10-Q: Southern Company Reports Q3 Growth Amid Strategic Investments

Southern Company and its subsidiaries reported increased net income and revenues for Q3 and YTD 2025, driven by rate adjustments and sales growth, while navigating significant capital projects and evolving regulatory landscapes.

Summary

• Consolidated net income attributable to Southern Company increased by $176 million (11.5%) to $1,711 million ($1.55 per share) for Q3 2025, and by $58 million (1.5%) to $3,925 million ($3.56 per share) for YTD 2025.
• Total operating revenues for Southern Company rose to $7,823 million in Q3 2025 and $22,572 million for YTD 2025, up from $7,274 million and $20,383 million in the corresponding 2024 periods, respectively.
• Retail electric revenues increased by $341 million (6.4%) in Q3 2025 and $1,272 million (9.2%) for YTD 2025, primarily due to base tariff increases, increased ECCR tariff revenues at Georgia Power, and higher Rate RSE at Alabama Power.
• Wholesale electric revenues grew by $111 million (15.4%) in Q3 2025 and $338 million (17.6%) for YTD 2025, largely driven by increased energy volumes and higher fuel and purchased power prices.
• Natural gas revenues increased by $52 million (7.6%) in Q3 2025 and $332 million (10.3%) for YTD 2025, mainly due to base rate increases at Atlanta Gas Light and Virginia Natural Gas, and higher natural gas prices.
• Southern Power's net income attributable to Southern Power decreased significantly by $79 million (96.3%) in Q3 2025 and $123 million (46.6%) for YTD 2025, primarily due to accelerated depreciation from wind repowering projects.
• Alabama Power completed the acquisition of Tenaska Alabama Partners, L.P., including the 855-MW Lindsay Hill Generating Station, for $635 million.
• Georgia Power received approval for an ARP Extension through December 31, 2028, maintaining a retail ROE set point of 10.50% and an equity ratio of 56%.
• Georgia Power requested certification for approximately $16.7 billion in new Georgia Power-owned projects and related transmission investments through 2029, including 7,999 MWs from 18 resources.
• Mississippi Power's annual retail Performance Evaluation Plan (PEP) filing for 2025 was approved, resulting in a $41 million (4.0%) annual revenue increase.
• Southern Company Gas' Virginia Natural Gas reached a stipulation for a $40 million increase in annual base rate revenues, with an ROE of 9.85% and an equity ratio of 49.35%.

Sentiment

Score: 7

Explanation: The overall sentiment is moderately positive, reflecting solid revenue and net income growth for the consolidated entity and most subsidiaries, driven by effective rate mechanisms and sales growth. Significant capital investments and strategic project approvals indicate future growth potential. However, the notable decline in Southern Power's net income due to accelerated depreciation, increased interest expenses, and the negative credit rating outlook for Southern Company introduce elements of caution. Ongoing environmental compliance costs and litigation also present headwinds, preventing a higher score.

Positives

• Consolidated net income attributable to Southern Company increased by 11.5% in Q3 2025 and 1.5% for YTD 2025, demonstrating overall financial growth.
• Retail electric revenues saw strong increases of 6.4% in Q3 and 9.2% YTD, driven by favorable rates, pricing, and customer growth, including increased usage from data centers.
• Wholesale electric revenues increased by 15.4% in Q3 and 17.6% YTD, reflecting higher demand and energy prices.
• Natural gas revenues increased by 7.6% in Q3 and 10.3% YTD, supported by base rate increases and higher commodity prices.
• Alabama Power's net income increased by 19.3% in Q3 and 12.4% YTD, bolstered by retail revenue growth and reduced non-fuel O&M expenses.
• Georgia Power's net income increased by 18.9% in Q3 and 9.0% YTD, benefiting from higher retail revenues and other income.
• Mississippi Power's net income increased by 12.0% in Q3 and 6.5% YTD, primarily due to higher retail revenues from new PEP rates.
• Alabama Power completed the acquisition of the 855-MW Lindsay Hill Generating Station, expanding its generation capacity.
• Georgia Power secured regulatory approval for a 200 MW battery energy storage facility and is seeking certification for an additional 7,999 MWs of diverse resources, indicating significant future growth and investment.
• The extension of Georgia Power's 2022 ARP through 2028 provides regulatory stability with a consistent retail ROE set point of 10.50% and equity ratio of 56%.
• Southern Company Gas' Natural Gas Safe Harbor Method resulted in a material net positive cash flow, improving liquidity.
• Allowance for equity funds used during construction (AFUDC) increased by 55.2% in Q3 and 45.5% YTD, reflecting significant ongoing capital expenditures.

Negatives

• Southern Power's net income attributable to Southern Power decreased significantly by 96.3% in Q3 2025 and 46.6% for YTD 2025, primarily due to accelerated depreciation from wind repowering projects.
• Consolidated interest expense, net of amounts capitalized, increased by $63 million (9.1%) in Q3 2025 and $293 million (14.3%) for YTD 2025, driven by higher average outstanding borrowings and a $129 million loss on extinguishment of debt at the parent company.
• Southern Company Gas' net income decreased by $13 million (34.2%) in Q3 2025 and $6 million (1.1%) for YTD 2025, mainly due to lower net income at gas distribution operations and gas pipeline investments.
• Moody's revised Southern Company's ratings outlook to negative from stable on September 23, 2025, indicating potential future credit concerns.
• The One Big Beautiful Bill Act (OBBB) introduces new restrictions on Investment Tax Credits (ITCs) and Production Tax Credits (PTCs) for solar and wind power projects, potentially impacting future renewable energy development.
• Southern Company's earnings from equity method investments decreased by $31 million (29.0%) for YTD 2025, primarily due to lower rates at SNG and investment losses at Southern Holdings.
• Weather impacts negatively affected retail electric revenues by $68 million in Q3 2025 and $52 million for YTD 2025.
• Consolidated net cash provided from operating activities decreased by $410 million for YTD 2025, primarily due to timing of vendor payments and decreased retail fuel cost recovery.

Risks

• Impact of recent and future federal and state regulatory changes, including tax, environmental, and other laws and regulations, as well as changes in application of existing laws, regulations, and guidance.
• The extent and timing of costs and legal requirements related to Coal Combustion Residuals (CCR), including potential significant compliance costs from EPA rules and ongoing litigation.
• Current and future litigation or regulatory investigations, proceedings, or inquiries, including a class action complaint against nuclear power operators for alleged employee compensation fixing and a civil investigation related to DOE grants for the Kemper County energy facility.
• The effects, extent, and timing of the entry of additional competition in the markets, including from alternative energy sources.
• Variations in demand for electricity and natural gas, influenced by economic conditions, energy efficiency, and alternative energy adoption.
• Available sources and costs of natural gas and other fuels and commodities, which can be volatile due to geopolitical conflicts and diminished production.
• The ability to control costs and avoid cost and schedule overruns during the development, construction, and operation of facilities or other projects, including challenges with labor, contractors, materials, inflation, and regulatory delays.
• Legal proceedings and regulatory approvals and actions related to past, ongoing, and proposed construction projects, including state PSC and FERC/NRC actions.
• The ability to construct facilities in accordance with permits and licenses, satisfy environmental performance standards, and meet tax credit requirements.
• Investment performance of employee and retiree benefit plans and nuclear decommissioning trust funds.
• Advances in technology, including the pace of development of lowto no-carbon energy and battery energy storage technologies.
• Performance of counterparties under ongoing renewable energy partnerships and development agreements.
• State and federal rate regulations and the impact of pending and future rate cases and negotiations, including those related to ROE, equity ratios, and cost recovery mechanisms.
• The inherent risks involved in operating nuclear generating facilities, including the ongoing litigation for nuclear fuel disposal costs.
• The inherent risks involved in generation, transmission, and distribution of electricity and transportation and storage of natural gas, including accidents, explosions, fires, and environmental releases.
• The direct or indirect effect on the Southern Company system's business resulting from cyber intrusion or physical attack.
• Global and U.S. economic conditions, including impacts from geopolitical conflicts, recession, inflation, changes in trade policies, interest rate fluctuations, and financial market conditions.
• Access to capital markets and other financing sources, and changes in credit ratings.
• Catastrophic events such as natural disasters, pandemic health events, political unrest, or wars.
• Impairments of goodwill or long-lived assets.
• The ultimate impact of the EPA's reconsideration of the 2015 Ozone National Ambient Air Quality Standards (NAAQS) Good Neighbor federal implementation plan (FIP) and the 2024 Effluent Limitations Guidelines (ELG) Rule, which could result in increased compliance costs.
• The ultimate impact of the EPA's regulatory actions related to the 2024 Legacy Rule for Coal Combustion Residuals (CCR), which may result in significant compliance costs.
• The ultimate impact of the EPA's 2024 Greenhouse Gas (GHG) Rules and proposed reconsideration, which could result in significant compliance costs.
• The ultimate impact of the EPA's reconsideration of the 2009 endangerment finding for GHGs.
• The impact of the One Big Beautiful Bill Act (OBBB) on tax incentives for renewable energy projects, including new restrictions for solar and wind power projects and foreign entity influence.
• The ultimate outcome of the Virginia Natural Gas rate case, which is expected in Q4 2025.
• The ultimate outcome of the class action complaint against Southern Company regarding alleged employee compensation fixing.
• The ultimate outcome of the civil investigation and False Claims Act lawsuit against Southern Company and Mississippi Power related to DOE grants for the Kemper County energy facility.
• The ultimate outcome of citizen suits against Alabama Power regarding CCR closure plans at Plant Barry and Plant Gadsden.
• The ultimate outcome of Mississippi Power's administrative appeal against the Mississippi Department of Revenue's sales and use tax assessment of $29 million.

Future Outlook

Southern Company anticipates continued focus on maintaining constructive regulatory environments, managing increasing costs related to demand growth, environmental standards, and capital expenditures. The company expects continued customer growth, particularly from large customers like data centers, and industrial activity in its electric service territory. Southern Power aims to execute its growth strategy through renewable energy development and acquisitions, while Southern Company Gas focuses on infrastructure improvement programs. The company is assessing the impacts of the One Big Beautiful Bill Act (OBBB) on renewable energy tax credits and expects significant guidance from the IRS. Economic and policy uncertainties, including inflation and interest rate fluctuations, are expected to impact future energy demand and operating costs. Southern Company and its subsidiaries will continue to evaluate potential business strategies, including combinations, partnerships, and asset dispositions, to adapt to changing market conditions.

Management Comments

• Management does not anticipate that the ultimate liabilities, if any, arising from current legal or regulatory proceedings would have a material effect on the Registrant's financial statements, for current proceedings not specifically reported.
• Management believes that disclosures regarding the Registrant are adequate to make the information presented not misleading.
• Management does not anticipate a material adverse effect on their respective financial statements as a result of counterparty nonperformance.
• Management does not expect the restriction on Nicor Gas' retained earnings to materially impact Southern Company Gas' ability to meet its currently anticipated cash obligations.

Industry Context

The utility sector is undergoing a significant transition driven by increasing demand for electricity, particularly from data centers and industrial growth, alongside stringent environmental regulations and a push towards renewable energy. Southern Company's strategic investments in battery storage, combined cycle units, and wind repowering projects align with these trends, aiming to modernize infrastructure and diversify its energy mix. The regulatory environment remains a critical factor, with state Public Service Commissions (PSCs) playing a key role in rate approvals and cost recovery for capital-intensive projects and environmental compliance. The federal legislative landscape, particularly the One Big Beautiful Bill Act (OBBB), introduces new complexities for renewable energy tax credits, potentially shifting investment strategies. Rising interest rates and inflation continue to pressure financing costs and operational expenses across the industry. The company's focus on long-term contracts and regulated rate mechanisms aims to mitigate market volatility, a common challenge for utilities.

Comparison to Industry Standards

• Southern Power's average investment coverage ratio of 96% through 2029 and 89% through 2034, with an average remaining contract duration of approximately 12 years, indicates a strong contractual base for its generating assets, comparable to leading independent power producers focused on long-term contracted revenues.
• The 855-MW Lindsay Hill Generating Station acquisition by Alabama Power enhances its combined cycle generation capacity, a common strategy among utilities like Duke Energy or NextEra Energy to balance baseload and flexible generation.
• Georgia Power's certification requests for 7,999 MWs of new capacity, including battery energy storage and combined cycle units, reflect an aggressive capacity expansion plan in line with utilities experiencing high load growth, such as those in Texas or other rapidly developing regions, to meet increasing demand from data centers and industrial expansion.
• The extension of Georgia Power's ARP with a 10.50% retail ROE set point is within the typical range for regulated utilities, often compared to peers like Dominion Energy or Entergy, balancing investor returns with customer affordability.
• Southern Company's federal Production Tax Credits (PTCs) for nuclear power under Internal Revenue Code 45U, totaling $373 million for 2024, position it favorably in leveraging federal incentives for zero-emission generation, similar to other nuclear operators like Exelon.

Corporate Governance

Legal Proceedings

• A purported class action complaint was filed against all U.S. commercial nuclear power operators, including Southern Company, alleging a conspiracy to fix and suppress employee compensation since May 1, 2003. Southern Company moved to dismiss the complaint.
• A civil action was unsealed against Southern Company, SCS, and Mississippi Power, alleging violations of the False Claims Act by fraudulently inducing the DOE to disburse funds for the Kemper County energy facility. The plaintiff's False Claims Act count was dismissed, but an employment retaliation claim is proceeding.
• Mobile Baykeeper filed a citizen suit against Alabama Power alleging violations of the Resource Conservation and Recovery Act (RCRA) regarding the closure-in-place methodology for the Plant Barry surface impoundment. The lawsuit was dismissed, but the plaintiff filed an appeal.
• Coosa Riverkeeper filed a citizen suit against Alabama Power alleging RCRA violations regarding the closure of the Plant Gadsden surface impoundment. Alabama Power filed a motion to dismiss.
• Alabama Power and Georgia Power filed their fifth round of lawsuits against the U.S. government seeking damages for costs of continuing to store spent nuclear fuel at Plants Farley, Hatch, and Vogtle Units 1 and 2 for the period from January 1, 2020, through December 31, 2024.
• Mississippi Power filed an administrative appeal with the Mississippi Department of Revenue regarding a final assessment of $29 million for sales and use taxes paid from October 2019 to July 2024.

Related Party Transactions

• Wholesale electric revenues include revenues from affiliate transactions, such as sales by Southern Power to the traditional electric operating companies, and sales between traditional electric operating companies under the Intercompany Interchange Contract (IIC). These are eliminated in consolidation for Southern Company.
• Georgia Power extended 50 MWs of an existing 750-MW affiliate Power Purchase Agreement (PPA) with Mississippi Power for an additional year through December 31, 2029.
• Southern Power notified the Class A members of its intent to exercise the option to purchase all Class A membership interests in the SP Wind tax equity partnership on December 31, 2025.

Stakeholder Impact

• Shareholders: Positive impact from increased net income and earnings per share, but potential concerns from increased debt, higher interest expenses, and the negative credit rating outlook for Southern Company. The OBBB's impact on renewable tax credits could affect future returns from green investments.
• Customers: Mixed impact. Rate increases at Alabama Power, Georgia Power, Mississippi Power, and Southern Company Gas will lead to higher bills. However, regulatory mechanisms for fuel cost recovery, environmental compliance, and storm damage aim to ensure stable service and eventual customer benefit from tax credits (e.g., nuclear PTCs deferred for customer benefit).
• Employees: Potential impact from the class action lawsuit alleging compensation fixing in the nuclear power industry. Ongoing construction projects and strategic growth initiatives may create job opportunities.
• Creditors: Increased long-term debt issuances and higher interest expenses could increase financial leverage. The negative outlook revision by Moody's for Southern Company could lead to higher borrowing costs in the future.
• Suppliers/Contractors: Significant capital expenditure programs across all subsidiaries, particularly for new generation, transmission, distribution, and repowering projects, will provide substantial business opportunities for suppliers and contractors.

Next Steps

• Alabama Power will amortize a $100 million regulatory asset related to the Jurisdictional Separation Study (JSS) over a period not exceeding 10 years, beginning in 2027.
• Alabama Power will evaluate annually whether it qualifies for the Internal Revenue Code 45U Production Tax Credit (PTC) for nuclear generating facilities.
• Georgia Power will file a separate regulatory proceeding no sooner than February 1, 2026, and no later than July 1, 2026, to recover storm damage costs incurred through December 31, 2025.
• Georgia Power will file a general base rate case by July 1, 2028.
• Georgia Power will evaluate annually whether it qualifies for the Internal Revenue Code 45U PTC for nuclear generating facilities.
• Georgia Power expects a final decision from the Georgia PSC in December 2025 regarding its certification request for 7,999 MWs of new resources.
• Georgia Power expects to submit a Notice of Planned Participation (NOPP) indicating plans to pursue compliance with the 2020 ELG rule for Plant Scherer Unit 3 through the voluntary incentive program by December 31, 2028.
• Mississippi Power will continue to record a minimum annual accrual of $13.5 million for its System Restoration Rider (SRR) until a target property damage reserve balance of $125 million is met.
• Mississippi Power will evaluate annually whether it qualifies for the Internal Revenue Code 45U PTC for nuclear generating facilities.
• The Virginia Commission is expected to issue an order on Virginia Natural Gas' requested rate increase in the fourth quarter 2025.
• Southern Power intends to exercise its option to purchase all Class A membership interests in the SP Wind tax equity partnership on December 31, 2025.
• Southern Company and its subsidiaries expect to renew or replace their bank credit arrangements as needed, prior to expiration.
• Southern Company will continue to assess and monitor the impacts of the One Big Beautiful Bill Act (OBBB) and expects significant guidance from the IRS.
• Southern Company will continue to assess the issued guidance on Corporate Alternative Minimum Tax (CAMT) and is not expecting to be subject to CAMT for the 2025 tax year.
• Southern Company, Alabama Power, and Georgia Power will continue to litigate against the U.S. government for nuclear fuel disposal costs, with damages continuing to accumulate.
• Southern Company will continue to dispute allegations and vigorously defend against the class action complaint regarding alleged employee compensation fixing.
• Southern Company and Mississippi Power will continue to defend against the civil action related to the False Claims Act regarding DOE grants for the Kemper County energy facility.
• Alabama Power will continue to defend against citizen suits regarding CCR closure plans at Plant Barry and Plant Gadsden.
• Mississippi Power will continue its administrative appeal with the Mississippi Department of Revenue regarding the sales and use tax assessment.

Key Dates

Recommendation

Southern Company demonstrates solid financial performance with increased net income and revenues across most segments, driven by effective rate recovery and customer growth. Strategic investments in new generation and infrastructure, particularly in renewables and battery storage, position the company for future growth in a transitioning energy landscape. However, the significant decline in Southern Power's net income due to accelerated depreciation from repowering projects, rising interest expenses from increased borrowings, and the negative credit outlook from Moody's for Southern Company introduce notable headwinds. The evolving regulatory environment, particularly concerning environmental compliance and the new tax credit restrictions under the OBBB, adds uncertainty. While the core regulated businesses remain stable, these challenges warrant a 'hold' recommendation, suggesting investors monitor the company's ability to manage these pressures and realize returns from its substantial capital programs before making further investment decisions.

Keywords

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