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Saturday, 17 October 2015 10:00

Final Clean Power Plan shifts burden among US states

 

The final version of the EPA's Clean Power Plan, released in August 2015, significantly shifts the burden of mandated carbon reduction goals among states, Caspian Energy News (www.caspianenergy.net) reports with reference to Fitch Ratings.

The states whose utilities will be most challenged to preserve financial margins while complying with reduction goals are Kansas, Missouri, Nebraska, Tennessee and West Virginia. Those least challenged include Washington, Oregon, Virginia, Maine and Illinois.

In January 2015, Fitch's Carbon Cost Reduction Index (CCRI) initially estimated that Arkansas, Arizona, Florida, Mississippi and West Virginia would be most challenged to preserve credit quality, based on the EPA's draft of the Clean Power Plan. Changes to states' mandated carbon reductions in the final version and revised cost estimates shifted the CCRI's results.

“States with high electricity costs, sizable mandated carbon-reduction goals and high carbon-reduction costs remain the most challenged by the Clean Power Plan,” says Dennis Pidherny, Managing Director of Fitch's Public Power group.

“For individual public power and cooperative utilities, the ability and willingness to pass along compliance costs to consumers via higher rates or new charges is still key for credit quality.”

Despite final rules that appear less onerous and allow an additional two years to achieve interim reduction goals, compliance will remain an ongoing challenge.

The cost of compliance remains uncertain and estimates vary widely. However, Fitch believes the EPA's assumptions related to energy efficiency, renewable penetration and cost are aggressive. If their assumptions and the economics of gas-fired generation prove overly optimistic, compliance costs could soar.

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