Fitch Ratings-New York-23 September 2013: Regulations to limit the emission of greenhouse gases by power plants could be negative for public power and cooperative utilities, Fitch Ratings says. We believe the proposed regulations for new plants would significantly handicap their cost competitiveness by requiring the use of expensive, and largely untested, carbon capture and storage technologies.
The Environmental Protection Agency’s (EPA) proposal on Friday would have limited impact in the near term, as the historically low cost of natural gas-fired generation has significantly reduced the demand for coal-fired facilities.
Over the longer term it could preclude utilities from pursuing new coal-fired generation, limiting future resource options. We view resource portfolios that are cost competitive and exhibit fuel diversity as most supportive of long-term credit quality.
Other prospective regulations for existing plants are due to be proposed by EPA next year and could have a profound impact. If emission standards are applied retroactively, compliance strategies could be extremely costly or infeasible, resulting in the premature retirement of productive assets and significantly higher operating and debt service costs related to replacement capacity.
While we expect public power and cooperative utilities to recover these higher costs from end users, the financial strain would likely result in weaker financial metrics and flexibility, and downward rating pressure.