Income Taxes

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

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

Current and Deferred Income Taxes

Tax Credit and Net Operating Loss Carryforwards

Southern Company had federal ITC and PTC carryforwards (primarily related to Southern Power) totaling $1.0 billion at September 30, 2022 compared to $1.2 billion at December 31, 2021.

The federal PTC and ITC carryforwards begin expiring in 2032, but are expected to be fully utilized by 2025. The utilization of each Registrant's estimated tax credit and state net operating loss carryforwards and related valuation allowances could be impacted 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, an increase in Georgia Power's ownership interest percentage in Plant Vogtle Units 3 and 4, changes in taxable income projections, and potential income tax rate changes. See Note (B) and Note 2 to the financial statements in Item 8 of the Form 10-K under "Georgia Power – Nuclear Construction" for additional information on Plant Vogtle Units 3 and 4.

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.

Details of significant changes in the effective tax rate for the applicable Registrants are provided herein.

Southern Company

Southern Company's effective tax rate was 20.0% for the nine months ended September 30, 2022 compared to 17.5% for the corresponding period in 2021. The effective tax rate increase was primarily due to higher pre-tax earnings and an adjustment related to a prior year state tax credit carryforward at Georgia Power in 2022, partially offset by additional tax expense in 2021 as a result of the sale of Sequent. See Note 15 to the financial statements under "Southern Company Gas" in Item 8 of the Form 10-K for additional information.

Georgia Power

Georgia Power's effective tax rate was 18.5% for the nine months ended September 30, 2022 compared to 7.3% for the corresponding period in 2021. The effective tax rate increase was primarily due to higher pre-tax earnings and an adjustment related to a prior year state tax credit carryforward in 2022.

Mississippi Power

Mississippi Power's effective tax rate was 20.1% for the nine months ended September 30, 2022 compared to 14.3% for the corresponding period in 2021. The effective tax rate increase was primarily due to a decrease in the flowback of excess deferred income taxes in 2022.

Southern Power

Southern Power's effective tax rate was 18.8% for the nine months ended September 30, 2022 compared to a tax benefit rate of (1.6)% for the corresponding period in 2021. The effective tax rate increase was primarily due to higher pre-tax earnings in 2022 and a change in state apportionment methodology resulting from tax legislation enacted by the State of Alabama in the first quarter 2021, partially offset by higher wind PTCs in 2022.

Southern Company Gas

Southern Company Gas' effective tax rate was 23.7% for the nine months ended September 30, 2022 compared to 36.6% for the corresponding period in 2021. The effective tax rate decrease was primarily due to additional tax expense in 2021 as a result of the sale of Sequent. See Note 15 to the financial statements under "Southern Company Gas" in Item 8 of the Form 10-K for additional information.

Unrecognized Tax Benefits

Southern Company's and Southern Company Gas' unrecognized tax positions balances at September 30, 2022 were $79 million and $32 million, respectively, compared to $47 million for Southern Company at December 31, 2021. The increases from prior periods are related to the amendment of certain 2018 state tax filing positions related to Southern Company Gas dispositions. If accepted by the states, these positions would decrease Southern Company's and Southern Company Gas' annual effective tax rates. The ultimate outcome of these unrecognized tax benefits is dependent on acceptance by each state and is not expected to be resolved in the next 12 months.