FAIR VALUE MEASUREMENTS

As of September 30, 2018, assets and liabilities measured at fair value on a recurring basis during the period, together with their associated level of the fair value hierarchy, were as follows:



	Fair Value Measurements Using:
As of September 30, 2018:	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Net Asset Value as a Practical Expedient (NAV)		Total
	(in millions)
Southern Company
Assets:
Energy-related derivatives^(a)(b)	$	271	$	150	$	—	$	—	$	421
Foreign currency derivatives	—		122		—		—		122
Nuclear decommissioning trusts^(c)	828		1,007		—		37		1,872
Non-qualified deferred compensation trusts:
Domestic equity	—		11		—		—		11
Foreign equity	—		6		—		—		6
Pooled funds – fixed income	—		13		—		—		13
Cash equivalents	15		—		—		—		15
Other	9		—		—		—		9
Cash equivalents	1,309		—		—		—		1,309
Total	$	2,432	$	1,309	$	—	$	37	$	3,778
Liabilities:
Energy-related derivatives^(a)(b)	$	416	$	159	$	—	$	—	$	575
Interest rate derivatives	—		72		—		—		72
Foreign currency derivatives	—		23		—		—		23
Contingent consideration	—		—		22		—		22
Total	$	416	$	254	$	22	$	—	$	692



	Fair Value Measurements Using:
As of September 30, 2018:	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Net Asset Value as a Practical Expedient (NAV)		Total
	(in millions)
Alabama Power
Assets:
Energy-related derivatives	$	—	$	7	$	—	$	—	$	7
Nuclear decommissioning trusts:^(d)
Domestic equity	469		89		—		—		558
Foreign equity	60		56		—		—		116
U.S. Treasury and government agency securities	—		18		—		—		18
Corporate bonds	26		154		—		—		180
Mortgage and asset backed securities	—		22		—		—		22
Private equity	—		—		—		37		37
Other	7		—		—		—		7
Cash equivalents	513		—		—		—		513
Total	$	1,075	$	346	$	—	$	37	$	1,458
Liabilities:
Energy-related derivatives	$	—	$	10	$	—	$	—	$	10

Georgia Power
Assets:
Energy-related derivatives	$	—	$	8	$	—	$	—	$	8
Nuclear decommissioning trusts:^(d)(e)
Domestic equity	250		1		—		—		251
Foreign equity	—		134		—		—		134
U.S. Treasury and government agency securities	—		236		—		—		236
Municipal bonds	—		82		—		—		82
Corporate bonds	—		163		—		—		163
Mortgage and asset backed securities	—		42		—		—		42
Other	16		9		—		—		25
Cash equivalents	350		—		—		—		350
Total	$	616	$	675	$	—	$	—	$	1,291
Liabilities:
Energy-related derivatives	$	—	$	22	$	—	$	—	$	22
Interest rate derivatives	—		6		—		—		6
Total	$	—	$	28	$	—	$	—	$	28

Gulf Power
Assets:
Cash equivalents	$	27	$	—	$	—	$	—	$	27
Liabilities:
Energy-related derivatives	$	—	$	8	$	—	$	—	$	8



	Fair Value Measurements Using:
As of September 30, 2018:	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Net Asset Value as a Practical Expedient (NAV)		Total
	(in millions)
Mississippi Power
Assets:
Energy-related derivatives	$	—	$	3	$	—	$	—	$	3
Cash equivalents	346		—		—		—		346
Total	$	346	$	3	$	—	$	—	$	349
Liabilities:
Energy-related derivatives	$	—	$	9	$	—	$	—	$	9

Southern Power
Assets:
Energy-related derivatives	$	—	$	3	$	—	$	—	$	3
Foreign currency derivatives	—		122		—		—		122
Total	$	—	$	125	$	—	$	—	$	125
Liabilities:
Energy-related derivatives	$	—	$	7	$	—	$	—	$	7
Foreign currency derivatives	—		23		—		—		23
Contingent consideration	—		—		22		—		22
Total	$	—	$	30	$	22	$	—	$	52

Southern Company Gas
Assets:
Energy-related derivatives^(a)(b)	$	271	$	129	$	—	$	—	$	400
Non-qualified deferred compensation trusts:
Domestic equity	—		11		—		—		11
Foreign equity	—		6		—		—		6
Pooled funds – fixed income	—		13		—		—		13
Cash equivalents	4		—		—		—		4
Cash equivalents	26		—		—		—		26
Total	$	301	$	159	$	—	$	—	$	460
Liabilities:
Energy-related derivatives^(a)(b)	$	416	$	101	$	—	$	—	$	517


(a)	Excludes $5 million associated with premiums and certain weather derivatives accounted for based on intrinsic value rather than fair value.


(b)	Excludes cash collateral of $189 million.


(c)	For additional detail, see the nuclear decommissioning trusts sections for Alabama Power and Georgia Power in this table.


(d)	Excludes receivables related to investment income, pending investment sales, payables related to pending investment purchases, and currencies.


(e)	Includes the investment securities pledged to creditors and collateral received and excludes payables related to the securities lending program. As of September 30, 2018, approximately $37 million of the fair market value of Georgia Power's nuclear decommissioning trust funds' securities were on loan to creditors under the funds' managers' securities lending program.

Southern Company, Alabama Power, and Georgia Power continue to elect the option to fair value investment securities held in the nuclear decommissioning trust funds. The fair value of the funds, including reinvested interest and dividends and excluding the funds' expenses, increased for the three and nine months ended September 30, 2018 and 2017 by the amounts shown in the table below. The increases were recorded as a change to the regulatory assets and liabilities related to AROs for Georgia Power and Alabama Power, respectively.



	Three Months Ended September 30, 2018		Three Months Ended September 30, 2017		Nine Months Ended September 30, 2018		Nine Months Ended September 30, 2017
	(in millions)
Southern Company	$	58	$	50	$	68	$	168
Alabama Power	39		25		49		87
Georgia Power	19		25		19		81

Valuation Methodologies

The energy-related derivatives primarily consist of exchange-traded and over-the-counter financial products for natural gas and physical power products, including, from time to time, basis swaps. These are standard products used within the energy industry and are valued using the market approach. The inputs used are mainly from observable market sources, such as forward natural gas prices, power prices, implied volatility, and overnight index swap interest rates. Interest rate derivatives are also standard over-the-counter products that are valued using observable market data and assumptions commonly used by market participants. The fair value of interest rate derivatives reflects the net present value of expected payments and receipts under the swap agreement based on the market's expectation of future interest rates. Additional inputs to the net present value calculation may include the contract terms, counterparty credit risk, and occasionally, implied volatility of interest rate options. The fair value of cross-currency swaps reflects the net present value of expected payments and receipts under the swap agreement based on the market's expectation of future foreign currency exchange rates. Additional inputs to the net present value calculation may include the contract terms, counterparty credit risk, and discount rates. The interest rate derivatives and cross-currency swaps are categorized as Level 2 under Fair Value Measurements as these inputs are based on observable data and valuations of similar instruments. See Note (I) for additional information on how these derivatives are used.

For fair value measurements of the investments within the nuclear decommissioning trusts and the non-qualified deferred compensation trusts, external pricing vendors are designated for each asset class with each security specifically assigned a primary pricing source. For investments held within commingled funds, fair value is determined at the end of each business day through the net asset value, which is established by obtaining the underlying securities' individual prices from the primary pricing source. A market price secured from the primary source vendor is then evaluated by management in its valuation of the assets within the trusts. As a general approach, fixed income market pricing vendors gather market data (including indices and market research reports) and integrate relative credit information, observed market movements, and sector news into proprietary pricing models, pricing systems, and mathematical tools. Dealer quotes and other market information, including live trading levels and pricing analysts' judgments, are also obtained when available.

The NRC requires licensees of commissioned nuclear power reactors to establish a plan for providing reasonable assurance of funds for future decommissioning. See Note 1 to the financial statements of Southern Company, Alabama Power, and Georgia Power under "Nuclear Decommissioning" in Item 8 of the Form 10-K for additional information.

Southern Power has contingent payment obligations related to certain acquisitions whereby Southern Power is primarily obligated to make generation-based payments to the seller, which commenced at the commercial operation date of the respective facility and continue through 2026. The obligation is categorized as Level 3 under Fair Value Measurements as the fair value is determined using significant unobservable inputs for the forecasted facility generation in MW-hours, as well as other inputs such as a fixed dollar amount per MW-hour, and a discount rate. The fair value of contingent consideration reflects the net present value of expected payments and any periodic change arising from forecasted generation is expected to be immaterial.

"Other investments" include investments that are not traded in the open market. The fair value of these investments has been determined based on market factors including comparable multiples and the expectations regarding cash flows and business plan executions.

As of September 30, 2018, the fair value measurements of private equity investments held in the nuclear decommissioning trusts that are calculated at net asset value per share (or its equivalent) as a practical expedient, as well as the nature and risks of those investments, were as follows:



As of September 30, 2018:	Fair Value		Unfunded Commitments
	(in millions)
Southern Company	$	37	$	47
Alabama Power	$	37	$	47

Private equity funds include funds-of-funds that invest in high-quality private equity funds across several market sectors, funds that invest in real estate assets, and a fund that acquires companies to create resale value. Private equity funds do not have redemption rights. Distributions from these funds will be received as the underlying investments in the funds are liquidated. Liquidations are expected to occur at various times over the next 10 years.

As of September 30, 2018, other financial instruments for which the carrying amount did not equal fair value were as follows:



	Carrying Amount		Fair Value
	(in millions)
Long-term debt, including securities due within one year:
Southern Company	$	45,524	$	45,500
Alabama Power	8,120		8,321
Georgia Power	10,227		10,159
Gulf Power	1,285		1,290
Mississippi Power	1,736		1,702
Southern Power	5,029		5,058
Southern Company Gas	5,908		5,935

The fair values are determined using Level 2 measurements and are based on quoted market prices for the same or similar issues or on the current rates available to Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, Southern Power, and Southern Company Gas.