filings.toolsItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
| Page | |||||
| Combined Management's Discussion and Analysis of Financial Condition and Results of Operations | |||||
| Overview | 90 | ||||
| Results of Operations | 92 | ||||
| Southern Company | 92 | ||||
| Alabama Power | 100 | ||||
| Georgia Power | 105 | ||||
| Mississippi Power | 111 | ||||
| Southern Power | 115 | ||||
| Southern Company Gas | 118 | ||||
| Future Earnings Potential | 124 | ||||
| Accounting Policies | 128 | ||||
| Financial Condition and Liquidity | 129 |
The following Management's Discussion and Analysis of Financial Condition and Results of Operations is a combined presentation; however, information contained herein relating to any individual Registrant is filed by such Registrant on its own behalf and each Registrant makes no representation as to information related to the other Registrants.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Southern Company is a holding company that owns all of the common stock of three traditional electric operating companies (Alabama Power, Georgia Power, and Mississippi Power), Southern Power, and Southern Company Gas and owns other direct and indirect subsidiaries. The primary businesses of the Southern Company system are electricity sales by the traditional electric operating companies and Southern Power and the distribution of natural gas by Southern Company Gas. Southern Company's reportable segments are the sale of electricity by the traditional electric operating companies, the sale of electricity in the competitive wholesale market by Southern Power, and the sale of natural gas and other complementary products and services by Southern Company Gas. Southern Company Gas' reportable segments are gas distribution operations, gas pipeline investments, and gas marketing services. See Note (L) to the Condensed Financial Statements herein for additional information on segment reporting. Alabama Power, Georgia Power, and Mississippi Power each operate with one reportable business segment, since substantially all of their business is providing electric service to customers. Southern Power also operates its business with one reportable business segment, the sale of electricity in the competitive wholesale market. For additional information on the Registrants' primary business activities, see BUSINESS – "The Southern Company System" in Item 1 of the Form 10-K.
The Registrants continue to focus on several key performance indicators. For the traditional electric operating companies and Southern Company Gas, these indicators include, but are not limited to, customer satisfaction, plant availability, electric and natural gas system reliability, and execution of major construction projects. Southern Company Gas also continues to focus on several operating metrics, including Heating Degree Days, customer count, and volumes of natural gas sold. Southern Company Gas measures weather and the effect on its business using Heating Degree Days. Generally, increased Heating Degree Days result in higher demand for natural gas on Southern Company Gas' distribution system. For Southern Power, key performance indicators include, but are not limited to, the equivalent forced outage rate and contract availability to evaluate operating results and help ensure its ability to meet its contractual commitments to customers. In addition, Southern Company and the Subsidiary Registrants focus on earnings per share and net income, respectively, as a key performance indicator.
Recent Developments
Alabama Power
On May 8, 2024, the Alabama PSC issued a consent order to lower Rate ECR from 3.270 cents per KWH to 3.015 cents per KWH, or approximately $135 million annually, effective with July 2024 billings. See Note (B) to the Condensed Financial Statements under "Alabama Power – Rate ECR" herein for additional information.
Georgia Power
Plant Vogtle Units 3 and 4 Construction and Start-Up Status
Georgia Power placed Plant Vogtle Units 3 and 4 in service on July 31, 2023 and April 29, 2024, respectively. Since placing Unit 4 in service, Southern Nuclear has evaluated the remaining expected site demobilization costs and other contractor obligations and reduced the remaining estimate to complete forecast by approximately $21 million. Accordingly, Georgia Power recorded a pre-tax credit to income of approximately $21 million ($16 million after tax) in the second quarter 2024 to recognize capital costs previously charged to income. Georgia Power's share of the total project capital cost forecast, including completion of site demobilization and remaining contractor obligations, is $10.7 billion. See Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction – Cost and Schedule" herein for additional information.
Plant Vogtle Units 3 and 4 Regulatory Matters
Georgia Power included in retail rate base $5.462 billion of construction and capital costs as well as $647 million of associated retail rate base items effective with the April 29, 2024 in-service date for Unit 4, pursuant to the approved Prudency Stipulation. Annual retail base revenues increased approximately $730 million and the average
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
retail base rates were adjusted by approximately 5% (net of the elimination of the NCCR tariff described below) effective May 1, 2024.
Further, as included in the approved Prudency Stipulation, since commercial operation for Unit 4 was not achieved by March 31, 2024, Georgia Power's ROE used to determine the NCCR tariff and calculate AFUDC was reduced to zero effective April 1, 2024. Effective May 1, 2024, following commercial operation of Unit 4, Georgia Power's NCCR tariff was eliminated.
See Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction – Regulatory Matters" herein for additional information.
Integrated Resource Plan
On April 16, 2024, the Georgia PSC approved Georgia Power's updated IRP (2023 IRP Update) as modified by a stipulation among Georgia Power, the staff of the Georgia PSC, and certain intervenors, which includes the authority to develop, own, and operate up to 1,400 MWs from three simple cycle combustion turbines at Plant Yates. See Note (B) to the Condensed Financial Statements under "Georgia Power – Integrated Resource Plans" herein for additional information.
Mississippi Power
On April 26, 2024, Mississippi Power filed its 2024 IRP with the Mississippi PSC. The filing includes a schedule to retire Plant Watson Unit 4 (268 MWs) and Plant Greene County Units 1 and 2 (206 MWs based on 40% ownership) and to retire early Plant Daniel Units 1 and 2 (502 MWs based on 50% ownership), all by the end of 2028. The 2024 IRP is subject to review by the Mississippi PSC and is expected to conclude in the third quarter 2024.
On March 29, 2024, Mississippi Power filed a request with the FERC for an $8 million increase in annual wholesale base revenues under the MRA tariff and requested an effective date of May 29, 2024. On April 19, 2024, Cooperative Energy challenged the new rates in a filing with the FERC. On May 28, 2024, the FERC issued an order accepting Mississippi Power's request effective May 29, 2024, subject to refund, and establishing hearing and settlement judge procedures.
The ultimate outcome of these matters cannot be determined at this time.
See Note (B) to the Condensed Financial Statements under "Mississippi Power" herein for additional information.
Southern Power
During the six months ended June 30, 2024, Southern Power completed construction of and placed in service the 150-MW South Cheyenne solar facility. In addition, Southern Power continued construction of the 200-MW first phase and the 180-MW second phase of the Millers Branch solar facility. Southern Power also committed to expand construction by an additional 90 MWs through a third phase of the Millers Branch solar project. The third phase of the facility's output is contracted under a 15-year PPA and commercial operation is projected to occur in the fourth quarter 2026. See Note (K) to the Condensed Financial Statements under "Southern Power" herein for additional information.
At June 30, 2024, Southern Power's average investment coverage ratio for its generating assets, including those owned with various partners, based on the ratio of investment under contract to total investment using the respective facilities' net book value (or expected in-service value for facilities under construction) as the investment amount was 97% through 2028 and 89% through 2033, with an average remaining contract duration of approximately 12 years.
Southern Company Gas
Atlanta Gas Light
On July 2, 2024, the Georgia PSC approved a stipulation related to Atlanta Gas Light's triennial Integrated Capacity and Delivery Plan filing, filed on February 1, 2024, which allows capital investments totaling approximately
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
$0.6 billion annually for the years 2025 through 2027 with related revenue requirement recovery through either the annual GRAM filing or the System Reinforcement Rider surcharge adjustment. Additionally, the Georgia PSC approved a surcharge recovery mechanism for capital projects related to municipal, county, and Georgia Department of Transportation (GDOT) infrastructure work. Rate changes associated with the new surcharge, if approved, will be based on requests filed annually on September 1, with new rates to become effective January 1 of the following year. Finally, the stipulation requires Atlanta Gas Light to include an alternate rate plan for the three-year period of 2025 through 2027 with its 2025 GRAM filing.
On July 31, 2024, Atlanta Gas Light submitted its annual GRAM filing with the Georgia PSC, which includes projections for the System Reinforcement Rider and municipal, county, and GDOT surcharge adjustments. The filing requests a traditional annual base rate increase of $120 million. In accordance with the approved Integrated Capacity and Delivery Plan filing, Atlanta Gas Light also included two alternative annual base rate increases for 2025 that provide for lower increases in 2025 with subsequent increases in 2026 and 2027. Resolution of the GRAM filing is expected by December 31, 2024, with new rates effective January 1, 2025. The ultimate outcome of this matter cannot be determined at this time.
Virginia Natural Gas
On June 7, 2024, the Virginia Commission approved the extension of Virginia Natural Gas' SAVE program through 2029. The extension of the program includes investments of $70 million in each year from 2025 through 2029, with a potential variance of up to $5 million allowed for the program, for a maximum total investment over the five-year extension of $355 million.
RESULTS OF OPERATIONS
Southern Company
Net Income
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $365 | 43.6 | $632 | 37.2 |
Consolidated net income attributable to Southern Company was $1.2 billion ($1.10 per share) in the second quarter 2024 compared to $0.8 billion ($0.77 per share) for the corresponding period in 2023. For year-to-date 2024, consolidated net income attributable to Southern Company was $2.3 billion ($2.13 per share) compared to $1.7 billion ($1.56 per share) for the corresponding period in 2023. The increases were primarily due to increases in retail electric revenues associated with rates and pricing and warmer weather in the second quarter 2024 compared to the corresponding period in 2023, an increase in natural gas revenues from rate increases, an increase in other revenues, and a decrease in non-fuel operations and maintenance costs, partially offset by increases in interest expense, depreciation and amortization, taxes other than income taxes, and cost of other sales. Also contributing to the year-to-date 2024 increase was an increase in retail electric revenues associated with colder weather in the first quarter 2024 compared to the corresponding period in 2023.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Retail Electric Revenues
In the second quarter 2024, retail electric revenues were $4.5 billion compared to $3.9 billion for the corresponding period in 2023. For year-to-date 2024, retail electric revenues were $8.4 billion compared to $7.5 billion for the corresponding period in 2023. Details of the changes in retail electric revenues were as follows:
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Rates and pricing | $ | 360 | 9.3 | % | $ | 598 | 8.0 | % | |||||||||||||||
| Sales growth | 8 | 0.2 | 57 | 0.8 | |||||||||||||||||||
| Weather | 202 | 5.2 | 295 | 4.0 | |||||||||||||||||||
| Fuel and other cost recovery | 57 | 1.5 | 19 | 0.2 | |||||||||||||||||||
| Retail electric revenues | $ | 627 | 16.2 | % | $ | 969 | 13.0 | % |
Revenues associated with changes in rates and pricing increased in the second quarter and year-to-date 2024 when compared to the corresponding periods in 2023 primarily due to the inclusion of Plant Vogtle Units 3 and 4 in retail rates at Georgia Power, base tariff increases at Georgia Power in accordance with its 2022 ARP, customer bill credits in 2023 at Alabama Power related to the flowback of certain excess accumulated deferred income taxes, an increase in Rate CNP New Plant revenues at Alabama Power, and higher contributions from commercial and industrial customers with variable demand-driven pricing at Georgia Power, partially offset by a decrease in revenues recognized under the NCCR tariff at Georgia Power primarily due to its elimination in the second quarter 2024 following commercial operation of Plant Vogtle Unit 4. See Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction – Regulatory Matters" herein and Note 2 to the financial statements under "Alabama Power" and "Georgia Power" in Item 8 of the Form 10-K for additional information.
Revenues attributable to changes in sales increased in the second quarter and year-to-date 2024 when compared to the corresponding periods in 2023. Weather-adjusted residential KWH sales decreased 1.0% in the second quarter 2024 primarily due to decreased customer usage. Weather-adjusted residential KWH sales increased 0.1% for year-to-date 2024 primarily due to customer growth. Weather-adjusted commercial KWH sales increased 2.8% and 3.3% in the second quarter and year-to-date 2024, respectively, primarily due to increased customer usage. Industrial KWH sales were flat in the second quarter 2024 and increased 0.2% for year-to-date 2024 primarily due to increases in the transportation and lumber sectors, largely offset by decreases in the paper and primary metals sectors.
Fuel and other cost recovery revenues increased $57 million and $19 million in the second quarter and year-to-date 2024, respectively, compared to the corresponding periods in 2023 primarily due to higher recoverable fuel and purchased power costs. Electric rates for the traditional electric operating companies include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these provisions, fuel revenues generally equal fuel expenses, including the energy component of PPA costs, and do not affect net income. The traditional electric operating companies each have one or more regulatory mechanisms to recover other costs such as environmental and other compliance costs, storm damage, new plants, and PPA capacity costs. See Note 2 to the financial statements in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein for additional information.
Wholesale Electric Revenues
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $22 | 3.6 | $(5) | (0.4) |
In the second quarter 2024, wholesale electric revenues were $627 million compared to $605 million for the corresponding period in 2023. The increase was due to a $20 million increase in energy revenues primarily resulting from an increase in the volume of KWHs sold under solar and wind PPAs at Southern Power and a $2 million
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
increase in capacity revenues primarily resulting from new capacity contracts at Georgia Power and increased capacity revenues associated with natural gas PPAs at Southern Power, largely offset by a decrease resulting from power sales agreements that ended in May 2023 at Alabama Power.
Wholesale electric revenues consist of revenues from PPAs and short-term opportunity sales. Wholesale electric revenues from PPAs (other than solar and wind PPAs) have both capacity and energy components. Capacity revenues generally represent the greatest contribution to net income and are designed to provide recovery of fixed costs plus a return on investment. Energy revenues will vary depending on fuel prices, the market prices of wholesale energy compared to the Southern Company system's generation, demand for energy within the Southern Company system's electric service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not have a significant impact on net income. Energy sales from solar and wind PPAs do not have a capacity charge and customers either purchase the energy output of a dedicated renewable facility through an energy charge or through a fixed price related to the energy. As a result, the ability to recover fixed and variable operations and maintenance expenses is dependent upon the level of energy generated from these facilities, which can be impacted by weather conditions, equipment performance, transmission constraints, and other factors. Wholesale electric revenues at Mississippi Power include FERC-regulated municipal and rural association sales under cost-based tariffs as well as market-based sales. Short-term opportunity sales are made at market-based rates that generally provide a margin above the Southern Company system's variable cost to produce the energy.
Other Electric Revenues
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $1 | 0.5 | $10 | 2.5 |
For year-to-date 2024, other electric revenues were $409 million compared to $399 million for the corresponding period in 2023. The increase was primarily due to increases of $20 million in transmission revenues primarily associated with open access transmission tariff sales, $11 million in regulated outdoor lighting sales at Georgia Power, and $7 million in customer fees, partially offset by decreases of $11 million associated with price stability products for retail customers on variable demand-driven pricing tariffs at Georgia Power, $7 million in rent revenues at Alabama Power, and $7 million in receipts of liquidated damages associated with generation facility production guarantees at Southern Power.
Natural Gas Revenues
In the second quarter 2024, natural gas revenues were $831 million compared to $852 million for the corresponding period in 2023. For year-to-date 2024, natural gas revenues were $2.5 billion compared to $2.7 billion for the corresponding period in 2023. Details of the changes in natural gas revenues were as follows:
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Rate changes | $ | 37 | 4.3 | % | $ | 189 | 6.9 | % | |||||||||||||||
| Gas costs and other cost recovery | (48) | (5.6) | (339) | (12.4) | |||||||||||||||||||
| Gas marketing services | (4) | (0.5) | (13) | (0.5) | |||||||||||||||||||
| Other | (6) | (0.7) | (27) | (1.0) | |||||||||||||||||||
| Natural gas revenues | $ | (21) | (2.5) | % | $ | (190) | (7.0) | % |
Revenues from rate changes at the natural gas distribution utilities increased in the second quarter and year-to-date 2024 compared to the corresponding periods in 2023 primarily due to rate increases and a change in timing of revenues at Nicor Gas. See Note 2 to the financial statements under "Southern Company Gas – Rate Proceedings" in Item 8 of the Form 10-K for additional information.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Revenues from gas costs and other cost recovery decreased in the second quarter and year-to-date 2024 compared to the corresponding periods in 2023 primarily due to lower natural gas cost recovery associated with lower natural gas prices and lower demand associated with warmer weather when compared to the corresponding periods in 2023. 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 the natural gas distribution utilities.
Revenues from gas marketing services decreased in the second quarter and year-to-date 2024 compared to the corresponding periods in 2023 primarily due to lower commodity prices.
Other Revenues
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $86 | 38.6 | $97 | 22.0 |
In the second quarter 2024, other revenues were $309 million compared to $223 million for the corresponding period in 2023. For year-to-date 2024, other revenues were $537 million compared to $440 million for the corresponding period in 2023. The increases in the second quarter and year-to-date 2024 were primarily due to increases of $48 million and $49 million, respectively, at PowerSecure primarily related to distributed infrastructure and energy efficiency projects, $35 million and $42 million, respectively, in unregulated sales at Georgia Power primarily associated with power delivery construction and maintenance projects, energy conservation projects, and outdoor lighting, and $8 million for both periods in unregulated sales of products and services at Alabama Power, partially offset by decreases of $13 million and $12 million, respectively, at Southern Linc primarily related to sales associated with commercial customers.
Fuel and Purchased Power Expenses
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Fuel | $ | 73 | 7.6 | $ | 19 | 0.9 | |||||||||||||||||
| Purchased power | (9) | (3.9) | (53) | (11.2) | |||||||||||||||||||
| Total fuel and purchased power expenses | $ | 64 | $ | (34) |
In the second quarter 2024, total fuel and purchased power expenses were $1.3 billion compared to $1.2 billion for the corresponding period in 2023. The increase was primarily due to a net increase related to the volume of KWHs generated and purchased.
For year-to-date 2024, total fuel and purchased power expenses were $2.4 billion compared to $2.5 billion for the corresponding period in 2023. The decrease was due to a $56 million net decrease related to the average cost of fuel and purchased power, partially offset by a $22 million net increase related to the volume of KWHs generated and purchased.
Fuel and purchased power energy transactions at the traditional electric operating companies are generally offset by fuel revenues and do not have a significant impact on net income. See Note 2 to the financial statements in Item 8 of the Form 10-K for additional information. Fuel expenses incurred under Southern Power's PPAs are generally the responsibility of the counterparties and do not significantly impact net income.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Details of the Southern Company system's generation and purchased power were as follows:
| Second Quarter 2024 | Second Quarter 2023 | Year-To-Date 2024 | Year-To-Date 2023 | |||||||||||
| Total generation (in billions of KWHs)(a) | 47 | 44 | 92 | 88 | ||||||||||
| Total purchased power (in billions of KWHs) | 4 | 5 | 8 | 9 | ||||||||||
| Sources of generation (percent) — | ||||||||||||||
| Gas | 50 | 54 | 50 | 54 | ||||||||||
| Nuclear(a) | 20 | 18 | 20 | 17 | ||||||||||
| Coal | 19 | 16 | 18 | 16 | ||||||||||
| Hydro | 2 | 3 | 3 | 4 | ||||||||||
| Wind, Solar, and Other | 9 | 9 | 9 | 9 | ||||||||||
| Cost of fuel, generated (in cents per net KWH)— | ||||||||||||||
| Gas | 2.56 | 2.42 | 2.72 | 2.78 | ||||||||||
| Nuclear(a) | 0.89 | 0.71 | 0.85 | 0.71 | ||||||||||
| Coal | 3.95 | 4.55 | 3.88 | 4.30 | ||||||||||
| Average cost of fuel, generated (in cents per net KWH)(a) | 2.49 | 2.47 | 2.54 | 2.63 | ||||||||||
| Average cost of purchased power (in cents per net KWH)(b) | 5.14 | 4.97 | 5.40 | 5.23 |
(a)Excludes KWHs generated from test period energy at Plant Vogtle Units 3 and 4 prior to their respective in-service dates. The related fuel costs were charged to CWIP in accordance with FERC guidance. See Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein for additional information on Plant Vogtle Units 3 and 4.
(b)Average cost of purchased power includes fuel purchased by the Southern Company system for tolling agreements where power is generated by the provider.
Fuel
In the second quarter 2024, fuel expense was $1.03 billion compared to $959 million for the corresponding period in 2023. The increase was primarily due to a 25.4% increase in the average cost per KWH generated by nuclear, a 23.4% increase in the volume of KWHs generated by coal, a 23.4% decrease in the volume of KWHs generated by hydro, a 15.2% increase in the volume of KWHs generated by nuclear, and a 5.8% increase in the average cost per KWH generated by natural gas, partially offset by a 13.2% decrease in the average cost per KWH generated by coal.
For year-to-date 2024, fuel expense was $2.03 billion compared to $2.01 billion for the corresponding period in 2023. The increase was primarily due to a 20.7% increase in the volume of KWHs generated by coal, a 19.7% increase in the average cost per KWH generated by nuclear, a 16.7% increase in the volume of KWHs generated by nuclear, and a 16.7% decrease in the volume of KWHs generated by hydro, partially offset by a 9.8% decrease in the average cost per KWH generated by coal, a 3.3% decrease in the volume of KWHs generated by natural gas, and a 2.2% decrease in the average cost per KWH generated by natural gas.
Purchased Power
In the second quarter 2024, purchased power expense was $222 million compared to $231 million for the corresponding period in 2023. For year-to-date 2024, purchased power expense was $420 million compared to $473 million for the corresponding period in 2023. The decreases in the second quarter and year-to-date 2024 were primarily due to decreases of 9.7% and 15.3%, respectively, in the volume of KWHs purchased primarily as a result of a PPA that ended in May 2023 and the availability of Plant Barry Unit 8 and Central Alabama Generating Station generation, both at Alabama Power, partially offset by increases of 3.4% and 3.3%, respectively, in the average cost per KWH purchased.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Energy purchases will vary depending on demand for energy within the Southern Company system's electric service territory, the market prices of wholesale energy as compared to the cost of the Southern Company system's generation, and the availability of the Southern Company system's generation.
Cost of Natural Gas
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(50) | (25.1) | $(343) | (31.3) |
Excluding Atlanta Gas Light, which does not sell natural gas to end-use customers, the natural gas distribution utilities' 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 the natural gas distribution utilities. See Note 2 to the financial statements under "Southern Company Gas – Natural Gas Cost Recovery" in Item 8 of the Form 10-K for additional information. Cost of natural gas at the natural gas distribution utilities represented 81% of the total cost of natural gas for both the second quarter and year-to-date 2024.
In the second quarter 2024, cost of natural gas was $149 million compared to $199 million for the corresponding period in 2023. For year-to-date 2024, cost of natural gas was $0.8 billion compared to $1.1 billion for the corresponding period in 2023. The decreases reflect lower gas cost recovery as a result of decreases of 10% and 25% in natural gas prices in the second quarter and year-to-date 2024, respectively.
Cost of Other Sales
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $39 | 30.5 | $43 | 16.9 |
In the second quarter 2024, cost of other sales was $167 million compared to $128 million for the corresponding period in 2023. For year-to-date 2024, cost of other sales was $298 million compared to $255 million for the corresponding period in 2023. The increases in the second quarter and year-to-date 2024 were primarily due to increases of $31 million and $30 million, respectively, at PowerSecure primarily related to distributed infrastructure and energy efficiency projects and $15 million and $16 million, respectively, in unregulated power delivery construction and maintenance contracts at Georgia Power, partially offset by decreases of $10 million and $9 million, respectively, at Southern Linc primarily related to sales associated with commercial customers.
Other Operations and Maintenance Expenses
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(80) | (5.4) | $(48) | (1.6) |
In the second quarter 2024, other operations and maintenance expenses were $1.4 billion compared to $1.5 billion for the corresponding period in 2023. The decrease was primarily due to a $115 million increase in gains from sales of integrated transmission system assets at Georgia Power, a $30 million prior year regulatory disallowance at Nicor Gas, and a decrease of $20 million in technology infrastructure and application production costs, partially offset by increases of $20 million in employee compensation and benefit expenses, $18 million in generation expenses primarily associated with Plant Vogtle Units 3 and 4 being placed in service at Georgia Power, $16 million in customer service and sales expenses primarily associated with demand-side management costs at Georgia Power, $10 million in expenses associated with unregulated energy conservation projects at Georgia Power, and $7 million related to the injuries and damages reserve primarily at Alabama Power, as well as a gain of $6 million on the sale of a service center in 2023 at Southern Company Gas.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
For year-to-date 2024, other operations and maintenance expenses were $2.88 billion compared to $2.93 billion for the corresponding period in 2023. The decrease was primarily due to a $95 million increase in gains from sales of integrated transmission system assets at Georgia Power, a decrease of $49 million in technology infrastructure and application production costs, a $30 million prior year regulatory disallowance at Nicor Gas, and a $20 million decrease in expenses passed through to customers primarily related to bad debt and energy efficiency programs at Southern Company Gas, partially offset by increases of $70 million in generation expenses primarily associated with Plant Vogtle Units 3 and 4 being placed in service at Georgia Power, Rate CNP Compliance-related expenses at Alabama Power, and maintenance and scheduled outage expenses at Southern Power, $33 million in employee compensation and benefit expenses, $24 million in customer service and sales expenses primarily associated with demand-side management costs at Georgia Power, $13 million in expenses associated with unregulated energy conservation projects at Georgia Power, and $10 million in transmission and distribution costs primarily associated with line maintenance and billing adjustments with integrated transmission system owners at Georgia Power.
See Note (B) to the Condensed Financial Statements under "Georgia Power – Transmission Asset Sales" and " – Nuclear Construction" herein and Note 2 to the financial statements under "Southern Company Gas – Infrastructure Replacement Programs and Capital Projects – Nicor Gas" in Item 8 of the Form 10-K for additional information.
Depreciation and Amortization
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $70 | 6.3 | $105 | 4.7 |
In the second quarter 2024, depreciation and amortization was $1.2 billion compared to $1.1 billion for the corresponding period in 2023. For year-to-date 2024, depreciation and amortization was $2.3 billion compared to $2.2 billion for the corresponding period in 2023. The increases in the second quarter and year-to-date 2024 were primarily due to increases of $81 million and $141 million, respectively, associated with additional plant in service, partially offset by decreases of $15 million and $30 million, respectively, in amortization of regulatory assets related to CCR AROs at Georgia Power as approved in the 2024 compliance filing under the terms of the 2022 ARP. See Note 2 to the financial statements under "Georgia Power" in Item 8 of the Form 10-K for additional information.
Taxes Other Than Income Taxes
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $44 | 12.9 | $46 | 6.3 |
In the second quarter 2024, taxes other than income taxes were $384 million compared to $340 million for the corresponding period in 2023. For year-to-date 2024, taxes other than income taxes were $780 million compared to $734 million for the corresponding period in 2023. The increases in the second quarter and year-to-date 2024 were primarily due to increases of $28 million and $40 million, respectively, in property taxes primarily resulting from an increase in assessed value of property, $11 million and $14 million, respectively, in municipal franchise fees resulting from higher retail revenues at Georgia Power, and $5 million and $8 million, respectively, in utility license taxes resulting from an increase in the tax base at Alabama Power. Partially offsetting the increase for year-to-date 2024 was a decrease of $15 million in revenue taxes as a result of lower natural gas revenues at Nicor Gas.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Estimated Loss on Plant Vogtle Units 3 and 4
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(21) | N/M | $(21) | N/M |
Georgia Power recorded a pre-tax credit to income related to the estimated probable loss on Plant Vogtle Units 3 and 4 totaling $21 million in the second quarter 2024. This credit reflects a revision to the total project capital cost forecast for the completion of Plant Vogtle Units 3 and 4. See Note (B) to the Condensed Financial Statements herein and Note 2 to the financial statements in Item 8 of the Form 10-K under "Georgia Power – Nuclear Construction" for additional information.
Allowance for Equity Funds Used During Construction
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(19) | (27.1) | $(26) | (19.3) |
In the second quarter 2024, allowance for equity funds used during construction was $51 million compared to $70 million for the corresponding period in 2023. For year-to-date 2024, allowance for equity funds used during construction was $109 million compared to $135 million for the corresponding period in 2023. The decreases were primarily associated with Plant Vogtle Units 3 and 4 being placed in service in July 2023 and April 2024, respectively, at Georgia Power and Plant Barry Unit 8 being placed in service in November 2023 at Alabama Power, partially offset by an increase in capital expenditures subject to AFUDC at Georgia Power. See Note 2 to the financial statements under "Alabama Power" and "Georgia Power" in Item 8 of the Form 10-K for additional information.
Interest Expense, Net of Amounts Capitalized
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $84 | 13.8 | $166 | 13.9 |
In the second quarter 2024, interest expense, net of amounts capitalized was $694 million compared to $610 million for the corresponding period in 2023. For year-to-date 2024, interest expense, net of amounts capitalized was $1.4 billion compared to $1.2 billion for the corresponding period in 2023. The increases in the second quarter and year-to-date 2024 primarily reflect increases of approximately $43 million and $96 million, respectively, related to higher interest rates and $33 million and $78 million, respectively, related to higher average outstanding borrowings. See FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" and "Financing Activities" herein for additional information on borrowings.
Other Income (Expense), Net
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $9 | 6.3 | $16 | 5.6 |
In the second quarter 2024, other income (expense), net was $151 million compared to $142 million for the corresponding period in 2023. For year-to-date 2024, other income (expense), net was $302 million compared to $286 million for the corresponding period in 2023. The increases in the second quarter and year-to-date 2024 were primarily due to increases of $8 million and $9 million, respectively, in customer charges related to contributions in aid of construction at Georgia Power, a $7 million charge in the second quarter 2023 under a stipulation approved by the Georgia PSC related to Georgia Power's fuel cost recovery case, and increases of $3 million and $5 million,
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
respectively, in non-service cost-related retirement benefits income, partially offset by a $7 million decrease in interest income for both periods presented. See Note 2 to the financial statements in Item 8 of the Form 10-K under "Georgia Power – Fuel Cost Recovery" for additional information.
Income Taxes
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $192 | N/M | $319 | N/M |
In the second quarter 2024, income taxes were $290 million compared to $98 million for the corresponding period in 2023. For year-to-date 2024, income taxes were $513 million compared to $194 million for the corresponding period in 2023. The increases in the second quarter and year-to-date 2024 were primarily due to higher pre-tax earnings, decreases of $39 million and $81 million, respectively, in the flowback of certain excess deferred income taxes at Alabama Power, and a $56 million increase in charges to a valuation allowance on certain state tax credit carryforwards at Georgia Power, partially offset by the generation of $31 million and $51 million, respectively, of advanced nuclear PTCs at Georgia Power and $33 million from the recognition of certain state tax positions from amended returns at Georgia Power. See Note 2 to the financial statements in Item 8 of the Form 10-K and Note (G) to the Condensed Financial Statements herein for additional information.
Alabama Power
Net Income
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $57 | 18.3 | $134 | 23.6 |
Alabama Power's net income in the second quarter 2024 was $369 million compared to $312 million for the corresponding period in 2023. For year-to-date 2024, net income was $702 million compared to $568 million for the corresponding period in 2023. These increases were primarily due to an increase in retail revenues associated with warmer weather in the second quarter 2024 in the Alabama Power service territory compared to the corresponding period in 2023 and an increase in Rate CNP New Plant revenues, as well as a decrease in non-fuel operations and maintenance expenses. These increases to income were partially offset by increases in income tax expense and depreciation. Also contributing to the year-to-date 2024 increase was an increase in retail electric revenues associated with colder weather in the first quarter 2024 compared to the corresponding period in 2023. See Note 2 to the financial statements under "Alabama Power" in Item 8 of the Form 10-K for additional information.
Retail Revenues
In the second quarter 2024, retail revenues were $1.65 billion compared to $1.47 billion for the corresponding period in 2023. For year-to-date 2024, retail revenues were $3.21 billion compared to $2.85 billion for the corresponding period in 2023. Details of the changes in retail revenues were as follows:
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Rates and pricing | $ | 111 | 7.5 | % | $ | 238 | 8.3 | % | |||||||||||||||
| Sales growth | 1 | 0.1 | 4 | 0.2 | |||||||||||||||||||
| Weather | 51 | 3.5 | 91 | 3.2 | |||||||||||||||||||
| Fuel and other cost recovery | 17 | 1.2 | 32 | 1.1 | |||||||||||||||||||
| Retail revenues | $ | 180 | 12.3 | % | $ | 365 | 12.8 | % |
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Revenues associated with changes in rates and pricing increased in the second quarter and year-to-date 2024 when compared to the corresponding periods in 2023 primarily due to customer bill credits in 2023 related to the flowback of certain excess accumulated deferred income taxes as well as an increase in Rate CNP New Plant revenues. See Note 2 to the financial statements under "Alabama Power" in Item 8 of the Form 10-K for additional information.
Revenues attributable to changes in sales were relatively flat in the second quarter and year-to-date 2024 when compared to the corresponding periods in 2023. Weather-adjusted residential KWH sales decreased 1.3% and 0.9% in the second quarter and year-to-date 2024, respectively, primarily due to a decrease in customer usage. Weather-adjusted commercial KWH sales increased 0.4% and 1.4% in the second quarter and year-to-date 2024, respectively, primarily due to an increase in customer usage. Industrial KWH sales increased 0.5% in the second quarter primarily due to an increase in the chemicals sector. Industrial KWH sales decreased 0.2% for year-to-date 2024 primarily due to a decrease in the primary metals sector.
Fuel and other cost recovery revenues increased in the second quarter and year-to-date 2024 when compared to the corresponding periods in 2023 primarily as a result of higher recoverable fuel costs.
Electric rates include provisions to recognize the recovery of fuel costs, purchased power costs, PPAs certificated by the Alabama PSC, and costs associated with the NDR. Under these provisions, fuel and other cost recovery revenues generally equal fuel and other cost recovery expenses and do not affect net income. See Note 2 to the financial statements under "Alabama Power" in Item 8 of the Form 10-K for additional information.
Wholesale Revenues – Non-Affiliates
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(28) | (25.0) | $(83) | (32.9) |
In the second quarter 2024, wholesale revenues from sales to non-affiliates were $84 million compared to $112 million for the corresponding period in 2023. The decrease was primarily due to a 39.5% decrease in the volume of KWHs sold as a result of power sales agreements that ended in May 2023, partially offset by a 24.8% increase in the price of energy as a result of higher natural gas prices.
For year-to-date 2024, wholesale revenues from sales to non-affiliates were $169 million compared to $252 million for the corresponding period in 2023. The decrease was primarily due to a 50.7% decrease in the volume of KWHs sold as a result of power sales agreements that ended in May 2023, partially offset by a 36.3% increase in the price of energy as a result of higher natural gas prices.
Wholesale revenues from sales to non-affiliates will vary depending on fuel prices, the market prices of wholesale energy compared to the cost of Alabama Power's and the Southern Company system's generation, demand for energy within the Southern Company system's electric service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not affect net income. Short-term opportunity energy sales are also included in wholesale energy sales to non-affiliates. These opportunity sales are made at market-based rates that generally provide a margin above Alabama Power's variable cost to produce the energy.
Wholesale Revenues – Affiliates
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $17 | N/M | $39 | 134.5 |
In the second quarter 2024, wholesale revenues from sales to affiliates were $27 million compared to $10 million for the corresponding period in 2023. For year-to-date 2024, wholesale revenues from sales to affiliates were $68 million compared to $29 million for the corresponding period in 2023. The increases for the second quarter and
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
year-to-date 2024 were primarily due to increases of 166.5% and 191.9%, respectively, in the volume of KWH sales due to affiliated company energy needs.
Wholesale revenues from sales to affiliated companies will vary depending on demand and the availability and cost of generating resources at each company. These affiliate sales are made in accordance with the IIC, as approved by the FERC. Energy revenues related to these transactions do not have a significant impact on earnings since this energy is generally sold at marginal cost and energy purchases are generally offset by energy revenues through Alabama Power's energy cost recovery clause.
Other Revenues
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $15 | 15.0 | $7 | 3.4 |
In the second quarter 2024, other revenues were $115 million compared to $100 million for the corresponding period in 2023. The increase was primarily due to an $8 million increase in unregulated sales of products and services, a $4 million increase in gains on the resale of gas, and a $4 million increase in transmission revenue primarily associated with open access transmission tariff sales, partially offset by a $5 million decrease in rent revenues.
Fuel and Purchased Power Expenses
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Fuel | $ | 32 | 10.6 | $ | 55 | 9.0 | |||||||||||||||||
| Purchased power – non-affiliates | (7) | (13.0) | (56) | (36.1) | |||||||||||||||||||
| Purchased power – affiliates | (10) | (18.5) | (26) | (23.0) | |||||||||||||||||||
| Total fuel and purchased power expenses | $ | 15 | $ | (27) |
In the second quarter 2024, total fuel and purchased power expenses were $426 million compared to $411 million for the corresponding period in 2023. The increase was primarily due to a net increase related to the volume of KWHs generated and purchased.
For year-to-date 2024, total fuel and purchased power expenses were $852 million compared to $879 million for the corresponding period in 2023. The decrease was due to a $19 million net decrease related to the volume of KWHs generated and purchased and an $8 million net decrease related to the average cost of fuel and purchased power.
Fuel and purchased power energy transactions do not have a significant impact on earnings, since energy expenses are generally offset by energy revenues through Alabama Power's energy cost recovery clause. See Note 2 to the financial statements under "Alabama Power – Rate ECR" in Item 8 of the Form 10-K for additional information.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Details of Alabama Power's generation and purchased power were as follows:
| Second Quarter 2024 | Second Quarter 2023 | Year-To-Date 2024 | Year-To-Date 2023 | ||||||||||||||||||||
| Total generation (in billions of KWHs) | 15 | 13 | 30 | 27 | |||||||||||||||||||
| Total purchased power (in billions of KWHs) | 2 | 3 | 3 | 5 | |||||||||||||||||||
| Sources of generation (percent) — | |||||||||||||||||||||||
| Coal | 37 | 35 | 33 | 33 | |||||||||||||||||||
| Gas | 37 | 29 | 35 | 29 | |||||||||||||||||||
| Nuclear | 21 | 29 | 24 | 28 | |||||||||||||||||||
| Hydro | 5 | 7 | 8 | 10 | |||||||||||||||||||
| Cost of fuel, generated (in cents per net KWH) — | |||||||||||||||||||||||
| Coal | 3.09 | 3.50 | 3.17 | 3.42 | |||||||||||||||||||
| Gas | 2.62 | 2.69 | 2.78 | 3.03 | |||||||||||||||||||
| Nuclear | 0.72 | 0.69 | 0.71 | 0.68 | |||||||||||||||||||
| Average cost of fuel, generated (in cents per net KWH) | 2.38 | 2.39 | 2.39 | 2.44 | |||||||||||||||||||
| Average cost of purchased power (in cents per net KWH)(*) | 5.68 | 4.08 | 6.60 | 5.17 |
(*)Average cost of purchased power includes fuel, energy, and transmission purchased by Alabama Power for tolling agreements where power is generated by the provider.
Fuel
In the second quarter 2024, fuel expense was $335 million compared to $303 million for the corresponding period in 2023. The increase was primarily due to a 39.4% increase in the volume of KWHs generated by natural gas, a 15.4% increase in the volume of KWHs generated by coal, and a 24.8% decrease in the volume of KWHs generated by hydro facilities as a result of less rainfall, partially offset by a 17.1% decrease in the volume of KWHs generated by nuclear and an 11.7% decrease in the average cost per KWH generated by coal.
For year-to-date 2024, fuel expense was $666 million compared to $611 million for the corresponding period in 2023. The increase was primarily due to a 34.0% increase in the volume of KWHs generated by natural gas, a 12.0% increase in the volume of KWHs generated by coal, and an 18.3% decrease in the volume of KWHs generated by hydro facilities as a result of less rainfall, partially offset by an 8.3% decrease in the average cost per KWH generated by natural gas, which excludes tolling agreements, a 7.6% decrease in the volume of KWHs generated by nuclear, and a 7.3% decrease in the average cost per KWH generated by coal.
Purchased Power – Non-Affiliates
In the second quarter 2024, purchased power expense from non-affiliates was $47 million compared to $54 million for the corresponding period in 2023. For year-to-date 2024, purchased power expense from non-affiliates was $99 million compared to $155 million for the corresponding period in 2023. The decreases for the second quarter and year-to-date 2024 were primarily due to decreases of 40.4% and 49.0%, respectively, in the volume of KWHs purchased as a result of a PPA that ended in May 2023 and the availability of Plant Barry Unit 8 and Central Alabama Generating Station generation, partially offset by increases of 35.2% and 22.6%, respectively, in the average cost per KWH purchased due to higher natural gas prices.
Energy purchases from non-affiliates will vary depending on the market prices of wholesale energy as compared to the cost of the Southern Company system's generation, demand for energy within the Southern Company system's electric service territory, and the availability of the Southern Company system's generation.
Purchased Power – Affiliates
In the second quarter 2024, purchased power expense from affiliates was $44 million compared to $54 million for the corresponding period in 2023. For year-to-date 2024, purchased power expense from affiliates was $87 million
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
compared to $113 million for the corresponding period in 2023. The decreases for the second quarter and year-to-date 2024 were primarily due to decreases of 43.7% and 41.4%, respectively, in the volume of KWHs purchased due to the availability of Plant Barry Unit 8 and Central Alabama Generating Station generation, partially offset by increases of 44.5% and 30.8%, respectively, in the average cost per KWH purchased due to higher natural gas prices.
Energy purchases from affiliates will vary depending on demand for energy and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC or other contractual agreements, as approved by the FERC.
Other Operations and Maintenance Expenses
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(11) | (2.5) | $(22) | (2.6) |
In the second quarter 2024, other operations and maintenance expenses were $429 million compared to $440 million for the corresponding period in 2023. The decrease was primarily due to decreases of $10 million in technology infrastructure and application production costs, $7 million in transmission and distribution expenses primarily due to vegetation management, and $4 million in generation expenses primarily associated with planned and unplanned outages, partially offset by an increase in Rate CNP Compliance-related expenses. The decreases were partially offset by increases of $5 million in employee compensation and benefits, $5 million in expenses related to unregulated products and services, and $5 million related to the injuries and damages reserve.
For year-to-date 2024, other operations and maintenance expenses were $840 million compared to $862 million for the corresponding period in 2023. The decrease was primarily due to decreases of $17 million in technology infrastructure and application production costs and $7 million in transmission and distribution expenses primarily due to vegetation management, as well as a $5 million increase in nuclear property insurance refunds. The decreases were partially offset by a $13 million increase in generation expenses primarily associated with Rate CNP Compliance-related expenses. See Note 2 to the financial statements under "Alabama Power – Rate CNP Compliance" in Item 8 of the Form 10-K for additional information.
Depreciation and Amortization
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $15 | 4.3 | $31 | 4.5 |
In the second quarter 2024, depreciation and amortization was $364 million compared to $349 million for the corresponding period in 2023. For year-to-date 2024, depreciation and amortization was $725 million compared to $694 million for the corresponding period in 2023. The increases were primarily due to additional plant in service related to transmission and distribution systems as well as Plant Barry Unit 8 being placed in service in November 2023. See Note 2 to the financial statements under "Alabama Power" in Item 8 of the Form 10-K for additional information.
Taxes Other Than Income Taxes
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $11 | 10.3 | $15 | 6.7 |
In the second quarter 2024, taxes other than income taxes were $118 million compared to $107 million for the corresponding period in 2023. For year-to-date 2024, taxes other than income taxes were $238 million compared to $223 million for the corresponding period in 2023. The increases for the second quarter and year-to-date 2024 were
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
primarily due to increases of $6 million and $7 million, respectively, in property taxes primarily resulting from an increase in the assessed value of property and increases of $5 million and $8 million, respectively, in utility license taxes resulting from an increase in the tax base.
Allowance for Equity Funds Used During Construction
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(9) | (42.9) | $(16) | (38.1) |
In the second quarter 2024, allowance for equity funds used during construction was $12 million compared to $21 million for the corresponding period in 2023. For year-to-date 2024, allowance for equity funds used during construction was $26 million compared to $42 million for the corresponding period in 2023. The decreases were primarily due to Plant Barry Unit 8 being placed in service in November 2023. See Note 2 to the financial statements under "Alabama Power – Rate CNP New Plant" in Item 8 of the Form 10-K for additional information.
Income Taxes
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $77 | N/M | $164 | N/M |
In the second quarter 2024, income taxes were $102 million compared to $25 million for the corresponding period in 2023. For year-to-date 2024, income taxes were $187 million compared to $23 million for the corresponding period in 2023. The increases for the second quarter and year-to-date 2024 were primarily due to decreases of $39 million and $81 million, respectively, in the flowback of certain excess deferred income taxes, as well as higher pre-tax earnings. See Note 2 to the financial statements under "Alabama Power – Excess Accumulated Deferred Income Tax Accounting Order" in Item 8 of the Form 10-K and Note (G) to the Condensed Financial Statements herein for additional information.
Georgia Power
Net Income
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $291 | 61.8 | $432 | 56.3 |
Georgia Power's net income in the second quarter 2024 was $762 million compared to $471 million for the corresponding period in 2023. For year-to-date 2024, net income was $1.2 billion compared to $0.8 billion for the corresponding period in 2023. The increases were primarily due to higher retail revenues associated with the inclusion of Plant Vogtle Units 3 and 4 in retail rates, warmer weather in the second quarter 2024 as compared to the corresponding period in 2023, and base tariff increases in accordance with the 2022 ARP. See Note 2 to the financial statements under "Georgia Power" in Item 8 of the Form 10-K for additional information.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Retail Revenues
In the second quarter 2024, retail revenues were $2.60 billion compared to $2.17 billion for the corresponding period in 2023. For year-to-date 2024, retail revenues were $4.75 billion compared to $4.15 billion for the corresponding period in 2023. Details of the changes in retail revenues were as follows:
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Rates and pricing | $ | 247 | 11.4 | % | $ | 357 | 8.6 | % | |||||||||||||||
| Sales growth | 5 | 0.3 | 46 | 1.1 | |||||||||||||||||||
| Weather | 145 | 6.7 | 198 | 4.8 | |||||||||||||||||||
| Fuel cost recovery | 35 | 1.6 | 5 | 0.1 | |||||||||||||||||||
| Retail revenues | $ | 432 | 20.0 | % | $ | 606 | 14.6 | % |
Revenues associated with changes in rates and pricing increased in the second quarter and year-to-date 2024 when compared to the corresponding periods in 2023. The increases were primarily due to the inclusion of Plant Vogtle Units 3 and 4 in retail rates, base tariff increases in accordance with the 2022 ARP, and higher contributions from commercial and industrial customers with variable demand-driven pricing, partially offset by a decrease in revenues recognized under the NCCR tariff primarily due to its elimination in the second quarter 2024 following commercial operation of Plant Vogtle Unit 4. See Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction – Regulatory Matters" herein and Note 2 to the financial statements under "Georgia Power" in Item 8 of the Form 10-K for additional information.
Revenues attributable to changes in sales increased in the second quarter and year-to-date 2024 when compared to the corresponding periods in 2023. Weather-adjusted residential KWH sales decreased 0.7% in the second quarter 2024 primarily due to decreased customer usage, partially offset by customer growth. Weather-adjusted residential KWH sales increased 0.6% for year-to-date 2024 primarily due to customer growth, partially offset by decreased customer usage. Weather-adjusted commercial KWH sales increased 3.4% and 3.7% in the second quarter and year-to-date 2024, respectively, primarily due to increased customer usage and customer growth. Weather-adjusted industrial KWH sales decreased 1.3% in the second quarter 2024 primarily due to a decrease in the paper sector, partially offset by increases in the transportation and mining sectors. Weather-adjusted industrial KWH sales increased 0.2% for year-to-date 2024 primarily due to increases in the transportation and lumber sectors, partially offset by a decrease in the paper sector.
Fuel revenues and costs are allocated between retail and wholesale jurisdictions. Retail fuel cost recovery revenues increased in the second quarter and year-to-date 2024 when compared to the corresponding periods in 2023 due to higher fuel and purchased power costs. Electric rates include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these fuel cost recovery provisions, fuel revenues generally equal fuel expenses and do not affect net income. See Note (B) to the Condensed Financial Statements herein and Note 2 to the financial statements under "Georgia Power – Fuel Cost Recovery" in Item 8 of the Form 10-K for additional information.
Wholesale Revenues
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $16 | 34.0 | $42 | 53.8 |
In the second quarter 2024, wholesale revenues were $63 million compared to $47 million for the corresponding period in 2023. For year-to-date 2024, wholesale revenues were $120 million compared to $78 million for the corresponding period in 2023. The increases for the second quarter and year-to-date 2024 were primarily due to increases of $22 million and $46 million, respectively, related to new capacity contracts and $17 million and $25
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AND RESULTS OF OPERATIONS (Continued)
million, respectively, related to the volume of KWH sales associated with higher market demand, partially offset by decreases of $17 million and $23 million, respectively, related to the average cost per KWH sold due to lower Southern Company system fuel and purchased power prices.
Wholesale revenues from sales to non-affiliates consist of PPAs and short-term opportunity sales. Wholesale revenues from PPAs have both capacity and energy components. Wholesale capacity revenues from PPAs are recognized in amounts billable under the contract terms and provide for recovery of fixed costs and a return on investment. Wholesale revenues from sales to non-affiliates will vary depending on fuel prices, the market prices of wholesale energy compared to the cost of Georgia Power's and the Southern Company system's generation, demand for energy within the Southern Company system's electric service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not have a significant impact on net income. Short-term opportunity sales are made at market-based rates that generally provide a margin above Georgia Power's variable cost of energy.
Wholesale revenues from sales to affiliated companies will vary depending on demand and the availability and cost of generating resources at each company. These affiliate sales are made in accordance with the IIC, as approved by the FERC. Energy revenues related to these transactions do not have a significant impact on earnings since this energy is generally sold at marginal cost.
Other Revenues
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $36 | 20.1 | $58 | 16.9 |
In the second quarter 2024, other revenues were $215 million compared to $179 million for the corresponding period in 2023. For year-to-date 2024, other revenues were $401 million compared to $343 million for the corresponding period in 2023. The increases for the second quarter and year-to-date 2024 were primarily due to increases of $35 million and $42 million, respectively, in unregulated sales primarily associated with power delivery construction and maintenance, energy conservation projects, and outdoor lighting, $5 million and $11 million, respectively, in regulated outdoor lighting sales, and $3 million and $5 million, respectively, in customer fees, partially offset by net increases $7 million and $11 million, respectively, in realized losses associated with price stability products for retail customers on variable demand-driven pricing tariffs.
Fuel and Purchased Power Expenses
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Fuel | $ | 27 | 6.5 | $ | 14 | 1.7 | |||||||||||||||||
| Purchased power – non-affiliates | 9 | 6.3 | 25 | 9.4 | |||||||||||||||||||
| Purchased power – affiliates | 30 | 19.7 | 5 | 1.4 | |||||||||||||||||||
| Total fuel and purchased power expenses | $ | 66 | $ | 44 |
In the second quarter 2024, total fuel and purchased power expenses were $774 million compared to $708 million for the corresponding period in 2023. For year-to-date 2024, total fuel and purchased power expenses were $1.5 billion compared to $1.4 billion for the corresponding period in 2023. The increases for the second quarter and year-to-date 2024 were due to increases of $75 million and $87 million, respectively, related to the volume of KWHs generated and purchased, partially offset by net decreases of $9 million and $43 million, respectively, related to the average cost of fuel and purchased power.
Fuel and purchased power energy transactions do not have a significant impact on earnings since these fuel expenses are generally offset by fuel revenues through Georgia Power's fuel cost recovery mechanism. See Note 2
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AND RESULTS OF OPERATIONS (Continued)
to the financial statements under "Georgia Power – Fuel Cost Recovery" in Item 8 of the Form 10-K for additional information.
Details of Georgia Power's generation and purchased power were as follows:
| Second Quarter 2024 | Second Quarter 2023 | Year-To-Date 2024 | Year-To-Date 2023 | ||||||||||||||||||||
| Total generation (in billions of KWHs)(a) | 17 | 15 | 32 | 28 | |||||||||||||||||||
| Total purchased power (in billions of KWHs) | 7 | 6 | 14 | 14 | |||||||||||||||||||
| Sources of generation (percent) — | |||||||||||||||||||||||
| Gas | 41 | 51 | 44 | 53 | |||||||||||||||||||
| Nuclear(a) | 36 | 28 | 34 | 27 | |||||||||||||||||||
| Coal | 20 | 17 | 19 | 16 | |||||||||||||||||||
| Hydro and other | 3 | 4 | 3 | 4 | |||||||||||||||||||
| Cost of fuel, generated (in cents per net KWH) — | |||||||||||||||||||||||
| Gas | 2.85 | 2.67 | 3.00 | 3.11 | |||||||||||||||||||
| Nuclear(a) | 0.98 | 0.72 | 0.95 | 0.73 | |||||||||||||||||||
| Coal | 5.19 | 6.45 | 4.81 | 5.92 | |||||||||||||||||||
| Average cost of fuel, generated (in cents per net KWH)(a) | 2.63 | 2.76 | 2.63 | 2.89 | |||||||||||||||||||
| Average cost of purchased power (in cents per net KWH)(b) | 4.97 | 4.91 | 4.80 | 4.70 |
(a)Excludes KWHs generated from test period energy at Plant Vogtle Units 3 and 4 prior to their respective in-service dates. The related fuel costs were charged to CWIP in accordance with FERC guidance. See Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein for additional information on Plant Vogtle Units 3 and 4.
(b)Average cost of purchased power includes fuel purchased by Georgia Power for tolling agreements where power is generated by the provider.
Fuel
In the second quarter 2024, fuel expense was $441 million compared to $414 million for the corresponding period in 2023. The increase was primarily due to increases of 44.9% in the volume of KWHs generated by nuclear, 36.1% in the average cost per KWH generated by nuclear, 31.2% in the volume of KWHs generated by coal, and 6.7% in the average cost per KWH generated by natural gas, partially offset by decreases of 19.5% in the average cost per KWH generated by coal and 10.0% in the volume of KWHs generated by natural gas.
For year-to-date 2024, fuel expense was $830 million compared to $816 million for the corresponding period in 2023. The increase was primarily due to increases of 40.9% in the volume of KWHs generated by nuclear, 34.0% in the volume of KWHs generated by coal, and 30.1% in the average cost per KWH generated by nuclear, partially offset by decreases of 18.8% in the average cost per KWH generated by coal, 8.3% in the volume of KWHs generated by natural gas, and 3.5% in the average cost per KWH generated by natural gas.
Purchased Power – Non-Affiliates
In the second quarter 2024, purchased power expense from non-affiliates was $151 million compared to $142 million for the corresponding period in 2023. For year-to-date 2024, purchased power expense from non-affiliates was $291 million compared to $266 million for the corresponding period in 2023. The increases for the second quarter and year-to-date 2024 were primarily due to increases of 21.9% and 23.8%, respectively, in the volume of KWHs purchased as Georgia Power and other Southern Company system units generally dispatched at a higher cost than available market resources, partially offset by decreases of 14.1% and 11.6%, respectively, in the average cost per KWH purchased primarily due to lower natural gas prices.
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AND RESULTS OF OPERATIONS (Continued)
Energy purchases from non-affiliates will vary depending on the market prices of wholesale energy as compared to the cost of the Southern Company system's generation, demand for energy within the Southern Company system's electric service territory, and the availability of the Southern Company system's generation.
Purchased Power – Affiliates
In the second quarter 2024, purchased power expense from affiliates was $182 million compared to $152 million for the corresponding period in 2023. The increase was primarily due to capacity purchased through a new PPA with Mississippi Power and an increase of 3.1% in the volume of KWHs purchased largely due to higher customer demand.
For year-to-date 2024, purchased power expense from affiliates was $363 million compared to $358 million for the corresponding period in 2023. The increase was primarily due to capacity purchased through a new PPA with Mississippi Power, partially offset by a decrease of 6.9% in the volume of KWHs purchased as Southern Company system units generally dispatched at a higher cost than available market resources.
See Note (B) to the Condensed Financial Statements under "Georgia Power – Integrated Resource Plans" herein for additional information.
Energy purchases from affiliates will vary depending on the demand and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC or other contractual agreements, all as approved by the FERC.
Other Operations and Maintenance Expenses
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(37) | (7.5) | $(17) | (1.7) |
In the second quarter 2024, other operations and maintenance expenses were $459 million compared to $496 million for the corresponding period in 2023. For year-to-date 2024, other operations and maintenance expenses were $974 million compared to $991 million for the corresponding period in 2023. The decreases for the second quarter and year-to-date 2024 were primarily due to increases of $115 million and $95 million, respectively, in gains from sales of integrated transmission system assets and decreases of $13 million and $30 million, respectively, in technology infrastructure and application production costs. Partially offsetting these decreases for the second quarter and year-to-date 2024 were increases of $28 million and $44 million, respectively, in generation expenses primarily associated with non-outage maintenance costs resulting from Plant Vogtle Units 3 and 4 being placed in service in July 2023 and April 2024, respectively, $15 million and $16 million, respectively, in unregulated power delivery construction and maintenance contracts, $14 million and $18 million, respectively, in customer service and sales costs primarily associated with demand-side management costs, $13 million and $21 million, respectively, in transmission and distribution costs primarily associated with line maintenance and billing adjustments with integrated transmission system owners, and $10 million and $13 million, respectively, in expenses associated with unregulated energy conservation projects.
See Note (B) to the Condensed Financial Statements under "Georgia Power – Transmission Asset Sales" and " – Nuclear Construction" herein for additional information.
Depreciation and Amortization
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $36 | 8.8 | $53 | 6.5 |
In the second quarter 2024, depreciation and amortization was $447 million compared to $411 million for the corresponding period in 2023. For year-to-date 2024, depreciation and amortization was $872 million compared to
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
$819 million for the corresponding period in 2023. The increases for the second quarter and year-to-date 2024 were primarily due to increases of $46 million and $74 million, respectively, associated with additional plant in service, partially offset by decreases of $15 million and $30 million, respectively, in amortization of regulatory assets related to CCR AROs as approved in the 2024 compliance filing under the terms of the 2022 ARP. See Note 2 to the financial statements under "Georgia Power – Rate Plans" in Item 8 of the Form 10-K for additional information.
Taxes Other Than Income Taxes
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $32 | 24.2 | $48 | 18.3 |
In the second quarter 2024, taxes other than income taxes were $164 million compared to $132 million for the corresponding period in 2023. For year-to-date 2024, taxes other than income taxes were $311 million compared to $263 million for the corresponding period in 2023. The increases for the second quarter and year-to-date 2024 were primarily due to increases of $21 million and $35 million, respectively, in property taxes primarily resulting from an increase in the assessed value of property and increases of $11 million and $14 million, respectively, in municipal franchise fees resulting from higher retail revenues.
Estimated Loss on Plant Vogtle Units 3 and 4
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(21) | N/M | $(21) | N/M |
Georgia Power recorded a pre-tax credit to income related to the estimated probable loss on Plant Vogtle Units 3 and 4 totaling $21 million in the second quarter 2024. This credit reflects a revision to the total project capital cost forecast for the completion of Plant Vogtle Units 3 and 4. See Note (B) to the Condensed Financial Statements herein and Note 2 to the financial statements in Item 8 of the Form 10-K under "Georgia Power – Nuclear Construction" for additional information.
Allowance for Equity Funds Used During Construction
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(10) | (23.3) | $(11) | (13.3) |
In the second quarter 2024, allowance for equity funds used during construction were $33 million compared to $43 million for the corresponding period in 2023. For year-to-date 2024, allowance for equity funds used during construction was $72 million compared to $83 million for the corresponding period in 2023. The decreases were primarily due to Plant Vogtle Units 3 and 4 being placed in service in July 2023 and April 2024, respectively, partially offset by an increase in capital expenditures subject to AFUDC. See Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein for additional information on Plant Vogtle Units 3 and 4.
Interest Expense, Net of Amounts Capitalized
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $25 | 15.6 | $53 | 17.3 |
In the second quarter 2024, interest expense, net of amounts capitalized was $185 million compared to $160 million for the corresponding period in 2023. For year-to-date 2024, interest expense, net of amounts capitalized was $359 million compared to $306 million for the corresponding period in 2023. The increases for the second quarter and
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AND RESULTS OF OPERATIONS (Continued)
year-to-date 2024 were primarily associated with increases of approximately $13 million and $30 million, respectively, related to higher interest rates and $8 million and $23 million, respectively, related to higher average outstanding borrowings. See FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" and "Financing Activities" herein for additional information on borrowings.
Other Income (Expense), Net
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $18 | 50.0 | $24 | 30.0 |
In the second quarter 2024, other income (expense), net was $54 million compared to $36 million for the corresponding period in 2023. For year-to-date 2024, other income (expense), net was $104 million compared to $80 million for the corresponding period in 2023. The increases for the second quarter and year-to-date 2024 were primarily due to increases of $8 million and $9 million, respectively, in customer charges related to contributions in aid of construction and a $7 million charge in the second quarter 2023 under a stipulation approved by the Georgia PSC related to Georgia Power's fuel cost recovery case. See Note 2 to the financial statements in Item 8 of the Form 10-K under "Georgia Power – Fuel Cost Recovery" for additional information.
Income Taxes
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $100 | 108.7 | $127 | 88.2 |
In the second quarter 2024, income taxes were $192 million compared to $92 million for the corresponding period in 2023. For year-to-date 2024, income taxes were $271 million compared to $144 million for the corresponding period in 2023. The increases were primarily due to higher pre-tax earnings and a $56 million increase in charges to a valuation allowance on certain state tax credit carryforwards, partially offset by the generation of $31 million and $51 million of advanced nuclear PTCs in the second quarter and year-to-date 2024, respectively, and $33 million from the recognition of certain state tax positions from amended returns. See Note (G) to the Condensed Financial Statements herein for additional information.
Mississippi Power
Net Income
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $21 | 52.5 | $13 | 13.3 |
Mississippi Power's net income in the second quarter 2024 was $61 million compared to $40 million for the corresponding period in 2023. The increase was primarily due to an increase in affiliate wholesale capacity revenues, an increase in retail revenues largely due to warmer weather when compared to the corresponding period in 2023, and a decrease in non-fuel operations and maintenance expenses.
For year-to-date 2024, net income was $111 million compared to $98 million for the corresponding period in 2023. The increase was primarily due to an increase in retail revenues largely due to sales growth and warmer weather when compared to the corresponding period in 2023.
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AND RESULTS OF OPERATIONS (Continued)
Retail Revenues
In the second quarter 2024, retail revenues were $242 million compared to $227 million for the corresponding period in 2023. For year-to-date 2024, retail revenues were $462 million compared to $464 million for the corresponding period in 2023. Details of the changes in retail revenues were as follows:
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Rates and pricing | $ | 2 | 0.9 | % | $ | 4 | 0.9 | % | |||||||||||||||
| Sales growth | 2 | 0.9 | 7 | 1.5 | |||||||||||||||||||
| Weather | 6 | 2.6 | 6 | 1.3 | |||||||||||||||||||
| Fuel and other cost recovery | 5 | 2.2 | (19) | (4.1) | |||||||||||||||||||
| Retail revenues | $ | 15 | 6.6 | % | $ | (2) | (0.4) | % |
Revenues associated with changes in rates and pricing increased in the second quarter and year-to-date 2024 when compared to the corresponding periods in 2023 primarily due to certain regulatory assets that fully amortized in December 2023.
Revenues attributable to changes in sales increased in the second quarter and year-to-date 2024 when compared to the corresponding periods in 2023. Weather-adjusted residential KWH sales decreased 2.7% in the second quarter 2024 primarily due to decreased customer usage. Weather-adjusted residential KWH sales increased 1.0% for year-to-date 2024 primarily due to increased customer usage. Weather-adjusted commercial KWH sales increased 7.6% and 7.5% in the second quarter and year-to-date 2024, respectively, primarily due to increased customer usage. Industrial KWH sales decreased 2.2% and 2.0% in the second quarter and year-to-date 2024, respectively, primarily due to a decrease in the petroleum sector.
Fuel and other cost recovery revenues increased in the second quarter 2024 when compared to the corresponding period in 2023 primarily as a result of an increase in ad valorem taxes. Fuel and other cost recovery revenues decreased for year-to-date 2024 when compared to the corresponding period in 2023 primarily as a result of lower recoverable fuel costs. Recoverable fuel costs include fuel and purchased power expenses reduced by the fuel and emissions portion of wholesale revenues from energy sold to customers outside Mississippi Power's service territory. Electric rates include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these provisions, fuel revenues generally equal fuel expenses, including the energy component of purchased power costs, and do not affect net income. See Note 2 to the financial statements in Item 8 of the Form 10-K for additional information.
Wholesale Revenues – Non-Affiliates
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(2) | (3.6) | $(11) | (8.9) |
For year-to-date 2024, wholesale revenues from sales to non-affiliates were $113 million compared to $124 million for the corresponding period in 2023. The decrease was primarily due to a $5 million decrease associated with changes in power supply agreements, a $4 million decrease associated with MRA customers largely due to lower recoverable fuel costs, and a $3 million decrease associated with lower opportunity sales.
Wholesale revenues from sales to non-affiliates will vary depending on fuel prices, the market prices of wholesale energy compared to the cost of Mississippi Power's and the Southern Company system's generation, demand for energy within the Southern Company system's electric service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not have a significant impact on net income. In
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AND RESULTS OF OPERATIONS (Continued)
addition, Mississippi Power provides service under long-term contracts with rural electric cooperative associations and municipalities located in southeastern Mississippi under cost-based electric tariffs which are subject to regulation by the FERC. Short-term opportunity energy sales are also included in sales for resale to non-affiliates. These opportunity sales are made at market-based rates that generally provide a margin above Mississippi Power's variable cost to produce the energy. See Note 2 to the financial statements under "Mississippi Power – Municipal and Rural Associations Tariff" in Item 8 of the Form 10-K for additional information.
Wholesale Revenues – Affiliates
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $40 | N/M | $16 | 17.2 |
In the second quarter 2024, wholesale revenues from sales to affiliates were $58 million compared to $18 million for the corresponding period in 2023. The increase was primarily due to increases of $16 million related to the volume of KWH sales, $15 million in capacity revenues associated with a new PPA with Georgia Power, and $8 million related to the price of energy driven by natural gas prices.
For year-to-date 2024, wholesale revenues from sales to affiliates were $109 million compared to $93 million for the corresponding period in 2023. The increase was primarily due to increases of $31 million in capacity revenues associated with a new PPA with Georgia Power, $10 million related to the price of energy driven by natural gas prices, and $6 million related to the volume of KWH sales. These increases were partially offset by a decrease of $31 million in capacity revenues mainly associated with Mississippi Power's lower availability of generation reserves to the Southern Company power pool.
See Note 2 to the financial statements under "Mississippi Power – Integrated Resource Plan" in Item 8 of the Form 10-K for additional information.
Wholesale revenues from sales to affiliated companies will vary depending on demand and the availability and cost of generating resources at each company. These affiliate sales are made in accordance with the IIC or other contractual agreements, as approved by the FERC. Energy revenues related to these transactions do not have a significant impact on earnings since this energy is generally sold at marginal cost.
Fuel and Purchased Power Expenses
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Fuel | $ | 17 | 19.1 | $ | (24) | (10.2) | |||||||||||||||||
| Purchased power | 4 | 57.1 | 7 | 63.6 | |||||||||||||||||||
| Total fuel and purchased power expenses | $ | 21 | $ | (17) |
In the second quarter 2024, total fuel and purchased power expenses were $117 million compared to $96 million for the corresponding period in 2023. The increase was due to a $24 million increase associated with the volume of KWHs generated and purchased, partially offset by a $3 million net decrease related to the average cost of fuel and purchased power.
For year-to-date 2024, total fuel and purchased power expenses were $229 million compared to $246 million for the corresponding period in 2023. The decrease was due to a $33 million net decrease related to the average cost of fuel and purchased power, partially offset by a $15 million increase related to the volume of KWHs generated and purchased.
Fuel and purchased power energy transactions do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Mississippi Power's fuel cost recovery clause.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Details of Mississippi Power's generation and purchased power were as follows:
| Second Quarter 2024 | Second Quarter 2023 | Year-To-Date 2024 | Year-To-Date 2023 | ||||||||||||||||||||
| Total generation (in millions of KWHs) | 4,456 | 3,897 | 8,408 | 8,340 | |||||||||||||||||||
| Total purchased power (in millions of KWHs) | 231 | 174 | 401 | 274 | |||||||||||||||||||
| Sources of generation (percent) – | |||||||||||||||||||||||
| Gas | 93 | 97 | 92 | 95 | |||||||||||||||||||
| Coal | 7 | 3 | 8 | 5 | |||||||||||||||||||
| Cost of fuel, generated (in cents per net KWH) – | |||||||||||||||||||||||
| Gas | 2.24 | 2.31 | 2.44 | 2.85 | |||||||||||||||||||
| Coal | 5.83 | 6.31 | 5.25 | 5.94 | |||||||||||||||||||
| Average cost of fuel, generated (in cents per net KWH) | 2.52 | 2.44 | 2.68 | 3.01 | |||||||||||||||||||
| Average cost of purchased power (in cents per net KWH) | 4.89 | 4.07 | 4.36 | 4.08 |
Fuel
In the second quarter 2024, fuel expense was $106 million compared to $89 million for the corresponding period in 2023. The increase was primarily due to a 176.6% increase in the volume of KWHs generated by coal and a 10.8% increase in the volume of KWHs generated by natural gas, partially offset by a 7.6% decrease in the average cost per KWH generated by coal and a 3.0% decrease in the average cost per KWH generated by natural gas.
For year-to-date 2024, fuel expense was $211 million compared to $235 million for the corresponding period in 2023. The decrease was primarily due to a 14.4% decrease in the average cost per KWH generated by natural gas, an 11.6% decrease in the average cost per KWH generated by coal, and a 2.9% decrease in the volume of KWHs generated by natural gas, partially offset by a 69.7% increase in the volume of KWHs generated by coal.
Purchased Power
In the second quarter 2024, purchased power expense was $11 million compared to $7 million for the corresponding period in 2023. The increase was primarily due to an increase of 32.2% in the volume of KWHs purchased and an increase of 20.1% in the average cost per KWH purchased primarily due to higher natural gas prices.
For year-to-date 2024, purchased power expense was $18 million compared to $11 million for the corresponding period in 2023. The increase was primarily due to increases of 46.5% in the volume of KWHs purchased and 6.9% in the average cost per KWH purchased primarily due to higher natural gas prices.
Other Operations and Maintenance Expenses
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(8) | (8.8) | $(4) | (2.3) |
In the second quarter 2024, other operations and maintenance expenses were $83 million compared to $91 million for the corresponding period in 2023. The decrease was primarily due to a decrease in generation expenses primarily associated with planned outages and previously deferred Plant Ratcliffe expenses that fully amortized in December 2023.
For year-to-date 2024, other operations and maintenance expenses were $171 million compared to $175 million for the corresponding period in 2023. The decrease was primarily due to previously deferred Plant Ratcliffe expenses that fully amortized in December 2023.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Interest Expense, Net of Amounts Capitalized
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $2 | 11.1 | $5 | 14.7 |
For year-to-date 2024, interest expense, net of amounts capitalized was $39 million compared to $34 million for the corresponding period in 2023. The increase was primarily associated with increases of approximately $3 million related to higher average outstanding borrowings and $2 million related to higher interest rates. See FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" and "Financing Activities" herein for additional information on borrowings.
Other Income (Expense), Net
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $— | — | $5 | 25.0 |
For year-to-date 2024, other income (expense), net was $25 million compared to $20 million for the corresponding period in 2023. The increase was primarily due to increases of $3 million associated with customer charges related to contributions in aid of construction and $2 million in interest associated with a sales-type lease.
Income Taxes
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $11 | N/M | $8 | 47.1 |
In the second quarter 2024, income taxes were $15 million compared to $4 million for the corresponding period in 2023. For year-to-date 2024, income taxes were $25 million compared to $17 million for the corresponding period in 2023. The increases were primarily due to higher pre-tax earnings and increases of $2 million in both periods associated with the flowback of certain excess deferred income taxes. See Note (G) to the Condensed Financial Statements herein for additional information.
Southern Power
Net Income Attributable to Southern Power
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $1 | 1.2 | $(5) | (2.7) |
Net income attributable to Southern Power in the second quarter 2024 was $86 million compared to $85 million for the corresponding period in 2023. The increase was primarily due to an increase in capacity revenues related to natural gas PPAs.
Net income attributable to Southern Power for year-to-date 2024 was $182 million compared to $187 million for the corresponding period in 2023. The decrease was primarily related to a gain on the sale of spare parts in 2023 and an increase in other operations and maintenance expenses due to increases in scheduled outage expenses and maintenance, partially offset by an increase in capacity revenues related to natural gas PPAs.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Operating Revenues
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(1) | (0.2) | $(36) | (3.5) |
Total operating revenues include PPA capacity revenues, which are derived primarily from long-term contracts involving natural gas facilities, and PPA energy revenues from Southern Power's generation facilities. To the extent Southern Power has capacity not contracted under a PPA, it may sell power into an accessible wholesale market, or, to the extent those generation assets are part of the FERC-approved IIC, it may sell power into the Southern Company power pool.
Natural Gas Capacity and Energy Revenue
Capacity revenues generally represent the greatest contribution to operating income and are designed to provide recovery of fixed costs plus a return on investment.
Energy is generally sold at variable cost or is indexed to published natural gas indices. Energy revenues will vary depending on the energy demand of Southern Power's customers and their generation capacity, as well as the market prices of wholesale energy compared to the cost of Southern Power's energy. Energy revenues also include fees for support services, fuel storage, and unit start charges. Increases and decreases in energy revenues under PPAs that are driven by fuel or purchased power prices are accompanied by an increase or decrease in fuel and purchased power costs and do not have a significant impact on net income.
Solar and Wind Energy Revenue
Southern Power's energy sales from solar and wind generating facilities are predominantly through long-term PPAs that do not have capacity revenue. Customers either purchase the energy output of a dedicated renewable facility through an energy charge or pay a fixed price related to the energy generated from the respective facility and sold to the grid. As a result, Southern Power's ability to recover fixed and variable operations and maintenance expenses is dependent upon the level of energy generated from these facilities, which can be impacted by weather conditions, equipment performance, transmission constraints, and other factors.
See FUTURE EARNINGS POTENTIAL – "Southern Power's Power Sales Agreements" in Item 7 of the Form 10-K for additional information regarding Southern Power's PPAs.
Operating Revenues Details
Details of Southern Power's operating revenues were as follows:
| Second Quarter 2024 | Second Quarter 2023 | Year-To-Date 2024 | Year-To-Date 2023 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| PPA capacity revenues | $ | 122 | $ | 114 | $ | 244 | $ | 227 | |||||||||||||||
| PPA energy revenues | 331 | 307 | 612 | 583 | |||||||||||||||||||
| Total PPA revenues | 453 | 421 | 856 | 810 | |||||||||||||||||||
| Non-PPA revenues | 60 | 88 | 120 | 196 | |||||||||||||||||||
| Other revenues | 11 | 16 | 21 | 27 | |||||||||||||||||||
| Total operating revenues | $ | 524 | $ | 525 | $ | 997 | $ | 1,033 |
In the second quarter 2024, total operating revenues were $524 million, reflecting a $1 million, or 0.2%, decrease from the corresponding period in 2023. The change in operating revenues was primarily due to the following:
- PPA capacity revenues increased $8 million, or 7.0%, due to a net increase in MW capacity under contract from natural gas PPAs and an increase associated with a change in rates from natural gas PPAs.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
-
PPA energy revenues increased $24 million, or 7.8%, primarily due to a $20 million increase related to the volume of KWHs sold under solar and wind PPAs.
-
Non-PPA revenues decreased $28 million, or 31.8%, primarily due to a $37 million decrease related to the volume of KWHs sold through short-term sales, partially offset by an $10 million increase related to the market price of energy.
For year-to-date 2024, total operating revenues were $997 million, reflecting a $36 million, or 3.5%, decrease from the corresponding period in 2023. The change in operating revenues was primarily due to the following:
-
PPA capacity revenues increased $17 million, or 7.5%, due to an increase associated with a change in rates from natural gas PPAs and a net increase in MW capacity under contract from natural gas PPAs.
-
PPA energy revenues increased $29 million, or 5.0%, primarily due to a $16 million increase related to the price of fuel and purchased power primarily associated with natural gas PPAs and a $13 million increase related to the volume of KWHs sold under solar PPAs.
-
Non-PPA revenues decreased $76 million, or 38.8%, primarily due to an $88 million decrease related to the volume of KWHs sold through short-term sales, partially offset by a $13 million increase related to the market price of energy.
Fuel and Purchased Power Expenses
Details of Southern Power's generation and purchased power were as follows:
| Second Quarter 2024 | Second Quarter 2023 | Year-To-Date 2024 | Year-To-Date 2023 | ||||||||||||||||||||
| (in billions of KWHs) | |||||||||||||||||||||||
| Generation | 11.0 | 11.7 | 21.3 | 24.0 | |||||||||||||||||||
| Purchased power | 0.8 | 0.9 | 1.2 | 1.6 | |||||||||||||||||||
| Total generation and purchased power | 11.8 | 12.6 | 22.5 | 25.6 | |||||||||||||||||||
| Total generation and purchased power (excluding solar, wind, fuel cells, and tolling agreements) | 6.6 | 7.8 | 13.2 | 16.2 |
Southern Power's PPAs for natural gas generation generally provide that the purchasers are responsible for either procuring the fuel (tolling agreements) or reimbursing Southern Power for substantially all of the cost of fuel relating to the energy delivered under such PPAs. Consequently, changes in such fuel costs are generally accompanied by a corresponding change in related fuel revenues and do not have a significant impact on net income. Southern Power is responsible for the cost of fuel for generating units that are not covered under PPAs. Power from these generating units is sold into the wholesale market or into the Southern Company power pool for capacity owned directly by Southern Power.
Purchased power expenses will vary depending on demand, availability, and the cost of generating resources throughout the Southern Company system and other contract resources. Load requirements are submitted to the Southern Company power pool on an hourly basis and are fulfilled with the lowest cost alternative, whether that is generation owned by Southern Power, an affiliate company, or external parties. Such purchased power costs are generally recovered through PPA revenues.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Details of Southern Power's fuel and purchased power expenses were as follows:
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Fuel | $ | (7) | (5.0) | $ | (42) | (12.7) | |||||||||||||||||
| Purchased power | (6) | (21.4) | (14) | (25.9) | |||||||||||||||||||
| Total fuel and purchased power expenses | $ | (13) | $ | (56) |
In the second quarter 2024, total fuel and purchased power expenses decreased $13 million, or 7.8%, compared to the corresponding period in 2023. Fuel expense decreased $7 million primarily due to a $22 million decrease associated with the volume of KWHs generated, partially offset by a $15 million increase in the average cost of fuel. Purchased power expense decreased $6 million primarily due to a $5 million decrease associated with the volume of KWHs purchased.
For year-to-date 2024, total fuel and purchased power expenses decreased $56 million, or 14.6%, compared to the corresponding period in 2023. Fuel expense decreased $42 million primarily due to a $58 million decrease associated with the volume of KWHs generated, partially offset by a $16 million increase in the average cost of fuel. Purchased power expense decreased $14 million due to a decrease associated with the volume of KWHs purchased.
Other Operations and Maintenance Expenses
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $2 | 1.7 | $17 | 7.6 |
In the second quarter 2024, other operations and maintenance expenses were $119 million compared to $117 million for the corresponding period in 2023. For year-to-date 2024, other operations and maintenance expenses were $241 million compared to $224 million for the corresponding period in 2023. The increases were primarily due to an increase in generation maintenance and scheduled outage expenses.
Gain on Dispositions, Net
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $— | — | $(20) | (100.0) |
For year-to-date 2024, gain on dispositions, net decreased by $20 million compared to the corresponding period in 2023. The decrease was primarily due to a $16 million gain on the sale of spare parts in 2023.
Income Taxes (Benefit)
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $7 | 116.7 | $— | — |
In the second quarter 2024, income tax expense was $13 million compared to $6 million for the corresponding period in 2023. The increase was primarily due to higher pre-tax earnings, partially offset by higher PTCs.
Southern Company Gas
Southern Company Gas has various regulatory mechanisms, such as weather and revenue normalization and straight-fixed-variable rate design, which limit its exposure to weather changes within typical ranges in each of its
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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 for gas distribution operations and in Illinois and Georgia for gas marketing services. Therefore, weather typically does not have a significant net income impact.
During the Heating Season, natural gas usage and operating revenues are generally higher as more customers are connected to the gas distribution systems and natural gas usage is higher in periods of colder weather. In addition, because of a rate design change affecting volumetric rates ordered by the Illinois Commission in Nicor Gas' 2023 rate case, additional revenues are expected in the Heating Season, with a corresponding decrease expected in revenues in the second and third quarters of each year. This change will affect the comparison of the prior year revenue for the impacted quarters. 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.
Net Income
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $23 | 27.1 | $124 | 31.6 |
Southern Company Gas' net income in the second quarter 2024 was $108 million compared to $85 million for the corresponding period in 2023. The increase was primarily due to a $20 million increase in net income at gas distribution operations and a $3 million increase in net income at gas pipeline investments.
For year-to-date 2024, net income was $517 million compared to $393 million for the corresponding period in 2023. The increase was primarily due to a $101 million increase in net income at gas distribution operations and an $18 million increase in net income at gas marketing services.
Natural Gas Revenues
In the second quarter 2024, natural gas revenues, were $831 million compared to $852 million for the corresponding period in 2023. For year-to-date 2024, natural gas revenues were $2.5 billion compared to $2.7 billion for the corresponding period in 2023. Details of the changes in natural gas revenues were as follows:
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Rate changes | $ | 37 | 4.3 | % | $ | 189 | 6.9 | % | |||||||||||||||
| Gas costs and other cost recovery | (48) | (5.6) | (339) | (12.4) | |||||||||||||||||||
| Gas marketing services | (4) | (0.5) | (13) | (0.5) | |||||||||||||||||||
| Other | (6) | (0.7) | (27) | (1.0) | |||||||||||||||||||
| Natural gas revenues | $ | (21) | (2.5) | % | $ | (190) | (7.0) | % |
Revenues from rate changes increased in the second quarter and year-to-date 2024 compared to the corresponding periods in 2023 primarily due to rate increases and a change in timing of revenues at Nicor Gas. 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 from gas costs and other cost recovery decreased in the second quarter and year-to-date 2024 compared to the corresponding periods in 2023 primarily due to lower natural gas cost recovery associated with lower natural gas prices and lower demand associated with warmer weather when compared to the corresponding period in 2023. See "Cost of Natural Gas" herein for additional information.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Revenues from gas marketing services decreased in the second quarter and year-to-date 2024 compared to the corresponding periods in 2023 primarily due to lower commodity prices.
Cost of Natural Gas
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(50) | (25.1) | $(343) | (31.3) |
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 81% of the total cost of natural gas in the second quarter and year-to-date 2024. 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 second quarter 2024, cost of natural gas was $149 million compared to $199 million for the corresponding period in 2023. For year-to-date 2024, cost of natural gas was $0.8 billion compared to $1.1 billion for the corresponding period in 2023. The decreases reflect lower gas cost recovery as a result of decreases of 10% and 25% in natural gas prices in the second quarter and year-to-date 2024, respectively.
The following table details the volumes of natural gas sold during all periods presented:
| Second Quarter | Year-To-Date | ||||||||||||||||||||||
| 2024 | 2023 | 2024 vs. 2023 | 2024 | 2023 | 2024 vs. 2023 | ||||||||||||||||||
| Gas distribution operations (mmBtu in millions) | |||||||||||||||||||||||
| Firm | 95 | 101 | (5.9) | % | 361 | 359 | 0.6 | % | |||||||||||||||
| Interruptible | 22 | 23 | (4.3) | 47 | 47 | — | |||||||||||||||||
| Total | 117 | 124 | (5.6) | % | 408 | 406 | 0.5 | % | |||||||||||||||
| Gas marketing services (mmBtu in millions) | |||||||||||||||||||||||
| Firm: | |||||||||||||||||||||||
| Georgia | 5 | 5 | — | % | 22 | 18 | 22.2 | % | |||||||||||||||
| Illinois | 1 | 1 | — | 3 | 4 | (25.0) | |||||||||||||||||
| Other | 2 | 3 | (33.3) | 9 | 7 | 28.6 | |||||||||||||||||
| Interruptible large commercial and industrial | 4 | 4 | — | 8 | 7 | 14.3 | |||||||||||||||||
| Total | 12 | 13 | (7.7) | % | 42 | 36 | 16.7 | % |
Other Operations and Maintenance Expenses
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(21) | (6.8) | $(34) | (5.5) |
In the second quarter 2024, other operations and maintenance expenses were $288 million compared to $309 million for the corresponding period in 2023. The decrease was primarily due to a $30 million prior year regulatory disallowance at Nicor Gas and a decrease of $4 million related to energy service contracts. The decreases were partially offset by an increase of $11 million in compensation and benefit expenses and a gain of $6 million on the sale of a service center in 2023.
For year-to-date 2024, other operations and maintenance expenses were $581 million compared to $615 million for the corresponding period in 2023. The decrease was primarily due to a $30 million prior year regulatory
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
disallowance at Nicor Gas and decreases of $20 million in expenses passed through to customers primarily related to bad debt and energy efficiency programs at gas distribution operations, $6 million in service maintenance and meter sets maintenance expenses at Nicor Gas as well as general plant maintenance expenses, and $3 million in bad debt expenses. These decreases were partially offset by an increase of $24 million in compensation and benefit expenses and a gain of $6 million on the sale of a service center in 2023.
See Note 2 to the financial statements under "Southern Company Gas – Infrastructure Replacement Programs and Capital Projects – Nicor Gas" in Item 8 of the Form 10-K for additional information.
Depreciation and Amortization
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $15 | 10.5 | $29 | 10.2 |
In the second quarter 2024, depreciation and amortization was $158 million compared to $143 million for the corresponding period in 2023. For year-to-date 2024, depreciation and amortization was $313 million compared to $284 million for the corresponding period in 2023. The increases were primarily due to continued investments at the natural gas distribution utilities.
Taxes Other Than Income Taxes
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(3) | (5.1) | $(18) | (11.2) |
For year-to-date 2024, taxes other than income taxes were $143 million compared to $161 million for the corresponding period in 2023. The decrease was primarily due to a decrease of $15 million in revenue taxes as a result of lower natural gas revenues at Nicor Gas.
Interest Expense, Net of Amounts Capitalized
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $10 | 13.7 | $17 | 11.3 |
In the second quarter 2024, interest expense, net of amounts capitalized was $83 million compared to $73 million for the corresponding period in 2023. For year-to-date 2024, interest expense, net of amounts capitalized was $167 million compared to $150 million for the corresponding period in 2023. The increases for the second quarter and year-to-date 2024 were primarily associated with increases of approximately $5 million and $11 million, respectively, related to higher interest rates and approximately $3 million and $6 million, respectively, related to higher outstanding debt. See FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" and "Financing Activities" herein for additional information on borrowings.
Income Taxes
| Second Quarter 2024 vs. Second Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $7 | 24.1 | $42 | 31.8 |
In the second quarter 2024, income taxes were $36 million compared to $29 million for the corresponding period in 2023. For year-to-date 2024, income taxes were $174 million compared to $132 million for the corresponding period in 2023. The increases were primarily due to higher pre-tax earnings including the prior year regulatory
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
disallowance at Nicor Gas. See Note 2 to the financial statements under "Southern Company Gas – Infrastructure Replacement Programs and Capital Projects – Nicor Gas" in Item 8 of the Form 10-K 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.
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||
| Operating Revenues | Operating Expenses | Net Income (Loss) | Operating Revenues | Operating Expenses | Net Income (Loss) | ||||||||||||||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||
| Second Quarter | |||||||||||||||||||||||||||||||||||
| Gas distribution operations | $ | 749 | $ | 582 | $ | 80 | $ | 764 | $ | 636 | $ | 60 | |||||||||||||||||||||||
| Gas pipeline investments | 8 | 2 | 22 | 8 | 2 | 19 | |||||||||||||||||||||||||||||
| Gas marketing services | 70 | 57 | 9 | 75 | 64 | 7 | |||||||||||||||||||||||||||||
| All other | 7 | 9 | (3) | 9 | 9 | (1) | |||||||||||||||||||||||||||||
| Intercompany eliminations | (3) | 1 | — | (4) | (1) | — | |||||||||||||||||||||||||||||
| Consolidated | $ | 831 | $ | 651 | $ | 108 | $ | 852 | $ | 710 | $ | 85 | |||||||||||||||||||||||
| Year-To-Date | |||||||||||||||||||||||||||||||||||
| Gas distribution operations | $ | 2,212 | $ | 1,571 | $ | 382 | $ | 2,383 | $ | 1,901 | $ | 281 | |||||||||||||||||||||||
| Gas pipeline investments | 16 | 5 | 52 | 16 | 5 | 50 | |||||||||||||||||||||||||||||
| Gas marketing services | 305 | 205 | 74 | 320 | 239 | 56 | |||||||||||||||||||||||||||||
| All other | 13 | 11 | 9 | 22 | 18 | 6 | |||||||||||||||||||||||||||||
| Intercompany eliminations | (8) | (1) | — | (13) | (6) | — | |||||||||||||||||||||||||||||
| Consolidated | $ | 2,538 | $ | 1,791 | $ | 517 | $ | 2,728 | $ | 2,157 | $ | 393 |
Gas Distribution Operations
Gas distribution operations 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 weather conditions, 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 and weather derivative instruments, 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 second quarter 2024, net income increased $20 million, or 33.3%, when compared to the corresponding period in 2023, as described further below:
- Operating revenues decreased $15 million primarily due to lower natural gas cost recovery and change in timing of revenues at Nicor Gas, partially offset by rate increases and a prior year regulatory disallowance at Nicor Gas. Gas costs recovered through natural gas revenues generally equal the amount expensed in cost of natural gas.
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Operating expenses decreased $54 million primarily due to a $46 million decrease in cost of natural gas as a result of lower gas prices and lower volumes sold compared to 2023 and the $30 million prior year regulatory disallowance at Nicor Gas, partially offset by higher compensation and benefit expenses, higher depreciation resulting from additional assets placed in service, and the gain on sale of a service center in 2023.
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Interest expense, net of amounts capitalized increased $9 million primarily due to higher interest rates and higher average outstanding debt.
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Income taxes increased $8 million primarily as a result of higher pre-tax earnings.
For year-to-date 2024, net income increased $101 million, or 35.9%, when compared to the corresponding period in 2023, as described further below:
- Operating revenues decreased $171 million primarily due to lower natural gas cost over recovery, partially offset by rate increases, a change in timing of revenues at Nicor Gas, and the prior year regulatory disallowance at Nicor Gas. Gas costs recovered through natural gas revenues generally equal the amount expensed in cost of natural gas.
*•*Operating expenses decreased $330 million primarily due to a $319 million decrease in cost of natural gas as a result of lower gas prices and lower volumes sold compared to 2023 and the $30 million prior year regulatory disallowance at Nicor Gas, partially offset by higher depreciation resulting from additional assets placed in service, higher compensation and benefit expenses, and higher revenue taxes. The decrease in operating expenses also includes costs passed through directly to customers, primarily related to bad debt expenses, energy efficiency program, and revenue taxes.
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Interest expense, net of amounts capitalized increased $18 million primarily due to higher interest rates and higher average outstanding debt.
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Income taxes increased $40 million primarily as a result of higher pre-tax earnings.
See Note 2 to the financial statements under "Southern Company Gas – Infrastructure Replacement Programs and Capital Projects – Nicor Gas" in Item 8 of the Form 10-K for additional information.
Gas Pipeline Investments
Gas pipeline investments 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
Gas marketing services 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 2024, net income increased $18 million, or 32.1%, when compared to the corresponding period in 2023 primarily due to retail margins and a decrease in cost of natural gas, partially offset by higher 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. All other included a natural gas storage facility in California through its sale in September 2023. See Note 15 to the financial statements in Item 8 of the Form 10-K for additional information.
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FUTURE EARNINGS POTENTIAL
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.
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 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 and expanding and improving the transmission and distribution systems; continued customer growth; and the trends of higher inflation 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, 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. These growth opportunities could be offset by energy efficiency trends in each market.
Global and U.S. economic conditions continue to be affected by higher-than-expected inflation that arose from the COVID-19 pandemic and associated policy responses of governments and central banks. In response to elevated inflation levels, the U.S. Federal Reserve raised interest rates faster than any rate increase cycle in the last 40 years. The actions by the U.S. Federal Reserve have helped to slow the rate of inflation and curtail economic activity. Although target levels of inflation have yet to be achieved, the U.S. Federal Reserve has indicated its current intention to pause future rate increases and evaluate rate cuts depending on the current economic data. The shifting economic policy variables and weakening of historic relationships among economic activity, prices, and employment have increased the uncertainty of future levels of economic activity which will directly impact future energy demand and operating costs. Weakening economic activity increases the risk of slowing or declining energy sales. See RESULTS OF OPERATIONS herein for information on energy sales in the Southern Company system's service territory during the first six months of 2024.
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 renewable 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, which could be impacted by future tax legislation; 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 Inflation Reduction Act's expansion of the availability of federal ITCs and PTCs and 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 U.S. 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
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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, 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; 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, which may impact future earnings.
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, 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 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 and Note (K) to the Condensed Financial Statements 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
Air Quality
On June 27, 2024, the U.S. Supreme Court stayed the 2015 Ozone National Ambient Air Quality Standards Good Neighbor federal implementation plan (FIP) pending the disposition of petitions for review of the FIP in the U.S. Court of Appeals for the D.C. Circuit and any petition for writ of certiorari to the U.S. Supreme Court. The ultimate impact of the FIP and associated legal matters cannot be determined at this time; however, implementation of the stayed FIP would likely result in increased compliance costs for the traditional electric operating companies.
Water Quality
On May 9, 2024, the EPA published the final rule revising the Steam Effluent Guidelines (ELG Final Rule), which establishes more stringent limits for flue gas desulfurization wastewater, bottom ash transport water, and combustion residual leachate to be met no later than December 31, 2029. The ELG Final Rule maintains the existing
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rule's permanent cessation of coal subcategory and the existing rule's voluntary incentive program and adds a new cessation subcategory which allows units to cease coal combustion by December 31, 2034 as opposed to meeting the new more stringent requirements. The ELG Final Rule also establishes limitations for legacy wastewater which will be effective 60 days from the date of publication. Numerous groups and states filed petitions for review challenging the rule in multiple circuit courts, and, on June 14, 2024, the challenges were consolidated in the U.S. Court of Appeals for the Eighth Circuit. On July 26, 2024, an industry group and the states filed a motion to stay the rule pending judicial review. The ultimate impact of the ELG Final Rule and associated legal matters cannot be determined at this time; however, it may result in significant compliance costs.
Coal Combustion Residuals
On May 8, 2024, the EPA published the final legacy CCR surface impoundments rule which establishes two new categories of federally regulated CCR, legacy surface impoundments and CCR management units (CCRMU). The rule requires legacy surface impoundments and CCRMUs to meet certain existing regulatory requirements, including a requirement to initiate closure within 42 months after the effective date of the final rule for legacy surface impoundments and within 54 months after the effective date of the final rule for CCRMUs. The final rule also includes an option to defer closure of previously closed units where certain criteria have been met. The final rule also includes enhanced reporting requirements. The EPA is also finalizing an alternative provision for closure by removal that will allow certifying completion of closure of a unit while conducting groundwater monitoring and corrective action during post-closure care. On June 13, 2024, an electric generator filed a petition for review challenging the final legacy CCR surface impoundments rule in the U.S. Court of Appeals for the D.C. Circuit. The ultimate impact of the final rule and associated legal matters cannot be determined at this time; however, it may result in significant compliance costs.
On June 7, 2024, the EPA published a final determination to deny the Alabama Department of Environmental Management's CCR permit program. Alabama Power's permits to close its CCR facilities remain valid under state law. In the absence of an EPA-approved state permit program, CCR facilities in Alabama will remain subject to both the federal and state CCR rules. The ultimate impact of this action cannot be determined at this time; however, it may result in significant compliance costs.
On June 28, 2024, the U.S. Court of Appeals for the D.C. Circuit issued a decision dismissing industry challenges to the EPA's January 11, 2022 actions and interpretations related to the closure performance standards in the 2015 CCR rule. The ultimate impacts of this decision and the EPA's current positions cannot be determined at this time; however, it may result in significant compliance costs.
Based on compliance requirements for closure and monitoring of CCR units 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 ash ponds. The cost estimates for Georgia Power and Mississippi Power are based on a combination of closure-in-place for some ash ponds 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 May 9, 2024, the EPA published the final GHG rules for existing fossil fuel-fired steam electric generating units and new fossil fuel-fired combustion turbines and combined cycle generation facilities, which requires GHG limits for subcategories of both new and existing units. The new rules do not include standards for existing fossil fuel-fired combustion turbines and combined cycle generation facilities, which have been deferred to a future rulemaking. Requirements for existing coal-fired units are based on technologies such as carbon capture and sequestration (CCS)
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and natural gas co-firing. States have 24 months after the rule's publication to submit state plans for existing units. The rule allows states to consider remaining useful life and other factors to specify alternative, unit-specific emissions limits and compliance timelines for existing units, as needed to address reliability and other concerns. Existing source compliance will begin as early as January 1, 2030, depending on the subcategory. The final rule incorporates some limited reliability mechanisms including a provision for short-term grid emergencies and a "reliability assurance mechanism" that allows for a one-time, up to one year, extension of existing coal unit retirement dates specified in an approved state plan. The standards for new combustion turbines and combined cycles include subcategories for low, intermediate, and base load operations. Compliance with new source standards begins when the unit comes online, with requirements for CCS beginning on January 1, 2032. The EPA also simultaneously repealed the Affordable Clean Energy rule. Numerous industry groups, electric generators, and states have filed petitions for review challenging the rule in the U.S. Court of Appeals for the D.C. Circuit. A total of eight stay motions were filed seeking a stay of the rule pending judicial review, which were denied by the U.S. Court of Appeals for the D.C. Circuit on July 19, 2024. Numerous industry groups, electric generators, and states have filed emergency stay applications to the U.S. Supreme Court. The ultimate impact of the final rules and associated legal matters cannot be determined at this time; however, it may result in significant compliance costs.
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.
Construction Programs
The Southern Company system strategy continues to include developing and constructing new electric generating 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. See Note 2 to the financial statements in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein under "Georgia Power – Integrated Resource Plans" for information regarding Georgia Power's construction of three simple cycle combustion turbines at Plant Yates.
See Note (K) to the Condensed Financial Statements under "Southern Power" herein for information relating to Southern Power's construction of renewable energy facilities.
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 investment and a return associated with these infrastructure programs through their regulated rates. See Note 2 to the financial statements in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein under "Southern Company Gas – Infrastructure Replacement Programs and Capital Projects" for additional information on Southern Company Gas' construction program.
SNG is developing an approximately $3 billion proposed pipeline project, designed to meet customer demand by increasing SNG's existing pipeline capacity by approximately 1.2 billion cubic feet per day. Subject to the satisfaction or waiver of various conditions, including the receipt of all required approvals by regulators, including the FERC, the operator of the joint venture anticipates the project will be completed in 2028. Southern Company Gas' share of the total project costs would be 50%. The ultimate outcome of this matter 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.
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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.
Inflation Reduction Act
Alabama Power and Georgia Power have nuclear generating facilities that may qualify to generate and claim PTCs under the Inflation Reduction Act beginning in 2024, subject to the issuance of additional guidance by the U.S. Treasury Department and the Internal Revenue Service. The ultimate outcome of this matter cannot be determined at this time.
Georgia State Tax Legislation
On April 18, 2024, the State of Georgia enacted tax legislation that reduced the corporate income tax rate from 5.75% to 5.39% effective for the 2024 tax year. This legislation reduced the amount of Southern Company's and certain subsidiaries' income tax expense in the State of Georgia and existing state net accumulated deferred tax liabilities, increased regulatory liabilities at Georgia Power and Southern Company Gas, and reduces Georgia Power's ability to utilize certain state tax credits in the State of Georgia. The legislation did not have a material impact on the net income of the applicable Registrants.
Natural Gas Safe Harbor Method
On April 30, 2024, the Internal Revenue Service issued Revenue Procedure 2024-23, which gives additional implementation guidance on the natural gas safe harbor tax method of accounting for qualifying repair deductions. Southern Company and Southern Company Gas intend to submit a tax accounting method change for qualifying expenditures with the filing of the 2024 federal income tax return. The new tax method of accounting is expected to result in a material net positive cash flow in 2024 for Southern Company Gas. This will not have a material impact on Southern Company. The ultimate outcome of this matter cannot be determined at this time.
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.
ACCOUNTING POLICIES
See MANAGEMENT'S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES in Item 7 of the Form 10-K for a complete discussion of the Registrants' critical accounting policies and estimates, as well as recently issued accounting standards.
Application of Critical Accounting Policies and Estimates
The Registrants prepare their financial statements in accordance with GAAP. Significant accounting policies are described in the notes to the financial statements in Item 8 of the Form 10-K. In the application of these policies, certain estimates are made that may have a material impact on the Registrants' results of operations and related
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disclosures. Different assumptions and measurements could produce estimates that are significantly different from those recorded in the financial statements.
FINANCIAL CONDITION AND LIQUIDITY
Overview
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Overview" in Item 7 of the Form 10-K for additional information. The financial condition of each Registrant remained stable at June 30, 2024. The Registrants intend to continue to monitor their access to short-term and long-term capital markets as well as their bank credit arrangements to meet future capital and liquidity needs. See "Cash Requirements," "Sources of Capital," and "Financing Activities" herein for additional information.
At the end of the second quarter 2024, the market price of Southern Company's common stock was $77.57 per share (based on the closing price as reported on the NYSE) and the book value was $29.65 per share, representing a market-to-book ratio of 262%, compared to $70.12, $28.83, and 243%, respectively, at the end of 2023. Southern Company's common stock dividend for the second quarter 2024 was $0.72 per share compared to $0.70 per share in the second quarter 2023.
Cash Requirements
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Cash Requirements" in Item 7 of the Form 10-K for a description of the Registrants' significant cash requirements.
The Registrants' significant cash requirements include estimated capital expenditures associated with their construction programs and, for the traditional electric operating companies, operating cash flows related to fuel cost under recovery. The fuel cost under recovery balances are primarily the result of higher than forecasted prices for natural gas and purchased power. See Note (B) to the Condensed Financial Statements herein for additional information.
The construction programs are subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; changes in environmental laws and regulations; the outcome of any legal challenges to environmental rules; changes in electric generating plants, including unit retirements and replacements and adding or changing fuel sources at existing electric generating units, to meet regulatory requirements; changes in FERC rules and regulations; state regulatory agency approvals; changes in the expected environmental compliance program; changes in legislation, regulation, and/or tariff policy; the cost, availability, and efficiency of construction labor, equipment, and materials; project scope and design changes; abnormal weather; delays in construction due to judicial or regulatory action; storm impacts; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures and AROs will be fully recovered. Additionally, expenditures associated with Southern Power's planned acquisitions may vary due to market opportunities and the execution of its growth strategy.
See Note (B) to the Condensed Financial Statements under "Georgia Power – Integrated Resource Plans" herein for information regarding Georgia Power's 2023 IRP Update, which includes incremental cash requirements for capital expenditures through 2027 of approximately $700 million.
Southern Power's construction program includes the Millers Branch solar project. At June 30, 2024, the remaining aggregate construction costs for this project are expected to be between $560 million and $680 million. The ultimate outcome of this matter cannot be determined at this time. See Note (K) to the Condensed Financial Statements under "Southern Power" herein for additional information.
Long-term debt maturities and the interest payable on long-term debt each represent a significant cash requirement for the Registrants. See "Financing Activities" herein for information on changes in the Registrants' long-term debt balances since December 31, 2023.
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Sources of Capital
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" in Item 7 of the Form 10-K for additional information. Southern Company intends to meet its future capital needs through operating cash flows, borrowings from financial institutions, and debt, hybrid, and/or equity issuances. Equity capital can be provided from any combination of Southern Company's stock plans, private placements, or public offerings.
The Subsidiary Registrants plan to obtain the funds to meet their future capital needs from sources similar to those they used in the past, which were primarily from operating cash flows, external securities issuances, borrowings from financial institutions, and equity contributions from Southern Company. Operating cash flows provide a substantial portion of the Registrants' cash needs. Georgia Power intends to utilize a mix of senior note issuances, short-term floating rate bank loans, and commercial paper issuances to continue funding operating cash flows related to fuel cost under recovery.
The amount, type, and timing of any financings in 2024, as well as in subsequent years, will be contingent on investment opportunities and the Registrants' capital requirements and will depend upon prevailing market conditions, regulatory approvals (for certain of the Subsidiary Registrants), and other factors. See "Cash Requirements" and "Financing Activities" herein for additional information.
Southern Power utilizes tax equity partnerships as one of its financing sources, where the tax partner takes significantly all of the federal tax benefits. These tax equity partnerships are consolidated in Southern Power's financial statements and are accounted for using HLBV methodology to allocate partnership gains and losses. During the six months ended June 30, 2024, Southern Power's tax equity funding for existing tax equity partnerships was immaterial. See Note 1 to the financial statements under "General" in Item 8 of the Form 10-K for additional information.
By regulation, Nicor Gas is restricted, up to its retained earnings balance, in the amount it can dividend or loan to affiliates and is not permitted to make money pool loans to affiliates. At June 30, 2024, the amount of subsidiary retained earnings restricted to dividend totaled $1.9 billion. This restriction did not impact Southern Company Gas' ability to meet its cash obligations, nor does management expect such restriction to materially impact Southern Company Gas' ability to meet its currently anticipated cash obligations.
Certain Registrants' current liabilities frequently exceed their current assets because of long-term debt maturities and the periodic use of short-term debt as a funding source, as well as significant seasonal fluctuations in cash needs. The Registrants generally plan to refinance long-term debt as it matures. The following table shows the amount by which current liabilities exceeded current assets at June 30, 2024 for the applicable Registrants:
| At June 30, 2024 | Southern Company | Georgia Power | Southern Company Gas | |||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Current liabilities in excess of current assets | $ | 1,035 | $ | 1,092 | $ | 186 |
The Registrants believe the need for working capital can be adequately met by utilizing operating cash flows, as well as commercial paper, lines of credit, and short-term bank notes, as market conditions permit. In addition, under certain circumstances, the Subsidiary Registrants may utilize equity contributions and/or loans from Southern Company.
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Bank Credit Arrangements
At June 30, 2024, the Registrants' unused committed credit arrangements with banks were as follows:
| At June 30, 2024 | Southern Company parent | Alabama Power | Georgia Power | Mississippi Power | Southern Power**(a)** | Southern Company Gas**(b)** | SEGCO | Southern Company | ||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| Unused committed credit | $ | 1,998 | $ | 1,350 | $ | 2,026 | $ | 275 | $ | 600 | $ | 1,598 | $ | 30 | $ | 7,877 |
(a)At June 30, 2024, Southern Power also had two continuing letters of credit facilities for standby letters of credit, of which $21 million was unused. Southern Power's subsidiaries are not parties to its bank credit arrangements or letter of credit facilities.
(b)Includes $798 million and $800 million at Southern Company Gas Capital and Nicor Gas, respectively.
Subject to applicable market conditions, the Registrants, Nicor Gas, and SEGCO expect to renew or replace their bank credit arrangements as needed, prior to expiration. In connection therewith, the Registrants, Nicor Gas, and SEGCO may extend the maturity dates and/or increase or decrease the lending commitments thereunder.
A portion of the unused credit with banks is allocated to provide liquidity support to certain revenue bonds of the traditional electric operating companies and the commercial paper programs of the Registrants, Nicor Gas, and SEGCO. At June 30, 2024, outstanding variable rate demand revenue bonds of the traditional electric operating companies with allocated liquidity support totaled approximately $1.7 billion (comprised of approximately $796 million at Alabama Power, $819 million at Georgia Power, and $69 million at Mississippi Power). In addition, at June 30, 2024, Alabama Power and Georgia Power had approximately $207 million and $100 million, respectively, of fixed rate revenue bonds outstanding that are required to be remarketed within the next 12 months. Alabama Power's $207 million of fixed rate revenue bonds are classified as securities due within one year on its balance sheets as they are not covered by long-term committed credit. All other variable rate demand revenue bonds and fixed rate revenue bonds required to be remarketed within the next 12 months are classified as long-term debt on the balance sheets as a result of available long-term committed credit.
See Note 8 to the financial statements in Item 8 of the Form 10-K and Note (F) to the Condensed Financial Statements herein under "Bank Credit Arrangements" for additional information.
Short-term Borrowings
The Registrants, Nicor Gas, and SEGCO make short-term borrowings primarily through commercial paper programs that have the liquidity support of the committed bank credit arrangements described above. Southern Power's subsidiaries are not issuers or obligors under its commercial paper program. Commercial paper and short-
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term bank term loans are included in notes payable in the balance sheets. Details of the Registrants' short-term borrowings were as follows:
| Short-term Debt at June 30, 2024 | Short-term Debt During the Period**(*)** | ||||||||||||||||||||||||||||
| Amount Outstanding | Weighted Average Interest Rate | Average Amount Outstanding | Weighted Average Interest Rate | Maximum Amount Outstanding | |||||||||||||||||||||||||
| (in millions) | (in millions) | (in millions) | |||||||||||||||||||||||||||
| Southern Company | $ | 1,334 | 5.9 | % | $ | 1,582 | 5.8 | % | $ | 2,402 | |||||||||||||||||||
| Alabama Power | 130 | 5.8 | 79 | 5.7 | 250 | ||||||||||||||||||||||||
| Georgia Power | 742 | 6.2 | 552 | 6.2 | 770 | ||||||||||||||||||||||||
| Mississippi Power | 102 | 5.6 | 21 | 5.6 | 102 | ||||||||||||||||||||||||
| Southern Power | 219 | 5.6 | 150 | 5.6 | 256 | ||||||||||||||||||||||||
| Southern Company Gas: | |||||||||||||||||||||||||||||
| Southern Company Gas Capital | $ | 121 | 5.5 | % | $ | 87 | 5.6 | % | $ | 176 | |||||||||||||||||||
| Nicor Gas | 20 | 5.4 | 65 | 5.5 | 208 | ||||||||||||||||||||||||
| Southern Company Gas Total | $ | 141 | 5.5 | % | $ | 152 | 5.6 | % |
(*)Average and maximum amounts are based upon daily balances during the three-month period ended June 30, 2024.
Analysis of Cash Flows
Net cash flows provided from (used for) operating, investing, and financing activities for the six months ended June 30, 2024 and 2023 are presented in the following table:
| Net cash provided from (used for): | Southern Company | Alabama Power | Georgia Power | Mississippi Power | Southern Power | Southern Company Gas | ||||||||||||||
| (in millions) | ||||||||||||||||||||
| Six Months Ended June 30, 2024 | ||||||||||||||||||||
| Operating activities | $ | 3,999 | $ | 877 | $ | 1,680 | $ | 85 | $ | 230 | $ | 1,270 | ||||||||
| Investing activities | (4,222) | (951) | (2,199) | (218) | (127) | (696) | ||||||||||||||
| Financing activities | 513 | (46) | 551 | 114 | (85) | (574) | ||||||||||||||
| Six Months Ended June 30, 2023 | ||||||||||||||||||||
| Operating activities | $ | 2,900 | $ | 656 | $ | 576 | $ | 82 | $ | 357 | $ | 1,530 | ||||||||
| Investing activities | (4,288) | (1,011) | (2,260) | (193) | (18) | (761) | ||||||||||||||
| Financing activities | 1,595 | (11) | 1,364 | 71 | (300) | (608) |
Fluctuations in cash flows from financing activities vary from year to year based on capital needs and the maturity or redemption of securities.
Southern Company
Net cash provided from operating activities increased $1.1 billion for the six months ended June 30, 2024 as compared to the corresponding period in 2023 primarily due to the timing of vendor payments, increased retail fuel cost recovery at the traditional electric operating companies, and the timing of fossil fuel stock purchases, partially
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
offset by the timing of customer receivable collections and decreased natural gas cost recovery at the natural gas distribution utilities.
The net cash used for investing activities for the six months ended June 30, 2024 was primarily related to the Subsidiary Registrants' construction programs.
The net cash provided from financing activities for the six months ended June 30, 2024 was primarily related to net issuances of long-term debt, partially offset by common stock dividend payments.
Alabama Power
Net cash provided from operating activities increased $221 million for the six months ended June 30, 2024 as compared to the corresponding period in 2023 primarily due to an increase in retail revenues associated with customer bill credits in 2023 and timing of fossil fuel stock purchases, partially offset by the timing of customer receivable collections.
The net cash used for investing activities for the six months ended June 30, 2024 was primarily related to gross property additions.
The net cash used for financing activities for the six months ended June 30, 2024 was primarily related to common stock dividend payments, partially offset by capital contributions from Southern Company and an increase in short-term borrowings.
Georgia Power
Net cash provided from operating activities increased $1.1 billion for the six months ended June 30, 2024 as compared to the corresponding period in 2023 primarily due to increased fuel cost recovery, timing of fossil fuel stock purchases, and the timing of vendor payments, partially offset by the timing of customer receivable collections.
The net cash used for investing activities for the six months ended June 30, 2024 was primarily related to gross property additions.
The net cash provided from financing activities for the six months ended June 30, 2024 was primarily related to the issuances of senior notes and capital contributions from Southern Company, partially offset by common stock dividend payments and a net decrease in short-term borrowings.
Mississippi Power
Net cash provided from operating activities increased $3 million for the six months ended June 30, 2024 as compared to the corresponding period in 2023 primarily due to the timing of vendor payments and retail fuel cost recovery, partially offset by the timing of customer receivable collections.
The net cash used for investing activities for the six months ended June 30, 2024 was primarily related to gross property additions.
The net cash provided from financing activities for the six months ended June 30, 2024 was primarily related to an increase in short-term borrowings, capital contributions from Southern Company, and net issuances of senior notes, partially offset by common stock dividend payments.
Southern Power
Net cash provided from operating activities decreased $127 million for the six months ended June 30, 2024 as compared to the corresponding period in 2023 primarily due to the timing of customer receivable collections and the utilization of federal tax credits, partially offset by the timing of vendor payments.
The net cash used for investing activities for the six months ended June 30, 2024 was primarily related to ongoing construction activities. See Note (K) to the Condensed Financial Statements under "Southern Power" herein for additional information.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The net cash used for financing activities for the six months ended June 30, 2024 was primarily related to common stock dividend payments and net distributions to noncontrolling interests, partially offset by a net increase in short-term borrowings.
Southern Company Gas
Net cash provided from operating activities decreased $260 million for the six months ended June 30, 2024 as compared to the corresponding period in 2023 primarily due to lower customer receivable collections and natural gas cost recovery, partially offset by the timing of vendor payments.
The net cash used for investing activities for the six months ended June 30, 2024 was primarily related to construction of transportation and distribution assets recovered through base rates.
The net cash used for financing activities for the six months ended June 30, 2024 was primarily related to common stock dividend payments and a decrease in commercial paper borrowings.
Significant Balance Sheet Changes
Southern Company
Significant balance sheet changes for the six months ended June 30, 2024 included:
-
an increase of $3.0 billion in long-term debt (including securities due within one year) primarily related to net issuances of senior notes;
-
an increase of $2.0 billion in total property, plant, and equipment primarily related to the Subsidiary Registrants' construction programs;
-
a decrease of $1.0 billion in notes payable primarily due to a reduction in commercial paper borrowings;
-
an increase of $0.9 billion in total stockholders' equity primarily related to net income, partially offset by common stock dividend payments;
-
a decrease of $0.5 billion in accounts payable primarily related to the timing of vendor payments;
-
a decrease of $0.4 billion in accrued compensation due to the timing of payments;
-
an increase of $0.4 billion in cash and cash equivalents, as discussed further under "Analysis of Cash Flows – Southern Company" herein; and
-
an increase of $0.3 billion in accumulated deferred income taxes primarily related to property-related timing differences.
See "Financing Activities" herein for additional information.
Alabama Power
Significant balance sheet changes for the six months ended June 30, 2024 included:
-
an increase of $588 million in common stockholder's equity primarily due to net income and capital contributions from Southern Company, partially offset by dividends paid to Southern Company;
-
a decrease of $280 million in other accounts payable primarily due to the timing of vendor payments;
-
an increase of $202 million in total property, plant, and equipment primarily related to the construction of transmission and distribution facilities; and
-
a decrease of $131 million in under recovered retail fuel clause revenues primarily resulting from increased recovery of deferred fuel expense.
Georgia Power
Significant balance sheet changes for the six months ended June 30, 2024 included:
- an increase of $1.5 billion in total property, plant, and equipment primarily related to the construction of generation, transmission, and distribution facilities, including costs associated with Plant Vogtle Units 3 and 4;
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
-
an increase of $1.4 billion in long-term debt (including securities due within one year) primarily due to issuances of senior notes;
-
an increase of $1.1 billion in common stockholder's equity primarily due to capital contributions from Southern Company and net income, partially offset by dividends paid to Southern Company;
-
a decrease of $587 million in notes payable primarily due to net repayments of short-term bank debt; and
-
a decrease of $284 million in under recovered retail fuel clause revenues primarily resulting from increased recovery of deferred fuel expense as ordered in Georgia Power's 2023 fuel cost recovery case, partially offset by higher fuel and purchased power costs.
See "Financing Activities – Georgia Power" herein, Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein, and Note 2 to the financial statements under "Georgia Power – Fuel Cost Recovery" in Item 8 of the Form 10-K for additional information.
Mississippi Power
Significant balance sheet changes for the six months ended June 30, 2024 included:
-
an increase of $102 million in notes payable primarily due to an increase in commercial paper borrowings;
-
an increase of $81 million in common stockholder's equity related to net income and capital contributions from Southern Company, partially offset by dividends paid to Southern Company;
-
an increase of $49 million in long-term debt (including securities due within one year) primarily due to net issuances of senior notes;
-
an increase of $43 million in other accounts and notes receivable primarily related to timing of customer collections of contributions in aid of construction; and
-
a decrease of $41 million in accrued taxes primarily due to the payment of ad valorem taxes.
See "Financing Activities – Mississippi Power" herein for additional information.
Southern Power
Significant balance sheet changes for the six months ended June 30, 2024 included:
-
a decrease of $93 million in total property, plant, and equipment due to the continued depreciation of assets, partially offset by the continued construction of the Millers Branch solar facility;
-
an increase of $81 million in notes payable due to an increase in commercial paper borrowings;
-
increases of $70 million in accumulated deferred income tax liabilities and $44 million in prepaid income taxes primarily related to the expected utilization of federal tax credits in 2024;
-
an increase of $57 million in customer accounts, net primarily related to the timing of customer receivables; and
-
a decrease of $55 million in total stockholders' equity primarily due to dividends paid to Southern Company and net distributions to noncontrolling interests, partially offset by net income.
See Note (K) to the Condensed Financial Statements herein for additional information.
Southern Company Gas
Significant balance sheet changes for the six months ended June 30, 2024 included:
-
an increase of $443 million in total property, plant, and equipment primarily related to the construction of transportation and distribution assets;
-
a decrease of $299 million in total accounts receivable primarily relating to decreases of $131 million in customer accounts receivable and $183 million in unbilled revenues as a result of seasonality;
-
a decrease of $274 million in notes payable due to a reduction in commercial paper borrowings;
-
an increase of $241 million in common stockholder's equity primarily related to net income, partially offset by dividends paid to Southern Company;
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
-
an increase of $205 million in accumulated deferred income tax liabilities primarily due to property-related timing differences; and
-
a decrease of $197 million in natural gas for sale due to lower gas prices and lower volumes as a result of seasonality.
Financing Activities
The following table outlines the Registrants' long-term debt financing activities for the first six months of 2024:
| Issuances and Reofferings | Maturities and Redemptions | ||||||||||||||||||||||
| Company | Senior Notes | Other Long- Term Debt | Senior Notes | Revenue Bonds | Other Long- Term Debt**(a)** | ||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Southern Company parent | $ | 2,300 | $ | — | $ | 600 | $ | — | $ | — | |||||||||||||
| Alabama Power | — | 4 | — | 21 | 1 | ||||||||||||||||||
| Georgia Power | 1,400 | — | — | — | 45 | ||||||||||||||||||
| Mississippi Power | 250 | — | 200 | — | 1 | ||||||||||||||||||
| Southern Company Gas | — | 9 | — | — | — | ||||||||||||||||||
| Other(b) | — | — | — | — | 13 | ||||||||||||||||||
| Elimination(c) | — | — | — | — | (1) | ||||||||||||||||||
| Southern Company | $ | 3,950 | $ | 13 | $ | 800 | $ | 21 | $ | 59 |
(a)Includes reductions in finance lease obligations resulting from cash payments under finance leases and, for Georgia Power, principal amortization payments totaling $43 million for FFB borrowings. See Note 8 to the financial statements under "Long-term Debt – DOE Loan Guarantee Borrowings" in Item 8 of the Form 10-K for additional information.
(b)Includes repayment by SEGCO of $10 million of its $100 million principal amount long-term bank loan due November 15, 2024, which is guaranteed by Alabama Power. See Note 3 to the financial statements under "Guarantees" in Item 8 of the Form 10-K for additional information.
(c)Represents reductions in affiliate finance lease obligations at Georgia Power, which are eliminated in Southern Company's consolidated financial statements.
Except as otherwise described herein, the Registrants used the proceeds of debt issuances for their redemptions and maturities shown in the table above, to repay short-term indebtedness, and for general corporate purposes, including working capital. The Subsidiary Registrants also used the proceeds for their construction programs.
In addition to any financings that may be necessary to meet capital requirements and contractual obligations, the Registrants plan to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit.
Southern Company
During the first six months of 2024, Southern Company issued approximately 3.8 million shares of common stock primarily through employee equity compensation plans.
In February 2024, Southern Company issued an additional $400 million aggregate principal amount of its Series 2023D 5.50% Senior Notes due March 15, 2029 (Series 2023D Senior Notes) and an additional $400 million aggregate principal amount of its Series 2023E 5.70% Senior Notes due March 15, 2034 (Series 2023E Senior Notes). Upon these issuances, the aggregate principal amount of outstanding Series 2023D Senior Notes and Series 2023E Senior Notes was $1.0 billion and $1.1 billion, respectively.
Also in February 2024, Southern Company borrowed $300 million pursuant to a short-term uncommitted bank credit arrangement, which was repaid in March 2024.
Also in February 2024, Southern Company repaid at maturity $600 million aggregate principal amount of its Series 2021A 0.60% Senior Notes.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
In May 2024, Southern Company issued $1.5 billion aggregate principal amount of its Series 2024A 4.50% Convertible Senior Notes due June 15, 2027 in a private offering. See Note (F) to the Condensed Financial Statements under "Convertible Senior Notes" herein for additional information.
Alabama Power
In January 2024, Alabama Power repaid at maturity its obligations with respect to approximately $21 million aggregate principal amount of The Industrial Development Board of the Town of Wilsonville (Alabama) Pollution Control Revenue Bonds (Alabama Power Company Gaston Plant Project), Series D.
In May 2024, Alabama Power entered into a $50 million short-term floating rate bank loan, which it repaid at maturity in July 2024.
Georgia Power
In January 2024, Georgia Power borrowed an additional $150 million pursuant to a short-term uncommitted bank credit arrangement. In February 2024, Georgia Power repaid the aggregate $250 million outstanding.
Also in February 2024, Georgia Power issued $500 million aggregate principal amount of Series 2024A 5.004% Senior Notes due February 23, 2027 and $900 million aggregate principal amount of Series 2024B 5.250% Senior Notes due March 15, 2034.
In June 2024, Georgia Power entered into a $200 million short-term floating rate bank loan bearing interest based on term SOFR.
Subsequent to June 30, 2024, Georgia Power repaid $210 million of a $420 million short-term floating rate bank loan due November 2024.
Mississippi Power
In March 2024, Mississippi Power issued in a private placement $100 million aggregate principal amount of Series 2024A 5.62% Senior Notes due March 15, 2034 and $50 million aggregate principal amount of Series 2024B 5.72% Senior Notes due March 15, 2036. In June 2024, pursuant to the same agreement, Mississippi Power issued in a private placement $100 million aggregate principal amount of Series 2024C 5.91% Senior Notes due June 15, 2054.
Also in June 2024, Mississippi Power repaid at maturity $200 million aggregate principal amount of its Series 2021A Floating Rate Senior Notes.
Southern Company Gas
During the first six months of 2024, Southern Company Gas received cash advances totaling $9 million under a long-term financing agreement related to a construction contract.
Credit Rating Risk
At June 30, 2024, the Registrants did not have any credit arrangements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade.
There are certain contracts that could require collateral, but not accelerated payment, in the event of a credit rating change of certain Registrants to BBB and/or Baa2 or below. These contracts are primarily for physical electricity and natural gas purchases and sales, fuel purchases, fuel transportation and storage, energy price risk management, transmission, interest rate management, and, for Georgia Power, services at Plant Vogtle Units 3 and 4.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The maximum potential collateral requirements under these contracts at June 30, 2024 were as follows:
| Credit Ratings | Southern Company**(*)** | Alabama Power | Georgia Power | Mississippi Power | Southern Power**(*)** | Southern Company Gas | ||||||||||||||
| (in millions) | ||||||||||||||||||||
| At BBB and/or Baa2 | $ | 36 | $ | 1 | $ | — | $ | — | $ | 35 | $ | — | ||||||||
| At BBB- and/or Baa3 | 460 | 2 | 60 | 1 | 398 | — | ||||||||||||||
| At BB+ and/or Ba1 or below | 1,951 | 386 | 771 | 298 | 1,303 | 17 |
(*)Southern Power has PPAs that could require collateral, but not accelerated payment, in the event of a downgrade of Southern Power's credit. The PPAs require credit assurances without stating a specific credit rating. The amount of collateral required would depend upon actual losses resulting from a credit downgrade. Southern Power had $106 million of cash collateral posted related to PPA requirements at June 30, 2024.
The amounts in the previous table for the traditional electric operating companies and Southern Power include certain agreements that could require collateral if either Alabama Power or Georgia Power has a credit rating change to below investment grade. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, a credit rating downgrade could impact the ability of the Registrants to access capital markets and would be likely to impact the cost at which they do so.
On May 2, 2024, S&P upgraded the issuer credit rating for Southern Company to A- from BBB+. Due to S&P's rating methodology, the upgrade of Southern Company's issuer credit rating resulted in the upgrade of the senior unsecured long-term debt ratings of Mississippi Power, Southern Company Gas Capital, and Atlanta Gas Light to A- from BBB+, the senior unsecured long-term debt rating of Georgia Power to A from BBB+, the senior unsecured long-term debt rating of Alabama Power to A from A-, and the senior unsecured long-term debt ratings of Southern Company and Southern Power to BBB+ from BBB. Nicor Gas' long-term issuer rating remained at A-. S&P revised its credit rating outlook for Southern Company and its subsidiaries to stable from positive.
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