For most of the Midwest, regional oversupply and stagnant demand growth is expected to continue at least through 2007, according to a new regional power market forecast by Fitch Ratings.

Credit implications of the forecasted wholesale markets are neutral for investor-owned utilities (IOUs) and public power entities, but Fitch found that independent power producers (IPPs) and generation companies (gencos) with uncontracted assets “will remain under considerably more stress due to relatively low energy consumption, generation overcapacity, and the dominance of coal as the primary source of fuel in the Midwest.”

More baseload coal and nuclear generation is found in the Midwest because of “fewer suitable sites for hydroelectric power, relative proximity of coal in the region and low cost of transporting western coal resources into the region,” said Karen Anderson, a Fitch director. “Environmental compliance costs is a noteworthy issue in the Midwest due to the presence of coal, with large coal producers such as American Electric Power and Cinergy actively addressing environmental concerns despite the potential of an uncertain regulatory environment.”

Fitch also found that the weak profile of IPPs and gencos are also hurt by the current electricity prices in the region, which are expected to remain flat through 2007. “Gencos, in particular, may see earnings and cash flow decline over the next few years, especially gas-fired capacity in the areas experiencing oversupply.”

Fitch is projecting 1.6% demand growth per year in the Midwest through 2012, and noted the region will remain “among the lowest in the nation as overall power consumption in North America is expected to grow approximately 1.8% annually.”

Fitch’s power forecast also incorporated a decline in reserve margin starting in 2010, as net capacity additions decline and load growth remains stable.

“The most pronounced decline in reserve margins will likely be in market areas with significant near-term capacity build out such as Cinergy, while increasing reserve margins are expected in the Wisconsin area by 2008,” said Anderson.

Fitch’s “Midwest Regional Wholesale Market Report” is a companion to two other regional forecast reports published last month by the ratings agency: “ERCOT Regional Wholesale Power Market” and “Southeast Regional Wholesale Power Market.” All of the reports are available on the web site at www.fitchratings.com.

©Copyright 2004 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.