INCOME TAXES

Current and Deferred Income Taxes

State of Georgia Tax Benefits

During the second quarter 2015, an agreement was reached with the Georgia Department of Revenue that will allow Southern Company to utilize a net operating loss carryforward over a four-year period beginning in 2017. Consequently, Southern Company reversed the related valuation allowance and recognized approximately $24 million in net tax benefits. See Note 5 to the financial statements of Southern Company under "Current and Deferred Income Taxes" in Item 8 of the Form 10-K for additional information.

Southern Power ITC Carryforwards

Southern Power had federal ITC carryforwards which are expected to result in $212 million of federal income tax benefits as of September 30, 2015, compared to $305 million as of December 31, 2014. The carryforwards as of September 30, 2015 expire between 2031 and 2035 and are expected to be utilized by the end of 2016.

Effective Tax Rate

See Note 5 to the financial statements of each registrant in Item 8 of the Form 10-K for additional tax information.

Mississippi Power

Mississippi Power's effective tax rate was (20.9)% for the nine months ended September 30, 2015 compared to (45.5)% for the corresponding period in 2014. The increase was primarily due to a reduction in tax benefits related to the estimated probable losses on construction of the Kemper IGCC, and a decrease in non-taxable AFUDC equity related to placing the Kemper IGCC combined cycle in service in August 2014.

Southern Power

Southern Power's effective tax rate was 6.9% for the nine months ended September 30, 2015 compared to 14.4% for the corresponding period in 2014. The decrease was primarily due to increased federal income tax benefits related to ITCs in 2015, partially offset by higher pre-tax earnings in 2015 and beneficial state income tax changes in 2014.

Unrecognized Tax Benefits

See Note 5 to the financial statements of each registrant under "Unrecognized Tax Benefits" in Item 8 of the Form 10-K for additional information.

Changes during 2015 for unrecognized tax benefits were as follows:



	Mississippi Power		Southern Power			Southern Company
	(in millions)
Unrecognized tax benefits as of December 31, 2014	$	165	$	5		$	170
Tax positions from current periods	24		7			31
Tax positions from prior periods	459		(6		)	456
Reductions due to settlements	—		—			—
Balance as of September 30, 2015	$	648	$	6		$	657

The tax positions from prior periods relate primarily to 2008 through 2013 amended federal income tax returns that were filed to include deductions for Kemper IGCC-related R&E expenditures and deferred federal investment tax credits that no longer meet the more-likely-than-not recognition threshold. See "Section 174 Research and Experimental Deduction" and "Investment Tax Credits" herein for additional information.

The impact on the effective tax rate, if recognized, was as follows:



	As of September 30, 2015							As of December 31, 2014
	Mississippi Power			Southern Power		Southern Company		Southern Company
	(in millions)
Tax positions impacting the effective tax rate	$	(2	)	$	6	$	7	$	10
Tax positions not impacting the effective tax rate	650			—		650		160
Balance of unrecognized tax benefits	$	648		$	6	$	657	$	170

The tax positions impacting the effective tax rate primarily relate to federal income tax benefits related to ITCs. The tax positions not impacting the effective tax rate relate to deductions for Kemper IGCC-related R&E expenditures and deferred federal investment tax credits that no longer meet the more-likely-than-not recognition threshold. See "Section 174 Research and Experimental Deduction" and "Investment Tax Credits" herein for additional information. These amounts are presented on a gross basis without considering the related federal or state income tax impact.

Section 174 Research and Experimental Deduction

Southern Company reduced tax payments for 2015, and included in its 2013 and 2014 consolidated federal income tax returns deductions for R&E expenditures related to the Kemper IGCC. In May 2015, Southern Company amended its 2008 through 2013 federal income tax returns to include deductions for Kemper IGCC-related R&E expenditures.

The Kemper IGCC is based on first-of-a-kind technology, and Southern Company and Mississippi Power believe that a significant portion of the plant costs qualify as deductible R&E expenditures under Internal Revenue Code Section 174. The IRS is currently reviewing the underlying support for the deduction, but has not completed its audit of these expenditures. Due to the uncertainty related to this tax position, Southern Company and Mississippi Power had related unrecognized tax benefits associated with these R&E deductions of approximately $414 million and associated interest of $7 million as of September 30, 2015. The ultimate outcome of this matter cannot be determined at this time.

Investment Tax Credits

The IRS allocated $279 million (Phase II) of Internal Revenue Code Section 48A tax credits to Mississippi Power in connection with the Kemper IGCC. These tax credits are dependent upon meeting the IRS certification requirements, including an in-service date no later than April 19, 2016 and the capture and sequestration (via enhanced oil recovery) of at least 65% of the CO₂ produced by the Kemper IGCC during operations in accordance with the Internal Revenue Code. Through September 30, 2015, Southern Company and Mississippi Power had recorded tax benefits totaling $276 million for the Phase II credits, of which approximately $235 million had been utilized. While the in-service date for the remainder of the Kemper IGCC is currently expected to occur in the first half of 2016, Mississippi Power now anticipates the in-service date to occur subsequent to April 19, 2016, but has not made a final determination to that effect. As of September 30, 2015, the more-likely-than-not threshold had no longer been met for recognition of these benefits; therefore, Southern Company and Mississippi Power have reflected these tax credits as unrecognized tax benefits and reclassified the Phase II credits to a current liability on their September 30, 2015 balance sheets, with no impact to net income. Repayment to the IRS would occur with the quarterly estimated tax payment following a final determination that the in-service date would occur subsequent to April 19, 2016. The ultimate outcome of this matter cannot be determined at this time.