INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Southern Company files a consolidated federal income tax return and the Registrants file various state income tax returns, some of which are combined or unitary. Under a joint consolidated income tax allocation agreement, each Southern Company subsidiary's current and deferred tax expense is computed on a stand-alone basis and each subsidiary is allocated an amount of tax similar to that which would be paid if it filed a separate income tax return. In accordance with IRS regulations, each company is jointly and severally liable for the federal tax liability.

Federal Tax Reform Legislation

Following the enactment of the Tax Reform Legislation, the SEC staff issued Staff Accounting Bulletin 118 – "Income Tax Accounting Implications of the Tax Cuts and Jobs Act" (SAB 118), which provided for a measurement period of up to one year from the enactment date to complete accounting under GAAP for the tax effects of the legislation. Following the 2017 tax return filing in the fourth quarter 2018, each of the Registrants considered the measurement of impacts from the Tax Reform Legislation on deferred income tax assets and liabilities, primarily due to the impact of the reduction of the corporate income tax rate, to be complete as of December 31, 2018.

Current and Deferred Income Taxes

Details of income tax provisions are as follows:

	2020
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Federal —
Current	$	199	$	198	$	365	$	18	$	(303)	$	82
Deferred	70		44		(224)		(14)		299		53
	269		242		141		4		(4)		135
State —
Current	100		61		60		—		(4)		35
Deferred	24		34		(49)		10		11		3
	124		95		11		10		7		38
Total	$	393	$	337	$	152	$	14	$	3	$	173

	2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Federal —
Current	$	156	$	61	$	264	$	(6)	$	(717)	$	(120)
Deferred	1,237		125		180		26		647		195
	1,393		186		444		20		(70)		75
State —
Current	275		12		6		(1)		1		37
Deferred	130		72		22		11		13		18
	405		84		28		10		14		55
Total	$	1,798	$	270	$	472	$	30	$	(56)	$	130

	2018
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Federal —
Current	$	167	$	91	$	393	$	(567)	$	85	$	334
Deferred	231		123		(249)		575		(154)		33
	398		214		144		8		(69)		367
State —
Current	188		26		81		(10)		(9)		131
Deferred	(137)		51		(11)		(100)		(86)		(34)
	51		77		70		(110)		(95)		97
Total	$	449	$	291	$	214	$	(102)	$	(164)	$	464

Southern Company's and Southern Power's ITCs and PTCs generated in the current tax year and carried forward from prior tax years that cannot be utilized in the current tax year are reclassified from current to deferred taxes in federal income tax expense in the tables above. Southern Power's ITCs and PTCs reclassified in this manner include $5 million for 2020, $51 million for 2019,

and $128 million for 2018. Southern Power received $340 million, $734 million, and $5 million of cash related to federal ITCs under renewable energy initiatives in 2020, 2019, and 2018, respectively. See "Deferred Tax Assets and Liabilities" and "Tax Credit Carryforwards" herein for additional information.

In accordance with regulatory requirements, deferred federal ITCs for the traditional electric operating companies are deferred and amortized over the average life of the related property, with such amortization normally applied as a credit to reduce depreciation and amortization in the statements of income. Southern Power's and the natural gas distribution utilities' deferred federal ITCs, as well as certain state ITCs for Nicor Gas, are deferred and amortized to income tax expense over the life of the respective asset. ITCs amortized in 2020, 2019, and 2018 were immaterial for the traditional electric operating companies and Southern Company Gas and were as follows for Southern Company and Southern Power:

	Southern Company		Southern Power
	(in millions)
2020	$	84	$	59
2019	181		151
2018	87		58

When Southern Power recognizes tax credits, the tax basis of the asset is reduced by 50% of the ITCs received, resulting in a net deferred tax asset. Southern Power has elected to recognize the tax benefit of this basis difference as a reduction to income tax expense in the year in which the plant reaches commercial operation. The tax benefit of the related basis differences reduced income tax expense by $5 million and $1 million in 2019 and 2018, respectively.

State ITCs and other state credits, which are recognized in the period in which the credits are generated, reduced Georgia Power's income tax expense by $67 million in 2020, $51 million in 2019, and $21 million in 2018.

Southern Power's federal and state PTCs, which are recognized in the period in which the credits are generated, reduced Southern Power's income tax expense by $15 million in 2020, $12 million in 2019, and $141 million in 2018.

Legal Entity Reorganizations

In 2018, Southern Power completed the final stage of a legal entity reorganization of various direct and indirect subsidiaries that own and operate substantially all of its solar facilities, including certain subsidiaries owned in partnership with various third parties, and also completed a legal entity reorganization of eight operating wind facilities under a new holding company, SP Wind. The reorganizations resulted in net state tax benefits related to certain changes in apportionment rates totaling approximately $65 million, which were recorded in 2018.

Effective Tax Rate

Southern Company's effective tax rate is typically lower than the statutory rate due to employee stock plans' dividend deduction, non-taxable AFUDC equity at the traditional electric operating companies, flowback of excess deferred income taxes at the regulated utilities, and federal income tax benefits from ITCs and PTCs primarily at Southern Power.

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

	2020
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
Federal statutory rate	21.0	%	21.0	%	21.0	%	21.0	%	21.0	%	21.0	%
State income tax, net of federal deduction	2.8		5.0		0.5		4.8		2.7		4.0
Employee stock plans' dividend deduction	(0.7)		—		—		—		—		—
Non-deductible book depreciation	0.7		0.6		0.8		0.5		—		—
Flowback of excess deferred income taxes	(8.8)		(3.1)		(12.0)		(18.5)		—		(2.7)
AFUDC-Equity	(0.8)		(0.6)		(1.1)		(0.1)		—		—
Federal PTCs	—		—		—		—		(2.5)		—
Amortization of ITC	(1.6)		(0.1)		(0.1)		(0.1)		(22.1)		(0.1)
Noncontrolling interests	—		—		—		—		3.1		—
Leveraged lease impairments	(1.6)		—		—		—		—		—
Other	0.2		(0.3)		(0.3)		0.9		(0.9)		0.5
Effective income tax (benefit) rate	11.2	%	22.5	%	8.8	%	8.5	%	1.3	%	22.7	%

	2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
Federal statutory rate	21.0	%	21.0	%	21.0	%	21.0	%	21.0	%	21.0	%
State income tax, net of federal deduction	4.9		4.9		1.0		4.3		4.0		6.1
Employee stock plans' dividend deduction	(0.4)		—		—		—		—		—
Non-deductible book depreciation	0.3		0.6		0.5		0.4		—		—
Flowback of excess deferred income taxes	(2.1)		(5.3)		—		(12.6)		—		(6.0)
AFUDC-Equity	(0.4)		(0.8)		(0.6)		(0.1)		—		—
ITC basis difference	(0.1)		—		—		—		(1.9)		—
Amortization of ITC	(0.8)		(0.1)		(0.1)		(0.1)		(16.1)		(0.1)
Tax impact from sale of subsidiaries	5.1		—		—		—		(27.6)		(1.4)
Noncontrolling interests	—		—		—		—		0.8		—
Other	—		(0.4)		(0.3)		4.9		(0.6)		(1.4)
Effective income tax (benefit) rate	27.5	%	19.9	%	21.5	%	17.8	%	(20.4)	%	18.2	%

	2018
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
Federal statutory rate	21.0	%	21.0	%	21.0	%	21.0	%	21.0	%	21.0	%
State income tax, net of federal deduction	1.8		5.0		5.5		(65.1)		(90.8)		9.2
Employee stock plans' dividend deduction	(1.0)		—		—		—		—		—
Non-deductible book depreciation	0.8		0.6		1.2		0.7		—		—
Flowback of excess deferred income taxes	(4.0)		(1.8)		—		(4.1)		—		(3.0)
AFUDC-Equity	(1.0)		(1.0)		(1.4)		—		—		—
ITC basis difference	(0.6)		—		—		—		(0.2)		—
Federal PTCs	(4.7)		—		—		—		(156.6)		—
Amortization of ITC	(2.0)		(0.1)		(0.2)		(0.2)		(55.4)		(0.1)
Tax impact from sale of subsidiaries	8.6		—		—		—		—		28.5
Tax Reform Legislation	(1.4)		—		(4.9)		(26.3)		96.1		(0.4)
Noncontrolling interests	(0.4)		—		—		—		(14.9)		—
Other	(0.8)		(0.1)		0.1		(1.4)		2.0		0.3
Effective income tax (benefit) rate	16.3	%	23.6	%	21.3	%	(75.4)	%	(198.8)	%	55.5	%

Deferred Tax Assets and Liabilities

The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements of the Registrants and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows:

	December 31, 2020
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Deferred tax liabilities —
Accelerated depreciation	$	8,950	$	2,453	$	3,228	$	319	$	1,389	$	1,349
Property basis differences	1,999		1,010		689		148		—		135
Federal effect of net state deferred tax assets	—		—		—		25		—		—
Leveraged lease basis differences	142		—		—		—		—		—
Employee benefit obligations	739		250		362		39		12		26
Premium on reacquired debt	78		12		66		—		—		—
Regulatory assets –
Storm damage reserves	80		—		80		—		—		—
Employee benefit obligations	1,313		348		438		62		—		45
Remaining book value of retired assets	270		123		141		6		—		—
AROs	1,969		764		1,165		40		—		—
AROs	804		328		429		—		—		—
Other	437		128		82		66		12		138
Total deferred income tax liabilities	16,781		5,416		6,680		705		1,413		1,693
Deferred tax assets —
Federal effect of net state deferred tax liabilities	284		151		59		—		26		70
State effect of federal deferred taxes	126		126		—		—		—		—
Employee benefit obligations	1,511		369		522		80		6		100
Other property basis differences	223		—		72		—		134		—
ITC and PTC carryforward	1,853		12		539		—		1,110		—
Long-term debt fair value adjustment	86		—		—		—		—		86
Other partnership basis difference	166		—		—		—		166		—
Other comprehensive losses	128		7		17		—		25		—
AROs	2,773		1,092		1,594		40		—		—
Estimated loss on plants under construction	369		—		369		—		—		—
Other deferred state tax attributes	357		—		9		250		68		10
Regulatory liability associated with the Tax Reform Legislation (not subject to normalization)	338		243		76		19		—		—
Other	660		143		186		39		52		166
Total deferred income tax assets	8,874		2,143		3,443		428		1,587		432
Valuation allowance	(136)		—		(35)		(41)		(35)		(4)
Net deferred income tax assets	8,738		2,143		3,408		387		1,552		428
Net deferred income taxes (assets)/liabilities	$	8,043	$	3,273	$	3,272	$	318	$	(139)	$	1,265
Recognized in the balance sheets:
Accumulated deferred income taxes – assets	$	(132)	$	—	$	—	$	(129)	$	(262)	$	—
Accumulated deferred income taxes – liabilities	$	8,175	$	3,273	$	3,272	$	447	$	123	$	1,265

	December 31, 2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
Deferred tax liabilities —
Accelerated depreciation	$	8,711	$	2,402	$	3,058	$	315	$	1,422	$	1,288
Property basis differences	1,843		912		643		143		—		133
Federal effect of net state deferred tax assets	—		—		—		24		—		—
Leveraged lease basis differences	236		—		—		—		—		—
Employee benefit obligations	704		242		351		38		12		12
Premium on reacquired debt	83		13		70		—		—		—
Regulatory assets –
Storm damage reserves	109		—		109		—		—		—
Employee benefit obligations	1,174		311		403		55		—		45
Remaining book value of retired assets	341		174		159		8		—		—
AROs	1,723		613		1,066		44		—		—
AROs	814		360		405		—		—		—
Other	523		134		81		68		11		198
Total deferred income tax liabilities	16,261		5,161		6,345		695		1,445		1,676
Deferred tax assets —
Federal effect of net state deferred tax liabilities	277		162		63		—		24		56
Employee benefit obligations	1,385		334		488		72		5		111
Other property basis differences	230		—		65		—		146		—
ITC and PTC carryforward	2,098		11		435		—		1,445		—
Long-term debt fair value adjustment	97		—		—		—		—		97
Other partnership basis difference	169		—		—		—		169		—
Other comprehensive losses	112		8		18		—		10		—
AROs	2,537		973		1,471		44		—		—
Estimated loss on plants under construction	283		—		283		—		—		—
Other deferred state tax attributes	402		—		13		251		72		8
Regulatory liability associated with the Tax Reform Legislation (not subject to normalization)	401		240		133		28		—		—
Other	689		173		154		56		46		190
Total deferred income tax assets	8,680		1,901		3,123		451		1,917		462
Valuation allowance	(137)		—		(35)		(41)		(36)		(5)
Net deferred income tax assets	8,543		1,901		3,088		410		1,881		457
Net deferred income taxes (assets)/liabilities	$	7,718	$	3,260	$	3,257	$	285	$	(436)	$	1,219
Recognized in the balance sheets:
Accumulated deferred income taxes – assets	$	(170)	$	—	$	—	$	(139)	$	(551)	$	—
Accumulated deferred income taxes – liabilities	$	7,888	$	3,260	$	3,257	$	424	$	115	$	1,219

The traditional electric operating companies and the natural gas distribution utilities have tax-related regulatory assets (deferred income tax charges) and regulatory liabilities (deferred income tax credits). The regulatory assets are primarily attributable to tax benefits flowed through to customers in prior years, deferred taxes previously recognized at rates lower than the current enacted tax law, and taxes applicable to capitalized interest. The regulatory liabilities are primarily attributable to deferred taxes previously recognized at rates higher than the current enacted tax law and to unamortized ITCs. See Note 2 for each Registrant's related balances at December 31, 2020 and 2019.

Tax Credit Carryforwards

Federal ITC/PTC carryforwards at December 31, 2020 were as follows:

	Southern Company		Alabama Power		Georgia Power		Southern Power
	(in millions)
Federal ITC/PTC carryforwards	$	1,428	$	12	$	114	$	1,110
Tax Year in which federal ITC/PTC carryforwards begin expiring	2031		2032		2031		2035
Year by which federal ITC/PTC carryforwards are expected to be utilized	2024		2023		2023		2024

The estimated tax credit utilization reflects the various sale transactions described in Note 15 and could be further delayed by numerous factors, including the acquisition of additional renewable projects, the purchase of rights to additional PTCs of Plant Vogtle Units 3 and 4 pursuant to certain joint ownership agreements, potential impacts of the COVID-19 pandemic, and changes in taxable income projections. See Note 2 under "Georgia Power – Nuclear Construction" for additional information on Plant Vogtle Units 3 and 4.

At December 31, 2020, Georgia Power also had approximately $343 million in net state investment and other net state tax credit carryforwards for the State of Georgia that will expire between tax years 2021 and 2030 and are not expected to be fully utilized. Georgia Power has a net state valuation allowance of $28 million associated with these carryforwards.

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

Net Operating Loss Carryforwards

At December 31, 2020, the net state income tax benefit of state and local NOL carryforwards for Southern Company's subsidiaries were as follows:

Company/Jurisdiction	Approximate Net State Income Tax Benefit of NOL Carryforwards		Tax Year NOL Begins Expiring
Mississippi Power
Mississippi	$	200	2031
Southern Power
Oklahoma	39		2035
Florida	11		2034
South Carolina	2		2036
Other states	1		Various
Southern Power Total	$	53
Other(*)
New York	11		2035
New York City	14		2035
Other states	21		Various
Southern Company Total	$	299

(*)Represents other Southern Company subsidiaries. Alabama Power, Georgia Power, and Southern Company Gas did not have material state or local NOL carryforwards at December 31, 2020.

State NOLs for Mississippi, Oklahoma, and Florida are not expected to be fully utilized prior to expiration. At December 31, 2020, Mississippi Power had a net state valuation allowance of $32 million for the Mississippi NOL and Southern Power had net state valuation allowances of $16 million for the Oklahoma NOL and $11 million for the Florida NOL.

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

Unrecognized Tax Benefits

Changes in unrecognized tax benefits for the periods presented were as follows:

	Southern Company
	(in millions)
Unrecognized tax benefits at December 31, 2017	$	18
Tax position changes – decrease from prior periods	(18)
Unrecognized tax benefits at December 31, 2018 and 2019	$	—
Tax positions changes – increase from prior periods	44
Unrecognized tax benefits at December 31, 2020	$	44

The unrecognized tax positions increase from prior periods for 2020 and the balance of unrecognized tax benefits at December 31, 2020 relate to a 2019 state tax filing position to exclude certain gains from 2019 dispositions from taxation in a certain unitary state. If accepted by the state, this position would decrease Southern Company's annual effective tax rate. The ultimate outcome of this unrecognized tax benefit is dependent on completion of the related state audit, which is not expected to be resolved within the next 12 months.

All of the Registrants classify interest on tax uncertainties as interest expense. Accrued interest for all tax positions was immaterial for all years presented. None of the Registrants accrued any penalties on uncertain tax positions.

The IRS has finalized its audits of Southern Company's consolidated federal income tax returns through 2019. Southern Company is a participant in the Compliance Assurance Process of the IRS. The audits for the Registrants' state income tax returns have either been concluded, or the statute of limitations has expired, for years prior to 2015.