NiSource Inc (NI) — Q2 2023 Earnings Call Transcript

Good morning, and welcome to the NiSource Second Quarter 2023 Earnings Call. Joining me today are President and Chief Executive Officer, Lloyd Yates; Executive Vice President and Chief Financial Officer, Shawn Anderson; Executive Vice President of Strategy and Risk and Chief Commercial Officer, Michael Luhrs; Executive Vice President and Group President, NiSource Utilities, Melody Birmingham; and Vice President of Investor Relations and Treasurer, Randy Hulen. The purpose of this presentation is to review NiSource's financial performance for the second quarter of 2023 as well as provide an update on our operations and growth drivers. Following our prepared remarks, we'll open the call to your questions. Slides for today's call are available in the Investor Relations section of our website. We would like to remind you that some of the statements made during this presentation will be forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Information concerning such risks and uncertainties is included in the risk factors and MD&A sections of our periodic SEC filings. Additionally, some of the statements made on this call relate to non-GAAP measures. Please refer to the supplemental slides, segment information and full financial schedules for information on the most directly comparable GAAP measure and a reconciliation of these measures. I'd now like to turn the call over to Lloyd.

Thanks, Chris. Good morning, everyone, and thank you for joining us. Hopefully, you've all had a chance to read our second quarter earnings release issued earlier today. I'll begin on Slide 6 to provide you with an update on our three key priorities. First, we are raising our 2023 non-GAAP NOEPS guidance to the upper half of $1.54 to $1.60. We are also reaffirming our annual non-GAAP NOEPS growth of 6% to 8% through 2027, an annual rate base growth of 8% to 10%. Meanwhile, our non-tracked O&M target is to remain flat in 2023 as well as throughout the duration of the plan. We continue building a track record of execution and growth, and our commitment to investors, employees and customers is central to everything we do. Recall our original 2023 NOEPS discrete guidance of $1.50 to $1.57 was introduced at our Investor Day in November. In February, we raised and narrowed our estimate to $1.54 to $1.60, and today, we are again raising to the upper half of this range. In the approximately nine months since November, our superior operations, regulatory and financing execution have enabled this increase in earnings expectations. For our customers, commodity market conditions have been improving. However, inflation and interest rate headwinds continue to persist. Despite this, we remain focused on delivering value to our customers and highly visible, derisked financial results for our investors. Second, our leading regulatory execution continued this quarter in both the electric and gas businesses. May was a particularly busy month for our gas distribution business, as the Columbia Gas of Maryland filed a request with the Maryland Public Service Commission, seeking approval to adjust base rates. The request seeks to recover approximately $40 million of capital investment. Additionally, the Virginia State Corporation Commission approved a settlement among Columbia Gas of Virginia and the parties in its base rate case originally filed in April 2022. The base rate adjustment approval authorizes recovery of approximately $390 million of capital investment. Columbia Gas of Ohio's infrastructure replacement program increased rates, which went into effect in May, initiating the recovery of $360 million of capital investment. At the electric business, the record is closed in the Northern Indiana Public Service Company's electric rate case. We believe the settlement reached back in March represents a balanced outcome for stakeholders, as the company invests billions of dollars in our customers and communities in the state. A final order is anticipated today from the Indiana Utility Regulatory Commission with rates anticipated to be effective in steps by September 2023 and March 2024. At FERC, we received approval for incentives on two new MISO electric transmission projects last month, supporting our rate base investment and customer reliability beyond our current financial plan through 2027. Lastly, in June, we announced a definitive agreement to sell a minority stake in NIPSCO to Blackstone Infrastructure Partners. The transaction strengthens our balance sheet and financial flexibility and marks yet another example of NiSource's steadfast execution for stakeholders. More importantly, it enables us to support ongoing investments in Indiana and our 1.3 million electric and gas customers in the state. Slide 7 details our annual capital expenditures across our six-state service territory. In a five-year period, through 2027, we plan to invest $15 billion in our customers and communities. At Columbia Gas of Pennsylvania, we are currently replacing 21,000 feet of pipe in Fredericktown in Washington County. Nearly half of the small town's residents will have their service lines upgraded, with the remaining customers to be upgraded in the next two years. As part of this project, Columbia Gas is converting a low-income housing authority system from a master meter to individual meters, helping to lower the authorities' maintenance obligations. This $6 million project is part of the company's $110 million capital investment in Pennsylvania during the second quarter alone. NIPSCO remains committed to the gas expansion plan to extend gas service into rural areas including Allen and Lake Counties in Northern Indiana. Our major projects in local operating area teams have installed over 24 miles of rural gas main and installed 1,170 new services year-to-date through June as part of this plan. On the other side of our footprint, crews at Columbia Gas of Maryland are installing new pipe in the city of Cumberland to improve safety by abandoning three low-pressure regulator stations, along with abandoning a significant amount of bare steel pipe. This is part of an investment of nearly $8 million of total capital in the state during the second quarter. Turn to Slide 8. It shows key rate cases in select capital rider activity since 2021. Our leading regulatory execution continues with no less than nine cases filed in seven jurisdictions across six states in the last three years. Our state regulatory teams are in a constant cycle of communication and engagement with key intervenors, regulators, and customer groups. In addition to general rate cases, regular capital tracker filings allow timely recovery on and of our investments. All of this activity is built on a foundation of robust economic activity in our states. For example, at NIPSCO, the Northern Indiana Transportation District provides vital transportation links to Chicago and Cook County, Illinois, and is constructing the double-track Northwest Indiana project. The project is anticipated to expand service, improve mobility, and accessibility, and stimulate job creation for Southern Lake County, and we are in the process of constructing substations to support this major transportation investment in the region. In Ohio, the new Intel chip factory has been under construction since mid-2022 in Licking County on the outskirts of Columbus. It is estimated to be a $20 billion investment in the state, and Intel will be a new Columbia Gas of Ohio customer. In Virginia, the Norfolk naval shipyard is the Navy's primary East Coast repair, overhaul and modernization facility, and one of the four public shipyards that play a critical role in maintaining America's fleet. The shipyard is installing a combined heat and power plant expected to be complete later this year that will significantly improve energy security and efficiency, with expected consumption of 1.7 million decatherms annually for Columbia Gas of Virginia. Customer count across our territories has been growing on average by 0.5% to 1% annually for years, including 2023 to date. Favorable demographic trends have driven inbound migration thanks to a stable and growing manufacturing base, robust utility and non-utility infrastructure, and low tax rates in the states we serve. Turning to another foundational element of value for our four million customers, our internal teams continue to advance on all aspects of our operational excellence initiatives. Project Apollo has tracked, generating efficiencies by doing things safer, better, more efficiently and for less cost. One recent example is establishing standard buffer zones around our underground infrastructure to indicate areas where digging can safely occur, especially for third-party excavators. Before instituting a zone, we made thousands of unnecessary trips to excavation sites to locate underground facilities when it wasn't needed. We've eliminated more than 10,000 unnecessary trips in the last three months, allowing more time to be spent on value-added work. Technology investments are also key to our operational excellence initiative. This year, we began our five-year, approximately $1 billion transformation, with an initial $300 million investment in SAP and Salesforce technology platform implementation that will standardize work practices and drive efficiencies for our employees to improve service to our customers. All of this is expected to contribute to keeping total customer bill levels aligned with inflation over the five-year financial plan. These achievements would not be possible without our dedicated employees and their commitment to our customers, communities, and all NiSource's stakeholders. With that, I'll turn the call over to Michael Luhrs.

Thank you, Lloyd. I'll begin on Slide 9. NIPSCO's generation transition is continuing to advance as we optimize the new portfolio to benefit customers and retire all coal-fired generation by the end of 2028. Crossroads and Dunns Bridge I solar project advanced to their final stages and are serving customers over the peak summer season. NIPSCO has now placed four utility-owned renewable investments into service from the 2018 integrated resource plan process. In total, these four projects represent approximately $800 million investment in 870 megawatts of economic, sustainable new generation for NIPSCO's Northern Indiana customers. Construction on Calgary Solar Plus Storage and Dunns Bridge II Solar Plus Storage continues. Both projects have expected in-service dates in 2024, and we are in the very early stages of construction of the Fairbanks Solar project, which has an expected in-service date of mid-2025. Additionally, our work on Indiana Crossroads 2 Wind PPA is advancing and is expected in service late this year. Today, we are announcing several adjustments to our remaining portfolio of projects to address development challenges and better align the portfolio with recent changes to MISO rules surrounding seasonal capacity constructs. The first is the conversion of the Gibson PPA project to a build transfer agreement. We have filed a CPCN seeking approval from the IURC, and if approved, this project will replace the Elliott project in our portfolio. Second, we have sought regulatory approval for several recently executed PPAs: Appleseed Solar and Templeton Wind. Finally, the agreement for the Elliott PPA and the Brickyard and Greensboro PPAs have been mutually terminated by NIPSCO and the developers of these projects. Four key points related to these projects. First, these economical and zero fuel cost resources continue to support customer affordability. Second, these changes support our current coal retirement schedule of all coal retired by the end of 2028. Third, the renewable generation in service by the end of 2025 will continue to consist of eight build transfer agreements and six PPAs. And fourth, the revised portfolio progress is consistent with our current five-year CapEx rate base financing and other prior commitments to the investment community. Beyond these projects, our 2021 IRP and 2022 RFP processes laid the groundwork for the balance of projects needed to replace the Michigan City generating station by 2028. NIPSCO is implementing an upgrade at the Sugar Creek gas generating station this year, and we are finalizing our analysis of gas alternatives identified in our 2022 RFP, which we expect to result in a request for a new brownfield project at our Schahfer site. NIPSCO will continue to evaluate further generation portfolio needs, and we will be conducting the triannual integrated resource planning process with stakeholders in 2024. Fuel cost resources reduce customer bill volatility and create substantial value for our customers, especially as they experience elevated economy-wide inflation. Since our first project went commercial in late 2020, we have been passing back both excess generation and renewable energy credits revenue to customers from this and subsequent projects. In the second quarter alone, that amount totaled $8.4 million or over $2 per residential customer, for a year-to-date total of $14.6 million. As we look forward, Slide 10 shows additional CapEx opportunities not included in our financial plan through 2027. Multiple items on this list, both near term and longer term, are progressing well in their evaluation work streams. Prior to the Inflation Reduction Act, we beneficially employed tax equity financing on the four owned renewable projects in service to date, and our financial guidance incorporates tax equity financing for the remaining four projects in 2024 and 2025. However, given the new pathways for utilizing tax credits included in the IRA, we are evaluating the benefits of direct ownership for each of the remaining four build transfer projects, potentially adding incremental CapEx to the plan while enhancing the value for customers as well as portfolio and project flexibility. We are also working through our long-term investment plans stemming from the proposed rules around the 2020 Federal Act, which will require incremental investment in our system for various leak reduction, safety, and other operational requirements. These requirements would build on the investments we have been making on our advanced leak detection and repair program. We will continue to be active in this area to support the best outcome for customers in terms of safety, emissions, and infrastructure investment. These potential and current investments across our electric and gas businesses support our clean energy transition, furthering our Scope 1 emission reduction goals and enhancing customer value in a balanced way. At year-end 2022, NiSource achieved a 67% reduction in Scope 1 GHG emissions from 2005 baseline levels, and we remain on track to achieve an industry-leading 90% reduction in Scope 1 GHG emissions by 2030, and are advancing our goal of net zero Scope 1 and 2 emissions by 2040. At NiSource, we're very proud of our track record of decarbonization and focus on sustainability. In addition to being named to the Dow Jones Sustainability Index, we are rated as AAA by MSCI for ESG and have been recognized as one of America's Most Responsible Companies for 2023 by Newsweek, and by Ford's Best Employers for Diversity in 2023. Our passion is to create value for our customers and communities through investment in and operation of our electric and gas systems that drive customer benefits in reliability, safety, sustainability, and customer offering. I'll now turn things over to Shawn.

Thank you, Michael, and good morning, everyone. Slide 11 reviews our financial results from the second quarter of this year. Non-GAAP net operating earnings achieved $50.3 million or $0.11 per share compared to $53.9 million or $0.12 per share in the second quarter of 2022. Year-to-date results continue to track in line with our plan. Visibility from constructive regulatory outcomes, completion of financing transactions, and execution on O&M initiatives have supported our raising our range to the upper half of the $1.54 to $1.60 range provided. As we indicated last quarter, key regulatory and O&M drivers will continue to build value into our financial results for 2023 as they layer into our actual results across the full year and drive greater impact in the second half of the fiscal year. Turning to Slide 12, you'll find segment detail and key drivers of our 2Q results. Gas Distribution operating earnings were $120 million in the second quarter, an increase of $39 million versus the same quarter last year. New rates and capital investment programs drove $61 million of incremental revenue, including general rate case contributions in Ohio, Pennsylvania, Indiana, Virginia, and Maryland. Capital trackers in Ohio, Kentucky, and Virginia positively impacted the segment as well. Non-tracked gas O&M was flat year-over-year. In the Electric segment, operating earnings were $51 million in the second quarter, a decrease of $22 million versus the same quarter last year. Lower weather-normalized customer usage across all three customer classes attributes to this variance and is related to industrial outages and a return to more normal long-term demand in the commercial and residential segments. Higher non-tracked O&M was also a headwind, primarily due to the timing of generation maintenance expenses and increased reliability spend related to vegetation management. And finally, Corporate and Other was favorable by $14 million due primarily to lower benefit and insurance costs and reduced third-party expenditures. Now I'd like to briefly touch on our debt and credit profile on Slide 13. Our debt level as of June 30, 2023, was $12.6 billion, of which $11 billion was long-term debt with a weighted average maturity of 12 years and a weighted average interest rate of 3.9%. At the end of the second quarter, we maintained net available liquidity of $1.8 billion, consisting of cash and available capacity under our credit facility and our accounts receivable securitization programs. We remain committed to our current investment-grade credit ratings. I'm happy to share all three agencies have reaffirmed NiSource ratings with stable outlooks following their annual reviews and the minority interest announcement. Slide 14 addresses our financing strategy and credit commitments. In June, we issued $450 million of 10-year notes at 5.4% and an additional $300 million of our March 5-year, 5.25% notes. We plan to use a portion of these proceeds from the sale of the notes to fund our capital plan. As previously indicated, we also plan on completing the equity units transaction launched in 2021 by remarketing the units this fall. We are reaffirming our long-term financing plan originally disclosed at Investor Day in November. This includes zero discrete equity issuances through 2027 and zero ATM equity in 2023 and 2024, and all financing costs are reflected in our earnings growth and credit commitments. This balanced financing plan is anticipated to help us deliver on our 14% to 16% annual FFO debt ratio anticipated for all years of the plan when considering the proceeds of the minority sale. This affords us adequate flexibility to execute on rate base investment opportunities as they arise in any given year. Central to our financing plan is the sale of a minority stake in NIPSCO. The transaction enables billions of dollars of investment for our customers and communities planned in Indiana over the coming years. It also strengthens our balance sheet and enhances flexibility and diversification from traditional capital markets. Our transaction announcement in June followed a period of capital market headwinds for utilities. Interest rates are generally higher, and utility equity valuations are flat or down as a group since we originally stated our intention to sell the interest in November. We believe our decision to pursue this financing transaction optimized and derisked our cost of capital versus alternative paths. We are very optimistic about the growing strength of our balance sheet and credit metrics as we look ahead. Supportive rate structures and regulatory activity, coupled with the proceeds coming in later this year from the minority sale and the remarketing of our equity units, position us strongly in the 14% to 16% FFO to debt range. Later this year, we expect to provide an update and roll forward of our long-term financial commitments. This will enable us to complete our annual planning period and refresh all of our capital expenditure and regulatory plans as we look forward to 2024 and the outer years of our financial forecast. Both at NIPSCO and our Columbia Gas operating companies, our customers are core to everything we do. We remain sensitive to the overall inflationary pressures impacting many parts of consumer expenses, even as falling energy commodity prices have helped our customer bills in the first half of this year. Our fuel cost adjustment mechanisms update every quarter and therefore quickly begin to pass back savings as prices fall. These have been a critical tool to help our customers during the extreme swings in commodity prices seen over the last two years. Second quarter gas fuel charges on residential customer bills declined $31 million versus the second quarter of 2022. This has translated into an average decline of $6.50 per month for the commodity portion of customer bills across our gas utility businesses. Weather normalization mechanisms also insulate both investors and customers across the portion of our meters. Residential customers across our Columbia Gas companies benefit from constructs ranging from full straight fixed variable rate design in Ohio to a normalization band in Pennsylvania utilized during heating season, among other mechanisms. The impact of weather is excluded from our adjusted EPS; however, it's worth noting the actual cash flow impact versus normal in 2Q and year-to-date was only $6 million and $38 million pretax, respectively, or 1% and 3% of our cash flow from operations for those periods. Scale is another factor we believe can drive greater affordability for our customers. The scale of NiSource's six operating companies and its central services operating model supports approximately four million customers and presents opportunities to flatten our operations and maintenance expenditures. And as we grow our customer base across all of our companies, those costs can be shared across the broader base. This also benefits our investors as scale and diversity enable traditional rate base investment flexibility across multiple jurisdictions and multiple energy systems. Finally, I'd like to conclude where Lloyd started today. We are reiterating our long-term annual non-GAAP NOEPS growth commitment of 6% to 8% through 2027, driven by annual rate base growth of 8% to 10%. We are raising 2023 non-GAAP NOEPS guidance to the upper half of the $1.54 to $1.60 range. This follows our guidance range raising and narrowing in February from our original 2023 guidance range offered last November. This further demonstrates our growing track record of execution, including exceeding our $1.44 to $1.46 guidance range in 2022 with actual NOEPS of $1.47 and exceeding our $1.32 to $1.36 guidance range in 2021 while achieving $1.37. We remain confident in our plan despite persistent inflationary supply chain and interest rate headwinds. We continue building a track record of execution and growth, and our commitment to our investors, employees, and customers is central to everything we do. Thank you for your support of NiSource. And with that, I'll turn things over to Lloyd for final comments.

Thanks, Shawn. And before we take questions, I'd like to share some late-breaking news with the investor community. We just received an order from the Indiana Utility Regulatory Commission for the NIPSCO electric rate case. And upon the initial review, it appears the settlement in the NIPSCO's case has been approved without modification. The team is reviewing the details of the order, and if we see anything different, we'll let you know as soon as possible. And just let me give you a couple of highlights. A revenue increase of $292 million, return on equity of 9.8%, and a rate base increase of slightly over $1.8 billion. I want to publicly thank the IURC for their diligence in the review of this quarter, the team, and all the stakeholders that contribute to what we believe is a very balanced solution. And with that, we'll open the floor for questions. Thank you.

Lloyd, it's good to see that you guys actually increased your guidance for the year when peers lowered, obviously, this morning. Could we get maybe just share a little bit of what's driving the level of confidence '23, especially with how the key part of the year is still in front of us? And whether there's anything to read into there as we're thinking about the 6% to 8% growth rate?

So I'll let Shawn handle the details. But when you think about the second half of the year, I think the thing to contemplate is all of the great regulatory execution we had, including the from Indiana today, and continue to drive savings by Apollo. And with that, I'll turn it over to Shawn for details of that comment. Shawn?

Yes. Thanks, Lloyd. Appreciate the question. Just as Lloyd said, you may observe the track record of success on Slide 8, which demonstrates consistent execution of rate cases and filings across all of our businesses. Most notably, if you bring your attention to Q4 2022 and all of the 2023 outcomes, that specifically gives us enhanced line of sight to regulated revenue drivers across the balance of this year. That's somewhere in the neighborhood of $0.35 per share in total regulatory programs over the second half, which have already been approved or implemented and which will support growth revenues in the second half of the year. Obviously, we've had some successful execution of financing transactions required to execute the robust capital expenditure program in 2023. Those really have concluded our long-term debt issuances for the year, thus we've got a good line of sight to the interest expense that we're going to be paying for the rest of this year to support capital programs. Lloyd mentioned Project Apollo. We're definitely seeing some success as those programs are starting to launch here in the middle of this year. That will give us some tailwinds on the O&M front that we can use to enhance performance. But the other piece I'd note, just simply, we remain confident in the 6% to 8% annual OEPS growth rate through 2027. And again, I'll just take this moment as an opportunity to remind folks, we project that growth rate off of year-end results for each year of the plan. So while we're now targeting the upper half of the current year guidance range, this flows through into the annual 6% to 8% NOEPS across the remainder of the plan period.

Okay, great. That's what I was trying to get at. And then regarding the near-term CapEx slide, which I believe is Slide 10, could you provide some insight into that? I'm looking for help in understanding the size, even if it's just a range, along with the timing and how we should consider when it might actually align with the plan. Is EEI the appropriate platform for updates? Will it be included in the year-end results? How should we approach expectations for additional disclosures on this?

Yes. Maybe I'll start, and then I'll pass things to Michael to touch on a couple of components that might be interesting in there. But we plan to update all the long-term commitments, including growth rates, capital expenditures in that November time frame. So I think you hit the nail on the head. We'll look at all factors and provide as much visibility as we can into our business. As you know, we've got a backlog of identified and high-quality investment opportunities which support system reliability, sustainability, and customer service, and our focus is really how can we efficiently access those investments at one times rate base and convert that into NOEPS for our shareholders. The teams are studying that right now. We're going through that annual planning process. The results of that, we'll be able to share in the November time frame. But Michael, do you want to hit any interesting ideas on that slide?

The only thing that I'll add to that, Shawn, is we continue to work through the different elements of it. They are progressing well in the workstreams of those items, but also in more real terms. When we think about the 2022 RFP and the work on that as we finalize it, and as we mentioned before, that's going to come back relative to a potential brownfield associated with the site. We already mentioned the 2021 IRP relative to the potential for a new gas project. And in addition to that, we continue to evaluate the remaining options in the portfolio that would allow us to meet the commitments that we set associated with the generation transition.

Okay. Got it. And then just lastly for me, Lloyd, maybe just a strategic question, if I may. I mean obviously, you guys executed a fantastic transaction with NIPSCO, so that was good. But I know obviously, some of the local media and some of the banker regs are highlighting maybe NiSource's acquisitive nature as you're thinking about potential deals. Without obviously going into specifics, unless you want to go into specifics, I guess, can you just highlight what your appetite is to grow the business further especially in states that you already operate in?

So that was really a good way to ask that question, Shar. Let me start there. And I don't want to comment on specific details. Of course, like most companies, our policies, we don't comment on market rumors or specific details. What I will comment on though is back in November on Investor Day, we laid out what I thought, and I think this team and our board thinks, is a really, really good plan. We're going to grow our earnings 6% to 8% annually off end-of-year results, 8% to 10% rate base growth. We put forth a transaction for 19.9% of the NIPSCO utility to strengthen our balance sheet. And what I will tell you is as we did the business review last year, that was the only transaction we contemplated, and we are laser-focused on getting that done. So you mentioned we haven't finished that transaction yet. That transaction is to be finished by the end of this year. We're laser-focused on that transaction, investing $15 billion of capital, making sure we operate in an excellent way and growing earnings, and that is where the whole NiSource team is zeroing down on.

Okay. Great. I'm sure someone asked that question in a different way. Appreciate it, guys.

Am I coming through clearly?

Yes, you are.

Great. Circling back to the renewables project changes outlined in one of the earlier slides there, could you give a little bit more color to the backdrop and process underpinning all of that? I mean, it seems like it worked out in a way effectively neutral to you on ownership versus PPA basis. But just curious if there's anything more you can highlight out of how those changes contemplated became about?

Sure. Happy to do so. Thank you. When we look at it, just to reinforce, I mean we will continue to consist of eight build transfer agreements and six PPAs, and the revised portfolio project is consistent with our current five-year CapEx rate base financing and other prior commitments. But to get a little bit more into your question, we're consistently looking through the portfolio and making sure that we're eliminating risk associated with delivery and providing the best options for customer costs associated with those projects, so we're always looking to optimize them. So as we go through site development and different activities with it, we looked at how to best optimize that portfolio, and that's what you're seeing being done here. So by doing these projects and the way we've set them up, it gives us a lot of confidence in being able to execute on those plans and deliver those commitments as well as being able to provide the customers the benefits and meet MISO changes as well.

Understood. Understood. Very helpful there. And sticking with renewables, but thinking about that Slide 10 with the additional investment opportunities, the ownership uplift asset is under evaluation. Is that an item we expect to have resolved or mapped out in time for the fall update? And anything else that you could point out from the list as a likely candidate for at least an update in that fall outlook provision?

So I would say as we go through the projects and as we continue to provide information with IRC and other parties, we will provide updates to those projects as we go through each stage, just like we did with Gibson and the filing associated with that. But relative to the full ownership, we're finishing our evaluation of the IRA. And as mentioned before, there are significant benefits with the IRA both in tax policy and the ability to maintain the full ownership, which benefits project and portfolio optimization. This gives the capability to remove administrative burdens, complexity as well as to optimize the asset, and we're finishing that analysis now and expect to be able to conclude that. But in doing so, if we look at that right now, our plan assumes tax equity for the remaining four projects. If we, pending regulatory approval, if all four were included under full ownership, that would require up to $1 billion in additional CapEx.

Understood. So to be clear, that's $1 billion incremental to the current placeholder under a full ownership scenario. Is that what you're saying?

Yes. So when you look at the current plan, the current plan assumes tax equity if full ownership was done for all four projects. Pending any regulatory approvals, it would be up to $1 billion in additional CapEx.

Got it. Got it. And one final quick one for me. Just Project Apollo, as you get further along in the kind of initial launch here, any new learnings relative to what you laid out in the spring around this initiative? Or anything to highlight in terms of what you're seeing for employees and other stakeholders as you roll this out?

Yes, so thanks for asking that question. I think what we're seeing is employees getting excited and finding better and more ideas for cost savings. I think when you drill down into the organization, employees know what holds them up and getting more work done, and we're getting after it. I think this will be a continuous improvement mindset. We're driving it throughout the company to do things safer, better, faster, and more efficiently. But again, this is an employee-driven initiative. It's process-driven, and we're finding significant savings, and I expect this to continue on for a really long time. In fact, I expect it to start accelerating in 2024 and beyond. But delivering the savings now while looking forward to acceleration processes next year for even more savings.

Great to hear, and thanks for the time today.

Could you go over the changes in the renewables program compared to the prior program? Specifically, what adjustments and cancellations have occurred?

Michael?

Sure. Happy to do so. So when you look at it, what was originally included as the Elliott project is being replaced by Gibson, assuming approved by the IURC that was filed. In addition to that, we terminated several PPAs and also added several PPAs, which have been filed with the IURC. So you look at Templeton Wind, Carpenter Wind, Appleseed Solar are all filed with IURC now, and those are really the fundamental changes. We had eight BTAs before. We have eight BTAs now, it's just Elliott to Gibson. And we have six PPAs before, we have six PPAs now. It's Templeton and Carpenter Wind and Appleseed Solar in those versus like Brickyard and Greensboro and Gibson. Those were terminated.

Sorry. Just real quick. The only thing I'd add would be with those changes, the NIPSCO investment forecast of $2 billion to $2.2 billion is unchanged, yes.

Got it. And the new PPAs, have you announced who they're with?

We've done the filings associated with them, and in those filings, I believe that we have said who they are with.

We'll get back to you on that.

Yes, we will get back to you with those names.

Okay. Overall, the message is same CapEx program, same amount of PPAs, remixing everything. And then obviously, there's this upside opportunity if you're able to not have to use tax equity in terms of CapEx upside.

That's correct.

The IURC and the State of Indiana show strong support for our renewables program. This support is driven by substantial stakeholder engagement that occurred early on. We see the positive outcomes of engaging with the IURC, industrial and commercial customers, as well as legislators. This has led to successful settlements, rate case approvals, and filings. We are confident in the support we have from the IURC and the state of Indiana, and we believe we are transitioning in a way that makes sense for both clean energy and reliability.

Look, just wanted to follow up on a few of the last tidbits you guys put out there just on the generation upside you talked about a moment ago. Just want to clarify this. First off, you've seen incremental load across your service territories. To what extent does that $1 billion upside contemplate that angle as well as any potential shift here in MISO capacity needs? And then in turn, just on the tax equity bit, can you clarify just the status with the credit rating agencies? I know there's been some conversation on that front amongst others out there. If you can update us on that front?

Yes. The first piece of the question, Julien, and this is Shawn. The first piece of the question, the incremental load that you're alluding to is not captured in the $1 billion. Said differently, the 2021 IRP projected capacity requirements and the load necessary for us to serve our communities, and it provided that with the existing footprint of assets that we're currently engaged commercially to construct. Incremental load would be captured in the next IRP and factored into any future generation planning. That next IRP would be 2024, so we would capture that upside as we rerun the scenarios around load factors next year. And then the second part of your question, we expect that for purposes of calculating FFO, the treatment of tax credit transfers would be consistent with GAAP accounting. That should result in tax credit transfers flowing through the tax line and increasing FFO, and we understand that our credit rating agencies are evaluating that. But that methodology consistent with GAAP accounting seems to track with us, and we'll continue to stay engaged with the credit rating agencies as they continue their evaluation.

Got it. Excellent. And then, Lloyd, just to come back and open that can again, if we can. Just on the strategic front here, I mean, obviously, the plan is very good as is. Any commentary as to thresholds that you would think to? I mean, obviously, you laid out a pretty stark one earlier. Any further commentary on that front? I mean, obviously, you've got a very nice running start here.

Right. So we're investing $15 billion of capital at one times rate base. If someone wants to sell us an asset that creates significant shareholder value at a lower cost, I believe the chances of that happening are quite low, but our focus remains on our plan.

Awesome. All right. Sorry, I'll leave that be. Good luck, guys.

I wanted to clarify the tax equity related to the $1 billion CapEx potential. If I understand correctly, the eight build transfer agreements you have in place include tax equity. Additionally, with the IRA, this tax equity could lead to an extra $1 billion in CapEx or upside for those eight projects. Am I understanding this correctly?

It would be for the remaining four projects of the eight. All eight projects right now in the plan assume tax equity. So it would be for the remaining four projects, Cavalry Solar and Storage, Dunns Bridge II Solar and Storage, Fairbanks and Gibson, pending regulatory approval associated with those that if those projects were under full ownership, it would be up to an incremental $1 billion in CapEx. And the only thing I'd want to add to that is when we look at them, obviously, from the customer side and the benefits, we're making sure that we do full due diligence on that. And to follow up on the previous question, just to make sure I got the mix right, it is NextEra for Templeton and Appleseed, and Carpenter is EDPR.

Got it. So regarding the remaining four, that makes sense. Shawn, could you share your thoughts on how we should approach financing that additional CapEx? At Investor Day, you mentioned a structure of 15% equity and 85% debt for growth opportunities starting in 2025. Does that guideline still apply when we consider this additional $1 billion in CapEx? Also, do you see any potential for equity or ATM next year, or is it more aligned with the timeline of these projects before 2025?

Appreciate the question. So at this point, there's no change to the financing plan we shared at our Investor Day in November. So just to reiterate, this includes no new equity until 2025, no discrete equity issuances to the life of the plan, with ATM maintenance equity beginning towards the latter half of the planned horizon. As we complete the equity units for marketing transaction that we entered into 2021, we'll receive some additional proceeds there. As you know, we received proceeds when we closed the transaction with Blackstone. That will provide us a credit cushion relative to the 14% to 16% FFO to debt. We'll be in the 14% to 16% FFO to debt range, but a credit cushion that we could use to apply towards CapEx in 2024 should we need to and should we identify incremental cap opportunities. What we're currently doing right now is evaluating what those capital opportunities could look like, inclusive of tax equity and how that will create incremental cash flow as you'd expect coming out of our business, and then how that would impact our financing plan throughout the entire horizon. All of that, we expect to be able to step through in the November time frame so it's a bit too early to tell you exactly how that works. But the financing plan itself and the commitments we've made are still consistent with what we made in Investor Day.

I appreciate all the details on solar, I guess a couple of follow-ups. What drove the changes for your project portfolio that you outlined? And why make these changes now?

Well, as we go through the projects and we work through just the normal process of developing the projects and negotiating the agreements, we're always looking as to how to make sure that we're eliminating risk and bringing in the benefits. So on these individual projects, you combine that with also how we're able to provide the best benefit to customers, and that's what fundamentally led to the changes associated with the projects. That had to do with subcomponents associated with whether it be development costs or certain costs associated with each individual site, and we try to maintain a robust portfolio of development opportunities that enable us to have that flexibility associated with it. We know no plan goes exactly as planned, so therefore, we want to have flexibility in that plan. And really, it's just working through that normal process of project development, construction siting, etc.

What is the timeline or milestones you're focusing on to gain a clearer understanding of the related transmission investment opportunity? When do you expect to have some specific numbers regarding that uptake?

I'm sorry, can you repeat that? For which opportunity?

For the CapEx upside that you identified in your slide?

Yes. We are continuing our analysis related to the projects and have identified that there will be significant additional requirements. However, we have not yet established a specific timeline for these activities or how they will affect our capital expenditure or financial plans. Our team is actively engaged in this process and is also involved in understanding how the rules are implemented and how we can best serve our customers.

Think you'll be able to have a plan in next year? Or is this a this year decision point? Or any color you can share around the timeline?

I think we're working through that process in November. Whether it be an EEI or via our earnings call, we'll have those plans more formalized and laid out. We'll get them to you as soon as we have them.

Just at a high level, if you go back to November and think about the outlook you gave for this year and then forward to today, what's been the biggest surprise? Now you mentioned a couple of different variables. But what's the big surprise that has come about this year that is leading to that higher earnings outlook?

I would say that after sitting in this role for a little over 1.5 years, I feel more confident in our ability to manage regulatory matters. Our regulatory execution capabilities are truly exceptional. As I spend more time on the operational side and evaluate the cost savings we've achieved, I'm seeing significant momentum without taking on additional risks, which has allowed us to improve our operations. I'm also gaining more confidence in this management team that we have assembled. We are collaborating effectively, and in my opinion, they are among the best in the industry. This has boosted our confidence in delivering earnings to our investors. We are seeing improvements on the customer front, in our communities, and among our employees, who enjoy working here more. Overall, I believe there is a rising sense of confidence throughout NiSource.

Okay. That's great. And then on the renewable energy and coal retirements, with what you have in the pipeline right now regardless of whether it's PPA or ownership, how much more in your projections are you looking at to be able to execute that full coal retirement, whether it's renewables or some other type of capacity? How much more outside of what you've announced is necessary, do you think?

So we haven't completed the work associated with that. As we mentioned, there's additional CapEx included in the placeholder in the plan. We have significant work done from the 2022 RFP associated with that, which is concluding. But beyond that initial work, we will continue to look at opportunities around a diverse mix of assets that fill that $1 billion of CapEx, which is what we have targeted relative to the retirement of the Michigan City generating station by 2028. So work is continuing. We'll have more updates as we go through the next quarter, and we're continuing to work the 2022 RFP associated with it to finalize that.

Okay, great. I appreciate it. That's all I had.