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 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 first quarter 2026 was $447 million compared to $418 million for the corresponding period in 2025. The increase was primarily due to a $22 million increase in net income at gas distribution operations.

Natural Gas Revenues

In the first quarter 2026, natural gas revenues were $2.2 billion compared to $1.8 billion for the corresponding period in 2025. Details of the changes in natural gas revenues were as follows:

Changes in rates resulted in an increase in revenues in the first quarter 2026 as compared to the corresponding period in 2025 primarily due to base rate increases at Nicor Gas and Atlanta Gas Light. 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 associated with gas costs and other cost recovery increased in the first quarter 2026 as compared to the corresponding period in 2025 primarily due to higher cost of natural gas driven by higher natural gas prices, as well as increases in other expenses passed through to customers. See "Cost of Natural Gas" herein for additional information.

Revenues from gas marketing services increased in the first quarter 2026 as compared to the corresponding period in 2025 primarily due to higher commodity prices, partially offset by weather impacts.

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 84.2% of the total cost of natural gas in the first quarter 2026. 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 first quarter 2026, cost of natural gas was $926 million compared to $674 million for the corresponding period in 2025. The increase reflects higher gas cost recovery as a result of a 38.0% increase in natural gas prices.

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

In the first quarter 2026, other operations and maintenance expenses were $343 million compared to $316 million for the corresponding period in 2025. The increase was primarily due to a $20 million increase related to employee compensation and benefit expenses, a $7 million increase related to certain deferred expenses, a $7 million increase in expenses passed through to customers at gas distribution operations, and a $4 million increase related to expenses for gas mains, partially offset by an $18 million decrease in legal expenses.

In the first quarter 2026, depreciation and amortization was $183 million compared to $169 million for the corresponding period in 2025. The increase was primarily due to additional plant in service related to continued investments at the natural gas distribution utilities.

Taxes Other Than Income Taxes

In the first quarter 2026, taxes other than income taxes were $105 million compared to $97 million for the corresponding period in 2025. 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.

Earnings from Equity Method Investments

In the first quarter 2026, earnings from equity method investments were $46 million compared to $39 million for the corresponding period in 2025. The increase was primarily due to higher revenue from short-term natural gas storage and borrowing services and prior period customer refunds, both 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 thefirst quarter 2026, interest expense, net of amounts capitalized was $105 million compared to $92 million for the corresponding period in 2025. The increase was primarily associated with higher average outstanding borrowings and an interest rate adjustment. See FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" herein for additional information on borrowings.

In the first quarter 2026, income taxes were $145 million compared to $130 million for the corresponding period in 2025. The increase was primarily due to higher 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, 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 first quarter 2026, net income increased $22 million, or 7.0%, as compared to the corresponding period in 2025, as described further below:

•Operating revenues increased $330 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 $286 million primarily due to a $239 million increase in cost of natural gas as a result of higher natural gas prices compared to 2025, a $16 million increase related to employee compensation and benefit expenses, a $15 million increase in depreciation primarily due to additional plant in service related to continued investments at the natural gas distribution utilities, and a $7 million increase related to certain deferred expenses, partially offset by a $19 million decrease in legal expenses.

•Interest expense, net of amounts capitalized increased $9 million primarily due to higher average outstanding borrowings and an interst rate adjustment.

•Income taxes increased $12 million primarily as a result of higher 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.

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.

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.