SO

Business Context and Reporting Period

This Form 10-Q covers The Southern Company and its subsidiary registrants (Alabama Power, Georgia Power, Mississippi Power, Southern Power, and Southern Company Gas) for the quarterly period ended September 30, 2024. The Southern Company is a holding company operating in the electricity and natural gas sectors across the Southeastern United States. The filing includes unaudited condensed consolidated financial statements and management's discussion and analysis.

Key Financial Metrics (Nine Months Ended Sept 30, 2024)

Material Changes vs. Prior Period

• Revenue Growth: Total operating revenues increased by $1.17 billion (6.1%) year-over-year, driven primarily by higher retail electric revenues due to rate increases and pricing adjustments, particularly related to the inclusion of Plant Vogtle Units 3 and 4 in retail rates.
• Profitability: Net income attributable to Southern Company increased by $746 million (23.9%). This was significantly aided by the absence of a $120 million after-tax charge recorded in Q3 2023 related to Plant Vogtle construction costs.
• Expense Trends: Interest expense increased by $238 million (13.1%) due to higher average outstanding borrowings and elevated interest rates. Fuel expenses decreased by $202 million (6.0%) due to lower average fuel costs and a $60 million credit related to nuclear fuel disposal litigation.
• Storm Impact: Hurricane Helene caused significant damage to Georgia Power's facilities in September 2024, resulting in approximately $1.1 billion in initial estimated incremental restoration costs deferred as a regulatory asset.

Guidance, Outlook, and Risks

• Regulatory Matters: Georgia Power filed tariff adjustments effective January 1, 2025, seeking a net rate increase of $306 million. Alabama Power filed a petition to acquire the Lindsay Hill Generating Station for approximately $622 million, subject to regulatory approval.
• Construction Programs: Capital expenditures remain high. Alabama Power's 2025 construction program is estimated at $2.2 billion. Southern Power is expanding the Millers Branch solar project, with total remaining costs expected between $570 million and $700 million.
• Environmental Compliance: The company faces significant compliance costs related to new EPA rules on Steam Effluent Guidelines, Coal Combustion Residuals (CCR), and Greenhouse Gases. The ultimate financial impact of these regulations remains uncertain.
• Interest Rate Risk: The company is exposed to interest rate fluctuations. While the Federal Reserve has initiated rate cuts, the company notes that higher rates have increased borrowing costs. Credit ratings were upgraded by S&P and Moody's in late 2024.
• Legal Contingencies: Ongoing litigation includes a False Claims Act case regarding the Kemper County energy facility and various environmental suits. Management does not anticipate a material effect from current proceedings not specifically reported, though outcomes remain uncertain.

Investor Verification Checklist

• Storm Damage Recovery: Verify the regulatory treatment and recovery timeline for the $1.1 billion in storm restoration costs incurred by Georgia Power following Hurricane Helene.
• Plant Vogtle Cost Recovery: Confirm the status of the Prudency Stipulation and the full recovery of remaining capital costs for Plant Vogtle Units 3 and 4 in retail rates.
• Capital Expenditure Execution: Monitor the progress and cost overruns of major construction projects, including the Millers Branch solar expansion and the Lindsay Hill acquisition.
• Environmental Compliance Costs: Assess the potential financial impact of the new EPA rules on CCR, steam effluent, and greenhouse gases on future operating cash flows.
• Interest Expense Trajectory: Track the impact of interest rate changes on the company's significant debt load and the effectiveness of hedging strategies.