FAIR VALUE MEASUREMENTS

Fair value measurements are based on inputs of observable and unobservable market data that a market participant would use in pricing the asset or liability. The use of observable inputs is maximized where available and the use of unobservable inputs is minimized for fair value measurement and reflects a three-tier fair value hierarchy that prioritizes inputs to valuation techniques used for fair value measurement.


•	Level 1 consists of observable market data in an active market for identical assets or liabilities.


•	Level 2 consists of observable market data, other than that included in Level 1, that is either directly or indirectly observable.


•	Level 3 consists of unobservable market data. The input may reflect the assumptions of each registrant of what a market participant would use in pricing an asset or liability. If there is little available market data, then each registrant's own assumptions are the best available information.

In the case of multiple inputs being used in a fair value measurement, the lowest level input that is significant to the fair value measurement represents the level in the fair value hierarchy in which the fair value measurement is reported.

At December 31, 2018, assets and liabilities measured at fair value on a recurring basis during the period, together with their associated level of the fair value hierarchy, were as follows:



	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Net Asset Value as a Practical Expedient
At December 31, 2018:	(Level 1)		(Level 2)		(Level 3)		(NAV)		Total
	(in millions)
Southern Company
Assets:
Energy-related derivatives^(a)(b)	$	469	$	292	$	—	$	—	$	761
Foreign currency derivatives	—		75		—		—		75
Investments in trusts:^(c)(d)
Domestic equity	601		107		—		—		708
Foreign equity	53		173		—		—		226
U.S. Treasury and government agency securities	—		261		—		—		261
Municipal bonds	—		83		—		—		83
Pooled funds – fixed income	—		14		—		—		14
Corporate bonds	24		290		—		—		314
Mortgage and asset backed securities	—		68		—		—		68
Private equity	—		—		—		45		45
Cash and cash equivalents	16		—		—		—		16
Other	34		4		—		—		38
Cash equivalents	765		1		—		—		766
Other investments	—		12		—		—		12
Total	$	1,962	$	1,380	$	—	$	45	$	3,387
Liabilities:
Energy-related derivatives^(a)(b)	$	648	$	316	$	—	$	—	$	964
Interest rate derivatives	—		49		—		—		49
Foreign currency derivatives	—		23		—		—		23
Contingent consideration	—		—		21		—		21
Total	$	648	$	388	$	21	$	—	$	1,057



	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Net Asset Value as a Practical Expedient
At December 31, 2018:	(Level 1)		(Level 2)		(Level 3)		(NAV)		Total
	(in millions)
Alabama Power
Assets:
Energy-related derivatives	$	—	$	6	$	—	$	—	$	6
Nuclear decommissioning trusts:^(c)
Domestic equity	396		95		—		—		491
Foreign equity	53		50		—		—		103
U.S. Treasury and government agency securities	—		18		—		—		18
Municipal bonds	—		1		—		—		1
Corporate bonds	24		135		—		—		159
Mortgage and asset backed securities	—		23		—		—		23
Private equity	—		—		—		45		45
Other	6		—		—		—		6
Cash equivalents	116		1		—		—		117
Other investments	—		12		—		—		12
Total	$	595	$	341	$	—	$	45	$	981
Liabilities:
Energy-related derivatives	$	—	$	10	$	—	$	—	$	10

Georgia Power
Assets:
Energy-related derivatives	$	—	$	6	$	—	$	—	$	6
Nuclear decommissioning trusts:^(c)(d)
Domestic equity	205		1		—		—		206
Foreign equity	—		119		—		—		119
U.S. Treasury and government agency securities	—		243		—		—		243
Municipal bonds	—		82		—		—		82
Corporate bonds	—		155		—		—		155
Mortgage and asset backed securities	—		45		—		—		45
Other	19		4		—		—		23
Total	$	224	$	655	$	—	$	—	$	879
Liabilities:
Energy-related derivatives	$	—	$	21	$	—	$	—	$	21
Interest rate derivatives	—		2		—		—		2
Total	$	—	$	23	$	—	$	—	$	23



	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Net Asset Value as a Practical Expedient
At December 31, 2018:	(Level 1)		(Level 2)		(Level 3)		(NAV)		Total
	(in millions)
Mississippi Power
Assets:
Energy-related derivatives	$	—	$	3	$	—	$	—	$	3
Cash equivalents	255		—		—		—		255
Total	$	255	$	3	$	—	$	—	$	258
Liabilities:
Energy-related derivatives	$	—	$	9	$	—	$	—	$	9

Southern Power
Assets:
Energy-related derivatives	$	—	$	4	$	—	$	—	$	4
Foreign currency derivatives	—		75		—		—		75
Cash equivalents	46		—		—		—		46
Total	$	46	$	79	$	—	$	—	$	125
Liabilities:
Energy-related derivatives	$	—	$	8	$	—	$	—	$	8
Foreign currency derivatives	—		23		—		—		23
Contingent consideration	—		—		21		—		21
Total	$	—	$	31	$	21	$	—	$	52

Southern Company Gas
Assets:
Energy-related derivatives^(a)(b)	$	469	$	272	$	—	$	—	$	741
Non-qualified deferred compensation trusts:
Domestic equity	—		11		—		—		11
Foreign equity	—		4		—		—		4
Pooled funds - fixed income	—		14		—		—		14
Cash equivalents	4		—		—		—		4
Cash equivalents	40		—		—		—		40
Total	$	513	$	301	$	—	$	—	$	814
Liabilities:
Energy-related derivatives^(a)(b)	$	648	$	261	$	—	$	—	$	909


(a)	Energy-related derivatives exclude $8 million associated with premiums and certain weather derivatives accounted for based on intrinsic value rather than fair value.


(b)	Energy-related derivatives exclude cash collateral of $277 million.


(c)	Excludes receivables related to investment income, pending investment sales, payables related to pending investment purchases, and currencies. See Note 6 under "Nuclear Decommissioning" for additional information.


(d)	Includes investment securities pledged to creditors and collateral received and excludes payables related to the securities lending program. See Note 6 under "Nuclear Decommissioning" for additional information.

At December 31, 2017, assets and liabilities measured at fair value on a recurring basis during the period, together with their associated level of the fair value hierarchy, were as follows:



	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Net Asset Value as a Practical Expedient
At December 31, 2017:	(Level 1)		(Level 2)		(Level 3)		(NAV)		Total
	(in millions)
Southern Company
Assets:
Energy-related derivatives^(a)(b)	$	331	$	239	$	—	$	—	$	570
Interest rate derivatives	—		1		—		—		1
Foreign currency derivatives	—		129		—		—		129
Nuclear decommissioning trusts:^(c)
Domestic equity	690		82		—		—		772
Foreign equity	62		224		—		—		286
U.S. Treasury and government agency securities	—		251		—		—		251
Municipal bonds	—		68		—		—		68
Corporate bonds	21		315		—		—		336
Mortgage and asset backed securities	—		57		—		—		57
Private equity	—		—		—		29		29
Other	19		12		—		—		31
Cash equivalents	1,455		—		—		—		1,455
Other investments	9		—		1		—		10
Total	$	2,587	$	1,378	$	1	$	29	$	3,995
Liabilities:
Energy-related derivatives^(a)(b)	$	480	$	253	$	—	$	—	$	733
Interest rate derivatives	—		38		—		—		38
Foreign currency derivatives	—		23		—		—		23
Contingent consideration	—		—		22		—		22
Total	$	480	$	314	$	22	$	—	$	816



	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Net Asset Value as a Practical Expedient
At December 31, 2017:	(Level 1)		(Level 2)		(Level 3)		(NAV)		Total
	(in millions)
Alabama Power
Assets:
Energy-related derivatives	$	—	$	4	$	—	$	—	$	4
Nuclear decommissioning trusts:^(d)
Domestic equity	442		81		—		—		523
Foreign equity	62		59		—		—		121
U.S. Treasury and government agency securities	—		24		—		—		24
Corporate bonds	21		160		—		—		181
Mortgage and asset backed securities	—		18		—		—		18
Private equity	—		—		—		29		29
Other	6		—		—		—		6
Cash equivalents	349		—		—		—		349
Total	$	880	$	346	$	—	$	29	$	1,255
Liabilities:
Energy-related derivatives	$	—	$	10	$	—	$	—	$	10

Georgia Power
Assets:
Energy-related derivatives	$	—	$	6	$	—	$	—	$	6
Nuclear decommissioning trusts:^(d)(e)
Domestic equity	248		1		—		—		249
Foreign equity	—		166		—		—		166
U.S. Treasury and government agency securities	—		227		—		—		227
Municipal bonds	—		68		—		—		68
Corporate bonds	—		155		—		—		155
Mortgage and asset backed securities	—		40		—		—		40
Other	12		12		—		—		24
Cash equivalents	690		—		—		—		690
Total	$	950	$	675	$	—	$	—	$	1,625
Liabilities:
Energy-related derivatives	$	—	$	19	$	—	$	—	$	19
Interest rate derivatives	—		5		—		—		5
Total	$	—	$	24	$	—	$	—	$	24



	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Net Asset Value as a Practical Expedient
At December 31, 2017:	(Level 1)		(Level 2)		(Level 3)		(NAV)		Total
	(in millions)
Mississippi Power
Assets:
Energy-related derivatives	$	—	$	2	$	—	$	—	$	2
Interest rate derivatives	—		1		—		—		1
Cash equivalents	224		—		—		—		224
Total	$	224	$	3	$	—	$	—	$	227
Liabilities:
Energy-related derivatives	$	—	$	9	$	—	$	—	$	9

Southern Power
Assets:
Energy-related derivatives	$	—	$	3	$	—	$	—	$	3
Foreign currency derivatives	—		129		—		—		129
Cash equivalents	21		—		—		—		21
Total	$	21	$	132	$	—	$	—	$	153
Liabilities:
Energy-related derivatives	$	—	$	13	$	—	$	—	$	13
Foreign currency derivatives	—		23		—		—		23
Contingent consideration	—		—		22		—		22
Total	$	—	$	36	$	22	$	—	$	58

Southern Company Gas
Assets:
Energy-related derivatives^(a)(b)	$	331	$	223	$	—	$	—	$	554
Liabilities:
Energy-related derivatives^(a)(b)	$	479	$	181	$	—	$	—	660


(a)	Energy-related derivatives exclude $11 million associated with premiums and certain weather derivatives accounted for based on intrinsic value rather than fair value.


(b)	Energy-related derivatives exclude cash collateral of $193 million.


(c)	For additional detail, see the nuclear decommissioning trusts sections for Alabama Power and Georgia Power in this table.


(d)	Excludes receivables related to investment income, pending investment sales, payables related to pending investment purchases, and currencies. See Note 6 under "Nuclear Decommissioning" for additional information.


(e)	Includes investment securities pledged to creditors and collateral received and excludes payables related to the securities lending program. See Note 6 under "Nuclear Decommissioning" for additional information.

Valuation Methodologies

The energy-related derivatives primarily consist of exchange-traded and over-the-counter financial products for natural gas and physical power products, including, from time to time, basis swaps. These are standard products used within the energy industry and are valued using the market approach. The inputs used are mainly from observable market sources, such as forward natural gas prices, power prices, implied volatility, and overnight index swap interest rates. Interest rate derivatives are also standard over-the-counter products that are valued using observable market data and assumptions commonly used by market participants. The fair value of interest rate derivatives reflects the net present value of expected payments and receipts under the swap agreement based on the market's expectation of future interest rates. Additional inputs to the net present value calculation may include the contract terms, counterparty credit risk, and occasionally, implied volatility of interest rate options. The fair value of cross-currency swaps reflects the net present value of expected payments and receipts under the swap agreement based on the market's expectation of future foreign currency exchange rates. Additional inputs to the net present value calculation may include the contract terms, counterparty credit risk, and discount rates. The interest rate derivatives and cross-currency swaps are categorized as Level 2 under Fair Value Measurements as these inputs are based on observable data and valuations of similar instruments. See Note 14 for additional information on how these derivatives are used.

For fair value measurements of the investments within the nuclear decommissioning trusts and the non-qualified deferred compensation trusts, external pricing vendors are designated for each asset class with each security specifically assigned a primary pricing source. For investments held within commingled funds, fair value is determined at the end of each business day through the net asset value, which is established by obtaining the underlying securities' individual prices from the primary pricing source. A market price secured from the primary source vendor is then evaluated by management in its valuation of the assets within the trusts. As a general approach, fixed income market pricing vendors gather market data (including indices and market research reports) and integrate relative credit information, observed market movements, and sector news into proprietary pricing models, pricing systems, and mathematical tools. Dealer quotes and other market information, including live trading levels and pricing analysts' judgments, are also obtained when available.

The NRC requires licensees of commissioned nuclear power reactors to establish a plan for providing reasonable assurance of funds for future decommissioning. See Note 6 under "Nuclear Decommissioning" for additional information.

Southern Power has contingent payment obligations related to certain acquisitions whereby Southern Power is primarily obligated to make generation-based payments to the seller, which commenced at the commercial operation of the respective facility and continue through 2026. The obligation is categorized as Level 3 under Fair Value Measurements as the fair value is determined using significant unobservable inputs for the forecasted facility generation in MW-hours, as well as other inputs such as a fixed dollar amount per MW-hour, and a discount rate. The fair value of contingent consideration reflects the net present value of expected payments and any periodic change arising from forecasted generation is expected to be immaterial.

"Other investments" include investments categorized as Level 3 under Fair Value Measurements that are not traded in the open market. The fair value of these investments has been determined based on market factors including comparable multiples and the expectations regarding cash flows and business plan executions.

The fair value measurements of private equity investments held in Alabama Power's nuclear decommissioning trusts that are calculated at net asset value per share (or its equivalent) as a practical expedient totaled $45 million and $29 million at December 31, 2018 and 2017, respectively. Unfunded commitments related to the private equity investments totaled $50 million and $21 million at December 31, 2018 and 2017, respectively. Private equity funds include funds-of-funds that invest in high-quality private equity funds across several market sectors, funds that invest in real estate assets, and a fund that acquires companies to create resale value. Private equity funds do not have redemption rights. Distributions from these funds will be received as the underlying investments in the funds are liquidated.

At December 31, 2018 and 2017, other financial instruments for which the carrying amount did not equal fair value were as follows:



	Southern Company^(a)(b)		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas^(b)
	(in millions)
At December 31, 2018:
Long-term debt, including securities due within one year:
Carrying amount	$	45,023	$	8,120	$	9,838	$	1,579	$	5,017	$	5,940
Fair value	44,824		8,370		9,800		1,546		4,980		5,965
At December 31, 2017:
Long-term debt, including securities due within one year:
Carrying amount	$	48,151	$	7,625	$	11,777	$	2,086	$	5,841	$	6,048
Fair value	51,348		8,305		12,531		2,076		6,079		6,471


(a)	Includes long-term debt of Gulf Power, which is classified as liabilities held for sale on Southern Company's balance sheet at December 31, 2018. See Note 15 under "Southern Company's Sale of Gulf Power" and "Assets Held for Sale" for additional information.


(b)	The long-term debt of Southern Company Gas is recorded at amortized cost, including the fair value adjustments at the effective date of the Merger. Southern Company Gas amortizes the fair value adjustments over the lives of the respective bonds.

The fair values are determined using Level 2 measurements and are based on quoted market prices for the same or similar issues or on the current rates available to the registrants.