Acquisitions and Dispositions

12 Months Ended

Dec. 31, 2018

Southern Company Merger with Southern Company Gas

On July 1, 2016, Southern Company completed the Merger for a total purchase price of approximately $8.0 billion and Southern Company Gas became a wholly-owned, direct subsidiary of Southern Company. At the effective time of the Merger, each share of Southern Company Gas common stock, other than certain excluded shares, was converted into the right to receive $66 in cash, without interest. Also at the effective time of the Merger, all of the outstanding Southern Company Gas RSUs, restricted stock awards, non-employee director stock awards, stock options, and PSUs were either redeemed or converted into Southern Company RSUs. See Note 12 for additional information.

The application of the acquisition method of accounting was pushed down to Southern Company Gas. The excess of the purchase price over the fair values of Southern Company Gas' assets and liabilities was recorded as goodwill, which represents a different basis of accounting from Southern Company Gas' historical basis prior to the Merger. The following table presents the final purchase price allocation:



	Southern Company Gas Successor			Southern Company Gas Predecessor
Southern Company Gas Purchase Price	New Basis			Old Basis			Change in Basis
	(in millions)			(in millions)
Current assets	$	1,557		$	1,474		$	83
Property, plant, and equipment	10,108			10,148			(40		)
Goodwill	5,967			1,813			4,154
Other intangible assets	400			101			299
Regulatory assets	1,118			679			439
Other assets	229			273			(44		)
Current liabilities	(2,201		)	(2,205		)	4
Other liabilities	(4,742		)	(4,600		)	(142		)
Long-term debt	(4,261		)	(3,709		)	(552		)
Contingently redeemable noncontrolling interest	(174		)	(41		)	(133		)
Total purchase price	$	8,001		$	3,933		$	4,068

Southern Company Gas' Results of Operations and Pro Forma Financial Information

The results of operations for Southern Company Gas have been included in Southern Company's consolidated financial statements from the date of acquisition and consisted of operating revenues of $1.7 billion and net income of $114 million in 2016.

The following summarized unaudited pro forma consolidated statement of earnings information assumes that the acquisition of Southern Company Gas was completed on January 1, 2015. The summarized unaudited pro forma consolidated statement of earnings information includes adjustments for (i) intercompany sales, (ii) amortization of intangible assets, (iii) adjustments to interest expense to reflect current interest rates on Southern Company Gas debt and additional interest expense associated with borrowings by Southern Company to fund the Merger, and (iv) the elimination of nonrecurring expenses associated with the Merger.



	2016

Operating revenues (in millions)	$	21,791
Net income attributable to Southern Company (in millions)	$	2,591
Basic EPS	$	2.70
Diluted EPS	$	2.68

These unaudited pro forma results are for comparative purposes only and may not be indicative of the results that would have occurred had this acquisition been completed on January 1, 2015 or the results that would be attained in the future.

Southern Company Acquisition of PowerSecure

In May 2016, Southern Company acquired all of the outstanding stock of PowerSecure for $18.75 per common share in cash, resulting in an aggregate purchase price of $429 million. As a result, PowerSecure became a wholly-owned subsidiary of Southern Company.

The acquisition of PowerSecure was accounted for using the acquisition method of accounting with the assets acquired and liabilities assumed recognized at fair value as of the acquisition date. The following table presents the final purchase price allocation:



PowerSecure Purchase Price
	(in millions)
Current assets	$	172
Property, plant, and equipment	46
Intangible assets	106
Goodwill	284
Other assets	4
Current liabilities	(121		)
Long-term debt, including current portion	(48		)
Deferred credits and other liabilities	(14		)
Total purchase price	$	429

The results of operations for PowerSecure have been included in Southern Company's consolidated financial statements from the date of acquisition and are immaterial to the consolidated financial results of Southern Company. Pro forma results of operations have not been presented for the acquisition because the effects of the acquisition were immaterial to Southern Company's consolidated financial results for all periods presented.

Southern Company's Sale of Gulf Power

On January 1, 2019, Southern Company completed the sale of all of the capital stock of Gulf Power to 700 Universe, LLC, a wholly-owned subsidiary of NextEra Energy, for an aggregate cash purchase price of approximately $5.8 billion (less $1.3 billion of indebtedness assumed), subject to customary working capital adjustments.

The assets and liabilities of Gulf Power are classified as assets held for sale and liabilities held for sale on Southern Company's balance sheet as of December 31, 2018. See "Assets Held for Sale" herein for additional information.

Southern Power

During 2018 and 2017, Southern Power or one of its wholly-owned subsidiaries acquired or completed construction of the facilities discussed below. Acquisition-related costs were expensed as incurred and were not material for any of the years presented.

Acquisitions During the Year Ended December 31, 2018

During 2018, Southern Power acquired and completed the project below and acquired the Wild Horse Mountain and Reading wind facilities discussed under "Construction Projects Completed and/or in Progress" below.



Project Facility	Resource	Seller, Acquisition Date	Approximate Nameplate Capacity (MW)	Location	Ownership Percentage		Actual COD	PPA Contract Period
Gaskell West 1	Solar	Recurrent Energy Development Holdings, LLC, January 26, 2018	20	Kern County, CA	100% of Class B	_(*)	March 2018	20 years


(*)	Southern Power owns 100% of the class B membership interests under a tax equity partnership.

The Gaskell West 1 facility did not have operating revenues or activities prior to being placed in service during March 2018.

Acquisitions During the Year Ended December 31, 2017

The following table presents Southern Power's acquisition activity for the year ended December 31, 2017.



Project Facility	Resource	Seller, Acquisition Date	Approximate Nameplate Capacity (MW)	Location	Ownership Percentage		Actual COD	PPA Contract Period
Bethel	Wind	Invenergy Wind Global LLC, January 6, 2017	276	Castro County, TX	100	%	January 2017	12 years
Cactus Flats^(*)	Wind	RES America Developments, Inc., July 31, 2017	148	Concho County, TX	100	%	July 2018	12 years and 15 years


(*)	On July 31, 2017, Southern Power purchased 100% of the Cactus Flats facility. In August 2018, Southern Power closed on a tax equity partnership and owns 100% of the class B membership interests.

Southern Power's aggregate purchase price for acquisitions during the year ended December 31, 2017 was $539 million. The fair values of the assets acquired and liabilities assumed were finalized in 2017 and recorded as follows:



	2017
	(in millions)
Restricted cash	$	16
CWIP	534
Other assets	5
Accounts payable	(16		)
Total purchase price	$	539

In 2017, total revenues of $15 million and net income of $17 million, primarily as a result of PTCs, were recognized in the consolidated statements of income by Southern Power related to the 2017 acquisitions. The Bethel facility did not have operating revenues or activities prior to completion of construction and being placed in service, and the Cactus Flats facility was still under construction. Therefore, supplemental pro forma information as though the acquisitions occurred as of the beginning of 2017 is not meaningful and has been omitted.

Construction Projects Completed and/or in Progress

During 2018, in accordance with its growth strategy, Southern Power started, continued, or completed construction of the projects set forth in the table below. Total aggregate construction costs, excluding the acquisition costs, are expected to be between $575 million and $640 million for the Plant Mankato expansion, Wild Horse Mountain, and Reading facilities. At December 31, 2018, construction costs included in CWIP related to these projects totaled $289 million, except for the Plant Mankato expansion which is classified as assets held for sale in the financial statements. The ultimate outcome of these matters cannot be determined at this time.



Project Facility	Resource	Approximate Nameplate Capacity (MW)	Location	Actual/Expected COD	PPA Counterparties	PPA Contract Period
Construction Projects Completed During the Year Ended December 31, 2018
Cactus Flats^(a)	Wind	148	Concho County, TX	July 2018	General Motors, LLC and General Mills Operations, LLC	12 years and 15 years
Projects Under Construction at December 31, 2018
Mankato expansion^(b)	Natural Gas	385	Mankato, MN	Second quarter 2019	Northern States Power Company	20 years
Wild Horse Mountain^(c)	Wind	100	Pushmataha County, OK	Fourth quarter 2019	Arkansas Electric Cooperative	20 years
Reading^(d)	Wind	200	Osage and Lyon Counties, KS	Second quarter 2020	Royal Caribbean Cruises LTD	12 years


(a)	In July 2017, Southern Power purchased 100% of the Cactus Flats facility. In August 2018, Southern Power closed on a tax equity partnership and now owns 100% of the class B membership interests.


(b)	In November 2018, Southern Power entered into an agreement to sell all of its equity interests in Plant Mankato, including this expansion currently under construction. See "Sales of Natural Gas Plants" below.


(c)	In May 2018, Southern Power purchased 100% of the Wild Horse Mountain facility. Southern Power may enter into a tax equity partnership, in which case it would then own 100% of the class B membership interests. The ultimate outcome of this matter cannot be determined at this time.


(d)	In August 2018, Southern Power purchased 100% of the membership interests of the Reading facility from the joint development arrangement with Renewable Energy Systems Americas, Inc. described below. Southern Power may enter into a tax equity partnership, in which case it would then own 100% of the class B membership interests. The ultimate outcome of this matter cannot be determined at this time.

Development Projects

During 2017, Southern Power purchased wind turbine equipment to be used for various development and construction projects. Any wind projects using this equipment and reaching commercial operation by the end of 2021 are expected to qualify for 80% PTCs.

During 2016, Southern Power entered into a joint development agreement with Renewable Energy Systems Americas, Inc. (RES) to develop and construct wind projects. Concurrent with the agreement, Southern Power purchased wind turbine equipment from Siemens Wind Power, Inc. and Vestas-American Wind Technology, Inc. to be used for construction of these projects. Several wind projects using this equipment, as well as other purchased equipment, have successfully originated, directly or indirectly, from the partnership with RES and are expected to reach commercial operation before the end of 2020, thus qualifying for 100% PTCs.

Southern Power continues to evaluate and refine the deployment of the wind turbine equipment to potential joint development and construction projects as well as the amount of MW capacity to be constructed. During the third quarter 2018, as a result of a review of various options for probable dispositions of wind turbine equipment not deployed to development or construction projects, Southern Power recorded a $36 million asset impairment charge on the equipment.

Subsequent to December 31, 2018 and as part of management's continuous review of disposition options, approximately $53 million of this equipment is being marketed for sale and will be classified as held for sale.

The ultimate outcome of these matters cannot be determined at this time.

Sales of Renewable Facility Interests

On May 22, 2018, Southern Power completed the sale of a noncontrolling 33% equity interest in SP Solar, a limited partnership indirectly owning substantially all of Southern Power's solar facilities, to Global Atlantic for approximately $1.2 billion. Since Southern Power retains control of the limited partnership through its wholly-owned general partner, the sale was recorded as an equity transaction and Southern Power will continue to consolidate SP Solar in its financial statements. On the date of the transaction, the noncontrolling interest was increased by $511 million to reflect 33% of the carrying value of the partnership. This difference, partially offset by the tax impact and other related transaction charges, also resulted in a $410 million decrease to Southern Power's common stockholder's equity.

On December 11, 2018, Southern Power completed the sale of a noncontrolling tax equity interest in SP Wind, which owns a portfolio of eight operating wind facilities, to three financial investors for approximately $1.2 billion. Since Southern Power retains control of SP Wind, it will continue to consolidate SP Wind in its financial statements. The tax equity investors together will generally receive 40% of the cash distributions from available cash and will receive a 99% allocation of tax attributes, including future PTCs.

Sales of Natural Gas Plants

On December 4, 2018, Southern Power completed the sale of all of its equity interests in the Florida Plants to NextEra Energy for $203 million. In contemplation of this sale transaction, Southern Power recorded an asset impairment charge of approximately $119 million ($89 million after tax) in May 2018.

On November 5, 2018, Southern Power entered into an agreement with Northern States Power to sell all of its equity interests in Plant Mankato (including the 385-MW expansion currently under construction) for an aggregate purchase price of approximately $650 million. The completion of the disposition is subject to the expansion unit reaching commercial operation as well as various other customary conditions to closing, including working capital and timing adjustments. The ultimate purchase price will decrease $66,667 per day for each day after June 1, 2019 that the expansion has not achieved commercial operation, not to exceed $15 million. This transaction is subject to FERC and state commission approvals and is expected to close in mid-2019. The assets and liabilities of Plant Mankato are classified as assets held for sale and liabilities held for sale on Southern Company's and Southern Power's balance sheet as of December 31, 2018. See "Assets Held for Sale" herein for additional information. The ultimate outcome of this matter cannot be determined at this time.

Southern Company Gas

See "Southern Company Merger with Southern Company Gas" herein for information regarding the Merger.

Investment in SNG

In 2016, Southern Company Gas, through a wholly-owned, indirect subsidiary, acquired a 50% equity interest in SNG from Kinder Morgan, Inc. for $1.4 billion. SNG owns a 7,000-mile pipeline system connecting natural gas supply basins in Texas, Louisiana, Mississippi, and Alabama to markets in Louisiana, Mississippi, Alabama, Florida, Georgia, South Carolina, and Tennessee. The purchase price exceeded the underlying ownership interest in the net assets of SNG by approximately $700 million. This basis difference was attributable to goodwill and deferred tax assets. While the deferred tax assets will be amortized through deferred tax expense, the goodwill will not be amortized and is not required to be tested for impairment on an annual basis.

In March 2017, Southern Company Gas made an additional $50 million contribution to maintain its 50% equity interest in SNG. See Note 7 under "Southern Company Gas" for additional information on this investment.

Southern Company Gas' investment in SNG decreased by $104 million at December 31, 2017 related to the impact of the Tax Reform Legislation and new income tax apportionment factors in several states resulting from Southern Company Gas' inclusion in the consolidated Southern Company state tax filings.

Sale of Pivotal Home Solutions

On June 4, 2018, Southern Company Gas completed the stock sale of Pivotal Home Solutions to American Water Enterprises LLC for a total cash purchase price of $365 million, which includes the final working capital adjustment. This disposition resulted in a net loss of $67 million, which includes $34 million of income tax expense. In contemplation of the transaction, a goodwill impairment charge of $42 million was recorded during the first quarter 2018. The income tax expense included tax on goodwill not deductible for tax purposes and for which a deferred tax liability had not been recorded previously. Southern Company Gas and American Water Enterprises LLC entered into a transition services agreement whereby Southern Company Gas provided certain administrative and operational services through November 4, 2018.

Sale of Elizabethtown Gas and Elkton Gas

On July 1, 2018, a Southern Company Gas subsidiary, Pivotal Utility Holdings, completed the sales of the assets of two of its natural gas distribution utilities, Elizabethtown Gas and Elkton Gas, to South Jersey Industries, Inc. for a total cash purchase price of $1.7 billion, which includes the final working capital and other adjustments. This disposition resulted in a pre-tax gain that was entirely offset by $205 million of income tax expense, resulting in no material net income impact. The income tax expense included tax on goodwill not deductible for tax purposes and for which a deferred tax liability had not been recorded previously. Southern Company Gas and South Jersey Industries, Inc. entered into transition services agreements whereby Southern Company Gas will provide certain administrative and operational services through no later than July 31, 2020.

Sale of Florida City Gas

On July 29, 2018, Southern Company Gas and its wholly-owned direct subsidiary, NUI Corporation, completed the stock sale of Pivotal Utility Holdings, which primarily consisted of Florida City Gas, to NextEra Energy for a total cash purchase price of $587 million, which includes the final working capital adjustment. This disposition resulted in a net gain of $16 million, which includes $103 million of income tax expense. The income tax expense included tax on goodwill not deductible for tax purposes and for which a deferred tax liability had not been recorded previously. Southern Company Gas and NextEra Energy entered into a transition services agreement whereby Southern Company Gas will provide certain administrative and operational services through no later than July 29, 2020.

Assets Held for Sale

As discussed previously, Southern Company and Southern Power each have assets and liabilities held for sale on their balance sheets at December 31, 2018. Assets and liabilities held for sale have been classified separately on each company's balance sheet at the lower of carrying value or fair value less costs to sell at the time the criteria for held-for-sale classification were met. For assets and liabilities held for sale recorded at fair value on a nonrecurring basis, the fair value of assets held for sale is based primarily on unobservable inputs (Level 3), which includes the agreed upon sales prices in executed sales agreements.

Upon classification as held for sale in May 2018 for the Florida Plants and November 2018 for Plant Mankato, Southern Power ceased recognizing depreciation on the property, plant, and equipment to be sold. The Florida Plants sale was completed on December 4, 2018. Since the depreciation of the assets sold in the Gulf Power transaction continued to be reflected in customer rates through the closing date and was reflected in the carryover basis of the assets when sold, Southern Company continued to record depreciation on those assets through the date the transaction closed. Likewise, since the depreciation of the assets sold in the Elizabethtown Gas, Elkton Gas, and Florida City Gas transactions continued to be reflected in customer rates and was reflected in the carryover basis of the assets when sold, Southern Company Gas continued to record depreciation on those assets through the respective date that each transaction closed.

The following table provides Southern Company's and Southern Power's major classes of assets and liabilities classified as held for sale at December 31, 2018:



	Southern Company		Southern Power
	(in millions)
Assets Held for Sale:
Current assets	$	393	$	8
Total property, plant, and equipment	4,623		576
Other non-current assets	727		—
Total Assets Held for Sale	$	5,743	$	584

Liabilities Held for Sale:
Current liabilities	$	425	$	15
Long-term debt	1,286		—
Accumulated deferred income taxes	618		—
Other non-current liabilities	932		—
Total Liabilities Held for Sale	$	3,261	$	15

Southern Company, Southern Power, and Southern Company Gas each concluded that the asset sales, both individually and combined, did not represent a strategic shift in operations that has, or is expected to have, a major effect on its operations and financial results; therefore, none of the assets related to the sales have been classified as discontinued operations for any of the periods presented.

Gulf Power and the Florida Plants represent individually significant components of Southern Company and Southern Power, respectively; therefore, pre-tax income for these components for the years ended December 31, 2018, 2017, and 2016 are presented below:



	2018		2017		2016
	(in millions)
Earnings (loss) before income taxes:
Gulf Power	$	140	$	229	$	231
Southern Power's Florida Plants^(*)	$	49	$	37	$	37


(*)	Earnings before income taxes for the Florida Plants in 2018 represents the period from January 1, 2018 to December 4, 2018 (the divestiture date).