Southern Co (NYSE:SO) is one of the largest regulated electric utilities in the United States. While it has an enviable track record of annual dividend hikes, at 16 years and counting, some investors appear concerned it's an environmental pariah... if the shareholder proposals and comments at the last annual meeting are any indication. The worst mistake Southern Co investors can make right now is assuming that an old school utility like Southern Co can't learn some new environmental tricks. Here's how things have already changed.  

Shifting from a dirty past

There's no way to hide it, Southern Co once generated the vast majority of its power from coal. For example, in 2010 (just six years ago) coal powered roughy 60% of the utility's electricity plants. Natural gas stood at 25% with nuclear making up most of the rest. Hydro was little more than a rounding error in the equation. You can understand why investors are a little concerned about Southern's environmental bonafides.  

Southern Co employees working on a solar installation.

Southern Co employees installing solar panels.  Image source: Southern Co.  

However, looking at 2015 (2016 numbers aren't out just yet), there have been some big changes. For example, coal was down to just 34% of the mix, natural gas jumped to 46%, nuclear was roughly unchanged, and Hydro and "other renewables" came in at 4%. You can argue that natural gas is still carbon based, but it's a lot cleaner than coal and is viewed as an important transition fuel to get us from our coal past to our renewable energy future. Meanwhile, renewables are now more than just a rounding error.  

So, when you look at the numbers, Southern Co has already begun to pivot away from the dirtiest fuel option.

We want more!

That hasn't stopped investors from pushing for more. At the company's 2015 annual meeting it fielded a couple of shareholder resolutions aimed at pushing it to be greener (the same or similar resolutions are likely to show up again at the 2016 meeting). And many of the audience questions centered on the same environmental theme. You'd almost think Southern Co was standing still.  

It clearly isn't, but when dealing with such a large company change takes time and humans hate to wait. However, it looks like the pace might be starting to pick up. For example, last year Southern Co bought AGL Resources. That diversifies it away from electricity by adding a large natural gas utility and natural gas midstream assets. More important, however, is the fact that Southern Co is basically doubling down on natural gas as a key transition fuel.  

A bar chart showing Southern Co's over decade long streak of annual dividend hikes.

Southern Co has a great dividend, with more growth ahead... helped along by cleaning up its energy portfolio.  Image source: Southern Co.   

But then what about the Kemper coal plant Southern Co is building? This is an over budget and delayed coal facility being built with carbon capture technology. Low gas prices have made it a questionable project for the U.S. market today, but it's more of a showcase for Southern Co than anything else. That's because it's part owner of the carbon capture technology, which reportedly can reduce carbon emission by up to 65%.  

While coal is falling out of the U.S. power system, it will remain important in emerging countries around the world. Southern would like to sell the world its clean coal tech... and get royalties for the effort. That won't help improve the domestic carbon picture, but it sure could help the world's carbon footprint. So even though the company is suffering a lot of bad press over Kemper, the long-term here is still pretty green.  

Tiny but expanding

Then there's the company's independent power business, which sells power under long-term contracts. It's a relatively small business for Southern, but it's growing quickly. At the end of September, roughly three quarters of its power came from natural gas, with the rest from solar, wind, and biomass. But that's set to change over the next five years, with $1 billion a year earmarked for wind investments. That spending is expected to add over 3 gigawatts of clean power to the fleet, roughly tripling the company's wind capacity. Southern has another $500 million set aside, too, for opportunistic investment in gas, wind, or solar. This business is very green and getting greener.  

A map of the United States showing Southern Co's merchant power assets.

Southern Co is expanding its clean energy footprint in the merchant power space.  Image source: Southern Co.  

And then there's a relatively tiny deal the company made in 2016 for PowerSecure International. At $425 million this acquisition was minuscule compared to the $8 billion AGL purchase, but it gives Southern Co a toehold in the distributed power space. Many utilities are fighting against the encroachment of distributed power, which effectively helps customers turn into utility competitors, but Southern Co appears to be looking for a seat at the table. Since distributed power could be a transformational shift in the power market, it's hard to suggest that Southern Co is just sticking its head in the sand and praying for a return of the good old days.  

Change happens slowly

Southern Co is a giant utility. It can't make big changes overnight, that's just not possible. However, don't make the mistake of thinking that change isn't taking place, because it is. Yes dirty coal was once Southern's biggest fuel source. Yes, coal will remain important to the company for various reasons. But Southern is increasingly diversifying into greener areas and positioning itself for the changing power landscape... Don't give up a 4.5% yield from a truly dynamic utility that expects earnings growth of as much as 5% annually over the next few years just because change is happening more slowly than some investors might like.  

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.