Segment and Related Information

9 Months Ended

Sep. 30, 2018

Southern Company

The primary businesses of the Southern Company system are electricity sales by the traditional electric operating companies and Southern Power and the distribution of natural gas by Southern Company Gas. The four traditional electric operating companies – Alabama Power, Georgia Power, Gulf Power, and Mississippi Power – are vertically integrated utilities providing electric service in four Southeastern states. Southern Power develops, constructs, acquires, owns, and manages power generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. Southern Company Gas distributes natural gas through its natural gas distribution utilities and is involved in several other complementary businesses including gas marketing services, wholesale gas services, and gas midstream operations. In July 2018, Southern Company Gas completed sales of three of its natural gas distribution utilities. See Note (J) under "Southern Company Gas" for additional information.

Southern Company's reportable business segments are the sale of electricity by the four traditional electric operating companies, the sale of electricity in the competitive wholesale market by Southern Power, and the sale of natural gas and other complementary products and services by Southern Company Gas. Revenues from sales by Southern Power to the traditional electric operating companies were $134 million and $326 million for the three and nine months ended September 30, 2018, respectively, and $105 million and $295 million for the three and nine months ended September 30, 2017, respectively. Revenues from sales of natural gas from Southern Company Gas to the traditional electric operating companies were $14 million and $22 million for the three and nine months ended September 30, 2018, respectively, and $9 million and $19 million for the three and nine months ended September 30, 2017, respectively. Revenues from sales of natural gas from Southern Company Gas to Southern Power were $38 million and $96 million for the three and nine months ended September 30, 2018, respectively, and $38 million and $94 million for the three and nine months ended September 30, 2017, respectively. The "All Other" column includes the Southern Company parent entity, which does not allocate operating expenses to business segments. Also, this category includes segments below the quantitative threshold for separate disclosure. These segments include providing energy technologies and services to electric utilities and large industrial, commercial, institutional, and municipal customers; as well as investments in telecommunications and leveraged lease projects. All other inter-segment revenues are not material.

Financial data for business segments and products and services for the three and nine months ended September 30, 2018 and 2017 was as follows:



	Electric Utilities
	Traditional Electric Operating Companies		Southern Power		Eliminations			Total		Southern Company Gas		All Other			Eliminations			Consolidated
	(in millions)
Three Months Ended September 30, 2018:
Operating revenues	$	5,014	$	635	$	(140	)	$	5,509	$	492	$	202		$	(44	)	$	6,159
Segment net income (loss)^(a)(b)(c)(d)	1,148		92		—			1,240		46		(119		)	(3		)	1,164
Nine Months Ended September 30, 2018:
Operating revenues	$	13,117	$	1,699	$	(360	)	$	14,456	$	2,861	$	984		$	(143	)	$	18,158
Segment net income (loss)^(a)(b)(c)(d)	1,711		235		—			1,946		294		(292		)	—			1,948
At September 30, 2018:
Goodwill	$	—	$	2	$	—		$	2	$	5,015	$	298		$	—		$	5,315
Total assets	75,069		15,355		(322		)	90,102		20,398		3,086			(1,869		)	111,717
Three Months Ended September 30, 2017:
Operating revenues	$	5,017	$	618	$	(112	)	$	5,523	$	565	$	153		$	(40	)	$	6,201
Segment net income (loss)^(a)(b)	1,008		124		—			1,132		15		(80		)	2			1,069
Nine Months Ended September 30, 2017:
Operating revenues	$	12,960	$	1,597	$	(318	)	$	14,239	$	2,841	$	442		$	(119	)	$	17,403
Segment net income (loss)^(a)(b)(e)	—		276		—			276		303		(232		)	—			347
At December 31, 2017:
Goodwill	$	—	$	2	$	—		$	2	$	5,967	$	299		$	—		$	6,268
Total assets	72,204		15,206		(325		)	87,085		22,987		2,552			(1,619		)	111,005


(a)	Attributable to Southern Company.

(b)

Segment net income (loss) for the traditional electric operating companies includes pre-tax charges for estimated losses on plants under construction of $1 million ($1 million after tax) and $34 million ($21 million after tax) for the three months ended September 30, 2018 and 2017, respectively, and $1.1 billion ($0.8 billion after tax) and $3.2 billion ($2.2 billion after tax) for the nine months ended September 30, 2018 and 2017, respectively. See Note 3 to the financial statements of Southern Company under "Kemper County Energy Facility" in Item 8 of the Form 10-K and Note (B) under "Nuclear Construction" and "Kemper County Energy Facility" for additional information.


(c)	Segment net income (loss) for Southern Power includes pre-tax impairment charges of $36 million ($27 million after tax) and $155 million ($116 million after tax) for the three and nine months ended September 30, 2018, respectively. See Note (J) under "Southern Power – Development Projects" and " – Sale of Florida Plants" for additional information.

(d)

Segment net income (loss) for Southern Company Gas includes a net gain on dispositions of $353 million ($40 million gain after tax) and $317 million ($35 million loss after tax) for the three and nine months ended September 30, 2018, respectively, related to the Southern Company Gas Dispositions and a goodwill impairment charge of $42 million for the nine months ended September 30, 2018 related to the sale of Pivotal Home Solutions. See Note (J) under "Southern Company Gas" for additional information.

(e)

Segment net income (loss) for the traditional electric operating companies includes a pre-tax charge for the write-down of Gulf Power's ownership of Plant Scherer Unit 3 of $33 million ($20 million after tax) for the nine months ended September 30, 2017. See Note 3 to the financial statements of Southern Company under "Regulatory Matters – Gulf Power – Retail Base Rate Cases" in Item 8 of the Form 10-K for additional information.

Products and Services



	Electric Utilities' Revenues
Period	Retail		Wholesale		Other		Total
	(in millions)
Three Months Ended September 30, 2018	$	4,605	$	693	$	211	$	5,509
Three Months Ended September 30, 2017	4,615		718		190		5,523

Nine Months Ended September 30, 2018	$	11,913	$	1,923	$	620	$	14,456
Nine Months Ended September 30, 2017	11,786		1,867		586		14,239



	Southern Company Gas' Revenues
Period	Gas Distribution Operations		Gas Marketing Services		Other			Total
	(in millions)
Three Months Ended September 30, 2018	$	438	$	44	$	10		$	492
Three Months Ended September 30, 2017	430		143		(8		)	565
Nine Months Ended September 30, 2018	$	2,276	$	403	$	182		$	2,861
Nine Months Ended September 30, 2017	2,119		597		125			2,841

Southern Company Gas

Southern Company Gas manages its business through four reportable segments – gas distribution operations, gas marketing services, wholesale gas services, and gas midstream operations. The non-reportable segments are combined and presented as all other.

Gas distribution operations is the largest component of Southern Company Gas' business and includes natural gas local distribution utilities that construct, manage, and maintain intrastate natural gas pipelines and gas distribution facilities in seven states. In July 2018, Southern Company Gas sold three of its natural gas distribution utilities, Elizabethtown Gas, Elkton Gas, and Florida City Gas. See Note (J) under "Southern Company Gas" for additional information.

Gas marketing services includes natural gas marketing to end-use customers primarily in Georgia and Illinois. On June 4, 2018, Southern Company Gas sold Pivotal Home Solutions. See Note (J) under "Southern Company Gas" for additional information.

Wholesale gas services provides natural gas asset management and/or related logistics services for each of Southern Company Gas' utilities except Nicor Gas as well as for non-affiliated companies. Additionally, wholesale gas services engages in natural gas storage and gas pipeline arbitrage and related activities.

Gas midstream operations primarily consists of Southern Company Gas' pipeline investments, with storage and fuel operations also aggregated into this segment.

The all other column includes segments below the quantitative threshold for separate disclosure, including the subsidiaries that fall below the quantitative threshold for separate disclosure.

Business segment financial data for the three and nine months ended September 30, 2018 and 2017 was as follows:



	Gas Distribution Operations^(a)(c)		Gas Marketing Services^(b)(c)			Wholesale Gas Services^(d)			Gas Midstream Operations		Total		All Other			Eliminations			Consolidated
	(in millions)
Three Months Ended September 30, 2018:
Operating revenues	$	441	$	44		$	(8	)	$	20	$	497	$	1		$	(6	)	$	492
Segment net income (loss)	74		(8		)	(18		)	16		64		(18		)	—			46
Nine Months Ended September 30, 2018:
Operating revenues	2,297		403			142			60		2,902		3			(44		)	2,861
Segment net income (loss)	290		(71		)	65			54		338		(44		)	—			294
Total assets at September 30, 2018:	16,850		1,522			855			2,297		21,524		10,146			(11,272		)	20,398
Three Months Ended September 30, 2017:
Operating revenues	$	472	$	143		$	(24	)	$	16	$	607	$	2		$	(44	)	$	565
Segment net income (loss)	52		1			(23		)	14		44		(29		)	—			15
Nine Months Ended September 30, 2017:
Operating revenues	2,255		597			95			53		3,000		7			(166		)	2,841
Segment net income (loss)	223		36			28			38		325		(22		)	—			303
Total assets at December 31, 2017:	19,358		2,147			1,096			2,241		24,842		12,184			(14,039		)	22,987


(a)	Operating revenues for the three gas distribution operations dispositions were $8 million and $50 million for the three months ended September 30, 2018 and 2017, respectively, and $245 million and $274 million for the nine months ended September 30, 2018 and 2017, respectively. See Note (J) under "Southern Company Gas" for additional information.


(b)	Operating revenues for the gas marketing services disposition were $32 million for the three months ended September 30, 2017 and $55 million and $95 million for the nine months ended September 30, 2018 and 2017, respectively. See Note (J) under "Southern Company Gas" for additional information.

(c)

Segment net income for gas distribution operations includes a gain on dispositions of $351 million ($38 million after tax) for the three and nine months ended September 30, 2018. Segment net income for gas marketing services includes a gain on disposition of $2 million ($2 million after tax) for the three months ended September 30, 2018 and a loss on disposition of $34 million ($73 million loss after tax) and a goodwill impairment charge of $42 million for the nine months ended September 30, 2018 recorded in contemplation of the sale of Pivotal Home Solutions. See Note (J) under "Southern Company Gas" for additional information.


(d)	The revenues for wholesale gas services are netted with costs associated with its energy and risk management activities. A reconciliation of operating revenues and intercompany revenues is shown in the following table.



	Third Party Gross Revenues		Intercompany Revenues		Total Gross Revenues		Less Gross Gas Costs		Operating Revenues
	(in millions)
Three Months Ended September 30, 2018	$	1,573	$	82	$	1,655	$	1,663	$	(8	)
Three Months Ended September 30, 2017	1,411		103		1,514		1,538		(24		)
Nine Months Ended September 30, 2018	$	4,847	$	352	$	5,199	$	5,057	$	142
Nine Months Ended September 30, 2017	4,781		362		5,143		5,048		95