New York, February 19, 2015 -- Moody's Investors Service affirmed the ratings of Mississippi Power
Company (Baa1 senior unsecured) and changed the rating outlook to negative
from stable. Moody's affirmed the ratings of The Southern
Company (Southern, Baa1 senior unsecured) with a stable outlook.
RATINGS RATIONALE
"The negative rating outlook on Mississippi Power reflects the uncertainty
over cost recovery that has arisen following the Mississippi Supreme Court's
decision to invalidate the rate increases implemented by the utility for
costs associated with the Kemper IGCC plant and ordering a refund of approximately
$257 million of revenues already collected through 12/31/14",
said Michael G. Haggarty, Associate Managing Director.
Rate increases of 15% in 2013 and 3% in 2014 had been approved
by the Mississippi Public Service Commission (MPSC) as part of the company's
2013 Rate Order to partially meet Kemper revenue requirements.
We had viewed this rate order as credit positive as it helped mitigate
rate shock from the costly plant by potentially averting a rate increase
that could be higher than 30% if capital and financing costs of
the plant were put in place all at once upon completion. The reversal
of these rate increases will negatively affect Mississippi Power's
financial coverage metrics, delay the timely recovery of approved
costs associated with the plant, and increase the risk of consumer
rate shock.
The negative outlook also considers the cost increases and ongoing schedule
delays that continue to plague the complex project, which Mississippi
Power now hopes to be in service during the first half of 2016.
The company originally estimated construction costs of $2.4
billion, net of government incentives, and the MPSC agreed
to a cap on recoverable costs of $2.88 billion. However,
the cost of the plant has been revised upward several times and was most
recently increased to $4.86 billion (or $6.1
billion in total, including peripheral items like the lignite mine
and CO2 pipeline, which are excluded from the cost recovery cap),
twice the original estimate.
The delays and cost overruns have prevented the MPSC from issuing a determination
of prudency on the project, with prudency hearings postponed several
times as the project has experienced various setbacks. The lack
of a prudency determination by the MPSC was the key rationale for the
Supreme Court's decision, with the Court determining that
the MPSC should have found Kemper costs to be prudent before authorizing
the rate increases. The MPSC currently does not intend to issue
a prudency determination until after the plant is placed into service,
limiting the ability of the company to implement Kemper related rates,
although a prudency determination could be accelerated following the Supreme
Court decision.
Moody's notes that the Kemper project has been supported by only
two of the three commissioners on the MPSC and, with all three seats
up for reelection in 2015, the negative outlook reflects the risk
that the composition of the Commission could change and regulatory support
for the plant diminish.
The affirmation of the ratings and the maintenance of a stable outlook
on Southern considers the large and diverse nature of its sources of cash
flow, with three of its other major subsidiaries, Alabama
Power Company (A1 senior unsecured, stable), Gulf Power Company
(A2 senior unsecured, stable), and Southern Power Company
(Baa1 senior unsecured, stable), well positioned at their
respective rating levels. Although subsidiary Georgia Power (A3
senior unsecured, stable) has experienced cost increases and delays
at its new Vogtle nuclear project that have weakened its relative position
at the A3 rating level, the utility maintains solid state regulatory
support for cost recovery on the project and continues to exhibit a financial
profile adequate for its rating. The affirmation of Southern also
considers the comparatively modest amount of debt at the Southern parent
company level which, at approximately $2 billion, is
less than 10% of the organization's consolidated total debt.
Although issues associated with both the Kemper and Vogtle projects have
weakened Southern's relative position at the Baa1 rating level,
the stable rating outlook on the company reflects our view that most of
its utility regulatory environments remain credit supportive. Ratings
at Southern are more likely to be affected if one of its two largest subsidiaries,
Alabama Power or Georgia Power, are downgraded; if there are
significant additional delays or cost overruns on the Vogtle plant (and
to a lesser degree the Kemper plant) construction; or if there is
significant debt issued at the parent company level to finance either
of these construction projects or other capital expenditures.
Ratings affirmed include:
Affirmations:
All IRBs supported by Mississippi Power Company
....Senior Unsecured Revenue Bonds,
Affirmed Baa1/VMIG 2
..Issuer: Mississippi Power Company
.... Issuer Rating, Affirmed Baa1
....Senior Unsecured Shelf, Affirmed
(P)Baa1
....Subordinate Shelf, Affirmed (P)Baa2
....Junior Subordinate Shelf, Affirmed
(P)Baa2
....Preferred Shelf, Affirmed (P)Baa3
....Pref. Stock Preferred Stock,
Affirmed Baa3
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa1
Outlook Actions:
..Issuer: Mississippi Power Company
....Outlook, Changed To Negative From
Stable
..Issuer: Southern Company (The)
.... Commercial Paper, Affirmed P-2
....Senior Unsecured Shelf, Affirmed
(P)Baa1
....Junior Subordinate Shelf, Affirmed
(P)Baa2
....Senior Unsecured Bank Credit Facility,
Affirmed Baa1
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa1
Outlook Actions:
..Issuer: Southern Company (The)
....Outlook, Remains Stable
The principal methodology used in these ratings was Regulated Electric
and Gas Utilities published in December 2013. Please see the Credit
Policy page on www.moodys.com for a copy of this methodology.
The Southern Company is a utility holding company headquartered in Atlanta,
Georgia and the parent company of utility subsidiaries Alabama Power Company,
Georgia Power Company, Gulf Power Company, Mississippi Power
Company, Southern Electric Generating Company, wholesale power
company Southern Power Company, financing subsidiary Southern Company
Capital Funding, Inc., and commercial paper issuer
Southern Company Funding Corporation.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Michael G. Haggarty
Associate Managing Director
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's changes Mississippi Power outlook to negative; affirms Southern's ratings
