Moody's downgrades MS Power's credit rating

Moody’s downgraded Mississippi Power’s credit rating last week over concerns about the utility’s finances that are related to issues with the $7 billion Kemper Project clean coal power plant.

Michael G. Haggarty, Moody’s associate managing director, said in a news release that Kemper’s issues and the financial ramifications are the primary reasons why the firm downgraded the Southern Company subsidiary’s rating from Baa3 to Ba1.

“The downgrade of Mississippi Power’s ratings reflects our expectations for heightened regulatory contentiousness as the utility pursues cost recovery on the increasingly uneconomic Kemper integrated gasification combined cycle (IGCC) plant, construction of which has severely stressed the utility’s financial profile,” Haggarty said.

Moody’s also said the decreasing economic viability of running the plant on synthesis gas made from lignite coal and the risk of Mississippi Power likely being unable to recover all of its capital costs were also factors in the downgrade.

A Ba1 rating on its senior unsecured financial obligations and contracts indicates an investment would be “speculative and subject to substantial credit risk.” Mississippi Power’s previous Baa3 rating was considered to be a moderate credit risk. The Southern Company still maintains its stable Baa2 rating.

The downgrade means that Mississippi Power’s ability to seek financing will come at a greater cost, although Moody’s did give the utility a corporate family rating of Ba1 after Southern Company CEO Tom Fanning told investors in an earnings call last week that Southern would stand by its subsidiary.

 

“Our commitment to the financial integrity of Mississippi Power and Southern Company has not changed,” Fanning said. “As we have done to date, Southern Company expects to maintain a capital structure and credit metrics for Mississippi Power supportive of investment grade ratings.”

 

Moody’s also said the utility’s capital-to-debt ratio continues to worsen — going from more than 20 percent historically to 8 percent in 2016 — because of higher debt, cost increases and regulatory uncertainty. The capital-to-debt ratio is below what the firm considers to be investment grade.

 

The utility has a June 3 deadline to submit a new rate plan to the Mississippi Public Service Commission. Moody’s said in the release it thinks a negotiated settlement is likely.

 

While there is a $2.88 billion cost cap in place, the PSC could allow Mississippi Power to charge $4.2 billion in uncapped costs to its 186,000 customers in the former of higher utility rates.

 

Kemper was supposed to cost $1.8 billion when it was proposed in 2006. The current estimate is $7.1 billion.

 

Moody’s said it is concerned with Mississippi Power’s ability to get Kemper fully operational.

 

The company announced last week that Kemper will be delayed until later in March because of problems with ash buildup in one of the plant’s two gasifiers.

 

The utility also said that Kemper’s projected availability running primarily on syngas has decreased from 59 percent of the time to 35 percent for the first five years the plant is operational. The company predicts the plant will be 85 percent available by the fifth year.

 

Steve Wilson reports for Mississippi Watchdog. Contact him at swilson@watchdog.org and on Twitter.

 

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