Executive Summary / Key Takeaways

• Robust Demand-Driven Growth: Southern Company is strategically positioned to capitalize on unprecedented electricity demand in the Southeast, primarily from data centers and industrial expansion, with a projected 8% average annual sales growth through 2029 and a substantial 50+ gigawatt pipeline of potential incremental load.
• Significant Capital Investment & Financial Discipline: The company has increased its 5-year base capital plan to $76 billion through 2030, a $13 billion increase from prior projections, to support this growth. This is being funded in a credit-supportive manner, with over $7 billion of a $9 billion equity need through 2029 already solidified, targeting a 17% FFO to debt ratio.
• Constructive Regulatory Environment: Southern Company benefits from a vertically integrated, state-regulated business model with orderly processes, exemplified by Georgia Power's rate plan extension freezing base rates until at least 2029 and recent Integrated Resource Plan (IRP) approvals for new generation.
• Strong Financial Performance & Outlook: The company reported adjusted EPS of $1.60 in Q3 2025, exceeding estimates, and expects to finish 2025 at the top of its $4.30 annual guidance. Management anticipates a potential rebasing of its 5-7% long-term EPS growth rate as early as 2027, driven by back-end loaded growth and moderating interest rate headwinds.
• Diversified Energy Portfolio & Infrastructure Focus: Strategic investments in natural gas combined cycle units, battery energy storage, wind repowering, and transmission infrastructure, alongside complementary businesses like Southern Telecom and PowerSecure, enhance reliability and attract data-intensive customers.

A Foundation of Reliability: Southern Company's Strategic Position

Southern Company (NYSE:SOJE) stands as a cornerstone of the U.S. energy landscape, particularly in the rapidly expanding Southeast. As a dominant large-cap market leader in the Electric Services industry, the company's core business revolves around its vertically integrated electric utilities in Alabama, Georgia, and Mississippi, complemented by natural gas distribution utilities and a competitive wholesale power segment. This integrated model, which encompasses power generation, transmission, and distribution, provides a predictable income stream and is a significant advantage in the dynamic energy market. Southern Company has consistently demonstrated its operational prowess, maintaining customer rates more than 10% below the national average while delivering premier reliability and resilient service. This commitment to affordability and reliability has been a hallmark of its long history, evidenced by 78 consecutive years of maintaining or increasing its annual common dividend.

The company's strategic approach is deeply rooted in its constructive regulatory environments and orderly Integrated Resource Planning (IRP) processes. These frameworks enable transparent and disciplined resource deployment, crucial for meeting the burgeoning energy demands of its service territories. This disciplined approach extends to its forecasting, where a risk-adjusted methodology is applied to a substantial economic development pipeline, ensuring that new large load customer contracts are structured to benefit existing customers and protect investments.

Technological Edge and Infrastructure Innovation

Southern Company's competitive differentiation is not solely in a single proprietary technology, but rather in its advanced deployment, integration, and management of diverse energy technologies and robust infrastructure. The company's "vertically integrated and well-planned grid" is a critical asset, proving highly effective in delivering reliability and resilience, particularly appealing to data center customers. This integrated approach allows for greater control over the energy supply chain, enhancing operational efficiency.

Key technological deployments and initiatives include:

• Battery Energy Storage: Georgia Power has received approval for a 200-megawatt (MW) battery energy storage facility projected for commercial operation in 2027. Further plans include nine Georgia Power-owned battery energy storage facilities totaling 2,762 MW and two solar-paired battery energy storage facilities of 350 MW, all projected for commercial operation between 2028 and 2030. Alabama Power is also building a 150 MW Gorgas battery facility, expected by 2027. These investments enhance grid stability, integrate renewables, and provide flexible capacity.
• Modern Natural Gas Generation: The company is investing in new natural gas combined cycle units, with Georgia Power requesting certification for five such units totaling 3,692 MW, projected for commercial operation between 2029 and 2030. Alabama Power's acquisition of the 855-MW Lindsay Hill Generating Station further bolsters its dispatchable capacity.
• Wind Repowering: Southern Power is actively repowering existing wind facilities, including Kay Wind (200 MW), Grant Plains (147 MW), Grant Wind (152 MW), and Wake Wind (257 MW), with projected in-service dates by the first half of 2027. These projects enhance output and efficiency of existing renewable assets.
• Nuclear Energy: The successful operation of Plant Vogtle Units 3 and 4 showcases the company's expertise in large-scale nuclear projects, providing baseload clean energy. Management emphasizes the efficiency gains experienced from Unit 3 to Unit 4, highlighting that "the more we build, the great efficiencies we experience, supply chain, workforce, all aspects of this process we get better at it."
• Digital Infrastructure: Southern Telecom, a subsidiary, deploys fiber optic infrastructure, which is a crucial offering for attracting data-intensive customers to the Southeast. PowerSecure, another complementary business, specializes in distributed energy solutions and microgrids, benefiting from the growth in data centers and enhancing the company's understanding of their specific needs.

These technological and infrastructure investments are critical for Southern Company's competitive moat, enabling it to meet the surging demand from data centers and industrial growth. The ability to provide reliable, scalable, and increasingly diversified energy solutions directly contributes to its financial performance through sustained revenue growth and optimized operational costs.

Financial Performance and Strategic Growth

Southern Company's recent financial performance underscores its ability to execute its strategy effectively. For the third quarter of 2025, the company reported adjusted earnings per share (EPS) of $1.60, exceeding its estimate by $0.10 and marking a $0.17 increase from the third quarter of 2024. Year-to-date through September 30, 2025, adjusted EPS reached $3.76, up from $3.56 in the prior year period. This growth was primarily fueled by continued investments in state-regulated utilities, robust customer additions, and increased energy usage.

Operating revenues for the third quarter of 2025 increased by 7.5% to $7.8 billion, and by 10.7% to $22.6 billion for the nine months ended September 30, 2025, compared to the corresponding periods in 2024. Retail electric revenues alone rose to $5.7 billion in Q3 2025 from $5.4 billion in Q3 2024, and to $15.1 billion year-to-date from $13.8 billion. This increase was driven by rate adjustments, pricing, and sales growth.

Key operational metrics highlight the underlying strength:

• Year-to-date weather-normal retail electricity sales were 1.8% higher than the first three quarters of 2024, representing the highest annual increase since 2010, excluding the pandemic.
• The commercial sector saw a 3.5% weather-normal growth in Q3 2025, significantly boosted by a 17% increase in data center usage.
• Residential sales grew 2.7% in Q3 2025, with approximately 12,000 new electric customers added in the quarter, a trend substantially higher than historical norms.
• Industrial sales increased 1.5% in Q3 2025, driven by strength in primary metals and electronics sectors.

Despite these positive trends, the company experienced increased depreciation and amortization, influenced by additional plant in service, accelerated depreciation from Southern Power's wind repowering projects, and amortization of regulatory assets related to Coal Combustion Residuals (CCR) Asset Retirement Obligations (AROs) at Georgia Power. Interest expense also rose due to higher average outstanding borrowings and increased interest rates, including a $129 million loss on extinguishment of debt at the parent company year-to-date.

Capital Allocation and Liquidity

Southern Company has significantly expanded its capital investment plan to meet the surging demand. The 5-year base capital plan has increased by $13 billion to $76 billion through 2030, with $12 billion allocated to state-regulated generation and modernization projects, and $800 million for Southern Power's wind repowering initiatives. An additional $5 billion in capital investment is anticipated through 2029, contingent on Georgia generation procurement certifications and potential FERC-regulated gas pipeline expansions.

The company is committed to funding this ambitious plan while maintaining strong investment-grade credit ratings. Its strategy targets a 17% Funds From Operations (FFO) to debt ratio within its planning horizon. To achieve this, Southern Company plans to fund the $13 billion capital increase with approximately 40% additional equity or equity equivalents. Over $7 billion of the projected $9 billion cumulative equity need through 2029 has already been solidified through at-the-market (ATM) forward sales, hybrid security issuances, and internal equity plans. In Q3 2025 alone, $4 billion of long-term debt was issued across its subsidiaries, fully satisfying their 2025 long-term debt financing needs.

While certain subsidiaries, including Georgia Power, Mississippi Power, Southern Power, and Southern Company Gas, reported current liabilities exceeding current assets at September 30, 2025, management is confident that working capital needs can be met through operating cash flows, commercial paper, lines of credit, and short-term bank notes. The Board of Directors also approved an $0.08 per share increase in the annual common dividend, raising the annualized rate to $2.96 per share, marking the 24th consecutive annual increase. This modest increase is designed to lower the dividend payout ratio into the low to mid-60% range, balancing equity needs with shareholder returns.

Competitive Landscape and Strategic Positioning

Southern Company operates in a highly competitive and dynamic energy sector, facing both direct and indirect rivals. Its primary direct competitors include large, integrated utilities such as Duke Energy (DUK), NextEra Energy , Dominion Energy (D), and American Electric Power (AEP).

Southern Company's competitive strengths lie in its vertically integrated utility model, which provides stable revenue streams and operational efficiency. Its long-standing presence and extensive customer base in the Southeast offer a regional dominance that fosters customer loyalty. The company's constructive regulatory environments, particularly in Georgia, provide a distinct advantage, as evidenced by the extension of Georgia Power's rate plan, which freezes base rates until at least 2029. This regulatory certainty supports large-scale infrastructure investments and helps maintain customer affordability.

Compared to its peers, Southern Company's focus on traditional electric operations, complemented by gas distribution and wholesale power, provides a balanced portfolio. While NextEra Energy (NEE) leads in renewable energy development and often exhibits faster growth rates, Southern Company's integrated approach and emphasis on grid reliability are proving highly attractive to large load customers, especially data centers. The company's ability to offer a "well-planned grid" and comprehensive energy solutions is a key differentiator in attracting these energy-intensive clients.

Southern Power, the competitive wholesale segment, further enhances the company's competitive standing. Its assets are largely under long-term contracts with creditworthy counterparties, minimizing commodity risk. Significant recontracting opportunities for its natural gas fleet in the early 2030s are projected to yield significantly higher pricing, with some recent PPAs repriced at nearly three times current rates. This positions Southern Power to be a "steady contributor" to long-term earnings durability.

Indirect competitors include renewable-focused independents and technology firms developing their own power solutions. Southern Company counters these by leveraging its scale, regulatory expertise, and the integrated nature of its services, which can offer more reliable and comprehensive solutions than fragmented alternatives. The company's complementary businesses, Southern Telecom and PowerSecure, also provide unique market insights and additional product offerings that enhance its appeal to data-intensive customers.

Outlook and Risks

Southern Company's outlook is characterized by strong growth prospects, particularly from the burgeoning demand in its service territories. The company projects average annual retail electricity sales growth of approximately 8% from 2025 through 2029, a 2% increase from prior expectations. Georgia Power is expected to lead this growth with a projected 12% increase over the same period, while the commercial segment, including data centers, is forecast to grow an average of 18%. The large load pipeline, exceeding 50 gigawatts of potential incremental load by the mid-2030s (with 80% from data centers), provides a robust foundation for future expansion.

Management expects to deliver on its financial objectives for 2025, with an adjusted EPS estimate of $0.54 for Q4 2025, placing full-year adjusted earnings at the top of its $4.30 guidance range. The long-term adjusted EPS growth rate remains at 5-7%, but management is "increasingly encouraged about the strength of our long-term earnings outlook" and anticipates a potential "rebasing" of this growth trajectory at a higher starting point as early as 2027. This rebasing is contingent on the sustainable momentum of large load growth and the moderation of parent company interest rate headwinds.

Despite the optimistic outlook, several risks warrant investor attention. Regulatory uncertainty remains a factor, with ongoing legal and administrative proceedings related to environmental compliance (e.g., EPA's Ozone NAAQS, ELG, CCR, and GHG rules) that could result in significant compliance costs. Litigation risks, including a class action complaint alleging nuclear compensation fixing and a qui tam action related to Kemper DOE grants, could materially impact financial statements. Economic and policy uncertainties, such as inflation, interest rate fluctuations, and changes in trade policies, could affect customer demand and the cost of doing business. Supply chain and construction challenges, particularly for gas turbines and transmission equipment, could lead to project delays or cost overruns. Furthermore, Moody's revised Southern Company's ratings outlook to negative from stable in September 2025, highlighting credit rating risk. The federal One Big Beautiful Bill Act (OBBB), enacted in July 2025, also introduced new restrictions on tax credits for solar and wind projects, the ultimate impact of which is still being assessed.

Conclusion

Southern Company is firmly positioned at the nexus of a transformative period for the U.S. energy sector, driven by unprecedented demand growth in the Southeast. Its vertically integrated, state-regulated business model, coupled with a disciplined approach to capital investment and a focus on customer affordability, forms a robust investment thesis. The company's ability to leverage its extensive infrastructure, deploy advanced energy technologies, and strategically engage with a burgeoning pipeline of large load customers, particularly data centers, underpins its strong financial performance and optimistic long-term outlook.

While facing inherent risks associated with regulatory changes, environmental compliance, and economic volatility, Southern Company's proactive management of its capital plan, equity financing, and diversified energy portfolio demonstrates resilience. The potential for a rebased long-term EPS growth trajectory as early as 2027, alongside significant recontracting opportunities at Southern Power, suggests a durable earnings profile. Southern Company's commitment to reliability, affordability, and strategic growth positions it as a compelling investment in the evolving energy landscape.