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Q1 2020 Earnings Call
Nov 14, 2019, 4:15 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Aarti Singhal -- Director, Investor Relations

Good morning, everyone and welcome to our Half Year Results Presentation. Welcome also to those of you who are watching this on the web. As always, we begin with safety, no planned fire alarm tests this morning. So if you hear an alarm, then you do need to leave the building. Also draw your attention to the cautionary statement, which is there right behind me now. And obviously, the team is around if you've got questions later.

And with that, I would like to hand you over to John.

John Pettigrew -- Chief Executive Officer

So thank you Aarti, and good morning, everyone. I'm joined this morning by Andy Agg, our CFO. And as usual, Nicola Shaw is here to assist with any questions at the end.

Unfortunately, Badar Khan, who is appointed Interim President of the US business, following our announcement that Dean Seavers is stepping down, can't be here today. Badar is in the US, managing the current situation, which I will talk more about later. I'm very grateful for all that Dean has done for the Group, and I'd like to take this opportunity to wish him well for the future.

Before I review our first half performance, I want to begin with today's announcement that we set a new target of achieving net-zero for our own emissions by 2015. The decarbonization of the energy system is one of the biggest challenges facing our planet today and National Grid has a critical role to play in helping to accelerate toward a cleaner future. In 2008, we set ourselves the target of reducing our emissions by 80% by 2050 and strong progress has been made since then.

By the end of March this year, we've already reduced our emissions by 68%, exceeding our interim target of 45% by 2020. We have achieved this by focusing on a range of activities that include a significant pipeline replacement program, which minimizes gas losses through leakages. Reducing a high emission greenhouse gas called SF6 from our electricity networks and reducing carbon emissions in our supply chain, through low carbon construction.

In order to achieve our new ambitious target of net zero, we are accelerating plans to further reduce our own emissions. We're also increasing our influence in other areas to support the overall industrywide transition to a low-carbon future. And to this end, I will continue to focus on driving forward a number of key initiatives.

These include supporting our UK electricity system operator to operate a zero-carbon system by 2025. Pushing forwards our proposals to ramp-up the electrification of transport in the UK, through our EV fast-charging solution at motorway service stations. In the US, we continue to work on energy efficiency programs for customers, oil to gas conversions for heating, proposals for renewable gas programs and hydrogen blending and finally, progressing our inter-connector projects, which provide a solution to all of the energy trilemma issues of security supply, affordability, and tackling climate change. What's so exciting about all of these projects, is that they combine our strong engineering and operational skills, while also addressing decarbonization.

I would like to show you a brief video to bring all of this to life.

[Video Presentation]

So with our new commitment to decarbonization, underpinning a lot of what we are doing. Let me now review our financial and operational performance in the first half of the year. Overall, we have delivered a solid performance in the first half, with continued progress across the Group. On an underlying basis, operating profit of GBP1.3 billion was up 1%. This mainly reflects higher US operating profit, which is driven by new rate case revenues. This was partly offset by lower profitability in our UK Gas Transmission, which is more heavily weighted to the second-half than usual and no repeat of the one-off legal settlement last year.

Underlying earnings per share was up 2% to GBP0.20, boosted by the impact of a positive tax settlement in the US. And in-line with our policy, we proposed an interim dividend of GBP0.1657, reflecting 35% of last year's total dividend. We invested a record GBP2.7 billion in the period toward the safety, reliability and modernization of our networks. This reflects continued strong investment in our US regulated businesses, as well as an increased investment in our inter-connectors and completion of the Geronimo acquisition.

This level of investment supports our strong asset growth, which we continue to expect to be at the top end of our 5% to 7% range in the near-term. We made good regulatory progress with our new rates for Massachusetts Electric. And as you would have seen, we are in live discussions in New York on the gas moratorium, which I will cover in detail later. In the UK, we welcome Ofgem's minded-to position and not proceeding with the competition proxy model for the Hinkley-Seabank project.

On our RIIO-T2, we continue to engage stakeholders who provided helpful feedback last month on our draft business plans. And finally, our cost efficiency programs remain on track. So, as you can see, it is been a solid six months of progress. Turning to safety. We have continue to focus on critical safety campaigns to reduce injuries. Both the UK and National Grid Ventures have maintained our injury frequency rate of less than 0.1, which is comparable to world-class safety performance. In the US, tragically, in August, one of our US employees was hit by a car, was carrying out work on the side of the road and lost his life.

We're conducting a comprehensive review to ensure we learn the lessons from what was a terrible incident. Since the start of the year, we have also implemented an employee engagement program to further reinforce positive safety behaviors across the Group. This includes guidance on effective coaching and the critical safety behaviors required at all levels across the organization.

So, I will now turn to reliability, where despite the power outage on the 9th of August in the UK, the Group's overall performance remains excellent. The power cut in UK was a rare and an exceptional event. We were able to restore power in seven minutes. However, I don't underestimate the significant disruption and inconvenience that it caused. We believe that both the electricity system operator and transmission network operated as designed and in accordance with our licence obligations.

But, of course, it was critical to understand what happens and how things could be done differently in the future. And we've worked tirelessly to this end. We published a full technical report in September that provides recommendations to where we believe, a wider review of policy may be appropriate. And we will continue to work closely with Ofgem and government on their investigations.

Looking ahead to the winter in the UK, the electricity system operator published its outlook last month and forecast an electricity capacity margin of 12.9%, up from last year's 11.7%. In terms of UK gas, demand is expect to be a little higher than last winter with expected colder demand of 412 million cubic meters, with supply sources sufficient to meet that demand.

Turning to the US and given the other present possibility of storms and potential for colder than expected weather, we reviewed our procedures and are well-prepared for the coming period. Let us now look at some of the key achievements and developments across the Group in more detail. I will start with the US. So far we have invested GBP1.6 billion in our networks, a step-up from the GBP1.2 billion in the first six months of last year. As those of you came to our investor event in September would have heard, around 80% of this capex is driven by the need to maintain the safety and the reliability of our networks.

One of our flagship projects includes the $300 million Metropolitan Reliability Infrastructure Project, which will reinforce the backbone of the Brooklyn gas system. Final phase construction is beginning with completion expected in December 2020. On the electricity side, we have invested $110 million in the Gardenville substation rebuild in Upstate, New York. This substitution is critical to the local region, providing residence and businesses with affordable sources of renewable power and is vital to system reliability.

The growing levels of investment in the US have been enabled by our work over the past few years to bring new rate plans across our businesses. These results show the improved revenue and profitability being delivered because of this. We are also delivering new frameworks that are creating opportunity to maximize performance.

These frameworks give us three important things. Longer-term visibility for our investment, greater protection against cost pressures and more incentives to innovate and create value for our customers. And this can be seen in the new rates agreed for our Massachusetts Electric business. This is a new forward-looking framework, it allows revenue and investment to increase above inflation for a five-year period. And is a great example of our frameworks and how they're evolving to be forward-looking, multi-year and the incentive-based.

So, turning to the UK. Operationally, both our electricity and gas transmission businesses, have continued to deliver good levels of performance. Let me talk you through a few key highlights. Our capital investment program has continued in-line with expectations, with a particular milestone being the completion of the tunneling for Feeder 9 under the Humber estuary. This is a critical reinforcement of the gas, the country's gas network, with the pipeline transporting up to 20% of the UK's gas capacity.

We have also awarding contracts for our London Power Tunnels 2 project, a 33 kilometer GBP1 billion link, from Wimbledon to Crayford, which will provide significant resilience across South London when completed in 2028. Our cost-efficiency program has continued on track, supporting our ambition to be a more agile organization. This has been driven by efficiencies across both electricity and gas, and a range of initiatives such as enhanced IT infrastructure and simplification of back office processes.

And of course, we had a significant focus on RIIO-T2, with draft business plans submitted in July and in October. Following helpful stakeholder feedback, we'll continue to update these plans in the coming weeks before submitting our formal business plans to Ofgem on the 9th of December. Finally, in October, we were pleased that Ofgem are minded-to use the existing, strategic wider works mechanism for the Hinkley-Seabank project. As you know, we never believed that it was a robust consumer benefit case for the use of the competition proxy model.

In addition, we'll continue to work with Ofgem to agree what are the efficient costs needed to complete this project, including the use of the T-pylon. Our project remains on track to be ready for connection in 2025 and these negotiations will not affect that schedule.

Lastly, turning to National Grid Ventures and our other activities. It's been a busy six months of a continued investment in our interconnector projects, as well as the completion of the Geronimo acquisition. Firstly, on the interconnector side, the IFA2 project is well under way, with the majority of the cabling has been laid over the summer and good progress being made on the converter stations.

The North Sea Link, we successfully laid our cable as planned with over 650 kilometers laid, the project remains on track for completion by the end of 2021. On the Viking Link, we've awarded EPC contracts and pre-construction work is on track. In total, we are investing around GBP2 billion in new interconnectors that will bring cleaner sources of energy into the UK and create value for our shareholders.

And finally, in July, we completed our acquisition of Geronimo with a large pipeline of projects across the Midwest. We see exciting opportunities here in both large-scale solar, as well as onshore wind. So in summary, I'm pleased to report that we made good progress in the first-half of the year and are in a strong position to deliver on the priorities we set. More on this shortly, but first let me hand over to Andy to discuss financial performance in more detail.

Andy Agg -- Chief Financial Officer

Thank you, John, and good morning everyone. Before I start, I would like to highlight that as usual, we are presenting our underlying results excluding timing and that all results are provided at actual exchange rates.

As John mentioned, underlying operating profit increased by GBP16 million to GBP1.3 billion. Operating profit benefited from new rates in our Massachusetts Gas and Rhode Island businesses and higher revenue from our UK Electricity Transmission business. This was offset by the non-recurrence of last year's legal settlements and by revenue phasing in our UK Gas Transmission business. Compared to the prior year, the earnings per share increased by 2% to GBP0.20.

Capital investment was GBP2.7 billion, 28% higher than the prior-year. This reflects the increased investment in our US regulated business, ongoing investments in our interconnected portfolio, and over GBP200 million investment for the Geronimo acquisition. Our balance sheet continues to allow us to fund this growth efficiently. And overall, we are on-track to deliver good returns and value-added for the year. And we have increased the interim dividend in-line with our policy.

Now, let me take you through the performance of each of our business segments. Underlying operating profit for the UK Electricity Transmission business was GBP583 million, up GBP27 million compared to last year. This primarily reflected inflationary increases on base revenues, partially offset by a true-up of prior year electricity system operator incentives. We invested GBP471 million on reinforcing our networks and on new connections. This was broadly in-line with the last half year and included higher spend on Hinkley-Seabank, partly offset by the completion of a number of non-load related projects.

For the full-year, totex out-performance is expected to increase slightly, along with additional allowances. Incentive and other performance is expected to be slightly down on last year. Overall, return on equity out-performance is expected to be slightly above the 200 basis points to 300 basis points range. In UK Gas Transmission, underlying operating profit was GBP66 million. This was GBP25 million lower than the prior year, driven by lower underlying net revenues. In September 2018, we set capacity charges to allow for the lower revenue associated with Avonmouth. And this flowed through into the first-half of FY '20. With charges increased from October this year, expected full-year revenue remains in-line with our previous guidance.

Gas Transmission capital investment was GBP167 million, GBP14 million higher than the prior year. This primarily reflects increased compressor expenditure, partly offset by reduced spend on the Feeder 9 Humber estuary pipeline project. Full-year totex performance is forecasted to be slightly better in 2018- '19 and incentive and other performance is forecasted to be broadly in-line with last year. As a result, the return on equity is forecasted to be around the allowed level for the full-year. Finally, for the UK Transmission business as a whole, our cost efficiency program remains on track and we continue to expect cost savings of around GBP50 million in 2019, '20 and GBP100 million from 2020, '21 onwards.

In our US regulated businesses, underlying operating profit was GBP525 million, GBP94 million higher than the prior year. This reflects higher revenues from new rate cases and lower storm costs, partly offset by higher depreciation. Capital investments was GBP1.6 billion, GBP411 million higher than the prior year. This increase is at actual exchange rates, so includes a GBP59 million impact from FX. Our capex was driven by New York mains replacement and investment in our Metropolitan Reliability Infrastructure and Newtown Creek projects.

Capital investment also increased as the prior-half year was impacted by the Massachusetts Gas labor disputes. Our cost efficiency initiative is progressing well, and we continue to streamline operations, simplify our supply chain and rationalize our property portfolio. We expect to deliver around $30 million of efficiency savings this year, and around $50 million from 2020, '21 onwards. Of course, this is in the context of a fast growing business and asset base. Overall, we expect returns to increase to at least 95% of the allowed return on equity. This reflects the completion of the refresh of our distribution rates and with a first full-year contribution from new rates in Rhode Island and Massachusetts Gas.

Overall, National Grid Ventures continued to perform well, delivering similar levels of profitability to last year. Operating profit for the IFA interconnector was GBP21 million. This was GBP13 million lower than the prior-year, principally driven by reduced auction revenue due to lower arbitrage. Capital investment increased to GBP432 million compared to GBP212 million last year.

This reflects the investment in the Geronimo acquisition of just over GBP200 million. Excluding Geronimo, Venture's investment fell slightly compared to the prior year, reflecting lower Millennium and Nemo investment, partly offset by higher capex on the North Sea Link and IFA2 projects. Other activities include our St William joint venture with the Berkeley Group, our residential property business and certain central costs. The operating loss for other activities for the half-year was GBP1 million compared with GBP76 million profit last year. This principally reflects the one-off legal settlements received last year. For our property business, operating profit was GBP46 million, GBP8 million higher than last year, driven by land sales, including our Poplar site.

Corporates and other costs, stood at GBP47 million for the half year, broadly in-line with the prior year after accounting for the legal settlements. The post-tax profit share for our St William joint venture was GBP11 million, GBP17 million higher than last year. This reflects our first year of profits from the joint venture, driven by the sale of homes of Prince of Wales Drive, Battersea and at Rickmansworth.

Capital investment was GBP64 million, GBP62 million lower than last year. This was principally driven by lower IT expenditure in this segment. Finance costs were GBP553 million, up 12% on the prior year. This primarily reflects US long-term debt issuances, along with the hybrid buyback costs and foreign exchange, partly offset by lower RPI rates.

Our effective interest rate was unchanged on the prior year at 4.4%. At constant currency, second-half net interest costs are expected to be slightly higher than the first half. The underlying effective tax rate before joint ventures was 13.2%, significantly lower than the prior-year. This change reflects the impact of a tax settlement in the US relating to prior periods of GBP48 million. It is important to note that the half-year effective tax rate also reflects the seasonality of our US profits, which are weighted to the second half of the year.

For the full year, the underlying effective tax rate, excluding the share of joint venture post-tax profits is now expected to be around 20%. Finally, underlying earnings were GBP685 million with EPS of GBP0.20, up 2% from the prior year. Cash generated from operations was GBP2.1 billion, up by GBP164 million compared to the prior year. This reflects favorable working capital movements and the absence of exceptional cash spend on the Massachusetts Gas labor disputes, partially offset by timing. Net debt increased by GBP1.3 billion to GBP27.8 billion. Net cash inflow in the period amounted GBP0.5 billion, more than offset by GBP1.3 billion of exchange rate and other non-cash movements and also a GBP0.5 billion impact from IFRS 16 lease accounting.

For the full year, we expect ongoing business requirements to increase net debt by around a further GBP1 billion, excluding the impact of exchange rates. And this is consistent with the guidance we provided in May. In-line with our policy, we will pay an interim dividend of GBP0.1657 per share, representing 35% of last year's total. Scrip uptake on the full-year dividend was 48%, and we will again be offering the scrip option at the half-year.

With another period of record investment for the group, I want to take a moment to review how capex has increased in the last few years, what the drivers for this have been and the outlook for the future. In the last five years, we've seen a step change in the level of capex spend across the Group. Since 2015 total group capital investment has risen from around GBP3.3 billion at constant currency to around GBP5 billion to-date, and 9% compound annual average growth rate across that period.

This is principally been driven by growth in our US capex, as renegotiated rate plans across our businesses support this investment, as well as, by our interconnector program where as you know, we're investing around GBP2 billion. As we mentioned at our recent investor seminar, around 80% of investment in the US is to modernize our networks, with over 85% of capex already agreed in rate plans in the medium-term. With the exception of the KEDNY-KEDLI rate filing, where we are still in discussion with the Public Service Commission, we have good visibility of these plans and we expect US asset growth of around 8% per annum in the medium-term.

For our UK Transmission businesses, around two-thirds of capex in RIIO-T1, has been on asset health. We propose a slightly higher level of capex as part of our draft business plans for RIIO-2. Our baseline plans for UK Transmission includes an average capex spend of GBP1.5 billion per annum in 2018, '19 prices.

We expect to hear Ofgem's feedback on our proposals in the first half of 2020. For National Grid Ventures and other, interconnected capex will continue out to 2023, will be commissioned. FY'20 represents the peak year for interconnector capex, reaching around GBP400 million as the North Sea Link and IFA2 projects progress. After that, as interconnected capex winds down, the acquisition of Geronimo Energy will provide us with the flexibility of extra investments in US renewable projects.

Pulling this altogether, in FY'20, we expect capital investment across the Group to increase to around GBP5 billion, subject to the finalization of the regulatory processes currently under way in the US, and the UK. We could expect to see investment remain at this level and with a similar segmental splits in the medium-term. We are funding this strong growth through a mix of debt, internally generated cash flows and by utilizing the scrip option. In addition, we're reinvesting the GBP2 billion proceeds from the Cadent sale to support the organic growth in our US business.

In September, we took advantage of market conditions to fully refinance a EUR1.25 billion hybrid bond, which was callable next June, achieving the lowest ever hybrid coupon for any UK corporate. And today, in-line with our commitment to our role in tackling climate change, we have published a Green Financing Framework, which will support sustainable financing across the group.

Our balance sheet remains robust, with strong investment grade credit ratings from Moody's, Standard & Poor's and Fitch. This has enabled us to raise debt, cost effectively with access to a wide range of debt sources. With our strong capex visibility and following the receipt of the Cadent proceeds, we expect gearing to reduce slightly this year and remain around the 65% level through 2020, '21.

In summary, our performance remains on track and our full-year technical guidance remains largely unchanged. Our capital investment has increased, supporting asset growth at the top-end of our 5% to 7% range in the near-term, and we are continuing to efficiently fund our growth with our financial position remaining strong.

With that, I will hand you back to John.

John Pettigrew -- Chief Executive Officer

Thank you, Andy. So let me now turn to our longer-term objectives and priorities for the remainder of this year. As I outlined at our US investor event in September, we are implementing initiatives in five areas across the group, where I believe we will deliver long-term value for our customers, our communities and shareholders. These are; improving the affordability for customers and enhancing their experience; efficiently delivering on capital-plans, innovating and adopting new technologies to deliver smarter networks, taking action to enable decarbonization and finally, investing in talent. And I will give you some examples of these, as I go through each area of our business.

Starting with the US, where alongside our continued focus on enhancing customer experience, we've two major near-term priorities. First, addressing the gas moratorium in Downstate New York. Second, delivering fair and progressive regulatory settlements. Let me start with the gas constraints we see in Downstate New York. You would have seen the government's letter and we're working hard to address all the issues raised by him. I'm confident that we would be able to deliver firm proposals within the expected time scales. But to set the context, I'd like to spend some time updating you on where we currently are regarding the moratorium and the history behind it.

A decade ago, National Grid identified the need for incremental gas supplies to serve load growth in the Downstate region. Since then, we have been executing a long-term and comprehensive supply plan and delivering a number of upgrades and new projects. The pipeline being developed by Williams, called the Northeast Supply Enhancement Project, otherwise known as the NESE pipeline, is the final piece of these series of projects.

In May this year, following further delays to permits for this project and therefore the potential lack of incremental supply to serve that load, we took the difficult decision to stop processing applications for new or expanded gas services in our service territories.

This was to ensure the safety and integrity of the system and to enable us to continue to serve our existing 1.8 million customers in New York City and Long Island. Following an order, issued by the New York PSC, requiring us to connect approximately 1,100 accounts, we've implemented an innovative plan to expand demand response and energy efficiency programs, alongside sourcing incremental compressed natural gas. And this will enable us to safely connect these accounts.

We recognize the hardship the moratorium has caused and we continue to work with all parties to find a long-term solution. We also recognize the importance of reestablishing a trusting relationship with all our key stakeholders. As I said, I'm confident that we will be able to address the issues raised by the Governor in his recent letter within the expected time scales.

Turning now to our second key priority, regulatory filings. We now have all of our distribution companies under refreshed rates and this is enabling the strong organic growth we are seeing in our US business. Safety, reliability and modernization of our networks represents around 80% of the future investment in our gas and electric businesses. In the second half, we'll continue to focus on progressing KEDNY and KEDLI, grid modernization, electric vehicle and advanced metering infrastructure programs.

With the KEDNY and KEDLI rate case, as you know, we provided data to support a four-year settlement with a proposed base return on equity of 9.65%. We also requested annual capex allowances of $1.5 billion, the majority of which goes toward improving the safety and the reliability of our networks. The next stage in the process is for hearings to be held later this winter.

For now, settlement discussions for this rate case are on hold. This means we may need to progress with an alternative route, which is to litigate the case. If we go down this route, it will result in a one-year settlement. Now, litigated rate cases are a common feature in US regulation, for example all of our Massachusetts rate filings are litigated. And, of course, we will update the market as this case progresses.

Let me now talk you through other regulatory priorities. In Massachusetts, we prepared our three-year grid modernization plan for submission in mid-2020. This will include investment of up to $50 million in energy storage and proposals for advanced metering, as well as additional investment in electric vehicle charging infrastructure. In New York, we await final comments from stakeholders on the $650 million advanced metering proposals we submitted last November and are expecting the PSC attrition order later this year.

And in Rhode Island, we expect to file an updated grid modernization vision with an advanced metering proposal in early 2020. These discussions represent opportunities to grow via new investments and provide the infrastructure needed for a cost-effective and thoughtful clean energy transition.

I'll now update you on our plans for the UK, where we have two major priorities, advancing RIIO-T2 discussions and driving customer benefits through delivering on our digital ambition. Let me start with RIIO-T2. Over the course of the summer, we've submitted two drafts of our business plans, setting out how we see our role in the five years from 2021. The overall financial package remains key and we continue to believe the evidence provided is that real return should be 6.5%.

The latest plan forecasts average annual totex across both transmission businesses of GBP1.9 million, with significant focus on ensuring that the networks to deliver what our customers want. So the networks remain resilience and importantly, that we also deliver environmentally sustainable solutions. Given the speed and the scale of the challenge and the uncertainty of the routes to decarbonization, we know our business plans need to be flexible. To address this, we are including reopener mechanisms, will allow us to agree funding for certain projects if they're delivered. Examples of these include, bringing multiple offshore wind farms to land using one transmission link, as well as proposals for promoting electrification of transport.

Following the submission of the final business plans in December, there will be a call for evidence that will last till December to early February, and open hearings will take place in March and April. Ofgem would publish its draft determinations in July 2020, before final determinations are published this time next year. Throughout this period, we will continue to work constructively with Ofgem, to seek a framework that puts consumers at the center of the price control, enables energy networks of the future and allows a fair return for our investors. Another key priority for the next six months in the UK is to drive customer benefits through delivering on our digital ambitions.

One example of this is our ConnectNow project, that will improve the customer experience of connecting to a network. ConnectNow will focus on customers' request small-scale connections such as solar, storage, electric vehicle charging and data centers. This digital platform assist customers with the application process that provides transparency as they progress through the connection journey and it facilitates easy communications with National Grid.

Finally, National Grid Ventures, where the key focus will be the European interconnectors development and our Geronimo activities. We'll be completing the construction of IFA2 in the first half of 2020 and starting commissioning in the summer. Once in service, IFA2 will be the fourth operational interconnector and will take our total interconnector capacity capacity to five gigawatts. From Viking, we expect construction to start in early 2020, with completion of the works expected by the end of 2023.

And finally, for Geronimo, I'm excited to see the talented team we've brought into the National Grid Group. They will be completing the construction of the Crocker wind farm in South Dakota. This is a 200 megawatt wind farm with a long-term PPA. And we will also advance other renewable projects along development pipeline.

So to summarize, power and gas networks at the heart of the energy system and we create value by delivering world-class networks and driving decarbonization. I'm, therefore, very proud of our new commitment to net zero greenhouse gas emissions target by 2050. We are working hard in New York, and I'm confident we will shortly be able to deliver firm proposals in response to the Governor's letter.

We absolutely want to be in a position to the gas network. In the first half, we've delivered a solid financial performance and continued to deliver strong organic growth in an efficient way. We have also made good progress on our strategic priorities and we are continuing disciplined approach for the many attractive growth opportunities we see across the group.

I believe this disciplined approach, coupled with efficient delivery that will enable us to continuously create long-term value for our customers and our shareholders.

Thank you for listening, ladies and gentlemen. Andy and I'd be happy to take any questions.

Questions and Answers:

Christopher Laybutt -- J.P. Morgan -- Analyst

Good morning. Chris Laybutt, J.P. Morgan. A couple of questions on New York. I think it is best to start there. You are confident that you would be able to meet the Governor's demands. I guess the question is what power does the governor have? And secondly, what grounds could the PSC move against you, if they were to choose to as well? So, I guess where are you now and how confident are you that you would be able to see this up?

John Pettigrew -- Chief Executive Officer

So, let me just provide some context, linger on to New York in a bit more of the detail. So it is a difficult situation, but one that actually we've been very aware of for the last decade. And it is important to say, I think, that our interests are very much aligned with the governor and with the PSC. And that we want to connect customers and also in terms of the net zero target that New York has, we are looking to support the Governor and the PSC with regards to that.

So as you heard in the speech, we've spent the last 10 years looking at the constraints associated with the New York State. And actually it is not just a national grid issue. Actually, this is a regional issue, all the other utilities have been grappling with. And we have taken that. We've undertaken a number of investments, of which the final piece of the jigsaw was the investment that Williams were making in the new pipeline called NESE. In March, we found ourselves in a position, where when we looked at the demand going forward in our particular territories in Downstate New York, against the supply that was available, there was a mismatch.

And it is probably worth saying in Downstate New York, in our territories, we're seeing strong growth in demand. So, there is a huge amount of economic development going on in Downstate New York, which means that over the next decade, we are going to see a 10% plus increase in demand. That is also been added to the fact that people are moving from oil heating to gas heating as well. So that is supplementing that growth. We find ourselves in a challenging position. We did all the analysis to assess the situation. We shared that with the PSC, and took the very difficult decision to actually introduce the moratorium.

Since then, we have been working tirelessly to find non-pipeline solutions. So, what is this challenge? A couple of months ago, you would have seen that PSC put an order on us to actually connect about 1,100 accounts. These were accounts where they have previously taken gas from National Grid more than two years ago, and the PSC took the view that they were different new customers and therefore, should not have been captured by the moratorium.

And since then, we have been doing innovative things around energy efficiency and demand management to create the capacity to allow those accounts to be connected. And we have -- and we've done so. As I said, since May, we've been looking for non-pipeline solutions. And I'm confident, as I sit here today, that we will be able to address the issues the Governor has raised in his letter in the timescales.

In terms of the reference to the revocation of certificate to operate, technically, that is an issue for the PSC. And actually, with regards to moratorium, we don't think the actions that we take would lead down that particular route. And that is because, if you look at the issues associated revocation of certificate to operate, it is, for circumstances, where there have been multiple violations of regulation or rules of which this isn't applicable, always been sustainable issues around safety and reliability, which again this isn't an issue. We don't think about that is the route. Nonetheless, this is a difficult and serious issue, and we are working as hard as we can to find non-pipeline solutions. And as I said, I'm confident, I will be able to respond to the Governor's letter.

Christopher Laybutt -- J.P. Morgan -- Analyst

Can I just have then a quick follow-up? Just on the same topic and relating to the rate case you're currently going through. If you go through a one-year process through the traditional route with the intention then to be -- to go back quite soon after to follow-up with the rate case, with the multi-year plan as you currently intend, how does that play out in your mind, as you move through the next year or two?

John Pettigrew -- Chief Executive Officer

Yes. So, I mean in terms of the KEDNY and KEDLI negotiations, so we are running through the normal process and I'm still hopeful we'll be able to get to a resumption of discussions on settlements. If we don't, we are very familiar with the other routes. In terms of whether we go back in immediately after a year, will depend on where we land. I think, Chris, I mean it is early days, but we always have that option, both in New York and in other states. So we'll consider it when we see where we get to, but I'm still hopeful that we will be able to resume those settlement discussions.

Ahmed Farman -- Jefferies -- Analyst

Hi, Ahmed Farman from Jefferies. You mentioned earlier the mismatch of demand and supply in New York. I was wondering if you could just give us a bit of sense of how significant that is and how many, for example, outstanding applicants are there, as a result of the moratorium in New York? And then how quickly you can address that -- those issues through the short-term non-pipeline solutions you have in mind?

And then secondly, could you maybe talk a little bit about -- we saw yesterday in the press that the New York Attorney General maybe also looking into this issue. Maybe just talk a little bit about that and what's your thoughts on that? Thank you.

John Pettigrew -- Chief Executive Officer

Yeah. So in terms of the number of people that have been caught by the moratorium, I think it's round about 2,500 to 2,600 accounts. As I said, we've already addressed and will address 1,100 of those accounts as we speak. Obviously, we are looking at what the options are both in terms of short-term solutions and long-term solutions. It's probably worth saying. the PSC, the Governor's office and all the utilities in Downstate New York will recognize that there is a long-term challenge here that needs to be resolved. Therefore, our folks at the moment is looking to make sure that we can resolve the short-term issues, which is what the Governor has asked in his letter and that's what we're focusing on.

In terms of the Attorney General, the Attorney General has issued an inquiry quite a while ago. Yes, the issues -- he's read that into an investigation and really he is asking for customers to provide their thoughts on the moratorium. So, we'll obviously work with the AG on that particular issue going forward.

Martin Young -- Investec Bank plc -- Analyst

Yeah. Hi. It's Martin Young from Investec. I have two questions if I may. The first on the RIIO-T2 business planning process. Hitherto, you've stuck to your guns around a 6.5% ROE and CPI real terms ask. Is that something that could be moderated in the final business plan to be submitted in less than a month? And how do you sort of square the circle, If Ofwat were to stick with its 4.5% cost of equity, that potentially puts Ofgem in a difficult position in terms of where it may land?

And then the second question. If I heard correctly, you were suggesting single landing points for offshore wind connections. Is that you thinking about the possibility of having meshed offshore grids out in the North Sea to deal with the offshore wind build-out? And if so, is that something that you at the National Grid would be interested in getting involving?

John Pettigrew -- Chief Executive Officer

So, thank you. So let me split out. I think, there is three elements to that. So first of all, in terms of just where we are with RIIO-T2 in the business plans, so as I referenced in my speech, we've done two drafts of the business plan so far. One in the early summer and one in October. And actually, it is been very helpful process that we have had great feedback from the stakeholders and we are very confident actually, the business plan we submit in December will really reflect what customers and key stakeholders are asking of us in terms of delivery in RIIO-T2.

Ultimately, the key issue is the financial package and we continue to engage with Ofgem, with our stakeholders and with the challenge committee actually around that. We remain of the view that a 6.5% CPI real return is appropriate. Ofgem quite rightly have said, in order to them to shift, we need to demonstrate through evidence that that's the right return and we will continue to do that. But it's not just the rate of return. From a financial practice perspective, obviously, the performance weren't just something that we have challenged Ofgem on, as well as making sure you've got the right incentives, the speed of cash is important and that the sharing factors around the incentives are also right. Critically for us, I think, it's about getting a regulatory framework that encourages investment that drives us to be efficient, but also supports the need for investment that is likely, particularly as we now move to a net zero, which is going to require an acceleration, I think.

In terms of Ofwat, clearly, that informs, Ofgem has been quite clear actually that they will make their own decision based on their own information. So clearly, other regulators' decisions informed that. But the conversations we've had is about the onus is on us to demonstrate why we believe the returns are appropriate for an electricity and gas transmission business. So, that will be our focus and we'll continue to do that.

In terms of the reference to single offshore points, the point I was making really was around, as we think about net zero, then it's clear that if we're going to achieve that, then potentially the regulatory framework is going to need to evolve as well. You would have seen the committee on climate change talked about 75 gigawatts of offshore wind is going to be needed, if you're going to achieve net zero. At the moment, offshore wind generally connect points to point. So if you take that concept to its extreme, you're going to have multiple points coming in on the East Coast, which is going to be really challenging from an engineering perspective, not necessarily the most economic solution, but also from a community perspective, that's going to have a big impact in terms of perimetry and the impact on people that live in that part of the country.

So really, what we've been talking about and it's actually in our draft business plan is to really start to think in a net zero world about anticipatory investments and how that might need to evolve with the regulatory framework. With regards to offshore, you can build an offshore network that supports 75 gigawatts that has a minimal number of interconnections into Mainland UK, if you believe that is actually what's going to happen and that's what's needed. So really, we are just exploring that as part of our business plan to say, this needs to be thought about if we're going to achieve net zero.

Martin Young -- Investec Bank plc -- Analyst

I'll go along the line, and then I'll come back.

Mark Freshney -- Credit Suisse -- Analyst

Hi. It's Mark Freshney from Credit Suisse. Two questions. First on coming back to the NESE pipeline. What would the costs be if you would have to tanker in all of the gas or potentially buy some interruptible contracts? What would the total cost of complying with what Governor Cuomo wants?

Secondly, on the interconnectors. I understand you've got caps and collars on them and spreads are actually quite good at the moment given differentials in carbon pricing across Europe. But can you remind us what the bear case might be or the downside might be, the minimum level of profitability, you would expect from them?

John Pettigrew -- Chief Executive Officer

Okay. So, I'll let Andy do the second. Let me just take the one first. So in terms of the Downstate New York issue, we're currently working through all the different engineering solutions that can be a non-pipeline solution. So, for example, we are looking at things like energy efficiency, demand side management. We are looking at things like compressed natural gas, vaporization, increased capacity on our LNG facilities. There are a whole host of engineering solutions that we need to work through.

Ultimately, our objective is to be able to serve the customers. Those costs would be an alternative to the capacity that we would normally buy from Williams through NESE pipeline. What exactly that might look like? It's a little bit early to tell at this stage. Ultimately, those costs are recovered through our rate filings and through our customers, but we are doing that engineering work now. And as I said, I'm confident I'll be able to respond to the Governor's letter in the timescale set out. But that's exactly the analysis that we're doing at the moment.

Andy Agg -- Chief Financial Officer

And in terms of the interconnector's question, as you say, they all operate, other than the older French, the original interconnector under cap and floor regime. Traditionally, we targeted and our belief is, as we look forward again at all the different scenarios, that we would expect to be pushing, as high as we can within that range. The floor is always set up to make sure we recover above our cost of debt in terms of the financing of those interconnectors. Clearly, those individual metrics differ by the individual links. But that's the floor, if you like, but as I say, we believe that they remain robust as we look into the future.

John Pettigrew -- Chief Executive Officer

We are going along the line, and then we'll come back.

James Brand -- Deutsche Bank -- Analyst

Just following along, it's James Brand from Deutsche Bank. Just -- as you just had a quick follow-up there on the New York issue though. When you're talking about these solutions around compressed natural gas and demand side response, how near-term is this issue you see around supply? Are you thinking, connect these customers up and next winter, we have an issue and that's why you are resisting connecting them up? Or are you looking at the 10-year profile of demand growth as you said, and saying if we connect these customers out now, we are going to have an issue in five years? Because knowing that will may be help us get an idea of whether these extra costs that you might be occurring is something that you're going to have to bear in the near-term or more in the medium-term.

And then I had a couple of questions on your new net zero target and the energy transition. Particularly in the UK, there has been lots and lots policy papers, new policy papers, long-term visions of yourself for use of gas in the future. But do you think we're actually getting to the point now where we're starting to firm up a little bit for the 2050 vision for gas sales? Or do you think there's still a lot of work that needs to be done over the next few years in terms of commercializing technologies, be it hydrogen production, electrolysis, carbon capture and storage?

Do you think, we are actually starting to get a clearer view on how things may look? And if we do go down the hydrogen route for industry, do you think that would involve much capex for you -- for your gas transportation network? I know for gas distribution, we'd probably have to compete the plastics program. But for gas transportation, would involve much capex? Thanks.

John Pettigrew -- Chief Executive Officer

So in terms of the Downstate New York, as I said earlier, the projections are that we are going to see demand increasing over the next decade. So the work that we are doing is really to understand what are the options that are non-pipeline options and potentially how far can that stretch out. The costs are recoverable through our rate filings in terms of provision of service to customers. But as I said earlier, I think everybody recognizes in the region that there is a long-term challenge, as we see this demand continuing to find a resolution. So, we are working through that at the moment in terms of how far out you can go. But as I said, that's work in progress.

In terms of net zero and gas, so just to reiterate, the commitment we're making today is for the emissions that we control as National Grid. We set ourselves a target in 2008 to reduce them by 80% by 2050. Actually, what we got -- at the end of the last fiscal year, we've achieved a 68% reduction against 1990s. So we thought it was really right to demonstrate a more ambitious target, which is why we're announced that today. Of course, we also know that we've got a role to play in enabling net zero more broadly in the economy.

The way I think about it, I think just to put into context to your question is, I think, it's very clear as we move forward that an acceleration is needed to achieve net zero. I think we have made great progress in terms of decarbonization of generation and that needs to continue. We need to now progress the electrification of vehicles and National Grid has been setting out some of our thoughts about how you create a backbone of infrastructure to enable that to address things like range anxiety.

I think, gas is still the one -- I don't think, there is a clear vision yet. Certainly, we're doing a huge amount of work to think through what are the potential options. I think we are coming to the view. It's likely to be a mosaic of options rather than a single solution. So, there are lots of people that talk about electrification of fleet in its entirety, but that has huge cost consequences for customers.

Similarly, a full hydrogen solution has got its challenges. We're coming to a view that I think that you're going to end up with a mixture of solutions. We have got a number of programs running at the moment to really explore, which I think, is what needs to be the focus over the next five years. So, we are looking at things like how much hydrogen can you inject into the network safely, within the safety case without changing appliances. We're looking at what the interaction of hydrogen is at a transmission level. See how it interacts with the metal because the molecules are different, to see whether actually you could repurpose a transmission network.

We are also looking at what you can do to encourage more renewable gas. We're about to commission in the US actually at Newtown Creek a green gas facility that's taking 20% of the waste water from New York through a digester to create network standard gas. So we are exploring what is the volume that you can create through that. And then hopefully, people have seen in the last couple of weeks, we are part of the Group, just looking at into the Humber region, potentially a solution for CCUS with hydrogen to industry and then piping the CCUS back into the North Sea. So, all of these things, I think are things that need to be explored over the next few years. So ultimately, we'll work out what exactly is the roadmap for gas. I think, gas has got a really important role to play for many decades to come. But I don't think, it's clear what the vision is today.

And I going to go here in the middle because he's been really patient.

Unidentified Participant

Hi, there. My question is on Geronimo. You mentioned that you potentially could increase investments once your interconnector capex starts to go down. Can you tell us a bit more about what projects, or what geographies you are going to be investing in and how it fits with the rest of your portfolio, which is focused pretty much on grids in LNG? And the second question is on EVs. Can you talk a bit more about your current initiatives in that space and whether this will be included and recoverable via your rate base at least in the US? Thank you.

John Pettigrew -- Chief Executive Officer

Yeah. So in terms of Geronimo, and I'll just take us back, so we've said quite frequently that where we see opportunities in adjacent markets, which allow us to use the capabilities that we have as National Grid in terms of engineering, asset management, program management. So, we would look to take advantage of those opportunities. Most recently, that's been in the interconnectors in between Mainland Europe and the UK. And as Andy said, we are investing about GBP2 billion between now and 2023 on that. But we also do see things like large scale renewable generation in the US as an opportunity.

We're not looking to invest in generation that's merchant. We would always put it on a long-term PPA contract. And Geronimo provides us with an opportunity to do that. By taking the skills that National Grid has got, with the skills that Geronimo has brought into the group, we feel confident that there are opportunities that are value creative for our shareholders. In terms of volume, it is relatively small.

So at the moment, I think Andy mentioned, we would expect to spend maybe $150 million a year. Typically, Geronimo has developed about 400 megawatts of projects per annum. So relatively modest against the GBP5 billion capital program, but we do see it as a useful adjacent market. And potentially as we see the interconnector investment fall away, then this might create more flexibility for the Group. And because we have entered into a joint venture with Washington State Investment Board, it does give us that flexibility to decide how much we want to invest.

In terms of EVs, we've effectively got two things going on in both, one in the UK, one in the US. So in the US, I'll just highlight, we're talking to regulators about the role that utilities play in facilitating electric vehicle charging. We have currently got a proposal that we've been working up for Massachusetts to effectively install about 17,000 charging points across Massachusetts to allow for public access for people who've got electric vehicles, that would actually be on rate basis, it's about $169 million in terms of an investment. We've talked to the regulatory about it as part of the previous filing. They were broadly supportive, but wanted to see more evidence from the Phase I work that we are doing, which is a more modest investment and therefore, it will form part of the work that we are doing in 2020.

In the UK, we have spent quite a lot of time thinking about how you create a backbone of the infrastructure in the UK to address range anxiety. And we put a proposal together about 12 months ago or so, which is -- if you actually extend the networks and these are transmission and distribution networks, 254 service stations across the UK and create enough capacity for ultra fast-charging, then any driver in England or Wales will never be more than 50 miles away from a ultra fast-charging facility. The cost of that in terms of extending the network is around between GBP500 billion. So, we spent quite a bit time in the last 12 months talking to different departments in government on that. Just before the change of Prime Minister, the previous Prime Minister asked OLEV to actually consider it as part of a strategy for EVs going forward. So when we get out of the election, it will be interesting to see how they take that forward.

We'd go to Deepa over there, yes.

Deepa Venkateswaran -- Sanford C. Bernstein -- Analyst

Sorry to come back to New York. As I read the letter, I didn't actually understand what exactly the Governor wants from you. Is it stopping the moratorium? Is it just these 1,100 customers? So, I just wanted to get a sense for what do you think, he wants you to address in 14 days for which you're working toward? And longer-term, if it means a very expensive solution like trucking LNG or CNG, is that something that the rate payers in the state are ready to bear?

John Pettigrew -- Chief Executive Officer

In terms of the letter, I think the Governor, like all of us, he is just frustrated that we are not able to connect customers. As I said, there's a lot of economic development going on in Downstate New York and therefore, we're aligned in terms of the aspiration of wanting to connect customers. So, in terms of what he wants, I think he wants our thoughts and ideas about how we can resolve that going forward. And as I said, there is a recognition that there is a long-term issue in Downstate New York. But at the moment, I think, the short-term issue is feeling quite painful and therefore, we will be looking to resolve that.

In terms of costs, as I said earlier, we are working through that at the moment. Obviously, NESE pipeline is a major pipeline with a significant cost associated with it. In terms of costs to National Grid, it's probably a couple of $100 million a year. So that would have been fed into our rate filings, and therefore there is scope for an alternative that would meet the needs of customers, I think.

Iain Turner -- Exane BNP Paribas -- Analyst

Thanks. It's Iain Turner from Exane. You talked -- mentioned a couple of times about interconnector spending sort of tailing-off. Does that mean you are also done with interconnectors or whether you've got further projects down the line that you'd like to look at?

And then secondly, on your net zero commitment. Obviously, SF6 is quite a big part of that. And I imagine, you are very dependent on SF6. Can you just talk about how you see that developing?

John Pettigrew -- Chief Executive Officer

So in terms of interconnectors, in terms of the existing projects that we committed to, it does start to tail-off, by 2023, the Viking interconnector will be complete. We remain positive about interconnectors. All the studies that have been done show that potentially there is capacity for the UK to have up to 16 gigawatts, I think was the last study I saw, which makes economic sense to have. So, we will continue to look at options for further interconnection, but we'll apply our usual disciplined approach to it. We will only take those investments forward if we think there is sensible returns for investors. But at the moment, the commitment is to those that we've already got under construction, but we are still positive about interconnectors generally.

In terms of net zero, you are absolutely right, SF6 is one of the more challenging items. So from our perspective, what we can do, we can continue to replace gas pipe in the US that will reduce leakage. We continue to encourage decarbonize generation to connect to the transmission system, which means you get carbon-free losses on the transmission system. We're also improving the conductors, so there is less losses there. We can look at our fleet to make sure we electrify our fleet. We can do a lot of things and we can also look at our compressor stations as well.

With regards to SF6, it is actually a small component of our total CO2 emissions. But actually, it is a very pollutant gas. We have been working actually for the last couple of years with a number of the manufacturers of equipment at alternatives for SF6, which are clean. Solutions have been identified at lower voltages, and we are currently trialing a particular clean gas insulator at Sellindge at one of our substations. So, we are optimistic that we can find a solution. But it is one of those challenges because it needs to be something that actually you can retrofit into existing substations, as well as using future substations.

I could be quite flippant to say there is an obvious answer, which is 1960s. We used air-blast circuit breakers. The challenge with them is they are much bigger in terms of room, but there is a technology as an alternate to SF6. But we are looking for something that allows you to have the compactness that it delivers, as well as keeping clean the environment.

Dominic Nash -- Barclays -- Analyst

It's Dominic Nash, Barclays. Two questions, please. Firstly, just on going back to New York, I'm sorry there's a couple of other companies there in this kind of position, as you, Consolidated Edison and PSEG, I think, the other one. They've got moratoriums as well. Why is Governor chasing after you and not those two? And is it only a matter of time before you think he is going to send letters to those two companies as well?

And secondly, on your overall Group, where do you think you -- the market values the UK and the US relative to your peer groups? Do you believe that there is a justifiable discount to your share price versus to what we -- when we compare you to your peers?

John Pettigrew -- Chief Executive Officer

Andy will take the second one. In terms of the first one -- in terms of the first one, I think, it just comes down to the fact that in the territories that we operate in Downstate New York, it is particularly acute because of the economic development that we are seeing in that area. So -- and the options available for non-pipeline are quite challenging.

So Con Edison is in a different part in New York and have a different set of circumstances, albeit, they might have -- they have talked about their moratorium as well.

So, I think it's just more acute for us, based on the demand that we're seeing and the constraints that we have, which is ultimately meant the customers are frustrated. And that's reflected in some of the correspondence you've seen. So that's why our focus has been since May, how do we find a solution that's a non-pipeline solution, but I think that's the reason why there is a difference.

Andy Agg -- Chief Financial Officer

In terms of the question about market value, I suspect some of you are as well placed to answer that in terms of how the market perceives it. But my perspective is clearly, we've done a lot of work that we've seen six months ago with our full-year results. We are very clearly about the performance of the US business. And I think if we look at the respective valuations, today, there is certainly consensus out there that says the US businesses, it should be valued in-line with peers and because of our growth, that we've seen. And we've talked about it again this morning. We believe that there is no reason why it shouldn't attract. The US business shouldn't attract a good valuation.

And again, as we said previously, we are aware of some of the challenges we've talked to, again, this morning. Some of the regulatory and as we know political debates here in the UK and it's gone soon. And I get a lot of feedback in terms of, if that's a transit issue on the share price as well. So, we are focused on working through all that, addressing those regulatory challenges and progressing the business. But I think, it will be down to the market to make that assessment of how they value us.

Verity Mitchell -- HSBC -- Analyst

Verity Mitchell, HSBC. It's a question about your pension, which has gone up by nearly a GBP1 billion new deficit. And you've outlined some of the things you're doing to alleviate that. Perhaps you'd like to talk about that and just remind us when your next triennial valuation is coming up?

John Pettigrew -- Chief Executive Officer

Thank you. So, the movement that we've reported at the half year is a couple of elements to that and as you will have announced a month or two ago, the trustees of the gas pension scheme undertook what's called a buy-in transaction for a portion of the scheme with the counterparty called Rothesay Life. That actually from a fundamental -- actuarial valuation perspective was completely value-neutral for us. But in terms of an IAS 19 perspective, is we're required to account it in the financial statements, we had to recognize the difference between the valuation in the accounting books and the underlying actuarial position.

That's a fair proportion. That's around GBP500 million of the difference. The remaining point is just macro movements in terms of discount rates and other drivers. I think as you quite rightly point out, the key focus for us is the underlying actuarial valuation rather than the IAS 19 value. The latest triennials are under way at the moment. So they are, as of 31st of March 2019, and we are clearly working through the trustee -- with the trustees on that process as we speak.

Mark Freshney -- Credit Suisse -- Analyst

Hi. It's Mark Freshney from Credit Suisse here. Coming on to funding the growth, there is an immense amounts of growth in the Group. You've highlighted that scrip option is one way that you can finance that growth. Can you talk about other ways you might finance the growth because it seems you -- and also in relation to that, you're talking about being at 65% net debt to assets, whereas the range was 60% to 65%. Can you talk about any options you've got because if more growth comes along, you may be in a position of not being able to afford it?

John Pettigrew -- Chief Executive Officer

Thanks. I mean, at the start -- the reason we are focused on this growth is because we see it as very valuable. The returns that we're able to earn from it are very attractive, and we think it is absolutely adding value to the Group. And as you may have -- you may remember from a few months ago when we were here in May that we look at a number of ways to make sure we finance that growth efficiently and keep the overall shape of the balance sheet in the right place.

So that includes both driving our own performance and you heard again this morning that our cost efficiency programs remain on track on both sides of the Atlantic. Obviously, we are making sure that we work to the right regulatory frameworks to enable us to finance that growth efficiently. You will have seen again in the six months, the reinvestment of the Cadent proceeds is another measure that we have taken.

Clearly, as we said consistently over the last couple of results announcements, we look to utilize the scrip when we are in periods of very high growth and we are in that position today. And we have guided to not buying back the scrip both this year and next, as you know.

On the 65%, I think in May, I've guided then that we see leverage remaining around 65% level through to the end of 2021. So, I think we've guided to 65% for a couple of times now. And we see that is very much in-line with these -- maintaining our strong investment grade credit ratings.

James Brand -- Deutsche Bank -- Analyst

It's James Brand from Deutsche Bank. Again, thank you for answering my earlier question. I just had one more, if that is OK. Just thinking about Hinkley Point C and the connection, seeing that now, it looks like it's -- you are going to be -- going ahead. Do you see any risks around that? I'm just obviously very conscious and everyone is aware of the issues that there has been involved in building new nuclear stations in the Nordics, in Finland and in France. That your project was meant to take three years or four years, have taken 15 years, 16 years, 17 years already and none of these new projects in Europe have actually come online.

As I understand, you're kind of obliged to build the connection and if the project didn't go ahead, you'll be able to recover the investment through the overall ramp. But do you see any risks around just going ahead with that connection, given that this project could be based on past precedence delayed for years and years and years and may not even come online? Thanks.

John Pettigrew -- Chief Executive Officer

Yeah. I think that's probably a question you should be asking EDF rather than me. From our perspective, our focus is on delivering the transmission investment to connect the station in accordance with the contract that we have with EDF. As you heard me say this morning, we are on track. Just to link the two things, we are very pleased actually that Ofgem minded-to position in terms of how it should be fund it, should be through strategic wider works rather than through the competition proxy model. But our focus is to deliver to the contract that we've with EDF, which is 2025, as I mentioned this morning. So for the last question, you probably have to ask EDF.

Fraser McLaren -- Bank of America Merrill Lynch -- Analyst

Hey. Good morning. It's Fraser McLaren from the Bank of America. I have four very short questions. One, you have asked for expressions of interest for the longer term at the Isle of Grain. Can you speak about the scope for expansion? How much investment would be needed and when that would happen? Number two, following the August outages, do you think they will eventually need to be higher expenditure on reserve measures? I think you've mentioned some numbers in the press.

Number three, could you update us on the Western Link? Will it be handed over by year-end as planned? And finally, another one on New York. Who in National Grid is responsible for the relationship with Mr. Cuomo?

John Pettigrew -- Chief Executive Officer

Okay. Thanks, Fraser. So, I'm going to -- I'll take the first and second. I'll let Nicola actually who is here, to talk about Western Link, if that's OK. And then I'll come back to New York. So in terms of the Isle of Grain, so on a fairly regular basis, actually, we go out to the market to see whether there is any interest in incremental capacity

The Isle agreement was designed originally to be able to take another tank, which would increase this capacity by 20%, 25%. And therefore, I think every other year or so, we just go out to the market and see whether there is an interest in buying incremental capacity. So, that's the process that we're going through.

In terms of investment, it would be a few hundred million pounds because effectively, apart from some minor changes to the facility, it's about building a new tank. But we would only do that and only consider that as an investment if we got a strong response from the market and the economics that made sense in terms of our approach to investments. So, that is why we are doing that. We are doing on a regular basis.

In terms of the August outage on the 9th, you may recall that when we set out the technical investigation report that we published in September, we set out some short-term lessons to be learned in terms of communication, some sensible areas to review, particularly around what demand sits behind the automatic release and also ensuring that infrastructure that connects the electricity system generally can ride through what are potentially normal variations. But we also pointed to the fact that this was a very rare event. The fact that it gets so much news and because of actually having these types of outage also weigh.

The reliability of the UK system is 99.69. And therefore, we asked the question, as we're seeing the transformation going on in the energy sector, it would be a sensible question to ask what level of resilience do the society want. The current security standards deliver effectively about 99.69 reliability, and we have had three of the types that we had on the 9th of August in my career of nearly 30 years. So it is a one in 10-year event. We think that is a question for regulators and government.

The E3C report, which was the government's investigation into 9th of August, which they shared their interim reports a month or so ago, indicated that they would be picking up that issue actually and has been exploring it. So from our perspective, we just think it is a sensible question to ask because what level resilience do you want to have going forward.

In terms of the engineering of it, we hold enough response on the system to cater for the single largest loss on any particular day. So that could be a sizable nuclear station or it can be an interconnector. You can't hold more response because there is a cost associated with that. I think, what you are referencing is the fact that if you had to do today and double the amount of response you hold, it would probably cost about GBP1 billion a year. However, that costs would come down very quickly because there are technologies such as storage that are fantastic at providing fast-acting response in reserve and therefore, that cost would come down over time. But it would be a significant cost in the short-term. But it is an issue, I think that the E3C committee will pick-up when they published the final report, which I suspect will be after the election.


Nicola Shaw -- Executive Director

And as John said, I think last time we were here, we've been frustrated about the Western Link progress. But the good news is that, I think at the moment it's looking very positive. But there are few more commissioning tests to do and then I'm hopeful of taking them.

John Pettigrew -- Chief Executive Officer

And in terms of relationship, I think most people are aware, a number of years ago we adapted our operating model in the US to ensure that in each of our states, we have a Jurisdictional President and the role of Jurisdictional President is to work with the political and regulatory stakeholders. So our Jurisdictional President in New York is responsible for that relationship, obviously working with Dean previously and working with Badar going forward.


John Musk -- RBC Capital Markets -- Analyst

Yeah. It's John Musk from RBC. Only one question to finish with hopefully. But back on New York, we spent the last couple of years in the UK obviously worrying about nationalization and that risk. And I guess, we have all become familiar with the protections in place around bilateral treaties and all that stuff. In New York, in the worst case of license revocation, have you done the work to understand, how that would actually happen and what protections you have? And is there any precedent for this happening in New York or other similar states in the US?

John Pettigrew -- Chief Executive Officer

Thank you, John. So first of all, in terms of precedent, no, I'm not aware that there is a precedent. Again, I would reiterate in terms of process in order to replicate our certificate to operate, that would be a -- the PSC has the ability to challenge that certificates. It's got a set of criteria on which it has to operate against, which is the ones I've set out earlier in terms of, there has to be multiple violations of regulation and rules or persistent issues with reliability and safety, which aren't relevant in this issue. Ultimately, that leads through to -- it goes into the judicial system into the legal system ultimately. So that's the process that would come out.

Aarti is starring at me, which means, I think we've run out of time. Any final questions? Okay. In which case, thank you very much, everybody for your time this morning. We appreciate it. I think we have said very clearly what our priorities are for the second half and we look forward to seeing you all very, very soon.

Duration: 83 minutes

Call participants:

Aarti Singhal -- Director, Investor Relations

John Pettigrew -- Chief Executive Officer

Andy Agg -- Chief Financial Officer

Nicola Shaw -- Executive Director

Christopher Laybutt -- J.P. Morgan -- Analyst

Ahmed Farman -- Jefferies -- Analyst

Martin Young -- Investec Bank plc -- Analyst

Mark Freshney -- Credit Suisse -- Analyst

James Brand -- Deutsche Bank -- Analyst

Unidentified Participant

Deepa Venkateswaran -- Sanford C. Bernstein -- Analyst

Iain Turner -- Exane BNP Paribas -- Analyst

Dominic Nash -- Barclays -- Analyst

Verity Mitchell -- HSBC -- Analyst

Fraser McLaren -- Bank of America Merrill Lynch -- Analyst

John Musk -- RBC Capital Markets -- Analyst

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