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 third quarter 2026 was $21 million compared to $25 million for the corresponding period in 2025. The decrease was due to a $3 million decrease in net income at gas distribution operations and a $3 million decrease in net income at gas pipeline investments, partially offset by a $2 million decrease in net loss at all other.

For year-to-date 2026, net income was $593 million compared to $549 million for the corresponding period in 2025. The increase was due to a $24 million increase in net income at gas distribution operations, a $9 million increase in net income at gas pipeline investments, an $8 million increase in net income at gas marketing services, and a $3 million decrease in net loss at all other.

Natural Gas Revenues

In the third quarter 2026, natural gas revenues were $773 million compared to $734 million for the corresponding period in 2025. For year-to-date 2026, natural gas revenues were $3.93 billion compared to $3.55 billion for the corresponding period in 2025. Details of the changes in natural gas revenues were as follows:

Changes in rates resulted in increases in revenues in the third quarter and year-to-date 2026 as compared to the corresponding periods 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 decreased in the third quarter 2026 as compared to the corresponding period in 2025 primarily due to lower cost of natural gas driven by lower natural gas prices. Revenues associated with gas costs and other cost recovery increased for year-to-date 2026 as compared to the corresponding period in 2025 primarily due to higher cost of natural gas driven by higher natural gas prices in the first quarter 2026, partially offset by a decrease in other expenses passed through to customers. See "Cost of Natural Gas" herein for additional information.

Revenues from gas marketing services increased for year-to-date 2026 as compared to the corresponding period in 2025 primarily due to higher commodity prices in the first quarter 2026, 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 77.8% and 84.2% of the total cost of natural gas in the third quarter and year-to-date 2026, 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 2026, cost of natural gas was $99 million compared to $116 million for the corresponding period in 2025. Thedecrease reflects lower gas cost recovery as a result of a 3.8% decrease in natural gas prices.

For year-to-date 2026, cost of natural gas was $1.2 billion compared to $1.0 billion for the corresponding period in 2025. The increase reflects higher gas cost recovery, primarily in the first quarter 2026, as a result of a 7.2% increase in natural gas prices.

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

In the third quarter 2026, other operations and maintenance expenses were $346 million compared to $314 million for the corresponding period in 2025. The increase was primarily due to increases of $10 million in employee compensation and benefit expenses, $9 million in charges associated with the disallowance of certain capital investments at Nicor Gas as part of its 2025 base rate case, $8 million in certain deferred expenses, and $7 million in expenses for gas mains.

For year-to-date 2026, other operations and maintenance expenses were $1.0 billion compared to $0.9 billion for the corresponding period in 2025. The increase was primarily due to increases of $40 million in employee compensation and benefit expenses, $20 million in certain deferred expenses, $20 million in charges associated with the disallowance of certain capital investments at Nicor Gas as part of its 2025 base rate case, $15 million in expenses for gas mains, $11 million in expenses related to energy service contracts at gas distribution operations, and $9 million in certain technology infrastructure and application production costs, partially offset by a decrease of $22 million in legal expenses.

See Note 2 to the financial statements under "Southern Company Gas – Rate Proceedings – Nicor Gas" in Item 8 of the Form 10-K for additional information.

In the third quarter 2026, depreciation and amortization was $196 million compared to $176 million for the corresponding period in 2025. For year-to-date 2026, depreciation and amortization was $565 million compared to $517 million for the corresponding period in 2025. The increases were primarily due to additional plant in service related to continued investments at the natural gas distribution utilities.

In the third quarter 2026, taxes other than income taxes were $52 million compared to $48 million for the corresponding period in 2025. For year-to-date 2026, taxes other than income taxes were $218 million compared to $206 million for the corresponding period in 2025. The increases were primarily due to increases 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

For year-to-date 2026, earnings from equity method investments were $108 million compared to $93 million for the corresponding period in 2025. The increase was primarily due to higher revenue from short-term natural gas storage and borrowing services, prior period customer refunds, and lower legal expenses, all 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 2026, inte rest expense, net of amounts capitalized was $107 million compared to $94 million for the corresponding period in 2025. For year-to-date 2026, interest expense, net of amounts capitalized was $313 million compared to $277 million for the corresponding period in 2025. The increases were primarily associated with higher average outstanding borrowings. See FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" herein for additional information on borrowings.

In thethird quarter 2026, other income (expense), net was $25 million compared to $14 million for the corresponding period in 2025. For year-to-date 2026, other income (expense), net was $66 million compared to $48 million for the corresponding period in 2025. The increases were primarily due to lower non-service cost-related retirement benefits income.

Foryear-to-date 2026, income taxes were $184 million compared to $169 million for the corresponding period in 2025. The increases were primarily due to higher pre-tax earnings and a decrease in the flowback of excess state deferred income taxes, partially offset by tax benefits related to certain state tax filing positions.

See Note (G) to the Condensed Financial Statements herein for additional information.

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 usage, the earnings of the natural gas distribution utilities can be affected by customer usage patterns that are largely a function of price levels for natural gas and general economic conditions that may impact customers' ability to pay for service. Southern Company Gas has various regulatory and other mechanisms, such as weather and revenue normalization mechanisms, that limit its exposure to changes in customer usage, 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 2026, net income decreased $3 million, or 25.0%, when compared to the corresponding period in 2025, as described further below:

•Operating revenues increased $38 million primarily due to increases in base rates and energy services projects, partially offset by lower gas cost and other cost recovery. Gas costs recovered through natural gas revenues generally equal the amount expensed in cost of natural gas.

•Operating expenses increased $38 million primarily due to a $16 million increase in depreciation primarily due to additional plant in service related to continued investments at the natural gas distribution utilities, $9 million in charges associated with the disallowance of certain capital investments at Nicor Gas as part of its 2025 base rate case, an $8 million increase in employee compensation and benefit expenses, an $8 million increase in certain deferred expenses, and a $7 million increase in expenses for gas mains, partially offset by a $17 million decrease in cost of natural gas.

•Interest expense, net of amounts capitalized increased $10 million primarily due to higher average outstanding borrowings.

•Income taxes increased $5 million primarily as a result of higher pre-tax earnings.

For year-to-date 2026, net income increased $24 million, or 5.8%, when compared to the corresponding period in 2025, as described further below:

•Operating revenues increased $369 million primarily due to base rate increases and higher gas cost recovery. Gas costs recovered through natural gas revenues generally equal the amount expensed in cost of natural gas.

•Operating expenses increased $311 million primarily due to a $158 million increase in cost of natural gas as a result of higher natural gas prices in the first quarter 2026 compared to 2025, a $46 million increase in depreciation primarily due to additional plant in service related to continued investments at the natural gas distribution utilities, a $30 million increase in employee compensation and benefit expenses, a $20 million increase in certain deferred expenses, $20 million in charges associated with the disallowance of certain capital investments at Nicor Gas as part of its 2025 base rate case, a $15 million increase in expenses for gas mains, and an $11 million increase in expenses related to energy service contracts, partially offset by a $22 million decrease in legal expenses.

•Interest expense, net of amounts capitalized increased $28 million primarily due to higher average outstanding borrowings.

•Income taxes increased $20 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.

In the third quarter 2026, net income decreased $3 million, or 15.0%, when compared to the corresponding period in 2025. The decrease was primarily due to increased depreciation resulting from capital projects.

For year-to-date 2026, net income increased $9 million, or 14.5%, when compared to the corresponding period in 2025. The increase was primarily due to higher revenue from short-term natural gas storage and borrowing services, prior period customer refunds, and lower legal expenses, all 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.

For year-to-date 2026, net income increased $8 million, or 10.4%, when compared to the corresponding period in 2025. The increase was primarily due to higher retail margins, partially offset by higher operations and maintenance expenses and income taxes.

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.

For year-to-date 2026, net loss decreased $3 million, or 42.9%, when compared to the corresponding period in 2025. The change was primarily due to tax benefits related to certain state tax positions.