Credit rater to downgrade Mississippi Power on Kemper woes

JACKSON, Miss. (AP) - The decision by a group of electrical cooperatives to pull out of planned purchase of 15 percent of a Kemper County power plant is likely to mean a credit downgrade for Mississippi Power Co.

Fitch Ratings said Friday that it plans to review the credit rating of the unit of Atlanta-based Southern Co. (NYSE: SO) and the rating is "likely" to fall at least one notch, possibly two.

The action comes because South Mississippi Electric Power Association (SMEPA) is pulling out of a planned $600 million purchase of a share of the $6.2 billion plant that Mississippi Power is building in Kemper County.

Hattiesburg-based SMEPA, which buys and generates power for 11 electrical cooperatives in southern and western Mississippi, announced the move Wednesday. Directors made the move after a SMEPA study found the increasing price of the plant had made it uncompetitive with other sources of power. The association's contract allowed it to pull out if the plant was delayed and recoup the $275 million in deposits it has paid with interest. SMEPA's 2014 financial statement said the amount had grown to $332 million.

Right now, Fitch rates Mississippi Power's debt as A-. One notch down would lower that rating to BBB+, and two notches down equals BBB. That lower level is still an investment-grade rating but only two notches above junk bond status. Lenders can charge higher interest rates to companies with lower credit ratings, and some investors won't buy junk bonds.

"Strong credit ratings directly benefit our customers," Mississippi Power spokesman Jeff Shepard said. "The company has been and will continue to take important steps toward long-term rate recovery and low-cost financing for the project for the benefit of customers."

Fitch said it would also review the A rating of much larger parent company Southern but did not predict a downgrade.

Thursday, Shepard declined to comment on how or when Mississippi Power would repay the money. Fitch said parent Southern guaranteed repayment in the Kemper contract.

"We fully intend to honor the contract with SMEPA and repay the deposit," he said.

SMEPA spokeswoman Sara Peterson said the association plans to use the refunded money to reduce its $1.4 billion in long-term debt.

Fitch wrote that it could be "challenging" for Mississippi Power to find another buyer for SMEPA's share "given the low wholesale price environment and the construction issues/delays the project has faced."

The rating agency said Mississippi Power could add SMEPA's share to the amount of power that will be sold on the wholesale market. It said trying to sell that electricity to Mississippi Power's own customers could be sticky because it would require the utility to rewrite the rate increase proposals that it filed only last week with the Mississippi Public Service Commission. Fitch said asking the customers pay for a larger share of the plant would "intensify the pressure on customer bills," and worsen the "ongoing regulatory uncertainty" over how much of Kemper's costs Mississippi Power will be able to recover from customers.

Southern has been funding Kemper's overruns by selling stock but had forecast no stock sales from 2015 through 2017 before SMEPA's pullout.

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