Ahead of the Bell: Gas utilities

A Brean Murray Carret & Co. analyst said Friday that hurricane-related disruptions have the potential to cause temporary commodity price spikes that could impact near-term gas utility spot gas purchases.

Tropical Storm Gustav is headed for the warm water of the Gulf of Mexico, where it's expected to regain strength. Forecasters say it could pummel the Gulf Coast as a Category 3 hurricane as soon as Monday.

Brean Murray Carret analyst Daniel Fidell said in a client note that storm-related activity tends to lead to volatility among energy and utility stocks and the market currently appears to be discounting the impact of the storms.

"Higher gas commodity prices passed on to customers typically result in higher customer conservation and higher bad debt expense that the gas utility must temporarily absorb, pressuring near-term utility returns," Fidell wrote.

Fidell said gas utilities with rate stabilizers to insulate them from commodity price volatility or nonregulated gas marketing entities able to capitalize on volatility appear best positioned. They include New Jersey Resources Corp., Northwest Natural Gas Co., Piedmont Natural Gas Co. and South Jersey Industries Inc., he said.

Gas utilities with service territories operating in part or in whole in the Gulf Coast region include Atmos Energy Corp., Chesapeake Utilities Corp. and EnergySouth Inc., Fidell said.