RETIREMENT BENEFITS

3 Months Ended

Mar. 31, 2020

The Southern Company system has a qualified defined benefit, trusteed, pension plan covering substantially all employees, with the exception of employees at PowerSecure. The qualified pension plan is funded in accordance with requirements of the Employee Retirement Income Security Act of 1974, as amended (ERISA). No mandatory contributions to the qualified pension plan are anticipated for the year ending December 31, 2020. The Southern Company system also provides certain non-qualified defined benefits for a select group of management and highly compensated employees, which are funded on a cash basis. In addition, the Southern Company system provides certain medical care and life insurance benefits for retired employees through other postretirement benefit plans. The traditional electric operating companies fund other postretirement trusts to the extent required by their respective regulatory commissions. Southern Company Gas has a separate unfunded supplemental retirement health care plan that provides medical care and life insurance benefits to employees of discontinued businesses.

See Note 11 to the financial statements in Item 8 of the Form 10-K for additional information.

Effective January 1, 2020, Southern Company adopted a change in method of calculating the market-related value of the liability-hedging securities included in its pension plan assets. The market-related value is used to determine the expected return on plan assets component of net periodic pension cost. Southern Company previously used the calculated value approach for all plan assets, which smoothed asset returns and deferred gains and losses by amortizing them into the calculation of the market-related value over five years. Southern Company changed to the fair value approach for liability-hedging securities, which includes measuring the market-related value of that portion of the plan assets at fair value for purposes of determining the expected return on plan assets. The remaining asset classes of plan assets will continue to use the calculated value approach in determining the market-related value. Southern Company considers the fair value approach to be preferable because it results in a current reflection of changes in the value of plan assets in the measurement of net periodic pension cost. Southern Company evaluated the effect of this change in accounting method and deemed it immaterial to the historical and current financial statements of all Registrants and therefore did not account for the change retrospectively. The change in accounting principle was recorded through earnings as a prior period adjustment for the amounts related to the unregulated businesses of Southern Company and Southern Power. Amounts related to the traditional electric operating companies and the natural gas distribution utilities have been reflected as adjustments to regulatory assets as appropriate, consistent with the expected regulatory treatment.

On each Registrant's condensed statements of income, the service cost component of net periodic benefit costs is included in other operations and maintenance expenses and all other components of net periodic benefit costs are included in other income (expense), net. Components of the net periodic benefit costs for the three months ended March 31, 2020 and 2019 are presented in the following tables.



Three Months Ended March 31, 2020	Southern Company			Alabama Power			Georgia Power			Mississippi Power			Southern Power			Southern Company Gas
	(in millions)
Pension Plans
Service cost	$	94		$	22		$	24		$	4		$	2		$	8
Interest cost	108			25			33			5			1			8
Expected return on plan assets	(275		)	(66		)	(87		)	(13		)	(3		)	(19		)
Amortization:
Prior service costs	1			—			—			—			—			(1		)
Regulatory asset	—			—			—			—			—			4
Net (gain)/loss	67			18			22			3			1			2
Net periodic pension cost (income)	$	(5	)	$	(1	)	$	(8	)	$	(1	)	$	1		$	2
Postretirement Benefits
Service cost	$	5		$	2		$	1		$	—		$	—		$	—
Interest cost	13			3			5			—			—			2
Expected return on plan assets	(18		)	(7		)	(7		)	—			—			(2		)
Amortization:
Regulatory asset	—			—			—			—			—			2
Net (gain)/loss	1			—			1			—			—			(1		)
Net periodic postretirement benefit cost	$	1		$	(2	)	$	—		$	—		$	—		$	1



Three Months Ended March 31, 2019	Southern Company			Alabama Power			Georgia Power			Mississippi Power			Southern Power			Southern Company Gas
	(in millions)
Pension Plans
Service cost	$	73		$	17		$	19		$	3		$	2		$	6
Interest cost	123			28			39			6			1			9
Expected return on plan assets	(221		)	(51		)	(73		)	(10		)	(2		)	(15		)
Amortization:
Prior service costs	—			—			—			—			—			(1		)
Regulatory asset	—			—			—			—			—			3
Net (gain)/loss	30			9			11			1			—			1
Net periodic pension cost (income)	$	5		$	3		$	(4	)	$	—		$	1		$	3
Postretirement Benefits
Service cost	$	5		$	1		$	1		$	—		$	—		$	1
Interest cost	17			4			7			1			—			2
Expected return on plan assets	(16		)	(6		)	(6		)	—			—			(2		)
Amortization:
Prior service costs	1			1			—			—			—			—
Regulatory asset	—			—			—			—			—			2
Net (gain)/loss	(1		)	—			—			—			—			(1		)
Net periodic postretirement benefit cost	$	6		$	—		$	2		$	1		$	—		$	2