WASHINGTON — While states' credit ratings haven't been affected much by climate-related issues, primarily because the federal government has provided aid for those hit by disasters, that assistance may not always be available, a Standard and Poor's official said Tuesday.
Steve Dryer, S&P managing director for U.S. utilities and infrastructure ratings, discussed the credit implications of severe weather during a conference call Tuesday. The call was hosted by Business Forward, a group that provides a platform for business leaders to advise Washington on how to accelerate the nation's economic recovery.
The rating agency is not predicting that federal aid will dry up, but said that it must consider, as part of its risk assessment for ratings, that states may need to deal with weather disasters, Dryer said.
Whether state and local governments are reacting to an event or they are taking steps to mitigate the damage that future disasters will cause, they will have to pay expenses. S&P assumes that governments will have to issue debt to finance disaster-relief projects, which "will put pressure on their credit ratings, all else being equal," Dryer said.
The rating agency doesn't just examine the credit implications of disasters such as hurricanes and floods. It also looks at prolonged issues like the drought in California, which is pressuring water authorities to spend more
"It's not always a catastrophic event, but sometimes an accumulation of pressures, that will put financial stress on governments," Dryer said. S&P views states' passing severe weather-related costs onto taxpayers or ratepayers as favorable, but the rating agency doesn't assume that states have an unlimited capacity to do so, he said.
Also during the conference call, Dan Utech, special assistant to President Obama for energy and climate change, discussed the Environmental Protection Agency's proposed carbon emissions standards for existing power plants.
The proposal, released earlier this month, would cut carbon emissions at existing power plants by 30% from 2005 levels by 2030. It would establish targets for states to meet, but each state would have a good deal of flexibility as to how to meet the them, Utech said.
"States are really in the driver's seat to go ahead and develop plans as to how to meet those standards," he said, adding that the flexibility "enables each state, each governor, to work with stakeholders within the states and potentially within their regions to develop a plan that makes sense for the energy resources that those states have."
Under the proposal, states would submit to the EPA their initial plans about how they plan to meet the targets by June 2016. If they need more time, they can have until 2017, and if they work together to take regional approaches to meeting the standards, they have until 2018, Utech said.
Moody's Investors Service has said the EPA proposal would be credit negative for coal-producing regions of the United States because they would compound tax revenue and economic pressures that local governments in the regions already face.
The EPA estimates that utilities will raise their rates by 6.2% in 2020 to pay for investments to meet the proposed standards, and critics of the proposal claim that increasing manufacturers' electricity costs will cause them to move production overseas, Business Forward said in a report released earlier this month. However, supporters of the standards argue that they are a necessary response to costs of the severe weather caused by climate change.
Business Forward looked at the potential costs of higher electricity rates for the automobile industry and compared them to the costs of weather-related shutdowns of found that while potential cost of higher electricity rates is fairly small, the cost of shutting down assembly lines due to severe weather is large.
