Fair Value Measurements

9 Months Ended

Sep. 30, 2023

FAIR VALUE MEASUREMENTS

At September 30, 2023, 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:
At September 30, 2023	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Net Asset Value as a Practical Expedient (NAV)		Total
	(in millions)
Southern Company
Assets:
Energy-related derivatives(a)	$	7	$	73	$	—	$	—	$	80


Investments in trusts:(b)
Domestic equity	692		196		—		—		888
Foreign equity	131		154		—		—		285
U.S. Treasury and government agency securities	—		337		—		—		337
Municipal bonds	—		42		—		—		42
Pooled funds – fixed income	—		6		—		—		6
Corporate bonds	—		368		—		—		368
Mortgage and asset backed securities	—		85		—		—		85
Private equity	—		—		—		169		169
Cash and cash equivalents	3		—		—		—		3
Other	33		3		—		8		44
Cash equivalents and restricted cash	919		11		—		—		930
Other investments	9		34		8		—		51
Total	$	1,794	$	1,309	$	8	$	177	$	3,288
Liabilities:
Energy-related derivatives(a)	$	34	$	217	$	—	$	—	$	251
Interest rate derivatives	—		351		—		—		351
Foreign currency derivatives	—		192		—		—		192
Contingent consideration	5		—		19		—		24
Other	—		13		—		—		13
Total	$	39	$	773	$	19	$	—	$	831


	Fair Value Measurements Using:
At September 30, 2023	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Net Asset Value as a Practical Expedient (NAV)		Total
	(in millions)
Alabama Power
Assets:
Energy-related derivatives	$	—	$	26	$	—	$	—	$	26

Nuclear decommissioning trusts:(b)
Domestic equity	404		188		—		—		592
Foreign equity	131		—		—		—		131
U.S. Treasury and government agency securities	—		20		—		—		20
Municipal bonds	—		1		—		—		1
Corporate bonds	—		215		—		—		215
Mortgage and asset backed securities	—		22		—		—		22
Private equity	—		—		—		169		169
Other	10		—		—		8		18
Cash equivalents and restricted cash	489		11		—		—		500
Other investments	—		34		—		—		34
Total	$	1,034	$	517	$	—	$	177	$	1,728
Liabilities:
Energy-related derivatives	$	—	$	75	$	—	$	—	$	75



Georgia Power
Assets:
Energy-related derivatives	$	—	$	14	$	—	$	—	$	14

Nuclear decommissioning trusts:(b)
Domestic equity	288		1		—		—		289
Foreign equity	—		153		—		—		153
U.S. Treasury and government agency securities	—		317		—		—		317
Municipal bonds	—		41		—		—		41
Corporate bonds	—		153		—		—		153
Mortgage and asset backed securities	—		63		—		—		63
Other	23		3		—		—		26

Total	$	311	$	745	$	—	$	—	$	1,056
Liabilities:
Energy-related derivatives	$	—	$	83	$	—	$	—	$	83


	Fair Value Measurements Using:
At September 30, 2023	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Net Asset Value as a Practical Expedient (NAV)		Total
	(in millions)
Mississippi Power
Assets:
Energy-related derivatives	$	—	$	24	$	—	$	—	$	24

Cash equivalents	3		—		—		—		3
Total	$	3	$	24	$	—	$	—	$	27
Liabilities:
Energy-related derivatives	$	—	$	44	$	—	$	—	$	44



Southern Power
Assets:
Energy-related derivatives	$	—	$	5	$	—	$	—	$	5

Cash equivalents	23		—		—		—		23
Total	$	23	$	5	$	—	$	—	$	28
Liabilities:
Energy-related derivatives	$	—	$	6	$	—	$	—	$	6
Foreign currency derivatives	—		42		—		—		42
Contingent consideration	5		—		19		—		24
Other	—		13		—		—		13
Total	$	5	$	61	$	19	$	—	$	85

Southern Company Gas
Assets:
Energy-related derivatives(a)	$	7	$	4	$	—	$	—	$	11

Non-qualified deferred compensation trusts:
Domestic equity	—		7		—		—		7
Foreign equity	—		1		—		—		1
Pooled funds – fixed income	—		6		—		—		6
Cash equivalents	3		—		—		—		3
Cash equivalents	294		—		—		—		294

Total	$	304	$	18	$	—	$	—	$	322
Liabilities:
Energy-related derivatives(a)	$	34	$	9	$	—	$	—	$	43
Interest rate derivatives	—		99		—		—		99

Total	$	34	$	108	$	—	$	—	$	142

(a)Excludes cash collateral of $49 million.

(b)Excludes receivables related to investment income, pending investment sales, payables related to pending investment purchases, and currencies. See Note 6 to the financial statements in Item 8 of the Form 10-K for additional information.

Southern Company, Alabama Power, and Georgia Power continue to elect the option to fair value investment securities held in the nuclear decommissioning trust funds. The fair value of the funds, including reinvested interest and dividends and excluding the funds' expenses, increased (decreased) by the amounts shown in the table below for the three and nine months ended September 30, 2023 and 2022. The changes were recorded as a change to the regulatory assets and liabilities related to AROs for Georgia Power and Alabama Power, respectively.


	Three Months Ended				Nine Months Ended
Fair value increases (decreases)	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
	(in millions)
Southern Company	$	(4)	$	(106)	$	211	$	(486)
Alabama Power	(36)		(53)		54		(245)
Georgia Power	32		(53)		157		(241)

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 (J) 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 to the financial statements under "Nuclear Decommissioning" in Item 8 of the Form 10-K for additional information.

Southern Power has contingent payment obligations related to two of its acquisitions whereby it is primarily obligated to make generation-based payments to the seller, commencing at the commercial operation of each facility and continuing through 2026 and 2035, respectively. The obligations are primarily categorized as Level 3 under Fair Value Measurements as the fair value is determined using significant unobservable inputs for the forecasted facility's 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.

Southern Power also has payment obligations through 2040 whereby it must reimburse the transmission owners for interconnection facilities and network upgrades constructed to support connection of a Southern Power generating facility to the transmission system. The obligations are categorized as Level 2 under Fair Value Measurements as the fair value is determined using observable inputs for the contracted amounts and reimbursement period, as well as a discount rate. The fair value of the obligations reflects the net present value of expected payments.

"Other investments" primarily includes investments traded in the open market that have maturities greater than 90 days, which are categorized as Level 2 under Fair Value Measurements and are comprised of corporate bonds, bank certificates of deposit, treasury bonds, and/or agency bonds.

At September 30, 2023, the fair value measurements of private market 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 $177 million and unfunded commitments related to the private market investments totaled $72 million. Private market investments include high-quality private equity funds across several market sectors, funds that invest in real estate assets, and a private credit fund. Private market funds do not have redemption rights. Distributions from these funds will be received as the underlying investments in the funds are liquidated.

At September 30, 2023, other financial instruments for which the carrying amount did not equal fair value were as follows:


	Southern Company(*)		Alabama Power		Georgia Power		Mississippi Power		Southern Power		Southern Company Gas(*)
	(in billions)
Long-term debt, including securities due within one year:
Carrying amount	$	58.8	$	11.2	$	15.8	$	1.6	$	2.7	$	8.1
Fair value	50.8		9.4		13.4		1.3		2.4		6.5

(*)The carrying amount of Southern Company Gas' long-term debt includes fair value adjustments from the effective date of the 2016 merger with Southern Company. Southern Company Gas amortizes the fair value adjustments over the remaining lives of the respective bonds, the latest being through 2043.

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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details