0000092122-18-000012.txt : 20180221 0000092122-18-000012.hdr.sgml : 20180221 20180220212200 ACCESSION NUMBER: 0000092122-18-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 210 CONFORMED PERIOD OF REPORT: 20171231 FILED AS OF DATE: 20180221 DATE AS OF CHANGE: 20180220 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN CO CENTRAL INDEX KEY: 0000092122 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 580690070 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03526 FILM NUMBER: 18626875 BUSINESS ADDRESS: STREET 1: 30 IVAN ALLEN JR. BLVD., N.W. CITY: ATLANTA STATE: GA ZIP: 30308 BUSINESS PHONE: 4045065000 MAIL ADDRESS: STREET 1: 30 IVAN ALLEN JR. BLVD., N.W. CITY: ATLANTA STATE: GA ZIP: 30308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN POWER CO CENTRAL INDEX KEY: 0001160661 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 582598670 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-37803 FILM NUMBER: 18626877 BUSINESS ADDRESS: STREET 1: 30 IVAN ALLEN JR. BLVD CITY: ATLANTA STATE: GA ZIP: 30308 BUSINESS PHONE: 4045065000 MAIL ADDRESS: STREET 1: 30 IVAN ALLEN JR. BLVD CITY: ATLANTA STATE: GA ZIP: 30308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALABAMA POWER CO CENTRAL INDEX KEY: 0000003153 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 630004250 STATE OF INCORPORATION: AL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03164 FILM NUMBER: 18626881 BUSINESS ADDRESS: STREET 1: 600 N 18TH ST STREET 2: P O BOX 2641 CITY: BIRMINGHAM STATE: AL ZIP: 35291 BUSINESS PHONE: 2052571000 MAIL ADDRESS: STREET 1: 600 N 18TH ST CITY: BIRMINGHAM STATE: AL ZIP: 35291 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULF POWER CO CENTRAL INDEX KEY: 0000044545 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 590276810 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-31737 FILM NUMBER: 18626879 BUSINESS ADDRESS: STREET 1: ONE ENERGY PLACE CITY: PENSACOLA STATE: FL ZIP: 32520 BUSINESS PHONE: 8504446111 MAIL ADDRESS: STREET 1: ONE ENERGY PLACE CITY: PENSACOLA STATE: FL ZIP: 32520 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEORGIA POWER CO CENTRAL INDEX KEY: 0000041091 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 580257110 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06468 FILM NUMBER: 18626880 BUSINESS ADDRESS: STREET 1: 241 RALPH MCGILL BOULEVARD CITY: ATLANTA STATE: GA ZIP: 30308 BUSINESS PHONE: 4045066526 MAIL ADDRESS: STREET 1: 241 RALPH MCGILL BOULEVARD CITY: ATLANTA STATE: GA ZIP: 30308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN Co GAS CENTRAL INDEX KEY: 0001004155 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 582210952 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14174 FILM NUMBER: 18626876 BUSINESS ADDRESS: STREET 1: 30 IVAN ALLEN JR. BLVD CITY: ATLANTA STATE: GA ZIP: 30308 BUSINESS PHONE: 4045065000 MAIL ADDRESS: STREET 1: 30 IVAN ALLEN JR. BLVD CITY: ATLANTA STATE: 2Q ZIP: 30308 FORMER COMPANY: FORMER CONFORMED NAME: AGL RESOURCES INC DATE OF NAME CHANGE: 19951129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MISSISSIPPI POWER CO CENTRAL INDEX KEY: 0000066904 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 640205820 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11229 FILM NUMBER: 18626878 BUSINESS ADDRESS: STREET 1: 2992 WEST BEACH CITY: GULFPORT STATE: MS ZIP: 39501 BUSINESS PHONE: 2288641211 MAIL ADDRESS: STREET 1: 2992 WEST BEACH CITY: GULFPORT STATE: MS ZIP: 39501 10-K 1 so_10-kx12312017.htm 10-K Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended December 31, 2017
 
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period from              to             
Commission
File Number
 
Registrant, State of Incorporation,
Address and Telephone Number
 
I.R.S. Employer
Identification No.
1-3526
 
The Southern Company
 
58-0690070
 
 
(A Delaware Corporation)
 
 
 
 
30 Ivan Allen Jr. Boulevard, N.W.
 
 
 
 
Atlanta, Georgia 30308
 
 
 
 
(404) 506-5000
 
 
 
 
 
 
 
1-3164
 
Alabama Power Company
 
63-0004250
 
 
(An Alabama Corporation)
 
 
 
 
600 North 18th Street
 
 
 
 
Birmingham, Alabama 35291
 
 
 
 
(205) 257-1000
 
 
 
 
 
 
 
1-6468
 
Georgia Power Company
 
58-0257110
 
 
(A Georgia Corporation)
 
 
 
 
241 Ralph McGill Boulevard, N.E.
 
 
 
 
Atlanta, Georgia 30308
 
 
 
 
(404) 506-6526
 
 
 
 
 
 
 
001-31737
 
Gulf Power Company
 
59-0276810
 
 
(A Florida Corporation)
 
 
 
 
One Energy Place
 
 
 
 
Pensacola, Florida 32520
 
 
 
 
(850) 444-6111
 
 
 
 
 
 
 
001-11229
 
Mississippi Power Company
 
64-0205820
 
 
(A Mississippi Corporation)
 
 
 
 
2992 West Beach Boulevard
 
 
 
 
Gulfport, Mississippi 39501
 
 
 
 
(228) 864-1211
 
 
 
 
 
 
 
001-37803
 
Southern Power Company
 
58-2598670
 
 
(A Delaware Corporation)
 
 
 
 
30 Ivan Allen Jr. Boulevard, N.W.
 
 
 
 
Atlanta, Georgia 30308
 
 
 
 
(404) 506-5000
 
 
 
 
 
 
 
1-14174
 
Southern Company Gas
 
58-2210952
 
 
(A Georgia Corporation)
 
 
 
 
Ten Peachtree Place, N.E.
 
 
 
 
Atlanta, Georgia 30309
 
 
 
 
(404) 584-4000
 
 
 
 
 
 
 


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Securities registered pursuant to Section 12(b) of the Act:(1) 
Each of the following classes or series of securities registered pursuant to Section 12(b) of the Act is listed on the New York Stock Exchange.
Title of each class
 
 
 
Registrant
Common Stock, $5 par value
 
 
 
The Southern Company
 
 
 
 
 
Junior Subordinated Notes, $25 denominations
 
 
 
 
6.25% Series 2015A due 2075
 
 
 
 
5.25% Series 2016A due 2076
 
 
 
 
5.25% Series 2017B due 2077
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A preferred stock, cumulative, $25 stated capital
 
 
 
Alabama Power Company
5.00% Series
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Junior Subordinated Notes, $25 denominations
 
 
 
Georgia Power Company
5.00% Series 2017A due 2077
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depositary preferred shares, each representing one-fourth of a share of preferred stock, cumulative, $100 par value
 
 
 
Mississippi Power Company
5.25% Series
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Notes
 
 
 
Southern Power Company
1.000% Series 2016A due 2022
 
 
 
 
1.850% Series 2016B due 2026
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities registered pursuant to Section 12(g) of the Act:(1)
 
 
 
 
 
 
 
Title of each class
 
 
 
Registrant
Preferred stock, cumulative, $100 par value
 
 
 
Alabama Power Company
4.20% Series                                      4.60% Series
 
4.72% Series        
 
 
4.52% Series                                      4.64% Series
 
4.92% Series        
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock, cumulative, $100 par value
 
 
 
Mississippi Power Company
4.40% Series                                      4.60% Series
 
 
 
 
4.72% Series
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
As of December 31, 2017.


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

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


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Aggregate market value of The Southern Company's common stock held by non-affiliates of The Southern Company at June 30, 2017: $47.9 billion. All of the common stock of the other registrants is held by The Southern Company. A description of each registrant's common stock follows:

Registrant
 
Description of
Common Stock
 
Shares Outstanding at January 31, 2018
The Southern Company
 
Par Value $5 Per Share
 
1,008,159,482

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
 
7,392,717

Mississippi Power Company
 
Without Par Value
 
1,121,000

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

Southern Company Gas
 
Par Value $0.01 Per Share
 
100

Documents incorporated by reference: specified portions of The Southern Company's Definitive Proxy Statement on Schedule 14A relating to the 2018 Annual Meeting of Stockholders are incorporated by reference into PART III. In addition, specified portions of the Definitive Information Statements on Schedule 14C of Alabama Power Company and Mississippi Power Company relating to each of their respective 2018 Annual Meetings of Shareholders are incorporated by reference into PART III.
Each of Georgia Power Company, Gulf Power Company, Southern Power Company, and Southern Company Gas meets the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format specified in General Instructions I(2)(b), (c), and (d) of Form 10-K.
This combined Form 10-K is separately filed by The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, Southern Power Company, and Southern Company Gas. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other companies.


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Table of Contents

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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DEFINITIONS
When used in Items 1 through 5 and Items 9A through 15, the following terms will have the meanings indicated.
Term
Meaning
Alabama Power
Alabama Power Company
Bcf
Billion cubic feet
CCR
Coal combustion residuals
Clean Air Act
Clean Air Act Amendments of 1990
CO2
Carbon dioxide
Cooperative Energy
Electric cooperative in Mississippi
Dalton
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
DOE
U.S. Department of Energy
Duke Energy Florida
Duke Energy Florida, LLC
EMC
Electric membership corporation
EPA
U.S. Environmental Protection Agency
EPC Contractor
Westinghouse and its affiliate, WECTEC Global Project Services Inc.; the former engineering, procurement, and construction contractor for Plant Vogtle Units 3 and 4
FERC
Federal Energy Regulatory Commission
FMPA
Florida Municipal Power Agency
Georgia Power
Georgia Power Company
Gulf Power
Gulf Power Company
IBEW
International Brotherhood of Electrical Workers
IGCC
Integrated coal gasification combined cycle, the technology originally approved for Mississippi Power's Kemper County energy facility (Plant Ratcliffe)
IIC
Intercompany Interchange Contract
Internal Revenue Code
Internal Revenue Code of 1986, as amended
IPP
Independent Power Producer
IRP
Integrated Resource Plan
KUA
Kissimmee Utility Authority
KW
Kilowatt
KWH
Kilowatt-hour
MEAG Power
Municipal Electric Authority of Georgia
Merger
The merger, effective July 1, 2016, of a wholly-owned, direct subsidiary of Southern Company with and into Southern Company Gas, with Southern Company Gas continuing as the surviving corporation and a wholly-owned, direct subsidiary of Southern Company
Mississippi Power
Mississippi Power Company
MW
Megawatt
natural gas distribution utilities
Southern Company Gas' seven natural gas distribution utilities (Nicor Gas, Atlanta Gas Light Company, Virginia Natural Gas, Elizabethtown Gas, Florida City Gas, Chattanooga Gas Company, and Elkton Gas)
Nicor Gas
Northern Illinois Gas Company, a wholly-owned subsidiary of Southern Company Gas
NRC
U.S. Nuclear Regulatory Commission
NYSE
New York Stock Exchange
OPC
Oglethorpe Power Corporation (an Electric Membership Corporation)
OUC
Orlando Utilities Commission


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DEFINITIONS
(continued)

Term
Meaning
PATH Act
Protecting Americans from Tax Hikes Act
Plant Vogtle Units 3 and 4
Two new nuclear generating units under construction at Georgia Power's Plant Vogtle
power pool
The operating arrangement whereby the integrated generating resources of the traditional electric operating companies and Southern Power (excluding subsidiaries) are subject to joint commitment and dispatch in order to serve their combined load obligations
PowerSecure
PowerSecure Inc.
PowerSouth
PowerSouth Energy Cooperative
PPA
Power purchase agreements, as well as, for Southern Power, contracts for differences that provide the owner of a renewable facility a certain fixed price for the electricity sold to the grid
PSC
Public Service Commission
registrants
Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, Southern Power Company, and Southern Company Gas
RUS
Rural Utilities Service
SCS
Southern Company Services, Inc. (the Southern Company system service company)
SEC
Securities and Exchange Commission
SEGCO
Southern Electric Generating Company
SEPA
Southeastern Power Administration
SERC
Southeastern Electric Reliability Council
Southern Company
The Southern Company
Southern Company Gas
Southern Company Gas and its subsidiaries
Southern Company Gas Capital
Southern Company Gas Capital Corporation, a 100%-owned subsidiary of Southern Company Gas
Southern Company system
Southern Company, the traditional electric operating companies, Southern Power, Southern Company Gas (as of July 1, 2016), SEGCO, Southern Nuclear, SCS, Southern Linc, PowerSecure (as of May 9, 2016), and other subsidiaries
Southern Holdings
Southern Company Holdings, Inc.
Southern Linc
Southern Communications Services, Inc.
Southern Nuclear
Southern Nuclear Operating Company, Inc.
Southern Power
Southern Power Company and its subsidiaries
Tax Reform Legislation
The Tax Cuts and Jobs Act, which was signed into law on December 22, 2017 and became effective on January 1, 2018
traditional electric operating companies
Alabama Power, Georgia Power, Gulf Power, and Mississippi Power
Virginia Natural Gas
Virginia Natural Gas, Inc.
Vogtle Owners
Georgia Power, OPC, MEAG Power, and Dalton
Westinghouse
Westinghouse Electric Company LLC

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CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K contains forward-looking statements. Forward-looking statements include, among other things, statements concerning regulated rates, the strategic goals for the wholesale business, customer and sales growth, economic conditions, fuel and environmental cost recovery and other rate actions, current and proposed environmental regulations and related compliance plans and estimated expenditures, pending or potential litigation matters, access to sources of capital, projections for the qualified pension plans, postretirement benefit plans, and nuclear decommissioning trust fund contributions, financing activities, completion dates of construction projects, completion of announced acquisitions or dispositions, filings with state and federal regulatory authorities, impacts of the Tax Reform Legislation, federal and state income tax benefits, estimated sales and purchases under power sale and purchase agreements, and estimated construction and other plans and expenditures. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "should," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential," or "continue" or the negative of these terms or other similar terminology. There are various factors that could cause actual results to differ materially from those suggested by the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include:
the impact of recent and future federal and state regulatory changes, including environmental laws and regulations governing air, water, land, and protection of other natural resources, 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;
the uncertainty surrounding the recently enacted Tax Reform Legislation, including implementing regulations and IRS interpretations, actions that may be taken in response by regulatory authorities, and its impact, if any, on the credit ratings of Southern Company and its subsidiaries;
current and future litigation or regulatory investigations, proceedings, or inquiries;
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 and natural gas, including those relating to weather, the general economy, 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 natural gas and other fuels;
limits on pipeline capacity;
transmission constraints;
effects of inflation;
the ability to control costs and avoid cost overruns during the development, construction, and operation of facilities, which include the development and construction of generating facilities with designs that have not been previously constructed, including changes in labor costs and productivity, adverse weather conditions, shortages and inconsistent quality of equipment, materials, and labor, contractor or supplier delay, non-performance under construction, operating, or other agreements, operational readiness, including specialized operator training and required site safety programs, unforeseen engineering or design problems, start-up activities (including major equipment failure and system integration), and/or operational performance;
the ability to construct facilities in accordance with the requirements of permits and licenses (including satisfaction of NRC requirements), 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 the Southern Company system's employee and retiree benefit plans and nuclear decommissioning trust funds;
advances in technology;
ongoing renewable energy partnerships and development agreements;
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;

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the ability to successfully operate the electric utilities' generating, transmission, and distribution facilities and Southern Company Gas' natural gas distribution and storage facilities and the successful performance of necessary corporate functions;
legal proceedings and regulatory approvals and actions related to Plant Vogtle Units 3 and 4, including Georgia PSC approvals and NRC actions;
litigation related to the Kemper County energy facility;
the inherent risks involved in operating and constructing nuclear generating facilities, including environmental, health, regulatory, natural disaster, terrorism, and financial risks;
the inherent risks involved in transporting and storing natural gas;
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, including the proposed disposition by a wholly-owned subsidiary of Southern Company Gas of Elizabethtown Gas and Elkton Gas and the potential sale of a 33% equity interest in substantially all of Southern Power's solar assets, which cannot be assured to be completed or beneficial to Southern Company or its subsidiaries;
the possibility that the anticipated benefits from the Merger cannot be fully realized or may take longer to realize than expected and the possibility that costs related to the integration of Southern Company and Southern Company Gas will be greater than expected;
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 physical attack and the threat of physical attacks;
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 foreign 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 electric utilities to obtain additional generating capacity (or sell excess generating capacity) at competitive prices;
catastrophic events such as fires, earthquakes, explosions, floods, tornadoes, 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, natural gas pipeline infrastructure, or operation of generating or storage resources;
impairments of goodwill or long-lived assets;
the effect of accounting pronouncements issued periodically by standard-setting bodies; and
other factors discussed elsewhere herein and in other reports filed by the registrants from time to time with the SEC.
The registrants expressly disclaim any obligation to update any forward-looking statements.

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PART I
Item 1.
BUSINESS
Southern Company was incorporated under the laws of Delaware on November 9, 1945. Southern Company owns all of the outstanding common stock of Alabama Power, Georgia Power, Gulf Power, and Mississippi Power, each of which is an operating public utility company. The traditional electric operating companies supply electric service in the states of Alabama, Georgia, Florida, and Mississippi. More particular information relating to each of the traditional electric operating companies is as follows:
Alabama Power is a corporation organized under the laws of the State of Alabama on November 10, 1927, by the consolidation of a predecessor Alabama Power Company, Gulf Electric Company, and Houston Power Company. The predecessor Alabama Power Company had been in continuous existence since its incorporation in 1906.
Georgia Power was incorporated under the laws of the State of Georgia on June 26, 1930.
Gulf Power is a Florida corporation that has had a continuous existence since it was originally organized under the laws of the State of Maine on November 2, 1925. Gulf Power became a Florida corporation after being domesticated under the laws of the State of Florida on November 2, 2005.
Mississippi Power was incorporated under the laws of the State of Mississippi on July 12, 1972 and effective December 21, 1972, by the merger into it of the predecessor Mississippi Power Company, succeeded to the business and properties of the latter company. The predecessor Mississippi Power Company was incorporated under the laws of the State of Maine on November 24, 1924.
In addition, Southern Company owns all of the common stock of Southern Power Company, which is also an operating public utility company. Southern Power develops, constructs, acquires, owns, and manages generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. Southern Power Company is a corporation organized under the laws of Delaware on January 8, 2001. The term "Southern Power" when used herein refers to Southern Power Company and its subsidiaries while the term "Southern Power Company" when used herein refers only to the parent company.
Southern Company Gas, which was acquired by Southern Company in July 2016, is an energy services holding company whose primary business is the distribution of natural gas in seven states - Illinois, Georgia, Virginia, New Jersey, Florida, Tennessee, and Maryland - through the natural gas distribution utilities. Southern Company Gas is also involved in several other businesses that are complementary to the distribution of natural gas. Southern Company Gas was incorporated under the laws of the State of Georgia on November 27, 1995 for the primary purpose of becoming the holding company for Atlanta Gas Light Company, which was founded in 1856. See "The Southern Company System – Southern Company Gas" herein for additional information regarding agreements entered into by a wholly-owned subsidiary of Southern Company Gas to sell two of its natural gas distribution utilities.
Southern Company also owns all of the outstanding common stock or membership interests of SCS, Southern Linc, Southern Holdings, Southern Nuclear, PowerSecure, and other direct and indirect subsidiaries. SCS, the system service company, has contracted with Southern Company, each traditional electric operating company, Southern Power, Southern Company Gas, Southern Nuclear, SEGCO, and other subsidiaries to furnish, at direct or allocated cost and upon request, the following services: general executive and advisory, general and design engineering, operations, purchasing, accounting, finance and treasury, legal, tax, information technology, marketing, auditing, insurance and pension administration, human resources, systems and procedures, digital wireless communication, and other services with respect to business and operations, construction management, and power pool transactions. Southern Linc provides digital wireless communications for use by Southern Company and its subsidiary companies and also markets these services to the public and provides fiber optics services within the Southeast. Southern Holdings is an intermediate holding company subsidiary, primarily for Southern Company's investments in leveraged leases and energy-related funds and companies, and for other electric and natural gas products and services. Southern Nuclear operates and provides services to the Southern Company system's nuclear power plants and is currently managing construction of and developing Plant Vogtle Units 3 and 4, which are co-owned by Georgia Power. PowerSecure is a provider of products and services in the areas of distributed generation infrastructure, energy efficiency, and utility infrastructure.
Alabama Power and Georgia Power each own 50% of the outstanding common stock of SEGCO. SEGCO is an operating public utility company that owns electric generating units with an aggregate capacity of 1,020 MWs at Plant Gaston on the Coosa River near Wilsonville, Alabama. Alabama Power and Georgia Power are each entitled to one-half of SEGCO's capacity and energy. Alabama Power acts as SEGCO's agent in the operation of SEGCO's units and furnishes fuel to SEGCO for its units.

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    Table of Contents                                Index to Financial Statements

Segment information for Southern Company and Southern Company Gas is included in Note 13 to the financial statements of Southern Company and Note 12 to the financial statements of Southern Company Gas in Item 8 herein.
The registrants' Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports are made available on Southern Company's website, free of charge, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Southern Company's internet address is www.southerncompany.com.
The Southern Company System
Traditional Electric Operating Companies
The traditional electric operating companies are vertically integrated utilities that own generation, transmission, and distribution facilities. See PROPERTIES in Item 2 herein for additional information on the traditional electric operating companies' generating facilities. Each company's transmission facilities are connected to the respective company's own generating plants and other sources of power (including certain generating plants owned by Southern Power) and are interconnected with the transmission facilities of the other traditional electric operating companies and SEGCO. For information on the State of Georgia's integrated transmission system, see "Territory Served by the Southern Company System – Traditional Electric Operating Companies and Southern Power" herein.
Agreements in effect with principal neighboring utility systems provide for capacity and energy transactions that may be entered into from time to time for reasons related to reliability or economics. Additionally, the traditional electric operating companies have entered into voluntary reliability agreements with the subsidiaries of Entergy Corporation, Florida Electric Power Coordinating Group, and Tennessee Valley Authority and with Duke Energy Progress, LLC, Duke Energy Carolinas, LLC, South Carolina Electric & Gas Company, and Virginia Electric and Power Company, each of which provides for the establishment and periodic review of principles and procedures for planning and operation of generation and transmission facilities, maintenance schedules, load retention programs, emergency operations, and other matters affecting the reliability of bulk power supply. The traditional electric operating companies have joined with other utilities in the Southeast (including some of those referred to above) to form the SERC to augment further the reliability and adequacy of bulk power supply. Through the SERC, the traditional electric operating companies are represented on the National Electric Reliability Council.
The utility assets of the traditional electric operating companies and certain utility assets of Southern Power Company are operated as a single integrated electric system, or power pool, pursuant to the IIC. Activities under the IIC are administered by SCS, which acts as agent for the traditional electric operating companies and Southern Power Company. The fundamental purpose of the power pool is to provide for the coordinated operation of the electric facilities in an effort to achieve the maximum possible economies consistent with the highest practicable reliability of service. Subject to service requirements and other operating limitations, system resources are committed and controlled through the application of centralized economic dispatch. Under the IIC, each traditional electric operating company and Southern Power Company retains its lowest cost energy resources for the benefit of its own customers and delivers any excess energy to the power pool for use in serving customers of other traditional electric operating companies or Southern Power Company or for sale by the power pool to third parties. The IIC provides for the recovery of specified costs associated with the affiliated operations thereunder, as well as the proportionate sharing of costs and revenues resulting from power pool transactions with third parties.
Southern Power and Southern Linc have secured from the traditional electric operating companies certain services which are furnished at cost in compliance with FERC regulations.
Alabama Power and Georgia Power each have agreements with Southern Nuclear to operate the Southern Company system's existing nuclear plants, Plants Farley, Hatch, and Vogtle. In addition, Georgia Power has an agreement with Southern Nuclear to develop, license, construct, and operate Plant Vogtle Units 3 and 4. See "Regulation – Nuclear Regulation" herein for additional information.

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    Table of Contents                                Index to Financial Statements

Southern Power
Southern Power develops, constructs, acquires, owns, and manages power generation assets, including renewable energy facilities, and sells electricity at market-based rates (under authority from the FERC) in the wholesale market. Southern Power continually seeks opportunities to execute its strategy to create value through various transactions including acquisitions and sales of assets, development and construction of new generating facilities, and entry into PPAs primarily with investor-owned utilities, IPPs, municipalities, electric cooperatives, and other load-serving entities, as well as commercial and industrial customers. Southern Power's business activities are not subject to traditional state regulation like the traditional electric operating companies, but the majority of its business activities are subject to regulation by the FERC. Southern Power has attempted to insulate itself from significant fuel supply, fuel transportation, and electric transmission risks by generally making such risks the responsibility of the counterparties to its PPAs. However, Southern Power's future earnings will depend on the parameters of the wholesale market and the efficient operation of its wholesale generating assets, as well as Southern Power's ability to execute its growth strategy and to develop and construct generating facilities. For additional information on Southern Power's business activities, see MANAGEMENT'S DISCUSSION AND ANALYSIS – OVERVIEW – "Business Activities" of Southern Power in Item 7 herein.
Southern Power Company directly owns and manages generation assets primarily in the Southeast, which are included in the power pool, and has various subsidiaries, which were created to own and operate natural gas and renewable generation facilities either wholly or in partnership with various third parties. As of December 31, 2017, Southern Power's generation fleet totaled 12,940 MWs of nameplate capacity in commercial operation (including 5,152 MWs owned by its subsidiaries). In addition, Southern Power Company has other subsidiaries that are pursuing additional natural gas generation and other development opportunities. The generation assets of Southern Power Company's subsidiaries are not included in the power pool.
Some of Southern Power's partnerships allow for the sharing of cash distributions and tax benefits at differing percentages. Southern Power is entitled to 51% of all cash distributions from eight of the partnership entities and the respective partner who holds the class B membership interests is entitled to 49% of all cash distributions. For the Desert Stateline partnership, Southern Power is entitled to 66% of all cash distributions and the class B member is entitled to 34% of all cash distributions. In addition, Southern Power is entitled to substantially all of the federal tax benefits with respect to these nine partnership entities.
In September 2017, Southern Power began a legal entity reorganization of various direct and indirect subsidiaries that own and operate substantially all of the solar facilities, including certain subsidiaries owned in partnership with various third parties. The reorganization is expected to be substantially completed in the first quarter 2018. Southern Power is pursuing the sale of a 33% equity interest in the newly-formed holding company owning these solar assets, which, if successful, is expected to close in the middle of 2018. The ultimate outcome of this matter cannot be determined at this time.
See PROPERTIES in Item 2 herein, Note 11 to the financial statements of Southern Power in Item 8 herein, and Note 12 to the financial statements of Southern Company under "Southern Power" in Item 8 herein for additional information regarding Southern Power's acquisitions, construction, and development projects.
Southern Power calculates an investment coverage ratio for its generating assets based on the ratio of investment under contract to total investment using the respective generation facilities' net book value (or expected in-service value for facilities under construction or being acquired) as the investment amount. With the inclusion of the PPAs and investments associated with the wind and natural-gas fired facilities currently under construction and the Gaskell West 1 solar project, which was acquired subsequent to December 31, 2017, as well as other capacity and energy contracts, Southern Power has an average investment coverage ratio of 91% through 2022 and 89% through 2027, with an average remaining contract duration of approximately 15 years.
Southern Power's natural gas and biomass sales are primarily through long-term PPAs that consist of two types of agreements. The first type, referred to as a unit or block sale, is a customer purchase from a dedicated plant unit where all or a portion of the generation from that unit is reserved for that customer. Southern Power typically has the ability to serve the unit or block sale customer from an alternate resource. The second type, referred to as requirements service, provides that Southern Power serves the customer's capacity and energy requirements from a combination of the customer's own generating units and from Southern Power resources not dedicated to serve unit or block sales. Southern Power has rights to purchase power provided by the requirements customers' resources when economically viable. Capacity charges that form part of the PPA payments are designed to recover fixed and variable operations and maintenance costs based on dollars-per-kilowatt year and to provide a return on investment.
Southern Power's electricity sales from solar and wind generating facilities are predominantly through long-term PPAs; however, these solar and wind PPAs do not have a capacity charge and customers either purchase the energy output of a dedicated renewable facility through an energy charge or provide Southern Power a certain fixed price for the electricity sold

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    Table of Contents                                Index to Financial Statements

to the grid. As a result, Southern Power's ability to recover fixed and variable operations and maintenance expenses is dependent upon the level of energy generated from these facilities, which can be impacted by weather conditions, equipment performance, transmission constraints, and other factors.
The following tables set forth Southern Power's PPAs as of December 31, 2017:
Block Sales PPAs
Facility/Source
 
Counterparty
 
MWs(1)

 
 
 
Contract Term
Addison Units 1 and 3
 
Georgia Power
 
297

 
 
 
through May 2030
Addison Unit 2
 
MEAG Power
 
149

 
 
 
through April 2029
Addison Unit 4
 
Georgia Energy Cooperative
 
146

 
 
 
through May 2030
Cleveland County Unit 1
 
North Carolina Electric Membership Corporation (NCEMC)
 
45-180

 
 
 
through Dec. 2036
Cleveland County Unit 2
 
NCEMC
 
183

 
 
 
through Dec. 2036
Cleveland County Unit 3
 
North Carolina Municipal Power Agency 1
 
183

 
 
 
through Dec. 2031
Cleveland County Unit 4
 
PJM Interconnection LLC(2)
 
183

 
 
 
June 2020 – May 2021
Dahlberg Units 1, 3, and 5
 
Cobb EMC
 
224

 
 
 
through Dec. 2026
Dahlberg Units 2, 6, 8, and 10
 
Georgia Power
 
298

 
 
 
through May 2025
Dahlberg Unit 4
 
Georgia Power
 
74

 
 
 
through May 2030
Franklin Unit 1
 
Duke Energy Florida
 
434

 
 
 
through May 2021
Franklin Unit 2
 
Morgan Stanley Capital Group
 
250

 
 
 
through Dec. 2025
Franklin Unit 2
 
Jackson EMC
 
60-65

 
 
 
through Dec. 2035
Franklin Unit 2
 
GreyStone Power Corporation
 
35-40

 
 
 
through Dec. 2035
Franklin Unit 2
 
Cobb EMC
 
100

 
 
 
through Dec. 2026
Franklin Unit 3
 
Morgan Stanley Capital Group
 
200

 
 
 
through Dec. 2027
Franklin Unit 3
 
City of Dalton, Georgia
 
70

 
 
 
through Dec. 2027
Harris Unit 1
 
Georgia Power
 
628

 
 
 
through May 2030
Harris Unit 2
 
Georgia Power
 
657

 
 
 
through May 2019
Harris Unit 2
 
Alabama Municipal Electric Authority(3)
 
25

 
 
 
Jan. 2020 – Dec. 2025
Mankato
 
Northern States Power Company
 
375

 
 
 
through June 2026
Mankato
 
Northern States Power Company
 
345

 
 
 
June 2019 – May 2039(4)
Nacogdoches
 
City of Austin, Texas
 
100

 
 
 
through May 2032
NCEMC PPA(5)
 
EnergyUnited
 
100

 
 
 
through Dec. 2021
Oleander Units 2, 3, and 4
 
Seminole Electric Cooperative
 
466

 
 
 
through Dec. 2021
Oleander Unit 5
 
FMPA
 
157

 
 
 
through Dec. 2027
Rowan CT Unit 1
 
North Carolina Municipal Power Agency 1
 
150

 
 
 
through Dec. 2030
Rowan CT Unit 2
 
PJM Interconnection LLC(2)
 
154

 
 
 
June 2020 – May 2021
Rowan CT Units 2 and 3
 
EnergyUnited
 
100-175

 
 
 
Jan. 2022 – Dec. 2025
Rowan CT Unit 3
 
EnergyUnited
 
113

 
 
 
through Dec. 2023
Rowan CC Unit 4
 
EnergyUnited
 
23-328

 
 
 
through Dec. 2025

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    Table of Contents                                Index to Financial Statements

Block Sales PPAs (continued)
Facility/Source
 
Counterparty
 
MWs(1)

 
 
 
Contract Term
Rowan CC Unit 4
 
Duke Energy Progress, LLC
 
150

 
 
 
through Dec. 2019
Rowan CC Unit 4
 
Century Aluminum(6)
 
158

 
 
 
through Dec. 2018
Stanton Unit A
 
OUC
 
342

 
 
 
through Sept. 2033
Stanton Unit A
 
FMPA
 
85

 
 
 
through Sept. 2033
Wansley Unit 7
 
Jacksonville Electric Authority
 
200

 
 
 
through Dec. 2019
(1)
The MWs and related facility units may change due to unit rating changes or assignment of units to contracts.
(2)
Amount sold into PJM capacity market.
(3)
Alabama Municipal Electric Authority will also be served by Plant Franklin Unit 1 through December 2019.
(4)
Subject to commercial operation of the 345-MW expansion project.
(5)
Represents sale of power purchased from NCEMC under a PPA.
(6)
Century Aluminum PPA is partially served by Plant Franklin Unit 3.
Requirements Services PPAs
Counterparty
 
MWs(1)

 
Contract Term
Nine Georgia EMCs
 
294-376

 
through Dec. 2024
Sawnee EMC
 
267-639

 
through Dec. 2027
Cobb EMC
 
0-170

 
through Dec. 2026
Flint EMC
 
136-360

 
through Dec. 2024
City of Dalton, Georgia
 
92

 
through Dec. 2027
EnergyUnited
 
78-159

 
through Dec. 2025
City of Blountstown, Florida
 
10

 
through April 2022
_______________________________________
(1)
Represents forecasted incremental capacity needs over the contract term.
Solar/Wind PPAs
Facility
Counterparty
MWs(1)

Contract Term
Solar
 
 
 
Adobe
Southern California Edison Company
20

through June 2034
Apex
Nevada Power Company
20

through Dec. 2037
Boulder 1(2)
Nevada Power Company
100

through Dec. 2036
Butler
Georgia Power
100

through Dec. 2046
Butler Solar Farm
Georgia Power
20

through Feb. 2036
Calipatria
San Diego Gas & Electric Company
20

through Feb. 2036
Campo Verde
San Diego Gas & Electric Company
139

through Oct. 2033
Cimarron
Tri-State Generation and Transmission Association, Inc.
30

through Dec. 2035
Decatur County
Georgia Power
19

through Dec. 2035
Decatur Parkway
Georgia Power
80

through Dec. 2040
Desert Stateline(2)
Southern California Edison Company
300

through Sept. 2036
East Pecos
Austin Energy
119

through April 2032
Garland A(2)
Southern California Edison Company
20

through Sept. 2036
Garland(2)
Southern California Edison Company
180

through Oct. 2031
Granville
Duke Energy Progress, LLC
2

through Oct. 2032
Henrietta(2)
Pacific Gas & Electric Company
100

through Sept. 2036
Imperial Valley(2)
San Diego Gas & Electric Company
150

through Nov. 2039

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    Table of Contents                                Index to Financial Statements


Solar/Wind PPAs (continued)
Facility
Counterparty
MWs(1)

Contract Term
Lamesa
City of Garland, Texas
102

through April 2032
Lost Hills Blackwell(2)
City of Roseville, California & Pacific Gas & Electric Company
32

through Dec. 2043
Macho Springs
El Paso Electric Company
50

through May 2034
Morelos
Pacific Gas & Electric Company
15

through Feb. 2036
North Star(2)
Pacific Gas & Electric Company
60

through June 2035
Pawpaw
Georgia Power
30

through March 2046
Roserock(2)
Austin Energy
157

through Nov. 2036
Rutherford
Duke Energy Carolinas, LLC
75

through Dec. 2031
Sandhills
Cobb EMC
111

through Oct. 2041
Sandhills
Flint EMC
15

through Oct. 2041
Sandhills
Sawnee EMC
15

through Oct. 2041
Sandhills
Middle Georgia and Irwin EMC
2

through Oct. 2041
Spectrum
Nevada Power Company
30

through Dec. 2038
Tranquillity(2)
Shell Energy North America (US), LP
204

through Nov. 2019
Tranquillity(2)
Southern California Edison Company
204

Dec. 2019 – Nov. 2034
Wind
 
 
 
Bethel
Google Inc.
225

through Jan. 2029
Cactus Flats(3)
General Mills, Inc.
98

Aug. 2018 – July 2034
Cactus Flats(3)
General Motors Company
50

Aug. 2018 – July 2031
Grant Plains
Oklahoma Municipal Power Authority
41

Jan. 2020 – Dec. 2039
Grant Plains
Steelcase Inc.
25

through Dec. 2028
Grant Plains
Allianz Risk Transfer (Bermuda) Ltd.
81-122

through March 2027
Grant Wind
East Texas Electric Cooperative
50

through March 2036
Grant Wind
Northeast Texas Electric Cooperative
50

through March 2036
Grant Wind
Western Farmers Electric Cooperative
50

through March 2036
Kay Wind
Westar Energy Inc.
200

through Dec. 2035
Kay Wind
Grand River Dam Authority
99

through Dec. 2035
Passadumkeag
Western Massachusetts Electric Company
40

through June 2031
Salt Fork Wind
City of Garland, Texas
150

through Nov. 2030
Salt Fork Wind
Salesforce.com, Inc.
24

through Nov. 2028
Tyler Bluff Wind
The Proctor & Gamble Company
96

through Dec. 2028
Wake Wind(2)
Equinix Enterprises, Inc.
100

through Oct. 2028
Wake Wind(2)
Owens Corning
125

through Oct. 2028
________________________
(1) MWs shown are for 100% of the PPA, which is based on demonstrated capacity of the facility.
(2) Facility is the subject of a partnership where Southern Power is the majority member. See PROPERTIES in Item 2 herein for additional information.
(3) Subject to commercial operation.
Purchased Power
Facility/Source
Counterparty
MWs

Contract Term
NCEMC
NCEMC
100

through Dec. 2021

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    Table of Contents                                Index to Financial Statements

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Power Sales Agreements" and "Acquisitions" of Southern Power in Item 7 herein and Note 11 to the financial statements of Southern Power in Item 8 herein for additional information.
For the year ended December 31, 2017, approximately 11.3% of Southern Power's revenues were derived from Georgia Power. Southern Power actively pursues replacement PPAs prior to the expiration of its current PPAs and anticipates that the revenues attributable to one customer may be replaced by revenues from a new customer; however, the expiration of any of Southern Power's current PPAs without the successful remarketing of a replacement PPA could have a material negative impact on Southern Power's earnings but is not expected to have a material impact on Southern Company's earnings.
Southern Company Gas
Southern Company Gas is an energy services holding company whose primary business is the distribution of natural gas through the natural gas distribution utilities. Southern Company Gas is also involved in several other businesses that are complementary to the distribution of natural gas, including gas marketing services, wholesale gas services, and gas midstream operations.
Gas distribution operations, the largest segment of Southern Company Gas' business, operates, constructs, and maintains 82,000 miles of natural gas pipelines and 14 storage facilities, with total capacity of 158 Bcf, to provide natural gas to residential, commercial, and industrial customers. Gas distribution operations serves approximately 4.6 million customers across seven states and has rates of return that are regulated by each individual state in return for exclusive franchises.
On October 15, 2017, Southern Company Gas subsidiary, Pivotal Utility Holdings Inc., entered into agreements for the sale of the assets of two of its natural gas distribution utilities, Elizabethtown Gas and Elkton Gas, to South Jersey Industries, Inc. for a total cash purchase price of $1.7 billion. As of December 31, 2017, the net book value of the assets to be disposed of in the sale was approximately $1.3 billion, which includes approximately $0.5 billion of goodwill. The goodwill is not deductible for tax purposes and, as a result, a deferred tax liability has not yet been provided. Through the completion of the asset sales, Southern Company Gas intends to invest less than $0.1 billion in capital additions required for ordinary business operations of these assets. The completion of each asset sale is subject to the satisfaction or waiver of certain conditions, including, among other customary closing conditions, the receipt of required regulatory approvals, including the FERC, the Federal Communications Commission, the New Jersey Board of Public Utilities, and, with respect to the sale of Elkton Gas, the Maryland PSC. Southern Company Gas and South Jersey Industries, Inc. made joint filings on December 22, 2017 and January 16, 2018 with the New Jersey Board of Public Utilities and the Maryland PSC, respectively, requesting regulatory approval. The asset sales are expected to be completed by the end of the third quarter 2018. The ultimate outcome of these matters cannot be determined at this time.
Gas marketing services is comprised of SouthStar Energy Services, LLC (SouthStar) and Nicor Energy Services Company (doing business as Pivotal Home Solutions) and provides natural gas commodity and related services to customers in competitive markets or markets that provide for customer choice. SouthStar, serving approximately 774,000 natural gas commodity customers, markets gas to residential, commercial, and industrial customers and offers energy-related products that provide natural gas price stability and utility bill management. Pivotal Home Solutions, serving approximately 1.2 million service contracts, provides a suite of home protection products and services that offers homeowners predictability regarding their energy service delivery, systems, and appliances.
Wholesale gas services consists of Sequent Energy Management, L.P. and engages in natural gas storage and gas pipeline arbitrage and provides natural gas asset management and related logistical services to most of the natural gas distribution utilities as well as non-affiliate companies.
Gas midstream operations includes joint ventures in pipeline investments (including a 50% ownership interest in Southern Natural Gas Company, L.L.C. and two significant pipeline construction projects) as well as a 50% joint ownership in a significant pipeline project and wholly-owned natural gas storage facilities that enable the provision of diverse sources of natural gas supplies to the customers of Southern Company Gas. Southern Natural Gas Company, L.L.C. is the owner of a 7,000-mile pipeline connecting natural gas supply basins in Texas, Louisiana, Mississippi, and Alabama to markets in Louisiana, Mississippi, Alabama, Florida, Georgia, South Carolina, and Tennessee.
For additional information on Southern Company Gas' business activities, see MANAGEMENT'S DISCUSSION AND ANALYSIS – OVERVIEW – "Business Activities" and – FUTURE EARNINGS POTENTIAL of Southern Company Gas in Item 7 herein.
Other Businesses
PowerSecure, which was acquired by Southern Company in May 2016, provides products and services in the areas of distributed energy infrastructure, energy efficiency, and utility infrastructure.

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Southern Holdings is an intermediate holding subsidiary, primarily for Southern Company's investments in leveraged leases and energy-related funds and companies, and also for other electric and natural gas products and services.
Southern Linc provides digital wireless communications for use by Southern Company and its subsidiary companies and also markets these services to the public. Southern Linc delivers multiple wireless communication options including push to talk, cellular service, text messaging, wireless internet access, and wireless data. Its system covers approximately 127,000 square miles in the Southeast. Southern Linc also provides fiber optics services within the Southeast through its subsidiary, Southern Telecom, Inc.
These efforts to invest in and develop new business opportunities may offer potential returns exceeding those of rate-regulated operations. However, these activities often involve a higher degree of risk.
Construction Programs
The subsidiary companies of Southern Company are engaged in continuous construction programs to accommodate existing and estimated future loads on their respective systems. For estimated construction and environmental expenditures for the periods 2018 through 2022, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" of Southern Company, each traditional electric operating company, Southern Power, and Southern Company Gas in Item 7 herein. The Southern Company system's construction program consists of capital investment and capital expenditures to comply with environmental laws and regulations. The traditional electric operating companies also anticipate expenditures associated with ash pond closure and ground water monitoring under the Disposal of Coal Combustion Residuals from Electric Utilities rule (CCR Rule), which are reflected in the Southern Company system's asset retirement obligation liabilities. In 2018, the construction program is expected to be apportioned approximately as follows:
 
Southern
Company
system(a)(b)
Alabama
Power
Georgia
Power(a)
Gulf
Power
Mississippi
Power
 
(in billions)
New generation
$
1.3

$

$
1.3

$

$

Environmental compliance(c)
1.1

0.6

0.5

0.1


Generation maintenance
0.9

0.5

0.2

0.1

0.1

Transmission
0.9

0.3

0.5



Distribution
1.2

0.5

0.5

0.1

0.1

Nuclear fuel
0.3

0.1

0.2



General plant
0.5

0.2

0.2



 
6.0

2.2

3.3

0.3

0.2

Southern Power(d)
1.3

 
 
 
 
Southern Company Gas(e)
1.7

 
 
 
 
Other subsidiaries
0.4

 
 
 
 
Total(a)
$
9.4

$
2.2

$
3.3

$
0.3

$
0.2

(a)
Totals may not add due to rounding.
(b)
Includes the traditional electric operating companies, Southern Power, and Southern Company Gas, as well as the other subsidiaries. See "Other Businesses" herein for additional information.
(c)
Reflects cost estimates for environmental regulations. These estimated expenditures do not include any potential compliance costs associated with the regulation of CO2 emissions from fossil-fuel-fired electric generating units or costs associated with closure and groundwater monitoring under the CCR Rule. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Laws and Regulations" and FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" of Southern Company and each traditional electric operating company in Item 7 herein for additional information.
(d)
Includes approximately $0.9 billion for planned expenditures for plant acquisitions and placeholder growth, which may vary materially due to market opportunities and Southern Power's ability to execute its growth strategy.
(e)
Includes costs for ongoing capital projects associated with infrastructure improvement programs for certain natural gas distribution utilities that have been previously approved by their applicable state regulatory agencies. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Infrastructure Replacement Programs and Capital Projects" of Southern Company Gas in Item 7 herein for additional information. See

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"The Southern Company System – Southern Company Gas" herein for additional information regarding agreements entered into by a wholly-owned subsidiary of Southern Company Gas to sell two of its natural gas distribution utilities. Projected capital expenditures of $0.1 billion related to these two natural gas distribution utilities are excluded from the amounts above.
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 laws and regulations; the outcome of any legal challenges to the environmental rules; changes in electric generating plants, including unit retirements and replacements and adding or changing fuel sources at existing electric generating units, to meet regulatory requirements; changes in FERC rules and regulations; state regulatory agency approvals; changes in the expected environmental compliance program; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; project scope and design changes; storm impacts; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Additionally, planned expenditures for plant acquisitions may vary due to market opportunities and Southern Power's ability to execute its growth strategy.
In addition, the construction program includes the development and construction of new electric generating facilities with designs that have not been previously constructed, which may result in revised estimates during construction. See Note 3 to the financial statements of Southern Company and Georgia Power under "Nuclear Construction" and "Retail Regulatory Matters – Nuclear Construction," respectively, in Item 8 herein for additional information regarding Georgia Power's construction of Plant Vogtle Units 3 and 4.
Also see "Regulation – Environmental Laws and Regulations" herein for additional information with respect to certain existing and proposed environmental requirements and PROPERTIES – "Electric – Jointly-Owned Facilities" and – "Natural Gas – Jointly-Owned Facilities" in Item 2 herein for additional information concerning Alabama Power's, Georgia Power's, and Southern Power's joint ownership of certain generating units and related facilities with certain non-affiliated utilities and Southern Company Gas' joint ownership of a pipeline facility.
Financing Programs
See each of the registrant's MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY in Item 7 herein and Note 6 to the financial statements of each registrant in Item 8 herein for information concerning financing programs.
Fuel Supply
Electric
The traditional electric operating companies' and SEGCO's supply of electricity is primarily fueled by natural gas and coal. Southern Power's supply of electricity is primarily fueled by natural gas. See MANAGEMENT'S DISCUSSION AND ANALYSIS – RESULTS OF OPERATION – "Electricity Business – Fuel and Purchased Power Expenses" of Southern Company and MANAGEMENT'S DISCUSSION AND ANALYSIS – RESULTS OF OPERATION – "Fuel and Purchased Power Expenses" of each traditional electric operating company in Item 7 herein for information regarding the electricity generated and the average cost of fuel in cents per net KWH generated for the years 2015 through 2017.
The traditional electric operating companies have agreements in place from which they expect to receive substantially all of their 2018 coal burn requirements. These agreements have terms ranging between one and four years. In 2017, the weighted average sulfur content of all coal burned by the traditional electric operating companies was 1.12%. This sulfur level, along with banked and purchased sulfur dioxide allowances, allowed the traditional electric operating companies to remain within limits set by Phase I of the Cross-State Air Pollution Rule (CSAPR) under the Clean Air Act. In 2017, the Southern Company system did not purchase any sulfur dioxide allowances, annual nitrogen oxide emission allowances, or seasonal nitrogen oxide emission allowances from the market. As any additional environmental regulations are proposed that impact the utilization of coal, the traditional electric operating companies' fuel mix will be monitored to help ensure that the traditional electric operating companies remain in compliance with applicable laws and regulations. Additionally, Southern Company and the traditional electric operating companies will continue to evaluate the need to purchase additional emissions allowances, the timing of capital expenditures for emissions control equipment, and potential unit retirements and replacements. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Southern Company, each traditional electric operating company, and Southern Power in Item 7 herein for additional information on environmental matters.
SCS, acting on behalf of the traditional electric operating companies and Southern Power Company, has agreements in place for the natural gas burn requirements of the Southern Company system. For 2018, SCS has contracted for 510 Bcf of natural gas supply under agreements with remaining terms up to 15 years. In addition to natural gas supply, SCS has contracts in place

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for both firm natural gas transportation and storage. Management believes these contracts provide sufficient natural gas supplies, transportation, and storage to ensure normal operations of the Southern Company system's natural gas generating units.
Alabama Power and Georgia Power have multiple contracts covering their nuclear fuel needs for uranium, conversion services, enrichment services, and fuel fabrication. The uranium, conversion services, and fuel fabrication contracts are for terms of less than 10 years with varying expiration dates. The term lengths for the enrichment services contracts are for less than 15 years with varying expiration dates. Management believes suppliers have sufficient nuclear fuel production capability to permit the normal operation of the Southern Company system's nuclear generating units.
Changes in fuel prices to the traditional electric operating companies are generally reflected in fuel adjustment clauses contained in rate schedules. See "Rate Matters – Rate Structure and Cost Recovery Plans" herein for additional information. Southern Power's natural gas and biomass PPAs generally provide that the counterparty is responsible for substantially all of the cost of fuel.
Alabama Power and Georgia Power have contracts with the United States, acting through the DOE, that provide for the permanent disposal of spent nuclear fuel. The DOE failed to begin disposing of spent fuel in 1998, as required by the contracts, and Alabama Power and Georgia Power have pursued and are pursuing legal remedies against the government for breach of contract. See Note 3 to the financial statements of Southern Company, Alabama Power, and Georgia Power under "Nuclear Fuel Disposal Costs" in Item 8 herein for additional information.
Natural Gas
Recent advances in natural gas drilling in shale producing regions of the United States have resulted in historically high supplies of natural gas and relatively low prices for natural gas. Procurement plans for natural gas supply and transportation to serve regulated utility customers are reviewed and approved by the state regulatory agencies in which Southern Company Gas operates. Southern Company Gas purchases natural gas supplies in the open market by contracting with producers and marketers and from its wholly-owned subsidiary, Sequent Energy Management, L.P., under asset management agreements in states where such agreements are approved by the applicable state regulatory agency. Southern Company Gas also contracts for transportation and storage services from interstate pipelines that are regulated by the FERC. When firm pipeline services are temporarily not needed, Southern Company Gas may release the services in the secondary market under FERC-approved capacity release provisions or utilize asset management arrangements, thereby reducing the net cost of natural gas charged to customers for most of the natural gas distribution utilities. Peak-use requirements are met through utilization of company-owned storage facilities, pipeline transportation capacity, purchased storage services, peaking facilities, and other supply sources, arranged by either transportation customers or Southern Company Gas.
Territory Served by the Southern Company System
Traditional Electric Operating Companies and Southern Power
The territory in which the traditional electric operating companies provide retail electric service comprises most of the states of Alabama and Georgia, together with the northwestern portion of Florida and southeastern Mississippi. In this territory there are non-affiliated electric distribution systems that obtain some or all of their power requirements either directly or indirectly from the traditional electric operating companies. As of December 31, 2017, the territory had an area of approximately 120,000 square miles and an estimated population of approximately 17 million. Southern Power sells electricity at market-based rates in the wholesale market, primarily to investor-owned utilities, IPPs, municipalities, and other load-serving entities, as well as commercial and industrial customers.
Alabama Power is engaged, within the State of Alabama, in the generation, transmission, distribution, and purchase of electricity and the sale of electric service, at retail in approximately 400 cities and towns (including Anniston, Birmingham, Gadsden, Mobile, Montgomery, and Tuscaloosa), as well as in rural areas, and at wholesale to 14 municipally-owned electric distribution systems, 11 of which are served indirectly through sales to the Alabama Municipal Electric Authority, and two rural distributing cooperative associations. Alabama Power owns coal reserves near its Plant Gorgas and uses the output of coal from the reserves in its generating plants. Alabama Power also sells, and cooperates with dealers in promoting the sale of, electric appliances and products and markets and sells outdoor lighting services.
Georgia Power is engaged in the generation, transmission, distribution, and purchase of electricity and the sale of electric service within the State of Georgia, at retail in over 600 communities (including Athens, Atlanta, Augusta, Columbus, Macon, Rome, and Savannah), as well as in rural areas, and at wholesale to OPC, MEAG Power, Dalton, various EMCs, and non-affiliated utilities. Georgia Power also markets and sells outdoor lighting services.

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Gulf Power is engaged, within the northwestern portion of Florida, in the generation, transmission, distribution, and purchase of electricity and the sale of electric service, at retail in 71 communities (including Pensacola, Panama City, and Fort Walton Beach), as well as in rural areas, and at wholesale to a non-affiliated utility.
Mississippi Power is engaged in the generation, transmission, distribution, and purchase of electricity and the sale of electric service within 23 counties in southeastern Mississippi, at retail in 123 communities (including Biloxi, Gulfport, Hattiesburg, Laurel, Meridian, and Pascagoula), as well as in rural areas, and at wholesale to one municipality, six rural electric distribution cooperative associations, and one generating and transmitting cooperative.
For information relating to KWH sales by customer classification for the traditional electric operating companies, see MANAGEMENT'S DISCUSSION AND ANALYSIS – RESULTS OF OPERATIONS of each traditional electric operating company in Item 7 herein. For information relating to the number of retail customers served by customer classification for the traditional electric operating companies, see SELECTED FINANCIAL DATA of each traditional electric operating company in Item 6 herein. Also, for information relating to the sources of revenues for Southern Company, each traditional electric operating company, and Southern Power, reference is made to Item 7 herein.
The RUS has authority to make loans to cooperative associations or corporations to enable them to provide electric service to customers in rural sections of the country. As of December 31, 2017, there were approximately 62 electric cooperative distribution systems operating in the territory in which the traditional electric operating companies provide electric service at retail or wholesale.
One of these organizations, PowerSouth, is a generating and transmitting cooperative selling power to several distributing cooperatives, municipal systems, and other customers in south Alabama and northwest Florida. As of December 31, 2017, PowerSouth owned generating units with approximately 2,100 MWs of nameplate capacity, including an undivided 8.16% ownership interest in Alabama Power's Plant Miller Units 1 and 2. PowerSouth's facilities were financed with RUS loans secured by long-term contracts requiring distributing cooperatives to take their requirements from PowerSouth to the extent such energy is available. See PROPERTIES – "Jointly-Owned Facilities" in Item 2 herein for details of Alabama Power's joint-ownership with PowerSouth of a portion of Plant Miller. Alabama Power has a system supply agreement with PowerSouth to provide 200 MWs of capacity service through December 31, 2030 with an option to extend and renegotiate in the event Alabama Power builds new generation or contracts for new capacity.
Alabama Power and Gulf Power have entered into separate agreements with PowerSouth involving interconnection between their respective systems. The delivery of capacity and energy from PowerSouth to certain distributing cooperatives in the service territories of Alabama Power and Gulf Power is governed by the Southern Company/PowerSouth Network Transmission Service Agreement. The rates for this service to PowerSouth are on file with the FERC.
OPC is an EMC owned by its 38 retail electric distribution cooperatives, which provide retail electric service to customers in Georgia. OPC provides wholesale electric power to its members through its generation assets and power purchased from other suppliers.
Four electric cooperative associations, financed by the RUS, operate within Gulf Power's service territory. These cooperatives purchase their full requirements from PowerSouth and SEPA (a federal power marketing agency). A non-affiliated utility also operates within Gulf Power's service territory and purchases its full requirements from Gulf Power.
Mississippi Power has an interchange agreement with Cooperative Energy, a generating and transmitting cooperative, pursuant to which various services are provided.
As of December 31, 2017, there were approximately 72 municipally-owned electric distribution systems operating in the territory in which the traditional electric operating companies provide electric service at retail or wholesale.
As of December 31, 2017, 48 municipally-owned electric distribution systems and one county-owned system received their requirements through MEAG Power, which was established by a Georgia state statute in 1975. MEAG Power serves these requirements from self-owned generation facilities, some of which are jointly-owned with Georgia Power, and purchases from other resources. MEAG Power also has a pseudo scheduling and services agreement with Georgia Power. Dalton serves its requirements from self-owned generation facilities, some of which are jointly-owned with Georgia Power, and through purchases from Georgia Power and Southern Power through a service agreement. See PROPERTIES – "Jointly-Owned Facilities" in Item 2 herein for additional information.
Georgia Power has entered into substantially similar agreements with Georgia Transmission Corporation, MEAG Power, and Dalton providing for the establishment of an integrated transmission system to carry the power and energy of all parties. The agreements require an investment by each party in the integrated transmission system in proportion to its respective share of the aggregate system load. See PROPERTIES – "Jointly-Owned Facilities" in Item 2 herein for additional information.

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Southern Power assumed or entered into PPAs with some of the traditional electric operating companies, investor-owned utilities, IPPs, municipalities, electric cooperatives, and other load-serving entities, as well as commercial and industrial customers. See "The Southern Company System – Southern Power" above and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Power Sales Agreements" of Southern Power in Item 7 herein for additional information concerning Southern Power's PPAs.
SCS, acting on behalf of the traditional electric operating companies, also has a contract with SEPA providing for the use of the traditional electric operating companies' facilities at government expense to deliver to certain cooperatives and municipalities, entitled by federal statute to preference in the purchase of power from SEPA, quantities of power equivalent to the amounts of power allocated to them by SEPA from certain U.S. government hydroelectric projects.
Southern Company Gas
Southern Company Gas is engaged in the distribution of natural gas in seven states through the natural gas distribution utilities. The natural gas distribution utilities construct, manage, and maintain intrastate natural gas pipelines and distribution facilities. Details of the natural gas distribution utilities at December 31, 2017 are as follows:
Utility
State
Number of customers

Approximate miles of pipe

 
 
(in thousands)
 
Nicor Gas
Illinois
2,228

34,300

Atlanta Gas Light Company
Georgia
1,622

33,500

Virginia Natural Gas
Virginia
299

5,600

Elizabethtown Gas(*)
New Jersey
292

3,200

Florida City Gas
Florida
109

3,700

Chattanooga Gas Company
Tennessee
66

1,600

Elkton Gas(*)
Maryland
7

100

Total
 
4,623

82,000

(*)
For information relating to the pending asset sales of Elizabethtown Gas and Elkton Gas, see MANAGEMENT'S DISCUSSION AND ANALYSIS – OVERVIEW – "Merger, Acquisition, and Disposition Activities" of Southern Company Gas in Item 7 herein and Note 11 to the financial statements of Southern Company Gas under "Proposed Sale of Elizabethtown Gas and Elkton Gas" in Item 8 herein.
For information relating to the sources of revenue for Southern Company Gas, see MANAGEMENT'S DISCUSSION AND ANALYSIS – RESULTS OF OPERATIONS and – FUTURE EARNINGS POTENTIAL of Southern Company Gas in Item 7 herein.
Competition
Electric
The electric utility industry in the U.S. is continuing to evolve as a result of regulatory and competitive factors. Among the early primary agents of change was the Energy Policy Act of 1992, which allowed IPPs to access a utility's transmission network in order to sell electricity to other utilities.
The competition for retail energy sales among competing suppliers of energy is influenced by various factors, including price, availability, technological advancements, service, and reliability. These factors are, in turn, affected by, among other influences, regulatory, political, and environmental considerations, taxation, and supply.
The retail service rights of all electric suppliers in the State of Georgia are regulated by the Territorial Electric Service Act of 1973. Pursuant to the provisions of this Act, all areas within existing municipal limits were assigned to the primary electric supplier therein. Areas outside of such municipal limits were either to be assigned or to be declared open for customer choice of supplier by action of the Georgia PSC pursuant to standards set forth in this Act. Consistent with such standards, the Georgia PSC has assigned substantially all of the land area in the state to a supplier. Notwithstanding such assignments, this Act provides that any new customer locating outside of 1973 municipal limits and having a connected load of at least 900 KWs may exercise a one-time choice for the life of the premises to receive electric service from the supplier of its choice.
Pursuant to the 1956 Utility Act, the Mississippi PSC issued "Grandfather Certificates" of public convenience and necessity to Mississippi Power and to six distribution rural cooperatives operating in southeastern Mississippi, then served in whole or in part by Mississippi Power, authorizing them to distribute electricity in certain specified geographically described areas of the state. The six cooperatives serve approximately 325,000 retail customers in a certificated area of approximately 10,300 square miles. In areas included in a "Grandfather Certificate," the utility holding such certificate may extend or maintain its electric

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system subject to certain regulatory approvals; extensions of facilities by such utility, or extensions of facilities into that area by other utilities, may not be made except upon a showing of, and a grant of a certificate of, public convenience and necessity. Areas included in such a certificate that are subsequently annexed to municipalities may continue to be served by the holder of the certificate, irrespective of whether it has a franchise in the annexing municipality. On the other hand, the holder of the municipal franchise may not extend service into such newly annexed area without authorization by the Mississippi PSC.
Generally, the traditional electric operating companies have experienced, and expect to continue to experience, competition in their respective retail service territories in varying degrees from the development and deployment of alternative energy sources such as self-generation (as described below) and distributed generation technologies, as well as other factors.
Southern Power competes with investor-owned utilities, IPPs, and others for wholesale energy sales across various U.S. utility markets. The needs of these markets are driven by the demands of end users and the generation available. Southern Power's success in wholesale energy sales is influenced by various factors including reliability and availability of Southern Power's plants, availability of transmission to serve the demand, price, and Southern Power's ability to contain costs.
As of December 31, 2017, Alabama Power had cogeneration contracts in effect with eight industrial customers. Under the terms of these contracts, Alabama Power purchases excess energy generated by such companies. During 2017, Alabama Power purchased approximately 98 million KWHs from such companies at a cost of $3 million.
As of December 31, 2017, Georgia Power had contracts in effect with 27 small power producers whereby Georgia Power purchases their excess generation. During 2017, Georgia Power purchased 1.6 billion KWHs from such companies at a cost of $114 million. Georgia Power also has PPAs for electricity with four cogeneration facilities. Payments are subject to reductions for failure to meet minimum capacity output. During 2017, Georgia Power purchased 26 million KWHs at a cost of $0.7 million from these facilities.
Also during 2017, Georgia Power purchased energy from three customer-owned generating facilities. These customers provide only energy to Georgia Power, make no capacity commitment, and are not dispatched by Georgia Power. During 2017, Georgia Power purchased a total of 317 million KWHs from the three customers at a cost of approximately $25 million.
As of December 31, 2017, Gulf Power had agreements in effect with various industrial, commercial, and qualifying facilities pursuant to which Gulf Power purchases "as available" energy from customer-owned generation. During 2017, Gulf Power purchased 277 million KWHs from such companies for approximately $7 million.
As of December 31, 2017, Mississippi Power had a cogeneration agreement in effect with one of its industrial customers. Under the terms of this contract, Mississippi Power purchases any excess generation. During 2017, Mississippi Power did not purchase any excess generation from this customer.
Natural Gas
Southern Company Gas' natural gas distribution utilities do not compete with other distributors of natural gas in their exclusive franchise territories but face competition from other energy products. Their principal competitors are electric utilities and fuel oil and propane providers serving the residential, commercial, and industrial markets in their service areas for customers who are considering switching to or from a natural gas appliance.
Competition for heating as well as general household and small commercial energy needs generally occurs at the initial installation phase when the customer or builder makes decisions as to which types of equipment to install. Customers generally use the chosen energy source for the life of the equipment.
Customer demand for natural gas could be affected by numerous factors, including:
changes in the availability or price of natural gas and other forms of energy;
general economic conditions;
energy conservation, including state-supported energy efficiency programs;
legislation and regulations;
the cost and capability to convert from natural gas to alternative energy products; and
technological changes resulting in displacement or replacement of natural gas appliances.
The natural gas-related programs generally emphasize natural gas as the fuel of choice for customers and seek to expand the use of natural gas through a variety of promotional activities. In addition, Southern Company Gas partners with third-party entities to market the benefits of natural gas appliances.
The availability and affordability of natural gas have provided cost advantages and further opportunity for growth of the businesses.

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Seasonality
The demand for electric power and natural gas supply is affected by seasonal differences in the weather. In most of the areas the traditional electric operating companies serve, electric power sales peak during the summer with a smaller peak during the winter, while in most of the areas Southern Company Gas serves, natural gas demand peaks during the winter. As a result, the overall operating results of Southern Company, the traditional electric operating companies, Southern Power, and Southern Company Gas in the future may fluctuate substantially on a seasonal basis. In addition, Southern Company, the traditional electric operating companies, Southern Power, and Southern Company Gas have historically sold less power and natural gas when weather conditions are milder.
Regulation
State Commissions
The traditional electric operating companies and the natural gas distribution utilities are subject to the jurisdiction of their respective state PSCs or applicable state regulatory agencies. These regulatory bodies have broad powers of supervision and regulation over public utilities operating in the respective states, including their rates, service regulations, sales of securities (except for the Mississippi PSC), and, in the cases of the Georgia PSC and the Mississippi PSC, in part, retail service territories. See "Territory Served by the Southern Company System" and "Rate Matters" herein for additional information.
Federal Power Act
The traditional electric operating companies, Southern Power Company and certain of its generation subsidiaries, and SEGCO are all public utilities engaged in wholesale sales of energy in interstate commerce and, therefore, are subject to the rate, financial, and accounting jurisdiction of the FERC under the Federal Power Act. The FERC must approve certain financings and allows an "at cost standard" for services rendered by system service companies such as SCS and Southern Nuclear. The FERC is also authorized to establish regional reliability organizations which enforce reliability standards, address impediments to the construction of transmission, and prohibit manipulative energy trading practices.
Alabama Power and Georgia Power are also subject to the provisions of the Federal Power Act or the earlier Federal Water Power Act applicable to licensees with respect to their hydroelectric developments. As of December 31, 2017, among the hydroelectric projects subject to licensing by the FERC are 14 existing Alabama Power generating stations having an aggregate installed capacity of 1,670,000 KWs and 17 existing Georgia Power generating stations and one generating station partially owned by Georgia Power, with a combined aggregate installed capacity of 1,087,296 KWs.
In 2013, the FERC issued a new 30-year license to Alabama Power for Alabama Power's seven hydroelectric developments on the Coosa River (Weiss, Henry, Logan Martin, Lay, Mitchell, Jordan, and Bouldin). Alabama Power filed a petition requesting rehearing of the FERC order granting the relicense seeking revisions to several conditions of the license. Alabama Rivers Alliance, American Rivers, the Georgia Environmental Protection Division, and the Atlanta Regional Commission also filed petitions for rehearing of the FERC order. In April 2016, the FERC issued an order granting in part and denying in part Alabama Power's rehearing request. The order also denied all of the other rehearing requests. In May 2016, Alabama Rivers Alliance and American Rivers filed a second rehearing request and, in June 2016, also filed a petition with the U.S. Court of Appeals for the District of Columbia Circuit for review of the license and the rehearing denial order. The FERC issued an order in September 2016 denying the second rehearing request, and American Rivers and Alabama Rivers Alliance subsequently filed an appeal of that order at the U.S. Court of Appeals for the District of Columbia Circuit. The U.S. Court of Appeals for the District of Columbia Circuit consolidated the two appeals into one proceeding.
In 2017, Alabama Power continued the process of developing an application to relicense the Harris Dam project on the Tallapoosa River, which is expected to be filed with the FERC by November 30, 2021. The current Harris Dam project license will expire on November 30, 2023.
In 2017, Georgia Power continued the process of developing an application to relicense the Wallace Dam project on the Oconee River. The current Wallace Dam project license will expire on June 1, 2020. Georgia Power's hydro electric licenses expiring in 2023 include the Lloyd Shoals project, the Riverview project, and the Langdale project. The FERC relicensing proceedings for these three projects are expected to begin in 2018.
Georgia Power and OPC also have a license, expiring in 2027, for the Rocky Mountain Plant, a pure pumped storage facility of 847,800 KW capacity. See PROPERTIES – "Jointly-Owned Facilities" in Item 2 herein for additional information.
Licenses for all projects, excluding those discussed above, expire in the years 2023-2066 in the case of Alabama Power's projects and in the years 2035-2044 in the case of Georgia Power's projects.
Upon or after the expiration of each license, the U.S. Government, by act of Congress, may take over the project or the FERC may relicense the project either to the original licensee or to a new licensee. In the event of takeover or relicensing to another,

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the original licensee is to be compensated in accordance with the provisions of the Federal Power Act, such compensation to reflect the net investment of the licensee in the project, not in excess of the fair value of the property, plus reasonable damages to other property of the licensee resulting from the severance therefrom of the property. The FERC may grant relicenses subject to certain requirements that could result in additional costs.
The ultimate outcome of these matters cannot be determined at this time.
Nuclear Regulation
Alabama Power, Georgia Power, and Southern Nuclear are subject to regulation by the NRC. The NRC is responsible for licensing and regulating nuclear facilities and materials and for conducting research in support of the licensing and regulatory process, as mandated by the Atomic Energy Act of 1954, as amended; the Energy Reorganization Act of 1974, as amended; and the Nuclear Nonproliferation Act of 1978, as amended; and in accordance with the National Environmental Policy Act of 1969, as amended, and other applicable statutes. These responsibilities also include protecting public health and safety, protecting the environment, protecting and safeguarding nuclear materials and nuclear power plants in the interest of national security, and assuring conformity with antitrust laws.
The NRC licenses for Georgia Power's Plant Hatch Units 1 and 2 expire in 2034 and 2038, respectively. The NRC licenses for Alabama Power's Plant Farley Units 1 and 2 expire in 2037 and 2041, respectively. The NRC licenses for Plant Vogtle Units 1 and 2 expire in 2047 and 2049, respectively.
In 2012, the NRC issued combined construction and operating licenses (COLs) for Plant Vogtle Units 3 and 4. Receipt of the COLs allowed full construction to begin. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Nuclear Construction" of Georgia Power in Item 7 herein and Note 3 to the financial statements of Southern Company under "Nuclear Construction" and Georgia Power under "Retail Regulatory Matters – Nuclear Construction" in Item 8 herein for additional information.
See Notes 1 and 9 to the financial statements of Southern Company, Alabama Power, and Georgia Power in Item 8 herein for information on nuclear decommissioning costs and nuclear insurance.
Environmental Laws and Regulations
The Southern Company system's operations are regulated by state and federal environmental agencies through a variety of laws and regulations governing air, water, land, and protection of other natural resources. Compliance with these existing environmental requirements involves significant capital and operating costs, a major portion of which is expected to be recovered through existing ratemaking provisions or through market-based contracts. There is no assurance, however, that all such costs will be recovered. For Southern Company Gas, substantially all of these costs are related to former manufactured gas plants sites, which are primarily recovered through existing ratemaking provisions. See Note 3 to the financial statements of Southern Company Gas under "Environmental Matters" in Item 8 herein for additional information.
Compliance with federal environmental laws and resulting regulations has been, and will continue to be, a significant focus for Southern Company, each traditional electric operating company, Southern Power, SEGCO, and Southern Company Gas. New or revised environmental laws and regulations could affect many areas of the traditional electric operating companies', Southern Power's, and the natural gas distribution utilities' operations. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Southern Company and each of the traditional electric operating companies in Item 7 herein for additional information about environmental issues, including, but not limited to, proposed and final regulations related to air quality, water quality, CCRs, and global climate issues. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Southern Power in Item 7 herein for additional information about environmental issues and global climate issues. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Southern Company Gas in Item 7 herein for additional information about environmental remediation liabilities.
The Southern Company system's ultimate environmental compliance strategy, including potential electric generating unit retirement and replacement decisions, and future environmental capital expenditures will depend on various factors, such as state-level adoption and implementation of requirements, the availability and cost of any deployed control technology, and the outcome of pending and/or future legal challenges. Compliance costs may result from the installation of additional environmental controls, closure and monitoring of CCR facilities, unit retirements, and adding or changing fuel sources for certain existing units, as well as related upgrades to the transmission system. Environmental compliance spending over the next several years may differ materially from the amounts estimated. Such expenditures could affect results of operations, cash flows, and financial condition if such costs are not recovered on a timely basis through regulated rates for the traditional electric operating companies and the natural gas distribution utilities or through long-term wholesale agreements for the traditional electric operating companies and Southern Power. Further, higher costs that are recovered through regulated rates

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could contribute to reduced demand for energy, which could negatively affect results of operations, cash flows, and financial condition. Additionally, many commercial and industrial customers may also be affected by existing and future environmental requirements, which for some may have the potential to ultimately affect their demand for electricity and natural gas. See "Construction Program" herein and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Southern Company, each of the traditional electric operating companies, Southern Power, and Southern Company Gas in Item 7 herein for additional information. The ultimate outcome of these matters cannot be determined at this time.
Rate Matters
Rate Structure and Cost Recovery Plans
Electric
The rates and service regulations of the traditional electric operating companies are uniform for each class of service throughout their respective retail service territories. Rates for residential electric service are generally of the block type based upon KWHs used and include minimum charges. Residential and other rates contain separate customer charges. Rates for commercial service are presently of the block type and, for large customers, the billing demand is generally used to determine capacity and minimum bill charges. These large customers' rates are generally based upon usage by the customer and include rates with special features to encourage off-peak usage. Additionally, Alabama Power, Gulf Power, and Mississippi Power are generally allowed by their respective state PSCs to negotiate the terms and cost of service to large customers. Such terms and cost of service, however, are subject to final state PSC approval.
The traditional electric operating companies recover certain costs through a variety of forward-looking, cost-based rate mechanisms. Fuel and net purchased energy costs are recovered through specific fuel cost recovery provisions. These fuel cost recovery provisions are adjusted to reflect increases or decreases in such costs as needed or on schedules as required by the respective PSCs. Approved compliance, storm damage, and certain other costs are recovered at Alabama Power, Gulf Power, and Mississippi Power through specific cost recovery mechanisms approved by their respective PSCs. Certain similar costs at Georgia Power are recovered through various base rate tariffs as approved by the Georgia PSC. Costs not recovered through specific cost recovery mechanisms are recovered at Alabama Power and Mississippi Power through annual, formulaic cost recovery proceedings and at Georgia Power and Gulf Power through periodic base rate proceedings.
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Regulatory Matters" of Southern Company and each of the traditional electric operating companies in Item 7 herein and Note 3 to the financial statements of Southern Company and each of the traditional electric operating companies under "Retail Regulatory Matters" in Item 8 herein for a discussion of rate matters and certain cost recovery mechanisms. Also, see Note 1 to the financial statements of Southern Company and each of the traditional electric operating companies in Item 8 herein for a discussion of recovery of fuel costs, storm damage costs, and compliance costs through rate mechanisms.
See "Integrated Resource Planning" herein for a discussion of Georgia PSC certification of new demand-side or supply-side resources for Georgia Power. In addition, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Nuclear Construction" of Georgia Power in Item 7 herein and Note 3 to the financial statements of Southern Company under "Nuclear Construction" and Georgia Power under "Retail Regulatory Matters – Nuclear Construction" in Item 8 herein for a discussion of the Georgia Nuclear Energy Financing Act and the Georgia PSC certification of Plant Vogtle Units 3 and 4, which have allowed Georgia Power to recover financing costs for construction of Plant Vogtle Units 3 and 4 during the construction period beginning in 2011.
See Note 3 to the financial statements of Southern Company and Mississippi Power under "Kemper County Energy Facility" in Item 8 herein and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Kemper County Energy Facility – Rate Recovery" of Mississippi Power in Item 7 herein for information on cost recovery plans with respect to the Kemper County energy facility.
The traditional electric operating companies and Southern Power Company and certain of its generation subsidiaries are authorized by the FERC to sell power to non-affiliates, including short-term opportunity sales, at market-based prices. Specific FERC approval must be obtained with respect to a market-based contract with an affiliate. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "FERC Matters" of each of the registrants in Item 7 herein for information on the traditional electric operating companies' and Southern Power Company's market-based rate authority and pending FERC proceedings relating to this authority.
Mississippi Power serves long-term contracts with rural electric cooperative associations and a municipality located in southeastern Mississippi under cost-based electric tariffs which are subject to regulation by the FERC. The contracts with these wholesale customers represented 19.3% of Mississippi Power's operating revenues in 2017 and are largely subject to rolling 10-

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year cancellation notices. Historically, these wholesale customers have acted as a group and any changes in contractual relationships for one customer are likely to be followed by the other wholesale customers.
Natural Gas
Southern Company Gas' seven natural gas distribution utilities are subject to regulation and oversight by their respective state regulatory agencies with respect to rates charged to their customers, maintenance of accounting records, and various service and safety matters. Rates charged to these customers vary according to customer class (residential, commercial, or industrial) and rate jurisdiction. These agencies approve rates designed to provide each natural gas distribution utility the opportunity to generate revenues to recover all prudently-incurred costs, including a return on rate base sufficient to pay interest on debt, and provide a reasonable return. Rate base generally consists of the original cost of the utility plant in service, working capital, and certain other assets, less accumulated depreciation on the utility plant in service and net deferred income tax liabilities, and may include certain other additions or deductions.
With the exception of Atlanta Gas Light Company, which operates in a deregulated environment in which gas marketers rather than a traditional utility sell natural gas to end-use customers and earns revenue by charging rates to its customers based primarily on monthly fixed charges that are set by the Georgia PSC, the earnings of the natural gas distribution utilities can be affected by customer consumption patterns that are largely a function of weather conditions and price levels for natural gas.
The natural gas distribution utilities, excluding Atlanta Gas Light Company, are authorized to use natural gas cost recovery mechanisms that allow them to adjust their rates to reflect changes in the wholesale cost of natural gas and to ensure they recover all of the costs prudently incurred in purchasing natural gas for their customers. In addition to natural gas cost recovery mechanisms, the natural gas distribution utilities have other cost recovery mechanisms, such as regulatory riders, which vary by utility but allow recovery of certain costs, such as those related to infrastructure replacement programs as well as environmental remediation and energy efficiency plans.
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Regulatory Matters – Utility Regulation and Rate Design" of Southern Company Gas in Item 7 herein and Note 3 to the financial statements of Southern Company Gas under "Regulatory Matters" in Item 8 herein for a discussion of rate matters and certain cost recovery mechanisms.
Integrated Resource Planning
Each of the traditional electric operating companies continually evaluates its electric generating resources in order to ensure that it maintains a cost-effective and reliable mix of resources to meet the existing and future demand requirements of its customers. See "Environmental Laws and Regulations" above for a discussion of existing and potential environmental regulations that may impact the future generating resource needs of the traditional electric operating companies.
Certain of the traditional electric operating companies are required to file IRPs with their respective state PSC as discussed below.
Georgia Power
Triennially, Georgia Power must file an IRP with the Georgia PSC that specifies how it intends to meet the future electric service needs of its customers through a combination of demand-side and supply-side resources. The Georgia PSC, under state law, must certify any new demand-side or supply-side resources for Georgia Power to receive cost recovery. Once certified, the lesser of actual or certified construction costs and purchased power costs is recoverable through rates. Certified costs may be excluded from recovery only on the basis of fraud, concealment, failure to disclose a material fact, imprudence, or criminal misconduct.
See Note 3 to the financial statements of Southern Company under "Regulatory Matters – Georgia Power – Rate Plans" and " – Integrated Resource Plan" and "Nuclear Construction" and Note 3 to the financial statements of Georgia Power under "Retail Regulatory Matters – Rate Plans," "– Integrated Resource Plan," and "– Nuclear Construction" in Item 8 herein for additional information.
Gulf Power
Annually by April 1, Gulf Power must file a 10-year site plan with the Florida PSC containing Gulf Power's estimate of its power-generating needs in the period and the general location of its proposed power plant sites. The 10-year site plans submitted by the state's electric utilities are reviewed by the Florida PSC and subsequently classified as either "suitable" or "unsuitable." The Florida PSC then reports its findings along with any suggested revisions to the Florida Department of Environmental Protection for its consideration at any subsequent electrical power plant site certification proceedings. Under

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Florida law, any 10-year site plans submitted by an electric utility are considered tentative information for planning purposes only and may be amended at any time at the discretion of the utility with written notification to the Florida PSC.
Gulf Power's most recent 10-year site plan was classified by the Florida PSC as "suitable" in November 2017. The plan identifies environmental regulations and potential legislation or regulation that would impose mandatory restrictions on greenhouse gas emissions. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Laws and Regulations – Air Quality," "– Environmental Laws and Regulations – Coal Combustion Residuals," and "– Global Climate Issues" of Gulf Power in Item 7 herein.
As a result of the cost to comply with environmental regulations imposed by the EPA, Gulf Power retired its coal-fired generation at Plant Smith Units 1 and 2 (357 MWs) in March 2016. In August 2016, the Florida PSC approved Gulf Power's request to reclassify the remaining net book value of Plant Smith Units 1 and 2 and the remaining materials and supplies associated with these units as of the retirement date, totaling approximately $63 million, to a regulatory asset. Gulf Power began amortizing the investment balances over 15 years effective January 1, 2018 as determined in a rate case settlement agreement approved by the Florida PSC on April 4, 2017.
Mississippi Power
Mississippi Power's 2010 IRP indicated that, among other things, Mississippi Power planned to construct the Kemper County energy facility as an IGCC to meet its identified needs, to add environmental controls at Plant Daniel Units 1 and 2, to defer environmental controls at Plant Watson Units 4 and 5, and to continue operation of the combined cycle Plant Daniel Units 3 and 4. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Laws and Regulations – Air Quality" and "– Global Climate Issues" of Mississippi Power in Item 7 herein.
On February 6, 2018, the Mississippi PSC approved a settlement agreement related to cost recovery for the Kemper County energy facility, pursuant to which Mississippi Power agreed to file a Reserve Margin Plan (RMP) by August 2018. The RMP will include many of the same aspects of a traditional IRP, but the RMP will also contain alternatives proposed by Mississippi Power to address its current capacity which is in excess of Mississippi Power's long-term targeted reserve margin. The ultimate outcome of this matter cannot be determined at this time.
For additional information regarding the Kemper County energy facility, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Kemper County Energy Facility" of Mississippi Power in Item 7 herein and Note 3 to the financial statements of Southern Company and Mississippi Power under "Kemper County Energy Facility" in Item 8 herein.
Employee Relations
The Southern Company system had a total of 31,344 employees on its payroll at December 31, 2017.
 
Employees at December 31, 2017
Alabama Power
6,613

Georgia Power
6,986

Gulf Power
1,288

Mississippi Power
1,242

PowerSecure
1,448

SCS
3,740

Southern Company Gas
5,318

Southern Nuclear
3,936

Southern Power
541

Other
232

Total
31,344

The traditional electric operating companies and the natural gas distribution utilities have separate agreements with local unions of the IBEW and the Utilities Workers Union of America generally covering wages, working conditions, and procedures for handling grievances and arbitration. These agreements apply with certain exceptions to operating, maintenance, and construction employees.
Alabama Power has agreements with the IBEW in effect through August 15, 2019. Upon notice given at least 60 days prior to that date, negotiations may be initiated with respect to agreement terms to be effective after such date.

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Georgia Power has an agreement with the IBEW covering wages and working conditions, which is in effect through June 30, 2021.
Gulf Power has an agreement with the IBEW covering wages and working conditions, which is in effect through April 15, 2019. Upon notice given at least 60 days prior to that date, negotiations may be initiated with respect to agreement terms to be effective after such date.
Mississippi Power has an agreement with the IBEW covering wages and working conditions, which is in effect through May 1, 2019. In 2015, Mississippi Power signed a separate agreement with the IBEW related solely to the Kemper County energy facility; that current agreement is in effect through March 15, 2021. In August 2017, Mississippi Power signed an agreement with the IBEW that added several job classifications and provided guidelines related to the reorganization at the Kemper County energy facility.
Southern Nuclear has a five-year agreement with the IBEW covering certain employees at Plants Hatch and Plant Vogtle Units 1 and 2, which is in effect through June 30, 2021. A five-year agreement between Southern Nuclear and the IBEW representing certain employees at Plant Farley is in effect through August 15, 2019. Upon notice given at least 60 days prior to that date, negotiations may be initiated with respect to agreement terms to be effective after such date.
The agreements also make the terms of the pension plans for the companies discussed above subject to collective bargaining with the unions at either a five-year or a 10-year cycle, depending upon union and company actions.
The natural gas distribution utilities have separate agreements with local unions of the IBEW and Utilities Workers Union of America covering wages, working conditions, and procedures for handling grievances and arbitration. Nicor Gas' agreement with the IBEW is effective through February 29, 2020. Virginia Natural Gas' agreement with the IBEW is effective through May 16, 2020. Elizabethtown Gas' agreement with the Utility Workers Union of America is effective through November 21, 2019. The agreements also make the terms of the Southern Company Gas pension plan subject to collective bargaining with the unions when significant changes to the benefit accruals are considered by Southern Company Gas.
Effective in December 2017, 538 employees transferred from SCS to Southern Power. Southern Power became obligated for related employee costs including pension, other postretirement benefits, and stock-based compensation and has recognized the respective balance sheet assets and liabilities, including accumulated other comprehensive income impacts, in its balance sheet at December 31, 2017. Prior to the transfer of employees, Southern Power's agreements with SCS provided for employee services rendered at amounts in compliance with FERC regulations.


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Item 1A. RISK FACTORS
In addition to the other information in this Form 10-K, including MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL in Item 7 of each registrant, and other documents filed by Southern Company and/or its subsidiaries with the SEC from time to time, the following factors should be carefully considered in evaluating Southern Company and its subsidiaries. Such factors could affect actual results and cause results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, Southern Company and/or its subsidiaries.
UTILITY REGULATORY, LEGISLATIVE, AND LITIGATION RISKS
Southern Company and its subsidiaries are subject to substantial state and federal governmental regulation. Compliance with current and future regulatory requirements and procurement of necessary approvals, permits, and certificates may result in substantial costs to Southern Company and its subsidiaries.
Southern Company and its subsidiaries, including the traditional electric operating companies, Southern Power, and Southern Company Gas, are subject to substantial regulation from federal, state, and local regulatory agencies. Southern Company and its subsidiaries are required to comply with numerous laws and regulations and to obtain numerous permits, approvals, and certificates from the governmental agencies that regulate various aspects of their businesses. Jointly-owned facilities may be subject to regulation by governmental agencies of more than one state and those state's governmental agencies may have different policies with respect to such jointly-owned facilities. The traditional electric operating companies and the natural gas distribution utilities seek to recover their costs (including a reasonable return on invested capital) through their retail rates, which must be approved by the applicable state PSC or other applicable state regulatory agency. A state PSC or other applicable state regulatory agency, in a future rate proceeding, may alter the timing or amount of certain costs for which recovery is allowed or modify the current authorized rate of return. Rate refunds may also be required. Additionally, the rates charged to wholesale customers by the traditional electric operating companies and by Southern Power and the rates charged to natural gas transportation customers by Southern Company Gas' pipeline investments must be approved by the FERC. These wholesale rates could be affected by changes to Southern Power's and the traditional electric operating companies' ability to conduct business pursuant to FERC market-based rate authority. The FERC rules related to retaining the authority to sell electricity at market-based rates in the wholesale markets are important for the traditional electric operating companies and Southern Power if they are to remain competitive in the wholesale markets in which they operate.
The impact of any future revision or changes in interpretations of existing regulations or the adoption of new laws and regulations applicable to Southern Company or any of its subsidiaries is uncertain. Changes in regulation or the imposition of additional regulations could influence the operating environment of Southern Company and its subsidiaries and may result in substantial costs or otherwise negatively affect their results of operations.
The Southern Company system's costs of compliance with environmental laws are significant. The costs of compliance with current and future environmental laws and the incurrence of environmental liabilities could negatively impact the net income, cash flows, and financial condition of the registrants.
The Southern Company system's operations are subject to extensive regulation by state and federal environmental agencies through a variety of laws and regulations governing air, water, land, and the protection of other natural resources. Compliance with these existing environmental requirements involves significant capital and operating costs, a major portion of which is expected to be recovered through existing ratemaking provisions or through market-based contracts. There is no assurance, however, that all such costs will be recovered. The registrants expect that these expenditures will continue to be significant in the future.
The EPA has adopted and is implementing regulations governing air and water quality, including the emission of nitrogen oxide, sulfur dioxide, fine particulate matter, ozone, mercury, and other air pollutants under the Clean Air Act and regulations governing cooling water intake structures and effluent guidelines for steam electric generating plants under the Clean Water Act. The EPA also is reconsidering regulations governing the disposal of CCR, including coal ash and gypsum, in landfills and surface impoundments at power generation plants.
Additionally, environmental laws and regulations covering the handling and disposal of waste and release of hazardous substances could require the Southern Company system to incur substantial costs to clean up affected sites, including certain current and former operating sites, and locations affected by historical operations or subject to contractual obligations.
Existing environmental laws and regulations may be revised or new laws and regulations related to air, water, land, and the protection of other natural resources may be adopted or become applicable to the traditional electric operating companies, Southern Power, and/or Southern Company Gas.

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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 standards for air, water, land, and protection of other natural resources, has occurred throughout the U.S. This litigation has included claims for damages alleged to have been caused by CO2 and other emissions, CCR, releases of regulated substances, and alleged exposure to regulated substances, and/or requests for injunctive relief in connection with such matters.
The Southern Company system's ultimate environmental compliance strategy, including potential electric generating unit retirement and replacement decisions, and future environmental capital expenditures will depend on various factors, such as state adoption and implementation of requirements, the availability and cost of any deployed control technology, and the outcome of pending and/or future legal challenges. Compliance costs may result from the installation of additional environmental controls, closure and monitoring of CCR facilities, unit retirements, and adding or changing fuel sources for certain existing units, as well as related upgrades to the transmission system. Environmental compliance spending over the next several years may differ materially from the amounts estimated. Such expenditures could affect results of operations, cash flows, and financial condition if such costs are not recovered on a timely basis through regulated rates for the traditional electric operating companies and the natural gas distribution utilities or through long-term wholesale agreements for the traditional electric operating companies and Southern Power. Further, higher costs that are recovered through regulated rates could contribute to reduced demand for energy, which could negatively affect results of operations, cash flows, and financial condition. Additionally, many commercial and industrial customers may also be affected by existing and future environmental requirements, which for some may have the potential to ultimately affect their demand for electricity or natural gas.
Compliance with any new or revised environmental laws or regulations could affect many areas of the traditional electric operating companies', Southern Power's, and the natural gas distribution utilities' operations. The ultimate impact will depend on various factors, such as state adoption and implementation of requirements, the availability and cost of any deployed control technology, and the outcome of pending and/or future legal challenges. Additionally, many commercial and industrial customers may also be affected by existing and future environmental requirements, which may affect their demand for electricity and natural gas.
The Southern Company system may be exposed to regulatory and financial risks related to the impact of greenhouse gas (GHG) legislation and regulation.
In 2015, the EPA published final rules limiting CO2 emissions from new, modified, and reconstructed fossil fuel-fired electric generating units and guidelines for states to develop plans to meet EPA-mandated CO2 emission performance standards for existing units (known as the Clean Power Plan or CPP). In February 2016, the U.S. Supreme Court granted a stay of the CPP, which will remain in effect through the resolution of the litigation in the U.S. Court of Appeals for the District of Columbia challenging the legality of the CPP and any review by the U.S. Supreme Court. On March 28, 2017, the U.S. President signed an executive order directing agencies to review actions that potentially burden the development or use of domestically produced energy resources, including review of the CPP and other CO2 emissions rules. On October 10, 2017, the EPA published a proposed rule to repeal the CPP and, on December 28, 2017, published an advanced notice of proposed rulemaking regarding a CPP replacement rule.
In 2015, parties to the United Nations Framework Convention on Climate Change, including the United States, adopted the Paris Agreement, which established a non-binding universal framework for addressing GHG emissions based on nationally determined contributions. On June 1, 2017, the U.S. President announced that the United States would withdraw from the Paris Agreement and begin renegotiating its terms. The ultimate impact of this agreement or any renegotiated agreement depends on its implementation by participating countries.
Costs associated with these actions could be significant to the utility industry and the Southern Company system. However, the ultimate impact of these environmental laws and regulations will depend on various factors, such as state adoption and implementation of requirements, the availability and cost of any deployed control technology, and the outcome of pending and/or future legal challenges.
Because natural gas is a fossil fuel with lower carbon content relative to other fossil fuels, future GHG constraints may create additional demand for natural gas, both for production of electricity and direct use in homes and businesses.  The impact is already being seen in the power production sector due to both environmental regulations and low natural gas costs. Future GHG constraints focused on minimizing emissions from natural gas, albeit lower than other fossil fuels, could likewise result in increased costs to the Southern Company system and affect the demand for natural gas as well as the prices charged to customers and the competitive position of natural gas.

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The net income of Southern Company, the traditional electric operating companies, and Southern Power could be negatively impacted by changes in regulations related to transmission planning processes and competition in the wholesale electric markets.
The traditional electric operating companies currently own and operate transmission facilities as part of a vertically integrated utility. A small percentage of transmission revenues are collected through the wholesale electric tariff but the majority of transmission revenues are collected through retail rates. FERC rules pertaining to regional transmission planning and cost allocation present challenges to transmission planning and the wholesale market structure in the Southeast. The key impacts of these rules include:
possible disruption of the integrated resource planning processes within the states in the Southern Company system's service territory;
delays and additional processes for developing transmission plans; and
possible impacts on state jurisdiction of approving, certifying, and pricing new transmission facilities.
The FERC rules related to transmission are intended to spur the development of new transmission infrastructure to promote and encourage the integration of renewable sources of supply as well as facilitate competition in the wholesale market by providing more choices to wholesale power customers. Technology changes in the power and fuel industries continue to create significant impacts to wholesale transaction cost structures. The impact of these and other such developments and the effect of changes in levels of wholesale supply and demand are uncertain. The financial condition, net income, and cash flows of Southern Company, the traditional electric operating companies, and Southern Power could be adversely affected by these and other changes.
The traditional electric operating companies and Southern Power could be subject to higher costs as a result of implementing and maintaining compliance with the North American Electric Reliability Corporation mandatory reliability standards along with possible associated penalties for non-compliance.
Owners and operators of bulk power systems, including the traditional electric operating companies, are subject to mandatory reliability standards enacted by the North American Electric Reliability Corporation and enforced by the FERC. Compliance with or changes in the mandatory reliability standards may subject the traditional electric operating companies and Southern Power to higher operating costs and/or increased capital expenditures. If any traditional electric operating company or Southern Power is found to be in noncompliance with these standards, such traditional electric operating company or Southern Power could be subject to sanctions, including substantial monetary penalties.
Southern Company and its subsidiaries are continuing to review the Tax Reform Legislation, which has and could have a further material impact on the results of operations, financial condition, and cash flows of the registrants.
On December 22, 2017, the Tax Reform Legislation was signed into law and became effective on January 1, 2018. The Tax Reform Legislation significantly changes the U.S. Internal Revenue Code by, among other things, reducing the federal corporate income tax rate to 21% and repealing the corporate alternative minimum tax. As a result of the tax rate reduction, Southern Company recorded net, non-cash federal income tax benefits of $264 million in the fourth quarter 2017, comprised primarily of a $743 million tax benefit resulting from reductions in deferred tax liabilities at Southern Power, partially offset by tax expenses of $372 million and $93 million resulting from reductions in deferred tax assets at Mississippi Power and Southern Company Gas, respectively.
The tax rate reduction also resulted in a $6.9 billion increase in regulatory liabilities and a $0.4 billion decrease in regulatory assets across the traditional electric operating companies and the natural gas distribution utilities. The regulatory treatment of certain impacts of the Tax Reform Legislation is subject to the discretion of the FERC and the relevant state regulatory bodies.
For businesses other than regulated utility businesses, the Tax Reform Legislation allows 100% bonus depreciation of qualified property through 2022, which phases down through 2027, and limits interest expense deductions. Regulated utility businesses, including the majority of the operations of the traditional electric operating companies and the natural gas distribution companies, can continue deducting all business interest expense and are not eligible for bonus depreciation on capital assets acquired and placed in service after September 27, 2017. The Tax Reform Legislation retains normalization provisions for public utility property and existing renewable energy incentives. However, the tax rate reduction delays the utilization of renewable tax credit carryforwards as described in Note 5 to the financial statements of Southern Company, Alabama Power, Georgia Power, and Southern Power under "Federal Tax Reform Legislation" in Item 8 herein.
The Tax Reform Legislation also includes provisions that limit the utilization of future net operating losses and limit the deductibility of certain executive compensation and other expenses. Further, while it is unclear how the credit rating agencies, the FERC, and relevant state regulatory bodies may respond to the Tax Reform Legislation, certain financial metrics, such as funds from operations to debt percentage, used by the credit rating agencies to assess the registrants, Southern Company Gas Capital, and Nicor Gas may be negatively impacted.

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The Tax Reform Legislation is unclear in certain respects and will require interpretations, guidance, and implementing regulations by the IRS, as well as each respective state's adoption. In addition, the regulatory treatment of certain impacts of the Tax Reform Legislation is subject to the discretion of the FERC and relevant state regulatory bodies. Southern Company and its subsidiaries are continuing to review the Tax Reform Legislation and are assessing whether any potential actions are available to mitigate adverse impacts of the legislation. Southern Company and its subsidiaries may identify additional impacts as they further assess the Tax Reform Legislation and as the IRS issues interpretations and implements regulations. Southern Company will continue to monitor the actions of state legislatures and state taxing authorities to see how the states may adopt and implement the Tax Reform Legislation. While the ultimate impact of the Tax Reform Legislation, future interpretations and implementation of regulations by the IRS and state tax authorities, and any mitigating actions Southern Company and its subsidiaries may take cannot be determined at this time, the Tax Reform Legislation had and could have a further material impact on the results of operations, financial condition and cash flows of the registrants.
OPERATIONAL RISKS
The financial performance of Southern Company and its subsidiaries may be adversely affected if the subsidiaries are unable to successfully operate their facilities or perform certain corporate functions.
The financial performance of Southern Company and its subsidiaries depends on the successful operation of the electric utilities' generating, transmission, and distribution facilities and Southern Company Gas' natural gas distribution and storage facilities and the successful performance of necessary corporate functions. There are many risks that could affect these operations and performance of corporate functions, including:
operator error or failure of equipment or processes;
accidents or explosions;
operating limitations that may be imposed by environmental or other regulatory requirements;
labor disputes;
terrorist attacks (physical and/or cyber);
fuel or material supply interruptions;
transmission disruption or capacity constraints, including with respect to the Southern Company system's and third parties' transmission, storage, and transportation facilities;
compliance with mandatory reliability standards, including mandatory cyber security standards;
implementation of new technologies;
information technology system failure;
cyber intrusion;
an environmental event, such as a spill or release; and
catastrophic events such as fires, earthquakes, floods, droughts, hurricanes, tornadoes, and storms, pandemic health events such as influenzas, or other similar occurrences.
A decrease or elimination of revenues from the electric generation, transmission, or distribution facilities or natural gas distribution or storage facilities or an increase in the cost of operating the facilities would reduce the net income and cash flows and could adversely impact the financial condition of the affected traditional electric operating company, Southern Power, or Southern Company Gas and of Southern Company.
Operation of nuclear facilities involves inherent risks, including environmental, safety, health, regulatory, natural disasters, terrorism, and financial risks, that could result in fines or the closure of the nuclear units owned by Alabama Power or Georgia Power and which may present potential exposures in excess of insurance coverage.
Alabama Power owns, and contracts for the operation of, two nuclear units and Georgia Power holds undivided interests in, and contracts for the operation of, four existing nuclear units. The six existing units are operated by Southern Nuclear and represent approximately 3,680 MWs, or 8% of the Southern Company system's electric generation capacity as of December 31, 2017. In addition, these units generated approximately 25% of the total KWHs generated by each of Alabama Power and Georgia Power in the year ended December 31, 2017. In addition, Southern Nuclear, on behalf of Georgia Power and the other Vogtle Owners, is managing the construction of Plant Vogtle Units 3 and 4. Due solely to the increase in nuclear generating capacity, the below risks are expected to increase incrementally once Plant Vogtle Units 3 and 4 are operational. Nuclear facilities are subject to environmental, safety, health, operational, and financial risks such as:
the potential harmful effects on the environment and human health and safety resulting from a release of radioactive materials in connection with the operation of nuclear facilities and the storage, handling, and disposal of radioactive material, including spent nuclear fuel;
uncertainties with respect to the ability to dispose of spent nuclear fuel and the need for longer term on-site storage;
uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of licensed lives and the ability to maintain and anticipate adequate capital reserves for decommissioning;

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limitations on the amounts and types of insurance commercially available to cover losses that might arise in connection with the nuclear operations of Alabama Power and Georgia Power or those of other commercial nuclear facility owners in the U.S.;
potential liabilities arising out of the operation of these facilities;
significant capital expenditures relating to maintenance, operation, security, and repair of these facilities, including repairs and upgrades required by the NRC;
the threat of a possible terrorist attack, including a potential cyber security attack; and
the potential impact of an accident or natural disaster.
It is possible that damages, decommissioning, or other costs could exceed the amount of decommissioning trusts or external insurance coverage, including statutorily required nuclear incident insurance.
The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities. In the event of non-compliance, the NRC has the authority to impose fines and/or shut down any unit, depending upon its assessment of the severity of the situation, until compliance is achieved. NRC orders or regulations related to increased security measures and any future safety requirements promulgated by the NRC could require Alabama Power and Georgia Power to make substantial operating and capital expenditures at their nuclear plants. In addition, if a serious nuclear incident were to occur, it could result in substantial costs to Alabama Power or Georgia Power and Southern Company. A major incident at a nuclear facility anywhere in the world could cause the NRC to delay or prohibit construction of new nuclear units or require additional safety measures at new and existing units. Moreover, a major incident at any nuclear facility in the U.S., including facilities owned and operated by third parties, could require Alabama Power and Georgia Power to make material contributory payments.
In addition, potential terrorist threats could result in increased nuclear licensing or compliance costs that are difficult to predict.
Transporting and storing natural gas involves risks that may result in accidents and other operating risks and costs.
Southern Company Gas' natural gas distribution and storage activities involve a variety of inherent hazards and operating risks, such as leaks, accidents, explosions, and mechanical problems, which could result in serious injury to employees and non-employees, loss of human life, significant damage to property, environmental pollution, and impairment of its operations. The location of pipelines and storage facilities near populated areas could increase the level of damage resulting from these risks. Additionally, these pipeline and storage facilities are subject to various state and other regulatory requirements. Failure to comply with these regulatory requirements could result in substantial monetary penalties or potential early retirement of storage facilities, which could trigger an associated impairment. The occurrence of any of these events not fully covered by insurance or otherwise could adversely affect Southern Company Gas' and Southern Company's financial condition and results of operations.
Physical attacks, both threatened and actual, could impact the ability of the traditional electric operating companies, Southern Power, and Southern Company Gas to operate and could adversely affect financial results and liquidity.
The traditional electric operating companies, Southern Power, and Southern Company Gas face the risk of physical attacks, both threatened and actual, against their respective generation and storage facilities and the transmission and distribution infrastructure used to transport energy, which could negatively impact their ability to generate, transport, and deliver power, or otherwise operate their respective facilities, or, with respect to Southern Company Gas, its ability to distribute or store natural gas, or otherwise operate its facilities, in the most efficient manner or at all. In addition, physical attacks against key suppliers or service providers could have a similar effect on Southern Company and its subsidiaries.
Despite the implementation of robust security measures, all assets are potentially vulnerable to disability, failures, or unauthorized access due to human error, natural disasters, technological failure, or internal or external physical attacks. If assets were to fail, be physically damaged, or be breached and were not recovered in a timely way, the traditional electric operating companies, Southern Power, or Southern Company Gas, as applicable, may be unable to fulfill critical business functions. Moreover, the amount and scope of insurance maintained against losses resulting from any such events or physical security breaches may not be sufficient to cover losses or otherwise adequately compensate for any disruptions to business that could result.
These events could harm the reputation of and negatively affect the financial results of the registrants through lost revenues and costs to repair damage, if such costs cannot be recovered.
An information security incident, including a cybersecurity breach, or the failure of one or more key information technology systems, networks, or processes could impact the ability of the registrants to operate and could adversely affect financial results and liquidity.
Information security risks have generally increased in recent years as a result of the proliferation of new technology and increased sophistication and frequency of cyber attacks and data security breaches. The traditional electric operating

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companies, Southern Power, and Southern Company Gas operate in highly regulated industries that require the continued operation of sophisticated information technology systems and network infrastructure, which are part of interconnected distribution systems. Because of the critical nature of the infrastructure, increased connectivity to the internet, and technology systems' inherent vulnerability to disability or failures due to hacking, viruses, acts of war or terrorism, or other types of data security breaches, Southern Company and its subsidiaries face a heightened risk of cyberattack. Parties that wish to disrupt the U.S. bulk power system or Southern Company system operations could view these computer systems, software, or networks as targets. The registrants and their third-party vendors have been subject, and will likely continue to be subject, to attempts to gain unauthorized access to their information technology systems and confidential data or to attempts to disrupt utility operations. As a result, Southern Company and its subsidiaries face on-going threats to their assets, including assets deemed critical infrastructure, where databases and systems have been, and will likely continue to be, subject to advanced computer viruses or other malicious codes, unauthorized access attempts, phishing, and other cyber attacks. While there has been no material impact on business or operations from these attacks, the registrants cannot guarantee that security efforts will prevent breaches, operational incidents, or other breakdowns of information technology systems and network infrastructure.
In addition, in the ordinary course of business, Southern Company and its subsidiaries collect and retain sensitive information, including personally identifiable information about customers, employees, and stockholders, and other confidential information. In some cases, administration of certain functions may be outsourced to third party service providers that could also be targets of cyber attacks. Generally, Southern Company and its subsidiaries enter certain contractual security guarantees and assurances with these third parties to help ensure the security and safety of this information.
Despite the implementation of robust security measures, all assets are potentially vulnerable to disability, failures, or unauthorized access due to human error, natural disasters, technological failure, or internal or external cyber attacks. If assets were to fail or be breached and were not recovered in a timely way, the affected registrant may be unable to fulfill critical business functions, and sensitive and other data could be compromised. Any cyber breach or theft, damage, or improper disclosure of sensitive electronic data may also subject the affected registrant to penalties and claims from regulators or other third parties. Moreover, the amount and scope of insurance maintained against losses resulting from any such events or security breaches may not be sufficient to cover losses or otherwise adequately compensate for any disruptions to business that could result.
These events could negatively affect the financial results of the registrants through lost revenues, costs to recover and repair damage, and costs associated with governmental actions in response to such attacks, litigation, and reputational damage if such costs cannot be recovered through insurance or otherwise.
The Southern Company system may not be able to obtain adequate natural gas and other fuel supplies required to operate the traditional electric operating companies' and Southern Power's electric generating plants or serve Southern Company Gas' natural gas customers.
The traditional electric operating companies and Southern Power purchase fuel, including coal, natural gas, uranium, fuel oil, and biomass, as applicable, from a number of suppliers. Disruption in the delivery of fuel, including disruptions as a result of, among other things, transportation delays, weather, labor relations, force majeure events, or environmental regulations affecting any of these fuel suppliers, could limit the ability of the traditional electric operating companies and Southern Power to operate certain facilities, which could result in higher fuel and operating costs and potentially reduce the net income of the affected traditional electric operating company or Southern Power and Southern Company.
Southern Company Gas' primary business is the distribution and sale of natural gas through its regulated and unregulated subsidiaries. Natural gas supplies can be subject to disruption in the event production or distribution is curtailed, such as in the event of a hurricane or a pipeline failure. Southern Company Gas also relies on natural gas pipelines and other storage and transportation facilities owned and operated by third parties to deliver natural gas to wholesale markets and to Southern Company Gas' distribution systems. The availability of shale gas and potential regulations affecting its accessibility may have a material impact on the supply and cost of natural gas. Disruption in natural gas supplies could limit the ability to fulfill these contractual obligations.
The traditional electric operating companies and Southern Power have become more dependent on natural gas for a portion of their electric generating capacity. In many instances, the cost of purchased power for the traditional electric operating companies and Southern Power is influenced by natural gas prices. Historically, natural gas prices have been more volatile than prices of other fuels. In recent years, domestic natural gas prices have been depressed by robust supplies, including production from shale gas. These market conditions, together with additional regulation of coal-fired generating units, have increased the traditional electric operating companies' reliance on natural gas-fired generating units.
The traditional electric operating companies are also dependent on coal for a portion of their electric generating capacity. The traditional electric operating companies depend on coal supply contracts, and the counterparties to these agreements may not fulfill their obligations to supply coal to the traditional electric operating companies. The suppliers may experience financial or

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technical problems that inhibit their ability to fulfill their obligations. In addition, the suppliers may not be required to supply coal under certain circumstances, such as in the event of a natural disaster. If the traditional electric operating companies are unable to obtain their coal requirements under these contracts, they may be required to purchase their coal requirements at higher prices, which may not be recoverable through rates.
The revenues of Southern Company, the traditional electric operating companies, and Southern Power depend in part on sales under PPAs. The failure of a counterparty to one of these PPAs to perform its obligations, the failure of the traditional electric operating companies or Southern Power to satisfy minimum requirements under the PPAs, or the failure to renew the PPAs or successfully remarket the related generating capacity could have a negative impact on the net income and cash flows of the affected traditional electric operating company or Southern Power and of Southern Company.
Most of Southern Power's generating capacity has been sold to purchasers under PPAs. Southern Power's top three customers, Georgia Power, Duke Energy Corporation, and Morgan Stanley Capital Group accounted for 11.3%, 6.7%, and 4.5%, respectively, of Southern Power's total revenues for the year ended December 31, 2017. In addition, the traditional electric operating companies enter into PPAs with non-affiliated parties. Revenues are dependent on the continued performance by the purchasers of their obligations under these PPAs. The failure of one of the purchasers to perform its obligations could have a negative impact on the net income and cash flows of the affected traditional electric operating company or Southern Power and of Southern Company. Although the credit evaluations undertaken and contractual protections implemented by Southern Power and the traditional electric operating companies take into account the possibility of default by a purchaser, actual exposure to a default by a purchaser may be greater than predicted or specified in the applicable contract.
Additionally, neither Southern Power nor any traditional electric operating company can predict whether the PPAs will be renewed at the end of their respective terms or on what terms any renewals may be made. The failure of the traditional electric operating companies or Southern Power to satisfy minimum operational or availability requirements under these PPAs could result in payment of damages or termination of the PPAs.
The asset management arrangements between Southern Company Gas' wholesale gas services and its customers, including the natural gas distribution utilities, may not be renewed or may be renewed at lower levels, which could have a significant impact on Southern Company Gas' financial results.
Southern Company Gas' wholesale gas services currently manages the storage and transportation assets of the natural gas distribution utilities except Nicor Gas. The profits earned from the management of these affiliate assets are shared with the respective affiliate's customers (and for Atlanta Gas Light Company with the Georgia PSC's Universal Service Fund), except for Chattanooga Gas Company and Elkton Gas where wholesale gas services are provided under annual fixed-fee agreements. These asset management agreements are subject to regulatory approval and such agreements may not be renewed or may be renewed with less favorable terms.
Southern Company Gas' wholesale gas services also has asset management agreements with certain non-affiliated customers and its financial results could be significantly impacted if these agreements are not renewed or are amended or renewed with less favorable terms. Sustained low natural gas prices could reduce the demand for these types of asset management arrangements.
Increased competition could negatively impact Southern Company's and its subsidiaries' revenues, results of operations, and financial condition.
The Southern Company system faces increasing competition from other companies that supply energy or generation and storage technologies. Changes in technology may make the Southern Company system's electric generating facilities owned by the traditional electric operating companies and Southern Power less competitive. Southern Company Gas' business is dependent on natural gas prices remaining competitive as compared to other forms of energy. Southern Company Gas also faces competition in its unregulated markets.
A key element of the business models of the traditional electric operating companies and Southern Power is that generating power at central station power plants achieves economies of scale and produces power at a competitive cost. There are distributed generation and storage technologies that produce and store power, including fuel cells, microturbines, wind turbines, solar cells, and batteries. Advances in technology or changes in laws or regulations could reduce the cost of these or other alternative methods of producing power to a level that is competitive with that of most central station power electric production or result in smaller-scale, more fuel efficient, and/or more cost effective distributed generation that allows for increased self-generation by customers. Broader use of distributed generation by retail energy customers may also result from customers' changing perceptions of the merits of utilizing existing generation technology or tax or other economic incentives. Additionally, a state PSC or legislature may modify certain aspects of the traditional electric operating companies' business as a result of these advances in technology.

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It is also possible that rapid advances in central station power generation technology could reduce the value of the current electric generating facilities owned by the traditional electric operating companies and Southern Power. Changes in technology could also alter the channels through which electric customers buy or utilize power, which could reduce the revenues or increase the expenses of Southern Company, the traditional electric operating companies, or Southern Power.
Southern Company Gas' gas marketing services is affected by competition from other energy marketers providing similar services in Southern Company Gas' service territories, most notably in Illinois and Georgia. Southern Company Gas' wholesale gas services competes for sales with national and regional full-service energy providers, energy merchants and producers, and pipelines based on the ability to aggregate competitively-priced commodities with transportation and storage capacity. Southern Company Gas competes with natural gas facilities in the Gulf Coast region of the U.S., as the majority of the existing and proposed high deliverability salt-dome natural gas storage facilities in North America are located in the Gulf Coast region.
If new technologies become cost competitive and achieve sufficient scale, the market share of the traditional electric operating companies, Southern Power, and Southern Company Gas could be eroded, and the value of their respective electric generating facilities or natural gas distribution and storage facilities could be reduced. Additionally, Southern Company Gas' market share could be reduced if Southern Company Gas cannot remain price competitive in its unregulated markets. If state PSCs or other applicable state regulatory agencies fail to adjust rates to reflect the impact of any changes in loads, increasing self-generation, and the growth of distributed generation, the financial condition, results of operations, and cash flows of Southern Company and the affected traditional electric operating company or Southern Company Gas could be materially adversely affected.
Failure to attract and retain an appropriately qualified workforce could negatively impact Southern Company's and its subsidiaries' results of operations.
Events such as an aging workforce without appropriate replacements, mismatch of skill sets to future needs, or unavailability of contract resources may lead to operating challenges such as lack of resources, loss of knowledge, and a lengthy time period associated with skill development, including with the workforce needs associated with major construction projects and ongoing operations. The Southern Company system's costs, including costs for contractors to replace employees, productivity costs, and safety costs, may rise. Failure to hire and adequately obtain replacement employees, including the ability to transfer significant internal historical knowledge and expertise to the new employees, or the future availability and cost of contract labor may adversely affect Southern Company and its subsidiaries' ability to manage and operate their businesses. If Southern Company and its subsidiaries are unable to successfully attract and retain an appropriately qualified workforce, results of operations could be negatively impacted.
CONSTRUCTION RISKS
The registrants may incur additional costs or delays in the construction of new plants or other facilities and may not be able to recover their investments. Also, existing facilities of the traditional electric operating companies, Southern Power, and Southern Company Gas require ongoing capital expenditures, including those to meet environmental standards.
General
The businesses of the registrants require substantial capital expenditures for investments in new facilities and, for the traditional electric operating companies, capital improvements to transmission, distribution, and generation facilities, and, for Southern Company Gas, capital improvements to natural gas distribution and storage facilities, including those to meet environmental standards. Certain of the traditional electric operating companies and Southern Power are in the process of constructing new generating facilities and adding environmental controls equipment at existing generating facilities. Southern Company Gas is replacing certain pipelines in its natural gas distribution system and is involved in two new gas pipeline construction projects. The Southern Company system intends to continue its strategy of developing and constructing other new facilities, expanding or updating existing facilities, and adding environmental control equipment. These types of projects are long term in nature and in some cases include the development and construction of facilities with designs that have not been finalized or previously constructed. The completion of these types of projects without delays or significant cost overruns is subject to substantial risks, including:
shortages and inconsistent quality of equipment, materials, and labor;
changes in labor costs and productivity;
work stoppages;
contractor or supplier delay or non-performance under construction, operating, or other agreements or non-performance by other major participants in construction projects;
delays in or failure to receive necessary permits, approvals, tax credits, and other regulatory authorizations;
delays associated with start-up activities, including major equipment failure and system integration, and/or operational performance (including additional costs to satisfy any operational parameters ultimately adopted by any PSC or other applicable state regulatory agency);

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operational readiness, including specialized operator training and required site safety programs;
impacts of new and existing laws and regulations, including environmental laws and regulations;
the outcome of legal challenges to projects, including legal challenges to regulatory approvals;
failure to construct in accordance with permitting and licensing requirements;
failure to satisfy any environmental performance standards and the requirements of tax credits and other incentives;
continued public and policymaker support for such projects;
adverse weather conditions or natural disasters;
other unforeseen engineering or design problems;
changes in project design or scope;
environmental and geological conditions;
delays or increased costs to interconnect facilities to transmission grids; and
unanticipated cost increases, including materials and labor, and increased financing costs as a result of changes in market interest rates or as a result of construction schedule delays.
If a traditional electric operating company, Southern Power, or Southern Company Gas is unable to complete the development or construction of a project or decides to delay or cancel construction of a project, it may not be able to recover its investment in that project and may incur substantial cancellation payments under equipment purchase orders or construction contracts. Additionally, each Southern Company Gas pipeline construction project involves separate joint venture participants, Southern Power participates in partnership agreements with respect to renewable energy projects, and Georgia Power jointly owns Plant Vogtle Units 3 and 4 with other co-owners. Any failure by a partner or co-owner to perform its obligations under the applicable agreements could have a material negative impact on the applicable project under construction. In addition, partnership and joint ownership agreements may provide partners or co-owners with certain decision-making authority in connection with projects under construction.
Even if a construction project (including a joint venture construction project) is completed, the total costs may be higher than estimated and may not be recoverable through regulated rates, if applicable. In addition, construction delays and contractor performance shortfalls can result in the loss of revenues and may, in turn, adversely affect the net income and financial position of the affected registrant.
Construction delays could result in the loss of otherwise available investment tax credits, PTCs, and other tax incentives. Furthermore, if construction projects are not completed according to specification, a traditional electric operating company, Southern Power, or Southern Company Gas and Southern Company may incur liabilities and suffer reduced plant efficiency, higher operating costs, and reduced net income.
Once facilities become operational, ongoing capital expenditures are required to maintain reliable levels of operation. Significant portions of the traditional electric operating companies' existing facilities were constructed many years ago. Older equipment, even if maintained in accordance with good engineering practices, may require significant capital expenditures to maintain efficiency, to comply with changing environmental requirements, or to provide safe and reliable operations.
The largest construction project currently underway in the Southern Company system is Plant Vogtle Units 3 and 4.
Plant Vogtle Units 3 and 4 construction and rate recovery
In 2009, the Georgia PSC certified construction of Plant Vogtle Units 3 and 4. In 2012, the NRC issued the related combined construction and operating licenses, which allowed full construction of the two AP1000 nuclear units (with electric generating capacity of approximately 1,100 MWs each) and related facilities to begin. Until March 2017, construction on Plant Vogtle Units 3 and 4 continued under a substantially fixed price engineering, procurement, and construction agreement, pursuant to which the EPC Contractor agreed to design, engineer, procure, construct, and test Plant Vogtle Units 3 and 4. On March 29, 2017, the EPC Contractor filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code.
In connection with the EPC Contractor's bankruptcy filing, Georgia Power, acting for itself and as agent for the Vogtle Owners, entered into an agreement with the EPC Contractor to allow construction to continue (Interim Assessment Agreement). The Interim Assessment Agreement expired on July 27, 2017 upon the effectiveness of a services agreement between the Vogtle Owners and the EPC Contractor for the EPC Contractor to transition construction management of Plant Vogtle Units 3 and 4 to Southern Nuclear and to provide ongoing design, engineering, and procurement services to Southern Nuclear (Vogtle Services Agreement). In August 2017, following completion of comprehensive cost to complete and cancellation cost assessments, Georgia Power filed its seventeenth Vogtle Construction Monitoring (VCM) report with the Georgia PSC, which included a recommendation to continue construction of Plant Vogtle Units 3 and 4, with Southern Nuclear serving as project manager and Bechtel Power Corporation (Bechtel) serving as the primary construction contractor. Facility design and engineering remains the responsibility of the EPC Contractor under the Vogtle Services Agreement. The construction completion agreement between Georgia Power, for itself and as agent for the other Vogtle Owners, and Bechtel (Bechtel Agreement) is a cost reimbursable plus

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fee arrangement, whereby Bechtel will be reimbursed for actual costs plus a base fee and an at-risk fee, which is subject to adjustment based on Bechtel's performance against cost and schedule targets.
On November 2, 2017, the Vogtle Owners entered into an amendment to their joint ownership agreements for Plant Vogtle Units 3 and 4 (as amended, Vogtle Joint Ownership Agreements) to provide for, among other conditions, additional Vogtle Owner approval requirements. Pursuant to the Vogtle Joint Ownership Agreements, the holders of at least 90% of the ownership interests in Plant Vogtle Units 3 and 4 must vote to continue construction if certain adverse events occur, including (i) the bankruptcy of Toshiba Corporation; (ii) termination or rejection in bankruptcy of certain agreements, including the Vogtle Services Agreement or the Bechtel Agreement; (iii) the Georgia PSC or Georgia Power determines that any of Georgia Power's costs relating to the construction of Plant Vogtle Units 3 and 4 will not be recovered in retail rates because such costs are deemed unreasonable or imprudent; or (iv) an increase in the construction budget contained in the seventeenth VCM report of more than $1 billion or extension of the project schedule contained in the seventeenth VCM report of more than one year. In addition, pursuant to the Vogtle Joint Ownership Agreements, the required approval of holders of ownership interests in Plant Vogtle Units 3 and 4 is at least (i) 90% for a change of the primary construction contractor and (ii) 67% for material amendments to the Vogtle Services Agreement or agreements with Southern Nuclear or the primary construction contractor, including the Bechtel Agreement.
On December 21, 2017, the Georgia PSC voted to approve (and issued its related order on January 11, 2018) Georgia Power's recommendation to continue construction and resolved the following regulatory matters related to Plant Vogtle Units 3 and 4: (i) none of the $3.3 billion of costs incurred through December 31, 2015 and reflected in the fourteenth VCM report should be disallowed from rate base on the basis of imprudence; (ii) the December 31, 2015 agreement between Westinghouse and the Vogtle Owners resolving disputes between the Vogtle Owners and the EPC Contractor under the original engineering, procurement, and construction agreement for Plant Vogtle Units 3 and 4 (Contractor Settlement Agreement) was reasonable and prudent and none of the amounts paid pursuant to the Contractor Settlement Agreement should be disallowed from rate base on the basis of imprudence; (iii) (a) capital costs incurred up to $5.680 billion would be presumed to be reasonable and prudent with the burden of proof on any party challenging such costs, (b) Georgia Power would have the burden to show that any capital costs above $5.680 billion were prudent, and (c) a revised capital cost forecast of $7.3 billion (after reflecting the impact of payments received under the Guarantee Settlement Agreement and the Customer Refunds, each as defined below) is found reasonable; (iv) construction of Plant Vogtle Units 3 and 4 should be completed, with Southern Nuclear serving as project manager and Bechtel as primary contractor; (v) approved and deemed reasonable Georgia Power's revised schedule placing Plant Vogtle Units 3 and 4 in service in November 2021 and November 2022, respectively; (vi) confirmed that the revised cost forecast does not represent a cost cap and that prudence decisions on cost recovery will be made at a later date, consistent with applicable Georgia law; (vii) reduced the return on equity (ROE) used to calculate the Nuclear Construction Cost Recovery (NCCR) tariff (a) from 10.95% (the ROE rate setting point authorized by the Georgia PSC in the 2013 Alternative Rate Plan) to 10.00% effective January 1, 2016, (b) from 10.00% to 8.30%, effective January 1, 2020, and (c) from 8.30% to 5.30%, effective January 1, 2021 (provided that the ROE in no case will be less than Georgia Power's average cost of long-term debt); (viii) reduced the ROE used for allowance for funds used during construction equity for Plant Vogtle Units 3 and 4 from 10.00% to Georgia Power's average cost of long-term debt, effective January 1, 2018; and (ix) agreed that upon Unit 3 reaching commercial operation, retail base rates would be adjusted to include carrying costs on those capital costs deemed prudent in the settlement agreement approved by the Georgia PSC on December 20, 2016. The January 11, 2018 order also stated that if Plant Vogtle Units 3 and 4 are not commercially operational by June 1, 2021 and June 1, 2022, respectively, the ROE used to calculate the NCCR tariff will be further reduced by 10 basis points each month (but not lower than Georgia Power's average cost of long-term debt) until the respective unit is commercially operational. In its January 11, 2018 order, the Georgia PSC stated if other certain conditions and assumptions upon which Georgia Power's seventeenth VCM report are based do not materialize, both Georgia Power and the Georgia PSC reserve the right to reconsider the decision to continue construction.
On February 12, 2018, Georgia Interfaith Power & Light, Inc. and Partnership for Southern Equity, Inc. filed a petition appealing the Georgia PSC's January 11, 2018 order with the Fulton County Superior Court. Georgia Power believes the appeal has no merit; however, an adverse outcome in this appeal could have a material impact on Southern Company's and Georgia Power's results of operations, financial condition, and liquidity.
Georgia Power expects Plant Vogtle Units 3 and 4 to be placed in service by November 2021 and November 2022, respectively. Georgia Power's revised capital cost forecast for its 45.7% proportionate share of Plant Vogtle Units 3 and 4 is $8.8 billion ($7.3 billion after reflecting the impact of payments received under a settlement agreement regarding Toshiba's guarantee of certain obligations of the EPC Contractor (Guarantee Settlement Agreement) and certain refunds to customers ordered by the Georgia PSC (Customer Refunds)). Georgia Power's construction work in progress balance for Plant Vogtle Units 3 and 4 was $3.3 billion at December 31, 2017, which is net of the Guarantee Settlement Agreement payments less the Customer Refunds. Georgia Power estimates that its financing costs for construction of Plant Vogtle Units 3 and 4 will total approximately $3.1 billion, of which $1.6 billion had been incurred through December 31, 2017.

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As construction continues, challenges with management of contractors, subcontractors, and vendors, labor productivity and availability, fabrication, delivery, assembly, and installation of plant systems, structures, and components (some of which are based on new technology and have not yet operated in the global nuclear industry at this scale), or other issues could arise and change the projected schedule and estimated cost.
There have been technical and procedural challenges to the construction and licensing of Plant Vogtle Units 3 and 4 at the federal and state level and additional challenges may arise. Processes are in place that are designed to assure compliance with the requirements specified in the Westinghouse Design Control Document and the combined construction and operating licenses, 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 matters, including the timely resolution of Inspections, Tests, Analyses, and Acceptance Criteria and the related approvals by the NRC, may arise, 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.
The ultimate outcome of these matters cannot be determined at this time.
See Note 3 to the financial statements of Southern Company under "Nuclear Construction" and of Georgia Power under "Retail Regulatory Matters - Nuclear Construction" for additional information regarding Plant Vogtle Units 3 and 4.
Southern Company Gas' significant investments in pipelines and pipeline development projects involve financial and execution risks.
Southern Company Gas has made significant investments in existing pipelines and pipeline development projects. Many of the existing pipelines are, and when completed many of the pipeline development projects will be, operated by third parties. If one of these agents fails to perform in a proper manner, the value of the investment could decline and Southern Company Gas could lose part or all of the investment. In addition, from time to time, Southern Company Gas may be required to contribute additional capital to a pipeline joint venture or guarantee the obligations of such joint venture.
With respect to certain pipeline development projects, Southern Company Gas will rely on its joint venture partners for construction management and will not exercise direct control over the process. All of the pipeline development projects are dependent on contractors for the successful and timely completion of the projects. Further, the development of pipeline projects involves numerous regulatory, environmental, construction, safety, political, and legal uncertainties and may require the expenditure of significant amounts of capital. These projects may not be completed on schedule, at the budgeted cost, or at all. There may be cost overruns and construction difficulties that cause Southern Company Gas' capital expenditures to exceed its initial expectations. Moreover, Southern Company Gas' revenues will not increase immediately upon the expenditure of funds on a pipeline project. Pipeline construction occurs over an extended period of time and Southern Company Gas will not receive material increases in revenues until the project is placed in service.
The occurrence of any of the foregoing events could adversely affect the results of operations, cash flows, and financial condition of Southern Company Gas and Southern Company.
FINANCIAL, ECONOMIC, AND MARKET RISKS
The electric generation and energy marketing operations of the traditional electric operating companies and Southern Power and the natural gas operations of Southern Company Gas are subject to risks, many of which are beyond their control, including changes in energy prices and fuel costs, which may reduce revenues and increase costs.
The generation, energy marketing, and natural gas operations of the Southern Company system are subject to changes in energy prices and fuel costs, which could increase the cost of producing power, decrease the amount received from the sale of energy, and/or make electric generating facilities less competitive. The market prices for these commodities may fluctuate significantly over relatively short periods of time. Among the factors that could influence energy prices and fuel costs are:
prevailing market prices for coal, natural gas, uranium, fuel oil, biomass, and other fuels, as applicable, used in the generation facilities of the traditional electric operating companies and Southern Power and, in the case of natural gas, distributed by Southern Company Gas, including associated transportation costs, and supplies of such commodities;
demand for energy and the extent of additional supplies of energy available from current or new competitors;
liquidity in the general wholesale electricity and natural gas markets;
weather conditions impacting demand for electricity and natural gas;
seasonality;
transmission or transportation constraints, disruptions, or inefficiencies;
availability of competitively priced alternative energy sources;
forced or unscheduled plant outages for the Southern Company system, its competitors, or third party providers;
the financial condition of market participants;

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the economy in the Southern Company system's service territory, the nation, and worldwide, including the impact of economic conditions on demand for electricity and the demand for fuels, including natural gas;
natural disasters, wars, embargos, acts of terrorism, and other catastrophic events; and
federal, state, and foreign energy and environmental regulation and legislation.
Certain of these factors could increase the expenses of the traditional electric operating companies, Southern Power, or Southern Company Gas and Southern Company. For the traditional electric operating companies and Southern Company Gas' regulated gas distribution operations, such increases may not be fully recoverable through rates. Other of these factors could reduce the revenues of the traditional electric operating companies, Southern Power, or Southern Company Gas and Southern Company.
Historically, the traditional electric operating companies and Southern Company Gas from time to time have experienced underrecovered fuel and/or purchased gas cost balances and may experience such balances in the future. While the traditional electric operating companies and Southern Company Gas are generally authorized to recover fuel and/or purchased gas costs through cost recovery clauses, recovery may be denied if costs are deemed to be imprudently incurred, and delays in the authorization of such recovery could negatively impact the cash flows of the affected traditional electric operating company or Southern Company Gas and Southern Company.
The registrants are subject to risks associated with a changing economic environment, customer behaviors, including increased energy conservation, and adoption patterns of technologies by the customers of the traditional electric operating companies, Southern Power, and Southern Company Gas.
The consumption and use of energy are fundamentally linked to economic activity. This relationship is affected over time by changes in the economy, customer behaviors, and technologies. Any economic downturn could negatively impact customer growth and usage per customer, thus reducing the sales of energy and revenues. Additionally, any economic downturn or disruption of financial markets, both nationally and internationally, could negatively affect the financial stability of customers and counterparties of the traditional electric operating companies, Southern Power, and Southern Company Gas.
Outside of economic disruptions, changes in customer behaviors in response to energy efficiency programs, changing conditions and preferences, or changes in the adoption of technologies could affect the relationship of economic activity to the consumption of energy.
Both federal and state programs exist to influence how customers use energy, and several of the traditional electric operating companies and Southern Company Gas have PSC or other applicable state regulatory agency mandates to promote energy efficiency. Conservation programs could impact the financial results of the registrants in different ways. For example, if any traditional electric operating company or Southern Company Gas is required to invest in conservation measures that result in reduced sales from effective conservation, regulatory lag in adjusting rates for the impact of these measures could have a negative financial impact on such traditional electric operating company or Southern Company Gas and Southern Company. Customers could also voluntarily reduce their consumption of energy in response to decreases in their disposable income, increases in energy prices, or individual conservation efforts.
In addition, the adoption of technology by customers can have both positive and negative impacts on sales. Many new technologies utilize less energy than in the past. However, new electric and natural gas technologies such as electric and natural gas vehicles can create additional demand. The Southern Company system uses best available methods and experience to incorporate the effects of changes in customer behavior, state and federal programs, PSC or other applicable state regulatory agency mandates, and technology, but the Southern Company system's planning processes may not appropriately estimate and incorporate these effects.
All of the factors discussed above could adversely affect Southern Company's, the traditional electric operating companies', Southern Power's, and/or Southern Company Gas' results of operations, financial condition, and liquidity.
The operating results of the registrants are affected by weather conditions and may fluctuate on a seasonal and quarterly basis. In addition, catastrophic events, such as fires, earthquakes, hurricanes, tornadoes, floods, droughts, and storms, could result in substantial damage to or limit the operation of the properties of the traditional electric operating companies, Southern Power, and/or Southern Company Gas and could negatively impact results of operation, financial condition, and liquidity.
Electric power and natural gas supply are generally seasonal businesses. In many parts of the country, demand for power peaks during the summer months, with market prices also peaking at that time. In other areas, power demand peaks during the winter months. In most of the areas the traditional electric operating companies serve, electric power sales peak during the summer with a smaller peak during the winter, while in most of the areas Southern Company Gas serves, natural gas demand peaks during the winter. As a result, the overall operating results of the registrants may fluctuate substantially on a seasonal basis. In addition, the traditional electric operating companies, Southern Power, and Southern Company Gas have historically sold less

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power and natural gas when weather conditions are milder. Unusually mild weather in the future could reduce the revenues, net income, and available cash of the affected registrant.
Further, volatile or significant weather events could result in substantial damage to the transmission and distribution lines of the traditional electric operating companies, the generating facilities of the traditional electric operating companies and Southern Power, and the natural gas distribution and storage facilities of Southern Company Gas. The traditional electric operating companies, Southern Power, and Southern Company Gas have significant investments in the Atlantic and Gulf Coast regions and Southern Power has wind and natural gas investments in various states which could be subject to severe weather, as well as solar investments in various states which could be subject to natural disasters. Further, severe drought conditions can reduce the availability of water and restrict or prevent the operation of certain generating facilities.
In the event a traditional electric operating company or Southern Company Gas experiences any of these weather events or any natural disaster or other catastrophic event, recovery of costs in excess of reserves and insurance coverage is subject to the approval of its state PSC or other applicable state regulatory agency. Historically, the traditional electric operating companies from time to time have experienced deficits in their storm cost recovery reserve balances and may experience such deficits in the future. Any denial by the applicable state PSC or other applicable state regulatory agency or delay in recovery of any portion of such costs could have a material negative impact on a traditional electric operating company's or Southern Company Gas' and Southern Company's results of operations, financial condition, and liquidity.
In addition, damages resulting from significant weather events within the service territory of any traditional electric operating company or Southern Company Gas or affecting Southern Power's customers may result in the loss of customers and reduced demand for energy for extended periods. Any significant loss of customers or reduction in demand for energy could have a material negative impact on a traditional electric operating company's, Southern Power's, or Southern Company Gas' and Southern Company's results of operations, financial condition, and liquidity.
Acquisitions, dispositions, or other strategic ventures or investments may not result in anticipated benefits and may present risks not originally contemplated, which may have a material adverse effect on the liquidity, results of operations, and financial condition of Southern Company and its subsidiaries.
Southern Company and its subsidiaries have made significant acquisitions and investments in the past and may in the future make additional acquisitions, dispositions, or other strategic ventures or investments, including the proposed sale by Pivotal Utility Holdings, a wholly-owned subsidiary of Southern Company Gas, of the assets of its natural gas distribution utilities, Elizabethtown Gas and Elkton Gas, and the potential sale by Southern Power of a 33% equity interest in a newly-formed holding company that owns substantially all of Southern Power's solar assets. Southern Company and its subsidiaries continually seek opportunities to create value through various transactions, including acquisitions or sales of assets. Specifically, Southern Power continually seeks opportunities to execute its strategy to create value through various transactions, including acquisitions and sales of assets, development and construction of new generating facilities, and entry into PPAs primarily with investor-owned utilities, independent power producers, municipalities, and other load-serving entities, as well as commercial and industrial customers.
Southern Company and its subsidiaries may face significant competition for transactional opportunities and anticipated transactions may not be completed on acceptable terms or at all. In addition, these transactions are intended to, but may not, result in the generation of cash or income, the realization of savings, the creation of efficiencies, or the reduction of risk. These transactions may also affect the liquidity, results of operations, and financial condition of Southern Company and its subsidiaries.
These transactions also involve risks, including:
they may not result in an increase in income or provide an adequate return on capital or other anticipated benefits;
they may result in Southern Company or its subsidiaries entering into new or additional lines of business, which may have new or different business or operational risks;
they may not be successfully integrated into the acquiring company's operations and/or internal control processes;
the due diligence conducted prior to a transaction may not uncover situations that could result in financial or legal exposure or the acquiring company may not appropriately evaluate the likelihood or quantify the exposure from identified risks;
they may result in decreased earnings, revenues, or cash flow;
expected benefits of a transaction may be dependent on the cooperation or performance of a counterparty; or
for the traditional electric operating companies and Southern Company Gas, costs associated with such investments that were expected to be recovered through rates may not be recoverable.

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Southern Company and Southern Company Gas are holding companies and are dependent on cash flows from their respective subsidiaries to meet their ongoing and future financial obligations, including making interest and principal payments on outstanding indebtedness and, for Southern Company, to pay dividends on its common stock.
Southern Company and Southern Company Gas are holding companies and, as such, they have no operations of their own. Substantially all of Southern Company's and Southern Company Gas' respective consolidated assets are held by subsidiaries. A significant portion of Southern Company Gas' debt is issued by its 100%-owned subsidiary, Southern Company Gas Capital, and is fully and unconditionally guaranteed by Southern Company Gas. Southern Company's and Southern Company Gas' ability to meet their respective financial obligations, including making interest and principal payments on outstanding indebtedness, and, for Southern Company, to pay dividends on its common stock, is primarily dependent on the net income and cash flows of their respective subsidiaries and the ability of those subsidiaries to pay upstream dividends or to repay borrowed funds. Prior to funding Southern Company or Southern Company Gas, the respective subsidiaries have regulatory restrictions and financial obligations that must be satisfied, including among others, debt service and preferred stock dividends. These subsidiaries are separate legal entities and have no obligation to provide Southern Company or Southern Company Gas with funds. In addition, Southern Company and Southern Company Gas may provide capital contributions or debt financing to subsidiaries under certain circumstances, which would reduce the funds available to meet their respective financial obligations, including making interest and principal payments on outstanding indebtedness, and to pay dividends on Southern Company's common stock.
A downgrade in the credit ratings of any of the registrants, Southern Company Gas Capital, or Nicor Gas could negatively affect their ability to access capital at reasonable costs and/or could require posting of collateral or replacing certain indebtedness.
There are a number of factors that rating agencies evaluate to arrive at credit ratings for the registrants, Southern Company Gas Capital, and Nicor Gas, including capital structure, regulatory environment, the ability to cover liquidity requirements, and other commitments for capital. The registrants, Southern Company Gas Capital, and Nicor Gas could experience a downgrade in their ratings if any rating agency concludes that the level of business or financial risk of the industry or the applicable company has deteriorated. Changes in ratings methodologies by the agencies could also have a negative impact on credit ratings. If one or more rating agencies downgrade any registrant, Southern Company Gas Capital, or Nicor Gas, borrowing costs likely would increase, including automatic increases in interest rates under applicable term loans and credit facilities, the pool of investors and funding sources would likely decrease, and, particularly for any downgrade to below investment grade, significant collateral requirements may be triggered in a number of contracts. Any credit rating downgrades could require altering the mix of debt financing currently used, and could require the issuance of secured indebtedness and/or indebtedness with additional restrictive covenants binding the applicable company.
Uncertainty in demand for energy can result in lower earnings or higher costs. If demand for energy falls short of expectations, it could result in potentially stranded assets. If demand for energy exceeds expectations, it could result in increased costs for purchasing capacity in the open market or building additional electric generation and transmission facilities or natural gas distribution and storage facilities.
Southern Company, the traditional electric operating companies, and Southern Power each engage in a long-term planning process to estimate the optimal mix and timing of new generation assets required to serve future load obligations. Southern Company Gas engages in a long-term planning process to estimate the optimal mix and timing of building new pipelines and storage facilities, replacing existing pipelines, rewatering storage facilities, and entering new markets and/or expanding in existing markets. These planning processes must look many years into the future in order to accommodate the long lead times associated with the permitting and construction of new generation and associated transmission facilities and natural gas distribution and storage facilities. Inherent risk exists in predicting demand this far into the future as these future loads are dependent on many uncertain factors, including economic conditions, customer usage patterns, efficiency programs, and customer technology adoption. Because regulators may not permit the traditional electric operating companies or Southern Company Gas' regulated operating companies to adjust rates to recover the costs of new generation and associated transmission assets and/or new pipelines and related infrastructure in a timely manner or at all, Southern Company and its subsidiaries may not be able to fully recover these costs or may have exposure to regulatory lag associated with the time between the incurrence of costs and the recovery in customers' rates. In addition, under Southern Power's model of selling capacity and energy at negotiated market-based rates under long-term PPAs, Southern Power might not be able to fully execute its business plan if market prices drop below original forecasts. Southern Power and/or the traditional electric operating companies may not be able to extend existing PPAs or find new buyers for existing generation assets as existing PPAs expire, or they may be forced to market these assets at prices lower than originally intended. These situations could have negative impacts on net income and cash flows for the affected registrant.
The traditional electric operating companies are currently obligated to supply power to retail customers and wholesale customers under long-term PPAs. Southern Power is currently obligated to supply power to wholesale customers under long-

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term PPAs. At peak times, the demand for power required to meet this obligation could exceed the Southern Company system's available generation capacity. Market or competitive forces may require that the traditional electric operating companies purchase capacity on the open market or build additional generation and transmission facilities, and for Southern Power to purchase energy or capacity on the open market. Because regulators may not permit the traditional electric operating companies to pass all of these purchase or construction costs on to their customers, the traditional electric operating companies may not be able to recover some or all of these costs or may have exposure to regulatory lag associated with the time between the incurrence of costs of purchased or constructed capacity and the traditional electric operating companies' recovery in customers' rates. Under Southern Power's long-term fixed price PPAs, Southern Power may not be able to recover all of these costs. These situations could have negative impacts on net income and cash flows for the affected registrant.
The businesses of the registrants and Nicor Gas are dependent on their ability to successfully access funds through capital markets and financial institutions. The inability of any of the registrants or Nicor Gas to access funds may limit its ability to execute its business plan by impacting its ability to fund capital investments or acquisitions that it may otherwise rely on to achieve future earnings and cash flows.
The registrants and Nicor Gas rely on access to both short-term money markets and longer-term capital markets as a significant source of liquidity for capital requirements not satisfied by the cash flow from their respective operations. If any of the registrants or Nicor Gas is not able to access capital at competitive rates or on favorable terms, its ability to implement its business plan will be limited by impacting its ability to fund capital investments or acquisitions that it may otherwise rely on to achieve future earnings and cash flows. In addition, the registrants and Nicor Gas rely on committed bank lending agreements as back-up liquidity which allows them to access low cost money markets. Each of the registrants and Nicor Gas believes that it will maintain sufficient access to these financial markets based upon current credit ratings. However, certain events or market disruptions may increase the cost of borrowing or adversely affect the ability to raise capital through the issuance of securities or other borrowing arrangements or the ability to secure committed bank lending agreements used as back-up sources of capital. Such disruptions could include:
an economic downturn or uncertainty;
bankruptcy or financial distress at an unrelated energy company, financial institution, or sovereign entity;
capital markets volatility and disruption, either nationally or internationally;
changes in tax policy;
volatility in market prices for electricity and natural gas;
terrorist attacks or threatened attacks on the Southern Company system's facilities or unrelated energy companies' facilities;
war or threat of war; or
the overall health of the utility and financial institution industries.
As of December 31, 2017, Mississippi Power's current liabilities exceeded current assets by approximately $911 million primarily due to a $900 million unsecured term loan that matures on March 31, 2018. Mississippi Power expects to refinance the unsecured term loan with external security issuances and/or borrowings from financial institutions or Southern Company. Mississippi Power has been informed by Southern Company that in the event sufficient funds are not available from external sources, Southern Company intends to provide Mississippi Power with loans and/or equity to fund the remaining indebtedness to mature and other cash needs over the next 12 months.
Georgia Power's ability to make future borrowings through its term loan credit facility with the Federal Financing Bank is subject to the satisfaction of customary conditions, as well as certification of compliance with the requirements of the loan guarantee program under Title XVII of the Energy Policy Act of 2005, including accuracy of project-related representations and warranties, delivery of updated project-related information and evidence of compliance with the prevailing wage requirements of the Davis-Bacon Act of 1931, as amended, and certification from the DOE's consulting engineer that proceeds of the advances are used to reimburse certain costs of construction relating to Plant Vogtle Units 3 and 4 that are eligible for financing under the Title XVII Loan Guarantee Program. Prior to obtaining any further advances under Georgia Power's loan guarantee agreement with the DOE, Georgia Power is required to obtain the DOE's approval of the Bechtel Agreement.
Failure to comply with debt covenants or conditions could adversely affect the ability of the registrants, Southern Company Gas Capital, or Nicor Gas to execute future borrowings.
The debt and credit agreements of the registrants, Southern Company Gas Capital, and Nicor Gas contain various financial and other covenants. Georgia Power's loan guarantee agreement with the DOE contains additional covenants, events of default, and mandatory prepayment events relating to the construction of Plant Vogtle Units 3 and 4. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements, which would negatively affect the applicable company's financial condition and liquidity.

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Volatility in the securities markets, interest rates, and other factors could substantially increase defined benefit pension and other postretirement plan costs and the costs of nuclear decommissioning.
The costs of providing pension and other postretirement benefit plans are dependent on a number of factors, such as the rates of return on plan assets, discount rates, the level of interest rates used to measure the required minimum funding levels of the plan, changes in actuarial assumptions, future government regulation, changes in life expectancy, and the frequency and amount of the Southern Company system's required or voluntary contributions made to the plans. Changes in actuarial assumptions and differences between the assumptions and actual values, as well as a significant decline in the value of investments that fund the pension and other postretirement plans, if not offset or mitigated by a decline in plan liabilities, could increase pension and other postretirement expense, and the Southern Company system could be required from time to time to fund the pension plans with significant amounts of cash. Such cash funding obligations could have a material impact on liquidity by reducing cash flows and could negatively affect results of operations. Additionally, Alabama Power and Georgia Power each hold significant assets in their nuclear decommissioning trusts to satisfy obligations to decommission Alabama Power's and Georgia Power's nuclear plants. The rate of return on assets held in those trusts can significantly impact both the costs of decommissioning and the funding requirements for the trusts.
The registrants are subject to risks associated with their ability to obtain adequate insurance at acceptable costs.
The financial condition of some insurance companies, the threat of terrorism, and natural disasters, among other things, could have disruptive effects on insurance markets. The availability of insurance covering risks that the registrants and their respective competitors typically insure against may decrease, and the insurance that the registrants are able to obtain may have higher deductibles, higher premiums, and more restrictive policy terms. Further, the insurance policies may not cover all of the potential exposures or the actual amount of loss incurred.
Any losses not covered by insurance, or any increases in the cost of applicable insurance, could adversely affect the results of operations, cash flows, or financial condition of the affected registrant.
The use of derivative contracts by Southern Company and its subsidiaries in the normal course of business could result in financial losses that negatively impact the net income of the registrants or in reported net income volatility.
Southern Company and its subsidiaries, including the traditional electric operating companies, Southern Power, and Southern Company Gas, use derivative instruments, such as swaps, options, futures, and forwards, to manage their commodity and interest rate exposures and, to a lesser extent, manage foreign currency exchange rate exposure and engage in limited trading activities. The registrants could recognize financial losses as a result of volatility in the market values of these contracts or if a counterparty fails to perform. These risks are managed through risk management policies, limits, and procedures, which might not work as planned and cannot entirely eliminate the risks associated with these activities. In addition, derivative contracts entered into for hedging purposes might not offset the underlying exposure being hedged as expected, resulting in financial losses. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these financial instruments can involve management's judgment or use of estimates. The factors used in the valuation of these instruments become more difficult to predict and the calculations become less reliable the further into the future these estimates are made. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of these contracts.
In addition, Southern Company Gas utilizes derivative instruments to lock in economic value in wholesale gas services, which may not qualify or are not designated as hedges for accounting purposes. The difference in accounting treatment for the underlying position and the financial instrument used to hedge the value of the contract can cause volatility in reported net income of Southern Company and Southern Company Gas while the positions are open due to mark-to-market accounting.
Future impairments of goodwill or long-lived assets could have a material adverse effect on the registrants' results of operations.
Goodwill is assessed for impairment at least annually and more frequently if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value and long-lived assets are assessed for impairment whenever events or circumstances indicate that an asset's carrying amount may not be recoverable. In connection with the completion of the Merger, the application of the acquisition method of accounting was pushed down to Southern Company Gas. The excess of the purchase price over the fair values of Southern Company Gas' assets and liabilities was recorded as goodwill. This resulted in a significant increase in the goodwill recorded on Southern Company's and Southern Company Gas' consolidated balance sheets. At December 31, 2017, goodwill was $6.3 billion and $6.0 billion for Southern Company and Southern Company Gas, respectively.
In addition, Southern Company and its subsidiaries have long-lived assets recorded on their balance sheets. To the extent the value of goodwill or long-lived assets become impaired, the affected registrant may be required to incur impairment charges that could have a material impact on their results of operations. For example, a wholly-owned subsidiary of Southern Company

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Gas owns and operates a natural gas storage facility consisting of two salt dome caverns where recent seismic mapping indicates that proximity of one of the caverns to the edge of the salt dome may be less than the required minimum and could result in Southern Company Gas retiring the cavern early. Early retirement of the cavern could trigger impairment of other long-lived assets associated with the natural gas storage facility. In addition, a subsidiary of Southern Company has several leveraged lease agreements, with terms ranging up to 45 years, which relate to international and domestic energy generation, distribution, and transportation assets. Southern Company receives federal income tax deductions for depreciation and amortization, as well as interest on long-term debt related to these investments. Southern Company reviews all important lease assumptions at least annually, or more frequently if events or changes in circumstances indicate that a change in assumptions has occurred or may occur. With respect to Southern Company's subsidiary's investments in leveraged leases, the recovery of its investment is dependent on the profitable operation of the leased assets by the respective lessees. A significant deterioration in the performance of the leased asset could result in the impairment of the related lease receivable.

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Item 1B.
UNRESOLVED STAFF COMMENTS.
None.

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Item 2. PROPERTIES
Electric
Electric Properties
The traditional electric operating companies, Southern Power, and SEGCO, at December 31, 2017, owned and/or operated 33 hydroelectric generating stations, 29 fossil fuel generating stations, three nuclear generating stations, 15 combined cycle/cogeneration stations, 35 solar facilities, eight wind facilities, one biomass facility, and one landfill gas facility. The amounts of capacity for each company, as of December 31, 2017, are shown in the table below.
Generating Station
Location
Nameplate
Capacity (1)

 
 
 
(KWs)

 
FOSSIL STEAM
 
 
 
Gadsden
Gadsden, AL
120,000

 
Gorgas
Jasper, AL
1,021,250

 
Barry
Mobile, AL
1,300,000

 
Greene County
Demopolis, AL
300,000

(2
)
Gaston Unit 5
Wilsonville, AL
880,000

 
Miller
Birmingham, AL
2,532,288

(3
)
Alabama Power Total
 
6,153,538

 
Bowen
Cartersville, GA
3,160,000

 
Hammond
Rome, GA
800,000

 
McIntosh
Effingham County, GA
163,117

 
Scherer
Macon, GA
750,924

(4
)
Wansley
Carrollton, GA
925,550

(5
)
Yates
Newnan, GA
700,000

 
Georgia Power Total
 
6,499,591

 
Crist
Pensacola, FL
970,000

 
Daniel
Pascagoula, MS
500,000

(6
)
Scherer Unit 3
Macon, GA
204,500

(4
)
Gulf Power Total
 
1,674,500

 
Daniel
Pascagoula, MS
500,000

(6
)
Greene County
Demopolis, AL
200,000

(2
)
Watson
Gulfport, MS
862,000

 
Mississippi Power Total
 
1,562,000

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

(7
)
Total Fossil Steam
 
16,889,629

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

 
Hatch
Baxley, GA
899,612

(8
)
Vogtle Units 1 and 2
Augusta, GA
1,060,240

(9
)
Georgia Power Total
 
1,959,852

 
Total Nuclear Steam
 
3,679,852

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

 
Boulevard
Savannah, GA
19,700

 

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Generating Station
Location
Nameplate
Capacity (1)

 
McDonough Unit 3
Atlanta, GA
78,800

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

 
McManus
Brunswick, GA
481,700

 
Robins
Warner Robins, GA
158,400

 
Wansley
Carrollton, GA
26,322

(5
)
Wilson
Augusta, GA
354,100

 
Georgia Power Total
 
1,759,022

 
Lansing Smith Unit A
Southport, FL
39,400

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

 
Gulf Power Total
 
54,400

 
Chevron Cogenerating Station
Pascagoula, MS
147,292

(10
)
Sweatt
Meridian, MS
39,400

 
Watson
Gulfport, MS
39,360

 
Mississippi Power Total
 
226,052

 
Addison
Thomaston, GA
668,800

 
Cleveland County
Cleveland County, NC
720,000

 
Dahlberg
Jackson County, GA
756,000

 
Oleander
Cocoa, FL
791,301

 
Rowan
Salisbury, NC
455,250

 
Southern Power Total
 
3,391,351

 
Gaston (SEGCO)
Wilsonville, AL
19,680

(7
)
Total Combustion Turbines
 
6,170,505

 
COGENERATION
 
 
 
Washington County
Washington County, AL
123,428

 
Lowndes County
Burkeville, AL
104,800

 
Theodore
Theodore, AL
236,418

 
Alabama Power Total
 
464,646

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

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

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

 
Georgia Power Total
 
3,838,920

 
Lansing Smith Unit 3
Southport, FL
 
 
Gulf Power Total
 
545,500

 

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Generating Station
Location
Nameplate
Capacity (1)

 
Daniel
Pascagoula, MS
1,070,424

 
Kemper County/Ratcliffe
Kemper County, MS
769,898

(11)

Mississippi Power Total
 
1,840,322

 
Franklin
Smiths, AL
1,857,820

 
Harris
Autaugaville, AL
1,318,920

 
Mankato
Mankato, MN
375,000

 
Rowan
Salisbury, NC
530,550

 
Stanton Unit A
Orlando, FL
428,649

(12
)
Wansley
Carrollton, GA
1,073,000

 
Southern Power Total
 
5,583,939

 
Total Combined Cycle
 
12,879,105

 
HYDROELECTRIC FACILITIES
 
 
 
Bankhead
Holt, AL
53,985

 
Bouldin
Wetumpka, AL
225,000

 
Harris
Wedowee, AL
132,000

 
Henry
Ohatchee, AL
72,900

 
Holt
Holt, AL
46,944

 
Jordan
Wetumpka, AL
100,000

 
Lay
Clanton, AL
177,000

 
Lewis Smith
Jasper, AL
157,500

 
Logan Martin
Vincent, AL
135,000

 
Martin
Dadeville, AL
182,000

 
Mitchell
Verbena, AL
170,000

 
Thurlow
Tallassee, AL
81,000

 
Weiss
Leesburg, AL
87,750

 
Yates
Tallassee, AL
47,000

 
Alabama Power Total
 
1,668,079

 
Bartletts Ferry
Columbus, GA
173,000

 
Goat Rock
Columbus, GA
38,600

 
Lloyd Shoals
Jackson, GA
14,400

 
Morgan Falls
Atlanta, GA
16,800

 
North Highlands
Columbus, GA
29,600

 
Oliver Dam
Columbus, GA
60,000

 
Rocky Mountain
Rome, GA
215,256

(13
)
Sinclair Dam
Milledgeville, GA
45,000

 
Tallulah Falls
Clayton, GA
72,000

 
Terrora
Clayton, GA
16,000

 
Tugalo
Clayton, GA
45,000

 
Wallace Dam
Eatonton, GA
321,300

 
Yonah
Toccoa, GA
22,500

 
6 Other Plants
Various Georgia locations
18,080

 
Georgia Power Total
 
1,087,536

 
Total Hydroelectric Facilities
 
2,755,615

 

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Generating Station
Location
Nameplate
Capacity (1)

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

 
Fort Gordon
Augusta, GA
30,000

 
Fort Stewart
Fort Stewart, GA
30,000

 
Kings Bay
Camden County, GA
30,000

 
Dalton
Dalton, GA
6,012

 
3 Other Plants
Various Georgia locations
2,984

 
Georgia Power Total
 
128,996

 
Adobe
Kern County, CA
20,000

 
Apex
North Las Vegas, NV
20,000

 
Boulder I
Clark County, NV
100,000

(14
)
Butler
Taylor County, GA
103,700

 
Butler Solar Farm
Taylor County, GA
22,000

 
Calipatria
Imperial County, CA
20,000

 
Campo Verde
Imperial County, CA
147,420

 
Cimarron
Springer, NM
30,640

 
Decatur County
Decatur County, GA
20,000

 
Decatur Parkway
Decatur County, GA
84,000

 
Desert Stateline
San Bernadino County, CA
299,900

(14
)
East Pecos
Pecos County, TX
120,000

 
Garland
Kern County, CA
205,130

(14
)
Granville
Oxford, NC
2,500

 
Henrietta
Kings County, CA
102,000

(14
)
Imperial Valley
Imperial County, CA
163,200

(14
)
Lamesa
Dawson County, TX
102,000

 
Lost Hills - Blackwell
Kern County, CA
33,440

(14
)
Macho Springs
Luna County, NM
55,000

 
Morelos del Sol
Kern County, CA
15,000

 
North Star
Fresno County, CA
61,600

(14
)
Pawpaw
Taylor County, GA
30,480

 
Roserock
Pecos County, TX
160,000

(14
)
Rutherford
Rutherford County, NC
74,800

 
Sandhills
Taylor County, GA
146,890

 
Spectrum
Clark County, NV
30,240

 
Tranquillity
Fresno County, CA
205,300

(14
)
Southern Power Total
 
2,375,240

(15
)
Total Solar
 
2,504,236

 

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Generating Station
Location
Nameplate
Capacity (1)

 
WIND FACILITIES
 
 
 
Bethel
Castro County, TX
276,000

 
Grant Plains
Grant County, OK
147,200

 
Grant Wind
Grant County, OK
151,800

 
Kay Wind
Kay County, OK
299,000

 
Passadumkeag
Penobscot County, ME
42,900

 
Salt Fork
Donley & Gray Counties TX
174,000

 
Tyler Bluff
Cooke County, TX
125,580

 
Wake Wind
Crosby & Floyd Counties, TX
257,250

(14
)
Southern Power Total
 
1,473,730

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

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

 
Total Generating Capacity
 
46,936,018

 
Notes:
(1)
See "Jointly-Owned Facilities" herein for additional information.
(2)
Owned by Alabama Power and Mississippi Power as tenants in common in the proportions of 60% and 40%, respectively.
(3)
Capacity shown is Alabama Power's portion (95.92%) of total plant capacity.
(4)
Capacity shown for Georgia Power is 8.4% of Units 1 and 2 and 75% of Unit 3. Capacity shown for Gulf Power is 25% of Unit 3.
(5)
Capacity shown is Georgia Power's portion (53.5%) of total plant capacity.
(6)
Represents 50% of Plant Daniel Units 1 and 2, which are owned as tenants in common by Gulf Power and Mississippi Power.
(7)
SEGCO is jointly-owned by Alabama Power and Georgia Power. See BUSINESS in Item 1 herein for additional information.
(8)
Capacity shown is Georgia Power's portion (50.1%) of total plant capacity.
(9)
Capacity shown is Georgia Power's portion (45.7%) of total plant capacity.
(10)
Generation is dedicated to a single industrial customer.
(11)
The capacity shown is the gross capacity using natural gas fuel without supplemental firing.
(12)
Capacity shown is Southern Power's portion (65%) of total plant capacity.
(13)
Capacity shown is Georgia Power's portion (25.4%) of total plant capacity. OPC operates the plant.
(14)
Each facility is owned by Southern Power through a majority-owned subsidiary (90.1% Wake Wind, 66% Desert Stateline, and 51% for each of the following facilities: Boulder 1, Garland, Henrietta, Imperial Valley, Lost Hills-Blackwell, North Star, Roserock, and Tranquillity). The capacity shown in the table is 100% of the nameplate capacity for the respective facility.
(15)
Southern Power is pursuing the sale of a 33% equity interest in a newly-formed holding company that owns substantially all of Southern Power's solar assets, which, if successful, is expected to close in the middle of 2018.
Except as discussed below under "Titles to Property," the principal plants and other important units of the traditional electric operating companies, Southern Power, and SEGCO are owned in fee by the respective companies. It is the opinion of management of each such company that its operating properties are adequately maintained and are substantially in good operating condition, and suitable for their intended purpose.
Mississippi Power owns a 79-mile length of 500-kilovolt transmission line which is leased to Entergy Gulf States Louisiana, LLC. The line, completed in 1984, extends from Plant Daniel to the Louisiana state line. Entergy Gulf States Louisiana, LLC is

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paying a use fee over a 40-year period covering all expenses and the amortization of the original $57 million cost of the line. At December 31, 2017, the unamortized portion of this cost was approximately $13 million.
Mississippi Power owns a lignite mine and equipment that were intended to provide fuel for the Kemper IGCC. Mississippi Power also has acquired mineral reserves located around the Kemper County energy facility. The mine, operated by North American Coal Corporation, started commercial operation in 2013. Liberty Fuels Company, LLC, the operator of the mine, has a legal obligation to perform mine reclamation and Mississippi Power has a contractual obligation to fund all reclamation activities. Mississippi Power expects mine reclamation activities to begin in 2018. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Kemper County Energy Facility – Lignite Mine and CO2 Pipeline Facilities" of Mississippi Power in Item 7 herein and Note 3 to the financial statements of Southern Company and Mississippi Power under "Kemper County Energy Facility – Lignite Mine and CO2 Pipeline Facilities" in Item 8 herein for additional information on the lignite mine.
In 2018, Mississippi Power will file a reserve margin plan which could impact Mississippi Power's generating stations as well as the generating stations jointly owned by Mississippi Power and other traditional electric operating companies. See BUSINESS in Item 1 herein under "Rate Matters – Integrated Resource Planning – Mississippi Power" for additional information.
In 2017, the maximum demand on the traditional electric operating companies, Southern Power, and SEGCO was 34,874,000 KWs and occurred on August 17, 2017. The all-time maximum demand of 38,777,000 KWs on the traditional electric operating companies, Southern Power, and SEGCO occurred on August 22, 2007. These amounts exclude demand served by capacity retained by MEAG Power, OPC, and SEPA. The reserve margin for the traditional electric operating companies, Southern Power, and SEGCO in 2017 was 30.8%. See SELECTED FINANCIAL DATA in Item 6 herein for additional information.
Jointly-Owned Facilities
Alabama Power, Georgia Power, and Southern Power at December 31, 2017 had undivided interests in certain generating plants and other related facilities with non-affiliated parties. The percentages of ownership of the total plant or facility are as follows:
 
 
 
 
Percentage Ownership
 
 
Total
Capacity
 
Alabama