Good morning, ladies and gentlemen, and welcome to the Algonquin Power investor update webcast and conference call. Following the presentation, there will be a question and answer session. I would now like to turn the meeting over to Ms. Amelia Tsang, Vice President of Investor Relations. Please go ahead.
Good morning, everyone. Thanks for joining us this morning for our investor update conference call. Presenting on the call today are Arun Banskota, our President and Chief Executive Officer, and Darren Myers, our Chief Financial Officer. Also joining us this morning for the question and answer part of the call will be Jeff Norman, our Chief Development Officer, and Johnny Johnston, our Chief Operating Officer. To accompany our call today, we have a supplemental webcast presentation available on our website at algonquinpowerandutilities.com. Before continuing the call, we would like to remind you that our discussion during the call will include certain forward-looking information, including, but not limited to, our expectations regarding dividends, earnings, capital expenditures, pending acquisitions, asset recycling transactions, and growth. At the end of the call, I will read a notice regarding both forward-looking information and non-GAAP measures.
Please also refer to our most recent MD&A filed on SEDAR and EDGAR, available on our website, as well as a copy of the presentation deck available on our website for any additional important information on these items. I would also note that unless otherwise specified or the context requires otherwise, all references in this presentation to dollar amounts refer to U.S. dollars, and with that, I'll turn it over to Arun.
Thank you and a very good morning to those who have been able to join us on the call and online. We had planned to hold a formal Investor Day in early 2023, as we had expected the Kentucky Power acquisition to be finalized. However, we do not have that certainty yet. We decided to instead hold this investor update call. In our third quarter call in November, we discussed some of the headwinds we were facing, and today, we want to update the investor community with details of our responses to those challenges. After we have finality on the Kentucky Power transaction close timing, we will come back with a further update. Over Algonquin's history, the company has driven significant growth with a track record of value creation with a portfolio of over $17 billion of quality assets.
We have a history of operational, sustainability, and development performance that we are proud of. However, we have reached an inflection point, and as the market continues to evolve, we are facing various challenges that are putting pressure on our growth rates and making our dividend payout unsustainable. As a result, we are taking decisive actions to address these challenges and strengthen our financial position. This morning, we announced the following actions, which we will further discuss during the call. First, we are reducing our capital spending intensity to recognize changing market conditions and customer affordability pressures. This requires us to be even more disciplined in how we allocate capital expenditures. Second, we will optimize our portfolio by targeting approximately $1 billion of additional asset sales. Proceeds from the next phase of renewable asset recycling and additional asset sales are expected to further improve financial flexibility.
Next, we plan on resetting our quarterly dividend to $ 0.1085 per common share, or approximately $ 0.43 per share annually, representing a reduction of 40% from this past quarter's dividend. This will improve our financial flexibility while continuing to make distributions to shareholders and maintain a sustainable dividend going forward. We also intend to reduce our reliance on equity capital markets, including undertaking no new equity financings in the next two years. We will also suspend our Dividend Reinvestment Program, or DRIP, effective for the first quarter dividend that will be paid in April 2023. In addition to the actions taken above, we are announcing an expectation of 2023 Adjusted Net Earnings per C ommon Share in a range of $ 0.55-$ 0.61.
Many of these actions are intended to support our financial foundation, and we expect to fund profitable growth while maintaining our commitment to a strong Triple B credit rating. These decisions we are taking are challenging but necessary. I want to emphasize that our board and management team have put together significant thought and consideration into these decisions. At the same time, we are confident that the proactive and prudent steps we are taking today will enable our company to capitalize on industry tailwinds from the energy transition and enhance shareholder value over the long term. starting with our business profile, Algonquin Liberty is an integrated North American energy and water company. Through our regulated and renewable businesses, we are focused on delivering services that meet customers' energy and water needs today and into the future.
Our regulated business is well diversified and operates in 16 jurisdictions across all three modalities of electric, water, and natural gas, and we service over 1 million customer connections. Our renewables business directly owns and operates 2,500 MW of generation capacity, of which approximately 82% is contracted with a weighted average remaining contract length of 11 years. Across both businesses, we own, operate, and have net interest in over 4,000 MW of renewable power generation. We remain committed to our long-term strategy and are focused on executing on our three strategic pillars of growth, operational excellence, and sustainability. Let me take a minute to address our near-term challenges. Algonquin has historically been a capital-intensive, growth-oriented company. We have delivered significant growth but are now faced with short-term challenges.
We have been significantly impacted by rapid changes in capital markets and the economy, most notably a sharp increase in interest rates and cost inflation. Delays in the Kentucky Power acquisition have created challenges for us, as have the previous delays for Liberty New York Water. We anticipate our renewable business to be relatively flat as new program growth is tempered by uneven timing in our development pipeline and our strategy to sell down operational renewable assets. Further out, other challenges include an increase in our effective tax rate over the next few years, as well as an anticipated increase in share count in 2024 related to the equity units that we issued in June 2021. We also continue to see the medium-term transient impacts of increased congestion and basis issues on our Texas coastal wind facilities in the ERCOT market.
Although there are challenges, we are excited and optimistic about the tailwinds and drivers of growth opportunities. Overall, our base business continues to perform well. We see long-term opportunity as the industry continues to see acceleration in the energy transition. The electrification of our economy will create additional demand for our core electricity businesses in both generation and the networks to serve our customers. Supportive policy such as the Inflation Reduction Act provides certainty around investment and production tax credits for renewable assets and provides an alternative to traditional tax equity transactions. The Infrastructure Investment and Jobs Act creates opportunity to advance upgrades and investment in our energy networks while reducing the risk of doing so. Algonquin's integrated business model positions us well for this energy transformation.
As an experienced renewable developer and operator in both competitive and regulated markets, we have flexibility in how we invest to grow in the future. Our core electric utilities are augmented by stable and consistent revenues from water and gas networks that also provide critical customer services. We already have a robust pipeline of renewable development opportunities, which we continue to build, that provides us with flexibility to execute or monetize based on what will create the highest value for our shareholders. I want to emphasize that our confidence in the future value opportunity is why we are taking decisive steps today to strengthen our ability to manage the near-term challenges. Let me be clear. We are not satisfied with our current performance. We recognize that there is a lot of work to be done, and we are approaching it with urgency.
We see a pathway through the near-term challenges and believe in our ability to grow and create value over the long term. With that, let's now turn to the actions we are taking and the path forward. starting with an update on the Kentucky Power acquisition, we remain committed to completing this acquisition, which we expect will grow our electric rate base by nearly 60% and provide an opportunity for further clean energy transition initiatives. The acquisition fits within our three strategic pillars, was priced at an attractive valuation, and is expected to generate value for our shareholders, our customers, and communities of Eastern Kentucky. As many of you are aware, on December 15, FERC denied the Kentucky Power acquisition without prejudice. In terms of next steps, we plan to continue to work with AEP to seek FERC approval of the transaction.
Looking ahead, with the expiry of the Rockport Coal Purchase Agreement in 2022 and the expected transfer or retirement for Kentucky rate-making purposes of the Mitchell Coal Plant in 2028, we see an opportunity to replace over 1,100 MW of out-of-state fossil generation capacity with cost-effective renewables, which may further benefit from the Inflation Reduction Act. We look forward to working with key stakeholders and presenting our findings to the Kentucky Public Service Commission through the Integrated Resources Plan to leverage our greenfield development expertise to deliver low-cost clean energy solutions to Kentucky Power's customers. The Kentucky Power acquisition would also allow us the opportunity to execute on our ability to optimize assets. Our local operating model promotes a focus on local customer and regulatory priorities, local cost accountability, and increased transparency to our regulators.
Kentucky Power is a utility that has historically realized ROE below the authorized levels compared to peers in Kentucky. We see a compelling path forward to achieve the authorized ROE through the availability of certain key regulatory features. We have a history of strong operational excellence and adding value across our businesses. In particular, we have effectively managed our operating costs. You can see over the past number of years, we've significantly decreased our operating expenses as a percentage of revenue from 52% back in 2016 to around 48% in 2021. We have also seen a 1% CAGR reduction in our adjusted operating expenses over the last eight years. We have successfully executed on key turnaround opportunities by maximizing performance within our regulated business.
For example, after the acquisition of Empire District Electric, ROEs have improved to an average of nearly 9.5% compared to the 7%-8% range prior to our acquisition. Lastly, on the ESG front, between 2017 and 2021, we successfully reduced absolute carbon emissions at our Empire District Electric utility by 35% and our CalPeco e lectric utility by 41%. We achieved this performance by including renewables in the rate base, leveraging the use of tax equity to reduce the impact on our customers, and shutting down a 200 MW coal plant in the case of Empire District. The key takeaway on this slide is that Algonquin has historically delivered growth in key areas, and we are confident that with the actions announced today, we are positioning ourselves for long-term sustainable growth. Since 2016, we have grown our Adjusted EBITDA by 25% CAGR through a combination of organic and acquisition investments.
This has resulted in a 36% CAGR increase in our rate base and a 22% CAGR increase in our renewable generation installed capacity. We also have a greenfield pipeline that gives us visibility and optionality on renewable growth. Given our strong asset base, positioning with energy transition, and opportunities in front of us, while this should not be taken as guidance or a projection, we believe that we have a framework that allows a targeted 5%-8% annual Adjusted Net Earnings per Share growth rate from our core business. We remain committed to profitable growth and have strong pipelines for the future. Our plan is designed to address our current headwinds as well as protect our ability to grow. Before I hand it over to Darren, I want to close with some personal remarks. Let me be clear. I take the current situation very seriously.
Regardless of the challenges we face, I am holding myself and this management team accountable for improving our trajectory. We are committed to taking decisive actions in the near term so we can drive sustainable and long-term shareholder value. With that, I'll hand it over to Darren to discuss strengthening our financial foundation.
Thanks, Arun. And good morning, everyone. The actions discussed this morning are supportive of Algonquin maintaining an investment-grade credit rating. Algonquin is rated by S&P, Fitch, and DBRS, with all three rating agencies assigning a Triple B rating. We believe the Triple B credit rating provides the right flexibility and optimizes our cost of capital, and we remain highly committed to maintaining these key ratings. Our focus on strengthening our financial foundation to create value and fund our profitable growth includes the following, a balanced funding plan. Algonquin intends to reduce its reliance on equity capital markets, including by undertaking no new common equity financings in the next two years. This includes suspending our DRIP effective for the first quarter of 2023 dividend. Financial flexibility.
Following the pending Kentucky Power acquisition, we plan to fortify our balance sheet, delever, and increasingly shift to internally sourced funds, including planned capital recycling initiatives of approximately $1 billion. The company also plans to reduce its dividend by approximately 40%. This action is expected to save over $1 billion over a five-year period as a result of this reset, supporting our balanced funding plan and improving financial flexibility. Reduced capital intensity. Given market conditions, along with our ongoing focus on customer affordability, we are committed to reducing the capital intensity of our business, which will require an even more disciplined approach to capital allocation going forward. As we look to 2023, we remain focused on creating value and making profitable investments that further enhance Algonquin's core businesses and allows us to better execute our strategy.
To promote financial stability, we plan on reducing our capital intensity and our organic-based business by approximately 15% this year from expected 2022 levels. In 2023, we expect capital expenditures of approximately $1 billion, excluding the acquisition of Kentucky Power. In addition, upon closing of the Kentucky Power acquisition, our business mix will more heavily shift towards the regulated side, where we expect to see less volatility in the near term. As we consider investments, we will be guided by a disciplined framework that includes, one, maintaining an investment-grade balance sheet as a top priority, as you've heard us say already, second, seeking organic opportunities that support our pursuit of profitable growth and that strategically fit within our business, and third, ensuring projects meet appropriate hurdle rates on a risk-adjusted basis.
Now, moving on to our funding plan for 2023, we have a balanced funding plan that is consistent with a Triple B credit rating. Our plan leverages our diversified sources of capital and is consistent with our focus on deleveraging our balance sheet, with no new equity financings expected to be needed over the next two years, including suspending the DRIP as outlined. Our balance sheet is in part supported by our credit facilities, with an estimated available liquidity of approximately $2.3 billion at the end of 2022, providing funding to satisfy expected near-term requirements. We benefit from strong relationships with our banking partners across North America as well as internationally and continue to receive their significant support in maintaining our strong liquidity profile.
We expect that approximately 90% of our total debt will have fixed interest rates at the end of 2022, which includes the fourth quarter 2022 proceeds from our asset recycling and certain actions we have taken to fix short-term rates. We expect our fixed rate debt as a percentage of total debt to be approximately 80% as we close the Kentucky Power acquisition. We would expect to increase the fixed rate debt percentage during the balance of the year. We are targeting greater than 85% fixed rate debt as our long-term target. We have outlined on the slide our expected sources and uses. Our uses include approximately $1 billion of CapEx, approximately $2.5-$2.6 billion related to closing the Kentucky Power acquisition, approximately $1.9 billion of debt paydowns, and $300 million reflecting the reduced dividend. Turning to sources of cash, the company has access to multiple funding sources.
starting at the top, we expect to generate approximately $800 million of cash from operations. We expect to raise approximately $1.5 billion of senior debt, which is a combination of issuances and net draws on the credit facilities. Upon closing of the Kentucky Power acquisition, we will be assuming approximately $1.2 billion of debt. The balance of our funding is expected to come from asset recycling, tax equity, securitization, and subordinated debt. Depending on timing, we have flexibility between these categories. As the company is making adjustments to strengthen its financial foundation, a key component is our plan to lower the quarterly dividend to $0.1085 per share and approximately 40% reduction compared to our fourth quarter of 2022 dividend. While we recognize that dividends form an important component of total shareholder return, this dividend reset will enable us to deliver more value to shareholders over the long term.
We have, for the past couple of years, received a lot of questions on our payout ratio, which has been higher than our peers. Going forward, we are expecting to be more in line. We're expecting to save over $1 billion over a five-year period as a result of this reset, which is expected to support our balanced funding plan and improve our financial flexibility. This will, in turn, facilitate long-term earnings and AFFO growth. It's important to keep in mind that with this reset, our implied yield is still attractive compared to both Canadian and U.S. peer group. We plan to grow our dividend in general alignment with Adjusted Net Earnings per Share growth as we execute on our strategies. Turning now to our next lever, optimizing our portfolio to fund growth, we closed our inaugural asset recycling transaction in December 2022.
Total cash proceeds from this transaction were nearly $360 million. We expect to book a gain in the range of $55-$60 million for the fourth quarter when the deal closed. The transaction demonstrates the strength of our development platform and the potential for additional shareholder value creation. Given our scale and over $17 billion of assets, we are targeting to announce in 2023 the next phase of asset sales expected to be approximately $1 billion in aggregate. On the funding side, we would expect to receive the proceeds over 2023 and 2024. Now, moving on to our 2023 Adjusted Net Earnings per Share outlook, we are expecting a reset in 2023. I would like to first point out, as part of our pursuit to simplify our results, our Adjusted Net Earnings per share guidance excludes asset sale gains for 2023.
The Adjusted Net Earnings per Share walk on the slide illustrates the various drivers once asset sale gains in 2022 have been accounted for. For 2023, we expect to see continued growth in our regulated business. Within the regulated business, our year-over-year growth is being impacted by Liberty New York Water and a regulatory stay-out from the acquisition. We expect improved performance from Liberty New York Water for 2024. For Kentucky, based on the delay, we expect a slight negative impact to our year-over-year Adjusted Net Earnings per Share, in part due to the seasonality of the business. We continue to see Kentucky as neutral to earnings in the first 12 months of operations after close and maintain our outlook that it will be mid-single-digit accretive over the longer term.
Our renewables business is not shown in the bridge, but we expect the business to be relatively flat year-over-year, primarily due to the uneven timing of our pipeline of new projects. We expect the increased interest rate to cause pressure on our earnings. Our effective tax rate for 2023 is expected to be in the low single digits, including tax credits, and excluding an expected one-time 2017 tax reform adjustment related primarily to the Kentucky Power acquisition. Post-2023, we are anticipating an increase in our underlying effective tax rate due to global tax trends. Our best view right now is that we expect the effective tax rate to settle somewhere between 10%-15% inclusive of tax credits. Going forward, in addition to the higher effective tax rate, we do expect a higher share count in 2024 resulting from the equity unit financing that we completed in 2021.
Based on current prices, we would expect to issue approximately 77 million shares in the second quarter of 2024. In summary, excluding gains on sales, we are forecasting Adjusted Net Earnings per Share in 2023 to be between $0.55 and $0.61, subject to certain assumptions. Given the nature of the actions we've outlined today and the uncertainty over the timing of the Kentucky Power close, we are focusing on 2023 at this point in time. With that, I will now hand it back to Arun for concluding remarks.
Thanks, Darren. Before we open the floor to Q&A, I want to conclude with a few key takeaways. First, we are confident in Algonquin's long-term future. Our underlying assets remain strong.
We are committed to our ESG-focused strategy and are poised to benefit from the strong industry tailwinds inherent in the energy transition, which we believe will only strengthen over the coming years. Second, after years of accelerated growth, we are facing an inflection point. A combination of macro factors and company-specific challenges are creating near-term headwinds. Finally, we are responding to these challenges by taking decisive actions to strengthen our financial and strategic positions so we can profitably capture long-term growth opportunities and deliver enhanced value to shareholders. I'm confident we have the right team, business model, market positioning, and asset base to deliver long-term value to customers and our shareholders alike. With that, I will turn the call over to the operator for any questions from those on the line.
Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset prior to making your selection. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time. If you have a question, there will be a brief pause while the participants register. Thank you for your patience. The first question is from Sean Steuart with TD Securities. Please go ahead.
Thank you. Good morning. A few questions. With respect to the Kentucky Power refiling and your intent to move ahead with that transaction, does the 18-month outside closing date that was laid out with the initial transaction terms, does that still have any relevance at all, or is that waived with the refiling and this intent to proceed with a close later this year?
Sean, good morning. The outside date of April 26 still holds. We are committed, as per the share purchase agreement, to continue to use our best efforts to close this transaction. However, at this time, the April 26 outside date still is irrelevant.
Okay. Thanks for that. With respect to the asset sales plan, the $1 billion, we should assume all of that is intended for 2023. And if so, can you give any context on expectations with respect to technology or regional focus? Does any of the Atlantica stake, is that a part of the potential plan here, or do you need dividends from that investment? Any details on that plan?
Sure. So first of all, what we have said today is that we will announce approximately $1 billion of asset sales this year, with proceeds coming in in 2023 and 2024. With regard to specific assets, we are not going to give any details at this moment. The only thing I will point out is that in 2022, as you know, we closed the transaction on our inaugural renewable asset sell down with proceeds of approximately $360 million. And clearly, that continued sell down is part of our strategy, which will be part of that billion-dollar announcement we've just made today.
And Sean, maybe I just add, I mean, as Arun said, there's lots of options that we have in front of us. We have set this dividend in light and in mind of all those different options so that it's a sustainable dividend despite whatever actions we end up taking.
Okay. Thanks for that. And Darren, just one last one for me for the time being. Other than the Q4 asset sale initiative, it sounds like you've taken measures to mitigate some of the floating rate exposure, or you did take measures in Q4 already. Can you give us some context on the cost of debt associated with those refinancing measures versus if you would have had in the floating rate exposure? Any context on the cost of debt difference between those two avenues?
Sean, we put some limits on certain debt instruments, around $450 million, at a max of 4.5% related to some of our short-term floating rate, so that would go into force for next year, so basically, it maxes out the rate at 4.5%.
Okay. That's all I have for now. Thank you very much.
Thank you. As a reminder, we ask that you please limit yourself to two questions, and then you may rejoin the queue. The next question is from Dariusz Lozny with Bank of America. Please go ahead.
Hey, good morning, and thank you for taking my question. First one on the Kentucky Power transaction. Certainly appreciate that you're moving forward on a best-forward best-effort basis to complete it on the original timeframe. Just curious if there are discussions underway with your counterparty to potentially extend that April 2023 timeframe, or maybe ask another way, perhaps why haven't you already made that effort, given that we're already in January and it's a relatively tight timeframe as it stands?
Dariusz, thanks for the question. Currently, we are focused on refiling for approval of our transaction. That's the current focus. As you can see from the order, FERC has a number of questions, as is apparent from the order, and the mitigants are what we are focused on filing for now.
Okay. Great. That's very helpful. Thank you for that. One more, if I can, and this is on the core business 5%-8% EPS growth rate you alluded to in the opening remark. Can you maybe just discuss a little bit, maybe unpack that a little bit? What's the baseline for the 5%-8%, assuming this is inclusive of that equity dilution that's coming in 2024? But perhaps correct me if I'm wrong on that. Maybe just sort of discuss a little bit more about what is and is not included in that 5%-8%, if you could?
Yeah. Darius, it's Darren here. I'm very happy to ask the question, so I just want to make sure there's clarity on it. The way to think of the 5%-8% is it's the north star of what we believe the assets we have, the investments we make, that on a kind of normalized basis, we should be able to generate 5%-8%. What we're trying to do is then give you color of what we see either as a headwind or a tailwind to those numbers. Over the next few years, we've outlined some tailwinds that are real tailwinds in terms of the tax pressure and the share dilution. So those would put pressure to that 5%-8% kind of north star that we referred to.
For clarity, Darren, those were headwinds. We do have certain tailwinds as well, including policy tailwinds in the Inflation Reduction Act, things of the sort, obviously.
Exactly. As an example, New York Water, we would expect improvements in 2024 from New York Water. We'd expect, when Kentucky closes, to get improvements from Kentucky. So there's a number of things like that. So we're trying to give you that balanced picture, but that 5%-8% is really a long-term north star.
Okay. Great. Thank you for the color. I'll pass it along here.
Thank you. The next question is from Nelson Ng with RBC Capital Markets. Please go ahead.
Great. Thanks, Darren. Good morning, everyone. First question just relates to your payout ratio. So obviously, your new dividend level implies a 75% payout ratio on your 2023 guidance. So if we assume that there's $1 billion of asset sales like that, that will obviously reduce your pro forma earnings, and that would, I presume, materially increase your pro forma payout ratio. So can you just talk about your long-term payout ratio expectations? I know previously you were targeting an 80%-90% payout. Is 75% the new long-term target? And can you just talk about your pro forma payout ratio after the asset sales?
Yeah. Hi, Nelson. I mean, it's a great question. One, I'd love to give you an answer, but there's a lot of moving parts right now. What I will tell you is we have been very purposeful in terms of how we've set that, looking internally at the payout ratio on the regulated side, looking at the free cash flow yields on the renewable side. So we've set it looking at a number of factors. We're not going to disclose it today, but I just want to emphasize again, it's been very carefully constructed. We would plan to grow it in line with our adjusted earnings, and over time, as we get more certainty, we'll share more information on the payout ratios and where we expect to get.
Okay. And then just on your quick clarifications around your adjusted earnings. So you have that other category, which includes, shown on your bridge, the additional common equity or additional shares coming in 2024. So, does your 2023 EPS guidance? Is that presented on a diluted basis rather than basic?
No. Just to be clear on the 2023 WACC, that other does not have any impact from the mandatories. We've provided some color of longer-term things that we see in the spirit of being as transparent as we can with the market. In the 2023 WACC, there's a small impact from other. That includes things like previous dilutions from our share counts. It would include things like minority interest, a small impact there. So various little things that add up.
Okay. And then just one last question. In terms of your $1 billion CapEx program for 2023, can you just provide a brief breakdown in terms of regulated utility versus renewable energy? And obviously, you have a lot of renewable energy developments on the go. So I'm just wondering whether you'll be starting construction on a number of projects this year?
Yeah. Nelson, we're not prepared to give you the exact breakdown today. What we will say is that given our strategy of reduced capital intensity and in accordance with our increased regulatory mix, the vast majority of those capital expenditures will go towards organic investments on the regulated side of the business.
Okay. Thanks, everyone. I'll leave it there.
Thank you. The next question is from David Quezada with Raymond James. Please go ahead.
Thanks, everyone. I think just one from me for now, and it relates to Kentucky Power. We're just wondering if there's any thoughts or color you can share on the FERC, the initial FERC denial, and what do you think, or how do you think the application needs to be revised in order to move it forward?
Yeah. David, the FERC denial was a surprise, just to give you a color, on both sides for the seller and for the buyer. The order makes it pretty clear that they are looking to make sure that there is no harm to customers. And currently, we are working on the mitigants, and we are obviously not filing it right today. So we will wait to give you more color as we file and go through the appeal process.
Fair enough. Thanks for that. I'll turn it over.
Thank you. The next question is from Andrew Kuske with Credit Suisse. Please go ahead.
Thanks. Good morning. On the $1 billion of divestitures that are planned, how did you come up with that number, and what are the sensitivities associated with that figure?
I mean, generally, Andrew, the way to think about it is we're going to end the year in 2022 with FFO to debt in a healthy place to call in the 15% range. We certainly would expect to see some pressure next year. So one of the ways we looked at this was just how much do we need to do so we can reduce our needs with the capital equity markets. And so we came up with $1 billion looking at it from a number of different fronts. But a big driver of that is the FFO to debt and the improvements we will be looking to make.
The only other color I would add, Andrew, is that as we've said before, sell down of renewable assets as they become operational is part and parcel of our strategy, and so that $1 billion obviously includes the next phase of renewable asset sell downs.
Okay. Appreciate that. And just to follow on, given the fact you did your first capital recycling transaction, I think it was announced in September, closed in December, you clearly went through a pretty active process. How has the interest changed from the process you had previously to where you are now?
Yeah. Look, it was at least a six- to nine-month process. And as we all know, the world went through significant changes in terms of supply changes, cost inflation, interest rates, and everything of the sort. But at the same time, given some of the geopolitical situation out there, North America comes across as an even more safe haven. And we continue to see very robust interest in long-term contracted assets, especially those that are renewable. So we continue to see right to the end very strong interest. And despite some of the macroeconomic challenges, we believe that we ended up at the right place. And as you can see, we announced a gain in the $55-$60 million range, which obviously validates the success we've been able to create on our renewable energy platform.
Appreciate that. If I could just take one final one in, an easy one. Was this plan today shared with the rating agencies?
Yes, Andrew. We've been working closely with the rating agencies and obviously very, very focused on maintaining our Triple B credit rating.
Okay. Appreciate the time. Thank you.
Thank you. The next question is from Naji Baydoun with iA Capital Markets. Please go ahead.
Hi. Good morning. You talk about asset sales being focused on the renewable side. I'm just wondering if post $1 billion of asset sales, the proportion of contracted power within your portfolio is going to continue to decline. Has your thinking changed at all about portfolio mix? I think it used to be sort of targeting two-thirds regulated utility, one-third contracted power. Has that changed at all going forward?
Najib, good morning. So pro forma, with the acquisition of Kentucky Power, our regulated mix goes to 80% +. That certainly gives us flexibility in terms of making sure we stay at the approximate business risk level that maintains our Triple B credit rating as well. And we like that flexibility, especially given the fact that the renewable energy side of the business is a little more lumpy given the number of MW that comes to mind, things of the sort. So we like that range of approximately 80%+ .
Okay, and just to be clear, that 80% is with Kentucky and the asset sales or before the asset sales?
With Kentucky Power.
Okay.
It's just with the closure of Kentucky before the asset sales.
Got it. Got it. Okay, and if you could speak just more about that. I mean, is there anything that would cause you to maybe look at non-core utility sales? I mean, we've seen pretty robust valuations in the U.S. for gas and electric utility assets that are selling above your current market valuation. I'm just wondering if you can give us more thought on that.
Look, we are open to anything that adds shareholder value. First of all, renewable asset sales is an obvious one because it's part and parcel of our strategy to extract value as we bring this project operational. We also look at asset sales in light of a lot of different things, including ensuring we have the right business mix, ensuring we are at the right risk metrics, all of the credit metrics, and things of the sort, but we are not necessarily opposed to any sales on the regulated side as long as we believe we can validate shareholder value.
None of them stood to the final challenge. Just one final question, so the $200 million of cash that's going to be freed up from the dividend cut is slightly offset by turning off the DRIP. I'm just wondering, do you believe that you need to do anything else to sort of self-fund organically going forward, or are you comfortable with these measures and you think this will get you to where you need to go?
Yeah. I mean, we are comfortable. We've laid out a number of things in addition to the dividend, so we think we're being appropriately aggressive to take the actions we need to take to make sure we have that financial flexibility.
Okay. Got it. Thank you.
Thank you. The next question is from Ben Pham with BMO. Please go ahead.
Hi. Thanks. Maybe a more detailed question on your WACC in 2023. I think I've got a sense of the answer to this. I wanted to clarify. Does 2023 include the foregone earnings from your plan asset sales?
Does 2023 sort of the gain in 2023?
Not the gain, the foregone earnings.
From previous asset sales or from the future asset sales?
The future asset sales.
It does not include any impacts of future asset sales and just even timings of things. I don't think you're going to have a lot of impact in 2023 from any future asset sales.
Okay. Got it. And maybe a more broader question next is maybe this is for you, Arun, and maybe Darren can give you a step in this. Arun, when you took the seat a couple of years ago, you had about 7%-9% EPS tag, and at that point, you can maybe $1 per share in a few years. If you were to go back, and that's quite a dramatic change as we sit here today, $0.60 for 2023. And if you go back, maybe a bit more of a crystal ball, what could you have done to protect your balance sheet or share trajectory if you were to go back in time?
Sure. Look, Ben, I mean, the vast majority of our business continues to perform well and as per our expectations, but as we outlined earlier, there are some challenges we are facing that are both macroeconomic but also within the company as well, including things like, like we said, on the regulatory side of the business, it's growing well, but challenges with the stay-out delay on New York Water, the delay on Kentucky Power acquisition, and on the renewable energy side, I mean, again, that business continues to grow as well, it is lumpy, and in 2023, for example, I mean, there are a number of MW coming online, but we did sell down 80% of Blue Hill. On top of that, there's things like interest rates we talked about, but the vast majority of the business continues to do well.
So it's really in light of all of these macroeconomic challenges and perhaps even things like what's going on in ERCOT with the generic transmission constraints, which we believe will be resolved in 2024 onward. So we've gone through those. And really, all of the actions we're taking today, Ben, is trying to make sure that we are successful in a high-cost or low-cost interest rate environment, in an easy access or challenging access to the capital market environment. So all of these steps are taken to continue to be able to provide shareholder value over the long term.
Okay. Got it. Thanks, Arun. Thanks, Darren.
Thank you. The next question is from Rupert Merer with National Bank. Please go ahead.
Hi. Good morning.
Good morning, Rupert.
This is the Kentucky Power deal. You highlighted that the forgone concession there will be no harm to ratepayers. Could that limit your ability to earn the return you originally forecast with the acquisition, or could it limit your ability to earn the allowable returns?
We do not believe so. As you know, on May 4th of last year, the Kentucky Commission approved the transaction, which outlined really all of the retail and wholesale rates to our customers in the Kentucky Power jurisdiction. Again, without trying to speculate on what exactly FERC is looking for, we are working on the mitigants that arise from the questions that they've been asking us. So we plan to file that, at which point that will become a public document for everyone to see.
Okay. Great. And as part of this process, being at the table with AEP, is the price out there the final price, or do you think there's any room for further negotiation on that price depending on how the proposal to FERC may land?
Look, we are at the table with AEP on a continuous basis, and right now, we're really focused on filing something to appeal the order from FERC, and that's what we will stay focused on for now.
All right. Great. I'll leave it there. Thank you.
Thank you. The next question is from Rob Hope with Scotiabank. Please go ahead.
Good morning, everyone. Maybe as part of this larger review, were any more, we'll call it structural or larger options being contemplated? I just question whether or not, if we take a look at the comments, say, you're selling down renewables, it looks like you're deferring renewable CapEx. Did you contemplate any larger structural moves, including kind of spinning out most of the renewable businesses and focusing more on a pure-play utility model?
Rob, I mean, we continue to have strategic discussions with our board on a very, very regular basis. And the one thing I will say is that everything is on the table. The actions we announced today, we believe, are the right responses for all of the challenges and headwinds we're facing today, but also to avail ourselves of all of the opportunities that are in front of us over the many decades, given our positioning on the energy transition. But that is not to discount anything else that may be on the table, which, if we are convinced are compelling value propositions for our shareholders, we will not hesitate to go down that path also.
Thanks for that, and then another question. Just the word focus was used a number of times during the call. When you take a look at your capital plan for the next couple of years, does that really just mean stick to regulated capital in North America and maybe opportunistically some renewable investments? Or, to put another way, is additional M&A as well as international investment off the table for the foreseeable future?
So, Rob, as I said before, with the pro forma Kentucky Power over 80% regulated, the vast majority of our capital spend will be on the regulated side of the business. The lowest cost, the risk, and best for our customers is organic growth on the regulated side of the business. So that's where much of the focus is going to be on the capital spend. At this point, we are not contemplating any further M&A activities at the present. We are focused on ensuring we have a solid foundation and continue to go down the path to maximize shareholder value.
And, Rob, maybe just that. I mean, the comments Arun has said, given the mix of our business, of course, the majority is going to be in the regulated side. We don't really have the impression that we're not investing in the renewables business, and we don't see lots of long-term growth potential there. We still, over the next number of years, will invest on a relative basis, still significant amounts of money in the renewables business. But overall, we're going to drop the water level on how much we're investing, which will require us to be even better on capital allocation and capital discipline and making sure the best investments make it to the top.
And to add even more further color to that, with the flywheel strategy that we have announced before, the $360 million of proceeds from the renewables, obviously, that means that the amount of incremental capital you need for the renewable side of the business is less because you're continuously raising proceeds as these renewable energy projects come online.
Thank you.
Thank you. There are no further questions registered at this time, so I will turn the meeting back over to Mr. Arun Banskota. Please go ahead.
Thank you, everyone, for taking the time on our call today. With that, please stay on the line for our disclaimer.
Our discussion during this call contains certain forward-looking information, including but not limited to our expectations regarding performance, growth, earnings, including expected 2023 adjusted EPS, the quarterly dividend, capital expenditures, capital allocation, and investment gains, Kentucky Power acquisition, Greening the Fleet plans, financing plans, and expected future asset disposition. The forward-looking information is based on certain assumptions, including those described in our most recent MD&A filed on SEDAR and EDGAR and available on our website, as well as in the presentation deck available on our website, and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Forward-looking information provided during this call speaks only as of the date of this call and is based on the company's beliefs, estimates, projections, expectations, opinions, and assumptions of management as of today's date.
There can be no assurance that forward-looking information will prove to be accurate, and you should not place undue reliance on forward-looking information. We disclaim any obligation to update any forward-looking information or to explain any material difference between subsequent actual events and such forward-looking information, except as required by applicable law. In addition, during the course of this call, we may refer to certain non-GAAP measures and ratios, including but not limited to Adjusted Net Earnings, Adjusted Net Earnings per Share, or Adjusted Net EPS, Adjusted EBITDA, Adjusted Funds From Operations or AFFO, Adjusted Payout Ratio, and Price- to- Adjusted Net Earnings Ratio. There is no standardized measure of such non-GAAP measures, and consequently, our method of calculating these measures may differ from methods used by other companies, and therefore, they may not be comparable to similar measures presented by other companies.
For more information about both forward-looking information and non-GAAP measures, including a reconciliation of non-GAAP financial measures to corresponding GAAP measures, please refer to our most recent MD&A filed on SEDAR in Canada and EDGAR in the United States, and available on our website, as well as in the presentation deck available on our website. And that concludes this call.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.