Southern Co. Gas Sees Revenue Surge Amid Rising Costs

TL;DR

**Southern Company Gas is growing revenues, but watch those rising interest and fuel costs – they're eating into the bottom line.**

AI Summary

Southern Company and its subsidiaries reported a robust financial performance for the three and nine months ended September 30, 2025. Total operating revenues increased by $549 million, or 7.5%, to $7,823 million for the three months ended September 30, 2025, compared to $7,274 million in the prior year. For the nine-month period, total operating revenues rose by $2,189 million, or 10.7%, to $22,572 million from $20,383 million in 2024. This growth was primarily driven by increases in retail electric revenues, up $341 million to $5,707 million for the quarter, and natural gas revenues, which increased by $52 million to $734 million. Operating income saw a healthy increase of $226 million, or 9.5%, to $2,594 million for the quarter, and $358 million, or 6.0%, to $6,368 million for the nine months. However, interest expense, net of amounts capitalized, increased by $63 million to $(755) million for the quarter and by $264 million to $(2,343) million for the nine months, indicating rising financing costs. The company also noted an increase in fuel costs by $199 million to $1,345 million for the quarter and $579 million to $3,753 million for the nine months, alongside a significant rise in depreciation and amortization expenses by $212 million to $1,422 million for the quarter. The filing also highlights the company's status as a large accelerated filer, indicating significant market capitalization and reporting requirements.

Why It Matters

This 10-Q filing reveals Southern Company Gas's strong revenue growth, particularly in natural gas, which is crucial for investors seeking stable returns in the utility sector. The increase in operating income suggests effective cost management despite rising fuel and interest expenses, a positive sign for profitability. For customers, the continued investment in infrastructure, as implied by higher depreciation, could lead to more reliable service. In a competitive landscape, Southern Company's ability to grow revenues and maintain operating income demonstrates its resilience and market position, especially with its diverse portfolio including electric and natural gas operations. Employees benefit from a stable and growing company, while the broader market gains insight into the health of a major utility player.

Risk Assessment

Risk Level: medium — The risk level is medium due to significant increases in both interest expense and fuel costs. Interest expense, net of amounts capitalized, rose by $63 million to $(755) million for the three months ended September 30, 2025, and by $264 million to $(2,343) million for the nine months. Fuel costs also increased substantially by $199 million to $1,345 million for the quarter and $579 million to $3,753 million for the nine months, indicating potential margin pressure if these trends continue.

Analyst Insight

Investors should monitor Southern Company's ability to pass through increased fuel and interest costs to customers through rate adjustments. Evaluate the impact of these rising expenses on net income and dividend sustainability. Consider the company's long-term capital expenditure plans and their financing strategies in a higher interest rate environment.

Financial Highlights

revenue

$7.82B

operating Margin

33.2%

revenue Growth

+7.5%

Revenue Breakdown

Key Numbers

• $7.82B — Total Operating Revenues (Increased by $549 million (7.5%) for the three months ended September 30, 2025)
• $22.57B — Total Operating Revenues (Increased by $2,189 million (10.7%) for the nine months ended September 30, 2025)
• $2.59B — Operating Income (Increased by $226 million (9.5%) for the three months ended September 30, 2025)
• $6.37B — Operating Income (Increased by $358 million (6.0%) for the nine months ended September 30, 2025)
• $(755)M — Interest Expense, net (Increased by $63 million for the three months ended September 30, 2025)
• $(2.34B) — Interest Expense, net (Increased by $264 million for the nine months ended September 30, 2025)
• $1.35B — Fuel Costs (Increased by $199 million for the three months ended September 30, 2025)
• $3.75B — Fuel Costs (Increased by $579 million for the nine months ended September 30, 2025)
• $1.42B — Depreciation and Amortization (Increased by $212 million for the three months ended September 30, 2025)
• 1,101,104,843 — Common Stock Shares Outstanding (For The Southern Company at September 30, 2025)

Key Players & Entities

• SOUTHERN CO GAS (company) — Registrant for the 10-Q filing
• The Southern Company (company) — Parent company and large accelerated filer
• Alabama Power Company (company) — Subsidiary and accelerated filer
• Georgia Power Company (company) — Subsidiary and accelerated filer
• Mississippi Power Company (company) — Subsidiary and accelerated filer
• Southern Power Company (company) — Subsidiary and accelerated filer
• U.S. Securities and Exchange Commission (regulator) — Governing body for 10-Q filings
• $7,823 million (dollar_amount) — Total operating revenues for the three months ended September 30, 2025
• $2,594 million (dollar_amount) — Operating Income for the three months ended September 30, 2025
• $1,345 million (dollar_amount) — Fuel costs for the three months ended September 30, 2025

FAQ

Risk Factors

• Changes in Laws and Regulations [high — regulatory]: The company is subject to extensive federal, state, and local laws and regulations. Changes in these regulations, including environmental standards and energy policies, could materially impact operations and financial results. For example, the company's operations are subject to the Clean Air Act and other environmental regulations, which may require significant capital expenditures for compliance.
• Infrastructure Reliability and Security [high — operational]: The company's utility infrastructure is critical for providing reliable service. Outages or disruptions caused by severe weather, equipment failure, cyberattacks, or physical attacks could lead to significant financial losses and reputational damage. The company invests in maintaining and upgrading its infrastructure to mitigate these risks.
• Interest Rate and Financing Costs [medium — financial]: The company's financial performance is sensitive to interest rate fluctuations, as it carries substantial debt. An increase in interest rates, as evidenced by the $63 million increase in interest expense for the quarter, can lead to higher financing costs, impacting profitability. The company manages this risk through various hedging strategies.
• Commodity Price Volatility [medium — market]: The company's profitability is affected by the prices of fuel (natural gas and coal) and purchased power. Significant increases in these costs, such as the $199 million rise in fuel costs for the quarter, can pressure margins if not fully recoverable through customer rates. The company utilizes various strategies to manage commodity price risk.
• Climate Change and Extreme Weather [medium — operational]: The company's operations, particularly its generation and transmission facilities, are vulnerable to the impacts of climate change and extreme weather events. These events can cause physical damage, disrupt service, and increase operating costs. The company is investing in grid modernization and climate resilience measures.
• Capital Expenditures and Funding [medium — financial]: The company requires substantial capital for infrastructure investments, including grid modernization and clean energy projects. The ability to secure financing at reasonable costs is crucial. Delays or cost overruns in these projects, or difficulties in obtaining necessary funding, could adversely affect financial condition.
• Environmental Compliance Costs [medium — regulatory]: Stricter environmental regulations, particularly concerning emissions from power plants, may require significant capital investments in pollution control technology or lead to the retirement of older facilities. The increase in depreciation and amortization by $212 million for the quarter could reflect ongoing investments in environmental compliance and asset modernization.
• Cybersecurity Threats [high — operational]: The increasing reliance on digital technologies for grid management and operations exposes the company to cybersecurity threats. A successful cyberattack could disrupt operations, compromise sensitive data, and lead to significant financial and reputational damage. The company invests in robust cybersecurity measures.

Industry Context

The energy sector is undergoing significant transformation driven by decarbonization efforts, evolving regulatory landscapes, and technological advancements. Utilities like Southern Company are balancing the need for reliable energy delivery with investments in renewable energy sources and grid modernization. Competition exists from independent power producers and, in some segments, from alternative energy solutions.

Regulatory Implications

Southern Company operates in a heavily regulated environment. Changes in environmental regulations, energy policies, and rate-setting mechanisms by state public utility commissions can significantly impact profitability and operational strategies. The company must navigate these regulations while investing in infrastructure upgrades and cleaner energy solutions.

What Investors Should Do

1. Monitor interest rate sensitivity
2. Analyze fuel cost recovery mechanisms
3. Assess capital expenditure plans
4. Evaluate regulatory and environmental risks

Glossary

Allowance for equity funds used during construction

This is an accounting practice where a utility company capitalizes the cost of financing used to fund construction projects. It includes the cost of debt and equity capital used for construction during the period it is being built. (This item impacts the company's reported income and the carrying value of its assets under construction. It is a common practice in the regulated utility industry.)

Large accelerated filer

A classification for public companies that have a public float of $700 million or more, have been subject to SEC reporting requirements for at least 12 calendar months, and have filed at least one annual report. (Indicates Southern Company is a large, established company with significant market capitalization and subject to stringent SEC reporting and disclosure requirements.)

Depreciation and amortization

The systematic allocation of the cost of tangible (depreciation) and intangible (amortization) assets over their useful lives. For utilities, this reflects the cost of using their extensive infrastructure. (The significant increase of $212 million for the quarter highlights ongoing investments in assets and their aging, or the impact of new capital projects coming online.)

Operating Income

A measure of a company's profitability from its core business operations, calculated as total operating revenues minus total operating expenses. (The increase of $226 million for the quarter shows improved profitability from the company's primary business activities, despite rising costs.)

Fuel Costs

The expenses incurred by the company for the purchase of fuel (such as natural gas and coal) used in electricity generation. (The $199 million increase for the quarter indicates higher energy commodity prices or increased consumption, impacting operating expenses.)

Interest Expense, net

The cost incurred by the company for borrowed funds, net of any interest income or amounts capitalized during construction. (The increase of $63 million for the quarter reflects rising interest rates or increased borrowing levels, impacting the company's bottom line.)

Year-Over-Year Comparison

For the three months ended September 30, 2025, Southern Company reported a 7.5% increase in total operating revenues to $7.82 billion, driven by higher retail electric and natural gas revenues. Operating income also saw a healthy increase of 9.5%. However, this was partially offset by a notable rise in interest expense (up $63 million) and fuel costs (up $199 million), alongside a significant increase in depreciation and amortization expenses (up $212 million), indicating rising operational and financing costs.

Key Financial Figures

• $5 — outhern Company Common Stock, par value $5 per share SO New York Stock Exchange (
• $40 — 04,843 Alabama Power Company Par Value $40 Per Share 30,537,500 Georgia Power Com
• $0.01 — 1,000 Southern Power Company Par Value $0.01 Per Share 1,000 Southern Company Gas P

Filing Documents

• so-20250930.htm (10-Q) — 7426KB
• ex4-f6nicorsupplementalind.htm (EX-4.F6) — 187KB
• ex24-c2cookgpcpoa.htm (EX-24.C2) — 4KB
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• x31a2-q32025so.htm (EX-31.A2) — 9KB
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• x31e2-q32025spc.htm (EX-31.E2) — 10KB
• x31f1-q32025gas.htm (EX-31.F1) — 10KB
• x31f2-q32025gas.htm (EX-31.F2) — 9KB
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• 0000092122-25-000084.txt ( ) — 30915KB
• so-20250930.xsd (EX-101.SCH) — 134KB
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—FINANCIAL INFORMATION

PART I—FINANCIAL INFORMATION

Financial Statements (Unaudited)

Item 1. Financial Statements (Unaudited) 9

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 97

Quantitative and Qualitative Disclosures about Market Risk

Item 3. Quantitative and Qualitative Disclosures about Market Risk 150

Controls and Procedures

Item 4. Controls and Procedures 150

—OTHER INFORMATION

PART II—OTHER INFORMATION

Legal Proceedings

Item 1. Legal Proceedings 151

Risk Factors

Item 1A. Risk Factors 151

Unregistered Sales of Equity Securities and Use of Proceeds Inapplicable

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Inapplicable

Defaults Upon Senior Securities Inapplicable

Item 3. Defaults Upon Senior Securities Inapplicable

Mine Safety Disclosures Inapplicable

Item 4. Mine Safety Disclosures Inapplicable

Other Information

Item 5. Other Information 151

Exhibits

Item 6. Exhibits 151

Signatures

Signatures 155 3 Table of Contents Index to Financial Statements DEFINITIONS Term Meaning 2022 ARP Alternate Rate Plan approved by the Georgia PSC in 2022 for Georgia Power for the years 2023 through 2025 2023 IRP Update Georgia Power's updated IRP filed in 2023 and approved by the Georgia PSC in April 2024 as modified by a stipulation among Georgia Power, the staff of the Georgia PSC, and certain intervenors 2024 ELG Rule Final rule published by the EPA in May 2024 revising the steam effluent guidelines 2024 GHG Rules Final rules published by the EPA in May 2024 for existing fossil fuel-fired steam electric generating units and new fossil fuel-fired combustion turbines and combined cycle generation facilities 2024 Legacy Rule Final rule published by the EPA in May 2024 related to legacy surface impoundments and CCR management units AFUDC Allowance for funds used during construction AGL Services Company AGL Services Company, Inc., the Southern Company Gas system service company and a wholly-owned subsidiary of Southern Company Gas Alabama Power Alabama Power Company ARO Asset retirement obligation Atlanta Gas Light Atlanta Gas Light Company, a wholly-owned subsidiary of Southern Company Gas CAMT Corporate alternative minimum tax CCR Coal combustion residuals CCR Rule Disposal of Coal Combustion Residuals from Electric Utilities final rule published by the EPA in 2015 Chattanooga Gas Chattanooga Gas Company, a wholly-owned subsidiary of Southern Company Gas Clean Air Act Clean Air Act Amendments of 1990 COD Commercial operation date CODM Chief operating decision maker CWIP Construction work in progress Dalton City of Dalton, Georgia, an incorporated municipality in the state of Georgia, acting by and through its Board of Water, Light, and Sinking Fund Commissioners Dalton Pipeline A pipeline facility in Georgia in which Southern Company Gas has a 50% undivided ownership interest DOE U.S. Department of Energy ECCR Geo

Financial Statements (Unaudited)

Item 1. Financial Statements (Unaudited). Page The Southern Company and Subsidiary Companies: Condensed Consolidated Statements of Income 10 Condensed Consolidated Statements of Comprehensive Income 11 Condensed Consolidated Statements of Cash Flows 12 Condensed Consolidated Balance Sheets 13 Condensed Consolidated Statements of Stockholders' Equity 15 Alabama Power Company: Condensed Statements of Income 17 Condensed Statements of Comprehensive Income 17 Condensed Statements of Cash Flows 18 Condensed Balance Sheets 19 Condensed Statements of Common Stockholder's Equity 21 Georgia Power Company: Condensed Statements of Income 22 Condensed Statements of Comprehensive Income 22 Condensed Statements of Cash Flows 23 Condensed Balance Sheets 24 Condensed Statements of Common Stockholder's Equity 26 Mississippi Power Company: Condensed Statements of Income 27 Condensed Statements of Comprehensive Income 27 Condensed Statements of Cash Flows 28 Condensed Balance Sheets 29 Condensed Statements of Common Stockholder's Equity 31 Southern Power Company and Subsidiary Companies: Condensed Consolidated Statements of Income 32 Condensed Consolidated Statements of Comprehensive Income (Loss) 32 Condensed Consolidated Statements of Cash Flows 33 Condensed Consolidated Balance Sheets 34 Condensed Consolidated Statements of Stockholders' Equity 36 Southern Company Gas and Subsidiary Companies: Condensed Consolidated Statements of Income 38 Condensed Consolidated Statements of Comprehensive Income 38 Condensed Consolidated Statements of Cash Flows 39 Condensed Consolidated Balance Sheets 40 Condensed Consolidated Statements of Stockholder's Equity 42 Combined Notes to the Condensed Financial Statements 43 9 Table of Contents Index to Financial Statements THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three M

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View this 10-Q filing on SEC EDGAR