Fair Value Measurements

3 Months Ended

Mar. 31, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

At March 31, 2022, assets and liabilities measured at fair value on a recurring basis during the period, together with their associated level of the fair value hierarchy, were as follows:

	Fair Value Measurements Using:
At March 31, 2022	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Net Asset Value as a Practical Expedient (NAV)		Total
	(in millions)
Southern Company
Assets:
Energy-related derivatives(a)	$	74	$	473	$	—	$	—	$	547
Interest rate derivatives	—		17		—		—		17
Investments in trusts:(b)(c)
Domestic equity	754		202		—		—		956
Foreign equity	143		167		—		—		310
U.S. Treasury and government agency securities	—		290		—		—		290
Municipal bonds	—		53		—		—		53
Pooled funds – fixed income	—		10		—		—		10
Corporate bonds	1		490		—		—		491
Mortgage and asset backed securities	—		88		—		—		88
Private equity	—		—		—		156		156
Cash and cash equivalents	3		—		—		—		3
Other	42		25		—		—		67
Cash equivalents	1,182		17		—		—		1,199
Other investments	9		32		—		—		41
Total	$	2,208	$	1,864	$	—	$	156	$	4,228
Liabilities:
Energy-related derivatives(a)	$	3	$	7	$	—	$	—	$	10
Interest rate derivatives	—		139		—		—		139
Foreign currency derivatives	—		130		—		—		130
Contingent consideration	—		—		14		—		14
Other	—		13		—		—		13
Total	$	3	$	289	$	14	$	—	$	306

	Fair Value Measurements Using:
At March 31, 2022	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Net Asset Value as a Practical Expedient (NAV)		Total
	(in millions)
Alabama Power
Assets:
Energy-related derivatives	$	—	$	128	$	—	$	—	$	128
Nuclear decommissioning trusts:(b)
Domestic equity	452		193		—		—		645
Foreign equity	143		—		—		—		143
U.S. Treasury and government agency securities	—		21		—		—		21
Municipal bonds	—		2		—		—		2
Corporate bonds	1		253		—		—		254
Mortgage and asset backed securities	—		20		—		—		20
Private equity	—		—		—		156		156
Other	14		—		—		—		14
Cash equivalents	1,129		17		—		—		1,146
Other investments	—		32		—		—		32
Total	$	1,739	$	666	$	—	$	156	$	2,561
Liabilities:
Energy-related derivatives	$	—	$	2	$	—	$	—	$	2
Georgia Power
Assets:
Energy-related derivatives	$	—	$	179	$	—	$	—	$	179
Interest rate derivatives	—		12		—		—		12
Nuclear decommissioning trusts:(b)(c)
Domestic equity	302		1		—		—		303
Foreign equity	—		165		—		—		165
U.S. Treasury and government agency securities	—		269		—		—		269
Municipal bonds	—		51		—		—		51
Corporate bonds	—		237		—		—		237
Mortgage and asset backed securities	—		68		—		—		68
Other	28		25		—		—		53
Total	$	330	$	1,007	$	—	$	—	$	1,337
Liabilities:
Energy-related derivatives	$	—	$	1	$	—	$	—	$	1

	Fair Value Measurements Using:
At March 31, 2022	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Net Asset Value as a Practical Expedient (NAV)		Total
	(in millions)
Mississippi Power
Assets:
Energy-related derivatives	$	—	$	138	$	—	$	—	$	138
Liabilities:
Energy-related derivatives	$	—	$	2	$	—	$	—	$	2
Southern Power
Assets:
Energy-related derivatives	$	—	$	8	$	—	$	—	$	8
Liabilities:
Foreign currency derivatives	$	—	$	43	$	—	$	—	$	43
Contingent consideration	—		—		14		—		14
Other	—		13		—		—		13
Total	$	—	$	56	$	14	$	—	$	70
Southern Company Gas
Assets:
Energy-related derivatives(a)	$	74	$	20	$	—	$	—	$	94
Non-qualified deferred compensation trusts:
Domestic equity	—		8		—		—		8
Foreign equity	—		2		—		—		2
Pooled funds – fixed income	—		10		—		—		10
Cash equivalents	3		—		—		—		3
Total	$	77	$	40	$	—	$	—	$	117
Liabilities:
Energy-related derivatives(a)	$	3	$	1	$	—	$	—	$	4
Interest rate derivatives	—		36		—		—		36
Total	$	3	$	37	$	—	$	—	$	40

(a)Excludes cash collateral of $36 million.

(b)Excludes receivables related to investment income, pending investment sales, payables related to pending investment purchases, and currencies. See Note 6 to the financial statements in Item 8 of the Form 10-K for additional information.

(c)Includes investment securities pledged to creditors and collateral received and excludes payables related to the securities lending program. At March 31, 2022, approximately $72 million of the fair market value of Georgia Power's nuclear decommissioning trust funds' securities were on loan to creditors under the funds' managers' securities lending program. See Note 6 to the financial statements in Item 8 of the Form 10-K for additional information.

Southern Company, Alabama Power, and Georgia Power continue to elect the option to fair value investment securities held in the nuclear decommissioning trust funds. The fair value of the funds, including reinvested interest and dividends and excluding the funds' expenses, increased (decreased) by the amounts shown in the table below for the three months ended March 31, 2022 and 2021. The changes were recorded as a change to the regulatory assets and liabilities related to AROs for Georgia Power and Alabama Power, respectively.

Fair value increases (decreases)	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
	(in millions)
Southern Company	$	(150)	$	39
Alabama Power	(67)		41
Georgia Power	(83)		(2)

Valuation Methodologies

The energy-related derivatives primarily consist of exchange-traded and over-the-counter financial products for natural gas and physical power products, including, from time to time, basis swaps. These are standard products used within the energy industry and are valued using the market approach. The inputs used are mainly from observable market sources, such as forward natural gas prices, power prices, implied volatility, and overnight index swap interest rates. Interest rate derivatives are also standard over-the-counter products that are valued using observable market data and assumptions commonly used by market participants. The fair value of interest rate derivatives reflects the net present value of expected payments and receipts under the swap agreement based on the market's expectation of future interest rates. Additional inputs to the net present value calculation may include the contract terms, counterparty credit risk, and occasionally, implied volatility of interest rate options. The fair value of cross-currency swaps reflects the net present value of expected payments and receipts under the swap agreement based on the market's expectation of future foreign currency exchange rates. Additional inputs to the net present value calculation may include the contract terms, counterparty credit risk, and discount rates. The interest rate derivatives and cross-currency swaps are categorized as Level 2 under Fair Value Measurements as these inputs are based on observable data and valuations of similar instruments. See Note (J) for additional information on how these derivatives are used.

For fair value measurements of the investments within the nuclear decommissioning trusts and the non-qualified deferred compensation trusts, external pricing vendors are designated for each asset class with each security specifically assigned a primary pricing source. For investments held within commingled funds, fair value is determined at the end of each business day through the net asset value, which is established by obtaining the underlying securities' individual prices from the primary pricing source. A market price secured from the primary source vendor is then evaluated by management in its valuation of the assets within the trusts. As a general approach, fixed income market pricing vendors gather market data (including indices and market research reports) and integrate relative credit information, observed market movements, and sector news into proprietary pricing models, pricing systems, and mathematical tools. Dealer quotes and other market information, including live trading levels and pricing analysts' judgments, are also obtained when available.

The NRC requires licensees of commissioned nuclear power reactors to establish a plan for providing reasonable assurance of funds for future decommissioning. See Note 6 to the financial statements under "Nuclear Decommissioning" in Item 8 of the Form 10-K for additional information.

Southern Power has contingent payment obligations related to certain acquisitions whereby it is primarily obligated to make generation-based payments to the seller, which commenced at the commercial operation of the respective facility and continue through 2026. The obligations are categorized as Level 3 under Fair Value Measurements as the fair value is determined using significant unobservable inputs for the forecasted facility generation in MW-hours, as well as other inputs such as a fixed dollar amount per MW-hour, and a discount rate. The fair value of contingent consideration reflects the net present value of expected payments and any periodic change arising from forecasted generation is expected to be immaterial.

Southern Power also has payment obligations through 2040 whereby it must reimburse the transmission owners for interconnection facilities and network upgrades constructed to support connection of a Southern Power generating facility to the transmission system. The obligations are categorized as Level 2 under Fair Value Measurements as the fair value is determined using observable inputs for the contracted amounts and reimbursement period, as well as a discount rate. The fair value of the obligations reflects the net present value of expected payments.

"Other investments" include investments traded in the open market that have maturities greater than 90 days, which are categorized as Level 2 under Fair Value Measurements and are comprised of corporate bonds, bank certificates of deposit, treasury bonds, and/or agency bonds.

At March 31, 2022, the fair value measurements of private equity investments held in Alabama Power's nuclear decommissioning trusts that are calculated at net asset value per share (or its equivalent) as a practical expedient totaled $156 million and unfunded commitments related to the private equity investments totaled $84 million. Private equity investments include high-quality private equity funds across several market sectors and funds that invest in real estate assets. Private equity funds do not have redemption rights. Distributions from these funds will be received as the underlying investments in the funds are liquidated.

At March 31, 2022, other financial instruments for which the carrying amount did not equal fair value were as follows:

	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas(*)
	(in billions)
Long-term debt, including securities due within one year:
Carrying amount	$	51.6	$	9.8	$	13.2	$	1.5	$	3.7	$	6.9
Fair value	51.9		10.0		13.5		1.5		3.8		6.9

(*)The long-term debt of Southern Company Gas is recorded at amortized cost, including the fair value adjustments at the effective date of the 2016 merger with Southern Company. Southern Company Gas amortizes the fair value adjustments over the remaining lives of the respective bonds, the latest being through 2043.

The fair values are determined using Level 2 measurements and are based on quoted market prices for the same or similar issues or on the current rates available to the Registrants.