Introduction

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

INTRODUCTION

INTRODUCTION

The condensed quarterly financial statements of each registrant included herein have been prepared by such registrant, without audit, pursuant to the rules and regulations of the SEC. The Condensed Balance Sheets as of December 31, 2018 have been derived from the audited financial statements of each registrant. In the opinion of each registrant's management, the information regarding such registrant furnished herein reflects all adjustments, which, except as otherwise disclosed, are of a normal recurring nature, necessary to present fairly the results of operations for the periods ended September 30, 2019 and 2018. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although each registrant believes that the disclosures regarding such registrant are adequate to make the information presented not misleading. Disclosures which would substantially duplicate the disclosures in the Form 10-K and details which have not changed significantly in amount or composition since the filing of the Form 10-K are generally omitted from this Quarterly Report on Form 10-Q unless specifically required by GAAP. Therefore, these Condensed Financial Statements should be read in conjunction with the financial statements and the notes thereto included in the Form 10-K. Due to the seasonal variations in the demand for energy, operating results for the periods presented are not necessarily indicative of the operating results to be expected for the full year.

Certain prior year data presented in the financial statements have been reclassified to conform to the current year presentation. These reclassifications had no impact on the results of operations, financial position, or cash flows of any registrant.

Recently Adopted Accounting Standards

In 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires lessees to recognize on the balance sheet a lease liability and a right-of-use asset for all leases. ASU 2016-02 also changes the recognition, measurement, and presentation of expense associated with leases and provides clarification regarding the identification of certain components of contracts that would represent a lease. The accounting required by lessors is relatively unchanged and there is no change to the accounting for existing leveraged leases. The registrants adopted the new standard effective January 1, 2019. See Note (L) for additional information and related disclosures.

Goodwill and Other Intangible Assets

Goodwill at September 30, 2019 and December 31, 2018 was as follows:

	At September 30, 2019		At December 31, 2018
	(in millions)
Southern Company	$	5,280	$	5,315
Southern Company Gas:
Gas distribution operations	$	4,034	$	4,034
Gas marketing services	981		981
Southern Company Gas total	$	5,015	$	5,015

Goodwill is not amortized but is subject to an annual impairment test during the fourth quarter of each year or more frequently if impairment indicators arise. A goodwill impairment charge of $32 million was recorded in the second quarter 2019 in contemplation of the July 22, 2019 sale of PowerSecure's utility infrastructure services business. In the third quarter 2019, impairment charges of $2 million and $3 million were recorded to goodwill and other intangible assets, net, respectively, in contemplation of the sale of PowerSecure's lighting business, which is expected to occur in the fourth quarter 2019. See Note (K) under "Southern Company" for additional information.

Other intangible assets were as follows:

	At September 30, 2019							At December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Other Intangible Assets, Net		Gross Carrying Amount		Accumulated Amortization			Other Intangible Assets, Net
	(in millions)							(in millions)
Southern Company
Other intangible assets subject to amortization:
Customer relationships(a)	$	211	$	(110	)	$	101	$	223	$	(94	)	$	129
Trade names(a)	64		(23		)	41		70		(21		)	49
Storage and transportation contracts	64		(60		)	4		64		(54		)	10
PPA fair value adjustments(b)	389		(64		)	325		405		(61		)	344
Other	12		(8		)	4		11		(5		)	6
Total other intangible assets subject to amortization	$	740	$	(265	)	$	475	$	773	$	(235	)	$	538
Other intangible assets not subject to amortization:
Federal Communications Commission licenses	75		—			75		75		—			75
Total other intangible assets	$	815	$	(265	)	$	550	$	848	$	(235	)	$	613
Southern Power
Other intangible assets subject to amortization:
PPA fair value adjustments(b)	$	389	$	(64	)	$	325	$	405	$	(61	)	$	344
Southern Company Gas
Other intangible assets subject to amortization:
Gas marketing services
Customer relationships	$	156	$	(99	)	$	57	$	156	$	(84	)	$	72
Trade names	26		(9		)	17		26		(7		)	19
Wholesale gas services
Storage and transportation contracts	64		(60		)	4		64		(54		)	10
Total other intangible assets subject to amortization	$	246	$	(168	)	$	78	$	246	$	(145	)	$	101

(a) The decrease in the gross carrying amount during the nine months ended September 30, 2019 primarily reflects the reclassification to held for sale. See Note (K) for additional information.

(b) The decrease in the gross carrying amount during the nine months ended September 30, 2019 reflects the sale of Plant Nacogdoches, partially offset by additional PPA fair value adjustments related to the acquisition of DSGP. See Note (K) under "Southern Power" for additional information.

Amortization associated with other intangible assets was as follows:

	Three Months Ended		Nine Months Ended
	September 30, 2019
	(in millions)
Southern Company(a)	$	14	$	45
Southern Power(b)	$	4	$	14
Southern Company Gas
Gas marketing services	$	5	$	17
Wholesale gas services(b)	2		6
Southern Company Gas total	$	7	$	23

(a) Includes $6 million and $20 million for the three and nine months ended September 30, 2019, respectively, recorded as a reduction to operating revenues.

(b) Recorded as a reduction to operating revenues.

Restricted Cash

At December 31, 2018, Georgia Power had restricted cash related to the redemption of certain pollution control revenue bonds in January 2019. See Note (F) under "Financing Activities" for additional information. At both September 30, 2019 and December 31, 2018, Southern Company Gas had restricted cash held as collateral for worker's compensation, life insurance, and long-term disability insurance.

The following tables provide a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed balance sheets that total to the amounts shown in the condensed statements of cash flows for the registrants that had restricted cash at September 30, 2019 and/or December 31, 2018:

	Southern Company			Southern Company Gas
	(in millions)
At September 30, 2019
Cash and cash equivalents	$	2,931		$	59
Restricted cash:
Other accounts and notes receivable	3			3
Total cash, cash equivalents, and restricted cash	$	2,935	(*)	$	62

(*) Total does not add due to rounding.

	Southern Company		Georgia Power		Southern Company Gas
	(in millions)
At December 31, 2018
Cash and cash equivalents	$	1,396	$	4	$	64
Cash and cash equivalents held for sale	9		—		—
Restricted cash:
Restricted cash	—		108		—
Other accounts and notes receivable	114		—		6
Total cash, cash equivalents, and restricted cash	$	1,519	$	112	$	70

Natural Gas for Sale

Southern Company Gas, with the exception of Nicor Gas, carries natural gas inventory on a WACOG basis. For any declines in market prices below the WACOG considered to be other than temporary, an adjustment is recorded to reduce the value of natural gas inventories to market value. Southern Company Gas recorded an adjustment of $10 million for the nine months ended September 30, 2019 and no material adjustments for the remaining periods reported.

Nicor Gas' natural gas inventory is carried at cost on a LIFO basis. Inventory decrements occurring during the year that are restored prior to year end are charged to cost of natural gas at the estimated annual replacement cost. Inventory decrements that are not restored prior to year end are charged to cost of natural gas at the actual LIFO cost of the inventory layers liquidated. Nicor Gas had no inventory decrement at September 30, 2019.

Asset Retirement Obligations

See Note 6 to the financial statements in Item 8 of the Form 10-K for additional information regarding AROs.

Details of the AROs included in the condensed balance sheets of Southern Company, Alabama Power, and Mississippi Power at September 30, 2019 are shown in the following table. There were no material changes in the AROs of Georgia Power or Southern Power during the first nine months of 2019.

	Southern Company			Alabama Power			Mississippi Power
	(in millions)
Balance at December 31, 2018	$	9,394		$	3,210		$	160
Liabilities incurred	35			—			1
Liabilities settled	(223		)	(76		)	(28		)
Accretion	299			107			5
Cash flow revisions	455			312			57
Balance at September 30, 2019	$	9,960		$	3,553		$	195

During 2019, Alabama Power recorded increases totaling approximately $312 million to its AROs primarily related to the CCR Rule and the related state rule based on management's completion of closure designs for all but one of its ash pond facilities. In the second quarter 2019, Mississippi Power recorded an increase of approximately $58 million to its AROs related to the CCR Rule, primarily associated with the ash pond facility at Plant Greene County, which is jointly owned with Alabama Power. The additional estimated costs to close these ash ponds under the planned closure-in-place methodology primarily relate to cost inputs from contractor bids, internal drainage and dewatering system designs, and increases in the estimated ash volumes. The cost estimate for the remaining Alabama Power ash pond facility will be updated within the next 12 months and the change could be material.

As further analysis is performed and additional details are developed with respect to ash pond closures, the traditional electric operating companies expect to periodically update their ARO cost estimates. Additionally, the closure designs and plans in the States of Alabama and Georgia are subject to approval by environmental regulatory agencies. Absent continued recovery of ARO costs through regulated rates, Southern Company's and the traditional electric operating companies' results of operations, cash flows, and financial condition could be materially impacted. The ultimate outcome of these matters cannot be determined at this time.