Uncertainty

Growing reliance on natural gas to produce electricity throughout the West is presenting planning challenges to energy planners in California, a panel of government and utility representatives told an industry workshop in San Francisco Tuesday, the first day of a two-day look at “Natural Gas Market Outlook, 2006-2016.”

After first rallying on the news that a whopping 100 Bcf had been injected into underground storage facilities last week, the natural gas futures market suffered a slow grind lower Thursday as traders lightened their longs ahead of Friday’s expiration. At $4.542, the October contract finished 4.6 cents lower in its penultimate trading session. It goes off the board Friday at 2:30 p.m. EDT.

Moody’s Investors Service last week said it would maintain a “developing” outlook on Dynegy Inc. and its subsidiaries because even with its recent junk bond offering, the company still will have to refinance or replace more than $1 billion in other credit facilities and term loans during 2005. In a similar assessment, Standard & Poor’s (S&P) analysts said that while the transactions mitigated some concern about near-term liquidity and financial flexibility, they haven’t led to a change in overall credit quality.

Dynegy Inc. last week began climbing out of its deep debt-filled hole, launching a major junk bond refinancing project as well as a stock restructuring deal to pay off a credit line with ChevronTexaco Inc., its largest shareholder. If the transactions are completed as envisioned, Dynegy’s debt maturities would be “significantly” reduced over the next few years, including a portion of its recently restructured $1.66 billion credit facility and the secured financing of its Midwest generation assets.

Trading in an atmosphere of uncertainty about whether Tropical Storm Claudette would have any serious impact on supplies or not, the cash market bowed to more negative influences Friday in registering across-the-board losses that were remarkably consistent in ranging from about a dime to 30 cents in all regions. Declines in the teens were in a slight majority.

Indicative of the continuing uncertainty about natural gas prices, the state of Washington Utilities and Transportation Commission Monday announced it has scheduled a meeting for June 27 to hear from the state’s four principal natural gas distribution companies about the outlook for winter supplies and prices in the Pacific Northwest.

With little in the way of fresh fundamental news and plenty of uncertainty ahead of Thursday’s storage report, natural gas futures traders played it close to their vests Tuesday. The July contract had a hard time mustering either a rally or a decline as it managed only an 11-cent trading range. It closed at $5.712, up 0.6 cents for the session. At just 62,296 contracts, estimated volume was light for the second day in a row.

Citing the uncertainty looming over the high-profile complaint case against El Paso Corp. at FERC, Moody’s Investors Service cut the senior unsecured debt ratings of the Houston-based energy corporation and its subsidiaries to junk status, or Ba2 from Baa3 last Tuesday, and also assigned a senior implied rating to El Paso of Ba1. It put the ratings outlook for embattled El Paso at negative.

Rosemead, CA-based Edison International’s merchant energy companies under the Edison Mission Energy (EME) family were slammed with credit rating downgrades to BB- from, in some cases, BBB- by Standard & Poor Ratings Services (S&P) reflecting heavy debt payments and restructuring facing it while wholesale power prices remain depressed, further worsening the chances of bringing more order to its chaotic financial house.