Company: SOJE
Filing Date: 2025-02-20
Form Type: 10-K
Source: 0000092122-25-000018
Chunk: 647

Company: SOUTHERN CO
Filing Date: 2025-02-20
Form: 10-K
Item: Item 7
Chunk 647
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 in exchange for cash contributions, while retaining control of the entity through a separate class of membership interests (e.g. Class B). The agreements for these partnerships give different rights and priorities to their owners in terms of cash distributions, tax attribute allocations, and partnership income or loss allocations. These provisions make the conventional equity method of accounting where an investor applies its "percentage ownership interest" to the investee's net income under generally accepted accounting principles to determine the investor's share of earnings or losses difficult to apply. Therefore, Southern Power uses the Hypothetical Liquidation at Book Value (HLBV) accounting method to account for these partnership arrangements. The HLBV accounting method calculates each partner's share of income or loss based on the change in net equity the partner can legally claim at the end of the reporting period compared to the beginning of the reporting period. The application of the HLBV accounting method by Southern Power required significant consideration of the allocations between Southern Power and the noncontrolling investors over the life of the agreement and the liquidation provisions of the agreement to determine the appropriate allocation of income or loss between the parties. 

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The determination of the appropriate amount of allocated partnership income or loss to noncontrolling interests using the HLBV accounting method required increased audit effort and specialized skill and knowledge, including evaluation of the terms of the agreement and consideration of the appropriateness of the HLBV model based on the provisions of the agreement.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures included the following, among others: 

•We read certain agreements to understand the liquidation provisions and the provisions governing the allocation of benefits.

•We evaluated certain HLBV models utilized by management to determine whether the models accurately reflect the allocation of income or loss and tax attributes in accordance with the liquidation provisions and allocation terms defined in the agreements, as well as whether the inputs in the models are accurate and complete.

/s/ Deloitte & Touche LLP

Atlanta, Georgia

February 19, 2025

We have served as Southern Power's auditor since 2002.

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CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, 2024, 2023, and 2022

Southern Power Company and Subsidiary Companies

202420232022(in millions)Operating Revenues: