...Carbon Compliance Challenges: Fitch Ratings believes that preserving financial margins and credit quality, while complying with the EPA's proposed Clean Power Plan (CPP), will be most challenging for public power and cooperative utilities operating in states subject to sizable mandated carbon-reduction goals, high carbon-reduction costs and a relatively high cost of electricity. These states include Arkansas, Arizona, Florida, Mississippi and West Virginia based on the Fitch-calculated carbon cost recovery index (CCRI). Effect on Credit Quality: Although the precise impact of emissions reduction on issuers is unclear and expected to vary, Fitch believes the effect on individual credit quality will hinge on each utility's ability and willingness to recover compliance costs from end users. The autonomous rate-setting authority enjoyed by the vast majority of public power and cooperative utilities should alleviate some concerns. However, the willingness of issuers to maintain robust financial...
