INTRODUCTION

3 Months Ended

Mar. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

INTRODUCTION

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 March 31, 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, 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 March 31, 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 services	981
Southern Company Gas total	$	5,015

Goodwill is not amortized but is subject to an annual impairment test in the fourth quarter of the year and on an interim basis as events and changes in circumstances occur, including, but not limited to, a significant change in operating performance, the business climate, legal or regulatory factors, or a planned sale or disposition of a significant portion of the business. The continued COVID-19 pandemic and related responses could 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.

Other intangible assets were as follows:

	At March 31, 2020							At December 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Other Intangible Assets, Net		Gross Carrying Amount		Accumulated Amortization			Other Intangible Assets, Net
	(in millions)							(in millions)
Southern Company
Other intangible assets subject to amortization:
Customer relationships	$	212	$	(121	)	$	91	$	212	$	(116	)	$	96
Trade names	64		(26		)	38		64		(25		)	39
Storage and transportation contracts	64		(63		)	1		64		(62		)	2
PPA fair value adjustments	390		(74		)	316		390		(69		)	321
Other	10		(8		)	2		11		(8		)	3
Total other intangible assets subject to amortization	$	740	$	(292	)	$	448	$	741	$	(280	)	$	461
Other intangible assets not subject to amortization:
Federal Communications Commission licenses	75		—			75		75		—			75
Total other intangible assets	$	815	$	(292	)	$	523	$	816	$	(280	)	$	536
Southern Power
Other intangible assets subject to amortization:
PPA fair value adjustments	$	390	$	(74	)	$	316	$	390	$	(69	)	$	321
Southern Company Gas
Other intangible assets subject to amortization:
Gas marketing services
Customer relationships	$	156	$	(108	)	$	48	$	156	$	(104	)	$	52
Trade names	26		(10		)	16		26		(10		)	16
Wholesale gas services
Storage and transportation contracts	64		(63		)	1		64		(62		)	2
Total other intangible assets subject to amortization	$	246	$	(181	)	$	65	$	246	$	(176	)	$	70

Amortization associated with other intangible assets was as follows:

	Three Months Ended
	March 31, 2020
	(in millions)
Southern Company(a)	$	12
Southern Power(b)	$	5
Southern Company Gas
Gas marketing services	$	4
Wholesale gas services(b)	1
Southern Company Gas total	$	5

(a) Includes $6 million for the three months ended March 31, 2020, 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 March 31, 2020 and/or December 31, 2019:

	Southern Company					Southern Company Gas
	At March 31, 2020			At December 31, 2019		At March 31, 2020		At December 31, 2019
	(in millions)					(in millions)
Cash and cash equivalents	$	2,164		$	1,975	$	311	$	46
Restricted cash(a):
Other accounts and notes receivable	—			3		—		3
Other current assets	3			—		3		—
Total cash, cash equivalents, and restricted cash	$	2,168	(b)	$	1,978	$	314	$	49

(a) Represents restricted cash held by Southern Company Gas as collateral for workers' compensation, life insurance, and long-term disability insurance.

(b) Total does not add due to rounding.

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 had no material adjustments for any period presented.

Nicor Gas' natural gas inventory is carried at cost on a LIFO basis. Inventory decrements occurring during the year that are restored prior to year end are charged to cost of natural gas at the estimated annual replacement cost. Inventory decrements that are not restored prior to year end are charged to cost of natural gas at the actual LIFO cost of the inventory layers liquidated. Nicor Gas' inventory decrement at March 31, 2020 is expected to be restored prior to year end.

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 months ended March 31, 2020 and is expected to result in an immaterial decrease in annual depreciation for 2020.