Black Hills Corp. will not necessarily wait to file a rate case to transfer savings from federal tax reform to its customers, company Chairman and CEO David Emery said Feb. 2. During the company's fourth-quarter 2017 earnings call, Emery said Black Hills prefers to use a rider mechanism, which would automatically adjust ratepayers' bills to reflect actual purchased power costs to send any benefits to customers because it gets money to them much more quickly.
"If we were to try to go through full blown rate cases in those jurisdictions, you're looking at almost a year before customers realize any savings," he said. "But we don't think that's really the best approach."
Gas subsidiaries in Arkansas, Colorado and Wyoming in the last three months of 2017 filed rate reviews with their respective regulatory commissions. Those cases were filed before President Donald Trump signed into law a bill to lower the corporate tax rate to 21% from 35%. Black Hills is now reviewing the impact of the tax change on those filings and may need to amend the requests, Emery said. Black Hills also serves gas utility customers in Iowa, Kansas and Nebraska and electric utility customers in Colorado, South Dakota and Wyoming.
The company has not made any specific filings with state regulators since the tax bill became law. While Black Hills has told regulatory commissions staff of its intent to get savings to customers as soon as practical, the company wants to "firm up numbers" before deciding on the best course, Emery said. The company also does not expect tax reform to change its rate case schedule in any major way, he said. The company previously told analysts it may file up to 10 rate cases in the next five years.
New rates for 2018
The ongoing rate reviews for Black Hills Energy Arkansas Inc., Rocky Mountain Natural Gas Co. and Black Hills Northwest Wyoming Gas Utility Company LLC all seek new rates to take effect in the latter half of 2018. Rocky Mountain Natural Gas is an intrastate natural gas pipeline company in Colorado.
Black Hills Energy Arkansas wants to increase annual revenues by about $30 million, with new rates taking effect in the fourth quarter. Rocky Mountain Natural Gas wants to increase annual revenues by roughly $2 million and the Wyoming gas utility wants to increase annual revenues by about $1.4 million. Both would take effect in the third quarter, if approved.
Black Hills Senior Vice President and CFO Rich Kinzley said the company, as required by the tax law, revalued deferred taxes at the end of 2017 based on the lower corporate rate. This resulted in a $300 million regulatory liability, with a corresponding decrease to deferred taxes, he said. The regulatory liability will generally be amortized over 30-40 years.
Black Hills also saw a $15 million noncash reduction to 2017 tax expense as a result of the deferred tax revaluation, Kinzley said. For 2018, Black Hills expects tax reform to impact earnings minimally, as the reduced tax benefit on holding company debt will be largely, but not totally, offset by the reduced tax expense on nonutility earnings, he said.
Kinzley said the company expects that cash flows will be reduced by $35 million to $45 million annually due to lower revenues as utility customers benefit from tax reform.
