Q2 2023 NiSource Inc Earnings Call
Ladies and gentlemen, thank you for standing by my name is Brent and I will be your conference operator today.
At this time I would like to welcome everyone to the second quarter 2023 Nisource earnings conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you'd like to ask a question at that time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again Press Star one. Thank you. It's now my pleasure to turn today's call over who Chris Turner Director of Investor Relations. Please go ahead.
Good morning, and welcome to the <unk> second quarter 2023 Investor call.
Me today, our President and Chief Executive Officer, Lloyd <unk> Executive Vice President and Chief Financial Officer, Shawn Anderson Executive Vice President of strategy and risks and Chief Commercial Officer, Michael Lewis.
<unk>, Vice President and group, President Nisource utilities, melody, Birmingham, and Vice President of Investor Relations and Treasurer.
The purpose of this presentation is to review <unk> financial performance for the second quarter of 2023 as well as provide an update on our operations and growth drivers.
Following our prepared remarks, we'll open the call to your questions slides for today's call are available in the Investor Relations section of our website.
We would like to remind you that some of the statements made during this presentation will be forward. Looking these statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements.
Information concerning such risks and uncertainties is included in the risk factors and MD&A sections of our periodic SEC filings.
Additionally, some of the statements made on this call relate to non-GAAP measures. Please refer to the supplemental slides segment information and full financial schedules for information on the most directly comparable GAAP measure and a reconciliation of these measures.
I'd now like to turn the call over to Lloyd.
Thanks, Chris.
Morning, everyone.
Thank you for joining us.
Hopefully you've all had a chance to read our second quarter earnings release issued earlier today.
I'll begin on slide six can provide you with an update on our three key priorities.
First we are raising our 2023 non-GAAP EPS guidance to the upper half of $1 54 to $1 60.
We are also reaffirming our annual non-GAAP EPS growth of 6% to 8% through 2027 and annual rate base growth of 8% to 10%.
Meanwhile, our non tracked O&M target is to remain flat in 2023 as well as throughout the duration of the plan.
We continue building a track record of execution and growth and our commitment to investors employees and customers is central to everything we do.
Recall, our original 2023 and on EPS discrete guidance of $1 50 to $1 57 was introduced at our Investor Day in November .
In February we raised and narrowed our estimate to $1 54 to $1 60.
And today, we are again raising to the upper half of this range.
And the approximately nine months since November our superior operations regulatory and financing execution has enabled this increase in earnings expectations.
For our customers.
<unk> market conditions have been improving.
However.
Inflation and interest rate headwinds continue to persist.
Despite this we remain focused on delivering value to our customers and highly visible derisk financial results for our investors.
Second.
Our leading regulatory execution continued this quarter in both the electric and gas businesses.
May was a particularly busy month for our gas distribution business.
Columbia gas of Maryland filed a request with the Maryland Public Service Commission.
Gaming floor to adjust base rates.
The request seeks to recover approximately $40 million of capital investment.
Additionally, the Virginia State Corporation Commission approved a settlement among Columbia gas of Virginia, and the parties in its base rate case originally filed in April 2022.
The base rate adjustment approval authorizes recovery of approximately $390 million of capital investment.
Columbia gas of Ohio infrastructure replacement program rider rates went into effect in may initiating a recovery of $316 million of capital investment.
At the electric business the record is closed and the northern Indiana Public service company's electric rate case.
We believe the settlement reached back in March represents a balanced outcome for stakeholders as the company invest billions of dollars in our customers and communities in the state.
A final order is anticipated today from the Indiana utility regulatory commission with rates anticipated to be effective and steps by September 2023, and March 2024.
At FERC, we received approval for incentives on two new MISO <unk> electric transmission projects last month.
Putting our rate based investment in customer reliability beyond our current financial plan through 2027.
Lastly in June we announced a definitive agreement to sell a minority stake in NIPSCO to Blackstone infrastructure partners.
The transaction strengthens our balance sheet and financial flexibility and marks yet. Another example of NIE forces steadfast execution for stakeholders.
More importantly, it enables us to support ongoing investments in Indiana, and our $1 3 million electric and gas customers in the state.
Slide seven details our annual capital expenditures across our six state service territory.
And the five year period through 2027, we plan to invest $15 billion and our customers and communities.
At Columbia gas of Pennsylvania, where currently replacing 21000 feet of pipe and Frederick County in Washington County.
Nearly half of the small towns residents will have the service lines upgraded.
With the remaining customers to be upgraded in the next two years.
As part of this project Columbia gas is converting a low income housing authority system from a master meter the individual meters, helping to lower the authorities maintenance obligations.
This $6 million project as part of the company's $110 million capital investment in Pennsylvania during the second quarter alone.
NIPSCO remains committed to the gas T. This plan to extend gas service into rural areas, including Steuben.
Alan and Lake counties in Northern Indiana.
Our major projects and local operating area teams have installed over 24 miles of raw gas main and install 1170, new services year to date through June as part of this plan.
On the other side of our footprint.
Cruise at Columbia gas of Maryland are installing new pipe in the city of Cumberland to improve safety by abandoning three low pressure regulator stations, along with abandon a significant amount of bare steel pipe.
This is part of an investment of nearly $8 million of total capital in the state during the second quarter.
Turning to slide eight shows key rate case, and select capital rider activity since 2021.
Our leading regulatory execution continues with no less than nine cases.
Seven jurisdictions across six states in the last three years.
Our state regulatory teams are in a constant cycle of communication and engagement with key intervenors regulators and customer groups.
In addition to general rate cases regular capital tracker filings allow timely recovery on and of our investment.
All of this activity is built on a foundation of robust economic activity in our states.
For example.
At NIPSCO, the Northern Indiana commuter transportation District provides vital transportation links to Chicago, and Cook County, Illinois.
And as constructing the double track Northwest, Indiana project.
The project is anticipated to expand service improve mobility and accessibility and stimulate job creation for Southern Lake County, and we're in the process of constructing substations to support this major transportation investment in the region.
In Ohio, the new Intel Chip factory has been under construction since mid 2022, and Licking county on the outskirts of Columbus.
Is estimated to be a $20 billion investment in the state and Intel will be a new Columbia gas of Ohio customer.
And Virginia, Norfolk Naval Shipyard and the Navy is primary east coast repair overhaul and modernization facility.
And one of the four public shipyards that play a critical role in maintaining America's fleet.
The shipyard is installing a combined heat and power plant expected to be complete later this year that will significantly improve energy security and efficiency with expected consumption up $1 $7 million <unk> annually for Columbia gas of Virginia.
Customer count across our territories has been growing on average by 5% to 1% annually for years.
<unk> 2023 to date.
Favorable demographic trends have driven inbound migration, thanks to a stable and growing manufacturing base.
Robust utility and non utility infrastructure and low tax rates in the states we serve.
Turning to another foundational element of value for our 4 million customers. Our internal teams continue to advance on all aspects of our operational excellence initiatives.
Project Apollo is on track generating efficiencies by doing things safer better more efficiently and for less calls.
One recent example of establishing standard buffer zones around our underground infrastructure indicate areas. We're digging can safely occur, especially for third party excavators.
Before instituting a standards zone field crews are being called out to excavation site to locate underground facilities when it wasn't needed we've.
We've eliminated more than 10000 unnecessary trips in the last three months.
Allowing more time to be spent on value added work.
Technology investments are also key to our operational excellence initiative. This.
This year, we began our five year approximately $1 billion transformation with an initial $300 million investment in SAP and Salesforce technology platform implementation.
That will standardize work practices and drive efficiencies for our field employees to improve service to our customers.
All of this is expected to contribute to keeping total customer build levels in line with inflation over the five year financial plan.
These achievements would not be possible without our dedicated employees and their commitment to our customers communities and all <unk> stakeholders.
With that I'll turn the call over to Michael <unk>.
Thank you Lloyd I'll begin on slide nine <unk> generation transition is continuing to advance as we optimize the new portfolio to benefit customers and retire all coal fire generation by the end of 2028.
Crossroads and done grid, one solar projects in advance of their end service date and are serving customers over the peak summer season.
NIPSCO has now placed for utility owned renewable investments into service from the 2018 integrated resource plan process.
In total these four projects represented approximately $800 million investments and 870 megawatts of economic sustainable zero fuel cost new generation for Discos, Northern Indiana customers.
Construction on Calgary solar plus storage and dawn storage to solar plus storage continues.
Both projects are expected in service dates in 2024, and we are in the very early stages of construction of the Fairbanks Solar project, which has an expected in service date of mid 2025.
Additionally, our work on Indiana Crossroads, two wind PPA is advancing and is expected in service late this year.
Today, we are announcing several adjustments for our remaining portfolio of projects that together address development challenges and better align our portfolio with recent changes that MISO rules surrounding the seasonal capacity construct.
The first is a conversion of the Gibson PPA project to a build transfer agreement.
We have filed a CPC and seeking approval from the IRC and if approved this project will replace the Elliott project in our portfolio.
Second we have sought regulatory approval for several recently executed ppas.
Apple C solar Templeton wins.
Okay.
Finally, the agreement for the Eliot PTA at Brickyard in Greensboro, Ppas have been mutually terminated by Cisco and the developers of these projects.
Four key points related to these projects.
First.
<unk> economic <unk> zero fuel cost resources continue to support customer affordability.
Second.
These changes support our current coal retirement schedule of all coal retired by the end of 2028.
Third the renewable generation in service by the end of 2025, we will continue to consist of eight build transfer agreements.
Six ppas.
And for the revised portfolio of projects is consistent with our current five year capex rate base financing and other prior commitments to the investment community.
Beyond these projects our 2021 <unk> in 2022, RFP processes laid the groundwork for the balance of projects needed to replace the Michigan City generating stations by 2028.
<unk> is implementing and operate as a sugar Creek gas generating station this year.
And we are finalizing our analysis of gas seeking alternatives identified in our 2022 RFP.
Which we expect to result in a request for a new brownfield project at our Shaper site.
<unk> will continue to evaluate further generation portfolio needs and we will be conducting the triangle integrated resource planning process with stakeholders in 2024.
Zero fuel cost resources reduce customer bill volatility and create substantial value for our customers.
Especially as they experienced elevated economy wide inflation.
Since our first project with commercial in late 2020.
We have been passing back both excess generation and renewable energy credits revenue to customers from this and subsequent project.
In the second quarter alone this amount totaled $8 4 million or over $2 per residential customer for a year to date total of $14 6 million.
As we look forward.
Slide 10 shows additional capex opportunities not included in our financial plan through 2027.
Multiple items on this list both near term and longer term are progressing well in their evaluation work streams.
Prior to the inflation reduction act, we beneficially employee tax equity financing on the four own renewable projects in service to date and our financial guidance incorporates tax equity financing for the remaining four projects in 2024 and 2025.
However.
Given the new pathways for utilizing tax credits included in the IRR.
We are evaluating the benefit of direct ownership for each of the remaining four build transfer projects potentially adding incremental capex to the plan, while enhancing the value for customers as well as portfolio and project flexibility.
We are also working through our long term investment plans stemming from the proposed rules around the 2020 Federal case Act, which will require incremental investment in our system for various lease reductions safety and other operational requirements.
These requirements would build on the investments we have been making on our advanced leak detection and repair program.
We will continue to be active in this area to support the best outcome for customers in terms of safety emissions and infrastructure investment.
These potential and current investments across our electric and gas businesses support our clean energy transition.
Furthermore, our scope, one emissions reduction goals and enhancing customer value on a balanced way.
At year end 2022, Nisource achieved a 67% reduction in scope one GHT emissions from 2005 baseline levels and we remain on track to achieve an industry, leading 90% reduction in scope one <unk> emissions by 2030 and are advancing our goal of net zero scope, one and two.
Emissions by 2040.
At <unk>, we're very proud of our track record of de Carbonization and focus on sustainability.
In addition to being named to the Dow Jones Sustainability Index. We are rated AAA by MSCI for ESG and have been recognized as one of America's most responsible companies for 2023 by Newsweek.
And by Forbes best employers for diversity in 2023.
Our passion is to create value for our customers and communities through investment and operation of our electric and gas system that drive customer benefits.
Reliability safety sustainability and customer offerings.
I'll now turn things over to Shaun.
Thank you Michael and good morning, everyone slide.
Slide 11 reviews, our financial results from the second quarter of this year non-GAAP net operating earnings achieved $53 million or <unk> 11 per share compared to $53 9 million or <unk> 12 per share in the second quarter of 2022.
Year to date results continue to track in line with our plan.
Visibility from constructive regulatory outcomes.
<unk> of financing transactions and.
And execution on O&M initiatives have supported our raising our range to the upper half of the $1 54 to $1 60 range provided.
As we indicated last quarter key regulatory and O&M drivers will continue to build value into our financial results for 2023 as they layer into our actual results across the full year and drive greater impact in the second half of the fiscal year.
Turning to slide 12, Youll find segment detail and key drivers of our <unk> results.
Gas distribution operating earnings were $120 million in the second quarter, an increase of $39 million versus the same quarter last year.
New rates and capital investment programs drove $61 million of incremental revenue, including general rate case contributions in Ohio, Pennsylvania, Indiana, Virginia and Maryland.
Capital Trackers in Ohio, Kentucky, and Virginia positively impacted the segment as well.
Non tracked gas O&M was flat year over year.
In the electric segment operating earnings were $51 million in the second quarter, a decrease of $22 million versus the same quarter last year.
Lower weather normalized customer usage across all three customer classes attributes to this variance is related to industrial outages and a return to more normal long term demand in the commercial and residential segments.
Higher non tracked O&M was also a headwind primarily due to the timing of generation maintenance expenses and increased reliability spend related to vegetation management.
And finally, corporate and other was favorable by $14 million due primarily to lower benefit in insurance costs and reduced third party expenditures.
Now I'd like to briefly touch on our debt and credit profile on slide 13.
Our debt level as of June 32023 was $12 6 billion.
Of which $11 billion was long term debt with a weighted average maturity of 12 years and a weighted average interest rate of three 9%.
At the end of the second quarter, we maintained net available liquidity of $1 8 billion consisting.
Consisting of cash and available capacity under our credit facility and our accounts receivable securitization programs.
We remain committed to our current investment grade credit ratings.
I'm happy to share all three agencies have reaffirmed nisource ratings with stable outlooks following their annual reviews and the minority interest announcement.
Slide 14 addresses our financing strategy and credit commitments.
In June we issued $450 million of 10 year notes at five 4%.
And an additional $300 million.
Of our March five year, five 5% notes.
We plan to use a portion of these proceeds from the sale of the notes to fund our capital plan.
As previously indicated we also plan on completing the equity units transaction launched in 2021 by remarketing the units this fall.
We are reaffirming our long term financing plan originally disclosed at Investor Day in November .
This includes zero discrete equity issuances through 2027, and zero ATM equity in 2023 and 2024.
And all financing costs are reflected in our earnings growth in credit commitments.
This balanced financing plan is anticipated to help us deliver on our 14% to 16% annual <unk> to debt ratio anticipated for all years of the plan when considering the proceeds of the minority sale.
This affords us adequate flexibility to execute on rate based investment opportunities as they arise in any given year.
Central to our financing plan is the sale of a minority stake in NIPSCO.
The transaction enables billions of dollars of investment for our customers and communities planned in Indiana over the coming years.
It also strengthens our balance sheet and enhances.
This flexibility and diversification from traditional capital markets.
Our transaction announcement in June followed a period of capital market headwinds for utilities.
Interest rates are generally higher in utility equity valuations are flat or down as a group since we originally stated our intention to sell the interest in November .
We believe our decision to pursue this financing transaction optimized and de risked our cost of capital versus alternative paths.
We are very optimistic about the growing strength of our balance sheet and credit metrics as we look ahead.
Supportive rate structures and regulatory activity.
Coupled with the proceeds coming in later this year from the minority sale and the remarketing of our equity units position us strongly in the 14% to 16% <unk> to debt range.
Later this year, we expect to provide an update and roll forward of our long term financial commitments.
This will enable us to complete our annual planning period, and refresh of all of our capital expenditure and regulatory plans as we look forward to 2024 and the outer years of our financial forecast.
Both at NIPSCO, and our Columbia gas operating companies our customers are core to everything we do.
We remain sensitive to the overall inflationary pressures impacting many parts of consumer expenses.
Even as falling energy commodity prices have helped our customer bills in the first half of this year.
Our fuel cost adjustment mechanisms update every quarter and therefore quickly begin to pass back savings as prices fall.
These have been a critical tool to help our customers during the extreme swings in commodity prices seen over the last two years.
Second quarter gas fuel charges on residential customer bills declined $31 million versus the second quarter of 2022.
This has translated into an average decline of $6 50.
Per month for the commodity portion of customer bills across our gas utility businesses.
Weather normalization mechanisms also insulate, both investors and customers across the substantial portion of our meters.
Residential customers across our Columbia gas companies benefit from construct ranging from full straight fixed variable rate design in Ohio to a normalization band and Pennsylvania utilized during heating season among other mechanisms.
The impact of weather is excluded from our adjusted EPS. However, it's worth noting the actual cash flow impact versus normal in <unk> and year to date was only $6 million and $38 million pre tax, respectively, or 1% and 3% of our cash flow from operations for those.
<unk>.
Scale is another factor, we believe can drive greater affordability for our customers the.
The scale of nice source of six operating companies and its central services operating model supports approximately 4 million customers and presents opportunities to flatten our operations and maintenance expenditures.
And as we grow our customer base across all of our companies those costs can be shared across the broader base.
This also benefits our investors as scale and diversity enabled traditional rate base investment flexibility across multiple jurisdictions and multiple energy systems.
Finally, I'd like to conclude where Lloyds started today.
We're reiterating our long term annual non-GAAP EPS growth commitment of 6% to 8% through 2027.
Driven by annual rate base growth of 8% to 10%.
We are raising 2023, non-GAAP EPS guidance to the upper half of the $1 54 to $1 60 range.
This follows our guidance range, raising and narrowing in February .
From our original 2023 guidance range offered last November .
This further demonstrates our growing track record of execution, including exceeding our $1 44 to $1 46 guidance range in 2022 with.
With actual EPS of $1 47.
And exceeding our $1 32 to $1 36 guidance range in 2021.
While achieving $1 37.
We remain confident in our plan, despite persistent inflationary supply chain and interest rate headwinds.
We continue building a track record of execution and growth.
And our commitment to our investors employees and customers is central to everything we do.
Thank you for your support of Nisource and with that I'll turn things over to Lloyd for final comments.
Thanks, Sean and before we take questions.
I'd like to share some late breaking news with the Investor community.
We just received an order from the Indiana utility regulatory commission for the NIPSCO electric rate case.
Upon initial review it appears the settlement NIPSCO case has been approved without modification.
The team is reviewing the details of the order and if we see anything different we will let you know as soon as possible.
Let me give you a couple of highlights a revenue increase of $292 million.
Return on equity of nine 8%.
Increased rate base increase a slight slightly over $1 8 billion.
I want to publicly thank the <unk> for their diligence and review of this quarter the team and all the stakeholders that contribute to what we believe is a very balanced solution and with that we'll open the floor for questions. Thank you.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad. Your we'll pause for just a moment to compile our Q&A roster.
Your first question is from the line of Shar <unk> with Guggenheim Partners. Your line is open.
Sure.
Hey, guys. Good morning morning Lloyd.
Good morning Shar.
Good morning, So just Lloyd it's 50 that you guys actually increased your guidance for the year.
Appears lowered obviously this morning could we get maybe just to share a little bit of what's driving the level of confidence to 'twenty, three especially with some of the key part of the year still in front of us and whether there is anything to read into there as we're thinking about the 6% to 8% growth rate.
So I'll, let John handle the details, but when you think about the second half of the year.
The thing to contemplate it as all of the great regulatory execution, we had including the order from Indiana today.
<unk> continued to drive savings by Apollo and with that I'll turn it over to Sean for details of that comment John Yes. Thanks, Lloyd Morningstar I. Appreciate the question Hey, just as Lloyd said you may observe that track record of success on slide eight which demonstrates consistent execution of rate case tracker filings across all of our businesses. Most notably you bring you in.
Attention to Q4, 2022, and all of the 2023 outcomes that specifically gives us enhanced line of sight to regulated revenue drivers across the balance of this year, that's somewhere in the neighborhood of 35 per share and total regulatory programs over the second half, which have already been approved were implemented and which will support growth in revenue.
In the second half of the year, obviously, we've had some successful execution of financing transactions required to execute the robust capital expenditure program in 2023.
Those really have concluded our long term debt issuances for the year. Thus, we've got pretty good line of sight to the interest expense that we're going to be paying for it for the rest of this year to support capital programs Lloyd mentioned project Apollo.
<unk> seen some success as those programs are starting to launch here in the middle of this year that'll give us some tailwind on the O&M front that we can use to enhance performance, but the.
The other piece I'd note.
Just simply we remain confident in the 6% to 8% annual <unk> growth rate through 2027, and again I'll just take this moment as an opportunity to remind folks we project that growth rate off of year end results for each year of the plan. So while we're now targeting the upper half of the current year guidance range. This flows through into the annual six to eight.
Percent NOI PFS across the remainder of the plan period.
Okay, perfect Thats, what I was trying to sort of get up it okay. Good and then the the near term Capex slide.
27 <unk>.
Slide 10 that could be incremental I mean can you just help us size that for us even a range and the timing and how we should think about when that could actually hit the plan. It's maybe the right podium to update as of year end results like how do we think about when we can get additional disclosures there.
Yes, maybe I'll start then I'll pass things to Mike will touch on a couple of components there might be interesting in there, but we plan to update all of the long term commitments, including growth rate capital expenditures in that November time frame. So I think you hit the nail on the head we will look at all factors and provide as much visibility as we can into our business. As you know we've got a backlog of identified and high quality <unk>.
<unk> opportunities, which support system reliability sustainability customer service and our focus is really how can we efficiently access those investments at one times rate base and convert that into endo EPS for our shareholders that the teams are studying that right now we're going through that annual planning process. The results of that we'll be able to share.
November timeframe, but Michael do you want to hit any interesting ideas on that slide.
Things I'll add to that Sean as we continue to work through the different elements of it that are progressing well and the work streams those items, but also and more.
In real terms, when we think about the 'twenty two RFP and the work on that.
Finalize it and as we mentioned before.
To come back relative to potential brownfield associated with the shape of site. We already mentioned in 2021 RFP relative to the potential for new gas peak or and in addition to that we continue to evaluate the remaining options in the portfolio that would allow us to meet the commitments that we said is associated with the generation.
Sure.
Okay got it and then just lastly for me Lori maybe just a strategic question. If I may I mean, obviously you guys exit.
Executed a fantastic transaction with NIPSCO.
So that was good but I know obviously some of the local.
And some of the banker rags, you're highlighting maybe nice sources acquisitive nature.
As youre thinking about potential deals without obviously going into specifics unless you want to go into the specifics I guess can you just highlight.
What your appetite is to grow.
The business further, especially in states that you already operate in.
So.
That was really a good way to ask that question Shar, Let me start there. Thanks.
[laughter] Randy as well.
Okay.
I don't want to comp.
Comment on specific details of course like most companies our policies, we don't comment on market rumor of course specific details.
I will comment on those back in November on Investor Day, we laid out what I thought and I think this team and our board thinks is a really really good plan.
ROE or earnings 6% to 8% annually.
End of year results.
A 10% rate base growth.
We put forth a transaction.
So the 19, 9% of the NIPSCO utility to strengthen our balance sheet and what I will tell you is as we did the business review last year that was the only transaction, we contemplated and we are laser focused on getting that done. So you mentioned, we we haven't finished that transaction yet that transaction is scheduled to be finished by the end of this year.
They're focused on that transaction invest in $15 billion.
Of capital, making sure we operate in an excellent way.
And growing earnings and that is where the whole <unk> team is zero down.
Okay.
Okay, Great I'm sure someone asked that question in a different way I appreciate it guys. Thanks.
Good.
Yeah.
Your next question comes from the line of Richard Sunderland with Jpmorgan. Your line is open.
Hi, good morning am I coming through clearly.
Yes, you are good morning.
Great. Thank you.
Circling back to the renewables project changes outlined in one of the earlier slides there could you give a little bit more color to the backdrop in process underpinning all of that I mean, it seems like it worked out in a way effectively neutral to you on.
Ownership versus PPA basis, but just curious if there's anything more you can highlight out of how those changes from a contemplated became about.
Sure happy to do so thank you.
When we look at it just to reinforce I mean, we will continue to consist of a build transfer agreements and <unk> ppas and the revised portfolio of projects is consistent with our current five year capex rate base financing and other prior commitments, but to get a little bit more into your question. We're consistently looking through the portfolio and making sure that we're eliminate.
Adding risk associated with delivery and providing the best options for customer costs associated with those projects.
So we're always looking to optimize them. So as we go through site development and different activities with it we looked at how to best optimize our portfolio and Thats. What you are seeing being done here so by.
Doing these projects and the way we've set them up it gives us a lot of confidence in being able to execute on those plans and deliver those commitments as well as being able to provide the customers the benefits and meet MISO comps.
So changes as well.
Understood understood very helpful. There.
And sticking with renewables, but speak to you about that slide 10, with the additional investment opportunities.
The ownership uplift that is under evaluation is that an item. We expect to have resolved are mapped out in time for the fall update and anything else that you could point out from the list.
Likely candidate for at least an update in that fall outlook revision.
So I would say as we go through the projects and as we continue to provide information with IRC and other parties. We will provide updates for those projects as we go through each stage just like we did with Gibson and the filing associated with that but relative to the full ownership.
We're finishing our evaluation of the IRA and as mentioned before there are significant benefits with DRA, both in tax policy and the ability to maintain the full ownership, which benefits project and portfolio optimization.
This gives us the capability to remove administrative burden complexity as well as to optimize the asset and we're finishing that analysis now and expect to be able to conclude that but in doing so if we look at that right now our plan assumes tax equity for the remaining four projects.
If we pending regulatory approval. If all four were included under full ownership that would require up to $1 billion in additional capex.
Understood. So it should be clear, that's 1 billion incremental to the current placeholder under a full ownership scenario is that is that what you said.
Doug.
Yes, so when you look at the current plan the current plan assumes tax equity.
If full ownership was done for all four projects pending any regulatory approvals it would be up to $1 billion in additional capex.
Got it got it and one final quick one for me.
Project Apollo as you get further along in the kind of the initial launch here.
Any new learnings relative to what you laid out in the spring around this initiative or anything to highlight in terms of what youre seeing from from employees and other stakeholders as you as you roll this out.
Yeah. So thanks for asking that question I think what we're seeing is.
Employees getting excited.
And finally in better and more ideas for cost savings I think when you drill down into the organization employees know what holds them up and getting more work done.
And we're getting after it I think.
No.
This will be a continuous improvement mindset, we're driving it throughout the company to do things safer better faster and more efficiently, but again, it's the employee driven ideas is process driven and we are finding significant savings and I expect this to continue on for a really long time.
I expect it to start accelerating in 2024 and beyond but delivering the savings now looking forward acceleration process next year or even more savings.
Great to hear and thanks for your time today.
Your next question is from the line of Steve Fleishman with Wolfe Research. Your line is open.
Yeah.
Yes, hi, good morning.
Just.
Apologize yeah, Laurie good morning to you just apologize to repeat.
Yes, but just to.
Could you maybe go through the changes.
The renewables program.
From the prior program Okay.
Just kind of what is actually.
Change in terms of adjustments and cancellations.
Michael I'm sure happy to do so Steve So when you look at it Elliott was originally included the DTA that is <unk>.
<unk> replaced by Gibson, assuming approved by the <unk> that was filed.
In addition to that we terminated several ppas.
<unk> also added several ppas, which have been filed with the <unk>. So you look at it timber to win Carpenter win Appleseed solar are all filed with IRC now and those are really the fundamental changes. So we had eight bta's before we have <unk> now is just early.
Gibson and we had six ppas before we have six ppas now and is temporal and carpenter wind and appleseed solar and those versus like Brickyard in Greensborough and Gibson those were terminated.
Freedom.
Yes.
Sorry, just real quick Steve the only thing I'd add would be with those changes.
<unk> investment forecast of two to $2 $2 billion is unchanged.
Got it and the new Ppas have you announced who they're with.
Oh.
Yeah.
We've we've.
<unk> done the filings associated with them and in those filings I believe that we have said who they are with.
Okay.
Just off top of your head.
Okay.
It will get back to you on that.
Brian and team will get back to you.
Those names.
Okay, but overall the message is same Capex program.
The same amount of Ppas remixing everything.
And and then obviously there is this upside opportunity if youre able to use.
Not have to use tax equity.
That's correct.
Sure.
That's correct.
Okay, and then just the overall <unk> support.
The program remains.
Strongly.
How much of these debates.
Yes.
Okay.
Okay.
No no.
<unk> I think the state of Indiana in General there is.
Very good support.
Renewables program.
And I think what drove it.
A stakeholder engagement that got done upfront I think what we're seeing is the benefit of stakeholder engagement with the <unk> see the industrial customers to commercial customers with.
With legislators.
And I think there has been settlement rate case approval filing. So we believe and we continue not believed we know we have very good support from the <unk> and the state of Indiana, and we think that we're doing this transition in a way that really makes sense from a clean energy perspective, and a reliability perspective.
Okay, great. Thank you.
Yes.
Your next question comes from the line of Julien Dumoulin Smith with Bank of America. Your line is open.
Hey, good morning team, thanks, very much for the time appreciate it.
Just wanted to follow up on a few of the last tidbits you guys put out there just on the generation of upside you talked about a moment ago.
I just want to clarify this first off you've seen incremental load across your service territory what.
Extended that billion dollars upside contemplate that angle as well as any potential shifts here in MISO capacity need.
And then in turn just on the tax equity, but can you clarify just the status with the credit rating agencies I know there's been some conversation on that front amongst others out there if you can update us on that front.
Yes on the first piece of the question joined this issue on the first piece of the question the incremental load that youre alluding to is not captured in the $1 billion said differently. The 2021 ERP projected capacity requirements in the load necessary for us to serve our communities and it.
Provided that with the existing footprint of assets that were currently engaged commercially to construct.
Incremental load would be captured in the next <unk>.
And factored into any future generation planning that next <unk> would be 2024, so we would capture that upside as we rerun the scenarios around load factors next year.
And then the second part of your question.
We expect that for purposes of calculating <unk> for the treatment of tax credit transfers would be consistent with GAAP accounting.
That should result in tax credit transfer is flowing through the tax line and increasing SFO.
And we understand that our credit rating agencies are evaluating that.
That methodology consistent with GAAP accounting seems to track with us and we will continue to stay engaged with the credit rating agencies as they continue their evaluation.
Yeah.
Got it excellent and then Lloyd just to come back and open that can again.
If we can.
Just on the strategic front here I mean, obviously the plan is very good as it any commentary as to three.
<unk> threshold that you would think to I mean, obviously you laid out a pretty stark one earlier.
Any further commentary on that front I mean, obviously, you've got a very nice running start here on the planet.
But there are no further questions.
Great day.
Alright, So we're I mean, we're invested $15 billion of capital at one times rate base someone wants to sell us an asset that creates significant shareholder value at less than that.
I think the probability of that is really large.
But our focus is our plan.
Awesome, Alright, sorry, I'll leave that be good luck guys. Thank you see you soon.
Alright.
Your next question comes from the line of <unk> Chopra with Evercore ISI. Your line is open.
Hey, guys. Thanks for giving me time, Hey, I just wanted to alright.
Alright.
Go back and clarify the tax equity too.
The $1 billion Capex upside so you've probably followed this correctly.
Eight.
Is that you have currently and the plan there is tax equity in it and there is a potential with the iras that tax equity.
Results in our $1 billion more capex arabias upside of those within those eight projects in my thinking about this correctly.
It would be for the remaining four projects over the eight.
All eight projects right now in the plan assumed tax equity so it would be for the remaining four projects Calgary solar stores done your bridge to solar and storage Fairbanks and Gibson.
Pending regulatory approval associated with those that if those projects were under full ownership it would be up to an incremental $1 billion in capex and the only thing I would want to add to that is when we look at them you obviously from the customer side and the benefits, we're making sure that we do full due diligence on that and the follow up on the previous question.
Just to make sure I got the mix right. It is next era for Templeton and Appleseed and Carpenter as EPR.
Got it okay. So remaining for that makes a lot sense and maybe just can you.
Sean maybe this is maybe you can you can answer this one but just how should we think about financing of that incremental capex.
At the Investor Day right.
You laid out was ATM in 2025, and beyond which was 15%.
Equity, 85% debt on growth opportunities is that a good rule of thumb still as we think about this incremental billion dollars Capex. That's part one of the question in part two do you see like depending on the timeframe of these projects with potential equity or ATM next year and before the 2025 timeframe.
Thank you guys. Appreciate the question. So at this point, there's no change to the financing plan, we shared at our Investor Day in November So just to reiterate this includes no new equity.
<unk> 2025.
No discrete equity issuances through the life of the plan.
With ATM maintenance equity beginning towards the latter half of the plan horizon.
As we complete the equity units remarketing transaction that we entered into 2021, we will receive some additional proceeds there as you know we will receive proceeds when we close the transaction with Blackstone that.
That will provide us a credit cushion relative to the 14% to 16% <unk> to debt will be in the 14% to 16% <unk> to debt range, but a credit question that we could use to apply towards capex in 2024 should we need to and should we identify incremental capex opportunities.
What we're currently doing right now is evaluating what those capital opportunities could look like inclusive of tax equity and how that will create incremental cash flow as you would expect coming out of our business and then how that would impact our financing plan throughout the entire horizon.
All of that we expect to be able to step through in the November timeframe. So it's a bit too early to tell you exactly how that works, but the financing plan itself and the commitments. We've made are still consistent with what we made in Investor day.
Got it thanks, so much.
You bet.
Your next question is from the line of Ryan Levine with Citi. Your line is open.
Good morning, and I appreciate all the details on solar I guess, a couple of follow up what drove the changes for your project portfolio, you outlined and why make these changes now.
Well as we go through the projects and we work through just the normal process of developing the projects develop negotiating the agreements we're always looking as to how to make sure that we're eliminating risk and bringing in the benefits. So on these individual projects you combine that with also.
Well to provide the best benefit the customers and Thats fundamentally led to the changes associated with the projects.
That had to do with sub components associated with whether it be development costs for certain costs associated with the each individual site and we try to maintain a robust portfolio of development opportunities that enable us to have that flexibility associated with that we know no plan goes exactly as.
Plans. So therefore, we want to have flexibility in that plan and really is just working through that normal process of project development construction, citing et cetera.
Thanks, and then what's the timeline or milestones youre working on to the better sense of the things that related transmission investment opportunity and when do you think you'll have a better.
Some numbers to point to around that upset.
I'm, sorry can you repeat that for which opportunity through the things.
Capex upside that you identified in your side.
Yes, so we're continuing to do the analysis associated with <unk>, though we know that looking at it that there would be significant additional requirements. We have not laid out a specific timeline associated with those activities, yet or what that would mean relative to our capex or financial plans, but the team is well engaged.
<unk>, well underway and working through those as well as we're engaged on how those rules are promulgated and what and how we can best benefit customers.
I think you will be able to have a plan in next year or is this is this year decision point.
Any color you can share on timeline.
I mean, I think we're working through that process.
<unk>.
B E.
Our earnings call, we'll have those plans.
More formalized and laid out we will get them to you as soon as we have them.
Appreciate the color. Thank you.
Again, if you would like to ask a question press star followed by the number one on your telephone keypad.
Your next question is from the line of Travis Miller with Morningstar. Your line is open.
Good morning, everyone. Thank you.
Good morning Travis.
Just a high level. If you go back to November and thinking about the outlook you gave for this year and then forward to today, what's been the biggest surprise and I mentioned, a couple of different variables, but what's the.
The big surprise that has come about this year that is leading the higher earnings outlook.
Okay.
So I would say to you.
As I sit in the seat.
Little over a year and a half more confidence in our ability to execute on the regulatory front.
We have just really superior regulatory execution capabilities as I spend more time on the operating side.
And look at the cost savings O&M here.
And savings without taking additional risk, but really becoming better operational excellence I'm seeing a lot more momentum gains.
I have a lot of confidence in its management team and we put this management team in place, we're really working well together, they're probably one of the best management teams in the industry and it's working really well so it's given us more confidence to deliver our own earnings to investors I think we're doing better on the customer side and better in our communities and our employees like working here.
So I think it's an overall confidence rising across all of <unk>.
Okay, that's great.
On the <unk>.
Renewable energy and coal retirements with what you have in the pipeline right now regardless of whether its PPA or ownership.
How much more in your projections are you looking at to be able to execute.
<unk> coal retirement.
Whether it's renewables or some other type of capacity how much.
More outside of what you've announced as necessary or do you think.
So we haven't completed the work associated with that as we mentioned there is additional.
Capex included in the placeholder in our plan.
We have significant work done from the 2022 RFP associated with that which is concluding.
But beyond that.
Initial work, we will continue to look at opportunities around the diverse mix of assets that that filled.
Phil that billion dollars of Capex, which is what we have targeted relative to the retirement of the 2028 all coal units in 2028. So work is continuing and we'll have more updates as we go through the next Q.
And we're continuing to work the 'twenty two RFP associated with it to finalize that.
Okay, Great I appreciate it thanks, that's all I had.
Yeah.
There are no further questions at this time, ladies and gentlemen, thank you for your participation. This concludes today's call you may now disconnect.
Okay.
Okay.
Yeah.