And that investment should come with or without a federal mandate to price carbon dioxide pollution, the report, "The 21st Century Electric Utility: Positioning for a Low-Carbon Future," says.

The report, done by Navigant Consulting and commissioned by Ceres -- whose members' assets total about $10 trillion -- advised US utilities how to survive the 21st Century, when significant clean air trends and regulations will be taking root and creating a business climate that rewards energy savings and pollution reduction.

"What utilities will exactly look like in 50 years is anybody's guess. But what we do know is that when public policy catches up with climate science, the ... power sector will be serving customers while producing up to 80% less global warming pollution by mid-century," said Mindy Lubber, president of Ceres and director of its Investor Network on Climate Risk, a network of 90-plus institutional investors.

Key recommendations in the report include making carbon emission reduction an "overall corporate commitment"; fully including energy efficiency in resource planning, developing renewable energy projects to meet or exceed state targets and leveraging operational efficiencies that Smart Grid technologies provide to cut costs.

New limits from the US Environmental Protection Agency on sulfur dioxide, nitrogen oxide and mercury emissions will bring added pressure on coal-fired generation, "pressure that one Wall Street firm predicts could shut down about a quarter of the nation's coal plant fleet by 2015," Lubber said.

"Utilities that fail to navigate these challenges -- in particular, higher carbon exposure -- will see greater financial impacts as climate policies take hold and fossil fuel costs rise," Lubber said in a media call.

Utilities that want to capitalize on energy efficiency would get a boost from rate policies that recognize their investment, but federal mandates for "decoupling" the rate base from generation may not materialize, leaving it to companies, environmentalists and state regulators to work toward rewarding energy savings, Lubber said.

It is "counterintuitive" that utilities cannot "ratebase" their expenditures in efficiency, she said. "That is an authority delegated to states [that] I don't think can be easily overridden by an act of Congress."

"What needed is a federal comprehensive energy policy," National Grid USA President Tom King said on the call. Such a federal policy would provide "a road map and guidance states can follow. The federal component of energy legislation needs to happen to create certainty to step in and make policy shift happen."

Lisa Frantzis, Navigant's managing director of Renewable & Distributed Energy, said she envisions a "hybrid" portfolio that includes a large share of efficiency, renewables and natural gas that will not necessarily eliminate coal, which currently fuels half the country's electric generation and is largely responsible for 40% of the nation's carbon emissions.

"Coal is still going to play an important role in the portfolio mix," Frantzis said, while there utilities shift toward renewable, efficiency, especially when Smart Grid technologies come on board that allow industry to deal with intermittent energy resources, such as wind.

--Cathy Cash, cathy_cash@platts.com