SO

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2026, for The Southern Company and its subsidiary registrants: Alabama Power, Georgia Power, Mississippi Power, Southern Power, and Southern Company Gas. The Southern Company is a holding company operating vertically integrated utilities in the Southeast, a competitive wholesale power generator (Southern Power), and a natural gas distributor (Southern Company Gas).

Key Financial Metrics (Six Months Ended June 30, 2026)

Material Changes vs. Prior Period

• Revenue Growth: Total operating revenues increased 4.3% year-over-year (from $14.75 billion to $15.37 billion), driven by higher natural gas revenues and growth in wholesale electric sales.
• Profitability: Net income attributable to Southern Company rose 14.3% to $2.53 billion. This was primarily due to sales growth, higher natural gas revenues, decreased income taxes, and increased earnings from equity method investments.
• Expense Trends: Depreciation and amortization increased 9.4% to $2.85 billion, largely due to accelerated depreciation from Southern Power's wind repowering projects and additional plant in service. Interest expense decreased slightly (0.9%) due to reduced debt extinguishment losses.
• Segment Performance:
  • Traditional Electric Utilities: Net income increased to $2.38 billion, driven by sales growth and lower tax rates.
  • Southern Power: Reported a net loss of $22 million (vs. $138 million income in 2025) due to accelerated depreciation from wind repowering, partially offset by higher revenues.
  • Southern Company Gas: Net income increased 9.4% to $573 million, aided by base rate increases and higher natural gas cost recovery.

Guidance, Outlook, and Risks

• Regulatory Developments:
  • Georgia Power: The Georgia PSC approved a stipulation decreasing annual fuel billings by 12.9% ($394 million) effective June 1, 2026, and approved recovery of $869 million in storm damage costs over 67 months.
  • Alabama Power: State legislation enacted in April 2026 freezes retail base rates until January 1, 2029.
  • Mississippi Power: The Mississippi PSC approved a 1.8% revenue increase ($20 million) effective January 2026.
• Construction and Capital: Significant capital expenditures continue, including Georgia Power's $4.4 billion in recorded costs for IRP projects and Southern Power's wind repowering and solar projects. Georgia Power received initial advances of $1.0 billion under a DOE loan guarantee facility.
• Risks and Contingencies:
  • Environmental: Ongoing litigation regarding Coal Combustion Residuals (CCR) closure plans at Alabama Power (Plant Barry and Plant Gadsden) could materially impact financial statements.
  • Regulatory: Uncertainty regarding the outcome of appeals on Georgia Power's resource certification and Nicor Gas' capital structure.
  • Market: Exposure to natural gas price volatility and potential impacts of federal tax legislation changes on renewable energy credits.

Investor Verification Checklist

• Wind Repowering Impact: Verify the duration and magnitude of accelerated depreciation charges at Southern Power and their effect on future earnings.
• Regulatory Rate Recovery: Monitor the implementation of the Georgia Power fuel billing reduction and the Alabama rate freeze to assess revenue stability.
• Capital Expenditures: Review the progress and cost recovery status of major construction projects, particularly Georgia Power's IRP projects and Southern Power's renewable expansions.
• Environmental Liabilities: Track the status of CCR litigation and potential changes to Asset Retirement Obligations (ARO).
• Debt Structure: Assess the impact of new debt issuances (including DOE loan guarantees) and refinancing activities on interest expense and liquidity.