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Avangrid, Inc. (NYSE:AGR)
Q3 2020 Earnings Call
Oct 21, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the AVANGRID Third Quarter Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Patricia Cosgel. Please go ahead.

Patricia Cosgel -- Vice President of Investor and Shareholder Relations

Thank you, Amy, and good morning to everyone. Thank you for joining us today to discuss AVANGRIDs third quarter 2020 earnings results. Presenting on the call today are Dennis Arriola, our Chief Executive Officer and Doug Stuver, our Senior Vice President and Chief Financial Officer. Also joining us today for the question-and-answer part of the call will be Bob Kump, Deputy Chief Executive Officer and President of AVANGRID; Alejandro De Hoz, President and Chief Executive Officer of Avangrid Renewables; and Tony Marone, President and Chief Executive Officer of Avangrid Networks. Note that some of us will be together for the call today keeping our social distancing, while others will be joining us remotely.

If you do not have a copy of our press release or presentation for today's call, they are available on our website at www.avangrid.com. During today's call, we will make various forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our legal assumptions are incorrect or because of other factors discussed in AVANGRIDs earnings news release, in the comments made during this conference call, in the Risk Factors section of the accompanying presentation or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our website avangrid.com. We do not undertake any duty to update any forward-looking statements.

Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of non-GAAP financial measures to the closest GAAP financial measures.

I will now turn the call over to Dennis.

Dennis V. Arriola -- Chief Executive Officer

Well, thanks, Patricia, and good morning everyone, and thanks all for joining us this morning. I also want to welcome any of our AVANGRID and future PNM Resources employees that may be joining us.

Well, as you can see, we've been busy in the last 90 days, and I'm pleased to give you an overview of some of the highlights. When we last spoke during our second quarter earnings call in July, I indicated that we would be conducting a detailed and thorough review of the company's operations, business model and financial projections. That work is nearly completed and we look forward to sharing our updated strategy and financial forecast with you on November 5 during our Investor Day.

In the meantime, I'm truly excited to announce our agreed-upon merger with PNM Resources. This strategic transaction will help further advance AVANGRIDs mission to grow both our distribution and transmission businesses, as well as our leadership position in Renewables.

Now before I get into more of the details of this important transaction, let me discuss some of the highlights of the third quarter. During this pandemic, we've continued to operate in a safe and reliable manner, focusing on the health and the needs of our employees and customers. In our Networks business, we successfully prepared for and responded to several major storms during the quarter, including Tropical Storm Isaias, leveraging resources from the different AVANGRID companies across our service territories. I'm proud of the work by Team AVANGRID and appreciative of all of the contractors and third-party support we received in safely restoring power to our impacted customers.

In regards to our New England Clean Energy Connect transmission project, we're on track to start construction in Q4 2020 once we receive the approval of the U.S. Army Corps Engineers, which we expect by the end of this month. In Renewables, we also continue to execute on our strategy to build our portfolio of clean generation throughout the U.S.

We recently executed two new long term PPAs for a total of 170 megawatts of wind and solar projects, and we secured multi-year RECs and hedged transactions that will help reduce market exposure on over 200 megawatts. In offshore wind, Park City Wind contracts were approved in July by the Connecticut Public Utilities Regulatory Authority and we've submitted the commercial operation plan with the Bureau of Ocean Energy Management.

I'm also pleased to inform you that yesterday, our Liberty Wind project submitted multiple bids for over 1 gigawatt to the New York offshore wind RFP. The winning bids are expected to be selected within the next several months. We've also worked out an arrangement with our partner CIP, which could provide AVANGRID with even more control over these projects, if we're successful in our New York bids.

Now, we've included some slides in the appendix that provide additional information and updates on both our Networks and Renewables businesses and we'd be happy to answer any questions regarding this information during our Q&A period.

I'm also proud this year that we were recognized for our leadership as a company, driven by our purpose to serve our customers and society. And just last week, we announced that AVANGRID was named one of America's Most JUST Companies on the Forbes JUST 100 annual list. And we ranked number one within the utility industry for our commitment to the environment and the communities we serve. We were also recognized in Connecticut, as part of Forbes annual list of America's Best-In-State Employers in 2020.

Now for third quarter earnings, our Networks business had a solid quarter, overall, although our consolidated results were negatively impacted by the timing of expenses incurred in advance of receiving final rate approvals in New York, as well as our higher outage restoration costs in Networks. In addition, in our Renewables business, we experienced lower wind production from the existing assets and unfavorable market pricing. At Corporate, we reported interest expense related to our debt issuances in the last year.

For the third quarter of 2020, net income was $87 million or $0.28 a share. And on a year-to-date basis, net income was -- excuse me, on a year-to-date basis, net income was $415 million versus $1.34 a share, $415 million. Our adjusted net income in the third quarter was $100 million or $0.32 a share. And on a year-to-date basis, adjusted net income was $434 million or $1.40 a share.

If the New York rate case had been approved as outlined in the joint settlement, it would have mitigated the expenses already recorded in New York, and it would have contributed approximately $0.14 year-to-date on a pro forma adjusted earnings per share basis. We expect New York's Public Service Commission to address the joint settlement in November.

Now based on year-to-date results in our review of our business prospects for the remainder of the year, we expect our 2020 consolidated results for both GAAP and adjusted EPS to be in the range of $1.90 to $2.00 per share. This outlook reflects the impacts of lower than expected wind and merchant pricing on renewables, higher than anticipated outage restoration and other costs and tax impacts. It also assumes approval of our New York rate case before year-end. And Doug is going to provide some additional details on our third quarter performance in his section.

Now I'd like to turn to Slide 6 and provide some additional color on our announced transaction with PNM Resources this morning. This is a strategic transaction for AVANGRID and it will add important growth for both our distribution and transmission business, as well as our clean renewable generation business. Overall, the transaction has an enterprise value of approximately $8.3 billion with our all-cash offer of $50.30 for each share of PNM Resources. The PNM Resources Board approved the transaction yesterday, and based on the required federal and state approvals, we're optimistic that we can consummate the merger by the end of 2021. And as part of the merger agreement, AVANGRID would add two new Directors from PNM Resources to the Board of Directors when the deal closes.

We're also pleased to announce that our majority shareholder Iberdrola has provided AVANGRID with a funding commitment letter for the full amount of the transaction. And as a result, Iberdrola is expected to retain their 81.5% ownership position once the final transaction is complete. This funding commitment by Iberdrola will allow AVANGRID to put in place an optimal capital structure that will help fund the transaction with PNM Resources.

Now, this transaction is strategic and a great fit for AVANGRID for the following reasons. First, we expect this transaction to be EPS accretive in the first full year after we close. It could be more than 3% accretive depending upon the final funding mix. And next, as a result of PNMs earnings from regulated distribution and transmission assets, we expect that, AVANGRIDs regulated earnings post-transaction will exceed 80% providing predictability and visibility to our future earnings. And it also gives us additional earnings diversity, geographic diversity in our Networks business. Now, this higher proportion of regulated earnings will also support our fast growing Renewables business over the next decade.

As PNMs utilities become part of the AVANGRID family of companies, we have naturally strong alignment, because we both have strong commitments to the environment, social and governance issues that matter to our customers, our employees, regulators, the communities that we serve and our shareholders. Both companies have carbon neutrality goals and PNM has already found its pathway to becoming coal-free. This truly is a win-win outcome for all of our stakeholders.

On Slide 7, you can get a better picture of what our combined companies look like after the transaction closes. PNM Resources, with operations in New Mexico and Texas, is comprised of two regulated utilities PNM and TNMP, serving approximately 790,000 customers or 2 million people, and with a total rate base of $4.1 billion and 2.8 gigawatts of regulated generation. Together, we will have 10 regulated electric and gas utilities with a strong distribution and transmission footprint in six different states and significant growth prospects. The combined adjusted net income based on 2019 pro forma basis was $846 million and the current combined market cap is approximately $20 billion. Now we'll have approximately $14.4 billion in combined rate base serving nearly 4.1 million customers and 9 million people with over 100,000 miles of transmission and distribution lines.

In addition, AVANGRID already have renewable operations in both New Mexico and Texas and so we're comfortable and knowledgeable of these environments and this transaction will make us an even more impactful clean energy player for our customers in the local economies.

Looking at generation on a post closing basis, AVANGRID will have nearly 11 gigawatts of capacity with over 74% coming from wind, solar and hydro generation and about 9% coming from natural gas. Now, approximately 762 megawatts are related to coal generation, of which 562 megawatts are scheduled to be shut down by 2022 with the cost collected in rates. And PNM currently plans to exit the remaining 200 megawatts of coal generation as soon as practicable and AVANGRID will support that effort.

Slide 8 provides a detailed list of the regulatory approvals required to finalize this transaction. The key milestones are federal approvals including FERC, the Hart-Scott-Rodino clearance, the Committee on Foreign investment in the U.S., CFIUS, the Federal Communications Commission and the Nuclear Regulatory Commission, and regulatory approvals in the states of New Mexico and Texas. No regulatory approvals are required in the other existing states where we have utility. And we'll obviously be working closely with PNM Resources' CEO, Pat Vincent-Collawn and her team to obtain the necessary approvals. And, as I said, we expect to close the transaction in the fourth quarter of 2021.

The resulting company will have $42 billion in assets, and the new AVANGRID will be very well-positioned to lead the clean energy transition and to deliver long term sustainable growth for our shareholders in both regulated Networks and contracted Renewables. Now we're going to be sharing more information with you on the strategic transaction and our long term outlook very soon at our Investor Day in November.

So with that, I'll pass it to Doug to discuss third quarter financial results in more detail.

Douglas Stuver -- Senior Vice President and Chief Financial Officer

Thank you, Dennis. Good morning everyone and thank you for joining us today. Before I get into the slides, I would like to reemphasize a few points that Dennis covered concerning the merger transaction. First, I believe this is a terrific transactions for AVANGRID shareholders and for PNM. As Dennis noted, the transaction is expected to be more than 3% accretive in the first year, depending upon the final funding mix. The expansion of our regulatory footprint enhances AVANGRIDs business mix, allowing us to now exceed 80% on a sustained basis, which is a positive from a credit perspective.

Iberdrola's support for the transaction is also a positive with the funding commitment letter that reinforces our ability to close the transaction and give us additional financial flexibility. We expect to finance the transaction in a rating supportive manner and will provide additional information on our financing plans at our Investor Day on November 5.

Two of the rating agencies have already published comments on the transaction today, noting the improved business mix resulting from PNMs regulated business along with the geographic regulatory diversity that PNM brings to the AVANGRID family. The rating agencies like the greater proportion of regulated cash flows that PNM will bring to the consolidated Group with the high predictability and security that comes from this business. The two primary challenges that were noted by the agencies in our discussions with them, the New Mexico regulatory environment and carbon exposure, are already being managed effectively by PNM.

PNM is on track to exit their only owned and operated coal facility by October 22. So this carbon exposure will be part of the AVANGRID family for only a short time. PNM has also received approval to securitize this asset allowing them to monetize the unrecovered book value. Likewise, PNM has been effective at operating within their regulatory environment, earning returns that are generally in line with our authorized levels. There is also a referendum under way in New Mexico with the Governor's support to shift from elected commissioners to appointed commissioners, which the rating agencies view as a positive if enacted. So I'll just close on this topic by saying that we're all very excited for this opportunity and for those PNM employees who are listening on the call, I want to wish you a warm welcome to the AVANGRID family.

Now I'll start on Slide 10 with the financial results for the quarter. While we continue to make progress on our strategic initiatives and focus on the management of our outage restoration costs and the construction and operation of our wind assets, our quarterly and first nine-months earning results for 2020 reflect a decline compared to 2019 of 19% for the quarter and 2% for the nine months on an adjusted basis. For the third quarter, the decline resulted primarily from lower results in our Renewables and Corporate businesses. The declines were partially offset by improvements in Networks, which is pending a final rate order for the New York rate case.

Adjusted EPS for the quarter was $0.32, which is $0.08 lower than the third quarter of 2019. The decline was more modest for the first nine months of 2020, also reflecting lower Renewables and Corporate earnings, mitigated, in part, by increased earnings in the Networks segment. Networks' nine months 2020 results include increased New York expenses without the associated revenue offsets, which are awaiting the New York rate case decision.

Adjusted EPS for the first nine months was $1.40 which is $0.03 lower than the first nine months of 2019. Our adjusted results exclude COVID-19-related costs, including late payment fees, bad debt costs and certain higher operating costs, which totaled $8 million pre-tax for the third quarter and $21 million pre-tax for the first nine months. Adjusted results also exclude Renewables' mark-to-market and accelerated depreciation from the repowering of four wind projects. The combined EPS impacts versus the prior year of the adjustments were $0.07 for the quarter and $0.03 for the first nine months.

Moving to Slide 11. This provides the results and drivers for the Networks business. For the third quarter, adjusted EPS improved by 12% or $0.03 to $0.32. For the third quarter comparison, we have a benefit of $0.02 for 2020 versus 2019 due to the new rate years for our Connecticut Gas companies and new rates at CMP, which became effective March 1.

We've been communicating in 2018 and 2019 that outage restoration costs have been a challenge for us, given the significant number of minor storms and our aging infrastructure, primarily in New York. Those challenges unfortunately continued in the third quarter when we incurred $0.05 of outage restoration costs compared to $0.02 in the third quarter of 2019 for a negative variance of $0.03.

Other impacts in the third quarter included higher depreciation of $0.03 from new assets and service, partially offset by a $0.02 improvement in taxes. As noted last quarter, this tax improvement is primarily due to the return to customers of excess deferred taxes related to the New York rate case, which is being recognized over the 2020 calendar year.

For the nine-month comparison, Networks' adjusted EPS improved by 7% or $0.08 to $1.22. The drivers were similar to those described for the third quarter with rate increases contributing $0.05 and depreciation reducing results by $0.09. First nine-month outage restoration costs were $0.03 higher than in 2019 and total outage restoration costs for the first nine-months of 2020 we're approximately $0.13. Taxes in the first nine-months of 2020 versus 2019 were $0.08 favorable with approximately $0.06 reflecting the excess deferred income tax refund to customers that's part of the New York rate plan.

While the joint proposal for our rate cases in New York has not been approved by the commission, we have been incurring additional expenses related to rate base growth, such as depreciation expense, interest and property taxes from our continued investment in New York, along with the commencement of additional vegetation management spend to increase the resiliency of our system. Those costs are reflected in our overall Networks results. However, in total, we have approximately $37 million or $0.12 of New York rate recovery that's pending for the quarter and $43 million or $0.14 pending recovery for the nine-month period in 2020. These amounts have not been reflected in our quarterly or year-to-date results and are subject to the make-whole with the New York rate case. Under the New York order, we'll recognize a catch-up adjustment for these items once we receive the order, allowing them to be reflected in our earnings.

Moving to Slide 12. Wind production for the quarter is slightly positive with production from new capacity more than offsetting declines in production from existing assets. The lower production from existing assets is largely due to curtailments. We also saw positive contributions from our Klamath thermal facility and trading in the quarter contributing a $0.03 improvement. Those effects are more than offset by higher depreciation, a prior period benefit from an asset sale that did not recur and higher property taxes. These effects netted to an overall third quarter decline in adjusted EPS of $0.05.

For the first nine months comparison, wind production from existing and new projects and PTCs had a combined positive impact of $0.21. Negative impacts are similar to the third quarter comparison, plus a decline in the Klamath operations and trading results in the first nine months, which combined, resulted in a $0.02 decline in adjusted EPS for the first nine months.

Moving to Slide 13. The Corporate segment drivers primarily include higher interest expense due to the issuance of the $750 million Green Bond at a 3.2% interest rate in April, and also the $750 million of new debt issued in May of 2019 at a 3.8% interest rate.

Now moving to Slide 14. As Dennis noted earlier, we're announcing an updated full-year 2020 outlook for AVANGRID, which is a range of $1.90 to $2.00 per share for EPS and adjusted EPS. This outlook includes the expectation that the New York rate case is concluded by the end of the year, which will have an incremental impact of approximately $0.19, which is in addition to the $0.06 benefit that we've already reported year-to-date related to taxes. It also includes closing of our announced asset sale and the resolution of an adjustment for the transmission true-up mechanism in Maine.

The key drivers for this outlook range are outage restoration costs, which will not be fully covered in 2020 with the rate case implementation, Renewables wind production, which is lower due to curtailments year-to-date, along with delays in repowering projects and transmission outages for maintenance by external parties, and taxes. The taxes represent largely the valuation allowance that we anticipate to be recorded in the fourth quarter related to tax attributes that may be expiring before we have an opportunity to monetize them along with the tax audit reserve.

As Dennis noted, we've been performing an in-depth analysis of our business environment, operations, processes and strategies, which we'll use to mitigate these headwinds and improve future financial performance. And we look forward to talking to you with more about these at our Investor Day.

Finally, on Slide 15. I want to end with our highlights of the drivers of long-term value creation for our company that combined with our refreshed long term outlook will support achievable solid results driven by the attractive growth opportunities that we have in our business.

Thank you. And now I'll hand the call back to our operator, Amy, for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question today comes from the line of Insoo Kim with Goldman Sachs. Please proceed with your question.

Insoo Kim -- Goldman Sachs -- Analyst

Good morning. Thank you. My first question, maybe on the PNM acquisition, on just the financing aspect of it. Thank you for providing the color on Iberdrola's commitments. When we just think about, on a proforma basis, what the credit metrics, whether it's net debt to capital at the [Indecipherable] that you're targeting. What was that thing?

Dennis V. Arriola -- Chief Executive Officer

Look, I think -- Insoo, thanks for joining us and thanks for the question. In general, what we want to do with the final financing is to make sure that we've got a strong balance sheet and access to liquidity and credit ratings to support the types of businesses that we have. As Doug mentioned, we've had discussions with all three of the credit rating agencies and they understand the rationale behind the strategic transaction and where we want to go.

I think one of the things that we'll be doing -- and we've got the flexibility of time here, is to look at what is the most optimal capital for funding structure for this transaction, because with the Iberdrola funding commitment letter, we know that we have the funds in whatever form are necessary and with Iberdrola indicating that it wants to continue to stay at 81.5%, that's a big vote of confidence that a substantial amount of the overall funding mix is going to be equity. But we haven't made a final decision on the mix of the overall funds and as we work along the process here, we'll be sharing more with you on that.

Insoo Kim -- Goldman Sachs -- Analyst

Understood. My second question is on the 2020 guidance and if I understood it correctly, that $1.95 midpoint of the guidance does include the assumption that you'll get the catch-up adjustment related to the pending New York rate case approval. Is that the case?

Dennis V. Arriola -- Chief Executive Officer

That is correct. It assumes that we do receive the approval at -- in New York before the end of the year.

Insoo Kim -- Goldman Sachs -- Analyst

Got it. Got it. And I know this was a year before your time, Dennis, but just the guidance that was pulled earlier in the year, which had a midpoint of a $2.27, that difference between the $1.95 and $2.27, it's pretty big. And I was just wondering if you could frame what are some of the key differences leading to that adjustment.

Dennis V. Arriola -- Chief Executive Officer

Yeah, let me start and I'll hand it to Doug, because I think one of the things that we want to be careful of is not looking backwards, but really looking forward. But there were some discrete items both in 2019 and here in 2020 that I think can help you understand why we're comfortable and why we're providing the $1.90 to $2.00. So, Doug, if you want to touch on those.

Douglas Stuver -- Senior Vice President and Chief Financial Officer

Yeah, I'll just start. In terms of the guidance we had in our projections for this year, we're now expecting, with our updated outlook, to experience roughly a $0.10 negative in taxes that was not expected when we issued the original guidance. That's really two items. We have a state tax audit, that's about $0.02 and then another $0.08 that relates to a valuation allowance that we anticipate may be required in the fourth quarter to reserve against expiring tax attributes. So that's one item. Some other things, just from a guidance standpoint, that we've had lower wind production this year with our existing resources, curtailments has been a negative and arguably COVID impacts have helped to drive that pricing that's causing these curtailments. Likewise, merchant pricing has been off this year and again I think, lower usage and COVID may have some impact on that.

But if you step back and just look at 2019 versus 2020, in 2019, we were at $2.17 per share and we're now -- with the midpoint of the guidance at $1.95. There is really two items I would highlight that get you from 2019 to 2020. Those are asset sales and taxes. With asset sales, we had a $0.32 positive in 2019. This year, we're expecting about a $0.04 positive. So that's about a $0.28 negative year-over-year. The other item with taxes, I mentioned that we had about a $0.10 negative this year and in 2019, we had a $0.04 positive in the fourth quarter related to the state unitary adjustments. So that's a $0.14 year-over-year negative. So you combine those two items, it's about $0.42 negative against the $2.17 base for 2019, that gets you back to about $1.75. So I think that helps to maybe put more in perspective, the $1.95 that we're now seeing as the midpoint of the $1.90 to $2.00 per share.

Insoo Kim -- Goldman Sachs -- Analyst

Understood. Thank you for that color. I'll get back in the queue. Thank you.

Operator

Your next question comes from the line of David Arcaro with Morgan Stanley. Please proceed with your question.

David Arcaro -- Morgan Stanley -- Analyst

Hi, thanks for taking my question. A quick follow-up on the Renewables items for the -- that were impacting the quarter when you mentioned curtailments. In your view, are you seeing anything that would cause you to think that there are kind of going forward issues or drivers that would contribute to wind production being lower than you've previously been forecasting?

Dennis V. Arriola -- Chief Executive Officer

So, thanks, David, for the question and I'll ask Alejandro, who's the CEO of our Renewables to jump in. But, let me just give you a little bit of color. I think there's no doubt that the COVID impact across the country has impacted operations for a lot of people. And for us, it did result in some losses in production due to personnel challenge, as being able to get people out to the facilities as needed. But from a curtailment standpoint, I think in the regions where we're operating, we didn't see lower demand. And so, do we expect that to continue? I think the answer is probably not. I think we're seeing that the economy is starting to come back and the energy demand, in general, is starting to come back. But Alejandro, you may want to add some more color to that.

Alejandro De Hoz -- President and Chief Executive Officer, Avangrid Renewables

Thank you, Dennis, and thank you, David, for your question. Yes. No, I agree with what Dennis was mentioning. I would maybe just add that there is a particular case in MISO where it is true that there is quite a few -- quite a -- a lot of additional capacity coming in online with access to PTCs. So in that particular region, we might see these curtailments issue staying in -- over the next years as well. This being said, particularly in MISO, we have a high percentage of those curtailments reimbursed because of how our PPAs are structured.

David Arcaro -- Morgan Stanley -- Analyst

Okay, understood. Thanks. And then on the acquisition, I was wondering if you could talk a little bit about the potential synergies that you might expect, either operational synergy opportunities that you see or if there are any growth-related synergies and potentially with your Renewables business contributing to the growth outlook at that utility.

Dennis V. Arriola -- Chief Executive Officer

Thanks, David. Yeah, it's a great question. And as we look at this opportunity with PNM Resources, this is really about growth going forward. I think you've got two very well operated companies. I think that being part of the AVANGRID family, they're going to have access to additional resources. There'll be economies of scale from a procurement standpoint. So I think that there is definitely opportunities to continue to get better. So from a synergy standpoint, I think just having been able to share best practices and ideas and how we -- and then AVANGRID learn from PNM Resources as well. But I think the opportunities that we see from a financial standpoint, we haven't really focused as much on synergies from a cost perspective as we have on the revenue potential and growing the business.

From a Renewables standpoint, I'll tell you, we're already in New Mexico and Texas and we've got about 1500 megawatts of operating wind projects there. And so, given that New Mexico wants to continue to focus on becoming a cleaner state, we think that there is going to be additional opportunities. And today, as we mentioned, the company does have Renewables and they're part of the rate base. They're part of the regulatory rate base. So we see that as a positive. But I think with Alejandro's AVANGRID Renewables Group, we're going to continue to look at new opportunities in New Mexico and Texas. And Texas, as you know, is the largest producer of renewables in the country. So we see a lot of upside there and I think that having PNM be part of the family, we're going to learn and they're going to learn and we're all going to get better.

David Arcaro -- Morgan Stanley -- Analyst

Got it. Maybe just a quick follow-up to that. Their guidance is 5% to 6% earnings growth over the next couple of years. Do you see a path to that being kind of accretive to your organic growth rate and growth opportunity going forward?

Dennis V. Arriola -- Chief Executive Officer

Well, again, we'll go into a little bit more detail at our Investor Day on what our growth prospects are for the next several years. I am bullish and I think that adding PNM Resources to the mix provides us a greater amount of distribution and transmission revenue and earnings, as well as geographic diversity. So I think that's all positive. But I think that we wouldn't be making this investment if we didn't think it could help us grow faster and add to the overall composition of quality assets that we already have.

David Arcaro -- Morgan Stanley -- Analyst

Okay, great, thanks so much.

Operator

Your next question today comes from the line of Steve Fleishman with Wolfe Research. Please proceed with your question.

Steve Fleishman -- Wolfe Research -- Analyst

Yeah, hi, good morning, Dennis. Congratulations.

Dennis V. Arriola -- Chief Executive Officer

Morning, Steve.

Steve Fleishman -- Wolfe Research -- Analyst

So, just first of all, on the 3% accretion from the transaction, I assume you had to make some assumption when you did that on how the financing is done. So even though you're not set in stone, what rough range are you using in that 3% accretion?

Dennis V. Arriola -- Chief Executive Officer

Yeah, that's a -- you're absolutely right, Steve. We're not wedded to anything. And again with the Iberdrola funding commitment letter, we have a lot of flexibility there. But in order to calculate whether it's up to 3% or around 3%, there were some assumptions made that we would add some debt potentially at the AVANGRID level in order to get to that number. Again, we're going to be refining that, but we do have the flexibility depending upon what we see as our future capital needs of being able to go all the way to funding it purely with equity, if that made sense, and we believe that this still would be accretive. So we're going to be looking for the optimal mix of what's the right amount of debt without overburdening the balance sheet, but also taking into consideration what's the most economic way and flexible way to finance this.

Steve Fleishman -- Wolfe Research -- Analyst

Okay. But in that 3% number, was it something like in between? That's not assuming all equity, is it or is it not?

Dennis V. Arriola -- Chief Executive Officer

No, it wasn't. It was not -- it was assuming some debt financing at the AVANGRID level at our balance sheet. And just from a transparency standpoint to get to that, we were assuming roughly $700 million of debt at AVANGRID and the residual would be equity. But again, we're not holding ourselves to that, but we wanted to just -- we wanted to just give you a sense for how we got to the 3%.

Steve Fleishman -- Wolfe Research -- Analyst

Great, that's helpful. Thank you. And then just this 2020 range that you've now provided, again reprovided. How should we just think about this as whether this is a good base year to use for your future growth? I know we're not going to get your future growth rate today, but just -- is this kind of the base year to be thinking about, from what you're going to grow? Or is there a need to be like a lot of adjustments to this year to think about kind of the base?

Dennis V. Arriola -- Chief Executive Officer

Steve you're trying to get me to spill my guts before the Analyst Conference, come on. Look, I think as Doug mentioned, there is some in and out's here that we don't think are going to repeat themselves. I wouldn't say that this would be the base year that I want to be measured off of going forward, because I think that with additional Renewables coming online with the rate case being finalized and some of the other improvements that we're looking to make in both of our businesses to be more efficient and more effective, I'd like to look beyond 2020 into the future. So we'll provide you a little bit more color, but I wouldn't necessarily use that as the base year for our future growth.

Steve Fleishman -- Wolfe Research -- Analyst

Okay. And then finally on the -- just curious to get an update on the offshore wind projects and maybe just what we should expect or potential outcomes for the BOEM decisions, I guess, on the 13th. What's a good outcome, what's a bad outcome? Because they seem to often not be very definitive...

Dennis V. Arriola -- Chief Executive Officer

Yeah.

Steve Fleishman -- Wolfe Research -- Analyst

...sometimes. So could you maybe give a little color on what to expect November 13?

Dennis V. Arriola -- Chief Executive Officer

Yeah, Let me turn it over to Alejandro to give you a little bit more color. But I'll tell you, I'm really bullish on our Renewables business, especially with what we're doing on offshore. We mentioned that we bid yesterday on the New York RFPs. And I think that the pipeline that we have and the positions that we have are probably premier in the market. We've got to deliver. There are some things that aren't necessarily completely in our control as far as the timing of the permits and everything. But I feel good about where we're at. And, Alejandro, maybe you can give a little bit more color on BOEM.

Alejandro De Hoz -- President and Chief Executive Officer, Avangrid Renewables

Sure. Thank you, Dennis. Thanks, Steve. So, you know that when the supplemental environmental impact study draft was published earlier this year, in general, was positive. The one-by-one nautical mile layout was considered by the majority as the right way to go. We were expecting a recommendation from the Secretary of Interior in late August, which did not come, but what the information we have is that the cooperating agencies are working already on a recommendation issued by the Secretary of Interior and we are hopeful that the required decision which is supposed to come in December will come on schedule or with little delay.

And we are really confident that it's going to be in the right direction for the project. So we continue right now on with our procurement process. We are going to take important decisions about the procurement of the project supply chain in the next weeks until we continue to target on investment decision -- final investment decisions somewhere around Q3 next year. So quite positive about [Indecipherable] in general.

Steve Fleishman -- Wolfe Research -- Analyst

One clarification. When the Secretary of Interior comes out with the [Technical Issues] to BOEM?

Dennis V. Arriola -- Chief Executive Officer

Hey, Steve, I'm sorry, you broke up a little bit there. Could you repeat the question?

Steve Fleishman -- Wolfe Research -- Analyst

[Technical Issues]

Alejandro De Hoz -- President and Chief Executive Officer, Avangrid Renewables

Okay. So, it's breaking up, Steve, but I think I got your questions. So, the Secretary of Interior has to, in principal, make public our recommendation. But that does not mean until that comes that the cooperating agencies are not working on a specific recommendation. That's why we think and we have been told that there should be no further delays to the final decision as per the schedule that BOEM has published, and it should come by the end of the year.

Operator

And your next question today comes from the line of Julien Dumoulin-Smith with Bank of America. Please proceed with your question.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Hey, good morning to you and congratulations. Thanks for the time. So...

Dennis V. Arriola -- Chief Executive Officer

Good morning, Julien. Thank you.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Absolutely. So let me try to reconcile the last round of few questions here. When we think about 2020, what would be a clean number to think about? Right? There is a litany of factors we can talk about that impact 2020. Right? You've got this New York, your earned ROEs at your utilities, for instance, have certainly been impacted. We can talk about some of the true-ups here, taxes, storms, Renewables relative to "normal". How would you clarify what a run rate '20 would look like just as we start to -- admittedly not spill your guts on what the long term looks like, but at least as a baseline, right? To go back to Steve's question, it doesn't seem like the current outlook would be, A, a good place to start, or, B, illustrative of your core earnings power of the company.

Dennis V. Arriola -- Chief Executive Officer

Yeah, I think that on that, Julien, I'm going to kick it a little bit more toward the Analyst Day because I think you will have a better appreciation when we talk about 2021, what the differences are between that and 2020. And I think that Doug's touched on the fact that we had some large tax item. We obviously don't expect those to continue every year. And candidly, we've been doing our reviews here of the business model and our operations. We're trying to make sure that we put forward a number here for 2020 that we have a high degree of confidence that we can deliver on. So, we're not ready to say here's the new base number going forward, this is the best that we can give you for 2020 at this point in time.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Excellent. And just to clarify the earlier comment about the transaction itself. I think I heard you say we should be thinking about $700 million of holding company debt as reconciling with the 3% earnings accretion. But what does that reconcile with in terms of FFO to debt when you think about where you're projecting versus what you're required to have?

Dennis V. Arriola -- Chief Executive Officer

Yeah, again on the number that I gave on the $700 million, that is not exactly what we're going to do. That was used for illustrative purposes to get to the 3% accretion. It could be more, it could be less. There could be different types of securities that we use to make up the overall funding mix. So I don't want you to be wed on the $700 million of debt. What I can tell you is in the discussions that Doug and his team have had with the rating agencies, they recognize that we want to maintain a strong balance sheet with investment-grade credit ratings after this and that we'll be funding this in a way that allows the new combined company to have those attributes.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Okay, fair enough. Sorry to -- just quickly clarify this, if I can, the clean 2020 number, if I can come back to this one more time. I know that there -- you talked about being able to earn your ROE prospectively at some point in time. But when you think about the corporate adjustments here in '20, for instance, the tax impact, what are some of those more one-time type items that we should be careful of in looking at it, if you don't mind? I'm not trying to get to '21 necessarily. And I know that that's what you're holding off on disclosing here, but if you can stick to the '20 piece outside of earned ROEs, perhaps the corporate or other and taxes, what might those items be?

Dennis V. Arriola -- Chief Executive Officer

Julien, I love your persistence. Sounds like Doug can give you a little more color.

Douglas Stuver -- Senior Vice President and Chief Financial Officer

Yeah, I mean, Julien, I think these are largely itemized to qualitative factors, and quantitatively, taxes is probably the most tangible thing I can point to, the $0.10 negative that's affecting 2020 results. Qualitatively, things like the wind production with Renewables and the curtailment impact's something that we hope does not persist into 2021. With Networks, we've had regulatory lag affecting us with the New York rate case, not effective until April 17th and with the CMP rate case, not until March 1. So those are conditions that we don't expect to recur in 2021.

And then just with storms, we've seen a higher incidence rate this year. Storms, I would say, in general, it's something that it's going to take time to resolve but it's not an overnight fix. We have to invest in vegetation management, we have to invest in resiliency, and over time that will get better. But that's something that's going to be with us for a while as we look to improve the quality of the system.

Dennis V. Arriola -- Chief Executive Officer

And Julien, as a tease, when we talk about this at the Investor Day, you're going to hear some more detailed plans and actions that we're working on right now that will be executed in the years to come to help our Networks to earn at least they're authorized.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Got it. Excellent. Well, thanks for the time, guys. Good luck. We'll talk to you then.

Dennis V. Arriola -- Chief Executive Officer

Thanks.

Operator

Your next question comes from the line of Richard Sunderland with J.P. Morgan. Please proceed with your question.

Richard Sunderland -- J.P. Morgan -- Analyst

Hi, good morning. Thanks for taking my questions here. Just wanted to start out around the transactions. In the past, you've discussed the merchant portfolio and some of the volatility that brings to earnings. I'm curious what your thoughts are on capital recycling and how that might impact the PNM financing?

Dennis V. Arriola -- Chief Executive Officer

Yeah, It's a great question, Richard. I think as I've had discussions with various folks over the last couple of months, I think that I would prefer to have less merchant and market pricing exposure. And we're working on a plan to reduce that. I think that as we've looked at our existing portfolio of assets in Renewables, as well as our overall pipeline, we're going to be sharing some information with you that gives you confidence that the assets that we have are the right ones going forward. But as always, if there's the opportunity to optimize the overall portfolio, because we think it's more valuable to someone else, or it doesn't fit strategically with us, I think one of our main jobs as the leaders of the company is to recycle that capital. So we'll -- we're always going to be looking at that.

In regards to PNM Resources, I'm excited, especially in Texas, I think that there's opportunities in Texas, but also in New Mexico to support PNM Resources, because I think that they probably have been more capital constrained. And yet, when you look at the infrastructure that's needed to meet the clean energy goals of both states, and especially with the economic growth that continues to take place in Texas, we think there's going to be opportunities to continue to grow there, which is going to reduce the overall -- will help reduce what we're doing from a merchant standpoint in Renewables.

Richard Sunderland -- J.P. Morgan -- Analyst

Got it. Thank you. And then just turning to the 2020 guidance update. I'm curious if you could parse a little bit more the $0.14 benefit you spoke to about the New York rate cases, or maybe let's put in this way, the timing impact of the New York rate cases on 2020 results plus storm costs seen at Networks, namely, what will be covered by the step-up in revenues versus what's kind of continued strong cost borne by the ongoing business?

Douglas Stuver -- Senior Vice President and Chief Financial Officer

Yes, this is Doug. I'll talk a little bit about that. So just to kind of put the numbers in perspective, we expect the overall annual impact for the New York rate case to be $0.25. We've already recognized $0.06 of that. So there's really $0.19 that we have waiting to be recognized for the full year. And through the third quarter, we're at roughly $0.14. As we've looked at the outage restoration cost item in particular, we've talked in prior calls about how -- the way the rate case was established, we expected that if the outage restoration costs that we incurred in 2019 were to recur in 2020, we'd have roughly 80% to 90% coverage on that. So that'll give you some benchmark to how to think about this. And in 2020, we're seeing a higher experience so far in those outage restoration costs. So hopefully, that gives you some information to help answer your question.

Richard Sunderland -- J.P. Morgan -- Analyst

Great, thank you.

Operator

Your next question comes from the line of Neil Kalton with Wells Fargo Securities. Please proceed with your question.

Neil Kalton -- Wells Fargo Securities -- Analyst

Hi, guys. Thanks for taking my question.

Dennis V. Arriola -- Chief Executive Officer

Good morning, Neil.

Neil Kalton -- Wells Fargo Securities -- Analyst

Yeah, morning. I'm still a little bit confused about New York. But maybe I think you've given some of us some answers that we can look into. But I just had a curiosity, are you willing to say sort of through the first nine months what the earned ROE has been at NECEC this year? And given what the revenues you might get going forward, how we should think about that earned ROE this year?

Dennis V. Arriola -- Chief Executive Officer

You know, Neil, I don't know that it would be helpful or accurate if we gave you an estimate. I think that, again, we're focused on getting this -- the rate case approved. We're pleased that we've got the joint settlement, 20 signatories and we think that it's just going to provide the capital that we need going forward to continue to build on a system, make it safe and reliable. But I think that we don't have that what you're asking for at the tip of our fingers as far as what the earned or off-earned ROE is actually today because there's so many moving pieces. As Doug said, we've got, in our numbers, year-to-date, the taxes that are reflected because of the rate case, as well as other costs, but we don't have the revenue. So it would be an incomplete number if we gave that to you.

Robert D. Kump -- Deputy Chief Executive Officer and President

Yeah, yeah. No, I agree. And Neil...

Dennis V. Arriola -- Chief Executive Officer

And this is Bob Kump.

Robert D. Kump -- Deputy Chief Executive Officer and President

Yeah, it's Bob. As Doug said, we are incurring costs throughout the year that will be reflected in that rate increase, right? So if you took a snapshot at the end of September, there'd be significant cost we've incurred that would drive an ROE down to a number, as Dennis said, it really wouldn't make sense, because the associated revenues we can only record once the commission approves the agreement. So I think it's best to defer and with our Investor Day, we'll give a better snapshot for 2021 and beyond.

Neil Kalton -- Wells Fargo Securities -- Analyst

Yeah, thanks. I understand. And then on the asset sale gains, I think in the past there had been some thoughts that these would be included, there'll be some measure of these included in the EPS guidance going forward. Is that still the intention that this is part of sort of an ongoing thing that future EPS outlooks will reflect an asset sale program to some degree or do you anticipate excluding these?

Dennis V. Arriola -- Chief Executive Officer

Yeah, Neil, great question. I think what you're going to see from us going forward is that there is going to be a much more consistent quality of earnings standard that includes those things that are part of our ongoing operations. And while we will be looking for opportunities to optimize the portfolio and reallocate or recycle capital, I'm not thinking that that's going to be a part of our earnings guidance in the future.

Neil Kalton -- Wells Fargo Securities -- Analyst

Perfect, thank you.

Operator

Our next question comes from the line of Sophie Karp. Please proceed with your question.

Sophie Karp -- KeyBanc -- Analyst

Hi, good morning guys.

Dennis V. Arriola -- Chief Executive Officer

Good morning, Sophie.

Sophie Karp -- KeyBanc -- Analyst

Real quick, if I may, on the -- your rating agencies conversations. Clearly the more regulated mix is helpful. Could you remind us what your downgrade threshold is right now? And is it possible or like, do you anticipate that that may be changed due to the acquisition before you close allowing you to shift the funding mix or is it not something that's going to happen near-term in your opinion?

Douglas Stuver -- Senior Vice President and Chief Financial Officer

Hi, Sophie, this is Doug. So really just starting with the rating agencies, we have S&P and Moody's, and Fitch. With S&P they view us as a core holding of Iberdrola and so they really tie our rating to Iberdrola's rating. Fitch and Moody's view us more on a stand-alone basis. With Moody's, I'll just speak to them in particular, they have a downgrade threshold of 17% on a sustained basis for cash from operations, pre-working capital to debt. But as they look at this transaction and how it affects our business, it is viewed as a positive. They like the geographic diversity, the regulatory diversity, the increased Networks business mix. So we haven't gotten into those specifics at this time. And frankly, they want to gather more information from us as we do our Investor Day presentation and have more detailed information to share. But directionally, I think this is certainly a positive in terms of our credit profile and may give us some additional capacity.

Sophie Karp -- KeyBanc -- Analyst

Okay. And then on New York and New York state where you guys are assuming that you will have the authorization for the rate by the end of the year. What drives the confidence? There has been a lot of delays and it seems like you're pretty confident that this is going to happen in the remaining two and a half months. Just trying to ascertain if it's possible that this will flip into 2021 and how would that be handled. Thank you.

Dennis V. Arriola -- Chief Executive Officer

Yeah, Sophie, this is Dennis. Let me start and then I'll ask Tony if he wants to add any color. Again, I think the fact that we've got a settlement that was filed in the middle of the year, 20 parties including the commission staff and recognizing the investments that need to be done to the system, I think, are very important and that's one of the reasons why we continue to be very optimistic that this is the right settlements and rate case going forward. There is no doubt that with everything that continues to go on in the country, and specifically in New York related to COVID, things are taking a little more time and I think that with any increases in rates, for any service that's being delivered, I think that commissions are being much more thoughtful about what is going to be passed through to ratepayers during these challenging times.

So, would we have preferred for this to be approved in October? Absolutely. Are we surprised? Maybe not completely. But I think the fact that they accepted our extension for one month on the make-whole shows that they're continuing to work on it and we are optimistic that this will be addressed in November. But Tony, I don't know if you want to add anything to that.

Anthony Marone -- President and Chief Executive Officer, Avangrid Networks

Dennis, I think you covered most of it. I'll just add that some of the provisions in the JPA are important, not just for the company, but also for our ratepayers in New York, things around COVID relief and so forth that NECEC and RG needs. So while these things take time to consider, we believe that this JPA is the right balance and the right mix and we think it's going to get approved.

Sophie Karp -- KeyBanc -- Analyst

Thank you.

Dennis V. Arriola -- Chief Executive Officer

Thanks, Sophie.

Operator

And this concludes our Q&A session for today. I turn the call back to the presenters for any closing remarks.

Dennis V. Arriola -- Chief Executive Officer

Well, good. Well, thanks again for listening to our third quarter earnings call. I want to thank all of our employees and any PNM Resources employees that are on the call. So, really thank you for your relentless commitment to serving our customers and our communities, especially during these challenging times.

Now, despite the current unprecedented challenges and global economic uncertainty, we continue to execute on our strategic objectives for the year, including the commissioning of approximately 1 gigawatt of wind projects, progress in the approval of our settlement in our new New York rate cases that we just discussed, and the soon-to-be-started construction of NECEC.

And again, we're truly excited about this strategic transaction with PNM Resources and we look forward to updating you on our regulatory approval process throughout the year and 2021. We're also looking forward to sharing more information with you on our strategy and on our outlook beyond 2020 at our Investor Day in November.

So if you have any other questions, please reach out to Patricia or Michelle. Thanks for joining us. Have a great day and stay safe.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Patricia Cosgel -- Vice President of Investor and Shareholder Relations

Dennis V. Arriola -- Chief Executive Officer

Douglas Stuver -- Senior Vice President and Chief Financial Officer

Alejandro De Hoz -- President and Chief Executive Officer, Avangrid Renewables

Robert D. Kump -- Deputy Chief Executive Officer and President

Anthony Marone -- President and Chief Executive Officer, Avangrid Networks

Insoo Kim -- Goldman Sachs -- Analyst

David Arcaro -- Morgan Stanley -- Analyst

Steve Fleishman -- Wolfe Research -- Analyst

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Richard Sunderland -- J.P. Morgan -- Analyst

Neil Kalton -- Wells Fargo Securities -- Analyst

Sophie Karp -- KeyBanc -- Analyst

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