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 result 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 limit 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 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

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Net Income

Net income attributable to Southern Company Gas in 2025 was $732 million, a decrease of $8 million, or 1.1%, compared to 2024. The decrease was primarily due to a $16 million decrease in net income at gas pipeline investments and a $15 million decrease in net income at gas marketing services, partially offset by a $19 million increase in net income at gas distribution operations.

A condensed income statement for Southern Company Gas follows:

Natural Gas Revenues

Natural gas revenues in 2025 were $5.0 billion, reflecting a $588 million, or 13.2%, increase compared to 2024. Details of natural gas revenues were as follows:

Changes in rates resulted in an increase in revenues in 2025 as compared to 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" for additional information.

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Revenues associated with gas costs and other cost recovery increased in 2025 as compared to 2024 primarily due to higher cost of natural gas driven by higher natural gas prices and volumes, as well as increases in other expenses passed through to customers. Natural gas distribu tion 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. See "Cost of Natural Gas" and "Other Operations and Maintenance Expenses" herein for additional information.

Revenues from gas marketing services increased in 2025 as compared to 2024 primarily due to higher commodity prices.

Customer Count

The number of customers served by gas distribution operations and gas marketing services can be impacted by natural gas prices, economic conditions, and competition from alternative fuels. Gas distribution operations' and gas marketing services' customers are primarily located in Georgia and Illinois.

The following table provides the number of customers served by Southern Company Gas at December 31, 2025 and 2024:

Southern Company Gas anticipates customer growth and uses a variety of targeted marketing programs to attract new customers and to retain existing customers.

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. See Note 2 to the financial statements under "Southern Company Gas –Natural Gas Cost Recovery" for additional information. Cost of natural gas at gas distribution operations repr esented 81.7% of the total cost of natural gas for 2025.

Gas marketing services customers are charged for actual and estimated natural gas consumed. Cost of natural gas includes the cost of fuel and associated transportation costs, lost and unaccounted for gas, and gains and losses associated with certain derivatives.

Cost of natural gas was $1.6 billion, an increase of $403 million, or 33.7%, in 2025 as compared to 2024, which reflects higher gas cost recovery in 2025 as a result of a 51.0% increase in natural gas prices as compared to 2024.

Volumes of Natural Gas Sold

Southern Company Gas' natural gas volume metrics for gas distribution operations and gas marketing services illustrate the effects of weather and customer demand for natural gas.

The following table details the volumes of natural gas sold during 2025 and 2024:

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Other operations and maintenance expenses increased $62 million, or 5.0%, in 2025 as compared to 2024. The increase was primarily due to increases of $38 million in employee compensation and benefit expenses, $23 million in expenses passed through to customers at gas distribution operations, and $17 million in bad debt expense, partially offset by a decrease of $26 million related to certain deferred expenses.

Depreciation and amortization increased $58 million, or 8.9%, in 2025 as compared to 2024. The increase was primarily due to additional plant in service related to continued investments at the natural gas distribution utilities. See Note 2 to the financial statements under "Southern Company Gas – Infrastructure Replacement Programs and Capital Projects" for additional information.

Taxes other than income taxes increased $24 million, or 9.7%, in 2025 as compared to 2024. The increase was primarily due to an increase 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.

Estimated Loss on Regulatory Disallowance

In 2025, Southern Company Gas recorded $63 million in charges related to the disallowance of certain capital investments at Nicor Gas. See Note 2 to the financial statements under "Southern Company Gas – Rate Proceedings – Nicor Gas" for additional information.

Earnings from Equity Method Investments

Earnings from equity method investments decreased $19 million, or 13.0%, in 2025 as compared to 2024. The decrease was primarily due to legal settlements, increased spending on system integrity initiatives, and lower rates, all at SNG. See Note 7 to the financial statements under "Southern Company Gas" for additional information.

Interest expense, net of amounts capitalized increased $36 million, or 10.6%, in 2025 as compared to 2024. The increase was primarily associated with higher average outstanding borrowings. See FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" and – "Financing Activities" herein and Note 8 to the financial statements for additional information.

Income taxes decreased $76 million, or 29.5%, in 2025 as compared to 2024. The decrease was primarily due to lower pre-tax earnings, including the impact of the regulatory disallowance at Nicor Gas, an increase of $36 million in the flowback of excess federal and state deferred income taxes, and a decrease of $8 million related to uncertain state tax positions in 2024. See Note 2 to the financial statements under "Southern Company Gas – Rate Proceedings – Nicor Gas" and Note 10 to the financial statements for additional information.

Segment Information

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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, 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" for additional information.

In 2025, net income increased $19 million, or 3.5%, as compared to 2024 as described further below:

•Operating revenues increased $529 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 $539 million primarily due to a $346 million increase in cost of natural gas as a result of higher gas prices and higher volumes sold compared to 2024, a $63 million charge related to the disallowance of certain capital investments at Nicor Gas, a $57 million increase in depreciation primarily due to additional plant in service related to continued investments at the natural gas distribution utilities, a $43 million increase related to expenses passed through to customers, a $25 million increase related to employee compensation and benefit expenses, and a $17 million increase in bad debt expense, partially offset by a decrease of $26 million related to certain deferred expenses.

•Interest expense, net of amounts capitalized increased $31 million primarily due to higher average outstanding borrowings.

•Income taxes decreased $63 million primarily due to lower pre-tax earnings, including the impact of the regulatory disallowance at Nicor Gas, and an increase in the flowback of excess federal and state deferred income taxes.

See Note 2 to the financial statements under "Southern Company Gas – Rate Proceedings – Nicor Gas" for additional information.

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 7 to the financial statements under "Southern Company Gas" for additional information. In 2025, net income decreased $16 million, or 15.8%, as compared to 2024 primarily due to legal settlements, increased spending on system integrity initiatives, and lower rates at SNG.

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 2025, net income decreased $15 million, or 14.7%, as compared to 2024. The decrease was due to an $82 million increase in operating expenses primarily related to an increase in cost of natural gas and an increase in charitable contributions, partially offset by a $66 million increase in operating revenues primarily due to higher commodity prices.

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.

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