Southwest Gas Holdings Inc. expects a hit to cash flow from its natural gas utility operations but a boost from future CapEx in the wake of the Tax Cuts and Job Act.
Along with the California Public Utilities Commission's approval on the extension of the company's rate case cycle, the utility Southwest Gas Corp. was asked to track changes associated with new tax laws and policies. In Nevada, the company is preparing a rate case, with a filing planned to be submitted before June and the new rates expected to come into effect by January 2019.
In Arizona, the company was asked to track tax reform impacts and to file plans within 60 days. Southwest Gas Holdings said on its March 1 earnings conference call that it is working with stakeholders in the state on its filing.
"For Southwest Gas, we will experience reduced cash flows once lowered tax rates are reflected in customers bills, but we will experience higher rate-based growth on future capital expenditures due to lower deferred tax growth," said Southwest Gas retiring CFO Roy Centrella.
The company has not received any instructions regarding the tax changes from the Federal Energy Regulatory Commission on the FERC-regulated Paiute pipeline, according to the March 1 earnings call.
Southwest Gas expects the tax rate at its construction business, Centuri Construction Group, to drop to 27% to 28%, factoring in Canadian operations and immediate benefits from the reduction of the federal income tax rate.
"For Centuri, we will have an immediate and ongoing ... beneficial impact on financial results," Centrella said.
Southwest Gas Holdings reported adjusted net income of $96.5 million, or $2 per share, for the fourth quarter of 2017, an increase from $65.2 million, or $1.36 per share, a year earlier.
The company's operating results were impacted positively by $20 million from the tax reform, Centrella said on the conference call. "At Southwest Gas, we recognized an $8 million benefit from a reduction in deferred tax as related to nonplant related items, while at Centuri the benefit was $12 million related to the overall deferred tax balance," he added.
