Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements [Abstract]

FAIR VALUE MEASUREMENTS

(C) FAIR VALUE MEASUREMENTS

As of June 30, 2011, assets and liabilities measured at fair value on a recurring basis during the period, together with the level of the fair value hierarchy in which they fall, were as follows:

	Fair Value Measurements Using
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
As of June 30, 2011:	(Level 1)		(Level 2)		(Level 3)		Total
	(in millions)
Southern Company
Assets:
Energy-related derivatives	$	—	$	7	$	—	$	7
Interest rate derivatives		—		12		—		12
Foreign currency derivatives		—		4		—		4
Nuclear decommissioning trusts(a)		566		755		—		1,321
Cash equivalents and restricted cash		254		—		—		254
Other investments		11		49		17		77
Total	$	831	$	827	$	17	$	1,675
Liabilities:
Energy-related derivatives	$	—	$	143	$	—	$	143
Interest rate derivatives		—		1		—		1
Total	$	—	$	144	$	—	$	144
Alabama Power
Assets:
Energy-related derivatives	$	—	$	1	$	—	$	1
Nuclear decommissioning trusts:(b)
Domestic equity		274		62		—		336
Foreign equity		29		29		—		58
U.S. Treasury and government agency securities		18		8		—		26
Corporate bonds		—		114		—		114
Mortgage and asset backed securities		—		29		—		29
Other		—		7		—		7
Cash equivalents and restricted cash		41		—		—		41
Total	$	362	$	250	$	—	$	612
Liabilities:
Energy-related derivatives	$	—	$	25	$	—	$	25

	Fair Value Measurements Using
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
As of June 30, 2011:	(Level 1)		(Level 2)		(Level 3)		Total
	(in millions)
Georgia Power
Assets:
Energy-related derivatives	$	—	$	1	$	—	$	1
Nuclear decommissioning trusts:(c)
Domestic equity		245		1		—		246
U.S. Treasury and government agency securities		—		106		—		106
Municipal bonds		—		61		—		61
Corporate bonds		—		180		—		180
Mortgage and asset backed securities		—		118		—		118
Other		—		40		—		40
Cash equivalents		8		—		—		8
Total	$	253	$	507	$	—	$	760
Liabilities:
Energy-related derivatives	$	—	$	68	$	—	$	68
Gulf Power
Assets:
Energy-related derivatives	$	—	$	1	$	—	$	1
Cash equivalents		14		—		—		14
Total	$	14	$	1	$	—	$	15
Liabilities:
Energy-related derivatives	$	—	$	10	$	—	$	10
Mississippi Power
Assets:
Energy-related derivatives	$	—	$	1	$	—	$	1
Foreign currency derivatives		—		4		—		4
Cash equivalents		48		—		—		48
Total	$	48	$	5	$	—	$	53
Liabilities:
Energy-related derivatives	$	—	$	34	$	—	$	34
Southern Power
Assets:
Energy-related derivatives	$	—	$	3	$	—	$	3
Liabilities:
Energy-related derivatives	$	—	$	6	$	—	$	6

(a)	For additional detail, see the nuclear decommissioning trusts sections for Alabama Power and Georgia Power in this table.
(b)	Excludes receivables related to investment income, pending investment sales, and payables related to pending investment purchases.
(c)	Includes the investment securities pledged to creditors and cash collateral received, and excludes receivables related to investment income, pending investment sales, and payables related to pending investment purchases and the securities lending program. As of June 30, 2011, approximately $119 million of the fair market value of Georgia Power’s nuclear decommissioning trust funds’ securities were on loan and pledged to creditors under the funds’ managers’ securities lending program.

Valuation Methodologies

The energy-related derivatives primarily consist of 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 LIBOR interest rates. Interest rate and foreign currency derivatives are also standard over-the-counter financial products valued using the market approach. Inputs for interest rate derivatives include LIBOR interest rates, interest rate futures contracts, and occasionally implied volatility of interest rate options. Inputs for foreign currency derivatives are from observable market sources. See Note (H) herein for additional information on how these derivatives are used.

“Other investments” include investments in funds that are valued using the market approach and income approach. Securities that are traded in the open market are valued at the closing price on their principal exchange as of the measurement date. Discounts are applied in accordance with GAAP when certain trading restrictions exist. For investments that are not traded in the open market, the price paid will have been determined based on market factors including comparable multiples and the expectations regarding cash flows and business plan execution. As the investments mature or if market conditions change materially, further analysis of the fair market value of the investment is performed. This analysis is typically based on a metric, such as multiple of earnings, revenues, earnings before interest and income taxes, or earnings adjusted for certain cash changes. These multiples are based on comparable multiples for publicly traded companies or other relevant prior transactions.

For fair value measurements of investments within the nuclear decommissioning trusts and rabbi trust funds, specifically the fixed income assets using significant other observable inputs and unobservable inputs, the primary valuation technique used is the market approach. External pricing vendors are designated for each of the asset classes in the nuclear decommissioning trusts and rabbi trust funds with each security discriminately assigned a primary pricing source, based on similar characteristics.

A market price secured from the primary source vendor is then used in the valuation of the assets within the trusts. As a general approach, 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’ judgment are also obtained when available.

As of June 30, 2011, the fair value measurements of investments calculated at net asset value per share (or its equivalent), as well as the nature and risks of those investments, were as follows:

	Fair		Unfunded	Redemption	Redemption
As of June 30, 2011:	Value		Commitments	Frequency	Notice Period
	(in millions)
Southern Company
Nuclear decommissioning trusts:
Corporate bonds — commingled funds	$	82	None	Daily		1 to 3 days
Other — commingled funds		40	None	Daily	Not applicable
Trust owned life insurance		90	None	Daily	15 days
Cash equivalents and restricted cash:
Money market funds		254	None	Daily	Not applicable
Alabama Power
Nuclear decommissioning trusts:
Trust owned life insurance	$	90	None	Daily	15 days
Cash equivalents and restricted cash:
Money market funds		41	None	Daily	Not applicable
Georgia Power
Nuclear decommissioning trusts:
Corporate bonds — commingled funds	$	82	None	Daily		1 to 3 days
Other — commingled funds		40	None	Daily	Not applicable
Cash equivalents:
Money market funds		8	None	Daily	Not applicable
Gulf Power
Cash equivalents:
Money market funds	$	14	None	Daily	Not applicable
Mississippi Power
Cash equivalents:
Money market funds	$	48	None	Daily	Not applicable

The NRC requires licensees of commercial nuclear power reactors to establish a plan for providing reasonable assurance of funds for future decommissioning. Alabama Power and Georgia Power have external trust funds (the Funds) to comply with the NRC’s regulations. The commingled funds in the nuclear decommissioning trusts are invested primarily in a diversified portfolio of high grade money market instruments, including, but not limited to, commercial paper, notes, repurchase agreements, and other evidences of indebtedness with a maturity not exceeding 13 months from the date of purchase. The commingled funds will, however, maintain a dollar-weighted average portfolio maturity of 90 days or less. The assets may be longer term investment grade fixed income obligations having a maximum five-year final maturity with put features or floating rates with a reset rate date of 13 months or less. The primary objective for the commingled funds is a high level of current income consistent with stability of principal and liquidity. The corporate bonds — commingled funds represent the investment of cash collateral received under the Funds’ managers’ securities lending program that can only be sold upon the return of the loaned securities. See Note 1 to the financial statements of Southern Company and Georgia Power under “Nuclear Decommissioning” in Item 8 of the Form 10-K for additional information.

Alabama Power’s nuclear decommissioning trust includes investments in Trust-Owned Life Insurance (TOLI). The taxable nuclear decommissioning trust invests in the TOLI in order to minimize the impact of taxes on the portfolio and can draw on the value of the TOLI through death proceeds, loans against the cash surrender value, and/or the cash surrender value, subject to legal restrictions. The amounts reported in the table above reflect the fair value of investments the insurer has made in relation to the TOLI agreements. The nuclear decommissioning trust does not own the underlying investments, but the fair value of the investments approximates the cash surrender value of the TOLI policies. The investments made by the insurer are in commingled funds. The commingled funds primarily include investments in domestic and international equity securities and predominantly high-quality fixed income securities. These fixed income securities include U.S. Treasury and government agency fixed income securities, non-U.S. government and agency fixed income securities, domestic and foreign corporate fixed income securities, and, to some degree, mortgage and asset backed securities. The passively managed funds seek to replicate the performance of a related index. The actively managed funds seek to exceed the performance of a related index through security analysis and selection.

Southern Company, Alabama Power, and Georgia Power continue to elect the option to fair value investment securities held in the nuclear decommissioning trust funds. For the three and six months ended June 30, 2011, the increase in fair value of the funds, which includes reinvested interest and dividends, is recorded in the regulatory liability and was $4 million and $31 million, respectively, for Alabama Power, $12 million and $27 million, respectively, for Georgia Power, and $16 million and $58 million, respectively, for Southern Company.

The money market funds are short-term investments of excess funds in various money market mutual funds, which are portfolios of short-term debt securities. The money market funds are regulated by the SEC and typically receive the highest rating from credit rating agencies. Regulatory and rating agency requirements for money market funds include minimum credit ratings and maximum maturities for individual securities and a maximum weighted average portfolio maturity. Redemptions are available on a same day basis up to the full amount of the investment in the money market funds.

Changes in the fair value measurement of the Level 3 items using significant unobservable inputs for Southern Company at June 30, 2011 were as follows:

	Level 3
	Other
	Three Months Ended		Six Months Ended
	June 30, 2011		June 30, 2011
	(in millions)
Beginning balance	$	12	$	19
Purchases		—		1
Total gains (losses) — realized/unrealized:
Included in earnings		—		(5	)
Included in OCI		5		2
Ending balance at June 30, 2011	$	17	$	17

At June 30, 2011, other financial instruments for which the carrying amount did not equal fair value were as follows:

	Carrying Amount		Fair Value
	(in millions)
Long-term debt:
Southern Company	$	19,812	$	20,757
Alabama Power	$	6,236	$	6,602
Georgia Power	$	8,740	$	9,088
Gulf Power	$	1,235	$	1,300
Mississippi Power	$	661	$	693
Southern Power	$	1,300	$	1,390

The fair values were based on closing market prices (Level 1) or closing prices of comparable instruments (Level 2).