Commitments

12 Months Ended

Dec. 31, 2015

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 2015, 2014, and 2013, the traditional operating companies and Southern Power incurred fuel expense of $4.8 billion, $6.0 billion, and $5.5 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 $227 million, $198 million, and $157 million for 2015, 2014, and 2013, respectively.

Estimated total obligations under these commitments at December 31, 2015 were as follows:



	Operating Leases ^(*)		Other
	(in millions)
2016	$	233	$	10
2017	242		8
2018	246		7
2019	249		8
2020	246		4
2021 and thereafter	1,291		47
Total	$	2,507	$	84


(*)	A total of $304 million of biomass PPAs included under operating leases is contingent upon the counterparties meeting specified contract dates for commercial operation and may change as a result of regulatory action.

Operating Leases

The Southern Company system has operating lease agreements with various terms and expiration dates. Total rent expense was $130 million, $118 million, and $123 million for 2015, 2014, and 2013, 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, 2015, estimated minimum lease payments under operating leases were as follows:



	Minimum Lease Payments
	Barges & Railcars		Other		Total
	(in millions)
2016	$	40	$	81	$	121
2017	25		78		103
2018	14		67		81
2019	6		55		61
2020	6		47		53
2021 and thereafter	16		690		706
Total	$	107	$	1,018	$	1,125

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 2024 with maximum obligations under these leases of $48 million. At the termination of the leases, the lessee may renew the lease or 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

In 2013, Georgia Power entered into an agreement that requires Georgia Power to guarantee certain payments of a gas supplier for Plant McIntosh for a period up to 15 years. The guarantee is expected to be terminated if certain events occur within one year of the initial gas deliveries in 2017. In the event the gas supplier defaults on payments, the maximum potential exposure under the guarantee is approximately $43 million.

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 and delivery of fossil and nuclear fuel which are not recognized on the balance sheets. In 2015, 2014, and 2013, the Company incurred fuel expense of $1.3 billion, $1.6 billion, and $1.6 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 capacity expense under PPAs accounted for as operating leases was $38 million, $37 million, and $30 million for 2015, 2014, and 2013, respectively. Total estimated minimum long-term obligations at December 31, 2015 were as follows:



	Operating Lease PPAs
	(in millions)
2016	$	39
2017	40
2018	41
2019	43
2020	44
2021 and thereafter	93
Total commitments	$	300

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 traditional operating companies and Southern Power. Under these agreements, each of the traditional operating companies and Southern Power may be jointly and severally liable. 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 $19 million in 2015, $18 million in 2014, and $21 million in 2013. Of these amounts, $13 million, $14 million, and $18 million for 2015, 2014, and 2013, respectively, relate to the railcar leases and are recoverable through the Company's Rate ECR. As of December 31, 2015, estimated minimum lease payments under operating leases were as follows:



	Minimum Lease Payments
	Railcars		Vehicles & Other		Total
	(in millions)
2016	$	13	$	6	$	19
2017	8		5		13
2018	5		4		9
2019	5		4		9
2020	5		4		9
2021 and thereafter	13		—		13
Total	$	49	$	23	$	72

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 2023 with maximum obligations under these leases of $4 million in 2016 and $12 million in 2021 and thereafter. There are no obligations under these leases in 2017, 2018, 2019, and 2020. 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

The Company has guaranteed the obligation of SEGCO for $25 million of pollution control revenue bonds issued in 2001, which mature in June 2019, and also $100 million of senior notes issued in November 2013, which mature in December 2018. Georgia Power has agreed to reimburse the Company for the pro rata portion of such obligations corresponding to Georgia Power's then proportionate ownership of SEGCO's stock if the Company is called upon to make such payment under its guarantee. See Note 4 for additional information.

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 2015, 2014, and 2013, the Company incurred fuel expense of $2.0 billion, $2.5 billion, and $2.3 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. On December 15, 2015, the Company's natural gas hedging program was revised and approved by the Georgia PSC.

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 Units 1 and 2 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 $10 million, $19 million, and $27 million in 2015, 2014, and 2013, 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 $203 million, $167 million, and $162 million for 2015, 2014, and 2013, respectively. Estimated total long-term obligations at December 31, 2015 were as follows:



	Affiliate Capital Leases		Affiliate Operating Leases		Non-Affiliate Operating Leases ⁽⁴⁾		Vogtle Units 1 and 2 Capacity Payments		Total ($)
	(in millions)
2016	$	22	$	99	$	115	$	10	$	246
2017	22		71		123		8		224
2018	22		62		126		7		217
2019	23		63		127		8		221
2020	23		64		123		4		214
2021 and thereafter	227		538		1,007		47		1,819
Total	$	339	$	897	$	1,621	$	84	$	2,941
Less: amounts representing executory costs⁽¹⁾	54
Net minimum lease payments	285
Less: amounts representing interest⁽²⁾	84
Present value of net minimum lease payments⁽³⁾	$	201


(1)	Executory costs such as taxes, maintenance, and insurance (including the estimated profit thereon) are estimated and included in total minimum lease payments.


(2)	Amount necessary to reduce minimum lease payments to present value calculated at the Company's incremental borrowing rate at the inception of the leases.


(3)	Once service commenced under the PPAs beginning in 2015, the Company recognized capital lease assets and capital lease obligations totaling $149 million, being the lesser of the estimated fair value of the lease property or the present value of the net minimum lease payments.


(4)	A total of $304 million of biomass PPAs included under the non-affiliate operating leases is contingent upon the counterparties meeting specified contract dates for commercial operation and may change as a result of regulatory action.

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 $29 million for 2015, $28 million for 2014, and $32 million for 2013. The Company includes any step rents, fixed escalations, and lease concessions in its computation of minimum lease payments.

As of December 31, 2015, estimated minimum lease payments under operating leases were as follows:



	Minimum Lease Payments
	Railcars		Other		Total
	(in millions)
2016	$	15	$	8	$	23
2017	10		8		18
2018	5		7		12
2019	1		7		8
2020	1		6		7
2021 and thereafter	3		13		16
Total	$	35	$	49	$	84

Railcar minimum lease payments are disclosed at 100% of railcar lease obligations; however, a portion of these 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 2024 with maximum obligations under these leases of $32 million. At the termination of the leases, the lessee may either renew the lease, 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 the obligations of SEGCO for $25 million of pollution control revenue bonds issued in 2001, which mature in June 2019 and also $100 million of senior notes issued in November 2013, which mature in December 2018. 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 SEGCO's stock if Alabama Power is called upon to make such payment under its guarantee. See Note 4 for additional information.

In addition, in 2013, the Company entered into an agreement that requires the Company to guarantee certain payments of a gas supplier for Plant McIntosh for a period up to 15 years. The guarantee is expected to be terminated if certain events occur within one year of the initial gas deliveries in 2017. In the event the gas supplier defaults on payments, the maximum potential exposure under the guarantee is approximately $43 million.

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 and delivery of fossil fuel which are not recognized on the balance sheets. In 2015, 2014, and 2013, the Company incurred fuel expense of $445 million, $605 million, and $533 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.

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 $75 million, $50 million, and $21 million for 2015, 2014, and 2013, respectively.

Estimated total minimum long-term commitments at December 31, 2015 were as follows:



	Operating Lease PPAs
	(in millions)
2016	$	79
2017	79
2018	79
2019	79
2020	79
2021 and thereafter	191
Total	$	586

Operating Leases

In addition to the operating lease PPAs discussed above, the Company has other operating lease agreements with various terms and expiration dates. Total rent expense was $14 million, $15 million, and $18 million for 2015, 2014, and 2013, respectively.

Estimated total minimum lease payments under these operating leases at December 31, 2015 were as follows:



	Minimum Lease Payments
	Barges & Railcars		Other		Total
	(in millions)
2016	$	9	$	1	$	10
2017	6		1		7
2018	4		—		4
Total	$	19	$	2	$	21

The Company and Mississippi Power jointly entered into an operating lease agreement 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 the 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 retail fuel cost recovery clause, was $2 million in 2015, and $3 million in both 2014 and 2013. The Company's annual railcar lease payments for 2016 and 2017 will average approximately $1 million each year. There are no lease payment obligations for the period 2018 and thereafter.

In addition to railcar leases, the Company has operating lease agreements for barges and towboats for the transport of coal to Plants Crist and Smith. The Company has the option to renew the leases at the end of the lease term. The Company's lease costs, charged to fuel inventory and recovered through the retail fuel cost recovery clause, were $10 million in both 2015 and 2014 and $12 million in 2013. The Company's annual barge and towboat payments for 2016 through 2018 will average approximately $5 million each year.

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 and delivery of fossil fuel which are not recognized on the balance sheets. In 2015, 2014, and 2013, the Company incurred fuel expense of $443 million, $574 million, and $491 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 associated with a 40-year management contract with Liberty Fuels related to the Kemper IGCC with the remaining amount as of December 31, 2015 of $38 million. 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 $5 million, $10 million, and $10 million for 2015, 2014, and 2013, respectively.

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. The Company has one remaining operating lease which 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 $2 million in 2015, $3 million in 2014, and $3 million in 2013. The Company's annual railcar lease payments for 2016 through 2017 will average approximately $1 million. The Company has no lease obligations for the period 2018 and thereafter.

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 annually from 2013 through 2015; however, those amounts were immaterial for the reporting period. The Company's annual lease payments through 2020 are expected to be immaterial for fuel handling equipment. The Company charged to fuel stock and recovered through fuel cost recovery the barge transportation leases in the amount of $2 million in 2015, $8 million in 2014, and $7 million in 2013 related to barges and tow/shift boats. The Company has no future lease commitments with respect to these barge transportation leases.

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 Company's balance sheets. In 2015, 2014, and 2013, the Company incurred fuel expense of $441 million, $596 million, and $474 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. 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 $7 million, $4 million, and $2 million for 2015, 2014, and 2013, respectively. These amounts include contingent rent expense related to a land lease based on escalation in the Consumer Price Index for All Urban Consumers. The Company includes step rents, escalations, lease concessions, and lease extensions in its computation of minimum lease payments, which are recognized on a straight-line basis over the minimum lease term. As of December 31, 2015, estimated minimum lease payments under operating leases were $11 million in 2016, $12 million in 2017, $12 million in 2018, $12 million in 2019, $13 million in 2020, and $595 million in 2021 and thereafter. The majority of the committed future expenditures are related to land leases for solar and wind facilities.

Redeemable Noncontrolling Interests

TRE can require the Company to purchase its redeemable noncontrolling interests in STR, which owns various solar facilities contracted under long-term PPAs, at fair market value pursuant to the partnership agreement. As of December 31, 2015, the redeemable noncontrolling interests were $43 million.

See Note 10 for additional information.