WASHINGTON — Fluctuating fuel prices and a reluctance to raise rates for customers in a down economy could put pressure on public utility credits in the near-term, analysts from the three major credit rating agencies warned.

Speaking at an American Public Power Association conference in Memphis last week, Jeffrey Panger, a director at Standard & Poor's warned that utilities could face pressure from rising prices of natural gas as well as the slow recovery and the possible need for increased spending to meet environmental regulations.

Moody's Investors Service senior vice president Dan Aschenbach and Fitch Ratings analyst Dennis Pidherny also voiced concerns over a conglomeration of factors that could potentially threaten power company credits.

Panger's concerns rested largely on public agencies relying heavily on natural gas. Panger said that fuel source is unlikely to remain at its current extremely low prices in the long run, because reliance on natural gas for electricity production is growing. Some 30% of U.S. natural gas goes into electrical energy production, according to the U.S. Department of Energy, and natural gas now stands second only to coal-burning as the most common method of domestic electricity output.

Fitch doesn't view the volatility of natural gas prices as anxiously as Panger, Pidherny said this week, but added it is an issue to keep an eye on.

"We're watching it," he said, noting that similar volatility has existed in the public power sector many times before. Gas, solar, and hydropower have all been "the next big thing" at some point in recent history, Pidherny said.
"The fact of the matter is, we live in a circular word."

Instead, Pidherny focused more on what he said is an unwillingness by public power agencies to raise rates for customers already struggling in a tough economic climate, especially against the backdrop of declining household incomes.

Electricity providers might soon face increased costs thanks to new Environmental Protection Agency regulations on coal plants, and those converging factors don't bode well, he said.

"Those are the two big issues we continue to point to," said Pidherny.

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