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Moody’s could again downgrade Mississippi Power

Mississippi Power is under review for another downgrade by Moody’s after the Jan. 31 announcement of a ninth extension to put the $7 billion Kemper energy facility in service using lignite coal.
Mississippi Power is under review for another downgrade by Moody’s after the Jan. 31 announcement of a ninth extension to put the $7 billion Kemper energy facility in service using lignite coal. Courtesy of Mississippi Power

Moody’s Investors Service placed Mississippi Power Company’s ratings on review for another downgrade after the company last week announced a ninth extension for placing the now $7 billion Kemper energy facility into service using lignite.

About $800 million of debt securities are affected by the possible downgrade, including Baa3 senior unsecured, Baa3 Issuer Rating, Ba2 preferred stock and VMIG-3 short-term pollution control revenue bond rating, Moody’s said in a press release Monday. The ratings of parent company, The Southern Company, are unchanged, the announcement said.

“The review of Mississippi Power’s ratings considers the declining competitiveness of the Kemper Integrated Gasification Combined Cycleplant as project costs have continued to rise, operating costs are increasing and natural gas prices remain low,” said Michael Haggarty, Moody’s associate managing director.

The cost of the project has ballooned from the $2.4 billion original estimate to more than $7 billion.

Moody’s said its review also reflects “the continued inability of the company to place the plant into service,” with the company already extending the in-service date nine times.

“These developments increase the risk that the company will not receive full regulatory recovery of $2.88 billion of plant costs subject to a cost cap established by the Mississippi Public Service Commission, $1.5 billion of costs not subject to the cap, which continue to increase, and higher operating costs once the plant is placed into service,” Moody’s said.

On Jan. 31, Mississippi Power said parent Southern Company’s fuel forecast for 2017 showed estimated natural gas costs significantly lower than had been projected and higher costs for operating the plant with lignite coal. The review of the economic viability of operating by natural gas or coal is expected to be complete by the end of the month.

Moody’s said its review of Mississippi Power’s rating will consider:

▪  The results of the utility’s project economic viability analysis.

▪  The impact that analysis may have on the company’s regulators and the prospects for recouping the remaining recoverable project costs.

▪  The company’s success or failure in meeting the latest projected in-service date of late February.

▪  Southern Company’s continued credit and liquidity support for Mississippi Power.

▪  The standalone financial condition of Mississippi Power if and when the Kemper plant is fully operational.

Moody’s said Southern Company’s ratings and stable outlook are unchanged, “reflecting Mississippi Power’s position as one of Southern’s smaller utility subsidiaries, with the Kemper project having a material but thus far manageable impact on the parent’s consolidated financial condition.”

Moody’s downgraded Mississippi Power in August 2015 and again in November 2015 after two new commissioners were elected to the state Public Service Commission.

Haggarty said at that time that both of the new commissioners voiced serious concerns and reservations about the plant.

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