OREANDA-NEWS. The Supreme Court's decision to stay the enforcement of the Clean Power Plan (CPP) until the pending legal challenges are resolved creates uncertainty for the electricity sector, according to Fitch Ratings.

On Tuesday, SCOTUS temporarily blocked the regulatory effort to limit the emissions of greenhouse gases via power generation on a state-by-state basis. Notwithstanding the meaningful political opposition and legal challenges to the rule, Fitch has assumed compliance by states in its longer term sector outlook. We continue to believe that any delay in implementation will be positive for coal-dominant utilities and power generators.

The CPP, which targets cutting CO2 emissions by 32% by 2030 from 2005 levels, had already begun to influence the business strategies and capital expenditures across the US power sector, and it is unclear how the industry participants would react to the delay induced by the stay.

The CPP sets specific interim and final targets for each of the 48 contiguous states and required initial state implementation plans to be filed by September 2016 and the final plan by September 2018. It remains to be seen if these deadlines will hold and how will the states respond. The litigation against the CPP is pending in the D.C. Court, where expedited hearings are set for June 2. The outcome will quite likely be challenged, and clarity may not emerge until the Supreme Court rules on the case, the timing of which may well run into 2017 or later.

Fitch views the CPP having far-reaching implications for the industry in terms of how electricity is produced and consumed. While not a near-term driver for credit quality of utilities, Fitch did view it likely that there would be upward pressure on capex, O&M expense and electricity rates for certain states. In the absence of supportive regulatory policy, these factors could have weakened the credit quality of some utilities over the medium to long term.