(C): Derivative Instruments. Our risk management and compliance committee provides general oversight over all risk management and compliance activities, including but not limited to, commodity trading, investment portfolio management and interest rate risk management. We use commodity trading derivatives to manage our exposure to fluctuations in the market price of natural gas. Prior to December 2012, our commodity trading derivatives were designated as hedging instruments under authoritative guidance for accounting for derivatives and hedging. In December 2012, we discontinued hedge accounting for these derivatives and began applying regulatory accounting. Consistent with our rate-making, unrealized gains or losses on natural gas swaps are reflected as a regulatory asset or liability. To hedge the risk of rising interest rates due to the significant amount of new long-term debt we expect to incur in connection with anticipated capital expenditures, we have entered into interest rate options. Hedge accounting is not applied to our interest rate options. Consistent with our rate-making, unrealized losses from the interest rate options are recorded as a regulatory asset. Within our nuclear decommissioning trust fund, derivatives including options, swaps and credit default swaps which are non-speculative, could be utilized to mitigate volatility associated with duration, default, yield curve and the interest rate risks of the portfolio. Consistent with our rate-making, unrealized gains or losses related to the decommissioning trust funds are recorded as an increase or decrease in the associated regulatory asset or liability. We do not hold or enter into derivative transactions for trading or speculative purposes.

We are exposed to credit risk as a result of entering into these hedging arrangements. Credit risk is the potential loss resulting from a counterparty's nonperformance under an agreement. We have established policies and procedures to manage credit risk through counterparty analysis, exposure calculation and monitoring, exposure limits, collateralization and certain other contractual provisions.

It is possible that volatility in commodity prices and/or interest rates could cause us to have credit risk exposures with one or more counterparties. We currently have credit risk exposure to our interest rate options counterparties. If such counterparties fail to perform their obligations, we could suffer a financial loss. However, as of June 30, 2013, all of the counterparties with transaction amounts outstanding under our hedging programs are rated investment grade by the major rating agencies or have provided a guaranty from one of their affiliates that is rated investment grade.

We have entered into International Swaps and Derivatives Association agreements with our natural gas hedge and interest rate option counterparties that mitigate credit exposure by creating contractual rights relating to creditworthiness, collateral, termination and netting (which, in certain cases, allows us to use the net value of affected transactions with the same counterparty in the event of default by the counterparty or early termination of the agreement).

Additionally, we have implemented procedures to monitor the creditworthiness of our counterparties and to evaluate nonperformance in valuing counterparty positions. We have contracted with a third party to assist in monitoring certain of our counterparties' credit standing and condition. Net liability positions are generally not adjusted as we use derivative transactions as hedges and have the ability and intent to perform under each of our contracts. In the instance of net asset positions, we consider general market conditions and the observable financial health and outlook of specific counterparties, forward looking data such as credit default swaps, when available, and historical default probabilities from credit rating agencies in evaluating the potential impact of nonperformance risk to derivative positions.

The contractual agreements contain provisions that could require us or the counterparty to post collateral or credit support. The amount of collateral or credit support that could be required is calculated as the difference between the aggregate fair value of the hedges and pre-established credit thresholds. The credit thresholds are contingent upon each party's credit ratings from the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty.

Gas hedges. Under the natural gas swap arrangements, we pay the counterparty a fixed price for specified natural gas quantities and receive a payment for such quantities based on a market price index. These payment obligations are netted, such that if the market price index is lower than the fixed price, we will make a net payment, and if the market price index is higher than the fixed price, we will receive a net payment.

At June 30, 2013 and December 31, 2012, the estimated fair values of our natural gas contracts were net liabilities of approximately $3,114,000 and $1,085,000, respectively.

As of June 30, 2013 and December 31, 2012, neither we nor any counterparties were required to post credit support or collateral under the natural gas swap agreements. If the credit-risk-related contingent features underlying these agreements had been triggered on June 30, 2013 due to our credit rating being downgraded below investment grade, we would have been required to post letters of credit totaling up to $2,761,000 with our counterparties.

The following table reflects the volume activity of our natural gas derivatives as of June 30, 2013 that is expected to settle or mature each year:



Year			Natural Gas Swaps (MMBTUs) (in millions)

2013			7.3
2014			1.6
2015			0.1

Total			9.0

Interest rate options. We are exposed to the risk of rising interest rates due to the significant amount of new long-term debt we expect to incur in connection with anticipated capital expenditures, particularly the construction of Vogtle Units No. 3 and No. 4. In fourth quarter of 2011, we purchased LIBOR swaptions at a cost of $100,000,000 to hedge the interest rates on approximately $2.2 billion of the expected debt that will be used to finance two additional nuclear units at Plant Vogtle. As of June 30, 2013, our outstanding swaptions hedged approximately $1.8 billion of the expected debt for the new Vogtle units.

The LIBOR swaptions are each designed to cap our effective interest rate at a specified fixed interest rate on a specified option expiration date. This is accomplished by means of a payment of the cash settlement value our counterparties are obligated to make to us if prevailing fixed LIBOR swap rates exceed the specified fixed rate on the option expiration date. This payment would partially offset our interest costs, thereby reducing our effective interest rate. The cash settlement value would be zero if swap rates are at or below the specified fixed rate on the expiration date. The cash settlement value is calculated based on the value of an underlying swap which we have the right, but not the obligation, to enter into, which would begin on the option expiration date and extend until 2042 and under which we would pay the specified fixed rate and receive a floating LIBOR rate. The fixed rates on the unexpired swaptions we hold are in the range of 50 to 150 basis points above LIBOR swap rates that were in effect as of June 30, 2013 and the weighted average fixed rate is 4.15%. Swaptions, having notional amounts totaling $373,396,000 expired without value during the six months ended June 30, 2013. The remaining swaptions expire quarterly through 2017.

We paid all the premiums to purchase these LIBOR swaptions at the time we entered into these transactions and have no additional payment obligations. These derivatives are recorded at fair value, and hedge accounting is not applied. At June 30, 2013 and December 31, 2012, the fair value of these swaptions was approximately $43,680,000 and $25,783,000, respectively. To manage our credit exposure to our counterparties, we negotiated credit support provisions that require each counterparty to provide us collateral in the form of cash or securities to the extent that the value of the swaptions outstanding for that counterparty exceeds a certain threshold. The collateral thresholds can range from $0 to $10,000,000 depending on each counterparty's credit rating. As of June 30, 2013 and December 31, 2012, we held $36,070,000 and $8,950,000 of funds posted as collateral by the counterparties, respectively. The collateral received is recorded as restricted cash on our balance sheet. The liability associated with the collateral is recorded as an offset to the fair values of the swaptions, which are recorded within other deferred charges on the balance sheet, resulting in a net carrying amount of the interest rate options of $7,610,000 and $16,833,000 at June 30, 2013 and December 31, 2012, respectively.

We are deferring gains or losses from the change in fair value of each LIBOR swaption and related carrying and other incidental costs in accordance with our rate-making treatment. The deferred costs and deferred gains, if any, from the settlement of the interest rate options will be amortized and collected in rates over the life of the $2.2 billion of debt that we hedged with the swaptions.

We estimate the value of the LIBOR swaptions utilizing an option pricing model based on several inputs including the notional amount, the forward LIBOR swap rates, the option volatility, the fixed rate on the underlying swap, the time to expiration, the term of the underlying swap and discount rates, as well as credit attributes, including the credit spread of the counterparty and the amount of credit support that is available for each swaption. The fair value of the swaptions is sensitive to certain of these inputs, especially option volatility. We are able to effectively observe all of these factors using a variety of market sources except for the credit spreads of certain counterparties and the option volatility. We are able to estimate option volatility implied by valuations we obtain from various sources, but the valuations, and therefore the implied option volatilities, vary considerably from one source to another. Since valuations of comparable instruments are generally not publicly available, we have categorized these LIBOR swaptions as Level 3. We considered both any intrinsic value and the remaining time value associated with the derivatives and considered counterparty credit risk in our determination of all estimated fair values. We believe the estimated fair values for the LIBOR swaptions we hold are based on the most accurate information available for these types of derivative contracts. The following table reflects the remaining notional amount of forecasted debt issuances we have hedged in each year with LIBOR swaptions as of June 30, 2013.



Year		LIBOR Swaption Notional Dollar Amount (in thousands)

2013	$	381,056
2014		563,425
2015		470,625
2016		310,533
2017		80,169

Total	$	1,805,808

The table below reflects the fair value of derivative instruments and their effect on our condensed balance sheets at June 30, 2013 and December 31, 2012.


	Balance Sheet Location		Fair Value

			2013		2012
			(dollars in thousands)
Not designated as hedges:
Assets:
Interest rate options⁽¹⁾	Other deferred charges	$	43,680	$	25,783
Liabilities:
Natural gas swaps	Other current liabilities	$	3,114	$	1,085

⁽¹⁾: Excludes liability associated with cash collateral of $36,070,000 and $8,950,000 as of June 30, 2013 and December 31, 2012, respectively, which is recorded as an offset to the fair value of the swaptions on the unaudited Condensed Balance Sheets.

The following table presents the gross realized gains and (losses) on derivative instruments recognized in margin for the three and six months ended June 30, 2013 and 2012.


	Statement of Revenues and		Three months ended June 30,						Six months ended June 30,
	Expenses Location		2013			2012			2013			2012

			(dollars in thousands)
Designated as hedges:
Natural Gas Swaps	Fuel	$	—		$	149		$	—		$	149
Natural Gas Swaps	Fuel		—			(3,095	)		—			(5,502	)
Not Designated as hedges:
Natural Gas Swaps	Fuel		449			—			566			—
Natural Gas Swaps	Fuel		(379	)		—			(913	)		—

		$	70		$	(2,946	)	$	(347	)	$	(5,353	)

The following table presents the gross unrealized gains and (losses) on derivative instruments deferred on the balance sheet at June 30, 2013 and December 31, 2012.


	Balance Sheet Location		2013			2012

			(dollars in thousands)
Not designated as hedges:
Interest rate options	Regulatory asset	$	(47,085	)	$	(74,217	)
Natural gas swaps	Regulatory asset		—			(1,085	)
Natural gas swaps	Regulatory liability		(3,114	)		—

		$	(50,199	)	$	(75,302	)

The following table presents the gross amounts of derivatives and their related offset amounts as permitted by their respective master netting agreements and obligations to return cash collateral at June 30, 2013.



		Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts offset on the Balance Sheet		Cash Collateral			Net Amounts of Assets Presented on the Balance Sheet

		(dollars in thousands)
Assets:
Natural gas swaps	$	(3,151	)	$	37	$	—		$	(3,114	)
Interest rate options	$	43,680		$	—	$	(36,070	)	$	7,610