Acquisitions and Dispositions

9 Months Ended

Sep. 30, 2018

Southern Company's Sale of Gulf Power

On May 20, 2018, Southern Company entered into a stock purchase agreement (Gulf Power SPA) with NextEra Energy and its wholly-owned subsidiary 700 Universe, LLC, which provides for the sale of all of the capital stock of Gulf Power for an aggregate cash purchase price of $5.75 billion (less the amount of indebtedness assumed at closing, which is currently estimated at approximately $1.3 billion), subject to (i) customary adjustments for indebtedness and working capital and (ii) reduction by the amount (if any) by which Gulf Power fails to meet a specified capital expenditure target.

The Gulf Power SPA contains customary representations, warranties, and covenants of Southern Company, 700 Universe, LLC, and NextEra Energy. These covenants include, among others, an obligation of Southern Company to cause Gulf Power to operate its business in the ordinary course until the sale is consummated and an obligation for each of the parties to use reasonable best efforts to obtain the governmental and regulatory approvals described below.

The completion of the sale is subject to the satisfaction or waiver of certain closing conditions, including, among others, (i) approval by the FERC and the Federal Communications Commission, (ii) the entry into certain ancillary agreements, including transmission-related agreements and a transition services agreement, among the parties and their affiliates, and (iii) other customary closing conditions.

The Gulf Power SPA may be terminated by either Southern Company or 700 Universe, LLC under certain circumstances, including if the sale is not consummated by June 28, 2019 (subject to extension to December 31, 2019, if all of the conditions to closing, other than the conditions related to obtaining regulatory approvals, have been satisfied). The Gulf Power SPA further provides that, upon the termination thereof, (i) under certain specified circumstances, 700 Universe, LLC will be required to pay Southern Company a termination fee of $100 million or $200 million (such amount depending on the specific circumstances of such termination) and (ii) upon certain other specified circumstances Southern Company will be required to pay 700 Universe, LLC a termination fee of $100 million.

The sale of Gulf Power is expected to occur in the first quarter 2019. The assets and liabilities of Gulf Power are classified as assets held for sale and liabilities held for sale on Southern Company's balance sheet as of September 30, 2018. See "Assets Held for Sale" below for additional information. The ultimate outcome of this matter cannot be determined at this time.

Southern Power

See Note 11 to the financial statements of Southern Power and Note 12 to the financial statements of Southern Company under "Southern Power" in Item 8 of the Form 10-K for additional information.

Acquisitions During the Nine Months Ended September 30, 2018

During the nine months ended September 30, 2018, one of Southern Power's wholly-owned subsidiaries acquired and completed construction of the Gaskell West 1 solar facility. Acquisition-related costs were expensed as incurred and were not material.



Project Facility	Resource	Seller; Acquisition Date	Approximate Nameplate Capacity (MW)	Location	Southern Power Percentage Ownership		Actual COD	PPA Contract Period
Gaskell West 1	Solar	Recurrent Energy Development Holdings, LLC January 26, 2018	20	Kern County, CA	100% of Class B	(*)	March 2018	20 years


(*)	Southern Power owns 100% of the class B membership interests under a tax equity partnership agreement.

The Gaskell West 1 facility did not have operating revenues or activities prior to completion of construction and the assets being placed in service during March 2018.

Construction Projects in Progress and/or Completed

During the nine months ended September 30, 2018, Southern Power started, continued, or completed construction of the projects set forth in the table below. Total aggregate construction costs, excluding the acquisition costs, are expected to be between $575 million and $640 million for the Mankato, Wild Horse Mountain, and Reading facilities. At September 30, 2018, construction costs included in CWIP related to these projects totaled $246 million. The ultimate outcome of these matters cannot be determined at this time.



Project Facility	Resource	Approximate Nameplate Capacity (MW)	Location	Actual/Expected COD	PPA Contract Period
Cactus Flats^(a)	Wind	148	Concho County, TX	July 2018	12-15 years
Mankato	Natural Gas	385	Mankato, MN	First half 2019	20 years
Wild Horse Mountain^(b)	Wind	100	Pushmataha County, OK	Fourth quarter 2019	20 years
Reading^(c)	Wind	200	Osage and Lyon Counties, KS	Second quarter 2020	12 years


(a)	In July 2017, Southern Power purchased 100% of the Cactus Flats facility and commenced construction. In July 2018, the facility was placed in service and, in August 2018, Southern Power closed on a tax equity partnership agreement and owns 100% of the class B membership interests.


(b)	In May 2018, Southern Power purchased 100% of the Wild Horse Mountain facility and commenced construction. Southern Power may enter into a tax equity partnership agreement, in which case it would then own 100% of the class B membership interests.


(c)	In August 2018, Southern Power purchased 100% of the membership interests from the joint development arrangement with Renewable Energy Systems Americas, Inc. and commenced construction. Southern Power may enter into a tax equity partnership agreement, in which case it would then own 100% of the class B membership interests.

Development Projects

During 2017, as part of its renewable development strategy, Southern Power purchased wind turbine equipment from Siemens Gamesa Renewable Energy Inc. and Vestas-American Wind Technology, Inc. to be used for various development and construction projects. Any wind projects using this equipment and reaching commercial operation by the end of 2021 are expected to qualify for 80% PTCs.

During 2016, Southern Power entered into a joint development agreement with Renewable Energy Systems Americas, Inc. to develop and construct wind projects. In addition, in 2016, Southern Power purchased wind turbine equipment from Siemens Wind Power, Inc. and Vestas-American Wind Technology, Inc. to be used for construction of the facilities. Any wind projects using this equipment and reaching commercial operation by the end of 2020 are expected to qualify for 100% PTCs.

In response to the previously disclosed decrease of planned expenditures for plant acquisitions and placeholder growth, Southern Power continues to refine the deployment of the wind turbine equipment to potential joint development and construction projects as well as the amount of MW capacity to be constructed. During the third quarter 2018, as a result of a review of various options for probable dispositions of wind turbine equipment not already deployed to development or construction projects, Southern Power recorded a $36 million asset impairment charge on the equipment.

The ultimate outcome of these matters cannot be determined at this time.

Sale of Solar Facility Interests

In May 2018, Southern Power sold a 33% equity interest in SPSH, a limited partnership indirectly owning substantially all of Southern Power's solar facilities, to Global Atlantic Financial Group Limited (Global Atlantic) for approximately $1.2 billion, subject to customary working capital adjustments. The proceeds were used to repay $770 million of existing indebtedness, to return capital of $250 million to Southern Company, and for other general corporate purposes, including working capital. Since Southern Power retains control of the limited partnership through its wholly-owned general partner, the sale was recorded as an equity transaction and Southern Power will continue to consolidate the results of SPSH. On the date of the transaction, the noncontrolling interest was increased by $511 million to reflect 33% of the carrying value of the partnership. This difference, partially offset by the tax impact and other related transaction charges, also resulted in a $410 million decrease to Southern Power's common stockholder's equity.

Sale of Florida Plants

In May 2018, Southern Power entered into an equity interest purchase agreement with NextEra Energy to sell all of its equity interests in the Florida Plants, for an aggregate purchase price of $195 million, subject to customary working capital and timing adjustments.

The sale is subject to certain closing and timing conditions and approvals, including, but not limited to, approval by the FERC. The ultimate purchase price will decrease $110,000 per day for each day after December 31, 2018 through the closing of the transaction. Conversely, the ultimate purchase price will increase $110,000 per day for each day the closing occurs prior to December 31, 2018. The sale is expected to occur in the first quarter 2019. As a result of this pending transaction, Southern Power recorded an asset impairment charge of approximately $119 million ($89 million after tax) in the second quarter 2018. The assets and liabilities of the Florida Plants are classified as assets held for sale and liabilities held for sale on Southern Company's and Southern Power's balance sheets as of September 30, 2018. See "Assets Held for Sale" below for additional information. The ultimate outcome of this matter cannot be determined at this time.

Sale of Wind Facility Interests

On October 31, 2018, Southern Power entered into agreements with three financial investors for the sale of a noncontrolling interest for approximately $1.2 billion in tax equity in SP Wind, which owns a portfolio of eight operating wind facilities. The transaction is subject to Public Utility Commission of Texas approval and is expected to close by the end of 2018. Southern Power intends to use the proceeds to return capital of approximately $1.0 billion to Southern Company. The ultimate outcome of this matter cannot be determined at this time.

Sale of Mankato Plant

On November 5, 2018, Southern Power entered into an agreement with Northern States Power to sell all of its equity interests in Plant Mankato (including the 385-MW expansion currently under construction) for an aggregate purchase price of $650 million, subject to customary working capital and timing adjustments. The ultimate purchase price will decrease $66,667 per day for each day after June 1, 2019, if the expansion has not achieved commercial operation, but such decrease will not exceed $15 million. This transaction is subject to the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and FERC and state commission approvals and is expected to close mid-2019. The ultimate outcome of this matter cannot be determined at this time.

Assets Subject to Lien

Under the terms of the PPA and the expansion PPA for the Mankato project, approximately $500 million of assets, primarily related to property, plant, and equipment, are subject to lien at September 30, 2018.

Southern Company Gas

Sale of Pivotal Home Solutions

On June 4, 2018, Southern Company Gas completed the stock sale of Pivotal Home Solutions to American Water Enterprises LLC for a total cash purchase price of $365 million, which includes the final working capital adjustment. This disposition resulted in an estimated net loss of $73 million, which includes $39 million of income tax expense, the calculation of which is expected to be finalized in the fourth quarter 2018. In contemplation of the transaction, a goodwill impairment charge of $42 million was recorded during the first quarter 2018. The after-tax loss included income tax expense on goodwill not deductible for tax purposes and for which a deferred tax liability had not been recorded previously. Southern Company Gas and American Water Enterprises LLC entered into a transition services agreement whereby Southern Company Gas provided certain administrative and operational services through November 4, 2018.

Sale of Elizabethtown Gas and Elkton Gas

On July 1, 2018, a Southern Company Gas subsidiary, Pivotal Utility Holdings, completed the sales of the assets of two of its natural gas distribution utilities, Elizabethtown Gas and Elkton Gas, to South Jersey Industries, Inc. for a total cash purchase price of $1.7 billion and an additional $40 million for working capital, subject to a final working capital adjustment expected in the fourth quarter 2018. This disposition resulted in an estimated pre-tax gain of approximately $230 million and an after-tax gain of approximately $18 million, the calculations of which are expected to be finalized in the fourth quarter 2018. The after-tax gain included income tax expense on goodwill not deductible for tax purposes and for which a deferred tax liability had not been recorded previously. Southern Company Gas and South Jersey Industries, Inc. entered into transition services agreements whereby Southern Company Gas will provide certain administrative and operational services through no later than January 31, 2020.

Sale of Florida City Gas

On July 29, 2018, Southern Company Gas and its wholly-owned direct subsidiary, NUI Corporation, completed the stock sale of Pivotal Utility Holdings, which primarily consisted of Florida City Gas, to NextEra Energy for a total cash purchase price of $530 million (less $3 million of indebtedness assumed at closing for customer deposits) and an additional $60 million for cash and other working capital, which includes the final working capital adjustment. This disposition resulted in an estimated pre-tax gain of approximately $121 million and an after-tax gain of approximately $20 million, the calculations of which are expected to be finalized in the fourth quarter 2018. The after-tax gain included income tax expense on goodwill not deductible for tax purposes and for which a deferred tax liability had not been recorded previously. Southern Company Gas and NextEra Energy entered into a transition services agreement whereby Southern Company Gas will provide certain administrative and operational services through no later than July 29, 2020.

Assets Held for Sale

As discussed above, Southern Company and Southern Power each have assets and liabilities held for sale on their balance sheets at September 30, 2018. Assets and liabilities held for sale have been classified separately on each company's balance sheet at the lower of carrying value or fair value less costs to sell at the time the criteria for held-for-sale classification were met. For assets and liabilities held for sale recorded at fair value on a nonrecurring basis, the fair value of assets held for sale is based primarily on unobservable inputs (Level 3), which includes the agreed upon sales prices in executed sales agreements.

Upon classification as held for sale in May 2018, Southern Power ceased recognizing depreciation on the Florida Plants' property, plant, and equipment to be sold. Since the depreciation of the assets to be sold in the Gulf Power transaction continues to be reflected in customer rates and will be reflected in the carryover basis of the assets when sold, Southern Company will continue to record depreciation on those assets through the date the transaction closes. Likewise, since the depreciation of the assets sold in the Elizabethtown Gas, Elkton Gas, and Florida City Gas transactions continued to be reflected in customer rates and was reflected in the carryover basis of the assets when sold, Southern Company Gas continued to record depreciation on those assets through the respective date that each transaction closed.

The following table provides Southern Company's and Southern Power's major classes of assets and liabilities classified as held for sale at September 30, 2018:



	Southern Company		Southern Power
	(in millions)
Assets Held for Sale:
Current assets	$	407	$	18
Total property, plant, and equipment	4,093		168
Other non-current assets	574		17
Total Assets Held for Sale	$	5,074	$	203

Liabilities Held for Sale:
Current liabilities	$	355	$	4
Long-term debt	1,285		—
Accumulated deferred income taxes	542		—
Other non-current liabilities	1,008		—
Total Liabilities Held for Sale	$	3,190	$	4

Southern Company, Southern Power, and Southern Company Gas each concluded that the sale of their assets, both individually and combined, did not represent a strategic shift in operations that has, or is expected to have, a major effect on its operations and financial results; therefore, none of the assets related to the sales have been classified as discontinued operations for any of the periods presented.

Gulf Power and the Florida Plants represent individually significant components of Southern Company and Southern Power, respectively; therefore, pre-tax profit for these components for the three and nine months ended September 30, 2018 and 2017 is presented below:



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2018		2017		2018		2017
	(in millions)				(in millions)
Earnings before income taxes:
Gulf Power	$	59	$	103	$	146	$	199
Southern Power's Florida Plants	$	18	$	11	$	40	$	28