After surviving a second winter of higher commodity prices in good shape — at least on the surface — local distribution companies (LDCs) will need continued regulatory support that gives them the tools to capture costs and maintain credit quality, Standard & Poor’s (S&P) said in a new report.

The five-page report reviewed rated LDCs to determine the degree of exposure they each face and how they manage the risks. LDCs have two primary ways to manage exposure: regulatory mechanisms and risk management policies.

What S&P found is that continued regulatory support is key to credit quality for LDCs, “especially during periods of prolonged high natural gas prices.” It noted that regulators “will always have to balance timely and prudent gas cost recovery with ratepayer resistance.”

The report found there are a “whole host of factors” that are key to success in the gas distribution industry. LDCs that operate in “more favorable regulatory environments that provide stronger and more flexible gas clause adjustment environments have better business operations.”

Because of this, LDCs with a “greater degree of pipeline access, higher storage capacity and more hedging contracts as a percentage of throughput have favorable business profiles. These companies are better positioned to weather and reduce increased risk that LDCs face regarding continued high gas prices.”

For more information on the report or the companies reviewed, visit www.standardandpoors.com

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