Good morning, and welcome to the PPL Corporation Investor Day. My name is Chad, and I'll be your conference specialist. Today's event is being webcast, and please note that it is being recorded. Following the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to the company's management team. Please go ahead.
Good morning, everyone, and thank you for joining us for the PPL Corporation Investor Day. I'm Andy Ludwig, Head of Investor Relations for PPL. We're very excited to be here with you today to share PPL's outlook post our strategic repositioning. Before we get started, I'll note a few logistical points. Today's event is being held virtually, and we have provided slides for this presentation on the investor section of our website. All viewers of the webcast will be in listen-only mode during the event. At the conclusion of our prepared remarks, which will last approximately one hour, we will hold a live Q&A session via conference call following a brief five-minute break. For those that wish to ask a question, dial-in details are provided on the final slide of the presentation. Those that prefer to remain as listen-only participants for the Q&A session can remain logged into the webcast.
Turning to slide two, We've provided a brief cautionary statement about forward-looking statements and non-GAAP financial measures that we'll reference during today's presentation. Please refer to PPL's website, and SEC filings for a discussion of factors that could cause our results to differ from the forward-looking statements and for reconciliations of non-GAAP measures to the comparable GAAP measure. With that, I'll now turn it over to Vince to kick things off.
Good morning, and welcome to PPL's Investor Day. I'm Vince Sorgi, President and Chief Executive Officer of PPL, and I'm proud to represent a team of more than 6,500 talented employees who work hard each and every day to deliver energy for our 3.5 million customers. Today is an especially exciting day for me as it gives me a chance to introduce you to a new PPL with a bright future ahead of it. Nearly two years ago, we set out on a journey to transform our company. Our goals at the time were very clear, simplify our business mix, narrow our focus to high-performing U.S. utilities, strengthen our balance sheet, enhance earnings growth and predictability, and better position PPL to invest in a sustainable energy future.
To achieve these goals, in August of 2020, we launched a process to sell our U.K. utility business, and during that process, we identified an opportunity to add an attractive U.S. utility to our portfolio, one that's a perfect fit for PPL. Today, with the sale of our U.K. business and the acquisition of Rhode Island Energy complete, we've delivered on our strategic objectives. As a result, we've put PPL in an excellent position to deliver compelling shareowner returns for years to come. The new PPL is an innovative, best-in-class utility operator, delivering premier growth backed by one of the strongest balance sheets in our sector and poised to lead the clean energy transition while keeping energy affordable and reliable for our customers.
Today, I'm pleased to have with me Greg Dudkin, our Chief Operating Officer, Christine Martin, our Vice President of Public Affairs and Chief Sustainability Officer, and Joe Bergstein, our Chief Financial Officer. Together, my colleagues and I look forward to outlining our vision for the new PPL and our plans to drive sustainable value for our shareowners and our customers. We also look forward to addressing any questions you may have. Thank you again for joining us today. We are eager to share our story with you. Now, let's turn to slide three in the agenda for today's presentation. I'll begin with a strategic update on the new PPL and how our plan delivers sustainable growth and an exciting investment proposition.
Greg will then provide a brief update on how we are delivering the utility of the future today in Pennsylvania and how we will leverage that success across our entire portfolio. Christine will then share our vision on leading the clean energy transition, specifically as it relates to our generation fleet in Kentucky. Joe will discuss the details of our financial plan and how we'll deliver leading financial performance. As I noted, we'll look forward to answering your questions at the end of our session today. Turning to slide four. Here are the key points we'd like you to take away from today's presentation. First, we've strategically transitioned PPL into a large-cap, regulated U.S. utility operating in constructive regulatory jurisdictions in Pennsylvania, Kentucky, and now Rhode Island.
We are targeting industry-leading growth in our sector, delivering visible and predictable 6%-8% annual long-term EPS and dividend growth through at least 2025, with visibility into significant investment opportunities beyond that as well. We see an opportunity to invest almost $30 billion over the next decade in our regulated utilities. We have one of the strongest balance sheets in the U.S. utility sector, uniquely positioning PPL with financial flexibility and a runway to fuel growth without any equity issuances for the foreseeable future. We have a compelling opportunity to transition a predominantly coal-fired generation fleet in Kentucky and have committed not to burn unabated coal by 2050. We've demonstrated an excellent track record as superior operators, consistently leading in reliability and customer satisfaction metrics, and are now combining that with a proven scalable operating model that further reduces costs using data and technology.
We will replicate that model across the portfolio to help maintain affordability for our customers and deliver earnings growth for our shareowners. Finally, the combination of these factors culminates into a leading total return proposition of 9%-11% per year when taking our projected earnings growth and adding our dividend yield. We believe our new plan offers investors one of the best risk-adjusted opportunities in our sector and does not require base rate cases to achieve our earnings targets. Turning to slide five, I'll briefly touch on an overview of the new PPL. We're a utility of scale with roughly $25 billion of rate base, serving 3.5 million customers.
Our Pennsylvania utility is a pure electric T&D company, serving 1.4 million customers in the central and eastern part of the state, where we've developed one of the most advanced electric grids in the country. Our Kentucky utilities are fully integrated, serving about 1 million electric customers in Kentucky and Virginia, and another 300,000 gas customers in the greater Louisville area. Kentucky's low electricity rates and exceptional reliability support growing economic development, which we believe provides an excellent opportunity for our shareowners as we transition to a clean energy future. Finally, our recently acquired Rhode Island Energy is the primary electric and gas utility in the state, serving a total of about 800,000 customers. We are thrilled to have the opportunity to bring our premier service to the state of Rhode Island while aligning with what we see as very constructive regulation.
The state's aggressive decarbonization goals fit perfectly with the advanced electric grid that we've already designed in Pennsylvania. There is significant opportunity for us to deliver an exceptional outcome for all stakeholders in Rhode Island. In summary, we believe we have one of the finest collections of U.S. utilities in our portfolio, with significant investment opportunity in both the near and long term. Now moving to slide six, I want to briefly discuss how we got where we are today, and review the deliberate steps we took to reposition PPL and support sustainable U.S. regulated utility growth. Over the past several years, we've discussed at length the risks associated with our U.K. electric distribution business, stemming from foreign currency, U.K. politics, and U.K. regulation.
To address thse issues head on, we put our U.K. utility business up for sale and found a buyer in National Grid, which enabled us to monetize the U.K. assets at an attractive premium. At the same time, we were able to acquire Rhode Island Energy from National Grid, a U.S. utility with substantial growth prospects in an excellent regulatory jurisdiction. The U.K. sale proceeds also enabled the recapitalization of the balance sheet to fuel our growth for the long term.
In short, we've completely recalibrated PPL's value proposition, removing risks of foreign operations, improving EPS and dividend growth to be much more competitive with our premier peers in our sector, improving our credit profile to one of the best in our sector, leveraging a core operational strength in our Pennsylvania operating model, and enabling the centralization of our now domestic-only operations, which will provide substantial cost savings and standardization going forward. Simply put, the new PPL is now positioned to deliver improved growth with lower risk. On slide seven, we've outlined some of the key financial and operational aspects of our plan. First, our plan delivers a steady earnings and dividend growth profile that is at the leading edge of our peers. Our plan supports near-term growth with $12 billion of capital investment through 2026, driving our clean energy strategy to develop resilient, sustainable infrastructure.
This will result in over 85% of our total rate base being derived from non-coal generation by 2026, as we reduce our overall coal exposure over time. Further, we'll leverage our proven operating model to drive cost efficiencies that reduce O&M by $150 million by 2025. This will enable the necessary investments to advance our energy systems while keeping customer rates affordable, which is even more critical in this period of high inflation. We plan to fund this investment with strong cash from operations and support from our premier balance sheet while maintaining top-tier credit metrics. While we are changing the financial outlook for PPL, we won't compromise on the top quartile reliability, and customer satisfaction that have become synonymous with the PPL name. We will look to extend that award-winning performance to our new customers in Rhode Island.
Now let's turn to slide eight to further discuss our updated growth profile. Our 2022 pro forma earnings per share is expected to be in a range of $1.40-$1.55 per share, growing at 6%-8% per year through at least 2025. Joe will touch on the key drivers of this growth plan, but the bottom line is it's clearly achievable, with substantial flexibility in a variety of levers to maintain a consistent level of top quartile performance. Through our operational and financial execution in Pennsylvania, we've demonstrated that we can consistently deliver superior performance over a long period of time, at least a decade, which I will cover at a high level shortly and Greg will cover in detail later.
We have now restructured the company and developed a plan that enables replication of this model across all of our utilities. In addition to strong EPS growth, we're also targeting strong dividend growth. Today, we're announcing an increase in our second quarter dividend to align with the 2022 annualized pro forma dividend of $0.90 per share. We then plan to grow the dividend in line with EPS growth moving forward. The combination of our strong earnings and dividend growth supports our compelling total return proposition. Turning to slide nine, underlying our growth is a capital plan focused on investments in sustainable utility infrastructure that will deliver significant value for our customers for years to come.
We are planning to invest approximately $12 billion in regulated utility infrastructure over the next five years, reflecting a $1.3 billion increase in our Pennsylvania and Kentucky plans from 2022 to 2025, and introducing about a $3 billion investment opportunity in Rhode Island. These investments are primarily focused on electric, and gas T&D infrastructure to further enhance the SAIFI, resiliency, and reliability of our systems while preparing them for significant DER and renewables integration. We're also limiting investments in our coal-fired generation fleet to only include maintenance, capital, and environmental compliance costs where practical. While we're excited for our current five-year capital plan, we see even greater opportunities through the end of the decade, representing an incremental $15 billion of opportunity beyond our current plan period.
These investment opportunities are in grid modernization, resiliency, and digital transformation as we continue to deliver utilities of the future, including additional transmission investments across all of our utilities. In addition, there is substantial upside to our current five-year capital plan as we start to plan for the 2028 coal plant retirements, and some of that investment may be required in this five-year planning horizon. We'll have a better sense of this opportunity toward the end of this year and into next year when we're further along in the evaluation of generation replacement in Kentucky. Turning to slide 10. It's clear that our exceptional balance sheet is a key differentiating factor for PPL coming out of the strategic repositioning.
We have established credit targets that supported a recent upgrade to a Baa1 credit rating from Moody's while maintaining our A- rating from S&P, positioning PPL among the leaders in our sector. This includes maintaining a 16%-18% FFO to debt ratio and holdco to total debt ratio of below 25%. Our balance sheet is now a strategic advantage and affords us significant flexibility that we have not had at PPL for several years. At the same time, we have no near-term needs to issue equity while we deliver on our enhanced growth plan. We also believe the combination of our strong balance sheet and growth prospects supports a premium valuation over time. As you can see from the chart on the right side of the slide, companies with stronger credit overall clearly trade at better multiples.
We believe we position PPL to trade in line with those premium valuations. Turning to slide 11. The result of our capital plan is a more sustainable business mix. This includes a healthy increase in rate base related to sustainable infrastructure and a declining balance of coal-fired generation rate base. We believe this is an important component of our investment thesis, particularly in the face of a continuously growing demand for sustainable investments. In total, we see our sustainable infrastructure rate base growing about 6% annually, and at the same time, our coal-fired generation rate base is expected to decline about 4.5% per year. The result is a non-coal generation rate base that will be greater than 85% of total rate base by 2026.
We expect that trend to continue in a meaningful way through the end of the decade with the additional coal plant retirements that are expected in 2028, as well as continued anticipated investments in our transmission and distribution operations. Moving to slide 12. We outlined the significant opportunity we have in Kentucky to transition 4,700 megawatts of coal-fired generation. As Christine will highlight in more detail, this is the most important aspect of achieving our goal of net zero emissions by 2050. We are committed to advancing this transition as quickly as possible while maintaining affordability and reliability for our customers. As I mentioned at the outset, we've also committed to cease burning unabated coal by 2050, meaning we will not burn coal beyond that date unless it can be mitigated with carbon dioxide removal technologies.
In addition to being core to our clean energy strategy, the transition of our coal fleet provides a massive investment opportunity of over $10 billion that can support future growth for many years. Our challenge as utility operators is being able to deliver this transition affordably and reliably. We believe our proven ability to be best in class efficient operators positions us well to achieve this objective. Additionally, as we continue to engage with stakeholders, and evaluate our Kentucky generation plans, we have committed to further analyze various levels of clean energy in our portfolio, including a scenario reflecting the financial and operational impacts of achieving 80% clean energy by 2030. We expect to have that analysis completed by the end of this year. Moving to slide 13.
I've noted a few times this morning how excited we are about the success of the operating model we've been deploying in Pennsylvania over the past several years. Greg will discuss how our utility of the future strategy works in more detail. What I will tell you now is that there are clear benefits for both customers and share owners, as demonstrated with the metrics shown on this slide. We built our Pennsylvania T&D model to be scalable. This is why I have great confidence that we will be successful in achieving our plan, because we've already done it. Now it's about replicating our Pennsylvania operating model in Rhode Island and Kentucky, setting the stage for all of our utilities to deliver on the clean energy transition in an affordable manner. What excites us the most is that the best is yet to come.
While we see additional upside as we continue to find ways to scale technologies and efficiencies we're executing today, we're also incredibly optimistic about the opportunity to take that innovation even further using data science, machine learning, and further enhancements in smart grid technology. We believe all of this will support growth for years to come. As you can see on the slide, over the past decade in Pennsylvania, we were able to grow both rate base and earnings at about a 10% CAGR, all while keeping O&M relatively flat over that time period and driving significant improvements in reliability and customer satisfaction. We delivered this growth without a distribution base rate case since January of 2016. This is truly a win-win strategy for both customers and share owners and is what excites us most about our new plan going forward. Turning to slide 14.
While many things have changed about PPL through the strategic repositioning, our culture of operational excellence remains constant. We have consistently demonstrated an ability to deliver safe, reliable, and affordable energy to our customers and have done so for many years. When you look at the outage frequency metric safety, PPL's utilities rank in the top quartile among U.S. investor-owned utilities. These strong reliability metrics translate into satisfied customers. From Pennsylvania to Kentucky and previously in the U.K., we've consistently ranked at the top in our regions in terms of customer satisfaction year in and year out. PPL Electric Utilities has held the top spot in residential customer satisfaction for 10 straight years, while Kentucky Utilities has done the same for six straight years. There's no magic behind these results.
It comes down to providing an essential service at an affordable price and delivering real value to our customers for the money they spend on these services. Now turning to slide 15, we recognize affordability is becoming increasingly critical to the clean energy transition. Historically, we've been successful at keeping rates below regional averages while executing significant capital plans. On the right side of the slide, you can see that trend demonstrated by our Pennsylvania utility. As inflation and capital costs continue to rise, we need to further optimize the way we operate across our businesses to maintain affordable rates. That is why leveraging our Pennsylvania operating model for the electric T&D business is extremely important. The result has been enhanced efficiency that places PPL Electric Utilities near the top quartile on a dollar per customer basis. The strategy is clear.
Our focus going forward is to maximize our resource allocation on those projects and activities that deliver direct benefits for our customers while minimizing our spending on those areas that do not. This mindset and culture, in addition to us centralizing our shared services functions, are what will deliver the $150 million in projected O&M savings over the plan period. The addition of Rhode Island Energy also brings additional scale to our operations, which will enable all three of our jurisdictions to become more efficient as we deploy common systems and processes across the entire business. This strategy enables us to achieve our allowed returns while staying out of rate cases, while we build the networks necessary to deliver a clean energy future.
Executing this strategy will drive our Pennsylvania utility into the top quartile by 2025, while moving both our Kentucky and Rhode Island utilities firmly into the second quartile, and we will focus on moving them into the first quartile over time. This is another reason that we are confident the new PPL will deliver sustainable growth for years to come while maintaining affordability for our customers. Let me now turn it over to Greg, where he will discuss the exciting actions we've taken in Pennsylvania and how these innovative investments will lead our company to sustainable growth.
Good morning. I'm Greg Dudkin, Chief Operating Officer for PPL, and today I look forward to sharing with you how PPL is leading the way in delivering the utility of the future. A decade ago, we launched an initiative in Pennsylvania to invest in smart grid technology and automation to use data to drive better decisions and to fuel innovation within PPL. Since then, we've made tremendous progress in building what is arguably the nation's most advanced energy network. It's a network that has delivered significant benefits for our customers, and it's one that puts us in an elite class to lead the clean energy transition while keeping energy affordable and reliable. What we've proven is a smarter and more advanced energy grid not only results in better reliability for customers, but is also significantly more efficient to operate and maintain.
Despite making over $10 billion in capital improvements over the last decade in Pennsylvania, we've kept our O&M flat over that period, and we believe the best is yet to come as we build on this success. We're excited to replicate our Pennsylvania playbook in Kentucky and Rhode Island as we deliver the clean energy future and provide an exceptional customer experience at an affordable price. Now let's turn to my first slide. Turning to slide 17, there are five key points I want you to take away from this presentation. First, through our award-winning smart grid, we've eliminated significant costs, having offset about $100 billion of inflation over the prior decade in Pennsylvania while improving operating performance. Second, it's not just talk. Our operating expertise is delivering measurable results.
We've achieved better reliability, superior customer satisfaction, and consistently have rates that are below the mid-Atlantic regional average. Third, there's more to come for our shareowners and our customers. In Pennsylvania, there continues to be a lot of additional opportunity to deploy smart grid devices and enable distributed energy resources, also known as DERs. Fourth, we can replicate the success we've achieved in Pennsylvania across our portfolio in Kentucky and Rhode Island to further support the clean energy transition as we built our Pennsylvania model to be scalable. Finally, as we replicate this business model, we expect additional upside value creation through additional O&M efficiencies and capital investment opportunities. The culmination of all these factors positions us to deliver the utilities of the future today. Moving to slide 18. Let me talk about the accomplishments at our Pennsylvania operations over the past decade.
Our operating philosophy is aimed at maximizing customer and shareowner value by optimizing our assets and leveraging data and technology. We're investing in system hardening and automation to eliminate or minimize outages and prepare our networks for the clean energy transition. We're also leveraging data science, and advanced technology to better serve our customers and lower operating costs by understanding exactly when and where to focus our investments. This strategy has already yielded strong results for us. Thanks to our smart grid technology, we've achieved a 92% reduction in transmission-related outages since 2012 and prevented over 1 million outages since 2015. Our results have not gone unnoticed. PPL Electric Utilities is consistently ranked in the top quartile for reliability in terms of outage frequency. As Vince mentioned, we have ranked number one in residential customer satisfaction for 10 consecutive years by J.D. Power.
The core to achieving these great results is focusing on resource allocation, maximizing each dollar our customers pay for the essential services we provide. Importantly, every dollar of O&M savings supports about $8 of potential capital investments that can be reallocated to improve the customer experience. Over the next few slides, I'll share a few examples of what we've done, how that is driving value for customers and shareowners, and why that positions us well to affordably achieve our objectives. On slide 19, we drill down into how our advanced smart delivery system in Pennsylvania enhances reliability and reduces costs. We've developed industry-leading technology that self-heals the grid and automatically reroutes power when there's an issue. Our smart delivery system also pinpoints where issues are on the grid, which avoids time-consuming and costly truck rolls.
We've also developed and installed a system that effectively manages distributed energy resources known as DERMS. DERMS is capable of remotely managing the two-way power flow caused by customer and third-party-owned solar, wind, and batteries, which has become critically important to operate our electric grid safely and effectively. When these resources are left unmanaged, power quality will suffer, leading to increased costs and lower customer satisfaction. The insight this system provides also enables PPL Electric Utilities to host more distributed energy on our system and streamlines the interconnection process for DER developers. For example, our DERMS model enables us to respond to customer and developer requests within 24 hours, 90% of the time. In turn, this results in less need for costly network upgrades to accommodate more renewable power on the grid, which results in direct savings for our customers.
Lastly, new smart devices in our grid capture a vast amount of valuable data on our system and equipment performance. This data helps to make better-informed decisions on system maintenance, which enables greater asset performance at a lower cost. Turning to slide 20, here are several examples of how our use of data science and technology on Pennsylvania's electric distribution system is driving real value. By digitizing the electric grid, we can better predict when equipment will fail. One example of that is our use of relays to detect abnormalities in electronic waveforms to proactively identify issues and prevent expensive outages. This means we can be more strategic on when we invest our time and money to maintain an asset. This capability is game-changing as it enables us to both improve reliability, and reduce ongoing asset maintenance costs.
In fact, by 2025, we expect those costs to decrease by at least $10 million. We're also leveraging advanced technologies in customer self-service. Example initiatives include upgrading our interactive voice response technology and a website that takes a true mobile-first design approach. As a result of these and other initiatives, we have reduced costs and increased customer satisfaction in Pennsylvania. Customer self-service actions have reduced calls handled by 25%. As we look across all our utilities, we see a $40 million total opportunity through further improving these self-service offerings. Finally, we are continuing to improve our vegetation management approach in Pennsylvania by managing every tree as an asset. This means that we can look at each tree and assess individual predictions of risk, such as when a tree canopy is expected to reach a certain power line and will need to be trimmed or cut down.
The satellite imagery we're using now has a similar accuracy to LIDAR but comes at a fraction of the price and is faster to utilize. By 2025, we currently expect to reduce vegetation management costs by over $15 million across the portfolio, or about 15%. In summary, it's clear we've developed a scalable strategy that improves efficiency across our operations. Turning to slide 21, we're also making key investments to continue to harden our Pennsylvania transmission system to be more resilient against severe weather. Over the past decade, these investments have shifted the physical composition of our transmission structures in Pennsylvania from over 50% wood to over 70% steel, and we expect that to continue to increase to 85% steel by 2025.
In addition to the types of materials we use, we're also being proactive about replacing different types of assets, such as circuit breakers, relays, and transformers. By 2025, we are targeting to have replaced 100% of our relays to be digital, 88% of circuit breakers, and 68% of transformers. Replaced assets require less maintenance and will help us ensure critical reliability. Regarding reliability, our actions have significantly reduced outage frequency over the past decade, as shown in the chart on the right side of the slide. Through hardening of our physical structures and strategically replacing assets, our Pennsylvania transmission system has been ranked number one among our peer group for outage performance by the North American Transmission Forum, demonstrating the reliability benefits from the actions we've taken. We're not done yet here either.
We recently announced our partnership with EPRI as an anchor sponsor supporting their Climate READi initiative that was formed to address power system resilience and adaptation given the increase in extreme weather events. The result is to proactively analyze and apply climate data that will help inform our adaptation, hardening, and resilience investments to deliver long-term reliability for our customers. Turning to slide 22, you can see that our capital investments and operating expertise have led to a dramatic improvement in our operational efficiency. We've achieved a nearly 40% improvement in operating efficiency since 2011, which we define as O&M per dollar of gross margin. By targeting high-value, high-return opportunities in Rhode Island and Kentucky like we have in Pennsylvania, we are confident that we can replicate our success across the portfolio.
We are confident we can achieve and likely exceed the O&M savings target of $150 million by 2025 from 2021 levels because of our technology investment plan. It's clear that there is meaningful value creation opportunity for shareowners and customers through these improved cost efficiencies, and my team will be laser-focused on delivering these results. Moving to slide 23 and shifting into our capital plans for each of our jurisdictions. Our five-year capital plan in Pennsylvania represents a $4.3 billion dollar opportunity. Across electric distribution and transmission, we'll be replacing aging infrastructure, and further hardening our system. Other key areas of our distribution capital investment plan include continuing our digital transformation efforts. Meanwhile, in transmission, we'll seek to make further investments in smart grid technologies to support the grid of the future and add new clean energy technologies.
Overall, these are relatively low-risk investments with a high degree of success. Moving to Kentucky's capital plan on slide 24, we expect capital investments to be a total of $4.2 billion across our five-year plan. The common theme you'll see here across electric distribution and transmission are investments in replacing aging infrastructure and further hardening our system. Over 50% of our capital plan in Kentucky will be invested in upgrading, and hardening our electric T&D system, as well as digital transformation investments. In terms of natural gas capital investments, we're focused on modernizing existing infrastructure, enhancing the system for reliability, and connecting new customers to meet growing customer demands.
The generation investments in the plan primarily relate to maintaining the safety and reliability of our existing plants and a modest amount of environmental compliance spending to complete our ash pond closure program and comply with new effluent limitation guidelines or ELGs. Our current five-year plan in Kentucky currently does not include new generation. Finally, to Rhode Island on slide 25. Our current estimate for capital investments in Rhode Island is between $2.6 billion and $3.2 billion, with ranges reflected in the 2024-2026 period as we develop and refine our plan to deliver the state's 100% renewable electricity objective while maintaining affordability and reliability. Roughly half of the near-term investments are expected on the electric grid as we focus on system hardening and replacement of aging infrastructure.
Examples include advanced metering infrastructure, grid modernization, and implementing DERMS to support broader DER integration within the state. In addition, since Rhode Island Energy is a coastal utility, we'll also need to ensure adequate focus on system hardening and preparing the transmission network for offshore wind generation, which is a key component of the 100% renewable electricity goal. We're also planning to replace leak-prone pipes in the gas distribution system to enhance system safety and significantly reduce greenhouse gas leakage from the network. With that, I'll turn it over to Christine, who will discuss the exciting work we've been driving through our clean energy strategy.
Hello, I'm Christine Martin, Vice President of Public Affairs and Chief Sustainability Officer for PPL. These are exciting times for our company and our industry as we rethink how energy is used and delivered. The decisions we make in the years ahead will shape our energy future for generations to come. With this in mind, today I'll focus my remarks on our unique strategy to drive a responsible, sustainable, clean energy transition. Over the past year, we've worked hard to sharpen this strategy in collaboration with one of the world's leading energy consultants. Today, I'm more convinced than ever that PPL has a tremendous opportunity to lead the clean energy transition and to position the grid as an enabler of clean energy resources. Across PPL, we continue to reduce our environmental impact without compromising on energy reliability and affordability.
We're committed to driving the innovation needed to go further, faster, and we're optimistic that we can and will achieve our goal of net zero carbon emissions. Now let's turn to my presentation. Starting on slide 27, we've outlined how PPL is leading the clean energy transition. First, our commitment to net zero carbon emissions by 2050 is real and something that continues to evolve. We do not set goals under a set and forget it mentality. We believe in establishing targets that will continue to challenge and progress, as evidenced by our additional commitment to stop burning unabated coal by 2050. Second, our strategy drives an efficient transition and economic development while maintaining affordability. For the transition to be sustainable, we need to deliver it in a way that drives real value for our customers and shareowners.
We need to keep energy reliable and energy prices in our regions competitive to spur further economic development, and we need to support our workforce, and communities through this transition. Third, PPL is well-positioned with extraordinary opportunities to advance the clean energy transition across our service territories. From our fossil fleet in Kentucky to our extensive T&D systems, we see growing potential to drive positive change in the lives of our customers and communities. This includes a cohesive strategy intended to further reduce emissions from our gas operations in consideration of our addition of Rhode Island Energy. Fourth, we are dedicated to investing in technologies that support a more rapid transition to cleaner energy resources. We intend to lead this clean energy transition and are steering key industry partnerships. Finally, we are providing transparent accountability for these objectives through our strong governance and reporting practices. Turning to slide 28.
Since 2010, we've reduced our carbon emissions nearly 60%, and we're on track to meet the interim emissions reduction targets shown on this slide. Our net zero emissions goal is underpinned by a comprehensive strategy that targets four key areas. The first pillar of our strategy involves decarbonizing our generation fleet in Kentucky. This is critical to achieving our net zero goal, as our Kentucky fleet accounts for nearly all of our carbon emissions. The second pillar of our clean energy strategy focuses on positioning the grid as an enabler for clean energy resources, including promoting energy efficiency programs and demand-side management. We see this as an area where we can make a significant difference across each of our service territories and drive meaningful progress in combating climate change.
Our third pillar is focused on investing in R&D as achieving a low carbon economy across the full value chain from energy supply to end-use customers will require fundamental advancements in technology. Finally, our fourth pillar is focused on decarbonizing our non-generation operations. This includes reducing emissions from our electric and gas distribution and transmission operations, as well as our building and vehicle fleets. Moving to slide 29. Decarbonizing our generation fleet in Kentucky represents an extraordinary opportunity to reduce PPL's carbon emissions. Approximately 65% of our 7,500-MW generation fleet is coal-fired due to the locational advantages, and historically low cost. Despite being a relatively small portion of PPL's total assets, the Kentucky generation fleet's high carbon intensity drives almost all of PPL's direct carbon emissions, as shown.
This is primarily due to the fleet's high capacity factors supported by its lower marginal costs and excellent reliability, particularly at night and during the winter months. While this fleet has served the energy needs of Kentucky in a reliable and affordable way, most of these units reach their retirement age by the end of the next decade, and there are multiple transition futures being assessed that represent a significant investment opportunity. With this in mind, we're confident that we're in the best position to lead the transition of this fleet to cleaner sources of energy. Turning to slide 30. The characteristics of our Kentucky fleet afford our customers some of the lowest electricity rates and most reliable power in the country. Our rates have consistently been lower than most other states, tracking at 14% below the national average.
We are also one of the most reliable power producers due to the base load nature of our resources, the prudent investments we've made, and our culture of operational excellence, as reflected by our forced outage rates that are nearly 60% better than the benchmark. We've consistently demonstrated our focus to minimize our impact on the environment in a responsible manner with a clear track record of reducing total emissions. Since 2000, we've reduced our sulfur dioxide, mercury, and particulate matter emissions by approximately 90%. Over the same period, we've reduced our nitrogen oxide emissions by over 80%, and we are confident that we'll be able to achieve reductions in CO2 with similar success as we responsibly transition our fleet. Turning to slide 31. The low cost and reliability of our fleet has spurred significant economic development in Kentucky, specifically in manufacturing.
Manufacturing is the largest single contributor to Kentucky's economy, accounting for nearly one-fifth of the state's GDP. The chart on the left of the slide shows that on a comparative basis, manufacturing is a more significant portion of Kentucky's economy compared to the U.S. average. This is an important consideration as our manufacturing customers are heavily reliant on 24/7 power to support their operations. Another notable data point is Kentucky's mining GDP compared to the national average. Some incorrectly assume that because Kentucky is home to a more coal-intensive generation fleet, that coal is a primary economic driver in the state. Instead, mining in Kentucky is very similar to the U.S. average when looking at overall state GDP. Thus, the driver of our fleet's composition comes back to the factors I previously mentioned, low cost, strong reliability, and locational advantage.
Shifting to Kentucky's growth and outlook, 2021 was a year of record growth with over $11 billion of investments committed in the state. These investments have been specifically focused in areas that will help drive a sustainable energy future, such as EVs and batteries. We're excited to support this ongoing growth, including a planned $5.8 billion Ford battery complex in our service territory that represents the largest economic development project in the state's history. Turning to slide 32, as the state of Kentucky continues to evolve, we continue to drive the evolution at LG&E and KU. This includes our commitment to achieving reductions in our coal-fired capacity that will enable us to attain our net zero targets. Under our current plan, we'll retire 1,000 megawatts of coal by 2028 and an additional 1,000 megawatts by 2035.
Based on our latest IRP results, these assets will be replaced with a combination of renewables and natural gas. As discussed, we'll continue to evaluate ways to progress this transition further, including our commitment to stop burning unabated coal by 2050. We expect future economics to support this objective. Driving factors could include more rapid retirements due to the relative costs of other cleaner energy sources, operational constraints as more coal plants retire, and improved technologies that effectively remove CO₂ emissions. We are constantly evaluating supply options, and technologies that will best deliver value for our customers over the long term while maintaining secure, reliable energy. As a part of this effort, we are continuing to proactively invest in R&D and innovative technologies that will accelerate the clean energy transition.
Turning to slide 33, to summarize our Kentucky generation strategy, we see the transition as an exceptional investment opportunity, and also a tremendous opportunity to engage with our stakeholders to position the state as a clean energy leader. We will continue to evaluate opportunities to advance the transition of our generation fleet, including offering renewable programs to support our customers' needs. These programs currently support construction of about 250 MW of new solar power in Kentucky, while our current generation portfolio continues to provide reliable, affordable energy to support economic growth. We will continue to engage with the state to advance its clean energy strategy, which is further supported by the governor's KYE3 plan.
The E3 strategy highlights several specific areas that will provide opportunities for investment at our Kentucky Utilities, including system hardening, resiliency and security, as well as development of new technologies that drive cleaner sources of energy, such as renewables, carbon capture, and hydrogen. Finally, we remain focused on promoting regulatory and legislative policy in the state that aligns with our clean energy goals. One example of this effort is the Retired Asset Recovery Rider that was established in our last rate case. We believe the combination of these factors positions our utilities in Kentucky very well for the future. Turning to slide 34, we're focused on positioning our energy networks to support the evolving clean energy landscape. This includes reducing emissions at our gas utilities as well.
This is an important issue in Rhode Island when considering the state's clean energy goals, and the regional dynamics of reliance on natural gas for heating. Comprehensive system-wide planning will remain critical to providing resilient energy at the lowest cost. We will be engaging in a long-term assessment of our gas LDC assets over the next 12 months, which will further inform our gas decarbonization goals. At LG&E, we've had success with our asset replacement and modernization program that has resulted in significant improvements. For example, we've decreased below ground leaks by more than 70% since 2010, which has driven reductions in scope one emissions from gas distribution operations. These direct emissions for calendar year 2020 were more than six times less than Rhode Island Energy with a comparably sized gas system.
We believe our experience will translate to substantial benefits in Rhode Island, and we're exploring renewable fuel options to serve customers who will continue to require non-electric service in a low carbon future. Turning to slide 35, we believe there are significant needs in technology and innovation if we are going to successfully achieve net zero. We are fully committed to advancing this innovation, and to complement our clean energy strategy, we've identified several R&D priorities. This includes carbon capture and sequestration, low carbon fuels, DER solutions, and digital technology to support a dynamic and resilient grid. We continue to partner with key industry groups to unlock and accelerate clean energy innovation. We believe this innovation will be a catalyst for change at PPL and elsewhere, and that's why our dedication to organizations such as EPRI and Energy Impact Partners is so important.
Insight gained through these partnerships will further shape our ability to close the net zero gap. Moving to slide 36, our commitment to advance a sustainable energy future is backed by clear targets that we've established to measure progress and guide our actions. In 2022, PPL established new fleet vehicle electrification goals, as well as a goal to reduce energy use in the buildings we own. We set these goals to be at least on par with our industry peers, and in some areas, our goals are leading the way. These goals are also now tied to long-term executive compensation and contribute to our enterprise-wide net zero carbon emissions goal. In summary, we believe our advanced use of data and technology uniquely positions PPL to drive the critical changes that will be needed to achieve a net zero future while keeping energy service safe, reliable, and affordable.
I'll now turn it over to Joe for a review of our financial plan.
Good morning. I'm Joe Bergstein, Chief Financial Officer for PPL, and I'm pleased to discuss our plans to achieve leading financial performance. I began my career at PPL more than two decades ago, and today, I can honestly say I'm as excited as I've ever been about the prospects for our company. Over the past year, we've taken bold steps to shift the trajectory of our business. We've positioned PPL to maximize shareowner value. We've shifted from a defensive posture to a position of strength with a top-tier balance sheet that provides the kind of financial flexibility we haven't had in more than a decade. Our balance sheet can support our growth, and capital plans without the need for equity issuances for the foreseeable future. We've also developed a de-risk business plan that marries premier 6%-8% earnings growth with our proven track record of industry-leading operational performance.
Our plan, unlike many others, requires no rate cases in the near term and is supported by a playbook that truly differentiates PPL by maintaining affordability as we invest in a sustainable energy future. For more than a year, we've been a company in transition. Now, with our transactions behind us, we're ready and eager to showcase our strengths as we deliver on our mission and drive long-term value for our customers and shareowners. Now let's move to my first slide. Turning to slide 38, we've outlined several key highlights from our plan that will drive our leading financial performance. First, we have a well-developed business plan focused on operational excellence and affordability that supports industry-leading annual EPS and dividend growth of 6%-8%.
This is a significant change from where we were just over 12 months ago, given the uncertainty we faced with the U.K. business in our portfolio. Our new EPS growth target is based off the midpoint of our 2022 pro forma forecast range of $1.40-$1.55 per share, which reflects a full year of earnings contribution from Rhode Island. In conjunction with our pro forma earnings projection, I'm pleased to announce that we're increasing PPL's 2022 pro forma annualized dividend to $0.90 per share from the implied $0.80 per share announced in February. As we've discussed, we're now targeting growing the dividend each year in line with EPS growth.
Our new plan is underpinned by an enhanced $12 billion capital investment plan, which reflects our continued efforts to deliver safe, reliable, and affordable energy to our customers, including those in Rhode Island. Our plan also supports exceptional credit metrics, including 16%-18% FFO or CFO to debt, consistent with the targets we communicated when we announced the repositioning last March. We're very excited to be positioned as one of the best credit profiles in the utility sector, supporting continued growth without any required equity issuances. As my colleagues highlighted, our strategy positions PPL to deliver on these investments in the face of rising inflation through a proven playbook that leverages operating efficiency, data science, and advanced technology.
This differentiated model supports our targeted $150 million of O&M savings through 2025, which enhances our near-term earnings growth beyond our rate base growth assumptions. Moving to slide 39, our strategic vision to transform PPL is centered on delivering long-term, sustainable value for our shareowners. We executed the sale of the U.K. business at exceptional value, setting a record valuation for U.K. utility sales, which resulted in $10.4 billion in net cash proceeds to PPL. Following the sale, our focus was on disciplined capital allocation. Our view is that investing in utility assets offers the greatest long-term value for shareowners. In line with this approach, nearly half of the proceeds are being invested back into U.S. utility growth through the acquisition of Rhode Island Energy, as well as the incremental capital investments across all of our utilities.
In total, we've identified incremental capital investments of over $2 billion, which reflects the additional capital in Pennsylvania and Kentucky that Vince previously mentioned, plus additional opportunities in Rhode Island. We used another $4 billion to create our industry-leading balance sheet that will support further incremental growth in these businesses for years to come while de-risking our portfolio from macroeconomic volatility. Finally, we returned about $1.4 billion of the cash proceeds to shareowners through share buybacks and additional dividend payments. We believe our allocation of the proceeds supports the growth in our de-risk plan, maximizes shareowner value, and rewarded our long-term shareowners for their support as we worked to close on Rhode Island Energy over the last year. Turning to slide 40, we've provided a walk to our 2022 earnings forecast from our 2021 ongoing results.
This includes our official 2022 earnings forecast that reflects a partial year of Rhode Island Energy ownership, and the 2022 pro forma view that includes a full year of ownership. This pro forma view is the basis for our long-term growth rate. Our Pennsylvania segment is forecasted to earn $0.71 per share, a $0.10 year-over-year increase. Our Kentucky segment is forecasted to earn $0.68 per share, a $0.07 year-over-year increase. For Rhode Island, we forecast $0.07 of earnings contribution for the partial year of ownership from June through December. This partial year of earnings is indicative of the seasonality of Rhode Island's gas business and the earnings generated during the winter months. 2022 corporate and other results are expected to be a $0.09 drag, reflecting an $0.08 year-over-year improvement, primarily due to lower interest expense.
Altogether, we're forecasting 2022 earnings to be in a range of $1.30-$1.45 per share or $1.37 per share at the midpoint. Our pro forma 2022 earnings forecast reflects an additional $0.11 per share for Rhode Island Energy for the January through May period, resulting in the pro forma range of $1.40-$1.55 per share previously mentioned. Slide 41 outlines the key factors driving PPL's leading EPS growth profile. First, our ongoing utility investments support nearly 6% annual rate base growth in sustainable infrastructure, which excludes rate base related to our coal-fired generation assets that I'll cover a bit later. I'll also note that about 55% of our CapEx spend is recovered real time through riders or formula rates.
Second, we're targeting $150 million of O&M efficiencies as we deploy our Pennsylvania playbook across the entire T&D portfolio, and we centralize our operations. Importantly, these efficiencies will support our ability to achieve our growth targets in the near term while we invest the necessary capital in our service territories without significantly increasing customer bills. We can achieve this because we do not need base rate cases to support this plan, which we believe differentiates PPL from our peers as an investment option and lowers the overall risk of our plan. As a reminder, we currently have stay-out agreements in both Kentucky and Rhode Island through at least mid-2025. As discussed, our investment plans require no equity issuances to support this growth.
We see several upside opportunities to our plan, which further enhances our growth predictability, providing potential offsets to prolonged inflation impacts and may support even stronger growth. This includes incremental CapEx identified as we execute our plan, as well as additional cost savings that we identify beyond our current target. Further, while Rhode Island is decoupled, we've assumed no load growth in our plan across Pennsylvania and Kentucky. This may prove to be conservative if electrification trends and other growth factors, such as the recent economic development in Kentucky, more than offsets energy efficiency measures. Moving to slide 42, we've laid out our $12 billion regulated utility investment plan by segment. In total, about 95% of our planned spend is focused on supporting the clean energy transition, investments in our electric and gas T&D assets and non-coal generation.
We have not made any big bets related to these investments, with the vast majority being in relatively small scale projects that deliver the plans Greg outlined earlier. We continue to proactively expand our vendor base, and adjust our procurement cycles to mitigate supply chain impacts and drive further confidence in our plan. As Vince noted, since our last formal capital plan update, we've identified an incremental $1.3 billion of investment in Pennsylvania and Kentucky. Approximately $900 million of that is related to Pennsylvania, primarily consisting of investments in transmission infrastructure and IT projects, which will help drive the O&M reductions we have in the plan. The remaining $400 million primarily pertains to transmission and distribution projects in Kentucky to improve reliability and resiliency. Our new five-year plan also incorporates approximately $3 billion of capital investments in Rhode Island.
Notably, about 90% of Rhode Island's investments are covered by riders and formula rates. There are several upside opportunities to drive this plan even further. The most significant is transitioning our coal generation fleet in Kentucky, which is not currently reflected in this plan. We'll have a better sense of the timing of those investments following the completion of our evaluation later this year, as Vince mentioned in his remarks. We'll also see incremental transmission investment opportunities across all of our jurisdictions as we continue to connect renewable energy to our grids. Finally, we have identified numerous projects that could qualify for IIJA funding that improve the reliability and resiliency of our networks, as well as projects that will help deliver the clean energy transition in a more affordable way for our customers.
Overall, we think IIJA opportunities total about $2 billion, with about 60% being funded by federal grants. If awarded, these projects represent incremental capital potential and opportunities to achieve even greater O&M efficiencies. Turning to slide 43. Our updated CapEx plan is leading to stronger growth in sustainable infrastructure rate base. Through our plan, we expect nearly 6% annual rate base growth in sustainable infrastructure from a pro forma view of our 2021 average rate base. This represents an increase of nearly $6 billion over the five-year planning horizon. 80% of this rate base is attributable to electric T&D assets, split about evenly between electric distribution and electric transmission under FERC formula rates. Approximately 10%-15% of our sustainable rate base relates to gas infrastructure, with the remaining 5%-10% in non-coal generation.
We could see upside as we execute on the incremental capital opportunities I mentioned before, as well as upside from the replacement generation opportunities in Kentucky. Moving to slide 44. While we were increasing the amount of sustainable infrastructure, rate base related to our coal-fired generation continues to decline. Over the five-year period, we project a 20% decline in rate base from coal-fired generation or an approximate $1 billion total reduction. By 2026, coal generation will be less than 15% of PPL's total rate base. As reflected on the prior slide, our sustainable rate base in Kentucky is increasing by $1.9 billion over the same period, which more than offsets this decline. This dynamic, coupled with our disciplined O&M reductions, enable us to maintain adequate returns for shareowners and grow earnings while we stay out of rate cases.
This strategy further supports our focus on affordability in Kentucky as we prepare for the next investment cycle related to replacement generation. As Christine discussed, we'll stay focused on finding new ways to economically shift away from coal generation and limit at our ongoing risks associated with the environmental impacts, such as the Retired Asset Recovery Rider. On slide 45, as we've discussed, a key component of our growth plan is further enhancing PPL's efficient operating model. Adjusting for certain pass-through and one-time costs associated with the Rhode Island Energy acquisition, we have approximately $1.6 billion of controllable O&M expenses based on a pro forma 2021 estimate. Our goal is to reduce that by approximately 2% annually through at least 2025. The key sources of O&M savings are technology investments in Kentucky and Rhode Island that reduce ongoing operating costs using our Pennsylvania playbook.
Further technology enhancements in Pennsylvania using data science, and machine learning that reduce ongoing costs, and our organizational redesign with the centralization of shared services. As both Vince and Greg noted, we expect these efficiencies to trigger at least a total of $150 million in savings over our planning horizon. We're very confident that we'll achieve these savings and continue to work to find incremental savings, which would be upside to the plan. Moving to slide 46. Let's take a closer look at how our strategic actions have significantly improved PPL's credit metrics. While our balance sheet was adequate for the risk profile of our prior business mix, we were significantly limited in our financial flexibility or ability to deal with financial market instability. We completely reinvented the company's credit profile to be one that is an exceptional strategic asset, supporting overall financial flexibility.
Our decision to retire nearly $3.5 billion of holding company debt, coupled with the improvement to our operating efficiency, dramatically shifted PPL from a more defensive posture to a position of strength. The chart on the left reflects PPL's FFO to debt at the end of 2020 or just shy of 13%, which included the UK utility businesses. Thus, our step-up to the targeted 16%-18% is a meaningful shift that we expect will deliver value for shareowners for the long term. For 2022, we anticipate tracking in the lower half of the range due to the transition costs with National Grid related to Rhode Island Energy. We expect to see continuous improvement through the business planning period as we plan to eliminate the transition costs in 2024 and are targeting to maintain our metrics in the middle of the range.
In terms of holding company debt to total debt, approximately 35% of PPL's total debt was at the holding companies prior to the strategic repositioning. Fast-forward to 2022, PPL's holding company debt to total debt is about 15%. We expect this metric to be less than 25% during the planning period with the addition of Rhode Island Energy. The result of strategically repositioning PPL's credit metric supported a ratings upgrade at Moody's to Baa1 and an affirmation of our A- rating at S&P. The company is positioned very well going forward, especially considering today's macro environment. On slide 47, we've briefly outlined the sources of capital to fund our five-year capital plan, clearly demonstrating the strength of our financial position. Walking from the left side of the chart, we project adjusted cash from operations of about $10 billion net of projected dividends.
Over the next five years, we plan to retire $2.5 billion of long-term debt based on our current maturity schedule, with plans to issue approximately $4.5 billion of new long-term debt, primarily at our utilities. We see no need for equity issuances to fund any portion of this capital plan due to our strong planned cash flow generation and credit metrics. Given how we've recapitalized the balance sheet, we expect to have financial flexibility that extends beyond our current planning horizon. Moving to slide 48. With the acquisition of Rhode Island Energy, and as I've already mentioned, we're increasing our pro forma 2022 annualized dividend to $0.90 per share. This equates to a $0.10 annual increase over the previously announced quarterly dividend.
The updated dividend rate is based on the targeted payout ratio of 60%-65% of 2022 pro forma earnings per share, which includes a full year of earnings contribution from Rhode Island Energy. In connection with this increase, we've announced a second quarter dividend of $0.225 per share, which will be payable July 1. Looking forward, we will target annual dividend growth in line with our 6%-8% earnings per share growth, significantly outpacing the penny per share dividend growth over the past few years. Overall, we continue to see the dividend as an important component of our total shareowner return. That concludes my prepared remarks. I'll turn the presentation back over to Vince for some final thoughts.
Thanks, Joe. As we close out our prepared remarks this morning, I want to reemphasize how excited we are about the prospects for the new PPL. The entire PPL team is eager to translate our track record of best-in-class operational performance into consistent top-tier returns for our shareowners. The future is very bright for our company following the strategic repositioning. We've maintained our scale as a large cap regulated utility holding company, now operating in constructive regulatory jurisdictions in the U.S. Our plan delivers visible and predictable EPS and dividend growth of 6%-8% per year, among the best in our sector. We have a robust investment opportunity across our utilities of almost $30 billion that will drive growth for the next decade. We have one of the strongest balance sheets in the U.S. utility sector, uniquely positioning PPL to fuel growth without any required equity issuances.
We have a compelling opportunity to transition a predominantly coal-fired generation fleet in Kentucky that provides growth opportunities into the next decade. We are best-in-class utility operators with a proven track record of delivering for our customers, and we now have an executable playbook to extend that strong performance to our shareowners. The combination of these factors leads to a total return proposition of 9%-11% per year, which in our opinion, is truly one of the best risk-adjusted opportunities in our sector. The transactions we've executed are game-changing for our company, and we're excited to deliver the plan we've outlined for you today. Thank you for joining us this morning to listen to our new story. With that, operator, I'll turn it back over to you for instructions for the Q&A session.
Thank you. To ask a question, please use the dial-in number and the entry code provided on this slide. Once in the conference, press star then one on your touch-tone phone to enter the queue. At this time, we will take a brief five-minute intermission to assemble our roster. Thank you for your patience. We will now begin the question and answer session. As a reminder, to ask a question once in the conference, press Star then one on your touch-tone phone. To withdraw your question, please press Star, then two. Please remember to mute or close the webcast if you have dialed in via conference call. The first question today will be from Shar Pourreza with Guggenheim. Please go ahead.
Hey, guys. Good morning. It's actually James for Shar. Congrats on the rollout.
Hey, James, it's Vince. Thanks.
Hey, Vince. I guess just starting in Kentucky, great to see the 2050 commitment. Made a comment in the prepared remarks around an evaluation that's gonna finish later this year.
Yeah.
Could we unpack that a little more and kind of what's the timing for that? What should we expect to see?
Sure. Christine, do you wanna talk about what we're planning on doing over the rest of the year?
Sure. Thanks, Vince. Let me just go back just a bit. In fall of 2021, I think you know that we issued two significant reports related to our generation strategy in Kentucky and our resources, and that's our 2021 integrated resource plan as well as our 2021 climate assessment. You know, we're continuously evaluating our clean energy transition options. We've had some external interest as well in further understanding the cost and operational implications of those options that we evaluate. That report, that further generation analysis we would expect to have completed by the end of this year and made publicly available.
As part of that assessment, we will be considering updated market prices, you know, updated versus our late 2021 reports, our latest views on technology, as well as implications of some scenarios that look at more heavily renewables and other clean energy options in our portfolio.
Gotcha. Excellent. Just the plan of a lot of O&M savings, and, you know, Vince, you and Joe both laid out where that's coming from. I guess, just how comfortable are you with those levers versus the current inflation backdrop we're seeing right now?
Yeah, we're very confident in our ability to achieve the O&M reductions that we have in the plan. I'll just reiterate where we see those coming from. You know, it's really optimizing the electric T&D ops using again technology, data science, centralizing our shared services functions, leveraging our supply chain function. And again, that will result in savings across all three utilities. That's on the T&D side. We're also undergoing a generation optimization initiative given the upcoming coal plant retirements. We'll also be looking for additional efficiency opportunities now that we have gas operations in Rhode Island. We'll be looking at the Kentucky Gas and Rhode Island Gas operations to further optimize there. Greg talked about several examples of areas at the utilities where we see cost savings opportunities.
I would say the reality is that we're really looking to optimize every area of the business and deliver cost savings. We see this as enabling us to continue to drive more efficiencies in our operations even beyond 2025. From a shared services perspective, again, this is across the board as well, from IT to supply chain, HR, finance, all of the areas there. I would say when you look at you know how we came up with the $150 and the timing around that, it's you know it's really related to our desire to really be focused on the TSA time period, the next two years in Rhode Island with National Grid. The technology deployment is a key component of the O&M reduction strategy, as we've discussed.
We need to be realistic about how much we can get done around IT system implementations outside of Rhode Island while we're integrating Rhode Island away from National Grid. The $150 million target by 2025 just balances all of those factors. But I think as you've heard from us, if we can move faster, we certainly will. And again, I think we're very comfortable with the $150 assumption. We do see upside potential to that, either helping with the growth rate or extending the growth rate beyond 2025. And again, I think all of those things will help us manage any potential exposure to inflation.
Excellent. Thanks. Just one last one on the balance sheet. I understand the priority is, you know, supporting incremental investment in the plan now, but just curious how we should think about the optionality there as it relates to additional buybacks or even inorganic opportunities.
Yeah, I'll let Joe talk about buybacks. On the inorganic opportunities, look, we'll continue to opportunistically evaluate any potential opportunities to create additional shareowner value as we've always done. But I would say that that's not our primary focus right now. You know, we are laser-focused on executing the exciting plan that we laid out for you all today, including the integration of Rhode Island over the next two years, which is, you know, a significant acquisition, obviously, that we just completed. Again, we'll remain opportunistic there, but not our primary focus. Joe, do you wanna talk about buybacks?
Yeah, sure. First maybe just on credit. You know, we would expect our credit metrics, as I said during my prepared remarks, to be in the middle part of the band. Our expectation is it will be in the lower part of the range in the beginning of this year as we're integrating Rhode Island, and incurring those TSA costs. Then we can see improvements to that credit profile as we go through the planning period. You know, look, we expect to remain comfortably within the ranges. If we were to exceed those targets and our credit improve for whatever reason, you know, additional O&M savings or whatever that may be, I think we'll assess the best use of that, the balance sheet at that time and look to maximize long-term shareowner value.
We'll also have to give consideration to the macroeconomic environment, and our future investment options as well. Look, I think we're in a great position with where we position the balance sheet today. I think we're comfortable with being in those ranges for quite some time.
Excellent, guys. That's all I had. Thank you so much for your time, and congrats again.
Thanks, James.
Thank you. Our next question will be from Nicholas Campanella from Credit Suisse. Please go ahead.
Hey, good morning. Thanks for taking my question.
Morning, Nick.
Hey. Morning. I guess just, you know, if you accelerate coal generation retirement, can you just remind us how to think about any stranded asset risk? I know you talked about an asset recovery rider, but can you just please expand on that and just how to think about the company's overall ability to pull things forward here in the five-year time horizon? Thanks.
Sure. You know, in general, I would say, you know, we do have the regulatory mechanism in place with the Retired Asset Recovery Rider in Kentucky that's designed to provide. Again, these were investments that have been deemed, you know, prudently made. If economics would drive the earlier retirement of those assets versus what we currently have as our expected retirement dates, again, we would work with the commission, but we think that Retired Asset Recovery Rider could be used to recover the remaining net book value of those plants. Again, they're scheduled to retire in 2024, 2028, and then 2034. Those would likely be the ones that would maybe get pulled into a different time period where the Retired Asset Recovery Rider might come into play.
We wouldn't expect there to be a large net book value on any of those plants that might fit into the scenario you just described, Nick. Again, our expectation would be that process would be available to us, but we would certainly engage with the commission if and when that was appropriate.
Got it. Thanks for that. I guess there's just been a lot of focus on pension across the sector of late. Can you just kind of update us on your pension position, funding status, regulatory tools, if any, and just how to think about the impact to your six to eight , if at all?
Yeah. We're in a really solid position with the plans. Joe, you wanna talk about it?
Yeah, sure. As Ben said, we're really in good shape with our plans. From a legacy PPL perspective, our plans are slightly over 100% funded. A number of years ago, we set out on a strategy to de-risk our pension plans, and really protect ourselves against market volatility. This strategy has been very successful and continues to serve us well. As far as Rhode Island and their pension plans are obviously much smaller than the legacy PPL's. We're working through the asset transfer from National Grid now. The majority of that transfer is complete. When we're done, I expect those plans to be fully funded or very nearly fully funded.
As I said, we'll, you know, put those Rhode Island plans on the same de-risk strategy and same investment strategy that we're using on the legacy plan. Yeah, we're in good shape and not seeing some of the issues that others may be experiencing.
All right, thanks. I'll get back in the queue. Appreciate it.
Thanks.
Thanks. The next question is from Steve Fleishman from Wolfe Research. Please go ahead.
Hi. Good morning. Can you hear me okay?
We can. Good morning, Steve.
Great. Hey, Vince. The 6%-8% growth rate through 2025, should we think of that as being pretty linear and consistent over the period, or is there like a, some type of, skew to it?
Yeah, no, generally I would say we're expecting that to be linear. Again, given the integration efforts that we have in Rhode Island over the next couple years, there could be some fluctuation within the range. We would expect to be within the range the entire period. Absent anything that, you know, unexpected coming from the integration time period over the next couple of years, we would expect it to be relatively linear, yeah.
Okay. That's very helpful. The gas LDC assessment you mentioned in 2023, can you just clarify, is that like a strategic assessment or is that just kind of a environmental assessment? What do you mean by that assessment?
Yeah. As part of the commitments that we've made for the approval to acquire Rhode Island Energy, we agreed to do an assessment of the future of gas, specifically related to the gas LDC network in Rhode Island. You may or may not be aware, there were some issues on Aquidneck Island, which is one of the areas up in Rhode Island around getting gas and just the physical location of where our network, our gas LDC network sits on the end of the transmission lines. Christine talked about the leak rates of the network, which are quite a bit higher than what we're achieving now in Kentucky, given all of the replacement that we've done in Kentucky.
We're really at a point now where we just need to do an analysis on the future of gas as it relates to the Act on Climate goals, and then that'll ultimately feed into the investment strategy that we put into the network. It's more environmental driven and dealing with the Act on Climate, it is not strategic.
Okay. The last thing on the ability to avoid base rate cases, which is great. Just realistically, when would you need to kind of come back in for a rate case one day? Or do you have to at some point? Should we think about if you do come back in at some point, you know, or how to think about where your kind of earned returns will be at that time?
Sure. Right now we've agreed to stay out provisions both in Kentucky and Rhode Island through at least mid-2025. We won't be going back in in those two jurisdictions at least through that point in time. In Pennsylvania, as I indicated, we haven't had a rate case really effective since 2016. We don't see an immediate need in PA, especially as we continue to drive the O&M reductions and we do the things that Greg talked about in his section around continuing to deploy smarter technology, data analytics, all of those things. We don't have a particular time in mind necessarily for the PA rate case. We'll continue to monitor that as we go through the plan.
I think as we think about the O&M reduction, Steve, if we're able to do better than the $150, and if that ends up being in PA, I could certainly see us not having a rate case in this earnings guidance timeframe at all. Either way, we don't need a rate case to hit the earnings targets that we've laid out today.
Great. Thank you very much.
Thanks, Steve.
Again, if you have a question and have joined the event telephonically, please press star then one to join the question queue. The next question will be from Durgesh Chopra with Evercore ISI. Please go ahead.
Hey, good morning, team. Thank you for taking my question.
Sure. How are you doing, Durgesh?
Hey, good, Vince. Thanks for the update today. Much appreciated. Hey, I just want to piggyback on Steve's question. Can you just remind us what your earned level of ROEs are in your subsidiaries currently? How should we as we model, you know, 2024, 2025 through the end of the forecasting period, how should those earned ROEs be trending?
Yeah. Maybe I'll start backwards and work towards the near term. By the time we get to 2025, when all of the O&M efficiencies will be realized, we're expecting to be earning near our allowed returns despite staying out of rate cases through that time period. That's, you know, the allowed returns are all in for the portfolio. There, as in, like, the 9.5%-10% range. We would expect to be earning, you know, right in that area, by the time we get to the full realization of the O&M efficiencies. Overall, I am expecting our 2022 returns to be a bit lower because we have some strategic O&M in the plan.
What we're doing there is we're making some strategic investments in O&M this year in 2022 that will help deliver the larger $150 million of ongoing O&M reductions that we have in the plan. These are things like, you know, incremental tree trimming or tree removal costs, digitization of records, things like that. We have about $40 million in our 2022 budget that's embedded in the $148 midpoint that we've provided. If you look at slide 22 that Greg was going through, that showed that we actually you know, our O&M efficiency in the first year of deploying the playbook actually gets a little worse than the starting point, and that's because of the strategic O&M. We did that back in 2012 in PA.
It's part of the playbook, and we're replicating that again today. The returns will be a little shy of allowed in the beginning part of the plan period, but by the time we get to 2025, we expect to be, you know, right around the allows.
Got it. Super helpful. By the time we get to 2025, you should be sort of modeling the, you know, your subsidiaries earning close to the allowed ROEs. That's clear. In terms of just, like, the corporate segment then, like, what directionally speaking, you know, obviously, you know, there's growth here, varying degree of growth between Pennsylvania, Kentucky, Rhode Island. In terms of corporate, how should we think about that spending trending sort of through the forecast period? You know, down, I would assume, given sort of all the initiatives that you're doing.
Yeah. Joe, you wanna talk to that?
Yeah. The primary items in the corporate, and other segment are holding company interest, and then some corporate costs that a vast majority of our corporate costs get allocated out to the segments. What remains stays in that corporate and other segment. I wouldn't expect a material change in that corporat and other segment through the planning period. When we talk about realizing benefits and these O&M efficiencies that occur in IT, finance, HR, other areas that Vince mentioned, those savings ultimately end up in the utilities and in the segments. To answer your question again, corporate and other basically consistent through the planning period.
Got it. Super helpful, guys. Thanks for taking my questions.
Thanks, Durgesh.
Thanks, Durgesh.
The next question is from Michael Lapides with Goldman Sachs. Please go ahead.
Hey, guys. Congrats on today's kind of detail that you're providing and the repositioning of the company over time. Have a couple of questions. Just when we think about the. I know the EPS is kind of glide path, meaning that it's not lumpy in terms of the you know the annual growth rate. Just curious on the O&M, meaning getting to the 150 and maybe getting some of the upside on that $150 million of O&M savings. Is what you're saying is that the bulk of that or a large chunk of that doesn't come until after the TSA is done, so it's more 2025 weighted relative to like maybe 2023 and 2024?
Yeah. I'll let Joe talk to the kind of glide path of the O&M. But Michael, maybe it'd be helpful. Let me just talk about what's driving our overall earnings growth over the time period.
Yeah.
Because there's a few points that I just wanna make sure that we understand. The first is obviously the rate base growth that we have in the plan and our ability to earn a recovery on about 55% of that capital spend through the FERC formula rate mechanisms as well as other riders or mechanisms at the state level. You know, earning on capital spend that doesn't require base rate cases. The second is the $150 million, which I'll have Joe talk about how that kind of spreads throughout the plan. I talked about the strategic O&M that we have in 2022.
Finally, I would just say that, when you look at the coal rate base, and while that's declining and that ends up, right, reducing our overall rate base growth because we're losing about $1 billion of rate base in coal. That does not drive a decline in our earnings or does not create a drag in our earnings because we're not going in for rate cases over that time period. When you adjust for that phenomenon, right, our rate base growth is probably around the 5% range. When you add the O&M efficiencies to that, and our ability to cover some of the return on capital that's not getting base rate case recovery, right? That's what gets us to the midpoint of our earnings guide.
I just wanted to kind of lay out, you know, really what's driving the overall growth. Joe, do you wanna just talk about kind of how we're laying out the $150 throughout the plan period?
Sure. We would certainly expect to see improvements in O&M starting next year and continuing through 2025, the plan period. Some of those O&M efficiencies are driven by technology, as Greg talked about, so we have to deploy the technology to garner the efficiencies. I'd say it's generally linear through the plan, but it gets a bit stronger as we move and we deploy the technology.
Got it. When we think about the capital spend that is rider recovered, can you remind us in Rhode Island first and then Pennsylvania, what is not rider recoverable? I understand the bulk of the Kentucky stuff isn't rider recoverable, but just curious on Rhode Island and Pennsylvania.
Yeah. I think about 90% of the Rhode Island capital will go through the ISR process, which is that annual reconciliation process. You'll have some base capital, some IT capital that may not qualify for the ISR process, but again, the bulk of it is going to be picked up there. As you said in Kentucky, really unless it's ECR related, we have a little bit of gas line tracker. But for the most part, Kentucky requires a base rate case to get recovery of those costs. In PA, transmission fully covered by the formula rate. Of course, Rhode Island as well is covered by the formula rate for their transmission spend. We have some DISC mechanism in Pennsylvania.
Even in PA on the distribution side, outside the transmission, does require a base rate case. All in, about 55% of our total capital is covered by these mechanisms.
Got it. Thank you, guys. Much appreciated.
Thanks, Michael.
Thanks.
The next question will be from Anthony Crowdell with Mizuho. Please go ahead.
Hey, thanks for taking my question, Vince, and congratulations on the transition.
Thanks, Anthony.
Just actually 2 quick questions. I guess one is, following to an earlier question on the earnings growth rate. Is there a bias that you guys have whether the midpoint higher end or lower end? I think Steve was asking whether it's linear, but I'm just curious if management is, you know, sure you wanna be at the higher end, but just thoughts on any clarity on where you are in the range.
Well, I would say the guidance that we're issuing today is, you know, based on the midpoint. As we think about the risk profile of the plan, we think it's more weighted to the upside than the downside. You know, Joe talked about some of the upside potentials to the growth in his prepared remarks. Obviously, as we think about incremental investment opportunities at the utilities, if those are in the areas where we have the trackers, right? Transmission in Pennsylvania and Rhode Island or DISC in PA, again, the ISR in Rhode Island or the ECR in Kentucky, right, those would generate incremental earnings and returns as we're deploying that capital. We talked about the bias to the $150 million of O&M savings.
Again, we're very confident that we can achieve the $1.50. There could be opportunity to do better than that. I would say we would look at that sitting here today as potentially either improving the growth rate or extending that growth rate, you know, beyond 2025, but it could also be used to offset inflationary pressures if that persists. We've been very effective at managing inflation based on the nature of our cost structure and just in terms of how much is labor versus non-labor, how much is covered by union contracts, et cetera. We're pretty well protected against inflation. If that persists and that were to change, I think some upside in O&M could help to protect us against that. Joe mentioned load growth. Rhode Island is decoupled.
Load is not necessarily driving the P&L in Rhode Island, but it does for Pennsylvania and Kentucky, more so in Kentucky than it does in Pennsylvania. As Joe said, our plan assumes in total for PA and Kentucky, no load growth. If we see continued economic development in Kentucky, that more than offsets energy efficiency savings, that could certainly be an upside for us, again, moving us closer to the higher end.
On slide 40, you talk about earnings projections per segment. I'm just curious, and I know it's a completely changed company, but I think prior to the transition, some of the corporate and other costs would be, you know, from maybe the holding company structure that previously existed, would be imputed down into the Opcos. Is that still the case or when I look at, you know, Pennsylvania, Kentucky, Rhode Island Regulated, there's no shared cost that you're imputing down there?
Yeah. Joe, why don't you take that one?
Yeah. Again, as I said, the corporate and other segment is the holding company interest and some corporate costs that don't get allocated out to the segments. By and large, the cost, the O&M that's at the holding company or get allocated to the segments.
Great. Thanks for taking my questions. Vince, fingers crossed tonight.
Yeah. Thanks, Anthony.
The next question will be from Gregg Orrill from UBS. Please go ahead.
Yeah, thank you.
Hey, Greg.
Thanks for taking my question. On Rhode Island Energy, I was wondering if you could sort of remind me of the level of CapEx that had been being spent in 2021 or whatever, and how you're thinking about the, you know, the impact of the increase that you're seeing there and on customer bills and the $500. You know, what sort of defines the $500-$750 million CapEx range?
Sure. Yeah, I'll let Joe talk about the current. You know, the current is in the kind of four to five range, and we're showing that could potentially go up as we're showing on slide 25. Really, the way we came up with these ranges, Greg, and again, we need to work with the stakeholders in Rhode Island, which is why we provided a range here. What we did was the minimum of that range is what we believe is the minimum amount that will be required to continue to foster the agenda in the state around clean energy. It's got some transmission in there. It also has distribution, you know, AMI grid modernization.
Those are things that we committed as part of the approval process to get our plans into the commission as quickly as we can. Those were two major efforts that National Grid was undertaking at the time of the acquisition and the announcement. They basically got delayed by 14 months. We committed to very aggressively and quickly get our plans into the commission on those. The higher end of the range is again, depending on how aggressive the state wants to achieve their clean energy goals. We think we can accelerate the spending on transmission hardening, on getting the transmission network built out for offshore wind. Then really full deployment of our DERMS and other smart grid technology within the distribution network.
Now that capital will continue beyond the timeframe that we've shown. There's a lot of spend that will be required up in Rhode Island to meet these goals, but the pace at which we deploy that will really be balanced against the customer bill impacts. As we get Rhode Island off of grid systems onto ours, again, get that under working under our operating model, over time, we expect to be more efficient up in Rhode Island than their current cost structure. That obviously helps to pay for some of this capital spend. We just need to kind of get through all of that. I would suspect within the next 12-18 months, Greg, probably we'll have a much better idea of where we'll be in terms of the capital plan.
We'll be through those studies that we've committed to. The filings will be made with the commission on AMI and grid mod. We'll have a much better sense of our Act on Climate strategy. All of that will be done in the next 12 months. Shortly after that, I would suspect we'll have a good sense on dealing with the commission and the division on what that capital plan looks like. I don't know if there was anything in there I didn't answer. If that was part of your question.
No, I think I got it.
Okay.
Thanks.
Sure.
The next question will be from Paul Zimbardo from Bank of America. Please go ahead.
Hi. Thank you for the time.
Sure.
The first question I had is, before the O&M mitigation, the $150 million, what kind of cost increases inflationary are you embedding in the plan that you're able to offset?
Yeah, we would have normal inflation in there, but Joe, do you wanna-
Yeah, sure.
Provide some guidance on that?
Yep. Yeah, sure. When we put the plans together, you know, obviously we look at all of these costs. We include known increases in contracted materials and services, increases that have been agreed to in our labor contracts, other known increases, observable market increases, and other factors. You know, there's not one inflation rate embedded in there because all of those things have different rates of increases. We look at it across the board and incorporate those factors in there.
Paul, I would just reference you to slide 45. It's not like we're raising O&M and then reducing it by 150. This is a real reduction of O&M of $150 million in 2025 compared to our 2021 actual. We are projecting that our O&M will go from $1.6 billion, and this is controllable O&M, $1.6 billion down to $1.45 billion. This is a real O&M reduction. It's not just the offset of future inflation.
Oh, yes. Yeah, totally understand. That's got us curious if it's you cutting costs by like a 2.5% take or it's really a much larger embedded cost cut. Understood. Okay. The other question to clarify, to make sure I understand Kentucky correctly, so that roughly $1 billion of coal rate base that you mentioned, that you're able to earn on during the cadence. Should we think about that there's some kind of true-up after the plan for that $1 billion?
Well, in the next rate case, we will true up rate base, we'll true up our cost structure. All of that will go into the normal distribution or actually in Kentucky it's a fully bundled base rate case filing. All of that will get trued up. Again, as Joe talked about, the sustainable rate base is growing at about $1.9 billion. We're not projecting to have a lower rate base when we go back in for rates. All of that will get trued up at that time.
Okay, great. Thank you very much.
Sure. You're welcome.
The next question is from Ryan Levine with Citi. Please go ahead.
Thank you. A couple questions. On inflationary pressure, what are you assuming in your CapEx plan? Can you provide some context around some of the moving pieces embedded in your CapEx profile? In some of the slides you highlighted some upside. Can you elaborate around the biggest opportunities and upside to the near-term CapEx plan?
Yeah, in general, on the inflation, I think it's similar, right, Joe, to what we talked about on what Joe just talked about on the O&M. They're generally, you know, similar assumptions that we're talking about there. We are effectively managing through our supply chain practices. We've been pretty proactive in dealing with a lot of the supply chain issues that we hear about today. Some of the things that we've done there is during COVID, we actually increased our inventory levels for critical materials that would be used in our capital planning process as well as our maintenance programs. We've started to look at using more vendors. We've expanded the use of our vendor base.
We've looked at extending our procurement cycles, because what we're seeing today, our lead times tend to be longer than historical. Some material shortages. We've been very proactive in managing that, Ryan, and what it's basically affected or the result of that has really been, as of now, no significant impact on our ability to get our projects completed in a timely manner based on that proactive approach. It has also kept the inflationary impacts at bay as well. Now, we continue to pay attention to that, of course. I think as we continue to leverage our supply chain function, we're centralizing that function. We'll be centralizing our spend across all three jurisdictions.
We think we'll pick up some efficiencies just by doing that, which will also help to offset some inflationary pressure if that persists.
In terms of upside to the CapEx guidance that's highlighted in the slide, what are the opportunities that you're spending more time thinking through?
Well, first, I would say, I think we have a pretty robust capital plan, especially in the near term while we're staying out of rate cases. One upside potential to the plan is generation replacement capital as we're planning for the 2028 coal plant retirements in Kentucky. Depending on what that replacement generation looks like, you know, renewables versus natural gas-fired solutions there, some of that investment could actually make its way into the next five-year plan. As we discussed earlier, we're in the middle right now of really assessing those 2028 replacement generation plans. We'll have a much better sense at the end of this year into early next year on how that's gonna play out.
We'll be able to provide additional guidance there. That could absolutely be a near-term opportunity. We've talked about the ranges in Rhode Island. Again, that could, if we're to the higher end, provide some upside. We also don't have any of the IIJA potential projects in our plan. As Joe indicated, we see that as about a $2 billion total project cost opportunity. Again, 60% of that or $1.2 billion would be funded by federal grants, so $800 million would be funded by PPL through our utilities. Again, none of that is in there.
We will know that, you know, in the next year or so what the quantum of projects and the number of projects that will be approved through those processes, and we'll update the plan accordingly, based on the actual outcome of that process that the EPA is still putting together. That is definitely some real upside to the capital plan.
Thank you. What's the driver of the pace of IT implementation in Rhode Island in terms of the investment in O&M impacts? What is the key risk to implementation of this plan?
Well, again, we and National Grid are very committed to getting off of these TSAs in two years. We don't have a drop-dead at the end of two years, so from a risk perspective, we can extend the TSA if we need to. We are both extremely motivated to get the distraction off of National Grid and to get Rhode Island Energy, you know, running under our systems and processes. I will just say we have hundreds of people that are on both sides of the fence from National Grid and from PPL with you know, PMOs and consultants and our IT teams that are just laser-focused on getting off of those TSAs and getting Rhode Island Energy to operate under PPL systems and processes. That's really what's driving the timing there.
It will be a significant focus of ours to basically get that done within the next two years.
Thank you.
You're welcome.
Our next question is from Neil Kalton with Wells Fargo Securities. Please go ahead.
Hi, guys. Thanks for the question. Just following up on Rhode Island a little bit, so I understand things here. I think looking at the math, the pro forma for 2022 earnings comes out at around $130 million, which I think is a little bit lower than last year. Then if I do high-level rate base math, I think that suggests sort of, you know, in the 8% range. Is that just the TSA stuff that's impacting that? Or is there anything else unusual going on there? And how fast should we expect that to ramp in terms of improving the ROEs?
Yeah, Joe. Joe can talk to that.
Yeah, it's. I think your math's probably pretty close. Generally it's driven by that some of the strategic O&M that we talked about that would be spent in Rhode Island. We would, you know, that obviously strategic O&M goes away, and the ROEs improve.
Okay, got it. Thank you.
Sure.
The next question is a follow-up from Michael Lapides with Goldman Sachs. Please go ahead.
Hey, guys. Thanks for the follow-up. Can you remind me two things? First of all, cash costs to achieve, meaning things that might not be on the income statement but might be on the cash flow statement, over the next year or so to integrate Narragansett. That's question number one. Question number two, also, where are y'all in terms of cash taxes over the next couple of years? Like, what are you assuming in this guidance for, you know, kind of the, you know, whether you're much of a cash taxpayer?
On the cost to achieve, right, we indicated that our total transition costs or integration costs would be in the range of about $400 million. Some of that is just normal O&M-related costs. Some of that is the commitment that we made not to charge the Rhode Island customers for the system implementations that we'll be doing because they technically have already paid for those as part of National Grid. That's about $400 million. With the settlement with the AG, you know, we agreed to a $50 million credit and then some cats and dogs to fund some renewables efforts. In that kind of $400-$450 range.
Got it.
And then-
Can you remind us how much of that $4-$4.50 is actually already showing up in the Narragansett income statement versus is that all new cash coming out the door?
Yeah. None of that will show up in the Narragansett. We've also committed to keep that up into the Rhode Island Energy Holdings Company. That won't be down there.
Got it.
Cash taxes.
Yeah. Michael, you'll recall that with the sale of WPD and the proceeds there, we utilized our NOLs and a lot of our tax attributes for that transaction. We do have ITCs that remain. We do expect to be a federal cash taxpayer this year and in future years. I would say over the next several years, kind of around from a cash tax basis, around $100 million annually.
Got it. Okay. Thanks, guys. Much appreciated.
Sure.
You're welcome.
Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Vince Sorgi for any closing remarks.
Thanks. I just want to thank everybody for joining us today, and listening to our new story for the new PPL. Hopefully, you sense the level of excitement that the management team has. We're committed to delivering this plan that we laid out for you. We have a high degree of confidence that we'll be able to do so. Again, we think it's probably skewed to the upside than to the downside, and we think that puts us in a very strong place to deliver this, again, backed by an extremely strong balance sheet to deliver this growth without equity for the foreseeable future. We're looking forward to engaging with you all over the next few days as we embark on some marketing and field your questions in more detail.
Thanks again for joining us and look forward to connecting with you over the next few days.
Thank you, sir. The event has now concluded. Thank you for attending today's presentation. You may now disconnect.