SOUTHERN CO

Alabama Power's 2024 net income was $1.4 billion, representing a $33 million, or 2.4%, increase from 2023. The increase was primarily due to an increase in retail electric revenues associated with weather impacts, as well as an increase in Rate CNP New Plant revenues and an increase in other revenues. These increases to income were partially offset by increases in non-fuel operations and maintenance expenses, depreciation, and taxes other than income taxes. See Note 2 to the financial statements under "Alabama Power" for additional information.

A condensed income statement for Alabama Power follows:

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Operating revenues for 2024 were $7.6 billion, reflecting a $504 million, or 7.1%, increase from 2023. Details of operating revenues were as follows:

Retail revenues increased $480 million, or 7.8%, in 2024 as compared to 2023. The significant factors driving this change are shown in the preceding table. The increase in rates and pricing was primarily due to customer bill credits in 2023 related to the flowback of certain excess accumulated deferred income taxes as well as an increase in Rate CNP New Plant revenues. See Note 2 to the financial statements under "Alabama Power – Rate CNP New Plant" for additional information.

Electric rates include provisions to recognize the recovery of fuel costs, purchased power costs, PPAs certificated by the Alabama PSC, and costs associated with the NDR. Under these provisions, fuel and other cost recovery revenues generally equal fuel and other cost recovery expenses and do not affect net income. See Note 2 to the financial statements under "Alabama Power" for additional information.

Wholesale revenues from sales to non-affiliated utilities were as follows:

In 2024, wholesale revenues from sales to non-affiliates decreased $87 million, or 20.5%, as compared to 2023. The decrease primarily reflects a 30.8% decrease in the volume of KWHs sold as a result of power sales agreements that ended in May 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 Alabama 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 affect net income. Short-term opportunity energy sales are also included in wholesale energy sales to non-affiliates. These opportunity sales are made at market-based rates that generally provide a margin above Alabama Power's variable cost to produce the energy.

In 2024, wholesale revenues from sales to affiliates increased $79 million, or 131.7%, as compared to 2023. The revenue increase was primarily due to an increase of 165.5% in the volume of KWH sales due to affiliated company energy needs.

Wholesale revenues from sales to affiliated companies will vary depending on demand and the availability and cost of generating resources at each company. These affiliate sales and purchases are made in accordance with the IIC, as approved by the FERC.

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These transactions do not have a significant impact on earnings since this energy is generally sold at marginal cost and energy purchases are generally offset by energy revenues through Alabama Power's energy cost recovery clause.

In 2024, other operating revenues increased $32 million, or 7.9%, as compared to 2023 primarily due to a $30 million increase in transmission revenue primarily associated with open access transmission tariff sales.

(*)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 the normal temperature conditions. Normal temperature conditions are defined as those experienced in Alabama 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 decreased in 2024 when compared to 2023. In 2024, weather-adjusted residential KWH sales decreased 0.7% primarily due to a decrease in customer usage. Weather-adjusted commercial KWH sales increased 0.8% primarily due to customer growth. Industrial KWH sales increased 0.7% primarily due to an increase in the pipeline and forest products sectors.

See "Operating Revenues" above for a discussion of significant changes in wholesale revenues from sales to non-affiliates and wholesale revenues from sales to affiliated companies related to changes in price and KWH sales.

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

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

(*)Average cost of purchased power includes fuel, energy, and transmission purchased by Alabama Power for tolling agreements where power is generated by the provider.

Fuel and purchased power expenses were $1.7 billion in 2024, a decrease of $71 million, or 3.9%, compared to 2023. Thedecrease was primarily due to a $54 million net decrease related to the average cost of fuel and purchased power and a $17 million net decrease related to the volume of KWHs generated and purchased.

Fuel and purchased power energy transactions do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Alabama Power's energy cost recovery clause. Alabama Power, along with the Alabama PSC, continuously monitors the under/over recovered balance to determine whether adjustments to billing rates are required. See Note 2 to the financial statements under "Alabama Power – Rate ECR" for additional information.

Fuel

Fuel expense was $1.4 billion in 2024, an increase of $59 million, or 4.5%, compared to 2023. The increase was primarily due to a 23.1% increase in the volume of KWHs generated by natural gas, an 8.4% increase in the volume of KWHs generated by coal, and a 9.6% decrease in the volume of KWHs generated by hydro facilities as a result of less rainfall, partially offset by an 8.7% decrease in the average cost per KWH generated by natural gas, which excludes tolling agreements, and a 7.8% decrease in the average cost per KWH generated by coal.

Purchased Power– Non-Affiliates

Purchased power expense from non-affiliates was $199 million in 2024, a decrease of $54 million, or 21.3%, compared to 2023. The decrease was primarily due to a 31.3% decrease in the volume of KWHs purchased 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, partially offset by a 12.5% increase in the average cost per KWH purchased.

Energy purchases from non-affiliates 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 electric service territory, and the availability of the Southern Company system's generation.

Purchased Power– Affiliates

Purchased power expense from affiliates was $175 million in 2024, a decrease of $76 million, or 30.3%, compared to 2023. Thedecrease was primarily due to a 42.4% decrease in the volume of KWHs purchased due to the availability of Plant Barry Unit 8 and Central Alabama Generating Station generation and a reduction in capacity-related expenses due to lower capacity needs in 2024, partially offset by a 21.0% increase in the average cost per KWH purchased.

Energy purchases from affiliates will vary depending on demand for energy and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC or other contractual agreements, as approved by the FERC.

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Other operations and maintenance expenses increased $126 million, or 7.1%, in 2024 as compared to 2023. The increase was primarily due to increases of $36 million related to an impairment loss associated with Alabama Power discontinuing the development of a multi-use commercial facility, $21 million associated with an additional Rate NDR accrual, $16 million in certain employee compensation and benefits, $15 million in Rate CNP Compliance-related expenses, $10 million associated with reliability reserve accruals and reliability-related expenses, $10 million in customer accounts primarily associated with bad debt expense, $9 million in transmission and distribution expenses primarily due to vegetation management, and $8 million related to the injuries and damages reserve. These increases were partially offset by a decrease of $28 million in technology infrastructure and application production costs.

See Note 1 to the financial statements under "Impairment of Long-Lived Assets" and Note 2 to the financial statements under "Alabama Power – Rate CNP Compliance," " – Rate NDR," and " – Reliability Reserve Accounting Order" for additional information.

Depreciation and amortization increased $58 million, or 4.1%, in 2024 as compared to 2023 primarily due to additional plant in service related to transmission and distribution facilities as well as Plant Barry Unit 8 being placed in service in November 2023. See Note 2 to the financial statements under "Alabama Power – Rate CNP New Plant" for additional information.

Taxes other than income taxes increased $29 million, or 6.6%, in 2024 as compared to 2023 primarily due to increases of $13 million in property taxes primarily resulting from an increase in the assessed value of property and $13 million in utility license taxes resulting from an increase in the tax base.

Allowance for equity funds used during construction decreased $25 million, or 30.5%, in 2024 as compared to 2023 primarily due to Plant Barry Unit 8 being placed in service in November 2023. See Note 2 to the financial statements under "Alabama Power – Rate CNP New Plant" for additional information.

Interest expense, net of amounts capitalized increased $23 million, or 5.4%, in 2024 as compared to 2023. The increase was primarily associated with increases of approximately $8 million related to higher interest rates and $8 million related to higher average outstanding borrowings, as well as a decrease of $8 million in AFUDC debt primarily due to Plant Barry Unit 8 being placed in service in November 2023. See FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital," Note 2 to the financial statements under "Alabama Power – Rate CNP New Plant," and Note 8 to the financial statements for additional information.

Income taxes increased $279 million in 2024 as compared to 2023 primarily due to a decrease of $197 million in the flowback of certain excess deferred income taxes, as well as higher pre-tax earnings. See Note 2 to the financial statements under "Alabama Power – Excess Accumulated Deferred Income Tax Accounting Order" and Note 10 to the financial statements for additional information.