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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
 
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
(A Delaware Corporation)
30 Ivan Allen Jr. Boulevard, N.W.
Atlanta, Georgia 30308
(404) 506-5000
 
58-0690070
 
 
 
 
 
1-3164
 
Alabama Power Company
(An Alabama Corporation)
600 North 18 th  Street
Birmingham, Alabama 35203
(205) 257-1000
 
63-0004250
 
 
 
 
 
1-6468
 
Georgia Power Company
(A Georgia Corporation)
241 Ralph McGill Boulevard, N.E.
Atlanta, Georgia 30308
(404) 506-6526
 
58-0257110
 
 
 
 
 
001-31737
 
Gulf Power Company
(A Florida Corporation)
One Energy Place
Pensacola, Florida 32520
(850) 444-6111
 
59-0276810
 
 
 
 
 
001-11229
 
Mississippi Power Company
(A Mississippi Corporation)
2992 West Beach Boulevard
Gulfport, Mississippi 39501
(228) 864-1211
 
64-0205820
 
 
 
 
 
333-98553
 
Southern Power Company
(A Delaware Corporation)
30 Ivan Allen Jr. Boulevard, N.W.
Atlanta, Georgia 30308
(404) 506-5000
 
58-2598670


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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  þ 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  þ No  ¨
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  þ (Response applicable to all registrants.)
 
Registrant
 
Description of
Common Stock
 
Shares Outstanding at June 30, 2015

The Southern Company
 
Par Value $5 Per Share
 
908,424,808

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

This combined Form 10-Q 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 registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants.

2
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2015


 
 
Page
Number
 
 
 
 
PART I—FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements (Unaudited)
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3.
Item 4.

3
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2015


 
 
Page
Number
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Defaults Upon Senior Securities
Inapplicable
Item 4.
Mine Safety Disclosures
Inapplicable
Item 5.
Other Information
Inapplicable
Item 6.
 


4
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DEFINITIONS
 
Term
Meaning
 
 
2012 MPSC CPCN Order
A detailed order issued by the Mississippi PSC in April 2012 confirming the CPCN originally approved by the Mississippi PSC in 2010 authorizing the acquisition, construction, and operation of the Kemper IGCC
2013 ARP
Alternative Rate Plan approved by the Georgia PSC for Georgia Power for the years 2014 through 2016
AFUDC
Allowance for funds used during construction
Alabama Power
Alabama Power Company
ASC
Accounting Standards Codification
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
CCR
Coal combustion residuals
Clean Air Act
Clean Air Act Amendments of 1990
Contractor
Westinghouse and CB&I Stone & Webster, Inc. (formerly known as Stone & Webster, Inc.), a subsidiary of The Shaw Group Inc., which was acquired by Chicago Bridge & Iron Company N.V.
CO 2
Carbon dioxide
CPCN
Certificate of public convenience and necessity
CWIP
Construction work in progress
DOE
U.S. Department of Energy
ECO Plan
Mississippi Power's Environmental Compliance Overview Plan
Eligible Project Costs
Certain costs of construction relating to Plant Vogtle Units 3 and 4 that are eligible for financing under the Title XVII Loan Guarantee Program
EPA
U.S. Environmental Protection Agency
FERC
Federal Energy Regulatory Commission
FFB
Federal Financing Bank
Fitch
Fitch Ratings, Inc.
Form 10-K
Combined Annual Report on Form 10-K of Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power for the year ended December 31, 2014
GAAP
Generally accepted accounting principles
Georgia Power
Georgia Power Company
Gulf Power
Gulf Power Company
IGCC
Integrated coal gasification combined cycle
IIC
Intercompany interchange contract
Internal Revenue Code
Internal Revenue Code of 1986, as amended
IRS
Internal Revenue Service
ITC
Investment tax credit
Kemper IGCC
IGCC facility under construction in Kemper County, Mississippi
KWH
Kilowatt-hour
LIBOR
London Interbank Offered Rate
MATS rule
Mercury and Air Toxics Standards rule
Mirror CWIP
A regulatory liability account for use in mitigating future rate impacts for Mississippi Power customers
Mississippi Power
Mississippi Power Company
mmBtu
Million British thermal units
Moody's
Moody's Investors Service, Inc.
MW
Megawatt

5
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DEFINITIONS
(continued)
Term
Meaning
 
 
NCCR
Georgia Power's Nuclear Construction Cost Recovery
NRC
U.S. Nuclear Regulatory Commission
OCI
Other comprehensive income
PEP
Mississippi Power's Performance Evaluation Plan
Plant Vogtle Units 3 and 4
Two new nuclear generating units under construction at 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
PPA
Power purchase agreement
PSC
Public Service Commission
Rate CNP
Alabama Power's Rate Certificated New Plant
Rate CNP Compliance
Alabama Power's Rate Certificated New Plant Compliance
Rate CNP Environmental
Alabama Power's Rate Certificated New Plant Environmental
Rate CNP PPA
Alabama Power's Rate Certificated New Plant Power Purchase Agreement
registrants
Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power Company
ROE
Return on equity
S&P
Standard and Poor's Ratings Services, a division of The McGraw Hill Companies, Inc.
scrubber
Flue gas desulfurization system
SEC
U.S. Securities and Exchange Commission
SMEPA
South Mississippi Electric Power Association
Southern Company
The Southern Company
Southern Company system
Southern Company, the traditional operating companies, Southern Power, Southern Electric Generating Company, Southern Nuclear, Southern Company Services, Inc. (the Southern Company system service company), Southern Communications Services, Inc., and other subsidiaries
Southern Nuclear
Southern Nuclear Operating Company, Inc.
Southern Power
Southern Power Company and its subsidiaries
traditional operating companies
Alabama Power, Georgia Power, Gulf Power, and Mississippi Power
Vogtle Owners
Georgia Power, Oglethorpe Power Corporation, the Municipal Electric Authority of Georgia, and the City of Dalton, Georgia, an incorporated municipality in the State of Georgia acting by and through its Board of Water, Light, and Sinking Fund Commissioners
Westinghouse
Westinghouse Electric Company LLC


6
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements include, among other things, statements concerning retail rates, 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, access to sources of capital, projections for the qualified pension plan, postretirement benefit plan, 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, 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 including regulation of water, CCR, and emissions of sulfur, nitrogen, CO 2 , soot, particulate matter, hazardous air pollutants, including mercury, and other substances, 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 pending EPA civil actions against certain Southern Company subsidiaries, FERC matters, and IRS 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 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 actions relating to Mississippi PSC approval of a rate recovery plan, including Mississippi Power's request for interim rates, proposed securitization, the ability to utilize bonus depreciation, which currently requires that assets be placed in service in 2015, and satisfaction of requirements to utilize ITCs and grants;
•
the ultimate impact of the termination of the proposed sale of an interest in the Kemper IGCC to SMEPA;
•
Mississippi PSC review of the prudence of Kemper IGCC costs;


7
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
(continued)
•
the ultimate impact of the 2015 decision of the Mississippi Supreme Court, the Mississippi PSC's order implementing such decision, and any further related legal or regulatory proceedings;
•
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 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 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 (including the Form 10-K) filed by the registrants from time to time with the SEC.
The registrants expressly disclaim any obligation to update any forward-looking statements.


8
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THE SOUTHERN COMPANY
AND SUBSIDIARY COMPANIES

9
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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
 
(in millions)
Operating Revenues:
 
 
 
 
 
 
 
Retail revenues
$
3,714

 
$
3,770

 
$
7,256

 
$
7,628

Wholesale revenues
448

 
515

 
915

 
1,119

Other electric revenues
162

 
169

 
325

 
334

Other revenues
13

 
13

 
24

 
30

Total operating revenues
4,337

 
4,467

 
8,520

 
9,111

Operating Expenses:
 
 
 
 
 
 
 
Fuel
1,200

 
1,462

 
2,412

 
3,109

Purchased power
171

 
133

 
315

 
320

Other operations and maintenance
1,100

 
1,019

 
2,222

 
2,005

Depreciation and amortization
500

 
504

 
987

 
1,001

Taxes other than income taxes
245

 
246

 
497

 
493

Estimated loss on Kemper IGCC
23

 
—

 
32

 
380

Total operating expenses
3,239

 
3,364

 
6,465

 
7,308

Operating Income
1,098

 
1,103

 
2,055

 
1,803

Other Income and (Expense):
 
 
 
 
 
 
 
Allowance for equity funds used during construction
39

 
62

 
102

 
119

Interest expense, net of amounts capitalized
(180
)
 
(210
)
 
(393
)
 
(416
)
Other income (expense), net
(12
)
 
(6
)
 
(19
)
 
(13
)
Total other income and (expense)
(153
)
 
(154
)
 
(310
)
 
(310
)
Earnings Before Income Taxes
945

 
949

 
1,745

 
1,493

Income taxes
302

 
321

 
576

 
497

Consolidated Net Income
643

 
628

 
1,169

 
996

Dividends on Preferred and Preference Stock of Subsidiaries
14

 
17

 
31

 
34

Consolidated Net Income After Dividends on Preferred and
   Preference Stock of Subsidiaries
$
629

 
$
611

 
$
1,138

 
$
962

Common Stock Data:
 
 
 
 
 
 
 
Earnings per share (EPS) —
 
 
 
 
 
 
 
Basic EPS
$
0.69

 
$
0.68

 
$
1.25

 
$
1.08

Diluted EPS
$
0.69

 
$
0.68

 
$
1.25

 
$
1.07

Average number of shares of common stock outstanding (in millions)
 
 
 
 
 
 
 
Basic
909

 
895

 
910

 
892

Diluted
912

 
899

 
914

 
896

Cash dividends paid per share of common stock
$
0.5425

 
$
0.5250

 
$
1.0675

 
$
1.0325

The accompanying notes as they relate to Southern Company are an integral part of these consolidated financial statements.


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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
 
(in millions)
Consolidated Net Income
$
643

 
$
628

 
$
1,169

 
$
996

Other comprehensive income (loss):
 
 
 
 
 
 
 
Qualifying hedges:
 
 
 
 
 
 
 
Changes in fair value, net of tax of $12, $-, $1, and $-, respectively
19

 
—

 
1

 
—

Reclassification adjustment for amounts included in net income,
net of tax of $1, $-, $2, and $2, respectively
2

 
1

 
3

 
2

Pension and other post retirement benefit plans:
 
 
 
 
 
 
 
Reclassification adjustment for amounts included in net income,
net of tax of $1, $1, $2, and $1, respectively
1

 
1

 
3

 
2

Total other comprehensive income (loss)
22

 
2

 
7

 
4

Dividends on preferred and preference stock of subsidiaries
(14
)
 
(17
)
 
(31
)
 
(34
)
Comprehensive Income
$
651

 
$
613

 
$
1,145

 
$
966

The accompanying notes as they relate to Southern Company are an integral part of these consolidated financial statements.


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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
(in millions)
Operating Activities:
 
 
 
Consolidated net income
$
1,169

 
$
996

Adjustments to reconcile consolidated net income to net cash provided from operating activities —
 
 
 
Depreciation and amortization, total
1,171

 
1,182

Deferred income taxes
783

 
46

Allowance for equity funds used during construction
(102
)
 
(119
)
Stock based compensation expense
66

 
40

Estimated loss on Kemper IGCC
32

 
380

Income taxes receivable, non-current
(444
)
 
—

Other, net
(6
)
 
23

Changes in certain current assets and liabilities —
 
 
 
-Receivables
(158
)
 
(579
)
-Fossil fuel stock
136

 
419

-Materials and supplies
(21
)
 
(20
)
-Other current assets
(78
)
 
(88
)
-Accounts payable
(311
)
 
(231
)
-Accrued taxes
(60
)
 
72

-Accrued compensation
(269
)
 
(40
)
-Mirror CWIP
82

 
67

-Other current liabilities
117

 
(78
)
Net cash provided from operating activities
2,107

 
2,070

Investing Activities:
 
 
 
Property additions
(2,647
)
 
(2,692
)
Nuclear decommissioning trust fund purchases
(933
)
 
(445
)
Nuclear decommissioning trust fund sales
928

 
443

Cost of removal, net of salvage
(87
)
 
(54
)
Change in construction payables, net
56

 
89

Prepaid long-term service agreement
(110
)
 
(93
)
Other investing activities
27

 
(17
)
Net cash used for investing activities
(2,766
)
 
(2,769
)
Financing Activities:
 
 
 
Increase in notes payable, net
184

 
339

Proceeds —
 
 
 
Long-term debt issuances
3,075

 
1,314

Interest-bearing refundable deposit
—

 
75

Common stock issuances
116

 
318

Short-term borrowings
320

 
—

Redemptions and repurchases—
 
 
 
Long-term debt
(939
)
 
(431
)
Interest-bearing refundable deposits
(275
)
 
—

Preferred and preference stock
(412
)
 
—

Common stock
(115
)
 
(5
)
Short-term borrowings
(250
)
 
—

Payment of common stock dividends
(972
)
 
(920
)
Payment of dividends on preferred and preference stock of subsidiaries
(36
)
 
(34
)
Other financing activities
66

 
(33
)
Net cash provided from financing activities
762

 
623

Net Change in Cash and Cash Equivalents
103

 
(76
)
Cash and Cash Equivalents at Beginning of Period
710

 
659

Cash and Cash Equivalents at End of Period
$
813

 
$
583

Supplemental Cash Flow Information:
 
 
 
Cash paid (received) during the period for --
 
 
 
Interest (net of $57 and $47 capitalized for 2015 and 2014, respectively)
$
374

 
$
365

Income taxes, net
(16
)
 
212

Noncash transactions — Accrued property additions at end of period
345

 
509

The accompanying notes as they relate to Southern Company are an integral part of these consolidated financial statements.

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
Assets
 
At June 30,
2015
 
At December 31,
2014
 
 
(in millions)
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
813

 
$
710

Receivables —
 
 
 
 
Customer accounts receivable
 
1,312

 
1,090

Unbilled revenues
 
579

 
432

Under recovered regulatory clause revenues
 
173

 
136

Other accounts and notes receivable
 
209

 
307

Accumulated provision for uncollectible accounts
 
(17
)
 
(18
)
Fossil fuel stock, at average cost
 
795

 
930

Materials and supplies, at average cost
 
1,043

 
1,039

Vacation pay
 
177

 
177

Prepaid expenses
 
564

 
665

Deferred income taxes, current
 
499

 
506

Other regulatory assets, current
 
382

 
346

Other current assets
 
76

 
50

Total current assets
 
6,605

 
6,370

Property, Plant, and Equipment:
 
 
 
 
In service
 
71,462

 
70,013

Less accumulated depreciation
 
23,918

 
24,059

Plant in service, net of depreciation
 
47,544

 
45,954

Other utility plant, net
 
87

 
211

Nuclear fuel, at amortized cost
 
889

 
911

Construction work in progress
 
8,487

 
7,792

Total property, plant, and equipment
 
57,007

 
54,868

Other Property and Investments:
 
 
 
 
Nuclear decommissioning trusts, at fair value
 
1,572

 
1,546

Leveraged leases
 
751

 
743

Miscellaneous property and investments
 
232

 
203

Total other property and investments
 
2,555

 
2,492

Deferred Charges and Other Assets:
 
 
 
 
Deferred charges related to income taxes
 
1,533

 
1,510

Unamortized debt issuance expense
 
208

 
202

Unamortized loss on reacquired debt
 
234

 
243

Other regulatory assets, deferred
 
4,763

 
4,334

Income taxes receivable, non-current
 
444

 
—

Other deferred charges and assets
 
832

 
904

Total deferred charges and other assets
 
8,014

 
7,193

Total Assets
 
$
74,181

 
$
70,923

The accompanying notes as they relate to Southern Company are an integral part of these consolidated financial statements.


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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
Liabilities and Stockholders' Equity
 
At June 30,
2015
 
At December 31,
2014
 
 
(in millions)
Current Liabilities:
 
 
 
 
Securities due within one year
 
$
3,643

 
$
3,333

Interest-bearing refundable deposits
 
—

 
275

Notes payable
 
1,057

 
803

Accounts payable
 
1,395

 
1,593

Customer deposits
 
398

 
390

Accrued taxes —
 
 
 
 
Accrued income taxes
 
12

 
151

Other accrued taxes
 
391

 
487

Accrued interest
 
241

 
295

Accrued vacation pay
 
222

 
223

Accrued compensation
 
305

 
576

Mirror CWIP
 
353

 
271

Other current liabilities
 
677

 
570

Total current liabilities
 
8,694

 
8,967

Long-term Debt
 
22,674

 
20,841

Deferred Credits and Other Liabilities:
 
 
 
 
Accumulated deferred income taxes
 
12,187

 
11,568

Deferred credits related to income taxes
 
186

 
192

Accumulated deferred investment tax credits
 
1,290

 
1,208

Employee benefit obligations
 
2,375

 
2,432

Asset retirement obligations
 
2,860

 
2,168

Other cost of removal obligations
 
1,206

 
1,215

Other regulatory liabilities, deferred
 
408

 
398

Other deferred credits and liabilities
 
996

 
594

Total deferred credits and other liabilities
 
21,508

 
19,775

Total Liabilities
 
52,876

 
49,583

Redeemable Preferred Stock of Subsidiaries
 
118

 
375

Redeemable Noncontrolling Interest
 
41

 
39

Stockholders' Equity:
 
 
 
 
Common Stockholders' Equity:
 
 
 
 
Common stock, par value $5 per share —
 
 
 
 
Authorized — 1.5 billion shares
 
 
 
 
Issued — June 30, 2015: 912 million shares
 
 
 
 
  — December 31, 2014: 909 million shares
 
 
 
 
Treasury — June 30, 2015: 3.3 million shares
 
 
 
 
 — December 31, 2014: 0.7 million shares
 
 
 
 
Par value
 
4,555

 
4,539

Paid-in capital
 
6,123

 
5,955

Treasury, at cost
 
(142
)
 
(26
)
Retained earnings
 
9,767

 
9,609

Accumulated other comprehensive loss
 
(121
)
 
(128
)
Total Common Stockholders' Equity
 
20,182

 
19,949

Preferred and Preference Stock of Subsidiaries
 
609

 
756

Noncontrolling Interest
 
355

 
221

Total Stockholders' Equity
 
21,146

 
20,926

Total Liabilities and Stockholders' Equity
 
$
74,181

 
$
70,923

The accompanying notes as they relate to Southern Company are an integral part of these consolidated financial statements.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SECOND QUARTER 2015 vs. SECOND QUARTER 2014
AND
YEAR-TO-DATE 2015 vs. YEAR-TO-DATE 2014


OVERVIEW
Southern Company is a holding company that owns all of the common stock of the traditional operating companies and Southern Power Company and owns other direct and indirect subsidiaries. Discussion of the results of operations is focused on the Southern Company system's primary business of electricity sales by the traditional operating companies and Southern Power. The four traditional operating companies are vertically integrated utilities providing electric service in four Southeastern states. 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 Company's other business activities include investments in leveraged lease projects and telecommunications. For additional information on these businesses, see BUSINESS – "The Southern Company System – Traditional Operating Companies," " – Southern Power," and " – Other Businesses" in Item 1 of the Form 10-K.
In addition, construction continues on Plant Vogtle Units 3 and 4 (45.7% ownership interest by Georgia Power in the two units, each with approximately 1,100 MWs) and Mississippi Power's 582-MW Kemper IGCC. See RESULTS OF OPERATIONS – "Estimated Loss on Kemper IGCC," FUTURE EARNINGS POTENTIAL – "Construction Program," and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Integrated Coal Gasification Combined Cycle" herein for additional information. For information about Southern Power's acquisitions and construction of renewable energy facilities, see Note (I) to the Condensed Financial Statements herein.
Southern Company continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, execution of major construction projects, and earnings per share. For additional information on these indicators, see MANAGEMENT'S DISCUSSION AND ANALYSIS – OVERVIEW – "Key Performance Indicators" of Southern Company in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$18
 
2.9
 
$176
 
18.3
Southern Company's second quarter 2015 net income after dividends on preferred and preference stock of subsidiaries was $629 million ( $0.69 per share) compared to $611 million ( $0.68 per share) for the second quarter 2014. The increase was primarily due to an increase in retail revenues resulting from retail base rate increases and warmer weather in the second quarter 2015 as compared to the corresponding period in 2014, partially offset by the correction of an error affecting billings to certain Georgia Power commercial and industrial customers. Also contributing to the increase were state income tax benefits realized and a decrease in interest expense. The increase in net income was partially offset by increases in non-fuel operations and maintenance expenses and a decrease in AFUDC equity.
Southern Company's year-to-date 2015 net income after dividends on preferred and preference stock of subsidiaries was $1.1 billion ( $1.25 per share) compared to $962 million ( $1.08 per share) for the corresponding period in 2014. The increase was primarily the result of lower pre-tax charges of $32 million ($20 million after tax) recorded in 2015 compared to a pre-tax charge of $380 million ($235 million after tax) recorded in the corresponding period in 2014 for revisions of estimated costs expected to be incurred on Mississippi Power's construction of the Kemper

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

IGCC, as well as an increase in retail base rates. The increase in net income was partially offset by increases in non-fuel operations and maintenance expenses.
Retail Revenues
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$(56)
 
(1.5)
 
$(372)
 
(4.9)
In the second quarter 2015, retail revenues were $3.7 billion compared to $3.8 billion for the corresponding period in 2014. For year-to-date 2015, retail revenues were $7.3 billion compared to $7.6 billion for the corresponding period in 2014.
Details of the changes in retail revenues were as follows:
 
 
Second Quarter 2015
 
Year-to-Date 2015
 
 
(in millions)
 
(% change)
 
(in millions)
 
(% change)
Retail – prior year
 
$
3,770

 
 
 
$
7,628

 
 
Estimated change resulting from –
 
 
 
 
 
 
 
 
Rates and pricing
 
30

 
0.8

 
107

 
1.4

Sales growth
 
23

 
0.6

 
41

 
0.5

Weather
 
46

 
1.2

 
8

 
0.1

Fuel and other cost recovery
 
(155
)
 
(4.1
)
 
(528
)
 
(6.9
)
Retail – current year
 
$
3,714

 
(1.5
)%
 
$
7,256

 
(4.9
)%
Revenues associated with changes in rates and pricing increased in the second quarter and year-to-date 2015 when compared to the corresponding periods in 2014 primarily due to increased revenues at Alabama Power associated with an increase in rates under rate stabilization and equalization (Rate RSE) and at Georgia Power related to base tariff increases approved under the 2013 ARP and increases in collections for financing costs related to the construction of Plant Vogtle Units 3 and 4 through the NCCR tariff, all effective January 1, 2015. The increase was partially offset by the correction of an error affecting billings since 2013 to a small number of large commercial and industrial customers under a rate plan allowing for variable demand-driven pricing at Georgia Power. See Note (A) to the Condensed Financial Statements herein and Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Alabama Power – Rate RSE" and "Retail Regulatory Matters – Georgia Power – Rate Plans" in Item 8 of the Form 10-K for additional information.
Revenues attributable to changes in sales increased in the second quarter 2015 when compared to the corresponding period in 2014. Weather-adjusted residential KWH sales and weather-adjusted commercial KWH sales increased 1.2% and 0.7%, respectively, in the second quarter 2015, both as a result of customer growth. Industrial KWH sales increased 0.2% in the second quarter 2015 primarily due to increased sales in the non-manufacturing, transportation, and pipeline sectors, partially offset by decreased sales in the primary metals, chemicals, and paper sectors.
Revenues attributable to changes in sales increased for year-to-date 2015 when compared to the corresponding period in 2014. Industrial KWH sales increased 1.1% for year-to-date 2015 primarily due to increased sales in the non-manufacturing, transportation, pipeline, and petroleum sectors, partially offset by decreased sales in the primary metals and chemicals sectors. Weather-adjusted commercial KWH sales increased 0.7% for year-to-date 2015 primarily due to customer growth. Weather-adjusted residential KWH sales increased 0.7% for year-to-date 2015 as a result of customer growth, partially offset by decreased customer usage.
In the first quarter 2015, Mississippi Power updated the methodology to estimate the unbilled revenue allocation among customer classes. This change did not have a significant impact on net income. The KWH sales variances discussed above reflect an adjustment to the estimated allocation of Mississippi Power's unbilled second quarter and year-to-date 2014 KWH sales among customer classes that is consistent with the actual allocation in 2015. Without

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this adjustment, second quarter 2015 weather-adjusted residential sales increased 1.4%, weather-adjusted commercial sales increased 0.5%, and industrial KWH sales increased 0.1% as compared to the corresponding period in 2014. Also, without this adjustment, year-to-date 2015 weather-adjusted residential sales increased 0.6%, weather-adjusted commercial sales increased 0.4%, and industrial KWH sales increased 1.0% as compared to the corresponding period in 2014.
Fuel and other cost recovery revenues decreased $155 million and $528 million in the second quarter and year-to-date 2015, respectively, when compared to the corresponding periods in 2014 primarily due to a decrease in fuel prices.
Electric rates for the traditional operating companies include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these provisions, fuel revenues generally equal fuel expenses, includi ng the energy component of purchased power costs, and do not affect net income. The traditional operating companies may also have one or more regulatory mechanisms to recover other costs such as environmental and other compliance costs, storm damage, new plants, and PPAs.
Wholesale Revenues
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$(67)
 
(13.0)
 
$(204)
 
(18.2)
Wholesale revenues consist of PPAs primarily with investor-owned utilities and electric cooperatives and short-term opportunity sales. Wholesale revenues from PPAs (other than solar PPAs) have both capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment. Energy revenues will vary depending on fuel prices, the market prices of wholesale energy compared to the Southern Company system's generation, demand for energy within the Southern Company system's service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not have a significant impact on net income. Wholesale revenues at Mississippi Power include FERC-regulated municipal and rural association sales as well as market-based sales. Short-term opportunity sales are made at market-based rates that generally provide a margin above the Southern Company system's variable cost to produce the energy.
In the second quarter 2015, wholesale revenues were $448 million compared to $515 million for the corresponding period in 2014 related to a $44 million decrease in energy revenues and a $23 million decrease in capacity revenues. For year-to-date 2015, wholesale revenues were $915 million compared to $1.1 billion for the corresponding period in 2014 related to a $162 million decrease in energy revenues and a $42 million decrease in capacity revenues. The decreases in energy revenues were primarily related to lower fuel costs, partially offset by increases in energy revenues from new solar PPAs at Southern Power. The decreases in capacity revenues were primarily due to the expiration of wholesale contracts in December 2014 at Georgia Power, unit retirements at Georgia Power, and PPA expirations at Southern Power.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Fuel and Purchased Power Expenses
 
 
 Second Quarter 2015
vs.
Second Quarter 2014
 
 Year-to-Date 2015
vs.
Year-to-Date 2014
 
 
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
Fuel
 
$
(262
)
 
(17.9)
 
$
(697
)
 
(22.4)
Purchased power
 
38

 
28.6
 
(5
)
 
(1.6)
Total fuel and purchased power expenses
 
$
(224
)
 
 
 
$
(702
)
 
 
In the second quarter 2015, total fuel and purchased power expenses were $1.4 billion compared to $1.6 billion for the corresponding period in 2014. The decrease was primarily the result of a $337 million decrease in the average cost of fuel and purchased power primarily due to lower coal and natural gas prices, partially offset by a $113 million increase in the volume of KWHs generated and purchased primarily due to increased demand resulting from warmer weather in the second quarter 2015 as compared to the corresponding period in 2014.
For year-to-date 2015, total fuel and purchased power expenses were $2.7 billion compared to $3.4 billion for the corresponding period in 2014. The decrease was primarily the result of a $792 million decrease in the average cost of fuel and purchased power primarily due to lower coal and natural gas prices, partially offset by a $90 million increase in the volume of KWHs generated and purchased.
Fuel and purchased power energy transactions at the traditional operating companies are generally offset by fuel revenues and do not have a significant impact on net income. See FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Retail Fuel Cost Recovery" herein for additional information. Fuel expenses incurred under Southern Power's PPAs are generally the responsibility of the counterparties and do not significantly impact net income.
Details of the Southern Company system's generation and purchased power were as follows:
 
 
Second Quarter
2015
 
Second Quarter
2014
 
Year-to-Date 2015
 
Year-to-Date 2014
Total generation (billions of KWHs)
 
46
 
47
 
92
 
94
Total purchased power (billions of KWHs)
 
4
 
2
 
6
 
5
Sources of generation (percent)  —
 
 
 
 
 
 
 
 
Coal
 
39
 
44
 
36
 
45
Nuclear
 
15
 
17
 
16
 
16
Gas
 
42
 
36
 
44
 
35
Hydro
 
3
 
3
 
3
 
4
Renewables
 
1
 
—
 
1
 
—
Cost of fuel, generated (cents per net KWH)  —
 
 
 
 
 
 
 
 
Coal
 
3.37
 
3.79
 
3.52
 
4.00
Nuclear
 
0.84
 
0.89
 
0.75
 
0.89
Gas
 
2.76
 
3.82
 
2.73
 
4.00
Average cost of fuel, generated (cents per net KWH)
 
2.70
 
3.28
 
2.70
 
3.46
Average cost of purchased power (cents per net KWH) (*)
 
5.63
 
7.41
 
6.26
 
8.20
(*)
Average cost of purchased power includes fuel purchased by the Southern Company system for tolling agreements where power is generated by the provider.

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Fuel
In the second quarter 2015, fuel expense was $1.2 billion compared to $1.5 billion for the corresponding period in 2014. The decrease was primarily due to a 27.8% decrease in the average cost of natural gas per KWH generated, an 11.1% decrease in the average cost of coal per KWH generated, and a 10.6% decrease in the volume of KWHs generated by coal, partially offset by a 19.7% increase in the volume of KWHs generated by natural gas.
For year-to-date 2015, fuel expense was $2.4 billion compared to $3.1 billion for the corresponding period in 2014. The decrease was primarily due to a 31.8% decrease in the average cost of natural gas per KWH generated, a 21.2% decrease in the volume of KWHs generated by coal, and a 12.0% decrease in the average cost of coal per KWH generated, partially offset by a 32.3% increase in the volume of KWHs generated by natural gas.
Purchased Power
In the second quarter 2015, purchased power expense was $171 million compared to $133 million for the corresponding period in 2014. The increase was primarily due to a 50.0% increase in the volume of KWHs purchased primarily as a result of increased demand from warmer weather in the second quarter 2015 as compared to the corresponding period in 2014, partially offset by a 24.0% decrease in the average cost per KWH purchased.
For year-to-date 2015, purchased power expense was $315 million compared to $320 million for the corresponding period in 2014. The decrease was primarily due to a 23.7% decrease in the average cost per KWH purchased primarily as a result of lower natural gas prices, partially offset by an 18.0% increase in the volume of KWHs purchased.
Energy purchases will vary depending on demand for energy within the Southern Company system's service territory, the market prices of wholesale energy as compared to the cost of the Southern Company system's generation, and the availability of the Southern Company system's generation.
Other Operations and Maintenance Expenses
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$81
 
7.9
 
$217
 
10.8
In the second quarter 2015, other operations and maintenance expenses were $1.1 billion compared to $1.0 billion for the corresponding period in 2014. The increase was primarily due to a $32 million increase in generation expenses primarily related to non-outage operations and maintenance, a $23 million increase in employee compensation and benefits including pension costs, and a $6 million increase in customer accounts, service, and sales costs primarily related to customer incentive and demand side management programs, partially offset by a $7 million decrease in transmission and distribution costs primarily related to overhead line maintenance. In addition, in the second quarter 2014, Alabama Power deferred approximately $16 million of certain non-nuclear outage expenditures under an accounting order.
For year-to-date 2015, other operations and maintenance expenses were $2.2 billion compared to $2.0 billion for the corresponding period in 2014. The increase was primarily due to a $58 million increase in employee compensation and benefits including pension costs, a $41 million increase in generation expenses primarily related to non-outage operations and maintenance, a $30 million increase in scheduled outage and maintenance costs at generation facilities, and a $22 million increase in customer accounts, service, and sales costs primarily related to customer incentive and demand side management programs. In addition, in the first half of 2014, Alabama Power deferred approximately $41 million of certain non-nuclear outage expenditures under an accounting order.
See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Alabama Power – Non-Nuclear Outage Accounting Order" in Item 8 of the Form 10-K for additional information related to non-nuclear outage expenditures. Also see Note (F) to the Condensed Financial Statements herein for additional information related to pension costs.

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Depreciation and Amortization
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$(4)
 
(0.8)
 
$(14)
 
(1.4)
For year-to-date 2015, depreciation and amortization was $987 million compared to $1.0 billion for the corresponding period in 2014. The decrease was primarily due to a $49 million reduction in depreciation rates at Alabama Power, a $14 million reduction in depreciation at Gulf Power, as approved by the Florida PSC, and a $9 million reduction in other cost of removal at Georgia Power, partially offset by a $49 million increase as a result of additional plant in service at the traditional operating companies and Southern Power. See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Gulf Power – Retail Base Rate Case" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Gulf Power – Retail Base Rate Case" herein for additional information.
Estimated Loss on Kemper IGCC
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$23
 
N/M
 
$(348)
 
(91.6)
N/M – Not meaningful
In the second quarter 2015, an estimated probable loss on the Kemper IGCC of $23 million was recorded at Southern Company. For year-to-date 2015 and 2014, estimated probable losses on the Kemper IGCC of $32 million and $380 million , respectively, were recorded at Southern Company. These losses reflect revisions of estimated costs expected to be incurred on Mississippi Power's construction of the Kemper IGCC in excess of the $2.88 billion cost cap established by the Mississippi PSC, net of $245 million of grants awarded to the project by the DOE under the Clean Coal Power Initiative Round 2 (DOE Grants) and excluding the cost of the lignite mine and equipment, the cost of the CO 2 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). See FUTURE EARNINGS POTENTIAL – "Construction Program – Integrated Coal Gasification Combined Cycle" and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information.
Allowance for Equity Funds Used During Construction
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$(23)
 
(37.1)
 
$(17)
 
(14.3)
In the second quarter 2015, AFUDC equity was $39 million compared to $62 million for the corresponding period in 2014. For year-to-date 2015, AFUDC equity was $102 million compared to $119 million for the corresponding period in 2014. The decreases were primarily due to Mississippi Power placing the combined cycle and the associated common facilities portion of the Kemper IGCC in service in August 2014 and lower AFUDC equity at Georgia Power. Additionally, for year-to-date 2015, the decrease in AFUDC equity was partially offset by environmental and transmission projects at the traditional operating companies. See Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information regarding the Kemper IGCC.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Interest Expense, Net of Amounts Capitalized
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$(30)
 
(14.3)
 
$(23)
 
(5.5)
In the second quarter 2015, interest expense, net of amounts capitalized was $180 million compared to $210 million in the corresponding period in 2014. For year-to-date 2015, interest expense, net of amounts capitalized was $393 million compared to $416 million in the corresponding period in 2014. The decreases were primarily due to a $41 million decrease related to the termination of the asset purchase agreement (APA) between Mississippi Power and SMEPA which required the return of SMEPA's deposits at a lower rate of interest than accrued, partially offset by an increase in outstanding long-term debt. Also contributing to the year-to-date decrease was an increase in capitalized interest primarily resulting from AFUDC debt and carrying costs related to the Kemper IGCC. See Note (E) to the Condensed Financial Statements herein for additional information. Also see Note (B) "Integrated Coal Gasification Combined Cycle – Termination of Proposed Sale of Undivided Interest to SMEPA" herein for additional information.
Income Taxes
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$(19)
 
(5.9)
 
$79
 
15.9
In the second quarter 2015, income taxes were $302 million compared to $321 million for the corresponding period in 2014. The decrease is primarily due to state income tax benefits realized in 2015 and increased federal income tax benefits related to ITCs in 2015 at Southern Power, partially offset by a decrease in non-taxable AFUDC equity, higher pre-tax earnings, and beneficial changes that impacted 2014 state income taxes.
For year-to-date 2015, income taxes were $576 million compared to $497 million for the corresponding period in 2014. The increase primarily reflects a reduction in tax benefits related to the estimated probable losses on Mississippi Power's construction of the Kemper IGCC recorded in 2014, beneficial changes that impacted 2014 state income taxes, and a decrease in non-taxable AFUDC equity, partially offset by otherwise lower pre-tax earnings in 2015, state income tax benefits realized in 2015, and increased federal income tax benefits related to ITCs in 2015 at Southern Power.
See Note (G) to the Condensed Financial Statements herein for additional information.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Southern Company's future earnings potential. The level of Southern Company's future earnings depends on numerous factors that affect the opportunities, challenges, and risks of the Southern Company system's primary business of selling electricity. These factors include the traditional operating companies' ability to maintain a constructive regulatory environment that continues to allow for the timely recovery of prudently-incurred costs during a time of increasing costs and the completion and subsequent operation of the Kemper IGCC and Plant Vogtle Units 3 and 4 as well as other ongoing construction projects. Other major factors include the profitability of the competitive wholesale business and successfully expanding investments in renewable energy projects. Future earnings for the electricity business in the near term will depend, in part, upon maintaining and growing sales which are subject to a number of factors. These factors include weather, competition, new energy contracts with other utilities and other wholesale customers, energy conservation practiced by customers, the use of alternative energy sources by customers, the price of electricity, the price elasticity of demand, and the rate of economic growth or decline in the service territory. In addition, the level of future earnings for the wholesale business also depends on numerous factors including creditworthiness of customers, total generating capacity available and related costs, future acquisitions and

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construction of generating facilities, including the impact of ITCs, and the successful remarketing of capacity as current contracts expire. Changes in regional and global economic conditions may impact sales for the traditional operating companies and Southern Power as the pace of the economic recovery remains uncertain. The timing and extent of the economic recovery will impact growth and may impact future earnings. For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL of Southern Company in Item 7 of the Form 10-K.
Environmental Matters
Compliance costs related to federal and state environmental statutes and regulations could affect earnings if such costs cannot continue to be fully recovered in rates on a timely basis or through market-based contracts. Environmental compliance spending over the next several years may differ materially from the amounts estimated. The timing, specific requirements, and estimated costs could change as environmental statutes and regulations are adopted or modified. 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. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under "Environmental Matters" in Item 8 of the Form 10-K for additional information.
New Source Review Actions
See Note 3 to the financial statements of Southern Company under "Environmental Matters – New Source Review Actions" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein for additional information.
On June 25, 2015, the U.S. Department of Justice filed a joint stipulation between Alabama Power, the EPA, and the U.S. Department of Justice proposing to modify the 2006 consent decree to resolve all remaining claims for relief alleged in the case. If approved by the U.S. District Court for the Northern District of Alabama, Alabama Power will, without admitting liability, operate subject to emission rates and a cap on certain units and requirements to use only natural gas at certain units, including a unit co-owned by Mississippi Power; retire certain units at Plants Gorgas and Barry; pay a $100,000 civil penalty; and invest $1.5 million in electric transportation infrastructure projects over three years.
The ultimate outcome of this matter cannot be determined at this time.
Environmental Statutes and Regulations
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations," – "Retail Regulatory Matters – Alabama Power – Environmental Accounting Order," and – "Retail Regulatory Matters – Georgia Power – Integrated Resource Plans" of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under "Other Matters – Sierra Club Settlement Agreement" in Item 8 of the Form 10-K for additional information on planned unit retirements and fuel conversions at Alabama Power, Georgia Power, and Mississippi Power.
Air Quality
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Air Quality" of Southern Company in Item 7 of the Form 10-K for additional information regarding the EPA's proposed regulations governing emissions during startup, shutdown, or malfunction (SSM), the final MATS rule, and the Cross State Air Pollution Rule (CSAPR).
On June 12, 2015, the EPA published a final rule requiring affected states (including Alabama, Florida, Georgia, Mississippi, North Carolina, and Texas) to revise or remove state implementation plan (SIP) provisions regarding excess emissions that occur during periods of SSM by no later than November 22, 2016. The ultimate impact of the

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final rule will depend on the outcome of any legal challenges and the development and approval of SIPs by the affected states and cannot be determined at this time.
On June 29, 2015, the U.S. Supreme Court issued a decision finding that the EPA had failed to properly consider costs in its decision to regulate hazardous air pollutant emissions from electric generating units under the MATS rule and remanded the case to the U.S. Court of Appeals for the District of Columbia Circuit for further proceedings. The MATS rule remains in effect while the U.S. Court of Appeals for the District of Columbia Circuit and the EPA respond to the decision. The ultimate impact of this decision cannot be determined at this time.
On July 28, 2015, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion invalidating certain emissions budgets under the CSAPR Phase II emissions trading program for a number of states, including Alabama, Florida, Georgia, North Carolina, and Texas. The court's decision leaves the emissions trading program in place and remands the rule to the EPA for further action consistent with the court's decision. The court rejected all other pending challenges to the rule. The ultimate impact of this decision will depend on additional rulemaking and cannot be determined at this time.
Water Quality
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Water Quality" of Southern Company in Item 7 of the Form 10-K for additional information regarding the EPA's and the U.S. Army Corps of Engineers' proposed rule revising the definition of waters of the U.S. under the Clean Water Act (CWA).
On June 29, 2015, the EPA and the U.S. Army Corps of Engineers jointly published a final rule revising the regulatory definition of waters of the U.S. for all CWA programs. The final rule significantly expands the scope of federal jurisdiction under the CWA and could have significant impacts on economic development projects which could affect customer demand growth. In addition, this rule could significantly increase permitting and regulatory requirements and costs associated with the siting of new facilities and the installation, expansion, and maintenance of transmission and distribution lines. The rule becomes effective August 28, 2015. The ultimate impact of the final rule will depend on the outcome of any legal challenges and the EPA's and the U.S. Army Corps of Engineers' field-level implementation of the rule and cannot be determined at this time.
Coal Combustion Residuals
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Coal Combustion Residuals" of Southern Company in Item 7 of the Form 10-K for additional information regarding the EPA's regulation of CCR.
On April 17, 2015, the EPA published the Disposal of Coal Combustion Residuals from Electric Utilities final rule (CCR Rule) in the Federal Register, setting October 19, 2015 as the effective date of the CCR Rule. The ultimate impact of the CCR Rule cannot be determined at this time and will depend on the traditional operating companies' ongoing review of the CCR Rule, the results of initial and ongoing minimum criteria assessments, and the outcome of legal challenges. Based on initial estimates, Southern Company recorded incremental asset retirement obligations (ARO) of approximately $700 million related to the CCR Rule in the second quarter 2015. As further analysis is performed, including evaluation of the expected timing and method of compliance and refinement of assumptions underlying the cost estimates, such as the quantities of CCR at each site, the traditional operating companies expect to periodically update these estimates. See Note (A) to the Condensed Financial Statements herein for additional information regarding these AROs.
Global Climate Issues
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Global Climate Issues" of Southern Company in Item 7 of the Form 10-K for additional information regarding the EPA's proposed regulation of CO 2 from fossil-fuel-fired electric generating units.

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On August 3, 2015, the EPA released pre-publication versions of two final rules that would limit CO 2 emissions from fossil fuel-fired electric generating units. One of the final rules contains specific emission standards governing CO 2 emissions from new, modified, and reconstructed units. The other final rule establishes guidelines for states to develop plans to meet EPA-mandated CO 2 emission rates for existing units. The EPA's final guidelines require state plans to meet interim CO 2 performance rates between 2022 and 2029 and final rates in 2030 and thereafter. At the same time, the EPA also proposed a federal plan and proposed model rule that states can adopt or that would be put in place if, in response to the final guidelines, a state either does not submit a state plan or its plan is not approved by the EPA. These guidelines and standards could result in operational restrictions and material compliance costs, including capital expenditures, which could affect future unit retirement and replacement decisions. Southern Company's results of operations, cash flows, and financial condition could be significantly impacted if such costs are not recovered through regulated rates or through market-based contracts. However, the ultimate financial and operational impact of the final rules on the Southern Company system cannot be determined at this time and will depend on numerous factors including the Southern Company system's ongoing review of the final rules; the outcome of any legal challenges; 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.
FERC Matters
The traditional operating companies and Southern Power have authority from the FERC to sell electricity at market-based rates. Since 2008, that authority, for certain balancing authority areas, has been conditioned on compliance with the requirements of an energy auction, which the FERC found to be tailored mitigation that addresses potential market power concerns. In accordance with FERC regulations governing such authority, the traditional operating companies and Southern Power filed a triennial market power analysis on June 30, 2014, which included continued reliance on the energy auction as tailored mitigation. On April 27, 2015, the FERC issued an order finding that the traditional operating companies' and Southern Power's existing tailored mitigation may not effectively mitigate the potential to exert market power in certain areas served by the traditional operating companies and in some adjacent areas. To retain market-based rate authority, the FERC directed the traditional operating companies and Southern Power to show why market-based rate authority should not be revoked in these areas or to provide a mitigation plan to further address market power concerns. The traditional operating companies and Southern Power filed a request for rehearing on May 27, 2015 and on June 26, 2015 filed their response with the FERC. The ultimate outcome of this matter cannot be determined at this time.
Retail Regulatory Matters
Retail Fuel Cost Recovery
The traditional operating companies each have established fuel cost recovery rates approved by their respective state PSCs. Fuel cost recovery revenues are adjusted for differences in actual recoverable fuel costs and amounts billed in current regulated rates. Accordingly, changes in the billing factor will not have a significant effect on Southern Company's revenues or net income, but will affect cash flow. The traditional operating companies continuously monitor their under or over recovered fuel cost balances. Georgia Power expects to file its next fuel case in September 2015. The ultimate outcome of this matter cannot be determined at this time.
See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Alabama Power – Rate ECR" and "Retail Regulatory Matters – Georgia Power – Fuel Cost Recovery" in Item 8 of the Form 10-K for additional information.
Alabama Power
Alabama Power's revenues from regulated retail operations are collected through various rate mechanisms subject to the oversight of the Alabama PSC. Alabama Power currently recovers its costs from the regulated retail business

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primarily through its Rate RSE, Rate CNP, rate energy cost recovery, and natural disaster reserve rate. In addition, the Alabama PSC issues accounting orders to address current events impacting Alabama Power. See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Alabama Power" in Item 8 of the Form 10-K for additional information regarding Alabama Power's rate mechanisms and accounting orders. The recovery balance of each regulatory clause for Alabama Power is reported in Note (B) to the Condensed Financial Statements herein.
Rate CNP
See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Alabama Power – Rate CNP" and " – Non-Environmental Federal Mandated Costs Accounting Order" in Item 8 of the Form 10-K for additional information regarding Alabama Power's development of a revised cost recovery mechanism and the normal purchases and normal sales (NPNS) exception for wind PPAs.
On March 3, 2015, the Alabama PSC approved a modification to Rate CNP Environmental to include compliance costs for both environmental and non-environmental mandates. The recoverable non-environmental compliance costs result from laws, regulations, and other mandates directed at the utility industry involving the security, reliability, safety, sustainability, or similar considerations impacting Alabama Power's facilities or operations. This modification to Rate CNP Environmental was effective March 20, 2015 with the revised rate now defined as Rate CNP Compliance. Alabama Power incurred $30 million of non-environmental compliance costs during the first six months of 2015 and will be limited to recovery of $50 million for the year. Customer rates will not be impacted before January 2016; therefore, the modification will increase the under recovered position for Rate CNP Compliance during 2015.
In April 2015, the Financial Accounting Standards Board (FASB) proposed new accounting guidance to allow the NPNS exception for physical forward transactions in nodal energy markets, consistent with the manner in which Alabama Power currently accounts for its two wind PPAs. On July 9, 2015, the FASB ratified the consensus reached by the Emerging Issues Task Force to allow the exception in such cases and voted to issue a final accounting standard.
Environmental Accounting Order
In April 2015, as part of its environmental compliance strategy, Alabama Power retired Plant Gorgas Units 6 and 7. These units represented 200 MWs of Alabama Power's approximately 12,200 MWs of generating capacity. 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. No later than April 2016, Alabama Power expects to cease using coal at Plant Greene County Units 1 and 2 (300 MWs) and begin operating those units solely on natural gas. Subject to the final approval of the New Source Review stipulation, Alabama Power will also retire Plant Barry Unit 3 (225 MWs) which is currently unavailable for generation. See Note (B) to the Condensed Financial Statements herein for additional information regarding the New Source Review actions.
In accordance with an accounting order from the Alabama PSC, Alabama Power transferred the unrecovered plant asset balances to a regulatory asset at their respective retirement dates. The regulatory asset will be amortized over the remaining useful lives, as established prior to the decision for retirement. As a result, these decisions will not have a significant impact on Southern Company's financial statements.
Renewable Energy
On June 25, 2015, Alabama Power filed a petition with the Alabama PSC for a Renewable Generation Certificate (RGC). The RGC would develop a process that allows Alabama Power to build its own renewable projects each less than 80 MWs or purchase power from other renewable-generated sources up to 500 MWs. The Alabama PSC is expected to rule on this matter in August 2015. The ultimate outcome of this matter cannot be determined at this time.

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Georgia Power
Georgia Power's revenues from regulated retail operations are collected through various rate mechanisms subject to the oversight of the Georgia PSC. Georgia Power currently recovers its costs from the regulated retail business through the 2013 ARP, which includes traditional base tariff rates, Demand-Side Management (DSM) tariffs, Environmental Compliance Cost Recovery (ECCR) tariffs, and Municipal Franchise Fee (MFF) tariffs. In addition, financing costs related to the construction of Plant Vogtle Units 3 and 4 are being collected through the NCCR tariff and fuel costs are collected through separate fuel cost recovery tariffs. See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power" in Item 8 of the Form 10-K for additional information.
Renewables Development
As part of the Georgia Power Advanced Solar Initiative program, Georgia Power executed ten PPAs that were approved by the Georgia PSC in 2014 and provide for the purchase of energy from 515 MWs of solar capacity. These PPAs are expected to commence in December 2015 and 2016 and have terms ranging from 20 to 30 years. As a result of certain acquisitions by Southern Power, Georgia Power expects that 249 MWs of the 515 MWs of contracted capacity will be purchased from solar facilities owned or under development by Southern Power.
On June 15, 2015, Georgia Power executed a PPA to purchase a total of 58 MWs of biomass capacity and energy from a 79-MW facility in Georgia that will begin in 2017 and end in 2047. This PPA was approved by the Georgia PSC on April 15, 2015. Georgia Power also entered into an energy-only PPA for the remaining 21 MWs from the same facility.
On July 21, 2015, the Georgia PSC approved Georgia Power's request to build, own, and operate a 46-MW solar generation facility at a U.S. Marine Corps base in Albany, Georgia by the end of 2016.
Integrated Resource Plan
To comply with the April 16, 2015 effective date of the MATS rule, Plant Branch Units 1, 3, and 4 (1,266 MWs), Plant Yates Units 1 through 5 (579 MWs), and Plant McManus Units 1 and 2 (122 MWs) were retired on April 15, 2015. In addition, operations were discontinued at Plant Mitchell Unit 3 (155 MWs) and its decertification will be requested in connection with the triennial Integrated Resource Plan in 2016. The switch to natural gas as the primary fuel is complete at Plant Yates Units 7 and 6 and the units were returned to service on May 4, 2015 and June 27, 2015, respectively.
Gulf Power
Renewables
On April 16, 2015, the Florida PSC approved three energy purchase agreements totaling 120 MWs of utility-scale solar generation located at three military installations in northwest Florida. On May 5, 2015, the Florida PSC approved an energy purchase agreement for up to 178 MWs of wind generation in central Oklahoma. Purchases under these agreements will be for energy only and will be recovered through Gulf Power's fuel cost recovery mechanism.
Mississippi Power
2015 Rate Case
On May 15, 2015 and July 10, 2015, Mississippi Power filed alternative rate proposals related to recovery of Kemper IGCC-related costs with the Mississippi PSC. See Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle – Rate Recovery of Kemper IGCC Costs – 2015 Rate Case" herein for additional information.

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Renewables
In April and May 2015, Mississippi Power entered into separate PPAs for three solar facilities for a combined total of approximately 105 MWs. Mississippi Power would purchase all of the energy produced by the solar facilities for the 25-year term of the contracts. If approved by the Mississippi PSC, the projects are expected to be in service by the end of 2016 and the resulting energy purchases will be recovered through Mississippi Power's fuel cost recovery mechanism. The ultimate outcome of this matter cannot be determined at this time.
Construction Program
Overview
The subsidiary companies of Southern Company are engaged in continuous construction programs to accommodate existing and estimated future loads on their respective systems. The Southern Company system intends to continue its strategy of developing and constructing new generating facilities, as well as adding or changing fuel sources for certain existing units, adding environmental control equipment, and expanding the transmission and distribution systems. For the traditional operating companies, major generation construction projects are subject to state PSC approval in order to be included in retail rates. While Southern Power generally constructs and acquires generation assets covered by long-term PPAs, any uncontracted capacity could negatively affect future earnings.
The two largest construction projects currently underway in the Southern Company system are Plant Vogtle Units 3 and 4 (45.7% ownership interest by Georgia Power in the two units, each with approximately 1,100 MWs) and Mississippi Power's 582-MW Kemper IGCC. See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Integrated Coal Gasification Combined Cycle" herein for additional information. For additional information about costs relating to Southern Power's acquisitions that involve construction of renewable energy facilities, see Note (I) to the Condensed Financial Statements herein.
Also see FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" for additional information regarding Southern Company's capital requirements for its subsidiaries' construction programs.
Integrated Coal Gasification Combined Cycle
From 2013 through June 30, 2015 , Southern Company recorded pre-tax charges totaling $2.08 billion ( $1.28 billion after tax) for revisions of estimated costs expected to be incurred on Mississippi Power's construction of the Kemper IGCC above the $2.88 billion cost cap established by the Mississippi PSC, net of the DOE Grants and excluding the Cost Cap Exceptions. In subsequent periods, any further changes in the estimated costs to complete construction 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 statements of income and these changes could be material.
On February 12, 2015, the Mississippi Supreme Court issued its decision in a legal challenge with respect to the Mississippi PSC's March 2013 order that authorized Mississippi Power's collection of $156 million annually to be recorded as Mirror CWIP. Among other things, the Mississippi Supreme Court reversed this order and directed the Mississippi PSC to enter an order requiring Mississippi Power to refund the Mirror CWIP amounts collected. As of June 30, 2015, $331 million had been collected by Mississippi Power. The Mississippi PSC ordered that the Mirror CWIP rate be terminated effective July 20, 2015.
On May 20, 2015, SMEPA notified Mississippi Power of its termination of the APA. Mississippi Power previously received a total of $275 million of deposits from SMEPA that were required to be returned to SMEPA with interest in connection with the termination of the APA. On June 3, 2015, Southern Company, pursuant to its guarantee obligation, returned approximately $301 million to SMEPA. Subsequently, Mississippi Power issued an 18-month promissory note in the aggregate principal amount of approximately $301 million to Southern Company.

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The return of approximately $301 million to SMEPA in June 2015 in connection with the termination of the APA, the required refund of the approximately $353 million of Mirror CWIP rate collections, including associated carrying costs, and the termination of the Mirror CWIP rates have adversely impacted Mississippi Power's ability to obtain financing needed for its business operations. As a result, on July 10, 2015, Mississippi Power submitted a request for interim rates 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. These interim rates are designed to collect approximately $159 million annually. Evidentiary hearings on the interim rate relief are scheduled to be held on August 6, 2015. The ultimate outcome of these matters cannot be determined at this time.
Nuclear Construction
On January 29, 2015, Georgia Power announced it was notified by the Contractor of the Contractor's revised forecast for completion of Plant Vogtle Units 3 and 4, which would incrementally delay the previously disclosed estimated in-service dates by 18 months (from the fourth quarter of 2017 to the second quarter of 2019 for Unit 3 and from the fourth quarter of 2018 to the second quarter of 2020 for Unit 4).
While Georgia Power has not agreed to any change to the guaranteed substantial completion dates (April 2016 for Unit 3 and April 2017 for Unit 4) included in the engineering, procurement, and construction agreement relating to Plant Vogtle Units 3 and 4, Georgia Power's twelfth Vogtle Construction Monitoring (VCM) report, filed February 27, 2015, included a requested amendment (Requested Amendment) to the Plant Vogtle Units 3 and 4 certificate to reflect the Contractor's revised forecast, to include the estimated owner's costs associated with the proposed 18-month Contractor delay, and to increase the estimated in-service capital cost of Plant Vogtle Units 3 and 4 from $4.4 billion to $5.0 billion. No Contractor costs related to the Contractor's proposed 18-month delay were included in the twelfth VCM report. The twelfth VCM report estimated financing costs during the construction period to total approximately $2.5 billion.
On April 15, 2015, the Georgia PSC issued a procedural order in connection with the twelfth VCM report. Pursuant to this order, the Georgia PSC deemed the Requested Amendment unnecessary and withdrawn until the completion of construction of Plant Vogtle Unit 3. The Georgia PSC recognized that the certified cost does not constitute a cost recovery cap. In accordance with the Georgia Integrated Resource Planning Act, any costs incurred by Georgia Power in excess of the certified amount will be included in rate base, provided Georgia Power shows the costs to be reasonable and prudent. Financing costs up to the certified amount will be collected through the NCCR tariff until the units are placed in service, while financing costs on any construction-related costs in excess of the $4.4 billion certified amount are expected to be recovered through AFUDC.
Additionally, there are certain risks associated with the construction program in general and certain risks associated with the licensing, construction, and operation of nuclear generating units in particular, including potential impacts that could result from a major incident at a nuclear facility anywhere in the world. The ultimate outcome of these events cannot be determined at this time.
Income Tax Matters
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Income Tax Matters" of Southern Company in Item 7 of the Form 10-K for additional information.
Section 174 Research and Experimental Deduction
Southern Company reflected deductions for research and experimental (R&E) expenditures related to the Kemper IGCC in its federal income tax calculations for 2013 and 2014. In May 2015, Southern Company amended its 2008 through 2013 federal income tax returns to include deductions for Kemper IGCC-related R&E expenditures. Due to the uncertainty related to this tax position, Southern Company had unrecognized tax benefits associated with these R&E deductions totaling approximately $390 million as of June 30, 2015 . See Note 5 to the financial statements of Southern Company under "Unrecognized Tax Benefits" in Item 8 of the Form 10-K and Notes (B) and (G) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" and "Unrecognized Tax

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Benefits – Section 174 Research and Experimental Deduction," respectively, herein for additional information. The ultimate outcome of this tax matter cannot be determined at this time.
Other Matters
Southern Company and its subsidiaries are involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Southern Company and its subsidiaries are subject to certain claims and legal actions arising in the ordinary course of business. The business activities of Southern Company's subsidiaries are subject to extensive governmental regulation related to public health and the environment, such as regulation of air emissions and water discharges. 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 CO 2 and other emissions, CCR, and alleged exposure to hazardous materials, and/or requests for injunctive relief in connection with such matters.
The ultimate outcome of such pending or potential litigation against Southern Company and its subsidiaries cannot be predicted at this time; however, for current proceedings not specifically reported in Note (B) to the Condensed Financial Statements herein or in Note 3 to the financial statements of Southern Company in Item 8 of the Form 10-K, management does not anticipate that the ultimate liabilities, if any, arising from such current proceedings would have a material effect on Southern Company's financial statements. See Note (B) to the Condensed Financial Statements herein for a discussion of various other contingencies, regulatory matters, and other matters being litigated which may affect future earnings potential.
ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates
Southern Company prepares its consolidated financial statements in accordance with GAAP. Significant accounting policies are described in Note 1 to the financial statements of Southern Company in Item 8 of the Form 10-K. In the application of these policies, certain estimates are made that may have a material impact on Southern Company's results of operations and related disclosures. Different assumptions and measurements could produce estimates that are significantly different from those recorded in the financial statements. See MANAGEMENT'S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES – "Application of Critical Accounting Policies and Estimates" of Southern Company in Item 7 of the Form 10-K for a complete discussion of Southern Company's critical accounting policies and estimates related to Electric Utility Regulation, Contingent Obligations, and Pension and Other Postretirement Benefits.
Kemper IGCC Estimated Construction Costs, Project Completion Date, and Rate Recovery
During 2015, Mississippi Power further revised its cost estimate to complete construction and start-up of the Kemper IGCC to an amount that exceeds the $2.88 billion cost cap, net of the DOE Grants and excluding the Cost Cap Exceptions. Mississippi Power does not intend to seek any 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 Cap Exceptions.
As a result of the revisions to the cost estimate, Southern Company recorded total pre-tax charges to income for the estimated probable losses on the Kemper IGCC of $23 million ($14 million after tax) in the second quarter 2015, $9 million ($6 million after tax) in the first quarter 2015, $70 million ($43 million after tax) in the fourth quarter 2014, $418 million ($258 million after tax) in the third quarter 2014, $380 million ( $235 million after tax) in the first quarter 2014, $40 million ($25 million after tax) in the fourth quarter 2013, $150 million ($93 million after tax) in the third quarter 2013, $450 million ($278 million after tax) in the second quarter 2013, and $540 million ($333 million after tax) in the first quarter 2013. In the aggregate, Southern Company has incurred charges of $2.08 billion ( $1.28 billion after tax) as a result of changes in the cost estimate for the Kemper IGCC through June 30, 2015 .

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Mississippi Power has experienced, and may continue to experience, material changes in the cost estimate for the Kemper IGCC. 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 statements of income and these changes could be material. Any 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 supplier delay, non-performance under construction 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, but not limited to, additional costs to satisfy any operational parameters ultimately adopted by the Mississippi PSC).
Mississippi Power's revised cost estimate includes costs through March 31, 2016. Any further extension of the in-service date is currently estimated to result in additional base costs of approximately $25 million to $30 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. Any further extension of the in-service date with respect to the Kemper IGCC 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 fees and legal fees which are being deferred as regulatory assets and are estimated to total approximately $7 million per month.
Given the significant judgment involved in estimating the future costs to complete construction and start-up, the project completion date, the ultimate rate recovery for the Kemper IGCC, and the potential impact on Southern Company's results of operations, Southern Company considers these items to be critical accounting estimates. See Note 3 to the financial statements of Southern Company under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information.
Asset Retirement Obligations
AROs are computed as the fair value of the ultimate costs for an asset's future retirement and are recorded in the period in which the liability is incurred. The costs are capitalized as part of the related long-lived asset and depreciated over the asset's useful life. In the absence of quoted market prices, AROs are estimated using present value techniques in which estimates of future cash outlays associated with the asset retirements are discounted using a credit-adjusted risk-free rate. Estimates of the timing and amounts of future cash outlays are based on projections of when and how the assets will be retired and the cost of future removal activities.
The liability for AROs primarily relates to the decommissioning of the nuclear facilities - Alabama Power's Plant Farley and Georgia Power's ownership interests in Plants Hatch and Vogtle - and facilities that are subject to the CCR Rule, primarily ash ponds. In addition, the Southern Company system has retirement obligations related to various landfill sites, asbestos removal, mine reclamation, and disposal of polychlorinated biphenyls in certain transformers. The Southern Company system also has identified retirement obligations related to certain transmission and distribution facilities, certain wireless communication towers, property associated with the Southern Company system's rail lines and natural gas pipelines, and certain structures authorized by the U.S. Army Corps of Engineers. However, liabilities for the removal of these assets have not been recorded because the settlement timing for the retirement obligations related to these assets is indeterminable and, therefore, the fair value of the retirement obligations cannot be reasonably estimated. A liability for these AROs will be recognized when sufficient information becomes available to support a reasonable estimation of the ARO.
On April 17, 2015, the EPA published the final CCR Rule in the Federal Register, setting October 19, 2015 as the effective date of the CCR Rule. Therefore, Alabama Power, Gulf Power, and Mississippi Power recorded new AROs for facilities that are subject to the CCR Rule. Georgia Power had previously recorded AROs as a result of state requirements in Georgia which closely align with the requirements of the CCR Rule. The cost estimates are based

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on information that was known as of June 30, 2015 using various assumptions related to closure and post-closure costs, timing of future cash outlays, inflation and discount rates, and the potential methods for complying with the CCR Rule requirements. As further analysis is performed, including evaluation of the expected timing and method of compliance and refinement of assumptions underlying the cost estimates, such as the quantities of CCR at each site, the traditional operating companies expect to periodically update these estimates. Given the significant judgment involved in estimating AROs, Southern Company considers the liabilities for AROs to be critical accounting estimates.
See Note 1 to the financial statements of Southern Company under "Asset Retirement Obligations and Other Costs of Removal" and "Nuclear Decommissioning" in Item 8 of the Form 10-K and Note (A) to the Condensed Financial Statements under "Asset Retirement Obligations" herein for additional information.
Recently Issued Accounting Standards
The FASB's ASC 606, Revenue from Contracts with Customers , revises the accounting for revenue recognition effective for fiscal years beginning after December 15, 2017. Southern Company continues to evaluate the requirements of ASC 606. The ultimate impact of the new standard has not yet been determined.
On April 7, 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs . The ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability and is effective for fiscal years beginning after December 15, 2015. Southern Company currently reflects unamortized debt issuance costs in unamortized debt issuance expense on its balance sheet. Upon adoption, the reclassification will not have a material impact on the results of operations, financial position, or cash flows of Southern Company.
FINANCIAL CONDITION AND LIQUIDITY
Overview
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Overview" of Southern Company in Item 7 of the Form 10-K for additional information. Southern Company's financial condition remained stable at June 30, 2015 . Through June 30, 2015 , Southern Company has incurred non-recoverable cash expenditures of $1.62 billion and is expected to incur approximately $0.46 billion in additional non-recoverable cash expenditures through completion of the Kemper IGCC. Southern Company intends to continue to monitor its access to short-term and long-term capital markets as well as bank credit agreements to meet future capital and liquidity needs. See "Capital Requirements and Contractual Obligations," "Sources of Capital," and "Financing Activities" herein for additional information.
Net cash provided from operating activities totaled $2.1 billion for the first six months of 2015 , an increase of $37 million from the corresponding period in 2014 . The increase in net cash provided from operating activities was primarily due to an increase in fuel cost recovery, partially offset by timing of accounts payable. Net cash used for investing activities totaled $2.8 billion for the first six months of 2015 primarily due to gross property additions for installation of equipment to comply with environmental standards, construction of generation, transmission, and distribution facilities, and acquisitions of solar facilities. Net cash provided from financing activities totaled $762 million for the first six months of 2015 . This was primarily due to issuances of long-term debt, partially offset by common stock dividend payments and redemptions of long-term debt and preferred and preference stock. Fluctuations in cash flow from financing activities vary from period to period based on capital needs and the maturity or redemption of securities.
Significant balance sheet changes for the first six months of 2015 include an increase of $2.1 billion in total property, plant, and equipment to comply with environmental standards and construction of generation, transmission, and distribution facilities, a $444 million increase in income taxes receivable, non-current associated with federal income tax benefits for deductions primarily related to R&E expenditures for the Kemper IGCC, and an increase of $406 million in accounts receivable primarily related to increases in customer billings as compared to

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

December 31, 2014. Other significant changes include a $2.1 billion increase in short-term and long-term debt to fund the Southern Company subsidiaries' continuous construction programs and for other general corporate purposes, a $692 million increase in AROs primarily related to the CCR Rule, and a $619 million increase in accumulated deferred income taxes for deductions primarily related to R&E expenditures for the Kemper IGCC. See Notes (A), (B), and (G) to the Condensed Financial Statements herein for additional information regarding AROs, the Kemper IGCC, and R&E expenditures, respectively.
At the end of the second quarter 2015 , the market price of Southern Company's common stock was $41.90 per share (based on the closing price as reported on the New York Stock Exchange) and the book value was $22.22 per share, representing a market-to-book ratio of 189%, compared to $49.11, $21.98, and 223%, respectively, at the end of 2014 . Southern Company's common stock dividend for the second quarter 2015 was $0.5425 per share compared to $0.5250 per share in the second quarter 2014 .
Capital Requirements and Contractual Obligations
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" of Southern Company in Item 7 of the Form 10-K for a description of Southern Company's capital requirements for the construction programs of the Southern Company system, including estimated capital expenditures for new generating facilities and to comply with existing environmental statutes and regulations, scheduled maturities of long-term debt, as well as related interest, derivative obligations, preferred and preference stock dividends, leases, purchase commitments, trust funding requirements, and unrecognized tax benefits. Approximately $3.7 billion will be required through June 30, 2016 to fund maturities and announced redemptions of long-term debt. See "Sources of Capital" herein for additional information.
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 materially due to market opportunities and Southern Power's ability to execute its growth strategy. See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Integrated Coal Gasification Combined Cycle" herein for information regarding additional factors that may impact construction expenditures.
Sources of Capital
Southern Company intends to meet its future capital needs through operating cash flows, short-term debt, term loans, and external security issuances. Equity capital can be provided from any combination of Southern Company's stock plans, private placements, or public offerings. The amount and timing of additional equity capital and debt to be raised in 2015 , as well as in subsequent years, will be contingent on Southern Company's investment opportunities and the Southern Company system's capital requirements.
Except as described herein, the traditional operating companies and Southern Power plan to obtain the funds required for construction and other purposes from operating cash flows, external security issuances, term loans, short-term borrowings, and equity contributions or loans from Southern Company. However, the amount, type, and timing of any future financings, if needed, will depend upon prevailing market conditions, regulatory approval, and other factors. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" of Southern Company in Item 7 of the Form 10-K for additional information.

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SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition, Georgia Power may make borrowings through a loan guarantee agreement (Loan Guarantee Agreement) between Georgia Power and the DOE, the proceeds of which may be used to reimburse Georgia Power for Eligible Project Costs incurred in connection with its construction of Plant Vogtle Units 3 and 4. Under the Loan Guarantee Agreement, the DOE agreed to guarantee borrowings of up to $3.46 billion (not to exceed 70% of Eligible Project Costs) to be made by Georgia Power under a multi-advance credit facility (FFB Credit Facility) among Georgia Power, the DOE, and the FFB. Eligible Project Costs incurred through June 30, 2015 would allow for borrowings of up to $2.2 billion under the FFB Credit Facility, of which Georgia Power has borrowed $1.8 billion . See Note 6 to the financial statements of Southern Company under "DOE Loan Guarantee Borrowings" in Item 8 of the Form 10-K for additional information regarding the Loan Guarantee Agreement and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" herein for additional information regarding Plant Vogtle Units 3 and 4.
Mississippi Power received $245 million of DOE Grants in prior years that were used for the construction of the Kemper IGCC. An additional $25 million of DOE Grants is expected to be received for commercial operation of the Kemper IGCC. In addition, see Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for information regarding legislation related to the securitization of certain costs of the Kemper IGCC.
As of June 30, 2015 , Southern Company's current liabilities exceeded current assets by $2.1 billion , primarily due to long-term debt that is due within one year of $3.6 billion , including approximately $0.4 billion at Southern Company, $0.6 billion at Alabama Power, $1.7 billion at Georgia Power, $0.4 billion at Mississippi Power, and $0.5 billion at Southern Power. In addition, Mississippi Power has $0.5 billion in short-term bank loans scheduled to mature on April 1, 2016. To meet short-term cash needs and contingencies, Southern Company has substantial cash flow from operating activities and access to capital markets and financial institutions. Southern Company, the traditional operating companies, and Southern Power intend to utilize operating cash flows, as well as commercial paper, lines of credit, bank notes, and securities issuances, as market conditions permit, as well as, under certain circumstances for the traditional operating companies and Southern Power, equity contributions and/or loans from Southern Company to meet their short-term capital needs. In addition, for the remainder of 2015, Georgia Power expects to utilize borrowings through the FFB Credit Facility as its primary source of long-term borrowed funds.
The financial condition of Mississippi Power was adversely affected by the return of approximately $301 million of interest bearing refundable deposits to SMEPA in June 2015. In addition, the required refund of Mirror CWIP rate collections of approximately $353 million as of June 30, 2015, including associated carrying costs, and the termination of the Mirror CWIP rate have further adversely impacted Mississippi Power's financial condition and its ability to obtain funds needed for normal business operations and completion of the Kemper IGCC. Mississippi Power plans to obtain the funds required for construction and other purposes from operating cash flows and lines of credit (to the extent available) as well as loans and, under certain circumstances, equity contributions from Southern Company. See Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information.

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SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

At June 30, 2015 , Southern Company and its subsidiaries had approximately $0.8 billion of cash and cash equivalents. Committed credit arrangements with banks at June 30, 2015 were as follows:
 
 
Expires
 
 
 
Executable Term
Loans
 
Due Within One
Year
Company
 
2015
 
2016
 
2017
 
2018
 
Total
 
Unused
 
One
Year
 
Two
Years
 
Term
Out
 
No Term
Out
 
 
(in millions)
 
(in millions)
 
(in millions)
 
(in millions)
Southern Company
 
$
—

 
$
—

 
$
—

 
$
1,000

 
$
1,000

 
$
1,000

 
$
—

 
$
—

 
$
—

 
$
—

Alabama Power
 
154

 
124

 
—

 
1,030

 
1,308

 
1,307

 
58

 
—

 
58

 
170

Georgia Power
 
—

 
150

 
—

 
1,600

 
1,750

 
1,737

 
—

 
—

 
—

 
150

Gulf Power
 
20

 
225

 
30

 
—

 
275

 
275

 
50

 
—

 
50

 
195

Mississippi Power
 
40

 
255

 
—

 
—

 
295

 
265

 
30

 
40

 
70

 
225

Southern Power
 
—

 
—

 
—

 
500

 
500

 
466

 
—

 
—

 
—

 
—

Other
 
25

 
45

 
—

 
—

 
70

 
70

 
20

 
—

 
20

 
50

Total
 
$
239

 
$
799

 
$
30

 
$
4,130

 
$
5,198

 
$
5,120

 
$
158

 
$
40

 
$
198

 
$
790

See Note 6 to the financial statements of Southern Company under "Bank Credit Arrangements" in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under "Bank Credit Arrangements" herein for additional information.
A portion of the unused credit with banks is allocated to provide liquidity support to the traditional operating companies' variable rate pollution control revenue bonds and commercial paper programs. The amount of variable rate pollution control revenue bonds outstanding requiring liquidity support as of June 30, 2015 was approximately $1.9 billion . In addition, at June 30, 2015 , the traditional operating companies had $368 million of fixed rate pollution control revenue bonds outstanding that were required to be reoffered within the next 12 months.
Most of these bank credit arrangements contain covenants that limit debt levels and contain cross default provisions to other indebtedness (including guarantee obligations) that are restricted only to the indebtedness of the individual company. Such cross default provisions to other indebtedness would trigger an event of default if the applicable borrower defaulted on indebtedness or guarantee obligations over a specified threshold. Southern Company, the traditional operating companies, and Southern Power are currently in compliance with all such covenants. None of the bank credit arrangements contain material adverse change clauses at the time of borrowings.
Subject to applicable market conditions, Southern Company and its subsidiaries expect to renew or replace their bank credit arrangements, as needed, prior to expiration. In connection therewith, Southern Company and its subsidiaries may extend the maturity dates and/or increase or decrease the lending commitments thereunder.
Southern Company, the traditional operating companies, and Southern Power make short-term borrowings primarily through commercial paper programs that have the liquidity support of the committed bank credit arrangements described above. Southern Company, the traditional operating companies, and Southern Power may also borrow through various other arrangements with banks. Commercial paper and short-term bank term loans are included in notes payable in the balance sheets.

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SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Details of short-term borrowings were as follows:
 
 
Short-term Debt at
June 30, 2015
 
Short-term Debt During the Period (*)
 
 
Amount
Outstanding
 
Weighted
Average
Interest
Rate
 
Average
Outstanding
 
Weighted
Average
Interest
Rate
 
Maximum
Amount
Outstanding
 
 
(in millions)
 
 
 
(in millions)
 
 
 
(in millions)
Commercial paper
 
$
512

 
0.3
%
 
$
1,155

 
0.3
%
 
$
1,563

Short-term bank debt
 
545

 
1.3
%
 
717

 
1.2
%
 
795

Total
 
$
1,057

 
0.7
%
 
$
1,872

 
0.7
%
 
 
(*)
Average and maximum amounts are based upon daily balances during the three-month period ended June 30, 2015 .
Southern Company believes the need for working capital can be adequately met by utilizing commercial paper programs, lines of credit, bank notes, and operating cash flows.
Credit Rating Risk
Southern Company and its subsidiaries do not have any credit arrangements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade.
There are certain contracts that could require collateral, but not accelerated payment, in the event of a credit rating change of certain subsidiaries to BBB and Baa2, or BBB- and/or Baa3 or below. These contracts are for physical electricity purchases and sales, fuel purchases, fuel transportation and storage, energy price risk management, interest rate derivatives, and construction of new generation at Plant Vogtle Units 3 and 4.
The maximum potential collateral requirements under these contracts at June 30, 2015 were as follows:
Credit Ratings
Maximum Potential
Collateral
Requirements
 
(in millions)
At BBB and Baa2
$
9

At BBB- and/or Baa3
488

Below BBB- and/or Baa3
2,407

Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, any credit rating downgrade could impact the ability of Southern Company and its subsidiaries to access capital markets, particularly the short-term debt market and the variable rate pollution control revenue bond market.
On June 5, 2015, Fitch downgraded the long-term issuer default rating of Mississippi Power to BBB+ from A-. Fitch maintained the negative ratings outlook for Mississippi Power and revised the ratings outlook for Southern Company from stable to negative.
Subsequent to June 30, 2015, S&P placed its ratings of Southern Company and the traditional operating companies on CreditWatch with negative implications.
Financing Activities
During the first six months of 2015 , Southern Company issued approximately 3.2 million shares of common stock primarily through the employee equity compensation plan and received proceeds of approximately $116 million. Southern Company is not currently issuing shares of common stock through the Southern Investment Plan or its employee savings plan. All sales under the Southern Investment Plan and the employee savings plan are currently being funded with shares acquired on the open market by independent plan administrators.

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SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On March 2, 2015, Southern Company announced a program to repurchase up to 20 million shares of Southern Company common stock to offset all or a portion of the incremental shares issued under its employee and director equity compensation plans, including through stock option exercises, until December 31, 2017. Under this program, approximately 2.6 million shares have been repurchased through June 30, 2015 at a total cost of approximately $115 million. Pursuant to board approval, Southern Company may repurchase shares through open market purchases or privately negotiated transactions, including accelerated or other share repurchase programs, in accordance with applicable securities laws.
The following table outlines the long-term debt financing activities for Southern Company and its subsidiaries for the first six months of 2015 :
Company (a)
Senior
Note Issuances
 
Senior
Note Redemptions
 
Revenue
Bond
Issuances and
Reofferings
of Purchased
Bonds (b)
 
Revenue
Bond
Maturities and
Repurchases
 
Other
Long-Term
Debt
Issuances
 
Other
Long-Term
Debt Redemptions
and
Maturities (c)
 
(in millions)
Southern Company
$
600

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Alabama Power
975

 
250

 
80

 
134

 
—

 
—

Georgia Power
—

 
125

 
170

 
65

 
600

 
5

Mississippi Power
—

 
—

 
—

 
—

 
—

 
351

Southern Power
650

 
—

 
—

 
—

 
—

 
—

Other
—

 
—

 
—

 
—

 
—

 
9

Total
$
2,225

 
$
375

 
$
250

 
$
199

 
$
600

 
$
365

(a)
Gulf Power did not issue or redeem any long-term debt during the first six months of 2015 .
(b)
Includes reoffering by Alabama Power of $80 million aggregate principal amount of revenue bonds previously purchased and held by Alabama Power since April 2015 and reofferings by Georgia Power of $104.6 million and $65 million aggregate principal amount of revenue bonds previously purchased and held by Georgia Power since 2013 and April 2015, respectively.
(c)
Includes reductions in capital lease obligations resulting from cash payments under capital leases.
In June 2015, Southern Company issued $600 million aggregate principal amount of Series 2015A 2.750% Senior Notes due June 15, 2020. The proceeds were used to pay a portion of Southern Company's outstanding short-term indebtedness and for other general corporate purposes.
Southern Company's subsidiaries used the proceeds of the debt issuance shown in the table above for their redemptions and maturities shown in the table above, to repay short-term indebtedness, and for general corporate purposes, including their continuous construction programs and, for Southern Power, its growth strategy.
Alabama Power's "Senior Note Issuances" reflected in the table above includes issuances in April 2015 of $175 million additional aggregate principal amount of its Series 2015A 3.750% Senior Notes due March 1, 2045 (Additional Series 2015A Senior Notes) and $250 million aggregate principal amount of its Series 2015B 2.800% Senior Notes due April 1, 2025 (Series 2015B Senior Notes). A portion of the proceeds of the Additional Series 2015A Senior Notes and the Series 2015B Senior Notes were used to redeem in May 2015 6.48 million shares ($162 million aggregate stated capital) of Alabama Power's 5.20% Class A Preferred Stock at a redemption price of $25 per share plus accrued and unpaid dividends to the redemption date, 4.0 million shares ($100 million aggregate stated capital) of Alabama Power's 5.30% Class A Preferred Stock at a redemption price of $25 per share plus accrued and unpaid dividends to the redemption date, and 6.0 million shares ($150 million aggregate stated capital) of Alabama Power's 5.625% Series Preference Stock at a redemption price of $25 per share plus accrued and unpaid dividends to the redemption date, and the remaining net proceeds were used for general corporate purposes, including Alabama Power's continuous construction program.

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SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Georgia Power's "Other Long-Term Debt Issuances" reflected in the table above include borrowings under the FFB Credit Facility in an aggregate principal amount of $600 million in June 2015. The interest rate applicable to the $600 million principal amount is 3.283% for an interest period that extends to the final maturity date of February 20, 2044. The proceeds were used to reimburse Georgia Power for Eligible Project Costs relating to the construction of Plant Vogtle Units 3 and 4. Georgia Power settled $350 million of interest rate swaps related to this borrowing for approximately $6 million, which will be amortized to interest expense over 10 years.
In March 2015, Georgia Power entered into a $250 million aggregate principal amount three-month floating rate bank loan bearing interest based on one-month LIBOR. The proceeds were used for working capital and other general corporate purposes and the loan was repaid at maturity.
In April 2015, Mississippi Power entered into two floating rate bank loans with a maturity date of April 1, 2016, in an aggregate principal amount of $475 million, bearing interest based on one-month LIBOR. The proceeds of these loans were used for the repayment of term loans in an aggregate principal amount of $275 million, working capital, and other general corporate purposes, including Mississippi Power's ongoing construction program. Mississippi Power also amended three outstanding floating rate bank loans for an aggregate principal amount of $425 million which, among other things, extended the maturity dates from various dates in 2015 to April 1, 2016.
In June 2015, Gulf Power entered into a three-month floating rate bank loan bearing interest based on one-month LIBOR. This short-term loan was for $40 million aggregate principal amount and the proceeds were used for credit support, working capital, and other general corporate purposes.
In addition to the amounts reflected in the table above, Mississippi Power previously received a total of $275 million of deposits from SMEPA that were required to be returned to SMEPA with interest in connection with the termination of the APA. On June 3, 2015, Southern Company, pursuant to its guarantee obligation, returned approximately $301 million to SMEPA. Subsequently, Mississippi Power issued an 18-month floating rate promissory note to Southern Company in an aggregate principal amount of approximately $301 million bearing interest based on one-month LIBOR. See Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle – Termination of Proposed Sale of Undivided Interest to SMEPA" herein for additional information.
Subsequent to June 30, 2015, Southern Power Company repaid at maturity $525 million aggregate principal amount of its 4.875% Senior Notes on July 15, 2015.
Also subsequent to June 30, 2015, $97.925 million aggregate principal amount of the Development Authority of Putnam County (Georgia) Pollution Control Revenue Bonds (Georgia Power Company Plant Branch Project), First Series 1996, First Series 1997, Second Series 1997, and First Series 1998 were redeemed.
Also subsequent to June 30, 2015, Gulf Power announced the redemption in September 2015 of $60 million aggregate principal amount of its Series L 5.65% Senior Notes due September 1, 2035.
In addition to any financings that may be necessary to meet capital requirements and contractual obligations, Southern Company and its subsidiaries plan to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit.

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PART I
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
During the six months ended June 30, 2015 , there were no material changes to each registrant's disclosures about market risk. For an in-depth discussion of each registrant's market risks, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Market Price Risk" of each registrant in Item 7 of the Form 10-K and Note 1 to the financial statements of each registrant under "Financial Instruments," Note 11 to the financial statements of Southern Company, Alabama Power, and Georgia Power, Note 10 to the financial statements of Gulf Power and Mississippi Power, and Note 9 to the financial statements of Southern Power in Item 8 of the Form 10-K. Also, see Note (H) to the Condensed Financial Statements herein for information relating to derivative instruments.
Item 4. Controls and Procedures.
(a)
Evaluation of disclosure controls and procedures.
As of the end of the period covered by this quarterly report, Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power Company conducted separate evaluations under the supervision and with the participation of each company's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based upon these evaluations, the Chief Executive Officer and the Chief Financial Officer, in each case, concluded that the disclosure controls and procedures are effective.
(b)
Changes in internal controls.
There have been no changes in Southern Company's, Alabama Power's, Georgia Power's, Gulf Power's, Mississippi Power's, or Southern Power Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the second quarter 2015 that have materially affected or are reasonably likely to materially affect Southern Company's, Alabama Power's, Georgia Power's, Gulf Power's, Mississippi Power's, or Southern Power Company's internal control over financial reporting.

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ALABAMA POWER COMPANY

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ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
 
(in millions)
Operating Revenues:
 
 
 
 
 
 
 
Retail revenues
$
1,326

 
$
1,249

 
$
2,594

 
$
2,546

Wholesale revenues, non-affiliates
57

 
65

 
123

 
150

Wholesale revenues, affiliates
20

 
68

 
35

 
137

Other revenues
52

 
55

 
104

 
112

Total operating revenues
1,455

 
1,437

 
2,856

 
2,945

Operating Expenses:
 
 
 
 
 
 
 
Fuel
343

 
414

 
653

 
846

Purchased power, non-affiliates
45

 
39

 
86

 
96

Purchased power, affiliates
49

 
37

 
103

 
86

Other operations and maintenance
370

 
330

 
768

 
655

Depreciation and amortization
160

 
172

 
318

 
347

Taxes other than income taxes
90

 
88

 
184

 
177

Total operating expenses
1,057

 
1,080

 
2,112

 
2,207

Operating Income
398

 
357

 
744

 
738

Other Income and (Expense):
 
 
 
 
 
 
 
Allowance for equity funds used during construction
14

 
11

 
29

 
21

Interest expense, net of amounts capitalized
(69
)
 
(63
)
 
(134
)
 
(125
)
Other income (expense), net
(14
)
 
(3
)
 
(18
)
 
(8
)
Total other income and (expense)
(69
)
 
(55
)
 
(123
)
 
(112
)
Earnings Before Income Taxes
329

 
302

 
621

 
626

Income taxes
122

 
119

 
235

 
246

Net Income
207

 
183

 
386

 
380

Dividends on Preferred and Preference Stock
7

 
10

 
17

 
20

Net Income After Dividends on Preferred and Preference Stock
$
200

 
$
173

 
$
369

 
$
360


CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
 
(in millions)
Net Income
$
207

 
$
183

 
$
386

 
$
380

Other comprehensive income (loss):
 
 
 
 
 
 
 
Qualifying hedges:
 
 
 
 
 
 
 
Changes in fair value, net of tax of $3, $-, $- and $-, respectively
5

 
—

 
1

 
—

Reclassification adjustment for amounts included in net income,
net of tax of $-, $-, $1, and $-, respectively
—

 
—

 
1

 
1

Total other comprehensive income (loss)
5

 
—

 
2

 
1

Comprehensive Income
$
212

 
$
183

 
$
388

 
$
381

The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.

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ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
(in millions)
Operating Activities:
 
 
 
Net income
$
386

 
$
380

Adjustments to reconcile net income to net cash provided from operating activities —
 
 
 
Depreciation and amortization, total
387

 
416

Deferred income taxes
60

 
49

Allowance for equity funds used during construction
(29
)
 
(21
)
Other, net
(23
)
 
(40
)
Changes in certain current assets and liabilities —
 
 
 
-Receivables
(115
)
 
(120
)
-Fossil fuel stock
19

 
94

-Materials and supplies
3

 
(2
)
-Other current assets
(55
)
 
(57
)
-Accounts payable
(212
)
 
(94
)
-Accrued taxes
177

 
104

-Accrued compensation
(66
)
 
(17
)
-Retail fuel cost over recovery
25

 
(23
)
-Other current liabilities
40

 
5

Net cash provided from operating activities
597

 
674

Investing Activities:
 
 
 
Property additions
(612
)
 
(637
)
Nuclear decommissioning trust fund purchases
(278
)
 
(121
)
Nuclear decommissioning trust fund sales
278

 
121

Cost of removal, net of salvage
(28
)
 
(30
)
Change in construction payables
28

 
71

Other investing activities
(14
)
 
(13
)
Net cash used for investing activities
(626
)
 
(609
)
Financing Activities:
 
 
 
Increase in notes payable, net
—

 
27

Proceeds —
 
 
 
Senior notes issuances
975

 
—

Capital contributions from parent company
10

 
12

Pollution control revenue bonds
80

 
—

Redemptions and repurchases —
 
 
 
Preferred and preference stock
(412
)
 
—

Pollution control revenue bonds
(134
)
 
—

Senior notes
(250
)
 
—

Payment of preferred and preference stock dividends
(22
)
 
(20
)
Payment of common stock dividends
(286
)
 
(275
)
Other financing activities
(10
)
 
1

Net cash used for financing activities
(49
)
 
(255
)
Net Change in Cash and Cash Equivalents
(78
)
 
(190
)
Cash and Cash Equivalents at Beginning of Period
273

 
295

Cash and Cash Equivalents at End of Period
$
195

 
$
105

Supplemental Cash Flow Information:
 
 
 
Cash paid during the period for —
 
 
 
Interest (net of $10 and $8 capitalized for 2015 and 2014, respectively)
$
118

 
$
114

Income taxes, net
47

 
141

Noncash transactions — Accrued property additions at end of period
35

 
89

The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.

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ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
 
Assets
 
At June 30,
2015
 
At December 31,
2014
 
 
(in millions)
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
195

 
$
273

Receivables —
 
 
 
 
Customer accounts receivable
 
393

 
345

Unbilled revenues
 
170

 
138

Under recovered regulatory clause revenues
 
28

 
74

Other accounts and notes receivable
 
31

 
23

Affiliated companies
 
41

 
37

Accumulated provision for uncollectible accounts
 
(9
)
 
(9
)
Fossil fuel stock, at average cost
 
249

 
268

Materials and supplies, at average cost
 
415

 
406

Vacation pay
 
65

 
65

Prepaid expenses
 
168

 
244

Other regulatory assets, current
 
115

 
84

Other current assets
 
10

 
5

Total current assets
 
1,871

 
1,953

Property, Plant, and Equipment:
 
 
 
 
In service
 
23,812

 
23,080

Less accumulated provision for depreciation
 
8,565

 
8,522

Plant in service, net of depreciation
 
15,247

 
14,558

Nuclear fuel, at amortized cost
 
338

 
348

Construction work in progress
 
1,017

 
1,006

Total property, plant, and equipment
 
16,602

 
15,912

Other Property and Investments:
 
 
 
 
Equity investments in unconsolidated subsidiaries
 
68

 
66

Nuclear decommissioning trusts, at fair value
 
758

 
756

Miscellaneous property and investments
 
88

 
84

Total other property and investments
 
914

 
906

Deferred Charges and Other Assets:
 
 
 
 
Deferred charges related to income taxes
 
526

 
525

Deferred under recovered regulatory clause revenues
 
97

 
31

Other regulatory assets, deferred
 
1,054

 
1,063

Other deferred charges and assets
 
156

 
162

Total deferred charges and other assets
 
1,833

 
1,781

Total Assets
 
$
21,220

 
$
20,552

The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.


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ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
 
Liabilities and Stockholder's Equity
 
At June 30,
2015
 
At December 31,
2014
 
 
(in millions)
Current Liabilities:
 
 
 
 
Securities due within one year
 
$
600

 
$
454

Accounts payable —
 
 
 
 
Affiliated
 
244

 
248

Other
 
267

 
443

Customer deposits
 
88

 
87

Accrued taxes —
 
 
 
 
Accrued income taxes
 
3

 
2

Other accrued taxes
 
88

 
37

Accrued interest
 
75

 
66

Accrued vacation pay
 
54

 
54

Accrued compensation
 
66

 
131

Other current liabilities
 
105

 
82

Total current liabilities
 
1,590

 
1,604

Long-term Debt
 
6,699

 
6,176

Deferred Credits and Other Liabilities:
 
 
 
 
Accumulated deferred income taxes
 
3,937

 
3,874

Deferred credits related to income taxes
 
71

 
72

Accumulated deferred investment tax credits
 
121

 
125

Employee benefit obligations
 
308

 
326

Asset retirement obligations
 
1,252

 
829

Other cost of removal obligations
 
742

 
744

Other regulatory liabilities, deferred
 
219

 
239

Deferred over recovered regulatory clause revenues
 
72

 
47

Other deferred credits and liabilities
 
79

 
79

Total deferred credits and other liabilities
 
6,801

 
6,335

Total Liabilities
 
15,090

 
14,115

Redeemable Preferred Stock
 
85

 
342

Preference Stock
 
196

 
343

Common Stockholder's Equity:
 
 
 
 
Common stock, par value $40 per share —
 
 
 
 
Authorized — 40,000,000 shares
 
 
 
 
Outstanding — 30,537,500 shares
 
1,222

 
1,222

Paid-in capital
 
2,324

 
2,304

Retained earnings
 
2,331

 
2,255

Accumulated other comprehensive loss
 
(28
)
 
(29
)
Total common stockholder's equity
 
5,849

 
5,752

Total Liabilities and Stockholder's Equity
 
$
21,220

 
$
20,552

The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.

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Table of Contents
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



SECOND QUARTER 2015 vs. SECOND QUARTER 2014
AND
YEAR-TO-DATE 2015 vs. YEAR-TO-DATE 2014


OVERVIEW
Alabama Power operates as a vertically integrated utility providing electricity to retail and wholesale customers within its traditional service territory located within the State of Alabama in addition to wholesale customers in the Southeast.
Many factors affect the opportunities, challenges, and risks of Alabama Power's business of selling electricity. These factors include the ability to maintain a constructive regulatory environment, to maintain and grow energy sales, and to effectively manage and secure timely recovery of costs. These costs include those related to projected long-term demand growth, increasingly stringent environmental standards, reliability, fuel, capital expenditures, and restoration following major storms. Appropriately balancing required costs and capital expenditures with customer prices will continue to challenge Alabama Power for the foreseeable future.
Alabama Power continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, and net income after dividends on preferred and preference stock. For additional information on these indicators, see MANAGEMENT'S DISCUSSION AND ANALYSIS – OVERVIEW – "Key Performance Indicators" of Alabama Power in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
Second Quarter 2015 vs. Second Quarter 2014

Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)

(change in millions)

(% change)
$27
 
15.6
 
$9
 
2.5
Alabama Power's net income after dividends on preferred and preference stock for the second quarter 2015 was $200 million compared to $173 million for the corresponding period in 2014 . The increase was primarily related to an increase in rates under rate stabilization and equalization (Rate RSE) effective January 1, 2015, warmer weather in the second quarter 2015 compared to the corresponding period in 2014 , and a decrease in depreciation, partially offset by an increase in non-fuel operations and maintenance expenses. Alabama Power's net income after dividends on preferred and preference stock for year-to-date 2015 was $369 million compared to $360 million for the corresponding period in 2014 . The increase was primarily related to an increase under Rate RSE and a decrease in depreciation, partially offset by an increase in non-fuel operations and maintenance expenses.
Retail Revenues
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$77
 
6.2
 
$48
 
1.9
In the second quarter 2015 , retail revenues were $1.33 billion compared to $1.25 billion for the corresponding period in 2014 . For year-to-date 2015 , retail revenues were $2.59 billion compared to $2.55 billion for the corresponding period in 2014 .

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ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Details of the changes in retail revenues were as follows:
 
 
Second Quarter
2015

Year-to-Date
2015
 
 
(in millions)

(% change)

(in millions)

(% change)
Retail – prior year
 
$
1,249

 
 
 
$
2,546

 
 
Estimated change resulting from –
 
 
 
 
 
 
 
 
Rates and pricing
 
56

 
4.5

 
103

 
4.1

Sales growth
 
1

 
0.1

 
10

 
0.4

Weather
 
18

 
1.5

 
(2
)
 
(0.1
)
Fuel and other cost recovery
 
2

 
0.1

 
(63
)
 
(2.5
)
Retail – current year
 
$
1,326

 
6.2
%
 
$
2,594

 
1.9
%
Revenues associated with changes in rates and pricing increased in the second quarter 2015 and year-to-date 2015 when compared to the corresponding periods in 2014 primarily due to a Rate RSE increase effective January 1, 2015. See Note 3 to the financial statements of Alabama Power under "Retail Regulatory Matters" in Item 8 of the Form 10-K for additional information.
Revenues attributable to changes in sales remained relatively flat in the second quarter 2015 and increased slightly year-to-date 2015 when compared to the corresponding periods in 2014 . Industrial KWH energy sales slightly increased 0.2% year-to-date 2015 as a result of an increase in demand resulting from changes in production levels primarily in the pipelines, stone, clay, and glass, automotive, and plastics sectors, offset by a decrease in demand in the primary metals and forest products sectors. Weather-adjusted residential and commercial KWH energy sales were relatively flat for year-to-date 2015.
Revenues resulting from changes in weather increased in the second quarter 2015 due to warmer weather experienced in Alabama Power's service territory in the second quarter 2015 as compared to the corresponding period in 2014 . For the second quarter 2015 , the resulting increases were 2.6% and 1.5% for residential and commercial sales revenues, respectively.
Revenues resulting from changes in weather remained relatively flat year-to-date 2015 primarily due to milder weather experienced in Alabama Power's service territory in the first quarter 2015 offset by warmer weather in the second quarter 2015 as compared to the corresponding periods in 2014.
Fuel and other cost recovery revenues increased in the second quarter 2015 when compared to the corresponding period in 2014 primarily due to an increase in purchased power partially offset by a decrease in the average cost of fuel. Fuel and other cost recovery revenues decreased year-to-date 2015 when compared to the corresponding period in 2014 primarily due to a decrease in KWH generation and a decrease in the average cost of fuel.
Electric rates include provisions to recognize the full recovery of fuel costs, purchased power costs, PPAs certificated by the Alabama PSC, and costs associated with the natural disaster reserve. Under these provisions, fuel and other cost recovery revenues generally equal fuel and other cost recovery expenses and do not affect net income.
Wholesale Revenues – Non-Affiliates
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$(8)
 
(12.3)
 
$(27)
 
(18.0)
Wholesale revenues from sales to non-affiliates will vary depending on fuel prices, the market prices of wholesale energy compared to the cost of Alabama Power's and the Southern Company system's generation, demand for energy within the Southern Company system's service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are accompanied by

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ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



an increase or decrease in fuel costs and do not have a significant impact on net income.
In the second quarter 2015 , wholesale revenues from sales to non-affiliates were $57 million compared to $65 million for the corresponding period in 2014 . The decrease was primarily due to a 12.0% decrease in KWH sales. For year-to-date 2015 , wholesale revenues from sales to non-affiliates were $123 million compared to $150 million for the corresponding period in 2014 . The decrease was primarily due to a 10.3% decrease in KWH sales and an 8.7% decrease in the price of energy.
In 2014, Alabama Power's fuel diversity led to increased sales to non-affiliates due to higher natural gas prices. In 2015, lower natural gas prices and decreased availability of hydro generation, due to less rainfall, resulted in lower sales of Alabama Power's generation to non-affiliates.
Wholesale Revenues – Affiliates
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$(48)
 
(70.6)
 
$(102)
 
(74.5)
Wholesale revenues from sales to affiliated companies will vary depending on demand and the availability and cost of generating resources at each company. These affiliate sales are made in accordance with the IIC, as approved by the FERC. These transactions do not have a significant impact on earnings since this energy is generally sold at marginal cost and energy purchases are generally offset by energy revenues through Alabama Power's energy cost recovery clauses.
In the second quarter 2015 , wholesale revenues from sales to affiliates were $20 million compared to $68 million for the corresponding period in 2014 . The decrease was primarily due to a 57.4% decrease in KWH sales and a 31.1% decrease in the price of energy. For year-to-date 2015 , wholesale revenues from sales to affiliates were $35 million compared to $137 million for the corresponding period in 2014 . The decrease was primarily due to a 63.0% decrease in KWH sales and a 31.4% decrease in the price of energy.
In 2014, Alabama Power's fuel diversity led to increased sales to affiliates due to higher natural gas prices. In 2015, lower natural gas prices and decreased availability of hydro generation, due to less rainfall, resulted in lower sales of Alabama Power's generation to affiliates.
Fuel and Purchased Power Expenses
 
 
 Second Quarter 2015
vs.
Second Quarter 2014
 
 Year-to-Date 2015
vs.
Year-to-Date 2014
 
 
(change in millions)

(% change)
 
(change in millions)
 
(% change)
Fuel
 
$
(71
)
 
(17.1)
 
$
(193
)
 
(22.8
)
Purchased power – non-affiliates
 
6

 
15.4
 
(10
)
 
(10.4
)
Purchased power – affiliates
 
12

 
32.4
 
17

 
19.8

Total fuel and purchased power expenses
 
$
(53
)
 
 
 
$
(186
)
 
 
In the second quarter 2015 , total fuel and purchased power expenses were $437 million compared to $490 million for the corresponding period in 2014 . The decrease was primarily due to a $52 million decrease in the average cost of fuel, an $18 million decrease related to the volume of KWHs generated, and a $7 million decrease in the average cost of purchased power, partially offset by a $24 million increase in the volume of KWHs purchased.
For year-to-date 2015 , fuel and purchased power expenses were $842 million compared to $1.03 billion for the corresponding period in 2014 . The decrease was primarily due to a $120 million decrease in the average cost of fuel, a $72 million decrease related to the volume of KWHs generated, and a $44 million decrease in the average cost of purchased power, partially offset by a $50 million increase in the volume of KWHs purchased.

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ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Fuel and purchased power energy transactions do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Alabama Power's energy cost recovery clause. Alabama Power, along with the Alabama PSC, continuously monitors the under/over recovered balance to determine whether adjustments to billing rates are required. See Note 3 to the financial statements of Alabama Power under "Retail Regulatory Matters – Rate ECR" in Item 8 of the Form 10-K for additional information.
Details of Alabama Power's generation and purchased power were as follows:
 
 
Second Quarter
2015
 
Second Quarter
2014
 
Year-to-Date 2015

Year-to-Date 2014
Total generation (billions of KWHs)
 
15
 
16
 
29
 
33
Total purchased power (billions of KWHs)
 
2
 
1
 
4
 
3
Sources of generation (percent)  —
 
 
 
 
 
 
 
 
Coal
 
59
 
53
 
53
 
53
Nuclear
 
20
 
24
 
23
 
23
Gas
 
15
 
16
 
17
 
16
Hydro
 
6
 
7
 
7
 
8
Cost of fuel, generated (cents per net KWH)  —
 
 
 
 
 
 
 
 
Coal
 
2.89
 
3.30
 
2.89
 
3.35
Nuclear
 
0.82
 
0.85
 
0.81
 
0.86
Gas
 
3.10
 
3.80
 
3.06
 
3.99
Average cost of fuel, generated (cents per net KWH) (a)
 
2.50
 
2.76
 
2.41
 
2.83
Average cost of purchased power (cents per net KWH) (b)
 
5.48
 
5.88
 
5.00
 
6.18
(a)
KWHs generated by hydro are excluded from the average cost of fuel, generated.
(b)
Average cost of purchased power includes fuel purchased by Alabama Power for tolling agreements where power is generated by the provider.
Fuel
In the second quarter 2015 , fuel expense was $343 million compared to $414 million for the corresponding period in 2014 . The decrease was primarily due to an 18.4% decrease in the average cost of natural gas per KWH generated, which excludes fuel associated with tolling agreements, a 14.6% decrease in the volume of KWHs generated by natural gas, and a 12.3% decrease in the average cost of coal per KWH generated. The decrease was partially offset by a 21.4% decrease in the volume of KWHs generated by hydro facilities as a result of less rainfall.
For year-to-date 2015 , fuel expense was $653 million compared to $846 million for the corresponding period in 2014 . The decrease was primarily due to a 23.3% decrease in the average cost of natural gas per KWH generated, which excludes fuel associated with tolling agreements, a 13.7% decrease in the average cost of coal per KWH generated, and a 9.6% decrease in the volume of KWHs generated by coal. The decrease was partially offset by a 22.1% decrease in the volume of KWHs generated by hydro facilities as a result of less rainfall.
Purchased Power – Non-Affiliates
In the second quarter 2015 , purchased power expense from non-affiliates was $45 million compared to $39 million for the corresponding period in 2014 . The increase was related to a 20.7% increase in the amount of energy purchased due to the availability of lower cost generation resulting from lower natural gas prices, decreased availability of hydro generation as a result of less rainfall, and increased customer demand due to warmer weather in the second quarter 2015 as compared to the corresponding period during 2014. The increase was partially offset by a 5.7% decrease in the average cost per KWH purchased as a result of lower natural gas prices.

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Table of Contents
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



For year-to-date 2015 , purchased power expense from non-affiliates was $86 million compared to $96 million for the corresponding period in 2014 . The decrease was related to a 21.9% decrease in the average cost per KWH purchased as a result of lower natural gas prices partially offset by a 13.6% increase in the amount of energy purchased due to the availability of lower cost generation as a result of lower natural gas prices.
Energy purchases from non-affiliates will vary depending on the market prices of wholesale energy as compared to the cost of the Southern Company system's generation, demand for energy within the Southern Company system's service territory, and the availability of the Southern Company system's generation.
Purchased Power – Affiliates
In the second quarter 2015 , purchased power expense from affiliates was $49 million compared to $37 million for the corresponding period in 2014 . The increase was related to a 45.2% increase in the amount of energy purchased primarily due to the availability of Southern Company's lower cost generation sources and the decreased availability of hydro generation as a result of less rainfall. The increase was partially offset by a 7.0% decrease in the average cost per KWH purchased due to lower natural gas prices.
For year-to-date 2015 , purchased power expense from affiliates was $103 million compared to $86 million for the corresponding period in 2014 . The increase was related to a 39.5% increase in the amount of energy purchased primarily due to the availability of Southern Company's lower cost generation sources and the decreased availability of hydro generation as a result of less rainfall. The increase was partially offset by a 14.2% decrease in the average cost per KWH purchased due to lower natural gas prices.
Energy purchases from affiliates will vary depending on demand for energy and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC or other contractual agreements, as approved by the FERC.
Other Operations and Maintenance Expenses
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$40
 
12.1
 
$113
 
17.3
In the second quarter 2015 , other operations and maintenance expenses were $370 million compared to $330 million for the corresponding period in 2014 . The increase was primarily due to the implementation of an accounting order in 2014 allowing the deferral of non-nuclear outage costs. Alabama Power deferred approximately $16 million of non-nuclear outage expenditures in the second quarter 2014. In addition, employee benefits including pension costs increased $11 million and steam generation costs increased $5 million primarily due to non-outage and maintenance costs.
For year-to-date 2015 , other operations and maintenance expenses were $768 million compared to $655 million for the corresponding period in 2014 . Alabama Power deferred approximately $41 million of non-nuclear outage expenditures in the first half of 2014. In addition, steam generation costs increased $28 million primarily due to scheduled outage costs and employee benefits including pension costs increased $21 million.
See Note 3 to the financial statements of Alabama Power under "Retail Regulatory Matters – Cost of Removal Accounting Order" in Item 8 of the Form 10-K for additional information. See Note (F) to the Condensed Financial Statements herein for additional information related to pension costs.

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Table of Contents
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Depreciation and Amortization
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$(12)
 
(7.0)
 
$(29)
 
(8.4)
In the second quarter 2015 , depreciation and amortization was $160 million compared to $172 million for the corresponding period in 2014 . For year-to-date 2015 , depreciation and amortization was $318 million compared to $347 million for the corresponding period in 2014 . These decreases were primarily due to a decrease in depreciation rates related to environmental, steam generation, transmission, and distribution assets effective January 1, 2015, as authorized by the FERC, partially offset by increases in plant in service.
Allowance for Equity Funds Used During Construction
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$3
 
27.3
 
$8
 
38.1
In the second quarter 2015 , AFUDC equity was $14 million compared to $11 million for the corresponding period in 2014 . For year-to-date 2015 , AFUDC equity was $29 million compared to $21 million for the corresponding period in 2014 . These increases were primarily due to additional capital expenditures for steam power environmental projects.
Interest Expense, Net of Amounts Capitalized
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$6
 
9.5
 
$9
 
7.2
In the second quarter 2015, interest expense, net of amounts capitalized was $69 million compared to $63 million for the corresponding period in 2014. For year-to-date 2015, interest expense, net of amounts capitalized was $134 million compared to $125 million for the corresponding period in 2014. These increases were primarily due to new debt issuances, which include issuances to redeem long-term debt, preferred stock, and preference stock.
Other Income (Expense), Net
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$(11)
 
N/M
 
$(10)
 
(125.0)
N/M - Not meaningful
In the second quarter 2015, other income (expense), net was $(14) million compared to $(3) million for the corresponding period in 2014. For year-to-date 2015, other income (expense), net was $(18) million compared to $(8) million for the corresponding period in 2014. The changes were primarily due to increases in donations.
Income Taxes
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$3
 
2.5
 
$(11)
 
(4.5)
In the second quarter 2015 , income taxes were $122 million compared to $119 million for the corresponding period in 2014 . The increase was primarily due to higher pre-tax earnings, partially offset by state income tax credits.

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ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



For year-to-date 2015 , income taxes were $235 million compared to $246 million for the corresponding period in 2014 . The decrease was primarily due to state income tax credits in the second quarter 2015.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Alabama Power's future earnings potential. The level of Alabama Power's future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Alabama Power's primary business of selling electricity. These factors include Alabama Power's ability to maintain a constructive regulatory environment that continues to allow for the timely recovery of prudently-incurred costs during a time of increasing costs. Future earnings in the near term will depend, in part, upon maintaining and growing sales which are subject to a number of factors. These factors include weather, competition, new energy contracts with other utilities, energy conservation practiced by customers, the use of alternative energy sources by customers, the price of electricity, the price elasticity of demand, and the rate of economic growth or decline in Alabama Power's service territory. Changes in regional and global economic conditions may impact sales for Alabama Power as the pace of the economic recovery remains uncertain. The timing and extent of the economic recovery will impact growth and may impact future earnings. For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL of Alabama Power in Item 7 of the Form 10-K.
Environmental Matters
Compliance costs related to federal and state environmental statutes and regulations could affect earnings if such costs cannot continue to be fully recovered in rates on a timely basis. Environmental compliance spending over the next several years may differ materially from the amounts estimated. The timing, specific requirements, and estimated costs could change as environmental statutes and regulations are adopted or modified. 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. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Alabama Power in Item 7 and Note 3 to the financial statements of Alabama Power under "Environmental Matters" in Item 8 of the Form 10-K for additional information.
New Source Review Actions
See Note 3 to the financial statements of Alabama Power under "Environmental Matters – New Source Review Actions" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein for additional information.
On June 25, 2015, the U.S. Department of Justice filed a joint stipulation between Alabama Power, the EPA, and the U.S. Department of Justice proposing to modify the 2006 consent decree to resolve all remaining claims for relief alleged in the case. If approved by the U.S. District Court for the Northern District of Alabama, Alabama Power will, without admitting liability, operate subject to emission rates and a cap on certain units and requirements to use only natural gas at certain units, including a unit co-owned by Mississippi Power; retire certain units at Plants Gorgas and Barry; pay a $100,000 civil penalty; and invest $1.5 million in electric transportation infrastructure projects over three years.
The ultimate outcome of this matter cannot be determined at this time.
Environmental Statutes and Regulations
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations" and – "Retail Regulatory Matters – Environmental Accounting Order" of Alabama Power in Item 7 of the Form 10-K and "Retail Regulatory Matters – Environmental Accounting Order" herein for additional information regarding Alabama Power's plan for compliance with environmental statutes and regulations.

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Table of Contents
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Air Quality
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Air Quality" of Alabama Power in Item 7 of the Form 10-K for additional information regarding the EPA's proposed regulations governing emissions during startup, shutdown, or malfunction (SSM), the final MATS rule, and the Cross State Air Pollution Rule (CSAPR).
On June 12, 2015, the EPA published a final rule requiring affected states (including Alabama) to revise or remove state implementation plan (SIP) provisions regarding excess emissions that occur during periods of SSM by no later than November 22, 2016. The ultimate impact of the final rule will depend on the outcome of any legal challenges and the development and approval of SIPs by the affected states and cannot be determined at this time.
On June 29, 2015, the U.S. Supreme Court issued a decision finding that the EPA had failed to properly consider costs in its decision to regulate hazardous air pollutant emissions from electric generating units under the MATS rule and remanded the case to the U.S. Court of Appeals for the District of Columbia Circuit for further proceedings. The MATS rule remains in effect while the U.S. Court of Appeals for the District of Columbia Circuit and the EPA respond to the decision. The ultimate impact of this decision cannot be determined at this time.
On July 28, 2015, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion invalidating certain emissions budgets under the CSAPR Phase II emissions trading program for a number of states, including Alabama. The court's decision leaves the emissions trading program in place and remands the rule to the EPA for further action consistent with the court's decision. The court rejected all other pending challenges to the rule. The ultimate impact of this decision will depend on additional rulemaking and cannot be determined at this time.
Water Quality
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Water Quality" of Alabama Power in Item 7 of the Form 10-K for additional information regarding the EPA's and the U.S. Army Corps of Engineers' proposed rule revising the definition of waters of the U.S. under the Clean Water Act (CWA).
On June 29, 2015, the EPA and the U.S. Army Corps of Engineers jointly published a final rule revising the regulatory definition of waters of the U.S. for all CWA programs. The final rule significantly expands the scope of federal jurisdiction under the CWA and could have significant impacts on economic development projects which could affect customer demand growth. In addition, this rule could significantly increase permitting and regulatory requirements and costs associated with the siting of new facilities and the installation, expansion, and maintenance of transmission and distribution lines. The rule becomes effective August 28, 2015. The ultimate impact of the final rule will depend on the outcome of any legal challenges and the EPA's and the U.S. Army Corps of Engineers' field-level implementation of the rule and cannot be determined at this time.
Coal Combustion Residuals
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Coal Combustion Residuals" of Alabama Power in Item 7 of the Form 10-K for additional information regarding the EPA's regulation of CCR.
On April 17, 2015, the EPA published the Disposal of Coal Combustion Residuals from Electric Utilities final rule (CCR Rule) in the Federal Register, setting October 19, 2015 as the effective date of the CCR Rule. The ultimate impact of the CCR Rule cannot be determined at this time and will depend on Alabama Power's ongoing review of the CCR Rule, the results of initial and ongoing minimum criteria assessments, and the outcome of legal challenges. Based on initial estimates, Alabama Power recorded incremental asset retirement obligations (ARO) of approximately $401 million related to the CCR Rule in the second quarter 2015. As further analysis is performed, including evaluation of the expected timing and method of compliance and refinement of assumptions underlying the cost estimates, such as the quantities of CCR at each site, Alabama Power expects to periodically update these estimates. See Note (A) to the Condensed Financial Statements herein for additional information regarding Alabama Power's AROs.

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ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Global Climate Issues
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Global Climate Issues" of Alabama Power in Item 7 of the Form 10-K for additional information regarding the EPA's proposed regulation of CO 2 from fossil-fuel-fired electric generating units.
On August 3, 2015, the EPA released pre-publication versions of two final rules that would limit CO 2 emissions from fossil fuel-fired electric generating units. One of the final rules contains specific emission standards governing CO 2 emissions from new, modified, and reconstructed units. The other final rule establishes guidelines for states to develop plans to meet EPA-mandated CO 2 emission rates for existing units. The EPA's final guidelines require state plans to meet interim CO 2 performance rates between 2022 and 2029 and final rates in 2030 and thereafter. At the same time, the EPA also proposed a federal plan and proposed model rule that states can adopt or that would be put in place if, in response to the final guidelines, a state either does not submit a state plan or its plan is not approved by the EPA. These guidelines and standards could result in operational restrictions and material compliance costs, including capital expenditures, which could affect future unit retirement and replacement decisions. Alabama Power's results of operations, cash flows, and financial condition could be significantly impacted if such costs are not recovered through regulated rates or through market-based contracts. However, the ultimate financial and operational impact of the final rules on Alabama Power cannot be determined at this time and will depend on numerous factors including the Southern Company system's ongoing review of the final rules; the outcome of any legal challenges; 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.
FERC Matters
Alabama Power has authority from the FERC to sell electricity at market-based rates. Since 2008, that authority, for certain balancing authority areas, has been conditioned on compliance with the requirements of an energy auction, which the FERC found to be tailored mitigation that addresses potential market power concerns. In accordance with FERC regulations governing such authority, the traditional operating companies (including Alabama Power) and Southern Power filed a triennial market power analysis on June 30, 2014, which included continued reliance on the energy auction as tailored mitigation. On April 27, 2015, the FERC issued an order finding that the traditional operating companies' (including Alabama Power's) and Southern Power's existing tailored mitigation may not effectively mitigate the potential to exert market power in certain areas served by the traditional operating companies and in some adjacent areas. To retain market-based rate authority, the FERC directed the traditional operating companies (including Alabama Power) and Southern Power to show why market-based rate authority should not be revoked in these areas or to provide a mitigation plan to further address market power concerns. The traditional operating companies (including Alabama Power) and Southern Power filed a request for rehearing on May 27, 2015 and on June 26, 2015 filed their response with the FERC. The ultimate outcome of this matter cannot be determined at this time.
See REGULATION – "Federal Power Act" of Alabama Power in Item 1 of the Form 10-K for additional information regarding Alabama Power's Warrior River Project license.
On January 30, 2015, the U.S. Court of Appeals for the District of Columbia Circuit issued an order denying Smith Lake Improvement and Stakeholders Association's (SLISA) petition for en banc review of the court's dismissal of SLISA's appeal of the new Warrior River Project license. SLISA did not appeal this decision; therefore, this matter is now concluded and the FERC license is authorized as issued.
Retail Regulatory Matters
Alabama Power's revenues from regulated retail operations are collected through various rate mechanisms subject to the oversight of the Alabama PSC. Alabama Power currently recovers its costs from the regulated retail business

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ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



primarily through its Rate RSE, Rate CNP, rate energy cost recovery, and natural disaster reserve rate. In addition, the Alabama PSC issues accounting orders to address current events impacting Alabama Power. See Note 1 to the financial statements of Alabama Power under "Nuclear Outage Accounting Order" and Note 3 under "Retail Regulatory Matters" in Item 8 of the Form 10-K for additional information regarding Alabama Power's rate mechanisms and accounting orders. The recovery balance of each regulatory clause for Alabama Power is reported in Note (B) to the Condensed Financial Statements herein.
Rate CNP
See Note 3 to the financial statements of Alabama Power under "Retail Regulatory Matters – Rate CNP" and " – Non-Environmental Federal Mandated Costs Accounting Order" in Item 8 of the Form 10-K for additional information regarding Alabama Power's development of a revised cost recovery mechanism and the normal purchases and normal sales (NPNS) exception for wind PPAs.
On March 3, 2015, the Alabama PSC approved a modification to Rate CNP Environmental to include compliance costs for both environmental and non-environmental mandates. The recoverable non-environmental compliance costs result from laws, regulations, and other mandates directed at the utility industry involving the security, reliability, safety, sustainability, or similar considerations impacting Alabama Power's facilities or operations. This modification to Rate CNP Environmental was effective March 20, 2015 with the revised rate now defined as Rate CNP Compliance. Alabama Power incurred $30 million of non-environmental compliance costs during the first six months of 2015 and will be limited to recovery of $50 million for the year. Customer rates will not be impacted before January 2016; therefore, the modification will increase the under recovered position for Rate CNP Compliance during 2015.
In April 2015, the Financial Accounting Standards Board (FASB) proposed new accounting guidance to allow the NPNS exception for physical forward transactions in nodal energy markets, consistent with the manner in which Alabama Power currently accounts for its two wind PPAs. On July 9, 2015, the FASB ratified the consensus reached by the Emerging Issues Task Force to allow the exception in such cases and voted to issue a final accounting standard.
Environmental Accounting Order
In April 2015, as part of its environmental compliance strategy, Alabama Power retired Plant Gorgas Units 6 and 7. These units represented 200 MWs of Alabama Power's approximately 12,200 MWs of generating capacity. 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. No later than April 2016, Alabama Power expects to cease using coal at Plant Greene County Units 1 and 2 (300 MWs) and begin operating those units solely on natural gas. Subject to the final approval of the New Source Review stipulation, Alabama Power will also retire Plant Barry Unit 3 (225 MWs) which is currently unavailable for generation. See Note (B) to the Condensed Financial Statements herein for additional information regarding the New Source Review actions.
In accordance with an accounting order from the Alabama PSC, Alabama Power transferred the unrecovered plant asset balances to a regulatory asset at their respective retirement dates. The regulatory asset will be amortized over the remaining useful lives, as established prior to the decision for retirement. As a result, these decisions will not have a significant impact on Alabama Power's financial statements.
Renewable Energy
On June 25, 2015, Alabama Power filed a petition with the Alabama PSC for a Renewable Generation Certificate (RGC). The RGC would develop a process that allows Alabama Power to build its own renewable projects each less than 80 MWs or purchase power from other renewable-generated sources up to 500 MWs. The Alabama PSC is expected to rule on this matter in August 2015. The ultimate outcome of this matter cannot be determined at this time.

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ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Other Matters
Alabama Power is involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Alabama Power is subject to certain claims and legal actions arising in the ordinary course of business. Alabama Power's business activities are subject to extensive governmental regulation related to public health and the environment, such as regulation of air emissions and water discharges. 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 CO 2 and other emissions, CCR, and alleged exposure to hazardous materials, and/or requests for injunctive relief in connection with such matters.
The ultimate outcome of such pending or potential litigation against Alabama Power cannot be predicted at this time; however, for current proceedings not specifically reported in Note (B) to the Condensed Financial Statements herein or in Note 3 to the financial statements of Alabama Power in Item 8 of the Form 10-K, management does not anticipate that the ultimate liabilities, if any, arising from such current proceedings would have a material effect on Alabama Power's financial statements. See Note (B) to the Condensed Financial Statements herein for a discussion of various other contingencies, regulatory matters, and other matters being litigated which may affect future earnings potential.
ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates
Alabama Power prepares its financial statements in accordance with GAAP. Significant accounting policies are described in Note 1 to the financial statements of Alabama Power in Item 8 of the Form 10-K. In the application of these policies, certain estimates are made that may have a material impact on Alabama Power's results of operations and related disclosures. Different assumptions and measurements could produce estimates that are significantly different from those recorded in the financial statements. See MANAGEMENT'S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES – "Application of Critical Accounting Policies and Estimates" of Alabama Power in Item 7 of the Form 10-K for a complete discussion of Alabama Power's critical accounting policies and estimates related to Electric Utility Regulation, Contingent Obligations, and Pension and Other Postretirement Benefits.
Asset Retirement Obligations
AROs are computed as the fair value of the ultimate costs for an asset's future retirement and are recorded in the period in which the liability is incurred. The costs are capitalized as part of the related long-lived asset and depreciated over the asset's useful life. In the absence of quoted market prices, AROs are estimated using present value techniques in which estimates of future cash outlays associated with the asset retirements are discounted using a credit-adjusted risk-free rate. Estimates of the timing and amounts of future cash outlays are based on projections of when and how the assets will be retired and the cost of future removal activities.
The liability for AROs primarily relates to the decommissioning of Alabama Power's nuclear facility, Plant Farley, and facilities that are subject to the CCR Rule, primarily ash ponds. In addition, Alabama Power has retirement obligations related to various landfill sites, underground storage tanks, asbestos removal, disposal of polychlorinated biphenyls in certain transformers, and disposal of sulfur hexafluoride gas in certain substation breakers. Alabama Power also has identified retirement obligations related to certain transmission and distribution facilities and certain wireless communication towers. However, liabilities for the removal of these assets have not been recorded because the settlement timing for the retirement obligations related to these assets is indeterminable and, therefore, the fair value of the retirement obligations cannot be reasonably estimated. A liability for these AROs will be recognized when sufficient information becomes available to support a reasonable estimation of the ARO.
On April 17, 2015, the EPA published the final CCR Rule in the Federal Register, setting October 19, 2015 as the effective date of the CCR Rule. Therefore, Alabama Power recorded new AROs for facilities that are subject to the CCR Rule. The cost estimates are based on information that was known as of June 30, 2015 using various assumptions related to closure and post-closure costs, timing of future cash outlays, inflation and discount rates, and

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ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



the potential methods for complying with the CCR Rule requirements. As further analysis is performed, including evaluation of the expected timing and method of compliance and refinement of assumptions underlying the cost estimates, such as the quantities of CCR at each site, Alabama Power expects to periodically update these estimates. Given the significant judgment involved in estimating AROs, Alabama Power considers the liabilities for AROs to be critical accounting estimates.
See Note 1 to the financial statements of Alabama Power under "Asset Retirement Obligations and Other Costs of Removal" and "Nuclear Decommissioning" in Item 8 of the Form 10-K and Note (A) to the Condensed Financial Statements under "Asset Retirement Obligations" herein for additional information.
Recently Issued Accounting Standards
The FASB's ASC 606, Revenue from Contracts with Customers , revises the accounting for revenue recognition effective for fiscal years beginning after December 15, 2017. Alabama Power continues to evaluate the requirements of ASC 606. The ultimate impact of the new standard has not yet been determined.
On April 7, 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs . The ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability and is effective for fiscal years beginning after December 15, 2015. Alabama Power currently reflects unamortized debt issuance costs in other deferred charges and assets on its balance sheet. Upon adoption, the reclassification will not have a material impact on the results of operations, financial position, or cash flows of Alabama Power.
FINANCIAL CONDITION AND LIQUIDITY
Overview
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Overview" of Alabama Power in Item 7 of the Form 10-K for additional information. Alabama Power's financial condition remained stable at June 30, 2015 . Alabama Power intends to continue to monitor its access to short-term and long-term capital markets as well as its bank credit arrangements to meet future capital and liquidity needs. See "Capital Requirements and Contractual Obligations," "Sources of Capital," and "Financing Activities" herein for additional information.
Net cash provided from operating activities totaled $597 million for the first six months of 2015 , a decrease of $77 million as compared to the first six months of 2014 . The decrease in net cash provided from operating activities was primarily due to the timing of fossil fuel stock purchases and payments of accounts payable, partially offset by the timing of income tax payments and refunds associated with bonus depreciation. Net cash used for investing activities totaled $626 million for the first six months of 2015 primarily due to gross property additions related to distribution, environmental, transmission, and steam generation. Net cash used for financing activities totaled $49 million for the first six months of 2015 primarily due to the redemptions and repurchases of long-term debt and preferred and preference stock and payments of common stock dividends, partially offset by issuances of long-term debt. Fluctuations in cash flow from financing activities vary from period to period based on capital needs and the maturity or redemption of securities.
Significant balance sheet changes for the first six months of 2015 include increases of $690 million in property, plant, and equipment, primarily due to additions to distribution, environmental, transmission, and steam generation and $423 million in AROs associated with the CCR Rule. See Note (A) to the Condensed Financial Statements herein for additional information related to AROs. Other significant changes include decreases of $404 million in redeemable preferred and preference stock due to redemptions in the second quarter 2015.
Capital Requirements and Contractual Obligations
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" of Alabama Power in Item 7 of the Form 10-K for a

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ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



description of Alabama Power's capital requirements for its construction program, including estimated capital expenditures to comply with existing environmental statutes and regulations, scheduled maturities of long-term debt, as well as the related interest, derivative obligations, preferred and preference stock dividends, leases, purchase commitments, and trust funding requirements. Approximately $600 million will be required through June 30, 2016 to fund maturities of long-term debt.
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – General" of Alabama Power in Item 7 of the Form 10-K for additional information on Alabama Power's environmental compliance strategy.
The construction program is 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 the expected environmental compliance program; changes in FERC rules and regulations; Alabama PSC approvals; 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.
Sources of Capital
Alabama Power plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. Alabama Power has primarily utilized funds from operating cash flows, short-term debt, security issuances, and equity contributions from Southern Company. However, the amount, type, and timing of any future financings, if needed, will depend upon prevailing market conditions, regulatory approval, and other factors. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" of Alabama Power in Item 7 of the Form 10-K for additional information.
Alabama Power's current liabilities sometimes exceed current assets because of Alabama Power's debt due within one year and the periodic use of short-term debt as a funding source primarily to meet scheduled maturities of long-term debt, as well as cash needs, which can fluctuate significantly due to the seasonality of the business.
At June 30, 2015 , Alabama Power had approximately $195 million of cash and cash equivalents. Committed credit arrangements with banks at June 30, 2015 were as follows:
Expires
 
 
 
 
 
Executable Term
Loans
 
Due Within One
Year
2015
 
2016
 
2018
 
Total
 
Unused
 
One
Year
 
Two
Years
 
Term
Out
 
No Term
Out
(in millions)
 
(in millions)
 
(in millions)
 
(in millions)
$
154

 
$
124

 
$
1,030

 
$
1,308

 
$
1,307

 
$
58

 
$
—

 
$
58

 
$
170

See Note 6 to the financial statements of Alabama Power under "Bank Credit Arrangements" in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under "Bank Credit Arrangements" herein for additional information.
A portion of the unused credit with banks is allocated to provide liquidity support to Alabama Power's variable rate pollution control revenue bonds and commercial paper borrowings. The amount of variable rate pollution control revenue bonds outstanding requiring liquidity support as of June 30, 2015 was approximately $810 million. In addition, at June 30, 2015 , Alabama Power had $200 million of fixed rate pollution control revenue bonds outstanding that were required to be reoffered within the next 12 months.
Most of these bank credit arrangements contain covenants that limit debt levels and contain cross default provisions to other indebtedness (including guarantee obligations) of Alabama Power. Such cross default provisions to other

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ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



indebtedness would trigger an event of default if Alabama Power defaulted on indebtedness or guarantee obligations over a specified threshold. Alabama Power is currently in compliance with all such covenants. None of the bank credit arrangements contain material adverse change clauses at the time of borrowings.
Subject to applicable market conditions, Alabama Power expects to renew or replace its bank credit arrangements, as needed, prior to expiration. In connection therewith, Alabama Power may extend the maturity dates and/or increase or decrease the lending commitments thereunder.
In addition, Alabama Power has substantial cash flow from operating activities and access to capital markets, including a commercial paper program, to meet liquidity needs. Alabama Power may meet short-term cash needs through its commercial paper program. Alabama Power may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper at the request and for the benefit of Alabama Power and the other traditional operating companies. Proceeds from such issuances for the benefit of Alabama Power are loaned directly to Alabama Power. The obligations of each company under these arrangements are several and there is no cross-affiliate credit support.
Details of short-term borrowings were as follows:
 
 
Short-term Debt at
June 30, 2015
 
Short-term Debt During the Period(*)
 
 
Amount
Outstanding
 
Weighted
Average
Interest
Rate
 
Average
Outstanding
 
Weighted
Average
Interest
Rate
 
Maximum
Amount
Outstanding
 
 
(in millions)
 
 
 
(in millions)
 
 
 
(in millions)
Commercial Paper
 
$
—

 
—%
 
$
17

 
0.2%
 
$
100

(*)
Average and maximum amounts are based upon daily balances during the three-month period ended June 30, 2015 .
Alabama Power believes the need for working capital can be adequately met by utilizing commercial paper programs, lines of credit, short-term bank notes, and operating cash flows.
Credit Rating Risk
Alabama Power does not have any credit arrangements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade.
There are certain contracts that could require collateral, but not accelerated payment, in the event of a credit rating change to BBB- and/or Baa3 or below. These contracts are primarily for physical electricity purchases, fuel purchases, fuel transportation and storage, and energy price risk management. At June 30, 2015 , potential collateral requirements under these contracts at a rating of BBB- and/or Baa3 were immaterial. The maximum collateral requirements at a rating below BBB- and/or Baa3 were approximately $367 million. Included in these amounts are certain agreements that could require collateral in the event that one or more Southern Company system power pool participants has a credit rating change to below investment grade. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash.
Subsequent to June 30, 2015, S&P placed its ratings of Southern Company and the traditional operating companies (including Alabama Power) on CreditWatch with negative implications.
Financing Activities
In March 2015, Alabama Power issued $550 million aggregate principal amount of Series 2015A 3.750% Senior Notes due March 1, 2045. The proceeds were used to redeem $250 million aggregate principal amount of Series DD 5.65% Senior Notes due March 15, 2035 and for general corporate purposes, including Alabama Power's continuous construction program .

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ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



In April 2015, Alabama Power purchased and held $80 million aggregate principal amount of Industrial Development Board of the City of Mobile, Alabama Pollution Control Revenue Bonds (Alabama Power Company Barry Plant Project), Series 2007-B. Alabama Power reoffered these bonds to the public in May 2015.
Also in April 2015, Alabama Power issued $175 million additional aggregate principal amount of its Series 2015A 3.750% Senior Notes due March 1, 2045 (Additional Series 2015A Senior Notes) and $250 million aggregate principal amount of its Series 2015B 2.800% Senior Notes due April 1, 2025 (Series 2015B Senior Notes). A portion of the proceeds of the Additional Series 2015A Senior Notes and the Series 2015B Senior Notes were used to redeem in May 2015 6.48 million shares ($162 million aggregate stated capital) of Alabama Power's 5.20% Class A Preferred Stock at a redemption price of $25 per share plus accrued and unpaid dividends to the redemption date, 4.0 million shares ($100 million aggregate stated capital) of Alabama Power's 5.30% Class A Preferred Stock at a redemption price of $25 per share plus accrued and unpaid dividends to the redemption date, and 6.0 million shares ($150 million aggregate stated capital) of Alabama Power's 5.625% Series Preference Stock at a redemption price of $25 per share plus accrued and unpaid dividends to the redemption date, and the remaining net proceeds were used for general corporate purposes, including Alabama Power's continuous construction program.
In June 2015, $18.7 million aggregate principal amount of the Industrial Development Board of the City of Mobile, Alabama Pollution Control Revenue Refunding Bonds (Alabama Power Company Project), Series 1994, $6.15 million aggregate principal amount of the Industrial Development Board of the City of Gadsden, Pollution Control Revenue Bonds (Alabama Power Company Project), Series 1994, and $28.85 million aggregate principal amount of the Industrial Development Board of the Town of Parrish, Pollution Control Revenue Refunding Bonds (Alabama Power Company Project), Series 1994A were repaid at maturity.
In addition to any financings that may be necessary to meet capital requirements and contractual obligations, Alabama Power plans to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit.

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GEORGIA POWER COMPANY

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GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)

 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
 
(in millions)
Operating Revenues:
 
 
 
 
 
 
 
Retail revenues
$
1,872

 
$
2,000

 
$
3,686

 
$
4,050

Wholesale revenues, non-affiliates
50

 
80

 
118

 
189

Wholesale revenues, affiliates
4

 
10

 
12

 
31

Other revenues
90

 
96

 
178

 
185

Total operating revenues
2,016

 
2,186

 
3,994

 
4,455

Operating Expenses:
 
 
 
 
 
 
 
Fuel
503

 
619

 
1,029

 
1,371

Purchased power, non-affiliates
78

 
63

 
138

 
142

Purchased power, affiliates
115

 
166

 
263

 
350

Other operations and maintenance
467

 
451

 
943

 
878

Depreciation and amortization
202

 
209

 
418

 
417

Taxes other than income taxes
97

 
106

 
195

 
209

Total operating expenses
1,462

 
1,614

 
2,986

 
3,367

Operating Income
554

 
572

 
1,008

 
1,088

Other Income and (Expense):
 
 
 
 
 
 
 
Interest expense, net of amounts capitalized
(93
)
 
(90
)
 
(182
)
 
(174
)
Other income (expense), net
1

 
11

 
16

 
15

Total other income and (expense)
(92
)
 
(79
)
 
(166
)
 
(159
)
Earnings Before Income Taxes
462

 
493

 
842

 
929

Income taxes
180

 
177

 
320

 
343

Net Income
282

 
316

 
522

 
586

Dividends on Preferred and Preference Stock
5

 
5

 
9

 
9

Net Income After Dividends on Preferred and Preference Stock
$
277

 
$
311

 
$
513

 
$
577

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
 
(in millions)
Net Income
$
282

 
$
316

 
$
522

 
$
586

Other comprehensive income (loss):
 
 
 
 
 
 
 
Qualifying hedges:
 
 
 
 
 
 
 
Changes in fair value, net of tax of $9, $-, $-, and $-, respectively
14

 
—

 
—

 
—

Reclassification adjustment for amounts included in
   net income, net of tax of $-, $-, $1, and $-, respectively
1

 
1

 
1

 
1

Total other comprehensive income (loss)
15

 
1

 
1

 
1

Comprehensive Income
$
297

 
$
317

 
$
523

 
$
587

The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.

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GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
(in millions)
Operating Activities:
 
 
 
Net income
$
522

 
$
586

Adjustments to reconcile net income to net cash provided from operating activities —
 
 
 
Depreciation and amortization, total
512

 
503

Deferred income taxes
(6
)
 
121

Allowance for equity funds used during construction
(10
)
 
(16
)
Retail fuel cost over recovery — long-term
—

 
(44
)
Deferred expenses
28

 
31

Contract amendment
(118
)
 
—

Other, net
—

 
(12
)
Changes in certain current assets and liabilities —
 
 
 
-Receivables
(21
)
 
(353
)
-Fossil fuel stock
101

 
255

-Prepaid income taxes
86

 
(7
)
-Other current assets
(38
)
 
(14
)
-Accounts payable
(110
)
 
(140
)
-Accrued taxes
(125
)
 
(65
)
-Accrued compensation
(61
)
 
(15
)
-Retail fuel cost over recovery — short-term
—

 
(14
)
-Other current liabilities
14

 
27

Net cash provided from operating activities
774

 
843

Investing Activities:
 
 
 
Property additions
(853
)
 
(906
)
Nuclear decommissioning trust fund purchases
(655
)
 
(324
)
Nuclear decommissioning trust fund sales
649

 
322

Change in construction payables, net of joint owner portion
26

 
52

Prepaid long-term service agreements
(40
)
 
(47
)
Other investing activities
(18
)
 
(14
)
Net cash used for investing activities
(891
)
 
(917
)
Financing Activities:
 
 
 
Increase (decrease) in notes payable, net
44

 
(359
)
Proceeds —
 
 
 
Capital contributions from parent company
23

 
24

Pollution control revenue bonds
170

 
—

FFB loan
600

 
1,000

Short-term borrowings
250

 
—

Redemptions and repurchases —
 
 
 
Pollution control revenue bonds
(65
)
 
(37
)
Senior notes
(125
)
 
—

Short-term borrowings
(250
)
 
—

Payment of preferred and preference stock dividends
(9
)
 
(9
)
Payment of common stock dividends
(517
)
 
(477
)
FFB loan issuance costs
—

 
(49
)
Other financing activities
(4
)
 
(3
)
Net cash provided from financing activities
117

 
90

Net Change in Cash and Cash Equivalents
—

 
16

Cash and Cash Equivalents at Beginning of Period
24

 
30

Cash and Cash Equivalents at End of Period
$
24

 
$
46

Supplemental Cash Flow Information:
 
 
 
Cash paid during the period for —
 
 
 
Interest (net of $5 and $8 capitalized for 2015 and 2014, respectively)
$
170

 
$
157

Income taxes, net
240

 
145

Noncash transactions — Accrued property additions at end of period
171

 
267


The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.

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GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
 
Assets
 
At June 30,
2015
 
At December 31,
2014
 
 
(in millions)
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
24

 
$
24

Receivables —
 
 
 
 
Customer accounts receivable
 
778

 
553

Unbilled revenues
 
294

 
201

Joint owner accounts receivable
 
44

 
121

Other accounts and notes receivable
 
46

 
61

Affiliated companies
 
20

 
18

Accumulated provision for uncollectible accounts
 
(6
)
 
(6
)
Fossil fuel stock, at average cost
 
338

 
439

Materials and supplies, at average cost
 
425

 
438

Vacation pay
 
91

 
91

Prepaid income taxes
 
225

 
278

Other regulatory assets, current
 
147

 
136

Other current assets
 
86

 
74

Total current assets
 
2,512

 
2,428

Property, Plant, and Equipment:
 
 
 
 
In service
 
31,363

 
31,083

Less accumulated provision for depreciation
 
10,961

 
11,222

Plant in service, net of depreciation
 
20,402

 
19,861

Other utility plant, net
 
10

 
211

Nuclear fuel, at amortized cost
 
551

 
563

Construction work in progress
 
4,171

 
4,031

Total property, plant, and equipment
 
25,134

 
24,666

Other Property and Investments:
 
 
 
 
Equity investments in unconsolidated subsidiaries
 
61

 
58

Nuclear decommissioning trusts, at fair value
 
814

 
789

Miscellaneous property and investments
 
37

 
38

Total other property and investments
 
912

 
885

Deferred Charges and Other Assets:
 
 
 
 
Deferred charges related to income taxes
 
681

 
698

Deferred under recovered regulatory clause revenues
 
—

 
197

Other regulatory assets, deferred
 
2,063

 
1,753

Other deferred charges and assets
 
446

 
403

Total deferred charges and other assets
 
3,190

 
3,051

Total Assets
 
$
31,748

 
$
31,030

The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.


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GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
 
Liabilities and Stockholder's Equity
 
At June 30,
2015
 
At December 31,
2014
 
 
(in millions)
Current Liabilities:
 
 
 
 
Securities due within one year
 
$
1,660

 
$
1,154

Notes payable
 
200

 
156

Accounts payable —
 
 
 
 
Affiliated
 
392

 
451

Other
 
574

 
555

Customer deposits
 
259

 
253

Other accrued taxes
 
207

 
332

Accrued interest
 
96

 
96

Accrued vacation pay
 
62

 
63

Accrued compensation
 
81

 
153

Other current liabilities
 
309

 
257

Total current liabilities
 
3,840

 
3,470

Long-term Debt
 
8,914

 
8,683

Deferred Credits and Other Liabilities:
 
 
 
 
Accumulated deferred income taxes
 
5,524

 
5,507

Deferred credits related to income taxes
 
103

 
106

Accumulated deferred investment tax credits
 
191

 
196

Employee benefit obligations
 
870

 
903

Asset retirement obligations
 
1,301

 
1,223

Other deferred credits and liabilities
 
286

 
255

Total deferred credits and other liabilities
 
8,275

 
8,190

Total Liabilities
 
21,029

 
20,343

Preferred Stock
 
45

 
45

Preference Stock
 
221

 
221

Common Stockholder's Equity:
 
 
 
 
Common stock, without par value —
 
 
 
 
Authorized — 20,000,000 shares
 
 
 
 
Outstanding — 9,261,500 shares
 
398

 
398

Paid-in capital
 
6,232

 
6,196

Retained earnings
 
3,830

 
3,835

Accumulated other comprehensive loss
 
(7
)
 
(8
)
Total common stockholder's equity
 
10,453

 
10,421

Total Liabilities and Stockholder's Equity
 
$
31,748

 
$
31,030

The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.

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GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


SECOND QUARTER 2015 vs. SECOND QUARTER 2014
AND
YEAR-TO-DATE 2015 vs. YEAR-TO-DATE 2014


OVERVIEW
Georgia Power operates as a vertically integrated utility providing electricity to retail customers within its traditional service territory located within the State of Georgia and to wholesale customers in the Southeast.
Many factors affect the opportunities, challenges, and risks of Georgia Power's business of selling electricity. These factors include the ability to maintain a constructive regulatory environment, to maintain and grow energy sales, and to effectively manage and secure timely recovery of costs. These costs include those related to projected long-term demand growth, increasingly stringent environmental standards, reliability, and fuel. In addition, construction continues on Plant Vogtle Units 3 and 4 in which Georgia Power will own a 45.7% interest in these two nuclear generating units to increase its generation diversity and meet future supply needs. Appropriately balancing required costs and capital expenditures with customer prices will continue to challenge Georgia Power for the foreseeable future.
Georgia Power continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, the execution of major construction projects, and net income after dividends on preferred and preference stock. For additional information on these indicators, see MANAGEMENT'S DISCUSSION AND ANALYSIS – OVERVIEW – "Key Performance Indicators" of Georgia Power in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$(34)
 
(10.9)
 
$(64)
 
(11.1)
Georgia Power's net income after dividends on preferred and preference stock for the second quarter 2015 was $277 million compared to $311 million for the corresponding period in 2014 . For year-to-date 2015 , net income after dividends on preferred and preference stock was $513 million compared to $577 million for the corresponding period in 2014 . The decreases were primarily due to higher non-fuel operations and maintenance expenses and the correction of an error affecting billings to a small number of large commercial and industrial customers, partially offset by increases in retail base revenues effective January 1, 2015 as authorized by the Georgia PSC. Additionally, warmer weather in the second quarter 2015 compared to the corresponding period in 2014 contributed to increases in retail base revenues.
See Note (A) to Condensed Financial Statements herein for additional information.
Retail Revenues
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)

(% change)
$(128)
 
(6.4)
 
$(364)
 
(9.0)
In the second quarter 2015 , retail revenues were $1.87 billion compared to $2.00 billion for the corresponding period in 2014 . For year-to-date 2015 , retail revenues were $3.69 billion compared to $4.05 billion for the corresponding period in 2014 .

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Details of the changes in retail revenues were as follows:
 
 
Second Quarter
2015
 
Year-to-Date
 2015
 
 
(in millions)

(% change)
 
(in millions)
 
(% change)
Retail – prior year
 
$
2,000

 
 
 
$
4,050

 
 
Estimated change resulting from –
 
 
 
 
 
 
 
 
Rates and pricing
 
(27
)
 
(1.3
)
 
3

 
0.1

Sales growth
 
21

 
1.0

 
37

 
0.9

Weather
 
22

 
1.1

 
6

 
0.1

Fuel cost recovery
 
(144
)
 
(7.2
)
 
(410
)
 
(10.1
)
Retail – current year
 
$
1,872

 
(6.4
)%
 
$
3,686

 
(9.0
)%
Revenues associated with changes in rates and pricing decreased in the second quarter 2015 when compared to the corresponding period in 2014 primarily due to the correction of an error affecting billings since 2013 to a small number of large commercial and industrial customers under a rate plan allowing for variable demand-driven pricing, partially offset by base tariff increases approved under the 2013 ARP and increases in collections for financing costs related to the construction of Plant Vogtle Units 3 and 4 through the NCCR tariff, which were both effective January 1, 2015. Revenues associated with changes in rates and pricing increased slightly year-to-date 2015 when compared to the corresponding period in 2014 primarily due to the base tariff increases and increases in collections for financing costs described above, partially offset by the error correction. See Note 3 to the financial statements of Georgia Power under "Retail Regulatory Matters – Rate Plans" in Item 8 of the Form 10-K and Note (A) to the Condensed Financial Statements herein for additional information.
Revenues attributable to changes in sales increased in the second quarter and year-to-date 2015 when compared to the corresponding periods in 2014 . Weather-adjusted residential KWH sales increased 2.6%, weather-adjusted commercial KWH sales increased 1.1%, and weather-adjusted industrial KWH sales remained flat in the second quarter 2015 when compared to the corresponding period in 2014. For year-to-date 2015 , weather-adjusted residential KWH sales increased 1.8%, weather-adjusted commercial KWH sales increased 1.0%, and weather-adjusted industrial KWH sales increased 2.0% when compared to the corresponding period in 2014 . An increase of approximately 28,000 residential customers since June 30, 2014 contributed to the increase in weather-adjusted residential KWH sales. Increased customer usage and an increase of approximately 3,000 commercial customers since June 30, 2014 contributed to the increase in weather-adjusted commercial sales. Increased demand in the paper, stone, clay, and glass, food processing, transportation, rubber, and pipeline sectors was the main contributor to the increase in weather-adjusted industrial KWH sales, partially offset by a decrease in the chemicals sector.
Fuel revenues and costs are allocated between retail and wholesale jurisdictions. Retail fuel cost recovery revenues decreased $144 million and $410 million in the second quarter and year-to-date 2015 , respectively, when compared to the corresponding periods in 2014 primarily due to lower natural gas, coal, and nuclear fuel costs. Electric rates include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these fuel cost recovery provisions, fuel revenues generally equal fuel expenses and do not affect net income. See FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Fuel Cost Recovery" herein for additional information.
Wholesale Revenues – Non-Affiliates
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$(30)
 
(37.5)
 
$(71)
 
(37.6)
Wholesale revenues from sales to non-affiliates consist of PPAs and short-term opportunity sales. Wholesale revenues from PPAs have both capacity and energy components. Wholesale capacity revenues from PPAs are

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS


recognized either on a levelized basis over the appropriate contract period or the amounts billable under the contract terms and provide for recovery of fixed costs and a return on investment. Wholesale revenues from sales to non-affiliates will vary depending on fuel prices, the market prices of wholesale energy compared to the cost of Georgia Power's and the Southern Company system's generation, demand for energy within the Southern Company system's service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not have a significant impact on net income. Short-term opportunity sales are made at market-based rates that generally provide a margin above Georgia Power's variable cost of energy.
In the second quarter 2015 , wholesale revenues from sales to non-affiliates were $50 million compared to $80 million for the corresponding period in 2014 related to a $15 million decrease in energy revenues and a $15 million decrease in capacity revenues. For year-to-date 2015 , wholesale revenues from sales to non-affiliates were $118 million compared to $189 million for the corresponding period in 2014 related to a $48 million decrease in energy revenues and a $23 million decrease in capacity revenues. The decreases in energy revenues were primarily due to the lower cost of natural gas and coal. The decreases in capacity revenues reflect the expiration of wholesale contracts in December 2014 and the retirements of Plant Branch Units 1, 3, and 4, Plant Yates Units 1 through 5, and Plant McManus Units 1 and 2.
Wholesale Revenues – Affiliates
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$(6)
 
(60.0)
 
$(19)
 
(61.3)
Wholesale revenues from sales to affiliated companies will vary depending on demand and the availability and cost of generating resources at each company. These affiliate sales are made in accordance with the IIC, as approved by the FERC. These transactions do not have a significant impact on earnings since the energy is generally sold at marginal cost.
In the second quarter 2015 , wholesale revenues from sales to affiliates were $4 million compared to $10 million for the corresponding period in 2014 . For year-to-date 2015 , wholesale revenues from sales to affiliates were $12 million compared to $31 million for the corresponding period in 2014 . The decreases were due to lower natural gas and coal prices.
Fuel and Purchased Power Expenses
 
 
 Second Quarter 2015
vs.
Second Quarter 2014
 
 Year-to-Date 2015
vs.
Year-to-Date 2014
 
 
(change in millions)

(% change)
 
(change in millions)
 
(% change)
Fuel
 
$
(116
)
 
(18.7
)
 
$
(342
)
 
(24.9
)
Purchased power – non-affiliates
 
15

 
23.8

 
(4
)
 
(2.8
)
Purchased power – affiliates
 
(51
)
 
(30.7
)
 
(87
)
 
(24.9
)
Total fuel and purchased power expenses
 
$
(152
)
 
 
 
$
(433
)
 
 
In the second quarter 2015 , total fuel and purchased power expenses were $696 million compared to $848 million in the corresponding period in 2014 . The decrease in the second quarter 2015 was primarily due to a $154 million decrease in the average cost of fuel related to lower natural gas, coal, and nuclear fuel prices and a decrease in the average cost of purchased power due to lower natural gas prices and a $21 million decrease in the volume of KWHs generated due to less available generating capacity as a result of plant retirements in April 2015, partially offset by a $23 million increase in the volume of KWHs purchased due to lower natural gas prices.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


For year-to-date 2015 , total fuel and purchased power expenses were $1.43 billion compared to $1.86 billion in the corresponding period in 2014 . The decrease in year-to-date 2015 was primarily due to a $396 million decrease in the average cost of fuel related to lower natural gas, coal, and nuclear fuel prices and a decrease in the average cost of purchased power due to lower natural gas prices and a $99 million decrease in the volume of KWHs generated due to less available generating capacity as a result of plant retirements in April 2015, partially offset by a $62 million increase in the volume of KWHs purchased due to lower natural gas prices.
Fuel and purchased power energy transactions do not have a significant impact on earnings since these fuel expenses are generally offset by fuel revenues through Georgia Power's fuel cost recovery mechanism. See FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Fuel Cost Recovery" herein for additional information.
Details of Georgia Power's generation and purchased power were as follows:
 
 
Second Quarter
2015
 
Second Quarter
2014
 
Year-to-Date 2015

Year-to-Date 2014
Total generation (billions of KWHs)
 
17
 
18
 
34
 
36
Total purchased power (billions of KWHs)
 
6
 
5
 
11
 
10
Sources of generation (percent)  —
 
 
 
 
 
 
 
 
Coal
 
40
 
42
 
37
 
45
Nuclear
 
24
 
22
 
23
 
21
Gas
 
34
 
34
 
38
 
31
Hydro
 
2
 
2
 
2
 
3
Cost of fuel, generated (cents per net KWH)  —
 
 
 
 
 
 
 
 
Coal
 
3.75
 
4.20
 
4.18
 
4.65
Nuclear
 
0.85
 
0.93
 
0.71
 
0.92
Gas
 
2.67
 
3.81
 
2.65
 
4.09
Average cost of fuel, generated (cents per net KWH)
 
2.66
 
3.32
 
2.76
 
3.66
Average cost of purchased power (cents per net KWH) (*)
 
4.56
 
5.55
 
4.47
 
5.66
(*) Average cost of purchased power includes fuel purchased by Georgia Power for tolling agreements where power is generated by the provider.
Fuel
In the second quarter 2015 , fuel expense was $503 million compared to $619 million in the corresponding period in 2014 . The decrease was primarily due to a 19.9% decrease in the average cost of fuel per KWH generated and a 6.7% decrease in the volume of KWHs generated by coal.
For year-to-date 2015 , fuel expense was $1.03 billion compared to $1.37 billion in the corresponding period in 2014 . The decrease was primarily due to a 24.6% decrease in the average cost of fuel per KWH generated and a 22.2% decrease in the volume of KWHs generated by coal, partially offset by a 13.9% increase in the volume of KWHs generated by natural gas.
Purchased Power – Non-Affiliates
In the second quarter 2015 , purchased power expense from non-affiliates was $78 million compared to $63 million in the corresponding period in 2014 . The increase was primarily due to a 94.1% increase in the volume of KWHs purchased to meet higher customer demand resulting from warmer weather in the second quarter 2015 compared to the corresponding period in 2014 and to replace the energy previously generated by the plants retired in April 2015,

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS


partially offset by a 36.0% decrease in the average cost per KWH purchased, primarily resulting from lower natural gas prices.
For year-to-date 2015 , purchased power expense from non-affiliates was $138 million compared to $142 million in the corresponding period in 2014 . The decrease was primarily due to a 32.9% decrease in the average cost per KWH purchased primarily from lower natural gas prices, partially offset by a 48.5% increase in volume of KWHs purchased to meet higher customer demand resulting from warmer weather in the second quarter 2015 compared to the corresponding period in 2014 and to replace the energy previously generated by the plants retired in April 2015.
Energy purchases from non-affiliates will vary depending on the market prices of wholesale energy as compared to the cost of the Southern Company system's generation, demand for energy within the Southern Company system's service territory, and the availability of the Southern Company system's generation.
Purchased Power – Affiliates
In the second quarter 2015 , purchased power expense from affiliates was $115 million compared to $166 million in the corresponding period in 2014 . For year-to-date 2015 , purchased power expense from affiliates was $263 million compared to $350 million in the corresponding period in 2014 . The decreases were due to a 17.7% decrease in the second quarter 2015 and a 20.7% decrease for year-to-date 2015 in the average cost of KWH purchased, primarily resulting from lower natural gas prices.
Energy purchases from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC or other contractual agreements, all as approved by the FERC.
Other Operations and Maintenance Expenses
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$16
 
3.5
 
$65
 
7.4
In the second quarter 2015 , other operations and maintenance expenses were $467 million compared to $451 million in the corresponding period in 2014 . The increase was primarily due to increases of $10 million in employee compensation and benefits including pension costs, $8 million in scheduled outage-related costs, and $3 million primarily related to customer incentive and demand-side management costs, partially offset by a decrease of $7 million in transmission and distribution overhead line maintenance. See Note (F) to the Condensed Financial Statements herein for additional information related to pension costs.
For year-to-date 2015 , other operations and maintenance expenses were $943 million compared to $878 million in the corresponding period in 2014 . The increase was primarily due to increases of $31 million in employee compensation and benefits including pension costs, $15 million in scheduled outage-related costs, and $13 million primarily related to customer incentive and demand-side management costs.
Depreciation and Amortization
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$(7)
 
(3.3)
 
$1
 
0.2
In the second quarter 2015, depreciation and amortization was $202 million compared to $209 million in the corresponding period in 2014. The decrease was primarily due to decreases in other cost of removal of $9 million and depreciation of $2 million as authorized by the Georgia PSC under the 2013 ARP, partially offset by an increase in amortization of $4 million.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


For year-to-date 2015, depreciation and amortization was $418 million compared to $417 million in the corresponding period in 2014. The increase was due to an increase in depreciation and amortization of $10 million as authorized by the Georgia PSC under the 2013 ARP, partially offset by a decrease in other cost of removal of $9 million.
Taxes Other Than Income Taxes
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$(9)
 
(8.5)
 
$(14)
 
(6.7)
In the second quarter 2015 , taxes other than income taxes were $97 million compared to $106 million in the corresponding period in 2014. For the year-to-date 2015, taxes other than income taxes were $195 million compared to $209 million in the corresponding period in 2014. The decreases were primarily due to decreases of $6 million and $11 million in municipal franchise fees related to lower retail revenues in the second quarter 2015 and year-to-date 2015, respectively, as well as decreases of $2 million in property taxes for each period.
Other Income (Expense), net
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$(10)
 
(90.9)
 
$1
 
6.6
In the second quarter 2015 , other income (expense), net was $1 million compared to $11 million in the corresponding period in 2014. For year-to-date 2015 , other income (expense), net was $16 million compared to $15 million in the corresponding period in 2014 . The changes primarily relate to AFUDC equity.
Income Taxes
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$3
 
1.7
 
$(23)
 
(6.7)
For year-to-date 2015 , income taxes were $320 million compared to $343 million in the corresponding period in 2014 . The decrease was primarily due to lower pre-tax earnings.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Georgia Power's future earnings potential. The level of Georgia Power's future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Georgia Power's business of selling electricity. These factors include Georgia Power's ability to maintain a constructive regulatory environment that continues to allow for the timely recovery of prudently-incurred costs during a time of increasing costs and the completion and subsequent operation of ongoing construction projects, primarily Plant Vogtle Units 3 and 4. Future earnings in the near term will depend, in part, upon maintaining and growing sales which are subject to a number of factors. These factors include weather, competition, new energy contracts with other utilities, energy conservation practiced by customers, the use of alternative energy sources by customers, the price of electricity, the price elasticity of demand, and the rate of economic growth or decline in Georgia Power's service territory. Changes in regional and global economic conditions may impact sales for Georgia Power as the pace of the economic recovery remains uncertain. The timing and extent of the economic recovery will impact growth and may impact future earnings. For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL of Georgia Power in Item 7 of the Form 10-K.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Environmental Matters
Compliance costs related to federal and state environmental statutes and regulations could affect earnings if such costs cannot continue to be fully recovered in rates on a timely basis. Georgia Power's Environmental Compliance Cost Recovery (ECCR) tariff allows for the recovery of capital and operations and maintenance costs related to environmental controls mandated by state and federal regulations. Environmental compliance spending over the next several years may differ materially from the amounts estimated. The timing, specific requirements, and estimated costs could change as environmental statutes and regulations are adopted or modified. 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. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Georgia Power in Item 7 and Note 3 to the financial statements of Georgia Power under "Environmental Matters" in Item 8 of the Form 10-K for additional information.
Environmental Statutes and Regulations
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Integrated Resource Plans" of Georgia Power in Item 7 of the Form 10-K and "Retail Regulatory Matters – Integrated Resource Plan" herein for additional information on planned unit retirements and fuel conversions at Georgia Power.
Air Quality
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Air Quality" of Georgia Power in Item 7 of the Form 10-K for additional information regarding the EPA's proposed regulations governing emissions during startup, shutdown, or malfunction (SSM), the final MATS rule, and the Cross State Air Pollution Rule (CSAPR).
On June 12, 2015, the EPA published a final rule requiring affected states (including Georgia, Alabama, and Florida) to revise or remove state implementation plan (SIP) provisions regarding excess emissions that occur during periods of SSM by no later than November 22, 2016. The ultimate impact of the final rule will depend on the outcome of any legal challenges and the development and approval of SIPs by the affected states and cannot be determined at this time.
On June 29, 2015, the U.S. Supreme Court issued a decision finding that the EPA had failed to properly consider costs in its decision to regulate hazardous air pollutant emissions from electric generating units under the MATS rule and remanded the case to the U.S. Court of Appeals for the District of Columbia Circuit for further proceedings. The MATS rule remains in effect while the U.S. Court of Appeals for the District of Columbia Circuit and the EPA respond to the decision. The ultimate impact of this decision cannot be determined at this time.
On July 28, 2015, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion invalidating certain emissions budgets under the CSAPR Phase II emissions trading program for a number of states, including Georgia, Alabama, and Florida. The court's decision leaves the emissions trading program in place and remands the rule to the EPA for further action consistent with the court's decision. The court rejected all other pending challenges to the rule. The ultimate impact of this decision will depend on additional rulemaking and cannot be determined at this time.
Water Quality
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Water Quality" of Georgia Power in Item 7 of the Form 10-K for additional information regarding the EPA's and the U.S. Army Corps of Engineers' proposed rule revising the definition of waters of the U.S. under the Clean Water Act (CWA).
On June 29, 2015, the EPA and the U.S. Army Corps of Engineers jointly published a final rule revising the regulatory definition of waters of the U.S. for all CWA programs. The final rule significantly expands the scope of

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federal jurisdiction under the CWA and could have significant impacts on economic development projects which could affect customer demand growth. In addition, this rule could significantly increase permitting and regulatory requirements and costs associated with the siting of new facilities and the installation, expansion, and maintenance of transmission and distribution lines. The rule becomes effective August 28, 2015. The ultimate impact of the final rule will depend on the outcome of any legal challenges and the EPA's and the U.S. Army Corps of Engineers' field-level implementation of the rule and cannot be determined at this time.
Coal Combustion Residuals
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Coal Combustion Residuals" of Georgia Power in Item 7 of the Form 10-K for additional information regarding the EPA's regulation of CCR.
On April 17, 2015, the EPA published the Disposal of Coal Combustion Residuals from Electric Utilities final rule (CCR Rule) in the Federal Register, setting October 19, 2015 as the effective date of the CCR Rule. The ultimate impact of the CCR Rule cannot be determined at this time and will depend on Georgia Power's ongoing review of the CCR Rule, the results of initial and ongoing minimum criteria assessments, and the outcome of legal challenges. Based on initial estimates, Georgia Power recorded incremental asset retirement obligations (ARO) of approximately $82 million related to the CCR Rule in the second quarter 2015. As further analysis is performed, including evaluation of the expected timing and method of compliance and refinement of assumptions underlying the cost estimates, such as the quantities of CCR at each site, Georgia Power expects to periodically update these estimates. See Note (A) to the Condensed Financial Statements herein for additional information regarding Georgia Power's AROs.
Global Climate Issues
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Global Climate Issues" of Georgia Power in Item 7 of the Form 10-K for additional information regarding the EPA's proposed regulation of CO 2 from fossil-fuel-fired electric generating units.
On August 3, 2015, the EPA released pre-publication versions of two final rules that would limit CO 2 emissions from fossil fuel-fired electric generating units. One of the final rules contains specific emission standards governing CO 2 emissions from new, modified, and reconstructed units. The other final rule establishes guidelines for states to develop plans to meet EPA-mandated CO 2 emission rates for existing units. The EPA's final guidelines require state plans to meet interim CO 2 performance rates between 2022 and 2029 and final rates in 2030 and thereafter. At the same time, the EPA also proposed a federal plan and proposed model rule that states can adopt or that would be put in place if, in response to the final guidelines, a state either does not submit a state plan or its plan is not approved by the EPA. These guidelines and standards could result in operational restrictions and material compliance costs, including capital expenditures, which could affect future unit retirement and replacement decisions. Georgia Power's results of operations, cash flows, and financial condition could be significantly impacted if such costs are not recovered through regulated rates or through market-based contracts. However, the ultimate financial and operational impact of the final rules on Georgia Power cannot be determined at this time and will depend on numerous factors including the Southern Company system's ongoing review of the final rules; the outcome of any legal challenges; 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.
FERC Matters
Georgia Power has authority from the FERC to sell electricity at market-based rates. Since 2008, that authority, for certain balancing authority areas, has been conditioned on compliance with the requirements of an energy auction, which the FERC found to be tailored mitigation that addresses potential market power concerns. In accordance with

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FERC regulations governing such authority, the traditional operating companies (including Georgia Power) and Southern Power filed a triennial market power analysis on June 30, 2014, which included continued reliance on the energy auction as tailored mitigation. On April 27, 2015, the FERC issued an order finding that the traditional operating companies' (including Georgia Power's) and Southern Power's existing tailored mitigation may not effectively mitigate the potential to exert market power in certain areas served by the traditional operating companies and in some adjacent areas. To retain market-based rate authority, the FERC directed the traditional operating companies (including Georgia Power) and Southern Power to show why market-based rate authority should not be revoked in these areas or to provide a mitigation plan to further address market power concerns. The traditional operating companies (including Georgia Power) and Southern Power filed a request for rehearing on May 27, 2015 and on June 26, 2015 filed their response with the FERC. The ultimate outcome of this matter cannot be determined at this time.
Retail Regulatory Matters
Georgia Power's revenues from regulated retail operations are collected through various rate mechanisms subject to the oversight of the Georgia PSC. Georgia Power currently recovers its costs from the regulated retail business through the 2013 ARP, which includes traditional base tariff rates, Demand-Side Management (DSM) tariffs, ECCR tariffs, and Municipal Franchise Fee (MFF) tariffs. In addition, financing costs related to the construction of Plant Vogtle Units 3 and 4 are being collected through the NCCR tariff and fuel costs are collected through separate fuel cost recovery tariffs. See Note 3 to the financial statements of Georgia Power under "Retail Regulatory Matters" in Item 8 of the Form 10-K for additional information.
Renewables Development
As part of the Georgia Power Advanced Solar Initiative program, Georgia Power executed ten PPAs that were approved by the Georgia PSC in 2014 and provide for the purchase of energy from 515 MWs of solar capacity. These PPAs are expected to commence in December 2015 and 2016 and have terms ranging from 20 to 30 years. As a result of certain acquisitions by Southern Power, Georgia Power expects that 249 MWs of the 515 MWs of contracted capacity will be purchased from solar facilities owned or under development by Southern Power.
On June 15, 2015, Georgia Power executed a PPA to purchase a total of 58 MWs of biomass capacity and energy from a 79-MW facility in Georgia that will begin in 2017 and end in 2047. This PPA was approved by the Georgia PSC on April 15, 2015. Georgia Power also entered into an energy-only PPA for the remaining 21 MWs from the same facility.
On July 21, 2015, the Georgia PSC approved Georgia Power's request to build, own, and operate a 46-MW solar generation facility at a U.S. Marine Corps base in Albany, Georgia by the end of 2016.
Integrated Resource Plan
To comply with the April 16, 2015 effective date of the MATS rule, Plant Branch Units 1, 3, and 4 (1,266 MWs), Plant Yates Units 1 through 5 (579 MWs), and Plant McManus Units 1 and 2 (122 MWs) were retired on April 15, 2015. In addition, operations were discontinued at Plant Mitchell Unit 3 (155 MWs) and its decertification will be requested in connection with the triennial Integrated Resource Plan in 2016. The switch to natural gas as the primary fuel is complete at Plant Yates Units 7 and 6 and the units were returned to service on May 4, 2015 and June 27, 2015, respectively.
Fuel Cost Recovery
Georgia Power has established fuel cost recovery rates approved by the Georgia PSC. Georgia Power expects to file its next fuel case in September 2015. The ultimate outcome of this matter cannot be determined at this time.
Fuel cost recovery revenues are adjusted for differences in actual recoverable fuel costs and amounts billed in current regulated rates. Accordingly, changes in the billing factor will not have a significant effect on Georgia Power's revenues or net income, but will affect cash flow. See Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Fuel Cost Recovery" herein for additional information.

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Nuclear Construction
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Nuclear Construction" of Georgia Power in Item 7 and Note 3 to the financial statements of Georgia Power under "Retail Regulatory Matters – Nuclear Construction" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" herein for additional information regarding the construction of Plant Vogtle Units 3 and 4, Vogtle Construction Monitoring (VCM) reports, and pending litigation.
In 2008, Georgia Power, acting for itself and as agent for the Vogtle Owners, entered into an agreement (Vogtle 3 and 4 Agreement) with the Contractor, pursuant to which the Contractor agreed to design, engineer, procure, construct, and test Plant Vogtle Units 3 and 4. Under the terms of the Vogtle 3 and 4 Agreement, the Vogtle Owners agreed to pay a purchase price that is subject to certain price escalations and adjustments, including fixed escalation amounts and index-based adjustments, as well as adjustments for change orders, and performance bonuses for early completion and unit performance. The Vogtle 3 and 4 Agreement also provides for liquidated damages upon the Contractor's failure to fulfill the schedule and performance guarantees. The Contractor's liability to the Vogtle Owners for schedule and performance liquidated damages and warranty claims is subject to a cap. In addition, the Vogtle 3 and 4 Agreement provides for limited cost sharing by the Vogtle Owners for Contractor costs under certain conditions (which have not occurred), with maximum additional capital costs under this provision attributable to Georgia Power (based on Georgia Power's ownership interest) of approximately $114 million . Each Vogtle Owner is severally (and not jointly) liable for its proportionate share, based on its ownership interest, of all amounts owed to the Contractor under the Vogtle 3 and 4 Agreement. Georgia Power's proportionate share is 45.7% .
Certain payment obligations of Westinghouse and CB&I Stone & Webster, Inc. (formerly known as Stone & Webster, Inc.) under the Vogtle 3 and 4 Agreement are guaranteed by Toshiba Corporation and The Shaw Group Inc. (a subsidiary of Chicago Bridge & Iron Company, N.V.), respectively. In the event of certain credit rating downgrades of any Vogtle Owner, such Vogtle Owner will be required to provide a letter of credit or other credit enhancement. The Vogtle Owners may terminate the Vogtle 3 and 4 Agreement at any time for their convenience, provided that the Vogtle Owners will be required to pay certain termination costs. The Contractor may terminate the Vogtle 3 and 4 Agreement under certain circumstances, including certain Vogtle Owner suspension or delays of work, action by a governmental authority to permanently stop work, certain breaches of the Vogtle 3 and 4 Agreement by the Vogtle Owners, Vogtle Owner insolvency, and certain other events.
In 2009, the NRC issued an Early Site Permit and Limited Work Authorization which allowed limited work to begin on Plant Vogtle Units 3 and 4. The NRC certified the Westinghouse Design Control Document, as amended (DCD), for the AP1000 nuclear reactor design, in late 2011, and issued combined construction and operating licenses (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 are expected as construction proceeds.
In 2012, the Vogtle Owners and the Contractor began negotiations 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 Vogtle 3 and 4 Agreement. Also in 2012, Georgia Power and the other Vogtle Owners filed suit against the Contractor in the U.S. District Court for the Southern District of Georgia seeking a declaratory judgment that the Vogtle Owners are not responsible for these costs. In 2012, the Contractor also filed suit against Georgia Power and the other Vogtle Owners in the U.S. District Court for the District of Columbia alleging the Vogtle Owners are responsible for these costs. In 2013, the U.S. District Court for the District of Columbia dismissed the Contractor's suit, ruling that the proper venue is the U.S. District Court for the Southern District of Georgia. On March 10, 2015, the U.S. Court of Appeals for the District of Columbia Circuit affirmed the District Court's decision. The portion of additional costs claimed by the Contractor in its initial complaint that would be attributable to Georgia Power (based on Georgia Power's ownership interest) is approximately $425 million in 2008 dollars (approximately $591 million in 2015 dollars). The Contractor also asserted it is entitled to extensions of the guaranteed substantial completion dates of

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April 2016 and April 2017 for Plant Vogtle Units 3 and 4, respectively. In May 2014, the Contractor filed an amended counterclaim to the suit pending in the U.S. District Court for the Southern District of Georgia alleging that (i) the design changes to the DCD imposed by the NRC delayed module production and the impacts to the Contractor are recoverable by the Contractor under the Vogtle 3 and 4 Agreement and (ii) the changes to the basemat rebar design required by the NRC caused additional costs and delays recoverable by the Contractor under the Vogtle 3 and 4 Agreement. The Contractor did not specify in its amended counterclaim the amounts relating to these new allegations; however, the Contractor subsequently asserted estimated minimum damages related to the amended counterclaim (based on Georgia Power's ownership interest) of approximately $113 million in 2014 dollars (approximately $118 million in 2015 dollars). In June 2015, the Contractor updated its estimated damages under the initial complaint and the amended counterclaim to an aggregate (based on Georgia Power's ownership interest) of approximately $714 million (in 2015 dollars). The Contractor may from time to time continue to assert that it is entitled to additional payments with respect to these allegations, any of which could be substantial. Georgia Power has not agreed to the proposed cost or to any changes to the guaranteed substantial completion dates or that the Vogtle Owners have any responsibility for costs related to these issues. Litigation is ongoing and Georgia Power intends to vigorously defend the positions of the Vogtle Owners. Georgia Power also expects negotiations with the Contractor to continue with respect to cost and schedule. During such negotiations the parties may reach a mutually acceptable compromise of their positions.
Georgia Power is required to file semi-annual VCM reports with the Georgia PSC by February 28 and August 31 each year. If the projected certified construction capital costs to be borne by Georgia Power increase by 5% 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. Georgia Power's eighth VCM report filed in 2013 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 and the fourth quarter 2018 for Plant Vogtle Units 3 and 4, respectively. In 2013, the Georgia PSC approved a stipulation (2013 Stipulation) entered into by Georgia Power and the Georgia PSC 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. The Georgia PSC has approved eleven VCM reports covering the periods through June 30, 2014, including construction capital costs incurred, which through that date totaled $2.8 billion .
On January 29, 2015, Georgia Power announced it was notified by the Contractor of the Contractor's revised forecast for completion of Plant Vogtle Units 3 and 4, which would incrementally delay the previously disclosed estimated in-service dates by 18 months (from the fourth quarter of 2017 to the second quarter of 2019 for Unit 3 and from the fourth quarter of 2018 to the second quarter of 2020 for Unit 4).
Georgia Power believes that, pursuant to the Vogtle 3 and 4 Agreement, the Contractor is responsible for the Contractor's costs related to the Contractor's delay (including any related construction and mitigation costs, which could be material) and that the Vogtle Owners are entitled to recover liquidated damages for the Contractor's delay beyond the guaranteed substantial completion dates of April 2016 and April 2017 for Plant Vogtle Units 3 and 4, respectively. Consistent with the Contractor's position in the pending litigation described above, Georgia Power expects the Contractor to contest any claims for liquidated damages and to assert that the Vogtle Owners are responsible for additional costs related to the Contractor's delay.
On February 27, 2015, Georgia Power filed its twelfth VCM report with the Georgia PSC covering the period from July 1 through December 31, 2014, which requested approval for an additional $0.2 billion of construction capital costs incurred during that period. The twelfth VCM report also reflected the Contractor's revised forecast for completion of Plant Vogtle Units 3 and 4 as well as additional estimated owner-related costs, which include approximately $10 million per month expected to result from the Contractor's proposed 18-month delay, including property taxes, oversight costs, compliance costs, and other operational readiness costs. No Contractor costs related to the Contractor's proposed 18 -month delay were included in the twelfth VCM report. Additionally, while Georgia Power has not agreed to any change to the guaranteed substantial completion dates, the twelfth VCM report included a requested amendment (Requested Amendment) to the Plant Vogtle Units 3 and 4 certificate to reflect the Contractor's revised forecast, to include the estimated owner's costs associated with the proposed 18 -month

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Contractor delay, and to increase the estimated total in-service capital cost of Plant Vogtle Units 3 and 4 to $5.0 billion .
Georgia Power will continue to incur financing costs of approximately $30 million per month until Plant Vogtle Units 3 and 4 are placed in service. The twelfth VCM report estimated financing costs during the construction period to total approximately $2.5 billion .
On April 15, 2015, the Georgia PSC issued a procedural order in connection with the twelfth VCM report. Pursuant to this 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 accordance with the Georgia Integrated Resource Planning Act, any costs incurred by Georgia Power in excess of the certified amount will be included in rate base, provided Georgia Power shows the costs to be reasonable and prudent. Financing costs up to the certified amount will be collected through the NCCR tariff until the units are placed in service, while financing costs on any construction-related costs in excess of the $4.4 billion certified amount are expected to be recovered through AFUDC.
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 are expected to 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 ongoing challenges with Contractor performance including additional challenges in its 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 IRS 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.
Additional claims by the Contractor or Georgia Power (on behalf of the Vogtle Owners) are also likely to arise throughout construction. These claims may be resolved through formal and informal dispute resolution procedures under the Vogtle 3 and 4 Agreement, but also may be resolved through litigation.
See RISK FACTORS of Georgia Power in Item 1A of the Form 10-K for a discussion of certain risks associated with the licensing, construction, and operation of nuclear generating units, including potential impacts that could result from a major incident at a nuclear facility anywhere in the world.
The ultimate outcome of these matters cannot be determined at this time.
Other Matters
Georgia Power is involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Georgia Power is subject to certain claims and legal actions arising in the ordinary course of business. Georgia Power's business activities are subject to extensive governmental regulation related to public health and the environment, such as regulation of air emissions and water discharges. 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 CO 2 and other emissions, CCR, and alleged exposure to hazardous materials, and/or requests for injunctive relief in connection with such matters.
The ultimate outcome of such pending or potential litigation against Georgia Power cannot be predicted at this time; however, for current proceedings not specifically reported in Note (B) to the Condensed Financial Statements herein or in Note 3 to the financial statements of Georgia Power in Item 8 of the Form 10-K, management does not

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anticipate that the ultimate liabilities, if any, arising from such current proceedings would have a material effect on Georgia Power's financial statements. See Note (B) to the Condensed Financial Statements herein for a discussion of various other contingencies, regulatory matters, and other matters being litigated which may affect future earnings potential.
ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates
Georgia Power prepares its financial statements in accordance with GAAP. Significant accounting policies are described in Note 1 to the financial statements of Georgia Power in Item 8 of the Form 10-K. In the application of these policies, certain estimates are made that may have a material impact on Georgia Power's results of operations and related disclosures. Different assumptions and measurements could produce estimates that are significantly different from those recorded in the financial statements. See MANAGEMENT'S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES – "Application of Critical Accounting Policies and Estimates" of Georgia Power in Item 7 of the Form 10-K for a complete discussion of Georgia Power's critical accounting policies and estimates related to Electric Utility Regulation, Contingent Obligations, and Pension and Other Postretirement Benefits.
Asset Retirement Obligations
AROs are computed as the fair value of the ultimate costs for an asset's future retirement and are recorded in the period in which the liability is incurred. The costs are capitalized as part of the related long-lived asset and depreciated over the asset's useful life. In the absence of quoted market prices, AROs are estimated using present value techniques in which estimates of future cash outlays associated with the asset retirements are discounted using a credit-adjusted risk-free rate. Estimates of the timing and amounts of future cash outlays are based on projections of when and how the assets will be retired and the cost of future removal activities.
The liability for AROs primarily relates to the decommissioning of Georgia Power's nuclear facilities, which include Georgia Power's ownership interests in Plant Hatch and Plant Vogtle Units 1 and 2, and facilities that are subject to the CCR Rule, primarily ash ponds. In addition, Georgia Power has retirement obligations related to various landfill sites, underground storage tanks, and asbestos removal. Georgia Power also has identified retirement obligations related to certain transmission and distribution facilities, including the disposal of polychlorinated biphenyls in certain transformers; leasehold improvements; equipment on customer property; and property associated with Georgia Power's rail lines and natural gas pipelines. However, liabilities for the removal of these assets have not been recorded because the settlement timing for the retirement obligations related to these assets is indeterminable and, therefore, the fair value of the retirement obligations cannot be reasonably estimated. A liability for these AROs will be recognized when sufficient information becomes available to support a reasonable estimation of the ARO.
On April 17, 2015, the EPA published the final CCR Rule in the Federal Register, setting October 19, 2015 as the effective date of the CCR Rule. Georgia Power had previously recorded AROs as a result of state requirements in Georgia which closely align with the requirements of the CCR Rule. The cost estimates are based on information that was known as of June 30, 2015 using various assumptions related to closure and post-closure costs, timing of future cash outlays, inflation and discount rates, and the potential methods for complying with the CCR Rule requirements. As further analysis is performed, including evaluation of the expected timing and method of compliance and refinement of assumptions underlying the cost estimates, such as the quantities of CCR at each site, Georgia Power expects to periodically update these estimates. Given the significant judgment involved in estimating AROs, Georgia Power considers the liabilities for AROs to be critical accounting estimates.
See Note 1 to the financial statements of Georgia Power under "Asset Retirement Obligations and Other Costs of Removal" and "Nuclear Decommissioning" in Item 8 of the Form 10-K and Note (A) to the Condensed Financial Statements under "Asset Retirement Obligations" herein for additional information.

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Recently Issued Accounting Standards
The Financial Accounting Standards Board's (FASB) ASC 606, Revenue from Contracts with Customers , revises the accounting for revenue recognition effective for fiscal years beginning after December 15, 2017. Georgia Power continues to evaluate the requirements of ASC 606. The ultimate impact of the new standard has not yet been determined.
On April 7, 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs . The ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability and is effective for fiscal years beginning after December 15, 2015. Georgia Power currently reflects unamortized debt issuance costs in other deferred charges and assets on its balance sheet. Upon adoption, the reclassification will not have a material impact on the results of operations, financial position, or cash flows of Georgia Power.
FINANCIAL CONDITION AND LIQUIDITY
Overview
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Overview" of Georgia Power in Item 7 of the Form 10-K for additional information. Georgia Power's financial condition remained stable at June 30, 2015 . Georgia Power intends to continue to monitor its access to short-term and long-term capital markets as well as bank credit agreements to meet future capital and liquidity needs. See "Capital Requirements and Contractual Obligations," "Sources of Capital," and "Financing Activities" herein for additional information.
Net cash provided from operating activities totaled $774 million for the first six months of 2015 compared to $843 million for the corresponding period in 2014 . The decrease was primarily due to lower operating revenues, partially offset by increased fuel cost recovery. Net cash used for investing activities totaled $891 million for the first six months of 2015 compared to $917 million for the corresponding period in 2014 primarily related to installation of equipment to comply with environmental standards and construction of transmission and distribution facilities. Net cash provided from financing activities totaled $117 million for the first six months of 2015 compared to $90 million in the corresponding period in 2014 . The increase in cash provided from financing activities is primarily due to an increase in short-term debt borrowings. Fluctuations in cash flow from financing activities vary from period to period based on capital needs and the maturity or redemption of securities.
Significant balance sheet changes for the first six months of 2015 include increases of $468 million in property, plant, and equipment to comply with environmental standards and construction of generation, transmission, and distribution facilities and increases of $550 million and $231 million in short-term debt and long-term debt, respectively, to fund the continuous construction program and for general corporate purposes.
Capital Requirements and Contractual Obligations
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" of Georgia Power in Item 7 of the Form 10-K for a description of Georgia Power's capital requirements for its construction program, including estimated capital expenditures for Plant Vogtle Units 3 and 4 and to comply with existing environmental statutes and regulations, scheduled maturities of long-term debt, as well as related interest, derivative obligations, preferred and preference stock dividends, leases, purchase commitments, and trust funding requirements. Approximately $1.7 billion will be required through June 30, 2016 to fund maturities and announced redemptions of long-term debt. See "Sources of Capital" herein for additional information.
The construction program is 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

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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; Georgia 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. See Note 3 to the financial statements of Georgia Power under "Retail Regulatory Matters – Nuclear Construction" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" herein for information regarding additional factors that may impact construction expenditures.
Sources of Capital
Except as described below with respect to the DOE loan guarantees, Georgia Power plans to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily from operating cash flows, short-term debt, security issuances, term loans, and equity contributions from Southern Company. However, the amount, type, and timing of any future financings, if needed, will depend upon regulatory approval, prevailing market conditions, and other factors. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" of Georgia Power in Item 7 of the Form 10-K for additional information.
In addition, Georgia Power may make borrowings through a loan guarantee agreement (Loan Guarantee Agreement) between Georgia Power and the DOE, the proceeds of which may be used to reimburse Georgia Power for Eligible Project Costs incurred in connection with its construction of Plant Vogtle Units 3 and 4. Under the Loan Guarantee Agreement, the DOE agreed to guarantee borrowings of up to $3.46 billion (not to exceed 70% of Eligible Project Costs) to be made by Georgia Power under a multi-advance credit facility (FFB Credit Facility) among Georgia Power, the DOE, and the FFB. Eligible Project Costs incurred through June 30, 2015 would allow for borrowings of up to $2.2 billion under the FFB Credit Facility, of which Georgia Power has borrowed $1.8 billion . See Note 6 to the financial statements of Georgia Power under "DOE Loan Guarantee Borrowings" in Item 8 of the Form 10-K for additional information regarding the Loan Guarantee Agreement and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" herein for additional information regarding Plant Vogtle Units 3 and 4.
As of June 30, 2015 , Georgia Power's current liabilities exceeded current assets by $1.3 billion primarily due to approximately $1.9 billion of long-term debt due within one year and notes payable. For the remainder of 2015, Georgia Power expects to utilize borrowings through the FFB as the primary source of long-term borrowed funds. Georgia Power also intends to utilize operating cash flows, as well as commercial paper, lines of credit, bank notes, and securities issuances, as market conditions permit, and equity contributions from Southern Company to fund its short-term capital needs. Georgia Power has substantial cash flow from operating activities and access to the capital markets and financial institutions to meet liquidity needs.
At June 30, 2015 , Georgia Power had approximately $24 million of cash and cash equivalents. Committed credit arrangements with banks at June 30, 2015 were as follows:
Expires
 
 
 
Due Within One Year
2016
 
2018
 
Total
 
Unused
 
Term Out
 
No Term
Out
(in millions)
 
(in millions)
 
(in millions)
$
150

 
$
1,600

 
$
1,750

 
$
1,737

 
$
—

 
$
150

See Note 6 to the financial statements of Georgia Power under "Bank Credit Arrangements" in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under "Bank Credit Arrangements" herein for additional information.

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GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


A portion of the unused credit with banks is allocated to provide liquidity support to Georgia Power's variable rate pollution control revenue bonds and commercial paper program. The amount of variable rate pollution control revenue bonds outstanding requiring liquidity support as of June 30, 2015 was approximately $970 million. In addition, at June 30, 2015 , Georgia Power had $122 million of fixed rate pollution control revenue bonds outstanding that were required to be reoffered within the next 12 months.
Most of these bank credit arrangements contain covenants that limit debt levels and contain cross default provisions to other indebtedness (including guarantee obligations) of Georgia Power. Such cross default provisions to other indebtedness would trigger an event of default if Georgia Power defaulted on indebtedness or guarantee obligations over a specified threshold. Georgia Power is currently in compliance with all such covenants. None of the bank credit arrangements contain material adverse change clauses at the time of borrowings.
Subject to applicable market conditions, Georgia Power expects to renew or replace its credit arrangements, as needed, prior to expiration. In connection therewith, Georgia Power may extend the maturity dates and/or increase or decrease the lending commitments thereunder.
Georgia Power may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper at the request and for the benefit of Georgia Power and the other traditional operating companies. Proceeds from such issuances for the benefit of Georgia Power are loaned directly to Georgia Power. The obligations of each company under these arrangements are several and there is no cross-affiliate credit support.
Details of short-term borrowings were as follows:
 
 
Short-term Debt at
June 30, 2015
 
Short-term Debt During the Period (*)
 
 
Amount
Outstanding
 
Weighted
Average
Interest
Rate
 
Average
Outstanding
 
Weighted
Average
Interest
Rate
 
Maximum
Amount
Outstanding
 
 
(in millions)
 
 
 
(in millions)
 
 
 
(in millions)
Commercial paper
 
$
200

 
0.3
%
 
$
370

 
0.3
%
 
$
598

Short-term bank debt
 
—

 
—
%
 
247

 
0.8
%
 
250

Total
 
$
200

 
0.3
%
 
$
617

 
0.5
%
 
 
(*)
Average and maximum amounts are based upon daily balances during the three-month period ended June 30, 2015 .
Georgia Power believes the need for working capital can be adequately met by utilizing commercial paper programs, lines of credit, short-term bank notes, and operating cash flows.
Credit Rating Risk
Georgia Power does not have any credit arrangements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade.

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GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


There are certain contracts that could require collateral, but not accelerated payment, in the event of a credit rating change to BBB- and/or Baa3 or below. These contracts are for physical electricity purchases and sales, fuel purchases, fuel transportation and storage, energy price risk management, interest rate derivatives, and construction of new generation.
The maximum potential collateral requirements under these contracts at June 30, 2015 were as follows:
Credit Ratings
Maximum Potential
Collateral
Requirements
 
(in millions)
At BBB- and/or Baa3
$
102

Below BBB- and/or Baa3
1,341

Included in these amounts are certain agreements that could require collateral in the event that one or more Southern Company system power pool participants has a credit rating change to below investment grade. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, a credit rating downgrade could impact Georgia Power's access to the short-term debt market and the variable rate pollution control revenue bond market.
Subsequent to June 30, 2015, S&P placed its ratings of Southern Company and the traditional operating companies (including Georgia Power) on CreditWatch with negative implications.
Financing Activities
In March 2015, Georgia Power entered into a $250 million aggregate principal amount three-month floating rate bank loan bearing interest based on one-month LIBOR. The proceeds were used for working capital and other general corporate purposes and the loan was repaid at maturity.
In April 2015, Georgia Power purchased and held $65 million aggregate principal amount of Development Authority of Burke County (Georgia) Pollution Control Revenue Bonds (Georgia Power Company Plant Vogtle Project), Second Series 2008. Georgia Power reoffered these bonds to the public in May 2015.
In April 2015, Georgia Power redeemed $125 million aggregate principal amount of its Series Y 5.80% Senior Notes due April 15, 2035.
In May 2015, Georgia Power reoffered to the public $104.6 million aggregate principal amount of Development Authority of Burke County (Georgia) Pollution Control Revenue Bonds (Georgia Power Company Plant Vogtle Project), First Series 2013, which had been previously purchased and held by Georgia Power since 2013.
In June 2015, Georgia Power made additional borrowings under the FFB Credit Facility in an aggregate principal amount of $600 million. The interest rate applicable to the $600 million principal amount is 3.283% for an interest period that extends to the final maturity date of February 20, 2044. The proceeds were used to reimburse Georgia Power for Eligible Project Costs relating to the construction of Plant Vogtle Units 3 and 4. Georgia Power settled $350 million of interest rate swaps related to this borrowing for approximately $6 million, which will be amortized to interest expense over 10 years.
Subsequent to June 30, 2015, $97.925 million aggregate principal amount of the Development Authority of Putnam County (Georgia) Pollution Control Revenue Bonds (Georgia Power Company Plant Branch Project), First Series 1996, First Series 1997, Second Series 1997, and First Series 1998 were redeemed.
In addition to any financings that may be necessary to meet capital requirements and contractual obligations, Georgia Power plans to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit.

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GULF POWER COMPANY

81
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GULF POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2015

2014
 
2015
 
2014
 
(in millions)
 
(in millions)
Operating Revenues:
 
 
 
 
 
 
 
Retail revenues
$
327

 
$
310

 
$
620

 
$
613

Wholesale revenues, non-affiliates
27

 
34

 
52

 
70

Wholesale revenues, affiliates
13

 
24

 
35

 
76

Other revenues
17

 
16

 
34

 
32

Total operating revenues
384

 
384

 
741

 
791

Operating Expenses:
 
 
 
 
 
 
 
Fuel
122

 
145

 
232

 
314

Purchased power, non-affiliates
25

 
14

 
50

 
30

Purchased power, affiliates
9

 
9

 
17

 
16

Other operations and maintenance
91

 
82

 
185

 
164

Depreciation and amortization
40

 
39

 
60

 
71

Taxes other than income taxes
28

 
26

 
56

 
53

Total operating expenses
315

 
315

 
600

 
648

Operating Income
69

 
69

 
141

 
143

Other Income and (Expense):
 
 
 
 
 
 
 
Allowance for equity funds used during construction
3

 
3

 
8

 
5

Interest expense, net of amounts capitalized
(12
)
 
(13
)
 
(26
)
 
(27
)
Other income (expense), net
(1
)
 
(1
)
 
(2
)
 
(1
)
Total other income and (expense)
(10
)
 
(11
)
 
(20
)
 
(23
)
Earnings Before Income Taxes
59

 
58

 
121

 
120

Income taxes
21

 
22

 
44

 
45

Net Income
38

 
36

 
77

 
75

Dividends on Preference Stock
3

 
2

 
5

 
4

Net Income After Dividends on Preference Stock
$
35

 
$
34

 
$
72

 
$
71

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
 
(in millions)
Net Income
$
38

 
$
36

 
$
77

 
$
75

Other comprehensive income (loss)
—

 
—

 
—

 
—

Comprehensive Income
$
38

 
$
36

 
$
77

 
$
75

The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.

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GULF POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
(in millions)
Operating Activities:
 
 
 
Net income
$
77

 
$
75

Adjustments to reconcile net income to net cash provided from operating activities —
 
 
 
Depreciation and amortization, total
64

 
75

Deferred income taxes
40

 
20

Allowance for equity funds used during construction
(8
)
 
(5
)
Other, net
11

 
1

Changes in certain current assets and liabilities —
 
 
 
-Receivables
(15
)
 
(57
)
-Fossil fuel stock
6

 
39

-Prepaid income taxes
12

 
9

-Other current assets
1

 
2

-Accounts payable
(9
)
 
1

-Accrued taxes
15

 
12

-Accrued compensation
(10
)
 
—

-Over recovered regulatory clause revenues
—

 
9

-Other current liabilities
(1
)
 
(4
)
Net cash provided from operating activities
183

 
177

Investing Activities:
 
 
 
Property additions
(148
)
 
(159
)
Cost of removal, net of salvage
(7
)
 
(6
)
Other investing activities
(19
)
 
(5
)
Net cash used for investing activities
(174
)
 
(170
)
Financing Activities:
 
 
 
Increase in notes payable, net
4

 
3

Proceeds —
 
 
 
Common stock issued to parent
20

 
50

Pollution control revenue bonds
—

 
42

Short-term borrowings
40

 
—

Redemptions — Pollution control revenue bonds
—

 
(29
)
Payment of preference stock dividends
(5
)
 
(5
)
Payment of common stock dividends
(65
)
 
(62
)
Other financing activities
2

 
2

Net cash provided from (used for) financing activities
(4
)
 
1

Net Change in Cash and Cash Equivalents
5

 
8

Cash and Cash Equivalents at Beginning of Period
39

 
22

Cash and Cash Equivalents at End of Period
$
44

 
$
30

Supplemental Cash Flow Information:
 
 
 
Cash paid (received) during the period for —
 
 
 
Interest (net of $3 and $2 capitalized for 2015 and 2014, respectively)
$
26

 
$
26

Income taxes, net
(9
)
 
17

Noncash transactions — Accrued property additions at end of period
28

 
31

The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.

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GULF POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
 
Assets
 
At June 30,
2015
 
At December 31,
2014
 
 
(in millions)
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
44

 
$
39

Receivables —
 
 
 
 
Customer accounts receivable
 
93

 
73

Unbilled revenues
 
77

 
58

Under recovered regulatory clause revenues
 
38

 
57

Other accounts and notes receivable
 
9

 
8

Affiliated companies
 
4

 
10

Accumulated provision for uncollectible accounts
 
(2
)
 
(2
)
Fossil fuel stock, at average cost
 
95

 
101

Materials and supplies, at average cost
 
55

 
56

Other regulatory assets, current
 
72

 
74

Prepaid expenses
 
35

 
40

Other current assets
 
3

 
2

Total current assets
 
523

 
516

Property, Plant, and Equipment:
 
 
 
 
In service
 
4,600

 
4,495

Less accumulated provision for depreciation
 
1,234

 
1,296

Plant in service, net of depreciation
 
3,366

 
3,199

Other utility plant, net
 
77

 
—

Construction work in progress
 
387

 
465

Total property, plant, and equipment
 
3,830

 
3,664

Other Property and Investments
 
15

 
15

Deferred Charges and Other Assets:
 
 
 
 
Deferred charges related to income taxes
 
59

 
56

Other regulatory assets, deferred
 
406

 
416

Other deferred charges and assets
 
41

 
41

Total deferred charges and other assets
 
506

 
513

Total Assets
 
$
4,874

 
$
4,708

The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.


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GULF POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
 
Liabilities and Stockholder's Equity
 
At June 30,
2015
 
At December 31,
2014
 
 
(in millions)
Current Liabilities:
 
 
 
 
Notes payable
 
$
154

 
$
110

Accounts payable —
 
 
 
 
Affiliated
 
72

 
87

Other
 
52

 
56

Customer deposits
 
36

 
35

Other accrued taxes
 
24

 
9

Accrued interest
 
10

 
11

Accrued compensation
 
13

 
23

Deferred capacity expense, current
 
22

 
22

Liabilities from risk management activities
 
32

 
37

Other current liabilities
 
21

 
23

Total current liabilities
 
436

 
413

Long-term Debt
 
1,370

 
1,370

Deferred Credits and Other Liabilities:
 
 
 
 
Accumulated deferred income taxes
 
852

 
800

Employee benefit obligations
 
119

 
121

Other cost of removal obligations
 
222

 
235

Other regulatory liabilities, deferred
 
49

 
49

Deferred capacity expense
 
152

 
163

Other deferred credits and liabilities
 
187

 
101

Total deferred credits and other liabilities
 
1,581

 
1,469

Total Liabilities
 
3,387

 
3,252

Preference Stock
 
147

 
147

Common Stockholder's Equity:
 
 
 
 
Common stock, without par value —
 
 
 
 
Authorized — 20,000,000 shares
 
 
 
 
Outstanding — June 30, 2015: 5,642,717 shares
 
 
 
 
                — December 31, 2014: 5,442,717 shares
 
503

 
483

Paid-in capital
 
564

 
560

Retained earnings
 
274

 
267

Accumulated other comprehensive loss
 
(1
)
 
(1
)
Total common stockholder's equity
 
1,340

 
1,309

Total Liabilities and Stockholder's Equity
 
$
4,874

 
$
4,708

The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.

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Table of Contents
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SECOND QUARTER 2015 vs. SECOND QUARTER 2014
AND
YEAR-TO-DATE 2015 vs. YEAR-TO-DATE 2014


OVERVIEW
Gulf Power operates as a vertically integrated utility providing electricity to retail customers within its traditional service territory located in northwest Florida and to wholesale customers in the Southeast.
Many factors affect the opportunities, challenges, and risks of Gulf Power's business of selling electricity. These factors include the ability to maintain a constructive regulatory environment, to maintain and grow energy sales, and to effectively manage and secure timely recovery of costs. These costs include those related to projected long-term demand growth, increasingly stringent environmental standards, reliability, restoration following major storms, and fuel. Appropriately balancing required costs and capital expenditures with customer prices will continue to challenge Gulf Power for the foreseeable future. Capacity revenues represent the majority of Gulf Power's wholesale earnings. Gulf Power currently has long-term sales agreements for 100% of Gulf Power's co-ownership of Plant Scherer Unit 3 (205 MWs) through 2015 and 41% through 2019. These capacity revenues represented 82% of total wholesale capacity revenues for 2014. Gulf Power is actively evaluating strategic alternatives related to this asset, including replacement wholesale contracts, but the expiration of current contracts could have a material negative impact on Gulf Power's earnings.
Gulf Power continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, and net income after dividends on preference stock. For additional information on these indicators, see MANAGEMENT'S DISCUSSION AND ANALYSIS – OVERVIEW – "Key Performance Indicators" of Gulf Power in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$1
 
2.9
 
$1
 
1.4
Gulf Power's net income after dividends on preference stock for the second quarter 2015 was $35 million compared to $34 million for the corresponding period in 2014 . The increase was primarily due to higher retail revenues related to a base rate increase, partially offset by higher operations and maintenance expenses.
Gulf Power's net income after dividends on preference stock for year-to-date 2015 was $72 million compared to $71 million for the corresponding period in 2014 . The increase was primarily due to a reduction in depreciation, as authorized by the Florida PSC, and higher retail revenues related to a base rate increase, partially offset by higher operations and maintenance expenses.
Retail Revenues
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$17
 
5.5
 
$7
 
1.1
In the second quarter 2015 , retail revenues were $327 million compared to $310 million for the corresponding period in 2014 . For year-to-date 2015 , retail revenues were $620 million compared to $613 million for the corresponding period in 2014 .

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GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Details of the changes in retail revenues were as follows:
 
 
Second Quarter
2015
 
Year-to-Date
 2015
 
 
(in millions)
 
(% change)
 
(in millions)
 
(% change)
Retail – prior year
 
$
310

 
 
 
$
613

 
 
Estimated change resulting from –
 
 
 
 
 
 
 
 
Rates and pricing
 
7

 
2.3

 
10

 
1.7

Sales growth
 
2

 
0.6

 
—

 
—

Weather
 
4

 
1.3

 
4

 
0.6

Fuel and other cost recovery
 
4

 
1.3

 
(7
)
 
(1.2
)
Retail – current year
 
$
327

 
5.5
%
 
$
620

 
1.1
 %
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters" of Gulf Power in Item 7 and Note 1 to the financial statements of Gulf Power under "Revenues" and Note 3 to the financial statements of Gulf Power under "Retail Regulatory Matters" in Item 8 of the Form 10-K for additional information regarding Gulf Power's retail base rate case and cost recovery clauses, including Gulf Power's fuel cost recovery, purchased power capacity recovery, environmental cost recovery, and energy conservation cost recovery clauses.
Revenues associated with changes in rates and pricing increased in the second quarter and year-to-date 2015 when compared to the corresponding periods in 2014 primarily due to an increase in retail base rates effective in January 2015, as authorized in a settlement agreement for Gulf Power's 2013 base rate case, and higher revenues associated with an increase in the environmental and energy conservation cost recovery clause rates effective in January 2015.
Revenues attributable to changes in sales increased in the second quarter 2015 when compared to the corresponding period in 2014 . Weather-adjusted KWH energy sales to residential and commercial customers increased 3.0% and 1.6%, respectively, due to customer growth and higher customer usage. KWH energy sales to industrial customers decreased 2.8% primarily due to increased customer co-generation.
Revenues attributable to changes in sales remained essentially flat year-to-date 2015 when compared to the corresponding period in 2014 . Weather-adjusted KWH energy sales to residential and commercial customers decreased 0.9% and 0.1%, respectively, due to lower customer usage, partially offset by customer growth. KWH energy sales to industrial customers decreased 2.7% primarily due to increased customer co-generation.
Fuel and other cost recovery revenues increased in the second quarter 2015 when compared to the corresponding period in 2014 primarily due to higher revenues associated with increased recoverable purchased power capacity costs, partially offset by lower revenues associated with fuel costs as the result of decreased generation and lower purchased power energy costs. For year-to-date 2015 , fuel and other cost recovery revenues decreased when compared to the corresponding period in 2014 primarily due to lower revenues associated with fuel costs as a result of decreased generation and lower purchased power energy costs, partially offset by higher revenues associated with purchased power capacity costs.
Fuel and other cost recovery provisions include fuel expenses, the energy component of purchased power costs, purchased power capacity costs, and the difference between projected and actual costs and revenues related to energy conservation and environmental compliance. See Note 3 to the financial statements of Gulf Power under "Retail Regulatory Matters – Cost Recovery Clauses – Retail Fuel Cost Recovery" in Item 8 of the Form 10-K for additional information.

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GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Wholesale Revenues – Non-Affiliates
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$(7)
 
(20.6)
 
$(18)
 
(25.7)
Wholesale revenues from sales to non-affiliates consist of long-term sales agreements to other utilities in Florida and Georgia and short-term opportunity sales. Capacity revenues from long-term sales agreements represent the greatest contribution to wholesale earnings. Energy is generally sold at variable cost and does not have a significant impact on wholesale earnings. Short-term opportunity sales are made at market-based rates that generally provide a margin above Gulf Power's variable cost of energy. Wholesale energy revenues from sales to non-affiliates will vary depending on fuel prices, the market prices of wholesale energy compared to the cost of Gulf Power's and the Southern Company system's generation, demand for energy within the Southern Company system's service territory, and the availability of the Southern Company system's generation.
In the second quarter 2015 , wholesale revenues from sales to non-affiliates were $27 million compared to $34 million for the corresponding period in 2014 . The decrease was primarily due to a 43.5% decrease in KWH sales resulting from lower sales under the Plant Scherer Unit 3 long-term sales agreements due to a planned outage and lower natural gas prices that led to increased customer-owned generation.
For year-to-date 2015 , wholesale revenues from sales to non-affiliates were $52 million compared to $70 million for the corresponding period in 2014 . The decrease was primarily due to a 52.1% decrease in KWH sales resulting from lower sales under the Plant Scherer Unit 3 long-term sales agreements due to a planned outage and lower natural gas prices that led to increased customer-owned generation.
Wholesale Revenues – Affiliates
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$(11)
 
(45.8)
 
$(41)
 
(53.9)
Wholesale revenues from sales to affiliated companies will vary depending on demand and the availability and cost of generating resources at each company. These affiliate sales are made in accordance with the IIC, as approved by the FERC. These transactions do not have a significant impact on earnings since the revenue related to these energy sales generally offsets the cost of energy sold.
In the second quarter 2015 , wholesale revenues from sales to affiliates were $13 million compared to $24 million for the corresponding period in 2014 . The decrease was primarily due to a 29.9% decrease in KWH sales that resulted from planned outages for Gulf Power generation resources and a 20.6% decrease in the price of energy sold to affiliates due to lower power pool interchange rates resulting from lower natural gas prices.
For year-to-date 2015 , wholesale revenues from sales to affiliates were $35 million compared to $76 million for the corresponding period in 2014 . The decrease was primarily due to a 37.2% decrease in KWH sales that resulted from planned outages for Gulf Power generation resources and a 26.1% decrease in the price of energy sold to affiliates due to lower power pool interchange rates resulting from lower natural gas prices.

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GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Fuel and Purchased Power Expenses
 
 
 Second Quarter 2015
vs.
Second Quarter 2014
 
 Year-to-Date 2015
vs.
Year-to-Date 2014
 
 
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
Fuel
 
$
(23
)
 
(15.9
)
 
$
(82
)
 
(26.1
)
Purchased power – non-affiliates
 
11

 
78.6

 
20

 
66.7

Purchased power – affiliates
 
—

 
—

 
1

 
6.3

Total fuel and purchased power expenses
 
$
(12
)
 
 
 
$
(61
)
 
 
In the second quarter 2015 , total fuel and purchased power expenses were $156 million compared to $168 million for the corresponding period in 2014 . The decrease was primarily the result of a $9 million decrease in the volume of KWHs generated and purchased due to planned outages for Gulf Power's generation and a resource contracted under a PPA and a $3 million net decrease due to the lower average cost of fuel and purchased power.
For year-to-date 2015 , total fuel and purchased power expenses were $299 million compared to $360 million for the corresponding period in 2014 . The decrease was primarily the result of a $50 million decrease in the volume of KWHs generated and purchased due to planned outages for Gulf Power's generation and a resource contracted under a PPA and an $11 million net decrease due to the lower average cost of fuel and purchased power.
Fuel and purchased power transactions do not have a significant impact on earnings since energy and capacity expenses are generally offset by energy and capacity revenues through Gulf Power's fuel cost and purchased power capacity recovery clauses. See Note 3 to the financial statements of Gulf Power under "Retail Regulatory Matters – Cost Recovery Clauses – Retail Fuel Cost Recovery" and " – Purchased Power Capacity Recovery" in Item 8 of the Form 10-K for additional information.
Details of Gulf Power's generation and purchased power were as follows:
 
 
Second Quarter
2015
 
Second Quarter
2014
 
Year-to-Date 2015
 
Year-to-Date 2014
Total generation (millions of KWHs)
 
2,360
 
2,670
 
4,596
 
5,632
Total purchased power  (millions of KWHs)
 
1,336
 
1,281
 
2,594
 
2,711
Sources of generation (percent) –
 
 
 
 
 
 
 
 
Coal
 
61
 
69
 
60
 
70
Gas
 
39
 
31
 
40
 
30
Cost of fuel, generated (cents per net KWH) –
 
 
 
 
 
 
 
 
Coal
 
4.05
 
4.09
 
4.02
 
4.21
Gas
 
4.38
 
3.99
 
4.17
 
3.82
Average cost of fuel, generated  (cents per net KWH)
 
4.18
 
4.06
 
4.08
 
4.09
Average cost of purchased power (cents per net KWH) (*)
 
4.25
 
4.71
 
4.31
 
4.75
(*)
Average cost of purchased power includes fuel purchased by Gulf Power for tolling agreements where power is generated by the provider.
Fuel
In the second quarter 2015 , fuel expense was $122 million compared to $145 million for the corresponding period in 2014 . The decrease was primarily due to an 11.6% decrease in the volume of KWHs generated due to planned outages for Gulf Power's generation and a resource contracted under a PPA. This was partially offset by a 3.0% increase in the average cost of fuel due to higher natural gas prices per KWH generated, which includes firm gas transportation and storage.

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GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For year-to-date 2015 , fuel expense was $232 million compared to $314 million for the corresponding period in 2014 . The decrease was primarily due to an 18.4% decrease in the volume of KWHs generated due to planned outages for Gulf Power's generation and a resource contracted under a PPA.
Purchased Power – Non-Affiliates
In the second quarter 2015 , purchased power expense from non-affiliates was $25 million compared to $14 million for the corresponding period in 2014 . The increase was primarily due to a $10 million increase in capacity costs associated with a scheduled rate increase for an existing PPA, partially offset by the expiration of another PPA in mid-2014. The increase was partially offset by a 7.9% decrease in the volume of KWHs purchased due to a planned outage for a resource contracted under a PPA.
For year-to-date 2015 , purchased power expense from non-affiliates was $50 million compared to $30 million for the corresponding period in 2014 . The increase was primarily due to a $26 million increase in capacity costs associated with a scheduled rate increase for an existing PPA, partially offset by the expiration of another PPA in mid-2014. The increase was partially offset by a 17.4% decrease in the volume of KWHs purchased due to a planned outage for a resource contracted under a PPA.
Energy purchases from non-affiliates will vary depending on the market prices of wholesale energy as compared to the cost of the Southern Company system's generation, demand for energy within the Southern Company system's service territory, and the availability of the Southern Company system's generation.
Purchased Power – Affiliates
In the second quarter 2015 and the corresponding period in 2014 , purchased power expense from affiliates was $9 million . The volume of KWHs purchased increased 55.4% due to planned outages for Gulf Power's generation and a resource contracted under a PPA. The increase was offset by a 39.1% decrease in the average cost per KWH purchased due to lower power pool interchange rates.
For year-to-date 2015 , purchased power expense from affiliates was $17 million compared to $16 million for the corresponding period in 2014 . The increase was primarily due to a 68.5% increase in the volume of KWHs purchased due to planned outages for Gulf Power's generation and a resource contracted under a PPA, largely offset by a 36.0% decrease in the average cost per KWH purchased due to lower power pool interchange rates.
Energy purchases from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC or other contractual agreements, all as approved by the FERC.
Other Operations and Maintenance Expenses
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$9
 
11.0
 
$21
 
12.8
In the second quarter 2015 , other operations and maintenance expenses were $91 million compared to $82 million for the corresponding period in 2014 . The increase was primarily due to increases of $6 million in routine and planned maintenance expenses at generation and distribution facilities, $1 million in energy services expenses, $1 million in customer service expenses, and $1 million in employee benefits including pension costs.
For year-to-date 2015 , other operations and maintenance expenses were $185 million compared to $164 million for the corresponding period in 2014 . The increase was primarily due to increases of $11 million in routine and planned maintenance expenses at generation facilities, $2 million in energy services expenses, $2 million in customer service expenses, and $2 million in employee benefits including pension costs.

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Expenses from energy services did not have a significant impact on earnings since they were generally offset by associated revenues. See Note (F) to the Condensed Financial Statements herein for additional information related to pension costs.
Depreciation and Amortization
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$1
 
2.6
 
$(11)
 
(15.5)
In the second quarter 2015 , depreciation and amortization was $40 million compared to $39 million for the corresponding period in 2014 . The increase in depreciation and amortization was primarily attributable to property additions at generation, transmission, and distribution facilities.
For year-to-date 2015 , depreciation and amortization was $60 million compared to $71 million for the corresponding period in 2014 . As authorized by the Florida PSC in a settlement agreement, Gulf Power recorded a $19.6 million reduction in depreciation in the first half of 2015 as compared to $5.4 million in the corresponding period in 2014. The decrease was partially offset by increases of $3 million primarily attributable to property additions at generation, transmission, and distribution facilities.
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Retail Base Rate Case" of Gulf Power in Item 7 and Note 3 to the financial statements of Gulf Power under "Retail Regulatory Matters – Retail Base Rate Case" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Gulf Power – Retail Base Rate Case" herein for additional information.
Taxes Other Than Income Taxes
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$2
 
7.7
 
$3
 
5.7
In the second quarter 2015 , taxes other than income taxes were $28 million compared to $26 million for the corresponding period in 2014 . For year-to-date 2015 , taxes other than income taxes were $56 million compared to $53 million for the corresponding period in 2014 . The increases were primarily due to increases in property taxes, franchise fees, and gross receipts taxes. Franchise fees and gross receipts taxes have no impact on net income.
Allowance for Equity Funds Used During Construction
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$—
 
—
 
$3
 
60.0
For year-to-date 2015 , AFUDC equity was $8 million compared to $5 million for the corresponding period in 2014 . The increase was primarily due to increased construction related to environmental control projects at generation facilities.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Gulf Power's future earnings potential. The level of Gulf Power's future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Gulf Power's business of selling electricity. These factors include Gulf Power's ability to maintain a constructive regulatory environment that continues to allow for the timely recovery of prudently-incurred costs during a time of increasing costs. Future earnings in the near term will depend, in part, upon maintaining and

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growing sales which are subject to a number of factors. These factors include weather, competition, energy conservation practiced by customers, the price of electricity, the price elasticity of demand, the rate of economic growth or decline in Gulf Power's service territory, and the successful remarketing of wholesale capacity as current contracts expire. Changes in regional and global economic conditions may impact sales for Gulf Power as the pace of the economic recovery remains uncertain. The timing and extent of the economic recovery will impact growth and may impact future earnings. For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL of Gulf Power in Item 7 of the Form 10-K.
Gulf Power's wholesale business consists of two types of agreements. The first type, referred to as requirements service, provides that Gulf Power serves the customer's capacity and energy requirements from Gulf Power resources. The second type, referred to as a unit sale, is a wholesale customer purchase from a dedicated generating plant unit where a portion of that unit is reserved for the customer. These agreements are associated with Gulf Power's co-ownership of Plant Scherer Unit 3 (205 MWs) and consist of both capacity and energy sales. Capacity revenues represent the majority of Gulf Power's wholesale earnings. Gulf Power currently has long-term sales agreements for 100% of Gulf Power's co-ownership of that unit through 2015 and 41% through 2019. These capacity revenues represented 82% of total wholesale capacity revenues for 2014. Gulf Power is actively evaluating strategic alternatives related to this asset, including replacement wholesale contracts, but the expiration of current contracts could have a material negative impact on Gulf Power's earnings. In the event some portion of Gulf Power's ownership in Plant Scherer 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.
Environmental Matters
Compliance costs related to federal and state environmental statutes and regulations could affect earnings if such costs cannot continue to be fully recovered in retail rates or through long-term wholesale agreements on a timely basis or through market-based contracts. The State of Florida has statutory provisions that allow a utility to petition the Florida PSC for recovery of prudent environmental compliance costs that are not being recovered through base rates or any other recovery mechanism. Gulf Power's current long-term wholesale agreements contain provisions that permit charging the customer with costs incurred as a result of changes in environmental laws and regulations. The full impact of any such regulatory or legislative changes cannot be determined at this time. Environmental compliance spending over the next several years may differ materially from the amounts estimated. The timing, specific requirements, and estimated costs could change as environmental statutes and regulations are adopted or modified. Further, higher costs that are recovered through regulated rates or long-term wholesale agreements could contribute to reduced demand for electricity as well as impact the cost competitiveness of wholesale capacity, which could negatively affect results of operations, cash flows, and financial condition. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" and "Retail Regulatory Matters – Cost Recovery Clauses – Environmental Cost Recovery" of Gulf Power in Item 7 and Note 3 to the financial statements of Gulf Power under "Environmental Matters" in Item 8 of the Form 10-K for additional information.
Environmental Statutes and Regulations
Air Quality
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Air Quality" of Gulf Power in Item 7 of the Form 10-K for additional information regarding the EPA's proposed regulations governing emissions during startup, shutdown, or malfunction (SSM), the final MATS rule, and the Cross State Air Pollution Rule (CSAPR).
On June 12, 2015, the EPA published a final rule requiring affected states (including Florida, Georgia, and Mississippi) to revise or remove state implementation plan (SIP) provisions regarding excess emissions that occur during periods of SSM by no later than November 22, 2016. The ultimate impact of the final rule will depend on the

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outcome of any legal challenges and the development and approval of SIPs by the affected states and cannot be determined at this time.
On June 29, 2015, the U.S. Supreme Court issued a decision finding that the EPA had failed to properly consider costs in its decision to regulate hazardous air pollutant emissions from electric generating units under the MATS rule and remanded the case to the U.S. Court of Appeals for the District of Columbia Circuit for further proceedings. The MATS rule remains in effect while the U.S. Court of Appeals for the District of Columbia Circuit and the EPA respond to the decision. The ultimate impact of this decision cannot be determined at this time.
On July 28, 2015, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion invalidating certain emissions budgets under the CSAPR Phase II emissions trading program for a number of states, including Florida and Georgia. The court's decision leaves the emissions trading program in place and remands the rule to the EPA for further action consistent with the court's decision. The court rejected all other pending challenges to the rule. The ultimate impact of this decision will depend on additional rulemaking and cannot be determined at this time.
Water Quality
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Water Quality" of Gulf Power in Item 7 of the Form 10-K for additional information regarding the EPA's and the U.S. Army Corps of Engineers' proposed rule revising the definition of waters of the U.S. under the Clean Water Act (CWA).
On June 29, 2015, the EPA and the U.S. Army Corps of Engineers jointly published a final rule revising the regulatory definition of waters of the U.S. for all CWA programs. The final rule significantly expands the scope of federal jurisdiction under the CWA and could have significant impacts on economic development projects which could affect customer demand growth. In addition, this rule could significantly increase permitting and regulatory requirements and costs associated with the siting of new facilities and the installation, expansion, and maintenance of transmission and distribution lines. The rule becomes effective August 28, 2015. The ultimate impact of the final rule will depend on the outcome of any legal challenges and the EPA's and the U.S. Army Corps of Engineers' field-level implementation of the rule and cannot be determined at this time.
Coal Combustion Residuals
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Coal Combustion Residuals" of Gulf Power in Item 7 of the Form 10-K for additional information regarding the EPA's regulation of CCR.
On April 17, 2015, the EPA published the Disposal of Coal Combustion Residuals from Electric Utilities final rule (CCR Rule) in the Federal Register, setting October 19, 2015 as the effective date of the CCR Rule. The ultimate impact of the CCR Rule cannot be determined at this time and will depend on Gulf Power's ongoing review of the CCR Rule, the results of initial and ongoing minimum criteria assessments, and the outcome of legal challenges. Based on initial estimates, Gulf Power recorded incremental asset retirement obligations (ARO) of approximately $75 million related to the CCR Rule in the second quarter 2015. As further analysis is performed, including evaluation of the expected timing and method of compliance and refinement of assumptions underlying the cost estimates, such as the quantities of CCR at each site, Gulf Power expects to periodically update these estimates.
In connection with a proposed settlement related to the closure of Plant Scholz, Gulf Power may incur additional AROs associated with CCR of approximately $15 million to $35 million.
See Note (A) to the Condensed Financial Statements herein for additional information regarding Gulf Power's AROs.

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Global Climate Issues
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Global Climate Issues" of Gulf Power in Item 7 of the Form 10-K for additional information regarding the EPA's proposed regulation of CO 2 from fossil-fuel-fired electric generating units.
On August 3, 2015, the EPA released pre-publication versions of two final rules that would limit CO 2 emissions from fossil fuel-fired electric generating units. One of the final rules contains specific emission standards governing CO 2 emissions from new, modified, and reconstructed units. The other final rule establishes guidelines for states to develop plans to meet EPA-mandated CO 2 emission rates for existing units. The EPA's final guidelines require state plans to meet interim CO 2 performance rates between 2022 and 2029 and final rates in 2030 and thereafter. At the same time, the EPA also proposed a federal plan and proposed model rule that states can adopt or that would be put in place if, in response to the final guidelines, a state either does not submit a state plan or its plan is not approved by the EPA. These guidelines and standards could result in operational restrictions and material compliance costs, including capital expenditures, which could affect future unit retirement and replacement decisions. Gulf Power's results of operations, cash flows, and financial condition could be significantly impacted if such costs are not recovered through regulated rates or through market-based contracts. However, the ultimate financial and operational impact of the final rules on Gulf Power cannot be determined at this time and will depend on numerous factors including the Southern Company system's ongoing review of the final rules; the outcome of any legal challenges; 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.
FERC Matters
Gulf Power has authority from the FERC to sell electricity at market-based rates. Since 2008, that authority, for certain balancing authority areas, has been conditioned on compliance with the requirements of an energy auction, which the FERC found to be tailored mitigation that addresses potential market power concerns. In accordance with FERC regulations governing such authority, the traditional operating companies (including Gulf Power) and Southern Power filed a triennial market power analysis on June 30, 2014, which included continued reliance on the energy auction as tailored mitigation. On April 27, 2015, the FERC issued an order finding that the traditional operating companies' (including Gulf Power's) and Southern Power's existing tailored mitigation may not effectively mitigate the potential to exert market power in certain areas served by the traditional operating companies and in some adjacent areas. To retain market-based rate authority, the FERC directed the traditional operating companies (including Gulf Power) and Southern Power to show why market-based rate authority should not be revoked in these areas or to provide a mitigation plan to further address market power concerns. The traditional operating companies (including Gulf Power) and Southern Power filed a request for rehearing on May 27, 2015 and on June 26, 2015 filed their response with the FERC. The ultimate outcome of this matter cannot be determined at this time.
Retail Regulatory Matters
Gulf Power's rates and charges for service to retail customers are subject to the regulatory oversight of the Florida PSC. Gulf Power's rates are a combination of base rates and several separate cost recovery clauses for specific categories of costs. These separate cost recovery clauses address such items as fuel and purchased energy costs, purchased power capacity costs, energy conservation and demand side management programs, and the costs of compliance with environmental laws and regulations. Costs not addressed through one of the specific cost recovery clauses are recovered through base rates. See Note 3 to the financial statements of Gulf Power under "Retail Regulatory Matters – Retail Base Rate Case" in Item 8 of the Form 10-K for additional information.

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Retail Base Rate Case
In December 2013, the Florida PSC approved a settlement agreement that provides Gulf Power may reduce depreciation expense and record a regulatory asset up to $62.5 million between January 2014 and June 2017. In any given month, such depreciation expense reduction may not exceed the amount necessary for the ROE, as reported to the Florida PSC monthly, to reach the midpoint of the authorized retail ROE range then in effect. Gulf Power recognized a $19.6 million reduction in depreciation expense in the first six months of 2015 .
Cost Recovery Clauses
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Cost Recovery Clauses" of Gulf Power in Item 7 and Note 3 to the financial statements of Gulf Power under "Retail Regulatory Matters – Cost Recovery Clauses" in Item 8 of the Form 10-K for additional information regarding Gulf Power's recovery of retail costs through various regulatory clauses and accounting orders. Gulf Power has four regulatory clauses which are approved by the Florida PSC. See Note (B) to the Condensed Financial Statements herein for additional information.
Renewables
On April 16, 2015, the Florida PSC approved three energy purchase agreements totaling 120 MWs of utility-scale solar generation located at three military installations in northwest Florida. On May 5, 2015, the Florida PSC approved an energy purchase agreement for up to 178 MWs of wind generation in central Oklahoma. Purchases under these agreements will be for energy only and will be recovered through Gulf Power's fuel cost recovery mechanism.
Other Matters
Gulf Power is involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Gulf Power is subject to certain claims and legal actions arising in the ordinary course of business. Gulf Power's business activities are subject to extensive governmental regulation related to public health and the environment, such as regulation of air emissions and water discharges. 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 included claims for damages alleged to have been caused by CO 2 and other emissions, CCR, and alleged exposure to hazardous materials, and/or requests for injunctive relief in connection with such matters.
The ultimate outcome of such pending or potential litigation against Gulf Power cannot be predicted at this time; however, for current proceedings not specifically reported in Note (B) to the Condensed Financial Statements herein or in Note 3 to the financial statements of Gulf Power in Item 8 of the Form 10-K, management does not anticipate that the ultimate liabilities, if any, arising from such current proceedings would have a material effect on Gulf Power's financial statements. See Note (B) to the Condensed Financial Statements herein for a discussion of various other contingencies, regulatory matters, and other matters being litigated which may affect future earnings potential.
ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates
Gulf Power prepares its financial statements in accordance with GAAP. Significant accounting policies are described in Note 1 to the financial statements of Gulf Power in Item 8 of the Form 10-K. In the application of these policies, certain estimates are made that may have a material impact on Gulf Power's results of operations and related disclosures. Different assumptions and measurements could produce estimates that are significantly different from those recorded in the financial statements. See MANAGEMENT'S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES – "Application of Critical Accounting Policies and Estimates" of Gulf Power in Item 7 of the Form 10-K for a complete discussion of Gulf Power's critical accounting policies and estimates related to Electric Utility Regulation, Contingent Obligations, and Pension and Other Postretirement Benefits.

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Asset Retirement Obligations
AROs are computed as the fair value of the ultimate costs for an asset's future retirement and are recorded in the period in which the liability is incurred. The costs are capitalized as part of the related long-lived asset and depreciated over the asset's useful life. In the absence of quoted market prices, AROs are estimated using present value techniques in which estimates of future cash outlays associated with the asset retirements are discounted using a credit-adjusted risk-free rate. Estimates of the timing and amounts of future cash outlays are based on projections of when and how the assets will be retired and the cost of future removal activities.
The liability for AROs primarily relates to Gulf Power's combustion turbines at its Pea Ridge facility and facilities that are subject to the CCR Rule, primarily ash ponds. In addition, Gulf Power has retirement obligations related to various landfill sites, a barge unloading dock, asbestos removal, and disposal of polychlorinated biphenyls in certain transformers. Gulf Power also has identified retirement obligations related to certain transmission and distribution facilities, certain wireless communication towers, and certain structures authorized by the U.S. Army Corps of Engineers. However, liabilities for the removal of these assets have not been recorded because the settlement timing for the retirement obligations related to these assets is indeterminable and, therefore, the fair value of the retirement obligations cannot be reasonably estimated. A liability for these AROs will be recognized when sufficient information becomes available to support a reasonable estimation of the ARO.
On April 17, 2015, the EPA published the final CCR Rule in the Federal Register, setting October 19, 2015 as the effective date of the CCR Rule. Therefore, Gulf Power recorded new AROs for facilities that are subject to the CCR Rule. The cost estimates are based on information that was known as of June 30, 2015 using various assumptions related to closure and post-closure costs, timing of future cash outlays, inflation and discount rates, and the potential methods for complying with the CCR Rule requirements. As further analysis is performed, including evaluation of the expected timing and method of compliance and refinement of assumptions underlying the cost estimates, such as the quantities of CCR at each site, Gulf Power expects to periodically update these estimates. Given the significant judgment involved in estimating AROs, Gulf Power considers the liabilities for AROs to be critical accounting estimates.
See Note 1 to the financial statements of Gulf Power under "Asset Retirement Obligations and Other Costs of Removal" in Item 8 of the Form 10-K and Note (A) to the Condensed Financial Statements under "Asset Retirement Obligations" herein for additional information.
Recently Issued Accounting Standards
The Financial Accounting Standards Board's (FASB) ASC 606, Revenue from Contracts with Customers , revises the accounting for revenue recognition effective for fiscal years beginning after December 15, 2017. Gulf Power continues to evaluate the requirements of ASC 606. The ultimate impact of the new standard has not yet been determined.
On April 7, 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs . The ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability and is effective for fiscal years beginning after December 15, 2015. Gulf Power currently reflects unamortized debt issuance costs in other deferred charges and assets on its balance sheet. Upon adoption, the reclassification will not have a material impact on the results of operations, financial position, or cash flows of Gulf Power.
FINANCIAL CONDITION AND LIQUIDITY
Overview
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Overview" of Gulf Power in Item 7 of the Form 10-K for additional information. Gulf Power's financial condition remained stable at June 30, 2015 . Gulf Power intends to continue to monitor its access to short-term and long-term

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capital markets as well as bank credit agreements to meet future capital and liquidity needs. See "Capital Requirements and Contractual Obligations," "Sources of Capital," and "Financing Activities" herein for additional information.
Net cash provided from operating activities totaled $183 million for the first six months of 2015 compared to $177 million for the corresponding period in 2014 . The $6 million increase in net cash was primarily due to increases in cash flows related to cost recovery clauses and an increase in deferred income taxes related to bonus depreciation, partially offset by decreases in the timing of fossil fuel stock purchases, accrued compensation, and accounts payable. Net cash used for investing activities totaled $174 million in the first six months of 2015 primarily due to property additions to utility plant. Net cash used for financing activities totaled $4 million for the first six months of 2015 primarily due to the payment of common stock dividends, partially offset by an increase in notes payable and the issuance of common stock to Southern Company. Fluctuations in cash flow from financing activities vary from period to period based on capital needs and the maturity or redemption of securities.
Significant balance sheet changes for the first six months of 2015 include increases of $166 million in net property, plant, and equipment, $86 million in other deferred credits and other liabilities primarily related to AROs associated with the CCR Rule, $52 million in accumulated deferred income tax liabilities primarily related to bonus depreciation, and $44 million in notes payable.
Capital Requirements and Contractual Obligations
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" of Gulf Power in Item 7 of the Form 10-K for a description of Gulf Power's capital requirements for its construction program, including estimated capital expenditures to comply with existing environmental statutes and regulations, scheduled maturities of long-term debt, as well as related interest, leases, derivative obligations, preference stock dividends, purchase commitments, trust funding requirements, and unrecognized tax benefits. Approximately $60 million will be required through June 30, 2016 to fund announced redemptions of long-term debt. See "Financing Activities" herein for additional information.
The construction program is 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; storm impacts; 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 the expected environmental compliance programs; changes in FERC rules and regulations; Florida PSC approvals; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; project scope and design changes; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered.
Sources of Capital
Gulf Power plans to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily from operating cash flows, short-term debt, security issuances, term loans, and equity contributions from Southern Company. However, the amount, type, and timing of any future financings, if needed, will depend upon regulatory approval, prevailing market conditions, and other factors. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" of Gulf Power in Item 7 of the Form 10-K for additional information.
Gulf Power's current liabilities frequently exceed current assets because of the continued use of short-term debt as a funding source to meet scheduled maturities of long-term debt, as well as cash needs, which can fluctuate significantly due to the seasonality of the business. Gulf Power has substantial cash flow from operating activities and access to the capital markets and financial institutions to meet short-term liquidity needs, including its commercial paper program which is supported by bank credit facilities.

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At June 30, 2015 , Gulf Power had approximately $44 million of cash and cash equivalents. Committed credit arrangements with banks at June 30, 2015 were as follows:
Expires
 
 
 
 
 
Executable Term
Loans
 
Due Within One
Year
2015
 
2016
 
2017
 
Total
 
Unused
 
One
Year
 
Two
Years
 
Term
Out
 
No Term
Out
(in millions)
 
(in millions)
 
(in millions)
 
(in millions)
$
20

 
$
225

 
$
30

 
$
275

 
$
275

 
$
50

 
$
—

 
$
50

 
$
195

See Note 6 to the financial statements of Gulf Power under "Bank Credit Arrangements" in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under "Bank Credit Arrangements" herein for additional information.
Most of the unused credit arrangements with banks is allocated to provide liquidity support to Gulf Power's variable rate pollution control revenue bonds and commercial paper program. The amount of variable rate pollution control revenue bonds outstanding requiring liquidity support as of June 30, 2015 was approximately $69 million. In addition, at June 30, 2015 , Gulf Power had approximately $46 million of fixed rate pollution control revenue bonds outstanding that were required to be reoffered within the next 12 months.
Most of these bank credit arrangements contain covenants that limit debt levels and contain cross default provisions to other indebtedness (including guarantee obligations) that are restricted only to the indebtedness of Gulf Power. Such cross default provisions to other indebtedness would trigger an event of default if Gulf Power defaulted on indebtedness or guarantee obligations over a specified threshold. Gulf Power is currently in compliance with all such covenants. None of the bank credit arrangements contain material adverse change clauses at the time of borrowings.
Subject to applicable market conditions, Gulf Power expects to renew or replace its bank credit arrangements, as needed, prior to expiration. In connection therewith, Gulf Power may extend the maturity dates and/or increase or decrease the lending commitments thereunder.
Gulf Power may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper at the request and for the benefit of Gulf Power and the other traditional operating companies. Proceeds from such issuances for the benefit of Gulf Power are loaned directly to Gulf Power. The obligations of each company under these arrangements are several and there is no cross-affiliate credit support.
Details of short-term borrowings were as follows:
 
 
Short-term Debt at
June 30, 2015
 
Short-term Debt During the Period (*)
 
 
Amount
Outstanding
 
Weighted
Average
Interest
Rate
 
Average
Outstanding
 
Weighted
Average
Interest
Rate
 
Maximum
Amount
Outstanding
 
 
(in millions)
 
 
 
(in millions)
 
 
 
(in millions)
Commercial paper
 
$
114

 
0.3
%
 
$
133

 
0.3
%
 
$
175

Short-term bank debt
 
40

 
1.3
%
 
10

 
1.3
%
 
40

Total
 
$
154

 
0.6
%
 
$
143

 
0.4
%
 
 
(*)
Average and maximum amounts are based upon daily balances during the three-month period ended June 30, 2015 .
Gulf Power believes the need for working capital can be adequately met by utilizing the commercial paper program, lines of credit, and operating cash flows.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Credit Rating Risk
Gulf Power does not have any credit arrangements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade.
There are certain contracts that could require collateral, but not accelerated payment, in the event of a credit rating change to BBB- and/or Baa3 or below. These contracts are for physical electricity purchases and sales, fuel transportation and storage, and energy price risk management.
The maximum potential collateral requirements under these contracts at June 30, 2015 were as follows:
Credit Ratings
Maximum Potential
Collateral
Requirements
 
(in millions)
At BBB- and/or Baa3
$
91

Below BBB- and/or Baa3
481

Included in these amounts are certain agreements that could require collateral in the event that one or more Southern Company system power pool participants has a credit rating change to below investment grade. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, any credit rating downgrade could impact Gulf Power's ability to access capital markets, particularly the short-term debt market and the variable rate pollution control revenue bond market.
Subsequent to June 30, 2015, S&P placed its ratings of Southern Company and the traditional operating companies (including Gulf Power) on CreditWatch with negative implications.
Market Price Risk
Gulf Power's market risk exposure relative to interest rate changes for the second quarter and year-to-date 2015 has not changed materially compared to the December 31, 2014 reporting period. Gulf Power's exposure to market volatility in commodity fuel prices and prices of electricity with respect to its wholesale generating capacity is limited because its long-term sales agreements shift substantially all fuel cost responsibility to the purchaser. However, Gulf Power could become exposed to market volatility in energy-related commodity prices to the extent any wholesale generating capacity is uncontracted. Gulf Power currently has long-term sales agreements for 100% of its wholesale capacity through 2015 and 41% through 2019. These capacity revenues represented 82% of total wholesale capacity revenues for 2014. Gulf Power is actively pursuing replacement wholesale contracts but the expiration of current contracts could have a material negative impact on Gulf Power's earnings. In the event some portion of Gulf Power's ownership in Plant Scherer 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. For an in-depth discussion of Gulf Power's market risks, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Market Price Risk" of Gulf Power in Item 7 of the Form 10-K.
Financing Activities
In January 2015, Gulf Power issued 200,000 shares of common stock to Southern Company and realized proceeds of $20 million. The proceeds were used to repay a portion of Gulf Power's short-term debt and for other general corporate purposes, including Gulf Power's continuous construction program.
In June 2015, Gulf Power entered into a three-month floating rate bank loan bearing interest based on one-month LIBOR. This short-term loan was for $40 million aggregate principal amount and the proceeds were used for credit support, working capital, and other general corporate purposes.
Subsequent to June 30, 2015, Gulf Power purchased and held $13 million aggregate principal amount of Mississippi Business Finance Corporation Solid Waste Disposal Facilities Revenue Refunding Bonds (Gulf Power Company Project), Series 2012. Gulf Power reoffered these bonds on July 16, 2015.

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Table of Contents
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Subsequent to June 30, 2015, Gulf Power announced the redemption in September 2015 of $60 million aggregate principal amount of its Series L 5.65% Senior Notes due September 1, 2035.
In addition to any financings that may be necessary to meet capital requirements, contractual obligations, and storm recovery, Gulf Power plans to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit.

100
Table of Contents


MISSISSIPPI POWER COMPANY

101
Table of Contents


MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
 
(in millions)
Operating Revenues:
 
 
 
 
 
 
 
Retail revenues
$
189

 
$
211

 
$
357

 
$
418

Wholesale revenues, non-affiliates
63

 
75

 
141

 
172

Wholesale revenues, affiliates
18

 
20

 
45

 
43

Other revenues
5

 
5

 
9

 
9

Total operating revenues
275

 
311

 
552

 
642

Operating Expenses:
 
 
 
 
 
 
 
Fuel
115

 
143

 
229

 
290

Purchased power, non-affiliates
2

 
1

 
3

 
13

Purchased power, affiliates
2

 
6

 
4

 
15

Other operations and maintenance
68

 
61

 
144

 
125

Depreciation and amortization
30

 
24

 
57

 
47

Taxes other than income taxes
23

 
20

 
48

 
41

Estimated loss on Kemper IGCC
23

 
—

 
32

 
380

Total operating expenses
263

 
255

 
517

 
911

Operating Income (Loss)
12

 
56

 
35

 
(269
)
Other Income and (Expense):
 
 
 
 
 
 
 
Allowance for equity funds used during construction
25

 
37

 
53

 
75

Interest expense, net of amounts capitalized
30

 
(13
)
 
19

 
(25
)
Other income (expense), net
(1
)
 
(1
)
 
(2
)
 
(4
)
Total other income and (expense)
54

 
23

 
70

 
46

Earnings (Loss) Before Income Taxes
66

 
79

 
105

 
(223
)
Income taxes (benefit)
16

 
16

 
20

 
(114
)
Net Income (Loss)
50

 
63

 
85

 
(109
)
Dividends on Preferred Stock
1

 
1

 
1

 
1

Net Income (Loss) After Dividends on Preferred Stock
$
49

 
$
62

 
$
84

 
$
(110
)
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
 
(in millions)
Net Income (Loss)
$
50

 
$
63

 
$
85

 
$
(109
)
Other comprehensive income (loss)
—

 
—

 
—

 
—

Comprehensive Income (Loss)
$
50

 
$
63

 
$
85

 
$
(109
)
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.

102


MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
(in millions)
Operating Activities:
 
 
 
Net income (loss)
$
85

 
$
(109
)
Adjustments to reconcile net income (loss) to net cash provided from operating activities —
 
 
 
Depreciation and amortization, total
55

 
50

Deferred income taxes
694

 
(108
)
Investment tax credits
32

 
28

Allowance for equity funds used during construction
(53
)
 
(75
)
Regulatory assets associated with Kemper IGCC
(50
)
 
(26
)
Estimated loss on Kemper IGCC
32

 
380

Income taxes receivable, non-current
(544
)
 
—

Other, net
8

 
7

Changes in certain current assets and liabilities —
 
 
 
-Receivables
6

 
(32
)
-Fossil fuel stock
5

 
32

-Prepaid income taxes
24

 
(12
)
-Other current assets
(7
)
 
(5
)
-Accounts payable
(25
)
 
4

-Accrued taxes
(51
)
 
(23
)
-Accrued interest
(7
)
 
13

-Accrued compensation
(12
)
 
4

-Over recovered regulatory clause revenues
32

 
(18
)
-Mirror CWIP
82

 
67

-Other current liabilities
3

 
1

Net cash provided from operating activities
309

 
178

Investing Activities:
 
 
 
Property additions
(428
)
 
(692
)
Construction payables
(15
)
 
(28
)
Other investing activities
(17
)
 
(13
)
Net cash used for investing activities
(460
)
 
(733
)
Financing Activities:
 
 
 
Increase in notes payable, net
475

 
—

Proceeds —
 
 
 
Capital contributions from parent company
77

 
211

Bonds — Other
—

 
12

Interest-bearing refundable deposit
—

 
75

Long-term debt issuance to parent company
—

 
220

Other long-term debt issuances
—

 
250

Short-term borrowings
30

 
—

Redemptions — Other long-term debt
(350
)
 
—

Payment of preferred stock dividends
(1
)
 
(1
)
Return of capital
—

 
(110
)
Other financing activities
(1
)
 
(1
)
Net cash provided from financing activities
230

 
656

Net Change in Cash and Cash Equivalents
79

 
101

Cash and Cash Equivalents at Beginning of Period
133

 
145

Cash and Cash Equivalents at End of Period
$
212

 
$
246

Supplemental Cash Flow Information:
 
 
 
Cash paid (received) during the period for —
 
 
 
Interest (paid $39 and $37, net of $37 and $29 capitalized for 2015 and 2014, respectively)
$
2

 
$
8

Income taxes, net
(181
)
 
(34
)
Noncash transactions —
 
 
 
Accrued property additions at end of period
99

 
136

Issuance of promissory note to parent related to repayment of
    interest-bearing refundable deposits and accrued interest
301

 
—


The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.

103


MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
 
Assets
 
At June 30,
2015
 
At December 31,
2014
 
 
(in millions)
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
212

 
$
133

Receivables —
 
 
 
 
Customer accounts receivable
 
44

 
43

Unbilled revenues
 
37

 
35

Other accounts and notes receivable
 
11

 
11

Affiliated companies
 
43

 
51

Accumulated provision for uncollectible accounts
 
(1
)
 
(1
)
Fossil fuel stock, at average cost
 
95

 
100

Materials and supplies, at average cost
 
69

 
62

Other regulatory assets, current
 
69

 
73

Prepaid income taxes
 
193

 
191

Other current assets
 
7

 
6

Total current assets
 
779

 
704

Property, Plant, and Equipment:
 
 
 
 
In service
 
4,456

 
4,378

Less accumulated provision for depreciation
 
1,194

 
1,173

Plant in service, net of depreciation
 
3,262

 
3,205

Construction work in progress
 
2,543

 
2,161

Total property, plant, and equipment
 
5,805

 
5,366

Other Property and Investments
 
6

 
5

Deferred Charges and Other Assets:
 
 
 
 
Deferred charges related to income taxes
 
260

 
226

Other regulatory assets, deferred
 
482

 
385

Income taxes receivable, non-current
 
544

 
—

Other deferred charges and assets
 
71

 
71

Total deferred charges and other assets
 
1,357

 
682

Total Assets
 
$
7,947

 
$
6,757

The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.


104


MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
 
Liabilities and Stockholder's Equity
 
At June 30,
2015
 
At December 31,
2014
 
 
(in millions)
Current Liabilities:
 
 
 
 
Securities due within one year
 
$
429

 
$
778

Notes payable
 
505

 
—

Interest-bearing refundable deposits
 
—

 
275

Accounts payable —
 
 
 
 
Affiliated
 
88

 
86

Other
 
136

 
178

Accrued taxes —
 
 
 
 
Accrued income taxes
 
—

 
142

Other accrued taxes
 
47

 
84

Accrued interest
 
13

 
76

Accrued compensation
 
14

 
26

Over recovered regulatory clause liabilities
 
33

 
1

Mirror CWIP
 
353

 
271

Other current liabilities
 
59

 
61

Total current liabilities
 
1,677

 
1,978

Long-term Debt:
 
 
 
 
Long-term debt, affiliated
 
301

 
—

Long-term debt, non-affiliated
 
1,623

 
1,630

Total Long-term Debt
 
1,924

 
1,630

Deferred Credits and Other Liabilities:
 
 
 
 
Accumulated deferred income taxes
 
844

 
285

Accumulated deferred investment tax credits
 
282

 
283

Employee benefit obligations
 
146

 
148

Asset retirement obligations
 
148

 
48

Other cost of removal obligations
 
170

 
166

Other regulatory liabilities, deferred
 
65

 
64

Other deferred credits and liabilities
 
410

 
38

Total deferred credits and other liabilities
 
2,065

 
1,032

Total Liabilities
 
5,666

 
4,640

Redeemable Preferred Stock
 
33

 
33

Common Stockholder's Equity:
 
 
 
 
Common stock, without par value —
 
 
 
 
Authorized — 1,130,000 shares
 
 
 
 
Outstanding — 1,121,000 shares
 
38

 
38

Paid-in capital
 
2,692

 
2,612

Accumulated deficit
 
(475
)
 
(559
)
Accumulated other comprehensive loss
 
(7
)
 
(7
)
Total common stockholder's equity
 
2,248

 
2,084

Total Liabilities and Stockholder's Equity
 
$
7,947

 
$
6,757

The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.

105
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SECOND QUARTER 2015 vs. SECOND QUARTER 2014
AND
YEAR-TO-DATE 2015 vs. YEAR-TO-DATE 2014


OVERVIEW
Mississippi Power operates as a vertically integrated utility providing electricity to retail customers within its traditional service territory located within the State of Mississippi and to wholesale customers in the Southeast.
Many factors affect the opportunities, challenges, and risks of Mississippi Power's business of selling electricity. These factors include Mississippi Power's ability to maintain and grow energy sales and to operate in a constructive regulatory environment that provides timely recovery of prudently-incurred costs. These costs include those related to the completion and operation of major construction projects, primarily the Kemper IGCC and the Plant Daniel scrubber project, projected long-term demand growth, reliability, fuel, and increasingly stringent environmental standards, as well as ongoing capital expenditures required for maintenance. Appropriately balancing required costs and capital expenditures with customer prices will continue to challenge Mississippi Power for the foreseeable future.
In 2010, the Mississippi PSC issued a CPCN authorizing the acquisition, construction, and operation of the Kemper IGCC. The certificated cost estimate of the Kemper IGCC established by the Mississippi PSC was $2.4 billion with a construction cost cap of $2.88 billion, net of $245 million of grants awarded to the project by the DOE under the Clean Coal Power Initiative Round 2 (DOE Grants) and excluding the cost of the lignite mine and equipment, the cost of the CO 2 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).
Mississippi Power's current cost estimate for the Kemper IGCC in total is approximately $6.23 billion, which includes approximately $4.96 billion of costs subject to the construction cost cap. Mississippi Power does not intend to seek any rate recovery for any related costs that exceed the $2.88 billion cost cap, net of the DOE Grants and excluding the Cost Cap Exceptions. Mississippi Power recorded pre-tax charges to income for revisions to the cost estimate of $23 million ($14 million after tax) in the second quarter 2015 and $9 million ($6 million after tax) in the first quarter 2015. Since 2012, in the aggregate, Mississippi Power has incurred charges of $2.08 billion ($1.28 billion after tax) as a result of changes in the cost estimate for the Kemper IGCC through June 30, 2015 .
Mississippi Power placed the combined cycle and the associated common facilities portion of the Kemper IGCC project in service 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 in-service date for the remainder of the Kemper IGCC is currently expected to occur in the first half of 2016. The current cost estimate includes costs through March 31, 2016. As a result of the additional factors that have the potential to impact start-up and operational readiness activities for this first-of-a-kind technology as described herein, the risk of further schedule extensions and/or cost increases, which could be material, remains.
For additional information on the Kemper IGCC, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle" of Mississippi Power in Item 7 and Note 3 to the financial statements of Mississippi Power under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle" and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein.
On February 12, 2015, the Mississippi Supreme Court (Court) issued its decision in a legal challenge with respect to the Mississippi PSC's March 2013 order that authorized the collection of $156 million annually (2013 MPSC Rate Order) to be recorded as Mirror CWIP. The Court reversed the 2013 MPSC Rate Order, deemed the 2013

106
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Settlement Agreement (defined below) between Mississippi Power and the Mississippi PSC unenforceable due to a lack of public notice for the related proceedings, and directed the Mississippi PSC to enter an order requiring Mississippi Power to refund the Mirror CWIP amounts collected pursuant to the 2013 MPSC Rate Order. As of June 30, 2015 , $331 million had been collected by Mississippi Power. On March 12, 2015, Mississippi Power and the Mississippi PSC filed motions for rehearing, and, on June 11, 2015, the Court issued its final decision, rejecting both Mississippi Power's and the Mississippi PSC's motions for rehearing and requiring that a rate refund be made and that the Mirror CWIP rate be terminated. On July 7, 2015, the Mississippi PSC ordered that the Mirror CWIP rate be terminated effective July 20, 2015. Mississippi Power submitted a refund plan to the Mississippi PSC on July 21, 2015, which proposed two alternative refund plans for the Mississippi PSC's consideration: (1) bill credit with check option; or (2) check-only option. Hearings on the refund plan are scheduled to be held on August 6, 2015.
See FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle – Rate Recovery of Kemper IGCC Costs – 2015 Mississippi Supreme Court Decision" herein for additional information.
Prior to the Court's final decision on June 11, 2015, Mississippi Power sought alternate rate recovery and filed a rate case on May 15, 2015 (2015 Rate Case). Mississippi Power's 2015 Rate Case presented the Mississippi PSC with three alternative rate proposals: (i) a traditional rate case, (ii) a rate mitigation plan fixing rates through 2017 (RMP 2017), and (iii) a rate mitigation plan fixing rates through 2019 (RMP 2019). RMP 2019 contemplated the total Mirror CWIP funds collected would be used to offset the retail revenue requirements over the life of the plan. However, in light of the Court's mandate and the Mississippi PSC's July 7, 2015 order, RMP 2019 is no longer viable as originally proposed by Mississippi Power.
On May 20, 2015, SMEPA notified Mississippi Power of its termination of the asset purchase agreement (APA) between Mississippi Power and SMEPA whereby SMEPA previously agreed to purchase a 15% undivided interest in the Kemper IGCC. Mississippi Power previously received a total of $275 million of deposits from SMEPA that were required to be returned to SMEPA with interest in connection with the termination of the APA. On June 3, 2015, Southern Company, pursuant to its guarantee obligation, returned approximately $301 million to SMEPA. Subsequently, Mississippi Power issued an 18-month promissory note in the aggregate principal amount of approximately $301 million to Southern Company. See FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle – Termination of Proposed Sale of Undivided Interest to SMEPA" herein for additional information.
The return of approximately $301 million to SMEPA in June 2015 in connection with the termination of the APA, the required refund of the approximately $353 million of Mirror CWIP rate collections, including associated carrying costs, and the termination of the Mirror CWIP rates have adversely impacted Mississippi Power's ability to obtain financing needed for its business operations.
As a result, on July 10, 2015, Mississippi Power submitted a supplemental filing with the Mississippi PSC that includes a request for interim rates (Supplemental Notice) until such time as the Mississippi PSC renders a final decision on an additional alternative rate proposal (In-Service Asset Proposal). The Supplemental Notice was filed in response to the Mississippi PSC's July 7, 2015 order and presents the In-Service Asset Proposal for consideration by the Mississippi PSC. The In-Service Asset Proposal is based upon the test period of June 2015 to May 2016 and is 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. The Supplemental Notice requests that the Mississippi PSC establish a scheduling order for consideration of permanent rates under the In-Service Asset Proposal. Evidentiary hearings on the interim rate relief are scheduled to be held on August 6, 2015.
See FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle – Rate Recovery of Kemper IGCC Costs – 2015 Rate Case" herein for additional information.
As of June 30, 2015 , Mississippi Power's current liabilities exceeded current assets by approximately $898 million primarily due to $900 million of bank term loans scheduled to mature on April 1, 2016, $30 million of short-term debt, and the required refund of approximately $353 million in Mirror CWIP, which includes associated carrying

107
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

costs through June 30, 2015. See FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle – Rate Recovery of Kemper IGCC Costs – 2015 Mississippi Supreme Court Decision" herein for additional information. In addition, Mississippi Power issued an 18-month promissory note in the aggregate principal amount of approximately $301 million to Southern Company that matures on December 2, 2016 in conjunction with the repayment of SMEPA's deposits with interest, following the termination of SMEPA's planned purchase of 15% of the Kemper IGCC project. Furthermore, Mississippi Power expects to fund the cash component of the Mirror CWIP refund with an intercompany loan from Southern Company. 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 Mississippi Power's short-term capital needs.
Mississippi Power continues to focus on several key performance indicators, including the construction, start-up, and rate recovery of the Kemper IGCC. In recognition that Mississippi Power's long-term financial success is dependent upon how well it satisfies its customers' needs, Mississippi Power's retail base rate mechanism, PEP, includes performance indicators that directly tie customer service indicators to Mississippi Power's allowed return. In addition to the PEP performance indicators, Mississippi Power focuses on other performance measures, including broader measures of customer satisfaction, plant availability, system reliability, and net income after dividends on preferred stock. For additional information on these indicators, see MANAGEMENT'S DISCUSSION AND ANALYSIS – OVERVIEW – "Key Performance Indicators" of Mississippi Power in Item 7 of the Form 10-K. See FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle" and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for information regarding revisions to the cost estimate for the Kemper IGCC and the Court's decision that have negatively impacted Mississippi Power's actual performance on net income after dividends on preferred stock, one of its key performance indicators, for 2015, as compared to the target.
RESULTS OF OPERATIONS
Net Income (Loss)
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$(13)
 
(21.0)
 
$194
 
N/M
N/M-Not meaningful
Mississippi Power's net income after dividends on preferred stock for the second quarter 2015 was $49 million compared to $62 million for the corresponding period in 2014 . The decrease was primarily related to $23 million in pre-tax charges ($14 million after tax) in the second quarter 2015 for revisions of the estimated costs expected to be incurred on Mississippi Power's construction of the Kemper IGCC above the $2.88 billion cost cap established by the Mississippi PSC, net of the DOE Grants and excluding the Cost Cap Exceptions. The decrease in net income was also related to a decrease in AFUDC equity, increases in non-fuel operations and maintenance expenses, an increase in depreciation and amortization, and a decrease in retail revenues primarily resulting from the Court's decision, partially offset by a decrease in interest expense.
For year-to-date 2015 , net income after dividends on preferred stock was $84 million compared to a net loss of $110 million for the corresponding period in 2014 . The increase was primarily related to $32 million in pre-tax charges ($20 million after tax) in 2015 compared to $380 million in pre-tax charges ($235 million after tax) in 2014 for revisions of estimated costs expected to be incurred on Mississippi Power's construction of the Kemper IGCC above the $2.88 billion cost cap established by the Mississippi PSC, net of the DOE Grants and excluding the Cost Cap Exceptions. The increase in net income was also related to a decrease in interest expense, partially offset by a decrease in AFUDC equity, increases in non-fuel operations and maintenance expenses, an increase in depreciation and amortization, and a decrease in retail revenues primarily resulting from the Court's decision.
See Note 3 to the financial statements of Mississippi Power under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined

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MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cycle" and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information. Also see "Interest Expense, Net of Amounts Capitalized" herein for additional information.
Retail Revenues
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$(22)
 
(10.4)
 
$(61)
 
(14.6)
In the second quarter 2015 , retail revenues were $189 million compared to $211 million for the corresponding period in 2014 . For year-to-date 2015 , retail revenues were $357 million compared to $418 million for the corresponding period in 2014 .
Details of the changes in retail revenues were as follows:
 
 
Second Quarter
2015
 
Year-to-Date
 2015
 
 
(in millions)

(% change)
 
(in millions)
 
(% change)
Retail – prior year
 
$
211

 
 
 
$
418

 
 
Estimated change resulting from –
 
 
 
 
 
 
 
 
Rates and pricing
 
(6
)
 
(2.7
)
 
(9
)
 
(2.2
)
Sales decline
 
(1
)
 
(0.6
)
 
(5
)
 
(1.2
)
Weather
 
2

 
0.9

 
1

 
0.2

Fuel and other cost recovery
 
(17
)
 
(8.0
)
 
(48
)
 
(11.4
)
Retail – current year
 
$
189

 
(10.4
)%
 
$
357

 
(14.6
)%
Revenues associated with changes in rates and pricing decreased in the second quarter and year-to-date 2015 when compared to the corresponding periods in 2014 primarily due to $7 million and $11 million, respectively, of revenues associated with the Kemper IGCC cost recovery recognized in 2014, which ceased in 2015 as a result of the Court's decision, partially offset by $1 million in the second quarter 2015 and $2 million year-to-date 2015 in net revenues for the new energy efficiency cost recovery rate, which began in the fourth quarter 2014.
See Note 3 to the financial statements of Mississippi Power under "Integrated Coal Gasification Combined Cycle – Rate Recovery of Kemper IGCC Costs" and "Retail Regulatory Matters – Performance Evaluation Plan" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information.
Revenues attributable to changes in sales decreased in the second quarter 2015 when compared to the corresponding period in 2014 . Weather-adjusted KWH sales to residential customers decreased 0.5% in the second quarter 2015 due to lower customer usage, slightly offset by an increase in customers. Weather-adjusted KWH sales to commercial customers increased 2.6% in the second quarter 2015 due to higher customer usage and an increase in customers. KWH sales to industrial customers decreased 0.9% in the second quarter 2015 due to decreased usage by larger customers related to planned maintenance outages.
Revenues attributable to changes in sales decreased year-to-date 2015 when compared to the corresponding period in 2014 . Weather-adjusted KWH energy sales to residential customers decreased 1.2% due to lower customer usage, slightly offset by an increase in customers. Weather-adjusted KWH energy sales to commercial customers decreased 0.2% due to lower customer usage slightly offset by an increase in customers. KWH energy sales to industrial customers increased 1.2% primarily due to increased usage by larger customers.
In the first quarter 2015, Mississippi Power updated its methodology to estimate the unbilled revenue allocation among customer classes. This change did not have a significant impact on net income. The KWH sales variances discussed above reflect an adjustment to the estimated allocation of Mississippi Power's unbilled second quarter

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and year-to-date 2014 KWH sales among customer classes that is consistent with the actual allocation in 2015. Without these adjustments, second quarter 2015 weather-adjusted residential KWH sales increased 4.0%, weather-adjusted commercial KWH sales decreased 1.5%, and industrial KWH sales decreased 2.1% as compared to the corresponding period in 2014. Also, without these adjustments, year-to-date 2015 weather-adjusted residential KWH sales decreased 3.3%, weather-adjusted commercial KWH sales decreased 5.1%, and industrial KWH sales remained flat as compared to the corresponding period in 2014.
Fuel and other cost recovery revenues decreased in the second quarter and year-to-date 2015 when compared to the corresponding periods in 2014 , primarily as a result of lower recoverable fuel costs. See "Fuel and Purchased Power Expenses" herein for additional information. Recoverable fuel costs include fuel and purchased power expenses reduced by the fuel portion of wholesale revenues from energy sold to customers outside Mississippi Power's service territory. Electric rates include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these provisions, fuel revenues generally equal fuel expenses, including the energy component of purchased power costs, and do not affect net income.
Wholesale Revenues – Non-Affiliates
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$(12)
 
(16.0)
 
$(31)
 
(18.0)
Wholesale revenues from sales to non-affiliates will vary depending on fuel prices, the market prices of wholesale energy compared to the cost of Mississippi Power's and the Southern Company system's generation, demand for energy within the Southern Company system's service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not have a significant impact on net income. 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. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "FERC Matters" of Mississippi Power in Item 7 of the Form 10-K for additional information.
In the second quarter 2015 , wholesale revenues from sales to non-affiliates were $63 million compared to $75 million for the corresponding period in 2014 . For year-to-date 2015, wholesale revenues from sales to non-affiliates were $141 million compared to $172 million for the corresponding period in 2014. The decreases were primarily due to a decrease in energy revenues resulting from lower market prices and fuel cost.
Wholesale Revenues – Affiliates
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$(2)
 
(10.0)
 
$2
 
4.7
Wholesale revenues from sales to affiliated companies will vary depending on demand and the availability and cost of generating resources at each company. These affiliate sales are made in accordance with the IIC, as approved by the FERC. These transactions do not have a significant impact on earnings since this energy is generally sold at marginal cost.
In the second quarter 2015 , wholesale revenues from sales to affiliates were $18 million compared to $20 million for the corresponding period in 2014 . The decrease was due to a $6 million decrease associated with lower natural gas prices, partially offset by a $4 million increase in KWH sales due to higher gas generation partially as a result of the Kemper IGCC combined cycle being in service since August 2014.
For year-to-date 2015 , wholesale revenues from sales to affiliates were $45 million compared to $43 million for the corresponding period in 2014 . The increase was due to an $18 million increase in KWH sales due to higher gas

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generation partially as a result of the Kemper IGCC combined cycle being in service since August 2014, partially offset by a $16 million decrease associated with lower natural gas prices.
Fuel and Purchased Power Expenses
 
 
Second Quarter 2015
vs.
Second Quarter 2014
 
 Year-to-Date 2015
vs.
Year-to-Date 2014
 
 
(change in millions)

(% change)
 
(change in millions)
 
(% change)
Fuel
 
$
(28
)
 
(19.6)
 
$
(61
)
 
(21.0
)
Purchased power – non-affiliates
 
1

 
100.0
 
(10
)
 
(76.9
)
Purchased power – affiliates
 
(4
)
 
(66.7)
 
(11
)
 
(73.3
)
Total fuel and purchased power expenses
 
$
(31
)
 
 
 
$
(82
)
 
 
In the second quarter 2015 , total fuel and purchased power expenses were $119 million compared to $150 million for the corresponding period in 2014 . The decrease was due to a $28 million decrease in the average cost of fuel and purchased power and a $3 million decrease in the volume of KWHs purchased.
For year-to-date 2015 , total fuel and purchased power expenses were $236 million compared to $318 million for the corresponding period in 2014 . The decrease was due to a $72 million decrease in the average cost of fuel and purchased power and a $14 million decrease in the volume of KWHs purchased, partially offset by a $4 million increase in the volume of KWHs generated.
Fuel and purchased power energy transactions do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Mississippi Power's fuel cost recovery clause.
Details of Mississippi Power's generation and purchased power were as follows:
 
 
Second Quarter
2015
 
Second Quarter
2014
 
Year-to-Date 2015
 
Year-to-Date 2014
Total generation (millions of KWHs) (*)
 
4,109
 
3,932
 
8,455
 
7,974
Total purchased power (millions of KWHs)
 
114
 
208
 
227
 
466
Sources of generation (percent) (*)  –
 
 
 
 
 
 
 
 
Coal
 
18
 
47
 
20
 
46
Gas
 
82
 
53
 
80
 
54
Cost of fuel, generated (cents per net KWH)  –
 
 
 
 
 
 
 
 
Coal
 
4.14
 
4.18
 
3.64
 
4.21
Gas (*)
 
2.71
 
3.62
 
2.69
 
3.61
Average cost of fuel, generated (cents per net KWH) (*)
 
2.98
 
3.90
 
2.90
 
3.91
Average cost of purchased power (cents per net KWH) (*)
 
3.19
 
3.33
 
3.37
 
5.87
(*)
Includes energy produced during the test period for the Kemper IGCC which is accounted for in accordance with FERC guidance.
Fuel
In the second quarter 2015 , fuel expense was $115 million compared to $143 million for the corresponding period in 2014 . The decrease was primarily due to a 23.6% decrease in the average cost of fuel per KWH generated primarily due to higher gas-fired generation, including the Kemper IGCC combined cycle that was placed in service in August 2014, at lower natural gas prices, partially offset by a 4.9% increase in the volume of KWHs generated resulting from the availability of lower cost Mississippi Power units. The 4.9% increase in volume included an increase in gas-fired generation of 70.2%, partially offset by a decrease in coal-fired generation of 60.2%.

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For year-to-date 2015 , total fuel expense was $229 million compared to $290 million for the corresponding period in 2014 . The decrease was primarily due to a 25.8% decrease in the average cost of fuel per KWH generated primarily due to higher gas-fired generation, including the Kemper IGCC combined cycle that was placed in service in August 2014, at lower natural gas prices, partially offset by a 6.1% increase in the volume of KWHs generated resulting from the availability of lower cost Mississippi Power units. The 6.1% increase in volume included an increase in gas-fired generation of 65.2%, offset by a decrease in coal-fired generation of 53.7%.
Purchased Power - Non-Affiliates
In the second quarter 2015, purchased power expense from non-affiliates was $2 million compared to $1 million for the corresponding period in 2014. The increase was primarily the result of a 57.6% increase in the average cost per KWH, offset by a 2.8% decrease in the volume of KWHs purchased due to an increase in Mississippi Power generation partially as a result of the Kemper IGCC combined cycle being placed in service in August 2014.
For year-to-date 2015, purchased power expense from non-affiliates was $3 million compared to $13 million for the corresponding period in 2014. The decrease was primarily the result of a 54.1% decrease in the volume of KWHs purchased due to an increase in Mississippi Power generation partially as a result of the Kemper IGCC combined cycle being placed in service in August 2014 and a 42.3% decrease in the average cost per KWH purchased as a result of lower natural gas prices.
Energy purchases from non-affiliates will vary depending on the market prices of wholesale energy as compared to the cost of the Southern Company system's generation, demand for energy within the Southern Company system's service territory, and the availability of the Southern Company system's generation.
Purchased Power - Affiliates
In the second quarter 2015 , purchased power expense from affiliates was $2 million compared to $6 million for the corresponding period in 2014 . The decrease was primarily due to a 58.3% decrease in the volume of KWHs purchased due to increased Mississippi Power generation partially as a result of the Kemper IGCC combined cycle being placed in service in August 2014, and a 24.7% decrease in the average cost per KWH purchased as a result of lower natural gas prices.
For year-to-date 2015 , purchased power expense from affiliates was $4 million compared to $15 million for the corresponding period in 2014 . The decrease was primarily due to a 50.0% decrease in the volume of KWHs purchased due to increased Mississippi Power generation partially as a result of the Kemper IGCC combined cycle being placed in service in August 2014, and a 41.5% decrease in the average cost per KWH purchased as a result of lower natural gas prices.
Energy purchases from affiliates will vary depending on demand for energy and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC, as approved by the FERC.
Other Operations and Maintenance Expenses
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$7
 
11.5
 
$19
 
15.2
In the second quarter 2015 , other operations and maintenance expenses were $68 million compared to $61 million for the corresponding period in 2014 . The increase was primarily due to a $7 million increase in generation maintenance expenses primarily related to scheduled outages.
For year-to-date 2015 , other operations and maintenance expenses were $144 million compared to $125 million for the corresponding period in 2014 . The increase was primarily due to a $6 million increase in generation

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maintenance expenses including scheduled outages, a $5 million increase in employee compensation and benefits including pension, and a $5 million increase related to uncollectible expenses and customer incentives.
See Note (F) to the Condensed Financial Statements herein for additional information related to pension costs.
Depreciation and Amortization
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$6
 
25.0
 
$10
 
21.3
In the second quarter 2015 , depreciation and amortization was $30 million compared to $24 million for the corresponding period in 2014 . The increase was primarily due to a $2 million increase in depreciation related to increases in generation and distribution plant in service, a $2 million increase related to regulatory deferrals associated with Plant Daniel Units 3 and 4 and the Kemper IGCC, and a $1 million increase in ECO Plan amortization.
For year-to-date 2015 , depreciation and amortization was $57 million compared to $47 million for the corresponding period in 2014 . The increase was primarily due to a $4 million increase in depreciation related to increases in generation, transmission and distribution plant in service, a $4 million increase related to regulatory deferrals associated with Plant Daniel Units 3 and 4 and the Kemper IGCC, and a $2 million increase in ECO Plan amortization.
See Note 1 to the financial statements of Mississippi Power under "Depreciation, Depletion, and Amortization" in Item 8 of the Form 10-K for additional information. See Note 3 to the financial statements of Mississippi Power under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle" and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information.
Taxes Other Than Income Taxes
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$3
 
15.0
 
$7
 
17.1
In the second quarter 2015 , taxes other than income taxes were $23 million compared to $20 million for the corresponding period in 2014 . The increase was primarily due to a $3 million increase in ad valorem taxes, partially offset by a $1 million decrease in franchise tax.
For year-to-date 2015 , taxes other than income taxes were $48 million compared to $41 million for the corresponding period in 2014 . The increase was primarily due to a $9 million increase in ad valorem taxes, partially offset by a $2 million decrease in franchise taxes.
The retail portion of ad valorem taxes is recoverable under Mississippi Power's ad valorem tax cost recovery clause and, therefore, does not affect net income.
Estimated Loss on Kemper IGCC
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$23
 
N/M
 
$(348)
 
(91.6)
N/M-Not meaningful

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In the second quarter 2015 an estimated probable loss on the Kemper IGCC of $23 million was recorded at Mississippi Power. For year-to-date 2015 and year-to-date 2014, estimated probable losses on the Kemper IGCC of $32 million and $380 million , respectively, were recorded at Mississippi Power. These losses reflect revisions of estimated costs expected to be incurred on the construction of the Kemper IGCC in excess of the $2.88 billion cost cap established by the Mississippi PSC, net of the DOE Grants and excluding the Cost Cap Exceptions.
See Note 3 to the financial statements of Mississippi Power under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information.
Allowance for Equity Funds Used During Construction
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$(12)
 
(32.4)
 
$(22)
 
(29.3)
In the second quarter 2015 , AFUDC equity was $25 million compared to $37 million for the corresponding period in 2014 . For year-to-date 2015 , AFUDC equity was $53 million compared to $75 million for the corresponding period in 2014 . The decreases are driven by a reduction in the AFUDC rate and by placing the combined cycle and the associated common facilities portion of the Kemper IGCC in service in August 2014. See Note 3 to the financial statements of Mississippi Power under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information regarding the Kemper IGCC.
Interest Expense, Net of Amounts Capitalized
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$(43)
 
N/M
 
$(44)
 
N/M
N/M-Not meaningful
In the second quarter 2015, interest expense, net of amounts capitalized was ($30) million compared to $13 million for the corresponding period in 2014. For year-to-date 2015, interest expense, net of amounts capitalized was ($19) million compared to $25 million for the corresponding period in 2014. The decreases were primarily due to a $41 million decrease related to the termination of the APA between Mississippi Power and SMEPA which required the return of SMEPA's deposits at a lower rate of interest than accrued. Also contributing to the decrease was an increase in capitalized interest primarily resulting from carrying costs related to the Kemper IGCC. See Note 3 to the financial statements of Mississippi Power under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle" and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information.
Income Taxes (Benefit)
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$—
 
—
 
$134
 
N/M
N/M-Not meaningful
In the second quarter 2015 and 2014, income taxes were $16 million . For year-to-date 2015 , income taxes (benefit) were $20 million compared to $(114) million for the corresponding period in 2014 . The change primarily reflects a

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reduction in tax benefits related to the estimated probable losses on the construction of the Kemper IGCC recorded in 2014.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Mississippi Power's future earnings potential. The level of Mississippi Power's future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Mississippi Power's business of selling electricity. These factors include Mississippi Power's ability to recover its prudently-incurred costs during a time of increasing costs, its ability to recover costs in a timely manner, and the completion and subsequent operation of the Kemper IGCC and the Plant Daniel scrubber project as well as other ongoing construction projects. Future earnings in the near term will depend, in part, upon maintaining and growing sales which are subject to a number of factors. These factors include weather, competition, new energy contracts with other utilities and other wholesale customers, energy conservation practiced by customers, the use of alternative energy sources by customers, the price of electricity, the price elasticity of demand, and the rate of economic growth or decline in Mississippi Power's service territory. Changes in regional and global economic conditions may impact sales for Mississippi Power as the pace of the economic recovery remains uncertain. The timing and extent of the economic recovery will impact growth and may impact future earnings. For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL of Mississippi Power in Item 7 of the Form 10-K.
Environmental Matters
Compliance costs related to federal and state environmental statutes and regulations could affect earnings if such costs cannot continue to be fully recovered in rates on a timely basis or through market-based contracts. Environmental compliance spending over the next several years may differ materially from the amounts estimated. The timing, specific requirements, and estimated costs could change as environmental statutes and regulations are adopted or modified. 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. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Mississippi Power in Item 7 and Note 3 to the financial statements of Mississippi Power under "Environmental Matters" in Item 8 of the Form 10-K for additional information.
On April 16, 2015, the assets that supported coal generation at Plant Watson Units 4 and 5 were retired. The remaining net book value of these two units was approximately $32 million excluding the reserve for cost of removal. As of June 30, 2015, Mississippi Power reclassified the net carrying value of these assets from accumulated provision for depreciation to other regulatory assets, deferred, in accordance with an accounting order from the Mississippi PSC. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Other Matters – Sierra Club Settlement Agreement" of Mississippi Power in Item 7 and Note 3 to the financial statements of Mississippi Power under "Other Matters – Sierra Club Settlement Agreement" in Item 8 of the Form 10-K for additional information.
Mississippi Power expects to recover through its rates the remaining book value of the retired assets and certain costs, including unusable inventory, associated with the retirements; however, the ultimate method and timing of recovery will be considered by the Mississippi PSC in future rate proceedings.
New Source Review Actions
See Note 3 to the financial statements of Mississippi Power under "Environmental Matters – New Source Review Actions" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein for additional information.
On June 25, 2015, the U.S. Department of Justice filed a joint stipulation between Alabama Power, the EPA, and the U.S. Department of Justice proposing to modify the 2006 consent decree to resolve all remaining claims for relief alleged in the case. If approved by the U.S. District Court for the Northern District of Alabama, Alabama

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Power will, without admitting liability, operate subject to emission rates and a cap on certain units and requirements to use only natural gas at certain units, including a unit co-owned by Mississippi Power; retire certain units at Plants Gorgas and Barry; pay a $100,000 civil penalty; and invest $1.5 million in electric transportation infrastructure projects over three years.
The ultimate outcome of this matter cannot be determined at this time.
Environmental Statutes and Regulations
See Note 3 to the financial statements of Mississippi Power under "Other Matters – Sierra Club Settlement Agreement" in Item 8 of the Form 10-K for additional information.
Air Quality
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Air Quality" of Mississippi Power in Item 7 of the Form 10-K for additional information regarding the EPA's proposed regulations governing emissions during startup, shutdown, or malfunction (SSM), the final MATS rule, and the Cross State Air Pollution Rule (CSAPR).
On June 12, 2015, the EPA published a final rule requiring affected states (including Alabama and Mississippi) to revise or remove state implementation plan (SIP) provisions regarding excess emissions that occur during periods of SSM by no later than November 22, 2016. The ultimate impact of the final rule will depend on the outcome of any legal challenges and the development and approval of SIPs by the affected states and cannot be determined at this time.
On June 29, 2015, the U.S. Supreme Court issued a decision finding that the EPA had failed to properly consider costs in its decision to regulate hazardous air pollutant emissions from electric generating units under the MATS rule and remanded the case to the U.S. Court of Appeals for the District of Columbia Circuit for further proceedings. The MATS rule remains in effect while the U.S. Court of Appeals for the District of Columbia Circuit and the EPA respond to the decision. The ultimate impact of this decision cannot be determined at this time.
On July 28, 2015, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion invalidating certain emissions budgets under the CSAPR Phase II emissions trading program for a number of states, including Alabama. The court's decision leaves the emissions trading program in place and remands the rule to the EPA for further action consistent with the court's decision. The court rejected all other pending challenges to the rule. The ultimate impact of this decision will depend on additional rulemaking and cannot be determined at this time.
Water Quality
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Water Quality" of Mississippi Power in Item 7 of the Form 10-K for additional information regarding the EPA's and the U.S. Army Corps of Engineers' proposed rule revising the definition of waters of the U.S. under the Clean Water Act (CWA).
On June 29, 2015, the EPA and the U.S. Army Corps of Engineers jointly published a final rule revising the regulatory definition of waters of the U.S. for all CWA programs. The final rule significantly expands the scope of federal jurisdiction under the CWA and could have significant impacts on economic development projects which could affect customer demand growth. In addition, this rule could significantly increase permitting and regulatory requirements and costs associated with the siting of new facilities and the installation, expansion, and maintenance of transmission and distribution lines. The rule becomes effective August 28, 2015. The ultimate impact of the final rule will depend on the outcome of any legal challenges and the EPA's and the U.S. Army Corps of Engineers' field-level implementation of the rule and cannot be determined at this time.

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Coal Combustion Residuals
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Coal Combustion Residuals" of Mississippi Power in Item 7 of the Form 10-K for additional information regarding the EPA's regulation of CCR.
On April 17, 2015, the EPA published the Disposal of Coal Combustion Residuals from Electric Utilities final rule (CCR Rule) in the Federal Register, setting October 19, 2015 as the effective date of the CCR Rule. The ultimate impact of the CCR Rule cannot be determined at this time and will depend on Mississippi Power's ongoing review of the CCR Rule, the results of initial and ongoing minimum criteria assessments, and the outcome of legal challenges. Based on initial estimates, Mississippi Power recorded incremental asset retirement obligations (ARO) of approximately $95 million related to the CCR Rule in the second quarter 2015. As further analysis is performed, including evaluation of the expected timing and method of compliance and refinement of assumptions underlying the cost estimates, such as the quantities of CCR at each site, Mississippi Power expects to periodically update these estimates. See Note (A) to the Condensed Financial Statements herein for additional information regarding Mississippi Power's AROs.
Global Climate Issues
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Global Climate Issues" of Mississippi Power in Item 7 of the Form 10-K for additional information regarding the EPA's proposed regulation of CO 2 from fossil-fuel-fired electric generating units.
On August 3, 2015, the EPA released pre-publication versions of two final rules that would limit CO 2 emissions from fossil fuel-fired electric generating units. One of the final rules contains specific emission standards governing CO 2 emissions from new, modified, and reconstructed units. The other final rule establishes guidelines for states to develop plans to meet EPA-mandated CO 2 emission rates for existing units. The EPA's final guidelines require state plans to meet interim CO 2 performance rates between 2022 and 2029 and final rates in 2030 and thereafter. At the same time, the EPA also proposed a federal plan and proposed model rule that states can adopt or that would be put in place if, in response to the final guidelines, a state either does not submit a state plan or its plan is not approved by the EPA. These guidelines and standards could result in operational restrictions and material compliance costs, including capital expenditures, which could affect future unit retirement and replacement decisions. Mississippi Power's results of operations, cash flows, and financial condition could be significantly impacted if such costs are not recovered through regulated rates or through market-based contracts. However, the ultimate financial and operational impact of the final rules on Mississippi Power cannot be determined at this time and will depend on numerous factors including the Southern Company system's ongoing review of the final rules; the outcome of any legal challenges; 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.
FERC Matters
Municipal and Rural Associations Tariff
See Note 3 to the financial statements of Mississippi Power under "FERC Matters" in Item 8 of the Form 10-K for additional information regarding a settlement agreement entered into by Mississippi Power regarding the establishment of a regulatory asset for Kemper IGCC-related costs. See Note 3 to the financial statements of Mississippi Power under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for information regarding Mississippi Power's construction of the Kemper IGCC.
On March 31, 2015, Mississippi Power reached a settlement agreement with its wholesale customers and filed a request with the FERC to forgo the Municipal and Rural Associations cost-based electric tariff increase reflected in

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the filing by, among other things, increasing the accrual of AFUDC in lieu of including CWIP in rate base. The settlement agreement, which was accepted by the FERC on May 13, 2015, provides that the additional accrual of AFUDC was effective April 1, 2015. The additional resulting AFUDC is projected to be approximately $11 million annually, of which $8 million relates to the Kemper IGCC. In addition, a settlement agreement entered into in 2014 and approved by the FERC allowed for an adjustment to the wholesale revenue requirement in the event the Kemper IGCC, or any substantial portion thereof, was placed in service before or after December 1, 2014. A regulatory asset account was recorded as a result of a portion of the Kemper IGCC being placed in service prior to the projected date. The March 31, 2015 settlement agreement provides that the regulatory asset will be amortized over nine months, beginning April 1, 2015.
Market-Based Rate Authority
Mississippi Power has authority from the FERC to sell electricity at market-based rates. Since 2008, that authority, for certain balancing authority areas, has been conditioned on compliance with the requirements of an energy auction, which the FERC found to be tailored mitigation that addresses potential market power concerns. In accordance with FERC regulations governing such authority, the traditional operating companies (including Mississippi Power) and Southern Power filed a triennial market power analysis on June 30, 2014, which included continued reliance on the energy auction as tailored mitigation. On April 27, 2015, the FERC issued an order finding that the traditional operating companies' (including Mississippi Power's) and Southern Power's existing tailored mitigation may not effectively mitigate the potential to exert market power in certain areas served by the traditional operating companies and in some adjacent areas. To retain market-based rate authority, the FERC directed the traditional operating companies (including Mississippi Power) and Southern Power to show why market-based rate authority should not be revoked in these areas or to provide a mitigation plan to further address market power concerns. The traditional operating companies (including Mississippi Power) and Southern Power filed a request for rehearing on May 27, 2015 and on June 26, 2015 filed their response with the FERC. The ultimate outcome of this matter cannot be determined at this time.
Retail Regulatory Matters
Mississippi Power's rates and charges for service to retail customers are subject to the regulatory oversight of the Mississippi PSC. Mississippi Power's rates are a combination of base rates and several separate cost recovery clauses for specific categories of costs. These separate cost recovery clauses address such items as the Kemper IGCC, fuel and purchased power, energy efficiency programs, ad valorem taxes, property damage, and the costs of compliance with environmental laws and regulations. Costs not addressed through one of the specific cost recovery clauses are recovered through Mississippi Power's base rates. See Note 3 to the financial statements of Mississippi Power under "Retail Regulatory Matters" and "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters" and "Integrated Coal Gasification Combined Cycle" herein for additional information.
Renewables
In April and May 2015, Mississippi Power entered into separate PPAs for three solar facilities for a combined total of approximately 105 MWs. Mississippi Power would purchase all of the energy produced by the solar facilities for the 25-year term of the contracts. If approved by the Mississippi PSC, the projects are expected to be in service by the end of 2016 and the resulting energy purchases will be recovered through Mississippi Power's fuel cost recovery mechanism. The ultimate outcome of this matter cannot be determined at this time.
Performance Evaluation Plan
On March 17, 2015, Mississippi Power submitted its annual PEP lookback filing for 2014, which indicated no surcharge or refund. On March 26, 2015, the Mississippi PSC suspended the filing to allow it more time for review. The ultimate outcome of this matter cannot be determined at this time.

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Ad Valorem Tax Adjustment
On April 23, 2015, Mississippi Power filed its annual ad valorem tax adjustment factor filing for 2015, which requested an annual rate decrease of 0.35%, or $2 million in annual retail revenues, primarily due to a decrease in average millage rates. On May 26, 2015, the Mississippi PSC suspended the filing to allow it more time to review. The ultimate outcome of this matter cannot be determined at this time.
Integrated Coal Gasification Combined Cycle
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle" of Mississippi Power in Item 7 and Note 3 to the financial statements of Mississippi Power under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K for information regarding Mississippi Power's construction of the Kemper IGCC.
Kemper IGCC Overview
Construction of Mississippi Power's Kemper IGCC is nearing completion and start-up activities will continue until the Kemper IGCC is placed in service. The Kemper IGCC will utilize an IGCC technology with an output capacity of 582 MWs. The Kemper IGCC will be fueled by locally mined lignite (an abundant, lower heating value coal) from a mine owned by Mississippi Power and situated adjacent to the Kemper IGCC. The mine, operated by North American Coal Corporation, started commercial operation in 2013. In connection with the Kemper IGCC, Mississippi Power constructed and plans to operate approximately 61 miles of CO 2 pipeline infrastructure for the planned transport of captured CO 2 for use in enhanced oil recovery.
Kemper IGCC Schedule and Cost Estimate
In 2012, the Mississippi PSC issued the 2012 MPSC CPCN Order, a detailed order confirming the CPCN originally approved by the Mississippi PSC in 2010 authorizing the acquisition, construction, and operation of the Kemper IGCC.
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 CO 2 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 continues to focus on completing the remainder of the Kemper IGCC, including the gasifier and the gas clean-up facilities, for which the in-service date is currently expected to occur in the first half of 2016. Recovery of the costs subject to the cost cap and the Cost Cap Exceptions remains subject to review and approval by the Mississippi PSC. Mississippi Power's Kemper IGCC 2010 project estimate, current cost estimate (which includes the impacts of the Court decision), and actual costs incurred as of June 30, 2015 , as adjusted for the Court's decision, are as follows:

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Cost Category
2010 Project Estimate (f)
 
Current Estimate
 
Actual Costs at June 30, 2015
 
(in billions)
Plant Subject to Cost Cap (a)
$
2.40

 
$
4.96

 
$
4.51

Lignite Mine and Equipment
0.21
 
0.23
 
0.23
CO 2  Pipeline Facilities
0.14
 
0.11
 
0.11
AFUDC (b)(c)
0.17
 
0.62
 
0.52
Combined Cycle and Related Assets Placed in
  Service – Incremental (d)
—

 
0.02

 
—

General Exceptions
0.05
 
0.10
 
0.08
Deferred Costs (c)(e)
—

 
0.19
 
0.15
Total Kemper IGCC (a)(c)
$
2.97

 
$
6.23

 
$
5.60

(a)
The 2012 MPSC CPCN Order approved a construction cost cap of up to $2.88 billion, net of the DOE Grants and excluding the Cost Cap Exceptions. The Current Estimate and Actual Costs include non-incremental operating and maintenance costs related to the combined cycle and associated common facilities placed in service in August 2014 that are subject to the $2.88 billion cost cap and exclude post-in-service costs for the lignite mine. See "Rate Recovery of Kemper IGCC Costs – 2013 MPSC Rate Order" for additional information. The Current Estimate and Actual Costs include the 15% undivided interest in the Kemper IGCC that was previously projected to be purchased by SMEPA. On May 20, 2015, SMEPA notified Mississippi Power of its termination of the APA and requested the return of a total of $275 million of deposits, which was returned with accrued interest on June 3, 2015.
(b)
Mississippi Power's original estimate included recovery of financing costs during construction rather than the accrual of AFUDC. This approach was not approved by the Mississippi PSC in 2012 as described in "Rate Recovery of Kemper IGCC Costs." The current estimate includes an approximately $11 million decrease in AFUDC due to a decrease in AFUDC rates resulting from an increase in short-term debt, partially offset by an $8 million increase in AFUDC related to a settlement agreement with the wholesale customers for cost-based rates under FERC's jurisdiction. See "FERC Matters" herein for additional information.
(c)
Amounts in the Current Estimate reflect estimated costs through March 31, 2016.
(d)
Incremental operating and maintenance costs related to the combined cycle and associated common facilities placed in service in August 2014, net of costs related to energy sales. See "Rate Recovery of Kemper IGCC Costs – 2013 MPSC Rate Order" for additional information.
(e)
The 2012 MPSC CPCN Order approved deferral of non-capital Kemper IGCC-related costs during construction as described in "Rate Recovery of Kemper IGCC Costs – Regulatory Assets and Liabilities."
(f)
The 2010 Project Estimate is the certificated cost estimate adjusted to include the certificated estimate for the CO 2 pipeline facilities which was approved in 2011 by the Mississippi PSC.
Of the total costs, including post-in-service costs for the lignite mine, incurred as of June 30, 2015 , $3.42 billion was included in property, plant, and equipment (which is net of the DOE Grants and estimated probable losses of $2.08 billion), $2 million in other property and investments, $58 million in fossil fuel stock, $41 million in materials and supplies, $198 million in other regulatory assets, $16 million in other deferred charges and assets, and $24 million in AROs in the balance sheet, with $1 million previously expensed.
Mississippi Power does not intend to seek any 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 Cap Exceptions. Mississippi Power recorded pre-tax charges to income for revisions to the cost estimate of $23 million ($14 million after tax) in the second quarter 2015 and $9 million ($6 million after tax) in the first quarter 2015. These amounts are in addition to charges totaling $868 million ( $536 million after tax), $1.10 billion ($681 million after tax), and $78 million ($48 million after tax) in 2014, 2013, and 2012, respectively. The increases to the cost estimate in the first and second quarters of 2015 primarily reflected costs for increased efforts related to equipment rework, scope modifications, and the related additional labor costs in support of start-up and operational readiness activities. The current estimate includes costs through March 31, 2016. Any further extension of the in-service date is currently estimated to result in additional base costs of approximately $25 million to $30 million per month, w hich includes maintaining necessary levels of start-up labor, materials, and fuel, as well as operational resources required to execute start-up and commissioning activities. Any further extension of the in-service date with respect to the Kemper IGCC would also increase costs for the Cost Cap Exceptions, which are not subject to the $2.88 billion

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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, which are being deferred as regulatory assets and are estimated to total approximately $7 million per month.
Any 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 supplier delay, non-performance under construction 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 Mississippi Power's statements of operations and these changes could be material.
Rate Recovery of Kemper IGCC Costs
The ultimate outcome of the rate recovery matters discussed herein, including the resolution of legal challenges, determinations of prudency, and the specific manner of recovery of prudently-incurred costs, cannot be determined at this time, but could have a material impact on Mississippi Power's results of operations, financial condition, and liquidity.
2012 MPSC CPCN Order
The 2012 MPSC CPCN Order included provisions relating to both Mississippi Power's recovery of financing costs during the course of construction of the Kemper IGCC and Mississippi Power's recovery of costs following the date the Kemper IGCC is placed in service. With respect to recovery of costs following the in-service date of the Kemper IGCC, the 2012 MPSC CPCN Order provided for the establishment of operational cost and revenue parameters based upon assumptions in Mississippi Power's petition for the CPCN. Mississippi Power expects the Mississippi PSC to apply operational parameters in connection with the evaluation of the 2015 Rate Case and any alternative 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.
2013 Settlement Agreement
In January 2013, Mississippi Power entered into a settlement agreement with the Mississippi PSC that, among other things, established 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. The 2013 Settlement Agreement also allowed Mississippi Power to secure alternate financing for costs not otherwise recovered in any Mississippi PSC rate proceedings contemplated by the 2013 Settlement Agreement. The Court found the 2013 Settlement Agreement unenforceable due to a lack of public notice for the related proceedings. See "2015 Mississippi Supreme Court Decision" herein for additional information.
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's intent under the 2013 Settlement Agreement was to securitize (1) prudently-incurred costs in excess of the certificated cost estimate and up to the $2.88 billion cost cap, net of the DOE Grants and excluding the Cost Cap Exceptions, (2) accrued AFUDC, and (3) other prudently-incurred costs, which include carrying costs from the

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estimated in-service date until securitization is finalized and other costs not included in Mississippi Power's 2013 revision to the proposed rate recovery plan filed with the Mississippi PSC for the Kemper IGCC for cost recovery through 2020 (2013 Rate Mitigation Plan) as approved by the Mississippi PSC. The Court's decision did not impact Mississippi Power's ability to utilize alternate financing through securitization, the 2012 MPSC CPCN Order, or the February 2013 legislation. See "2015 Mississippi Supreme Court Decision" herein for additional information.
2013 MPSC Rate Order
Consistent with the terms of the 2013 Settlement Agreement, 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. Because the 2013 MPSC Rate Order did not provide for the inclusion of CWIP in rate base as permitted by the Baseload Act, Mississippi Power continues to record AFUDC on the Kemper IGCC through the in-service date. Mississippi Power will not record AFUDC on any additional costs of the Kemper IGCC that exceed the $2.88 billion cost cap, except for Cost Cap Exception amounts. Mississippi Power will continue to record AFUDC through the in-service date until directed to do otherwise by the Mississippi PSC.
In August 2014, Mississippi Power provided an analysis of the costs and benefits of placing the combined cycle and the associated common facilities portion of the Kemper IGCC in service, including the expected accounting treatment for costs and revenues associated with the operation of the combined cycle as well as the treatment of revenues collected under the 2013 MPSC Rate Order. See "2015 Mississippi Supreme Court Decision" for additional information regarding the decision of the Court which discontinues the collection of rates under the 2013 MPSC Rate Order and requires the refund of all amounts previously collected.
In addition, Mississippi Power's August 2014 filing with the Mississippi PSC requested confirmation of Mississippi Power's accounting treatment by the Mississippi PSC of the continued accrual of AFUDC through the in-service date of the remainder of the Kemper IGCC. See "Regulatory Assets and Liabilities" for additional information. Any action by the Mississippi PSC that is inconsistent with the treatment requested by Mississippi Power could have a material impact on the results of operations, financial condition, and liquidity of Mississippi Power.
2015 Mississippi Supreme Court Decision
On February 12, 2015, the 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 Mirror CWIP 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 March 12, 2015, Mississippi Power and the Mississippi PSC each filed motions for rehearing, both of which were denied on June 11, 2015. The Court's ruling remanded the matter to the Mississippi PSC to (1) fix by order the rates that were in existence prior to the 2013 MPSC Rate Order, (2) fix no rate increases until the Mississippi PSC is in compliance with the Court's ruling, and (3) enter an order refunding amounts collected under the 2013 MPSC Rate Order. Through June 30, 2015 , Mississippi Power had collected $331 million through rates under the 2013 MPSC Rate Order and had accrued $22 million in associated carrying costs. On July 7, 2015, the Mississippi PSC ordered that the Mirror CWIP rate be terminated effective July 20, 2015. Mississippi Power submitted a refund plan to the Mississippi PSC on July 21, 2015, which proposed two alternative refund plans for the Mississippi PSC's consideration: (1) bill credit with check option; or (2) check-only option. Hearings on the refund plan are scheduled to be held on August 6, 2015.
2015 Rate Case
As a result of the 2015 Mississippi Supreme Court decision and the Mirror CWIP refund, the 2013 Rate Mitigation Plan is no longer viable. See "2015 Mississippi Supreme Court Decision" herein for additional information. On

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May 15, 2015, Mississippi Power filed the 2015 Rate Case with the Mississippi PSC. This filing included three alternative rate proposals requesting an increase in retail rates and charges in connection with the Kemper IGCC: (i) a traditional rate case, (ii) a rate mitigation plan fixing rates through 2017 (RMP 2017), and (iii) a rate mitigation plan fixing rates through 2019 (RMP 2019). Under the traditional proposal, rates would increase above May 2015 levels by approximately 11.8%, or $114 million annually, effective June 1, 2015, and would be projected to increase approximately an additional 12.0%, or $120 million annually, effective June 1, 2016. The traditional proposal assumes termination of the Mirror CWIP rate and the refund of the Mirror CWIP regulatory liability over the period from May 2015 through May 2017. RMP 2017 presents revenue requirements calculated consistent with a rate mitigation plan authorized by Mississippi state law that would mitigate the Kemper IGCC's initial retail revenue impact over two years (June 1, 2015 through May 31, 2017). Under RMP 2017, rates would increase above May 2015 levels by approximately 2.6%, or $25 million annually, effective June 1, 2015, and approximately an additional 19.0%, or $197 million annually, effective June 1, 2016. This proposal assumes termination of the Mirror CWIP rate and the refund of the Mirror CWIP regulatory liability over the period from May 2015 through May 2017. In light of the Mississippi PSC's July 7, 2015 order, RMP 2019 is no longer viable as originally proposed by Mississippi Power.
On July 10, 2015, Mississippi Power filed a Supplemental Notice with the Mississippi PSC in response to the July 7, 2015 order of the Mississippi PSC. The Supplemental Notice presents an additional alternative rate proposal, In-Service Asset Proposal, for consideration by the Mississippi PSC. The In-Service Asset Proposal is based upon the test period of June 2015 to May 2016, is 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 is designed to collect approximately $159 million annually. The Supplemental Notice requests that the In-Service Asset Proposal be implemented immediately as interim rates, subject to refund, until such time as the Mississippi PSC renders a final decision on the In-Service Asset Proposal and requests that the Mississippi PSC establish a scheduling order for consideration of permanent rates under the In-Service Asset Proposal. Evidentiary hearings on the interim rate relief are scheduled to be held on August 6, 2015.
The revenue requirements set forth in the alternative rate proposals exclude the costs of the Kemper IGCC related to the 15% undivided interest that was previously projected to be purchased by SMEPA. See "Termination of Proposed Sale of Undivided Interest to SMEPA" herein for additional information.
If the Mississippi PSC does not act on the Supplemental Notice or the 2015 Rate Case within 120 days of the Supplemental Notice filing, Mississippi Power expects to put one of the three viable alternative rate proposals into effect as temporary rates under bond and subject to refund pursuant to Mississippi state law.
Mississippi Power also expects to seek additional rate relief to address recovery of the remaining Kemper IGCC assets. In addition to current estimated costs at June 30, 2015 of $6.23 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.
Prudence Reviews
The Mississippi PSC's review of Kemper IGCC costs is ongoing. In August 2014, the Mississippi PSC ordered that a consolidated prudence determination of all Kemper IGCC costs be completed after the entire project has been placed in service and has demonstrated availability for a reasonable period of time as determined by the Mississippi PSC and the Mississippi Public Utilities Staff (MPUS). The Mississippi PSC has encouraged the parties to work in good faith to settle contested issues and Mississippi Power is working to reach a mutually acceptable resolution. On July 10, 2015, Mississippi Power submitted the Supplemental Notice to the Mississippi PSC. The Supplemental Notice requests that the Mississippi PSC establish a scheduling order for review of the In-Service Asset Proposal. Mississippi Power expects the Mississippi PSC to address the In-Service Asset Proposal before the end of 2015, although Mississippi Power believes that such a prudence finding is not required for

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interim rate relief to be granted. See "2015 Mississippi Supreme Court Decision" and "2015 Rate Case" herein for additional information.
Regulatory Assets and Liabilities
Consistent with the treatment of non-capital costs incurred during the pre-construction period, the Mississippi PSC issued an accounting order in 2011 granting Mississippi Power the authority to defer all non-capital Kemper IGCC-related costs to a regulatory asset through the in-service date, subject to review of such costs by the Mississippi PSC. Such costs include, but are not limited to, carrying costs on Kemper IGCC assets currently placed in service, costs associated with Mississippi PSC and MPUS consultants, prudence costs, legal fees, and operating expenses associated with assets placed in service.
In August 2014, Mississippi Power requested confirmation by the Mississippi PSC of Mississippi Power's authority to defer all operating expenses associated with the operation of the combined cycle subject to review of such costs by the Mississippi PSC. In addition, Mississippi Power is authorized to accrue carrying costs on the unamortized balance of such regulatory assets at a rate and in a manner to be determined by the Mississippi PSC in future cost recovery mechanism proceedings. As of June 30, 2015 , the regulatory asset balance associated with the Kemper IGCC was $198 million . The projected balance at March 31, 2016 is estimated to total approximately $276 million. The amortization period for any such costs approved for recovery remains subject to approval by the Mississippi PSC.
See "2015 Mississippi Supreme Court Decision" herein for additional information related to the July 7, 2015 Mississippi PSC order terminating the Mirror CWIP rate and requiring refund of collections under Mirror CWIP.
See Note 1 to the financial statements of Mississippi Power under "Regulatory Assets and Liabilities" in Item 8 of the Form 10-K for additional information.
Lignite Mine and CO 2 Pipeline Facilities
In conjunction with the Kemper IGCC, Mississippi Power will own the lignite mine and equipment and has acquired and will continue to acquire mineral reserves located around the Kemper IGCC site. The mine started commercial operation in June 2013.
In 2010, Mississippi Power executed a 40-year management fee contract with Liberty Fuels Company, LLC (Liberty Fuels), a wholly-owned subsidiary of The North American Coal Corporation, which developed, constructed, and is operating and managing the mining operations. The contract with Liberty Fuels is effective through the end of the mine reclamation. As the mining permit holder, Liberty Fuels has a legal obligation to perform mine reclamation and Mississippi Power has a contractual obligation to fund all reclamation activities. In addition to the obligation to fund the reclamation activities, Mississippi Power currently provides working capital support to Liberty Fuels through cash advances for capital purchases, payroll, and other operating expenses. See Note 1 to the financial statements of Mississippi Power under "Asset Retirement Obligations and Other Costs of Removal" and "Variable Interest Entities" in Item 8 of the Form 10-K for additional information.
In addition, Mississippi Power has constructed and will operate the CO 2 pipeline for the planned transport of captured CO 2 for use in enhanced oil recovery. 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 CO 2 captured from the Kemper IGCC and Treetop will purchase 30% of the CO 2 captured from the Kemper IGCC. The agreements with Denbury and Treetop provide termination rights as Mississippi Power has not satisfied its contractual obligation to deliver captured CO 2 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 CO 2 delivery schedule as well as other issues related to the respective 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. Any termination or material modification of these agreements could result in a material reduction in future chemical product sales revenues and could have a material financial impact

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on Mississippi Power to the extent Mississippi Power is not able to enter into other similar contractual arrangements.
The ultimate outcome of these matters cannot be determined at this time.
Termination of Proposed Sale of Undivided Interest to SMEPA
In 2010 and as amended in 2012, Mississippi Power and SMEPA entered into an APA whereby SMEPA agreed to purchase a 15% undivided interest in the Kemper IGCC. On May 20, 2015, SMEPA notified Mississippi Power of its termination of the APA between Mississippi Power and SMEPA. Mississippi Power previously received a total of $275 million of deposits from SMEPA that were required to be returned to SMEPA with interest in connection with the termination of the APA. On June 3, 2015, Southern Company, pursuant to its guarantee obligation, returned approximately $301 million to SMEPA. Subsequently, Mississippi Power issued an 18-month promissory note in the aggregate principal amount of approximately $301 million to Southern Company.
Income Tax Matters
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Income Tax Matters" of Mississippi Power in Item 7 of the Form 10-K for additional information.
Section 174 Research and Experimental Deduction
Southern Company, on behalf of Mississippi Power, reflected deductions for research and experimental (R&E) expenditures related to the Kemper IGCC in its federal income tax calculations for 2013 and 2014. In May 2015, Southern Company amended its 2008 through 2013 federal income tax returns to include deductions for Kemper IGCC-related R&E expenditures. Due to the uncertainty related to this tax position, Mississippi Power had unrecognized tax benefits associated with these R&E deductions totaling approximately $390 million as of June 30, 2015 . See Note 5 to the financial statements of Mississippi Power under "Unrecognized Tax Benefits" in Item 8 of the Form 10-K and Notes (B) and (G) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" and "Unrecognized Tax Benefits – Section 174 Research and Experimental Deduction," respectively, herein for additional information. The ultimate outcome of this tax matter cannot be determined at this time.
Other Matters
Mississippi Power is involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Mississippi Power is subject to certain claims and legal actions arising in the ordinary course of business. Mississippi Power's business activities are subject to extensive governmental regulation related to public health and the environment, such as regulation of air emissions and water discharges. 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 CO 2 and other emissions, CCR, and alleged exposure to hazardous materials, and/or requests for injunctive relief in connection with such matters.
The ultimate outcome of such pending or potential litigation against Mississippi Power cannot be predicted at this time; however, for current proceedings not specifically reported in Note (B) to the Condensed Financial Statements herein or in Note 3 to the financial statements of Mississippi Power in Item 8 of the Form 10-K, management does not anticipate that the ultimate liabilities, if any, arising from such current proceedings would have a material effect on Mississippi Power's financial statements. See Note (B) to the Condensed Financial Statements herein for a discussion of various other contingencies, regulatory matters, and other matters being litigated which may affect future earnings potential.

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ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates
Mississippi Power prepares its financial statements in accordance with GAAP. Significant accounting policies are described in Note 1 to the financial statements of Mississippi Power in Item 8 of the Form 10-K. In the application of these policies, certain estimates are made that may have a material impact on Mississippi Power's results of operations and related disclosures. Different assumptions and measurements could produce estimates that are significantly different from those recorded in the financial statements. See MANAGEMENT'S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES – "Application of Critical Accounting Policies and Estimates" of Mississippi Power in Item 7 of the Form 10-K for a complete discussion of Mississippi Power's critical accounting policies and estimates related to Electric Utility Regulation, Contingent Obligations, Unbilled Revenues, Pension and Other Postretirement Benefits, and AFUDC.
Kemper IGCC Estimated Construction Costs, Project Completion Date, and Rate Recovery
During 2015, Mississippi Power further revised its cost estimate to complete construction and start-up of the Kemper IGCC to an amount that exceeds the $2.88 billion cost cap, net of the DOE Grants and excluding the Cost Cap Exceptions. Mississippi Power does not intend to seek any 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 Cap Exceptions.
As a result of the revisions to the cost estimate, Mississippi Power recorded total pre-tax charges to income for the estimated probable losses on the Kemper IGCC of $23 million ($14 million after tax) in the second quarter 2015, $9 million ($6 million after tax) in the first quarter 2015, $70 million ($43 million after tax) in the fourth quarter 2014, $418 million ($258 million after tax) in the third quarter 2014, $380 million ( $235 million after tax) in the first quarter 2014, $40 million ($25 million after tax) in the fourth quarter 2013, $150 million ($93 million after tax) in the third quarter 2013, $450 million ($278 million after tax) in the second quarter 2013, $462 million ($285 million after tax) in the first quarter 2013, and $78 million ($48 million after tax) in the fourth quarter 2012. In the aggregate, Mississippi Power has incurred charges of $2.08 billion ($1.28 billion after tax) as a result of changes in the cost estimate for the Kemper IGCC through June 30, 2015 .
Mississippi Power has experienced, and may continue to experience, material changes in the cost estimate for the Kemper IGCC. 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 Mississippi Power's statements of operations and these changes could be material. Any 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 supplier delay, non-performance under construction 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, but not limited to, additional costs to satisfy any operational parameters ultimately adopted by the Mississippi PSC).
Mississippi Power's revised cost estimate includes costs through March 31, 2016. Any further extension of the in-service date is currently estimated to result in additional base costs of approximately $25 million to $30 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. Any further extension of the in-service date with respect to the Kemper IGCC 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 fees and legal fees which are being deferred as regulatory assets and are estimated to total approximately $7 million per month.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Given the significant judgment involved in estimating the future costs to complete construction and start-up, the project completion date, the ultimate rate recovery for the Kemper IGCC, and the potential impact on Mississippi Power's results of operations, Mississippi Power considers these items to be critical accounting estimates. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle" of Mississippi Power in Item 7 and Note 3 to the financial statements of Mississippi Power under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle" and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information.
Asset Retirement Obligations
AROs are computed as the fair value of the ultimate costs for an asset's future retirement and are recorded in the period in which the liability is incurred. The costs are capitalized as part of the related long-lived asset and depreciated over the asset's useful life. In the absence of quoted market prices, AROs are estimated using present value techniques in which estimates of future cash outlays associated with the asset retirements are discounted using a credit-adjusted risk-free rate. Estimates of the timing and amounts of future cash outlays are based on projections of when and how the assets will be retired and the cost of future removal activities.
The liability for AROs primarily relates to facilities that are subject to the CCR Rule, primarily ash ponds. In addition, Mississippi Power has retirement obligations related to various landfill sites, underground storage tanks, deep injection wells, water wells, substation removal, mine reclamation, and asbestos removal. Mississippi Power also has identified retirement obligations related to certain transmission and distribution facilities, certain wireless communication towers, and certain structures authorized by the U.S. Army Corps of Engineers. However, liabilities for the removal of these assets have not been recorded because the settlement timing for the retirement obligations related to these assets is indeterminable and, therefore, the fair value of the retirement obligations cannot be reasonably estimated. A liability for these AROs will be recognized when sufficient information becomes available to support a reasonable estimation of the ARO.
On April 17, 2015, the EPA published the final CCR Rule in the Federal Register, setting October 19, 2015 as the effective date of the CCR Rule. Therefore, Mississippi Power recorded new AROs for facilities that are subject to the CCR Rule. The cost estimates are based on information that was known as of June 30, 2015 using various assumptions related to closure and post-closure costs, timing of future cash outlays, inflation and discount rates, and the potential methods for complying with the CCR Rule requirements. As further analysis is performed, including evaluation of the expected timing and method of compliance and refinement of assumptions underlying the cost estimates, such as the quantities of CCR at each site, Mississippi Power expects to periodically update these estimates. Given the significant judgment involved in estimating AROs, Mississippi Power considers the liabilities for AROs to be critical accounting estimates.
See Note 1 to the financial statements of Mississippi Power under "Asset Retirement Obligations and Other Costs of Removal" in Item 8 of the Form 10-K and Note (A) to the Condensed Financial Statements under "Asset Retirement Obligations" herein for additional information.
Recently Issued Accounting Standards
The Financial Accounting Standards Board's (FASB) ASC 606, Revenue from Contracts with Customers , revises the accounting for revenue recognition effective for fiscal years beginning after December 15, 2017. Mississippi Power continues to evaluate the requirements of ASC 606. The ultimate impact of the new standard has not yet been determined.
On April 7, 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs . The ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability and is effective for fiscal years beginning after December 15, 2015. Mississippi Power currently reflects unamortized debt issuance costs in other deferred charges and assets on its

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

balance sheet. Upon adoption, the reclassification will not have a material impact on the results of operations, financial position, or cash flows of Mississippi Power.
FINANCIAL CONDITION AND LIQUIDITY
Overview
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Overview" of Mississippi Power in Item 7 of the Form 10-K and FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle" herein for additional information. Mississippi Power's financial condition was adversely affected by the return of approximately $301 million of interest bearing refundable deposits to SMEPA in June 2015 in connection with the termination of the APA. In addition, the required refund of Mirror CWIP rate collections, which as of June 30, 2015 was approximately $353 million including associated carrying costs, and the termination of the Mirror CWIP rate will further adversely impact Mississippi Power's financial condition and its ability to obtain financing needed for normal business operations and completion of the Kemper IGCC. Earnings for the six months ended June 30, 2015 were negatively affected by revisions to the cost estimate for the Kemper IGCC and the Court's decision to reverse the 2013 MPSC Rate Order. Earnings for the six months ended June 30, 2014 were negatively affected by revisions to the cost estimate for the Kemper IGCC.
In addition to funding normal business operations and projected capital expenditures, Mississippi Power's cash requirements primarily consist of $900 million of bank term loans scheduled to mature on April 1, 2016, $30 million of short-term debt, and the required refund of approximately $353 million in Mirror CWIP, which includes associated carrying costs. In addition, Mississippi Power issued an 18-month promissory note to Southern Company in the aggregate principal amount of approximately $301 million related to the refund to SMEPA and expects to enter into a similar promissory note with Southern Company to fund the Mirror CWIP refund. See FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle – Termination of Proposed Sale of Undivided Interest to SMEPA," "Rate Recovery of Kemper IGCC Costs – 2013 MPSC Rate Order," " – 2015 Mississippi Supreme Court Decision," and " – 2015 Rate Case" herein for additional information. For the three-year period from 2015 through 2017, Mississippi Power's capital expenditures and debt maturities are expected to materially exceed operating cash flows. In addition to the Kemper IGCC, projected capital expenditures in that period include investments to maintain existing generation facilities, to add environmental equipment for existing generating units, including the Plant Daniel scrubber project, to add or change fuel sources for certain existing units, and to expand and improve transmission and distribution facilities. See "Sources of Capital" herein for additional information.
Through June 30, 2015 , Mississippi Power has incurred non-recoverable cash expenditures of $1.62 billion and is expected to incur approximately $0.46 billion in additional non-recoverable cash expenditures through completion of the Kemper IGCC.
During the first six months of 2015 , Mississippi Power received $75 million in equity contributions from Southern Company. In April 2015, Mississippi Power entered into two floating rate bank loans with a maturity date of April 1, 2016, in an aggregate principal amount of $475 million, bearing interest based on one-month LIBOR. The proceeds of these loans were used for the repayment of term loans in an aggregate principal amount of $275 million, working capital, and other general corporate purposes. Mississippi Power also amended three outstanding floating rate bank loans for an aggregate principal amount of $425 million which, among other things, extended the maturity dates from various dates in 2015 to April 1, 2016. On June 3, 2015, Mississippi Power issued an 18-month promissory note in the aggregate principal amount of approximately $301 million to Southern Company as a result of Southern Company's refund of approximately $301 million in deposits and associated interest to SMEPA in connection with the termination of the APA. 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 Mississippi Power's short-term capital needs. See "Capital Requirements and Contractual Obligations," "Sources of Capital," and "Financing Activities" herein for additional information.

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MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net cash provided from operating activities totaled $309 million for the first six months of 2015 , an increase of $131 million as compared to the corresponding period in 2014 . The increase in cash provided from operating activities is primarily due to R&E tax deductions and bonus depreciation reducing tax payments, an increase in fuel recovery, and a decrease in receivables, partially offset by the timing of payments for accounts payable and fuel purchases. See Notes (B) and Note (G) to the Condensed Financial Statements herein for additional information. Net cash used for investing activities totaled $460 million for the first six months of 2015 primarily due to gross property additions related to the Kemper IGCC and the Plant Daniel scrubber project. Net cash provided from financing activities totaled $230 million for the first six months of 2015 primarily due to short-term bank loans, capital contributions from Southern Company, and short-term borrowings, partially offset by redemptions of long-term debt. Fluctuations in cash flow from financing activities vary from period to period based on capital needs and the maturity or redemption of securities.
Significant balance sheet changes for the first six months of 2015 include a decrease in securities due within one year of $349 million, primarily due to refinancing or replacing maturing long-term debt with short-term loans. Additionally, long-term debt increased $301 million and interest-bearing refundable deposit decreased $275 million, due to an intercompany loan for repayment of the SMEPA deposits and interest. See "Sources of Capital" herein for additional information. Total property, plant, and equipment increased $439 million; other regulatory assets, deferred increased $97 million; and the Mirror CWIP regulatory liability increased $82 million primarily associated with construction, operation, and collections related to the Kemper IGCC. See – "Integrated Coal Gasification Combined Cycle" herein for additional information. Income taxes receivable, non-current; accrued income taxes; accumulated deferred income taxes, a portion of which is reflected in other deferred charges and assets, and other deferred credits and liabilities increased primarily due to R&E tax deductions and the related reserve. Additional changes include increases in notes payable primarily due to new short-term bank loans and asset retirement obligations due to the CCR Rule. Total common stockholder's equity increased $164 million primarily due to the receipt of $75 million in capital contributions from Southern Company and due to net income during the second quarter 2015.
Capital Requirements and Contractual Obligations
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" of Mississippi Power in Item 7 of the Form 10-K for a description of Mississippi Power's capital requirements for its construction program, including estimated capital expenditures for new generating resources and to comply with existing environmental statutes and regulations, scheduled maturities of long-term debt, as well as related interest, leases, purchase commitments, derivative obligations, preferred stock dividends, trust funding requirements, and unrecognized tax benefits. Approximately $900 million will be required through June 30, 2016 to fund maturities of bank term loans scheduled to mature on April 1, 2016 and $30 million in short-term debt. In addition, Mississippi Power will be required to refund its Mirror CWIP rate collections of approximately $353 million as of June 30, 2015, including associated carrying costs. See "Sources of Capital" herein for additional information.
The construction program of Mississippi Power is currently estimated to be $1.0 billion in 2015, $354 million in 2016, and $229 million for 2017, which includes expenditures related to the construction of the Kemper IGCC of $801 million in 2015 and $150 million in 2016.
The construction program is 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; storm impacts; 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; Mississippi 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; and the cost of capital. See Note (B) to the Condensed Financial Statements under "Integrated Coal

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Gasification Combined Cycle – Kemper IGCC Schedule and Cost Estimate" herein for additional information and further risks related to the estimated schedule and costs and rate recovery for the Kemper IGCC.
Sources of Capital
Except as described herein, Mississippi Power plans to obtain the funds required for construction and other purposes from operating cash flows and lines of credit (to the extent available) as well as loans and, under certain circumstances, equity contributions from Southern Company. Mississippi Power's financial condition was adversely affected by the issuance of an 18-month promissory note to Southern Company related to the return of approximately $301 million of interest bearing refundable deposits to SMEPA in June 2015 in connection with the termination of the APA. In addition, the required refund of Mirror CWIP rate collections of approximately $353 million as of June 30, 2015, including associated carrying costs, and the termination of the Mirror CWIP rate have further adversely impacted Mississippi Power's financial condition and its ability to obtain funds needed for normal business operations and completion of the Kemper IGCC. The amount, type, and timing of future financings will depend upon regulatory approval, prevailing market conditions, and other factors, which includes resolution of Kemper IGCC cost recovery. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" and – FUTURE EARNINGS POTENTIAL – "Integrated Coal Gasification Combined Cycle – Rate Recovery of Kemper IGCC Costs – 2013 MPSC Rate Order" and " – 2015 Mississippi Supreme Court Decision" of Mississippi Power in Item 7 of the Form 10-K and herein for additional information.
Mississippi Power received $245 million of DOE Grants in prior years that were used for the construction of the Kemper IGCC. An additional $25 million of DOE Grants is expected to be received for commercial operation of the Kemper IGCC. In addition, see Note 3 to the financial statements of Mississippi Power under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K for information regarding legislation related to the securitization of certain costs of the Kemper IGCC.
In April 2015, Mississippi Power entered into two floating rate bank loans with a maturity date of April 1, 2016, in an aggregate principal amount of $475 million, bearing interest based on one-month LIBOR. The proceeds of these loans were used for the repayment of term loans in an aggregate principal amount of $275 million, working capital, and other general corporate purposes. Mississippi Power also amended three outstanding floating rate bank loans for an aggregate principal amount of $425 million which, among other things, extended the maturity dates from various dates in 2015 to April 1, 2016. As of June 30, 2015, Mississippi Power's current liabilities exceeded current assets by approximately $898 million primarily due to $900 million of bank term loans scheduled to mature on April 1, 2016, $30 million of short-term debt, and the required refund of approximately $353 million in Mirror CWIP, which includes associated carrying costs through June 30, 2015. 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 Mississippi Power's short-term capital needs.
At June 30, 2015 , Mississippi Power had approximately $212 million of cash and cash equivalents. Committed credit arrangements with banks at June 30, 2015 were as follows:
Expires
 
 
 
Executable Term
Loans
 
Due Within One
Year
2015
 
2016
 
Total
 
Unused
 
One
Year
 
Two
Years
 
Term
Out
 
No Term
Out
(in millions)
 
(in millions)
 
(in millions)
 
(in millions)
$
40

 
$
255

 
$
295

 
$
265

 
$
30

 
$
40

 
$
70

 
$
225

See Note 6 to the financial statements of Mississippi Power under "Bank Credit Arrangements" in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under "Bank Credit Arrangements" herein for additional information.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

A portion of the $265 million unused credit arrangements with banks is allocated to provide liquidity support to Mississippi Power's variable rate pollution control revenue bonds and commercial paper borrowings. The amount of variable rate pollution control revenue bonds outstanding requiring liquidity support as of June 30, 2015 was approximately $40 million.
Most of these bank credit arrangements contain covenants that limit debt levels and typically contain cross default provisions to other indebtedness (including guarantee obligations) of Mississippi Power. Such cross default provisions to other indebtedness would trigger an event of default if Mississippi Power defaulted on indebtedness or guarantee obligations over a specified threshold. Mississippi Power is currently in compliance with all such covenants. None of the bank credit arrangements contain material adverse change clauses at the time of borrowing.
Subject to applicable market conditions, Mississippi Power expects to seek to renew or replace its credit arrangements, as needed prior to expiration. In connection therewith, Mississippi Power may seek to extend the maturity dates and/or increase or decrease the lending commitments thereunder.
To the extent available, Mississippi Power may seek to utilize a Southern Company subsidiary organized to issue and sell commercial paper at the request and for the benefit of Mississippi Power and the other traditional operating companies. Proceeds from such issuances for the benefit of Mississippi Power would be loaned directly to Mississippi Power. The obligations of each company under these arrangements are several and there is no cross-affiliate credit support.
Details of short-term borrowings were as follows:
 
 
Short-term Debt at
June 30, 2015
 
Short-term Debt During the Period (*)
 
 
Amount
Outstanding
 
Weighted
Average
Interest
Rate
 
Average
Outstanding
 
Weighted
Average
Interest
Rate
 
Maximum
Amount
Outstanding
 
 
(in millions)
 
 
 
(in millions)
 
 
 
(in millions)
Short-term bank debt
 
$
505

 
1.4%
 
$
460

 
1.4%
 
$
505

(*)
Average and maximum amounts are based upon daily balances during the three-month period ended June 30, 2015 .
Credit Rating Risk
Mississippi Power does not have any credit arrangements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade.
There are certain contracts that could require collateral, but not accelerated payment, in the event of a credit rating change to BBB- and/or Baa3 or below. These contracts are for physical electricity sales, fuel transportation and storage, and energy price risk management. At June 30, 2015 , the maximum potential collateral requirements under these contracts at a rating of BBB- and/or Baa3 was not material. The maximum potential collateral requirements at a rating below BBB- and/or Baa3 equaled approximately $282 million. Included in these amounts are certain agreements that could require collateral in the event that one or more Southern Company system power pool participants has a credit rating change to below investment grade. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, any credit rating downgrade has impacted and may continue to impact Mississippi Power's ability to access capital markets, particularly the short-term debt market and the variable rate pollution control revenue bond market.
On June 5, 2015, Fitch downgraded the long-term issuer default rating of Mississippi Power to BBB+ from A-. Fitch maintained the negative ratings outlook for Mississippi Power .
Subsequent to June 30, 2015, S&P placed its ratings of Southern Company and the traditional operating companies (including Mississippi Power) on CreditWatch with negative implications.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financing Activities
In March 2015, Mississippi Power repaid at maturity a $75 million bank term loan.
In April 2015, Mississippi Power entered into two floating rate bank loans with a maturity date of April 1, 2016, in an aggregate principal amount of $475 million, bearing interest based on one-month LIBOR. The proceeds of these loans were used for the repayment of term loans in an aggregate principal amount of $275 million, working capital, and other general corporate purposes, including Mississippi Power's ongoing construction program. Mississippi Power also amended three outstanding floating rate bank loans for an aggregate principal amount of $425 million which, among other things, extended the maturity dates from various dates in 2015 to April 1, 2016.
In June 2015, Mississippi Power issued an 18 -month floating rate promissory note to Southern Company bearing interest based on one-month LIBOR . This note was for an aggregate principal amount of approximately $301 million , the amount paid by Southern Company to SMEPA pursuant to Southern Company's guarantee of the return of SMEPA's deposit in connection with the termination of the APA. See Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle – Termination of Proposed Sale of Undivided Interest to SMEPA" herein for additional information.

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SOUTHERN POWER COMPANY
AND SUBSIDIARY COMPANIES

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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
 
(in millions)
Operating Revenues:
 
 
 
 
 
 
 
Wholesale revenues, non-affiliates
$
250

 
$
260

 
$
481

 
$
538

Wholesale revenues, affiliates
85

 
68

 
199

 
140

Other revenues
2

 
1

 
4

 
2

Total operating revenues
337

 
329

 
684

 
680

Operating Expenses:
 
 
 
 
 
 
 
Fuel
105

 
118

 
243

 
243

Purchased power, non-affiliates
18

 
17

 
34

 
45

Purchased power, affiliates
4

 
16

 
14

 
46

Other operations and maintenance
69

 
69

 
121

 
122

Depreciation and amortization
60

 
52

 
118

 
103

Taxes other than income taxes
6

 
6

 
12

 
11

Total operating expenses
262


278

 
542

 
570

Operating Income
75

 
51

 
142

 
110

Other Income and (Expense):
 
 
 
 
 
 
 
Interest expense, net of amounts capitalized
(23
)
 
(22
)
 
(45
)
 
(44
)
Other income (expense), net
1

 
—

 
1

 
—

Total other income and (expense)
(22
)
 
(22
)
 
(44
)
 
(44
)
Earnings Before Income Taxes
53

 
29

 
98

 
66

Income taxes (benefit)
1

 
(3
)
 
13

 
—

Net Income
52

 
32

 
85

 
66

Less: Net income attributable to noncontrolling interests
6

 
1

 
6

 
2

Net Income Attributable to Southern Power Company
$
46

 
$
31

 
$
79

 
$
64

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
 
(in millions)
Net Income
$
52

 
$
32

 
$
85

 
$
66

Other comprehensive income (loss)
—

 
—

 
—

 
—

Less: Comprehensive income attributable to noncontrolling interests
6

 
1

 
6

 
2

Comprehensive Income Attributable to Southern Power Company
$
46

 
$
31

 
$
79

 
$
64

The accompanying notes as they relate to Southern Power are an integral part of these consolidated financial statements.

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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
For the Six Months
Ended June 30,
 
2015
 
2014
 
(in millions)
Operating Activities:
 
 
 
Net income
$
85

 
$
66

Adjustments to reconcile net income to net cash provided from operating activities —
 
 
 
Depreciation and amortization, total
121

 
105

Deferred income taxes
59

 
(3
)
Investment tax credits
153

 
26

Amortization of investment tax credits
(10
)
 
(5
)
Deferred revenues
(21
)
 
(24
)
Accrued income taxes, non-current
100

 
—

Other, net
10

 
7

Changes in certain current assets and liabilities —
 
 
 
-Receivables
(26
)
 
(34
)
-Fossil fuel stock
5

 
(1
)
-Prepaid income taxes
(102
)
 
21

-Other current assets
—

 
(1
)
-Accounts payable
(31
)
 
24

-Accrued taxes
(110
)
 
7

-Other current liabilities
18

 
5

Net cash provided from operating activities
251

 
193

Investing Activities:
 
 
 
Plant acquisitions
(408
)
 
(213
)
Property additions
(154
)
 
(11
)
Change in construction payables
38

 
(3
)
Payments pursuant to long-term service agreements
(45
)
 
(23
)
Other investing activities
(1
)
 
(11
)
Net cash used for investing activities
(570
)
 
(261
)
Financing Activities:
 
 
 
Increase (decrease) in notes payable, net
(195
)
 
73

Proceeds — Senior notes
650

 
—

Distributions to noncontrolling interests
(1
)
 
—

Contributions from noncontrolling interests
78

 
7

Payment of common stock dividends
(65
)
 
(66
)
Other financing activities
(3
)
 
9

Net cash provided from financing activities
464

 
23

Net Change in Cash and Cash Equivalents
145

 
(45
)
Cash and Cash Equivalents at Beginning of Period
75

 
69

Cash and Cash Equivalents at End of Period
$
220

 
$
24

Supplemental Cash Flow Information:
 
 
 
Cash paid (received) during the period for —
 
 
 
Interest (net of $1 and $- capitalized for 2015 and 2014, respectively)
$
35

 
$
43

Income taxes, net
(72
)
 
(59
)
Noncash transactions — Accrued property additions at end of period
38

 
5

The accompanying notes as they relate to Southern Power are an integral part of these consolidated financial statements.

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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
Assets
 
At June 30,
2015
 
At December 31,
2014
 
 
(in millions)
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
220

 
$
75

Receivables —
 
 
 
 
Customer accounts receivable
 
106

 
77

Other accounts receivable
 
11

 
15

Affiliated companies
 
40

 
34

Fossil fuel stock, at average cost
 
17

 
22

Materials and supplies, at average cost
 
59

 
58

Prepaid income taxes
 
122

 
19

Deferred income taxes, current
 
144

 
306

Other current assets
 
16

 
21

Total current assets
 
735

 
627

Property, Plant, and Equipment:
 
 
 
 
In service
 
6,047

 
5,657

Less accumulated provision for depreciation
 
1,125

 
1,035

Plant in service, net of depreciation
 
4,922

 
4,622

Construction work in progress
 
201

 
11

Total property, plant, and equipment
 
5,123

 
4,633

Other Property and Investments:
 
 
 
 
Goodwill
 
2

 
2

Other intangible assets, net of amortization of $10 and $8 at
June 30, 2015 and December 31, 2014, respectively
 
69

 
47

Total other property and investments
 
71

 
49

Deferred Charges and Other Assets:
 
 
 
 
Prepaid long-term service agreements
 
141

 
124

Other deferred charges and assets — affiliated
 
13

 
5

Other deferred charges and assets — non-affiliated
 
143

 
112

Total deferred charges and other assets
 
297

 
241

Total Assets
 
$
6,226

 
$
5,550

The accompanying notes as they relate to Southern Power are an integral part of these consolidated financial statements.

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
Liabilities and Stockholders' Equity
 
At June 30,
2015
 
At December 31,
2014
 
 
(in millions)
Current Liabilities:
 
 
 
 
Securities due within one year
 
$
525

 
$
525

Notes payable
 
8

 
195

Accounts payable —
 
 
 
 
Affiliated
 
65

 
78

Other
 
55

 
30

Accrued income taxes
 
7

 
72

Accrued interest
 
31

 
30

Other current liabilities
 
53

 
17

Total current liabilities
 
744

 
947

Long-term Debt
 
1,737

 
1,095

Deferred Credits and Other Liabilities:
 
 
 
 
Accumulated deferred income taxes
 
760

 
863

Accumulated deferred investment tax credits
 
693

 
601

Accrued income taxes, non-current
 
100

 
—

Deferred capacity revenues — affiliated
 
9

 
15

Other deferred credits and liabilities — affiliated
 
—

 
1

Other deferred credits and liabilities — non-affiliated
 
22

 
18

Total deferred credits and other liabilities
 
1,584

 
1,498

Total Liabilities
 
4,065

 
3,540

Redeemable Noncontrolling Interest
 
41

 
39

Common Stockholder's Equity:
 
 
 
 
Common stock, par value $.01 per share —
 
 
 
 
Authorized — 1,000,000 shares
 
 
 
 
Outstanding — 1,000 shares
 
—

 
—

Paid-in capital
 
1,176

 
1,176

Retained earnings
 
587

 
573

Accumulated other comprehensive income
 
4

 
3

Total common stockholder's equity
 
1,767

 
1,752

Noncontrolling Interest
 
353

 
219

Total Stockholders' Equity
 
2,120

 
1,971

Total Liabilities and Stockholders' Equity
 
$
6,226

 
$
5,550

The accompanying notes as they relate to Southern Power are an integral part of these consolidated financial statements.

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SECOND QUARTER 2015 vs. SECOND QUARTER 2014
AND
YEAR-TO-DATE 2015 vs. YEAR-TO-DATE 2014


OVERVIEW
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 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 entry into PPAs primarily with investor-owned utilities, independent power producers, municipalities, and electric cooperatives. In general, Southern Power has constructed or acquired new generating capacity only after entering into long-term PPAs for the new facilities.
During the six months ended June 30, 2015, Southern Power acquired approximately 353 MWs of additional solar facilities including the five Georgia construction projects located in Taylor and Butler Counties, as well as the Lost Hills, Blackwell, and North Star projects located in California. Southern Power also entered into an agreement to acquire an approximately 299-MW wind facility, located in Oklahoma, contingent upon certain construction and project milestones. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Acquisitions" and "Construction Projects" herein for additional information.
Southern Power continues to focus on several key performance indicators. These indicators include peak season equivalent forced outage rate, contract availability, and net income. For additional information on these indicators, see MANAGEMENT'S DISCUSSION AND ANALYSIS – OVERVIEW – "Key Performance Indicators" of Southern Power in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$15
 
48.4
 
$15
 
23.4
Net income attributable to Southern Power for the second quarter 2015 was $46 million compared to $31 million for the corresponding period in 2014 . The increase was primarily due to increased revenue and lower fuel and purchased power expenses.
Net income attributable to Southern Power for year-to-date 2015 was $79 million compared to $64 million for the corresponding period in 2014 . The increase was primarily due to a decrease in purchased power expenses, partially offset by increases in depreciation and income taxes.
Wholesale Revenues – Non-Affiliates
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$(10)
 
(3.8)
 
$(57)
 
(10.6)
Wholesale revenues from sales to non-affiliates will vary depending on the energy demand of those customers and their generation capacity, as well as the market prices of wholesale energy compared to the cost of Southern Power's energy. Increases and decreases in revenues under PPAs that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not have a significant impact on net income.

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Wholesale revenues from non-affiliates for the second quarter 2015 were $250 million compared to $260 million for the corresponding period in 2014 . The decrease was due to a $5 million decrease in energy sales, primarily as a result of decreased fuel costs passed through in PPA revenues due to lower natural gas prices, partially offset by increased sales volumes and new solar PPAs. The decrease in energy revenues reflects a 14% decrease in the average price of energy, partially offset by a 12% increase in KWH sales. In addition, capacity revenues decreased $5 million primarily due to PPA expirations.
Wholesale revenues from non-affiliates for year-to-date 2015 were $481 million compared to $538 million for the corresponding period in 2014 . The decrease was due to a $44 million decrease in energy sales, primarily as a result of decreased fuel costs passed through in PPA revenues due to lower natural gas prices, partially offset by increased sales volumes and new solar PPAs. The decrease in energy revenues reflects a 17% decrease in the average price of energy, partially offset by a 5% increase in KWH sales. In addition, capacity revenues decreased $13 million primarily due to PPA expirations.
Wholesale Revenues – Affiliates
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$17
 
25.0
 
$59
 
42.1
Wholesale revenues from sales to affiliate companies will vary depending on demand and the availability and cost of generating resources at each company. Sales to affiliate companies that are not covered by PPAs are made in accordance with the IIC, as approved by the FERC.
Wholesale revenues from affiliates for the second quarter 2015 were $85 million compared to $68 million for the corresponding period in 2014 . The increase was the result of a $10 million increase in energy revenues and a $7 million increase in capacity revenues. The increase in energy revenues is primarily the result of increased sales volume under the IIC as a result of lower natural gas prices, which increased demand for Southern Power Company's resources. The increase in energy revenues reflects a 61% increase in KWH sales, partially offset by a 21% decrease in the average price of energy. The increase in capacity revenues was primarily the result of new PPAs.
Wholesale revenues from affiliates for year-to-date 2015 were $199 million compared to $140 million for the corresponding period in 2014 . The increase was the result of a $50 million increase in energy revenues and a $9 million increase in capacity revenues. The increase in energy revenues is primarily the result of increased sales volume under the IIC as a result of lower natural gas prices, which increased demand for Southern Power Company's resources. The increase in energy revenues reflects a 110% increase in KWH sales, partially offset by a 22% decrease in the average price of energy. The increase in capacity revenues was primarily the result of new PPAs.
Fuel and Purchased Power Expenses
 
 
 Second Quarter 2015
vs.
Second Quarter 2014
 
 Year-to-Date 2015
vs.
Year-to-Date 2014
 
 
(change in millions)

(% change)
 
(change in millions)
 
(% change)
Fuel
 
$
(13
)
 
(11.0)
 
$
—

 
—

Purchased power – non-affiliates
 
1

 
5.9
 
(11
)
 
(24.4
)
Purchased power – affiliates
 
(12
)
 
(75.0)
 
(32
)
 
(69.6
)
Total fuel and purchased power expenses
 
$
(24
)
 
 
 
$
(43
)
 
 
Southern Power's PPAs for natural gas-fired generation generally provide that the purchasers are responsible for substantially all of the cost of fuel. Consequently, any increase or decrease in such fuel cost is generally

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accompanied by an increase or decrease in related fuel revenues under the PPAs and does not have a significant impact on net income. Southern Power is responsible for the cost of fuel for generating units that are not covered under PPAs. Power from these generating units is sold into the market or sold to affiliates under the IIC.
Purchased power expenses will vary depending on demand and the availability and cost of generating resources throughout the Southern Company system and other contract resources. Load requirements are submitted to the power pool on an hourly basis and are fulfilled with the lowest cost alternative, whether that is generation owned by Southern Power Company, affiliate companies, or external parties.
In the second quarter 2015 , total fuel and purchased power expenses were $127 million compared to $151 million for the corresponding period in 2014 . The decrease was the result of a $58 million decrease in the average cost of fuel and purchased power primarily due to lower natural gas prices, partially offset by a $34 million net increase in the total volume of KWHs generated and purchased primarily due to increased demand resulting from lower natural gas prices.
For year-to-date 2015 , total fuel and purchased power expenses were $291 million compared to $334 million for the corresponding period in 2014 . The decrease was a result of a $154 million decrease in the average cost of fuel and purchased power primarily due to lower natural gas prices, partially offset by a $111 million net increase in the total volume of KWHs generated and purchased primarily due to increased demand resulting from lower natural gas prices.
Fuel
In the second quarter 2015 , fuel expense was $105 million compared to $118 million for the corresponding period in 2014 . The decrease was due to a 36.1% decrease associated with the average cost of natural gas per KWH generated, partially offset by a 40.6% increase associated with the volume of KWHs generated, primarily as a result of increased demand resulting from lower natural gas prices.
For year-to-date 2015 and for the corresponding period in 2014 , fuel expense was $243 million . While there was no overall change, a $152 million increase in the total cost of fuel attributable to the volume of KWHs generated was offset by a $152 million decrease in the average cost of natural gas per KWH generated.
Purchased Power – Non-Affiliates and Affiliates
In the second quarter 2015 , purchased power expense was $22 million compared to $33 million for the corresponding period in 2014 . For year-to-date 2015 , purchased power expense was $48 million compared to $91 million for the corresponding period in 2014 . The decreases were primarily the result of 37.4% and 45.6% decreases in the volume of KWHs purchased in the second quarter 2015 and year-to-date 2015, respectively, primarily due to lower natural gas prices which resulted in higher use of Southern Power Company's generation resources.
Other Operations and Maintenance Expenses
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$—
 
—
 
$(1)
 
(0.8)
In the second quarter 2015 and for the corresponding period in 2014, other operations and maintenance expenses were $69 million . While there was no overall change, a decrease in outage expense of $10 million was offset by a $10 million increase in expenses associated with support services, transmission, and new plants placed in service in 2014 and 2015.
For year-to-date 2015 , other operations and maintenance expenses were $121 million compared to $122 million for the corresponding period in 2014 . The decrease was primarily due to a $17 million decrease in outage expense,

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largely offset by a $16 million increase in expenses associated with support services, new plants placed in service in 2014 and 2015, and transmission.
Depreciation and Amortization
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$8
 
15.4
 
$15
 
14.6
In the second quarter 2015 , depreciation and amortization was $60 million compared to $52 million for the corresponding period in 2014 . For year-to-date 2015 , depreciation and amortization was $118 million compared to $103 million for the corresponding period in 2014 . The increases were primarily related to solar facilities placed in service in 2014 and 2015.
Income Taxes (Benefit)
Second Quarter 2015 vs. Second Quarter 2014
 
Year-to-Date 2015 vs. Year-to-Date 2014
(change in millions)

(% change)
 
(change in millions)
 
(% change)
$4
 
133.3
 
$13
 
N/M
N/M – Not meaningful
In the second quarter 2015 , income taxes were $1 million compared to an income tax benefit of $3 million for the corresponding period in 2014 . For year-to-date 2015 , income taxes were $13 million . The increases were primarily due to higher pre-tax earnings in 2015 and beneficial state income tax changes in 2014, partially offset by increased federal income tax benefits related to ITCs in 2015.
See Note (G) to the Condensed Financial Statements herein for additional information.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Southern Power's future earnings potential. The level of Southern Power's future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Southern Power's competitive wholesale business. These factors include Southern Power's ability to achieve sales growth while containing costs; regulatory matters; creditworthiness of customers; total generating capacity available in Southern Power's market areas; the successful remarketing of capacity as current contracts expire; and Southern Power's ability to execute its acquisition and value creation strategy, including successfully expanding investments in renewable energy projects, and to construct generating facilities, including the impact of federal ITCs.
Other factors that could influence future earnings include weather, demand, cost of generating units within the power pool, and operational limitations. For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL of Southern Power in Item 7 of the Form 10-K.
Environmental Matters
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Southern Power in Item 7 of the Form 10-K for information on the development by federal and state environmental regulatory agencies of additional control strategies for emissions of air pollution from industrial sources, including electric generating facilities. Compliance with possible additional federal or state legislation or regulations related to global climate change, air quality, water quality, or other environmental and health concerns could also significantly affect Southern Power. While Southern Power's PPAs generally contain provisions that permit charging the counterparty with some of the new costs incurred as a result of changes in environmental laws and regulations, the full impact of any such regulatory or legislative changes cannot be determined at this time.

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Air Quality
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Air Quality" of Southern Power in Item 7 of the Form 10-K for additional information regarding the EPA's proposed regulations governing emissions during startup, shutdown, or malfunction (SSM) and the Cross State Air Pollution Rule (CSAPR).
On June 12, 2015, the EPA published a final rule requiring affected states (including Alabama, Florida, Georgia, North Carolina, and Texas) to revise or remove state implementation plan (SIP) provisions regarding excess emissions that occur during periods of SSM by no later than November 22, 2016. The ultimate impact of the final rule will depend on the outcome of any legal challenges and the development and approval of SIPs by the affected states and cannot be determined at this time.
On July 28, 2015, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion invalidating certain emissions budgets under the CSAPR Phase II emissions trading program for a number of states, including Alabama, Florida, Georgia, North Carolina, and Texas. The court's decision leaves the emissions trading program in place and remands the rule to the EPA for further action consistent with the court's decision. The court rejected all other pending challenges to the rule. The ultimate impact of this decision will depend on additional rulemaking and cannot be determined at this time.
Global Climate Issues
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Global Climate Issues" of Southern Power in Item 7 of the Form 10-K for additional information regarding the EPA's proposed regulation of CO 2 from fossil-fuel-fired electric generating units.
On August 3, 2015, the EPA released pre-publication versions of two final rules that would limit CO 2 emissions from fossil fuel-fired electric generating units. One of the final rules contains specific emission standards governing CO 2 emissions from new, modified, and reconstructed units. The other final rule establishes guidelines for states to develop plans to meet EPA-mandated CO 2 emission rates for existing units. The EPA's final guidelines require state plans to meet interim CO 2 performance rates between 2022 and 2029 and final rates in 2030 and thereafter. At the same time, the EPA also proposed a federal plan and proposed model rule that states can adopt or that would be put in place if, in response to the final guidelines, a state either does not submit a state plan or its plan is not approved by the EPA. These guidelines and standards could result in operational restrictions and material compliance costs, including capital expenditures, which could affect future unit retirement and replacement decisions. Southern Power's results of operations, cash flows, and financial condition could be significantly impacted if such costs are not recovered through existing PPAs. However, the ultimate financial and operational impact of the final rules on Southern Power cannot be determined at this time and will depend on numerous factors including the Southern Company system's ongoing review of the final rules; the outcome of any legal challenges; 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.
Acquisitions
During 2015, Southern Power Company acquired or contracted to acquire the following projects in accordance with its overall growth strategy, which are included in Southern Power's capital program estimates for 2015.
Kay County Wind Facility
On February 24, 2015, Southern Power Company, through its wholly-owned subsidiary Southern Renewable Energy, Inc., entered into a purchase agreement with Kay Wind Holdings, LLC, a wholly-owned subsidiary of Apex Clean Energy Holdings, LLC, the developer of the project, to acquire all of the outstanding membership interests of Kay Wind, LLC (Kay Wind) for approximately $492 million, with p otential purchase price adjustments based on

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performance testing. Kay Wind is constructing and owns an approximately 299-MW wind facility in Kay County, Oklahoma. The wind facility is expected to begin commercial operation in late 2015, and the entire output of the facility is contracted under separate 20-year PPAs with Westar Energy, Inc. and Grand River Dam Authority. The completion of the acquisition is subject to Kay Wind achieving certain construction and project milestones, as well as various other customary conditions to closing, and is expected to close in the fourth quarter 2015. The ultimate outcome of this matter cannot be determined at this time. See Note 2 to the financial statements of Southern Power in Item 8 of the Form 10-K for additional information.
Lost Hills- Blackwell Solar Facilities
On April 15, 2015, Southern Power Company, through its subsidiary Southern Renewable Partnerships, LLC (SRP), acquired 100% of the class A membership interests of Lost Hills Blackwell Holdings, LLC (Lost Hills Blackwell) from a wholly-owned subsidiary of First Solar, Inc. (First Solar), the developer of the project, for approximately $74 million. Concurrently, a wholly-owned subsidiary of First Solar acquired 100% of the class B membership interests of Lost Hills Blackwell for approximately $33 million. SRP and the class B member are entitled to 51% and 49%, respectively, of all cash distributions from Lost Hills Blackwell. In addition, Southern Power Company is entitled to substantially all of the federal tax benefits with respect to the transaction. Lost Hills Blackwell constructed and owns the approximately 22-MW Lost Hills and the approximately 13-MW Blackwell solar facilities in Kern County, California. These solar facilities began commercial operation on April 17, 2015, and their entire output is contracted under PPAs, initially to the City of Roseville, California and then to Pacific Gas and Electric Company, that together extend approximately 29 years.
North Star Solar Facility
On April 30, 2015, Southern Power Company, through its subsidiary SRP, acquired 100% of the class A membership interests of NS Solar Holdings, LLC (North Star) from a wholly-owned subsidiary of First Solar, the developer of the project, for approximately $211 million. Concurrently, a wholly-owned subsidiary of First Solar acquired 100% of the class B membership interests of North Star for approximately $100 million. SRP and the class B member are entitled to 51% and 49%, respectively, of all cash distributions from North Star. In addition, Southern Power Company is entitled to substantially all of the federal tax benefits with respect to the transaction. North Star constructed and owns the approximately 61-MW North Star solar facility in Fresno County, California. The solar facility began commercial operation on June 20, 2015, and the entire output of the project is contracted under a 20-year PPA with Pacific Gas and Electric Company.
Construction Projects
In December 2014, Southern Power Company announced plans to build a solar photovoltaic facility, and during 2015, Southern Power Company acquired all the outstanding membership interests of five separate solar project development entities. The construction projects are in accordance with Southern Power's overall growth strategy and included in its capital program estimates for 2015. The total cost of construction incurred for these projects through June 30, 2015 was $188 million. The ultimate outcome of these matters cannot be determined at this time.

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Southern Power Company's construction projects are detailed in the table below:
Solar Project
Seller
Nameplate Capacity
County Location in Georgia
Expected Commercial Operation Date
PPA Counterparty
for Entire Plant Output
PPA Contract Period
Estimated Construction Cost
 
 
 
(MW)
 
 
 
 
(in millions)
 
Taylor County
N/A
146
Taylor
Fourth quarter 2016
Cobb, Flint, and Sawnee Electric Membership Corporations
25 years
$
260

-
$280
 
Decatur Parkway
TradeWind Energy, Inc.
84
Decatur
December 2015
Georgia Power (a)
25 years
$
170

-
$173
(b)
Decatur County
TradeWind Energy, Inc.
20
Decatur
December 2015
Georgia Power (a)
20 years
$
45

-
$47
(b)
Butler
CERSM, LLC and Community Energy, Inc.
103
Taylor
December 2016
Georgia Power (a)
30 years
$
220

-
$230
(b)
Pawpaw
Longview Solar, LLC
30
Taylor
December 2015
Georgia Power (a)
30 years
$
70

-
$80
(b)
Butler Solar Farm
Strata Solar Development, LLC
20
Taylor
December 2015
Georgia Power (a)
20 years
$
42

-
$48
(b)
(a) Subject to FERC approval.
(b) Includes the acquisition price of all outstanding membership interests.
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" herein for additional information.
Power Sales Agreements
See BUSINESS – "The Southern Company System – Southern Power" in Item 1 of the Form 10-K for additional information regarding Southern Power's PPAs with investor-owned utilities, independent power purchasers, municipalities, and electric cooperatives.
Taking into account the PPAs and capacity from the acquisitions and construction projects discussed herein, together with various new PPAs relating to Southern Power's existing fleet, the coverage ratio of its available capacity for the next five years and the next 10 years has not changed materially as of June 30, 2015 from the period ended December 31, 2014 .
FERC Matters
Southern Power has authority from the FERC to sell electricity at market-based rates. Since 2008, that authority, for certain balancing authority areas, has been conditioned on compliance with the requirements of an energy auction, which the FERC found to be tailored mitigation that addresses potential market power concerns. In accordance with FERC regulations governing such authority, the traditional operating companies and Southern Power filed a triennial market power analysis on June 30, 2014 , which included continued reliance on the energy auction as tailored mitigation. On April 27, 2015, the FERC issued an order finding that the traditional operating companies' and Southern Power's existing tailored mitigation may not effectively mitigate the potential to exert market power in certain areas served by the traditional operating companies and in some adjacent areas. To retain market-based rate authority, the FERC directed the traditional operating companies and Southern Power to show why market-based rate authority should not be revoked in these areas or to provide a mitigation plan to further address market power concerns. The traditional operating companies and Southern Power filed a request for rehearing on May 27, 2015 and on June 26, 2015 filed their response with the FERC. The ultimate outcome of this matter cannot be determined at this time.

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Other Matters
Southern Power is involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Southern Power is subject to certain claims and legal actions arising in the ordinary course of business. Southern Power's business activities are subject to extensive governmental regulation related to public health and the environment, such as regulation of air emissions and water discharges. 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 CO 2 and other emissions and alleged exposure to hazardous materials, and/or requests for injunctive relief in connection with such matters.
The ultimate outcome of such pending or potential litigation against Southern Power cannot be predicted at this time; however, for current proceedings not specifically reported in Note (B) to the Condensed Financial Statements herein or in Note 3 to the financial statements of Southern Power in Item 8 of the Form 10-K, management does not anticipate that the ultimate liabilities, if any, arising from such current proceedings would have a material effect on Southern Power's financial statements.
ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates
Southern Power prepares its consolidated financial statements in accordance with GAAP. Significant accounting policies are described in Note 1 to the financial statements of Southern Power in Item 8 of the Form 10-K. In the application of these policies, certain estimates are made that may have a material impact on Southern Power's results of operations and related disclosures. Different assumptions and measurements could produce estimates that are significantly different from those recorded in the financial statements. See MANAGEMENT'S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES – "Application of Critical Accounting Policies and Estimates" of Southern Power in Item 7 of the Form 10-K for a complete discussion of Southern Power's critical accounting policies and estimates related to Revenue Recognition, Impairment of Long Lived Assets and Intangibles, Acquisition Accounting, Depreciation, and ITCs.
Recently Issued Accounting Standards
The Financial Accounting Standards Board's (FASB) ASC 606, Revenue from Contracts with Customers , revises the accounting for revenue recognition effective for fiscal years beginning after December 15, 2017. Southern Power continues to evaluate the requirements of ASC 606. The ultimate impact of the new standard has not yet been determined.
On February 18, 2015, the FASB issued Accounting Standards Update (ASU) 2015-02, Amendments to the Consolidation Analysis , which makes certain changes to both the variable interest model and the voting model, including changes to the identification of variable interests, the variable interest entity characteristics for a limited partnership or similar entity, and the primary beneficiary determination. This ASU is effective for fiscal years beginning after December 15, 2015. Southern Power is currently evaluating these requirements. The ultimate impact of this ASU has not yet been determined.
On April 7, 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability and is effective for fiscal years beginning after December 15, 2015. Southern Power currently reflects unamortized debt issuance costs in other deferred charges and assets – non-affiliated on its balance sheet. Upon adoption, the reclassification will not have a material impact on the results of operations, financial position, or cash flows of Southern Power.

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FINANCIAL CONDITION AND LIQUIDITY
Overview
Southern Power's financial condition remained stable at June 30, 2015 . Southern Power intends to continue to monitor its access to short-term and long-term capital markets as well as bank credit agreements as needed to meet future capital and liquidity needs. See "Sources of Capital" herein for additional information on lines of credit.
Net cash provided from operating activities totaled $251 million for the first six months of 2015 , compared to $193 million for the first six months of 2014 . The increase in cash provided from operating activities was primarily due to lower purchased power costs and an increase in income tax benefits received. Net cash used for investing activities totaled $570 million for the first six months of 2015 primarily due to the Lost Hills, Blackwell, and North Star acquisitions and expenditures related to the construction of new solar facilities. Net cash provided from financing activities totaled $464 million for the first six months of 2015 primarily due to the issuance of additional senior notes in May 2015. Fluctuations in cash flow from financing activities vary from period to period based on capital needs and the maturity or redemption of securities.
Significant balance sheet changes for the first six months of 2015 include a $300 million increase in plant in service, net of depreciation primarily due to the Lost Hills, Blackwell, and North Star acquisitions and a $190 million increase in CWIP primarily due to the construction of new solar facilities. Other significant changes include an increase in long-term debt of $642 million primarily as a result of the issuance of senior notes in May 2015.
Capital Requirements and Contractual Obligations
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" of Southern Power in Item 7 of the Form 10-K for a description of Southern Power's capital requirements for its construction program, scheduled maturities of long-term debt, as well as the related interest, leases, derivative obligations, purchase commitments, and unrecognized tax benefits. Subsequent to June 30, 2015, $525 million of long-term debt was repaid at maturity. There are no other scheduled maturities of long-term debt through June 30, 2016 .
The capital program is subject to periodic review and revision. These amounts include estimates for potential plant acquisitions and new construction as well as ongoing capital improvements and work to be performed under long-term service agreements. Planned expenditures for plant acquisitions may vary materially due to market opportunities and Southern Power's ability to execute its growth strategy. Capital expenditures of Southern Power are currently estimated to be approximately $1.4 billion for 2015 , which includes approximately $1.3 billion for acquisitions and/or construction of new generating facilities. See Note (I) to the Condensed Financial Statements herein for additional information. Actual capital costs may vary from these estimates because of changes in factors such as business conditions; environmental statutes and regulations; FERC rules and regulations; load projections; legislation; the cost and efficiency of construction labor, equipment, and materials; project scope and design changes; and the cost of capital.
Sources of Capital
Southern Power plans to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily from operating cash flows, short-term debt, securities issuances, term loans, and equity contributions from Southern Company. However, the amount, type, and timing of any future financings, if needed, will depend upon prevailing market conditions, regulatory approval, and other factors. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" of Southern Power in Item 7 of the Form 10-K for additional information.
Southern Power's current liabilities sometimes exceed current assets due to the use of short-term debt as a funding source, as well as cash needs, which can fluctuate significantly due to the seasonality of the business. In 2015, Southern Power has utilized the capital markets to issue additional senior notes and expects to utilize the capital

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

markets, bank term loans, and commercial paper markets, as the source of funds for the majority of its maturities and to meet short-term liquidity needs, including funding acquisition and construction costs.
To meet liquidity and capital resource requirements, Southern Power had at June 30, 2015 cash and cash equivalents of approximately $220 million and Southern Power Company had a committed credit facility of $500 million (Facility) expiring in 2018, of which $466 million is unused.
The Facility contains a covenant that limits the ratio of debt to capitalization (each as defined in the Facility) to a maximum of 65% and contains a cross default provision that is restricted only to the indebtedness of Southern Power. Southern Power Company is currently in compliance with all covenants in the Facility.
Proceeds from this Facility may be used for working capital and general corporate purposes as well as liquidity support for Southern Power Company's commercial paper program. Subject to applicable market conditions, Southern Power Company expects to renew or replace the Facility, as needed, prior to expiration. In connection therewith, Southern Power Company may extend the maturity date and/or increase or decrease the lending commitment thereunder. See Note 6 to the financial statements of Southern Power under "Bank Credit Arrangements" in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under "Bank Credit Arrangements" herein for additional information.
Southern Power Company's commercial paper program is used to finance acquisition and construction costs related to electric generating facilities and for general corporate purposes, including maturing debt. Subsequent to June 30, 2015, commercial paper was used to partially fund the maturity of long-term debt in July 2015.
Details of short-term borrowings were as follows:
 
 
Commercial Paper at
the End of the Period
 
Commercial Paper During the Period (*)
 
 
Amount
Outstanding
 
Weighted
Average
Interest
Rate
 
Average
Outstanding
 
Weighted
Average
Interest
Rate
 
Maximum
Amount
Outstanding
 
 
(in millions)
 
 
 
(in millions)
 
 
 
(in millions)
June 30, 2015:
 
$
—

 
—
%
 
$
163

 
0.6
%
 
$
339

(*) Average and maximum amounts are based upon daily balances during the three-month period ended June 30, 2015 .
Southern Power believes the need for working capital can be adequately met by utilizing the commercial paper program, the Facility, and operating cash flows.
Credit Rating Risk
Southern Power does not have any credit arrangements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade.
There are certain contracts that could require collateral, but not accelerated payment, in the event of a credit rating change to BBB and Baa2, or BBB- and/or Baa3 or below. These contracts are for physical electricity purchases and sales, fuel transportation and storage, and energy price risk management.
The maximum potential collateral requirements under these contracts at June 30, 2015 were as follows:
Credit Ratings
Maximum Potential
Collateral
Requirements
 
(in millions)
At BBB and Baa2
$
9

At BBB- and/or Baa3
320

Below BBB- and/or Baa3
1,081


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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Included in these amounts are certain agreements that could require collateral in the event that one or more power pool participants has a credit rating change to below investment grade. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, any credit rating downgrade could impact Southern Power's ability to access capital markets, particularly the short-term debt market.
In addition, Southern Power has a PPA that could require collateral, but not accelerated payment, in the event of a downgrade of Southern Power Company's credit. The PPA requires credit assurances without stating a specific credit rating. The amount of collateral required would depend upon actual losses, if any, resulting from a credit downgrade.
Financing Activities
In May 2015, Southern Power Company issued $350 million aggregate principal amount of Series 2015A 1.500% Senior Notes due June 1, 2018 and $300 million aggregate principal amount of Series 2015B 2.375% Senior Notes due June 1, 2020. The proceeds were used to repay a portion of its outstanding short-term indebtedness, for other general corporate purposes, including Southern Power's growth strategy and continuous construction program, and for a portion of the subsequent repayment at maturity of $525 million aggregate principal amount of Southern Power Company's 4.875% Senior Notes on July 15, 2015.
In addition to any financings that may be necessary to meet capital requirements and contractual obligations, Southern Power Company plans to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit.

148
Table of Contents


NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
(UNAUDITED)


INDEX TO THE NOTES TO THE CONDENSED FINANCIAL STATEMENTS





INDEX TO APPLICABLE NOTES TO FINANCIAL STATEMENTS BY REGISTRANT
The following unaudited notes to the condensed financial statements are a combined presentation. The list below indicates the registrants to which each footnote applies.
Registrant
Applicable Notes
Southern Company
A, B, C, D, E, F, G, H, I, J
Alabama Power
A, B, C, E, F, G, H
Georgia Power
A, B, C, E, F, G, H
Gulf Power
A, B, C, E, F, G, H
Mississippi Power
A, B, C, E, F, G, H
Southern Power
A, B, C, D, E, G, H, I


149

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES

NOTES TO THE CONDENSED FINANCIAL STATEMENTS:
(UNAUDITED)

(A)
INTRODUCTION
The condensed quarterly financial statements of each registrant included herein have been prepared by such registrant, without audit, pursuant to the rules and regulations of the SEC. The Condensed Balance Sheets as of December 31, 2014 have been derived from the audited financial statements of each registrant. In the opinion of each registrant's management, the information regarding such registrant furnished herein reflects all adjustments, which, except as otherwise disclosed, are of a normal recurring nature, necessary to present fairly the results of operations for the periods ended June 30, 2015 and 2014 . Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although each registrant believes that the disclosures regarding such registrant are adequate to make the information presented not misleading. Disclosures which would substantially duplicate the disclosures in the Form 10-K and details which have not changed significantly in amount or composition since the filing of the Form 10-K are generally omitted from this Quarterly Report on Form 10-Q unless specifically required by GAAP. Therefore, these Condensed Financial Statements should be read in conjunction with the financial statements and the notes thereto included in the Form 10-K. Due to the seasonal variations in the demand for energy, operating results for the periods presented are not necessarily indicative of the operating results to be expected for the full year.
Certain prior year data presented in the financial statements have been reclassified to conform to the current year presentation. These reclassifications had no impact on the results of operations, financial position, or cash flows of any registrant.
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. In March 2015, 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. Gulf Power expects to recover through its rates the remaining book value of the retired units and certain costs associated with the retirements; however, recovery will be considered by the Florida PSC in future rate proceedings .
In June 2015, Georgia Power identified an error affecting the billing to a small number of large commercial and industrial customers under a rate plan allowing for variable demand-driven pricing from January 1, 2013 to June 30, 2015. In the second quarter 2015, Georgia Power recorded an out of period adjustment of approximately $75 million to decrease retail revenues, resulting in a decrease to net income of approximately $47 million . Georgia Power evaluated the effects of this error on the interim and annual periods that included the billing error, as well as the current period. Based on an analysis of qualitative and quantitative factors, Georgia Power determined the error was not material to any affected period and, therefore, an amendment of previously filed financial statements was not required.
Recently Issued Accounting Standards
The Financial Accounting Standards Board's (FASB) ASC 606, Revenue from Contracts with Customers , revises the accounting for revenue recognition effective for fiscal years beginning after December 15, 2017. The registrants continue to evaluate the requirements of ASC 606. The ultimate impact of the new standard has not yet been determined.

150

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

On February 18, 2015, the FASB issued Accounting Standards Update (ASU) 2015-02, Amendments to the Consolidation Analysis , which makes certain changes to both the variable interest model and the voting model, including changes to the identification of variable interests, the variable interest entity characteristics for a limited partnership or similar entity, and the primary beneficiary determination. This ASU is effective for fiscal years beginning after December 15, 2015. Southern Power is currently evaluating these requirements. The ultimate impact of this ASU on Southern Power has not yet been determined.
On April 7, 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs . The ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability and is effective for fiscal years beginning after December 15, 2015. Southern Company currently reflects unamortized debt issuance costs in unamortized debt issuance expense on its balance sheet. The traditional operating companies and Southern Power currently reflect unamortized debt issuance costs in other deferred charges and assets on their balance sheets. Upon adoption, the reclassification will not have a material impact on the results of operations, financial position, or cash flows of any registrant.
Asset Retirement Obligations
See Note 1 to the financial statements of Southern Company, Alabama Power, Georgia Power, Gulf Power, and Mississippi Power under "Asset Retirement Obligations and Other Costs of Removal" in Item 8 of the Form 10-K for additional information regarding the EPA's regulation of CCR.
On April 17, 2015, the EPA published the Disposal of Coal Combustion Residuals from Electric Utilities final rule (CCR Rule) in the Federal Register, setting October 19, 2015 as the effective date of the CCR Rule. Therefore, Alabama Power, Gulf Power, and Mississippi Power recorded new asset retirement obligations (ARO) for facilities that are subject to the CCR Rule. Georgia Power had previously recorded AROs as a result of state requirements in Georgia which closely align with the requirements of the CCR Rule. The cost estimates are based on information that was known as of June 30, 2015 using various assumptions related to closure and post-closure costs, timing of future cash outlays, inflation and discount rates, and the potential methods for complying with the CCR Rule requirements. As further analysis is performed, including evaluation of the expected timing and method of compliance and refinement of assumptions underlying the cost estimates, such as the quantities of CCR at each site, the traditional operating companies expect to periodically update these estimates.
As of June 30, 2015 , details of the AROs, including those related to the CCR Rule, included in Southern Company's and the traditional operating companies' Condensed Balance Sheets herein were as follows:
 
Southern Company
 
Alabama Power
 
Georgia Power
 
Gulf
Power
 
Mississippi Power
 
(in millions)
Balance at beginning of year
$
2,201
 
 
$
829
 
 
$
1,255
 
 
$
17
 
 
$
48
 
Liabilities incurred
612
 
 
401
 
 
—
 
 
71
 
 
97
 
Liabilities settled
(10
)
 
(1
)
 
(9
)
 
—
 
 
—
 
Accretion
53
 
 
23
 
 
28
 
 
—
 
 
1
 
Cash flow revisions
58
 
 
—
 
 
82
 
 
4
 
 
2
 
Balance at end of period
$
2,914
 
 
$
1,252
 
 
$
1,356
 
 
$
92
 
 
$
148
 
The increases in liabilities incurred and cash flow revisions for the six months ended June 30, 2015 primarily relate to an increase in AROs associated with facilities impacted by the CCR Rule.
In connection with a proposed settlement related to the closure of Plant Scholz, Gulf Power may incur additional AROs associated with CCR of approximately $15 million to $35 million .

151

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

(B)
CONTINGENCIES AND REGULATORY MATTERS
See Note 3 to the financial statements of the registrants in Item 8 of the Form 10-K for information relating to various lawsuits, other contingencies, and regulatory matters.
General Litigation Matters
Each registrant is subject to certain claims and legal actions arising in the ordinary course of business. In addition, business activities of Southern Company's subsidiaries are subject to extensive governmental regulation related to public health and the environment, such as regulation of air emissions and water discharges. 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 CO 2 and other emissions, CCR, and alleged exposure to hazardous materials, and/or requests for injunctive relief in connection with such matters.
The ultimate outcome of such pending or potential litigation against each registrant and any subsidiaries cannot be predicted at this time; however, for current proceedings not specifically reported herein or in Note 3 to the financial statements of each registrant in Item 8 of the Form 10-K, management does not anticipate that the ultimate liabilities, if any, arising from such current proceedings would have a material effect on such registrant's financial statements.
Environmental Matters
New Source Review Actions
As part of a nationwide enforcement initiative against the electric utility industry which began in 1999, the EPA brought civil enforcement actions in federal district court against Alabama Power and Georgia Power alleging violations of the New Source Review (NSR) provisions of the Clean Air Act at certain coal-fired electric generating units, including units co-owned by Gulf Power and Mississippi Power. These civil actions sought penalties and injunctive relief, including orders requiring installation of the best available control technologies at the affected units. The case against Georgia Power (including claims related to a unit co-owned by Gulf Power) has been administratively closed in the U.S. District Court for the Northern District of Georgia since 2001. The case against Alabama Power (including claims involving a unit co-owned by Mississippi Power) was partially settled in 2006 through a consent decree with the EPA, and additional claims remain pending in the U.S. District Court for the Northern District of Alabama. On June 25, 2015, the U.S. Department of Justice filed a joint stipulation between Alabama Power, the EPA, and the U.S. Department of Justice proposing to modify the 2006 consent decree to resolve all remaining claims for relief alleged in the case against Alabama Power. If approved by the U.S. District Court for the Northern District of Alabama, Alabama Power will, without admitting liability, operate subject to emission rates and a cap on certain units and requirements to use only natural gas at certain units, including a unit co-owned by Mississippi Power; retire certain units at Plants Gorgas and Barry; pay a $100,000 civil penalty; and invest $1.5 million in electric transportation infrastructure projects over three years.
The ultimate outcome of these matters cannot be determined at this time.
Environmental Remediation
The Southern Company system must comply with environmental laws and regulations that cover the handling and disposal of waste and releases of hazardous substances. Under these various laws and regulations, the Southern Company system could incur substantial costs to clean up properties. The traditional operating companies have each received authority from their respective state PSCs to recover approved environmental compliance costs through regulatory mechanisms. These rates are adjusted annually or as necessary within limits approved by the state PSCs.
Georgia Power's environmental remediation liability as of June 30, 2015 was $40 million . Georgia Power has been designated or identified as a potentially responsible party (PRP) at sites governed by the Georgia Hazardous Site Response Act and/or by the federal Comprehensive Environmental Response, Compensation, and Liability Act

152

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

(CERCLA), including a site in Brunswick, Georgia on the CERCLA National Priorities List. The parties have completed the removal of wastes from the Brunswick site as ordered by the EPA. Additional cleanup and claims for recovery of natural resource damages at this site or for the assessment and potential cleanup of other sites are anticipated.
Georgia Power and numerous other entities have been designated by the EPA as PRPs at the Ward Transformer Superfund site located in Raleigh, North Carolina. In 2011, the EPA issued a Unilateral Administrative Order (UAO) to Georgia Power and 22 other parties, ordering specific remedial action of certain areas at the site. Later in 2011, Georgia Power filed a response with the EPA stating it has sufficient cause to believe it is not a liable party under CERCLA. The EPA notified Georgia Power in 2011 that it is considering enforcement options against Georgia Power and other non-complying UAO recipients. If the EPA pursues enforcement actions and the court determines that a respondent failed to comply with the UAO without sufficient cause, the EPA may also seek civil penalties of up to $37,500 per day for the violation and punitive damages of up to three times the costs incurred by the EPA as a result of the party's failure to comply with the UAO.
In addition to the EPA's action at this site, Georgia Power, along with many other parties, was sued in a private action by several existing PRPs for cost recovery related to the removal action. In 2013, the U.S. District Court for the Eastern District of North Carolina Western Division ruled that Georgia Power has no liability in the private action and, on March 20, 2015, the U.S. Court of Appeals for the Fourth Circuit affirmed the lower court's ruling. Therefore, the private action is now concluded.
The ultimate outcome of these remaining matters will depend upon the success of defenses asserted, the ultimate number of PRPs participating in the cleanup, and numerous other factors and cannot be determined at this time; however, as a result of Georgia Power's regulatory treatment for environmental remediation expenses, these matters are not expected to have a material impact on Southern Company's or Georgia Power's financial statements. See Note 1 to the financial statements of Georgia Power under "Environmental Remediation Recovery" in Item 8 of the Form 10-K for additional information regarding the regulatory treatment.
Gulf Power's environmental remediation liability includes estimated costs of environmental remediation projects of approximately $47 million as of June 30, 2015 . These estimated costs primarily relate to site closure criteria by the Florida Department of Environmental Protection (FDEP) for potential impacts to soil and groundwater from herbicide applications at Gulf Power substations. The schedule for completion of the remediation projects is subject to FDEP approval. The projects have been approved by the Florida PSC for recovery through Gulf Power's environmental cost recovery clause; therefore, these liabilities have no impact on net income.
In 2003, Mississippi Power and numerous other entities were designated by the Texas Commission on Environmental Quality (TCEQ) as PRPs at a site that was owned by an electric transformer company that handled Mississippi Power's transformers. The TCEQ approved the final site remediation plan in 2013 and, in March 2014, the impacted utilities, including Mississippi Power, agreed to commence remediation actions on the site. Mississippi Power's environmental remediation liability was $0.3 million as of June 30, 2015 and is expected to be recovered through the ECO Plan.
The final outcome of these matters cannot be determined at this time. However, based on the currently known conditions at these sites and the nature and extent of activities relating to these sites, management of Southern Company, Georgia Power, Gulf Power, and Mississippi Power does not believe that additional liabilities, if any, at these sites would be material to their respective financial statements .
Nuclear Fuel Disposal Cost Litigation
Acting through the DOE and pursuant to the Nuclear Waste Policy Act of 1982, the U.S. government entered into contracts with Alabama Power and Georgia Power that require the DOE to dispose of spent nuclear fuel and high level radioactive waste generated at Plants Hatch and Farley and Plant Vogtle Units 1 and 2 beginning no later than January 31, 1998. The DOE has yet to commence the performance of its contractual and statutory obligation to dispose of spent nuclear fuel. Consequently, Alabama Power and Georgia Power pursued and continue to pursue legal remedies against the U.S. government for its partial breach of contract.

153

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

In December 2014, the Court of Federal Claims entered a judgment in favor of Georgia Power and Alabama Power in the second spent nuclear fuel lawsuit seeking damages for the period from January 1, 2005 through December 31, 2010. Georgia Power recovered approximately $18 million , based on its ownership interests, and Alabama Power recovered approximately $26 million . The judgment amounts were paid on March 19, 2015. In March 2015, Georgia Power credited the award to accounts where the original costs were charged and reduced rate base, fuel, and cost of service for the benefit of customers. The final outcome of this matter for Alabama Power cannot be determined at this time; however, no material impact on Southern Company's or Alabama Power's net income is expected as the damage amounts collected from the government are expected to be used for the benefit of customers.
In March 2014, Alabama Power and Georgia Power filed additional lawsuits against the U.S. government for the costs of continuing to store spent nuclear fuel at Plants Farley and Hatch and Plant Vogtle Units 1 and 2 for the period from January 1, 2011 through December 31, 2013. The damage period was subsequently extended to December 31, 2014. Damages will continue to accumulate until the issue is resolved or storage is provided. No amounts have been recognized in the financial statements as of June 30, 2015 for any potential recoveries from the additional lawsuits. The final outcome of these matters cannot be determined at this time; however, no material impact on Southern Company's, Alabama Power's, or Georgia Power's net income is expected.
FERC Matters
Municipal and Rural Associations Tariff
See Note 3 to the financial statements of Mississippi Power under "FERC Matters" in Item 8 of the Form 10-K for additional information regarding a settlement agreement entered into by Mississippi Power regarding the establishment of a regulatory asset for Kemper IGCC-related costs. See Note 3 to the financial statements of Southern Company and Mississippi Power under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and "Integrated Coal Gasification Combined Cycle" herein for information regarding Mississippi Power's construction of the Kemper IGCC.
On March 31, 2015, Mississippi Power reached a settlement agreement with its wholesale customers and filed a request with the FERC to forgo the Municipal and Rural Associations cost-based electric tariff increase reflected in the filing by, among other things, increasing the accrual of AFUDC in lieu of including CWIP in rate base. The settlement agreement, which was accepted by the FERC on May 13, 2015, provides that the additional accrual of AFUDC was effective April 1, 2015. The additional resulting AFUDC is projected to be approximately $11 million annually, of which $8 million relates to the Kemper IGCC. In addition, a settlement agreement entered into in 2014 and approved by the FERC allowed for an adjustment to the wholesale revenue requirement in the event the Kemper IGCC, or any substantial portion thereof, was placed in service before or after December 1, 2014. A regulatory asset account was recorded as a result of a portion of the Kemper IGCC being placed in service prior to the projected date. The March 31, 2015 settlement agreement provides that the regulatory asset will be amortized over nine months, beginning April 1, 2015.
Market-Based Rate Authority
The traditional operating companies and Southern Power have authority from the FERC to sell electricity at market-based rates. Since 2008, that authority, for certain balancing authority areas, has been conditioned on compliance with the requirements of an energy auction, which the FERC found to be tailored mitigation that addresses potential market power concerns. In accordance with FERC regulations governing such authority, the traditional operating companies and Southern Power filed a triennial market power analysis on June 30, 2014, which included continued reliance on the energy auction as tailored mitigation. On April 27, 2015, the FERC issued an order finding that the traditional operating companies' and Southern Power's existing tailored mitigation may not effectively mitigate the potential to exert market power in certain areas served by the traditional operating companies and in some adjacent areas. To retain market-based rate authority, the FERC directed the traditional operating companies and Southern Power to show why market-based rate authority should not be revoked in these areas or to provide a mitigation plan to further address market power concerns. The traditional operating companies and Southern Power filed a request

154

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

for rehearing on May 27, 2015 and on June 26, 2015 filed their response with the FERC. The ultimate outcome of this matter cannot be determined at this time.
Retail Regulatory Matters
Alabama Power
See Note 3 to the financial statements of Southern Company and Alabama Power under "Retail Regulatory Matters – Alabama Power" and "Retail Regulatory Matters," respectively, in Item 8 of the Form 10-K for additional information regarding Alabama Power's recovery of retail costs through various regulatory clauses and accounting orders. The recovery balance of each regulatory clause follows:
Regulatory Clause

Balance Sheet Line Item
June 30, 2015

December 31,
2014



(in millions)
Rate CNP Compliance – Under *

Deferred under recovered regulatory clause revenues
$
25


$
2

 
 
Under recovered regulatory clause revenues, current
29

 
47

Rate CNP PPA – Under

Deferred under recovered regulatory clause revenues
72


29

 
 
Under recovered regulatory clause revenues, current
—

 
27

Retail Energy Cost Recovery – Over

Deferred over recovered regulatory clause revenues
72


47

Natural Disaster Reserve

Other regulatory liabilities, deferred
81


84

* Formerly Known As Rate CNP Environmental
Rate CNP
See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Alabama Power – Rate CNP" and " – Non-Environmental Federal Mandated Costs Accounting Order" and of Alabama Power under "Retail Regulatory Matters – Rate CNP" and " – Non-Environmental Federal Mandated Costs Accounting Order" in Item 8 of the Form 10-K for additional information regarding Alabama Power's development of a revised cost recovery mechanism and the normal purchases and normal sales (NPNS) exception for wind PPAs.
On March 3, 2015, the Alabama PSC approved a modification to Rate CNP Environmental to include compliance costs for both environmental and non-environmental mandates. The recoverable non-environmental compliance costs result from laws, regulations, and other mandates directed at the utility industry involving the security, reliability, safety, sustainability, or similar considerations impacting Alabama Power's facilities or operations. This modification to Rate CNP Environmental was effective March 20, 2015 with the revised rate now defined as Rate CNP Compliance. Alabama Power incurred $30 million of non-environmental compliance costs during the first six months of 2015 and will be limited to recovery of $50 million for the year. Customer rates will not be impacted before January 2016; therefore, the modification will increase the under recovered position for Rate CNP Compliance during 2015.
In April 2015, the FASB proposed new accounting guidance to allow the NPNS exception for physical forward transactions in nodal energy markets, consistent with the manner in which Alabama Power currently accounts for its two wind PPAs. On July 9, 2015, the FASB ratified the consensus reached by the Emerging Issues Task Force to allow the exception in such cases and voted to issue a final accounting standard.
Environmental Accounting Order
In April 2015, as part of its environmental compliance strategy, Alabama Power retired Plant Gorgas Units 6 and 7. These units represented 200 MWs of Alabama Power's approximately 12,200 MWs of generating capacity. 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. No later than April 2016, Alabama Power expects to cease using coal at Plant Greene County Units 1 and 2 ( 300 MWs) and begin operating those units solely on natural gas. Subject to the final approval of the New Source Review stipulation, Alabama Power will also

155

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

retire Plant Barry Unit 3 ( 225 MWs) which is currently unavailable for generation. See "Environmental Matters – New Source Review Actions" herein for additional information regarding the NSR actions.
In accordance with an accounting order from the Alabama PSC, Alabama Power transferred the unrecovered plant asset balances to a regulatory asset at their respective retirement dates. The regulatory asset will be amortized over the remaining useful lives, as established prior to the decision for retirement. As a result, these decisions will not have a significant impact on Southern Company's or Alabama Power's financial statements.
Georgia Power
Integrated Resource Plan
See Note 3 to the financial statements of Southern Company and Georgia Power under "Retail Regulatory Matters – Georgia Power – Integrated Resource Plans" and "Retail Regulatory Matters – Integrated Resource Plans," respectively, in Item 8 of the Form 10-K for additional information.
To comply with the April 16, 2015 effective date of the MATS rule, Plant Branch Units 1, 3, and 4 ( 1,266 MWs), Plant Yates Units 1 through 5 ( 579 MWs), and Plant McManus Units 1 and 2 ( 122 MWs) were retired on April 15, 2015. In addition, operations were discontinued at Plant Mitchell Unit 3 ( 155 MWs) and its decertification will be requested in connection with the triennial Integrated Resource Plan in 2016. The switch to natural gas as the primary fuel is complete at Plant Yates Units 7 and 6 and the units were returned to service on May 4, 2015 and June 27, 2015, respectively.
Fuel Cost Recovery
See Note 3 to the financial statements of Southern Company and Georgia Power under "Retail Regulatory Matters – Georgia Power – Fuel Cost Recovery" and "Retail Regulatory Matters – Fuel Cost Recovery," respectively, in Item 8 of the Form 10-K for additional information.
As of June 30, 2015 and December 31, 2014, Georgia Power's under recovered fuel balance totaled $106 million and $199 million , respectively. For June 30, 2015 and December 31, 2014, the balance is included in current assets and current assets and other deferred charges and assets, respectively, on Southern Company's and Georgia Power's Condensed Balance Sheets herein. Georgia Power expects to file its next fuel c ase in September 2015. The ultimate outcome of this matter cannot be determined at this time.
Fuel cost recovery revenues are adjusted for differences in actual recoverable fuel costs and amounts billed in current regulated rates. Accordingly, changes in the billing factor will not have a significant effect on Southern Company's or Georgia Power's revenues or net income, but will affect cash flow.
Nuclear Construction
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 of the Form 10-K for additional information regarding Georgia Power's construction of Plant Vogtle Units 3 and 4, Vogtle Construction Monitoring (VCM) reports, and pending litigation.
In 2008, Georgia Power, acting for itself and as agent for the Vogtle Owners, entered into an agreement (Vogtle 3 and 4 Agreement) with the Contractor, pursuant to which the Contractor agreed to design, engineer, procure, construct, and test Plant Vogtle Units 3 and 4. Under the terms of the Vogtle 3 and 4 Agreement, the Vogtle Owners agreed to pay a purchase price that is subject to certain price escalations and adjustments, including fixed escalation amounts and index-based adjustments, as well as adjustments for change orders, and performance bonuses for early completion and unit performance. The Vogtle 3 and 4 Agreement also provides for liquidated damages upon the Contractor's failure to fulfill the schedule and performance guarantees. The Contractor's liability to the Vogtle Owners for schedule and performance liquidated damages and warranty claims is subject to a cap. In addition, the Vogtle 3 and 4 Agreement provides for limited cost sharing by the Vogtle Owners for Contractor costs under certain conditions (which have not occurred), with maximum additional capital costs under this provision attributable to

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(UNAUDITED)

Georgia Power (based on Georgia Power's ownership interest) of approximately $114 million . Each Vogtle Owner is severally (and not jointly) liable for its proportionate share, based on its ownership interest, of all amounts owed to the Contractor under the Vogtle 3 and 4 Agreement. Georgia Power's proportionate share is 45.7% .
Certain payment obligations of Westinghouse and CB&I Stone & Webster, Inc. (formerly known as Stone & Webster, Inc.) under the Vogtle 3 and 4 Agreement are guaranteed by Toshiba Corporation and The Shaw Group Inc. (a subsidiary of Chicago Bridge & Iron Company, N.V.), respectively. In the event of certain credit rating downgrades of any Vogtle Owner, such Vogtle Owner will be required to provide a letter of credit or other credit enhancement. The Vogtle Owners may terminate the Vogtle 3 and 4 Agreement at any time for their convenience, provided that the Vogtle Owners will be required to pay certain termination costs. The Contractor may terminate the Vogtle 3 and 4 Agreement under certain circumstances, including certain Vogtle Owner suspension or delays of work, action by a governmental authority to permanently stop work, certain breaches of the Vogtle 3 and 4 Agreement by the Vogtle Owners, Vogtle Owner insolvency, and certain other events.
In 2009, the NRC issued an Early Site Permit and Limited Work Authorization which allowed limited work to begin on Plant Vogtle Units 3 and 4. The NRC certified the Westinghouse Design Control Document, as amended (DCD), for the AP1000 nuclear reactor design, in late 2011, and issued combined construction and operating licenses (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 are expected as construction proceeds.
In 2012, the Vogtle Owners and the Contractor began negotiations 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 Vogtle 3 and 4 Agreement. Also in 2012, Georgia Power and the other Vogtle Owners filed suit against the Contractor in the U.S. District Court for the Southern District of Georgia seeking a declaratory judgment that the Vogtle Owners are not responsible for these costs. In 2012, the Contractor also filed suit against Georgia Power and the other Vogtle Owners in the U.S. District Court for the District of Columbia alleging the Vogtle Owners are responsible for these costs. In 2013, the U.S. District Court for the District of Columbia dismissed the Contractor's suit, ruling that the proper venue is the U.S. District Court for the Southern District of Georgia. On March 10, 2015, the U.S. Court of Appeals for the District of Columbia Circuit affirmed the District Court's decision. The portion of additional costs claimed by the Contractor in its initial complaint that would be attributable to Georgia Power (based on Georgia Power's ownership interest) is approximately $425 million in 2008 dollars (approximately $591 million in 2015 dollars). The Contractor also asserted it is entitled to extensions of the guaranteed substantial completion dates of April 2016 and April 2017 for Plant Vogtle Units 3 and 4, respectively. In May 2014, the Contractor filed an amended counterclaim to the suit pending in the U.S. District Court for the Southern District of Georgia alleging that (i) the design changes to the DCD imposed by the NRC delayed module production and the impacts to the Contractor are recoverable by the Contractor under the Vogtle 3 and 4 Agreement and (ii) the changes to the basemat rebar design required by the NRC caused additional costs and delays recoverable by the Contractor under the Vogtle 3 and 4 Agreement. The Contractor did not specify in its amended counterclaim the amounts relating to these new allegations; however, the Contractor subsequently asserted estimated minimum damages related to the amended counterclaim (based on Georgia Power's ownership interest) of approximately $113 million in 2014 dollars (approximately $118 million in 2015 dollars). In June 2015, the Contractor updated its estimated damages under the initial complaint and the amended counterclaim to an aggregate (based on Georgia Power's ownership interest) of approximately $714 million (in 2015 dollars). The Contractor may from time to time continue to assert that it is entitled to additional payments with respect to these allegations, any of which could be substantial. Georgia Power has not agreed to the proposed cost or to any changes to the guaranteed substantial completion dates or that the Vogtle Owners have any responsibility for costs related to these issues. Litigation is ongoing and Georgia Power intends to vigorously defend the positions of the Vogtle Owners. Georgia Power also expects negotiations with the Contractor to continue with respect to cost and schedule. During such negotiations the parties may reach a mutually acceptable compromise of their positions.

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(UNAUDITED)

Georgia Power is required to file semi-annual VCM reports with the Georgia PSC by February 28 and August 31 each year. If the projected certified construction capital costs to be borne by Georgia Power increase by 5% 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. Georgia Power's eighth VCM report filed in 2013 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 and the fourth quarter 2018 for Plant Vogtle Units 3 and 4, respectively. In 2013, the Georgia PSC approved a stipulation (2013 Stipulation) entered into by Georgia Power and the Georgia PSC 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. The Georgia PSC has approved eleven VCM reports covering the periods through June 30, 2014, including construction capital costs incurred, which through that date totaled $2.8 billion .
On January 29, 2015, Georgia Power announced it was notified by the Contractor of the Contractor's revised forecast for completion of Plant Vogtle Units 3 and 4, which would incrementally delay the previously disclosed estimated in-service dates by 18 months (from the fourth quarter of 2017 to the second quarter of 2019 for Unit 3 and from the fourth quarter of 2018 to the second quarter of 2020 for Unit 4).
Georgia Power believes that, pursuant to the Vogtle 3 and 4 Agreement, the Contractor is responsible for the Contractor's costs related to the Contractor's delay (including any related construction and mitigation costs, which could be material) and that the Vogtle Owners are entitled to recover liquidated damages for the Contractor's delay beyond the guaranteed substantial completion dates of April 2016 and April 2017 for Plant Vogtle Units 3 and 4, respectively. Consistent with the Contractor's position in the pending litigation described above, Georgia Power expects the Contractor to contest any claims for liquidated damages and to assert that the Vogtle Owners are responsible for additional costs related to the Contractor's delay.
On February 27, 2015, Georgia Power filed its twelfth VCM report with the Georgia PSC covering the period from July 1 through December 31, 2014, which requested approval for an additional $0.2 billion of construction capital costs incurred during that period. The twelfth VCM report also reflected the Contractor's revised forecast for completion of Plant Vogtle Units 3 and 4 as well as additional estimated owner-related costs, which include approximately $10 million per month expected to result from the Contractor's proposed 18 -month delay, including property taxes, oversight costs, compliance costs, and other operational readiness costs. No Contractor costs related to the Contractor's proposed 18 -month delay were included in the twelfth VCM report. Additionally, while Georgia Power has not agreed to any change to the guaranteed substantial completion dates, the twelfth VCM report included a requested amendment (Requested Amendment) to the Plant Vogtle Units 3 and 4 certificate to reflect the Contractor's revised forecast, to include the estimated 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 .
Georgia Power will continue to incur financing costs of approximately $30 million per month until Plant Vogtle Units 3 and 4 are placed in service. The twelfth VCM report estimated financing costs during the construction period to total approximately $2.5 billion .
On April 15, 2015, the Georgia PSC issued a procedural order in connection with the twelfth VCM report. Pursuant to this 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 accordance with the Georgia Integrated Resource Planning Act, any costs incurred by Georgia Power in excess of the certified amount will be included in rate base, provided Georgia Power shows the costs to be reasonable and prudent. Financing costs up to the certified amount will be collected through the NCCR tariff until the units are placed in service, while financing costs on any construction-related costs in excess of the $4.4 billion certified amount are expected to be recovered through AFUDC.
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

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

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 are expected to 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 ongoing challenges with Contractor performance including additional challenges in its 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 IRS 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.
Additional claims by the Contractor or Georgia Power (on behalf of the Vogtle Owners) are also likely to arise throughout construction. These claims may be resolved through formal and informal dispute resolution procedures under the Vogtle 3 and 4 Agreement, but also may be resolved through litigation.
The ultimate outcome of these matters cannot be determined at this time.
Gulf Power
Retail Base Rate Case
See Note 3 to the financial statements of Gulf Power under "Retail Regulatory Matters – Retail Base Rate Case" in Item 8 of the Form 10-K for additional information.
In December 2013, the Florida PSC approved a settlement agreement that provides Gulf Power may reduce depreciation expense and record a regulatory asset up to $62.5 million between January 2014 and June 2017. In any given month, such depreciation expense reduction may not exceed the amount necessary for the ROE, as reported to the Florida PSC monthly, to reach the midpoint of the authorized retail ROE range then in effect. Gulf Power recognized a $19.6 million reduction in depreciation expense in the first six months of 2015 .
Cost Recovery Clauses
See Note 3 to the financial statements of Gulf Power under "Retail Regulatory Matters – Cost Recovery Clauses" in Item 8 of the Form 10-K for additional information regarding Gulf Power's recovery of retail costs through various regulatory clauses and accounting orders. Gulf Power has four regulatory clauses which are approved by the Florida PSC. The recovery balance of each regulatory clause follows:
Recovery Clause

Balance Sheet Location

June 30, 2015

December 31, 2014




(in millions)
Fuel Cost Recovery – Under

Under recovered regulatory clause revenues

$
24


$
40

Purchased Power Capacity Recovery – Under

Under recovered regulatory clause revenues

2


—

Environmental Cost Recovery – Under

Under recovered regulatory clause revenues

7


10

Energy Conservation Cost Recovery – Under

Under recovered regulatory clause revenues

—


3

Mississippi Power
2015 Rate Case
On May 15, 2015 and July 10, 2015, Mississippi Power filed alternative rate proposals related to recovery of Kemper IGCC-related costs with the Mississippi PSC. See "Integrated Coal Gasification Combined Cycle – Rate Recovery of Kemper IGCC Costs – 2015 Rate Case" herein for additional information.

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(UNAUDITED)

Performance Evaluation Plan
See Note 3 to the financial statements of Mississippi Power under "Retail Regulatory Matters – Performance Evaluation Plan" in Item 8 of the Form 10-K for additional information regarding Mississippi Power's base rates.
On March 17, 2015, Mississippi Power submitted its annual PEP lookback filing for 2014, which indicated no surcharge or refund. On March 26, 2015, the Mississippi PSC suspended the filing to allow it more time for review. The ultimate outcome of this matter cannot be determined at this time.
System Restoration Rider
See Note 1 to the financial statements of Mississippi Power under "Provision for Property Damage" in Item 8 of the Form 10-K for additional information.
On February 2, 2015, Mississippi Power submitted its 2015 System Restoration Rider (SRR) rate filing with the Mississippi PSC, which proposed that the 2015 SRR rate remain level at zero and Mississippi Power be allowed to accrue $3 million to the property damage reserve in 2015. On March 3, 2015, the Mississippi PSC suspended the filing to allow it more time for review. The ultimate outcome of this matter cannot be determined at this time.
Environmental Compliance Overview Plan
See Note 3 to the financial statements of Mississippi Power under "Retail Regulatory Matters – Environmental Compliance Overview Plan" and "Other Matters – Sierra Club Settlement Agreement" in Item 8 of the Form 10-K for information on Mississippi Power's annual environmental filing with the Mississippi PSC and information on Plant Watson Units 4 and 5.
In 2012, the Mississippi PSC approved Mississippi Power's request for a CPCN to construct scrubbers on Plant Daniel Units 1 and 2, which are scheduled to be placed in service in September and November 2015, respectively. These units are jointly owned by Mississippi Power and Gulf Power, with 50% ownership each. The estimated total cost of the project is approximately $660 million , with Mississippi Power's portion being $330 million , excluding AFUDC. Mississippi Power's portion of the cost is expected to be recovered through the ECO Plan following the scheduled completion of the project. As of June 30, 2015 , total project expenditures were $604 million , of which Mississippi Power's portion was $308 million , excluding AFUDC of $27 million .
On February 25, 2015, Mississippi Power submitted its annual ECO filing for 2015, which indicated an annual increase in revenues of approximately $8 million . On February 27, 2015, the Mississippi PSC suspended the filing to allow it more time to review. The ultimate outcome of this matter cannot be determined at this time.
On April 16, 2015, the assets that supported coal generation at Plant Watson Units 4 and 5 were retired. The remaining net book value of these two units was approximately $32 million excluding the reserve for cost of removal and has been reclassified to other regulatory assets, deferred, on Mississippi Power's Condensed Balance Sheet herein in accordance with an accounting order from the Mississippi PSC. Mississippi Power expects to recover through its rates the remaining book value of the retired assets and certain costs, including unusable inventory, associated with the retirements; however, the ultimate method and timing of recovery will be considered by the Mississippi PSC in future rate proceedings.
Fuel Cost Recovery
See Note 3 to the financial statements of Mississippi Power under "Retail Regulatory Matters – Fuel Cost Recovery" in Item 8 of the Form 10-K for information regarding Mississippi Power's fuel cost recovery.
At June 30, 2015 , the amount of over-recovered retail fuel costs included on Mississippi Power's Condensed Balance Sheet herein was $24 million compared to under-recovered retail fuel costs of $2 million at December 31, 2014.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

Ad Valorem Tax Adjustment
See Note 3 to the financial statements of Mississippi Power under "Retail Regulatory Matters – Ad Valorem Tax Adjustment" in Item 8 of the Form 10-K for additional information.
On April 23, 2015, Mississippi Power filed its annual ad valorem tax adjustment factor filing for 2015, which requested an annual rate decrease of 0.35% , or $2 million in annual retail revenues, primarily due to a decrease in average millage rates. On May 26, 2015 the Mississippi PSC suspended the filing to allow it more time to review. The ultimate outcome of this matter cannot be determined at this time.
Integrated Coal Gasification Combined Cycle
See Note 3 to the financial statements of Southern Company and Mississippi Power under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K for information regarding Mississippi Power's construction of the Kemper IGCC.
Kemper IGCC Overview
Construction of Mississippi Power's Kemper IGCC is nearing completion and start-up activities will continue until the Kemper IGCC is placed in service. The Kemper IGCC will utilize an IGCC technology with an output capacity of 582 MWs. The Kemper IGCC will be fueled by locally mined lignite (an abundant, lower heating value coal) from a mine owned by Mississippi Power and situated adjacent to the Kemper IGCC. The mine, operated by North American Coal Corporation, started commercial operation in 2013. In connection with the Kemper IGCC, Mississippi Power constructed and plans to operate approximately 61 miles of CO 2 pipeline infrastructure for the planned transport of captured CO 2 for use in enhanced oil recovery.
Kemper IGCC Schedule and Cost Estimate
In 2012, the Mississippi PSC issued the 2012 MPSC CPCN Order, a detailed order confirming the CPCN originally approved by the Mississippi PSC in 2010 authorizing the acquisition, construction, and operation of the Kemper IGCC.
The certificated cost estimate of the Kemper IGCC included in the 2012 MPSC CPCN Order was $2.4 billion , net of $245 million of grants awarded to the Kemper IGCC project by the DOE under the Clean Coal Power Initiative Round 2 (DOE Grants) and excluding the cost of the lignite mine and equipment, the cost of the CO 2 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 continues to focus on completing the remainder of the Kemper IGCC, including the gasifier and the gas clean-up facilities, for which the in-service date is currently expected to occur in the first half of 2016. Recovery of the Kemper IGCC costs subject to the cost cap and the cost of the lignite mine and equipment, the cost of the CO 2 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) remains subject to review and approval by the Mississippi PSC. Mississippi Power's Kemper IGCC 2010 project estimate, current cost estimate (which includes the impacts of the Mississippi Supreme Court's (Court) decision), and actual costs incurred as of June 30, 2015 , as adjusted for the Court's decision, are as follows:

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Cost Category
2010 Project Estimate (f)
 
Current Estimate
 
Actual Costs at June 30, 2015
 
(in billions)
Plant Subject to Cost Cap (a)
$
2.40

 
$
4.96

 
$
4.51

Lignite Mine and Equipment
0.21
 
0.23
 
0.23
CO 2  Pipeline Facilities
0.14
 
0.11
 
0.11
AFUDC (b)(c)
0.17
 
0.62
 
0.52
Combined Cycle and Related Assets Placed in
Service – Incremental (d)
—

 
0.02

 
—

General Exceptions
0.05
 
0.10
 
0.08
Deferred Costs (c)(e)
—

 
0.19
 
0.15
Total Kemper IGCC (a)(c)
$
2.97

 
$
6.23

 
$
5.60

(a)
The 2012 MPSC CPCN Order approved a construction cost cap of up to $2.88 billion , net of the DOE Grants and excluding the Cost Cap Exceptions. The Current Estimate and Actual Costs include non-incremental operating and maintenance costs related to the combined cycle and associated common facilities placed in service in August 2014 that are subject to the $2.88 billion cost cap and exclude post-in-service costs for the lignite mine. See "Rate Recovery of Kemper IGCC Costs – 2013 MPSC Rate Order" for additional information. The Current Estimate and Actual Costs include the 15% undivided interest in the Kemper IGCC that was previously projected to be purchased by SMEPA. On May 20, 2015, SMEPA notified Mississippi Power of its termination of the asset purchase agreement (APA) and requested the return of a total of $275 million of deposits, which was returned with accrued interest on June 3, 2015.
(b)
Mississippi Power's original estimate included recovery of financing costs during construction rather than the accrual of AFUDC. This approach was not approved by the Mississippi PSC in 2012 as described in "Rate Recovery of Kemper IGCC Costs." The current estimate includes an approximately $11 million decrease in AFUDC due to a decrease in AFUDC rates resulting from an increase in short-term debt, partially offset by an $8 million increase in AFUDC related to a settlement agreement with the wholesale customers for cost-based rates under FERC's jurisdiction. See "FERC Matters" herein for additional information.
(c)
Amounts in the Current Estimate reflect estimated costs through March 31, 2016.
(d)
Incremental operating and maintenance costs related to the combined cycle and associated common facilities placed in service in August 2014, net of costs related to energy sales. See "Rate Recovery of Kemper IGCC Costs – 2013 MPSC Rate Order" for additional information.
(e)
The 2012 MPSC CPCN Order approved deferral of non-capital Kemper IGCC-related costs during construction as described in "Rate Recovery of Kemper IGCC Costs – Regulatory Assets and Liabilities."
(f)
The 2010 Project Estimate is the certificated cost estimate adjusted to include the certificated estimate for the CO 2 pipeline facilities which was approved in 2011 by the Mississippi PSC.
Of the total costs, including post-in-service costs for the lignite mine, incurred as of June 30, 2015 , $3.42 billion was included in property, plant, and equipment (which is net of the DOE Grants and estimated probable losses of $2.08 billion ), $2 million in other property and investments, $58 million in fossil fuel stock, $41 million in materials and supplies, $198 million in other regulatory assets, $16 million in other deferred charges and assets, and $24 million in AROs in the balance sheet, with $1 million previously expensed.
Mississippi Power does not intend to seek any 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 Cap Exceptions. Mississippi Power recorded pre-tax charges to income for revisions to the cost estimate of $23 million ( $14 million after tax) in the second quarter 2015 and $9 million ( $6 million after tax) in the first quarter 2015. These amounts are in addition to charges totaling $868 million ( $536 million after tax), $1.10 billion ( $681 million after tax), and $78 million ( $48 million after tax) in 2014, 2013, and 2012, respectively. Southern Company recorded pre-tax charges to income for revisions to the cost estimate of $868 million ( $536 million after tax) and $1.2 billion ( $729 million after tax) in 2014 and 2013, respectively. The increases to the cost estimate in the first and second quarters of 2015 primarily reflected costs for increased efforts related to equipment rework, scope modifications, and the related additional labor costs in support of start-up and operational readiness activities. The current estimate includes costs through March 31, 2016. Any further extension of the in-service date is currently estimated to result in additional base costs of approximately $25 million to $30 million per month, w hich includes maintaining necessary levels of start-up labor, materials, and fuel, as well as operational resources required to execute start-up

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(UNAUDITED)

and commissioning activities. Any further extension of the in-service date with respect to the Kemper IGCC 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, which are being deferred as regulatory assets and are estimated to total approximately $7 million per month.
Any 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 supplier delay, non-performance under construction 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 statements of income and Mississippi Power's statements of operations and these changes could be material.
Rate Recovery of Kemper IGCC Costs
The ultimate outcome of the rate recovery matters discussed herein, including the resolution of legal challenges, determinations of prudency, and the specific manner of recovery of prudently-incurred costs, cannot be determined at this time, but could have a material impact on Southern Company's and Mississippi Power's results of operations, financial condition, and liquidity.
2012 MPSC CPCN Order
The 2012 MPSC CPCN Order included provisions relating to both Mississippi Power's recovery of financing costs during the course of construction of the Kemper IGCC and Mississippi Power's recovery of costs following the date the Kemper IGCC is placed in service. With respect to recovery of costs following the in-service date of the Kemper IGCC, the 2012 MPSC CPCN Order provided for the establishment of operational cost and revenue parameters based upon assumptions in Mississippi Power's petition for the CPCN. Mississippi Power expects the Mississippi PSC to apply operational parameters in connection with the evaluation of the 2015 Rate Case and any alternative 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 Southern Company's or Mississippi Power's financial statements.
2013 Settlement Agreement
In January 2013, Mississippi Power entered into a settlement agreement with the Mississippi PSC that, among other things, established 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. The 2013 Settlement Agreement also allowed Mississippi Power to secure alternate financing for costs not otherwise recovered in any Mississippi PSC rate proceedings contemplated by the 2013 Settlement Agreement. The Court found the 2013 Settlement Agreement unenforceable due to a lack of public notice for the related proceedings. See "2015 Mississippi Supreme Court Decision" herein for additional information.
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's

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(UNAUDITED)

intent under the 2013 Settlement Agreement was to securitize (1) prudently-incurred costs in excess of the certificated cost estimate and up to the $2.88 billion cost cap, net of the DOE Grants and excluding the Cost Cap Exceptions, (2) accrued AFUDC, and (3) other prudently-incurred costs, which include carrying costs from the estimated in-service date until securitization is finalized and other costs not included in Mississippi Power's 2013 revision to the proposed rate recovery plan filed with the Mississippi PSC for the Kemper IGCC for cost recovery through 2020 (2013 Rate Mitigation Plan) as approved by the Mississippi PSC. The Court's decision did not impact Mississippi Power's ability to utilize alternate financing through securitization, the 2012 MPSC CPCN Order, or the February 2013 legislation. See "2015 Mississippi Supreme Court Decision" herein for additional information.
2013 MPSC Rate Order
Consistent with the terms of the 2013 Settlement Agreement, 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. Because the 2013 MPSC Rate Order did not provide for the inclusion of CWIP in rate base as permitted by the Baseload Act, Mississippi Power continues to record AFUDC on the Kemper IGCC through the in-service date. Mississippi Power will not record AFUDC on any additional costs of the Kemper IGCC that exceed the $2.88 billion cost cap, except for Cost Cap Exception amounts. Mississippi Power will continue to record AFUDC through the in-service date until directed to do otherwise by the Mississippi PSC.
In August 2014, Mississippi Power provided an analysis of the costs and benefits of placing the combined cycle and the associated common facilities portion of the Kemper IGCC in service, including the expected accounting treatment for costs and revenues associated with the operation of the combined cycle as well as the treatment of revenues collected under the 2013 MPSC Rate Order. See "2015 Mississippi Supreme Court Decision" for additional information regarding the decision of the Court which discontinues the collection of rates under the 2013 MPSC Rate Order and requires the refund of all amounts previously collected.
In addition, Mississippi Power's August 2014 filing with the Mississippi PSC requested confirmation of Mississippi Power's accounting treatment by the Mississippi PSC of the continued accrual of AFUDC through the in-service date of the remainder of the Kemper IGCC. See "Regulatory Assets and Liabilities" for additional information. Any action by the Mississippi PSC that is inconsistent with the treatment requested by Mississippi Power could have a material impact on the results of operations, financial condition, and liquidity of Southern Company and Mississippi Power.
2015 Mississippi Supreme Court Decision
On February 12, 2015, the 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 Mirror CWIP 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 March 12, 2015, Mississippi Power and the Mississippi PSC each filed motions for rehearing, both of which were denied on June 11, 2015. The Court's ruling remanded the matter to the Mississippi PSC to (1) fix by order the rates that were in existence prior to the 2013 MPSC Rate Order, (2) fix no rate increases until the Mississippi PSC is in compliance with the Court's ruling, and (3) enter an order refunding amounts collected under the 2013 MPSC Rate Order. Through June 30, 2015 , Mississippi Power had collected $331 million through rates under the 2013 MPSC Rate Order and had accrued $22 million in associated carrying costs. On July 7, 2015, the Mississippi PSC ordered that the Mirror CWIP rate be terminated effective July 20, 2015. Mississippi Power submitted a refund plan to the Mississippi PSC on July 21, 2015, which proposed two alternative refund plans for the Mississippi PSC's consideration: (1) bill credit with check option; or (2) check-only option. Hearings on the refund plan are scheduled to be held on August 6, 2015.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

2015 Rate Case
As a result of the 2015 Mississippi Supreme Court decision and the Mirror CWIP refund, the 2013 Rate Mitigation Plan is no longer viable. See "2015 Mississippi Supreme Court Decision" herein for additional information. On May 15, 2015, Mississippi Power sought alternate rate recovery and filed a rate case (2015 Rate Case) with the Mississippi PSC. This filing included three alternative rate proposals requesting an increase in retail rates and charges in connection with the Kemper IGCC: (i) a traditional rate case, (ii) a rate mitigation plan fixing rates through 2017 (RMP 2017), and (iii) a rate mitigation plan fixing rates through 2019 (RMP 2019). Under the traditional proposal, rates would increase above May 2015 levels by approximately 11.8% , or $114 million annually, effective June 1, 2015, and would be projected to increase approximately an additional 12.0% , or $120 million annually, effective June 1, 2016. The traditional proposal assumes termination of the Mirror CWIP rate and the refund of the Mirror CWIP regulatory liability over the period from May 2015 through May 2017. RMP 2017 presents revenue requirements calculated consistent with a rate mitigation plan authorized by Mississippi state law that would mitigate the Kemper IGCC's initial retail revenue impact over two years (June 1, 2015 through May 31, 2017). Under RMP 2017, rates would increase above May 2015 levels by approximately 2.6% , or $25 million annually, effective June 1, 2015, and approximately an additional 19.0% , or $197 million annually, effective June 1, 2016. This proposal assumes termination of the Mirror CWIP rate and the refund of the Mirror CWIP regulatory liability over the period from May 2015 through May 2017. In light of the Mississippi PSC's July 7, 2015 order, RMP 2019 is no longer viable as originally proposed by Mississippi Power.
On July 10, 2015, Mississippi Power filed a supplemental filing including a request for interim rates (the Supplemental Notice) with the Mississippi PSC in response to the July 7, 2015 order of the Mississippi PSC. The Supplemental Notice presents an additional alternative rate proposal (In-Service Asset Proposal) for consideration by the Mississippi PSC. The In-Service Asset Proposal is based upon the test period of June 2015 to May 2016, is 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 is designed to collect approximately $159 million annually. The Supplemental Notice requests that the In-Service Asset Proposal be implemented immediately as interim rates, subject to refund, until such time as the Mississippi PSC renders a final decision on the In-Service Asset Proposal and requests that the Mississippi PSC establish a scheduling order for consideration of permanent rates under the In-Service Asset Proposal. Evidentiary hearings on the interim rate relief are scheduled to be held on August 6, 2015.
The revenue requirements set forth in the alternative rate proposals exclude the costs of the Kemper IGCC related to the 15% undivided interest that was previously projected to be purchased by SMEPA. See "Termination of Proposed Sale of Undivided Interest to SMEPA" herein for additional information.
If the Mississippi PSC does not act on the Supplemental Notice or the 2015 Rate Case within 120 days of the Supplemental Notice filing, Mississippi Power expects to put one of the three viable alternative rate proposals into effect as temporary rates under bond and subject to refund pursuant to Mississippi state law.
Mississippi Power also expects to seek additional rate relief to address recovery of the remaining Kemper IGCC assets. In addition to current estimated costs at June 30, 2015 of $6.23 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.
Prudence Reviews
The Mississippi PSC's review of Kemper IGCC costs is ongoing. In August 2014, the Mississippi PSC ordered that a consolidated prudence determination of all Kemper IGCC costs be completed after the entire project has been placed in service and has demonstrated availability for a reasonable period of time as determined by the Mississippi PSC and the Mississippi Public Utilities Staff (MPUS). The Mississippi PSC has encouraged the parties to work in good faith to settle contested issues and Mississippi Power is working to reach a mutually acceptable resolution. On July 10, 2015, Mississippi Power submitted the Supplemental Notice to the Mississippi PSC. The Supplemental

165

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

Notice requests that the Mississippi PSC establish a scheduling order for review of the In-Service Asset Proposal. Mississippi Power expects the Mississippi PSC to address the In-Service Asset Proposal before the end of 2015, although Mississippi Power believes that such a prudence finding is not required for interim rate relief to be granted. See "2015 Mississippi Supreme Court Decision" and "2015 Rate Case" herein for additional information.
Regulatory Assets and Liabilities
Consistent with the treatment of non-capital costs incurred during the pre-construction period, the Mississippi PSC issued an accounting order in 2011 granting Mississippi Power the authority to defer all non-capital Kemper IGCC-related costs to a regulatory asset through the in-service date, subject to review of such costs by the Mississippi PSC. Such costs include, but are not limited to, carrying costs on Kemper IGCC assets currently placed in service, costs associated with Mississippi PSC and MPUS consultants, prudence costs, legal fees, and operating expenses associated with assets placed in service.
In August 2014, Mississippi Power requested confirmation by the Mississippi PSC of Mississippi Power's authority to defer all operating expenses associated with the operation of the combined cycle subject to review of such costs by the Mississippi PSC. In addition, Mississippi Power is authorized to accrue carrying costs on the unamortized balance of such regulatory assets at a rate and in a manner to be determined by the Mississippi PSC in future cost recovery mechanism proceedings. As of June 30, 2015 , the regulatory asset balance associated with the Kemper IGCC was $198 million . The projected balance at March 31, 2016 is estimated to total approximately $276 million . The amortization period for any such costs approved for recovery remains subject to approval by the Mississippi PSC.
See "2015 Mississippi Supreme Court Decision" herein for additional information related to the July 7, 2015 Mississippi PSC order terminating the Mirror CWIP rate and requiring refund of collections under Mirror CWIP.
See Note 1 to the financial statements of Southern Company and Mississippi Power under "Regulatory Assets and Liabilities" in Item 8 of the Form 10-K for additional information.
Lignite Mine and CO 2 Pipeline Facilities
In conjunction with the Kemper IGCC, Mississippi Power will own the lignite mine and equipment and has acquired and will continue to acquire mineral reserves located around the Kemper IGCC site. The mine started commercial operation in June 2013.
In 2010, Mississippi Power executed a 40 -year management fee contract with Liberty Fuels Company, LLC (Liberty Fuels), a wholly-owned subsidiary of The North American Coal Corporation, which developed, constructed, and is operating and managing the mining operations. The contract with Liberty Fuels is effective through the end of the mine reclamation. As the mining permit holder, Liberty Fuels has a legal obligation to perform mine reclamation and Mississippi Power has a contractual obligation to fund all reclamation activities. In addition to the obligation to fund the reclamation activities, Mississippi Power currently provides working capital support to Liberty Fuels through cash advances for capital purchases, payroll, and other operating expenses. See Note 1 to the financial statements of Mississippi Power under "Asset Retirement Obligations and Other Costs of Removal" and "Variable Interest Entities" in Item 8 of the Form 10-K for additional information.
In addition, Mississippi Power has constructed and will operate the CO 2 pipeline for the planned transport of captured CO 2 for use in enhanced oil recovery. 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 CO 2 captured from the Kemper IGCC and Treetop will purchase 30% of the CO 2 captured from the Kemper IGCC. The agreements with Denbury and Treetop provide termination rights as Mississippi Power has not satisfied its contractual obligation to deliver captured CO 2 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 CO 2 delivery schedule as well as other issues related to the respective 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

166

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

affect pricing or minimum purchase quantities. Any termination or material modification of these agreements could result in a material reduction in future chemical product sales revenues and could have a material financial impact on Mississippi Power to the extent Mississippi Power is not able to enter into other similar contractual arrangements.
The ultimate outcome of these matters cannot be determined at this time.
Termination of Proposed Sale of Undivided Interest to SMEPA
In 2010 and as amended in 2012, Mississippi Power and SMEPA entered into an APA whereby SMEPA agreed to purchase a 15% undivided interest in the Kemper IGCC. On May 20, 2015, SMEPA notified Mississippi Power of its termination of the APA between Mississippi Power and SMEPA. Mississippi Power previously received a total of $275 million of deposits from SMEPA that were required to be returned to SMEPA with interest in connection with the termination of the APA. On June 3, 2015, Southern Company, pursuant to its guarantee obligation, returned approximately $301 million to SMEPA. Subsequently, Mississippi Power issued an 18 -month promissory note in the aggregate principal amount of approximately $301 million to Southern Company.
Investment Tax Credits
The IRS allocated $279 million (Phase II) of Internal Revenue Code Section 48A tax credits to Mississippi Power in connection with the Kemper IGCC. Through June 30, 2015 , Mississippi Power had recorded tax benefits totaling $276 million for the Phase II credits, of which approximately $242 million had been utilized through that date. These credits will be amortized as a reduction to depreciation and amortization over the life of the Kemper IGCC and are dependent upon meeting the IRS certification requirements, including an in-service date no later than April 19, 2016 and the capture and sequestration (via enhanced oil recovery) of at least 65% of the CO 2 produced by the Kemper IGCC during operations in accordance with the Internal Revenue Code. Mississippi Power currently expects to place the Kemper IGCC in service in the first half of 2016. The ultimate outcome of this matter cannot be determined at this time.
Section 174 Research and Experimental Deduction
Southern Company, on behalf of Mississippi Power, reflected deductions for research and experimental (R&E) expenditures related to the Kemper IGCC in its federal income tax calculations for 2013 and 2014. In May 2015, Southern Company amended its 2008 through 2013 federal income tax returns to include deductions for Kemper IGCC-related R&E expenditures. Due to the uncertainty related to this tax position, Southern Company and Mississippi Power had unrecognized tax benefits associated with these R&E deductions totaling approximately $390 million as of June 30, 2015 . See Note 5 to the financial statements of Southern Company and Mississippi Power under "Unrecognized Tax Benefits" in Item 8 of the Form 10-K and Note (G) herein under "Unrecognized Tax Benefits – Section 174 Research and Experimental Deduction" for additional information. The ultimate outcome of this tax matter cannot be determined at this time.

167

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

(C)
FAIR VALUE MEASUREMENTS
As of June 30, 2015 , assets and liabilities measured at fair value on a recurring basis during the period, together with the associated level of the fair value hierarchy, were as follows:
 
 
Fair Value Measurements Using
 
 
As of June 30, 2015:
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
 
 
(in millions)
Southern Company
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Energy-related derivatives
 
$
—

 
$
5

 
$
—

 
$
5

Interest rate derivatives
 
—

 
11

 
—

 
11

Nuclear decommissioning trusts (a)
 
677

 
887

 
7

 
1,571

Cash equivalents
 
533

 
—

 
—

 
533

Other investments
 
9

 
—

 
1

 
10

Total
 
$
1,219

 
$
903

 
$
8

 
$
2,130

Liabilities:
 
 
 
 
 
 
 
 
Energy-related derivatives
 
$
—

 
$
180

 
$
—

 
$
180

Interest rate derivatives
 
—

 
14

 
—

 
14

Total
 
$
—

 
$
194

 
$
—

 
$
194

 
 
 
 
 
 
 
 
 
Alabama Power
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Energy-related derivatives
 
$
—

 
$
2

 
$
—

 
$
2

Nuclear decommissioning trusts (b)
 
 
 
 
 
 
 
 
Domestic equity
 
381

 
78

 
—

 
459

Foreign equity
 
51

 
50

 
—

 
101

U.S. Treasury and government agency securities
 
—

 
36

 
—

 
36

Corporate bonds
 
10

 
121

 
—

 
131

Mortgage and asset backed securities
 
—

 
17

 
—

 
17

Other
 
—

 
6

 
7

 
13

Cash equivalents
 
81

 
—

 
—

 
81

Total
 
$
523

 
$
310

 
$
7

 
$
840

Liabilities:
 
 
 
 
 
 
 
 
Energy-related derivatives
 
$
—

 
$
48

 
$
—

 
$
48

Interest rate derivatives
 
—

 
7

 
—

 
7

Total
 
$
—

 
$
55

 
$
—

 
$
55


168

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

 
 
Fair Value Measurements Using
 
 
As of June 30, 2015:
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
 
 
(in millions)
Georgia Power
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Energy-related derivatives
 
$
—

 
$
3

 
$
—

 
$
3

Interest rate derivatives
 
—

 
5

 
—

 
5

Nuclear decommissioning trusts (b) (c)
 
 
 
 
 
 
 
 
Domestic equity
 
182

 
1

 
—

 
183

Foreign equity
 
—

 
125

 
—

 
125

U.S. Treasury and government agency securities
 
—

 
95

 
—

 
95

Municipal bonds
 
—

 
78

 
—

 
78

Corporate bonds
 
—

 
169

 
—

 
169

Mortgage and asset backed securities
 
—

 
108

 
—

 
108

Other
 
53

 
3

 
—

 
56

Total
 
$
235

 
$
587

 
$
—

 
$
822

Liabilities:
 
 
 
 
 
 
 
 
Energy-related derivatives
 
$
—

 
$
17

 
$
—

 
$
17

Interest rate derivatives
 
—

 
4

 
—

 
4

Total
 
$
—

 
$
21

 
$
—

 
$
21

 
 
 
 
 
 
 
 
 
Gulf Power
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Cash equivalents
 
$
18

 
$
—

 
$
—

 
$
18

Liabilities:
 
 
 
 
 
 
 
 
Energy-related derivatives
 
—

 
74

 
—

 
74

 
 
 
 
 
 
 
 
 
Mississippi Power
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Cash equivalents
 
$
182

 
$
—

 
$
—

 
$
182

Liabilities:
 
 
 
 
 
 
 
 
Energy-related derivatives
 
—

 
41

 
—

 
41

 
 
 
 
 
 
 
 
 
Southern Power
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Cash equivalents
 
$
206

 
$
—

 
$
—

 
$
206

(a)
For additional detail, see the nuclear decommissioning trusts sections for Alabama Power and Georgia Power in this table.
(b)
Excludes receivables related to investment income, pending investment sales, payables related to pending investment purchases, and currencies.
(c)
Includes the investment securities pledged to creditors and collateral received and excludes payables related to the securities lending program. As of June 30, 2015 , approximately $39 million of the fair market value of Georgia Power's nuclear decommissioning trust funds' securities were on loan to creditors under the funds' managers' securities lending program.

169

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

Valuation Methodologies
The energy-related derivatives primarily consist of over-the-counter financial products for natural gas and physical power products, including, from time to time, basis swaps. These are standard products used within the energy industry and are valued using the market approach. The inputs used are mainly from observable market sources, such as forward natural gas prices, power prices, implied volatility, and overnight index swap interest rates. Interest rate derivatives are also standard over-the-counter financial products valued using the market approach. Inputs for interest rate derivatives include LIBOR interest rates, interest rate futures contracts, and occasionally, implied volatility of interest rate options. See Note (H) herein for additional information on how these derivatives are used.
For fair value measurements of the investments within the nuclear decommissioning trusts, external pricing vendors are designated for each asset class with each security specifically assigned a primary pricing source. For investments held within commingled funds, fair value is determined at the end of each business day through the net asset value, which is established by obtaining the underlying securities' individual prices from the primary pricing source. A market price secured from the primary source vendor is then evaluated by management in its valuation of the assets within the trusts. As a general approach, fixed income market pricing vendors gather market data (including indices and market research reports) and integrate relative credit information, observed market movements, and sector news into proprietary pricing models, pricing systems, and mathematical tools. Dealer quotes and other market information, including live trading levels and pricing analysts' judgment, are also obtained when available.
Investments in private equity and real estate within Alabama Power's nuclear decommissioning trusts are generally classified as Level 3, as the underlying assets typically do not have observable inputs. The fund manager values these assets using various inputs and techniques depending on the nature of the underlying investments. The fair value of partnerships is determined by aggregating the value of the underlying assets.
"Other investments" include investments that are not traded in the open market. The fair value of these investments have been determined based on market factors including comparable multiples and the expectations regarding cash flows and business plan executions.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

As of June 30, 2015 , the fair value measurements of investments calculated at net asset value per share (or its equivalent), as well as the nature and risks of those investments, were as follows:
As of June 30, 2015:
 
Fair
Value
 
Unfunded
Commitments
 
Redemption
Frequency
 
Redemption
Notice Period
 
 
(in millions)
 
 
 
 
 
 
Southern Company
 
 
 
 
 
 
Nuclear decommissioning trusts:
 
 
 
 
 
 
 
 
Foreign equity funds
 
$
125

 
None
 
Monthly
 
5 days
Equity - commingled funds
 
50

 
None
 
Daily
 
Daily
Debt - commingled funds
 
16

 
None
 
Daily
 
5 days
Other - commingled funds
 
3

 
None
 
Daily
 
Not applicable
Other - money market funds
 
53

 
None
 
Daily
 
Not applicable
Trust-owned life insurance
 
117

 
None
 
Daily
 
15 days
Cash equivalents:
 
 
 
 
 
 
 
 
Money market funds
 
533

 
None
 
Daily
 
Not applicable
Alabama Power
 
 
 
 
 
 
 
 
Nuclear decommissioning trusts:
 
 
 
 
 
 
 
 
Equity - commingled funds
 
$
50

 
None
 
Daily
 
Daily
Debt - commingled funds
 
16

 
None
 
Daily
 
5 days
Trust-owned life insurance
 
117

 
None
 
Daily
 
15 days
Cash equivalents:
 
 
 
 
 
 
 
 
Money market funds
 
81

 
None
 
Daily
 
Not applicable
Georgia Power
 
 
 
 
 
 
 
 
Nuclear decommissioning trusts:
 
 
 
 
 
 
 
 
Foreign equity funds
 
$
125

 
None
 
Monthly
 
5 days
Other - commingled funds
 
3

 
None
 
Daily
 
Not applicable
Other - money market funds
 
53

 
None
 
Daily
 
Not applicable
Gulf Power
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
Money market funds
 
$
18

 
None
 
Daily
 
Not applicable
Mississippi Power
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
Money market funds
 
$
182

 
None
 
Daily
 
Not applicable
Southern Power
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
Money market funds
 
$
206

 
None
 
Daily
 
Not applicable
The NRC requires licensees of commissioned nuclear power reactors to establish a plan for providing reasonable assurance of funds for future decommissioning. Alabama Power and Georgia Power have external trust funds (the Funds) to comply with the NRC's regulations. The foreign equity fund in Georgia Power's nuclear decommissioning trusts seeks to provide long-term capital appreciation. In pursuing this investment objective, the foreign equity fund primarily invests in a diversified portfolio of equity securities of foreign companies, including those in emerging markets. These equity securities may include, but are not limited to, common stocks, preferred stocks, real estate investment trusts, convertible securities, depositary receipts (including American depositary receipts, European depositary receipts, and global depositary receipts), and rights and warrants to buy common stocks. Georgia Power may withdraw all or a portion of its investment on the last business day of each month subject to a minimum withdrawal of $1 million , provided that a minimum investment of $10 million remains. If notices of withdrawal exceed 20% of the aggregate value of the foreign equity fund, then the foreign equity fund's board may refuse to

171

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

permit the withdrawal of all such investments and may scale down the amounts to be withdrawn pro rata and may further determine that any withdrawal that has been postponed will have priority on the subsequent withdrawal date.
The other-commingled funds and other-money market funds in Georgia Power's nuclear decommissioning trusts are invested primarily in a diversified portfolio of high-quality, short-term, liquid debt securities. The funds represent cash collateral received under the Funds' managers' securities lending program and/or excess cash held within each separate investment account. The primary objective of the funds is to provide a high level of current income consistent with stability of principal and liquidity. The funds invest primarily in, but not limited to, commercial paper, floating and variable rate demand notes, debt securities issued or guaranteed by the U.S. government or its agencies or instrumentalities, time deposits, repurchase agreements, municipal obligations, notes, and other high-quality short-term liquid debt securities that mature in 90 days or less. Redemptions are available on a same day basis up to the full amount of the investment in the fund. See Note 1 to the financial statements of Southern Company and Georgia Power under "Nuclear Decommissioning" in Item 8 of the Form 10-K for additional information.
Alabama Power's nuclear decommissioning trusts include investments in Trust-Owned Life Insurance (TOLI). The taxable nuclear decommissioning trusts invest in the TOLI in order to minimize the impact of taxes on the portfolios and can draw on the value of the TOLI through death proceeds, loans against the cash surrender value, and/or the cash surrender value, subject to legal restrictions. The amounts reported in the table above reflect the fair value of investments the insurer has made in relation to the TOLI agreements. The nuclear decommissioning trusts do not own the underlying investments, but the fair value of the investments approximates the cash surrender value of the TOLI policies. The investments made by the insurer are in commingled funds. These commingled funds, along with other equity and debt commingled funds held in Alabama Power's nuclear decommissioning trusts, primarily include investments in domestic and international equity securities and predominantly high-quality fixed income securities. These fixed income securities may include U.S. Treasury and government agency fixed income securities, non-U.S. government and agency fixed income securities, domestic and foreign corporate fixed income securities, and mortgage and asset backed securities. The passively managed funds seek to replicate the performance of a related index. The actively managed funds seek to exceed the performance of a related index through security analysis and selection. See Note 1 to the financial statements of Southern Company and Alabama Power under "Nuclear Decommissioning" in Item 8 of the Form 10-K for additional information.
Southern Company, Alabama Power, and Georgia Power continue to elect the option to fair value investment securities held in the nuclear decommissioning trust funds. For the three and six months ended June 30, 2015 , the change in fair value of the funds, including reinvested interest and dividends reduced by the funds' expenses, increased by $44 million and $109 million , respectively, at Southern Company. For the three and six months ended June 30, 2015 , Alabama Power recorded an increase in fair value of $50 million and $97 million , respectively, as an increase in regulatory liabilities. For the three and six months ended June 30, 2015 , Georgia Power recorded a decrease in fair value of $6 million and an increase of $12 million , respectively, as a reduction of its regulatory asset related to its ARO.
The money market funds are short-term investments of excess funds in various money market mutual funds, which are portfolios of short-term debt securities. The money market funds are regulated by the SEC and typically receive the highest rating from credit rating agencies. Regulatory and rating agency requirements for money market funds include minimum credit ratings and maximum maturities for individual securities and a maximum weighted average portfolio maturity. Redemptions are available on a same day basis up to the full amount of the investment in the money market funds.

172

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

As of June 30, 2015 , other financial instruments for which the carrying amount did not equal fair value were as follows:
 
 
Carrying
Amount
 
Fair
Value
 
 
(in millions)
Long-term debt, including securities due within one year:
 
 
 
 
Southern Company
 
$
26,156

 
$
26,973

Alabama Power
 
$
7,295

 
$
7,621

Georgia Power
 
$
10,379

 
$
10,767

Gulf Power
 
$
1,370

 
$
1,438

Mississippi Power
 
$
2,275

 
$
2,246

Southern Power
 
$
2,262

 
$
2,302

The fair values are determined using Level 2 measurements and are based on quoted market prices for the same or similar issues or on the current rates available to the registrants.
(D)
STOCKHOLDERS' EQUITY
Earnings per Share
For Southern Company, the only difference in computing basic and diluted earnings per share is attributable to awards outstanding under the stock option and performance share plans. See Note 8 to the financial statements of Southern Company in Item 8 of the Form 10-K for information on the stock option and performance share plans. The effect of both stock options and performance share award units was determined using the treasury stock method. Shares used to compute diluted earnings per share were as follows:
 
 
Three Months Ended June 30, 2015

Three Months Ended June 30, 2014
 
Six Months Ended June 30, 2015
 
Six Months Ended June 30, 2014
 
 
(in millions)
As reported shares
 
909

 
895

 
910

 
892

Effect of options and performance share award units
 
3

 
4

 
4

 
4

Diluted shares
 
912

 
899

 
914

 
896

Stock options and performance share award units that were not included in the diluted earnings per share calculation because they were anti-dilutive were 15 million and 1 million for the three and six months ended June 30, 2015 , respectively, and were 8 million and 17 million for the three and six months ended June 30, 2014 , respectively.

173

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

Changes in Stockholders' Equity
The following table presents year-to-date changes in stockholders' equity of Southern Company:
 
Number of
Common Shares
 
Common
Stockholders'
Equity
 
Preferred and
Preference
Stock of
Subsidiaries
 
 
 
Total
Stockholders'
Equity
 
Issued
 
Treasury
 
 
 
Noncontrolling Interest (*)
 
 
(in thousands)
 
(in millions)
Balance at December 31, 2014
908,502

 
(725
)
 
$
19,949

 
$
756

 
$
221

 
$
20,926

Net income after dividends on preferred and preference stock
—

 
—

 
1,138

 
—

 
—

 
1,138

Other comprehensive income (loss)
—

 
—

 
7

 
—

 
—

 
7

Stock issued
3,222

 
—

 
117

 
—

 
—

 
117

Stock-based compensation
—

 
—

 
66

 
—

 
—

 
66

Stock repurchased, at cost
—

 
(2,599
)
 
(115
)
 
—

 
—

 
(115
)
Cash dividends on common stock
—

 
—

 
(972
)
 
—

 
—

 
(972
)
Preference stock redemption
—

 
—

 
—

 
(150
)
 
—

 
(150
)
Contributions from noncontrolling interest
—

 
—

 
—

 
—

 
135

 
135

Distributions to noncontrolling interest
—

 
—

 
—

 
—

 
(5
)
 
(5
)
Net income attributable to noncontrolling interest
—

 
—

 
—

 
—

 
4

 
4

Other
—

 
25

 
(8
)
 
3

 
—

 
(5
)
Balance at June 30, 2015
911,724

 
(3,299
)
 
$
20,182

 
$
609

 
$
355

 
$
21,146

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
892,733

 
(5,647
)
 
$
19,008

 
$
756

 
$
—

 
$
19,764

Net income after dividends on preferred and preference stock
—

 
—

 
962

 
—

 
—

 
962

Other comprehensive income (loss)
—

 
—

 
4

 
—

 
—

 
4

Treasury stock re-issued
—

 
4,739

 
216

 
—

 
—

 
216

Stock issued
3,898

 
—

 
161

 
—

 
—

 
161

Stock repurchased, at cost
—

 
—

 
(5
)
 
—

 
—

 
(5
)
Cash dividends on common stock
—

 
—

 
(920
)
 
—

 
—

 
(920
)
Other
—

 
(27
)
 
—

 
—

 
—

 
—

Balance at June 30, 2014
896,631

 
(935
)
 
$
19,426

 
$
756

 
$
—

 
$
20,182

(*) Primarily related to Southern Power Company.
Stock Repurchased
On March 2, 2015, Southern Company announced a program to repurchase up to 20 million shares of Southern Company common stock to offset all or a portion of the incremental shares issued under its employee and director equity compensation plans, including through stock option exercises, until December 31, 2017. Under this program, approximately 2.6 million shares have been repurchased through June 30, 2015 at a total cost of approximately $115 million . Pursuant to board approval, Southern Company may repurchase shares through open market

174

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

purchases or privately negotiated transactions, including accelerated or other share repurchase programs, in accordance with applicable securities laws.
(E)
FINANCING
Bank Credit Arrangements
Bank credit arrangements provide liquidity support to the registrants' commercial paper borrowings and the traditional operating companies' variable rate pollution control revenue bonds. The amount of variable rate pollution control revenue bonds outstanding requiring liquidity support as of June 30, 2015 was approximately $1.9 billion (comprised of approximately $810 million at Alabama Power, $970 million at Georgia Power, $69 million at Gulf Power, and $40 million at Mississippi Power). In addition, at June 30, 2015 , the traditional operating companies had approximately $368 million (comprised of approximately $200 million at Alabama Power, $122 million at Georgia Power, and $46 million at Gulf Power) of fixed rate pollution control revenue bonds outstanding that were required to be reoffered within the next 12 months. See Note 6 to the financial statements of each registrant under "Bank Credit Arrangements" in Item 8 of the Form 10-K for additional information. See "Financing Activities" herein for additional information.
The following table outlines the committed credit arrangements by company as of June 30, 2015 :
 
 
Expires
 
 
 
Executable Term
Loans
 
Due Within One
Year
Company
 
2015

 
2016

 
2017
 
2018
 
Total
 
Unused
 
One
Year
 
Two
Years
 
Term
Out
 
No Term
Out
 
 
(in millions)
 
(in millions)
 
(in millions)
 
(in millions)
Southern Company
 
$
—

 
$
—

 
$
—

 
$
1,000

 
$
1,000

 
$
1,000

 
$
—

 
$
—

 
$
—

 
$
—

Alabama Power
 
154

 
124

 
—

 
1,030

 
1,308

 
1,307

 
58

 
—

 
58

 
170

Georgia Power
 
—

 
150

 
—

 
1,600

 
1,750

 
1,737

 
—

 
—

 
—

 
150

Gulf Power
 
20

 
225

 
30

 
—

 
275

 
275

 
50

 
—

 
50

 
195

Mississippi Power
 
40

 
255

 
—

 
—

 
295

 
265

 
30

 
40

 
70

 
225

Southern Power
 
—

 
—

 
—

 
500

 
500

 
466

 
—

 
—

 
—

 
—

Other
 
25

 
45

 
—

 
—

 
70

 
70

 
20

 
—

 
20

 
50

Total
 
$
239

 
$
799

 
$
30

 
$
4,130

 
$
5,198

 
$
5,120

 
$
158

 
$
40

 
$
198

 
$
790

Subject to applicable market conditions, Southern Company and its subsidiaries expect to renew or replace their bank credit arrangements as needed, prior to expiration. In connection therewith, Southern Company and its subsidiaries may extend the maturity dates and/or increase or decrease the lending commitments thereunder.

175

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

Financing Activities
The following table outlines the long-term debt financing activities for Southern Company and its subsidiaries for the first six months of 2015 :
Company (a)
Senior Note Issuances
 
Senior
Note Redemptions
 
Revenue
Bond
Issuances and
Reofferings
of Purchased
Bonds (b)
 
Revenue
Bond
Maturities and
Repurchases
 
Other
Long-Term
Debt
Issuances
 
Other
Long-Term
Debt Redemptions
and
Maturities (c)
 
(in millions)
Southern Company
$
600

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Alabama Power
975

 
250

 
80

 
134

 
—

 
—

Georgia Power
—

 
125

 
170

 
65

 
600

 
5

Mississippi Power
—

 
—

 
—

 
—

 
—

 
351

Southern Power
650

 
—

 
—

 
—

 
—

 
—

Other
—

 
—

 
—

 
—

 
—

 
9

Total
$
2,225

 
$
375

 
$
250

 
$
199

 
$
600

 
$
365

(a)
Gulf Power did not issue or redeem any long-term debt during the first six months of 2015 .
(b)
Includes reoffering by Alabama Power of $80 million aggregate principal amount of revenue bonds previously purchased and held by Alabama Power since April 2015 and reofferings by Georgia Power of $104.6 million and $65 million aggregate principal amount of revenue bonds previously purchased and held by Georgia Power since 2013 and April 2015, respectively.
(c)
Includes reductions in capital lease obligations resulting from cash payments under capital leases.
Southern Company
In June 2015, Southern Company issued $600 million aggregate principal amount of Series 2015A 2.750% Senior Notes due June 15, 2020. The proceeds were used to pay a portion of Southern Company's outstanding short-term indebtedness and for other general corporate purposes.
Alabama Power
In March 2015, Alabama Power issued $550 million aggregate principal amount of Series 2015A 3.750% Senior Notes due March 1, 2045. The proceeds were used to redeem $250 million aggregate principal amount of Series DD 5.65% Senior Notes due March 15, 2035 and for general corporate purposes, including Alabama Power's continuous construction program .
In April 2015, Alabama Power purchased and held $80 million aggregate principal amount of Industrial Development Board of the City of Mobile, Alabama Pollution Control Revenue Bonds (Alabama Power Company Barry Plant Project), Series 2007-B. Alabama Power reoffered these bonds to the public in May 2015.
Also in April 2015, Alabama Power issued $175 million additional aggregate principal amount of its Series 2015A 3.750% Senior Notes due March 1, 2045 (Additional Series 2015A Senior Notes) and $250 million aggregate principal amount of its Series 2015B 2.800% Senior Notes due April 1, 2025 (Series 2015B Senior Notes). A portion of the proceeds of the Additional Series 2015A Senior Notes and the Series 2015B Senior Notes were used to redeem in May 2015 6.48 million shares ( $162 million aggregate stated capital) of Alabama Power's 5.20% Class A Preferred Stock at a redemption price of $25 per share plus accrued and unpaid dividends to the redemption date, 4.0 million shares ( $100 million aggregate stated capital) of Alabama Power's 5.30% Class A Preferred Stock at a redemption price of $25 per share plus accrued and unpaid dividends to the redemption date, and 6.0 million shares ( $150 million aggregate stated capital) of Alabama Power's 5.625% Series Preference Stock at a redemption price of $25 per share plus accrued and unpaid dividends to the redemption date, and the remaining net proceeds were used for general corporate purposes, including Alabama Power's continuous construction program.

176

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

Georgia Power
In April 2015, Georgia Power purchased and held $65 million aggregate principal amount of Development Authority of Burke County (Georgia) Pollution Control Revenue Bonds (Georgia Power Company Plant Vogtle Project), Second Series 2008. Georgia Power reoffered these bonds to the public in May 2015.
In May 2015, Georgia Power reoffered to the public $104.6 million aggregate principal amount of Development Authority of Burke County (Georgia) Pollution Control Revenue Bonds (Georgia Power Company Plant Vogtle Project), First Series 2013, which had been previously purchased and held by Georgia Power since 2013.
In June 2015, Georgia Power made additional borrowings under the FFB Credit Facility in an aggregate principal amount of $600 million . The interest rate applicable to the $600 million principal amount is 3.283% for an interest period that extends to the final maturity date of February 20, 2044. The proceeds were used to reimburse Georgia Power for Eligible Project Costs relating to the construction of Plant Vogtle Units 3 and 4. Georgia Power settled $350 million of interest rate swaps related to this borrowing for approximately $6 million , which will be amortized to interest expense over 10 years .
Mississippi Power
In April 2015, Mississippi Power entered into two floating rate bank loans with a maturity date of April 1, 2016, in an aggregate principal amount of $475 million , bearing interest based on one-month LIBOR . The proceeds of these loans were used for the repayment of term loans in an aggregate principal amount of $275 million , working capital, and other general corporate purposes, including Mississippi Power's ongoing construction program. Mississippi Power also amended three outstanding floating rate bank loans for an aggregate principal amount of $425 million which, among other things, extended the maturity dates from various dates in 2015 to April 1, 2016.
In June 2015, Mississippi Power issued an 18 -month floating rate promissory note to Southern Company bearing interest based on one-month LIBOR . This note was for an aggregate principal amount of approximately $301 million , the amount paid by Southern Company to SMEPA pursuant to Southern Company's guarantee of the return of SMEPA's deposit in connection with the termination of the APA. See Note (B) under "Integrated Coal Gasification Combined Cycle – Termination of Proposed Sale of Undivided Interest to SMEPA" herein for additional information.
Southern Power
In May 2015, Southern Power Company issued $350 million aggregate principal amount of Series 2015A 1.500% Senior Notes due June 1, 2018 and $300 million aggregate principal amount of Series 2015B 2.375% Senior Notes due June 1, 2020. The proceeds were used to repay a portion of its outstanding short-term indebtedness, for other general corporate purposes, including Southern Power's growth strategy and continuous construction program, and for a portion of the subsequent repayment at maturity of $525 million aggregate principal amount of Southern Power Company's 4.875% Senior Notes on July 15, 2015.
(F)
RETIREMENT BENEFITS
Southern Company has a defined benefit, trusteed, pension plan covering substantially all employees. The qualified pension plan is funded in accordance with requirements of the Employee Retirement Income Security Act of 1974, as amended. No mandatory contributions to the qualified pension plan are anticipated for the year ending December 31, 2015. Southern Company also provides certain defined benefit pension plans for a selected group of management and highly compensated employees. Benefits under these non-qualified pension plans are funded on a cash basis. In addition, Southern Company provides certain medical care and life insurance benefits for retired employees through other postretirement benefit plans. The traditional operating companies fund related other postretirement trusts to the extent required by their respective regulatory commissions.
See Note 2 to the financial statements of Southern Company, Alabama Power, Georgia Power, Gulf Power, and Mississippi Power in Item 8 of the Form 10-K for additional information.

177

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

Components of the net periodic benefit costs for the three and six months ended June 30, 2015 and 2014 were as follows:
Pension Plans
 
Southern
Company
 
Alabama
Power
 
Georgia
Power
 
Gulf
Power
 
Mississippi
Power
 
 
(in millions)
Three Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
64

 
$
15

 
$
18

 
$
3

 
$
3

Interest cost
 
111

 
27

 
39

 
5

 
6

Expected return on plan assets
 
(181
)
 
(44
)
 
(63
)
 
(8
)
 
(9
)
Amortization:
 
 
 
 
 
 
 
 
 
 
Prior service costs
 
7

 
1

 
2

 
—

 
1

Net (gain)/loss
 
54

 
13

 
19

 
2

 
2

Net cost
 
$
55

 
$
12

 
$
15

 
$
2

 
$
3

Six Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
128

 
$
30

 
$
36

 
$
6

 
$
6

Interest cost
 
222

 
53

 
77

 
10

 
11

Expected return on plan assets
 
(362
)
 
(89
)
 
(126
)
 
(16
)
 
(17
)
Amortization:
 
 
 
 
 
 
 
 
 
 
Prior service costs
 
13

 
3

 
5

 
—

 
1

Net (gain)/loss
 
108

 
27

 
38

 
5

 
5

Net cost
 
$
109

 
$
24

 
$
30

 
$
5

 
$
6

Three Months Ended June 30, 2014
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
54

 
$
12

 
$
15

 
$
1

 
$
2

Interest cost
 
108

 
26

 
38

 
5

 
5

Expected return on plan assets
 
(162
)
 
(42
)
 
(56
)
 
(7
)
 
(7
)
Amortization:
 
 
 
 
 
 
 
 
 
 
Prior service costs
 
7

 
2

 
2

 
1

 
1

Net (gain)/loss
 
27

 
8

 
10

 
1

 
1

Net cost
 
$
34

 
$
6

 
$
9

 
$
1

 
$
2

Six Months Ended June 30, 2014
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
107

 
$
24

 
$
31

 
$
4

 
$
5

Interest cost
 
217

 
52

 
76

 
10

 
10

Expected return on plan assets
 
(323
)
 
(84
)
 
(113
)
 
(14
)
 
(14
)
Amortization:
 
 
 
 
 
 
 
 
 
 
Prior service costs
 
13

 
3

 
5

 
1

 
1

Net (gain)/loss
 
55

 
16

 
20

 
2

 
2

Net cost
 
$
69

 
$
11

 
$
19

 
$
3

 
$
4


178

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

Postretirement Benefits
 
Southern
Company
 
Alabama
Power
 
Georgia
Power
 
Gulf
Power
 
Mississippi
Power
 
 
(in millions)
Three Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
5

 
$
2

 
$
1

 
$
—

 
$
1

Interest cost
 
20

 
5

 
9

 
1

 
1

Expected return on plan assets
 
(14
)
 
(7
)
 
(6
)
 
(1
)
 
(1
)
Amortization:
 
 
 
 
 
 
 
 
 
 
Prior service costs
 
1

 
—

 
—

 
—

 
—

Net (gain)/loss
 
4

 
1

 
3

 
—

 
—

Net cost
 
$
16

 
$
1

 
$
7

 
$
—

 
$
1

Six Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
11

 
$
3

 
$
3

 
$
—

 
$
1

Interest cost
 
39

 
10

 
17

 
2

 
2

Expected return on plan assets
 
(29
)
 
(13
)
 
(12
)
 
(1
)
 
(1
)
Amortization:
 
 
 
 
 
 
 
 
 
 
Prior service costs
 
2

 
1

 
—

 
—

 
—

Net (gain)/loss
 
9

 
1

 
6

 
—

 
—

Net cost
 
$
32

 
$
2

 
$
14

 
$
1

 
$
2

Three Months Ended June 30, 2014
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
6

 
$
2

 
$
1

 
$
1

 
$
1

Interest cost
 
20

 
5

 
9

 
1

 
1

Expected return on plan assets
 
(15
)
 
(7
)
 
(7
)
 
(1
)
 
(1
)
Amortization:
 
 
 
 
 
 
 
 
 
 
Prior service costs
 
1

 
1

 
—

 
—

 
—

Net (gain)/loss
 
—

 
—

 
1

 
—

 
—

Net cost
 
$
12

 
$
1

 
$
4

 
$
1

 
$
1

Six Months Ended June 30, 2014
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
11

 
$
3

 
$
3

 
$
1

 
$
1

Interest cost
 
40

 
10

 
17

 
2

 
2

Expected return on plan assets
 
(30
)
 
(13
)
 
(13
)
 
(1
)
 
(1
)
Amortization:
 
 
 
 
 
 
 
 
 
 
Prior service costs
 
2

 
2

 
—

 
—

 
—

Net (gain)/loss
 
1

 
—

 
1

 
—

 
—

Net cost
 
$
24

 
$
2

 
$
8

 
$
2

 
$
2


179

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

(G)
INCOME TAXES
Current and Deferred Income Taxes
State of Georgia Tax Benefits
During the second quarter 2015, an agreement was reached with the Georgia Department of Revenue that will allow Southern Company to utilize a net operating loss carryforward over a four-year period beginning in 2017. Consequently, Southern Company reversed the related valuation allowance and recognized approximately $24 million in net tax benefits as of June 30, 2015. See Note 5 to the financial statements of Southern Company under "Current and Deferred Income Taxes" in Item 8 of the Form 10-K for additional information.
Southern Power ITC Carryforwards
Southern Power had federal ITC carryforwards which are expected to result in $428 million of federal income tax benefits as of June 30, 2015, compared to $305 million as of December 31, 2014. The carryforwards as of June 30, 2015 expire between 2031 and 2035 and are expected to be utilized by the end of 2016.
Effective Tax Rate
See Note 5 to the financial statements of each registrant in Item 8 of the Form 10-K for additional tax information.
Mississippi Power
Mississippi Power's effective tax rate was 19.0% for the six months ended June 30, 2015 compared to (51.1)% for the corresponding period in 2014 . The increase was primarily due to higher net income, partially offset by a decrease in non-taxable AFUDC equity related to the construction of the Kemper IGCC.
Southern Power
Southern Power's effective tax rate was 13.7% for the six months ended June 30, 2015 compared to 0.3% for the corresponding period in 2014 . The increase was primarily due to beneficial changes that impacted 2014 state income taxes, which were partially offset by increased federal income tax benefits related to ITCs in the current year.
Unrecognized Tax Benefits
See Note 5 to the financial statements of Southern Company under "Unrecognized Tax Benefits" in Item 8 of the Form 10-K for additional information.
Changes during 2015 for unrecognized tax benefits were as follows:
 
Mississippi Power
 
Southern Power
 
Southern Company
 
(in millions)
Unrecognized tax benefits as of December 31, 2014
$
165

 
$
5

 
$
170

Tax positions from current periods
—

 
2

 
2

Tax positions from prior periods
230

 
—

 
231

Reductions due to settlements
(5
)
 
—

 
(5
)
Balance as of June 30, 2015
$
390

 
$
7

 
$
398

The tax positions from prior periods relate primarily to 2008 through 2013 amended federal income tax returns that were filed to include deductions for Kemper IGCC-related R&E expenditures. See "Section 174 Research and Experimental Deduction" herein for additional information.

180

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

The impact on the effective tax rate, if recognized, was as follows:
 
As of June 30, 2015
 
As of December 31, 2014
 
Mississippi Power
 
Southern Power
 
Southern Company
 
Southern Company
 
(in millions)
Tax positions impacting the effective tax rate
$
—

 
$
7

 
$
8

 
$
10

Tax positions not impacting the effective tax rate
390

 
—

 
390

 
160

Balance of unrecognized tax benefits
$
390

 
$
7

 
$
398

 
$
170

The tax positions impacting the effective tax rate primarily relate to federal income tax benefits related to ITCs. The tax positions not impacting the effective tax rate relate to deductions for Kemper IGCC-related R&E expenditures. See "Section 174 Research and Experimental Deduction" herein for additional information. These amounts are presented on a gross basis without considering the related federal or state income tax impact.
Section 174 Research and Experimental Deduction
Southern Company reduced tax payments for 2014, and included in its 2013 consolidated federal income tax return deductions for R&E expenditures related to the Kemper IGCC. In May 2015, Southern Company amended its 2008 through 2013 federal income tax returns to include deductions for Kemper IGCC-related R&E expenditures.
The Kemper IGCC is based on first-of-a-kind technology, and Mississippi Power and Southern Company believe that a significant portion of the plant costs qualify as deductible R&E expenditures under Internal Revenue Code Section 174. The IRS is currently reviewing the underlying support for the deduction, but has not completed its audit of these expenditures. Due to the uncertainty related to this tax position, Mississippi Power and Southern Company had related unrecognized tax benefits associated with these R&E deductions of approximately $390 million and associated interest of $5 million as of June 30, 2015 .
The ultimate outcome of this matter cannot be determined at this time.
(H)
DERIVATIVES
Southern Company, the traditional operating companies, and Southern Power are exposed to market risks, primarily commodity price risk and interest rate risk. To manage the volatility attributable to these exposures, each company nets its exposures, where possible, to take advantage of natural offsets and enters into various derivative transactions for the remaining exposures pursuant to each company's policies in areas such as counterparty exposure and risk management practices. Each company's policy is that derivatives are to be used primarily for hedging purposes and mandates strict adherence to all applicable risk management policies. Derivative positions are monitored using techniques including, but not limited to, market valuation, value at risk, stress testing, and sensitivity analysis. Derivative instruments are recognized at fair value in the balance sheets as either assets or liabilities and are presented on a gross basis. See Note (C) herein for additional information. In the statements of cash flows, the cash impacts of settled energy-related and interest rate derivatives are recorded as operating activities.
Energy-Related Derivatives
The traditional operating companies and Southern Power enter into energy-related derivatives to hedge exposures to electricity, gas, and other fuel price changes. However, due to cost-based rate regulations and other various cost recovery mechanisms, the traditional operating companies have limited exposure to market volatility in commodity fuel prices and prices of electricity. Each of the traditional operating companies manages fuel-hedging programs, implemented per the guidelines of their respective state PSCs, through the use of financial derivative contracts, which is expected to continue to mitigate price volatility. The traditional operating companies (with respect to wholesale generating capacity) and Southern Power have limited exposure to market volatility in commodity fuel

181

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

prices and prices of electricity because their long-term sales contracts shift substantially all fuel cost responsibility to the purchaser. However, the traditional operating companies and Southern Power may be exposed to market volatility in energy-related commodity prices to the extent any uncontracted wholesale generating capacity is used to sell electricity.
To mitigate residual risks relative to movements in electricity prices, the traditional operating companies and Southern Power may enter into physical fixed-price contracts for the purchase and sale of electricity through the wholesale electricity market. To mitigate residual risks relative to movements in gas prices, the traditional operating companies and Southern Power may enter into fixed-price contracts for natural gas purchases; however, a significant portion of contracts are priced at market.
Energy-related derivative contracts are accounted for under one of three methods:
•
Regulatory Hedges — Energy-related derivative contracts which are designated as regulatory hedges relate primarily to the traditional operating companies' fuel-hedging programs, where gains and losses are initially recorded as regulatory liabilities and assets, respectively, and then are included in fuel expense as the underlying fuel is used in operations and ultimately recovered through the respective fuel cost recovery clauses.
•
Cash Flow Hedges — Gains and losses on energy-related derivatives designated as cash flow hedges which are mainly used to hedge anticipated purchases and sales and are initially deferred in OCI before being recognized in the statements of income in the same period as the hedged transactions are reflected in earnings.
•
Not Designated — Gains and losses on energy-related derivative contracts that are not designated or fail to qualify as hedges are recognized in the statements of income as incurred.
Some energy-related derivative contracts require physical delivery as opposed to financial settlement, and this type of derivative is both common and prevalent within the electric industry. When an energy-related derivative contract is settled physically, any cumulative unrealized gain or loss is reversed and the contract price is recognized in the respective line item representing the actual price of the underlying goods being delivered.
At June 30, 2015 , the net volume of energy-related derivative contracts for natural gas positions for the Southern Company system, together with the longest hedge date over which the respective entity is hedging its exposure to the variability in future cash flows for forecasted transactions and the longest non-hedge date for derivatives not designated as hedges, were as follows:
 
 
Net
Purchased
mmBtu
 
Longest
Hedge
Date
 
Longest
Non-Hedge
Date
 
 
(in millions)
 
 
 
 
Southern Company
 
220
 
2020
 
2017
Alabama Power
 
49
 
2018
 
—
Georgia Power
 
47
 
2017
 
—
Gulf Power
 
80
 
2020
 
—
Mississippi Power
 
43
 
2018
 
—
Southern Power
 
1
 
2015
 
2017
In addition to the volumes discussed in the above table, the traditional operating companies and Southern Power enter into physical natural gas supply contracts that provide the option to sell back excess gas due to operational constraints. The maximum expected volume of natural gas subject to such a feature is 5 million mmBtu for Southern Company, 1 million mmBtu for Alabama Power, 3 million mmBtu for Georgia Power, and 1 million mmBtu for Southern Power.
For cash flow hedges, the amounts expected to be reclassified from accumulated OCI to earnings for the next 12-month period ending June 30, 2016 are immaterial for all registrants.

182

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

Interest Rate Derivatives
Southern Company and certain subsidiaries may also enter into interest rate derivatives to hedge exposure to changes in interest rates. The derivatives employed as hedging instruments are structured to minimize ineffectiveness. Derivatives related to existing variable rate securities or forecasted transactions are accounted for as cash flow hedges where the effective portion of the derivatives' fair value gains or losses is recorded in OCI and is reclassified into earnings at the same time the hedged transactions affect earnings, with any ineffectiveness recorded directly to earnings. Derivatives related to existing fixed rate securities are accounted for as fair value hedges, where the derivatives' fair value gains or losses and hedged items' fair value gains or losses are both recorded directly to earnings, providing an offset, with any difference representing ineffectiveness.
At June 30, 2015 , the following interest rate derivatives were outstanding:
 
 
Notional
Amount
 
Interest
Rate
Received
 
Weighted
Average
Interest
Rate Paid
 
Hedge
Maturity
Date
 
Fair Value
Gain (Loss) at June 30,
2015
 
 
(in millions)
 
 
 
 
 
 
 
(in millions)
Cash Flow Hedges of Forecasted Debt
 
 
 
 
 
 
 
 
Alabama Power
 
$
200

 
3-month
LIBOR 
 
2.93%
 
October 2025
 
$
(7
)
Georgia Power
 
350

 
3-month
LIBOR 
 
2.57%
 
November 2025
 
(1
)
Cash Flow Hedges of Existing Debt
 
 
 
 
 
 
 
 
Georgia Power
 
250

 
3-month
LIBOR + 0.32%
 
0.75%
 
March 2016
 
—

Georgia Power
 
200

 
3-month
LIBOR + 0.40%
 
1.01%
 
August 2016
 
—

Fair Value Hedges on Existing Debt
 
 
 
 
 
 
 
 
Southern Company
 
250

 
1.30%
 
3-month
LIBOR + 0.17%
 
August 2017
 
2

Southern Company
 
300

 
2.75%
 
3-month
LIBOR + 0.92%
 
June 2020
 
1

Georgia Power
 
250

 
5.40%
 
3-month
LIBOR + 4.02%
 
June 2018
 
1

Georgia Power
 
200

 
4.25%
 
3-month
LIBOR + 2.46%
 
December 2019
 
1

Total
 
$
2,000

 
 
 
 
 
 
 
$
(3
)
The estimated pre-tax gains (losses) that will be reclassified from accumulated OCI to interest expense for the next 12-month period ending June 30, 2016 are immaterial for all registrants. Southern Company and certain subsidiaries have deferred gains and losses that are expected to be amortized into earnings through 2037.

183

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

Derivative Financial Statement Presentation and Amounts
At June 30, 2015 , the fair value of energy-related derivatives and interest rate derivatives was reflected in the balance sheets as follows:
Asset Derivatives at June 30, 2015
 
 
Fair Value
Derivative Category and Balance Sheet Location
 
Southern
Company
 
Alabama
Power
 
Georgia
Power
 
Gulf
Power
 
Mississippi
Power
 
Southern
Power
 
 
(in millions)
Derivatives designated as hedging instruments for regulatory purposes
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Other current assets
 
$
5

 
$
2

 
$
3

 
$
—

 
$
—

 
N/A

Derivatives designated as hedging instruments in cash flow and fair value hedges
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Other current assets
 
$
11

 
$
—

 
$
5

 
$
—

 
$
—

 
$
—

Total asset derivatives
 
$
16

 
$
2

 
$
8

 
$
—

 
$
—

 
$
—

Liability Derivatives at June 30, 2015
 
 
Fair Value
Derivative Category and
Balance Sheet Location
 
Southern
Company
 
Alabama
Power
 
Georgia
Power
 
Gulf
Power
 
Mississippi
Power
 
Southern
Power
 
 
(in millions)
Derivatives designated as hedging instruments for regulatory purposes
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Other current liabilities (*)
 
$
99

 
$
31

 
$
15

 
$
32

 
$
21

 
 
Other deferred credits and liabilities
 
81

 
17

 
2

 
42

 
20

 
 
Total derivatives designated as hedging instruments for regulatory purposes
 
$
180

 
$
48

 
$
17

 
$
74

 
$
41

 
N/A

Derivatives designated as hedging instruments in cash flow and fair value hedges
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Other current liabilities (*)
 
$
8

 
$
7

 
$
1

 
$
—

 
$
—

 
$
—

Other deferred credits and liabilities
 
6

 
—

 
3

 
—

 
—

 
—

Total derivatives designed as hedging instruments in cash flow and fair value hedges
 
$
14

 
$
7

 
$
4

 
$
—

 
$
—

 
$
—

Total liability derivatives
 
$
194

 
$
55

 
$
21

 
$
74

 
$
41

 
$
—

(*) Gulf Power includes current liabilities related to derivatives designated as hedging instruments in "Liabilities from risk management activities."

184

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

At December 31, 2014 , the fair value of energy-related derivatives and interest rate derivatives was reflected in the balance sheets as follows:
Asset Derivatives at December 31, 2014
 
 
Fair Value
Derivative Category and Balance Sheet Location
 
Southern
Company
 
Alabama
Power
 
Georgia
Power
 
Gulf
Power
 
Mississippi
Power
 
Southern
Power
 
 
(in millions)
Derivatives designated as hedging instruments for regulatory purposes
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Other current assets
 
$
7

 
$
1

 
$
6

 
$
—

 
$
—

 
 
Other deferred charges and assets
 
—

 
—

 
1

 
—

 
—

 
 
Total derivatives designated as hedging instruments for regulatory purposes
 
$
7

 
$
1

 
$
7

 
$
—

 
$
—

 
N/A

Derivatives designated as hedging instruments in cash flow and fair value hedges
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Other current assets
 
$
7

 
$
—

 
$
5

 
$
—

 
$
—

 
$
—

Other deferred charges and assets
 
1

 
—

 
1

 
—

 
—

 
—

Total derivatives designated as hedging instruments in cash flow and fair value hedges
 
$
8

 
$
—

 
$
6

 
$
—

 
$
—

 
$
—

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Other current assets
 
$
6

 
$
—

 
$
—

 
$
—

 
$
—

 
$
5

Total asset derivatives
 
$
21

 
$
1

 
$
13

 
$
—

 
$
—

 
$
5


185

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

Liability Derivatives at December 31, 2014
 
 
Fair Value
Derivative Category and
Balance Sheet Location
 
Southern
Company
 
Alabama
Power
 
Georgia
Power
 
Gulf
Power
 
Mississippi
Power
 
Southern Power 
 
 
(in millions)
Derivatives designated as hedging instruments for regulatory purposes
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Other current liabilities (*)
 
$
118

 
$
32

 
$
23

 
$
37

 
$
26

 


Other deferred credits and liabilities
 
79

 
21

 
4

 
35

 
19

 


Total derivatives designated as hedging instruments for regulatory purposes
 
$
197

 
$
53

 
$
27

 
$
72

 
$
45

 
N/A

Derivatives designated as hedging instruments in cash flow and fair value hedges
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Other current liabilities (*)
 
$
17

 
$
8

 
$
9

 
$
—

 
$
—

 
$
—

Other deferred credits and liabilities
 
7

 
—

 
5

 
—

 
—

 
—

Total derivatives designated as hedging instruments in cash flow and fair value hedges
 
$
24

 
$
8

 
$
14

 
$
—

 
$
—

 
$
—

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Other current liabilities
 
$
4

 
$
—

 
$
—

 
$
—

 
$
—

 
$
4

Total liability derivatives
 
$
225

 
$
61

 
$
41

 
$
72

 
$
45

 
$
4

(*) Gulf Power includes current liabilities related to derivatives designated as hedging instruments in "Liabilities from risk management activities."
The derivative contracts of Southern Company, the traditional operating companies, and Southern Power are not subject to master netting arrangements or similar agreements and are reported gross on each registrant's financial statements. Some of these energy-related and interest rate derivative contracts may contain certain provisions that permit intra-contract netting of derivative receivables and payables for routine billing and offsets related to events of default and settlements. Amounts related to energy-related derivative contracts and interest rate derivative contracts at June 30, 2015 and December 31, 2014 are presented in the following tables.

186

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

Derivative Contracts at June 30, 2015
 
 
Fair Value
 
 
Southern
Company
 
Alabama
Power
 
Georgia
Power
 
Gulf
Power
 
Mississippi
Power
 
Southern
Power
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives presented in the Balance Sheet (a)
 
$
5

 
$
2

 
$
3

 
$
—

 
$
—

 
$
—

Gross amounts not offset in the Balance Sheet (b)
 
(5
)
 
(2
)
 
(3
)
 
—

 
—

 
—

Net energy-related derivative assets
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Interest rate derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives presented in the Balance Sheet (a)
 
$
11

 
$
—

 
$
5

 
$
—

 
$
—

 
$
—

Gross amounts not offset in the Balance Sheet (b)
 
(8
)
 
—

 
(3
)
 
—

 
—

 
—

Net interest rate derivative assets
 
$
3

 
$
—

 
$
2

 
$
—

 
$
—

 
$
—

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives presented in the Balance Sheet (a)
 
$
180

 
$
48

 
$
17

 
$
74

 
$
41

 
$
—

Gross amounts not offset in the Balance Sheet (b)
 
(5
)
 
(2
)
 
(3
)
 
—

 
—

 
—

Net energy-related derivative liabilities
 
$
175

 
$
46

 
$
14

 
$
74

 
$
41

 
$
—

Interest rate derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives presented in the Balance Sheet (a)
 
$
14

 
$
7

 
$
4

 
$
—

 
$
—

 
$
—

Gross amounts not offset in the Balance Sheet (b)
 
(8
)
 
—

 
(3
)
 
—

 
—

 
—

Net interest rate derivative liabilities
 
$
6

 
$
7

 
$
1

 
$
—

 
$
—

 
$
—

(a) None of the registrants offsets fair value amounts for multiple derivative instruments executed with the same counterparty on the balance sheets; therefore, gross and net amounts of derivative assets and liabilities presented on the balance sheets are the same.
(b) Includes gross amounts subject to netting terms that are not offset on the balance sheets and any cash/financial collateral pledged or received.

187

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

Derivative Contracts at December 31, 2014
 
 
Fair Value
 
 
Southern
Company
 
Alabama
Power
 
Georgia
Power
 
Gulf
Power
 
Mississippi
Power
 
Southern
Power
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives presented in the Balance Sheet (a)
 
$
13

 
$
1

 
$
7

 
$
—

 
$
—

 
$
5

Gross amounts not offset in the Balance Sheet (b)
 
(9
)
 
—

 
(7
)
 
—

 
—

 
—

Net energy-related derivative assets
 
$
4

 
$
1

 
$
—

 
$
—

 
$
—

 
$
5

Interest rate derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives presented in the Balance Sheet (a)
 
$
8

 
$
—

 
$
6

 
$
—

 
$
—

 
$
—

Gross amounts not offset in the Balance Sheet (b)
 
(8
)
 
—

 
(6
)
 
—

 
—

 
—

Net interest rate derivative assets
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives presented in the Balance Sheet (a)
 
$
201

 
$
53

 
$
27

 
$
72

 
$
45

 
$
4

Gross amounts not offset in the Balance Sheet (b)
 
(9
)
 
—

 
(7
)
 
—

 
—

 
—

Net energy-related derivative liabilities
 
$
192

 
$
53

 
$
20

 
$
72

 
$
45

 
$
4

Interest rate derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives presented in the Balance Sheet (a)
 
$
24

 
$
8

 
$
14

 
$
—

 
$
—

 
$
—

Gross amounts not offset in the Balance Sheet (b)
 
(8
)
 
—

 
(6
)
 
—

 
—

 
—

Net interest rate derivative liabilities
 
$
16

 
$
8

 
$
8

 
$
—

 
$
—

 
$
—

(a) None of the registrants offsets fair value amounts for multiple derivative instruments executed with the same counterparty on the balance sheets; therefore, gross and net amounts of derivative assets and liabilities presented on the balance sheets are the same.
(b) Includes gross amounts subject to netting terms that are not offset on the balance sheets and any cash/financial collateral pledged or received.

188

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

At June 30, 2015 and December 31, 2014 , the pre-tax effects of unrealized derivative gains (losses) arising from energy-related derivative instruments designated as regulatory hedging instruments and deferred were as follows:
Regulatory Hedge Unrealized Gain (Loss) Recognized on the Balance Sheet at June 30, 2015
Derivative Category and Balance Sheet
Location
 
Southern
Company
 
Alabama
Power
 
Georgia
Power
 
Gulf
Power
 
Mississippi
Power
 
 
(in millions)
Energy-related derivatives:
 
 
 
 
 
 
 
 
 
 
Other regulatory assets, current
 
$
(99
)
 
$
(31
)
 
$
(15
)
 
$
(32
)
 
$
(21
)
Other regulatory assets, deferred
 
(81
)
 
(17
)
 
(2
)
 
(42
)
 
(20
)
Other regulatory liabilities, current (a)
 
5

 
2

 
3

 
—

 
—

Other regulatory liabilities, deferred (b)
 
—

 
—

 
—

 
—

 
—

Total energy-related derivative gains (losses)
 
$
(175
)
 
$
(46
)
 
$
(14
)
 
$
(74
)
 
$
(41
)
(a) Southern Company, Alabama Power, and Georgia Power include other regulatory liabilities, current in other current liabilities.
(b) Georgia Power includes other regulatory liabilities, deferred in other deferred credits and liabilities.
Regulatory Hedge Unrealized Gain (Loss) Recognized on the Balance Sheet at December 31, 2014
Derivative Category and Balance Sheet
Location
 
Southern
Company
 
Alabama
Power
 
Georgia
Power
 
Gulf
Power
 
Mississippi
Power
 
 
(in millions)
Energy-related derivatives:
 
 
 
 
 
 
 
 
 
 
Other regulatory assets, current
 
$
(118
)
 
$
(32
)
 
$
(23
)
 
$
(37
)
 
$
(26
)
Other regulatory assets, deferred
 
(79
)
 
(21
)
 
(4
)
 
(35
)
 
(19
)
Other regulatory liabilities, current (a)
 
7

 
1

 
6

 
—

 
—

Other regulatory liabilities, deferred (b)
 
—

 
—

 
1

 
—

 
—

Total energy-related derivative gains (losses)
 
$
(190
)
 
$
(52
)
 
$
(20
)
 
$
(72
)
 
$
(45
)
(a) Southern Company, Alabama Power, and Georgia Power include other regulatory liabilities, current in other current liabilities.
(b) Georgia Power includes other regulatory liabilities, deferred in other deferred credits and liabilities.
For the three months ended June 30, 2015 and 2014 , the pre-tax effects of interest rate derivatives designated as cash flow hedging instruments on the statements of income were as follows:
Derivatives in Cash Flow
Hedging Relationships
 
Gain (Loss)
Recognized in OCI
on Derivative
(Effective Portion)
 
Gain (Loss) Reclassified from Accumulated OCI into
Income (Effective Portion)
 
 
Statements of Income Location
 
Amount
 
 
2015
 
2014
 
 
 
2015
 
2014
 
 
(in millions)
 
 
 
(in millions)
Southern Company
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
 
$
31

 
$
—

 
Interest expense, net of amounts capitalized
 
$
(2
)
 
$
(2
)
Alabama Power
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
 
$
7

 
$
—

 
Interest expense, net of amounts capitalized
 
$
(1
)
 
$
—

Georgia Power
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
 
$
24

 
$
—

 
Interest expense, net of amounts capitalized
 
$
(1
)
 
$
—

Mississippi Power
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
 
$
—

 
$
—

 
Interest expense, net of amounts capitalized
 
$
—

 
$
(1
)
Southern Power
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
 
$
—

 
$
—

 
Interest expense, net of amounts capitalized
 
$
—

 
$
(1
)

189

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

For the six months ended June 30, 2015 and 2014 , the pre-tax effects of interest rate derivatives designated as cash flow hedging instruments recognized in OCI and those reclassified from accumulated OCI into earnings were immaterial for all registrants.
For the three and six months ended June 30, 2015 and 2014 , the pre-tax effects of energy-related derivatives designated as cash flow hedging instruments recognized in OCI and those reclassified from accumulated OCI into earnings were immaterial for all registrants.
For the three and six months ended June 30, 2015 and 2014 , the pre-tax effects of interest rate derivatives designated as fair value hedging instruments were immaterial on a gross basis for all registrants. Furthermore, the pre-tax effects of interest rate derivatives designated as fair value hedging instruments were offset by changes to the carrying value of long-term debt.
There was no material ineffectiveness recorded in earnings for any registrant for any period presented.
For the three and six months ended June 30, 2015 and 2014 , the pre-tax effects of energy-related derivatives not designated as hedging instruments were immaterial for all registrants.
Contingent Features
The registrants do not have any credit arrangements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. There are certain derivatives that could require collateral, but not accelerated payment, in the event of various credit rating changes of certain Southern Company subsidiaries. At June 30, 2015 , the registrants' collateral posted with their derivative counterparties was immaterial.
At June 30, 2015 , the fair value of derivative liabilities with contingent features was $49 million for all registrants. The maximum potential collateral requirements arising from the credit-risk-related contingent features, at a rating below BBB- and/or Baa3, were $49 million and include certain agreements that could require collateral in the event that one or more Southern Company power pool participants has a credit rating change to below investment grade.
Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. If collateral is required, fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral are not offset against fair value amounts recognized for derivatives executed with the same counterparty.
Southern Company, the traditional operating companies, and Southern Power are exposed to losses related to financial instruments in the event of counterparties' nonperformance. Southern Company, the traditional operating companies, and Southern Power only enter into agreements and material transactions with counterparties that have investment grade credit ratings by Moody's and S&P or with counterparties who have posted collateral to cover potential credit exposure. Southern Company, the traditional operating companies, and Southern Power have also established risk management policies and controls to determine and monitor the creditworthiness of counterparties in order to mitigate Southern Company's, the traditional operating companies', and Southern Power's exposure to counterparty credit risk. Therefore, Southern Company, the traditional operating companies, and Southern Power do not anticipate a material adverse effect on the financial statements as a result of counterparty nonperformance.
(I)
ACQUISITIONS
See Note 2 to the financial statements of Southern Power under "2014 – SG2 Imperial Valley, LLC" in Item 8 of the Form 10-K for additional information. During the second quarter 2015, the fair values of the assets acquired of SG2 Imperial Valley, LLC were finalized and recorded as follows: $707 million as property, plant, and equipment and $20 million as prepayments related to transmission services.
During 2015, Southern Power Company acquired or contracted to acquire the following projects in accordance with its overall growth strategy. Acquisition-related costs were expensed as incurred and were not material.
Kay County Wind Facility
On February 24, 2015, Southern Power Company, through its wholly-owned subsidiary Southern Renewable Energy, Inc., entered into a purchase agreement with Kay Wind Holdings, LLC, a wholly-owned subsidiary of Apex

190

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

Clean Energy Holdings, LLC, the developer of the project, to acquire all of the outstanding membership interests of Kay Wind, LLC (Kay Wind) for approximately $492 million , with potential purchase price adjustments based on performance testing. Kay Wind is constructing and owns an approximately 299 -MW wind facility in Kay County, Oklahoma. The wind facility is expected to begin commercial operation in late 2015 , and the entire output of the facility is contracted under separate 20 -year PPAs with Westar Energy, Inc. and Grand River Dam Authority. The completion of the acquisition is subject to Kay Wind achieving certain construction and project milestones, as well as various other customary conditions to closing, and is expected to close in the fourth quarter 2015. The ultimate outcome of this matter cannot be determined at this time.
Lost Hills-Blackwell Solar Facilities
On April 15, 2015, Southern Power Company, through its subsidiary Southern Renewable Partnerships, LLC (SRP), acquired 100% of the class A membership interests of Lost Hills Blackwell Holdings, LLC (Lost Hills Blackwell) from a wholly-owned subsidiary of First Solar, Inc. (First Solar), the developer of the project, for approximately $74 million . Concurrently, a wholly-owned subsidiary of First Solar acquired 100% of the class B membership interests of Lost Hills Blackwell for approximately $33 million . SRP and the class B member are entitled to 51% and 49% , respectively, of all cash distributions from Lost Hills Blackwell. In addition, Southern Power Company is entitled to substantially all of the federal tax benefits with respect to the transaction. Lost Hills Blackwell constructed and owns the approximately 22 -MW Lost Hills and the approximately 13 -MW Blackwell solar facilities in Kern County, California. These solar facilities began commercial operation on April 17, 2015 , and their entire output is contracted under PPAs, initially to the City of Roseville, California and then to Pacific Gas and Electric Company, that together extend approximately 29 years. As of June 30, 2015, the fair values of the assets acquired were recorded as follows: $98 million as property, plant, and equipment and $9 million as a receivable related to transmission interconnection costs; however, the allocation of the purchase price to individual assets has not been finalized. The acquisition did not include any contingent consideration.
North Star Solar Facility
On April 30, 2015, Southern Power Company, through its subsidiary SRP, acquired 100% of the class A membership interests of NS Solar Holdings, LLC (North Star) from a wholly-owned subsidiary of First Solar, the developer of the project, for approximately $211 million . Concurrently, a wholly-owned subsidiary of First Solar acquired 100% of the class B membership interests of North Star for approximately $100 million . SRP and the class B member are entitled to 51% and 49% , respectively, of all cash distributions from North Star. In addition, Southern Power Company is entitled to substantially all of the federal tax benefits with respect to the transaction. North Star constructed and owns the approximately 61 -MW North Star solar facility in Fresno County, California. The solar facility began commercial operation on June 20, 2015, and the entire output of the project is contracted under a 20 -year PPA with Pacific Gas and Electric Company. As of June 30, 2015, the fair values of the assets acquired were recorded as follows: $266 million as property, plant, and equipment, $24 million as an intangible asset, and $21 million as a receivable related to transmission interconnection costs; however, the allocation of the purchase price to individual assets has not been finalized. The acquisition did not include any contingent consideration.
Construction Projects
In December 2014, Southern Power Company announced plans to build a solar photovoltaic facility, and during 2015, Southern Power Company acquired all the outstanding membership interests of five separate solar project development entities. The construction projects are in accordance with Southern Power's overall growth strategy and included in its capital program estimates for 2015. The total cost of construction incurred for these projects through June 30, 2015 was $188 million . The ultimate outcome of these matters cannot be determined at this time.

191

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

Southern Power Company's construction projects are detailed in the table below:
Solar Project
Seller
Nameplate Capacity
County Location in Georgia
Expected Commercial Operation Date
PPA Counterparty for Entire Plant Output
PPA Contract Period
Estimated Construction Cost
 
 
 
(MW)
 
 
 
 
(in millions)
 
Taylor County
N/A
146
Taylor
Fourth quarter 2016
Cobb, Flint, and Sawnee Electric Membership Corporations
25 years
$
260

-
$280
 
Decatur Parkway
TradeWind Energy, Inc.
84
Decatur
December 2015
Georgia Power (a)
25 years
$
170

-
$173
(b)
Decatur County
TradeWind Energy, Inc.
20
Decatur
December 2015
Georgia Power (a)
20 years
$
45

-
$47
(b)
Butler
CERSM, LLC and Community Energy, Inc.
103
Taylor
December 2016
Georgia Power (a)
30 years
$
220

-
$230
(b)
Pawpaw
Longview Solar, LLC
30
Taylor
December 2015
Georgia Power (a)
30 years
$
70

-
$80
(b)
Butler Solar Farm
Strata Solar Development, LLC
20
Taylor
December 2015
Georgia Power (a)
20 years
$
42

-
$48
(b)
(a) Subject to FERC approval.
(b) Includes the acquisition price of all outstanding membership interests.

192

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

(J) SEGMENT AND RELATED INFORMATION
The primary business of the Southern Company system is electricity sales by the traditional operating companies and Southern Power. The four traditional operating companies – Alabama Power, Georgia Power, Gulf Power, and Mississippi Power – are vertically integrated utilities providing electric service in four Southeastern states. 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 Company's reportable business segments are the sale of electricity by the four traditional operating companies and Southern Power. Revenues from sales by Southern Power to the traditional operating companies were $85 million and $199 million for the three and six months ended June 30, 2015 , respectively, and $68 million and $140 million for the three and six months ended June 30, 2014 , respectively. The "All Other" column includes parent Southern Company, which does not allocate operating expenses to business segments. Also, this category includes segments below the quantitative threshold for separate disclosure. These segments include investments in telecommunications and leveraged lease projects. All other inter-segment revenues are not material. Financial data for business segments and products and services for the three and six months ended June 30, 2015 and 2014 was as follows:
 
Electric Utilities
 
 
 
 
 
 
 
Traditional
Operating
Companies
 
Southern
Power
 
Eliminations
 
Total
 
All
Other
 
Eliminations
 
Consolidated
 
(in millions)
Three Months Ended June 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenues
$
4,077

 
$
337

 
$
(90
)
 
$
4,324

 
$
43

 
$
(30
)
 
$
4,337

Segment net income (loss) (a)(b)
561

 
46

 
—

 
607

 
18

 
4

 
629

Six Months Ended June 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenues
$
8,025

 
$
684

 
$
(213
)
 
$
8,496

 
$
83

 
$
(59
)
 
$
8,520

Segment net income (loss) (a)(c)
1,038

 
79

 
—

 
1,117

 
21

 
—

 
1,138

Total assets at June 30, 2015
$
67,362

 
$
6,226

 
$
(277
)
 
$
73,311

 
$
1,360

 
$
(490
)
 
$
74,181

Three Months Ended June 30, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenues
$
4,209

 
$
329

 
$
(84
)
 
$
4,454

 
$
39

 
$
(26
)
 
$
4,467

Segment net income (loss) (a)
580

 
31

 
—

 
611

 
2

 
(2
)
 
611

Six Months Ended June 30, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenues
$
8,587

 
$
680

 
$
(186
)
 
$
9,081

 
$
80

 
$
(50
)
 
$
9,111

Segment net income (loss) (a)(c)
899

 
64

 
—

 
963

 
2

 
(3
)
 
962

Total assets at December 31, 2014
$
64,644

 
$
5,550

 
$
(131
)
 
$
70,063

 
$
1,156

 
$
(296
)
 
$
70,923

(a) After dividends on preferred and preference stock of subsidiaries.
(b) Segment net income (loss) for the traditional operating companies for the three months ended June 30, 2015 includes a $23 million pre-tax charge ( $14 million after tax) for estimated probable losses on the Kemper IGCC. See Note (B) under "Integrated Coal Gasification Combined Cycle – Kemper IGCC Schedule and Cost Estimate" herein for additional information.
(c) Segment net income (loss) for the traditional operating companies for the six months ended June 30, 2015 and June 30, 2014 includes a $32 million pre-tax charge ( $20 million after tax) and a $380 million pre-tax charge ( $235 million after tax), respectively, for estimated probable losses on the Kemper IGCC. See Note (B) under "Integrated Coal Gasification Combined Cycle – Kemper IGCC Schedule and Cost Estimate" herein for additional information.

193

NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)

Products and Services
 
 
Electric Utilities' Revenues
Period
 
Retail
 
Wholesale
 
Other
 
Total
 
 
(in millions)
Three Months Ended June 30, 2015
 
$
3,714

 
$
448

 
$
162

 
$
4,324

Three Months Ended June 30, 2014
 
3,770

 
515

 
169

 
4,454

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2015
 
$
7,256

 
$
915

 
$
325

 
$
8,496

Six Months Ended June 30, 2014
 
7,628

 
1,119

 
334

 
9,081


194


PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
See the Notes to the Condensed Financial Statements herein for information regarding certain legal and administrative proceedings in which the registrants are involved.
I tem 1A. Risk Factors.
See RISK FACTORS in Item 1A of the Form 10-K for a discussion of the risk factors of the registrants. There have been no material changes to these risk factors from those previously disclosed in the Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Issuer Purchases of Equity Securities
2015
 
Total Number of
Shares
Purchased  (*)
 
Average Price
Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or
Programs (*)
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (*)
April 1 – April 30
 
—

 
N/A
 
N/A
 
N/A
May 1 – May 31
 
—

 
N/A
 
N/A
 
N/A
June 1 – June 30
 
—

 
N/A
 
N/A
 
N/A
Total
 
—

 
N/A
 
N/A
 
17,400,634
(*)
On March 2, 2015, Southern Company announced a program to repurchase up to 20 million shares of Southern Company common stock to offset all or a portion of the incremental shares issued under its employee and director equity compensation plans, including through stock option exercises, until December 31, 2017. There were no repurchases under this program in the second quarter 2015. As of June 30, 2015, Southern Company had repurchased a total of 2,599,366 shares under this program.

195
Table of Contents


Item 6.    Exhibits.
The exhibits below with an asterisk (*) preceding the exhibit number are filed herewith. The remaining exhibits have previously been filed with the SEC and are incorporated herein by reference. The exhibits marked with a pound sign (#) are management contracts or compensatory plans or arrangements.
 
 
(3) Articles of Incorporation and By-Laws
 
 
 
 
 
 
 
(a)1
-
By-laws of Southern Company as amended effective May 27, 2015, and as presently in effect. (Designated in Form 8-K dated May 27, 2015, File No. 1-3526, as Exhibit 3.1.)
 
 
 
 
 
 
 
(4) Instruments Describing Rights of Security Holders, Including Indentures
 
 
 
 
 
 
 
Southern Company
 
 
 
 
 
 
 
(a)1
-
Eleventh Supplemental Indenture to Senior Note Indenture dated as of June 12, 2015, providing for the issuance of the Series 2015A 2.750% Senior Notes due June 15, 2020. (Designated in Form 8-K dated June 9, 2015, File No. 1-3526, as Exhibit 4.2.)
 
 
 
 
 
 
 
Southern Power
 
 
 
 
 
 
 
(f)1
-
Sixth Supplemental Indenture to Senior Note Indenture dated as of May 20, 2015, providing for the issuance of the Series 2015A 1.500% Senior Notes due June 1, 2018. (Designated in Form 8-K dated May 14, 2015, File No. 333-98553, as Exhibit 4.4(a).)
 
 
 
 
 
 
 
(f)2
-
Seventh Supplemental Indenture to Senior Note Indenture dated as of May 20, 2015, providing for the issuance of the Series 2015B 2.375% Senior Notes due June 1, 2020. (Designated in Form 8-K dated May 14, 2015, File No. 333-98553, as Exhibit 4.4(b).)
 
 
 
 
 
 
 
(10) Material Contracts
 
 
 
 
 
Southern Company
 
 
 
 
 
#
 
(a)1
-
Outside Directors Stock Plan for The Southern Company and its Subsidiaries. (Designated in Definitive Proxy Statement filed April 10, 2015, File No. 1-3526, as Appendix A.)
 
 
 
 
 
#
*
(a)2
-
First Amendment to the Deferred Compensation Plan for Outside Directors of The Southern Company, effective April 1, 2015.
 
 
 
 
 
Alabama Power
 
 
 
 
 
#
*
(b)1
-
First Amendment to the Deferred Compensation Plan for Outside Directors of Alabama Power Company, effective June 1, 2015.
#
 
(b)2
-
Outside Directors Stock Plan for The Southern Company and its Subsidiaries. (Designated in Southern Company's Definitive Proxy Statement filed April 10, 2015, File No. 1-3526, as Appendix A.)
 
 
 
 
 
 
 
Georgia Power
 
 
 
 
*
(c)1
-
Amendment No. 1 to Loan Guarantee Agreement between Georgia Power and the DOE, dated as of June 4, 2015.
#
 
(c)2
-
Outside Directors Stock Plan for The Southern Company and its Subsidiaries. (Designated in Southern Company's Definitive Proxy Statement filed April 10, 2015, File No. 1-3526, as Appendix A.)
 
 
 
 
 
 
 
Gulf Power
 
 
 
 
 

196
Table of Contents


#
*
(d)1
-
First Amendment to the Deferred Compensation Plan for Outside Directors of Gulf Power Company, effective April 1, 2015.
#
 
(d)2
-
Outside Directors Stock Plan for The Southern Company and its Subsidiaries. (Designated in Southern Company's Definitive Proxy Statement filed April 10, 2015, File No. 1-3526, as Appendix A.)
 
 
 
 
 
 
 
Mississippi Power
 
 
 
 
 
#
*
(e)1
-
First Amendment to the Deferred Compensation Plan for Outside Directors of Mississippi Power Company, effective April 1, 2015.
#
 
(e)2
-
Outside Directors Stock Plan for The Southern Company and its Subsidiaries. (Designated in Southern Company's Definitive Proxy Statement filed April 10, 2015, File No. 1-3526, as Appendix A.)
 
 
 
 
 
 
 
(24) Power of Attorney and Resolutions
 
 
 
 
 
 
 
Southern Company
 
 
 
 
 
 
 
(a)1
-
Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2014, File No. 1-3526 as Exhibit 24(a).)
 
 
 
 
 
 
 
Alabama Power
 
 
 
 
 
 
 
(b)1
-
Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2014, File No. 1-3164 as Exhibit 24(b).)
 
 
 
 
 
 
 
Georgia Power
 
 
 
 
 
 
 
(c)1
-
Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2014, File No. 1-6468 as Exhibit 24(c).)
 
 
 
 
 
 
 
Gulf Power
 
 
 
 
 
 
 
(d)1
-
Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2014, File No. 001-31737 as Exhibit 24(d).)
 
 
 
 
 
 
*
(d)2
-
Power of Attorney for Xia Liu.
 
 
 
 
 
 
 
Mississippi Power
 
 
 
 
 
 
 
(e)1
-
Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2014, File No. 001-11229 as Exhibit 24(e).)
 
 
 
 
 
 
 
Southern Power
 
 
 
 
 
 
 
(f)1
-
Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2014, File No. 333-98553 as Exhibit 24(f).)
 
 
 
 
 
 
 
(31) Section 302 Certifications
 
 
 
 
 
 
 
Southern Company
 
 
 
 
 
 
*
(a)1
-
Certificate of Southern Company's Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
*
(a)2
-
Certificate of Southern Company's Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
Alabama Power
 
 
 
 
 
 
*
(b)1
-
Certificate of Alabama Power's Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.

197
Table of Contents


 
 
 
 
 
 
*
(b)2
-
Certificate of Alabama Power's Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
Georgia Power
 
 
 
 
 
 
*
(c)1
-
Certificate of Georgia Power's Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
*
(c)2
-
Certificate of Georgia Power's Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
Gulf Power
 
 
 
 
 
 
*
(d)1
-
Certificate of Gulf Power's Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
*
(d)2
-
Certificate of Gulf Power's Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
Mississippi Power
 
 
 
 
 
 
*
(e)1
-
Certificate of Mississippi Power's Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
*
(e)2
-
Certificate of Mississippi Power's Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
Southern Power
 
 
 
 
 
 
*
(f)1
-
Certificate of Southern Power Company's Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
*
(f)2
-
Certificate of Southern Power Company's Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
(32) Section 906 Certifications
 
 
 
 
 
 
 
Southern Company
 
 
 
 
 
 
*
(a)
-
Certificate of Southern Company's Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
Alabama Power
 
 
 
 
 
 
*
(b)
-
Certificate of Alabama Power's Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
Georgia Power
 
 
 
 
 
 
*
(c)
-
Certificate of Georgia Power's Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
Gulf Power
 
 
 
 
 
 
*
(d)
-
Certificate of Gulf Power's Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
Mississippi Power
 
 
 
 
 
 
*
(e)
-
Certificate of Mississippi Power's Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 

198
Table of Contents


 
 
Southern Power
 
 
 
 
 
 
*
(f)
-
Certificate of Southern Power Company's Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
(101) XBRL – Related Documents
 
 
 
 
 
 
*
INS
-
XBRL Instance Document
 
*
SCH
-
XBRL Taxonomy Extension Schema Document
 
*
CAL
-
XBRL Taxonomy Calculation Linkbase Document
 
*
DEF
-
XBRL Definition Linkbase Document
 
*
LAB
-
XBRL Taxonomy Label Linkbase Document
 
*
PRE
-
XBRL Taxonomy Presentation Linkbase Document

199
Table of Contents


THE SOUTHERN COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof included in such company's report.
 
 
 
THE SOUTHERN COMPANY
 
 
 
 
By
 
Thomas A. Fanning
 
 
Chairman, President, and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 
By
 
Art P. Beattie
 
 
Executive Vice President and Chief Financial Officer
 
 
(Principal Financial Officer)
 
 
 
 
By
 
/s/ Melissa K. Caen
 
 
 
(Melissa K. Caen, Attorney-in-fact)
 
Date: August 5, 2015

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Table of Contents


ALABAMA POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof included in such company's report.
 
 
 
ALABAMA POWER COMPANY
 
 
 
 
By
 
Mark A. Crosswhite
 
 
 
Chairman, President, and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 
By
 
Philip C. Raymond
 
 
Executive Vice President, Chief Financial Officer, and Treasurer
 
 
(Principal Financial Officer)
 
 
 
 
By
 
/s/ Melissa K. Caen
 
 
 
(Melissa K. Caen, Attorney-in-fact)
 
Date: August 5, 2015

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Table of Contents


GEORGIA POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof included in such company's report.
 
 
 
GEORGIA POWER COMPANY
 
 
 
 
By
 
W. Paul Bowers
 
 
Chairman, President, and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 
By
 
W. Ron Hinson
 
 
Executive Vice President, Chief Financial Officer, and Treasurer
 
 
(Principal Financial Officer)
 
 
 
 
By
 
/s/ Melissa K. Caen
 
 
 
(Melissa K. Caen, Attorney-in-fact)
 
Date: August 5, 2015

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Table of Contents


GULF POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof included in such company's report.
 
 
 
GULF POWER COMPANY
 
 
 
 
By
 
S. W. Connally, Jr.
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 
By
 
Xia Liu
 
 
Vice President and Chief Financial Officer
 
 
(Principal Financial Officer)
 
 
 
 
By
 
/s/ Melissa K. Caen
 
 
 
(Melissa K. Caen, Attorney-in-fact)
 
Date: August 5, 2015

203
Table of Contents


MISSISSIPPI POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof included in such company's report.
 
 
 
MISSISSIPPI POWER COMPANY
 
 
 
 
By
 
G. Edison Holland, Jr.
 
 
Chairman, President, and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 
By
 
Moses H. Feagin
 
 
Vice President, Treasurer, and Chief Financial Officer
 
 
(Principal Financial Officer)
 
 
 
 
By
 
/s/ Melissa K. Caen
 
 
 
(Melissa K. Caen, Attorney-in-fact)
 
Date: August 5, 2015

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Table of Contents


SOUTHERN POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof included in such company's report.
 
 
 
SOUTHERN POWER COMPANY
 
 
 
 
By
 
Oscar C. Harper IV
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 
By
 
William C. Grantham
 
 
Vice President, Chief Financial Officer, and Treasurer
 
 
(Principal Financial Officer)
 
 
 
 
By
 
/s/ Melissa K. Caen
 
 
 
(Melissa K. Caen, Attorney-in-fact)
 
Date: August 5, 2015

205


Exhibit 10(a)2
FIRST AMENDMENT TO THE DEFERRED COMPENSATION PLAN
FOR OUTSIDE DIRECTORS OF THE SOUTHERN COMPANY

WHEREAS , the Board of Directors of The Southern Company (the “Board”) previously adopted the Deferred Compensation Plan for Outside Directors of The Southern Company, as amended and restated effective January 1, 2008 (the “Plan”);
WHEREAS , the Board has authorized an amendment to the Plan to change the date the market value is determined under the Plan; and
WHEREAS , Section 12.1 of the Plan provides in relevant part that the Plan may be amended or modified by the Board for the desired purpose.
NOW, THEREFORE, effective April 1, 2015, the Board hereby amends the Plan as follows:
1.
Section 2.25, “Market Value,” is hereby amended by deleting such Section in its entirety and replacing it with the following.
2.25 “Market Value” means the closing price at which a share of the Common Stock shall have been traded on the date such Market Value is to be determined, as specified herein (or on the next preceding trading day if such date was not a trading date, as reported by the principal securities exchange on which the Common Stock is traded or, if there is no such sale on the relevant date, then on the last previous day on which a sale was reported. If the Common Stock is not listed for trading on a national securities exchange, the fair market value of the shares shall be determined by the Committee in good faith and in accordance with a reasonable valuation method as determined under Code Section 409A and the rules and regulations promulgated thereunder).
2.
Section 8.2, “Timing of Distributions,” is hereby amended by deleting the fourth and fifth paragraphs of that Section in their entirety and replacing them with the following:
The Market Value of any shares of Common Stock credited to a Director’s Phantom Stock Investment Account shall be determined as of the date of any lump sum or installment distribution as determined by the Committee.
Upon the death of a Director, or a former Director prior to the payment of all amounts credited to the Director’s Deferred Compensation Accounts, the unpaid balance shall be paid in a lump sum to the designated beneficiary of such Director or former Director within sixty (60) days of the date of death as permitted by Code Section 409A. In the event a beneficiary designation has not been made, or the designated beneficiary is deceased or cannot be located, payment shall be made to the estate of the Director or former Director. The Market Value of any




shares of Common Stock credited to a Director’s Phantom Stock Investment Account shall be determined as of the date of any lump sum or installment distribution as determined by the Committee.
3.
Section 6.2 of the “Schedule of Provisions for Pre-2005 Deferrals” is hereby amended by deleting the third and fourth paragraphs of that Section in their entirety and replacing them with the following:
The Market Value of any shares of Common Stock credited to a Director’s Phantom Stock Investment Account shall be determined as of the date of any lump sum or installment distribution as determined by the Committee.
Upon the death of a Director, or a former Director prior to the payment of all amounts credited to the Director’s Deferred Compensation Accounts, the unpaid balance shall be paid in the sole discretion of the Committee (i) in a lump sum to the designated beneficiary of such Director or former Director within thirty (30) days of the date of death (or as soon as reasonably possible thereafter) or (ii) in accordance with the Distribution Election made by such Director or former Director. In the event a beneficiary designation has not been made, or the designated beneficiary is deceased or cannot be located, payment shall be made to the estate of the Director or former Director. The Market Value of any shares of Common Stock credited to a Director’s Phantom Stock Investment Account shall be determined as of the date of any lump sum or installment distribution as determined by the Committee.
4.
Except as amended herein by this First Amendment, the Plan shall remain in full force and effect.
IN WITNESS WHEREOF , the Board has adopted the First Amendment to the Deferred Compensation Plan for Outside Directors of The Southern Company, as amended and restated as of January 1, 2008, pursuant to resolutions of the Board, this 9th day February, 2015.

 
THE SOUTHERN COMPANY
 
 
 
 
 
 
By:
/s/Melissa K. Caen
 
 
 
Secretary
 
 
 
 
 
Attest:
 
 
 
 
 
 
 
/s/Patricia L. Roberts
 
 
 
Assistant Secretary
 
 
 
 
 
 
 




2





Exhibit 10(b)1
FIRST AMENDMENT TO THE DEFERRED COMPENSATION PLAN
FOR OUTSIDE DIRECTORS OF ALABAMA POWER COMPANY

WHEREAS , the Board of Directors of Alabama Power Company (the “Board”) previously adopted the Deferred Compensation Plan for Outside Directors of Alabama Power Company, as amended and restated effective January 1, 2008 (the “Plan”);
WHEREAS , the Board has authorized an amendment to the Plan to change the date the market value is determined under the Plan; and
WHEREAS , Section 12.1 of the Plan provides in relevant part that the Plan may be amended or modified by the Board for the desired purpose.
NOW, THEREFORE, effective June 1, 2015, the Board hereby amends the Plan as follows:
1.
Section 2.27, “ Market Value ,” is hereby amended by deleting such Section in its entirety and replacing it with the following.
2.27 “Market Value” means the closing price at which a share of the Common Stock shall have been traded on the date such Market Value is to be determined, as specified herein (or on the next preceding trading day if such date was not a trading date, as reported by the principal securities exchange on which the Common Stock is traded or, if there is no such sale on the relevant date, then on the last previous day on which a sale was reported. If the Common Stock is not listed for trading on a national securities exchange, the fair market value of the shares shall be determined by the Committee in good faith and in accordance with a reasonable valuation method as determined under Code Section 409A and the rules and regulations promulgated thereunder).
2.
Section 8.2, “Timing of Distribution(s),” is hereby amended by deleting the fourth through seventh paragraphs of that Section in their entirety and replacing them with the following:
The Market Value of any shares of Common Stock credited to a Director’s Phantom Stock Investment Account shall be determined as of the date of any lump sum or installment distribution as determined by the Committee.
Upon the death of a Director, or a former Director prior to the payment of all amounts credited to the Director’s Deferred Compensation Accounts, the unpaid balance shall be paid in a lump sum to the designated beneficiary of such Director or former Director within sixty (60) days of the date of death as permitted by Code Section 409A. In the event a beneficiary designation has not been made, or




the designated beneficiary is deceased or cannot be located, payment shall be made to the estate of the Director or former Director.
To the maximum extent permitted under Treasury Regulations § 1.409A-3(i)(3), the Committee, in its sole discretion, may determine to pay an amount credited to a Director’s Deferred Compensation Accounts on account of an unforeseeable emergency.
The Market Value of any shares of Common Stock credited to a Director’s Phantom Stock Investment Account shall be determined as of the date of any lump sum or installment distribution as determined by the Committee.
3.
Section 6.2 of the “Schedule of Provisions for Pre-2005 Deferrals” is hereby amended by deleting the fourth and fifth paragraphs of that Section in their entirety and replacing them with the following:
Notwithstanding a Director’s election to receive his Deferred Compensation Account balance in installments, the Committee, upon request of the Director and in its sole discretion, may accelerate the payment of any such installments for cause, such as financial hardship or financial emergency. The Market Value of any shares of Common Stock credited to a Director’s Phantom Stock Investment Account shall be determined as of the date of any lump sum or installment distribution as determined by the Committee.
Upon the death of a Director, or a former Director prior to the payment of all amounts credited to the Director’s Deferred Compensation Accounts, the unpaid balance shall be paid in a lump sum to the designated beneficiary of such Director or former Director within sixty (60) days of the date of death (or as soon as reasonably possible thereafter). In the event a beneficiary designation has not been made, or the designated beneficiary is deceased or cannot be located, payment shall be made to the estate of the Director or former Director. The Market Value of any shares of Common Stock credited to a Director’s Phantom Stock Investment Account shall be determined as of the date of any lump sum distribution.









2





4.
Except as amended herein by this First Amendment, the Plan shall remain in full force and effect.
IN WITNESS WHEREOF , the Board has adopted the First Amendment to the Deferred Compensation Plan for Outside Directors of Alabama Power Company, as amended and restated as of January 1, 2008, pursuant to resolutions of the Board, this 24th day April, 2015.

 
ALABAMA POWER COMPANY
 
 
 
 
 
 
By:
/s/Ceila H. Shorts
 
 
 
Secretary
 
 
 
 
 
Attest:
 
 
 
 
 
 
 
/s/Amy Blankenship
 
 
 
Assistant Secretary
 
 
 
 
 
 
 

























3





Exhibit 10(c)1
Amendment No. 1 to Loan Guarantee Agreement
This Amendment No. 1 to Loan Guarantee Agreement, dated as of June 4, 2015 (this " Agreement "), is between Georgia Power Company, a corporation organized and existing under the laws of the State of Georgia (the " Borrower "), and the U.S. Department of Energy, an agency of the United States of America, acting by and through the Secretary of Energy (or appropriate authorized representative thereof) (" DOE ").
WHEREAS, the Borrower and DOE have entered into that certain Loan Guarantee Agreement, dated as of February 20, 2014 (such agreement, as amended, amended and restated, restated, supplemented or otherwise modified from time to time, the " Loan Guarantee Agreement "); and
WHEREAS, the Borrower and DOE desire to amend the Loan Guarantee Agreement as provided below.
NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

Section 1.
Definitions.
Capitalized terms used and not defined in this Agreement have the meanings provided in the Loan Guarantee Agreement. Unless otherwise indicated, all section references are to the Loan Guarantee Agreement.
Section 2.
Amendments.
The Borrower and DOE by their respective signatures below hereby amend the Loan Guarantee Agreement by deleting Section 4.2.8 ( Title Continuation ) in its entirety and replacing it with the following new Section 4.2.8 ( Title Continuation ):
4.2.8. Title Continuation .
DOE shall have received a construction bringdown endorsement insuring that the Deed to Secure Debt remains a first priority Lien on the Borrower's unencumbered fee title, under the relevant laws of the State of Georgia, to the Borrower's Undivided Interest in and to the Project Site (subject only to Permitted Liens and the December 2013 Mechanic’s Lien Exception) as is necessary for the development of the Project. Such endorsement shall be delivered to DOE on a date (i) not earlier than eight (8) Business Days and not later than six (6) Business Days prior to the relevant Advance Date in the case of an Advance in an amount less than $500,000,000; (ii) not earlier than ten (10) Business Days and not later


1





than eight (8) Business Days prior to the relevant Advance Date in the case of an Advance in an amount equal to or greater than $500,000,000 and less than $2,000,000,000; and (iii) not earlier than fifteen (15) Business Days and not later than thirteen (13) Business Days prior to the relevant Advance Date in the case of an Advance in an amount equal to or greater than $2,000,000,000. Further, such endorsement shall amend the title insurance policy by extending the “Date of Policy” to a date that is not earlier than fifteen (15) Business Days prior to the delivery date to DOE.
Section 3.
Representations and Warranties of Borrower.
Borrower by its signature below hereby represents and warrants, as of the date hereof, that:
a. it is a corporation, duly incorporated, validly existing and in good standing under the laws of the State of Georgia, and has all requisite corporate power and authority to execute, deliver, perform and observe the terms and conditions of this Agreement;
b. this Agreement is a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to Bankruptcy Laws and general principles of equity, regardless of whether enforcement is considered in a proceeding at law or in equity; and
c. the Borrower has duly authorized, executed and delivered this Agreement, and neither its execution and delivery hereof nor its consummation of the transactions contemplated hereby nor its compliance with the terms hereof (i) contravenes its Organizational Documents, (ii) contravenes any Governmental Rules where such contravention would reasonably be expected to have a Material Adverse Effect or a material adverse effect on the ability of the Project to be completed, (iii) contravenes or results in any breach or constitutes any default under any Governmental Judgment, where such contravention, breach or default would reasonably be expected to have a Material Adverse Effect or material adverse effect on the ability of the Project to be completed, (iv) contravenes or results in any breach or constitutes any default under any agreement or instrument to which it is a party or by which it or any of its revenues, properties or assets may be bound, except where such contravention, breach or default would not reasonably be expected to have a Material Adverse Effect or a material adverse effect on the ability of the Project to be completed or, (v) results in or requires the creation of any Lien upon any of its revenues, properties or assets, or (vi) requires the consent or approval of any Person which has not been obtained. .
Section 4.
Miscellaneous
a. This Agreement is a Loan Document. The Loan Guarantee Agreement, as amended by this Agreement, is and shall continue to be in full force and effect and is hereby in all respects ratified.





b. This Agreement and the rights and obligations of the parties hereunder shall be governed by, and construed and interpreted in accordance with, the Federal law of the United States of America. To the extent that Federal law does not specify the appropriate rule of decision for a particular matter at issue, it is the intention and agreement of the parties hereto that the law of the State of New York (without giving effect to its conflict of laws principles (except Section 5-1401 of the New York General Obligations Law)) shall be adopted as the governing Federal rule of decision.
c. This Agreement may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute but one and the same instrument.
d. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or portable document format (" PDF ") shall be effective as delivery of a manually executed counterpart of this Agreement.
[ Remainder of page intentionally blank. Signature pages follow. ]

 





IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed and delivered by their respective duly authorized officers or representatives as of the day and year first above written.

 
U.S. DEPARTMENT OF ENERGY,
 
 
as Guarantor
 
 
 
 
 
 
 
By:
/s/Robert C. Marcum
 
 
 
Name:
Robert C. Marcum
 
 
 
Title:
Acting Director
Portfolio Management Division
6/4/2015
 





























[First Amendment to the Loan Guarantee Agreement- Signature Page]






 
GEORGIA POWER COMPANY,
 
 
as Borrower
 
 
 
 
 
 
 
By:
/s/W. Ron Hinson
 
 
 
Name:
W. Ron Hinson
 
 
 
Title:
Executive Vice President,
Chief Financial Officer and Treasurer

































[Amendment No. 1 to Loan Guarantee Agreement- Signature Page]




Exhibit 10(d)1
FIRST AMENDMENT TO THE DEFERRED COMPENSATION PLAN
FOR OUTSIDE DIRECTORS OF GULF POWER COMPANY

WHEREAS , the Board of Directors of Gulf Power Company (the “Board”) previously adopted the Deferred Compensation Plan for Outside Directors of Gulf Power Company, as amended and restated effective January 1, 2008 (the “Plan”);
WHEREAS , the Board has authorized an amendment to the Plan to change the date the market value is determined under the Plan; and
WHEREAS , Section 12.1 of the Plan provides in relevant part that the Plan may be amended or modified by the Board for the desired purpose.
NOW, THEREFORE, effective April 1, 2015, the Board hereby amends the Plan as follows:
1.
Section 2.27, “Market Value,” is hereby amended by deleting such Section in its entirety and replacing it with the following.
2.27 “ Market Value ” means the closing price at which a share of the Common Stock shall have been traded on the date such Market Value is to be determined, as specified herein (or on the next preceding trading day if such date was not a trading date, as reported by the principal securities exchange on which the Common Stock is traded or, if there is no such sale on the relevant date, then on the last previous day on which a sale was reported. If the Common Stock is not listed for trading on a national securities exchange, the fair market value of the shares shall be determined by the Committee in good faith and in accordance with a reasonable valuation method as determined under Code Section 409A and the rules and regulations promulgated thereunder).
2.
Section 8.2, “Timing of Distributions,” is hereby amended by deleting the fourth and fifth paragraphs of that Section in their entirety and replacing them with the following:
The Market Value of any shares of Common Stock credited to a Director’s Phantom Stock Investment Account shall be determined as of the date of any lump sum or installment distribution as determined by the Committee.
Upon the death of a Director, or a former Director prior to the payment of all amounts credited to the Director’s Deferred Compensation Accounts, the unpaid balance shall be paid in a lump sum to the designated beneficiary of such Director or former Director within sixty (60) days of the date of death as permitted by Code Section 409A. In the event a beneficiary designation has not been made, or




the designated beneficiary is deceased or cannot be located, payment shall be made to the estate of the Director or former Director.
The Market Value of any shares of Common Stock credited to a Director’s Phantom Stock Investment Account shall be determined as of the date of any lump sum or installment distribution as determined by the Committee.
3.
Section 6.2 of the “Schedule of Provisions for Pre-2005 Deferrals” is hereby amended by deleting the second and third paragraphs of that Section in their entirety and replacing them with the following:
In the event a Director elected to receive the balance of his Deferred Compensation Accounts in lump sum, distribution shall be made on the first day of the month selected by the Director on his Distribution Election, or as soon as reasonably possible thereafter. If the Director elected to receive annual installments, the first payment shall be made on the first day of the month selected by a Director, or as soon as reasonably possible thereafter, and shall be equal to the balance of the Director’s Deferred Compensation Accounts on such date divided by the number of annual installment payments. Each subsequent annual payment shall be an amount equal to the balance in the Director’s Deferred Compensation Accounts on the date of payment divided by the number of remaining annual payments and shall be paid on the anniversary of the preceding date of payment. The Market Value of any shares of Common Stock credited to a Director’s Phantom Stock Investment Account shall be determined as of the date of any lump sum or installment distribution as determined by the Committee. Notwithstanding a Director’s election to receive his Deferred Compensation Account balance in installments, the Committee, in its sole discretion upon request of the Director or his legal representative, may accelerate the payment of any such installments for cause.
Upon the death of a Director, or a former Director prior to the payment of all amounts credited to the Director’s Deferred Compensation Accounts, the unpaid balance shall be paid in the sole discretion of the Committee (i) in a lump sum to the designated beneficiary of such Director or former Director within thirty (30) days of the date of death (or as soon as reasonably possible thereafter) or (ii) in accordance with the Distribution Election made by such Director or former Director. In the event a beneficiary designation has not been made, or the designated beneficiary is deceased or cannot be located, payment shall be made to the estate of the Director or former Director. The Market Value of any shares of Common Stock credited to a Director’s Phantom Stock Investment Account shall be determined as of the date of any lump sum or installment distribution as determined by the Committee.




2





4.
Except as amended herein by this First Amendment, the Plan shall remain in full force and effect.
IN WITNESS WHEREOF , the Board has adopted the First Amendment to the Deferred Compensation Plan for Outside Directors of Gulf Power Company, as amended and restated as of January 1, 2008, pursuant to resolutions of the Board, this 21st day July, 2015.


 
GULF POWER COMPANY
 
 
 
 
 
 
By:
/s/Susan D. Ritenour
 
 
 
Secretary
 
 
 
 
 
Attest:
 
 
 
 
 
 
 
/s/Sharon A. Jordan
 
 
 
Assistant Secretary
 
 
 
 
 
 
 
























3





Exhibit 10(e)1
FIRST AMENDMENT TO THE DEFERRED COMPENSATION PLAN
FOR OUTSIDE DIRECTORS OF MISSISSIPPI POWER COMPANY

WHEREAS , the Board of Directors of Mississippi Power Company (the “Board”) previously adopted the Deferred Compensation Plan for Outside Directors of Mississippi Power Company, as amended and restated effective January 1, 2008 (the “Plan”);
WHEREAS , the Board has authorized an amendment to the Plan to change the date the market value is determined under the Plan; and
WHEREAS , Section 12.1 of the Plan provides in relevant part that the Plan may be amended or modified by the Board for the desired purpose.
NOW, THEREFORE, effective April 1, 2015, the Board hereby amends the Plan as follows:
1.
Section 2.27, “Market Value,” is hereby amended by deleting such Section in its entirety and replacing it with the following.
2.27 “ Market Value ” means the closing price at which a share of the Common Stock shall have been traded on the date such Market Value is to be determined, as specified herein (or on the next preceding trading day if such date was not a trading date, as reported by the principal securities exchange on which the Common Stock is traded or, if there is no such sale on the relevant date, then on the last previous day on which a sale was reported. If the Common Stock is not listed for trading on a national securities exchange, the fair market value of the shares shall be determined by the Committee in good faith and in accordance with a reasonable valuation method as determined under Code Section 409A and the rules and regulations promulgated thereunder).
2.
Section 8.2, “Timing of Distribution(s),” is hereby amended by deleting the fourth and fifth paragraphs of that Section in their entirety and replacing them with the following:
The Market Value of any shares of Common Stock credited to a Director’s Phantom Stock Investment Account shall be determined as of the date of any lump sum or installment distribution as determined by the Committee.
Upon the death of a Director, or a former Director prior to the payment of all amounts credited to the Director’s Deferred Compensation Accounts, the unpaid balance shall be paid in a lump sum to the designated beneficiary of such Director or former Director within sixty (60) days of the date of death as permitted by Code Section 409A. In the event a beneficiary designation has not been made, or the designated beneficiary is deceased or cannot be located, payment shall be made to the estate of the Director or former Director. The Market Value of any




shares of Common Stock credited to a Director’s Phantom Stock Investment Account shall be determined as of the date of any lump sum or installment distribution as determined by the Committee.
3.
Section 6.2 of the “Schedule of Provisions for Pre-2005 Deferrals” is hereby amended by deleting the third and fourth paragraphs of that Section in their entirety and replacing them with the following:
The Market Value of any shares of Common Stock credited to a Director’s Phantom Stock Investment Account shall be determined as of the date of any lump sum or installment distribution as determined by the Committee.
Upon the death of a Director, or a former Director prior to the payment of all amounts credited to the Director’s Deferred Compensation Accounts, the unpaid balance shall be paid in the sole discretion of the Committee (i) in a lump sum to the designated beneficiary of such Director or former Director within thirty (30) days of the date of death (or as soon as reasonably possible thereafter) or (ii) in accordance with the Distribution Election made by such Director or former Director. In the event a beneficiary designation has not been made, or the designated beneficiary is deceased or cannot be located, payment shall be made to the estate of the Director or former Director. The Market Value of any shares of Common Stock credited to a Director’s Phantom Stock Investment Account shall be determined as of the date of any lump sum or installment distribution as determined by the Committee.
4.
Except as amended herein by this First Amendment, the Plan shall remain in full force and effect.
IN WITNESS WHEREOF , the Board has adopted the First Amendment to the Deferred Compensation Plan for Outside Directors of Mississippi Power Company, as amended and restated as of January 1, 2008, pursuant to resolutions of the Board, this 24th day February, 2015.


 
MISSISSIPPI POWER COMPANY
 
 
 
 
 
 
By:
/s/Vickie L. Pierce
 
 
 
Secretary
 
 
 
 
 
Attest:
 
 
 
 
 
 
 
/s/Melissa K. Caen
 
 
 
Assistant Secretary
 
 
 
 
 
 
 



2





Exhibit 24(d)2
Xia Liu, CFA
Vice President and CFO
One Energy Place
Pensacola, Florida 32520-0100

Tel 850.444.6111
xliu@southernco.com

June 24, 2015


Mr. Art P. Beattie
The Southern Company
30 Ivan Allen Jr. Blvd., NW
Atlanta, GA 30308
Ms. Melissa K. Caen
Southern Company Services, Inc.
30 Ivan Allen Jr. Blvd., NW
Atlanta, GA 30308


Dear Mr. Beattie and Ms. Caen:

As an officer of Gulf Power Company (the “Company”), I hereby make, constitute, and appoint each of you my true and lawful Attorney in my name, place and stead, to sign and cause to be filed with the Securities and Exchange Commission (1) the Company's Quarterly Reports on Form 10-Q during 2015, and (2) any necessary or appropriate amendment or amendments to any such reports and to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, each such report or amendments to such reports to be accompanied in each case by any necessary or appropriate exhibits or schedules thereto.

Yours very truly,


/s/Xia Liu






Exhibit 31(a)1
THE SOUTHERN COMPANY
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Thomas A. Fanning, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of The Southern Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 5, 2015

 
/s/Thomas A. Fanning
 
 
Thomas A. Fanning
 
 
Chairman, President and
Chief Executive Officer
 





Exhibit 31(a)2
THE SOUTHERN COMPANY

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Art P. Beattie, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of The Southern Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:  August 5, 2015

 
/s/Art P. Beattie
 
 
Art P. Beattie
 
 
Executive Vice President, Chief Financial Officer and Treasurer
 




Exhibit 31(b)1

ALABAMA POWER COMPANY

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Mark A. Crosswhite, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Alabama Power Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 5, 2015

 
/s/Mark A. Crosswhite
 
 
Mark A. Crosswhite
 
 
Chairman, President and Chief Executive Officer
 






Exhibit 31(b)2
ALABAMA POWER COMPANY

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Philip C. Raymond, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Alabama Power Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date:  August 5, 2015

 
/s/Philip C. Raymond
 
 
Philip C. Raymond
 
 
Executive Vice President, Chief Financial Officer
and Treasurer
 






Exhibit 31(c)1
GEORGIA POWER COMPANY

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, W. Paul Bowers, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Georgia Power Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 

Date:   August 5, 2015

 
/s/W. Paul Bowers 
 
 
W. Paul Bowers
 
 
Chairman, President and Chief Executive Officer
 






Exhibit 31(c)2
GEORGIA POWER COMPANY

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, W. Ron Hinson, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Georgia Power Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 5, 2015

 
/s/W. Ron Hinson
 
 
W. Ron Hinson
 
 
Executive Vice President, Chief Financial Officer and Treasurer
 






Exhibit 31(d)1
GULF POWER COMPANY

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, S. W. Connally, Jr., certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Gulf Power Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:  August 5, 2015

 
/s/S. W. Connally, Jr.
 
 
S. W. Connally, Jr.
 
 
President and Chief Executive Officer
 






Exhibit 31(d)2
GULF POWER COMPANY

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Xia Liu, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Gulf Power Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 5, 2015

 
/s/Xia Liu
 
 
Xia Liu
 
 
Vice President and Chief Financial Officer
 






Exhibit 31(e)1

MISSISSIPPI POWER COMPANY

CERTIFICATION OF CHIEF EXECUTIVE OFFICER


I, G. Edison Holland, Jr., certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Mississippi Power Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
Date:  August 5, 2015
 
/s/G. Edison Holland, Jr.
 
 
G. Edison Holland, Jr.
 
 
Chairman, President and Chief Executive Officer
 






Exhibit 31(e)2
MISSISSIPPI POWER COMPANY

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Moses H. Feagin, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Mississippi Power Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:  August 5, 2015

 
/s/Moses H. Feagin
 
 
Moses H. Feagin
 
 
Vice President, Treasurer and
Chief Financial Officer
 





Exhibit 31(f)1
SOUTHERN POWER COMPANY
CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Oscar C. Harper IV, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Southern Power Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   August 5, 2015

 
/s/Oscar C. Harper IV
 
 
Oscar C. Harper IV
 
 
President and Chief Executive Officer
 






Exhibit 31(f)2
SOUTHERN POWER COMPANY

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, William C. Grantham, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Southern Power Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date:  August 5, 2015

 
/s/William C. Grantham
 
 
William C. Grantham
 
 
Vice President, Treasurer and Chief
Financial Officer
 






Exhibit 32(a)









CERTIFICATION
 
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002


In connection with the accompanying Quarterly Report on Form 10-Q of The Southern Company for the quarter ended June 30, 2015, we, the undersigned, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our individual knowledge and belief, that:

(1)
such Quarterly Report on Form 10-Q of The Southern Company for the quarter ended June 30, 2015, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
the information contained in such Quarterly Report on Form 10-Q of The Southern Company for the quarter ended June 30, 2015, fairly presents, in all material respects, the financial condition and results of operations of The Southern Company.


 
/s/Thomas A. Fanning
 
Thomas A. Fanning
 
Chairman, President and
Chief Executive Officer
 
 
 
/s/Art P. Beattie
 
Art P. Beattie
 
Executive Vice President, Chief
Financial Officer and Treasurer


August 5, 2015





Exhibit 32(b)








CERTIFICATION
 
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002


In connection with the accompanying Quarterly Report on Form 10-Q of Alabama Power Company for the quarter ended June 30, 2015, we, the undersigned, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our individual knowledge and belief, that:

(1)
such Quarterly Report on Form 10-Q of Alabama Power Company for the quarter ended June 30, 2015, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
the information contained in such Quarterly Report on Form 10-Q of Alabama Power Company for the quarter ended June 30, 2015, fairly presents, in all material respects, the financial condition and results of operations of Alabama Power Company.


 
/s/Mark A. Crosswhite
 
Mark A. Crosswhite
 
Chairman, President and Chief Executive Officer
 
 
 
/s/Philip C. Raymond
 
Philip C. Raymond
 
Executive Vice President,
Chief Financial Officer and Treasurer


August 5, 2015







Exhibit 32(c)







CERTIFICATION
 
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002


In connection with the accompanying Quarterly Report on Form 10-Q of Georgia Power Company for the quarter ended June 30, 2015, we, the undersigned, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our individual knowledge and belief, that:

(1)
such Quarterly Report on Form 10-Q of Georgia Power Company for the quarter ended June 30, 2015, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
the information contained in such Quarterly Report on Form 10-Q of Georgia Power Company for the quarter ended June 30, 2015, fairly presents, in all material respects, the financial condition and results of operations of Georgia Power Company.


 
/s/W. Paul Bowers
 
W. Paul Bowers
 
Chairman, President and Chief Executive Officer
 
 
 
/s/W. Ron Hinson
 
W. Ron Hinson
 
Executive Vice President, Chief Financial Officer and Treasurer


August 5, 2015






Exhibit 32(d)






CERTIFICATION
 
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002


In connection with the accompanying Quarterly Report on Form 10-Q of Gulf Power Company for the quarter ended June 30, 2015, we, the undersigned, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our individual knowledge and belief, that:

(1)
such Quarterly Report on Form 10-Q of Gulf Power Company for the quarter ended June 30, 2015, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
the information contained in such Quarterly Report on Form 10-Q of Gulf Power Company for the quarter ended June 30, 2015, fairly presents, in all material respects, the financial condition and results of operations of Gulf Power Company.


 
/s/S. W. Connally, Jr.
 
S. W. Connally, Jr.
 
President and Chief Executive Officer
 
 
 
/s/Xia Liu
 
Xia Liu
 
Vice President and Chief Financial Officer


August 5, 2015





Exhibit 32(e)






CERTIFICATION
 
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002


In connection with the accompanying Quarterly Report on Form 10-Q of Mississippi Power Company for the quarter ended June 30, 2015, we, the undersigned, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our individual knowledge and belief, that:

(1)
such Quarterly Report on Form 10-Q of Mississippi Power Company for the quarter ended June 30, 2015, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
the information contained in such Quarterly Report on Form 10-Q of Mississippi Power Company for the quarter ended June 30, 2015, fairly presents, in all material respects, the financial condition and results of operations of Mississippi Power Company.


 
/s/G. Edison Holland, Jr.
 
G. Edison Holland, Jr.
 
Chairman, President and Chief Executive Officer
 
 
 
/s/Moses H. Feagin
 
Moses H. Feagin
 
Vice President, Treasurer and
Chief Financial Officer


August 5, 2015





Exhibit 32(f)





CERTIFICATION
 
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002


In connection with the accompanying Quarterly Report on Form 10-Q of Southern Power Company for the quarter ended June 30, 2015, we, the undersigned, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our individual knowledge and belief, that:

(1)
such Quarterly Report on Form 10-Q of Southern Power Company for the quarter ended June 30, 2015, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
the information contained in such Quarterly Report on Form 10-Q of Southern Power Company for the quarter ended June 30, 2015, fairly presents, in all material respects, the financial condition and results of operations of Southern Power Company.


 
/s/Oscar C. Harper IV
 
Oscar C. Harper IV
 
President and Chief Executive Officer
 
 
 
/s/William C. Grantham
 
William C. Grantham
 
Vice President, Treasurer and
Chief Financial Officer


August 5, 2015