SOUTHERN CO

Overview

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY– "Overview" in Item 7 of the Form 10-K for additional information. The financial condition of each Registrant remained stable at March 31, 2024. The Registrants intend to continue to monitor their access to short-term and long-term capital markets as well as their bank credit arrangements to meet future capital and liquidity needs. See "Cash Requirements," "Sources of Capital," and "Financing Activities" herein for additional information.

At the end of the first quarter 2024, the market price of Southern Company's common stock was $71.74 per share (based on the closing price as reported on the NYSE) and the book value was $29.19 per share, representing a market-to-book ratio of 246%, compared to $70.12, $28.83, and 243%, respectively, at the end of 2023. Southern Company's common stock dividend for the first quarter 2024 was $0.70 per share compared to $0.68 per share in the first quarter 2023.

Cash Requirements

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Cash Requirements" in Item 7 of the Form 10-K for a description of the Registrants' significant cash requirements.

The Registrants' significant cash requirements include estimated capital expenditures associated with their construction programs and, for the traditional electric operating companies, operating cash flows related to fuel cost under recovery. The fuel cost under recovery balances are primarily the result of higher than forecasted prices for natural gas and purchased power. See Note (B) to the Condensed Financial Statements herein for additional information.

The construction programs are subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; changes in environmental laws and regulations; the outcome of any legal challenges to environmental rules; changes in electric generating plants, including unit retirements and replacements and adding or changing fuel sources at existing electric generating units, to meet regulatory requirements; changes in FERC rules and regulations; state regulatory agency approvals; changes in the expected environmental compliance program; changes in legislation and/or regulation; the cost, availability, and efficiency of construction labor, equipment, and materials; project scope and design changes; abnormal weather; delays in construction due to judicial or regulatory action; storm impacts; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures and AROs will be fully recovered. Additionally, expenditures associated with Southern Power's planned acquisitions may vary due to market opportunities and the execution of its growth strategy.

See Note (B) to the Condensed Financial Statements under "Georgia Power – Integrated Resource Plan" herein for information regarding Georgia Power's 2023 IRP Update, which includes incremental cash requirements for capital expenditures through 2027 of approximately $700 million.

Southern Power's construction program includes the Millers Branch and South Cheyenne solar projects. The remaining aggregate construction costs for these projects are expected to be between $500 million and $620 million. The ultimate outcome of these matters cannot be determined at this time. See Note (K) to the Condensed Financial Statements under "Southern Power" herein for additional information.

Long-term debt maturities and the interest payable on long-term debt each represent a significant cash requirement for the Registrants. See "Financing Activities" herein for information on changes in the Registrants' long-term debt balances since December 31, 2023.

Sources of Capital

See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" in Item 7 of the Form 10-K for additional information. Southern Company intends to meet its future capital needs through operating cash flows, borrowings from financial institutions, and debt, hybrid, and/or equity issuances. Equity capital can be provided from any combination of Southern Company's stock plans, private placements, or public offerings.

The Subsidiary Registrants plan to obtain the funds to meet their future capital needs from sources similar to those they used in the past, which were primarily from operating cash flows, external securities issuances, borrowings from financial institutions, and equity contributions from Southern Company. Operating cash flows provide a substantial portion of the Registrants' cash needs. Georgia Power intends to utilize a mix of senior note issuances, short-term floating rate bank loans, and commercial paper issuances to continue funding operating cash flows related to fuel cost under recovery.

The amount, type, and timing of any financings in 2024, as well as in subsequent years, will be contingent on investment opportunities and the Registrants' capital requirements and will depend upon prevailing market conditions, regulatory approvals (for certain of the Subsidiary Registrants), and other factors. See "Cash Requirements" and "Financing Activities" herein for additional information.

Southern Power utilizes tax equity partnerships as one of its financing sources, where the tax partner takes significantly all of the federal tax benefits. These tax equity partnerships are consolidated in Southern Power's financial statements and are accounted for using HLBV methodology to allocate partnership gains and losses. During the three months ended March 31, 2024, Southern Power's tax equity funding for existing tax equity partnerships was immaterial. See Note 1 to the financial statements under "General" in Item 8 of the Form 10-K for additional information.

By regulation, Nicor Gas is restricted, up to its retained earnings balance, in the amount it can dividend or loan to affiliates and is not permitted to make money pool loans to affiliates. At March 31, 2024, the amount of subsidiary retained earnings restricted to dividend totaled $1.9 billion. This restriction did not impact Southern Company Gas' ability to meet its cash obligations, nor does management expect such restriction to materially impact Southern Company Gas' ability to meet its currently anticipated cash obligations.

Certain Registrants' current liabilities frequently exceed their current assets because of long-term debt maturities and the periodic use of short-term debt as a funding source, as well as significant seasonal fluctuations in cash needs. The Registrants generally plan to refinance long-term debt as it matures. The following table shows the amount by which current liabilities exceeded current assets at March 31, 2024 for the applicable Registrants:

The Registrants believe the need for working capital can be adequately met by utilizing operating cash flows, as well as commercial paper, lines of credit, and short-term bank notes, as market conditions permit. In addition, under certain circumstances, the Subsidiary Registrants may utilize equity contributions and/or loans from Southern Company.

Bank Credit Arrangements

At March 31, 2024, the Registrants' unused committed credit arrangements with banks were as follows:

(a)At March 31, 2024, Southern Power also had two continuing letters of credit facilities for standby letters of credit, of which $15 million was unused. Southern Power's subsidiaries are not parties to its bank credit arrangements or letter of credit facilities.

(b)Includes $798 million and $800 million at Southern Company Gas Capital and Nicor Gas, respectively.

Subject to applicable market conditions, the Registrants, Nicor Gas, and SEGCO expect to renew or replace their bank credit arrangements as needed, prior to expiration. In connection therewith, the Registrants, Nicor Gas, and SEGCO may extend the maturity dates and/or increase or decrease the lending commitments thereunder.

A portion of the unused credit with banks is allocated to provide liquidity support to certain revenue bonds of the traditional electric operating companies and the commercial paper programs of the Registrants, Nicor Gas, and SEGCO. At March 31, 2024, outstanding variable rate demand revenue bonds of the traditional electric operating companies with allocated liquidity support totaled approximately $1.7 billion (comprised of approximately $796 million at Alabama Power, $819 million at Georgia Power, and $69 million at Mississippi Power). In addition, at March 31, 2024, Alabama Power and Georgia Power had approximately $120 million and $155 million, respectively, of fixed rate revenue bonds outstanding that are required to be remarketed within the next 12 months. Alabama Power's $120 million of fixed rate revenue bonds are classified as securities due within one year on its balance sheets as they are not covered by long-term committed credit. All other variable rate demand revenue bonds and fixed rate revenue bonds required to be remarketed within the next 12 months are classified as long-term debt on the balance sheets as a result of available long-term committed credit.

See Note 8 to the financial statements in Item 8 of the Form 10-K and Note (F) to the Condensed Financial Statements herein under "Bank Credit Arrangements" for additional information.

Short-term Borrowings

The Registrants, Nicor Gas, and SEGCO make short-term borrowings primarily through commercial paper programs that have the liquidity support of the committed bank credit arrangements described above. Southern Power's subsidiaries are not issuers or obligors under its commercial paper program. Commercial paper and short-term bank term loans are included in notes payable in the balance sheets. Details of the Registrants' short-term borrowings were as follows:

(*)Average and maximum amounts are based upon daily balances during the three-month period ended March 31, 2024.

Analysis of Cash Flows

Net cash flows provided from (used for) operating, investing, and financing activities for the three months ended March 31, 2024 and 2023 are presented in the following table:

Fluctuations in cash flows from financing activities vary from year to year based on capital needs and the maturity or redemption of securities.

Net cash provided from operating activities increased $467 million for the three months ended March 31, 2024 as compared to the corresponding period in 2023 primarily due to the timing of vendor payments and increased fuel cost recovery at the traditional electric operating companies, partially offset by the timing of customer receivable collections and decreased natural gas cost recovery at the natural gas distribution utilities.

The net cash used for investing activities for the three months ended March 31, 2024 was primarily related to the Subsidiary Registrants' construction programs.

The net cash provided from financing activities for the three months ended March 31, 2024 was primarily related to net issuances of long-term debt, partially offset by common stock dividend payments.

Net cash provided from operating activities increased $218 million for the three months ended March 31, 2024 as compared to the corresponding period in 2023 primarily due to an increase in retail revenues associated with customer bill credits in 2023 and timing of fuel stock purchases.

The net cash provided from financing activities for the three months ended March 31, 2024 was primarily related to capital contributions from Southern Company, partially offset by the payment of common stock dividends.

Net cash provided from operating activities increased $546 million for the three months ended March 31, 2024 as compared to the corresponding period in 2023 primarily due to increased fuel cost recovery and the timing of vendor payments, partially offset by the timing of customer receivable collections.

The net cash provided from financing activities for the three months ended March 31, 2024 was primarily related to the issuances of senior notes and capital contributions from Southern Company, partially offset by a net decrease in short-term borrowings and the payment of common stock dividends.

Net cash used for operating activities increased $4 million for the three months ended March 31, 2024 as compared to the corresponding period in 2023 primarily due to the timing of customer receivable collections, partially offset by the timing of vendor payments.

The net cash provided from financing activities for the three months ended March 31, 2024 was primarily related to the issuances of senior notes, partially offset by common stock dividend payments.

Net cash provided from operating activities decreased $14 million for the three months ended March 31, 2024 as compared to the corresponding period in 2023 primarily due to the timing of customer receivable collections, partially offset by the timing of vendor payments.

The net cash used for investing activities for the three months ended March 31, 2024 was primarily related to ongoing construction activities. See Note (K) to the Condensed Financial Statements under "Southern Power" herein for additional information.

The net cash used for financing activities for the three months ended March 31, 2024 was primarily related to common stock dividend payments and net distributions to noncontrolling interests.

Net cash provided from operating activities decreased $380 million for the three months ended March 31, 2024 as compared to the corresponding period in 2023 primarily due to the timing of customer receivable collections and lower natural gas cost recovery, partially offset by the timing of vendor payments.

The net cash used for investing activities for the three months ended March 31, 2024 was primarily related to construction of transportation and distribution assets recovered through base rates.

The net cash used for financing activities for the three months ended March 31, 2024 was primarily related to common stock dividend payments and a decrease in commercial paper borrowings.

Significant Balance Sheet Changes

•an increase of $1.6 billion in long-term debt (including securities due within one year) primarily related to net issuances of senior notes;

•a decrease of $0.7 billion in accounts payable primarily related to the timing of vendor payments;

•an increase of $0.6 billion in total property, plant, and equipment primarily related to the Subsidiary Registrants' construction programs;

•a decrease of $0.5 billion in accrued compensation due to the timing of payments; and

•an increase of $0.4 billion in total stockholders' equity primarily related to net income, partially offset by common stock dividend payments.

See "Financing Activities" herein for additional information.

•an increase of $464 million in common stockholder's equity primarily due to capital contributions from Southern Company and net income, partially offset by dividends paid to Southern Company;

•a decrease of $304 million in other accounts payable primarily due to the timing of vendor payments;

•an increase of $154 million in accrued taxes primarily due to the timing of income tax payments;

•a decrease of $136 million in affiliated accounts payable primarily due to the timing of payments; and

•an increase of $95 million in total property, plant, and equipment primarily related to the construction of transmission and distribution facilities.

•an increase of $1.4 billion in long-term debt (including securities due within one year) primarily due to issuances of senior notes;

•an increase of $687 million in common stockholder's equity primarily due to capital contributions from Southern Company and net income, partially offset by dividends paid to Southern Company;

•a decrease of $645 million in notes payable primarily due to repayments of short-term bank debt;

•an increase of $481 million in total property, plant, and equipment primarily related to the construction of generation, transmission, and distribution facilities, including costs associated with Plant Vogtle Units 3 and 4; and

•a decrease of $282 million in accrued taxes primarily due to payments for municipal franchise fees and property taxes.

See "Financing Activities – Georgia Power" herein and Note (B) to the Condensed Financial Statements herein under "Georgia Power – Nuclear Construction" for additional information.

•an increase of $149 million in long-term debt (including securities due within one year) primarily due to issuances of senior notes;

•a decrease of $59 million in accrued taxes primarily due to the payment of ad valorem taxes;

•an increase of $39 million in other accounts and notes receivable primarily related to timing on collections of contributions in aid of construction; and

•a decrease of $37 million in affiliated accounts payable primarily due to timing of payments.

See "Financing Activities – Mississippi Power" herein for additional information.

•a decrease of $92 million in total property, plant, and equipment due to continued depreciation of assets, partially offset by an increase in CWIP primarily related to the construction of the Millers Branch and South Cheyenne solar facilities;

•a decrease of $55 million in total stockholders' equity primarily due to dividends paid to Southern Company;

•increases of $53 million in accumulated deferred income tax liabilities and $40 million in prepaid income taxes primarily related to the expected utilization of ITCs in 2024; and

•a decrease of $43 million in affiliated accounts payable due to the timing of vendor payments.

See Note (K) to the Condensed Financial Statements herein for additional information.

•an increase of $271 million in common stockholder's equity related to net income, partially offset by dividends paid to Southern Company;

•a decrease of $210 million in natural gas for sale due to lower gas prices;

•an increase of $154 million in total property, plant, and equipment primarily related to the construction of transportation and distribution assets;

•a decrease of $116 million in other accounts payable due to seasonality and the timing of vendor payments; and

•a decrease of $81 million in notes payable due to a reduction in commercial paper borrowings.

Financing Activities

The following table outlines the Registrants' long-term debt financing activities for the first three months of 2024:

(a)Includes reductions in finance lease obligations resulting from cash payments under finance leases and, for Georgia Power, principal amortization payments totaling $21 million for FFB borrowings. See Note 8 to the financial statements under "Long-term Debt – DOE Loan Guarantee Borrowings" in Item 8 of the Form 10-K for additional information.

(b)Includes repayment by SEGCO of $10 million of its $100 million principal amount long-term bank loan due November 15, 2024, which is guaranteed by Alabama Power. See Note 3 to the financial statements under "Guarantees" in Item 8 of the Form 10-K for additional information.

(c)Represents reductions in affiliate finance lease obligations at Georgia Power, which are eliminated in Southern Company's consolidated financial statements.

Except as otherwise described herein, the Registrants used the proceeds of debt issuances for their redemptions and maturities shown in the table above, to repay short-term indebtedness, and for general corporate purposes, including working capital. The Subsidiary Registrants also used the proceeds for their construction programs.

In addition to any financings that may be necessary to meet capital requirements and contractual obligations, the Registrants plan to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit.

During the first three months of 2024, Southern Company issued approximately 2.6 million shares of common stock primarily through employee equity compensation plans.

In February 2024, Southern Company issued an additional $400 million aggregate principal amount of its Series 2023D 5.50% Senior Notes due March 15, 2029 (Series 2023D Senior Notes) and an additional $400 million aggregate principal amount of its Series 2023E 5.70% Senior Notes due March 15, 2034 (Series 2023E Senior Notes). Upon these issuances, the aggregate principal amount of outstanding Series 2023D Senior Notes and Series 2023E Senior Notes was $1.0 billion and $1.1 billion, respectively.

Also in February 2024, Southern Company borrowed $300 million pursuant to a short-term uncommitted bank credit arrangement, which was repaid in March 2024.

Also in February 2024, Southern Company repaid at maturity $600 million aggregate principal amount of its Series 2021A 0.60% Senior Notes.

In January 2024, Alabama Power repaid at maturity its obligations with respect to approximately $21 million aggregate principal amount of The Industrial Development Board of the Town of Wilsonville (Alabama) Pollution Control Revenue Bonds (Alabama Power Company Gaston Plant Project), Series D.

In January 2024, Georgia Power borrowed an additional $150 million pursuant to a short-term uncommitted bank credit arrangement. In February 2024, Georgia Power repaid the aggregate $250 million outstanding.

Also in February 2024, Georgia Power issued $500 million aggregate principal amount of Series 2024A 5.004% Senior Notes due February 23, 2027 and $900 million aggregate principal amount of Series 2024B 5.250% Senior Notes due March 15, 2034.

In March 2024, Mississippi Power issued in a private placement $100 million aggregate principal amount of Series 2024A 5.62% Senior Notes due March 15, 2034 and $50 million aggregate principal amount of Series 2024B 5.72% Senior Notes due March 15, 2036. Pursuant to the same agreement, Mississippi Power agreed to issue in a private placement in June 2024 $100 million aggregate principal amount of Series 2024C 5.91% Senior Notes due June 15, 2054.

During the first three months of 2024, Southern Company Gas received cash advances totaling $6 million under a long-term financing agreement related to a construction contract.

Credit Rating Risk

At March 31, 2024, the Registrants did not have any credit arrangements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade.

There are certain contracts that could require collateral, but not accelerated payment, in the event of a credit rating change of certain Registrants to BBB and/or Baa2 or below. These contracts are primarily for physical electricity and natural gas purchases and sales, fuel purchases, fuel transportation and storage, energy price risk management, transmission, interest rate management, and, for Georgia Power, services at Plant Vogtle Units 3 and 4.

The maximum potential collateral requirements under these contracts at March 31, 2024 were as follows:

(*)Southern Power has PPAs that could require collateral, but not accelerated payment, in the event of a downgrade of Southern Power's credit. The PPAs require credit assurances without stating a specific credit rating. The amount of collateral required would depend upon actual losses resulting from a credit downgrade. Southern Power had $106 million of cash collateral posted related to PPA requirements at March 31, 2024.

The amounts in the previous table for the traditional electric operating companies and Southern Power include certain agreements that could require collateral if either Alabama Power or Georgia Power has a credit rating change to below investment grade. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, a credit rating downgrade could impact the ability of the Registrants to access capital markets and would be likely to impact the cost at which they do so.