JACKSON, Miss. (AP) — A credit rating agency has cut its outlook for Mississippi Power Co. after the company’s attempt to collect money for a power plant was rejected.
Fitch Ratings said Tuesday that it is cutting the company’s main credit rating to A- from A. That’s still an investment grade rating. Fitch also said it had a negative outlook for the future, meaning it could cut grades again.
Fitch said it made the move because the Mississippi Public Service Commission rejected Mississippi Power’s request for a $58.6 million rate increase last month. The money was supposed to start paying debt costs on the $2.76 billion coal-fired power plant that the unit of Atlanta-based Southern Co. is building in Kemper County.
Though Mississippi Power is owned by the Southern Co., it borrows money under its own name and has a separate credit rating.
The commission voted 3-0 to delay rate increases until the Sierra Club’s new lawsuit against the plant is resolved. That suit is currently pending in Harrison County Chancery Court.
Fitch said it was “surprised” that the PSC didn’t allow the company to begin collecting for debt costs while construction was ongoing, since regulators had previously signaled they would allow such recovery.
“Kemper IGCC is a relatively large and complex project for a utility of Mississippi Power’s size, and the delay in recovery of financing costs has already caused significant stress on Mississippi Power’s credit metrics,” the agency wrote.
Fitch also said the delay raised the possibility of a “significant rate shock” for Mississippi Power’s 185,000 customers, since the company continues to borrow to finance construction and will seek rate increases to repay the debt. So far, Mississippi Power has spent or committed $1.5 billion for what it calls Plant Ratcliffe.
The ratings agency also expressed concern that cost estimates have risen from $2.4 billion to $2.76 billion, close to the $2.88 billion cap imposed by the PSC
“If the cost of the plant exceeds $2.88 billion, the excess may not be recoverable from utility customers, a source of potential credit risk for Mississippi Power,” Fitch wrote.
A spokesman for Mississippi Power did not immediately return a request for comment.
An executive of the company told the PSC at the June 20 hearing that the company would save $500 million to $600 million in interest costs over time if it was allowed to begin collecting debt costs now. Opponents say that number is misleading because it doesn’t account for inflation and assumes customers have no other way to earn a return on their money.
Monday, another rating agency said that it was leaving Mississippi Power’s grades unchanged for now. Standard & Poor’s said the rejection “has no immediate effect on credit quality,” but “sets an unfavorable precedent.” Standard & Poor’s did warn that Mississippi Power’s “credit quality could be impaired” if it is unable to begin collecting from customers until the Kemper County plant begins service in early 2014.
