7. COMMITMENTS

Construction Program

The construction programs of the Company’s subsidiaries are currently estimated to include a base level investment of $5.3 billion, $4.4 billion, and $4.3 billion for 2012, 2013, and 2014, respectively. These amounts include capital expenditures related to contractual purchase commitments for nuclear fuel and capital expenditures covered under long-term service agreements. Also included in these estimated amounts are base level environmental expenditures to comply with existing statutes and regulations of $425 million, $405 million, and $621 million for 2012, 2013, and 2014, respectively. In addition to these base level environmental expenditures there are other potential incremental environmental compliance investments that may be necessary to comply with the EPA’s final MATS rule and the proposed water and coal combustion byproducts rules. The construction programs are subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; changes in environmental statutes and regulations; the outcome of any legal challenges to environmental rules; changes in generating plants, including unit retirements and replacements, to meet new regulatory requirements; changes in FERC rules and regulations; PSC approvals; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; project scope and design changes; storm impacts; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. At December 31, 2011, significant purchase commitments were outstanding in connection with the continuous construction program, which includes new facilities and capital improvements to transmission, distribution, and generation facilities, including those to meet environmental standards. See Note 3 under “Retail Regulatory Matters – Georgia Power – Nuclear Construction,” “Retail Regulatory Matters – Georgia Power – Other Construction,” and “Integrated Coal Gasification Combined Cycle” for additional information.

Long-Term Service Agreements

The traditional operating companies and Southern Power have entered into long-term service agreements (LTSAs) with General Electric (GE), Alstom Power, Inc., Mitsubishi Power Systems Americas, Inc., and Siemens AG for the purpose of securing maintenance support for the combined cycle and combustion turbine generating facilities owned or under construction by the subsidiaries. The LTSAs cover all planned inspections on the covered equipment, which generally includes the cost of all labor and materials. The LTSAs also obligate the counterparties to cover the costs of unplanned maintenance on the covered equipment subject to limits and scope specified in each LTSA.

In general, these LTSAs are in effect through two major inspection cycles per unit. Scheduled payments under the LTSAs, which are subject to price escalation, are made at various intervals based on actual operating hours or number of gas turbine starts of the respective units. Total remaining payments under these LTSAs for facilities owned are currently estimated at $1.9 billion over the remaining life of the LTSAs, which are currently estimated to range up to 34 years. However, the LTSAs contain various cancellation provisions at the option of the respective traditional operating company or Southern Power, as applicable.

Georgia Power has also entered into a LTSA with GE through 2014 for neutron monitoring system parts and electronics at Plant Hatch. Total remaining payments to GE under this agreement are currently estimated at $4.5 million. The contract contains cancellation provisions at the option of Georgia Power.

Payments made under the LTSAs prior to the performance of any work are recorded as a prepayment in the balance sheets. All work performed is capitalized or charged to expense (net of any joint owner billings), as appropriate based on the nature of the work.

Limestone Commitments

As part of Southern Company’s program to reduce sulfur dioxide emissions from its coal plants, the traditional operating companies have entered into various long-term commitments for the procurement of limestone to be used in flue gas desulfurization equipment. Limestone contracts are structured with tonnage minimums and maximums in order to account for fluctuations in coal burn and sulfur content. Southern Company has a minimum contractual obligation of 5.6 million tons, equating to approximately $246 million, through 2019. Estimated expenditures (based on minimum contracted obligated dollars) are $41 million in 2012, $42 million in 2013, $42 million in 2014, $29 million in 2015, and $22 million in 2016.

Fuel and Purchased Power Commitments

To supply a portion of the fuel requirements of the generating plants, the Southern Company system has entered into various long-term commitments for the procurement of fossil and nuclear fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. Coal commitments include forward contract purchases for sulfur dioxide and nitrogen oxide emissions allowances. Natural gas purchase commitments contain fixed volumes with prices based on various indices at the time of delivery; amounts included in the chart below represent estimates based on New York Mercantile Exchange future prices at December 31, 2011. Also, the Southern Company system has entered into various long-term commitments for the purchase of capacity and electricity.

Total estimated minimum long-term obligations at December 31, 2011 were as follows:


	Commitments
	Natural Gas	Coal	Nuclear Fuel	Purchased Power*

	(in millions)

2012	$1,479	$3,266	$ 353	$ 259
2013	1,553	2,218	197	248
2014	1,196	1,336	206	281
2015	998	592	145	311
2016	937	300	92	301
2017 and thereafter	2,798	737	740	2,700

Total	$8,961	$8,449	$1,733	$4,100

*	Certain PPAs reflected in the table are accounted for as operating leases.

Additional commitments for fuel will be required to supply the Southern Company system’s future needs. Total charges for nuclear fuel included in fuel expense amounted to $215 million in 2011, $184 million in 2010, and $160 million in 2009.

Coal commitments for Mississippi Power include a minimum annual management fee of $38 million beginning in 2014 from the executed 40-year management contract with Liberty Fuels related to the Kemper IGCC.

Operating Leases

The Southern Company system has operating lease agreements with various terms and expiration dates. Total operating lease expenses were $176 million, $188 million, and $186 million for 2011, 2010, and 2009, respectively. Southern Company includes any step rents, escalations, and lease concessions in its computation of minimum lease payments, which are recognized on a straight-line basis over the minimum lease term.

At December 31, 2011, estimated minimum lease payments for noncancelable operating leases were as follows:


	Minimum Lease Payments

	Barges & Rail Cars	Other	Total

	(in millions)
2012	$ 79	$ 42	$121
2013	68	34	102
2014	53	28	81
2015	21	22	43
2016	15	17	32
2017 and thereafter	10	75	85

Total	$246	$218	$464

For the traditional operating companies, a majority of the barge and rail car lease expenses are recoverable through fuel cost recovery provisions. In addition to the above rental commitments, Alabama Power and Georgia Power have obligations upon expiration of certain leases with respect to the residual value of the leased property. These leases expire in 2012, 2013, 2014, 2015, 2016, and 2018 and the maximum obligations under these leases are $1 million, $39 million, $18 million, $5 million, $4 million, and $24 million, respectively. At the termination of the leases, the lessee may either exercise its purchase option, or the property can be sold to a third party. Alabama Power and Georgia Power expect that the fair market value of the leased property would substantially reduce or eliminate the payments under the residual value obligations.

Guarantees

As discussed earlier in this Note under “Operating Leases,” Alabama Power and Georgia Power have entered into certain residual value guarantees.

COMMITMENTS

7. COMMITMENTS

Construction Program

The approved construction program of the Company is currently estimated to include a base level investment of $0.9 billion for 2012, $1.0 billion for 2013, and $1.1 billion for 2014. Over the next three years, the Company estimates spending $554 million on Plant Farley (including nuclear fuel), $932 million on distribution facilities, and $597 million on transmission additions. These base level investment amounts include capital expenditures related to contractual purchase commitments for nuclear fuel and capital expenditures covered under long-term service agreements. Also included in these estimated amounts are base level environmental expenditures to comply with existing statutes and regulations of $22 million, $20 million, and $44 million for 2012, 2013, and 2014, respectively. These base level environmental expenditures do not include potential incremental environmental compliance investments to comply with the EPA’s final Mercury and Air Toxics Standards rule and the proposed water and coal combustion byproducts rules. The construction program is subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; changes in environmental statutes and regulations; the outcome of any legal challenges to environmental rules; changes in generating plants, including unit retirements and replacements, to meet new regulatory requirements; changes in FERC rules and regulations; Alabama PSC approvals; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; project scope and design changes; storm impacts; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. At December 31, 2011, significant purchase commitments were outstanding in connection with the continuous construction program. The Company has no generating plants under construction. Construction of new transmission and distribution facilities and capital improvements, including those to meet environmental standards for existing generation, transmission, and distribution facilities, will continue.

Long-Term Service Agreements

The Company has entered into long-term service agreements (LTSAs) with General Electric (GE) for the purpose of securing maintenance support for its combined cycle and combustion turbine generating facilities. The LTSAs provide that GE will perform all planned inspections on the covered equipment, which includes the cost of all labor and materials. GE is also obligated to cover the costs of unplanned maintenance on the covered equipment subject to a limit specified in each LTSA.

In general, these LTSAs are in effect through two major inspection cycles per unit. Scheduled payments to GE, which are subject to price escalation, are made at various intervals based on actual operating hours of the respective units. Total remaining payments to GE under these LTSAs for facilities owned are currently estimated at $95 million over the remaining life of the LTSAs, which are currently estimated to range up to five years. However, the LTSAs contain various cancellation provisions at the option of the Company. Payments made to GE prior to the performance of any planned maintenance are recorded as either prepayments or other deferred charges and assets in the balance sheets. Inspection costs are capitalized or charged to expense based on the nature of the work performed.

Limestone Commitments

As part of the Company’s program to reduce sulfur dioxide emissions from its coal plants, the Company has entered into various long-term commitments for the procurement of limestone to be used in flue gas desulfurization equipment. Limestone contracts are structured with tonnage minimums and maximums in order to account for fluctuations in coal burn and sulfur content. The Company has a minimum contractual obligation of 2.2 million tons, equating to approximately $112 million, through 2019. Estimated expenditures (based on minimum contracted obligated dollars) are $16 million in 2012, $17 million in 2013, $17 million in 2014, $12 million in 2015, and $12 million in 2016.

Fuel Commitments

To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement of fossil and nuclear fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. Coal commitments include forward contract purchases for sulfur dioxide and nitrogen oxide emissions allowances. Natural gas purchase commitments contain fixed volumes with prices based on various indices at the time of delivery; amounts included in the chart below represent estimates based on New York Mercantile Exchange future prices at December 31, 2011. Total estimated minimum long-term commitments at December 31, 2011 were as follows:


	Commitments

	Natural Gas	Coal		Nuclear Fuel

	(in millions)
2012	$ 246		$1,347	$ 96
2013	237		1,047	30
2014	174		834	43
2015	145		284	43
2016	139		146	21
2017 and thereafter	124		463	212

Total commitments	$1,065		$4,121	$445

Additional commitments for fuel will be required to supply the Company’s future needs. Total charges for nuclear fuel included in fuel expense amounted to $95 million in 2011, $79 million in 2010, and $78 million in 2009.

SCS may enter into various types of wholesale energy and natural gas contracts acting as an agent for the Company and all of the other Southern Company traditional operating companies and Southern Power. Under these agreements, each of the traditional operating companies and Southern Power may be jointly and severally liable. The credit rating of Southern Power is currently below that of the traditional operating companies. Accordingly, Southern Company has entered into keep-well agreements with the Company and each of the other traditional operating companies to ensure the Company will not subsidize or be responsible for any costs, losses, liabilities, or damages resulting from the inclusion of Southern Power as a contracting party under these agreements.

Purchased Power Commitments

The Company has entered into various long-term commitments for the purchase of capacity and energy. Total estimated minimum long-term obligations at December 31, 2011 were as follows:


		Commitments

		Non-Affiliated

		(in millions)
2012		$ 31
2013		39
2014		44
2015		46
2016		47
2017 and thereafter		419

Total commitments		$626

Certain PPAs reflected in the table are accounted for as operating leases.

Operating Leases

The Company has entered into rental agreements for coal rail cars, vehicles, and other equipment with various terms and expiration dates. These expenses amounted to $23 million in 2011, $25 million in 2010, and $27 million in 2009. Of these amounts, $18 million, $20 million, and $20 million for 2011, 2010, and 2009, respectively, relate to the rail car leases and are recoverable through the Company’s Rate ECR.

At December 31, 2011, estimated minimum lease payments for noncancelable operating leases were as follows:


	Minimum Lease Payments

	Rail Cars	Vehicles & Other	Total

	(in millions)
2012	$19	$ 2	$21
2013	15	1	16
2014	7	1	8
2015	6	1	7
2016	5	1	6
2017 and thereafter	2	—	2

Total *	$54	$ 6	$60

*	Total does not include payments related to a non-affiliated PPA that is accounted for as an operating lease. Obligations related to this agreement are included in the above purchased power commitments table.

In addition to the above rental commitments payments, the Company has potential obligations upon expiration of certain leases with respect to the residual value of the leased property. The Company’s maximum obligations under these leases are $1 million in 2012, $39 million in 2013, $8 million in 2014, $5 million in 2015, $4 million in 2016, and none in 2017. Upon termination of the leases, the Company has the option to negotiate an extension, exercise its purchase option, or the property can be sold to a third party. The Company expects that the fair market value of the leased property would substantially reduce or eliminate the Company’s payments under the residual value obligations.

Guarantees

At December 31, 2011, the Company had outstanding guarantees related to SEGCO’s purchase of certain pollution control facilities and issuance of senior notes, as discussed in Note 4, and to certain residual values of leased assets as described above in “Operating Leases.”

COMMITMENTS

7. COMMITMENTS

Construction Program

The construction program of the Company is currently estimated to include a base level investment of $2.3 billion, $2.4 billion, and $2.1 billion for 2012, 2013, and 2014, respectively. These amounts include capital expenditures related to contractual purchase commitments for nuclear fuel and capital expenditures covered under long-term service agreements. Also included in these estimated amounts are base level environmental expenditures to comply with existing statutes and regulations of $237 million, $249 million, and $228 million for 2012, 2013, and 2014, respectively. In addition to these base level environmental expenditures there are other potential incremental environmental compliance investments that may be necessary to comply with the EPA’s MATS rule and the proposed water and coal combustion byproducts rules. The construction program is subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; changes in environmental statutes and regulations; the outcome of any legal challenges to environmental rules; changes in generating plants, including unit retirements and replacements, to meet new regulatory requirements; changes in FERC rules and regulations; Georgia PSC approvals; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; project scope and design changes; storm impacts; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. At December 31, 2011, significant purchase commitments were outstanding in connection with the continuous construction program. See Note 3 under “Construction” for additional information on the portion of the Company’s continuous construction program associated with new generation.

Long-Term Service Agreements

The Company has a long-term service agreement (LTSA) with General Electric (GE) for maintenance support for the combustion turbines at the Plant McIntosh combined cycle facility. In summary, the LTSA stipulates that GE will perform all planned inspections on the covered equipment, which includes the cost of all labor and materials. GE is also obligated to cover the costs of unplanned maintenance on the covered equipment subject to a limit specified in the contract. In general, this LTSA is in effect through two major inspection cycles per unit. Scheduled payments to GE, which are subject to price escalation, are made quarterly based on actual operating hours of the respective units. Total payments to GE are currently estimated at $143 million over the remaining term of the LTSA, which is currently projected to be approximately seven years. However, the LTSA contains various cancellation provisions at the option of the Company.

The Company also has a LTSA with GE through 2014 for neutron monitoring system parts and electronics at Plant Hatch. Total remaining payments to GE under this agreement are currently estimated at $4.5 million. The contract contains cancellation provisions at the option of the Company. Payments made to GE prior to the performance of any work are recorded as a prepayment in the balance sheets. Work performed by GE is capitalized or charged to expense, as appropriate, net of any joint owner billings, based on the nature of the work.

The Company has entered into a LTSA with Mitsubishi Power Systems Americas, Inc. (MPS) for the purpose of providing certain parts and maintenance services for the three combined cycle units at Plant McDonough. Unit 4 went into service on December 28, 2011 and Units 5 and 6 are scheduled to go into service in May and November 2012, respectively. The LTSA stipulates that MPS will perform all planned maintenance on each covered unit which includes the cost of all materials and services. MPS is also obligated to cover costs of unplanned maintenance on the gas turbines subject to limits specified in the LTSA. This LTSA began in 2011 and is in effect through two major inspection cycles per covered unit. Periodic payments to MPS are to be made quarterly and will also be made based on the scheduled inspections for the respective covered units. Payments to MPS, which are subject to price escalation, are currently estimated to be $557 million for the term of this agreement which is expected to be 15 years. However, the LTSA contains various termination provisions at the option of the Company.

Limestone Commitments

As part of the Company’s program to reduce sulfur dioxide emissions from its coal plants, the Company has entered into various long-term commitments for the procurement of limestone to be used in flue gas desulfurization equipment. Limestone contracts are structured with tonnage minimums and maximums in order to account for fluctuations in coal burn and sulfur content. The Company has a minimum contractual obligation of 2.7 million tons, equating to approximately $75 million through 2019. Estimated expenditures (based on minimum contracted obligated dollars) are $18 million in 2012, $18 million in 2013, $18 million in 2014, $10 million in 2015, and $3 million in 2016.

Fuel Commitments

To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement of fossil and nuclear fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. Coal commitments include forward contract purchases for sulfur dioxide emissions allowances. Natural gas purchase commitments contain fixed volumes with prices based on various indices at the time of delivery; amounts included in the chart below represent estimates based on New York Mercantile Exchange future prices at December 31, 2011.

Total estimated minimum long-term commitments at December 31, 2011 were as follows:


	Commitments

	Natural Gas		Coal		Nuclear Fuel

	(in millions)
2012		$ 546		$1,473		$ 257
2013		647		1,121		167
2014		501		494		163
2015		420		308		102
2016		406		153		71
2017 and thereafter		2,179		238		528

Total		$4,699		$3,787		$1,288

Additional commitments for fuel will be required to supply the Company’s future needs. Total charges for nuclear fuel included in fuel expense amounted to $120 million, $106 million, and $82 million for the years 2011, 2010, and 2009, respectively.

SCS may enter into various types of wholesale energy and natural gas contracts acting as an agent for the Company and all of the other Southern Company traditional operating companies and Southern Power. Under these agreements, each of the traditional operating companies and Southern Power may be jointly and severally liable. The credit rating of Southern Power is currently below that of the traditional operating companies. Accordingly, Southern Company has entered into keep-well agreements with the Company and each of the other traditional operating companies to ensure the Company will not subsidize or be responsible for any costs, losses, liabilities, or damages resulting from the inclusion of Southern Power as a contracting party under these agreements.

Purchased Power Commitments

The Company has commitments regarding a portion of a 5% interest in Plant Vogtle owned by MEAG Power that are in effect until the latter of the retirement of the plant or the latest stated maturity date of MEAG Power’s bonds issued to finance such ownership interest. The payments for capacity are required whether or not any capacity is available. The energy cost is a function of each unit’s variable operating costs. Portions of the capacity payments relate to costs in excess of Plant Vogtle’s allowed investment for ratemaking purposes. The present value of these portions at the time of the disallowance was written off. Generally, the cost of such capacity and energy is included in purchased power, non-affiliates in the statements of income. Capacity payments totaled $52 million, $55 million, and $54 million in 2011, 2010, and 2009, respectively. The Company also has entered into other various long-term PPAs. Estimated total long-term obligations under these commitments at December 31, 2011 were as follows:


	Vogtle Capacity Payments			Affiliated PPAs			Non-Affiliated PPAs

	(in millions)
2012		$	50		$	108		$	104
2013			23			109			111
2014			20			109			112
2015			11			109			121
2016			11			110			126
2017 and thereafter			78			275			1,493

Total		$	193		$	820		$	2,067

•	Certain PPAs reflected in the table are accounted for as operating leases.

•	Excludes four PPAs that are subject to certification by the Georgia PSC. See Note 3 under “Retail Regulatory Matters – 2011 Integrated Resource Plan Update” for additional information.

Operating Leases

The Company has entered into various operating leases with various terms and expiration dates. Rental expenses related to these operating leases totaled $33 million for 2011, $35 million for 2010, and $43 million for 2009.

At December 31, 2011, estimated minimum lease payments for noncancelable operating leases were as follows:


	Minimum Lease Payments

	Rail Cars			Other			Total

				(in millions)
2012		$	27		$	7		$	34
2013			23			6			29
2014			18			5			23
2015			13			3			16
2016			8			1			9
2017 and thereafter			7			1			8

Total		$	96		$	23		$	119

In addition to the above rental commitments, the Company has obligations upon expiration of certain rail car leases with respect to the residual value of the leased property. These operating leases expire in 2014 and 2018 and the Company’s maximum obligation is approximately $10 million and $24 million, respectively. At the termination of the leases, at the Company’s option, the Company may either exercise its purchase option or the property can be sold to a third party. Estimated annual commitments for the three-year lease and seven-year lease are approximately $1 million and $2 million, respectively. A portion of the rail car lease obligations is shared with the joint owners of Plants Scherer and Wansley. A majority of the rental expenses related to the rail car leases are fully recoverable through the fuel cost recovery clause as ordered by the Georgia PSC and the remaining portion is recovered through base rates. The Company expects that the fair market value of the leased property would substantially reduce or eliminate the Company’s payments under the residual value obligations.

Guarantees

Alabama Power has guaranteed unconditionally the obligation of SEGCO under an installment sale agreement for the purchase of certain pollution control facilities at SEGCO’s generating units, pursuant to which $25 million principal amount of pollution control revenue bonds are outstanding. Alabama Power has also guaranteed $50 million in senior notes issued by SEGCO. The Company has agreed to reimburse Alabama Power for the pro rata portion of such obligations corresponding to the Company’s then proportionate ownership of stock of SEGCO if Alabama Power is called upon to make such payment under its guaranty.

As discussed earlier in this Note under “Operating Leases,” the Company has entered into certain residual value guarantees related to rail car leases.

COMMITMENTS

7. COMMITMENTS

Construction Program

The construction program of the Company is currently estimated to include a base level investment of $402 million, $288 million, and $365 million for 2012, 2013, and 2014, respectively. These amounts include capital expenditures covered under long-term service agreements. Also included in these estimated amounts are base level environmental expenditures to comply with existing statutes and regulations of $200 million, $137 million, and $186 million for 2012, 2013, and 2014, respectively. In addition to these base level environmental expenditures there are other potential incremental environmental compliance investments that may be necessary to comply with the EPA’s final Mercury and Air Toxics Standards rule and the proposed water and coal combustion byproducts rules. The construction program is subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; changes in environmental statutes and regulations; the outcome of any legal challenges to environmental rules; changes in generating plants, including unit retirements and replacements, to meet new regulatory requirements; changes in FERC rules and regulations; Florida PSC approvals; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; project scope and design changes; storm impacts; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. The Company does not have any significant new generating capacity under construction. Construction of new transmission and distribution facilities and other capital improvements, including those needed to meet environmental standards for the Company’s existing generation, transmission, and distribution facilities, are ongoing.

Long-Term Service Agreements

The Company has a long-term service agreement (LTSA) with General Electric (GE) for the purpose of securing maintenance support for a combined cycle generating facility. The LTSA provides that GE will perform all planned inspections on the covered equipment, which generally includes the cost of all labor and materials. GE is also obligated to cover the costs of unplanned maintenance on the covered equipment subject to limits and scope specified in the LTSA.

In general, the LTSA is in effect through two major inspection cycles of the unit. Scheduled payments to GE, which are subject to price escalation, are made at various intervals based on actual operating hours of the unit. Total remaining payments to GE under the LTSA for facilities owned are currently estimated at $44.0 million over the remaining life of the LTSA, which is currently estimated to be up to six years. However, the LTSA contains various cancellation provisions at the option of the Company.

Payments made under the LTSA prior to the performance of any planned inspections are recorded as prepayments. These amounts are included in deferred charges and other assets in the balance sheets for 2011 and 2010. Inspection costs are capitalized or charged to expense based on the nature of the work performed.

Limestone Commitments

As part of the Company’s program to reduce sulfur dioxide emissions from certain of its coal plants, the Company has entered into various long-term commitments for the procurement of limestone to be used in flue gas desulfurization equipment. Limestone contracts are structured with tonnage minimums and maximums in order to account for fluctuations in coal burn and sulfur content. The Company has a minimum contractual obligation of 0.7 million tons, equating to approximately $59 million, through 2019. Estimated expenditures (based on minimum contracted obligated dollars) are $6.7 million in 2012, $6.9 million in 2013, $7.1 million in 2014, $7.3 million in 2015, and $7.4 million in 2016. Limestone costs are recovered through the environmental cost recovery clause.

Fuel and Purchased Power Commitments

To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement of fossil fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. Coal commitments include forward contract purchases for sulfur dioxide and nitrogen oxide emissions allowances. Natural gas purchase commitments contain fixed volumes with prices based on various indices at the time of delivery; amounts included in the chart below represent estimates based on New York Mercantile Exchange future prices at December 31, 2011. Also, the Company has entered into various long-term commitments for the purchase of capacity, energy, and transmission. The energy-related costs associated with PPAs are recovered through the fuel cost recovery clause. The capacity and transmission-related costs associated with PPAs are recovered through the purchased power capacity cost recovery clause. Total estimated minimum long-term commitments at December 31, 2011 were as follows:


	Commitments

	Purchased Power*		Natural Gas		Coal

	(in thousands)
2012		$ 44,709		$128,969		$177,262
2013		49,485		153,186		—
2014		67,932		132,864		—
2015		92,808		106,581		—
2016		92,554		101,283		—
2017 and thereafter		592,761		176,530		—

Total		$940,249		$799,413		$177,262

*	Included above is $173.6 million in obligations with affiliated companies. Certain PPAs are accounted for as operating leases.

Additional commitments for fuel will be required to supply the Company’s future needs.

SCS may enter into various types of wholesale energy and natural gas contracts acting as an agent for the Company and all of the other Southern Company traditional operating companies and Southern Power. Under these agreements, each of the traditional operating companies and Southern Power may be jointly and severally liable. The credit rating of Southern Power is currently below that of the traditional operating companies. Accordingly, Southern Company has entered into keep-well agreements with the Company and each of the other traditional operating companies to ensure the Company will not subsidize or be responsible for any costs, losses, liabilities, or damages resulting from the inclusion of Southern Power as a contracting party under these agreements.

Operating Leases

The Company has operating lease agreements with various terms and expiration dates. Rental expenses related to these operating leases totaled $21.9 million, $23.1 million, and $10.1 million for 2011, 2010, and 2009, respectively.

At December 31, 2011, estimated minimum lease payments for noncancelable operating leases were as follows:


	Minimum Lease Payments

	Barges & Rail Cars		Other		Total

	(in thousands)
2012		$21,022		$520		$21,542
2013		19,530		233		19,763
2014		17,958		131		18,089
2015		1,147		—		1,147
2016		940		—		940
2017 and thereafter		523		—		523

Total		$61,120		$884		$62,004

The Company and Mississippi Power jointly entered into operating lease agreements for aluminum rail cars for the transportation of coal to Plant Daniel. The Company has the option to purchase the rail cars at the greater of lease termination value or fair market value or to renew the leases at the end of each lease term. The Company and Mississippi Power also have separate lease agreements for other rail cars that do not include purchase options. The Company’s share of the lease costs, charged to fuel inventory and recovered through the fuel cost recovery clause, was $2.6 million in 2011, $3.5 million in 2010, and $4.0 million in 2009. The Company’s annual railcar lease payments for 2012 through 2016 will average approximately $2.1 million and after 2016, lease payments total in aggregate approximately $0.5 million.

The Company has other operating lease agreements for aluminum rail cars for transportation of coal to Plant Scholz and to the Alabama State Docks located in Mobile, Alabama. At the Alabama State Docks this coal is transferred from the railcar to barge for transportation to Plant Crist and Plant Smith. The Company has the option to renew the leases at the end of each lease term. The Company’s lease costs, charged to fuel inventory and recovered through the fuel cost recovery clause, were $4.3 million in 2011, $3.9 million in 2010, and $4.0 million in 2009. The Company’s annual railcar lease payments for 2012 through 2014 will average approximately $3.0 million.

The Company has operating lease agreements for barges and tow boats for the transport of coal to Plants Crist and Smith. The Company has the option to renew the leases at the end of each lease term. The Company’s lease costs, charged to fuel inventory and recovered through the fuel cost recovery clause, were $12.8 million in 2011, $13.5 million in 2010, and none in 2009. The Company’s annual barge and tow boat lease payments for 2012 through 2014 will average approximately $13.6 million.

COMMITMENTS

7. COMMITMENTS

Construction Program

The construction program of the Company is currently estimated to include a base level investment of $1.5 billion, $363 million, and $352 million for 2012, 2013, and 2014, respectively. Included in these estimated amounts are expenditures related to the Kemper IGCC of $1.3 billion, $124 million, and $74 million in 2012, 2013, and 2014, respectively, which are net of SMEPA’s 17.5% expected ownership share of the Kemper IGCC of approximately $466 million and $16 million in 2013 and 2014, respectively. These estimated base level investment amounts include capital expenditures covered under long-term service agreements. Also included in these estimated amounts are base level environmental expenditures to comply with existing statutes and regulations of $87 million, $113 million, and $154 million for 2012, 2013, and 2014, respectively. These base level environmental expenditures do not include potential incremental environmental compliance investments associated with compliance with the EPA’s final Mercury and Air Toxics Standards rule and proposed water and coal combustion byproducts rules, except with respect to $354 million which is included in the Company’s base level capital investment in anticipation of these rules. The construction program is subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; storm impacts; changes in environmental statutes and regulations; the outcome of any legal challenges to environmental rules; changes in generating plants, including unit retirements and replacements, to meet new regulatory requirements; changes in FERC rules and regulations; Mississippi PSC approvals; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; project scope and design changes; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. At December 31, 2011, significant purchase commitments were outstanding in connection with the continuous construction program. Capital improvements to generating, transmission, and distribution facilities, including those to meet environmental standards, will continue. See Note 3 under “Integrated Coal Gasification Combined Cycle” for additional information.

Long-Term Service Agreements

The Company has entered into a long-term service agreement (LTSA) with General Electric (GE) for the purpose of securing maintenance support for Plant Daniel Units 3 and 4. The LTSA provides that GE will cover all planned inspections on the covered equipment, which generally includes the cost of all labor and materials. GE is also obligated to cover the costs of unplanned maintenance on the covered equipment subject to limits and scope specified in the LTSA.

In general, the LTSA is in effect through two major inspection cycles of the units. Scheduled payments to GE under the LTSA, which are subject to price escalation, are made monthly based on estimated operating hours of the units and are recognized as expense based on actual hours of operation. The Company has recognized expense of $12.9 million through October 20, 2011, $12.6 million for 2010, and $13.3 million for 2009, respectively, which is included in other operations and maintenance expense in the statements of income.

Effective October 21, 2011, concurrent with the Company’s purchase of Plant Daniel Units 3 and 4, payments under the Company’s LTSA with GE for Plant Daniel Units 3 and 4 are being recorded as prepayments on the balance sheet until the work is performed. Remaining payments to GE under the LTSA are currently estimated to total $90.2 million over approximately eight years. However, the LTSA contains various cancellation provisions at the option of the Company.

The Company also has entered into a LTSA with Alstom Power, Inc. for the purpose of securing maintenance support for its Chevron Unit 5 combustion turbine plant. In summary, the LTSA stipulates that Alstom Power, Inc. will perform all planned maintenance on the covered equipment, which includes the cost of all labor and materials. Alstom Power, Inc is also obligated to cover the costs of unplanned maintenance on the covered equipment subject to a limit specified in the LTSA.

In general, this LTSA is in effect through two major inspection cycles. Scheduled payments to Alstom Power, Inc., which are subject to price escalation, are made at various intervals based on actual operating hours of the unit. Payments to Alstom Power, Inc. under the LTSA are currently estimated to total $13.7 million over the remaining term of the LTSA, which is approximately five years. However, the LTSA contains various cancellation provisions at the option of the Company. Payments made to Alstom Power, Inc. under the LTSA prior to the performance of any planned maintenance are recorded as a prepayment in the balance sheets. Inspection costs are capitalized or charged to expense based on the nature of the work performed. After the LTSA expires, the Company expects to replace it with a new contract with similar terms.

Fuel Commitments

To supply a portion of its fuel requirements of the generating plants, the Company has entered into various long-term commitments for the procurement of fossil fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. Coal commitments include forward contract purchases for sulfur dioxide and nitrogen oxide emissions allowances. Natural gas purchase commitments contain fixed volumes with prices based on various indices at the time of delivery; amounts included in the chart below represent estimates based on New York Mercantile Exchange future prices at December 31, 2011.

Total estimated minimum long-term commitments at December 31, 2011 were as follows:


	Commitments
	Natural Gas		Coal
	(in thousands)
2012		$159,394		$	267,075
2013		149,890			49,765
2014		115,536			8,440
2015		95,005			960
2016		86,481			960
2017 and thereafter		146,169			35,520
Total		$752,475		$	362,720

Coal commitments include a management fee of $38.1 million over the term of the executed 40-year management contract with Liberty Fuels beginning in 2014 related to the Kemper IGCC. Additional commitments for fuel will be required to supply the Company’s future needs.

SCS may enter into various types of wholesale energy and natural gas contracts acting as an agent for the Company and all of the other Southern Company traditional operating companies and Southern Power. Under these agreements, each of the traditional operating companies and Southern Power may be jointly and severally liable. The credit rating of Southern Power is currently below that of the traditional operating companies. Accordingly, Southern Company has entered into keep-well agreements with the Company and each of the other traditional operating companies to ensure the Company will not subsidize or be responsible for any costs, losses, liabilities, or damages resulting from the inclusion of Southern Power as a contracting party under these agreements.

Operating Leases

The Company has operating lease agreements with various terms and expiration dates. Total rent expense for the Company was $32.6 million, $38.6 million, and $39.1 million for 2011, 2010, and 2009 respectively, which includes the Plant Daniel Units 3 and 4 operating lease that ended October 20, 2011.

The Company and Gulf Power have jointly entered into operating lease agreements for the use of 745 aluminum railcars. The Company has the option to purchase the railcars at the greater of lease termination value or fair market value, or to renew the leases at the end of the lease term. In early 2011, one operating lease expired and the Company elected not to exercise the option to purchase. The remaining operating lease has 234 aluminum rail cars. The Company also has multiple operating lease agreements for the use of additional railcars that do not contain a purchase option. All of these leases are for the transport of coal to Plant Daniel.

The Company’s share (50%) of the leases, charged to fuel stock and recovered through the fuel cost recovery clause, was $2.6 million in 2011, $3.5 million in 2010, and $4.0 million in 2009. The Company’s annual railcar lease payments for 2012 through 2016 will average approximately $2.1 million and after 2016, lease payments total in aggregate approximately $0.5 million.

In addition to railcar leases, the Company has other operating leases for fuel handling equipment at Plants Daniel and Watson and operating leases for barges and tow/shift boats for the transport of coal at Plant Watson. The Company’s share (50% at Plant Daniel and 100% at Plant Watson) of the leases for fuel handling was charged to fuel handling expense in the amount of $0.4 million in 2011 and $0.7 million in 2010. The Company’s annual lease payments for 2012 through 2014 will average approximately $0.2 million for fuel handling equipment. The Company charged to fuel stock and recovered through fuel cost recovery the barge transportation leases in the amount of $7.5 million in 2011 and $8.4 million in 2010 related to barges and tow/shift boats. The Company’s annual lease payments for 2012 through 2014 with respect to these barge transportation leases will average approximately $8.2 million.

COMMITMENTS

7. COMMITMENTS

Expansion Program

The capital program of the Company is currently estimated to be $187 million for 2012, $419 million for 2013, and $272 million for 2014. These amounts include estimates for potential plant acquisitions and new construction as well as ongoing capital improvements and work to be performed under long-term service agreements (LTSAs). Planned expenditures for plant acquisitions may vary due to market opportunities and the Company’s ability to execute its growth strategy. Actual construction costs may vary from these estimates because of changes in factors such as: business conditions; environmental statutes and regulations; FERC rules and regulations; load projections; legislation; the cost and efficiency of construction labor, equipment, and materials; project scope and design changes; and the cost of capital.

In addition, pursuant to an agreement between SRE and TRE, on or after the fifth anniversary of the commercial operation date of Plant Cimarron, TRE may require SRE to purchase its minority interest in the plant at fair market value.

Long-Term Service Agreements

The Company has entered into LTSAs with General Electric International, Inc., Siemens Electric, Inc., and First Solar, Inc. for the purpose of securing maintenance support for its combined cycle and combustion turbine generating facilities. The LTSAs cover all planned inspections on the covered equipment, which generally includes the cost of all labor and materials. The LTSAs also obligate the counterparties to cover the costs of unplanned maintenance on the covered equipment subject to limits and scope specified in each contract.

Scheduled payments to the vendors, which are subject to price escalation, are made at various intervals based on actual operating hours or number of gas turbine starts of the respective units. Total remaining payments to the vendors under these agreements are currently estimated at $967 million over the remaining term of the LTSAs, which are currently estimated to range up to 34 years. However, the LTSAs contain various cancellation provisions at the Company’s and the applicable vendor’s option. In the event of cancellation prior to scheduled work being performed, the Company may be entitled to a refund of amounts paid as calculated in accordance with termination provisions of the agreements.

Payments made under the LTSAs prior to the performance of any planned inspections or unplanned maintenance are recorded as a prepayment in current assets or deferred charges and other assets on the balance sheets and are recorded as payments pursuant to long-term service agreements in the statements of cash flows. All work performed is capitalized or charged to expense as appropriate based on the nature of the work when performed; therefore, these charges are non-cash and are not reflected in the statements of cash flows.

Fuel and Purchased Power Commitments

SCS, as agent for the Company and the traditional operating companies, has entered into various fuel transportation and procurement agreements to supply a portion of the fuel (primarily natural gas) requirements for the operating facilities. In most cases, these contracts contain provisions for firm transportation costs, storage costs, minimum purchase levels, and other financial commitments. Natural gas purchase commitments contain fixed volumes with prices based on various indices at the time of delivery; amounts included in the chart below represent estimates based on the New York Mercantile Exchange future prices at December 31, 2011. The Company has various long-term commitments for the purchase of biomass fuel for the biomass generating plant which is expected to begin operation in June 2012. The quantity of fuel to be supplied under these contracts is subject to modification based on plant operations. The amounts included in the chart below represent all noncancelable commitments.

Total estimated minimum long-term commitments at December 31, 2011 were as follows:


	Natural Gas Commitments		Biomass Fuel Commitments		Purchased Power Commitments^(a)

	(in millions)
2012		$ 399.4		$0.9		$ 49.2
2013		366.0		—		50.4
2014		272.2		—		51.6
2015		230.9		—		53.5
2016		204.1		—		38.3
2017 and beyond		172.7		—		203.4

Total		$1,645.3		$0.9		$446.4

(a)	Represents contractual capacity payments.

Additional commitments for fuel will be required to supply the Company’s future needs.

The Company has entered into an agreement to purchase emissions reduction credits of $1.3 million in 2012.

The Company has entered into agreements to purchase 380 MWs of power from two counterparties. Approximately 280 MWs of the commitment obligations from one counterparty will be used to serve the Company’s requirements service customers. Another agreement for 100 MWs will be resold to EnergyUnited Electric Membership Corporation (EnergyUnited) at cost for the period 2012 through 2021. The purchase power commitments for the EnergyUnited agreement are $35.4 million in 2012, $36.1 million in 2013, $36.8 million in 2014, $37.6 million in 2015, $38.3 million in 2016, and $203.4 million in 2017 and beyond.

In addition, the Company has entered into an agreement to purchase power of up to 200 MWs at the discretion of the counterparty for the period 2011 through 2018. There is no contractual capacity payment required under this agreement. Additionally, for all amounts purchased under this arrangement, the Company will pay the counterparty an amount per MW which approximates the Company’s cost.

Acting as an agent for all of Southern Company’s traditional operating companies and the Company, SCS may enter into various types of wholesale energy and natural gas contracts. Under these agreements, each of the traditional operating companies and the Company may be jointly and severally liable. The credit rating of the Company is below that of the traditional operating companies; therefore, Southern Company has entered into keep-well agreements with each of the traditional operating companies to ensure they will not subsidize or be responsible for any costs, losses, liabilities, or damages resulting from the inclusion of the Company as a contracting party under these agreements.

Operating Leases

The Company has operating lease agreements with various terms and expiration dates. Total operating lease expenses were $0.6 million, $0.5 million, and $0.5 million for 2011, 2010, and 2009, respectively. The majority of the lease expense amounts and committed future expenditures are with a joint owner of Plant Stanton Unit A.

At December 31, 2011, estimated minimum lease payments for noncancelable operating leases were as follows:


	Operating Lease Commitments

	(in millions)
2012		$ 0.5
2013		0.5
2014		0.5
2015		0.5
2016		0.4
2017 and beyond		22.3

Total		$24.7