INCOME TAXES

See Note 5 to the financial statements of each registrant in Item 8 of the Form 10-K for additional tax information.

Federal Tax Reform Legislation

Following the enactment of the Tax Reform Legislation, the SEC staff issued Staff Accounting Bulletin 118 – "Income Tax Accounting Implications of the Tax Cuts and Jobs Act" (SAB 118), which provides for a measurement period of up to one year from the enactment date to complete accounting under GAAP for the tax effects of the legislation. Due to the complex and comprehensive nature of the enacted tax law changes, and their application under GAAP, the registrants consider all amounts recorded in the financial statements as a result of the Tax Reform Legislation to be "provisional" as discussed in SAB 118 and subject to revision. Each of the registrants is awaiting additional guidance from industry and income tax authorities in order to finalize its accounting. The ultimate impact of the Tax Reform Legislation on deferred income tax assets and liabilities and the related regulatory assets and liabilities cannot be determined at this time. See Note (B) under "Regulatory Matters" for additional information.

Current and Deferred Income Taxes

Tax Credit Carryforwards

Southern Company had federal ITC and PTC carryforwards (primarily related to Southern Power) totaling $2.4 billion as of September 30, 2018 compared to $2.1 billion as of December 31, 2017.

The federal ITC and PTC carryforwards begin expiring in 2034 and 2032, respectively, but are expected to be fully utilized by 2023. The estimated tax credit utilization reflects the 2018 abandonment loss related to certain Kemper County energy facility expenditures as well as the projected taxable gains on the various sale transactions described in Note (J) and "Legal Entity Reorganizations" herein. The expected utilization of tax credit carryforwards could be further delayed by numerous factors, including the acquisition of additional renewable projects, increased generation at existing wind facilities, the purchase of rights to additional PTCs during construction of Plant Vogtle Units 3 and 4 pursuant to the MEAG Term Sheet, and changes in taxable income projections. See Note (B) under "Nuclear Construction" for additional information on Plant Vogtle Units 3 and 4. The ultimate outcome of these matters cannot be determined at this time.

Valuation Allowances



	Georgia Power		Mississippi Power		Southern Company Gas		Southern Company
	(in millions)
Federal	$	6	$	—	$	11	$	19
State (net of federal benefit)	33		124		1		171
Balance at September 30, 2018	$	39	$	124	$	12	$	190

Southern Company had valuation allowances, net of related federal benefits, of $190 million at September 30, 2018 compared to $148 million at December 31, 2017. The increase was primarily due to Georgia Power's projected inability to utilize certain state tax credit carryforwards.

Effective Tax Rate

Each registrant's effective tax rate for the nine months ended September 30, 2018 varied significantly as compared to the corresponding period in 2017 due to the 14% lower 2018 federal tax rate resulting from the Tax Reform Legislation.

Southern Company

Southern Company's effective tax rate is typically lower than the statutory rate due to employee stock plans' dividend deduction, non-taxable AFUDC equity, and federal income tax benefits from ITCs and PTCs.

Southern Company's effective tax rate was 22.7% for the nine months ended September 30, 2018 compared to 42.6% for the corresponding period in 2017. The effective tax rate decrease was primarily due to the reduction in the federal corporate income tax rate and the benefit from the flowback of excess deferred income taxes as a result of the Tax Reform Legislation, the net state income tax benefits related to changes in state apportionment rates arising from the reorganization of Southern Power's legal entities as discussed further herein, and the $3.1 billion pre-tax loss on the Kemper IGCC, net of the non-deductible AFUDC equity portion, recorded in 2017, partially offset by the $1.1 billion pre-tax loss related to Plant Vogtle Units 3 and 4 and the income taxes recorded related to the Southern Company Gas Dispositions in 2018. 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 "Kemper County Energy Facility" for additional information regarding the Kemper IGCC and Note (B) under "Nuclear Construction" for additional information regarding Plant Vogtle Units 3 and 4. See Note (B) under "Regulatory Matters" for additional information on the flowback of excess deferred income taxes and Note (J) under "Southern Company Gas" for additional information on the Southern Company Gas Dispositions.

Southern Company recognizes PTCs when wind energy is generated and sold (using the prescribed KWH rate in applicable federal and state statutes), which may differ significantly from amounts computed on a quarterly basis using an overall estimated annual effective income tax rate. Southern Company uses this method of recognition since the amount of PTCs can be significantly impacted by wind generation. This method can significantly affect the effective income tax rate for the period depending on the amount of pretax income.

Alabama Power

Alabama Power's effective tax rate was 23.9% for the nine months ended September 30, 2018 compared to 39.9% for the corresponding period in 2017. The effective tax rate decrease was primarily due to the reduction in the federal corporate income tax rate and the benefit from the flowback of excess deferred income taxes as a result of the Tax Reform Legislation. See Note (B) under "Regulatory Matters – Alabama Power" for additional information.

Georgia Power

Georgia Power's effective tax rate was 25.5% for the nine months ended September 30, 2018 compared to 37.0% for the corresponding period in 2017. The effective tax rate decrease was primarily due to the reduction in the federal corporate income tax rate and the $1.1 billion pre-tax loss related to the estimated probable loss on Plant Vogtle Units 3 and 4 recorded in 2018, partially offset by the valuation allowance on certain state tax credit carryforwards. See Note (B) under "Nuclear Construction" for additional information.

Gulf Power

Gulf Power's effective tax benefit rate was (0.5)% for the nine months ended September 30, 2018 compared to an effective tax rate of 39.4% for the corresponding period in 2017. The effective tax rate decrease was primarily due to the reduction in the federal corporate income tax rate and the benefit from the flowback of excess deferred income taxes as a result of the Tax Reform Legislation. See Note (B) under "Regulatory Matters – Gulf Power" for additional information.

Mississippi Power

Mississippi Power's effective tax rate was 20.8% for the nine months ended September 30, 2018 compared to a benefit rate of (30.3)% for the corresponding period in 2017. The effective tax rate increase was primarily due to the $3.1 billion pre-tax loss on the Kemper IGCC, net of the non-deductible AFUDC equity portion, recorded in 2017, partially offset by the reduction in the federal corporate income tax rate as a result of the Tax Reform Legislation. See Note (B) under "Regulatory Matters – Mississippi Power" for additional information.

Southern Power

Southern Power's effective tax benefit rate was (220.3)% for the nine months ended September 30, 2018 compared to (66.5)% for the corresponding period in 2017. The effective tax rate decrease was primarily due to lower earnings before income taxes resulting from a $119 million asset impairment charge as a result of the pending sale of Plant Oleander and Plant Stanton Unit A (together, the Florida Plants) and a $36 million asset impairment charge on wind turbine equipment held for development projects, as well as the reduction in the federal corporate income tax rate and the net state income tax benefits related to certain changes in apportionment rates arising from the reorganization of Southern Power's legal entities as described below. See Note (J) under "Southern Power" for additional information.

Southern Power recognizes PTCs when wind energy is generated and sold (using the prescribed KWH rate in applicable federal and state statutes), which may differ significantly from amounts computed on a quarterly basis using an overall estimated annual effective income tax rate. Southern Power uses this method of recognition since the amount of PTCs can be significantly impacted by wind generation. This method can significantly affect the effective income tax rate for the period depending on the amount of pretax income.

Southern Company Gas

Southern Company Gas' effective tax rate was 61.8% for the nine months ended September 30, 2018 compared to 43.4% for the corresponding period in 2017. This increase was primarily related to income taxes recorded related to the Southern Company Gas Dispositions, partially offset by the reduction in the federal corporate income tax rate and the benefit from the flowback of excess deferred income taxes as a result of the Tax Reform Legislation, as well as the 2017 increases in deferred tax expense related to the enactment of the State of Illinois income tax legislation and new income tax apportionment factors in several states. See Note (B) under "Regulatory Matters – Southern Company Gas" and Note (J) under "Southern Company Gas" for additional information.

Legal Entity Reorganizations

In April 2018, Southern Power completed the final stage of a legal entity reorganization of various direct and indirect subsidiaries that own and operate substantially all of its solar facilities, including certain subsidiaries owned in partnership with various third parties. The reorganization resulted in net state tax benefits related to certain changes in apportionment rates totaling approximately $54 million, which were recorded in the first half of 2018.

In September 2018, Southern Power also completed a legal reorganization of eight operating wind facilities under a new holding company, SP Wind, which resulted in net state tax benefits totaling approximately $11 million related to certain changes in apportionment rates.

Unrecognized Tax Benefits

See Note 5 to the financial statements of each registrant under "Unrecognized Tax Benefits" in Item 8 of the Form 10-K for additional information.

The registrants had no unrecognized tax benefits as of September 30, 2018. It is reasonably possible that the amount of the unrecognized tax benefits could change within 12 months. The settlement of federal and state audits could impact the balances significantly. At this time, an estimate of the range of reasonably possible outcomes cannot be determined.

The IRS has finalized its audits of Southern Company's consolidated income tax returns through 2016, as well as the pre-Merger Southern Company Gas tax returns. Southern Company is a participant in the Compliance Assurance Process of the IRS. The audits for Southern Company's state income tax returns have either been concluded, or the statute of limitations has expired, for years prior to 2012.