Mississippi Power downgraded due to IGCC plant
by Wally Northway
Published: September 7,2010
GULFPORT — Fitch has taken various actions on the ratings of Southern Co., Mississippi Power Company (MPC) and Southern’s subsidiaries, including affirming the issuer default ratings (IDRs) and debt ratings of Southern and revising the outlook to “negative” from “stable.” Approximately $18.1 billion of long-term debt is affected by these rating actions.
In addition, Fitch has downgraded the IDR and security ratings for MPC) and affirmed the IDRs and debt ratings of SO’s other subsidiaries, Alabama Power Company (APC), Georgia Power Company (GPC), Gulf Power Company (Gulf Power) and Southern Power Company (SPC). The rating outlook for all of the subsidiaries is “stable,” except for GPC, which remains “negative.”
Fitch wrote: “The one-notch downgrade for MPC reflects the higher business risk assumed by the utility with its decision to proceed with the proposed Kemper County Integrated Gasification Combined Cycle (IGCC) project. Fitch views the Kemper County IGCC as a relatively large and complex project for a utility of MPC’s size. In addition, the hard construction cost cap and specific operating parameters imposed by the Mississippi Public Service Commission (MPSC) with its approval of the project elevate the construction and operating risks for MPC.
“Fitch expects MPC’s EBITDA- based credit metrics to weaken during the construction cycle, and there is a risk of cost overruns beyond the $2.88-billion cost cap imposed by the MPSC, which is $480 million above MPC’s current estimated cost to build.
“The stable outlook reflects moderate growth in MPC’s service territory, supportive regulatory framework, manageable debt maturities and ample liquidity. Fitch will continue to monitor the progress of the IGCC project, which is expected to have important bearings on the future credit quality and ratings of the utility.
“The revision of Southern’s outlook to “negative” reflects concerns around rising business risk at several of its utility subsidiaries. For GPC and MPC, the higher business risk is driven by their undertaking of large, complex baseload projects. Gulf Power is facing an uncertain regulatory environment in Florida and a recovering, albeit still weak, economy. A high reliance on the industrial sector in a backdrop of slow economic recovery is likely to affect cash flows for APC, MPC and GPC.
“Finally, potential stringent environmental rules on coal-fired plants would weigh on Southern’s utilities because of the predominant coal mix in their generation. The cost of electricity for customers in Southern’s service territory will likely increase if more stringent controls are mandated and could impact the return on equity its subsidiaries may receive in the future.”
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