Supreme Court ruling in Chevron case creates uncertainty in energy sector: Moody’s

The U.S. Supreme Court’s June 28 decision to overturn the Chevron doctrine creates legal and regulatory uncertainty for regulated utilities, according to a report by Moody’s Ratings.

“The potential for prolonged litigation, continued legislative ambiguity from Congress, uncertainty about post-2024 election priorities and planning for power generation needs will pose greater challenges for regulated utilities and other energy companies,” Moody’s said in a commentary published Thursday.

Still, the Chevron decision is unlikely to have a significant impact on investment plans for regulated utilities, since most environmental and carbon-reduction requirements come from state mandates, according to the rating agency.

“We expect most utilities to maintain high levels of capital spending as they continue to focus on reducing carbon emissions, making further progress toward net zero emissions, and investing in system resilience,” Moody’s said.

The Chevron doctrine, established in a 1984 Supreme Court decision, holds that courts should defer to agencies’ interpretations of federal regulations when they are unclear.

Moody’s said ending the Chevron doctrine could lead to challenges to some provisions in the courts, potentially resulting in “lengthy and burdensome” legal proceedings.

“Heightened litigation will likely slow the regulatory process until the courts weigh in,” Moody’s said in a commentary on how the ruling could affect multiple sectors. “This burden of regulatory interpretation could overwhelm lower courts, causing delays and potential inconsistencies.”

The rating agency said the Supreme Court decision could limit federal agencies’ ability to respond to current events.

“If a divided Congress fails to provide timely clarity on regulations or enforcement, courts and states could step in to fill the gap,” Moody’s said. “It could also lead to states reinstating their own regulations.”

Moody’s said the ruling could make it harder for the federal government to combat climate change.

“In the absence of new rules, the agency’s weakened authority makes it less likely that the (United States) will meet its stated climate goals, increasing the risk of intensifying physical hazards from climate change over the longer term,” Moody’s said.

The rating agency said the ruling makes it more likely that courts will strike down an Environmental Protection Agency regulation that requires power plants to reduce carbon dioxide emissions and a car emissions rule that was meant to encourage the adoption of electric and hybrid vehicles.

“The lack of clarity on future EPA orders increases uncertainty and makes it more difficult for utilities to determine the most appropriate and cost-effective generation mix,” Moody’s said.

Moody’s said curtailing the Federal Energy Regulatory Commission’s authority would be “negative” for companies that build transmission lines and those that use them to deliver power.

The rating agency said the court ruling could also delay or disrupt expected clarifications from the Treasury Department and the Internal Revenue Service on the Inflation Reduction Act.

Moody’s said the energy sector is awaiting guidance on issues such as the definition of gross revenues or total revenues for purposes of calculating the nuclear production tax credit, determining eligibility for the domestic share premium credit and issues related to the alternative minimum tax for businesses.