SOUTHERN CO

Consolidated net income attributable to Southern Company in the first quarter 2024 was $1.1 billion ($1.03 per share) compared to $862 million ($0.79 per share) for the corresponding period in 2023. The increase was primarily due to an increase in retail electric revenues associated with rates and pricing, colder weather in the first quarter 2024 as compared to the corresponding period in 2023, and sales growth and an increase in natural gas revenues from rate increases, partially offset by increases in interest expense, depreciation and amortization, non-fuel operations and maintenance costs, and income taxes.

Retail Electric Revenues

In the first quarter 2024, retail electric revenues were $3.9 billion compared to $3.6 billion for the corresponding period in 2023. Details of the changes in retail electric revenues were as follows:

Revenues associated with changes in rates and pricing increased in the first quarter 2024 when compared to the corresponding period in 2023 primarily due to the inclusion of Plant Vogtle Unit 3 in retail rates at Georgia Power, base tariff increases at Georgia Power in accordance with its 2022 ARP, customer bill credits in 2023 at Alabama Power related to the flowback of certain excess accumulated deferred income taxes, and an increase in Rate CNP New Plant revenues at Alabama Power. See Note 2 to the financial statements under "Alabama Power" and "Georgia Power" in Item 8 of the Form 10-K for additional information.

Revenues attributable to changes in sales increased in the first quarter 2024 when compared to the corresponding period in 2023. Weather-adjusted residential KWH sales increased 1.0% primarily due to customer growth. Weather-adjusted commercial KWH sales increased 3.8% primarily due to increased customer usage. Industrial KWH sales increased 0.4% primarily due to increases in the lumber and paper sectors, partially offset by decreases in the chemicals and primary metals sectors.

Fuel and other cost recovery revenues decreased $38 million in the first quarter 2024 compared to the corresponding period in 2023 primarily due to lower fuel and purchased power costs. Electric rates for the traditional electric operating companies 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 expe nses, including the energy component of PPA costs, and do not affect net income. The traditional electric operating companies each have one or more regulatory mechanisms to recover other costs such as environmental and other compliance costs, storm damage, new plants, and PPA capacity costs. See Note 2 to the financial statements in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein for additional information.

Wholesale Electric Revenues

In the first quarter 2024, wholesale electric revenues were $571 million compared to $599 million for the corresponding period in 2023. The decrease was primarily due to decreases of $18 million in energy revenues resulting from lower natural gas prices and $10 million in capacity revenues primarily resulting from power sales agreements that ended in May 2023 at Alabama Power, partially offset by an increase related to new capacity contracts at Georgia Power and an increase associated with a change in rates from natural gas PPAs at Southern Power.

Wholesale electric revenues consist of revenues from PPAs and short-term opportunity sales. Wholesale electric revenues from PPAs (other than solar and wind PPAs) have both capacity and energy components. Capacity revenues generally represent the greatest contribution to net income and are designed to provide recovery of fixed costs plus a return on investment. Energy revenues will vary depending on fuel prices, the market prices of wholesale energy compared to 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. Energy sales from solar and wind PPAs do not have a capacity charge and customers either purchase the energy output of a dedicated renewable facility through an energy charge or through a fixed price related to the energy. As a result, the ability to recover fixed and variable operations and maintenance expenses is dependent upon the level of energy generated from these facilities, which can be impacted by weather conditions, equipment performance, transmission constraints, and other factors. Wholesale electric revenues at Mississippi Power include FERC-regulated municipal and rural association sales under cost-based tariffs as well as market-based sales. Short-term opportunity sales are made at market-based rates that generally provide a margin above the Southern Company system's variable cost to produce the energy.

Other Electric Revenues

In the first quarter 2024, other electric revenues were $199 million compared to $190 million for the corresponding period in 2023. The increase was primarily due to increases of $13 million in transmission revenues primarily associated with open access transmission tariff sales and $6 million in regulated outdoor lighting sales at Georgia Power, partially offset by a $6 million decrease in gains on the resale of gas at Alabama Power and a $5 million decrease associated with price stability products for retail customers on variable demand-driven pricing tariffs at Georgia Power.

Natural Gas Revenues

In the first quarter 2024, natural gas revenues were $1.7 billion compared to $1.9 billion for the corresponding period in 2023. Details of the changes in natural gas revenues were as follows:

Revenues from rate changes at the natural gas distribution utilities increased in the first quarter 2024 compared to the corresponding period in 2023 primarily due to rate increases and a change in timing of revenues at Nicor Gas.

Revenues from gas costs and other cost recovery decreased in the first quarter 2024 compared to the corresponding period in 2023 primarily due to lower natural gas cost recovery associated with lower natural gas prices and lower demand associated with warmer weather in the first quarter 2024 when compared to the corresponding period in 2023. Natural gas distribution rates include provisions to adjust billings for fluctuations in natural gas costs. Therefore, gas costs recovered through natural gas revenues generally equal the amount expensed in cost of natural gas and do not affect net income from the natural gas distribution utilities.

Revenues from gas marketing services decreased in the first quarter 2024 compared to the corresponding period in 2023 primarily due to lower commodity prices.

Other Revenues

In the first quarter 2024, other revenues were $228 million compared to $217 million for the corresponding period in 2023. The increase was primarily due to increases in unregulated sales at Georgia Power primarily associated with energy conservation projects, power delivery construction and maintenance projects, and outdoor lighting.

In the first quarter 2024, total fuel and purchased power expenses were $1.2 billion compared to $1.3 billion for the corresponding period in 2023. The decrease was due to a $52 million net decrease in the average cost of fuel and purchased power and a $46 million net decrease in the volume of KWHs generated and purchased.

Fuel and purchased power energy transactions at the traditional electric operating companies are generally offset by fuel revenues and do not have a significant impact on net income. See Note 2 to the financial statements in Item 8 of the Form 10-K for additional information. Fuel expenses incurred under Southern Power's PPAs are generally the responsibility of the counterparties and do not significantly impact net income.

Details of the Southern Company system's generation and purchased power were as follows:

(a)Excludes KWHs generated from test period energy at Plant Vogtle Unit 4 prior to its in-service date. The related fuel costs are charged to CWIP in accordance with FERC guidance. See Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein for additional information on Plant Vogtle Units 3 and 4.

(b)Average cost of purchased power includes fuel purchased by the Southern Company system for tolling agreements where power is generated by the provider.

Fuel

In the first quarter 2024, fuel expense was $1.0 billion compared to $1.1 billion for the corresponding period in 2023. The decrease was primarily due to a 7.7% decrease in the average cost of natural gas per KWH generated, a 6.6% decrease in the volume of KWHs generated by natural gas, and a 5.2% decrease in the average cost of coal per KWH generated, partially offset by an 18.2% increase in the volume of KWHs generated by nuclear, a 17.7% increase in the volume of KWHs generated by coal, a 14.1% increase in the average cost of nuclear per KWH generated, and a 13.0% decrease in the volume of KWHs generated by hydro.

Purchased Power

In the first quarter 2024, purchased power expense was $198 million compared to $242 million for the corresponding period in 2023. The decrease was primarily due to a 21.2% decrease in the volume of KWHs purchased primarily as a result of a PPA that ended in May 2023 and the availability of Plant Barry Unit 8 and Central Alabama Generating Station generation, both at Alabama Power, partially offset by a 4.0% increase in the average cost per KWH purchased.

Energy purchases will vary depending on demand for energy within the Southern Company system's electric service territory, the market prices of wholesale energy as compared to the cost of the Southern Company system's generation, and the availability of the Southern Company system's generation.

Cost of Natural Gas

Excluding Atlanta Gas Light, which does not sell natural gas to end-use customers, the natural gas distribution utilities' rates include provisions to adjust billings for fluctuations in natural gas costs. Therefore, gas costs recovered through natural gas revenues generally equal the amount expensed in cost of natural gas and do not affect net income from the natural gas distribution utilities. See Note 2 to the financial statements under "Southern Company Gas – Natural Gas Cost Recovery" in Item 8 of the Form 10-K for additional information. Cost of natural gas at the natural gas distribution utilities represented 81% of the total cost of natural gas in the first quarter 2024.

In the first quarter 2024, cost of natural gas was $605 million compared to $898 million for the corresponding period in 2023. The decrease reflects lower gas cost recovery as a result of a 35% decrease in natural gas prices.

In the first quarter 2024, other operations and maintenance expenses were $1.5 billion compared to $1.4 billion for the corresponding period in 2023. The increase was primarily due to an increase of $52 million in generation expenses primarily associated with Plant Vogtle Unit 3 being placed in service in July 2023 at Georgia Power and Rate CNP Compliance-related expenses at Alabama Power, $20 million in gains in 2023 from sales of integrated transmission system assets at Georgia Power, a $16 million gain on the sale of spare parts in 2023 at Southern Power, and a $12 million increase in employee compensation and benefit expenses, partially offset by decreases of $26 million in technology infrastructure and application production costs, $18 million in expenses passed through to customers primarily related to bad debt and energy efficiency programs at Southern Company Gas, and $10 million related to the injuries and damages reserve primarily at Alabama Power and Southern Company Gas.

In the first quarter 2024, depreciation and amortization was $1.15 billion compared to $1.11 billion for the corresponding period in 2023. The increase was primarily due to an increase of $60 million from additional plant in service, partially offset by a $15 million decrease in amortization of regulatory assets related to CCR AROs at Georgia Power as approved in the 2024 compliance filing under the terms of the 2022 ARP, a $5 million decrease from insurance proceeds received for damaged generation equipment at Southern Power, and a $5 million decrease in units-of-production depreciation at Southern Power related to lower production from natural gas generating facilities. See Note 2 to the financial statements under "Georgia Power" in Item 8 of the Form 10-K for additional information.

In the first quarter 2024, taxes other than income taxes were $396 million compared to $394 million for the corresponding period in 2023. The increase was primarily due to an increase of $14 million in property taxes at Georgia Power primarily resulting from an increase in the assessed value of property, partially offset by a decrease of $13 million in revenue taxes as a result of lower natural gas revenues at Nicor Gas.

Allowance for Equity Funds Used During Construction

In the first quarter 2024, allowance for equity funds used during construction was $58 million compared to $65 million for the corresponding period in 2023. The decrease was primarily associated with Plant Vogtle Unit 3 being placed in service in July 2023 at Georgia Power and Plant Barry Unit 8 being placed in service in November 2023 at Alabama Power, partially offset by an increase in capital expenditures subject to AFUDC. See Note 2 to the financial statements under "Alabama Power" and "Georgia Power" in Item 8 of the Form 10-K for additional information.

In the first quarter 2024, interest expense, net of amounts capitalized was $665 million compared to $582 million for the corresponding period in 2023. The increase primarily reflects approximately $51 million related to higher interest rates and $45 million related to higher average outstanding borrowings, partially offset by the deferral of $9 million in financing costs related to Plant Vogtle Unit 3 at Georgia Power. See FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" and "Financing Activities" herein for additional information on borrowings and Note (B) to the Condensed Financial Statements herein under "Georgia Power – Nuclear Construction" for additional information on Plant Vogtle Unit 3.

In the first quarter 2024, income taxes were $223 million compared to $97 million for the corresponding period in 2023. The increase was primarily due to higher pre-tax earnings and a $42 million decrease in the flowback of certain excess deferred income taxes at Alabama Power, partially offset by the generation of $19 million of advanced nuclear PTCs at Georgia Power. See Note 2 to the financial statements in Item 8 of the Form 10-K and Note (G) to the Condensed Financial Statements herein for additional information.