Segment and Related Information

6 Months Ended

Jun. 30, 2018

Southern Company

The primary businesses of the Southern Company system are electricity sales by the traditional electric operating companies and Southern Power and the distribution of natural gas by Southern Company Gas. The four 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 develops, constructs, acquires, owns, and manages power generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. Southern Company Gas distributes natural gas through its natural gas distribution utilities in four states and is involved in several other complementary businesses including gas marketing services, wholesale gas services, and gas midstream operations. Through June 30, 2018, Southern Company Gas had seven natural gas distribution utilities in seven states. Subsequent to June 30, 2018, Southern Company Gas completed sales of three of its natural gas distribution utilities. See Note (J) under "Southern Company Gas" for additional information.

Southern Company's reportable business segments are the sale of electricity by the four traditional electric operating companies, the sale of electricity in the competitive wholesale market by Southern Power, and the sale of natural gas and other complementary products and services by Southern Company Gas. Revenues from sales by Southern Power to the traditional electric operating companies were $109 million and $192 million for the three and six months ended June 30, 2018, respectively, and $90 million and $190 million for the three and six months ended June 30, 2017, respectively. Revenues from sales of natural gas from Southern Company Gas to the traditional electric operating companies were $8 million for both the three and six months ended June 30, 2018 and $10 million for both the three and six months ended June 30, 2017. Revenues from sales of natural gas from Southern Company Gas to Southern Power were $22 million and $58 million for the three and six months ended June 30, 2018, respectively, and $33 million and $56 million for the three and six months ended June 30, 2017, respectively. The "All Other" column includes the Southern Company parent entity, which does not allocate operating expenses to business segments. Also, this category includes segments below the quantitative threshold for separate disclosure. These segments include providing energy technologies and services to electric utilities and large industrial, commercial, institutional, and municipal customers; as well as investments in telecommunications and leveraged lease projects. All other inter-segment revenues are not material.

Financial data for business segments and products and services for the three and six months ended June 30, 2018 and 2017 was as follows:



	Electric Utilities
	Traditional Electric Operating Companies			Southern Power		Eliminations			Total			Southern Company Gas			All Other			Eliminations			Consolidated
	(in millions)
Three Months Ended June 30, 2018:
Operating revenues	$	4,124		$	555	$	(114	)	$	4,565		$	730		$	381		$	(49	)	$	5,627
Segment net income (loss)^(a)(b)(c)	(48		)	22		—			(26		)	(31		)	(100		)	3			(154		)
Six Months Ended June 30, 2018:
Operating revenues	$	8,104		$	1,064	$	(220	)	$	8,948		$	2,369		$	782		$	(100	)	$	11,999
Segment net income (loss)^(a)(b)(c)(d)	563			143		—			706			248			(174		)	4			784
At June 30, 2018:
Goodwill	$	—		$	2	$	—		$	2		$	5,015		$	298		$	—		$	5,315
Total assets	73,634			15,428		(313		)	88,749			22,112			3,707			(1,791		)	112,777
Three Months Ended June 30, 2017:
Operating revenues	$	4,157		$	529	$	(101	)	$	4,585		$	716		$	166		$	(37	)	$	5,430
Segment net income (loss)^(a)(b)	(1,442		)	82		—			(1,360		)	49			(68		)	(2		)	(1,381		)
Six Months Ended June 30, 2017:
Operating revenues	$	7,943		$	979	$	(206	)	$	8,716		$	2,276		$	289		$	(79	)	$	11,202
Segment net income (loss)^(a)(b)(e)	(1,010		)	151		—			(859		)	288			(152		)	—			(723		)
At December 31, 2017:
Goodwill	$	—		$	2	$	—		$	2		$	5,967		$	299		$	—		$	6,268
Total assets	72,204			15,206		(325		)	87,085			22,987			2,552			(1,619		)	111,005


(a)	Attributable to Southern Company.

(b)

Segment net income (loss) for the traditional electric operating companies includes pre-tax charges for estimated losses on plants under construction of $1.1 billion ($0.8 billion after tax) and $3.0 billion ($2.1 billion after tax) for the three months ended June 30, 2018 and 2017, respectively, and $1.1 billion ($0.8 billion after tax) and $3.1 billion ($2.2 billion after tax) for the six months ended June 30, 2018 and 2017, respectively. See Note 3 to the financial statements of Southern Company under "Kemper County Energy Facility" in Item 8 of the Form 10-K and Note (B) under "Nuclear Construction" and "Kemper County Energy Facility" for additional information.


(c)	Segment net income (loss) for Southern Power includes a pre-tax impairment charge of $119 million ($89 million after tax) for the three and six months ended June 30, 2018 related to the pending sale of Southern Power's Florida Plants. See Note (J) under "Southern Power – Sale of Florida Plants" for additional information.


(d)	Segment net income (loss) for Southern Company Gas includes a goodwill impairment charge of $42 million for the six months ended June 30, 2018 related to the sale of Pivotal Home Solutions. See Note (J) under "Southern Company Gas – Sale of Pivotal Home Solutions" for additional information.

(e)

Segment net income (loss) for the traditional electric operating companies includes a pre-tax charge for the write-down of Gulf Power's ownership of Plant Scherer Unit 3 of $33 million ($20 million after tax) for the six months ended June 30, 2017. See Note 3 to the financial statements of Southern Company under "Regulatory Matters – Gulf Power – Retail Base Rate Cases" in Item 8 of the Form 10-K for additional information.

Products and Services



	Electric Utilities' Revenues
Period	Retail		Wholesale		Other		Total
	(in millions)
Three Months Ended June 30, 2018	$	3,740	$	611	$	214	$	4,565
Three Months Ended June 30, 2017	3,777		618		190		4,585

Six Months Ended June 30, 2018	$	7,308	$	1,230	$	410	$	8,948
Six Months Ended June 30, 2017	7,171		1,149		396		8,716



	Southern Company Gas' Revenues
Period	Gas Distribution Operations		Gas Marketing Services		Other			Total
	(in millions)
Three Months Ended June 30, 2018	$	638	$	89	$	3		$	730
Three Months Ended June 30, 2017	557		166		(7		)	716

Six Months Ended June 30, 2018	$	1,838	$	359	$	172		$	2,369
Six Months Ended June 30, 2017	1,689		454		133			2,276

Southern Company Gas

Southern Company Gas manages its business through four reportable segments – gas distribution operations, gas marketing services, wholesale gas services, and gas midstream operations. The non-reportable segments are combined and presented as all other.

Gas distribution operations is the largest component of Southern Company Gas' business and includes natural gas local distribution utilities that construct, manage, and maintain intrastate natural gas pipelines and gas distribution facilities in seven states. Subsequent to June 30, 2018, Southern Company Gas sold three of its natural gas distribution utilities, Elizabethtown Gas, Elkton Gas, and Florida City Gas. See Note (J) under "Southern Company Gas" for additional information.

Gas marketing services includes natural gas marketing to end-use customers primarily in Georgia and Illinois. On June 4, 2018, Southern Company Gas sold Pivotal Home Solutions. See Note (J) under "Southern Company Gas" for additional information.

Wholesale gas services provides natural gas asset management and/or related logistics services for each of Southern Company Gas' utilities except Nicor Gas as well as for non-affiliated companies. Additionally, wholesale gas services engages in natural gas storage and gas pipeline arbitrage and related activities.

Gas midstream operations primarily consists of Southern Company Gas' pipeline investments, with storage and fuel operations also aggregated into this segment.

The all other column includes segments below the quantitative threshold for separate disclosure, including the subsidiaries that fall below the quantitative threshold for separate disclosure.

Business segment financial data for the three and six months ended June 30, 2018 and 2017 was as follows:



	Gas Distribution Operations^(a)		Gas Marketing Services^(b)(c)			Wholesale Gas Services^(d)			Gas Midstream Operations		Total			All Other			Eliminations			Consolidated
	(in millions)
Three Months Ended June 30, 2018:
Operating revenues	$	643	$	89		$	(16	)	$	18	$	734		$	1		$	(5	)	$	730
Segment net income	68		(76		)	(21		)	14		(15		)	(16		)	—			(31		)
Six Months Ended June 30, 2018:
Operating revenues	1,856		359			150			40		2,405			2			(38		)	2,369
Segment net income	216		(63		)	83			38		274			(26		)	—			248
Total assets at June 30, 2018:	18,654		1,610			818			2,269		23,351			11,544			(12,783		)	22,112
Three Months Ended June 30, 2017:
Operating revenues	$	603	$	166		$	(12	)	$	12	$	769		$	3		$	(56	)	$	716
Segment net income	54		4			(17		)	9		50			(1		)	—			49
Six Months Ended June 30, 2017:
Operating revenues	1,783		454			119			37		2,393			5			(122		)	2,276
Segment net income	171		35			51			25		282			6			—			288
Total assets at December 31, 2017:	19,358		2,147			1,096			2,241		24,842			12,184			(14,039		)	22,987


(a)	Operating revenues for the three gas distribution operations dispositions were $70 million and $66 million for the three months ended June 30, 2018 and 2017, respectively, and $237 million and $224 million for the six months ended June 30, 2018 and 2017, respectively. See Note (J) under "Southern Company Gas" for additional information.


(b)	Operating revenues for the gas marketing services disposition were $24 million and $32 million for the three months ended June 30, 2018 and 2017, respectively, and $55 million and $63 million for the six months ended June 30, 2018 and 2017, respectively. See Note (J) under "Southern Company Gas" for additional information.


(c)	Segment net income for gas marketing services includes a loss on disposition of $36 million for the three and six months ended June 30, 2018 and a goodwill impairment charge of $42 million for the six months ended June 30, 2018 recorded in contemplation of the sale of Pivotal Home Solutions. See Note (J) under "Southern Company Gas" for additional information.


(d)	The revenues for wholesale gas services are netted with costs associated with its energy and risk management activities. A reconciliation of operating revenues and intercompany revenues is shown in the following table.



	Third Party Gross Revenues		Intercompany Revenues		Total Gross Revenues		Less Gross Gas Costs		Operating Revenues
	(in millions)
Three Months Ended June 30, 2018	$	1,336	$	102	$	1,438	$	1,454	$	(16	)
Three Months Ended June 30, 2017	1,531		123		1,654		1,666		(12		)
Six Months Ended June 30, 2018	$	3,274	$	269	$	3,543	$	3,393	$	150
Six Months Ended June 30, 2017	3,370		259		3,629		3,510		119