Welcome to the NiSource 2022 Investor Day. We're happy so many of you could join us here in person at the New York Stock Exchange. We'd also like to welcome those of you joining on the webcast today. My name is Christopher Turnure. I'm Director of Investor Relations. It's great to see so many familiar faces in the audience, and we really wanna thank you for being here, given that a very, very busy earnings season is now winding down. I'd like to start off with our legal disclaimer. The purpose of today's call is to provide you with an update on our operations and growth drivers and to review NiSource's financial performance for the third quarter of 2022. We'd like to remind you that some of the statements made during this presentation will be forward-looking.
These statements are subject to risks and uncertainties, and these risks and uncertainties could cause actual results to differ materially from those expressed in the statements. Information concerning such risks and uncertainties is included in the Risk Factors and MD&A sections of our periodic SEC filings. Additionally, some of the statements made may relate to non-GAAP measures. Please refer to the slides, segment information, and full financial schedules for information on the most directly comparable GAAP measure and a reconciliation of these measures. Following our prepared remarks, we'll be available to answer your questions. With that, it's my pleasure to turn things over to our CEO, Lloyd Yates.
Thank you, Chris. Good afternoon, everyone, and welcome. We're delighted to be here with you today at the New York Stock Exchange to update you on the NiSource story. On your way in, I hope you had a chance to meet our employees stationed in front of the building with one of our advanced leak detection vehicles. They'll be happy to tell you how it enhances our ability to provide safe and reliable service while reducing greenhouse gas emissions. That's part of our vision, to be an innovative and trusted energy partner. Our industry is going through massive change as technologies evolve and as customer expectations evolve. We've refreshed our mission, vision, and values. As I said, our vision is to be an innovative and trusted energy partner. Our mission, what our employees focus on every day.
We exist to deliver safe, reliable energy that drives value for our customers, but not just for our customers. We exist to drive value for all of our stakeholders, from regulators to investors, to employees, suppliers, and our communities. Finally, our updated values guide us on how we're going to make this journey together. Be safe, look for a better way, act with care, and take accountability. Our vision, mission, and values ground us in what's possible and what we need to do to turn that into reality. Together, our mission, visions, and values represent the why and how of what we do every day. During the rest of this presentation, we will focus on what we do, our business strategy, which is our aspirations, objectives, and key results, plus our strategic initiatives to drive the business forward. Let's go to slide five.
NiSource is 100% regulated gas and electric utility serving six states with a focus on safety, reliability, and a commitment to maximizing shareholder value. This map illustrates our significant scale. We operate over a large and diverse footprint in the United States. The proximity of our six companies provides critical mass. Taking a closer look at our operating companies are located in constructive regulatory jurisdictions. These states recognize the value of natural gas and electric service, and they provide very efficient regulatory mechanisms to recover and earn on our investments. NiSource serves more than 3 million gas customers across six states, as well as nearly 500,000 electric customers in Northern Indiana. We expect the updated growth plan we will share today to drive a compelling total shareholder return of 9%-11% annually. We believe that is a premium utility performance.
Go to slide seven. We're driving to become a premium utility. What exactly does that mean? A premium utility provides safety above all else, as we do. At NiSource, our team's focus on the safe and reliable service to our customers, employees, and communities is second to none, and the resilience and reliability of our systems has never been more important than they are today. Premium utilities are also long-term infrastructure investors. Every day, they make investment decisions on assets planned to deliver value to stakeholders for up to 40 years into the future. To successfully execute on these investments requires premium utilities to have constructive regulatory backdrops. This underpins their ability to make those investment decisions that benefit their customers and provide a return to their investors.
At NiSource, there is a deep inventory of investment opportunities that enhance the safety and reliability for our customers. This opportunity represents approximately $3 billion of infrastructure investments annually. Regulatory trackers and rate case flexibility across all six states optimize cash flow, minimize regulatory lag, both of which allows us to deliver consistent returns on invested capital. Additionally, premium utilities are committed to creating value for all stakeholders. At NiSource, we are building diversity in our employee population with our suppliers. We are focused on the regions which we serve to help them be great places to work and to do business. This is critical and underpins a healthy economy which attracts organic growth, industry, manufacturing, and thus the need for even more infrastructure. People are at the heart of this.
None of these investments come to fruition without someone turning a wrench or standing up a pole or relentlessly being there for our customers and our communities when they need us the most. When these factors come together, premium utilities become the integrator for the community. They multiply the economic value they create. They support all customers of all sizes and economic means and relentlessly work to keep people safe. They improve the value of the communities they serve, and they bring capabilities, jobs, taxes at a rate which leaves the community much better than before. That is a premium utility at work. Switching gears to ESG, our strategy is aligned with a commitment to the best-in-class ESG principles. NiSource has been a leader in reducing greenhouse gas emissions.
Building on the progress we've already made, today we are announcing a new goal, net 0 scope 1 and 2 emissions by 2040. We'll need the broad support of regulatory and legislative policies, favorable stakeholder environments, and advances in technologies that are not currently economical to achieve this, but we are optimistic. Shawn will have additional details in his presentation. We are committed to progress on social factors with a transformation focused on safety, reliability, and affordability, and we are enhancing our diversity, equity, and inclusion efforts. Finally, our commitment to governance begins with our diverse, skilled, and independent board of directors. The board has been refreshed, and an updated committee structure provides for a robust framework for strategy, risk management, and oversight. You'll find more information about our fundamentals and our ESG profile in the appendix to today's presentation.
Now that we've taken a look at NiSource's strong fundamentals, let's get to the heart of the presentation, the strategy that supports an extension of our top-tier growth plan and a premium utility valuation. What you'll hear today begins with an overview of our NiSource strategy and direction, including the findings of our strategic business review. Shawn Anderson will discuss our sustainable gas and generation transition. Donald Brown will give us the financial overview. Finally, I will wrap up our presentation and open the floor for your questions. When I became CEO at NiSource in February, I announced a strategic business review with a goal of ensuring NiSource is well-positioned to drive long-term value for all stakeholders. It was important to bring the right people to the table, building a review team with a deep background in finance, operations, and strategy.
We are very fortunate to have board members with decades of utility experience, Mike Jesanis, Theo Bunting, and Bill Johnson. Donald Brown, Shawn Anderson, and I participated from our leadership team. We also brought in strategic advisors from Lazard and Goldman Sachs to provide additional expertise. This is a strong and seasoned team focused on continually enhancing long-term shareholder value. Over the course of the last seven months, this group met in person and virtually more than 15x . That is in addition to the countless hours of work behind the scenes by everyone involved to do the analysis, evaluate the options, progress the conversations, and everything else. I wanna thank everyone for their hard work. Let me take a step back, I've been in this business a long time, 40+ years.
As I have observed in my career, and I'm sure you all appreciate, the best way to drive long-term value in the utility industry is through some combination of the following, all of the following in a best-in-class way. First, run a safe system and be committed to safe operations above all else. Continuously identify investment opportunities that can grow rate base in a way that is sustainable for our customers. Relentlessly manage costs. Finance the business in a way that optimizes the cost of capital, maintains financial health, and enables additional rate base investment opportunities. Finally, flawless execution. In other words, the best opportunities for us to drive stakeholder value exist within our business. Now, that doesn't mean we shouldn't look for other possibilities, but getting these things right is the key for success, and we are executing on those opportunities.
For example, we've invested significantly in our safety initiatives, and we will continue to do so. We have more than $30 billion of investment opportunities in our six operating businesses, all of which we can invest at 1x rate base. We have a cost profile and an approach to work that presents efficiency opportunities to better manage customer bill pressures. For example, our wrench time in the field needs significant improvement. Our customer contact centers need to be optimized, and management of our contractors needs to be enhanced. This focus will help us keep our commitment to you as investors to significantly grow the bottom line through capital investment. We also leverage the scale of our operations and central services to create efficiency for our stakeholders.
Beyond simply focusing on cost structure, we have an opportunity to focus on working smarter, doing things more safely and more efficiently. I brought a number of those observations of what I've seen at NiSource to the review. As I've traveled across the footprint, it became obvious to me that NiSource has some great strengths. These include our team's regulatory execution and the legislative environment in the states we serve. We have a long runway of investment opportunities and the ability to grow over a long time horizon, and we have great people. Our employees are flexible, they're committed, and they have a strong focus on serving our customers. They're living the mission statement I mentioned a few minutes ago. I've also found some significant weaknesses. NiSource balance sheet has been constrained for some time, more than 20 years.
We've had to issue a lot of equity to fund our investments. That's led to dilution. We need to fix that to provide the returns that reflect a premium utility valuation. Our cost profile is another substantial weakness, and many of our key technology systems are inefficient, and they're outdated. We feel very fortunate to have a long list of opportunities. They include creating efficiencies and taking advantage of our vast scale. We can reach industry-leading environmental goals. There's also an opportunity to streamline the organization and an opportunity for investment in leadership in the energy transition and grid modernization on both the electric and gas sides. As I scan the horizon beyond managing the near-term supply chain issues, the core threats I see that affect everyone in our industry, and I think we all understand them well. High commodity prices have raised customer bills.
High interest rates driving higher capital investment costs. And while the energy transition presents great opportunities, there's a threat to those who don't continue to move forward in a way that creates value. The actions we are taking help insulate NiSource from these threats. This slide clearly shows the impact of our constrained balance sheet. Since NiSource and the Columbia Pipeline Group separated in 2016, NiSource has grown its rate base by about 70%. Net operating earnings have grown about 60%, a compound annual growth rate of more than 10%. That's outstanding. However, the picture changes when we look at net operating earnings per share. Growth of just 25%. Despite the strength NiSource enjoys, a constrained balance sheet has resulted in the dilution of shareholder value. That became an important gap we need to address.
These observations helped to frame the scope of the strategic business review. The team kept an open mind towards avenues that would help us deliver maximum value to stakeholders. We began with our best-in-class high-growth base case. How could we optimize it to produce maximum value? Financing was carefully considered. We looked for options in alignment with our long-term strategy that would strengthen our balance sheet, a problem that we've been dealing with for a long time. The review team conducted a thorough analysis of our options for optimizing our portfolio. We conducted extensive scenario analysis to assess how each might be accretive. We looked at all sorts of M&A, things we could sell, in part, in whole, things we could buy, other companies we could partner with, et cetera. We even had various forms of conversations with potential counterparties.
I'm not going to get into the specifics, but I am telling you so that you can appreciate how robust our process has been. To better understand NiSource's position and potential outcomes, the team did robust benchmarking of all of our opcos against other utility opcos. When people talk about benchmarking, O&M usually comes to mind. However, we expanded the definition significantly. We believe a comprehensive benchmarking analysis sheds light on strengths and weaknesses of our strategic positioning. We included such items as long-term investment, inventory, operational efficiencies, constructiveness of regulatory environments, including historic ability to deliver strong returns in the energy transition in a constructive manner. Importantly, visibility to short and long-term growth drivers. This provided valuable perspective and a stimulus for running the business better, more efficiently, and at a lower cost.
We also looked at NiSource's culture and talent, which are foundational for our long-term success, along with organizational structure to help drive accountability. We looked at our corporate overhead and all other elements of how we spend money, including those that are behavioral and work management related. In total, the review considered many avenues for maximizing shareholder value, backed by robust and impactful information. Here's what we concluded and the action we are taking. First, the review confirmed that the scale and diversity of our current portfolio of operating companies adds value. Scale offers opportunities to manage costs in our operations and across our supply chain, something that's particularly important in this inflationary environment. Diversification across multiple states helps mitigate financial risks, and the seasonal nature of gas and electric businesses helps smooth annual cash flow needs.
Second, we clearly saw our industry-leading recovery programs drive top-line growth. We began earning on 75% of our investments within 18 months, and we believe that's a significant advantage. The review identified an opportunity to remove the balance sheet constraint, and in a moment, we'll talk about a significant action we're taking. Finally, we concluded we must improve our cost profile to help maintain customer affordability over the long term. We're taking action on these conclusions. First, we're announcing today an intent to sell up to 19.9% interest in NIPSCO in a tax-efficient transaction. NiSource remains committed to our NIPSCO business, our customers, employees, and the communities we serve in northern Indiana, and we'll continue to execute and enhance our business strategy there as we have before. However, the proceeds from this minority interest sale will immediately strengthen our balance sheet.
We'll be able to fully leverage our portfolio of investment opportunities to enhance shareholder value. Shawn and Donald will tell you more about the impacts of this transaction in a few minutes. Our second and third actions are tied together. We will focus on optimizing our cost profile and enhancing operational efficiency. NiSource has great hardworking employees, but outdated systems and work processes are a big drag on our productivity. Updating systems and focusing on operational excellence will have far-reaching impacts. This change will make us safer operators and help us to maintain affordable rates for our customers. This is key to that effort. You'll see more detail in the next slide. Our review was thorough. I'd like to thank the review team and those supporting them for the countless hours they spent on this work.
The opportunities the team uncovered will drive our long-term growth and maximize value for all stakeholders. Our work will be built on a foundation of operational excellence. It's the key to increasing productivity, controlling costs, and protecting public safety. We intend to keep O&M costs flat through the life of this plan. Doing that is essential to customer affordability, and it gives us the ability to invest in better service and reliability. We see broad opportunities to standardize work and apply industry best practices. Of course, operational excellence goes hand in hand with our enhanced focus on safety. Our team has worked tirelessly to advance the safety of our customers, communities, and employees. Here are some stats from our safety report that are responsive or representative of the progress we're making.
While having 0 significant safety events is an important headline number, the other numbers show we're focused on the details, working to prevent problems, and responding properly, promptly to incidents. NiSource reached a major milestone this year in our safety journey through our safety management system. We became only the second U.S. company recognized as being in compliance with the American Petroleum Institute Recommended Practice 1173. That's the document that defines a safety management system. One innovation that shows how we changed our approach to safety is our risk-based capital allocation strategy. This ensures we're getting capital where it's needed to address risks. We've built a culture where every employee can report risks and where risks are systematically addressed. We'll continue to advance safety through a culture of operational excellence. Strengthening our balance sheet and building a culture of excellence enhances our ability to execute on our investment plan.
NiSource has a deep portfolio of investment opportunities. We've identified about $30 billion worth of investment opportunities over the next 10 years. The largest share of those investments are on the gas side of the business. We'll continue to replace and modernize our infrastructure. That activity is essential. We're continuing to provide safe and reliable aging gas lines that's helped us achieve significant reductions in methane emissions. You also see large chunks of the pie going to electric infrastructure as well as the generation transition and renewables. We expect to make significant investments in customer growth. Having several buckets of investment opportunities gives us significant flexibility to move investments where we can drive the greatest benefit for our stakeholders. I'll close my presentation with a look at the NiSource value proposition all in one slide.
I'll give you a moment to take it all in cause I believe these numbers tell a great story. We offer a very attractive total shareholder return proposition of 9%-11%, more de-risked customer rate sensitive, 6%-8% annual growth in net operating earnings per diluted share, our 8%-10% growth in rate base, and our targeted 60%-70% dividend payout ratio. Add to that more than $30 billion of investment opportunities and a strengthened balance sheet. This is what we believe a premium utility looks like. I wanna thank you for your attention, and now we'll turn it over to Shawn Anderson.
Thank you, Lloyd. Good afternoon, and thank you all for being with us today. As Lloyd just described, the strategic business review process we embarked upon included a thorough and rigorous evaluation of our businesses focused on creating long-term shareholder value. We incorporated all ideas into this process, aided by the diverse perspectives of all of the stakeholders involved. As this slide lays out, and as Lloyd touched upon, we studied a wide range of different ideas and alternatives for NiSource. I'd like to focus a bit here on our approach during the process, which began with looking at ways to optimize our best-in-class, high-growth proposition within the NiSource business plan. Importantly, our plan includes the operation of our premium utilities situated across 6 highly constructive jurisdictions with approximately four million customers who we are so fortunate to have the opportunity to serve.
We'll talk more about these companies and why they are premium utilities, and importantly, how they fit and contribute to NiSource's strategy and growth. We looked hard at different ways to finance the business. Over the last five years, our operating companies have averaged a rate base growth of 13% on an annualized basis and are projected to grow rate base at approximately 8%-10% on a forward-looking basis. Financing solutions that maximize balance sheet health, minimize dilution, are always going to be something we study and evaluate thoroughly. Priorities such as flat O&M, leveraging efficient regulatory mechanisms, which deliver a return on capital expenditures inside 18 months, help to de-risk and streamline cash flows from our investments and leverage the premium fundamentals of the NiSource business plan.
All of this translates directly into a compelling total shareholder return proposition, which is accretive annually and will drive value creation for years to come. Throughout the review, one of our core goals was to make our base case business plan and growth outlook as strong as it could be because that underlying execution will maximize long-term shareholder value in all scenarios. Another key area of evaluation was inorganic options, namely portfolio optimization pathways and M&A opportunities, as ways for us to enhance the already strong foundation crafted in our base case. As Lloyd Yates referenced, we reviewed a variety of options and held discussions with prospective counterparties and spent a good amount of time to get a sense of the marketplace. Some of the observations and learnings from these evaluations are similar to what we've observed in the past.
Our evaluation concluded it's difficult to realize accretion through full opco sales as NiSource and its customers benefit from scale, diversity, and centralized service costs. Selling an opco or opcos creates dyssynergies that take time to mitigate and put pressure on the remaining company and customers. Doing so is also tax inefficient and is dilutive as a result of lost earnings and cash flow. Likewise, it can be difficult to create incremental value through outbound M&A. It's hard for us to create value by paying market premiums when we have a massive inventory of opportunity that can be invested in at 1x rate base. Thus, we landed on the minority interest sale as the best path forward. It achieves several goals. It allows us to strengthen our balance sheet. It's tax efficient. It avoids dyssynergies. It maintains the scale of our business.
There's a good precedent in the industry of this type of transaction being completed successfully, and it's a very efficient means of financing our business. I'll talk some more about this in a few slides. Before we head that direction, as we look across our jurisdictions, first and foremost, we make long-term investment decisions designed to deliver value to stakeholders. The regulatory support in these areas that help us to prioritize safety and execute on our investments is of critical importance. We spent a lot of time on this concept in the review of our business. Understanding the investment parameters are necessary and what it would take for each business to be a successful investment story consistent with the premium business plan such as ours. As you can see on this slide, we have forward-looking capital mechanisms in nearly every operating company, reducing regulatory lag.
The exception to this is Ohio, which is unique in its ability to track 100% of our related capital expenditures and begin recovery within 12 months. Strong rate base growth paired with constructive regulatory environments is even more impactful when you realize that approximately 90% of our capital spend is within Ohio, Indiana, and Pennsylvania, where you have the benefit of these regulatory mechanisms. Meanwhile, Virginia has historically experienced strong organic customer growth, which we expect to continue into the future. Just last week, Virginia was ranked number one by Site Selection Magazine in terms of constructive business climate. Maryland exhibits a stable economic environment, zero lag due to forward-looking infrastructure replacement programs, and growing communities attracting from the Washington, D.C. area.
Kentucky is one of three of our LDC businesses operating within states which have passed legislation to preserve customer choice of energy fuel diversity. All of these regulatory and legislative fundamentals underpin a balanced growth rate across all of our jurisdictions, each of which have achieved a five-year average ROE in the mid 9%-10% range. In summary, what makes us so bullish on the investment thesis for NiSource is the quality and strength of each of our jurisdictions as we see significant economic development and growth opportunities, both as a whole and when independently reviewing each jurisdiction. We are so fortunate to serve and support communities among the most constructive in the United States. Early in our process, we observed that the company's balance sheet constraints created an impediment to achieve many of the goals set out for in the strategic business review.
In some ways, this is the missing link which enables us to convert our rate-based growth opportunities into net operating earnings per share in an efficient manner. Historical circumstances, coupled with the demand for significant amounts of rate base to be deployed, required external capital market solutions as a funding source for our business. As we look toward the future and recognize even more investment opportunity on the horizon, we see more demand for capital, not less. We also recognize the state of the external capital markets today as more volatile than in years in the past. Higher interest rates and the overall cost of capital has an impact on our company's plans, which creates a dependence on these marketplaces being available at a low cost each and every year of our plan.
These observations contributed to focus on accelerating the strengthening of our balance sheet and de-risking our future capital markets needs. Our evaluation demonstrated that diversifying our capital raise could strengthen our credit and financing flexibility while stabilizing both our earnings power and our financing plan, especially when coupled with a minority interest sale of our business. We evaluated a range of potential outcomes, and we are confident that we will be able to execute this sale with a transaction that delivers relative value to the NiSource standalone plan for EPS metrics, our credit metrics, and our overall valuation. We've looked at a range of industry precedents, many of which have attracted significant investor interest and have driven premium valuations in all types of market conditions.
We've heard from interested parties on the merit and value to invest in a minority interest at NIPSCO and how that would align with their investment thesis over the long-term horizon. Indiana has also been one of the most constructive states to execute minority interest transactions with multiple precedents in the marketplace already. We do not expect any tax leakage or meaningful dyssynergies with this type of transaction, and thus it is a much more efficient capital raise than any full opco disposition potentially considered. Finally, NiSource retains long-term strategic flexibility across all of our scale of six operating companies focused on gas and electric utility operations and can still leverage the vast array of investment potential fueled by our growing businesses.
We believe this transaction will reposition the NiSource balance sheet to a position of strength and eliminate the need for all equity, discrete equity issuances through 2027 while relying only upon traditional debt and ATM equity to simply maintain the capital structure on a go-forward basis in 2025 and beyond. I will wrap up this portion of my presentation with a look at a different slice of our benchmarking data. We thought it was important to share the fundamentals of the NiSource business plan, which are premium when compared to many of our peers, as well as how this shifts as a result of the transaction process we will commence in Q1 2023. We continue to commit to our 100% regulated business mix across six jurisdictions, retaining diversification of operating territory as well as fuel source with our gas and electric businesses.
We maintain a premium rate base investment opportunity of 8%-10% annually, shaped by our risk-informed capital allocation process. We're able to translate these investments into 6%-8% net operating earnings per share annually, in large part due to our streamlined cost commitment, the reduction on external equity needs, and importantly, the strength of our cash flow recovery mechanisms across each of our high-quality regulated jurisdictions. We continue our commitment to the dividend payout ratio of 60%-70%, an investment yield opportunity to complement our growth rate and help target double-digit annual returns for our investors. Finally, our business plan sets up to deliver these enhancements, all while realizing a step change in credit quality through the balance sheet strengthening anticipated with the minority interest transaction.
As we noted, this transaction de-risks the external financing needs over the duration of this plan and allows our team to focus on execution of the high-quality capital allocation opportunities we have in front of us and maximize the value creation across all of our projects. Taken together, we believe these strengths show NiSource should be considered a premium utility investment. Now let's turn to the long-term sustainability of our business plan. NiSource is committed to enabling an equitable energy transition for our stakeholders through investments that will drive safety, systems reliability and resiliency, and significant greenhouse gas emissions reductions. While these efforts will support broader decarbonization in our communities, we're also focused on doing so in a way that is affordable as well. An equitable energy transition will look different from state to state and community to community.
We're taking a collaborative, supportive, and stakeholder-centric approach to truly understand the perspectives which inform the long-term plans and support in each of the communities we serve. The energy transition creates significant economic benefit to our communities by way of regulated investments, of which we have approximately $30 billion already identified over the next 10 years. These investments are critical to community safety and reliability, but many of these investments are integral to enhancing the sustainability of our communities as well. Along with driving down greenhouse gas emissions and protecting local environments, these investments support thousands of jobs, generate $100s of millions in tax proceeds for state and local government, and allow us to drive long-term premium returns for our shareholders. Customer affordability is of critical focus during this energy transition.
Through 2027, we anticipate low single-digit annual growth in customer bills, supported by reduced commodity prices, energy efficiency, O&M discipline, and additional benefits of scale as our customer base expands. Even if you eliminate the impact of commodity costs, we expect distribution rates to grow less than 5% on an annualized basis. We have seen natural gas prices moderate from recent highs and expect pricing to return to the $4.50-$5.50 range during this plan horizon, in line with broader market expectations. We are also advantageously located close to the Marcellus and Utica shale formations, allowing us to access supply from basins which trade at a historical discount to Gulf and East Coast markets. Our electric business is also able to benefit from geographic advantages derived from the transmission efficiency of our central Midwest location and optimize grid access facilitating regional energy movement.
NIPSCO's generation transition is well underway, and upon conclusion, will support customer affordability through an increase of zero-commodity generation resources, and we remain on track to deliver the execution of the projects identified from the 2018 IRP. Lastly, our own commitment to flat O&M, leveraging an enhanced focus on operational excellence, is contributing to low customer bill growth. This discipline will directly benefit customers and allow headroom for continued investments driving safety, reliability, and sustainability. In the regions we operate, natural gas is a clear economic advantage versus competing alternatives. Emerging higher-efficiency T-gas technologies have the potential to expand this advantage even further. We are seeing continued demand growth for natural gas across all customer segments, and several of our states are in the midst of a manufacturing and industrial resurgence that is being fueled by natural gas.
Natural gas remains a critical component of a diverse clean energy portfolio. Its role allows for accelerated decarbonization through a more cost-effective approach as compared to pure electrification by leveraging existing infrastructure, zero to low carbon fuels such as RNG and hydrogen, and utilizing more efficient end-use equipment. Blending RNG and hydrogen with natural gas and delivering it through our existing infrastructure will require limited changes to customers end use, thereby speeding up access to low-carbon energy. When looking at large industrial customers, these fuels will also allow for decarbonizing applications which are not well suited for electrification. Our modeling across our service territory demonstrates an electrification-focused pathway is 44% more costly on an NPV basis than an optimized portfolio which combines some electrification with natural gas, renewable natural gas, hydrogen, and the use of existing gas infrastructure.
The additional benefit is that much of the infrastructure required for the optimized portfolio is already in place, thereby accelerating the rate of decarbonization in the near term. NiSource has taken an active role in directly advocating for and advancing federal and state policies that support a clean and equitable energy transition. Impactful policies such as the Infrastructure Investment and Jobs Act and the Inflation Reduction Act are helping to champion innovation and foster tangible outcomes that can drive affordable decarbonization. Supportive policy and regulatory frameworks are necessary to reach our long-term decarbonization goals, and NiSource is focused on key areas such as alternative fuels legislation, delivery of energy efficiency programs, advancement of accelerated leak detection, continued gas system modernization, and renewable energy investments. NiSource is also taking an active role in supporting the development of technologies that will enable decarbonization through the natural gas system.
Across our states, we are deploying Picarro advanced leak detection vehicles like the one out front today. Innovations like these have the potential to greatly influence utilities' visibility into their emissions inventory and transform how the industry identifies, prioritizes, and repairs leaks. NiSource is also committed to supporting the growth of RNG across our service territories. Over the past year, we've established common RNG gas quality standards across all of our gas LDCs and streamlined our processes to facilitate RNG producers connecting to our systems. NiSource currently has RNG producers injecting close to 2 BCF per year into our system and expect that figure to grow based on pending demand in our engineering queue. We recently launched a hydrogen blending pilot at our Columbia Gas of Pennsylvania Training Center.
The first phase will allow our pilot to study the impacts on the different blends of hydrogen and natural gas in a controlled environment on our distribution system and on end-use equipment. We are also participating in several regional hydrogen hub proposals that are seeking DOE funding within the IIJA's Clean Hydrogen Hub program. Onto our electric business. As you know, the NiSource generation transition started in 2018 when our portfolio was about three-fourths coal. By the end of this decade, we will have retired all of our coal generation and transitioned the majority of our portfolio to renewables and storage assets, with natural gas continuing to play an important role providing reliable baseload and peaking load generation.
We are on track to deliver on the projects that will replace the capacity from R.M. Schahfer Generating Station, eight owned and joint ventures, and the remaining in PPA contracts. Over the last few months, we've worked tirelessly to address and mitigate the supply chain issues the industry has faced earlier in the year and are confident in our current project timelines. Rosewater and Indiana Crossroads Wind One are both in service and providing clean energy to our customers today. Our projects expected to be complete next year, Dunns Bridge I and Indiana Crossroads Solar, are in a strong position with respect to panels and other key inputs and are in the final stages of construction. These projects represent a tremendous first step into our solar portfolio and are among a small subset of projects across the country to only face minor delays.
Dunn's Bridge II and Cavalry Solar have both started construction, and the last two projects, Fairbanks and Elliott, are continuing in commercial negotiations. Our advancement, despite recent market constraints, reflects highly of our relationships with our developer partners as we leverage creative solutions to address market pressures. All told, CapEx to support the retirement of Schahfer is projected to be approximately $2.2 billion. CapEx to support the next wave of investments beyond Schahfer is currently estimated at approximately $1 billion to support the future portfolio through 2028. Driving these costs are increased capacity needs as a result of the MISO seasonal construct and the supply chain ramifications observed through our recent RFP. Incremental generation resources and transmission upgrades will support future retirements and grid reliability.
We are also on track to retire the remaining Schahfer coal units by the end of 2025 and retire legacy gas peaking units in Michigan City by 2026-2028. Timing of construction for the post-Schahfer projects will drive the exact retirement of these units. As mentioned, we expect Dunns Bridge I and Crossroads Solar to be online in the first half of 2023, with Dunns Bridge II, Cavalry, Fairbanks, and Elliott coming online in 2024 and 2025. The RFP we issued this summer drew robust interest from bidders. However, we saw less participation than in past RFPs. There are several potential reasons for this, as there have been numerous RFPs issued in Indiana in the last 18 months, and solar supply chain issues may have slowed developer pipelines.
This dynamic also suggests a high value for all of the projects we've completed and are underway to be delivered to our customers. We received 54 projects in the RFP, representing about 9 GW of capacity across a range of technologies. Overall, we're seeing pricing for projects much higher than last year across all technologies and deal structures. We're still evaluating the bids and conducting additional portfolio analysis using the refreshed RFP data, but we see no material departure from the 2021 IRP preferred plan, which called for an upgrade to Sugar Creek, a new gas peaking resource, and energy storage to fill the required capacity of our portfolio. Definitive agreements are expected in early to mid-2023. We expect to execute on our industry-setting IRP, RFP combination with similar success in the past in terms of transaction count and speed to firm agreements.
We've also observed that the IRA provides incremental tax credits. Some of our existing projects can take advantage of these opportunities and provide credits back to our customers. As we move forward, today we have announced the net 0 goal, targeting a 2040 time frame. More on that in a moment, but first, I just wanted to highlight the outstanding progress we've already made. We remain well on track to achieve an industry-leading 90% reduction in scope one greenhouse gas emissions by 2030. Reductions have been made, driven by core utility infrastructure investments and are supported across the spectrum of key drivers. Remaining coal will be retired by 2026-2028. We are making significant advancements in methane reduction through our modernization programs and deployment of advanced leak detection and repair.
This represents one of the fastest reductions in coal utilization across the sector and facilitates one of the most significant drops in carbon intensity across all of our peer set. Strong stakeholder engagement and support, maintaining affordability, capturing investment opportunities, and aligning with state and federal policy continue to be foundational for our success. With the demonstrated ability to achieve robust reductions, we are extending our deep carbonization goal to achieve net 0 scope one and two emissions by 2040. The pathway to net 0 builds on well-established programs while continuing to maintain affordability, reliability, and resiliency. At the core is both the continuation and the enhancement of existing programs, maintaining a balanced mix of low to zero-emission electric generation, ongoing pipe replacement and modernization programs, and deployment of advanced leak detection and repair technologies.
In addition, NiSource plans to advance other low or zero-emission energy resources and technologies such as hydrogen, renewable natural gas, and support the deployment of carbon capture and utilization technologies if and when these become technologically and economically feasible. Carbon offsets and other renewable energy credits may also support us in this net 0 goal. While this goal reflects what we believe is achievable by 2040, it does require regulatory support and legislative policies, constructive stakeholder environments, and the advancement of emerging technology. We are excited about being a leader in this space, and we are confident this represents a tremendous opportunity for our gas and electric businesses and the communities we serve. As this transition continues to evolve, we expect additional investment opportunities to arise in which our businesses can participate.
For example, we've touched on the importance of electric transmission projects in today's session, but that opportunity set alone could range from $400 million-$900 million not currently captured in our current capital allocation plan. Additionally, we have not projected any infrastructure investment opportunities in our capital allocation related to enabling biofuel supply and delivery on the gas side of the business, which we believe will only increase as a result of tax credits and support at the federal and state levels. As we continue to work with stakeholders to create supportive policies and mechanisms consistent with the optimal pathways to decarbonize, we expect these areas to increase investment opportunities across all of our operating companies. Finally, this slide presents the many ways NiSource is leading the clean energy transition.
We're making the fastest transition away from coal, 74% coal to 0 in a single decade. A 90% reduction in emissions by 2030, including the 58% reduction we've already achieved. Now a goal of net 0 by 2040. We plan to invest up to $2.2 billion in renewable investment opportunities through 2025, plus about $1 billion in additional capacity-focused investments. This amazing progress also brings the potential for additional investments. That is premium performance. Thank you for your support of NiSource. Now I'll turn the mic over to Donald.
All right. Thank you, Shawn. It's great to see you all. I'd like to begin by touching on NiSource's third quarter earnings results released today. We had non-GAAP net operating earnings of about $45 million or $0.10 per diluted share, compared to non-GAAP net operating earnings of about $47 million or $0.11 per diluted share in the third quarter of 2021. Year to date, we had non-GAAP net operating earnings of $427 million or $0.97 compared to non-GAAP net operating earnings of $405 million or $0.98 per diluted share in 2021.
With less than two months remaining in the year, we are narrowing our 2022 guidance to $1.44-$1.46 net operating earnings per share and reaffirming our capital expenditure guidance of $2.4-$2.7 billion. Additionally, we're initiating 2023 guidance of $1.50-$1.57 per diluted share, and we expect to invest $2.8-$3.1 billion in modernization investments. We've posted our typical supplemental slides and financial information on our website. Lloyd mentioned our team's strong regulatory execution, and we see that again highlighted in this quarter. In Ohio, we filed a settlement representing a $68 million revenue increase and a 9.6% ROE. Pending approval by the PUCO, new rates will take effect in early 2023.
In addition, we have settlements pending in Pennsylvania and Maryland and have implemented interim rates in Virginia. In Indiana, we filed a new base rate case for NIPSCO Electric, seeking an incremental $292 million in revenues net of riders. This case is primarily driven by our investments in rate base, including four of the eight renewable generation projects supporting the closing of the remaining Schahfer units in 2025. We expect new rates to go into effect by the beginning of the fourth quarter, 2023. If there are any questions or clarifications related to this quarter, please feel free to ask them during our Q&A session or reach out to the IR team.
Lloyd showed this slide earlier, but I'm bringing it back because it's the core of our plan, and it highlights the items that provide us confidence on delivering on this 9%-11% annual total shareholder value proposition. These include long-term visibility to rate base investments growing at 8%-10% across all of our jurisdictions. Supportive regulatory mechanisms for the investments we're making, where we recover about 75% of our capital within 18 months. That provides us high predictability and high consistency of earnings and cash flows. New and key to our plan is executing on the minority interest sale of NIPSCO, which will provide us a much stronger balance sheet that reduces the capital markets risk in this current high cost and volatile market.
Long term, provides us additional flexibility or to finance our growth investments, so our rate base growth more closely matches our earnings growth. The earnings growth, combined with the dividend target at a 60%-70% payout ratio, provides a sustainable top-tier total annual shareholder return of nine to eleven percent. Now let's dig a little deeper into our financial plan. Throughout the day, we've talked about the strength of our diverse mix of jurisdictions and businesses. We believe having multiple strong operating companies to make these investments reduce overall risk and provide optionality and flexibility to support earnings growth. Overall, we expect about a net half percent customer growth across our portfolio. Virginia continues to be our fastest-growing company, but we also see growth in our other states, including Ohio and Indiana, driven by steady economic development.
Managing multiple companies provides flexibility for capital deployment and regulatory recovery, but also means capital allocation is paramount to ensure we're maximizing investment returns and meeting our commitments. This is an area that we are keenly focused on to maximize shareholder value. Lloyd also talked earlier about the need to drive operational excellence, which drives safety, customer service and productivity. A few years ago, we kicked off our transformation efforts to initially reduce costs coming off the sale of our Massachusetts business, but long term to drive new capabilities and efficiencies across the business. We've built a long-term plan to invest almost $1 billion in new processes and technologies to change how we plan, schedule, and execute work in the field, and how we engage and provide service to our customers.
These investments will improve both the customer and employee experience, but are also intended to reduce our overall cost profile. We expect these investments and process changes will allow us to maintain flat O&M across our plan, which means we need to identify and deliver annual savings to offset inflation. Most importantly, this helps keep our customer rates sustainable with expected total annual rate increases that are in line with inflation. Additionally, customers' new rates will only be driven by the investments supporting increased reliability and service. We've identified about $15 billion of investments to make over the next five years and $30 billion over 10 years to drive the modernization of our systems and to support customer growth. This includes over $3 billion in generation and transmission investments to replace all of our coal plants by 2028.
Again, approximately 75% of our investments begin providing earnings and cash flows in less than 18 months, and this really supports predictability of our earnings and provides us confidence in meeting our earnings commitments. We're planning to grow rate base 8%-10% annually through 2027, and we expect each of our companies to grow within this range. We've intentionally slowed our rate-based growth from the prior plan, recognizing the higher cost of capital, inflation, and higher commodity costs in order to reduce the impact on customers and mitigate potential regulatory risks during this period. However, 8%-10% rate-based growth remains a top-tier growth strategy that drives our premium 6%-8% annual earnings growth. Therefore, we're extending our guidance through 2027 and committing to 6%-8% annual earnings growth.
With the strengthened balance sheet due to the minority sale of NIPSCO, we expect to narrow the gap between rate-based growth and EPS growth that NiSource has delivered in recent years and reduce the financing risk inherent in our plan. This allows us to achieve sustainable, predictable annual earnings growth of 6%-8% and provide a dividend in the 60%-70% payout range. Let's close by taking a look at our financing plan. We expect that the sale of up to 19.9% of NIPSCO will allow us to minimize capital market activities over the next couple of years, eliminate any discrete equity issuances, and redeem the $900 million of preferred equity while achieving FFO to debt metrics firmly within the 14%-16% range.
In the back half of our plan, we expect we will enter into a new ATM program to provide maintenance equities to support our credit metrics in that range and support when we become a taxpayer once our NOLs are extinguished. However, we expect to finance our capital investments and dividends primarily from cash from operations and new debt. I'm very excited and have great confidence in our ability to deliver this plan. Thank you for your interest and your support. Now I turn it back over to Lloyd to close out the presentation.
Thank you, Donald. Now I'd like to take a few moments to sum up what we've heard today. Here we are back at my favorite slide. There's a lot to like about this slide. We've laid out a de-risked, sustainable long-term growth plan backed by a strengthened balance sheet. We expect annual NOEPS growth of 6%-8%, $30 billion of planned infrastructure investments over the next 10 years, and a projected 9%-11% total shareholder return annually. This comes from a utility with strong ESG performance, a leader in reducing emissions, a leader in the energy transition, a leader in safety, and a company focused on keeping customer bills affordable. We believe this is what a premium utility looks like.
What we'd like to do now is take about a 10-minute break so that they can get the stage set up, and then Donald, Shawn, and I will be back to take questions. There're some refreshments left, and we'll give the technology team a chance to set up for Q&A. Thanks. Donald, Sean, and I will take Q&A now. Those on the call, I think, press star one if you have a question. Who's picking the questions? Am I doing that too? Julien, we'll start with you.
I'm right in front of you here. Yeah o kay, Julien Dumoulin-Smith, Bank of America. Thank you guys to the team. Nice update. Just want to come back a little bit to some of the things you said. First off, just how do you square the updated guidance relative to 2017 and 2019 and specifically around the 2024 year-over-year comparison, right? I get that there's probably some amount of dilution that you're assuming, sort of front-end loaded dilution given the minority interest and how that impacts 2024. Can you talk a little bit about the dynamics there? What about the equity beyond 2025, right? Talk a little bit more about that piece of it. Ultimately a little bit about what drove the decision here with the IURC in Indiana specifically to slow down spending across. Like, what's the delta in consumer impact that we're talking about here as well?
Let me take that head on and you guys feel free to join. I think that 6%-8% to 7%-9% is a big question. Let me tell you, as a part of this review, I personally went around and talked to regulators from every jurisdiction that NiSource serves. A couple themes came up. One is customer affordability. Two is, they wanted to make sure we were continuing to modernize the grid, whether it's gas or electric. Let's go back to Indiana. Our 7%-9%, a big part of our 7%-9% growth rate is we filed a rate case in Indiana in September, and we said we put rates in effect in the fall of 2023.
Coming out of March 2024 was the timing associated with that. If you think about high interest rates and high commodity prices in Indiana, our gas, our electric customers are also our gas customers. If you start thinking about the rate increase in the fall, going into the winter, high gas prices, higher interest rates on those same customers, and then coming out of that winter with another increase going into the summer, I listened to the regulators. I did not believe that was a palatable strategy longer term. The thought process was that second tranche of renewables, as we go into the rate case, being able to push that back up two or three months to give those customers some relief. Now, gas prices go to $3 and that comes in earlier, that's a good thing.
We'll be at the top of those ranges. I don't wanna go and assume in something that we don't believe is realistic. I think the way we did that, we de-risked the plan, we lowered it a little bit, but when you think about customer affordability going into that period, I thought we did a good job of de-risking the plan. That's really what the delta is between that 6-9, 6-8 and 7-9 in 2024.
Just adding that goes into the intentionality by reducing the rate-based growth from 10%-12% to 8%-10%, thinking about customer affordability and making sure this is a long-term sustainable plan. We've got, you know, as we said, $30 billion of investments over the next 10 years, and we've got a plan now that allows, that's taken some of the risk out from a regulatory standpoint and a capital market standpoint that gives us confidence in achieving that.
Yeah. Hey, it's Julien again. Well, just to come back to the strategic question real quickly. Just first off, we've seen a lot of different moving pieces through the course of the year. At this point, as far as the faces on stage right now and across the management team, should we largely expect status quo at this point? Is it sort of are we resolved on that front? Then separately, can you go back a little bit to the evaluation in the process and just with respect to the decision tree not to sell the company outright. I understand all the dyssynergies and all the other moving pieces around the minority interest. Appreciate that. But why not. You specifically addressed, hey, we looked at a sale of the company outright. Puts and takes around that, if you don't mind. Thank you.
I would say, Shawn weigh in here. We looked at every conceivable option, combination, OpCo, and sale of the company that was possible. I would say to date, we haven't gotten what I'll call a significant enough offer that would, you know, motivate us to sell NiSource at this point. I'll stay at that level. We've talked to a lot of people.
Yeah. I think when we re-reviewed the business, we saw enough opportunity to further maximize what the value proposition is near term and maybe accelerate some of that realization for our shareholders with the monetization around NIPSCO. That allows us then to better support a continued growth through the plan horizon. Those steps position us while we retain all of our strategic flexibility to realize both near-term and long-term value for our shareholders, as well as to continue to invest in the business at 1x rate base at a fairly accelerated rate with $15 billion over five years. It's a significant opportunity for us to do a little bit of both and realize that value near term and realize it also long term into the plan.
Andy?
Okay, yeah. It's Andrew Levy from HITE Hedge I got a couple questions. First, just to follow up on what you just answered. You are saying that you got an offer and rejected it? Is that what you're saying? Cause that's what it sounds like.
Are you asking that question to me, Andy?
To anyone on the stage. I mean, it sounds like you were. The price wasn't right. Is that what you're saying?
I don't think it'd be appropriate for us to go through every step of the transaction review process and all of the different details that we had with potential counterparties. Clearly, some of those could have been made in confidence.
Okay. I guess just to follow up on the strategic, and then I have actually some number questions. We're doing this 20% stake. We probably would have preferred to see a full spin of NIPSCO, so maybe you can address that and why that was not on the table or what that was not decided on. More importantly, going forward, cause, you know, decision's been made, are you open to further strategic evaluations, whether it's the sale of the whole company, if the price is right, whether it's maybe a full spin of NIPSCO or other things that strategically could enhance the value of the company?
I think first and foremost, we're always open to ideas that are gonna help enhance long-term shareholder value, and those ideas we'll continue to evaluate on an ongoing basis. I think we've always done that. The strategic business review process itself put enhanced rigor and structure into that process. However, that won't conclude just as a result of the next steps that we plan to take with the minority interest of sale of NIPSCO. I think the next piece I'd say is NiSource stakeholders, both our customers as well as our shareholders benefit from the scale that we enjoy today, and we have opportunities to improve that and deepen that value creation for all of those stakeholders.
The step we're taking with NIPSCO gives us that opportunity to both realize that shareholder value as well as drive greater benefits back to our customers and other stakeholders across our company. We believe that's the appropriate next step forward.
A spin, I guess, wouldn't accomplish that?
I'm sorry?
Spin either the gas LDCs or NIPSCO that wouldn't accomplish that.
As you can appreciate, we evaluated a range of opportunities. We evaluated multiple different scenarios that we think could enhance value for all of our stakeholders. We evaluated just about everything we can conceivably think about in an exhaustive fashion. The pathway forward that we selected, the NIPSCO minority sell down, we think on a risk-adjusted basis, maximizes the value creation that we can provide to all of our stakeholders.
Okay. Just a few number questions as well. The 14%-16% on the FFO, when do you guys achieve that?
We'll achieve that with the closing of the sale of NIPSCO.
Okay. One last question, just on the rate base, cause you're giving up, what, about $1 billion of rate base through the minority sale? Is that right? About $1 billion of rate base through the minority sale is being given up. Like, you lose that rate base, right? You get the cash and you-
Yes.
lose the rate base. How quickly does that rate base continue to grow, where you get back that $1 billion? In a sense, I guess my impression is it'll grow very quickly, and that $1 billion that's not lost, but that's sold, will be back into shareholders' pockets or what, however you may do it, because NIPSCO is growing very quickly.
That's right. I mean, if you just look at the investment path we're on and the inventory we've got, over time, we'll grow that rate base back without a premium. I don't know if we've calculated that number.
Even at that point, Andy, I mean, we're still in the process of launching a transaction. We'll have more information and guidance specific to the transaction, after we've concluded that or get further into the process. That said, as Donald already highlighted, all of the financial results that we've provided, the projections that we've provided are net of an anticipated outcome that we believe we can achieve.
Someone in the back here. Steve.
Yeah, hi, It's Steve Fleishman, Wolfe Research. Thank you. Sorry, I'm not used to someone holding a microphone. So, first question, just on the earnings growth rate to 6%-8%, should you know, the CapEx is a little bit higher, 2024, 2025. Should we kind of assume it follows the CapEx where, you know, you are a little below the range, 2022, 2023, you know, kind of higher in the range, 2024, 2025, and then moderates? Or just how should we think about the trajectory of the 6%-8%?
Yeah. I don't wanna guide within the 6%-8%, but certainly recognizing that we've got those generation investments near term. If you think about our prior guidance of the 7%-9%, certainly gives us the ability to hit the bottom end of that range of the old 7%-9% because of those generation investments here in the near term.
Yeah. Then just maybe on the decision not to sell one or any more of the gas LDCs. It sounds like that decision was mainly due to just the dyssynergies and not, you know, kind of preferring to keep the scale. Just could you give us a sense of was it also maybe decided because of the valuations you were seeing in the private markets for gas LDCs? Was that part of it as well? Thank you.
I think all of the above. I mean, you start thinking about our LDCs, you start looking at your small ones first and kind of work your way up the value chain. One of them is you'd have to go up to one of our larger LDCs, and it was dilutive. It was much more dilutive. Two is the valuations of gas LDCs were a little bit weaker. We believe that the NIPSCO gas electric, 20% of that has a lot higher value than the gas LDCs. The other thing you mentioned is we had to deal with significant dis-synergies. That was an issue. Selling multiple LDCs to achieve the same goal that we would achieve by selling NIPSCO, there was more regulatory risk cause you needed more jurisdictions to approve those things. Andy, you wanna add to that?
No, I think you covered it.
Yep. Durgesh Chopra with Evercore ISI. Thank you for taking my question. Maybe just can I go back to the 20%, the decision to do 20%? I'm just curious why 20, why not 30 and 25, eliminate the equity need through 2027. Just if you could talk to that.
Yeah. I think the 20% is really up to 19.9. It is the most tax-efficient transaction structure at 19.9 or less, and that was the main driver. We've also seen some industry precedents that have informed the analysis. Is that being a successful interest from multiple counterparties?
Now I can hold the microphone. Just on 2023, on the guidance front, Don, what are we assuming for NIPSCO? Is NIPSCO for the full year? Maybe just. That's part one. What are we modeling for Ohio rate case in terms of effective date in the 2023 guidance? Thank you.
I'm sorry, what was the second question?
The rate case in Ohio in terms of effective date.
Ohio.
As part of the guidance range. Thank you.
Yeah. Rate case in Ohio, I'll take that first. We expect to have new rates in early 2023. Then for the earnings guidance for 2023 and the timing of the transaction, certainly the second half, maybe the end of the year, but certainly by the end of the year 2023. That's all included in our guidance, kind of our expectations of the sale of NIPSCO or the stake.
Okay.
Hi, James Ward from Guggenheim Partners. Thank you for taking my questions. I've a few here. The first is just it seems you're very clear on flat O&M 2022 through 2027 being just flat O&M, but for the sake of everyone out there, I just wanted to clarify, you mean actual reported off the financial statement 2022, just hold that flat despite the inflationary environment, et cetera? Or is that a reference to a core number?
That's correct.
Wow. Okay. Thank you. Thank you for clarifying.
Let me talk a little bit about that.
Please.
When we go back to history here, I think with NiSource Next, Donald talked earlier about the transition. NiSource Next was about taking out our administrative costs, and that was done with people exiting the organization and being much more effective administratively. When we talk about flat O&M moving forward, it's about changing our work processes and our technology to get more work done with the people we have, thus displacing contractors so that our workforce can do more of the capital work than they've done in the past. There are some examples that might be relevant here. We spend about locates. I don't know if you know what locates are. When someone calls in or a contractor to locate a pipe or a wire, we spend about $75 million a year doing that. We looked at details there.
About 30% of that is rework. We believe that we can take about 10% of rework out a year, which is somewhere around $8 million or $9 million of consistent O&M. As we look at our process and look across this business, things like moving more customers to e-bill takes postage out of the system, getting more hands-on time, all those things allow us to keep O&M flat. It's about behavioral changes in the workforce, getting more done with the resources we have, and really driving hands-on productivity and doing less with contractors and more with the people.
Got it. Thank you for that. That helps a lot. Just before I ask the next question, what level of inflation do you have embedded in the plan over the period?
Yeah. What we're seeing, you know, depends on the category, but in some cases, we're seeing the 7% or 8% that's reported. I think we've also benefited having contracts that are multi-year, and so you're not necessarily seeing the 8% increases, and it's more in that 2%-3% range. As we think about our plan, it's to maintain flat. We need to identify somewhere in that $40 million-$50 million of savings every year to stay flat.
Okay. Got it. This is not predicated on an assumption of O&M cutting down. You have 7%-8%, you know, in categories where that's happening. You have everything factored in as it exists. That's. Got it. Thank you. Very clear. To follow up on Andy Levy's question on the FFO to debt, you've raised your FFO to debt guidance, right, to 14%-16% versus 14%-15% previously. And you mentioned that at the closing of the minority interest sale is when you would be moving higher in the range. How should we think about where you're at presently and then where you would be at after that sale? Any high-level thoughts there?
Why don't you take that?
Expect we'll be in the 13%-14% range this year. Then as I stated before, with the close of the sale, we'll be in the higher end of that 14%-16% range. That really does allow us to, over time, as we continue to invest, you can attrit down, but we wanna stay in that range because we believe that gives us the flexibility to make these growth investments. Then over time, as we continue to grow at 8%-10% rate base growth, we're gonna have to issue equity through the ATM to maintain that debt range. We think that's kind of an optimal way to have flexibility, so that we're not in the markets when we've got the high price and high volatility, and support our growth long term.
Got it. Thank you. Final question is, should we be assuming generally midpoint level growth, you know, as a sort of the norm in the industry with the incremental CapEx that you mentioned in the outer years driving you higher within the 6%-8% range? Or did you mean that the incremental CapEx, the 6%-8%'s based on the existing CapEx and incremental CapEx would mean the potential for incremental growth above the 6%-8% range? Just wanted to clarify.
Yeah. What I'd say is, again, not gonna guide through the range, but certainly have an opportunity in the middle part of our plan to earn at the higher end of that range because of those generation investments.
Got it. Okay. In the range there. Very clear. Thanks, guys. Congrats again.
Hi. Thank you. Richard Sundling, JPMorgan. Just going back to the capital question, curious if you could speak a little bit more to the commodity backdrop, how the customer bill environment impacted your plan and, you know, if those assumptions change over time, is sort of the right run rate of capital investment in your system something you would look to address again in, say, two to three years?
Absolutely. I think you always have to take into account what's customer bill impacts. Whenever we update our long-range plan, one of the criteria we're looking at is total bill impact over that five-year period. We recognize that. You certainly can moderate that or accelerate capital spend and other spending to make sure that you're making from a regulatory standpoint, you're reducing the risk and always managing customer affordability.
then just taking that one step further. If capital investment goes up down the road, is the NIPSCO structure as you see it now around a minority interest sale, something you would look to tap again should financing needs increase? How would you think about that incremental call? Would you look elsewhere? Is that a preferred vehicle? Just any high-level thought would be great.
I think it's too early to speculate on what that would be. We'll continue to look and, you know, whatever drives the highest shareholder value in terms of how we finance the plan, that's what we do.
Julien Dumoulin-Smith again. Sorry, guys, a super quick direct question here, just around the 2024 year-over-year growth. Is that above the 8% here, just on that specific year, given a lot, all these different moving pieces? I know in the past that had obviously been the recovery year, and I get that there's a dilutive element here, but is that within the 6%-8%? Is that at the top end? Is that above on that specific year? Again, I know that you've given us 2023. Now we're asking you for 2024, right?
I'm not gonna give 2024 guidance. Our commitment is 6%-8% annual growth. As I said earlier, I think we have the opportunity to get to the higher end of that range because of the investments we're making, but I'm not giving any guidance on 2024 at this point.
6%-8% off 2023 within the range, that's the starting point for now.
That's right.
Thank you, guys.
Yep.
Hi. Ross Fowler, UBS. Just going back to the customer bill equation here that you laid out on slide 27. I think you said that that embeds natural gas back down to $4.50-$5.50 in MMBTU. What happens to this equation if gas stays high? Do you have more O&M flex in the plan to keep bills down?
Yeah. I think that's a key question to watch is what is the impact of commodity across the board. I think we balance that with the demand for increased safety enhancements and infrastructure to be developed. I think there's a number of different factors that can play in there. Customer growth is another piece of this and how we can scale that and structure that. Having the benefit of six different jurisdictions to structure things across from a rate-making standpoint also gives us some flexibility. I think it's a key thing to watch. I mean, Lloyd highlighted on his threat slide for a reason. We are geographically positioned in a way that can help us tamp that down. I think it's something we've got to continue to go after.
Let me add a little bit to that. I mean, commodity prices have been high in the past and we're not new at this. I think for short durations, and I'm saying a year or two, we've been through this. You can work with the regulators and get flexibility to help your customers manage through that. The regulators understand that bills are going to be higher. What they want from you, the companies, that you're going to be flexible with those customers, you're going to come with efficiency programs, payment arrangements, you're going to be driving your costs down to help those customers ride through that. This is not new. We've been through this years ago, and we can manage through that. I think the industry knows how to get through that. We've seen high gas prices before.
Steve?
Oh.
You have the mic. Sorry.
Chris DeNunzio with Cohen & Steers. Just the modest ATM, can you quantify that?
I think it's too early to quantify that. If you think about our financing plan, first, its minority sale is gonna have an impact on, you know, what are the net cash proceeds that come from that. Earlier, I talked about the extinguishment of our tax NOL, so the timing of that matters. Again, we expect it's going to be some nominal amount post 2025, but it does depend on some other items. That's really to keep us in that 14%-16% range.
Okay. Just on O&M benchmarking, where do you guys see yourself relative to peers throughout the plan? Are you third quartile, second quartile?
We're third and fourth quartile now. I'd like to see us be in second, somewhere between second and first quartile on most of our metrics over a five-year period. It takes that long to get there, but I think it is achievable. A lot of it, the timing takes the technology changes and the systems changes. We need to change out our work management systems, our customer system, our scheduling system, and have the commensurate process changes and the behavioral changes. By about the fifth year, we should be moving into second and first quartile on those metrics.
Thanks. Steve Fleishman, just some follow-up. I just on the ATM equity, again, a question. I mean, you have a slide that kinda scales it roughly in here, and I think you can kind of figure it out from that. I just wanna make sure that the slide kind of is roughly to scale of how to think about the size of the equity.
Yeah. Again, I think the two items that move around, it will be if you think about our CapEx plan and the range of dollars invested there, that minority interest sale, ultimately that's going to be a determinant on what that.
Right.
ATM, financing is.
Okay. Just a question on renewables, I guess maybe for Shawn. The increase in the cost of renewables that's occurred for the projects you already had, do you need to seek any new regulatory approvals for that? Or does that just go through the rate cases and the like?
Yeah. We would need to seek approval either through the CPCN process using the clean energy statute, which we've used historically, or if it's in conjunction with the rate case, you could do it at that time. Although the preference is likely to focus on each project and address it through the CPCN statute.
Okay. When you look at the, I assume one of the things to look at is the bids that you mentioned you just got for this last one, and you mentioned they're a lot higher. Could you give us a sense of on average the price change for the bid you've recently gotten versus, you know, the prior ones?
Yeah, for sure. It obviously varies depending upon the technology, as you can imagine. I would say solar bids were in the 25%-50% higher range on an all-deal structure, whether it was owned or PPAs. The larger increase we saw through storage, which was in excess of 50%-75% higher than the last bid process we saw. That's correct. Yeah, that's reflective of the IRA and the tax credits that developers would be able to realize through it. I made a comment in my remarks that there is a potential that some of the supply chain delays are still being realized through the supplier and the developer pipeline. That could have played a part in it. However, for what we are really looking for, we need capacity advantage resources.
The solar impact really won't help that portfolio mix in the winter, which is really the gap we're trying to solve for in that RFP. For us, looking hard at storage, maybe some wind coming into play, but the gas peaking unit is gonna become a pretty critical resource for that portfolio mix.
Thank you.
Hi, it's Andy Levy again from HITE Hedge. You guys talk about, you know, improving on O&M. I get that. You guys talk about, you know, that your systems are, you didn't use the word antiquated but need to be upgraded. The balance sheet needs to improve. Obviously, the focus is on the customer, as it should be. I guess where I'm just a little, not the word confused, but why wouldn't, whether it was an infrastructure fund or whoever who has deeper pockets and easier access to financing at a cheaper rate, why wouldn't that be better for the customer based on all the things that you need to accomplish versus selling a 20% stake in your now best utility you have?
I think the diversification of capital raising is an important part of our story. I appreciate you picked up on that as it moves us forward into the next wave of capital opportunity at NiSource. The $15 billion that we've identified over the next five years, this will play a critical part of helping to support that at a really extremely attractive price, and cost of capital relative to alternatives. We'll continue down the path to evaluate the best way we can maximize long-term shareholder value with the best cost of capital that we can attract to help fund that growth plan.
Hi, guys. James Ward again, Guggenheim Partners. Just a quick follow-up on Julien's question on 2024. Understood that you're not giving 2024 guidance today. However, you do obviously have the number out there previously of the 7%-9% off of 2021. The reason I'm asking is you chose to base the 6%-8% that you have today also off of 2021, which implies that it's a CAGR rather than a year-over-year growth rate. I just really wanted to hone in on whether when we think about next year or I guess in this case two years out, in any future year, are we supposed to be growing off of the prior year, or is it a base of 2021 with that CAGR extending out?
The reason is the difference would be 168 if we're growing off of 2021, but only 164 if we're growing off of 2023 guidance, which you did issue today. Just wanted to clarify what you meant there.
Yeah. Yeah, our growth rate is off 2021, so that's 6%-8%. You're right, it wouldn't-
Okay.
by a CAGR. What we're trying to also communicate today is, our 6%-8% is, it's an annual commitment. Our business, when you look at the investments and the consistency of cash flows and earnings that come off those investments, gives us confidence around the annual earnings growth commitment, but wanted to also root it back in 2021, because of the execution we've had the last couple of years and show that there's this long-term opportunity of 6%-8%.
Okay. Just a final question on it here. When we're thinking about your guidance throughout the planning period, we should be using 2021 as the starting point.
That's right.
We should keep that CAGR at 6%-8% throughout the period, and that is the guidance.
That's right.
For our end period. Understood. Thank you very much.
Hi, it's Bill Oppesoli from UBS. Just going back to the customer bill numbers. I mean, if the rate base is growing at 8%-10%, can you just maybe give us the pieces of how that walks back down to only a 3% sort of net impact to the customers? I know if you're taking $40 million-$50 million of cost out a year, let's call it $300 million of capital, right? With rates being flat. But also what is the underlying maybe customer growth or other pieces that are sort of bridging that delta?
Yeah. If you think about a customer bill, part of the customer bill is the commodity portion. Part of the bill is the distribution charges. A typical bill is probably 50/50 between that commodity and your distribution charges. In some states, it's a little higher where the distribution might be more than 50%. That's really the difference that kind of walks you down. If you're keeping your O&M flat, and the commodity charges are now reverting back to a $5 range, which we've seen here over the last couple of months. The only charge increase that customers are getting is on that distribution bill growing at 8%-10%, but it's only a portion of the total bill.
All right. There's not an assumption of a growing customer base to spread the fixed costs over.
No.
Okay.
Well, about 0.5%.
Yeah.
0.5% net customer growth.
All right. Thank you.
Yeah.
I think that looks like it exhausts the questions, Lloyd, if you have anything final to say.
No. Thank you for your participation. We appreciate you being here. We're excited about the NiSource story. We believe we're set for success. We're set to execute. Our executive leadership team is here, and these are the faces you'll see, and look for us to be at EEI. Is it next week?
Next week.
At next week. Thanks a lot.
Thank you.