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As tax cuts lower customer rates, gas utilities see room to ramp up investments

Gas utilities and their regulators are still working through the implications of tax code changes, but some company executives already see the related decrease in customers' bills as an opportunity to invest in infrastructure.

Black Hills Corp. is trying to deal with the largest and simplest element of the changes — the decrease in the federal corporate tax rate from 35% to 21% — in the near term and largely plans to wait to address the more nuanced elements, such as deferred tax and amortization changes, in later rate cases.

"We're trying to deal with it as a single issue, get the money to customers as quickly as possible," Black Hills Chairman and CEO David Emery said at the American Gas Association's Financial Forum. "We're pursuing that avenue in every state essentially, making great progress."

Emery said the company is hoping to avoid "getting bogged down in full rate cases" to address the tax code changes. To keep the rate change simple, the company aims to use existing rider mechanisms to lower rates and to refund any excess the company has already collected, he said. Black Hills has completed that process in Iowa and Kansas and is still working through rate adjustments with its regulators in Arkansas, Colorado, Montana, Nebraska, South Dakota and Wyoming.

Some of Black Hills' subsidiary utilities — Black Hills Energy Arkansas Inc., Black Hills Northwest Wyoming Gas Utility Co. LLC and Rocky Mountain Natural Gas Co. — were already in the middle of rate reviews and amended their filings to deal with the tax revisions comprehensively and all at once, Emery noted.

The decrease in rates should free space in customer bills and may help the company get approval for its capital spending projects. Black Hills' long-term spending plan is largely focused on the company's gas utilities, with projected capital investments of $263 million in the gas business and $149 million in the electric utilities in 2018.

Southwest Gas Holdings Inc. leadership sees the tax code revisions as a way of offsetting the impacts of rate increases related to Southwest Gas Corp.'s infrastructure projects.

"It helps reduce costs and keep customer bills low, so as we do have some of these capital expenditures in the future, the bill impact is not going to be dramatic," Southwest Gas President and CEO John Hester said on the sidelines of the AGA conference in Phoenix. "The most immediate impact of that would be when we're looking at a making, for example, our Nevada rate case filing, the tax savings would offset the increase that we otherwise would request as part of that filing. The same thing in Arizona."

Southwest Gas plans about $670 million in CapEx in 2018, focused on customer growth, system improvements and accelerated pipe replacement programs.

Northwest Natural Gas Co. already had a rate case pending at the Public Utility Commission of Oregon when the tax changes were made, and the company filed testimony explaining how changes to the federal corporate tax rate and the availability of depreciation options affect the amount the company, and by extension, the company's ratepayers, will be paying.

Northwest Natural President and CEO David Anderson said these tax changes should ultimately help ratepayers by offsetting rate increases the company requests. In Oregon, Northwest Natural originally requested a 6% increase in rates but has since lowered that request to 4% to account for much of the tax change.

"It is a great benefit, and that's being worked through in Oregon," Anderson said. "There are other jurisdictions that have already worked this through, and Oregon is just in the process of doing that right now. We should hopefully have that wrapped up by the rate case."

In Washington, regulators have decided not to apply the tax changes to customers' bills until companies file rate cases, Anderson said.

Northwest Natural expects to invest between $750 million and $850 million through 2022 in customer growth, reliability and maintenance, and storage facility expansion work.