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NorthWestern expects tax reform to be cash flow negative

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NorthWestern expects tax reform to be cash flow negative

In light of the recently passed tax reform legislation that lowered the federal corporate income tax rate from 35% to 21%, NorthWestern Corp. reduced its net deferred tax liability by about $321 million.

The company, which does business in Montana as NorthWestern Energy, has started deferring the recognition of revenue of about $15 million to $20 million in 2018 on a consolidated basis into a regulatory liability account. The reduction is expected to be offset by an equal cut in income tax expense, leaving net income unchanged.

"[Net operating losses] are now anticipated to be available into 2020, previously 2021. Though I would argue we are, from a net income perspective, we're neutral, I would argue that tax reform has been cash flow negative," NorthWestern CFO Brian Bird said during the company's Feb. 13 earnings call.

According to a Form 10-K released the same day, the company does not expect tax reform to affect its results of operations in 2018 but anticipates a consolidated reduction in cash flows from operations of about $15 million to $20 million, resulting from lower revenues from customers. NorthWestern estimates its effective income tax rate in the range of 0% to 5% in 2018, from the 8% to 12% that was estimated before tax reform was enacted.

The tax reform law, enacted in December 2017, had no impact on the company's 2017 net income. Going forward from 2018, the income tax benefit will be provided to customers. NorthWestern Energy filed an initial proposal with the South Dakota Public Utilities Commission in January 2018. By March, the company plans to submit an additional filing in South Dakota and a comprehensive filing with the Montana Public Service Commission.