Which States Face Most Risk from EPA Rules?

Electric cooperatives and public power utilities in West Virginia, Arkansas, Mississippi, Florida and Arizona face the greatest challenges in meeting the Environmental Protection Agency’s proposed carbon dioxide rules.

“Many public power utilities already near the top of what’s affordable for customers could face backlash to raise electricity rates further. However, not raising rates comes at a price, too, as it could impair credit quality,” said Ryan Greene, director, U.S. Public Finance at Fitch.That’s the conclusion of Fitch Ratings, which has released a carbon cost index that ranks 47 states on their relative ability to comply with the rules while preserving their financial margins and credit status.

The study, released Jan. 30, said the EPA Clean Power Plan presents the highest hurdles for co-ops and public utilities in states that face sizable reductions in carbon dioxide emissions, high carbon reduction costs and high electricity costs.

By those measures, Fitch placed West Virginia, Arkansas, Mississippi, Florida and Arizona from 43rd to 47th place. Among those states, Arkansas is staring at the largest proportional reduction in carbon dioxide—12.86 million metric tons on estimated 2030 generation of 68 million megawatt-hours.

Tennessee, Alabama, Delaware, Connecticut and Texas ranked 38th to 42th in the index, respectively.

The states that face the fewest challenges from EPA regulations, in order, are Washington, Idaho, Oregon, North Dakota and Montana. They are helped by comparatively low retail electricity prices, the ratings service noted.

Fitch said Vermont has no generation sources affected by the EPA plan and excluded Alaska and Hawaii.

Ratepayers are likely to foot much of the bill for compliance, Fitch said, citing industry cost estimates that range from $5.5 billion to $73 billion.

“While it’s almost certain that public power and cooperative utilities will pass on those costs to customers, it’s nearly impossible to determine how rate-setting strategies and financial policies will be impacted,” said Dennis Pidherny, managing director of Fitch’s U.S. Public Finance division.

The report predicted the EPA rules will have few short-term implications for co-ops and public power utilities because they have retired many older, coal-based units.

“However, over the longer term, compliance in states that rely heavily on coal-fired generation and have been slow to adopt renewable portfolio standards and energy-efficiency mandates could be more challenging and potentially costly,” it said.