Regulated natural gas and power utilities are relatively well positioned to weather the economic impacts of the Covid-19 pandemic, according to a new report by Moody’s Investors Service.

Analysts cited the essential nature of the service utilities provide, the sector’s resilient business model and its strong track record during past economic downturns as reasons why it should fare better than other segments of the energy industry during the outbreak.

Residential customers account for about 35% of rated U.S. gas and utility demand, the Moody’s team said, ensuring a base level of demand amid a pandemic that could leave millions jobless and already has forced large swaths of the population to work from home.

“Moreover, state regulatory commissions provide utility companies with a suite of credit supportive cost recovery tools,” the report said.

The Moody’s team cited financial market volatility as the biggest risk facing utilities during the pandemic, “because the sector requires external capital in order to meet sizable liquidity deficits. While we expect utilities to retain generally unfettered access to the capital markets, the continued spread of the virus and mounting pressures on commercial and industrial customers could ultimately weigh on utility credit quality.”

Logically, while residential demand should remain strong through the pandemic, sales to commercial and industrial (C&I) customers “are far more vulnerable to economic disruptions,” the report said, citing the struggling upstream oil and gas segment as an area where C&I demand could take a major hit.

Oil and gas companies face “plummeting share prices, a rising cost of debt and a sharp decline in oil and gas prices, which has been exacerbated by the supply shock” caused by the ongoing price war between the Organization for the Petroleum Exporting Countries (OPEC) and Russia. The Moody’s team said that if these pressures were to weaken credit quality in the energy sector, utility demand could be impacted.

“Also, holding companies owning natural gas pipelines that have a supply-push orientation (i.e., shippers seeking to sell gas) will be more at risk for credit degradation than those with a utility demand-pull (i.e., shippers requiring gas to serve end-use customers) customer profile,” the report said.

Although the utility sector generates significant negative cash flow, utilities have shown a strong track record in past economic downturns of generating enough revenue to cover costs and earn a profit, and as such remain largely able to access debt markets, analysts said.

The team cautioned, however, that utilities with weaker financial metrics such as Sempra Energy and Duke Energy Corp. “will have little to no financial flexibility to withstand any form of financial challenges without taking mitigating measures.”

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Other firms with less leeway include holding companies that own natural gas pipelines and have high exposure to distressed oil and gas companies.

“CenterPoint Energy Inc. and OGE Energy Corp. are two holding companies with material exposure to the energy sector via shared ownership of Enable Midstream Partners LP, as is DTE Energy Co., given its recent acquisition of gas gathering assets in Texas,” the report said.

Researchers added that companies in the midst of multi-year, capital-intensive projects such as liquefied natural gas terminals, natural gas pipelines and offshore wind farms also could be exposed if supply chain disruptions or economic volatility endure. Potentially affected holding companies in this category include Avangrid Inc., Dominion Energy Inc. and Duke Energy.

In related news, American Gas Association CEO Karen Harbert on Friday sent a letter to state and local officials across the country imploring them to designate natural gas utility work as an essential service and utility workers as essential critical infrastructure workers, and to support exempting utility operations from work and travel limitations in response to the pandemic.