Dominion Resources, Inc. (D), Duke Energy Corp (DUK): Does This Utility Have the Best Position in the Business?

Investing in a utility should be simple: Just look at what company you pay to keep the lights on and buy its stock. Unfortunately, that is not the case, especially in our more environmentally conscious society. Now you need to find a utility that’s going green so that it keeps your portfolio flowing with green.

Here’s the rub: In order for that utility to generate the kind of returns you expect, it needs to generate its electricity from the cleaner sources that actually help boost the bottom line. Given the return differentials among the generating options, natural gas is the clean source offering the most bang for your utility’s buck at the moment.

With its prime position to profit from natural gas, Dominion Resources, Inc. (NYSE:D) is, in my opinion, one of the best-positioned utilities. Not only does the company generate a lot of energy from natural gas, it also generates a lot of profit from transporting it. That’s right, Dominion has strategically positioned a growing midstream business inside its sleepy utility segments.

Its this midstream business embedded within Dominion Resources, Inc. (NYSE:D)’s energy subsidiary that has some very intriguing pieces being laid as the foundation for the company’s growth. While the segment houses two gas utilities located in Ohio and West Virginia that serve more than a million customers, there is much more here than I think investors realize.

Among the jewels are over 10,000 miles of gathering and transmission pipeline, a massive natural gas storage business and a good amount of processing capacity. Also, in what could be a real hidden gem, Dominion’s Cove Point LNG facility in Maryland has the potential to be used to export natural gas. What’s more, all of these assets are located in the heart of the natural-gas-rich Marcellus and Utica shales.

What else is nice about Dominion Resources, Inc. (NYSE:D) is that there is more to the company outside of natural gas. Its electricity generation fleet is pretty balanced between coal at 31%, natural gas at 28%, nuclear at 21%, and oil, renewables, and others representing the remaining capacity.

While renewables are a smaller portion, that’s not to say that Dominion Resources, Inc. (NYSE:D) isn’t planning to expand its portfolio, as it just announced its first foray into solar energy last week. The company also boasts of hydro, wind, and biomass among its generating assets. So, while it doesn’t have as clean a fleet as its wind-powered peer NextEra Energy, Inc. (NYSE:NEE) , that’s only because its attention is elsewhere at the moment.

Having a diversified generation portfolio is important — many in the industry have shifted their generation mixes toward cleaner sources. Duke Energy Corp (NYSE:DUK) for example has gone from 55% coal and 5% natural gas generation in 2005 to a planned mix of 38% coal and 24% natural gas by 2015.

That’s still nowhere near as clean as NextEra, which already has a mix of 56% natural gas, 13% wind, and just 6% coal. For arguably the cleanest portfolio in the business, investors can turn to Atlantic Power Corp (NYSE:AT) , which offers a portfolio that’s 96% clean and a dividend yield near 7%. No matter where you look, the industry is working hard to clean up its generating capabilities.