2014-03-06 01:57:01 - Gas Utilities - Industry Analysis - a new market research report on companiesandmarkets.com
The Gas Utility Industry includes domestic companies that provide distribution service to residential, commercial and industrial customers. Although company-specific issues influence operating results, wide variations in weather and swings in the economy also have an impact. Additionally, these capital-intensive businesses are regulated by federal, state, and sometimes local authorities, which determine the maximum rates of return they may earn. Stocks in this group are best suited to conservative, income-oriented investors. The macroeconomic environment plays a role in this sector´s performance. Commercial and industrial demand for natural gas tracks the overall business cycle. If the economy weakens, large customers cut production and pare their gas consumption. On the other hand, if the economy is expanding, customers step up their purchases.
Weather is a factor that affects demand for gas, especially from small commercial businesses and consumers. Of course, annual revenue and income are subject to seasonal temperature patterns, with demand highest during the winter heating months. Unseasonably warm (raising air conditioning requirements) or cold weather can cause much volatility in quarterly operating results. Federal authorities set wholesale service tariffs and state regulators determine retail distribution rates. Adequate returns on common equity are necessary to keep these businesses viable. Higher rates are sought to cover the cost of expansion, storm damage and/or cover the cost of maintaining reliable service. At times, political pressure can push authorities to limit rates of return, to the detriment of utilities.
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