Effective Tax Rate and Unrecognized Tax Benefits

9 Months Ended

Sep. 30, 2011

Effective Tax Rate and Unrecognized Tax Benefits [Abstract]

EFFECTIVE TAX RATE AND UNRECOGNISED TAX BENEFITS

(G)	EFFECTIVE TAX RATE AND UNRECOGNIZED TAX BENEFITS
	Effective Tax Rate
	See Note 5 to the financial statements of each registrant in Item 8 of the Form 10-K for information on the effective income tax rate.
	Southern Company
	Southern Company’s effective tax rate was 36.1% for the nine months ended September 30, 2011, compared to 33.1% for the corresponding period in 2010. Southern Company’s effective tax rate is lower than the statutory rate primarily due to its employee stock dividend deduction and non-taxable AFUDC equity. Southern Company’s effective tax rate increased primarily due to no production activities deduction and no Georgia state income tax credits for activity through Georgia ports available to Southern Company for the nine months ended September 30, 2011, compared to the production activities deduction and additional Georgia state income tax credits recognized as of September 30, 2010.
	Alabama Power
	Alabama Power’s effective tax rate was 39.0% for the nine months ended September 30, 2011, compared to 36.9% for the corresponding period in 2010. The increase was due to an increase in Alabama state income taxes as a result of a decrease in the state income tax deduction for federal income taxes paid.
	Georgia Power
	Georgia Power’s effective tax rate was 35.8% for the nine months ended September 30, 2011, compared to 32.3% for the corresponding period in 2010. The increase was primarily due to the inclusion of Plant Vogtle Units 3 and 4 construction work in progress in rate base effective January 1, 2011, which reduced the amount of AFUDC equity capitalized, and the impact of Georgia state income tax credits discussed above under “Southern Company.”
	Gulf Power
	Gulf Power’s effective tax rate was 36.6% for the nine months ended September 30, 2011, compared to 36.4% for the corresponding period in 2010. The increase was not material.
	Mississippi Power
	Mississippi Power’s effective tax rate was 32.6% for the nine months ended September 30, 2011, compared to 36.5% for the corresponding period in 2010. The decrease was primarily due to an increase in non-taxable AFUDC equity related to the Kemper IGCC construction.
	Southern Power
	Southern Power’s effective tax rate was 35.9% for the nine months ended September 30, 2011, compared to 30.1% for the corresponding period in 2010. The increase was primarily due to the impact of a decrease in investment tax credits and no production activities deduction, combined with higher net income.

Unrecognized Tax Benefits

Changes during 2011 for unrecognized tax benefits were as follows:

	Southern			Alabama			Georgia			Gulf			Mississippi			Southern
	Company			Power			Power			Power			Power			Power
							(in millions)
Unrecognized tax benefits as of December 31, 2010	$	296		$	43		$	237		$	4		$	4		$	2
Tax positions from current periods		43			2			7			1			1			1
Tax positions from prior periods		(108	)		(18	)		(87	)		(2	)		(1	)		—
Reductions due to settlements		(112	)		—			(112	)		—			—			—
Reductions due to expired statute of limitations		—			—			—			—			—			—
Balance as of September 30, 2011	$	119		$	27		$	45		$	3		$	4		$	3

The tax positions from current periods relate primarily to the MC Asset Recovery litigation settlement refund claim, the tax accounting method change for repairs – generation assets, and the production activities deduction. See Note 5 to the financial statements of Southern Company in Item 8 of the Form 10-K under “Effective Tax Rate” for additional information. The tax positions decrease from prior periods and reductions due to settlements relate to the settlement of the Georgia state tax credit litigation on June 10, 2011. See Note (B) under “Income Tax Matters — Georgia State Income Tax Credits” herein for additional information. In addition, the tax positions decrease from prior periods also 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 effective tax rate, if recognized, is as follows:

							As of
							December 31,
	As of September 30, 2011						2010
	Georgia		Other		Southern		Southern
	Power		Registrants		Company		Company
			(in millions)
Tax positions impacting the effective tax rate	$	28	$	12	$	76	$	217
Tax positions not impacting the effective tax rate		17		25		43		79
Balance of unrecognized tax benefits	$	45	$	37	$	119	$	296

The tax positions impacting the effective tax rate primarily relate to the production activities deduction tax position and the MC Asset Recovery litigation settlement refund claim. See Note 5 to the financial statements of Southern Company in Item 8 of the Form 10-K under “Effective Tax Rate” for additional information. The tax positions not impacting the effective tax rate relate to the timing difference associated with the tax accounting method change for repairs - generation assets. 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:

	Georgia			Other		Southern
	Power			Registrants		Company
	(in millions)
Interest accrued as of December 31, 2010	$	27		$	2	$	29
Interest reclassified due to settlements		(24	)		—		(24	)
Interest accrued during the period		2			1		4
Balance as of September 30, 2011	$	5		$	3	$	9

All of the registrants classify interest on tax uncertainties as interest expense. The interest reclassified due to settlements is primarily associated with the Georgia state tax credit litigation settled on June 10, 2011. See Note (B) under “Income Tax Matters — Georgia State Income Tax Credits” herein for additional information.

None of the registrants accrued 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 the next 12 months. The resolution of the tax accounting method change for repairs - generation assets, as well as the conclusion or settlement of federal and state audits, could also impact the balances significantly. At this time, an estimate of the range of reasonably possible outcomes cannot be determined.

Tax Method of Accounting for Repairs

Southern Company submitted a tax accounting method change for repair costs associated with its subsidiaries’ generation, transmission, and distribution systems with the filing of the 2009 federal income tax return in September 2010. The new tax method resulted in net positive cash flow in 2010 of approximately $141 million for Alabama Power, $133 million for Georgia Power, $8 million for Gulf Power, $5 million for Mississippi Power, $6 million for Southern Power, and $297 million for Southern Company on a consolidated basis. On August 19, 2011, the IRS issued Revenue Procedure 2011-43, which provides a safe harbor method of accounting that taxpayers may use to determine repair costs for transmission and distribution property. Based upon this guidance from the IRS, the uncertain tax position for the tax accounting method change for repairs – transmission and distribution assets has been removed. However, the IRS continues to work with the utility industry in an effort to resolve the repair costs for generation assets matter in a consistent manner for all utilities. Due to 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.