Approximately $800 million of debt securities affected
New York, February 06, 2017 -- Moody's Investors Service, ("Moody's") placed
Mississippi Power Company's ratings on review for downgrade,
including its Baa3 senior unsecured, Baa3 Issuer Rating, Ba2
preferred stock and VMIG-3 short-term pollution control
revenue bond rating. The ratings of the parent company, The
Southern Company (Southern, Baa2 senior unsecured) are unchanged.
On Review for Downgrade:
..Issuer: Eutaw (City of) AL, Industrial Dev.
Board
....Senior Unsecured Revenue Bonds,
Placed on Review for Downgrade, currently Baa3
....Senior Unsecured Revenue Bonds,
Placed on Review for Downgrade, currently VMIG 3
..Issuer: Harrison (County of) MS
....Senior Unsecured Revenue Bonds,
Placed on Review for Downgrade, currently Baa3
....Senior Unsecured Revenue Bonds,
Placed on Review for Downgrade, currently VMIG 3
..Issuer: Mississippi Business Finance Corporation
....Senior Unsecured Revenue Bonds,
Placed on Review for Downgrade, currently Baa3
....Senior Unsecured Revenue Bonds,
Placed on Review for Downgrade, currently VMIG 3
..Issuer: Mississippi Power Company
.... Issuer Rating, Placed on Review
for Downgrade, currently Baa3
....Pref. Stock Preferred Stock,
Placed on Review for Downgrade, currently Ba2
....Senior Unsecured Regular Bond/Debenture,
Placed on Review for Downgrade, currently Baa3
Outlook Actions:
..Issuer: Mississippi Power Company
....Outlook, Changed To Rating Under
Review From Negative
RATINGS RATIONALE
"The review of Mississippi Power's ratings considers the declining
competitiveness of the Kemper Integrated Gasification Combined Cycle (IGCC)
plant as project costs have continued to rise, operating costs are
increasing, and natural gas prices remain low" said Michael
G. Haggarty, Associate Managing Director. As of the
end of 2016, total project costs had increased to over $7
billion, more than double the original estimate. The review
also reflects the continued inability of the company to place the plant
into service, with nine schedule extensions of the in-service
date announced thus far, the most recent last week. These
developments increase the risk that the company will not receive full
regulatory recovery of $2.88 billion of plant costs subject
to a cost cap established by the Mississippi Public Service Commission,
$1.5 billion of costs not subject to the cap, which
continue to increase, and higher operating costs once the plant
is placed into service.
On 31 January 2017, Southern and Mississippi Power disclosed that
the updated annual Southern system fuel forecast for 2017, completed
late last year, reflected significantly lower long-term estimated
natural gas costs than had been previously projected. As a result,
Mississippi Power is updating the Kemper IGCC plant's "project
economic viability analysis", which compares its competitiveness
to a natural gas combined cycle plant. The utility has indicated
that this analysis is required by the Mississippi Public Service Commission
and has not been done since 2015. Southern and Mississippi Power
expect the reduction in projected long-term natural gas prices
and higher estimated operating costs for the project to negatively impact
the analysis.
The review of Mississippi Power's rating will consider the results
of the utility's project economic viability analysis, which
the company expects to be completed before the end of this month;
the impact that analysis may have on the company's regulators and
the prospects for recovery of the remaining recoverable project costs;
the company's success or failure in meeting the latest projected
in-service date of late February; the parent company's
continued credit and liquidity support for Mississippi Power; as
well as the standalone financial condition of Mississippi Power if and
when the Kemper plant is fully operational, including whether the
utility will exhibit financial metrics consistent with an investment grade
rating.
Southern's ratings and stable outlook are unchanged, reflecting
Mississippi Power's position as one of Southern's smaller
utility subsidiaries, with the Kemper project having a material
but thus far manageable impact on the parent's consolidated financial
condition. This is particularly the case since Southern's
2016 acquisition of AGL Resources, Inc. (now Southern Company
Gas), which increased its overall scale, diversification,
and resiliency. Although Southern has taken over $2.5
billion of pre-tax charges related to Kemper, the company's
downgrade to Baa2 last year was largely attributable to higher parent
debt levels and lower financial metrics due to the largely debt financed
AGL acquisition.
Southern's rating could be negatively affected if there are additional,
material debt financed acquisitions at the parent company; if there
are further delays or cost increases at Georgia Power Company's
(A3 stable) Vogtle new nuclear construction project; or if there
is rating pressure at one of its larger subsidiaries, including
Georgia Power, Alabama Power Company (A1 stable), Southern
Power Company (Baa1 stable), Southern Company Gas (unrated),
or Southern Company Gas Capital (Baa1 stable).
We continue to monitor developments with regard to the decline in the
credit quality of Toshiba Corporation (Caa1, ratings under review),
the parent company of the Vogtle project EPC contractor Westinghouse Electric
Company, LLC (unrated), and their commitment to the nuclear
power business. Westinghouse has provided Georgia Power and the
other Vogtle project owners with letters of credit totaling $920
million, somewhat mitigating this risk. We believe,
however, that Southern's updated annual system fuel forecast
has also negatively affected the competitiveness and economic rationale
of the Vogtle nuclear project.
Rating Outlook
Mississippi Power's ratings are on review for downgrade.
What Could Change the Rating - Down
Mississippi Power's ratings could be downgraded if the pending project
economic viability analysis indicates that there has been a material decline
in the cost competitiveness of the Kemper plant or that it is no longer
economically viable; if we believe the prospects for regulatory recovery
of remaining recoverable project costs or operating costs have declined;
or if there are any indications that the parent company will reduce or
scale back its thus far strong financial and liquidity support for Mississippi
Power. The utility could also be downgraded if we expect financial
metrics to remain below investment grade parameters for an extended period
following commercial operation of the Kemper plant, including cash
flow from operations pre-WC to debt below 13%.
The principal methodology used in these ratings was Regulated Electric
and Gas Utilities published in December 2013. Please see the Rating
Methodologies 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 Company Gas, Southern Electric Generating
Company, wholesale power company Southern Power Company, financing
subsidiaries Southern Company Gas Capital and 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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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
Jim Hempstead
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
