Duke Energy (NYSE:DUK) is one of the largest electric utilities in the US along with American Electric Power Company (NYSE:AEP), Exelon Energy Corp, Allegheny Energy (NYSE:AYE) and Progress Energy (NYSE:PGN). Duke Energy has approximately 35,000 megawatts of electric generating capacity in the Carolinas and the Midwest, as well as natural gas distribution services in Ohio and Kentucky.
Even though the firm operates in external markets, the majority of the value for the company comes from the US Franchised Electric & Gas segment. This segment alone contributes nearly 80% of our estimated $17.96 stock value for Duke Energy, which stands roughly in line with market value.
As of 2009, Duke’s US Franchised Electric & Gas segment provided electricity services to nearly 4 million residential, commercial and industrial customers.
We Project Improvement in Energy Demand per Customer…
During the economic downturn between 2008 and 2009, demand for electricity fell sharply, especially from industrial users as they cut back on production. Duke Energy’s total electricity sales, measured in gigawatt hours (GWh), to industrial customers fell by around 6% in 2008 and 15% in 2009, but sales to residential and commercial customers remained relatively stable.  
Going forward, we expect the megawatt hours (MWh) per customer, which reflects demand for electricity, for Duke Energy’s US Franchised Electric & Gas segment to increase as it expands and adds more residential and commercial customers. However, lower sales to industrial customers can pose a headwind to recorded MWh per customer. This metric decreased from around 38 MWh per customer in 2007 to 34 MWh per customer in 2009, although the number of customers increased from 3.95 million to 4 million during this period.
Drag the trend-lines in the charts below to see how various MWh per customer and total customer scenarios might impact Duke Energy’s stock value.
… But Lower Industrial Demand Growth Could Produce 10% Downside
In its Annual Energy Outlook, the EIA, expects demand for electricity by industrial users to increase by only 3% between 2008 and 2035, while residential and commercial demand could increase by 42% and 24% respectively.  The lower demand growth from industrial users can provide a downside to our MWh per customer estimates for Duke Energy’s US Franchised Electric & Gas segment.
We forecast an increase in MWh per customer from around 34 MWh in 2009 to around 40 MWh by 2017. However, if this metric only reaches 38 MWh by the end of our forecast period, it would present 10% downside to our $17.96 price estimate for Duke stock.