Introduction

9 Months Ended

Sep. 30, 2023

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 at December 31, 2022 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 September 30, 2023 and 2022. 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, 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.

Recently Adopted Accounting Standards

In March 2020 and December 2022, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, respectively, providing temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of LIBOR through December 31, 2024. See Note 1 to the financial statements under "Recently Adopted Accounting Standards" in Item 8 of the Form 10-K for additional information on the temporary guidance.

Certain provisions in PPAs at Southern Power include references to LIBOR. Contract amendments have been executed to change to a SOFR-based interest rate. Southern Power adopted and applied the practical expedients guidance to these PPAs. Additionally, the Registrants referenced LIBOR for certain debt and hedging arrangements. As of July 1, 2023, all of the debt and hedging arrangements of the Registrants have transitioned to a SOFR-based interest rate based on the terms of the agreements. There were no material impacts from the transition to SOFR and no impacts to any existing accounting conclusions. See Note (J) under "Interest Rate Derivatives" for additional information.

Goodwill and Other Intangible Assets

Goodwill at September 30, 2023 and December 31, 2022 was as follows:

	Goodwill
	(in millions)
Southern Company	$	5,161
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 during the fourth quarter of each year, or more frequently if goodwill impairment indicators arise.

Other intangible assets were as follows:

	At September 30, 2023						At December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Other Intangible Assets, Net		Gross Carrying Amount		Accumulated Amortization		Other Intangible Assets, Net
	(in millions)						(in millions)
Southern Company
Subject to amortization:
Customer relationships	$	211	$	(169)	$	42	$	212	$	(162)	$	50
Trade names	63		(50)		13		64		(44)		20
PPA fair value adjustments	390		(143)		247		390		(129)		261
Other	5		(5)		—		5		(5)		—
Total subject to amortization	$	669	$	(367)	$	302	$	671	$	(340)	$	331
Not subject to amortization:
FCC licenses	75		—		75		75		—		75
Total other intangible assets	$	744	$	(367)	$	377	$	746	$	(340)	$	406
Southern Power(*)
PPA fair value adjustments	$	390	$	(143)	$	247	$	390	$	(129)	$	261
Southern Company Gas(*)
Gas marketing services
Customer relationships	$	156	$	(143)	$	13	$	156	$	(139)	$	17
Trade names	26		(20)		6		26		(17)		9
Total other intangible assets	$	182	$	(163)	$	19	$	182	$	(156)	$	26

(*) All subject to amortization.

Amortization associated with other intangible assets was as follows:

	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
	September 30, 2023				September 30, 2022
	(in millions)
Southern Company(a)	$	10	$	27	$	11	$	30
Southern Power(b)	5		14		5		15
Southern Company Gas	3		7		4		9

(a)Includes $5 million, $14 million, $5 million, and $15 million for the three and nine months ended September 30, 2023 and 2022, respectively, recorded as a reduction to operating revenues.

(b)Recorded as a reduction to operating revenues.

Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed balance sheets that total to the amount shown in the condensed statements of cash flows for the applicable Registrants:

	Southern Company		Alabama Power		Georgia Power		Southern Power		Southern Company Gas
	(in millions)
At September 30, 2023
Cash and cash equivalents	$	1,676	$	621	$	173	$	236	$	397
Restricted cash(a):
Other current assets	176		108		48		18		2
Other deferred charges and assets	38		—		35		3		—
Total cash, cash equivalents, and restricted cash(b)	$	1,890	$	729	$	256	$	257	$	399
At December 31, 2022
Cash and cash equivalents	$	1,917	$	687	$	364	$	131	$	81
Restricted cash(a):
Other current assets	62		—		60		—		2
Other deferred charges and assets	58		—		56		3		—
Total cash, cash equivalents, and restricted cash(b)	$	2,037	$	687	$	480	$	133	$	83

(a)For Alabama Power, balance at September 30, 2023 reflects proceeds from the issuance of solid waste disposal facility revenue bonds in 2023. For Georgia Power, reflects proceeds from the issuance of solid waste disposal facility revenue bonds in 2022. For Southern Power, reflects $18 million at September 30, 2023 resulting from an arbitration interim award held to fund future replacement costs and $3 million at both September 30, 2023 and December 31, 2022 held to fund estimated construction completion costs at the Deuel Harvest wind facility. See Note (C) under "General Litigation Matters – Southern Power" for additional information. For Southern Company Gas, reflects collateral for workers' compensation, life insurance, and long-term disability insurance.

(b)Total may not add due to rounding.

Natural Gas for Sale

With the exception of Nicor Gas, Southern Company Gas records natural gas inventories on a WACOG basis. For any declines in market prices below the WACOG considered to be other than temporary, an adjustment is recorded to reduce the value of natural gas inventories to market value. Nicor Gas' natural gas inventory is carried at cost on a LIFO basis. Inventory decrements occurring during the year that are restored prior to year-end are charged to cost of natural gas at the estimated annual replacement cost. Inventory decrements that are not restored prior to year-end are charged to cost of natural gas at the actual LIFO cost of the inventory layers liquidated.

Southern Company Gas recorded no material adjustments to natural gas inventories for either period presented. Nicor Gas' inventory decrement at September 30, 2023 is expected to be restored prior to year-end.

Storm Damage Reserves

See Note 1 to the financial statements in Item 8 of the Form 10-K under "Storm Damage and Reliability Reserves" for additional information.

Storm damage reserve activity for the traditional electric operating companies during the nine months ended September 30, 2023 was as follows:

	Southern Company(*)		Alabama Power		Georgia Power(*)		Mississippi Power
	(in millions)
Balance at December 31, 2022	$	216	$	97	$	83	$	36
Accrual	42		9		24		9
Weather-related damages	(242)		(35)		(204)		(3)
Balance at September 30, 2023	$	16	$	71	$	(97)	$	42

(*)See Note (B) under "Georgia Power – Storm Damage Recovery" for additional information.

Asset Retirement Obligations

See Note 6 to the financial statements in Item 8 of the Form 10-K for additional information.

Following initial criticality on March 6, 2023, Georgia Power recorded AROs of approximately $90 million related to Plant Vogtle Unit 3. See Note (B) under "Georgia Power – Nuclear Construction" for additional information on Plant Vogtle Units 3 and 4.

In September 2023, Georgia Power recorded a net decrease of approximately $175 million to its AROs related to the CCR Rule and the related state rule resulting from changes in estimates, including lower future inflation rates and the timing of closure activities.

In June 2023, Alabama Power completed an updated decommissioning cost site study for Plant Farley. The estimated cost of decommissioning based on the study resulted in a decrease in Alabama Power's ARO liability of approximately $15 million. See "Nuclear Decommissioning" herein for additional information.

Nuclear Decommissioning

See Note 6 to the financial statements in Item 8 of the Form 10-K under "Nuclear Decommissioning" for additional information. Site study cost is the estimate to decommission a specific facility as of the site study year. The decommissioning cost estimates are based on removal of the plant from service and prompt dismantlement. The actual decommissioning costs may vary from these estimates because of changes in the assumed date of decommissioning, changes in NRC requirements, or changes in the assumptions used in making these estimates.

The estimated costs of decommissioning Plant Farley based on Alabama Power's June 2023 site study are as follows:

	Plant Farley
Decommissioning periods:
Beginning year	2037
Completion year	2087
	(in millions)
Site study costs:
Radiated structures	$	1,402
Spent fuel management	513
Non-radiated structures	133
Total site study costs	$	2,048

For ratemaking purposes, Alabama Power's decommissioning costs are based on the site study. Significant assumptions used to determine these costs for ratemaking were an estimated inflation rate of 4.5% and an estimated trust earnings rate of 7.0%.

Amounts previously contributed to the external trust funds are currently projected to be adequate to meet the updated decommissioning obligations. Alabama Power's site-specific estimates of decommissioning costs for Plant Farley are updated every five years. The next site study for Alabama Power is expected to be completed in 2028. Projections of funds are reviewed with the Alabama PSC to ensure that, over time, the deposits and earnings of the funds in the external trust will provide adequate funding to cover the site-specific costs. If necessary, Alabama Power would seek the Alabama PSC's approval to address any changes in a manner consistent with NRC and other applicable requirements.

Income Taxes

In the third quarter 2023, Georgia Power started generating advanced nuclear PTCs for Plant Vogtle Unit 3 beginning on the in-service date of July 31, 2023. PTCs are recognized as an income tax benefit based on KWH production. In addition, pursuant to the Global Amendments to the Vogtle Joint Ownership Agreements (as defined in Note (B) under "Georgia Power – Nuclear Construction – Joint Owner Contracts"), Georgia Power is purchasing advanced nuclear PTCs for Plant Vogtle Unit 3 from certain other Vogtle Owners. The gain recognized on the purchase of the joint owner PTCs is recognized as an income tax benefit. See Note 1 to the financial statements under "Income Taxes" in Item 8 of the Form 10-K for additional information regarding accounting policies related to income taxes. See Note (B) under "Georgia Power – Nuclear Construction" for additional information regarding Plant Vogtle Units 3 and 4. Also see Note (G) under "Current and Deferred Income Taxes" for additional information.