Consolidated Entities and Equity Method Investments

12 Months Ended

Dec. 31, 2018

Equity Method Investments and Joint Ventures [Abstract]

Consolidated Entities and Equity Method Investments

CONSOLIDATED ENTITIES AND EQUITY METHOD INVESTMENTS

The registrants may hold ownership interests in a number of business ventures with varying ownership structures. Partnership interests and other variable interests are evaluated to determine if each entity is a VIE. If a venture is a VIE for which a registrant is the primary beneficiary, the assets, liabilities, and results of operations of the entity are consolidated. The registrants reassess the conclusion as to whether an entity is a VIE upon certain occurrences, which are deemed reconsideration events.

For entities that are not determined to be VIEs, the registrants evaluate whether they have control or significant influence over the investee to determine the appropriate consolidation and presentation. Generally, entities under the control of a registrant are consolidated, and entities over which a registrant can exert significant influence, but which a registrant does not control, are accounted for under the equity method of accounting. However, the registrants may also invest 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 in the balance sheets and, for Southern Company and Southern Company Gas, the equity income is recorded within earnings from equity method investments in the statements of income. See "SEGCO" and "Southern Company Gas" herein for additional information.

SEGCO

Alabama Power and Georgia Power own equally all of the outstanding capital stock of SEGCO, which owns electric generating units with a total rated capacity of 1,020 MWs, as well as associated transmission facilities. Alabama Power and Georgia Power account for SEGCO using the equity method; Southern Company consolidates SEGCO. SEGCO uses natural gas as the primary fuel source for 1,000 MWs of its generating capacity. The capacity of these units is sold equally to Alabama Power and Georgia Power. Alabama Power and Georgia Power make payments sufficient to provide for the operating expenses, taxes, interest expense, and a ROE. The share of purchased power included in purchased power, affiliates in the statements of income totaled $102 million in 2018, $76 million in 2017, and $55 million in 2016 for Alabama Power and $105 million in 2018, $78 million in 2017, and $57 million in 2016 for Georgia Power.

SEGCO paid $18 million of dividends in 2018 and $24 million in each of 2017 and 2016, of which one-half of each was paid to each of Alabama Power and Georgia Power. In addition, Alabama Power and Georgia Power each recognize 50% of SEGCO's net income.

Alabama Power, which owns and operates a generating unit adjacent to the SEGCO generating units, has a joint ownership agreement with SEGCO for the ownership of an associated gas pipeline. Alabama Power owns 14% of the pipeline with the remaining 86% owned by SEGCO.

See Note 9 under "Guarantees" for additional information regarding guarantees of Alabama Power and Georgia Power related to SEGCO.

Southern Power

Variable Interest Entities

Southern Power has certain wholly-owned subsidiaries that are determined to be VIEs. Southern Power 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.

SP Solar

On May 22, 2018, Southern Power sold a noncontrolling 33% limited partnership interest in SP Solar to Global Atlantic Financial Group Limited (Global Atlantic). See Note 15 under "Southern Power" for additional information. A wholly-owned subsidiary of Southern Power is the general partner and holds a 1% ownership interest in SP Solar and another wholly-owned subsidiary of Southern Power owns the remaining 66% ownership in SP Solar. SP Solar qualifies as a VIE since the arrangement is structured as a limited partnership and the 33% limited partner does not have substantive kick-out rights against the general partner. Southern Power previously consolidated SP Solar and will continue to do so as the primary beneficiary of the VIE since it controls the most significant activities of the partnership, including operating and maintaining its assets.

At December 31, 2018, SP Solar had total assets of $6.3 billion, total liabilities of $113 million, and noncontrolling interests of $1.2 billion. Cash distributions from SP Solar are allocated 67% to Southern Power and 33% to Global Atlantic in accordance with their partnership interest percentage. Under the terms of the limited partnership agreement, distributions without limited partner consent are limited to available cash and SP Solar is obligated to distribute all such available cash to its partners each quarter. Available cash includes all cash generated in the quarter subject to the maintenance of appropriate operating reserves.

Transfers and sales of the assets in the VIE are subject to limited partner consent and the liabilities do not have recourse to the general credit of Southern Power. Liabilities consist of customary working capital items and do not include any long-term debt.

SP Wind

On December 11, 2018, Southern Power sold a noncontrolling tax-equity interest in SP Wind to three financial investors. SP Wind owns eight operating wind farms. See Note 15 under "Southern Power" for additional information. Southern Power owns 100% of the class B membership interests and the three financial investors own 100% of the Class A membership interests. SP Wind qualifies as a VIE since the structure of the arrangement is similar to a limited partnership and the Class A members do not have substantive kick-out rights against Southern Power. Southern Power previously consolidated SP Wind and will continue to do so as the primary beneficiary of the VIE since it controls the most significant activities of the entity, including operating and maintaining its assets.

At December 31, 2018, SP Wind had total assets of $2.5 billion, total liabilities of $51 million, and noncontrolling interests of $47 million. Under the terms of the limited liability agreement, distributions without Class A member consent are limited to available cash and SP Wind is obligated to distribute all such available cash to its members each quarter. Available cash includes all cash generated in the quarter subject to the maintenance of appropriate operating reserves. Cash distributions from SP Wind are generally allocated 60% to Southern Power and 40% to the three financial investors in accordance with the limited liability agreement.

Transfers and sales of the assets in the VIE are subject to Class A member consent and the liabilities do not have recourse to the general credit of Southern Power. Liabilities consist of customary working capital items and do not include any long-term debt.

Redeemable Noncontrolling Interests

In April 2017, Southern Power reclassified approximately $114 million from redeemable noncontrolling interests to non-redeemable noncontrolling interests due to the expiration of an option allowing SunPower Corporation to require Southern Power to purchase its redeemable noncontrolling interest at fair market value. In addition, in October 2017, Turner Renewable Energy, LLC redeemed at fair value its 10% interest of redeemable noncontrolling interest in certain of Southern Power's solar facilities. At December 31, 2018 and 2017, there were no outstanding redeemable noncontrolling interests.

The following table presents the changes in Southern Power's redeemable noncontrolling interests for the years ended December 31, 2017 and 2016:

	2017			2016
	(in millions)
Beginning balance	$	164		$	43
Net income attributable to redeemable noncontrolling interests	2			4
Distributions to redeemable noncontrolling interests	(2		)	(1		)
Capital contributions from redeemable noncontrolling interests	2			118
Redemption of redeemable noncontrolling interests	(59		)	—
Reclassification to non-redeemable noncontrolling interests	(114		)	—
Change in fair value of redeemable noncontrolling interests	7			—
Ending balance	$	—		$	164

The following table presents the attribution of net income to Southern Power and the noncontrolling interests for the years ended December 31, 2017 and 2016:

	2017		2016
	(in millions)
Net income	$	1,117	$	374
Less: Net income attributable to noncontrolling interests	44		32
Less: Net income attributable to redeemable noncontrolling interests	2		4
Net income attributable to Southern Power	$	1,071	$	338

Southern Company Gas

SouthStar, previously a joint venture owned 85% by Southern Company Gas and 15% by Piedmont, was the only VIE for which Southern Company Gas was the primary beneficiary, prior to October 2016 when Southern Company Gas completed its purchase of Piedmont's remaining interest in SouthStar.

In 2015, Georgia Natural Gas Company (GNG), a 100%-owned, direct subsidiary of Southern Company Gas, notified Piedmont of its election, pursuant to a change in control of SouthStar, to purchase Piedmont's 15% interest in SouthStar at fair market value. This purchase was contingent upon the closing of the merger between Piedmont and Duke Energy Corporation (Duke Energy). In October 2016, after Piedmont and Duke Energy completed their merger, GNG completed its purchase of Piedmont's interest in SouthStar and paid a purchase price of $160 million and $15 million for Piedmont's share of SouthStar's 2016 earnings through the date of acquisition.

Southern Company Gas' cash flows used for financing activities included SouthStar's distribution to Piedmont for its portion of SouthStar's annual earnings from the previous year. For the successor period of July 1, 2016 through December 31, 2016, SouthStar made a distribution of $15 million upon completion of the purchase of Piedmont's interest in SouthStar. For the predecessor period of January 1, 2016 through June 30, 2016, SouthStar distributed $19 million to Piedmont.

Equity Method Investments

The carrying amounts of Southern Company Gas' equity method investments at December 31, 2018 and 2017 and related income from those investments for the successor years ended December 31, 2018 and 2017, the successor period of July 1, 2016 through December 31, 2016, and the predecessor period of January 1, 2016 through June 30, 2016 were as follows:

Investment Balance	December 31, 2018		December 31, 2017
	(in millions)
SNG	$	1,261	$	1,262
PennEast Pipeline	71		57
Atlantic Coast Pipeline	83		41
Other	123		117
Total	$	1,538	$	1,477

	Successor						Predecessor
Earnings from Equity Method Investments	Year ended December 31, 2018		Year ended December 31, 2017		July 1, 2016 through December 31, 2016		January 1, 2016 through June 30, 2016
	(in millions)						(in millions)
SNG	$	131	$	88	$	56	$	—
PennEast Pipeline	5		6		—		—
Atlantic Coast Pipeline	7		6		1		—
Other	5		6		3		2
Total	$	148	$	106	$	60	$	2

SNG

In 2016, Southern Company Gas, through a wholly-owned, indirect subsidiary, acquired a 50% equity interest in SNG, which is accounted for as an equity method investment. See Note 15 under "Southern Company Gas – Investment in SNG" for additional information. Selected financial information of SNG at December 31, 2018 and 2017 and for the years ended December 31, 2018 and 2017 and for the period September 1, 2016 through December 31, 2016 is as follows:

	At December 31,
Balance Sheet Information	2018		2017
	(in millions)
Current assets	$	104	$	82
Property, plant, and equipment	2,606		2,439
Deferred charges and other assets	121		121
Total Assets	$	2,831	$	2,642
Current liabilities	$	103	$	110
Long-term debt	1,103		1,102
Other deferred charges and other liabilities	212		76
Total Liabilities	$	1,418	$	1,288
Total Stockholders' Equity	$	1,413	$	1,354
Total Liabilities and Stockholders' Equity	$	2,831	$	2,642

Income Statement Information	Year ended December 31, 2018		Year ended December 31, 2017		September 1, 2016 through December 31, 2016
	(in millions)
Revenues	$	604	$	544	$	230
Operating income	310		242		137
Net income	261		175		115

Other Investments

Pipelines

In 2014, Southern Company Gas entered into a partnership in which it holds a 20% ownership interest in the PennEast Pipeline, an interstate pipeline company formed to develop and operate a 118-mile natural gas pipeline between New Jersey and Pennsylvania. The initial transportation capacity of 1.0 Bcf per day, is under long-term contracts, mainly with public utilities and other market-serving entities, such as electric generation companies, in New Jersey, Pennsylvania, and New York.

Also in 2014, Southern Company Gas entered into a project in which it holds a 5% ownership interest in the Atlantic Coast Pipeline, an interstate pipeline company formed to develop and operate a 594-mile natural gas pipeline in North Carolina, Virginia, and West Virginia with initial transportation capacity of 1.5 Bcf per day.

See Note 2 under "FERC Matters – Southern Company Gas" for additional information on these pipeline projects.

Pivotal JAX LNG, LLC

Southern Company Gas owns a 50% interest in a LNG liquefaction and storage facility in Jacksonville, Florida, which was placed in service in October 2018. This facility is outfitted with a 2.0 million gallon storage tank with the capacity to produce in excess of 120,000 gallons of LNG per day.