Black Hills Corporation (BKH - Free Report) yesterday announced that it has received approval from Arkansas Public Service Commission (“APSC”) for a general rate hike for its Arkansas gas utility subsidiary, Black Hills Energy. The rate increase was filed in order to recover investments made by the company for safety, reliability and system integrity of its natural gas services provided to 169,000 customers in Arkansas.
Through this rate hike, the company will be able to recoup the investment of nearly $160 million incurred since 2016 to replace, upgrade and maintain more than 5,500 miles of natural gas pipelines in Arkansas.
However, the company also announced that its Arkansas gas utility subsidiary will deliver the benefits of tax reforms commencing on Oct 15, 2018, to its customers in Arkansas on account of the federal Tax Cuts and Jobs Act, which was passed in December 2017.
Details of the Rate Case & Tax Reforms
Black Hills has been investing continuously to upgrade the aging infrastructure and to ensure the safe and reliable delivery of natural gas to its customers. The new rate is anticipated to generate additional revenues of $12 million per year for the company. Also, the commission has approved the inclusion of $10.6 million of revenues, which is currently being collected through certain rider mechanisms in the new base rates.
After the tax reforms, the corporate tax rate applicable for the company came down to 21% from 35% beginning Jan 1, 2018. The APSC approved the company’s request to pass the benefits to its customers in September. Per the approval, the company will transfer an amount of $8.2 million as tax benefits to its customers.
The benefits will be provided through a monthly bill credit beginning mid-October and continuing through May 2019. Also, the company estimates the tax benefits to be around $1.5 million for the period starting from Oct 15 till the end of the year and $6.2 million per year thereafter.
Rate Hike - Utility Space
We believe that the rates hikes are necessary for capital intensive companies in the utility space, as the aging infrastructure needs maintenance and upgradation for the reliability of its utility systems. Recently, NorthWestern Corporation (NWE - Free Report) filed for an electric rate increase with the Montana Public Service Commission, which if approved, will lead to an increase in the bill of a typical residential customer by 7.4% or $6.37 per month.
In August 2018, FirstEnergy Corporation‘s (FE - Free Report) subsidiary — Potomac Edison — filed a rate case to the Maryland Public Service Commission in nearly 25 years to recover the amount invested. If approved, it will increase monthly bills for the residential customer using 1,000 kilowatt-hours by $6.00 per month.
Also, in the same month, NiSource Inc’s (NI - Free Report) subsidiary — Columbia Gas of Virginia — sought approval for additional revenue increase of $22.2 million per year from the Virginia State Corporation Commission. If approved the rate revision will raise the average monthly natural gas bill for a residential customer by $5.61 per month or 7.5% from the current levels.
Year to date, the company has gained 1.8% compared with its industry’s decline of 0.5%.
Black Hills currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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