Fair Value Measurements

6 Months Ended

Jun. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

At June 30, 2021, assets and liabilities measured at fair value on a recurring basis during the period, together with their associated level of the fair value hierarchy, were as follows:

	Fair Value Measurements Using:
At June 30, 2021	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Net Asset Value as a Practical Expedient (NAV)		Total
	(in millions)
Southern Company
Assets:
Energy-related derivatives(a)	$	656	$	436	$	28	$	—	$	1,120
Interest rate derivatives	—		17		—		—		17
Foreign currency derivatives	—		55		—		—		55
Investments in trusts:(b)(c)
Domestic equity	812		236		—		—		1,048
Foreign equity	171		191		—		—		362
U.S. Treasury and government agency securities	—		311		—		—		311
Municipal bonds	—		45		—		—		45
Pooled funds – fixed income	—		18		—		—		18
Corporate bonds	4		453		—		—		457
Mortgage and asset backed securities	—		92		—		—		92
Private equity	—		—		—		102		102
Other	29		23		—		—		52
Cash equivalents	1,039		13		—		—		1,052
Other investments	9		30		—		—		39
Total	$	2,720	$	1,920	$	28	$	102	$	4,770
Liabilities:
Energy-related derivatives(a)	$	664	$	333	$	10	$	—	$	1,007
Interest rate derivatives	—		9		—		—		9
Foreign currency derivatives	—		10		—		—		10
Contingent consideration	—		—		16		—		16
Total	$	664	$	352	$	26	$	—	$	1,042

	Fair Value Measurements Using:
At June 30, 2021	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Net Asset Value as a Practical Expedient (NAV)		Total
	(in millions)
Alabama Power
Assets:
Energy-related derivatives	$	—	$	46	$	—	$	—	$	46
Nuclear decommissioning trusts:(b)
Domestic equity	453		226		—		—		679
Foreign equity	171		—		—		—		171
U.S. Treasury and government agency securities	—		22		—		—		22
Municipal bonds	—		1		—		—		1
Corporate bonds	4		241		—		—		245
Mortgage and asset backed securities	—		24		—		—		24
Private equity	—		—		—		102		102
Other	6		—		—		—		6
Cash equivalents	507		13		—		—		520
Other investments	—		30		—		—		30
Total	$	1,141	$	603	$	—	$	102	$	1,846
Liabilities:
Energy-related derivatives	$	—	$	3	$	—	$	—	$	3
Georgia Power
Assets:
Energy-related derivatives	$	—	$	73	$	—	$	—	$	73
Nuclear decommissioning trusts:(b)(c)
Domestic equity	359		1		—		—		360
Foreign equity	—		188		—		—		188
U.S. Treasury and government agency securities	—		289		—		—		289
Municipal bonds	—		44		—		—		44
Corporate bonds	—		212		—		—		212
Mortgage and asset backed securities	—		68		—		—		68
Other	23		23		—		—		46
Total	$	382	$	898	$	—	$	—	$	1,280
Liabilities:
Energy-related derivatives	$	—	$	4	$	—	$	—	$	4

	Fair Value Measurements Using:
At June 30, 2021	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Net Asset Value as a Practical Expedient (NAV)		Total
	(in millions)
Mississippi Power
Assets:
Energy-related derivatives	$	—	$	44	$	—	$	—	$	44
Cash equivalents	455		—		—		—		455
Total	$	455	$	44	$	—	$	—	$	499
Liabilities:
Energy-related derivatives	$	—	$	3	$	—	$	—	$	3
Southern Power
Assets:
Energy-related derivatives	$	—	$	4	$	—	$	—	$	4
Foreign currency derivatives	—		55		—		—		55
Total	$	—	$	59	$	—	$	—	$	59
Liabilities:
Foreign currency derivatives	$	—	$	10	$	—	$	—	$	10
Contingent consideration	—		—		16		—		16
Total	$	—	$	10	$	16	$	—	$	26
Southern Company Gas
Assets:
Energy-related derivatives(a)	$	656	$	269	$	28	$	—	$	953
Interest rate derivatives	—		4		—		—		4
Non-qualified deferred compensation trusts:
Domestic equity	—		9		—		—		9
Foreign equity	—		3		—		—		3
Pooled funds – fixed income	—		18		—		—		18
Total	$	656	$	303	$	28	$	—	$	987
Liabilities:
Energy-related derivatives(a)	$	664	$	323	$	10	$	—	$	997

(a)Includes assets ($626 million, $260 million, and $28 million categorized as Level 1, 2, and 3, respectively) and liabilities ($657 million, $323 million, and $10 million categorized as Level 1, 2, and 3, respectively) related to Sequent, which were classified as held for sale at June 30, 2021. See Note (K) under "Southern Company Gas" and "Assets and Liabilities Held for Sale" for additional information. Excludes cash collateral of $41 million.

(b)Excludes receivables related to investment income, pending investment sales, payables related to pending investment purchases, and currencies. See Note 6 to the financial statements in Item 8 of the Form 10-K for additional information.

(c)Includes investment securities pledged to creditors and collateral received and excludes payables related to the securities lending program. At June 30, 2021, approximately $48 million of the fair market value of Georgia Power's nuclear decommissioning trust funds' securities were on loan to creditors under the funds' managers' securities lending program. See Note 6 to the financial statements in Item 8 of the Form 10-K for additional information.

See Note (K) under "Assets and Liabilities Held for Sale" for information regarding assets recorded at fair value on a nonrecurring basis.

Southern Company, Alabama Power, and Georgia Power continue to elect the option to fair value investment securities held in the nuclear decommissioning trust funds. The fair value of the funds, including reinvested interest and dividends and excluding the funds' expenses, increased (decreased) by the amounts shown in the table below for the six months ended June 30, 2021 and 2020. The changes were recorded as a change to the regulatory assets and liabilities related to AROs for Georgia Power and Alabama Power, respectively.

Fair value increases (decreases)	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020		Six Months Ended June 30, 2021		Six Months Ended June 30, 2020
	(in millions)
Southern Company	$	125	$	223	$	164	$	(23)
Alabama Power	77		124		118		(42)
Georgia Power	48		99		46		19

Valuation Methodologies

The energy-related derivatives primarily consist of exchange-traded and over-the-counter financial products for natural gas and physical power products, including, from time to time, basis swaps. These are standard products used within the energy industry and are valued using the market approach. The inputs used are mainly from observable market sources, such as forward natural gas prices, power prices, implied volatility, and overnight index swap interest rates. Interest rate derivatives are also standard over-the-counter products that are valued using observable market data and assumptions commonly used by market participants. The fair value of interest rate derivatives reflects the net present value of expected payments and receipts under the swap agreement based on the market's expectation of future interest rates. Additional inputs to the net present value calculation may include the contract terms, counterparty credit risk, and occasionally, implied volatility of interest rate options. The fair value of cross-currency swaps reflects the net present value of expected payments and receipts under the swap agreement based on the market's expectation of future foreign currency exchange rates. Additional inputs to the net present value calculation may include the contract terms, counterparty credit risk, and discount rates. The interest rate derivatives and cross-currency swaps are categorized as Level 2 under Fair Value Measurements as these inputs are based on observable data and valuations of similar instruments. See Note (J) for additional information on how these derivatives are used.

For fair value measurements of the investments within the nuclear decommissioning trusts and the non-qualified deferred compensation trusts, external pricing vendors are designated for each asset class with each security specifically assigned a primary pricing source. For investments held within commingled funds, fair value is determined at the end of each business day through the net asset value, which is established by obtaining the underlying securities' individual prices from the primary pricing source. A market price secured from the primary source vendor is then evaluated by management in its valuation of the assets within the trusts. As a general approach, fixed income market pricing vendors gather market data (including indices and market research reports) and integrate relative credit information, observed market movements, and sector news into proprietary pricing models, pricing systems, and mathematical tools. Dealer quotes and other market information, including live trading levels and pricing analysts' judgments, are also obtained when available.

The NRC requires licensees of commissioned nuclear power reactors to establish a plan for providing reasonable assurance of funds for future decommissioning. See Note 6 to the financial statements under "Nuclear Decommissioning" in Item 8 of the Form 10-K for additional information.

Southern Power has contingent payment obligations related to certain acquisitions whereby it is primarily obligated to make generation-based payments to the seller, which commenced at the commercial operation of the respective facility and continue through 2026. The obligations are categorized as Level 3 under Fair Value Measurements as

the fair value is determined using significant unobservable inputs for the forecasted facility generation in MW-hours, as well as other inputs such as a fixed dollar amount per MW-hour, and a discount rate. The fair value of contingent consideration reflects the net present value of expected payments and any periodic change arising from forecasted generation is expected to be immaterial.

"Other investments" include investments traded in the open market that have maturities greater than 90 days, which are categorized as Level 2 under Fair Value Measurements and are comprised of corporate bonds, bank certificates of deposit, treasury bonds, and/or agency bonds.

At June 30, 2021, the fair value measurements of private equity investments held in Alabama Power's nuclear decommissioning trusts that are calculated at net asset value per share (or its equivalent) as a practical expedient totaled $102 million and unfunded commitments related to the private equity investments totaled $67 million. Private equity investments include high-quality private equity funds across several market sectors and funds that invest in real estate assets. Private equity funds do not have redemption rights. Distributions from these funds will be received as the underlying investments in the funds are liquidated.

At June 30, 2021, other financial instruments for which the carrying amount did not equal fair value were as follows:

	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas(*)
	(in billions)
Long-term debt, including securities due within one year:
Carrying amount	$	50.4	$	9.3	$	13.5	$	1.9	$	4.0	$	6.3
Fair value	56.2		10.6		15.2		2.1		4.5		7.3

(*)The long-term debt of Southern Company Gas is recorded at amortized cost, including the fair value adjustments at the effective date of the 2016 merger with Southern Company. Southern Company Gas amortizes the fair value adjustments over the remaining lives of the respective bonds, the latest being through 2043.

The fair values are determined using Level 2 measurements and are based on quoted market prices for the same or similar issues or on the current rates available to the Registrants.

Commodity Contracts with Level 3 Valuation Inputs

At June 30, 2021, Southern Company Gas had Level 3 physical natural gas forward contracts totaling $18 million related to Sequent, which were classified as held for sale. See Note (K) under "Southern Company Gas" and "Assets and Liabilities Held for Sale" for additional information. Since commodity contracts classified as Level 3 typically include a combination of observable and unobservable components, the changes in fair value may include amounts due in part to observable market factors, or changes to assumptions on the unobservable components. The following table includes transfers to Level 3, which represent the fair value of Southern Company Gas' commodity derivative contracts that include a significant unobservable component for the first time during the period.

	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
	(in millions)
Beginning balance	$	28	$	28
Instruments realized or otherwise settled during period	(4)		(6)
Changes in fair value	(6)		(4)
Ending balance	$	18	$	18

Changes in fair value of Level 3 instruments represent changes in gains and losses for the periods that are reported on Southern Company Gas' statements of income in natural gas revenues.

The valuation of certain commodity contracts requires the use of certain unobservable inputs. All forward pricing used in the valuation of such contracts is directly based on third-party market data, such as broker quotes and exchange settlements, when that data is available. If third-party market data is not available, then industry standard methodologies are used to develop inputs that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. Observable inputs, including some forward prices used for determining fair value, reflect the best available market information. Unobservable inputs are updated using industry standard techniques such as extrapolation, combining observable forward inputs supplemented by historical market and other relevant data. Level 3 physical natural gas forward contracts include unobservable forward price inputs (ranging from $(0.06) to $0.38 per mmBtu). Forward price increases (decreases) at June 30, 2021 would have resulted in higher (lower) values on a net basis.