Morningstar | Management Meeting: Duke Energy's Atlantic Coast Pipeline Investor Focus a Key to Earnings Growth
We are reaffirming our $87 per share fair value estimate, narrow moat, and stable moat trend for Duke Energy after meeting with management at the Edison Electric Institute Financial Conference in San Francisco.Management's recent announcement noting the increasing costs and delay at Atlantic Coast Pipeline remains a concern, as the investment is key to our five-year 5% earnings growth forecast. Costs for the Atlantic Coast Pipeline, or ACP, increased from $6.5 billion to $7.0 billion. Duke and majority partner Dominion will now pursue a phased-in service with the pipeline in full operation by mid-2020. We don't expect the delay to have a material impact on our fair value estimate as we had already assumed a ramp-up in capacity for the line, rather than full capacity in late 2019.
Duke noted it has gone back to its ACP partners for revenue increases for previous cost increases and has contract provisions in place ensuring utility-like returns. This provides us comfort that returns will remain within our expectations, supporting our growth forecast. Most major permits have been received, and construction is taking place in numerous regions. We also see significant long-term growth opportunities from a completed ACP, so near-term struggles such as working through numerous permits and legal challenges we think will payoff for investors long term.
Recently, Duke Energy Carolinas and Duke Energy Progress requested revenue increases of $168 million and $59 million, respectively, with allowed returns on equity of 10.5% and a 53% equity component. We expect a ruling in line with Duke Energy's recent rate case rulings in North Carolina, which allowed for a 9.9% allowed return on equity, slightly above the peer average. The recent rate case outcomes support our view that the Carolinas will continue to be an average regulatory jurisdiction providing support for the company's capital plan.
Duke Energy is a holding company. Through its subsidiaries, the company operates as an energy company. The company's segments include: Electric Utilities and Infrastructure, which provides retail electric service through the generation, transmission, distribution and sale of electricity to customers within the Southeast and Midwest regions of the United States; Gas Utilities and Infrastructure, which conducts natural gas operations, as well as owns, operates and has investments in various pipeline transmission and natural gas storage facilities; and Commercial Renewables, which acquires, develops, builds, operates and owns wind and solar renewable generation throughout the continental United States.
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