After A 98% Drop In Segment Revenue Growth, What’s The Importance Of Gas Utilities For Duke Energy?

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Duke Energy

Gas Utilities and Infrastructure was the fastest growing revenue segment for Duke Energy (NYSE: DUK) over the last two years. While Duke’s total revenue (shows Duke Energy’s key revenue components) increased by $1.78 billion between 2016 and 2018, gas utilities saw its revenues rise by $0.97 billion during the same time, contributing about 55% of the revenue increase over the last two years. Gas Utilities revenue more than doubled during this period due to the Piedmont acquisition. Can Gas Utilities continue to increase its significance in the near future? To better understand this, please refer to the Trefis interactive dashboard – How Important Is Gas Utilities & Infrastructure Segment For Duke Energy?

Division Overview

What is on Offer?

  • The Gas Utilities and Infrastructure division comprises of natural gas based power generation, transmission and distribution conducted through the regulated public utilities of Piedmont and Duke Energy Ohio.
  • The division has over 1.6 million customers, including more than 1.1 million customers located in North Carolina, South Carolina and Tennessee, and an additional 531,000 customers located within southwestern Ohio and northern Kentucky.
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Who is Paying?

  • Customers include residential, commercial, industrial and power generation natural gas customers, including customers served by municipalities who are wholesale customers.


  • Some of the division’s competitors include: American Electric Power Company, Exelon Energy Corp, and Allegheny Energy.

Segment Revenue Trend

  • Gas Utilities’ revenue doubled in 2017 to $1.8 billion from $0.9 billion in 2016, mainly reflecting the acquisition of Piedmont which serves around a million customers.
  • Segment revenue growth rate dropped from 103% in 2017 to 2.3% in 2018, due to a very high base effect.
  • However, in absolute terms, revenue increased due to higher natural gas costs passed through to customers, as a result of higher volumes sold which was driven primarily by weather, and higher natural gas prices.
  • The gas utilities segment is expected to improve its performance and add about $0.5 billion to its revenue base by 2020 following the grid modernization and improvement initiatives of the company.

Revenue Share

  • Share of gas utilities in DUK’s total revenue increased sharply from 4% in 2016 to 7.8% (due to the significant rise in revenue as explained above), before dropping marginally to 7.6% in 2018, mainly due to healthy growth in the electric utilities’ division.
  • However, with revenue growth expected to improve in 2019 and 2020 due to grid modernization initiatives and rising industrial customers, the segment’s revenue share is likely to increase from 7.6% in 2018 to over 9% by 2020.
  • The increase would mainly be at the cost of decline in the share of electric utilities.

To understand the business and significance of the electric utilities division, please refer to the Trefis analysis- How Important Is Electric Utilities & Infrastructure Segment For Duke Energy?

Segment Profitability

  • Despite higher revenue, Gas Utilities lost around $73 million in operating income in 2018, mainly due to higher natural gas costs, increase in operations, maintenance, and other expense, increase in costs to achieve merger expenses and a pension settlement charge at Piedmont, and higher depreciation and amortization expense due to additional plant in service and higher amortization of software costs.
  • However, the segment’s operating income margin has historically been higher than the company’s margins, due to higher expense levels in the renewables division.
  • Segment as well as Duke’s operating income margins are expected to decline further in the near term, due to a continued greater rise in expense level in spite of revenue growth.
  • However, gas utilities will continue to outperform Duke Energy as a whole, with greater operating margins, which would in turn prove to be a saving grace for the company from its loss-making renewables segment.


  • Thus, with slower pick-up in renewables and electric utilities having already matured as a business segment, Gas Utilities is expected to be the company’s fastest growing business division over the next 2 years, with revenue growth ranging between 10%-15%.
  • Additionally, the segment also holds significance, as it offsets losses in the renewables business by reporting higher margins compared to the company.
  • Therefore, one of the primary factors for the company to report a healthy revenue growth rate, improved profitability, enhanced shareholder returns, and elevated stock price, is a solid and sustained performance in the Gas Utilities and Infrastructure division.

As per Duke Energy Valuation by Trefis, we have a price estimate of $95 per share for DUK’s stock.


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