SOUTHERN CO

Mississippi Power's net income was$188 million in 2023 compared to $164 million in 2022. The increase was primarily due to an increase in affiliate wholesale capacity revenues, changes in power supply agreements, and a decrease in non-fuel operations and maintenance expenses, partially offset by an increase in interest expense.

A condensed income statement for Mississippi Power follows:

Operating revenues for 2023 were $1.5 billion, reflecting a $220 million, or 13.0%, decrease from 2022. Details of operating revenues were as follows:

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Total retail revenues for 2023 increased $28 million, or 3.0%, compared to 2022 primarily due to higher recoverable fuel costs and an increase in customer usage, partially offset by lower contributions from commercial and industrial customers with variable demand-driven pricing and lower revenues associated with a tolling arrangement accounted for as a sales-type lease. See Notes 2 and 9 to the financial statements under "Mississippi Power" and "Lessor," respectively, for additional information.

See "Energy Sales" below for a discussion of changes in the volume of energy sold, including estimated changes related to sales and weather.

Electric rates for Mississippi Power include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these provisions, fuel revenues generally equal fuel expenses, including the energy component of purchased power costs, and do not affect net income. Recoverable fuel costs include fuel and purchased power expenses reduced by the fuel and emissions portion of wholesale revenues from energy sold to customers outside Mississippi Power's service territory. See Note 2 to the financial statements under "Mississippi Power – Fuel Cost Recovery" for additional information.

Wholesale revenues from power sales to non-affiliated utilities, including FERC-regulated MRA sales as well as market-based sales, were as follows:

Wholesale revenues from sales to non-affiliates increased $20 million, or 7.9%, compared to 2022. The increase was primarily due to capacity revenues associated with new capacity contracts in 2023.

Wholesale revenues from sales to non-affiliates will vary depending on fuel prices, the market prices of wholesale energy compared to the cost of Mississippi Power's and the Southern Company system's generation, demand for energy within the Southern Company system's electric service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not have a significant impact on net income. In addition, Mississippi Power provides service under long-term contracts with rural electric cooperative associations and a municipality located in southeastern Mississippi under requirements cost-based electric tariffs which are subject to regulation by the FERC. The contracts with these wholesale customers represented 14.0%of Mississippi Power's total operating revenues in 2023. Short-term opportunity energy sales are also included in sales for resale to non-affiliates. These opportunity sales are made at market-based rates that generally provide a margin above Mississippi Power's variable cost to produce the energy. See Note 2 under "Mississippi Power –Municipal and Rural Associations Tariff" for additional information.

Wholesale revenues from sales to affiliates decreased $260 million, or 56.5%, in 2023 compared to 2022. The decrease was primarily due to a $293 million decrease associated with lower natural gas prices, partially offset by a $23 million increase in capacity revenues resulting from availability of generation reserves and an increase in pricing and a $10 million increase associated with higher KWH sales.

Wholesale revenues from sales to affiliates will vary depending on demand and the availability and cost of generating resources at each company. These affiliate sales are made in accordance with the IIC, as approved by the FERC. The energy portion of these transactions does not have a significant impact on earnings since this energy is generally sold at marginal cost.

In 2023, other operating revenues decreased $8 million, or 17.0%, as compared to 2022 primarily due to decreases of $5 million in unregulated sales associated with power delivery construction and maintenance projects and $3 million in open access transmission tariff revenues.

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(*)Weather-adjusted KWH sales are estimated using statistical models of the historical relationship between temperatures and energy sales, and then removing the estimated effect of deviations from normal temperature conditions. Normal temperature conditions are defined as those experienced in Mississippi Power's service territory over a specified historical period. This metric is useful because it allows trends in historical operations to be evaluated apart from the influence of weather conditions. Management also considers this metric in developing long-term capital and financial plans.

Changes in retail energy sales are generally the result of changes in electricity usage by customers, weather, and the number of customers. Revenues attributable to changes in sales increasedin 2023 when compared to 2022. Weather-adjusted residential KWH sales increased 0.7%due toan increase in customer usage. Weather-adjusted commercial KWH sales increased 7.1% primarily due to customer growth. Industrial KWH sales increased 0.7%primarily due to an increase in the non-manufacturing sector, partially offset by a decrease in the chemicals sector.

See "Operating Revenues" above for a discussion of significant changes in wholesale revenues to affiliated companies.

The mix of fuel sources for generation of electricity is determined primarily by demand, the unit cost of fuel consumed, and the availability of generating units. Additionally, Mississippi Power purchases a portion of its electricity needs from the wholesale market.

Details of Mississippi Power's generation and purchased power were as follows:

Fuel and purchased power expenses were $538 million in 2023, a decreaseof $251 million, or 31.8%, as compared to 2022. Thedecrease was primarily due to a $266 million decrease related to the average cost of fuel and purchased power, partially offset by a $15 million net increase related to the volume of KWHs generated and purchased.

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Fuel and purchased power energy transactions do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Mississippi Power's fuel cost recovery clauses. See Note 2 to the financial statements under "Mississippi Power – Fuel Cost Recovery" and Note 1 to the financial statements under "Fuel Costs" for additional information.

Fuel expense decreased $230 million, or 30.8%, in 2023 compared to 2022 primarily due to a 38.2% decrease in the average cost of natural gas per KWH generated and a 20.3% decrease in the volume of KWHs generated by coal, partially offset by a 32.2% increase in the average cost of coal per KWHs generated and a 5.4% increase in the volume of KWHs generated by natural gas.

Purchased power expense decreased $21 million, or 49.9%, in 2023 compared to 2022 primarily due to a 38.2% decrease in the average cost per KWH purchased primarily due to lower natural gas prices and a 15.1% decrease in the volume of KWHs purchased primarily due to the availability of lower cost generation in the Southern Company system.

Energy purchases will vary depending on the market prices of wholesale energy as compared to the cost of the Southern Company system's generation, demand for energy within the Southern Company system's service territory, and the availability of the Southern Company system's generation. These purchases are made in accordance with the IIC or other contractual agreements, as approved by the FERC.

Other operations and maintenance expenses decreased $14 million, or 3.7%, in 2023 compared to 2022. The decrease was primarily due to decreases of $14 million in reliability reserve accruals,$7 million in generation expenses, and $6 million in unregulated power delivery construction and maintenance projects, partially offset by increases of $5 million in storm reserve accruals and $2 million in certain employee compensation and benefit expenses. See Note 2 to the financial statements under "Mississippi Power – System Restoration Rider" and " – Reliability Reserve Accounting Order" for additional information.

Depreciation and amortization increased $9 million, or 5.0%, in 2023 compared to 2022 primarily due to an increase in depreciation associated with additional plant in service.

Interest expense, net of amounts capitalized increased $15 million, or 26.8%, in 2023 compared to 2022. The increase was primarily due to increases of approximately $10 million related to higher interest rates and$5 million related to higher average outstanding borrowings. See FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" and "Financing Activities" herein and Note 8 to the financial statements for additional information.

Income taxes decreased $1 million, or 2.7%, in 2023 compared to 2022 primarily due toa decrease of $7 million associated with the flowback of certain excess deferred income taxes associated with new PEP rates that became effective in April 2023, largely offset by an increase of $6 million associated with higher pre-tax earnings. See Note 2 to the financial statements under "Mississippi Power – Performance Evaluation Plan" and Note 10 to the financial statements for additional information.

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