Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2016

Summary of Significant Accounting Policies [Line Items]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

The Southern Company (Southern Company or the Company) is the parent company of four traditional electric operating companies, Southern Power, Southern Company Gas (as of July 1, 2016), SCS, Southern LINC, Southern Company Holdings, Inc. (Southern Holdings), Southern Nuclear, PowerSecure (as of May 9, 2016), and other direct and indirect subsidiaries. The traditional electric operating companies – Alabama Power, Georgia Power, Gulf Power, and Mississippi Power – are vertically integrated utilities providing electric service in four Southeastern states. Southern Power constructs, acquires, owns, and manages generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. Southern Company Gas distributes natural gas through the natural gas distribution utilities in seven states and is involved in several other complementary businesses including gas marketing services, wholesale gas services, and gas midstream operations. SCS, the system service company, provides, at cost, specialized services to Southern Company and its subsidiary companies. Southern LINC provides digital wireless communications for use by Southern Company and its subsidiary companies and also markets these services to the public and provides fiber cable services within the Southeast. Southern Holdings is an intermediate holding company subsidiary, primarily for Southern Company's investments in leveraged leases and for other electric services. Southern Nuclear operates and provides services to the Southern Company system's nuclear power plants. PowerSecure is a provider of products and services in the areas of distributed generation, energy efficiency, and utility infrastructure.

The financial statements reflect Southern Company's investments in the subsidiaries on a consolidated basis. The equity method is used for entities in which the Company has significant influence but does not control and for variable interest entities where the Company has an equity investment but is not the primary beneficiary. Intercompany transactions have been eliminated in consolidation.

The traditional electric operating companies, Southern Power, certain subsidiaries of Southern Company Gas, and certain other subsidiaries are subject to regulation by the FERC, and the traditional electric operating companies and natural gas distribution utilities are also subject to regulation by their respective state PSCs or other applicable state regulatory agencies. As such, the consolidated financial statements reflect the effects of rate regulation in accordance with GAAP and comply with the accounting policies and practices prescribed by relevant state PSCs or other applicable state regulatory agencies. The preparation of financial statements in conformity with GAAP requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements have been reclassified to conform to the current year presentation. These reclassifications had no impact on Southern Company's results of operations, financial position, or cash flows.

In June 2015, Georgia Power identified an error affecting the billing to a small number of large commercial and industrial customers under a rate plan allowing for variable demand-driven pricing from January 1, 2013 to June 30, 2015. In the second quarter 2015, Georgia Power recorded an out of period adjustment of approximately $75 million to decrease retail revenues, resulting in a decrease to net income of approximately $47 million. Georgia Power evaluated the effects of this error on the interim and annual periods that included the billing error. Based on an analysis of qualitative and quantitative factors, Georgia Power determined the error was not material to any affected period and, therefore, an amendment of previously filed financial statements was not required.

Recently Issued Accounting Standards

In 2014, the FASB issued ASC 606, Revenue from Contracts with Customers, replacing the existing accounting standard and industry specific guidance for revenue recognition with a five-step model for recognizing and measuring revenue from contracts with customers. The underlying principle of the guidance is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. The new standard also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows arising from contracts with customers.

While Southern Company expects most of its revenue to be included in the scope of ASC 606, it has not fully completed its evaluation of such arrangements. The majority of Southern Company's revenue, including energy provided to customers, is from tariff offerings that provide natural gas or electricity without a defined contractual term. For such arrangements, Southern Company generally expects that the revenue from contracts with these customers will continue to be equivalent to the electricity or natural gas supplied and billed in that period (including unbilled revenues) and the adoption of ASC 606 will not result in a significant shift in the timing of revenue recognition for such sales.

Southern Company's ongoing evaluation of other revenue streams and related contracts includes longer term contractual commitments and unregulated sales to customers. Some revenue arrangements, such as certain PPAs and alternative revenue programs, are expected to be excluded from the scope of ASC 606 and therefore, be accounted for and presented separately from revenues under ASC 606 on Southern Company's financial statements. In addition, the power and utilities industry is currently addressing other specific industry issues, including the applicability of ASC 606 to contributions in aid of construction (CIAC). If final implementation guidance indicates CIAC will be accounted for under ASC 606 and offsetting regulatory treatment is not permitted, it could have a material impact on Southern Company's financial statements.

The new standard is effective for interim and annual reporting periods beginning after December 15, 2017. Southern Company must select a transition method to be applied either retrospectively to each prior reporting period presented or retrospectively with a cumulative effect adjustment to retained earnings at the date of initial adoption. As the ultimate impact of the new standard has not yet been determined, Southern Company has not elected its transition method.

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires lessees to recognize on the balance sheet a lease liability and a right-of-use asset for all leases. ASU 2016-02 also changes the recognition, measurement, and presentation of expense associated with leases and provides clarification regarding the identification of certain components of contracts that would represent a lease. The accounting required by lessors is relatively unchanged and there is no change to the accounting for existing leveraged leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. Southern Company is currently evaluating the new standard and has not yet determined its ultimate impact; however, adoption of ASU 2016-02 is expected to have a significant impact on Southern Company's balance sheet.

On March 30, 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 changes the accounting for income taxes and the cash flow presentation for share-based payment award transactions effective for fiscal years beginning after December 15, 2016. The new guidance requires all excess tax benefits and deficiencies related to the exercise or vesting of stock compensation to be recognized as income tax expense or benefit in the income statement. Previously, Southern Company recognized any excess tax benefits and deficiencies related to the exercise and vesting of stock compensation as additional paid-in capital. In addition, the new guidance requires excess tax benefits for share-based payments to be included in net cash provided from operating activities rather than net cash provided from financing activities on the statement of cash flows. Southern Company elected to adopt the guidance in 2016 and reflect the related adjustments as of January 1, 2016. Prior year's data presented in the financial statements has not been adjusted. Southern Company also elected to recognize forfeitures as they occur. The new guidance did not have a material impact on the results of operations, financial position, or cash flows of Southern Company. See Notes 5, 8, and 14 for disclosures impacted by ASU 2016-09.

On October 24, 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). Current GAAP prohibits the recognition of current and deferred income taxes for an affiliate asset transfer until the asset has been sold to an outside party. ASU 2016-16 requires an entity to recognize the income tax consequences of an affiliate transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The amendments will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Southern Company is currently assessing the impact of the standard on its financial statements and has not yet determined its ultimate impact.

On November 17, 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). ASU 2016-18 eliminates the need to reflect transfers between cash and restricted cash in operating, investing, and financing activities in the statement of cash flows. Upon adoption, the net change in cash and cash equivalents during the period will include amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted, and will be applied retrospectively to each period presented. Southern Company does not intend to adopt the guidance early. The adoption of ASU 2016-18 will not have a material impact on the financial statements of Southern Company.

Regulatory Assets and Liabilities

The traditional electric operating companies and natural gas distribution utilities are subject to accounting requirements for the effects of rate regulation. Regulatory assets represent probable future revenues associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process.

Regulatory assets and (liabilities) reflected in the balance sheets at December 31 relate to:



	2016			2015			Note
	(in millions)
Retiree benefit plans	$	3,959		$	3,440		(a,n)
Deferred income tax charges	1,590			1,514			(b)
Asset retirement obligations-asset	1,080			481			(b,n)
Environmental remediation-asset	491			78			(j,n)
Other regulatory assets	355			299			(k)
Remaining net book value of retired assets	351			283			(o)
Under recovered regulatory clause revenues	273			142			(g)
Loss on reacquired debt	243			248			(c)
Property damage reserves-asset	206			92			(i)
Kemper IGCC	201			216			(h)
Vacation pay	182			178			(f,n)
Long-term debt fair value adjustment	155			—			(p)
Deferred PPA charges	141			163			(e,n)
Nuclear outage	97			88			(g)
Fuel-hedging-asset	35			225			(d,n)
Other cost of removal obligations	(2,774		)	(1,177		)	(b)
Deferred income tax credits	(219		)	(187		)	(b)
Over recovered regulatory clause revenues	(203		)	(261		)	(g)
Property damage reserves-liability	(177		)	(178		)	(l)
Other regulatory liabilities	(110		)	(35		)	(m)
Asset retirement obligations-liability	(10		)	(45		)	(b,n)
Total regulatory assets (liabilities), net	$	5,866		$	5,564

Note: The recovery and amortization periods for these regulatory assets and (liabilities) are as follows:


(a)	Recovered and amortized over the average remaining service period which may range up to 15 years. See Note 2 for additional information.


(b)	Asset retirement and other cost of removal obligations are recorded, deferred income tax assets are recovered, and deferred income tax liabilities are amortized over the related property lives, which may range up to 70 years. Asset retirement and removal liabilities will be settled and trued up following completion of the related activities.


(c)	Recovered over either the remaining life of the original issue or, if refinanced, over the remaining life of the new issue, which may range up to 50 years.


(d)	Recorded over the life of the underlying hedged purchase contracts, which generally do not exceed five years. Upon final settlement, actual costs incurred are recovered through fuel and energy cost recovery mechanisms.


(e)	Recovered over the life of the PPA for periods up to seven years.


(f)	Recorded as earned by employees and recovered as paid, generally within one year. This includes both vacation and banked holiday pay.


(g)	Recorded and recovered or amortized as approved or accepted by the appropriate state PSCs or other applicable regulatory agencies over periods generally not exceeding ten years.


(h)	Includes $97 million of regulatory assets currently in rates to be recovered over periods of two, seven, or 10 years. For additional information, see Note 3 under "Integrated Coal Gasification Combined Cycle – Rate Recovery of Kemper IGCC Costs – Regulatory Assets and Liabilities."


(i)	Previous under-recovery as of December 2013 is recorded and recovered or amortized as approved by the Georgia PSC through 2019. Amortization of $185 million related to the under-recovery from January 2014 through December 2016 will be determined by the Georgia PSC in the 2019 base rate case. See Note 3 for additional information.


(j)	Recovered through environmental cost recovery mechanisms when the remediation is performed or the work is performed.


(k)	Comprised of numerous immaterial components including deferred income tax charges - Medicare subsidy, cancelled construction projects, building and generating plant leases, property tax, and other miscellaneous assets. These costs are recorded and recovered or amortized as approved by the appropriate state PSCs over periods generally not exceeding 50 years.


(l)	Recovered as storm restoration and potential reliability-related expenses are incurred as approved by the appropriate state PSCs.


(m)	Comprised of numerous immaterial components including retiree benefit plans, fuel-hedging gains, and other liabilities that are recorded and recovered or amortized as approved by the appropriate state PSCs or other applicable regulatory agencies generally over periods not exceeding 4 years.


(n)	Not earning a return as offset in rate base by a corresponding asset or liability.


(o)	Amortized as approved by the appropriate state PSCs over periods generally up to 11 years.


(p)	Recorded in relation to the Merger. Recovered over the remaining life of the original debt issuances, which range up to 22 years. For additional information see Note 12 under "Southern Company – Merger with Southern Company Gas."

In the event that a portion of a traditional electric operating company's or a natural gas distribution utility's operations is no longer subject to applicable accounting rules for rate regulation, such company would be required to write off to income or reclassify to accumulated OCI related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the traditional electric operating company or natural gas distribution utility would be required to determine if any impairment to other assets, including plant, exists and write down the assets, if impaired, to their fair values. All regulatory assets and liabilities are to be reflected in rates. See Note 3 under "Regulatory Matters – Alabama Power," "Regulatory Matters – Georgia Power," "Regulatory Matters – Gulf Power," "Regulatory Matters – Southern Company Gas," and "Integrated Coal Gasification Combined Cycle" for additional information.

Revenues

Wholesale capacity revenues from PPAs are recognized either on a levelized basis over the appropriate contract period or the amount billable under the contract terms. Energy and other revenues are recognized as services are provided. Unbilled revenues related to retail sales are accrued at the end of each fiscal period. Retail rates for the traditional electric operating companies and natural gas distribution utilities may include provisions to adjust billings for fluctuations in fuel and purchased gas costs, fuel hedging, the energy component of purchased power costs, and certain other costs. Revenues are adjusted for differences between these actual costs and amounts billed in current regulated rates. Under or over recovered regulatory clause revenues are recorded in the balance sheets and are recovered or returned to customers through adjustments to the billing factors.

Southern Company's electric utility subsidiaries and Southern Company Gas have a diversified base of customers. No single customer or industry comprises 10% or more of revenues. For all periods presented, uncollectible accounts averaged less than 1% of revenues.

Fuel Costs

Fuel costs are expensed as the fuel is used. Fuel expense generally includes fuel transportation costs and the cost of purchased emissions allowances as they are used. Fuel expense also includes the amortization of the cost of nuclear fuel and a charge, based on nuclear generation, for the permanent disposal of spent nuclear fuel.

Income and Other Taxes

Southern Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Taxes that are collected from customers on behalf of governmental agencies to be remitted to these agencies are presented net on the statements of income. In accordance with regulatory requirements, deferred federal ITCs for the traditional electric operating companies and Southern Company Gas are amortized over the average lives of the related property with such amortization normally applied as a credit to reduce depreciation in the statements of income. Under current tax law, certain projects at Southern Power are eligible for federal ITCs or cash grants. Southern Power has elected to receive ITCs. The credits are recorded as a deferred credit and are amortized to income tax expense over the life of the asset. 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. In addition, certain projects are eligible for federal PTCs, which are recorded to income tax expense based on KWH production.

Federal ITCs and PTCs, as well as state ITCs and other state tax credits available to reduce income taxes payable, were not fully utilized in 2016 and will be carried forward and utilized in future years. In addition, Southern Company is expected to have a consolidated federal net operating loss (NOL) carryforward for the 2016 tax year along with various state NOL carryforwards, which could result in income tax benefits in the future, if utilized. See Note 5 under "Current and Deferred Income Taxes – Tax Credit Carryforwards" and " – Net Operating Loss" for additional information.

Southern Company recognizes tax positions that are "more likely than not" of being sustained upon examination by the appropriate taxing authorities. See Note 5 under "Unrecognized Tax Benefits" for additional information.

Property, Plant, and Equipment

Property, plant, and equipment is stated at original cost less any regulatory disallowances and impairments. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the interest capitalized and cost of equity funds used during construction.

The Southern Company system's property, plant, and equipment in service consisted of the following at December 31:



	2016		2015
	(in millions)
Electric utilities:
Generation	$	48,836	$	41,648
Transmission	11,156		10,544
Distribution	18,418		17,670
General	4,629		4,377
Plant acquisition adjustment	126		123
Electric utility plant in service	83,165		74,362
Natural gas distribution utilities:
Transportation and distribution	11,996		—
Utility plant in service	95,161		74,362
Information technology equipment and software	544		222
Communications equipment	424		418
Storage facilities	1,463		—
Other	824		116
Total other plant in service	3,255		756
Total plant in service	$	98,416	$	75,118

The cost of replacements of property, exclusive of minor items of property, is capitalized. The cost of maintenance, repairs, and replacement of minor items of property is charged to other operations and maintenance expenses as incurred or performed with the exception of nuclear refueling costs, which are recorded in accordance with specific state PSC orders. Alabama Power and Georgia Power defer and amortize nuclear refueling costs over the unit's operating cycle. The refueling cycles for Alabama Power's Plant Farley and Georgia Power's Plants Hatch and Vogtle Units 1 and 2 range from 18 to 24 months, depending on the unit.

Assets acquired under a capital lease are included in property, plant, and equipment and are further detailed in the table below:



	Asset Balances at December 31,
	2016			2015
	(in millions)
Office building	$	61		$	61
Nitrogen plant	83			83
Computer-related equipment	63			61
Gas pipeline	6			6
Less: Accumulated amortization	(69		)	(59		)
Balance, net of amortization	$	144		$	152

The amount of non-cash property additions recognized for the years ended December 31, 2016, 2015, and 2014 was $1.5 billion, $844 million, and $528 million, respectively. These amounts are comprised of construction-related accounts payable outstanding at each year end. Also, the amount of non-cash property additions associated with capitalized leases for the years ended December 31, 2016, 2015, and 2014 was $18 million, $13 million, and $25 million, respectively.

Depreciation and Amortization

Depreciation of the original cost of utility plant in service is provided primarily by using composite straight-line rates, which approximated 3.0% in 2016 and 2015 and 3.1% in 2014. Depreciation studies are conducted periodically to update the composite rates. These studies are filed with the respective state PSC or other applicable state and federal regulatory agencies for the traditional electric operating companies and natural gas distribution utilities. Accumulated depreciation for utility plant in service totaled $29.3 billion and $23.7 billion at December 31, 2016 and 2015, respectively. When property subject to composite depreciation is retired or otherwise disposed of in the normal course of business, its original cost, together with the cost of removal, less salvage, is charged to accumulated depreciation. For other property dispositions, the applicable cost and accumulated depreciation are removed from the balance sheet accounts, and a gain or loss is recognized. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Certain of Southern Power's generation assets are depreciated on a units-of-production basis, using hours or starts, to better match outage and maintenance costs to the usage of and revenues from these assets. Cost, net of salvage value, of these assets is depreciated on an hours or starts units-of-production basis.

Under the terms of the 2013 ARP, Georgia Power amortized approximately $14 million in each of 2014, 2015, and 2016 of its remaining regulatory liability related to other cost of removal obligations.

See Note 3 under "Regulatory Matters – Gulf Power – Retail Base Rate Cases" for information regarding depreciation and amortization adjustments related to the other cost of removal regulatory liability.

Depreciation of the original cost of other plant in service is provided primarily on a straight-line basis over estimated useful lives ranging from three to 65 years. Accumulated depreciation for other plant in service totaled $550 million and $510 million at December 31, 2016 and 2015, respectively.

Asset Retirement Obligations and Other Costs of Removal

AROs are computed as the present value of the estimated ultimate costs for an asset's future retirement and are recorded in the period in which the liability is incurred. The costs are capitalized as part of the related long-lived asset and depreciated over the asset's useful life. In the absence of quoted market prices, AROs are estimated using present value techniques in which estimates of future cash outlays associated with the asset retirements are discounted using a credit-adjusted risk-free rate. Estimates of the timing and amounts of future cash outlays are based on projections of when and how the assets will be retired and the cost of future removal activities. Each traditional electric operating company and natural gas distribution utility has received accounting guidance from its state PSC or applicable state regulatory agency allowing the continued accrual or recovery of other retirement costs for long-lived assets that it does not have a legal obligation to retire. Accordingly, the accumulated removal costs for these obligations are reflected in the balance sheets as a regulatory liability and amounts to be recovered are reflected in the balance sheet as a regulatory asset.

The liability for AROs primarily relates to facilities that are subject to the Disposal of Coal Combustion Residuals from Electric Utilities final rule published by the EPA in April 2015 (CCR Rule), principally ash ponds, and the decommissioning of the Southern Company system's nuclear facilities – Alabama Power's Plant Farley and Georgia Power's ownership interests in Plant Hatch and Plant Vogtle Units 1 and 2. In addition, the Southern Company system has retirement obligations related to various landfill sites, asbestos removal, mine reclamation, land restoration related to solar and wind facilities, and disposal of polychlorinated biphenyls in certain transformers. The Southern Company system also has identified retirement obligations related to certain electric transmission and distribution facilities, certain wireless communication towers, property associated with the Southern Company system's rail lines and natural gas pipelines, and certain structures authorized by the U.S. Army Corps of Engineers. However, liabilities for the removal of these assets have not been recorded as the fair value of the retirement obligations cannot be reasonably estimated. A liability for these AROs will be recognized when sufficient information becomes available to support a reasonable estimation of the ARO. The Company will continue to recognize in the statements of income allowed removal costs in accordance with regulatory treatment. Any differences between costs recognized in accordance with accounting standards related to asset retirement and environmental obligations and those reflected in rates are recognized as either a regulatory asset or liability, as ordered by the various state PSCs, and are reflected in the balance sheets. See "Nuclear Decommissioning" herein for additional information on amounts included in rates.

Details of the AROs included in the balance sheets are as follows:



	2016			2015
	(in millions)
Balance at beginning of year	$	3,759		$	2,201
Liabilities incurred	66			662
Liabilities settled	(171		)	(37		)
Accretion	162			115
Cash flow revisions	698			818
Balance at end of year	$	4,514		$	3,759

The increases in cash flow revisions and liabilities incurred in 2016 primarily relate to changes in ash pond closure strategy. The cash flow revisions in 2015 are primarily related to an increase in AROs associated with facilities impacted by the CCR Rule and Georgia Power's updated nuclear decommissioning study.

The cost estimates for AROs related to the CCR Rule are based on information as of December 31, 2016 using various assumptions related to closure and post-closure costs, timing of future cash outlays, inflation and discount rates, and the potential methods for complying with the CCR Rule requirements for closure. As further analysis is performed, including evaluation of the expected method of compliance, refinement of assumptions underlying the cost estimates, such as the quantities of CCR at each site, and the determination of timing with respect to compliance activities, including the potential for closing ash ponds prior to the end of their currently anticipated useful life, the traditional electric operating companies expect to continue to periodically update these estimates.

Nuclear Decommissioning

The NRC requires licensees of commercial nuclear power reactors to establish a plan for providing reasonable assurance of funds for future decommissioning. Alabama Power and Georgia Power have external trust funds (Funds) to comply with the NRC's regulations. Use of the Funds is restricted to nuclear decommissioning activities. The Funds are managed and invested in accordance with applicable requirements of various regulatory bodies, including the NRC, the FERC, and state PSCs, as well as the IRS. While Alabama Power and Georgia Power are allowed to prescribe an overall investment policy to the Funds' managers, neither Southern Company nor its subsidiaries or affiliates are allowed to engage in the day-to-day management of the Funds or to mandate individual investment decisions. Day-to-day management of the investments in the Funds is delegated to unrelated third party managers with oversight by the management of Southern Company, Alabama Power, and Georgia Power. The Funds' managers are authorized, within certain investment guidelines, to actively buy and sell securities at their own discretion in order to maximize the return on the Funds' investments. The Funds are invested in a tax-efficient manner in a diversified mix of equity and fixed income securities and are reported as trading securities.

Southern Company records the investment securities held in the Funds at fair value, as disclosed in Note 10, as management believes that fair value best represents the nature of the Funds. Gains and losses, whether realized or unrealized, are recorded in the regulatory liability for AROs in the balance sheets and are not included in net income or OCI. Fair value adjustments and realized gains and losses are determined on a specific identification basis.

The Funds at Georgia Power participate in a securities lending program through the managers of the Funds. Under this program, the Funds' investment securities are loaned to institutional investors for a fee. Securities loaned are fully collateralized by cash, letters of credit, and/or securities issued or guaranteed by the U.S. government or its agencies or instrumentalities. As of December 31, 2016 and 2015, approximately $56 million and $76 million, respectively, of the fair market value of the Funds' securities were on loan and pledged to creditors under the Funds' managers' securities lending program. The fair value of the collateral received was approximately $58 million and $78 million at December 31, 2016 and 2015, respectively, and can only be sold by the borrower upon the return of the loaned securities. The collateral received is treated as a non-cash item in the statements of cash flows.

At December 31, 2016, investment securities in the Funds totaled $1.6 billion, consisting of equity securities of $878 million, debt securities of $685 million, and $41 million of other securities. At December 31, 2015, investment securities in the Funds totaled $1.5 billion, consisting of equity securities of $817 million, debt securities of $654 million, and $38 million of other securities. These amounts include the investment securities pledged to creditors and collateral received and exclude receivables related to investment income and pending investment sales and payables related to pending investment purchases and the lending pool.

Sales of the securities held in the Funds resulted in cash proceeds of $1.2 billion, $1.4 billion, and $0.9 billion in 2016, 2015, and 2014, respectively, all of which were reinvested. For 2016, fair value increases, including reinvested interest and dividends and excluding the Funds' expenses, were $114 million, which included $48 million related to unrealized gains on securities held in the Funds at December 31, 2016. For 2015, fair value increases, including reinvested interest and dividends and excluding the Funds' expenses, were $11 million, which included $83 million related to unrealized losses on securities held in the Funds at December 31, 2015. For 2014, fair value increases, including reinvested interest and dividends and excluding the Funds' expenses, were $98 million, which included $19 million related to unrealized gains and losses on securities held in the Funds at December 31, 2014. While the investment securities held in the Funds are reported as trading securities, the Funds continue to be managed with a long-term focus. Accordingly, all purchases and sales within the Funds are presented separately in the statements of cash flows as investing cash flows, consistent with the nature of the securities and purpose for which the securities were acquired.

For Alabama Power, approximately $19 million and $20 million at December 31, 2016 and 2015, respectively, previously recorded in internal reserves is being transferred into the Funds through 2040 as approved by the Alabama PSC. The NRC's minimum external funding requirements are based on a generic estimate of the cost to decommission only the radioactive portions of a nuclear unit based on the size and type of reactor. Alabama Power and Georgia Power have filed plans with the NRC designed to ensure that, over time, the deposits and earnings of the Funds will provide the minimum funding amounts prescribed by the NRC.

At December 31, 2016 and 2015, the accumulated provisions for the external decommissioning trust funds were as follows:



	External Trust Funds
	2016		2015
	(in millions)
Plant Farley	$	790	$	734
Plant Hatch	511		487
Plant Vogtle Units 1 and 2	303		288

Site study cost is the estimate to decommission a specific facility as of the site study year. The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The actual decommissioning costs may vary from these estimates because of changes in the assumed date of decommissioning, changes in NRC requirements, or changes in the assumptions used in making these estimates. The estimated costs of decommissioning as of December 31, 2016 based on the most current studies, which were performed in 2013 for Alabama Power's Plant Farley and in 2015 for the Georgia Power plants, were as follows for Alabama Power's Plant Farley and Georgia Power's ownership interests in Plant Hatch and Plant Vogtle Units 1 and 2:



	Plant Farley		Plant Hatch		Plant Vogtle Units 1 and 2
Decommissioning periods:
Beginning year	2037		2034		2047
Completion year	2076		2075		2079
	(in millions)
Site study costs:
Radiated structures	$	1,362	$	678	$	568
Spent fuel management	—		160		147
Non-radiated structures	80		64		89
Total site study costs	$	1,442	$	902	$	804

For ratemaking purposes, Alabama Power's decommissioning costs are based on the site study, and Georgia Power's decommissioning costs are based on the NRC generic estimate to decommission the radioactive portion of the facilities and the site study estimate for spent fuel management as of 2012. Under the 2013 ARP, the Georgia PSC approved Georgia Power's annual decommissioning cost for ratemaking of $4 million and $2 million for Plant Hatch and Plant Vogtle Units 1 and 2, respectively. Georgia Power expects the Georgia PSC to review and adjust, if necessary, the amounts collected in rates for nuclear decommissioning costs in Georgia Power's 2019 base rate case. Significant assumptions used to determine these costs for ratemaking were an inflation rate of 4.5% and 2.4% for Alabama Power and Georgia Power, respectively, and a trust earnings rate of 7.0% and 4.4% for Alabama Power and Georgia Power, respectively.

Amounts previously contributed to the Funds for Plant Farley are currently projected to be adequate to meet the decommissioning obligations. Alabama Power will continue to provide site-specific estimates of the decommissioning costs and related projections of funds in the external trust to the Alabama PSC and, if necessary, would seek the Alabama PSC's approval to address any changes in a manner consistent with NRC and other applicable requirements.

Allowance for Funds Used During Construction and Interest Capitalized

The traditional electric operating companies and certain of the natural gas distribution utilities record AFUDC, which represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new regulated facilities. While cash is not realized currently, AFUDC increases the revenue requirement and is recovered over the service life of the plant through a higher rate base and higher depreciation. The equity component of AFUDC is not included in calculating taxable income. Interest related to the construction of new facilities not included in the traditional electric operating companies' and natural gas distribution utilities' regulated rates is capitalized in accordance with standard interest capitalization requirements. AFUDC and interest capitalized, net of income taxes were 11.4%, 12.8%, and 16.0% of net income for 2016, 2015, and 2014, respectively.

Cash payments for interest totaled $1.1 billion, $809 million, and $732 million in 2016, 2015, and 2014, respectively, net of amounts capitalized of $125 million, $124 million, and $111 million, respectively.

Impairment of Long-Lived Assets

Southern Company evaluates long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The determination of whether an impairment has occurred is based on either a specific regulatory disallowance or an estimate of undiscounted future cash flows attributable to the assets, as compared with the carrying value of the assets. If an impairment has occurred, the amount of the impairment recognized is determined by either the amount of regulatory disallowance or by estimating the fair value of the assets and recording a loss if the carrying value is greater than the fair value. For assets identified as held for sale, the carrying value is compared to the estimated fair value less the cost to sell in order to determine if an impairment loss is required. Until the assets are disposed of, their estimated fair value is re-evaluated when circumstances or events change. See Note 3 under "Integrated Coal Gasification Combined Cycle – Kemper IGCC Schedule and Cost Estimate" for additional information.

Goodwill and Other Intangible Assets and Liabilities

At December 31, 2016 and 2015, goodwill was $6.3 billion and $2 million, respectively. The increase in goodwill relates to Southern Company's acquisitions of PowerSecure and Southern Company Gas. See Note 12 under "Southern Company – Acquisition of PowerSecure" and " – Merger with Southern Company Gas" for additional information.

Goodwill is not amortized, but is subject to an annual impairment test during the fourth quarter of each year, or more frequently if impairment indicators arise. Southern Company evaluated its goodwill in the fourth quarter 2016 and determined that no impairment was required.

At December 31, 2016, other intangible assets were as follows:



	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization			Other Intangible Assets, Net
		(in millions)
Other intangible assets subject to amortization:
Customer relationships	11-26 years	$	268	$	(32	)	$	236
Trade names	5-28 years	158		(5		)	153
Patents	3-10 years	4		—			4
Backlog	5 years	5		(1		)	4
Storage and transportation contracts	1-5 years	64		(2		)	62
Software and other	1-12 years	2		—			2
PPA fair value adjustments	19-20 years	456		(22		)	434
Total other intangible assets subject to amortization		$	957	$	(62	)	$	895
Other intangible assets not subject to amortization:
Federal Communications Commission licenses		75		—			75
Total other intangible assets		$	1,032	$	(62	)	$	970

At December 31, 2015, other intangible assets consisted of Southern Power's PPA fair value adjustments with a net carrying amount of $317 million. The increase in other intangible assets primarily relates to Southern Company's acquisitions of PowerSecure and Southern Company Gas, as well as additional PPA fair value adjustments resulting from Southern Power's acquisitions.

Amortization associated with other intangible assets in 2016, 2015, and 2014 was $50 million, $3 million, and $3 million, respectively.

As of December 31, 2016, the estimated amortization associated with other intangible assets is as follows:



	Amortization
	(in millions)
2017	$	108
2018	93
2019	74
2020	63
2021	56

Included in other deferred credits and liabilities on the balance sheet is $91 million of intangible liabilities that were recorded during acquisition accounting for transportation contracts at Southern Company Gas. At December 31, 2016, the accumulated amortization of these intangible liabilities was $21 million. The estimated amortization associated with the intangible liabilities that will be recorded in natural gas revenues is as follows:



	Amortization
	(in millions)
2017	$	29
2018	24
2019	17

See Note 12 under "Southern Company – Acquisition of PowerSecure" and " – Merger with Southern Company Gas" for additional information. Also see Note 12 under "Southern Power" for additional information regarding Southern Power's PPA fair value adjustments.

Storm Damage Reserves

Each traditional electric operating company maintains a reserve to cover or is allowed to defer and recover the cost of damages from major storms to its transmission and distribution lines and generally the cost of uninsured damages to its generation facilities and other property. In accordance with their respective state PSC orders, the traditional electric operating companies accrued $40 million in each of 2016, 2015, and 2014. Alabama Power, Gulf Power, and Mississippi Power also have authority based on orders from their state PSCs to accrue certain additional amounts as circumstances warrant. In 2016, 2015, and 2014, there were no such additional accruals. See Note 3 under "Regulatory Matters – Alabama Power – Rate NDR" and "Regulatory Matters – Georgia Power – Storm Damage Recovery" for additional information regarding Alabama Power's NDR and Georgia Power's deferred storm costs, respectively.

Leveraged Leases

Southern Company has several leveraged lease agreements, with original terms ranging up to 45 years, which relate to international and domestic energy generation, distribution, and transportation assets. Southern Company receives federal income tax deductions for depreciation and amortization, as well as interest on long-term debt related to these investments. Southern Company reviews all important lease assumptions at least annually, or more frequently if events or changes in circumstances indicate that a change in assumptions has occurred or may occur. These assumptions include the effective tax rate, the residual value, the credit quality of the lessees, and the timing of expected tax cash flows.

Southern Company's net investment in domestic and international leveraged leases consists of the following at December 31:



	2016			2015
	(in millions)
Net rentals receivable	$	1,481		$	1,487
Unearned income	(707		)	(732		)
Investment in leveraged leases	774			755
Deferred taxes from leveraged leases	(309		)	(303		)
Net investment in leveraged leases	$	465		$	452

A summary of the components of income from the leveraged leases follows:



	2016			2015			2014
	(in millions)
Pretax leveraged lease income	$	25		$	20		$	24
Income tax expense	(9		)	(7		)	(9		)
Net leveraged lease income	$	16		$	13		$	15

Cash and Cash Equivalents

For purposes of the financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less.

Materials and Supplies

Generally, materials and supplies include the average cost of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, at weighted average cost when installed.

Fuel Inventory

Fuel inventory includes the average cost of coal, natural gas, oil, transportation, and emissions allowances of the electric utilities. Fuel is recorded to inventory when purchased and then expensed, at weighted average cost, as used and recovered by the traditional electric operating companies through fuel cost recovery rates approved by each state PSC. Emissions allowances granted by the EPA are included in inventory at zero cost.

Natural Gas for Sale

The natural gas distribution utilities, with the exception of Nicor Gas, carry natural gas inventory on a weighted average cost of gas (WACOG) basis.

Nicor Gas' natural gas inventory is carried at cost on a last-in, first-out (LIFO) basis. Inventory decrements occurring during the year that are restored prior to year-end are charged to cost of natural gas at the estimated annual replacement cost. Inventory decrements that are not restored prior to year-end are charged to cost of natural gas at the actual LIFO cost of the inventory layers liquidated. The cost of natural gas, including inventory costs, is recovered from customers under a purchased gas recovery mechanism adjusted for differences between actual costs and amounts billed; therefore, LIFO liquidations have no impact on Southern Company's net income.

Natural gas inventories for Southern Company Gas' non-utility businesses are carried at the lower of weighted average cost or current market price, with cost determined on a WACOG basis. For any declines in market prices below the WACOG considered to be other than temporary, an adjustment is recorded to reduce the value of natural gas inventories to market value.

Financial Instruments

Southern Company and its subsidiaries use derivative financial instruments to limit exposure to fluctuations in interest rates, the prices of certain fuel purchases, electricity purchases and sales, and occasionally foreign currency exchange rates. All derivative financial instruments are recognized as either assets or liabilities on the balance sheets (included in "Other" or shown separately as "Risk Management Activities") and are measured at fair value. See Note 10 for additional information regarding fair value. Substantially all of the Southern Company system's bulk energy purchases and sales contracts that meet the definition of a derivative are excluded from fair value accounting requirements because they qualify for the "normal" scope exception, and are accounted for under the accrual method. Derivative contracts that qualify as cash flow hedges of anticipated transactions or are recoverable through the traditional electric operating companies' and the natural gas distribution utilities' fuel-hedging programs result in the deferral of related gains and losses in OCI or regulatory assets and liabilities, respectively, until the hedged transactions occur. Any ineffectiveness arising from cash flow hedges is recognized currently in net income. Other derivative contracts that qualify as fair value hedges are marked to market through current period income and are recorded on a net basis in the statements of income. Cash flows from derivatives are classified on the statements of cash flows in the same category as the hedged item. See Note 11 for additional information regarding derivatives.

Beginning in 2016, the Company offsets fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a master netting arrangement. At December 31, 2016, the amount included in accounts payable in the balance sheets that the Company has recognized for the obligation to return cash collateral arising from derivative instruments was immaterial.

Southern Company is exposed to losses related to financial instruments in the event of counterparties' nonperformance. The Company has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate the Company's exposure to counterparty credit risk.

Comprehensive Income

The objective of comprehensive income is to report a measure of all changes in common stock equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners. Comprehensive income consists of net income, changes in the fair value of qualifying cash flow hedges and marketable securities, certain changes in pension and other postretirement benefit plans, reclassifications for amounts included in net income, and dividends on preferred and preference stock of subsidiaries.

Accumulated OCI (loss) balances, net of tax effects, were as follows:



	Qualifying Hedges			Marketable Securities		Pension and Other Postretirement Benefit Plans			Accumulated Other Comprehensive Income (Loss)
	(in millions)
Balance at December 31, 2015	$	(48	)	$	—	$	(82	)	$	(130	)
Current period change	(67		)	—		17			(50		)
Balance at December 31, 2016	$	(115	)	$	—	$	(65	)	$	(180	)

Alabama Power [Member]

Summary of Significant Accounting Policies [Line Items]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Alabama Power Company (the Company) is a wholly-owned subsidiary of Southern Company, which is the parent company of the Company and three other traditional electric operating companies, Southern Power, Southern Company Gas (as of July 1, 2016), SCS, Southern LINC, Southern Company Holdings, Inc. (Southern Holdings), Southern Nuclear, PowerSecure, Inc. (PowerSecure) (as of May 9, 2016), and other direct and indirect subsidiaries. The traditional electric operating companies – the Company, Georgia Power, Gulf Power, and Mississippi Power – are vertically integrated utilities providing electric service in four Southeastern states. The Company provides electric service to retail and wholesale customers within its traditional service territory located in the State of Alabama in addition to wholesale customers in the Southeast. Southern Power constructs, acquires, owns, and manages generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. Southern Company Gas distributes natural gas through utilities in seven states and is involved in several other complementary businesses including gas marketing services, wholesale gas services, and gas midstream operations. SCS, the system service company, provides, at cost, specialized services to Southern Company and its subsidiary companies. Southern LINC provides digital wireless communications for use by Southern Company and its subsidiary companies and also markets these services to the public and provides fiber cable services within the Southeast. Southern Holdings is an intermediate holding company subsidiary, primarily for Southern Company's investments in leveraged leases and for other electric services. Southern Nuclear operates and provides services to the Southern Company system's nuclear power plants, including the Company's Plant Farley. PowerSecure is a provider of products and services in the areas of distributed generation, energy efficiency, and utility infrastructure.

The equity method is used for subsidiaries in which the Company has significant influence but does not control and for variable interest entities (VIEs) where the Company has an equity investment, but is not the primary beneficiary.

The Company is subject to regulation by the FERC and the Alabama PSC. As such, the Company's financial statements reflect the effects of rate regulation in accordance with GAAP and comply with the accounting policies and practices prescribed by its regulatory commissions. The preparation of financial statements in conformity with GAAP requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements have been reclassified to conform to the current year presentation.

Recently Issued Accounting Standards

While the Company expects most of its revenue to be included in the scope of ASC 606, it has not fully completed its evaluation of such arrangements. The majority of the Company's revenue, including energy provided to customers, is from tariff offerings that provide electricity without a defined contractual term. For such arrangements, the Company generally expects that the revenue from contracts with these customers will continue to be equivalent to the electricity supplied and billed in that period (including unbilled revenues) and the adoption of ASC 606 will not result in a significant shift in the timing of revenue recognition for such sales.

The Company's ongoing evaluation of other revenue streams and related contracts includes longer term contractual commitments and unregulated sales to customers. Some revenue arrangements, such as certain PPAs and alternative revenue programs, are expected to be excluded from the scope of ASC 606 and therefore, be accounted for and presented separately from revenues under ASC 606 on the Company's financial statements. In addition, the power and utilities industry is currently addressing other specific industry issues, including the applicability of ASC 606 to contributions in aid of construction (CIAC). If final implementation guidance indicates CIAC will be accounted for under ASC 606 and offsetting regulatory treatment is not permitted, it could have a material impact on the Company's financial statements.

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires lessees to recognize on the balance sheet a lease liability and a right-of-use asset for all leases. ASU 2016-02 also changes the recognition, measurement, and presentation of expense associated with leases and provides clarification regarding the identification of certain components of contracts that would represent a lease. The accounting required by lessors is relatively unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the new standard and has not yet determined its ultimate impact; however, adoption of ASU 2016-02 is expected to have a significant impact on the Company's balance sheet.

On March 30, 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 changes the accounting for income taxes and the cash flow presentation for share-based payment award transactions effective for fiscal years beginning after December 15, 2016. The new guidance requires all excess tax benefits and deficiencies related to the exercise or vesting of stock compensation to be recognized as income tax expense or benefit in the income statement. Previously, the Company recognized any excess tax benefits and deficiencies related to the exercise and vesting of stock compensation as additional paid-in capital. In addition, the new guidance requires excess tax benefits for share-based payments to be included in net cash provided from operating activities rather than net cash provided from financing activities on the statement of cash flows. The Company elected to adopt the guidance in 2016 and reflect the related adjustments as of January 1, 2016. Prior year's data presented in the financial statements has not been adjusted. The Company also elected to recognize forfeitures as they occur. The new guidance did not have a material impact on the results of operations, financial position, or cash flows of the Company. See Notes 5, 8, and 12 for disclosures impacted by ASU 2016-09.

On October 24, 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). Current GAAP prohibits the recognition of current and deferred income taxes for an affiliate asset transfer until the asset has been sold to an outside party. ASU 2016-16 requires an entity to recognize the income tax consequences of an affiliate transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The amendments will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently assessing the impact of the standard on its financial statements and has not yet determined its ultimate impact.

Affiliate Transactions

The Company has an agreement with SCS under which the following services are rendered to the Company at direct or allocated cost: general and design engineering, operations, purchasing, accounting, finance and treasury, tax, information technology, marketing, auditing, insurance and pension administration, human resources, systems and procedures, digital wireless communications, and other services with respect to business and operations, construction management, and power pool transactions. Costs for these services amounted to $460 million, $438 million, and $400 million during 2016, 2015, and 2014, respectively. Cost allocation methodologies used by SCS prior to the repeal of the Public Utility Holding Company Act of 1935, as amended, were approved by the SEC. Subsequently, additional cost allocation methodologies have been reported to the FERC and management believes they are reasonable. The FERC permits services to be rendered at cost by system service companies.

The Company has an agreement with Southern Nuclear under which the following nuclear-related services are rendered to the Company at cost: general executive and advisory services, general operations, management and technical services, administrative services including procurement, accounting, employee relations, systems and procedures services, strategic planning and budgeting services, and other services with respect to business and operations. Costs for these services amounted to $249 million, $243 million, and $234 million during 2016, 2015, and 2014, respectively.

The Company jointly owns Plant Greene County with Mississippi Power. The Company has an agreement with Mississippi Power under which the Company operates Plant Greene County, and Mississippi Power reimburses the Company for its proportionate share of non-fuel expenses, which totaled $13 million in 2016, $11 million in 2015, and $13 million in 2014. Mississippi Power also reimbursed the Company for any direct fuel purchases delivered from one of the Company's transfer facilities. There were no fuel purchases in 2016. Fuel purchases were $8 million and $34 million in 2015 and 2014, respectively. See Note 4 for additional information.

The Company has an agreement with Gulf Power under which the Company made transmission system upgrades to ensure firm delivery of energy under a non-affiliate PPA from a combined cycle plant located in Autauga County, Alabama. Under a related tariff, the Company received $12 million in 2016, $14 million in 2015, and $12 million in 2014 and expects to recover a total of approximately $73 million from 2017 through 2023 from Gulf Power.

On September 1, 2016, Southern Company Gas acquired a 50% equity interest in Southern Natural Gas Company, L.L.C. (SNG). Prior to completion of the acquisition, SCS, as agent for the Company, had entered into a long-term interstate natural gas transportation agreement with SNG. The interstate transportation service provided to the Company by SNG pursuant to this agreement is governed by the terms and conditions of SNG's natural gas tariff and is subject to FERC regulation. For the period subsequent to Southern Company Gas' investment in SNG through December 31, 2016, transportation costs under this agreement were approximately $2 million.

The Company provides incidental services to and receives such services from other Southern Company subsidiaries which are generally minor in duration and amount. Except as described herein, the Company neither provided nor received any material services to or from affiliates in 2016, 2015, or 2014.

Also, see Note 4 for information regarding the Company's ownership in a PPA and a gas pipeline ownership agreement with SEGCO.

The traditional electric operating companies, including the Company and Southern Power, may jointly enter into various types of wholesale energy, natural gas, and certain other contracts, either directly or through SCS as agent. Each participating company may be jointly and severally liable for the obligations incurred under these agreements. See Note 7 under "Fuel and Purchased Power Agreements" for additional information.

Regulatory Assets and Liabilities

The Company is subject to accounting requirements for the effects of rate regulation. Regulatory assets represent probable future revenues associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process.

Regulatory assets and (liabilities) reflected in the balance sheets at December 31 relate to:



	2016			2015			Note
	(in millions)
Retiree benefit plans	$	947		$	903		(i,j)
Deferred income tax charges	526			522			(a,k)
Under/(over) recovered regulatory clause revenues	76			(97		)	(d)
Nuclear outage	70			53			(d)
Remaining net book value of retired assets	69			76			(l)
Vacation pay	69			66			(c,j)
Loss on reacquired debt	68			75			(b)
Other regulatory assets	50			53			(f)
Asset retirement obligations	12			(40		)	(a)
Fuel-hedging losses	1			55			(e,j)
Other cost of removal obligations	(684		)	(722		)	(a)
Natural disaster reserve	(69		)	(75		)	(h)
Deferred income tax credits	(65		)	(70		)	(a)
Other regulatory liabilities	(23		)	(8		)	(e,g)
Total regulatory assets (liabilities), net	$	1,047		$	791

Note: The recovery and amortization periods for these regulatory assets and (liabilities) are as follows:


(a)	Asset retirement and removal assets and liabilities are recorded, deferred income tax assets are recovered, and deferred income tax liabilities are amortized over the related property lives, which may range up to 50 years. Asset retirement and other cost of removal assets and liabilities will be settled and trued up following completion of the related activities.


(b)	Recovered over the remaining life of the original issue, which may range up to 50 years.


(c)	Recorded as earned by employees and recovered as paid, generally within one year. This includes both vacation and banked holiday pay.


(d)	Recorded and recovered or amortized as approved or accepted by the Alabama PSC over periods not exceeding 10 years. See Note 3 under "Retail Regulatory Matters" for additional information.


(e)	Fuel-hedging assets and liabilities are recorded over the life of the underlying hedged purchase contracts, which generally do not exceed three and a half years. Upon final settlement, actual costs incurred are recovered through the energy cost recovery clause.


(f)	Comprised of components including generation site selection/evaluation costs, PPA capacity (to be recovered over the next 12 months), and other miscellaneous assets. Recorded as accepted by the Alabama PSC. Capitalized upon initialization of related construction projects, if applicable.


(g)	Comprised of components including mine reclamation and remediation liabilities and fuel-hedging gains. Recorded as accepted by the Alabama PSC. Mine reclamation and remediation liabilities will be settled following completion of the related activities.


(h)	Utilized as storm restoration and potential reliability-related expenses are incurred, as approved by the Alabama PSC.


(i)	Recovered and amortized over the average remaining service period which may range up to 15 years. See Note 2 for additional information.


(j)	Not earning a return as offset in rate base by a corresponding asset or liability.


(k)	Included in the deferred income tax charges are $16 million for 2016 and $17 million for 2015 for the retiree Medicare drug subsidy, which is recovered and amortized, as approved by the Alabama PSC, over the average remaining service period which may range up to 15 years.


(l)	Recorded and amortized as approved by the Alabama PSC for a period up to 11 years.

In the event that a portion of the Company's operations is no longer subject to applicable accounting rules for rate regulation, the Company would be required to write off to income or reclassify to accumulated OCI related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine if any impairment to other assets, including plant, exists and write down the assets, if impaired, to their fair values. All regulatory assets and liabilities are to be reflected in rates. See Note 3 under "Retail Regulatory Matters" for additional information.

Revenues

Wholesale capacity revenues from PPAs are recognized either on a levelized basis over the appropriate contract period or the amount billable under the contract terms. Energy and other revenues are recognized as services are provided. Unbilled revenues related to retail sales are accrued at the end of each fiscal period. Electric rates for the Company include provisions to adjust billings for fluctuations in fuel costs, fuel hedging, the energy component of purchased power costs, and certain other costs. Revenues are adjusted for differences between these actual costs and amounts billed in current regulated rates. Under or over recovered regulatory clause revenues are recorded in the balance sheets and are recovered or returned to customers through adjustments to the billing factors. The Company and the Alabama PSC continuously monitor the under/over recovered balances. The Company files for revised rates as required or when management deems appropriate, depending on the rate. See Note 3 under "Retail Regulatory Matters – Rate ECR" and "Retail Regulatory Matters – Rate CNP Compliance" for additional information.

The Company has a diversified base of customers. No single customer or industry comprises 10% or more of revenues. For all periods presented, uncollectible accounts averaged less than 1% of revenues.

Fuel Costs

Income and Other Taxes

The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Federal ITCs utilized are deferred and amortized to income over the average life of the related property. Taxes that are collected from customers on behalf of governmental agencies to be remitted to these agencies are presented net on the statements of income.

The Company recognizes tax positions that are "more likely than not" of being sustained upon examination by the appropriate taxing authorities. See Note 5 under "Unrecognized Tax Benefits" for additional information.

Property, Plant, and Equipment

The Company's property, plant, and equipment in service consisted of the following at December 31:



	2016		2015
	(in millions)
Generation	$	13,551	$	12,820
Transmission	3,921		3,773
Distribution	6,707		6,432
General	1,840		1,713
Plant acquisition adjustment	12		12
Total plant in service	$	26,031	$	24,750

The cost of replacements of property, exclusive of minor items of property, is capitalized. The cost of maintenance, repairs, and replacement of minor items of property is charged to other operations and maintenance expenses as incurred or performed with the exception of nuclear refueling costs, which are recorded in accordance with specific Alabama PSC orders.

Nuclear Outage Accounting Order

In accordance with an Alabama PSC order, nuclear outage operations and maintenance expenses for the two units at Plant Farley are deferred to a regulatory asset when the charges actually occur and are then amortized over a subsequent 18-month period with the fall outage costs amortization beginning in January of the following year and the spring outage costs amortization beginning in July of the same year.

Depreciation and Amortization

Depreciation of the original cost of utility plant in service is provided primarily by using composite straight-line rates, which approximated 3.0% in 2016, 2.9% in 2015, and 3.3% in 2014. Depreciation studies are conducted periodically to update the composite rates and the information is provided to the Alabama PSC and approved by the FERC. When property subject to composite depreciation is retired or otherwise disposed of in the normal course of business, its original cost, together with the cost of removal, less salvage, is charged to accumulated depreciation. For other property dispositions, the applicable cost and accumulated depreciation are removed from the balance sheet accounts, and a gain or loss is recognized. Minor items of property included in the original cost of the plant are retired when the related property unit is retired.

In 2016, the Company submitted an updated depreciation study to the FERC and received authorization to use the recommended rates beginning January 2017. The study was also provided to the Alabama PSC. The revised rates will not have a significant impact on depreciation expense in 2017.

Asset Retirement Obligations and Other Costs of Removal

AROs are computed as the present value of the estimated ultimate costs for an asset's future retirement and are recorded in the period in which the liability is incurred. The costs are capitalized as part of the related long-lived asset and depreciated over the asset's useful life. In the absence of quoted market prices, AROs are estimated using present value techniques in which estimates of future cash outlays associated with the asset retirements are discounted using a credit-adjusted risk-free rate. Estimates of the timing and amounts of future cash outlays are based on projections of when and how the assets will be retired and the cost of future removal activities. The Company has received accounting guidance from the Alabama PSC allowing the continued accrual of other future retirement costs for long-lived assets that the Company does not have a legal obligation to retire. Accordingly, the accumulated removal costs for these obligations are reflected in the balance sheets as a regulatory liability.

The liability for AROs primarily relates to the decommissioning of the Company's nuclear facility, Plant Farley, and facilities that are subject to the Disposal of Coal Combustion Residuals from Electric Utilities final rule published by the EPA in April 2015 (CCR Rule), principally ash ponds. In addition, the Company has retirement obligations related to various landfill sites, underground storage tanks, asbestos removal related to ongoing repair and maintenance, disposal of polychlorinated biphenyls in certain transformers, and disposal of sulfur hexafluoride gas in certain substation breakers. The Company also has identified retirement obligations related to certain transmission and distribution facilities, asbestos containing material within long-term assets not subject to ongoing repair and maintenance activities, and certain wireless communication towers. However, liabilities for the removal of these assets have not been recorded because the settlement timing for the retirement obligations related to these assets is indeterminable and, therefore, the fair value of the retirement obligations cannot be reasonably estimated. A liability for these AROs will be recognized when sufficient information becomes available to support a reasonable estimation of the ARO. The Company will continue to recognize in the statements of income allowed removal costs in accordance with its regulatory treatment. Any differences between costs recognized in accordance with accounting standards related to asset retirement and environmental obligations and those reflected in rates are recognized as either a regulatory asset or liability, as ordered by the Alabama PSC, and are reflected in the balance sheets. See "Nuclear Decommissioning" herein for additional information on amounts included in rates.

Details of the AROs included in the balance sheets are as follows:



	2016			2015
	(in millions)
Balance at beginning of year	$	1,448		$	829
Liabilities incurred	5			402
Liabilities settled	(25		)	(3		)
Accretion	73			53
Cash flow revisions	32			167
Balance at end of year	$	1,533		$	1,448

The increase in liabilities incurred and cash flow revisions in 2016 and 2015 are primarily related to changes in ash pond closure strategy.

The cost estimates for AROs related to the CCR Rule are based on information as of December 31, 2016 using various assumptions related to closure and post-closure costs, timing of future cash outlays, inflation and discount rates, and the potential methods for complying with the CCR Rule requirements for closure in place. As further analysis is performed, including evaluation of the expected method of compliance, refinement of assumptions underlying the cost estimates, such as the quantities of CCR at each site, and the determination of timing with respect to compliance activities, including the potential for closing ash ponds prior to the end of their currently anticipated useful life, the Company expects to continue to periodically update these estimates.

Nuclear Decommissioning

The NRC requires licensees of commercial nuclear power reactors to establish a plan for providing reasonable assurance of funds for future decommissioning. The Company has external trust funds (Funds) to comply with the NRC's regulations. Use of the Funds is restricted to nuclear decommissioning activities. The Funds are managed and invested in accordance with applicable requirements of various regulatory bodies, including the NRC, the FERC, and the Alabama PSC, as well as the IRS. While the Company is allowed to prescribe an overall investment policy to the Funds' managers, the Company and its affiliates are not allowed to engage in the day-to-day management of the Funds or to mandate individual investment decisions. Day-to-day management of the investments in the Funds is delegated to unrelated third party managers with oversight by the management of the Company. The Funds' managers are authorized, within certain investment guidelines, to actively buy and sell securities at their own discretion in order to maximize the return on the Funds' investments. The Funds are invested in a tax-efficient manner in a diversified mix of equity and fixed income securities and are reported as trading securities.

The Company records the investment securities held in the Funds at fair value, as disclosed in Note 10, as management believes that fair value best represents the nature of the Funds. Gains and losses, whether realized or unrealized, are recorded in the regulatory liability for AROs in the balance sheets and are not included in net income or OCI. Fair value adjustments and realized gains and losses are determined on a specific identification basis.

At December 31, 2016, investment securities in the Funds totaled $790 million, consisting of equity securities of $552 million, debt securities of $208 million, and $30 million of other securities. At December 31, 2015, investment securities in the Funds totaled $734 million, consisting of equity securities of $521 million, debt securities of $191 million, and $22 million of other securities. These amounts exclude receivables related to investment income and pending investment sales and payables related to pending investment purchases.

Sales of the securities held in the Funds resulted in cash proceeds of $351 million, $438 million, and $244 million in 2016, 2015, and 2014, respectively, all of which were reinvested. For 2016, fair value increases, including reinvested interest and dividends and excluding the Funds' expenses, were $76 million, which included $34 million related to unrealized gains on securities held in the Funds at December 31, 2016. For 2015, fair value increases, including reinvested interest and dividends and excluding the Funds' expenses, were $8 million, which included $57 million related to unrealized losses on securities held in the Funds at December 31, 2015. For 2014, fair value increases, including reinvested interest and dividends and excluding the Funds' expenses, were $54 million, which included $19 million related to unrealized gains on securities held in the Funds at December 31, 2014. While the investment securities held in the Funds are reported as trading securities, the Funds continue to be managed with a long-term focus. Accordingly, all purchases and sales within the Funds are presented separately in the statements of cash flows as investing cash flows, consistent with the nature of the securities and purpose for which the securities were acquired.

Amounts previously recorded in internal reserves are being transferred into the Funds through 2040 as approved by the Alabama PSC. The NRC's minimum external funding requirements are based on a generic estimate of the cost to decommission only the radioactive portions of a nuclear unit based on the size and type of reactor. The Company has filed a plan with the NRC designed to ensure that, over time, the deposits and earnings of the Funds will provide the minimum funding amounts prescribed by the NRC.

At December 31, the accumulated provisions for decommissioning were as follows:



	2016		2015
	(in millions)
External trust funds	$	790	$	734
Internal reserves	19		20
Total	$	809	$	754

Site study cost is the estimate to decommission a facility as of the site study year. The estimated costs of decommissioning as of December 31, 2016 based on the most current study performed in 2013 for Plant Farley are as follows:



Decommissioning periods:
Beginning year	2037
Completion year	2076
	(in millions)
Site study costs:
Radiated structures	$	1,362
Non-radiated structures	80
Total site study costs	$	1,442

The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The actual decommissioning costs may vary from the above estimates because of changes in the assumed date of decommissioning, changes in NRC requirements, or changes in the assumptions used in making these estimates.

For ratemaking purposes, the Company's decommissioning costs are based on the site study. Significant assumptions used to determine these costs for ratemaking were an inflation rate of 4.5% and a trust earnings rate of 7.0%. The next site study is expected to be conducted in 2018.

Amounts previously contributed to the Funds are currently projected to be adequate to meet the decommissioning obligations. The Company will continue to provide site-specific estimates of the decommissioning costs and related projections of funds in the external trust to the Alabama PSC and, if necessary, would seek the Alabama PSC's approval to address any changes in a manner consistent with NRC and other applicable requirements.

Allowance for Funds Used During Construction

The Company records AFUDC, which represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new regulated facilities. While cash is not realized currently, AFUDC increases the revenue requirement and is recovered over the service life of the plant through a higher rate base and higher depreciation. The equity component of AFUDC is not included in calculating taxable income. All current construction costs are included in retail rates. The AFUDC composite rate as of December 31 was 8.4% in 2016, 8.7% in 2015, and 8.8% in 2014. AFUDC, net of income taxes, as a percent of net income after dividends on preferred and preference stock was 4.2% in 2016, 9.3% in 2015, and 7.9% in 2014.

Impairment of Long-Lived Assets and Intangibles

The Company evaluates long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The determination of whether an impairment has occurred is based on either a specific regulatory disallowance or an estimate of undiscounted future cash flows attributable to the assets, as compared with the carrying value of the assets. If an impairment has occurred, the amount of the impairment recognized is determined by either the amount of regulatory disallowance or by estimating the fair value of the assets and recording a loss if the carrying value is greater than the fair value. For assets identified as held for sale, the carrying value is compared to the estimated fair value less the cost to sell in order to determine if an impairment loss is required. Until the assets are disposed of, their estimated fair value is re-evaluated when circumstances or events change.

Cash and Cash Equivalents

For purposes of the financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less.

Materials and Supplies

Fuel Inventory

Fuel inventory includes the average cost of coal, natural gas, oil, transportation, and emissions allowances. Fuel is recorded to inventory when purchased and then expensed, at weighted average cost, as used and recovered by the Company through energy cost recovery rates approved by the Alabama PSC. Emissions allowances granted by the EPA are included in inventory at zero cost.

Financial Instruments

The Company uses derivative financial instruments to limit exposure to fluctuations in interest rates, the prices of certain fuel purchases, and electricity purchases and sales. All derivative financial instruments are recognized as either assets or liabilities on the balance sheets (included in "Other") and are measured at fair value. See Note 10 for additional information regarding fair value. Substantially all of the Company's bulk energy purchases and sales contracts that meet the definition of a derivative are excluded from fair value accounting requirements because they qualify for the "normal" scope exception, and are accounted for under the accrual method. Derivative contracts that qualify as cash flow hedges of anticipated transactions or are recoverable through the Alabama PSC-approved fuel-hedging program result in the deferral of related gains and losses in OCI or regulatory assets and liabilities, respectively, until the hedged transactions occur. Any ineffectiveness arising from cash flow hedges is recognized currently in net income. Other derivative contracts that qualify as fair value hedges are marked to market through current period income and are recorded on a net basis in the statements of income. Cash flows from derivatives are classified on the statement of cash flows in the same category as the hedged item. See Note 11 for additional information regarding derivatives.

Beginning in 2016, the Company offsets fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a netting arrangement. Additionally, the Company had no outstanding collateral repayment obligations or rights to reclaim collateral arising from derivative instruments recognized at December 31, 2016.

The Company is exposed to losses related to financial instruments in the event of counterparties' nonperformance. The Company has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate the Company's exposure to counterparty credit risk.

Comprehensive Income

The objective of comprehensive income is to report a measure of all changes in common stock equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners. Comprehensive income consists of net income, changes in the fair value of qualifying cash flow hedges, and reclassifications for amounts included in net income.

Variable Interest Entities

The primary beneficiary of a VIE is required to consolidate the VIE when it has both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company has established a wholly-owned trust to issue preferred securities. See Note 6 under "Long-Term Debt Payable to an Affiliated Trust" for additional information. However, the Company is not considered the primary beneficiary of the trust. Therefore, the investment in the trust is reflected as other investments, and the related loan from the trust is reflected as long-term debt in the balance sheets.

Georgia Power [Member]

Summary of Significant Accounting Policies [Line Items]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Georgia Power Company (the Company) is a wholly-owned subsidiary of Southern Company, which is the parent company of the Company and three other traditional electric operating companies, as well as Southern Power, Southern Company Gas (as of July 1, 2016), SCS, Southern LINC, Southern Company Holdings, Inc. (Southern Holdings), Southern Nuclear, PowerSecure, Inc. (PowerSecure) (as of May 9, 2016), and other direct and indirect subsidiaries. The traditional electric operating companies – the Company, Alabama Power, Gulf Power, and Mississippi Power – are vertically integrated utilities providing electric service in four Southeastern states. The Company provides electric service to retail customers within its traditional service territory located within the State of Georgia and to wholesale customers in the Southeast. Southern Power constructs, acquires, owns, and manages generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. Southern Company Gas distributes natural gas through utilities in seven states and is involved in several other complementary businesses including gas marketing services, wholesale gas services, and gas midstream operations. SCS, the system service company, provides, at cost, specialized services to Southern Company and its subsidiary companies. Southern LINC provides digital wireless communications for use by Southern Company and its subsidiary companies and also markets these services to the public and provides fiber cable services within the Southeast. Southern Holdings is an intermediate holding company subsidiary, primarily for Southern Company's investments in leveraged leases and for other electric services. Southern Nuclear operates and provides services to the Southern Company system's nuclear power plants, including the Company's Plant Hatch and Plant Vogtle. PowerSecure is a provider of products and services in the areas of distributed generation, energy efficiency, and utility infrastructure.

The equity method is used for subsidiaries in which the Company has significant influence but does not control.

The Company is subject to regulation by the FERC and the Georgia PSC. As such, the Company's financial statements reflect the effects of rate regulation in accordance with GAAP and comply with the accounting policies and practices prescribed by its regulatory commissions. The preparation of financial statements in conformity with GAAP requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements have been reclassified to conform to the current year presentation.

In June 2015, the Company identified an error affecting the billing to a small number of large commercial and industrial customers under a rate plan allowing for variable demand-driven pricing from January 1, 2013 to June 30, 2015. In the second quarter 2015, the Company recorded an out of period adjustment of approximately $75 million to decrease retail revenues, resulting in a decrease to net income of approximately $47 million. The Company evaluated the effects of this error on the interim and annual periods that included the billing error. Based on an analysis of qualitative and quantitative factors, the Company determined the error was not material to any affected period and, therefore, an amendment of previously filed financial statements was not required.

Recently Issued Accounting Standards

The Company's ongoing evaluation of other revenue streams and related contracts includes longer term contractual commitments and unregulated sales to customers. Some revenue arrangements, such as certain PPAs and alternative revenue programs, are expected to be excluded from the scope of ASC 606 and therefore, be accounted for and presented separately from revenues under ASC 606 on the Company's financial statements. In addition, the power and utilities industry is currently addressing other specific industry issues, including the applicability of ASC 606 to contributions in aid of construction (CIAC). If final implementation guidance indicates CIAC will be accounted for under ASC 606 and offsetting regulatory treatment is not permitted, it is expected to have a material impact on the Company's financial statements.

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires lessees to recognize on the balance sheet a lease liability and a right-of-use asset for all leases. ASU 2016-02 also changes the recognition, measurement, and presentation of expense associated with leases and provides clarification regarding the identification of certain components of contracts that would represent a lease. The accounting required by lessors is relatively unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the new standard and has not yet determined its ultimate impact; however, adoption of ASU 2016-02 is expected to have a significant impact on the Company's balance sheet.

On March 30, 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 changes the accounting for income taxes and the cash flow presentation for share-based payment award transactions effective for fiscal years beginning after December 15, 2016. The new guidance requires all excess tax benefits and deficiencies related to the exercise or vesting of stock compensation to be recognized as income tax expense or benefit in the income statement. Previously, the Company recognized any excess tax benefits and deficiencies related to the exercise and vesting of stock compensation as additional paid-in capital. In addition, the new guidance requires excess tax benefits for share-based payments to be included in net cash provided from operating activities rather than net cash provided from financing activities on the statement of cash flows. The Company elected to adopt the guidance in 2016 and reflect the related adjustments as of January 1, 2016. Prior year's data presented in the financial statements has not been adjusted. The Company also elected to recognize forfeitures as they occur. The new guidance did not have a material impact on the results of operations, financial position, or cash flows of the Company. See Notes 5, 8, and 12 for disclosures impacted by ASU 2016-09.

On October 24, 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). Current GAAP prohibits the recognition of current and deferred income taxes for an affiliate asset transfer until the asset has been sold to an outside party. ASU 2016-16 requires an entity to recognize the income tax consequences of an affiliate transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The amendments will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently assessing the impact of the standard on its financial statements and has not yet determined its ultimate impact.

Affiliate Transactions

The Company has an agreement with SCS under which the following services are rendered to the Company at direct or allocated cost: general and design engineering, operations, purchasing, accounting, finance and treasury, tax, information technology, marketing, auditing, insurance and pension administration, human resources, systems and procedures, digital wireless communications, and other services with respect to business and operations, construction management, and power pool transactions. Costs for these services amounted to $606 million, $585 million, and $555 million in 2016, 2015, and 2014, respectively. Cost allocation methodologies used by SCS prior to the repeal of the Public Utility Holding Company Act of 1935, as amended, were approved by the SEC. Subsequently, additional cost allocation methodologies have been reported to the FERC and management believes they are reasonable. The FERC permits services to be rendered at cost by system service companies.

The Company has an agreement with Southern Nuclear under which the following nuclear-related services are rendered to the Company at cost: general executive and advisory services; general operations, management, and technical services; administrative services including procurement, accounting, employee relations, systems, and procedures services; strategic planning and budgeting services; and other services with respect to business, operations, and construction management. Costs for these services amounted to $666 million, $681 million, and $643 million in 2016, 2015, and 2014, respectively.

The Company has entered into several PPAs with Southern Power for capacity and energy. Expenses associated with these PPAs were $265 million, $179 million, and $144 million in 2016, 2015, and 2014, respectively. See Note 7 under "Fuel and Purchased Power Agreements" for additional information.

The Company has a joint ownership agreement with Gulf Power under which Gulf Power owns a 25% portion of Plant Scherer Unit 3. Under this agreement, the Company operates Plant Scherer Unit 3 and Gulf Power reimburses the Company for its 25% proportionate share of the related non-fuel expenses, which were $8 million, $12 million, and $9 million in 2016, 2015, and 2014, respectively. See Note 4 for additional information.

In 2014, prior to Southern Company's acquisition of PowerSecure on May 9, 2016, the Company entered into agreements with PowerSecure to build solar power generation facilities at two U.S. Army bases, as approved by the Georgia PSC. On October 4, 2016, the two facilities began commercial operation. Payments of approximately $118 million made by the Company to PowerSecure under the agreements since 2014 are included in utility plant in service at December 31, 2016.

Prior to Southern Company's acquisition of Southern Company Gas, SCS, as agent for the Company, had agreements with certain subsidiaries of Southern Company Gas to purchase natural gas. For the period subsequent to Southern Company's acquisition of Southern Company Gas through December 31, 2016, natural gas purchases made by the Company from Southern Company Gas' subsidiaries were approximately $10 million.

The traditional electric operating companies, including the Company, and Southern Power may jointly enter into various types of wholesale energy, natural gas, and certain other contracts, either directly or through SCS as agent. Each participating company may be jointly and severally liable for the obligations incurred under these agreements. See Note 7 under "Fuel and Purchased Power Agreements" for additional information.

Regulatory Assets and Liabilities

Regulatory assets and (liabilities) reflected in the balance sheets at December 31 relate to:



	2016			2015			Note
	(in millions)
Retiree benefit plans	$	1,348		$	1,307		(a, j)
Deferred income tax charges	681			683			(b, j)
Loss on reacquired debt	137			150			(c, j)
Asset retirement obligations	893			411			(b, j)
Vacation pay	91			91			(d, j)
Cancelled construction projects	44			56			(e)
Remaining net book value of retired assets	166			171			(f)
Storm damage reserves	206			92			(g)
Other regulatory assets	97			110			(h)
Other cost of removal obligations	3			(31		)	(b)
Deferred income tax credits	(121		)	(105		)	(b, j)
Other regulatory liabilities	(39		)	(2		)	(i, j)
Total regulatory assets (liabilities), net	$	3,506		$	2,933

Note: The recovery and amortization periods for these regulatory assets and (liabilities) are as follows:


(a)	Recovered and amortized over the average remaining service period which may range up to 13 years. See Note 2 for additional information.

(b)

Asset retirement and other cost of removal obligations and deferred income tax assets are recovered, and deferred income tax liabilities are amortized over the related property lives, which may range up to 70 years. Asset retirement and removal liabilities will be settled and trued up following completion of the related activities. Included in the deferred income tax assets is $26 million for the retiree Medicare drug subsidy, which is recovered and amortized, as approved by the Georgia PSC, through 2022.


(c)	Recovered over either the remaining life of the original issue or, if refinanced, over the remaining life of the new issue, which currently does not exceed 36 years.


(d)	Recorded as earned by employees and recovered as paid, generally within one year. This includes both vacation and banked holiday pay.


(e)	Costs associated with construction of environmental controls that will not be completed as a result of unit retirements are being amortized as approved by the Georgia PSC over periods not exceeding nine years or through 2022.

(f)

Amortized as approved by the Georgia PSC over periods not exceeding 10 years or through 2024. The net book value of Plant Mitchell Unit 3 at December 31, 2016 was $12 million, which will continue to be amortized through December 31, 2019 as provided in the 2013 ARP. Amortization of the remaining net book value of Plant Mitchell Unit 3 at December 31, 2019, which is expected to be approximately $5 million, and $31 million related to obsolete inventories of certain retired units will be determined by the Georgia PSC in the 2019 base rate case. See Note 3 under "Retail Regulatory Matters – Integrated Resource Plan" for additional information.


(g)	Previous under-recovery as of December 2013 is recorded and recovered or amortized as approved by the Georgia PSC through 2019. Amortization of $185 million related to the under-recovery from January 2014 through December 2016 will be determined by the Georgia PSC in the 2019 base rate case. See Note 3 for additional information.

(h)

Comprised of several components including deferred nuclear outages, environmental remediation, building lease, and demand-side management tariff under-recovery. Deferred nuclear outages are recorded and recovered or amortized over the outage cycles of each nuclear unit, which does not exceed 24 months. The building lease is recorded and recovered or amortized as approved by the Georgia PSC through 2020. The amortization of environmental remediation and demand-side management tariff under-recovery of $46 million at December 31, 2016 will be determined by the Georgia PSC in the 2019 base rate case.


(i)	Comprised primarily of fuel-hedging gains, which upon final settlement are refunded through the Company's fuel cost recovery mechanism.


(j)	Generally not earning a return as they are excluded from rate base or are offset in rate base by a corresponding asset or liability.

Revenues

The Company has a diversified base of customers. No single customer or industry comprises 10% or more of revenues. For all periods presented, uncollectible accounts averaged less than 1% of revenues.

Fuel Costs

Income and Other Taxes

The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Taxes that are collected from customers on behalf of governmental agencies to be remitted to these agencies are presented net on the statements of income.

Federal ITCs utilized are deferred and amortized to income as a credit to reduce depreciation over the average life of the related property. The Company had $83 million in federal ITCs at December 31, 2016 that will expire by 2036. State ITCs are recognized in the period in which the credits are generated. The Company had state investment and other tax credit carryforwards totaling $345 million at December 31, 2016, which will expire between 2019 and 2027 and are expected to be fully utilized by 2023.

Property, Plant, and Equipment

Property, plant, and equipment is stated at original cost less any regulatory disallowances and impairments. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the cost of equity and debt funds used during construction.

The Company's property, plant, and equipment in service consisted of the following at December 31:



	2016		2015
	(in millions)
Generation	$	16,668	$	15,386
Transmission	5,779		5,355
Distribution	9,553		9,151
General	1,813		1,921
Plant acquisition adjustment	28		28
Total plant in service	$	33,841	$	31,841

The cost of replacements of property, exclusive of minor items of property, is capitalized. The cost of maintenance, repairs, and replacement of minor items of property is charged to other operations and maintenance expenses as incurred or performed with the exception of certain generating plant maintenance costs. As mandated by the Georgia PSC, the Company defers and amortizes nuclear refueling outage costs over the unit's operating cycle. The refueling cycles are 18 and 24 months for Plant Vogtle Units 1 and 2 and Plant Hatch Units 1 and 2, respectively.

Depreciation and Amortization

Depreciation of the original cost of utility plant in service is provided primarily by using composite straight-line rates, which approximated 2.8% in 2016, 2.7% in 2015, and 2.7% in 2014. Depreciation studies are conducted periodically to update the composite rates that are approved by the Georgia PSC and the FERC. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its original cost, together with the cost of removal, less salvage, is charged to accumulated depreciation. For other property dispositions, the applicable cost and accumulated depreciation are removed from the balance sheet accounts, and a gain or loss is recognized. Minor items of property included in the original cost of the plant are retired when the related property unit is retired.

Under the terms of the 2013 ARP, the Company amortized approximately $14 million in each of 2014, 2015, and 2016 of its remaining regulatory liability related to other cost of removal obligations.

Asset Retirement Obligations and Other Costs of Removal

AROs are computed as the present value of the estimated ultimate costs for an asset's future retirement and are recorded in the period in which the liability is incurred. The costs are capitalized as part of the related long-lived asset and depreciated over the asset's useful life. In the absence of quoted market prices, AROs are estimated using present value techniques in which estimates of future cash outlays associated with the asset retirements are discounted using a credit-adjusted risk-free rate. Estimates of the timing and amounts of future cash outlays are based on projections of when and how the assets will be retired and the cost of future removal activities. The Company has received accounting guidance from the Georgia PSC allowing the continued accrual and recovery of other retirement costs for long-lived assets that the Company does not have a legal obligation to retire. Accordingly, the accumulated removal costs for future obligations are reflected in the balance sheets as a regulatory liability and amounts to be recovered are reflected in the balance sheets as a regulatory asset.

The ARO liability primarily relates to the Company's ash ponds, landfills, and gypsum cells that are subject to the Disposal of Coal Combustion Residuals from Electric Utilities final rule published by the EPA in April 2015 (CCR Rule). In addition, the Company has retirement obligations related to decommissioning of the Company's nuclear facilities, which include the Company's ownership interests in Plant Hatch and Plant Vogtle Units 1 and 2, underground storage tanks, and asbestos removal. The Company also has identified retirement obligations related to certain transmission and distribution facilities, including the disposal of polychlorinated biphenyls in certain transformers; leasehold improvements; equipment on customer property; and property associated with the Company's rail lines and natural gas pipelines. However, liabilities for the removal of these assets have not been recorded because the settlement timing for the retirement obligations related to these assets is indeterminable and, therefore, the fair value of the retirement obligations cannot be reasonably estimated. A liability for these AROs will be recognized when sufficient information becomes available to support a reasonable estimation of the ARO. The Company will continue to recognize in the statements of income allowed removal costs in accordance with its regulatory treatment. Any differences between costs recognized in accordance with accounting standards related to asset retirement and environmental obligations and those reflected in rates are recognized as either a regulatory asset or liability in the balance sheets as ordered by the Georgia PSC. See "Nuclear Decommissioning" herein for additional information on amounts included in rates.

Details of the AROs included in the balance sheets are as follows:



	2016			2015
	(in millions)
Balance at beginning of year	$	1,916		$	1,255
Liabilities incurred	—			6
Liabilities settled	(123		)	(30		)
Accretion	77			56
Cash flow revisions	662			629
Balance at end of year	$	2,532		$	1,916

The increase in cash flow revisions in 2016 is primarily related to changes to the Company's closure strategy for ash ponds, landfills, and gypsum cells AROs.

The increase in cash flow revisions in 2015 is primarily related to changes to the Company's ash ponds, landfills, and gypsum cells ARO closure dollar and timing estimates associated with the CCR Rule and revisions to the nuclear decommissioning AROs based on the latest decommissioning study.

The cost estimates for AROs related to the CCR Rule are based on information as of December 31, 2016 using various assumptions related to closure and post-closure costs, timing of future cash outlays, inflation and discount rates, and the potential methods for complying with the CCR Rule requirements for closure. As further analysis is performed, including evaluation of the expected method of compliance, refinement of assumptions underlying the cost estimates, such as the quantities of CCR at each site, and the determination of timing with respect to compliance activities, including the potential for closing ash ponds prior to the end of their currently anticipated useful life, the Company expects to continue to periodically update these estimates.

Nuclear Decommissioning

The NRC requires licensees of commercial nuclear power reactors to establish a plan for providing reasonable assurance of funds for future decommissioning. The Company has external trust funds (Funds) to comply with the NRC's regulations. Use of the Funds is restricted to nuclear decommissioning activities. The Funds are managed and invested in accordance with applicable requirements of various regulatory bodies, including the NRC, the FERC, and the Georgia PSC, as well as the IRS. While the Company is allowed to prescribe an overall investment policy to the Funds' managers, the Company and its affiliates are not allowed to engage in the day-to-day management of the Funds or to mandate individual investment decisions. Day-to-day management of the investments in the Funds is delegated to unrelated third party managers with oversight by the management of the Company. The Funds' managers are authorized, within certain investment guidelines, to actively buy and sell securities at their own discretion in order to maximize the return on the Funds' investments. The Funds are invested in a tax-efficient manner in a diversified mix of equity and fixed income securities and are reported as trading securities.

The Funds participate in a securities lending program through the managers of the Funds. Under this program, the Funds' investment securities are loaned to institutional investors for a fee. Securities loaned are fully collateralized by cash, letters of credit, and/or securities issued or guaranteed by the U.S. government or its agencies or instrumentalities. As of December 31, 2016 and 2015, approximately $56 million and $76 million, respectively, of the fair market value of the Funds' securities were on loan and pledged to creditors under the Funds' managers' securities lending program. The fair value of the collateral received was approximately $58 million and $78 million at December 31, 2016 and 2015, respectively, and can only be sold by the borrower upon the return of the loaned securities. The collateral received is treated as a non-cash item in the statements of cash flows.

At December 31, 2016, investment securities in the Funds totaled $814 million, consisting of equity securities of $326 million, debt securities of $477 million, and $11 million of other securities. At December 31, 2015, investment securities in the Funds totaled $775 million, consisting of equity securities of $296 million, debt securities of $463 million, and $16 million of other securities. These amounts include the investment securities pledged to creditors and collateral received, and exclude receivables related to investment income and pending investment sales and payables related to pending investment purchases and the lending pool.

Sales of the securities held in the Funds resulted in cash proceeds of $803 million, $980 million, and $669 million in 2016, 2015, and 2014, respectively, all of which were reinvested. For 2016, fair value increases, including reinvested interest and dividends and excluding the Funds' expenses, were $38 million, which included $14 million related to unrealized gains on securities held in the Funds at December 31, 2016. For 2015, fair value increases, including reinvested interest and dividends and excluding the Funds' expenses, were $3 million, which included $26 million related to unrealized losses on securities held in the Funds at December 31, 2015. For 2014, fair value increases, including reinvested interest and dividends and excluding the Funds' expenses, were $44 million, which included an immaterial amount related to unrealized gains and losses on securities held in the Funds at December 31, 2014. While the investment securities held in the Funds are reported as trading securities, the Funds continue to be managed with a long-term focus. Accordingly, all purchases and sales within the Funds are presented separately in the statements of cash flows as investing cash flows, consistent with the nature of the securities and purpose for which the securities were acquired.

The NRC's minimum external funding requirements are based on a generic estimate of the cost to decommission only the radioactive portions of a nuclear unit based on the size and type of reactor. The Company has filed plans with the NRC designed to ensure that, over time, the deposits and earnings of the Funds will provide the minimum funding amounts prescribed by the NRC.

Site study cost is the estimate to decommission a specific facility as of the site study year. The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The actual decommissioning costs may vary from these estimates because of changes in the assumed date of decommissioning, changes in NRC requirements, or changes in the assumptions used in making these estimates. The estimated costs of decommissioning are based on the most current study performed in 2015. The site study costs and external trust funds for decommissioning as of December 31, 2016 based on the Company's ownership interests were as follows:



	Plant Hatch		Plant Vogtle Units 1 and 2
Decommissioning periods:
Beginning year	2034		2047
Completion year	2075		2079
	(in millions)
Site study costs:
Radiated structures	$	678	$	568
Spent fuel management	160		147
Non-radiated structures	64		89
Total site study costs	$	902	$	804
External trust funds	$	511	$	303

For ratemaking purposes, the Company's decommissioning costs are based on the NRC generic estimate to decommission the radioactive portion of the facilities and the site study estimate for spent fuel management as of 2012. Under the 2013 ARP, the Georgia PSC approved annual decommissioning cost for ratemaking of $4 million and $2 million for Plant Hatch and Plant Vogtle Units 1 and 2, respectively. Significant assumptions used to determine the costs for ratemaking include an estimated inflation rate of 2.4% and an estimated trust earnings rate of 4.4%. The Company expects the Georgia PSC to review and adjust, if necessary, the amounts collected in rates for nuclear decommissioning costs in the Company's 2019 base rate case.

Allowance for Funds Used During Construction

The Company records AFUDC, which represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new regulated facilities. While cash is not realized currently, AFUDC increases the revenue requirement and is recovered over the service life of the plant through a higher rate base and higher depreciation. The equity component of AFUDC is not included in calculating taxable income. For the years 2016, 2015, and 2014, the average AFUDC rates were 6.9%, 6.5%, and 5.6%, respectively, and AFUDC capitalized was $68 million, $56 million, and $62 million, respectively. AFUDC, net of income taxes, was 4.6%, 3.9%, and 4.6% of net income after dividends on preferred and preference stock for 2016, 2015, and 2014, respectively. See Note 3 under "Retail Regulatory Matters – Nuclear Construction" for additional information on the inclusion of construction costs related to Plant Vogtle Units 3 and 4 in rate base effective January 1, 2011.

Impairment of Long-Lived Assets and Intangibles

Storm Damage Recovery

The Company defers and recovers certain costs related to damages from major storms as mandated by the Georgia PSC. Beginning January 1, 2014, the Company is accruing $30 million annually under the 2013 ARP that is recoverable through base rates. As of December 31, 2016 and December 31, 2015, the balance in the regulatory asset related to storm damage was $206 million and $92 million, respectively, with approximately $30 million included in other regulatory assets, current for both years and approximately $176 million and $62 million included in other regulatory assets, deferred, respectively. The annual recovery amount is expected to be reviewed by the Georgia PSC and adjusted in future regulatory proceedings. As a result of this regulatory treatment, costs related to storms are generally not expected to have a material impact on the Company's earnings. See Note 3 under "Retail Regulatory Matters – Storm Damage Recovery" for additional information.

Environmental Remediation Recovery

The Company maintains a reserve for environmental remediation as mandated by the Georgia PSC. In December 2013, the Georgia PSC approved the 2013 ARP including the recovery of approximately $2 million annually through the environmental compliance cost recovery (ECCR) tariff. The Company recognizes a liability for environmental remediation costs only when it determines a loss is probable and reduces the reserve as expenditures are incurred. Any difference between the liabilities accrued and cost recovered through rates is deferred as a regulatory asset or liability. The annual recovery amount is expected to be reviewed by the Georgia PSC and adjusted in future regulatory proceedings. As a result of this regulatory treatment, environmental remediation liabilities generally are not expected to have a material impact on the Company's earnings. As of December 31, 2016, the balance of the environmental remediation liability was $17 million, with approximately $2 million included in other regulatory assets, current and approximately $33 million included as other regulatory assets, deferred. See Note 3 under "Environmental Matters – Environmental Remediation" for additional information.

Cash and Cash Equivalents

For purposes of the financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less.

Materials and Supplies

Fuel Inventory

Fuel inventory includes the average cost of coal, natural gas, and oil, as well as transportation and emissions allowances. Fuel is recorded to inventory when purchased and then expensed, at weighted average cost, as used and recovered by the Company through fuel cost recovery rates approved by the Georgia PSC. Emissions allowances granted by the EPA are included in inventory at zero cost.

Financial Instruments

The Company uses derivative financial instruments to limit exposure to fluctuations in interest rates, the prices of certain fuel purchases, and electricity purchases and sales. All derivative financial instruments are recognized as either assets or liabilities on the balance sheets (included in "Other") and are measured at fair value. See Note 10 for additional information regarding fair value. Substantially all of the Company's bulk energy purchases and sales contracts that meet the definition of a derivative are excluded from fair value accounting requirements because they qualify for the "normal" scope exception, and are accounted for under the accrual method. Derivative contracts that qualify as cash flow hedges of anticipated transactions or are recoverable through the Georgia PSC-approved fuel-hedging program result in the deferral of related gains and losses in OCI or regulatory assets and liabilities, respectively, until the hedged transactions occur. Any ineffectiveness arising from cash flow hedges is recognized currently in net income. Other derivative contracts that qualify as fair value hedges are marked to market through current period income and are recorded on a net basis in the statements of income. Cash flows from derivatives are classified on the statements of cash flows in the same category as the hedged item. See Note 11 for additional information regarding derivatives.

Beginning in 2016, the Company offsets fair value amounts recognized for multiple derivative instruments executed with the same counterparty under netting arrangements. Additionally, the Company had no outstanding collateral repayment obligations or rights to reclaim collateral arising from derivative instruments recognized at December 31, 2016.

Comprehensive Income

The objective of comprehensive income is to report a measure of all changes in common stock equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners. Comprehensive income consists of net income, changes in the fair value of qualifying cash flow hedges, and reclassifications for amounts included in net income.

Gulf Power [Member]

Summary of Significant Accounting Policies [Line Items]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Gulf Power Company (the Company) is a wholly-owned subsidiary of Southern Company, which is the parent company of the Company and three other traditional electric operating companies, as well as Southern Power, Southern Company Gas (as of July 1, 2016), SCS, Southern LINC, Southern Company Holdings, Inc. (Southern Holdings), Southern Nuclear, PowerSecure (as of May 9, 2016), Inc. (PowerSecure), and other direct and indirect subsidiaries. The traditional electric operating companies – the Company, Alabama Power, Georgia Power, and Mississippi Power – are vertically integrated utilities providing electric service in four Southeastern states. The Company provides electric service to retail customers in northwest Florida and to wholesale customers in the Southeast. Southern Power constructs, acquires, owns, and manages generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. Southern Company Gas distributes natural gas through utilities in seven states and is involved in several other complementary businesses including gas marketing services, wholesale gas services, and gas midstream operations. SCS, the system service company, provides, at cost, specialized services to Southern Company and its subsidiary companies. Southern LINC provides digital wireless communications for use by Southern Company and its subsidiary companies and also markets these services to the public and provides fiber cable services within the Southeast. Southern Holdings is an intermediate holding company subsidiary, primarily for Southern Company's investments in leveraged leases and for other electric services. Southern Nuclear operates and provides services to the Southern Company system's nuclear power plants. PowerSecure is a provider of products and services in the areas of distributed generation, energy efficiency, and utility infrastructure.

The equity method is used for entities in which the Company has significant influence but does not control.

The Company is subject to regulation by the FERC and the Florida PSC. As such, the Company's financial statements reflect the effects of rate regulation in accordance with GAAP and comply with the accounting policies and practices prescribed by its regulatory commissions. The preparation of financial statements in conformity with GAAP requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements have been reclassified to conform to the current year presentation.

Recently Issued Accounting Standards

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires lessees to recognize on the balance sheet a lease liability and a right-of-use asset for all leases. ASU 2016-02 also changes the recognition, measurement, and presentation of expense associated with leases and provides clarification regarding the identification of certain components of contracts that would represent a lease. The accounting required by lessors is relatively unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the new standard and has not yet determined its ultimate impact; however, adoption of ASU 2016-02 is expected to have a significant impact on the Company's balance sheet.

On March 30, 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 changes the accounting for income taxes and the cash flow presentation for share-based payment award transactions effective for fiscal years beginning after December 15, 2016. The new guidance requires all excess tax benefits and deficiencies related to the exercise or vesting of stock compensation to be recognized as income tax expense or benefit in the income statement. Previously, the Company recognized any excess tax benefits and deficiencies related to the exercise and vesting of stock compensation as additional paid-in capital. In addition, the new guidance requires excess tax benefits for share-based payments to be included in net cash provided from operating activities rather than net cash provided from financing activities on the statement of cash flows. The Company elected to adopt the guidance in 2016 and reflect the related adjustments as of January 1, 2016. Prior year's data presented in the financial statements has not been adjusted. The Company also elected to recognize forfeitures as they occur. The new guidance did not have a material impact on the results of operations, financial position, or cash flows of the Company. See Notes 5, 8, and 11 for disclosures impacted by ASU 2016-09.

On October 24, 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). Current GAAP prohibits the recognition of current and deferred income taxes for an affiliate asset transfer until the asset has been sold to an outside party. ASU 2016-16 requires an entity to recognize the income tax consequences of an affiliate transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The amendments will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently assessing the impact of the standard on its financial statements and has not yet determined its ultimate impact.

Affiliate Transactions

The Company has an agreement with SCS under which the following services are rendered to the Company at direct or allocated cost: general and design engineering, operations, purchasing, accounting, finance and treasury, tax, information technology, marketing, auditing, insurance and pension administration, human resources, systems and procedures, digital wireless communications, and other services with respect to business and operations, construction management, and power pool transactions. Costs for these services amounted to $80 million, $81 million, and $80 million during 2016, 2015, and 2014, respectively. Cost allocation methodologies used by SCS prior to the repeal of the Public Utility Holding Company Act of 1935, as amended, were approved by the SEC. Subsequently, additional cost allocation methodologies have been reported to the FERC and management believes they are reasonable. The FERC permits services to be rendered at cost by system service companies.

The Company has operating agreements with Georgia Power and Mississippi Power under which the Company owns a portion of Plant Scherer and Plant Daniel, respectively. Georgia Power operates Plant Scherer and Mississippi Power operates Plant Daniel. The Company reimbursed Georgia Power $8 million, $12 million, and $9 million and Mississippi Power $26 million, $27 million, and $31 million in 2016, 2015, and 2014, respectively, for its proportionate share of related expenses. See Note 4 and Note 7 under "Operating Leases" for additional information.

The Company has an agreement with Alabama Power under which Alabama Power made transmission system upgrades to ensure firm delivery of energy under a non-affiliate PPA from a combined cycle plant located in Alabama. Payments by the Company to Alabama Power for the improvements were $12 million, $14 million, and $12 million in 2016, 2015, and 2014, respectively, and are expected to be approximately $10 million annually for 2017 through 2023, when the PPA expires. These costs have been approved for recovery by the Florida PSC through the Company's purchased power capacity cost recovery clause and by the FERC in the transmission facilities cost allocation tariff.

In 2016, the Company purchased a turbine rotor assembly from Southern Power for $6.8 million.

The traditional electric operating companies, including the Company and Southern Power may jointly enter into various types of wholesale energy, natural gas, and certain other contracts, either directly or through SCS, as agent. Each participating company may be jointly and severally liable for the obligations incurred under these agreements. See Note 7 under "Fuel and Purchased Power Agreements" for additional information.

Regulatory Assets and Liabilities

Regulatory assets and (liabilities) reflected in the balance sheets at December 31 relate to:



	2016			2015			Note
	(in millions)
Retiree benefit plans, net	$	160		$	147		(a,b)
PPA charges	141			163			(b,c)
Closure of ash ponds	75			29			(b,d)
Remaining book value of retired assets	66			4			(e)
Deferred income tax charges	56			59			(f)
Environmental remediation	44			46			(b,d)
Regulatory asset, offset to other cost of removal	29			29			(g)
Deferred return on transmission upgrades	25			10			(g)
Fuel-hedging assets, net	24			104			(b,h)
Other regulatory assets, net	18			16			(i)
Loss on reacquired debt	18			15			(j)
Asset retirement obligations, net	7			(1		)	(b,f)
Other cost of removal obligations	(278		)	(262		)	(f)
Property damage reserve	(40		)	(38		)	(e)
Over recovered regulatory clause revenues	(23		)	(22		)	(k)
Deferred income tax credits	(2		)	(3		)	(f)
Total regulatory assets (liabilities), net	$	320		$	296

Note: The recovery and amortization periods for these regulatory assets and (liabilities) are as follows:


(a)	Recovered and amortized over the average remaining service period which may range up to 14 years. See Note 2 for additional information.


(b)	Not earning a return as offset in rate base by a corresponding asset or liability.


(c)	Recovered over the life of the PPA for periods up to seven years.


(d)	Recovered through the environmental cost recovery clause when the remediation or the work is performed.


(e)	Recorded and recovered or amortized as approved by the Florida PSC.


(f)	Asset retirement and removal assets and liabilities are recorded, deferred income tax assets are recovered, and deferred income tax liabilities are amortized over the related property lives, which may range up to 65 years. Asset retirement and removal assets and liabilities will be settled and trued up following completion of the related activities.


(g)	Recorded as authorized by the Florida PSC in a settlement agreement approved in December 2013 (2013 Rate Case Settlement Agreement). See Note 3 for additional information.


(h)	Fuel-hedging assets and liabilities are recorded over the life of the underlying hedged purchase contracts, which generally do not exceed five years. Upon final settlement, actual costs incurred are recovered through the fuel cost recovery clause.


(i)	Comprised primarily of vacation pay. Other regulatory assets costs, with the exception of vacation pay, are recorded and recovered or amortized as approved by the Florida PSC. Vacation pay, including banked holiday pay, does not earn a return as offset in rate base by a corresponding liability; it is recorded as earned by employees and recovered as paid, generally within one year.


(j)	Recovered over either the remaining life of the original issue or, if refinanced, over the life of the new issue, which may range up to 40 years.


(k)	Recorded and recovered or amortized as approved by the Florida PSC, generally within one year.

Revenues

Wholesale capacity revenues are generally recognized on a levelized basis over the appropriate contract period. Energy and other revenues are recognized as services are provided. Unbilled revenues related to retail sales are accrued at the end of each fiscal period. Electric rates for the Company include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. The Company continuously monitors the over or under recovered fuel cost balance in light of the inherent variability in fuel costs. The Company is required to notify the Florida PSC if the projected fuel cost over or under recovery is expected to exceed 10% of the projected fuel revenue applicable for the period and indicate if an adjustment to the fuel cost recovery factor is being requested. The Company has similar retail cost recovery clauses for energy conservation costs, purchased power capacity costs, and environmental compliance costs. Revenues are adjusted for differences between these actual costs and amounts billed in current regulated rates. Under or over recovered regulatory clause revenues are recorded in the balance sheets and are recovered or returned to customers through adjustments to the billing factors. Annually, the Company petitions for recovery of projected costs including any true-up amounts from prior periods, and approved rates are implemented each January. See Note 3 under "Retail Regulatory Matters" for additional information.

The Company has a diversified base of customers. No single customer or industry comprises 10% or more of revenues. For all periods presented, uncollectible accounts averaged less than 1% of revenues.

Fuel Costs

Fuel costs are expensed as the fuel is used. Fuel expense generally includes fuel transportation costs and the cost of purchased emissions allowances as they are used. Fuel expense and emissions allowance costs are recovered by the Company through the fuel cost recovery and environmental cost recovery rates, respectively, approved annually by the Florida PSC.

Income and Other Taxes

The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Federal ITCs utilized are deferred and amortized to income over the average life of the related property and state ITCs are recognized in the period in which the credit is claimed on the state income tax return. Taxes that are collected from customers on behalf of governmental agencies to be remitted to these agencies are presented net on the statements of income.

Property, Plant, and Equipment

The Company's property, plant, and equipment in service consisted of the following at December 31:



	2016		2015
	(in millions)
Generation	$	3,001	$	2,974
Transmission	706		691
Distribution	1,241		1,196
General	191		182
Plant acquisition adjustment	1		2
Total plant in service	$	5,140	$	5,045

Depreciation and Amortization

Depreciation of the original cost of utility plant in service is provided primarily by using composite straight-line rates, which approximated 3.5% in both 2016 and 2015 and 3.6% in 2014. Depreciation studies are conducted periodically to update the composite rates. These studies are approved by the Florida PSC and the FERC. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its original cost, together with the cost of removal, less salvage, is charged to accumulated depreciation. For other property dispositions, the applicable cost and accumulated depreciation are removed from the balance sheet accounts, and a gain or loss is recognized. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. As authorized by the Florida PSC in the 2013 Rate Case Settlement Agreement, the Company is allowed to reduce depreciation and record a regulatory asset in an aggregate amount up to $62.5 million between January 2014 and June 2017. See Note 3 herein under "Retail Regulatory Matters – Retail Base Rate Cases" for additional information.

Asset Retirement Obligations and Other Costs of Removal

AROs are computed as the present value of the estimated ultimate costs for an asset's future retirement and are recorded in the period in which the liability is incurred. The costs are capitalized as part of the related long-lived asset and depreciated over the asset's useful life. In the absence of quoted market prices, AROs are estimated using present value techniques in which estimates of future cash outlays associated with the asset retirements are discounted using a credit-adjusted risk-free rate. Estimates of the timing and amounts of future cash outlays are based on projections of when and how the assets will be retired and the cost of future removal activities. The Company has received an order from the Florida PSC allowing the continued accrual of other future retirement costs for long-lived assets that the Company does not have a legal obligation to retire. Accordingly, the accumulated removal costs for these obligations are reflected in the balance sheets as a regulatory liability.

The liability for AROs primarily relates to facilities that are subject to the Disposal of Coal Combustion Residuals from Electric Utilities final rule published by the EPA in April 2015 (CCR Rule), principally ash ponds, and to the closure of an ash pond at Plant Scholz. In addition, the Company has retirement obligations related to combustion turbines at its Pea Ridge facility, various landfill sites, a barge unloading dock, asbestos removal, and disposal of polychlorinated biphenyls in certain transformers. The Company also has identified retirement obligations related to certain transmission and distribution facilities, certain wireless communication towers, and certain structures authorized by the U.S. Army Corps of Engineers. However, liabilities for the removal of these assets have not been recorded because the settlement timing for the retirement obligations related to these assets is indeterminable and, therefore, the fair value of the retirement obligations cannot be reasonably estimated. A liability for these AROs will be recognized when sufficient information becomes available to support a reasonable estimation of the ARO. The Company will continue to recognize in the statements of income allowed removal costs in accordance with its regulatory treatment. Any differences between costs recognized in accordance with accounting standards related to asset retirement and environmental obligations and those reflected in rates are recognized as either a regulatory asset or liability, as ordered by the Florida PSC, and are reflected in the balance sheets.

Details of the AROs included in the balance sheets are as follows:



	2016			2015
	(in millions)
Balance at beginning of year	$	130		$	17
Liabilities incurred	1			105
Liabilities settled	(1		)	(1		)
Accretion	4			2
Cash flow revisions	2			7
Balance at end of year	$	136		$	130

The increase in liabilities incurred in 2015 is primarily related to AROs associated with the portion of the Company's steam generation facilities impacted by the CCR Rule and the closure of an ash pond at Plant Scholz. In connection with permitting activity related to the coal ash pond at the retired Plant Scholz facility, the Company recorded additional AROs of $29 million in 2015.

The cost estimates for AROs related to CCR are based on information as of December 31, 2016 using various assumptions related to closure and post-closure costs, timing of future cash outlays, inflation and discount rates, and the potential methods for complying with the CCR Rule requirements for closure for those facilities impacted by the CCR Rule. As further analysis is performed, including evaluation of the expected method of compliance, refinement of assumptions underlying the cost estimates, such as the quantities of CCR at each site, and the determination of timing with respect to compliance activities, including the potential for closing ash ponds prior to the end of their currently anticipated useful life, the Company expects to continue to periodically update these estimates.

Allowance for Funds Used During Construction

Impairment of Long-Lived Assets and Intangibles

Property Damage Reserve

The Company accrues for the cost of repairing damages from major storms and other uninsured property damages, including uninsured damages to transmission and distribution facilities, generation facilities, and other property. The costs of such damage are charged to the reserve. The Florida PSC approved annual accrual to the property damage reserve is $3.5 million, with a target level for the reserve between $48 million and $55 million. The Florida PSC also authorized the Company to make additional accruals above $3.5 million at the Company's discretion. The Company accrued total expenses of $3.5 million in each of 2016, 2015, and 2014. As of December 31, 2016 and 2015, the balance in the Company's property damage reserve totaled approximately $40 million and $38 million, respectively, which is included in deferred liabilities in the balance sheets.

When the property damage reserve is inadequate to cover the cost of major storms, the Florida PSC can authorize a storm cost recovery surcharge to be applied to customer bills. As authorized in the 2013 Rate Case Settlement Agreement, the Company may recover costs associated with any tropical systems named by the National Hurricane Center through the initiation of a storm surcharge. The storm surcharge will begin, on an interim basis, 60 days following the filing of a cost recovery petition. The storm surcharge generally may not exceed $4.00/1,000 KWHs on monthly residential bills in aggregate for a calendar year. This limitation does not apply if the Company incurs in excess of $100 million in storm recovery costs that qualify for recovery in a given calendar year. This threshold amount is inclusive of the amount necessary to replenish the storm reserve to the level that existed as of December 31, 2013. See Note 3 under "Retail Regulatory Matters – Retail Base Rate Cases" for additional details of the 2013 Rate Case Settlement Agreement.

Injuries and Damages Reserve

The Company is subject to claims and lawsuits arising in the ordinary course of business. As permitted by the Florida PSC, the Company accrues for the uninsured costs of injuries and damages by charges to income amounting to $1.6 million annually. The Florida PSC has also given the Company the flexibility to increase its annual accrual above $1.6 million to the extent the balance in the reserve does not exceed $2 million and to defer expense recognition of liabilities greater than the balance in the reserve. The cost of settling claims is charged to the reserve. The injuries and damages reserve had a balance of $1.4 million at December 31, 2016, which is included in current liabilities in the balance sheets. The balance was zero at December 31, 2015. There were no liabilities in excess of the reserve balance at December 31, 2016. The Company recorded a liability with a corresponding regulatory asset of $1.7 million for estimated liabilities related to outstanding claims and suits in excess of the reserve balance at December 31, 2015, of which $1.6 million and $0.1 million are included in current liabilities and deferred credits and other liabilities in the balance sheets, respectively.

Cash and Cash Equivalents

For purposes of the financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less.

Materials and Supplies

Fuel Inventory

Fuel inventory includes the average cost of oil, natural gas, coal, transportation, and emissions allowances. Fuel is recorded to inventory when purchased and then expensed, at weighted average cost, as used. Fuel expense and emissions allowance costs are recovered by the Company through the fuel cost recovery and environmental cost recovery rates, respectively, approved annually by the Florida PSC. Emissions allowances granted by the EPA are included in inventory at zero cost.

Financial Instruments

The Company uses derivative financial instruments to limit exposure to fluctuations in interest rates, the prices of certain fuel purchases, and electricity purchases and sales. All derivative financial instruments are recognized as either assets or liabilities on the balance sheets (included in "Other" or shown separately as "Risk Management Activities") and are measured at fair value. See Note 9 for additional information regarding fair value. Substantially all of the Company's bulk energy purchases and sales contracts that meet the definition of a derivative are excluded from fair value accounting requirements because they qualify for the "normal" scope exception, and are accounted for under the accrual method. Derivative contracts that qualify as cash flow hedges of anticipated transactions or are recoverable through the Florida PSC approved fuel-hedging program result in the deferral of related gains and losses in OCI or regulatory assets and liabilities, respectively, until the hedged transactions occur. Any ineffectiveness arising from cash flow hedges is recognized currently in net income. Other derivative contracts that qualify as fair value hedges are marked to market through current period income and are recorded on a net basis in the statements of income. Cash flows from derivatives are classified on the statement of cash flows in the same category as the hedged item. The Florida PSC approved a stipulation and agreement that prospectively imposed a moratorium on the Company's fuel-hedging program in October 2016 through December 31, 2017. The moratorium does not have an impact on the recovery of existing hedges entered into under the previously-approved hedging program. See Note 10 for additional information regarding derivatives.

Comprehensive Income

The objective of comprehensive income is to report a measure of all changes in common stock equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners. Comprehensive income consists of net income, changes in the fair value of qualifying cash flow hedges, and reclassifications for amounts included in net income.

Mississippi Power [Member]

Summary of Significant Accounting Policies [Line Items]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Mississippi Power Company (the Company) is a wholly-owned subsidiary of Southern Company, which is the parent company of the Company and three other traditional electric operating companies, as well as Southern Power, Southern Company Gas (as of July 1, 2016), SCS, Southern LINC, Southern Company Holdings, Inc. (Southern Holdings), Southern Nuclear, PowerSecure, Inc. (PowerSecure) (as of May 9, 2016), and other direct and indirect subsidiaries. The traditional electric operating companies – Alabama Power, Georgia Power, Gulf Power, and the Company – are vertically integrated utilities providing electric service in four Southeastern states. The Company provides electric service to retail customers in southeast Mississippi and to wholesale customers in the Southeast. Southern Power constructs, acquires, owns, and manages generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. Southern Company Gas distributes natural gas through utilities in seven states and is involved in several other complementary businesses including gas marketing services, wholesale gas services, and gas midstream operations. SCS, the system service company, provides, at cost, specialized services to Southern Company and its subsidiary companies. Southern LINC provides digital wireless communications for use by Southern Company and its subsidiary companies and also markets these services to the public and provides fiber cable services within the Southeast. Southern Holdings is an intermediate holding company subsidiary, primarily for Southern Company's investments in leveraged leases and for other electric services. Southern Nuclear operates and provides services to the Southern Company system's nuclear power plants. PowerSecure is a provider of products and services in the areas of distributed generation, energy efficiency, and utility infrastructure.

The Company is subject to regulation by the FERC and the Mississippi PSC. As such, the Company's financial statements reflect the effects of rate regulation in accordance with GAAP and comply with the accounting policies and practices prescribed by its regulatory commissions. The preparation of financial statements in conformity with GAAP requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements have been reclassified to conform to the current year presentation.

Recently Issued Accounting Standards

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires lessees to recognize on the balance sheet a lease liability and a right-of-use asset for all leases. ASU 2016-02 also changes the recognition, measurement, and presentation of expense associated with leases and provides clarification regarding the identification of certain components of contracts that would represent a lease. The accounting required by lessors is relatively unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the new standard and has not yet determined its ultimate impact; however, adoption of ASU 2016-02 is expected to have a significant impact on the Company's balance sheet.

On March 30, 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 changes the accounting for income taxes and the cash flow presentation for share-based payment award transactions effective for fiscal years beginning after December 15, 2016. The new guidance requires all excess tax benefits and deficiencies related to the exercise or vesting of stock compensation to be recognized as income tax expense or benefit in the income statement. Previously, the Company recognized any excess tax benefits and deficiencies related to the exercise and vesting of stock compensation as additional paid-in capital. In addition, the new guidance requires excess tax benefits for share-based payments to be included in net cash provided from operating activities rather than net cash provided from financing activities on the statement of cash flows. The Company elected to adopt the guidance in 2016 and reflect the related adjustments as of January 1, 2016. Prior year's data presented in the financial statements has not been adjusted. The Company also elected to recognize forfeitures as they occur. The new guidance did not have a material impact on the results of operations, financial position, or cash flows of the Company. See Notes 5, 8, and 11 for disclosures impacted by ASU 2016-09.

On October 24, 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). Current GAAP prohibits the recognition of current and deferred income taxes for an affiliate asset transfer until the asset has been sold to an outside party. ASU 2016-16 requires an entity to recognize the income tax consequences of an affiliate transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The amendments will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently assessing the impact of the standard on its financial statements and has not yet determined its ultimate impact.

In 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern (ASU 2014-15). ASU 2014-15 defines management's responsibility to evaluate whether there is substantial doubt about an organization's ability to continue as a going concern within one year of the date the financial statements are issued and to provide related footnote disclosures including management's plans that alleviate substantial doubt. ASU 2014-15 became effective for fiscal years ending after December 15, 2016 and the Company has included the disclosures required by ASU 2014-15 in Note 6 under "Going Concern."

Affiliate Transactions

The Company has an agreement with SCS under which the following services are rendered to the Company at direct or allocated cost: general and design engineering, operations, purchasing, accounting, finance and treasury, tax, information technology, marketing, auditing, insurance and pension administration, human resources, systems and procedures, digital wireless communications, and other services with respect to business and operations, construction management, and power pool transactions. Costs for these services amounted to $231 million, $295 million, and $259 million during 2016, 2015, and 2014, respectively. Cost allocation methodologies used by SCS prior to the repeal of the Public Utility Holding Company Act of 1935, as amended, were approved by the SEC. Subsequently, additional cost allocation methodologies have been reported to the FERC and management believes they are reasonable. The FERC permits services to be rendered at cost by system service companies.

The Company has an agreement with Alabama Power under which the Company owns a portion of Greene County Steam Plant. Alabama Power operates Greene County Steam Plant, and the Company reimburses Alabama Power for its proportionate share of non-fuel expenditures and costs, which totaled $13 million, $11 million, and $13 million in 2016, 2015, and 2014, respectively. Also, the Company reimburses Alabama Power for any direct fuel purchases delivered from an Alabama Power transfer facility. There were no fuel purchases in 2016. Fuel purchases were $8 million and $34 million in 2015 and 2014, respectively. The Company also has an agreement with Gulf Power under which Gulf Power owns a portion of Plant Daniel. The Company operates Plant Daniel, and Gulf Power reimburses the Company for its proportionate share of all associated expenditures and costs, which totaled $26 million, $27 million, and $31 million in 2016, 2015, and 2014, respectively. See Note 4 for additional information.

On June 27, 2016, the Company received a capital contribution from Southern Company of $225 million, the proceeds of which were used to repay to Southern Company a portion of the promissory note issued in November 2015. As of December 31, 2016, the amount of outstanding promissory notes to Southern Company totaled $551 million. Also, on December 14, 2016, the Company received a capital contribution from Southern Company of $400 million, the proceeds of which were used for general corporate purposes. See Note 6 for additional information.

The Company also provides incidental services to and receives such services from other Southern Company subsidiaries which are generally minor in duration and amount. Except as described herein, the Company neither provided nor received any material services to or from affiliates in 2016, 2015, or 2014.

Regulatory Assets and Liabilities

Regulatory assets and (liabilities) reflected in the balance sheets at December 31 relate to:



	2016			2015			Note
	(in millions)
Kemper IGCC	$	201		$	216		(h)
Retiree benefit plans – regulatory assets	173			163			(a,g)
Asset retirement obligations	83			70			(c)
Deferred income tax charges	362			291			(c)
Remaining net book value of retired assets	53			36			(b)
Property tax	37			27			(d)
Plant Daniel Units 3 and 4	33			29			(j)
Other regulatory assets	42			27			(e,g)
Fuel-hedging (realized and unrealized) losses	7			50			(f,g)
Property damage	(68		)	(64		)	(i)
Other cost of removal obligations	(170		)	(167		)	(c)
Other regulatory liabilities	(16		)	(11		)	(b)
Total regulatory assets (liabilities), net	$	737		$	667

Note: The recovery and amortization periods for these regulatory assets and (liabilities) are as follows:


(a)	Recovered and amortized over the average remaining service period which may range up to 14 years. See Note 2 for additional information.


(b)	Other regulatory liabilities is comprised of numerous immaterial components including deferred income tax credits and other miscellaneous liabilities that are recorded and refunded or amortized as approved by the Mississippi PSC generally over periods not exceeding one year.


(c)	Asset retirement and other cost of removal obligations and deferred income tax assets are recovered, and deferred income tax liabilities are amortized over the related property lives, which may range up to 49 years. Asset retirement and removal assets and liabilities will be settled and trued up following completion of the related activities.


(d)	The retail portion of property taxes is recovered through the ad valorem tax adjustment clause over a 12-month period beginning in April of the following year. See Note 3 under "Retail Regulatory Matters – Ad Valorem Tax Adjustment" for additional information.


(e)	Other regulatory assets is comprised of numerous immaterial components including vacation pay, loss on reacquired debt, and other miscellaneous assets. These costs are recorded and recovered or amortized as approved by the Mississippi PSC over periods which may range up to 50 years.


(f)	Fuel-hedging assets and liabilities are recorded over the life of the underlying hedged purchase contracts, which generally do not exceed three years. Upon final settlement, actual costs incurred are recovered through the ECM.


(g)	Not earning a return as offset in rate base by a corresponding asset or liability.


(h)	Includes $97 million of regulatory assets currently in rates to be recovered over periods of two, seven, or 10 years. For additional information, see Note 3 under "Integrated Coal Gasification Combined Cycle – Rate Recovery of Kemper IGCC Costs – Regulatory Assets and Liabilities."


(i)	For additional information, see Note 1 under "Provision for Property Damage."


(j)	The difference between the revenue requirement under the purchase option and the revenue requirement assuming operating lease accounting treatment for the extended term is deferred and amortized over a 10-year period beginning October 2021.

Government Grants

In 2010, the DOE, through a cooperative agreement with SCS, agreed to fund $270 million of the Kemper IGCC through the grants awarded to the project by the DOE under the Clean Coal Power Initiative Round 2 (Initial DOE Grants). Through December 31, 2016, the Company has received grant funds of $382 million, of which $245 million of the Initial DOE Grants were used for the construction of the Kemper IGCC, which is reflected in the Company's financial statements as a reduction to the Kemper IGCC capital costs, and $137 million received on April 8, 2016 (Additional DOE Grants), which are expected to be used to reduce future rate impacts. An additional $25 million is expected to be received for its initial operation. See Note 3 under "Kemper IGCC Schedule and Cost Estimate" for additional information.

Revenues

Energy and other revenues are recognized as services are provided. Wholesale capacity revenues from long-term contracts are recognized at the lesser of the levelized amount or the amount billable under the contract over the respective contract period. Unbilled revenues related to retail sales are accrued at the end of each fiscal period. The Company's retail and wholesale rates include provisions to adjust billings for fluctuations in fuel costs, fuel hedging, the energy component of purchased power costs, and certain other costs. Retail rates also include provisions to adjust billings for fluctuations in costs for ad valorem taxes and certain qualifying environmental costs. Revenues are adjusted for differences between these actual costs and projected amounts billed in current regulated rates. Under or over recovered regulatory clause revenues are recorded in the balance sheets and are recovered or returned to customers through adjustments to the billing factors. The Company is required to file with the Mississippi PSC for an adjustment to the fuel cost recovery, ad valorem, and environmental factors annually.

The Company serves long-term contracts with rural electric cooperative associations and municipalities located in southeastern Mississippi under cost-based MRA electric tariffs which are subject to regulation by the FERC. The contracts with these wholesale customers represented 19.8% of the Company's total operating revenues in 2016 and are largely subject to rolling 10-year cancellation notices. Historically, these wholesale customers have acted as a group and any changes in contractual relationships for one customer are likely to be followed by the other wholesale customers.

Except as described above for the Company's cost-based MRA electric tariff customers, the Company has a diversified base of customers and no single customer or industry comprises 10% or more of revenues. For all periods presented, uncollectible accounts averaged less than 1% of revenues.

See Note 3 under "Retail Regulatory Matters" for additional information.

Fuel Costs

Fuel costs are expensed as the fuel is used. Fuel expense generally includes fuel transportation costs and the cost of purchased emissions allowances as they are used. Fuel costs also include gains and/or losses from fuel-hedging programs as approved by the Mississippi PSC.

Income and Other Taxes

The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. ITCs utilized are deferred and amortized to income over the average life of the related property. Taxes that are collected from customers on behalf of governmental agencies to be remitted to these agencies are presented net on the statements of operations.

Property, Plant, and Equipment

The Company's property, plant, and equipment in service consisted of the following at December 31:



	2016		2015
	(in millions)
Generation	$	2,632	$	2,723
Transmission	712		688
Distribution	916		891
General	520		503
Plant acquisition adjustment	85		81
Total plant in service	$	4,865	$	4,886

The cost of replacements of property, exclusive of minor items of property, is capitalized. The cost of maintenance, repairs, and replacement of minor items of property is charged to other operations and maintenance expenses except for all costs associated with operating and maintaining the Kemper IGCC assets already placed in service and a portion of the railway track maintenance costs. The portion of railway track maintenance costs not charged to operations and maintenance expenses are charged to fuel stock and recovered through the Company's fuel clause. Through July 2015, all costs associated with the combined cycle and the associated common facilities portion of the Kemper IGCC, excluding the lignite mine, were deferred to a regulatory asset that is being recovered over 10 years beginning August 2015. See Note 3 under "Integrated Coal Gasification Combined Cycle" for additional information.

Depreciation, Depletion, and Amortization

Depreciation of the original cost of utility plant in service is provided primarily by using composite straight-line rates, which approximated 4.2% in 2016, 4.7% in 2015, and 3.3% in 2014. The decrease in the 2016 depreciation rate is primarily due to fully depreciating and retiring the ARO at Plant Watson, partially offset by the increase in depreciation for the Plant Daniel scrubbers for a full year. The increase in the 2015 depreciation rate was primarily due to an ARO at Plant Watson incurred as a result of changes in environmental regulations. See "Asset Retirement Obligations and Other Costs of Removal" herein for additional information. Depreciation studies are conducted periodically to update the composite rates. The Mississippi PSC approved the 2014 study, with new rates effective January 1, 2015. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its original cost, together with the cost of removal, less salvage, is charged to accumulated depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation includes an amount for the expected cost of removal of facilities, except for the Kemper IGCC assets in service.

The Kemper IGCC will be fueled by locally mined lignite (an abundant, lower heating value coal) from a mine owned by the Company and situated adjacent to the Kemper IGCC. The mine, operated by North American Coal Corporation, started commercial operation in June 2013. Depreciation associated with fixed assets, amortization associated with rolling stock, and depletion associated with minerals and minerals rights is recognized and charged to fuel stock and is expected to be recovered through the Company's fuel clause. Through July 2015, depreciation associated with the combined cycle and the associated common facilities portion of the Kemper IGCC was deferred as a regulatory asset that is being recovered over 10 years beginning August 2015. See Note 3 under "Integrated Coal Gasification Combined Cycle – Rate Recovery of Kemper IGCC Costs" for additional information.

Asset Retirement Obligations and Other Costs of Removal

AROs are computed as the present value of the estimated ultimate costs for an asset's future retirement and are recorded in the period in which the liability is incurred. The costs are capitalized as part of the related long-lived asset and depreciated over the asset's useful life. In the absence of quoted market prices, AROs are estimated using present value techniques in which estimates of future cash outlays associated with the asset retirements are discounted using a credit-adjusted risk-free rate. Estimates of the timing and amounts of future cash outlays are based on projections of when and how the assets will be retired and the cost of future removal activities. The Company has received accounting guidance from the Mississippi PSC allowing the continued accrual of other future retirement costs for long-lived assets that the Company does not have a legal obligation to retire. Accordingly, the accumulated removal costs for these obligations are reflected in the balance sheets as a regulatory liability.

The liability for AROs primarily relates to facilities that are subject to the Disposal of Coal Combustion Residuals from Electric Utilities final rule published by the EPA in April 2015 (CCR Rule), principally ash ponds. In addition, the Company has retirement obligations related to various landfill sites, underground storage tanks, deep injection wells, water wells, substation removal, mine reclamation, and asbestos removal. The Company also has identified AROs related to certain transmission and distribution facilities and certain wireless communication towers. However, liabilities for the removal of these assets have not been recorded because the settlement timing for the AROs related to these assets is indeterminable and, therefore, the fair value of the AROs cannot be reasonably estimated. A liability for these AROs will be recognized when sufficient information becomes available to support a reasonable estimation of the ARO. The Company will continue to recognize in the statements of operations allowed removal costs in accordance with its regulatory treatment. Any differences between costs recognized in accordance with accounting standards related to asset retirement and environmental obligations and those reflected in rates are recognized as either a regulatory asset or liability, as ordered by the Mississippi PSC, and are reflected in the balance sheets.

Details of the AROs included in the balance sheets are as follows:



	2016			2015
	(in millions)
Balance at beginning of year	$	177		$	48
Liabilities incurred	15			101
Liabilities settled	(23		)	(3		)
Accretion	5			4
Cash flow revisions	5			27
Balance at end of year	$	179		$	177

The increase in liabilities incurred and cash flow revisions in 2015 primarily relate to an increase in AROs associated with facilities impacted by the CCR Rule located at Plant Watson and Plant Greene County.

The cost estimates for AROs related to the CCR Rule are based on information as of December 31, 2016 using various assumptions related to closure and post-closure costs, timing of future cash outlays, inflation and discount rates, and the potential methods for complying with the CCR Rule requirements for closure. As further analysis is performed, including evaluation of the expected method of compliance, refinement of assumptions underlying the cost estimates, such as the quantities of CCR at each site, and the determination of timing with respect to compliance activities, including the potential for closing ash ponds prior to the end of their currently anticipated useful life, the Company expects to continue to periodically update these estimates.

Allowance for Funds Used During Construction

Impairment of Long-Lived Assets and Intangibles

Provision for Property Damage

The Company carries insurance for the cost of certain types of damage to generation plants and general property. However, the Company is self-insured for the cost of storm, fire, and other uninsured casualty damage to its property, including transmission and distribution facilities. As permitted by the Mississippi PSC and the FERC, the Company accrues for the cost of such damage through an annual expense accrual credited to regulatory liability accounts for the retail and wholesale jurisdictions. The cost of repairing actual damage resulting from such events that individually exceed $50,000 is charged to the reserve. Every three years the Mississippi PSC, the MPUS, and the Company will agree on SRR revenue level(s) for the ensuing period, based on historical data, expected exposure, type and amount of insurance coverage, excluding insurance cost, and any other relevant information. The accrual amount and the reserve balance are determined based on the SRR revenue level(s). If a significant change in circumstances occurs, then the SRR revenue level can be adjusted more frequently if the Company and the MPUS or the Mississippi PSC deem the change appropriate. The property damage reserve accrual will be the difference between the approved SRR revenues and the SRR revenue requirement, excluding any accrual to the reserve. In addition, SRR allows the Company to set up a regulatory asset, pending review, if the allowable actual retail property damage costs exceed the amount in the retail property damage reserve. The Company made retail accruals of $4 million for 2016 and $3 million for each of 2015 and 2014. The Company also accrued $0.3 million annually in 2016, 2015, and 2014 for the wholesale jurisdiction. As of December 31, 2016, the property damage reserve balances were $66 million and $1 million for retail and wholesale, respectively.

Cash and Cash Equivalents

For purposes of the financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less.

Materials and Supplies

Generally, materials and supplies include the average cost of transmission, distribution, mining, and generating plant materials. Materials are charged to inventory when purchased and then expensed, capitalized to plant, or charged to fuel stock, as used, at weighted-average cost when utilized.

Fuel Inventory

Fuel inventory includes the average cost of coal, lignite, natural gas, oil, transportation, and emissions allowances. Fuel costs are recorded to inventory when purchased, except for the cost of owning and operating the lignite mine related to the Kemper IGCC which is charged to inventory as coal is mined, and then expensed, at weighted average cost, as used and recovered by the Company through fuel cost recovery rates or capitalized as part of the Kemper IGCC costs if used for testing. The retail rate is approved by the Mississippi PSC and the wholesale rates are approved by the FERC. Emissions allowances granted by the EPA are included in inventory at zero cost.

Financial Instruments

The Company uses derivative financial instruments to limit exposure to fluctuations in interest rates, the prices of certain fuel purchases, electricity purchases and sales, and occasionally foreign currency exchange rates. All derivative financial instruments are recognized as either assets or liabilities on the balance sheets (included in "Other" or shown separately as "Risk Management Activities") and are measured at fair value. See Note 9 for additional information regarding fair value. Substantially all of the Company's bulk energy purchases and sales contracts that meet the definition of a derivative are excluded from the fair value accounting requirements because they qualify for the "normal" scope exception, and are accounted for under the accrual method. Fuel and interest rate derivative contracts qualify as cash flow hedges of anticipated transactions or are recoverable through the Mississippi PSC approved fuel-hedging program as discussed below result in the deferral of related gains and losses in OCI or regulatory assets and liabilities, respectively, until the hedged transactions occur. Foreign currency exchange rate hedges are designated as fair value hedges. Settled foreign currency exchange hedges related to the Kemper IGCC are recorded in CWIP. Other derivative contracts that qualify as fair value hedges are marked to market through current period income and are recorded on a net basis in the statements of operations. Cash flows from derivatives are classified on the statement of cash flows in the same category as the hedged item. See Note 10 for additional information regarding derivatives.

Beginning in 2016, the Company offsets fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a netting arrangement. Additionally, the Company's collateral repayment obligations or rights to reclaim collateral arising from derivative instruments recognized at December 31, 2016 are immaterial.

The Company has an ECM clause which, among other things, allows the Company to utilize financial instruments to hedge its fuel commitments. Changes in the fair value of these financial instruments are recorded as regulatory assets or liabilities. Amounts paid or received as a result of financial settlement of these instruments are classified as fuel expense and are included in the ECM factor applied to customer billings. The Company's jurisdictional wholesale customers have a similar ECM mechanism, which has been approved by the FERC.

Comprehensive Income

The objective of comprehensive income is to report a measure of all changes in common stock equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners. Comprehensive income consists of net income, changes in the fair value of qualifying cash flow hedges, and reclassifications for amounts included in net income.

Variable Interest Entities

The primary beneficiary of a variable interest entity (VIE) is required to consolidate the VIE when it has both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company is required to provide financing for all costs associated with the mine development and operation under a contract with Liberty Fuels Company, LLC, a subsidiary of North American Coal Corporation (Liberty Fuels), in conjunction with the construction of the Kemper IGCC. Liberty Fuels qualifies as a VIE for which the Company is the primary beneficiary. As of December 31, 2016, the VIE consolidation resulted in an ARO asset and associated liability in the amounts of $20 million and $24 million, respectively. As of December 31, 2015, the VIE consolidation resulted in an ARO and an associated liability in the amounts of $21 million and $25 million, respectively. See Note 3 under "Integrated Coal Gasification Combined Cycle" for additional information.

Southern Power [Member]

Summary of Significant Accounting Policies [Line Items]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Southern Power Company is a wholly-owned subsidiary of Southern Company, which is also the parent company of four traditional electric operating companies, Southern Company Gas (as of July 1, 2016), SCS, Southern LINC, Southern Company Holdings, Inc. (Southern Holdings), Southern Nuclear, PowerSecure, Inc. (PowerSecure) (as of May 9, 2016), and other direct and indirect subsidiaries. The traditional electric operating companies – Alabama Power, Georgia Power, Gulf Power, and Mississippi Power – are vertically integrated utilities providing electric service in four Southeastern states. Southern Power Company and its subsidiaries (the Company) construct, acquire, own, and manage generation assets, including renewable energy projects, and sell electricity at market-based rates in the wholesale market. Southern Company Gas distributes natural gas through utilities in seven states and is involved in several other complementary businesses including gas marketing services, wholesale gas services, and gas midstream operations. SCS, the system service company, provides, at cost, specialized services to Southern Company and its subsidiary companies. Southern LINC provides digital wireless communications for use by Southern Company and its subsidiary companies and also markets these services to the public and provides fiber cable services within the Southeast. Southern Holdings is an intermediate holding company subsidiary, primarily for Southern Company's investments in leveraged leases and for other electric services. Southern Nuclear operates and provides services to the Southern Company system's nuclear power plants. PowerSecure is a provider of products and services in the areas of distributed generation, energy efficiency, and utility infrastructure.

The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the consolidated financial statements have been reclassified to conform to the current year presentation.

The consolidated financial statements include the accounts of Southern Power Company and its wholly-owned and majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Recently Issued Accounting Standards

While the Company expects most of its revenue to be included in the scope of ASC 606, it has not fully completed its evaluation of such arrangements. The Company's ongoing evaluation of revenue streams and related contracts includes the evaluation of identified revenue streams tied to longer term contractual arrangements, such as certain capacity payments under PPAs that are expected to be excluded from the scope of ASC 606 and included in the scope of the current leasing guidance (ASC Topic 840).

The new standard is effective for interim and annual reporting periods beginning after December 15, 2017. The Company must select a transition method to be applied either retrospectively to each prior reporting period presented or retrospectively with a cumulative effect adjustment to retained earnings at the date of initial adoption. However, given the Company's core activities of selling generation capacity and energy to high credit rated customers, the Company currently does not expect the new standard to have a significant impact to net income. The Company has not elected a transition method as the ultimate impact of the new standard has not yet been determined.

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires lessees to recognize on the balance sheet a lease liability and a right-of-use asset for all leases. ASU 2016-02 also changes the recognition, measurement, and presentation of expense associated with leases and provides clarification regarding the identification of certain components of contracts that would represent a lease. The accounting required by lessors is relatively unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the new standard and has not yet determined its ultimate impact; however, adoption of ASU 2016-02 is expected to have a significant impact on the Company's balance sheet.

On October 24, 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). Current GAAP prohibits the recognition of current and deferred income taxes for an affiliate asset transfer until the asset has been sold to an outside party. ASU 2016-16 requires an entity to recognize the income tax consequences of an affiliate transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The amendments will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently assessing the impact of the standard on its financial statements and has not yet determined its ultimate impact.

On November 17, 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). ASU 2016-18 eliminates the need to reflect transfers between cash and restricted cash in operating, investing, and financing activities in the statement of cash flows. Upon adoption, the net change in cash and cash equivalents during the period will include amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted, and will be applied retrospectively to each period presented. The Company does not intend to adopt the guidance early. The adoption of ASU 2016-18 will not have a material impact on the financial statements of the Company.

Affiliate Transactions

Total revenues from all PPAs with affiliates, included in wholesale revenue affiliates on the consolidated statements of income, were $258 million, $219 million, and $153 million for the years ended December 31, 2016, 2015, and 2014, respectively. Included within these revenues were affiliate PPAs accounted for as operating leases, which totaled $109 million in both 2016 and 2015 and $75 million in 2014.

The Company has an agreement with SCS under which the following services are rendered to the Company at amounts in compliance with FERC regulation: general and design engineering, purchasing, accounting, finance and treasury, tax, information technology, marketing, auditing, insurance and pension administration, human resources, systems and procedures, digital wireless communications, labor, and other services with respect to business and operations, construction management, and transactions associated with the Southern Company system's fleet of generating units. Because the Company has no employees, all employee-related charges are rendered at amounts in compliance with FERC regulation under agreements with SCS. Costs for all of these services from SCS totaled approximately $193 million, $146 million, and $126 million for the years ended December 31, 2016, 2015, and 2014, respectively. Of these costs, approximately $173 million, $138 million, and $125 million for the years ended December 31, 2016, 2015, and 2014, respectively, were charged to other operations and maintenance expenses; the remainder was capitalized to property, plant, and equipment. Cost allocation methodologies used by SCS prior to the repeal of the Public Utility Holding Company Act of 1935, as amended, were approved by the SEC. Subsequently, additional cost allocation methodologies have been reported to the FERC and management believes they are reasonable. The FERC permits services to be rendered at cost by system service companies.

The Company also has several agreements with SCS for transmission services. Transmission services purchased from SCS totaled $11 million in each of the years ended December 31, 2016 and 2015 and $7 million for the year ended December 31, 2014, and were charged to other operations and maintenance in the consolidated statements of income. All charges were billed to the Company based on the Southern Company Open Access Transmission Tariff as filed with the FERC.

Prior to Southern Company's acquisition of Southern Company Gas, SCS, as agent for the Company, had agreements with various subsidiaries of Southern Company Gas to purchase natural gas. For the period subsequent to Southern Company's acquisition of Southern Company Gas, from July 1, 2016 through December 31, 2016, natural gas purchases made by the Company from Southern Company Gas' subsidiaries were approximately $17 million and are included in fuel expense on the consolidated statements of income.

In 2016, the Company sold a turbine rotor assembly to Gulf Power for approximately $7 million.

The Company and the traditional electric operating companies may jointly enter into various types of wholesale energy, natural gas, and certain other contracts, either directly or through SCS as agent. Each participating company may be jointly and severally liable for the obligations incurred under these agreements. See "Revenues" herein for additional information.

The Company and the traditional electric operating companies generally settle amounts related to the above transactions on a monthly basis in the month following the performance of such services or the purchase or sale of electricity.

Acquisition Accounting

The Company acquires generation assets as part of its overall growth strategy. For acquisitions that meet the definition of a business, the Company includes the operations in its consolidated financial statements from the respective date of acquisition. The purchase price, including contingent consideration, if any, of each acquisition is allocated based on the fair value of the identifiable assets and liabilities. Assets acquired that do not meet the definition of a business are accounted for as asset acquisitions. The purchase price of each asset acquisition is allocated based on the relative fair value of assets acquired. Any due diligence or transition costs incurred by the Company for successful or potential acquisitions are expensed as incurred. Contingent consideration recognized at the time of each acquisition primarily relates to fixed amounts due to the seller once the facility is successfully placed in service. To the extent there is any contingent consideration with variable payments, the Company fair values the arrangement with changes recorded in net income. See Note 8 for additional information.

Revenues

The Company sells capacity at rates specified under contractual terms for long-term PPAs. These PPAs are generally accounted for as operating leases, non-derivatives, or normal sale derivatives. Capacity revenues from PPAs classified as operating leases are recognized on a straight-line basis over the term of the agreement. Capacity revenues from PPAs classified as non-derivatives or normal sales are recognized at the lesser of the levelized amount or the amount billable under the contract over the respective contract periods. When multiple contracts exist with the same counterparty, the revenues from each contract are accounted for as separate arrangements. All capacity revenues are included in operating revenues.

The Company may also enter into contracts to sell short-term capacity in the wholesale electricity markets. These sales are generally classified as mark-to-market derivatives and net unrealized gains (losses) on such contracts are recorded in wholesale revenues. See Note 9 for additional information.

Energy revenues and other contingent revenues are recognized in the period the energy is delivered or the service is rendered. Transmission revenues and other fees are recognized as earned as other operating revenues. See "Financial Instruments" herein for additional information.

Significant portions of the Company's revenues have been derived from certain customers pursuant to PPAs. The following table shows the percentage of total revenues for the top three customers:



	2016		2015		2014
Georgia Power	16.5	%	15.8	%	10.1	%
Duke Energy Corporation	7.8	%	8.2	%	9.1	%
San Diego Gas & Electric Company	5.7	%	6.1	%	2.9	%
FPL	—	%	10.7	%	9.7	%

Fuel Costs

Fuel costs are expensed as the fuel is used. Fuel costs also include emissions allowances which are expensed as the emissions occur.

Income and Other Taxes

The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences.

Under current tax regulation, certain projects related to the construction of renewable facilities are eligible for federal ITCs. The Company estimates eligible costs which, as they relate to acquisitions, may not be finalized until the allocation of the purchase price to assets has been finalized. The Company applies the deferred method to ITCs as opposed to the flow-through method. Under the deferred method the ITCs are recorded as a deferred credit and amortized to income tax expense over the life of the respective asset. Furthermore, the tax basis of the asset is reduced by 50% of the ITCs received, resulting in a net deferred tax asset. The Company 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. In addition, certain projects are eligible for federal PTCs, which are recorded to income tax expense based on KWH production. Federal ITCs and PTCs available to reduce income taxes payable were not fully utilized during 2016 and will be carried forward and utilized in future years. The Company recognizes tax positions that are "more likely than not" of being sustained upon examination by the appropriate taxing authorities. See Note 5 for additional information.

Property, Plant, and Equipment

The Company's depreciable property, plant, and equipment consists primarily of generation assets.

Property, plant, and equipment is stated at original cost or acquired fair value. Original cost includes: materials, direct labor incurred by contractors and affiliated companies, and interest capitalized. Interest is capitalized on qualifying projects during the development and construction period. The cost to replace significant items of property defined as retirement units is capitalized. The cost of maintenance, repairs, and replacement of minor items of property is charged to other operations and maintenance expenses as incurred.

When depreciable property, plant, and equipment is retired, or otherwise disposed of in the normal course of business, the applicable cost and accumulated depreciation is removed and a gain or loss is recognized in the consolidated statements of income.

Depreciation

The Company applies component depreciation, where depreciation is computed principally by the straight-line method over the estimated useful life of the asset. Certain generation assets related to natural gas-fired facilities are depreciated on a units-of-production basis, using hours or starts, to better match outage and maintenance costs to the usage of, and revenues from, these assets.

The primary assets in property, plant, and equipment are generating facilities, which generally have estimated useful lives as follows:



Generating facility	Useful life
Natural gas	Up to 45 years
Biomass	Up to 40 years
Solar	Up to 35 years
Wind	Up to 30 years

The Company reviews its estimated useful lives and salvage values on an ongoing basis. The results of these reviews could result in changes which could have a material impact on net income in the near term.

Asset Retirement Obligations

Asset retirement obligations (ARO) are computed as the present value of the estimated ultimate costs for an asset's future retirement and are recorded in the period in which the liability is incurred. The costs are capitalized as part of the related long-lived asset and depreciated over the asset's useful life. In the absence of quoted market prices, AROs are estimated using present value techniques in which estimates of future cash outlays associated with the asset retirements are discounted using a credit-adjusted risk-free rate. Estimates of the timing and amounts of future cash outlays are based on projections of when and how the assets will be retired and the cost of future removal activities. The ARO liability primarily relates to the Company's solar and wind facilities, which are located on long-term land leases requiring the restoration of land at the end of the lease. See Note 2 for acquisitions during 2015 and 2016 which contributed to the increased liability.

Details of the AROs included on the consolidated balance sheets are as follows:



	2016		2015
	(in millions)
Balance at beginning of year	$	21	$	13
Liabilities incurred	42		7
Accretion	1		1
Balance at end of year	$	64	$	21

Long-Term Service Agreements

The Company has entered into LTSAs for the purpose of securing maintenance support for its natural gas-fired 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.

Payments made under the LTSAs prior to the performance of any planned inspections or unplanned capital maintenance are recorded as a prepayment in noncurrent assets on the consolidated balance sheets and are recorded as payments pursuant to LTSAs and for equipment not yet received in the statements of cash flows. At the time work is performed, which typically occurs during planned inspections, an appropriate amount is transferred from the prepayment to property, plant, and equipment or charged to expense. The receipt of major parts into materials and supplies inventory prior to planned inspections is treated as a noncash transaction for purposes of the statements of cash flows.

Impairment of Long-Lived Assets and Intangibles

The Company evaluates long-lived assets and finite-lived intangibles for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The Company's intangible assets consist primarily of certain PPAs acquired, which are amortized over the term of the PPA. The average term of these PPAs is 19 years. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows attributable to the assets, as compared with the carrying value of the assets. If the estimate of undiscounted future cash flows is less than the carrying value of the asset, the fair value of the asset is determined and a loss is recorded.

Amortization expense for acquired PPAs was $10 million for the year ended December 31, 2016 and $3 million for each of the years ended December 31, 2015 and 2014, and is recorded in operating revenues. The amortization expense for each of the next five years is as follows:



	Amortization Expense
	(in millions)
2017	$	25
2018	25
2019	25
2020	25
2021	25

Transmission Receivables/Prepayments

As a result of the Company's growth from the acquisition and construction of generating facilities, the Company has transmission receivables and/or prepayments representing the portion of interconnection network and transmission upgrades that will be reimbursed to the Company. Upon completion of the related project, transmission costs are generally reimbursed by the interconnection provider within a five-year period and the receivable/prepayments are reduced as payments or services are received.

Restricted Cash

The use of funds received under credit facilities for Garland, Roserock, and Tranquillity is restricted for construction purposes. In addition, as a result of the Wake Wind acquisition, cash was received and is restricted for final completion payments related to construction. The aggregate amount of restricted cash at December 31, 2016 and 2015 was $13 million and $5 million, respectively, and is included in other deferred charges and assets – non-affiliated.

Cash and Cash Equivalents

For purposes of the financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less.

Materials and Supplies

Materials and supplies include the average cost of generating plant materials and are recorded as inventory when purchased and then expensed or capitalized to property, plant, and equipment, as appropriate, at weighted average cost when installed. In addition, certain major parts are recorded as inventory when acquired and then capitalized at cost when installed to property, plant, and equipment.

Fuel Inventory

Fuel inventory includes the cost of oil, natural gas, biomass, and emissions allowances. The Company maintains oil inventory for use at several natural gas generating units. The Company has contracts in place for natural gas storage to support normal operations of the Company's natural gas generating units. The Company maintains biomass inventory for use at Plant Nacogdoches. Inventory is maintained using the weighted average cost method. Fuel inventory and emissions allowances are recorded at actual cost when purchased and then expensed at weighted average cost as used. Emissions allowances granted by the EPA are included at zero cost.

Financial Instruments

The Company uses derivative financial instruments to limit exposure to fluctuations in interest rates, the prices of certain fuel purchases, electricity purchases and sales, and foreign currency exchange rates. All derivative financial instruments are recognized as either assets or liabilities on the consolidated balance sheets (included in "Other" or shown separately as "Risk Management Activities") and are measured at fair value. See Note 8 for additional information regarding fair value. Substantially all of the Company's bulk energy purchases and sales contracts that meet the definition of a derivative are excluded from fair value accounting requirements because they qualify for the "normal" scope exception, and are accounted for under the accrual method. Derivative contracts that qualify as cash flow hedges of anticipated transactions result in the deferral of related gains and losses in AOCI until the hedged transactions occur. Any ineffectiveness arising from cash flow hedges is recognized currently in net income. Other derivative contracts that qualify as fair value hedges are marked to market through current period income and are recorded in the financial statement line item where they will eventually settle. Cash flows from derivatives are classified on the statement of cash flows in the same category as the hedged item. See Note 9 for additional information regarding derivatives.

Beginning in 2016, the Company offsets the fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a netting arrangement. Additionally, the Company had no outstanding collateral repayment obligations or rights to reclaim collateral arising from derivative instruments recognized at December 31, 2016.

Comprehensive Income

The objective of comprehensive income is to report a measure of all changes in common stock equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners. Comprehensive income consists of net income, changes in the fair value of qualifying cash flow hedges, and reclassifications of amounts included in net income.

Variable Interest Entities

The Company has certain wholly-owned subsidiaries that are determined to be VIEs. The Company is considered the primary beneficiary of these VIEs because it controls the most significant activities of the VIEs, including operating and maintaining the respective assets, and has the obligation to absorb expected losses of these VIEs to the extent of its equity interests.

Southern Company Gas [Member]

Summary of Significant Accounting Policies [Line Items]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

On July 1, 2016, Southern Company and Southern Company Gas (formerly known as AGL Resources Inc.) (together with its subsidiaries, the Company) completed the Merger and Southern Company Gas became a wholly-owned, direct subsidiary of Southern Company and, on July 11, 2016, changed its name to Southern Company Gas. In addition to the Company, Southern Company is the parent company of four traditional electric operating companies, Southern Power, Southern Company Services, Inc. (SCS), Southern LINC, Southern Company Holdings, Inc. (Southern Holdings), Southern Nuclear, PowerSecure, Inc., and other direct and indirect subsidiaries. Southern Company Gas is an energy services holding company whose primary business is the distribution of natural gas across seven states through its seven natural gas distribution utilities. The Company also is involved in several other businesses that are complementary to the distribution of natural gas. The traditional electric operating companies – Alabama Power Company, Georgia Power Company, Gulf Power Company, and Mississippi Power Company – are vertically integrated utilities providing electric service in four Southeastern states. Southern Power constructs, acquires, owns, and manages generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. SCS, the system service company, provides, at cost, specialized services to Southern Company and its subsidiary companies. Southern LINC provides digital wireless communications for use by Southern Company and its subsidiary companies and also markets these services to the public and provides fiber cable services within the Southeast. Southern Holdings is an intermediate holding company subsidiary, primarily for Southern Company's investments in leveraged leases and for other electric services. Southern Nuclear operates and provides services to the Southern Company system's nuclear power plants. PowerSecure, Inc. is a provider of products and services in the areas of distributed generation, energy efficiency, and utility infrastructure.

The financial statements reflect the Company's investments in its subsidiaries on a consolidated basis. The equity method is used for subsidiaries in which the Company has significant influence but does not control and for VIEs where the Company has an equity investment, but is not the primary beneficiary. Intercompany transactions have been eliminated in consolidation.

The seven natural gas distribution utilities are subject to regulation by the regulatory agencies of each state in which they operate. As such, the Company's financial statements reflect the effects of rate regulation in accordance with GAAP and comply with the accounting policies and practices prescribed by its regulatory commissions. The preparation of financial statements in conformity with GAAP requires the use of estimates, and the actual results may differ from those estimates.

Pursuant to the Merger, Southern Company has pushed down the application of the acquisition method of accounting to the consolidated financial statements of the Company such that the assets and liabilities are recorded at their respective fair values, and goodwill has been established for the excess of the purchase price over the fair value of net identifiable assets. Accordingly, the consolidated financial statements of the Company for periods before and after July 1, 2016 (acquisition date) reflect different bases of accounting, and the financial positions and results of operations of those periods are not comparable. Throughout the consolidated financial statements and notes to the financial statements, periods prior to July 1, 2016 are identified as "predecessor," while periods after the acquisition date are identified as "successor."

Certain predecessor period data presented in the financial statements has been modified or reclassified to conform to the presentation used by the Company's new parent company, Southern Company. Changes to the consolidated statements of income include classifying operating revenues as natural gas revenues and other revenues as well as classifying cost of goods sold as cost of natural gas and cost of other sales, and presenting interest expense and AFUDC on a gross basis. Changes to the consolidated statements of cash flows include revised financial statement line item descriptions to align with the new balance sheet descriptions and expanded line items within each category of cash flow activity. Changes to the consolidated balance sheets include changing certain captions to conform to the presentation of Southern Company.

Recently Issued Accounting Standards

While the Company expects most of its revenue to be included in the scope of ASC 606, it has not fully completed its evaluation of such arrangements. The majority of the Company's revenue, including energy provided to customers, is from tariff offerings that provide natural gas without a defined contractual term. For such arrangements, the Company generally expects that the revenue from contracts with these customers will continue to be equivalent to the natural gas supplied and billed in that period (including unbilled revenues) and the adoption of ASC 606 will not result in a significant shift in the timing of revenue recognition for such sales.

The Company's ongoing evaluation of other revenue streams and related contracts includes longer term contractual commitments and unregulated sales to customers. Some revenue arrangements, such as certain alternative revenue programs, are expected to be excluded from the scope of ASC 606 and therefore, be accounted for and presented separately from revenues under ASC 606 on the Company's financial statements. In addition, the power and utilities industry is currently addressing other specific industry issues, including the applicability of ASC 606 to contributions in aid of construction (CIAC). If final implementation guidance indicates CIAC will be accounted for under ASC 606 and offsetting regulatory treatment is not permitted, it could have a material impact on the Company's financial statements.

On November 20, 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which simplifies the presentation of deferred income taxes. ASU 2015-17 requires deferred tax assets and liabilities to be presented as non-current in a classified balance sheet and is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. As permitted, the Company elected to early adopt the guidance in 2016. Prior to the adoption of ASU 2015-17, all deferred income tax assets and liabilities were required to be separated into current and non-current amounts. The adoption of ASU 2015-17 did not have an impact on the results of operations, cash flows, or financial condition of the Company.

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires lessees to recognize on the balance sheet a lease liability and a right-of-use asset for all leases. ASU 2016-02 also changes the recognition, measurement, and presentation of expense associated with leases and provides clarification regarding the identification of certain components of contracts that would represent a lease. The accounting required by lessors is relatively unchanged and there is no change to the accounting for existing leveraged leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the new standard and has not yet determined its ultimate impact; however, adoption of ASU 2016-02 is expected to have a significant impact on the Company's balance sheet.

On March 30, 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 changes the accounting for income taxes and the cash flow presentation for share-based payment award transactions effective for fiscal years beginning after December 15, 2016. The new guidance requires all excess tax benefits and deficiencies related to the exercise or vesting of stock compensation to be recognized as income tax expense or benefit in the income statement. Previously, the Company recognized any excess tax benefits and deficiencies related to the exercise and vesting of stock compensation as additional paid-in capital. In addition, the new guidance requires excess tax benefits for share-based payments to be included in net cash provided from operating activities rather than net cash provided from financing activities on the statement of cash flows. The Company elected to adopt the guidance in 2016 and reflect the related adjustments as of January 1, 2016. Prior year's data presented in the financial statements has not been adjusted. The Company also elected to recognize forfeitures as they occur. The new guidance did not have a material impact on the results of operations, financial position, or cash flows of the Company. See Note 5 for the disclosure impacted by ASU 2016-09.

On October 24, 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). Current GAAP prohibits the recognition of current and deferred income taxes for an affiliate asset transfer until the asset has been sold to an outside party. ASU 2016-16 requires an entity to recognize the income tax consequences of an affiliate transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The amendments will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently assessing the impact of the standard on its financial statements.

On November 17, 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). ASU 2016-18 eliminates the need to reflect transfers between cash and restricted cash in operating, investing, and financing activities in the statement of cash flows. Upon adoption, the net change in cash and cash equivalents during the period will include amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted, and will be applied retrospectively to each period presented. The Company does not intend to adopt the guidance early. The adoption of ASU 2016-18 will not have a material impact on the financial statements of the Company.

Affiliate Transactions

Prior to the Company's completion of its acquisition of a 50% equity interest in SNG, the Company entered into a long-term interstate natural gas transportation agreement with SNG. The interstate transportation service provided to the Company by SNG pursuant to this agreement is governed by the terms and conditions of SNG's natural gas tariff and is subject to FERC regulation. For the period subsequent to the Company's investment in SNG, transportation costs paid to SNG by the Company were approximately $15 million. See Note 4 herein under "Equity Method Investments – SNG" for additional information regarding the Company's investment in SNG.

The Company has an agreement with SCS under which the following services are currently being rendered to the Company as direct or allocated cost: accounting, finance and treasury, tax, information technology, auditing, insurance and pension administration, human resources, systems and procedures, purchasing, and other services. For the successor period of July 1, 2016 through December 31, 2016, costs for these services amounted to $17 million.

SouthStar and Sequent each have agreements under which they sell natural gas to SCS, as agent for the traditional electric operating companies and Southern Power. For the successor period of July 1, 2016 through December 31, 2016, revenue from these agreements totaled $9 million and $19 million, respectively.

Regulatory Assets and Liabilities

Regulatory assets and (liabilities) reflected in the balance sheets at December 31 relate to:



	Successor			Predecessor
	2016			2015			Note
	(in millions)			(in millions)
Deferred income tax credits	$	(22	)	$	(27	)	(a)
Long-term debt fair value adjustment	154			66			(b)
Environmental remediation - asset	411			401			(h)
Under recovered regulatory clause revenues	118			69			(c)
Financial instrument hedging - asset	—			30			(d,h)
Other regulatory assets	58			47			(e)
Other cost of removal obligations	(1,616		)	(1,591		)	(a)
Financial instrument hedging - liability	(21		)	—			(d,h)
Other regulatory liabilities	(18		)	(20		)	(f)
Retiree benefit plans	325			125			(g,h)
Over recovered regulatory clause revenues	(104		)	(87		)	(c)
Total regulatory assets (liabilities), net	$	(715	)	$	(987	)

Note: The recovery and amortization periods for these regulatory assets and (liabilities) are as follows:


(a)	Deferred income tax assets and liabilities are amortized over the related property lives, which range up to 30 years.


(b)	Recovered over the remaining life of the original debt issuances, which range up to 22 years.


(c)	Recorded and recovered or amortized as approved or accepted by the applicable state regulatory agencies over periods not exceeding nine years.


(d)	Financial instrument-hedging assets and liabilities are recorded over the life of the underlying hedged purchase contracts, which generally do not exceed two years. Upon final settlement, actual costs incurred are recovered, and actual income earned is refunded through the energy cost recovery clause.


(e)	Comprised of several components including unamortized loss on reacquired debt, weather normalization, franchise gas, and deferred depreciation expense, which are recovered or amortized as approved by the applicable state regulatory agencies over periods generally not exceeding ten years.


(f)	Comprised of several components including energy efficiency programs and unamortized bond issuance costs which are recovered or amortized as approved by the applicable state regulatory agencies over periods generally not exceeding four years.


(g)	Recovered and amortized over the average remaining service period which range up to 11 years. See Note 2 for additional information.


(h)	Not earning a return as offset in rate base by a corresponding asset or liability.

In the event that a portion of its operations is no longer subject to applicable accounting rules for rate regulation, the Company would be required to write off to income related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine if any impairment to other assets, including plant, exists and write down the assets, if impaired, to their fair values. All regulatory assets and liabilities are to be reflected in rates. See Note 3 under "Regulatory Matters" for additional information.

Revenues

Gas Distribution Operations

The Company records revenues when goods or services are provided to customers. Those revenues are based on rates approved by the state regulatory agencies of the Company's utilities. As required by the Georgia PSC, Atlanta Gas Light bills Marketers in equal monthly installments for each residential, commercial, and industrial end-use customer's distribution costs as well as for capacity costs utilizing a seasonal rate design for the calculation of each residential end-use customer's annual straight-fixed-variable charge, which reflects the historic volumetric usage pattern for the entire residential class.

All of the natural gas utilities, with the exception of Atlanta Gas Light, have rate structures that include volumetric rate designs that allow the opportunity to recover certain costs based on gas usage. Revenues from sales and transportation services are recognized in the same period in which the related volumes are delivered to customers. Revenues from residential and certain commercial and industrial customers are recognized on the basis of scheduled meter readings. Additionally, unbilled revenues are recognized for estimated deliveries of gas not yet billed to these customers, from the last bill date to the end of the accounting period. For other commercial and industrial customers and for all wholesale customers, revenues are based on actual deliveries to the end of the period.

The tariffs for Virginia Natural Gas, Elizabethtown Gas, and Chattanooga Gas contain weather normalization adjustments (WNAs) that partially mitigate the impact of unusually cold or warm weather on customer billings and natural gas revenues. The WNAs have the effect of reducing customer bills when winter weather is colder than normal and increasing customer bills when weather is warmer than normal. In addition, the tariffs for Virginia Natural Gas, Chattanooga Gas, and Elkton Gas contain revenue normalization mechanisms that mitigate the impact of conservation and declining customer usage. The WNAs and revenue normalization mechanisms are alternative revenue programs, which allow recognition of revenue prior to billing as long as the amounts will be collected within 24 months of recognition.

Revenue Taxes

The Company charges customers for gas revenue and gas use taxes imposed on the Company and remits amounts owed to various governmental authorities. Gas revenue taxes are recorded at the amount charged to customers, which may include a small administrative fee, as operating revenues, and the related taxes imposed on the Company are recorded as operating expenses on the statements of income. Gas use taxes are excluded from revenue and expense with the related administrative fee included in operating revenues when the tax is imposed on the customer. Revenue taxes included in operating expenses were $31 million for the successor period of July 1, 2016 through December 31, 2016 and $56 million, $101 million, and $130 million for the predecessor periods of January 1, 2016 through June 30, 2016 and the years ended December 31, 2015 and 2014, respectively.

Gas Marketing Services

The Company recognizes revenues from natural gas sales and transportation services in the same period in which the related volumes are delivered to customers and recognizes sales revenues from residential and certain commercial and industrial customers on the basis of scheduled meter readings. The Company also recognizes unbilled revenues for estimated deliveries of gas not yet billed to these customers from the most recent meter reading date to the end of the accounting period. For other commercial and industrial customers and for all wholesale customers, revenues are based on actual deliveries during the period.

The Company recognizes revenues on 12-month utility-bill management contracts as the lesser of cumulative earned or cumulative billed amounts. Revenues for warranty and repair contracts are recognized on a straight-line basis over the contract term while revenues for maintenance services are recognized at the time such services are performed.

Wholesale Gas Services

The Company nets revenues from energy and risk management activities with the associated costs. Profits from sales between segments are eliminated and are recognized as goods or services sold to end-use customers. The Company records transactions that qualify as derivatives at fair value with changes in fair value recognized in earnings in the period of change and characterized as unrealized gains or losses. Gains and losses on derivatives held for energy trading purposes are presented on a net basis in revenue.

Concentration of Revenue

The Company has a diversified base of customers. No single customer or industry comprises 10% or more of revenues. For all periods presented, uncollectible accounts averaged less than 1% of revenues.

Cost of Natural Gas and Other Sales

Gas Distribution Operations

Excluding Atlanta Gas Light, which does not sell natural gas to end-use customers, the Company charges its utility customers for natural gas consumed using natural gas cost recovery mechanisms set by the applicable state regulatory agencies. Under these mechanisms, all prudently incurred natural gas costs are passed through to customers without markup, subject to regulatory review. The Company defers or accrues the difference between the actual cost of natural gas and the amount of commodity revenue earned in a given period such that no operating income is recognized related to these costs. The deferred or accrued amount is either billed or refunded to customers prospectively through adjustments to the commodity rate. Deferred and accrued natural gas costs are included in the consolidated balance sheets as regulatory assets and regulatory liabilities, respectively.

Gas Marketing Services

The Company's gas marketing services' customers are charged for actual or estimated natural gas consumed. Within cost of natural gas, the Company also includes costs of fuel and lost and unaccounted for gas, adjustments to reduce the value of inventories to market value, and gains and losses associated with certain derivatives. The Company records the costs to service its warranty and repair contract claims as cost of other sales.

Income and Other Taxes

Property, Plant, and Equipment

Property, plant, and equipment is stated at original cost, or fair value at the effective date of the Merger as appropriate, less any regulatory disallowances and impairments. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the interest capitalized and cost of equity funds used during construction.

The Company's property, plant, and equipment in service consisted of the following at December 31:



	Successor		Predecessor
	2016		2015
	(in millions)		(in millions)
Utility plant in service	$	11,996	$	9,912
Information technology equipment and software	324		415
Storage facilities	1,463		1,255
Other	725		570
Total other plant in service	2,512		2,240
Total plant in service	$	14,508	$	12,152

The cost of replacements of property, exclusive of minor items of property, is capitalized. The cost of maintenance, repairs, and replacement of minor items of property is charged to other operations and maintenance expenses as incurred or performed. The portion of pad gas at the Company's natural gas storage facilities considered to be non-recoverable is recorded as depreciable property, plant, and equipment, while the recoverable or retained portion is recorded as non-depreciable property, plant, and equipment.

The amount of non-cash property additions recognized for the successor period of July 1, 2016 through December 31, 2016 and the predecessor periods of January 1, 2016 through June 30, 2016 and the years ended December 31, 2015 and 2014 was $63 million, $41 million, $48 million, and $31 million, respectively. These amounts are comprised of construction-related accounts payable outstanding at the end of each period.

Depreciation and Amortization

Depreciation of the original cost of utility plant in service is provided using composite straight-line rates, which approximated 2.8% in 2016 and 2.7% in each of 2015 and 2014. Depreciation studies are conducted periodically to update the composite rates that are approved by the respective state regulatory agency. When property subject to composite depreciation is retired or otherwise disposed of in the normal course of business, its original cost, together with the cost of removal, less salvage, is charged to accumulated depreciation. For other property dispositions, the applicable cost and accumulated depreciation are removed from the balance sheet accounts, and a gain or loss is recognized. Minor items of property included in the original cost of the asset are retired when the related property unit is retired.

Depreciation of the original cost of other plant in service is provided primarily on a straight-line basis over the following useful lives: five to 15 years for transportation equipment, 40 to 60 years for storage facilities, and up to 65 years for other assets.

Allowance for Funds Used During Construction

The Company records AFUDC for Atlanta Gas Light, Nicor Gas, Chattanooga Gas, and Elizabethtown Gas, which represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new regulated facilities. While cash is not realized currently, AFUDC increases the revenue requirement and is recovered over the service life of the asset through a higher rate base and higher depreciation. All current construction costs are included in rates. The capital expenditures of the other three natural gas utilities do not qualify for AFUDC treatment.

The Company's AFUDC composite rates are as follows:



	Successor		Predecessor
	July 1, 2016 through December 31,		January 1, 2016 through June 30,		Years ended December 31,
	2016		2016		2015		2014
Atlanta Gas Light	4.05	%	4.05	%	8.10	%	8.10	%
Chattanooga Gas^(*)	3.71		3.71		7.41		7.41
Elizabethtown Gas^(*)	0.84		0.84		1.69		0.44
Nicor Gas^(*)	1.50		1.50		0.82		0.24


(*)	Variable rate is determined by the FERC method of AFUDC accounting.

Cash payments for interest during the successor period of July 1, 2016 through December 31, 2016 and the predecessor periods of January 1, 2016 through June 30, 2016 and the years ended December 31, 2015 and 2014 totaled $135 million, $119 million, $181 million, and $187 million, respectively.

Goodwill and Other Intangible Assets and Liabilities

Goodwill is not amortized, but is subject to an annual impairment test during the fourth quarter of each year, or more frequently if impairment indicators arise. In assessing goodwill for impairment, the Company has the option of first performing a qualitative assessment to determine that it is more likely than not that fair value of its reporting unit exceeds its carrying value (commonly referred to as Step 0). If the Company chooses not to perform a qualitative assessment, or the result of Step 0 indicates a probable decrease in fair value of its reporting unit below its carrying value, a quantitative two-step test is performed (commonly referred to as Step 1 and Step 2). Step 1 compares the fair value of the reporting unit to its carrying value including goodwill. If the carrying value exceeds the fair value, Step 2 is performed to allocate the fair value of the reporting unit to its assets and liabilities in order to determine the implied fair value of goodwill, which is compared to the carrying value of goodwill to calculate an impairment loss, if any.

The Company performed Step 1 of the impairment test in the fourth quarter 2014, which resulted in the fair values of all reporting units with goodwill exceeding their respective carrying value. However, the Company noted that the fair value of the storage and fuels reporting unit, which had $14 million of goodwill, exceeded its carrying value by less than 5% and would be at risk of failing Step 1 of the test if a further decline in fair value were to occur. While preparing the third quarter 2015 financial statements, and in connection with the 2016 annual budget process, the Company concluded that a decline in projected storage subscription rates as well as a reduction in the near-term projection of the reporting unit's profitability required an interim goodwill impairment test to be performed as of September 30, 2015.

The Company performed Step 1 and Step 2 for the interim goodwill impairment test. Based on this assessment, a non-cash impairment charge for the entire $14 million of goodwill was recorded as of September 30, 2015.

For the 2016 and 2015 annual goodwill impairment tests, the Step 0 assessment was performed focusing on the following qualitative factors: macroeconomic conditions, industry and market conditions, cost factors, financial performance, entity specific events, and events specific to each reporting unit. This Step 0 analysis concluded that it is more likely than not that the fair value of the Company's reporting units that have goodwill exceeds their carrying amounts and a quantitative assessment was not required.

Goodwill and other intangible assets consisted of the following:



		Successor - At December 31, 2016
	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization			Other Intangible Assets, Net
		(in millions)
Other intangible assets subject to amortization:
Gas marketing services
Customer relationships	11-14 years	$	221	$	(30	)	$	191
Trade names	10-28 years	115		(2		)	113
Wholesale gas services
Storage and transportation contracts	1-5 years	64		(2		)	62
Total intangible assets subject to amortization		$	400	$	(34	)	$	366

Goodwill:
Gas distribution operations^(*)		$	4,702	$	—		4,702
Gas marketing services		1,265		—			1,265
Total goodwill		$	5,967	$	—		$	5,967

(*) Measurement period adjustments were recorded in acquisition accounting during the fourth quarter 2016 that resulted in a net $30 million increase to goodwill.



		Predecessor - At December 31, 2015
	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization			Other Intangible Assets, Net
		(in millions)
Other intangible assets subject to amortization:
Gas marketing services
Customer relationships	11-14 years	$	132	$	(57	)	$	75
Trade names	10-28 years	45		(11		)	34
Total intangible assets subject to amortization		$	177	$	(68	)	$	109

Goodwill:
Gas distribution operations		$	1,640	$	—		$	1,640
Gas marketing services		173		—			173
Total goodwill		$	1,813	$	—		$	1,813

Amortization associated with intangible assets during the successor period of July 1, 2016 through December 31, 2016 and the predecessor periods of January 1, 2016 through June 30, 2016 and the years ended December 31, 2015 and 2014 was $32 million, $8 million, $18 million, and $20 million, respectively. Amortization of $2 million for wholesale gas services is recorded as a reduction to operating revenues. The increases in goodwill and other intangible assets relate to purchase accounting adjustments associated with the Merger. See Note 11 under "Merger with Southern Company" for additional information.

As of December 31, 2016, the estimated amortization associated with other intangible assets is as follows:



	Amortization
	(in millions)
2017	$	73
2018	58
2019	40
2020	28
2021	21

Included in other deferred credits and liabilities on the balance sheets is $91 million of intangible liabilities that were recorded during acquisition accounting for transportation contracts at wholesale gas services. At December 31, 2016, the accumulated amortization of these intangible liabilities was $21 million. The estimated amortization associated with the intangible liabilities that will be recorded in natural gas revenues is as follows:



	Amortization
	(in millions)
2017	$	29
2018	24
2019	17

Cash and Cash Equivalents

For purposes of the financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less.

Energy Marketing Receivables and Payables

Wholesale gas services provides services to retail gas marketers, wholesale gas marketers, utility companies, and industrial customers. These counterparties utilize netting agreements that enable wholesale gas services to net receivables and payables by counterparty upon settlement. Wholesale gas services also nets across product lines and against cash collateral, provided the master netting and cash collateral agreements include such provisions. While the amounts due from, or owed to, wholesale gas services' counterparties are settled net, they are recorded on a gross basis in the consolidated balance sheets as energy marketing receivables and energy marketing payables.

Wholesale gas services has trade and credit contracts that contain minimum credit rating requirements. These credit rating requirements typically give counterparties the right to suspend or terminate credit if the Company's credit ratings are downgraded to non-investment grade status. Under such circumstances, wholesale gas services would need to post collateral to continue transacting business with some of its counterparties. As of December 31, 2016 and 2015, the required collateral in the event of a credit rating downgrade was immaterial.

Wholesale gas services has a concentration of credit risk for services it provides to its counterparties. This credit risk is generally concentrated in 20 of its counterparties and is measured by 30-day receivable exposure plus forward exposure. Counterparty credit risk is evaluated using an S&P equivalent credit rating, which is determined by a process of converting the lower of the S&P or Moody's rating to an internal rating ranging from 9 to 1, with 9 being equivalent to AAA/Aaa by S&P and Moody's, respectively, and 1 being equivalent to D/Default by S&P and Moody's, respectively. A counterparty that does not have an external rating is assigned an internal rating based on the strength of its financial ratios. As of December 31, 2016, the top 20 counterparties represented 46%, or $205 million, of the total counterparty exposure and had a weighted average S&P equivalent rating of A-.

Credit policies were established to determine and monitor the creditworthiness of counterparties, including requirements to post collateral or other credit security, as well as the quality of pledged collateral. Collateral or credit security is most often in the form of cash or letters of credit from an investment-grade financial institution, but may also include cash or U.S. government securities held by a trustee. When wholesale gas services is engaged in more than one outstanding derivative transaction with the same counterparty and it also has a legally enforceable netting agreement with that counterparty, the "net" mark-to-market exposure represents the netting of the positive and negative exposures with that counterparty combined with a reasonable measure of the Company's credit risk. Wholesale gas services also uses other netting agreements with certain counterparties with whom it conducts significant transactions.

Receivables and Allowance for Uncollectible Accounts

The Company's other trade receivables consist primarily of natural gas sales and transportation services billed to residential, commercial, industrial, and other customers. Customers are billed monthly and payment is due within 30 days. For the majority of receivables, an allowance for doubtful accounts is established based on historical collection experience and other factors. For the remaining receivables, if the Company is aware of a specific customer's inability to pay, an allowance for doubtful accounts is recorded to reduce the receivable balance to the amount the Company reasonably expects to collect. If circumstances change, the estimate of the recoverability of accounts receivable could change as well. Circumstances that could affect this estimate include, but are not limited to, customer credit issues, customer deposits, and general economic conditions. Customers' accounts are written off once they are deemed to be uncollectible.

Nicor Gas

Credit risk exposure at Nicor Gas is mitigated by a bad debt rider approved by the Illinois Commission. The bad debt rider provides for the recovery from (or refund to) customers of the difference between Nicor Gas' actual bad debt experience on an annual basis and the benchmark bad debt expense used to establish its base rates for the respective year.

Atlanta Gas Light

Concentration of credit risk occurs at Atlanta Gas Light for amounts billed for services and other costs to its customers, which consist of 14 Marketers in Georgia. The credit risk exposure to Marketers varies seasonally, with the lowest exposure in the non-peak summer months and the highest exposure in the peak winter months. Marketers are responsible for the retail sale of natural gas to end-use customers in Georgia. The functions of the retail sale of gas include the purchase and sale of natural gas, customer service, billings, and collections. Atlanta Gas Light obtains credit security support in an amount equal to no less than two times a Marketer's highest month's estimated bill from Atlanta Gas Light.

Materials and Supplies

Generally, materials and supplies include propane gas inventory, fleet fuel, and other materials and supplies. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, at weighted average cost when installed.

Natural Gas for Sale

The natural gas distribution utilities, with the exception of Nicor Gas, record natural gas inventories on a WACOG basis. In Georgia's competitive environment, Marketers sell natural gas to firm end-use customers at market-based prices. Part of the unbundling process, which resulted from deregulation and provides this competitive environment, is the assignment to Marketers of certain pipeline services that Atlanta Gas Light has under contract. On a monthly basis, Atlanta Gas Light assigns to Marketers the majority of the pipeline storage services that it has under contract, along with a corresponding amount of inventory. Atlanta Gas Light retains and manages a portion of its pipeline storage assets and related natural gas inventories for system balancing and to serve system demand.

Nicor Gas' inventory is carried at cost on a LIFO basis. Inventory decrements occurring during the year that are restored prior to year end are charged to cost of natural gas at the estimated annual replacement cost. Inventory decrements that are not restored prior to year end are charged to cost of natural gas at the actual LIFO cost of the inventory layers liquidated. The cost of gas, including inventory costs, is recovered from customers under a purchased gas recovery mechanism adjusted for differences between actual costs and amounts billed; therefore, LIFO liquidations have no impact on the Company's net income. At December 31, 2016, the Nicor Gas LIFO inventory balance was $148 million. Based on the average cost of gas purchased in December 2016, the estimated replacement cost of Nicor Gas' inventory at December 31, 2016 was $310 million, which exceeded the LIFO cost by $162 million. During 2016, Nicor Gas did not liquidate any LIFO-based inventory.

The gas marketing services, wholesale gas services, and all other segments record inventory at LOCOM, with cost determined on a WACOG basis. For these segments, the Company evaluates the weighted average cost of its natural gas inventories against market prices to determine whether any declines in market prices below the WACOG are other than temporary. As indicated in the following table, for any declines considered to be other than temporary, the Company recorded LOCOM adjustments to cost of natural gas to reduce the value of its natural gas inventories to market value.



	Successor		Predecessor
	July 1, 2016 to December 31, 2016		January 1, 2016 to June 30, 2016		2015		2014
	(in millions)		(in millions)
Gas marketing services	$	—	$	—	$	3	$	4
Wholesale gas services	1		3		19		73
All other	—		—		1		—
Total	$	1	$	3	$	23	$	77

Fair Value Measurements

The Company has financial and nonfinancial assets and liabilities subject to fair value measurement. The financial assets and liabilities measured and carried at fair value include cash and cash equivalents and derivative instruments. The carrying values of receivables, short and long-term investments, accounts payable, short-term debt, other current assets and liabilities, and accrued interest approximate their respective fair value. The nonfinancial assets and liabilities include pension and welfare benefits. See Notes 2 and 9 for additional fair value disclosures.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in valuing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company primarily applies the market approach for recurring fair value measurements to utilize the best available information. Accordingly, the Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value balances are classified based on the observance of those inputs. The guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy defined by the guidance are as follows:

Level 1

Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. The Company's Level 1 items consist of exchange-traded derivatives, money market funds, and certain retirement plan assets.

Level 2

Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial and commodity instruments that are valued using valuation methodologies. These methodologies are primarily industry-standard methodologies that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. Market price data is obtained from multiple sources in order to value certain Level 2 transactions and this data is representative of transactions that occurred in the marketplace. Level 2 instruments include shorter tenor exchange-traded and non-exchange-traded derivatives such as over-the-counter (OTC) forwards and options and certain retirement plan assets.

Level 3

Pricing inputs include significant unobservable inputs that may be used with internally developed methodologies to determine management's best estimate of fair value from the perspective of market participants. Level 3 instruments include those that may be more structured or otherwise tailored to customers' needs. Level 3 assets, liabilities, and any applicable transfers are primarily related to the Company's pension and welfare benefit plan assets as described in Note 2. Transfers into and out of Level 3 are determined using values at the end of the interim period in which the transfer occurred.

Financial Instruments

The Company uses derivative financial instruments to limit exposure to fluctuations in natural gas prices, weather, interest rates, and commodity prices. All derivative financial instruments are recognized as either assets or liabilities on the balance sheets (shown separately as "Risk Management Activities") and are measured at fair value. See Note 9 for additional information regarding fair value. Derivative contracts that qualify as cash flow hedges of anticipated transactions or are recoverable through the respective state regulatory agency approved fuel-hedging programs result in the deferral of related gains and losses in OCI or regulatory assets and liabilities, respectively, until the hedged transactions occur. Any ineffectiveness arising from cash flow hedges is recognized currently in net income. Cash flows from derivatives are classified on the statement of cash flows in the same category as the hedged item. See Note 10 for additional information regarding derivatives.

The Company offsets fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a master netting arrangement. The Company had no outstanding collateral repayment obligations or rights to reclaim collateral arising from derivative instruments recognized at December 31, 2016.

The Company enters into weather derivative contracts as economic hedges of natural gas revenues in the event of warmer-than-normal weather in the Heating Season. Exchange-traded options are carried at fair value, with changes reflected in natural gas revenues. Non-exchange-traded options are accounted for using the intrinsic value method. Changes in the intrinsic value for non-exchange-traded contracts are also reflected in natural gas revenues in the consolidated statements of income.

Wholesale gas services purchases natural gas for storage when the current market price paid to buy and transport natural gas plus the cost to store and finance the natural gas is less than the market price that can be received in the future, resulting in positive net natural gas revenues. NYMEX futures and OTC contracts are used to sell natural gas at that future price to substantially protect the natural gas revenues that will ultimately be realized when the stored natural gas is sold. The Company enters into transactions to secure transportation capacity between delivery points in order to serve its customers and various markets. NYMEX futures and OTC contracts are used to capture the price differential or spread between the locations served by the capacity in order to substantially protect the natural gas revenues that will ultimately be realized when the physical flow of natural gas between delivery points occurs. These contracts generally meet the definition of derivatives and are carried at fair value on the consolidated balance sheets, with changes in fair value recorded in natural gas revenues on the consolidated statements of income in the period of change. These contracts are not designated as hedges for accounting purposes.

The purchase, transportation, storage, and sale of natural gas are accounted for on a weighted average cost or accrual basis, as appropriate, rather than on the fair value basis utilized for the derivatives used to mitigate the natural gas price risk associated with the storage and transportation portfolio. Monthly demand charges are incurred for the contracted storage and transportation capacity and payments associated with asset management agreements, and these demand charges and payments are recognized on the consolidated statements of income in the period they are incurred. This difference in accounting methods can result in volatility in reported earnings, even though the economic margin is substantially unchanged from the dates the transactions were consummated.

Comprehensive Income

The objective of comprehensive income is to report a measure of all changes in common stock equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners. Comprehensive income consists of net income, changes in the fair value of qualifying cash flow hedges, certain changes in pension and other postretirement benefit plans, and reclassifications for amounts included in net income.

Non-Wholly Owned Entities

The Company holds ownership interests in a number of business ventures with varying ownership structures and evaluates all of its partnership interests and other variable interests to determine if each entity is a VIE. If a venture is a VIE for which the Company is the primary beneficiary, the assets, liabilities, and results of operations of the entity are consolidated. The Company reassesses its conclusion as to whether an entity is a VIE upon certain occurrences, which are deemed reconsideration events under the guidance. See Note 4 under "Variable Interest Entities" for additional information.

For entities that are not determined to be VIEs, the Company evaluates whether it has control or significant influence over the investee to determine the appropriate consolidation and presentation. Generally, entities under the control of the Company are consolidated, and entities over which the Company can exert significant influence, but does not control, are accounted for under the equity method of accounting. However, the Company also invests in partnerships and limited liability companies that maintain separate ownership accounts. All such investments are required to be accounted for under the equity method unless the interest is so minor that there is virtually no influence over operating and financial policies, as are all investments in joint ventures.

Investments accounted for under the equity method are recorded within equity investments in unconsolidated subsidiaries within the other property and investments section in the consolidated balance sheets and the equity income is recorded within earnings from equity method investments within the other income (expense) section in the consolidated statements of income. See Note 4 under "Equity Method Investments" for additional information.

Earnings per Share

Upon consummation of the Merger, all of Southern Company Gas' shares are held by Southern Company. As a result, earnings per common share disclosures are no longer required.