Washington (Platts)--12Dec2007
The outlook for US gas and power utilities is stable for the coming year,
while the business environment for non-utility power generators generally is
favorable, Fitch Ratings said Wednesday.
The ratings agency said it believes the 2008 credit outlook for US
investor-owned electric and gas utilities, interstate natural gas pipelines
and public power entities will be relatively unscathed by the US economic
slowdown, which is being driven by weakness in housing and financial markets.
Fitch said that the power and gas sector has retained relatively open
access to credit and capital markets since it is viewed as a defensive sector
although it noted that credit spreads have widened. It did say though that
there is ample liquidity to weather the slowdown.
Fitch said its outlook is influenced by high gas storage inventory at the
start of the heating season, but it warned that gas demand likely will rise
because of increasing reliance on the fuel for power generation.
Gas price volatility -- which recently has been relatively modest -- may
start accelerating again, raising the risk of gas price spikes in the
intermediate and long term, the ratings agency added.
IOUS TO BENEFIT FROM POSITIVE CAPEX COST RECOVERY OUTLOOK
Fitch said the key drivers of the stable near-term outlook for IOUs
include the focus of capital expenditure budgets on mandated transmission
reliability and environmental compliance projects considered to have
reasonable assurance of cost recovery; strong liquidity and continuing access
to capital markets and the robust levels of gas storage heading into the
winter heating season.
Fitch warned, however, that there are pockets of higher risk for IOUs in
the coming year, despite the stable outlook. It said risks were elevated in
restructured states where the highest cost of generation is setting power
prices, or is scheduled to begin to set prices following the expiration of
rate caps/freezes and states where rates have been flat for a number of years.
Fitch noted that debate is starting to heat up in the Ohio legislature
on the issue, and changes in utility law are being considered in Michigan,
Pennsylvania, Maryland and Texas.
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