Q3 2024 NiSource Inc Earnings Call
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Jeannie: Thank you for sending by my name is Jeannie and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3-2024 Night Source earnings conference call. All lines had been placed on mute to prevent any background noise.
Jeannie: After the speaker's remarks, there will be a question and answer session.
Jeannie: If you would like to ask a question during this time simply press star by the number one on your telek phone keypad. If you would like to withdraw your question press star one again.
Jeannie: We do request for today's session that you please limit to one question and one follow-up. Thank you.
Speaker Change: I would now like to turn the conference over to Chris Turnure, head of investor relations. You may begin.
Chris Turnure: Thank you.
Chris Turnure: Good morning and welcome to the NYSORS 3rd Quarter 2024 Investor Call. Joining me today are President and Chief Executive Officer, Lloyd Yates, Executive Vice President and Chief Financial Officer, Shawn Anderson, Executive Vice President of Strategy and Risk and Chief Commercial Officer, Michael Luhrs.
Chris Turnure: and Executive Vice President in group president, nice versatility, Melody Birmingham.
Chris Turnure: The purpose of this presentation is to review NYSERC's financial performance for the third quarter of 2024, as well as provide an update on our operations and growth drivers.
Chris Turnure: Following our prepared remarks, we'll open the call to your questions.
Chris Turnure: Slides for today's call are available in the investor relations section of our website.
Chris Turnure: These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements.
Chris Turnure: Additionally, some of the statements made on this call relate to non-GAP measures. Please refer to the supplemental slides, segment information, and full financial schedules for information on the most directly comparable GAP measure and a reconciliation of these measures.
Speaker Change: I'd now like to turn the call over to Lloyd.
Lloyd Yates: Thank you, Chris. And good morning, everyone. I'll begin on slide three.
Lloyd Yates: The NYSERV's investment thesis is simple. We serve our customers by delivering safe and reliable energy at an affordable value.
Lloyd Yates: Affordable energy requires efficient capital deployment, safe asset operations, and constructive regulatory recovery mechanisms.
Lloyd Yates: These fundamentals generate competitive returns while enhancing our balance sheet position.
Lloyd Yates: Importantly, these are the foundation to the NYSORTS business plan which continues to offer compelling value to stakeholders.
Lloyd Yates: driven by regulated utility operations across six highly constructive jurisdictions offering diversification across fuel type and regulatory location.
Lloyd Yates: Strong execution from our team and these business fundamentals are what have driven a trailing 12-month 9.9% earned ROE at the NYSRS level.
Lloyd Yates: demonstrating our focus on shareholder returns despite rapidly growing deployed capital and declining financial leverage.
Lloyd Yates: This is a GAP number with an adjustment made only to normalize weather.
Lloyd Yates: All of this informs our long-term value proposition, which our teams continue to advance each quarter. But before we focus on the long-term plan refresh, let's turn the slide forward and touch on the progress our teams have made on our regulatory activity.
Lloyd Yates: Being a trusted energy partner and enhancing NYSORCE's Superior Regulatory and Stakeholder Foundation is a priority, and we believe differentiates us from peer-regulated utilities.
Lloyd Yates: We remain active in rate case and tracker filings and build our credibility through our six-state footprint by utilizing a stakeholder focused mindset as we approach these processes.
Lloyd Yates: Last month, an administrative law judge in Pennsylvania recommended the commission approve our general rate case multi-party settlement as filed.
Lloyd Yates: In October, we reached a settlement in our Kentucky general rate case.
Lloyd Yates: Approval of both these settlements is subject to final commission approval.
Lloyd Yates: In Indiana, we received approvals for both our solar CPCN amendments to add full ownership of solar facilities, as well as a CPCN to construct a gas-peaking facility, all of which helped Nisource retire its remaining coal-generating stations by the end of 2028.
Lloyd Yates: We also received approval to advance our strategy of using technology to more efficiently serve our customers through an upgraded work and asset management system which utilizes data and analytics through AI to raise productivity and efficiency across the dispatch of our operations team.
Lloyd Yates: This concludes deferral for a one-time and ongoing expenses and capital returns for the program which went live in July for our electric operations and will go live next summer for our gas operations.
Lloyd Yates: This new technology is also an example of making strategic investments to better inform our culture and enhance risk management across the systems to deliver operational excellence for our customers.
Lloyd Yates: Our relentless focus on operational excellence enhances our risk management posture and drives protection for our customers, communities, and shareholders through our capital allocation framework.
Lloyd Yates: We face many potential categories of risk which constantly evolve and risk management is central to our values.
Lloyd Yates: The utility industry continues to face potential challenges head-on whether it relates to natural disasters, the interest rate environment, inflationary pressures on cost structures, or other items of uncertainty.
Lloyd Yates: Our teams are constantly implementing proactive solutions to add layers of protection into our plans and lead industry partners to understand and utilize best practices to de-risk our execution and deliver our commitments.
Lloyd Yates: We have high confidence in our ability to achieve our financial commitments, which we believe are highly executable.
Lloyd Yates: We are reaffirming 2024 adjusted EPS guidance of $1.70 to $1.74, and we continue to expect to achieve the upper half of this range.
Lloyd Yates: We are initiating 2025 adjusted EPS guidance for $1.84 to $1.88, consistent with maintaining our existing 6 to 8.
Lloyd Yates: Percent Annual Growth Commitment
Lloyd Yates: Today, we are also announcing a refresh of our outlook across our five-year planning horizon and extend this commitment and our overall financial guidelines to 2029.
Lloyd Yates: Key elements of that plan included an updated five-year capital plan which is 19.3 billion dollars or equivalent to 89% of our total current rate base.
Lloyd Yates: This is slightly larger than our prior plans, 87% of the year in 2023 rate base.
Lloyd Yates: This drives 8-10% rate-based growth over the 2025-2029 period, which fuels our ability to increase our adjusted earnings per share growth rate by 6-8% annually.
Lloyd Yates: Our investments in Strengthen the Balance Sheet support our commitment to target FFO-to-debt of 14-16% in all years of the plan.
Lloyd Yates: Our work does not stop at the base capital plan. We are fortunate to have a robust portfolio of valuable customer investments that include and extend far beyond our five-year plan horizon, which Sean will detail later.
Lloyd Yates: Our teams remain active in developing this portfolio of projects to meet our standards necessary to be included in our base plan.
Lloyd Yates: One example of work by our teams is the development of our strategy to serve the robust interest by data center customers for power to be served by NIPSCO.
Lloyd Yates: The fundamentals of the Northwest Indiana region are compelling to potential data center customers.
Lloyd Yates: access to critical infrastructure including a robust transmission system and proximity to critical fiber connections.
Lloyd Yates: Predictable climate and weather with low natural catastrophe risk and a constructive business climate including favorable tax structures, low-cost land, and a supportive state government.
Lloyd Yates: are all favorable factors in advancing development of data centers in the region.
Lloyd Yates: Our teams are working to evaluate this build-out, which could provide benefits to our existing system customers, enhance our communities and local tax base, and provide compelling investment opportunities for our shareholders.
Speaker Change: Northwest Indiana is the premier location for data centers to locate.
Speaker Change: Simply put,
Speaker Change: There is potential for substantial value creation for all stakeholders and checking all of these boxes is important to NYSOURCE.
Speaker Change: Now, let's focus on the core execution our teams continue to deliver upon with our regulatory engagement over the last three years, detailed on slide 5.
Speaker Change: During the trailing 12-month period ending last month, our average residential gas bill declined 16% on a total bill basis.
Speaker Change: Affordability remains a key priority for both NIPSCO and the Columbia family of companies and we continue to be thoughtful about this as we advance the critical safety, compliance, and reliability work necessary to deliver safe and reliable energy to our customers.
Speaker Change: In September, NIPSCO filed its first electric general rate case in two years, driven by nearly $2.5 billion of incremental investment for our customers and communities in northern Indiana.
Speaker Change: The case incorporates the planned 2025 retirement of Units 17 and 18 at the Schaefer Generating Station, as well as four new solar and storage projects, now reflecting NPSCO's full ownership.
Speaker Change: Major investments such as these are examples of our continued partnership with state policymakers, regulators, and customers.
Speaker Change: Switching to Pennsylvania, we expect a final commission order and a new rate implementation in December.
Speaker Change: In Ohio, $285 million of investment was approved in August for our Capital Expenditure Program Rider and we expect to submit for two major capital riders in the state again early next year.
Speaker Change: In Virginia, intervenor testimony was filed in October for a general rate case and a final order is expected early next year.
Speaker Change: Before I turn the call over, I want to thank all of our employees and contractors for their dedication to NYSOURCE values.
Speaker Change: doing things safer, better, more efficient, and for less costs.
Speaker Change: Our customers and shareholders alike rely on you every day. I'll now turn things over to Michael.
Michael Luhrs: Thank you, Lloyd. Good morning. We continue our disciplined and methodical approach to developing and effectuating a robust pipeline of investments to benefit stakeholders.
Michael Luhrs: I'll begin on slide six with an update on our generation investments.
Michael Luhrs: As Lloyd mentioned, there has been substantial progress made related to generation investments that will benefit all stakeholders.
Michael Luhrs: With Gibson and Fairbanks having received regulatory approval for full ownership in August, we have now converted four projects to full ownership, which will materially lower cost to customers.
Michael Luhrs: In addition, we have progressed well in bringing our renewable assets into service.
Michael Luhrs: The 200-megawatt Calvary Solar Project with 45 megawatts of storage was placed in service in May, and we expect the 435-megawatt Dunns Bridge II Solar Project with 56 megawatts of storage to come online very early next year.
Michael Luhrs: Fairbanks and Gibson are expected to be in service later in 2025 with no changes to timeline since our last update.
Michael Luhrs: 100% of modules for Fairbanks are already on site and Gibson is expected to have all modules delivered by early Q1 2025.
Michael Luhrs: In continuing the work of maximizing the benefits of our assets for customers,
Michael Luhrs: NIPSCO filed a notification earlier this week.
Michael Luhrs: with the IURC that an application will be filed requesting to convert the 200 megawatt Templeton Wind Energy Center in Benton County, Indiana, which was approved by the IURC as a PPA,
Michael Luhrs: to a bill transfer agreement in which NIPSCO will own the asset upon completion.
Michael Luhrs: If approved, it will reduce customer costs versus the PPA structure, add a valuable win property to our generation portfolio, and increase shareholder investment. It is a great example of the NYSOR's team at work creating a win for all stakeholders.
Michael Luhrs: The projects on slide 6 are the result of the 2018 and 2021 NIPSCO Integrated Resource Plan and corresponding RFP processes.
Michael Luhrs: These projects represent billions of dollars of economically driven investment in the state of Indiana, the majority of which are already delivering zero commodity costs solar and wind, driving down fuel-related charges to customers.
Michael Luhrs: Please turn to slide 7.
Michael Luhrs: On Monday, the NISCO team held a fifth and last stakeholder meeting in the 2024 IRP process.
Michael Luhrs: Potential incremental generation needs for the planning horizon are driven by three key factors.
Michael Luhrs: new EPA fossil fuel regulations, MISO reliability rules, and data center demand.
Speaker Change: Thank you for tuning in. We'll see you next time. Bye. Bye. Bye.
Speaker Change: As most of you are aware, the EPA Greenhouse Gas Standards and Fossil Fuel Fire Power Plant Guidelines finalized earlier this year may limit capacity factors.
Speaker Change: require carbon sequestration investments or hydrogen utilization for gas generation capacity.
Speaker Change: Additionally, MISO's four-season capacity construct and the reduction in capacity accreditation under the direct loss-of-load market design will have a substantial impact on generation requirements in the MISO footprint.
Speaker Change: These changes combined with a significant and growing interest in data centers in MIPSCO supports our IRP reference case.
Speaker Change: which includes these rule updates and 2,600 megawatts of data center demand.
Speaker Change: We intend to file the final IRP at the IURC in December.
Speaker Change: As we work through the major changes to electric demand, we are evaluating the most customer beneficial glide path and our 2030 interim commitment as we move towards our 2040 net zero goal.
Speaker Change: Environmental objectives remain an important component of our overall company priorities.
Speaker Change: And we have made significant progress with more than a 70% reduction relative to our 2005 CO2 baseline.
Speaker Change: and we will continue to balance customer cost, reliability, and pace of these investments to meet these goals.
Speaker Change: On slide 8, you'll find an overview of capital opportunities not included in our base or upside financial plans.
Speaker Change: These items are under development by NYSOR's strategy and commercial teams to build the business cases to advance these opportunities for stakeholders.
Speaker Change: To highlight the breadth of opportunities we have and are developing, I will highlight two disparate examples.
Speaker Change: data and analytics employing AI, and data center work.
Speaker Change: As Lloyd mentioned, we have made real progress in the strong and effective deployment of technology upgrades, but we have also been building data and analytics capabilities utilizing AI.
Speaker Change: We have built, tested, and are now deploying work management utilizing AI with our gas operations, and we have already seen significant improvements, enabling operational goals, lowering costs, increasing CapEx deployment efficiency, and de-risking our operations.
Speaker Change: At the other end of the spectrum, our data center deal team is meeting with qualified counterparties to understand their business models and needs as we develop structures for NIPSCO to support data center generation and transmission needs, while ensuring reliability for the region and protecting existing customers.
Speaker Change: We are actively working to enable access to the speed consistent with the data center demand profile.
Speaker Change: Fortunately, NIPSCO has a very strong infrastructure network and sites which have sound technical fundamentals for generation and transmission build-out within the timeframes beneficial to data center development.
Speaker Change: So though we have not included any data center activity within our plans or upside, we continue to focus on developing and vetting potential opportunities that would be beneficial to existing customers, shareholders, data centers, and our communities.
Speaker Change: As mentioned when we started, we will develop these opportunities in a methodical and disciplined manner just as we've done with the Templeton Wind Project.
Speaker Change: Sean will touch on more of that next. Sean?
Sean: Thank you Michael. Let's start on slide 9. Third quarter adjusted EPS was 20 cents per share, an increase of one penny versus the same period one year ago.
Sean: Higher rate-based investments drove $61 million in incremental revenue, and net financing benefits of approximately $26 million were also realized on a year-over-year basis.
Sean: Customer count and usage also added 2.6 million dollars across our electric and gas businesses versus last year and have grown over 28 million dollars total for the year.
Speaker Change: Moving to slide 10, let's break down our CapEx plan through 2029.
Speaker Change: As Lloyd mentioned earlier, we've refreshed our five-year plan outlook, which starts with a base capital plan of $19.3 billion.
Speaker Change: The enhanced base plan is $2.9 billion larger than our prior base plan, which is driven by a number of factors, including increased generation investments, gas compliance and system hardening projects, and investments to modernize our information technology systems.
Speaker Change: As Michael shared, the base plan now reflects the inclusion of the Templeton project, which shifted from our upside plan into our base plan after our teams reached commercial agreement on the ownership of the project.
Speaker Change: We have enhanced our disclosure on the new base plan to detail the investment themes we are seeing as necessary to deliver safe and reliable service to our customers.
Speaker Change: All of these investments have met our threshold to be included in the base plan, namely based on socialization with stakeholders, compliance and safety requirements, and commercial structures at an affordable value.
Speaker Change: We've also spent time refreshing the portfolio of projects in the upside plan. Those that are teams are actively working on flowing into the base plan.
Speaker Change: The revised upside plan now sits at 1.8 billion dollars and we've included an estimation of when those projects may become viable in our capex charts despite not yet being included in any of our base capital guidance or plans.
Speaker Change: The $1.8 billion upside category is slightly larger than our previous upside figure. It now consists of electric modernization, PHMSA compliance, and legacy plastic and gas systems work, as well as additional costs for MISO-TRONCH-1 projects.
Speaker Change: We continue to see increased demand for investment in our systems to deliver the growth and system capacity our stakeholders require while in alignment with the necessary operating standards.
Speaker Change: Once these projects meet our threshold to be included in the base plan,
Speaker Change: We will flow these through our full plan and provide updates along the way.
Speaker Change: I'd note here that the base and upside capital expenditures plans do not include any data center investments activity, which Lloyd and Michael highlighted earlier.
Speaker Change: We believe strongly that the data center strategy represents a compelling opportunity for NYSOURCE. However, additional development of the strategy is required to meet our threshold to include in either the base or upside capital plans.
Speaker Change: With that said, the company is strongly positioned to advance this strategy. Continued execution on our financial commitments has strengthened the financial profile of the company, including its balance sheet positioning, which enables NYSURS to be opportunistic in capital allocation decisions.
Speaker Change: The constructive regulatory backdrop in Indiana supports a utility-centric regulatory compact, and the vertical integration of the business model minimizes complexity for customers and regulators while providing flexibility around cash flow recovery.
Speaker Change: NYSOURCE has deep access to capital markets and maintains flexibility to efficiently finance data center opportunities.
Speaker Change: Nisource also has a long-standing history of supporting large load customers in the steel industry and has experience working with large customers to deliver value for all stakeholders.
Speaker Change: Let's move to slide 11.
Speaker Change: We are pleased to report that we have priced $600 million in common equity through our Forward ATM structure, completing our stated guidance for 2024.
Speaker Change: Along with the junior subordinated notes issued this year, we've continued to strengthen the balance sheet positioning of the company.
Speaker Change: Despite the increase in capital expenditures included in our revised base capital plan.
Speaker Change: We do not expect changes to our financing plan and continue to target 14 to 16 percent FFO to debt in all years of our plan using a balanced mix of cash from operations, new long-term debt, and 200 to 300 million dollars of annual maintenance equity to maintain our capital structure through the use of our at-the-market program.
Speaker Change: Limiting regulatory lag and sequencing our capital expenditures through efficient capital recovery mechanisms, including capital trackers and forward-looking rate mechanisms, help NYSORs minimize delays in recovery of capital deployed.
Speaker Change: Approximately 81% of our new base capital is expected to begin recovery inside 12 months, which fuels reasonable returns of capital and minimizes the need for new equity.
Speaker Change: This is the same strategy which has enabled NYSORS to achieve the 9.9% trailing 12-month enterprise ROE, which Lloyd highlighted, and which helps us use cash flow returns from the business to fund growth in the CapEx plans.
Speaker Change: Of note, we will continue to be opportunistic in the junior subordinated debt marketplace to strengthen the position of our FFO to debt as needed throughout our planned horizon.
Speaker Change: On slide 12, you'll see our updated long-term financial commitments.
Speaker Change: The new base plan drives eight to ten percent rate-based growth over the five year period and continues our guidance of achieving annual adjusted EPS growth of six to eight percent across each year of the plan reflecting out through the 2029 period.
Speaker Change: The value of this is notable.
Speaker Change: As you know, we rebase long-term EPS growth guidance off of actual results.
Speaker Change: and out performance will flow through the full plan and compound when incorporating our growth rate.
Speaker Change: For example, as we initiate 2025 guidance of $1.84 to $1.88,
Speaker Change: The midpoint of this range is 10 cents per share higher than was estimated in our 2022 investor day, driven by outperforming the midpoint in all years of our plan.
Speaker Change: And this midpoint is 9.4% above the original midpoint when we initiated guidance for 2024.
Speaker Change: We are reaffirming our guidance of $1.70 to $1.74 for 2024 and again expect to achieve results in the upper half of this range. Additionally, we remain committed to 14-16% FFO to debt in all years of the plan.
Speaker Change: As was the case with our prior plan, the upside CapEx category is not required to drive any of the financial commitments shown in the upper center box.
Speaker Change: and we will flow through any impacts associated with increases to our base case capital plan from the upside plan when those projects meet our standards to be included.
Speaker Change: I'd note, we remain focused on minimizing the financial impact that our safety, reliability, and compliance work has across our customer base.
Speaker Change: Efficient projects like the Templeton Wind Energy Center enable an increase in CapEx plans while reducing the plan cost to customer and eliminate fuel costs for this portion of generation.
Speaker Change: A revised plan projects less than 5% average annual bill increases across NYSORS.
Speaker Change: Our financial commitments are on track for 2024.
Speaker Change: We have established guidance for 2025 and remain confident in our near-term and long-term guidance remains resilient to market and forces outside our control and are based on realistic and executable assumptions.
Speaker Change: Settlements in our Pennsylvania and Kentucky rate cases and approvals for numerous Indiana generation and technology investments underscore our execution of recovery for critical investments to ensure safety and reliability of our systems.
Speaker Change: Year-to-date financing activity has been completed and the diversification utilized in the junior subordinated debt marketplace demonstrates our balance sheet flexibility and continues to fortify our balance sheet positioning.
Speaker Change: Lastly, our base and upside CapEx plans demonstrate both programmatic investment plans and accelerated investment opportunities for customers and investors.
Speaker Change: To reiterate, our rate-based and adjusted EPS guidance include neither the upside CapEx nor any data center load or investment and are built upon the known and socialized regulatory programs.
Speaker Change: which have contributed to the 8.1% adjusted EPS growth rate we've executed since 2021.
Speaker Change: The value proposition NYSOURCE continues to offer investors is diversified and regulated utility assets with the opportunity to invest in both programmatic gas infrastructure and the long-term energy transition story of a fully integrated electric business.
Speaker Change: These elements have been core to our story for some time, but the emerging opportunity to support economic development, onshoring, and new data center development truly differentiate our value proposition relative to many alternatives in the market today.
Speaker Change: I'd now like to turn the call over to the operator for Q&A.
Speaker Change: Thank you. The floor is now open for questions.
Speaker Change: If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Speaker Change: If you would like to withdraw your question, simply press star 1 again.
Speaker Change: If you are called upon to ask your question and are listening via a loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Again, we do request for today's session that you please limit to one question and one follow-up.
Speaker Change: Your first question comes from the line of Nate Cappinello with Barclays. Please go ahead.
Speaker Change: Hey, good morning.
Speaker Change: Morning Nick
Nate Cappinello: Hey, good to see everything playing out from the analyst day here. So congrats on that.
Nate Cappinello: Hey, so in your prepared remarks, you know, you kind of talked about you're having discussions continuing with data centers. And, you know, I understand that the recent increase in CapEx was largely just on the gas side, it seems.
Nate Cappinello: So just, can you kind of talk about what the catalyst that we should be watching for, for you to kind of layer in those opportunities? Is it getting through a NISQA rate case? Is it finishing those discussions on what the tariff looks like? And what would the timing of that be? Thank you.
So I'll start and I'll let Michael Luhrs provide more detail. NYSOR sees data center opportunity as just a really good incremental investment opportunity.
Nate Cappinello: I think for the company where we are now it's primarily a 2025 activity.
Nate Cappinello: I think as we progress in discussions with some of the counterparties we want to kind of get down to
Nate Cappinello: the detail and make sure that we do this in a disciplined, methodical way. And that's take that's just going to take time. You think about what we just with Templeton win the wind project and our ability to do things in a disciplined, methodical way has been probably one of the keys.
Nate Cappinello: to why we've been executing so well. So, Mike, do you have anything to add to that?
No, you hit it, Lloyd. We are going to work through these opportunities in a manner, as you said, disciplined and methodically. Make sure we're providing the benefits to existing customers, that it's accretive for shareholders. And then as we come through those opportunities, at which point they are accretive or we know that they're beneficial, we will bring them forward just as we did with the Templeton Wind Project today.
Speaker Change: Okay so is it the right take that these are you know truly incremental to the plan that the balance sheet can absorb it and that the customer rates can absorb it and maybe maybe you can kind of just clarify on you know if you if you raise capex from here does that require additional equity financing thanks
Speaker Change: Yeah, Nick, just to be clear, the $19.3 billion capital plan is fully financed through all the systems that we've shared with you today.
the $1.8 billion of potential upside CapEx.
The incremental investments opportunities are not captured in any of those systems that I just highlighted.
Speaker Change: Well, that's where data center investments would theoretically live. Therefore, we wouldn't have to reevaluate everything to incorporate incremental investment opportunities through our systems. But we don't need a full planned refresh to do that. We'll flow those through our systems, and you'll know those when we know those through this mechanism.
Speaker Change: All right, have a great day, thanks.
Speaker Change: Your next question comes from the line of Julian DeMoulin-Smith with Jefferies. Please go ahead.
Speaker Change: Thank you. Bye.
Hey, good morning team. Very well done. Truly impressive. Those are not your average LBCs, I gotta say.
In fact, to that end, good morning team.
Speaker Change: To that end, just to understand the staggering of different data points here, I mean, just impressive CapEx update here.
Speaker Change: The 1.8 billion upside here, I mean, you're going to get a number of these data points over the next year. That's not something we should be looking to with 4Q. That's going to be a year out. The AI data center related data points here, given the December IRP, that's a 4Q update, presumably.
Speaker Change: correct
there are a couple different strategies for the company. Therefore I imagine we'll discuss those on the 4Q Call. But I don't know yet what the outlook will be and how those will be incorporated. Again, we'll need to do the commercial development and understand the value creation for all stakeholders. Once we understand that and roll that through the systems we'll post it here on the call.
Speaker Change: this, you know, the data center proposal here, right? You've got the various different iterations here, but...
The base 2.6 gigawatts here, as you talk about. I mean, is there any kind of thought process that you'd walk through? I mean, I know you can put basic dollar per kilowatt assumptions, maybe some baselines on what you historically owned, anything that you'd offer up as initial observations to start to translate this kind of a number here, if you will, in a little more detail.
Speaker Change: Yeah, thank you. The only thing I'll add to that associated with it is if you look at the IRP detail, you can see what we posted on Monday, what the 2600 megawatts imputes relative to generation assets and what those assets would entail associated with it.
Speaker Change: and the investments associated that would be required in storage and CCGTs and other mechanisms.
But at this point in time, you know, we don't have additional detail relative to that, just as Sean said, that would be more of a 2025 activity, as Lloyd commented.
I will comment that we have run multiple scenarios in the IRP process covering a range of outcomes and opportunities including an upside case associated with 6,000 megawatts. But again, you can see from the materials sort of what that could potentially entail associated with assets.
Yeah, got it. But no, at this time, no specific views on percent palatable to own.
Speaker Change: No, Mel, not at this time.
Speaker Change: All right, guys. Thank you very much. We'll see you soon. Nicely done.
Speaker Change: Thanks.
Speaker Change: Your next question comes from the line of Richard Sunderland with J.P. Morgan. Please go ahead.
Richard Sunderland: Hey, good morning and thanks for the time today. Maybe I'll just pick up on what Julian was asking on just now.
Again, the 2.6 gigawatts and the load scenarios in the IRP, I think that's really clear, but as you showed with Templeton, you've also done
a lot of work on generation that's outside of this kind of data center load opportunity that we're all focused on.
I'm curious what type of generation you might need in the IRP regardless of that data center load.
shows up or not and
you know maybe just the sort of generation needs overall given you've done a lot of this work to convert PPA projects into company-owned projects, kind of how do you think about that bucket broadly going forward?
Yeah, I'd be happy to talk about that more. So when you look at what we've done, just
hitting on one of the points you made. We have done a lot of work associated with the generation assets which are very beneficial relative to customers and all stakeholders and shareholders associated with it. We will continue to do work like that to make sure we're maximizing
the opportunities and the benefits to all parties.
Richard Sunderland: And so we're excited about the opportunity associated with Templeton, should it be approved by the commission. When you look at the IRP and the elements going forward,
In pretty much all cases, especially given the DLOL rules from MISO, you need storage. And you need between 500 megawatts and a gigawatt of storage associated with it. And that's to help, you know, address those different accreditation methodology from MISO and the impacts of them.
At the same time, dispatchable resources, we've all known that dispatchable resources will be necessary. Batteries help with that, but at the same time, you also are going to need additional spinning assets, such as gas turbines or peakers.
You see that when you look at those scenarios, regardless of data centers, you need more dispatchable resources.
that will show up in most likely the forum of gas generation. I will emphasize with that we are still focused on our 2040 goal and we continue to work through those.
Richard Sunderland: Even though we make sure that we're doing our interim goals associated with it in the most customer beneficial way But you can just see from those what those potential assets look like in the near term, even though I will say
Richard Sunderland: As you look at that, most of those assets would be in the sort of, as you're looking beyond the 2029 kind of timeframe associated with it, so not as much in the next couple of years as Sean highlighted. And then, obviously, the resource plan goes significantly further out, which then there's significantly more resource potential additions as you move through time with EPA rules.
Great, thank you for the color there. And then again, kind of zooming out here on the data center opportunity, I realize there's a lot more work and you've been clear on some of the commercial efforts.
Speaker Change: But going back to the summer with that big Microsoft project announcement, I'm curious if you could say anything more on that front. Given that's out there, is there something closer along to getting firmed up and added to either your base or your upside plan? And anything else you could say there about kind of the work going forward on that?
You know, the point is I think all these data centers, the activity...
and the associated work with the counterpart is primarily a 2025 activity. And, you know, Microsoft did announce that last year, but I think the timetable we're on is 2025.
Speaker Change: Got it. Clear enough. Thank you very much.
Speaker Change: Thank you.
Hey, team. Good morning. Thanks for giving me time. Just for a quick clarification, is Templeton wind? I just want to be clear on this. That's in the base plan. Is that correct?
Yes, we just moved that from the upside to the base plan.
Okay, perfect. Thank you. And then maybe, Sean, I know you kind of talked to the...
Speaker Change: Equity staying the same.
but it's a substantial increase in the capital plan versus prior five years like close to 20% and you talked about
Eighty-one percent, I believe, was the number that you called out.
getting recovery in the zero to six months. Is it just that, that with this, you know, even with this capital increase?
You don't have to issue any more equity, or is this more regulatory filings, perhaps an improvement in ROE? Maybe just a little bit more color around that front would be helpful.
Yes, sure, appreciate it, Dinesh. A more efficient capital allocation, which minimizes regulatory lag, that's really the key, and it supports a higher cash flow from operations, which we're seeing across our systems, maybe about 10% over the course of the plan horizon. That's helping to contribute to a more efficient financing structure. But again, I'd note, you know, we worked ahead here in 2024 on credit quality, both in terms of outperforming our financial projections in the current year.
and utilizing the junior sub marketplace for a billion dollars of funding which were not initially in the plan. So we've already made some of this progress to date and we're capitalizing on some of that benefit also.
Speaker Change: Got it. You have some breathing room to start with. Okay, final question. Just on flat O&M, you've had this guidance...
Speaker Change: for a few years now, so maybe just.
You know, how you're thinking through that, I understand, obviously, there's a large increase in the capital program. With that comes...
higher operating expenses as well, I would assume, but generally growth in the business.
You know, inflation has come down, but it's still there. Just how are you thinking, what's the confidence level?
in sort of extending that flat O&M as we go to sort of latter years of their financial plan.
So, Duresh, you know, I mentioned in the values, safer,
better, you know, faster, more efficient, and for lower cost.
And I think there's a lot more opportunity at NYSOURCE to drive those values through the organization.
You know, we talked about a work and asset management process.
Speaker Change: and using AI to improve our schedule and efficiency so our hands-on time in our workforce is going up and we're just getting more done with the people we have and I think when you look at the foreseeable future I do see continue to see flat O&M Project Apollo is you know in its second year and there's just a whole lot more opportunity so we see being flat for the foreseeable future of being more effective and more efficient.
It's very clear. Congrats, guys. Thank you.
Speaker Change: Your next question comes from the line of Ross Fowler with Bank of America. Please go ahead.
Thank you. Thank you.
Morning Lloyd, morning Michael, morning Sean, how are you? Good morning, morning.
Ross Fowler: So, you mentioned sort of ISO capacity in their remarks, so I just wanted to dig into that a little bit. Clearly, they've adopted some of the constructs for the next auction that PJM also has.
And so, you know, we saw what happened in PJM with higher capacity prices, we saw sort of what the feedback there has been. I guess a couple questions related to that. Do you feel like the IRP and the rate case and sort of the vertically integrated model in Indiana allow you
to get that conversation going with the regulator, get in front of what we might see for an auction result next spring. And then in the context of the IRP, you know, you talked about data centers and sort of the demand being a 2025 kind of thing.
What do you think about the risks of timing related to the demand coming in over time, right, because it still takes time to build a data center, and the ability to sort of build dispatchable generation, which we're hearing takes sort of four, five, six years by the time you get the permitting and the turbine, and that sort of thing.
Let me start that, and Michael can weigh in.
You think about NIPSCO, you know, where we serve electricity, even though we're part of MISO, we continue to be a vertically integrated utility responsible for generation, transmission, and distribution. I think the MISO model gives us a competitive advantage in terms of speed to market.
to facilitate some of this data center load. I think with respect to the speed the data center load grows or the load demand, I think that's part of the conversation or the activity for 2025, you know.
at what pace can we build it and can we build to match the demand of those data center loads as part of the conversations that we're having that will go in 2025. Michael, anything to add to that?
The only things I would add is when we go through the IRP process it includes stakeholders across it so those conversations relative to MISO accreditation
The scenarios around it, the EPA requirements, which may require carbon sequestration and storage have already been done. So we've been having those conversations with stakeholders now and introducing that, what the impacts of that would be, and also what that means in potential portfolios.
The only thing I would highlight relative to data centers, in addition, is that we are working through those activities and I would just say
We are well aware of the demand requirements of the entities associated with what they would want to do. So as we work through it in a methodical and disciplined fashion, I would also say we're working through what it takes to meet that demand in a methodical and disciplined fashion to satisfy our customer needs.
And then I guess on the capacity auction, if you do get a high capacity clear, which you've already kind of seen in Missouri and in MISO.
Speaker Change: I know that you're a different soul.
Thank you. Bye.
or given the rules they've adopted with the VR curve, etc. Do you worry about that?
in conjunction with your regulators and does that lead into a little bit of a headroom or how should I think about that should we be going the same capacity price direction and vice versa that we've seen in PJS?
My comment to that would be, and then others can jump in and associate with it, my comment to that would be that's one of the reasons the vertically integrated model is so beneficial associated with it, because we have requirements and whatever is brought to bear that we have to provide for the reserve margin on top of that, as well as what's associated with the accreditation reduction.
Ross Fowler: So...
I would say, fundamentally, supply-demand. We're helping to keep that supply-demand imbalance associated by what we're doing and what we're looking at would be required in resource additions, which is also why we included the reference case with 2,600 megawatts of potential large load-like data centers and the scenario upsides.
So, though we are always cognizant of that and focused on what that impact of customers is, I would also say that vertically integrated model helps mitigate a lot of that risk.
Speaker Change: Thank you for that.
Your next question comes from the line of Travis Miller with Morningstar. Please go ahead.
Speaker Change: Hello everyone, thank you.
Ross Fowler: Morning.
Travis Miller: Go figure, another data center question, and perhaps this is just a clarification and clarification of all the clarifications you've given.
Speaker Change: Do you technically need to build anything, put infrastructure in the ground to allow power to flow to that Microsoft Center initially and then maybe one or two others?
That's more of a technical question, right? Do you actually need to build anything in the short term to get these...
Speaker Change: first couple data centers online.
Yes, we would need to build to facilitate the kind of low-demand we're talking about, whether it's Microsoft or any other counterparty.
Okay, and is that more generation or transmission for the first, for the Microsoft Center and maybe one or two others?
Speaker Change: Most of these investments would require both generation and transmission.
The only thing I would add associated with that though is as mentioned before we do have a very beneficial territory associated with that.
from what we have and, you know, transmission capability.
capacity, as well as we have great sites associated with that generation. But when you look at the demand associated with all these entities, you are going to have to add additional resources and additional infrastructure in order to meet the high load factor and high reliability demand of those entities.
Okay, so literally the Microsoft Center that was announced can't come online until you build.
new generation or new transmission, however that works out.
Speaker Change: I wouldn't infer that from it. I would just infer that when you're talking about adding, you know, significant scale associated with the system, you have to make sure that you're meeting the reserve margins and reliability requirements.
saying that they can't come online without any of that in place, I would say would be sort of going a step too far associated with it.
Okay, got it. And then on the different topic, gas demand, what are you seeing right now in terms of gas demand and how much gas demand growth is in your new and extended CapEx plan assumption?
Speaker Change: Thank you.
Yeah, we're still seeing a fair amount of growth across our service territories, most notably Virginia, Central Ohio continue to grow and continue to extend the system. We're still seeing customers close to 1% on a net customer basis. The total number of additions we have minus attrition is ending at about net 1% for the gas businesses.
Speaker Change: We continue to see demand from an economic development standpoint for onshoring and for gas pipelines to support electric vehicle battery manufacturers and a few other examples that we have across the service territory.
Speaker Change: We tend to be a little bit bearish in our forecast as it relates to total customer additions.
economic development and customer growth can be hard to predict.
Speaker Change: Therefore, we tend to mute what the forecast looks across the horizon for total customer account growth, but we're continuing to see close to that 1% on a trailing 12-month basis.
Speaker Change: Thank you. Thank you.
Okay, great. I appreciate all the thoughts.
Hey good morning everyone. Just following up on the last question around gas, can you just maybe give a little more color on the step change within
Columbia, CAPEX. Are you accelerating work here? Is it costing more? Are there any discrete projects at various jurisdictions you point to? And then sort of as a second part to that, can you just talk about to what extent...
Any changes in the gas forward curve, which has come down since the last five year plan, may or may not have played into the capex increase, as well as the ability to keep customer bills 5% or lower. Thanks.
Speaker Change: Yeah, you bet, Gabe. Appreciate the question. So the gas system hardening work that we're seeing, I don't know if I'd necessarily call it a step change so much as a glide into what the requirements will be for the completion of the bare steel replacement programs.
Some new first-generation plastic replacement programs are starting to pop up as well. We do have some gas AMI investment, which we've been focused on, and we'd like to continue. We think that drives great efficiency and better service for our customers. So there is some of that included as well. But ILI and inline inspection work continues, as well as some transmission compliance. We expect that some FIMSA rulemaking as well in the new year could give better indications on timelines associated with the compliance requirements.
for leak detection rules. So there's a whole host of things for us to do to help harden the gas system, and that's what you're seeing in the capital allocation itself.
And then in terms of the forward load gas curve, the average cost for gas right now across our service territory is about $2.20.
Speaker Change: We've used the NIMAX curve in this forecast, which increases that by 43% next year, an additional 12% in the subsequent year, so it already reflects a pretty healthy step up in gas costs that's included inside that fuel that we've projected across the horizon.
Speaker Change: Great. Thanks, Sean.
Your next question comes from the line of Ryan Levine with Citi. Please go ahead.
Ryan Levine: Good morning. Good morning. Have there been or are there any steps that have been taken for NYSERV or NIPSCO to enter the queue for critical gas generation infrastructure that could help accelerate the time to market for your customers?
Yeah, I wouldn't get into those specific details associated with what we've done on those activities based, you know, as we're going through the commercial discussions.
I will just say that we have been appropriately planning associated with what's needed, just as the previous question was asking, relative
because there's any infrastructure required. All these facilities require some level of infrastructure, whether it be substation, transmission, generation, etc. But we have been, we're appropriately aware and have been calibrated to that and have been positioning ourselves effectively.
Ryan Levine: One of the advantages of NIPSCO is our proximity to the gas supplies, to the Utica and Marcellus shales. So I think as you look at these opportunities
Ryan Levine: I mean, we mentioned earlier proximity to a robust transmission, electric transmission system and proximity to, you know, gas, a gas supply are just critical advantages for the company.
And I will add one more thing to that. We are seeing that gas benefit and that gas benefit across territories in more than just Indiana. We see it in other of our territories because it's very beneficial relative to not only the onshoring but also for data center activities and other areas as they look of how to address potential power shortfalls in other areas.
Maybe a follow-up, given the increased demand for this type of infrastructure,
How much of your new CapEx guidance change is associated with items previously in the plan costing more versus additional items being added to the CapEx plan?
Hey Ryan, I don't think we have that exact calc on what's an inflationary increase versus a change in compliance requirement, regulation requirement, or what's necessary for us to deliver reliability for our customers.
So, we wouldn't be able to parse it down, but I think the thematic answer is that additional work, not the cost of the same work, is what's driving the cost, the direction it's headed. And we just continue to see the cost of compliance and regulation to increase, whether that's coming from EPA, whether that's coming from ISO and FERC, whether that continues to come from PHMSA, it is really the driver of the capital allocation increase.
Speaker Change: Thank you.
Speaker Change: Thanks, Ron.
Speaker Change: That concludes our Q&A session. I will now turn the conference back over to Lloyd Yates, CEO, for closing remarks.
Thank you for your interest and thank you for your questions today. Thank you for your interest in KnifeSource and we look forward to seeing all of you at the EEI financial conference in a couple of weeks.
Speaker Change: This concludes today's call. Thank you for joining. You may now disconnect.