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Xcel Energy says tax reform impact hinges on state actions

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Xcel Energy says tax reform impact hinges on state actions

Xcel Energy Inc. executives said Feb. 7 that while federal tax reform has a negative impact on cash flow, they expect the impacts of the new legislation to still be mildly accretive to long-term earnings.

The company also disclosed that the Tax Cuts and Jobs Act lowered its earnings per share by 5 cents in 2017 to $2.30 per share, the midpoint of its guidance, but reaffirmed Xcel Energy's 2018 earnings guidance of $2.37 to $2.47 per share, and its long-term EPS growth rate of 5% to 6%.

Assuming no regulatory actions, tax reform will decrease revenue requirements by $400 million, in additional to prompting an earnings drag of $20 million due to a lower tax shield on holding company debt, Xcel Energy said. The company also had a one-time write-off of deferred tax and credits of $23 million.

Management still expects the law will benefit customers, however, as they will see lower revenue requirements in the coming years. Xcel Energy is taking action to mitigate its impact on credit ratings by reducing capital expenditures by approximately $500 million and issuing up to $300 million of incremental equity beyond its dividend reinvestment plan benefits.

Company executives stressed on an earnings call with analysts that much of tax reform's impact will be determined by the timing and actions of state regulators, conversations with whom have been positive, Xcel Energy said.

"We've had a lot of constructive dialogues across almost all of our jurisdictions at this point, particularly the ones where we've got pending rate cases with Texas, New Mexico and the two cases in Colorado," Executive Vice President and CFO Bob Frenzel said. "So I don't think [tax reform] impacts the timing or the estimate of our rate case revenues that we're expecting in either '18 or '19."

Tax reform adds $1.3 billion to Xcel Energy's rate base, Chairman, President and CEO Ben Fowke said. But that is net of reducing CapEx by $500 million, he cautioned, "so it's not a lot of equity to support credit ratings."

"We are committed to credit ratings," Fowke continued. "But that's why, at the end of the day, even with modest amounts of equity, assuming we have constructive dialogues with the regulators, which I think we are having, this will be accretive to our earnings growth."

Xcel Energy also touted its plan to add 3,050 MW of proposed renewables facilities, along with 630 MW of proposed renewable power purchase agreements, by 2021. The additions are part of the company's "Steel for Fuel" initiative, which Fowke said has been a "great success" since it was introduced in 2016.