired during the six months ended June 30, 2016 included in the consolidated statement of income is immaterial. These businesses did not have operating revenues or activities prior to completion of construction and their assets being placed in service; therefore, supplemental pro forma information as though the acquisitions occurred as of the beginning of 2016 and for the comparable 2015 period is not meaningful and has been omitted.

Construction Projects

During the six months ended June 30, 2016, in accordance with its overall growth strategy, Southern Power completed construction of and placed in service the Butler Solar Farm and Pawpaw solar facilities. In addition, Southern Power continued construction of the projects set forth in the table below. Through June 30, 2016, total costs of construction incurred for the projects below were $2.7 billion, of which $1.7 billion remains in CWIP. Including the total construction costs incurred to date and the acquisition prices allocated to CWIP, total aggregate construction costs for the projects below are estimated to be approximately $3.0 billion to $3.2 billion. The ultimate outcome of these matters cannot be determined at this time.

Solar Facility	Seller	Approx. Nameplate Capacity	Location	Expected/Actual COD	PPA Counterparties for Plant Output	PPA Contract Period
		(MW)
Butler	CERSM, LLC and Community Energy, Inc.	103	Taylor County, GA	Fourth quarter 2016	Georgia Power(a)	30 years
Desert Stateline(b)	First Solar Development, LLC	299(c)	San Bernardino County, CA	Through third quarter 2016	Southern California Edison Company (SCE)	20 years
Garland and Garland A	Recurrent Energy, LLC	205	Kern County, CA	Fourth quarter 2016 and Third quarter 2016	SCE	15 years and 20 years
Roserock	Recurrent Energy, LLC	160	Pecos County, TX	Fourth quarter 2016	Austin Energy	20 years
Sandhills	N/A	146	Taylor County, GA	Fourth quarter 2016	Cobb, Flint, Irwin, Middle Georgia and Sawnee Electric Membership Corporations	25 years
Tranquillity	Recurrent Energy, LLC	205	Fresno County, CA	July 2016	Shell Energy North America (US), LP/SCE	18 years

(a) Butler - Affiliate PPA approved by the FERC.

(b) Desert Stateline - On March 29, 2016, Southern Power acquired an additional 15% interest in Desert Stateline. As a result, Southern Power and the class B member are entitled to 66% and 34%, respectively, of all cash distributions from Desert Stateline. In addition, Southern Power will continue to be entitled to substantially all of the federal tax benefits with respect to the transaction. Total estimated construction costs include the acquisition price allocated to CWIP; however, the allocation of the purchase price to individual assets has not been finalized.

(c) Desert Stateline - The facility has a total of 299 MWs, of which 110 MWs were placed in service in the fourth quarter 2015 and 152 MWs were placed in service during the six months ended June 30, 2016. Subsequent to June 30, 2016, 37 MWs were placed in service.