Shawn Anderson
Executive Vice President and Chief Financial Officer at NiSource
Thank you, Melody. Let's start on Slide 7. I'll begin with an update on the progress achieved implementing the generation transition at NIPSCO. The transition to retired coal units is advancing as new renewable generation assets have come online and are supporting overall system reliability. Already achieved in January, the Dunsbridge II solar project reached substantial completion. Meanwhile, Fairbanks and Gibson are far down the path to operations and are expected to be in-service later this year with no changes to our development timelines.
This continues NIPSCO's track-record of steady execution since 2020 with eight wind and solar generating stations now providing renewable power to customers in the Northern Indiana region. Leveraging the power of this generating fleet, we look-ahead through the changing energy landscape and slide 8 provides an update on the progress made in the 2024 Integrated resource Plan process. Late in the 4th-quarter, NIPSCO submitted its IRP to the IURC. The triennial plan was the product of extensive stakeholder collaboration over nine months and five public meetings. It projects forward a 20-year period and details generation required to meet both new demand in the region and maintain compliance with federal and MISO regulatory requirements.
All sources of generation technology were considered, including gas generation, solar, wind, battery and long-duration storage and small modular nuclear. Included in the analysis were updates to the capacity construct, including MISO's shift to a four season evaluation and its new requirements under the -- under the direct loss of load market design. These will have a substantial impact on generation requirements in the transmission organization's footprint.
It revises resource accreditation now based on availability when reliability risk is greatest by utilizing historical and forward-looking risk assessments. The preferred portfolio highlights new-generation additions to the NIPSCO fleet required to maintain existing reliability and meet the new accreditation requirements. A mix of incremental generation resources of approximately 900 megawatts of capacity is likely required by 2028 to meet energy and capacity needs in all scenarios developed before considering potential data center growth.
Our team is underway in the evaluation and commercialization of procuring solutions for our customers. While our team works through this process, we've increased the size of our upside capex plan by about $400 million to reflect the likely need for new-generation capacity to remain in compliance with these regional reliability regulations as shown on Slide 9.
We will work-through the project development, regulatory approvals and commercial details and provide updates for the development of these assets. As Melody detailed earlier, we have also increased our base capex plans to reflect new economic development projects in our Indiana and Virginia businesses. This moves our five-year base capex plan up to $19.4 billion.
Onshoring and manufacturing expansion continues in our Midwest region, and this is just one example of why our gas utilities are driving over 60% of our five-year capex plan. Our teams continue to focus on safety and reliability of operations, making investments in pipeline replacement, system modernization and new leak detection technology. We began our work to install advanced metering infrastructure in 2024 with $36 million of NIPSCO Gas investment. This work continues in future years.
Meanwhile, prudent capital allocation is top-of-mind as we have aligned our base capital investments with recovery mechanisms in our regulated businesses to help minimize lag and recovery and reduce carrying charges. 81% of the investments made in our base five-year plan expect to begin recovery inside 12 months of investment. Beyond the portfolio of base and upside capex plans, our teams continue to progress the development of incremental investment opportunities shared on Slide 10.
The most recent developments here relate to MISO's long-range transmission planning process and the development of Tranche 2 projects recently awarded to NIPSCO. MISO released details last month following approval by its Board of Directors in December. The package seeks to develop a 3,600 mile transmission backbone and related projects to ensure future system reliability in the 2030s and beyond. As Lloyd mentioned, we are evaluating these results and we'll incorporate these projects into our base capex plan once we've completed the scope and estimation work necessary to launch those projects.
Another incremental investment opportunity, not yet reflected in the base or upside capital expenditures plan is the investment necessary to support data center development across our six states and in particular at NIPSCO. We continue to make excellent progress advancing data center strategies across our region, which represent a compelling opportunity for NiSource. Additional development of these strategies is required to meet our threshold to include in either the base or the upside capex plan.
With that said, the company is strongly positioned to advance these strategies. And once we've hit these milestones, we will flow those through our plans. Continued execution on our financial commitments has strengthened the financial profile of the company, including its balance sheet positioning, which enables NiSource to be opportunistic in capital allocation decisions. The constructive regulatory backdrop in Indiana supports a utility-centric regulatory compact and the vertical integration of the business model minimizes complexity for customers and regulators , while providing flexibility around cash-flow recovery. NiSource has deep access to capital markets and maintains flexibility to efficiently finance data center opportunities. NiSource also has a longstanding history of supporting large load customers in the steel industry and has experience working with large customers to develop value for all stakeholders. Let's move into the financial results shared on Slide 11. As Lloyd already highlighted, 2024 was a strong financial year for NiSource, achieving a $1.75 per share, an increase of $0.15 per share. Higher-rate base investments drove $367 million in incremental revenue. This was partly offset by increased O&M, depreciation and non-controlling interest. In the 4th-quarter, we reported adjusted EPS of $0.49 per share, a decrease of $0.04 per share versus last year. The decline was driven by non-controlling interest, increased depreciation and other taxes and partly offset by increased rate base investment. Increased customer additions and expanded customer usage contributed $36 million in revenues across our electric and gas businessesfor the year. On Slide 13, you'll see a summary of our financial commitments. Today, we are raising 2025 adjusted EPS guidance to $1.85 to $1.89, up $0.01 versus prior guidance introduced at 3rd-quarter earnings. This is consistent with our practice of guiding off of actual results achieved and reflects 6% to 8% growth of the $1.75 achieved in 2024. This is the third year in a row we have announced an increase to our annual adjusted EPS guidance on our 4th-quarter earnings call after establishing initial guidance on our 3rd-quarter call. Our financial commitments are fueled by a $19.4 billion base five-year capex plan, which drives rate base growth across 2025 through 2029 of 8% to 10% and delivers an annual adjusted EPS growth of 6% to 8%. This does not include any impacts from the upside capex plan or incremental investment opportunities. Assumptions around key externalities in our plan continue to be derisked. For example, customer growth continues to be strong. However, our plan only assumes 0% to 1.5% growth per year across all customer classes. Additionally, our plan continues to assume realistic interest-rate assumptions through 2029, despite the recent rise in rates and the previous Fed activity to cut short-term rates. We remain confident in achieving our long-term growth rate in all years of the plan. In particular, continued execution on the regulatory front has increased visibility into 2025 results with substantively all regulated revenue increases in rates or settled based on our activities in 2024 and 2025. Our forecasts incorporate continued use of long-established capital trackers in nearly all our jurisdictions and are based on what we believe are realistic regulatory outcomes. I'd note, we remain focused on minimizing the financial impact that our safety, reliability and compliance work has across our customer-base. Cost-savings initiatives like Project Apollo detailed by Lloyd and efficiencies resulting from capital investments moderate the impact on customers. Our revised plan projects less than 5% average annual bill increases across NiSource. Moving to Slide 14, let's focus on the balance sheet strength of the business. In the 4th-quarter, we executed the last $100 million of our forward ATM program, completing the pricing and execution of the full $600 million guided for the year. Along with the issuance of $1 billion of junior subordinated notes during 2024, we've continued to strengthen the balance sheet positioning of the company. FFO-to-debt for 2024 was 14.6%, up from 14.1% in 2023. Reflected in these results for both years is approximately 50 basis-points reduction from unfavorable weather versus normal. Our balance sheet has moved steadily in the right direction since 2022, and we are well within our targeted FFO-to-debt range. We continue to target 14% to 16% in all years of our plan using a balanced mix of cash from operations, new long-term debt and $200 million to $300 million of annual maintenance equity to maintain our capital structure through the use of our at-the-market program. In January, the annualized dividend target was increased from $1.06 to $1.12 per share. This continues each year that the NiSource dividend has increased since the separation with Columbia Pipeline Group and represents a payout ratio of approximately 60%, which is at the low-end of our 60% to 70% payout ratio guidance. We will continue to be thoughtful about capital allocation and the high-cost of capital environment, while also prioritizing infrastructure investments for our customers. As we share on Slide 15, consistent execution of the business plan drives sustainable growth and financial results. In each year of the plan, Nysource has achieved the upper half of guidance range or better. Each time we've executed this, we've rebased future adjusted EPS guidance upwards off these actual results. This represents differentiated value-creation for our shareholders. We've accomplished this now four years in a row. The value of this compounds as future years grow and reflect the outperformance achieved. For example, 2025's implied midpoint is now 6% higher than originally forecasted in 2022, reflecting one full-fiscal year of increased earnings power since our strategic business review in 2022. This is differentiated in our sector, which has delivered 5.9% at the median and adjusted EPS since 2021 compared to the 8.5% achieved by NiSource. The underlying business plan, supported by strong regulatory constructs and iSource jurisdictions, coupled with responsible investments in identifiable regulatory programs, enable a reasonable return on and of investment over our plan. The confidence in these investments enables the rebasing of annual growth rate, which supports this higher adjusted EPS range as we execute the plan. I'll conclude with highlights of our growing track-record on Slide 16. Our financial commitments have been achieved for 2024 and are on-track for 2025. We remain confident our near-term and long-term guidance remains resilient to-market conditions and other forces outside our control and are based on realistic and executable assumptions. We continue to execute the recovery of critical investments necessary to ensure safety and reliability of our systems. Regulatory progress made over the last quarter across Pennsylvania, Kentucky, Virginia and at NIPSCO provide a foundation for thoughtful capital allocation to enhance service to our customers and deliver predictable financial results and return capital to our shareholders. The financing plan continues to be reasonable and highly executable. 2024 activity was completed as projected and ATM execution, coupled with the diversification utilized in the junior subordinated debt marketplace demonstrate our balance sheet flexibility while also fortifying our balance sheet positioning. Finally, our base and upside capex plans demonstrate both programmatic investment plans and accelerated investment opportunities for customers and investors. To reiterate, our rate base and adjusted EPS guidance do not include upside capex or incremental investment opportunities such as data center investments or load growth and are built upon the known and socialized regulatory programs, which have contributed to the 8.5% adjusted EPS growth rate we've executed since 2021. The value proposition NiSource continues to offer investors is diversified and regulated utility assets with the opportunity to invest in both programmatic gas infrastructure and the long-term energy transition story of a fully -- fully-integrated and regulated electric business. These elements have been core to our story for some time, but the emerging opportunity to support economic development, onshoring and new data center development truly differentiate our value proposition relative to many alternatives in the market today. I'd now like to call -- turn the call over to the operator for Q&A.
