ALABAMA POWER CO

Southern Company Gas uses Heating Degree Days to measure weather and the operational effects on its business. Generally, increased Heating Degree Days results in higher demand for natural gas on Southern Company Gas' distribution system. However, Southern Company Gas has various regulatory mechanisms, such as weather and revenue normalization and straight-fixed-variable rate design, which limits positive or negative impacts to income from exposure to weather changes within typical ranges in each of its utility's respective service territory. Southern Company Gas also utilizes weather hedges to limit the negative income impacts in the event of warmer-than-normal weather in Illinois for gas distribution operations and in Illinois and Georgia for gas marketing services. Therefore, weather typically does not have a significant net income impact.

During the Heating Season, more customers are connected to the gas distribution systems and natural gas usage is higher in periods of colder weather. Southern Company Gas' base operating expenses, excluding cost of natural gas and bad debt expense, are incurred relatively evenly throughout the year. Seasonality also affects the comparison of certain balance sheet items across quarters, including receivables, unbilled revenues, natural gas for sale, and notes payable. However, these items are comparable when reviewing Southern Company Gas' annual results. Thus, Southern Company Gas' operating results for the interim periods presented are not necessarily indicative of annual results and can vary significantly from quarter to quarter as a result of seasonality.

Southern Company Gas' net income in the third quarter 2025 was $25 million compared to $38 million for the corresponding period in 2024. The decrease was primarily due to a $9 million decrease in net income at gas distribution operations, a $5 million increase in net loss at all other, and a $4 million decrease in net income at gas pipeline investments, partially offset by a $5 million increase in net income at gas marketing services.

For year-to-date 2025, net income was $549 million compared to $555 million for the corresponding period in 2024. The decrease was primarily due to a $15 million decrease in net income at gas pipeline investments and a $10 million decrease in net income at all other, partially offset by a $14 million increase in net income at gas distribution operations and a $5 million increase in net income at gas marketing services.

Natural Gas Revenues

In the third quarter 2025, natural gas revenues were $734 million compared to $682 million for the corresponding period in 2024. For year-to-date 2025, natural gas revenues were $3.6 billion compared to $3.2 billion for the corresponding period in 2024. Details of the changes in natural gas revenues were as follows:

Changes in rates resulted in an increase in revenues in the third quarter and year-to-date 2025 compared to the corresponding periods in 2024 primarily due to base rate increases at Atlanta Gas Light and Virginia Natural Gas. See Note 2 to the financial statements under "Southern Company Gas – Rate Proceedings" in Item 8 of the Form 10-K for additional information.

Revenues from gas costs and other cost recovery increased in the third quarter and year-to-date 2025 compared to the corresponding periods in 2024 primarily due to higher natural gas prices and gas volumes. See "Cost of Natural Gas" herein for additional information.

Revenues from gas marketing services increased in the third quarter and year-to-date 2025 compared to the corresponding periods in 2024 primarily due to higher commodity prices.

Cost of Natural Gas

Excluding Atlanta Gas Light, which does not sell natural gas to end-use customers, 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 gas distribution operations. Cost of natural gas at gas distribution operations represented 81.9% and 81.5% of the total cost of natural gas in the third quarter and year-to-date 2025, respectively. See MANAGEMENT'S DISCUSSION AND ANALYSIS – RESULTS OF OPERATIONS – "Southern Company Gas – Cost of Natural Gas" in Item 7 of the Form 10-K and "Natural Gas Revenues" herein for additional information.

In the third quarter 2025, cost of natural gas was $116 million compared to $98 million for the corresponding period in 2024. For year-to-date 2025, cost of natural gas was $1.0 billion compared to $0.9 billion for the corresponding period in 2024. The increases reflect higher gas cost recovery as a result of increases of 42.4% and 61.6% in natural gas prices in the third quarter and year-to-date 2025, respectively.

The following table details the volumes of natural gas sold during all periods presented:

In the third quarter 2025, other operations and maintenance expenses were $314 million compared to $295 million for the corresponding period in 2024. The increase was primarily due to increases of $11 million in employee compensation and benefit expenses, $6 million in expenses passed through to customers primarily related to bad debt and energy efficiency programs at gas distribution operations, and $5 million in legal expenses, partially offset by a decrease of $8 million related to certain deferred expenses.

For year-to-date 2025, other operations and maintenance expenses were $929 million compared to $877 million for the corresponding period in 2024. The increase was primarily due to increases of $35 million in expenses passed through to customers primarily related to bad debt and energy efficiency programs at gas distribution operations and $34 million in employee compensation and benefit expenses, partially offset by a decrease of $20 million related to certain deferred expenses.

In the third quarter 2025, depreciation and amortization was $176 million compared to $162 million for the corresponding period in 2024. Foryear-to-date 2025, depreciation and amortization was $517 million compared to $475 million for the corresponding period in 2024. The increases were primarily due to additional plant in service related to continued investments at the natural gas distribution utilities.

For year-to-date 2025, taxes other than income taxes were $206 million compared to $186 million for the corresponding period in 2024. The increase was primarily due to an increase of $14 million in revenue taxes as a result of higher natural gas revenues at Nicor Gas. Revenue taxes imposed on Nicor Gas are recoverable from its customers.

Earnings from Equity Method Investments

In the third quarter 2025, earnings from equity method investments were $31 million compared to $34 million for the corresponding period in 2024. For year-to-date 2025, earnings from equity method investments were $93 million compared to $110 million for the corresponding period in 2024. The decreases were primarily due to lower rates at SNG. See Note 7 to the financial statements under "Southern Company Gas" in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under "Southern Company Gas" herein for additional information.

In thethird quarter 2025, inte rest expense, net of amounts capitalized was $94 million compared to $84 million for the corresponding period in 2024. For year-to-date 2025, interest expense, net of amounts capitalized was $277 million compared to $250 million for the corresponding period in 2024. The increases were primarily associated with higher average outstanding borrowings. See FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" and "Financing Activities" herein for additional information on borrowings.

In the third quarter 2025, income taxes were $6 million compared to $11 million for the corresponding period in 2024. Thedecrease was primarily due to lower pre-tax earnings.

Foryear-to-date 2025, income taxes were $169 million compared to $184 million for the corresponding period in 2024. The decrease was primarily due to an increase of $10 million in the flowback of excess state deferred income taxes and lower pre-tax earnings.

Segment Information

Operating revenues, operating expenses, and net income for each segment are provided in the table below. See Note (L) to the Condensed Financial Statements under "Southern Company Gas" herein for additional information.

Gas Distribution Operations

The gas distribution operations segment is the largest component of Southern Company Gas' business and is subject to regulation and oversight by regulatory agencies in each of the states it serves. These agencies approve natural gas rates designed to provide Southern Company Gas with the opportunity to generate revenues to recover the cost of natural gas delivered to its customers and its fixed and variable costs, including depreciation, interest expense, operations and maintenance, taxes, and overhead costs, and to earn a reasonable return on its investments.

With the exception of Atlanta Gas Light, Southern Company Gas' second largest utility that operates in a deregulated natural gas market and has a straight-fixed-variable rate design that minimizes the variability of its revenues based on consumption, the earnings of the natural gas distribution utilities can be affected by customer consumption patterns that are a function of price levels for natural gas and general economic conditions that may impact customers' ability to pay for natural gas consumed. Southern Company Gas has various regulatory and other mechanisms, such as weather and revenue normalization mechanisms and weather derivative instruments, that limit its exposure to changes in customer consumption, including weather changes within typical ranges in its natural gas distribution utilities' service territories. See Note 2 to the financial statements under "Southern Company Gas" in Item 8 of the Form 10-K for additional information.

In the third quarter 2025, net income decreased $9 million, or 42.9%, when compared to the corresponding period in 2024, as described further below:

•Operating revenues increased $52 million primarily due to higher gas cost recovery and base rate increases. Gas costs recovered through natural gas revenues generally equal the amount expensed in cost of natural gas.

•Operating expenses increased $56 million primarily due to a $21 million increase in cost of natural gas as a result of higher gas prices and higher volumes sold compared to 2024, a $15 million increase in depreciation primarily due to additional plant in service related to continued investments at the natural gas distribution utilities, a $7 million increase related to employee compensation and benefit expenses, a $6 million increase related to expenses passed through to customers, and a $5 million increase in legal expenses, partially offset by a decrease of $8 million related to certain deferred expenses.

•Interest expense, net of amounts capitalized increased $14 million primarily due to higher average outstanding borrowings.

•Income taxes decreased $11 million primarily as a result of lower pre-tax earnings and the flowback of excess state deferred income taxes.

For year-to-date 2025, net income increased $14 million, or 3.5%, when compared to the corresponding period in 2024, as described further below:

•Operating revenues increased $294 million primarily due to higher gas cost recovery and base rate increases. Gas costs recovered through natural gas revenues generally equal the amount expensed in cost of natural gas.

•Operating expenses increased $275 million primarily due to a $166 million increase in cost of natural gas as a result of higher gas prices and higher volumes sold compared to 2024, a $49 million increase related to expenses passed through to customers, a $43 million increase in depreciation primarily due to additional plant in service related to continued investments at the natural gas distribution utilities, and a $22 million increase related to employee compensation and benefit expenses, partially offset by a decrease of $20 million related to certain deferred expenses.

•Interest expense, net of amounts capitalized increased $23 million primarily due to higher average outstanding borrowings.

•Income taxes decreased $16 million primarily as a result of the flowback of excess state deferred income taxes and lower pre-tax earnings.

Gas Pipeline Investments

The gas pipeline investments segment consists primarily of joint ventures in natural gas pipeline investments including SNG and Dalton Pipeline. See Note (E) to the Condensed Financial Statements under "Southern Company Gas" herein for additional information.

In the third quarter and year-to-date 2025, net income decreased $4 million and $15 million, respectively, when compared to the corresponding periods in 2024. The decreases were primarily due to lower rates at SNG.

Gas Marketing Services

The gas marketing services segment provides energy-related products and services to natural gas markets and participants in customer choice programs that were approved in various states to increase competition. These programs allow customers to choose their natural gas supplier while the local distribution utility continues to provide distribution and transportation services. Gas marketing services is weather sensitive and uses a variety of hedging strategies, such as weather derivative instruments and other risk management tools, to partially mitigate potential weather impacts.

In the third quarter 2025, net income was $3 million compared to a net loss of $2 million for the corresponding period in 2024. The change was primarily due to higher retail margins, partially offset by higher income taxes.

For year-to-date 2025, net income increased $5 million, or 6.9%, when compared to the corresponding period in 2024 primarily due to higher retail margins, partially offset by an increase in employee compensation and benefits and proceeds from a legal settlement received in 2024.

All Other

All other includes a renewable natural gas business, AGL Services Company, and Southern Company Gas Capital, as well as various corporate operating expenses that are not allocated to the reportable segments and interest income (expense) associated with affiliate financing arrangements. See Note 15 to the financial statements in Item 8 of the Form 10-K for additional information.

In the third quarter 2025, net loss increased $5 million when compared to the corresponding period in 2024. The change was primarily due to higher interest expense as a result of higher average outstanding borrowings.

For year-to-date 2025, net loss was $7 million compared to net income of $3 million for the corresponding period in 2024. The change was primarily due to lower revenue at the renewable natural gas business.