Washington (Platts)--13Mar2008

Moody's Investors Service Thursday said it expects US electric utilities
to increase their reliance on natural gas as a generating fuel as they are
forced to build new plants to meet growing demand while complying with
programs designed to reduce greenhouse gas emissions.

With a marked slowdown in new coal-fired generation development, the
gas-centric power portfolio approach will present greater risks for utilities
because of gas price volatility, the rating agency added.

This volatility "will inevitably increase the business and operating
risks of those utilities increasingly exposed to natural gas," in such states
as California, Texas and Florida, Moody's said in its report, "New Generating
Capacity In A Carbon Constrained Environment."

Michael Haggarty, who wrote the report, told Platts that gas price risk
also raises concerns over retail rate shock and whether state regulators will
allow utilities to recoup in a timely way the higher gas costs through rates.

Haggarty also pointed out that while coal-fired generation is typically
believed to be most affected by a carbon cap, gas-fired generation also
produces CO2 and will incur costs under a national GHG cap-and-trade system.

Moody's has not taken a stance on where it sees federal carbon prices
going, but Haggarty noted that most of the federal bill proposals have focused
on a charge in the range of $10-12/metric ton as a base. "An emission
allowance charge at this level could increase power prices materially,
particularly in regions heavily dependent on coal as the predominant fuel
source," the report said.

The study added that renewable energy sources, such as wind, solar,
geothermal, biomass, and hydro "are becoming increasingly popular as
alternative sources of energy." The increasing use of renewables is expected
to have a mitigating effect on "the industry's increasing reliance on natural
gas," Haggarty said.