Supreme Court Ruling May ‘Open the Door’ for Legal Battles: Moody’s

The Supreme Court’s recent reversal of a ruling that gave federal entities interpretive authority in law implementation adds uncertainty to the operation of power companies, particularly as they shift away from using fossil fuels, according to Moody’s.

Last month, in a 6-3 decision, the justices did away with the so-called Chevron deference, which was decided in a previous iteration of the High Court mandating that federal courts defer to federal agencies when it comes to congressional legislation and policy implementation.

Moody’s suggested that the decision could lead to stagnation and confusion over implementing laws that impact utility and power companies.

“The ruling increases legal and regulatory uncertainty for US regulated utilities, which are facing challenges in managing their transition away from fossil fuel generation, financing higher capital spending to address exposure to extreme weather events and responding to increased power demand related to electrification,” Moody’s said in a note the company shared with Newsweek.

The Supreme Court decision could spur “protracted court proceedings,” the ratings agency said.

“The ruling reduces the role of federal agencies by shifting the interpretation of the law to federal courts in cases where congressional legislation does not include detailed and clearly defined content,” Moody’s said. “This could open the door to court challenges of some regulations, resulting in legal proceedings that can be lengthy and cumbersome.”

In particular, the ratings agency was concerned about how the Supreme Court’s decision would affect how the Environmental Protection Agency (EPA) will be able to execute on its mandates.

“For example, the ruling raises questions about the Environmental Protection Agency’s recently finalized power plant emissions rule, which would require all new baseload gas-fired plants, as well as coal-fired plants scheduled to operate beyond 2039, to employ a ‘best system of emissions reduction’ to trap 90% of their carbon emissions using carbon capture and sequestration technologies,” Moody’s said, adding, that “the EPA rule now appears much less likely to be implemented in its current form.”

The EPA’s ability to guide companies in moving toward a phaseout of fossil fuel for energy generation in the country was unclear, according to Moody’s.

“Renewable energy providers would be adversely affected if the ruling delays implementation of existing rules that are aimed at encouraging the phaseout of fossil fuel generation,” the ratings agency said.

Moody’s also suggested that implementation of key components of the Inflation Reduction Act pertaining to U.S. utility and power companies was also unclear.

But the ratings agency suggested that it did not anticipate the companies cutting back on investment in the sector.

“We do not expect the Supreme Court ruling to have a material impact on regulated utility capital expenditure programs because most environmental and carbon transition regulations for electric utilities are drawn up at the state level,” Moody’s said. “We expect most utilities to maintain their high levels of capital spending as they continue to focus on reducing carbon emissions, furthering their progress toward net-zero targets and investing in system resilience.”