ALABAMA POWER CO
For the period ended Dec 31, 2025. Filed Feb 19, 2026.
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FY2025 · Filed Feb 19, 2026
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Item 8. Report of Independent Registered Public Accounting Firm
To the stockholder and the Board of Directors of Southern Company Gas and Subsidiary Companies
We have audited the accompanying consolidated balance sheets of Southern Company Gas and subsidiary companies (Southern Company Gas) (a wholly-owned subsidiary of The Southern Company) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2025, the related notes, and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of Southern Company Gas as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
We did not audit the financial statements of Southern Natural Gas Company, L.L.C. (SNG), Southern Company Gas' investment which is accounted for by the use of the equity method. The accompanying consolidated financial statements of Southern Company Gas include its equity investment in SNG of $1,148 million and $1,245 million as of December 31, 2025 and December 31, 2024, respectively, and its earnings from its equity method investment in SNG of $127 million, $146 million, and $139 million for the years ended December 31, 2025, 2024, and 2023, respectively. Those statements were audited by BDO USA, P.C., whose reports (which express unqualified opinions on SNG's financial statements and contain an emphasis of matter paragraph calling attention to SNG's significant transactions with related parties) have been furnished to us, and our opinion, insofar as it relates to the amounts included for SNG, is based solely on the reports of the other auditors.
These financial statements are the responsibility of Southern Company Gas' management. Our responsibility is to express an opinion on Southern Company Gas' financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to Southern Company Gas in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Southern Company Gas is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of Southern Company Gas' internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the Audit Committee of Southern Company's Board of Directors and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impact of Rate Regulation on the Financial Statements – Refer to Note 1 (Summary of Significant Accounting Policies – Regulatory Assets and Liabilities) and Note 2 (Regulatory Matters – Southern Company Gas) to the financial statements
Southern Company Gas' natural gas distribution utilities (the "regulated utility subsidiaries") are subject to rate regulation by their respective state Public Service Commission or other applicable state regulatory agencies (collectively, the "Commissions"). Management has determined that the regulated utility subsidiaries meet the requirements under accounting principles generally accepted in the United States of America to utilize specialized rules to account for the effects of rate regulation in the preparation
II-105 of its financial statements. Accounting for the economics of rate regulation may impact multiple financial statement line items and disclosures.
The Commissions set the rates the regulated utility subsidiaries are permitted to charge customers. Rates are determined and approved in regulatory proceedings based on an analysis of the applicable regulated utility subsidiary's costs to provide utility service and a return on, and recovery of, its investment in the utility business. Current and future regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investments, and the timing and amount of assets to be recovered through rates. The Commissions' regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. While Southern Company Gas' regulated utility subsidiaries expect to recover costs from customers through regulated rates, there is a risk that the Commissions will not approve: (1) full recovery of the costs of providing utility service, or (2) full recovery of all amounts invested in the utility business and a reasonable return on those investments.
We identified the impact of rate regulation related to certain assets and liabilities as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and/or the high degree of subjectivity involved in assessing the potential impact of future regulatory orders on incurred costs. Management judgments include assessing the likelihood of (1) recovery in future rates of incurred costs, (2) a disallowance of part of the cost of recently completed plant or plant under construction, and/or (3) a refund to customers. Auditing these judgments, which include assumptions about the outcome of future decisions by the Commissions, required specialized knowledge of accounting for rate regulations and the rate setting process due to its inherent complexities.
We tested the effectiveness of management's controls over the evaluation of the likelihood of (1) the recovery in future rates of certain incurred costs and (2) refunds or future reductions in rates that should be reported as regulatory liabilities and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering certain costs in future rates or of a future reduction in rates, including previously incurred Qualifying Infrastructure Plant capital investments by Nicor Gas. We also tested the effectiveness of management's controls over the initial recognition of certain regulatory assets or liabilities.
We read and evaluated relevant regulatory orders issued and/or other relevant publicly available information to assess the likelihood of recovery of certain incurred costs in future rates or of a future reduction in rates based on precedents of the treatment of similar costs under similar circumstances.
We obtained representation from management regarding the likelihood of recoverability of incurred costs and potential refund or future reduction in rates to assess management's assertions about the likelihood of recovery, refund, or a future reduction in rates.
We evaluated Southern Company Gas' disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments, including where there is a high degree of subjectivity involved in assessing the potential impact of future regulatory orders on incurred costs.
We have served as Southern Company Gas' auditor since 2016.
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Board of Directors and Members
Southern Natural Gas Company, L.L.C.
Houston, Texas
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Southern Natural Gas Company, L.L.C. (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of income, members' equity, and cash flows for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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Postretirement Benefits Plan – Fair Value of Investments Measured at Net Asset Value
As discussed in Note 5 to the consolidated financial statements, the fair value of postretirement benefits plan assets on December 31, 2025, was $79 million. Of this amount, $78 million represents the fair value of investments measured at net asset value (NAV).
We identified the assessment of the postretirement benefits plan fair value of investments measured at NAV as a critical audit matter. Estimating the fair value requires management to make certain determination of unobservable inputs. Auditing these elements involved subjective auditor judgment due to the nature and extent of audit effort required, including the extent of specialized skills or knowledge needed to assess sufficiency of audit evidence.
The primary procedures we performed to address this critical audit matter included:
Comparing the fair values as recorded by the Company to external confirmations received directly from the third-party investment managers.
Utilizing specialists who performed a benchmark analysis to determine the correlation of the funds and the stated benchmark; the results were used to estimate the high and low fair value range of the investments to compare to the Company's fair value.
Emphasis of Matter – Significant Transactions with Related Parties
As discussed in Note 6 to the consolidated financial statements, the Company has entered into significant transactions with related parties.
/s/ BDO USA, P.C.
We have served as the Company's auditor since 2018.
Houston, Texas
February 5, 2026
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| 2025 | 2024 | 2023 | |
|---|---|---|---|
| (in millions) | |||
| Operating Revenues: | |||
| Natural gas revenues (includes revenue taxes of $136, $115, and $133, respectively) | $5,044 | $4,456 | $4,702 |
| Total operating revenues | 5,044 | 4,456 | 4,702 |
| Operating Expenses: | |||
| Cost of natural gas | 1,599 | 1,196 | 1,644 |
| Other operations and maintenance | 1,297 | 1,235 | 1,187 |
| Depreciation and amortization | 708 | 650 | 582 |
| Taxes other than income taxes | 272 | 248 | 262 |
| Estimated loss on regulatory disallowance | 63 | — | 88 |
| Total operating expenses | 3,939 | 3,329 | 3,763 |
| Operating Income | 1,105 | 1,127 | 939 |
| Other Income and (Expense): | |||
| Earnings from equity method investments | 127 | 146 | 140 |
| Interest expense, net of amounts capitalized | (377) | (341) | (310) |
| Other income (expense), net | 59 | 66 | 57 |
| Total other income and (expense) | (191) | (129) | (113) |
| Earnings Before Income Taxes | 914 | 998 | 826 |
| Income taxes | 182 | 258 | 211 |
| Net Income | $732 | $740 | $615 |
| 2025 | 2024 | 2023 | |
|---|---|---|---|
| (in millions) | |||
| Net Income | $732 | $740 | $615 |
| Other comprehensive income (loss): | |||
| Qualifying hedges: | |||
| Changes in fair value, net of tax of $(1), $(3), and $(18), respectively | (3) | (9) | (45) |
| Reclassification adjustment for amounts included in net income, net of tax of $1, $12, and $19, respectively | 3 | 30 | 46 |
| Pension and other postretirement benefit plans: | |||
| Benefit plan net gain (loss), net of tax of $2, $5, and $(7), respectively | 4 | 11 | (15) |
| Reclassification adjustment for amounts included in net income, net of tax of $(1), $(1), and $—, respectively | (1) | — | (1) |
| Total other comprehensive income (loss) | 3 | 32 | (15) |
| Comprehensive Income | $735 | $772 | $600 |
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| 2025 | 2024 | 2023 | |
|---|---|---|---|
| (in millions) | |||
| Operating Activities: | |||
| Consolidated net income | $732 | $740 | $615 |
| Adjustments to reconcile net income to net cash provided from operating activities — | |||
| Depreciation and amortization, total | 701 | 643 | 582 |
| Deferred income taxes | 122 | 132 | 126 |
| Estimated loss on regulatory disallowance | 63 | — | 96 |
| Other, net | 41 | 3 | (74) |
| Changes in certain current assets and liabilities — | |||
| -Receivables | (189) | 28 | 431 |
| -Natural gas for sale, net of temporary LIFO liquidation | (8) | 32 | 19 |
| -Prepaid income taxes | 12 | 63 | (11) |
| -Natural gas cost under recovery | — | — | 108 |
| -Other current assets | 41 | (52) | (17) |
| -Accounts payable | 75 | (6) | (276) |
| -Natural gas cost over recovery | (36) | (21) | 214 |
| -Other current liabilities | 63 | (10) | (51) |
| Net cash provided from operating activities | 1,617 | 1,552 | 1,762 |
| Investing Activities: | |||
| Property additions | (1,741) | (1,541) | (1,561) |
| Cost of removal, net of salvage | (99) | (88) | (104) |
| Change in construction payables, net | (2) | (19) | (38) |
| Investments in unconsolidated subsidiaries | (74) | (82) | (11) |
| Returned investment in unconsolidated subsidiaries | 148 | 15 | 14 |
| Proceeds from dispositions | — | 3 | 42 |
| Other investing activities | — | 1 | 2 |
| Net cash used for investing activities | (1,768) | (1,711) | (1,656) |
| Financing Activities: | |||
| Increase (decrease) in notes payable, net | (31) | 40 | (153) |
| Proceeds — | |||
| Senior notes | 850 | 450 | 500 |
| First mortgage bonds | 200 | 275 | 275 |
| Other long-term debt | — | 8 | 37 |
| Redemptions and repurchases — | |||
| Senior notes | (250) | — | — |
| First mortgage bonds | (50) | — | (50) |
| Short-term borrowings | — | — | (200) |
| Medium-term notes | — | — | (350) |
| Return of capital to parent company | (23) | — | — |
| Capital contributions from parent company | 39 | 16 | 373 |
| Payment of common stock dividends | (594) | (605) | (585) |
| Other financing activities | (19) | (16) | (1) |
| Net cash provided from (used for) financing activities | 122 | 168 | (154) |
| Net Change in Cash, Cash Equivalents, and Restricted Cash | (29) | 9 | (48) |
| Cash, Cash Equivalents, and Restricted Cash at Beginning of Year | 44 | 35 | 83 |
| Cash, Cash Equivalents, and Restricted Cash at End of Year | $15 | $44 | $35 |
| Supplemental Cash Flow Information: | |||
| Cash paid during the period for — | |||
| Interest (net of $16, $21, and $16 capitalized, respectively) | $372 | $329 | $291 |
| Income taxes, net | 29 | 59 | 91 |
| Noncash transactions — | |||
| Accrued property additions at year-end | 112 | 113 | 139 |
| Return of capital to parent company | 34 | — | — |
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| Assets | 2025 | 2024 |
|---|---|---|
| (in millions) | ||
| Current Assets: | ||
| Cash and cash equivalents | $15 | $43 |
| Receivables — | ||
| Customer accounts | 490 | 399 |
| Unbilled revenues | 341 | 244 |
| Other accounts and notes | 57 | 45 |
| Accumulated provision for uncollectible accounts | (50) | (33) |
| Materials and supplies | 62 | 66 |
| Natural gas for sale | 396 | 388 |
| Prepaid expenses | 26 | 45 |
| Other regulatory assets | 114 | 187 |
| Other current assets | 66 | 55 |
| Total current assets | 1,517 | 1,439 |
| Property, Plant, and Equipment: | ||
| In service | 24,098 | 22,338 |
| Less: Accumulated depreciation | 6,273 | 5,887 |
| Plant in service, net of depreciation | 17,825 | 16,451 |
| Construction work in progress | 863 | 1,057 |
| Total property, plant, and equipment | 18,688 | 17,508 |
| Other Property and Investments: | ||
| Goodwill | 5,015 | 5,015 |
| Equity investments in unconsolidated subsidiaries | 1,182 | 1,279 |
| Other intangible assets, net of amortization of $179 and $173, respectively | 3 | 9 |
| Miscellaneous property and investments | 24 | 25 |
| Total other property and investments | 6,224 | 6,328 |
| Deferred Charges and Other Assets: | ||
| Operating lease right-of-use assets, net of amortization | 85 | 38 |
| Prepaid pension and other postretirement benefit costs | 229 | 191 |
| Other regulatory assets, deferred | 517 | 481 |
| Other deferred charges and assets | 127 | 192 |
| Total deferred charges and other assets | 958 | 902 |
| Total Assets | $27,387 | $26,177 |
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| Liabilities and Stockholder's Equity | 2025 | 2024 |
|---|---|---|
| (in millions) | ||
| Current Liabilities: | ||
| Securities due within one year | $531 | $302 |
| Notes payable | 425 | 455 |
| Accounts payable — | ||
| Affiliated | 70 | 75 |
| Other | 553 | 437 |
| Customer deposits | 75 | 98 |
| Accrued taxes | 107 | 85 |
| Accrued interest | 100 | 88 |
| Accrued compensation | 137 | 129 |
| Natural gas cost over recovery | 158 | 193 |
| Other regulatory liabilities | 36 | 7 |
| Other current liabilities | 110 | 149 |
| Total current liabilities | 2,302 | 2,018 |
| Long-term Debt | 8,743 | 8,229 |
| Deferred Credits and Other Liabilities: | ||
| Accumulated deferred income taxes | 1,971 | 1,796 |
| Deferred credits related to income taxes | 681 | 755 |
| Employee benefit obligations | 78 | 78 |
| Operating lease obligations | 123 | 30 |
| Other cost of removal obligations | 1,921 | 1,846 |
| Accrued environmental remediation | 207 | 198 |
| Other deferred credits and liabilities | 234 | 231 |
| Total deferred credits and other liabilities | 5,215 | 4,934 |
| Total Liabilities | 16,260 | 15,181 |
| Common Stockholder’s Equity: | ||
| Common stock, par value $0.01 per share (Authorized - 100 million shares; Outstanding - 100 shares) | — | — |
| Paid-in capital | 10,854 | 10,863 |
| Retained earnings | 222 | 85 |
| Accumulated other comprehensive income | 51 | 48 |
| Total common stockholder's equity (See accompanying statements) | 11,127 | 10,996 |
| Total Liabilities and Stockholder's Equity | $27,387 | $26,177 |
| Commitments and Contingent Matters (See notes) | ||
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