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Dominion takes 'neutral stance' on tax reform impact

Until a final corporate tax reform package takes shape in Congress, Dominion Resources Inc. is shying away from saying whether the plan will have positive or negative financial implications.

Republicans have signaled plans to take up broad tax reform this year and are believed to favor a 20% corporate tax rate. President Donald Trump is said to favor a cut in the corporate tax rate to as low as 15% from the current 35% statutory rate.

Dominion Executive Vice President and CFO Mark McGettrick said the company's preliminary analysis shows a "wide range of potential outcomes" tied to the proposals.

"Remember, different than many of our peers, we have a portfolio of non-regulated and long-term contracted cash flows that will be treated differently than our regulated portfolio," McGettrick said Feb. 1 on the company's fourth-quarter 2016 earnings call with analysts and investors. "Based on our asset mix and public information to date, we would expect to be somewhat earnings-neutral to any final tax package."

McGettrick, in response to an analyst's question, said the company has forecast both positive and "slightly negative" outcomes from tax reform.

"We've taken the approach today that no one knows what's going to happen with taxes," he said. "So, instead of giving some range out in terms of probabilities, we took a neutral stance."

Dominion indicated some of the key uncertainties around tax reform include the lower tax rate, the potential elimination of interest deductibility, "day one" expensing and normalization.

"Interest deductibility is a very large component for us because of our unregulated fleet and the amount of current interest that we deduct," McGettrick said.

The CFO added that each potential change could have different impacts. "Some greater than others. But because some of these may change or be offset, we just think at this point the best decision for us is to stay neutral until we get some additional clarity out of Congress."

There is also the potential that Republican lawmakers would eliminate production and investment tax credits for wind and solar development as part of the broader effort to lower the corporate tax rate. Congress voted in late 2015 to phase out the production tax credit for wind power by 2020 and to drop the investment tax credit for solar development to 10% from 30% of project costs by 2022.

Dominion, likewise, has implemented its own phase-out of expected proceeds from investment tax credits, or ITCs. The company said it expects to generate 30 cents per share in 2017 from solar tax credits, a nearly 20-cent reduction from 2016. Dominion said it only expects a 10 cents per share contribution from solar tax credits in 2018 and beyond, mainly driven by customer needs in Virginia.

"We are purposely stepping down our ITC reliance so that we get to a very low normal run rate," McGettrick said. "We've used ITCs for a number of years here to help support earnings during a large capital spending program, and we are not going to be in that business in a big way in [2018] and beyond."