EUR 850.00 For Business Accounts Only

Morningstar | North Carolina in Focus for Duke in 2019

Duke Energy is one of the largest regulated utilities by market cap in the United States. Duke operates in mostly constructive regulatory regions, particularly in Florida, which allows it to recover costs in a timely fashion through supportive regulatory outcomes. In 2019-23, we anticipate annual capital expenditures to average $8 billion. The company's highly visible capital program focuses on grid modernization, renewable energy, natural gas infrastructure investments and environmental remediation. In North Carolina, Duke's largest service territory, proposed legislation would improve the state's regulatory framework. Key parts of the legislation would allow regulators to consider multiyear rate plans, bands for allowed returns on equity, and storm cost securitization. We view North Carolina's current regulatory framework average at best. North Carolina environmental officials recently ordered Duke to excavate all low-priority coal ash basins in the state. Duke estimates this could increase state coal ash basin costs by $4 billion-$5 billion over decades.South Carolina has taken a tougher stance with utilities. State regulators' recent directives were concerning. A lower 9.5% allowed return on equity would reduce rates despite a higher 53% allowed equity. The allowed ROE would be one of the lowest in the United States. A less constructive regulatory environment could lead management to direct capital investment to its other utilities.Key to our long-term growth expectations is successful completion of the Atlantic Coast Pipeline, or ACP. The ACP partners--Duke, Dominion Energy, and Southern--are working to address environmental concerns and orders, which we think could push back the completion date or raise costs.We continue to believe the project will be completed, given the economic benefits it will bring to the region through lower gas prices. If costs do rise, we expect the ACP partners will be able to adjust pipeline capacity contracts to recover the additional environmental costs. However, we also expect regulators could consider lower allowed returns to offset the rising costs. Lower returns would lower our fair value estimates.