Rating Action: Moody’s Downgrades Mississippi Power to Baa2, negative; affirms Southern, stable
Global Credit Research – 14 Aug 2015
Approximately $2.2 billion of debt securities downgraded
New York, August 14, 2015 — Moody’s Investors Service, (“Moody’s”) downgraded Mississippi Power Company’s senior unsecured rating to Baa2 from Baa1 and its preferred stock rating to Ba1 from Baa3. The rating outlook is negative. This rating action concludes the review of Mississippi Power’s rating initiated on 27 May 2015. Moody’s affirmed the ratings of The Southern Company (Southern, Baa1 senior unsecured) with a stable outlook.
“The downgrade of Mississippi Power’s ratings reflects the lack of permanent cost recovery provisions in place for the Kemper IGCC plant since the Mississippi Supreme Court invalidated the utility’s 2013 rate plan earlier this year,” said Michael G. Haggarty, Associate Managing Director. “The downgrade also considers the increased concentration risk, financial exposure and liquidity pressure on the utility following the exit of its electric cooperative utility partner from a planned 15% ownership in the Kemper plant,” added Haggarty.
Although the Mississippi Public Service Commission (MPSC) approved interim rates by a two to one margin yesterday, providing the utility with some limited, potentially refundable rate relief on the plant’s in-service assets and averting a potentially more negative rating action, there is still no permanent cost recovery plan in place for the Kemper plant. The lack of a unanimous decision on a utility’s appeal for emergency financial relief is a particular credit concern. In addition, some interveners may challenge the approval of these interim rates.
The negative outlook reflects the financial uncertainty still facing Mississippi Power as it strives to obtain permanent rate relief on the Kemper plant with only two of the three commissioners supportive. Under a scheduling order issued by the MPSC earlier this week, hearings on designating these interim rates as permanent, including determining the prudency of the costs incurred for the in-service assets, are scheduled for November with a final order to be issued by 8 December 2015.
Near-term approval of some permanent rate relief on the Kemper plant has become all the more important because of the upcoming change in the composition of the MPSC on 1 January 2016 following elections this November. Several of the candidates running for the MPSC have voiced their opposition to the Kemper plant, as well as for the rate increases necessary for the utility recover the costs incurred under the MPSC’s previously established construction cost cap. A less credit supportive regulatory commission in place without some permanent rates in effect will likely lead to a further rating downgrade.
The negative outlook also reflects Mississippi Power’s constrained liquidity position and high reliance on parent company Southern for liquidity support.