For integrated utilities, gas price volatility risk is directly tied to the existence and structure of fuel/purchased power adjustment clauses (FACs). The majority of integrated utilities possess FACs, allowing them to pass along increased costs to customers outside the traditional rate process. However, certain integrated utilities operate in states that prevent the use of FACs or have opted to forgo them, leading to heightened risks associated with price variations. Examples of states where FACs are not utilized include Missouri, Utah, Vermont, and Arizona.

The bulk of electric distributors are generally expected to be able to fully recover their variable power costs, though companies operating under frozen generation tariffs are potentially more exposed to natural gas prices.

While electric distributors and integrated utilities have varying sensitivities to natural gas prices, the greater relative fuel price exposure of utilities such as Aquila, Arizona Public Service, Idaho Power, Metropolitan Edison, Pacificorp, Pennsylvania Electric, Public Service Co. of Colorado, Tucson Electric Power, Westar Energy, and several Allegheny Energy subsidiaries has been factored into credit ratings.

Merchant generators have the greatest exposure risk to price changes, according to the report. However, the exposure varies depending on various operating and regional characteristics, as well as existing power sale agreements. Fitch will further explore gas price sensitivity specifically for merchant generators in an upcoming report.

Natural gas prices are a credit neutral factor for interstate pipelines and gas LDCs.

For the full report 'Natural Gas Price Sensitivity of the U.S. Utility Sector,' see Fitch's web site at www.fitchratings.com.