Brian Van Abel
Executive Vice President, Chief Financial Officer & Principal Accounting Officer at Xcel Energy
Thanks, Bob and good morning, everyone. We had a solid quarter, recording earnings of $1.18 per share for the third quarter of 2022 compared with $1.13 per share in 2021. The most significant earnings drivers for the quarter included the following: higher electric and natural gas margins increased earnings by $0.33 per share, primarily driven by riders and regulatory outcomes to recover our capital investments. In addition, a lower effective tax rate increased earnings by $0.02 per share. Keep in mind, production tax credits lowered the ETR. However, PTCs are flowed back to customers through lower electric margin and are largely earnings neutral.
Offsetting these positive drivers were increased depreciation expense which reduced earnings by $0.10 per share, reflecting our capital investment program, higher O&M expense which decreased earnings by $0.06 per share. Higher interest expense and other taxes, primarily property taxes, decreased earnings by $0.07 per share and other items combined to reduce earnings by $0.07 per share.
Turning to our sales; our year-to-date weather-adjusted electric sales increased by 2.2%, largely due to higher C&I sales driven by strong economic activity in our service territories. The year-to-date results are relatively consistent with our expectations of 2% sales growth for 2022, while we anticipate more modest sales growth of 1% for next year.
Shifting to expense; O&M expenses increased $43 million for the third quarter, driven by investments in technology and customer programs, storm costs, vegetation management and inflation. Like other businesses, we are facing inflationary pressures and now expect an annual O&M increase of approximately 4%. This represents a step increase due to cost pressures. However, we anticipate flat O&M in 2023. We made progress on a number of regulatory proceedings. During the quarter, Minnesota Commission approved our Yuri storm settlement, including full recovery of all costs with the exception of a $19 million disallowance. We have now resolved Yuri cost recovery in all of our states with the exception of Texas. We also have pending electric and natural gas rate cases in Minnesota. And in a natural gas rate case, we reached a comprehensive settlement which reflects a rate increase of $21 million, an ROE of 9.57%, a currently authorized equity ratio of 52.5%, a decoupling mechanism and property tax tracker. We think this is a constructive settlement and anticipate a commission decision next year.
In the Minnesota electric rate case, we recently received intervener testimony. The Department of Commerce recommended a 3-year rate increase of $274 million based on an ROE of 9.25% and an equity ratio of 52.5%. In addition, the Department of Commerce recommendation reflects customer credits for the MISO capacity auction revenues and extension of the depreciable lives of the Monaco nuclear plant and our wind farms. We are meeting with parties to see if we can reach a constructive settlement. In October, the Colorado Commission approved a rate increase of $64 million for our natural gas case, reflecting a historic test year with the year-end rate base and $16 million of incremental depreciation expense. The commission also approved a weighted average cost of capital of 6.7% which will reflect as an ROE of 9.2% and an equity ratio of 53.8% based on the ranges they provided. As a result of the Colorado Commission denying the step increases, we are evaluating options of filing another rate case as the natural gas business remains a critical part of the energy infrastructure in Colorado that is valued by our customers.
As far as future filings, we plan to file Colorado and New Mexico electric rate cases later this year and the Texas rate case in the first quarter of 2023. As Bob mentioned, we've issued a robust $29.5 billion 5-year base capital forecast with a rate base growth of 6.5% using 2022 as a base. The base plan reflects significant grid and resiliency investment, our Colorado Power pathway proposal and other transmission system investments to maintain asset health and reliability and enable renewable generation. The plan reflects a modest level of renewables including our Sherco Solar facility. It also includes natural gas peaking plants to ensure reliability as we retire coal plants, along with investments to improve the customer experience.
We also anticipate potential incremental capital investment for renewables associated with the Minnesota and Colorado resource plans. Our proposed resource plans include approximately 3,500 megawatts of additions from 2024 to 2027 which would result in capital investment of $1.5 billion to $3 billion, assuming 50% ownership. In addition, we anticipate the need for an incremental $500 million to $1 billion of related transmission for the Colorado IRP. Combined, we can see a potential incremental investment to support the clean energy transition of $2 billion to $4 billion.
We've updated our financing plan which reflects a combination of cash generation, debt and equity to fund the majority of our capital expenditures. The financing plan assumes $1.8 billion of tax credit transfers which improves our credit metrics, maintains a strong balance sheet and lowers the cost of renewable projects for our customers. Compared to our previous 5-year plan, transfer ability to reduce equity needs to $750 million, while we've increased capex by $3.5 billion. In addition, we anticipate that any incremental capital will be financed at roughly our current capital structure. It is important to recognize that we've always maintained a conservative financing strategy which reflects a strong balance sheet and credit metrics, a balanced financing plan and minimal levels of variable debt and longer maturities. This approach is critical in the current market of rising rates and will benefit our customers while maintaining our solid credit ratings and favorable access to the capital markets.
Bob discussed IRA customer benefits but I wanted to add a few more details. Tax credit transferability is projected to provide $1.8 billion of liquidity which increases cash flow and reduces our equity needs. Our FFO to debt metrics improved by approximately 100 basis points during the forecast time period, even after adding $3. 5 billion of capital and reducing equity needs. The solar PTC and tax credit transferability improve the competitiveness of our renewable bids. We project the IRA will drive approximately $500 million of customer savings from our owned renewable projects over the next 5 years and nuclear PTCs could drive additional savings. We anticipate that pricing will decline on solar projects by 25% to 40% and wind projects by 50% to 60% later in this decade due to new and extended tax credits along with potential adders in the IRA. Finally, we don't anticipate any material impact from AMT as a result of makers' depreciation and existing tax credits on our balance sheet.
Shifting to earnings; we've updated our 2022 guidance assumptions to reflect the latest information. We're also narrowing our 2022 earnings guidance range to $3.14 to $3.19 per share. We're also initiating our 2023 earnings guidance range of $3.30 to $3.40 per share which is consistent with our long-term EPS growth objective of 5% to 7%. Key assumptions are detailed in our earnings release.
With that, I'll wrap it up with a quick summary. IRA was passed with significant benefits for our customers in the company. The Minnesota Commission approved our Sherco Solar project. We reached a constructive settlement in our Minnesota natural gas rate case. The Colorado Commission approved our natural gas rate case. We're narrowing our 2022 earnings guidance range. We announced our robust updated capital investment program that provides strong, transparent rate base growth and customer value. We initiated 2023 guidance consistent with our long-term earnings growth rate. And we remain confident we can continue to deliver long-term earnings and dividend growth within the upper half of our 5% to 7% objective range as we lead the clean energy transition and keep those low for our customers.
This concludes our prepared remarks. Operator, we will now take questions.