Leases

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

LEASES

LEASES

On January 1, 2019, the registrants adopted the provisions of FASB ASC Topic 842 (as amended), Leases (ASC 842), which require lessees to recognize leases with a term of greater than 12 months on the balance sheet as lease obligations, representing the discounted future fixed payments due, along with right-of-use (ROU) assets that will be amortized over the term of each lease.

The registrants elected the transition methodology provided by ASC 842, whereby the applicable requirements are applied on a prospective basis as of the adoption date of January 1, 2019, without restating prior periods. The registrants also elected the package of practical expedients provided by ASC 842 that allows prior determinations of whether existing contracts are, or contain, leases and the classification of existing leases to continue without reassessment. Additionally, the registrants applied the use-of-hindsight practical expedient in determining lease terms as of the date of adoption and elected the practical expedient that allows existing land easements not previously accounted for as leases not to be reassessed.

Lessee

As lessee, the registrants lease certain electric generating units (including renewable energy facilities), real estate/land, communication towers, railcars, and other equipment and vehicles. The major categories of lease obligations are as follows:

	As of June 30, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Electric generating units	$	1,072	$	150	$	1,580	$	—	$	—	$	—
Real estate/land	800		4		62		2		395		81
Communication towers	147		1		3		—		—		13
Railcars	54		25		27		3		—		—
Other	145		10		14		2		—		—
Total	$	2,218	$	190	$	1,686	$	7	$	395	$	94

Real estate/land leases primarily consist of commercial real estate leases at Southern Company, Georgia Power, and Southern Company Gas and various land leases primarily associated with renewable energy facilities at Southern

Power. The commercial real estate leases have remaining terms of up to 25 years while the land leases have remaining terms of up to 48 years, including renewal periods.

Communication towers are leased for the installation of equipment to provide cellular phone service to customers and to support the automated meter infrastructure programs at the traditional electric operating companies. Communication tower leases have terms of up to 10 years with options to renew for periods up to 20 years.

While renewal options exist in many of the leases, other than for land leases associated with renewable energy facilities, the expected term used in calculating the lease obligation generally reflects only the noncancelable period of the lease as it is not considered reasonably certain that the lease will be extended. The expected term of land leases associated with renewable energy facilities includes renewal periods reasonably certain of exercise resulting in an expected lease term at least equal to the expected life of the renewable energy facilities.

Contracts that Contain a Lease

While not specifically structured as a lease, some of the PPAs at Alabama Power and Georgia Power are deemed to represent a lease of the underlying electric generating units when the terms of the PPA convey the right to control the use of the underlying assets. Amounts recorded for leases of electric generating units are generally based on the amount of scheduled capacity payments due over the remaining term of the affiliate PPA, which varies between four and 18 years. Georgia Power has several PPAs with Southern Power that Georgia Power accounts for as leases with a lease obligation of approximately $660 million at June 30, 2019. The amount paid for energy under these affiliate PPAs reflects a price that would be paid in an arm's-length transaction as those amounts have been reviewed and approved by the Georgia PSC.

Short-term Leases

Leases with an initial term of 12 months or less are not recorded on the balance sheet; the registrants generally recognize lease expense for these leases on a straight-line basis over the lease term.

Residual Value Guarantees

Residual value guarantees exist primarily in railcar leases at Alabama Power and Georgia Power and the amounts probable of being paid under those guarantees are included in the lease payments. All such amounts are immaterial as of June 30, 2019.

Lease and Nonlease Components

For all asset categories, with the exception of electric generating units, gas pipelines, and real estate leases, the registrants combine lease payments and any nonlease components, such as asset maintenance, for purposes of calculating the lease obligation and the right-of-use asset.

Balance sheet amounts recorded for operating and finance leases are as follows:

	As of June 30, 2019
	Southern  Company(*)		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Operating Leases
Operating lease ROU assets, net	$	1,907	$	152	$	1,492	$	7	$	370	$	95
Operating lease obligations - current	$	241	$	48	$	140	$	2	$	22	$	15
Operating lease obligations - non current	1,733		137		1,377		5		373		79
Total operating lease obligations	$	1,974	$	185	$	1,517	$	7	$	395	$	94
Finance Leases
Finance lease ROU assets, net	$	237	$	5	$	142	$	—	$	—	$	—
Finance lease obligations - current	$	24	$	1	$	10	$	—	$	—	$	—
Finance lease obligations - noncurrent	220		4		159		—		—		—
Total finance lease obligations	$	244	$	5	$	169	$	—	$	—	$	—

(*) Includes operating lease ROU assets, net and operating lease obligations classified as held for sale.

Lease costs for the three and six months ended June 30, 2019, which includes both amounts recognized as operations and maintenance expense and amounts capitalized as part of the cost of another asset, are as follows:

	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
For the Three Months Ended June 30, 2019
Lease cost
Operating lease cost	$	77	$	13	$	50	$	1	$	7	$	5
Finance lease cost:
Amortization of ROU assets	7		—		4		—		—		—
Interest on lease obligations	3		—		4		—		—		—
Total finance lease cost	10		—		8		—		—		—
Short-term lease costs	13		6		6		—		—		—
Variable lease cost	29		1		25		—		1		—
Sublease income	—		—		—		—		—		—
Total lease cost	$	129	$	20	$	89	$	1	$	8	$	5
For the Six Months Ended June 30, 2019
Lease cost
Operating lease cost	$	147	$	20	$	99	$	1	$	14	$	9
Finance lease cost:
Amortization of ROU assets	14		—		7		—		—		—
Interest on lease obligations	6		—		9		—		—		—
Total finance lease cost	20		—		16		—		—		—
Short-term lease costs	30		11		12		—		—		—
Variable lease cost	48		1		41		—		3		—
Sublease income	—		—		—		—		—		—
Total lease cost	$	245	$	32	$	168	$	1	$	17	$	9

Georgia Power has variable lease payments that are based on the amount of energy produced by certain renewable generating facilities subject to PPAs.

Other information with respect to cash and noncash activities related to leases, as well as weighted-average lease terms and discount rates, is as follows:

	For the Six Months Ended June 30, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Other information
Cash paid for amounts included in the measurements of lease obligations:
Operating cash flows from operating leases	$	129	$	20	$	75	$	1	$	12	$	9
Operating cash flows from finance leases	2		—		10		—		—		—
Financing cash flows from finance leases	16		—		3		—		—		—
ROU assets obtained in exchange for new operating lease obligations	55		5		13		—		—		13
ROU assets obtained in exchange for new finance lease obligations	33		1		28		—		—		—

	As of June 30, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
Weighted-average remaining lease term in years:
Operating leases	14.0		3.6		10.5		7.0		33.5		9.7
Finance leases	18.3		12.8		11.0		N/A		N/A		N/A
Weighted-average discount rate:
Operating leases	4.53	%	3.33	%	4.46	%	4.06	%	5.68	%	3.73	%
Finance leases	5.05	%	3.67	%	10.69	%	N/A		N/A		N/A

Maturities of lease liabilities are as follows:

	As of June 30, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Maturity Analysis
Operating leases:
2019 (remaining)	$	178	$	33	$	129	$	1	$	13	$	9
2020	295		53		203		2		22		17
2021	279		52		198		1		23		16
2022	268		52		196		1		23		13
2023	204		4		197		1		24		11
Thereafter	1,661		2		990		2		849		49
Total	2,885		196		1,913		8		954		115
Less: Present value discount	911		11		396		1		559		21
Operating lease obligations	$	1,974	$	185	$	1,517	$	7	$	395	$	94
Finance leases:
2019 (remaining)	$	16	$	—	$	16	$	—	$	—	$	—
2020	33		1		28		—		—		—
2021	27		1		25		—		—		—
2022	23		1		25		—		—		—
2023	18		1		25		—		—		—
Thereafter	266		1		165		—		—		—
Total	383		5		284		—		—		—
Less: Present value discount	139		—		115		—		—		—
Finance lease obligations	$	244	$	5	$	169	$	—	$	—	$	—

Payments made under PPAs at Georgia Power for energy generated from certain renewable energy facilities accounted for as operating and finance leases are considered variable lease costs and are therefore not reflected in the above maturity analysis. As of June 30, 2019, Southern Company and Southern Power have additional operating leases, primarily for land, that have not yet commenced. These operating leases are expected to commence during the remainder of 2019 through 2022, with lease terms of up to 31 years, and have estimated total obligations of $81 million.

For additional information on each registrant's operating lease obligations at December 31, 2018, see Note 9 to the financial statements in Item 8 of the Form 10-K.

Lessor

With the exception of Southern Company Gas, the registrants are each considered lessors in various arrangements that have been determined to contain a lease due to the customer's ability to control the use of the underlying asset owned by the applicable registrant. For the traditional electric operating companies, these arrangements consist of outdoor lighting contracts accounted for as operating leases with initial terms of up to five years, after which the contracts renew on a month-to-month basis at the customer's option. For Mississippi Power, these arrangements also include tolling arrangements related to electric generating units accounted for as sales-type leases with terms of up to 20 years. For Southern Power, these arrangements consist of PPAs related to electric generating units, including renewable energy facilities, accounted for as operating leases with terms of up to 28 years. For Southern Company, these arrangements also include PPAs related to fuel cells accounted for as operating leases with terms of up to 15

years. Southern Company Gas is the lessor in operating leases related to gas pipelines with remaining terms of up to 24 years.

Lease income for the three and six months ended June 30, 2019 is as follows:

	Southern Company		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
For the Three Months Ended June 30, 2019
Lease income - interest income on sales-type leases	$	2	$	—	$	2	$	—	$	—
Lease income - operating leases	67		19		—		39		9
Variable lease income	115		—		—		125		—
Total lease income	$	184	$	19	$	2	$	164	$	9
For the Six Months Ended June 30, 2019
Lease income - interest income on sales-type leases	$	5	$	—	$	5	$	—	$	—
Lease income - operating leases	139		39		—		80		17
Variable lease income	182		—		—		198		—
Total lease income	$	326	$	39	$	5	$	278	$	17

No profit or loss was recognized by Mississippi Power upon commencement of a sales-type lease during the first quarter 2019.

Lease income for Southern Power is included in wholesale revenues. Lease payments received under tolling arrangements and PPAs consist of either scheduled payments or variable payments based on the amount of energy produced by the underlying electric generating units. Scheduled payments to be received under outdoor lighting contracts, tolling arrangements, and PPAs accounted for as leases are presented in the following maturity analyses.

The undiscounted cash flows to be received under tolling arrangements accounted for as sales-type leases are as follows:

	As of June 30, 2019
	Southern Company		Mississippi Power
	(in millions)
2019 (remaining)	$	7	$	7
2020	14		14
2021	14		14
2022	13		13
2023	12		12
Thereafter	135		135
Total undiscounted cash flows	$	195	$	195
Lease receivable	106		106
Difference between undiscounted cash flows and discounted cash flows	$	89	$	89

The undiscounted cash flows to be received under operating leases and contracts accounted for as operating leases (adjusted for intercompany eliminations) are as follows:

	As of June 30, 2019
	Southern Company		Georgia Power		Southern Power		Southern Company Gas
	(in millions)
2019 (remaining)	$	75	$	13	$	52	$	17
2020	125		26		65		35
2021	118		18		66		35
2022	109		8		68		34
2023	103		2		69		34
Thereafter	1,142		—		350		497
Total	$	1,672	$	67	$	670	$	652

Southern Power receives payments for renewable energy under PPAs accounted for as operating leases that are considered contingent rents and are therefore not reflected in the table above. Southern Power allocates revenue to the nonlease components of PPAs based on the stand-alone selling price of capacity and energy. The undiscounted cash flows to be received under outdoor lighting contracts accounted for as operating leases at Alabama Power and Mississippi Power are immaterial.

LEASES

LEASES

On January 1, 2019, the registrants adopted the provisions of FASB ASC Topic 842 (as amended), Leases (ASC 842), which require lessees to recognize leases with a term of greater than 12 months on the balance sheet as lease obligations, representing the discounted future fixed payments due, along with right-of-use (ROU) assets that will be amortized over the term of each lease.

The registrants elected the transition methodology provided by ASC 842, whereby the applicable requirements are applied on a prospective basis as of the adoption date of January 1, 2019, without restating prior periods. The registrants also elected the package of practical expedients provided by ASC 842 that allows prior determinations of whether existing contracts are, or contain, leases and the classification of existing leases to continue without reassessment. Additionally, the registrants applied the use-of-hindsight practical expedient in determining lease terms as of the date of adoption and elected the practical expedient that allows existing land easements not previously accounted for as leases not to be reassessed.

Lessee

As lessee, the registrants lease certain electric generating units (including renewable energy facilities), real estate/land, communication towers, railcars, and other equipment and vehicles. The major categories of lease obligations are as follows:

	As of June 30, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Electric generating units	$	1,072	$	150	$	1,580	$	—	$	—	$	—
Real estate/land	800		4		62		2		395		81
Communication towers	147		1		3		—		—		13
Railcars	54		25		27		3		—		—
Other	145		10		14		2		—		—
Total	$	2,218	$	190	$	1,686	$	7	$	395	$	94

Real estate/land leases primarily consist of commercial real estate leases at Southern Company, Georgia Power, and Southern Company Gas and various land leases primarily associated with renewable energy facilities at Southern

Power. The commercial real estate leases have remaining terms of up to 25 years while the land leases have remaining terms of up to 48 years, including renewal periods.

Communication towers are leased for the installation of equipment to provide cellular phone service to customers and to support the automated meter infrastructure programs at the traditional electric operating companies. Communication tower leases have terms of up to 10 years with options to renew for periods up to 20 years.

While renewal options exist in many of the leases, other than for land leases associated with renewable energy facilities, the expected term used in calculating the lease obligation generally reflects only the noncancelable period of the lease as it is not considered reasonably certain that the lease will be extended. The expected term of land leases associated with renewable energy facilities includes renewal periods reasonably certain of exercise resulting in an expected lease term at least equal to the expected life of the renewable energy facilities.

Contracts that Contain a Lease

While not specifically structured as a lease, some of the PPAs at Alabama Power and Georgia Power are deemed to represent a lease of the underlying electric generating units when the terms of the PPA convey the right to control the use of the underlying assets. Amounts recorded for leases of electric generating units are generally based on the amount of scheduled capacity payments due over the remaining term of the affiliate PPA, which varies between four and 18 years. Georgia Power has several PPAs with Southern Power that Georgia Power accounts for as leases with a lease obligation of approximately $660 million at June 30, 2019. The amount paid for energy under these affiliate PPAs reflects a price that would be paid in an arm's-length transaction as those amounts have been reviewed and approved by the Georgia PSC.

Short-term Leases

Leases with an initial term of 12 months or less are not recorded on the balance sheet; the registrants generally recognize lease expense for these leases on a straight-line basis over the lease term.

Residual Value Guarantees

Residual value guarantees exist primarily in railcar leases at Alabama Power and Georgia Power and the amounts probable of being paid under those guarantees are included in the lease payments. All such amounts are immaterial as of June 30, 2019.

Lease and Nonlease Components

For all asset categories, with the exception of electric generating units, gas pipelines, and real estate leases, the registrants combine lease payments and any nonlease components, such as asset maintenance, for purposes of calculating the lease obligation and the right-of-use asset.

Balance sheet amounts recorded for operating and finance leases are as follows:

	As of June 30, 2019
	Southern  Company(*)		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Operating Leases
Operating lease ROU assets, net	$	1,907	$	152	$	1,492	$	7	$	370	$	95
Operating lease obligations - current	$	241	$	48	$	140	$	2	$	22	$	15
Operating lease obligations - non current	1,733		137		1,377		5		373		79
Total operating lease obligations	$	1,974	$	185	$	1,517	$	7	$	395	$	94
Finance Leases
Finance lease ROU assets, net	$	237	$	5	$	142	$	—	$	—	$	—
Finance lease obligations - current	$	24	$	1	$	10	$	—	$	—	$	—
Finance lease obligations - noncurrent	220		4		159		—		—		—
Total finance lease obligations	$	244	$	5	$	169	$	—	$	—	$	—

(*) Includes operating lease ROU assets, net and operating lease obligations classified as held for sale.

Lease costs for the three and six months ended June 30, 2019, which includes both amounts recognized as operations and maintenance expense and amounts capitalized as part of the cost of another asset, are as follows:

	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
For the Three Months Ended June 30, 2019
Lease cost
Operating lease cost	$	77	$	13	$	50	$	1	$	7	$	5
Finance lease cost:
Amortization of ROU assets	7		—		4		—		—		—
Interest on lease obligations	3		—		4		—		—		—
Total finance lease cost	10		—		8		—		—		—
Short-term lease costs	13		6		6		—		—		—
Variable lease cost	29		1		25		—		1		—
Sublease income	—		—		—		—		—		—
Total lease cost	$	129	$	20	$	89	$	1	$	8	$	5
For the Six Months Ended June 30, 2019
Lease cost
Operating lease cost	$	147	$	20	$	99	$	1	$	14	$	9
Finance lease cost:
Amortization of ROU assets	14		—		7		—		—		—
Interest on lease obligations	6		—		9		—		—		—
Total finance lease cost	20		—		16		—		—		—
Short-term lease costs	30		11		12		—		—		—
Variable lease cost	48		1		41		—		3		—
Sublease income	—		—		—		—		—		—
Total lease cost	$	245	$	32	$	168	$	1	$	17	$	9

Georgia Power has variable lease payments that are based on the amount of energy produced by certain renewable generating facilities subject to PPAs.

Other information with respect to cash and noncash activities related to leases, as well as weighted-average lease terms and discount rates, is as follows:

	For the Six Months Ended June 30, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Other information
Cash paid for amounts included in the measurements of lease obligations:
Operating cash flows from operating leases	$	129	$	20	$	75	$	1	$	12	$	9
Operating cash flows from finance leases	2		—		10		—		—		—
Financing cash flows from finance leases	16		—		3		—		—		—
ROU assets obtained in exchange for new operating lease obligations	55		5		13		—		—		13
ROU assets obtained in exchange for new finance lease obligations	33		1		28		—		—		—

	As of June 30, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
Weighted-average remaining lease term in years:
Operating leases	14.0		3.6		10.5		7.0		33.5		9.7
Finance leases	18.3		12.8		11.0		N/A		N/A		N/A
Weighted-average discount rate:
Operating leases	4.53	%	3.33	%	4.46	%	4.06	%	5.68	%	3.73	%
Finance leases	5.05	%	3.67	%	10.69	%	N/A		N/A		N/A

Maturities of lease liabilities are as follows:

	As of June 30, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Maturity Analysis
Operating leases:
2019 (remaining)	$	178	$	33	$	129	$	1	$	13	$	9
2020	295		53		203		2		22		17
2021	279		52		198		1		23		16
2022	268		52		196		1		23		13
2023	204		4		197		1		24		11
Thereafter	1,661		2		990		2		849		49
Total	2,885		196		1,913		8		954		115
Less: Present value discount	911		11		396		1		559		21
Operating lease obligations	$	1,974	$	185	$	1,517	$	7	$	395	$	94
Finance leases:
2019 (remaining)	$	16	$	—	$	16	$	—	$	—	$	—
2020	33		1		28		—		—		—
2021	27		1		25		—		—		—
2022	23		1		25		—		—		—
2023	18		1		25		—		—		—
Thereafter	266		1		165		—		—		—
Total	383		5		284		—		—		—
Less: Present value discount	139		—		115		—		—		—
Finance lease obligations	$	244	$	5	$	169	$	—	$	—	$	—

Payments made under PPAs at Georgia Power for energy generated from certain renewable energy facilities accounted for as operating and finance leases are considered variable lease costs and are therefore not reflected in the above maturity analysis. As of June 30, 2019, Southern Company and Southern Power have additional operating leases, primarily for land, that have not yet commenced. These operating leases are expected to commence during the remainder of 2019 through 2022, with lease terms of up to 31 years, and have estimated total obligations of $81 million.

For additional information on each registrant's operating lease obligations at December 31, 2018, see Note 9 to the financial statements in Item 8 of the Form 10-K.

Lessor

With the exception of Southern Company Gas, the registrants are each considered lessors in various arrangements that have been determined to contain a lease due to the customer's ability to control the use of the underlying asset owned by the applicable registrant. For the traditional electric operating companies, these arrangements consist of outdoor lighting contracts accounted for as operating leases with initial terms of up to five years, after which the contracts renew on a month-to-month basis at the customer's option. For Mississippi Power, these arrangements also include tolling arrangements related to electric generating units accounted for as sales-type leases with terms of up to 20 years. For Southern Power, these arrangements consist of PPAs related to electric generating units, including renewable energy facilities, accounted for as operating leases with terms of up to 28 years. For Southern Company, these arrangements also include PPAs related to fuel cells accounted for as operating leases with terms of up to 15

years. Southern Company Gas is the lessor in operating leases related to gas pipelines with remaining terms of up to 24 years.

Lease income for the three and six months ended June 30, 2019 is as follows:

	Southern Company		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
For the Three Months Ended June 30, 2019
Lease income - interest income on sales-type leases	$	2	$	—	$	2	$	—	$	—
Lease income - operating leases	67		19		—		39		9
Variable lease income	115		—		—		125		—
Total lease income	$	184	$	19	$	2	$	164	$	9
For the Six Months Ended June 30, 2019
Lease income - interest income on sales-type leases	$	5	$	—	$	5	$	—	$	—
Lease income - operating leases	139		39		—		80		17
Variable lease income	182		—		—		198		—
Total lease income	$	326	$	39	$	5	$	278	$	17

No profit or loss was recognized by Mississippi Power upon commencement of a sales-type lease during the first quarter 2019.

Lease income for Southern Power is included in wholesale revenues. Lease payments received under tolling arrangements and PPAs consist of either scheduled payments or variable payments based on the amount of energy produced by the underlying electric generating units. Scheduled payments to be received under outdoor lighting contracts, tolling arrangements, and PPAs accounted for as leases are presented in the following maturity analyses.

The undiscounted cash flows to be received under tolling arrangements accounted for as sales-type leases are as follows:

	As of June 30, 2019
	Southern Company		Mississippi Power
	(in millions)
2019 (remaining)	$	7	$	7
2020	14		14
2021	14		14
2022	13		13
2023	12		12
Thereafter	135		135
Total undiscounted cash flows	$	195	$	195
Lease receivable	106		106
Difference between undiscounted cash flows and discounted cash flows	$	89	$	89

The undiscounted cash flows to be received under operating leases and contracts accounted for as operating leases (adjusted for intercompany eliminations) are as follows:

	As of June 30, 2019
	Southern Company		Georgia Power		Southern Power		Southern Company Gas
	(in millions)
2019 (remaining)	$	75	$	13	$	52	$	17
2020	125		26		65		35
2021	118		18		66		35
2022	109		8		68		34
2023	103		2		69		34
Thereafter	1,142		—		350		497
Total	$	1,672	$	67	$	670	$	652

Southern Power receives payments for renewable energy under PPAs accounted for as operating leases that are considered contingent rents and are therefore not reflected in the table above. Southern Power allocates revenue to the nonlease components of PPAs based on the stand-alone selling price of capacity and energy. The undiscounted cash flows to be received under outdoor lighting contracts accounted for as operating leases at Alabama Power and Mississippi Power are immaterial.

LEASES

LEASES

On January 1, 2019, the registrants adopted the provisions of FASB ASC Topic 842 (as amended), Leases (ASC 842), which require lessees to recognize leases with a term of greater than 12 months on the balance sheet as lease obligations, representing the discounted future fixed payments due, along with right-of-use (ROU) assets that will be amortized over the term of each lease.

The registrants elected the transition methodology provided by ASC 842, whereby the applicable requirements are applied on a prospective basis as of the adoption date of January 1, 2019, without restating prior periods. The registrants also elected the package of practical expedients provided by ASC 842 that allows prior determinations of whether existing contracts are, or contain, leases and the classification of existing leases to continue without reassessment. Additionally, the registrants applied the use-of-hindsight practical expedient in determining lease terms as of the date of adoption and elected the practical expedient that allows existing land easements not previously accounted for as leases not to be reassessed.

Lessee

As lessee, the registrants lease certain electric generating units (including renewable energy facilities), real estate/land, communication towers, railcars, and other equipment and vehicles. The major categories of lease obligations are as follows:

	As of June 30, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Electric generating units	$	1,072	$	150	$	1,580	$	—	$	—	$	—
Real estate/land	800		4		62		2		395		81
Communication towers	147		1		3		—		—		13
Railcars	54		25		27		3		—		—
Other	145		10		14		2		—		—
Total	$	2,218	$	190	$	1,686	$	7	$	395	$	94

Real estate/land leases primarily consist of commercial real estate leases at Southern Company, Georgia Power, and Southern Company Gas and various land leases primarily associated with renewable energy facilities at Southern

Power. The commercial real estate leases have remaining terms of up to 25 years while the land leases have remaining terms of up to 48 years, including renewal periods.

Communication towers are leased for the installation of equipment to provide cellular phone service to customers and to support the automated meter infrastructure programs at the traditional electric operating companies. Communication tower leases have terms of up to 10 years with options to renew for periods up to 20 years.

While renewal options exist in many of the leases, other than for land leases associated with renewable energy facilities, the expected term used in calculating the lease obligation generally reflects only the noncancelable period of the lease as it is not considered reasonably certain that the lease will be extended. The expected term of land leases associated with renewable energy facilities includes renewal periods reasonably certain of exercise resulting in an expected lease term at least equal to the expected life of the renewable energy facilities.

Contracts that Contain a Lease

While not specifically structured as a lease, some of the PPAs at Alabama Power and Georgia Power are deemed to represent a lease of the underlying electric generating units when the terms of the PPA convey the right to control the use of the underlying assets. Amounts recorded for leases of electric generating units are generally based on the amount of scheduled capacity payments due over the remaining term of the affiliate PPA, which varies between four and 18 years. Georgia Power has several PPAs with Southern Power that Georgia Power accounts for as leases with a lease obligation of approximately $660 million at June 30, 2019. The amount paid for energy under these affiliate PPAs reflects a price that would be paid in an arm's-length transaction as those amounts have been reviewed and approved by the Georgia PSC.

Short-term Leases

Leases with an initial term of 12 months or less are not recorded on the balance sheet; the registrants generally recognize lease expense for these leases on a straight-line basis over the lease term.

Residual Value Guarantees

Residual value guarantees exist primarily in railcar leases at Alabama Power and Georgia Power and the amounts probable of being paid under those guarantees are included in the lease payments. All such amounts are immaterial as of June 30, 2019.

Lease and Nonlease Components

For all asset categories, with the exception of electric generating units, gas pipelines, and real estate leases, the registrants combine lease payments and any nonlease components, such as asset maintenance, for purposes of calculating the lease obligation and the right-of-use asset.

Balance sheet amounts recorded for operating and finance leases are as follows:

	As of June 30, 2019
	Southern  Company(*)		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Operating Leases
Operating lease ROU assets, net	$	1,907	$	152	$	1,492	$	7	$	370	$	95
Operating lease obligations - current	$	241	$	48	$	140	$	2	$	22	$	15
Operating lease obligations - non current	1,733		137		1,377		5		373		79
Total operating lease obligations	$	1,974	$	185	$	1,517	$	7	$	395	$	94
Finance Leases
Finance lease ROU assets, net	$	237	$	5	$	142	$	—	$	—	$	—
Finance lease obligations - current	$	24	$	1	$	10	$	—	$	—	$	—
Finance lease obligations - noncurrent	220		4		159		—		—		—
Total finance lease obligations	$	244	$	5	$	169	$	—	$	—	$	—

(*) Includes operating lease ROU assets, net and operating lease obligations classified as held for sale.

Lease costs for the three and six months ended June 30, 2019, which includes both amounts recognized as operations and maintenance expense and amounts capitalized as part of the cost of another asset, are as follows:

	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
For the Three Months Ended June 30, 2019
Lease cost
Operating lease cost	$	77	$	13	$	50	$	1	$	7	$	5
Finance lease cost:
Amortization of ROU assets	7		—		4		—		—		—
Interest on lease obligations	3		—		4		—		—		—
Total finance lease cost	10		—		8		—		—		—
Short-term lease costs	13		6		6		—		—		—
Variable lease cost	29		1		25		—		1		—
Sublease income	—		—		—		—		—		—
Total lease cost	$	129	$	20	$	89	$	1	$	8	$	5
For the Six Months Ended June 30, 2019
Lease cost
Operating lease cost	$	147	$	20	$	99	$	1	$	14	$	9
Finance lease cost:
Amortization of ROU assets	14		—		7		—		—		—
Interest on lease obligations	6		—		9		—		—		—
Total finance lease cost	20		—		16		—		—		—
Short-term lease costs	30		11		12		—		—		—
Variable lease cost	48		1		41		—		3		—
Sublease income	—		—		—		—		—		—
Total lease cost	$	245	$	32	$	168	$	1	$	17	$	9

Georgia Power has variable lease payments that are based on the amount of energy produced by certain renewable generating facilities subject to PPAs.

Other information with respect to cash and noncash activities related to leases, as well as weighted-average lease terms and discount rates, is as follows:

	For the Six Months Ended June 30, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Other information
Cash paid for amounts included in the measurements of lease obligations:
Operating cash flows from operating leases	$	129	$	20	$	75	$	1	$	12	$	9
Operating cash flows from finance leases	2		—		10		—		—		—
Financing cash flows from finance leases	16		—		3		—		—		—
ROU assets obtained in exchange for new operating lease obligations	55		5		13		—		—		13
ROU assets obtained in exchange for new finance lease obligations	33		1		28		—		—		—

	As of June 30, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
Weighted-average remaining lease term in years:
Operating leases	14.0		3.6		10.5		7.0		33.5		9.7
Finance leases	18.3		12.8		11.0		N/A		N/A		N/A
Weighted-average discount rate:
Operating leases	4.53	%	3.33	%	4.46	%	4.06	%	5.68	%	3.73	%
Finance leases	5.05	%	3.67	%	10.69	%	N/A		N/A		N/A

Maturities of lease liabilities are as follows:

	As of June 30, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Maturity Analysis
Operating leases:
2019 (remaining)	$	178	$	33	$	129	$	1	$	13	$	9
2020	295		53		203		2		22		17
2021	279		52		198		1		23		16
2022	268		52		196		1		23		13
2023	204		4		197		1		24		11
Thereafter	1,661		2		990		2		849		49
Total	2,885		196		1,913		8		954		115
Less: Present value discount	911		11		396		1		559		21
Operating lease obligations	$	1,974	$	185	$	1,517	$	7	$	395	$	94
Finance leases:
2019 (remaining)	$	16	$	—	$	16	$	—	$	—	$	—
2020	33		1		28		—		—		—
2021	27		1		25		—		—		—
2022	23		1		25		—		—		—
2023	18		1		25		—		—		—
Thereafter	266		1		165		—		—		—
Total	383		5		284		—		—		—
Less: Present value discount	139		—		115		—		—		—
Finance lease obligations	$	244	$	5	$	169	$	—	$	—	$	—

Payments made under PPAs at Georgia Power for energy generated from certain renewable energy facilities accounted for as operating and finance leases are considered variable lease costs and are therefore not reflected in the above maturity analysis. As of June 30, 2019, Southern Company and Southern Power have additional operating leases, primarily for land, that have not yet commenced. These operating leases are expected to commence during the remainder of 2019 through 2022, with lease terms of up to 31 years, and have estimated total obligations of $81 million.

For additional information on each registrant's operating lease obligations at December 31, 2018, see Note 9 to the financial statements in Item 8 of the Form 10-K.

Lessor

With the exception of Southern Company Gas, the registrants are each considered lessors in various arrangements that have been determined to contain a lease due to the customer's ability to control the use of the underlying asset owned by the applicable registrant. For the traditional electric operating companies, these arrangements consist of outdoor lighting contracts accounted for as operating leases with initial terms of up to five years, after which the contracts renew on a month-to-month basis at the customer's option. For Mississippi Power, these arrangements also include tolling arrangements related to electric generating units accounted for as sales-type leases with terms of up to 20 years. For Southern Power, these arrangements consist of PPAs related to electric generating units, including renewable energy facilities, accounted for as operating leases with terms of up to 28 years. For Southern Company, these arrangements also include PPAs related to fuel cells accounted for as operating leases with terms of up to 15

years. Southern Company Gas is the lessor in operating leases related to gas pipelines with remaining terms of up to 24 years.

Lease income for the three and six months ended June 30, 2019 is as follows:

	Southern Company		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
For the Three Months Ended June 30, 2019
Lease income - interest income on sales-type leases	$	2	$	—	$	2	$	—	$	—
Lease income - operating leases	67		19		—		39		9
Variable lease income	115		—		—		125		—
Total lease income	$	184	$	19	$	2	$	164	$	9
For the Six Months Ended June 30, 2019
Lease income - interest income on sales-type leases	$	5	$	—	$	5	$	—	$	—
Lease income - operating leases	139		39		—		80		17
Variable lease income	182		—		—		198		—
Total lease income	$	326	$	39	$	5	$	278	$	17

No profit or loss was recognized by Mississippi Power upon commencement of a sales-type lease during the first quarter 2019.

Lease income for Southern Power is included in wholesale revenues. Lease payments received under tolling arrangements and PPAs consist of either scheduled payments or variable payments based on the amount of energy produced by the underlying electric generating units. Scheduled payments to be received under outdoor lighting contracts, tolling arrangements, and PPAs accounted for as leases are presented in the following maturity analyses.

The undiscounted cash flows to be received under tolling arrangements accounted for as sales-type leases are as follows:

	As of June 30, 2019
	Southern Company		Mississippi Power
	(in millions)
2019 (remaining)	$	7	$	7
2020	14		14
2021	14		14
2022	13		13
2023	12		12
Thereafter	135		135
Total undiscounted cash flows	$	195	$	195
Lease receivable	106		106
Difference between undiscounted cash flows and discounted cash flows	$	89	$	89

The undiscounted cash flows to be received under operating leases and contracts accounted for as operating leases (adjusted for intercompany eliminations) are as follows:

	As of June 30, 2019
	Southern Company		Georgia Power		Southern Power		Southern Company Gas
	(in millions)
2019 (remaining)	$	75	$	13	$	52	$	17
2020	125		26		65		35
2021	118		18		66		35
2022	109		8		68		34
2023	103		2		69		34
Thereafter	1,142		—		350		497
Total	$	1,672	$	67	$	670	$	652

Southern Power receives payments for renewable energy under PPAs accounted for as operating leases that are considered contingent rents and are therefore not reflected in the table above. Southern Power allocates revenue to the nonlease components of PPAs based on the stand-alone selling price of capacity and energy. The undiscounted cash flows to be received under outdoor lighting contracts accounted for as operating leases at Alabama Power and Mississippi Power are immaterial.

LEASES

LEASES

On January 1, 2019, the registrants adopted the provisions of FASB ASC Topic 842 (as amended), Leases (ASC 842), which require lessees to recognize leases with a term of greater than 12 months on the balance sheet as lease obligations, representing the discounted future fixed payments due, along with right-of-use (ROU) assets that will be amortized over the term of each lease.

The registrants elected the transition methodology provided by ASC 842, whereby the applicable requirements are applied on a prospective basis as of the adoption date of January 1, 2019, without restating prior periods. The registrants also elected the package of practical expedients provided by ASC 842 that allows prior determinations of whether existing contracts are, or contain, leases and the classification of existing leases to continue without reassessment. Additionally, the registrants applied the use-of-hindsight practical expedient in determining lease terms as of the date of adoption and elected the practical expedient that allows existing land easements not previously accounted for as leases not to be reassessed.

Lessee

As lessee, the registrants lease certain electric generating units (including renewable energy facilities), real estate/land, communication towers, railcars, and other equipment and vehicles. The major categories of lease obligations are as follows:

	As of June 30, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Electric generating units	$	1,072	$	150	$	1,580	$	—	$	—	$	—
Real estate/land	800		4		62		2		395		81
Communication towers	147		1		3		—		—		13
Railcars	54		25		27		3		—		—
Other	145		10		14		2		—		—
Total	$	2,218	$	190	$	1,686	$	7	$	395	$	94

Real estate/land leases primarily consist of commercial real estate leases at Southern Company, Georgia Power, and Southern Company Gas and various land leases primarily associated with renewable energy facilities at Southern

Power. The commercial real estate leases have remaining terms of up to 25 years while the land leases have remaining terms of up to 48 years, including renewal periods.

Communication towers are leased for the installation of equipment to provide cellular phone service to customers and to support the automated meter infrastructure programs at the traditional electric operating companies. Communication tower leases have terms of up to 10 years with options to renew for periods up to 20 years.

While renewal options exist in many of the leases, other than for land leases associated with renewable energy facilities, the expected term used in calculating the lease obligation generally reflects only the noncancelable period of the lease as it is not considered reasonably certain that the lease will be extended. The expected term of land leases associated with renewable energy facilities includes renewal periods reasonably certain of exercise resulting in an expected lease term at least equal to the expected life of the renewable energy facilities.

Contracts that Contain a Lease

While not specifically structured as a lease, some of the PPAs at Alabama Power and Georgia Power are deemed to represent a lease of the underlying electric generating units when the terms of the PPA convey the right to control the use of the underlying assets. Amounts recorded for leases of electric generating units are generally based on the amount of scheduled capacity payments due over the remaining term of the affiliate PPA, which varies between four and 18 years. Georgia Power has several PPAs with Southern Power that Georgia Power accounts for as leases with a lease obligation of approximately $660 million at June 30, 2019. The amount paid for energy under these affiliate PPAs reflects a price that would be paid in an arm's-length transaction as those amounts have been reviewed and approved by the Georgia PSC.

Short-term Leases

Leases with an initial term of 12 months or less are not recorded on the balance sheet; the registrants generally recognize lease expense for these leases on a straight-line basis over the lease term.

Residual Value Guarantees

Residual value guarantees exist primarily in railcar leases at Alabama Power and Georgia Power and the amounts probable of being paid under those guarantees are included in the lease payments. All such amounts are immaterial as of June 30, 2019.

Lease and Nonlease Components

For all asset categories, with the exception of electric generating units, gas pipelines, and real estate leases, the registrants combine lease payments and any nonlease components, such as asset maintenance, for purposes of calculating the lease obligation and the right-of-use asset.

Balance sheet amounts recorded for operating and finance leases are as follows:

	As of June 30, 2019
	Southern  Company(*)		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Operating Leases
Operating lease ROU assets, net	$	1,907	$	152	$	1,492	$	7	$	370	$	95
Operating lease obligations - current	$	241	$	48	$	140	$	2	$	22	$	15
Operating lease obligations - non current	1,733		137		1,377		5		373		79
Total operating lease obligations	$	1,974	$	185	$	1,517	$	7	$	395	$	94
Finance Leases
Finance lease ROU assets, net	$	237	$	5	$	142	$	—	$	—	$	—
Finance lease obligations - current	$	24	$	1	$	10	$	—	$	—	$	—
Finance lease obligations - noncurrent	220		4		159		—		—		—
Total finance lease obligations	$	244	$	5	$	169	$	—	$	—	$	—

(*) Includes operating lease ROU assets, net and operating lease obligations classified as held for sale.

Lease costs for the three and six months ended June 30, 2019, which includes both amounts recognized as operations and maintenance expense and amounts capitalized as part of the cost of another asset, are as follows:

	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
For the Three Months Ended June 30, 2019
Lease cost
Operating lease cost	$	77	$	13	$	50	$	1	$	7	$	5
Finance lease cost:
Amortization of ROU assets	7		—		4		—		—		—
Interest on lease obligations	3		—		4		—		—		—
Total finance lease cost	10		—		8		—		—		—
Short-term lease costs	13		6		6		—		—		—
Variable lease cost	29		1		25		—		1		—
Sublease income	—		—		—		—		—		—
Total lease cost	$	129	$	20	$	89	$	1	$	8	$	5
For the Six Months Ended June 30, 2019
Lease cost
Operating lease cost	$	147	$	20	$	99	$	1	$	14	$	9
Finance lease cost:
Amortization of ROU assets	14		—		7		—		—		—
Interest on lease obligations	6		—		9		—		—		—
Total finance lease cost	20		—		16		—		—		—
Short-term lease costs	30		11		12		—		—		—
Variable lease cost	48		1		41		—		3		—
Sublease income	—		—		—		—		—		—
Total lease cost	$	245	$	32	$	168	$	1	$	17	$	9

Georgia Power has variable lease payments that are based on the amount of energy produced by certain renewable generating facilities subject to PPAs.

Other information with respect to cash and noncash activities related to leases, as well as weighted-average lease terms and discount rates, is as follows:

	For the Six Months Ended June 30, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Other information
Cash paid for amounts included in the measurements of lease obligations:
Operating cash flows from operating leases	$	129	$	20	$	75	$	1	$	12	$	9
Operating cash flows from finance leases	2		—		10		—		—		—
Financing cash flows from finance leases	16		—		3		—		—		—
ROU assets obtained in exchange for new operating lease obligations	55		5		13		—		—		13
ROU assets obtained in exchange for new finance lease obligations	33		1		28		—		—		—

	As of June 30, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
Weighted-average remaining lease term in years:
Operating leases	14.0		3.6		10.5		7.0		33.5		9.7
Finance leases	18.3		12.8		11.0		N/A		N/A		N/A
Weighted-average discount rate:
Operating leases	4.53	%	3.33	%	4.46	%	4.06	%	5.68	%	3.73	%
Finance leases	5.05	%	3.67	%	10.69	%	N/A		N/A		N/A

Maturities of lease liabilities are as follows:

	As of June 30, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Maturity Analysis
Operating leases:
2019 (remaining)	$	178	$	33	$	129	$	1	$	13	$	9
2020	295		53		203		2		22		17
2021	279		52		198		1		23		16
2022	268		52		196		1		23		13
2023	204		4		197		1		24		11
Thereafter	1,661		2		990		2		849		49
Total	2,885		196		1,913		8		954		115
Less: Present value discount	911		11		396		1		559		21
Operating lease obligations	$	1,974	$	185	$	1,517	$	7	$	395	$	94
Finance leases:
2019 (remaining)	$	16	$	—	$	16	$	—	$	—	$	—
2020	33		1		28		—		—		—
2021	27		1		25		—		—		—
2022	23		1		25		—		—		—
2023	18		1		25		—		—		—
Thereafter	266		1		165		—		—		—
Total	383		5		284		—		—		—
Less: Present value discount	139		—		115		—		—		—
Finance lease obligations	$	244	$	5	$	169	$	—	$	—	$	—

Payments made under PPAs at Georgia Power for energy generated from certain renewable energy facilities accounted for as operating and finance leases are considered variable lease costs and are therefore not reflected in the above maturity analysis. As of June 30, 2019, Southern Company and Southern Power have additional operating leases, primarily for land, that have not yet commenced. These operating leases are expected to commence during the remainder of 2019 through 2022, with lease terms of up to 31 years, and have estimated total obligations of $81 million.

For additional information on each registrant's operating lease obligations at December 31, 2018, see Note 9 to the financial statements in Item 8 of the Form 10-K.

Lessor

With the exception of Southern Company Gas, the registrants are each considered lessors in various arrangements that have been determined to contain a lease due to the customer's ability to control the use of the underlying asset owned by the applicable registrant. For the traditional electric operating companies, these arrangements consist of outdoor lighting contracts accounted for as operating leases with initial terms of up to five years, after which the contracts renew on a month-to-month basis at the customer's option. For Mississippi Power, these arrangements also include tolling arrangements related to electric generating units accounted for as sales-type leases with terms of up to 20 years. For Southern Power, these arrangements consist of PPAs related to electric generating units, including renewable energy facilities, accounted for as operating leases with terms of up to 28 years. For Southern Company, these arrangements also include PPAs related to fuel cells accounted for as operating leases with terms of up to 15

years. Southern Company Gas is the lessor in operating leases related to gas pipelines with remaining terms of up to 24 years.

Lease income for the three and six months ended June 30, 2019 is as follows:

	Southern Company		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
For the Three Months Ended June 30, 2019
Lease income - interest income on sales-type leases	$	2	$	—	$	2	$	—	$	—
Lease income - operating leases	67		19		—		39		9
Variable lease income	115		—		—		125		—
Total lease income	$	184	$	19	$	2	$	164	$	9
For the Six Months Ended June 30, 2019
Lease income - interest income on sales-type leases	$	5	$	—	$	5	$	—	$	—
Lease income - operating leases	139		39		—		80		17
Variable lease income	182		—		—		198		—
Total lease income	$	326	$	39	$	5	$	278	$	17

No profit or loss was recognized by Mississippi Power upon commencement of a sales-type lease during the first quarter 2019.

Lease income for Southern Power is included in wholesale revenues. Lease payments received under tolling arrangements and PPAs consist of either scheduled payments or variable payments based on the amount of energy produced by the underlying electric generating units. Scheduled payments to be received under outdoor lighting contracts, tolling arrangements, and PPAs accounted for as leases are presented in the following maturity analyses.

The undiscounted cash flows to be received under tolling arrangements accounted for as sales-type leases are as follows:

	As of June 30, 2019
	Southern Company		Mississippi Power
	(in millions)
2019 (remaining)	$	7	$	7
2020	14		14
2021	14		14
2022	13		13
2023	12		12
Thereafter	135		135
Total undiscounted cash flows	$	195	$	195
Lease receivable	106		106
Difference between undiscounted cash flows and discounted cash flows	$	89	$	89

The undiscounted cash flows to be received under operating leases and contracts accounted for as operating leases (adjusted for intercompany eliminations) are as follows:

	As of June 30, 2019
	Southern Company		Georgia Power		Southern Power		Southern Company Gas
	(in millions)
2019 (remaining)	$	75	$	13	$	52	$	17
2020	125		26		65		35
2021	118		18		66		35
2022	109		8		68		34
2023	103		2		69		34
Thereafter	1,142		—		350		497
Total	$	1,672	$	67	$	670	$	652

Southern Power receives payments for renewable energy under PPAs accounted for as operating leases that are considered contingent rents and are therefore not reflected in the table above. Southern Power allocates revenue to the nonlease components of PPAs based on the stand-alone selling price of capacity and energy. The undiscounted cash flows to be received under outdoor lighting contracts accounted for as operating leases at Alabama Power and Mississippi Power are immaterial.