The following is a viewpoint by Jeremy Clark, vice president of Pegasus-Global Holdings, which provides management consulting to major construction projects and businesses in the global energy and infrastructure sectors.
Today's utilities face a number of growing and complex challenges, from new and changing environmental regulations to evolving technologies, aging infrastructure and rising customer expectations. In addition to these technology and human challenges, utilities are being forced to confront the impacts of climate change as manifested through stronger hurricanes, record rainfall, increased flooding, historic droughts and extreme wildfires.
These challenges are collectively addressed by a utility's disaster risk mitigation planning and the associated strategic investments that allow utilities to reduce the impacts of natural disasters. And those impacts are enormous.
Rising costs and risks of natural disasters
A 2013 report by President Obama's Council of Economic Advisers determined that between 2003 and 2012, "weather-related outages are estimated to have cost the U.S. economy an inflation-adjusted annual average of $18 billion to $33 billion," with more significant events like 2012's Hurricane Sandy having an estimated $27 billion to $52 billion economic impact.
Just within the past two years, we have seen widespread impacts from some of the costliest storms ever recorded in the U.S., including 2017's Hurricane Maria and Hurricane Irma. These two massive hurricanes caused extensive devastation, striking the Caribbean within weeks of each other; Hurricane Irma continued on to the continental U.S., making landfall in Florida. Estimated damages were $51.0 billion from Hurricane Irma and $91.8 billion from Hurricane Maria.
Reports indicated that Hurricane Irma left approximately two-thirds of Puerto Rico's residents without power, while Hurricane Maria destroyed much of Puerto Rico's electrical grid, causing the entire island to lose electricity for an extended period. That lack of electricity had severe effects on hospitals, water service, cellular sites and other critical infrastructure.
Hurricane Irma had additional impacts when it made landfall in the continental U.S. Approximately 59% of Florida's electric customers (6,117,204 customers) experienced outages, while more than a million customers lost power in Georgia, and thousands more in North Carolina, South Carolina and Alabama.
As the 2018 hurricane season enters its waning weeks, Hurricane Florence and Hurricane Michael recovery efforts are still under way. Once again, we have been reminded of the devastating damage caused by severe storms and the substantial response required to both mitigate such impacts and recover from them.
Hurricane Florence resulted in roughly 1 million customers in North and South Carolina reporting electricity outages. It also led to power plant shutdowns and threatened various coal ash storage sites in the region. Hurricane Michael resulted in electricity outages for approximately 1.7 million customers across the southeastern U.S.
Beyond the hurricanes already mentioned, within this century, we have already seen a large number of 100-, 500- and even 1,000-year type of weather events. The National Weather Service reports eight 500-year flood events between August 2015 and August 2016 alone. These 21st-century natural disasters have not only occurred with an apparent increased frequency, but they also have had an increased magnitude and impact.
The threat is not limited to hurricanes and floods either. March 2018 saw the eastern U.S. experience four Nor'easters, leading to millions of residents suffering electricity outages.
On the other side of the country, hotter and drier summers in the western U.S. have led to historic wildfires in recent years. For example, during October 2017, there were 21 major wildfires in Northern California. The state's fire management agency found electric equipment owned by Pacific Gas and Electric (PG&E) caused 12 of those wildfires; four other wildfires were attributed to alleged PG&E violations of vegetation management codes. These findings resulted in PG&E recording a $2.5 billion loss.
Beyond fires, another consequence of hotter and drier summers is drought, which results in hydroelectric power facilities operating at diminished capacity. The recent drought in California was found to "cost" California ratepayers $1.4 billion over the three years ending in October 2014 as a result of reduced hydroelectricity production that was replaced by more-costly natural gas. That fuel switching also increased carbon dioxide emissions by 8%.
Clearly, the costs of recent extreme weather events are enormous.
Heightened risks require accelerated resilience efforts
Although storms and storm recovery are not new challenges, their magnitude in terms of time and cost is increasing. Slowly but surely, utilities, regulators and customers are beginning to realize that simply restoring the grid to its previous state is inadequate to ensure greater resilience in the face of increased stresses on utility infrastructure.
However, while the need to protect and improve the grid is readily apparent, implementation efforts can be incredibly complex. The planning and implementation of storm hardening and grid resilience investments must carefully balance the needs of the utility, customers, regulators, shareholders and other stakeholders in order for these investments to transition from feasible to actual.
Given the diverse needs of these stakeholders, it may seem impossible to strike a balance that gets everyone on board while meeting the ultimate objectives of both reducing the impact of storms and improving response and recovery efforts. However, given the time it takes for such mitigation and adaptation investments to be implemented, it is critical for all parties to recognize the urgency of these investments and to seek solutions that, at the very least, address the most vulnerable and critical parts of the system.
Utilities take action and see success
Not surprisingly, utilities in regions that have been most affected by increased storm activity have been some of the first movers toward grid hardening.
In New Jersey, for example, following the massive impacts of Hurricane Irene and Hurricane Sandy, the New Jersey Board of Public Utilities approved 103 measures for the state's electric utilities to undertake in order to improve preparedness and responses to severe storms.
This initiative led to PSE&G developing its "Energy Strong Program," which features approximately $1.2 billion in investments intended to protect and strengthen its electric and gas systems against severe weather events. (Pegasus-Global Holdings, Inc. provided independent monitoring services for this program.)
With the majority of PSE&G's investments in place at the time of the March 2018 Nor'easters, PSE&G observed immediate benefits from its Energy Strong Program, such as recloser operations that allowed Princeton Medical Psych Hospital to return to service following a Nor'easter-caused outage in just 29 minutes; the remainder of the circuit that typically serves the facility was out for 1,346 minutes.
Similarly, intense hurricane seasons in 2004 and 2005 prompted Florida's legislature and Public Service Commission (PSC) to identify storm-hardening measures that would better prepare electric utilities for future storms. As part of these efforts, Florida Power & Light invested $3 billion to install smart meters and other grid modernization technology, underground vulnerable power lines and replace some wooden poles with more-durable concrete poles.
The PSC reviewed the utilities' response and recovery to the four hurricanes that affected Florida during 2016-2017 and found that, "The length of outages was reduced markedly from the 2004-2005 storm season." It determined that "Florida's aggressive storm hardening programs are working."
New realities require revised planning frameworks
Some traditional aspects of disaster preparation and recovery, including mutual aid programs, will continue to be essential, but they are no longer sufficient.
Given today's challenges, utilities are increasingly focused on proactively mitigating disaster risk rather than just managing disaster recovery. The DOE has supported this effort by developing a guide for climate change resilience planning (September 2016), which recommends a two-pronged approach of a vulnerability assessment and resilience planning:
- The vulnerability assessment identifies information such as the likelihood of adverse climate impacts, thresholds where conditions are likely to affect key assets or overall system performance and costs or consequences of those adverse climate impacts.
- This assessment feeds into the resilience plan, which prioritizes a set of actions intended to mitigate such adverse climate impacts. That resilience plan also identifies the strategic investments needed to ensure the utility's electricity systems are able to withstand and/or quickly recover from climate impacts.
The DOE notes that "only a handful of utilities have published climate resilience plans to date," indicating that there is much work to be done, particularly as the severity and impact of weather-related events continues to increase.
Naturally, there is no one solution to address all severe weather events that a utility might face; similarly, it is impractical to implement all available storm-hardening measures at one time across a utility's entire infrastructure. As the Edison Electric Institute concluded in its 2014 storm hardening report, "utilities and their regulators must look at the full menu of options and decide the most cost-effective measures to strengthening the grid and responding to storm damages and outages."
New processes in practice
In New Jersey and Florida, regulators took proactive steps to identify prioritized initiatives for utilities to prepare, propose and —after regulatory approval — undertake. Of course, actually taking those steps is time-consuming. Additionally, any proposal is certain to face scrutiny from not only regulators but also from other stakeholders, which typically results in a settlement approving a slightly watered-down proposal.
For instance, when PSE&G filed for its Energy Strong Program in February 2013, it proposed $3.9 billion in storm-hardening and resilience investments over a 10-year period. After a lengthy review process, PSE&G reached a settlement with other stakeholders in May 2014; the revised program consisted of $1.2 billion in investments over a five-year period.
The final approved settlement scaled down some program components. For example, switching and substation flood mitigation went from $1.7 billion over 10 years to $630 million over five years. The final settlement also removed some aspects from the program entirely, such as strengthening pole infrastructure and targeted undergrounding.
The original Energy Strong Program is now approaching the finish line and is expected to be completed under budget and ahead of schedule. Based on the success of the initial program, PSE&G filed for an "Energy Strong II" program in June 2018 to make additional investments of $2.5 billion over five years to further strengthen and improve system resilience.
PSE&G President and COO Dave Daly said when announcing the second phase, "We have a proven track record of making infrastructure improvements on time and on budget. … But there is much more work to be done to harden our electric and gas systems against severe weather and enhance reliability."
Daly also addressed the need to balance reliability and costs, saying, "We are making sure that our customers remain satisfied both with the quality and cost of the service we provide. … The typical residential combined customer bill is down about 20 percent from 2010. We can make these added investments and still keep energy bills affordable."
Grid-hardening work is just beginning
As the need for grid-hardening and resilience investments becomes increasingly apparent, and as the benefits from such investments are being realized, utilities also must recognize that identifying and addressing vulnerabilities is an ongoing process.
In addition, they must be prepared to make risk-mitigation investments in a prudent and cost-effective way, particularly as these "beyond-business-as-usual" investments are typically viewed with heightened scrutiny given the often high costs of grid-strengthening programs, which do not necessarily yield immediate benefits.
For example, the Florida PSC identified the need for grid hardening following a severe storm season in 2004–2005, but it was not until multiple hurricanes hit the state in 2016–2017 that the benefits of utility actions taken could be fully assessed. By thinking beyond traditional planning frameworks, the Florida PSC enabled a different sort of investment that positioned its utilities to perform more effectively when the most recent hurricanes made landfall.
As we know with climate-related impacts, it is a matter of when, not if they will occur.