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 ), as well asSouthern 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, wholesale gas services (throughJune 30, 2021 ), and gas marketing services. See Notes (K) and (L) to the Condensed Financial Statements herein for additional information on the sale of Sequent and segment reporting, respectively. For additional information on the Registrants' primary business activities, see BUSINESS - "The Southern Company System" in Item 1 of the Form 10-K. The Registrants continue to focus on several key performance indicators. For the traditional electric operating companies 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 DevelopmentsGeorgia Power Plant Vogtle Unit 3 and Common Facilities Rate Proceeding OnJune 15, 2021 ,Georgia Power filed an application with the Georgia PSC to adjust retail base rates to include a portion of costs related to its investment in Plant Vogtle Unit 3 and common facilities shared between Plant Vogtle Units 3 and 4, as well as the related costs of operation. The request includes an annual rate increase totaling approximately$370 million to be effective the month after Unit 3 is placed in service, which will be partially offset by a decrease in the NCCR tariff of approximately$116 million expected to be effectiveJanuary 1, 2022 . In addition, an estimated$45 million of fuel cost savings related to Unit 3 is already incorporated inGeorgia Power's current fuel cost recovery rates. The Georgia PSC is scheduled to issue a final order in this proceeding onNovember 2, 2021 . The ultimate outcome of this matter cannot be determined at this time. See Note (B) to the Condensed Financial Statements under "Georgia Power - Plant Vogtle Unit 3 and Common Facilities Rate Proceeding" herein for additional information. Plant Vogtle Units 3 and 4Construction 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 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, throughJune 2022 andMarch 2023 , respectively, is$9.22 billion .Georgia Power estimates the productivity impacts of the COVID-19 pandemic have consumed approximately three to four months of schedule margin previously embedded in the site work plan for Unit 3 and Unit 4. In addition, throughout 2020, the project continued to face challenges as described in Note (B) to the Condensed Financial Statements under "Georgia Power -Nuclear Construction " herein. As a result of these factors, inJanuary 2021 , Southern Nuclear further extended certain milestone dates, including the start of hot functional testing and fuel load for Unit 3, from those established inOctober 2020 . 98 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Following theJanuary 2021 milestone extensions, Southern Nuclear has been performing additional construction remediation work necessary to ensure quality and design standards are met as system turnovers are completed to support hot functional testing and fuel load for Unit 3. Hot functional testing for Unit 3 was completed inJuly 2021 . As a result of challenges including, but not limited to, construction productivity, construction remediation work, the pace of system turnovers, spent fuel pool repairs, and the timeframe and duration for hot functional and other testing, at the end of the second quarter 2021, Southern Nuclear further extended certain milestone dates, including the fuel load for Unit 3, from those established inJanuary 2021 . The site work plan currently targets fuel load for Unit 3 in the fourth quarter 2021 and an in-service date ofMarch 2022 . As the site work plan includes minimal margin to these milestone dates, an in-service date in the second quarter 2022 for Unit 3 is projected, although any further delays could result in a later in-service date. As the result of productivity challenges, at the end of the second quarter 2021, Southern Nuclear also further extended milestone dates for Unit 4 from those established inJanuary 2021 . The site work plan targets an in-service date ofNovember 2022 and primarily depends on overall construction productivity and production levels significantly improving as well as appropriate levels of craft laborers, particularly electricians and pipefitters, being added and maintained. As the site work plan includes minimal margin to the milestone dates, an in-service date in the first quarter 2023 for Unit 4 is projected, although any further delays could result in a later in-service date. As ofMarch 31, 2021 , approximately$84 million of the construction contingency established in the fourth quarter 2020 was assigned to the base capital cost forecast for costs primarily associated with the schedule extension for Unit 3 toDecember 2021 , construction productivity, support resources, and construction remediation work.Georgia Power increased its total capital cost forecast as ofMarch 31, 2021 by adding$48 million to the remaining construction contingency. Considering the factors above, during the second quarter 2021, all of the remaining construction contingency previously established and an additional$341 million was assigned to the base capital cost forecast for costs primarily associated with the schedule extensions for Units 3 and 4 described above, construction remediation work for Unit 3, and construction productivity and support resources for Units 3 and 4.Georgia Power also increased its total capital cost forecast as ofJune 30, 2021 by adding$119 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 pre-tax charges to income in the first quarter 2021 and the second quarter 2021 of$48 million ($36 million after tax) and$460 million ($343 million after tax), respectively, for the increases in the total project capital cost forecast. As and when these amounts are spent,Georgia Power may request the Georgia PSC to evaluate those expenditures for rate recovery. The ultimate impact of the COVID-19 pandemic and other factors on the construction schedule and budget for Plant Vogtle Units 3 and 4 cannot be determined at this time. See Note (B) to the Condensed Financial Statements under "Georgia Power -Nuclear Construction " herein for additional information.Mississippi Power OnApril 15, 2021 ,Mississippi Power filed its 2021 IRP with theMississippi PSC. The filing includes a schedule to retire Plant Watson Unit 4 (268 MWs) andMississippi Power's 40% ownership interest in Plant Greene County Units 1 and 2 (103 MWs each) inDecember 2023 , 2025, and 2026, respectively, consistent with each unit's remaining useful life in the most recent approved depreciation studies. In addition, the schedule reflects the early retirement ofMississippi Power's 50% undivided ownership interest in Plant Daniel Units 1 and 2 (502 MWs) by the end of 2027. If no deficiencies are noted that would require re-evaluation or resubmission of the IRP, the 99 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Mississippi PSC's review period will conclude onAugust 13, 2021 . The ultimate outcome of this matter cannot be determined at this time. During the first half of 2021, the Mississippi PSC approved the following rate changes related toMississippi Power's annual rate filings for 2021: •an annual increase in revenues related to the ad valorem tax adjustment factor of approximately$28 million , which became effective with the first billing cycle ofMay 2021 , •an annual increase in revenues related to PEP of approximately$16 million , or 1.8%, which became effective with the first billing cycle ofApril 2021 in accordance with the PEP rate schedule, and •an annual decrease in revenues related to theECO Plan of approximately$9 million , which became effective with the first billing cycle ofJuly 2021 . See Note (B) to the Condensed Financial Statements under "Mississippi Power " herein for additional information.Southern Power During the six months endedJune 30, 2021 ,Southern Power continued construction of the 88-MW Garland and 72-MW Tranquillity battery energy storage facilities and the 118-MW Glass Sands wind facility. OnMarch 26, 2021 ,Southern Power purchased a controlling membership interest in the approximately 300-MW Deuel Harvest wind facility located inDeuel County, South Dakota fromInvenergy Renewables, LLC . See Note (K) to the Condensed Financial Statements under "Southern Power " herein for additional information. AtJune 30, 2021 ,Southern Power's average investment coverage ratio for its generating assets, including those owned with various partners, based on the ratio of investment under contract to total investment using the respective generation facilities' net book value (or expected in-service value for facilities under construction) as the investment amount was 93% through 2025 and 91% through 2030, with an average remaining contract duration of approximately 14 years.Southern Company Gas OnApril 28, 2021 ,Atlanta Gas Light filed its first Integrated Capacity and Delivery Plan (i-CDP) with the Georgia PSC, which includes a series of ongoing and proposed pipeline safety, reliability, and growth programs for the next 10 years, as well as the required capital investments and related costs to implement the programs. The Georgia PSC is scheduled to vote on this matter inNovember 2021 . OnMay 10, 2021 ,Virginia Natural Gas , theVirginia Commission staff, and other intervenors entered into a stipulation agreement related toVirginia Natural Gas' June 2020 general rate case filing, which allows for a$43 million increase in annual base rate revenues, including$14 million related to the recovery of investments under the SAVE program, based on a ROE of 9.5% and an equity ratio of 51.9%. OnJuly 8, 2021 , the hearing examiner issued a report recommending adoption of the stipulation agreement.The Virginia Commission is expected to rule on this matter bySeptember 2021 . Interim rate adjustments became effective as ofNovember 1, 2020 , subject to refund, based onVirginia Natural Gas' original request for an increase of approximately$50 million . OnJuly 21, 2021 ,Atlanta Gas Light filed its annual GRAM filing with the Georgia PSC requesting an annual base rate increase of$49 million . Resolution of the GRAM filing is expected byDecember 31, 2021 , with the new rates to become effectiveJanuary 1, 2022 . See Note (B) to the Condensed Financial Statements under "Southern Company Gas " herein for additional information. The ultimate outcome of these matters cannot be determined at this time. During the second quarter 2021,Southern Company Gas recorded a pre-tax impairment charge of$82 million ($58 million after tax) related to its equity method investment in the PennEast Pipeline project. See Notes (C) and (E ) to 100 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) the Condensed Financial Statements herein under "Other Matters -Southern Company Gas " and "Southern Company Gas ," respectively, for additional information. OnJuly 1, 2021 ,Southern Company Gas affiliates completed the sale of Sequent toWilliams Field Services Group for a total cash purchase price of$150 million , including estimated working capital adjustments. The preliminary gain associated with the transaction is approximately$90 million , which will be recorded in the third quarter 2021. See Note (K) to the Condensed Financial Statements under "Southern Company Gas " herein for additional information. RESULTS OF OPERATIONSSouthern Company Net Income Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020 (change in millions) (% change)
(change in millions) (% change)
$(240) (39.2) $28 1.9
Consolidated net income attributable to Southern Company was $372 million ($0.35
per share) for the second quarter 2021 compared to $612 million ($0.58 per
share) for the corresponding period in 2020. The decrease was primarily due to a
$232 million increase in after-tax charges related to the construction of Plant
Vogtle Units 3 and 4 at Georgia Power and an after-tax impairment charge related
to the PennEast Pipeline project at Southern Company Gas , partially offset by a
decrease in after-tax leveraged lease impairment charges. The decrease was also
due to higher non-fuel operations and maintenance costs, partially offset by
higher retail electric revenues associated with rates and pricing and sales
growth.
Consolidated net income attributable to Southern Company was $1.51 billion
($1.42 per share) for year-to-date 2021 compared to $1.48 billion ($1.40 per
share) for the corresponding period in 2020. The increase was primarily due to
increases in both natural gas revenues and retail electric revenues associated
with colder weather in the first quarter 2021 as compared to the corresponding
period in 2020, higher retail electric revenues associated with rates and
pricing and sales growth, and higher wholesale electric capacity revenues,
largely offset by higher non-fuel operations and maintenance costs and the net
impact of the charges in the second quarter 2021 and 2020, as described
previously.
Retail Electric Revenues
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$417 13.1 $681 10.9
In the second quarter 2021, retail electric revenues were $3.6 billion compared
to $3.2 billion for the corresponding period in 2020. For year-to-date 2021,
retail electric revenues were $6.9 billion compared to $6.3 billion for the
corresponding period in 2020.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Details of the changes in retail electric revenues were as follows:
Second Quarter 2021 Year-To-Date 2021
(in millions) (% change) (in millions) (% change)
Retail electric - prior year $ 3,182 $ 6,260
Estimated change resulting from -
Rates and pricing 112 3.5 % 137 2.2 %
Sales growth 86 2.7 72 1.2
Weather 18 0.6 106 1.7
Fuel and other cost recovery 201 6.3 366 5.8
Retail electric - current year $ 3,599 13.1 % $ 6,941 10.9 %
Revenues associated with changes in rates and pricing increased in the second
quarter and year-to-date 2021 when compared to the corresponding periods in 2020
primarily due to an increase in Alabama Power's Rate RSE effective January 1,
2021 and increases at Georgia Power resulting from higher contributions by
commercial and industrial customers with variable demand-driven pricing, higher
pricing effects associated with decreased residential customer usage, and
increased ECCR tariff revenues associated with higher KWH sales, partially
offset by decreases in the NCCR tariff effective January 1, 2021 . See Note 2 to
the financial statements under "Alabama Power - Rate RSE" in Item 8 of the Form
10-K and Note (B) to the Condensed Financial Statements under "Georgia Power -
Nuclear Construction - Regulatory Matters" herein for additional information.
Revenues attributable to changes in sales increased in the second quarter and
year-to-date 2021 when compared to the corresponding periods in 2020.
Weather-adjusted residential KWH sales decreased 2.0% and 0.4% in the second
quarter and year-to-date 2021, respectively, when compared to the corresponding
periods in 2020 as customer usage decreased, primarily due to shelter-in-place
orders in effect during 2020, partially offset by customer growth.
Weather-adjusted commercial KWH sales increased 8.7% and 2.7% in the second
quarter and year-to-date 2021, respectively, and industrial KWH sales increased
11.7% and 4.0% in the second quarter and year-to-date 2021, respectively, when
compared to the corresponding periods in 2020, primarily due to the negative
impact of the COVID-19 pandemic on energy demand in 2020.
Fuel and other cost recovery revenues increased $201 million and $366 million in
the second quarter and year-to-date 2021, respectively, compared to the
corresponding periods in 2020 primarily due to higher fuel and purchased power
costs. Electric rates for the traditional electric operating companies include
provisions to adjust billings for fluctuations in fuel costs, including the
energy component of purchased power costs. Under these provisions, fuel revenues
generally equal fuel expenses, including the energy component of PPA costs, and
do not affect net income. The traditional electric operating companies each have
one or more regulatory mechanisms to recover other costs such as environmental
and other compliance costs, storm damage, new plants, and PPA capacity costs.
Wholesale Electric Revenues
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$74 15.7 $202 22.7
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
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AND RESULTS OF OPERATIONS (Continued)
decrease in fuel costs and do not have a significant impact on net income.
Energy sales from solar and wind PPAs do not have a capacity charge and
customers either purchase the energy output of a dedicated renewable facility
through an energy charge or through a fixed price related to the energy. As a
result, the ability to recover fixed and variable operations and maintenance
expenses is dependent upon the level of energy generated from these facilities,
which can be impacted by weather conditions, equipment performance, transmission
constraints, and other factors. Wholesale electric revenues at Mississippi Power
include FERC -regulated municipal and rural association sales under cost-based
tariffs as well as market-based sales. Short-term opportunity sales are made at
market-based rates that generally provide a margin above the Southern Company
system's variable cost to produce the energy.
In the second quarter 2021, wholesale electric revenues were $546 million
compared to $472 million for the corresponding period in 2020. For year-to-date
2021, wholesale electric revenues were $1.1 billion compared to $0.9 billion for
the corresponding period in 2020. Increases in energy revenues of $51 million
and $153 million for the second quarter and year-to-date 2021, respectively,
reflect higher natural gas prices when compared to the corresponding periods in
2020. In addition, increases in capacity revenues of $23 million and $49 million
for the second quarter and year-to-date 2021, respectively, primarily resulted
from a power sales agreement at Alabama Power that began in September 2020 and
new natural gas PPAs at Southern Power that began subsequent to the second
quarter 2020.
Other Electric Revenues
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$7 4.2 $26 8.1
For year-to-date 2021, other electric revenues were $346 million compared to
$320 million for the corresponding period in 2020. The increase was primarily
due to increases of $16 million in customer fees largely resulting from the
COVID-19 pandemic-related temporary suspensions of disconnections and late fees
in 2020 for the traditional electric operating companies, $5 million related to
outdoor lighting sales at Georgia Power , and $3 million in transmission
services.
Natural Gas Revenues
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$41 6.4 $486 25.8
In the second quarter 2021, natural gas revenues were $677 million compared to
$636 million for the corresponding period in 2020. For year-to-date 2021,
natural gas revenues were $2.4 billion compared to $1.9 billion for the
corresponding period in 2020.
Details of the changes in natural gas revenues were as follows:
Second Quarter 2021 Year-To-Date 2021
(in millions) (% change) (in millions) (% change)
Natural gas revenues - prior year $ 636 $ 1,885
Estimated change resulting from -
Infrastructure replacement programs and base
rate changes 41 6.4 % 81 4.3 %
Gas costs and other cost recovery 88 13.8 240 12.7
Wholesale gas services (91) (14.3) 156 8.3
Other 3 0.5 9 0.5
Natural gas revenues - current year $ 677 6.4 % $ 2,371 25.8 %
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Revenues from infrastructure replacement programs and base rate changes at the
natural gas distribution utilities increased in the second quarter and
year-to-date 2021 compared to the corresponding periods in 2020 primarily due to
rate increases at Atlanta Gas Light , Virginia Natural Gas , and Chattanooga Gas
and continued investment in infrastructure replacement. See Note 2 to the
financial statements under "Southern Company Gas - Rate Proceedings" in Item 8
of the Form 10-K for additional information.
Revenues associated with gas costs and other cost recovery increased in the
second quarter and year-to-date 2021 compared to the corresponding periods in
2020 primarily due to higher volumes sold and higher gas cost recovery. Natural
gas distribution rates include provisions to adjust billings for fluctuations in
natural gas costs. Therefore, gas costs recovered through natural gas revenues
generally equal the amount expensed in cost of natural gas and do not affect net
income from the natural gas distribution utilities.
Revenues from Southern Company Gas' wholesale gas services business decreased in
the second quarter 2021 compared to the corresponding period in 2020 due to
derivative losses, partially offset by higher commercial activities. Revenues
from wholesale gas services increased for year-to-date 2021 compared to the
corresponding period in 2020 due to higher volumes sold and higher commercial
activities as a result of Winter Storm Uri, partially offset by derivative
losses. See Note (K) to the Condensed Financial Statements under "Southern
Company Gas " herein for information regarding the sale of Sequent on July 1,
2021 .
Other Revenues
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$39 24.1 $75 26.4
In the second quarter 2021, other revenues were $201 million compared to $162
million for the corresponding period in 2020. For year-to-date 2021, other
revenues were $359 million compared to $284 million for the corresponding period
in 2020. The increases for the second quarter and year-to-date 2021 were
primarily due to increases of $28 million and $38 million , respectively, in
unregulated sales of products and services at Alabama Power and Georgia Power
and increases of $15 million and $32 million , respectively, in distributed
infrastructure projects at PowerSecure.
Fuel and Purchased Power Expenses
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change) (change in millions) (% change)
Fuel $ 227 36.6 $ 439 34.9
Purchased power 17 8.5 43 11.3
Total fuel and purchased power expenses $ 244 $ 482
In the second quarter 2021, total fuel and purchased power expenses were $1.1
billion compared to $0.8 billion for the corresponding period in 2020. The
increase was primarily the result of a $163 million increase in the average cost
of fuel and purchased power and an $81 million net increase in the volume of
KWHs generated and purchased.
For year-to-date 2021, total fuel and purchased power expenses were $2.1 billion
compared to $1.6 billion for the corresponding period in 2020. The increase was
primarily the result of a $322 million increase in the average cost of fuel and
purchased power and a $160 million net increase in the volume of KWHs generated
and purchased.
Fuel and purchased power energy transactions at the traditional electric
operating companies are generally offset by fuel revenues and do not have a
significant impact on net income. See Note 2 to the financial statements in Item
8 of the Form 10-K for additional information. Fuel expenses incurred under
Southern Power's PPAs are generally the responsibility of the counterparties and
do not significantly impact net income.
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Details of the Southern Company system's generation and purchased power were as
follows:
Second Quarter 2021 Second Quarter 2020 Year-To-Date 2021 Year-To-Date 2020 Total generation (in billions of KWHs)(a)
43 41 86 82
Total purchased power (in billions of KWHs) 4 4 8 9
Sources of generation (percent)(a) -
Gas 47 55 46 54
Coal 22 19 23 19
Nuclear 18 12 18 13
Hydro 4 5 4 6
Wind, Solar, and Other 9 9 9 8
Cost of fuel, generated (in cents per net KWH)-
Gas(a) 2.58 1.89 2.56 1.92
Coal 2.87 2.96 2.85 2.92
Nuclear 0.75 0.78 0.75 0.78
Average cost of fuel, generated (in cents per
net KWH)(a) 2.28 1.79 2.27 1.82
Average cost of purchased power (in cents per
net KWH)(b) 5.65 4.74 5.37 4.30
(a)Second quarter and year-to-date 2021 excludes Central Alabama Generating
Station KWHs and associated cost of fuel as its fuel is provided by the
purchaser under a power sales agreement. See Note 15 to the financial statements
under "Alabama Power " in Item 8 of the Form 10-K for additional information.
(b)Average cost of purchased power includes fuel purchased by the Southern
Company system for tolling agreements where power is generated by the provider.
Fuel
In the second quarter 2021, fuel expense was $848 million compared to $621
million for the corresponding period in 2020. The increase was primarily due to
an 84.8% increase in the volume of KWHs generated by coal and a 36.5% increase
in the average cost of natural gas per KWH generated, partially offset by an
8.6% decrease in the volume of KWHs generated by natural gas.
For year-to-date 2021, fuel expense was $1.7 billion compared to $1.3 billion
for the corresponding period in 2020. The increase was primarily due to an 81.8%
increase in the volume of KWHs generated by coal, a 27.6% decrease in the volume
of KWHs generated by hydro, and a 33.3% increase in the average cost of natural
gas per KWH generated, partially offset by an 8.9% decrease in the volume of
KWHs generated by natural gas.
Purchased Power
In the second quarter 2021, purchased power expense was $217 million compared to
$200 million for the corresponding period in 2020. The increase was primarily
due to a 19.2% increase in the average cost per KWH purchased primarily due to
higher natural gas prices, partially offset by a 4.5% decrease in the volume of
KWHs purchased.
For year-to-date 2021, purchased power expense was $424 million compared to $381
million for the corresponding period in 2020. The increase was primarily due to
a 24.9% increase in the average cost per KWH purchased primarily due to higher
natural gas prices, partially offset by a 6.6% decrease in the volume of KWHs
purchased.
Energy purchases will vary depending on demand for energy within the Southern
Company system's electric service territory, the market prices of wholesale
energy as compared to the cost of the Southern Company system's generation, and
the availability of the Southern Company system's generation.
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Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$87 60.4 $231 39.6
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 87% of
total cost of natural gas for both the second quarter and year-to-date 2021.
In the second quarter 2021, cost of natural gas was $231 million compared to
$144 million for the corresponding period in 2020. The increase reflects higher
gas cost recovery and a 65.0% increase in natural gas prices in the second
quarter 2021 compared to the corresponding period in 2020.
For year-to-date 2021, cost of natural gas was $814 million compared to $583
million for the corresponding period in 2020. The increase reflects higher
volumes sold due to colder weather and higher gas cost recovery for year-to-date
2021 compared to the corresponding period in 2020. The increase also reflects a
50.6% increase in natural gas prices for year-to-date 2021 compared to the
corresponding period in 2020.
Cost of Other Sales
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$29 39.2 $56 43.4
In the second quarter 2021, cost of other sales was $103 million compared to $74
million for the corresponding period in 2020. For year-to-date 2021, cost of
other sales was $185 million compared to $129 million for the corresponding
period in 2020. The increases for second quarter and year-to-date 2021 primarily
relate to increases of $16 million and $23 million , respectively, in unregulated
power delivery construction and maintenance projects at Georgia Power and $12
million and $22 million , respectively, in distributed infrastructure projects at
PowerSecure.
Other Operations and Maintenance Expenses
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$235 19.5 $312 12.5
In the second quarter 2021, other operations and maintenance expenses were $1.4
billion compared to $1.2 billion for the corresponding period in 2020. The
increase reflects increases of $68 million in scheduled generation outage and
maintenance expenses, $44 million in transmission and distribution expenses,
including $11 million of reliability NDR credits at Alabama Power , and $16
million in compliance and environmental expenses at the traditional electric
operating companies. These increases reflect the impacts of cost containment
activities implemented for 2020 during the COVID-19 pandemic. Also contributing
to the increase was an increase of $46 million in compensation and benefit
expenses.
For year-to-date 2021, other operations and maintenance expenses were $2.8
billion compared to $2.5 billion for the corresponding period in 2020. The
increase reflects increases of $58 million in scheduled generation outage and
maintenance expenses, $52 million in transmission and distribution expenses,
including $22 million of reliability NDR credits at Alabama Power , and $15
million in compliance and environmental expenses at the traditional electric
operating companies. These increases reflect the impacts of cost containment
activities implemented for
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2020 during the COVID-19 pandemic. Also contributing to the increase was an
increase of $101 million in compensation and benefit expenses and an $18 million
decrease in nuclear property insurance refunds.
Depreciation and Amortization
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$18 2.1 $32 1.8
In the second quarter 2021, depreciation and amortization was $891 million
compared to $873 million for the corresponding period in 2020. For year-to-date
2021, depreciation and amortization was $1.8 billion compared to $1.7 billion
for the corresponding period in 2020. The increases for the second quarter and
year-to-date 2021 primarily reflect increases of $42 million and $79 million ,
respectively, in depreciation associated with additional plant in service,
partially offset by decreased amortization of regulatory assets related to CCR
AROs of $22 million and $44 million , respectively, under the terms of Georgia
Power's 2019 ARP. See Note (B) to the Condensed Financial Statements under
"Georgia Power - Rate Plan" herein and Note 2 to the financial statements under
"Georgia Power - Rate Plans - 2019 ARP" in Item 8 of the Form 10-K for
additional information regarding Georgia Power's recovery of costs associated
with CCR AROs.
Taxes Other Than Income Taxes
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$15 5.0 $28 4.5
In the second quarter 2021, taxes other than income taxes were $313 million
compared to $298 million for the corresponding period in 2020. The increase
primarily reflects increases at Georgia Power of $9 million in property taxes
primarily from higher assessed values, including the impact of Plant Vogtle
Units 3 and 4 construction, and $7 million in municipal franchise fees largely
related to higher retail revenues.
For year-to-date 2021, taxes other than income taxes were $657 million compared
to $629 million for the corresponding period in 2020. The increase primarily
reflects increases of $18 million in property taxes primarily from higher
assessed values, including the impact of Plant Vogtle Units 3 and 4
construction, and $10 million in revenue tax expenses as a result of higher
natural gas revenues at Southern Company Gas .
Estimated Loss on Plant Vogtle Units 3 and 4
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$311 208.7 $359 240.9
In the second quarter 2021 and 2020, estimated probable losses on Plant Vogtle
Units 3 and 4 of $460 million and $149 million , respectively, were recorded at
Georgia Power . For year-to-date 2021 and 2020, estimated probable losses on
Plant Vogtle Units 3 and 4 of $508 million and $149 million , respectively, were
recorded at Georgia Power . These 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) (Gain) Loss on Dispositions, Net
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$11 N/M $15 38.5
N/M - Not meaningful
In the second quarter 2021, gain on dispositions, net was $11 million compared
to an immaterial loss for the corresponding period in 2020. The increase
primarily reflects $6 million in gains at Alabama Power primarily from property
sales and a $5 million gain on the sale of Pivotal LNG at Southern Company Gas .
For year-to-date 2021, gain on dispositions, net was $54 million compared to $39
million for the corresponding period in 2020. The increase primarily reflects
$39 million in gains at Southern Power , primarily from contributions of wind
turbine equipment to various equity method investments, $10 million in gains at
Alabama Power primarily from property sales, and a $6 million gain on the sale
of Pivotal LNG at Southern Company Gas , partially offset by a $39 million gain
at Southern Power related to the sale of Plant Mankato in the first quarter
2020.
See Note (E) to the Condensed Financial Statements under "Southern Power "
herein, Note (K) to the Condensed Financial Statements under "Southern Power "
and "Southern Company Gas " herein, and Note 15 to the financial statements under
"Southern Power - Sales of Natural Gas and Biomass Plants" and "Southern Company
Gas - Sale of Pivotal LNG and Atlantic Coast Pipeline" in Item 8 of the Form
10-K for additional information.
Allowance for Equity Funds Used During Construction
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$10 28.6 $22 32.4
In the second quarter 2021, allowance for equity funds used during construction
was $45 million compared to $35 million for the corresponding period in 2020.
For year-to-date 2021, allowance for equity funds used during construction was
$90 million compared to $68 million for the corresponding period in 2020. The
increases were primarily due to increases at Georgia Power , primarily associated
with the construction of Plant Vogtle Units 3 and 4. See Note (B) to the
Condensed Financial Statements under "Georgia Power - Nuclear Construction "
herein for additional information regarding Plant Vogtle Units 3 and 4.
Earnings (Loss) from Equity Method Investments
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$(70) N/M $(67) N/M
N/M - Not meaningful
In the second quarter 2021, loss from equity method investments was $40 million
compared to earnings of $30 million for the corresponding period in 2020. For
year-to-date 2021, earnings from equity method investments were $5 million
compared to $72 million for the corresponding period in 2020. The decreases 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 .
The decreases were partially offset by increases in investment income at
Southern Holdings of $12 million and $17 million for the second quarter and
year-to-date 2021, respectively. See Notes (C) and (E ) to the Condensed
Financial Statements herein under "Other Matters - Southern Company Gas " and
"Southern Company Gas ," respectively, for additional information.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Impairment of Leveraged Leases
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$(147) N/M $(147) N/M
N/M - Not meaningful
In the second quarter 2021 and 2020, impairment charges of $7 million and $154
million , respectively, were recorded related to leveraged lease investments at
Southern Holdings . See Note (K) to the Condensed Financial Statements under
"Assets and Liabilities Held for Sale" herein and Note 3 to the financial
statements under "Other Matters - Southern Company " in Item 8 of the Form 10-K
for additional information.
Other Income (Expense), Net
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$7 6.9 $(37) (18.1)
In the second quarter 2021, other income (expense), net was $108 million
compared to $101 million for the corresponding period in 2020. The increase was
primarily due to a $36 million increase in non-service cost-related retirement
benefits income, partially offset by $26 million in charitable contributions in
the second quarter 2021 at Southern Company Gas .
For year-to-date 2021, other income (expense), net was $167 million compared to
$204 million for the corresponding period in 2020. The decrease was primarily
due to $101 million in charitable contributions at Southern Company Gas ,
partially offset by a $71 million increase in non-service cost-related
retirement benefits income.
See Note (H) to the Condensed Financial Statements herein for additional
information.
Income Taxes (Benefit)
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$(17) N/M $28 18.7
N/M - Not meaningful
In the second quarter 2021, income tax benefit was $12 million compared to
income tax expense of $5 million for the corresponding period in 2020. The
change was primarily due to lower pre-tax earnings, partially offset by the tax
impact of the second quarter 2020 charge to earnings associated with a leveraged
lease investment.
For year-to-date 2021, income taxes were $178 million compared to $150 million
for the corresponding period in 2020. The increase was primarily due to the tax
impact of the second quarter 2020 charge to earnings associated with a leveraged
lease investment.
See Note (G) to the Condensed Financial Statements herein and Note 3 to the
financial statements under "Other Matters - Southern Company " 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)
Alabama Power
Net Income
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$33 11.1 $112 19.4
Alabama Power's net income after dividends on preferred stock for the second
quarter 2021 was $331 million compared to $298 million for the corresponding
period in 2020. Alabama Power's net income after dividends on preferred stock
for year-to-date 2021 was $690 million compared to $578 million for the
corresponding period in 2020. The increases were primarily due to an increase in
retail revenues associated with a Rate RSE adjustment effective in January 2021
and higher customer usage, as well as additional wholesale capacity revenues
related to a power sales agreement that began in September 2020 . Also
contributing to the year-to-date 2021 increase was colder weather in Alabama
Power's service territory in the first quarter 2021 compared to the
corresponding period in 2020. The second quarter and year-to-date 2021 increases
were partially offset by an increase in operations and maintenance expenses and
depreciation.
Retail Revenues
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$131 10.7 $279 11.5
In the second quarter 2021, retail revenues were $1.35 billion compared to $1.22
billion for the corresponding period in 2020. For year-to-date 2021, retail
revenues were $2.71 billion compared to $2.43 billion for the corresponding
period in 2020.
Details of the changes in retail revenues were as follows:
Second Quarter 2021 Year-To-Date 2021
(in millions) (% change) (in millions) (% change)
Retail - prior year $ 1,223 $ 2,427
Estimated change resulting from -
Rates and pricing 66 5.4 % 116 4.8 %
Sales growth 16 1.3 13 0.5
Weather 3 0.2 42 1.7
Fuel and other cost recovery 46 3.8 108 4.5
Retail - current year $ 1,354 10.7 % $ 2,706 11.5 %
Revenues associated with changes in rates and pricing increased in the second
quarter and year-to-date 2021 when compared to the corresponding periods in 2020
primarily due to a Rate RSE increase effective January 1, 2021 . See Note 2 to
the financial statements under "Alabama Power - Rate RSE" in Item 8 of the Form
10-K for additional information.
Revenues attributable to changes in sales increased in the second quarter and
year-to-date 2021 when compared to the corresponding periods in 2020.
Weather-adjusted residential KWH sales decreased 3.9% and 2.0% in the second
quarter and year-to-date 2021, respectively, when compared to the corresponding
periods in 2020 primarily due to safer-at-home guidelines in effect during 2020.
Weather-adjusted commercial KWH sales increased 7.8% and 2.8% in the second
quarter and year-to-date 2021, respectively, and industrial KWH sales increased
10.0% and 1.8% in the second quarter and year-to-date 2021, respectively, when
compared to the corresponding periods in 2020, primarily due to the negative
impact of the COVID-19 pandemic on energy demand in 2020.
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AND RESULTS OF OPERATIONS (Continued)
Fuel and other cost recovery revenues increased in the second quarter and
year-to-date 2021 when compared to the corresponding periods in 2020 primarily
due to increases in generation and the average cost of fuel. Electric rates
include provisions to recognize the recovery of fuel costs, purchased power
costs, PPAs certificated by the Alabama PSC, and costs associated with the 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 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$31 57.4 $67 60.4
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.
In the second quarter 2021, wholesale revenues from sales to non-affiliates were
$85 million compared to $54 million for the corresponding period in 2020. For
year-to-date 2021, wholesale revenues from sales to non-affiliates were $178
million compared to $111 million for the corresponding period in 2020. The
second quarter and year-to-date 2021 increases consisted of increases in
capacity revenues of $18 million and $35 million , respectively, primarily
related to a power sales agreement that began in September 2020 and increases in
energy revenues of $13 million and $32 million , respectively, primarily due to
higher natural gas prices.
Wholesale Revenues - Affiliates
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$17 242.9 $29 111.5
Wholesale revenues from sales to affiliated companies will vary depending on
demand and the availability and cost of generating resources at each company.
These affiliate sales are made in accordance with the IIC, as approved by the
FERC . These transactions do not have a significant impact on earnings since this
energy is generally sold at marginal cost and energy purchases are generally
offset by energy revenues through Alabama Power's energy cost recovery clause.
In the second quarter 2021, wholesale revenues from sales to affiliates were $24
million compared to $7 million for the corresponding period in 2020. For
year-to-date 2021, wholesale revenues from sales to affiliates were $55 million
compared to $26 million for the corresponding period in 2020. The second quarter
and year-to-date 2021 increases were primarily due to increases of 133.8% and
50.1%, respectively, in the price of energy as a result of higher natural gas
prices and increases of 51.9% and 43.5%, respectively, in KWH sales due to
increased demand for Alabama Power's available lower cost generation compared to
the corresponding periods in 2020.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Other Revenues
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$12 14.8 $24 15.8
In the second quarter 2021, other revenues were $93 million compared to $81
million for the corresponding period in 2020. For year-to-date 2021, other
revenues were $176 million compared to $152 million for the corresponding period
in 2020. The second quarter and year-to-date 2021 increases were primarily due
to increases of $12 million and $15 million , respectively, in unregulated sales
of products and services. In addition, the year-to-date 2021 increase included a
$6 million increase in customer fees largely resulting from the COVID-19
pandemic-related temporary suspensions of disconnections and late fees in 2020.
Fuel and Purchased Power Expenses
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change) (change in millions) (% change)
Fuel $ 64 32.2 $ 139 33.5
Purchased power - non-affiliates (1) (2.0) 8 9.0
Purchased power - affiliates 9 30.0 20 40.8
Total fuel and purchased power
expenses $ 72 $ 167
In the second quarter 2021, total fuel and purchased power expenses were $350
million compared to $278 million for the corresponding period in 2020. The
increase was primarily due a $42 million net increase related to the volume of
KWHs generated and purchased and a $30 million increase in the average cost of
fuel and purchased power.
For year-to-date 2021, total fuel and purchased power expenses were $720 million
compared to $553 million for the corresponding period in 2020. The increase was
primarily due to a $98 million increase related to the volume of KWHs generated
and purchased and a $69 million increase in the average cost of fuel and
purchased power.
Fuel and purchased power energy transactions do not have a significant impact on
earnings, since energy expenses are generally offset by energy revenues through
Alabama Power's energy cost recovery clause. See Note 2 to the financial
statements under "Alabama Power - Rate ECR" in Item 8 of the Form 10-K for
additional information.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Details of
Second Quarter 2021 Second Quarter 2020 Year-To-Date 2021 Year-To-Date 2020
Total generation (in billions of KWHs)(a) 13 12 28 26 Total purchased power (in billions of KWHs) 2 2 3 3 Sources of generation (percent)(a) - Coal 43 33 45 33 Nuclear 25 32 25 30 Gas 22 24 20 22 Hydro 10 11 10 15 Cost of fuel, generated (in cents per net KWH) - Coal 2.73 2.82 2.74 2.72 Nuclear 0.69 0.75 0.71 0.75 Gas(a) 2.47 1.95 2.49 2.07 Average cost of fuel, generated (in cents per net KWH)(a) 2.10 1.85 2.12 1.86 Average cost of purchased power (in cents per net KWH)(b) 5.57 4.29 5.99 4.51 (a)Second quarter and year-to-date 2021 excludes Central Alabama Generating Station KWHs and associated cost of fuel as its fuel is provided by the purchaser under a power sales agreement. See Note 15 to the financial statements under "Alabama Power " in Item 8 of the Form 10-K for additional information. (b)Average cost of purchased power includes fuel, energy, and transmission purchased byAlabama Power for tolling agreements where power is generated by the provider. Fuel In the second quarter 2021, fuel expense was$263 million compared to$199 million for the corresponding period in 2020. The increase was primarily due to a 44.6% increase in the volume of KWHs generated by coal and a 26.7% increase in the average cost of KWHs generated by natural gas, which excludes tolling agreements. For year-to-date 2021, fuel expense was$554 million compared to$415 million for the corresponding period in 2020. The increase was primarily due to a 44.6% increase in the volume of KWHs generated by coal, a 26.9% decrease in the volume of KWHs generated by hydro, and a 20.3% increase in the average cost of KWHs generated by natural gas, which excludes tolling agreements.Purchased Power - Affiliates In the second quarter 2021, purchased power expense from affiliates was$39 million compared to$30 million for the corresponding period in 2020. For year-to-date 2021, purchased power expense from affiliates was$69 million compared to$49 million for the corresponding period in 2020. The second quarter and year-to-date 2021 increases were primarily due to increases of 74.2% and 70.7%, respectively, in the average cost per KWH purchased as a result of higher natural gas prices, partially offset by decreases of 27.0% and 17.2%, respectively, in the volume of KWH purchased as a result of increased generation compared to the corresponding periods in 2020. 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 . 113 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Other Operations and Maintenance Expenses
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$71 20.8 $85 12.3
In the second quarter 2021, other operations and maintenance expenses were $413
million compared to $342 million for the corresponding period in 2020. The
increase was primarily due to an increase of $36 million in generation expenses
associated with scheduled outages and Rate CNP Compliance-related expenses
primarily related to the addition of new environmental systems in 2021. These
increases reflect the impacts of cost containment activities implemented for
2020 during the COVID-19 pandemic. Also contributing to the increase were
increases of $17 million in compensation and benefit expenses and $5 million
related to unregulated services, as well as $11 million of reliability NDR
credits applied in 2020.
For year-to-date 2021, other operations and maintenance expenses were $775
million compared to $690 million for the corresponding period in 2020. The
increase was primarily due to an increase of $34 million in generation expenses
associated with scheduled outages and Rate CNP Compliance-related expenses
primarily related to the addition of new environmental systems in 2021. These
increases reflect the impacts of cost containment activities implemented for
2020 during the COVID-19 pandemic. Also contributing to the increase were
increases of $17 million in compensation and benefit expenses and $7 million
related to unregulated services, as well as $22 million of reliability NDR
credits applied in 2020 and a $10 million decrease in nuclear property insurance
refunds. These increases were partially offset by gains of $10 million primarily
related to property sales and an $8 million decrease in bad debt expense.
See Note 2 to the financial statements under "Alabama Power - Rate NDR" and " -
Rate CNP Compliance" in Item 8 of the Form 10-K for additional information.
Depreciation and Amortization
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$12 5.9 $23 5.7
In the second quarter 2021, depreciation and amortization was $214 million
compared to $202 million in the corresponding period in 2020. For year-to-date
2021, depreciation and amortization was $425 million compared to $402 million
for the corresponding period in 2020. These increases were primarily due to
additional plant in service, including the purchase of the Central Alabama
Generating Station in August 2020 . See Note 15 to the financial statements under
"Alabama Power " in Item 8 of the Form 10-K for additional information.
Other Income (Expense), Net
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$7 26.9 $14 29.2
In the second quarter 2021, other income (expense), net was $33 million compared
to $26 million for the corresponding period in 2020. For year-to-date 2021,
other income (expense), net was $62 million compared to $48 million for the
corresponding period in 2020. These increases were primarily due to an increase
in non-service cost-related retirement benefits income. The year-to-date 2021
increase was partially offset by a decrease in interest income associated with
lower interest rates. See Note (H) to the Condensed Financial Statements herein
for additional information.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Income Taxes
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$11 11.8 $36 20.3
In the second quarter 2021, income taxes were $104 million compared to $93
million for the corresponding period in 2020. For year-to-date 2021, income
taxes were $213 million compared to $177 million for the corresponding period in
2020. The increases were primarily due to higher pre-tax earnings.
Georgia Power
Net Income
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$(165) (53.6) $(144) (22.6)
Georgia Power's net income for the second quarter 2021 was $143 million compared
to $308 million for the corresponding period in 2020. The decrease was primarily
due to a $232 million increase in after-tax charges related to the construction
of Plant Vogtle Units 3 and 4. Also contributing to the decrease was higher
non-fuel operations and maintenance costs, partially offset by higher retail
revenues associated with sales growth and rates and pricing.
For year-to-date 2021, net income was $494 million compared to $638 million for
the corresponding period in 2020. The decrease was primarily due to a $268
million increase in after-tax charges related to the construction of Plant
Vogtle Units 3 and 4. Also contributing to the decrease was higher non-fuel
operations and maintenance costs, partially offset by higher retail revenues
associated with colder weather in the first quarter 2021 as compared to the
corresponding period in 2020 and sales growth.
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 regarding Plant Vogtle Units 3 and 4.
Retail Revenues
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$266 15.1 $378 11.0
In the second quarter 2021, retail revenues were
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Details of the changes in retail revenues were as follows:
Second Quarter 2021 Year-To-Date 2021
(in millions) (% change) (in millions) (% change)
Retail - prior year $ 1,760 $ 3,435
Estimated change resulting from -
Rates and pricing 38 2.2 % 20 0.6 %
Sales growth 64 3.6 59 1.7
Weather 18 1.0 59 1.7
Fuel cost recovery 146 8.3 240 7.0
Retail - current year $ 2,026 15.1 % $ 3,813 11.0 %
Revenues associated with changes in rates and pricing increased in the second
quarter and year-to-date 2021 when compared to the corresponding periods in
2020. These increases were primarily due to higher contributions from commercial
and industrial customers with variable demand-driven pricing, pricing effects
associated with decreased residential customer usage, and increased ECCR tariff
revenues associated with higher KWH sales. The increases were partially offset
by a decrease in the NCCR tariff effective January 1, 2021 . See Note (B) to the
Condensed Financial Statements under "Georgia Power - Nuclear Construction -
Regulatory Matters" herein for additional information.
Revenues attributable to changes in sales increased in the second quarter and
year-to-date 2021 when compared to the corresponding periods in 2020.
Weather-adjusted residential KWH sales decreased 0.8% in the second quarter 2021
when compared to the corresponding period in 2020 as customer usage decreased,
primarily due to shelter-in-place orders in effect during the second quarter
2020. Weather-adjusted residential KWH sales increased 0.7% for year-to-date
2021 when compared to the corresponding period in 2020 primarily due to customer
growth, partially offset by decreased customer usage, primarily due to
shelter-in-place orders in effect during 2020. Weather-adjusted commercial KWH
sales increased 9.0% and 2.6% in the second quarter and year-to-date 2021,
respectively, and weather-adjusted industrial KWH sales increased 14.0% and 7.3%
in the second quarter and year-to-date 2021, respectively, when compared to the
corresponding periods in 2020, primarily due to the negative impact of the
COVID-19 pandemic on energy demand in 2020.
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 2021 when compared to the corresponding periods in 2020
due to higher fuel and purchased power costs. Electric rates include provisions
to adjust billings for fluctuations in fuel costs, including the energy
component of purchased power costs. Under these fuel cost recovery provisions,
fuel revenues generally equal fuel expenses and do not affect net income. See
Note 2 to the financial statements under "Georgia Power - Fuel Cost Recovery" in
Item 8 of the Form 10-K for additional information.
Wholesale Revenues
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$11 44.0 $29 56.9
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
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
accompanied by an increase or decrease in fuel costs and do not have a
significant impact on net income. Short-term opportunity sales are made at
market-based rates that generally provide a margin above Georgia Power's
variable cost of energy.
Wholesale revenues from sales to affiliated companies will vary depending on
demand and the availability and cost of generating resources at each company.
These affiliate sales are made in accordance with the IIC, as approved by the
FERC . These transactions do not have a significant impact on earnings since this
energy is generally sold at marginal cost.
In the second quarter 2021, wholesale revenues were $36 million compared to $25
million for the corresponding period in 2020. For year-to-date 2021, wholesale
revenues were $80 million compared to $51 million for the corresponding period
in 2020. The increases for the second quarter and year-to-date 2021 were
primarily due to increases of 4.3% and 8.9%, respectively, in KWH sales as a
result of higher market demand and higher natural gas prices.
Other Revenues
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$20 14.0 $34 12.7
In the second quarter 2021, other revenues were $163 million compared to $143
million for the corresponding period in 2020. For year-to-date 2021, other
revenues were $302 million compared to $268 million for the corresponding period
in 2020. The increases for the second quarter and year-to-date 2021 were
primarily due to increases of $20 million and $30 million , respectively, in
unregulated sales associated with power delivery construction and maintenance
projects and $7 million and $8 million , respectively, in customer fees largely
resulting from the COVID-19 pandemic-related temporary suspension of
disconnections and late fees in 2020. These increases were partially offset by
decreases of $5 million and $7 million in the second quarter and year-to-date
2021, respectively, associated with the timing of certain unregulated energy
conservation projects.
Fuel and Purchased Power Expenses
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change) (change in millions) (% change)
Fuel $ 117 51.8 $ 198 43.2
Purchased power - non-affiliates 11 8.3 26 9.9
Purchased power - affiliates 27 22.1 34 13.5
Total fuel and purchased power
expenses $ 155 $ 258
In the second quarter 2021, total fuel and purchased power expenses were $636
million compared to $481 million for the corresponding period in 2020. For
year-to-date 2021, total fuel and purchased power expenses were $1.23 billion
compared to $0.97 billion for the corresponding period in 2020. The increases
for the second quarter and year-to-date 2021 were due to increases of $108
million and $184 million , respectively, related to the average cost of fuel and
purchased power and net increases of $47 million and $74 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) Details of Georgia Power's generation and purchased power were as follows:
Second Quarter 2021 Second Quarter 2020 Year-To-Date 2021 Year-To-Date 2020
Total generation (in billions of KWHs) 15 13 30 25 Total purchased power (in billions of KWHs) 7 8 14 16 Sources of generation (percent) - Gas 46 56 47 57 Nuclear 28 32 27 30 Coal 22 7 22 7 Hydro and solar 4 5 4 6 Cost of fuel, generated (in cents per net KWH) - Gas 2.65 2.11 2.62 2.11 Nuclear 0.80 0.81 0.79 0.80 Coal 3.09 3.37 3.01 3.60 Average cost of fuel, generated (in cents per net KWH) 2.21 1.76 2.18 1.82 Average cost of purchased power (in cents per 4.77 3.58 4.49 3.36
net KWH)(*)
(*)Average cost of purchased power includes fuel purchased byGeorgia Power for tolling agreements where power is generated by the provider. Fuel In the second quarter 2021, fuel expense was$343 million compared to$226 million for the corresponding period in 2020. For year-to-date 2021, fuel expense was$656 million compared to$458 million for the corresponding period in 2020. The increases for the second quarter and year-to-date 2021 were primarily due to increases of 261.8% and 247.1%, respectively, in the volume of KWHs generated by coal and increases of 25.6% and 24.2%, respectively, in the average cost of natural gas per KWH generated. The increase for year-to-date 2021 was partially offset by a 16.4% decrease in the average cost of coal per KWH generated.Purchased Power - Non-Affiliates In the second quarter 2021, purchased power expense from non-affiliates was$144 million compared to$133 million in the corresponding period in 2020. For year-to-date 2021, purchased power expense from non-affiliates was$288 million compared to$262 million in the corresponding period in 2020. The increases for the second quarter and year-to-date 2021 were primarily due to increases of 19.4% and 21.6%, respectively, in the average cost per KWH purchased primarily due to higher natural gas prices, partially offset by decreases of 7.9% and 8.9%, respectively, in the volume of KWHs purchased asGeorgia Power units generally dispatched at a lower cost than available market resources. Energy purchases from non-affiliates will vary depending on the market prices of wholesale energy as compared to the cost ofthe Southern Company system's generation, demand for energy withinthe Southern Company system's electric service territory, and the availability ofthe Southern Company system's generation.Purchased Power - Affiliates In the second quarter 2021, purchased power expense from affiliates was$149 million compared to$122 million in the corresponding period in 2020. For year-to-date 2021, purchased power expense from affiliates was$285 million compared to$251 million in the corresponding period in 2020. The increases for the second quarter and year-to-date 2021 were primarily due to increases of 44.7% and 41.3%, respectively, in the average cost per KWH purchased primarily due to higher natural gas prices, partially offset by decreases of 15.2% and 19.1%, respectively, in the 118 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) volume of KWHs purchased due to higher costSouthern Company system resources as compared to availableGeorgia Power -owned generation. Energy purchases from affiliates will vary depending on the demand 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, all as approved by theFERC . Other Operations and Maintenance Expenses Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020 (change in millions) (% change)
(change in millions) (% change)
$79 17.1 $87 9.4
In the second quarter 2021, other operations and maintenance expenses were $542
million compared to $463 million for the corresponding period in 2020. The
increase was primarily associated with increases of $27 million related to
distribution maintenance activities, $14 million in generation expenses
associated with non-outage maintenance costs and environmental projects, and $8
million in transmission overhead line costs. These increases reflect the impacts
of cost containment activities implemented for 2020 during the COVID-19
pandemic. Also contributing to the increase were increases of $16 million
related to unregulated power delivery construction and maintenance projects and
$7 million in benefit expenses.
For year-to-date 2021, other operations and maintenance expenses were $1.02
billion compared to $0.93 billion for the corresponding period in 2020. The
increase was primarily associated with increases of $27 million related to
distribution maintenance activities, $9 million in transmission overhead line
costs, and $8 million in generation environmental projects. These increases
reflect the impacts of cost containment activities implemented for 2020 during
the COVID-19 pandemic. Also contributing to the increase were increases of $23
million related to unregulated power delivery construction and maintenance
projects and $10 million in benefit expenses, as well as an $8 million decrease
in nuclear property insurance refunds, partially offset by a decrease of $9
million in expenses associated with the timing of certain unregulated energy
conservation projects.
Depreciation and Amortization
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$(12) (3.4) $(27) (3.8)
In the second quarter 2021, depreciation and amortization was $342 million
compared to $354 million for the corresponding period in 2020. For year-to-date
2021, depreciation and amortization was $680 million compared to $707 million
for the corresponding period in 2020. The decreases for the second quarter and
year-to-date 2021 primarily reflect decreased amortization of regulatory assets
related to CCR AROs of $22 million and $44 million , respectively, under the
terms of the 2019 ARP, partially offset by increases of $10 million and $20
million , respectively, in depreciation associated with additional plant in
service. See Note (B) to the Condensed Financial Statements under "Georgia Power
- Rate Plan" herein and Note 2 to the financial statements under "Georgia Power
- Rate Plans - 2019 ARP" in Item 8 of the Form 10-K for additional information
regarding recovery of costs associated with CCR AROs.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Taxes Other Than Income Taxes
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$10 9.3 $14 6.3
In the second quarter 2021, taxes other than income taxes was $118 million
compared to $108 million for the corresponding period in 2020. For year-to-date
2021, taxes other than income taxes was $235 million compared to $221 million
for the corresponding period in 2020. The increases for the second quarter and
year-to-date 2021 were primarily due to increases of $7 million and $9 million ,
respectively, in municipal franchise fees largely related to higher retail
revenues and increases of $3 million and $7 million , respectively, in property
taxes primarily associated with the construction 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.
Estimated Loss on Plant Vogtle Units 3 and 4
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$311 208.7 $359 240.9
In the second quarter 2021 and 2020, Georgia Power recorded estimated probable
losses on Plant Vogtle Units 3 and 4 of $460 million and $149 million ,
respectively. For year-to-date 2021 and 2020, Georgia Power recorded estimated
probable losses on Plant Vogtle Units 3 and 4 of $508 million and $149 million ,
respectively. These 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.
Allowance for Equity Funds Used During Construction
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$10 50.0 $21 52.5
In the second quarter 2021, allowance for equity funds used during construction
was $30 million compared to $20 million for the corresponding period in 2020.
For year-to-date 2021, allowance for equity funds used during construction was
$61 million compared to $40 million for the corresponding period in 2020. The
increases were primarily associated with the construction of Plant Vogtle Units
3 and 4. See Note (B) to the Condensed Financial Statements under "Georgia Power
- Nuclear Construction " herein for additional information regarding Plant Vogtle
Units 3 and 4.
Other Income (Expense), Net
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$11 35.5 $20 31.7
In the second quarter 2021, other income (expense), net was $42 million compared
to $31 million for the corresponding period in 2020. For year-to-date 2021,
other income (expense), net was $83 million compared to $63 million for the
corresponding period in 2020. The increases were primarily due to increases of
$12 million and $25 million , respectively, in non-service cost-related
retirement benefits income. The increase for year-to-date 2021 was
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AND RESULTS OF OPERATIONS (Continued)
partially offset by a $5 million decrease in interest income due to lower
short-term cash investments. See Note (H) to the Condensed Financial Statements
herein for additional information on retirement benefits.
Income Taxes (Benefit)
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$(61) N/M $(59) N/M
N/M - Not meaningful
In the second quarter 2021, income tax benefit was $50 million compared to
income tax expense of $11 million for the corresponding period in 2020. For
year-to-date 2021, income tax benefit was $32 million compared to income tax
expense of $27 million for the corresponding period in 2020. The changes were
primarily due to lower pre-tax earnings resulting from higher charges in 2021
compared to the corresponding periods in 2020 associated with the construction
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 " and Note (G) to the Condensed
Financial Statements herein for additional information.
Mississippi Power
Net Income
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$(1) (2.6) $12 16.9
In the second quarter 2021, net income was $38 million compared to $39 million
for the corresponding period in 2020. The decrease was primarily due to an
increase in operations and maintenance expenses and income taxes, largely offset
by an increase in base rates that became effective for the first billing cycle
of April 2021 and higher customer usage in the second quarter 2021 when compared
to the corresponding period in 2020.
For year-to-date 2021, net income was $83 million compared to $71 million for
the corresponding period in 2020. The increase was primarily due to an increase
in base revenues primarily due to colder weather in the first quarter 2021 as
compared to the corresponding period in 2020, as well as an increase in other
income.
Retail Revenues
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$20 10.1 $24 6.0
In the second quarter 2021, retail revenues were $219 million compared to $199
million for the corresponding period in 2020. For year-to-date 2021, retail
revenues were $422 million compared to $398 million for the corresponding period
in 2020.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Details of the changes in retail revenues were as follows:
Second Quarter 2021 Year-To-Date 2021
(in millions) (% change) (in millions) (% change)
Retail - prior year $ 199 $ 398
Estimated change resulting from -
Rates and pricing 8 4.0 % 1 0.3 %
Sales growth 6 3.0 - -
Weather (3) (1.5) 5 1.3
Fuel and other cost recovery 9 4.5 18 4.5
Retail - current year $ 219 10.0 % $ 422 6.1 %
Revenues associated with changes in rates and pricing increased in the second
quarter 2021 when compared to the corresponding period in 2020 primarily due to
an increase in revenues in accordance with new PEP rates that became effective
for the first billing cycle of April 2021 . See Note (B) to the Condensed
Financial Statements under "Mississippi Power - Performance Evaluation Plan"
herein for additional information.
Revenues attributable to changes in sales increased in the second quarter 2021
when compared to the corresponding period in 2020. Weather-adjusted residential
KWH sales decreased 1.9% and 1.3% in the second quarter and year-to-date 2021,
respectively, when compared to the corresponding periods in 2020 as customer
usage decreased, primarily due to shelter-in-place orders in effect during 2020.
Weather-adjusted commercial KWH sales increased 9.0% and 2.4% in the second
quarter and year-to-date 2021, respectively, and industrial KWH sales increased
7.2% in the second quarter 2021 when compared to the corresponding periods in
2020, primarily due to the negative impact of the COVID-19 pandemic on energy
demand in 2020. Industrial KWH sales decreased 2.1% for year-to-date 2021 when
compared to the corresponding period in 2020 as a result of decreased customer
usage due to continued disruptions of supply chain and business operations
driven by the COVID-19 pandemic, as well as non-pandemic related customer
outages.
Fuel and other cost recovery revenues increased in the second quarter and
year-to-date 2021 when compared to the corresponding periods in 2020 primarily
as a result of higher recoverable fuel costs. Recoverable fuel costs include
fuel and purchased power expenses reduced by the fuel portion of wholesale
revenues from energy sold to customers outside Mississippi Power's service
territory. Electric rates include provisions to adjust billings for fluctuations
in fuel costs, including the energy component of purchased power costs. Under
these provisions, fuel revenues generally equal fuel expenses, including the
energy component of purchased power costs, and do not affect net income.
Wholesale Revenues - Non-Affiliates
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$2 3.8 $14 13.6
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.
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For year-to-date 2021, wholesale revenues from sales to non-affiliates were $117
million compared to $103 million for the corresponding period in 2020. The
increase was primarily due to higher fuel costs and an increase in revenue from
MRA customers and opportunity sales as a result of colder weather in the first
quarter 2021.
Wholesale Revenues - Affiliates
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$- - $10 21.3
Wholesale revenues from sales to affiliated companies will vary depending on
demand and the availability and cost of generating resources at each company.
These affiliate sales are made in accordance with the IIC, as approved by the
FERC . These transactions do not have a significant impact on earnings since this
energy is generally sold at marginal cost.
In both the second quarter 2021 and 2020, wholesale revenues from sales to
affiliates were $25 million . Wholesale revenues from sales to affiliates in the
second quarter 2021 reflected a decrease of $11 million associated with lower
KWH sales offset by an $11 million increase associated with higher natural gas
prices when compared to the corresponding period in 2020.
For year-to-date 2021, wholesale revenues from sales to affiliates were $57
million compared to $47 million for the corresponding period in 2020. The
increase was primarily due to a $20 million increase related to higher natural
gas prices, partially offset by a $10 million decrease related to lower KWH
sales.
Fuel and Purchased Power Expenses
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change) (change in millions) (% change)
Fuel $ 8 9.6 $ 30 18.5
Purchased power 4 57.1 4 33.3
Total fuel and purchased power
expenses $ 12 $ 34
In the second quarter 2021, total fuel and purchased power expenses were $102
million compared to $90 million for the corresponding period in 2020. The
increase was primarily due to a $17 million increase in the average cost of
fuel, partially offset by a $5 million decrease associated with the volume of
KWHs generated and purchased.
For year-to-date 2021, total fuel and purchased power expenses were $208 million
compared to $174 million for the corresponding period in 2020. The increase was
primarily due to an increase in the average cost of fuel.
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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Details of Mississippi Power's generation and purchased power were as follows:
Second Quarter 2021 Second Quarter 2020 Year-To-Date 2021 Year-To-Date 2020
Total generation (in millions of KWHs) 3,813 4,484 8,137 8,651 Total purchased power (in millions of KWHs) 317 208 438 396 Sources of generation (percent) - Gas 91 96 91 96 Coal 9 4 9 4 Cost of fuel, generated (in cents per net KWH) - Gas 2.50 1.88 2.45 1.92 Coal 3.06 3.82 3.12 4.02 Average cost of fuel, generated (in cents per net KWH) 2.56 1.97 2.52 2.00 Average cost of purchased power (in cents per net KWH) 3.38 3.27 3.57 2.97 Fuel In the second quarter 2021, fuel expense was$91 million compared to$83 million for the corresponding period in 2020. The increase was primarily due to a 93.4% increase in the volume of KWHs generated by coal and a 33.0% increase in the average cost of natural gas per KWH generated, partially offset by a 21.0% decrease in the volume of KWHs generated by natural gas and a 19.9% decrease in the average cost of coal per KWH generated. For year-to-date 2021, fuel expense was$192 million compared to$162 million for the corresponding period in 2020. The increase was due to a 146.5% increase in the volume of KWHs generated by coal and a 27.6% increase in the average cost of natural gas per KWH generated, partially offset by a 22.4% decrease in the average cost of coal per KWH generated and a 12.5% decrease in the volume of KWHs generated by natural gas. Purchased Power In the second quarter 2021, purchased power expense was$11 million compared to$7 million for the corresponding period in 2020. For year-to-date 2021, purchased power expense was$16 million compared to$12 million for the corresponding period in 2020. The second quarter and year-to-date 2021 increases reflect increases of 52.4% and 10.6%, respectively, in the volume of KWHs purchased and increases of 3.4% and 20.2%, respectively, in the average cost per KWH purchased primarily due to higher natural gas prices. Other Operations and Maintenance Expenses Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020 (change in millions) (% change)
(change in millions) (% change)
$9 13.4 $2 1.4
In the second quarter 2021, other operations and maintenance expenses were $76
million compared to $67 million for the corresponding period in 2020. The
increase was primarily due to increases of $7 million related to planned
generation outage and baseline costs and $2 million related to compensation and
benefit costs.
Other Income (Expense), Net
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$5 83.3 $6 42.9
In the second quarter 2021, other income (expense), net was $11 million compared
to $6 million for the corresponding period in 2020. For year-to-date 2021, other
income (expense), net was $20 million compared to $14
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million for the corresponding period in 2020. The second quarter and
year-to-date 2021 increases were primarily related to increases of $3 million
and $2 million , respectively, in contributions in aid of construction and $2
million and $3 million , respectively, in non-service cost-related retirement
benefits income. See Note (H) to the Condensed Financial Statements herein for
additional information.
Income Taxes
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$6 N/M $4 50.0
N/M - Not meaningful
In the second quarter 2021, income taxes were $8 million compared to $2 million
for the corresponding period in 2020. The increase was primarily due to a $4
million increase associated with the flowback of excess deferred income taxes as
a result of the Mississippi Power Rate Case Settlement and a $1 million increase
due to higher pre-tax earnings.
For year-to-date 2021, income taxes were $12 million compared to $8 million for
the corresponding period in 2020. The increase was primarily due to higher
pre-tax earnings.
Southern Power
Net Income Attributable to Southern Power
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$(27) (42.9) $(5) (3.6)
Net income attributable to Southern Power for the second quarter 2021 was $36
million compared to $63 million for the corresponding period in 2020. Net income
attributable to Southern Power for year-to-date 2021 was $133 million compared
to $138 million for the corresponding period in 2020. The decreases were
primarily due to an increase in other operations and maintenance expenses
associated with scheduled outages and maintenance. Partially offsetting the
year-to-date 2021 decrease was a $16 million tax benefit due to changes in state
apportionment methodology resulting from tax legislation enacted by the State of
Alabama in February 2021 .
Operating Revenues
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$51 11.6 $116 14.3
Total operating revenues include PPA capacity revenues, which are derived
primarily from long-term contracts involving natural gas facilities, and PPA
energy revenues from Southern Power's generation facilities. To the extent
Southern Power has capacity not contracted under a PPA, it may sell power into
an accessible wholesale market, or, to the extent those generation assets are
part of the FERC -approved IIC, it may sell power into the Southern Company power
pool.
Natural Gas Capacity and Energy Revenue
Capacity revenues generally represent the greatest contribution to operating
income and are designed to provide recovery of fixed costs plus a return on
investment.
Energy is generally sold at variable cost or is indexed to published natural gas
indices. Energy revenues will vary depending on the energy demand of Southern
Power's customers and their generation capacity, as well as the market
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prices of wholesale energy compared to the cost of Southern Power's energy.
Energy revenues also include fees for support services, fuel storage, and unit
start charges. Increases and decreases in energy revenues under PPAs that are
driven by fuel or purchased power prices are accompanied by an increase or
decrease in fuel and purchased power costs and do not have a significant impact
on net income.
Solar and Wind Energy Revenue
Southern Power's energy sales from solar and wind generating facilities are
predominantly through long-term PPAs that do not have capacity revenue.
Customers either purchase the energy output of a dedicated renewable facility
through an energy charge or pay a fixed price related to the energy generated
from the respective facility and sold to the grid. As a result, Southern Power's
ability to recover fixed and variable operations and maintenance expenses is
dependent upon the level of energy generated from these facilities, which can be
impacted by weather conditions, equipment performance, transmission constraints,
and other factors.
See FUTURE EARNINGS POTENTIAL - "Southern Power's Power Sales Agreements" in
Item 7 of the Form 10-K for additional information regarding Southern Power's
PPAs.
Operating Revenues Details
Details of Southern Power's operating revenues were as follows:
Second Second
Quarter 2021 Quarter 2020 Year-To-Date 2021 Year-To-Date 2020
(in millions)
PPA capacity revenues $ 96 $ 92 $ 192 $ 181
PPA energy revenues 296 270 541 475
Total PPA revenues 392 362 733 656
Non-PPA revenues 93 73 188 151
Other revenues 5 4 9 7
Total operating revenues $ 490 $ 439 $ 930 $ 814
In the second quarter 2021, total operating revenues were $490 million ,
reflecting a $51 million , or 12%, increase from the corresponding period in
2020. The increase in operating revenues was primarily due to the following:
•PPA capacity revenues increased $4 million , or 4%, primarily due to new natural
gas PPAs, which began subsequent to the second quarter 2020, and increased
capacity on existing contracts, partially offset by the contractual expiration
of natural gas PPAs.
•PPA energy revenues increased $26 million , or 10%, primarily due to a $31
million increase in sales from natural gas facilities resulting from a $39
million increase in the price of fuel and purchased power, partially offset by
an $8 million decrease in the volume of KWHs sold.
•Non-PPA revenues increased $20 million , or 27%, due to a $31 million increase
in the market price of energy, partially offset by an $11 million decrease in
the volume of KWHs sold through short-term sales.
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For year-to-date 2021, total operating revenues were $930 million , reflecting a
$116 million , or 14%, increase from the corresponding period in 2020. The
increase in operating revenues was primarily due to the following:
•PPA capacity revenues increased $11 million , or 6%, primarily due to new
natural gas PPAs, which began subsequent to the second quarter 2020, and
increased capacity on existing contracts, partially offset by the disposition of
Plant Mankato in the first quarter 2020 and the contractual expiration of
natural gas PPAs.
•PPA energy revenues increased $66 million , or 14%, due to a $66 million
increase in sales from natural gas facilities resulting from an $82 million
increase in the price of fuel and purchased power, partially offset by a $16
million decrease in the volume of KWHs sold.
•Non-PPA revenues increased $37 million , or 25%, due to a $69 million increase
in the market price of energy, partially offset by a $32 million decrease in the
volume of KWHs sold through short-term sales.
Fuel and Purchased Power Expenses
Details of Southern Power's generation and purchased power were as follows:
Second Quarter 2021 Second Quarter 2020 Year-To-Date 2021 Year-To-Date 2020
(in billions of KWHs)
Generation 10.3 11.3 19.7 22.0
Purchased power 0.7 0.9 1.3 1.5
Total generation and purchased power 11.0 12.2 21.0 23.5
Total generation and purchased power, excluding
solar, wind, and tolling agreements 6.3 7.4 12.4 14.5
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 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change) (change in millions) (% change)
Fuel $ 38 37.3 $ 72 34.4
Purchased power 7 38.9 14 43.8
Total fuel and purchased power expenses $ 45 $ 86
In the second quarter 2021, total fuel and purchased power expenses increased
$45 million , or 38%, compared to the corresponding period in 2020. Fuel expense
increased $38 million due to a $52 million increase in the average cost of fuel
per KWH generated, partially offset by a $14 million decrease associated with
the volume of KWHs
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AND RESULTS OF OPERATIONS (Continued)
generated. Purchased power expense increased $7 million due to a $10 million
increase associated with the average cost of purchased power, partially offset
by a $3 million decrease associated with the volume of KWHs purchased.
For year-to-date 2021, total fuel and purchased power expenses increased $86
million , or 36%, compared to the corresponding period in 2020. Fuel expense
increased $72 million due to a $102 million increase in the average cost of fuel
per KWH generated, partially offset by a $30 million decrease associated with
the volume of KWHs generated. Purchased power expense increased $14 million due
to a $19 million increase associated with the average cost of purchased power,
partially offset by a $5 million decrease associated with the volume of KWHs
purchased.
Other Operations and Maintenance Expenses
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$34 44.2 $55 35.3
In the second quarter 2021, other operations and maintenance expenses were $111
million compared to $77 million for the corresponding period in 2020. The
increase was primarily due to increases of $20 million in scheduled outage and
maintenance expenses and $4 million in expenses associated with new wind
facilities placed in service in 2020 and 2021.
For year-to-date 2021, other operations and maintenance expenses were $211
million compared to $156 million for the corresponding period in 2020. The
increase was primarily due to increases of $27 million in scheduled outage and
maintenance expenses, $6 million in expenses associated with new wind facilities
placed in service in 2020 and 2021, and $6 million related to the allocation of
uncollected settlements by the Energy Reliability Council of Texas market as a
result of Winter Storm Uri.
Depreciation and Amortization
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$11 9.1 $12 5.0
In the second quarter 2021, depreciation and amortization was $132 million
compared to $121 million for the corresponding period in 2020. For year-to-date
2021, depreciation and amortization was $251 million compared to $239 million
for the corresponding period in 2020. The increases were primarily associated
with new wind facilities placed in service in 2020 and 2021.
(Gain) Loss on Dispositions, Net
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$- - $- -
For year-to-date 2021, gains on dispositions totaled $39 million primarily from
contributions of wind turbine equipment to various equity method investments in
the first quarter 2021. A $39 million gain was also recorded in the first
quarter 2020 related to the sale of Plant Mankato. See Notes (E) and (K) to the
Condensed Financial
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Statements under "Southern Power " herein and Note 15 to the financial statements
under "Southern Power - Sales of Natural Gas and Biomass Plants" in Item 8 of
the Form 10-K for additional information.
Income Taxes (Benefit)
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$(8) (133.3) $(24) (184.6)
In the second quarter 2021, income tax benefit was $2 million compared to income
tax expense of $6 million for the corresponding period in 2020. The change was
primarily due to lower pre-tax earnings.
For year-to-date 2021, income tax benefit was $11 million compared to income tax
expense of $13 million for the corresponding period in 2020. The change was
primarily due to changes in state apportionment methodology resulting from tax
legislation enacted by the State of Alabama in February 2021 and the tax impact
from the sale of Plant Mankato in January 2020 .
See Note (G) to the Condensed Financial Statements herein, MANAGEMENT'S
DISCUSSION AND ANALYSIS - FUTURE EARNINGS POTENTIAL - "Income Tax Matters -
Alabama State Tax Reform Legislation" in Item 7 of the Form 10-K, and Note 15 to
the financial statements under "Southern Power " in Item 8 of the Form 10-K for
additional information.
Southern Company Gas
Operating Metrics
Southern Company Gas continues to focus on several operating metrics, including
Heating Degree Days, customer count, and volumes of natural gas sold.
Southern Company Gas measures weather and the effect on its business using
Heating Degree Days. Generally, increased Heating Degree Days result in higher
demand for natural gas on Southern Company Gas' distribution system. Southern
Company Gas has various regulatory mechanisms, such as weather and revenue
normalization and straight-fixed-variable rate design, which limit its exposure
to weather changes within typical ranges in each of its utility's respective
service territory. Southern Company Gas also utilizes weather hedges to limit
the negative income impacts in the event of warmer-than-normal weather.
The number of customers served by gas distribution operations and gas marketing
services can be impacted by natural gas prices, economic conditions, and
competition from alternative fuels. Gas distribution operations and gas
marketing services' customers are primarily located in Georgia and Illinois .
Southern Company Gas' natural gas volume metrics for gas distribution operations
and gas marketing services illustrate the effects of weather and customer demand
for natural gas. Wholesale gas services' physical sales volumes represent the
daily average natural gas volumes sold to its customers.
Seasonality of Results
During the Heating Season, natural gas usage and operating revenues are
generally higher as more customers are connected to the gas distribution systems
and natural gas usage is higher in periods of colder weather. Prior to the sale
of Sequent, 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 reviewing Southern Company Gas' annual
results. Thus, Southern Company Gas' operating results for the interim periods
presented are not necessarily indicative of annual results and can vary
significantly from quarter to quarter.
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Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$(136) (191.5) $(13) (3.8)
In the second quarter 2021, net loss was $65 million compared to income of $71
million for the corresponding period in 2020. The decrease was primarily due to
an $89 million decrease at wholesale gas services primarily due to an increase
in derivative losses, partially offset by higher commercial activities, and an
after-tax impairment charge of $58 million at gas pipeline investments related
to the PennEast Pipeline project. These decreases were partially offset by a $6
million increase at gas distribution operations primarily due to base rate
increases and continued investment in infrastructure replacement.
For year-to-date 2021, net income was $333 million compared to $346 million for
the corresponding period in 2020. The decrease was primarily due to an after-tax
impairment charge of $58 million at gas pipeline investments related to the
PennEast Pipeline project, partially offset by a $25 million increase at gas
distribution operations primarily due to base rate increases and continued
investment in infrastructure replacement and a $14 million increase at wholesale
gas services primarily due to higher commercial activities as a result of Winter
Storm Uri, partially offset by derivative losses.
See Notes (C) and (E ) to the Condensed Financial Statements herein under "Other
Matters - Southern Company Gas " and "Southern Company Gas ," respectively, as
well as Note 2 to the financial statements under "Southern Company Gas " in Item
8 of the Form 10-K for additional information.
Natural Gas Revenues, including Alternative Revenue Programs
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$41 6.4 $486 25.8
In the second quarter 2021, natural gas revenues, including alternative revenue
programs, were $677 million compared to $636 million for the corresponding
period in 2020. For year-to-date 2021, natural gas revenues, including
alternative revenue programs, were $2.4 billion compared to $1.9 billion for the
corresponding period in 2020.
Details of the changes in natural gas revenues, including alternative revenue
programs, were as follows:
Second Quarter 2021 Year-To-Date 2021
(in millions) (% change) (in millions) (% change)
Natural gas revenues - prior year $ 636 $ 1,885
Estimated change resulting from -
Infrastructure replacement programs and base
rate changes 41 6.4 % 81 4.3 %
Gas costs and other cost recovery 88 13.8 240 12.7
Wholesale gas services (91) (14.3) 156 8.3
Other 3 0.5 9 0.5
Natural gas revenues - current year $ 677 6.4 % $ 2,371 25.8 %
Revenues from infrastructure replacement programs and base rate changes
increased in the second quarter and year-to-date 2021 compared to the
corresponding periods in 2020 primarily due to rate increases at Atlanta Gas
Light , Virginia Natural Gas , and Chattanooga Gas and continued investment in
infrastructure replacement. See Note 2 to the financial statements under
"Southern Company Gas - Rate Proceedings" in Item 8 of the Form 10-K for
additional information.
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Revenues associated with gas costs and other cost recovery increased in the
second quarter and year-to-date 2021 compared to the corresponding periods in
2020 primarily due to higher volumes sold and higher gas cost recovery. See
"Cost of Natural Gas" herein for additional information. Revenue impacts from
weather and customer growth are described further below.
Revenues from wholesale gas services decreased in the second quarter 2021
compared to the corresponding period in 2020 due to derivative losses, partially
offset by higher commercial activities. Revenues from wholesale gas services
increased for year-to-date 2021 compared to the corresponding period in 2020 due
to higher volumes sold and higher commercial activities as a result of Winter
Storm Uri, partially offset by derivative losses. See "Segment Information -
Wholesale Gas Services" herein for additional information. Also see Note (K) to
the Condensed Financial Statements under "Southern Company Gas " herein for
information regarding the sale of Sequent on July 1, 2021 .
Southern Company Gas' natural gas distribution utilities have various regulatory
mechanisms that limit their exposure to weather changes. Southern Company Gas
also uses hedges for any remaining exposure to warmer-than-normal weather in
Illinois for gas distribution operations and in Illinois and Georgia for gas
marketing services; therefore, weather typically does not have a significant net
income impact. The following table presents Heating Degree Days information for
Illinois and Georgia , the primary locations where Southern Company Gas'
operations are impacted by weather.
2021 2021 2021 2021
vs. vs. vs. vs.
Second Quarter normal 2020 Year-to-Date normal 2020
Normal(*) 2021 2020 colder (warmer) (warmer) Normal(*) 2021 2020 (warmer) colder
(in thousands) (in thousands)
Illinois 657 634 736 (3.5) % (13.9) % 3,681 3,580 3,495 (2.7) % 2.4 %
Georgia 125 142 188 13.6 % (24.5) % 1,451 1,396 1,279 (3.8) % 9.1 %
(*)Normal represents the 10-year average from January 1, 2011 through June 30,
2020 for Illinois at Chicago Midway International Airport and for Georgia at
Atlanta Hartsfield-Jackson International Airport , based on information obtained
from the National Oceanic and Atmospheric Administration , National Climatic Data
Center .
The following table provides the number of customers served by Southern Company
Gas at June 30, 2021 and 2020:
June 30,
2021 2020 2021 vs. 2020
(in thousands, except market share %) (% change)
Gas distribution operations 4,300 4,275 0.6 %
Gas marketing services
Energy customers(*) 612 671 (8.8) %
Market share of energy customers in Georgia 29.1 % 29.0 % 0.3 %
(*)Gas marketing services' customers are primarily located in Georgia and
Illinois . June 30, 2020 also includes approximately 50,000 customers in Ohio
contracted through an annual auction process to serve for 12 months beginning
April 1, 2020 .
Southern Company Gas anticipates continued customer growth as it expects
continued low natural gas prices. Southern Company Gas uses a variety of
targeted marketing programs to attract new customers and to retain existing
customers.
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Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$87 60.4 $231 39.6
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 87% of total cost of natural gas
for both the second quarter and year-to-date 2021. See MANAGEMENT'S DISCUSSION
AND ANALYSIS - RESULTS OF OPERATIONS - "Southern Company Gas - Cost of Natural
Gas" in Item 7 of the Form 10-K and "Natural Gas Revenues, including Alternative
Revenue Programs" herein for additional information.
In the second quarter 2021, cost of natural gas was $231 million compared to
$144 million for the corresponding period in 2020. The increase reflects higher
gas cost recovery and a 65.0% increase in natural gas prices in the second
quarter 2021 compared to the corresponding period in 2020.
For year-to-date 2021, cost of natural gas was $814 million compared to $583
million for the corresponding period in 2020. The increase reflects higher
volumes sold due to colder weather and higher gas cost recovery for year-to-date
2021 compared to the corresponding period in 2020. The increase also reflects a
50.6% increase in natural gas prices for year-to-date 2021 compared to the
corresponding period in 2020.
The following table details the volumes of natural gas sold during all periods
presented.
Second Quarter Year-to-Date
2021 2020 2021 vs. 2020 2021 2020 2021 vs. 2020
Gas distribution operations (mmBtu in millions)
Firm 103 100 3.0 % 391 357 9.5 %
Interruptible 23 21 9.5 50 45 11.1
Total 126 121 4.1 % 441 402 9.7 %
Wholesale gas services (mmBtu in millions/day)
Daily physical sales 6.1 6.4 (4.7) % 6.6 6.6 - %
Gas marketing services (mmBtu in millions)
Firm:
Georgia 4 4 - % 23 18 27.8 %
Illinois 1 1 - 5 6 (16.7)
Other 2 3 (33.3) 8 7 14.3
Interruptible large commercial and industrial 3 3 - 7 7 -
Total 10 11 (9.1) % 43 38 13.2 %
Other Operations and Maintenance Expenses
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$13 5.9 $53 11.1
In the second quarter 2021, other operations and maintenance expenses were $233
million compared to $220 million for the corresponding period in 2020. For
year-to-date 2021, other operations and maintenance expenses were $532 million
compared to $479 million for the corresponding period in 2020. The increases
were primarily
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due to higher compensation expenses, primarily related to an increase in
variable compensation at wholesale gas services.
Depreciation and Amortization
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$10 8.1 $20 8.2
In the second quarter 2021, depreciation and amortization was $133 million
compared to $123 million for the corresponding period in 2020. For year-to-date
2021, depreciation and amortization was $263 million compared to $243 million
for the corresponding period in 2020. The increases were primarily due to
continued infrastructure investments at the natural gas distribution utilities.
Taxes Other Than Income Taxes
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$2 4.3 $12 10.2
In the second quarter 2021, taxes other than income taxes were $49 million
compared to $47 million for the corresponding period in 2020. For year-to-date
2021, taxes other than income taxes were $130 million compared to $118 million
for the corresponding period in 2020. 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 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$(82) (273.3) $(83) (115.3)
In the second quarter 2021, loss from equity method investments was $52 million
compared to earnings of $30 million for the corresponding period in 2020. For
year-to-date 2021, loss from equity method investments was $11 million compared
to earnings of $72 million for the corresponding period in 2020. The decreases
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 Notes (C) and
(E ) to the Condensed Financial Statements herein under "Other Matters - Southern
Company Gas " and "Southern Company Gas ," respectively, for additional
information.
Other Income (Expense), Net
Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$(26) (216.7) $(99) (471.4)
In the second quarter 2021, other income (expense), net was $14 million of
expense compared to $12 million of income for the corresponding period in 2020.
For year-to-date 2021, other income (expense), net was $78 million of expense
compared to $21 million of income for the corresponding period in 2020. The
increases in other expense were primarily due to charitable contributions of $26
million and $101 million in the second quarter and year-to-date 2021,
respectively.
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Second Quarter 2021 vs. Second Quarter 2020 Year-To-Date 2021 vs. Year-To-Date 2020
(change in millions) (% change)
(change in millions) (% change)
$(45) (281.3) $(3) (3.2)
In the second quarter 2021, income tax benefit was $29 million compared to
income tax expense of $16 million for the corresponding period in 2020. The
change was primarily the result of a pre-tax impairment charge at gas pipeline
investments related to the PennEast Pipeline project and a pre-tax loss at
wholesale gas services in the second quarter 2021. For year-to-date 2021, income
taxes were $92 million compared to $95 million for the corresponding period in
2020. The pre-tax impairment charge at gas pipeline investments was largely
offset by higher pre-tax earnings at wholesale gas services and gas distribution
operations. See Notes (C) and (E ) to the Condensed Financial Statements herein
under "Other Matters - Southern Company Gas " and "Southern Company Gas ,"
respectively, for additional information.
Performance and Non-GAAP Measures
Adjusted operating margin is a non-GAAP measure that is calculated as operating
revenues less cost of natural gas, cost of other sales, and revenue tax expense.
Adjusted operating margin excludes other operations and maintenance expenses,
depreciation and amortization, and taxes other than income taxes, which are
included in the calculation of operating income as calculated in accordance with
GAAP and reflected in the statements of income. The presentation of adjusted
operating margin is believed to provide useful information regarding the
contribution resulting from base rate changes, infrastructure replacement
programs and capital projects, and customer growth at gas distribution
operations since the cost of natural gas and revenue tax expense can vary
significantly and are generally billed directly to customers. Southern Company
Gas further believes that utilizing adjusted operating margin at gas pipeline
investments, wholesale gas services, and gas marketing services allows it to
focus on a direct measure of performance before overhead costs. The applicable
reconciliation of operating income to adjusted operating margin is provided
herein.
Adjusted operating margin should not be considered an alternative to, or a more
meaningful indicator of, Southern Company Gas' operating performance than
operating income as determined in accordance with GAAP. In addition, Southern
Company Gas' adjusted operating margin may not be comparable to similarly titled
measures of other companies.
Detailed variance explanations of Southern Company Gas' financial performance
are provided herein.
Reconciliations of operating income to adjusted operating margin are as follows:
Second Quarter Second Quarter
2021 2020 Year-To-Date 2021 Year-To-Date 2020
(in millions)
Operating Income $ 31 $ 102 $ 632 $ 462
Other operating expenses(a) 415 390 925 840
Revenue taxes(b) (22) (22) (75) (67)
Adjusted Operating Margin $ 424 $ 470 $ 1,482 $ 1,235
(a)Includes other operations and maintenance, depreciation and amortization, and
taxes other than income taxes.
(b)Nicor Gas' revenue tax expenses, which are passed through directly to
customers.
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Segment Information
Adjusted operating margin, operating expenses, and net income for each segment
are provided in the table below. See Note (L) to the Condensed Financial
Statements under "Southern Company Gas " herein for additional information.
Second Quarter 2021 Second Quarter 2020
Adjusted
Operating Operating Net Income Adjusted Operating Operating Net Income
Margin(*) Expenses(*) (Loss) Margin(*) Expenses(*) (Loss)
(in millions) (in millions)
Gas distribution operations $ 486 $ 340 $ 80 $ 441 $ 314 $ 74
Gas pipeline investments 8 3 (36) 8 3 21
Wholesale gas services (110) 11 (112) (19) 11 (23)
Gas marketing services 35 25 6 35 28 5
All other 6 15 (3) 7 14 (6)
Intercompany eliminations (1) (1) - (2) (2) -
Consolidated $ 424 $ 393 $ (65) $ 470 $ 368 $ 71
(*)Adjusted operating margin and operating expenses are adjusted for
Year-To-Date 2021 Year-To-Date 2020
Adjusted Adjusted
Operating Operating Net Income Operating Operating Net Income
Margin(*) Expenses(*) (Loss) Margin(*) Expenses(*) (Loss)
(in millions) (in millions)
Gas distribution operations
$ 263 $ 1,036 $ 654$ 238 Gas pipeline investments 16 6 (7) 16 6 51 Wholesale gas services 187 66 14 31 28 - Gas marketing services 139 54 62 142 58 62 All other 13 30 1 13 30 (5) Intercompany eliminations (3) (3) - (3) (3) - Consolidated$ 1,482 $ 850$ 333 $ 1,235 $ 773$ 346 (*)Adjusted operating margin and operating expenses are adjusted forNicor Gas' revenue tax expenses, which are passed through directly to customers. Gas Distribution Operations Gas distribution operations is the largest component ofSouthern 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 provideSouthern 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 ofAtlanta 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 135 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) instruments, that limit its exposure to changes in customer consumption, including weather changes within typical ranges in its natural gas distribution utilities' service territories. In the second quarter and year-to-date 2021, net income increased$6 million , or 8.1%, and$25 million , or 10.5%, respectively, when compared to the corresponding periods in 2020. In the second quarter and year-to-date 2021, adjusted operating margin increased$45 million and$94 million , respectively, when compared to the corresponding periods in 2020 primarily due to rate increases forAtlanta Gas Light ,Virginia Natural Gas , andChattanooga Gas and continued investment in infrastructure replacement. In the second quarter and year-to-date 2021, operating expenses increased$26 million and$43 million , respectively, when compared to the corresponding periods in 2020 primarily due to higher depreciation resulting from additional assets placed in service, as well as higher compensation expenses. In the second quarter and year-to-date 2021, interest expense, net of amounts capitalized increased$5 million and$10 million , respectively, when compared to the corresponding periods in 2020 primarily due to additional debt issued to finance continued investments. In the second quarter and year-to-date 2021, income taxes increased$6 million and$12 million , respectively, when compared to the corresponding periods in 2020 primarily due to higher pre-tax earnings. See Note 2 to the financial statements under "Southern Company Gas " in Item 8 of the Form 10-K for additional information. Gas Pipeline Investments Gas pipeline investments consists primarily of joint ventures in natural gas pipeline investments including SNG, PennEast Pipeline, Dalton Pipeline, and Atlantic Coast Pipeline (until its sale onMarch 24, 2020 ). See Note (E) to the Condensed Financial Statements under "Southern Company Gas " herein and Note 15 to the financial statements under "Southern Company Gas " in Item 8 of the Form 10-K for additional information. For the second quarter and year-to-date 2021, net income decreased$57 million and$58 million , respectively, when compared to the corresponding periods in 2020. The decreases were due to a pre-tax impairment charge of$82 million ($58 million after tax) related to the equity method investment in the PennEast Pipeline project. See Notes (C) and (E ) to the Condensed Financial Statements herein under "Other Matters -Southern Company Gas " and "Southern Company Gas ," respectively, for additional information. Wholesale Gas Services Prior to the sale of Sequent onJuly 1, 2021 , wholesale gas services was involved in asset management and optimization, storage, transportation, producer and peaking services, natural gas supply, natural gas services, and wholesale gas marketing.Southern Company Gas positioned the business to generate positive economic earnings on an annual basis even under low volatility market conditions that can result from a number of factors. When market price volatility increased, wholesale gas services was positioned to capture significant value and generate stronger results. Operating expenses primarily reflect employee compensation and benefits. See Note (K) to the Condensed Financial Statements under "Southern Company Gas " herein for information regarding the sale of Sequent onJuly 1, 2021 . In the second quarter 2021, net income decreased$89 million when compared to the corresponding period in 2020. The decrease primarily relates to a$91 million decrease in adjusted operating margin and a$26 million decrease in other income and (expense) related to higher charitable contributions, partially offset by a$27 million decrease in income tax expense due to lower pre-tax earnings. For year-to-date 2021, net income increased$14 million when compared to the corresponding period in 2020. The increase primarily relates to a$156 million increase in adjusted operating margin, partially offset by a$38 million increase in operating expenses primarily related to an increase in variable compensation. The increase was also partially offset by a$101 million decrease in other income and (expense) related to higher charitable contributions and a$4 million increase in income tax expense due to higher pre-tax earnings. 136 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Details of the changes in adjusted operating margin are provided in the table below. Second Quarter Second Quarter 2021 2020 Year-To-Date 2021 Year-To-Date 2020 (in millions) Commercial activity recognized $ (6) $ (33) $ 309 $ (42) Gain (loss) on storage derivatives (24) (5) (26) (11) Gain (loss) on transportation and forward commodity derivatives (80) 19 (96) 85 Purchase accounting adjustments to fair value inventory and contracts - - - (1) Adjusted operating margin $ (110) $ (19) $ 187 $ 31 Change in Commercial Activity The commercial activity at wholesale gas services includes recognition of storage and transportation values that were generated in prior periods, which reflect the impact of prior period hedge gains and losses as associated physical transactions occur. The increase in commercial activity in the second quarter 2021 compared to the corresponding period in 2020 was primarily due to large losses in the second quarter 2020 driven by mild weather and tight transportation spreads. The increase in commercial activity for year-to-date 2021 compared to the corresponding period in 2020 was primarily due to natural gas price volatility that was generated by cold weather, particularly in the Midwest andTexas , resulting in wider transportation spreads. Change in Storage and Transportation Derivatives Volatility in the natural gas market arises from a number of factors, such as weather fluctuations or changes in supply or demand for natural gas in different regions of theU.S. The volatility of natural gas commodity prices has a significant impact onSouthern Company Gas' customer rates, long-term competitive position against other energy sources, and the ability of wholesale gas services to capture value from locational and seasonal spreads. Forward storage or time spreads applicable to the locations of wholesale gas services' specific storage positions in 2021 resulted in storage derivative losses. Transportation and forward commodity derivative losses in 2021 were a result of widening transportation spreads. Gas Marketing Services Gas marketing services provides energy-related products and services to natural gas markets and participants in customer choice programs that were approved in various states to increase competition. These programs allow customers to choose their natural gas supplier while the local distribution utility continues to provide distribution and transportation services. Gas marketing services is weather sensitive and uses a variety of hedging strategies, such as weather derivative instruments and other risk management tools, to partially mitigate potential weather impacts. All Other All other includes natural gas storage businesses, includingJefferson Island through its sale onDecember 1, 2020 , fuels operations through the sale ofSouthern Company Gas' interest in Pivotal LNG onMarch 24, 2020 ,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. See Note 15 to the financial statements under "Southern Company Gas " in Item 8 of the Form 10-K for additional information on the sale of its interest in Pivotal LNG and the sale ofJefferson Island . 137 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Segment Reconciliations Reconciliations of operating income to adjusted operating margin for the second quarter and year-to-date 2021 and 2020 are reflected in the following tables. See Note (L) to the Condensed Financial Statements herein for additional information. Gas Distribution Gas Pipeline Wholesale Gas Gas Marketing Intercompany Operations Investments Services Services All Other Elimination Consolidated (in millions) Second Quarter 2021 Operating Income (Loss) $ 146 $ 5$ (121) $ 10$ (9) $ - $
31
Other operating expenses(a) 362 3 11 25 15 (1) 415 Revenue tax expense(b) (22) - - - - - (22) Adjusted Operating Margin $ 486 $ 8$ (110) $ 35$ 6 $ (1) $ 424 Second Quarter 2020 Operating Income (Loss) $ 127 $ 5$ (30) $ 7$ (7) $ - $ 102 Other operating expenses(a) 336 3 11 28 14 (2) 390 Revenue tax expense(b) (22) - - - - - (22) Adjusted Operating Margin $ 441 $ 8$ (19) $ 35$ 7 $ (2) $ 470 Year-To-Date 2021 Operating Income (Loss) $ 433 $ 10$ 121 $ 85$ (17) $ - $ 632 Other operating expenses(a) 772 6 66 54 30 (3) 925 Revenue tax expense(b) (75) - - - - - (75) Adjusted Operating Margin $ 1,130 $ 16$ 187 $ 139$ 13 $ (3)$ 1,482 Year-To-Date 2020 Operating Income (Loss) $ 382 $ 10 $ 3 $ 84$ (17) $ - $ 462 Other operating expenses(a) 721 6 28 58 30 (3) 840 Revenue tax expense(b) (67) - - - - - (67) Adjusted Operating Margin $ 1,036 $ 16 $ 31 $ 142$ 13 $ (3) $
1,235
(a)Includes other operations and maintenance, depreciation and amortization, and taxes other than income taxes. (b)Nicor Gas' revenue tax expenses, which are passed through directly to customers. FUTURE EARNINGS POTENTIAL Each Registrant's results of operations are not necessarily indicative of its future earnings potential. The level of the Registrants' future earnings depends on numerous factors that affect the opportunities, challenges, and risks of the Registrants' primary businesses of selling electricity and/or distributing natural gas, as described further herein. For the traditional electric operating companies, these factors include the ability to maintain constructive regulatory environments that allow for the timely recovery of prudently-incurred costs during a time of increasing costs, continued customer growth, and the trend of reduced electricity usage per customer, especially in residential and 138 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) commercial markets. ForGeorgia Power , completing construction ofPlant Vogtle Units 3 and 4 and related cost recovery proceedings is another major factor. Earnings in the electricity business will also depend upon maintaining and growing sales, considering, among other things, the adoption and/or penetration rates of increasingly energy-efficient technologies and increasing volumes of electronic commerce transactions, which could contribute to a net reduction in customer usage. Global 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. Most prominently, the COVID-19 pandemic has negatively impacted global supply chains and business operations as suppliers continue to experience difficulties keeping up with strong demand for factory goods, which is being driven by low business inventories. The combination of rising inoculation rates in theU.S. population and the recent federal COVID-19 relief package is expected to help boost economic recovery in 2021. The drivers, speed, and depth of the 2020 economic contraction were unprecedented and have reduced energy demand acrossthe Southern Company system's service territory, primarily in the commercial and industrial classes. The negative impacts, which started inlate-March 2020 , of the COVID-19 pandemic and related recession onthe Southern Company system's retail electric sales began to improve in the middle ofMay 2020 . Retail electric revenues attributable to changes in sales increased in the first half of 2021 when compared to the corresponding period in 2020 primarily due to the normalization of economic activity; however, retail electric sales continued to be negatively impacted by the COVID-19 pandemic when compared to pre-pandemic trends. Recovery is expected to continue in the second half of 2021, but responses to the COVID-19 pandemic by both customers and governments could significantly affect the pace of recovery. The ultimate extent of the negative impact on revenues depends on the depth and duration of the economic contraction inthe Southern Company system's service territory and cannot be determined at this time. See RESULTS OF OPERATIONS herein for information on COVID-19-related impacts on energy demand inthe Southern Company system's service territory during the first half of 2021. The level of future earnings forSouthern Power's competitive wholesale electric business depends on numerous factors includingSouthern Power's ability to execute its growth strategy through the development or acquisition of renewable facilities and other energy projects while containing costs, as well as regulatory matters, creditworthiness of customers, total electric generating capacity available inSouthern Power's market areas, andSouthern Power's ability to successfully remarket capacity as current contracts expire. In addition, renewable portfolio standards, availability of tax credits, transmission constraints, cost of generation from units withinthe Southern Company power pool, and operational limitations could influenceSouthern Power's future earnings. 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, the completion and subsequent operation of ongoing infrastructure and other construction projects, creditworthiness of customers, andSouthern Company Gas' ability to optimize its transportation and storage positions and to re-contract storage rates at favorable prices. The volatility of natural gas prices has an impact 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 subject a portion ofSouthern Company Gas' operations to earnings variability. Over the longer term, volatility is expected to be low to moderate and locational and/or transportation spreads are expected to decrease as new pipelines are built to reduce the existing supply constraints in the shale areas of theNortheast U.S. To the extent these pipelines are delayed or not built, volatility could increase. See Note 3 to the financial statements in Item 8 of the Form 10-K and Note (C) to the Condensed Financial Statements herein under "Other Matters -Southern Company Gas " for additional information on challenges experienced by the PennEast Pipeline project. Additional economic factors may contribute to this environment, including a significant drop in oil and natural gas prices, which could lead to consolidation of natural gas producers or reduced levels of natural gas production. In addition, if the COVID-19 pandemic results in continued economic uncertainty for a sustained 139 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) period, demand for natural gas may decrease, resulting in further downward pressure on natural gas prices and lower volatility in the natural gas markets on a longer-term basis. Earnings for both the electricity and natural gas businesses are subject to a variety of other factors. These factors include weather, competition, developing new and maintaining existing energy contracts and associated load requirements with wholesale customers, energy conservation practiced by customers, the use of alternative energy sources by customers, government incentives to reduce overall energy usage, the prices of electricity and natural gas, and the price elasticity of demand. Demand for electricity and natural gas in the Registrants' service territories is primarily driven by the pace of economic growth or decline that may be affected by changes in regional and global economic conditions, which may impact future earnings. As part of its ongoing effort to adapt to changing market conditions,Southern Company continues to evaluate and consider a wide array of potential business strategies. These strategies may include business combinations, partnerships, and acquisitions involving other utility or non-utility businesses or properties, disposition of certain assets or businesses, internal restructuring, or some combination thereof. Furthermore,Southern Company may engage in new business ventures that arise from competitive and regulatory changes in the utility industry. Pursuit of any of the above strategies, or any combination thereof, may significantly affect the business operations, risks, and financial condition 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. Environmental Laws and Regulations Water Quality OnJuly 26, 2021 , theEPA announced its intent to further revise the ELG Rules, with a proposed rule expected in the fall of 2022. The ultimate outcome of this matter cannot be determined at this time; however, any revisions could require changes in the traditional electric operating companies' compliance strategies.Alabama Power is assessing the viability of complying with the ELG Rules for certain of its coal units (totaling approximately 2,000 MWs) due to the timing and anticipated cost to comply with the ELG Rules. The results of the assessment could accelerate a determination to discontinue or modify operation of the units.Alabama Power will review all of the facts and circumstances and evaluate all alternatives prior to reaching a final determination. The units under evaluation have net book values totaling approximately$2.3 billion atJune 30, 2021 . Additionally, net capitalized asset retirement costs associated with these facilities totaled approximately$900 million atJune 30, 2021 . Based on an Alabama PSC order,Alabama Power is authorized to establish a regulatory asset to record the unrecovered investment costs, including the plant asset balance and the costs associated with site removal and closure, associated with future unit retirements caused by environmental regulations (Environmental Accounting Order). Under the Environmental Accounting Order, the regulatory asset would be amortized and recovered over an affected unit's remaining useful life, as established prior to the decision regarding early retirement, through Rate CNP Compliance. See Note 2 to the financial statements under "Alabama Power - Rate CNP Compliance" and " - 140 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Environmental Accounting Order" in Item 8 of the Form 10-K for additional information. The ultimate outcome of this matter cannot be determined at this time. Regulatory Matters See OVERVIEW - "Recent Developments" and Note 2 to the financial statements in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein for a discussion of regulatory matters related 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. Alabama Power OnJuly 16, 2021 ,Alabama Power filed a petition with the Alabama PSC to extend its Renewable Generation Certificate (RGC) expiration fromSeptember 16, 2021 toSeptember 16, 2027 . The RGC currently in place authorizesAlabama Power to procure up to 500 MWs of capacity and energy from renewable energy resources and to separately market the related energy and environmental attributes to customers and other third parties.Alabama Power has four solar projects under the RGC totaling approximately 170 MWs. The ultimate outcome of this matter cannot be determined at this time. Georgia Power In 2021, as authorized in its 2019 IRP,Georgia Power requested and received certification from the Georgia PSC for 970 MWs of utility-scale PPAs for solar generation resources, which are expected to be in operation by the end of 2023. The ultimate outcome of this matter cannot be determined at this time. Construction Programs The Subsidiary Registrants are engaged in continuous construction programs to accommodate existing and estimated future loads on their respective systems.The Southern Company system intends to continue its strategy of developing and constructing new electric generating facilities, expanding and improving the electric transmission and electric and natural gas distribution systems, and undertaking projects to comply with environmental laws and regulations. For the traditional electric operating companies, major generation construction projects are subject to state PSC approval in order to be included in retail rates. The largest construction project currently underway 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 in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein under "Alabama Power " for information regardingAlabama Power's construction of Plant Barry Unit 8. See Note 15 to the financial statements in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements herein under "Southern Power " for additional information about costs relating toSouthern Power's acquisitions that involve 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 Notes 2 and 3 to the financial statements in Item 8 of the Form 10-K and Notes (B) and (C) to the Condensed Financial Statements herein under "Southern Company Gas " and "Other Matters -Southern Company Gas -PennEast Pipeline Project ," respectively, for additional information onSouthern Company Gas' construction program. See FINANCIAL CONDITION AND LIQUIDITY - "Cash Requirements" herein for additional information regarding the Registrants' capital requirements for their construction programs. 141 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) General Litigation and Other Matters The Registrants are involved in various matters being litigated and/or regulatory and other matters that could affect future earnings, cash flows, and/or financial condition. The ultimate outcome of such pending or potential litigation against each Registrant and any subsidiaries or regulatory and other matters cannot be determined at this time; however, for current proceedings and/or matters not specifically reported herein or in Notes (B) and (C) to the Condensed Financial Statements herein, management does not anticipate that the ultimate liabilities, if any, arising from such current proceedings and/or matters would have a material effect on such Registrant's financial statements. See Notes (B) and (C) to the Condensed Financial Statements for a discussion of various contingencies, including matters being litigated, regulatory matters, and other matters which may affect future earnings potential.Alabama Power OnMarch 10, 2021 ,Alabama Power executed a coordinated planning and operations agreement with PowerSouth, with a minimum term of 10 years. The agreement, which includes combined operations (including joint commitment and dispatch), is expected to create energy cost savings and enhanced system reliability for both parties. Projected revenues are expected to offset any increased administrative costs incurred byAlabama Power ; therefore, no material impact to net income is expected.Alabama Power has the right to participate in a portion of PowerSouth's future incremental load growth. Implementation of the agreement is subject to certain regulatory approvals, including approvals of the Rural Utilities Service, theSERC Reliability Corporation , and theFERC , and is expected to be completed byMarch 2022 . The ultimate outcome of this matter cannot be determined at this time. ACCOUNTING POLICIES See MANAGEMENT'S DISCUSSION AND ANALYSIS - ACCOUNTING POLICIES in Item 7 of the Form 10-K for a complete discussion of the Registrants' critical accounting policies and estimates, as well as recently issued accounting standards. Application of Critical Accounting Policies and Estimates The Registrants prepare their financial statements in accordance with GAAP. Significant accounting policies are described in the notes to the financial statements in Item 8 of the Form 10-K. In the application of these policies, certain estimates are made that may have a material impact on the Registrants' results of operations and related disclosures. Different assumptions and measurements could produce estimates that are significantly different from those recorded in the financial statements. Estimated Cost, Schedule, and Rate Recovery for the Construction ofPlant Vogtle Units 3 and 4 (Southern Company andGeorgia Power ) Following milestone extensions inJanuary 2021 , Southern Nuclear has been performing additional construction remediation work necessary to ensure quality and design standards are met as system turnovers are completed to support hot functional testing and fuel load for Unit 3. Hot functional testing for Unit 3 was completed inJuly 2021 . As a result of challenges including, but not limited to, construction productivity, construction remediation work, the pace of system turnovers, spent fuel pool repairs, and the timeframe and duration for hot functional and other testing, at the end of the second quarter 2021, Southern Nuclear further extended certain milestone dates, including the fuel load for Unit 3, from those established inJanuary 2021 . The site work plan currently targets fuel load for Unit 3 in the fourth quarter 2021 and an in-service date ofMarch 2022 . As the site work plan includes minimal margin to these milestone dates, an in-service date in the second quarter 2022 for Unit 3 is projected, although any further delays could result in a later in-service date. As the result of productivity challenges, at the end of the second quarter 2021, Southern Nuclear also further extended milestone dates for Unit 4 from those established inJanuary 2021 . The site work plan targets an in-service date ofNovember 2022 and primarily depends on overall construction productivity and production levels significantly improving as well as appropriate levels of craft laborers, particularly electricians and pipefitters, being 142 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) added and maintained. As the site work plan includes minimal margin to the milestone dates, an in-service date in the first quarter 2023 for Unit 4 is projected, although any further delays could result in a later in-service date. As ofMarch 31, 2021 , approximately$84 million of the construction contingency established in the fourth quarter 2020 was assigned to the base capital cost forecast for costs primarily associated with the schedule extension for Unit 3 toDecember 2021 , construction productivity, support resources, and construction remediation work.Georgia Power increased its total capital cost forecast as ofMarch 31, 2021 by adding$48 million to the remaining construction contingency. Considering the factors above, during the second quarter 2021, all of the remaining construction contingency previously established and an additional$341 million was assigned to the base capital cost forecast for costs primarily associated with the schedule extensions for Units 3 and 4 described above, construction remediation work for Unit 3, and construction productivity and support resources for Units 3 and 4.Georgia Power also increased its total capital cost forecast as ofJune 30, 2021 by adding$119 million to replenish construction contingency.Georgia Power's revised base capital cost forecast and contingency to complete construction and start-up of Plant Vogtle Units 3 and 4 is$9.10 billion and$0.12 billion , respectively, for a total capital cost forecast of$9.22 billion (net of$1.7 billion received under the Guarantee Settlement Agreement and approximately$188 million in related customer refunds). After considering the significant level of uncertainty that exists regarding the future recoverability of these costs since the ultimate outcome of these matters is subject to the outcome of future assessments by management, as well as Georgia PSC decisions in future regulatory proceedings,Georgia Power recorded pre-tax charges to income in the first quarter 2021 and the second quarter 2021 of$48 million ($36 million after tax) and$460 million ($343 million after tax), respectively, for the increases in the total project capital cost forecast. As and when these amounts are spent,Georgia Power may request the Georgia PSC to evaluate those expenditures for rate recovery. The ultimate impact of these matters on the construction schedule and budget for Plant Vogtle Units 3 and 4 cannot be determined at this time. See Note (B) to the Condensed Financial Statements under "Georgia Power -Nuclear Construction " herein for additional information. FINANCIAL CONDITION AND LIQUIDITY Overview See MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL CONDITION AND LIQUIDITY - "Overview" in Item 7 of the Form 10-K for additional information. The financial condition of each Registrant remained stable atJune 30, 2021 . The Registrants intend to continue to monitor their access to short-term and long-term capital markets as well as their bank credit arrangements to meet future capital and liquidity needs. See "Cash Requirements," "Sources of Capital," and "Financing Activities" herein and Note (K) to the Condensed Financial Statements herein for additional information. At the end of the second quarter 2021, the market price ofSouthern Company's common stock was$60.51 per share (based on the closing price as reported on the NYSE) and the book value was$26.63 per share, representing a market-to-book ratio of 227%, compared to$61.43 ,$26.48 , and 232%, respectively, at the end of 2020.Southern Company's common stock dividend for the second quarter 2021 was$0.66 per share compared to$0.64 per share in the second quarter 2020. Cash Requirements See MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL CONDITION AND LIQUIDITY - "Cash Requirements" in Item 7 of the Form 10-K for a description of the Registrants' significant cash requirements. The Registrants' significant cash requirements include estimated capital expenditures associated with their construction programs. The construction programs are subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; changes in environmental laws and regulations; the outcome of any legal challenges to environmental rules; changes in electric generating plants, including unit retirements and 143 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) replacements and adding or changing fuel sources at existing electric generating units, to meet regulatory requirements; changes inFERC rules and regulations; state regulatory agency approvals; changes in the expected environmental compliance program; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; project scope and design changes; abnormal weather; delays in construction due to judicial or regulatory action; storm impacts; and the cost of capital. The continued impacts of the COVID-19 pandemic could also impair the ability to develop, construct, and operate facilities, as discussed further in Item 1A of the Form 10-K. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Additionally, expenditures associated withSouthern Power's planned acquisitions may vary due to market opportunities and the execution of its growth strategy. See Note 15 to the financial statements in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements herein under "Southern Power " for additional information regardingSouthern Power's plant acquisitions and construction projects. The construction program ofGeorgia Power includes Plant Vogtle Units 3 and 4, which includes components based on new technology that only within the last few years began initial operation in the global nuclear industry at this scale and which may be subject to additional revised cost estimates during construction. See Note 2 to the financial statements in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein under "Georgia Power -Nuclear Construction " for information regarding Plant Vogtle Units 3 and 4 and additional factors that may impact construction expenditures. Long-term debt maturities and the interest payable on long-term debt each represent a significant cash requirement for the Registrants. See "Financing Activities" herein for information on changes in the Registrants' long-term debt balances sinceDecember 31, 2020 . Sources of Capital See MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL CONDITION AND LIQUIDITY - "Sources of Capital" in Item 7 of the Form 10-K for additional information.Southern Company intends to meet its future capital needs through operating cash flows, borrowings from financial institutions, and debt and equity issuances. Equity capital can be provided from any combination ofSouthern Company's stock plans, private placements, or public offerings.Southern Company does not expect to issue any equity in the capital markets through 2025 but may issue equity through its stock plans during this time. See Note 8 to the financial statements under "Equity Units" in Item 8 of the Form 10-K for information on stock purchase contracts associated withSouthern Company's equity units. The Subsidiary Registrants plan to obtain the funds to meet their future capital needs from sources similar to those they used in the past, which were primarily from operating cash flows, external securities issuances, borrowings from financial institutions, and equity contributions fromSouthern Company . In addition,Georgia Power plans to utilize borrowings from the FFB (as discussed further in Note 8 to the financial statements under "Long-term Debt - DOE Loan Guarantee Borrowings" in Item 8 of the Form 10-K) andSouthern Power plans to utilize tax equity partnership contributions (as discussed further herein). The amount, type, and timing of any financings in 2021, as well as in subsequent years, will be contingent on investment opportunities and the Registrants' capital requirements and will depend upon prevailing market conditions, regulatory approvals (for certain of the Subsidiary Registrants), and other factors. See "Cash Requirements" and "Financing Activities" herein for additional information.Southern Power utilizes tax equity partnerships as one of its financing sources, where the tax partner takes significantly all of the federal tax benefits. These tax equity partnerships are consolidated inSouthern Power's financial statements and are accounted for using HLBV methodology to allocate partnership gains and losses. InMarch 2021 ,Southern Power obtained tax equity funding for the Deuel Harvest wind facility and received proceeds of$220 million . In addition, during the first six months of 2021,Southern Power received tax equity funding totaling$17 million from existing partnerships. Subsequent toJune 30, 2021 ,Southern Power obtained tax equity funding for the Garland battery energy storage facility and received initial proceeds of$11 million . See Note 1 to 144 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) the financial statements under "General" in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements under "Southern Power " herein for additional information. By regulation,Nicor Gas is restricted, to the extent of its retained earnings balance, in the amount it can dividend or loan to affiliates and is not permitted to make money pool loans to affiliates. AtJune 30, 2021 , the amount of subsidiary retained earnings restricted to dividend totaled$1.1 billion . This restriction did not impactSouthern Company Gas' ability to meet its cash obligations, nor does management expect such restriction to materially impactSouthern Company Gas' ability to meet its currently anticipated cash obligations. Certain Registrants' current liabilities frequently exceed their current assets because of long-term debt maturities and the periodic use of short-term debt as a funding source, as well as significant seasonal fluctuations in cash needs. The Registrants generally plan to refinance long-term debt as it matures. The following table shows the amount by which current liabilities exceeded current assets atJune 30, 2021 for the applicable Registrants: Southern Georgia Southern At June 30, 2021 Company Power Mississippi Power Southern Power Company Gas (in millions) Current liabilities in excess of current assets$ 2,109 $ 1,438 $ 20 $ 720$ 477 The Registrants believe the need for working capital can be adequately met by utilizing operating cash flows, as well as commercial paper, lines of credit, and short-term bank notes, as market conditions permit. In addition, under certain circumstances, the Subsidiary Registrants may utilize equity contributions and/or loans fromSouthern Company .Bank Credit Arrangements AtJune 30, 2021 , the Registrants' unused committed credit arrangements with banks were as follows: Southern Southern Company Alabama Georgia Southern Company Southern At June 30, 2021 parent Power Power Mississippi Power Power(a) Gas(b) SEGCO Company (in millions) Unused committed credit$ 1,999 $ 1,228 $ 1,728 $ 250$ 568 $ 1,747 $ 30 $ 7,550 (a)AtJune 30, 2021 ,Southern Power also had two continuing letters of credit facilities for standby letters of credit, of which$24 million was unused.Southern Power's subsidiaries are not parties to its bank credit arrangements or letter of credit facilities. (b)Includes$1.047 billion and$700 million atSouthern Company Gas Capital andNicor Gas , respectively. Subject to applicable market conditions, the Registrants,Nicor Gas , and SEGCO expect to renew or replace their bank credit arrangements as needed, prior to expiration. In connection therewith, the Registrants,Nicor Gas , and SEGCO may extend the maturity dates and/or increase or decrease the lending commitments thereunder. A portion of the unused credit with banks is allocated to provide liquidity support to the revenue bonds of the traditional electric operating companies and the commercial paper programs of the Registrants,Nicor Gas , and SEGCO. The amount of variable rate revenue bonds of the traditional electric operating companies outstanding requiring liquidity support atJune 30, 2021 was approximately$1.4 billion (comprised of approximately$854 million atAlabama Power ,$550 million atGeorgia Power , and$34 million atMississippi Power ). In addition, atJune 30, 2021 ,Georgia Power andMississippi Power had approximately$105 million and$50 million , respectively, of fixed rate revenue bonds outstanding that are required to be remarketed within the next 12 months. See Note 8 to the financial statements in Item 8 of the Form 10-K and Note (F) to the Condensed Financial Statements herein under "Bank Credit Arrangements" for additional information. 145 -------------------------------------------------------------------------------- Table of Contents Index to Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Short-term Borrowings The Registrants,Nicor Gas , and SEGCO make short-term borrowings primarily through commercial paper programs that have the liquidity support of the committed bank credit arrangements described above.Southern Power's subsidiaries are not issuers or obligors under its commercial paper program. Commercial paper and short-term bank term loans are included in notes payable in the balance sheets. Details of the Registrants' short-term borrowings were as follows: Short-term Debt at June 30, 2021 Short-term Debt During the Period(*) Weighted Weighted Average Average Average Maximum Amount Interest Amount Interest Amount Outstanding Rate Outstanding Rate Outstanding (in millions) (in millions) (in millions) Southern Company$ 1,402 0.3 % $ 990 0.3 %$ 1,621 Alabama Power - - 50 0.1 200 Georgia Power 310 0.2 183 0.2 407 Mississippi Power - - 39 0.2 81 Southern Power 119 0.2 152 0.2 315Southern Company Gas : Southern Company Gas Capital$ 444 0.2 % $ 85 0.2 % $ 485 Nicor Gas 390 0.5 396 0.5 512 Southern Company Gas Total$ 834 0.3 % $ 481 0.5 % (*)Average and maximum amounts are based upon daily balances during the three-month period endedJune 30, 2021 . Analysis of Cash Flows Net cash flows provided from (used for) operating, investing, and financing activities for the six months endedJune 30, 2021 and 2020 are presented in the following table: Net cash provided from Southern Georgia Southern (used for): Company Alabama Power Power Mississippi Power Southern Power Company Gas (in millions) Six Months EndedJune 30, 2021 Operating activities$ 2,904 $ 584$ 1,313 $ 41 $ 411$ 722 Investing activities (4,026) (893) (1,730) (117) (601) (668) Financing activities 1,671 506 457 515 196 (25) Six Months EndedJune 30, 2020 Operating activities$ 2,847 $ 674$ 1,124 $ 71 $ 195$ 1,046 Investing activities (2,655) (783) (1,659) (145) 490 (570) Financing activities (285) 116 869 (178) (808) (401)
Fluctuations in cash flows from financing activities vary from year to year based on capital needs and the maturity or redemption of securities.
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Table of Contents Index to Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Southern Company
Net cash provided from operating activities increased $0.1 billion for the six
months ended June 30, 2021 as compared to the corresponding period in 2020
primarily due to the timing of vendor payments and customer bill credits issued
in 2020 at Georgia Power , partially offset by under recovered natural gas costs
at Southern Company Gas resulting from Winter Storm Uri and decreased fuel cost
recovery at the traditional electric operating companies resulting from an
increase in the cost of fuel.
The net cash used for investing activities for the six months ended June 30,
2021 was primarily related to the Subsidiary Registrants' construction programs.
The net cash provided from financing activities for the six months ended
June 30, 2021 was primarily related to net issuances of long-term debt,
commercial paper, and short-term bank loans, partially offset by common stock
dividend payments.
Alabama Power
Net cash provided from operating activities decreased $90 million for the six
months ended June 30, 2021 as compared to the corresponding period in 2020
primarily due to the timing of income tax payments and decreased fuel cost
recovery, partially offset by an increase in retail revenues associated with an
increase in Rate RSE effective in January 2021 and colder weather in Alabama
Power's service territory in the first quarter 2021 compared to the
corresponding period in 2020, as well as the timing of fossil fuel stock
purchases.
The net cash used for investing activities for the six months ended June 30,
2021 was primarily related to gross property additions.
The net cash provided from financing activities for the six months ended
June 30, 2021 was primarily related to a capital contribution from Southern
Company and the net issuance of senior notes, partially offset by common stock
dividend payments.
Georgia Power
Net cash provided from operating activities increased $189 million for the six
months ended June 30, 2021 as compared to the corresponding period in 2020
primarily due to customer bill credits issued in 2020 associated with Tax Reform
and 2018 earnings in excess of the allowed retail ROE range and the timing of
fossil fuel stock purchases and vendor payments, partially offset by decreased
fuel cost recovery.
The net cash used for investing activities for the six months ended June 30,
2021 was primarily related to gross property additions, including a total of
approximately $640 million related to the construction of Plant Vogtle Units 3
and 4. See Note (B) to the Condensed Financial Statements under "Georgia Power -
Nuclear Construction " herein for additional information on construction of Plant
Vogtle Units 3 and 4.
The net cash provided from financing activities for the six months ended
June 30, 2021 was primarily related to net issuances of senior notes, borrowings
from the FFB for construction of Plant Vogtle Units 3 and 4, capital
contributions from Southern Company , and an increase in notes payable, partially
offset by common stock dividend payments.
Mississippi Power
Net cash provided from operating activities decreased $30 million for the six
months ended June 30, 2021 as compared to the corresponding period in 2020
primarily due to decreased fuel cost recovery and the timing of vendor payments.
The net cash used for investing activities for the six months ended June 30,
2021 was primarily related to gross property additions.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The net cash provided from financing activities for the six months ended
June 30, 2021 was primarily related to the issuance of senior notes and capital
contributions from Southern Company , partially offset by common stock dividend
payments and a decrease in commercial paper borrowings.
Southern Power
Net cash provided from operating activities increased $216 million for the six
months ended June 30, 2021 as compared to the corresponding period in 2020
primarily due to an increase in the utilization of tax credits in 2021.
The net cash used for investing activities for the six months ended June 30,
2021 was primarily related to the acquisition of the Deuel Harvest wind facility
and ongoing construction activities. See Note (K) to the Condensed Financial
Statements under "Southern Power " herein for additional information.
The net cash provided from financing activities for the six months ended
June 30, 2021 was primarily related to the issuance of senior notes and net
capital contributions from noncontrolling interests, partially offset by a
return of capital to Southern Company and common stock dividend payments.
Southern Company Gas
Net cash provided from operating activities decreased $324 million for the six
months ended June 30, 2021 as compared to the corresponding period in 2020
primarily due to natural gas cost under recovery, reflecting an increase in the
cost of gas purchased during Winter Storm Uri, and the timing of customer
receivable collections, partially offset by the timing of vendor payments.
The net cash used for investing activities for the six months ended June 30,
2021 was primarily related to construction of transportation and distribution
assets recovered through base rates and infrastructure investment recovered
through replacement programs at gas distribution operations.
The net cash used for financing activities for the six months ended June 30,
2021 was primarily related to the repayment of long-term debt and common stock
dividend payments, largely offset by the issuance of short-term debt, an
increase in commercial paper borrowings, and capital contributions from Southern
Company .
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Significant Balance Sheet Changes
Southern Company
Significant balance sheet changes for the six months ended June 30, 2021
included:
•an increase of $2.1 billion in long-term debt (including securities due within
one year) related to new issuances;
•an increase of $2.0 billion in total property, plant, and equipment (net of
pre-tax charges totaling $508 million recorded in the first half of 2021 for
estimated probable losses associated with the construction of Plant Vogtle Units
3 and 4) primarily related to the Subsidiary Registrants' construction programs,
as well as Southern Power's acquisition of the Deuel Harvest wind facility;
•an increase of $0.8 billion in notes payable related to net issuances of
short-term bank debt and commercial paper;
•an increase of $0.7 billion in both assets and liabilities held for sale, due
to the reclassification of assets and liabilities associated with Southern
Company Gas' sale of Sequent, including $0.5 billion of energy marketing
receivables and $0.5 billion of energy marketing trade payables;
•an increase of $0.5 billion in accumulated deferred income taxes primarily
related to the utilization and expected further utilization of tax credits in
2021;
•an increase of $0.5 billion in cash and cash equivalents, as discussed further
under "Analysis of Cash Flows - Southern Company " herein;
•an increase of $0.5 billion in natural gas cost under recovery, which was
impacted by an increase in Southern Company Gas' cost of gas purchased during
Winter Storm Uri; and
•an increase of $0.5 billion in total stockholders' equity primarily related to
net income, partially offset by common stock dividend payments.
See "Financing Activities" herein and Notes (B), (G), and (K) to the Condensed
Financial Statements herein for additional information.
Alabama Power
Significant balance sheet changes for the six months ended June 30, 2021
included:
•an increase of $827 million in common stockholder's equity primarily due to
capital contributions from Southern Company ;
•an increase of $450 million in total property, plant, and equipment primarily
related to construction of Plant Barry Unit 8 and distribution and transmission
facilities, as well as the installation of equipment to comply with
environmental standards; and
•an increase of $396 million in long-term debt (including securities due within
one year) primarily due to a net increase in outstanding senior notes.
See "Financing Activities - Alabama Power " herein for additional information.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Georgia Power
Significant balance sheet changes for the six months ended June 30, 2021
included:
•an increase of $656 million in total property, plant, and equipment primarily
related to the construction of generation, transmission, and distribution
facilities, including $151 million for Plant Vogtle Units 3 and 4 (net of
pre-tax charges totaling $508 million recorded in the first half of 2021 for
estimated probable losses);
•an increase of $680 million in long-term debt (including securities due within
one year) primarily due to a net increase in outstanding senior notes and
borrowings from the FFB for construction of Plant Vogtle Units 3 and 4; and
•an increase of $250 million in notes payable related to net issuances of
commercial paper.
See "Financing Activities - Georgia Power " herein and Note (B) to the Condensed
Financial Statements under "Georgia Power - Nuclear Construction " herein for
additional information.
Mississippi Power
Significant balance sheet changes for the six months ended June 30, 2021
included:
•an increase of $439 million in cash and cash equivalents and an increase of
$514 million in long-term debt (including securities due within one year)
primarily due to the issuance of senior notes;
•an increase of $107 million in common stockholder's equity primarily from
capital contributions from Southern Company ; and
•a decrease of $51 million in accrued taxes primarily due to the payment of ad
valorem taxes.
See "Financing Activities - Mississippi Power " herein for additional
information.
Southern Power
Significant balance sheet changes for the six months ended June 30, 2021
included:
•an increase of $468 million in property, plant, and equipment in service
primarily due to the acquisition of the Deuel Harvest wind facility;
•an increase of $356 million in long-term debt (including securities due within
one year) primarily related to the issuance of senior notes; and
•an increase of $142 million in prepaid income taxes, a decrease of $262 million
in accumulated deferred income tax assets, and a $98 million increase in
accumulated deferred income tax liabilities primarily related to the utilization
and expected further utilization of ITCs in 2021.
See "Financing Activities - Southern Power " herein and Notes (G) and (K) to the
Condensed Financial Statements herein for additional information.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Southern Company Gas
Significant balance sheet changes for the six months ended June 30, 2021
included:
•increases of $736 million and $677 million in assets and liabilities held for
sale, respectively, due to the reclassification of assets and liabilities
associated with the sale of Sequent, including $516 million of energy marketing
receivables and $494 million of energy marketing trade payables;
•an increase of $510 million in notes payable due to issuances of short-term
debt and an increase in commercial paper borrowings;
•increases of $485 million in natural gas cost under recovery, $82 million in
other regulatory assets, deferred, and $148 million in accumulated deferred
income taxes, all primarily related to natural gas cost under recovery,
reflecting an increase in the cost of gas purchased during Winter Storm Uri;
•an increase of $461 million in total property, plant, and equipment primarily
related to the construction of transportation and distribution assets recovered
through base rates and infrastructure investment recovered through replacement
programs;
•a decrease of $344 million in long-term debt (including securities due within
one year) primarily due to the redemption of senior notes;
•a decrease of $282 million in natural gas for sale primarily due to higher
volumes of natural gas sold;
•an increase of $182 million in temporary LIFO liquidation due to higher natural
gas prices during Winter Storm Uri;
•an increase of $162 million in common stockholder's equity primarily related to
net income and capital contributions from Southern Company , partially offset by
dividends paid to Southern Company ;
•an increase of $114 million in prepaid expenses primarily due to the prepayment
of income taxes; and
•a decrease of $101 million in equity investments in unconsolidated subsidiaries
primarily due to an $82 million impairment charge related to the PennEast
Pipeline project.
See "Financing Activities - Southern Company Gas " herein, Notes (B), (E), and
(K) to the Condensed Financial Statements under "Southern Company Gas " herein,
and Note (C) to the Condensed Financial Statements under "Other Matters -
Southern Company Gas " herein for additional information.
Financing Activities
The following table outlines the Registrants' long-term debt financing
activities for the first six months of 2021:
Issuances Maturities, Redemptions, and Repurchases
Other Long-Term Other Long-Term
Company Senior Notes Debt Senior Notes Revenue Bonds Debt(*)
(in millions)
Southern Company parent $ 1,000 $ 1,000 $ 1,500 $ - $ -
Alabama Power 600 - 200 - -
Georgia Power 750 371 325 69 46
Mississippi Power 525 - - - -
Southern Power 400 - - - -
Southern Company Gas - - 300 - 30
Other - - - - 7
Southern Company $ 3,275 $ 1,371 $ 2,325 $ 69 $ 83
(*)Includes reductions in finance lease obligations resulting from cash payments
under finance leases and, for Georgia Power , principal amortization payments for
FFB borrowings.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Except as otherwise described herein, the Registrants used the proceeds of debt
issuances for their redemptions and maturities shown in the table above, to
repay short-term indebtedness, and for general corporate purposes, including
working capital. The Subsidiary Registrants also used the proceeds for their
construction programs.
In addition to any financings that may be necessary to meet capital requirements
and contractual obligations, the Registrants plan to continue, when economically
feasible, a program to retire higher-cost securities and replace these
obligations with lower-cost capital if market conditions permit.
Southern Company
During the first six months of 2021, Southern Company issued approximately 2.4
million shares of common stock primarily through employee equity compensation
plans and received proceeds of approximately $24 million .
In January 2021 , Southern Company borrowed $25 million pursuant to a short-term
uncommitted bank credit arrangement, which it repaid in March 2021 .
In February 2021 , Southern Company issued $600 million aggregate principal
amount of Series 2021A 0.60% Senior Notes due February 26, 2024 and $400 million
aggregate principal amount of Series 2021B 1.75% Senior Notes due March 15,
2028 .
In May 2021 , Southern Company issued $1.0 billion aggregate principal amount of
Series 2021A 3.75% Fixed-to-Fixed Reset Rate Junior Subordinated Notes due
September 15, 2051 .
Also in May 2021 , Southern Company redeemed all of its $1.5 billion aggregate
principal amount of 2.35% Senior Notes due July 1, 2021 .
Alabama Power
In March 2021 , Alabama Power extended the maturity dates from March 2021 to
March 2026 on its three bank term loan agreements with an aggregate principal
amount of $45 million , bearing interest based on three-month LIBOR.
In June 2021 , Alabama Power repaid at maturity $200 million aggregate principal
amount of its Series 2011B 3.950% Senior Notes.
Also in June 2021 , Alabama Power issued $600 million aggregate principal amount
of Series 2021A 3.125% Senior Notes due July 15, 2051 .
Subsequent to June 30, 2021 , Alabama Power redeemed all of its approximately
$206 million aggregate principal amount of Series E Junior Subordinated Notes
due October 1, 2042 . The Series E Junior Subordinated Notes were held by an
affiliated trust, Alabama Power Capital Trust V, which applied the redemption
proceeds to the simultaneous redemption of (i) its Flexible Trust Preferred
Securities totaling approximately $200 million , which were guaranteed by Alabama
Power , and (ii) shares of its common securities totaling approximately $6
million that were held by Alabama Power .
Georgia Power
In February 2021 , Georgia Power issued $750 million aggregate principal amount
of Series 2021A 3.25% Senior Notes due March 15, 2051 . An amount equal to the
net proceeds of the senior notes is being allocated to finance or refinance, in
whole or in part, one or more renewable energy projects and/or expenditures and
programs related to enabling opportunities for diverse and small
businesses/suppliers.
In March 2021 , Georgia Power redeemed all $325 million aggregate principal
amount of its Series 2016B 2.40% Senior Notes due April 1, 2021 .
Also in March 2021 , Georgia Power extended the maturity date of its $125 million
term loan from June 2021 to June 2022 .
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
In June 2021 , Georgia Power purchased and held approximately $69 million
aggregate principal amount of Development Authority of Burke County (Georgia)
Pollution Control Revenue Bonds (Georgia Power Company Plant Vogtle Project ),
First Series 2008, which may be remarketed to the public at a later date.
Also in June 2021 , Georgia Power made additional borrowings under the FFB Credit
Facilities in an aggregate principal amount of $371 million at an interest rate
of 2.434% through the final maturity date of February 20, 2044 . The proceeds
were used to reimburse Georgia Power for Eligible Project Costs relating to the
construction of Plant Vogtle Units 3 and 4. During the six months ended June 30,
2021 , Georgia Power made principal amortization payments of $45 million under
the FFB Credit Facilities. At June 30, 2021 , the outstanding principal balance
under the FFB Credit Facilities was $4.9 billion . See Note 8 to the financial
statements under "Long-Term Debt - DOE Loan Guarantee Borrowings" in Item 8 of
the Form 10-K for additional information.
Mississippi Power
In June 2021 , Mississippi Power issued $200 million aggregate principal amount
of Series 2021A Floating Rate Senior Notes due June 28, 2024 and $325 million
aggregate principal amount of Series 2021B 3.10% Senior Notes due July 30, 2051 .
An amount equal to the net proceeds of the Series 2021B Senior Notes is being
allocated to finance or refinance, in whole or in part, one or more renewable
energy projects and/or expenditures and programs related to enabling
opportunities for diverse and small businesses/suppliers.
Also in June 2021 , Mississippi Power announced the redemption in July 2021 of
all $270 million aggregate principal amount of its Mississippi Business Finance
Corporation Taxable Revenue Bonds, 7.13% Series 1999A due October 20, 2021 at
par plus accrued interest and a make-whole premium.
Subsequent to June 30, 2021 , Mississippi Power repaid its $60 million and $15
million floating rate bank term loans, with maturity dates in December 2021 and
January 2022 , respectively, each bearing interest based on one-month LIBOR.
Southern Power
In January 2021 , Southern Power issued $400 million aggregate principal amount
of Series 2021A 0.90% Senior Notes due January 15, 2026 . An amount equal to the
net proceeds of the senior notes was allocated to finance or refinance, in whole
or in part, one or more renewable energy projects.
Southern Company Gas
In February 2021 , Atlanta Gas Light repaid at maturity $30 million aggregate
principal amount of 9.1% medium-term notes.
In March 2021 , Nicor Gas entered into three short-term floating rate bank loans
in an aggregate principal amount of $300 million , each bearing interest based on
one-month LIBOR.
In June 2021 , Southern Company Gas Capital redeemed all $300 million aggregate
principal amount of its 3.50% Senior Notes due September 15, 2021 .
Credit Rating Risk
At June 30, 2021 , the Registrants did not have any credit arrangements that
would require material changes in payment schedules or terminations as a result
of a credit rating downgrade.
There are certain contracts that could require collateral, but not accelerated
payment, in the event of a credit rating change of certain Registrants to BBB
and/or Baa2 or below. These contracts are primarily for physical electricity and
natural gas purchases and sales, fuel purchases, fuel transportation and
storage, energy price risk management, transmission, interest rate management,
and, for Georgia Power , construction of new generation at Plant Vogtle Units 3
and 4.
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AND RESULTS OF OPERATIONS (Continued)
The maximum potential collateral requirements under these contracts at June 30,
2021 were as follows:
Southern Southern Southern Company
Credit Ratings Company(*) Alabama Power Georgia Power Mississippi Power Power(*) Gas
(in millions)
At BBB and/or Baa2 $ 40 $ 1 $ - $ - $ 39 $ -
At BBB- and/or Baa3 431 2 61 1 369 -
At BB+ and/or Ba1 or below 1,942 370 968 310 1,216 5
(*)Southern Power has PPAs that could require collateral, but not accelerated
payment, in the event of a downgrade of Southern Power's credit. The PPAs
require credit assurances without stating a specific credit rating. The amount
of collateral required would depend upon actual losses resulting from a credit
downgrade. Southern Power had $105 million of cash collateral posted related to
PPA requirements at June 30, 2021 .
The amounts in the previous table for the traditional electric operating
companies and Southern Power include certain agreements that could require
collateral if either Alabama Power or Georgia Power has a credit rating change
to below investment grade. Generally, collateral may be provided by a Southern
Company guaranty, letter of credit, or cash. Additionally, a credit rating
downgrade could impact the ability of the Registrants to access capital markets
and would be likely to impact the cost at which they do so.
Market Price Risk
Other than the Southern Company Gas items discussed below, there were no
material changes to the Registrants' disclosures about market price risk during
the second quarter 2021. For an in-depth discussion of Southern Company Gas'
market price risks, see MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL
CONDITION AND LIQUIDITY - "Market Price Risk" in Item 7 of the Form 10-K. Also
see Notes (I) and (J) to the Condensed Financial Statements herein for
information relating to derivative instruments. See Note (K) to the Condensed
Financial Statements under "Southern Company Gas " herein for information
regarding Southern Company Gas' sale of Sequent on July 1, 2021 .
Southern Company Gas is exposed to market risks, including commodity price risk,
interest rate risk, and weather risk. Due to various cost recovery mechanisms,
the natural gas distribution utilities that sell natural gas directly to end-use
customers continue to have limited exposure to market volatility of natural gas
prices. Certain of the natural gas distribution utilities manage fuel-hedging
programs implemented per the guidelines of their respective state regulatory
agencies to hedge the impact of market fluctuations in natural gas prices for
customers. In addition, certain of Southern Company Gas' non-regulated
operations (primarily Sequent until its sale on July 1, 2021 ) routinely utilize
various types of derivative instruments to economically hedge certain commodity
price and weather risks inherent in the natural gas industry. These instruments
include a variety of exchange-traded and over-the-counter energy contracts, such
as forward contracts, futures contracts, options contracts, and swap agreements.
Some of these economic hedge activities may not qualify, or may not be
designated, for hedge accounting treatment.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The changes in net fair value of Southern Company Gas' energy-related derivative
contracts for the periods presented are provided in the table below. Contracts
outstanding at the end of the period for Sequent's energy-related derivatives
are included in the preliminary gain associated with the transaction, which will
be recorded in the third quarter 2021, as discussed further in Note (K) to the
Condensed Financial Statements under "Southern Company Gas" herein.
Second Quarter
2021 Second Quarter 2020 Year-To-Date 2021 Year-To-Date 2020
(in millions)
Contracts outstanding at beginning of
period, assets (liabilities), net $ 40 $ 38 $ 101 $ 70
Contracts realized or otherwise settled (9) (8) (58) (99)
Current period changes(a) (75) 19 (87) 78
Contracts outstanding at the end of
period, assets (liabilities), net $ (44) $ 49 $ (44) $ 49
Netting of cash collateral 41 114 41 114
Cash collateral and net fair value of
contracts outstanding at end of
period(b) $ (3) $ 163 $ (3) $ 163
(a)Current period changes also include the fair value of new contracts entered
into during the period, if any.
(b)Includes $(22) million of energy-related derivatives related to Sequent,
which are classified as held for sale at June 30, 2021. See Note (K) to the
Condensed Financial Statements under "Southern Company Gas" and "Assets and
Liabilities Held for Sale" herein for additional information.
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