Uncertainty about Trump energy policy to affect credit: S&P

Source: Rod Kuckro, E&E News reporter • Posted: Tuesday, November 29, 2016

President-elect Donald Trump’s energy policies will have credit consequences for the energy sector, but the lack of policy specifics so far makes it hard to predict exactly how different corners of the industry will be affected, ratings agency Standard & Poor’s said.

“Naturally, we expect there will be credit consequences,” said Michael Ferguson, director of U.S. energy infrastructure at S&P, “impacting, at a minimum, investor-owned utilities, unregulated generators, renewable developers, midstream entities, and coal companies.”

That is among the conclusions of a new report from S&P, “Trump and Energy: The Credit Implications of the 2016 Election.”

“Energy policy in the U.S. remains heavily complicated,” S&P said, noting that while Americans want cleaner, cheaper and more secure energy, the potential adverse impacts of achieving those goals can influence voters’ political choices, and “in some recent elections, the costs of a more progressive generating grid seem to have outweighed the benefits in voters’ minds,” the report said.

“Making matters even more contentious, energy-related politics are seemingly in flux,” the analysts said, and “adding to this discord have been commodity price volatility and technological improvements (cheaper renewables, high efficiency turbines, fracking) that have conspired to jeopardize coal’s role as the nation’s primary electricity-generating fuel.”

Complicating the outlook, “there may be a more serious problem,” the report said, namely the failure of the United States to have a consensus on whether and how to combat climate change.

“The cycle for electing (and, ultimately, replacing) politicians in Washington is much shorter than the cycle for building and replacing generating assets,” it said.

“While President-elect Trump has promised an energy policy that is agnostic to fuel type, there’s no guarantee that his successor will,” S&P said.

So it could make it difficult for corporate management teams to plan for how to maintain a competitive generating profile, as multiple government agencies weigh in on policy debates, said the analysts.

“Until this debate is settled, pursuing environmental quality in the energy sector could continue to be an unnecessarily risky venture,” they said.

“It seems unlikely that a policy shift can do much to revive the weakening coal industry, which is currently in decline chiefly due to economic, and not regulatory, factors,” S&P said.

That is, unless states or the federal government enact fracking regulations that would slow natural gas production and make coal competitive as a generation fuel once again and, at the same time, slow any industry movement to decarbonize.

Meeting obligations under the Paris climate agreement to slash nationwide carbon emissions will be more difficult without U.S. EPA’s Clean Power Plan.

And without the CPP, the long-term challenges for low-carbon nuclear generators only get tougher, S&P said, noting that nuclear benefits from carbon pricing or subsidies.

The collective impact of climate-related actions on “specific corporate issuers [will be] pronounced over time, as each large independent power producer (IPP) we rate has considerable vulnerability to environmental regulations,” the report said.

A price on carbon benefits generators such as Exelon Corp. or Calpine Corp., which have no coal in their portfolios.

NRG Energy Inc., Talen Energy Corp. and Texas Competitive Electric Holdings Co. LLC, with substantial coal-fired generation, “stand to benefit from a carbon price being deferred or cancelled,” the analysts said, “which seems much more likely now with a Trump administration looming.”

So as the transition occurs, S&P expects to hear about more concrete action on energy policy from the president-elect’s new team.

“That being said, we know that sometimes the most committed policies can sometimes be difficult to implement — even with a conciliatory Congress — because, as mentioned earlier, energy policy can oftentimes take on a regional, rather than political, tenor,” S&P said.