Sustained Lower Natural Gas Prices Are Unlikely To Change U.S. Electric Utilities' Credit Quality

Many U.S. regulated electric utilities switched to burning gas rather than coal in 2009. According to some industry estimates, the big switch caused utilities to use an additional 1.5 billion to 2.5 billion cubic feet per day. The underlying reason for this fuel switch was the sharp decline of "dark spreads"--the theoretical gross margin for coal-fired power plants--due to reduced electricity demand from the recession and shifting gas and coal prices. Recently, Standard&Poor's U.S. economic forecast indicated that the recession has bottomed, U.S. gross domestic product should slowly grow at about 3% annually, and unemployment will gradually go below 8% by 2013 (see "U.S. Risks To The Forecast: What is Normal?," published March 18, 2010). In addition, Standard

...May 13, 2010 Many U.S. regulated electric utilities switched to burning gas rather than coal in 2009. According to some industry estimates, the big switch caused utilities to use an additional 1.5 billion to 2.5 billion cubic feet per day. The underlying reason for this fuel switch was the sharp decline of "dark spreads"--the theoretical gross margin for coal-fired power plants--due to reduced electricity demand from the recession and shifting gas and coal prices. Recently, Standard & Poor's U.S. economic forecast indicated that the recession has bottomed, U.S. gross domestic product should slowly grow at about 3% annually, and unemployment will gradually go below 8% by 2013 (see "U.S. Risks To The Forecast: What is Normal?," published March 18, 2010). In addition, Standard & Poor's lowered its natural gas price assumptions for 2010 and beyond to $4.00 per million Btu (mmBtu) from $5.50/mmBtu (see "Revised Oil And Natural Gas Price Assumptions For The Remainder Of 2010 And For 2011 And...

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