Good morning, ladies and gentlemen. First of all, we would like to offer a warm welcome to all of you who have joined us today for our 2020 Nine Months Results Presentation. Secondly, we hope that you, your family, friends, and colleagues are all safe and well during this global pandemic we are suffering. Now, on to the reason why we are here. Our nine-month results presentation, which on the current occasion will be structured in a different way due to the U.S. deal that we have just announced today. Firstly, we will begin with an overview of the results and the main developments during the period given by the senior executive team that we usually have with us, our Chairman and CEO, Mr. Ignacio Galán, Mr. Francisco Martínez Córcoles, Business CEO, and finally, the CFO, Mr. José Sáinz.
Once we finish the review of the results, we will continue with the presentation where Mr. Pedro Azagra, our M&A Director, will inform you about the details of the acquisition of PNM Resources. It will be followed by a Q&A session where we will try to give answers to the questions you may have about both items presented today, nine months results and the mentioned transaction. I would also like to highlight that we are only going to take questions submitted via the web. For our part, we will divide your queries between the ones corresponding to the results on the one hand and those relating to the deal on the other. Feel free to ask all kind of questions you might have, but please only through www.iberdrola.com. Hoping that both presentations will be useful and informative for all of you.
Now, without further ado, I would like to give the floor to our Chairman and CEO, Mr. Ignacio Galán. Thank you very much again. Please, Mr. Galán.
Good morning, everyone, and thank you very much for joining today's conference call. As Ignacio mentioned, after our usual result presentation this morning, we give some details of the announcement yesterday evening, the deal between Avangrid and PNM Resources. It's a deal which fits our strategy and improves significantly our position and growth potential in the United States, as you know, one of our key geographies. Just focusing on results, over the last months, we have seen an ongoing recovery of market conditions after the strong hit of COVID-19 during the second quarter. In any case, Iberdrola, we remain fully aware of our responsibility toward employees, customers, and society. We continue to make safety our top priority, doing everything at our disposal to mitigate the impact of the virus, especially as the second wave appears.
Thanks to the professionalism and responsibility of all the women and men who work for the company and our supply chains, and the comprehensive set of measures implemented by the company, the infection rate at Iberdrola continues to be much lower than the countries where we operate. Our thoughts continue to be with everyone affected by this disease. We have also maintained the quality of service to our customers, and we have continued accelerating our investment to contribute to the recovery of economic activity and create jobs. We believe this is not only our duty, but also our moral obligation. We at Iberdrola will stand up to the challenge as we have always done, showing that it's possible to deliver our social dividend and increase results at the same time. Over the first nine months, adjusted net profit grew 8.8%, more than one point above the evolution shown in June.
Reported net profit reached EUR 2,681 million, including the divestment of Siemens Gamesa and the impact of the decision of the U.K. Government to maintain corporate tax rate at 90%. Gross investment has continued to register new record figures despite the restrictions suffered. As of September, Iberdrola invested EUR 6,630 million, 23% up more than previous year. Thanks to the ramp-up of activity registered in the third quarter, when investment increased by 60% year-on-year to EUR 3 billion. A remarkable figure that confirms the new investment acceleration period we are entering. Next November 5, I will share with you our outlook for the coming years, let me advance today that we see a great investment opportunity in all our traditional markets. As well, in other geographies like Japan, where one month ago we reached a deal to acquire 3.3 GW of offshore wind portfolio.
Capturing this potential growth will be possible thanks to our strong cash flow generation, even in the current circumstances. In the first nine months, adjusted EBITDA, which excludes COVID-19 impact, exceeds EUR 7.5 billion with 3.2% increase year-over-year. Including COVID-19 effect, reported EBITDA reaches EUR 7,345 million. The set of results we are presenting allow us to maintain our commitment to shareholders' remuneration. Yesterday, the board of directors approved the interim shareholder dividend of EUR 0168 per share. Let me now give you some highlights about the transaction closed yesterday by the U.S. subsidiary, Avangrid, with PNM Resources. This measure fits with Iberdrola's group strategy based on growing regulated networks and renewables in countries with high growth potential and strong ratings, with accretive impact on our earnings and preserving our financial strength.
The deal created a stronger and more diversified growth platform for the group in one of the key markets, the U.S. PNM Resources is a full regulated group with transmission and distribution activities serving 800,000 customers in New Mexico and Texas. It has more than 2,000 MW of regulated generation asset with an increased year of wind power. Its regulated asset base reached $4.1 billion, and in 2019, the company registered almost $600 million in EBITDA and close to $100 million in net profit. PNM Resources is based in two states we know well. In Texas, where it serves growing areas close to Houston and Dallas. Avangrid has 1,300 MW of wind generation, and the group is starting new retail activities.
In New Mexico, where PNM is the largest utility and distributes electricity to all major cities, we already have 600 MW of wind capacity in operation or under construction. For the last 15 years, we have funded the King Felipe VI Chair in Advanced Computing Science in the University of New Mexico, so they are people which are close to us for a long time. The transaction consideration will be 100% cash, valuing PNM Resources' equity in $4.3 billion, and Avangrid will assume $4 billion in debt. Iberdrola has provided funds commitment letter to Avangrid, guaranteeing the financing of the deal. After the transaction, our U.S. subsidiary will reach pro forma EBITDA of close to $2.5 billion and net profit close to $900 million on 2019 base data.
For Iberdrola, this merger adds around EUR 500 million to our EBITDA on a pro forma basis and more than EUR 120 million on net profit. These numbers represent at least 3% accretion of earnings per share level for both companies. This deal is a new step in our successful strategy, adding to the other recent transactions, like Infigen in Australia, Aalto Power in France or the acquisition of offshore wind portfolios in Sweden and Japan. Pedro Azagra, our M&A responsible, will give you more details about this transaction later on. Going back to nine months results in the last three months, we have seen a confirmation of the trends identified in the second quarter, which pointed to a progressive normalization of operating conditions.
Power demand evolution has continued improving week after week, moving from decreases of more than 50% in the worst moment of the lockdown to just minus 2% in September, both in U.K. and Spain. Similarly, in 2021, forward prices have recovered, reaching higher levels than before the crisis in both countries. The group has continued celebrating its expansion in gross investment of 3 billion in the last three months. Thanks to the huge effort made by our employees and also by the 400,000 people who work for us in our supplies and contractors. Iberdrola has recorded the highest amount ever invested in a quarter, even in the circumstances created by COVID-19, leading to a 23% increase year-to-date, up just 2% in June.
More than half of these EUR 6,730 million invested were allocated to renewables, who registered 51.8% increase, consolidating its position as the largest investment destination of the group. Networks investment increased by 5.5%, contributing 40% of the total investment, mainly U.S. and Spain, but also in transmission and distribution in Brazil and U.K. Investment in generation supply, which as you know consists mostly on capitalization of the customer acquisition expenses, fell 21%, driven by the slowdown of commercial activity. We expect this to recover in the coming months as confinement measures decrease. As a consequence, we remain confident about reaching EUR 10 billion investment in 2020. All in all, in the last 12 months, we have installed more than 4,600 MW, reaching 54,000 MW in total capacity. We have 7,600 under construction.
Close to 1,000 correspond of offshore wind projects like Saint-Brieuc in France or Baltic Eagle, that together represent more than EUR 4 billion investment. Onshore wind represents 2,200 MW split over all our geographies. Solar photovoltaic adds up more than 2,700, with approximately two-third located in Spain, as we continue ramping up investment in the country. Battery and hydro storage represent a further 1,250 MW, as we continue progressing the construction of the Tâmega pumped hydropower plant, a hybrid project combining renewables and batteries. Focusing now on our group operating performance, adjusted EBITDA increased by 3.2% to EUR 7,561 million, thanks to the positive evolution of renewables and generation and supply. Renewables EBITDA was up more than 5% due to the contribution of new facilities like the East Anglia ONE offshore wind farm.
The better performance in United States driven by new wind capacity, higher availability, and the increase of hydro production in Spain and Brazil with Spain's hydro reserves are 50% above previous year levels. Generation and supply EBITDA already reflect the normalization of production and sales benefiting also from the lower procurement cost, thanks to the price hedge. In particular, U.K. results are starting to return to normal levels despite the market situation. It's still challenging to the tariff caps. In the coming months, results will also include the recent acquisition of 250,000 new contracts from an independent retailer, giving ScottishPower to customer portfolio over 5 million customers. Networks results were negatively impacted by the transition to the new regulatory period in Spain. The temporary adjustment in United States due to the deviation on demand energy costs and major storm such as Isaias.
As you know, all these amounts are fully recognized as regulatory asset and therefore will be recovered in the future with a positive impact in next year consolidated results. In Brazil, the impact of COVID-19 on distribution was more than offset by the new transmission project awarded in the last years, together with higher efficiencies. Globally, COVID-19 has had a total impact of EUR 260 million at the group EBITDA level.
Net results were also impacted by the adverse movement of exchange rate, mainly due to the Brazilian real. Excluding this effect, adjusted EBITDA rose by 6.4%. This improvement in operating profit was also the result of our cost reduction, which have been strengthened by more in the current scenario. Net operating expenses improved by EUR 57 million- EUR 3,101 million versus 2019, even after EUR 43 million of one-off expenditures are mainly related to donations of medical equipment related to COVID-19.
Operating cash flow grows 2.3%, improving our FFO to adjust net debt ratio to 21.9, 20 basis points higher than one year ago. The company maintains full access to capital market at extremely competitive condition, despite the overall contraction. Pepe Sáinz will give you more details of this subject later on. A strong financial structure is particularly relevant in the current situation, which combines macro uncertainty with unprecedented investment cycle in the industry. Let me just mention some recent milestones that give clear signal of this investment acceleration in all our geographies. In Europe, the Commission proposed an increase in the emission reduction target for 2030 from previous 40%- 55%. This level of ambition, fully consistent with reaching climate neutrality by 2050, will require increasing the share of renewables in electricity mix 10 points to 65%.
According to our estimate, this will give a further increase in investment of 30% for renewables and 15% for power networks in continent. Green hydrogen has also emerged as a significant investment opportunity with the European Commission targeting 40 GW of hydrogen electrolysis power by renewables in 2030. All European countries are setting national target on this line. Spain recently published a national hydrogen strategy aiming at 4 GW of renewable electrolysis by 2030 with EUR 9 billion in investment. In this context, Iberdrola recently announced the creation of a new unit specifically dedicated to green hydrogen. We have signed a deal with Fertiberia, the first producer of fertilizer in Spain, to develop 20 MW of green hydrogen plant in Puertollano, Spain, that will be the largest of this kind in Europe when it become operational next year.
We will give you more details on further developments of this partnership very soon. Green hydrogen is one of the building blocks of the recovery plan being approved all around Europe. The government of Spain has recently announced that one-third COVID-19 recovery funds for a total of EUR 140 billion will be allocated to energy and climate change. These funds open massive opportunity to transform the Spanish economy. Iberdrola is already collaborating with all public administration to make sure that the money is allocated to initiative that create jobs and accelerate the reindustrialization and the modernization of the industry of the country's production model in a more sustainable manner. In the U.K., just weeks ago, the government announced an increase of offshore wind target from 30 GW- 40 GW for 2040, with the aim of powering every home in the country with offshore wind.
The Prime Minister also signaled hydrogen as part of the government strategy for reaching net zero by 2050. Similarly, in U.S., offshore wind continues gaining momentum. New York and New Jersey have announced new auction to be held in 2020, 2021 for 4,900 MW. The government of Virginia ratified last July the Clean Economy Act, setting 5.2 GW of offshore wind target as well. Iberdrola is once again showing anticipation in this global scenario, expanding our geographical footprint to the new growth platform. On top of the transaction we already explained to you just in July, in Sweden and France. We have reached agreement to acquire an offshore wind portfolio in Japan, consisting in two offshore wind farms under development with a combined capacity up to 1.2 GW, strategically located to access the auctions announced by Japanese government to be held from 2023.
For additional project with a total capacity to 2.1 GW for the second half of the decade. These developments allow us to diversify even more our mix of business and geographies while strengthening our current pipeline with 14,000 new megawatt to boost future growth, where around 90% are offshore wind. All in all, our pipeline reaches 70,000 MW of capacity. At the same time, we keep reinforcing our position in the group's current markets with a new transaction, as one announced yesterday in the United States, a country where we also have massive organic growth opportunities. Just yesterday, Avangrid submitted bids to the upcoming offshore wind auction in New York that will allocate up 2,500 MW of new capacity. In this state, the regulatory body is also expected to approve the rate case for Avangrid network subsidiaries before the year-end, with tariff retroactive from April.
It has already allocated to this company EUR 150 million until 2025 for the deployment of charging points for electric mobility. At Maine, following the court ruling considered unconstitutional referendum about our interconnection line with Canada, the project continues ahead and is expected to start construction in the next weeks. In the U.K., the process for new regulatory framework for transmission RIIO-T2 continues. As you know, the CMA has recently published its provisional finding on the remuneration of water distribution companies, increasing the investment and the rate of return initially lowered by the regulator body of Ofwat. This has been recognized by many agents as a signal for the regulation of power transmission. As we have expressed in many occasions to the U.K. government and the Ofgem, investors need coherence between energy policy, which is clearly asking for additional investment to reach net zero by 2050, and regulatory frameworks.
We still need to wait for the outcome, we would expect higher return on power transmission than on water, as the risk and technological complexity associated to the business are higher. An investment in the power sector is essential to promote the carbonization and industrialization in the U.K. Iberdrola and ScottishPower remain totally open to collaborate with Ofgem and the U.K. government in this process. In the U.K., England, Wales, and Scotland have announced the leasing of new offshore wind areas with potential up to 18 GW. Bids are due in early 2021. In Brazil, the regulatory procedures linked to COVID-19 continue progressing. Neoenergia has already received BRL 1,660 million corresponding to the off-balance sheet loan to recover extra costs, and the study and tariff review for distribution companies continue progressing.
I will now hand over to Pepe Sáinz to present the group financial standing in more detail. Thank you.
Thank you, Chairman. Good morning. I will start updating the two main COVID impacts considered in our accounts, totaling EUR 308 million at EBIT level, EUR 80 million above the EUR 228 million of the first half. In the third quarter, COVID impact is decreasing, with demand recovering in our main countries and bad debt growing less than in the first half, as you will see in the next slide.
EUR 260 million out of these EUR 308 million are related to demand decrease, EUR 59 million additional to the EUR 157 million of the first half, mainly affecting to network business more than to generation and supply. EUR 92 million of bad debt accounted for as provisions, reducing our EBIT EUR 21 million more than in the first half, being in this case, generation and supply more affected than networks. There are several measures underway in order to offset COVID impacts.
In networks, we are still expecting the recovery of the impacts through regulatory measures. In the U.K. and in the U.S. in 2021 and 2022, and it is being negotiated in Brazil, as the Chairman has commented. In generation and supply, bad debt will be managed through our commercial activity, and there has been submitted a proposal to Ofgem for recognition in the SVT tariff of bad debts cost starting in April 2021. As mentioned, net profit COVID-19 impact amounted to EUR 136 million in Q2, and in Q3 fell to EUR 50 million. Hopefully, in the fourth quarter, this trend will continue. Our reported net profit was 4.7% up to EUR 2,681 million. As the FX negative impacts at the EBITDA level have been hedged. The real has depreciated 22%, while the dollar and the pound were flat versus last year.
Our adjusted results exclude the most relevant non-recurring items, both in 2019 and 2020 nine months, but does not consider any FX impact. As you can see in the slide, to 2020 nine months adjusted EBITDA is EUR 7,561 million, excluding EUR 260 million COVID demand effect.
Nine months 2019 adjusted EBITDA was EUR 7,329 million instead of the EUR 7,499 million reported and excludes EUR 170 million non-recurring, EUR 89 million from LNG sales, EUR 49 million of the transfer of the fiber optic contracts in Q3 2019, and EUR 33 million from settlements in Spanish networks. As a consequence, adjusted EBITDA grew 3.2% instead of the 2% fall reported. If added the FX impact, our adjusted EBITDA would have grown 6.4%. Nine months adjusted net profit was EUR 2,553 million instead of the EUR 2,681 million reported and excludes all COVID net impact in our accounts, EUR 203 million.
The EUR 485 million of the Gamesa gain, another EUR 154 million of non-recurring negative tax impact, mainly due to the U.K. As a result, adjusted net profit grew 8.8% instead of the 4.7% growth reported. Revenues decreased 8.4% to EUR 24 billion, impacted by COVID, FX, and weather-related lower demand, and procurements fell 13.7%, reaching EUR 12.4 billion. As a consequence, gross margin was down 2% to EUR 11.8 billion, affected by the EUR 343 million of negative FX impact. Without this FX hit, gross margin would have grown by 0.8%. Net operating expenses improved by 1.8% to EUR 3.1 billion, driven by cost containment due to COVID and efficiency plans. EUR 108 million positive FX impact more than compensates the EUR 43 million of donation and other expenses related to COVID. Levies fell by 2.4% to EUR 1,395 million, with lower prices in Spain being a key factor.
As you can see in the slide, Spanish taxes on generation improved EUR 36 million. Analyzing the results of the different business and starting by networks, its EBITDA fell by 10.7% to EUR 3.5 billion, considering EUR 122 million negative COVID impact on demand and EUR 181 million of timing and storm effects in the U.S. As you can see in the slide, Spain contributed 34%, the U.S. 24%, Brazil reached 31%, and the U.K. contributed another 21%. In Spain, EBITDA fell 7.2% to EUR 1.2 billion due to the EUR 49 million negative impact of transferring the fiber optic contracts that was accounted as a positive result in the third quarter of last year. In addition, lower remuneration for 2020 brings down revenues by EUR 34 million, and there is an impact of EUR 33 million of positive settlements also accounted for in the first nine months of 2019.
Net operating expenses and taxes improved, compensating partially this fall. In the U.S., IFRS EBITDA was 20% down to $935 million, driven by $190 million negative temporary adjustments on their IFRS as a consequence of difference in volumes and energy cost, together with the impact of storms, especially the Isaias storm in the Q3. These negative impacts will start to be recovered during the fourth quarter of 2020 and following years. US GAAP EBITDA is $102 million higher than the IFRS EBITDA and fell just 1.1%. In addition to all these negative impacts, as the chairman has commented, there is a delay in the New York rate case due to the COVID that has been postponed to December versus April this year, whose impact is $66 million in our accounts, although it will be recovered. In Brazil, EBITDA grew 8.6% to BRL 4.2 billion reais.
Tariff revision in Coelba and Cosern from April, and in Elektro from August, increasing contribution for higher investments in transmission and cost contention due to efficiency plans have been partially compensated by a BRL -167 million COVID impact on demand. In the U.K., EBITDA was 3.3% up to GBP 647 million, with higher revenues both in transmission and distribution as a consequence of the growing asset base due to investments, partially offset by GBP 21 million less revenues due to COVID linked to lower demand to be recovered in 2022. Renewables EBITDA grew 5.6% to EUR 1.8 billion, driven by growth in the U.K. and in the U.S., and despite wind conditions and prices in Spain. Our average operating capacity increased to 29,175 MW, and our total installed capacity reached almost 34,000 MW.
In the U.K., EBITDA was 47% up to GBP 443 million, with higher contribution both in onshore and offshore as a result of the East Anglia ONE production, as its 740 MW are fully operational since mid-July. It is worth noting that the offshore wind business contributed already 40% to the total gross margin in the business, paying back the strong investments needed. In the U.S., EBITDA increased 9% to $511 million, caused by a 14.5% higher output, following the 695 MW increase in operating capacity in the last year and a higher wind resource. In Spain, EBITDA was EUR 445 million, 14% below last year due to 36% lower prices in sales to other supply business, despite a 23% higher output driven by a 54% higher hydro production, as well as higher PV capacity.
In the international business, mainly in Europe, EBITDA fell 5.5% to EUR 234 million due to lower wind conditions and higher development costs accounted as a one-off in the quarter as business expands. Aalto Power is consolidated from the 1 of July and Infigen from the 5 of August. In April, in Brazil, EBITDA grew 0.7% to BRL 449 million as output is increasing 5.8% with higher hydro output, compensating the falling wind as Baixo is fully operational. Finally, in Mexico, EBITDA decreased 1.8% to USD 62 million, improving versus the 13.7% fall at June due to the new installed capacity. Pier is already in operation. Nevertheless, it's still decreasing slightly due to the lower load factor, both in wind and photovoltaic generation. Generation and supply EBITDA was up 10.3% to EUR 2 billion, including EUR 94 million negative COVID impact on demand.
In Spain, the EBITDA was up by 4.7% to EUR 1.2 billion, despite lower output due to 11% higher purchases at lower prices versus last year. We continue our active management of our customer portfolio of energy and smart solutions. There are EUR 89 million negative non-recurring from LNG sale accounted for in the second quarter of 2019. In Mexico, the EBITDA grew 0.4% to EUR 643 million, thanks to higher sales as a consequence of a production increase, partially compensated by temporary lower availability of one CCGT plant and lower prices. In the U.K., the EBITDA grew 266% to GBP 137 million, more than doubling the 130% growth of June as a consequence of improved margins versus 2019 despite the fall in sales. Brazil added BRL 273 million to the EBITDA in a context of business normalization after the one-off negative effect that lowered results in 2019.
In the international business, EBITDA was EUR 2.9 million negative, improving versus last year, but still affected by initial development costs of our supply business in Europe. We have reached 1,740,000 contracts, 36% higher than one year ago. EBITDA fell 11.2% to EUR 4 billion as provisions grew 42% after including EUR 92 million of bad debt COVID provisions. EUR 40 million in networks, mostly in Brazil, that is being negotiated to be recovered through regulatory mechanisms, and EUR 52 million in generation and supply to be managed through our commercial activity. As I mentioned, there is a consultation by Ofgem to see if part of the bad debt costs in the U.K. are included in the SVT tariff from April 2021. In addition, amortizations increased 8.7% due to increase of the asset base and activity.
Net financial expenses improved to EUR 150 million- EUR 641 million, driven by EUR 180 million in hedges, mostly linked to FX. Another EUR 118 million positive impact due to the lower cost of debt that improved 42 basis points to 3.15%, and a EUR 49 million negative result due to the EUR 1.8 billion higher average debt. Our reported credit metrics remained strong and in comfortable levels for our rating requirements in spite of the EUR 1.4 billion adjusted debt increase due to investments and the Infigen and Aalto Power deals that have increased our debt in EUR 1 billion. FFO adjusted net debt improved 0.2 percentage points to 21.9%. Adjusted net debt to EBITDA increased slightly to 3.8x from 3.6x. Retained cash flow adjusted net debt remained around the 20% level. Adjusted leverage ratio increased 45.5%.
As of today, we maintain ample liquidity of around EUR 13.8 billion, maintaining 30 months of coverage of financial needs in our basis scenario and 21 months in the stress one. Our sources of financing continue to be highly diversified. Currently, the bond market is 62% of sources. Current weight of the bank financing is 12%, giving us the opportunity to increase this kind of funding if required. Reported net profit grew 4.7% to EUR 2.7 billion and adjusted net profit grew 8.8% as explained in previous slides. Now the chairman will end the presentation.
Thank you, Pepe. To conclude, over the last nine months, in one of the most challenging scenarios in decades, Iberdrola has delivered strong results thanks to the resilient business model. Reported net profit reached EUR 2,781 million, 4.7 up versus the figure registered last year. Adjusted net profit, which excludes COVID-19 impact for more than EUR 200 million, rose 9%. At the same time, we have continued executing our steady plan and creating new growth platforms for the coming decade. Up to September, gross investment increased 23%, up to EUR 6,638 million, installing more than 4,600 MW in the last 12 months and reached total capacity of 54,000. We combined this growth with an improvement of financial position as shown by our solvency ratios and our liquidity, with excess EUR 13.8 billion as of today.
For the rest of the year, we expect then the positive trends we have started in defined July following the progressive softening of COVID-19 reserves will consolidate the acceleration of investment on top of the EUR 9.6 billion already spent in the last 12 months will allow us to continue adding generation capacity. Results also reflect the impact of new rates and higher revenues in transmission, mainly in Brazil and U.S. In U.K., we expect the normalization of our retail business to continue. Islay offshore wind farm will keep its contribution in the fourth quarter. On top of this, efficiency measures will also continue. We expect all this offset the impact from COVID-19 on demand and prices, which in any case, we see decreasing in the last quarter.
As a consequence, we expect earnings to continue increasing quarter on quarter after the strong impact of coronavirus in June results, with the fourth quarter showing a positive net profit growth versus last year, allowing us to maintain our net profit guidance and meet high single-digit growth and to maintain our dividend policy based in our payout ratio between 65% and 75%. Following this policy, as I mentioned, the board of directors has approved an interim dividend of EUR 1.68 per share, payable in February 2021, proving our commitment to shareholder remuneration. You can be sure that the women and men working at Iberdrola will continue delivering the essential service we provide and accelerating investment to make the energy transition a reality and create jobs and wealth to the benefit of our customers and the society we serve.
Pedro Azagra will explain in detail the transaction between Avangrid and PNM Resources. Pedro?
Good morning, Chairman. I'm going to kick off with the presentation. As the Chairman explained, the transaction in between Avangrid and PNM reflects the strategy that the Chairman and the group has had for many, many years, allows growth in regulated businesses and renewables, continuous investments in AAA or very good rated countries mostly. It's accretive in earnings from the first year and intends to maintain the balance sheet strength that we have at present. In relation to PNM, which is the utility in the state of New Mexico and Texas in the U.S., first of all, it's a regulated utility. Therefore, it is 100% almost regulated, both distribution and networks, and also generation in a small piece. In the U.S., largest country, as we know, by GDP in the world, very good rating
This company operates in a stage where we are ready, and that's important. In the case of New Mexico, we have right now over 600 MW of installed capacity or assets under construction. This company, PNM, is the transmission operator of those assets, some of those assets that take energy from New Mexico into California. We've been working with them in that part, in that piece of the business, for some time now. In the case of Texas, through Avangrid, we already have the state with more presence in renewable assets with almost 1,300 MW, and we also have three Iberdrola retail business operations right now kicking off in Texas. In both states, Avangrid today has over 1,400 MW of pipeline in renewables. This company, PNM, is almost 100% regulated.
As the chairman explained, it has in 2019 over $4 billion of rate base and approximately 2.8 GW of regulated generation. In the case of the service territory, it owns two utilities, one of them in New Mexico. It serves the most important cities in New Mexico, especially Albuquerque and Santa Fe. In the case of Texas, it also covers the surroundings of the two main cities in the state, both Dallas and Houston. Among others, Lewisville and League City. I think just to give some operational city for PNM, it has almost 800 ratepayers. It has a population of almost 2 million people served. The EBITDA for 2019 approaching $600 million and net income approaching $180 million in that period. When we look at the combined company between Avangrid and PNM, we're going to be approaching very important data in the U.S.
We will hold, through Avangrid, 10 regulated utilities. The combined company will have presence in more than 24 states when you include the renewable operations. Installed capacity, including the regulated generation, it will almost reach 11,000 MW, and it will have more than 16,800 km of T&D lines. Data from a financial operational point of view for the combined company, Avangrid plus PNM, ratepayers, over four million. Population served, approaching nine million people. Installed capacity, approaching 11,000 GW. Very important, a renewal pipeline of around 19,000 GW. In terms of some financial data for the combined entity, EBITDA in 2019 pro forma figures, almost $2.5 billion, and net income almost $850 million. Very important, the new company, and this is important for the profile of Avangrid and also for the group, we're adding a 100% almost regulated utility with two utilities.
The EBITDA of Avangrid after this potential transaction, if it's closed, it will reach more than 80% of its activities coming from regulated. For the Iberdrola group, the strategy laid out by the chairman continues to apply. Growth in regulated businesses, T&D and renewables. Good countries from a rating point of view. EPS accretive more than 3%, both at the Avangrid and Iberdrola level from year one. Very important to keep in mind, year one means 2022 because it will take almost a year to get it approved. The first year of full consolidation will be 2022. ESG leadership, we will explain the acceleration of the only asset they own and operate of coal.
Pro forma figures for Iberdrola, just to give some feeling, we are adding more or less to the Iberdrola group EUR 500 million from an EBITDA point of view in 2019, and also around EUR 120 million 2019 figures for net income. The transaction, simple. Avangrid has agreed to merge with PNM and paying 100% in cash with a total equity value of $4.3 billion. I think the transaction, as expected, intends to be closed a year from now approximately. This offer represents more or less a 10% premium of the recent price of the company and more or less 19% premium over the 30-day volume average. Just some highlights from a sample point of view. As we said, it is more than 3% accretive from year one, which is 2022.
In the case of the funding of Avangrid, in order to be able that Avangrid can commit to pay to the target with shareholders, Iberdrola has sent a letter to Avangrid where it commits enough funds to pay for the equity of this company. I think as you know, Iberdrola has right now around EUR 14 billion of credit lines available. Therefore, more than enough to target this transaction. I think very important, on November 5th, Iberdrola group and Avangrid will be providing, as you know, new guidance both on target for different lines of the business group, also for Avangrid. Also there it will be explained in detail the financing and the different alternatives for Avangrid and also for Iberdrola. We believe it's important to mention that we are ready in both states.
I think from an economic point of view, the state of New Mexico and Texas, on a compound growth basis, they've been growing 3.4% and 4.9% in the last 20 years. I think the population, very important also, between 0.7% and 1.7% growth in that period. As it has been mentioned, we already have over 600 MW of renewables installed capacity under construction in New Mexico, and almost 1,300 MW of renewable business in renewable assets in Texas, plus the retail business being done through the parent company. In the case of the pipeline, we have right now in Avangrid, in excess of 1,400 MW of pipeline. In the case of PNM, very important, we have also more than 600 MW of identified projects in order to be developed.
I think, just to get a feeling of our presence, we also have a chair in the University of New Mexico, the King Felipe VI chair, and we have been there for more than 15 years. In this case, regulatory approvals, you know we're very familiar with the federal approvals because of the Energy East, UIL, sale of the gas distribution, et cetera, transactions. We've been there quite often. Only one additional mention. Because of a financial stake PNM has is a nuclear facility, we also need, in this case, Nuclear Regulatory Commission approval, and the two states that have to approve the transaction are New Mexico and Texas. I think in both states, there have been recent transactions. In the case of New Mexico, TECO bought from PNM some businesses a very few years ago, and Emera bought TECO, as you know, recently.
In the case of Texas, we have the Oncor transaction being bought by Sempra, and we also have a very recent transaction, JP Morgan Infrastructure buying El Paso last year. From that point of view, very comfortable on those jurisdictions, in terms of merger approval. That's why we believe the expectation should be around 12 months in order to get it approved. I think we're going to spend now a little bit of time on two things. First, the regulatory environment in both states. I think if we start by Texas, many utilities, very known regulatory environment. Most of the things they propose, they get approved. Over 9.6 return on equity, approved, authorized ROE. In the case of debt, equity ratio of 55%. Usually they have semi-annual approaches to rates in transmission, annually distribution, and now and then they also do general rate cases.
In the case of New Mexico, very important to highlight several things, so then we have clear explanation about this regulatory environment. First of all, as many other companies in the U.S., they targeted with the regulator to get recovery, especially in the coal facilities and nuclear facilities of the different costs associated with them. I think in the case of the coal facilities, we'll explain it later, but they have been achieving usually, around 50%, 60% of the request from a rate base they have requested. It's a one year forward, so basically, they get things approved in advance, otherwise they would not invest in them. Just to get some feeling, they got the most recent filing and the Renewable Energy Act approved. They also have been exceeding the authorized ROE, and therefore the actual has been exceeding the authorized of 9.5%.
They have led a coalition of the other utilities, in requesting from the public commission an authorized regulatory asset for the COVID-19 item. They have also got it approved, the abandonment of the only power plant they own in coal, and we'll explain that later. They also got approval to acquire the Western Spirit line. In 2019, they got approved application to continue using a fuel and purchasing power clause mechanism. I just wanted to give this feeling, to get the feeling that, yes, there were some issues on the recovery of the coal facilities. Finally, Supreme Court got it approved. We'll explain that now in detail.
Therefore, I think we believe there is a good environment in both cases, and we believe Iberdrola has experience to actually put on the table their strategic angle on renewables and T&D, and make sure we work together with the commissioners, with the governor, and the rest of the constituencies. Finally, we're going to explain a little bit about the coal matter, just to make sure that there is no misunderstanding on this topic. PNM owns and operates just one facility. They own 66.3% interest in a coal facility, which basically means 562 MW. Just to have dates very precise, so there is no confusion on this item. Again, a very small portion of the company, and by the way, regulated. In July 2019, basically, PNM filed to exit the San Juan Power Plant.
In January 2020, the New Mexico Supreme Court ruling basically applies the new and recently approved Energy Transition Act by the governor, and approves the exit plan. On April 2020, which is, as you can see, very recently, and that's part of the reasons why in our negotiations, it was important for us, the Public Commission order approved the abandonment and the securitization of the pending asset value. By 2022, this power plant will be shut down. In the case of Four Corners, which is another coal facility, it's not controlled by PNM. They only have a 13% financial stake. This is equivalent to 200 MW, but it's just a financial stake. Just also to be very specific in dates, in June 2020, there was a public announcement by PNM, with intention to exit the Four Corners stake.
By the end of 2020, they expect to have a final agreement with the exit. Also by December 2024, they will expect the same procedure in terms of Public Commission approval and securitization of the pending asset. Just to be very specific also, in relation with both power plants, in the case of the San Juan power plant, the $361 million is still pending asset value on some of the costs, will be securitized in 2022. It has been already approved. In the case of Four Corners, they expect to do the portion which is related to their financial stake also by 2024. I think in the case of what is called in the U.S., the completion remediation and what is actually called the reclamation liability.
Just to make very simple, in relation with the mine related to these assets, and as in most of the utilities that own coal assets in the U.S. In this case, for both assets, there is a liability, which is audited, reviewed, and updated. By the way, very updated as in the case of the nuclear very recently, with around EUR 140 million. Out of that, EUR 90 million have been already approved, sorry, expensed. The remaining EUR 40 million are included in the projections of the company that we have assumed. Very important, these are figures only for the above surface reclamation liability. Below surface, 100% will go through rates. I think with that, we wanted to give a very simple explanation about this. Also in relation with the stake in the nuclear facility, I think two comments here. They own a stake, 7.3% stake.
They also have 114 MW of leases. Those leases, they have announced they are selling them, and they will proceed to sell as well. I think the financial stake, there will be no issue with that. We are expecting the regulatory agency, federal one, the Nuclear Regulatory Commission, the NRC. Also on the decommissioning cost, the Supreme Court has also told the Public Commission that's something that has to be taken care of by rates. The decommissioning fund, which was updated because of El Paso transaction by JP Morgan Infrastructure, there is actually excess in funds in the decommissioning fund. I think with this, we just wanted to do a summary of the different things which we believe are important for this transaction in relation with Avangrid and Iberdrola. Thank you, Chairman, and please, Ignacio, I leave it to you.
Thank you, Pedro, our Corporate Development Director, by the way, who many of you already well know. As we told you previously, we are going to now deliver the set of questions regarding the result, and afterwards, we will go directly to the PNM deal. First question comes from Jorge Alonso, Societe Generale, and James Brand, Deutsche Bank. Could you give an update on the extraordinary tariff review in Brazil? What are the main measures you expect to be introduced?
I think in Brazil, certain measure has been introduced. I think they already pay, in our case, BRL 1,260 million of what they call Conta Covid, which is off balance, which I think is already in our balance sheet in this moment. We are in this moment negotiating an extraordinary review of the tariffs for compensating mainly the bad debt incurred as consequences of the confinement. I think the talks are going in a good line. I think what we are expecting is what has been done already in the past, many years ago when we have already the situation of ROE, in which they make already a regulatory asset, which we recognize in our accounts, and I think is paid across the years in the tariff. That is what we are talking.
I think in our case, I think the amount what we are looking, I don't know precisely, but I think is in line of few million of hundred of BRL. I think BRL 200 million, BRL 300 million. I think it's not a huge amount, but I think it's an important amount for Neoenergia.
Second question comes from Javier Suarez, Mediobanca, and Rob Pulleyn, Morgan Stanley, and is regarding the hydrogen. Which is the role that Iberdrola intends to play through the hydrogen value chains? Does management believe green hydrogen could accelerate the development of corporate PPAs in Europe as a new off-take route for renewables energies?
Well, I think hydrogen is just something which can be used for those areas which cannot be electrified. I think there are around 60% of the total industrial processes of transport, which is very difficult to electrify. I think that represent roughly 60% and represent roughly 18%, 20% of emission.
For those sectors is where the hydrogen has already a clear use. That's why I think the two main use in this moment, I think is for gasoline, for refining gasoline, which is already in the refineries, and in fertilizers as well there are another processes. It's going to come another one, which I think we can be used in the future. That's why our approach was to go straight for those areas. Today is the largest industrial consumer, which is fertilizers, the production of ammonia. Our target and objective is that the full ammonia production in Spain within the next few years will be full clean, full green.
I think for that, the first installation is using solar photovoltaic in Puertollano in the center of Spain, close to our solar planning site of the factory of Fertiberia for making already this electrolyzer for transforming the use of natural gas, what they are already using today for generation of hydrogen and polluting, emitting CO2 with this electrolyte one. In the next few days, we will present much ambitious plans. I think probably at the end of this week or beginning of this week, together with Fertiberia. The second area is another uses which can be already been applied, which is already heavy transport, which is already certain industrial processes, steel and other ones. We are working on that one. I think our initial approach is just to go where is today the uses and afterward to transform another uses and hydrogen instead of using fossil fuels.
That is the plan we have, we are already ambitious plan. I insist that represent roughly 60% of the processes which is very difficult to be electrified. I think our ambition continue electrifying as much as we can, hydrogen is a complement for that one.
Next question comes from Jorge Alonso, Societe Generale, is regarding the U.K. networks. Do you expect Ofgem proposal to improve on the back of the outcome for water companies? What improvements is Iberdrola proposing?
Well, I think I mentioned in my speech, we find CMA comments positive. I think it's no sense that for one side, the government is already saying that they would like to reach net zero, then they would like to electrify more the economy to make more ambitious plan in terms of electric vehicles, in terms of transforming industrial processing, more electrified. For another side, then the regulator diminishes the investment we are allowed to make for achieving the government targets and putting already a remuneration we may not attracted to invest one single penny. I think that what we are seeing from CMA is precisely the two directions. I think it's needed more investment if we would like to reach the objective. Second, it's needed to give already a much attractive returns, because if not, the money is going to flow.
That is what we are expecting. I think we have already conversation ongoing, either with the government, either with the regulator, we expect, as always, in Britain, the rationality will come again. I think something which is a contradiction. This contradiction probably is a misunderstanding, I'm sure that we will, at the end, through the discussion and negotiation, we reach a reasonable thing. We can already fix both things. For one side, the interest of the energy policy of the government, for another side, something which is reasonable either for consumers. I think the point that the Ofgem is proposing represent GBP 1 per customer per annum. It's peanuts. I think the interest of that one with the industrial interest of the country and the policy, energy policy of the government.
James Brand from Deutsche Bank and Fernando Garcia, Royal Bank of Canada, are asking about the Mexico developments. Have recent regulatory changes made you less keen to invest heavily in Mexico in the coming years?
I think as I used to say, we are not making the energy policy. The energy policy is being made by the government. If a government is welcoming investment in certain areas, I think we go. If the government is not welcoming the investment, we are not going to invest. I think we are in this moment in Mexico just completing the investment we started a few months ago, a few years ago, and we are not starting a new one unless the government decide that the policy will be clarified the policy. If the policy of the government is that they don't like that the foreign investor invest in the country, we are not going to invest. If the government would like that we invest, they make a necessary, reasonable framework, as we had already had up to now, we will go.
I think in any case, I think it represent very little in our total contribution, in our total balance sheet. The transaction we are already announcing today is almost the same size than our investment already in Mexico. I think roughly in Mexico, we have EUR 10 billion, and this transaction is EUR 8 billion or EUR 9 billion, so which is very similar.
From Deutsche Bank, James Brand is asking again, you have entered new markets with the acquisition of Infigen in Australia and offshore pipelines in Japan and Sweden. In the past, you have been very focused with the concentrated position in handful of countries. Do you see the renewables growth opportunity as requiring a more global approach? If so, why?
I think we have already a company quite well diversified. I think one thing is that we are focusing in the five or six main countries, but another one is that we are present in other ones. I think we are present in France, we are present in Germany, we are present in Greece, we are present in Hungary, we are present in many countries. I think Australia looks to us a country with a huge potential, and I think that's why we went there. I think we are in the front of energy revolution. I think we have been pioneers in this energy revolution for 20 years. When nobody believes that the electricity can be produced with clean sources, and everybody was thinking that coal will remain for centuries, and the oil and gas are absolutely needed for that one, we were already the only one.
We used the flag saying that we can already generate and produce electricity with clean sources. We have started our energy transition 20 years ago. I think in this moment, that is already happening in most geographies. We would like to benefit of our experience in countries, as has been mentioned before in that transition we make, with a stable, clear, and defined regulatory framework with good ratings for using our expertise and our knowledge. That is the case of Japan. I think we have an expertise in offshore. Why not use our expertise in offshore in a country which is not starting, still making any one? Same thing we did in the U.S. In U.S., we are the first mover in offshore. I think our Vineyard Wind is going to be the first largest offshore wind farm in the U.S.
I'll be delighted to hear the same thing as well in Japan or with Sweden because we've been, for the last 20 years, always ahead of the rest of competitors in moving in countries, geographies, and technologies.
Next question comes from Stefano Bezzato, Credit Suisse. Can you give an idea of the scope for increase in network investment in the context of the European Union Recovery Fund?
I think I mentioned before, I think the European Commission was standing that the reduction of the emission from 40%-55%, that represents something like increases of renewables up to 60%-65% of the total mix. For making that one, it will need something like 15% extra investment in networks. I think those were the numbers I have in my memory. I think certain, this ambition increased ambition in emission reduction means more ambition in terms of renewable target. If there are more renewables, I think is needed more networks. I think the number I have in mind with the European Commission is already announcing is on the range of 15% extra investment.
I think here, in the case of Spain, our association of network operator has already write letters to the government, I think in this line, that we will need to remove the cap we have in this moment of investment for being able to make the necessary investment the country require for making that happen.
Next question comes from Rob Pulleyn, Morgan Stanley. Does the effects and political events of 2020 drive a change in future capital allocation between emerging markets and developed ones?
Well, give me some possibilities of explaining those things on the 5 of November. I think certain that we are going to modify things, but on the 5 of November, we will provide you details where is our investment going to go in the next few years.
Next question from Stefano Vecchio, Credit Suisse. Can you anticipate a deterioration of the COVID impact in light of the tightening of measures we are currently experiencing in Europe?
We are always very prudent. I think in our outlook for the year-end, we've already introduced certain provisions that in our account, thinking that it did happen, so how that is going to affect to our P&L. I think the provision, if my memory doesn't fail, Pepe, is that something in between the damage we have already suffered in the second quarter was something like EUR 150 million, the damage we suffer in the third quarter was in the range of EUR 50 million. Something in between has been already put it in our account. I think we are already making this provision already because the things can already happen. What we are seeing is that the situation being already not very positive in terms of confinement is not as hard as it was already in the second quarter.
I think our estimate looks for the time being reasonable.
Next question comes from Javier Garrido, JP Morgan, as probably is related to Pepe answer. Would your FFO over net debt ratio change if you use the methodology of the rating agencies? How much? What is the minimum level to keep your rating, Pepe?
Well, yes. Normally, the different rating agencies adjust the ratio that we provide according to other, I would say, possible liabilities, which is not there.
Yes. They typically, rating agencies, they don't use the same methodology, but they make some adjustment for future liabilities, which are not debt. As for example, pensions. So typically, the impact of that from what we have to what they normally get is between two and three percentage points. Obviously, we monitor the ratings or the levels that the rating agencies use, and we maintain more or less according to the ratings, the ratios that are enough to maintain our credit rating. So today, the 21.9%, for example, that we are publishing is around 19% according to the S&P methodology and slightly less with Moody's. To maintain a BBB+ rating in S&P and the Baa1 for Moody's, you need to have an around 18% ratio of FFO over net debt. So right now we are above that ratio.
As I say, we monitor not only the ratios that we provide, but also the adjustments that rating agencies do to the ratios.
Next question comes from Jorge Alonso, Societe Generale. What would be the rationale for the government to make renewable auctions if many players are developing them directly and looking at the pipelines to the PNIEC targets will easily be achieved?
Well, I think I agree with you. I'm not seeing very many rationale. I was explaining to everybody, if there are not already anybody which is able to deliver what is already expected in the plan, and the government have to take the necessary action for that one. Being so much people ready to invest, I'm not seeing what is the need of this auction. I think that is, as I mentioned before, the energy policy is made by government and we respect the policy that the government is making. I'm not seeing the needs of making those things.
I think there are many people ready to put their money, and I think the question is negotiating with the customers, as we did another day with HEINEKEN, then we reach an agreement with them for providing the electricity generated in one of our plant we inaugurate a couple of weeks ago. I think it's energy policy made by politician, the government, and we respect what they are making. I don't see the need is needed at all.
Jorge Guimaraes, JB Capital Markets. He's asking about the impact of the temporary suspension of a plant in Mexico mentioned in the presentation. Is it already back online?
Well, I think we have not any suspension as far as I know, Paco, no?
I think he's referring to the fifth unit of Monterrey that had a problem and has been shut down for several months.
Yeah.
Now it's back online, there was a rubbing problem in the mechanical assembly of GE, of General Electric, now it's back online since several months, the effect could be around a few thousands of U.S. dollars.
The last three question, the first one is coming from Fernando Garcia, Royal Bank of Canada. Is it possible to detail the U.K. client acquisitions mentioned in the call by the CEO, namely client number and costs?
I think the numbers, if I don't remember bad, is in the range of 250,000 customers. In terms of, as far as I know, the acquisition cost is lower than the average acquisition cost we have for the standard one. Which I think is something which is as reasonable in terms of what is the cost of our acquisition. That it seems, what I understood, that is lower than the average of our acquisition cost, and the number is 250,000 customers.
Javier Garrido, JP Morgan, is asking about Avangrid's results. His test is Avangrid has missed again expectation under US GAAP and has lowered materially the 2020 guidance. What action is the new management taking to address this underperformance?
I think they will explain those things as well. I think what we've been reported another day in the board, the first thing is the new CEO is already stand only for 2.5 months. I think he's landed. I think there are certain things which is already affecting. It's affecting the storms, where they have already been suffering. The delay of this rate case even is going to be retracted. I think they cannot account yet. The availability, the good results in certain area has not been as good as they were expecting. Certain delays on the construction of the wind farms. I think he's already working hard, I have to say. He's working hard to improve the rate cases, has already succeeded in a short time already for starting the construction of this transmission line with Canada.
The availability of the wind fleet is already going well. Last night was presented the offer for the new offshore wind farm for New York, and we hope that it will happen. I think it's working, and I think there are certain external things, but he will comment more in detail in his presentation of result. I think what I can tell you as far as ourselves as investors concerned, is that he is already taking the drive of the company for making already much predictable and avoiding this situation as much as he can, because I think if they are in a storm, it's in the storm, and the storm is the storm, and has already impact. It's recover afterwards, but I think in the short- term, it's already been affecting.
Last questions regarding the results is coming from Stefano Bezzato, Credit Suisse, and Sam Arie, UBS. Given the scope for increasing investment and the step up in M&A, do you see the need to raise cash via a capital increase in order to keep your commitment of maintaining financial strength?
We will comment all those things to you on the Investor day, but I think what we were mentioning, the level of investment we are making today, we are more than able to finance with our cash flow and with the level of liquidity we have in the company. I think we are already rising some hybrids. I think today, Pepe can already mention we are already launching a new hybrid for funding already the company. We will comment to you, but it's not in our mind to make an increase in share capital for the time being at all.
Okay, now we are moving towards the deal questions. The first one comes from Alberto Gandolfi, Goldman Sachs, Rob Pulleyn, Morgan Stanley, Javier Suarez, Mediobanca, Fernando Garcia, Royal Bank of Canada, Pierre-Marie Gerez, Eleva Capital, and Jose Javier Ruiz of Barclays. How do you plan to finance the acquisition of PNM? If preferred option is with net debt, can you elaborate on your net debt to EBITDA position at the group level? Could a capital increase be considered, diluted our position, perhaps?
I think, Pedro, you can already reply that one, but I think it was explained. Our plan is that we will already propose an increase in share capital of Avangrid for that one. Iberdrola is ready to subscribe at least our 81%. I think that is the most thing. I think if you would like to complete anything, Pedro, you can say. The thing is, an increase in share capital of Avangrid for funding that one, then Iberdrola will subscribe.
I think you have explained that very well. I think, first of all, in relation with the transaction, when you announce a deal, you need to prove, in this case, to PNM, that you have the money at Avangrid. The way we have done so to avoid bridge financing costs, things like that, it has been Iberdrola sending a funds commitment letter to Avangrid. They are fine. I think when the time comes, as the Chairman has said, I think for the purposes of the case, some additional debt may be raised in Avangrid, but also definitely, they will have to do a capital increase in due course. As the Chairman said, I think our intention is to keep the 81.5%. In the case of Iberdrola, I think we have, as it was mentioned, EUR 14 billion line credits
As the chairman mentioned, we are considering hybrids and other potential financings as well in debt, et cetera. From that point of view, I think it's well taken care of.
Next question comes from Javier Garrido, J.P. Morgan. It is related to the model, Pedro. How do you calculate the 3% accretion to EPS from the PNM deal?
Pedro?
Do you use 2019 figures? Which is the cost of financing you use?
Okay. I think for the accretion dilution, we are using 2022 and 2023 figures. I think because of Avangrid and Iberdrola in November 5 releasing new guidance. I think we're not providing right now those numbers, underlying numbers, under which we're calculating them. Really it doesn't matter, more to us, from a transaction point of view. Even if we use the existing plan that as of today we have, or if we use the new plan that it will be explained by the chairman on November 5th, I think in both scenarios it is accretive. It's very simple. For EBITDA purposes, very simple to account for that.
For net income basis, I think we are assuming right now in the base case that Avangrid is issuing EUR 700 million of debt at the same average cost that the company is holding right now, and the rest will be done through a capital increase. That's how we do get to the accretion dilution. In the case of adjustments, I think we're assuming some enhancement in the PTC treatments and NOLs, very conservative. Probably we're speaking about around EUR 20 million related to that, of enhancement in those earnings, and that's it. I think the case of Iberdrola, to be very conservative in the accretion dilution as well, we could have used the 100% debt finance at Iberdrola level. We're not. I think the base case we're doing for the contribution of, let's say, for example, EUR 3.2 billion capital increase in Avangrid required.
The 81.5% we have done for the purposes of the 3%, at more than 3% accretion, 100% hybrid. If you were to use debt, it would be much more accretive, of course.
Javier Garrido is asking, why using cash for the transaction when you have a listed currency in Avangrid?
Pedro, you can already comment as well.
We agree, and the chairman knows very well this. We like to do share transactions. We also do cash deals. We did Energy East in cash, and we very quickly did a capital increase. We did Elektro in cash, but we did also shares in ScottishPower, and we did shares recently as well with UIL. In this case, there has been already for some time material potential leaks of the deal we were working on. Because of that, we needed to move into announcing a deal right now. We couldn't give shares today, under the existing guidance that we have of earnings, and then on November 5th, changing those earnings.
From that point of view, much simpler and quicker, if we wanted to accommodate to the timetable we needed, it was to do an all-cash deal, as it's not such a material transaction for the group. That's the reason.
I think it's good, the question. I think it's almost was everything prepared for making with shares and cash, and I think we decide in the last minute to make for the reason Pedro's announcing, to pass to all cash, for avoiding leakage and for already avoiding whatever question can be passed already taking our investor day as close as it's going to be. I think our policy is not changed on that one. I think we are ready to make deals with shares because I think it's true, and we have already a unique currency for making this sort of transaction. That is not very large, and I think it's made, but I think certainly in the future, we make anything large, we will use our shares as currency. The policy is no change.
We have now a question from Javier Suarez, Mediobanca, and Jorge Guimaraes, JB Capital Markets, related to something that you have already explained, but if you can detail again, it's worthy for them. It's regarding the installed capacity of PNM in gas, coal, and nuclear. What do you plan to do with conventional generation? Can you elaborate on the commissioning plans and progressive substitution? Why acquiring thermal generation in the U.S. instead of using those funds in renewable organic growth? Something regarding the installed capacity of PNM.
Okay. Very quickly, first of all, let's remind everybody that is regulated generation. We're not buying merchant generation in the U.S. This is regulated generation, so rate base. Out of the 2,800 MW, 2,087 are in rate base, so therefore regulated as T&D. You get return on equity on that, and you get that. I think out of that, we have solar, 157 in rate base, and then we have the stake in nuclear, and then we have the coal facilities. I think the coal facility, as we explained, to be shut down in 2022. Let's not forget that 2022 will be the first year of full consolidation. Therefore, by the end of that year, we will have no control of any coal asset.
I think gas generation, as you know, gas generation in the U.S., I cannot think of almost any utility that doesn't have gas generation. In this case, it's 800 MW of regulated gas generation and 158 of PPAs. In the case of the wind, 356 MW is what basically they call a contracted output included in rates, and therefore, they do not own the asset. The same thing, for 15 MW coming out of the geothermal. In the case of solar, there is another 130 MW they have contracted the output also through rates. In that case, 50% of that is owned. That's the reason why we don't see this as moving at all into the conventional generation. In the case of coal generation, I think we have explained very clearly that by 2022, the only asset control will be shut down.
I think also, I think the fact that we merge, if we offer the guarantee, that coal will be shut down. I think we can really guarantee that it will be shut down by 2022, as soon as we land it in the company.
Next question come from Alberto Gandolfi, Goldman Sachs, and Fernando Garcia, Royal Bank of Canada. Can you talk about CapEx and growth outlook for PNM? Bloomberg Consensus has more than $20 million net income for 2021 and $700 million EBITDA. Can growth be so strong versus 2019?
Pedro?
Yes. Thank you, Chairman. In relation with the CapEx, I think our estimates right now, and we are working 2021- 2024. I'm going to focus on 2022- 2024. I think we're speaking roughly around $700 million of CapEx per year. Just to get a feeling, I would say, in terms of the New Mexico and Texas numbers out of that is almost 90%. 90% of that figure is going to be T&D. We have not put in the projections for that period anything at all about additional renewable opportunity. However, the governor in New Mexico has been named this year the greenest governor in the country. You have heard, we are already there in green energy doing assets.
They are our system transmission operator for the energy being transferred from New Mexico into California in one of our assets, and therefore, those in excess of 600 MW that we know they have identified already. I think they are very clear in the messages. They don't have money, and they don't have the skills to develop, operate, build those assets. Seems to us that's an additional pipeline that we have there that I'm sure working with the governor and the public commission will be able to give it a push in the upcoming years.
Next question comes from Javier Suarez, Mediobanca; Jorge Guimaraes, JB Capital Markets; Rob Pulleyn, Morgan Stanley, and Sam Arie, UBS, and has a double component. One, it is, which are the operational synergies between Avangrid and PNM? The second one is more strategic. Why does the company feel they need to go into a corporate deal with opportunities for organic growth already look like very significant?
Our strategy remain. The organic opportunities in distribution is none. We are the only one is on the distribution companies we hold, and we are increasing our investment in New York, in Maine, in Connecticut, but that's far for our ambition. To have the opportunity of jumping with a regulated asset base of $4 billion. It's a unique opportunity in a base of something which is already been accretive from the day one, which already offer opportunities of growth as well, not only in the regulated area, which as Pedro was mentioning, that the plans of investment on this company, but as well in non-regulated areas.
I think I mentioned that we have altogether between what we have in pipeline plus what they have in pipeline, I think we have already close to 2,000 MW that can much easily been already transformed in a real power plant that we are already not physically present in the area. I think our ambition is growing and I think growing healthy, and I think that is a transition offering. I think it's regulated, it's accretive. We can already finance easily and offer growth opportunities either in the line of regulated networks and transmission and distribution or in the area of renewables, and that is the deal. As well in the states which are well-known for us. We are not discovering in a state we've never been. I think we have presence in Texas, in New Mexico in many years.
I was mentioning, among others, myself personally, I was 15 years ago, 18 years ago, with Prince Felipe for inauguration of the chair of the University of New Mexico about advanced computing. We've been already sharing students, Americans and Spanish students, to the Albuquerque University for these 15 years. We have already had for many years, I think with Palo Verde, Paco, you've been already involved with that one nuclear power plant. We have already just with them as well. I think it's in the state which is well-known.
I think we have already a lot of links with them, and I think that we go to a state where we're known, with people who we know, with even PNM, as Pedro mentioned, is our supplier of transmission for some of our wind farm in New Mexico, where we are exporting the electricity to Texas. This to Texas to California. I think that fits absolutely and is absolutely current with our strategy for 20 years. Growing in regulated business, growing in renewables, accretive, and I think it's already maintaining our financial solidity in geographical areas where it has growth and are well-known. That fits all.
Next question comes from Andrew Moulder, CreditSights. PNM is an $8.5 billion enterprise value transaction. Do you expect to have to take any mitigating measures to maintain your current rating levels?
I think on that one, Chairman. In relation to credit, two things. We have been analyzing again with the approaches, as we mentioned, of a base case financing for Avangrid. What we have heard from the rating agencies as a feedback is, the ratios are not materially impacted at all because of the transaction. I put aside the strategic plan that we will comment on November 5th. I think it's also clear that the profile of the new company is better than before because of the increase of regulated activities. From that point of view, I think that's the feedback we have achieved.
Next question comes from Michael Charlton, Santander. Moody's has indicated that the Avangrid PNM Resources transaction would increase the structural subordination at the Iberdrola HoldC o level. How will this issue be addressed to avoid the risk of a downgrade of the HoldC o bonds?
As far as I know, we are going to make already an increase in share capital. I think if we increase in share capital, it's not at all.
No, he's mentioned to Iberdrola.
Iberdrola.
I could say that it is true, Michael, that the structural subordination increased with this deal. On November 5th, we will come with measures to reduce structurally this situation and to avoid that the plan will include this increase that they mentioned at this moment, the rating agencies. On November 5th, Pepe will come with this situation.
Next question regarding Sam Arie, UBS. Are there incremental growth opportunities after this merger?
I think we have already replied. I think it's certain, it's increased opportunities in the area of transmission and distribution in the new states. I think in the new cases, we will participate as well in these state objectives of decarbonization and electrification. I think that will require more investment in networks, in transmission. Second, we will accelerate the construction of the pipeline we have already in both states. Which I think that in both cases, I think it's positive in terms of growth.
Next question, the last one, comes from Jorge Guimaraes, JB Capital Markets, and Jose Javier Ruiz, Barclays. Should we assume that this acquisition means that there will be no acquisition in the U.K.?
I think as far as I know, we are already not taking any decision related to U.K. I think for the time being, we are more than concentrated in what we have today. I think we have the investor day on the fifth, and we will explain to you what is our organic expectation, including this one, because we'll consider just organic one it's already been done. I think that will be our plan. Our ambition in organic is so huge that we don't require already further investment on that one. I think you will see all those things in our Investor Day. Certainly, we are not already in this moment very fond to do anything in Britain more than those things that we are making in this moment in an organic manner.
Okay. After one hour and a half with this event, it's time to end with it. Please let me now give the floor to Mr. Galán to conclude with the day.
Thank you very much for taking part in this conference call. As always, Ignacio and his team of investor relations will provide you if you require further information. Well, we hope to meet you again on November 5th on our Capital Market Day. In the meantime, probably in the next few days, we will announce something as well related to hydrogen, that we will make public our plans with Fertiberia. Thank you very much, and see you on the 5th of November. Thank you.