INCOME TAXES

12 Months Ended

Dec. 31, 2019

Southern Company files a consolidated federal income tax return and the Registrants file various state income tax returns, some of which are combined or unitary. Under a joint consolidated income tax allocation agreement, each Southern Company subsidiary's current and deferred tax expense is computed on a stand-alone basis and no subsidiary is allocated more current expense than would be paid if it filed a separate income tax return. In accordance with IRS regulations, each company is jointly and severally liable for the federal tax liability.

Federal Tax Reform Legislation

Following the enactment of the Tax Reform Legislation, the SEC staff issued Staff Accounting Bulletin 118 – "Income Tax Accounting Implications of the Tax Cuts and Jobs Act" (SAB 118), which provided for a measurement period of up to one year from the enactment date to complete accounting under GAAP for the tax effects of the legislation. Due to the complex and comprehensive nature of the enacted tax law changes and their application under GAAP, the Registrants considered all amounts recorded in the financial statements as a result of the Tax Reform Legislation "provisional" as discussed in SAB 118 and subject to revision prior to filing the 2017 tax return in the fourth quarter 2018. As of December 31, 2018, each of the Registrants considered the measurement of impacts from the Tax Reform Legislation on deferred income tax assets and liabilities, primarily due to the impact of the reduction of the corporate income tax rate, to be complete.

Current and Deferred Income Taxes

Details of income tax provisions are as follows:



	2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power			Southern Power			Southern Company Gas
	(in millions)
Federal —
Current	$	156	$	61	$	264	$	(6	)	$	(717	)	$	(120	)
Deferred	1,237		125		180		26			647			195
	1,393		186		444		20			(70		)	75
State —
Current	275		12		6		(1		)	1			37
Deferred	130		72		22		11			13			18
	405		84		28		10			14			55
Total	$	1,798	$	270	$	472	$	30		$	(56	)	$	130



	2018
	Southern Company			Alabama Power		Georgia Power			Mississippi Power			Southern Power			Southern Company Gas
	(in millions)
Federal —
Current	$	167		$	91	$	393		$	(567	)	$	85		$	334
Deferred	231			123		(249		)	575			(154		)	33
	398			214		144			8			(69		)	367
State —
Current	188			26		81			(10		)	(9		)	131
Deferred	(137		)	51		(11		)	(100		)	(86		)	(34		)
	51			77		70			(110		)	(95		)	97
Total	$	449		$	291	$	214		$	(102	)	$	(164	)	$	464



	2017
	Southern Company			Alabama Power		Georgia Power			Mississippi Power			Southern Power			Southern Company Gas
	(in millions)
Federal —
Current	$	(62	)	$	136	$	256		$	194		$	(566	)	$	103
Deferred	(6		)	336		504			(753		)	(312		)	170
	(68		)	472		760			(559		)	(878		)	273
State —
Current	37			23		116			—			(110		)	27
Deferred	173			73		(46		)	27			49			67
	210			96		70			27			(61		)	94
Total	$	142		$	568	$	830		$	(532	)	$	(939	)	$	367

Southern Company's and Southern Power's ITCs and PTCs generated in the current tax year and carried forward from prior tax years that cannot be utilized in the current tax year are reclassified from current to deferred taxes in federal income tax expense in the tables above. Southern Power's ITCs and PTCs reclassified in this manner include $51 million for 2019, $128 million for

2018, and $316 million for 2017. Southern Power received $734 million and $5 million of cash related to federal ITCs under renewable energy initiatives in 2019 and 2018, respectively. No cash was received in 2017. See "Deferred Tax Assets and Liabilities" and "Tax Credit Carryforwards" herein for additional information.

In accordance with regulatory requirements, deferred federal ITCs for the traditional electric operating companies are deferred and amortized over the average life of the related property, with such amortization normally applied as a credit to reduce depreciation and amortization in the statements of income. Southern Power's and the natural gas distribution utilities' deferred federal ITCs, as well as certain state ITCs for Nicor Gas, are deferred and amortized to income tax expense over the life of the respective asset. ITCs amortized in 2019, 2018, and 2017 were immaterial for the traditional electric operating companies and Southern Company Gas and were as follows for Southern Company and Southern Power:



	Southern Company		Southern Power
	(in millions)
2019	$	181	$	151
2018	87		58
2017	79		57

Southern Power recognized tax credits and reduced the tax basis of the asset by 50% of the ITCs received, resulting in a net deferred tax asset. Southern Power has elected to recognize the tax benefit of this basis difference as a reduction to income tax expense in the year in which the plant reaches commercial operation. The tax benefit of the related basis differences reduced income tax expense by $5 million in 2019, $1 million in 2018, and $18 million in 2017. See "Unrecognized Tax Benefits" herein for further information.

State ITCs and other state credits, which are recognized in the period in which the credits are generated, reduced Georgia Power's income tax expense by $51 million in 2019, $21 million in 2018, and $37 million in 2017 and reduced Southern Power's income tax expense by $32 million in 2017.

Southern Power's federal and state PTCs, which are recognized in the period in which the credits are generated, reduced Southern Power's income tax expense by $12 million in 2019, $141 million in 2018, and $139 million in 2017.

Legal Entity Reorganizations

In April 2018, Southern Power completed the final stage of a legal entity reorganization of various direct and indirect subsidiaries that own and operate substantially all of its solar facilities, including certain subsidiaries owned in partnership with various third parties. In September 2018, Southern Power also completed a legal entity reorganization of eight operating wind facilities under a new holding company, SP Wind. The reorganizations resulted in net state tax benefits related to certain changes in apportionment rates totaling approximately $65 million, which were recorded in 2018.

Effective Tax Rate

Southern Company's effective tax rate is typically lower than the statutory rate due to employee stock plans' dividend deduction, non-taxable AFUDC equity at the traditional electric operating companies, flowback of excess deferred income taxes at the regulated utilities, and federal income tax benefits from ITCs and PTCs primarily at Southern Power. Each Registrant's effective tax rate for 2018 varied significantly as compared to 2017 due to the 14% lower 2018 federal tax rate resulting from the Tax Reform Legislation.

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:



	2019
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
Federal statutory rate	21.0	%	21.0	%	21.0	%	21.0	%	21.0	%	21.0	%
State income tax, net of federal deduction	4.9		4.9		1.0		4.3		4.0		6.1
Employee stock plans' dividend deduction	(0.4	)	—		—		—		—		—
Non-deductible book depreciation	0.3		0.6		0.5		0.4		—		—
Flowback of excess deferred income taxes	(2.1	)	(5.3	)	—		(12.6	)	—		(6.0	)
AFUDC-Equity	(0.4	)	(0.8	)	(0.6	)	(0.1	)	—		—
ITC basis difference	(0.1	)	—		—		—		(1.9	)	—
Amortization of ITC	(0.8	)	(0.1	)	(0.1	)	(0.1	)	(16.1	)	(0.1	)
Tax impact from sale of subsidiaries	5.1		—		—		—		(27.6	)	(1.4	)
Noncontrolling interests	—		—		—		—		0.8		—
Other	—		(0.4	)	(0.3	)	4.9		(0.6	)	(1.4	)
Effective income tax (benefit) rate	27.5	%	19.9	%	21.5	%	17.8	%	(20.4	)%	18.2	%



	2018
	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
Federal statutory rate	21.0	%	21.0	%	21.0	%	21.0	%	21.0	%	21.0	%
State income tax, net of federal deduction	1.8		5.0		5.5		(65.1	)	(90.8	)	9.2
Employee stock plans' dividend deduction	(1.0	)	—		—		—		—		—
Non-deductible book depreciation	0.8		0.6		1.2		0.7		—		—
Flowback of excess deferred income taxes	(4.0	)	(1.8	)	—		(4.1	)	—		(3.0	)
AFUDC-Equity	(1.0	)	(1.0	)	(1.4	)	—		—		—
ITC basis difference	(0.6	)	—		—		—		(0.2	)	—
Federal PTCs	(4.7	)	—		—		—		(156.6	)	—
Amortization of ITC	(2.0	)	(0.1	)	(0.2	)	(0.2	)	(55.4	)	(0.1	)
Tax impact from sale of subsidiaries	8.6		—		—		—		—		28.5
Tax Reform Legislation	(1.4	)	—		(4.9	)	(26.3	)	96.1		(0.4	)
Noncontrolling interests	(0.4	)	—		—		—		(14.9	)	—
Other	(0.8	)	(0.1	)	0.1		(1.4	)	2.0		0.3
Effective income tax (benefit) rate	16.3	%	23.6	%	21.3	%	(75.4	)%	(198.8	)%	55.5	%



	2017
	Southern Company		Alabama Power		Georgia Power		Mississippi Power^(*)		Southern Power		Southern Company Gas
Federal statutory rate	35.0	%	35.0	%	35.0	%	(35.0	)%	35.0	%	35.0	%
State income tax, net of federal deduction	12.5		4.5		2.0		0.6		(22.2	)	10.0
Employee stock plans' dividend deduction	(4.0	)	—		—		—		—		—
Non-deductible book depreciation	3.1		0.9		0.7		0.1		—		—
Flowback of excess deferred income taxes	(0.3	)	—		(0.1	)	—		—		(0.2	)
AFUDC-Equity	(2.6	)	(1.0	)	(0.6	)	—		—		—
AFUDC-Equity portion of Kemper IGCC charge	15.7		—		—		5.3		—		—
ITC basis difference	(1.7	)	—		—		—		(10.0	)	—
Federal PTCs	(12.1	)	—		—		—		(72.5	)	—
Amortization of ITC	(4.2	)	(0.2	)	(0.1	)	—		(20.6	)	(0.2	)
Tax Reform Legislation	(25.6	)	0.3		(0.4	)	11.9		(416.1	)	15.0
Noncontrolling interests	(1.4	)	—		—		—		(8.6	)	—
Other	(1.1	)	0.1		0.2		—		(10.7	)	0.6
Effective income tax (benefit) rate	13.3	%	39.6	%	36.7	%	(17.1	)%	(525.7	)%	60.2	%


(*)	Represents effective income tax benefit rate for Mississippi Power due to a loss before income taxes in 2017.

Deferred Tax Assets and Liabilities

The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements of the Registrants and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows:



	December 31, 2019
	Southern Company			Alabama Power		Georgia Power			Mississippi Power			Southern Power			Southern Company Gas
	(in millions)
Deferred tax liabilities —
Accelerated depreciation	$	8,711		$	2,402	$	3,058		$	315		$	1,422		$	1,288
Property basis differences	1,843			912		643			143			—			133
Federal effect of net state deferred tax assets	—			—		—			24			—			—
Leveraged lease basis differences	236			—		—			—			—			—
Employee benefit obligations	704			242		351			38			12			12
Premium on reacquired debt	83			13		70			—			—			—
Regulatory assets –
Storm damage reserves	109			—		109			—			—			—
Employee benefit obligations	1,174			311		403			55			—			45
Remaining book value of retired assets	341			174		159			8			—			—
AROs	1,723			613		1,066			44			—			—
AROs	814			360		405			—			—			—
Other	523			134		81			68			11			198
Total deferred income tax liabilities	16,261			5,161		6,345			695			1,445			1,676
Deferred tax assets —
Federal effect of net state deferred tax liabilities	277			162		63			—			24			56
Employee benefit obligations	1,385			334		488			72			5			111
Other property basis differences	230			—		65			—			146			—
ITC and PTC carryforward	2,098			11		435			—			1,445			—
Other partnership basis difference	169			—		—			—			169			—
Other comprehensive losses	112			8		18			—			10			—
AROs	2,537			973		1,471			44			—			—
Estimated loss on plants under construction	283			—		283			—			—			—
Other deferred state tax attributes	402			—		13			251			72			8
Regulatory liability associated with the Tax Reform Legislation (not subject to normalization)	401			240		133			28			—			—
Other	786			173		154			56			46			287
Total deferred income tax assets	8,680			1,901		3,123			451			1,917			462
Valuation allowance	(137		)	—		(35		)	(41		)	(36		)	(5		)
Net deferred income tax assets	8,543			1,901		3,088			410			1,881			457
Net deferred income taxes (assets)/liabilities	$	7,718		$	3,260	$	3,257		$	285		$	(436	)	$	1,219

Recognized in the balance sheets:
Accumulated deferred income taxes – assets	$	(170	)	$	—	$	—		$	(139	)	$	(551	)	$	—
Accumulated deferred income taxes – liabilities	$	7,888		$	3,260	$	3,257		$	424		$	115		$	1,219



	December 31, 2018
	Southern Company			Alabama Power		Georgia Power			Mississippi Power			Southern Power			Southern Company Gas
	(in millions)
Deferred tax liabilities —
Accelerated depreciation	$	8,461		$	2,236	$	3,005		$	335		$	1,483		$	1,176
Property basis differences	1,807			865		633			162			—			134
Federal effect of net state deferred tax assets	—			—		—			36			—			—
Leveraged lease basis differences	253			—		—			—			—			—
Employee benefit obligations	477			149		290			25			6			6
Premium on reacquired debt	88			14		74			—			—			—
Regulatory assets –
Storm damage reserves	111			—		111			—			—			—
Employee benefit obligations	975			260		344			45			—			45
Remaining book value of retired assets	56			6		39			11			—			—
AROs	1,232			276		925			31			—			—
AROs	1,210			607		575			—			—			—
Other	537			171		102			57			34			132
Total deferred income tax liabilities	15,207			4,584		6,098			702			1,523			1,493
Deferred tax assets —
Federal effect of net state deferred tax liabilities	260			155		71			—			22			46
Employee benefit obligations	1,273			286		444			62			7			150
Other property basis differences	251			—		61			—			172			—
ITC and PTC carryforward	2,730			11		430			—			2,128			—
Alternative minimum tax carryforward	62			—		—			32			21			—
Other partnership basis difference	162			—		—			—			162			—
Other comprehensive losses	82			10		3			—			—			—
AROs	2,442			883		1,500			31			—			—
Estimated loss on plants under construction	346			—		283			63			—			—
Other deferred state tax attributes	415			—		19			251			72			—
Regulatory liability associated with the Tax Reform Legislation (not subject to normalization)	294			130		127			29			—			8
Other	731			147		140			47			47			285
Total deferred income tax assets	9,048			1,622		3,078			515			2,631			489
Valuation allowance	(123		)	—		(42		)	(41		)	(27		)	(12		)
Net deferred income tax assets	8,925			1,622		3,036			474			2,604			477
Net deferred income taxes (assets)/liabilities	$	6,282		$	2,962	$	3,062		$	228		$	(1,081	)	$	1,016

Recognized in the balance sheets:
Accumulated deferred income taxes – assets	$	(276	)	$	—	$	—		$	(150	)	$	(1,186	)	$	—
Accumulated deferred income taxes – liabilities	$	6,558		$	2,962	$	3,062		$	378		$	105		$	1,016

The traditional electric operating companies and natural gas distribution utilities have tax-related regulatory assets (deferred income tax charges) and regulatory liabilities (deferred income tax credits). The regulatory assets are primarily attributable to tax benefits flowed through to customers in prior years, deferred taxes previously recognized at rates lower than the current enacted tax law, and taxes applicable to capitalized interest. The regulatory liabilities are primarily attributable to deferred taxes previously recognized at rates higher than the current enacted tax law and to unamortized ITCs. See Note 2 for each Registrant's related balances at December 31, 2019 and 2018.

Tax Credit Carryforwards

Federal ITC/PTC carryforwards at December 31, 2019 were as follows:



	Southern Company		Alabama Power		Georgia Power		Southern Power
	(in millions)
Federal ITC/PTC carryforwards	$	1,751	$	11	$	88	$	1,445
Year in which federal ITC/PTC carryforwards begin expiring	2032		2033		2032		2036
Year by which federal ITC/PTC carryforwards are expected to be utilized	2024		2022		2022		2024

The estimated tax credit utilization reflects the various sale transactions described in Note 15 and could be further delayed by numerous factors, including the acquisition of additional renewable projects, the purchase of rights to additional PTCs of Plant Vogtle Units 3 and 4 pursuant to certain joint ownership agreements, and changes in taxable income projections. See Note 2 under "Georgia Power – Nuclear Construction" for additional information on Plant Vogtle Units 3 and 4.

At December 31, 2019, Georgia Power also had approximately $360 million in state investment and other state tax credit carryforwards for the State of Georgia that will expire between 2020 and 2029 and are not expected to be fully utilized. Georgia Power has a net state valuation allowance of $28 million associated with these carryforwards.

The ultimate outcome of these matters cannot be determined at this time.

Net Operating Loss Carryforwards

Southern Company has fully utilized the carryforward from federal NOLs generated in 2016 and 2017. At December 31, 2019, the state and local NOL carryforwards for Southern Company's subsidiaries were as follows:



Company/Jurisdiction	Approximate NOL Carryforwards		Approximate Net State Income Tax Benefit		Tax Year NOL Begins Expiring
	(in millions)
Mississippi Power
Mississippi	$	5,099	$	201	2031

Southern Power
Oklahoma	830		39		2035
Florida	258		11		2033
South Carolina	56		2		2034
Other states	21		2		Various
Southern Power Total	$	1,165	$	54

Other^(*)
Georgia	171		7		2020
New York	220		11		2035
New York City	207		15		2035
Other states	368		18		Various
Southern Company Total	$	7,230	$	306


(*)	Represents other Southern Company subsidiaries. Alabama Power, Georgia Power, and Southern Company Gas did not have material state or local NOL carryforwards at December 31, 2019.

State NOLs for Mississippi, Oklahoma, and Florida are not expected to be fully utilized prior to expiration. At December 31, 2019, Mississippi Power had a net state valuation allowance of $32 million for the Mississippi NOL and Southern Power had net state valuation allowances of $16 million for the Oklahoma NOL and $11 million for the Florida NOL.

The ultimate outcome of these matters cannot be determined at this time.

Unrecognized Tax Benefits

The Registrants had no material changes in unrecognized tax benefits during 2019. Unrecognized tax benefits changes in 2018 and 2017 for Southern Company, Mississippi Power, and Southern Power are provided below. The remaining Registrants did not have any material unrecognized tax benefits for the periods presented.



	Southern Company			Mississippi Power			Southern Power
	(in millions)
Unrecognized tax benefits at December 31, 2016	$	484		$	465		$	17
Tax positions changes –
Increase from current periods	10			—			—
Increase from prior periods	10			2			—
Decrease from prior periods	(196		)	(177		)	(17		)
Reductions due to settlements	(290		)	(290		)	—
Unrecognized tax benefits at December 31, 2017	18			—			—
Tax positions changes –
Decrease from prior periods	(18		)	—			—
Unrecognized tax benefits at December 31, 2018	$	—		$	—		$	—

Mississippi Power's tax positions changes from prior periods and reductions due to settlements for 2017 related to state tax benefits, deductions for R&E expenditures, and charitable contribution carryforwards that were impacted as a result of the settlement of R&E expenditures associated with the Kemper County energy facility, as well as federal income tax benefits from deferred ITCs. See Note 2 under "Mississippi Power – Kemper County Energy Facility" and "Section 174 Research and Experimental Deduction" herein for more information.

Southern Power's decrease from prior periods for 2017 primarily relates to federal income tax benefits from deferred ITCs.

The impact on the effective tax rate of Southern Company, if recognized, was as follows for 2017:



	Southern Company
	(in millions)
2017
Tax positions impacting the effective tax rate	$	18
Tax positions not impacting the effective tax rate	—
Balance of unrecognized tax benefits	$	18

All of the Registrants classify interest on tax uncertainties as interest expense. Accrued interest for all tax positions other than the Section 174 R&E deductions was immaterial for all years presented. None of the Registrants accrued any penalties on uncertain tax positions.

It is reasonably possible that the amount of the unrecognized tax benefits could change within 12 months. New audit findings or settlements associated with ongoing audits could result in significant unrecognized tax benefits. At this time, a range of reasonably possible outcomes cannot be determined.

The IRS has finalized its audits of Southern Company's consolidated federal income tax returns through 2018. Southern Company is a participant in the Compliance Assurance Process of the IRS. The audits for the Registrants' state income tax returns have either been concluded, or the statute of limitations has expired, for years prior to 2015.

Section 174 Research and Experimental Deduction

Southern Company, on behalf of Mississippi Power, reflected deductions for R&E expenditures related to the Kemper County energy facility in its federal income tax returns, as amended, since 2008. In 2017, the U.S. Congress Joint Committee on Taxation approved a settlement between Southern Company and the IRS, resolving a methodology for these deductions. As a result of this approval, Mississippi Power recognized $176 million in 2017 of previously unrecognized tax benefits and reversed $36 million of associated accrued interest.