Moody’s Investors Service on Wednesday downgraded Mississippi Power’s ratings, saying the action in part reflects the expected battle the company will have to wage to recover its costs for “the increasingly uneconomic Kemper integrated gasification combined cycle plant.”
The downgrade is on approximately $800 million of debt securities.
Moody’s began the rating review Feb. 6 after Mississippi Power again delayed the in-service date of the energy facility in Kemper County using lignite. Mississippi Power has since announced that at current low natural gas rates, the facility can operate more economically on gas than on lignite coal.
That could raise questions about the merits of operating on lignite at all, which Moody’s said “will lead to a higher degree of regulatory, political, and public scrutiny of the plant at a time when the utility intends to pursue critical rate recovery proceedings and a determination of prudency, which has not yet occurred.”
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Mississippi Power is required to file a rate case on the Kemper plant by June 3 and Moody’s said, “The construction delays, higher operating costs, and lower natural gas prices will put the Mississippi Public Service Commission in a difficult position of being asked to approve rate recovery and a return on a plant that is much less competitive and more expensive to run than originally envisioned.”
Moody’s Associate Managing Director Michael Haggarty said, “There is a high degree of uncertainty with regard to regulatory treatment of the plant, as increased capital costs, higher projected operating costs and the continued inability of the utility to put the plant into service has increased the possibility that the IGCC portion of the plant may not be economic to operate at all.”
Southern Co., Mississippi Power’s parent company, has contributed “substantial ongoing financial and liquidity support,” he said, but Mississippi Power’s risk profile has deteriorated as construction of Kemper continued. The plant that originally was expected to cost $2.4 billion has risen above $7 billion.
Moody’s also provided a ratings outlook for Mississippi Power:
▪ The negative outlook is based in part on whether the IGCC portion of the plant will operate at all.
▪ An upgrade in the rating is unlikely while the company struggles to bring the Kemper plant into service but could stabilize if the plant successfully comes on line and shows reasonably consistent and reliable commercial operation.
▪ A downgrade could occur if approved Kemper cost recovery provisions are inadequate to sustain Mississippi Power’s financial condition, if the Kemper plant does not come on line with reliable commercial operation soon, or if Southern Co. limits its so far consistent support for Mississippi Power.
The ratings and outlook of Southern Co remain unchanged, Moody’s said.
Downgraded were Mississippi Power’s senior unsecured rating to Ba1 from Baa3, preferred stock to Ba3 from Ba2 and short-term pollution control revenue bond rating to SG from VMIG 3.
Moody’s assigned a Ba1 Corporate Family Rating, a Ba2-PD Probability of Default rating and an SGL-3 Speculative Grade Liquidity rating to Mississippi Power. Mississippi Power’s Baa3 Issuer Rating is withdrawn. The company’s rating outlook is negative.