Published July 12, 2024

The U.S. Supreme Court’s decision to eliminate the deference courts have given federal agencies under the Chevron doctrine creates uncertainty for the utility and power sector, Moody’s Ratings said on July 11, 2024. Joey Ingelhart via Getty Images

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

“The potential for protracted court proceedings, continued ambiguity in Congressional legislation, uncertainty over post-2024 election priorities and planning for generation needs will be more challenging for regulated utilities and other power companies,” Moody’s said in a comment released Thursday.

Even so, it’s unlikely the Chevron decision will significantly affect regulated utility investment plans because most environmental and carbon reduction requirements are driven by state mandates, according to the ratings agency.

“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,” Moody’s said.

The Chevron doctrine, established in a 1984 Supreme Court decision, said courts should defer to agency interpretation of federal statutes when the laws were ambiguous.

Ending the Chevron doctrine may lead to court challenges of some regulations, potentially triggering “lengthy and cumbersome” legal proceedings, according to Moody’s.

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

The Supreme Court’s decision may reduce the ability of federal agencies to respond to emerging developments, according to the ratings agency.

“In the event of a divided Congress failing to provide timely clarity on regulations or enforcements, courts and states may step in to fill the void,” Moody’s said. “This could also lead to states reestablishing their own regulations.”

The ruling may make it harder for the federal government to address climate change, according to Moody’s.

“Absent new legislation, weakened agency power makes it less likely that the [United States] will meet its stated climate goals, raising the risk of heightened climate-related physical risks over the long term,” Moody’s said.

The ruling makes it more likely courts will reverse the Environmental Protection Agency’s rule to cut carbon dioxide emissions from power plants and its auto emissions rules, which were expected to drive growth in electric and hybrid vehicles, according to the credit ratings agency.

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

A reduction in the authority of the Federal Energy Regulatory Commission would be “credit negative” for companies that build transmission lines and those that rely on them to deliver power, Moody’s said.

The court’s ruling may also delay or interfere with pending Inflation Reduction Act-related clarifications from the Treasury Department and the Internal Revenue Service, according to the ratings agency.

The power sector is waiting for guidance on issues such as the definition of gross receipts or total revenues for calculating the nuclear production tax credit, determination of eligibility for the domestic content bonus credit and issues related to the corporate alternative minimum tax, Moody’s said.