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Election's potential effects on power companies discussed in earnings calls


Energy transition remains high priority

Pandemic may delay tax hikes

Houston — During earnings conference calls so far this month, top power company executives have shown how they expect the Nov. 3 election to affect renewables development and corporate income taxes, with positives and negatives to whoever wins.

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Nicholas Akins, American Electric Power chairman, president and CEO, described the 2020 voting process as "a noisy election cycle, and who knows what's going to happen here? We never know."

"But we've got 114 years history of managing between the goalposts here," Akins said during his company's Oct. 22 earnings call. "So we'll continue to do that. And our focus is on moving to that clean energy economy. So really, the only difference I see is maybe the pace at which the change will occur if there's a [Joe] Biden administration versus [Donald] Trump. But nevertheless, it doesn't change that much for us because we're focused on moving that clean energy economy as quickly as we can to ensure that we are making that transition into the future that we know is going to happen."

Additional coverage: Energy Transition

Additional coverage: 2020 US Elections

AEP will "continue that transition to renewables and certainly some natural gas to ensure that we are delivering for our customers in the future."

Asked how that might play out in coal-rich West Virginia, Akins said his company plans to manage its coal-fired capacity so as to ensure reliability during really cold or really hot weather. Akins acknowledged that "our jurisdictions have been fairly conservative in making that transition."

"I think that pace can quicken, though, as a result of ... even the bipartisan focus on continuing to lower emissions at our plants," Akins said. "So I think the catalysts are there. And actually, post election, who knows what will happen? ... You're already seeing some Republican and Democratic legislation ... And if you have that from a national standpoint and the states are moving forward with their own resolutions, then we can be particularly helpful in ensuring that occurs as quickly as possible."

Tax reform impacts

If Biden is elected, an increase in corporate and individual income taxes is widely anticipated. Brian Tierney, AEP executive vice president and chief financial officer, said, "In any event, we wouldn't expect it to be a significant driver to earnings or cash for the company going forward."

Tierney said he expects state regulators would allow AEP utilities either to defer the handling of taxes until the next rate proceeding or issue an order addressing the tax issue solely.

During NextEra Energy's Oct. 21 earnings call, CEO James Robo said his company has "been doing a lot of thinking around, obviously, different scenarios around what happens with taxes depending on what happens with the federal elections."

"The best thinking that we've had around this is that in the middle of a pandemic, it's probably not the time to have a tax increase, period," Robo said. "And so in terms of the timing around tax reform, I'd be surprised if it was next year, honestly, even in a Biden administration."

While acknowledging the uncertainty of the Biden administration's top priorities on taxation, Robo said that if tax increases do pop up quickly, "I think we would be very effective as an industry being able ... to lay out how any tax increase on utilities is really simply a tax increase on all customers and non-corporations, on everyday Americans. And I think that message will resonate in Washington."

Offsetting policies

Rebecca Kujawa, executive vice president of finance and chief financial officer, noted that the impact on NextEra's finances from tax reform should be balanced against what might happen on renewables.

NextEra Energy Resources, NextEra's renewables unit, already has a backlog of renewables projects that exceeds its 15-GW existing portfolio.

"[Looking] back in the last couple of years, obviously, we've done quite well across all of our businesses in the environment that we've been in," Kujawa said. "So should Trump win a second term, we would expect to continue our strong momentum and continued focus on our strategies and execution on them. If Biden is the new President, he has clearly made clear across this platform, across the democratic platform, that they had strong support for renewables."

During NorthWestern Corporation's Oct. 22 earnings call, Chief Financial Officer Brian Bird acknowledged that the 2017 federal tax reform "has a tremendous impact on companies from an equity perspective."

Robert Rowe, NorthWestern president, CEO and director, said his company plans to spend $1.8 billion on capital projects over the next five years, partly through the issuance of equity in 2021.

However, Bird said NorthWestern has "not contemplated anything from an election perspective" regarding a new Biden administration's tax plans.

"We're looking at status quo at this point in time," Bird said. "Obviously, an increase in the tax rate ultimately is going to be beneficial to us from a cash flow perspective."