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Moody's upgrades Mississippi Power on improved financial profile

Moody's upgraded Mississippi Power Co. on Aug. 1 to Baa2 from Baa3, citing the company's improved financial profile as it moves past the problems related to the construction of the Kemper plant.

The outlook for the Southern Co. subsidiary remains positive. Moody's said the positive outlook is based on its expectation that Mississippi Power's financial results will continue to improve, with its ratio of cash flow from operations, pre-working capital, to debt expected to fall in the midteens range in 2019 and increase to about 20% in 2020.

The Baa2 rating also reflects an improving regulatory environment, following several years of strain due to delays and cost overruns at the facility related to the ultimately abandoned gasification component.

In its second-quarter earnings, the company said it may incur additional pretax closure costs, including mine reclamation, of up to $25 million for Kemper. Moody's noted that evidence of an improving relationship between the utility and regulators should emerge when Mississippi Power files its next rate case, planned for November. The rate case proceedings will also involve discussions about customer refunds on a portion of the company's $44 million of unprotected, excess accumulated deferred income tax balance.

Additionally, the Mississippi Public Service Commission will likely address Mississippi Power's reserve margin plan and operations review during the upcoming rate case proceeding.

Moody's expects the ongoing investigation by the U.S. Department of Justice related to Kemper could result in the U.S. Department of Energy attempting to recall all or a portion of the roughly $387 million in federal grants Mississippi Power received for Kemper's gasification units.

"However, given the substantial financial and liquidity support that Mississippi Power received from its parent, Southern, throughout the Kemper project, we expect that any costs will be largely covered through capital contributions from the parent in order to maintain the utility's targeted capital structure and that the financial impact on Mississippi Power will be limited," Moody's said.