Moody's cuts Mississippi Power credit rating to near-junk status

Dive Brief:

Moody's Investors Service downgraded Mississippi Power Co.'s credit rating to one step above junk following an election that altered the makeup of the state's Public Service Commission (PSC), the Jackson Free Press reports.
The credit ratings service said it is concerned the utility will face a less supportive commission when it argues for rate recovery related to its Kemper coal facility, which is billions of dollars over budget.
Moody's downgraded the utility's senior unsecured debt to Baa3 from Baa2, with a negative outlook, while parent company Southern Co. had its Baa1 senior unsecured rating affirmed, also with a negative outlook.

Dive Insight:

Results of last week's PSC election pushed Moody's to reduce Mississippi Power's debt rating, meaning another downgrade and that the cost of borrowing will likely rise for the utility.

"The downgrade of Mississippi Power's ratings is prompted by the election of what we expect to be a less credit supportive [PSC], at a time when the utility will be pursuing important rate recovery proceedings on the Kemper IGCC plant in 2016," Michael Haggarty, Moody's associate managing director, said in a statement.

Two new commissioners were elected last week, increasing regulatory uncertainty and heightening the risk the utility will not be able to recover all expenses related to the Kemper facility. But things could have been worse for the utility: Moody's noted that the most vocal Kemper opponent was defeated, although both elected commissioners have expressed concerns about the coal facility.

Republican Sam Britton defeated Democratic challenger Tom Blanton, a vocal critic of the Kemper project. Incumbent Brandon Presley, another skeptic of the project, also won.

Moody's said the downgrade also reflects Mississippi Power's weak liquidity and standalone financial condition, "metrics that we expect to be below investment grade levels for at least one to two years." Other factors include: the utility's continued cost increases and delays at the plant and its increasing reliance on its parent company, Southern Company, for financial and liquidity support.

Although Southern Company continues to back both Mississippi Power and the project, including making another $75 million equity contribution in September, Moody's said "we believe there are limits to the parent company's continued support for both the company and the Kemper project."

The original cost estimate of $2.8 billion has ballooned to more than $6 billion for the facility, which will be one of two coal gasification facilities in the country. It is expected to be online next year, though the facility began generating power with gas units in 2014.