ALABAMA POWER CO

Each Registrant's results of operations are not necessarily indicative of its future earnings potential. The level of the Registrants' future earnings depends on numerous factors that affect the opportunities, challenges, and risks of the Registrants' primary businesses of selling electricity and/or distributing natural gas, as described further herein. The Registrants are unable to predict changes in law, regulations, regulatory guidance, legal interpretations, policy positions, and implementation actions that may occur in the future.

For the traditional electric operating companies, these factors include the ability to maintain constructive regulatory environments that allow for the timely recovery of prudently-incurred costs during a time of increasing customer affordability concerns and costs, including those related to projected long-term demand growth, stringent environmental standards, including CCR rules, safety, system reliability and resiliency, fuel, restoration following major storms, and capital expenditures, including constructing new electric generating plants, extending the retirement dates of certain fossil fuel plants, and expanding and improving the transmission and distribution systems; continued customer growth; and the trends of an uncertain inflationary environment and reduced electricity usage per customer, especially in residential and commercial markets.

Earnings in the electricity business will also depend upon maintaining and growing sales and pricing of large customers such that incremental costs are met with adequate incremental revenues, considering, among other things, recent trends driving projected growth in electricity consumption including the increasing digitization of the economy and growth in data centers, an increase in industrial activity in the Southern Company system's electric service territory, and continued electrification of transportation. The traditional electric operating companies enter into large load contracts that support economic development and benefit existing customers.

Since 2023, the traditional electric operating companies have contracts with new data centers and other large load customers covering approximately 16 GWs of electric load, with each contract individually representing a maximum electric load greater than 100 MWs, that have been reviewed by the applicable state PSC. Additional contracts totaling approximately four GWs of electric load have been agreed with customers and are subject to review by the applicable state PSC. The approximately 20 GWs of new contracts (Large Load Contracts) fully ramp up over several years after commencement of service. Some of the Large Load Contracts are currently in effect and have commenced service. Service under the remaining Large Load Contracts is expected to begin through 2029.

All of the Large Load Contracts contain minimum bill provisions. Large Load Contracts totaling approximately 16 GWs of electric load (including substantially all signed after 2024) also contain minimum duration, termination payment requirements, and financial security requiring customers to post collateral or provide an acceptable guarantee based on the customer's credit ratings. Certain Large Load Contracts requiring construction of specifically dedicated assets contain provisions for contribution by the customer to construction costs. These terms and conditions are designed to generate adequate incremental revenues associated with incremental costs to serve these customers.

These growth opportunities may be affected by a variety of factors, such as energy efficiency, changes in technology, reliability and operational factors, customer demand, and government policies, which could increase or decrease the associated pace of growth. In addition, these opportunities present risks such as capital access and cost recovery risks. See Note 2 to the financial statements under "Georgia Power – Integrated Resource Plans" in Item 8 of the Form 10-K for additional information regarding Georgia Power's related regulatory proceedings.

The level of future earnings for Southern Power's competitive wholesale electric business depends on numerous factors including the parameters of the wholesale market and the efficient operation of its wholesale generating assets; Southern Power's ability to execute its growth strategy through the development, construction, or acquisition of generating facilities and other energy projects while containing costs; regulatory matters; customer creditworthiness; total electric generating capacity available in Southern Power's market areas; Southern Power's ability to successfully remarket capacity as current contracts expire; renewable portfolio standards; continued availability of federal and state ITCs and PTCs under current and future tax legislation and U.S. Treasury guidance; transmission constraints; cost of generation from units within the Southern Company power pool; and operational limitations. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Income Tax Matters" in Item 7 of the Form 10-K for information regarding the IRA's expansion of the availability of federal ITCs and PTCs and the OBBB's restrictions on federal ITCs and PTCs. Also see Note (K) to the Condensed Financial Statements under "Southern Power" herein for information regarding construction projects.

The level of future earnings for Southern Company Gas' primary business of distributing natural gas and its complementary businesses in the gas pipeline investments and gas marketing services sectors depends on numerous factors. These factors include the natural gas distribution utilities' ability to maintain constructive regulatory environments that allow for the timely recovery of prudently-incurred costs, including those related to projected long-term demand growth, safety, system reliability and resiliency, natural gas, and capital expenditures, including expanding and improving the natural gas distribution systems; the completion and subsequent operation of ongoing infrastructure and other construction projects; customer creditworthiness; and certain policies to limit the use of natural gas, such as the potential in Illinois and across certain other parts of the United States for state or municipal bans on the use of natural gas or policies designed to promote electrification. The volatility of natural gas prices has an impact on Southern Company Gas' customer rates, its long-term competitive position against other energy sources, and the ability of Southern Company Gas' gas marketing services business to capture value from locational and seasonal spreads. Additionally, changes in commodity prices, primarily driven by tight gas supplies, geopolitical events, and diminished gas production, subject a portion of Southern Company Gas' operations to earnings variability and may result in higher natural gas prices. Additional economic factors may contribute to this environment. The demand for natural gas may increase, including from large customers, which may cause natural gas prices to rise and drive higher volatility in the natural gas markets on a longer-term basis. Alternatively, a significant drop in oil and natural gas prices could lead to a consolidation of natural gas producers or reduced levels of natural gas production.

Earnings for both the electricity and natural gas businesses are subject to a variety of other factors. These factors include weather; competition; developing new and maintaining existing energy contracts and associated load requirements with wholesale customers; demand growth from data centers and other large load customers and associated load and operating requirements; customer energy conservation practices; the use of alternative energy sources by customers; government incentives to reduce overall energy usage; fuel, labor, and material prices in an environment of heightened inflation and material and labor supply chain disruptions; and the price elasticity of demand. Demand for electricity and natural gas in the Registrants' service territories is primarily driven by the pace of economic growth or decline that may be affected by changes in regional and global economic conditions and could be influenced by changes in technology, public policy, utility efficiency programs, and customer behavior. Geopolitical conflicts (such as the current Middle East conflict) and significant changes in fiscal, monetary, or trade policies could affect actual economic activity and historical economic relationships in ways not anticipated in economic outlooks or Southern Company system plans. Additionally, changes in inflation, interest rates, and credit market conditions could affect the cost of doing business. All of these factors may impact future earnings. See RESULTS OF OPERATIONS herein for information on energy sales in the Southern Company system's service territory during the first nine months of 2026.

As part of its ongoing effort to adapt to changing market conditions, Southern Company continues to evaluate and consider a wide array of potential business strategies. These strategies may include business combinations, partnerships, strategic alliances, joint ventures, and acquisitions involving other utility or non-utility businesses or properties, disposition of, or the sale of interests in, certain assets or businesses, internal restructuring, or some combination thereof. Furthermore, Southern Company may engage in new business ventures that arise from competitive and regulatory changes in the utility industry. Pursuit of any of the above strategies, or any combination thereof, may significantly affect the business operations, risks, and financial condition of Southern Company. In addition, Southern Power and Southern Company Gas regularly consider and evaluate joint development arrangements as well as acquisitions and/or dispositions of businesses and assets as part of their business strategies. See Note 15 to the financial statements in Item 8 of the Form 10-K, Note (K) to the Condensed Financial Statements herein, and "Construction Programs" herein for additional information.

For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL in Item 7 of the Form 10-K.

Environmental Matters

See MANAGEMENT'S DISCUSSION AND ANALYSIS– FUTURE EARNINGS POTENTIAL– "Environmental Matters" and – FINANCIAL CONDITION AND LIQUIDITY– "Cash Requirements" in Item 7 and Note 3 to the financial statements under "Environmental Remediation" and Note 6 to the financial statements in Item 8 of the Form 10-K, as well as Note (C) to the Condensed Financial Statements under "General Litigation Matters" and "Environmental Remediation" herein, for additional information.

Environmental Laws and Regulations

Water Quality

On May 18, 2026, the EPA published the Unmanaged Combustion Residual Leachate (UCRL) proposed rule, which revises the UCRL requirements from the 2024 ELG Rule. The UCRL proposed rule offers a range of regulatory and technology options to address UCRL. The ultimate impacts of this proposed rule cannot be determined at this time; however, a final rule could result in significant compliance costs.

Coal Combustion Residuals

On April 13, 2026, the EPA published a proposed rule that, if finalized, would make several revisions to the existing federal CCR regulations, including rescinding CCR management unit provisions. The proposal also provides additional clarity around the scope of beneficial use and provides for site-specific groundwater, closure, and corrective action flexibilities under federal or state CCR permits.

On July 14, 2026, the EPA proposed the approval of the State of Alabama's partial CCR permit program. If approved, the state's permit program will operate in lieu of the federal CCR program.

The ultimate impact of these actions cannot be determined at this time.

Based on compliance requirements for closure and monitoring of landfills and surface impoundments pursuant to state and federal CCR rules, the traditional electric operating companies have periodically updated, and expect to continue periodically updating, their related cost estimates and ARO liabilities for each CCR unit as additional information related to compliance monitoring, closure methodologies and strategies, schedules, and/or costs becomes available. Some of these updates have been, and future updates may be, material. The cost estimates for Alabama Power are based on closure-in-place for all surface impoundments. The cost estimates for Georgia Power and Mississippi Power are based on a combination of closure-in-place for some surface impoundments and closure by removal for others. Additionally, the closure designs and plans in the States of Alabama and Georgia are subject to approval by environmental regulatory agencies. Absent continued recovery of ARO costs through regulated rates, results of operations, cash flows, and financial condition for Southern Company and the traditional electric operating companies could be materially impacted.

Greenhouse Gases

On September 17, 2026, the EPA published the Partial Repeal of the Carbon Pollution Standards for Fossil Fuel-Fired Electric Generating Units (2024 GHG Rule Partial Repeal), which repeals all standards for existing units and removes the carbon capture and sequestration requirement for new combustion turbines and combined cycles as required by the 2024 GHG Rules. Petitions for review challenging the 2024 GHG Rule Partial Repeal have been filed in the U.S. Court of Appeals for the D.C. Circuit.

Also on September 17, 2026, the EPA published a supplemental proposed rule for the full repeal of all GHG standards for new and existing power plants under Section 111 of the Clean Air Act.

The ultimate impact of these actions and associated legal matters cannot be determined at this time.

Regulatory Matters

See Note 2 to the financial statements in Item 8 of the Form 10-K, OVERVIEW – "Recent Developments" herein, and Note (B) to the Condensed Financial Statements herein for a discussion of regulatory matters related to Alabama Power, Georgia Power, Mississippi Power, and Southern Company Gas, including items that could impact the applicable Registrants' future earnings, cash flows, and/or financial condition.

On June 11, 2026, the NRC approved Southern Nuclear's subsequent license renewal application for Plant Hatch Units 1 and 2, renewing both units' operating licenses for an additional 20 years (through 2054 and 2058 for Units 1 and 2, respectively).

Construction Programs

The Southern Company system strategy continues to include developing and constructing new electric generating and battery energy storage facilities, expanding and improving the electric transmission and electric and natural gas distribution systems, and undertaking projects to comply with environmental laws and regulations.

The traditional electric operating companies are engaged in continuous construction programs to accommodate existing and estimated future loads on their respective systems. Major generation construction projects are subject to state PSC approval in order to be included in retail rates, through which the traditional electric operating companies recover their approved investment and a return on investment. See Note 2 to the financial statements under "Georgia Power – Integrated Resource Plans" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Georgia Power – Construction" herein for information regarding Georgia Power's current construction projects.

Subsequent to September 30, 2026, Alabama Power placed in service the Gorgas battery energy storage facility, which is designed to store electricity generated by other Alabama Power resources and discharge up to 150 MWs of power for two hours. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Construction Programs" in Item 7 of the Form 10-K for additional information.

Southern Power's construction program includes the Millers Branch solar project, the Grant Plains, Wake, and Bethel wind repowering projects, and the incremental capacity uprate projects at the Franklin and Wansley natural gas facilities. The repowering projects result in accelerated depreciation related to the equipment being replaced that will continue until the projects' completion dates, which are projected to occur through the third quarter 2027. At September 30, 2026, the remaining pre-tax accelerated depreciation is projected to total approximately $95 million in 2026 and $117 million in 2027. The ultimate impact of these matters cannot be determined at this time. See Note (K) to the Condensed Financial Statements under "Southern Power" herein and Note 5 to the financial statements under "Depreciation and Amortization – Southern Power" in Item 8 of the Form 10-K for additional information.

Southern Company Gas is engaged in various infrastructure improvement programs designed to update or expand the natural gas distribution systems of the natural gas distribution utilities to improve reliability and resiliency, reduce emissions, and meet operational flexibility and growth. The natural gas distribution utilities recover their approved investment and a return on investment associated with these infrastructure programs through their regulated rates, as approved by their applicable state regulatory agency. See Note 2 to the financial statements under "Southern Company Gas – Infrastructure Replacement Programs and Capital Projects" in Item 8 of the Form 10-K for additional information on Southern Company Gas' construction program.

On July 31, 2026, the FERC issued an order approving SNG's proposed $3.3 billion South System Expansion 4 pipeline project, designed to meet customer demand by increasing SNG's existing pipeline capacity by approximately 1.3 billion cubic feet per day, of which Southern Company and certain of its affiliates will be customers. Subject to the satisfaction or waiver of various conditions, including the receipt of all remaining required permits and approvals, the operator of the joint venture anticipates that the first and second phases of the project will be placed in service in the fourth quarter 2028 and fourth quarter 2029, respectively. Southern Company Gas' share of the total project costs would be 50%.

SNG has committed to developing an approximately $7.6 billion proposed Southeast Connector pipeline project, designed to meet customer demand through the construction of approximately 2.6 billion cubic feet per day of primarily new pipeline capacity, of which Southern Company and certain of its affiliates will be customers. Subject to the satisfaction or waiver of various conditions, including the receipt of all required permits and approvals by regulators, including the FERC, the first phase of the project is expected to be completed in 2030. Southern Company Gas' share of the total projected expenditures would be $0.2 billion in the fourth quarter 2026, $0.4 billion in 2027, $0.6 billion in 2028, $1.2 billion in 2029, and $0.8 billion in 2030. The ultimate scope of the project will depend on customer commitments.

The ultimate outcome of these matters cannot be determined at this time. See Note 7 to the financial statements in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements herein under "Southern Company Gas" for additional information on SNG.

See FINANCIAL CONDITION AND LIQUIDITY – "Cash Requirements" herein for additional information regarding the Registrants' capital requirements for their construction programs.

Income Tax Matters

See Note (G) to the Condensed Financial Statements herein and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Income Tax Matters" in Item 7 of the Form 10-K for additional information.

Federal Tax Legislation

The OBBB modified certain renewable energy tax incentives and added eligibility restrictions for certain credits related to renewable facilities that are controlled or influenced by, or that receive material assistance from, a prohibited foreign entity.

The U.S. Treasury issued a notice on February 12, 2026, which provides interim safe harbors related to the evaluation of material assistance from a prohibited foreign entity. Southern Company is assessing this guidance and its potential implications for eligibility of technology-neutral tax credits for renewable projects for which construction begins in 2026. The U.S. Treasury has indicated that additional guidance and regulations are expected later in 2026. The ultimate outcome of this matter cannot be determined at this time.

Corporate Alternative Minimum Tax

On February 18, 2026, the U.S. Treasury issued guidance regarding the calculation of the CAMT. The CAMT, enacted as part of the IRA, generally imposes a 15% minimum tax on a corporation's adjusted financial statement income (AFSI) for taxable years beginning after December 31, 2022, subject to applicable thresholds and adjustments under the Internal Revenue Code. The guidance includes provisions that, in certain circumstances, would permit taxpayers to reflect certain repair-related tax deductions as reductions to AFSI for purposes of computing CAMT.

Regulated utilities industry participants have engaged with the U.S. Treasury regarding the interaction of repair-related costs, regulatory accounting, and the CAMT framework. Southern Company is evaluating the guidance, including its applicability to Southern Company's specific facts and circumstances. If applicable, the guidance could reduce Southern Company's potential CAMT exposure by permitting the inclusion of certain repair-related deductions in the computation of AFSI, which could affect Southern Company's income taxes and cash tax position in future periods.

Southern Company will continue to assess the impact of the guidance and any further administrative guidance or regulatory developments.

Georgia State Tax Legislation

On May 11, 2026, the State of Georgia enacted tax legislation that reduced the corporate income tax rate from 5.19% to 4.99% effective for the 2026 tax year. This legislation reduced the amount of Southern Company's and certain subsidiaries' income taxes in the State of Georgia and existing state net accumulated deferred tax liabilities and increased regulatory liabilities at Georgia Power and Southern Company Gas. The legislation is not expected to have a material impact on the net income of the applicable Registrants in 2026.

General Litigation and Other Matters

The Registrants are involved in various matters being litigated and/or regulatory and other matters that could affect future earnings, cash flows, and/or financial condition. The ultimate outcome of such pending or potential litigation against each Registrant and any subsidiaries or regulatory and other matters cannot be determined at this time; however, for current proceedings and/or matters not specifically reported herein or in Notes (B) and (C) to the Condensed Financial Statements herein, management does not anticipate that the ultimate liabilities, if any, arising from such current proceedings and/or matters would have a material effect on such Registrant's financial statements. See Notes (B) and (C) to the Condensed Financial Statements for a discussion of various contingencies, including matters being litigated, regulatory matters, and other matters which may affect future earnings potential.