Thank you for joining our virtual Investor Day. I'm Monica Karuturi, General Counsel for CenterPoint Energy. We couldn't be more excited to share our vision and strategy with you today. Before we get started, a few quick preliminary matters. Today, management will be focused on our future. As such, other than references to historical facts, all the information we are sharing today is forward-looking and contains projections. Our remarks today are based on management's beliefs, expectations, assumptions, and information currently available, and the forward-looking statements are subject to risks and uncertainties.
Actual results could differ materially based upon various factors, including the economy, weather, regulatory action, significant corporate events, commodity prices, and other risk factors noted in our SEC filings. We undertake no obligation to revise or update publicly any forward-looking statements except as required by law.
We will spend a good deal of time discussing our rate base growth expectations of 10%. This target growth rate refers to the compound annual growth rate target from 2020 to 2025. We will also be covering our guidance-basis utility EPS target growth range. All references to utility earnings growth will be referring to this guidance-basis range. As a reminder, our forward-looking guidance-basis growth target is based on the non-GAAP measure of adjusted diluted earnings per share that we also use in providing annual earnings guidance. This guidance-basis utility EPS includes net income from our utility segments after-tax corporate and other operating income, and an allocation of corporate overhead based upon its relative earnings contribution. It also considers certain significant variables that may impact earnings.
Guidance-basis utility EPS excludes the midstream investments EPS range, which beginning in 2021, will include all income from the Enable preferred units and a corresponding amount of debt in addition to earnings associated with midstream investments and an allocation of corporate overhead based upon its relative earnings contribution. We also exclude certain expenses associated with merger integration, earnings or losses from the change in the value of ZENS and related securities, changes in accounting standards, and other unusual or one-time items. Our non-GAAP guidance measure could be materially different from GAAP reported results for the applicable guidance period.
For further information on our guidance methodology, non-GAAP measures and other forward-looking statements, please refer to our slides, which can be found under the Investors section on our website. With that, let's get to the main event. Our CEO, David Lesar, will kick us off.
We'll start with approximately 90 minutes of management presentations, followed by 60 minutes of Q&A. Thank you.
Good morning. It's great to be here today for our first and hopefully last virtual Investor Day. I say that because I wish you were here in person to sense and feel the energy in this great group of executives. I couldn't be more excited about taking the wraps off our new strategy and introduce our team to you today. I'm sure you, our investors, are excited to join us for the great journey ahead. Now, the core comment investors have directed at me since I started at CenterPoint is very simple. CenterPoint has these fantastic utility assets, especially in Texas, but it has not been such a fantastic investment over the last two years. Now, I can repeat what some of you think, that we've not taken full advantage of our organic growth opportunities, especially here in Houston. We've not always allocated capital wisely.
We focus too many resources on our non-utility businesses. We overpaid for Vectren, negatively impacting our balance sheet, and we did not seize upon the prior opportunities with respect to our Enable investment. I'm not going to argue or debate those views. It is what it is. Today, it's my job to address your concerns and focus CenterPoint on the future. That you have seen what we've accomplished over the last five months, I hope you are starting to understand that I share not only your enthusiasm, but also your impatience to unleash this great company's potential. We have a new far-reaching and sustainable strategy, and now it's time for us to execute on it. To level set the discussion and to provide continuity for those who may have missed our last earnings call, let's recap what we said there.
We said we have plans that would grow our utility earnings at the high end of our 5%-7% target, increase our capital spend by $3 billion on top of our already planned $13 billion. With that level of investment, we would grow our rate base by 10% on a CAGR basis, putting us in the top tier among utilities. We've also identified an additional $1 billion of supplementary spend on top of that. We said we would invest in renewables, sell one to two of our gas LDCs, reduce O&M expenses by 1%-2% per year, generate better balance sheet optionality, and evaluate our Enable investment. Today, we're going to put some meat on the bones of those items.
The way to start down this path was clearly by first putting the right management team in place. Empowering our greatest assets, our people, so they can deliver these results to you. You should have no doubt that our organization is fully behind our new direction, and you will hear that loud and clear from our speakers today. We said we would keep a focus on what really matters, our core regulated utilities, taking advantage of our unique organic growth opportunities, and ultimately instituting a strategy used by best-in-class utilities, and then executing on that strategy. Starting today, our management team will move from developing a strategy to executing on it. I have a very long track record of execution as a CEO, and I'm not going to mess that up now. Industry-leading execution does not happen without a world-class management team.
I believe that I have built that team. Let me introduce them, starting with the presenters today. Jason Wells, our Chief Financial Officer. Jason is well known to investors, having navigated Pacific Gas and Electric through difficult times. Jason brings a new energy to CenterPoint. Jason's leadership in supporting California's transition to a cleaner energy economy will be extraordinarily valuable as we increase the amount of wind and solar we generate and transport. Jason also has a strong commitment to efficient financing and maintaining a strong balance sheet. Kenny Mercado, our Senior Vice President of Electric Utilities. Kenny has over 35 years of utility experience at CenterPoint. Kenny has been incessant in his request to me to increase capital spending at Houston Electric ever since the day I arrived. Kenny, I can tell you today, you won that fight.
He is highly engaged in preparing us to increase our capital spend in our electric business and implementing a continuous improvement mindset. He has also worked closely with Tom Webb and has already been in communication to learn from peers at other utilities that have successfully embraced continuous improvement. Kenny has also built very strong relationships with regulators in both Texas and Indiana. Scott Doyle, our Executive Vice President, Natural Gas. Scott has over 25 years of utility experience with CenterPoint, having held numerous leadership positions in both our gas and electric operations across our entire footprint.
Scott has probably moved the most among our leadership team, having held executive roles in operations and business leadership in Texas, Louisiana, Mississippi, and Indiana. Scott is a proven leader and understands the vital role natural gas plays in the states we serve.
He is also very committed to the efficient spend of our increased capital, and also implementing continuous improvement throughout our natural gas distribution utilities. Tom Webb, our Senior Advisor. Tom needs no introduction to investors. You know what? I'm going to do it anyway. You might say Tom has a black belt level business skills in improving utilities, implementing continuous improvement, and helping to keep the focus on executing a winning strategy. He's already provided invaluable guidance to the executives and the board at CenterPoint. Greg Knight, our Executive Vice President, Customer Transformation and Business Services.
Greg oversees our vital customer service operations, IT, marketing, and procurement, and logistics areas. Today, Greg will help investors understand how customer demands are shaping where we will be making our capital investments. Monica Karuturi, our Senior Vice President and General Counsel. You've already heard from Monica today.
She oversees our legal, compliance, environmental, and sustainability, and risk management functions. Monica's team led the great work that you saw with our corporate responsibility report, which we released earlier this quarter. Not speaking today, but an integral part of what we do every day are Jason Ryan, our Senior Vice President, Regulatory Services and Government Affairs. Jason has designed many of the excellent rate mechanism CenterPoint uses today. Jason also served, and I love this title, as Information Dominance Warfare Officer in the United States Navy. Lynne Harkel- Rumford, our Vice President and Chief Human Resource Officer.
Lynn oversees several corporate functions. She also has responsibility for our diversity and inclusion efforts, as well as talent management, both of which are very personally important to me. Lynn is also firmly committed to helping me better align our management compensation plans with shareholder interests.
Finally, Kristie Colvin, our Senior Vice President and Chief Accounting Officer. Kristie has deep knowledge on CenterPoint Energy's financial history, derived from roles within our strategic planning regulatory and accounting groups, and she truly stepped up earlier this year serving as CenterPoint Energy's interim CFO. Now, as you can imagine, the core of what we are going to lay out for you today is all about getting back to basics, investing in our regulated utilities, satisfying our customers, bolstering our balance sheet, delivering cleaner energy, and taking advantage of the unrivaled organic growth in Texas. Let's start with that organic growth story. In 1960, Houston Lighting & Power was an underappreciated small utility that had only 475,000 customers, and Houston was the nation's 16th largest city.
After six decades of explosive growth, we have nearly 2.6 million customers in the nation's fourth-largest city, and the only one of those top four that is growing today. We don't see that growth stopping. Organic growth is truly a luxury few other utilities have. If anything, faster growth in Texas and the state's continued business-friendly environment could even accelerate Houston's growth rate. Looking back over the past couple of decades, CenterPoint has managed to keep up with the investment in this growth. That continues, but as you will hear a lot today, we now need to also increase investment in replacement, reliability, and adding new technologies. In Indiana, we're still making a dramatic shift away from our focus on coal to natural gas, wind, and solar energy. Fuel and O&M costs should drop, and we plan to deliver renewable energy for the next generation.
Throughout our gas utilities, we're upgrading pipelines in order to enhance safety and reliability and decrease methane emissions. We serve the heartland of America, where natural gas is still truly appreciated as a cleaner, more affordable fuel with the added flexibility to balance out renewable resources. Throughout my career, and especially since I joined CenterPoint, I've been committed to paying attention to investors and showing them a path to achieving stakeholder value. We intend to do that for you today. A lot of good change is occurring at CenterPoint. Today, I specifically want to show you how all that change ties together. From where I stand, I believe it ties together very nicely. Before we get into the agenda, I want to directly address opportunities around Enable. First, we recognize how important it is to all of us to minimize our midstream exposure.
However, what we do around Enable will be done using a disciplined financial approach. We will not be rushed just to get something done. While we are not in a position to cover specifics today, we have made good progress on Enable and will today share with you what we can. What are you going to hear today? First, Jason will describe our new model and our new plan, how our planned $16 billion in capital spend and 10% compound annual rate base growth leads to the high end of our previously shared 5%-7% utility earnings growth target, even as we deal with the temporary headwinds we currently have in our business, how we're going to overcome those headwinds, and how better discipline around O&M will accelerate our path to operational excellence and therefore enhance safety and reliability.
He'll discuss how we can take advantage of this combined organic growth and O&M savings to fund a large portion of our capital spend, while at the same time providing headroom for both customer rates and earnings. This is a true differentiator for us and a luxury that few utilities have. He'll discuss how our states provide regulatory structures that allow us to earn at or near our allowable returns, and how all of this makes for an enduring, sustainable plan. Second, Kenny and Scott will provide an overview of our core utility platforms and provide more details on our customer-driven requirements for increased capital spend, and more details on that spend by category and geography.
This will allow us to take advantage of existing and organic growth opportunities. They'll discuss the commitment of their organizations to continuous improvement and give you some examples of where they see opportunities.
They'll express their confidence in how we will get the increased capital spend into rate base in an efficient and timely manner, and how over 75% of our spend will be added through recovery riders rather than rate cases. They'll also discuss the strength of our regulatory relationships and why we feel so confident we will get approval for the investment plans in Indiana, which will require rate case approval. Our commitment to environmental sustainability and reducing carbon emissions, as well as our exciting opportunities to build our sustainability efforts by participating in the growth of renewable energy in Indiana, Minnesota, and as you'll hear, especially now in Texas.
Finally, they will highlight the long investment runway we have well beyond our current 2021 to 2025 window, as we take further full advantage not only of our organic growth opportunities, but the need to invest in the reliability, resiliency, and smart grid needs of our existing infrastructure for decades to come, all to better serve our customers and take advantage of the energy transformation happening in the world. Third, Greg Knight will discuss our continued move to a customer-centric mindset. He'll cover our current, and really not well recognized by investors, industry-leading customer service platform, how our customers' unique needs are driving our future capital investments.
He'll discuss the efficient and innovative solutions we're already putting in place to meet those customer needs, and his commitment to continued excellent customer service levels.
Fourth, you heard a voice from the past on the earnings call, and today, you will get to see a face from the past. Tom Webb will discuss the winning recipe for delivering consistent premier performance led initially by top-tier performance in operational excellence. Tom will highlight a proven winning formula of continuous improvement led by our plans to reduce O&M 1%-2% per year, providing benefits for our customers in terms of safety, cost, and reliability. Based on his prior successful track record, he will help investors understand that as we execute this strategy, he believes that becoming a consistent premier top-performing utility is not only achievable, but is inevitable for CenterPoint Energy.
Jason will then be back in front of you to discuss in more detail how we believe our new financial plan will play out, how we will sequence our capital spend to improve service, meet regulatory filing schedules, and deliver industry-leading rate base growth, and allow us to achieve the high end of our earnings growth target. How the sequencing of this spend should enhance your confidence in our ability to execute the plan, recover the investment, and help restore the earnings lost from the sale of the two gas LDCs. He'll also discuss how we expect to finance this extraordinary growth with only a modest equity and certainly no block equity issuance. He'll describe the timing of the LDC sales process and how it will support new, efficient capital allocation with no impact to our EPS growth rate.
How we plan to reduce parent company leverage with little or no cost by replacing parent debt with subsidiary debt. How the 10% rate base growth allows us to overcome the near-term headwinds we face and still allow us to increase our utility earnings growth rate within our expected range. With respect to Enable, we are making good progress, have hired a financial advisor to support our evaluation, and we anticipate providing an update to you in the next 60 days. The bottom line is we plan to minimize our midstream exposure to our EPS while preserving our utility earnings growth. Finally, he will initiate 2021 and future utility EPS growth guidance. As many of you know, I like to communicate points by headlines. Let's jump to the headlines you will take away from today's meeting.
That way, you can listen closely to the presentations, while at the same time knowing what the outcome will look like for CenterPoint shareholders. Today's headlines are as follows. We are increasing our annual utility earnings growth target to 6%-8%. Our common stock dividends should grow in line with those earnings. Our planned 5-year, $16 billion capital plan will fuel an industry-leading 10% compound annual rate base growth, not including the $1 billion in supplementary capital we could spend when we choose. You don't think that increased capital spending ends there, we also have current visibility to significant projected capital spending in the 2026 to 2030 horizon that is greater than what we plan to spend in the next 5 years.
That will allow us to continue that accelerated rate base growth and gives us further confidence around the sustainability of the 6%-8% utility earnings growth rate. We will also be bringing renewable energy solutions to our customers. We'll sequence the sales in such a way to eliminate the impact of their lost earnings on our new 6%-8% utility earnings growth guidance.
We are going to have additional balance sheet optionality, and we are making good progress on resolving Enable and hope to have something more for you in the next 60 days. Finally, after the presentations, I'll be back to wrap things up with a few closing comments and our commitment to you to make this strategy real and sustainable. This is going to be a fun journey. I ask you to take it with us. With that, let me turn it over to Jason.
Thank you, David, and thank you to all of you who've joined us today. We are all excited to share our strategy focused on improving our service, growing our regulated utility businesses, and minimizing our exposure to midstream in a sustainable way. The cornerstone of our new plan is prioritizing investment in our regulated utility businesses to improve the service, resiliency, and safety of our systems, all while supporting a transition to a cleaner energy future. That capital investment plan is $16 billion over the next five years, which is $3 billion more than our previous five-year plan. This doesn't even include the $1 billion in additional opportunities we have identified to ensure we hit this target and for the flexibility to fold into the plan as we execute.
Importantly, this level of capital investment would allow us to grow rate base at a 10% compounded annual growth rate for the next five years, at a rate faster than our peers. It serves the foundation for our increased target range of long-term utility earnings per share growth of 6%-8% annually. First, I want to share our sustainable model for driving growth and managing our rates for the benefits of our customers and for you, our shareholders. We understand how important the cost of our service is to the communities we have the privilege to serve. We are committed to managing rate growth responsibly through the combination of cost discipline and the good fortune of serving growing economies.
You're going to hear more about this from Kenny, Scott, Greg, and Tom, but our entire team is absolutely committed to driving responsible year-over-year decreases in O&M of 1% to 2% while prioritizing safety. We have a strong track record of cost discipline, having eliminated post-merger redundancies and using automation to improve field and customer operations. However, we know there's more to do, and you will hear about our focus to more thoroughly embed the principles of continuous improvement and a lean mindset throughout our business. Our O&M discipline is not the only influence that helps create headroom for our capital investment.
Strong customer growth also spreads cost across an even larger base, helping keep rate increases manageable for our customers. You'll hear Kenny and Scott talk a great deal about customer growth, which is especially strong for both the residential and industrial segments for both businesses.
Finally, about 6% of our Houston Electric rates are connected with transition and storm restoration bonds, which will create headroom as those bonds mature in 2022 and 2024. Our O&M discipline and customer growth is not only good for our customers, but it's good for our shareholders. By delivering returns on equity at or near our allowed returns, we have access to very constructive regulatory mechanisms that allow us to recover and earn on this incremental capital investment in between rate case cycles. In fact, we expect over 75% of our planned capital investment will be eligible to be put into rates through various capital recovery mechanisms.
This focus on deploying capital to improve the service, resiliency, and safety of our systems while applying O&M discipline, benefiting from serving growing economies, and having constructive regulation will allow us to deliver on this plan for our customers and for you, our shareholders. Kicking off the amount of change we're now seeing at CenterPoint is both exciting and infectious. I'll be back in a bit to share more detail on our financial plan, but for now, let me turn things over to Kenny for a deep dive into Electric.
Thank you, Dave and Jason, for your introduction, and good morning to you all. I'm excited to be here today to provide you with an update of our strategic business plans for our electric utility business. This is a wonderful time to be part of our electric utility. We recently combined the management of Houston Electric with Indiana Electric, and we merged our workforces into one operation. We have nearly 2,500 employees working hard every day to safely serve our 2.7 million meter customers in premium jurisdictions in Texas and in Indiana. As Dave mentioned earlier, I have pushed hard for incremental capital investments, and the company has delivered. Our updated five-year budget is set at $9 billion, and it brings important T&D investments with Houston Electric and critical renewable energy investments with Indiana Electric.
As highlighted by David, the reason I pushed so hard is because we absolutely need additional capital to not only serve our growth, but to proactively address the aging infrastructure across the system. We're here today to discuss our four key strategic business objectives, which include, number one, robust capital investments to meet our customer growth and updated resiliency needs. Number two, the acceleration of our renewable energy developments. Number three, constructive regulatory relations and timely recovery mechanisms. Finally, number four, sustainable O&M discipline. Let's begin by talking about the first strategic business objective, which includes two main themes of our capital expansion plans. The first theme, shown on this slide, illustrates the drivers of customer growth.
For more than a decade, the greater Houston region has benefited from remarkably consistent 2% customer growth. Supporting this level of growth requires many smaller projects in distribution, substation, and transmission infrastructure.
These projects total about $3 billion across our service area, and they must be planned, engineered, and constructed to deliver safe, reliable electric service in a timely manner to meet our expanding customer needs. The opportunities prove that the Houston region is one of the very best economic engines for growth in our country and exists all across our service area. If you take a drive to the Texas Medical Center, the eighth-largest business district in the U.S., and just a few miles from our downtown office, where they are continually breaking ground on new hospital facilities and the TMC3, a brand-new research facility, which is planning over 23,000 permanent research jobs.
Or if you visit the southern and eastern regions' industrial corridor, where the demand for electricity is growing in parallel with the demand for chemical processing facilities, new LNG facilities, natural gas products, expansions at the Houston Port, and supporting industrial businesses. This area has experienced growth in throughput from industrial customers by approximately 4,500 gigawatt hours, or nearly 8% between 2016 and 2019. In response, by December of next year, we will complete a $483 million, 55-mile, 345-kV transmission project approved by the Board of ERCOT.
Finally, take a drive around the outskirts of the southwest, the west, and the northwest regions, and you will see open fields being converted to master plan residential and commercial new customer accounts. As a result of this accumulated load growth, we have major plans to construct 29 new and upgraded substations by the end of 2025.
This is a remarkable growth story, and I'm proud of our business. Customer growth is just the beginning of our story. The second theme, which is about $1.4 billion of our overall capital investment, is to continue to modernize the infrastructure to better serve the expanding customer expectations by improving the reliability, safety, and resiliency of our grid. Our assets, which in some cases are 40-plus years in service, must be evaluated and proactively replaced before the end of their life. We must also continue to consider wind and flood-resilient solutions and faster outage response times. As you may know, the center of our greater Houston service area is only about 50 miles from the Gulf of Mexico, and 2020 has been difficult for hurricanes.
30 named storms is an all-time record, including eight major hurricanes that hit our Gulf Coast. We sent large mutual assistance crews to support our neighboring utilities whenever requested. We will continue to work hard to make capital and technology investments with storm recovery in our minds so that we can safely and efficiently respond to weather events. Proactively replacing aged infrastructure is just a big part of what we're going to do. We have very important plans to evaluate, extend the life, and optimally replace 10,500 miles of aging underground cable, 1.1 million wood poles, 4,400 substation breakers and transformers, and major equipment serving our large commercial and industrial customers. As one example, the substation transformers scheduled for replacement in just the next two years range in age of service from 47 to 65 years.
These plans are a foundational element of our strategy to operate a safe, more reliable, and climate-resilient grid. As the proactive plans mature and are combined with the integration of more intelligent outage management technology, we will have a self-healing and automated capabilities in field operations to enhance our response from weather events and improve our reliability and customer satisfaction. The beauty of this advanced technology was on full display during Hurricane Harvey in 2017, as we were able to automatically restore power to 140,000 customers and avoid 41 million outage minutes without the use of one single field resource.
Today, we are only about 15% complete with our advanced outage system capabilities. Another important tenet of our plan is to replace our aging and less efficient 69 kV transmission system and upgrade it to a more modern 138 kV system over the next five to 10 years.
Finally, we are committed to continued investments in more hardened and more flood-resilient designs as we replace aging distribution, substation, and transmission assets to protect our system from storm-related damages and support the deeper expectations of our customers. The second strategic business objective, as illustrated on the map in this slide, begins in the open fields across the southern portion of our greater Houston service area, where we are seeing a surge in growth of utility-scale solar projects. Over the next two years, we will integrate one very large battery project and 11 customer-owned utility solar projects with over 3,500 megawatts of generation as shown.
The pictures on this slide illustrate the first-ever completed large solar project right here in our backyard in the Houston greater service area. CenterPoint Energy typically builds a 138 kV switch yard and up to one mile of transmission line to extend to each and every solar farm site. There is a steady pipeline of new projects being studied. We anticipate similar demand for integrating renewable generation into our system in the years 2023 through 2025. To optimize the delivery of this green energy and to be a leader to our Houston customers, our transmission system requires significant expansion plans to enable reliable delivery of these locally installed clean resources. Our aging infrastructure replaced in a structured and coordinated manner, creating important and prudent opportunities for over $500 million in capital investments for just integrating solar generation.
Being an accelerator of the clean power transition in Houston is only the beginning of our green investment thesis. Our leadership team in Evansville, Indiana, has been working very hard to prepare and achieve regulatory approval for our critical generation transition into renewable energy. We have significant plans to spend $1.3 billion by 2025, and are excited about the opportunity to be a leader in Indiana and reduce the carbon emissions from our coal plants by 80% across our electric footprint. Our plan starts by retiring over 730 megawatts of coal generation by October of 2023, and replace it with approximately 350 megawatts of CenterPoint Energy-owned solar generation by the end of 2023, and 300 megawatts of CenterPoint Energy-owned wind generation by the end of 2024. We will contract for 350 megawatts of PPA third-party solar projects.
We will also support this new supply of renewable energy power with 460 MW of peaking combustion cycle gas-generating plants in 2024. As illustrated on the slide, our Indiana transition from 81% coal-based generation to 54% renewable generation will occur in the next five years. A significant milestone will occur in early 2021 when we energize our first 50 MW Troy Solar project. The state of Indiana's 21st Century Energy Policy Development Task Force recently completed its work and issued a final report which aligns with our plans, in particular with the task force pillars of reliability, resiliency, stability, affordability, and environmental sustainability.
We are confident that we will get the Indiana Commission's support for our balanced all-of-the-above strategy, as it is responsive to the feedback that we received from the Indiana Commission in our previous IRP to ensure resource diversity and flexibility. We have been in regular communication.
Most recently, we met with commissioners and staff just a couple of weeks ago, and we've been in communication with the commission staff and legislative leaders over the last 2 years to participate in forming the state strategy and ensure our plans are aligned with their results. In early 2021, we expect to make our second CNP-owned solar project filing with the Indiana Commission, followed later in the year with subsequent filings for the gas CT project and the additional renewable generation as those plans are finalized. We also have a solid plan in place to ensure that we have adequate capacity to manage the transitional years in 2023 and 2024. We will continue to reliably serve our customers while working closely with the Indiana Commission and MISO.
This renewable transition plan is an outstanding outcome for the customers in the state of Indiana. I am confident that we will get our plans approved by the Indiana Commission and meet the full needs of our state of Indiana. As we turn to the next slide, I want to talk about our third strategic business objective, which is constructive regulatory relations and timely recovery mechanisms for our capital investments. As you review the slide, it represents a strategic capital investment plan. We will continue to utilize our tariff-based annual and semiannual trackers to timely recover 76% of our capital investments. The remaining 24% of our investments primarily comes from our plans to build out the renewable and gas CT energy systems, mainly in 2023 and 2024.
They're shown in the green and orange areas of the bar graph, and also general plant from Houston Electric, which is shown in the golden area. These investments will be recovered in a rate case filed at the end of 2023 using a forward test year for Indiana and put into the base rates by the beginning of 2025. A critical dimension of our electric utility success is our knowledgeable, hardworking, and determined employees working on continuing to foster constructive relationships with the public utility commissions in Texas and in Indiana. While we have received our share of criticism in Texas recently, we have taken proactive steps in 2020 to strengthen these important relationships.
I am proud of our employees in Austin, Texas, and I am proud of our employees in Indianapolis, Indiana, as they have worked really hard to strengthen our credibility, educate and promote awareness of our investments, and listen and respond to our state's most critical needs. As an early indication of our success this year in Texas, we have achieved two highly successful transmission cost of service filings and one highly successful energy efficiency cost recovery filing, approved with win-win outcomes for the company, our customers, and the state.
In Indiana, we've had two successful T&D filings, one environmental cost adjustment filing, one clean energy cost adjustment filing, and the complete recovery of our ash pond remediation cost. Standing here today, I feel absolutely confident in our superb relationships with our commissioners and staff in both states, and we will work even harder to make those relationships better.
Finally, to be a differentiating leader in the utility space, as you've heard from David and Jason, our fourth strategic business objective is to consistently manage our expenses with sustainable discipline with our leadership, our employees, our processes, and our technology. The next slide illustrates our plan to strengthen this discipline and achieve 1%-2% annual reduction in expenses over the next five years. I bet that you all on this call did not know that Houston Electric has achieved first quartile in O&M cost per customer in almost every year since 2013 versus our utility peers. In fact, our total budget expenses in 2021 will be less than the actuals in 2015. Indiana Electric has held its annual expenses flat for 10 years, and next year's plan will be less than actuals in 2012.
I hope you agree with me that these are positive indicators that our team is doing something really well, and we have no desire to stop here. We are now utilizing lean management principles inherited from our legacy Vectren operations to constructively improve our operational practices and deepen our cost reduction commitment. Our near-term focus is to find enterprise-based process improvements in vegetation management, outage response, major underground, and substation routine maintenance. Of course, while focused on these O&M efforts, we will continue to invest where necessary to deliver electricity safely and reliably. To elaborate on one example, CenterPoint Energy is taking vegetation management to the next level. Historically, utilities have used generic time-based trimming cycles to prioritize vegetation management activities and only reduce costs by reducing the miles that they trim.
This slide illustrates a new solution that uses artificial intelligence to review satellite imagery, outage information, and a variety of other internal and external data to optimize vegetation management cost investments. The system can be used to validate accurate cycle trimming needs and identify circuit sections that require the most frequent trimming. The expected benefit in 2021 is about 10% or $3.5 million cost reduction in our expenses and still using the same level of miles trimmed. We will also think through the lean continuous improvement exercise that these savings can possibly grow to another 5%-10% in future years. I am confident that our lean management principles, along with our consistent discipline in overall expense management and increased capital investment plans, will help us reduce our expenses 1%-2% per year and improve our reliability and customer satisfaction metrics.
Now, I'd like to spend a couple of minutes on the second half of the decade, 2026 to 2030. I've become even more enthusiastic about our electric utility business serving Houston and Evansville. Our strategic capital budget serving our customer growth, renewable developments, and grid resiliency will be even larger than the first half of the decade and more important to the success of our local economies. Our capital investments to serve the long-term growth of our customer needs will continue to be a priority, and we will continue to expand our distribution and transmission infrastructure across the service area and through interconnections across more tie lines within ERCOT. A key investment opportunity that will help differentiate our electric business is building out the modern distribution and transmission system that addresses the advancing sophisticated demands of our customers.
We will have a complex electrical system that requires dedicated and highly trained engineers and operators to plan and manage its unique challenges. As I look deeper into future needs, we should expect to experience a stronger demand for the integration of utility-scale wind and solar renewable systems, combined with cost-effective large battery storage systems. These big-scale integration projects will create larger expansions of our 138 and 345 kV transmission systems. In addition, our grid will be utilized to integrate significant increases in advanced technologies in distributed generation and battery resources, as well as energy efficiency resources and other smart city-type technology solutions. When you couple all of this with the anticipated rising demand for electrification of vehicles, the future of the grid becomes a very critical link to the economic future of our cities and our communities.
With the grid playing this vital role as a central platform and a provider of essential service, it will be imperative for CenterPoint Energy to continue making important and larger reliability and resiliency investments. Our 1.1 million aging poles, 55,000 miles of overhead conductor, and 10,500 miles of underground cable are continuously exposed to the hot summer temperatures, salt air, lightning, flash floods, and heavy winds. As a result, this constant environmental exposure means we have to prioritize our modern engineering design standards and focus on timely completing infrastructure upgrades. This creates a robust pipeline of foundational infrastructure investments that will continue to grow as we build out the grid to serve the advanced demands of our customers.
In addition, over the next 15-20 years, we will be upgrading our 1,850 distribution circuits to efficiently operate in real time and be automated with self-healing and real-time monitoring capabilities, as I discussed earlier. Using this grid technology available today, we will strengthen our relationship and our leadership in the industry by providing premium utility customer service and support the integration of large amounts of distributed energy resources. To be clear, these investments are not options. They are demands from the advanced needs of all of our customers. The advances in the electric grid, combined with our advances in the gas grid, becomes the platform where modern companies can plug in and actively and productively participate in the Texas competitive market and our Indiana regulated market.
Our gas and electric grid combined bring a unique transportation system that is going to continue to be efficient, reliable and sustainable.
This is the right time to be a part of the electric and gas utility business. Let me close by stating the obvious. The capital investment opportunities in 2026-2030 will be even greater than the previous five years. In summary, I hope you can feel my excitement, I hope you can feel my enthusiasm and my passion for the future of our electric utility business, serving our customers in the greater Houston and Evansville area. I will pass the mic back to Scott Doyle now to provide you with a much deeper view of our gas businesses. Thank you.
Thank you, Kenny. This truly is an important day in our company's history, as we continue to provide greater clarity to our growth and modernization story that fuels our future. I am thrilled to be a part of this newly energized team. I plan to spend the next few minutes describing the investment and growth opportunities in our premium gas utility, which will continue to be one of the largest gas utilities in terms of customer count and the largest in terms of miles of main, even after the sale of Arkansas and Oklahoma. This business is a modern, growing utility, serving over 4.6 million customers. Our business includes operations in high-growth markets. For many years, our natural gas utility business has been a leader in safe practices and system modernization efforts in the eight states we serve.
We led the replacement of cast iron in our industry, having completed those efforts in the Houston market in the early 1990s. We expanded that program to our remaining jurisdictions and will complete all cast iron replacements in the acquired areas of Indiana and Ohio in 2024. That's not the end of our modernization story, as we continue and launch investments in bare steel and vintage plastic replacement programs across our service territory. We are a growing utility, with over 52,000 net customer additions in 2019, and a forecast to add well over 46,000 customers this year. In our service territories, customers are choosing natural gas. Customer additions are well above the industry norm in high-growth areas such as Houston, the Austin-San Antonio corridor, Minneapolis, suburban Indianapolis, all markets that we serve.
These service territories also benefit from a mid-continent presence with highly constructive regulatory jurisdictions, diversified economies, and supportive natural gas environments that are dependent on the customer value that natural gas provides for heating homes or running businesses. In fact, some of our states have passed legislation in support of natural gas, removing the ability of cities to ban its use for customer homes and buildings, and we expect a number of others to consider legislation in 2021. We have opportunities for improvement that will benefit our customers and help fund our capital growth. Our platform for investment can be summed up in one statement: we are a growing, safe and modern utility.
Each of these words, safe, growing, and modern, will drive our investment thesis as we complete a $200 million, decade-long urban transmission line replacement in Minnesota, replacing 20 and 24-inch diameter pipe with modern cathodically protected steel. Increasing our capital spend in 2021 will bring assurance to our commitment to complete bare-steel and cast iron replacements in Indiana and Ohio by 2024, a commitment we inherited when we purchased the Vectren assets in 2019. Looking at all of our states, we have a well-defined integrity management plans that drive the replacement of pipeline infrastructure over the coming decades.
These plans include a multi-decade, $3 billion investment in the replacement of nearly 6,000 miles of distribution main that we have categorized as Tier 1 investment priority, which not only includes cast iron, but bare steel and some of our vintage plastic. That's not all.
Our Tier 2 priorities represent an additional $6 billion of investment opportunities and extends to other types of steel and plastic pipes, adding up to nearly 14,000 additional miles of distribution main. We also have approximately 500 miles of transmission pipe, representing $1.5 billion-$2 billion of investment that will be required due to the new PHMSA transmission and gathering lines rule. Piping modernization will continue at CenterPoint. We are well on our way in using data analytics tools to prioritize our replacements.
Another exciting opportunity that fits in the safety and modernization categories is the conversion of our customer meter infrastructure to a platform that allows for automatic and remote shutoff capability under certain conditions. Our customers have enjoyed the benefits of our remote reading capabilities for many years, but we believe that these new features should also further enhance the safety of the delivery of our product and mitigate potentially unsafe conditions. We will be one of the first utilities actively deploying this automatic remote shutoff technology with certain customers and look forward to the customer service benefits it will provide.
As a gas utility, we fully recognize and appreciate the forces at work that are pulling us toward an energy transformation. Past energy transformations have taken decades and sometimes longer. We believe our country has been on an energy transformation since its birth, driven by innovation and free market economics.
Natural gas has served a critical role in reducing this country's electric generation emissions over the past few decades. In addition, natural gas as an energy source for end-use customers holds an undisputed efficiency and cost advantage over the other forms of delivered energy. For example, in a city like Minneapolis, when it was minus 30 degrees in February 2019, the demand for natural gas by our customers was so high we delivered an amount of energy that the current electric system is unable to provide. Therefore, we believe the transition will be decades in the making. In the interim, replacing our piping infrastructure with modern materials will help reduce emissions from our system, but as the first utility to also target emissions reductions for our customers, we will continue to work to find other solutions.
Just this past month, the Minnesota Commission approved our feed-in tariff that supports the connection of renewable natural gas supplies into our distribution systems. We have multiple producers interested in finding a market for their RNG supply in the state of Minnesota. With this new tariff, we can actively build infrastructure to connect the supply. The beauty of this outcome is that it was broadly supported by a diverse set of constituents, all interested in finding creative solutions. In addition, we have already started investing in a hydrogen production unit at one of our facilities in Minneapolis that will take renewable electricity and create hydrogen gas for injection into our system. We have begun the engineering and site planning work and expect to have the unit operational by mid-year 2021.
This will serve as a demonstration project and proof of concept as we consider expanding the potential for production of hydrogen or connecting other sources of hydrogen to our systems. We have a lot to learn here, but we are not waiting for all of the answers to get started. We are proud to serve the Minnesota market as we believe it has the potential to truly find practical solutions to the energy transformation that will serve as a model for the rest of our industry. Turning to our capital plan. It starts with the investment of $1.4 billion in 2021, primarily targeted at supporting our replacement programs in each of our jurisdictions. Adding capital investment is within our control and not dependent on pre-approvals from a regulatory commission.
In fact, with the exception of providing schedules for system replacement activities in a few of our jurisdictions, we are not required to seek prior approval of capital spending, giving us maximum flexibility in scaling our replacement efforts when necessary to address growth, risk, or projects driven by state and local governments. The $7 billion five-year plan for natural gas is over $1 billion increase from our prior plan. We are increasing our capital in all jurisdictions from what was previously planned. The piping modernization efforts I described earlier will be accelerated over the next five years to the benefit of our customers and communities.
This will be a large effort for us, but we've already begun scaling up our engineering and construction efforts. We will also invest in clean energy such as hydrogen production and meter infrastructure enhancements I will describe later as we support our customers' needs.
One of the great stories of the natural gas industry over the past two decades is the cooperation and support of many state commissions which recognize the need to modernize the natural gas delivery infrastructure in our country. I believe our state jurisdictions are some of the most progressive and forward-thinking when it comes to supporting this activity through creative approaches to cost recovery. I had the privilege of advocating for this firsthand over the last decade in prior regulatory roles that I served in as we worked collectively with regulators, state legislators, the industry, and consumer groups to tailor regulatory mechanisms that reduce lag and supported aging pipeline replacements. In our case, well over 70% of our capital spend is recovered through an annual or semiannual mechanism while the balance is supported through a forward-looking test year with interim rates.
This is a success story not only for our company, but our communities and customers as we continue to work to improve the safety and reliability of our systems. Modernization of our recovery mechanisms will continue as we evolve them in each of our states. Each year, we actively engage our regulators to seek opportunities to enhance recovery mechanisms, which leads back to the constructive nature of our regulatory jurisdictions. 2020 is a year like none other for our company and our communities. Through it all, our state commissions worked tirelessly with us to provide support to our customers through disconnect moratoriums during the early stages of the pandemic. Additionally, they quickly passed orders that provided support to us in the form of bad debt expense relief.
This type of support is necessary as we purchase over 400 billion cubic feet per year of natural gas for our customers, and the bills from our suppliers are due each month. Our commissions have given us the support to keep the gas flowing and our customers' needs met. From a revenue perspective, we were able to settle two rate cases in Minnesota and Texas that increased rates $42.5 million. In other jurisdictions, we processed our annual rate recovery mechanisms, with some increasing and some decreasing, and netted a $25 million increase, all during the pandemic. Several other recovery mechanisms are in the early stages of review, along with a rate case we recently filed in Indiana. Again, our commissions are to be commended, along with our own regulatory staff, for their ability to keep the wheels turning during very challenging times.
As we look forward and evolve, our ability to consider new forms of gas supply, creative approaches to customer choice, and continued system modernization will be based on constructive relationships and active dialogue with our regulators. Let's now turn our attention to operational efficiency. Our gas utilities have long been recognized as cost efficiency leaders, having been in the top quartile of O&M per customer for AGA benchmarking for many years. Through 2019, our legacy gas utilities have reduced O&M spending to the same level as 2014, with continued improvements in 2020. Adopting a lean approach to process improvement and operational efficiencies is a strategy we are well-positioned to deploy. When we acquired the Vectren assets in 2019, one of the many attributes Kenny and I admired was their adoption and use of continuous improvement principles.
Over the past year, we brought this approach into the gas business and used it as a deep integration activity focused on leveraging the best of both companies. After 50 continuous improvement events in the gas business over the past 18 months, we are ready to scale this activity across the enterprise here at CenterPoint Energy. From a gas utility perspective, we have a great platform in place to further standardize our activities. We operate as one company. Although we may be a collection of several legacy gas utilities, we made a decision to organize and operate as one gas utility many years ago. That model served us well during the integration of Vectren as we centralized all of our support leadership, including engineering, regulatory, and call centers.
Some of our early successes include common telephony platforms for call handling, a single bill printing operation for all customer bills, outsourcing warehousing and logistics for the full gas utility, driving better standardization and cost efficiencies. Looking forward, our O&M opportunities will be driven by integrating the Vectren assets into our enterprise technology platforms in 2021. We will have a common system that will drive further standardization and efficiencies, and there are always processes to improve or enhance as technology deployments are fully realized. One example of process improvement in our gas utility includes the use of Picarro, an advanced leak survey tool. This very modern approach to leak survey is 1,000 times more sensitive than traditional methods.
The mobile surveyor samples the air from a device on top of the vehicle and processes the data in real time through proprietary algorithms to help identify the leak location and area for investigation. When we began using this technology several years ago, we used it simply to find more leaks. Over time, we worked with the vendor to further refine the leak search area, which has helped us be more efficient in finding hazardous leaks. This led to a pilot in Texas with the advanced leak survey technology that also gathers emissions data on our system. That's a first for our industry that helps us identify more critical leaks. We can then incorporate this additional data into our planning models to further prioritize replacement activities based upon risk, efficiency, and emissions.
Initial results from this pilot show that we are able to eliminate one and a half times more leaks during pipe replacement activities with this additional information, resulting in a more efficient way of maintaining our system. These are truly more modern and efficient tools that enhance the delivery of our service. Looking ahead, beyond the first five years of our plan, I am excited about the opportunities in front of us. It all starts where we began, building our infrastructure to serve a safe, reliable, modern, and growing utility. Our system, even after the sale of Arkansas and Oklahoma, will continue to be the number 1 gas utility in terms of miles of main, providing plenty of opportunities for investment.
Although we are able to accelerate some of our infrastructure projects to include them in this five-year plan, we are simply cutting a few years off of a multi-decade replacement plan. We have additional investments planned in the coming decades. In particular, we still have replacement programs that extend well into the 2030s and 2040s for legacy steel and vintage plastic assets. As we increase our investment, we still have plenty to do and have the ability to move projects forward. As an example, in 2020, we will have replaced approximately 600 miles of distribution mains on our system as part of our modernization efforts. While that sounds impressive, it represents less than 1% of our total system. This is in addition to the nearly 800 miles of distribution main we installed to extend to new customers.
All of this adds up to a significant platform for investment and modernization that extends well into the future. Investing in the expansion of our metering infrastructure will include a full ecosystem of communications devices that provide operational data I only dreamed about when I first began as an engineer over 25 years ago. Something as simple as a daily reading at a device that we used to only read monthly can now be used to enhance the safety and efficiency of our operations. This will drive better, more efficient investments. Furthermore, our investments in the clean energy transformation will help support the transition by further reducing emissions for our customers. Kenny and I are honored to lead this transition into the future. Now, I would like to turn it over to Greg Knight, our EVP for Customer Transformation and Business Services. Greg?
Thanks, Scott. By now, you've seen our exciting strategic focus around financial excellence, continuous improvement, renewables, and growth in our core businesses. CenterPoint Energy has a strong legacy of doing really great things for and with our customers, and our results show it. In fact, we're recognized as an industry leader nationally in both our gas and electric utilities in the areas of customer satisfaction, brand trust, outage restoration, and helping customers save energy. These results have been achieved through a range of investments we've made in our technology, employees, and our communities. I'm excited to be here today to share how we plan to leverage and build upon our prior successes. Looking ahead, these new investments will help us to address an expanded range of customer-driven needs.
We're committed to building upon the transformative work we've already begun by reducing customer friction and effort while also delivering safe, reliable, and sustainable energy. We are confident in our ability to further leverage our award-winning and artificial intelligence-enabled customer interaction platform. This platform has enabled much of our current success and opened the door to an amazing number of customer engagement enhancements. This innovation has been pivotal, improving customer experiences and reducing operating expenses across our service organization. We've developed self-service processes for bill payment, account setup, and proactive outage notification, which has enabled over 74% of customer transactions to be resolved through our digital channels.
This innovation allows us to leverage our employee resources more efficiently while also providing a high level of convenience to our customers. We look forward to enabling additional capabilities with this technology as we deploy these assets to our Indiana and Ohio territories.
Our entire customer engagement philosophy is based on being easy to do business with by reducing customer effort when interacting with CenterPoint. We reinforce the importance of customer satisfaction by incorporating customer satisfaction targets into our incentive compensation system for all employees. Our information technology investments and improvements have also been driven by customer demands to operate more efficiently and effectively. Our leading-edge digital platforms are enabling us to find new, non-traditional ways to work without sacrificing quality while maintaining our commitment to deliver to our customers. I'm also excited to share that our SAP ERP platform, currently deployed across the CenterPoint enterprise gas and electric six-state territory, is scheduled to go live in Ohio and Indiana in mid-2021.
Our common platform strategy from Texas to Indiana will expand capabilities to drive workforce automation, process efficiency, and also improve our overall technology spend, all of which is in line with our O&M reduction strategy. A strong foundation of innovation is fostered throughout our entire ecosystem of customer touchpoints, whether that's in our call centers or in the field. As a result, we are confident in our ability to deliver a 1%-2% year-over-year O&M reduction. Our procurement, purchasing, and supply chain processes are being streamlined and enhanced to enable additional growth while negotiating better returns on our dollar to support the efficient execution of our capital plans. The ways we've organized our functions and teams has enhanced both our ways of working and our ability to identify opportunities for further process enhancements and continuous improvements.
We have a newly optimized operating model focused around our business services framework to drive greater efficiencies across key business areas. Customer expectations continue to be a driver where we will invest in the future. Today's expectations are being driven by a residential adoption of connected devices, advanced commercial manufacturing, storm resiliency, and carbon reduction aspirations. Our response is robust and designed to meet these needs over the next several years. Demand for reliable and resilient service is higher than ever. We will meet those demands. Families everywhere have become much more reliant on uninterrupted power as they work and learn from home. Home offices have become many customers' only offices.
Even an infrequent and momentary electric interruption can cause the loss of critical connectivity, disrupting important communications, business, and learning. We've also known that the stewardship of the environment is important to all our stakeholder groups, and it's important to us too. Customers desire unparalleled choices in the type of energy they consume. This enables our customers in our Houston market to have greater options to choose from in terms of renewable power. The adoption of electric vehicles continues to rise as new, more cost-effective cars and trucks enter the market. We will support customers' choice to drive green by working to put the infrastructure in place to deliver the energy to power customers' commutes and enable our vibrant and growing communities we serve.
Through our efforts to curb greenhouse gas emissions through our advanced gas conservation improvement programs and renewable natural gas, among others, we are moving steadily towards our carbon emissions reduction targets. Additionally, the transition of our generation portfolio to include more renewable resources in Indiana will help us remain in an attainment status, leading to additional economic development and growth opportunities for the Evansville economy, the third largest in the state of Indiana. Whether it is repairing our infrastructure, keeping the gas flowing, and keeping customers safe in our hurricane-prone Gulf States territory, or deploying our expert mutual assistance crews to help peer utilities restore power for their customers, our teams embodied the utmost spirit of service and represented us well this year. Fortunately, our customers in the Houston area were largely spared.
Through further investments and improvements in our self-healing smart grid, asset hardening, and enhanced customer notification capabilities, we are able to reduce the anxiety and duration of outages when they occur by better assessing conditions in previously inaccessible areas and share timely, localized updates with affected customers. We're on the leading edge of outage mitigation and management. With continued focus and investment in our infrastructure, our customers will be able to rest assured that we'll be there to keep the lights on when they're needed. With that, I'd like to end my time today by reinforcing our commitments to lead in delivering energy, service, and value to our customers. Now I'd like to hand over to Thomas Webb.
Thank you, Kenny, Scott, Greg, Jason, and Dave. And friends, thank you for joining us at CenterPoint today. There's a lot of seasoned talent on this stage, and I'm humbled to be with them. You know me. Seasoned is probably a generous description. After 2 decades at Ford, 3 years at Kellogg's, and almost 2 decades at CMS Energy, old dog might be a better description. I've seen a lot of plans and a lot of execution, good and bad. This team, this plan, and execution to date are impressive. You, however, are going to be the judge of that. This management team is committed to take actions to offset problems whenever they occur. I'm confident in this team's ability to sweat the details so you don't have to. Here's how I read the plan. $16 billion of capital investment opportunities over the next 5 years.
It's needed, it's tangible, and it's real. If the team does it more efficiently for lower cost, then there's ample new fill-in capital investment. Is it affordable? It strengthens the balance sheet with the planned sale of two excellent gas LDCs, responsible operating company debt, and modest routine equity issue. Is it affordable for customers? It assumes annual customer growth of about 2% and cost reductions of 1%-2%. This provides substantial customer rate headroom. That makes the plan sustainable, enduring. 6%-8% utility earnings growth target? I read the midpoint, 7%. Management's committed to predictable, strong, and consistent EPS growth delivered every single year. No earnings CAGR here. Will there be bumps in the road, headwinds and tailwinds, as Dave articulates it? Yes. Nobody can predict accurately the weather, storms, viruses, politics, taxes, or even duties on my imported wine.
I can attest to all of that. However, a well-designed plan includes flexibility. A strong management team has the capability to manage through good and bad news. This team is committed to their 6%-8% utility earnings growth target, addressing shortcomings and reinvesting surpluses on behalf of its customers. This team believes in a no-excuses commitment to deliver for its customers and its investors. Premier companies in our sector do this every single year. Will CenterPoint. You'll have a lot of questions, and you should. One question I hear about any utility that says it will reduce cost is how. CenterPoint has a good plan. Let me describe it in a couple of tranches. First, good business decisions. These are well underway. A sampling of them include better system integration across the businesses, broader scale procurement practices, and intelligent carbon reduction.
For example, in Indiana, our coal plants will be replaced with gas peakers and renewables, substantially reducing emissions and our carbon footprint. It takes a couple hundred people at a coal plant, many just to receive, manage, and pulverize the fuel. At a gas peaker, it only takes one employee to turn the valve. For wind or solar fuel, a thank you should do. With just this good business decision, we expect to save about $25 million of O&M. That's nearly 2% of our total CenterPoint O&M. Second way, continuous improvement. By now, most familiar with the lean approach would agree that it works. It's all about quality, doing work right the first time, delivery, doing work on time, cost, seeing and eliminating waste, and morale, being proud to serve. Where the work is actually done, operators see this as reducing human struggle, not just cutting cost.
That's the point. Empowerment to improve processes makes it possible to improve quality and delivery. The cost fallout. Those that are good at it, like my old company, have proven the ability to reduce cost at 2% a year. Can CenterPoint. I was delighted to find real experts at CenterPoint, experts that have done this in smaller business units. With this talent in place, the skills are being spread across the entire company. Kenny, Scott, and Greg, they're believers and doers. Do I believe CenterPoint can smartly reduce O&M cost 1%-2% every year? Yes. Now with that, thank you again for your interest in CenterPoint Energy. This is an extraordinary management team with a back-to-basics plan that provides great promise for our customers and you, our investors. I continue to be thrilled that Jason joined CenterPoint.
He brings deep financial and rich utility experience with a steady hand. It's a pleasure to turn the presentation back over to him. Jason, all yours.
Thank you, Tom. I've truly enjoyed partnering with you, and I've valued your insight on our plans and how we can improve our business. You've heard from our team on what's driving our investments, and you understand our commitment to continuing to build a culture of continuous improvement. Now let's pull it all together so that you have the full picture of how we will consistently target the midpoint of our increased long-term utility earnings growth range of 6%-8%. I'll start with a view of the consolidated capital spend of $16 billion from 2021 through 2025, starting with $3.4 billion in 2021. As you've heard, the plan is more heavily weighted towards electric on the front end as we upgrade generation in Indiana with natural gas distribution investments fully ramped up in the latter years of the plan.
What is also important about this profile is increasing CapEx by $900 million more in 2021 as compared to 2020, is that it helps us to overcome the loss in earnings from the sale of the gas LDCs in Arkansas and Oklahoma without any impact to our utility earnings growth target. I will also point out that this plan does not include the $1 billion of incremental capital David discussed earlier. This pipeline of incremental capital will help ensure we deliver on our $16 billion capital investment plan as we will be in a position to execute on these projects should any of our planned work experience delays. We will opportunistically look to add incremental capital where we can execute it efficiently, which is likely towards the latter years of this five-year plan.
In short, this sequencing of our annual capital investment plan takes into consideration our system needs and regulatory calendars to optimize our service for customers and to minimize our regulatory recovery lag for our shareholders. It is this level of capital expenditures that will drive our industry-leading rate base growth of 10%. On this next slide, you can see our projected rate base continually growing as the total rate base moves from nearly $16 billion in 2020 to $25 billion in 2025. This growth occurs despite the fact that Arkansas and Oklahoma are included in the 2021 rate base, but not included in the rate base amounts from 2022 onward. Strong rate base growth underpins our earnings growth and supports all of our other goals. This includes improving our system reliability and resiliency, meeting our carbon reduction targets, and enhancing the safety across our systems.
We're proud to be advancing the interest of our customers while simultaneously rewarding our shareholders. Let me cut the capital a couple of different ways for you. As you can see on the left-hand side of the slide, we are planning on investing just over half the capital in our electric business, and nearly 90% will go to fund energy delivery in our pipes and wire portions of our businesses. What I think is most important is over 75% of our investment is covered by capital recovery mechanisms that allow us to fold these investments into rates as long as we are earning at or near our allowed return on equity and deploying capital prudently for our customers. How do we fund all this growth? As you can see, we have four primary sources of funding.
First, in line with our authorized capital structures, we plan to fund about half this investment with debt at the operating company level. Second, we anticipate retaining significant and increasing earnings throughout the plan that would generate substantial cash to fund the growth. Third, we plan on issuing a modest amount of non-block equity to maintain a strong balance sheet. This is consistent with what we communicated on the third-quarter earnings call. We plan to turn on the dividend reinvestment plan in 2021 and add a very modest at-the-market equity issuance program in 2022, growing into a combined estimated annual equity issuance of $75 million from 2022 onward in a very efficient way. This totals to just over $300 million for the five-year plan. Finally, the sale of our Arkansas and Oklahoma gas LDCs would fund the balance of the growth.
This was obviously a tough decision to sell Arkansas and Oklahoma, but it was the right decision from a capital allocation standpoint. We have the opportunity to sell these businesses at a multiple of book value while recycling that capital to invest in this unprecedented organic growth at book value. We're doing so without resetting the earnings power of our utility segment. This is all a very efficient strategy for funding our industry-leading growth plan while continuing to strengthen our balance sheet. In fact, this focusing on continuing to strengthen our balance sheet was recently recognized by Moody's when they removed the company from negative watch. We appreciate the recognition for all of our progress and know that there's more to do. I know everybody is eager for the details on our upcoming gas LDC sales, let me provide a quick update on the process.
Arkansas and Oklahoma are quality jurisdictions, together serving over half a million customers with approximately 17,000 miles of main. They're serving customers in areas of our country that recognize natural gas as a cleaner and more affordable energy source for our customers. We believe there will be strong demand for these businesses, and the process to sell them is underway. We have received reverse inquiries during the business review process and continue to receive interest today. JPMorgan and RBC have been engaged to advise on the transactions, and in light of the strong interest, we expect to be in a position to announce a sale during the second quarter of 2021. Given all of the work to date, we feel confident in our ability to deliver on this portfolio repositioning in a way that more efficiently funds our growth and avoids the alternative of issuing dilutive block equity.
Executing on the sale of these gas LDCs also dovetails with another goal of mine, which is reducing the percent of parent company debt to total debt outstanding. Let me start by saying our parent company debt is substantively lower than what you see at first glance. More specifically, parent debt at nearly 37% of consolidated debt, shown on the left, includes debt that is issued and loaned on an intercompany basis to fund operating company debt needs. However, this approach isn't efficient for our customers or our shareholders, and we are focused on simplifying our financing strategy going forward. Instead, we plan to reissue this debt at the operating company level, and in conjunction with our planned gas LDC sales, we anticipate bringing parent debt closer to 20% of total company debt and more in line with our peers.
What I want to make clear is this is not about increasing leverage at the operating companies. This is about raising the debt at the operating company level to replace the debt that already exists through intercompany loans so we can reduce our overall borrowing cost for our customers and better position the company from a perceived leverage standpoint relative to our peers. As you know, we have a broad goal of minimizing our exposure to midstream. We understand this is important to you. It's very important to us and one of the core areas of our focus. It would be imprudent to rush a resolution here. We continue to work with our partners toward a constructive outcome and are not in a position to share the specifics today. As Dave mentioned, we have engaged a financial advisor and are in the process of evaluating potential options.
We anticipate we'll be in a position to provide a more thorough update within 60 days. The bottom line is we plan to minimize our exposure to midstream without sacrificing our targeted 6%-8% utility earnings growth. As I said, this is a core area of focus for us, and as soon as we have something specific to announce, we will do so. Let's focus on the strong long-term earnings growth from our premium utilities. As I've mentioned, the 10% compounded annual rate base growth provides a solid foundation to our increased utility earnings growth of 6%-8%. The level of rate base growth allows us to address structural headwinds, such as a modest regulatory lag and parent company interest expense.
When taking into consideration tailwinds, like customer growth and O&M discipline, it allows us to manage individual headwinds, such as the dilution from a full year of additional shares from the equity we issued earlier this year and the loss of the equity return on the securitization bonds at Houston Electric over this five-year plan. We anticipate this delta would allow the utilities to absorb higher levels of parent company interest expense and other costs as we continue to minimize our exposure to midstream. Our shift to achieving our new utility earnings growth target of 6%-8% starts today. I mentioned on the third-quarter earnings call, I wouldn't be surprised if we delivered at the midpoint of the $1.12-$1.20 utility EPS range for this year.
The guidance we are initiating for 2021 assumes this result and targets utility earnings growth at 6%-8% from there. We are initiating 2021 utility earnings of $1.23-$1.25 per share. While much of our presentation has focused on the next five years, we heard from Kenny and Scott that the deep capital investment opportunities extend well beyond this five-year horizon, as a result, we are committed to growing utility earnings at this 6%-8% level beyond the five years we presented today. As I mentioned in the beginning, stepping on the investment accelerator makes all of our headwinds far more manageable. Increasing our 2021 through 2025 capital investment plan to $16 billion drives our industry-leading rate base growth of 10%. That rate base growth is the solid foundation for our increased utility earnings growth target of 6%-8%.
Our planned gas LDC sales allow us to efficiently fund a portion of this growth and to continue to strengthen our balance sheet. Our stronger culture of continuous improvement will drive down O&M and is a win-win for both our customers and our investors. Our commitment to minimizing exposure to midstream and all the combination of these options positions us to be a nearly fully regulated utility. I could not be more excited that I've joined this team, and we're eager to accomplish everything in the plan that we've put forward. I'm looking forward to connecting with many of you virtually in the near future, and I'm definitely looking forward to connecting with you all in person as soon as we're able to. With that, let me turn things back over to Dave.
My closing remarks will be brief today. More than anyone, I recognize we have to earn your confidence by executing on this strategy quarter after quarter. I hope we convinced you today that not only do we have a path, but we are on the path to becoming a premium-valued utility. We know it's not going to happen overnight, but as we execute portions of this plan, I hope we can quickly gain your confidence in it. I believe we have all the baseline ingredients to become a premium utility.
The right management team, utility EPS annual growth rate of 6%-8% year after year, organic growth opportunities that few utilities have, industry-leading percentage rate base growth opportunities, significant additional investment opportunities well beyond the current five-year planning window, a clear path to top-tier operational excellence, fantastic emerging renewable opportunities in our service area, a path to restore balance sheet optionality, and a way to determine the best path forward for Enable, and finally, a commitment from all of us to execute this plan. I am convinced we're going to complete this journey to success. I hope you do, too. Thank you for your time and attention and interest in the new CenterPoint. Let's now take a short break and come back for question time.
We will begin our Q&A in just a moment. Thank you. If you would like to ask a question, please press star then one on your touch-tone keypad. To withdraw your question, please press the pound key. The company requests that when asking a question, call and pick up their handset. Callers, please minimize the volume on your computers while asking your question. Please limit yourself initially to one question and a follow-up. Time may allow us to circle back for additional questions. Thank you. Our first question comes from the line of Insoo Kim with Goldman Sachs. Your line is now open.
Thank you, and thank you for all the detail on the fleet. I definitely appreciate it. First question is on O&M, and definitely appreciate the achievements that you've highlighted on both the electric and gas side, and those you told me at the first quartile. With that in mind and appreciating some color you already provided, could you give a little bit more detail or examples on the various items on both sides that could help you achieve that goal, and whether we should see that 1%-2% at both the electric and gas segments on an annual basis?
Yeah, let me sort of act as emcee on the questions, and then I'll dish them off as they come in. We're respecting social distancing here today, so Jason and I are the only two on the stage. We have an empty chair over here to pull people in. I think with respect to that, I'll have Scott Doyle come up and handle O&M-related questions. Jason, maybe you want to make a comment or two to open?
Sure. Thanks, Dave. Thanks Insoo for the question. Great to connect with you here today. I will tell you, in the couple of months that I've been here at CenterPoint, I've been very impressed with the level of financial stewardship throughout the company. That being said, I do think we all see an opportunity to really use data to continue to drive efficiency throughout our operations. That's a theme you're going to hear from Scott. One of the areas that really stood out to me when I joined the company is we actually had a presentation by a group of high-potential leaders who were looking at our service connection process and really recognized the fact that about 40% of the time we were rolling trucks on a multiple-time basis to complete the job.
As we really unpacked that, I think there was more to be done in terms of changing our process, improving our communication with customers to really drive that first-time quality. This theme around using data to drive the reduction in multiple truck rolls is something I think you're going to hear a lot from us. Let me have Scott expand on that.
Thanks, Jason, and good morning, Insoo. Thank you for your question. Just a couple of quick examples maybe that may be helpful to you. Specifically, next year, we're going to complete the deployment of our enterprise ERP system, which will have us on a common platform for IT across the full enterprise, both electric and gas. That drives a lot of system process improvement across the entire organization. A couple of more granular examples relate to in our gas business, as we prepare to deploy the advanced metering infrastructure that we've talked about. That gives us the benefit as we get scale of reducing truck rolls, sending employees out to disconnect meters for non-pay or for safety-related incidents by being able to quickly disconnect those meters in an automated fashion once we have scale, has an O&M benefit with it.
Finally, in Kenny's organization, they've experienced significant improvements in their outage management restoration activities. They saw it in Hurricane Harvey. They saw some of the benefits in some of the areas where they've deployed the automated grid technology that exists on their system. As they expand that investment, they expect to see significant gains in improvement of outage restoration times, which reduces the number of trucks that are having to roll out and go to the site and being able to send the right kind of crew to the outage incident.
Do you have a follow-up, Insoo?
Yes. Thank you for that. The follow-up question is on the capital side. You definitely pointed out a lot of items on both sides that you expect to spend that make up the $16 billion. On either side, over the next five years, what are some items that are not currently in the base plan set, but perhaps some line of sight that you think could be added as we go through this part of your plan?
Yeah, sure. Good question. Good follow-up question. In fact, I'll leave this opportunity to ask Scott to leave the stage and have Kenny come up on the stage now and maybe add a little bit to that. I think as you heard in the presentation, we've got plenty of opportunity to spend capital in this company, not only for the next five years, but decades beyond that. Kenny, as I said earlier, was a guy that from my first day here on the job, was incessant in his demands for more capital for Houston Electric. Let's get Kenny up here and let him elaborate a little bit more.
Thank you, David. I appreciate the question because this is critical to our success in the future. I'll give you a few examples on the electric side. Let me begin, as you heard Scott Doyle talk earlier, the intelligent grid, the smarter grid of the future, that's about a 20-year plan to go out and retrofit all of our circuits across our entire footprint. We would encourage it to have a more accelerated plan to do that quicker. The main reason is we're going to get benefits to our customers by having shorter outage times. We're going to get benefits in terms of efficiencies for our company and our shareholders. We're going to get reliability improvements. This is a really important component of our CapEx plan. Again, it's over about a 20-year timeframe, we can accelerate some of that investment.
You heard earlier about reliability and resiliency. The reliability place is very important to us. We have underground residential cable, we have substation breakers and transformers, we have a 69 kV grid. All of those assets have opportunities for accelerating the replacement programs. Again, if we do that in a more standard fashion and under a faster pace, it makes a big improvement in the reliability of our grid. It makes a big improvement in our customer satisfaction. It makes a big improvement in the efficiency of operations. Those are two really important examples on the electric utility side in Houston. If you go bigger into Evansville, what we can do, in addition, again, is continue to implement more renewable solar projects, more renewable battery paired with solar projects.
We go down into the distribution area, and we can start doing more investments with distributed energy resources, batteries on the distribution grid, demand response technology on the distribution grid. All of these make an impact to our ability to really hit that needle and exceed our customer and our state's expectations on us. Lastly, on the gas side, we have a lot of opportunities to expand our capital. Number 1, we have the advanced metering programs that are already targeted in certain areas. We can expand that to other jurisdictions because it is going to work, and it's going to provide important benefit to our customers. Number 2, we have what you heard Scott talk about earlier around the additional renewable natural gas and hydrogen programs that are working right now in a pilot program.
We would love to expand that in Minneapolis and other jurisdictions because it's really going to provide a cleaner solution and a cleaner benefit to our customers. Lastly, we have some opportunities in Indiana and Ohio just to modernize all of our gas facilities and all of our gas storage facilities. We think there's some great opportunities there.
Thank you, Kenny. I made a comment in my first earnings call about Kenny walking around with a piece of paper in his pocket. I wasn't kidding. I think you get a sense of the enthusiasm he has, and I can tell you, he still has that piece of paper in his pocket. It just gets bigger and bigger. Let's go to the next question. Thank you.
Thank you. Our next question comes from the line of Steve Fleishman with Wolfe Research. Your line is now open.
Morning, Steve.
Hey, good morning. Thanks for the presentations today. Could you maybe give a rough idea on the mix of the company between electric and gas after Enable is maybe gone and after the LDCs are done, rough mix of the company?
Sure. This is something Jason has been living with every day. Let me kick the question over to him.
Thanks, David, and good morning, Steve Fleishman. After taking into consideration the planned gas LDC sales and our investment profile, I think, at the end of this five years, we'll likely be roughly 60% electric, 40% gas in terms of rate base earnings power of the company. From a consolidated earnings standpoint, given the level of capital investment in our utility businesses, even if we were to do nothing with Enable would represent less than 10% of the company's earnings going forward. That being said, as you know, we are absolutely committed to minimizing our exposure to midstream. While we're not necessarily in a position to announce the specifics today, we really are becoming largely a regulated utility that has a slight bias from an earnings power standpoint to electric.
Great. I guess, just Dave, question just on the Enable comment on we'll get an update in 60 days. I guess what's the chance that the update is we'll hear more in another 60 days? Do you just feel like there's enough visibility that it should be more meaningful than that?
Yeah, I think the chances that you'll get an update are 100%. If you're getting an update that's going to satisfy 100% of our shareholders, let's just wait and see.
Great. Okay, I'll let others ask. Thanks.
Thank you. Our next question comes from the line of Shahriar Pourreza with Guggenheim Partners. Your line is now open.
Hey, good morning, guys.
Morning.
Morning.
Dave, couple of questions here, two different topics. First on just the Oklahoma and Arkansas LDC sales. Obviously the sector is seeing some depressed public marks. How long has the BREC and the board review been focused on these LDCs? What gives you confidence that the sale process gives you enough equity value to support that financial plan? What drove the decision for Oklahoma and Arkansas versus the other LDCs? You do have other good ones. Should we read anything to the fact that your other Enable partner happens to be located in the states that you're looking to sell? Is there any read-through there?
No.
I've got a follow-up.
No. Absolutely no read-through on why we chose Oklahoma. Again, I'll let Jason go into the details here in a second. We're confident that we're going to get these businesses out in the market and sold. There's a lot of interest in them. Now that it's out as to which LDCs they are, I suspect we'll get more input today on that. Again, this is something Jason is living every day, so let me let him take it from here.
Thanks, Dave. We wouldn't have announced this if we didn't have this level of confidence in being able to close these transactions. The BREC, as that process was stood up this summer, received a lot of inbound interest. That inbound interest has continued since we reported out the results of the BRAC on the third quarter earnings call. Given that level of interest that we've received, we feel absolutely confident we'll be able to close these transactions. I know you referenced, Shar, the fact that the gas LDCs have traded off. As you know, when you look at the average multiple of rate base for the pure play gas LDCs, they're trading at about 1.6 times rate base. So at the heart of this is really an incredibly efficient way to fund our unprecedented level of growth.
We are going to be selling these businesses at a multiple of rate base and investing those proceeds at one times rate base. It's going to be accretive. The plan is not that sensitive to the absolute sales price. Stepping back, as I said, it's just an incredibly efficient way to fund this industry-leading growth.
Yeah, I think.
Got it.
Yeah. Let me just add a couple more things. I think that one, this was a tough decision. This is a good set of assets, and I believe that there's going to be tremendous amount of demand for them in the marketplace. One thing I learned a long time ago in business, you never put a business up for sale that you're not very confident you're going to move. We're very confident that there's going to be value there for these businesses.
You asked, Shar.
Got it.
A bit about the context for this decision. Let me just kind of share some thoughts around that. This is really largely driven by the decision to invest in a regulated utility business to improve our service for customers, to accelerate the growth of our regulated utilities. As we announced on the third quarter earnings call, we increased our five-year capital investment plan by about $3 billion. When you think about it, about half of that will be funded on an ordinary course basis with operating company debt. We announced some modest non-block equity of just over $300 million. As you can imagine, we've got increasing level of cash flows. There was really a financial need of a little less than $1 billion. Starting from that standpoint first, this was how do we efficiently fund that equity need in that ballpark.
We looked at the size of these businesses. Then stepping back, we looked at where do we have sort of operational synergies. There's a strong history here with Arkansas and Oklahoma being part of the Arkla legacy assets. Today, we actually run these two jurisdictions under a common leadership team. There's common principles around integrity management. There's a lot of synergy with respect to the ongoing operations. Then finally, we think that these are incredibly constructive jurisdictions. This is an area where the state, the regulators see gas as an important part of energy supply. We think those factors are really going to be of interest from prospective buyers. It was all of those factors that led us to the decision, as difficult as it is, to sell both Arkansas and Oklahoma.
Got it. Thank you for that, Jason. Just one last one more specifically on Enable, Dave, we appreciate that we'll get closure in 60 days, and it seems like there is very little probability that we won't get some sort of an announcement in 60 days. Do a tax-efficient swap, like a like-kind exchange. Is there any option that you see that are at least off the table? Just remind us if there's any opportunities in some of your due diligence work to potentially swap Enable with a C corp with similar assets versus with another MLP and still make it sort of tax efficient. I'll jump back in the queue. Thank you.
Yeah. I think, give us the chance to get through the 60 days. I'm not going to speculate on everything that we're looking at. As we said, we've hired a financial advisor. We're looking at our options right now. I think it'd be premature to lay out for you what the range of options are. Trust us. Give us the 60 days. I think if we've proven anything so far in our joint tenure between Jason and I, is we've got this thing moving in the right direction, and we're going to keep it moving in the right direction.
Great. Thank you, guys. Let's jump back in the queue.
Thank you. Our next question comes from the line of Julien Dumoulin-Smith with Bank of America. Your line is now open.
Congrats on getting this all done. If I can start with where you all just left out on Enable. Can you elaborate a little bit more on how you're thinking about the accretion impact? You talked about minimizing your ownership stake. Can you talk about your commitment from an earnings impact, right? To the extent to which you reduce down that segment, you've got allocated SG&A. When you think about resolving Enable, what can you say today, based on what you know in the process, about the criteria and the impact to your 6%-8% EPS growth trajectory from any resolution here?
Yeah. Listen, Jason has lived with this problem since day one, so I am going to throw it over to him.
Thanks, Julien, for the question. There's a number of variables that we're looking at here. We've talked about in the past the negative tax basis in Enable. One of the themes that you heard me commit to in some of the prepared remarks is the fact that we're not going to sacrifice the 6%-8% utilities growth. As we look at the range of options, we see a path to minimizing our exposure to midstream while protecting that 6%-8% growth in utility earnings. I think as you get deeper in the slide deck that we shared, you can see sort of two factors. First, in the walk between the rate base growth of 10% and the earnings growth of 6%-8%, you can see there's a factor in there that includes absorbing a higher level of corporate allocations and interest expense.
In addition, we've also taken a step as we've initiated 2021 earnings guidance for the utility segment to continue to clean up the association with Enable. We actually removed about $0.02. That was the net amount associated with the preferred securities in Enable. We will consolidate that with the midstream so that going forward, the utility segment is clean. Given the level of rate base growth that we have and given the range of options we're considering, we have confidence that we'll be able to absorb higher levels of allocation while achieving the goal of minimizing our exposure to midstream.
Got it. Maybe said differently, that's contemplated in that 0.5% delta that you just described. If I can just leverage that same slide here to ask a subsequent question. Obviously, there's a 0.5% regulatory lag there as well. Are you earning your ROEs currently? Is just the scaled up level of investment driving some greater expectations for relative lag? Is that kind of a proxy for some kind of authorized rate compression? Just curious how you would characterize that, because certainly there's an element of upside if you don't suffer incremental regulatory lag or do find perhaps EPS neutral ways to address Enable here.
Sure. We are earning at or near our allowed returns for each of our utility businesses. It's an important part of managing each of these businesses. As I said in the prepared remarks, when we earn at or near the allowed return, we have access to very constructive regulatory mechanisms. These mechanisms allow us to fold in incremental capital into rates automatically. There is some small lag that occurs. Maybe a classic example that I'll use is at Houston Electric. Twice a year, we have the opportunity to fold in incremental capital on the transmission side of the business. That's very helpful. At the same time, that gives us about six months where we may be incurring some depreciation without necessarily that recovery in rates.
When you look at that sort of rate base walk slide, the 10% to the 6.8%, I'd look at that 50 basis point acknowledgment of regulatory lag as something that is sort of structural in nature and will be ongoing. I think the areas that we have the most opportunity to close that gap are really getting past the first full year of dilution from the $1.4 billion of equity that we issued earlier this year. As we roll past 2021 and we get a full year's worth of those shares, that will help. I think we've also signaled that that rate base walk allows us to overcome the loss of the equity return in the latter years of our plan related to the Houston Electric securitization bonds.
When you couple those two drivers, you really see sort of a compression of that delta by about 125 to 150 basis points, allowing us on the back end of this plan and going forward
To really grow rate base at an amount less than 10% and still achieve our 6%-8% annual earnings growth.
Excellent. Hey, quick clarification. What's the net income today of those two businesses that you're selling? You can clarify that?
The rate base amount of those two businesses is kind of roughly on an adjusted basis for excess deferred taxes, roughly about $700 million. You could think of that as sort of roughly a 50% capital structure with a 10% return on equity.
Got it. That's a 2020 rate base.
That's right.
Thank you.
Yeah. Maybe before we go to the next question, I want to do it or make an editorial comment. I hope you're getting a sense of what a great addition Jason has been to our team. I know a lot of you know him. You can see how quickly he's gotten up to speed just in the few months that he's been with us. I would be remiss if I didn't mention today, it's Jason's birthday. As his birthday present, I'm kicking him a lot of the questions to answer today. Happy birthday, Jason.
Much for that being a secret.
Happy birthday.
Thank you. Our next question comes from the line of Jeremy Tonet with JP Morgan. Your line is now open.
Good morning, and happy birthday, Jason.
Thank you. Good morning, Jeremy.
Maybe coming at the Enable question slightly differently this time. Just kind of curious, CenterPoint went through the whole exercise of strategic review historically, that didn't amount to anything at that point. What do you see that's different this time around that makes you feel confident that you'll be able to achieve what you want to achieve here? Just curious how much credit quality considerations feed into your decision process.
Yeah, let me answer that with a couple of points, and then maybe Jason can elaborate. One is it's a different management team looking at it today, and we're committed to do what's best for our shareholders. I think we're taking a clean sheet approach as to what we're looking at. I think also it's important to understand we're aligned with our partner around the resolution of Enable. It's just as important to OG & E as it is to us to get a resolution here. You guys can come at this 500 different ways today. As I said earlier, give us the 60 days. We're making progress. We have a financial advisor, and just watch the space, and it'll happen.
Got it. Makes sense. Thanks. Maybe just pivoting over to batteries for a minute here. Just wondering how batteries could impact the transmission system in ERCOT. Do you see associated wire investment being kind of impacted as far as how you think batteries develop here? Could this impact the timing of transmission development? Just any thoughts on how those two interact.
We still have Kenny in the chair, so I'll let him answer the question, but I think the bottom line is it's positive for our wire and pole business, and Kenny will explain why. He'll explain what we're seeing in our marketplace. There's a lot of interesting things happening there. As he said in his remarks, we're really excited about the burgeoning renewable space that we're seeing inside Texas, but more importantly inside our territory here in the Houston area. Kenny, why don't you elaborate on this a bit?
Yeah. The batteries that we're now participating in, they are transmission-scale batteries. We're still early in really the opportunity. This year we'll be putting in our first large-scale battery that's third-party owned. The benefit of that battery for us is it is integrated into our transmission system, and it will require investments, important investments for us to enable the operation of its service into the transmission grid. As we expand those opportunities and more and more developers determine that there's an economic benefit, which we think there will be economic benefit, then we will be the enabler of the battery technology for the marketplace to enable the marketplace to have an efficient way to bring renewable power into the operation of the system in a timely manner, whether it's 4:00 in the afternoon or 4:00 in the morning.
That battery provides more flexibility to enable the opportunities for the market to work. We're actually excited about it. We see it as a good opportunity for our space. Even in addition to Houston, Texas, as you move over to Evansville, Indiana, and you get into years 2024, 2025, and beyond, our solar investments will be paired with battery investments. When the technology is economic and when the technology can be maintained and operated well, we will do those pairs. We'll make that investment and make it in a very prudent way and a very efficient way to enable the MISO markets to be more efficient in the state of Indiana to support our customers in the state of Indiana and to support our regulators. We think the battery becomes a really important technology solution for us in Houston and also in Evansville, Indiana.
I would encourage everyone to go back and look at the slide that Kenny had in his presentation because I think a lot of people are amazed by the amount of utility-scale solar going on right in our backyard here in Houston. As he alluded to, a number of them have started, and a whole bunch of them are on the drawing board at this point in time. All of those is going to take investment from CenterPoint to tie them into the grid. We're really excited about the renewable opportunities that we see in and around the Texas market today.
Great. That's helpful. Thanks for taking my question.
Thank you. Our next question comes from the line of Michael Weinstein with Credit Suisse. Your line is now open.
Hi. Good morning, guys.
Morning.
Morning.
Hey, Jason, you said that the gas utilities that are being sold benefit from a kind of a common management system. I'm wondering, does that mean that they're being sold together or to one buyer? Are these two separate sales?
We're actually going to multiple or market them rather, on an individual and combined basis. We want to create the most amount of interest in both of these really high-quality set of assets. The marketing effort really looks at both the individual jurisdictions as well as sort of the combined.
Right. With $700 million of rate base, I think you said, you've achieved some kind of multiple out of that. There is a slide there, I guess, where you have a green bar, I think that sort of indicates how much money you think you'll get for it. I'm wondering if, does the extra leverage in Arkansas affect the value of that in any kind of way?
No, I wouldn't.
Multiple rate base.
I wouldn't look at any extra leverage in Arkansas. We're essentially funding that business consistent with the authorized capital structure. I know there's been a lot of focus on this sort of multiple of rate base. I'd love to put it a little bit in context here. We're not going to exactly speculate on sort of values. The point that I wanted to raise is we've got a wonderful amount of growth here at CenterPoint. As we looked at the most efficient way to fund it, we have the opportunity to sell high-quality assets at some multiple of rate base, at some premium, and invest those proceeds at one times rate base. That relationship is accretive for our shareholders. It's a difficult decision to make from the standpoint of selling these two wonderful businesses.
It is a much less elusive option than the alternative of selling significant block equity. While I know there's a tremendous amount of focus on the exact multiple, I think what's really important is the underlying message, which is this is an incredibly efficient way to fund this growth. The plan, when you look at these numbers, is relatively insensitive to the final sales price. I think that's what I think investors need to take away from this approach, not necessarily the specific multiple of rate base.
Let me add a couple of points. I think one thing that investors need to understand, as we went through the BREC process, we found this extraordinary level of opportunities to spend capital way beyond our ability to fund it. We had to make some tough decisions in and around how we were going to fund basically and feed the beast at Houston Electric, which I believe is the crown jewel of the company. We have fantastic assets throughout this organization, but the economic engine of CenterPoint is Houston Electric, and it became very clear very early on that we needed to find a way to fund the growth in our electric businesses and the rest of the businesses in and around gas that Scott is managing. Tough decisions, we made them. As Jason said, this is a really efficient capital allocation process that we went through.
At the end of the day, something had to give, and Arkansas and Oklahoma were there. Great assets, great people, great management. Hate to see them go, but at the end of the day, we had to make a tough decision on behalf of our shareholders.
Right. Hey, a quick question on the regulatory aspects of all this. There's been a lot of talk about efficiency and cost savings. Have regulators expressed any interest in your plans? What kind of feedback have you gotten so far? Are there any rate cases that are necessary despite the fact that 75% of the CapEx will fall under mechanisms?
No, it's really today that we're finally announcing formally what the two jurisdictions are that are going to be disposed of. I think the important thing to understand is what we've hit on a number of times today. We have constructive regulatory relationships. I have been, and I've talked to the regulators and these constituency groups. They want to just make sure that whatever we do, we're taking care of their customers and their states, and we have every intention of doing that.
What I think is important about this announcement of reducing O&M 1%-2% is really it enables us to invest these incremental levels of capital. We won't have access to these automatic capital recovery mechanisms to the extent that we over-earn. What we are doing is sort of managing the outcome with respect to the incremental depreciation from the additional investment, sort of being offset by a reduction in O&M. It really, by managing both that capital increase with the O&M decrease, allows us to continue to access these really constructive regulatory mechanisms that allow us to fold the capital automatically into rates.
With respect to sort of the upcoming rate cases, what I would probably point to most is in 2021, we will be filing the CPCNs for each of the elements of the generation project in Indiana. We'll file separately for solar, separately for the wind, separately for the combustion turbine. The approval of the CPCN will effectively be the approval for including those investments in rate base and rates going forward. That will principally be the, at least in the near term of the five-year portion of our plan, the most critical aspect to follow from a rate case approval standpoint.
Right. Nothing in Texas, basically. Really no rate case activity there.
We likely won't be filing a Houston Electric rate case until maybe the back half of 2022, sometime in 2023. From a Texas gas LDC standpoint, we're really looking at probably 2023 and 2024.
Got you. Thank you very much, guys.
Thank you. Our next question comes from the line of Durgesh Chopra with Evercore ISI. Your line is now open.
Thanks, guys, and happy birthday to you. Want to go back to the slide 41, which is the financing, the rate base to earnings growth slide. Jason, just a quick clarification there. That 0.5%, the interest expense from parent-level debt, is that new debt to fund CapEx of the parent, or is that essentially utilities get a higher allocation of parent debt because over time or whenever Enable's contribution are going to be minimized? It's really debt associated with midstream investments now going to utilities.
I think it's really three things that I'd point to. There is on the back half of the plan as we fund or sort of grow the utility mix, we have the capacity for a little bit more parent debt. That parent debt isn't necessarily funding the utility growth. As I said, the utility growth is largely funded through the retention of the self-generated cash flows, utility operating company debt, the modest amount of equity, and the gas LDC sales. We do have some flexibility to fold in a small amount of incremental parent-level debt in the back end of the plan. That's one sort of driver. The second driver is we have included some conservative assumptions around some of the parent debt that is going to be refinanced. That is an opportunity in the plan.
Third, as you said, there is some level of a higher allocation to the utilities for the parent-level debt as we minimize our exposure to midstream.
Okay, perfect. Just real quick, and sorry if I missed this, but can you talk about credit metrics and as you sort of go through this plan, what you're targeting in terms of FFO to debt or debt to EBITDA for that matter?
Increasing our balance sheet flexibility was an incredibly important part of the overall BRAC process, improving the health of our balance sheet. The steps that we are taking do that. Absent a change with Enable in terms of the current level of distributions that we receive from our midstream segment, we would be targeting sort of roughly a 15.5 or higher FFO to debt metric. Gives us a lot of flexibility as we think about minimizing our exposure to midstream, of reducing our FFO to debt metric and still being well north of the downgrade threshold. I think it's that additional balance sheet flexibility that we have incorporated in our plan that was really recognized recently last week by Moody's as they moved the company from a negative outlook to stable outlook.
Perfect. Thanks, Jason. If I can just sneak one real quick. Just tax paying status. I believe you're paying small amount of taxes currently and just any color on that front. Thank you.
Yeah, we are paying a small amount of cash taxes on a Federal basis annually. We do, we're excited about the opportunity with the renewable generation projects in Indiana. That's going to kick off about a year's worth of investment or production tax credits that will help us start to reduce that Federal cash tax bill. We are taking actively steps to minimize those cash taxes. I think what I would look at is that step in Indiana, it will be the first of several steps to do so.
Understood. Thanks, guys, so much.
Thank you.
Thank you. Our next question comes from the line of Anthony Crowdell with Mizuho. Your line is now open.
Hey. Good afternoon, Jason. First off, happy birthday.
Thank you.
Most of my question's been answered. Just a quick one, I guess. It's probably more for Jason and Tom. I think both of you came from single state jurisdiction utilities. I'm just wondering if you view CenterPoint with its multi-jurisdiction utility strength. I understand, as Dave just put it, that Houston Electric is clearly the bell cow. Just thoughts on the multi-jurisdictional utility strength on the reallocation of capital.
Yeah, absolutely. Philosophically, I believe in the value of diversification. The opportunity to serve multiple states that go through different economic cycles, different areas of focus from a regulatory and political standpoint, I think create a more sustainable opportunity for a set of earnings. I actually think it's an incredible plus to operate in a multi-state, multi-jurisdictional holding company.
Great. Thanks for taking my question.
Thank you. Our next question comes from the line of Stephen Byrd with Morgan Stanley. Your line is now open.
Hey, thanks so much for taking my question. Jason, happy birthday.
Thanks, Stephen.
Can't think of anything better than taking questions from a utilities analyst on your birthday. Most of my questions have been addressed. I did just want to touch on a tax point. Just as you look at the two gas utilities, would you mind just at a high level speaking to the sort of the tax basis, tax implications of a sale and potentially if there are any sort of other offsets that could help shield the proceeds?
Yeah. For purposes of the plan, we assumed that we will pay full tax on the sale from a conservative standpoint. The two gas LDCs have a fairly low tax basis, as you can imagine, just given sort of the age of some of those systems. That being said, we are working on I think some creative strategies with respect to those transactions where we can begin to minimize some of that tax leakage on the sale of the gas LDCs. We haven't assumed that in the plan. We continue to pursue that and I think have the opportunity to offset what could amount to about potentially a third of the associated taxes. Equally, we are looking at opportunities to continue to improve our tax position across the enterprise.
As you well know, Stephen, we've got some trapped higher tax bases in some of the legacy Vectren companies that we've acquired. We are looking at opportunities to maybe unlock that higher tax basis to offset maybe some of the lower tax bases we have throughout the rest of the enterprise. The plan is based on the assumption of full taxes on the gain on sale. As I said, we're actively taking steps to minimize that.
That's really encouraging. Just a follow-up, just in terms of your dialogue with the rating agencies. I guess we've thought a lot about in the past the linkage of your overall credit position and your credit stats with Enable. Would you mind just touching on sort of the latest state of your dialogue with the rating agencies? It just seems like more and more, obviously, your strategy is focused quite a bit away from that business. How much of a linkage is there? Is there a possibility that that could improve in the sense of kind of getting fully de-linked? Just wasn't sure what the latest was there.
Yeah. We're obviously in active dialogue with all three of the rating agencies. I think that they see the steps the company's taking to improve the balance sheet health, minimize the exposure to midstream. I think a couple of things that I would point to is the fact, as I alluded to, even without doing something to Enable, which we're absolutely committed to do, given our growth of our utility segment, it's going to represent over 90% of the company's consolidated earnings going forward. Largely a regulated utility, even absent any changes with respect to Enable. I think the other thing that was important is this company earlier in the year reduced the dividend so that it is really a function of the earnings and cash flows that are driven by the utility segment. It's no longer dependent on midstream.
As I said, we have taken sort of steps as part of this plan, whether it's paying down some of the parent company debt with some of the proceeds from the gas LDCs or reinstituting the DRIP and starting the at-the-market equity issuance program in 2022 to really take steps to preserve balance sheet health. I think, I don't want to obviously speak for the rating agencies, but we saw with Moody's last week that they, moving us from negative to stable outlook really demonstrates, I think, the improvement we have collectively taken over the course of this last year and what we plan to take going forward to put this company in a position of financial strength.
Let me just add. I think there's a couple of points in and around Enable because it keeps coming up, and I think one of the things that Jason has said is that what we're trying to do is reduce the financial linkage into the ongoing EPS of CenterPoint, and I think we're making clear progress in doing that. The other thing we need to do is reduce the emotional linkage that shareholders and others have between Enable and CenterPoint. As we move forward addressing both of those, I think as the outcome becomes more clear to people, I think you'll be happy with what you see.
That's really helpful. That's all I had. Thanks so much.
Thank you.
Thank you. Our next question comes from the line of James Lacker with BMO Capital Markets. Your line is now open.
Thanks so much. Good afternoon, guys.
Good afternoon.
Good afternoon.
Hey, Jason, just one real quick point of clarification. Just regarding the $1 billion of incremental capital. Just to make sure I heard it correctly. The way we should really think about this is this is really contingency capital that de-risks your ability to deploy the $16 billion through 2025, correct?
I think certainly on the front end of the plan, that's absolutely the way to think about it. Then I think as we continue to execute at a higher level of CapEx, then we'll reassess the opportunity to fold this in efficiently on what I would probably consider sort of the latter half of this five-year plan.
Yeah. I think the way to think about it-
And is there-
Let me just add. Life and business never goes as you plan. As Jason said, we really look at it as contingency. If we do in fact just continue to hit our mark, then it would be incremental capital to that. I think it does allow us to make sure that as we sequence it along the lines of what we showed you today. That you can get confidence that we're going to add to rate base at the sequencing and % increase that we said we would.
No, that makes sense. Jason was pretty clear that you need a diminishing amount of capital as you get sort of over the dilution hump in the first couple of years. That makes a ton of sense. I guess the other question I just had real quickly is, in the 2021 guidance that you've given for EPS, could you talk about, I guess, what you've assumed in there for the parent and other drag?
The real change that we have for the parent and other drag is a $0.02 reduction in earnings associated with the preferred security in Enable. Historically, we have reported the net earnings from that preferred security. The earnings on the preferred security, less the associated allocated debt and interest costs we had reported, essentially those $0.02 as part of utility earnings. By initiating the guidance here in 2021 and calling this out specifically, we're pulling that out of utility earnings and adding that back to Midstream. That now Midstream segment going forward really reflects the totality of the Midstream activity, and that's probably the largest change from an allocation standpoint that I would point to in terms of 2021 guidance.
You're talking about sort of year-over-year.
That's correct.
Okay, got it. Great. Thank you so much for the time.
Thank you.
Thank you. Our last question comes from the line of Charles Fishman with Morningstar. Your line is now open.
Thank you. Transmission CapEx. You had one slide, at least for Texas, that talked about the renewable projects, the solar projects, driving transmission investment. When you look at the CapEx for transmission, it goes down regularly over the next five years. Is that because you just don't have any of the large Bailey Jones-type projects, or what's going on there?
Yeah. Kenny, go ahead.
We clearly have the end of the Bailey to Jones Creek project in 2022, December 2022. Very excited about the execution of that project, and we got boots on the ground this month, and we're working hard to take it to the end. We have other projects that are in the resiliency category and in the reliability category that are actually going to make 2022 greater than 2021 in that transmission spend area. I don't want you to leave today thinking that we're going to have less dollars in that space, because the truth is that replacing aging transmission in areas, not like for like, but replacing it in a more hardened and a more water-resistant design is very important to us. We have to build the new transmission environment to withstand these large hurricane-based types of storms.
Our project investment thesis just gets bigger in 2022 versus 2021. Let me just add to that there's the possibility, if you recall, we did an import project just a couple of years ago to bring more of our capacity from larger areas of the state into Houston. Houston is a big load. It's a big import load. It sucks a lot of electricity into our service area. We have the possibility of having another project the size of Brazos Valley just a couple of years ago within the radar, maybe three or four years, four to five years from now. We're planning opportunities for even having more import capacity serving the Greater Houston area in the next two, three to four years. We're very excited about the transmission opportunities that we see beyond 2021.
Kenny, one of your peer utilities along the Gulf showed the performance of some of these new transmission structures. It was really quite remarkable. Performance in a hurricane compared to the old structures. Is that the kind of stuff you're talking about doing?
That is correct. I mean, our base design standard from the Gulf Coast into our service area, it has a 170-mile-an-hour design to 150-mile-an-hour design and on and into the service area. We design with these very deep bases. If you ever have time to come out and see it, our bases are a significantly big part of the design of the structure that you see up in the air. The point is, you must have that system in place, even in the worst-case storms. It must be able to withstand the worst-case storms. If you go back to Hurricane Ike just 10 years ago, we had about 120-mile-an-hour winds in Houston, Texas, all the way through our service territory for about 12 hours. Our transmission system was pretty much intact.
It withstood that level of wind and over a long period of time, 10-12 hours, it withstood those conditions and did really well. We've tested our transmission design in the past, but we're even putting more into our design today and into the future, to your point, to make sure it's very resilient for the future.
Okay. Thank you. That's all I had. Very helpful.
Well, great. Thanks, Kenny. Thanks, Jason. Thanks to all of our shareholders today. We're out of time, unfortunately. This has been a really exciting day for our management team and hopefully for our shareholders. I think as I said a number of times, we've got a great management team. We've got great assets. We have organic growth. We have renewable opportunities. We have a future in front of us, unlike many other utilities that are out there today. We're looking forward to this journey. As I said earlier, please take it with us. Our investor relations folks will have their phones open this afternoon if you want to have any follow-up calls. I know we threw a lot of stuff at you today. The slides, I think, are self-explanatory. Please go back and watch a retape of it. Also, just call in here this afternoon.
We'll be happy to talk to you. Have a great day.