D Dominion Energy
Data-center rate-base growth is real, but ROE near cost of equity limits upside beyond book.
The story
Dominion is now a pure-play regulated utility focused on Virginia and the Carolinas. Its main growth driver is Northern Virginia data-center load, which supports a very large rate-base capex plan (including offshore wind, CVOW). Returns are capped by allowed ROEs of about 9.7-9.9%, and the balance sheet carries heavy holdco debt and equity-issuance needs. Trailing ROE of 10.5% benefits from weather and rider timing, so it is not a new normalized level.
ROE moves up slightly from 9.8% to 9.9% because the trailing 10.5% and a supportive Virginia biennial review show earned returns tracking allowed returns more closely, but it stays anchored to the regulatory cap. Book growth of about 7% reflects rate-base expansion funded partly with new equity, fading to 4.5%, below the 5.24% risk-free rate. Beta and failure risk are unchanged: this is a regulated monopoly, though leverage is high.
Value drivers
| Return on equity (normalized) | 9.9% |
| Book-value growth (Y1) | 7.0% |
| Terminal book growth | 4.5% |
| Beta | 0.60 |
| Failure probability | 0.4% |
| Cost of equity | 7.9% |
Valuation bridge
| PV of excess returns | 4.76B |
| PV of terminal excess | 12.78B |
| Equity value | 45.44B |
| ÷ shares → per share | $51.67 |
Projected excess returns on equity
| Yr | Book equity | ROE | Excess return | PV |
|---|---|---|---|---|
| 1 | 28.09B | 9.9% | 550.60M | 510.10M |
| 2 | 30.06B | 9.9% | 589.15M | 505.66M |
| 3 | 32.08B | 9.9% | 628.71M | 499.92M |
| 4 | 34.14B | 9.9% | 669.14M | 492.93M |
| 5 | 36.24B | 9.9% | 710.27M | 484.74M |
| 6 | 38.36B | 9.9% | 751.91M | 475.41M |
| 7 | 40.50B | 9.9% | 793.85M | 465.01M |
| 8 | 42.65B | 9.9% | 835.87M | 453.61M |
| 9 | 44.78B | 9.9% | 877.74M | 441.29M |
| 10 | 46.90B | 9.9% | 919.21M | 428.14M |
Key risks
- CVOW cost overruns or disallowances hitting book equity
- Political pushback on data-center cost allocation compressing allowed ROE
- Higher-for-longer rates raising cost of equity above allowed returns, plus dilutive equity issuance
Catalysts
- Signed data-center contracts converting into approved rate-base additions
- CVOW reaching full commercial operation on budget