Commitments

12 Months Ended

Dec. 31, 2012

Fuel and Purchased Power Agreements

To supply a portion of the fuel requirements of the generating plants, the Southern Company system has entered into various long-term commitments for the procurement and delivery of fossil and nuclear fuel which are not recognized on the balance sheets. In 2012, 2011, and 2010, the traditional operating companies and Southern Power incurred fuel expense of $5.1 billion, $6.3 billion, and $6.7 billion, respectively, the majority of which was purchased under long-term commitments. Southern Company expects that a substantial amount of the Southern Company system's future fuel needs will continue to be purchased under long-term commitments. In addition, the Southern Company system has entered into various long-term commitments for the purchase of capacity and electricity, some of which are accounted for as operating leases or have been used by a third party to secure financing. Total capacity expense under PPAs accounted for as operating leases was $171 million, $199 million, and $180 million for 2012, 2011, and 2010, respectively.

Estimated total obligations under these commitments at December 31, 2012 were as follows:



	PPAs
	Operating Leases		Other
	(in millions)
2013	$	164	$	24
2014	200		19
2015	249		11
2016	258		11
2017	263		8
2018 and thereafter	2,369		69
Total	$	3,503	$	142

Operating Leases

The Southern Company system has operating lease agreements with various terms and expiration dates. Total rent expense was $155 million, $176 million, and $188 million for 2012, 2011, and 2010, respectively. Southern Company includes any step rents, escalations, and lease concessions in its computation of minimum lease payments, which are recognized on a straight-line basis over the minimum lease term.

As of December 31, 2012, estimated minimum lease payments under operating leases were as follows:



	Minimum Lease Payments
	Barges & Railcars		Other		Total
	(in millions)
2013	$	71	$	42	$	113
2014	57		38		95
2015	24		29		53
2016	19		26		45
2017	11		21		32
2018 and thereafter	11		73		84
Total	$	193	$	229	$	422

For the traditional operating companies, a majority of the barge and railcar lease expenses are recoverable through fuel cost recovery provisions. In addition to the above rental commitments, Alabama Power and Georgia Power have obligations upon expiration of certain leases with respect to the residual value of the leased property. These leases have terms expiring through 2018 with maximum obligations under these leases of $83 million. At the termination of the leases, the lessee may either exercise its purchase option, or the property can be sold to a third party. Alabama Power and Georgia Power expect that the fair market value of the leased property would substantially reduce or eliminate the payments under the residual value obligations.

Guarantees

As discussed above under "Operating Leases," Alabama Power and Georgia Power have entered into certain residual value guarantees.

Alabama Power [Member]

Commitments [Line Items]

COMMITMENTS

Fuel and Purchased Power Agreements

To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement of fossil and nuclear fuel which are not recognized on the balance sheets. In 2012, 2011, and 2010, the Company incurred fuel expense of $1.5 billion, $1.7 billion, and $1.9 billion, respectively, the majority of which was purchased under long-term commitments. The Company expects that a substantial amount of its future fuel needs will continue to be purchased under long-term commitments.

In addition, the Company has entered into various long-term commitments for the purchase of capacity and electricity, some of which are accounted for as operating leases. Total expense under PPAs accounted for as operating leases was $33 million, $33 million, and $30 million for 2012, 2011, and 2010, respectively. Total estimated minimum long-term obligations at December 31, 2012 were as follows:



	Commitments
	Non-Affiliated
	(in millions)
2013	$	31
2014	37
2015	38
2016	39
2017	40
2018 and thereafter	223
Total commitments	$	408
Certain PPAs reflected in the table are accounted for as operating leases.

SCS may enter into various types of wholesale energy and natural gas contracts acting as an agent for the Company and all of the other Southern Company traditional operating companies and Southern Power. Under these agreements, each of the traditional operating companies and Southern Power may be jointly and severally liable. The credit rating of Southern Power is currently below that of the traditional operating companies. Accordingly, Southern Company has entered into keep-well agreements with the Company and each of the other traditional operating companies to ensure the Company will not subsidize or be responsible for any costs, losses, liabilities, or damages resulting from the inclusion of Southern Power as a contracting party under these agreements.

Operating Leases

The Company has entered into rental agreements for coal railcars, vehicles, and other equipment with various terms and expiration dates. Total rent expense was $24 million in 2012, $23 million in 2011, and $25 million in 2010. Of these amounts, $19 million, $18 million, and $20 million for 2012, 2011, and 2010, respectively, relate to the railcar leases and are recoverable through the Company's Rate ECR. As of December 31, 2012, estimated minimum lease payments under operating leases were as follows:



	Minimum Lease Payments
	Railcars		Vehicles & Other		Total
	(in millions)
2013	$	16	$	4	$	20
2014	10		2		12
2015	8		—		8
2016	8		1		9
2017	4		—		4
2018 and thereafter	9		—		9
Total	$	55	$	7	$	62

In addition to the above rental commitments payments, the Company has potential obligations upon expiration of certain leases with respect to the residual value of the leased property. These leases have terms expiring through 2018 with maximum obligations under these leases of $21 million in 2013, $8 million in 2014, $5 million in 2015, $4 million in 2016, none in 2017, and $12 million in 2018 and thereafter. At the termination of the leases, the lessee may either exercise its purchase option, or the property can be sold to a third party. The Company expects that the fair market value of the leased property would substantially reduce or eliminate the Company's payments under the residual value obligations.

Guarantees

At December 31, 2012, the Company had outstanding guarantees related to SEGCO's purchase of certain pollution control facilities and issuance of senior notes, as discussed in Note 4, and to certain residual values of leased assets as described above in "Operating Leases."

Georgia Power [Member]

Commitments [Line Items]

COMMITMENTS

Fuel and Purchased Power Agreements

To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement and delivery of fossil and nuclear fuel which are not recognized on the balance sheets. In 2012, 2011, and 2010, the Company incurred fuel expense of $2.1 billion, $2.8 billion, and $3.1 billion, respectively, the majority of which was purchased under long-term commitments. The Company expects that a substantial amount of its future fuel needs will continue to be purchased under long-term commitments.

The Company has commitments regarding a portion of a 5% interest in the original cost of Plant Vogtle Units 1 and 2 owned by MEAG Power that are in effect until the latter of the retirement of the plant or the latest stated maturity date of MEAG Power's bonds issued to finance such ownership interest. The payments for capacity are required whether or not any capacity is available. The energy cost is a function of each unit's variable operating costs. Portions of the capacity payments relate to costs in excess of MEAG Power's Plant Vogtle Unit 1 and 2's allowed investment for ratemaking purposes. The present value of these portions at the time of the disallowance was written off. Generally, the cost of such capacity and energy is included in purchased power, non-affiliates in the statements of income. Capacity payments totaled $50 million, $52 million, and $55 million in 2012, 2011, and 2010, respectively.

The Company has also entered into various long-term PPAs, some of which are accounted for as capital or operating leases. Total capacity expense under PPAs accounted for as operating leases was $169 million, $216 million, and $223 million for 2012, 2011, and 2010, respectively. Estimated total long-term obligations at December 31, 2012 were as follows:



Minimum Lease Payments
	Capital Lease PPAs		Operating Lease PPAs		Vogtle Units 1 and 2 Capacity Payments		Total ($)
	(in millions)
2013	$	—	$	162	$	24	$	186
2014	—		165		19		184
2015	22		223		11		256
2016	22		240		11		273
2017	23		215		8		246
2018 and thereafter	301		2,448		69		2,818
Total	$	368	$	3,453	$	142	$	3,963
Less: amounts representing executory costs⁽¹⁾	$	55
Net minimum lease payments	$	313
Less: amounts representing interest⁽²⁾	$	85
Present value of net minimum lease payments⁽³⁾	$	228


(1)	Executory costs include items such as taxes, maintenance, and insurance (including the estimated profit thereon).


(2)	Calculated at the Company's incremental borrowing rate at the inception of the leases.


(3)	When the PPAs begin in 2015, the Company will recognize a capital lease asset and a capital lease obligation of $149 million, equal to the estimated fair value of the leased property.

Operating Leases

In addition to the PPA operating leases discussed above, the Company has other operating lease agreements with various terms and expiration dates. Total rent expense was $34 million for 2012, $33 million for 2011, and $35 million for 2010. The Company includes any step rents, fixed escalations, and lease concessions in its computation of minimum lease payments, which are recognized on a straight-line basis over the minimum lease term.

As of December 31, 2012, estimated minimum lease payments under operating leases were as follows:



	Minimum Lease Payments
	Railcars		Other		Total
	(in millions)
2013	$	25	$	5	$	30
2014	20		4		24
2015	14		3		17
2016	8		2		10
2017	5		1		6
2018 and thereafter	2		1		3
Total	$	74	$	16	$	90

A portion of the railcar lease obligations is shared with the joint owners of Plants Scherer and Wansley. A majority of the rental expenses related to the railcar leases are recoverable through the fuel cost recovery clause as ordered by the Georgia PSC and the remaining portion is recovered through base rates.

In addition to the above rental commitments, the Company has obligations upon expiration of certain railcar leases with respect to the residual value of the leased property. These leases have terms expiring through 2018 with maximum obligations under these leases of $33 million. At the termination of the leases, the lessee may either exercise its purchase option or the property can be sold to a third party. The Company expects that the fair market value of the leased property would substantially reduce or eliminate the Company's payments under the residual value obligations.

Guarantees

Alabama Power has guaranteed unconditionally the obligation of SEGCO under an installment sale agreement for the purchase of certain pollution control facilities at SEGCO's generating units, pursuant to which $25 million principal amount of pollution control revenue bonds are outstanding. Alabama Power has also guaranteed $50 million in senior notes issued by SEGCO. The Company has agreed to reimburse Alabama Power for the pro rata portion of such obligations corresponding to the Company's then proportionate ownership of stock of SEGCO if Alabama Power is called upon to make such payment under its guaranty.

As discussed earlier in this Note under "Operating Leases," the Company has entered into certain residual value guarantees related to railcar leases.

Gulf Power [Member]

Commitments [Line Items]

COMMITMENTS

Fuel and Purchased Power Agreements

To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement of fossil fuel which are not recognized on the balance sheets. In 2012, 2011, and 2010, the Company incurred fuel expense of $544.9 million, $662.3 million, and $742.3 million, the majority of which was purchased under long-term commitments. The Company expects that a substantial amount of its future fuel needs will continue to be purchased under long-term commitments.

In addition, the Company has entered into various long-term commitments for the purchase of capacity, energy, and transmission, some of which are accounted for as operating leases. The energy-related costs associated with PPAs are recovered through the fuel cost recovery clause. The capacity and transmission-related costs associated with PPAs are recovered through the purchased power capacity cost recovery clause. Capacity expense under purchased power agreements accounted for as operating leases was $24.6 million, $25.1 million, and $25.1 million for 2012, 2011, and 2010, respectively.

Estimated total minimum long-term commitments at December 31, 2012 were as follows:



	Operating Lease PPAs
	(in millions)
2013	$	24.7
2014		52.9
2015		78.6
2016		78.7
2017		78.8
2018 and thereafter		428.1
Total	$	741.8

Operating Leases

The Company has operating lease agreements with various terms and expiration dates. Total rent expense was $20.1 million, $21.9 million, and $23.1 million for 2012, 2011, and 2010, respectively.

Estimated total minimum lease payments under operating leases at December 31, 2012 were as follows:



	Minimum Lease Payments
	Barges & Railcars		Other		Total
	(in millions)
2013	$	18.6	$	0.3	$	18.9
2014	17.2		0.3		17.5
2015	1.1		0.1		1.2
2016	0.9		0.1		1.0
2017	1.0		0.1		1.1
2018 and thereafter	—		—		—
Total	$	38.8	$	0.9	$	39.7

The Company and Mississippi Power jointly entered into operating lease agreements for aluminum railcars for the transportation of coal to Plant Daniel. The Company has the option to purchase the railcars at the greater of lease termination value or fair market value or to renew the leases at the end of each lease term. The Company and Mississippi Power also have separate lease agreements for other railcars that do not include purchase options. The Company's share of the lease costs, charged to fuel inventory and recovered through the fuel cost recovery clause, was $3.6 million in 2012, $2.6 million in 2011, and $3.5 million in 2010. The Company's annual railcar lease payments for 2013 through 2017 will average approximately $1.6 million. The Company has no lease payment obligations for the period 2018 and thereafter.

Mississippi Power [Member]

Commitments [Line Items]

COMMITMENTS

Fuel and Purchased Power Agreements

To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement of fossil fuel which are not recognized on the balance sheets. In 2012, 2011, and 2010, the Company incurred fuel expense of $411.2 million, $490.4 million, and $501.8 million, respectively, the majority of which was purchased under long-term commitments. The Company expects that a substantial amount of its future fuel needs will continue to be purchased under long-term commitments.

Coal commitments include a management fee of $38.1 million over the term of the executed 40-year management contract with Liberty Fuels beginning in 2014 related to the Kemper IGCC. Additional commitments for fuel will be required to supply the Company's future needs.

Operating Leases

The Company has operating lease agreements with various terms and expiration dates. Total rent expense was $11.1 million, $32.6 million, and $38.6 million for 2012, 2011, and 2010 respectively, which includes the Plant Daniel Units 3 and 4 operating lease that ended October 20, 2011.

The Company and Gulf Power have jointly entered into operating lease agreements for aluminum railcars for the transportation of coal at Plant Daniel. The Company has the option to purchase the railcars at the greater of lease termination value or fair market value, or to renew the leases at the end of the lease term. In early 2011, one operating lease expired and the Company elected not to exercise the option to purchase. The remaining operating lease has 229 aluminum railcars. The Company and Gulf Power also have separate lease agreements for other railcars that do not contain a purchase option.

The Company's share (50%) of the leases, charged to fuel stock and recovered through the fuel cost recovery clause, was $3.6 million in 2012, $2.6 million in 2011, and $3.5 million in 2010. The Company's annual railcar lease payments for 2013 through 2017 will average approximately $1.6 million.

In addition to railcar leases, the Company has other operating leases for fuel handling equipment at Plants Daniel and Watson and operating leases for barges and tow/shift boats for the transport of coal at Plant Watson. The Company's share (50% at Plant Daniel and 100% at Plant Watson) of the leases for fuel handling was charged to fuel handling expense in the amount of $0.2 million in 2012, $0.4 million in 2011, and $0.7 million in 2010. The Company's annual lease payments for 2013 through 2014 will average approximately $0.2 million for fuel handling equipment. The Company charged to fuel stock and recovered through fuel cost recovery the barge transportation leases in the amount of $7.3 million in 2012, $7.5 million in 2011, and $8.4 million in 2010 related to barges and tow/shift boats. The Company's annual lease payments for 2013 through 2014 with respect to these barge transportation leases will average approximately $8.2 million.

Southern Power [Member]

Commitments [Line Items]

COMMITMENTS

Fuel Agreements

SCS, as agent for the Company and the traditional operating companies, has entered into various fuel transportation and procurement agreements to supply a portion of the fuel (primarily natural gas) requirements for the operating facilities which are not recognized on the balance sheets. In 2012, 2011, and 2010, the Company incurred fuel expense of $426.3 million, $454.8 million, and $391.5 million, respectively, the majority of which was purchased under long-term commitments. The Company expects that a substantial amount of its future fuel needs will continue to be purchased under long-term commitments.

SCS may enter into various types of wholesale energy and natural gas contracts acting as an agent for the Company and Southern Company's traditional operating companies. Under these agreements, each of the traditional operating companies and the Company may be jointly and severally liable. The credit rating of the Company is below that of the traditional operating companies; accordingly, Southern Company has entered into keep-well agreements with each of the traditional operating companies to ensure they will not subsidize or be responsible for any costs, losses, liabilities, or damages resulting from the inclusion of the Company as a contracting party under these agreements.

Operating Leases

The Company has operating lease agreements with various terms and expiration dates. Total rent expense was $0.8 million, $0.6 million, and $0.5 million for 2012, 2011, and 2010, respectively. These amounts include contingent rent expense related to the Plant Stanton Unit A land lease based on escalation in the Consumer Price Index for All Urban Consumers. The Company includes step rents, escalations, and lease concessions in its computation of minimum lease payments, which are recognized on a straight-line basis over the minimum lease term. As of December 31, 2012, estimated minimum lease payments under operating leases were $1.3 million in 2013, $1.6 million in 2014, $1.4 million in 2015, $1.3 million in 2016, $1.3 million in 2017, and $40.3 million in 2018 and thereafter. The majority of the committed future expenditures are land leases at solar facilities.

Redeemable Noncontrolling Interest

Pursuant to an agreement with TRE, on or after November 25, 2015, TRE may require the Company to purchase its noncontrolling interest in STR at fair market value.

- Definition

The entire disclosure for significant arrangements with third parties, which includes operating lease arrangements and arrangements in which the entity has agreed to expend funds to procure goods or services, or has agreed to commit resources to supply goods or services, and operating lease arrangements. Descriptions may include identification of the specific goods and services, period of time covered, minimum quantities and amounts, and cancellation rights.

+ References+ Details