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 | 93 | ||||
| Results of Operations | 96 | ||||
| Southern Company | 96 | ||||
| Alabama Power | 104 | ||||
| Georgia Power | 110 | ||||
| Mississippi Power | 117 | ||||
| Southern Power | 120 | ||||
| Southern Company Gas | 124 | ||||
| Future Earnings Potential | 129 | ||||
| Accounting Policies | 134 | ||||
| Financial Condition and Liquidity | 135 |
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.
On October 24, 2024, Alabama Power entered into an agreement to acquire all of the equity interests in Tenaska Alabama Partners, L.P. for a total purchase price of approximately $622 million, subject to working capital adjustments. Tenaska Alabama Partners, L.P. owns and operates Lindsay Hill Generating Station, an approximately 855-MW combined cycle generation facility, in Autauga County, Alabama. On October 30, 2024, Alabama Power filed a petition for a CCN with the Alabama PSC for authorization to procure additional generating capacity through the acquisition of the Lindsay Hill Generating Station. Alabama Power expects to complete the acquisition by the end of the third quarter 2025.
See Note (B) to the Condensed Financial Statements under "Alabama Power" 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. During the second quarter 2024, following Unit 4's in-service date, Southern Nuclear 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
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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 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.
Rate Plans
In accordance with the terms of the 2022 ARP, on October 1, 2024, Georgia Power filed tariff adjustments to become effective January 1, 2025 that would result in a net increase in rates of $306 million pending approval by the Georgia PSC. The ultimate outcome of this matter cannot be determined at this time. See Note (B) to the Condensed Financial Statements under "Georgia Power – Rate Plans" 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. The 2023 IRP Update includes the authority to develop, own, and operate up to 1,400 MWs from three simple cycle combustion turbines at Plant Yates with the recoverable costs not to exceed the certified amount, which was approved by the Georgia PSC on August 20, 2024. 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 Mississippi PSC did not note any deficiencies within the review period; therefore, the filing is concluded. The 2024 IRP included 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.
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 this matter 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 nine months ended September 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, the 180-MW second phase, and the 90-MW third phase of the Millers Branch solar facility. Subsequent to September 30, 2024, Southern Power committed to expand construction of the third phase of the
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Millers Branch solar project by 42 MWs of capacity, substantially all of which is contracted under a 15-year PPA, and commercial operation is projected to occur in the fourth quarter 2026. With the expansion of the third phase, the Millers Branch solar project will have a total generating capacity of 512 MWs. See Note (K) to the Condensed Financial Statements under "Southern Power" herein for additional information.
At September 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 $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 portions of the System Reinforcement Rider and municipal, county, and GDOT projects. 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.
On August 1, 2024, Virginia Natural Gas filed a base rate case with the Virginia Commission seeking an increase in annual base revenues of $63 million, including $17 million related to the recovery of investments under the SAVE program, primarily to recover investments and increased costs associated with infrastructure and technology. The requested increase is based on a projected 12-month period beginning January 1, 2025, an ROE of 10.45%, and an equity ratio of 54.92%. Rate adjustments will be effective January 1, 2025, subject to refund. The Virginia Commission is expected to issue an order on the requested increase in the third quarter 2025. The ultimate outcome of this matter cannot be determined at this time.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
Southern Company
Net Income
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $113 | 7.9 | $746 | 23.9 |
Consolidated net income attributable to Southern Company was $1.5 billion ($1.40 per share) in the third quarter 2024 compared to $1.4 billion ($1.30 per share) for the corresponding period in 2023. For year-to-date 2024, consolidated net income attributable to Southern Company was $3.9 billion ($3.53 per share) compared to $3.1 billion ($2.86 per share) for the corresponding period in 2023. The increases were primarily due to increases in retail electric revenues associated with rates and pricing, an after-tax charge of $120 million in the third quarter 2023 related to the construction of Plant Vogtle Units 3 and 4, and increases in other revenues, partially offset by increases in interest expense, non-fuel operations and maintenance expenses, 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 and warmer weather in the second quarter 2024 compared to the corresponding periods in 2023 and an increase in natural gas revenues from rate increases.
Retail Electric Revenues
In the third quarter 2024, retail electric revenues were $5.4 billion compared to $5.1 billion for the corresponding period in 2023. For year-to-date 2024, retail electric revenues were $13.8 billion compared to $12.6 billion for the corresponding period in 2023. Details of the changes in retail electric revenues were as follows:
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Rates and pricing | $ | 458 | 8.9 | % | $ | 1,051 | 8.3 | % | |||||||||||||||
| Sales growth (decline) | (39) | (0.8) | 24 | 0.2 | |||||||||||||||||||
| Weather | (15) | (0.3) | 279 | 2.2 | |||||||||||||||||||
| Fuel and other cost recovery | (177) | (3.4) | (158) | (1.2) | |||||||||||||||||||
| Retail electric revenues | $ | 227 | 4.4 | % | $ | 1,196 | 9.5 | % |
Revenues associated with changes in rates and pricing increased in the third 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 net of the elimination of the NCCR tariff at Georgia Power, customer bill credits in 2023 at Alabama Power related to the flowback of certain excess accumulated deferred income taxes, base tariff increases at Georgia Power in accordance with its 2022 ARP, higher contributions from commercial and industrial customers with variable demand-driven pricing at Georgia Power, and an increase in Rate CNP New Plant revenues at Alabama Power. 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 decreased in the third quarter 2024 and increased for year-to-date 2024 when compared to the corresponding periods in 2023. Weather-adjusted residential KWH sales decreased 1.5% and 0.5% in the third quarter and year-to-date 2024, respectively, primarily due to decreased customer usage, partially offset by customer growth. Weather-adjusted commercial KWH sales increased 0.1% in the third quarter 2024 primarily due to customer growth, largely offset by decreased customer usage. Weather-adjusted commercial KWH sales increased 2.1% for year-to-date 2024 primarily due to increased customer usage, primarily driven by existing
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
data centers, and customer growth. Industrial KWH sales increased 0.4% and 0.3% in the third quarter and year-to-date 2024, respectively, primarily due to increases in the pipeline, chemicals, and transportation sectors.
Fuel and other cost recovery revenues decreased $177 million and $158 million in the third quarter and year-to-date 2024, respectively, compared to the corresponding periods in 2023 primarily due to lower 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(6) | (0.8) | $(11) | (0.6) |
In the third quarter 2024, wholesale electric revenues were $721 million compared to $727 million for the corresponding period in 2023. For year-to-date 2024, wholesale electric revenues were $1.92 billion compared to $1.93 billion for the corresponding period in 2023. The decreases in the third quarter and year-to-date 2024 were due to decreases in energy revenues of $38 million and $36 million, respectively, partially offset by increases in capacity revenues of $32 million and $25 million, respectively. The decreases in energy revenues were primarily due to decreases related to the average net cost of fuel and purchased power. Partially offsetting the year-to-date 2024 decrease in energy revenues was an increase in the volume of KWHs sold under natural gas and solar PPAs at Southern Power. The increases in capacity revenues were primarily due to a net increase in revenues from capacity contracts at Georgia Power and an increase in capacity revenues associated with natural gas PPAs at Southern Power. The changes for year-to-date 2024 in capacity and energy revenues also reflect decreases 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.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Other Electric Revenues
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $19 | 9.4 | $29 | 4.8 |
In the third quarter 2024, other electric revenues were $222 million compared to $203 million for the corresponding period in 2023. The increase was primarily due to increases of $15 million in transmission revenues primarily associated with open access transmission tariff sales, $8 million in pole attachment revenues at Georgia Power, and $6 million in regulated outdoor lighting sales at Georgia Power, partially offset by a decrease of $7 million due to an arbitration award received in 2023 at Southern Power and a net increase of $7 million in realized losses associated with price stability products for retail customers on variable demand-driven pricing tariffs at Georgia Power.
For year-to-date 2024, other electric revenues were $631 million compared to $602 million for the corresponding period in 2023. The increase was primarily due to increases of $34 million in transmission revenues primarily associated with open access transmission tariff sales, $17 million in regulated outdoor lighting sales at Georgia Power, and $10 million in customer fees primarily at Georgia Power, partially offset by a net increase of $18 million in realized losses associated with price stability products for retail customers on variable demand-driven pricing tariffs at Georgia Power and a decrease of $14 million related to liquidated damages receipts associated with generation facility production guarantees and an arbitration award in 2023 at Southern Power.
Natural Gas Revenues
In the third quarter 2024, natural gas revenues were $682 million compared to $689 million for the corresponding period in 2023. For year-to-date 2024, natural gas revenues were $3.2 billion compared to $3.4 billion for the corresponding period in 2023. Details of the changes in natural gas revenues were as follows:
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Rate changes | $ | 6 | 0.9 | % | $ | 196 | 5.7 | % | |||||||||||||||
| Gas costs and other cost recovery | 4 | 0.6 | (335) | (9.8) | |||||||||||||||||||
| Gas marketing services | (2) | (0.3) | (15) | (0.4) | |||||||||||||||||||
| Other | (15) | (2.2) | (43) | (1.3) | |||||||||||||||||||
| Natural gas revenues | $ | (7) | (1.0) | % | $ | (197) | (5.8) | % |
Revenues from rate changes increased for year-to-date 2024 compared to the corresponding period in 2023 primarily due to rate increases, partially offset by 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 for year-to-date 2024 compared to the corresponding period in 2023 primarily due to lower natural gas cost recovery associated with lower natural gas prices and lower demand associated with warmer weather. 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 for year-to-date 2024 compared to the corresponding period in 2023 primarily due to lower commodity prices.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Other Revenues
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $61 | 27.5 | $158 | 23.9 |
In the third quarter 2024, other revenues were $283 million compared to $222 million for the corresponding period in 2023. For year-to-date 2024, other revenues were $820 million compared to $662 million for the corresponding period in 2023. The increases in the third quarter and year-to-date 2024 were primarily due to increases of $49 million and $97 million, respectively, at PowerSecure primarily related to distributed infrastructure projects and $14 million and $36 million, respectively, in unregulated sales at Georgia Power associated with power delivery construction and maintenance projects, partially offset by decreases of $7 million and $19 million, respectively, at Southern Linc primarily related to equipment sales associated with commercial customers. Also contributing to the year-to-date 2024 increase were increases of $14 million in unregulated sales at Georgia Power associated with energy conservation projects and renewables and $10 million in unregulated sales associated with outdoor lighting at the traditional electric operating companies.
Fuel and Purchased Power Expenses
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Fuel | $ | (221) | (16.2) | $ | (202) | (6.0) | |||||||||||||||||
| Purchased power | 42 | 20.3 | (11) | (1.6) | |||||||||||||||||||
| Total fuel and purchased power expenses | $ | (179) | $ | (213) |
In the third quarter 2024, total fuel and purchased power expenses were $1.4 billion compared to $1.6 billion for the corresponding period in 2023. The decrease was primarily due to a $111 million net decrease related to the average cost of fuel and purchased power and an $8 million net decrease related to the volume of KWHs generated and purchased. Also contributing to the decrease was a $60 million credit to nuclear fuel expense at Georgia Power resulting from litigation related to nuclear fuel disposal costs.
For year-to-date 2024, total fuel and purchased power expenses were $3.8 billion compared to $4.1 billion for the corresponding period in 2023. The decrease was primarily due to a $174 million net decrease related to the average cost of fuel and purchased power, partially offset by a $21 million net increase related to the volume of KWHs generated and purchased. Also contributing to the decrease was a $60 million credit to nuclear fuel expense at Georgia Power resulting from litigation related to nuclear fuel disposal costs.
See Note (C) to the Condensed Financial Statements under "Nuclear Fuel Disposal Costs" herein for additional information.
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:
| Third Quarter 2024 | Third Quarter 2023 | Year-To-Date 2024 | Year-To-Date 2023 | |||||||||||
| Total generation (in billions of KWHs)(a) | 53 | 53 | 145 | 141 | ||||||||||
| Total purchased power (in billions of KWHs) | 5 | 5 | 13 | 14 | ||||||||||
| Sources of generation (percent) — | ||||||||||||||
| Gas | 55 | 54 | 52 | 54 | ||||||||||
| Nuclear(a) | 18 | 16 | 19 | 17 | ||||||||||
| Coal | 19 | 21 | 18 | 18 | ||||||||||
| Hydro | 1 | 2 | 3 | 3 | ||||||||||
| Wind, Solar, and Other | 7 | 7 | 8 | 8 | ||||||||||
| Cost of fuel, generated (in cents per net KWH)— | ||||||||||||||
| Gas | 2.47 | 2.80 | 2.62 | 2.78 | ||||||||||
| Nuclear(a)(b) | 0.91 | 0.79 | 0.87 | 0.74 | ||||||||||
| Coal | 4.18 | 4.52 | 4.00 | 4.40 | ||||||||||
| Average cost of fuel, generated (in cents per net KWH)(a) | 2.51 | 2.84 | 2.53 | 2.71 | ||||||||||
| Average cost of purchased power (in cents per net KWH)(c) | 4.87 | 4.80 | 5.19 | 5.08 |
(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)Excludes $60 million of credits recorded in the third quarter 2024 to nuclear fuel expense resulting from litigation related to nuclear fuel disposal costs. See Note (C) to the Condensed Financial Statements under "Nuclear Fuel Disposal Costs" herein for additional information.
(c)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 third quarter 2024, fuel expense was $1.1 billion compared to $1.4 billion for the corresponding period in 2023. The decrease was primarily due to an 11.8% decrease in the average cost per KWH generated by natural gas, a 9.6% decrease in the volume of KWHs generated by coal, and a 7.5% decrease in the average cost per KWH generated by coal, partially offset by a 15.2% increase in the average cost per KWH generated by nuclear, a 12.9% increase in the volume of KWHs generated by nuclear, and an 11.7% decrease in the volume of KWHs generated by hydro. Also contributing to the third quarter 2024 decrease was $60 million of credits recorded to nuclear fuel expense resulting from litigation related to nuclear fuel disposal costs at Georgia Power.
For year-to-date 2024, fuel expense was $3.2 billion compared to $3.4 billion for the corresponding period in 2023. The decrease was primarily due to a 9.1% decrease in the average cost per KWH generated by coal, a 5.8% decrease in the average cost per KWH generated by natural gas, and a 1.6% decrease in the volume of KWHs generated by natural gas, partially offset by a 17.6% increase in the average cost per KWH generated by nuclear, a 15.9% decrease in the volume of KWHs generated by hydro, a 15.3% increase in the volume of KWHs generated by nuclear, and a 7.1% increase in the volume of KWHs generated by coal. Also contributing to the year-to-date 2024 decrease was $60 million of credits recorded to nuclear fuel expense resulting from litigation related to nuclear fuel disposal costs at Georgia Power.
See Note (C) to the Condensed Financial Statements under "Nuclear Fuel Disposal Costs" herein for additional information.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Purchased Power
In the third quarter 2024, purchased power expense was $249 million compared to $207 million for the corresponding period in 2023. The increase was primarily due to an increase of 8.9% in the volume of KWHs purchased and an increase of 1.5% in the average cost per KWH purchased.
For year-to-date 2024, purchased power expense was $669 million compared to $680 million for the corresponding period in 2023. The decrease was primarily due to a decrease of 7.1% in the volume of KWHs purchased, partially offset by an increase of 2.2% in the average cost per KWH purchased.
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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(4) | (3.9) | $(347) | (28.9) |
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 77% and 81% of the total cost of natural gas in the third quarter and year-to-date 2024, respectively.
For year-to-date 2024, cost of natural gas was $0.9 billion compared to $1.2 billion for the corresponding period in 2023. The decrease reflects lower gas cost recovery as a result of a decrease of 22% in natural gas prices.
Cost of Other Sales
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $40 | 31.7 | $83 | 21.8 |
In the third quarter 2024, cost of other sales was $166 million compared to $126 million for the corresponding period in 2023. For year-to-date 2024, cost of other sales was $464 million compared to $381 million for the corresponding period in 2023. The increases in the third quarter and year-to-date 2024 were primarily due to increases of $38 million and $72 million, respectively, at PowerSecure primarily related to distributed infrastructure projects and $9 million and $25 million, respectively, in unregulated power delivery construction and maintenance contracts at Georgia Power, partially offset by decreases of $6 million and $15 million, respectively, at Southern Linc primarily related to equipment sales associated with commercial customers.
Other Operations and Maintenance Expenses
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $238 | 16.7 | $191 | 4.4 |
In the third quarter 2024, other operations and maintenance expenses were $1.7 billion compared to $1.4 billion for the corresponding period in 2023. The increase was primarily due to increases of $68 million in generation expenses primarily associated with Plant Vogtle Unit 4 being placed in service at Georgia Power, Rate CNP Compliance-related expenses at Alabama Power, and an arbitration award received in 2023 at Southern Power, $51 million in
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
transmission and distribution costs primarily associated with line maintenance and billing adjustments with integrated transmission system owners at Georgia Power, $39 million in certain employee compensation and benefit expenses, and $36 million related to an impairment loss associated with Alabama Power discontinuing the development of a multi-use commercial facility.
For year-to-date 2024, other operations and maintenance expenses were $4.5 billion compared to $4.4 billion for the corresponding period in 2023. The increase was primarily due to increases of $134 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, $72 million in certain employee compensation and benefit expenses, $61 million in transmission and distribution costs primarily associated with line maintenance and billing adjustments with integrated transmission system owners at Georgia Power, $36 million related to an impairment loss associated with Alabama Power discontinuing the development of a multi-use commercial facility, $31 million in customer service and sales expenses including bad debt, and $16 million from a gain on the sale of spare parts in 2023 at Southern Power, partially offset by a $92 million increase in gains from sales of integrated transmission system assets at Georgia Power, a decrease of $44 million in technology infrastructure and application production costs, and a $30 million prior year regulatory disallowance at Nicor Gas.
See Note (A) to the Condensed Financial Statements under "Impairment of Long-Lived Assets" herein, 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $67 | 5.9 | $172 | 5.1 |
In the third 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 $3.5 billion compared to $3.4 billion for the corresponding period in 2023. The increases in the third quarter and year-to-date 2024 were primarily due to increases of $86 million and $227 million, respectively, associated with additional plant in service, partially offset by decreases of $15 million and $45 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $34 | 10.0 | $79 | 7.3 |
In the third quarter 2024, taxes other than income taxes were $375 million compared to $341 million for the corresponding period in 2023. For year-to-date 2024, taxes other than income taxes were $1.2 billion compared to $1.1 billion for the corresponding period in 2023. The increases in the third quarter and year-to-date 2024 were primarily due to increases of $30 million and $70 million, respectively, in property taxes primarily resulting from an increase in the assessed value of property as well as a decrease in the capitalized portion of property taxes at Georgia Power primarily due to Plant Vogtle Unit 4 being placed in service in April 2024 and $5 million and $19 million, respectively, in municipal franchise fees resulting from higher retail revenues at Georgia Power. Partially offsetting the increase for year-to-date 2024 was a decrease of $16 million in revenue taxes as a result of lower natural gas revenues at Nicor Gas. See Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein for additional information on Plant Vogtle Unit 4.
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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(160) | N/M | $(181) | N/M |
Georgia Power recorded pre-tax charges (credits) to income related to the estimated probable loss on Plant Vogtle Units 3 and 4 totaling $(21) million in the second quarter 2024 and $160 million in the third quarter 2023. These charges (credits) reflected revisions to the total project capital cost forecast for the construction and 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(8) | (12.1) | $(33) | (16.5) |
In the third quarter 2024, allowance for equity funds used during construction was $58 million compared to $66 million for the corresponding period in 2023. For year-to-date 2024, allowance for equity funds used during construction was $167 million compared to $200 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 (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein and Note 2 to the financial statements under "Alabama Power" in Item 8 of the Form 10-K for additional information.
Interest Expense, Net of Amounts Capitalized
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $72 | 11.6 | $238 | 13.1 |
In the third quarter 2024, interest expense, net of amounts capitalized was $692 million compared to $620 million for the corresponding period in 2023. The increase primarily reflects increases of approximately $34 million related to higher average outstanding borrowings and $16 million related to higher interest rates, as well as decreases of $7 million in AFUDC debt primarily related to Plant Vogtle Unit 4 at Georgia Power and $6 million in net deferred financing costs related to Plant Vogtle Unit 3 at Georgia Power.
For year-to-date 2024, interest expense, net of amounts capitalized was $2.1 billion compared to $1.8 billion for the corresponding period in 2023. The increase primarily reflects increases of approximately $112 million related to higher average outstanding borrowings and $112 million related to higher interest rates, as well as a decrease of $29 million in AFUDC debt primarily related to Plant Vogtle Units 3 and 4 at Georgia Power and Plant Barry Unit 8 at Alabama Power.
See Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction – Regulatory Matters" and FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" and "Financing Activities" herein and Note 2 to the financial statements under "Alabama Power – Rate CNP New Plant" 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)
Other Income (Expense), Net
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $6 | 4.3 | $22 | 5.1 |
For year-to-date 2024, other income (expense), net was $450 million compared to $428 million for the corresponding period in 2023. The increase was primarily due to a $12 million increase in customer charges related to contributions in aid of construction at Georgia Power, an $8 million increase in non-service cost-related retirement benefits income, 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, partially offset by a $10 million decrease in interest income. 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $80 | 26.9 | $398 | 80.9 |
In the third quarter 2024, income taxes were $377 million compared to $297 million for the corresponding period in 2023. The increase was primarily due to higher pre-tax earnings and a decrease of $58 million in the flowback of certain excess deferred income taxes at Alabama Power, partially offset by an increase of $23 million in the generation of advanced nuclear PTCs at Georgia Power.
For year-to-date 2024, income taxes were $890 million compared to $492 million for the corresponding period in 2023. The increase was primarily due to higher pre-tax earnings, a decrease of $139 million 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 an increase of $73 million in the generation 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(72) | (12.7) | $63 | 5.6 |
Alabama Power's net income in the third quarter 2024 was $493 million compared to $565 million for the corresponding period in 2023. The decrease was primarily due to an increase in non-fuel operations and maintenance expenses, an increase in depreciation, and a decrease in customer usage. These decreases to income were partially offset by an increase in Rate CNP New Plant revenues.
For year-to-date 2024, net income was $1.2 billion compared to $1.1 billion for the corresponding period in 2023. The increase was primarily due to an increase in retail electric revenues associated with colder weather in the first quarter 2024 and warmer weather in the second quarter 2024 in the Alabama Power service territory compared to the corresponding periods in 2023, as well as an increase in Rate CNP New Plant revenues and a decrease in capacity expenses. These increases to income were partially offset by increases in non-fuel operations and
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
maintenance expenses, depreciation, and interest expense and lower AFUDC equity due to Plant Barry Unit 8 being placed in service in 2023.
Retail Revenues
In the third quarter 2024, retail revenues were $1.90 billion compared to $1.86 billion for the corresponding period in 2023. For year-to-date 2024, retail revenues were $5.12 billion compared to $4.71 billion for the corresponding period in 2023. Details of the changes in retail revenues were as follows:
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Rates and pricing | $ | 124 | 6.7 | % | $ | 356 | 7.6 | % | |||||||||||||||
| Sales decline | (17) | (0.9) | (7) | (0.1) | |||||||||||||||||||
| Weather | (14) | (0.8) | 77 | 1.6 | |||||||||||||||||||
| Fuel and other cost recovery | (49) | (2.6) | (17) | (0.4) | |||||||||||||||||||
| Retail revenues | $ | 44 | 2.4 | % | $ | 409 | 8.7 | % |
Revenues associated with changes in rates and pricing increased in the third 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 decreased in the third quarter and year-to-date 2024 when compared to the corresponding periods in 2023. Weather-adjusted residential KWH sales were relatively flat in the third quarter 2024 and decreased 0.6% for year-to-date 2024 primarily due to a decrease in customer usage. Weather-adjusted commercial KWH sales decreased 0.4% in the third quarter 2024 primarily due to a decrease in customer usage. Weather-adjusted commercial KWH sales increased 0.7% for year-to-date 2024 primarily due to customer growth. Industrial KWH sales increased 0.6% and 0.1% in the third quarter and year-to-date 2024, respectively, primarily due to an increase in the pipeline and forest products sectors.
Fuel and other cost recovery revenues decreased in the third quarter and year-to-date 2024 when compared to the corresponding periods in 2023 primarily as a result of lower 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(17) | (16.0) | $(99) | (27.7) |
In the third quarter 2024, wholesale revenues from sales to non-affiliates were $89 million compared to $106 million for the corresponding period in 2023. The decrease was primarily due to a 12.8% decrease in the volume of KWHs sold as a result of lower market demand.
For year-to-date 2024, wholesale revenues from sales to non-affiliates were $259 million compared to $358 million for the corresponding period in 2023. The decrease was primarily due to a 41.4% decrease in the volume of KWHs sold as a result of power sales agreements that ended in May 2023, partially offset by a 23.3% increase in the price of energy.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $20 | 142.9 | $60 | 139.5 |
In the third quarter 2024, wholesale revenues from sales to affiliates were $34 million compared to $14 million for the corresponding period in 2023. For year-to-date 2024, wholesale revenues from sales to affiliates were $103 million compared to $43 million for the corresponding period in 2023. The increases for the third quarter and year-to-date 2024 were primarily due to increases of 178.8% and 188.4%, 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.
Fuel and Purchased Power Expenses
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Fuel | $ | (18) | (4.5) | $ | 37 | 3.7 | |||||||||||||||||
| Purchased power – non-affiliates | 7 | 16.7 | (49) | (24.9) | |||||||||||||||||||
| Purchased power – affiliates | (32) | (40.0) | (59) | (30.6) | |||||||||||||||||||
| Total fuel and purchased power expenses | $ | (43) | $ | (71) |
In the third quarter 2024, total fuel and purchased power expenses were $481 million compared to $524 million for the corresponding period in 2023. The decrease was due to a $34 million net decrease related to the average cost of fuel and purchased power and a $9 million net decrease related to the volume of KWHs generated and purchased.
For year-to-date 2024, total fuel and purchased power expenses were $1.3 billion compared to $1.4 billion for the corresponding period in 2023. The decrease was due to a $45 million net decrease related to the average cost of fuel and purchased power and a $26 million net decrease 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 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:
| Third Quarter 2024 | Third Quarter 2023 | Year-To-Date 2024 | Year-To-Date 2023 | ||||||||||||||||||||
| Total generation (in billions of KWHs) | 16 | 15 | 46 | 43 | |||||||||||||||||||
| Total purchased power (in billions of KWHs) | 2 | 3 | 5 | 8 | |||||||||||||||||||
| Sources of generation (percent) — | |||||||||||||||||||||||
| Gas | 41 | 31 | 37 | 30 | |||||||||||||||||||
| Coal | 32 | 40 | 33 | 35 | |||||||||||||||||||
| Nuclear | 24 | 26 | 24 | 27 | |||||||||||||||||||
| Hydro | 3 | 3 | 6 | 8 | |||||||||||||||||||
| Cost of fuel, generated (in cents per net KWH) — | |||||||||||||||||||||||
| Gas | 2.59 | 3.07 | 2.71 | 3.05 | |||||||||||||||||||
| Coal | 3.36 | 3.57 | 3.24 | 3.48 | |||||||||||||||||||
| Nuclear | 0.74 | 0.68 | 0.72 | 0.68 | |||||||||||||||||||
| Average cost of fuel, generated (in cents per net KWH) | 2.39 | 2.64 | 2.39 | 2.51 | |||||||||||||||||||
| Average cost of purchased power (in cents per net KWH)(*) | 4.88 | 4.57 | 5.88 | 4.97 |
(*)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 third quarter 2024, fuel expense was $384 million compared to $402 million for the corresponding period in 2023. The decrease was primarily due to a 15.6% decrease in the average cost per KWH generated by natural gas, which excludes tolling agreements, and a 13.8% decrease in the volume of KWHs generated by coal, partially offset by a 37.5% increase in the volume of KWHs generated by natural gas and an 18.6% decrease in the volume of KWHs generated by hydro facilities as a result of less rainfall.
For year-to-date 2024, fuel expense was $1.1 billion compared to $1.0 billion for the corresponding period in 2023. The increase was primarily due to a 35.4% increase in the volume of KWHs generated by natural gas and an 18.4% decrease in the volume of KWHs generated by hydro facilities as a result of less rainfall, partially offset by an 11.1% decrease in the average cost per KWH generated by natural gas, which excludes tolling agreements.
Purchased Power – Non-Affiliates
In the third quarter 2024, purchased power expense from non-affiliates was $49 million compared to $42 million for the corresponding period in 2023. The increase was primarily due to an increase of 4.4% in the volume of KWHs purchased as Alabama Power and other Southern Company system units generally dispatched at a higher cost than available market resources.
For year-to-date 2024, purchased power expense from non-affiliates was $148 million compared to $197 million for the corresponding period in 2023. The decrease was primarily due to a decrease of 36.1% 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 an increase of 14.1% in the average cost per KWH purchased.
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.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Purchased Power – Affiliates
In the third quarter 2024, purchased power expense from affiliates was $48 million compared to $80 million for the corresponding period in 2023. The decrease was primarily due to a decrease of 48.9% in the volume of KWHs purchased due to the availability of Plant Barry Unit 8 and Central Alabama Generating Station generation, partially offset by an increase of 16.9% in the average cost per KWH purchased.
For year-to-date 2024, purchased power expense from affiliates was $134 million compared to $193 million for the corresponding period in 2023. The decrease was primarily due to a decrease of 45.1% in the volume of KWHs purchased due to the availability of Plant Barry Unit 8 and Central Alabama Generating Station generation and a reduction in capacity-related expenses due to lower capacity needs in 2024, partially offset by an increase of 27.0% in the average cost per KWH purchased.
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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $82 | 20.0 | $60 | 4.7 |
In the third quarter 2024, other operations and maintenance expenses were $493 million compared to $411 million for the corresponding period in 2023. The increase was primarily due to increases of $36 million related to an impairment loss associated with Alabama Power discontinuing the development of a multi-use commercial facility, $15 million in certain employee compensation and benefits, $14 million in generation expenses primarily associated with Rate CNP Compliance-related expenses, partially offset by a $6 million decrease in planned outages, $10 million related to the injuries and damages reserve, $6 million in customer accounts primarily associated with bad debt expense, and $3 million in transmission and distribution expenses primarily due to vegetation management. The increases were partially offset by a decrease of $4 million in technology infrastructure and application production costs.
For year-to-date 2024, other operations and maintenance expenses were $1.34 billion compared to $1.28 billion for the corresponding period in 2023. The increase was primarily due to increases of $36 million related to an impairment loss associated with Alabama Power discontinuing the development of a multi-use commercial facility, $32 million in generation expenses primarily associated with Rate CNP Compliance-related expenses, partially offset by a $12 million decrease in planned outages, $17 million in certain employee compensation and benefits, $10 million in customer accounts primarily associated with bad debt expense, and $8 million related to the injuries and damages reserve. The increases were partially offset by a decrease of $21 million in technology infrastructure and application production costs, as well as a $5 million increase in nuclear property insurance refunds.
See Note (A) to the Condensed Financial Statements under "Impairment of Long-Lived Assets" herein and 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $15 | 4.3 | $46 | 4.4 |
In the third quarter 2024, depreciation and amortization was $366 million compared to $351 million for the corresponding period in 2023. For year-to-date 2024, depreciation and amortization was $1.1 billion compared to $1.0 billion for the corresponding period in 2023. The increases were primarily due to additional plant in service
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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.
Allowance for Equity Funds Used During Construction
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(8) | (34.8) | $(25) | (38.5) |
In the third quarter 2024, allowance for equity funds used during construction was $15 million compared to $23 million for the corresponding period in 2023. For year-to-date 2024, allowance for equity funds used during construction was $40 million compared to $65 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.
Interest Expense, Net of Amounts Capitalized
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $9 | 8.7 | $26 | 8.4 |
For year-to-date 2024, interest expense, net of amounts capitalized was $337 million compared to $311 million for the corresponding period in 2023. The increase was primarily associated with increases of approximately $10 million related to higher interest rates and $9 million related to higher average outstanding borrowings and a decrease of $8 million in AFUDC debt primarily due to Plant Barry Unit 8 being placed in service in November 2023.
See FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" herein and 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $56 | 70.9 | $219 | N/M |
In the third quarter 2024, income taxes were $135 million compared to $79 million for the corresponding period in 2023. For year-to-date 2024, income taxes were $322 million compared to $103 million for the corresponding period in 2023. The increases for the third quarter and year-to-date 2024 were primarily due to decreases of $58 million and $139 million, respectively, in the flowback of certain excess deferred income taxes. Also contributing to the year-to-date 2024 increase were 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.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Georgia Power
Net Income
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $270 | 34.6 | $702 | 45.4 |
Georgia Power's net income in the third quarter 2024 was $1.1 billion compared to $0.8 billion for the corresponding period in 2023. For year-to-date 2024, net income was $2.2 billion compared to $1.5 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 and base tariff increases in accordance with the 2022 ARP and an after-tax charge of $120 million in the third quarter 2023 related to the construction of Plant Vogtle Units 3 and 4. Also contributing to the increase for year-to-date 2024 was warmer weather in the second quarter 2024 as compared to the corresponding period in 2023. See Note 2 to the financial statements under "Georgia Power" in Item 8 of the Form 10-K for additional information.
Retail Revenues
In the third quarter 2024, retail revenues were $3.2 billion compared to $3.0 billion for the corresponding period in 2023. For year-to-date 2024, retail revenues were $7.9 billion compared to $7.1 billion for the corresponding period in 2023. Details of the changes in retail revenues were as follows:
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Rates and pricing | $ | 328 | 11.0 | % | $ | 685 | 9.6 | % | |||||||||||||||
| Sales growth (decline) | (17) | (0.6) | 29 | 0.4 | |||||||||||||||||||
| Weather | 1 | — | 199 | 2.8 | |||||||||||||||||||
| Fuel cost recovery | (123) | (4.1) | (118) | (1.7) | |||||||||||||||||||
| Retail revenues | $ | 189 | 6.3 | % | $ | 795 | 11.1 | % |
Revenues associated with changes in rates and pricing increased in the third 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 net of the elimination of the NCCR tariff, base tariff increases in accordance with the 2022 ARP, and higher contributions from commercial and industrial customers with variable demand-driven pricing. 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 decreased in the third quarter 2024 and increased for year-to-date 2024 when compared to the corresponding periods in 2023. Weather-adjusted residential KWH sales decreased 2.1% and 0.4% in the third quarter and year-to-date 2024, respectively, primarily due to decreased customer usage, partially offset by customer growth. Weather-adjusted commercial KWH sales increased 0.6% and 2.5% in the third quarter and year-to-date 2024, respectively, primarily due to increased customer usage, primarily driven by existing data centers, and customer growth. Weather-adjusted industrial KWH sales decreased 0.4% in the third quarter 2024 primarily due to decreases in the paper and electronics sectors, partially offset by increases in the transportation and pipeline sectors. Weather-adjusted industrial KWH sales were flat for year-to-date 2024 primarily due to increases in the transportation and pipeline sectors, offset by decreases in the paper and electronics sectors.
Fuel revenues and costs are allocated between retail and wholesale jurisdictions. Retail fuel cost recovery revenues decreased in the third quarter and year-to-date 2024 when compared to the corresponding periods in 2023 due to lower recoverable fuel costs. Electric rates include provisions to adjust billings for fluctuations in fuel costs,
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $9 | 13.0 | $51 | 34.7 |
In the third quarter 2024, wholesale revenues were $78 million compared to $69 million for the corresponding period in 2023. For year-to-date 2024, wholesale revenues were $198 million compared to $147 million for the corresponding period in 2023. The increases for the third quarter and year-to-date 2024 were primarily due to increases of $20 million and $59 million, respectively, related to net additional capacity from wholesale capacity contracts and $28 million and $53 million, respectively, related to the volume of KWH sales associated with higher market demand, partially offset by decreases of $36 million and $57 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $37 | 21.5 | $94 | 18.2 |
In the third quarter 2024, other revenues were $209 million compared to $172 million for the corresponding period in 2023. For year-to-date 2024, other revenues were $610 million compared to $516 million for the corresponding period in 2023. The increases for the third quarter and year-to-date 2024 were primarily due to increases of $13 million and $55 million, respectively, in unregulated sales primarily associated with power delivery construction and maintenance, energy conservation projects, renewables, and outdoor lighting, $6 million and $17 million, respectively, in regulated outdoor lighting sales, $6 million and $16 million, respectively, in transmission revenues, $8 million and $9 million, respectively, in pole attachment revenues, $4 million and $7 million, respectively, in solar program fees, and $2 million and $7 million, respectively, in customer fees, partially offset by net increases $7 million and $18 million, respectively, in realized losses associated with price stability products for retail customers on variable demand-driven pricing tariffs.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Fuel and Purchased Power Expenses
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Fuel | $ | (125) | (21.7) | $ | (111) | (8.0) | |||||||||||||||||
| Purchased power – non-affiliates | 43 | 32.8 | 69 | 17.4 | |||||||||||||||||||
| Purchased power – affiliates | (17) | (7.7) | (12) | (2.1) | |||||||||||||||||||
| Total fuel and purchased power expenses | $ | (99) | $ | (54) |
In the third quarter 2024, total fuel and purchased power expenses were $829 million compared to $928 million for the corresponding period in 2023. The decrease was due to $60 million of credits recorded to nuclear fuel expense resulting from litigation related to nuclear fuel disposal costs, a net decrease of $33 million related to the average cost of fuel and purchased power, and a decrease of $6 million related to the volume of KWHs generated and purchased.
For year-to-date 2024, total fuel and purchased power expenses were $2.3 billion compared to $2.4 billion for the corresponding period in 2023. The decrease was due to a net decrease of $75 million related to the average cost of fuel and purchased power and $60 million of credits recorded to nuclear fuel expense resulting from litigation related to nuclear fuel disposal costs, partially offset by an increase of $81 million related to the volume of KWHs generated and purchased.
See Note (C) to the Condensed Financial Statements under "Nuclear Fuel Disposal Costs" herein for additional information.
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 to the financial statements under "Georgia Power – Fuel Cost Recovery" 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 Georgia Power's generation and purchased power were as follows:
| Third Quarter 2024 | Third Quarter 2023 | Year-To-Date 2024 | Year-To-Date 2023 | ||||||||||||||||||||
| Total generation (in billions of KWHs)(a) | 18 | 18 | 50 | 46 | |||||||||||||||||||
| Total purchased power (in billions of KWHs) | 9 | 9 | 23 | 23 | |||||||||||||||||||
| Sources of generation (percent) — | |||||||||||||||||||||||
| Gas | 43 | 47 | 43 | 51 | |||||||||||||||||||
| Nuclear(a) | 31 | 26 | 33 | 27 | |||||||||||||||||||
| Coal | 24 | 25 | 21 | 19 | |||||||||||||||||||
| Hydro and other | 2 | 2 | 3 | 3 | |||||||||||||||||||
| Cost of fuel, generated (in cents per net KWH) — | |||||||||||||||||||||||
| Gas | 2.76 | 2.99 | 2.91 | 3.07 | |||||||||||||||||||
| Nuclear(a)(b) | 1.02 | 0.87 | 0.97 | 0.79 | |||||||||||||||||||
| Coal | 5.01 | 5.69 | 4.90 | 5.80 | |||||||||||||||||||
| Average cost of fuel, generated (in cents per net KWH)(a) | 2.75 | 3.11 | 2.67 | 2.98 | |||||||||||||||||||
| Average cost of purchased power (in cents per net KWH)(c) | 4.62 | 4.55 | 4.73 | 4.64 |
(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)Excludes $60 million of credits recorded in the third quarter 2024 to nuclear fuel expense resulting from litigation related to nuclear fuel disposal costs. See Note (C) to the Condensed Financial Statements under "Nuclear Fuel Disposal Costs" herein for additional information.
(c)Average cost of purchased power includes fuel purchased by Georgia Power for tolling agreements where power is generated by the provider.
Fuel
In the third quarter 2024, fuel expense was $451 million compared to $576 million for the corresponding period in 2023. The decrease was primarily due to $60 million of credits recorded to nuclear fuel expense resulting from litigation related to nuclear fuel disposal costs and decreases of 12.0% in the average cost per KWH generated by coal, 7.7% in the average cost per KWH generated by natural gas, and 4.9% in the volume of KWHs generated by natural gas, partially offset by increases of 23.8% in the volume of KWHs generated by nuclear and 17.2% in the average cost per KWH generated by nuclear.
For year-to-date 2024, fuel expense was $1.3 billion compared to $1.4 billion for the corresponding period in 2023. The decrease was primarily due to $60 million of credits recorded to nuclear fuel expense resulting from litigation related to nuclear fuel disposal costs and decreases of 15.5% in the average cost per KWH generated by coal, 7.1% in the volume of KWHs generated by natural gas, and 5.2% in the average cost per KWH generated by natural gas, partially offset by increases of 34.4% in the volume of KWHs generated by nuclear, 22.8% in the average cost per KWH generated by nuclear, and 16.5% in the volume of KWHs generated by coal.
See Note (C) to the Condensed Financial Statements under "Nuclear Fuel Disposal Costs" herein for additional information.
Purchased Power – Non-Affiliates
In the third quarter 2024, purchased power expense from non-affiliates was $174 million compared to $131 million for the corresponding period in 2023. For year-to-date 2024, purchased power expense from non-affiliates was $466 million compared to $397 million for the corresponding period in 2023. The increases for the third quarter and year-to-date 2024 were primarily due to increases of 20.3% and 22.4%, respectively, in the volume of KWHs purchased
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
as Georgia Power and other Southern Company system units generally dispatched at a higher cost than available market resources. Partially offsetting the increase for year-to-date 2024 was a decrease of 7.8% in the average cost per KWH purchased primarily due to lower 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 third quarter 2024, purchased power expense from affiliates was $204 million compared to $221 million for the corresponding period in 2023. For year-to-date 2024, purchased power expense from affiliates was $567 million compared to $579 million for the corresponding period in 2023. The decreases for the third quarter and year-to-date 2024 were primarily due to decreases of 9.9% and 8.0%, respectively, in the volume of KWHs purchased as Southern Company system units generally dispatched at a higher cost than available market resources, partially offset by capacity purchased through a new PPA with Mississippi Power. Also partially offsetting the decrease for year-to-date 2024 was an increase of 5.2% in the average cost per KWH purchased.
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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $101 | 19.7 | $81 | 5.4 |
In the third quarter 2024, other operations and maintenance expenses were $613 million compared to $512 million for the corresponding period in 2023. The increase was primarily due to increases of $47 million in transmission and distribution costs primarily associated with line maintenance and billing adjustments with integrated transmission system owners, $43 million in generation expenses largely associated with non-outage maintenance costs resulting from Plant Vogtle Unit 4 being placed in service in April 2024, and $9 million in unregulated power delivery construction and maintenance contracts. Partially offsetting the increase was a decrease of $7 million in certain employee compensation and benefit expenses.
For year-to-date 2024, other operations and maintenance expenses were $1.6 billion compared to $1.5 billion for the corresponding period in 2023. The increase was primarily due to increases of $87 million 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, $68 million in transmission and distribution costs primarily associated with line maintenance and billing adjustments with integrated transmission system owners, $25 million in unregulated power delivery construction and maintenance contracts, $18 million in customer service and sales costs, and $7 million in expenses associated with unregulated energy conservation projects. Partially offsetting the increase were an increase of $92 million in gains from sales of integrated transmission system assets and decreases of $26 million in technology infrastructure and application production costs and $15 million in certain employee compensation and benefit expenses.
See Note (B) to the Condensed Financial Statements under "Georgia Power – Transmission Asset Sales" and " – Nuclear Construction" herein for additional information.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Depreciation and Amortization
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $33 | 7.7 | $86 | 6.9 |
In the third quarter 2024, depreciation and amortization was $462 million compared to $429 million for the corresponding period in 2023. For year-to-date 2024, depreciation and amortization was $1.3 billion compared to $1.2 billion for the corresponding period in 2023. The increases for the third quarter and year-to-date 2024 were primarily due to increases of $51 million and $125 million, respectively, associated with additional plant in service, partially offset by decreases of $15 million and $45 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $33 | 22.9 | $82 | 20.2 |
In the third quarter 2024, taxes other than income taxes were $177 million compared to $144 million for the corresponding period in 2023. For year-to-date 2024, taxes other than income taxes were $488 million compared to $406 million for the corresponding period in 2023. The increases for the third quarter and year-to-date 2024 were primarily due to increases of $12 million and $38 million, respectively, in property taxes primarily resulting from an increase in the assessed value of property, decreases of $16 million and $25 million, respectively, in property taxes capitalized primarily due to Plant Vogtle Unit 4 being placed in service in April 2024, and increases of $5 million and $19 million, respectively, in municipal franchise fees resulting from higher retail revenues. See Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction" herein for additional information on Plant Vogtle Unit 4.
Estimated Loss on Plant Vogtle Units 3 and 4
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(160) | N/M | $(181) | N/M |
Georgia Power recorded pre-tax charges (credits) to income related to the estimated probable loss on Plant Vogtle Units 3 and 4 totaling $(21) million in the second quarter 2024 and $160 million in the third quarter 2023. These charges (credits) reflected revisions to the total project capital cost forecast for the construction and 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $— | — | $(13) | (10.7) |
For year-to-date 2024, allowance for equity funds used during construction was $108 million compared to $121 million for the corresponding period in 2023. The decrease was 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.
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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $18 | 10.8 | $71 | 15.0 |
In the third quarter 2024, interest expense, net of amounts capitalized was $184 million compared to $166 million for the corresponding period in 2023. The increase was primarily associated with a decrease of $7 million in AFUDC debt primarily related to Plant Vogtle Unit 4, an increase of $6 million related to higher average outstanding borrowings, and a decrease of $6 million in net deferred financing costs related to Plant Vogtle Unit 3.
For year-to-date 2024, interest expense, net of amounts capitalized was $543 million compared to $472 million for the corresponding period in 2023. The increase was primarily associated with increases of approximately $30 million related to higher interest rates and $29 million related to higher average outstanding borrowings and a decrease of $21 million in AFUDC debt primarily related to Plant Vogtle Units 3 and 4, partially offset by an increase of $5 million in net deferred financing costs related to Plant Vogtle Unit 3.
See Note (B) to the Condensed Financial Statements under "Georgia Power – Nuclear Construction – Regulatory Matters" and FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" and "Financing Activities" herein for additional information.
Other Income (Expense), Net
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $7 | 15.6 | $31 | 24.8 |
In the third quarter 2024, other income (expense), net was $52 million compared to $45 million for the corresponding period in 2023. The increase was primarily due to increases of $3 million in customer charges related to contributions in aid of construction and $3 million in unrealized gains associated with price stability products for retail customers on variable demand-driven pricing tariffs.
For year-to-date 2024, other income (expense), net was $156 million compared to $125 million for the corresponding period in 2023. The increase for year-to-date 2024 was primarily due to an increase of $12 million in customer charges related to contributions in aid of construction, 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 an increase of $5 million in non-service cost-related retirement benefits income. 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $46 | 23.0 | $171 | 49.6 |
In the third quarter 2024, income taxes were $246 million compared to $200 million for the corresponding period in 2023. For year-to-date 2024, income taxes were $516 million compared to $345 million for the corresponding period in 2023. The increases were primarily due to higher pre-tax earnings, partially offset by increases of $23 million and $73 million in the generation of advanced nuclear PTCs in the third quarter and year-to-date 2024, respectively. The increase for year-to-date 2024 also reflects a $56 million increase in charges to a valuation allowance on certain state tax credit carryforwards, partially offset by $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.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Mississippi Power
Net Income
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $— | — | $13 | 7.5 |
Mississippi Power's net income for year-to-date 2024 was $186 million compared to $173 million for the corresponding period in 2023. The increase was primarily due to increases in affiliate wholesale capacity revenues and retail revenues largely due to certain regulatory assets that fully amortized in December 2023, partially offset by an increase in non-fuel operations and maintenance expenses.
Retail Revenues
In the third quarter 2024, retail revenues were $276 million compared to $284 million for the corresponding period in 2023. For year-to-date 2024, retail revenues were $739 million compared to $747 million for the corresponding period in 2023. Details of the changes in retail revenues were as follows:
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Rates and pricing | $ | 6 | 2.1 | % | $ | 10 | 1.3 | % | |||||||||||||||
| Sales growth (decline) | (6) | (2.1) | 3 | 0.4 | |||||||||||||||||||
| Weather | (3) | (1.0) | 3 | 0.4 | |||||||||||||||||||
| Fuel and other cost recovery | (5) | (1.8) | (24) | (3.2) | |||||||||||||||||||
| Retail revenues | $ | (8) | (2.8) | % | $ | (8) | (1.1) | % |
Revenues associated with changes in rates and pricing increased in the third 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 and higher ECO Plan rates that became effective in June 2024.
Revenues attributable to changes in sales decreased in the third quarter and increased for year-to-date 2024 when compared to the corresponding periods in 2023. Weather-adjusted residential KWH sales decreased 7.1% and 2.2% in the third quarter and year-to-date 2024, respectively, primarily due to decreased customer usage. Weather-adjusted commercial KWH sales decreased 2.6% in the third quarter 2024 primarily due to decreased customer usage. Weather-adjusted commercial KWH sales increased 3.4% for year-to-date 2024 primarily due to increased customer usage. Industrial KWH sales increased 2.0% in the third quarter 2024 primarily due to increases in the chemicals and pipeline sectors. Industrial KWH sales decreased 0.6% for year-to-date 2024 primarily due to a decrease in the petroleum sector.
Fuel and other cost recovery revenues decreased in the third quarter and year-to-date 2024 when compared to the corresponding periods 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.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Wholesale Revenues – Non-Affiliates
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(11) | (14.3) | $(22) | (10.9) |
In the third quarter 2024, wholesale revenues from sales to non-affiliates were $66 million compared to $77 million for the corresponding period in 2023. For year-to-date 2024, wholesale revenues from sales to non-affiliates were $179 million compared to $201 million for the corresponding period in 2023. The decreases for the third quarter and year-to-date 2024 were primarily due to decreases of $6 million and $9 million, respectively, associated with lower opportunity sales and decreases of $4 million and $11 million, respectively, associated with MRA customers largely due to lower recoverable fuel costs.
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 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(8) | (12.3) | $8 | 5.1 |
In the third quarter 2024, wholesale revenues from sales to affiliates were $57 million compared to $65 million for the corresponding period in 2023. The decrease was due to decreases of $19 million related to the volume of KWH sales and $5 million related to the price of energy driven by natural gas prices. These decreases were partially offset by an increase of $16 million in capacity revenues primarily associated with a new PPA with Georgia Power.
For year-to-date 2024, wholesale revenues from sales to affiliates were $166 million compared to $158 million for the corresponding period in 2023. The increase was due to an increase of $46 million in capacity revenues primarily associated with a new PPA with Georgia Power. This increase was partially offset by decreases of $30 million in capacity revenues mainly associated with Mississippi Power's lower availability of generation reserves to the Southern Company power pool and $8 million primarily related to the volume of KWH sales.
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.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Fuel and Purchased Power Expenses
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Fuel | $ | (39) | (24.1) | $ | (64) | (16.1) | |||||||||||||||||
| Purchased power | 4 | 57.1 | 11 | 61.1 | |||||||||||||||||||
| Total fuel and purchased power expenses | $ | (35) | $ | (53) |
In the third quarter 2024, total fuel and purchased power expenses were $134 million compared to $169 million for the corresponding period in 2023. The decrease was due to a $24 million net decrease associated with the volume of KWHs generated and purchased and an $11 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 $363 million compared to $416 million for the corresponding period in 2023. The decrease was due to a $42 million net decrease related to the average cost of fuel and purchased power and an $11 million net decrease 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.
Details of Mississippi Power's generation and purchased power were as follows:
| Third Quarter 2024 | Third Quarter 2023 | Year-To-Date 2024 | Year-To-Date 2023 | ||||||||||||||||||||
| Total generation (in millions of KWHs) | 4,905 | 5,783 | 13,313 | 14,123 | |||||||||||||||||||
| Total purchased power (in millions of KWHs) | 232 | 153 | 633 | 427 | |||||||||||||||||||
| Sources of generation (percent) – | |||||||||||||||||||||||
| Gas | 89 | 87 | 91 | 92 | |||||||||||||||||||
| Coal | 11 | 13 | 9 | 8 | |||||||||||||||||||
| Cost of fuel, generated (in cents per net KWH) – | |||||||||||||||||||||||
| Gas | 2.25 | 2.52 | 2.37 | 2.72 | |||||||||||||||||||
| Coal | 5.39 | 5.49 | 5.31 | 5.64 | |||||||||||||||||||
| Average cost of fuel, generated (in cents per net KWH) | 2.62 | 2.92 | 2.66 | 2.97 | |||||||||||||||||||
| Average cost of purchased power (in cents per net KWH) | 4.71 | 4.61 | 4.49 | 4.27 |
Fuel
In the third quarter 2024, fuel expense was $123 million compared to $162 million for the corresponding period in 2023. The decrease was primarily due to a 26.9% decrease in the volume of KWHs generated by coal, a 13.9% decrease in the volume of KWHs generated by natural gas, a 10.7% decrease in the average cost per KWH generated by natural gas, and a 1.8% decrease in the average cost per KWH generated by coal.
For year-to-date 2024, fuel expense was $334 million compared to $398 million for the corresponding period in 2023. The decrease was primarily due to a 12.9% decrease in the average cost per KWH generated by natural gas, a 7.2% decrease in the volume of KWHs generated by natural gas, and a 5.9% decrease in the average cost per KWH generated by coal, partially offset by a 6.5% increase in the volume of KWHs generated by coal.
Purchased Power
In the third quarter 2024, purchased power expense was $11 million compared to $7 million for the corresponding period in 2023. For year-to-date 2024, purchased power expense was $29 million compared to $18 million for the corresponding period in 2023. The increases for the third quarter and year-to-date 2024 were primarily due to
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
increases of 51.4% and 48.3%, respectively, in the volume of KWHs purchased and increases of 2.2% and 5.2%, respectively, in the average cost per KWH purchased primarily due to higher natural gas prices.
Other Operations and Maintenance Expenses
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $6 | 7.1 | $3 | 1.2 |
In the third quarter 2024, other operations and maintenance expenses were $90 million compared to $84 million for the corresponding period in 2023. For year-to-date 2024, other operations and maintenance expenses were $261 million compared to $258 million for the corresponding period in 2023. The increases for the third quarter and year-to-date 2024 were primarily due to increases of $6 million in generation expenses for both periods primarily associated with planned outages and non-outage costs, respectively, and $4 million and $6 million, respectively, in certain employee compensation and benefit expenses, partially offset by decreases of $3 million and $9 million, respectively, associated with previously deferred Plant Ratcliffe expenses that fully amortized in December 2023.
Income Taxes
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $4 | 22.2 | $12 | 34.3 |
In the third quarter 2024, income taxes were $22 million compared to $18 million for the corresponding period in 2023. The increase was primarily due to a decrease of $3 million in the flowback of certain excess deferred income taxes.
For year-to-date 2024, income taxes were $47 million compared to $35 million for the corresponding period in 2023. The increase was primarily due to higher pre-tax earnings and a decrease of $6 million in 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(18) | (18.0) | $(24) | (8.3) |
Net income attributable to Southern Power in the third quarter 2024 was $82 million compared to $100 million for the corresponding period in 2023. The decrease was primarily due to an arbitration award received in 2023 for losses previously incurred and increases in scheduled outage and maintenance expenses.
Net income attributable to Southern Power for year-to-date 2024 was $264 million compared to $288 million for the corresponding period in 2023. The decrease was primarily related to increases in scheduled outage and maintenance expenses, prior year receipt of an arbitration award for losses previously incurred, and a prior year gain on the sale of spare parts, partially offset by an increase in capacity revenues related to natural gas PPAs.
See Note (C) to the Condensed Financial Statements under "General Litigation Matters – Southern Power" herein for additional information.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Operating Revenues
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(53) | (8.1) | $(89) | (5.3) |
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:
| Third Quarter 2024 | Third Quarter 2023 | Year-To-Date 2024 | Year-To-Date 2023 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| PPA capacity revenues | $ | 147 | $ | 134 | $ | 390 | $ | 360 | |||||||||||||||
| PPA energy revenues | 373 | 370 | 985 | 953 | |||||||||||||||||||
| Total PPA revenues | 520 | 504 | 1,375 | 1,313 | |||||||||||||||||||
| Non-PPA revenues | 71 | 131 | 191 | 327 | |||||||||||||||||||
| Other revenues | 9 | 18 | 31 | 46 | |||||||||||||||||||
| Total operating revenues | $ | 600 | $ | 653 | $ | 1,597 | $ | 1,686 |
In the third quarter 2024, total operating revenues were $600 million, reflecting a $53 million, or 8.1%, decrease from the corresponding period in 2023. The change in operating revenues was primarily due to the following:
- PPA capacity revenues increased $13 million, or 9.7%, 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 $3 million, or 0.8%, primarily due to an increase of $38 million related to the volume of KWHs sold primarily under natural gas and solar PPAs, largely offset by a decrease of $33 million driven by fuel and purchased power prices.
-
Non-PPA revenues decreased $60 million, or 45.8%, due to a decrease of $50 million related to the volume of KWHs sold through short-term sales and a decrease of $10 million driven by the market price of energy.
-
Other revenues decreased $9 million, or 50.0%, primarily due to a prior year receipt of an arbitration award for losses previously incurred. See Note (C) to the Condensed Financial Statements under "General Litigation Matters – Southern Power" herein for additional information.
For year-to-date 2024, total operating revenues were $1.6 billion, reflecting an $89 million, or 5.3%, decrease from the corresponding period in 2023. The change in operating revenues was primarily due to the following:
-
PPA capacity revenues increased $30 million, or 8.3%, 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 $32 million, or 3.4%, primarily due to an increase of $56 million related to the volume of KWHs sold primarily under natural gas and solar PPAs, partially offset by a decrease of $19 million driven by fuel and purchased power prices.
-
Non-PPA revenues decreased $136 million, or 41.6%, primarily due to a decrease of $139 million related to the volume of KWHs sold through short-term sales.
-
Other revenues decreased $15 million, or 32.6%, primarily due to decreases in receipts of liquidated damages associated with generation facility production guarantees and a prior year receipt of an arbitration award for losses previously incurred. See Note (C) to the Condensed Financial Statements under "General Litigation Matters – Southern Power" herein for additional information.
Fuel and Purchased Power Expenses
Details of Southern Power's generation and purchased power were as follows:
| Third Quarter 2024 | Third Quarter 2023 | Year-To-Date 2024 | Year-To-Date 2023 | ||||||||||||||||||||
| (in billions of KWHs) | |||||||||||||||||||||||
| Generation | 12.8 | 12.9 | 34.2 | 36.9 | |||||||||||||||||||
| Purchased power | 0.5 | 0.8 | 1.7 | 2.4 | |||||||||||||||||||
| Total generation and purchased power | 13.3 | 13.7 | 35.9 | 39.3 | |||||||||||||||||||
| Total generation and purchased power (excluding solar, wind, fuel cells, and tolling agreements) | 8.3 | 8.5 | 21.5 | 24.7 |
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:
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Fuel | $ | (30) | (15.3) | $ | (72) | (13.7) | |||||||||||||||||
| Purchased power | (13) | (39.4) | (27) | (31.0) | |||||||||||||||||||
| Total fuel and purchased power expenses | $ | (43) | $ | (99) |
In the third quarter 2024, total fuel and purchased power expenses decreased $43 million, or 18.8%, compared to the corresponding period in 2023. Fuel expense decreased $30 million due to a decrease related to the average cost of fuel. Purchased power expense decreased $13 million primarily due to an $11 million decrease associated with the volume of KWHs purchased.
For year-to-date 2024, total fuel and purchased power expenses decreased $99 million, or 16.2%, compared to the corresponding period in 2023. Fuel expense decreased $72 million due to a $60 million decrease related to the volume of KWHs generated and a $12 million decrease associated with the average cost of fuel. Purchased power expense decreased $27 million primarily due to a $24 million decrease associated with the volume of KWHs purchased.
Other Operations and Maintenance Expenses
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $22 | 21.2 | $40 | 12.2 |
In the third quarter 2024, other operations and maintenance expenses were $126 million compared to $104 million for the corresponding period in 2023. For year-to-date 2024, other operations and maintenance expenses were $367 million compared to $327 million for the corresponding period in 2023. The increases were primarily due to an arbitration award received in 2023 related to losses previously incurred and increases in scheduled outage and generation maintenance expenses. See Note (C) to the Condensed Financial Statements under "General Litigation Matters – Southern Power" herein for additional information.
Gain on Dispositions, Net
| Third Quarter 2024 vs. Third 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.
Net Income (Loss) Attributable to Noncontrolling Interests
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(10) | (100.0) | $(5) | (7.4) |
For year-to-date 2024, net loss attributable to noncontrolling interests was $73 million compared to $68 million for the corresponding period in 2023. The increased loss was primarily due to $15 million in higher HLBV loss allocations to tax equity partners, partially offset by $10 million in higher income allocations to equity partners.
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(44) | (53.7) | $80 | 16.8 |
Southern Company Gas' net income in the third quarter 2024 was $38 million compared to $82 million for the corresponding period in 2023. The decrease was primarily due to a $49 million decrease in net income at gas distribution operations.
For year-to-date 2024, net income was $555 million compared to $475 million for the corresponding period in 2023. The increase was primarily due to a $51 million increase in net income at gas distribution operations, a $13 million increase in net income at gas marketing services, and a $12 million increase in net income at all other.
Natural Gas Revenues
In the third quarter 2024, natural gas revenues, were $682 million compared to $689 million for the corresponding period in 2023. For year-to-date 2024, natural gas revenues were $3.2 billion compared to $3.4 billion for the corresponding period in 2023. Details of the changes in natural gas revenues were as follows:
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | ||||||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | ||||||||||||||||||||
| Rate changes | $ | 6 | 0.9 | % | $ | 196 | 5.7 | % | |||||||||||||||
| Gas costs and other cost recovery | 4 | 0.6 | (335) | (9.8) | |||||||||||||||||||
| Gas marketing services | (2) | (0.3) | (15) | (0.4) | |||||||||||||||||||
| Other | (15) | (2.2) | (43) | (1.3) | |||||||||||||||||||
| Natural gas revenues | $ | (7) | (1.0) | % | $ | (197) | (5.8) | % |
Revenues from rate changes increased for year-to-date 2024 compared to the corresponding period in 2023 primarily due to rate increases, partially offset by 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 for year-to-date 2024 compared to the corresponding period in 2023 primarily due to lower natural gas cost recovery associated with lower natural gas prices and lower demand associated with warmer weather. See "Cost of Natural Gas" herein for additional information.
Revenues from gas marketing services decreased for year-to-date 2024 compared to the corresponding period in 2023 primarily due to lower commodity prices.
Cost of Natural Gas
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(4) | (3.9) | $(347) | (28.9) |
Excluding Atlanta Gas Light, which does not sell natural gas to end-use customers, natural gas distribution rates include provisions to adjust billings for fluctuations in natural gas costs. Therefore, gas costs recovered through natural gas revenues generally equal the amount expensed in cost of natural gas and do not affect net income from gas distribution operations. Cost of natural gas at gas distribution operations represented 77% and 81% of the total cost of natural gas in the third quarter and year-to-date 2024, respectively. See MANAGEMENT'S DISCUSSION AND ANALYSIS – RESULTS OF OPERATIONS – "Southern Company Gas – Cost of Natural Gas" in Item 7 of the Form 10-K and "Natural Gas Revenues" herein for additional information.
For year-to-date 2024, cost of natural gas was $0.9 billion compared to $1.2 billion for the corresponding period in 2023. The decrease reflects lower gas cost recovery as a result of a decrease of 22% in natural gas prices.
The following table details the volumes of natural gas sold during all periods presented:
| Third Quarter | Year-To-Date | ||||||||||||||||||||||
| 2024 | 2023 | 2024 vs. 2023 | 2024 | 2023 | 2024 vs. 2023 | ||||||||||||||||||
| Gas distribution operations (mmBtu in millions) | |||||||||||||||||||||||
| Firm | 71 | 71 | — | % | 432 | 429 | 0.7 | % | |||||||||||||||
| Interruptible | 22 | 22 | — | 69 | 70 | (1.4) | |||||||||||||||||
| Total | 93 | 93 | — | % | 501 | 499 | 0.4 | % | |||||||||||||||
| Gas marketing services (mmBtu in millions) | |||||||||||||||||||||||
| Firm: | |||||||||||||||||||||||
| Georgia | 3 | 3 | — | % | 25 | 21 | 19.0 | % | |||||||||||||||
| Illinois | — | 1 | (100.0) | 4 | 5 | (20.0) | |||||||||||||||||
| Other | 2 | 3 | (33.3) | 11 | 9 | 22.2 | |||||||||||||||||
| Interruptible large commercial and industrial | 3 | 2 | 50.0 | 11 | 10 | 10.0 | |||||||||||||||||
| Total | 8 | 9 | (11.1) | % | 51 | 45 | 13.3 | % |
Other Operations and Maintenance Expenses
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $31 | 11.7 | $(2) | (0.2) |
In the third quarter 2024, other operations and maintenance expenses were $295 million compared to $264 million for the corresponding period in 2023. The increase was primarily due to an increase of $31 million in compensation and benefit expenses.
For year-to-date 2024, other operations and maintenance expenses were $877 million compared to $879 million for the corresponding period in 2023. The decrease was primarily due to a $30 million 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 and decreases of $11 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 $2 million in bad debt expenses. These decreases were partially offset by an increase of $55 million in compensation and benefit expenses. 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $17 | 11.7 | $46 | 10.7 |
In the third quarter 2024, depreciation and amortization was $162 million compared to $145 million for the corresponding period in 2023. For year-to-date 2024, depreciation and amortization was $475 million compared to $429 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $2 | 4.8 | $(17) | (8.4) |
For year-to-date 2024, taxes other than income taxes were $186 million compared to $203 million for the corresponding period in 2023. The decrease for year-to-date 2024 was primarily due to a decrease of $16 million in revenue taxes as a result of lower natural gas revenues at Nicor Gas.
Interest Expense, Net of Amounts Capitalized
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $7 | 9.1 | $24 | 10.6 |
In the third quarter 2024, interest expense, net of amounts capitalized was $84 million compared to $77 million for the corresponding period in 2023. For year-to-date 2024, interest expense, net of amounts capitalized was $250 million compared to $226 million for the corresponding period in 2023. The increases for the third quarter and year-to-date 2024 were primarily associated with increases of approximately $4 million and $14 million, respectively, related to higher interest rates and approximately $3 million and $10 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
| Third Quarter 2024 vs. Third Quarter 2023 | Year-To-Date 2024 vs. Year-To-Date 2023 | |||||||||||||||||||
| (change in millions) | (% change) | (change in millions) | (% change) | |||||||||||||||||
| $(17) | (60.7) | $24 | 15.0 |
In the third quarter 2024, income taxes were $11 million compared to $28 million for the corresponding period in 2023. The decrease was primarily due to lower pre-tax earnings, including the change in timing of revenues at Nicor Gas.
For year-to-date 2024, income taxes were $184 million compared to $160 million for the corresponding period in 2023. The increase was primarily due to higher pre-tax earnings, including the prior year regulatory disallowance at
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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) | ||||||||||||||||||||||||||||||||||
| Third Quarter | |||||||||||||||||||||||||||||||||||
| Gas distribution operations | $ | 616 | $ | 533 | $ | 21 | $ | 619 | $ | 485 | $ | 70 | |||||||||||||||||||||||
| Gas pipeline investments | 8 | 2 | 24 | 8 | 2 | 24 | |||||||||||||||||||||||||||||
| Gas marketing services | 53 | 55 | (2) | 56 | 53 | 2 | |||||||||||||||||||||||||||||
| All other | 6 | 7 | (5) | 8 | 12 | (14) | |||||||||||||||||||||||||||||
| Intercompany eliminations | (1) | 2 | — | (2) | 1 | — | |||||||||||||||||||||||||||||
| Consolidated | $ | 682 | $ | 599 | $ | 38 | $ | 689 | $ | 553 | $ | 82 | |||||||||||||||||||||||
| Year-To-Date | |||||||||||||||||||||||||||||||||||
| Gas distribution operations | $ | 2,828 | $ | 2,104 | $ | 403 | $ | 3,002 | $ | 2,386 | $ | 352 | |||||||||||||||||||||||
| Gas pipeline investments | 24 | 7 | 77 | 24 | 7 | 73 | |||||||||||||||||||||||||||||
| Gas marketing services | 358 | 260 | 72 | 376 | 292 | 59 | |||||||||||||||||||||||||||||
| All other | 19 | 18 | 3 | 30 | 30 | (9) | |||||||||||||||||||||||||||||
| Intercompany eliminations | (9) | 1 | — | (15) | (5) | — | |||||||||||||||||||||||||||||
| Consolidated | $ | 3,220 | $ | 2,390 | $ | 555 | $ | 3,417 | $ | 2,710 | $ | 475 |
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 third quarter 2024, net income decreased $49 million, or 70.0%, when compared to the corresponding period in 2023, as described further below:
- Operating revenues decreased $3 million primarily due to the change in timing of revenues at Nicor Gas, partially offset by rate increases. Gas costs recovered through natural gas revenues generally equal the amount expensed in cost of natural gas.
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-
Operating expenses increased $48 million primarily due to a $31 million increase in other operations and maintenance expense and an $18 million increase in depreciation resulting from additional assets placed in service.
-
Interest expense, net of amounts capitalized increased $10 million primarily due to higher interest rates and higher average outstanding debt.
-
Income taxes decreased $14 million primarily as a result of lower pre-tax earnings, including the change in timing of revenues at Nicor Gas.
For year-to-date 2024, net income increased $51 million, or 14.5%, when compared to the corresponding period in 2023, as described further below:
- Operating revenues decreased $174 million primarily due to lower natural gas cost over recovery, partially offset by rate increases and a change in timing of revenues at Nicor Gas. Gas costs recovered through natural gas revenues generally equal the amount expensed in cost of natural gas.
*•*Operating expenses decreased $282 million primarily due to a $322 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.
-
Interest expense, net of amounts capitalized increased $29 million primarily due to higher interest rates and higher average outstanding debt.
-
Income taxes increased $26 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.
In the third quarter 2024, net loss was $2 million compared to net income of $2 million for the corresponding period in 2023. The change was primarily due to increases in compensation and benefit expenses.
For year-to-date 2024, net income increased $13 million, or 22.0%, 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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AND RESULTS OF OPERATIONS (Continued)
In the third quarter 2024, net loss decreased $9 million, or 64.3%, when compared to the corresponding period in 2023 primarily due to decreases in operations and maintenance expense and interest expense.
For year-to-date 2024, net income was $3 million compared to a net loss of $9 million for the corresponding period in 2023. The change was primarily due to decreases in operations and maintenance expense.
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 initiated rate cuts and is expected to continue policy rate reductions into 2025. 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 nine 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
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AND RESULTS OF OPERATIONS (Continued)
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 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, Note (K) to the Condensed Financial Statements herein, and "Construction Programs" herein for additional information.
For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL in Item 7 of the Form 10-K.
Environmental Matters
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" and – FINANCIAL CONDITION AND LIQUIDITY – "Cash Requirements" in Item 7 and Note 3 to the financial statements under "Environmental Remediation" and Note 6 to the financial statements in Item 8 of the Form 10-K, as well as Note (C) to the Condensed Financial Statements under "General Litigation Matters" and "Environmental Remediation" herein, for additional information.
Environmental Laws and Regulations
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. On September 12, 2024, the U.S. Court of Appeals for the D.C. Circuit granted the EPA's motion for partial voluntary
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AND RESULTS OF OPERATIONS (Continued)
remand of the FIP to address the administrative record deficiencies preliminarily identified by the U.S. Supreme Court. While the EPA completes its supplemental review, the U.S. Court of Appeals for the D.C. Circuit will hold challenges to the FIP in abeyance.
On October 21, 2024, the U.S. Supreme Court issued an order granting review of a decision by the U.S. Court of Appeals for the Tenth Circuit transferring challenges to the EPA's disapproval of interstate transport state implementation plans to the U.S. Court of Appeals for the D.C. Circuit. On October 24, 2024, the U.S. Court of Appeals for the Eleventh Circuit placed the Alabama state implementation plan disapproval case in abeyance pending the U.S. Supreme Court's decision on the venue issue.
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 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 federal 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, industry and state petitioners filed a motion to stay the rule pending judicial review, which was denied on October 10, 2024. 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. Numerous industry groups, electric generators, and states filed petitions for review challenging the rule in the U.S. Court of Appeals for the D.C. Circuit. On August 19, 2024, an industry petitioner filed a motion seeking to stay the legacy CCR rule pending judicial review. 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
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AND RESULTS OF OPERATIONS (Continued)
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 surface impoundments. The cost estimates for Georgia Power and Mississippi Power are based on a combination of closure-in-place for some surface impoundments and closure by removal for others. Additionally, the closure designs and plans in the States of Alabama and Georgia are subject to approval by environmental regulatory agencies. Absent continued recovery of ARO costs through regulated rates, results of operations, cash flows, and financial condition for Southern Company and the traditional electric operating companies could be materially impacted.
Greenhouse Gases
On 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) 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. On October 16, 2024, the U.S. Supreme Court denied emergency stay applications filed by numerous industry groups, electric generators, and states. 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
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AND RESULTS OF OPERATIONS (Continued)
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.
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 (IRS). The ultimate outcome of this matter cannot be determined at this time.
Additionally, the Inflation Reduction Act enacted a new 15% corporate alternative minimum tax (CAMT) on adjusted financial statement income, as defined in the law, beginning in 2023. On September 12, 2024, the U.S. Treasury Department and the IRS issued a notice of proposed regulations that would address the application of the CAMT. Southern Company is evaluating the proposed regulations and was not subject to the CAMT for the 2023 tax year based on interpretations of the early guidance. However, Southern Company believes it may be subject to the CAMT for the 2024 tax year dependent upon the final assessment of the tax treatment of Georgia Power's storm restoration costs. If applicable, the CAMT will primarily be satisfied by tax credits. As such, the CAMT could materially impact operating cash flows of certain Registrants but will not impact the Registrants' net income. Application of the CAMT is subject to the issuance of additional guidance by the U.S. Treasury Department and the IRS and the ultimate outcome of this matter cannot be determined at this time. See Note (B) to the Condensed Financial Statements under "Georgia Power – Storm Damage Recovery" herein for additional information.
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
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AND RESULTS OF OPERATIONS (Continued)
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 IRS 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; however, the timing of this positive cash flow could be delayed by application of the CAMT. 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 disclosures. Different assumptions and measurements could produce estimates that are significantly different from those recorded in the financial statements.
Recently Issued Accounting Standards
In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires entities to disclose significant segment expenses, other segment items, the title and position of the chief operating decision maker (CODM), and information related to how the CODM assesses segment performance and allocates resources, among certain other required disclosures. Additionally, current annual disclosures will be required in interim periods. The new standard is effective, on a retrospective basis, for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Registrants are currently evaluating the impact ASU 2023-07 will have on their financial statement disclosures.
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AND RESULTS OF OPERATIONS (Continued)
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 September 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 third quarter 2024, the market price of Southern Company's common stock was $90.18 per share (based on the closing price as reported on the NYSE) and the book value was $30.39 per share, representing a market-to-book ratio of 297%, compared to $70.12, $28.83, and 243%, respectively, at the end of 2023. Southern Company's common stock dividend for the third quarter 2024 was $0.72 per share compared to $0.70 per share in the third 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, as well as storm restoration costs for Georgia Power. The fuel cost under recovery balances are primarily the result of higher than forecasted prices for natural gas and purchased power. The regulatory asset balance related to storm damage is primarily the result of significant damage to Georgia Power's transmission and distribution facilities caused by Hurricane Helene during September 2024. 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.
In October 2024, Alabama Power's Board of Directors approved updates to its construction program that is currently
estimated to total $2.2 billion for 2025, $2.1 billion for each of 2026, 2027, and 2028, and $2.0 billion for 2029. These amounts include capital expenditures related to nuclear fuel and LTSAs. These amounts also include estimated capital expenditures to comply with environmental laws and regulations, but do not include any potential compliance costs associated with any future regulation of CO2 emissions from fossil fuel-fired electric generating units.
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. The remaining aggregate construction costs for this project are expected to be between $570 million and $700 million, including estimated capital expenditures associated with the phase three expansion of the Millers Branch solar project, which was
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
committed to subsequent to September 30, 2024. 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.
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 and storm restoration costs. See Note (B) to the Condensed Financial Statements under "Georgia Power – Storm Damage Recovery" herein for additional information.
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 nine months ended September 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 September 30, 2024, the amount of subsidiary retained earnings restricted to dividend totaled $1.6 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 September 30, 2024 for the applicable Registrants:
| At September 30, 2024 | Southern Company | Georgia Power | Mississippi Power | Southern Company Gas | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Current liabilities in excess of current assets | $ | 1,125 | $ | 1,540 | $ | 32 | $ | 80 |
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
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AND RESULTS OF OPERATIONS (Continued)
certain circumstances, the Subsidiary Registrants may utilize equity contributions and/or loans from Southern Company.
Bank Credit Arrangements
At September 30, 2024, unused committed credit arrangements with banks were as follows:
| At September 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 September 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 September 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 September 30, 2024, Alabama Power and Georgia Power had approximately $207 million and $157 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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AND RESULTS OF OPERATIONS (Continued)
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 September 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 | $ | 722 | 5.4 | % | $ | 1,180 | 5.7 | % | $ | 1,852 | |||||||||||||||||||
| Alabama Power | — | — | 21 | 5.9 | 130 | ||||||||||||||||||||||||
| Georgia Power | 235 | 5.9 | 376 | 6.1 | 720 | ||||||||||||||||||||||||
| Mississippi Power | 50 | 5.0 | 50 | 5.5 | 102 | ||||||||||||||||||||||||
| Southern Power | 62 | 5.1 | 142 | 5.5 | 226 | ||||||||||||||||||||||||
| Southern Company Gas: | |||||||||||||||||||||||||||||
| Southern Company Gas Capital | $ | — | — | % | $ | 125 | 5.5 | % | $ | 215 | |||||||||||||||||||
| Nicor Gas | 63 | 5.0 | 69 | 5.4 | 174 | ||||||||||||||||||||||||
| Southern Company Gas Total | $ | 63 | 5.0 | % | $ | 194 | 5.5 | % |
(*)Average and maximum amounts are based upon daily balances during the three-month period ended September 30, 2024.
Analysis of Cash Flows
Net cash flows provided from (used for) operating, investing, and financing activities for the nine months ended September 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) | ||||||||||||||||||||
| Nine Months Ended September 30, 2024 | ||||||||||||||||||||
| Operating activities | $ | 7,615 | $ | 1,983 | $ | 3,681 | $ | 265 | $ | 607 | $ | 1,407 | ||||||||
| Investing activities | (6,678) | (1,460) | (3,487) | (272) | (199) | (1,196) | ||||||||||||||
| Financing activities | (803) | (456) | (205) | 17 | (357) | (201) | ||||||||||||||
| Nine Months Ended September 30, 2023 | ||||||||||||||||||||
| Operating activities | $ | 5,740 | $ | 1,522 | $ | 1,969 | $ | 260 | $ | 799 | $ | 1,644 | ||||||||
| Investing activities | (6,721) | (1,546) | (3,376) | (280) | (224) | (1,226) | ||||||||||||||
| Financing activities | 834 | 66 | 1,183 | (12) | (451) | (102) |
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 $1.9 billion for the nine months ended September 30, 2024 as compared to the corresponding period in 2023 primarily due to the timing of vendor payments, increased retail fuel cost recovery primarily at Georgia Power, and the timing of fossil fuel stock purchases, partially offset by the timing of customer receivable collections and decreased natural gas cost recovery at the natural gas distribution utilities.
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AND RESULTS OF OPERATIONS (Continued)
The net cash used for investing activities for the nine months ended September 30, 2024 was primarily related to the Subsidiary Registrants' construction programs.
The net cash used for financing activities for the nine months ended September 30, 2024 was primarily related to common stock dividend payments, a reduction in commercial paper borrowings, and a net decrease in short-term borrowings, partially offset by net issuances of long-term debt.
Alabama Power
Net cash provided from operating activities increased $461 million for the nine months ended September 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, the timing of fossil fuel stock purchases, and the timing of vendor payments, partially offset by a decrease in fuel cost recovery.
The net cash used for investing activities for the nine months ended September 30, 2024 was primarily related to gross property additions.
The net cash used for financing activities for the nine months ended September 30, 2024 was primarily related to common stock dividend payments, partially offset by capital contributions from Southern Company.
Georgia Power
Net cash provided from operating activities increased $1.7 billion for the nine months ended September 30, 2024 as compared to the corresponding period in 2023 primarily due to increased fuel cost recovery, the timing of vendor payments, 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 nine months ended September 30, 2024 was primarily related to gross property additions.
The net cash used for financing activities for the nine months ended September 30, 2024 was primarily related to common stock dividend payments, a net decrease in short-term borrowings, and a reduction in commercial paper borrowings, partially offset by capital contributions from Southern Company and net issuances of senior notes.
Mississippi Power
Net cash provided from operating activities increased $5 million for the nine months ended September 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 nine months ended September 30, 2024 was primarily related to gross property additions.
The net cash provided from financing activities for the nine months ended September 30, 2024 was primarily related to capital contributions from Southern Company, net issuances of senior notes, and an increase in commercial paper borrowings, partially offset by common stock dividend payments.
Southern Power
Net cash provided from operating activities decreased $192 million for the nine months ended September 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 credit carryforwards, partially offset by the timing of vendor payments.
The net cash used for investing activities for the nine months ended September 30, 2024 was primarily related to ongoing construction activities. See Note (K) to the Condensed Financial Statements under "Southern Power" herein for additional information.
The net cash used for financing activities for the nine months ended September 30, 2024 was primarily related to common stock dividend payments, net distributions to noncontrolling interests, and a reduction in commercial paper borrowings.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Southern Company Gas
Net cash provided from operating activities decreased $237 million for the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2024 was primarily related to common stock dividend payments and a decrease in commercial paper borrowings, partially offset by the issuance of senior notes and first mortgage bonds.
Significant Balance Sheet Changes
Southern Company
Significant balance sheet changes for the nine months ended September 30, 2024 included:
-
an increase of $3.2 billion in long-term debt (including securities due within one year) primarily related to net issuances of senior notes, partially offset by the maturity of junior subordinated notes;
-
an increase of $3.1 billion in total property, plant, and equipment primarily related to the Subsidiary Registrants' construction programs;
-
an increase of $1.7 billion in total stockholders' equity primarily related to net income, partially offset by common stock dividend payments;
-
a decrease of $1.6 billion in notes payable primarily due to a reduction in commercial paper borrowings;
-
an increase of $1.3 billion in other regulatory assets, deferred primarily related to storm restoration costs at Georgia Power;
-
an increase of $1.1 billion in accounts payable primarily related to the timing of vendor payments and storm restoration costs at Georgia Power;
-
an increase of $0.7 billion in accumulated deferred income taxes primarily related to property-related and storm damage timing differences; and
-
a decrease of $0.6 billion in deferred under recovered fuel clause revenues primarily due to increased fuel cost recovery at Georgia Power.
See "Financing Activities" herein, Notes (A) and (B) to the Condensed Financial Statements under "Storm Damage Reserves" and "Georgia Power – Storm Damage Recovery," respectively, 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.
Alabama Power
Significant balance sheet changes for the nine months ended September 30, 2024 included:
-
an increase of $802 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;
-
an increase of $331 million in total property, plant, and equipment primarily related to the construction of transmission and distribution facilities;
-
a decrease of $257 million in other accounts payable primarily due to the timing of vendor payments;
-
a decrease of $236 million in under recovered retail fuel clause revenues primarily resulting from increased recovery of deferred fuel expense; and
-
an increase of $228 million in accrued taxes primarily due to the timing of property tax and income tax payments.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Georgia Power
Significant balance sheet changes for the nine months ended September 30, 2024 included:
-
an increase of $2.3 billion in common stockholder's equity primarily due to net income and capital contributions from Southern Company, partially offset by dividends paid to Southern Company;
-
an increase of $2.1 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;
-
increases of $1.4 billion and $1.3 billion in other accounts payable and other regulatory assets, deferred, respectively, primarily related to storm restoration costs;
-
a decrease of $1.1 billion in notes payable primarily due to net repayments of short-term bank debt;
-
an increase of $963 million in long-term debt (including securities due within one year) primarily due to net issuances of senior notes;
-
a decrease of $590 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; and
-
an increase of $396 million in accumulated deferred income taxes primarily related to storm damage timing differences.
See "Financing Activities – Georgia Power" herein, Note (B) to the Condensed Financial Statements under "Georgia Power – Storm Damage Recovery" and " – 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 nine months ended September 30, 2024 included:
-
an increase of $128 million in total property, plant, and equipment primarily related to the construction of transmission and distribution facilities;
-
an increase of $112 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 $50 million in notes payable primarily due to an increase in commercial paper borrowings; and
-
an increase of $49 million in long-term debt (including securities due within one year) primarily due to net issuances of senior notes.
See "Financing Activities – Mississippi Power" herein for additional information.
Southern Power
Significant balance sheet changes for the nine months ended September 30, 2024 included:
-
a decrease of $160 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 $105 million in accumulated deferred income tax liabilities primarily related to the expected utilization of federal tax credits in 2024;
-
a decrease of $96 million in total stockholders' equity primarily due to dividends paid to Southern Company and net distributions to noncontrolling interests, partially offset by net income;
-
a decrease of $76 million in notes payable due to a decrease in commercial paper borrowings; and
-
an increase of $55 million in cash and cash equivalents, as discussed further under "Analysis of Cash Flows – Southern Power" herein.
See Note (K) to the Condensed Financial Statements herein for additional information.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Southern Company Gas
Significant balance sheet changes for the nine months ended September 30, 2024 included:
-
an increase of $741 million in total property, plant, and equipment primarily related to the construction of transportation and distribution assets;
-
an increase of $604 million in long-term debt (including securities due within one year) primarily due to the issuance of senior notes and first mortgage bonds;
-
a decrease of $381 million in total accounts receivable primarily relating to decreases of $190 million in customer accounts receivable and $198 million in unbilled revenues as a result of seasonality;
-
a decrease of $352 million in notes payable due to a reduction in commercial paper borrowings, primarily as a result of issuances of long-term debt;
-
an increase of $190 million in accumulated deferred income tax liabilities primarily due to property-related timing differences; and
-
an increase of $125 million in common stockholder's equity primarily related to net income, partially offset by dividends paid to Southern Company.
See "Financing Activities – Southern Company Gas" herein for additional information.
Financing Activities
The following table outlines long-term debt financing activities for the first nine 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 | $ | 3,050 | $ | — | $ | 600 | $ | — | $ | 863 | |||||||||||||
| Alabama Power | — | 6 | — | 21 | 2 | ||||||||||||||||||
| Georgia Power | 1,400 | — | 400 | — | 82 | ||||||||||||||||||
| Mississippi Power | 250 | — | 200 | — | 1 | ||||||||||||||||||
| Southern Company Gas | 450 | 165 | — | — | — | ||||||||||||||||||
| Other(b) | — | — | — | — | 13 | ||||||||||||||||||
| Elimination(c) | — | — | — | — | (15) | ||||||||||||||||||
| Southern Company | $ | 5,150 | $ | 171 | $ | 1,200 | $ | 21 | $ | 946 |
(a)Includes reductions in finance lease obligations resulting from cash payments under finance leases and, for Georgia Power, principal amortization payments totaling $64 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. Subsequent to September 30, 2024, the maturity date was extended to November 15, 2025. 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.
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AND RESULTS OF OPERATIONS (Continued)
Southern Company
During the first nine months of 2024, Southern Company issued approximately 4.8 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.
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.
In August 2024, Southern Company repaid at maturity approximately $863 million aggregate principal amount of its Series 2019A Remarketable Junior Subordinated Notes.
In September 2024, Southern Company issued $750 million aggregate principal amount of Series 2024B 4.85% Senior Notes due March 15, 2035.
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.
Subsequent to September 30, 2024, a subsidiary of Alabama Power repaid $22 million of a $39 million long-term floating rate bank loan entered into in December 2022 with a maturity date of December 12, 2029. This repayment represents all of the outstanding balance of the loan.
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.
In July 2024, Georgia Power repaid $210 million of a $420 million short-term floating rate bank loan due November 2024. In August 2024, Georgia Power repaid the remaining $210 million outstanding.
In September 2024, Georgia Power repaid at maturity $400 million aggregate principal amount of its Series 2019A 2.20% Senior Notes.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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 nine months of 2024, Southern Company Gas received cash advances totaling $9 million under a long-term financing agreement related to a construction contract.
In September 2024, Nicor Gas issued in a private placement $25 million aggregate principal amount of 4.78% Series First Mortgage Bonds due September 15, 2031, $100 million aggregate principal amount of 5.00% Series First Mortgage Bonds due September 15, 2034, and $31 million aggregate principal amount of 5.58% Series First Mortgage Bonds due September 15, 2059. Pursuant to the same agreement, Nicor Gas agreed to issue in a private placement in December 2024 $50 million aggregate principal amount of 4.63% Series First Mortgage Bonds due December 15, 2029 and $69 million aggregate principal amount of 5.66% Series First Mortgage Bonds due December 15, 2064.
In September 2024, Southern Company Gas Capital issued $450 million aggregate principal amount of Series 2024A 4.95% Senior Notes due September 15, 2034, guaranteed by Southern Company Gas.
Credit Rating Risk
At September 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.
The maximum potential collateral requirements under these contracts at September 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 | 443 | 2 | 60 | 1 | 381 | — | ||||||||||||||
| At BB+ and/or Ba1 or below | 1,915 | 382 | 767 | 294 | 1,273 | 13 |
(*)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 September 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
Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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.
On August 20, 2024, Fitch upgraded the senior unsecured long-term debt ratings of Georgia Power and Mississippi Power to A from A-.
On September 26, 2024, Moody's upgraded the senior unsecured long-term debt rating of Southern Company to Baa1 from Baa2 and of Georgia Power to A3 from Baa1. Moody's also revised the ratings outlook for Southern Company to stable from positive.
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