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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

Source: 
Edgar Glimpses

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), as well as 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, wholesale gas services, and gas marketing services. See Note (L) to the Condensed Financial Statements herein for additional information on segment reporting. 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. For Southern Power, these 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 Georgia Power Plant Vogtle Units 3 and 4 Status Construction continues on Plant Vogtle Units 3 and 4 (with electric generating capacity of approximately 1,100 MWs each), in which Georgia Power holds a 45.7% ownership interest. Georgia Power's share of the total project capital cost forecast to complete Plant Vogtle Units 3 and 4 by December 2021 and November 2022, respectively, is $8.76 billion. Georgia Power estimates the productivity impacts of the COVID-19 pandemic have consumed approximately three to four months of schedule margin previously embedded in the site work plan for Unit 3 and Unit 4. In addition, throughout 2020, the project continued to face challenges as described in Note (B) to the Condensed Financial Statements under "Georgia Power - Nuclear Construction" herein. As a result of these factors, in January 2021, Southern Nuclear further extended certain milestone dates, including the start of hot functional testing and fuel load for Unit 3, from those established in October 2020. Following the January 2021 milestone extensions, Southern Nuclear has been performing additional construction remediation work, primarily related to electrical commodity installations, necessary to ensure quality and design standards are met as system turnovers are completed to support hot functional testing and fuel load for Unit 3. Hot functional testing commenced in late April 2021 and the site work plan currently targets fuel load for Unit 3 in the third quarter 2021 and an in-service date of December 2021. As the site work plan includes minimal margin to these milestone dates, any delay could result in an in-service date in the first quarter 2022 for Unit 3. Achievement of the extended milestone dates established in January 2021 for Unit 4, which are expected to support a regulatory-approved in-service date of November 2022, primarily depends on overall construction productivity and production levels significantly improving as well as appropriate levels of craft laborers, particularly electrical and pipefitter craft labor, being added and maintained. Considering the factors above, during the first quarter 2021, approximately $84 million of the construction contingency established in the fourth quarter 2020 was assigned to the base capital cost forecast for costs primarily associated with the schedule extension for Unit 3 to December 2021, construction productivity, support resources, 86 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) and construction remediation work. Georgia Power increased its total capital cost forecast as of March 31, 2021 by adding $48 million to the remaining construction contingency. After considering the significant level of uncertainty that exists regarding the future recoverability of these costs since the ultimate outcome of these matters is subject to the outcome of future assessments by management, as well as Georgia PSC decisions in future regulatory proceedings, Georgia Power recorded a pre-tax charge to income of $48 million ($36 million after tax) for the increase in the total project capital cost forecast as of March 31, 2021. As and when these amounts are spent, Georgia Power may request the Georgia PSC to evaluate those expenditures for rate recovery. The ultimate impact of the COVID-19 pandemic and other factors on the construction schedule and budget for Plant Vogtle Units 3 and 4 cannot be determined at this time. See Note (B) to the Condensed Financial Statements under "Georgia Power - Nuclear Construction" herein for additional information. Mississippi Power On March 15, 2021, Mississippi Power submitted its annual retail PEP filing for 2021 to the Mississippi PSC, which requested a 1.8%, or approximately $16 million, annual increase in revenues. In accordance with the PEP rate schedule, the rate increase became effective with the first billing cycle of April 2021, subject to refund. The Mississippi PSC is expected to rule on this request later in the second quarter 2021. The ultimate outcome of this matter cannot be determined at this time. On April 6, 2021, the Mississippi PSC approved Mississippi Power's annual ad valorem tax adjustment filing for 2021, which requested an annual increase in revenues of approximately $28 million. The rate became effective with the first billing cycle of May 2021. On April 15, 2021, Mississippi Power filed its 2021 IRP with the Mississippi PSC. The filing includes a schedule to retire Plant Watson Unit 4 (268 MWs) and Mississippi Power's 40% ownership interest in Plant Greene County Units 1 and 2 (103 MWs each) in December 2023, 2025, and 2026, respectively, consistent with each unit's remaining useful life in the most recent approved depreciation studies. In addition, the schedule reflects the early retirement of Mississippi Power's 50% undivided ownership interest in Plant Daniel Units 1 and 2 (502 MWs) by the end of 2027. 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 three months ended March 31, 2021, Southern Power continued construction of the 88-MW Garland and 72-MW Tranquillity battery energy storage facilities and the 118-MW Glass Sands wind facility. On March 26, 2021, Southern Power purchased a controlling membership interest in the approximately 300-MW Deuel Harvest wind facility located in Deuel County, South Dakota from Invenergy Renewables, LLC. See Note (K) to the Condensed Financial Statements under "Southern Power" herein for additional information. At March 31, 2021, 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 generation facilities' net book value (or expected in-service value for facilities under construction) as the investment amount was 93% through 2025 and 90% through 2030, with an average remaining contract duration of approximately 14 years. 87 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Southern Company Gas On April 28, 2021, Atlanta Gas Light filed its first Integrated Capacity and Delivery Plan (i-CDP) with the Georgia PSC, which includes a series of ongoing and proposed pipeline safety, reliability, and growth programs for the next 10 years, as well as the required capital investments and related costs to implement the programs. The i-CDP is subject to a five-month review period, which may be extended. See Note (B) to the Condensed Financial Statements under "Southern Company Gas" herein for additional information. Also on April 28, 2021, certain affiliates of Southern Company Gas entered into an agreement for the sale of Sequent. See Note (K) to the Condensed Financial Statements under "Southern Company Gas" herein for additional information. The ultimate outcome of these matters cannot be determined at this time. RESULTS OF OPERATIONS Southern Company Net Income First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $267 30.8 Consolidated net income attributable to Southern Company was $1.1 billion ($1.07 per share) in the first quarter 2021 compared to $0.9 billion ($0.82 per share) for the corresponding period in 2020. The increase was primarily due to increases in both natural gas revenues and retail electric revenues primarily associated with colder weather in the first quarter 2021 as compared to the first quarter 2020, partially offset by higher cost of natural gas. Retail Electric Revenues First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $264 8.6

In the first quarter 2021, retail electric revenues were $3.3 billion compared to $3.1 billion for the corresponding period in 2020. Details of the changes in retail electric revenues were as follows:

First Quarter 2021 (in millions) (% change) Retail electric - prior year $ 3,078 Estimated change resulting from - Rates and pricing 25 0.8 % Sales decline (15) (0.5) Weather 89 2.9 Fuel and other cost recovery 165 5.4 Retail electric - current year $ 3,342

8.6 %

Revenues associated with changes in rates and pricing increased in the first quarter 2021 when compared to the corresponding period in 2020 primarily due to an increase in Alabama Power's Rate RSE effective January 1, 2021, partially offset by decreases in Georgia Power's NCCR tariff effective January 1, 2021 and in Mississippi Power's base rates effective in April 2020. See Note 2 to the financial statements under "Alabama Power - Rate RSE" and 88 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) "Mississippi Power - 2019 Base Rate Case" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Georgia Power - Nuclear Construction - Regulatory Matters" herein for additional information. Revenues attributable to changes in sales decreased in the first quarter 2021 when compared to the corresponding period in 2020 primarily driven by continued impacts of the COVID-19 pandemic. Weather-adjusted residential KWH sales increased 1.1% in the first quarter 2021 when compared to the corresponding period in 2020 primarily due to customer growth. Weather-adjusted commercial KWH sales decreased 3.1% in the first quarter 2021 when compared to the corresponding period in 2020 primarily due to lower customer usage resulting from changes in consumer and business behavior in response to the COVID-19 pandemic. Industrial KWH sales decreased 3.0% in the first quarter 2021 when compared to the corresponding period in 2020 primarily as a result of disruptions in supply chain and business operations related to the COVID-19 pandemic, non-pandemic related customer closures, and maintenance outages. Fuel and other cost recovery revenues increased $165 million in the first quarter 2021 compared to the corresponding period in 2020 primarily due to higher 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. Wholesale Electric Revenues First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $127 30.4 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. In the first quarter 2021, wholesale electric revenues were $545 million compared to $418 million for the corresponding period in 2020. The increase reflects an increase of $102 million in energy revenues primarily resulting from higher natural gas prices when compared to the corresponding period in 2020. In addition, an increase in capacity revenues of $25 million was primarily due to a power sales agreement at Alabama Power which began in September 2020 and new natural gas PPAs at Southern Power. 89 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Other Electric Revenues

First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $19 12.6 In the first quarter 2021, other electric revenues were $170 million compared to $151 million for the corresponding period in 2020. The increase was primarily due to increases of $9 million in transmission services, $3 million in customer fees at the traditional electric operating companies, and $3 million in outdoor lighting at Georgia Power. Natural Gas Revenues First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $445 35.6

In the first quarter 2021, natural gas revenues were $1.7 billion compared to $1.2 billion for the corresponding period in 2020. Details of the changes in natural gas revenues were as follows:

First

Quarter 2021

(in millions) (% change) Natural gas revenues - prior year $

1,249

Estimated change resulting from - Infrastructure replacement programs and base rate changes 38 3.0 % Gas costs and other cost recovery 152 12.2 Wholesale gas services 247 19.8 Other 8 0.6 Natural gas revenues - current year $ 1,694 35.6 % Revenues from infrastructure replacement programs and base rate changes at the natural gas distribution utilities increased in the first quarter 2021 compared to the corresponding period in 2020 primarily due to rate increases at Atlanta Gas Light, Virginia Natural Gas, and Chattanooga Gas and continued investment in infrastructure replacement. See Note 2 to the financial statements under "Southern Company Gas - Rate Proceedings" in Item 8 of the Form 10-K for additional information. Revenues associated with gas costs and other cost recovery increased in the first quarter 2021 compared to the corresponding period in 2020 primarily due to higher volumes sold and higher gas cost recovery. 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 Southern Company Gas' wholesale gas services business increased in the first quarter 2021 compared to the corresponding period in 2020 due to higher commercial activities as a result of Winter Storm Uri, partially offset by derivative losses. See Note (K) to the Condensed Financial Statements under "Southern Company Gas" herein for information regarding the sale of Sequent, which is expected to be completed during the third quarter 2021. 90 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Other Revenues

First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $37 30.3 In the first quarter 2021, other revenues were $159 million compared to $122 million for the corresponding period in 2020. The increase primarily relates to a $24 million increase in distributed infrastructure and energy efficiency projects at PowerSecure and an increase of $10 million in unregulated sales associated with power delivery construction and maintenance contracts at Georgia Power. Fuel and Purchased Power Expenses First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) Fuel $ 212 33.3 Purchased power 26 14.4 Total fuel and purchased power expenses $ 238 In the first quarter 2021, total fuel and purchased power expenses were $1.1 billion compared to $0.8 billion for the corresponding period in 2020. The increase was primarily the result of a $159 million increase in the average cost of fuel and purchased power and a $79 million net increase in the volume of KWHs generated and purchased. Fuel and purchased power energy transactions at the traditional electric operating companies are generally offset by fuel revenues and do not have a significant impact on net income. See Note 2 to the financial statements in Item 8 of the Form 10-K for additional information. Fuel expenses incurred under Southern Power's PPAs are generally the responsibility of the counterparties and do not significantly impact net income. Details of the Southern Company system's generation and purchased power were as follows: First Quarter 2021 First Quarter 2020 Total generation (in billions of KWHs)(a) 43 42 Total purchased power (in billions of KWHs) 4 5 Sources of generation (percent)(a) - Gas 46 53 Coal 24 14 Nuclear 17 18 Hydro 5 8 Wind, Solar, and Other 8 7 Cost of fuel, generated (in cents per net KWH)- Gas(a) 2.55 1.95 Nuclear 0.75 0.78 Coal 2.82 2.88 Average cost of fuel, generated (in cents per net KWH)(a) 2.26 1.86 Average cost of purchased power (in cents per net KWH)(b) 5.10 3.90 (a)First quarter 2021 excludes Central Alabama Generating Station KWHs and associated cost of fuel as its fuel is provided by the purchaser under a power sales agreement. See Note 15 to the financial statements under "Alabama Power" in Item 8 of the Form 10-K for additional information. (b)Average cost of purchased power includes fuel purchased by the Southern Company system for tolling agreements where power is generated by the provider. 91 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Fuel In the first quarter 2021, fuel expense was $848 million compared to $636 million for the corresponding period in 2020. The increase was primarily due to a 79.2% increase in the volume of KWHs generated by coal, a 43.4% decrease in the volume of KWHs generated by hydro, and a 30.8% increase in the average cost of natural gas per KWH generated, partially offset by a 9.1% decrease in the volume of KWHs generated by natural gas and a 2.1% decrease in the average cost of coal per KWH generated. Purchased Power In the first quarter 2021, purchased power expense was $207 million compared to $181 million for the corresponding period in 2020. The increase was primarily due to a 30.8% increase in the average cost per KWH purchased primarily due to higher natural gas prices, partially offset by an 8.4% decrease in the volume of KWHs 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 First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $144 32.8 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 the natural gas distribution utilities. Cost of natural gas at the natural gas distribution utilities represented 86% of total cost of natural gas for the first quarter 2021. In the first quarter 2021, cost of natural gas was $583 million compared to $439 million for the corresponding period in 2020. The increase reflects higher volumes sold due to colder weather and higher gas cost recovery in the first quarter 2021 compared to the corresponding period in 2020. The increase also reflects a 38% increase in natural gas prices in the first quarter 2021 compared to the corresponding period in 2020. Cost of Other Sales First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $27 49.1 In the first quarter 2021, cost of other sales was $82 million compared to $55 million for the corresponding period in 2020. The increase primarily relates to a $14 million increase in distributed infrastructure and energy efficiency projects at PowerSecure and an increase of $8 million in unregulated power delivery construction and maintenance contracts at Georgia Power. Other Operations and Maintenance Expenses First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $76 5.9

In the first quarter 2021, other operations and maintenance expenses were $1.37 billion compared to $1.30 billion for the corresponding period in 2020. The increase reflects a $55 million increase in employee compensation and

92 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) benefit expenses, primarily at Southern Company Gas, and a $15 million decrease in nuclear property insurance refunds at Alabama Power and Georgia Power. Depreciation and Amortization First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $14 1.6 In the first quarter 2021, depreciation and amortization was $871 million compared to $857 million for the corresponding period in 2020. The increase primarily reflects a $37 million increase in depreciation associated with additional plant in service, partially offset by decreased amortization of regulatory assets related to CCR AROs of $22 million under the terms of Georgia Power's 2019 ARP. See Note (B) to the Condensed Financial Statements under "Georgia Power - Rate Plan" herein and Note 2 to the financial statements under "Georgia Power - Rate Plans - 2019 ARP" in Item 8 of the Form 10-K for additional information regarding Georgia Power's recovery of costs associated with CCR AROs. Taxes Other Than Income Taxes First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $15 4.5

In the first quarter 2021, taxes other than income taxes were $345 million compared to $330 million for the corresponding period in 2020. The increase primarily reflects increased property taxes and an increase in revenue tax expenses as a result of higher natural gas revenues at Southern Company Gas. Estimated Loss on Plant Vogtle Units 3 and 4

First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $48 N/M N/M - Not meaningful In the first quarter 2021, an estimated probable loss of $48 million was recorded at Georgia Power to reflect its revised total project capital cost forecast to complete construction and start-up of Plant Vogtle Units 3 and 4. See Note (B) to the Condensed Financial Statements under "Georgia Power - Nuclear Construction" herein for additional information. (Gain) Loss on Dispositions, Net First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $5 12.8 In the first quarter 2021, (gain) loss on dispositions, net was $44 million compared to $39 million for the corresponding period in 2020. The first quarter 2021 amount includes $39 million in gains at Southern Power, primarily from contributions of wind turbine equipment to various equity method investments, and $4 million in gains from property sales at Alabama Power. In the first quarter 2020, Southern Power recorded a $39 million gain related to the sale of Plant Mankato. See Notes (E) and (K) to the Condensed Financial Statements under "Southern Power" herein and Note 15 to the financial statements under "Southern Power - Sales of Natural Gas and Biomass Plants" in Item 8 of the Form 10-K for additional information. 93 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Allowance for Equity Funds Used During Construction

First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $12 35.3 In the first quarter 2021, allowance for equity funds used during construction was $46 million compared to $34 million for the corresponding period in 2020. The increase was primarily due to an increase in AFUDC equity associated with the construction of Plant Vogtle Units 3 and 4. See Note (B) to the Condensed Financial Statements under "Georgia Power - Nuclear Construction" herein for additional information regarding Plant Vogtle Units 3 and 4. Other Income (Expense), Net First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $(45) (43.7) In the first quarter 2021, other income (expense), net was $58 million compared to $103 million for the corresponding period in 2020. The decrease was primarily due to $75 million in charitable contributions at Southern Company Gas in the first quarter 2021, partially offset by a $27 million increase in non-service cost-related retirement benefits income. See Note (H) to the Condensed Financial Statements herein for additional information. Income Taxes First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $45 31.0 In the first quarter 2021, income taxes were $190 million compared to $145 million for the corresponding period in 2020. The increase was primarily due to higher pre-tax earnings, partially offset by $16 million in tax benefits resulting from new legislation that changed Southern Power's state apportionment methodology. See Note (G) to the Condensed Financial Statements herein and MANAGEMENT'S DISCUSSION AND ANALYSIS - FUTURE EARNINGS POTENTIAL - "Income Tax Matters - Alabama State Tax Reform Legislation" in Item 7 of the Form 10-K for additional information. Alabama Power Net Income First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $79 28.2 Alabama Power's net income after dividends on preferred stock for the first quarter 2021 was $359 million compared to $280 million for the corresponding period in 2020. The increase was primarily due to an increase in retail revenues associated with an increase in Rate RSE effective in January 2021 and colder weather in Alabama Power's service territory in the first quarter 2021 compared to the corresponding period in 2020. 94 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Retail Revenues

First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $147 12.2 In the first quarter 2021, retail revenues were $1.35 billion compared to $1.21 billion for the corresponding period in 2020. Details of the changes in retail revenues were as follows: First Quarter 2021 (in millions) (% change) Retail - prior year $ 1,205 Estimated change resulting from - Rates and pricing 50 4.1 % Sales decline (4) (0.3) Weather 39 3.2 Fuel and other cost recovery 62 5.2 Retail - current year $ 1,352 12.2 % Revenues associated with changes in rates and pricing increased in the first quarter 2021 when compared to the corresponding period in 2020 primarily due to a Rate RSE increase effective January 1, 2021. See Note 2 to the financial statements under "Alabama Power - Rate RSE" in Item 8 of the Form 10-K for additional information. Revenues attributable to changes in sales decreased in the first quarter 2021 when compared to the corresponding period in 2020. Weather-adjusted residential KWH sales were relatively flat in the first quarter 2021 when compared to the corresponding period in 2020. Weather-adjusted commercial KWH sales decreased 2.1% in the first quarter 2021 when compared to the corresponding period in 2020 primarily due to changes in consumer and business behavior in response to the COVID-19 pandemic. Industrial KWH sales decreased 5.4% in the first quarter 2021 when compared to the corresponding period in 2020 primarily as a result of customer closures and maintenance outages, as well as continued consumer responses to the COVID-19 pandemic. Fuel and other cost recovery revenues increased in the first quarter 2021 when compared to the corresponding period in 2020 primarily due to increases in generation and the average cost of fuel. 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 natural disaster reserve. 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 First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $36 64.3 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. 95 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) In the first quarter 2021, wholesale revenues from sales to non-affiliates were $92 million compared to $56 million for the corresponding period in 2020. The increase consisted of a $19 million increase in energy revenues primarily due to higher natural gas prices and a $17 million increase in capacity revenues primarily related to a power sales agreement that began in September 2020. Wholesale Revenues - Affiliates First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $13 68.4 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. 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. In the first quarter 2021, wholesale revenues from sales to affiliates were $32 million compared to $19 million for the corresponding period in 2020. The increase was primarily due to a 40.5% increase in the price of energy and an 18.7% increase in KWH sales due to increased coal generation as the result of higher natural gas prices in the first quarter 2021 compared to the corresponding period in 2020. Other Revenues First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $12 16.9 In the first quarter 2021, other revenues were $83 million compared to $71 million for the corresponding period in 2020. The increase was primarily due to increases of $7 million in transmission and energy service revenues and $2 million in customer fees. Fuel and Purchased Power Expenses First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) Fuel $ 76 35.3 Purchased power - non-affiliates 10 25.0 Purchased power - affiliates 12 66.7 Total fuel and purchased power expenses $ 98 In the first quarter 2021, total fuel and purchased power expenses were $371 million compared to $273 million for the corresponding period in 2020. The increase was primarily due to a $59 million increase related to the volume of KWHs generated and purchased and a $39 million increase in the average cost of fuel and purchased power. Fuel and purchased power energy transactions do not have a significant impact on earnings, since energy expenses are generally offset by energy revenues through Alabama Power's energy cost recovery clause. See Note 2 to the financial statements under "Alabama Power - Rate ECR" in Item 8 of the Form 10-K for additional information. 96 -------------------------------------------------------------------------------- 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:

First Quarter 2021 First Quarter 2020 Total generation (in billions of KWHs)(a) 15 14 Total purchased power (in billions of KWHs) 1 1 Sources of generation (percent)(a) - Coal 46 34 Nuclear 25 28 Gas 19 20 Hydro 10 18 Cost of fuel, generated (in cents per net KWH) - Coal 2.75 2.64 Nuclear 0.72 0.76 Gas(a) 2.51 2.19 Average cost of fuel, generated (in cents per net KWH)(a) 2.14 1.88 Average cost of purchased power (in cents per net KWH)(b) 6.52 4.86 (a)First quarter 2021 excludes Central Alabama Generating Station KWHs and associated cost of fuel as its fuel is provided by the purchaser under a power sales agreement. See Note 15 to the financial statements under "Alabama Power" in Item 8 of the Form 10-K for additional information. (b)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 first quarter 2021, fuel expense was $291 million compared to $215 million for the corresponding period in 2020. The increase was primarily due to a 44.6% increase in the volume of KWHs generated by coal, a 44.0% decrease in the volume of KWHs generated by hydro, and a 14.6% increase in the average cost of KWHs generated by natural gas, which excludes tolling agreements. Purchased Power - Non-Affiliates In the first quarter 2021, purchased power expense from non-affiliates was $50 million compared to $40 million for the corresponding period in 2020. The increase was primarily due to a 31.1% increase in the average cost per KWH purchased as a result of higher natural gas prices and a 12.9% increase in the volume of KWHs purchased due to a PPA which began in September 2020. 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 first quarter 2021, purchased power expense from affiliates was $30 million compared to $18 million for the corresponding period in 2020. The increase was primarily due to a 39.9% increase in the average cost per KWH purchased as a result of higher natural gas prices and a 17.9% increase in the volume of KWHs purchased due to colder weather in the first quarter 2021 when compared to the corresponding period in 2020. 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. 97 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Other Operations and Maintenance Expenses

First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $11 3.1 In the first quarter 2021, other operations and maintenance expenses were $361 million compared to $350 million for the corresponding period in 2020. The increase was primarily due to an increase of $10 million related to reliability NDR credits applied in 2020 and a $6 million reduction in nuclear property insurance refunds. These increases were partially offset by a $3 million decrease in Rate CNP Compliance-related expenses. See Note 2 to the financial statements under "Alabama Power - Rate NDR" and " - Rate CNP Compliance" in Item 8 of the Form 10-K for additional information. Depreciation and Amortization First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $11 5.5 In the first quarter 2021, depreciation and amortization was $211 million compared to $200 million for the corresponding period in 2020. The increase was primarily due to additional plant in service, including the purchase of the Central Alabama Generating Station in August 2020. See Note 15 to the financial statements under "Alabama Power" in Item 8 of the Form 10-K for additional information. Other Income (Expense), Net First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $8 33.3 In the first quarter 2021, other income (expense), net was $32 million compared to $24 million for the corresponding period in 2020. The increase was primarily due to an increase in non-service cost-related retirement benefits income. See Note (H) to the Condensed Financial Statements herein for additional information. Income Taxes First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $26 31.0 In the first quarter 2021, income taxes were $110 million compared to $84 million for the corresponding period in 2020. The increase was primarily due to higher pre-tax earnings. Georgia Power Net Income First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $20 6.0 Georgia Power's net income for the first quarter 2021 was $351 million compared to $331 million for the corresponding period in 2020. The increase was primarily due to higher retail revenues associated with colder weather in the first quarter 2021 compared to the corresponding period in 2020, partially offset by a $36 million after-tax charge in the first quarter 2021 related to the construction of Plant Vogtle Units 3 and 4. See Note (B) to 98 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) the Condensed Financial Statements under "Georgia Power - Nuclear Construction" herein for additional information regarding Plant Vogtle Units 3 and 4. Retail Revenues First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $112 6.7 In the first quarter 2021, retail revenues were $1.79 billion compared to $1.68 billion for the corresponding period in 2020. Details of the changes in retail revenues were as follows: First Quarter 2021 (in millions) (% change) Retail - prior year $ 1,675 Estimated change resulting from - Rates and pricing (18) (1.1) % Sales decline (6) (0.4) Weather 42 2.5 Fuel cost recovery 94 5.7 Retail - current year $ 1,787 6.7 % Revenues associated with changes in rates and pricing decreased in the first quarter 2021 when compared to the corresponding period in 2020. The decrease was primarily due to a decrease in the NCCR tariff effective January 1, 2021. See Note (B) to the Condensed Financial Statements under "Georgia Power - Nuclear Construction - Regulatory Matters" herein for additional information. Revenues attributable to changes in sales decreased in the first quarter 2021 when compared to the corresponding period in 2020 primarily due to continued impacts of the COVID-19 pandemic, partially offset by customer growth. Weather-adjusted residential KWH sales increased 2.0% in the first quarter 2021 when compared to corresponding period in 2020 primarily due to customer growth. Weather-adjusted commercial KWH sales decreased 3.3% in the first quarter 2021 when compared to the corresponding period in 2020 primarily due to lower customer usage resulting from changes in consumer and business behavior in response to the COVID-19 pandemic, partially offset by customer growth. Weather-adjusted industrial KWH sales increased 1.1% in the first quarter 2021 when compared to the corresponding period in 2020 primarily as a result of increases in the pipeline and lumber segments, partially offset by reductions in the textiles, transportation, and chemicals segments as a result of disruptions in supply chain and business operations related to the COVID-19 pandemic. Fuel revenues and costs are allocated between retail and wholesale jurisdictions. Retail fuel cost recovery revenues increased in the first quarter 2021 when compared to the corresponding period in 2020 due to higher fuel and purchased power costs. Electric rates include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these fuel cost recovery provisions, fuel revenues generally equal fuel expenses and do not affect net income. See Note 2 to the financial statements under "Georgia Power - Fuel Cost Recovery" in Item 8 of the Form 10-K for additional information. 99 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Wholesale Revenues

First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $17 65.4 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. These transactions do not have a significant impact on earnings since this energy is generally sold at marginal cost. In the first quarter 2021, wholesale revenues were $43 million compared to $26 million for the corresponding period in 2020. The increase was primarily due to higher natural gas prices. Other Revenues

First Quarter 2021 vs. First Quarter 2020

(change in millions) (% change) $16 12.9 In the first quarter 2021, other revenues were $140 million compared to $124 million for the corresponding period in 2020. The increase was primarily due to an increase of $13 million in unregulated sales associated with power delivery construction and maintenance contracts and outdoor lighting. Fuel and Purchased Power Expenses First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) Fuel $ 82 35.5 Purchased power - non-affiliates 15 11.6 Purchased power - affiliates 7 5.4 Total fuel and purchased power expenses $ 104 In the first quarter 2021, total fuel and purchased power expenses were $593 million compared to $489 million for the corresponding period in 2020. The increase was due to a $77 million increase related to the average cost of fuel and purchased power and a $27 million net increase related to the volume of KWHs generated and purchased. Fuel and purchased power energy transactions do not have a significant impact on earnings since 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. 100 -------------------------------------------------------------------------------- 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:

First Quarter 2021 First Quarter 2020 Total generation (in billions of KWHs) 14 13 Total purchased power (in billions of KWHs) 7 9 Sources of generation (percent) - Gas 47 58 Nuclear 27 27 Coal 22 8 Hydro and other 4 7 Cost of fuel, generated (in cents per net KWH) - Gas 2.58 2.12 Nuclear 0.78 0.80 Coal 2.91 3.83 Average cost of fuel, generated (in cents per net KWH) 2.15 1.87 Average cost of purchased power (in cents per net KWH)(*) 4.22 3.17 (*)Average cost of purchased power includes fuel purchased by Georgia Power for tolling agreements where power is generated by the provider. Fuel In the first quarter 2021, fuel expense was $313 million compared to $231 million for the corresponding period in 2020. The increase was primarily due to an increase of 232.9% in the volume of KWHs generated by coal and an increase of 21.7% in the average cost of natural gas per KWH generated. Purchased Power - Non-Affiliates In the first quarter 2021, purchased power expense from non-affiliates was $144 million compared to $129 million in the corresponding period in 2020. The increase was primarily due to a 24.1% increase in the average cost per KWH purchased primarily due to higher natural gas prices, partially offset by a 9.8% decrease in the volume of KWHs purchased as Georgia Power units generally dispatched at a lower cost than available market resources. 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. Other Operations and Maintenance Expenses First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $9 1.9 In the first quarter 2021, other operations and maintenance expenses were $474 million compared to $465 million for the corresponding period in 2020. The increase was primarily due to a $9 million decrease in nuclear property insurance refunds and an increase in expenses of $8 million related to unregulated power delivery construction and maintenance contracts, partially offset by a decrease of $9 million in non-outage generation maintenance costs primarily associated with coal generation and the timing of maintenance activities. 101 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Depreciation and Amortization

First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $(14) (4.0) In the first quarter 2021, depreciation and amortization was $338 million compared to $352 million for the corresponding period in 2020. The decrease primarily reflects decreased amortization of regulatory assets related to CCR AROs of $22 million under the terms of the 2019 ARP, partially offset by a $10 million increase in depreciation associated with additional plant in service. See Note (B) to the Condensed Financial Statements under "Georgia Power - Rate Plan" herein and Note 2 to the financial statements under "Georgia Power - Rate Plans - 2019 ARP" in Item 8 of the Form 10-K for additional information regarding recovery of costs associated with CCR AROs. Estimated Loss on Plant Vogtle Units 3 and 4 First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $48 N/M N/M - Not meaningful In the first quarter 2021, an estimated probable loss of $48 million was recorded to reflect Georgia Power's revised total project capital cost forecast to complete construction and start-up of Plant Vogtle Units 3 and 4. See Note (B) to the Condensed Financial Statements under "Georgia Power - Nuclear Construction" herein for additional information. Other Income (Expense), Net First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $20 38.5 In the first quarter 2021, other income (expense), net was $72 million compared to $52 million for the corresponding period in 2020. The increase was primarily due to an increase of $12 million in non-service cost-related retirement benefits income and an increase of $7 million in AFUDC equity associated with the construction of Plant Vogtle Units 3 and 4. See Note (H) to the Condensed Financial Statements herein for additional information on retirement benefits and Note (B) to the Condensed Financial Statements under "Georgia Power - Nuclear Construction" herein for additional information regarding Plant Vogtle Units 3 and 4. Mississippi Power Net Income First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $13 40.6 In the first quarter 2021, net income was $45 million compared to $32 million for the corresponding period in 2020. The increase was primarily due to an increase in base revenues primarily due to colder weather in the first quarter 2021 compared to the corresponding period in 2020, partially offset by decreased customer usage as a result of the COVID-19 pandemic, and a decrease in operations and maintenance expenses, partially offset by an increase in depreciation and amortization. 102 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Retail Revenues

First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $5 2.5 In the first quarter 2021, retail revenues were $204 million compared to $199 million for the corresponding period in 2020. Details of the changes in retail revenues were as follows: First Quarter 2021 (in millions) (% change) Retail - prior year $ 199 Estimated change resulting from - Rates and pricing (7) (3.5) % Sales decline (5) (2.5) Weather 8 4.0 Fuel and other cost recovery 9 4.5 Retail - current year $ 204 2.5 % Revenues associated with changes in rates and pricing decreased in the first quarter 2021 when compared to the corresponding period in 2020 primarily due to decreases in base rates that became effective in April 2020 in accordance with the Mississippi Power Rate Case Settlement Agreement. See Note 2 to the financial statements under "Mississippi Power - 2019 Base Rate Case" in Item 8 of the Form 10-K for additional information. Revenues attributable to changes in sales decreased in the first quarter 2021 when compared to the corresponding period in 2020 primarily due to continued impacts of the COVID-19 pandemic. Weather-adjusted residential KWH sales decreased 0.7% in the first quarter 2021 primarily due to decreased customer usage. Weather-adjusted commercial KWH sales decreased 4.3% in the first quarter 2021 primarily due to lower customer usage resulting from changes in consumer and business behavior in response to the COVID-19 pandemic. Industrial KWH sales decreased 10.7% in the first quarter 2021 as a result of disruptions in supply chain and business operations driven by the COVID-19 pandemic and non-pandemic related customer outages. Fuel and other cost recovery revenues increased in the first quarter 2021 when compared to the corresponding period in 2020 primarily as a result of higher recoverable fuel costs. Recoverable fuel costs include fuel and purchased power expenses reduced by the fuel 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. Wholesale Revenues - Non-Affiliates First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $12 23.5 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 103 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) and municipalities located in southeastern Mississippi under cost-based electric tariffs which are subject to regulation by the FERC. See Note 2 to the financial statements under "Mississippi Power" in Item 8 of the Form 10-K for additional information. In the first quarter 2021, wholesale revenues from sales to non-affiliates were $63 million compared to $51 million for the corresponding period in 2020. The increase was primarily due to increases in revenue from MRA customers as a result of colder weather and higher fuel costs in the first quarter 2021 compared to the corresponding period in 2020, partially offset by decreased customer usage as a result of the COVID-19 pandemic. Wholesale Revenues - Affiliates First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $12 57.1 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. These transactions do not have a significant impact on earnings since this energy is generally sold at marginal cost. In the first quarter 2021, wholesale revenues from sales to affiliates were $33 million compared to $21 million for the corresponding period in 2020. The increase was primarily associated with an increase in the average cost of fuel. Fuel and Purchased Power Expenses First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) Fuel $ 22 27.8 Purchased power - - Total fuel and purchased power expenses $ 22 In the first quarter 2021, total fuel and purchased power expenses were $106 million compared to $84 million for the corresponding period in 2020. The increase was primarily due to a higher average cost of fuel and an increase associated with the volume of KWHs generated. 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: First Quarter First Quarter 2021 2020 Total generation (in millions of KWHs) 4,324 4,167 Total purchased power (in millions of KWHs) 121 188 Sources of generation (percent) - Coal 9 3 Gas 91 97 Cost of fuel, generated (in cents per net KWH) - Coal 3.17 4.30 Gas 2.41 1.95 Average cost of fuel, generated (in cents per net KWH) 2.49 2.02 Average cost of purchased power (in cents per net KWH) 4.08 2.64 104 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Fuel In the first quarter 2021, fuel expense was $101 million compared to $79 million for the corresponding period in 2020. The increase was due to a 225.3% increase in the volume of KWHs generated by coal and a 23.6% increase in the average cost of natural gas per KWH generated, partially offset by a 26.3% decrease in the average cost of coal per KWH generated and a 3.4% decrease in the volume of KWHs generated by natural gas. Other Operations and Maintenance Expenses First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $(8) (10.5) In the first quarter 2021, other operations and maintenance expenses were $68 million compared to $76 million for the corresponding period in 2020. The decrease was primarily due to decreases of $6 million related to planned generation outage costs and $4 million associated with the Kemper County energy facility primarily related to an increase in salvage proceeds and a decrease in ongoing period costs. Depreciation and Amortization First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $5 11.9 In the first quarter 2021, depreciation and amortization was $47 million compared to $42 million for the corresponding period in 2020. The increase was primarily due to a $3 million increase in depreciation related to additional plant in service and an increase in depreciation rates in accordance with the Mississippi Power Rate Case Settlement Agreement and a $2 million increase due to amortization of a regulatory asset associated with an ARO in accordance with the Mississippi Power Rate Case Settlement Agreement. See Note 2 to the financial statements under "Mississippi Power - 2019 Base Rate Case" in Item 8 of the Form 10-K for additional information. Southern Power Net Income Attributable to Southern Power First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $22 29.3 Net income attributable to Southern Power in the first quarter 2021 was $97 million compared to $75 million for the corresponding period in 2020. The increase was primarily due to a $16 million tax benefit due to changes in state apportionment methodology resulting from tax legislation enacted by the State of Alabama in February 2021. Operating Revenues First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $65 17.3 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. 105 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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: First Quarter 2021

First Quarter 2020

(in

millions)

PPA capacity revenues $ 96 $ 90 PPA energy revenues 245 205 Total PPA revenues 341 295 Non-PPA revenues 95 77 Other revenues 4 3 Total operating revenues $ 440 $ 375 In the first quarter 2021, total operating revenues were $440 million, reflecting a $65 million, or 17%, increase from the corresponding period in 2020. The increase in operating revenues was primarily due to the following: •PPA capacity revenues increased $6 million, or 7%, primarily due to new natural gas PPAs and increased capacity on existing contracts, partially offset by the disposition of Plant Mankato in the first quarter 2020 and the contractual expiration of a natural gas PPA in November 2020. •PPA energy revenues increased $40 million, or 20%, primarily due to a $35 million increase in sales from natural gas facilities resulting from a $42 million increase in the price of fuel and purchased power, partially offset by a $7 million decrease in the volume of KWHs sold. In addition, the increase reflects $6 million in sales from new wind facilities placed in service subsequent to the first quarter 2020. •Non-PPA revenues increased $18 million, or 23%, due to a $38 million increase in the market price of energy, partially offset by a $20 million decrease in the volume of KWHs sold through short-term sales. 106 -------------------------------------------------------------------------------- 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 Details of Southern Power's generation and purchased power were as follows: First Quarter First Quarter 2021 2020 (in billions of KWHs) Generation 9.4 10.7 Purchased power 0.6 0.7 Total generation and purchased power 10 11.4

Total generation and purchased power, excluding solar, wind, and tolling agreements

6.1 7.2 Southern Power's PPAs for natural gas generation generally provide that the purchasers are responsible for either procuring the fuel (tolling agreements) or reimbursing Southern Power for substantially all of the cost of fuel relating to the energy delivered under such PPAs. Consequently, changes in such fuel costs are generally accompanied by a corresponding change in related fuel revenues and do not have a significant impact on net income. Southern Power is responsible for the cost of fuel for generating units that are not covered under PPAs. Power from these generating units is sold into the wholesale market or into the Southern Company power pool for capacity owned directly by Southern Power. Purchased power expenses will vary depending on demand, availability, and the cost of generating resources throughout the Southern Company system and other contract resources. Load requirements are submitted to the Southern Company power pool on an hourly basis and are fulfilled with the lowest cost alternative, whether that is generation owned by Southern Power, an affiliate company, or external parties. Such purchased power costs are generally recovered through PPA revenues. Details of Southern Power's fuel and purchased power expenses were as follows: First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) Fuel $ 34 31.8 Purchased power 6 42.9 Total fuel and purchased power expenses $ 40 In the first quarter 2021, total fuel and purchased power expenses increased $40 million, or 33%, compared to the corresponding period in 2020. Fuel expense increased $34 million due to a $50 million increase in the average cost of fuel per KWH generated, partially offset by a $16 million decrease associated with the volume of KWHs generated. Purchased power expense increased $6 million due to an $8 million increase associated with the average cost of purchased power, partially offset by a $2 million decrease associated with the volume of KWHs purchased. Other Operations and Maintenance Expenses

First Quarter 2021 vs. First Quarter 2020

(change in millions) (% change) $22 27.8 In the first quarter 2021, other operations and maintenance expenses were $101 million compared to $79 million for the corresponding period in 2020. The increase was primarily due to an $8 million increase in scheduled outage and maintenance expenses, $6 million in expenses related to the allocation of uncollected settlements by the Energy Reliability Council of Texas market as a result of Winter Storm Uri, and $2 million in expenses associated with new wind facilities placed in service subsequent to the first quarter 2020. 107 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) (Gain) Loss on Dispositions, Net

First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $- - In the first quarter 2021, gains on dispositions totaled $39 million primarily from contributions of wind turbine equipment to various equity method investments. A $39 million gain was also recorded in the first quarter 2020 related to the sale of Plant Mankato. See Notes (E) and (K) to the Condensed Financial Statements under "Southern Power" herein and Note 15 to the financial statements under "Southern Power - Sales of Natural Gas and Biomass Plants" in Item 8 of the Form 10-K for additional information. Income Taxes (Benefit) First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $(17) (242.9) In the first quarter 2021, income tax benefit was $10 million compared to income tax expense of $7 million for the corresponding period in 2020. The change was primarily due to changes in state apportionment methodology resulting from tax legislation enacted by the State of Alabama in February 2021, as well as the tax impact from the sale of Plant Mankato in January 2020. See Note (G) to the Condensed Financial Statements herein, MANAGEMENT'S DISCUSSION AND ANALYSIS - FUTURE EARNINGS POTENTIAL - "Income Tax Matters - Alabama State Tax Reform Legislation" in Item 7 of the Form 10-K, and Note 15 to the financial statements under "Southern Power" in Item 8 of the Form 10-K for additional information. Southern Company Gas Operating Metrics Southern Company Gas 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. 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. The number of customers served by gas distribution operations and gas marketing services can be impacted by natural gas prices, economic conditions, and competition from alternative fuels. Gas distribution operations and gas marketing services' customers are primarily located in Georgia and Illinois. Southern Company Gas' natural gas volume metrics for gas distribution operations and gas marketing services illustrate the effects of weather and customer demand for natural gas. Wholesale gas services' physical sales volumes represent the daily average natural gas volumes sold to its customers. Seasonality of Results 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. Occasionally in the summer, wholesale gas services' operating revenues are impacted due to peak usage by power generators in response to summer energy demands. Southern Company Gas' base operating expenses, excluding cost of natural gas, bad debt expense, and certain incentive compensation costs, are incurred relatively evenly throughout the year. 108 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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 First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $123 44.7 In the first quarter 2021, net income was $398 million compared to $275 million for the corresponding period in 2020. The increase was primarily due to a $103 million increase at wholesale gas services primarily due to higher commercial activities as a result of Winter Storm Uri and a $19 million increase at gas distribution operations primarily due to base rate increases and continued investment in infrastructure replacement. See Note 2 to the financial statements under "Southern Company Gas" in Item 8 of the Form 10-K for additional information. Natural Gas Revenues, including Alternative Revenue Programs First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $445 35.6 In the first quarter 2021, natural gas revenues, including alternative revenue programs, were $1.7 billion compared to $1.2 billion for the corresponding period in 2020. Details of the changes in natural gas revenues, including alternative revenue programs, were as follows: First Quarter 2021 (in millions) (% change) Natural gas revenues - prior year $ 1,249 Estimated change resulting from - Infrastructure replacement programs and base rate changes 38 3.0 % Gas costs and other cost recovery 152 12.2 Wholesale gas services 247 19.8 Other 8 0.6 Natural gas revenues - current year $ 1,694 35.6 % Revenues from infrastructure replacement programs and base rate changes increased in the first quarter 2021 compared to the corresponding period in 2020 primarily due to rate increases at Atlanta Gas Light, Virginia Natural Gas, and Chattanooga Gas and continued investment in infrastructure replacement. See Note 2 to the financial statements under "Southern Company Gas - Rate Proceedings" in Item 8 of the Form 10-K for additional information. Revenues associated with gas costs and other cost recovery increased in the first quarter 2021 compared to the corresponding period in 2020 primarily due to higher volumes sold and higher gas cost recovery. See "Cost of Natural Gas" herein for additional information. Revenue impacts from weather and customer growth are described further below. Revenues from wholesale gas services increased in the first quarter 2021 compared to the corresponding period in 2020 due to higher commercial activities as a result of Winter Storm Uri, partially offset by derivative losses. See "Segment Information - Wholesale Gas Services" herein for additional information. Also see Note (K) to the Condensed Financial Statements under "Southern Company Gas" herein for information regarding the sale of Sequent, which is expected to be completed during the third quarter 2021. 109 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Southern Company Gas' natural gas distribution utilities have various regulatory mechanisms that limit their exposure to weather changes. Southern Company Gas also uses hedges for any remaining exposure to 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. The following table presents Heating Degree Days information for Illinois and Georgia, the primary locations where Southern Company Gas' operations are impacted by weather. First Quarter 2021 vs. normal 2021 vs. 2020 Normal(*) 2021 2020 colder (warmer) colder (warmer) (in thousands) Illinois 3,024 2,947 2,759 (2.5) % 6.8 % Georgia 1,326 1,254 1,091 (5.4) % 14.9 % (*)Normal represents the 10-year average from January 1, 2011 through March 31, 2020 for Illinois at Chicago Midway International Airport and for Georgia at Atlanta Hartsfield-Jackson International Airport, based on information obtained from the National Oceanic and Atmospheric Administration, National Climatic Data Center. The following table provides the number of customers served by Southern Company Gas at March 31, 2021 and 2020: March 31, 2021 2020 2021 vs. 2020 (in thousands, except market share %) (% change) Gas distribution operations 4,335 4,298 0.9 % Gas marketing services Energy customers(*) 667 638 4.5 % Market share of energy customers in Georgia 28.9 % 28.8 % 0.3 % (*)Gas marketing services' customers are primarily located in Georgia and Illinois. March 31, 2021 also includes approximately 50,000 customers in Ohio contracted through an annual auction process to serve for 12 months beginning April 1, 2020. Southern Company Gas anticipates continued customer growth as it expects continued low natural gas prices. Southern Company Gas uses a variety of targeted marketing programs to attract new customers and to retain existing customers. Cost of Natural Gas First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $144 32.8 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 86% of total cost of natural gas for the first quarter 2021. 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, including Alternative Revenue Programs" herein for additional information. In the first quarter 2021, cost of natural gas was $583 million compared to $439 million for the corresponding period in 2020. The increase reflects higher volumes sold due to colder weather and higher gas cost recovery in the first quarter 2021 compared to the corresponding period in 2020. The increase also reflects a 38% increase in natural gas prices in the first quarter 2021 compared to the corresponding period in 2020. 110 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The following table details the volumes of natural gas sold during all periods presented. First Quarter 2021 2020 2021 vs. 2020 Gas distribution operations (mmBtu in millions) Firm 288 258 11.6 % Interruptible 26 24 8.3 Total 314 282 11.3 % Wholesale gas services (mmBtu in millions/day) Daily physical sales 7.1 6.9 2.9 % Gas marketing services (mmBtu in millions) Firm: Georgia 19 14 35.7 % Illinois 4 5 (20.0) Other 6 5 20.0 Interruptible large commercial and industrial 4 4 - Total 33 28 17.9 %

Other Operations and Maintenance Expenses

First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $41 15.9 In the first quarter 2021, other operations and maintenance expenses were $299 million compared to $258 million for the corresponding period in 2020. The increase was primarily due to higher compensation expense at wholesale gas services. Depreciation and Amortization First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $10 8.3 In the first quarter 2021, depreciation and amortization was $130 million compared to $120 million for the corresponding period in 2020. The increase was primarily due to continued infrastructure investments at the natural gas distribution utilities. Taxes Other Than Income Taxes First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $9 12.5

In the first quarter 2021, taxes other than income taxes were $81 million compared to $72 million for the corresponding period in 2020. The increase primarily reflects an increase in revenue tax expenses as a result of higher natural gas revenues at Nicor Gas. These revenue tax expenses are passed directly to customers and have no impact on net income.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Other Income (Expense), Net

First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $(72) (800.0) In the first quarter 2021, other income (expense), net was $63 million of expense compared to $9 million of income for the corresponding period in 2020. The increase in other expense was primarily due to $75 million in charitable contributions in the first quarter 2021. Income Taxes First Quarter 2021 vs. First Quarter 2020 (change in millions) (% change) $42 53.2 In the first quarter 2021, income taxes were $121 million compared to $79 million for the corresponding period in 2020. The increase was primarily due to higher pre-tax earnings at wholesale gas services and gas distribution operations. Performance and Non-GAAP Measures Adjusted operating margin is a non-GAAP measure that is calculated as operating revenues less cost of natural gas, cost of other sales, and revenue tax expense. Adjusted operating margin excludes other operations and maintenance expenses, depreciation and amortization, and taxes other than income taxes, which are included in the calculation of operating income as calculated in accordance with GAAP and reflected in the statements of income. The presentation of adjusted operating margin is believed to provide useful information regarding the contribution resulting from base rate changes, infrastructure replacement programs and capital projects, and customer growth at gas distribution operations since the cost of natural gas and revenue tax expense can vary significantly and are generally billed directly to customers. Southern Company Gas further believes that utilizing adjusted operating margin at gas pipeline investments, wholesale gas services, and gas marketing services allows it to focus on a direct measure of performance before overhead costs. The applicable reconciliation of operating income to adjusted operating margin is provided herein. Adjusted operating margin should not be considered an alternative to, or a more meaningful indicator of, Southern Company Gas' operating performance than operating income as determined in accordance with GAAP. In addition, Southern Company Gas' adjusted operating margin may not be comparable to similarly titled measures of other companies. Detailed variance explanations of Southern Company Gas' financial performance are provided herein. Reconciliations of operating income to adjusted operating margin are as follows: First Quarter 2021 First Quarter 2020 (in millions) Operating Income $ 601 $ 360 Other operating expenses(a) 510 450 Revenue taxes(b) (53) (45) Adjusted Operating Margin $ 1,058 $ 765 (a)Includes other operations and maintenance, depreciation and amortization, and taxes other than income taxes. (b)Nicor Gas' revenue tax expenses, which are passed through directly to customers. 112 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Segment Information Adjusted operating margin, 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. First Quarter 2021 First Quarter 2020 Adjusted Adjusted Operating Operating Net Income Operating Operating Net Income Margin(*) Expenses(*) (Loss) Margin(*) Expenses(*) (Loss) (in millions) (in millions) Gas distribution operations $ 644 $ 357 $ 183 $ 595 $ 340 $ 164 Gas pipeline investments 8 3 29 8 3 30 Wholesale gas services 297 55 126 50 17 23 Gas marketing services 104 29 56 107 30 57 All other 7 15 4 6 16 1 Intercompany eliminations (2) (2) - (1) (1) - Consolidated $ 1,058 $ 457 $ 398 $ 765 $ 405 $ 275 (*)Adjusted operating margin and operating expenses are adjusted for Nicor Gas' revenue tax expenses, which are passed through directly to customers. 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. In the first quarter 2021, net income increased $19 million, or 11.6%, compared to the corresponding period in 2020. The $49 million increase in adjusted operating margin primarily reflects rate increases for Atlanta Gas Light, Virginia Natural Gas, and Chattanooga Gas and continued investment in infrastructure replacement. The $17 million increase in operating expenses includes higher depreciation primarily due to additional assets placed in service and higher compensation expenses. The $5 million increase in interest expense net of amounts capitalized is primarily due to additional debt issued to finance continued investments. The $6 million increase in income tax expense is primarily due to higher pre-tax earnings. See Note 2 to the financial statements under "Southern Company 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, PennEast Pipeline, Dalton Pipeline, and Atlantic Coast Pipeline (until its sale on March 24, 2020). See Note (E) to the Condensed Financial Statements under "Southern Company Gas" herein and Note 15 to the financial statements under "Southern Company Gas" in Item 8 of the Form 10-K for additional information. 113 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Wholesale Gas Services Wholesale gas services is involved in asset management and optimization, storage, transportation, producer and peaking services, natural gas supply, natural gas services, and wholesale gas marketing. Southern Company Gas has positioned the business to generate positive economic earnings on an annual basis even under low volatility market conditions that can result from a number of factors. When market price volatility increases, wholesale gas services is well positioned to capture significant value and generate stronger results. Operating expenses primarily reflect employee compensation and benefits. In the first quarter 2021, net income increased $103 million, or 447.8%, compared to the corresponding period in 2020. The increase primarily relates to a $247 million increase in adjusted operating margin, partially offset by a $38 million increase in operating expenses primarily related to an increase in variable compensation. The increase was also partially offset by a $75 million increase in other income (expenses) related to higher charitable contributions and a $31 million increase in income tax expense due to higher pre-tax earnings. Details of the changes in adjusted operating margin are provided in the table below. First Quarter First Quarter 2021 2020 (in millions) Commercial activity recognized $ 315 $ (20) Gain (loss) on storage derivatives (2) (6) Gain (loss) on transportation and forward commodity derivatives (15) 77 LOCOM adjustments, net of current period recoveries (1) (1) Adjusted operating margin $ 297 $ 50 Change in Commercial Activity The commercial activity at wholesale gas services includes recognition of storage and transportation values that were generated in prior periods, which reflect the impact of prior period hedge gains and losses as associated physical transactions occur. The increase in commercial activity in the first quarter 2021 compared to the corresponding period in 2020 was primarily due to natural gas price volatility that was generated by cold weather, particularly in the Midwest and Texas, resulting in wider transportation spreads. Change in Storage and Transportation Derivatives Volatility in the natural gas market arises from a number of factors, such as weather fluctuations or changes in supply or demand for natural gas in different regions of the U.S. The volatility of natural gas commodity prices has a significant impact on Southern Company Gas' customer rates, long-term competitive position against other energy sources, and the ability of wholesale gas services to capture value from locational and seasonal spreads. Forward storage or time spreads applicable to the locations of wholesale gas services' specific storage positions in 2021 resulted in storage derivative losses. Transportation and forward commodity derivative losses in the first quarter 2021 are a result of widening transportation spreads. Withdrawal Schedule and Physical Transportation Transactions The expected natural gas withdrawals from storage and expected offset to prior hedge losses/gains associated with the transportation portfolio of wholesale gas services are presented in the following table, along with the net operating revenues expected at the time of withdrawal from storage and the physical flow of natural gas between contracted transportation receipt and delivery points. Wholesale gas services' expected net operating revenues exclude storage and transportation demand charges, as well as other variable fuel, withdrawal, receipt, and delivery charges, and exclude estimated profit sharing under asset management agreements. Further, the amounts that are realizable in future periods are based on the inventory withdrawal schedule, planned physical flow of natural gas between the transportation receipt and delivery points, and forward natural gas prices at March 31, 2021. A portion 114 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) of wholesale gas services' storage inventory and transportation capacity is economically hedged with futures contracts, which results in the realization of substantially fixed net operating revenues. Storage withdrawal schedule Physical transportation Expected net operating transactions - expected net Total storage(a) gains (losses)(b) operating gains (losses)(c) (in mmBtu in millions) (in millions) (in millions) 2021 11 $ 6 $ - 2022 and thereafter 6 5 15 Total at March 31, 2021 17 $ 11 $ 15 (a)At March 31, 2021, the WACOG of wholesale gas services' expected natural gas withdrawals from storage was $1.85 per mmBtu. (b)Represents expected operating gains from planned storage withdrawals associated with existing inventory positions and could change as wholesale gas services adjusts its daily injection and withdrawal plans in response to changes in future market conditions and forward NYMEX price fluctuations. (c)Represents the expected net gains during the periods in which the derivatives will be settled and the physical transportation transactions will occur that offset the derivative gains and losses previously recognized. The unrealized storage and transportation derivative gains do not change the underlying economic value of wholesale gas services' storage and transportation positions and will be reversed when the related transactions occur and are recognized. For more information on wholesale gas services' energy marketing and risk management activities, see MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL CONDITION AND LIQUIDITY - "Market Price Risk" in Item 7 of the Form 10-K. 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. All Other All other includes natural gas storage businesses, including Jefferson Island through its sale on December 1, 2020, fuels operations through the sale of Southern Company Gas' interest in Pivotal LNG on March 24, 2020, AGL Services Company, and Southern Company Gas Capital, as well as various corporate operating expenses that are not allocated to the reportable segments and interest income (expense) associated with affiliate financing arrangements. See Note 15 to the financial statements under "Southern Company Gas" in Item 8 of the Form 10-K for additional information on the sale of its interest in Pivotal LNG and the sale of Jefferson Island. Segment Reconciliations Reconciliations of operating income to adjusted operating margin for the first quarter 2021 and 2020 are reflected in the following tables. See Note (L) to the Condensed Financial Statements herein for additional information. 115 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

First Quarter 2021

Gas Distribution Gas Pipeline Wholesale Gas Gas Marketing Intercompany Operations Investments Services Services All Other Elimination Consolidated (in millions) Operating Income (Loss) $ 287 $ 5 $ 242 $ 75 $ (8) $ - $ 601 Other operating expenses(a) 410 3 55 29 15 (2) 510 Revenue tax expense(b) (53) - - - - - (53) Adjusted Operating Margin $ 644 $ 8 $ 297 $ 104 $ 7 $ (2) $ 1,058 First Quarter 2020 Gas Distribution Gas Pipeline Wholesale Gas Gas Marketing Intercompany Operations Investments

Services Services All Other Elimination Consolidated

(in millions) Operating Income (Loss) $ 255 $ 5 $ 33 $ 77 $ (10) $ - $

360

Other operating expenses(a) 385 3 17 30 16 (1) 450 Revenue tax expense(b) (45) - - - - - (45) Adjusted Operating Margin $ 595 $ 8 $ 50 $ 107 $ 6 $ (1) $

765

(a)Includes other operations and maintenance, depreciation and amortization, and taxes other than income taxes. (b)Nicor Gas' revenue tax expenses, which are passed through directly to customers. 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, continued customer growth, and the trend of reduced electricity usage per customer, especially in residential and commercial markets. For Georgia Power, completing construction of Plant Vogtle Units 3 and 4 and related cost recovery proceedings is another major factor. Earnings in the electricity business will also depend upon maintaining and growing sales, considering, among other things, the adoption and/or penetration rates of increasingly energy-efficient technologies and increasing volumes of electronic commerce transactions, which could contribute to a net reduction in customer usage. Global and U.S. economic conditions have been significantly affected by a series of demand and supply shocks that caused a global and national economic recession in 2020. Most prominently, the COVID-19 pandemic has negatively impacted global supply chains and business operations as suppliers continue to experience difficulties keeping up with strong demand for factory goods, which is being driven by low business inventories. The combination of rising inoculation rates in the U.S. population and the recent federal COVID-19 relief package is expected to help boost economic recovery in 2021. The drivers, speed, and depth of the 2020 economic contraction were unprecedented and have reduced energy demand across the Southern Company system's service territory, primarily in the commercial and industrial classes. The negative impacts, which started in late-March 2020, of the COVID-19 pandemic and related recession on the Southern Company system's retail electric sales began to improve in the middle of May 2020; however, retail electric revenues in the first quarter 2021 continued to be negatively impacted by the COVID-19 pandemic. Recovery is expected to continue into the second half of 2021, but responses to the COVID-19 pandemic by both customers and governments could significantly affect the pace of recovery. The ultimate extent of the negative impact on revenues depends on the depth and duration of the economic contraction in 116 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) the Southern Company system's service territory and cannot be determined at this time. See RESULTS OF OPERATIONS herein for information on COVID-19-related impacts on energy demand in the Southern Company system's service territory during the first quarter 2021. The level of future earnings for Southern Power's competitive wholesale electric business depends on numerous factors including Southern Power's ability to execute its growth strategy through the development or acquisition of renewable facilities and other energy projects while containing costs, as well as regulatory matters, creditworthiness of customers, total electric generating capacity available in Southern Power's market areas, and Southern Power's ability to successfully remarket capacity as current contracts expire. In addition, renewable portfolio standards, availability of tax credits, transmission constraints, cost of generation from units within the Southern Company power pool, and operational limitations could influence Southern Power's future earnings. The level of future earnings for Southern Company Gas' primary business of distributing natural gas and its complementary businesses in the gas pipeline investments, wholesale gas services, 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, the completion and subsequent operation of ongoing infrastructure and other construction projects, creditworthiness of customers, and Southern Company Gas' ability to optimize its transportation and storage positions and to re-contract storage rates at favorable prices. 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 and wholesale gas services businesses to capture value from locational and seasonal spreads. Additionally, changes in commodity prices subject a portion of Southern Company Gas' operations to earnings variability. Over the longer term, volatility is expected to be low to moderate and locational and/or transportation spreads are expected to decrease as new pipelines are built to reduce the existing supply constraints in the shale areas of the Northeast U.S. To the extent these pipelines are delayed or not built, volatility could increase. See Note 3 to the financial statements in Item 8 of the Form 10-K and Note (C) to the Condensed Financial Statements herein under "Other Matters - Southern Company Gas" for additional information on permitting challenges experienced by the PennEast Pipeline. Additional economic factors may contribute to this environment, including a significant drop in oil and natural gas prices, which could lead to consolidation of natural gas producers or reduced levels of natural gas production. In addition, if the COVID-19 pandemic results in continued economic uncertainty for a sustained period, demand for natural gas may decrease, resulting in further downward pressure on natural gas prices and lower volatility in the natural gas markets on a longer-term basis. 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, energy conservation practiced by customers, the use of alternative energy sources by customers, government incentives to reduce overall energy usage, the prices of electricity and natural gas, 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 certain assets or businesses, internal restructuring, or some combination thereof. Furthermore, Southern Company may engage in new business ventures that arise from competitive and regulatory changes in the utility industry. Pursuit of any of the above strategies, or any combination thereof, may significantly affect the business operations, risks, and financial condition of Southern Company. In addition, Southern Power and Southern Company Gas regularly consider and evaluate joint development arrangements as well as acquisitions and dispositions of businesses and assets as part of their business strategies. See Note 15 to the financial statements in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements herein for additional information. 117 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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" in Item 7 and Note 3 to the financial statements under "Environmental Remediation" in Item 8 of the Form 10-K, as well as Note (C) to the Condensed Financial Statements under "Environmental Remediation" herein, for additional information. Environmental Laws and Regulations Water Quality Alabama Power is assessing the viability of complying with the EPA's steam electric effluent limitations guidelines (ELG) rule (finalized in 2015) and the ELG reconsideration rule (finalized in October 2020) (ELG rules) for certain of its coal units (totaling approximately 2,000 MWs) due to the timing and anticipated cost to comply with the ELG rules. The results of the assessment could accelerate a determination to discontinue or modify operation of the units. Alabama Power will review all of the facts and circumstances and evaluate all alternatives prior to reaching a final determination. The units under evaluation have net book values totaling approximately $2.3 billion at March 31, 2021. Additionally, net capitalized asset retirement costs associated with these facilities totaled approximately $900 million at March 31, 2021. Alabama Power is authorized to establish a regulatory asset to record the unrecovered investment costs, including the plant asset balance and the costs associated with site removal and closure, associated with future unit retirements caused by environmental regulations. The regulatory asset would be amortized and recovered over an affected unit's remaining useful life, as established prior to the decision regarding early retirement, through Rate CNP Compliance. See Note 2 to the financial statements under "Alabama Power - Rate CNP Compliance" and " - Environmental Accounting Order" in Item 8 of the Form 10-K for additional information. The ultimate outcome of this matter cannot be determined at this time. Regulatory Matters See OVERVIEW - "Recent Developments" and Note 2 to the financial statements in Item 8 of the Form 10-K 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 Subsidiary Registrants are engaged in continuous construction programs to accommodate existing and estimated future loads on their respective systems. The Southern Company system intends to continue its strategy of 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. For the traditional electric operating companies, major generation construction projects are subject to state PSC approval in order to be included in retail rates. The largest construction project currently underway in the Southern Company system is Plant Vogtle Units 3 and 4. See Note (B) to the Condensed Financial Statements under "Georgia Power - Nuclear Construction" herein for additional information. Also 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 "Alabama Power" for information regarding Alabama Power's construction of Plant Barry Unit 8. See Note 15 to the financial statements in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements herein under "Southern Power" for additional information about costs relating to Southern Power's acquisitions that involve construction of renewable energy facilities. 118 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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 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 Notes 2 and 3 to the financial statements in Item 8 of the Form 10-K and Notes (B) and (C) to the Condensed Financial Statements herein under "Southern Company Gas" and "Other Matters - Southern Company Gas - PennEast Pipeline Project," respectively, for additional information on Southern Company Gas' construction program. See FINANCIAL CONDITION AND LIQUIDITY - "Cash Requirements" herein for additional information regarding the Registrants' capital requirements for their construction programs. 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. Alabama Power On March 10, 2021, Alabama Power executed a coordinated planning and operations agreement with PowerSouth, with a minimum term of 10 years. The agreement, which includes combined operations (including joint commitment and dispatch), is expected to create energy cost savings and enhanced system reliability for both parties. Projected revenues are expected to offset any increased administrative costs incurred by Alabama Power; therefore, no material impact to net income is expected. Alabama Power has the right to participate in a portion of PowerSouth's future incremental load growth. Implementation of the agreement is subject to certain regulatory approvals, including approvals of the Rural Utilities Service, the SERC Reliability Corporation, and the FERC, and is expected to be completed by March 2022. The ultimate outcome of this matter cannot be determined at this time. 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. Estimated Cost, Schedule, and Rate Recovery for the Construction of Plant Vogtle Units 3 and 4 (Southern Company and Georgia Power) Following milestone extensions in January 2021, Southern Nuclear has been performing additional construction remediation work, primarily related to electrical commodity installations, necessary to ensure quality and design standards are met as system turnovers are completed to support hot functional testing and fuel load for Unit 3. Hot functional testing commenced in late April 2021 and the site work plan currently targets fuel load for Unit 3 in the third quarter 2021 and an in-service date of December 2021. As the site work plan includes minimal margin to these 119 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) milestone dates, any delay could result in an in-service date in the first quarter 2022 for Unit 3. Achievement of the extended milestone dates established in January 2021 for Unit 4, which are expected to support a regulatory-approved in-service date of November 2022, primarily depends on overall construction productivity and production levels significantly improving as well as appropriate levels of craft laborers, particularly electrical and pipefitter craft labor, being added and maintained. Considering the factors above, during the first quarter 2021, approximately $84 million of the construction contingency established in the fourth quarter 2020 was assigned to the base capital cost forecast for costs primarily associated with the schedule extension for Unit 3 to December 2021, construction productivity, support resources, and construction remediation work. Georgia Power increased its total capital cost forecast as of March 31, 2021 by adding $48 million to the remaining construction contingency. Georgia Power's revised base capital cost forecast and contingency to complete construction and start-up of Plant Vogtle Units 3 and 4 is $8.62 billion and $0.14 billion, respectively, for a total capital cost forecast of $8.76 billion (net of $1.7 billion received under the Guarantee Settlement Agreement and approximately $188 million in related customer refunds). After considering the significant level of uncertainty that exists regarding the future recoverability of these costs since the ultimate outcome of these matters is subject to the outcome of future assessments by management, as well as Georgia PSC decisions in future regulatory proceedings, Georgia Power recorded a pre-tax charge to income of $48 million ($36 million after tax) for the increase in the total project capital cost forecast as of March 31, 2021. As and when these amounts are spent, Georgia Power may request the Georgia PSC to evaluate those expenditures for rate recovery. The ultimate impact of these matters on the construction schedule and budget for Plant Vogtle Units 3 and 4 cannot be determined at this time. See Note (B) to the Condensed Financial Statements under "Georgia Power - Nuclear Construction" herein for additional information. 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 March 31, 2021. 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 and Note (K) to the Condensed Financial Statements herein for additional information. At the end of the first quarter 2021, the market price of Southern Company's common stock was $62.16 per share (based on the closing price as reported on the NYSE) and the book value was $26.90 per share, representing a market-to-book ratio of 231%, compared to $61.43, $26.48, and 232%, respectively, at the end of 2020. Southern Company's common stock dividend for the first quarter 2021 was $0.64 per share compared to $0.62 per share in the first quarter 2020. 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. 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 120 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) environmental compliance program; changes in legislation; the cost 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. The continued COVID-19 pandemic could also impair the ability to develop, construct, and operate facilities, as discussed further in Item 1A of the Form 10-K. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Additionally, expenditures associated with Southern Power's planned acquisitions may vary due to market opportunities and the execution of its growth strategy. See Note 15 to the financial statements in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements herein under "Southern Power" for additional information regarding Southern Power's plant acquisitions and construction projects. The construction program of Georgia Power includes Plant Vogtle Units 3 and 4, which includes components based on new technology that only within the last few years began initial operation in the global nuclear industry at this scale and which may be subject to additional revised cost estimates during construction. 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 - Nuclear Construction" for information regarding Plant Vogtle Units 3 and 4 and additional factors that may impact construction expenditures. 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, 2020. 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 and equity issuances in the capital markets. Equity capital can be provided from any combination of Southern Company's stock plans, private placements, or public offerings. Southern Company does not expect to issue any equity in the capital markets through 2025. See Note 8 to the financial statements under "Equity Units" in Item 8 of the Form 10-K for information on stock purchase contracts associated with Southern Company's equity units. 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. In addition, Georgia Power plans to utilize borrowings from the FFB (as discussed further in Note 8 to the financial statements under "Long-term Debt - DOE Loan Guarantee Borrowings" in Item 8 of the Form 10-K) and Southern Power plans to utilize tax equity partnership contributions (as discussed further herein). The amount, type, and timing of any financings in 2021, 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. In March 2021, Southern Power obtained tax equity funding for the Deuel Harvest wind facility and received proceeds of $220 million. In addition, during the first three months of 2021, Southern Power received tax equity funding totaling $17 million from existing partnerships. See Note 1 to the financial statements under "General" in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements under "Southern Power" herein for additional information. By regulation, Nicor Gas is restricted, to the extent of 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 March 31, 2021, the amount of subsidiary retained earnings restricted to dividend totaled $1.1 billion. This restriction did not impact Southern 121 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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 March 31, 2021 for the applicable Registrants: Southern Georgia Southern At March 31, 2021 Company Alabama Power

Power Mississippi Power Company Gas

(in

millions)

Current liabilities in excess of current assets $ 2,117 $ 120 $ 699 $ 514 $ 166 The Registrants believe the need for working capital can be adequately met by utilizing operating cash flows, as well as commercial paper, lines of credit, and short-term bank notes, as market conditions permit. In addition, under certain circumstances, the Subsidiary Registrants may utilize equity contributions and/or loans from Southern Company. Bank Credit Arrangements At March 31, 2021, the Registrants' unused committed credit arrangements with banks were as follows: Southern Southern Company Alabama Georgia Southern Company Southern At March 31, 2021 parent Power Power

Mississippi Power Power(a) Gas(b) SEGCO Company

(in millions) Unused committed credit $ 1,999 $ 1,328 $ 1,728 $ 250 $ 568 $ 1,745 $ 30 $ 7,648 (a)At March 31, 2021, Southern Power also had two continuing letters of credit facilities for standby letters of credit, of which $13 million was unused. Southern Power's subsidiaries are not parties to its bank credit arrangements or letter of credit facilities. (b)Includes $1.045 billion and $700 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 the revenue bonds of the traditional electric operating companies and the commercial paper programs of the Registrants, Nicor Gas, and SEGCO. The amount of variable rate revenue bonds of the traditional electric operating companies outstanding requiring liquidity support at March 31, 2021 was approximately $1.4 billion (comprised of approximately $854 million at Alabama Power, $550 million at Georgia Power, and $34 million at Mississippi Power). In addition, at March 31, 2021, Georgia Power and Mississippi Power had approximately $174 million and $50 million, respectively, of fixed rate revenue bonds outstanding that are required to be remarketed within the next 12 months. 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. 122 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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-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 March 31, 2021 Short-term Debt During the Period(*) Weighted Weighted Average Average Average Maximum Amount Interest Amount Interest Amount Outstanding Rate Outstanding Rate Outstanding (in millions) (in millions) (in millions) Southern Company $ 1,092 0.3 % $ 998 0.2 % $ 1,520 Alabama Power - - 46 0.1 200 Georgia Power 205 0.2 51 0.2 230 Mississippi Power 54 0.2 20 0.2 64 Southern Power 315 0.2 147 0.2 520 Southern Company Gas: Southern Company Gas Capital $ - - % $ 221 0.2 % $ 345 Nicor Gas 497 0.5 120 0.3 520 Southern Company Gas Total $ 497 0.5 % $ 341 0.3 % (*)Average and maximum amounts are based upon daily balances during the three-month period ended March 31, 2021. Analysis of Cash Flows Net cash flows provided from (used for) operating, investing, and financing activities for the three months ended March 31, 2021 and 2020 are presented in the following table: Net cash provided from Southern Georgia Southern (used for): Company Alabama Power Power Mississippi Power Southern Power Company Gas (in millions) Three Months Ended March 31, 2021 Operating activities $ 1,242 $ 214 $ 489 $ (38) $ 187 $ 550 Investing activities (2,243) (466) (913) (67) (504) (308) Financing activities 1,734 341 444 90 478 50 Three Months Ended March 31, 2020 Operating activities $ 894 $ 155 $ 213 $ (17) $ 83 $ 643 Investing activities (889) (424) (795) (71) 600 (193) Financing activities 185 273 742 (98) (632) (185)

Fluctuations in cash flows from financing activities vary from year to year based on capital needs and the maturity or redemption of securities.

123 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Southern Company Net cash provided from operating activities increased $0.3 billion for the three months ended March 31, 2021 as compared to the corresponding period in 2020 primarily due to the timing of vendor payments and customer bill credits issued in February 2020 at Georgia Power associated with Tax Reform, partially offset by under recovered natural gas costs at Southern Company Gas resulting from Winter Storm Uri. The net cash used for investing activities for the three months ended March 31, 2021 was primarily related to the Subsidiary Registrants' construction programs. The net cash provided from financing activities for the three months ended March 31, 2021 was primarily related to net issuances of long-term debt, short-term bank loans, and commercial paper, partially offset by common stock dividend payments. Alabama Power Net cash provided from operating activities increased $59 million for the three months ended March 31, 2021 as compared to the corresponding period in 2020 primarily due to an increase in retail revenues associated with an increase in Rate RSE effective in January 2021 and colder weather in Alabama Power's service territory in the first quarter 2021 compared to the corresponding period in 2020, as well as the timing of fossil fuel stock and materials and supplies purchases, partially offset by lower fuel cost recovery and the timing of receivable collections. The net cash used for investing activities for the three months ended March 31, 2021 was primarily related to gross property additions. The net cash provided from financing activities for the three months ended March 31, 2021 was primarily related to a capital contribution from Southern Company, partially offset by common stock dividend payments. Georgia Power Net cash provided from operating activities increased $276 million for the three months ended March 31, 2021 as compared to the corresponding period in 2020 primarily due to the timing of customer receivable collections, as well as customer bill credits issued in February 2020 associated with Tax Reform. The net cash used for investing activities for the three months ended March 31, 2021 was primarily related to gross property additions, including a total of approximately $350 million related to the construction of Plant Vogtle Units 3 and 4. See Note (B) to the Condensed Financial Statements under "Georgia Power - Nuclear Construction" herein for additional information on construction of Plant Vogtle Units 3 and 4. The net cash provided from financing activities for the three months ended March 31, 2021 was primarily related to net issuances of senior notes, capital contributions from Southern Company, and an increase in notes payable, partially offset by common stock dividend payments. Mississippi Power Net cash used for operating activities increased $21 million for the three months ended March 31, 2021 as compared to the corresponding period in 2020 primarily due to the timing of ad valorem tax payments. The net cash used for investing activities for the three months ended March 31, 2021 was primarily related to gross property additions. The net cash provided from financing activities for the three months ended March 31, 2021 was primarily related to capital contributions from Southern Company and an increase in commercial paper borrowings, partially offset by common stock dividend payments. 124 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Southern Power Net cash provided from operating activities increased $104 million for the three months ended March 31, 2021 as compared to the corresponding period in 2020 primarily due to the timing of payments to PPA counterparties and the timing of receipts from affiliated companies. The net cash used for investing activities for the three months ended March 31, 2021 was primarily related to the acquisition of the Deuel Harvest wind facility and ongoing construction activities. See Note (K) to the Condensed Financial Statements under "Southern Power" herein for additional information. The net cash provided from financing activities for the three months ended March 31, 2021 was primarily related to the issuance of senior notes, net capital contributions from noncontrolling interests, and an increase in commercial paper borrowings, partially offset by a return of capital to Southern Company and common stock dividend payments. Southern Company Gas Net cash provided from operating activities decreased $93 million for the three months ended March 31, 2021 as compared to the corresponding period in 2020 primarily due to natural gas cost under recovery, reflecting an increase in the cost of gas purchased during Winter Storm Uri, and the timing of customer receivable collections, partially offset by temporary LIFO liquidation, and the timing of vendor payments. The net cash used for investing activities for the three months ended March 31, 2021 was primarily related to construction of transportation and distribution assets recovered through base rates and infrastructure investment recovered through replacement programs at gas distribution operations. The net cash provided from financing activities for the three months ended March 31, 2021 was primarily related to the issuance of short-term debt and capital contributions from Southern Company, partially offset by common stock dividend payments and repayments of commercial paper borrowings. Significant Balance Sheet Changes Southern Company Significant balance sheet changes for the three months ended March 31, 2021 included: •an increase of $1.7 billion in long-term debt (including amounts due within one year) related to new issuances; •an increase of $1.4 billion in total property, plant, and equipment primarily related to the Subsidiary Registrants' construction programs, as well as Southern Power's acquisition of the Deuel Harvest wind facility; •an increase of $0.8 billion in total stockholders' equity primarily related to net income, partially offset by common stock dividend payments; •an increase of $0.7 billion in accumulated deferred income taxes primarily related to the expected utilization of tax credits in 2021; •an increase of $0.7 billion in cash and cash equivalents, as discussed further under "Analysis of Cash Flows - Southern Company" herein; •an increase of $0.5 billion in natural gas cost under recovery, which was impacted by an increase in Southern Company Gas' cost of gas purchased during Winter Storm Uri; and •an increase of $0.5 billion in notes payable related to net issuances of short-term bank debt and commercial paper. See "Financing Activities" herein and Notes (B) and (K) to the Condensed Financial Statements herein for additional information. 125 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Alabama Power Significant balance sheet changes for the three months ended March 31, 2021 included: •an increase of $716 million in common stockholder's equity primarily due to capital contributions from Southern Company; •an increase of $269 million in total property, plant, and equipment primarily related to construction of distribution and transmission facilities and the installation of equipment to comply with environmental standards; and •a decrease of $153 million in other accounts payable primarily due to the timing of vendor payments. Georgia Power Significant balance sheet changes for the three months ended March 31, 2021 included: •an increase of $547 million in total property, plant, and equipment primarily related to the construction of generation, transmission, and distribution facilities, including $291 million for Plant Vogtle Units 3 and 4 (net of a pre-tax charge of $48 million for an estimated probable loss); •an increase of $395 million in long-term debt (including securities due within one year) primarily due to a net increase in outstanding senior notes; and •an increase of $273 million in common stockholder's equity primarily due to capital contributions from Southern Company. See "Financing Activities - Georgia Power" herein and Note (B) to the Condensed Financial Statements under "Georgia Power - Nuclear Construction" herein for additional information. Mississippi Power Significant balance sheet changes for the three months ended March 31, 2021 included: •an increase of $106 million in common stockholder's equity primarily from capital contributions from Southern Company and •a decrease of $75 million in accrued taxes primarily due to the payment of ad valorem taxes. Southern Power Significant balance sheet changes for the three months ended March 31, 2021 included: •an increase of $409 million in property, plant, and equipment in service primarily due to the acquisition of the Deuel Harvest wind facility; •an increase of $357 million in prepaid income taxes, a decrease of $262 million in accumulated deferred income tax assets, and a $107 million increase in accumulated deferred income tax liabilities primarily related to the expected utilization of ITCs in 2021; and •an increase of $337 million in long-term debt primarily related to the issuance of senior notes. See "Financing Activities - Southern Power" herein and Note (K) to the Condensed Financial Statements herein for additional information. 126 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Southern Company Gas Significant balance sheet changes for the three months ended March 31, 2021 included: •increases of $487 million in natural gas cost under recovery, $171 million in other regulatory assets, deferred, and $162 million in accumulated deferred income taxes, all primarily related to natural gas cost under recovery, reflecting an increase in the cost of gas purchased during Winter Storm Uri; •an increase of $327 million in common stockholder's equity primarily related to net income and capital contributions from Southern Company, partially offset by dividends paid to Southern Company; •an increase of $292 million in cash and cash equivalents, as discussed further under "Analysis of Cash Flows - Southern Company Gas" herein; •a decrease of $263 million in natural gas for sale due to higher volumes of natural gas sold; •an increase of $194 million in temporary LIFO liquidation due to higher natural gas prices during Winter Storm Uri; •an increase of $173 million in notes payable due to issuances of short-term borrowings; and •an increase of $171 million in total property, plant, and equipment primarily related to the construction of transportation and distribution assets recovered through base rates and infrastructure investment recovered through replacement programs. See "Financing Activities - Southern Company Gas" herein and Note (B) to the Condensed Financial Statements herein for additional information. Financing Activities The following table outlines the Registrants' long-term debt financing activities for the first three months of 2021: Senior Notes Maturities, Other Long-Term Debt Redemptions, and Redemptions Company Issuances Repurchases and Maturities(*) (in millions) Southern Company parent $ 1,000 $ - $ - Georgia Power 750 325 26 Southern Power 400 - - Southern Company Gas - - 30 Other - - 3 Southern Company $ 2,150 $ 325 $ 59 (*)Includes reductions in finance lease obligations resulting from cash payments under finance leases and, for Georgia Power, principal amortization payments for FFB borrowings. Except as otherwise described herein, the Registrants used the proceeds of debt issuances for their redemptions and maturities shown in the table above, to repay short-term indebtedness, and for general corporate purposes, including working capital. The Subsidiary Registrants also used the proceeds for their construction programs. In addition to any financings that may be necessary to meet capital requirements and contractual obligations, the Registrants plan to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit. Southern Company During the first three months of 2021, Southern Company issued approximately 2.2 million shares of common stock primarily through employee equity compensation plans and received proceeds of approximately $14 million. In January 2021, Southern Company borrowed $25 million pursuant to a short-term uncommitted bank credit arrangement, which it repaid in March 2021. 127 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) In February 2021, Southern Company issued $600 million aggregate principal amount of Series 2021A 0.60% Senior Notes due February 26, 2024 and $400 million aggregate principal amount of Series 2021B 1.75% Senior Notes due March 15, 2028. Alabama Power In March 2021, Alabama Power extended the maturity dates from March 2021 to March 2026 on its three bank term loan agreements with an aggregate principal amount of $45 million, bearing interest based on three-month LIBOR. Georgia Power In February 2021, Georgia Power issued $750 million aggregate principal amount of Series 2021A 3.25% Senior Notes due March 15, 2051. An amount equal to the net proceeds of the senior notes is being allocated to finance or refinance, in whole or in part, one or more renewable energy projects and/or expenditures and programs related to enabling opportunities for diverse and small businesses/suppliers. In March 2021, Georgia Power redeemed all $325 million aggregate principal amount of its Series 2016B 2.40% Senior Notes due April 1, 2021. Also in March 2021, Georgia Power extended the maturity date of its $125 million term loan from June 2021 to June 2022. During the three months ended March 31, 2021, Georgia Power made principal amortization payments of $25 million under the FFB Credit Facilities. At March 31, 2021, the outstanding principal balance under the FFB Credit Facilities was $4.6 billion. 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. Southern Power In January 2021, Southern Power issued $400 million aggregate principal amount of Series 2021A 0.90% Senior Notes due January 15, 2026. An amount equal to the net proceeds of the senior notes is being allocated to finance or refinance, in whole or in part, one or more renewable energy projects. Southern Company Gas In February 2021, Atlanta Gas Light repaid at maturity $30 million aggregate principal amount of 9.1% medium-term notes. In March 2021, Nicor Gas entered into three short-term floating rate bank loans in an aggregate principal amount of $300 million, each bearing interest based on one-month LIBOR. Credit Rating Risk At March 31, 2021, 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, construction of new generation at Plant Vogtle Units 3 and 4. 128 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The maximum potential collateral requirements under these contracts at March 31, 2021 were as follows: Southern Southern Southern Company Credit Ratings Company(*) Alabama Power Georgia Power Mississippi Power Power(*) Gas (in millions) At BBB and/or Baa2 $ 38 $ 1 $ - $ - $ 37 $ - At BBB- and/or Baa3 433 2 61 1 371 - At BB+ and/or Ba1 or below 1,938 366 965 308 1,210 10 (*)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 $105 million of cash collateral posted related to PPA requirements at March 31, 2021. 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. Market Price Risk Other than the Southern Company Gas items discussed below, there were no material changes to the Registrants' disclosures about market price risk during the first quarter 2021. For an in-depth discussion of Southern Company Gas' market price risks, see MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL CONDITION AND LIQUIDITY - "Market Price Risk" in Item 7 of the Form 10-K. Also see Notes (I) and (J) to the Condensed Financial Statements herein for information relating to derivative instruments. Southern Company Gas is exposed to market risks, including commodity price risk, interest rate risk, and weather risk. Due to various cost recovery mechanisms, the natural gas distribution utilities that sell natural gas directly to end-use customers continue to have limited exposure to market volatility of natural gas prices. Certain of the natural gas distribution utilities manage fuel-hedging programs implemented per the guidelines of their respective state regulatory agencies to hedge the impact of market fluctuations in natural gas prices for customers. In addition, certain of Southern Company Gas' non-regulated operations routinely utilize various types of derivative instruments to economically hedge certain commodity price and weather risks inherent in the natural gas industry. These instruments include a variety of exchange-traded and over-the-counter energy contracts, such as forward contracts, futures contracts, options contracts, and swap agreements. Some of these economic hedge activities may not qualify, or may not be designated, for hedge accounting treatment. 129 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) For the periods presented below, the changes in net fair value of Southern Company Gas' energy-related derivative contracts were as follows:

First Quarter 2021 First Quarter 2020

(in millions)

Contracts outstanding at beginning of period, assets (liabilities), net

$ 101 $ 70 Contracts realized or otherwise settled (48) (91) Current period changes(*) (13) 59

Contracts outstanding at the end of period, assets (liabilities), net

$ 40 $ 38 Netting of cash collateral 27 128

Cash collateral and net fair value of contracts outstanding at end of period

$ 67 $ 166 (*)Current period changes also include the fair value of new contracts entered into during the period, if any. The maturities of Southern Company Gas' derivative contracts at March 31, 2021 were as follows: Fair Value Measurements of Contracts at March 31, 2021 Total Maturity Fair Value 2021 2022 - 2023 2024 - 2025 (in millions) Level 1(a) $ 13 $ 11 $ (12) $ 14 Level 2(b) (1) (1) (2) 2 Level 3(c) 28 9 8 11 Fair value of contracts outstanding at end of period(d) $ 40 $

19 $ (6) $ 27

(a)Valued using NYMEX futures prices. (b)Valued using basis transactions that represent the cost to transport natural gas from a NYMEX delivery point to the contract delivery point. These transactions are based on quotes obtained either through electronic trading platforms or directly from brokers. (c)Valued using a combination of observable and unobservable inputs. (d)Excludes cash collateral of $27 million. Southern Company Gas Value at Risk (VaR) VaR is the maximum potential loss in portfolio value over a specified time period that is not expected to be exceeded within a given degree of probability. Southern Company Gas' VaR may not be comparable to that of other companies due to differences in the factors used to calculate VaR. Southern Company Gas' VaR is determined on a 95% confidence interval and a one-day holding period, which means that 95% of the time, the risk of loss in a day from a portfolio of positions is expected to be less than or equal to the amount of VaR calculated. The open exposure of Southern Company Gas is managed in accordance with established policies that limit market risk and require daily reporting of potential financial exposure to senior management. Because Southern Company Gas generally manages physical gas assets and economically protects its positions by hedging in the futures markets, Southern Company Gas' open exposure is generally mitigated. Southern Company Gas employs daily risk testing, using both VaR and stress testing, to evaluate the risk of its positions. Southern Company Gas actively monitors open commodity positions and the resulting VaR and maintains a relatively small risk exposure as total buy volume is close to sell volume, with minimal open natural gas price risk. Based on a 95% confidence interval and employing a one-day holding period, SouthStar's portfolio of positions for all periods presented was immaterial. 130 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Southern Company Gas' wholesale gas services segment had the following VaRs at March 31: 2021 2020 (in millions) Period end(*) $ 1.1 $ 4.2 Average 3.2 2.1 High(*) 55.3 4.2 Low 0.9 1.3 (*)The VaR at March 31, 2021 reflects significant natural gas price increases in Sequent's key markets driven by a disruption in natural gas supplies and an increase in usage due to Winter Storm Uri that extended from the Gulf Coast to across the mid-west. VaR returned to typical levels as temperatures and natural gas supplies normalized. 131

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