Energy Policy

Moody's goes negative on regulated utilities for first time, citing tax law impacts

Utility Dive: For many companies, the tax bill that was signed into law just before Christmas was good news. It would lower their tax liability and boost earnings. But utilities are not like other companies.

Utilities have typically set aside payments from customers to pay for future taxes. Those deferred tax payments boosted utilities cash flow to the point where they accounted for about 14% of Funds From Operations, or FFO. With the cut in the corporate tax rate to 21% from 35%, utilities will collect less cash from customers and retain less cash for deferred taxes. Moody’s estimates those funds will shrink from 14% of FFO to 8%. In addition, as utilities refund excess funds collected for deferred taxes to customers, cash flow will be further reduced.

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