Income Taxes

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Line Items]

INCOME TAXES

INCOME TAXES

Southern Company files a consolidated federal income tax return and various state income tax returns, some of which are combined or unitary. Under a joint consolidated income tax allocation agreement, each Southern Company subsidiary's current and deferred tax expense is computed on a stand-alone basis and no subsidiary is allocated more current expense than would be paid if it filed a separate income tax return. In accordance with IRS regulations, each company is jointly and severally liable for the federal tax liability.

Current and Deferred Income Taxes

Details of income tax provisions are as follows:

	2015			2014		2013
	(in millions)
Federal —
Current	$	(177	)	$	175	$	363
Deferred	1,266			695		386
	1,089			870		749
State —
Current	(33		)	93		(10		)
Deferred	138			14		110
	105			107		100
Total	$	1,194		$	977	$	849

Net cash payments (refunds) for income taxes in 2015, 2014, and 2013 were $(9) million, $272 million, and $139 million, respectively.

The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows:

	2015			2014
	(in millions)
Deferred tax liabilities —
Accelerated depreciation	$	12,767		$	11,125
Property basis differences	1,543			1,332
Leveraged lease basis differences	308			299
Employee benefit obligations	579			613
Premium on reacquired debt	95			103
Regulatory assets associated with employee benefit obligations	1,378			1,390
Regulatory assets associated with AROs	1,422			871
Other	586			523
Total	18,678			16,256
Deferred tax assets —
Federal effect of state deferred taxes	479			430
Employee benefit obligations	1,720			1,675
Over recovered fuel clause	104			—
Other property basis differences	695			453
Deferred costs	83			86
ITC carryforward	742			480
Unbilled revenue	111			67
Other comprehensive losses	85			89
AROs	1,422			871
Estimated Loss on Kemper IGCC	451			631
Deferred state tax assets	220			117
Other	246			342
Total	6,358			5,241
Valuation allowance	(2		)	(49		)
Total deferred tax assets	6,356			5,192
Accumulated deferred income taxes	$	12,322		$	11,064

On November 20, 2015, the FASB issued ASU 2015-17,which simplifies the presentation of deferred income taxes. The new guidance resulted in a reclassification from deferred income taxes, current of $506 million, with $488 million to non-current accumulated deferred income taxes and $18 million to other deferred charges, as well as $2 million from accrued income taxes to non-current accumulated deferred income taxes in Southern Company's December 31, 2014 balance sheet. See Note 1 under "Recently Issued Accounting Standards" for additional information.

The application of bonus depreciation provisions in current tax law has significantly increased deferred tax liabilities related to accelerated depreciation in 2015 and 2014.

At December 31, 2015, Southern Company had subsidiaries with NOL carryforwards for the states of Georgia, Mississippi, New Mexico, and Florida totaling approximately $697 million, $3.0 billion, $133 million, and $115 million, respectively, which could result in net state income tax benefits of $27 million, $97 million, $5 million, and $4 million, respectively, if utilized. These NOLs expire between 2017 and 2035, but are expected to be fully utilized by 2029. During the second quarter 2015, an agreement was reached with the Georgia Department of Revenue that will allow Southern Company to utilize a portion of the NOL carryforward over a four-year period beginning in 2017. Consequently, Southern Company reversed the related valuation allowance and recognized approximately $24 million in net tax benefits. During 2015, approximately $87 million in New Mexico NOLs expired resulting in a $3.5 million net state income tax increase and a corresponding decrease in the valuation allowance, with no tax impact.

At December 31, 2015, the tax-related regulatory assets to be recovered from customers were $1.6 billion. These assets are primarily attributable to tax benefits flowed through to customers in prior years, deferred taxes previously recognized at rates lower than the current enacted tax law, and taxes applicable to capitalized interest.

At December 31, 2015, the tax-related regulatory liabilities to be credited to customers were $187 million. These liabilities are primarily attributable to deferred taxes previously recognized at rates higher than the current enacted tax law and to unamortized ITCs.

In accordance with regulatory requirements, deferred federal ITCs for the traditional operating companies are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the statements of income. Credits amortized in this manner amounted to $21 million in 2015, $22 million in 2014, and $16 million in 2013. Southern Power's deferred federal ITCs are amortized to income tax expense over the life of the asset. Credits amortized in this manner amounted to $19 million in 2015, $11 million in 2014, and $6 million in 2013. Also, Southern Power received cash related to federal ITCs under the renewable energy incentives of $162 million, $74 million, and $158 million for the years ended December 31, 2015, 2014, and 2013, respectively, which had a material impact on cash flows. Furthermore, the tax basis of the asset is reduced by 50% of the credits received, resulting in a net deferred tax asset. Southern Power has elected to recognize the tax benefit of this basis difference as a reduction to income tax expense in the year in which the plant reaches commercial operation. The tax benefit of the related basis differences reduced income tax expense by $54 million in 2015, $48 million in 2014, and $31 million in 2013.

At December 31, 2015, Southern Company had federal ITC carryforwards which are expected to result in $554 million of federal income tax benefits. The federal ITC carryforwards begin expiring in 2034 but are expected to be fully utilized by 2020. Additionally, Southern Company had state ITC carryforwards for the state of Georgia totaling $188 million, which will expire between 2020 and 2026, but are expected to be fully utilized by 2022.

Effective Tax Rate

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

	2015		2014		2013
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income tax, net of federal deduction	1.9		2.3		2.5
Employee stock plans dividend deduction	(1.2	)	(1.4	)	(1.6	)
Non-deductible book depreciation	1.2		1.4		1.5
AFUDC-Equity	(2.2	)	(2.9	)	(2.6	)
ITC basis difference	(1.5	)	(1.6	)	(1.2	)
Other	(0.3	)	(0.3	)	(0.5	)
Effective income tax rate	32.9	%	32.5	%	33.1	%

Southern Company's effective tax rate is typically lower than the statutory rate due to its employee stock plans' dividend deduction and non-taxable AFUDC equity.

Unrecognized Tax Benefits

Changes during the year in unrecognized tax benefits were as follows:

	2015			2014			2013
	(in millions)
Unrecognized tax benefits at beginning of year	$	170		$	7		$	70
Tax positions increase from current periods	43			64			3
Tax positions increase from prior periods	240			102			—
Tax positions decrease from prior periods	(20		)	(3		)	(66		)
Balance at end of year	$	433		$	170		$	7

The tax positions increase from current periods and prior periods for 2015 and 2014 relate primarily to deductions for R&E expenditures associated with the Kemper IGCC. See Note 3 under "Integrated Coal Gasification Combined Cycle" and "Section 174 Research and Experimental Deduction" herein for more information. The tax positions decrease from prior periods for 2015 and 2014 relates to federal and state income tax credits. The tax positions decrease from prior periods for 2013 relate primarily to the Company's compliance with final U.S. Treasury regulations that resulted in a tax accounting method change for repairs.

The impact on Southern Company's effective tax rate, if recognized, is as follows:

	2015		2014		2013
	(in millions)
Tax positions impacting the effective tax rate	$	10	$	10	$	7
Tax positions not impacting the effective tax rate	423		160		—
Balance of unrecognized tax benefits	$	433	$	170	$	7

The tax positions impacting the effective tax rate for 2015, 2014, and 2013 primarily relate to federal and state income tax credits. The tax positions not impacting the effective tax rate for 2015 and 2014 relate to deductions for R&E expenditures associated with the Kemper IGCC. See "Section 174 Research and Experimental Deduction" herein for more information. These amounts are presented on a gross basis without considering the related federal or state income tax impact.

Accrued interest for unrecognized tax benefits was immaterial for all years presented.

Southern Company classifies interest on tax uncertainties as interest expense. Southern Company did not accrue any penalties on uncertain tax positions.

It is reasonably possible that the amount of the unrecognized tax benefits could change within 12 months. The settlement of federal and state audits could impact the balances significantly. At this time, an estimate of the range of reasonably possible outcomes cannot be determined.

The IRS has finalized its audits of Southern Company's consolidated federal income tax returns through 2012. Southern Company has filed its 2013 and 2014 federal income tax returns and has received partial acceptance letters from the IRS; however, the IRS has not finalized its audits. Southern Company is a participant in the Compliance Assurance Process of the IRS. The audits for Southern Company's state income tax returns have either been concluded, or the statute of limitations has expired, for years prior to 2011.

Section 174 Research and Experimental Deduction

Southern Company reduced tax payments for 2015 and included in its 2013 and 2014 consolidated federal income tax returns deductions for R&E expenditures related to the Kemper IGCC. In May 2015, Southern Company amended its 2008 through 2013 federal income tax returns to include deductions for Kemper IGCC-related R&E expenditures.

The Kemper IGCC is based on first-of-a-kind technology, and Southern Company believes that a significant portion of the plant costs qualify as deductible R&E expenditures under Internal Revenue Code Section 174. The IRS is currently reviewing the underlying support for the deduction, but has not completed its audit of these expenditures. Due to the uncertainty related to this tax position, Southern Company had related unrecognized tax benefits associated with these R&E deductions of approximately $423 million and associated interest of $9 million as of December 31, 2015. See Note 3 under "Integrated Coal Gasification Combined Cycle" for additional information regarding the Kemper IGCC. The ultimate outcome of this matter cannot be determined at this time.

Alabama Power [Member]

Income Tax Disclosure [Line Items]

INCOME TAXES

INCOME TAXES

On behalf of the Company, Southern Company files a consolidated federal income tax return and various combined and separate state income tax returns. Under a joint consolidated income tax allocation agreement, each Southern Company subsidiary's current and deferred tax expense is computed on a stand-alone basis and no subsidiary is allocated more current expense than would be paid if it filed a separate income tax return. In accordance with IRS regulations, each company is jointly and severally liable for the federal tax liability.

Current and Deferred Income Taxes

Details of income tax provisions are as follows:

	2015		2014		2013
	(in millions)
Federal —
Current	$	110	$	198	$	243
Deferred	320		225		160
	430		423		403
State —
Current	8		44		36
Deferred	68		45		39
	76		89		75
Total	$	506	$	512	$	478

The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows:

	2015		2014
	(in millions)
Deferred tax liabilities —
Accelerated depreciation	$	3,917	$	3,429
Property basis differences	456		457
Premium on reacquired debt	28		30
Employee benefit obligations	200		215
Regulatory assets associated with employee benefit obligations	375		366
Asset retirement obligations	289		59
Regulatory assets associated with asset retirement obligations	312		285
Other	175		157
Total	5,752		4,998
Deferred tax assets —
Federal effect of state deferred taxes	242		219
Unbilled fuel revenue	39		42
Storm reserve	23		27
Employee benefit obligations	407		400
Other comprehensive losses	20		19
Asset retirement obligations	600		344
Other	180		90
Total	1,511		1,141
Accumulated deferred income taxes, net	$	4,241	$	3,857

On November 20, 2015, the FASB issued ASU 2015-17, which simplifies the presentation of deferred income taxes. The new guidance resulted in a reclassification from prepaid expenses of $20 million and accrued income tax of $2 million to non-current accumulated deferred income taxes in the Company’s December 31, 2014 balance sheet. See Note 1 under "Recently Issued Accounting Standards" for additional information.

The application of bonus depreciation provisions in current tax law has significantly increased deferred tax liabilities related to accelerated depreciation in 2015 and 2014.

At December 31, 2015, the tax-related regulatory assets to be recovered from customers were $523 million. These assets are primarily attributable to tax benefits flowed through to customers in prior years, deferred taxes previously recognized at rates lower than the current enacted tax law, and taxes applicable to capitalized interest.

At December 31, 2015, the tax-related regulatory liabilities to be credited to customers were $70 million. These liabilities are primarily attributable to unamortized ITCs.

In accordance with regulatory requirements, deferred federal ITCs are amortized over the average life of the related property with such amortization normally applied as a credit to reduce depreciation in the statements of income. Credits amortized in this manner amounted to $8 million in 2015, 2014 and 2013. At December 31, 2015, all ITCs available to reduce federal income taxes payable had been utilized.

Effective Tax Rate

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

	2015	2014	2013
Federal statutory rate	35.0%	35.0%	35.0%
State income tax, net of federal deduction	3.8	4.4	4.0
Non-deductible book depreciation	1.2	1.1	1.0
Differences in prior years' deferred and current tax rates	(0.1)	(0.1)	(0.1)
AFUDC equity	(1.6)	(1.3)	(0.9)
Other	0.1	(0.1)	(0.1)
Effective income tax rate	38.4%	39.0%	38.9%

Unrecognized Tax Benefits

The Company has no material unrecognized tax benefits for 2015 or 2014. The Company classifies interest on tax uncertainties as interest expense. Accrued interest for unrecognized tax benefits was immaterial and the Company did not accrue any penalties on uncertain tax positions.

It is reasonably possible that the amount of the unrecognized tax benefits could change within 12 months. The settlement of federal and state audits could impact the balances. At this time, an estimate of the range of reasonably possible outcomes cannot be determined.

The IRS has finalized its audits of Southern Company's consolidated federal income tax returns through 2012. Southern Company has filed its 2013 and 2014 federal income tax returns and has received partial acceptance letters from the IRS; however, the IRS has not finalized its audits. Southern Company is a participant in the Compliance Assurance Process of the IRS. The audits for the Company's state income tax returns have either been concluded, or the statute of limitations has expired, for years prior to 2011.

Georgia Power [Member]

Income Tax Disclosure [Line Items]

INCOME TAXES

INCOME TAXES

On behalf of the Company, Southern Company files a consolidated federal income tax return and various combined and separate state income tax returns. Under a joint consolidated income tax allocation agreement, each Southern Company subsidiary's current and deferred tax expense is computed on a stand-alone basis and no subsidiary is allocated more current expense than would be paid if it filed a separate income tax return. In accordance with IRS regulations, each company is jointly and severally liable for the federal tax liability.

Current and Deferred Income Taxes

Details of income tax provisions are as follows:

	2015			2014			2013
	(in millions)
Federal –
Current	$	515		$	295		$	277
Deferred	176			366			374
	691			661			651
State –
Current	81			82			(30		)
Deferred	(3		)	(14		)	102
	78			68			72
Total	$	769		$	729		$	723

The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows:

	2015		2014
	(in millions)
Deferred tax liabilities –
Accelerated depreciation	$	4,909	$	4,732
Property basis differences	943		811
Employee benefit obligations	310		329
Under-recovered fuel costs	—		81
Premium on reacquired debt	61		66
Regulatory assets associated with employee benefit obligations	528		534
Asset retirement obligations	706		497
Other	187		160
Total	7,644		7,210
Deferred tax assets –
Federal effect of state deferred taxes	150		148
Employee benefit obligations	642		642
Other property basis differences	88		86
Other deferred costs	83		86
Cost of removal obligations	6		11
State investment tax credit carryforward	188		152
Federal tax credit carryforward	3		5
Over-recovered fuel costs	45		—
Unbilled fuel revenue	47		46
Asset retirement obligations	706		497
Other	59		63
Total	2,017		1,736
Accumulated deferred income taxes	$	5,627	$	5,474

On November 20, 2015, the FASB issued ASU 2015-17, which simplifies the presentation of deferred income taxes. The new guidance resulted in a reclassification from prepaid income taxes of $34 million to non-current accumulated deferred income taxes in the Company's December 31, 2014 balance sheet. See Note 1 under "Recently Issued Accounting Standards" for additional information.

The application of bonus depreciation provisions in current tax law has significantly increased deferred tax liabilities related to accelerated depreciation in 2015 and 2014.

At December 31, 2015, tax-related regulatory assets to be recovered from customers were $683 million. These assets are primarily attributable to tax benefits flowed through to customers in prior years, deferred taxes previously recognized at rates lower than the current enacted tax law, and taxes applicable to capitalized interest.

At December 31, 2015, tax-related regulatory liabilities to be credited to customers were $105 million. These liabilities are primarily attributable to deferred taxes previously recognized at rates higher than the current enacted tax law and unamortized ITCs.

In accordance with regulatory requirements, deferred federal ITCs are amortized over the average life of the related property with such amortization normally applied as a credit to reduce depreciation in the statements of income. Credits amortized in this manner amounted to $10 million in 2015, $10 million in 2014, and $5 million in 2013. State investment tax and other tax credits are recognized in the period in which the credits are claimed on the state income tax return and totaled $33 million in 2015, $34 million in 2014, and $27 million in 2013. At December 31, 2015, the Company had $3 million in federal tax credit carryforwards that will expire by 2035 and $188 million in state ITC carryforwards that will expire between 2020 and 2026.

Effective Tax Rate

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

	2015	2014	2013
Federal statutory rate	35.0%	35.0%	35.0%
State income tax, net of federal deduction	2.5	2.2	2.5
Non-deductible book depreciation	1.2	1.3	1.3
AFUDC equity	(0.7)	(0.8)	(0.6)
Other	(0.4)	(0.7)	(0.4)
Effective income tax rate	37.6%	37.0%	37.8%

The changes in the Company's effective tax rate are primarily the result of benefits related to emission allowances and state apportionment recorded in 2014.

Unrecognized Tax Benefits

Changes in unrecognized tax benefits were as follows:

	2015		2014		2013
	(in millions)
Unrecognized tax benefits at beginning of year	$	—	$	—	$	23
Tax positions increase from prior periods	3		—		—
Tax positions decrease from prior periods	—		—		(23		)
Balance at end of year	$	3	$	—	$	—

The tax positions increase from prior periods for 2015 primarily relates to a graduated tax rate adjustment on the 2014 federal income tax return and will impact the Company's effective tax rate, if recognized. The tax positions decrease from prior periods for 2013 primarily relates to the Company's compliance with final U.S. Treasury regulations for a tax accounting method change for repairs.

These amounts are presented on a gross basis without considering the related federal or state income tax impact.

The Company classifies interest on tax uncertainties as interest expense. Accrued interest for unrecognized tax benefits was immaterial for all periods presented. The Company did not accrue any penalties on uncertain tax positions.

It is reasonably possible that the amount of the unrecognized tax benefits could change within 12 months. The settlement of federal and state audits could impact the balances significantly. At this time, an estimate of the range of reasonably possible outcomes cannot be determined.

The IRS has finalized its audits of Southern Company's consolidated federal income tax returns through 2012. Southern Company has filed its 2013 and 2014 federal income tax returns and has received partial acceptance letters from the IRS; however, the IRS has not finalized its audits. Southern Company is a participant in the Compliance Assurance Process of the IRS. The audits for the Company's state income tax returns have either been concluded, or the statute of limitations has expired, for years prior to 2011.

Gulf Power [Member]

Income Tax Disclosure [Line Items]

INCOME TAXES

INCOME TAXES

On behalf of the Company, Southern Company files a consolidated federal income tax return and various combined and separate state income tax returns. Under a joint consolidated income tax allocation agreement, each Southern Company subsidiary's current and deferred tax expense is computed on a stand-alone basis and no subsidiary is allocated more current expense than would be paid if it filed a separate income tax return. In accordance with IRS regulations, each company is jointly and severally liable for the federal tax liability.

Current and Deferred Income Taxes

Details of income tax provisions are as follows:

	2015			2014		2013
	(in millions)
Federal -
Current	$	(3	)	$	23	$	5
Deferred	80			52		63
	77			75		68
State -
Current	5			—		(2		)
Deferred	10			13		14
	15			13		12
Total	$	92		$	88	$	80

The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows:

	2015		2014
	(in millions)
Deferred tax liabilities-
Accelerated depreciation	$	812	$	777
Property basis differences	133		52
Fuel recovery clause	—		16
Pension and other employee benefits	39		34
Regulatory assets associated with employee benefit obligations	59		60
Regulatory assets associated with asset retirement obligations	40		7
Other	26		22
Total	1,109		968
Deferred tax assets-
Federal effect of state deferred taxes	33		31
Postretirement benefits	26		18
Pension and other employee benefits	65		66
Property reserve	15		13
Asset retirement obligations	40		7
Alternative minimum tax carryforward	18		18
Other	19		18
Total	216		171
Accumulated deferred income taxes	$	893	$	797

On November 20, 2015, the FASB issued ASU 2015-17, which simplifies the presentation of deferred income taxes. The new guidance resulted in a reclassification from prepaid expenses of $3 million to non-current accumulated deferred income taxes in the Company's December 31, 2014 balance sheet. See Note 1 under "Recently Issued Accounting Standards" for additional information.

The application of bonus depreciation provisions in current tax law has significantly increased deferred tax liabilities related to accelerated depreciation in 2015 and 2014.

At December 31, 2015, tax-related regulatory assets to be recovered from customers were $61 million. These assets are primarily attributable to tax benefits flowed through to customers in prior years, deferred taxes previously recognized at rates lower than the current enacted tax law, and taxes applicable to capitalized interest.

At December 31, 2015, the tax-related regulatory liabilities to be credited to customers were $3 million. These liabilities are primarily attributable to deferred taxes previously recognized at rates higher than the current enacted tax law and unamortized ITCs.

In accordance with regulatory requirements, deferred federal ITCs are amortized over the average life of the related property with such amortization normally applied as a credit to reduce depreciation in the statements of income. Credits amortized in this manner amounted to approximately $1 million annually for 2015, 2014, and 2013. At December 31, 2015, all ITCs available to reduce federal income taxes payable had been utilized.

Effective Tax Rate

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

	2015	2014	2013
Federal statutory rate	35.0%	35.0%	35.0%
State income tax, net of federal deduction	3.9	3.5	3.5
Non-deductible book depreciation	0.5	0.4	0.5
Differences in prior years' deferred and current tax rates	(0.1)	(0.1)	(0.2)
AFUDC equity	(1.8)	(1.8)	(1.1)
Other, net	(0.6)	0.1	(0.1)
Effective income tax rate	36.9%	37.1%	37.6%

Unrecognized Tax Benefits

The Company has no material unrecognized tax benefits for 2015 or 2014. The Company classifies interest on tax uncertainties as interest expense. Accrued interest for unrecognized tax benefits was immaterial and the Company did not accrue any penalties on uncertain tax positions.

It is reasonably possible that the amount of the unrecognized tax benefits could change within 12 months. The settlement of federal and state audits could impact the balances, but an estimate of the range of reasonably possible outcomes cannot be determined at this time.

The IRS has finalized its audits of Southern Company's consolidated federal income tax returns through 2012. Southern Company has filed its 2013 and 2014 federal income tax returns and has received partial acceptance letters from the IRS; however, the IRS has not finalized its audits. Southern Company is a participant in the Compliance Assurance Process of the IRS. The audits for the Company's state income tax returns have either been concluded, or the statute of limitations has expired, for years prior to 2011.

Mississippi Power [Member]

Income Tax Disclosure [Line Items]

INCOME TAXES

INCOME TAXES

On behalf of the Company, Southern Company files a consolidated federal income tax return and various combined and separate state income tax returns. Under a joint consolidated income tax allocation agreement, each Southern Company subsidiary's current and deferred tax expense is computed on a stand-alone basis and no subsidiary is allocated more current expense than would be paid if it filed a separate income tax return. In accordance with IRS regulations, each company is jointly and severally liable for the federal tax liability.

Current and Deferred Income Taxes

Details of income tax provisions are as follows:

	2015			2014			2013
	(in millions)
Federal —
Current	$	(768	)	$	(431	)	$	23
Deferred	704			183			(343		)
	(64		)	(248		)	(320		)
State —
Current	(81		)	1			5
Deferred	73			(38		)	(53		)
	(8		)	(37		)	(48		)
Total	$	(72	)	$	(285	)	$	(368	)

The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows:

	2015		2014
	(in millions)
Deferred tax liabilities —
Accelerated depreciation	$	1,618	$	1,068
ECM under recovered	13		—
Regulatory assets associated with AROs	71		19
Pensions and other benefits	30		35
Regulatory assets associated with employee benefit obligations	66		68
Regulatory assets associated with the Kemper IGCC	86		62
Rate differential	115		89
Federal effect of state deferred taxes	—		1
Fuel clause under recovered	—		3
Other	163		52
Total	2,162		1,397
Deferred tax assets —
Fuel clause over recovered	51		—
Estimated loss on Kemper IGCC	451		631
Pension and other benefits	92		92
Property insurance	25		24
Premium on long-term debt	18		21
Unbilled fuel	16		15
AROs	71		19
Interest rate hedges	4		5
Kemper rate factor - regulatory liability retail	—		108
Property basis difference	451		263
ECM over recovered	—		1
Deferred state tax assets	152		57
Deferred federal tax assets	48		—
Federal effect of state deferred taxes	8		—
Other	13		15
Total	1,400		1,251
Total deferred tax liabilities, net	762		146
Deferred state tax asset	—		34
Accumulated deferred income taxes	$	762	$	180

On November 20, 2015, the FASB issued ASU 2015-17, which simplifies the presentation of deferred income taxes. The new guidance resulted in a reclassification from prepaid income taxes of $121 million with $105 million to non-current accumulated deferred income taxes and $16 million to other deferred charges in the Company's December 31, 2014 balance sheet. See Note 1 under "Recently Issued Accounting Standards" for additional information.

The application of bonus depreciation provisions in current tax law has significantly increased deferred tax liabilities related to accelerated depreciation in 2015 and 2014.

At December 31, 2015, the tax-related regulatory assets were $291 million. These assets are primarily attributable to tax benefits flowed through to customers in prior years, deferred taxes previously recognized at rates lower than the current enacted tax law, and to taxes applicable to capitalized interest.

At December 31, 2015, the tax-related regulatory liabilities were $8 million. These liabilities are primarily attributable to deferred taxes previously recognized at rates higher than the current enacted tax law and unamortized ITCs.

In accordance with regulatory requirements, deferred federal ITCs are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the statements of operations. Credits for non-Kemper IGCC related deferred ITCs amortized in this manner amounted to $1 million in each of 2015, 2014, and 2013.

At December 31, 2015, the Company had state of Mississippi NOL carryforwards totaling approximately $3 billion, resulting in deferred tax assets of approximately $97 million. The NOLs will expire between 2033 and 2035, but are expected to be fully utilized by 2028.

Effective Tax Rate

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

	2015		2014		2013
Federal statutory rate	(35.0	)%	(35.0	)%	(35.0	)%
State income tax, net of federal deduction	(6.3	)	(4.0	)	(3.7	)
Non-deductible book depreciation	1.3		0.1		0.1
AFUDC-equity	(49.6	)	(7.8	)	(5.0	)
Other	(2.9	)	0.1		(0.1	)
Effective income tax rate (benefit rate)	(92.5	)%	(46.6	)%	(43.7	)%

The increase in the Company's 2015 effective tax rate (benefit rate), as compared to 2014, is primarily due to a decrease in estimated losses associated with the Kemper IGCC, offset by a decrease in non-taxable AFUDC equity. The increase in the Company's 2014 effective tax rate (benefit rate), as compared to 2013, is primarily due to an increase in non-taxable AFUDC equity.

Unrecognized Tax Benefits

Changes during the year in unrecognized tax benefits were as follows:

	2015		2014		2013
	(in millions)
Unrecognized tax benefits at beginning of year	$	165	$	4	$	6
Tax positions increase from current periods	32		58		—
Tax positions increase/(decrease) from prior periods	224		103		(2		)
Balance at end of year	$	421	$	165	$	4

The tax positions increase from current periods and prior periods for 2015 and 2014 relates to deductions for R&E expenditures associated with the Kemper IGCC. See "Section 174 Research and Experimental Deduction" herein for more information. The tax positions decrease from prior periods for 2013 relates primarily to the Company's compliance with final U.S. Treasury regulations that resulted in a tax accounting method change for repairs.

The impact on the Company's effective tax rate, if recognized, is as follows:

	2015			2014		2013
	(in millions)
Tax positions impacting the effective tax rate	$	(2	)	$	4	$	4
Tax positions not impacting the effective tax rate	423			161		—
Balance of unrecognized tax benefits	$	421		$	165	$	4

The tax positions impacting the effective tax rate for 2015 primarily relate to a graduated tax rate adjustment on the 2014 federal income tax return. The tax positions impacting the effective tax rate for 2014 and 2013 primarily relate to state income tax credits. The tax positions not impacting the effective tax rate for 2015 and 2014 relate to deductions for R&E expenditures associated with the Kemper IGCC. See "Section 174 Research and Experimental Deduction" herein for more information.

Accrued interest for unrecognized tax benefits was as follows:

	2015		2014		2013
	(in millions)
Interest accrued at beginning of year	$	3	$	1	$	1
Interest accrued during the year	6		2		—
Balance at end of year	$	9	$	3	$	1

The Company classifies interest on tax uncertainties as interest expense. The Company did not accrue any penalties on uncertain tax positions.

It is reasonably possible that the amount of the unrecognized tax benefits could change within 12 months. The settlement of federal and state audits could impact the balances significantly. At this time, an estimate of the range of reasonably possible outcomes cannot be determined.

The IRS has finalized its audits of Southern Company's consolidated federal income tax returns through 2012. Southern Company has filed its 2013 and 2014 federal income tax returns and has received partial acceptance letters from the IRS; however, the IRS has not finalized its audits. Southern Company is a participant in the Compliance Assurance Process of the IRS. The audits for the Company's state income tax returns have either been concluded, or the statute of limitations has expired, for years prior to 2011.

Section 174 Research and Experimental Deduction

Southern Company, on behalf of the Company, reduced tax payments for 2015 and included in its 2013 and 2014 consolidated federal income tax returns deductions for R&E expenditures related to the Kemper IGCC. In May 2015, Southern Company amended its 2008 through 2013 federal income tax returns to include deductions for Kemper IGCC-related R&E expenditures.

The Kemper IGCC is based on first-of-a-kind technology, and Southern Company and the Company believe that a significant portion of the plant costs qualify as deductible R&E expenditures under Internal Revenue Code Section 174. The IRS is currently reviewing the underlying support for the deduction, but has not completed its audit of these expenditures. Due to the uncertainty related to this tax position, the Company had related unrecognized tax benefits associated with these R&E deductions of approximately $423 million and associated interest of $9 million as of December 31, 2015. See Note 3 under "Integrated Coal Gasification Combined Cycle" for additional information regarding the Kemper IGCC. The ultimate outcome of this matter cannot be determined at this time.

Southern Power [Member]

Income Tax Disclosure [Line Items]

INCOME TAXES

INCOME TAXES

On behalf of the Company, Southern Company files a consolidated federal income tax return and various state income tax returns, some of which are combined or unitary. Under a joint consolidated income tax allocation agreement, each Southern Company subsidiary's current and deferred tax expense is computed on a stand-alone basis and no subsidiary is allocated more current expense than would be paid if it filed a separate income tax return. In accordance with IRS regulations, each company is jointly and severally liable for the federal tax liability.

Current and Deferred Income Taxes

Details of income tax provisions are as follows:

	2015			2014			2013
	(in millions)
Federal —
Current(*)	$	12		$	179		$	(120	)
Deferred(*)	10			(166		)	159
	22			13			39
State —
Current	(32		)	(14		)	(5		)
Deferred	31			(2		)	12
	(1		)	(16		)	7
Total	$	21		$	(3	)	$	46

(*) ITCs generated in the current tax year and carried forward from prior tax years that cannot be utilized in the current tax year are reclassified from current to deferred taxes in the federal income tax expense above. ITCs reclassified in this manner include $246 million for 2015 and $305 million for 2014. These ITCs are included in the following table of temporary differences as unrealized tax credits.

The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows:

	2015			2014
	(in millions)
Deferred tax liabilities —
Accelerated depreciation and other property basis differences	$	1,364		$	1,006
Basis difference on asset transfers	3			3
Levelized capacity revenues	22			17
Other	4			6
Total	1,393			1,032
Deferred tax assets —
Federal effect of state deferred taxes	40			29
Net basis difference on federal ITCs	149			102
Alternative minimum tax carryforward	15			15
Unrealized tax credits	551			305
Unrealized loss on interest rate swaps	4			6
Levelized capacity revenues	4			5
Deferred state tax assets	13			15
Other	18			4
Total	794			481
Valuation Allowance	(2		)	(8		)
Net deferred income tax assets	792			473
Accumulated deferred income taxes	$	601		$	559

On November 20, 2015, the FASB issued ASU 2015-17, which simplifies the presentation of deferred income taxes. The new guidance resulted in a reclassification from deferred income taxes, current of $306 million and accrued income taxes of $2 million to non-current accumulated deferred income taxes in the Company's December 31, 2014 balance sheet. See Note 1 under "Recently Issued Accounting Standards" for additional information.

Deferred tax liabilities are primarily the result of property related timing differences. The application of bonus depreciation provisions in current tax law has significantly increased deferred tax liabilities related to accelerated depreciation in 2015 and 2014.

Deferred tax assets consist primarily of timing differences related to net basis differences on federal ITCs and the carryforward of unrealized federal ITCs. The ITC carryforwards begin expiring in 2034, but are expected to be fully utilized by 2020.

At December 31, 2015 and December 31, 2014, the Company had state net operating loss (NOL) carryforwards of $225 million and $247 million, respectively. The NOL carryforwards resulted in deferred tax assets of $8 million as of December 31, 2015 and $9 million as of December 31, 2014. The Company has established a valuation allowance due to the remote likelihood that the full tax benefits will be realized. During 2015, approximately $87 million in NOLs expired resulting in a decrease in the valuation allowance for the same amount. The offsetting adjustments resulted in no tax impact. Of the NOL balance at December 31, 2015, approximately $40 million will expire in 2017 and $185 million will expire from 2033 to 2035.

Effective Tax Rate

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

	2015		2014		2013
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income tax, net of federal deduction	(0.3	)	(6.0	)	2.2
Amortization of ITC	(5.0	)	(4.3	)	(1.7	)
ITC basis difference	(21.5	)	(27.7	)	(14.5	)
Other	0.2		1.1		0.3
Effective income tax rate	8.4	%	(1.9	)%	21.3	%

The Company's effective tax rate increased in 2015 primarily due to decreased benefits from federal ITCs as compared to 2014. The Company's effective tax rate decreased in 2014 primarily due to greater benefits from federal ITCs as compared to 2013.

The Company received cash related to federal ITCs under the renewable energy initiatives of $162 million in tax year 2015, $74 million in tax year 2014, and $158 million in tax year 2013. The tax benefit of the related basis difference reduced income tax expense by $54 million in 2015, $48 million in 2014, and $31 million in 2013. Federal ITCs amortized to income tax expense amounted to $19 million, $11 million, and $6 million in 2015, 2014, and 2013, respectively.

See Note 1 under "Income and Other Taxes" for additional information.

Unrecognized Tax Benefits

Changes during the year in unrecognized tax benefits were as follows:

	2015			2014			2013
	(in millions)
Unrecognized tax benefits at beginning of year	$	5		$	2		$	3
Tax positions increase from current periods	9			5			2
Tax positions decrease from prior periods	(6		)	(2		)	(3		)
Balance at end of year	$	8		$	5		$	2

The increase in unrecognized tax benefits from current periods for 2015, 2014 and 2013, and the decrease from prior periods in 2015 and 2014 primarily relate to federal ITCs and would each impact the Company's effective tax rate, if recognized. The decrease in unrecognized tax benefits from prior periods for 2013 relates to the Company's compliance with final U.S. Treasury regulations for the tax method change for repairs.

The Company classifies interest on tax uncertainties as interest expense. Accrued interest for unrecognized tax benefits was immaterial for all periods presented. The Company did not accrue any penalties on uncertain tax positions.

It is reasonably possible that the amount of the unrecognized tax benefits could change within 12 months. The settlement of federal and state audits could impact the balances. At this time, an estimate of the range of reasonably possible outcomes cannot be determined.

The IRS has finalized its audits of Southern Company's consolidated federal income tax returns through 2012. Southern Company has filed its 2013 and 2014 federal income tax returns and has received partial acceptance letters from the IRS; however, the IRS has not finalized its audits. Southern Company is a participant in the Compliance Assurance Process of the IRS. The audits for the Company's state income tax returns have either been concluded, or the statute of limitations has expired, for years prior to 2011.