Commitments

12 Months Ended

Dec. 31, 2016

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 2016, 2015, and 2014, the traditional electric operating companies and Southern Power incurred fuel expense of $4.4 billion, $4.8 billion, and $6.0 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 $232 million, $227 million, and $198 million for 2016, 2015, and 2014, respectively.

Estimated total obligations under these commitments at December 31, 2016 were as follows:



	Operating Leases ^(*)		Other
	(in millions)
2017	$	242	$	8
2018	246		7
2019	249		6
2020	246		5
2021	249		5
2022 and thereafter	1,041		43
Total	$	2,273	$	74


(*)	A total of $197 million of biomass PPAs included under operating leases is contingent upon the counterparties meeting specified contract dates for commercial operation. Subsequent to December 31, 2016, the specified contract dates for commercial operation were extended from 2017 to 2019 and may change further as a result of regulatory action.

Pipeline Charges, Storage Capacity, and Gas Supply

Pipeline charges, storage capacity, and gas supply include charges recoverable through a natural gas cost recovery mechanism, or alternatively, billed to marketers selling retail natural gas, as well as demand charges associated with Southern Company Gas' wholesale gas services. The gas supply balance includes amounts for gas commodity purchase commitments associated with Southern Company Gas' gas marketing services of 33 million mmBtu at floating gas prices calculated using forward natural gas prices at December 31, 2016 and valued at $106 million. Southern Company Gas provides guarantees to certain gas suppliers for certain of its subsidiaries in support of payment obligations.

Expected future contractual obligations for pipeline charges, storage capacity, and gas supply that are not recognized on the balance sheets as of December 31, 2016 were as follows:



	Pipeline Charges, Storage Capacity, and Gas Supply
	(in millions)
2017	$	822
2018	602
2019	447
2020	394
2021	352
2022 and thereafter	2,591
Total	$	5,208

Operating Leases

The Southern Company system has operating lease agreements with various terms and expiration dates. Total rent expense was $169 million, $130 million, and $118 million for 2016, 2015, and 2014, 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, 2016, estimated minimum lease payments under operating leases were as follows:



	Minimum Lease Payments
	Barges & Railcars		Other		Total
	(in millions)
2017	$	31	$	121	$	152
2018	19		115		134
2019	10		103		113
2020	10		90		100
2021	8		82		90
2022 and thereafter	11		1,184		1,195
Total	$	89	$	1,695	$	1,784

For the traditional electric 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 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 $44 million. At the termination of the leases, the lessee may renew the lease, 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 2018. 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 2016, 2015, and 2014, the Company incurred fuel expense of $1.3 billion, $1.3 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 $42 million, $38 million, and $37 million for 2016, 2015, and 2014, respectively. Total estimated minimum long-term obligations at December 31, 2016 were as follows:



	Operating Lease PPAs
	(in millions)
2017	$	40
2018	41
2019	43
2020	44
2021	46
2022	47
Total commitments	$	261

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 electric operating companies and Southern Power. Under these agreements, each of the traditional electric 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 electric 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 under these agreements was $18 million in 2016, $19 million in 2015, and $18 million in 2014. Of these amounts, $14 million, $13 million, and $14 million for 2016, 2015, and 2014, respectively, relate to the railcar leases and was recovered through the Company's Rate ECR. As of December 31, 2016, estimated minimum lease payments under operating leases were as follows:



	Minimum Lease Payments
	Railcars		Vehicles & Other		Total
	(in millions)
2017	$	10	$	4	$	14
2018	7		3		10
2019	7		3		10
2020	6		2		8
2021	6		2		8
2022 and thereafter	9		1		10
Total	$	45	$	15	$	60

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 $12 million in 2023. There are no obligations under these leases through 2021. 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 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 2016, 2015, and 2014, the Company incurred fuel expense of $1.8 billion, $2.0 billion, and $2.5 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 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 $11 million, $10 million, and $19 million in 2016, 2015, and 2014, 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 $217 million, $203 million, and $167 million for 2016, 2015, and 2014, respectively. Estimated total long-term obligations at December 31, 2016 were as follows:



	Affiliate Capital Leases		Affiliate Operating Leases		Non-Affiliate Operating Leases^(c)		Vogtle Units 1 and 2 Capacity Payments		Total
	(in millions)
2017	$	22	$	72	$	123	$	8	$	225
2018	22		63		126		7		218
2019	23		64		127		6		220
2020	23		65		123		5		216
2021	24		66		124		5		219
2022 and thereafter	204		479		882		43		1,608
Total	$	318	$	809	$	1,505	$	74	$	2,706
Less: amounts representing executory costs^(a)	48
Net minimum lease payments	270
Less: amounts representing interest^(b)	128
Present value of net minimum lease payments	$	142


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


(b)	Calculated using an adjusted incremental borrowing rate to reduce the present value of the net minimum lease payments to fair value.


(c)	A total of $197 million of biomass PPAs included under the non-affiliate operating leases is contingent upon the counterparties meeting specified contract dates for commercial operation. Subsequent to December 31, 2016, the specified contract dates for commercial operation were extended from 2017 to 2019 and may change further 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 $28 million for 2016, $29 million for 2015, and $28 million for 2014. The Company includes any step rents, fixed escalations, and lease concessions in its computation of minimum lease payments.

As of December 31, 2016, estimated minimum lease payments under operating leases were as follows:



	Minimum Lease Payments
	Railcars		Other		Total
	(in millions)
2017	$	12	$	7	$	19
2018	6		7		13
2019	3		6		9
2020	3		6		9
2021	2		6		8
2022 and thereafter	2		13		15
Total	$	28	$	45	$	73

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 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 2018. 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 2016, 2015, and 2014, the Company incurred fuel expense of $432 million, $445 million, and $605 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 a PPA accounted for as an operating lease was $75 million for both 2016 and 2015 and $50 million for 2014.

Estimated total minimum long-term commitments at December 31, 2016 were as follows:



	Operating Lease PPA
	(in millions)
2017	$	79
2018	79
2019	79
2020	79
2021	79
2022 and thereafter	112
Total	$	507

Operating Leases

In addition to the operating lease PPA discussed above, the Company has other operating lease agreements with various terms and expiration dates. Total rent expense was $9 million, $14 million, and $15 million for 2016, 2015, and 2014, respectively.

Estimated total minimum lease payments under these operating leases at December 31, 2016 were as follows:



	Minimum Lease Payments
	Barges & Railcars		Other		Total
	(in millions)
2017	$	7	$	1	$	8
2018	5		1		6
2019	—		1		1
2020	—		—		—
2021	—		—		—
2022 and thereafter	—		1		1
Total	$	12	$	4	$	16

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 50% share of the lease costs, charged to fuel inventory and recovered through the retail fuel cost recovery clause, was $2 million in both 2016 and 2015 and $3 million in 2014. The Company's total annual railcar lease payments for 2017 are $2 million and are immaterial for 2018 through 2020.

In addition to railcar leases, the Company has operating lease agreements for barges and towboats for the transport of coal to Plant Crist. 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 $5 million in 2016 and $10 million in both 2015 and 2014. The Company's annual barge and towboat payments for 2017 and 2018 are expected to be 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 2016, 2015, and 2014, the Company incurred fuel expense of $343 million, $443 million, and $574 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, 2016 of $41 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 $3 million, $5 million, and $10 million for 2016, 2015, and 2014, 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 50% share of the lease costs, charged to fuel stock and recovered through the fuel cost recovery clause, was $2 million in 2016, $2 million in 2015, and $3 million in 2014. The Company's annual railcar lease payments for 2017 will be approximately $1 million. Lease obligations for the period 2018 and thereafter are immaterial.

In addition to railcar leases, the Company has other operating leases for fuel handling equipment at Plant Daniel. The Company's 50% share of the leases for fuel handling was charged to fuel handling expense annually from 2014 through 2016; 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.

Southern Power [Member]

Commitments [Line Items]

COMMITMENTS

Fuel Agreements

SCS, as agent for the Company and the traditional electric 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 consolidated balance sheets. In 2016, 2015, and 2014, the Company incurred fuel expense of $456 million, $441 million, and $596 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 electric operating companies. Under these agreements, each of the traditional electric operating companies and the Company may be jointly and severally liable. Southern Company has entered into keep-well agreements with each of the traditional electric 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 $22 million, $7 million, and $4 million for 2016, 2015, and 2014, respectively. These amounts include contingent rent expense related to land leases 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, 2016, estimated minimum lease payments under operating leases were $18 million in 2017, $19 million in 2018, $20 million in each of 2019, 2020, and 2021, and $762 million in 2022 and thereafter. The majority of the committed future expenditures are related to land leases for solar and wind facilities.

Redeemable Noncontrolling Interests

See Note 10.

Southern Company Gas [Member]

Commitments [Line Items]

COMMITMENTS

Pipeline Charges, Storage Capacity, and Gas Supply

Pipeline charges, storage capacity, and gas supply include charges recoverable through a natural gas cost recovery mechanism, or alternatively, billed to Marketers and demand charges associated with Sequent. The gas supply balance includes amounts for Nicor Gas' and SouthStar's gas commodity purchase commitments of 33 million mmBtu at floating gas prices calculated using forward natural gas prices at December 31, 2016 and valued at $106 million. The Company provides guarantees to certain gas suppliers for certain of its subsidiaries in support of payment obligations.

Expected future contractual obligations for pipeline charges, storage capacity, and gas supply that are not recognized on the balance sheets as of December 31, 2016 were as follows:



	Pipeline Charges, Storage Capacity, and Gas Supply
	(in millions)
2017	$	822
2018	602
2019	447
2020	394
2021	352
2022 and thereafter	2,591
Total	$	5,208

Operating Leases

The Company has operating lease agreements with various terms and expiration dates primarily for real estate. Total rent expense was $8 million, $6 million, $12 million, and $13 million for the successor period of July 1, 2016 through December 31, 2016 and the predecessor periods of January 1, 2016 through June 30, 2016 and the years ended December 31, 2015 and 2014, respectively. The 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 terms.

As of December 31, 2016, the Company's estimated minimum lease payments under operating leases were as follows:



	Minimum Lease Payments
	(in millions)
2017	$	18
2018	17
2019	16
2020	15
2021	15
2022 and thereafter	38
Total	$	119

Financial Guarantees

AGL Equipment Leasing Inc. (AEL), a wholly-owned subsidiary of the Company, holds the Company's interest in Triton and has an obligation to restore to zero any deficit in its equity account for income tax purposes in the unlikely event that Triton is liquidated and a deficit balance remains. This obligation was not impacted by the 2014 sale of Tropical Shipping and continues for the life of the Triton partnerships. Any payment is effectively limited to the net assets of AEL, which was less than $1 million at December 31, 2016. The Company believes the likelihood of any such payment by AEL is remote and, as such, no liability has been recorded for this obligation at December 31, 2016.

Indemnities

In certain instances, the Company has undertaken to indemnify current property owners and others against costs associated with the effects and/or remediation of contaminated sites for which it may be responsible under applicable federal or state environmental laws, generally with no limitation as to the amount. These indemnifications relate primarily to ongoing coal tar cleanup. See Note 3 under "Environmental Matters" for additional information regarding these matters. The Company believes that the likelihood of payment under its other environmental indemnifications is remote. No liability has been recorded for such indemnifications as the fair value was inconsequential at inception.