10-K
    Table of Contents                                Index to Financial Statements


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended December 31, 2015
 
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period from              to             
Commission
File Number
 
Registrant, State of Incorporation,
Address and Telephone Number
 
I.R.S. Employer
Identification No.
1-3526
 
The Southern Company
 
58-0690070
 
 
(A Delaware Corporation)
 
 
 
 
30 Ivan Allen Jr. Boulevard, N.W.
 
 
 
 
Atlanta, Georgia 30308
 
 
 
 
(404) 506-5000
 
 
 
 
 
 
 
1-3164
 
Alabama Power Company
 
63-0004250
 
 
(An Alabama Corporation)
 
 
 
 
600 North 18th Street
 
 
 
 
Birmingham, Alabama 35291
 
 
 
 
(205) 257-1000
 
 
 
 
 
 
 
1-6468
 
Georgia Power Company
 
58-0257110
 
 
(A Georgia Corporation)
 
 
 
 
241 Ralph McGill Boulevard, N.E.
 
 
 
 
Atlanta, Georgia 30308
 
 
 
 
(404) 506-6526
 
 
 
 
 
 
 
001-31737
 
Gulf Power Company
 
59-0276810
 
 
(A Florida Corporation)
 
 
 
 
One Energy Place
 
 
 
 
Pensacola, Florida 32520
 
 
 
 
(850) 444-6111
 
 
 
 
 
 
 
001-11229
 
Mississippi Power Company
 
64-0205820
 
 
(A Mississippi Corporation)
 
 
 
 
2992 West Beach Boulevard
 
 
 
 
Gulfport, Mississippi 39501
 
 
 
 
(228) 864-1211
 
 
 
 
 
 
 
333-98553
 
Southern Power Company
 
58-2598670
 
 
(A Delaware Corporation)
 
 
 
 
30 Ivan Allen Jr. Boulevard, N.W.
 
 
 
 
Atlanta, Georgia 30308
 
 
 
 
(404) 506-5000
 
 
 
 
 
 
 


    Table of Contents                                Index to Financial Statements


Securities registered pursuant to Section 12(b) of the Act:1 
Each of the following classes or series of securities registered pursuant to Section 12(b) of the Act is listed on the New York Stock Exchange.
Title of each class
 
 
 
Registrant
Common Stock, $5 par value
 
 
 
The Southern Company
 
 
 
 
 
Junior Subordinated Notes, $25 denominations
 
 
 
 
6.25% Series 2015A due 2075
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A preferred stock, cumulative, $25 stated capital
 
 
 
Alabama Power Company
5.83% Series
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A preferred stock, non-cumulative,
Par value $25 per share
 
 
 
Georgia Power Company
6 1/8% Series
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Notes
 
 
 
Gulf Power Company
5.75% Series 2011A due 2051
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depositary preferred shares, each representing one-fourth of a share of preferred stock, cumulative, $100 par value
 
 
 
Mississippi Power Company
5.25% Series
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities registered pursuant to Section 12(g) of the Act:1
 
 
 
 
 
 
 
Title of each class
 
 
 
Registrant
Preferred stock, cumulative, $100 par value
 
 
 
Alabama Power Company
4.20% Series                                      4.60% Series
 
4.72% Series        
 
 
4.52% Series                                      4.64% Series
 
4.92% Series        
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock, cumulative, $100 par value
 
 
 
Mississippi Power Company
4.40% Series                                      4.60% Series
 
 
 
 
4.72% Series
 
 
 
 
 
 
 
 
 
1
As of December 31, 2015.


    Table of Contents                                Index to Financial Statements


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Registrant
Yes
No
The Southern Company
X
 
Alabama Power Company
X
 
Georgia Power Company
X
 
Gulf Power Company
 
X
Mississippi Power Company
 
X
Southern Power Company
X
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x (Response applicable to all registrants.)
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrants have submitted electronically and posted on their corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Registrant
Large
Accelerated
Filer
Accelerated
Filer
Non-accelerated
Filer
Smaller
Reporting
Company
The Southern Company
X
 
 
 
Alabama Power Company
 
 
X
 
Georgia Power Company
 
 
X
 
Gulf Power Company
 
 
X
 
Mississippi Power Company
 
 
X
 
Southern Power Company
 
 
X
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x (Response applicable to all registrants.)


    Table of Contents                                Index to Financial Statements


Aggregate market value of The Southern Company's common stock held by non-affiliates of The Southern Company at June 30, 2015: $38.1 billion. All of the common stock of the other registrants is held by The Southern Company. A description of each registrant's common stock follows:

Registrant
 
Description of
Common Stock
 
Shares Outstanding
at January 31, 2016
The Southern Company
 
Par Value $5 Per Share
 
912,846,995

Alabama Power Company
 
Par Value $40 Per Share
 
30,537,500

Georgia Power Company
 
Without Par Value
 
9,261,500

Gulf Power Company
 
Without Par Value
 
5,642,717

Mississippi Power Company
 
Without Par Value
 
1,121,000

Southern Power Company
 
Par Value $0.01 Per Share
 
1,000

Documents incorporated by reference: specified portions of The Southern Company's Definitive Proxy Statement on Schedule 14A relating to the 2016 Annual Meeting of Stockholders are incorporated by reference into PART III. In addition, specified portions of the Definitive Information Statements on Schedule 14C of Alabama Power Company, Georgia Power Company, and Mississippi Power Company relating to each of their respective 2016 Annual Meetings of Shareholders are incorporated by reference into PART III.
Southern Power Company meets the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format specified in General Instructions I(2)(b), (c), and (d) of Form 10-K.
This combined Form 10-K is separately filed by The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Southern Power Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other companies.


    Table of Contents                                Index to Financial Statements


Table of Contents

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

i

    Table of Contents                                Index to Financial Statements


DEFINITIONS
When used in Items 1 through 5 and Items 9A through 15, the following terms will have the meanings indicated.
Term
Meaning
AGL Resources
AGL Resources Inc.
Alabama Power
Alabama Power Company
Baseload Act
State of Mississippi legislation designed to enhance the Mississippi PSC's authority to facilitate development and construction of baseload generation in the State of Mississippi
Bridge Agreement
Senior unsecured Bridge Credit Agreement, dated as of September 30, 2015, among Southern Company, the lenders identified therein, and Citibank, N.A.
Clean Air Act
Clean Air Act Amendments of 1990
CCR
Coal combustion residuals
Contractor
Westinghouse and its affiliate, WECTEC Global Project Services Inc. (formerly known as CB&I Stone & Webster, Inc.), formerly a subsidiary of The Shaw Group Inc. and Chicago Bridge & Iron Company N.V.
CO2
Carbon dioxide
CPCN
Certificate of Public Convenience and Necessity
CWIP
Construction Work in Progress
Dalton
City of Dalton, Georgia, acting by and through its Board of Water, Light, and Sinking Fund Commissioners
DOE
U.S. Department of Energy
Duke Energy Florida
Duke Energy Florida, Inc.
EMC
Electric membership corporation
EPA
U.S. Environmental Protection Agency
FERC
Federal Energy Regulatory Commission
FMPA
Florida Municipal Power Agency
Georgia Power
Georgia Power Company
Gulf Power
Gulf Power Company
IBEW
International Brotherhood of Electrical Workers
IGCC
Integrated coal gasification combined cycle
IIC
Intercompany Interchange Contract
Internal Revenue Code
Internal Revenue Code of 1986, as amended
IPP
Independent Power Producer
IRP
Integrated Resource Plan
ITC
Investment tax credit
Kemper IGCC
IGCC facility under construction by Mississippi Power in Kemper County, Mississippi
KUA
Kissimmee Utility Authority
KW
Kilowatt
KWH
Kilowatt-hour
MATS rule
Mercury and Air Toxics Standards rule
MEAG Power
Municipal Electric Authority of Georgia
Merger
The merger of Merger Sub with and into AGL Resources on the terms and subject to the conditions set forth in the Merger Agreement, with AGL Resources continuing as the surviving corporation and a wholly-owned, direct subsidiary of Southern Company
Merger Agreement
Agreement and Plan of Merger, dated as of August 23, 2015, among Southern Company, AGL Resources, and Merger Sub
Merger Sub
AMS Corp., a wholly-owned, direct subsidiary of Southern Company
 

ii

    Table of Contents                                Index to Financial Statements


DEFINITIONS
(continued)

Term
Meaning
Mirror CWIP
A regulatory liability account for use in mitigating future rate impacts for Mississippi Power customers
Mississippi Power
Mississippi Power Company
MW
Megawatt
NRC
U.S. Nuclear Regulatory Commission
NYSE
New York Stock Exchange
OPC
Oglethorpe Power Corporation
OUC
Orlando Utilities Commission
PATH Act
Protecting Americans from Tax Hikes Act
Plant Vogtle Units 3 and 4
Two new nuclear generating units under construction at Georgia Power's Plant Vogtle
power pool
The operating arrangement whereby the integrated generating resources of the traditional operating companies and Southern Power Company are subject to joint commitment and dispatch in order to serve their combined load obligations
PowerSouth
PowerSouth Energy Cooperative
PPA
Power Purchase Agreement
PSC
Public Service Commission
registrants
Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power Company
RUS
Rural Utilities Service
SCS
Southern Company Services, Inc. (the Southern Company system service company)
SEC
Securities and Exchange Commission
SEGCO
Southern Electric Generating Company
SEPA
Southeastern Power Administration
SERC
Southeastern Electric Reliability Council
SMEPA
South Mississippi Electric Power Association
Southern Company
The Southern Company
Southern Company system
Southern Company, the traditional operating companies, Southern Power, SEGCO, Southern Nuclear, SCS, SouthernLINC Wireless, and other subsidiaries
Southern Holdings
Southern Company Holdings, Inc.
SouthernLINC Wireless
Southern Communications Services, Inc.
Southern Nuclear
Southern Nuclear Operating Company, Inc.
Southern Power
Southern Power Company and its subsidiaries
TIPA
Tax Increase Prevention Act of 2014
traditional operating companies
Alabama Power, Georgia Power, Gulf Power, and Mississippi Power
Vogtle Owners
Georgia Power, OPC, MEAG, and Dalton
Westinghouse
Westinghouse Electric Company LLC

iii

    Table of Contents                                Index to Financial Statements


CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K contains forward-looking statements. Forward-looking statements include, among other things, statements concerning retail rates, the potential financing of the Merger, the expected timing of the completion of the Merger, the strategic goals for the wholesale business, economic recovery, fuel and environmental cost recovery and other rate actions, current and proposed environmental regulations and related compliance plans and estimated expenditures, pending or potential litigation matters, access to sources of capital, projections for the qualified pension plan, postretirement benefit plans, and nuclear decommissioning trust fund contributions, financing activities, completion dates of acquisitions, construction projects, and changing fuel sources, filings with state and federal regulatory authorities, impact of the PATH Act, federal income tax benefits, estimated sales and purchases under power sale and purchase agreements, and estimated construction and other plans and expenditures. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "should," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential," or "continue" or the negative of these terms or other similar terminology. There are various factors that could cause actual results to differ materially from those suggested by the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include:
the impact of recent and future federal and state regulatory changes, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry, environmental laws regulating emissions, discharges, and disposal to air, water, and land, and also changes in tax and other laws and regulations to which Southern Company and its subsidiaries are subject, as well as changes in application of existing laws and regulations;
current and future litigation, regulatory investigations, proceedings, or inquiries, including, without limitation, Internal Revenue Service and state tax audits;
the effects, extent, and timing of the entry of additional competition in the markets in which Southern Company's subsidiaries operate;
variations in demand for electricity, including those relating to weather, the general economy and recovery from the last recession, population and business growth (and declines), the effects of energy conservation and efficiency measures, including from the development and deployment of alternative energy sources such as self-generation and distributed generation technologies, and any potential economic impacts resulting from federal fiscal decisions;
available sources and costs of fuels;
effects of inflation;
the ability to control costs and avoid cost overruns during the development and construction of facilities, which include the development and construction of generating facilities with designs that have not been finalized or previously constructed, including changes in labor costs and productivity, adverse weather conditions, shortages and inconsistent quality of equipment, materials, and labor, contractor or supplier delay, non-performance under construction, operating, or other agreements, operational readiness, including specialized operator training and required site safety programs, unforeseen engineering or design problems, start-up activities (including major equipment failure and system integration), and/or operational performance (including additional costs to satisfy any operational parameters ultimately adopted by any PSC);
the ability to construct facilities in accordance with the requirements of permits and licenses, to satisfy any environmental performance standards and the requirements of tax credits and other incentives, and to integrate facilities into the Southern Company system upon completion of construction;
investment performance of Southern Company's employee and retiree benefit plans and the Southern Company system's nuclear decommissioning trust funds;
advances in technology;
state and federal rate regulations and the impact of pending and future rate cases and negotiations, including rate actions relating to fuel and other cost recovery mechanisms;
legal proceedings and regulatory approvals and actions related to Plant Vogtle Units 3 and 4, including Georgia PSC approvals and NRC actions and related legal proceedings involving the commercial parties;
actions related to cost recovery for the Kemper IGCC, including the ultimate impact of the 2015 decision of the Mississippi Supreme Court, the Mississippi PSC's December 2015 rate order, and related legal or regulatory proceedings, Mississippi PSC review of the prudence of Kemper IGCC costs and approval of further permanent rate recovery plans, actions relating

iv

    Table of Contents                                Index to Financial Statements


to proposed securitization, satisfaction of requirements to utilize grants, and the ultimate impact of the termination of the proposed sale of an interest in the Kemper IGCC to SMEPA;
the ability to successfully operate the electric utilities' generating, transmission, and distribution facilities and the successful performance of necessary corporate functions;
the inherent risks involved in operating and constructing nuclear generating facilities, including environmental, health, regulatory, natural disaster, terrorism, and financial risks;
the performance of projects undertaken by the non-utility businesses and the success of efforts to invest in and develop new opportunities;
internal restructuring or other restructuring options that may be pursued;
potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial to Southern Company or its subsidiaries;
the expected timing, likelihood, and benefits of completion of the Merger, including the failure to receive, on a timely basis or otherwise, the required approvals by government or regulatory agencies (including the terms of such approvals), the possibility that long-term financing for the Merger may not be put in place prior to the closing, the risk that a condition to closing of the Merger or funding of the Bridge Agreement may not be satisfied, the possibility that the anticipated benefits from the Merger cannot be fully realized or may take longer to realize than expected, the possibility that costs related to the integration of Southern Company and AGL Resources will be greater than expected, the credit ratings of the combined company or its subsidiaries may be different from what the parties expect, the ability to retain and hire key personnel and maintain relationships with customers, suppliers, or other business partners, the diversion of management time on Merger-related issues, and the impact of legislative, regulatory, and competitive changes;
the ability of counterparties of Southern Company and its subsidiaries to make payments as and when due and to perform as required;
the ability to obtain new short- and long-term contracts with wholesale customers;
the direct or indirect effect on the Southern Company system's business resulting from cyber intrusion or terrorist incidents and the threat of terrorist incidents;
interest rate fluctuations and financial market conditions and the results of financing efforts;
changes in Southern Company's and any of its subsidiaries' credit ratings, including impacts on interest rates, access to capital markets, and collateral requirements;
the impacts of any sovereign financial issues, including impacts on interest rates, access to capital markets, impacts on currency exchange rates, counterparty performance, and the economy in general, as well as potential impacts on the benefits of the DOE loan guarantees;
the ability of Southern Company's subsidiaries to obtain additional generating capacity (or sell excess generating capacity) at competitive prices;
catastrophic events such as fires, earthquakes, explosions, floods, hurricanes and other storms, droughts, pandemic health events such as influenzas, or other similar occurrences;
the direct or indirect effects on the Southern Company system's business resulting from incidents affecting the U.S. electric grid or operation of generating resources;
the effect of accounting pronouncements issued periodically by standard-setting bodies; and
other factors discussed elsewhere herein and in other reports filed by the registrants from time to time with the SEC.
The registrants expressly disclaims any obligation to update any forward-looking statements.


v

    Table of Contents                                Index to Financial Statements


PART I
Item 1.
BUSINESS
Southern Company was incorporated under the laws of Delaware on November 9, 1945. Southern Company is registered and qualified to do business under the laws of Georgia and is qualified to do business as a foreign corporation under the laws of Alabama. Southern Company owns all of the outstanding common stock of Alabama Power, Georgia Power, Gulf Power, and Mississippi Power, each of which is an operating public utility company. The traditional operating companies supply electric service in the states of Alabama, Georgia, Florida, and Mississippi. More particular information relating to each of the traditional operating companies is as follows:
Alabama Power is a corporation organized under the laws of the State of Alabama on November 10, 1927, by the consolidation of a predecessor Alabama Power Company, Gulf Electric Company, and Houston Power Company. The predecessor Alabama Power Company had been in continuous existence since its incorporation in 1906.
Georgia Power was incorporated under the laws of the State of Georgia on June 26, 1930 and was admitted to do business in Alabama on September 15, 1948 and in Florida on October 13, 1997.
Gulf Power is a Florida corporation that has had a continuous existence since it was originally organized under the laws of the State of Maine on November 2, 1925. Gulf Power was admitted to do business in Florida on January 15, 1926, in Mississippi on October 25, 1976, and in Georgia on November 20, 1984. Gulf Power became a Florida corporation after being domesticated under the laws of the State of Florida on November 2, 2005.
Mississippi Power was incorporated under the laws of the State of Mississippi on July 12, 1972, was admitted to do business in Alabama on November 28, 1972, and effective December 21, 1972, by the merger into it of the predecessor Mississippi Power Company, succeeded to the business and properties of the latter company. The predecessor Mississippi Power Company was incorporated under the laws of the State of Maine on November 24, 1924 and was admitted to do business in Mississippi on December 23, 1924 and in Alabama on December 7, 1962.
In addition, Southern Company owns all of the common stock of Southern Power Company, which is also an operating public utility company. Southern Power constructs, acquires, owns, and manages generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. Southern Power Company is a corporation organized under the laws of Delaware on January 8, 2001. Together with its subsidiaries, Southern Power is admitted to do business in the States of Alabama, California, Florida, Georgia, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, and Texas.
Southern Company also owns all of the outstanding common stock or membership interests of SouthernLINC Wireless, Southern Nuclear, SCS, Southern Holdings, and other direct and indirect subsidiaries. SouthernLINC Wireless provides digital wireless communications for use by Southern Company and its subsidiary companies and markets these services to the public and also provides wholesale fiber optic solutions to telecommunication providers in the Southeast. Southern Nuclear operates and provides services to Alabama Power's and Georgia Power's nuclear plants and is currently developing Plant Vogtle Units 3 and 4, which are co-owned by Georgia Power. SCS is the Southern Company system service company providing, at cost, specialized services to Southern Company and its subsidiary companies. Southern Holdings is an intermediate holding subsidiary, primarily for Southern Company's investments in leveraged leases and also for energy services.
Alabama Power and Georgia Power each own 50% of the outstanding common stock of SEGCO. SEGCO is an operating public utility company that owns electric generating units with an aggregate capacity of 1,019,680 KWs at Plant Gaston on the Coosa River near Wilsonville, Alabama. Alabama Power and Georgia Power are each entitled to one-half of SEGCO's capacity and energy. Alabama Power acts as SEGCO's agent in the operation of SEGCO's units and furnishes fuel to SEGCO for its units. SEGCO also owns one 230,000 volt transmission line extending from Plant Gaston to the Georgia state line at which point connection is made with the Georgia Power transmission line system.
On August 23, 2015, Southern Company entered into the Merger Agreement to acquire AGL Resources. Under the terms of the Merger Agreement, subject to the satisfaction or waiver (if permissible under applicable law) of specified conditions, Merger Sub will be merged with and into AGL Resources. AGL Resources will survive the Merger and become a wholly-owned, direct subsidiary of Southern Company. Upon the consummation of the Merger, each share of common stock of AGL Resources issued and outstanding immediately prior to the effective time of the Merger, other than shares owned by AGL Resources as treasury stock, shares owned by a subsidiary of AGL Resources, and any shares owned by shareholders who have properly exercised and perfected dissenters' rights, will be converted into the right to receive $66 in cash, without interest and less any applicable withholding taxes. Other equity-based securities of AGL Resources will be cancelled for cash consideration or converted into new awards from Southern Company as described in the Merger Agreement. See Note 12 to the financial statements under "Southern Company – Proposed Merger with AGL Resources" in Item 8 herein for additional information regarding the Merger.

I-1

    Table of Contents                                Index to Financial Statements


Southern Company's segment information is included in Note 13 to the financial statements of Southern Company in Item 8 herein.
The registrants' Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports are made available on Southern Company's website, free of charge, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Southern Company's internet address is www.southerncompany.com.
The Southern Company System
Traditional Operating Companies
The traditional operating companies are vertically integrated utilities that own generation, transmission, and distribution facilities. See PROPERTIES in Item 2 herein for additional information on the traditional operating companies' generating facilities. Each company's transmission facilities are connected to the respective company's own generating plants and other sources of power (including certain generating plants owned by Southern Power) and are interconnected with the transmission facilities of the other traditional operating companies and SEGCO. For information on the State of Georgia's integrated transmission system, see "Territory Served by the Traditional Operating Companies and Southern Power" herein.
Agreements in effect with principal neighboring utility systems provide for capacity and energy transactions that may be entered into from time to time for reasons related to reliability or economics. Additionally, the traditional operating companies have entered into voluntary reliability agreements with the subsidiaries of Entergy Corporation, Florida Electric Power Coordinating Group, and Tennessee Valley Authority and with Duke Energy Progress, Inc., Duke Energy Carolinas, LLC, South Carolina Electric & Gas Company, and Virginia Electric and Power Company, each of which provides for the establishment and periodic review of principles and procedures for planning and operation of generation and transmission facilities, maintenance schedules, load retention programs, emergency operations, and other matters affecting the reliability of bulk power supply. The traditional operating companies have joined with other utilities in the Southeast (including some of those referred to above) to form the SERC to augment further the reliability and adequacy of bulk power supply. Through the SERC, the traditional operating companies are represented on the National Electric Reliability Council.
The utility assets of the traditional operating companies and certain utility assets of Southern Power Company are operated as a single integrated electric system, or power pool, pursuant to the IIC. Activities under the IIC are administered by SCS, which acts as agent for the traditional operating companies and Southern Power Company. The fundamental purpose of the power pool is to provide for the coordinated operation of the electric facilities in an effort to achieve the maximum possible economies consistent with the highest practicable reliability of service. Subject to service requirements and other operating limitations, system resources are committed and controlled through the application of centralized economic dispatch. Under the IIC, each traditional operating company and Southern Power Company retains its lowest cost energy resources for the benefit of its own customers and delivers any excess energy to the power pool for use in serving customers of other traditional operating companies or Southern Power Company or for sale by the power pool to third parties. The IIC provides for the recovery of specified costs associated with the affiliated operations thereunder, as well as the proportionate sharing of costs and revenues resulting from power pool transactions with third parties.
Southern Company, each traditional operating company, Southern Power, Southern Nuclear, SEGCO, and other subsidiaries have contracted with SCS to furnish, at direct or allocated cost and upon request, the following services: general and design engineering, operations, purchasing, accounting, finance and treasury, tax, information technology, marketing, auditing, insurance and pension administration, human resources, systems and procedures, digital wireless communication, and other services with respect to business and operations, construction management, and power pool transactions. Southern Power and SouthernLINC Wireless have also secured from the traditional operating companies certain services which are furnished at cost and, in the case of Southern Power, which are subject to FERC regulations.
Alabama Power and Georgia Power each have a contract with Southern Nuclear to operate the Southern Company system's existing nuclear plants, Plants Farley, Hatch, and Vogtle. In addition, Georgia Power has a contract with Southern Nuclear to develop, license, construct, and operate Plant Vogtle Units 3 and 4. See "Regulation – Nuclear Regulation" herein for additional information.
Southern Power
The term "Southern Power" when used herein refers to Southern Power Company and its subsidiaries while the term "Southern Power Company" when used herein refers only to the parent company. Southern Power constructs, acquires, owns, and manages generation assets, including renewable energy projects, and sells electricity at market-based rates (under authority from the FERC) in the wholesale market. Southern Power continually seeks opportunities to execute its strategy to create value through various transactions, including acquisitions and sales of assets, construction of new power plants, and

I-2

    Table of Contents                                Index to Financial Statements


entry into PPAs primarily with investor-owned utilities, IPPs, municipalities, electric cooperatives, and other load serving entities. Southern Power's business activities are not subject to traditional state regulation like the traditional operating companies, but the majority of its business activities are subject to regulation by the FERC. Southern Power has attempted to insulate itself from significant fuel supply, fuel transportation, and electric transmission risks by generally making such risks the responsibility of the counterparties to its PPAs. However, Southern Power's future earnings will depend on the parameters of the wholesale market and the efficient operation of its wholesale generating assets, as well as Southern Power’s ability to execute its growth strategy and to construct generating facilities. For additional information on Southern Power's business activities, see MANAGEMENT'S DISCUSSION AND ANALYSIS – OVERVIEW – "Business Activities" of Southern Power in Item 7 herein.
Southern Power Company owns and manages generation assets primarily in the Southeast, which are included in the power pool, and has other wholly-owned subsidiaries, two of which are Southern Renewable Energy, Inc. (SRE) and Southern Renewable Partnerships, LLC (SRP), which were created to own and operate renewable projects either wholly or in partnership with third parties, such as Turner Renewable Energy, LLC (TRE), First Solar Inc. (First Solar), or Recurrent Energy, a subsidiary of Canadian Solar Inc. (Recurrent), which are not included in the power pool. In addition, Southern Power Company has other subsidiaries either with natural gas and biomass generating facilities or pursuing additional natural gas generation and other development opportunities.
Since 2010, SRE and TRE, through Southern Turner Renewable Energy, LLC (STR), a jointly-owned subsidiary owned 90% by SRE, has acquired all of the outstanding membership interests of eight solar projects that own the following solar photovoltaic facilities: Adobe, Apex, Campo Verde, Cimarron, Granville, Macho Springs, Morelos, and Spectrum. In December 2015, STR entered into a purchase agreement with Solar Frontier Americas Holding LLC, the developer of the Calipatria solar project, to acquire all of the outstanding membership interests of Calipatria Solar, LLC (Calipatria), which closed on February 11, 2016. Additionally, in December 2015, SRE acquired 100% of all the outstanding membership interests of Kay Wind, LLC, which owns and operates the Kay Wind facility. In September 2015, SRE entered into a purchase agreement with Apex Clean Energy Holdings, LLC, the developer of the Grant Wind project, to acquire all of the outstanding membership interests of Grant Wind, LLC (Grant Wind), which is expected to close in March 2016 when the project reaches commercial operation.
In 2014 and 2015, SRP acquired 100% of the outstanding class A membership interests of seven partnership entities that own the following solar photovoltaic facilities: Desert Stateline (which is being completed in eight phases), Garland, Imperial Valley, Lost Hills Blackwell, North Star, Roserock, and Tranquillity. Imperial Valley was placed in service in 2014; Lost Hills Blackwell, North Star, and three of the eight phases of Desert Stateline were placed in service in 2015; and phases four and five of Desert Stateline were placed in service in January and February 2016, respectively. Garland, Roserock, Tranquillity, and the remaining three phases of Desert Stateline are expected to be placed in service later in 2016. SRP is entitled to 51% of all cash distributions from the partnership entities and the respective partner who holds the class B membership interests (either First Solar or Recurrent) is entitled to 49% of all cash distributions. In addition, Southern Power is entitled to substantially all of the federal tax benefits with respect to the seven partnership entities.
In December 2014, Southern Power announced that it will build an approximately 146-MW solar photovoltaic facility, Sandhills, in Taylor County, Georgia. During the first half of 2015, Southern Power Company acquired all of the outstanding membership interests of five entities that were subsequently merged with Southern Power Company for the construction of five solar photovoltaic facilities in Georgia as follows: Decatur County, Decatur Parkway, Butler, Butler Solar Farm, and Pawpaw. Decatur County and Decatur Parkway were placed in service in late 2015; Butler Solar Farm was placed in service in February 2016; and Pawpaw, Sandhills, and Butler are expected to be placed in service during 2016.
The entire output of each of the renewable facilities is contracted under long-term PPAs as shown below in the table of PPAs as of December 31, 2015. See Item 2 – Properties, Note 2 to the financial statements of Southern Power in Item 8 herein, and Note 12 to the financial statements of Southern Company under "Southern Power" in Item 8 herein for additional information regarding Southern Power's acquisitions and construction projects.
As of December 31, 2015, Southern Power had 9,595 MWs of nameplate capacity in commercial operation (including 2,110 MWs owned by its subsidiaries), after taking into consideration its equity ownership percentage of the solar facilities. With the inclusion of the PPAs and capacity associated with the solar facilities currently under construction and the acquisitions of Calipatria and Grant Wind, all as discussed above, as well as other capacity and energy contracts, Southern Power has an average of 75% of its available demonstrated capacity covered for the next five years (through 2020) and an average of 70% of its available demonstrated capacity covered for the next 10 years (through 2025).
Southern Power’s natural gas and biomass sales are primarily through long-term PPAs that consist of two types of agreements. The first type, referred to as a unit or block sale, is a customer purchase from a dedicated plant unit where all or a portion of the generation from that unit is reserved for that customer. Southern Power typically has the ability to serve the unit or block

I-3

    Table of Contents                                Index to Financial Statements


sale customer from an alternate resource. The second type, referred to as requirements service, provides that Southern Power serve the customer’s capacity and energy requirements from a combination of the customer’s own generating units and from Southern Power resources not dedicated to serve unit or block sales. Southern Power has rights to purchase power provided by the requirements customers’ resources when economically viable.
Southern Power’s solar and wind sales are also through long-term PPAs, but do not have a capacity charge. Instead the customers purchase the entire energy output of a dedicated renewable facility through an energy charge.
The following tables set forth Southern Power’s existing PPAs as of December 31, 2015:
Block Sales PPAs
Facility/Source
 
Counterparty
 
MWs

 
 
 
Contract Term
Addison Unit 1
 
MEAG Power
 
152

 
 
 
through April 2029
Addison Units 2 and 4
 
Georgia Power
 
293

 
 
 
through May 2030
Addison Unit 3
 
Georgia Energy Cooperative
 
151

 
 
 
through May 2030
Cleveland County Unit 1
 
NCEMC(1)
 
45-180

 
 
 
through Dec. 2036
Cleveland County Unit 2
 
NCEMC(1)
 
180

 
 
 
through Dec. 2036
Cleveland County Unit 3
 
NCMPA1(2)
 
183

 
 
 
through Dec. 2031
Dahlberg Units 1, 3, and 5
 
Cobb EMC
 
224

 
 
 
Jan. 2016 – Dec. 2025
Dahlberg Units 2, 6, 8, and 10
 
Georgia Power
 
298

 
 
 
through May 2025
Dahlberg Unit 4
 
Georgia Power
 
73

 
 
 
through May 2030
Franklin Unit 1
 
Duke Energy Florida, Inc.
 
350

 
 
 
through May 2016
Franklin Unit 1
 
Duke Energy Florida, Inc.
 
434

 
 
 
June 2016 – May 2021
Franklin Unit 2
 
Morgan Stanley Capital Group
 
250

 
 
 
Jan. 2016 – Dec. 2025
Franklin Unit 2
 
Jackson EMC
 
60-65

 
 
 
Jan. 2016 – Dec. 2035
Franklin Unit 2
 
GreyStone Power Corporation
 
35-40

 
 
 
Jan. 2016 – Dec. 2035
Franklin Unit 2
 
Cobb EMC
 
100

 
 
 
Jan. 2016 – Dec. 2025
Franklin Unit 3
 
Exelon Generation Company LLC
 
100

 
 
 
Jan. 2016 - Dec. 2016
Franklin Unit 3
 
Cargill Power Markets LLC
 
50

 
 
 
Jan. 2016 - Dec. 2016
Harris Unit 1
 
Georgia Power
 
638

 
 
 
through May 2030
Harris Unit 2
 
Georgia Power
 
631

 
 
 
through May 2019
Harris Unit 2
 
AMEA(3)
 
25

 
 
 
Jan. 2020 – Dec. 2025
Nacogdoches
 
City of Austin, Texas
 
100

 
 
 
through May 2032
NCEMC PPA(4)
 
EnergyUnited
 
100

 
 
 
through Dec. 2021
Oleander Units 2, 3, and 4
 
Seminole Electric Cooperative
 
155

 
 
 
through May 2021
Oleander Unit 5
 
FMPA
 
157

 
 
 
through Dec. 2027
Rowan CT Unit 1
 
NCMPA1(2)
 
150

 
 
 
through Dec. 2030
Rowan CT Unit 3
 
EnergyUnited
 
113

 
 
 
through Dec. 2023
Rowan CC Unit 4
 
EnergyUnited
 
0-328

 
 
 
through Dec. 2025
Rowan CC Unit 4
 
Duke Energy Progress, Inc.
 
150

 
 
 
through Dec. 2019
Rowan CC Unit 4
 
PJM Auction(5)
 
200

 
 
 
June 2016 – May 2017
Stanton Unit A
 
OUC
 
341

 
 
 
through Sept. 2033
Stanton Unit A
 
FMPA
 
85

 
 
 
through Sept. 2033
Wansley Unit 6
 
Georgia Power
 
570

 
 
 
through May 2017
(1)
North Carolina Electric Membership Corporation (NCEMC)
(2)
North Carolina Municipal Power Agency 1 (NCMPA1)

I-4

    Table of Contents                                Index to Financial Statements


(3)
Alabama Municipal Electric Authority (AMEA). AMEA will be served by Plant Franklin Unit 1 from January 2018 through December 2019.
(4)
Represents sale of power purchased from NCEMC under a PPA.
(5)
Pennsylvania, Jersey, Maryland Power Pool
Requirements Services PPAs
Counterparty
 
MWs
 
 
 
Contract Term
Nine Georgia EMCs
 
223-456

 
(1)
 
through Dec. 2024
Sawnee EMC
 
116-559

 
(1)
 
through Dec. 2027
Cobb EMC
 
0-316

 
(1)
 
Jan. 2016 - Dec. 2025
Flint EMC
 
128-257

 
(1)
 
through Dec. 2024
City of Dalton, Georgia
 

 
(1)
 
through Dec. 2017
EnergyUnited
 
0-219

 
(1)
 
through Dec. 2025
_______________________________________
(1)
Represents a range of forecasted incremental capacity needs over the contract term.
Solar/Wind PPAs
Facility
Counterparty
MWs(1)
Contract Term
Solar
 
 
 
Adobe(2)
Southern California Edison Company
20
through May 2034
Apex(2)
Nevada Power Company
20
through Dec. 2037
Butler
Georgia Power
100
Dec. 2016 - Dec. 2046 (5)
Butler Solar Farm
Georgia Power
20
Jan. 2016 - Dec. 2035
Calipatria(2)
San Diego Gas & Electric Company
20
Feb. 2016 - Jan. 2036
Campo Verde(2)
San Diego Gas & Electric Company
139
through Sept. 2033
Cimarron(2)
Tri-State Generation and Transmission Association, Inc.
30
through Nov. 2035
Decatur County
Georgia Power
19
through Dec. 2035
Decatur Parkway
Georgia Power
80
through Dec. 2040
Desert Stateline(4)
Southern California Edison Company
300
Sep. 2016 - Oct. 2036 (5)
Garland(4)
Southern California Edison Company
20
Dec. 2016 - Nov. 2036 (5)
Garland(4)
Southern California Edison Company
180
Dec. 2016 - Nov. 2031 (5)
Granville(2)
Duke Energy Progress, Inc.
2.5
through Nov. 2032
Imperial Valley(4)
San Diego Gas & Electric Company
150
through Dec. 2039
Lost Hills Blackwell(4)
City of Roseville & Pacific Gas & Electric Company
32
through Dec. 2043
Macho Springs(2)
El Paso Energy
50
through May 2034
Morelos(2)
Pacific Gas & Electric Company
15
Jan. 2016 - Jan. 2035
North Star(4)
Pacific Gas & Electric Company
60
through May 2035
Pawpaw
Georgia Power
30
Mar. 2016 - Feb. 2046 (5)
Roserock(4)
Austin Energy
157
Oct. 2016 - Sept. 2036 (5)
Sandhills
Cobb EMC
111
Nov. 2016 - Dec. 2041 (5)
Sandhills
Flint EMC
15
Nov. 2016 - Dec. 2041 (5)
Sandhills
Sawnee EMC
15
Nov. 2016 - Dec. 2041 (5)
Sandhills
Middle GA and Irwin EMC
2
Nov. 2016 - Dec. 2041 (5)
Spectrum(2)
Nevada Power Company
30
through Dec. 2038
Tranquillity(4)
Shell Energy North America (US), LP
204
Oct. 2016 - Nov. 2019 (5)
Tranquillity(4)
Southern California Edison Company
204
Dec. 2019 - Nov. 2034 (5)

I-5

    Table of Contents                                Index to Financial Statements


Facility
Counterparty
MWs(1)
Contract Term
Wind
 
 
 
Grant Wind(3)
East Texas Electric Cooperative
50
Mar. 2016 - Mar. 2036 (5)
Grant Wind(3)
Northeast Texas Electric Cooperative
50
Mar. 2016 - Mar. 2036 (5)
Grant Wind(3)
Western Farmers Electric Cooperative
50
Mar. 2016 - Mar. 2036 (5)
Kay Wind
Westar
199
Oct. 2016 - Nov. 2036
Kay Wind
Grand River Dam Authority
100
through Dec. 2035
_______________________________________
(1) MWs shown are for 100% of the PPA.
(2) Southern Power's equity interest in these facilities is 90%.
(3) Southern Power has entered into an agreement to acquire this facility, which is subject to satisfaction of certain conditions to closing.
(4) Southern Power's equity interest in these facilities is 51%.
(5) Subject to commercial operation.
Purchased Power
Facility/Source
Counterparty
MWs
Contract Term
NCEMC
NCEMC
100
through Dec. 2021
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Power Sales Agreements" and "Acquisitions" of Southern Power in Item 7 herein and Note 2 to the financial statements of Southern Power in Item 8 herein for additional information.
For the year ended December 31, 2015, Southern Power's revenues were derived approximately 15.8% from Georgia Power and approximately 10.7% from Florida Power & Light Company. Southern Power actively pursues replacement PPAs prior to the expiration of its current PPAs and anticipates that the revenues attributable to one customer may be replaced by revenues from a new customer; however, the expiration of any of Southern Power’s current PPAs without the successful remarketing of a replacement PPA could have a material negative impact on Southern Power’s earnings but is not expected to have a material impact on Southern Company's earnings.
Other Businesses
Southern Holdings is an intermediate holding subsidiary, primarily for Southern Company's investments in leveraged leases and also for energy services.
SouthernLINC Wireless provides digital wireless communications for use by Southern Company and its subsidiary companies and also markets these services to the public. SouthernLINC Wireless delivers multiple wireless communication options including push to talk, cellular service, text messaging, wireless internet access, and wireless data. Its system covers approximately 127,000 square miles in the Southeast. SouthernLINC Wireless also provides fiber cable services within the Southeast through its subsidiary, Southern Telecom, Inc.
These efforts to invest in and develop new business opportunities offer potential returns exceeding those of rate-regulated operations. However, these activities also involve a higher degree of risk.
Construction Programs
The subsidiary companies of Southern Company are engaged in continuous construction programs to accommodate existing and estimated future loads on their respective systems. For estimated construction and environmental expenditures for the periods 2016 through 2018, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" of Southern Company, each traditional operating company, and Southern Power in Item 7 herein. The Southern Company system's construction program consists of capital investment and capital expenditures to comply with environmental statutes and regulations. The Southern Company system also anticipates costs associated with closure in place or by other methods and ground water monitoring of ash ponds in accordance with the Disposal of Coal Combustion Residuals from Electric Utilities final rule (CCR Rule), which are not reflected in the capital expenditures below as these costs are associated with asset retirement obligation liabilities. In 2016, the construction program is expected to be apportioned approximately as follows:

I-6

    Table of Contents                                Index to Financial Statements


 
Southern
Company
system(a)
Alabama
Power
Georgia
Power
Gulf
Power
Mississippi
Power
 
(in millions)
New Generation
$
1,224

$
56

$
553

$
3

$
612

Environmental Compliance(b)
683

319

313

30

21

Generation Maintenance
978

293

538

75

72

Transmission
618

167

402

23

26

Distribution
802

285

417

62

37

Nuclear Fuel
230

93

137



General Plant
307

93

174

22

19

 
4,842

1,306

2,534

215

787

Southern Power(c)
2,386

 
 
 
 
Other subsidiaries
102

 
 
 
 
Total
$
7,330

$
1,306

$
2,534

$
215

$
787

(a)
These amounts include the amounts for the traditional operating companies (as detailed in the table above) as well as the amounts for Southern Power and the other subsidiaries. See "Other Businesses" herein for additional information.
(b)
Reflects cost estimates for environmental regulations. These estimated expenditures do not include any potential compliance costs that may arise from the EPA’s final rules and guidelines or subsequently approved state plans that would limit CO2 emissions from new, existing, and modified or reconstructed fossil-fuel-fired electric generating units or costs associated with closure in place or by other methods and ground water monitoring of ash ponds in accordance with the CCR Rule. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations" and FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" of Southern Company and each traditional operating company in Item 7 herein for additional information.
(c)
Includes approximately $0.8 billion for potential acquisitions and/or construction of new generating facilities.
The construction programs are subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; changes in environmental statutes and regulations; the outcome of any legal challenges to the environmental rules; changes in generating plants, including unit retirements and replacements and adding or changing fuel sources at existing units, to meet regulatory requirements; changes in FERC rules and regulations; PSC approvals; changes in the expected environmental compliance program; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; project scope and design changes; storm impacts; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Additionally, planned expenditures for plant acquisitions may vary due to market opportunities and Southern Power's ability to execute its growth strategy.
In addition, the construction program includes the development and construction of new generating facilities with designs that have not been finalized or previously constructed, including first-of-a-kind technology, which may result in revised estimates during construction. The ability to control costs and avoid cost overruns during the development and construction of new facilities is subject to a number of factors, including, but not limited to, changes in labor costs and productivity, adverse weather conditions, shortages and inconsistent quality of equipment, materials, and labor, contractor or supplier delay, non-performance under construction, operating, or other agreements, operational readiness, including specialized operator training and required site safety programs, unforeseen engineering or design problems, start-up activities (including major equipment failure and system integration), and/or operational performance (including additional costs to satisfy any operational parameters ultimately adopted by any PSC).
See "Regulation – Environmental Statutes and Regulations" herein for additional information with respect to certain existing and proposed environmental requirements and PROPERTIES – "Jointly-Owned Facilities" in Item 2 herein for additional information concerning Alabama Power's, Georgia Power's, and Southern Power's joint ownership of certain generating units and related facilities with certain non-affiliated utilities. See Note 3 to the financial statements of Southern Company and Georgia Power under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Retail Regulatory Matters – Nuclear Construction," respectively, in Item 8 herein for additional information regarding Georgia Power’s construction of Plant Vogtle Units 3 and 4. Also see Note 3 to the financial statements of Southern Company and Mississippi Power under "Integrated Coal Gasification Combined Cycle" in Item 8 herein for additional information regarding Mississippi Power’s construction of the Kemper IGCC.

I-7

    Table of Contents                                Index to Financial Statements


Financing Programs
See each of the registrant's MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY in Item 7 herein and Note 6 to the financial statements of each registrant in Item 8 herein for information concerning financing programs.
Fuel Supply
The traditional operating companies' and SEGCO's supply of electricity is primarily fueled by natural gas and coal. Southern Power's supply of electricity is primarily fueled by natural gas. See MANAGEMENT'S DISCUSSION AND ANALYSIS – RESULTS OF OPERATION – "Electricity Business – Fuel and Purchased Power Expenses" of Southern Company and MANAGEMENT'S DISCUSSION AND ANALYSIS – RESULTS OF OPERATION – "Fuel and Purchased Power Expenses" of each traditional operating company in Item 7 herein for information regarding the electricity generated and the average cost of fuel in cents per net KWH generated for the years 2013 through 2015.
The traditional operating companies have agreements in place from which they expect to receive substantially all of their coal burn requirements in 2016. These agreements have terms ranging between one and five years. In 2015, the weighted average sulfur content of all coal burned by the traditional operating companies was 0.95% sulfur. This sulfur level, along with banked and purchased sulfur dioxide allowances, allowed the traditional operating companies to remain within limits set by Phase I of the Cross-State Air Pollution Rule (CSAPR) under the Clean Air Act. In 2015, the Southern Company system did not purchase any sulfur dioxide allowances, annual nitrogen oxide emission allowances, or seasonal nitrogen oxide emission allowances from the market. As any additional environmental regulations are proposed that impact the utilization of coal, the traditional operating companies' fuel mix will be monitored to help ensure that the traditional operating companies remain in compliance with applicable laws and regulations. Additionally, Southern Company and the traditional operating companies will continue to evaluate the need to purchase additional emissions allowances, the timing of capital expenditures for emissions control equipment, and potential unit retirements and replacements. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Southern Company, each traditional operating company, and Southern Power in Item 7 herein for additional information on environmental matters.
SCS, acting on behalf of the traditional operating companies and Southern Power Company, has agreements in place for the natural gas burn requirements of the Southern Company system. For 2016, SCS has contracted for 457 billion cubic feet of natural gas supply under agreements with remaining terms up to 15 years. In addition to natural gas supply, SCS has contracts in place for both firm natural gas transportation and storage. Management believes these contracts provide sufficient natural gas supplies, transportation, and storage to ensure normal operations of the Southern Company system's natural gas generating units.
Alabama Power and Georgia Power have numerous contracts covering a portion of their nuclear fuel needs for uranium, conversion services, enrichment services, and fuel fabrication. These contracts have varying expiration dates and most of them are for less than 10 years. Management believes sufficient capacity for nuclear fuel supplies and processing exists to preclude the impairment of normal operations of the Southern Company system's nuclear generating units.
Changes in fuel prices to the traditional operating companies are generally reflected in fuel adjustment clauses contained in rate schedules. See "Rate Matters – Rate Structure and Cost Recovery Plans" herein for additional information. Southern Power's PPAs (excluding solar and wind) generally provide that the counterparty is responsible for substantially all of the cost of fuel.
Alabama Power and Georgia Power have contracts with the United States, acting through the DOE, that provide for the permanent disposal of spent nuclear fuel. The DOE failed to begin disposing of spent fuel in 1998, as required by the contracts, and Alabama Power and Georgia Power have pursued and are pursuing legal remedies against the government for breach of contract. See Note 3 to the financial statements of Southern Company, Alabama Power, and Georgia Power under "Nuclear Fuel Disposal Costs" in Item 8 herein for additional information.
Territory Served by the Traditional Operating Companies and Southern Power
The territory in which the traditional operating companies provide electric service comprises most of the states of Alabama and Georgia, together with the northwestern portion of Florida and southeastern Mississippi. In this territory there are non-affiliated electric distribution systems that obtain some or all of their power requirements either directly or indirectly from the traditional operating companies. As of December 31, 2015, the territory had an area of approximately 120,000 square miles and an estimated population of approximately 17 million. Southern Power sells electricity at market-based rates in the wholesale market, primarily to investor-owned utilities, IPPs, municipalities, electric cooperatives, and other load serving entities.
Alabama Power is engaged, within the State of Alabama, in the generation and purchase of electricity and the transmission, distribution, and sale of such electricity, at retail in approximately 400 cities and towns (including Anniston, Birmingham, Gadsden, Mobile, Montgomery, and Tuscaloosa), as well as in rural areas, and at wholesale to 14 municipally-owned electric

I-8

    Table of Contents                                Index to Financial Statements


distribution systems, 11 of which are served indirectly through sales to AMEA, and two rural distributing cooperative associations. Alabama Power owns coal reserves near its Plant Gorgas and uses the output of coal from the reserves in its generating plants. Alabama Power also sells, and cooperates with dealers in promoting the sale of, electric appliances.
Georgia Power is engaged in the generation and purchase of electricity and the transmission, distribution, and sale of such electricity within the State of Georgia, at retail in over 600 communities (including Athens, Atlanta, Augusta, Columbus, Macon, Rome, and Savannah), as well as in rural areas, and at wholesale currently to OPC, MEAG Power, Dalton, various EMCs, and non-affiliated utilities.
Gulf Power is engaged, within the northwestern portion of Florida, in the generation and purchase of electricity and the transmission, distribution, and sale of such electricity, at retail in 71 communities (including Pensacola, Panama City, and Fort Walton Beach), as well as in rural areas, and at wholesale to a non-affiliated utility.
Mississippi Power is engaged in the generation and purchase of electricity and the transmission, distribution, and sale of such electricity within 23 counties in southeastern Mississippi, at retail in 123 communities (including Biloxi, Gulfport, Hattiesburg, Laurel, Meridian, and Pascagoula), as well as in rural areas, and at wholesale to one municipality, six rural electric distribution cooperative associations, and one generating and transmitting cooperative.
For information relating to KWH sales by customer classification for the traditional operating companies, see MANAGEMENT'S DISCUSSION AND ANALYSIS – RESULTS OF OPERATIONS of each traditional operating company in Item 7 herein. Also, for information relating to the sources of revenues for Southern Company, each traditional operating company, and Southern Power, reference is made to Item 7 herein.
The RUS has authority to make loans to cooperative associations or corporations to enable them to provide electric service to customers in rural sections of the country. As of December 31, 2015, there were 71 electric cooperative organizations operating in the territory in which the traditional operating companies provide electric service at retail or wholesale.
One of these organizations, PowerSouth, is a generating and transmitting cooperative selling power to several distributing cooperatives, municipal systems, and other customers in south Alabama and northwest Florida. As of December 31, 2015, PowerSouth owned generating units with approximately 2,100 MWs of nameplate capacity, including an undivided 8.16% ownership interest in Alabama Power's Plant Miller Units 1 and 2. PowerSouth's facilities were financed with RUS loans secured by long-term contracts requiring distributing cooperatives to take their requirements from PowerSouth to the extent such energy is available. See PROPERTIES – "Jointly-Owned Facilities" in Item 2 herein for details of Alabama Power's joint-ownership with PowerSouth of a portion of Plant Miller. Alabama Power has a 15-year system supply agreement with PowerSouth to provide 200 MWs of capacity service with an option to extend and renegotiate in the event Alabama Power builds new generation or contracts for new capacity.
Alabama Power and Gulf Power have entered into separate agreements with PowerSouth involving interconnection between their respective systems. The delivery of capacity and energy from PowerSouth to certain distributing cooperatives in the service territories of Alabama Power and Gulf Power is governed by the Southern Company/PowerSouth Network Transmission Service Agreement. The rates for this service to PowerSouth are on file with the FERC.
Four electric cooperative associations, financed by the RUS, operate within Gulf Power's service territory. These cooperatives purchase their full requirements from PowerSouth and SEPA (a federal power marketing agency). A non-affiliated utility also operates within Gulf Power's service territory and purchases its full requirements from Gulf Power.
Mississippi Power has an interchange agreement with SMEPA, a generating and transmitting cooperative, pursuant to which various services are provided.
As of December 31, 2015, there were approximately 65 municipally-owned electric distribution systems operating in the territory in which the traditional operating companies provide electric service at retail or wholesale.
As of December 31, 2015, 48 municipally-owned electric distribution systems and one county-owned system received their requirements through MEAG Power, which was established by a Georgia state statute in 1975. MEAG Power serves these requirements from self-owned generation facilities, some of which are jointly-owned with Georgia Power, and purchases from other resources. MEAG Power also has a pseudo scheduling and services agreement with Georgia Power. Dalton serves its requirements from self-owned generation facilities, some of which are jointly-owned with Georgia Power, and through purchases from Georgia Power and Southern Power through a service agreement. See PROPERTIES – "Jointly-Owned Facilities" in Item 2 herein for additional information.
Georgia Power has entered into substantially similar agreements with Georgia Transmission Corporation, MEAG Power, and Dalton providing for the establishment of an integrated transmission system to carry the power and energy of all parties. The agreements require an investment by each party in the integrated transmission system in proportion to its respective share of the aggregate system load. See PROPERTIES – "Jointly-Owned Facilities" in Item 2 herein for additional information.

I-9

    Table of Contents                                Index to Financial Statements


Southern Power assumed or entered into PPAs with some of the traditional operating companies, investor-owned utilities, IPPs, municipalities, electric cooperatives, and other load serving entities. See "The Southern Company System – Southern Power" above and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Power Sales Agreements" of Southern Power in Item 7 herein for additional information concerning Southern Power's PPAs.
SCS, acting on behalf of the traditional operating companies, also has a contract with SEPA providing for the use of the traditional operating companies' facilities at government expense to deliver to certain cooperatives and municipalities, entitled by federal statute to preference in the purchase of power from SEPA, quantities of power equivalent to the amounts of power allocated to them by SEPA from certain U.S. government hydroelectric projects.
Competition
The electric utility industry in the U.S. is continuing to evolve as a result of regulatory and competitive factors. Among the early primary agents of change was the Energy Policy Act of 1992, which allowed IPPs to access a utility's transmission network in order to sell electricity to other utilities.
The competition for retail energy sales among competing suppliers of energy is influenced by various factors, including price, availability, technological advancements, service, and reliability. These factors are, in turn, affected by, among other influences, regulatory, political, and environmental considerations, taxation, and supply.
The retail service rights of all electric suppliers in the State of Georgia are regulated by the Territorial Electric Service Act of 1973. Pursuant to the provisions of this Act, all areas within existing municipal limits were assigned to the primary electric supplier therein. Areas outside of such municipal limits were either to be assigned or to be declared open for customer choice of supplier by action of the Georgia PSC pursuant to standards set forth in this Act. Consistent with such standards, the Georgia PSC has assigned substantially all of the land area in the state to a supplier. Notwithstanding such assignments, this Act provides that any new customer locating outside of 1973 municipal limits and having a connected load of at least 900 KWs may exercise a one-time choice for the life of the premises to receive electric service from the supplier of its choice.
Pursuant to the 1956 Utility Act, the Mississippi PSC issued "Grandfather Certificates" of public convenience and necessity to Mississippi Power and to six distribution rural cooperatives operating in southeastern Mississippi, then served in whole or in part by Mississippi Power, authorizing them to distribute electricity in certain specified geographically described areas of the state. The six cooperatives serve approximately 325,000 retail customers in a certificated area of approximately 10,300 square miles. In areas included in a "Grandfather Certificate," the utility holding such certificate may, without further certification, extend its lines up to five miles; other extensions within that area by such utility, or by other utilities, may not be made except upon a showing of, and a grant of a certificate of, public convenience and necessity. Areas included in such a certificate that are subsequently annexed to municipalities may continue to be served by the holder of the certificate, irrespective of whether it has a franchise in the annexing municipality. On the other hand, the holder of the municipal franchise may not extend service into such newly annexed area without authorization by the Mississippi PSC.
Generally, the traditional operating companies have experienced, and expect to continue to experience, competition in their respective retail service territories in varying degrees from the development and deployment of alternative energy sources such as self-generation (as described below) and distributed generation technologies, as well as other factors.
Southern Power competes with investor-owned utilities, IPPs, and others for wholesale energy sales primarily in the Southeastern U.S. wholesale market. The needs of this market are driven by the demands of end users in the Southeast and the generation available. Southern Power's success in wholesale energy sales is influenced by various factors including reliability and availability of Southern Power's plants, availability of transmission to serve the demand, price, and Southern Power's ability to contain costs.
As of December 31, 2015, Alabama Power had cogeneration contracts in effect with nine industrial customers. Under the terms of these contracts, Alabama Power purchases excess energy generated by such companies. During 2015, Alabama Power purchased approximately 201 million KWHs from such companies at a cost of $4 million.
As of December 31, 2015, Georgia Power had contracts in effect with 24 small power producers whereby Georgia Power purchases their excess generation. During 2015, Georgia Power purchased 804 million KWHs from such companies at a cost of $60 million. Georgia Power also has PPAs for electricity with six cogeneration facilities. Payments are subject to reductions for failure to meet minimum capacity output. During 2015, Georgia Power purchased 285 million KWHs at a cost of $25 million from these facilities.
Also during 2015, Georgia Power purchased energy from three customer-owned generating facilities. These customers provide only energy to Georgia Power and make no capacity commitment and are not dispatched by Georgia Power. During 2015, Georgia Power purchased a total of 34 million KWHs from the three customers at a cost of approximately $1 million.

I-10

    Table of Contents                                Index to Financial Statements


As of December 31, 2015, Gulf Power had agreements in effect with various industrial, commercial, and qualifying facilities pursuant to which Gulf Power purchases "as available" energy from customer-owned generation. During 2015, Gulf Power purchased 211 million KWHs from such companies for approximately $6 million.
As of December 31, 2015, Mississippi Power had one cogeneration agreement in effect with one of its industrial customers. Under the terms of this contract, Mississippi Power purchases any excess generation. During 2015, Mississippi Power did not purchase any excess generation from this customer.
Seasonality
The demand for electric power generation is affected by seasonal differences in the weather. At the traditional operating companies and Southern Power, the demand for power peaks either during the summer or winter months, with market prices reflecting the demand of power and available generating resources at that time. As a result, the overall operating results of Southern Company, the traditional operating companies, and Southern Power in the future may fluctuate substantially on a seasonal basis. In addition, Southern Company, the traditional operating companies, and Southern Power have historically sold less power when weather conditions are milder.
Regulation
State Commissions
The traditional operating companies are subject to the jurisdiction of their respective state PSCs. The PSCs have broad powers of supervision and regulation over public utilities operating in the respective states, including their rates, service regulations, sales of securities (except for the Mississippi PSC), and, in the cases of the Georgia PSC and the Mississippi PSC, in part, retail service territories. See "Territory Served by the Traditional Operating Companies and Southern Power" and "Rate Matters" herein for additional information.
Federal Power Act
The traditional operating companies, Southern Power Company and certain of its generation subsidiaries, and SEGCO are all public utilities engaged in wholesale sales of energy in interstate commerce and, therefore, are subject to the rate, financial, and accounting jurisdiction of the FERC under the Federal Power Act. The FERC must approve certain financings and allows an "at cost standard" for services rendered by system service companies such as SCS and Southern Nuclear. The FERC is also authorized to establish regional reliability organizations which enforce reliability standards, address impediments to the construction of transmission, and prohibit manipulative energy trading practices.
Alabama Power and Georgia Power are also subject to the provisions of the Federal Power Act or the earlier Federal Water Power Act applicable to licensees with respect to their hydroelectric developments. As of December 31, 2015, among the hydroelectric projects subject to licensing by the FERC are 14 existing Alabama Power generating stations having an aggregate installed capacity of 1,667,000 KWs and 18 existing Georgia Power generating stations having an aggregate installed capacity of 1,087,296 KWs.
In 2013, the FERC issued a new 30-year license to Alabama Power for Alabama Power's seven hydroelectric developments on the Coosa River (Weiss, Henry, Logan Martin, Lay, Mitchell, Jordan, and Bouldin). Alabama Power filed a petition requesting rehearing of the FERC order granting the relicense seeking revisions to several conditions of the license. The Alabama Rivers Alliance, American Rivers, the Georgia Environmental Protection Division, and the Atlanta Regional Commission have also filed petitions for rehearing of the FERC order.
In 2013, Alabama Power filed an application with the FERC to relicense the Holt hydroelectric project located on the Warrior River. The current Holt license expired on August 31, 2015. Since the FERC did not act on Alabama Power's new license application prior to the expiration of the existing license, the FERC issued to Alabama Power an annual license authorizing continued operation of the project under the terms and conditions of the expired license until action is taken on the new license.
On December 17, 2015, the FERC issued a new 30-year license to Alabama Power for the Martin Dam project located on the Tallapoosa River. The Alabama Rivers Alliance, American Rivers, the Georgia Environmental Protection Division, and the Atlanta Regional Commission have filed petitions for rehearing of the FERC order.
In 2015, Georgia Power initiated the process of developing an application to relicense the Wallace Dam project on the Oconee River. The current Wallace Dam project license will expire on June 1, 2020.
Georgia Power and OPC also have a license, expiring in 2027, for the Rocky Mountain Plant, a pure pumped storage facility of 847,800 KW capacity. See PROPERTIES – "Jointly-Owned Facilities" in Item 2 herein for additional information.
Licenses for all projects, excluding those discussed above, expire in the years 2023-2035 in the case of Alabama Power's projects and in the years 2020-2044 in the case of Georgia Power's projects.

I-11

    Table of Contents                                Index to Financial Statements


Upon or after the expiration of each license, the U.S. Government, by act of Congress, may take over the project or the FERC may relicense the project either to the original licensee or to a new licensee. In the event of takeover or relicensing to another, the original licensee is to be compensated in accordance with the provisions of the Federal Power Act, such compensation to reflect the net investment of the licensee in the project, not in excess of the fair value of the property, plus reasonable damages to other property of the licensee resulting from the severance therefrom of the property. The FERC may grant relicenses subject to certain requirements that could result in additional costs.
The ultimate outcome of these matters cannot be determined at this time.
Nuclear Regulation
Alabama Power, Georgia Power, and Southern Nuclear are subject to regulation by the NRC. The NRC is responsible for licensing and regulating nuclear facilities and materials and for conducting research in support of the licensing and regulatory process, as mandated by the Atomic Energy Act of 1954, as amended; the Energy Reorganization Act of 1974, as amended; and the Nuclear Nonproliferation Act of 1978; and in accordance with the National Environmental Policy Act of 1969, as amended, and other applicable statutes. These responsibilities also include protecting public health and safety, protecting the environment, protecting and safeguarding nuclear materials and nuclear power plants in the interest of national security, and assuring conformity with antitrust laws.
The NRC licenses for Georgia Power's Plant Hatch Units 1 and 2 expire in 2034 and 2038, respectively. The NRC licenses for Alabama Power's Plant Farley Units 1 and 2 expire in 2037 and 2041, respectively. The NRC licenses for Plant Vogtle Units 1 and 2 expire in 2047 and 2049, respectively.
In 2012, the NRC issued combined construction and operating licenses (COLs) for Plant Vogtle Units 3 and 4. Receipt of the COLs allowed full construction to begin. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Nuclear Construction" of Georgia Power in Item 7 herein and Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and Georgia Power under "Retail Regulatory Matters – Nuclear Construction" in Item 8 herein for additional information.
See Notes 1 and 9 to the financial statements of Southern Company, Alabama Power, and Georgia Power in Item 8 herein for information on nuclear decommissioning costs and nuclear insurance.
Environmental Statutes and Regulations
The electric utilities' operations are subject to extensive regulation by state and federal environmental agencies under a variety of statutes and regulations governing environmental media, including air, water, and land resources. Compliance with these existing environmental requirements involves significant capital and operating costs, a major portion of which is expected to be recovered through existing ratemaking provisions or through market-based contracts. There is no assurance, however, that all such costs will be recovered.
Compliance with federal environmental statutes and resulting regulations has been, and will continue to be, a significant focus for Southern Company, each traditional operating company, Southern Power, and SEGCO. In addition, existing environmental laws and regulations may be changed or new laws and regulations may be adopted or otherwise become applicable to the Southern Company system, including laws and regulations designed to address air quality, water, CCRs, global climate change, or other environmental and health concerns, as well as wildlife and endangered species conservation. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Southern Company and each of the traditional operating companies in Item 7 herein for additional information about environmental issues, including, but not limited to, proposed and final regulations related to air quality, water, CCRs, and greenhouse gases. Also see MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Southern Power in Item 7 herein for additional information about environmental issues and climate change regulation.
The Southern Company system's ultimate environmental compliance strategy, including potential unit retirement and replacement decisions, and future environmental capital expenditures will be affected by the final requirements of new or revised environmental regulations; the time periods over which compliance with regulations is required; individual state implementation of regulations, as applicable; the outcome of any legal challenges to the environmental rules and any additional rulemaking activities in response to legal challenges and court decisions; the cost, availability, and existing inventory of emissions allowances; the impact of future changes in generation and emissions-related technology and costs; and the fuel mix of the electric utilities. Compliance costs may arise from existing unit retirements, installation of additional environmental controls, upgrades to the transmission system, closure and monitoring of CCR facilities, and adding or changing fuel sources for certain existing units. Environmental compliance spending over the next several years may differ materially from the amounts estimated. Such expenditures could affect results of operations, cash flows, and financial condition if such costs are not recovered on a timely basis through regulated rates or long-term wholesale agreements for the traditional operating

I-12

    Table of Contents                                Index to Financial Statements


companies or market-based rates for Southern Power. Further, higher costs that are recovered through regulated rates could contribute to reduced demand for electricity, which could negatively affect results of operations, cash flows, and financial condition. Also see MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Southern Company, each of the traditional operating companies, and Southern Power in Item 7 herein for additional information. The ultimate outcome of these matters cannot be determined at this time.
Compliance with any new federal or state legislation or regulations relating to air, water, and land resources or other environmental and health concerns could significantly affect the Southern Company system. Although new or revised environmental legislation or regulations could affect many areas of the electric utilities' operations, the full impact of any such changes cannot be determined at this time. Additionally, many of the electric utilities' commercial and industrial customers may also be affected by existing and future environmental requirements, which for some may have the potential to ultimately affect their demand for electricity. See "Construction Program" herein for additional information.
Rate Matters
Rate Structure and Cost Recovery Plans
The rates and service regulations of the traditional operating companies are uniform for each class of service throughout their respective retail service territories. Rates for residential electric service are generally of the block type based upon KWHs used and include minimum charges. Residential and other rates contain separate customer charges. Rates for commercial service are presently of the block type and, for large customers, the billing demand is generally used to determine capacity and minimum bill charges. These large customers' rates are generally based upon usage by the customer and include rates with special features to encourage off-peak usage. Additionally, Alabama Power, Gulf Power, and Mississippi Power are generally allowed by their respective state PSCs to negotiate the terms and cost of service to large customers. Such terms and cost of service, however, are subject to final state PSC approval.
The traditional operating companies recover their respective costs through a variety of forward-looking, cost-based rate mechanisms. Fuel and net purchased energy costs are recovered through specific fuel cost recovery provisions. These fuel cost recovery provisions are adjusted to reflect increases or decreases in such costs as needed or on schedules as required by the respective PSCs. Approved environmental compliance, storm damage, and certain other costs are recovered at Alabama Power, Gulf Power, and Mississippi Power through specific cost recovery mechanisms approved by their respective PSCs. Certain similar costs at Georgia Power are recovered through various base rate tariffs as approved by the Georgia PSC. Costs not recovered through specific cost recovery mechanisms are recovered at Alabama Power and Mississippi Power through annual, formulaic cost recovery proceedings and at Georgia Power and Gulf Power through base rate proceedings.
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters" of Southern Company and each of the traditional operating companies in Item 7 herein and Note 3 to the financial statements of Southern Company and each of the traditional operating companies under "Retail Regulatory Matters" in Item 8 herein for a discussion of rate matters and certain cost recovery mechanisms. Also, see Note 1 to the financial statements of Southern Company and each of the traditional operating companies in Item 8 herein for a discussion of recovery of fuel costs, storm damage costs, and environmental compliance costs through rate mechanisms.
See "Integrated Resource Planning" herein for a discussion of Georgia PSC certification of new demand-side or supply-side resources and decertification of existing supply-side resources for Georgia Power. In addition, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Nuclear Construction" of Georgia Power in Item 7 herein and Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and Georgia Power under "Retail Regulatory Matters – Nuclear Construction" in Item 8 herein for a discussion of the Georgia Nuclear Energy Financing Act and the Georgia PSC certification of Plant Vogtle Units 3 and 4, which have allowed Georgia Power to recover financing costs for construction of Plant Vogtle Units 3 and 4 during the construction period beginning in 2011.
See Note 3 to the financial statements of Southern Company and Mississippi Power under "Integrated Coal Gasification Combined Cycle" in Item 8 herein and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle – Rate Recovery of Kemper IGCC Costs" of Mississippi Power in Item 7 herein for information on cost recovery plans with respect to the Kemper IGCC.
The traditional operating companies and Southern Power Company and certain of its generation subsidiaries are authorized by the FERC to sell power to non-affiliates, including short-term opportunity sales, at market-based prices. Specific FERC approval must be obtained with respect to a market-based contract with an affiliate. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "FERC Matters" of each of the registrants in Item 7 herein for information on the traditional operating companies' and Southern Power Company's market-based rate authority and a pending FERC proceeding relating to this authority.

I-13

    Table of Contents                                Index to Financial Statements


Through 2015, capacity revenues represented the majority of Gulf Power's wholesale earnings. Gulf Power had long-term sales contracts to cover 100% of its ownership share of Plant Scherer Unit 3 (205 MWs) and these capacity revenues represented 82% of total wholesale capacity revenues for 2015. Due to the expiration of a wholesale contract at the end of 2015 and future expiration dates of the remaining wholesale contracts for the unit, Gulf Power currently has contracts to cover 34% of the unit for 2016 and 27% of the unit through 2019. Although Gulf Power is actively evaluating alternatives relating to this asset, including replacement wholesale contracts, the expiration of the contract in 2015 and the scheduled future expiration of the remaining contracts will have a material negative impact on Gulf Power's earnings in 2016 and may continue to have a material negative impact in future years. In the event some portion of Gulf Power's ownership of Plant Scherer Unit 3 is not subject to a replacement long-term wholesale contract, the proportionate amount of the unit may be sold into the power pool or into the wholesale market.
Mississippi Power serves long-term contracts with rural electric cooperative associations and municipalities located in southeastern Mississippi under cost-based electric tariffs which are subject to regulation by the FERC. The contracts with these wholesale customers represented 21.0% of Mississippi Power's operating revenues in 2015 and are largely subject to rolling 10-year cancellation notices. Historically, these wholesale customers have acted as a group and any changes in contractual relationships for one customer are likely to be followed by the other wholesale customers.
Integrated Resource Planning
Each of the traditional operating companies continually evaluates its electric generating resources in order to ensure that it maintains a cost-effective and reliable mix of resources to meet the existing and future demand requirements of its customers. See "Environmental Statutes and Regulations" above for a discussion of existing and potential environmental regulations that may impact the future generating resource needs of the traditional operating companies.
Certain of the traditional operating companies periodically file IRPs with their respective state PSC as discussed below.
Georgia Power
Triennially, Georgia Power must file an IRP with the Georgia PSC that specifies how it intends to meet the future electrical needs of its customers through a combination of demand-side and supply-side resources. The Georgia PSC, under state law, must certify any new demand-side or supply-side resources for Georgia Power to receive cost recovery. Once certified, the lesser of actual or certified construction costs and purchased power costs is recoverable through rates. Certified costs may be excluded from recovery only on the basis of fraud, concealment, failure to disclose a material fact, imprudence, or criminal misconduct.
See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Rate Plans," "– Integrated Resource Plan," and "– Nuclear Construction" and Note 3 to the financial statements of Georgia Power under "Retail Regulatory Matters – Rate Plans," "– Integrated Resource Plan," and "– Nuclear Construction" in Item 8 herein for additional information.
Gulf Power
Annually by April 1, Gulf Power must file a 10-year site plan with the Florida PSC containing Gulf Power's estimate of its power-generating needs in the period and the general location of its proposed power plant sites. The 10-year site plans submitted by the state's electric utilities are reviewed by the Florida PSC and subsequently classified as either "suitable" or "unsuitable." The Florida PSC then reports its findings along with any suggested revisions to the Florida Department of Environmental Protection for its consideration at any subsequent electrical power plant site certification proceedings. Under Florida law, any 10-year site plans submitted by an electric utility are considered tentative information for planning purposes only and may be amended at any time at the discretion of the utility with written notification to the Florida PSC.
Gulf Power's most recent 10-year site plan was classified by the Florida PSC as "suitable" in November 2015. Gulf Power's most recent 10-year site plan and environmental compliance plan identify environmental regulations and potential legislation or regulation that would impose mandatory restrictions on greenhouse gas emissions. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Air Quality," "– Environmental Statutes and Regulations – Coal Combustion Residuals," and "– Global Climate Issues" of Gulf Power in Item 7 herein. Gulf Power continues to evaluate the economics of various potential planning scenarios for units at certain Gulf Power coal-fired generating plants as EPA and other regulations develop.
On February 6, 2015, Gulf Power announced plans to retire its coal-fired generation at Plant Smith Units 1 and 2 (357 MWs) by March 31, 2016, as a result of the cost to comply with environmental regulations imposed by the EPA. In connection with this retirement, Gulf Power reclassified the net carrying value of these units from plant in service, net of depreciation, to other utility plant, net. The net book value of these units at December 31, 2015 was approximately $62 million. Subsequent to December 31, 2015, Gulf Power filed a petition with the Florida PSC requesting permission to create a regulatory asset for the

I-14

    Table of Contents                                Index to Financial Statements


remaining net book value of Plant Smith Units 1 and 2 and the remaining inventory associated with these units as of the retirement date. The retirement of these units is not expected to have a material impact on Gulf Power's financial statements as Gulf Power expects to recover these amounts through its rates; however, the ultimate outcome depends on future rate proceedings with the Florida PSC and cannot be determined at this time.
Mississippi Power
Mississippi Power's 2010 IRP indicated that Mississippi Power plans to construct the Kemper IGCC to meet its identified needs, to add environmental controls at Plant Daniel Units 1 and 2, to defer environmental controls at Plant Watson Units 4 and 5, and to continue operation of the combined cycle Plant Daniel Units 3 and 4. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Air Quality" and "– Global Climate Issues" of Mississippi Power in Item 7 herein. In August 2014, Mississippi Power entered into a settlement agreement with the Sierra Club that, among other things, required the Sierra Club to dismiss or withdraw all pending legal and regulatory challenges to the Kemper IGCC and the flue gas desulfurization system project at Plant Daniel Units 1 and 2, which also occurred in August 2014. In addition, and consistent with Mississippi Power’s ongoing evaluation of recent environmental rules and regulations, Mississippi Power agreed to retire, repower with natural gas, or convert to an alternative non-fossil fuel source Plant Sweatt Units 1 and 2 (80 MWs) no later than December 2018. Mississippi Power also agreed that it would cease burning coal or other solid fuel at Plant Watson Units 4 and 5 (750 MWs) and begin operating those units solely on natural gas no later than April 2015 (which occurred on April 16, 2015), and cease burning coal and other solid fuel at Plant Greene County Units 1 and 2 (200 MWs) and begin operating those units solely on natural gas no later than April 2016.
For information regarding Mississippi Power's construction of the Kemper IGCC, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle" of Mississippi Power in Item 7 herein and Note 3 to the financial statements of Southern Company and Mississippi Power under "Integrated Coal Gasification Combined Cycle" in Item 8 herein.
The ultimate outcome of these matters cannot be determined at this time.
Employee Relations
The Southern Company system had a total of 26,703 employees on its payroll at December 31, 2015.
 
Employees at December 31, 2015
Alabama Power
6,986

Georgia Power
7,989

Gulf Power
1,391

Mississippi Power
1,478

SCS
4,609

Southern Nuclear
4,012

Southern Power*
0

Other
238

Total
26,703

*
Southern Power has no employees. Southern Power has agreements with SCS and the traditional operating companies whereby employee services are rendered at amounts in compliance with FERC regulations.
The traditional operating companies have separate agreements with local unions of the IBEW generally covering wages, working conditions, and procedures for handling grievances and arbitration. These agreements apply with certain exceptions to operating, maintenance, and construction employees.
Alabama Power has agreements with the IBEW in effect through August 15, 2019. Upon notice given at least 60 days prior to that date, negotiations may be initiated with respect to agreement terms to be effective after such date.
Georgia Power has an agreement with the IBEW covering wages and working conditions, which is in effect through June 30, 2016.
Gulf Power has an agreement with the IBEW covering wages and working conditions, which is in effect through April 15, 2019. Upon notice given at least 60 days prior to that date, negotiations may be initiated with respect to agreement terms to be effective after such date.

I-15

    Table of Contents                                Index to Financial Statements


Mississippi Power has an agreement with the IBEW covering wages and working conditions, which is in effect through May 1, 2019. In 2013, Mississippi Power signed a separate agreement with the IBEW related solely to the Kemper IGCC, which is in effect through March 15, 2021.
Southern Nuclear has an agreement with the IBEW covering certain employees at Plants Hatch and Vogtle which is in effect through June 30, 2016. A five-year agreement between Southern Nuclear and the IBEW representing certain employees at Plant Farley is in effect through August 15, 2019. Upon notice given at least 60 days prior to that date, negotiations may be initiated with respect to agreement terms to be effective after such date.
The agreements also make the terms of the pension plans for the companies discussed above subject to collective bargaining with the unions at either a five-year or a 10-year cycle, depending upon union and company actions.

I-16

    Table of Contents                                Index to Financial Statements


Item 1A. RISK FACTORS
In addition to the other information in this Form 10-K, including MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL in Item 7 of each registrant, and other documents filed by Southern Company and/or its subsidiaries with the SEC from time to time, the following factors should be carefully considered in evaluating Southern Company and its subsidiaries. Such factors could affect actual results and cause results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, Southern Company and/or its subsidiaries.
UTILITY REGULATORY, LEGISLATIVE, AND LITIGATION RISKS
Southern Company and its subsidiaries are subject to substantial governmental regulation. Compliance with current and future regulatory requirements and procurement of necessary approvals, permits, and certificates may result in substantial costs to Southern Company and its subsidiaries.
Southern Company and its subsidiaries, including the traditional operating companies and Southern Power, are subject to substantial regulation from federal, state, and local regulatory agencies. Southern Company and its subsidiaries are required to comply with numerous laws and regulations and to obtain numerous permits, approvals, and certificates from the governmental agencies that regulate various aspects of their businesses, including rates and charges, service regulations, retail service territories, sales of securities, incurrence of indebtedness, asset acquisitions and sales, accounting and tax policies and practices, physical security and cyber-security policies and practices, and the construction and operation of fossil-fuel, nuclear, hydroelectric, solar, wind, and biomass generating facilities, as well as transmission and distribution facilities. For example, the respective state PSCs must approve the traditional operating companies' requested rates for retail customers. The traditional operating companies seek to recover their costs (including a reasonable return on invested capital) through their retail rates, and there can be no assurance that a state PSC, in a future rate proceeding, will not alter the timing or amount of certain costs for which recovery is allowed or modify the current authorized rate of return. Additionally, the rates charged to wholesale customers by the traditional operating companies and by Southern Power must be approved by the FERC. These wholesale rates could be affected by changes to Southern Power's ability to conduct business pursuant to FERC market-based rate authority. The FERC rules related to retaining the authority to sell electricity at market-based rates in the wholesale markets are important for the traditional operating companies and Southern Power if they are to remain competitive in the wholesale markets in which they operate.
The impact of any future revision or changes in interpretations of existing regulations or the adoption of new laws and regulations applicable to Southern Company or any of its subsidiaries cannot now be predicted. Changes in regulation or the imposition of additional regulations could influence the operating environment of Southern Company and its subsidiaries and may result in substantial costs or otherwise negatively affect their results of operations.
The Southern Company system's costs of compliance with environmental laws are significant. The costs of compliance with current and future environmental laws, including laws and regulations designed to address air quality, water, CCR, global climate change, and other matters and the incurrence of environmental liabilities could negatively impact the net income, cash flows, and financial condition of Southern Company, the traditional operating companies, and/or Southern Power.
The Southern Company system is subject to extensive federal, state, and local environmental requirements which, among other things, regulate air emissions, water usage and discharges, and the management and disposal of waste in order to adequately protect the environment. Compliance with these environmental requirements requires the traditional operating companies and Southern Power to commit significant expenditures for installation of pollution control equipment, environmental monitoring, emissions fees, and permits at substantially all of their respective facilities. Southern Company, the traditional operating companies, and Southern Power expect that these expenditures will continue to be significant in the future.
On October 23, 2015, the EPA published two final actions that would limit CO2 emissions from fossil fuel-fired electric generating units. One of the final actions contains specific emission standards governing CO2 emissions from new, modified, and reconstructed units. The other final action, known as the Clean Power Plan, establishes guidelines for states to develop plans to meet EPA-mandated CO2 emission rates for existing units. The EPA's final guidelines require state plans to meet interim CO2 performance rates between 2022 and 2029 and final rates in 2030 and thereafter. The proposed guidelines and standards could result in operational restrictions and material compliance costs, including capital expenditures, which could affect future unit retirement and replacement decisions. On February 9, 2016, the U.S. Supreme Court granted a stay of the Clean Power Plan, pending disposition of petitions for its review with the courts. The  stay will remain in effect through the resolution of the litigation, whether resolved in the D.C. Circuit or the Supreme Court.
Costs associated with these actions could be significant to the utility industry and the Southern Company system. However, the ultimate financial and operational impact of the final rules on the Southern Company system cannot be determined at this time

I-17

    Table of Contents                                Index to Financial Statements


and will depend upon numerous factors, including the Southern Company system's ongoing review of the final rules; the outcome of legal challenges, including legal challenges filed by the traditional operating companies; individual state implementation of the EPA's final guidelines, including the potential that state plans impose different standards; additional rulemaking activities in response to legal challenges and related court decisions; the impact of future changes in generation and emissions-related technology and costs; the impact of future decisions regarding unit retirement and replacement, including the type and amount of any such replacement capacity; and the time periods over which compliance will be required.
The EPA has adopted and is in the process of implementing regulations governing air quality, including the emission of nitrogen oxide, sulfur dioxide, fine particulate matter, ozone, mercury, and other air pollutants under the Clean Air Act. In addition, the EPA has finalized regulations governing cooling water intake structures, effluent guidelines for steam electric generating plants, and amending the definition of Waters of the United States under the Clean Water Act. The EPA has also finalized regulations governing the disposal of CCR, including coal ash and gypsum, in landfills and surface impoundments at active power generation plants.
Existing environmental laws and regulations may be revised or new laws and regulations related to air quality, water, CCR, global climate change, endangered species, or other environmental and health concerns may be adopted or become applicable to the traditional operating companies and/or Southern Power.
The Southern Company system's ultimate environmental compliance strategy, including potential unit retirement and replacement decisions, and future environmental capital expenditures will be affected by the final requirements of new or revised environmental regulations; the time periods over which compliance with regulations is required; individual state implementation of regulations, as applicable; the outcome of any legal challenges to the environmental rules and any additional rulemaking activities in response to legal challenges and court decisions; the cost, availability, and existing inventory of emissions allowances; the impact of future changes in generation and emissions-related technology and costs; and the fuel mix of the electric utilities. Compliance costs may arise from existing unit retirements, installation of additional environmental controls, upgrades to the transmission system, closure and monitoring of CCR facilities, and adding or changing fuel sources for certain existing units. Environmental compliance spending over the next several years may differ materially from the amounts estimated. Such expenditures could affect unit retirement and replacement decisions and results of operations, cash flows, and financial condition if such costs are not recovered on a timely basis through regulated rates or long-term wholesale agreements for the traditional operating companies or market-based rates for Southern Power. Further, higher costs that are recovered through regulated rates could contribute to reduced demand for electricity, which could negatively affect results of operations, cash flows, and financial condition. Additionally, if Southern Company, any traditional operating company, or Southern Power fails to comply with environmental laws and regulations, even if caused by factors beyond its control, that failure may result in the assessment of civil or criminal penalties and fines and/or remediation costs.
Litigation over environmental issues and claims of various types, including property damage, personal injury, common law nuisance, and citizen enforcement of environmental requirements such as air quality and water standards, has occurred throughout the U.S. This litigation has included claims for damages alleged to have been caused by CO2 and other emissions, CCR, and alleged exposure to hazardous materials, and/or requests for injunctive relief in connection with such matters.
The ultimate cost impact of proposed and final legislation and regulations and litigation are likely to result in significant additional costs and could result in additional operating restrictions.
The net income of Southern Company, the traditional operating companies, and Southern Power could be negatively impacted by changes in regulations related to transmission planning processes and competition in the wholesale electric markets.
The traditional operating companies currently own and operate transmission facilities as part of a vertically integrated utility. A small percentage of transmission revenues are collected through the wholesale electric tariff but the majority of transmission revenues are collected through retail rates. FERC rules pertaining to regional transmission planning and cost allocation present challenges to transmission planning and the wholesale market structure in the Southeast. The key impacts of these rules include:
possible disruption of the integrated resource planning processes within the states in the Southern Company system's service territory;
delays and additional processes for developing transmission plans; and
possible impacts on state jurisdiction of approving, certifying, and pricing new transmission facilities.
The FERC rules related to transmission are intended to spur the development of new transmission infrastructure to promote and encourage the integration of renewable sources of supply as well as facilitate competition in the wholesale market by providing more choices to wholesale power customers. In addition to the impacts on transactions contemplating physical delivery of energy, financial laws and regulations also impact power hedging and trading based on futures contracts and derivatives that are

I-18

    Table of Contents                                Index to Financial Statements


traded on various commodities exchanges as well as over-the-counter. Finally, technology changes in the power and fuel industries continue to create significant impacts to wholesale transaction cost structures. Southern Company, the traditional operating companies, and Southern Power cannot predict the impact of these and other such developments, nor can they predict the effect of changes in levels of wholesale supply and demand, which are typically driven by factors beyond their control. The financial condition, net income, and cash flows of Southern Company, the traditional operating companies, and Southern Power could be adversely affected by these and other changes.
The traditional operating companies and Southern Power could be subject to higher costs as a result of implementing and maintaining compliance with the North American Electric Reliability Corporation mandatory reliability standards along with possible associated penalties for non-compliance.
Owners and operators of bulk power systems, including the traditional operating companies, are subject to mandatory reliability standards enacted by the North American Electric Reliability Corporation and enforced by the FERC. Compliance with or changes in the mandatory reliability standards may subject the traditional operating companies, Southern Power, and Southern Company to higher operating costs and/or increased capital expenditures. If any traditional operating company or Southern Power is found to be in noncompliance with the mandatory reliability standards, such traditional operating company or Southern Power could be subject to sanctions, including substantial monetary penalties.
OPERATIONAL RISKS
The financial performance of Southern Company and its subsidiaries may be adversely affected if the subsidiaries are unable to successfully operate their facilities or perform certain corporate functions.
The financial performance of Southern Company and its subsidiaries depends on the successful operation of its subsidiaries' electric generating, transmission, and distribution facilities and the successful performance of necessary corporate functions. There are many risks that could affect these operations and performance of corporate functions, including:
operator error or failure of equipment or processes;
operating limitations that may be imposed by environmental or other regulatory requirements;
labor disputes;
terrorist attacks (physical and/or cyber);
fuel or material supply interruptions;
transmission disruption or capacity constraints, including with respect to the Southern Company system’s transmission facilities and third party transmission facilities;
compliance with mandatory reliability standards, including mandatory cyber security standards;
implementation of new technologies;
information technology system failure;
cyber intrusion;
an environmental event, such as a spill or release; and
catastrophic events such as fires, earthquakes, explosions, floods, droughts, hurricanes, pandemic health events such as influenzas, or other similar occurrences.
A decrease or elimination of revenues from the electric generation, transmission, or distribution facilities or an increase in the cost of operating the facilities would reduce the net income and cash flows and could adversely impact the financial condition of the affected traditional operating company or Southern Power and of Southern Company.
Operation of nuclear facilities involves inherent risks, including environmental, safety, health, regulatory, natural disasters, terrorism, and financial risks, that could result in fines or the closure of the nuclear units owned by Alabama Power or Georgia Power and which may present potential exposures in excess of insurance coverage.
Alabama Power owns, and contracts for the operation of, two nuclear units and Georgia Power holds undivided interests in, and contracts for the operation of, four existing nuclear units. The six existing units are operated by Southern Nuclear and represent approximately 3,680 MWs, or 8%, of the Southern Company system's generation capacity as of December 31, 2015. In addition, these units generated approximately 23% and 25% of the total KWHs generated by Alabama Power and Georgia Power, respectively, in the year ended December 31, 2015. In addition, Southern Nuclear, on behalf of Georgia Power and the other co-owners, is overseeing the construction of Plant Vogtle Units 3 and 4. Due solely to the increase in nuclear generating capacity, the below risks are expected to increase incrementally once Plant Vogtle Units 3 and 4 are operational. Nuclear

I-19

    Table of Contents                                Index to Financial Statements


facilities are subject to environmental, safety, health, operational, and financial risks such as:
the potential harmful effects on the environment and human health and safety resulting from a release of radioactive materials in connection with the operation of nuclear facilities and the storage, handling, and disposal of radioactive material, including spent nuclear fuel;
uncertainties with respect to the ability to dispose of spent nuclear fuel and the need for longer term on-site storage;
uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of licensed lives and the ability to maintain and anticipate adequate capital reserves for decommissioning;
limitations on the amounts and types of insurance commercially available to cover losses that might arise in connection with the nuclear operations of Alabama Power and Georgia Power or those of other commercial nuclear facility owners in the U.S.;
potential liabilities arising out of the operation of these facilities;
significant capital expenditures relating to maintenance, operation, security, and repair of these facilities, including repairs and upgrades required by the NRC;
the threat of a possible terrorist attack, including a potential cyber security attack; and
the potential impact of an accident or natural disaster.
It is possible that damages, decommissioning, or other costs could exceed the amount of decommissioning trusts or external insurance coverage, including statutorily required nuclear incident insurance.
The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities. In the event of non-compliance with NRC licensing and safety-related requirements, the NRC has the authority to impose fines and/or shut down any unit, depending upon its assessment of the severity of the situation, until compliance is achieved. NRC orders or regulations related to increased security measures and any future safety requirements promulgated by the NRC could require Alabama Power and Georgia Power to make substantial operating and capital expenditures at their nuclear plants. In addition, if a serious nuclear incident were to occur, it could result in substantial costs to Alabama Power or Georgia Power and Southern Company. A major incident at a nuclear facility anywhere in the world could cause the NRC to delay or prohibit construction of new nuclear units or require additional safety measures at new and existing units. Moreover, a major incident at any nuclear facility in the U.S., including facilities owned and operated by third parties, could require Alabama Power and Georgia Power to make material contributory payments.
In addition, potential terrorist threats and increased public scrutiny of utilities could result in increased nuclear licensing or compliance costs that are difficult to predict.
Physical or cyber attacks, both threatened and actual, could impact the ability of the traditional operating companies and Southern Power to operate and could adversely affect financial results and liquidity.
The traditional operating companies and Southern Power face the risk of physical and cyber attacks, both threatened and actual, against their respective generation facilities, the transmission and distribution infrastructure used to transport power, and their information technology systems and network infrastructure, which could negatively impact the ability of the traditional operating companies or Southern Power to generate, transport, and deliver power, or otherwise operate their respective facilities in the most efficient manner or at all. In addition, physical or cyber attacks against key suppliers or service providers could have a similar effect on Southern Company and its subsidiaries.
The traditional operating companies and Southern Power operate in a highly regulated industry that requires the continued operation of sophisticated information technology systems and network infrastructure, which are part of an interconnected regional grid. In addition, in the ordinary course of business, the traditional operating companies and Southern Power collect and retain sensitive information including personal identification information about customers and employees and other confidential information. The traditional operating companies and Southern Power face on-going threats to their assets. Despite the implementation of robust security measures, all assets are potentially vulnerable to disability, failures, or unauthorized access due to human error, natural disasters, technological failure, or internal or external physical or cyber attacks. If the traditional operating companies' or Southern Power's assets were to fail, be physically damaged, or be breached and were not recovered in a timely way, the traditional operating companies or Southern Power may be unable to fulfill critical business functions, and sensitive and other data could be compromised. Any physical security breach, cyber breach or theft, damage, or improper disclosure of sensitive electronic data may also subject the applicable traditional operating company or Southern Power to penalties and claims from regulators or other third parties.

I-20

    Table of Contents                                Index to Financial Statements


These events could harm the reputation of and negatively affect the financial results of Southern Company, the traditional operating companies, or Southern Power through lost revenues, costs to recover and repair damage, and costs associated with governmental actions in response to such attacks.
The traditional operating companies and Southern Power may not be able to obtain adequate fuel supplies, which could limit their ability to operate their facilities.
The traditional operating companies and Southern Power purchase fuel, including coal, natural gas, uranium, fuel oil, and biomass, from a number of suppliers. Disruption in the delivery of fuel, including disruptions as a result of, among other things, transportation delays, weather, labor relations, force majeure events, or environmental regulations affecting any of these fuel suppliers, could limit the ability of the traditional operating companies and Southern Power to operate certain facilities, which could result in higher fuel and operating costs and potentially reduce the net income of the affected traditional operating company or Southern Power and Southern Company.
The traditional operating companies and Southern Power have become more dependent on natural gas for a portion of their electric generating capacity. In many instances, the cost of purchased power for the traditional operating companies and Southern Power is influenced by natural gas prices. Historically, natural gas prices have been more volatile than prices of other fuels. In recent years, domestic natural gas prices have been depressed by robust supplies, including production from shale gas. These market conditions, together with additional regulation of coal-fired generating units, have increased the traditional operating companies' reliance on natural gas-fired generating units.
Natural gas supplies can be subject to disruption in the event production or distribution is curtailed, such as in the event of a hurricane, freezing wells, or a pipeline failure. The availability of shale gas and potential regulations affecting its accessibility may have a material impact on the supply and cost of natural gas.
The traditional operating companies are also dependent on coal for a portion of their electric generating capacity. The traditional operating companies depend on coal supply contracts, and there can be no assurance that the counterparties to these agreements will fulfill their obligations to supply coal to the traditional operating companies. The suppliers under these agreements may experience financial or technical problems that inhibit their ability to fulfill their obligations to the traditional operating companies. In addition, the suppliers under these agreements may not be required to supply coal to the traditional operating companies under certain circumstances, such as in the event of a natural disaster. If the traditional operating companies are unable to obtain their coal requirements under these contracts, the traditional operating companies may be required to purchase their coal requirements at higher prices, which may not be recoverable through rates.
The revenues of Southern Company, the traditional operating companies, and Southern Power depend in part on sales under PPAs. The failure of a counterparty to one of these PPAs to perform its obligations, the failure of the traditional operating companies or Southern Power to satisfy minimum requirements under the PPAs, or the failure to renew the PPAs or successfully remarket the related generating capacity, could have a negative impact on the net income and cash flows of the affected traditional operating company or Southern Power and of Southern Company.
Most of Southern Power's generating capacity has been sold to purchasers under PPAs. Southern Power’s top three customers, Georgia Power, Florida Power & Light Company, and Duke Energy Corporation, accounted for 15.8%, 10.7%, and 8.2%, respectively, of Southern Power’s total revenues for the year ended December 31, 2015. In addition, the traditional operating companies enter into PPAs with non-affiliated parties. Revenues are dependent on the continued performance by the purchasers of their obligations under these PPAs. The failure of one of the purchasers to perform its obligations could have a negative impact on the net income and cash flows of the affected traditional operating company or Southern Power and of Southern Company. Although the credit evaluations undertaken and contractual protections implemented by Southern Power and the traditional operating companies take into account the possibility of default by a purchaser, actual exposure to a default by a purchaser may be greater than predicted or specified in the applicable contract. Additionally, neither Southern Power nor any traditional operating company can predict whether the PPAs will be renewed at the end of their respective terms or on what terms any renewals may be made. As an example, Gulf Power had long-term sales contracts to cover 100% of its ownership share of Plant Scherer Unit 3 (205 MWs) and these capacity revenues represented 82% of Gulf Power's total wholesale capacity revenues for 2015. Due to the expiration of a wholesale contract at the end of 2015 and future expiration dates of the remaining wholesale contracts for the unit, Gulf Power currently has contracts to cover 34% of the unit for 2016 and 27% of the unit through 2019. Although Gulf Power is actively evaluating alternatives relating to this asset, including replacement wholesale contracts, the expiration of the contract in 2015 and the scheduled future expiration of the remaining contracts will have a material negative impact on Gulf Power's earnings in 2016 and may continue to have a material negative impact in future years. In addition, the failure of the traditional operating companies or Southern Power to satisfy minimum operational or availability requirements under these PPAs could result in payment of damages or termination of the PPAs.

I-21

    Table of Contents                                Index to Financial Statements


Changes in technology may make Southern Company's electric generating facilities owned by the traditional operating companies and Southern Power less competitive.
A key element of the business models of Southern Company, the traditional operating companies, and Southern Power is that generating power at central station power plants achieves economies of scale and produces power at a competitive cost. There are distributed generation and storage technologies that produce and store power, including fuel cells, microturbines, wind turbines, solar cells, and batteries. Advances in technology or changes in laws or regulations could reduce the cost of these or other alternative methods of producing power to a level that is competitive with that of most central station power electric production or result in smaller-scale, more fuel efficient, and/or more cost effective distributed generation. Broader use of distributed generation by retail electric customers may also result from customers’ changing perceptions of the merits of utilizing existing generation technology or tax or other economic incentives. Additionally, there can be no assurance that a state PSC or legislature will not attempt to modify certain aspects of the traditional operating companies’ business as a result of these advances in technology. If these technologies became cost competitive and achieve sufficient scale, the market share of the traditional operating companies and Southern Power could be eroded, and the value of their respective electric generating facilities could be reduced. It is also possible that rapid advances in central station power generation technology could reduce the value of the current electric generating facilities owned by the traditional operating companies and Southern Power. Changes in technology could also alter the channels through which electric customers buy or utilize power, which could reduce the revenues or increase the expenses of Southern Company, the traditional operating companies, or Southern Power. If state PSCs fail to adjust rates to reflect the impact of any changes in loads, increasing self-generation, and the growth of distributed generation, the financial condition, results of operations, and cash flows of Southern Company and the traditional operating companies could be materially adversely affected.
Failure to attract and retain an appropriately qualified workforce could negatively impact Southern Company's and its subsidiaries' results of operations.
Events such as an aging workforce without appropriate replacements, mismatch of skill sets to future needs, or unavailability of contract resources may lead to operating challenges such as lack of resources, loss of knowledge, and a lengthy time period associated with skill development, including with the workforce needs associated with major construction projects and ongoing operations. The Southern Company system's costs, including costs for contractors to replace employees, productivity costs, and safety costs, may rise. Failure to hire and adequately obtain replacement employees, including the ability to transfer significant internal historical knowledge and expertise to the new employees, or the future availability and cost of contract labor may adversely affect Southern Company and its subsidiaries' ability to manage and operate their businesses. If Southern Company and its subsidiaries, including the traditional operating companies, are unable to successfully attract and retain an appropriately qualified workforce, results of operations could be negatively impacted.
CONSTRUCTION RISKS
Southern Company, the traditional operating companies, and/or Southern Power may incur additional costs or delays in the construction of new plants or other facilities and may not be able to recover their investments. Also, existing facilities of the traditional operating companies and Southern Power require ongoing capital expenditures, including those to meet environmental standards.
General
The businesses of the registrants require substantial capital expenditures for investments in new facilities and capital improvements to transmission, distribution, and generation facilities, including those to meet environmental standards. Certain of the traditional operating companies and Southern Power are in the process of constructing new generating facilities and adding environmental controls equipment at existing generating facilities. The Southern Company system intends to continue its strategy of developing and constructing other new facilities, expanding existing facilities, and adding environmental control equipment. These types of projects are long-term in nature and in some cases include the development and construction of facilities with designs that have not been finalized or previously constructed. The completion of these types of projects without delays or significant cost overruns is subject to substantial risks, including:
shortages and inconsistent quality of equipment, materials, and labor;
changes in labor costs and productivity;
work stoppages;
contractor or supplier delay or non-performance under construction or other agreements or non-performance by other major participants in construction projects;
delays in or failure to receive necessary permits, approvals, tax credits, and other regulatory authorizations;

I-22

    Table of Contents                                Index to Financial Statements


delays associated with start-up activities, including major equipment failure and system integration, and/or operational performance (including additional costs to satisfy any operational parameters ultimately adopted by any PSC);
operational readiness, including specialized operator training and required site safety programs;
impacts of new and existing laws and regulations, including environmental laws and regulations;
the outcome of legal challenges to projects, including legal challenges to regulatory approvals;
failure to construct in accordance with licensing requirements;
continued public and policymaker support for such projects;
adverse weather conditions or natural disasters;
other unforeseen engineering or design problems;
changes in project design or scope;
environmental and geological conditions;
delays or increased costs to interconnect facilities to transmission grids; and
unanticipated cost increases, including materials and labor, and increased financing costs as a result of changes in market interest rates or as a result of construction schedule delays.
If a traditional operating company or Southern Power is unable to complete the development or construction of a facility or decides to delay or cancel construction of a facility, it may not be able to recover its investment in that facility and may incur substantial cancellation payments under equipment purchase orders or construction contracts. Even if a construction project is completed, the total costs may be higher than estimated and there is no assurance that the traditional operating company will be able to recover such expenditures through regulated rates. In addition, construction delays and contractor performance shortfalls can result in the loss of revenues and may, in turn, adversely affect the net income and financial position of a traditional operating company or Southern Power and of Southern Company.
Construction delays could result in the loss of otherwise available investment tax credits, production tax credits, and other tax incentives. Furthermore, if construction projects are not completed according to specification, a traditional operating company or Southern Power and Southern Company may incur liabilities and suffer reduced plant efficiency, higher operating costs, and reduced net income.
Once facilities come into commercial operation, ongoing capital expenditures are required to maintain reliable levels of operation. Significant portions of the traditional operating companies' existing facilities were constructed many years ago. Older generation equipment, even if maintained in accordance with good engineering practices, may require significant capital expenditures to maintain efficiency, to comply with changing environmental requirements, or to provide reliable operations.
The two largest construction projects currently underway in the Southern Company system are the construction of Plant Vogtle Units 3 and 4 and the Kemper IGCC. In addition, Southern Power has 691 MWs (based on its equity ownership) of renewable generation under construction at eight project sites.
Plant Vogtle Units 3 and 4 construction
Southern Nuclear, on behalf of Georgia Power and the other co-owners, is overseeing the construction of and will operate Plant Vogtle Units 3 and 4 (each, an approximately 1,100 MW AP1000 nuclear generating unit). Georgia Power owns 45.7% of the new units. The NRC certified the Westinghouse Design Control Document, as amended (DCD), for the AP1000 nuclear reactor design, in late 2011, and issued combined COLs in early 2012. Receipt of the COLs allowed full construction to begin. There have been technical and procedural challenges to the construction and licensing of Plant Vogtle Units 3 and 4, at the federal and state level, and additional challenges may arise as construction proceeds.
Georgia Power is required to file semi-annual Vogtle Construction Monitoring (VCM) reports with the Georgia PSC by February 28 and August 31 each year. If the projected construction capital costs to be borne by Georgia Power increase by 5% above the certified cost or the projected in-service dates are significantly extended, Georgia Power is required to seek an amendment to the Plant Vogtle Units 3 and 4 certificate from the Georgia PSC. In February 2013, Georgia Power requested an amendment to the certificate to increase the estimated in-service capital cost of Plant Vogtle Units 3 and 4 from $4.4 billion to $4.8 billion and to extend the estimated in-service dates to the fourth quarter 2017 (from April 2016) and the fourth quarter 2018 (from April 2017) for Plant Vogtle Units 3 and 4, respectively. In October 2013, the Georgia PSC approved a stipulation (2013 Stipulation) between Georgia Power and the Georgia PSC Staff (Staff) to waive the requirement to amend the Plant Vogtle Units 3 and 4 certificate until the completion of Plant Vogtle Unit 3 or earlier if deemed appropriate by the Georgia PSC and Georgia Power.

I-23

    Table of Contents                                Index to Financial Statements


On April 15, 2015, the Georgia PSC issued a procedural order in connection with the twelfth VCM report, which included a requested amendment (Requested Amendment) to the Plant Vogtle Units 3 and 4 certificate to reflect the Contractor's revised forecast for completion of Plant Vogtle Units 3 and 4 (second quarter of 2019 and second quarter of 2020, respectively) as well as additional estimated Vogtle Owner's costs, of approximately $10 million per month, including property taxes, oversight costs, compliance costs, and other operational readiness costs to include the estimated Vogtle Owner's costs associated with the proposed 18-month Contractor delay and to increase the estimated total in-service capital cost of Plant Vogtle Units 3 and 4 to $5.0 billion. Pursuant to the Georgia PSC’s procedural order, the Georgia PSC deemed the Requested Amendment unnecessary and withdrawn until the completion of construction of Plant Vogtle Unit 3 consistent with the 2013 Stipulation. The Georgia PSC recognized that the certified cost and the 2013 Stipulation do not constitute a cost recovery cap.
In 2012, the Vogtle Owners and the Contractor commenced litigation (Vogtle Construction Litigation) regarding the costs associated with design changes to the DCD and the delays in the timing of approval of the DCD and issuance of the COLs, including the assertion by the Contractor that the Vogtle Owners are responsible for these costs under the terms of the engineering, procurement, and construction contract between the Vogtle Owners and the Contractor (Vogtle 3 and 4 Agreement).
On December 31, 2015, Westinghouse and the Vogtle Owners entered into a definitive settlement agreement (Contractor Settlement Agreement) to resolve disputes between the Vogtle Owners and the Contractor under the Vogtle 3 and 4 Agreement, including the Vogtle Construction Litigation. Effective December 31, 2015, Georgia Power, acting for itself and as agent for the other Vogtle Owners, and the Contractor entered into an amendment to the Vogtle 3 and 4 Agreement to implement the Contractor Settlement Agreement. The Contractor Settlement Agreement and the related amendment to the Vogtle 3 and 4 Agreement (i) restrict the Contractor’s ability to seek further increases in the contract price by clarifying and limiting the circumstances that constitute nuclear regulatory changes in law; (ii) provide for enhanced dispute resolution procedures; (iii) revise the guaranteed substantial completion dates to match the current estimated in-service dates of June 30, 2019 for Unit 3 and June 30, 2020 for Unit 4; (iv) provide that delay liquidated damages will now commence from the current estimated nuclear fuel loading date for each unit, which is December 31, 2018 for Unit 3 and December 31, 2019 for Unit 4, rather than the original guaranteed substantial completion dates under the Vogtle 3 and 4 Agreement; and (v) provide that Georgia Power, based on its ownership interest, will pay to the Contractor and capitalize to the project cost approximately $350 million, of which approximately $120 million has been paid previously under the dispute resolution procedures of the Vogtle 3 and 4 Agreement. Further, subsequent to December 31, 2015, Georgia Power paid approximately $121 million under the terms of the Contractor Settlement Agreement. In addition, the Contractor Settlement Agreement provides for the resolution of other open existing items relating to the scope of the project under the Vogtle 3 and 4 Agreement, including cyber security, for which costs were reflected in Georgia Power's previously disclosed in-service cost estimate. Further, as part of the settlement: (i) Westinghouse has engaged Fluor Enterprises, Inc., a subsidiary of Fluor Corporation, as a new construction subcontractor; and (ii) the Vogtle Owners, Chicago Bridge & Iron Company N.V., and The Shaw Group Inc. have entered into mutual releases of any and all claims arising out of events or circumstances in connection with the construction of Plant Vogtle Units 3 and 4 that occurred on or before the date of the Contractor Settlement Agreement. On January 5, 2016, the Vogtle Construction Litigation was dismissed with prejudice.
On January 21, 2016, Georgia Power submitted the Contractor Settlement Agreement and the related amendment to the Vogtle 3 and 4 Agreement to the Georgia PSC for its review. On February 2, 2016, the Georgia PSC ordered Georgia Power to file supplemental information by April 5, 2016 in support of the Contractor Settlement Agreement and Georgia Power’s position that all construction costs to date have been prudently incurred and that the current estimated in-service capital cost and schedule are reasonable. Following Georgia Power’s filing under the order, the Staff will conduct a review of all costs incurred related to Plant Vogtle Units 3 and 4, the schedule for completion of Plant Vogtle Units 3 and 4, and the Contractor Settlement Agreement and the Staff is authorized to engage in related settlement discussions with Georgia Power and any intervenors.
The order provides that the Staff is required to report to the Georgia PSC by October 5, 2016 with respect to the status of its review and any settlement-related negotiations. If a settlement with the Staff is reached with respect to costs of Plant Vogtle Units 3 and 4, the Georgia PSC will then conduct a hearing to consider whether to approve that settlement. If a settlement with the Staff is not reached, the Georgia PSC will determine how to proceed, including (i) modifying the 2013 Stipulation, (ii) directing Georgia Power to file a request for an amendment to the certificate for Plant Vogtle Units 3 and 4, (iii) issuing a scheduling order to address remaining disputed issues, or (iv) taking any other option within its authority.
The Georgia PSC has approved thirteen VCM reports covering the periods through June 30, 2015, including construction capital costs incurred, which through that date totaled $3.1 billion. On February 26, 2016, Georgia Power filed its fourteenth VCM report with the Georgia PSC covering the period from July 1 through December 31, 2015. The fourteenth VCM report does not include a requested amendment to the certified cost of Plant Vogtle Units 3 and 4. Georgia Power is requesting approval of $160 million of construction capital costs incurred during that period. Georgia Power anticipates to incur average financing costs of approximately $27 million per month from January 2016 until Plant Vogtle Units 3 and 4 are placed in

I-24

    Table of Contents                                Index to Financial Statements


service. The updated in-service capital cost forecast is $5.44 billion and includes costs related to the Contractor Settlement Agreement. Estimated financing costs during the construction period total approximately $2.4 billion. Georgia Power's CWIP balance for Plant Vogtle Units 3 and 4 was approximately $3.6 billion as of December 31, 2015.
Processes are in place that are designed to assure compliance with the requirements specified in the DCD and the COLs, including inspections by Southern Nuclear and the NRC that occur throughout construction. As a result of such compliance processes, certain license amendment requests have been filed and approved or are pending before the NRC. Various design and other licensing-based compliance issues may arise as construction proceeds, which may result in additional license amendments or require other resolution. If any license amendment requests or other licensing-based compliance issues are not resolved in a timely manner, there may be delays in the project schedule that could result in increased costs either to the Vogtle Owners or the Contractor or to both.
As construction continues, the risk remains that challenges with Contractor performance including fabrication, assembly, delivery, and installation of the shield building and structural modules, delays in the receipt of the remaining permits necessary for the operation of Plant Vogtle Units 3 and 4, or other issues could arise and may further impact project schedule and cost. In addition, the Internal Revenue Service allocated production tax credits to each of Plant Vogtle Units 3 and 4, which require the applicable unit to be placed in service before 2021.
Future claims by the Contractor or Georgia Power (on behalf of the Vogtle Owners) could arise throughout construction. These claims may be resolved through formal and informal dispute resolution procedures under the Vogtle 3 and 4 Agreement and, under the enhanced dispute resolution procedures, may be resolved through litigation after the completion of nuclear fuel load for both units.
Kemper IGCC construction
In 2012, the Mississippi PSC issued a detailed order confirming the CPCN originally approved by the Mississippi PSC in 2010 authorizing the acquisition, construction, and operation of the Kemper IGCC (2012 MPSC CPCN Order). The certificated cost estimate of the Kemper IGCC included in the 2012 MPSC CPCN Order was $2.4 billion, net of $245 million of DOE Grants and excluding the cost of the lignite mine and equipment, the cost of the CO2 pipeline facilities, and AFUDC related to the Kemper IGCC. The 2012 MPSC CPCN Order approved a construction cost cap of up to $2.88 billion, with recovery of prudently-incurred costs subject to approval by the Mississippi PSC. The Kemper IGCC was originally projected to be placed in service in May 2014. Mississippi Power placed the combined cycle and the associated common facilities portion of the Kemper IGCC in service using natural gas in August 2014 and currently expects to place the remainder of the Kemper IGCC, including the gasifier and the gas clean-up facilities, in service during the third quarter 2016.
Mississippi Power does not intend to seek rate recovery for any costs related to the construction of the Kemper IGCC that exceed the $2.88 billion cost cap, net of the DOE Grants and excluding the cost of the lignite mine and equipment, the cost of the CO2 pipeline facilities, AFUDC, and certain general exceptions, including change of law, force majeure, and beneficial capital (which exists when Mississippi Power demonstrates that the purpose and effect of the construction cost increase is to produce efficiencies that will result in a neutral or favorable effect on customers relative to the original proposal for the CPCN) (Cost Cap Exceptions). Southern Company and Mississippi Power recorded pre-tax charges to income for revisions to the cost estimate above the cost cap of $365 million ($226 million after tax), $868 million ($536 million after tax), and $1.1 billion ($681 million after tax) in 2015, 2014, and 2013, respectively. The increases to the cost estimate in 2015 primarily reflect costs for the extension of the Kemper IGCC’s projected in-service date through August 31, 2016, increased efforts related to scope modifications, additional labor costs in support of start-up and operational readiness activities, and system repairs and modifications after startup testing and commissioning activities identified necessary remediation of equipment installation, fabrication, and design issues, including the refractory lining inside the gasifiers; the lignite feed and dryer systems; and the syngas cooler vessels.
Any extension of the in-service date beyond August 31, 2016 is currently estimated to result in additional base costs of approximately $25 million to $35 million per month, which includes maintaining necessary levels of start-up labor, materials, and fuel, as well as operational resources required to execute start-up and commissioning activities. However, additional costs may be required for remediation of any further equipment and/or design issues identified. Any extension of the in-service date with respect to the Kemper IGCC beyond August 31, 2016 would also increase costs for the Cost Cap Exceptions, which are not subject to the $2.88 billion cost cap established by the Mississippi PSC. These costs include AFUDC, which is currently estimated to total approximately $13 million per month, as well as carrying costs and operating expenses on Kemper IGCC assets placed in service and consulting and legal fees of approximately $2 million per month.
Mississippi Power's analysis of the time needed to complete the start-up and commissioning activities for the Kemper IGCC will continue until the remaining Kemper IGCC assets are placed in service. Further cost increases and/or extensions of the in-service date with respect to the Kemper IGCC may result from factors including, but not limited to, labor costs and productivity, adverse weather conditions, shortages and inconsistent quality of equipment, materials, and labor, contractor or

I-25

    Table of Contents                                Index to Financial Statements


supplier delay, non-performance under operating or other agreements, operational readiness, including specialized operator training and required site safety programs, unforeseen engineering or design problems, start-up activities for this first-of-a-kind technology (including major equipment failure and system integration), and/or operational performance (including additional costs to satisfy any operational parameters ultimately adopted by the Mississippi PSC). In subsequent periods, any further changes in the estimated costs to complete construction and start-up of the Kemper IGCC subject to the $2.88 billion cost cap, net of the DOE Grants and excluding the Cost Cap Exceptions, will be reflected in Southern Company’s and Mississippi Power's statements of operations and these changes could be material.
In January 2013, Mississippi Power entered into a settlement agreement with the Mississippi PSC that was intended to establish the process for resolving matters regarding cost recovery related to the Kemper IGCC (2013 Settlement Agreement). Under the 2013 Settlement Agreement, Mississippi Power agreed to limit the portion of prudently-incurred Kemper IGCC costs to be included in retail rate base to the $2.4 billion certificated cost estimate, plus the Cost Cap Exceptions, but excluding AFUDC, and any other costs permitted or determined to be excluded from the $2.88 billion cost cap by the Mississippi PSC. In March 2013, the Mississippi PSC issued a rate order approving retail rate increases of 15% effective March 19, 2013 and 3% effective January 1, 2014, which collectively were designed to collect $156 million annually beginning in 2014 (2013 MPSC Rate Order) to be used to mitigate customer rate impacts after the Kemper IGCC is placed in service.
On February 12, 2015, the Mississippi Supreme Court (Court) issued its decision in the legal challenge to the 2013 MPSC Rate Order. The Court reversed the 2013 MPSC Rate Order based on, among other things, its findings that (1) the rate treatment was not provided for under the Baseload Act and (2) the Mississippi PSC should have determined the prudence of Kemper IGCC costs before approving rate recovery through the 2013 MPSC Rate Order. The Court also found the 2013 Settlement Agreement unenforceable due to a lack of public notice for the related proceedings. On July 7, 2015, the Mississippi PSC ordered that the rates be terminated effective July 20, 2015 and required the fourth quarter 2015 refund of the $342 million collected under the 2013 MPSC Rate Order, along with associated carrying costs of $29 million.
As a result of the 2015 Court decision, on July 10, 2015, Mississippi Power filed a request for interim rates with the Mississippi PSC which presented an alternative rate proposal (In-Service Asset Proposal) for consideration by the Mississippi PSC. The In-Service Asset Proposal was based upon the test period of June 2015 to May 2016, was designed to recover Mississippi Power's costs associated with the Kemper IGCC assets that are commercially operational and currently providing service to customers (the transmission facilities, combined cycle, natural gas pipeline, and water pipeline) and other related costs, and was designed to collect approximately $159 million annually. On August 13, 2015, the Mississippi PSC approved the implementation of interim rates that became effective with the first billing cycle in September, subject to refund and certain other conditions.
On December 3, 2015, the Mississippi PSC issued an order (In-Service Asset Rate Order) adopting in full a stipulation (the 2015 Stipulation) entered into between Mississippi Power and the Mississippi Public Utilities Staff regarding the In-Service Asset Proposal. Consistent with the 2015 Stipulation, the In-Service Asset Rate Order provides for retail rate recovery of an annual revenue requirement of approximately $126 million, based on Mississippi Power’s actual average capital structure, with a maximum common equity percentage of 49.733%, a 9.225% return on common equity, and actual embedded interest costs during the test period. The In-Service Asset Rate Order also includes a prudence finding of all costs in the stipulated revenue requirement calculation for the in-service assets.
With implementation of the new rate on December 17, 2015, the interim rates were terminated and Mississippi Power recorded a customer refund of approximately $11 million in December 2015 for the difference between the interim rates collected and the permanent rates. The refund is required to be completed by March 16, 2016.
Pursuant to the In-Service Asset Rate Order, Mississippi Power is required to file a subsequent rate request within 18 months. As part of the filing, Mississippi Power expects to request recovery of certain costs that the Mississippi PSC had excluded from the revenue requirement calculation.
On February 25, 2016, Greenleaf CO2 Solutions, LLC filed a notice of appeal of the In-Service Asset Rate Order with the Court. Mississippi Power believes the appeal has no merit; however, an adverse outcome in this appeal could have a material impact on Southern Company's results of operations. The ultimate outcome of this matter cannot be determined at this time.
Legislation to authorize a multi-year rate plan and legislation to provide for alternate financing through securitization of up to $1.0 billion of prudently-incurred costs was enacted into law in 2013. Mississippi Power expects to securitize prudently-incurred qualifying facility costs in excess of the certificated cost estimate of $2.4 billion. Qualifying facility costs include, but are not limited to, pre-construction costs, construction costs, regulatory costs, and accrued AFUDC.
In 2010 and as amended in 2012, Mississippi Power and SMEPA entered into an agreement whereby SMEPA agreed to purchase a 15% undivided interest in the Kemper IGCC. On May 20, 2015, SMEPA notified Mississippi Power that it was terminating the agreement. Mississippi Power had previously received a total of $275 million of deposits from SMEPA that were returned by Southern Company to SMEPA, with interest of approximately $26 million, on June 3, 2015, as a result of the

I-26

    Table of Contents                                Index to Financial Statements


termination, pursuant to its guarantee obligation. Subsequently, Mississippi Power issued a promissory note in the aggregate principal amount of approximately $301 million to Southern Company, which matures December 1, 2017. The In-Service Asset Proposal and the related rates approved by the Mississippi PSC excluded any costs associated with the 15% undivided interest. Mississippi Power continues to evaluate its alternatives with respect to its investment and the related costs associated with the 15% undivided interest.
Mississippi Power expects to seek additional rate relief to address recovery of the remaining Kemper IGCC assets. In addition to current estimated costs at December 31, 2015 of $6.63 billion, Mississippi Power anticipates that it will incur additional costs after the Kemper IGCC in-service date until the Kemper IGCC cost recovery approach is finalized. These costs include, but are not limited to, regulatory costs and additional carrying costs which could be material. Recovery of these costs would be subject to approval by the Mississippi PSC.
Mississippi Power also expects the Mississippi PSC to apply operational parameters in connection with future proceedings related to the operation of the Kemper IGCC. To the extent the Mississippi PSC determines the Kemper IGCC does not meet the operational parameters ultimately adopted by the Mississippi PSC or Mississippi Power incurs additional costs to satisfy such parameters, there could be a material adverse impact on Mississippi Power's financial statements.
Mississippi Power has entered into agreements with Denbury Onshore (Denbury), a subsidiary of Denbury Resources Inc., and Treetop Midstream Services, LLC (Treetop), an affiliate of Tellus Operating Group, LLC and a subsidiary of Tengrys, LLC, pursuant to which Denbury will purchase 70% of the CO2 captured from the Kemper IGCC and Treetop will purchase 30% of the CO2 captured from the Kemper IGCC. The agreements with Denbury and Treetop provide Denbury and Treetop with termination rights as Mississippi Power has not satisfied its contractual obligation to deliver captured CO2 by May 11, 2015. Since May 11, 2015, Mississippi Power has been engaged in ongoing discussions with its off-takers regarding the status of the CO2 delivery schedule as well as other issues related to the CO2 agreements. As a result of discussions with Treetop, on August 3, 2015, Mississippi Power agreed to amend certain provisions of their agreement that do not affect pricing or minimum purchase quantities. Potential requirements imposed on CO2 off-takers under the Clean Power Plan (if ultimately enacted in its current form, pending resolution of litigation) and the potential adverse financial impact of low oil prices on the off-takers increase the risk that the CO2 contracts may be terminated or materially modified. Any termination or material modification of these agreements could result in a material reduction in Mississippi Power’s revenues to the extent Mississippi Power is not able to enter into other similar contractual arrangements. Additionally, if the contracts remain in place, sustained oil price reductions could result in significantly lower revenues than Mississippi Power forecasted to be available to offset customer rate impacts, which could have a material impact on Mississippi Power's financial statements.
The ultimate outcome of these matters, including the resolution of legal challenges, determinations of prudency, and the specific manner of recovery of prudently-incurred costs, is subject to further regulatory actions and cannot be determined at this time.
FINANCIAL, ECONOMIC, AND MARKET RISKS
The generation operations and energy marketing operations of Southern Company, the traditional operating companies, and Southern Power are subject to risks, many of which are beyond their control, including changes in power prices and fuel costs, which may reduce Southern Company's, the traditional operating companies', and/or Southern Power's revenues and increase costs.
The generation operations and energy marketing operations of the Southern Company system are subject to changes in power prices and fuel costs, which could increase the cost of producing power or decrease the amount received from the sale of power. The market prices for these commodities may fluctuate significantly over relatively short periods of time. Among the factors that could influence power prices and fuel costs are:
prevailing market prices for coal, natural gas, uranium, fuel oil, biomass, and other fuels used in the generation facilities of the traditional operating companies and Southern Power, including associated transportation costs, and supplies of such commodities;
demand for energy and the extent of additional supplies of energy available from current or new competitors;
liquidity in the general wholesale electricity market;
weather conditions impacting demand for electricity;
seasonality;
transmission or transportation constraints, disruptions, or inefficiencies;
availability of competitively priced alternative energy sources;

I-27

    Table of Contents                                Index to Financial Statements


forced or unscheduled plant outages for the Southern Company system, its competitors, or third party providers;
the financial condition of market participants;
the economy in the service territory, the nation, and worldwide, including the impact of economic conditions on demand for electricity and the demand for fuels;
natural disasters, wars, embargos, acts of terrorism, and other catastrophic events; and
federal, state, and foreign energy and environmental regulation and legislation.
Certain of these factors could increase the expenses of the traditional operating companies or Southern Power and Southern Company. For the traditional operating companies, such increases may not be fully recoverable through rates. Other of these factors could reduce the revenues of the traditional operating companies or Southern Power and Southern Company.
Historically, the traditional operating companies from time to time have experienced underrecovered fuel cost balances and may experience such balances in the future. While the traditional operating companies are generally authorized to recover fuel costs through fuel cost recovery clauses, recovery may be denied if costs are deemed to be imprudently incurred, and delays in the authorization of such recovery could negatively impact the cash flows of the affected traditional operating company and Southern Company.
Southern Company, the traditional operating companies, and Southern Power are subject to risks associated with a changing economic environment, customer behaviors, including increased energy conservation, and adoption patterns of technologies by the customers of the traditional operating companies and Southern Power.
The consumption and use of energy are fundamentally linked to economic activity. This relationship is affected over time by changes in the economy, customer behaviors, and technologies. Any economic downturn could negatively impact customer growth and usage per customer, thus reducing the sales of electricity and revenues. Additionally, any economic downturn or disruption of financial markets, both nationally and internationally, could negatively affect the financial stability of customers and counterparties of the traditional operating companies and Southern Power.
Outside of economic disruptions, changes in customer behaviors in response to energy efficiency programs, changing conditions and preferences or changes in the adoption of technologies could affect the relationship of economic activity to the consumption of electricity.
Both federal and state programs exist to influence how customers use energy, and several of the traditional operating companies have PSC mandates to promote energy efficiency. Conservation programs could impact the financial results of Southern Company, the traditional operating companies, and Southern Power in different ways. For example, if any traditional operating company is required to invest in conservation measures that result in reduced sales from effective conservation, regulatory lag in adjusting rates for the impact of these measures could have a negative financial impact on such traditional operating company and Southern Company. Customers could also voluntarily reduce their consumption of electricity in response to decreases in their disposable income, increases in energy prices, or individual conservation efforts.
In addition, the adoption of technology by customers can have both positive and negative impacts on sales. Many new technologies utilize less energy than in the past. However, new electric technologies such as electric vehicles can create additional demand. There can be no assurance that the Southern Company system's planning processes will appropriately estimate and incorporate the impacts of changes in customer behavior, state and federal programs, PSC mandates, and technology.
All of the factors discussed above could adversely affect Southern Company's, the traditional operating companies', and/or Southern Power's results of operations, financial condition, and liquidity.
The operating results of Southern Company, the traditional operating companies, and Southern Power are affected by weather conditions and may fluctuate on a seasonal and quarterly basis. In addition, significant weather events, such as hurricanes, tornadoes, floods, droughts, and winter storms, could result in substantial damage to or limit the operation of the properties of the traditional operating companies and/or Southern Power and could negatively impact results of operation, financial condition, and liquidity.
Electric power supply is generally a seasonal business. In many parts of the country, demand for power peaks during the summer months, with market prices also peaking at that time. In other areas, power demand peaks during the winter. As a result, the overall operating results of Southern Company, the traditional operating companies, and Southern Power may fluctuate substantially on a seasonal basis. In addition, the traditional operating companies and Southern Power have historically sold less power when weather conditions are milder. Unusually mild weather in the future could reduce the revenues, net income, and available cash of Southern Company, the traditional operating companies, and/or Southern Power.
In addition, volatile or significant weather events could result in substantial damage to the transmission and distribution lines of

I-28

    Table of Contents                                Index to Financial Statements


the traditional operating companies and the generating facilities of the traditional operating companies and Southern Power. The traditional operating companies and Southern Power have significant investments in the Atlantic and Gulf Coast regions and Southern Power has wind investments in Oklahoma which could be subject to major storm activity. Further, severe drought conditions can reduce the availability of water and restrict or prevent the operation of certain generating facilities.
In the event a traditional operating company experiences any of these weather events or any natural disaster or other catastrophic event, recovery of costs in excess of reserves and insurance coverage is subject to the approval of its state PSC. Historically, the traditional operating companies from time to time have experienced deficits in their storm cost recovery reserve balances and may experience such deficits in the future. Any denial by the applicable state PSC or delay in recovery of any portion of such costs could have a material negative impact on a traditional operating company's and Southern Company's results of operations, financial condition, and liquidity.
In addition, damages resulting from significant weather events within the service territory of any traditional operating company or affecting Southern Power's customers may result in the loss of customers and reduced demand for electricity for extended periods. Any significant loss of customers or reduction in demand for electricity could have a material negative impact on a traditional operating company's or Southern Power's and Southern Company's results of operations, financial condition, and liquidity.
Southern Company may be unable to meet its ongoing and future financial obligations and to pay dividends on its common stock if its subsidiaries are unable to pay upstream dividends or repay funds to Southern Company.
Southern Company is a holding company and, as such, Southern Company has no operations of its own. Substantially all of Southern Company's consolidated assets are held by subsidiaries. Southern Company's ability to meet its financial obligations and to pay dividends on its common stock is primarily dependent on the net income and cash flows of its subsidiaries and their ability to pay upstream dividends or to repay funds to Southern Company. Prior to funding Southern Company, Southern Company's subsidiaries have regulatory restrictions and financial obligations that must be satisfied, including among others, debt service and preferred and preference stock dividends. Southern Company's subsidiaries are separate legal entities and have no obligation to provide Southern Company with funds. In addition, Southern Company may provide capital contributions or debt financing to subsidiaries under certain circumstances, which would reduce Southern Company’s funds available to meet its financial obligations and to pay dividends on its common stock.
A downgrade in the credit ratings of Southern Company, any of the traditional operating companies, or Southern Power could negatively affect their ability to access capital at reasonable costs and/or could require Southern Company, the traditional operating companies, or Southern Power to post collateral or replace certain indebtedness.
There are a number of factors that rating agencies evaluate to arrive at credit ratings for Southern Company, the traditional operating companies, and Southern Power, including capital structure, regulatory environment, the ability to cover liquidity requirements, and other commitments for capital. Southern Company, the traditional operating companies, and Southern Power could experience a downgrade in their ratings if any rating agency concludes that the level of business or financial risk of the industry or Southern Company, the traditional operating companies, or Southern Power has deteriorated. Changes in ratings methodologies by the agencies could also have a negative impact on credit ratings. If one or more rating agencies downgrade Southern Company, the traditional operating companies, or Southern Power, borrowing costs would increase, including automatic increases in interest rates under applicable term loans and credit facilities, the pool of investors and funding sources would likely decrease, and, particularly for any downgrade to below investment grade, significant collateral requirements may be triggered in a number of contracts. Any credit rating downgrades could require a traditional operating company or Southern Power to alter the mix of debt financing currently used, and could require the issuance of secured indebtedness and/or indebtedness with additional restrictive covenants.
Uncertainty in demand for power can result in lower earnings or higher costs. If demand for power falls short of expectations, it could result in potentially stranded assets. If demand for power exceeds expectations, it could result in increased costs for purchasing capacity in the open market or building additional generation and transmission facilities.
Southern Company, the traditional operating companies, and Southern Power each engage in a long-term planning process to estimate the optimal mix and timing of new generation assets required to serve future load obligations. This planning process must look many years into the future in order to accommodate the long lead times associated with the permitting and construction of new generation and associated transmission facilities. Inherent risk exists in predicting demand this far into the future as these future loads are dependent on many uncertain factors, including regional economic conditions, customer usage patterns, efficiency programs, and customer technology adoption. Because regulators may not permit the traditional operating companies to adjust rates to recover the costs of new generation and associated transmission assets in a timely manner or at all, the traditional operating companies may not be able to fully recover these costs or may have exposure to regulatory lag associated with the time between the incurrence of costs of additional capacity and the traditional operating companies' recovery in customers' rates. In addition, under Southern Power's model of selling capacity and energy at negotiated market-

I-29

    Table of Contents                                Index to Financial Statements


based rates under long-term PPAs, Southern Power might not be able to fully execute its business plan if market prices drop below original forecasts. Southern Power and/or the traditional operating companies may not be able to extend existing PPAs or to find new buyers for existing generation assets as existing PPAs expire, or they may be forced to market these assets at prices lower than originally intended. These situations could have negative impacts on net income and cash flows for the affected traditional operating company or Southern Power and for Southern Company.
The traditional operating companies and Southern Power are currently obligated to supply power to retail customers and wholesale customers under long-term PPAs. At peak times, the demand for power required to meet this obligation could exceed the Southern Company system's available generation capacity. Market or competitive forces may require that the traditional operating companies or Southern Power purchase capacity on the open market or build additional generation and transmission facilities. Because regulators may not permit the traditional operating companies to pass all of these purchase or construction costs on to their customers, the traditional operating companies may not be able to recover some or all of these costs or may have exposure to regulatory lag associated with the time between the incurrence of costs of purchased or constructed capacity and the traditional operating companies' recovery in customers' rates. Under Southern Power's long-term fixed price PPAs, Southern Power would not have the ability to recover any of these costs. These situations could have negative impacts on net income and cash flows for the affected traditional operating company or Southern Power and for Southern Company.
The businesses of Southern Company, the traditional operating companies, and Southern Power are dependent on their ability to successfully access funds through capital markets and financial institutions. The inability of Southern Company, any traditional operating company, or Southern Power to access funds may limit its ability to execute its business plan by impacting its ability to fund capital investments or acquisitions that Southern Company, the traditional operating companies, or Southern Power may otherwise rely on to achieve future earnings and cash flows.
Southern Company, the traditional operating companies, and Southern Power rely on access to both short-term money markets and longer-term capital markets as a significant source of liquidity for capital requirements not satisfied by the cash flow from their respective operations. If Southern Company, any traditional operating company, or Southern Power is not able to access capital at competitive rates or on favorable terms, its ability to implement its business plan will be limited by impacting its ability to fund capital investments or acquisitions that Southern Company, the traditional operating companies, or Southern Power may otherwise rely on to achieve future earnings and cash flows. In addition, Southern Company, the traditional operating companies, and Southern Power rely on committed bank lending agreements as back-up liquidity which allows them to access low cost money markets. Each of Southern Company, the traditional operating companies, and Southern Power believes that it will maintain sufficient access to these financial markets based upon current credit ratings. However, certain events or market disruptions may increase the cost of borrowing or adversely affect the ability to raise capital through the issuance of securities or other borrowing arrangements or the ability to secure committed bank lending agreements used as back-up sources of capital. Such disruptions could include:
an economic downturn or uncertainty;
bankruptcy or financial distress at an unrelated energy company, financial institution, or sovereign entity;
capital markets volatility and disruption, either nationally or internationally;
changes in tax policy such as dividend tax rates;
market prices for electricity and gas;
terrorist attacks or threatened attacks on Southern Company's facilities or unrelated energy companies' facilities;
war or threat of war; or
the overall health of the utility and financial institution industries.
Mississippi Power’s financial condition and its ability to obtain financing needed for normal business operations and completion of construction and start-up of the Kemper IGCC were adversely affected by (i) the return of approximately $301 million of interest bearing refundable deposits to SMEPA in June 2015 in connection with the termination of the APA; (ii) the required refund of approximately $371 million of rate collections, including associated carrying costs, and the termination of those rates; and (iii) the required recapture of Phase II tax credits. Mississippi Power expects to refinance its 2016 debt maturities with bank term loans. Mississippi Power intends to utilize operating cash flows and lines of credit (to the extent available) as well as loans and, under certain circumstances, equity contributions from Southern Company to fund the remainder of Mississippi Power’s capital needs.
In addition, Georgia Power’s ability to make future borrowings through its term loan credit facility with the Federal Financing Bank is subject to the satisfaction of customary conditions, as well as certification of compliance with the requirements of the loan guarantee program under Title XVII of the Energy Policy Act of 2005, including accuracy of project-related representations and warranties, delivery of updated project-related information and evidence of compliance with the prevailing

I-30

    Table of Contents                                Index to Financial Statements


wage requirements of the Davis-Bacon Act of 1931, as amended, and certification from the DOE’s consulting engineer that proceeds of the advances are used to reimburse certain costs of construction relating to Plant Vogtle Units 3 and 4 that are eligible for financing under the Title XVII Loan Guarantee Program.
Volatility in the securities markets, interest rates, and other factors could substantially increase defined benefit pension and other postretirement plan costs and the costs of nuclear decommissioning.
The costs of providing pension and other postretirement benefit plans are dependent on a number of factors, such as the rates of return on plan assets, discount rates, the level of interest rates used to measure the required minimum funding levels of the plan, changes in actuarial assumptions, future government regulation, changes in life expectancy, and the frequency and amount of the Southern Company system’s required or voluntary contributions made to the plans. Changes in actuarial assumptions and differences between the assumptions and actual values, as well as a significant decline in the value of investments that fund the pension and other postretirement plans, if not offset or mitigated by a decline in plan liabilities, could increase pension and other postretirement expense, and the Southern Company system could be required from time to time to fund the pension plan with significant amounts of cash. Such cash funding obligations could have a material impact on liquidity by reducing cash flows and could negatively affect results of operations. Additionally, Alabama Power and Georgia Power each hold significant assets in their nuclear decommissioning trusts to satisfy obligations to decommission Alabama Power’s and Georgia Power’s nuclear plants. The rate of return on assets held in those trusts can significantly impact both the costs of decommissioning and the funding requirements for the trusts.
Southern Company, the traditional operating companies, and Southern Power are subject to risks associated with their ability to obtain adequate insurance at acceptable costs.
The financial condition of some insurance companies, the threat of terrorism, and natural disasters, among other things, could have disruptive effects on insurance markets. The availability of insurance covering risks that Southern Company, the traditional operating companies, Southern Power, and their respective competitors typically insure against may decrease, and the insurance that Southern Company, the traditional operating companies, and Southern Power are able to obtain may have higher deductibles, higher premiums, and more restrictive policy terms. Further, there is no guarantee that the insurance policies maintained by the Southern Company, the traditional operating companies, and Southern Power will cover all of the potential exposures or the actual amount of loss incurred.
Any losses not covered by insurance, or any increases in the cost of applicable insurance, could adversely affect the results of operations, cash flows, or financial condition of Southern Company, the traditional operating companies, or Southern Power.
The use of derivative contracts by Southern Company and its subsidiaries in the normal course of business could result in financial losses that negatively impact the net income of Southern Company and its subsidiaries.
Southern Company and its subsidiaries, including the traditional operating companies and Southern Power, use derivative instruments, such as swaps, options, futures, and forwards, to manage their commodity and interest rate exposures and, to a lesser extent, engage in limited trading activities. Southern Company and its subsidiaries could recognize financial losses as a result of volatility in the market values of these contracts or if a counterparty fails to perform. These risks are managed through risk management policies, limits, and procedures. These risk management policies, limits, and procedures might not work as planned and cannot entirely eliminate the risks associated with these activities. In addition, derivative contracts entered for hedging purposes might not off-set the underlying exposure being hedged as expected, resulting in financial losses. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these financial instruments can involve management's judgment or use of estimates. The factors used in the valuation of these instruments become more difficult to predict and the calculations become less reliable the further into the future these estimates are made. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the value of the reported fair value of these contracts.
ACQUISITION RISKS
Acquisitions and dispositions may not result in anticipated benefits and may present risks not originally contemplated, which may have a material adverse effect on the liquidity, results of operations, and financial condition of Southern Company and its subsidiaries.
Southern Company and its subsidiaries have made significant acquisitions and dispositions in the past and may in the future make additional acquisitions and dispositions. Southern Power, in particular, continually seeks opportunities to create value through various transactions, including acquisitions or sales of assets.
Southern Company and its subsidiaries may face significant competition for acquisition opportunities and there can be no assurance that anticipated acquisitions will be completed on acceptable terms or at all. In addition, these transactions are intended to, but may not, result in the generation of cash or income, the realization of savings, the creation of efficiencies, or

I-31

    Table of Contents                                Index to Financial Statements


the reduction of risk. These transactions may also affect the liquidity, results of operations, and financial condition of Southern Company and its subsidiaries.
These transactions also involve risks, including:
any acquisitions may not result in an increase in income or provide an adequate return on capital or other anticipated benefits;
any acquisitions may not be successfully integrated into the acquiring company’s operations and internal controls processes;
the due diligence conducted prior to an acquisition may not uncover situations that could result in financial or legal exposure or the acquiring company may not appropriately evaluate the likelihood or quantify the exposure from identified risks;
any disposition may result in decreased earnings, revenue, or cash flow;
use of cash for acquisitions may adversely affect cash available for capital expenditures and other uses; or
any dispositions, investments, or acquisitions could have a material adverse effect on the liquidity, results of operations, or financial condition of Southern Company or its subsidiaries.
Southern Company and AGL Resources may encounter difficulties in satisfying the conditions for the completion of the Merger, including receipt of all required regulatory approvals, which could delay the completion of the Merger or impose conditions that could have a material adverse effect on the combined company or that could cause either party to abandon the Merger.
Consummation of the Merger remains subject to the satisfaction or waiver of certain closing conditions, including, among others, (i) the approval of the California Public Utilities Commission, Georgia PSC, Illinois Commerce Commission, and Maryland PSC, New Jersey Board of Public Utilities, and other approvals required under applicable state laws, and the approval of the Federal Communications Commission (FCC) for the transfer of control over the FCC licenses of certain subsidiaries of AGL Resources, (ii) the absence of a judgment, order, decision, injunction, ruling, or other finding or agency requirement of a governmental entity prohibiting the consummation of the Merger, and (iii) other customary closing conditions, including (a) subject to certain materiality qualifiers, the accuracy of each party's representations and warranties and (b) each party's performance in all material respects of its obligations under the Merger Agreement.
Southern Company completed the required state regulatory filings in the fourth quarter 2015 and the required FCC filings in February 2016. On February 24, 2016, a stipulation and settlement agreement between Southern Company, AGL Resources, the Maryland PSC Staff, and the Maryland Office of People's Counsel was filed with the Maryland PSC. The proposed settlement remains subject to the approval of the Maryland PSC. Additionally, Southern Company received the approval of the Virginia State Corporation Commission in February 2016.
These governmental entities may decline to approve the Merger or may impose conditions on the completion, or require changes to the terms, of the Merger, including restrictions or conditions on the business, operations, or financial performance of the combined company following the Merger.
Satisfying the conditions to completion of the Merger may take longer, and could cost more, than Southern Company expects. Any delay in completing the Merger or any additional conditions imposed in order to complete the Merger may materially adversely affect the benefits that Southern Company expects to achieve from the Merger and the integration of the companies' respective businesses.
In addition, conditions to the completion of the Merger may fail to be satisfied. Subject to certain limitations, either party may terminate the Merger Agreement if the Merger is not consummated by August 23, 2016, which date may be extended by either party to February 23, 2017 if, on August 23, 2016, all conditions to closing other than those relating to (i) regulatory approvals and (ii) the absence of legal restraints preventing consummation of the Merger (to the extent relating to regulatory approvals) have been satisfied.
Any delay in completing the Merger, conditions imposed by governmental entities, or failure to complete the Merger could have a material adverse effect on the financial condition, net income, and cash flows of Southern Company.
Failure to complete the Merger could negatively impact Southern Company's stock price and Southern Company's future business and financial results.
Completion of the Merger is not assured and is subject to risks, including the risks that approval of the transaction by governmental entities will not be obtained or that certain other closing conditions will not be satisfied. If the Merger is not

I-32

    Table of Contents                                Index to Financial Statements


completed, Southern Company's ongoing businesses and financial results may be adversely affected and Southern Company will be subject to a number of risks, including the following:
Southern Company will be required to pay significant costs relating to the Merger, including legal, accounting, and financial advisory costs, whether or not the Merger is completed;
matters relating to the Merger (including integration planning) may require substantial commitments of time and resources by Southern Company management, which could otherwise have been devoted to other opportunities that may have been beneficial to Southern Company; and
negative publicity and a negative impression of Southern Company in the investment community.
The occurrence of any of these events, individually or in combination, could cause the share price of Southern Company to decline if and to the extent that the current market prices reflect an assumption by the market that the Merger will be completed.
If completed, the Merger may not achieve its intended results.
Southern Company entered into the Merger Agreement with the expectation that the Merger would result in various benefits. Achieving the anticipated benefits of the Merger is subject to a number of uncertainties, including whether the business of AGL Resources is integrated in an efficient and effective manner, conditions imposed on the Merger by federal and state public utility, antitrust, and other regulatory authorities prior to approval, general market and economic conditions, and general competitive factors in the marketplace. Failure to achieve these anticipated benefits could result in increased costs, decreases in the amount of expected revenues generated by the combined company, and diversion of management's time and energy and could have an adverse effect on the combined company's financial condition, net income, and cash flows.
The Southern Company system will be subject to business uncertainties while the Merger is pending that could adversely affect Southern Company's financial results.
Uncertainty about the effect of the Merger on employees, suppliers, and customers of the Southern Company system may have an adverse effect on Southern Company. These uncertainties may impair the Southern Company system's ability to attract, retain, and motivate key personnel until the Merger is completed and for a period of time thereafter and could cause customers, suppliers, and others that deal with the Southern Company system to seek to change existing business relationships.
Employee retention and recruitment may be particularly challenging prior to the completion of the Merger, as employees and prospective employees may experience uncertainty about their future roles with the combined company. If key employees depart or fail to accept employment with the Southern Company system because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company, Southern Company's financial results could be adversely affected.
The pursuit of the Merger and the preparation for the integration of AGL Resources into the Southern Company system may place a significant burden on management and internal resources. The diversion of management attention away from day-to-day business concerns and any difficulties encountered in the transition and integration process could adversely affect Southern Company's financial condition, net income, and cash flows.
Southern Company is obligated to complete the Merger whether or not it has obtained the required financing.
Southern Company intends to initially fund the cash consideration for the Merger using a mix of debt and equity. Southern Company finances its capital needs on a portfolio basis and expects to issue approximately $8.0 billion in debt prior to closing the Merger and approximately $1.2 billion in equity during 2016. This capital is expected to provide funding for the Merger, Southern Power growth opportunities, and other Southern Company system capital projects. In addition, Southern Company entered into the $8.1 billion Bridge Agreement on September 30, 2015 to provide financing for the Merger in the event long-term financing is not available. The Bridge Agreement is subject to various conditions contained in the Bridge Agreement and the issuance of long-term debt and equity sales to finance the Merger will be subject to future market conditions.

I-33

    Table of Contents                                Index to Financial Statements


Following the Merger, stockholders of Southern Company will own equity interests in a company whose subsidiary owns and operates a natural gas business.
AGL Resources is an energy services holding company whose primary business is the distribution of natural gas through natural gas distribution utilities. AGL Resources is involved in several other businesses that are mainly related and complementary to its primary business including: retail operations including the provision of natural gas commodity and related services to customers in competitive markets or markets that provide for customer choice, wholesale services including natural gas storage, gas pipeline arbitrage, and natural gas asset management and/or related logistics services, and midstream operations including high deliverability natural gas storage facilities and select pipelines. As a result, the combined company will be subject to various risks to which Southern Company is not currently subject, including risks related to transporting and storing natural gas. As stockholders of the combined company following the Merger, Southern Company stockholders may be adversely affected by these risks.
Southern Company expects to record goodwill that could become impaired and adversely affect its operating results.
In accordance with GAAP, the Merger will be accounted for using the acquisition method of accounting whereby the assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. The excess of the purchase price over the fair values of AGL Resources' assets and liabilities will be recorded as goodwill.
The amount of goodwill, which is expected to be material, will be allocated to the appropriate reporting units of the combined company. Southern Company is required to assess goodwill for impairment at least annually by comparing the fair value of reporting units to the carrying value of those reporting units. To the extent the carrying value of any of those reporting units is greater than the fair value, a second step comparing the implied fair value of goodwill to the carrying amount would be required to determine if the goodwill is impaired. Such a potential impairment could result in a material charge that would have a material impact on Southern Company's future operating results and consolidated balance sheet.
Item 1B.
UNRESOLVED STAFF COMMENTS.
None.

I-34

    Table of Contents                                Index to Financial Statements


Item 2. PROPERTIES
Electric Properties
The traditional operating companies, Southern Power, and SEGCO, at December 31, 2015, owned and/or operated 33 hydroelectric generating stations, 31 fossil fuel generating stations, three nuclear generating stations, 13 combined cycle/cogeneration stations, 16 solar facilities, one wind facility, one biomass facility, and one landfill gas facility. The amounts of capacity for each company, as of December 31, 2015, are shown in the table below.
Generating Station
Location
Nameplate
Capacity (1)

 
 
 
(KWs)

 
FOSSIL STEAM
 
 
 
Gadsden
Gadsden, AL
120,000

 
Gorgas
Jasper, AL
1,021,250

(2
)
Barry
Mobile, AL
1,300,000

(2
)
Greene County
Demopolis, AL
300,000

(3
)
Gaston Unit 5
Wilsonville, AL
880,000

 
Miller
Birmingham, AL
2,532,288

(4
)
Alabama Power Total
 
6,153,538

 
Bowen
Cartersville, GA
3,160,000

 
Hammond
Rome, GA
800,000

 
McIntosh
Effingham County, GA
163,117

 
Mitchell
Albany, GA
125,000

(5
)
Scherer
Macon, GA
750,924

(6
)
Wansley
Carrollton, GA
925,550

(7
)
Yates
Newnan, GA
700,000

 
Georgia Power Total
 
6,624,591

 
Crist
Pensacola, FL
970,000

 
Daniel
Pascagoula, MS
500,000

(8
)
Lansing Smith
Panama City, FL
305,000

(9
)
Scherer Unit 3
Macon, GA
204,500

(6
)
Gulf Power Total
 
1,979,500

 
Daniel
Pascagoula, MS
500,000

(8
)
Greene County
Demopolis, AL
200,000

(3
)
Sweatt
Meridian, MS
80,000

(10
)
Watson
Gulfport, MS
862,000

(10
)
Mississippi Power Total
 
1,642,000

 
Gaston Units 1-4
Wilsonville, AL
 
 
SEGCO Total
 
1,000,000

(11
)
Total Fossil Steam
 
17,399,629

 
IGCC
 
 
 
Kemper County/Ratcliffe
Kemper County, MS
 
(12
)
Mississippi Power Total
 
622,906

 

I-35

    Table of Contents                                Index to Financial Statements


Generating Station
Location
Nameplate
Capacity (1)

 
NUCLEAR STEAM
 
 
 
Farley
Dothan, AL
 
 
Alabama Power Total
 
1,720,000

 
Hatch
Baxley, GA
899,612

(13
)
Vogtle Units 1 and 2
Augusta, GA
1,060,240

(14
)
Georgia Power Total
 
1,959,852

 
Total Nuclear Steam
 
3,679,852

 
COMBUSTION TURBINES
 
 
 
Greene County
Demopolis, AL
 
 
Alabama Power Total
 
720,000

 
Boulevard
Savannah, GA
19,700

 
Intercession City
Intercession City, FL
47,667

(5
)
Kraft
Port Wentworth, GA
22,000

(5
)
McDonough Unit 3
Atlanta, GA
78,800

 
McIntosh Units 1 through 8
Effingham County, GA
640,000

 
McManus
Brunswick, GA
481,700

 
Mitchell
Albany, GA
78,800

(5
)
Robins
Warner Robins, GA
158,400

 
Wansley
Carrollton, GA
26,322

(7
)
Wilson
Augusta, GA
354,100

 
Georgia Power Total
 
1,907,489

 
Lansing Smith Unit A
Panama City, FL
39,400

 
Pea Ridge Units 1 through 3
Pea Ridge, FL
15,000

 
Gulf Power Total
 
54,400

 
Chevron Cogenerating Station
Pascagoula, MS
147,292

(15
)
Sweatt
Meridian, MS
39,400

 
Watson
Gulfport, MS
39,360

 
Mississippi Power Total
 
226,052

 
Addison (formerly West Georgia)
Thomaston, GA
668,800

 
Cleveland County
Cleveland County, NC
720,000

 
Dahlberg
Jackson County, GA
756,000

 
Oleander
Cocoa, FL
791,301

 
Rowan
Salisbury, NC
455,250

 
Southern Power Total
 
3,391,351

 
Gaston (SEGCO)
Wilsonville, AL
19,680

(11
)
Total Combustion Turbines
 
6,318,972

 
COGENERATION
 
 
 
Washington County
Washington County, AL
123,428

 
GE Plastics Project
Burkeville, AL
104,800

 
Theodore
Theodore, AL
236,418

 
Total Cogeneration
 
464,646

 

I-36

    Table of Contents                                Index to Financial Statements


Generating Station
Location
Nameplate
Capacity (1)

 
COMBINED CYCLE
 
 
 
Barry
Mobile, AL
 
 
Alabama Power Total
 
1,070,424

 
McIntosh Units 10&11
Effingham County, GA
1,318,920

 
McDonough-Atkinson Units 4 through 6
Atlanta, GA
2,520,000

 
Georgia Power Total
 
3,838,920

 
Smith
Lynn Haven, FL
 
 
Gulf Power Total
 
545,500

 
Daniel
Pascagoula, MS
 
 
Mississippi Power Total
 
1,070,424

 
Franklin
Smiths, AL
1,857,820

 
Harris
Autaugaville, AL
1,318,920

 
Rowan
Salisbury, NC
530,550

 
Stanton Unit A
Orlando, FL
428,649

(16
)
Wansley
Carrollton, GA
1,073,000

 
Southern Power Total
 
5,208,939

 
Total Combined Cycle
 
11,734,207

 
HYDROELECTRIC FACILITIES
 
 
 
Bankhead
Holt, AL
53,985

 
Bouldin
Wetumpka, AL
225,000

 
Harris
Wedowee, AL
132,000

 
Henry
Ohatchee, AL
72,900

 
Holt
Holt, AL
46,944

 
Jordan
Wetumpka, AL
100,000

 
Lay
Clanton, AL
177,000

 
Lewis Smith
Jasper, AL
157,500

 
Logan Martin
Vincent, AL
135,000

 
Martin
Dadeville, AL
182,000

 
Mitchell
Verbena, AL
170,000

 
Thurlow
Tallassee, AL
81,000

 
Weiss
Leesburg, AL
87,750

 
Yates
Tallassee, AL
47,000

 
Alabama Power Total
 
1,668,079

 
Bartletts Ferry
Columbus, GA
173,000

 
Goat Rock
Columbus, GA
38,600

 
Lloyd Shoals
Jackson, GA
14,400

 
Morgan Falls
Atlanta, GA
16,800

 
North Highlands
Columbus, GA
29,600

 
Oliver Dam
Columbus, GA
60,000

 
Rocky Mountain
Rome, GA
215,256

(17
)
Sinclair Dam
Milledgeville, GA
45,000

 
Tallulah Falls
Clayton, GA
72,000

 
Terrora
Clayton, GA
16,000

 
Tugalo
Clayton, GA
45,000

 
Wallace Dam
Eatonton, GA
321,300

 
Yonah
Toccoa, GA
22,500

 
6 Other Plants
Various Georgia Cities
18,080

 

I-37

    Table of Contents                                Index to Financial Statements


Generating Station
Location
Nameplate
Capacity (1)

 
Georgia Power Total
 
1,087,536

 
Total Hydroelectric Facilities
 
2,755,615

 
RENEWABLE SOURCES:
 
 
 
SOLAR FACILITIES
 
 
 
Fort Benning
Columbus, GA
30,000

 
Dalton
Dalton, GA
6,305

 
Georgia Power Total
 
36,305

 
Adobe
Kern County, CA
20,000

 
Apex
North Las Vegas, NV
20,000

 
Campo Verde
Imperial County, CA
147,420

 
Cimarron
Springer, NM
30,640

 
Decatur County
Decatur County, GA
20,000

 
Decatur Parkway
Decatur County, GA
84,000

 
Desert Stateline
San Bernadino County, CA
110,120

(18)
Granville
Oxford, NC
2,500

 
Imperial Valley
Imperial County, CA
163,200

 
Lost Hills - Blackwell
Kern County, CA
33,440

 
Macho Springs
Luna County, NM
55,000

 
Morelos del Sol
Kern County, CA
15,000

 
North Star
Fresno County, CA
61,600

 
Spectrum
Clark County, NV
30,240

 
Southern Power Total
 
793,160

(19
)
Total Solar
 
829,465

 
WIND FACILITY
 
 
 
Kay Wind
Kay County, OK
 
 
Southern Power Total
 
299,000

 
LANDFILL GAS FACILITY
 
 
 
Perdido
Escambia County, FL
 
 
Gulf Power Total
 
3,200

 
BIOMASS FACILITY
 
 
 
Nacogdoches
Sacul, TX
 
 
Southern Power Total
 
115,500

 
Total Generating Capacity
 
44,222,992

 
Notes:
(1)
See "Jointly-Owned Facilities" herein for additional information.
(2)
In April 2015, as part of its environmental compliance strategy, Alabama Power retired Plant Gorgas Units 6 and 7 (200MWs). Additionally, in April 2015, Alabama Power ceased using coal at Plant Barry Units 1 and 2 (250 MWs), but such units will remain available on a limited basis with natural gas as the fuel source. In August 2015, Alabama Power retired Plant Barry Unit 3 (225 MWs) and it is no longer available for generation. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Alabama Power – Environmental Accounting Order" of Southern Company and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Environmental Accounting Order" of Alabama Power in Item 7 herein. See also Note 3 to the financial statements of Southern Company and Alabama Power under "Retail Regulatory Matters – Alabama Power – Environmental Accounting Order" and "Retail Regulatory – Environmental Accounting Order," respectively, in Item 8 herein.

I-38

    Table of Contents                                Index to Financial Statements


(3)
Owned by Alabama Power and Mississippi Power as tenants in common in the proportions of 60% and 40%, respectively. Alabama Power and Mississippi Power expect to cease using coal and begin operating these units solely on natural gas by April 2016. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Alabama Power – Environmental Accounting Order" of Southern Company, MANAGEMENT'S DISCUSSION AND ANALYSIS - FUTURE EARNINGS POTENTIAL - "Retail Regulatory Matters – Environmental Accounting Order" of Alabama Power, and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Environmental Compliance Overview Plan" of Mississippi Power in Item 7 herein. See also Note 3 to the financial statements of Southern Company, Alabama Power, and Mississippi Power under "Retail Regulatory Matters – Alabama Power – Environmental Accounting Order," "Retail Regulatory Matters – Environmental Accounting Order," and "Retail Regulatory Matters – Environmental Compliance Overview Plan," respectively, in Item 8 herein.
(4)
Capacity shown is Alabama Power's portion (91.84%) of total plant capacity.
(5)
On January 29, 2016, Georgia Power filed its triennial IRP (2016 IRP). The filing included a request to decertify Plant Mitchell Units 3, 4A, and 4B (217MWs) and Plant Kraft Unit 1 (17 MWs) upon approval of the 2016 IRP. The 2016 IRP also reflects that Georgia Power exercised its contractual option to sell its ownership interest in the Intercession City unit to Duke Energy Florida, Inc. contingent upon regulatory approvals. The ultimate outcome of this matter cannot be determined at this time. Capacity shown represents 33% of the total plant capacity of 143,000 KWs. Georgia Power owns a 33% interest in the unit with 100% use of the unit from June through September. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Georgia Power – Integrated Resource Plan" of Southern Company and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Integrated Resource Plan" of Georgia Power in Item 7 herein. See also Note 3 to the financial statements of Southern Company and Georgia Power under "Retail Regulatory Matters – Georgia Power – Integrated Resource Plan" and "Retail Regulatory – Integrated Resource Plan," respectively, in Item 8 herein.
(6)
Capacity shown for Georgia Power is 8.4% of Units 1 and 2 and 75% of Unit 3. Capacity shown for Gulf Power is 25% of Unit 3.
(7)
Capacity shown is Georgia Power's portion (53.5%) of total plant capacity.
(8)
Represents 50% of Plant Daniel Units 1 and 2, which are owned as tenants in common by Gulf Power and Mississippi Power.
(9)
Gulf Power intends to retire Plant Smith Units 1 and 2 (357 MWs) by March 31, 2016.
(10)
Mississippi Power agreed to retire, repower with natural gas, or convert to an alternative non-fossil fuel source at Plant Sweatt Units 1 and 2 (80 MWs) by December 2018. Mississippi Power also ceased burning coal and other solid fuel at Plant Watson Units 4 and 5 (750 MWs) and began operating those units solely on natural gas on April 16, 2015.
(11)
SEGCO is jointly-owned by Alabama Power and Georgia Power. See BUSINESS in Item 1 herein for additional information.
(12)
Mississippi Power placed the combined cycle and the associated common facilities portion of the Kemper IGCC in service using natural gas in August 2014 and continues to focus on completing the remainder of the Kemper IGCC, including the gasifier and the gas clean-up facilities. The Kemper IGCC is expected to have an output capacity of 582 MW.
(13)
Capacity shown is Georgia Power's portion (50.1%) of total plant capacity.
(14)
Capacity shown is Georgia Power's portion (45.7%) of total plant capacity.
(15)
Generation is dedicated to a single industrial customer.
(16)
Capacity shown is Southern Power's portion (65%) of total plant capacity.
(17)
Capacity shown is Georgia Power's portion (25.4%) of total plant capacity. OPC operates the plant.
(18)
The first three phases (110 MW) were placed in service in December 2015. Phases four and five were placed in service in January and February 2016, respectively. The remaining three phases are expected to be placed in service during 2016, bringing the facility's total capacity to approximately 300 MW.
(19)
Southern Power total solar capacity shown is 100% of the nameplate capacity for each facility. When taking into consideration Southern Power's 90% equity interest in STR and 51% equity interest in SRP's seven partnerships, Southern Power's equity portion of the total nameplate capacity from all generating sources is 9,595 MW. See Note 2 to the financial statements of Southern Power in Item 8 herein and Note 12 to the financial statements of Southern Company under "Southern Power" in Item 8 herein for additional information.
Except as discussed below under "Titles to Property," the principal plants and other important units of the traditional operating companies, Southern Power, and SEGCO are owned in fee by the respective companies. It is the opinion of management of each such company that its operating properties are adequately maintained and are substantially in good operating condition.
Mississippi Power owns a 79-mile length of 500-kilovolt transmission line which is leased to Entergy Gulf States Louisiana, LLC. The line, completed in 1984, extends from Plant Daniel to the Louisiana state line. Entergy Gulf States Louisiana, LLC is

I-39

    Table of Contents                                Index to Financial Statements


paying a use fee over a 40-year period covering all expenses and the amortization of the original $57 million cost of the line. At December 31, 2015, the unamortized portion of this cost was approximately $14 million.
In conjunction with the Kemper IGCC, Mississippi Power owns a lignite mine and equipment and has acquired and will continue to acquire mineral reserves located around the Kemper IGCC site in Kemper County. The mine, operated by North American Coal Corporation, started commercial operation in June 2013 with the capital cost of the mine and equipment totaling approximately $313 million as of December 31, 2015. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle – Lignite Mine and CO2 Pipeline Facilities" of Mississippi Power in Item 7 herein and Note 3 to the financial statements of Southern Company and Mississippi Power under "Integrated Coal Gasification Combined Cycle – Lignite Mine and CO2 Pipeline Facilities" in Item 8 herein for additional information on the lignite mine.
In 2015, the maximum demand on the traditional operating companies, Southern Power, and SEGCO was 36,794,000 KWs and occurred on January 8, 2015. The all-time maximum demand of 38,777,000 KWs on the traditional operating companies, Southern Power, and SEGCO occurred on August 22, 2007. These amounts exclude demand served by capacity retained by MEAG Power, OPC, and SEPA. The reserve margin for the traditional operating companies, Southern Power, and SEGCO in 2015 was 33.2%. See SELECTED FINANCIAL DATA in Item 6 herein for additional information.
Jointly-Owned Facilities
Alabama Power, Georgia Power, and Southern Power at December 31, 2015 had undivided interests in certain generating plants and other related facilities with non-affiliated parties. The percentages of ownership of the total plant or facility are as follows:
 
 
 
 
Percentage Ownership
 
 
Total
Capacity
 
Alabama
Power
 
Power
South
 
Georgia
Power
 
OPC
 
MEAG
Power
 
Dalton
 
Duke
Energy
Florida
 
Southern
Power
 
OUC
 
FMPA
 
KUA
 
 
(MWs)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plant Miller Units 1 and 2
 
1,320

 
91.8
%
 
8.2
%
 
%
 
%
 
%
 
%
 
%
 
%
 
%
 
%
 
%
Plant Hatch
 
1,796

 

 

 
50.1

 
30.0

 
17.7

 
2.2

 

 

 

 

 

Plant Vogtle
Units 1 and 2
 
2,320

 

 

 
45.7

 
30.0

 
22.7

 
1.6

 

 

 

 

 

Plant Scherer Units 1 and 2
 
1,636

 

 

 
8.4

 
60.0

 
30.2

 
1.4

 

 

 

 

 

Plant Wansley
 
1,779

 

 

 
53.5

 
30.0

 
15.1

 
1.4

 

 

 

 

 

Rocky Mountain
 
848

 

 

 
25.4

 
74.6

 

 

 

 

 

 

 

Intercession City, FL*
 
143

 

 

 
33.3

 

 

 

 
66.7

 

 

 

 

Plant Stanton A
 
660

 

 

 

 

 

 

 

 
65.0

 
28.0

 
3.5

 
3.5

*
Subsequent to December 31, 2015, Georgia Power exercised its contractual option to sell its ownership interest to Duke Energy Florida, Inc. contingent on regulatory approvals. The ultimate outcome of this matter cannot be determined at this time.
Alabama Power and Georgia Power have contracted to operate and maintain the respective units in which each has an interest (other than Rocky Mountain and Intercession City) as agent for the joint owners. SCS provides operation and maintenance services for Plant Stanton A. Southern Nuclear operates and provides services to Alabama Power’s and Georgia Power’s nuclear plants.
In addition, Georgia Power has commitments regarding a portion of a 5% interest in Plant Vogtle Units 1 and 2 owned by MEAG Power that are in effect until the later of retirement of the plant or the latest stated maturity date of MEAG Power's bonds issued to finance such ownership interest. The payments for capacity are required whether any capacity is available. The energy cost is a function of each unit's variable operating costs. Except for the portion of the capacity payments related to the Georgia PSC's disallowances of Plant Vogtle Units 1 and 2 costs, the cost of such capacity and energy is included in purchased power from non-affiliates in Georgia Power's statements of income in Item 8 herein. Also see Note 7 to the financial statements of Georgia Power under "Commitments – Fuel and Purchased Power Agreements" in Item 8 herein for additional information.
Georgia Power is currently constructing Plant Vogtle Units 3 and 4 which will be jointly owned by Georgia Power, Dalton, OPC, and MEAG Power (with each owner holding the same undivided ownership interest as shown in the table above with respect to Plant Vogtle Units 1 and 2). See Note 3 to the financial statements of Southern Company and Georgia Power under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Retail Regulatory Matters – Nuclear Construction," respectively, in Item 8 herein.

I-40

    Table of Contents                                Index to Financial Statements


Titles to Property
The traditional operating companies', Southern Power's, and SEGCO's interests in the principal plants (other than certain pollution control facilities and the land on which five combustion turbine generators of Mississippi Power are located, which is held by easement) and other important units of the respective companies are owned in fee by such companies, subject only to the (1) liens pursuant to pollution control revenue bonds of Gulf Power on specific pollution control facilities at Plant Daniel, (2) liens pursuant to the assumption of debt obligations by Mississippi Power in connection with the acquisition of Plant Daniel Units 3 and 4, (3) liens associated with Georgia Power’s reimbursement obligations to the DOE under its loan guarantee, which are secured by a first priority lien on (a) Georgia Power’s 45.7% undivided ownership interest in Plant Vogtle Units 3 and 4 and (b) Georgia Power’s rights and obligations under the principal contracts relating to Plant Vogtle Units 3 and 4, and (4) liens associated with credit agreements entered into by RE Tranquillity LLC, RE Roserock LLC, and RE Garland Holdings LLC, indirect subsidiaries of Southern Power Company. See Note 6 to the financial statements of Southern Company, Georgia Power, Gulf Power, and Mississippi Power under "Assets Subject to Lien," Note 6 to the financial statements of Southern Company and Georgia Power under "DOE Loan Guarantee Borrowings," Note 6 to the financial statements of Southern Company and Mississippi Power under "Plant Daniel Revenue Bonds," and Note 6 to the financial statements of Southern Power Company under "Bank Credit Arrangements – Subsidiary Facilities" in Item 8 herein for additional information. The traditional operating companies own the fee interests in certain of their principal plants as tenants in common. See "Jointly-Owned Facilities" herein for additional information. Properties such as electric transmission and distribution lines, steam heating mains, and gas pipelines are constructed principally on rights-of-way, which are maintained under franchise or are held by easement only. A substantial portion of lands submerged by reservoirs is held under flood right easements. In addition, certain of the renewable generating facilities occupy or use real property that is not owned, primarily through various leases, easements, rights-of-way, permits, or licenses from private landowners or governmental entities.


I-41

    Table of Contents                                Index to Financial Statements


Item 3.
LEGAL PROCEEDINGS
(1) Georgia Power et al. v. Westinghouse and Stone & Webster (United States District Court for the Southern District of Georgia Augusta Division)
Stone & Webster and Westinghouse v. Georgia Power et al. (United States District Court for the District of Columbia)
See Note 3 to the financial statements of Southern Company and Georgia Power under "Georgia Power – Nuclear Construction" and "Retail Regulatory Matters – Nuclear Construction," respectively, in Item 8 herein for information.
(2) Environmental Remediation
See Note 3 to the financial statements of Southern Company, Georgia Power, and Gulf Power under "Environmental Matters – Environmental Remediation" in Item 8 herein for information related to environmental remediation.
See Note 3 to the financial statements of each registrant in Item 8 herein for descriptions of additional legal and administrative proceedings discussed therein.
Item 4.
MINE SAFETY DISCLOSURES
Not applicable.

I-42

    Table of Contents                                Index to Financial Statements


EXECUTIVE OFFICERS OF SOUTHERN COMPANY
(Identification of executive officers of Southern Company is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 2015.
Thomas A. Fanning
Chairman, President, Chief Executive Officer, and Director
Age 58
Elected in 2003. Chairman, Chief Executive Officer, and Director since December 2010 and President since August 2010.
Art P. Beattie
Executive Vice President and Chief Financial Officer
Age 61
Elected in 2010. Executive Vice President and Chief Financial Officer since August 2010.
W. Paul Bowers
Executive Vice President
Age 59
Elected in 2001. Executive Vice President since February 2008 and Chief Executive Officer, President, and Director of Georgia Power since January 2011. Chairman of Georgia Power's Board of Directors since May 2014.
S. W. Connally, Jr.
Chairman, President, and Chief Executive Officer of Gulf Power
Age 46
Elected in 2012. Elected Chairman in July 2015 and President, Chief Executive Officer, and Director of Gulf Power since July 2012. Previously served as Senior Vice President and Chief Production Officer of Georgia Power from August 2010 through June 2012.
Mark A. Crosswhite
Executive Vice President
Age 53
Elected in 2010. Executive Vice President since December 2010 and President, Chief Executive Officer, and Director of Alabama Power since March 2014. Chairman of Alabama Power's Board of Directors since May 2014. Previously served as Executive Vice President and Chief Operating Officer of Southern Company from July 2012 through February 2014 and President, Chief Executive Officer, and Director of Gulf Power from January 2011 through June 2012.
Kimberly S. Greene
Executive Vice President
Age 49
Elected in 2013. Executive Vice President and Chief Operating Officer since March 2014. Previously served as President and Chief Executive Officer of SCS from April 2013 to February 2014. Before rejoining Southern Company, Ms. Greene previously served at Tennessee Valley Authority in a number of positions, most recently as Executive Vice President and Chief Generation Officer from 2011 through April 2013, and Group President of Strategy and External Relations from 2010 through 2011.
James Y. Kerr II
Executive Vice President and General Counsel
Age 51
Elected in 2014. Before joining Southern Company, Mr. Kerr was a partner with McGuireWoods LLP and a senior advisor at McGuireWoods Consulting LLC from 2008 through February 2014.
Stephen E. Kuczynski
President and Chief Executive Officer of Southern Nuclear
Age 53
Elected in 2011. President and Chief Executive Officer of Southern Nuclear since July 2011. Before joining Southern Company, Mr. Kuczynski served at Exelon Corporation as the Senior Vice President of Engineering and Technical Services for Exelon Nuclear from February 2009 to June 2011.
Mark S. Lantrip
Executive Vice President
Age 61
Elected in 2014. President and Chief Executive Officer of SCS since March 2014. Previously served as Treasurer of Southern Company from October 2007 to February 2014 and Executive Vice President of SCS from November 2010 to March 2014.

I-43

    Table of Contents                                Index to Financial Statements


Anthony L. Wilson
President and Chief Executive Officer of Mississippi Power
Age 51
Elected in 2015. President of Mississippi Power since October 2015 and Chief Executive Officer and Director since January 2016. Previously served as Executive Vice President of Mississippi Power from May 2015 to October 2015, Executive Vice President of Georgia Power from January 2012 to May 2015, and Vice President of Georgia Power from February 2007 to December 2011.
Christopher C. Womack
Executive Vice President
Age 57
Elected in 2008. Executive Vice President and President of External Affairs since January 2009.
The officers of Southern Company were elected at the first meeting of the directors following the last annual meeting of stockholders held on May 27, 2015, for a term of one year or until their successors are elected and have qualified.


I-44

    Table of Contents                                Index to Financial Statements


EXECUTIVE OFFICERS OF ALABAMA POWER
(Identification of executive officers of Alabama Power is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 2015.
Mark A. Crosswhite
Chairman, President, Chief Executive Officer, and Director
Age 53
Elected in 2014. President, Chief Executive Officer, and Director since March 1, 2014. Chairman since May 2014. Previously served as Executive Vice President and Chief Operating Officer of Southern Company from July 2012 through February 2014 and President, Chief Executive Officer, and Director of Gulf Power from January 2011 through June 2012.
Greg J. Barker (1)
Executive Vice President
Age 52
Elected in 2016. Executive Vice President for Customer Services since February 22, 2016. Previously served as Senior Vice President of Marketing and Economic Development from April 2012 to February 2016 and Senior Vice President of Business Development and Customer Support from July 2010 to April 2012.
Philip C. Raymond
Executive Vice President, Chief Financial Officer, and Treasurer
Age 56
Elected in 2010. Executive Vice President, Chief Financial Officer, and Treasurer since August 2010.
Zeke W. Smith
Executive Vice President
Age 56
Elected in 2010. Executive Vice President of External Affairs since November 2010.
Steven R. Spencer (1)
Executive Vice President
Age 60
Elected in 2001. Executive Vice President of the Customer Service Organization since February 2008.
James P. Heilbron
Senior Vice President and Senior Production Officer
Age 44
Elected in 2013. Senior Vice President and Senior Production Officer since March 2013. Previously served as Senior Vice President and Senior Production Officer of Southern Power Company from July 2010 to February 2013.
(1)    On February 17, 2016, Mr. Spencer resigned the role of Executive Vice President, effective April 1, 2016.  Mr. Greg Barker was elected to the role of Executive Vice President for Customer Services, effective February 22, 2016.
The officers of Alabama Power were elected for at the meeting of the directors held on April 24, 2015 for a term of one year or until their successors are elected and have qualified, except for Mr. Barker whose election as Executive Vice President was effective February 22, 2016.



I-45

    Table of Con