By Tom Kleckner

The cut in federal corporate income taxes figured prominently in fourth quarter earnings reports by OGE Energy, CenterPoint Energy and Entergy last week. The Tax Cuts and Jobs Act of 2017, signed into law by President Trump in December, reduced corporate income taxes to 21% from 35%.

Tax Savings Result in Positive Earnings for OGE

OGE said last week that the tax legislation was a major factor as the company reported 2017 earnings of $619 million ($3.10/share), almost double the previous year’s performance of $338.2 million ($1.69/share).

For the quarter, OGE reported net income of $294.8 million ($1.48/share), compared to $57.9 million ($0.29/share) for the same period in 2016.

In a conference call with analysts, OGE CEO Sean Trauschke said $49.3 million in federal tax breaks contributed to much of the increase.

“For us, tax reform is a positive,” Trauschke said during the Feb. 22 call. “Tax reform will be beneficial to our customers and accretive to shareholders of OGE. We worked hard to maintain a strong financial position that gives us this flexibility and helps us weather financial challenges that may come.”

The tax savings will be a factor as OGE’s electric utility, Oklahoma Gas & Electric, works its way through current and planned rate cases before the Oklahoma Corporation Commission. The utility requested a $72 million increase last year to recover the installation of new gas units at its Mustang Energy Center but projects the tax benefits will be used to account for much of that increase.

OG&E also plans to file a rate case later this year to cover the cost of coal scrubbers at its Sooner plant. A third rate case will likely be filed in 2019 for smart grid upgrade costs.

“We delayed our [Sooner] filing from late December to ensure customers benefited from the lower tax rate,” Trauschke said.

OG&E reported a gross margin of $1.36 billion for the year, down $16 million from 2016, because of unfavorable weather that was partially offset by new customer growth. However, the utility’s net income was up $22 million to $306 million because of lower depreciation and amortization expenses and an increase in funds used during construction of the Mustang Energy Center and environmental compliance projects.

OGE stock gained $2.13/share following its Feb. 21 close to finish the week $32.95/share.

CenterPoint Energy Records $1.1B Tax Benefit

The corporate tax cuts resulted in a $1.1 billion benefit to CenterPoint, which reported year-end earnings on Feb. 22 of almost $1.8 billion ($4.13/share), up from $432 million ($1/share) for 2016. Excluding the tax benefit, earnings were $593 million ($1.37/share).

For the quarter, the Houston-based company reported a net income of nearly $1.3 billion ($2.99/share), compared to $101 million ($0.23/share) over the same period last year. Excluding the tax benefit, earnings were $141 million ($0.33/share).

The Public Utility Commission of Texas wants to bring CenterPoint in for a comprehensive rate case, which would be its first in eight years. The company recently filed terms of a settlement it reached with PUC staff and other parties, and has agreed to a base rate case that would be filed no later than April 2019.

CenterPoint shares gained $1.50 following the earnings announcement, finishing last week up 5.7% at $27.23/share.

Entergy Beats Expectations, as Losses Narrow

Entergy beat Wall Street expectations by reporting fourth-quarter operating earnings of $137.6 million ($0.76/share) on Feb. 23, almost double the Zacks Investment Research consensus estimate of 42 cents/share.

When adjusted for higher expenses for nuclear operations and the write-down of tax assets not subject to the ratemaking process, Entergy reported a GAAP earnings loss of $479.1 million (-$2.66/share). Still, that was a marked improvement from the loss of $1.77 billion (-$9.88/share) for the same period in 2016.

For the year, the New Orleans corporation reported earnings of $411.6 million ($2.28/share), compared to losses of $583.6 million (-$3.26/share) in 2016.

Entergy also initiated 2018 consolidated operational guidance of $6.25 to $6.85/share, assuming “balanced regulatory treatment for the recently enacted tax reform legislation,” the company said in a statement.

CEO Leo Denault told analysts Friday the impact of the tax changes will be discussed in rate filings the company plans in each of its jurisdictions this year. “On an ongoing basis, the lower tax rate means that customer bills will be lower than they otherwise would have been. That’s important to us as evidenced by the fact that our rates are among the lowest in the country,” Denault said. “We expect [that] point to be addressed in the normal course of those proceedings.”

The Louisiana Public Service Commission on Wednesday ordered its staff to report back by March 21 on a recommendation for flowing the tax savings to ratepayers.

“As we look ahead to the next three years, our success continues to be less dependent on strategic initiatives and more on our own operational execution,” Denault added.

Investors reacted by driving up Entergy’s share price 3.7% to $77.74.