Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

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

Current and Deferred Income Taxes

Tax Credit and Net Operating Loss Carryforwards

Southern Company had federal ITC and PTC carryforwards (primarily related to Southern Power) totaling $1.2 billion at September 30, 2021 compared to $1.4 billion at December 31, 2020.

The federal ITC and PTC carryforwards begin expiring in 2036 and 2032, respectively, but are expected to be fully utilized by 2024. The utilization of each Registrant's estimated tax credit and state net operating loss carryforwards and related valuation allowances could be impacted 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, changes in taxable income projections, and potential income tax rate changes. See Note (B) and Note 2 to the financial statements in Item 8 of the Form 10-K under "Georgia Power – Nuclear Construction" for additional information on Plant Vogtle Units 3 and 4.

Valuation Allowances

Details of significant changes in valuation allowances for the applicable Registrants are provided below:

	Southern Company		Georgia Power
	(in millions)
Federal	$	20	$	—
State (net of federal benefit)	92		28
Balance at December 31, 2020	$	112	$	28
Federal	$	20	$	—
State (net of federal benefit)	122		58
Balance at September 30, 2021	$	142	$	58

The increase in valuation allowances, net of federal benefit, for Southern Company and Georgia Power during 2021 was primarily due to Georgia Power's projected inability to utilize certain state tax credit carryforwards.

Effective Tax Rate

Details of significant changes in the effective tax rate for the applicable Registrants are provided herein.

Southern Company

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.

Southern Company's effective tax rate was 17.5% for the nine months ended September 30, 2021 compared to 13.9% for the corresponding period in 2020. The effective tax rate increase was primarily related to changes in state apportionment rates as a result of the sale of Sequent, an increase in the valuation allowance on certain state tax credit carryforwards, and the tax impact of the second quarter 2020 charge to earnings associated with a leveraged lease investment. See "Valuation Allowances" herein, Note (K) under "Southern Company Gas," and Note 3 to the financial statements in Item 8 of the Form 10-K under "Other Matters – Southern Company" for additional information.

Georgia Power

Georgia Power's effective tax rate was 7.3% for the nine months ended September 30, 2021 compared to 12.3% for the corresponding period in 2020. The effective tax rate decrease was primarily due to higher charges to earnings in 2021 associated with the construction of Plant Vogtle Units 3 and 4, partially offset by an increase in the valuation allowance on certain state tax credit carryforwards. See "Valuation Allowances" herein and Note (B) under "Georgia Power – Nuclear Construction" for additional information.

Southern Power

Southern Power's effective tax benefit rate was (1.6)% for the nine months ended September 30, 2021 compared to an effective tax rate of 11.3% for the corresponding period in 2020. The effective tax rate decrease was primarily due to changes in state apportionment methodology resulting from tax legislation enacted by the State of Alabama in February 2021, as well as the tax impact from the sale of Plant Mankato in January 2020. See Note 15 to the financial statements under "Southern Power" in Item 8 of the Form 10-K for additional information.