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Acquisitions and Dispositions

9 Months Ended

Sep. 30, 2019

See Note 15 to the financial statements in Item 8 of the Form 10-K for additional information.

Southern Company

On January 1, 2019, Southern Company completed the sale of all of the capital stock of Gulf Power to 700 Universe, LLC, a wholly-owned subsidiary of NextEra Energy, for an aggregate cash purchase price of approximately $5.8 billion (less $1.3 billion of indebtedness assumed), subject to customary working capital adjustments. The preliminary gain associated with the sale of Gulf Power totaled $2.5 billion pre-tax ($1.3 billion after tax). The assets and liabilities of Gulf Power were classified as assets held for sale and liabilities held for sale on Southern Company's balance sheet as of December 31, 2018.

On July 22, 2019, PowerSecure completed the sale of its utility infrastructure services business for approximately $71 million, subject to customary working capital adjustments. In contemplation of this sale, a goodwill impairment charge of $32 million was recorded in the second quarter 2019.

In September 2019, PowerSecure reached an agreement to sell its lighting business for approximately $8 million, subject to customary working capital adjustments. In contemplation of this sale, an impairment charge of $18 million was recorded in the third quarter 2019 related to goodwill, identifiable intangibles, and other assets. The related assets and liabilities were classified as held for sale on Southern Company's balance sheet as of September 30, 2019. The sale is expected to close during the fourth quarter 2019.

Southern Company is negotiating an agreement to sell one of its leveraged lease investments for approximately $20 million. The net investment in the leveraged lease of approximately $6 million was classified as held for sale on Southern Company's balance sheet as of September 30, 2019. The sale is expected to close during the fourth quarter 2019.

The ultimate outcome of these matters cannot be determined at this time. See "Assets Held for Sale" herein for additional information.

Alabama Power

On September 6, 2019, Alabama Power entered into the Autauga Combined Cycle Acquisition, a purchase and sale agreement to acquire all of the equity interests in Tenaska Alabama II Partners, L.P. Tenaska Alabama II Partners, L.P. owns and operates an approximately 885-MW combined cycle generation facility in Autauga County, Alabama. The transaction is expected to close by September 1, 2020. As part of the Autauga Combined Cycle Acquisition, Alabama Power will assume an existing power sales agreement under which the full output of the generating facility remains committed to another third party for its remaining term of approximately three years. The estimated revenues from the power sales agreement are expected to offset the associated costs of operation during the remaining term.

The completion of the Autauga Combined Cycle Acquisition is subject to the satisfaction or waiver of certain conditions, including, among other customary conditions, approval by the Alabama PSC, as well as (i) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and (ii) approval by the FERC. All regulatory approvals are expected to be obtained by the end of the third quarter 2020.

The ultimate outcome of this matter cannot be determined at this time.

Southern Power

Acquisitions

During the third quarter 2019, Southern Power acquired a controlling interest in the fuel cell generation facility listed below. Acquisition-related costs were expensed as incurred and were not material.



Project Facility	Resource	Seller	Approximate Nameplate Capacity (MW)	Location	Southern Power Percentage Ownership	COD	PPA Remaining Period
DSGP^(a)	Fuel Cell	Bloom Energy	28	Delaware	100% of Class B	N/A^(b)	15 years


(a)	During the second and third quarters 2019, Southern Power made a total investment of approximately $166 million in DSGP and now holds a controlling interest and consolidates 100% of DSGP's operating results. Southern Power records net income attributable to noncontrolling interests for approximately 10 MWs of the facility.


(b)	Approximately 18 MWs of the 28-MW facility was repowered between June and August 2019.

Construction Projects

During the nine months ended September 30, 2019, Southern Power completed construction of and placed in service the 385-MW Plant Mankato expansion and continued construction of the Wildhorse Mountain and Reading facilities. Total aggregate construction costs, excluding acquisition costs, are expected to be between $405 million and $450 million for the two facilities under construction. At September 30, 2019, total costs of construction incurred for these projects were $337 million and are included in CWIP. The ultimate outcome of these matters cannot be determined at this time.



Project Facility	Resource	Approximate Nameplate Capacity (MW)	Location	Actual/Expected COD	PPA Contract Period
Projects Completed During the Nine Months Ended September 30, 2019
Mankato expansion^(a)	Natural Gas	385	Mankato, MN	May 2019	20 years
Projects Under Construction as of September 30, 2019
Wildhorse Mountain^(b)	Wind	100	Pushmataha County, OK	Fourth quarter 2019	20 years
Reading^(c)	Wind	200	Osage and Lyon Counties, KS	Second quarter 2020	12 years


(a)	Southern Power has an agreement with a subsidiary of Xcel to sell all of its equity interests in Plant Mankato, including the expansion. The transaction is subject to FERC approval and is expected to close by January 20, 2020. The expansion unit started providing energy under a PPA with Northern States Power on June 1, 2019. See "Sales of Natural Gas and Biomass Plants" below.


(b)	In May 2018, Southern Power purchased 100% of the Wildhorse Mountain facility. Southern Power entered into a tax equity partnership in June 2019 with funding of tax equity amounts expected to occur upon commercial operation.


(c)	In August 2018, Southern Power purchased 100% of the membership interests of the Reading facility from the joint development arrangement with Renewable Energy Systems Americas, Inc. Southern Power may enter into a tax equity partnership, in which case it would then own 100% of the class B membership interests.

Development Projects

Southern Power continues to evaluate and refine the deployment of wind turbine equipment purchased in 2016 and 2017 to potential joint development and construction projects as well as the amount of MW capacity to be constructed. During 2019, certain wind turbine equipment was sold, resulting in gains totaling approximately $17 million.

Sales of Natural Gas and Biomass Plants

On June 13, 2019, Southern Power completed the sale of its equity interests in Nacogdoches Power, LLC, the owner of an approximately 115-MW biomass facility located in Nacogdoches County, Texas, to Austin Energy, for a cash purchase price of approximately $461 million. This sale resulted in an $88 million after-tax gain.

In November 2018, Southern Power entered into an agreement with Northern States Power (a subsidiary of Xcel) to sell all of its equity interests in Plant Mankato for an aggregate purchase price of approximately $650 million, subject to certain state commission approvals. On September 27, 2019, the Minnesota Public Utilities Commission denied approval of the transaction. A newly-formed subsidiary of Xcel has agreed to purchase all of the equity interests in Plant Mankato subject to FERC approval and other customary conditions to closing. The transaction is expected to close by January 20, 2020. If the transaction does not close by this date, either party may terminate the transaction, which would result in the payment of a termination fee to Southern Power of up to $25 million. The ultimate outcome of this matter cannot be determined at this time. The assets and liabilities of Plant Mankato are classified as assets held for sale and liabilities held for sale on Southern Company's and Southern Power's balance sheets as of September 30, 2019 and December 31, 2018. See "Assets Held for Sale" herein for additional information.

Assets Subject to Lien

Under the terms of the PPAs for Plant Mankato, approximately $545 million of assets, primarily related to property, plant, and equipment, are subject to lien at September 30, 2019.

Assets Held for Sale

As discussed above, Southern Company and Southern Power each have assets and liabilities held for sale on their balance sheets at September 30, 2019 and December 31, 2018. Assets and liabilities held for sale have been classified separately on each company's balance sheet at the lower of carrying value or fair value less costs to sell at the time the criteria for held-for-sale classification were met. For assets and liabilities held for sale recorded at fair value on a nonrecurring basis, the fair value of assets held for sale is based primarily on unobservable inputs (Level 3), which includes the agreed upon sales prices in executed sales agreements.

Upon classification as held for sale in November 2018 and April 2019 for Plant Mankato and Plant Nacogdoches, respectively, Southern Power ceased recognizing depreciation and amortization on the long-lived assets to be sold.

The following table provides Southern Company's and Southern Power's major classes of assets and liabilities classified as held for sale at September 30, 2019 and December 31, 2018:



	Southern Company		Southern Power
	(in millions)
At September 30, 2019
Assets Held for Sale:
Current assets	$	17	$	12
Total property, plant, and equipment	551		546
Goodwill and other intangible assets	40		40
Other non-current assets	40		14
Total Assets Held for Sale	$	648	$	612

Liabilities Held for Sale:
Current liabilities	$	6	$	3
Other non-current liabilities	20		—
Total Liabilities Held for Sale	$	26	$	3

At December 31, 2018
Assets Held for Sale:
Current assets	$	393	$	8
Total property, plant, and equipment	4,583		536
Other intangible assets	40		40
Other non-current assets	727		—
Total Assets Held for Sale	$	5,743	$	584

Liabilities Held for Sale:
Current liabilities	$	425	$	15
Long-term debt	1,286		—
Accumulated deferred income taxes	618		—
Other non-current liabilities	932		—
Total Liabilities Held for Sale	$	3,261	$	15

Southern Company and Southern Power each concluded that the sale of their assets, both individually and combined, did not represent a strategic shift in operations that has, or is expected to have, a major effect on its operations and financial results; therefore, none of the assets related to the sales have been classified as discontinued operations for any of the periods presented.

Gulf Power and Southern Power's equity interests in Plant Oleander and Plant Stanton Unit A (together, the Florida Plants) and Plant Nacogdoches represented individually significant components of Southern Company and Southern Power, respectively; therefore, pre-tax profit for these components for the three and nine months ended September 30, 2019 and 2018 is presented below:



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2019		2018		2019		2018
	(in millions)
Earnings before income taxes:
Gulf Power	$	—	$	59	$	—	$	146
Southern Power's Florida Plants	$	—	$	18	$	—	$	40
Southern Power's Plant Nacogdoches^(*)	$	—	$	7	$	16	$	20

(*)

Earnings before income taxes for Plant Nacogdoches for the nine months ended September 30, 2019 represents January 1, 2019 through June 13, 2019 (the divestiture date).