January 30, Southern Company Services, Inc., Docket No. ER15- Filing of Updated Depreciation Rates for Mississippi Power Company

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1 BEN H. STONE t: (228) f: (888) e: January 30, 2015 VIA EFILING Ms. Kimberly D. Bose, Secretary Office of the Secretary Federal Energy Regulatory Commission 888 First Street, N.E. Washington, D.C Re: Southern Company Services, Inc., Docket No. ER15- Filing of Updated Depreciation Rates for Mississippi Power Company Dear Secretary Bose: In accordance with Federal Energy Regulatory Commission ( FERC or Commission ) Order No and Section 205 of the Federal Power Act, 2 Southern Company Services, Inc. ( SCS ), as agent for Alabama Power Company ( Alabama Power ), Georgia Power Company ( Georgia Power ), Gulf Power Company ( Gulf Power ), Mississippi Power Company ( Mississippi Power ), and Southern Electric Generating Company (collectively, Southern Companies ), is submitting materials in support of a request for authorization to use Mississippi Power s updated depreciation rates ( Updated Depreciation Rates ) in the calculation of charges for services provided pursuant to certain jurisdictional contracts and rate schedules, including Southern Companies Open Access Transmission Tariff (Tariff Volume No. 5) ( OATT ). Enclosed with this filing are a depreciation study and other materials that form the basis upon which it has adopted such depreciation rates for accounting purposes. As discussed in more detail in Section III(C) below, Southern Companies are amending OATT Attachment S to include Mississippi Power s Updated Depreciation Rates. Because Alabama Power is the designated filer for Southern Companies OATT, such amendment to OATT Attachment S is being filed in Alabama Power s database entitled: OATT and Associated Service Agreements, Tariff Volume No. 5, Southern Companies OATT. 1 Depreciation Accounting, FERC Stats. & Regs. 31,104, n.25 (2000) U.S.C. 824d.

2 Ms. Kimberly D. Bose, Secretary January 30, 2015 Page 2 I. Background and Description of Filing The Commission has recognized that utilities should use appropriate methods of depreciation so as to allocate the cost of utility property over its useful service life in a systematic and rational manner. 3 It has determined that utilities need not seek approval before changing depreciation rates for accounting purposes, but that they must obtain authorization before changing prices charged for power sales or transmission services (whether determined by stated rates or formula rates) to reflect a change in depreciation. 4 To effect such a change, utilities must make a filing with the Commission pursuant to Section 205 of the Federal Power Act ( FPA ). 5 Although the Commission has stated that depreciation rate changes typically arise in the context of more comprehensive rate cases, filings concerning only depreciation rate changes are not uncommon. 6 On December 29, 2014, Mississippi Power filed with the Mississippi Public Service Commission ( MPSC ) to update Mississippi Power s depreciation rates for purposes of retail ratemaking in MPSC Docket No UN-276. The MPSC regulates over seventy percent of Mississippi Power s utility operations. In that filing, Mississippi Power requested that the MPSC grant a January 1, 2015 effective date for the use of the Updated Depreciation Rates. Consistent with the foregoing, SCS is hereby filing to adopt in its Commission-jurisdictional rate schedules the same depreciation rates filed with the MPSC and, for consistency purposes, also hereby requests permission from the Commission to adopt January 1, 2015 as the effective date. In addition to this transmittal letter, this filing provides the direct testimony of Mr. Pascal B. Gill, Supervisor of Property & Materials Accounting, in support of Mississippi Power s Updated Depreciation Rates for billing purposes, along with the most recent depreciation study performed by American Appraisal, which was conducted using industry-accepted methodologies and principles to develop the revised depreciation rates. Mr. Gill offers testimony from a ratemaking and accounting perspective that explains the need for utilities to periodically update their depreciation rates. The depreciation study and the calculation of the depreciation rates are provided within the exhibit to Mr. Gill s testimony. 3 FERC Stats. & Regs. 31,104, 31,694 (2000). 4 Id. at n Id. 6 See, e.g., Mississippi Power Company, FERC Docket No. ER , Letter Order dated October 20, 2009; Alabama Power Company, FERC Docket No. ER , Letter Order dated May 9, 2011; Southern Company Services, Inc., FERC Docket No. ER , Letter Order dated October 8, 2002; Southern Company Services, Inc. and Alabama Power Company. FERC Docket No. ER , Letter Order dated September 10, Since this filing is not being made as part of a comprehensive rate case (and since, as discussed further below, the only rate schedule actually being changed is the posting of Mississippi Power s depreciation rates in Attachment S to Southern Companies OATT), Southern Companies respectfully submit that the Commission s cost of service filing regulations seek information largely not relevant to this filing and that the materials submitted herein are consistent with that previously accepted for filing by the Commission. See e.g., id. Accordingly, and as discussed in Section IV below, Southern Companies request waiver of any of portion of the Commission s regulations that otherwise might be deemed to not be satisfied by this filing.

3 Ms. Kimberly D. Bose, Secretary January 30, 2015 Page 3 II. Affected Rate Schedules The following Commission-jurisdictional rate schedules may be affected by this filing: 1. Southern Companies OATT (Tariff Volume No. 5). Mississippi Power s Updated Depreciation Rates are proposed to be used by Southern Companies for billing purposes in connection with Southern Companies OATT. Southern Companies OATT and the effect of using the Updated Depreciation Rates thereunder are discussed more fully below in Section III. 2. Mississippi Power Company, Cost Based Rate Tariffs, MRA Cost Based Tariff, Mississippi Power s Tariff Volume No. 1 (Wholesale Electric Service to Wholesale Customers Rate Schedule MRA-25 (sub) ) ( MRA-25 ) (as approved in FERC Docket No. ER ). Please note that Mississippi Power is not proposing to change the prices charged under MRA-25 based solely upon the instant filing. Instead, Mississippi Power proposes to incorporate the Updated Depreciation Rates into the calculation of charges under the MRA in Mississippi Power s next general rate filing under FPA Section 205 to revise those charges. 3. Mississippi Power Company, Cost Based Rate Tariffs, Rate Schedule No. 135, Gulf States TFA (Transmission Facilities Agreement Between Gulf States Utilities Company and Mississippi Power Company, dated as of February 25, 1982, as amended) ( MPC- Entergy Transmission Facility Agreement ). 7 The MPC-Entergy Transmission Facility Agreement provides for the use of straight-line depreciation of the transmission facilities covered under said agreement. However, the MPC-Entergy Transmission Facility Agreement also allocates a portion of the General Plant costs to those transmission facilities, which allocated amount may be affected by the proposed changes in depreciation rates. Any resulting change in the charges would be de minimus. III. Use of the Updated Depreciation Rates to Calculate Charges under Southern Companies OATT A. Effect on the Calculation of Charges Under the OATT Southern Companies provide point-to-point and network integration transmission service to customers under Southern Companies OATT. In FERC Docket No. ER02-851, Southern Companies amended their OATT to, inter alia, adopt a formula rate for use in deriving charges for service on Southern Companies bulk transmission facilities (those above 44/46 kv) and subtransmission facilities (those at 44/46 kv). In accordance with their OATT, on or before November 1 of each year, Southern Companies submit an Annual Informational Filing to the Commission that uses projected 7 See FERC Docket No. ER

4 Ms. Kimberly D. Bose, Secretary January 30, 2015 Page 4 data inputs drawn from the information Southern Companies use for corporate budget purposes to calculate the charges applicable for OATT service for each January 1 through December 31 period (a Rate Year ). 8 In addition, on or before May 1 of the year immediately following each Rate Year, Southern Companies make a True-Up Informational Filing that reconciles the charges based on projected costs to actual costs, drawn from Southern Companies FERC Form No. 1 filings, in accordance with the Formula Rate Manual included as Attachment N to the OATT. True-Up Informational Filings form the basis upon which Southern Companies calculate over- and undercollection of the actual charges as determined in accordance with the formula rate and, to the extent necessary, pay refunds to or collect surcharges from certain OATT customers. 9 As pertinent here, on October 31, 2014, Southern Companies submitted their Informational Filing applicable to the 2015 Rate Year to the Commission and provided a copy of that Informational Filing to Southern Companies OATT customers. 10 In accordance with the Formula Rate Manual, the depreciation rates for Mississippi Power used by SCS in the preparation of the 2015 Informational Filing were, as of the date of the 2015 Informational Filing, based upon the most recent information that is being used to prepare the corporate budgets of Mississippi Power for the Rate Year. As Mississippi Power was expecting to file with the MPSC to update Mississippi Power s depreciation rates but had not yet made that filing (as discussed above, that filing with the MPSC was made on December 29, 2014), slightly different depreciation rates were used in the 2015 Informational Filing for Mississippi Power than were ultimately filed with the MPSC. In the past, the Commission has permitted Southern Companies to include new depreciation rates as part of the subsequent true-up filing for the pertinent Rate Year. This has been true whether the effect of the newly approved depreciation rates resulted in an increase in the transmission rate 11 or a decrease in the transmission rate. Consistent with this previous, Commission-accepted practice, Southern Companies propose to use the revised depreciation rates included in the 2015 Informational Filing and to reconcile the 2015 OATT Informational Filing charges to actual costs in the 2015 True- Up Informational Filing using the Updated Depreciation Rates in accordance with the Formula Rate Manual 12 (rather than adjusting the 2015 OATT Informational Charges now to reflect the use of Mississippi Power s Updated Depreciation Rates) See OATT Attachment N, 1; OATT Attachment M, See OATT Attachment N, See FERC Docket No. ER10-203, Southern Companies 2015 Annual Informational Filing (October 31, 2014) (the 2015 Informational Filing ). 11 See, e.g., FERC Docket No. ER , Letter Order dated September 10, 2014 accepting SCS filing of updated depreciation rates for Georgia Power for purposes of calculating charges under the OATT. As shown in the underlying filing with the Commission in that docket, the adoption of those updated depreciation rates for Georgia Power had the effect of slightly increasing the 2014 charges for transmissions services provided under the OATT. 12 See OATT Attachment N, See Southern Company Services, Inc. and Alabama Power Company.. FERC Docket No. ER , Letter Order dated September 10, 2014 (accepting Southern Companies request to use updated deprecation rates in the calculation of charges under the OATT); see also Southern Company Services, Inc.,

5 Ms. Kimberly D. Bose, Secretary January 30, 2015 Page 5 For purposes of that True-Up Informational Filing, Southern Companies request authorization to incorporate the Mississippi Power Updated Depreciation Rates for purposes of calculating transmission charges effective January 1, As demonstrated in Exhibit A, the use of the Updated Depreciation Rates will increase 2015 OATT billing charges for bulk Non-Firm and Network service from $ to $ , and bulk Firm Point-to-Point service from $ to $ , and increase changes for the use of subtransmission facilities from $ to $ B. Revenue Impact Southern Companies have calculated the revenue impact under the OATT of the proposed change in depreciation rates. In order to determine the impact of using the Updated Depreciation Rates, Southern Companies have recalculated the charges under the OATT for the 2015 Rate Year based upon projected costs set forth in the 2015 Informational Filing using the Updated Depreciation Rates (and resulting accumulated depreciation), and compared them to recalculated charges under the OATT for the 2015 Rate Year based upon those projected costs set forth in the 2015 Informational Filing using the depreciation rates last approved by the Commission for Mississippi Power in 2010 in FERC Docket No. ER Those calculations are set forth in Exhibit A. They show that the new Updated Depreciation Rates would increase charges in 2015 by $195, C. Amendment to OATT Attachment S Southern Companies are amending OATT Attachment S to include Mississippi Power s Updated Depreciation Rates that, upon Commission-approval, will be used in the calculation of actual charges under Southern Companies OATT formula rate, effective January 1, Because Alabama Power is the designated filer for Southern Companies OATT (including any amendments thereto), the new tariff record containing Mississippi Power s Updated Depreciation Rates is being submitted in Alabama Power s database and will be included in Southern Companies OATT at Attachment S, Mississippi Power Company. 15 FERC Docket No. ER , Letter Order dated September 16, 2011 (accepting Southern Companies request to use updated deprecation rates in the calculation of charges under the OATT). 14 Southern Companies note that in a prior filing made in FERC Docket No. ER to update the depreciation rates used for Georgia Power, Southern Companies also included a revenue comparison using actual data for the prior year. See FERC Docket No. ER , Transmittal Letter to June 6, 2014 Filing, at pp However, the actual data for the 2014 Rate Year, which would be the prior year for purposes of the instant filing, will not be available until the True-Up Informational Filing is made for the 2014 Rate Year on or before May 1, See OATT, Attachment N, 2(a). To the extent that the Commission s regulations contemplate the filing of Period I data or otherwise information pertaining to the effect of the change using billing determinants for the prior twelve months, Southern Companies request waiver. Waiver in this regard is particularly appropriate because under the above-referenced OATT formula rate protocols, Southern Companies will make a True-Up Informational Filing that will reconcile the projected charges currently being used under the OATT during 2015 with actual data for the 2015 Rate Year once that data becomes available in the Spring of See OATT, Attachment N On September 22, 2010, Alabama Power submitted its baseline etariff filing in FERC Docket No. ER , which was accepted by the Commission on November 18, 2010, effective September 22, Mississippi Power filed a certificate of concurrence (in FERC Docket No. ER ) stating that it incorporated Southern Companies OATT (located in Alabama Power s database) and all future amendments thereto.

6 Ms. Kimberly D. Bose, Secretary January 30, 2015 Page 6 IV. Waiver Requests This filing is being made to seek authorization for Southern Companies to recover their costs to provide jurisdictional services on the basis of these revised depreciation rates beginning January 1, Through the testimony and other evidentiary materials filed hereunder, Southern Companies have provided the relevant information supporting its recovery based on the Updated Depreciation Rates. Among other things, Southern Companies note that the Commission s cost-of-service filings regulations generally require information not relevant to the instant filing. In any event, should the enclosed information not satisfy any portion of the Commission s regulations, Southern Companies respectfully request a waiver of that portion of the Commission s regulations. 17 In addition, Southern Companies respectfully request that the use of these depreciation rates be made effective as of January 1, 2015 as discussed herein. Good cause exists for granting such waiver. First, Mississippi Power has requested that same effective date for purposes of its filing with the MPSC to adopt at retail the same depreciation rates being filed herein. Granting waiver and allowing the January 1, 2015 requested effective date here would promote consistency in the deprecation rates used for federal and state purposes and would serve the interests of federal-state comity, which the Commission has sought to encourage. 18 Second, the Updated Depreciation Rates result in relatively minor changes to the transmission charges for the 2015 Rate Year. 19 Third, in accordance with generally accepted accounting principles ( GAAP ), the depreciation-rate changes became effective for accounting and book purposes commencing January 1, To avoid discrepancies and incongruities between the depreciation expenses and depreciation-related revenues recorded on Mississippi Power s books and records and reported on FERC Form 1, Southern Companies respectfully request that the Commission grant approval to use Mississippi Power s Updated Depreciation Rates for billing purposes under the OATT beginning as of January 1, Fourth, the Commission will ordinarily find that good cause exists where the effective date of a rate schedule is prescribed by contract. 21 Here, Southern Companies OATT specifies that the Annual Informational Filings will be based upon Southern Companies projected data drawn from the most recent information that is being used to prepare the corporate budgets for the Rate Year, 22 which Mississippi Power did. Finally, permitting the depreciation rates to be effective commencing January 1, 2015 is consistent with the purpose of formula rates - - to recover and track the utility s actual costs. Because Mississippi Power s certificate of concurrence incorporated all future OATT amendments, no additional filing related to the instant filing will be made on behalf of Mississippi Power C.F.R (a)(2)(iii). 17 See e.g., 18. C.F.R See, e.g., San Diego Gas & Electric Co., 79 FERC 61,372 at p. 62,565 (1977) (Commission deferral to state public service commission in the interest of comity). 19 See Exhibit A. 20 GAAP requires that, once updated estimates (such as the Updated Depreciation Rates proposed herein) are known, they must be recorded on a firm s books. 21 See, e.g., Central Hudson Gas and Electric Corp., 60 FERC 61,106 at p. 61,338 (1992). 22 See OATT Attachment M, 1.2.

7 Ms. Kimberly D. Bose, Secretary January 30, 2015 Page 7 V. Service Southern Companies are providing an electronic copy of this filing via to their current OATT customers, Wholesale Mississippi Power Association Customers that take service under the MRA, to the counterparty to the MPC-Entergy Transmission Facility Agreement, and to Southern Companies respective public service commissions. In addition, a copy of this filing will be posted on Southern Companies OASIS. VI. List of Documents Submitted with this Filing The following materials are enclosed with this transmittal letter to satisfy the Commission s filing requirements: 1. Attachment S, Mississippi Power, to Southern Companies OATT in RTF format with metadata attached; 2. A clean copy of Attachment S, Mississippi Power, to Southern Companies OATT in PDF format for posting in elibrary; 3. A redline copy of Attachment S, Mississippi Power, to Southern Companies OATT in PDF format for posting in elibrary; 4. Direct Testimony of Mr. Pascal B. Gill on Behalf of Mississippi Power Company and corresponding exhibit; and 5. Exhibit A: Impact of Updated MPC Depreciation Rates on 2015 Transmission Service Billing Charges. VII. Miscellaneous The names, addresses and telephone numbers of the Mississippi Power and SCS employees responsible for the filing, to whom service may be made, correspondence may be addressed, and from whom information may be obtained are: Mr. Billy F. Thornton Mr. Terry A. Mozena Vice President, Regulatory and Governmental Affairs Manager of Transmission Services Mississippi Power Company Southern Company Services, Inc West Beach Boulevard Post Office Box 2641 Post Office Box 4079 Birmingham, Alabama Gulfport, MS Phone: (205) Phone: (228) tamozena@southernco.com bfthornt@southernco.com

8 Ms. Kimberly D. Bose, Secretary January 30, 2015 Page 8 with copy to: Ben H. Stone, Esq. Balch & Bingham LLP th Avenue Post Office Box 130 Gulfport, MS Phone: (228) bstone@balch.com As indicated below, service has been made on all affected entities. Should any additional information be required, it is requested that the undersigned be contacted at the earliest possible date. Very truly yours, /s/ Ben H. Stone Ben H. Stone Of Counsel BALCH & BINGHAM LLP Ben H. Stone th Avenue Post Office Box 130 Gulfport, MS Phone: (228) bstone@balch.com

9 Southern Companies Attachment S Open Access Transmission Tariff Mississippi Power Company, Page 1 Mississippi Power Company Account No. Depreciation Rate Steam Greene County 4.59% Daniel 2.15% All Other Steam Plants 1.27% Other Production 3.81% Transmission % Easements 2.85% Distribution % Easements 3.56% General Plant % % Easements 1.99% Mine - Depreciable 2.80%

10 Southern Companies Attachment S Open Access Transmission Tariff Mississippi Power Company, Page 1 Mississippi Power Company Account No. Depreciation Rate Steam Greene County 4.59% Daniel 2.15% All Other Steam Plants 1.27% Other Production 3.81% Transmission % Easements 2.85% Distribution % Easements 3.56% General Plant % % Easements 1.99% Mine - Depreciable 2.80%

11 DIRECT TESTIMONY OF Pascal B. Gill On Behalf of MISSISSIPPI POWER COMPANY BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION DOCKET NO Q. Would you please state your name, position and business address? A. My name is Pascal B. Gill. I am Mississippi Power Company s ( MPC ) Supervisor of Property & Materials Accounting. My business address is 2992 West Beach Boulevard, Gulfport, Mississippi Q. Please describe your education and professional experience. A. I graduated from the University of Southern Mississippi in 1985 with a Bachelor of Science degree in Computer Science. I received a Bachelor of Business Administration degree with a major in Accounting from the University of Southern Mississippi in I joined MPC in 1986 as a Computer Systems Analyst in the Information Technology Department. In 1989, I moved to the Supply Chain Management Department and served in various roles, including supervisory roles, in Procurement, Materials Management and the Materials Distribution Center. In 2005, I moved to the Internal Controls Department with oversight responsibility of internal controls for the payables, payroll, materials accounting and supply chain areas and of automated system controls. In 2006, I moved to the Accounting Department as the Accounts Payable Supervisor, responsible for Direct Testimony of Pascal B. Gill On Behalf of Mississippi Power Company Page 1 of 16

12 invoice processing. Later that same year, I became the Disbursement Supervisor, with responsibilities for accounts payable, payroll accounting and materials accounting functions. In 2007, I became the Asset & Expenditure Accounting Supervisor with the added function of property accounting. I assumed additional responsibilities for preparing and oversight of MPC s capital budgets, preparing dismantlement and depreciation studies, and ensuring the accuracy of MPC s property records. In 2010, I became the Property Accounting & Payroll Supervisor, responsible for the payroll function, dismantlement and depreciation studies, and ensuring the accuracy of MPC s property records. In 2012, I became the Property & Inventory Accounting Supervisor, responsible for ensuring the accuracy of MPC s inventory and supplies as well as my previous responsibilities associated with property accounting. I am also responsible for ensuring that new capital processes associated with the Kemper County Integrated Gasification Combined Cycle project ( Kemper Project ) are developed and that Kemper Project related assets are properly accounted for. Q. What are your current responsibilities at MPC? A. As Property & Inventory Accounting Supervisor, I am responsible for the accounting functions of MPC that specifically relate to fixed assets and inventories of materials and supplies. My duties include maintaining accurate accounting records for these functions in accordance with generally accepted accounting principles (GAAP) and in accordance with the Uniform System of Accounts as prescribed by the Federal Energy Regulatory Commission ( FERC or Commission ) and made applicable to MPC s intrastate business by Section 13 of the Public Utilities Act of I have responsibility for the preparation of the sections of MPC s financial statements and various financial reports Direct Testimony of Pascal B. Gill On Behalf of Mississippi Power Company Page 2 of 16

13 required by the Securities and Exchange Commission ( SEC ), the Commission, and the Mississippi Public Service Commission ( MPSC ) that pertain to fixed assets and inventories of materials and supplies. Q. Briefly describe MPC and its operations. A. MPC is a wholly-owned subsidiary of Southern Company, a public utility holding company. MPC is engaged in the generation, transmission, distribution and sale of electricity to retail and territorial wholesale customers in the southeastern 23 counties of Mississippi and to non-territorial wholesale customers located primarily in the southeastern United States. The MPSC regulates MPC s retail rates and operations, which constitute approximately seventy percent (70%) of its utility operations. Q. What is the purpose of your testimony? A. My testimony is offered on behalf of MPC in support of its request for approval to modify its depreciation rates for use in matters subject to the Commission s jurisdiction. This includes modification of MPC s depreciation rates for the purpose of calculating charges under Alabama Power Company, Georgia Power Company, Gulf Power Company and MPC s (collectively, Southern Companies ) Open Access Transmission Tariff ( OATT ). This filing is necessary to comply with the Commission s Order No. 618, which provides that utilities must seek authorization from the Commission before changing prices charged for power sales or transmission services (whether determined by stated rates or formula rates) to reflect a change in depreciation. Order No. 61,892 FERC 61,078 (2000). 23 Direct Testimony of Pascal B. Gill On Behalf of Mississippi Power Company Page 3 of 16

14 Q. Are you sponsoring any exhibits? A. Yes, Exhibit (PBG-1) is a report from American Appraisal Associates, Inc. ( American Appraisal ), MPC s depreciation consultant. This report presents the results of the 2014 Depreciation Study and sets forth MPC s proposed new depreciation rates. Q. How will these rates be used? A. On December 29, 2014, MPC filed with the MPSC to update MPC s depreciation rates for purposes of retail ratemaking in MPSC Docket No UN-276. To ensure consistency between MPC s retail and wholesale accounting, MPC is also requesting the Commission s permission to use these revised deprecation rates to calculate its depreciation expense beginning January 1, The revised depreciation rates will be used by MPC to calculate its depreciation expense for wholesale ratemaking purposes specifically, these depreciation rates will be used in connection with the Southern Companies OATT, MPC s Wholesale Electric Service to Wholesale Customers Rate Schedule MRA-25 under its FERC Electric Tariff, Volume No. 1, ( MRA-25 ) (as approved in FERC Docket No. ER ), and MPC s Transmission Facilities Agreement between Gulf States Utilities Company and MPC ( MPC-Entergy Transmission Facility Agreement ). Q. What is depreciation? A. The Commission has defined depreciation as: Depreciation, as applied to depreciable electric plant, means the loss in service value not restored by current maintenance, incurred in connection with the consumption or prospective retirement of electric plant in the course of service from causes which are known to be in current operation and against which the utility is not protected by insurance. Among the causes to be given consideration are wear and tear, decay, action of the elements, inadequacy, obsolescence, changes in the art, changes in Direct Testimony of Pascal B. Gill On Behalf of Mississippi Power Company Page 4 of 16

15 demand, and requirements of public authorities. 1 Depreciation expense is an accepted element of utility cost of service, and appropriate recovery of capital is accomplished by the inclusion of adequate depreciation expense in cost of service. Periodic studies are required to ensure the depreciation rates and the resulting depreciation expenses are adequate to recover the capital cost of the assets over their service lives. Q. Please explain how depreciation is used in ratemaking. A. Depreciation expense, calculated by applying depreciation rates to the applicable gross plant in service balances, is included in the calculation of the revenue requirement used for purposes of setting rates. These proposed depreciation rates will, if accepted for filing, be used by MPC in connection with all regulatory matters for the Regulatory Year 2015 in which depreciation expense is a component, including in connection with the development of MPC s charges for transmission service under the OATT for The proposed depreciation rates serve to spread the capitalized cost of assets in service, as well as the cost of removal and salvage associated with those capitalized assets, over their estimated service lives, thereby facilitating cost recovery from those customers who benefit from the assets. Q. Please define the terms cost of removal and salvage. A. Cost of removal is the cost of disposing of the asset, whether by demolishing, dismantling, abandoning, sale or other method. Removal costs increase the amount to be recovered through depreciation. Salvage is the amount received for property retired less any expenses incurred in connection with the sale or in preparing the property for sale; or 1 18 C.F.R. Part 101, Definition 12 (Depreciation). Direct Testimony of Pascal B. Gill On Behalf of Mississippi Power Company Page 5 of 16

16 if retained, the amount chargeable to materials and supplies inventory. Salvage decreases the amount to be recovered through depreciation expense. Cost of removal, net of salvage, is referred to as net removal cost. Q. How were the proposed rates developed? A. The revised depreciation rates proposed herein were developed by American Appraisal at the request of MPC. The study was prepared using industry-accepted methodologies and principles. Q. Please describe the process for determining depreciation rates. A. A depreciation study is performed to determine the appropriate book depreciation rates to be applied to the Plant in Service balances to enable recovery of the plant investment, adjusted for cost of removal and salvage, over the remaining service lives of the assets. The steps to calculate depreciation rates are as follows: 1. Compile the actual gross plant and accumulated depreciation balances. 2. Expected net removal cost is determined for Transmission and Distribution assets by analyzing historical net removal amounts. For production assets, net removal amounts are determined by analyzing historical information for interim retirements. Ultimate net removal amounts for Production assets are based on projected amounts as determined by engineering studies. 3. Expected net removal cost is added to the actual net plant (gross plant less accumulated depreciation) to determine amount to be recovered. 4. Amount to be recovered is divided by average remaining service life to determine annual depreciation expense. Average remaining service life is established based on historical retirement experience for Transmission and Distribution assets. For Direct Testimony of Pascal B. Gill On Behalf of Mississippi Power Company Page 6 of 16

17 Production assets, remaining lives are based on historical experience patterns for interim retirements and engineering judgment and industry experience with similar units for ultimate retirements. 5. Annual depreciation is divided by gross plant to determine the depreciation rate. Exhibit A of Exhibit (PBG-1) sets forth the depreciation rates proposed as result of this depreciation study. The rates were calculated using the capital recovery method known as the Remaining Life Method, the same method employed in MPC s previous study. A more detailed explanation of the process used to conduct the study is included in Exhibit (PBG-1) on pages 2 through 6. Q. Why is it necessary for utilities to update their depreciation rates? A. It is standard industry practice to update depreciation rates on a periodic basis to account for changes such as additions to assets, changes in average service lives, and changes in costs of removal or dismantlement. Updating depreciation rates to reflect such changes better enables a utility to recover appropriate plant investment and is also in compliance with Accounting Standards Codification (ASC) 360 Property, Plant and Equipment, which requires that depreciation expense be recorded over the service lives of assets. These updated rates are determined through the performance of depreciation studies. MPC proposes to begin using the depreciation rates established by this study in connection with rate and other matters filed after the date of this application for Regulatory Year 2015 in which depreciation expense is a component. Using updated depreciation rates in the determination of rates for electric service will better ensure that Direct Testimony of Pascal B. Gill On Behalf of Mississippi Power Company Page 7 of 16

18 the customers who benefit from the assets are the ones who pay for them and that MPC recovers its investment in a systematic and rational manner. Q. Are there any current assets not included in the Plant in Service balances used for this study, or any significant increases or decreases expected to impact Plant in Service in the near future that are excluded from this study? A. Yes, all Generation assets for Plant Chevron and the Kemper Project have been excluded from this study. A new contract with Chevron is expected to be finalized within a year; therefore, MPC proposes to continue to use the current approved rates until the new contract is finalized. At that time MPC will request new rates for Plant Chevron, if necessary. The rate for all Kemper Project Generation assets, including the Transmission GSU, is proposed to be 2.5% per year with no cost of removal. This is the rate that is currently being used in MPC s MRA-25. For these reasons, these assets at Plant Chevron and the Kemper Project were not included in the Plant in Service balances used for this study. There are also two significant events expected which will impact MPC s Plant in Service balances in the near future: the placing of the Plant Daniel Scrubbers in service in 2015, and the retirements of coal related equipment due to the conversion of four generating units from coal to natural gas at Plant Greene County, in 2016, and Plant Watson, in In accordance with Commission guidance 2, regarding the inclusion of forward looking data in depreciation rate cases, the Plant in Service balances used for this study have not been adjusted to include the expected impact of the addition of the Plant Daniel Scrubbers and the retirements of coal related equipment. 2 See, e.g., Stingray Pipeline, 98 FERC 63,004 (January 10, 2002), FERC Docket No. RP Direct Testimony of Pascal B. Gill On Behalf of Mississippi Power Company Page 8 of 16

19 Q. Based on December 31, 2013 Plant in Service balances, what is the amount of the change in annual depreciation expense that would result from approval of the proposed rates? A. Approving the proposed rates would increase MPC s total company annual depreciation expense by $5,798,819. Q. What are the major drivers of this change? A. The net increase is due to an increase in the Production, Transmission and Distribution functions depreciation expense in the amounts of $4.5 million, $0.8M and $1.3M respectively; these increases are offset by a decrease in the General Plant function depreciation expense in the amount of $0.8 million. Q. What are the changes in depreciation rates that affect the calculation of charges under Southern Companies OATT? A. While there is an increase in the depreciation expenses for the Transmission function, it is offset by an allocated portion of a decrease in General Plant function depreciation expense. An allocated portion of the General Plant expense is applied to the Transmission function for purposes of calculating charges under the OATT. Q. Please explain the reason for the proposed Production related increase. A. The Production related increase in depreciation expense is caused primarily by additional capitalized costs for the Plant Daniel, Plant Greene County and Plant Watson projects described below, offset partially by an overall decrease in expected net removal costs and an extension in the expected service lives for Plant Sweatt and some units at Plant Watson. These expected service life extensions were based on experience with similar Direct Testimony of Pascal B. Gill On Behalf of Mississippi Power Company Page 9 of 16

20 units in Southern Companies generating fleet, as well as the delay of environmental regulatory drivers. For Plant Daniel, the purchase of the combined cycle units 3 and 4 have increased recoverable cost $375 million, which must be spread over the remaining service life of 26 years. It should be noted that, pursuant to an MPSC order dated January 11, 2012, Docket No UA-222, MPC is amortizing the difference in the revenue requirement between the purchase and a new lease for these assets for the ten year period ending Also, additional capital expenditures in the amount of $20.4 million, for Plant Daniel units 1 and 2, have increased recoverable cost. The following projects were the main drivers for the increase in capital expenditures: $13.2M turbine replacements, $2.9M installation of Low-NO X burners and $2.5M replacement of condenser tubes. This increase in recoverable cost must be spread over the estimated remaining lives of units 1 and 2, which are 28 and 32 years, respectively. The impact of the increase in capital expenditures at Plant Daniel was partially offset by a $13.8 million reduction in expected net removal costs. For Plant Watson, additional capital expenditures in the amount of $69.1 million have increased recoverable cost which must be spread over the remaining service life of 14 years. The increase in capital expenditures resulted primarily from the $44M replacement of a cooling tower, $5.2M installation of a pile wall for the unloader dock, $4.6M economizer replacement, $4.6M replacement of seamed hot reheat pipe and $2.7M in precipitator flow modifications. The impact of the increase in capital expenditures at Plant Watson was partially offset by a $7.3 million reduction in expected net removal costs and the extension of the expected service lives of Plant Watson units 1, Direct Testimony of Pascal B. Gill On Behalf of Mississippi Power Company Page 10 of 16

21 and 3 from 56 to 62 years, 53 to 59 years and 51 to 57 years, respectively. Additionally, the expected service life of the Plant Watson CT was extended from 45 to 48 years. For Plant Greene County, additional capital expenditures in the amount of $7.5 million have increased recoverable cost which must be spread over the remaining service life of 11 years. The impact of the increase in capital expenditures at Plant Greene County was partially offset by a $10.8 million reduction in expected net removal costs. The overall increase in annual depreciation expense at the plants noted above is partially offset by a decrease in depreciation expense for Plant Sweatt. The proposed decrease in depreciation rates for Plant Sweatt is a result of the following: $2.8 million reduction in expected net removal costs and an extension of the expected service lives of Plant Sweatt units 1 and 2 from 64 to 67 years and 62 to 65 years, respectively. Additionally, the expected service life of the Plant Sweatt CT was extended from 44 to 47 years. Q. Please explain the reasons for the proposed increases related to the Transmission and Distribution Functions. A. The Transmission related increase in depreciation expense is driven by an anticipated increase in net removal and additional capital expenditures in the amount of $197 million, of which $113 million is a result of Kemper Project related transmission additions and upgrades. The impact of the anticipated increase in net removal and additional capital expenditures is partially offset by an increase in the average service life of the Transmission assets from 45 years as of December 31, 2008 to 46 years as of December 31, The Distribution related increase in depreciation expense is driven by an Direct Testimony of Pascal B. Gill On Behalf of Mississippi Power Company Page 11 of 16

22 anticipated increase in net removal and additional capital expenditures in the amount of $108.3 million, partially offset by an increase in the average service life from 32 years as of December 31, 2008 to 33 years as of December 31, Q. Please explain the reasons for the proposed decrease related to the General Plant Function. The decrease in depreciation expense related to the General Plant Function, excluding mine assets, is driven by an increase in the average service life of the General Plant assets from 15 years as December 31, 2008, to 17 years as of December 31, The impact of the increase in the average remaining service life of the General Plant assets is partially offset by an increase in additional capital expenditures of $4 million. Q. How are the Kemper Project related assets impacted by MPC s revised depreciations rates? A. As stated above, the rate for all Kemper Project Generation assets, including the Transmission GSU, is proposed to be 2.5% per year with no cost of removal, as has been consistently included in MPC s previous MRA filings. MPC also intends to use new depreciation rates for the depreciable mine assets placed in service in Amortization and depreciation expense related to Kemper Mine assets will be charged to FERC 151 Fuel Stock as incurred. The expense will then become a part of the cost of lignite inventory and used to calculate the cost of lignite consumed by the Kemper Project. Additionally, several new amortization schedules have been added to accurately reflect the amortization period of mine related rolling stock. See Exhibit (PBG-1) for a comprehensive list of amortization periods used. Direct Testimony of Pascal B. Gill On Behalf of Mississippi Power Company Page 12 of 16

23 Q. How will MPC s depreciation rate changes affect the Southern Companies OATT rate, MPC s MRA-25 tariff, and the MPC-Entergy Transmission Facility Agreement? A. Portions of MPC s depreciation expense are elements in the Southern Companies OATT, MPC s MRA-25, and the MPC-Entergy Transmission Facility Agreement. The depreciation expense for general plant calculated under these depreciation rate revisions will be one of the elements included in the development of the billings under the MPC- Entergy Transmission Facility Agreement beginning with January While we propose the updated rates be effective for the 2015 regulatory year, these changes in the depreciation rates and expense will not result in a contemporaneous change in wholesale rates under MPC s MRA-25. These updated rates will not affect electric service rates under MPC s MRA-25 until a separate filing under Section 205 of the Federal Power Act is made. Q. What is the impact of MPC s proposed update to the depreciation rates for purposes of the OATT? A. Implementation of the updated depreciation rates for service provided under the OATT is required to recover the total cost of MPC s depreciable electric plant, allowing for net removal over the remaining service life of the plant. After acceptance for filing purposes by the Commission, Southern Company Services, Inc., an affiliated services company acting on behalf of Southern Companies, will be able to use MPC s updated depreciation rates to bill wholesale customers under the OATT retroactively, effective January 1, 2015, through the True-Up procedures that I understand are included in Attachment N of the OATT. The proposed rates, based on an accepted capital recovery method, are the Direct Testimony of Pascal B. Gill On Behalf of Mississippi Power Company Page 13 of 16

24 result of American Appraisal s analysis and study of the facts and conditions known to be in existence at the time of the study. Using such updated and revised depreciation rates in the determination of wholesale service rates will better ensure that MPC and its transmission-owning operating-company affiliates recover their capital investment in a systematic and rational manner. Q. Please explain the unamortized deferred regulatory assets associated with final settlement of certain asset retirement obligations (AROs) and how you propose to amortize those balances into rates. A. As a result of accounting for AROs in accordance with ASC 410, Asset Retirement and Environmental Obligations (SFAS No. 143) and regulatory guidance (Docket No. 03-UN- 0373), approximately $1.2M associated with AROs that have been settled remain in unamortized deferred regulatory asset accounts. This balance is a result of monthly accounting entries associated with the difference between expenses under GAAP and allowable expenses for ratemaking purposes. ASC requires both the depreciation and accretion expense associated with AROs to be recognized. Regulatory practice permits the recovery of retirement obligations through the cost of removal component of depreciation rates associated with the tangible asset. The difference between the expenses under GAAP and the regulated recovery results in a monthly deferral to unamortized regulatory assets. This treatment is consistent with retail rate treatment of the MPSC s June 6, 2003 order in Docket No. 03-UN Since the initial ARO liability is based on an estimate of the final settlement costs, actual costs to settle the ARO will likely be more or less than the amount held in this reserve. After all costs have been recognized to settle the ARO, the difference between the amount of the ARO Direct Testimony of Pascal B. Gill On Behalf of Mississippi Power Company Page 14 of 16

25 liability and the actual costs paid to settle the obligation is cleared from the liability account as a gain or loss. This gain or loss is then offset against the unamortized regulatory asset account, in order to reflect the true amount of recovery needed. In order to amortize into rates the deferred regulatory asset balances resulting from the final settlement of AROs, the following schedule is proposed: 6 Regulatory Asset/Liability Balance < $1,000, Regulatory Asset/Liability Balance > $1,000, < $5,000, Regulatory Asset/Liability Balance > $5,000, Expense immediately Amortize over a 5 year period Amortize over a 10 year period Upon approval of this recommendation, all regulatory assets and liabilities for AROs that have been settled will be consolidated and evaluated against the thresholds above. Q. Are the proposed depreciation rates appropriate for use in calculating depreciation expense for regulatory purposes? A. Yes, the proposed depreciation rates are required to recover the total cost of plant assets, allowing for net removal cost, over the remaining service lives of those plant assets. The recommended rates, based on an accepted capital recovery method, are a result of American Appraisal s analysis and study of the facts and conditions known to be in existence at the time of the study. The techniques employed to derive the analysis and to calculate depreciation are generally accepted practices in the industry. The depreciation methods, techniques, calculations, and rates are consistent with MPC s most recent depreciation rate studies filed with and approved by the Commission. The results of American Appraisal s study were reviewed in detail by MPC personnel to ensure that Direct Testimony of Pascal B. Gill On Behalf of Mississippi Power Company Page 15 of 16

26 they reflect MPC s property usage patterns. The changes in rates are just and reasonable and are appropriate to ensure that MPC recovers its investment in a systematic and rational manner. Q. Please summarize your requests for approval. A. MPC requests approval to use the depreciation rates and amortization periods set forth in Exhibit (PBG-1) for accounting and regulatory purposes, including in connection with the development of MPC s charges for transmission service under the OATT, beginning January 1, MPC also requests approval of the ARO settlement schedule set forth on page 15 of this testimony. Q. Does that conclude your testimony? A. Yes. Direct Testimony of Pascal B. Gill On Behalf of Mississippi Power Company Page 16 of 16

27 1 BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION MISSISSIPPI POWER COMPANY DOCKET NO INRE: NOTICE OF MISSISSIPPI POWER COMPANY OF FILING OF DEPRECIATION RATE STUDY AS OF DECEMBER 31, 2013 AFFIDAVIT OF PASCAL B. GILL 11 PERSONALLY appeared before the undersigned officer authorized to administer oaths, Pascal 12 B. Gill, who being duly sworn, deposes and says; that the foregoing supplemental direct testimony 13 and exhibits, including the data and information for the Federal Energy Regulatmy Commission's 14 evaluation of Mississippi Power Company's as of December 31, 2013, was 15 prepared by him or under his supervision and the facts stated therein are tme and correct to the best 16 of his knowledge, information and belief. 17 Dated at Gulfport, Mississippi, this the ~of Janumy, Sworn to and subscribed before me this thejo~y of Janum y, My Commission Expires:. /of MISS/8.'',, :\~...;;;"y".. OS',(() /f.,'<'f'~ gj>."" ~;;~. ~ co.... ~;l : 'Q:j r\ '. i * f NOTARY PUBLIC \ * : : 1 IDNo.4S42 i '! l. Mf comm!sslon Expires j : \ \,, Augu~10,~18. / / 1&;::.:::: ~ON...

28 Mississippi Power Company American Appraisal MlS,SijSSIPPI POWER COMPANY As of December 31, 2013 Prepared for Mississippi Power Company Leading I Thinking I Performing

29 Mississippi Power Company Table of Contents p. American Appraisal Table of Contents INTRODUCTION DEPRECIATION RATE STUDY PROCEDURES Assembly of Plant Accounting Data... 2 Computerized Processing... 2 Evaluation of Statistical Data... 4 Life Span Analysis Determination of Remaining Lives Net Removal Analysis Depreciation Rate Calculation... 5 RESULTS OF THE STUDY... 6 Exhibits A B C D E F G H Recommended Depreciation Rates and General Plant Amortization Comparison of Recommended Depreciation Rates to Present Rates Depreciation Factors and Rates- Production Plant Depreciation Factors and Rates- Transmission, Distribution, and General Plant Comparisons of Span Life and Fossil Dismantling Costs - Production Plant Comparison of Depreciation Parameters - Transmission, Distribution, and General Plant Assumptions and Limiting Conditions Certificate of Consultant Lead1ng f Thinking I Performing

30 Mississippi Power Company American~ Associates, Inc. 411 East WISCOnSin Avenue Milwaukee, WI tel Leading I Thinking I Perfonning fo American Appraisal November 14, 2014 Mississippi Power Company Gulfport, Mississippi INTRODUCTION At your request, American Appraisal has conducted a study of the annual depreciation (capital recovery) rates for the depreciable electric plant of Mississippi Power Company ("Mississippi Power" or "Company") as of December 31, 2013 rstudy date"). The study procedures and results are summarized in this report. The study was made to determine the appropriate book depreciation factors and rates to be applied to the plant in service to enable recovery of the plant investment, adjusted for net removal, over its remaining useful life. The scope of the study included a review and analysis of the average service lives and remaining lives of the property. Also included in the study were a determination of net removal and other factors relating to depreciation. Mississippi Power Company may disclose our report to its external auditor or its tax, legal, or other advisors and regulatory bodies, as appropriate, who will assist it in this use. American Appraisal is not responsible for unauthorized use of its report. The definition of depreciation used in this study is the same as that used by the Federal Energy Regulatory Commission for electric companies and is essentially the same as that employed by the National Association of Regulatory Utility Commissioners. The definition of depreciation used is as follows: Depreciation, as applied to depreciable electric plant, means the loss in service value not restored by current maintenance, incurred in connection with the consumption or prospective retirement of electric plant in the course of service from causes which are known to be in current operation and against which the utility is not protected by insurance. Among the causes to be given consideration are wear and tear, decay, action of the elements, inadequacy, obsolescence, changes in art, changes in demand and requirements of public authorities. It is recommended that depreciation rates should continue to be calculated using the remaining life method, which is the method currently used by the Company. A generally accepted straight-line method for calculating depreciation rates, the remaining life method is the most frequently used method for calculating depreciation rates. In the remaining life method, the original cost of the plant, adjusted for net removal, is recovered over the average remaining life of the plant according to the following formula: Valuatloo I Transaction Consulting I Real Estate Advisory I Fixed Asset Management

31 Mississippi Power Company Consulting Study fo American Appraisal Depreciation Rate 100% + Net Removal % - Depreciation Reserve % Average Remaining Life DEPRECIATION RATE STUDY PROCEDURES Several major steps were important to the completion of the depreciation rate study, as follows: Assembly of plant accounting data, including annual additions and retirements, aged investment, dated retirements, and salvage and cost of removal amounts Computerized processing of the data to establish historical retirement experience patterns Evaluation of t he statistical retirement experience to determine average service lives and retirement patterns (mortality dispersion curves) Life span analysis of production plant locations Determination of the remaining lives of the depreciable electric plant Analysis of net removal experience and the determination of future net remova l Conclusion of depreciation factors and the calculation of annual depreciation amounts and depreciation rates The study procedures outlined above- collection of data, analysis of data, application of informed judgment, and calculation of depreciation rates - are the generally accepted practice within the utility industry. The major procedural steps are discussed in the following sections. Assembly of Plant Accounting Data To study the historical characteristics of average service life, average remain ing life, and retirement dispersion pattern, plant accounting data was gathered for each plant account. For location-type accounts, the plant accounting data included aged investment and dated retirements. For mass-type accounts, the plant accounting data included annual additions and retirements. Historical salvage and cost of removal experience for each functional group also were collected. The basic accounting data was furnished by the Company from its plant accounting records and depreciation rate study data, as of December 31, Computerized Processing The accounting history of additions, retirements, and balances is used to study service life experience and trends for various electric plant accounts. When the dates of installation and retirements are known and appropriately compiled, study procedures known as actuarial methods can be used. When such data is not available in a reliable form, techniques are available to simulate actual vintages of retired property. These simulated techniques, sometimes ca lled semiactuarial methods, are commonly used and generally accepted life analysis techniques. As in prior studies of Leading I Thinking I Performmg 2

32 Mississippi Power Company Consulting Study p American Appraisal Mississippi Power depreciation, both actuarial and simulated methods were utilized in this study, based on accounting data availability. The actuarial method used was the retirement rate method, which is based on the rate at which retirements occur from various age groups. Specifically, for this technique, dated retirements, which are annual retirements arrayed by age at retirement, and aged investment, which is the study date plant balance arrayed by year of placement, are used. This data is combined to develop the rate of retirements by age for a band of retirement years. The observed survivor curve is determined from the retirement rates. Using standard curve-fitting practices and standard survivor curves, such as the Iowa-type survivor curves, the observed survivor curve is smoothed and extended to a concluded survivor curve of retirement dispersion and service life. For the simulated method, the simulated plant ba lance ("Balances") technique of the simulated plant record ("SPR") method was used. Both historical service life and the pattern of retirement dispersion, as given by the system of Iowa-type survivor curves, are indicated through the use of the SPR method. For the SPR method, the input data consists of the annual additions and the annual retirements, along with standard mortality curves. In the Balances technique, a balance period is selected for analysis - for example, the last 10 years. The total of book balances for the last 10 years is then summed from the input data and becomes an amount to be matched. An Iowa-type curve mortality table, expressed in terms of expected retirements, is applied to the additions. The simulated balances for each of the last 10 years are then computed. To ensure the simulated balances exactly equal the actual book balances in total for the 10-year period, a service life is developed in connection with the specified Iowa-type curve. The actual balances and simulated balances will vary in any one of the 10 years. This calculation is repeated for each of the several Iowa-type curves and for different bands of retirement years and study dates. In this life method, the measure of how well the ba lances fit is called the index of variation, which is based on a sum of the least squares method. A survivor curve is a plot of the percent surviving at the beginning of each age interval, which is typica lly one year. The survivor curve starts at 100% for new assets and decreases to zero at the maximum life. The survivor curve represents the probability of surviving to a particular age. The average service life of the assets is the area under the complete survivor curve. The average remaining life at any age is the area under the curve to the right of the age, divided by the percent surviving at that age. The standard survivor curves most often used with utility property are known as Iowa-type survivor curves. This family of empirical curves was developed more than 75 years ago. The Iowa curves are classified as S, L. and R curves based on whether their retirement mode is found to be at (i.e., symmetrical with) the average service life, or to the left or right of the average service life. Lead1ng I Thinking I Performing 3

33 Mississippi Power Company Consulting Study j:j. American Appraisal Evaluation of Statistical Data The computerized studies of past service lives are important to the depreciation rate study but are typically not conclusive by themselves. The depreciation analyst must study the results and may exercise significant judgment in selecting the best measure of past average service life and retirement dispersion. A purely mathematically driven procedure is not the correct approach to life analysis of utility property. The results of the statistical analyses are indications of past experience and are studied to establish trends in historical service life, retirement dispersion patterns as given by Iowa-type curves, and net removal. Indicators of goodness-of-fit, a review of recorded accounting data, knowledge of the type of property involved, and the experience of others with similar property, including the depreciation parameters of the previous Company study prepared by American Appraisal as of December 31, 2008, are used as aids in these determinations. Historical service lives and Iowa-type curves also are modified, if appropriate, to reflect future service conditions. Life Span Analysis A depreciation rate study includes two broad categories of plant: mass property and location property. Due to the nature of the equipment in the Production Plant accounts, the retirements that occur within the functional group reflect location-type property. Life characteristics of location-type property are summarized as follows: A large percentage of total investment is attributable to a few locations. Annual retirements are small when compared with total investment at the location. Annual retirements are usually interim in nature and do not represent life characteristics of the total investment at the location. For the preceding reasons, the standard statistical analyses of life, actuarial or simulated, cannot be relied on to give accurate life indications for location-type property. Both the life and net removal of electric generating facilities were developed using the life-span method, sometimes called the forecast method, of analysis. In the life-span method, the total life span of the investment at each generating facility is determined. For study purposes, the span life of a generating facility is the age of the original investment plus the time to ultimate retirement, or remaining life, as of the study date. Remaining life is derived from the estimated retirement date of the investment and is calculated by subtracting the study date from the estimated retirement date of each generating facility. In addition, remaining life must be adjusted for future interim retirement activity, because such activity precludes the total existing investment from remaining in service until the ultimate retirement date. Future interim retirements were developed from the application of interim retirement rates, which were generally based on Company historical data. Lead1ng 1 Thinking I Performing 4

34 Mississippi Power Company Consulting Study p. American Appraisal Net removal of interim retirements was developed based on historical net removal from interim retirements. The Company-prepared Production Plant dismantling study as of December 31, 2013, was used to estimate the net removal costs of the ultimate plant unit retirement. The retirement dates of the generating facilities used in the study were provided by the Company. These provided retirement dates were reviewed considering American Appraisal's experience with production life spans used in the electric utility and electric power industries and were concluded to be reasonable and appropriate for purposes of Mississippi Power depreciation. Determination of Remaining Lives To calculate the depreciation rate as described previously, the average remaining life of each plant account must be determined. The remaining life for each plant account can be readily calculated from the age distribution of the property investment once the average service life is determined and the Iowa-type curve of retirement dispersion is established. The average remaining life, adjusted for future interim retirement activity, of the Production Plant locations is readily calculated from the life span analysis. Net Removal Analysis In a typical depreciation rate study, salvage and cost of removal actually experienced by the company are studied as a percent of original cost of the plant retired. This company-specific historical information is examined for trends together with knowledge of the property to arrive at recommended future net remova l, stated as a percent of original cost of the plant retired. For this study, to be consistent with the results of the last study and accepted industry practice, historical salvage and cost of removal actually experienced by the Company on a functional group basis since 1984 were studied as a percent of the original cost of the plant retired. The development of net removal for the Production Plant is discussed in a prior section of this report. The Company's specific historical information was examined for trends, together with knowledge of the nature of the property, to arrive at the recommended future net removal for the Transmission, Distribution, and General Plant, by plant account, as was the practice in prior Mississippi Power studies. For the Company's capital recovery, as well as for the electric utility industry, net removal continues to be an important factor in the depreciation rate calculation. Depreciation Rate Calculation When all the elements of the depreciation rate calculation are known, the annual depreciation for each account or location is calculated by dividing future accruals by the average remaining life. The depreciation rate is calculated by dividing the annual depreciation by the study date plant balance. Leading I Think1ng I Performing 5

35 Mississippi Power Company Consulting Study p. American Appraisal The future accrual amount represents the original cost investment, adjusted for net removal, not recovered as of the study date. This unrecovered cost is to be accrued over the average remaining life of the plant, using the developed depreciation rate. RESULTS OF THE STUDY The recommended depreciation rates by category for the Steam Production, Other Production, Transmission, Distribution, and General Plant are presented in Exhibit A. A comparison of annual depreciation based on the recommended rates and the present rates of the Company, applied to plant balances as of December 31, 2013, is presented in Exhibit B and summarized by functional group as follows: Present Annual Recommended Annual AnnuaiDep~ation Functional Group Depreciation ($} Depreciation ($) Ditr'erence ($) Steam Production 30,512,805 30,875, ,047 Other Production 17,182,270 21,320,345 4,138,075 Transmission 14,822,189 15,623, Distribution 28,024,387 29,276,835 1,252,448 General Plant 6,256,335 5,500,384 (755,951) Total Depreciation 96,797, ,596,805 5,798,819 The present annual depreciation in the preceding table and in Exhibit B does not represent actual 2013 depreciation expense; rather, it represents the present depreciation rates applied to plant balances as of December 31, The recommended depreciation factors of remaining life, average service life, and net removal and the resulting annual depreciation and rates by depreciation category are presented in Exhibit C for the Production Plant (which includes Steam Production and Other Production) and in Exhibit D for the Transmission, Distribution, and General Plant. For the Production Plant, depreciation rates were developed by plant unit and account using the lifespan method. A location's span life is the period of years between the original addition, or in-service date, and the estimated retirement date of the unit. In this study, the span lives of several of the oldest Steam Production units were changed from those of the previous study from The span lives of the Plant Watson units 1-3 were increased by six years from those of the previous study, and the span lives of Plant Sweatt units 1-2 were increased by three years. Also, the span lives of Other Production Sweatt CT and Watson CT were increased by three years. The dismantling costs (terminal net removal) were changed from those of the previous study, based on the Company's new study. Comparisons of span lives and dismantling costs between the current study and the previous study are shown in Exhibit E. Leading I Thinking I Performtng 6

36 Mississippi Power Company Consulting Study j:;. American Appraisal For the purpose of this study, the recommended depreciation rates for Other Production Chevron units were al l set equal to their present depreciation rates The depreciation parameters of curve type; average service life; and net removal of the Transmission, Distribution, and General Plant, as recommended in this study and in the previous study, are shown in Exhibit F. Based on this study, it is our opinion that, as of the study date, the depreciation factors as recommended are reasonable and appropriate for Mississippi Power's full and timely capital recovery. Periodic studies of depreciation rates and practices are recommended for Mississippi Power so that the most current service life experience, net remova l trends, replacement activity, and technological and economic developments may be properly reflected in annual depreciation expense. Respectfully submitted, American Appraisal No third party shall have the right of reliance on this report, and neither receipt nor possession of this report by any third party shall create any express or implied third-party beneficiary rights Leadmg f Thinkmg I Performing 7

37 Mississippi Power Company p. American Appraisal E.xh.ibit A Recommended Depreciation Rates and General Plant Amortization Leading I Thtnkmg I Performmg (2 pages)

38 Mississippi Power Company Mississippi Power Company Study as of December 31, 2013 Recommended Depreciation Rates Depreciation Category Steam Production Plant Sweatt Plant Watson Common Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Plant Daniel Common 1-2 Common 1-4 Unit 1 Unit2 Greene County Steam Plant Other Production Chevron Plant Common Unit 1 Unit 2 Unit 3 Unit4 Unit 5 Plant Watson Plant Sweatt Plant Daniel CC Common Unit3 Unit 4 Transmission Plant Distribution Plant Total Distribution Excluding Street Lighting Account Street Lighting Depreciable General Plant Easements Structures & Improvements Communications Equipment Mine- Depreciable American Appraisal Exhibit A Depreciation Rate % 5.44% -2.07% -1.52% -1.89% 5.69% 4.16% 1.93% 2.29% 2.21 % 2.18% 4.59% 2.04% 5.40% 4.53% 5.44% 4.73% 5.30% 1.55% -0.08% 4.03% 4.49% 4.50% 2.73% 3.31% 7.47% 1.99% 1.62% 2.97% 2.80% 1 of2

39 Mississippi Power Company Mississippi Power Company Study as of December 31, 2013 General Plant Amortization Exhibit A Amortization Category Office Furniture and Fixtures Furniture- Non Computer Computer Equipment Transportation Equipment Automobiles Light Trucks Heavy Trucks Trailers Stores Equipment Tools, Shop and Garage Equipment Laboratory Equipment Power Operated Equipment Miscellaneous Equipment Intangible Software Enterprise Wide Software All Other Mine Mitigation Credits Mine Equipment (Predominately Rolling Stock) Amortization Period 20 years 5 years 5 years 7 years 11 years 20 years 20 years 20 years 20 years 20 years 5 years 10 years 20 years 5 years 5 years 6 years 7 years 8 years 9 years 10 years 12 years 13 years 14 years 15 years 17 years 18 years 20 years American Appraisal 2 of2

40 Mississippi Power Company ~ American Appraisal Comparison of Recommended Depreciation Rates to Present Rates Leading I Thinking I Performing (1 page)

41 Mississippi Power Company Mississippi Power Company Study as of December 31, 2013 Comparison of Recommended Depreciation Rates to Present Rates Exhibit B 12/31/2013 Present Rates Recommended Rates Increase Functional Grou!! Investment Rate Exf!ense Rate Expense (Decrease) Steam Production Sweah 16, % 667, % (353,575) ( ) Watson Common 96,030, % 4,580, % 5.224, ,402 Watson 1 14,801, % 355, % (306,388) (661,619) Watson2 12,758, % 553, % (193,934) (747,665) Watson % 799, % (305,840) (1.105,232) Watson 4 91,678, % 4.400, % 5,216, Watson5 279, % 9.402, % 11,807,173 2,204,247 Daniel Common ,309,4H 1.96% 1,030, % 1,028,872 (10,662) Daniel Common , % % 594,104 (20,755) Daniel I % 1,942, % 2,044, ,738 Oaniel % 2.309, % 2,298,51 1 (10,544) Greene County % 3.847, % 4,022, Total Steam Production 891,802,909 30,512,805 30,875, ,047 Other Production Watson 5.391, % % ( ) Sweah 4,624, % 143,832.().08% (3.700) ( ) Chevron Common , % 245, % 245,268 Chevron! 11, % % 617,893 Chellfon2 10, % 469, % Chevron 3 7, % % Chellfon 4 8,176, % 386, % 386,733 Chevron 5 41,690, % 2,209, % Plant Daniel CC Common % 1,709, % 2, ,688 Plant Daniel CC 3 164, % 5, % 7.389,869 1,997,404 Plant Daniel CO 4 163, % 5,366, % 7,370, ,195 Easements % 5, % 5,189 (476) Total Other Production 483,005,823 17,182,270 21,320,345 4,138,075 Transmission Incl. Easements 572,285, % 14,822, % 15,623, ,199 Distribution incl. Easements Distribution Excluding Street Ughting 774,831, % 23, % 25,646,929 1, Account Street Lighting % 4.159, % 3.629,906 ( ) Total Distribution incl. Easements 823,424,817 28,024,387 29,276,835 1,252,448 General Plant Easements 4,197, % 81, % 83,535 1,679 SlructlJ'es and Improvements 49,765, % 980, % 806,193 (154,272) Commt.11ications Equipment 39, % 1.815, % 1, ( ) Subtotal 93,950,581 2,857,768 2,077,367 ( ) Mine- De~i able , % 3,398, % 3,423,017 24,450 Total General Plant 216,201,199 6,256,335 5, ( ) Total Depreciable Plant in Service ,797, American Appraisal 1 of 1

42 Mississippi Power Company ~ American Appraisal Depreciation Factors and Rates- Production Plant Lead1ng I Th1nkmg I Perform1ng (4 pages)

43 Missis.sippi Power Company Study as of O.C.mMr 11, 20U O.pred.atJon hcton and Ratu Production Pl:ant Zil11'201) 12ntl20,, A.v.. aee H.cltet~WN'tl Av~t ;e Recommended Pr Mnl Rlt.. lac Plonl ~WI Cwve s..v;c. lnd.dhmlnmo lobe Remllir*>g O.ptedoOon 0.,.-0ft lw>a<ol... ~Nf;m Q!f!eda6on Rile R.,. Q!!!~.. on Diff.,tft«$ $ v..,.. $ $ v, $,.. $ ---,- " " STEAM PRODUCTION PlANT Rese~Ve TXJ!! l.j(e P cont Amounl RecO'II'«ttd Lde _.,., Plant SWNtt Slructl.wn and lmprov-.,enta 3,142,352 4,151,369 1)2.3% F.. o U% 750,165!2$5.U (59.)421 t.an Boolo<PI""'E~om 4,109, 18& 8, " F.. e % 1 203,265 ( (172,7191..),5_, lurbogenti t01 Uniltt 8,170,621 1,536,71 1)$.3% Fore % 1.$14,7<11 (UOI941 4,4l (1!12,075) -l.m < lo5.0 "'" """' Elocttl< Equjpln..,l 0,452,675 1, % F.. e ~ 349, , M.sc. Po\IW'f PIM Equ~pmtJnt , % F.. e % 2ll.Ul ,766 $.7811 s.a>coool 18, ,139, % % 4.051,747 (1 565, ( % 404% ~2ft78) PlantWahon Commot~ St.r\lc4\t~el and lmpfovt.mtnts 39,524, , % FO<t 2U 40.6% OS,060,175 21,442, , % Boltet Pftnt Equipment 29,709, , % F.. e % 13,170,483 08,065, ,343, < TUibOgfmclfltot Unill 11,$10,160 3,630, ".4 FO< UI4 4,071,602 9,952) , % 3t5,0 Aoce~tory EJe<tftc Equipment 6,179,015 2,698, % FOfe % 2,551,015 8, ,1) 426, % Mrc.o. Po-wtf Pfll\t Equtpmlf-t II ,593, % FO<e % 4, , ,77% S..bloool 96,030,188 63,877,385 66,5% % 40,6$i,267 72,1ot, ,225,128 S.44'A 4.77% 4,580, ,489 hhlhkc Mississippi Power Company Plant Wat.on Unit Slruc.tures and lmprovornantl 2,621,264 3, $% FOfe 61,7 7.4% 194,112 (589,2931 5,48 (107,535)... 10% Bolter Pltnt Equl~n_.lt 4,692,995 6,299, % FO<e 40,7 U% 404,721 (192,009) 5.35 (35,890) / T... boqtntllltuoj Unitt 5, ,975, % FO<e % 472,578 ( ) 6,40 (144,678) 2.5l'A 315,0 AcetMOfV Elee.tlic E'qulpmont 1,747,587 2!015, % Fote % 134,253 (133,683) 5.45 (24,529) -1.40% M " Power Plat"'l Equipment 17,970!ll,549} 75.4% Fe<t % o,so4 3), , ,11 /. Sul.;.lotat 14,801,329 17, ,,9,5% 35,3 8.2% 1.211,958 (1,1163,201) 5.41 (306, ~ 2.40% 35Ul2 (681,7l Plant W~taon Unh S4ruc:turn nd lmprovtments 1, ,520, % FOI'e 63.4 U% 109,217 (234,445) 5.48 (42,7821..).35% Soller Plant Equlpmtnt 4,741,686 5,600, % F<He % 472,761 (371,271) 5.35 (70, " Tl.ltbo~ratot Unfla 4,975,704 6,022, % Fote 4'2.4 9,4% 466,523 (579,186) 5.40 (107, % Ac~ NOJY Eleceric Eqy~~f'f'lt 1,736,995 1,763, % FO<o Ol.2...,. 152, , ,34% Misc. Poww Pl..,.. E'fo'IPfMOI 11, \83 1, % Fore % I i& ,61'% s.a>coool , % 32 7 t.4% ost ( ) 5.41 ( % 553,131 (147,7UI 5t12l Pbnt Ybtson Onlt l )11.0 S..udutn and l.mp4'0vtmf'ms 2 0)9,221 2.$37~ % FO<o 5U 8.2% 12U66 ( $.48 (67,715) Bolfer T.., PIWlt EqwpmMt U... 5, ,725,609 IIU% F.. e % (830, ( S ,384,735 7,260, % Fore 3H 7. 1% 44I.ISO ( (12.130) 1.30% ,-e..., ,814 2,424, % FO<e ll.l 85% (220,340) $.45 (40, % "'* P-PionoE~ 4$ % Foro 140 7:1% 3.2U % Sf..tltot..t 16, ta.sat.soe 117.3% oi4 t.14s,17t (I is ( ) 1.1f%...,.. 7tl,)t2 (1,105454) P&..nl W.Uon Unh suvc:auru and e_.. lmprovemtfn... 4 t9214i % Fare :1% 110,056 1)9,51 t,43 14, , % Fote 20.4 U% lt21,127 41, 142~ ,546, l14 0 Turbogm«f tot Unitt 01,721,:109 9, % FO<o 31.2 ) , S.65o , % 315,0 -...,y EleWi< Equ~p<n"" 11,411,78i 1,597,15) 74.8% F % 302,360 3,1Utt6 9, , 'J( MI'IC. Powet PIW Equ.Ptft41f Ht 92.3% FO<e % , Sob40iol tl,871, % 219 3,772, i, , % UO% 400, ' '" P&llnt WAtson Unit ~"'"and ln'ipronrntnt 14,754,582 11,409, % Fote % 302,371 ).547, , Boittf Pfant Equ4pm.wn 15S,S ,215, % F.. o % 9,136,140 17,901, ,535, " TurbogtMfatOf Unttl 60,332, '4 Fore % 3,393,554 11,204, , 'K AootHOIY E ectnc Equiprnont 24,133,515 li,390, % FO<e % ,395, , S'K M.u. Powtr Planl EqulpmtOt 810, , (1% Fo, % 37, , , ! 84Jb1otlf 271J,011, ,113, % 27.9 U % 13,522, ,421,084 U.65 11,620, '% 3.37'.4 t,402,t2i h17.7&5 American Appraisal 1 of4

44 Mlssiu1ppi Power Company Study as ot Oec.ember 31, 20 t3 Depreda_tion Faetor$ and Ratu.. ProduetJon Pl3nt 12131/ / Average Net Re-moval Amoont Avernge Recommonded P1esent Rate.a lo< Plan! Accumulated C<J111e Servlc fild. otsnutnumg to be Remaining Annual Depreciation Depreciation Annu~ No. Account Account Name Balance Oee!edation Reaerve Txee Ute Percent Amounl Rec~veted Life De~eciaUon Rate A ate Oceulc ation Olfferenee s s % Yl$ % s s Venus s % % s ---$ Pl.ant Oan1ol Common Structures and lmprovemeonts 15, ,751, % F01e 53.6 t3..c ,202 9,517, t7 ~ oWet Pl;)f1t Equipment '14 For % ,927, , % Tu1bogeneretor Vnitt 3.247, C% FOJe N 593,806 1, , % AceHSO!y Efect(Jc E~ipment 1,110, , % Fore 47.0 t.c ,1< , % Mise, Powe1 Plant Equipment % Fore 0,7 19,3% 296, o8 h Subtotal 53,309, , % % 10,082,141 29,636, , h 1.95' $34 (8,436) Plant oa,lltjcommon Structu1ea and lmp,ovemeots 9,922, % FO<e ,330,810 3,676, ,940 1.t7% Boiler ptant Equipment 10, ,331, % Fore % 2,335,663 9,767, U % 31.C.O Tucbo.geoonttOt Unite Acces&ory EJ&cbic Equipment 261,914 52, ,4 Fore 38.2 I.C , , % Misc. Po'Ner Plant Equipn\WI 4, % Fooe % 962,3.CI 3.148, t h Subto4~ 25,94 3,.C , % % , , % 2.37% 614,859 (21,680) Plant Daniel Uni t Sbueture$ 1nd lmproyements 8,6 18, , ~. FO<e % 31,621 1,212, , <> Bo11c-r Plant Equlp1ne.n1 53, , «.7% FOte % 4,055,613 33, C.44 1,369,002 2,58 1<> 314,0 TUfbogenerato.r Ul'\i(t 19,915,714 8,437,298 42,4% Foce.C1,8 4,6., ,402, C79, % Acceuoty Eledric Equipment 10,756,913 6,916, "4 Fo<e % 177,.C24 4,017, , '1, Misc. Power Plant Equipment?4, C % FD<e % C5 2,.C <> Subtolat 92,488,783 46,527~02i 5<l.3% 44,2 5,6% 5.193,232 51,154, , % 2.10% ,6.87 o;,chlbkc Mississippi Power Company Plant Oan&el Unit 2: Structure. an.d Improvement'$ 9,056,828?,034,990 n.7% Fore % 59,715 2,081,55: ~ Boifet Plant Eq..rJpmMt 60,200,195 24,193.5: % For 45,6 8.9% 5,3&6,011 41,392, ,6?2 2.53~ J 14.0 TurboQen«fltOI Units 25, , ".4 Fote % I,.C04,02\ 16,313, ,176 2, Accessory Electric Equlpmtllt 10,703,916 6,526, % Fore % 227, , &3, Mi$C, P~ Plan' Equipm-t-nl % Fore $% 6_904 67, & "A Subtotal 105,436,293 48, C5.8% '% 7,083, , ,293, '1; 2.19% 2, (15.496) Plant Greene Count y StfuctUii'H and Improvements 10,1'70,082 8,279,104 76,9% Fore % 816,077 3, , % Boiler Pf:;.nt Equipment 59,5<)2,391 32,586, % For % 6, , ~ Turbog-eneratot Unil$ 9,176, % Fore % 860,499 4, , % 315,0 Acui&Ory Electric Equlpme-nt ,118, % FD<e %.C 19,854 3,474, , » Misc.. Powtt Plan1 Et.pJipmC!.nl 3,011, , % Fore % 293,260 1, , % Subtotal % % 8,7t9. 1t.C 4S. 750,78i 11,41 4,018, %. 39% 3,847, , Total Depreciable Stearn E el. AJC ,802, ,818, % % 101,315, , ,880, % 3.42% 30,512,80$ 367,76? OTHER P R ODUCTION PLANT Chevron Common Structures and lmp1ovemenli 4,708,294 1, % Fore % ,087,310 25, Fuet HofdCt$ 415, , % fore ~ , Prime Movers 2, ,671,100 5&.7% Fore % ~4.0 Gt.ntJ1HOI'$ 62, , % Fore % 5,276 (36,049) Accessory Electric Equipment 3.178, ,79<! 21.9% Fore 32.1 a.5% ,0 Mise. Powef Pftot E(!Oipmellt , % Foro % 68, 'Subtot aj ,937 3,908, % ,0 18,674 9, , % 2.0.c% American Appraisal 2 of 4

45 Mlsslsalppl Power Company Study as of December 31, 20 t3 Oeprec:Jalion fadors and RQ,tU ~ Proeluerion Pl.lnt tl2013 Averag.e NetRemovat Amount Average Recommen<Jod Present Rate-s Loc Plant Aewmulated Curve SetVic:e lnd, Oi5men1Jint} lobe Rema1ning Annuai Depredation Depreciatton Annual No. Account Ac:counl N111me Batanoo Ot- cc:ia_tion Rtserv T life Percent Amount Recovered Life De r~l&tion Rate Rote reclatlon Oifftif!nce $ % v % v..,. $ %... $ s Chevron Unit 1 3<41.0 Structures a.nd Improvement$ ~. 5<>7 61.3% Foto % () Fue:l Holde 214,600 36, % Foce % ,0 Ptlme Move, a , % Fote 9. 1 O.t% , i4.0 Generators 1, , % FO<e $.4 0.1% 1,246 1,068,341 6.< Aocessoty Elecffic Equipment 1,686, ,333 20A% FCHe % 1,255 1, M~. Power Pl3nt EQUipment 4$ % Fote % 34 22, Subtotal t1, H2,470 3, S% % 8,513 7,955, , % s.co~ 617, Chevron Unit 2: 341,0 SlfU«ores and lms>rovoments 65, % FO<o % 54 (5.529) P:ut:IHol~l& 397, , % FO<e ,1% , ,0 P,ifne Mcwets 7, % Fofe % ,502, U Geoetators 1, , % Fote , 1% , Aect$$01Y E1ectrle Equipment (43,588) -4.5%. FO<e % 791 1,006, MJsc. Power Plant Equipment , % Fo<e t , SubiOI \lll 10, ,977, % 12.2 O.lo/ 8,51l 8,386, ,130 4.S3'h 4,53% 469,130 E""lbkc Mississippi Power Company St,.03 Chevron Unit SI.Iuctures and Improvements , % Fo<e % 197 2, Fuel Hofde~s % Fore ,1% Primo Mc>veca. 10,537 2,3 12, % FO<e % 5,877 1,803, Generators 1,123, % Foco % 1, AOCt$$ory Electric E<l\lipmc!'lt 1,233, , % Fo.-e ,1% 1, , Mtsc. Power Plant Equipment % F"'t Yt 84 25, Sub1ota.l 7, ,754,983 s3.r ; % , ,016 s. 4'h 5.44% 384,016 SUO Chevron Unit.( Struet:ures and Improvements % Fote % 138 ( ) Fuel Hold-etS ss.o!<l 2, % FO<e % , PrimeMovets $ ,663, % F01e % 7,270 4, Gcoeta1ors 520, , % FO<e % Acce$SOfV Ele~c Equipment 1, % Fote % , Misc. Powor Plant Equipment % Fo<e % S..btolal 8,176,166 2, % , , % 4.73% Chevron Unit Sttucttno' and Improvements 4,368,490 2, % FO<e 44,4 -O.f% (4,890) 1,657, Fuel Holdeti n % FOte % (989) 505, PrJme Movcf$ 25,831,361 (2'1, ) 96.5% F01e O. IY, (28,914) 5<> Generators 6,371,0$ % FOte (1. 1% (7,133) 2,602, Acc;e$$0ry Electric Equipmcrn 3,519, , '-' FOif! % (3,939) 2.099, Mise:~ Power Plant Equipment % FOte %!801} Sublot:r.l 41, (16,228,517) -38.9% '.<. (46,666) 57, , ~ 5.30% 2.209, Plant Watson CT Sbuc;turtt.. nd Improvements , % Fore ,4% (1.248) ( 110,781) 4.49 (24,673) 7.38% Fu4:t1~def5 351, ,750 12!.,1% Fore , (1.312) (89,456) 4.46 (20,057) 5.70% 3' 3.0 Prime Movers 1,866, , % For~ 2M -0.4% (6.967) 19,$ % 34o4.0 Genetators 1,103,383 1,352, % Fofe % (4. 118) (253,127) 4A7 (56.628) ~5.1 3% Acee-"OI'Y Electric EqvJpment 1,470, '.\ FO<e 13.3.().4% (5,487) 620,487 4, , % Mlso. PoWC!( PfMI EquipnHIJll % Fore '..4!988! 184, , ,. Subtotal 5,391,127.4,999, % % (20.119) 371, ,513 1.S5'A 4.67% 251,766 (168,253) American Appraisal 3 of 4

46 MJuluippJ Power Company Study as ot O c.:embor 31, 2013 Depredation Factors and Rates Production Plant 12/31/ /)1/2013 Average Net Removal Amount Ave1age Recommended Present Rates l o< Plan' Ae<:urnulated Curve. ~(V I«< Ind. Oit.mar~tling to be Remaining Annual Oepre~ladon Oeproci4tlon Annual No. Account Account Name Balance Oee:!edation Res-erve r~ee Life Percent Amount Reeoveied Lile O~e!ec.:iatlon Rate Rate ~e!eciation Difference $ $ % Yr< % $ $ Year& $ % % $ ---$ Plant SweAtt CT l41.0 StruclUfes and Improvements 360, ,764 10~.4% Fore % ( 1.88l) (21,365) 4,49 (4,758) 1.32" Fuel Holder$ 69,516 74, Foro l % (363) (5.390) 4.46 (1.209) 1, Prime M.ot~ers 2,701,545 2,638, Fore % ( ) 49, , % Gen-erators 1, ,343, % Fore % (6.274) ( 148,712) 4.47 (33,269) 2.77'-< AtcesSOfy Elt!ctric Equipment 118, ,214 l20.9 A Fore 45,4 0.5% (619) (25,358) 4.46 (5,686) -4.80% 3<a.O Mis.c. Power PJant Equipment 174,322 39, '4 Fore 11.1).0.5%!911! 134, U % SubCOtal 4.6'24,822 4,618, % ().5% (24,167) (17.582) 4..C7 (3,903).0.08% 3.11% 14).832 (147,735) Pll*nt Oanlol S-4 CC Common Strudltles and Improvements 9, ,038 14,0% Foro % , , % Fuel Holder' 9,018, , '" Fore % 90,989 8,406, ,673 3,69% Pr imtt Movers ,204 3,76),734 1).2% FOte % 287, , , % 3«.0 GeneraCCKS: 3,885, , % Fore ,0% ,563 3,57% ~«$$0fY Electric Equ1pmen ,1% Fore '4 2, , , % Mitie, Po'NOr f1anl Equipment % Fore % 25, , % Subtotal 53,648,674 6,684,377 12,5% 33.6 Ul'-' ,505, ,162, % % 1,709, ,615 ExhlbkC Mississippi Power Company SH33 Pl~nt Oanid CC Unit Struclures and Improvements 6,282, , % Fore 37,6.0,4% (24,017) 5,4$3, , % 342,0 f1,1el HOlder$ 340, H 10,& ;. fore 35.0 ~0.4% (1,302) 303, , % Prime Movers 87,686,632 (3,870,225) -4. % Fore 28.2 ~0.4% ( ) 91,221, ,682, % Gene.rators 60,391,876 7,495,497 12,4% fore '-' (230,882) 52,665, ,128,759 3,52:" Acceuory Elecblc Equ'jpmenc 9,601, , % For % (36,708) 8,730, , % Mise. Powef Pfaot Equjpme.fll , % Fore %,1.079) 249,766 25,45 9, % Subtotal ,047 5,301, o. % (629,218) 158,654, ,387, ~ % 5,392,464 1,994, Plant Oo1niel CC Unit SIIIXtutes and lmprovetnetns 6.293, ,341 f2.3% F01o % (24,176) 5.492, $ % Fuel Hol~n; 389,365 41, Fore 34,0..0.4*.4 (1,496) 346, ,7\9 3.52% Prime Mweta 88,034,021 (3,916,625)... % Foro % (338,182) 91,6" ,702,899 5,34% Ge-neratof'l ,531 7,367, FO< % (228,610) 51,9 14, ,098,404 3.$311 34$.0 Acee.»ory Elerulc Equipm,l'\t 9,312, % FO< % (35,772) 8,472, , % Mite. Poww Pf1nt Equtpmtut 255,635 28, % FO<e % {982! 226, , % Subtol., 163.7Sl4,958 5, 100, % % (821,218) 158,065,01o ,876 4.SOV; % 5, , Easements , % FO<e % 0 137, '2% % 5,666!468! SubiOCJI 164,009,389 5,177, ~0.4% (629,218) 158,202, ,373, 'A 3.28% 5,372,243 2,000, Tot-al O.precfablo Olhor Productton 483,005,823 25,845j839 U% V. 247, ,407, ,316,497 U1% 3. 56% 17,182,270 4,133, Total Deprec-iable Production Excl. AJC 317 1,374,808, ,663, % W 101,662,907 U7,707, ,196, % 3 7% 47,685,076 4,500\994 American Appraisal 4 of4

47 Mississippi Power Company ~ American Appraisal Exhibit D Depreciation Factors and Rates -Transmission, Distribution, and General Plant Leading I Think1ng I Performing (1 page)

48 Mississippi Power Company Study as of December 31, 2013 Depreciation Factors and Rates Transmission, Distribution, and General Plant Including Kemper Assets Account Account Name TRANSMISSION PLANT Structures and Improvements Station Equipment Towers and Fixtures Poles and Fixtures Overhead Conductors and Devices Underground Conductors Roads and Trails Total Transmission Plant Excl Easements 12131/2013 Plant Balance $ 14,443, ,864,362 38,108, ,587, , ,582 Accumulated Depreciation Reserve $ % 4,911, % 65,239, % 33,411, % 43,192, % 38,416, % % 23, % 519,254, ,195, % Average Amount Average Recommended Rates Curve Service Net Removal to be Remaining Annual Depreciation Type _ Life Percent Amount Recovered life Depreciation Rate Yrs % $ $ Years $ % R4 R1.5 R4 R3 S4 SQ SO % 16.0% 25.0% 50.0% 25.0% 0.0% 0.0% 1,444,349 33,418, , ,854 27,549, ,975, ,042,849 14, ,189,059 99, , % 145,733, ,793, , ,477 4,469, ,000 6,850,790 2,778, ,820, % 2.14% 1.29% 4.64% 2.52% 0.25% 1.9t% 2.85% Present Rates Deprecialion Annual Rate Depreciation % $ Exhibit D Difference --$- Mississippi Power Company Easements 53,030,377 16,188, % SQ % 0 36,841, , % Total Depreciable Transmission Plant 572,285, ,384, % % 145,733, ,634, ,607, l% 2.59% 14,822, ,295 DISTRIBUTION PLANT Structures and Improvements Station Equipment Poles, Towers, and Fixtures Overhead Conductors and Devices Underground Conduit Underground Conductors Line Transformers Services Meters Total Distribution Excl AJC and ,798, ,483, ,922, ,190, ,193 68,730, ,665,909 43,379,801 26, , % R2 63,448, % R1 47,505, % L1.5 54,301, % R2 485, % 54 24,140, % R2.5 73,702,771 39,3% R1 35,465, % R1.5 6,601, % R1 773,770, ,894, % % 15.0% 70.0% 25,0% 5.0% 10.0% 15.0% 30.0% 5.0% 739,935 28,422,455 77,645,953 33,047,564 27,060 6,873,009 28,149,886 13,013,940 1,302,925 10,293, ,456, ,063, ,936,781 83,152 51,463, ,113,024 20,928,474 20,760, % 189,222, ,098, ,051 5,121,252 5,774,195 4,364,853 4,317 1,964,988 5,976, ,057 1,215,459 25,636, % 2.70% 5.21% 3.32% 0.80% 2.86% 3.18% 2.15% 4.66% 3.31% Easements 1,061, , % SO % 0 506, , % Total Distribution Excl Account ,831, ,449, ',{, % 189,222, ,604, ,650, % 3.08% 23,864,816 1,785, Street Lighting 48,593,116 25,997, % L % 17,007,591 39,602, , % 8.56% 4,159,571 ( ) Total Depreciable DistribuUon Plant 823,424, ,447, % % 206,230, ,207, ,280, % 3.40% 28,024,387 1,256,316 GENERAL PLANT Structures and Improvements Communications Equipment Total Accounts 390 and Mine Depreciable Total General Plant Excluding Easements Easements Total Depreciable General Plant 49,765,025 39,987,814 89,752,839 28,594, % S % 0 21,170, , % 29,112, % R % ,188, % 57,706, % % 0 32,045, ,996, % 122,250, % R % 0 121,473, ,421, % 212,003,457 58,484, % % 0 153,519, ,417, % 4,197, % SO % 0 3, , % ,199 59,364, % % 0 156,836, ,501, % 1.93% 960, % 1,815, % 2,775, % 3,398, % 6,174, % 81,856 2,89% 6,256,335 (153,059) (626,835) (779,894) 23,217 (756,677) 1,792 (754,885) American Appraisal 1 of 1

49 Mississippi Power Company ~ American Appraisal Comparisons of Span Life and Fossil Dismantling Costs - Production Plant Lead1ng I Thinking I Performing (2 pages)

50 Mississippi Power Company Mississippi Power Company Study as of December 31, 2013 Comparison of Span Life - Production Plant Exhibit E In Current Service Retirement Study Study Plant Unit Date Date Span Life Span Life Steam Production Daniel Daniel Greene County Greene County Sweatt Sweatt Watson Watson Watson Watson Watson Other Production Sweatt A Watson A Chevron Chevron Chevron Chevron Chevron Daniel CC American Appraisal 1 of2

51 Mississippi Power Company Mississippi Power Company Study as of December 31,2013 Comparison of Fossil Dismantling Costs - Production Plant 2013 Estimate vs Estimate Exhibit E 2013 Plant Estimate ($) Steam Production Plant Daniel (MPC %) 7,777,063 Greene County (MPC %) 6,166,963 Plant Sweatt 3,910,838 Plant Watson 47,011,452 Total Steam Production 64,866, Increase Estimate ($) (Decrease) ($) 20,655,500 ( 12,878,437) 17,004,400 (1 0,837,437) 6,486,000 (2,575, 162) 54,065,000 (7,053,548) 98,210,900 (33,344, 585) Other Production Plant Sweatt (24, 167) Plant Watson (20,119) Chevron 1,009,221 Plant Daniel CC 3-4 (717,137) Total Other Production 247, ,000 (215,167) 276,000 (296, 119) 1,791,167 (781,946) 156,000 (873,137) 2,414,167 (2, 166,369) American Appraisal 2 of2

52 Mississippi Power Company p. American Appraisal Comparison of Depreciation Parameters - Transmission, Distribution, and General Plant Leadmg I Thinking I Perform tng (1 page)

53 Mississippi Power Company Mississippi Power Company Study as of December 31, 2013 Comparison of Depreciation Parameters Transmission, Distribution, and General Plant Exhibit F 12/31/2013 Study 12/31/2008 Study Curve Net Curve Net Account Type ASL Removal Type ASL Removal Years Years Transmission Average 46 25% 45 21% % % 352 R % R % 353 R % R % 354 R % R % 355 R % R % % % % % % % Distribution Average 33 25% 32 21% 360 SQ 55 0% 5Q 50 0% 361 R2 50 5% R2 45 5% 362 R % R % 364 L % L % 365 R % R % % % 367 R % R % 368 R % R % 369 R % R % 370 R1 25 5% L1 28 5% 373 L % L % General 389 5Q 50 0% SQ 50 0% % R4 40 0% 397 R % R3 16 0% 399 R4 36 0% American Appraisal 1 of 1

54 Mississippi Power Company ~ American Appraisal Exhibit G Assumptions and Limiting Conditions Leading I Thtnktng I Performing {2 pages)

55 Mississippi Power Company ASSUMPTIONS AND LIMITING CONDITIONS ~ American Appraisal Unless otherwise stated in the report, the following assumptions and limiting conditions apply to the service performed: Information Relied Upon from Others During this engagement, we accepted, without verification, financial and other information provided by management or its representatives, as fully and correctly reflecting business conditions and operating results. This information may also include or relate to the value or condition of equipment, real estate, and investments used in the business, and any other assets or liabilities. In accordance with the American Institute of Certified Public Accountants' standards, we have not been engaged to review or examine such information. Accordingly, we do not express an opinion of, or any assurance about, the information. Any third-party information utilized in our analysis was obtained from sources we believe to be reliable. However, we make no representation as to the accuracy or completeness of such information and have not verified it. Our acceptance and use of management's forecasts of financial results and asset usage do not ensure such estimates can be achieved, because industry or company factors may not occur as forecasted. Differences between forecasted and actual results may be material and depend on management's choices, plans, and assumptions. Valid Title No investigation was made of the title to or any liabilities against the property identified in the report. We assumed that all property rights are valid and marketable and that no encumbrances exist that cannot be cleared through normal processes. Report Purpose and Use This report and the associated opinions or conclusions are only for the specific purpose and use stated in the report, and they are invalid for any other purpose and use. We are committed to supporting our opinion and this report. However, we are not required to give testimony or attend hearings or depositions, unless compensation arrangements for such additional services have been made. Effective Date The opinions or conclusions stated in this report are based on facts and market conditions known as of the specific effective date stated in this report and are only valid as of that date. Events and conditions occurring after that date were not considered, and we have no obligation to update our report for such events or conditions. No Publication and No Third-Party Rights No portion of this report may be published or given to any third parties without the prior written consent of American Appraisal. No third party shall have the right of reliance on Leading I Thinking I Performing 1