Dominion Energy: Powering Growth Through Data Centers and Regulatory Tailwinds

Dominion Energy (NYSE: D), a utilities giant rooted in Virginia's booming data center ecosystem, is positioning itself as a beneficiary of two converging trends: the insatiable electricity demand from cloud infrastructure and regulatory support for grid modernization. As data centers—now the linchpin of AI, cryptocurrency, and cloud computing—consume ever more power, Dominion's strategic investments in transmission, renewables, and rate structures are creating a compelling case for dividend growth and valuation upside.

The Data Center Demand Surge: A Tailwind for Dominion

Virginia has become the global epicenter of data center construction, with Northern Virginia now hosting more server capacity than the next four largest markets combined. Dominion Energy's infrastructure is uniquely positioned to capitalize on this:

• Capacity Growth: Dominion connected 15 data centers in 2024, totaling 1,000 MW of power demand, and plans to add 15 more in 2025. Contracts already inked could double Virginia's data center capacity to 5.34 GW by 2028.
• Regulatory Backing: The Virginia State Corporation Commission (SCC) has approved rate increases and transmission projects critical to funding grid upgrades. In March 2025, Dominion secured SCC approval for a $631 million rate hike, with another $278 million allocated to grid hardening.

Dividend Stability in a High-Growth Sector

Utilities are often seen as defensive plays, but Dominion's dividend growth potential stands out. The company has raised its dividend annually for 17 consecutive years, and its 2025 operating EPS guidance of $3.28–$3.52 per share—up from $2.77 in 2024—supports further increases. Key factors:

1. Regulated Earnings Model: Dominion's core business—regulated electricity and gas services in Virginia, North Carolina, and South Carolina—provides stable cash flow.
2. Rate Case Wins: The SCC's approval of rate hikes ensures that infrastructure investments are recoverable, shielding dividends from volatility.
3. Long-Term Contracts: Data center customers' long-term Electric Service Agreements (ESAs) reduce revenue uncertainty, a critical advantage in capital-intensive projects.

Valuation: Undervalued Relative to Growth Prospects

Dominion's stock trades at 18x its 2025 EPS midpoint of $3.40, a discount to its 5-year average P/E of 20.5. This undervaluation may reflect near-term execution risks (e.g., regulatory hearings on its IRP and transmission projects), but the long-term story is compelling:

• Cost Allocation: New rate structures targeting high-demand data centers (≥25 MW) ensure that infrastructure costs are borne by the sector benefiting most, not residential customers.
• Renewables Play: Its $10 billion offshore wind project and solar investments align with Virginia's clean energy mandates, reducing regulatory risk and attracting ESG-conscious investors.

Risks to Consider

• Regulatory Delays: SCC hearings on Dominion's IRP and rate cases could result in lower-than-expected returns if cost recovery is restricted.
• Project Overruns: The Coastal Virginia Offshore Wind project's $103M write-off in 2024 highlights execution risks in large-scale infrastructure.
• Grid Constraints: Ashburn's power limits may slow data center growth unless upgrades proceed smoothly.

Investment Thesis

Dominion Energy is a dividend stalwart with a unique lever to drive growth: its role as the backbone of Virginia's data center boom. The SCC's support for rate hikes and grid investments, combined with long-term ESA contracts, positions the company to deliver steady EPS growth. At current valuations, the stock offers both dividend upside (yield: ~4.5%) and capital appreciation potential as data center demand solidifies its financial profile.

Investors should monitor the SCC's April 2025 IRP hearing and September 2025 rate case decision. A “buy” rating is warranted for those seeking a utility with above-average growth prospects.

In a world where data is the new oil, Dominion Energy is the refinery—and its shares are primed to profit.