SOUTHERN COMPANY OVERVIEW
Southern Company is a holding company that owns all of the common stock of three traditional electric operating companies (Alabama Power ,Georgia Power , andMississippi Power ),Southern Power , andSouthern Company Gas and owns other direct and indirect subsidiaries. The primary businesses ofthe Southern Company system are electricity sales by the traditional electric operating companies andSouthern Power and the distribution of natural gas bySouthern 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 bySouthern Power , and the sale of natural gas and other complementary products and services bySouthern Company Gas .Southern Company Gas' reportable segments are gas distribution operations, gas pipeline investments, and gas marketing services. Prior to the sale of Sequent onJuly 1, 2021 ,Southern Company Gas' reportable segments also included wholesale gas 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 and the sale of Sequent, see BUSINESS - "The Southern Company System" in Item 1 of the Form 10-K and Note 15 to the financial statements under "Southern Company Gas " in Item 8 of the Form 10-K, respectively. The Registrants continue to focus on several key performance indicators. For the traditional electric operating companies andSouthern 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. ForSouthern 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
On
•Alabama Power's petition for a certificate of convenience and necessity, which authorizesAlabama Power to complete the acquisition of theCalhoun Generating Station . This transaction is expected to close bySeptember 30, 2022 . •An increase to Rate ECR effective withAugust 2022 billings, which is expected to result in an increase of approximately$310 million annually. The approved increase in the Rate ECR factor will have no significant effect onAlabama Power's net income, but will increase operating cash flows related to fuel cost recovery. •Modifications to Rate NDR. •An accounting order authorizingAlabama Power to create a reliability reserve separate from the NDR and transition the previous Rate NDR authority related to reliability expenditures to the reliability reserve.Alabama Power may make accruals to the reliability reserve if the NDR balance exceeds$35 million .
See Note (B) to the Condensed Financial Statements under "
Georgia Power
Plant Vogtle Units 3 and 4 Construction and Start-Up Status
Construction continues on Plant Vogtle Units 3 and 4 (with electric generating capacity of approximately 1,100 MWs each), in whichGeorgia Power currently 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, including contingency, through the end of the first quarter 2023 and the fourth quarter 2023, respectively, is$10.5 billion .
Fuel load for Unit 3 is projected during the fourth quarter 2022 with an in-service date projected during the first quarter 2023. Unit 3's projected schedule primarily depends on the volume and completion of construction remediation work, completion of work packages, including inspection records, and other documentation necessary
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to submit the remaining ITAACs and begin fuel load, the pace of system and area turnovers, and the progression of startup and other testing. An in-service date during the fourth quarter 2023 for Unit 4 is projected. Unit 4's projected schedule primarily depends on Unit 3 progress through fuel load, startup, and testing; overall construction productivity and production levels improving, particularly in electrical installation, including terminations; and appropriate levels of craft laborers, particularly electricians and pipefitters, being added and maintained. Any further delays could result in later in-service dates and cost increases. During the first half of 2022, established construction contingency totaling$126 million was assigned to the base capital cost forecast for costs primarily associated with construction productivity, the pace of system turnovers, additional craft and support resources, and procurement for Units 3 and 4.Georgia Power also increased its total project capital cost forecast as ofJune 30, 2022 by adding$36 million to replenish 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 in the second quarter 2022 of$36 million ($27 million after tax) for the increase in the total project capital cost forecast.Georgia Power may request the Georgia PSC to evaluate those expenditures for rate recovery during the prudence review following the Unit 4 fuel load pursuant to the twenty-fourth VCM stipulation described in Note (B) to the Condensed Financial Statements under "Georgia Power -Nuclear Construction - Regulatory Matters" herein.Georgia Power and the other Vogtle Owners do not agree on the starting dollar amount for the determination of cost increases subject to the cost-sharing and tender provisions of the Global Amendments (as defined in Note (B) to the Condensed Financial Statements under "Georgia Power -Nuclear Construction - Joint Owner Contracts" herein). The other Vogtle Owners have notifiedGeorgia Power that they believe the current project capital cost forecast exceeds the cost-sharing thresholds and triggers the tender provisions under the Global Amendments.Georgia Power recorded pre-tax charges to income in the fourth quarter 2021 and the second quarter 2022 of approximately$440 million ($328 million after tax) and$16 million ($12 million after tax), respectively, associated with these cost-sharing and tender provisions, which are included in the total project capital cost forecast.Georgia Power may be required to record further pre-tax charges to income of up to approximately$480 million associated with these provisions based on the current project capital cost forecast. InOctober 2021 ,Georgia Power and the other Vogtle Owners entered into an agreement, which was modified onJune 3, 2022 , to clarify the process for the tender provisions of the Global Amendments to provide for a decision between 120 and 194 days after the tender option is triggered, which the other Vogtle Owners assert occurred onFebruary 14, 2022 , and would require the other Vogtle Owners to notifyGeorgia Power of their intent to exercise their tender options byAugust 27, 2022 . OnJune 17, 2022 andJuly 26, 2022 , OPC and Dalton, respectively, notifiedGeorgia Power of their purported exercises of their tender options. OnJune 18, 2022 ,OPC and MEAG Power each filed a separate lawsuit againstGeorgia Power in theSuperior Court of Fulton County, Georgia seeking a declaratory judgment that the starting dollar amount is$17.1 billion and that the cost-sharing and tender provisions have been triggered. OnJuly 25, 2022 ,Georgia Power filed its answer in the lawsuit filed byMEAG Power and included counterclaims seeking a declaratory judgment that the starting dollar amount is$18.38 billion and that costs related to force majeure events are excluded prior to calculating the cost-sharing and tender provisions and when calculatingGeorgia Power's related financial obligations. The ultimate impact of these matters on the construction schedule and project capital cost forecast 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. 98 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
2022 Base Rate Case
OnJune 24, 2022 ,Georgia Power filed a base rate case (Georgia Power 2022 Base Rate Case) with the Georgia PSC. The filing proposes a three-year alternate rate plan with requested rate increases totaling$852 million ,$107 million , and$45 million effectiveJanuary 1, 2023 ,January 1, 2024 , andJanuary 1, 2025 , respectively.Georgia Power expects the Georgia PSC to render a final decision in this matter onDecember 20, 2022 . The ultimate outcome of this matter cannot be determined at this time. See Note (B) to the Condensed Financial Statements under "Georgia Power - Rate Plans - 2022 Base Rate Case" herein for additional information. Integrated Resource Plan OnJuly 21, 2022 , the Georgia PSC approvedGeorgia Power's triennial IRP (2022 IRP), as modified by a stipulated agreement amongGeorgia Power , the staff of the Georgia PSC, and certain intervenors and as further modified by theGeorgia PSC. In the 2022 IRP decision, the Georgia PSC approved several requests, including the following: •Decertification and retirement of Plant Wansley Units 1 and 2 (926 MWs based on 53.5% ownership) byAugust 31, 2022 and Plant Scherer Unit 3 (614 MWs based on 75% ownership) byDecember 31, 2028 , as well as the reclassification to regulatory asset accounts of the remaining net book values of these units and any remaining unusable materials and supplies inventories upon retirement. •Decertification and retirement of Plant Gaston Units 1 through 4 (500 MWs based on 50% ownership through SEGCO) byDecember 31, 2028 . See Note 7 to the financial statements under "SEGCO" in Item 8 of the Form 10-K for additional information.
•Georgia Power's environmental compliance strategy, including approval of
The Georgia PSC deferred a decision on the requested decertification and retirement of Plant Bowen Units 1 and 2 (1,400 MWs) to the 2025 IRP.
See Note (B) to the Condensed Financial Statements under "
OnJune 7, 2022 , the Mississippi PSC approvedMississippi Power's annual retail PEP filing for 2022, resulting in an annual increase in revenues of approximately$18 million , or 1.9%. The rate increase became effective with the first billing cycle ofApril 2022 in accordance with the PEP rate schedule. OnMay 26, 2022 ,Mississippi Power and Cooperative Energy executed an amended shared service agreement (SSA) under which Cooperative Energy will continue to decrease its use ofMississippi Power's generation services under the MRA tariff up to 2.5% annually through 2035. AtJune 30, 2022 ,Mississippi Power is serving approximately 400 MWs of Cooperative Energy's annual demand. Beginning in 2036, Cooperative Energy will provide 100% of its electricity requirements at the MRA delivery points under the tariff. Neither party has the option to cancel the amended SSA. OnJune 30, 2022 ,Mississippi Power filed a request with theFERC for approval of the amended SSA.Mississippi Power expects to remarket this capacity, including the potential development of future arrangements with Cooperative Energy.
On
See Note (B) to the Condensed Financial Statements under "
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During the six months endedJune 30, 2022 ,Southern Power completed construction of and placed in service the remaining 40 MWs of the Tranquillity battery energy storage facility and the remaining 15 MWs of the Garland battery energy storage facility. See Note (K) to the Condensed Financial Statements under "Southern Power " herein for additional information. AtJune 30, 2022 ,Southern Power's average investment coverage ratio for its generating assets, including those owned with various partners, based on the ratio of investment under contract to total investment using the respective facilities' net book value (or expected in-service value for facilities under construction) as the investment amount was 96% through 2026 and 92% through 2031, with an average remaining contract duration of approximately 13 years.
OnMay 31, 2022 ,Virginia Natural Gas filed a notice of intent with theVirginia State Corporation Commission to file a base rate case later in the third quarter 2022. OnJuly 1, 2022 ,Atlanta Gas Light filed its annual GRAM update with theGeorgia PSC. The filing requests an annual base rate increase of$53 million based on the projected 12-month period beginningJanuary 1, 2023 . Resolution of the GRAM filing is expected byDecember 28, 2022 , with the new rates effectiveJanuary 1, 2023 .
The ultimate outcome of these matters cannot be determined at this time.
RESULTS OF OPERATIONSSouthern Company Net Income Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$735 N/M $631 41.8
N/M - Not meaningful
Consolidated net income attributable to Southern Company was $1.1 billion ($1.04
per share) in the second quarter 2022 compared to $0.4 billion ($0.35 per share)
for the corresponding period in 2021. For year-to-date 2022, consolidated net
income attributable to Southern Company was $2.1 billion ($2.01 per share)
compared to $1.5 billion ($1.42 per share) for the corresponding period in 2021.
The increases were primarily due to decreases of $304 million and $340 million
in the second quarter and year-to-date 2022, respectively, in after-tax charges
related to the construction of Plant Vogtle Units 3 and 4, an after-tax charge
of $58 million in the second quarter 2021 related to the PennEast pipeline
project at Southern Company Gas , an increase in retail electric revenues
associated with rates and pricing and warmer weather, and an increase in natural
gas revenues from base rate increases and continued infrastructure replacement.
The second quarter 2021 net loss of $112 million at Sequent, which was sold on
July 1, 2021 , also contributed to the net income increase in the second quarter
2022. These increases were partially offset by higher non-fuel operations and
maintenance costs.
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Retail Electric Revenues
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$1,190 33.1 $1,461 21.0
In the second quarter 2022, retail electric revenues were $4.8 billion compared
to $3.6 billion for the corresponding period in 2021. For year-to-date 2022,
retail electric revenues were $8.4 billion compared to $6.9 billion for the
corresponding period in 2021.
Details of the changes in retail electric revenues were as follows:
Second Quarter 2022 Year-To-Date 2022
(in millions) (% change) (in millions) (% change)
Retail electric - prior year $ 3,599 $ 6,941
Estimated change resulting from -
Rates and pricing 237 6.6 % 293 4.2 %
Sales growth 66 1.9 85 1.2
Weather 145 4.0 161 2.3
Fuel and other cost recovery 742 20.6 922 13.3
Retail electric - current year $ 4,789 33.1 % $ 8,402 21.0 %
Revenues associated with changes in rates and pricing increased in the second
quarter and year-to-date 2022 when compared to the corresponding periods in
2021. The increases were primarily due to higher contributions from commercial
and industrial customers with variable demand-driven pricing, base tariff
increases in accordance with Georgia Power's 2019 ARP, and pricing effects
associated with residential customer usage. See Note 2 to the financial
statements under "Georgia Power - Rate Plans" in Item 8 of the Form 10-K for
additional information.
Revenues attributable to changes in sales increased in the second quarter and
year-to-date 2022 when compared to the corresponding periods in 2021.
Weather-adjusted residential KWH sales increased 1.0% in the second quarter 2022
when compared to the corresponding period in 2021 primarily due to strong
customer growth, partially offset by decreased customer usage. Weather-adjusted
residential KWH sales decreased 0.1% for year-to-date 2022 when compared to the
corresponding period in 2021 and weather-adjusted commercial KWH sales increased
2.2% and 2.1% in the second quarter and year-to-date 2022, respectively, when
compared to the corresponding periods in 2021 primarily due to impacts on
customer usage from increased activity outside the home as customers return to
pre-pandemic levels of activity. Increased customer growth largely offset the
decrease in customer usage impacting year-to-date 2022 residential KWH sales and
contributed to the increase in commercial KWH sales. Industrial KWH sales
increased 3.7% and 2.8% in the second quarter and year-to-date 2022,
respectively, when compared to the corresponding periods in 2021 primarily due
to strength in the pipeline and paper sectors, partially offset by a decrease in
the chemicals sector.
Fuel and other cost recovery revenues increased $742 million and $922 million in
the second quarter and year-to-date 2022, respectively, compared to the
corresponding periods in 2021 primarily due to higher fuel and purchased power
costs and an increase in the volume of KWHs generated. Electric rates for the
traditional electric operating companies include provisions to adjust billings
for fluctuations in fuel costs, including the energy component of purchased
power costs. Under these provisions, fuel revenues generally equal fuel
expenses, including the energy component of PPA costs, and do not affect net
income. The traditional electric operating companies each have one or more
regulatory mechanisms to recover other costs such as environmental and other
compliance costs, storm damage, new plants, and PPA capacity costs. See Note 2
to the financial statements in Item 8 of the Form 10-K and Note (B) to the
Condensed Financial Statements herein for additional information.
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Wholesale Electric Revenues
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$391 71.6 $510 46.7
In the second quarter 2022, wholesale electric revenues were $937 million
compared to $546 million for the corresponding period in 2021. For year-to-date
2022, wholesale electric revenues were $1.6 billion compared to $1.1 billion for
the corresponding period in 2021. The increases were primarily due to increases
of $376 million and $493 million in the second quarter and year-to-date 2022,
respectively, in energy revenues as a result of fuel and purchased power price
increases when compared to the corresponding periods in 2021 and an increase in
the volume of KWHs sold primarily associated with sales under natural gas PPAs
at Southern Power . In addition, increases in capacity revenues of $15 million
and $18 million in the second quarter and year-to-date 2022, respectively, were
primarily due to increased capacity sales under natural gas PPAs at Southern
Power .
Wholesale electric revenues consist of revenues from PPAs and short-term
opportunity sales. Wholesale electric revenues from PPAs (other than solar and
wind PPAs) have both capacity and energy components. Capacity revenues generally
represent the greatest contribution to net income and are designed to provide
recovery of fixed costs plus a return on investment. Energy revenues will vary
depending on fuel prices, the market prices of wholesale energy compared to the
Southern Company system's generation, demand for energy within the Southern
Company system's electric service territory, and the availability of the
Southern Company system's generation. Increases and decreases in energy revenues
that are driven by fuel prices are accompanied by an increase or decrease in
fuel costs and do not have a significant impact on net income. Energy sales from
solar and wind PPAs do not have a capacity charge and customers either purchase
the energy output of a dedicated renewable facility through an energy charge or
through a fixed price related to the energy. As a result, the ability to recover
fixed and variable operations and maintenance expenses is dependent upon the
level of energy generated from these facilities, which can be impacted by
weather conditions, equipment performance, transmission constraints, and other
factors. Wholesale electric revenues at Mississippi Power include FERC -regulated
municipal and rural association sales under cost-based tariffs as well as
market-based sales. Short-term opportunity sales are made at market-based rates
that generally provide a margin above the Southern Company system's variable
cost to produce the energy.
Other Electric Revenues
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$17 9.7 $24 6.9
In the second quarter 2022, other electric revenues were $192 million compared
to $175 million for the corresponding period in 2021. For year-to-date 2022,
other electric revenues were $370 million compared to $346 million for the
corresponding period in 2021. The increases in the second quarter and
year-to-date 2022 were primarily due to increases of $19 million and $27
million , respectively, in transmission revenues, $5 million and $8 million ,
respectively, in cogeneration steam revenues associated with higher natural gas
prices at Alabama Power , and $4 million and $5 million , respectively, in rent
revenues at the traditional electric operating companies, partially offset by
decreases of $12 million and $20 million , respectively, resulting from the
termination of a transmission service contract at Georgia Power .
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Natural Gas Revenues
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$406 60.0 $769 32.4
In the second quarter 2022, natural gas revenues were
Details of the changes in natural gas revenues were as follows:
Second Quarter 2022 Year-To-Date 2022
(in millions) (% change) (in millions) (% change)
Natural gas revenues - prior year $ 677 $ 2,371
Estimated change resulting from -
Infrastructure replacement programs and base
rate changes 46 6.8 % 132 5.6 %
Gas costs and other cost recovery 239 35.3 783 33.0
Gas marketing services (5) (0.7) 13 0.5
Wholesale gas services 110 16.2 (187) (7.9)
Other 16 2.4 28 1.2
Natural gas revenues - current year $ 1,083 60.0 % $ 3,140 32.4 %
Revenues from infrastructure replacement programs and base rate changes at the
natural gas distribution utilities increased in the second quarter and
year-to-date 2022 compared to the corresponding periods in 2021 primarily due to
rate increases at Nicor Gas , Atlanta Gas Light , 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
second quarter and year-to-date 2022 compared to the corresponding periods in
2021 primarily due to higher volumes of natural gas sold and higher natural 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 gas marketing services decreased in the second quarter 2022
compared to the corresponding period in 2021 due to unrealized hedge losses and
warmer weather in the second quarter 2022. For year-to-date 2022, revenues
increased compared to the corresponding period in 2021 due to higher commodity
prices and higher sales to commercial customers.
The changes in revenues related to Southern Company Gas' wholesale gas services
were due to the sale of Sequent on July 1, 2021 . See Note 15 to the financial
statements under "Southern Company Gas " in Item 8 of the Form 10-K for
additional information.
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Other Revenues
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$4 2.0 $(18) (5.0)
For year-to-date 2022, other revenues were $341 million compared to $359 million
for the corresponding period in 2021. The decrease was primarily due to a net
decrease of $22 million in unregulated sales at Georgia Power primarily due to
the timing of revenue recognition for a large, ongoing power delivery
construction and maintenance contract, partially offset by increases associated
with more energy conservation projects performed in 2022.
Fuel and Purchased Power Expenses
Second Quarter 2022 vs. Year-To-Date 2022 vs.
Second Quarter 2021 Year-To-Date 2021
(change in millions) (% change) (change in millions) (% change)
Fuel $ 867 102.2 $ 1,130 66.6
Purchased power 191 88.0 216 50.9
Total fuel and purchased power expenses $ 1,058 $ 1,346
In the second quarter 2022, total fuel and purchased power expenses were $2.1
billion compared to $1.1 billion for the corresponding period in 2021. The
increase was primarily the result of an $853 million increase in the average
cost of fuel and purchased power and a $205 million increase in the volume of
KWHs generated and purchased.
For year-to-date 2022, total fuel and purchased power expenses were $3.5 billion
compared to $2.1 billion for the corresponding period in 2021. The increase was
primarily the result of a $1.1 billion increase in the average cost of fuel and
purchased power and a $239 million 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.
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Details of
Second Quarter 2022 Second Quarter 2021 Year-To-Date 2022 Year-To-Date 2021 Total generation (in billions of KWHs)(a)
46 43 92 86
Total purchased power (in billions of KWHs) 6 4 11 8
Sources of generation (percent)(a) -
Gas 49 47 47 46
Coal 22 22 23 23
Nuclear 16 18 16 18
Hydro 3 4 5 4
Wind, Solar, and Other 10 9 9 9
Cost of fuel, generated (in cents per net KWH)-
Gas(a) 5.59 2.58 4.60 2.56
Coal 3.50 2.87 3.30 2.85
Nuclear 0.72 0.75 0.72 0.75
Average cost of fuel, generated (in cents per
net KWH)(a) 4.13 2.28 3.50 2.27
Average cost of purchased power (in cents per
net KWH)(b) 7.83 5.65 6.90 5.37
(a)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
Fuel
In the second quarter 2022, fuel expense was$1.7 billion compared to$0.8 billion for the corresponding period in 2021. The increase was primarily due to a 116.7% increase in the average cost of natural gas per KWH generated, a 23.2% decrease in the volume of KWHs generated by hydro, a 22.0% increase in the average cost of coal per KWH generated, a 10.4% increase in the volume of KWHs generated by natural gas, and a 9.0% increase in the volume of KWHs generated by coal. For year-to-date 2022, fuel expense was$2.8 billion compared to$1.7 billion for the corresponding period in 2021. The increase was primarily due to a 79.7% increase in the average cost of natural gas per KWH generated, a 15.8% increase in the average cost of coal per KWH generated, a 7.6% increase in the volume of KWHs generated by natural gas, and a 5.8% increase in the volume of KWHs generated by coal, partially offset by a 9.8% increase in the volume of KWHs generated by hydro.Purchased Power In the second quarter 2022, purchased power expense was$408 million compared to$217 million for the corresponding period in 2021. The increase was primarily due to a 38.6% increase in the average cost per KWH purchased primarily due to higher natural gas and coal prices and a 55.3% increase in the volume of KWHs purchased. For year-to-date 2022, purchased power expense was$640 million compared to$424 million for the corresponding period in 2021. The increase was primarily due to a 28.5% increase in the average cost per KWH purchased primarily due to higher natural gas and coal prices and a 29.4% increase in the volume of KWHs purchased. Energy purchases will vary depending on demand for energy withinthe Southern Company system's electric service territory, the market prices of wholesale energy as compared to the cost ofthe Southern Company system's generation, and the availability ofthe Southern Company system's generation. 105 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements
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Cost of Natural Gas
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$221 95.7 $732 89.9
Excluding Atlanta Gas Light , which does not sell natural gas to end-use
customers, natural gas distribution rates include provisions to adjust billings
for fluctuations in natural gas costs. Therefore, gas costs recovered through
natural gas revenues generally equal the amount expensed in cost of natural gas
and do not affect net income from the natural gas distribution utilities. Cost
of natural gas at the natural gas distribution utilities represented 88% and 89%
of the total cost of natural gas in the second quarter and year-to-date 2022,
respectively.
In the second quarter 2022, cost of natural gas was $452 million compared to
$231 million for the corresponding period in 2021. For year-to-date 2022, cost
of natural gas was $1.5 billion compared to $814 million for the corresponding
period in 2021. The increases reflect higher gas cost recovery as a result of
increases of 153.2% and 119.4% in natural gas prices in the second quarter and
year-to-date 2022, respectively, compared to the corresponding periods in 2021.
Cost of Other Sales
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$11 10.7 $(2) (1.1)
In the second quarter 2022, cost of other sales was $114 million compared to
$103 million for the corresponding period in 2021. The increase was primarily
due to increases of $14 million related to distributed infrastructure projects
at PowerSecure, $7 million associated with unregulated merchandising and energy
services expenses at Alabama Power , and $5 million related to unregulated
construction and maintenance contracts at Mississippi Power , partially offset by
a $16 million decrease associated with unregulated power delivery construction
and maintenance projects at Georgia Power .
For year-to-date 2022, cost of other sales was $183 million compared to $185
million for the corresponding period in 2021. The decrease was primarily due to
a decrease of $26 million associated with unregulated power delivery
construction and maintenance projects at Georgia Power , largely offset by
increases of $14 million related to distributed infrastructure projects at
PowerSecure, $5 million related to unregulated construction and maintenance
contracts at Mississippi Power , and $5 million associated with unregulated
merchandising and energy services expenses at Alabama Power .
Other Operations and Maintenance Expenses
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$120 8.3 $265 9.4
In the second quarter 2022, other operations and maintenance expenses were $1.6
billion compared to $1.4 billion for the corresponding period in 2021. Other
operations and maintenance expenses increased $124 million , excluding expenses
related to Sequent in the second quarter 2021. The increase was primarily due to
increases of $29 million in transmission and distribution expenses primarily
related to line maintenance, $22 million in generation expenses primarily
related to scheduled outage and maintenance costs, $13 million in compensation
and benefit expenses, $9 million associated with more unregulated energy
conservation projects in 2022 at Georgia Power , $8 million in expenses at
Southern Company Gas passed through directly to customers, primarily related to
bad debt, and $6 million in amortization of cloud software.
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For year-to-date 2022, other operations and maintenance expenses were$3.1 billion compared to$2.8 billion for the corresponding period in 2021. Excluding$53 million of expenses related to Sequent in 2021, other operations and maintenance expenses increased$318 million . The increase was primarily due to increases of$86 million in transmission and distribution expenses primarily related to line maintenance,$80 million in generation expenses primarily related to scheduled outage and maintenance costs,$24 million in expenses atSouthern Company Gas passed through directly to customers, primarily related to bad debt,$23 million in compensation and benefit expenses, and$8 million in amortization of cloud software.
Depreciation and Amortization
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$22 2.5 $43 2.4
In the second quarter 2022, depreciation and amortization was $913 million
compared to $891 million for the corresponding period in 2021. For year-to-date
2022, depreciation and amortization was $1.81 billion compared to $1.76 billion
for the corresponding period in 2021. The increases were primarily due to
additional plant in service.
Taxes Other Than Income Taxes
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$36 11.5 $64 9.7
In the second quarter 2022, taxes other than income taxes were $349 million
compared to $313 million for the corresponding period in 2021. For year-to-date
2022, taxes other than income taxes were $721 million compared to $657 million
for the corresponding period in 2021. The increases primarily reflect an
increase in revenue tax expenses as a result of higher natural gas revenues at
Nicor Gas and an increase in municipal franchise fees related to higher retail
revenues at Georgia Power .
Estimated Loss on Plant Vogtle Units 3 and 4
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$(408) (88.7) $(456) (89.8)
In the second quarter 2022 and 2021, Georgia Power recorded estimated probable
losses on Plant Vogtle Units 3 and 4 of $52 million and $460 million ,
respectively. For year-to-date 2022 and 2021, Georgia Power recorded estimated
probable losses on Plant Vogtle Units 3 and 4 totaling $52 million and $508
million , respectively. The losses reflect revisions to the 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 herein and Note 2 to the
financial statements in Item 8 of the Form 10-K under "Georgia Power - Nuclear
Construction " for additional information.
Gain on Dispositions, Net
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$(1) (9.1) $(21) (38.9)
For year-to-date 2022, gain on dispositions, net was $33 million compared to $54
million for the corresponding period in 2021. The decrease reflects a $39
million gain at Southern Power primarily from contributions of wind turbine
equipment to various equity method investments in 2021, partially offset by a
$17 million gain from sales of
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integrated transmission system assets atGeorgia Power in 2022. See Note 15 to the financial statements under "Southern Power - Development Projects" in Item 8 of the Form 10-K for additional information.
Earnings (Loss) from Equity Method Investments
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$74 N/M $75 N/M
N/M - Not meaningful
In the second quarter 2022, earnings from equity method investments were $34
million compared to a loss of $40 million for the corresponding period in 2021.
For year-to-date 2022, earnings from equity method investments were $80 million
compared to $5 million for the corresponding period in 2021. The increases were
primarily due to a pre-tax impairment charge of $82 million in the second
quarter 2021 related to the PennEast Pipeline project at Southern Company Gas .
See Note 7 to the financial statements under "Southern Company Gas " in Item 8 of
the Form 10-K and Note (E) to the Condensed Financial Statements herein under
"Southern Company Gas " for additional information.
Interest Expense, Net of Amounts Capitalized
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$38 8.4 $49 5.4
In the second quarter 2022, interest expense, net of amounts capitalized was
$488 million compared to $450 million for the corresponding period in 2021. The
increase was primarily due to higher average outstanding borrowings.
For year-to-date 2022, interest expense, net of amounts capitalized was $950
million compared to $901 million for the corresponding period in 2021. The
increase was primarily due to higher average outstanding borrowings, partially
offset by lower interest rates on newly issued debt relative to the debt that
was retired since the second quarter 2021.
See FINANCIAL CONDITION AND LIQUIDITY - "Sources of Capital" and "Financing Activities" herein for additional information on borrowings.
Other Income (Expense), Net
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$38 37.6 $123 76.9
In the second quarter 2022, other income (expense), net was $139 million
compared to $101 million for the corresponding period in 2021. The increase was
primarily due to charitable contributions of $26 million at Southern Company Gas
in the second quarter 2021 and a $16 million increase in non-service
cost-related retirement benefits income.
For year-to-date 2022, other income (expense), net was $283 million compared to
$160 million for the corresponding period in 2021. The increase was primarily
due to charitable contributions of $101 million at Southern Company Gas for
year-to-date 2021 and a $30 million increase in non-service cost-related
retirement benefits income.
See Note (H) to the Condensed Financial Statements herein for additional information.
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Income Taxes (Benefit)
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$316 N/M $299 N/M
N/M - Not meaningful
In the second quarter 2022, income tax expense was $304 million compared to
income tax benefit of $12 million for the corresponding period in 2021. For
year-to-date 2022, income taxes were $477 million compared to $178 million for
the corresponding period in 2021. The increases were primarily due to an
increase in pre-tax earnings and an adjustment in the second quarter 2022
related to a prior year state tax credit carryforward at Georgia Power . See Note
(G) to the Condensed Financial Statements herein for additional information.
Net Loss Attributable to Noncontrolling Interests
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$22 N/M $34 N/M
N/M - Not meaningful
Substantially all noncontrolling interests relate to renewable projects at
Southern Power . In the second quarter 2022, net loss attributable to
noncontrolling interests was $22 million compared to an immaterial loss for the
corresponding period in 2021. For year-to-date 2022, net loss attributable to
noncontrolling interests was $67 million compared to $33 million for the
corresponding period in 2021. The increased losses attributable to
noncontrolling interests were primarily due to higher HLBV loss allocations to
Southern Power's tax equity partners, partially offset by higher income
allocations to Southern Power's equity partners.
Alabama Power
Net Income
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$52 15.7 $40 5.8
Alabama Power's net income after dividends on preferred stock in the second
quarter 2022 was $383 million compared to $331 million for the corresponding
period in 2021. Alabama Power's net income after dividends on preferred stock
for year-to-date 2022 was $730 million compared to $690 million for the
corresponding period in 2021. These increases were primarily due to an increase
in retail revenues associated with warmer weather in Alabama Power's service
territory in the second quarter and year-to-date 2022 compared to the
corresponding periods in 2021 and sales growth, partially offset by an increase
in operations and maintenance expenses.
Retail Revenues
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$275 20.3 $302 11.2
In the second quarter 2022, retail revenues were
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Details of the changes in retail revenues were as follows:
Second Quarter 2022 Year-To-Date 2022
(in millions) (% change) (in millions) (% change)
Retail - prior year $ 1,354 $ 2,706
Estimated change resulting from -
Rates and pricing 4 0.3 % 3 0.1 %
Sales growth 19 1.4 34 1.3
Weather 63 4.6 64 2.4
Fuel and other cost recovery 189 14.0 201 7.4
Retail - current year $ 1,629 20.3 % $ 3,008 11.2 %
Revenues attributable to changes in sales increased in the second quarter and
year-to-date 2022 when compared to the corresponding periods in 2021.
Weather-adjusted residential KWH sales decreased 1.4% and 0.3% in the second
quarter and year-to-date 2022, respectively, when compared to the corresponding
periods in 2021 primarily due to decreased customer usage. Weather-adjusted
commercial KWH sales decreased 0.2% in the second quarter 2022 when compared to
the corresponding period in 2021 primarily due to decreased customer usage.
Weather-adjusted commercial KWH sales increased 0.4% for year-to-date 2022 when
compared to the corresponding period in 2021 primarily due to customer growth.
Industrial KWH sales increased 3.9% and 2.0% in the second quarter and
year-to-date 2022, respectively, when compared to the corresponding periods in
2021 primarily due to increases in the pipeline, mining, and pulp and paper
sectors, partially offset by decreases in the chemicals sector.
Fuel and other cost recovery revenues increased in the second quarter and year-to-date 2022 when compared to the corresponding periods in 2021 primarily due to increases in the volume of KWHs generated 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 NDR. Under these provisions, fuel and other cost recovery revenues generally equal fuel and other cost recovery expenses and do not affect net income. See Note 2 to the financial statements under "Alabama Power " in Item 8 of the Form 10-K for additional information.
Wholesale Revenues - Non-Affiliates
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$74 87.1 $94 52.8
In the second quarter 2022, wholesale revenues from sales to non-affiliates were
$159 million compared to $85 million for the corresponding period in 2021. For
year-to-date 2022, wholesale revenues from sales to non-affiliates were $272
million compared to $178 million for the corresponding period in 2021. The
increases for the second quarter and year-to-date 2022 were primarily due to
increases of 41.8% and 27.3%, respectively, in KWH sales as a result of
increased opportunity sales due to warmer weather in the second quarter and
year-to-date 2022 compared to the corresponding periods in 2021, as well as
increases of 31.4% and 20.5%, respectively, in the price of energy due to higher
natural gas prices.
Wholesale revenues from sales to non-affiliates will vary depending on fuel
prices, the market prices of wholesale energy compared to the cost of Alabama
Power's and the Southern Company system's generation, demand for energy within
the Southern Company system's electric service territory, and the availability
of the Southern Company system's generation. Increases and decreases in energy
revenues that are driven by fuel prices are accompanied by an increase or
decrease in fuel costs and do not affect net income. Short-term opportunity
energy sales are also included in wholesale energy sales to non-affiliates.
These opportunity sales are made at market-based rates that generally provide a
margin above Alabama Power's variable cost to produce the energy.
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Wholesale Revenues - Affiliates
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$10 41.7 $45 81.8
In the second quarter 2022, wholesale revenues from sales to affiliates were $34
million compared to $24 million for the corresponding period in 2021. The
increase was primarily due to a 154.8% increase in the price of energy due to
higher natural gas prices, partially offset by a 42.5% decrease in KWH sales due
to lower cost system resources compared to Alabama Power's generation.
For year-to-date 2022, wholesale revenues from sales to affiliates were $100
million compared to $55 million for the corresponding period in 2021. The
increase was primarily due to a 72.1% increase in the price of energy due to
higher natural gas prices and a 5.1% increase in KWH sales due to lower cost
resources as compared to available affiliate company generation.
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.
Other Revenues
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$16 17.2 $24 13.6
In the second quarter 2022, other revenues were $109 million compared to $93
million for the corresponding period in 2021. For year-to-date 2022, other
revenues were $200 million compared to $176 million for the corresponding period
in 2021. The second quarter and year-to-date 2022 increases were primarily due
to increases of $5 million and $8 million , respectively, in cogeneration steam
revenue associated with higher natural gas prices, $4 million and $7 million ,
respectively, in transmission revenues, and $3 million and $4 million ,
respectively, in rent revenues.
Fuel and Purchased Power Expenses
Second Quarter 2022 vs. Year-To-Date 2022 vs.
Second Quarter 2021 Year-To-Date 2021
(change in millions) (% change) (change in millions) (% change)
Fuel $ 138 52.5 $ 179 32.3
Purchased power - non-affiliates 47 97.9 65 67.0
Purchased power - affiliates 82 210.3 78 113.0
Total fuel and purchased power
expenses $ 267 $ 322
In the second quarter 2022, total fuel and purchased power expenses were $617
million compared to $350 million for the corresponding period in 2021. The
increase was primarily due to a $199 million increase in the cost of fuel and
purchased power and a $67 million increase related to the volume of KWHs
generated and purchased.
For year-to-date 2022, total fuel and purchased power expenses were
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Fuel and purchased power energy transactions do not have a significant impact on earnings, since energy expenses are generally offset by energy revenues throughAlabama 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.
Second Quarter 2022 Second Quarter 2021 Year-To-Date 2022 Year-To-Date 2021
Total generation (in billions of KWHs)(a) 13 13 29 28 Total purchased power (in billions of KWHs) 3 2 4 3 Sources of generation (percent)(a) - Coal 45 43 44 45 Nuclear 25 25 25 25 Gas 22 22 20 20 Hydro 8 10 11 10 Cost of fuel, generated (in cents per net KWH) - Coal 3.35 2.73 3.11 2.74 Nuclear 0.67 0.69 0.67 0.71 Gas(a) 4.88 2.47 4.17 2.49 Average cost of fuel, generated (in cents per net KWH)(a) 2.98 2.10 2.66 2.12 Average cost of purchased power (in cents per net KWH)(b) 8.88 5.57 8.12 5.99 (a)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
Fuel In the second quarter 2022, fuel expense was$401 million compared to$263 million for the corresponding period in 2021. The increase was primarily due to a 97.6% increase in the average cost of natural gas per KWH generated, which excludes tolling agreements, a 22.7% increase in the average cost of coal per KWH generated, a 5.2% increase in the volume of KWHs generated by coal, and a 24.7% decrease in the volume of KWHs generated by hydro facilities as a result of less rainfall in the second quarter 2022 compared to the corresponding period in 2021. For year-to-date 2022, fuel expense was$733 million compared to$554 million for the corresponding period in 2021. The increase was primarily due to a 67.5% increase in the average cost of natural gas per KWH generated, which excludes tolling agreements, and a 13.5% increase in the average cost of coal per KWH generated, partially offset by a 12.7% increase in the volume of KWHs generated by hydro facilities as a result of more rainfall for year-to-date 2022 compared to the corresponding period in 2021.
In the second quarter 2022, purchased power expense from non-affiliates was$95 million compared to$48 million for the corresponding period in 2021. The increase was primarily due to a 67.4% increase in the volume of KWHs purchased as a result of warmer weather in the second quarter 2022 compared to the corresponding period in 2021, as well as a 32.6% increase in the average cost per KWH purchased due to higher natural gas and coal prices. For year-to-date 2022, purchased power expense from non-affiliates was$162 million compared to$97 million for the corresponding period in 2021. The increase was primarily due to a 48.1% increase in the volume of KWHs purchased as a result of warmer weather for year-to-date 2022 compared to the corresponding period in 2021, as well as a 22.5% increase in the average cost per KWH purchased due to higher natural gas and coal prices. 112 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements
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Energy purchases from non-affiliates will vary depending on the market prices of
wholesale energy as compared to the cost of
In the second quarter 2022, purchased power expense from affiliates was$121 million compared to$39 million for the corresponding period in 2021. The increase was primarily due to a 102.3% increase in the average cost per KWH purchased due to higher natural gas and coal prices and a 54.4% increase in the volume of KWHs purchased as a result of warmer weather in the second quarter 2022 compared to the corresponding period in 2021. For year-to-date 2022, purchased power expense from affiliates was$147 million compared to$69 million for the corresponding period in 2021. The increase was primarily due to a 61.5% increase in the average cost per KWH purchased due to higher natural gas and coal prices and a 32.1% increase in the volume of KWHs purchased as a result of warmer weather for year-to-date 2022 compared to the corresponding period in 2021. Energy purchases from affiliates will vary depending on demand for energy and the availability and cost of generating resources at each company withinthe Southern Company system. These purchases are made in accordance with the IIC or other contractual agreements, as approved by theFERC .
Other Operations and Maintenance Expenses
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$28 6.8 $77 9.9
In the second quarter 2022, other operations and maintenance expenses were $441
million compared to $413 million for the corresponding period in 2021. For
year-to-date 2022, other operations and maintenance expenses were $852 million
compared to $775 million for the corresponding period in 2021. The increases for
the second quarter and year-to-date 2022 were primarily due to increases of $11
million and $39 million , respectively, in generation expenses associated with
scheduled outages and maintenance and Rate CNP Compliance-related expenses, $9
million and $23 million , respectively, in transmission and distribution expenses
primarily associated with line maintenance, and $3 million and $6 million ,
respectively, in customer service and sales expenses primarily associated with
contract services. See Note 2 to the financial statements under "Alabama Power -
Rate CNP Compliance" in Item 8 of the Form 10-K for additional information.
Interest Expense, Net of Amounts Capitalized
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$7 8.3 $12 7.1
For year-to-date 2022, interest expense, net of amounts capitalized was
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Income Taxes
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$17 16.3 $14 6.6
In the second quarter 2022, income taxes were
Georgia Power Net Income Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$465 325.2 $499 101.0
Georgia Power's net income in the second quarter 2022 was $608 million compared
to $143 million for the corresponding period in 2021. For year-to-date 2022 net
income was $1.0 billion compared to $0.5 billion for the corresponding period in
2021. The increases were primarily due to increases in retail revenues
associated with rates and pricing and warmer weather in Georgia Power's service
territory in the second quarter and year-to-date 2022 compared to the
corresponding periods in 2021 and decreases of $304 million and $340 million in
the second quarter and year-to-date 2022, respectively, in after-tax charges
related to the construction of Plant Vogtle Units 3 and 4, partially offset by
higher non-fuel operations and maintenance costs.
See Note (B) to the Condensed Financial Statements herein and Note 2 to the
financial statements in Item 8 of the Form 10-K under "
Retail Revenues
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$882 43.5 $1,113 29.2
In the second quarter 2022, retail revenues were
Details of the changes in retail revenues were as follows:
Second Quarter 2022 Year-To-Date 2022
(in millions) (% change) (in millions) (% change)
Retail - prior year $ 2,026 $ 3,813
Estimated change resulting from -
Rates and pricing 231 11.4 % 285 7.5 %
Sales growth 45 2.2 47 1.2
Weather 72 3.5 91 2.4
Fuel cost recovery 534 26.4 690 18.1
Retail - current year $ 2,908 43.5 % $ 4,926 29.2 %
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Revenues associated with changes in rates and pricing increased in the second quarter and year-to-date 2022 when compared to the corresponding periods in 2021. The increases were primarily due to higher contributions from commercial and industrial customers with variable demand-driven pricing, base tariff increases in accordance with the 2019 ARP, and pricing effects associated with residential customer usage. See Note 2 to the financial statements under "Georgia Power - Rate Plans" in Item 8 of the Form 10-K for additional information. Revenues attributable to changes in sales increased in the second quarter and year-to-date 2022 when compared to the corresponding periods in 2021. Weather-adjusted residential KWH sales increased 2.6% in the second quarter 2022 and were flat year-to-date 2022 and weather-adjusted commercial KWH sales increased 3.2% and 2.7% in the second quarter and year-to-date 2022, respectively, when compared to the corresponding periods in 2021 primarily due to the impacts on customer usage from increased activity outside the home following the expiration of COVID-19 restrictions and customer growth. Weather-adjusted industrial KWH sales increased 3.1% and 3.3% in the second quarter and year-to-date 2022, respectively, when compared to the corresponding periods in 2021 primarily due to increases in the paper and pipeline sectors, partially offset by a decrease in the chemicals sector. Fuel revenues and costs are allocated between retail and wholesale jurisdictions. Retail fuel cost recovery revenues increased in the second quarter and year-to-date 2022 when compared to the corresponding periods in 2021 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.
Wholesale Revenues
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$28 77.8 $50 62.5
In the second quarter 2022, wholesale revenues were $64 million compared to $36
million for the corresponding period in 2021. For year-to-date 2022, wholesale
revenues were $130 million compared to $80 million for the corresponding period
in 2021. The increases were primarily due to increases of $28 million and $46
million in the second quarter and year-to-date 2022, respectively, related to
the average cost of fuel primarily due to higher natural gas and coal prices.
Also contributing to the increase for year-to-date 2022 was a $6 million
increase in KWH sales associated with higher market demand.
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.
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Other Revenues
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$(14) (8.6) $(30) (9.9)
In the second quarter 2022, other revenues were $149 million compared to $163
million for the corresponding period in 2021. For year-to-date 2022, other
revenues were $272 million compared to $302 million for the corresponding period
in 2021. The decreases for the second quarter and year-to-date 2022 were
primarily due to decreases of $12 million and $20 million , respectively,
resulting from the termination of a transmission service contract and net
decreases of $8 million and $15 million , respectively, in unregulated sales
primarily due to the timing of revenue recognition for a large, ongoing power
delivery construction and maintenance contract, partially offset by increases
associated with more energy conservation projects performed in 2022 and outdoor
lighting sales growth. The decreases were also partially offset by increases of
$9 million and $10 million , respectively, in open access transmission tariff
sales.
Fuel and Purchased Power Expenses
Second Quarter 2022 vs. Year-to-Date 2022 vs.
Second Quarter 2021 Year-to-Date 2021
(change in millions) (% change) (change in millions) (% change)
Fuel $ 285 83.1 $ 390 59.5
Purchased power - non-affiliates 102 70.8 108 37.5
Purchased power - affiliates 174 116.8 244 85.6
Total fuel and purchased power
expenses $ 561 $ 742
In the second quarter 2022, total fuel and purchased power expenses were $1.20
billion compared to $0.64 billion for the corresponding period in 2021. For
year-to-date 2022, total fuel and purchased power expenses were $1.97 billion
compared to $1.23 billion for the corresponding period in 2021. The increases
for the second quarter and year-to-date 2022 were primarily due to increases of
$474 million and $609 million , respectively, related to the average cost of fuel
and purchased power and increases of $87 million and $133 million , respectively,
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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Second Quarter 2022 Second Quarter 2021 Year-To-Date 2022 Year-To-Date 2021
Total generation (in billions of KWHs) 15 15 30 30 Total purchased power (in billions of KWHs) 8 7 16 14 Sources of generation (percent) - Gas 45 46 45 47 Nuclear 27 28 25 27 Coal 24 22 25 22 Hydro and other 4 4 5 4 Cost of fuel, generated (in cents per net KWH) - Gas 5.10 2.65 4.34 2.62 Coal 3.68 3.09 3.54 3.01 Nuclear 0.76 0.80 0.76 0.79 Average cost of fuel, generated (in cents per net KWH) 3.52 2.21 3.18 2.18 Average cost of purchased power (in cents per 8.22 4.77 6.58 4.49
net KWH)(*)
(*)Average cost of purchased power includes fuel purchased by
Fuel
In the second quarter 2022, fuel expense was$628 million compared to$343 million for the corresponding period in 2021. The increase was primarily due to increases of 92.5% and 19.1% in the average cost per KWH generated by natural gas and coal, respectively, and an 11.1% increase in the volume of KWHs generated by coal. For year-to-date 2022, fuel expense was$1.05 billion compared to$0.66 billion for the corresponding period in 2021. The increase was primarily due to increases of 65.6% and 17.6% in the average cost per KWH generated by natural gas and coal, respectively, and a 15.2% increase in the volume of KWHs generated by coal.
In the second quarter 2022, purchased power expense from non-affiliates was$246 million compared to$144 million for the corresponding period in 2021. For year-to-date 2022, purchased power expense from non-affiliates was$396 million compared to$288 million for the corresponding period in 2021. The increases for the second quarter and year-to-date 2022 were primarily due to increases of 73.9% and 32.7%, respectively, in the volume of KWHs purchased due to higher demand primarily driven by warmer weather in the second quarter 2022 and increases of 17.0% and 16.1%, respectively, in the average cost per KWH purchased primarily due to higher natural gas and coal prices.
Energy purchases from non-affiliates will vary depending on the market prices of
wholesale energy as compared to the cost of
In the second quarter 2022, purchased power expense from affiliates was$323 million compared to$149 million for the corresponding period in 2021. For year-to-date 2022, purchased power expense from affiliates was$529 million compared to$285 million for the corresponding period in 2021. The increases for the second quarter and year-to-date 2022 were primarily due to increases of 127.0% and 74.3%, respectively, in the average cost per KWH purchased primarily due to higher natural gas and coal prices. The increase for year-to-date 2022 was also due to an 117 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements
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increase of 9.9% in the volume of KWHs purchased due to lower cost
Energy purchases from affiliates will vary depending on the demand and the
availability and cost of generating resources at each company within
Other Operations and Maintenance Expenses
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$31 5.7 $76 7.5
In the second quarter 2022, other operations and maintenance expenses were $573
million compared to $542 million for the corresponding period in 2021. The
increase was primarily due to increases of $14 million in transmission and
distribution expenses primarily associated with line maintenance, $9 million
associated with more unregulated energy conservation projects in 2022, $8
million in generation expenses primarily related to non-outage maintenance
costs, $8 million in certain compensation and benefit expenses, $7 million in
legal and regulatory expenses, and $4 million in amortization of cloud software,
partially offset by a decrease of $16 million related to unregulated power
delivery construction and maintenance projects.
For year-to-date 2022, other operations and maintenance expenses were $1.09
billion compared to $1.02 billion for the corresponding period in 2021. The
increase was primarily due to increases of $49 million in transmission and
distribution expenses primarily associated with line maintenance, $27 million in
generation expenses primarily related to non-outage maintenance costs, $11
million in certain compensation and benefit expenses, $7 million in legal and
regulatory expenses, and $5 million in amortization of cloud software, partially
offset by a decrease of $26 million related to unregulated power delivery
construction and maintenance projects and $17 million in gains from sales of
integrated transmission system assets.
Depreciation and Amortization
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$14 4.1 $26 3.8
In the second quarter 2022, depreciation and amortization was $356 million
compared to $342 million for the corresponding period in 2021. For year-to-date
2022, depreciation and amortization was $706 million compared to $680 million
for the corresponding period in 2021. The increases for the second quarter and
year-to-date 2022 were primarily due to additional plant in service and
increases of $4 million and $6 million , respectively, in amortization of
regulatory assets related to CCR AROs under the terms of the 2019 ARP. See Note
2 to the financial statements in Item 8 of the Form 10-K under "Georgia Power -
Rate Plans - 2019 ARP" for additional information on recovery of CCR AROs.
Taxes Other Than Income Taxes
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$23 19.5 $30 12.8
In the second quarter 2022, taxes other than income taxes was $141 million
compared to $118 million for the corresponding period in 2021. For year-to-date
2022, taxes other than income taxes was $265 million compared to $235 million
for the corresponding period in 2021. The increases were primarily due to
increases in municipal franchise fees largely related to higher retail revenues.
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Estimated Loss on Plant Vogtle Units 3 and 4
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$(408) (88.7) $(456) (89.8)
In the second quarter 2022 and 2021, Georgia Power recorded estimated probable
losses on Plant Vogtle Units 3 and 4 of $52 million and $460 million ,
respectively. For year-to-date 2022 and 2021, Georgia Power recorded estimated
probable losses on Plant Vogtle Units 3 and 4 totaling $52 million and $508
million , respectively. The losses reflect revisions to the 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 herein and Note 2 to the
financial statements in Item 8 of the Form 10-K under "Georgia Power - Nuclear
Construction " for additional information.
Interest Expense, Net of Amounts Capitalized
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$11 10.4 $14 6.7
In the second quarter 2022, interest expense, net of amounts capitalized was
$117 million compared to $106 million for the corresponding period in 2021. For
year-to-date 2022, interest expense, net of amounts capitalized was $224 million
compared to $210 million for the corresponding period in 2021. The increases
were primarily associated with higher average outstanding borrowings. See
FINANCIAL CONDITION AND LIQUIDITY - "Sources of Capital" and "Financing
Activities" herein for additional information on borrowings.
Other Income (Expense), Net
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$12 28.6 $20 24.1
In the second quarter 2022, other income (expense), net was $54 million compared
to $42 million for the corresponding period in 2021. For year-to-date 2022,
other income (expense), net was $103 million compared to $83 million for the
corresponding period in 2021. The increases for the second quarter and
year-to-date 2022 were primarily due to increases of $7 million and $10 million ,
respectively, in customer charges related to contributions in aid of
construction and $4 million and $7 million , respectively, in non-service
cost-related retirement benefits income. See Note (H) to the Condensed Financial
Statements herein for additional information on retirement benefits.
Income Taxes (Benefit)
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$214 N/M $226 N/M
N/M - Not meaningful
In the second quarter 2022, income tax expense was $164 million compared to
income tax benefit of $50 million for the corresponding period in 2021. For
year-to-date 2022, income tax expense was $194 million compared to income tax
benefit of $32 million for the corresponding period in 2021. The increases were
primarily due to a reduction in pre-tax earnings largely resulting from higher
charges in the second quarter and year-to-date 2021 associated with the
construction of Plant Vogtle Units 3 and 4 and an adjustment in the second
quarter 2022 related to a prior year state tax credit carryforward. See Note (B)
to the Condensed Financial Statements herein and Note 2 to the financial
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statements in Item 8 of the Form 10-K under "
Mississippi Power Net Income Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$7 18.4 $4 4.8
Mississippi Power's net income in the second quarter 2022 was $45 million
compared to $38 million for the corresponding period in 2021. For year-to-date
2022, net income was $87 million compared to $83 million for the corresponding
period in 2021. The increases were primarily due to an increase in revenues,
partially offset by an increase in operations and maintenance expenses. The
year-to-date increase was also partially offset by an increase in income taxes.
Retail Revenues
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$33 15.1 $47 11.1
In the second quarter 2022, retail revenues were $252 million compared to $219
million for the corresponding period in 2021. For year-to-date 2022, retail
revenues were $469 million compared to $422 million for the corresponding period
in 2021.
Details of the changes in retail revenues were as follows:
Second Quarter 2022 Year-To-Date 2022
(in millions) (% change) (in millions) (% change)
Retail - prior year $ 219 $ 422
Estimated change resulting from -
Rates and pricing 2 0.9 % 5 1.2 %
Sales growth 2 0.9 4 0.9
Weather 9 4.1 7 1.7
Fuel and other cost recovery 20 9.1 31 7.3
Retail - current year $ 252 15.0 % $ 469 11.1 %
Revenues associated with changes in rates and pricing increased in the second
quarter and year-to-date 2022 when compared to the corresponding periods in 2021
primarily due to new PEP rates that became effective for the first billing cycle
of April 2022 , partially offset by a decrease in revenues associated with a
tolling arrangement. See Note 2 to the financial statements under "Mississippi
Power - Performance Evaluation Plan" in Item 8 of the Form 10-K for additional
information.
Revenues attributable to changes in sales increased in the second quarter and
year-to-date 2022 when compared to the corresponding periods in 2021.
Weather-adjusted residential KWH sales decreased 0.4% in the second quarter 2022
when compared to the corresponding period in 2021 due to a decrease in customer
usage. Weather-adjusted residential KWH sales increased 0.2% for year-to-date
2022 when compared to the corresponding period in 2021 due to customer growth.
Weather-adjusted commercial KWH sales increased 1.2% and 2.0% in the second
quarter and year-to-date 2022, respectively, when compared to the corresponding
periods in 2021 due to customer growth. Industrial KWH sales increased 3.4% and
1.8% in the second quarter and year-to-date 2022, respectively, when
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compared to the corresponding periods in 2021 primarily due to increases in the petroleum, pipeline, and transportation sectors.
Fuel and other cost recovery revenues increased in the second quarter and year-to-date 2022 when compared to the corresponding periods in 2021 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 outsideMississippi Power's service territory. Electric rates include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these provisions, fuel revenues generally equal fuel expenses, including the energy component of purchased power costs, and do not affect net income. See Note 2 to the financial statements in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein under "Mississippi Power " for additional information.
Wholesale Revenues - Non-Affiliates
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$9 16.7 $14 12.0
In the second quarter 2022, wholesale revenues from sales to non-affiliates were
$63 million compared to $54 million for the corresponding period in 2021. For
year-to-date 2022, wholesale revenues from sales to non-affiliates were $131
million compared to $117 million for the corresponding period in 2021. The
increases were primarily due to higher fuel costs and an increase in base
revenue from MRA customers primarily due to warmer weather in 2022.
Wholesale revenues from sales to non-affiliates will vary depending on fuel
prices, the market prices of wholesale energy compared to the cost of
Mississippi Power's and the Southern Company system's generation, demand for
energy within the Southern Company system's electric service territory, and the
availability of the Southern Company system's generation. Increases and
decreases in energy revenues that are driven by fuel prices are accompanied by
an increase or decrease in fuel costs and do not have a significant impact on
net income. In addition, Mississippi Power provides service under long-term
contracts with rural electric cooperative associations and municipalities
located in southeastern Mississippi under cost-based electric tariffs which are
subject to regulation by the FERC . See Note 2 to the financial statements under
"Mississippi Power " in Item 8 of the Form 10-K for additional information. See
Note (B) to the Condensed Financial Statements under "Mississippi Power -
Municipal and Rural Associations Tariff" herein for additional information.
Wholesale Revenues - Affiliates
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$82 N/M $92 N/M
N/M - Not meaningful
In the second quarter 2022, wholesale revenues from sales to affiliates were
$107 million compared to $25 million for the corresponding period in 2021. The
increase was primarily due to increases of $69 million associated with higher
fuel prices, primarily driven by natural gas, and $13 million associated with
higher KWH sales due to lower cost resources as compared to the available
affiliate company generation.
For year-to-date 2022, wholesale revenues from sales to affiliates were $149
million compared to $57 million for the corresponding period in 2021. The
increase was primarily due to increases of $84 million associated with higher
fuel prices, primarily driven by natural gas, and $7 million associated with
higher KWH sales due to lower cost resources as compared to the available
affiliate company generation.
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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 theFERC . These transactions do not have a significant impact on earnings since this energy is generally sold at marginal cost.
Other Revenues
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$7 N/M $6 42.9
N/M - Not meaningful
In the second quarter 2022, other revenues were $12 million compared to $5
million for the corresponding period in 2021. For year-to-date 2022, other
revenues were $20 million compared to $14 million for the corresponding period
in 2021. The increases were primarily due to a $5 million increase in
unregulated sales associated with power delivery construction and maintenance
projects and outdoor lighting.
Fuel and Purchased Power Expenses
Second Quarter 2022 vs. Year-to-Date 2022 vs.
Second Quarter 2021 Year-to-Date 2021
(change in millions) (% change) (change in millions) (% change)
Fuel $ 105 116.0 $ 130 67.9
Purchased power - 1.9 1 6.8
Total fuel and purchased power
expenses $ 105 $ 131
In the second quarter 2022, total fuel and purchased power expenses were $207
million compared to $102 million for the corresponding period in 2021. The
increase was due to a $92 million increase in the average cost of fuel and
purchased power and a $13 million net increase associated with the volume of
KWHs generated and purchased.
For year-to-date 2022, total fuel and purchased power expenses were $339 million
compared to $208 million for the corresponding period in 2021. The increase was
primarily due to a $126 million increase in the average cost of fuel and
purchased power and a $5 million net increase associated with the volume of KWHs
generated and purchased.
Fuel and purchased power energy transactions do not have a significant impact on
earnings since energy expenses are generally offset by energy revenues through
Mississippi Power's fuel cost recovery clause.
Details of Mississippi Power's generation and purchased power were as follows:
Second Quarter 2022 Second Quarter 2021 Year-To-Date 2022 Year-To-Date 2021
Total generation (in millions of KWHs) 4,483 3,813 8,557 8,137
Total purchased power (in millions of KWHs) 166 317 286 438
Sources of generation (percent) -
Gas 88 91 90 91
Coal 12 9 10 9
Cost of fuel, generated (in cents per net
KWH) -
Gas 4.73 2.50 4.04 2.45
Coal 3.95 3.06 3.86 3.12
Average cost of fuel, generated (in cents
per net KWH) 4.63 2.56 4.02 2.52
Average cost of purchased power (in cents
per net KWH) 6.57 3.38 5.72 3.57
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Fuel
In the second quarter 2022, fuel expense was$196 million compared to$91 million for the corresponding period in 2021. The increase was due to an 89.2% increase in the average cost of natural gas per KWH generated, a 29.1% increase in the average cost of coal per KWHs generated, a 52.1% increase in the volume of KWHs generated by coal, and a 16.0% increase in the volume of KWHs generated by natural gas. For year-to-date 2022, fuel expense was$322 million compared to$192 million for the corresponding period in 2021. The increase was due to a 64.9% increase in the average cost of natural gas per KWH generated, a 23.7% increase in the average cost of coal per KWHs generated, a 15.5% increase in the volume of KWHs generated by coal, and a 4.2% increase in the volume of KWHs generated by natural gas.
Other Operations and Maintenance Expenses
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$15 19.7 $23 16.0
In the second quarter 2022, other operations and maintenance expenses were $91
million compared to $76 million for the corresponding period in 2021. The
increase was due to increases of $5 million related to unregulated construction
and maintenance contracts, $3 million associated with storm reserve accruals,
and $3 million in transmission and distribution expenses primarily associated
with line maintenance.
For year-to-date 2022, other operations and maintenance expenses were $167
million compared to $144 million for the corresponding period in 2021. The
increase was primarily due to increases of $6 million in transmission and
distribution expenses primarily associated with line maintenance, $5 million
related to unregulated construction and maintenance contracts, $4 million
associated with storm reserve accruals, and $4 million associated with the
Kemper County energy facility (primarily related to lower salvage proceeds in
2022 as compared to 2021).
See Note 2 to the financial statements in Item 8 of the Form 10-K under
"
Income Taxes
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$4 50.0 $8 66.7
For year-to-date 2022, income taxes were $20 million compared to $12 million for
the corresponding period in 2021. A reduction in the flowback of excess deferred
income taxes associated with new PEP rates that became effective in April 2022
contributed $5 million to the increase, which also reflects $3 million due to
higher pre-tax earnings. See Note (G) to the Condensed Financial Statements
herein for additional information.
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Net Income Attributable to
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$62 172.2 $37 27.8
Net income attributable to Southern Power in the second quarter 2022 was $98
million compared to $36 million for the corresponding period in 2021. Net income
attributable to Southern Power for year-to-date 2022 was $170 million compared
to $133 million for the corresponding period in 2021.The increases were
primarily due to higher revenues driven by higher market prices of energy and
new natural gas PPAs, as well as higher HLBV income associated with tax equity
partnerships. The year-to-date increase was partially offset by gains from the
contributions of wind turbine equipment to various equity method investments in
the first quarter 2021.
Operating Revenues
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$409 83.5 $508 54.6
Total operating revenues include PPA capacity revenues, which are derived
primarily from long-term contracts involving natural gas facilities, and PPA
energy revenues from Southern Power's generation facilities. To the extent
Southern Power has capacity not contracted under a PPA, it may sell power into
an accessible wholesale market, or, to the extent those generation assets are
part of the FERC -approved IIC, it may sell power into the Southern Company power
pool.
Natural Gas Capacity and Energy Revenue
Capacity revenues generally represent the greatest contribution to operating income and are designed to provide recovery of fixed costs plus a return on investment.
Energy is generally sold at variable cost or is indexed to published natural gas indices. Energy revenues will vary depending on the energy demand ofSouthern Power's customers and their generation capacity, as well as the market prices of wholesale energy compared to the cost ofSouthern 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 regardingSouthern Power's PPAs. 124 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements
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Operating Revenues Details
Details of
Second Quarter Second Quarter
2022 2021 Year-To-Date 2022 Year-To-Date 2021
(in millions)
PPA capacity revenues $ 109 $ 96 $ 214 $ 192
PPA energy revenues 579 296 921 541
Total PPA revenues 688 392 1,135 733
Non-PPA revenues 202 93 286 188
Other revenues 9 5 17 9
Total operating revenues $ 899 $ 490 $ 1,438 $ 930
In the second quarter 2022, total operating revenues were
•PPA capacity revenues increased$13 million , or 14%, primarily due to new natural gas PPAs and increased capacity sales under existing natural gas PPAs, partially offset by the contractual expiration of natural gas PPAs. •PPA energy revenues increased$283 million , or 96%, primarily due to a$212 million increase in sales under existing natural gas PPAs resulting from a$171 million increase in the price of fuel and purchased power and a$41 million increase in the volume of KWHs sold. Also contributing to the increase was a$77 million increase in sales associated with new natural gas PPAs.
•Non-PPA revenues increased
For year-to-date 2022, total operating revenues were
•PPA capacity revenues increased$22 million , or 11%, primarily due to new natural gas PPAs and increased capacity sales under existing natural gas PPAs, partially offset by the contractual expiration of natural gas PPAs. •PPA energy revenues increased$380 million , or 70%, primarily due to a$271 million increase in sales under existing natural gas PPAs resulting from a$207 million increase in the price of fuel and purchased power and a$64 million increase in the volume of KWHs sold. Also contributing to the increase was a$124 million increase in sales associated with new natural gas PPAs, partially offset by a$17 million decrease due to the contractual expiration of natural gas PPAs.
•Non-PPA revenues increased
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Fuel and Purchased Power Expenses
Details of
Second Quarter 2022 Second Quarter 2021 Year-To-Date 2022 Year-To-Date 2021
(in billions of KWHs)
Generation 12.8 10.3 23.9 19.7
Purchased power 0.7 0.7 1.1 1.3
Total generation and purchased power 13.5 11.0 25.0 21.0
Total generation and purchased power
(excluding solar, wind, fuel cells, and tolling
agreements) 7.5 6.3 14.4 12.4
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:
Second Quarter 2022 vs. Year-to-Date 2022 vs.
Second Quarter 2021 Year-to-Date 2021
(change in millions) (% change) (change in millions) (% change)
Fuel $ 297 212.1 $ 388 138.1
Purchased power 43 172.0 43 93.5
Total fuel and purchased power expenses $ 340 $ 431
In the second quarter 2022, total fuel and purchased power expenses increased
$340 million , or 206%, compared to the corresponding period in 2021. Fuel
expense increased $297 million due to a $266 million increase associated with
the average cost of fuel and a $31 million increase associated with the volume
of KWHs generated. Purchased power expense increased $43 million primarily due
to an increase in the average cost of purchased power.
For year-to-date 2022, total fuel and purchased power expenses increased $431
million , or 132%, compared to the corresponding period in 2021. Fuel expense
increased $388 million due to a $333 million increase associated with the
average cost of fuel and a $55 million increase associated with the volume of
KWHs generated. Purchased power expense increased $43 million primarily due to
an increase in the average cost of purchased power.
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Gain on Dispositions, Net
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$- - $(37) (94.9)
For year-to-date 2022, gain on dispositions, net was $2 million compared to $39
million for the corresponding period in 2021. The decrease primarily resulted
from gains associated with contributions of wind turbine equipment to various
equity method investments in the first quarter 2021. See Note 15 to the
financial statements under "Southern Power - Development Projects" in Item 8 of
the Form 10-K and Note (E) to the Condensed Financial Statements under "Southern
Power " herein for additional information.
Income Taxes (Benefit)
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$27 N/M $24 N/M
N/M - Not meaningful
In the second quarter 2022, income tax expense was
For year-to-date 2022, income tax expense was$13 million compared to a benefit of$11 million for the corresponding period in 2021. The change was primarily due to higher pre-tax earnings for year-to-date 2022 and a change in state apportionment methodology resulting from tax legislation enacted by theState of Alabama in the first quarter 2021, partially offset by higher wind PTCs for year-to-date 2022.
Net Loss Attributable to Noncontrolling Interests
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$22 N/M $34 103.0
N/M - Not meaningful
In the second quarter 2022, net loss attributable to noncontrolling interests
was $22 million compared to an immaterial loss for the corresponding period in
2021. For year-to-date 2022, net loss attributable to noncontrolling interests
was $67 million compared to $33 million for the corresponding period in 2021.
The increased losses attributable to noncontrolling interests were primarily due
to higher HLBV loss allocations to tax equity partners, partially offset by
higher income allocations to equity partners.
Operating Metrics
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 onSouthern 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. 127 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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
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. 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. Prior to the sale of Sequent onJuly 1, 2021 , wholesale gas services' operating revenues occasionally were 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. 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 reviewingSouthern Company Gas' annual results. Thus,Southern Company Gas' operating results for the interim periods presented are not necessarily indicative of annual results and can vary significantly from quarter to quarter.
Net Income
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$180 N/M $100 30.0
N/M - Not meaningful
In the second quarter 2022, net income was $115 million compared to a net loss
of $65 million for the corresponding period in 2021. The second quarter 2021
results include $112 million of net loss from Sequent, which was sold on July 1,
2021 . Net income increased $59 million at gas pipeline investments primarily as
a result of a 2021 impairment charge related to the PennEast pipeline project
and $12 million at gas distribution operations primarily due to base rate
increases and continued investment in infrastructure replacement.
For year-to-date 2022, net income was $433 million compared to $333 million for
the corresponding period in 2021. Net income increased $59 million at gas
pipeline investments as a result of a 2021 impairment charge related to the
PennEast pipeline project, $43 million at gas distribution operations primarily
due to base rate increases and continued investment in infrastructure
replacement, and $5 million at gas marketing services primarily related to
higher commodity prices and higher sales to commercial customers. The
year-to-date 2021 results also included $14 million of net income from Sequent,
which was sold on July 1, 2021 .
See Notes 2, 7, and 15 to the financial statements under "
Natural Gas Revenues, including Alternative Revenue Programs
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$406 60.0 $769 32.4
In the second quarter 2022, natural gas revenues, including alternative revenue
programs, were $1.1 billion compared to $677 million for the corresponding
period in 2021. For year-to-date 2022, natural gas revenues, including
alternative revenue programs, were $3.1 billion compared to $2.4 billion for the
corresponding period in 2021.
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Details of the changes in natural gas revenues, including alternative revenue
programs, were as follows:
Second Quarter 2022 Year-To-Date 2022
(in millions) (% change) (in millions) (% change)
Natural gas revenues - prior year $ 677 $ 2,371
Estimated change resulting from -
Infrastructure replacement programs and base
rate changes 46 6.8 % 132 5.6 %
Gas costs and other cost recovery 239 35.3 783 33.0
Gas marketing services (5) (0.7) 13 0.5
Wholesale gas services 110 16.2 (187) (7.9)
Other 16 2.4 28 1.2
Natural gas revenues - current year $ 1,083 60.0 % $ 3,140 32.4 %
Revenues from infrastructure replacement programs and base rate changes
increased in the second quarter and year-to-date 2022 compared to the
corresponding periods in 2021 primarily due to rate increases at
Revenues associated with gas costs and other cost recovery increased in the second quarter and year-to-date 2022 compared to the corresponding periods in 2021 primarily due to higher volumes of natural gas sold and higher natural 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 gas marketing services decreased in the second quarter 2022 compared to the corresponding period in 2021 due to unrealized hedge losses and warmer weather in the second quarter 2022. Revenues from gas marketing services increased for year-to-date 2022 compared to the corresponding period in 2021 due to higher commodity prices and higher sales to commercial customers.
The changes in revenues related to wholesale gas services were due to the sale
of Sequent on
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 inIllinois for gas distribution operations and inIllinois andGeorgia for gas marketing services; therefore, weather typically does not have a significant net income impact. The following table presents Heating Degree Days information forIllinois andGeorgia , the primary locations whereSouthern Company Gas' operations are impacted by weather. 2022 2022 2022 2022 vs. vs. vs. vs. Second Quarter normal 2021 Year-to-Date normal 2021 colder Normal(*) 2022 2021 (warmer) (warmer) Normal(*) 2022 2021 colder (warmer) (warmer) (in thousands) (in thousands) Illinois 645 620 634 (3.9) % (2.2) % 3,644 3,627 3,580 (0.5) % 1.3 % Georgia 126 110 142 (12.7) % (22.5) % 1,428 1,361 1,396 (4.7) % (2.5) % (*)Normal represents the 10-year average fromJanuary 1, 2012 throughJune 30, 2021 forIllinois atChicago Midway International Airport and forGeorgia atAtlanta Hartsfield-Jackson International Airport , based on information obtained from theNational Oceanic and Atmospheric Administration ,National Climatic Data Center . 129 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The following table provides the number of customers served by
June 30,
2022 2021 2022 vs. 2021
(in thousands, except market share %) (% change)
Gas distribution operations 4,314 4,300 0.3 %
Gas marketing services
Energy customers(*) 610 612 (0.3) %
Market share of energy customers in Georgia 28.6 % 29.1 %
(*)Gas marketing services' customers are primarily located in
Cost of Natural Gas
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$221 95.7 $732 89.9
Excluding Atlanta Gas Light , which does not sell natural gas to end-use
customers, natural gas distribution rates include provisions to adjust billings
for fluctuations in natural gas costs. Therefore, gas costs recovered through
natural gas revenues generally equal the amount expensed in cost of natural gas
and do not affect net income from gas distribution operations. Cost of natural
gas at gas distribution operations represented 88% and 89% of the total cost of
natural gas in the second quarter and year-to-date 2022, respectively. See
MANAGEMENT'S DISCUSSION AND ANALYSIS - RESULTS OF OPERATIONS - "Southern Company
Gas - Cost of Natural Gas" in Item 7 of the Form 10-K and "Natural Gas Revenues,
including Alternative Revenue Programs" herein for additional information.
In the second quarter 2022, cost of natural gas was $452 million compared to
$231 million for the corresponding period in 2021. For year-to-date 2022, cost
of natural gas was $1.5 billion compared to $814 million for the corresponding
period in 2021. The increases reflect higher gas cost recovery as a result of
increases of 153.2% and 119.4% in natural gas prices in the second quarter and
year-to-date 2022, respectively, compared to the corresponding periods in 2021.
130
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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.
Second Quarter Year-to-Date
2022 2021 2022 vs. 2021 2022 2021 2022 vs. 2021
Gas distribution operations (mmBtu in millions)
Firm 111 103 7.8 % 415 391 6.1 %
Interruptible 22 23 (4.3) 47 50 (6.0)
Total 133 126 5.6 % 462 441 4.8 %
Wholesale gas services (mmBtu in millions/day)
Daily physical sales(*) - 6.1 (100.0) % - 6.6 (100.0) %
Gas marketing services (mmBtu in millions)
Firm:
Georgia 5 4 25.0 % 21 23 (8.7) %
Illinois 1 1 - 4 5 (20.0)
Other 3 2 50.0 7 8 (12.5)
Interruptible large commercial and industrial 3 3 - 7 7 -
Total 12 10 20.0 % 39 43 (9.3) %
(*)As a result of the sale of Sequent, wholesale gas services had no sales in
the second quarter and year-to-date 2022. See Note 15 to the financial
statements under "
Other Operations and Maintenance Expenses
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$33 14.2 $38 7.1
In the second quarter 2022, other operations and maintenance expenses were $266
million compared to $233 million for the corresponding period in 2021. Other
operations and maintenance expenses increased approximately $37 million
excluding expenses related to Sequent in the second quarter 2021. The increase
was primarily due to higher compensation and benefit expenses and higher
expenses passed through directly to customers primarily related to bad debt at
gas distribution operations.
For year-to-date 2022, other operations and maintenance expenses were $570
million compared to $532 million for the corresponding period in 2021. Excluding
$53 million of expenses related to Sequent for year-to-date 2021, other
operations and maintenance expenses increased approximately $91 million . The
increase was primarily due to increases of $33 million in compensation and
benefit expenses, $24 million in expenses passed through directly to customers
primarily related to bad debt at gas distribution operations, $16 million in
technology-related costs, $8 million in customer accounts expenses, and $7
million in expenses primarily related to higher fuel costs.
Depreciation and Amortization
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$5 3.8 $12 4.6
For year-to-date 2022, depreciation and amortization was $275 million compared
to $263 million for the corresponding period in 2021. The increase was primarily
due to continued infrastructure investments at the natural gas distribution
utilities.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Taxes Other Than Income Taxes
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$13 26.5 $33 25.4
In the second quarter 2022, taxes other than income taxes were $62 million
compared to $49 million for the corresponding period in 2021. For year-to-date
2022, taxes other than income taxes were $163 million compared to $130 million
for the corresponding period in 2021. The increases primarily reflect 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.
Earnings (Loss) from Equity Method Investments
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$83 159.6 $82 N/M
N/M - Not meaningful
In the second quarter 2022, earnings from equity method investments were $31
million compared to a loss of $52 million for the corresponding period in 2021.
For year-to-date 2022, earnings from equity method investments were $71 million
compared to a loss of $11 million for the corresponding period in 2021. The
changes were primarily due to a pre-tax impairment charge of $82 million
recorded in the second quarter 2021 related to the PennEast Pipeline project.
See Note 7 to the financial statements under "Southern Company Gas " in Item 8 of
the Form 10-K and Note (E) to the Condensed Financial Statements herein under
"Southern Company Gas " for additional information.
Other Income (Expense), Net
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$30 214.3 $110 141.0
In the second quarter 2022, other income (expense), net was $16 million of
income compared to $14 million of expense for the corresponding period in 2021.
For year-to-date 2022, other income (expense), net was $32 million of income
compared to $78 million of expense for the corresponding period in 2021. The
changes were largely due to charitable contributions of $26 million and $101
million in the second quarter and year-to-date 2021, respectively.
Income Taxes (Benefit)
Second Quarter 2022 vs. Second Quarter 2021 Year-To-Date 2022 vs. Year-To-Date 2021
(change in millions) (% change)
(change in millions) (% change)
$65 224.1 $42 45.7
In the second quarter 2022, income tax expense was $36 million compared to
income tax benefit of $29 million for the corresponding period in 2021. The
change was primarily due to the pre-tax impairment charge at gas pipeline
investments in 2021 related to the PennEast Pipeline project, a pre-tax loss at
wholesale gas services in the second quarter 2021, and higher pre-tax earnings
primarily at gas distribution operations.
For year-to-date 2022, income taxes were $134 million compared to $92 million
for the corresponding period in 2021. The increase was primarily due to the
pre-tax impairment charge at gas pipeline investments in 2021 related to the
PennEast Pipeline project and higher pre-tax earnings primarily at gas
distribution operations.
132
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
See Note 7 to the financial statements under "Southern Company Gas " in Item 8 of the Form 10-K for additional information on the impairment charge related to the PennEast Pipeline project. Segment Information
Operating revenues, operating expenses, and net income (loss) for each segment
are provided in the table below. See Note (L) to the Condensed Financial
Statements under "
2022 2021
Operating Operating Net Income Operating Operating Net Income
Revenues Expenses (Loss) Revenues Expenses (Loss)
(in millions) (in millions)
Second Quarter
Gas distribution operations $ 980 $ 819 $
92
8 2 23 8 3 (36)
Wholesale gas services(*) - - - (110) 11 (112)
Gas marketing services 92 90 1 64 54 6
All other 10 14 (1) 11 20 (3)
Intercompany eliminations (7) (7) - (6) (6) -
Consolidated $ 1,083 $ 918 $ 115 $ 677 $ 646 $ (65)
Year-to-Date
Gas distribution operations
306 $ 1,910 $ 1,477 $ 263
Gas pipeline investments 16 5 52 16 6 (7)
Wholesale gas services(*) - - - 188 67 14
Gas marketing services 335 240 67 259 174 62
All other 26 35 8 18 35 1
Intercompany eliminations (19) (19) - (20) (20) -
Consolidated $ 3,140 $ 2,554 $ 433 $ 2,371 $ 1,739 $ 333
(*)As a result of the sale of Sequent, wholesale gas services is no longer a
reportable segment for the second quarter and year-to-date 2022. See Note 15 to
the financial statements under "Southern Company Gas " in Item 8 of the Form 10-K
for additional information.
Gas Distribution Operations
Gas distribution operations is the largest component of Southern Company Gas'
business and is subject to regulation and oversight by regulatory agencies in
each of the states it serves. These agencies approve natural gas rates designed
to provide Southern Company Gas with the opportunity to generate revenues to
recover the cost of natural gas delivered to its customers and its fixed and
variable costs, including depreciation, interest expense, operations and
maintenance, taxes, and overhead costs, and to earn a reasonable return on its
investments.
With the exception of Atlanta Gas Light , Southern Company Gas' second largest
utility that operates in a deregulated natural gas market and has a
straight-fixed-variable rate design that minimizes the variability of its
revenues based on consumption, the earnings of the natural gas distribution
utilities can be affected by customer consumption patterns that are a function
of weather conditions, price levels for natural gas, and general economic
conditions that may impact customers' ability to pay for natural gas consumed.
Southern Company Gas has various regulatory and other mechanisms, such as
weather and revenue normalization mechanisms and weather derivative instruments,
that limit its exposure to changes in customer consumption, including weather
changes within typical ranges in its natural gas distribution utilities' service
territories. See Note 2 to the financial statements under "Southern Company Gas "
in Item 8 of the Form 10-K for additional information.
133
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
In the second quarter and year-to-date 2022, net income increased
•Operating revenues increased$270 million and$872 million , respectively, when compared to the corresponding periods in 2021 primarily due to higher gas cost recovery, rate increases, and continued investment in infrastructure replacement. Gas costs recovered through natural gas revenues generally equal the amount expensed in cost of natural gas. •Operating expenses increased$255 million and$816 million , respectively, when compared to the corresponding periods in 2021 primarily due to increases of$195 million and$673 million , respectively, in the cost of gas as a result of higher natural gas prices and higher volumes sold compared to 2021, higher compensation expenses, and higher depreciation resulting from additional assets placed in service. The increase in operating expenses also includes higher costs passed through directly to customers, primarily related to bad debt expenses and revenue taxes. •Other income and (expense) increased$4 million and$9 million , respectively, when compared to the corresponding periods in 2021, 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.
•Interest expense, net of amounts capitalized increased
•Income taxes increased
Gas Pipeline Investments
Gas pipeline investments consists primarily of joint ventures in natural gas pipeline investments including SNG, Dalton Pipeline, and PennEast Pipeline. See Note (E) to the Condensed Financial Statements under "Southern Company Gas " herein for additional information. Net income increased$59 million for both the second quarter and year-to-date 2022 when compared to the corresponding periods in 2021. The increases were primarily due to a pre-tax impairment charge of$82 million ($58 million after tax) in the second quarter 2021 related to the equity method investment in the PennEast Pipeline project. See Note 7 to the financial statements under "Southern Company Gas " in Item 8 of the Form 10-K for additional information.
Gas Marketing Services
Gas marketing services provides energy-related products and services to natural gas markets and participants in customer choice programs that were approved in various states to increase competition. These programs allow customers to choose their natural gas supplier while the local distribution utility continues to provide distribution and transportation services. Gas marketing services is weather sensitive and uses a variety of hedging strategies, such as weather derivative instruments and other risk management tools, to partially mitigate potential weather impacts. In the second quarter 2022, net income decreased$5 million , or 83.3%, when compared to the corresponding period in 2021. The decrease was primarily due to an increase of$36 million in operating expenses primarily due to$32 million in higher cost of gas, largely offset by a related increase of$28 million in operating revenues. For year-to-date 2022, net income increased$5 million , or 8.1%, when compared to the corresponding period in 2021. The increase was primarily due to a$76 million increase in operating revenues as a result of higher commodity prices and higher sales to commercial customers, partially offset by a$66 million increase in operating expenses primarily due to higher cost of natural gas and an increase of$5 million in income taxes as a result of higher pre-tax earnings. 134 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
All Other
All other includes natural gas storage businesses, a renewable natural gas business,AGL Services Company , andSouthern 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.
For year-to-date 2022, net income increased
FUTURE EARNINGS POTENTIAL
Each Registrant's results of operations are not necessarily indicative of its future earnings potential. The level of the Registrants' future earnings depends on numerous factors that affect the opportunities, challenges, and risks of the Registrants' primary businesses of selling electricity and/or distributing natural gas, as described further herein. For the traditional electric operating companies, these factors include the ability to maintain constructive regulatory environments that allow for the timely recovery of prudently-incurred costs during a time of increasing costs, including those related to projected long-term demand growth, stringent environmental standards, including CCR rules, safety, system reliability and resiliency, fuel, restoration following major storms, and capital expenditures, including constructing new electric generating plants and expanding and improving the transmission and distribution systems; continued customer growth; and the trends of higher inflation and reduced electricity usage per customer, especially in residential and commercial markets. ForGeorgia Power , completing construction of Plant Vogtle Units 3 and 4 and the 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 andU.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. The drivers, speed, and depth of the 2020 economic contraction were unprecedented and continue to reduce energy demand acrossthe Southern Company system's service territory, primarily in the commercial class. Retail electric revenues attributable to changes in sales increased in the first half of 2022 when compared to the corresponding period in 2021 primarily due to the normalization of economic activity; however, total retail electric sales forthe Southern Company system continued to be negatively impacted by the COVID-19 pandemic when compared to pre-pandemic trends. 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. In addition, rising inflation in 2021 and 2022 has resulted in increasing costs for many goods and services. As a result of persistently high inflation, interest rates have been on the rise and are expected to continue rising in the near term. Based on these factors, the probability of theU.S. economy falling into a recession has heightened. The impacts of new COVID-19 variants, responses to the COVID-19 pandemic by both customers and governments, ongoing geopolitical threats, such as the escalation of theRussia -Ukraine war, and the potential of future COVID-19-related lockdowns in Asian markets or elsewhere could further disrupt global supply chains and increase the severity of a possible economic downturn inthe Southern Company system's service territory. See RESULTS OF OPERATIONS herein for information on COVID-19-related impacts on energy demand inthe Southern Company system's service territory during the first half of 2022. The level of future earnings forSouthern Power's competitive wholesale electric business depends on numerous factors including the parameters of the wholesale market and the efficient operation of its wholesale generating assets;Southern Power's ability to execute its growth strategy through the development or acquisition of renewable facilities and other energy projects while containing costs; regulatory matters; customer creditworthiness; total electric generating capacity available inSouthern Power's market areas;Southern Power's ability to successfully remarket capacity as current contracts expire; renewable portfolio standards; availability of federal and state ITCs 135 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
and PTCs, which could be impacted by future tax legislation; transmission
constraints; cost of generation from units within
The level of future earnings forSouthern Company Gas' primary business of distributing natural gas and its complementary businesses in the gas pipeline investments and gas marketing services sectors depends on numerous factors. These factors include the natural gas distribution utilities' ability to maintain constructive regulatory environments that allow for the timely recovery of prudently-incurred costs, including those related to projected long-term demand growth, safety, system reliability and resiliency, natural gas, and capital expenditures, including expanding and improving the natural gas distribution systems; the completion and subsequent operation of ongoing infrastructure and other construction projects; customer creditworthiness; certain policies to limit the use of natural gas, such as the potential across certain parts of theU.S. for state or municipal bans on the use of natural gas; andSouthern Company Gas' ability to re-contract storage rates at favorable prices. The volatility of natural gas prices has an impact onSouthern Company Gas' customer rates, its long-term competitive position against other energy sources, and the ability ofSouthern Company Gas' gas marketing services business to capture value from locational and seasonal spreads. Additionally, changes in commodity prices, primarily driven by tight gas supplies, geopolitical events, and diminished gas production, subject a portion ofSouthern Company Gas' operations to earnings variability and have recently resulted in higher natural gas prices. Additional economic factors may contribute to this environment. The demand for natural gas may increase, which may cause natural gas prices to rise and drive higher volatility in the natural gas markets on a longer-term basis. Alternatively, a significant drop in oil and natural gas prices could lead to a consolidation of natural gas producers or reduced levels of natural gas production. Earnings for both the electricity and natural gas businesses are subject to a variety of other factors. These factors include weather; competition; developing new and maintaining existing energy contracts and associated load requirements with wholesale customers; 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; costs and availability of labor and materials in a time of rising costs, impacted by heightened inflation caused by unprecedented shocks to the broader economy, and supply chain disruptions; and the price elasticity of demand. Demand for electricity and natural gas in the Registrants' service territories is primarily driven by the pace of economic growth or decline that may be affected by changes in regional and global economic conditions, which may impact future earnings. As part of its ongoing effort to adapt to changing market conditions,Southern Company continues to evaluate and consider a wide array of potential business strategies. These strategies may include business combinations, partnerships, and acquisitions involving other utility or non-utility businesses or properties, disposition of, or the sale of interests in, certain assets or businesses, internal restructuring, or some combination thereof. Furthermore,Southern Company may engage in new business ventures that arise from competitive and regulatory changes in the utility industry. Pursuit of any of the above strategies, or any combination thereof, may significantly affect the business operations, risks, and financial condition ofSouthern Company . In addition,Southern Power andSouthern Company Gas regularly consider and evaluate joint development arrangements as well as acquisitions and dispositions of businesses and assets as part of their business strategies. See Note 15 to the financial statements in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements herein for additional information. For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT'S DISCUSSION AND ANALYSIS - FUTURE EARNINGS POTENTIAL in Item 7 of the Form 10-K. Environmental Matters See MANAGEMENT'S DISCUSSION AND ANALYSIS - FUTURE EARNINGS POTENTIAL - "Environmental Matters" 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. 136 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Environmental Laws and Regulations
Coal Combustion Residuals
OnJuly 20, 2022 , Mobile Baykeeper, through its counselSouthern Environmental Law Center , released an advance notice of intent to sueAlabama Power for alleged violations of the Resource Conservation and Recovery Act (RCRA) and regulations governing CCR. Mobile Baykeeper claims thatAlabama Power's plan to close the Plant Barry ash pond under the closure-in-place methodology violates regulations governing CCR and the RCRA. Under the RCRA, Mobile Baykeeper is required to giveAlabama Power advance notice of intent at least 60 days before filing suit. See Note 6 to the financial statements in Item 8 of the Form 10-K for a discussion ofAlabama Power's ARO liabilities related to facilities that are subject to the CCR Rule and the related state rule. The ultimate outcome of this matter cannot be determined at this time.
Global Climate Issues
OnJune 30, 2022 , theU.S. Supreme Court issued an opinion limiting theEPA 's authority to regulate greenhouse gas emissions under the Clean Air Act. The Court's review in the case focused on whether theEPA 's authority under the Clean Air Act allows theEPA to regulate the electric industry in a manner as broad as the Clean Power Plan (CPP), which was repealed and replaced by the Affordable Clean Energy rule (ACE Rule). The Court held that the generation shifting to lower carbon emitting sources approach in the CPP is not authorized by the Clean Air Act. However, the Court did not decide whether theEPA may adopt measures only applied at the individual electric generating source, which is the basis for the ACE Rule. TheEPA has announced its intent to propose a rule for existing power plants pursuant to the Clean Air Act byMarch 2023 . The ultimate impact of the Court's decision cannot be determined at this time.
Regulatory Matters
See Note 2 to the financial statements in Item 8 of the Form 10-K, OVERVIEW - "Recent Developments" herein, and Note (B) to the Condensed Financial Statements herein for a discussion of regulatory matters related toAlabama Power ,Georgia Power ,Mississippi Power , andSouthern 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 strategy continues to include developing and constructing new electric generating facilities, expanding and improving the electric transmission and electric and natural gas distribution systems, and undertaking projects to comply with environmental laws and regulations. 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 inthe 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 under "Alabama Power - Certificates of Convenience and Necessity" in Item 8 of the Form 10-K for information regardingAlabama Power's construction ofPlant 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 information about costs relating toSouthern Power's construction of renewable energy facilities.Southern Company Gas is engaged in various infrastructure improvement programs designed to update or expand the natural gas distribution systems of the natural gas distribution utilities to improve reliability and meet operational flexibility and growth. The natural gas distribution utilities recover their investment and a return associated with these infrastructure programs through their regulated rates. See Note 2 to the financial statements in 137 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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