# Southern Company (SO): Business, Risks and Management's Discussion, Second Quarter 2026 Sources: the Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (accession 0000092122-26-000006, filed February 19, 2026); the Quarterly Report on Form 10-Q for the quarter ended June 30, 2026 (accession 0000092122-26-000054, filed July 30, 2026); the second-quarter 2026 earnings release furnished as Exhibit 99 to Form 8-K (accession 0000092122-26-000056); and the Forms 8-K cited by accession in the text. --- ## Business *From the FY2025 10-K, accession 0000092122-26-000006, unless noted.* Southern Company is a regulated utility holding company in the U.S. Southeast. Most of its earnings come from selling electricity at state-regulated rates to about 4.6 million retail customers in Alabama, Georgia and southeastern Mississippi, and from delivering natural gas to about 4.4 million customers in Illinois, Georgia, Virginia and Tennessee. Together the electric and gas utilities serve about 9.0 million customers. The model is to invest capital in generation, transmission and distribution, have it approved by state regulators, and recover the costs through customer rates that include a return on that investment. A smaller wholesale generation business sells power under long-term contracts. In 2025 the electricity business earned $4,707 million and the gas business $732 million. Parent-company and other activities lost $1,098 million, mostly holding-company interest expense. Net income attributable to Southern Company was $4,341 million. The company reports three segments: - **Traditional electric operating companies.** Alabama Power, Georgia Power and Mississippi Power are vertically integrated utilities. They own generation, transmission and distribution and sell at retail and wholesale. At December 31, 2025 they had about 4,590,000 retail customers: Alabama Power 1,563,000, Georgia Power 2,834,000 and Mississippi Power 193,000. Their retail territory covers about 116,000 square miles and roughly 17 million people. Their generating assets and certain Southern Power units are dispatched as a single integrated power pool. Fuel and the energy cost of purchased power pass through to customers via fuel-recovery clauses. Other costs are recovered through formula rate plans: Rate RSE at Alabama Power, the PEP at Mississippi Power, and periodic base-rate cases at Georgia Power. Eight nuclear units run by Southern Nuclear (Plants Farley, Hatch and Vogtle) produced about 22% of Alabama Power's and 36% of Georgia Power's 2025 generation. Across the system in 2025, generation came 51% from gas, 20% from coal, 19% from nuclear, 8% from wind, solar and other, and 2% from hydro. - **Southern Power.** This is a wholesale generator that sells at market-based rates under long-term power purchase agreements (PPAs) with utilities, municipalities, cooperatives and commercial and industrial buyers. At year-end 2025 it had 12,648 MWs of nameplate capacity in commercial operation. Gas-plant PPAs carry capacity charges that recover fixed costs plus a return, and counterparties generally bear fuel cost. Solar and wind PPAs are energy-only, so their revenue depends on output. At December 31, 2025 the average investment coverage ratio, meaning investment under contract as a share of total investment, was 97% through 2030 and 89% through 2035, with about 12 years of average remaining contract life. Its top three customers provided about 25% of its 2025 revenues. - **Southern Company Gas.** This segment owns four gas distribution utilities with about 77,900 miles of pipe: Nicor Gas (Illinois, 2.29 million customers), Atlanta Gas Light (Georgia, 1.73 million), Virginia Natural Gas (0.32 million) and Chattanooga Gas (0.07 million). Gas cost is passed through to customers. Weather and revenue normalization mechanisms limit how much volume swings affect earnings. Atlanta Gas Light earns mainly fixed monthly charges in Georgia's deregulated market. The segment also holds pipeline investments, chiefly a 50% interest in the 7,000-mile Southern Natural Gas (SNG) pipeline, which is developing a roughly 1.3 billion cubic feet per day expansion expected by 2029. It also runs gas marketing through SouthStar, which has about 677,000 commodity customers. Gas earnings are seasonal: in 2025, 82% of the segment's net income came in the heating season. Other subsidiaries include PowerSecure (distributed energy, resilience and microgrids), Southern Linc (wireless communications and fiber), Southern Holdings (investments and captive insurance), Southern Nuclear, and the system service company SCS. The system had about 29,800 employees at year-end 2025, about 32% of them covered by union agreements. **Growth driver: large-load demand.** The electric utilities project a significant increase in electricity sales, driven mainly by data centers. The 10-Q for the quarter ended June 30, 2026 (accession 0000092122-26-000054) updates the 10-K's count of about nine gigawatts. Since 2023 the utilities have contracts with new data centers and other large-load customers covering about 11 gigawatts of load that the applicable state commission has reviewed. A further ~5 gigawatts have been agreed and await commission review, about 16 gigawatts in total. Each of these contracts is for more than 100 MWs, and service under them is expected to begin through 2028. All carry minimum-bill provisions. About 13 gigawatts, including substantially all contracts signed after 2024, also carry minimum terms, termination payments and collateral or guarantee requirements. **Capital plan.** Estimated capital expenditures are $78.1 billion for 2026 through 2030: $15.9 billion in 2026, $18.5 billion in 2027, $17.1 billion in 2028, $14.6 billion in 2029 and $12.0 billion in 2030. For comparison, the estimate for 2024 through 2028 was $45.2 billion. Georgia Power accounts for $10.1 billion of the 2026 program. Through its 2022 IRP and 2023 IRP Update, the Georgia PSC has certified about 13 gigawatts of resources. About nine gigawatts of that is new generation and battery storage that Georgia Power is building or will build, at certified costs of $19.5 billion and with in-service dates through 2030. In December 2025 the Georgia PSC certified 9,885 MWs of resources with in-service or delivery dates between 2027 and 2030. The Georgia Power-owned projects and related transmission approved in the September and December 2025 certifications total about $16.7 billion, excluding AFUDC. As a condition of that certification, Georgia Power agreed to file its next base rate case so that incremental revenue from large-load customers puts downward pressure on rates of at least $556 million a year, on a levelized basis, for 2029, 2030 and 2031. Separately, coal-ash (CCR) closure spending, recorded against asset retirement obligations, is estimated at $653 million for 2026. --- ## Risk factors *Condensed from Item 1A of the FY2025 10-K, accession 0000092122-26-000006. The 10-Q for the quarter ended June 30, 2026 reports no material changes to these risk factors.* The main risks come from three things: earnings are set by regulators, the investment program is large, and that program is sized to a demand forecast that rests heavily on one emerging industry. - **Rate regulation and cost recovery.** Profitability depends on state commissions allowing the company to recover its costs and earn a reasonable return. The 10-K warns that the current period of rising costs and higher capital spending could bring more resistance to cost recovery, with affordability a growing factor in rate cases. The company cites examples of regulation limiting recovery: Nicor Gas's disallowed capital investments, Alabama Power's commitment to hold retail rates stable through 2027, and Georgia Power's base rates frozen through 2028 except for storm costs. Wholesale and pipeline rates are subject to FERC review. - **Large-load demand concentration.** Projected demand is well above recent experience and comes mostly from data centers. Serving it requires heavy capital spending and concentrates business in a single industry built on emerging technologies. If demand falls short, investment could go unrecovered. If it grows faster than projected, the utilities could struggle to secure enough generation and transmission. Contract protections such as minimum bills, termination payments and collateral "may not fully protect" the utilities. - **Construction execution.** The build program faces labor, supply-chain, tariff, interconnection and permitting risk. Costs above certified or approved amounts may be disallowed. If a project is cancelled, the utility can owe cancellation penalties on equipment ordered before regulatory approval. Southern Company Gas depends on a third-party operator for the SNG pipeline expansion. - **Capital access and credit ratings.** Projected dividends, capital spending and debt maturities for 2026 through 2028 are expected to exceed operating cash flow at every registrant, so the plan depends on issuing debt, hybrid securities and equity. A downgrade would raise borrowing costs. A downgrade below investment grade would trigger significant collateral requirements; at June 30, 2026 the maximum potential collateral at BB+/Ba1 or below was $3,723 million. Southern Company and Southern Company Gas are holding companies that depend on dividends from their subsidiaries. - **Environmental and climate policy.** Coal-ash closure, effluent rules and greenhouse-gas regulation impose large compliance costs and asset retirement obligations whose recovery is not assured. Management says that, mainly because of projected load growth, meeting its goal of a 50% greenhouse-gas reduction from 2007 levels by 2030 will be "extremely challenging". The longer-term goal is net zero by 2050. Bans on gas in new construction and the Illinois Commerce Commission's "future of natural gas" proceeding, with a final report expected by the end of 2026, threaten gas demand. - **Federal tax policy.** The One Big Beautiful Bill Act (OBBB, July 2025) materially changed federal renewable-energy incentives, and the company is still assessing the effects. Recovery of the 15% corporate alternative minimum tax through rates is not assured. - **Nuclear and operating hazards.** Nuclear operations carry safety, decommissioning, spent-fuel and liability exposure that may exceed insurance. A serious incident anywhere in the U.S. industry could require contributory payments. Generation, transmission, distribution and gas storage near populated areas carry accident risk. The utilities also face physical attacks and cyberattacks; the company notes that it lacks full security visibility into all operational-technology communications. - **Weather and storms.** Hurricane Helene in September 2024 caused about $880 million of incremental restoration costs at Georgia Power, mostly deferred as a regulatory asset. Recovery of storm costs above reserves requires commission approval. - **Other.** PPA counterparty and re-contracting risk at Southern Power; fuel-supply disruption; pension and nuclear-decommissioning trust market risk; shareholder activism; and possible impairment of $5.2 billion of goodwill, most of it at Southern Company Gas. --- ## Management's discussion: fiscal 2025 *From Item 7 of the FY2025 10-K, accession 0000092122-26-000006.* **Earnings.** Net income attributable to Southern Company was $4.3 billion in 2025, down $60 million (1.4%) from 2024. Basic EPS was $3.94 versus $4.02 and diluted EPS $3.92 versus $3.99. Higher depreciation, operations and maintenance, and interest expense outweighed higher retail electric revenues from pricing and sales growth, gas base-rate increases and higher AFUDC equity. Dividends paid were $2.94 per share, up from $2.86, a 75% payout ratio. In January 2026 the board declared a quarterly dividend of 74 cents. **Electricity business: net income $4,707 million, up $234 million.** - Retail electric revenues rose $1,541 million (8.7%) to $19,331 million. The increase came from rates and pricing (+$885 million), sales growth (+$216 million), weather (–$45 million) and fuel and other cost recovery (+$485 million, which passes through to customers). The pricing gain came mainly from Georgia Power, through base-tariff increases under its 2022 rate plan and the inclusion of Plant Vogtle Unit 4 in retail rates, and from a Rate RSE increase at Alabama Power. - Retail sales were 151.3 billion KWHs, up 1.6%, or 1.7% weather-adjusted. Weather-adjusted commercial sales grew 2.8%, mainly from new and existing data centers at Georgia Power. Industrial sales rose 1.4%. - Wholesale revenues rose $510 million (21.0%) to $2,941 million, mostly from higher fuel-driven energy prices that are largely offset in fuel expense. - Depreciation and amortization rose $691 million (17.1%). The main components were $298 million of accelerated depreciation at Southern Power for its wind-repowering projects, $226 million from new plant in service and $123 million of CCR asset-retirement amortization at Georgia Power. - Other operations and maintenance expense rose $364 million (7.2%). Drivers included higher generation maintenance after Vogtle Unit 4 entered service, reliability-reserve and NDR accruals at Alabama Power, and the absence of a $114 million gain on transmission-asset sales at Georgia Power that was booked in 2024. - AFUDC equity rose $109 million (52.2%) as capital spending grew. **Gas business: net income $732 million, down $8 million.** Natural gas revenues rose $588 million (13.2%) to $5.0 billion. Base-rate increases at Atlanta Gas Light and Virginia Natural Gas contributed $146 million. Most of the remainder was pass-through gas cost, as gas prices rose 51.0%. Operations and maintenance expense rose $125 million, including a $63 million charge for capital investments that the Illinois Commerce Commission excluded from Nicor Gas's rate base. Earnings from equity investments fell $19 million because of legal settlements, integrity spending and lower rates at SNG. **Other business activities: net loss $1,098 million, $286 million wider than in 2024.** Parent-company interest expense rose $387 million, including $252 million of costs to extinguish debt. **Regulatory developments in the year.** - *Georgia Power.* The Georgia PSC extended the 2022 rate plan (ARP) through December 31, 2028, with no base-rate changes in 2026 through 2028 except for storm costs incurred through 2025. The retail ROE set point stays at 10.50% within a 9.50%–11.90% range, with a 56% equity ratio. The 2025 IRP was approved in July 2025. - *Alabama Power.* A December 2025 consent order holds retail rates stable through 2027. Alabama Power completed the purchase of the 879.7-MW Lindsay Hill Generating Station on September 30, 2025. - *Mississippi Power.* Mississippi Power acquired FP&L's 50% interest in Plant Daniel Units 1 and 2 on July 30, 2025. - *Nicor Gas.* The Illinois Commerce Commission granted Nicor Gas a $168 million base-rate increase on a 9.60% ROE in November 2025. In January 2026 Nicor Gas filed for a further $221 million increase on a requested 10.35% ROE. - *Virginia Natural Gas.* Virginia Natural Gas received a $40 million increase. - *Southern Power.* On December 31, 2025, Southern Power bought out the tax-equity partners in its SP Wind partnership for about $282 million. **Liquidity.** For 2026 through 2028, each registrant's projected dividends, capital spending and debt maturities are expected to exceed operating cash flow. The gap is to be funded with debt, hybrid and equity issuance, including the continuous equity offering program. Book value was $32.18 per share at year-end 2025. --- ## Current quarter: second quarter and first half of 2026 *From the 10-Q for the quarter ended June 30, 2026 (accession 0000092122-26-000054) and the second-quarter earnings release furnished as Exhibit 99 to Form 8-K (accession 0000092122-26-000056).* **Results.** Net income attributable to Southern Company was $1,174 million ($1.03 per share) in the second quarter of 2026, up $294 million (33.4%) from $880 million ($0.80). For the six months it was $2,531 million ($2.24 per share), up 14.3% from $2,214 million ($2.01). Operating revenues were nearly flat in the quarter at $6,977 million against $6,973 million. For the half they rose 4.2% to $15,374 million, mostly from higher natural gas revenues (+$339 million) and wholesale electric revenues (+$239 million). The increase came below the operating line rather than from revenue: - **Income taxes** fell $102 million to $187 million. Georgia Power recorded $93 million less in valuation-allowance charges on state tax credit carryforwards. Wind production tax credits rose $35 million after Southern Power bought out the SP Wind tax-equity partners. - **Interest expense** fell $78 million to $796 million. The second quarter of 2025 included $129 million of losses on repurchasing convertible notes. Higher average borrowings added $65 million. - **Equity-method earnings** rose to $86 million from $10 million. Southern Holdings' energy venture-capital fund investments contributed $58 million of the increase and SNG $9 million. - **AFUDC equity** rose to $128 million from $80 million as Georgia Power's construction program grew. - **Depreciation and amortization** rose $111 million (8.4%) to $1.4 billion. Southern Power's accelerated wind-repowering depreciation added $98 million and new plant $102 million. These were partly offset by a $99 million reduction from the extension of Georgia Power's rate plan. **Sales trends.** Retail electric revenues were $4.75 billion against $4.76 billion. Sales growth added $77 million, offset by lower pass-through fuel revenue (–$70 million) and lower contributions from Georgia Power's variable demand-driven pricing tariffs. Weather-adjusted commercial sales rose 7.4% in the quarter and 6.0% for the half, which the company attributes largely to data centers at Georgia Power. Weather-adjusted residential sales fell 0.7% on lower usage, and industrial sales were flat. Total retail KWH sales rose 2.1%, or 2.3% weather-adjusted, and wholesale KWH sales rose 9.2%. Regulated utility customers totaled 9.0 million, up 0.7%. **By business (net income, second quarter 2026 versus 2025, from the earnings release):** - Traditional electric operating companies: $1,269 million versus $1,047 million. Georgia Power earned $779 million (up 28.3%), Alabama Power $437 million (up 14.7%) and Mississippi Power $52 million (down 11.9%). - Southern Power: a $25 million loss versus $51 million of income, reflecting $143 million pre-tax ($111 million after tax) of accelerated depreciation and decommissioning costs for wind repowering. - Southern Company Gas: $126 million versus $106 million. Rate changes added $58 million to second-quarter gas revenues, mainly from base-rate increases at Nicor Gas and Atlanta Gas Light. - Parent company and other: a $196 million loss versus a $324 million loss. **Non-GAAP view.** Excluding the items the company identifies, which are mainly repowering depreciation, the 2025 debt-extinguishment loss and the Nicor Gas disallowance, earnings were $1,289 million ($1.13 per share) against $1,014 million ($0.92). For the half they were $2,775 million ($2.46) against $2,369 million ($2.15). Management attributes the adjusted increase to investment in the state-regulated utilities, customer usage and growth, higher equity-method earnings and lower income taxes, partly offset by higher interest expense. The release gives no earnings guidance. At June 30, 2026, the 10-Q projected about $200 million of remaining pre-tax accelerated repowering depreciation for the rest of 2026 and about $100 million in 2027. **Regulatory and operating developments in the quarter.** - *Georgia Power.* On May 28, 2026, the Georgia PSC approved a stipulation that: - cut fuel billings by 12.9% (about $394 million a year) from June 1; - allows recovery of an $869 million storm-damage regulatory asset over 67 months ($156 million a year), plus $31 million a year for storm costs incurred after 2025; - commits $77 million of nuclear production tax credits to customers. At June 30, Georgia Power had spent about $4.4 billion of the roughly $19.5 billion certified for its new generation and storage program. Projects under construction include 3,693 MWs of combined-cycle units at Plants Bowen, Wansley and McIntosh, due between the fourth quarter of 2029 and the fourth quarter of 2030, and three 442-MW combustion turbines at Plant Yates. The Robins (128 MW) and Moody (50 MW) battery storage facilities were completed. On June 12 the NRC renewed Plant Hatch's licenses through 2054 and 2058. - *Alabama Power.* A state law enacted April 2, 2026 provides that retail base rates in place on October 1, 2026 may not be increased before January 1, 2029. - *Mississippi Power.* Mississippi Power's 2026 performance evaluation plan (PEP) increase of about $20 million (1.8%) was approved on June 18. - *Nicor Gas.* On June 16 the Illinois Appellate Court found that the Illinois Commerce Commission had not adequately supported a $43 million disallowance of Nicor Gas's planned capital investments. The matter returns to the commission, and there was no effect on the financial statements. - *Southern Power.* Southern Power placed the 200-MW first phase of the Millers Branch solar project in service in February. It committed to turbine upgrades at its Franklin and Wansley gas plants that would add up to 400 MWs, with $580 million–$645 million of remaining cost. Its investment coverage ratio was 97% through 2030 and 88% through 2035. - *Taxes.* Georgia cut its corporate income tax rate from 5.19% to 4.99% for 2026. The company does not expect a material effect on net income. U.S. Treasury guidance issued in February 2026 on the corporate alternative minimum tax could reduce Southern Company's exposure, and the company is still evaluating it. - *Litigation.* A purported class action filed in July 2025 alleges that U.S. nuclear operators conspired to suppress nuclear workers' pay. Southern Company and Southern Nuclear are among the defendants. The company says an adverse outcome could have a material impact. **Cash flow and financing in the first half.** Operating cash flow was $4,280 million, up $849 million from the first half of 2025. Investing outflows were $6,758 million and financing inflows $3,828 million. Main financing actions: - **Equity.** Southern Company issued about 31.1 million shares, mainly by settling forward sale contracts, for about $2.5 billion of proceeds. At June 30, 11,483,995 shares already sold under forward contracts remained to be settled. On June 8, 2026 the company entered a new at-the-market equity distribution agreement for up to 50,000,000 shares (Form 8-K, accession 0000092122-26-000046). - **Hybrid securities.** In January Southern Company redeemed its $1.25 billion Series 2020B junior subordinated notes. In March it issued $1.3 billion of Series 2026A 6.00% junior subordinated notes due 2058. Southern Company Gas Capital issued $500 million of 6.05% junior subordinated notes. - **DOE-guaranteed borrowing.** On February 20, 2026, Alabama Power and Georgia Power signed DOE-guaranteed multi-advance term loan facilities with the Federal Financing Bank of up to about $4.1 billion and $22.4 billion respectively, maturing December 10, 2055 (Form 8-K, accession 0000092122-26-000010). Georgia Power drew about $1.0 billion at 5.041% in March. - **Senior notes.** Georgia Power issued $1.3 billion of senior notes, Southern Power $600 million and Mississippi Power $75 million. At June 30, unused committed bank credit totaled $8,909 million. Current liabilities exceeded current assets by $3,356 million, which the company attributes to debt maturities and its use of short-term debt. The quarterly dividend was $0.76, up from $0.74. Book value was $34.40 per share. --- ## Subsequent events *Events after June 30, 2026, as disclosed in the 10-Q (accession 0000092122-26-000054) and in later Forms 8-K cited below. These filings disclose no acquisitions or divestitures after the quarter end.* **Financings and debt repayments.** - **Debt maturities and a short-term loan (10-Q).** After June 30, Southern Company repaid its $1.75 billion Series 2016E 3.25% Senior Notes at maturity and borrowed $200 million under a short-term, uncommitted, floating-rate bank arrangement. Mississippi Power repaid its $65 million Series 2023A 5.64% Senior Notes at maturity. - **Forward equity sales (10-Q).** The remaining 1,340,454 shares under a 1,940,548-share forward sale contract in the 2026 ATM program were sold in July 2026. - **$2.73 billion of convertible senior notes.** On August 3, 2026 Southern Company priced, and on August 6 issued, two series of convertible senior notes (Forms 8-K, accessions 0000092122-26-000060 and 0000092122-26-000063). Both totals include the initial purchasers' fully exercised options for $108.75 million and $247.5 million. - $833.75 million of Series 2026A 2.125% notes due December 15, 2027, with an initial conversion price of about $104.56 per share. - $1,897.5 million of Series 2026B 3.50% notes due September 15, 2029, with an initial conversion price of about $118.50 per share. - Conversions settle in cash up to principal, and any excess in cash, shares or both at the company's election. At most 8,970,816 and 20,416,341 shares, respectively, could be issued on conversion. - Before the options were exercised, the company estimated net proceeds of about $829 million and $1.88 billion assuming full exercise. It planned to use about $403 million to repurchase about $369 million of its Series 2024A 4.50% Convertible Senior Notes due June 15, 2027 in privately negotiated transactions, and the rest to repay short-term debt and for general corporate purposes. **Regulatory, operating and legal developments (10-Q).** - **Plant Daniel gas conversion.** On July 7, 2026 the Mississippi PSC approved Mississippi Power's request to convert either Plant Daniel Unit 1 or Unit 2 from coal to natural gas, with completion projected in 2029. The two units' remaining net book value was about $481 million at June 30. - **Alabama coal-ash permits.** On July 14, 2026 the EPA proposed approving Alabama's partial state coal-ash (CCR) permit program, which would operate in place of the federal program. - **Nicor Gas appeal.** On July 21, 2026 Nicor Gas asked the Illinois Supreme Court for leave to appeal the capital structure approved in its 2023 rate case. A ruling on the petition was expected on September 30, 2026. These filings do not report the outcome. - **Kay wind repowering.** Southern Power placed the last of the 200 MWs of repowered capacity at its Kay wind facility in service after June 30. **Governance.** On October 20, 2026 the board amended and restated the company's by-laws (Form 8-K, accession 0000092122-26-000065). The changes tighten ownership and holding-period requirements for stockholder-requested special meetings and update advance-notice and universal-proxy procedures. They also add exclusive-forum provisions: Delaware Chancery for certain intracorporate matters and the federal district courts for Securities Act claims. The window for stockholder nominations and other business at the 2027 annual meeting is January 13 to February 12, 2027.