Fuel and Power Purchase Agreements

Non-Affiliate

To supply a portion of the fuel requirements of the Southern Company system's electric generating plants, the Southern Company system has entered into various long-term commitments not recognized on the balance sheets for the procurement and delivery of fossil fuel and, for Alabama Power and Georgia Power, nuclear fuel. Fuel expense in 2018, 2017, and 2016 for the Southern Company system is shown below, the majority of which was purchased under long-term commitments.



	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power
	(in millions)
2018	$	4,637	$	1,301	$	1,698	$	405	$	699
2017	4,400		1,225		1,671		395		621
2016	4,361		1,297		1,807		343		456

Each registrant expects that a substantial amount of its future fuel needs will continue to be purchased under long-term commitments.

The traditional electric operating companies have entered into various non-affiliate long-term PPAs, some of which are accounted for as leases. For Alabama Power and Georgia Power, most long-term PPAs include capacity and energy components. Mississippi Power's long-term PPAs are associated with solar facilities and only include an energy component. For the traditional electric operating companies, the energy-related costs associated with PPAs are recoverable through fuel cost recovery provisions.

Total capacity expense under these non-affiliate PPAs accounted for as operating leases in 2018, 2017, and 2016 was as follows:



	Southern Company		Alabama Power		Georgia Power
	(in millions)
2018	$	231	$	44	$	113
2017	235		41		118
2016	232		42		113

In addition, Georgia Power's non-affiliate energy-only solar PPAs accounted for as leases contained contingent rent expense of $43 million, $44 million, and $18 million for 2018, 2017, and 2016, respectively. Mississippi Power's energy-only solar PPAs accounted for as operating leases contained contingent rent expense of $10 million, $5 million, and an immaterial amount for 2018, 2017, and 2016, respectively. Contingent rents are recognized as services are performed.

Estimated total obligations under non-affiliate PPAs accounted for as operating leases at December 31, 2018 were as follows:



	Southern Company		Alabama Power		Georgia Power
	(in millions)
2019	$	161	$	41	$	120
2020	164		42		122
2021	168		44		124
2022	171		46		125
2023	127		—		127
2024 and thereafter	642		—		642
Total	$	1,433	$	173	$	1,260

In addition, Georgia Power has commitments regarding a portion of a 5% interest in the original cost of Plant Vogtle Units 1 and 2 owned by MEAG Power that are in effect until the latter of the retirement of the plant or the latest stated maturity date of MEAG Power's bonds issued to finance such ownership interest. The payments for capacity are required whether or not any capacity is available. The energy cost is a function of each unit's variable operating costs. Portions of the capacity payments relate to costs in excess of MEAG Power's Plant Vogtle Units 1 and 2 allowed investment for ratemaking purposes. The present value of these portions at the time of the disallowance was written off. Generally, the cost of such capacity and energy is included in purchased power in Southern Company's statements of income and in purchased power, non-affiliates in Georgia Power's statements of income. Georgia Power's capacity payments related to this commitment totaled $8 million, $9 million, and $11 million in 2018, 2017, and 2016, respectively. At December 31, 2018, Georgia Power's estimated long-term obligations related to this commitment totaled $59 million, consisting of $6 million for 2019, $5 million for 2020, $5 million for 2021, $4 million for 2022, $3 million for 2023, and $36 million for 2024 and thereafter.

SCS may enter into various types of wholesale energy and natural gas contracts acting as an agent for the traditional electric operating companies and Southern Power. Under these agreements, each of the traditional electric operating companies and Southern Power may be jointly and severally liable. Accordingly, Southern Company has entered into keep-well agreements with each of the traditional electric operating companies to ensure they will not subsidize or be responsible for any costs, losses, liabilities, or damages resulting from the inclusion of Southern Power as a contracting party under these agreements.

Affiliate

Georgia Power has also entered into affiliate long-term PPAs with Southern Power, some of which Georgia Power accounts for as leases. Georgia Power's total capacity expense under these affiliate PPAs accounted for as leases was $93 million, $107 million, and $133 million in 2018, 2017, and 2016, respectively. In addition, Georgia Power's energy-only solar PPAs with Southern Power accounted for as leases contained contingent rent expense of $29 million, $29 million, and $21 million for 2018, 2017, and 2016, respectively.

Georgia Power's estimated total obligations under affiliate PPAs accounted for as leases at December 31, 2018 were as follows:



	Georgia Power
	Affiliate Capital Lease PPAs		Affiliate Operating Lease PPAs
	(in millions)
2019	$	23	$	64
2020	23		65
2021	24		66
2022	24		68
2023	25		69
2024 and thereafter	158		349
Total	$	277	$	681
Less: amounts representing executory costs^(a)	42
Net minimum lease payments	235
Less: amounts representing interest^(b)	105
Present value of net minimum lease payments	$	130


(a)	Executory costs such as taxes, maintenance, and insurance (including the estimated profit thereon) are estimated and included in total minimum lease payments.


(b)	Calculated using an adjusted incremental borrowing rate to reduce the present value of the net minimum lease payments to fair value.

See Note 8 under "Long-term Debt – Capital Leases – Georgia Power" for additional information.

Pipeline Charges, Storage Capacity, and Gas Supply

Southern Company Gas has commitments for pipeline charges, storage capacity, and gas supply, which include charges recoverable through natural gas cost recovery mechanisms, or alternatively, billed to marketers selling retail natural gas, as well as demand charges associated with Southern Company Gas' wholesale gas services. Gas supply commitments include amounts for gas commodity purchases associated with Southern Company Gas' gas marketing services of 47 million mmBtu at floating gas prices calculated using forward natural gas prices at December 31, 2018 and valued at $150 million. Southern Company Gas provides guarantees to certain gas suppliers for certain of its subsidiaries in support of payment obligations.

Southern Company Gas' expected future contractual obligations for pipeline charges, storage capacity, and gas supply that are not recognized on the balance sheets at December 31, 2018 were as follows:



	Pipeline Charges, Storage Capacity, and Gas Supply
	(in millions)
2019	$	781
2020	584
2021	520
2022	489
2023	412
2024 and thereafter	1,871
Total	$	4,657

Operating Leases

In addition to the operating lease PPAs discussed previously, the Southern Company system has operating lease agreements with various terms and expiration dates. The traditional electric operating companies' operating leases primarily relate to facilities, coal railcars, vehicles, cellular tower space, and other equipment. Southern Power's operating leases primarily relate to land for solar and wind facilities and are recognized on a straight-line basis over the minimum lease term, plus any renewal periods necessary to cover the expected life of the respective facility. Southern Company Gas' operating leases primarily relate to facilities and vehicles.

Total rent expense for 2018, 2017, and 2016 was as follows:



	Southern Company^(*)		Alabama Power		Georgia Power		Mississippi Power		Southern Power^(*)
	(in millions)
2018	$	192	$	23	$	34	$	4	$	31
2017	176		25		31		3		29
2016	169		18		28		3		22


(*)	Includes contingent rent expense related to Southern Power's land leases based on wind production and escalation in the Consumer Price Index for All Urban Consumers.



	Southern Company Gas
	(in millions)
2018	$	15
2017	15
Successor – July 1, 2016 through December 31, 2016	8
Predecessor – January 1, 2016 through June 30, 2016	6

The registrants exclude contingent rent but include any step rents, fixed escalations, lease concessions, and lease extensions to cover the expected life of the facility in the computation of minimum lease payments. At December 31, 2018, estimated minimum lease payments under operating leases were as follows:



	Southern Company		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas
	(in millions)
2019	$	156	$	12	$	23	$	3	$	23	$	18
2020	134		10		18		2		24		16
2021	110		7		9		1		24		15
2022	98		6		6		1		24		13
2023	79		3		5		1		26		10
2024 and thereafter	1,040		1		13		2		874		34
Total	$	1,617	$	39	$	74	$	10	$	995	$	106

For the traditional electric operating companies, a majority of the railcar and barge lease expenses are recoverable through fuel cost recovery provisions.

In addition to the above rental commitments, Alabama Power and Georgia Power have potential obligations upon expiration of certain railcar leases with respect to the residual value of the leased property. These leases have terms expiring in 2023 for Alabama Power and in 2024 for Georgia Power with maximum obligations under these leases of $12 million for Alabama Power and $9 million for Georgia Power. At the termination of the leases, Alabama Power and Georgia Power may renew the leases, exercise their purchase options, or the property can be sold to a third party. Alabama Power and Georgia Power expect that the fair market value of the leased property would substantially reduce or, for Alabama Power, potentially eliminate the loss under the residual value obligations.

Guarantees

Alabama Power has guaranteed unconditionally the obligation of SEGCO under an installment sale agreement for the purchase of certain pollution control facilities at SEGCO's generating units, pursuant to which $25 million principal amount of pollution control revenue bonds are outstanding and mature in June 2019. Alabama Power also guaranteed a $100 million principal amount long-term bank loan entered into by SEGCO on November 28, 2018. Georgia Power has agreed to reimburse Alabama Power for the portion of such obligations corresponding to Georgia Power's proportionate ownership of SEGCO's stock if Alabama Power is called upon to make such payment under its guarantee. At December 31, 2018, the capitalization of SEGCO consisted of $90 million of equity and $125 million of long-term debt, on which the annual interest requirement is $4 million. In addition, SEGCO had short-term debt outstanding of $5 million. See Note 7 under "SEGCO" for additional information.

In 2013, Georgia Power entered into an agreement that requires Georgia Power to guarantee certain payments of a gas supplier for Plant McIntosh for a period up to 15 years. The agreement was subsequently amended on May 31, 2018. The guarantee is expected to be terminated if certain events occur by October 2019. In the event the gas supplier defaults on payments, the maximum potential exposure under the guarantee and amendment is approximately $30 million.

In October 2017, Atlantic Coast Pipeline executed a $3.4 billion revolving credit facility with a stated maturity date of October 2021. Southern Company Gas entered into a guarantee agreement to support its share of the revolving credit facility. Southern Company Gas' maximum exposure to loss under the terms of the guarantee is limited to 5% of the outstanding borrowings under the credit facility, and totaled $72 million as of December 31, 2018. See Note 2 under "FERC Matters – Southern Company Gas" for additional information regarding the Atlantic Coast Pipeline.

As discussed above under "Operating Leases," Alabama Power and Georgia Power have entered into certain residual value guarantees related to railcar leases.