Acquisitions and Divestitures (Southern Power [Member])

12 Months Ended

Dec. 31, 2011

Southern Power [Member]

ACQUISITIONS AND DIVESTITURES

2. ACQUISITIONS AND DIVESTITURES

Southern Renewable Energy, Inc. Acquisition

On March 15, 2011, Southern Company transferred its ownership in its wholly-owned subsidiary, SRE, to the Company. The Company’s acquisition of SRE was a transfer of net assets among entities under common control; and therefore, the assets and liabilities of SRE were transferred from Southern Company to the Company at historical cost. The consolidated financial statements of the Company have been revised to include the financial condition and the results of operations of SRE since its inception in January 2010. The effect of this revision was an increase of $1.3 million in net income for the year ended December 31, 2010. There was no impact on OCI related to this change.

SRE was formed to construct, acquire, own, and manage renewable generation assets and sell electricity at market-based prices in the wholesale market. In March 2010, SRE and Turner Renewable Energy, Inc. (TRE) partnered and, through a subsidiary, entered into an engineering, construction, and procurement agreement with First Solar, Inc. for Plant Cimarron, a 30 megawatt (MW) solar photovoltaic plant near Cimarron, New Mexico, and assumed the associated PPA. In November 2010, Plant Cimarron began commercial operation. The output from the plant is contracted under a PPA with Tri-State Generation and Transmission Association, Inc. (Tri-State). The Tri-State agreement began in December 2010 and expires in 2035. This PPA is accounted for as an operating lease.

The Company’s acquisition of the interests in Plant Cimarron included cash consideration of approximately $100 million and was allocated to property, plant, and equipment. The acquisition is in accordance with the Company’s overall growth strategy. There are no contingent consideration arrangements and no significant liabilities arising from contingencies as a result of this acquisition. No goodwill or other intangible assets were recorded as a result of this acquisition. Due diligence costs were expensed as incurred and were not material.

Nacogdoches Power, LLC Acquisition

In 2009, the Company acquired all of the outstanding membership interests of Nacogdoches Power, LLC (Nacogdoches) from American Renewables LLC, the original developer of the project. Nacogdoches is constructing a biomass generating plant in Sacul, Texas with an estimated capacity of 100 MWs. The generating plant will be fueled from wood waste. Construction commenced in late 2009 and the plant is expected to begin commercial operation in 2012. The total estimated cost of the project is expected to be between $470 million and $490 million. The output of the plant is contracted under a PPA with Austin Energy that begins in 2012 and expires in 2032 or until a contractual limit of $2.3 billion is reached. This PPA will be accounted for as an operating lease.

The Company’s acquisition of the interests in Nacogdoches included cash consideration of approximately $50.1 million. The Nacogdoches acquisition is in accordance with the Company’s overall growth strategy. There are no contingent consideration arrangements and no significant assets or liabilities arising from contingencies. No goodwill was recorded as a result of this acquisition. An intangible asset related to the assumed PPA with Austin Energy was recognized. Due diligence and transition costs for Nacogdoches were expensed as incurred and were not material. The fair value of the consideration transferred and the fair value of each major class of assets and liabilities at the acquisition date was as follows:

As of October 2009
	(in millions)
Construction work in progress	$16.2
Other assets	0.1
Intangible assets	33.8
Total fair value of the membership interests in Nacogdoches	$50.1

West Georgia Generating Company, LLC Acquisition

In 2009, the Company acquired all of the outstanding membership interests of West Georgia Generating Company, LLC (West Georgia) from Broadway Gen Funding, LLC (Broadway), an affiliate of LS Power. West Georgia was merged into the Company and the Company now owns a 669-MW nameplate capacity generating facility consisting of four combustion turbine natural gas generating units with oil back-up. The output from two units is contracted under PPAs with the Municipal Electric Authority of Georgia (MEAG Power) and the Georgia Energy Cooperative, Inc. (GEC). The MEAG Power agreement began in 2009 and expires in 2029. The GEC agreement began in 2010 and expires in 2030.

The Company’s acquisition of the interests in West Georgia was pursuant to an agreement which included the transfer of all the outstanding membership interests of DeSoto County Generating Company LLC (DeSoto) from the Company to Broadway and the payment by the Company of $144.0 million in cash consideration. The carrying values of the major classes of assets disposed of were $2.0 million in fossil fuel stock, $1.2 million in materials and supplies, $72.1 million in property, plant, and equipment, and $0.8 million in other deferred assets. The transaction was treated as a like-kind exchange for income tax purposes. The West Georgia acquisition is in accordance with the Company’s overall growth strategy. There are no contingent consideration arrangements and no significant assets or liabilities arising from contingencies. The goodwill arising from the acquisition consists largely of synergies and economies of scale from combining the operations of the Company and West Georgia and is tax deductible. Due diligence and transition costs for West Georgia were expensed as incurred and were not material.

The final fair value of the consideration transferred and the fair value of each major class of assets and liabilities at the acquisition date was as follows:

As of December 2009
	(in millions)
Customer accounts receivable		$    0.4
Fossil fuel stock		1.8
Materials and supplies		0.9
Property, plant, and equipment		192.4
Other assets		2.5
Goodwill		1.8
Intangible assets (PPAs)		15.3
Accounts payable		(0.3)
Total fair value of the membership interests in West Georgia		214.8
Fair value of DeSoto interests		(70.8)
Cash consideration transferred		$144.0

Revenues and expenses recognized by the Company for West Georgia operations after the closing date were not material. PPA amortization expense for 2009 was not material.

Pro Forma Information

The following unaudited pro forma financial information gives effect to the Nacogdoches acquisition, the West Georgia acquisition, and the DeSoto divestiture as if they had occurred as of the beginning of the periods presented. The pro forma financial information is not intended to represent or be indicative of the consolidated results of operations or financial condition of the Company that would have been reported had the acquisitions and divestiture been completed as of the dates presented nor should the information be taken as representative of any future consolidated results of operations or financial condition of the Company.

For the Twelve Months Ended December 2009
	(in millions)
Pro forma revenues		$957.4
Pro forma net income		151.1