Morningstar - Q1 2020 - 27

63
86

75

30
50

61

63

75
70

86
50

39

37
14

EXHIBIT 2

70

50

50
25

50

0

39
37 Power generation
Dominion
a key ESG risk for
utilities.25
NegligibleCuts Carbon
Low
Mediumemissions isHigh
Severe
14
0
Wide-moat
Dominion Energy has significantly cut its carbon emissions.

Negligible

Low

Medium

High

CO2 Emissions (Million Metric Tons)
80
CO2 Emissions (Million Metric Tons)
60
54

60
40

CO2 Emissions Intensity (Metric Tons/Net MWh)
71

80

Severe

0.8
6.0
CO2 Emissions Intensity (Metric Tons/Net MWh)
0.8

6.0

0.6

71

44

54

44

40

0.6
0.4

40

40

Natural Gas
Nuclear
Coal
Renewables Conventional Hydro and Oil
Coal 12
Natural Gas
Nuclear
3
100%
Renewables
Hydro and Oil
2
21 Conventional
11
3
100%
12
75
2
21
29
11
36
75
50
29
36
38

0.4
20

0.2

20 0
0

EXHIBIT 3

Cleaner Energy Push Dominion plans to
invest more in sustainable energy such as
renewables and less in coal.

0.2 0
2000

2005

2015

2017

Source: Company reports.

2000
2005
% Oﬀshore Wind in Orsted's EBITDA
% E&P in Orsted's EBITDA
%
Oﬀshore
Wind in Orsted's EBITDA
100
%
E&P
in
Orsted's
EBITDA
neglects these risks,
it could be saddled with

100 stranded assets that would hurt its balance
75
sheet, reduce dividend growth, or, worse, lead to
a
75 dividend cut.
50

Dominion Energy
25
Dominion is a power and energy company based
in Richmond, Va. Dominion's plan to improve
25 0its environmental footprint and the safety of its
2014
2015
2016
0 vast energy network contributes to its wide
economic
2014moat and its ability
2015 to pay a secure
2016and
growing dividend.
50

Its plan, however, isn't just a mad dash to retire
fossil fuel power plants. A utility must create
a strategy to address its entire network while
minimizing the impact on customer rates
and the local economy. Dominion stands out as
an example of how a utility can pursue this
transformation while producing benefits for all
stakeholders. We expect Dominion to invest
$35 billion through 2023, helping deliver what we
estimate will be 7% annual operating earnings
growth and high-single-digit annual returns for
investors over the next five years.
Power generation emissions is a key risk.
Systemwide, Dominion has cut carbon emissions
intensity more than 40% since 2000 ( E X H I BI T 2 )
while serving growing electricity demand. In

2015

0

38

2017

2017

48
48
2030E

50
25

0

2030E

Source: Company reports.

2017

Orsted's ROIC
30%
Orsted's
ROIC
Virginia, its largest service territory,
Dominion's
88
new natural gas plants emit less than 50% 30%
as much carbon dioxide as the older coal88plants 15
they replaced. Dominion worked with state
815
politicians and regulators to ensure that investors
earned fair returns while minimizing the
0
8
impact on customer rates.
0
0 -15
Retiring
coal
plants
is
just
one
part
of
Dominion's
2017
2018
2019
strategic pivot since 2010. The company also
0 -15
has
developed new2018
wide-moat projects,
2017
2019 exited oil
and gas exploration and production, and sold
no-moat businesses.
The state of Virginia continues to push further into
clean energy and sustainability initiatives such
as solar energy, cybersecurity, and burying at-risk
above-ground distribution systems. In response,
Dominion plans to increase its investment in
these initiatives and reduce its investment in large
fossil fuel plants ( EXHIB IT 3 ). Most recently,
Virginia regulators and politicians are supporting
Dominion's investments in renewable energy,
including offshore wind, and energy efficiency.
This partnership between Dominion, policymakers,
and customers supports earnings and dividend
growth for investors.
Managing other environmental risks, such as coal
ash disposal and nuclear safety, also makes

Dominion's balance sheet and dividend
more secure. Several devastating coal ash spills
involving other utilities prompted Virginia to
compensate Dominion for the $3 billion it would
cost to remove much of its coal ash in the
state. At Dominion's four nuclear plants, a safety
incident would be devastating for investors,
but we think that probability is very low.
Dominion and the U.S. nuclear industry have an
outstanding safety record, in part due to
extensive regulation. However, accidents can have
severe consequences for investors. After the
partial meltdown at Pennsylvania's Three Mile
Island plant in 1979, then-plant owner
General Public Utilities was forced to suspend
its dividend for eight years.
Orsted
The global push to reduce impacts on
the environment also has created opportunities
for companies to develop and widen their
economic moats. Danish utility Orsted is the global
leader in offshore wind, with 88% of its profits
coming from this business ( EXHIBIT 4 ).
This unique business profile underpins the firm's
narrow moat rating. Offshore wind is highly
subsidized and provides high visibility on future
earnings and returns. Solid returns are achieved by
Orsted's best-in-class construction capabilities.

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