Climate Change Adaptation in the U.S. Electric Utility Sector
ARCHNES
By
MASSACHUSETTS INSTrE
OF TECHNOLOGY
Melissa Higbee
JUN 2021
BA in Geography
University of California Berkeley
Berkeley, California (2007)
S,
-
Submitted to the Department of Urban Studies and Planning
in partial fulfillment of the requirements for the degree of
Master in City Planning
at the
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
June 2013
@ 2013 Melissa Higbee. All Rights Reserved
The author here by grants to MIT the permission to reproduce and to distribute
publicly paper and electronic copies of the thesis document in whole or in part in
any medium now known or hereafter created.
Author
-
-
I
/1
V
A.,1/I
Depart
ent of Urban Studies and Planning
/
May 23, 2013
1
Certified by
Professor Stephen Hammer
Department of Urban Studies and Planning
This Supervisor
Accepted by
topher Zegras
CP Committee
Cha
Department of Urban Studies and Planning
Associate Profess
Climate Change Adaptation in the U.S. Electric Utility Sector
by
Melissa Higbee
Submitted to the Department of Urban Studies and Planning
on May 23, 2013 in Partial fulfillment of the
requirements for the degree of Master in City Planning
ABSTRACT
The electric utility sector has been a focus of policy efforts to reduce greenhouse gas emissions,
but even if these efforts are successful, the sector will need to adapt to the impacts of climate change.
These are likely to include increased heat waves, drought, extreme precipitation events, and sea level
rise. Electric utilities play a key role in providing electricity services in cities that will be facing all of these
difficulties. Cities depend on electricity service for public health, safety and economic development. This
thesis examines how electric utilities in the United States are approaching climate change adaptation
and the factors enabling and constraining these efforts. The thesis draws on an analysis of electric utility
responses to surveys distributed by the Carbon Disclosure Project as well as case studies of Consolidated
Edison, Entergy, and Pacific Gas & Electric.
The case study utilities are incorporating climate change projections into their risk management
and capital planning activities. Integrating climate change projections into risk management efforts
helps utilities use replacement opportunities to build greater resilience into infrastructure systems and
ensure that adaptation strategies take competing demands on resources into account. Both approaches
to adaptation are generally recommended by adaptation experts. However, existing internal decisionmaking may not be well suited for incorporating the uncertainties of climate change impacts. The case
study utilities could be using Scenario Planning to develop strategies likely to be effective given a range
of possible futures, but they are not.
I argue that state utility regulatory commissions should consider taking a more active role in
providing guidance and oversight to utilities regarding climate change adaptation. They should consider
(1) requiring utilities to submit climate change vulnerability assessments and detailed adaptation plans;
(2) incorporating climate change risk and adaptation considerations into existing electricity plans; and
(3) convening joint climate change planning efforts with utilities, municipal governments, and a range of
other stakeholders. Cities and states that would like to see electric utilities put more emphasis on
climate change adaptation should consider sharing climate change projections and forecasts of potential
climate change impacts. Provision of such information has been effective in encouraging adaptation
planning in the case studies. The actual adaptation strategies that utilities have adopted depend largely
on the risks they face and the regulatory and policy environment in which they find themselves.
Thesis Supervisor: Stephen Hammer
Title: Lecturer in Energy Planning
Thesis Reader: Lawrence Susskind
Title: Ford Professor of Urban and Environmental Planning
3
Acknowledgements
I would like to dedicate this thesis to my grandparents, Jose and Aura Alarcon.
I am grateful to my thesis advisor, Steve Hammer, for his guidance throughout this process and my
reader and academic advisor, Larry Susskind, for his thoughtful feedback.
I would like to thank my mom, dad, and brothers for their support. Thanks to the "Thesis Groupies"
Louise Yeung, Christine Curella, and Daniel Rinzler for encouraging me to start writing early. Thanks to
Jenna Kay for sitting me down for some thesis advice as soon as she finished her thesis during my first
year at DUSP. Thanks to the whole MCP 2013 class. Your fun spirit and good humor helped make the
hard work a little less hard.
A most heartfelt thanks to Daniel Rinzler for encouragement, support, and company during many thesiswriting hours.
I am grateful to all those who participated in interviews. I could not have written this without their
insights, but any errors are ultimately my own.
4
Table of Contents
1.Introduction ..............................................................................................
....... 7
11
11.Resea rch Design .......................................................................................................................
Ill. Literature Review ..........................................................................................................
... .17
IV. Survey Findings ......................................................................................................................
33
V. Con Edison Case Study .............................................................................................................
39
VI. Entergy Case Study .................................................................................................................
53
VII. Pacific Gas and Electric Case Study .....................................................................................
67
Vill. Cross Cutting Analysis and Findings ...................................................................................
79
IX. Recom m endations ..................................................................................................................
89
Ep ilo g u e........................................................................................................................................
93
W orks Cited ..................................................................................................................................
95
Appendix A. Interview s ..............................................................................................................
102
Appendix B. Coding from CDP Survey Analysis ..........................................................................
103
Appendix C. CDP Survey Analysis, Count of Adaptation Measures by Utility ............................
108
5
6
I. Introduction
Greenhouse gas (GHG) emissions are now estimated to surpass the worst-case emissions
trajectory from the Intergovernmental Panel on Climate Change (IPCC) third assessment report (2001;
Ebginer & Vergara 2011). Not only does this demonstrate the urgent need to reduce GHG emissions, but
it also highlights the need for cities to figure out how they can adapt to the unavoidable impacts of
climate change. The electricity sector has been a focus of international and national policy efforts to
reduce GHG emissions for good reason: electricity generation contributes to 40 percent of carbon
dioxide emissions in the United States (EIA 2012). The electricity sector will also need to adapt to the
impacts of climate change, which are likely to include increased heat waves, drought, extreme
precipitation events, and sea level rise (IPCC 2007). However, how the electricity sector might adapt has
not received as much scholarly or policy attention as GHG mitigation and very few cities have explored
how their local electricity system may need to adapt to climate change impacts (Ebginer & Vergara
2011; Hammer et al. 2011b).
The electricity sector demonstrates considerable vulnerability to severe weather and climate
variability under current climate conditions. For example, during the summer of 2012, severe storms
caused power outages across the Eastern Seaboard that left nearly 1.8 million people without power in
extreme heat conditions (Anon 2012). During the same summer, drought conditions in the Midwest
forced power plants to shut down, reduce capacity, or receive special permission to operate, because
cooling waters reached extremely high temperatures or low levels (Wald & Schwartz 2012). Most
recently, 2.1 million people lost power in New York and New Jersey during the peak of Hurricane Sandy
(NYS 2013). The electricity outage also severely affected other vital services, such as communications,
healthcare, transportation, drinking water supplies, and wastewater treatment (NYS 2013).
There is no way to know if these events were actually the result of climate change or not, but
the outcomes are evidence that the electricity sector has existing vulnerabilities to climactic variability
and extreme events, which can have profound impacts on cities. Climate change could exacerbate these
vulnerabilities and create new vulnerabilities through affects on both supply and demand (CCSP 2007;
Hammer et al. 2011b). On the supply side, for example, drought may reduce hydropower capacity. On
the demand side, hotter summer temperatures may increase peak electricity demand for cooling.
Furthermore, electricity infrastructure has a long life span, so infrastructure built today may need to
cope with the next fifty years of climate change impacts.
7
Some would argue that the electricity sector has significant capacity to adapt to climate change
impacts, because it already frequently responds to weather-related impacts and has considerable
financial and managerial resources (Wilbanks et al. 2012a). However, there could be significant
obstacles to turning the sector's capacity to adapt into a reality, such as high costs, the number of actors
involved, lack of supportive policies, short-term planning horizons, and uncertainty (UKCIP 2007; Vine
2008). It is important that the electricity sector is able to overcome potential obstacles and adapt to
climate change, because it provides a service that is critical for economic development, public health,
and safety (Ebginer & Vergara 2011; Wilbanks et al. 2012a). A well functioning electricity system is
especially critical for cities due to their concentration of population and economic activity.
Electricity systems in U.S. cities are often centralized systems with large power generation
plants adjacent to sources of cooling water, such as the ocean, rivers, or lakes (Hammer et al. 2011b).
Cities are also home to a complex web of transmission (high voltage) and distribution (low voltage) wires
(Hammer et al. 2011b). Climate change could increase the vulnerability of both generation and
transmission and distribution (T&D) systems serving cities. For example, extreme precipitation events
could result in flooding of power plants located near rivers and heat waves could damage T&D systems.
Cities are also major drivers of electricity demand. In 2008, the International Energy Agency
calculated that 76 percent of global electricity demand is associated with urban areas (EIA 2008).
Climate change is expected to increase electricity demand in cities, particularly peak electricity demand,
which could lead to reliability problems (Hammer et al. 2011b). As such, cities will likely be important
places to focus efforts to manage electricity demand in the face of climate change.
Electric utilities are key providers of electricity services in cities. Utilities own T&D infrastructure
and often own and operate power plants. Utilities are often involved in the provision of demand side
services, such as energy efficiency retrofits and demand response programs. Lastly, utilities are the
entities of electricity sector that most often interface with end-use customers (i.e. a City's residents and
business) for billing, customer service, and some educational activities.
Given the significant role that utilities play in providing electricity services in cities, they are also
one of the primary organizations responsible for implementing climate change adaptation strategies
(Hammer et al. 2011a, table 8.15). Nevertheless, electric utilities' current practice of climate change
adaptation is an under-researched area. This study seeks to begin to fill that gap by examining the
climate change adaptation strategies that utilities are employing and sorting out which factors are
enabling or constraining their efforts. This research is intended to help utilities understand what their
counterparts across the country are currently doing about climate change adaptation and raise issues
8
for their consideration as they move forward in this relatively new field. This research also intends to
provide policymakers and utility regulators with an enhanced understanding of what they can do to help
utilities pursue climate change adaptation.
This study seeks to answer the following questions:
1. What strategies are U.S. investor-owned electric utilities currently employing in an effort to
adapt to climate change impacts?
2. What factors are enabling and constraining climate change adaptation efforts at investor-owned
electric utilities?
9
10
11. Research Design
This study examines climate change adaptation strategies being employed by electric utilities
because utilities carry out many of the key functions of the electricity sector, including owning and
operating infrastructure, providing demand side services, and interfacing with customers. The utility
industry is comprised of both investor-owned (IOUs) and consumer-owned utilities (such as municipal
utilities and rural cooperatives), but due to time limitations this study focuses on IOUs, because of their
dominant role in the economy. Although IOUs are less numerous than consumer owned utilities, they
serve nearly 70 percent of customers in the U.S. (APPA 2012). 1OUs are also the most prevalent service
provider in the largest metropolitan areas in the U.S: 1OUs provide electricity service in the ten largest
metropolitan regions.' Many of the findings are applicable to consumer-owned utilities, such as
municipal utilities, but they are less influenced by state-level utility regulation and shareholders, and
more so by local government policy (Shively & Ferrare 2007: 84).
The goal of examining the factors that enable and constrain climate change adaptation is to
provide recommendations regarding what various actors inside and outside a utility can do to create a
policy, regulatory, or business environment that fosters utility adaptation efforts. I identify constraints
to adaptation so that actions might be taken to lessen those constraints over time and I identify
enabling factors so that those lessons might be transferred to other utilities and cities.
Methodology
I employed a mixed methods approach by analyzing publicly available survey data that U.S.
electric utilities submitted to the Carbon Disclosure Project and by also conducting case studies of three
utilities. The survey analysis provides a broad snapshot the adaptation measures utilities across the
country are using and the cases allow for more detailed study of the adaptation strategies that utilities
are employing as well as an examination of the context surrounding electric utility adaptation efforts in
order to identify enabling and constraining factors.
the Los Angeles-Long Beach- Santa Ana metropolitan region, a municipal utility, serves the City of
Los Angeles, but an IOU serves the rest of the metropolitan area.
1 In
11
Carbon Disclosure Project Survey
To better understand what measures and approaches electric utilities in the U.S. are using to
adapt to climate change, this study analyzed investor-owned utility responses to 2012 Carbon Disclosure
Project (CDP) surveys. The CDP is a not-for-profit organization that requests information from the
world's largest companies on their greenhouse gas emissions, energy use, and the risks and
opportunities from climate change. The CDP makes this information public with the goal of increasing
transparency around climate-related risk and opportunity. The analysis includes 23 U.S. investor-owned
utility CDP submissions from 2012 and 3 submissions from 2011, for a total of 26 surveys 2. The analysis
focuses on the most recent year CDP submission to provide a current snapshot of utility adaptation
efforts.
The 26 surveys represent utilities located across the country. Of the 25 most populous
metropolitan areas in the U.S., nine did not have a utility included in this analysis. Three out of the nine
metropolitan areas are served by publically owned utilities that are not included in the CDP survey. The
other six metropolitan areas are served by IOUs that did not participate in the survey: TXU in Dallas,
Reliant in Houston, Florida Power & Light in Miami, Tampa Electric, Duquense Light in Pittsburg, and
Portland General Electric.
The CDP survey has fourteen sections with a total of approximately 80 questions, the majority of
which concern the management of GHG emissions. This analysis focused on three sections of the survey
that included questions about "adaptation" and "managing the physical risks of climate change." The
text box below shows the seven questions analyzed for this study. Particular attention was placed on
questions 5.1d and 6.1.d, because those questions encouraged respondents to describe their adaptation
strategies.
23
utilities submitted surveys in 2011, but did not submit in 2012
12
Survey questions analyzed
2.3 Do you engage with policy makers to encourage further action on adaptation? Please
explain (i) the engagement process and (ii) actions you are advocating
5.1 Have you identified any physical climate change risks (current or future) that have
potential to generate a substantive change in your business operations, revenue or
expenditure?
5.1c Please describe your risks that are driven by change in physical climate parameters
5.1d Please describe the methods you are using to manage this risk
6.1 Have you identified any opportunities (current or future) driven by physical climate
change parameters that have the potential to generate a substantive change in your
business operations, revenue or expenditure?
6.1c Please describe the opportunities that are driven by changes in physical climate
parameters
6.1d Please describe the methods you are using to manage this opportunity
Limitations
A small sample size and potential response bias limit my ability to generalize about the findings.
Approximately 15 percent of all investor-owned utilities in the U.S. responded to the survey and because
this is a voluntary survey, the utilities that responded may be those that are more inclined to engage in
climate change-related activities. Researchers have found that firm size and foreign sales are related to
whether firms disclose information about climate change requested through the Carbon Disclosure
Project, so this analysis may not be as generalizable to smaller utilities (Stanny & Ely 2008).
Another limiting factor is that the CDP survey was not designed for the purposes of this study.
For example, the responses are largely open-ended, so survey respondents can describe in their own
words how they are managing climate change risks. As a result, respondents may have omitted certain
activities because they forgot about them, were unaware, did not think they were important, or did not
want them made public. In addition, the primary focus of the survey is on managing GHG emissions, so
respondents may have put less effort into answering questions related to climate change adaptation.
Data Analysis
I used content analysis, which involves coding phrases in open-ended text that represent
adaptation measures found in the literature, aggregating measures into categories, and counting the
total number of measures in each category. The central idea in content analysis is that the many words
of a text are classified into fewer categories, allowing for a quantitative analysis of text (Weber 1990). In
13
addition, compared with interviews, content analysis is a method where the author of the message is
not aware that it is being analyzed, which reduces the danger that the research effort will act as a force
for change that skews the data (Weber 1990). Below are the data analysis steps in greater detail:
1. Developed categories that represent all possible adaptation measures based on the adaptation
literature. For example, one category is "capital investments in transmission & distribution"
2.
Coded the survey responses for different types of adaptation measures found in the literature.
For example, one code is "undergrounding." Therefore, survey text that says, "Program
highlights include undergrounding wiring systems in key areas," is coded as "undergrounding."
3. Attributed each adaptation measure "code" to a category. For example, the code
"undergrounding" is attributed to the category "capital investment in transmission and
distribution." All codes and categories are listed in Appendix B.
4.
Recorded the number of adaptation measure "codes" found in the survey texts.
5. Counted the total number of adaptation measures found in the text according to category and
utility (Appendix C).
Case Studies
To overcome some of the limitations of survey analysis, this study also includes case studies of
three utilities: Consolidated Edison, Entergy New Orleans, and Pacific Gas & Electric. Compared to the
survey analysis, the case studies provide a more in-depth look at the approach and strategies utilities
are using to adapt to climate change and the factors that are enabling and/or constraining their efforts.
Given that climate change adaptation in the electricity sector is a nascent area of activity and research,
three cases were selected that would allow for a discussion of an array of adaptation strategies and
enabling and constraining factors. According to the CDP surveys, these utilities are employing a
relatively high number of adaptation measures, a variety of adaptation measures, and stakeholder
engagement. The cases were also selected for their regional variation to allow for exploration of
potential enabling or constraining factors that vary in different regions of the country: the role of
participating in restructured or vertically integrated electricity markets, the role of different utility
commissions, the role of cities and states with different levels climate change adaptation efforts, and
the role of past experiences with climate-related hazards.
14
Table 1: Case Study Utilities
Case Study Utility
Market
Major Cities
Consolidated Edison
(Con Ed)
Restructured
New York
State & Local
Adaptation
Activity
High
Regulatory
Commission
New York State
Public Service
Commission
Pacific Gas & Electric
(PG&E)
Restructured
Entergy New Orleans
(ENO)
Vertically
Integrated
San Francisco,
Oakland, San
Jose
New Orleans
High
Low
California Public
Utility
Commission
New Orleans City
Council
Data Collection
Data collection involved reviewing publically available reports and meeting notes, all available CDP
submissions (2007 to 2012), internal presentation materials, and semi-structured interviews with:
e
Utility managers involved in climate change adaptation
*
State and local planning officials who have engaged with the utility on climate change
adaptation
-
State public utility regulators
*
Environmental, consumer, and public health organizations that have engaged with the utility on
climate change adaptation
The interviews with utility managers were particularly important sources of information and
information provided by those interviews was corroborated with publically available documents
whenever possible. Additional interviewees were selected using a snowball sampling technique, which
involved asking each interviewee for recommendations of other people with whom I should speak, with
a particular focus on the utilities' adaptation partners and stakeholders. I conducted a total of 18
interviews, six for each case study. Interviewees were able to choose whether they wanted their name,
title, and direct quotes included in the research. Interviews are cited as confidential if the interviewee
chose not to have identifying information in the study. For a list of interviews, please see Appendix A.
15
16
Ilil. Literature Review
Climate Change Vulnerabilityand Adaptation
Climate change vulnerability is the degree to which a system is susceptible to, and unable to cope
with, the adverse impacts of climate change (IPCC 2001; Adger 2006). The key factors of vulnerability are
exposure, which is the degree to which a system experiences a climate change impact, sensitivity, which
is the degree to which a system is affected by the impact, and adaptive capacity, which is the ability of
the system to adjust practices, processes, or structures to offset potential damage (IPCC 2001; Adger
2006). Climate change vulnerability does not exist in isolation, but rather it is driven by human actions
that interact with political, economic, physical, and ecological systems (Adger 2006).
Climate change may increase the vulnerability of the electricity sector through both supply side
and demand side impacts, which are summarized in Tables 2 and 3 below (CCSP 2007; Ebinger & Vergara
2011; Wilbanks et al. 2012). For both supply and demand, the primary vulnerability is disruptions from
extreme weather events, but climate change impacts will likely make it more challenging for electricity
supply and demand to remain in balance (Wilbank et al. 2012). On the supply side, climate change could
increase vulnerabilities if storms become more intense, if regions dependent on hydropower and power
plant cooling water experience drought, and if hotter temperatures decrease generation and
transmission efficiencies (CCSP 2007; Wilbanks et al., 2012).
On the demand side, climate change will likely reduce total heating requirements and increase
total cooling requirements for buildings (CCSP 2007; Wilbanks et al. 2012). This change implies an
increased demand for electricity, which supplies almost all of the energy for cooling services, namely air
conditioning (CCSP 2007). Climate change may also exacerbate urban heat island conditions in cities,
which refers to the fact that cities are full of surfaces that trap heat, leading to higher air temperatures
(Hammer at al. 2011b). In the summer, urban heat island conditions can significantly increase local
electricity demand for air conditioning (Hammer et al. 2011b). As a result, climate change is expected to
have a larger impact on peak electricity demand than average demand (Wilbanks et al. 2012). Growth in
peak demand can result in shortages of supply capacity, increasing the risk of blackouts and brownouts
(Miller et al. 2008).
17
Table 2: Potential Supply Side Electricity Sector Vulnerabilities
Supply-Side Assets
Thermal Power Plants
Climate Change
Impacts
Specific
Electricity Sector
Impacts
Potential
Vulnerabilities
Increased intensity of
storms
Flooding, ice,
wind
Damage to equipment,
supply chain disruption,
reduced reliability
Higher temperatures
Reduced plant
efficiency
Reduction in supply
availability
Reduced water
availability for
cooling
Flooding, ice,
wind
Heatwaves,
extreme heat
Changes in
and
quantity of
runoff
Reduction in
Reduction in supply
availability
Drought
Transmission and
Distribution
Increased intensity of
storms
Higher temperatures
Hydropower
Solar Power
Changesin
Chi
i s npatiming
precipitation and
snowpack
Higher temperatures
solar cell
efficiency
Damage to equipment,
reduced reliability
Damage to equipment,
reduced reliability
Reduction in supply
availability
Reduction in supply
availability
Increased uncertainty
Uncertainty of
Change in wind speed
expected output
and direction
Source: Adapted from CCSP 2007; Wilbanks et al. 2012; Ebinger & Vergara 2011.
Wind Power
Table 3: Potential Demand Side Electricity Sector Vulnerabilities
Climate Change Impacts
Hotter average
temperatures, extreme
heat events
Increased intensity of
storms
Specific Electricity Sector Impacts
Increased demand for cooling,
Increased peak demand; Reduced
demand for heating
Damage to customer-side energy
using assets (buildings, equipment
Vulnerabilities
Reduced reliability, increased
revenue uncertainty
Increased revenue uncertainty
etc).
Source: Adapted from CCSP 2007; Wilbanks et al. 2012; Ebinger & Vergara 2011.
In addition to vulnerabilities, climate change impacts could result in opportunities for the
electricity sector (CCSP 2007). For example, milder winters could reduce some operational challenges,
such as fuel delivery disruptions due to snowstorms, and if managed properly, increased demand for
cooling services could be a business opportunity for utilities (CCSP 2007). Nevertheless, a study on the
climate change impacts facing the energy sector in New York State found that climate change impacts
18
will likely present more vulnerabilities than opportunities (Hammer et al. 2011a). Climate change will
likely increase the difficulty of ensuring enough electricity supply during peak demand periods, increase
the difficulty of ensuring reliability during extreme weather events, and exacerbate problematic
conditions, such as the urban heat island affect and coastal flooding (Hammer et al. 2011a).
An additional concern for policymakers is that vulnerabilities in the electricity sector could result
in cascading failures with other infrastructure services due to their interconnectedness (Wilbanks et al.
2012a). Electricity infrastructure is highly interconnected with communications, transportation, potable
water, and wastewater infrastructure (Wilbanks et al. 2012a). Furthermore, infrastructure failures have
consequences that go beyond the physical infrastructure itself to the services that the infrastructure
provides. The loss of those services entails economic, social, and environmental consequences (Wilbanks
et al. 2012a), such as illness from contaminated water or lost earnings from business closures.
Adaptation is a way for a system to reduce vulnerabilities and take advantage of opportunities
(IPCC 2007: 6). Climate change adaptation is defined as an adjustment in response to observed or
expected changes in climate and their affects in order to reduce the adverse impacts of change (IPCC
2007; Adger 2006). Two different concepts of adaptation apply to the strategies that electric utilities can
employ to adapt to climate change: (1) Adaptation as reducing vulnerabilities and (2) adaptation as
enhancing resilience.
The framework of adaptation as reducing vulnerabilities leads us to define adaptation strategies as
those that seek to reduce exposure, reduce sensitivity, or enhance adaptive capacity (IPCC 2001).
*
Reduce Exposure: Take steps to reduce the degree to which utility assets and operations
experience a climate change impact. For example, relocate substations away from areas prone
to coastal flooding.
*
Reduce Sensitivity: Take steps to reduce the degree to which the utility assets and operations
are affected by the climate change impact. For example, install saltwater resistant
transformers in areas prone to coastal flooding.
*
Increase Adaptive Capacity: Take steps to enhance the ability of the electric utility to undertake
adaptation. For example, provide utilities with coastal flooding maps that include exposure
from sea level rise.
A second concept of adaptation is actions that enhance resilience. The IPCC defines resilience as
"the ability of a system to absorb disturbances while retraining the same basic structure and ways of
functioning, the capacity for self organization and the capacity to adapt to stress and change" (2007:
880). Resilience involves strategies that seek to secure the continuation of desired system functions in
19
the face of changing climate. Resilience does not mean ensuring an asset, organization, or system looks
exactly the same before and after a disturbance. Rather, resilience means ensuring that the asset,
organization, or system provides the same functionality, such as reliable electricity service, in the face of
disturbance. Resiliency strategies may take the form of adjustments in the physical electricity
infrastructure, such as deploying technologies that allow the grid to recovery more quickly from an
outage (Wilbanks et al 2012b). Resiliency strategies may also take the form of adjustments to
institutions and organizational form that "enable technological evolution, new information exchange or
decision making procedures" (Pelling 2010: 56).
Adaptation Strategies
Given the vulnerabilities described above, there are many adaptation strategies that utilities can
implement to reduce their vulnerability and enhance their resilience. Several studies have examined and
organized potential adaptation strategies for the electricity sector found in the literature (Hammer et al.
2011b; Ebinger & Vergara 2011). Table 4, below, organizes adaptation strategies from the literature
according to the different functions and responsibilities of an electric utility, such as transmission and
distribution, internal capacity building, and planning activities. This table serves as a framework from
which to examine the adaptation strategies utilities are pursuing in subsequent sections of this paper.
20
Table 4: Electric Utility Adaptation Measures by Category
Category
Transmission
&
Distribution
Demand
Side
Changes in operating
practices
Diversify supply sources
Adjust hydropower operations to
changes in river flow patterns
Adaptation Purpose
Reduce system sensitivity to an
climate change impact
Reduce sensitivity to changes
in precipitation
Capital investments in
Bury wires underground
Reduce exposure to high winds
Operating practice
.
.
Increased tree trimmingwid
Reduce sensitivity to high
Conservation, energy
Establish demand response
efficiency, demand
programs
Reduce sensitivity to peak
demand during extreme heat
Support investment in rooftop
solar panels
Enhance resiliency with
decentralized power sources
Create internal adaptation
Enhance adaptive capacity by
saigifrain
Sub-Category
Capital investments in
T&D
changes in T&D
response
Distributed generation
Ineral Changes in Staffing
Internal
Capacity
Enhanced monitoring
Enhncdldniorng
of climate change
indicators
Internal: emergency
planning
Internal: vulnerability
assessment; adaptation
Planning
Activities
strategy
PlanningReduce
Internal: resource
planning
External planning
Stakeholder education
Education,
Advocacy,
Research
Example Adaptation Measure
Policy advocacy
Regulatory advocacy
Funding/ participating
in research
.oknru
working group
Early warning systems for
temperaturereducing
Storm contingency planning
Vulnerability assessment
Integrated resource plan that
includeselecting
projections/scenarios
Patation in
adaptation plan
Encourage widespread customer
action to manage electricity use
more efficiently
Advocacy for more energy
efficient building codes
Advocacy for formal review of
adequacy of regulatory policies in
the face of climate change
Provide data to researchers
compiling a climate change risk
database
winds
sharing information,
developing partnerships
Enhance
capacity by
epnetm
rdcn adaptive
response time
Enhance resiliency of the
system if the face of severe
weather
Enhance adaptive capacity by
increasing awareness of
vulnerabilities
system sensitivity by
tio
seleingea res
a resource portfolio
that performs well in a range of
future conditions
Enhance adaptive capacity by
sharing information and
developing partnerships
Reduce sensitivity to peak
demand conditions or supply
shortages
Reduce exposure to peak
demand during extreme heat.
Enhance adaptive capacity by
reducing regulatory barriers
Enhance adaptive capacity by
increasing awareness of risks
Enhance adaptive capacity
through the availability of
Sharing Risk
Insurance
financial resources after a
damaging flood
Source: Adapted from Ebinger & Vergara, 2011; Hammer 2011b; Wilbanks et al 2012b.
Purchase a stronger isurance
policy for an area at risk of
21
It is possible to distinguish between technological, behavioral, and sector-wide strategies. In the
table above, the capital investment in supply and T&D are considered technological strategies (Ebinger
& Vergara 2011). One subset of technological strategies is "hardening" strategies, which involve physical
improvements to infrastructure, such as installing transformers that can tolerate higher temperatures or
building a berm around a power plant for flood-proofing (Hammer et al. 2011a). Another subset of
technological strategies is known as "smart grid," which is the integration of information technologies
into the grid to improve customer management of energy use, system reliability, and integration of
cleaner sources of electricity (Schwartz 2010). Smart grid investment are under way for reasons other
than adaptation, but some smart grid technologies that allow for greater monitoring, control, efficiency,
and flexibility of the grid "would appear to be highly useful" for climate change adaptation (Wilbanks et
al. 2012: 54).
Many of the categories in the table above are considered behavioral strategies: operational
changes, planning, and internal capacity building. Behavioral strategies could include the
reconsideration of the location of electricity investments based on climate change risks (Ebinger &
Vergara 2011). These measures hinge upon future climate risks being integrated into decision-making
and management processes, including relevant planning and management decisions (Ebinger & Vergara
2011).
There are also sector-wide adaptation strategies (Hammer et al. 2011a; Ebginer & Vergara
2011). One example is the adoption of policy frameworks that facilitate the internalization of adaptation
concerns into electricity systems (Ebginer & Vergara 2011). Other examples under consideration in New
York include a regional working group, a climate change risk database, or a formal review process of the
appropriateness of current regulatory policies in the face of climate change impacts (Hammer et al.
2011a). Utilities would likely not be the primary entity responsible for implementing sector-wide
strategies, but they play a critical role in supporting these strategies, which is represented by the
category "Education, Advocacy, and Research" in Table 4.
Approaches to Adaptation
Climate change adaptation is often considered a risk-management strategy (NRC 2010; Wilbanks et
al. 2012b). Risk is defined as the probability of an impact multiplied by the consequences if the impact
occurs. Electric utilities manage many risks in their normal operations, such as the risk that prices will
move in an unexpected direction, the risk that a customer does not use as much electricity as
22
expected (Shively & Ferrare 2007). These risks are often managed through internal risk management
programs, which involve measuring risk levels frequently, structuring physical transactions, the use of
financial instruments, and management of stakeholder relationships (Shively & Ferrare 2007).
The risks associated with climate change impacts can also be managed through internal programs,
but climate change risk management is different from traditional risk management given the complexity
and uncertainty around climate change and its impact on the electricity system (Ebinger & Vergara
2011). There is uncertainty regarding the severity and timeframe of climate change, uncertainty
regarding if and how changing climate parameters will result in impacts on the electricity system, and
uncertainty regarding the costs, benefits, and effectiveness of adaptation options (Ebinger & Vergara
2011; NRC 2010).
Given these uncertainties, "nearly every credible source indicates that the appropriate adaptation
strategy is rooted in risk management for an uncertain future rather than precise projections for optimal
decisions" (Wilbanks et al. 2012b: 49). Climate change risk management requires developing strategies
that perform well in multiple possible future scenarios. A critically important step towards developing
such strategies is conducting a vulnerability assessment that considers possible exposures to risk under a
range of possible future trends and conditions (Wilbanks et al. 2012b; NRC 2010). Climate change risk
management also requires frequent engagement with the latest climate science to identify changes that
are relevant to the system and it also requires frequent monitoring and reevaluation of adaptation
options as information and conditions change (NRC 2010). Climate change risk management needs to be
rooted in flexibility and a continuous learning process in order to manage uncertainty (Wilbanks et al
2012b).
In addition to vulnerability assessments, Scenario Planning is another tool for exploring alternative
futures and assessing strategies for reducing vulnerability and increasing resiliency of critical services
(Susskind 2010). Instead of focusing on a single prediction, scenarios focus on uncertain drivers and
complex interactions (Susskind 2010). A carefully constructed set of scenarios can highlight future risks
and opportunities, providing managers with the information needed to assess the effectiveness of
alterative strategies and expanding an organization's understanding of future risk by systematically
exploring plausible futures (Susskind 2010). Scenarios presume that in a highly uncertain and dynamic
situation there is no single best strategy, but rather a portfolio of strategies that allows an organization
to be prepared as conditions change (Susskind 2010).
23
Figure 1: Climate change adaptation as a risk management process
ldentifvI current and
tbtffl-v ChIll-Itt-'
clia ngcs t elevan t to
the ,,vstenl
Monitor and
mnplemented
adaptation option
sI
,kcsse.,I s Vtdilerabilitic's
to Ow svStctm undor a
futurc, C(Mdition-
Develop an
adaptation strategy
bascd (In ;ul appraisal
adaptation options
L
Identifyoprtiie
L
,Idaptatioll
option",
Ir co-benefits across
Source: NRC 2010.
"No-regrets" or "reversible" adaptation strategies tend to perform well in light of an uncertain
future (Hallegatte 2008). No-regrets strategies yield benefits even if climate change impacts do not
materialize as predicted and reversible strategies allow a utility to change course if unanticipated
problems arise or the measure proves ineffective (Hallegatte 2008). Energy efficiency is an example of a
no-regrets strategy, because it delivers cost savings regardless of how exactly the climate changes
(Hammer et al. 2011b). No-regrets and reversible strategies tend to be "soft" strategies because they
imply much less path dependency and irreversibility than "hard" adaptation investments (Hallegatte
2008). For example, demand side management can help avoid large-scale investments in generation or
reinforcement and extensions of T&D networks that are not easily undone (Ebinger & Vergara 2011).
Nevertheless, demand side management faces significant barriers to implementation, such as
behavioral, policy, and institutional barriers (Ebinger & Vergara 2011).
Because electricity infrastructure is highly connected to other forms of essential services and
because there are many demands on electricity systems (i.e. reliability, economic development, reduced
emissions) risk management process should also seek to identify adaptation strategies with co-benefits
across sectors and across policy goals (Wilbanks et al. 2012b) Identifying strategies with co-benefits
across sectors requires engagement with stakeholders outside of the utility. No one institution can
24
assess all of the risks and adaptation options in the electricity sector. As such, collaborative risk
management that enables stakeholder groups to engage in constructive discourse, information sharing,
strategy development, implementation, and monitoring and evaluation is critical (Wilbanks et al. 2012b;
Susskind 2010; NRC 2010). Furthermore, bundling climate change adaptation with other agendas is
"virtually certain to attract more widespread buy-in" (Wilbanks et al. 2012b: 53).
The timing of adaptation investments should also be a consideration in climate change risk
management. Given that many electricity infrastructure investments are long lived, early adaptation
action will generally be less costly and more effective than repairs or retrofits (Ebinger & Vergara 2011).
In addition to being long lived, electricity infrastructure and equipment have finite lifetimes, so in any
given year, many items are due for replacement (Wilbanks et al. 2012). Taking advantage of
opportunities provided by infrastructure and equipment replacement can help move systems towards
being better adapted at a lower cost (Wilbanks et al. 2012; Hammer et al. 2011a). Smaller investments
in infrastructure with a shorter lifespan span may allow for greater flexibility in upgrading and
incorporating of the latest climate knowledge in system design (Hallegatte 2008).
Innovation can also help reduce the costs of adaptation. There are likely alternatives for reducing
risks that require going beyond currently available technologies and practices (Wilbanks et al. 2012).
Innovative approaches can often reduce the net cost, but legal, regulatory, and policy barriers may need
to be addressed in some cases (Wilbanks et al. 2012). Utilities can promote innovation with internal
incentive structures that promote and reward innovative risk management. In addition, utilities can
advocate for changes to regulation or policy that would help unlock innovation.
Summary ofAppropriate Approach to Electric UtilityAdaptation
-
Assess vulnerabilities under a range of possible future trends and conditions using tools such as
vulnerability assessments and scenario planning (Wilbanks et al. 2012b; NRC 2010; Susskind
2010).
e
Reduce known vulnerabilities to climate change impacts through changes to technologies,
materials, and business strategies (Wilbanks et al. 2012b).
e
Prioritize flexible adaptation strategies that do not close off future options (Hallegatte 2008).
-
Monitor, evaluate and learn from emerging experience with impacts and adaptation responses
(Wilbanks et al. 2012b).
e
Focus on replacement opportunities provided by infrastructure and equipment toward the end
of their lifetime for greater cost-effectiveness (Wilbanks et al. 2012b; Hammer et al. 2011b).
25
e
Through collaborative risk management, develop strategies with co-benefits with other sectors
and other agendas to address the interconnected nature of electricity infrastructure and attract
more widespread buy-in (Wilbanks et al. 2012b; Susskind 2010).
e
Identify and engage stakeholders and ensure they are well-informed and their input is taken
into account (UKCIP 2007). Stakeholder engagement should enable constructive discourse,
information sharing, and partnerships that allow institutions to take on risk management roles
for which they are best suited (Wilbanks et al. 2012b; Susskind 2010).
e
Promote innovation through internal structures and incentives and policy and regulatory
advocacy when needed (Wilbanks et al. 2012). Search for strategies to reduce risk that go
beyond currently available technologies and practices.
A concept that is related to climate change adaptation is disaster risk reduction (DRR). Disaster
risk reduction seeks to minimize disaster risks through prevention, mitigation, preparedness, and
recovery (Weaver, 2009). DRR is also a risk management activity, but it addresses both environmental
and human induced hazards, such as hurricanes, earthquakes, and oil spills. Climate-related hazards are
only one type of hazard that DRR addresses (Weaver 2009).
Climate change adaptation is different than DRR, because it seeks to address the long-term
impacts of climate change (Weaver 2009). Whereas DRR focuses on reducing foreseeable risks based on
previous experience, climate change adaptation seeks to manage risks outside of the realm of historical
experience (Weaver 2009). As such, climate change adaptation originates with and requires continued
engagement with scientific projections of how the climate will change over the long-term (Weaver
2009). Due to the uncertainty associated with climate change, adaptation also has a greater emphasis
on adaptive management and flexibility, that is, monitoring both the climate science and effectiveness
of adaptation options over time and being able to adjust to new and unexpected conditions (NRC 2010).
Key Enabling and ConstrainingFactors
A firm's approach to adaptation is strongly influenced by the regulatory context, market
context, external resources (financing, skills, and expertise), and by interactions with actors outside the
organization (Berkhout et al. 2006: 149). Given that utilities are regulated as natural monopolies,
regulation and other government policies are undoubtedly key factors for enabling or constraining
adaptation, but financial rewards will remain a prime motivator for investments (Ebginer & Vergara
2011: 70). As such, this section discusses the utility business model, regulatory policies, and other
26
government policies surrounding electric utilities that are likely to play a significant role in enabling or
constraining adaptation efforts.
Business Model
Electric utilities carry out many of the core functions of the electricity sector, but exactly which
functions an electric utility carries out depends on whether it is vertically integrated or restructured
(RAP 2011). A vertically integrated utility (1) generates electricity at power plants that they own, (2)
purchases additional electricity needed for distribution, (3) distributes electricity, and (4) sells electricity
to its customers and other utilities (RAP 2011). This type of utility earns revenue by generating electricity
at their own plants and transporting it to customers. A restructured utility participates in two functions:
(1) purchasing electricity in wholesale markets and (2) distributing it to customers (RAP 2011). This type
of utility generates revenue by transmitting electricity to customers or other utilities (RAP 2011).
There are also different ownership models for utilities. Investor-owned utilities (1OUs) are forprofit corporations owned by public or private shareholders (Shively & Ferrare 2007). They serve almost
70 percent of customers in the U.S. and sell almost 60 percent of the electricity consumed (APPA 2012).
Consumer-owned utilities (COUs) are comprised of municipal utilities, utility districts, and cooperatives
(RAP 2011). They are more numerous than IOUs and serve about 30 percent of the population (APPA
2012). Due to time constraints, this paper focuses primarily on investor owned utilities because of their
dominant economic role in the sector. Many research findings are applicable to COUs, but they are less
influenced by state regulatory policy and more influenced by local policy (RAP 2011).
Regulatory Context
Electric utilities are regulated as "natural monopolies," so regulators determine how a utility
recovers its costs and its rate of return on investment (RAP 2011). Because utility profits and incentives
are tied to regulation, utilities care a great deal about regulation and the opinion of regulators (RAP
2011). Most utility regulation takes place at the state level with state regulatory commissions that are
elected or appointed by governors and are charged with protecting public health and safety while also
keeping electricity affordable (RAP 2011).
Each state regulatory commission's authority differs according to its authorizing statute and its
interpretation of that statute (RAP 2011). Some commissions are cautious in their interpretation while
others interpret public interest obligations as providing authority to regulate more widely (RAP 2011).
Most state regulatory commissions, however, perform the functions described below in Table 5 (RAP
27
2011). The table also includes ways that these functions could service as factors enabling adaptation at
electric utilities. These functions could also be constraints if carried out without sensitivity to climate
change impacts.
Table 5: Utility Commission Regulatory Functions and Potential Adaptation Enabling Role
Common Regulatory Commission Functions
Determine the revenue requirement and
utility rates
Set service quality standards and consumer
protection requirements
Oversee the financial responsibilities of the
utility, including reviewing and approving
capital investments and long-term planning
Review and approve comprehensive supply
resource plans
Approve the entry of competitive retailers into
the state's market
Potential Enabling Roles for Adaptation
Guidance on eligibility of adaptation-related
investments for rate reimbursement; Structure
utility rates to enable demand responsiveness
(Ex: dynamic pricing)
Require robust storm plans and conduct
evaluations and drills.
Examine adaptation-related investment and
require long-term planning take climate
change impacts into account.
Require that resource plans are tested against
future scenarios that include climate change
projections and uncertainties; Provide
opportunities for collaborative decision
making.
Allow microgrids and ESCOs to operate in
utility service territory to provide customers
with energy management options
Source: Adapted from RAP 2011
In addition to the potential enabling role that regulation can play, traditional utility regulation
has the potential to constrain adaptation in at least two important ways: the tendency to overvalue
capital-intensive investment and the tendency to increase throughput of electricity. Traditional utility
regulation may cause utilities to use capital-intensive adaptation strategies even if "soft" strategies have
greater efficacy. This tendency is due to the Averch-Johnson Effect, which suggests that utilities will
overbuild because their allowed rate of return is a function of their capital investment (Averch &
Johnson 1962; RAP 2011). According to this theory, a company that is allowed a return on investment in
excess of its actual cost of capital will tend to over-build its system (RAP 2011).
Regulators try to overcome this tendency through "prudence reviews," in which regulators
determine if a new facility was built in an economic fashion (RAP 2011). If a regulatory commission
deems the planning or construction imprudent, it may disallow a portion of the investment, refusing to
pass along the costs to customers (RAP 2011). Prudence reviews reduce the incentive to over-
28
investment in capital-intensive projects or "gold-plate" the system and help protect consumers from
exceedingly high rates (RAP 2011).
Like other utility investments, adaptation-related investments will likely need to be deemed
"used and useful" under prudency review if the costs are to be passed on to customers. Recent research
has raised the concern that regulators and utilities "may increasingly find themselves in situations
where, because of uncertainty over the exact severity or timeliness of climate change risks...it is unclear
whether capital investments proposed by utilities to enhance the climate resilience of their distribution
system will be eligible for rate reimbursement" (Hammer et al. 2011b: 280). Although adaptationrelated investments may serve public interest goals, such as safety and reliability, regulators must
balance those goals with keeping prices at reasonable levels. Hammer et al. suggests that guidelines
clarifying this matter may be helpful for utility capital investments and maintenance planning (2011b).
Under traditional regulation, utilities also have a throughput incentive, which refers to the
incentive to increase the volume of electricity utilities transmit through their wires to increase revenue
(RAP 2011). Demand side strategies, such as energy efficiency and distributed generation, are key
strategies for reducing the electricity system's sensitivity to climate change impacts, such as peak
demand during heat waves (Ebinger & Vergara, 2011; Hammer et al. 2011b). However, demand side
managment often reduces the amount of electricity being transmitted through a utility's wires.
Therefore, an important element of regulation is whether utilities can generate revenue independently
of transmitting more electricity, otherwise they are likely to resist demand side strategies that would
reduce electricity sales and their revenues (RAP 2011).
Regulators have devised a number of policy tools to overcome the throughput incentive,
including decoupling, incentives, and mandates (RAP 2011). Decoupling policies are designed to ensure
that utilities' revenue is independent of their sales volume (RAP 2011). This policy removes the utility's
disincentive for energy efficiency or other measures that reduce consumer usage levels. Another tool is
incentives for preferred actions or performance (RAP 2011). Some commissions have established
incentives to reward utilities achieve specific goals, such as a bonus to the rate of return for exceeding
energy efficiency goals or penalties for failure to maintain commission-established goals for reliability
(RAP 2011). Regulators could potentially use incentives for preferred actions in accordance with
adaptation strategies. Lastly, commissions often require utilities to meet mandates on investment in
energy efficiency and renewable energy (RAP 2011).
29
Other regulatory tools
Integrated Resource Planning (IRP) requires a utility to develop a publicly available plan for the
best way to meet consumer needs over time, usually from ten to twenty years (RAP 2011). IRPs are
developed with the involvement of the regulator and often include other stakeholders, such as the grid
operator and environmental and consumer advocates (RAP 2011). IRPs evaluate how electricity demand
could change over time and the range of supply and demand options for meeting future needs, including
new power plants, distributed generation, and energy efficiency (RAP 2011). IRPs evaluate resource
mixes for cost-effectiveness across a range of future scenarios (RAP 2011). Weather and population
change are often included in the future scenarios and researchers have argued that IRPs can also include
climate change impacts and uncertainties in existing analysis methods (Coughlin & Goldman 2008). One
challenge that arises, however, is that resource planning is distributed across several types of
organizations that operate at different spatial scales (Coughlin & Goldman 2008). For example, a utility
may operate within a single county, whereas a grid operator may cover several states. It's important
that the incorporation of climate change impacts in the analysis preserve the spatial variations in
weather systems (Coughlin & Goldman 2008).
Forward-looking planning processes, such as IRPs, provide an opportunity for regulators to
incorporate collaborative decision-making into the processes for developing plans and agreements.
Compared to traditional regulatory procedures, collaborative processes allow for greater stakeholder
participation, improved working relationships, and joint fact-finding (Raab 1994). These efforts tend lead
to agreements that all parties are more committed to, leading to improved implementation and fewer
appeals (Raab 1994). Collaborative efforts have been used to design demand side management
programs and integrated resource management plans (Raab 1994). Given the complexity and
uncertainty of climate change impacts, regulators utilities, and other stakeholders would likely benefit
from collaborative problem solving regarding adaptation.
Regional Regulation
In many parts of the country, regional grid operators, also known as independent system
operators (ISOs), control the electric grid and operate regional wholesale electric markets (RAP 2011).
They determine when and which power plants input electricity on the grid and ensure that it flows
where needed. ISOs also plan transmission infrastructure (RAP 2011). ISOs could play an indirect role
enabling utility adaptation by incorporating climate change impacts in the transmission planning process
30
(Coughlin & Goldman 2008) and by managing their wholesale markets so that energy efficiency and
demand response can participate as resource providers (Ebinger & Vergara 2011).
Federal Regulation
The Federal Energy Regulatory Commission (FERC) regulates the transmission of electricity
across states and the regional wholesale markets administered by the Independent System Operators
(RAP 2011). FERC also regulates the planning processes that the ISOs undertake and their tariffs and
conditions of service. Except when a utility owns interstate transmission, FERC does not directly regulate
electric utilities, but it greatly shapes the electricity markets in which utilities are participants.
FERC also regulates reliability of the interstate power system. In 2003, the Commission
designated the North American Reliability Corporation with the responsibility to develop and enforce
standards to ensure the reliability of the interconnected interstate power system, including standards
that address vegetation management, emergency preparedness, and transmission planning (FERC 2012;
NERC 2013). Lastly, to help support the modernization of the Nation's electric system FERC is focusing
on advancing issues associated with a smarter grid, such as demand response and advanced metering
(FERC 2012).
State and Local Policy Context
State and local governments play an important role in shaping the policy context around utilities
and climate change adaptation. As of 2012, at least 13 states have climate adaptation plans and
numerous states have created sector specific plans that consider long-term climate change, such as
coastal management plans (Bierbaum et al. 2012). Most adaptation efforts to date, however, have
occurred at the local and regional levels (Bierbaum et al. 2012). Local governments are using the tools in
their authority for adaptation: land use planning, provisions to protect infrastructure and ecosystems,
building codes, and emergency preparation, response, and recovery (Bierbaum et al. 2012). Several
cities have moved passed the planning stage and are now implementing adaptation strategies
(Bierbaum et al. 2012), but adaptation is still a relatively new concept among local governments (Carmin
et al. 2009). Moreover, the energy sector has been less often studied in local-level adaptation planning
than sea level rise, health, and water resources (Hunt & Watkiss 2010).
One of the challenges for local government involvement in electricity sector adaptation is that
many cities lack direct regulatory authority over the local utility (Hammer et al. 2011a). As such, in order
to advance an agenda of increased climate resiliency of the electricity system, local officials must pursue
31
advocacy, education, or partnerships rather than direct regulation (Hammer et al. 2011a). An exception
is municipal utilities, which are generally subject to control by the City Council (RAP 2011).
Despite these challenges, some of the limited literature on the subject indicates that local level
adaptation planning can influence electricity sector adaptation. For example, in New York State, climate
change adaptation is a new area of focus for energy companies and few have engaged in comprehensive
assessments of their climate change-related operating vulnerabilities (Hammer et al. 2011a). The
exception, however, were companies operating in New York City, many of whom were involved in a
climate change adaptation initiative led by the city's Office of Long Term Planning and Sustainability
(Hammer et al. 2011a). These companies tended to have internal working groups, developed new
policies or procedures, or began to make operational changes with climate change impacts in mind
(Hammer et al. 2011a).
32
IV. Survey Findings
This chapter discusses findings from the analysis of investor owned utility responses to Carbon
Disclosure Project (CDP) surveys regarding the climate change adaptation activities they are currently
pursuing. For a more detailed discussion of the methodology, please see Chapter II.
Approximately a quarter of utilities that responded to the CDP survey reported no adaptation
measures or the measures they did report did not qualify as adaptation according to the literature. An
example of a reported measure that does not qualify as adaptation is "Dominion ... focuses on
monitoring weather and responding to weather events," because it only discusses weather and not
climate nor does it discuss a enhancement of weather monitoring as a result of considering climate
change impacts. Another example of a reported measure that does not qualify is "The company is not
actively planning to manage or adapt to changes in Great Lakes water levels or temperatures," which
recognizes a potential climate change risk, but indicates that the company is not currently planning on
managing that risk.
Given the limitations of the CDP survey, including potential response bias due to its voluntary
nature, it's difficult to extrapolate from this data to say that a quarter of utilities are not engaged in
climate change adaptation. Nevertheless, the finding of a quarter of utilities not reporting any
adaptation is not surprising given that, according to the literature, the electricity sector has been very
focused on mitigation while adaptation has been underrepresented in action and investment (Ebginer &
Vergara 2011).
The adaptation measures reported in the surveys were analyzed according to the categories and
subcategories found in Table 4 of the literature review. The most common categories of adaptation
measures that utilities reported were (1) transmission & distribution, (2) planning activities, and (3)
supply. These three categories account for nearly three-quarters of all adaptation measures.
33
Figure 2: Number of adaptation measures by category
40
35
30-25
-
20
15
10 +
50
+-----
Supply
-----
----
Transmission Demand Side
Internal
Planning
Education,
Additional
Management
&
Distribution
Capacity
Building
Activities
Advocacy,
Research
Insurance
Source: Author analysis of 2012 CDP survey data
Transmission and distribution (T&D) adaptation measures are heavily concentrated in the subcategory of capital investments while operational changes were much less common. In fact, the most
commonly reported adaptation measure across all categories was capital investments in T&D: it
accounts for 24 percent of all adaptation measures reported in the surveys. Examples of reported T&D
capital investments include investments in smart grid technologies, including automation and advanced
metering, investment in new transmission lines, hardening T&D to better withstand wildfires, hardening
T&D to withstand extreme weather, and undergrounding lines. The T&D operational changes reported
were nearly all enhancements in vegetation management.
Figure 3: Detail on transmission & distribution-related adaptation measures
30
25
20
15
101
5
0
-
-----
~ ~..
Capital investments in T&D Operating practice changes in
T&D
Source: Author analysis of 2012 CDP survey data
34
There could be several reasons for the concentration of adaptation measures in capital
investment in T&D. According to the literature, T&D systems are potentially vulnerable to flooding,
extreme heat, high winds, and ice (Ebinger & Vergara 2011; Wilbanks et al. 2012b). Perhaps the physical
characteristics of T&D systems require considerable investment in order to maintain and upgrade the
complex network of wires, poles, transformers, circuits, and substations in the face a changing climate.
Another potential reason is that electric utilities may also be influenced by the fact that capital
investments, if approved by regulators, contribute to their revenue requirement (RAP 2011). More
focused research is needed to understand if in fact regulatory incentives are leading to a concentration
of adaptation measures in capital investment in T&D and the potential implications.
Compared to transmission & distribution, supply-related adaptation measures are more evenly
distributed between capital investments and operational changes. Examples of reported capital
investment in supply include solar power development, building more cooling ponds, lowering pump
intakes, and acquiring generation resources that use less water. Examples of operational changes in
supply include water efficiency measures, using a different water source, fuel diversification, and
changes to fuel delivery and inventory.
Several factors may contribute to supply adaptation measures being more distributed across
capital investment and operations. Compared to the T&D system, supply infrastructure is more
concentrated in large assets, namely power plants. As such, utilities may make less frequent, but larger
one-time adaptation-related investments compared to more frequent investments in T&D
infrastructure. In addition, the operational changes to supply reported in the surveys consisted primarily
of changes in water use and fuel management. Power plants have these inputs (water and fuel) that
have the potential to be modified to help cope with climate change impacts.
Figure 4: Detail on supply-related adaptation measures
12
10
8
6
4
0
Capital investments in
supply
Operating changes in
supply
Source: Author analysis of 2012 CDP survey data
35
After transmission & distribution, the second most frequently reported category was planning.
The vast majority of reported planning measures are internal to the utility rather than driven by external
stakeholders. It is encouraging that utilities consider these planning processes as useful measures for
adaptation. However, it's unclear from the CDP responses if these planning processes are sufficiently
taking into account climate change risks. Behavioral strategies, such as planning, need to incorporate
climate change risks in order to be effective as adaptation strategies (Ebinger & Vergara 2011). Half of
the internal planning measures were in the sub-category of emergency preparedness and response,
which may reflect that utility planning is more focused on disaster risk reduction than on climate change
adaptation. Emergency planning is important considering that extreme events may be the most
disruptive element of climate change for electric utilities (Wilbanks et al. 2012b). However, emergency
plans may not be taking into account the increased uncertainty of weather-related impacts as a result of
climate change and may not sufficiently account for climate change risks that are not extreme weather
events, such as drought or sea level rise.
Another issue that is left unresolved by the survey analysis is whether the planning processes
being used have sufficiently long planning horizons to account for climate change risks. While Integrated
Resource Plans are considered long-range plans, their planning horizon is 10 to 20 years (RAP 2011),
which is not long-term with regards to climate change risks and the lifespan of a lot of electricity
infrastructure. Climate change risk assessment and adaptation strategy development is long-term in
nature, but it was the least frequently reported type of planning. In addition, given that "the starting
point for any risk management strategy is a vulnerability assessment," it is disappointing to see that
more utilities did not report conducting climate change risk or vulnerability assessments (Wilbanks et al.
2012b: 53).
36
Figure 5: Detail on planning-related adaptation measures
12---10
8
4
-
-
6
~
-
~ ---
---
2
0
Internal planning:
emergency
preparedness and
recovery
Internal planning: Internal planning: risk External adaptation
planning
assessment,
resource planning
adaptation strategy
Source: Author analysis of 2012 CDP survey data
"Demand Side Management," which includes energy efficiency, demand response, energy
conservation, and distributed generation, accounted for 8 percent of adaptation measures. The low
reporting of demand side management is surprising considering that the literature calls energy
efficiency an excellent "no-regrets" strategy (Hallegatte 2008). In addition it provides greater flexibility
by helping to avoid investments in fixed T&D or generation infrastructure (Hallegatte 2008). Perhaps
barriers to demand side management are resulting in the comparatively low reported use of that
strategy or perhaps demand side management does not provide as many adaptation benefits as the
literature would suggest.
"Education, Advocacy, and Research," accounted for 9 percent of adaptation measures. Only
two utilities reported a customer education activity, two utilities reported regulatory advocacy, which
was revenue recovery advocacy in both cases, and one utility reported other forms policy advocacy. The
lackluster reporting in this adaptation category is of concern, because one of the principles of
adaptation is to engage stakeholders and ensure that they are well informed (UKCIP 2007; Susskind
2010).
Conclusions
The CDP survey is not as powerful a tool for understanding the current state of electric utility
adaptation as I had anticipated. The limited participation and open-ended nature of the questions limit
the generalizability and reliability of the findings. Given these limitations, a government agency, such as
FERC, should consider developing a mandatory climate change adaptation survey for electric utilities,
37
similar to the surveys and assessment about the state of demand response and advanced metering that
FERC conducts. A mandatory survey would provide a much more robust and reliable picture of the state
of climate change adaptation among electric utilities. Furthermore, the act of a government agency
asking these questions would raise the level of interest and concern about managing climate change
risks among decision-makers in utilities. Raising awareness among utilities is an important goal in and of
itself, because a quarter of the utilities responding to the CDP survey did not report any adaptation
measures, or those measures that they did report did not qualify as adaptation according to the
literature. Lastly, as opposed to open-ended questions, a climate change adaptation survey of utilities
should be structured similarly to Table 4, according adaptation categories and subcategories that pertain
to the electric utility functions.
Despite the limitations of this CDP survey analysis, the findings point to interesting trends. First,
adaptation measures are highly concentrated in capital investment in T&D. More research is needed to
understand why this is the case. The study has put forth two hypothesis based on the literature: (1) T&D
systems are particularly vulnerable to climate change impacts, (2) regulation incentivizes capital
investments over other types of activities. Planning was also a common category of adaptation measure,
but climate change risk assessments and adaptation strategies were rarely reported. Instead, emergency
planning and resource planning were much more common. However, these types of plans may not have
long-enough time horizons to sufficiently account for the climate change risks facing utilities. Lastly,
demand side management only accounted for 8 percent of the reported adaptation measures, which is
surprising given the literature's description of demand side strategies as being "no-regrets" and
"flexible."
38
V. Con Edison Case Study
Background
Consolidated Edison (Con Ed) serves New York City and Westchester County with electricity,
natural gas, and steam (SEC 2012a). The company provides electricity to approximately 3.3 million
customers (SEC 2012a). Con Ed operates in a restructured market, so it is primarily a transmission and
distribution (i.e. wire only) company that purchases, rather than produces, 90 percent of the electricity
it delivers to customers (SEC 2012a). Although Con Ed sold most of its electricity generation units during
industry restructuring in the mid 1990s, it continues to own and operates steam generators for the
network in Manhattan (SEC 2012a). The New York State Public Service Commission (PSC) has regulatory
authority over Con Ed and sets the rate of return and revenue requirement.
Con Ed's distribution network is one of the densest in the world: it consists of 90,000 miles of
underground distribution lines and 55 distinct networks (Zimmerman & Faris 2010). While the
underground nature of the network in New York City makes it less vulnerable to high winds, much of the
infrastructure is located in low-lying, coastal areas that are vulnerable to flooding and sea level rise
(Zimmerman & Faris 2010). In addition, the highly urbanized nature of New York City makes it more
prone to the heat island affect (Rosenweig et al. 2006). As discussed in the literature review, the urban
heat island affect refers to higher temperatures in cities compared to surrounding regions as a result of
the large amount of surfaces that absorb heat. The potential for heat waves to be exacerbated by
climate change and the urban head island affect means Con Ed's system is potentially vulnerable to
reliability problems from high temperatures and peak demand (Hammer et al. 2011a). Con Ed's
distribution system in Westchester County, on the other hand, is primarily above ground and in
suburban context. The tree canopy in the area makes the system vulnerable to high winds, which can
cause trees to fall and bring down wires (Westman Interview 2013).
39
Figure 6: Con Ed Service Territory Map
Source: www.coned.com
The climate change impacts identified by Con Ed in publically available documents and
interviews closely matches the climate change impacts identified in the literature. Nevertheless, Con Ed
appears to be more concerned about extreme events, such as hurricanes, extreme winds, and heat
waves, than potential gradual changes in climate (Westman 2012; Interview 2013). This pattern matches
the literature on climate change vulnerability in the electricity sector, which says that extreme events
will likely have a greater impact on electricity infrastructure than gradual changes (Wilbanks et al.
2012b). Decision-makers also often perceive that adapting to risks of extreme events is different and
more challenging than adapting to gradual changes (Wilbanks et al. 2012b).
Summary of Potential Climate Change Impacts in Con Ed Service Territory (Horton et al. 2010).
*
*
e
*
*
Long-term changes in mean annual temperature
Increases in frequency, intensity, and duration of heat waves
Long-term change in mean annual precipitation
More frequent and intense precipitation events
More frequent drought
40
e
-
Sea Level Rise
Likely increase in intense hurricanes
Likely increase in extreme winds
Approach to Adaptation
Understanding and evaluating the company's overall risks and opportunities from climate
change is a primary responsibility of the Environmental Health & Safety (EH&S) group and is overseen by
the Climate and Sustainability Manager (Westman 2012). EH&S works with the Emergency Management
group to assess overall physical impacts and risks posed by climate change to company-owned assets
(Westman 2012). The EH&S Committee of the Board of Directors meets four times a year, at which time
it receives internal updates. Con Ed's EH&S Vice President reports directly to the Board on the
company's climate change activities (Westman 2012).
Although the Emergency Management Department and EH&S Departments can identify climate
change risks and impacts, the business operating units have the primary responsibility for managing the
risks (Westman 2012). These operating units develop infrastructure assessments and capital plans that
incorporate strategies to deal with those climate change risks (Westman 2012). Those capital plans can
then be incorporated into rate cases that are submitted to the PSC and if approved, the costs are passed
on to customers in their billable rates (Westman 2012). As a result of using this risk management
approach, "a lot of adaptation strategies are paired on top of existing business model type valuations"
(Westman Interview 2013). Incorporating climate change risks into capital plans makes it more likely
that the company is using replacement opportunities to upgrade infrastructure and developing
strategies that recognize competing demands for resources.
Con Ed's participation in the New York City Adaptation Task Force in 2008 was influential for Con
Ed in terms of providing information about the long-term climate change risks that the company is
facing (Westman Interview 2013). The New York City Mayor's office launched The York City Adaptation
Task Force to identify risks and opportunities for the city's critical infrastructure (Major & O'Grady
2010). Con Ed was one of 40 members of the Task Force comprised of public authorities and private
companies that operate, maintain, or regulate critical infrastructure in the region (Major & O'Grady
2010). While working with the Adaptation Task Force, Con Ed completed a comprehensive risk
assessment of key pieces of its infrastructure potentially at risk from climate change impacts (Westman
2012). The assessment considered capital cost and operational impacts on the company as well as the
health, economic and environmental impacts on New York City (Westman 2012; Major & O'Grady 2010).
A panel of experts from academia, and the legal, engineering, and insurance industries called the New
41
York Panel on Climate Change (NPCC) advised the Task Force (Major & O'Grady 2010). The NPCC was
funded by a $350,000 grant from the Rockefeller Foundation (NYC 2009).
The risk assessment that Con Ed completed during the NPCC process has not been made
publically available, but the risk assessment tools that Con Ed and the rest of the Adaptation Task Force
used have been published as an "Adaptation Assessment Guidebook" (Mayor & O'Grady 2010). The
Guidebook includes infrastructure questionnaires, a risk matrix, and a prioritization framework. The
infrastructure questionnaires were created in partnership with the Boston Consulting Group to help
infrastructure operators identify infrastructure at risk to climate change impacts. The Risk Matrix is a
tool to help categorize risks based on the probability of a climate hazard, likelihood of an impact, and
magnitude of consequence should the impact occur. The Prioritization Framework is a tool to help
stakeholders develop and prioritize adaptation strategies.
The risk assessment was completed in conjunction with the Climate Risk Information (CRI)
workbook that contains downscaled climate change projections for the New York Region provided by
the NPCC (Horton & Rosenzweig 2010). When Con Ed participated in the Adaptation Task Force,
representatives from Con Ed engaged with scientists from the NPCC regarding the types of climate
change projections would be most useful to them (Freed Interview 2013). The CRI includes projections
for temperature, precipitation, and sea level rise for three emissions scenario and for three time periods
(2020, 2050, 2080) (Horton & Rosenweig 2010). The CRI also includes projections for extreme events:
heat waves, cold events, intense precipitation, drought, coastal floods and storms (Horton & Rosenweig
2010). It also includes qualitative projections for extreme events that are too uncertain at local scales to
allow for quantitative projections: heat indices, frozen precipitation, downpours, lightning, and largescale storms (Horton & Rosenweig 2010).
The impacts from Hurricane Sandy in 2012 have forced Con Ed to reevaluate some of its
previous assessments of risk and the effectiveness of its adaptation strategies. "We have this
infrastructure, we thought we were taking good management approaches and yet some of those
systems still catastrophically failed. We are asking ourselves what is our appetite for risk and what are
the costs of managing the risks? That's where we have to take a step back and think about the real
probability that this will happen again and the repercussions" (Westman Interview 2013). Hurricane
Sandy resulted in 825,000 million Con Ed customers losing power when storm surge flooded
underground equipment and high winds brought down overhead power lines (Con Ed 2012; NYS 2013).
The power outages severely affected other vital services, such as communications, healthcare,
transportation, drinking water supplies, and wastewater treatment (NYS 2013). While the New York
42
region has been hit by several destructive storms in recent years, such as Hurricane Irene, Tropical
Storm Lee, and an ice storm in 2008 (NYS 2013), the power outages resulting from Hurricane Sandy far
exceeded previous storms. The previous record number of storm outages in Con Edison service territory
was 203,000 customers from Hurricane Irene in 2011 (Con Ed 2012).
According to Mr. Westman, since Hurricane Sandy, a group of senior management has come
together to develop a storm-hardening strategy (Interview 2013). Mr. Westman said that it was too
early to comment on their progress, but that the formation of this group provides the opportunity to
consider more expensive options for reducing storm damage, such as undergrounding of electric
systems. The group would be looking at cost-benefit analyses, for example, comparing the costs of
undergrounding with the costs of frequent repairs and vegetation management for above ground lines.
The evidence of this thinking is evident in Con Ed's latest rate case proposal to the PSC in January 2013.
The company plans to spend $1 billion through 2016 on transmission and distribution capital
improvements to avoid a repeat of damage caused by Hurricane Sandy, including flood- proofing
equipment in low-lying areas, undergrounding power lines, and building higher flood walls around
substations (Johnsson 2013).
Adaptation Strategies
Capital Investment in Transmission and Distribution (T&D)
Con Ed considers investments in maintaining and upgrading their transmission and distribution
infrastructure an important part of their climate change adaptation strategy (Westman Interview 2013).
These investments include installing upgraded cables and transformers that can better withstand heat
waves or installing new poles that can better withstand high winds (Westman Interview 2013). These
types of investments are financed through rate cases, but have not been labeled as climate change
adaptation, but rather as old infrastructure in need of replacement and upgrading (Westman Interview
2013).
In addition to the effort to upgrade and maintain T&D infrastructure, Con Ed is also making
capital investments to manage coastal flooding risks. The company has engaged in efforts to both
retrofit existing equipment and factor risks into the design of new equipment. Since 2007, the company
has been replacing transformers in areas most prone to flooding with saltwater submersible
transformers (Hammer et al. 2011a; Westman 2012; Marritz 2013). This initiative was undertaken
voluntarily at a cost of $7 million (Hammer et al. 2011a). The company is also factoring flood levels into
the design of new substations (Westman 2012).
43
Con Ed has also been evaluating investments in smart grid technologies through pilot projects.
As discussed in the literature review, smart grid has the potential to provide adaptation benefits
including quicker recovery from outages and the integration of distributed resources (Schwartz 2010;
Wilbanks et al. 2012). The company appears to be taking an incremental and measured approach to
smart grid. In 2009, Con Ed implemented a smart meter pilot project that installed and evaluated the
impact of 1,500 smart meters in Queens (Akam 2009; Westman 2012). In 2010, the company also
received a $136 million grant from the Department of Energy (DOE) to help finance automation
improvements to the T&D system, including installing more switches, monitoring devices, and
technologies to help integrate renewable energy and electric vehicles into the distribution system (DOE
2011; Westman 2012). While DOE did not name adaptation to climate change impacts as an explicit
purpose of the project, goals included deferring additional investment in increasing the capacity of the
distribution network and to increase efficiency and reliability of the grid. These goals closely resemble
some of the no-regrets adaptation strategies discussed in the literature review (DOE 2011; Hallegatte
2008).
Con Ed also works with the Electric Power Research Institute (EPRI) and electric cable
manufacturers to develop and install new cable technology that could help accommodate distributed
generation (Westman 2012). Con Ed is also developing strategies for integrating electric vehicles (EVs)
into their distribution system (Westman 2012). Con Ed considers electric vehicles as a business
opportunity as a source of more demand for electricity (Westman 2012). Nevertheless, there is a lack of
research that explicitly evaluates the usefulness of EVs as an adaptation strategy.
Coastal Storm Plan
Con Ed considers its Coastal Storm Plan an important part of its adaptation strategy (Westman
2012; 2013). Dave Westman describes this strategy as "creating a management structure that facilitates
rapid response" (2013). The Coastal Storm Plan guides the company before, during and after a coastal
storm (Westman 2012; 2013). Con Ed also has an Emergency Management Team and an Incident
Command Center coordinate emergency planning and response (Westman Interview 2013).
After Hurricane Sandy, Governor Cuomo appointed the "Moreland Commission" to study utility
storm preparedness (NYS 2013). In an interim report, Commission found that, "while on paper, Con Ed's
storm response plan may appear adequate, the application of that plan during Sandy appears to
demonstrate that the plan provided little guidance to the utility in addressing the impact of the kind of
significant tidal flooding that occurred" (NYS 2013). Dave Westman of Con Ed also remarked that the
44
tidal flooding seen during Sandy was out of the range that they had expected to see: "The numbers were
so far of the charts. 14-foot storm surge was unbelievable. The highest we expected was 12 feet"
(Interview 2013).
Since climate change is expected to cause more extreme events, which can be highly disruptive
for the electricity sector, enhanced emergency plans that guide utility response and recovery to such
events can be an important part of a climate change adaptation strategy (Wilbanks et al., 2012b; Ebinger
& Vergara 2011). However, the findings from the Moreland Commission raises questions of whether Con
Ed had adequately assessed the risks associated with extreme storm events that have a low probability
of occurrence, but high consequences if it they do occur. Moreover, plans that rely on historical
baselines more closely resemble disaster risk reduction than climate change adaptation, which requires
testing strategies against a range of possible future conditions (Weaver 2009; NRC 2010).
Demand side management
Con Ed has several energy efficiency and demand response programs that can help reduce strain
on the electricity system during extreme heat events resulting in high demand (Westman 2012). For
example during a heat wave in 2011, demand response programs were credited with reducing peak
demand by 500 MW (about a 4 percent demand reduction) (Westman 2012).
Con Ed's energy efficiency and demand response efforts are largely driven by the New York Public
Service Commission, which has authorized a system benefits charge to support comprehensive energy
efficiency programs (ACEEE 2013). The New York Public Service Commission also passed an Energy
Efficiency Portfolio Standard in 2008 with the goal of reducing energy consumption by 15 percent by
2015 (ACEEE 2013). While energy efficiency is a no-regrets adaptation strategy and can help address
risks associated with extreme heat, the commission's rulemaking does not discuss climate change
adaptation or climate change risk management (NYPSC 2008). However, other reports sponsored by the
State of New York, such as ClimAID and the Climate Action Council's Interim report (described below)
recommend energy efficiency and demand response as adaptation strategies (Hammer et al. 2011a; NYS
2010).
Stakeholder Activities
Con Ed also considers its participation and engagement with stakeholder adaptation efforts as
part of its adaptation strategy (CDP 2012). In addition to the New York City Adaptation Task Force
described above, Con Ed has also participated in three other climate change adaptation processes
45
convened by external stakeholders. In 2007, Con Ed participated in the New York Sea Level Rise Task
Force created by the state legislature to assess impacts to the state's coastlines and recommend
adaptation measures (DEC 2010). The Department of Environmental Conservation organized the process
and The Task Force delivered their final report to Legislature in late 2010 (DEC 2010). According the CDP
submission, Con Ed "worked with the DEC to determine the affects of sea level rise ...on energy
infrastructure" (Westman 2012). The energy sector does not appear to have been a major focal point of
the assessment as the final report has one paragraph on the risks that sea level rise poses to energy
facilities (DEC 2010). The paragraph describes how flooding of power plants can result in total loss of
service for an area, frequent inundation of T&D systems can cause deterioration potentially causing
more frequent outages, and flooding and higher water table can impede access for repair and
maintenance of underground equipment (DEC 2010: 34). The paragraph does not discuss the risk of
flooding of T&D systems causing equipment failures that result in total loss of service for an area, which
is what occurred as a result of the storm surge during Hurricane Sandy.
The final report also includes 14 recommendations regarding sea level rise vulnerability and
adaptation strategies, but the Task Force considered the recommendations a first step and in need of
further analysis (DEC 2010: 5). Furthermore, the recommendations did not have unanimous consent of
all the Task Force members. For example, the City of New York "does not support recommendations,
2,3,4,5, and 7" (DEC 2010: 6). Con Ed was also not in agreement with all recommendations, particularly
on a coastal migration zone and regulating more land as wetlands (Westman Interview 2013). In fact,
Con Ed's 2012 CDP submission says that "changes to tidal wetland regulation that restrict activities
adjacent to tidal wetlands" are a regulatory risk that could disrupt generation capacity (Westman 2012).
It's likely that participating in this process raised awareness among Con Ed management that coastal
land use regulation is an issue they will have to contend with considering they own and depend on
infrastructure in the coastal zone.
In 2009, Con Ed participated in the Climate Action Council, which Governor Paterson's office
convened with the primary task of determining how to meet the Governor's goal of reducing GHG
emissions 80 percent below 1990 levels by 2050 (NYS 2010). The Governor's office also asked the
Council to develop a plan to increase New York's resiliency to climate change. The interim report was
released in November 2010 with a chapter on climate change adaptation, which includes climate change
impacts and adaptation recommendations for the energy sector. The chapter includes several
recommendations that are pertinent to electric utilities: Incorporating climate change impacts into
electricity demand projections; Meeting demand growth and improving system resiliency with demand
46
response and energy efficiency, distributed generation, energy storage, and smart grid technologies;
Survey and assess best practices for electric and gas utility resiliency efforts; And ensure detailed maps
are available for identifying areas and infrastructure at high risk from storm and flood damage (NYS
2010). Con Ed contributed to those final recommendations.
In 2011, New York State Energy Research and Development Authority undertook ClimAID to
provide up to date information on the state's climate change vulnerabilities to assist in the development
of adaptation strategies (Rosenweig & Solecki 2011). The ClimAID report was published in 2011 and it
covers many sectors, one of them being energy. Con Ed played an advisory role in that process, meeting
with researchers and providing background information. The chapter on the energy sector details New
York's energy sector climate change vulnerabilities and discusses adaptation strategies found in the
literature (Hammer et al. 2011a). The report has a detailed analysis of how climate change might affect
energy demand in New York State with a focus on the short-term time frame (Hammer et al. 2011a:
268). The ClimAID researchers found that climate change may increase summertime peak demand by up
to 497 MW in New York City and a 4 percent increase over current peak demand in the 2020s (Hammer
et al. 2011a). The report discussed flooding and sea level rise vulnerabilities for power plants, but not
transmission and distribution infrastructure. The adaptation options in the report include using
equipment replacement cycles as opportunities to enhance resiliency, protecting or elevating
infrastructure in flood prone areas, and using side management as a no-regrets and flexible strategy for
coping with impacts (Hammer at al. 2011a).
The state level planning processes do not appear to have been as directly influential as the City
of New York Adaptation Task Force in informing Con Ed's management of climate change risks, because
they were not as focused on downscaled climate change projections and risk assessments. Nevertheless,
they raised awareness among Con Ed management and stakeholders about energy sector vulnerabilities
and potential adaptation strategies. For example, the Sea Level Rise Task Force raised awareness in Con
Ed of some regulatory challenges that they may face as a result of adaptation efforts. ClimAID and the
Sea Level Rise Task Force seem like missed opportunities to have examined the vulnerability of Con Ed's
transmission & distribution system to storm surge in advance of Hurricane Sandy.
47
Table 6: Summary of externally driven planning process
Date
2007
Name
New York State
Sea Level Rise
Task Force
Con Ed's Role
Provided input on energy
sector vulnerabilities and
SLR adaptation strategies.
20082010
New York City
Adaptation Task
Force
2009
Climate Action
Council
Developed an internal risk
assessment. Helped inform
format of climate change
projections.
Advisory, input on
recommendations
2011
ClimAid
Advisory
Outcomes
Disagreement among stakeholders on
final recommendations. Con Ed realizes
that costal land regulation may be an
issue in the future.
Provision of climate change projections
to senior engineers and managers for
risk management and capital planning
Con Ed contributes to recommendations
for more precise information on
potential impacts
Greater detail on potential climate
change impact on energy demand
Enabling and Constraining Factors
Information Resources from New York City Panel on Climate Change (NPCC)
The City of New York's Panel on Climate Change and Con Ed's participation on the Adaptation
Task Force has enabled Con Ed to incorporate climate change variables in the company's risk
management activities. According to Dave Westman of Con Ed, "partially through work at the City, we
embraced a risk-based approach to adaptation strategies.... For the last 4 or 5 years we have been
bringing the information and studies from the NPCC to the senior executives and chief engineers and
saying this is what the scientists, policymakers, and Mayor's office are saying that we should be planning
for" (Westman Interview 2013). The NPCC provided climate change projections and risk framing pieces
that the company could begin to disseminate to executives, engineers, and designers (Westman
Interview 2013). In addition, as a participant of the Adaptation Task Force, con Ed was able to engage
with the scientists to inform the type of information provided in the projections, shaping the process to
make it useful to them. The company continues to want more precise and localized projections of
climate change impacts to inform the design and operation of equipment (Westman Interview 2013).
Experience with Climate-Related Hazards
Con Ed's recent experience with storms has brought the issue of climate change risk
management and adaptation to the attention of the highest levels of the company (Westman Interview
2013). According to John Miksad, SVP for electric operations, four of the five worst storms that that
affected the company have occurred over the last two and a half years (Marritz 2013). There's a sense
48
among management that these storms are indications of a changing risk profile from climate change
(Westman Interview 2013). The perception of increasing climate change related risks among high levels
managers at Con Ed has made the company more receptive to incorporating climate change impacts
into their risk management process (Westman Interview 2013).
Experience with these climate-related hazards has also enabled the company to test their risk
management strategies. For example, Hurricane Irene contributed to the company's understanding of
"which facilities may need to be hardened to remain operational ... during a hurricane event" (Westman
2012). The outcomes from Hurricane Sandy forced the company to evaluate how their adaptation
strategies actually performed and re-evaluate the costs of managing storm risks and how much risk the
company is willing to bear (Westman Interview 2013; Freed Interview 2013).
In addition to changing Con Ed's internal dynamics, these climate-related events changed the
external policy environment by increasing attention to risks and spurring efforts examine ways to make
the City of New York more climate-resilient (Rosenweig & Solecki 2010). These activities include the
planning processes described above that Con Ed has participated in and others that Con Ed has not
participated in, such as a 4-year climate change adaptation initiative launched by the New York City
Department of Environmental Protection focused on water supply, sewer, and wastewater treatments
systems (Rosenweig & Solecki 2010). Hurricane Sandy in particular, however, has ignited interest in
examining actions to make the electricity sector more resilient. For example, in November 2012,
Governor Cuomo convened the Moreland Commission, which is studying and putting forth
recommendations for how to improve utility storm response (NYS 2013). The Governor also convened
the 2100 Commission to recommend actions that should be taken to improve the resilience of critical
infrastructure systems (NYS 2100 Commission 2013). These Commissions are bringing greater public
attention to the issue of adaptation of the state's electricity sector. For example, leading environmental
organization signed a letter to the Public Service Commission urging that they require utilities to develop
hazard mitigation plans that explicitly deal with climate change impacts (Siders et al. 2012). The letter
drew directly upon material from the Moreland Commission and 2100 Commission. It's too early to tell
how much of this attention will translate into concrete climate change adaptation efforts in the
electricity sector, but the political attention may lead to more resources being put towards enhanced
risk management.
49
Communicating Adaptation
Especially with the increased public attention to climate change risks after Hurricane Sandy, Con
Ed is frequently asked what they are doing and how much they are spending on climate change
adaptation (Westman Interview 2013). Company managers are realizing that it's challenging to quantify
their investment in adaptation measures, because they are integrated into investments that also serve
other purposes (Westman Interview 2013). "There's no line item in the rate case for climate change
adaptation. Our best adaptation strategies are our infrastructure and housekeeping items too"
(Westman Interview 2013). Although it is unlikely likely that this communications issue is constraining
the types of adaptation measures or extent to which Con Ed is pursing adaptation, it illustrates how the
integrated nature of climate change risk management can make it difficult to measure and communicate
those efforts with stakeholders.
Limited Means to Finance Infrastructure Upgrades
Some of the key adaptation strategies from the literature that will need to be implemented by
the utility (rather than policymakers or regulators) have to do with upgrading and modernization the
T&D system for greater reinforcement and flexibility (Wilbanks 2012b; NYS 2100 Commission 2013).
Anything from elevating substations or replacing wood poles with steal or installing new smart grid
technologies requires investment in the T&D system. The utility business model is set up so that utilities
finance this investment through the revenue requirement set by regulators, which is passed on to
customers in the form of their electricity rates (Shively & Ferrare 2007). Thus, barring state or federal
investment or new financing models, increased capital investment in T&D infrastructure will most likely
require higher electricity rates. For example, in Con Ed's most recent rate case proposal to the PSC, the
company plans to spend $1 billion through 2016 on T&D capital improvements to avoid a repeat of
damage caused by Hurricane Sandy. Under this proposal, the average electricity bill would increase 3.3
percent (Johnson 2013).
However, Con Ed operates in "an atmosphere in which customers feel that they are already
paying to much for a service" (Freed Interview 2013). For example, City Council Speaker Christine Quinn
was quoted at a speech as saying that she "would not tolerate" Con Ed passing the costs of underground
lines to ratepayers (Powel 2013). This sentiment among customers and their elected representatives
makes it challenging for the PSC to increase rates to fund capital investment in infrastructure. In the
current model, with limited ways to finance improvements to the grid, regulators are balancing
politicians and citizens who do not want rates to rise and an aging electricity system facing increasing
risks.
50
Conclusions
Con Ed operates in an environment with considerable state and local adaptation activity. One of
the most influential of those activities was the New York City Panel on Climate Change and Adaptation
Task Force in 2008, which provided Con Ed with localized climate change projections that they
incorporated into internal risk management programs. Despite all of the state and local planning
processes that Con Ed participated in and their use of downscaled climate change projections, Con Ed's
T&D system remained very vulnerable to storm surge and high winds as illustrated with Hurricane Sandy
in 2012.
The company continues to be receptive of and in want of increasingly localized climate
projections around which to design its infrastructure. However, it's not clear if the company's risk
management approach grapples enough with the uncertainty around future and even current climate
conditions and the risk that remains after the hardening measures have been applied. Con Ed may not
be sufficiently considering behavioral strategies, such as internal capacity building, stakeholder
education, and policy changes that could help the company perform well in a range of possible future
conditions.
51
52
VI. Entergy Case Study
Background
Entergy is comprised of six utility subsidiaries: Entergy Louisiana, Entergy Gulf States Louisiana,
Entergy New Orleans, Entergy Mississippi, Entergy Arkansas, and Entergy Texas (SEC 2012b). The
subsidiaries are connected by the Entergy corporate office and they are also part of a "System
Agreement" that allows for coordinated planning (SEC 2012b). This case study focuses on adaptation
efforts on the part of Entergy New Orleans, Entergy Louisiana, and Entergy's corporate office. Entergy
New Orleans serves approximately 165,000 customers with electricity and gas in the West Bank of
Orleans Parish (SEC 2012b). In what is a very unique regulatory context, the Utility Committee of the
New Orleans City Councils regulates Entergy New Orleans. Entergy Louisiana serves the Algiers (East
Bank) section of Orleans Parish and other areas of Louisiana for a total of 670,000 customers and is
regulated by the Louisiana Public Service Commission (SEC 2012b).
Figure 7: Entergy New Orleans Service Territory
A
N
East Dank - Electric & Gas
West Bonk - Gas Only
Source: Entergy in New Orleans Fact Sheet, Entergy, 2011
As a vertically integrated utility, Entergy owns a significant amount of power generation in
addition to transmission and distribution infrastructure (SEC 2012b). Entergy New Orleans owns and
operates a 764 MW natural gas fueled power plant, 1,438 miles of distribution lines, 158 miles of
53
transmission lines, and 22 substations (Entergy 2011). Entergy New Orleans' overall electricity supply
portfolio relies heavily on natural gas and nuclear generation (SEC 2012b). Entergy Louisiana owns or
leases 5,413 MW of oil, gas, and nuclear generation facilities (SEC 2012b).
Much of Entergy's service territory along the Gulf Coast is at very low elevation and faces
exposure to storm surge flooding and/or permanent inundation from sea level rise (USGCRP 2009). The
City of New Orleans is below sea level and a levy system is designed to protect the city from inundation
and storm surge (USACE 2013). The region's exposure to sea level rise is heightened by non-climate
change factors. First, relative sea levels are increasing faster in Louisiana than other regions because of
land subsidence (Wilbanks et al. 2007). In addition, wetlands that act as a buffer between development
and the Gulf are retreating due to disruption of the natural hydrology of the region (Wilbanks et al.
2007).
Outcomes from recent hurricanes demonstrate that Entergy and the region as a whole are
vulnerable to hurricanes even in current climate conditions (Wilbanks et al. 2007). In 2005, Hurricanes
Katrina and Rita caused immense damage, with economic damages totaling more than $100 billion. 80
percent of the City of New Orleans was flooded during Hurricane Katrina (Wilbanks et al. 2007). The
Hurricanes also had a debilitating impact on energy infrastructure, halting all oil and gas production
from the Gulf (USGRPC 2009). Ecosystems were devastated as well: 217 square miles of land and
wetlands were lost to open water during hurricanes Rita and Katrina. (USGCRP 2009). The region's
vulnerability to hurricanes is expected to increase with sea level rise (USGCRP 2009).
An increase in the intensity and frequency of hurricanes and sea level rise are not the only climate
change risks facing the Entergy service territory. The region is also at risk to increased drought, extreme
heat, and extreme precipitation events (USGCRP 2009).
Climate Change Risks in Entergy Service Territory (UCGCRP 2009; IPCC 2007)
e
e
e
e
e
e
Increase in average temperatures
Increase in very hot days
Change in mean annual precipitation
Increase in extreme precipitation events
Likely increase in drought
Sea Level Rise
Potential increase in intensity or frequency of hurricanes
54
Adaptation Approach
Entergy evaluates the physical impacts to facilities in areas at risk of severe weather,
subsidence, wetlands loss, and sea level rise on an ongoing basis (Barlow 2012). The Internal Audit
department facilitates a process through which all businesses groups analyze risks for their particular
area, including climate change risks (Barlow 2012). The risks are described and evaluated based on
probability of occurrence and severity of outcome (Barlow 2012). Results are reported to business group
executive management with priorities identified. The Chief Financial Officer has general responsibility
for the process of ensuring that risks are identified and evaluated (Barlow 2012). Business group
management is responsible for participating in this process to ensure that risks associated with its
operations are accurately represented (Barlow 2012).
In addition to the ongoing risk evaluation process, Entergy has devoted considerable attention
to hardening the transmission and distribution (T&D) system in response to the impacts from
hurricanes. After Hurricanes Katrina and Rita in 2005, Entergy conducted an assessment of the
performance of the T&D system in coastal areas in 2006. The Entergy Operation Committee approved a
T&D Hardening Plan in 2007 (Dawsey 2012). Entergy developed the hardening plan by creating a model
that predicts damages by applying historical storm tracks and wind speeds to a catalog of Entergy's
assets (Olivier 2009). Entergy also evaluated the cost-effectiveness of various hardening strategies
(Olivier 2009). The new standards included enhancements for transmission (concrete instead of wood,
and steel instead of concrete within 20 miles of coast, increased wind design speeds, case by case
elevation of substations) and distribution (install storm guys in marshy areas, use steel or concrete poles
along evacuation routes, and upgrading poles) (Olivier 2009).
In response to Hurricane Ike in 2008, the Public Utilities Commission of Texas commissioned
Quanta Technologies for a benchmarking study on hardening and vegetation management best
practices (Dawsey 2012). As a result of this study, Entergy enhanced its hardening and vegetation
management standards again in 2009 (Dawsey 2012; Williams Interview 2013). Hardening strategies
from the 2009 standards upgrade included using extreme wind load criteria on new or rebuilt
transmission lines South of 1-10, building new substations above the 100-year flood plain elevation
(previously building them at grade), elevating critical substation components at existing substations, and
targeting substations where outages would have national significance (Dawsey 2012).
55
In 2010, Entergy and America's Wetland Foundation (AWF)3 sponsored a $4 million study of
climate change risks and adaptation options called the Gulf Coast Adaptation Study (Barlow 2012;
Entergy 2010). The major contribution that this study provided to Entergy was projections on potential
future business/economic losses based on climate change projections instead of relying on outcomes
from past hurricanes (Williams Interview 2013). The study modeled the risks associated with three
climate hazards: wind, sea-level rise, and storm surge (AWF 2010). The study used three climate change
scenarios from the IPCC: no climate change, average climate change, and extreme climate change. The
study modeled economic losses for 23 types of assets in 2030, 2050 and 2100 with help from Swiss Re, a
reinsurance company (AWF 2010). The study also included a detailed analysis of oil, gas, and electricity
infrastructure (AWF 2010).
The study found that climate change is expected to increase economic losses over time in the
Gulf region (AWF 2010). In 2050, in a scenario with no climate change, average annual economic losses
from those three hazards are calculated to be $26.3 billion, but could be as much as $39.5 billion in an
extreme climate change scenario (AWF 2010). The study found that just over 30 percent of economic
losses in 2030 under a mid-range climate change scenario would occur in the oil as gas sector, largely
driven by losses to offshore assets. Residential assets contribute to 27 percent of losses, commercial
assets 30 percent, and utility assets 5 percent. The study also found that regardless of how the climate
changes, the Gulf Coast can expect increased economic losses due to asset growth and subsidence alone
(AWF 2010).
The study calculated the cost-benefit ratio for nearly 50 different adaptation measures under a
mid-range climate scenario in 2030. Several electric utility adaptation measures were included in the
cost-benefit analysis: generation growth in low risk areas, generation levees, resilience for new
distribution, resilience retrofits for distribution, resilience for new transmission, resilience retrofits for
transmission, and vegetation management for transmission and distribution. The study found resilient
distribution lines (both new builds and retrofits), and vegetation management to be measures that
reduce losses with a cost-benefit ratio of less than one. Transmission resilience efforts tend to be
economically attractive only in high-risk areas. While it's unclear from the Gulf Coast Adaptation Study
exactly what is meant by "resilient" transmission and distribution, it's clear from other documents that
3 America's Wetland Foundation is a private foundation started in 2002 with the goal of raising public
awareness of Louisiana's wetland loss and to gain support for coastal restoration efforts
http://www.americaswetland.com/custompage.cfm?pageid=280
56
these are hardening investments in stronger poles, stronger wires, and elevated substations (Dawsey
2012).
Figure 8: Cost curve for electric utility measures from Gulf Coast Adaptation Study
g PonteInyaactie
-
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*Resilient distributionlines (both now builds and retrofits) are key actions
*Vegetation management has potential to reduce losses at C/8 < 1
STransmission resilience efforts tend to be attractive only in high risk areas
Source: Gulf Coast Adaptation Study, America's Wetland Foundation, 2010
The study also examined the cost-benefit ratios of a range of measures outside of the electric
utility sector and assembled them into a cost curve (AWF 2010). The study recommended measures with
a cost benefit ratio of less than two instead of one, noting that many of these measures have co-benefits
besides reducing losses that were not captured in the study, and organized those measures into nine
broad efforts to reduce risk across all sectors (AWF 2010). The study called for greater leadership and
coordination on these efforts: "Actions will need to be taken by policy makers (federal, state and local),
electric utilities, the oil and gas industry and infrastructure developers. There will be a strong need for
leadership and coordination across stakeholders." (AWF 2010: 11).
57
Figure 9: Recommended adaptation measures from Gulf Coast Adaptation Study
Los
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across 20 years
The CEO of Entergy was directly engaged in the 2010 Gulf Coast Adaptation Study (Barlow
2012). He delivered a key address at the Deltas 2010 conference during which the study was released
and discussed (Barlow 2012). Energy has used information from the Gulf Coast Adaptation Study to
support two pilot project proposals and a stakeholder outreach effort, described in greater detail below
(Barlow 2012). Jeff Williams from the corporate office has also sent climate change projections from the
Gulf Coast Adaptation Study to Entergy's different business units for use in their risk management and
capital planning efforts (Williams Interview 2013).
Adaptation Strategies
In 2011, the CEO of Entergy asked his staff to prepare a strategy to make use of the new
information from the Gulf Coast Adaptation Study (Williams 2012b). As a result, a newly formed "T&D
Resiliency Team" developed two Pilot Hardening Strategies: Port Aurthur in Texas and Port Fourchon in
Louisiana, a critical port for the offshore oil industry (Dawsey 2012). Entergy chose to develop a pilot
strategy for Port Fourchon, because it faces exposures to sea level rise and hurricanes and because the
58
company uses potential business losses to prioritize adaptation investment and disruption of the oil
industry results in high economic losses (Williams Interview 2013; Dawsey 2012).
The pilot hardening strategy at Port Fourchon calls for investing $119 million in hardening
transmission and distribution infrastructure and enhancing vegetation management in three phases. For
example, Phase 1 calls for replacing 10 percent of distribution poles per year, rebuilding a transmission
line, elevating a substation, and reducing the vegetation management to a 6-year cycle. Even with the
new information from the Gulf Coast Adaptation Study, the strategies proposed look similar to the
hardening standard upgrades developed in 2007 and 2009.
Entergy has also used the pilot project proposal as a conversation piece with external
stakeholders on hardening strategies and adaptation (Williams Interview 2013). In 2012, Entergy hosted
two technical conferences regarding their Pilot Hardening Strategies to build public support for their
adaptation activities.
"At the technical conference, we had a discussion of some pilot projects as a
demonstration and the whole idea was to get customers standing shoulder to shoulder
with us at the commissions saying this is a good deal, this is important, this
complements what I'm doing. Instead of us just drawing a line down 1-10 to harden
assets because we think it's a good idea and then all the sudden the customers are up in
arms about spending. At the technical conference we had the conversations to have our
customers stand with us" (Williams Interview 2013).
Entergy also sponsored and participated in an outreach effort about the findings from the Gulf
Coast Adaptation Study. Entergy provided $450,000 in grants to America's Wetland Foundation in 2010
and 2012 (Entergy 2013). Through 2011 and 2012, America's Wetland Foundation (AWF) and its
America's Energy Coast partners4, including Entergy, conducted eleven Blue Ribbon Resilient Community
Leadership Forums as part of the company's effort to "engage key customers, allies, and other
industries" (Williams 2012b). These forums were designed to build political support for adaptation
activities. For example, the Louisiana Resiliency Assistance Program describes the purpose of the forums
as being to "bring leaders together to push political boundaries, assess local vulnerabilities and better
plan for greater Gulf-wide resiliency" (LRAP 2012). Sidney Coffee, the Executive Director of AWF
describes AWF's role as being to "bring diverse interests together to the table and try to come to
consensuses on practical, common sense solutions" (Interview 2013). The purpose of the forums "was
4 America's Energy Coast is an initiative of America's Wetland Foundation. It is comprised of
representatives from business, industry, government, scientists, and environmental groups. The goal is
to provide a forum to develop solutions for sustaining the economy and environment of the region.
http://www.americasenergycoast.org/
59
to get these communities to envision the future and what it would take to be sustainable" (Coffee
2013).
The forums resulted in some agreement on general adaptation-related principles (AEC 2012).
For example, the findings from the New Orleans events included a list of community values and
adaptation-related principle, such as "thinking long-term," "addressing coastal restoration," and
"becoming source of global expertise on disaster and water management issues" (AEC 2012). The forum
resulted in more specific recommendations regarding coastal restoration activities, such as
"immediately begin improving drainage and internal levees while working to ramp up coastal
restoration and protection projects." However, the forum did not result in findings or recommendations
specific to adaptation in the electricity sector (AEC 2012). Jeff Williams, Director of Climate Consulting
for Entergy, spoke at the forum. His presentation discussed the Gulf Coast Adaptation Study' findings on
potential losses and adaptation options across various sectors (William 2012a). Mr. William's
presentation, however, did not go into detail about adaptation options for the electricity sector. At the
forum, Mr. Williams also sought to get input on community perception of vulnerability and where
communities would like Entergy to prioritize investment (Williams Interview 2013). It is unclear,
however, that the forums led to concrete changes to Entergy's adaptation strategies or approach, as the
conversation appears to have been rather broad.
America's Wetland Foundation compiled the recommendations from the 11 forums into a
report called "Beyond Unintended Consequences: Adaptation for Gulf Coast Resiliency and
Sustainability." The report offers 30 recommendations in the areas of seeking federal action, increasing
inter-agency cooperation, increasing innovation, and revitalizing the regional economy. AWF has
presented the report to officials in Washington D.C. and around the Gulf Coast (Coffee 2013).
Both the Technical Conference and Blue Ribbon Resilient Communities forums are intended to
contribute to Entergy's regulatory strategy. The company hopes to be able to present proposals to the
regulatory commissions for climate change adaptation related investments have sufficient technical and
economic justification as well as political support to gain regulatory approval.
"The next step is to put this into a regulatory strategy... A way to take this to the
commissions in a rational way so they can judge for themselves" (Williams Interview
2013).
60
Enabling and Constraining Factors
Experience with Hurricanes
New Orleans and Louisiana have been hit by several devastating hurricanes in the last decade:
Hurricanes Katrina and Rita in 2005, Hurricanes Gustav and Ike in 2008. These disasters generate a
particular and repeated dynamic with regards to adaptation-related activities. First, Entergy is under
incredible pressure and scrutiny to repair infrastructure that was damaged in the storm in order to get
electricity service restored (Williams Interview 2013; Case Interview 2013). After the repairs and
restoration work is done, there is pressure on the company to develop a strategy so similar damage and
resultant power outages do not happen again (Williams Interview 2013). For example, that kind of
political and regulatory pressure was the impetus for the 2007 and 2009 updates to Entergy's hardening
standards (Dawsey 2012). However, those efforts resemble disaster risk reduction more than climate
change adaptation. As discussed in the literature review, adaptation needs to be informed by future
climate change risks, not only past events (NRC 2010; UKCIP 2007).
The destructiveness of recent hurricanes, particularly Hurricane Katrina, has contributed to
Entergy's unique approach to adaptation. Entergy's language on adaptation in public documents, such
as the Carbon Disclosure Project survey, speeches, and presentations, puts emphasis on preserving the
region's economic vitality in the face of increasing environmental risks. Even though Entergy has put
significant effort into hardening the transmission and distribution system, their CDP submission focused
almost entirely on their efforts on funding research, customer engagement, and policy advocacy. In a
presentation to an internal working group, Jeff Williams presented Entergy's vision of resilience as
"Communities that are thriving, prosperous, and protected in the face of a changing and more
challenging environment" (Williams 2012b).
Before Hurricane Katrina, the company's adaptation-related activities were focused on business
continuity and emergency planning (Williams Interview 2013). Hurricane Katrina resulted in devastation
across Entergy's service territory and especially in New Orleans where 80 percent of the City was
flooded (Wilbanks et al. 2007: 377). Entergy New Orleans' losses were so high and their customer base
so significantly reduced, that the company declared bankruptcy (SEC 2005). According to Jeff Williams,
after Hurricane Katrina, Entergy realized they had to start thinking about the resiliency of the assets and
the communities on the other side of the meter, not only their own infrastructure (2013). Entergy
became much more concerned about "protecting the economic base that the company depends on"
(Williams Interview 2013). This concern about the impacts of climate change on the region's economy is
61
part of the reason that Entergy funded the Gulf Coast Adaptation Study, which examined potential
losses and adaptation options across many sectors (Williams Interview 2013).
Entergy is a unique case of utility funding and participating in advocacy for adaptation
strategies outside the realm of the electricity sector. Entergy's approach to adaptation is not out of
altruism or charity, but rather it stems a business interest. Even if Entergy's infrastructure is undamaged
during a hurricane, if customer-side assets are not functioning, Entergy cannot sell electricity and collect
revenue. If people move away from Entergy's service territory, fixed costs will be spread to fewer
customers resulting in higher rates and increasing the potential for ratepayer backlash. Entergy's
business and regulatory model depend on population growth or growth in electricity demand to
maintain profitability.
Furthermore, at the state level, there is no policy in place that decouples utility profits from
sales5 (ACEEE 2012). Entergy Louisiana's profits are closely associated with throughput of electricity. The
damage and population displacement associated with Hurricane Katrina threw the traditional utility
business proposition into question. Unlike other companies, a utility cannot relocate to another region
or country with more growth. Under the current business and regulatory model, Entergy cannot succeed
unless the economy in its service territory continues to grow and consume electricity.
Climate Change Skepticism
"Climate change is a dirty word here." (Williams Interview 2013)
The politicization of climate change and widespread climate change skepticisms in Louisiana
constrains Entergy's adaptation activities. Firstly, "climate change skepticism" makes stakeholder
engagement more difficult for the company. According to Jeff Williams, conversations with stakeholders
at the Blue Ribbon Resilience Community Forums were often difficult: "We had to convince [them] that
climate change is not a hoax and we are working in their interest. And then deal with the conflicting
issues.... It's hard to get people in the right frame of thinking" (Interview 2013). When communicating
with stakeholders, Entergy prefers to call their climate change adaptation activities, "risk management
in the face of more storms or sea level rise" rather than publically make the connection between more
storms or sea level rise and anthropogenic climate change (Williams Interview 2013).
s Entergy New Orleans offers energy efficiency programs and a rate rider that provides for the
recovery of lost contribution to fixed costs from efficiency measures, but ENO only accounts for 6
percent of Entergy's total sales (SEC 2012).
62
Even regulators, the institution most directly capable of influencing Entergy's adaptation
activities, do not directly address climate change issues. According to Forest Bradley-Wright, an energy
policy expert with many years of experience working with utility commissions in the Southeast,
"Regulators in our region are pretty disengaged from direct decision making associated with climate
change. There is an ideological divide that makes it a non-starter to even discuss the subject matter as
any basis for a cost that would expended by the utility and passed on the ratepayer" (Interview 2013).
According to interviewees, climate change is not a decision-making priority among local elected leaders
(Bradley-Wright 2013; Case Interview 2013).
One of the potential downsides of not making connections between risk management and
climate change is missing opportunities to pursue adaptation strategies that have climate change
mitigation co-benefits. Entergy's adaptation strategies have been focused on hardening rather than
demand side strategies that could provide both resiliency and mitigation benefits.
Utility Business Model
In Louisiana, the utility business model as structured by regulation is such that demand side
strategies that reduce throughput of electricity are potentially a threat to profits. Louisiana does not
have in place the enabling policies for demand side management discussed in the literature review, such
as mandates, incentives, or decoupling. Every year, the American Council for an Energy Efficient
Economy (ACEEE) publishes ranking of states according to their efforts to advance energy efficiency. In
2012, the State of Louisiana ranked 43 out of 50 (Foster et al. 2012).
The New Orleans City Council has been working with Entergy to develop energy efficiency
programs, and there is a rate rider that provides for recovery of lost contribution to fixed costs for
Entergy. However, even in New Orleans, advocates of demand side management are not publically
making the connection between those programs and climate change, but rather frame the benefits of
the programs in terms of cost savings (Bradley-Wright 2013). As a result, stakeholders may not be aware
of the climate resiliency benefits of demand side management.
This business model appears to be constraining the types of adaptation strategies that Entergy is
putting on the table. Meanwhile, a local official in New Orleans expressed frustration with Entergy's
focus on hardening and vegetation management during the New Orleans Hazard Mitigation Planning
process.
"When it comes to power utilities, the conversation goes to burying everything. That's a
pretty bad idea here. It's kind of wet. For some reason that was where the conversation
was allowed to die.... Are there other options? To bury or not to bury? There's got to be
63
more to it than that. To my knowledge, that's the only conversation we had. When [an
Entergy representative] makes the point, dig a hole in your yard and see how long it
takes to fill up with water, we've got to move past that. That option is off the table, so
what is next? The 'what's next?' never happened" (Case Interview 2013).
Representatives from Entergy New Orleans and Entergy Louisiana declined to participate in
interviews for this study, instead referring me to Jeff Williams in Entergy's Corporate office.
Nevertheless, the conversation at the hazard mitigation planning meetings demonstrates that the
company is focused on hardening and vegetation management and may be missing opportunities to
explore other adaptation options.
Lack of Government-Led Adaptation Planning
While there are a number of non-profits and government agencies working on energy efficiency and
wetlands restoration, there is no local or state government agency in Louisiana that has explicitly taken
6
up the banner of climate change adaptation. In this void, Entergy is moving forward on adaptation with
approach centered on minimizing business losses through selective hardening and vegetation
management. They have focused attention on coastal assets outside of the levy system, where they can
clearly demonstrate high risk from sea level rise and hurricanes. Entergy's use of the metric of potential
economic losses to prioritize investment points them towards protecting electricity service to high
earning industries, such as the offshore oil and gas industry.
This approach could in many ways meet the public interest, but without transparent dialogue and
decision-making among relevant stakeholders, it may fall short. For example, there could be other
factors that need to be prioritized besides economic losses, such as human health and safety or
environmental quality. There could be other places that merit consideration for Entergy's adaptation
investments besides Port Fouchon. The Blue Ribbon Resilient Communities Forums could have been an
opportunity to introduce other decision-making criteria into Entergy's adaptation approach or discuss a
range of adaptation options for the electricity system, but the conversation at those forums was not
focused on electricity. The meeting reports and communication materials from the Forums do not go
into detail about the utility specific adaptation efforts from the Gulf Adaptation Study or other electric
utility adaptation measures from the literature. One of the recommendations from the Technical
Conference in June 2012 was "Determine how to best prioritize assets that need storm hardening,"
6 The City of New Orleans has a climate action plan, but it does not address adaptation
64
indicating that the company continues to look for input from stakeholders on their adaptation
investments.
Conclusion
Entergy updated its T&D hardening and vegetation management standards in 2007 and 2009 in
response to hurricane damage (Dawsey 2012). An important turning point in Entergy's approach to
adaptation is when it sponsored the Gulf Coast Adaptation Study in 2010, which provided projections of
economic losses for three hazard types (wind, storm surge, and sea level rise) for three climate change
scenarios (AWF 2010). This study allowed Entergy to make the case for adaptation strategies based on
projected rather historic impacts (Williams Interview 2013). Even with this new study, however, the
proposed adaptation strategies largely remained the same: T&D hardening and vegetation
management. However, the company is now able to make the case that these strategies have a costbenefit ratio of less then one when compared with potential losses in 2030 under a mid-range climate
change scenario. This study also allowed Entergy to advocate for adaptation strategies and policies
outside of the electricity sector that could reduce potential losses economy-wide and ostensibly support
growth in demand for electricity (Williams Interview 2013; AWF 2010).
Entergy also used the Gulf Coast Adaptation Study as a jumping off point for increased customer
engagement and policy advocacy on adaptation (Barlow 2012; Williams Interview 2013). Entergy plans
to use both the analysis from the study and subsequent stakeholder engagement in their regulatory
strategy (Williams Interview 2013). They hope to be able to submit proposals to the Louisiana PSC or
New Orleans City Council for investment in proactively hardening T&D and gain approval (Williams
Interview 2013). At the same time, some have expressed frustration with Entergy's focus on hardening
and vegetation management and would like to see more discussion of more options for managing risk.
The regulatory model in Louisiana that has not been amended to enable demand side management
strategies may be limiting the adaptation options that Entergy is putting on the table.
65
66
V1I. Pacific Gas and Electric Case Study
Background
Pacific Gas & Electric Company (PG&E) is an electric and natural gas utility with service in
Northern and Central California, including the Bay Area metropolitan region. In 2012, it served 5.2
million customers with electricity (SEC 2012c).
Figure 10: PG&E Service Area
Source: http://resource-em.com/areas-served/
PG&E operates in a restructured electricity market and divested of most of its generation
resources during deregulation in the early 2000s (SEC 2012c). The company still owns a large
hydroelectric system, a nuclear power plant, several fossil fuel power plants, and 100 MW of solar
generation (SEC 2012c). Comprised of nearly 100 reservoirs in California's Sierra Nevada and Southern
Cascade mountain ranges, PG&E's hydroelectric system is the largest investor-owned and operated
system in the nation (Barlow 2012; SEC 2012c). FERC oversees the licensing of the utility's hydroelectric
generation (SEC 2012c).
PG&E's revenues are generated mainly through transmission and distribution (SEC 2012c). PG&E
owns over 18,000 miles of transmission lines and 91 transmission substations. The California Integrated
System Operator (CAISO), which is regulated by FERC, controls the operation of the transmission service
and is responsible for ensuring reliability and setting tariffs (SEC 2012c). PG&E's distribution system
67
consists of approximately 141,000 miles of distribution lines (20% underground and 80% overhead), 58
transmission-switching substations, and 601 distribution substations (SEC 2012c). The California Public
Utility Commission (CPUC) regulates the utility's rates, terms of service, and performance for electricity
distribution. The CPUC has also adopted rules and regulations to implement state laws regarding energy
efficiency, demand response, renewable energy, and the reduction of GHG emissions (SEC 2012c).
PG&E faces a number of climate change risks. California's hot and dry summers could become
even hotter and drier as a result of climate change (Franco et al. 2011). Extreme heat could increase
demand for electricity as air conditioning use grows (Franco et al. 2011). More urban development is
projected to take place in the Central Valley and other inland areas that already experience higher
summer temperatures and are expected to warm at a faster rate than coastal areas (Franco et al. 2011).
The hotter and drier conditions could also contribute to more frequent and intense wildfires that could
damage transmission and distribution equipment, potentially causing widespread outages (Franco et al.
2011). Higher temperatures could also reduce the generation capacity of thermal power plants.
Changing temperature and precipitation patterns could also affect the snowpack in the Sierra
Nevada Mountains. Historically about 74 percent of the hydropower generated in California comes from
high-elevation hydropower units that use snow as their main water source (Franco et al. 2011). A
reduction in electricity generation during the hot summer months, a period traditionally relied on for
hydroelectricity to satisfy peak cooling demand, is projected for all climate scenarios (Franco et al.
2011).
Lastly, PG&E's infrastructure located near the coast could be affected by sea level rise. Sea level
rise could inundate low-elevation coastal areas, exacerbate coastal flood events, erode beaches and
cliffs, and alter sediment transport patterns (Franco et al. 2011).
Summary of climate change risks in PG&E service territory (Franco et al. 2011)
*
*
*
*
*
Increase in average temperatures, especially during summer
Increase in extreme heat
Long-term decrease in mean annual precipitation
Likely increase in drought
Loss of spring snowpack
Sea level rise
Increase in wildfire risk
68
Adaptation Approach
PG&E incorporates climate change impacts into its internal risk management process. In 2008,
the company started the "Climate Change Operational Impact Team," an internal climate change risk
communications team that meets two to four times a year to review the latest research on climate
change impacts that could affect the company (CDP 2012; Bruso Interview 2013; Sturm Interview 2013).
This team is led by three scientists and an electric and gas operations manager (Sturm Interview 2013).
The team communicates relevant information about climate change risks to the company's various
business units.
Each business unit has a risk assessment and strategic planning team, which determines how to
categorize, prioritize, and manage the risks, whether the risks are related to climate change or otherwise
(CPD 2012; Sturm Interview 2013) The team incorporates risk management and adaptation investments
into their regular plans for investment and replacement (Garrett 2012; Bruso Interview 2013; Sturm
Interview 2013). The risk management and adaptation strategies are reported back up the Board of
Directors, Chief Risk and Audit Officers, and V.P of Environmental, who are accountable for the risk
management process as it pertains to adaptation (Garrett 2012; Bruso Interview 2013; Sturm Interview
2013).
According to a company representative, PG&E has a comprehensive assessment of assets
potentially at risk to climate change impacts (Bruso Interview 2013). However, the assessment is
completely internal and is closely guarded (Bruso Interview 2013; Sturm Interview 2013).
Adaptation Strategies
Supply side
PG&E's most significant adaptation effort on the supply side has been tracking climate change
risks associated with their hydroelectric system and developing adaptation strategies. PG&E has been
motivated to do so because it owns and operates this system that is a critical part of California's
electricity supply and PG&E has already observed changing trends in precipitation and snowpack (Sturm
Interview 2013). The company is currently tracking and evaluating the potential impacts of snowpack
changes and is working with the United States Geological Survey (USGS) and the Department of Water
Resources to test a model that predicts how watershed hydrology will respond to changes in climate and
land use (Garrett 2012; USGS 2013). The company has developed several strategies to reduce potential
69
impacts, which primarily entail adjusting operations of the reservoirs and conveyance systems (Garrett
2012).
PG&E is also pursuing investment in solar generation as a supply side adaptation strategy. PG&E
considers increased solar generation a strategy to help meet peak demand during increasingly hot
summers (Garrett 2012). This investment, however, is primarily driven by the state's Renewable
Portfolio Standard, which requires that 33 percent of the electrons that PG&E delivers to its customers
come from renewable energy sources by 2020 (SEC 2012c; Sturm Interview 2013). Currently, about 1.5
percent of the electrons that PG&E delivers are from solar, but PG&E plans to increase that share to
approximately 10 percent by 2020 (SEC 2012c; Sturm Interview 2013). PG&E recently shifted the solar
investment strategy from investing directly in utility-owned solar generation to purchasing solar supply
through a new state-run auction program (SEC 2012c).
Transmission & Distribution
Capital investment in T&D features less prominently in PG&E's adaptation strategies compared
to Con Ed and Entergy. PG&E reported on the CDP survey that they have made investments in the T&D
system to better deal with extreme heat, but company representatives interviewed for this study were
uncertain of the details of those investments. According to Xantha Bruso, Principal of Long Term Energy
Planning at PG&E, climate change impacts are only one of many factors that influence decisions to
invest or upgrade the T&D system, making it challenging for the company to disaggregate exactly which
investments were made as a result of considering potential climate change impacts (Interview 2013).
The company is also investing in smart grid technologies, which can help create a more resilient
grid, but these investments are largely driven by other policy factors. Some of PG&E's smart grid
investments include the installation of a total of 8.9 million advanced electric and gas meters and
beginning to install automated switches to reduce outage durations and number of customers affected
by outages (SEC 2012c). Starting in 2010, the CPUC requires that the investor-owned utilities in
California submit annual Smart Grid Deployment Plans (CPUC 2010). The 2010 rule discussed the goals
of integrating renewable energy, increasing customer control of energy use, reducing outages, and
reducing GHG, but does discuss climate change adaptation or managing climate change risks (CPUC
2010).
Demand Side Management
PG&E considers its energy efficiency, demand response, and distributed renewable generation
programs as strategies for managing the risks associated with higher temperatures and higher demand.
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The CPUC oversees PG&E's energy efficiency and demand response programs, meaning that the CPUC
works with PG&E to develop programs using ratepayer funds and PG&E is responsible for
implementation. The CPUC has authorized $823 million to fund PG&E's 2013 and 2014 energy efficiency
programs and $192 million to fund its 2012-2014 demand response programs (SEC 2012c). For
distributed renewable generation, PG&E offers customer rebates through the California Solar Initiative,
which is also overseen by the CPUC (CPUC 2013). The state-wide program has a budget of over $2 billion
from 2007 to 2016 (CPUC 2013). '
These programs were not initiated with the goal of responding to climate change impacts, but
rather they were initiated with the goal of reducing GHG emissions. For example, California's Long Term
Energy Efficiency Strategic Plan discusses the need to minimize GHG emissions, but does not discuss
climate change adaptation or risk management goals (CPUC 2008). It's likely that recent publications by
the California Energy Commission and Natural Resources Agency has brought attention to the fact that
these mitigation strategies are also important for adaptation. In the 2009 California Adaptation Strategy,
the first adaptation strategy listed for the energy sector is to "increase energy efficiency efforts in
climate vulnerable areas" and "facilitate access to local, decentralized renewable resources to help meet
expected increase in demand due to climate change" (CNRA 2009: 131).
External Adaptation Planning
Since 2011, PG&E has been participating in "Adapting to Rising Tides (ART)," a sea level rise
planning pilot project led by the Bay Conservation and Development Commission (BCDC). The plan is for
a stretch of coastline along the San Francisco Bay in Alameda County and it involves twelve different
asset categories, one of them being "Energy, Pipelines, and Communications," which includes PG&E
(ART 2013). To date, the ART project has developed two reports: "Existing Conditions and Stressors" and
a "Vulnerability and Risk Assessment." The risk assessment examined the exposure and sensitivity of
power plants and substations to inundation and flooding impacts from sea level rise, including ten
substations that PG&E owns and operates in the project area. Thus far, PG&E's role in the project has
been in helping provide background information for the reports (Sturm Interview 2013). The next phase
of the project will involve developing adaptation strategies. PG&E considers sea level rise to be a longer
term-risk and "will address it over time." (Garrett 2012:44).
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Figure 11: Sea level rise exposure analysis from Adapting to Rising Rides
Source: ART Vulnerability and Risk Assessment Report, 2012
Enabling and Constraining Factors
Climate Change Adaptation Research from State of California
The publication of climate change research from the State of California has informed PG&E's climate
change risk management. The company uses information on climate change projections and impacts in
their internal risk management process (Garrett 2012; Bruso Interview 2013; Sturm Interview 2013). Ms.
Bruso says that PG&E's adaptation strategies "roll up from the science," and much of the science has
been published by the State of California's climate change assessment process (Interview 2013). The
Public Interest Energy Research (PIER) Program at the California Energy Commission sponsors many of
the studies on climate change projections and climate change impacts on the electricity sector. PIER is
funded by a system benefits charge on California's utility bills and matching grants (Sotero 2013).
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California's climate change assessment process has its origin in an Executive Order S-3-05, which
charges the Secretary of the California Environmental Protection Agency to report to the Governor and
the State Legislature on the impacts of climate change on California. Beginning in 2006, the State began
publishing downscaled climate change projections and assessments of climate change impacts. The
state updated those assessments in 2008 and 2012, with increasing detail on impacts to particular
sectors. The 2012 update included several electricity-specific studies that highlighted potential
challenges in meeting summertime peak demand, leading to the conclusion that "the electricity system
is more vulnerable than previously understood" (CEC 2012: 1). A zip-code level analysis of the impacts of
extreme heat on energy demand shows that in the next decade higher temperatures could increase
demand by up to 1 Gigawatt during the summer, an amount that would require the construction of one
large power plant or the purchase of costly peak power from external sources (CEC 2012). Another study
found that that hydro-electric generation will be substantially reduced in the summer when it is needed
most to meet peak demand (CEC 2012). High temperatures will also affect transmission, resulting in a 78 percent reduction in transmitting capacity. In addition, key transmission corridors are vulnerable to
wildfire. One study found a 40 percent increase in probability of fire for some transmission lines,
including the line bringing hydropower from the Pacific Northwest into California during peak demand
periods (CEC 2012).
In 2009, the California Natural Resources Agency published the first Climate Adaptation Strategy, a
multi-sector guide to climate change impacts and adaptation strategies (CNRA 2009). Adaptation
strategies for the energy sector were developed by the California Energy Commission, which included:
-
Meet energy efficiency goals from AB32 Scoping Plan
Facilitate access to local, decentralized renewable resources
Assess environmental impacts from climate change in siting and re-licensing of new energy
facilities
Identify most vulnerable communities
Develop hydropower decision-support tools to better asses and manage climate change
-
variability
Identify how renewable energy goals could be impacted by future climate change impacts
*
*
e
e
These assessments provided the company with downscaled climate change projections and
information on impacts that could be given to operating units for use in their risk management and
capital planning. At a strategic level, these publications guide policy efforts by the state, especially on
energy efficiency and renewable energy, which has implications for the activities carried out by PG&E.
These studies also contribute to a broader understanding of how existing energy efficiency, demand
response, and distributed generation programs contribute to climate change adaptation.
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Climate Mitigation Policy from State of California
Several of PG&E adaptation strategies, such as energy efficiency, demand response, and
renewable energy generation, are driven by policies and programs intended meet the requirement of
Assembly Bill 32 (2006), which sets a cap on California greenhouse gas emissions. The Renewable
Portfolio Standard, which is driving PG&E's investment in solar, is part of the implementation of AB 32.
Energy efficiency goals, including "more aggressive utility programs to achieve long-term savings" are
also a part of the implementation of AB 32. Even though AB 32 is intended to reduce GHG emissions,
representatives from PG&E and other agencies consider it an important enabler of PG&E's adaptation
strategies (Sturm Interview 2013; Bruso Interview 2013; Confidential Interview 2013).
In addition, PG&E considers energy efficiency, demand response, and renewable energy
generation as business opportunities. Over the years, CPUC decisions have created a regulatory
framework to motivate the state's IOUs to continuously expand their energy efficiency programs. These
policies include the State's adopted loading order, aggressive goals, decoupling of sales from revenues,
performance based incentives, and a public goods charge (CPUC 2008). As a result of this regulatory
framework, demand side management activities contribute to PG&E's profitability and leads to PG&E
considering it a business opportunity (Garrett 2012).
Stakeholder Pressure
According to Xantha Bruso, Principal of Long Term Energy Planning at PG&E, stakeholders,
including customers, government officials and NGOs, frequently inquire as to what the company is doing
about climate change adaptation (Interview 2013). This stakeholder pressure greatly influences the
company's activity on adaptation. For example, Ms. Bruso noted that one of the primary reasons the
company participates in external climate change planning processes is to demonstrate to stakeholders
that they are actively preparing for climate change impacts (2013).
There have also been highly publicized efforts to plan for sea level rise. The Pacific Institute
published a report in 2009 about sea level rise that included maps that have captivated the public's
attention (Heberger et al. 2009; Franco et al., 2011). In addition, in 2009, The Bay Conservation and
Development Commission (BCDC) proposed amending its guiding policy document to address sea level
rise (BCDC 2013). Due to considerable controversy and public debate, the review of this policy change
lasted for over two years, with 36 public meetings, workshops, and stakeholder meetings (BCDC 2013)
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Laura Tam, Sustainable Development Policy Director at SPUR, a planning and research non-profit
in San Francisco, recognized a surge in public interest in adaptation over the last 4 or 5 years (Interview
2013). Motivated by this public interest, Ms. Tam went on to write a report about climate change
impacts and adaptation in the Bay Area, called "Climate Change Hits Home. " The report was released in
2011 and includes a discussion of potential climate change impacts on the energy sector, largely drawing
on research published by the State of California, and recommends next steps for adaptation. The report
calls for utilities to conduct vulnerability assessments, develop plans to close a potential supply gap due
to reduced hydropower capacity, and evaluate existing energy efficiency and demand response
programs for their effectiveness in more frequent and prolonged heat events (SPUR 2011).
Stakeholder awareness and interest in adaptation, however, is not evenly distributed across the
company's service territory. A significant amount of the NGO and local government activity on
adaptation in PG&E's service area is focused in the Bay Area. Matthew Sturm, Senior Program Manager
at PG&E, noted that that there are communities in the PG&E service territory that are skeptical about
climate change (Interview 2013). Nevertheless, PG&E's adaptation strategies are not Bay Area specific,
but rather system-wide.
Corporate Structure and Governance
Government officials running planning and research projects expressed a couple areas where
they think PG&E has room to improve: greater transparency about risks, greater ease with sharing data,
and more robust participation (Confidential Interviews 2013). The company's structure, staffing, and
perspective on expertise are sources of challenges for collaborative adaptation planning.
Local, regional, and state planners are increasingly trying to assess potential climate change
vulnerabilities of infrastructure in their jurisdictions. However, PG&E is sensitive about risk assessment
information being made public and a subject of debate and scrutiny (Bruso Interview 2013). There are a
few reasons behind PG&E's sensitivity. There are concerns that debating risk assessment findings with
stakeholders would be a large cost in terms of staff time without clear added value (Bruso Interview
2013). PG&E considers themselves to be the most knowledgeable and expert about their infrastructure
and unsure of how outside stakeholders' input in their planning would be helpful (Bruso Interview 2013;
Sturm Interview 2013). Other potential reasons for the reluctance to share risk assessment information
is concern about competitors or critics using that information against the company. There are also
potential security reasons for not disclosing specific asset vulnerabilities. At the same time, recent
literature and experiences have highlighted the complex connections between urban infrastructure
system and the potential for cascading impacts and have called for more multi-sector planning efforts to
75
identify and manage the risks between infrastructure systems (Wilbanks et al. 2011; Neumann & Price
2009).
The company's structure and staffing does not easily lend itself to participation in local climate
change adaptation planning. Planning jurisdictions, such as cities, counties, or coastal zones, are
geographically very different than the way the company is structured. PG&E has system-wide engineers
and managers for certain types of business functions, such as electricity operations. They don't, for
example, have a manager that integrates all infrastructure operations and planning along the San Mateo
County coastline. As the company is currently structured, providing information and a high level of
participation in local planning requires a staff person communicating with many different system
managers across the company (Sturm Interview 2013). The decentralized nature of risk management in
the company also makes it hard for those working on external stakeholder relations to stay abreast of all
risk management activities (Sturm Interview 2013). Furthermore, some staff members find it challenging
to fulfill some information requests, because they require input from engineers who are busy with their
regular job duties and consider information requests as detracting from those duties (Bruso Interview
2013).
"We need to evolve to engage at the local level about our infrastructure. We have a
good system in place for tracking the science and impacts, but engaging local
stakeholders will continue to be an issue for us" (Sturm Interview 2013).
Conclusions
PG&E's approach to adaptation is predicated upon using research sponsored by the State of
California on climate change projections and potential impacts. That information is organized by an
internal team and then distributed to business units to incorporate into existing risk management
process and capital investment plans. The Public Interest Energy Research (PIER) Program at the
California Energy Commission plays an important role in sponsoring the climate change research that
PG&E uses.
The adaptation strategies that PG&E is pursuing to help meet increased demand during extreme
heat events, namely energy efficiency, demand response, and solar power development, are strongly
connected to state-level GHG mitigation policies and the business opportunities that the regulatory
structure has created for the company. In addition, state level adaptation planning has identified energy
efficiency, demand response, and distributed solar generation as key adaptation strategies for the
electricity sector. PG&E has also developed adaptation strategies to help cope with the impacts of
reduced snowpack in the Sierra Nevada on their hydroelectric system. However, the company's
76
structure, which is set up to serve a very large service territory, and its decentralized risk management
process poses challenges for the company's participation in local-level adaptation planning.
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78
Vill. Cross Cutting Analysis and Findings
Risk Management Approach
All three case study utilities have similarities in their approaches to climate change risk
management. A central department or person, such as EH&S, Emergency Management, Climate Change
Operational Impact Team, or Director of Climate Change Consulting, gathers downscaled climate change
projections and information on potential climate change impacts from research conducted by
government agencies or consultants. The person or group then passes that information on to business
units that are responsible for incorporating that information into their existing risk management process
and capital planning. The risk management and/or capital investment strategies developed by the
business units are reported back up to the groups that manage those processes, such the Chief Risk and
Audit Officer, or V.P of Environmental, or the Chief Financial Officer. This integration of climate change
risks into risk management processes helps utilities use replacement opportunities to build greater
resilience into the system and ensure that adaptation strategies are taking into account other competing
demands on resources, which are both approaches to adaptation recommended by the literature.
Utilities are using existing processes to tackle a new challenge. As discussed in the literature
review, climate change has more uncertainty and complexity associated with it than the issues typically
addressed by corporate risk management programs. There is some evidence from this study to indicate
that the existing processes might not be enough to deal with the uncertainty of climate change. Many of
the strategies discussed in this study hinge upon building infrastructure to meet enhanced climate
specifications, for example, higher wind speeds or higher temperatures or elevating equipment above
flood heights. The approach is based on providing engineers with climate change projections around
which they can design infrastructure. Updating design standards to account for future climate change is
an important strategy, but the logic of this approach seems to be that if climate scientists tell us what
the future is going to be like, then we can build the system needed for it. But scientists don't know
exactly what the future is going to be like. "Every credible source indicates that the appropriate strategy
is rooted in risk management for an uncertain future rather than precise impact projections for optimal
decisions," yet the approach from the utilities appears to be largely one of projections-based planning
(Wilbanks et al. 2012b). It's not clear that the existing risk management processes puts sufficient
attention on being able to respond to a range of future conditions with a portfolio of adaptation
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options. For example, none of the case study utilities reported using Scenario Planning, a tool described
in the literature review, to assess uncertain risks and develop risk management strategies.
Despite these similarities, each of the companies is largely obtaining climate change risk
information from different types of sources. Con Ed has been obtaining downscaled climate change
projections from the New York City Panel on Climate Change, which was funded with a grant for
Rockefeller Foundation. PG&E has been getting their climate change risk information largely from
research published by the State of California, which was funded by a system benefits charge on utility
bills. The Entergy case provides a contrasting situation in which neither the City of New Orleans nor the
State of Louisiana has published downscaled climate change projections or research on climate change
impacts on the electricity sector. Instead, Entergy sponsored research on climate change impacts and
adaptation options in the form of the Gulf Coast Adaptation Study (Williams Interview 2013).
Comparing these cases sheds light on some potential disadvantages of private, rather than
public, sponsorship of climate change research. The privately sponsored Gulf Coast Adaptation only
considers two climate change impacts, hurricanes and sea level rise, even though the region is also at
risk for increased drought and extreme heat, which have important implications for electricity supply
and demand. The heat and drought impacts may be lower probability, lower impact, or longer-term, so
Entergy may have had strategic reasons not to invest in the research at this time. However, it could also
be a major oversight in that Entergy is very dependent upon fossil fuel generation, which requires access
to cooling water supplies that could be impacted by drought (SEC 2012b). In comparison, the NPCC and
State of California have published a range of climate change projections. Private companies may be less
likely to sponsor research on risks that have a lower probability of occurrence or are longer-term and
instead focus on current vulnerabilities. Addressing current vulnerabilities can be a good place to start,
but the literature on climate change adaptation also recommends taking a long-term view of risk
management and taking a multi-hazard approach (NRC 2010).
An advantage for Entergy, however, in sponsoring the Gulf Coast Adaptation Study is the costbenefit analysis of adaptation options. None of the studies developed by government agencies from
New York or California include a cost-benefit analysis. While it is likely that PG&E and Con Ed have done
internal cost-benefit analyses, Entergy's publically published analysis allows Entergy to make the
economic case to its stakeholders for adaptation strategies that the analysis points to as having a costbenefit ratio of less than one. Building public support for adaptation-related investments is part of
Entergy's regulatory strategy. Nevertheless, one must also recognize some of the limitations of this
analysis. Only avoided business losses were used to determine the benefits of adaptation strategies, so
80
they don't capture the full range of benefits (AWF 2010). Furthermore, the study looked at a limited
number of adaptation measures, focused primarily on hardening and vegetation management for the
transmission and distribution system.
Although the information came from different sources, all three companies quickly responded
to having more information on climate change risks. During a period when the State of California started
publishing a significant amount of climate change research, PG&E set up a "Climate Change Operations
Impact Team" to review the latest science and provide updates to business units. After having the Gulf
Coast Adaptation Study, a newly formed "T&D Resiliency Team" developed two pilot hardening
strategies. Management at these companies was ready to recognize a changing risk profile due to
climate change and information in the form of downscaled climate change projections and impacts on
the electricity sector spurred a response. The types of strategies the utilities go on to develop with that
information depends largely on the types of risks they face and the regulatory and policy environment
around them.
Demand Side Management
Supportive regulatory policies and state sponsored adaptation plans recommending demand
side management were strong pre-conditions for utilities to consider demand side management
adaptation strategies in the case studies. Both Con Ed and PG&E consider energy efficiency and demand
response as part of their adaptation strategies for coping with extreme heat in their reporting and in
interviews. These programs, however, are driven by regulatory policies that do not explicitly mention
climate change adaptation, such as AB32 in California and the Energy Efficiency Resource Standard in
New York. Although the original policies do not include climate change adaptation, in both cases, the
state government subsequently published adaptation plans that recommended using demand side
management to respond to more extreme heat events and increased demand (NYS 2010; CNRA 2009).
These publications helped the utilities and other stakeholders recognize demand side management as
an important part of adapting to climate change impacts in addition to reducing GHG emissions. This reframing is important, because connecting adaptations strategies with other goals helps build more
widespread support (Wilbanks et al. 2012b).
Re-framing existing efforts, however, is not likely to provide as effective adaptation benefits as
the integration of climate change risk management in program development. Demand side
management for GHG mitigation purposes tends to have less place-based specificity. For example, GHG
reductions from San Francisco are the same as GHG reductions from Fresno for meeting a statewide cap
on emissions. Energy efficiency savings in Buffalo are no different than energy efficiency savings in the
81
Bronx when counted towards a statewide Energy Efficiency Resource Standard. However, demand side
management for adaptation purposes may need to be more differentiated based on differential impacts
of climate change across the electricity system and across populations (Franco et al. 2011).
Incorporation of climate change risk management in program development is important because it may
direct investment to places where they are most critical, such as neighborhoods susceptible to urban
heat island affect, or cities with transmission constraints, or regions where air conditioning use is likely
to grow.
Con Ed's and PG&E's reporting of demand side management as adaptation strategies are
currently reframing existing efforts, because climate change risk management is not integrated into the
overall regulatory development and oversight of these programs. Studies sponsored by the California
Energy Commission (CEC) and New York State Energy Research and Development Agency (NYSERDA) are
helping develop research on the impacts of climate change on electricity demand that could help inform
the development of demand side management strategies for adaptation purposes (Auffhammer &
Aroonruegsawat 2011; Hammer et al. 2011a).
Entergy did not report using demand side management as an adaptation strategy. This is not to
say that Entergy has no demand side management programs in place, but they are not considered part
of climate change risk management (Williams Interview 2013). Part of the reason for this perspective is
that the company is focused on managing risks from hurricanes and sea level rise, and demand side
strategies are often considered strategies for extreme heat and peak demand. Nevertheless, more local
and decentralized sources of energy also contribute to resiliency to extreme events (Ebinger & Vergara
2011).
The more important driver of this perspective is that Louisiana does not have in place the
enabling policies for demand side management discussed in the literature review, such as mandates,
incentives, or decoupling. In California and New York, regulators have turned demand side management
into a business opportunity for the utilities, but in Louisiana, the utility business model as structured by
regulation is such that demand side strategies that reduce throughput of electricity are potentially a
threat to profits. Even when equipped with information on climate change risks, it appears that utility
adaptation activities are largely guided by the financial considerations dictated by the regulatory
structure.
Transmission & Distribution
Hardening strategies for transmission & distribution, such as undergrounding wires,
strengthening poles, or elevating substations, featured prominently Con Ed's and Entergy's adaptation
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strategies, whereas hardening played a much more minor role in PG&E's adaptation strategies. Based on
these cases, utilities that are at risk of tropical storms or hurricanes may be more inclined towards
hardening adaptation strategies compared to those whose primary risk is around extreme heat and
precipitation changes. However, as discussed in the literature review, utilities have an incentive to
pursue capital-intensive strategies, because if approved by regulators, it relates directly to their
profitability. It merits further evaluation to better understand if utilities are overlooking behavioral or
policy-based strategies, because of this incentive. Researchers may also want to consider whether there
are more flexible options for places at risk of hurricanes than hardening transmission and distribution.
Supply Side Strategies
The three cases were selected to include both restructured and vertically integrated utilities. I
thought that a vertically integrated, Entergy, utility would help illuminate supply-side adaptation
strategies since they own electricity generation. However, Entergy is focused on transmission &
distribution strategies. PG&E was on the only case pursuing supply side adaptation strategies, namely
adaptation strategies for hydropower and solar investment. PG&E's most developed supply side strategy
is its hydropower adaptation strategy. Again, this is enabled by the fact that PG&E is the sole owner and
operator of this critical piece of California's electricity supply and it has received considerable attention
from policymakers. Also, a PG&E representative said that they are already observing the impacts of
climate change with regard to the snowpack, which is motivating them to act (Sturm Interview 2013).
Information, ownership, and the perception of climate change impacts appear to be important factors
enabling supply side adaptation strategies.
Regulators not using their Full Enabling Potential
As discussed in the literature review, utility regulation has the potential to be the source of
several enabling factors for electric utility adaptation, but the utility commissions have largely been
absent on enabling adaptation in all three cases. One exception is that regulators in the cases have been
working on creating an environmental that enables energy efficiency, demand response, and renewable
energy programs. However, those programs have been driven by a GHG mitigation agenda in California
and New York and a cost savings agenda in the case of the City of New Orleans.
The utility commissions in the three cases have not required that utilities engage in the core risk
management activities of climate change adaptation, such as conducting climate change vulnerability
assessments, developing strategies to reduce their vulnerability or enhance resilience, or engaging with
their customers and stakeholders on these issues. The lack of regulatory guidance regarding adaptation
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has not prevented the case study utilities from pursuing climate change risk management and
adaptation strategies. However, there has been no regulatory oversight of the process and the
commissions have left these issues to the discretion of the utilities. As regulated monopolies, utilities
don't have the threat of competition to spur them to better manage risks. They are primarily motivated
by the incentives set up by the regulatory structure and pressure from their stakeholders. Long-term risk
management is not often seen as contributing to short-term profitability and therefore is at risk of being
sacrificed (NYS 2013).
Several issues from the cases demonstrate that greater regulatory involvement may be
warranted. First, with regards to extreme events with a low probability but high consequences, such as
Hurricane Sandy, Con Ed may not have adequately assessed those risks and done enough to manage
uncertainty. Entergy is focused largely on existing vulnerabilities of sea level rise and hurricanes and not
done as much to assess the risks or prepare for extreme heat, drought, or other changes in
precipitation. PG&E's internal structure and perspective on expertise may not be well suited for
participation in local level adaptation planning, which is a barrier to developing strategies that have cobenefits with other interconnected infrastructure services. These challenges are probably not unique to
these companies, but rather they are likely challenges faced by utilities across the country in adapting to
climate change. Furthermore, these cases were chosen because they were doing far more than the
average utility on climate change adaptation based on their CDP survey responses. It is likely that many
other utilities lag behind these ones in some of the more fundamental elements of adaptation, such as
conducting a vulnerability assessment and integrating climate change risks into internal risk
management processes and capital planning.
After Hurricane Sandy, the Governor Cuomo initiated the Moreland Commission to study utility
storm response and the role of the New York Public Service Commission (NYS 2013). The commission
found several areas in which the PSC oversight was lacking. While the focus of the Commission was on
utility storm response, the findings on regulatory oversight of investor owned utilities sheds light onto
potential reasons for the lack of regulatory oversight of climate change adaptation, such as a
philosophical shift towards less active regulation, reduction in staff capacity, and ceasing to use audits
and formal orders.
First, since "deregulation" in the 1990s, the philosophy of utility oversight has changed to favor
a less active approach towards regulation and the commission's staff numbers have been in decline (NYS
2013). As a result of the philosophical shift and the staffing capacity reduction, the PSC stopped
performing some of its required functions, such as operational and management audits (NYS 2013).
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These audits have the potential to be an appropriate mechanism for investigating, reviewing, and
bolstering how utilities are planning for climate change impacts in New York, but they have been
completely underutilized. The PSC also stopped issuing as many formal orders and the PSC cannot
impose a penalty if a utility fails to implement a recommendation without a formal order. This has
rendered the PSC a "toothless tiger" (NYS 2013).
An additional challenge is that regulatory authority is fragmented across several state and
federal agencies. In California, for example, the Energy Commission oversees the siting of new energy
facilities, but the Federal Energy Regulatory Commission overseas permitting of hydropower and nuclear
facilities. The Energy Commission oversees resources planning, but relies on projections from the
Independent System Operator. Finally, the Public Utility Commission oversees the investor-owned
utilities' investments and rate of return. Without a legislative mandate to address climate change
adaptation in the electricity sector, it's difficult to imagine that these agencies would adopt a
coordinated approach to address how utilities are adapting to climate change. A high level official from
one of California's state agencies expects that such a mandate may not be too far down the road.
State and Local Adaptation Planning Faces Challenges in Enabling UtilityAdaptation
Local planning processes that provide climate change projections to utilities appear to enable
utility adaptation efforts with relative ease. The utilities in the cases appear eager to have climate
change projections to inform risk management and capital planning. On the other hand, planning
processes that ask the utility to provide information to researchers or planners, such as specific
locations of assets or asset-level vulnerability, appear to be more challenging. The Entergy and PG&E
cases have elucidated that utilities are not always well positioned to participate in these processes due
to staffing assignments, geographic incongruence between planning areas and utility service territories,
and a reluctance to make vulnerabilities public. The utilities appear to be motivated to participate in
local adaptation planning for reputational reasons, but may not be convinced of the value of stakeholder
input in their risk management strategies.
Despite the challenges, there's evidence from the cases these kinds of planning activities
provide value to both the utility and planners. The New York Sea Level Rise Task Force raised awareness
within Con Ed about their stakeholder's interests around coastal zone management. The New York
Climate Action Committee provided Con Ed an opportunity to report out to policymakers and
researchers some of their needs around adaptation. A planner with the Adapting to Rising Tides project
learned that one of the vulnerabilities associated with sea level rise is lack of information. The planner
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learned how private companies that own infrastructure in the coastal zone are not very inclined to share
information about their vulnerabilities.
The Role of Climate-Related Disasters
Entergy has faced several highly destructive hurricanes in the last decade. They have led the
company to have a greater appreciation for how the climate resiliency of the region has important
implications for the company's bottom line. As a result, the company has sponsored research on the
impacts of sea level rise and hurricanes on the region's economy. Nevertheless, the company does not
appear to be grappling with the overall set of long-term climate change risks they are facing. The climate
change skepticism among elected leaders appears to be one of the major factors leading to a focus on
managing hurricane risks rather than a comprehensive approach to climate change risks.
While it is still early, it appears that Hurricane Sandy has opened the window for climate change
adaptation policy-making. For example, Governor Cuomo called for the 2100 Commission to explicitly
recommend ways that the state's infrastructure will need to change in the long-term as a result of
climate change impacts. However, even before Sandy, several climate change adaptation planning
processes had already taken place. While the political and media attention on climate change
adaptation has stepped up a notch after Sandy, these efforts have a significant base of knowledge and a
social capital from which to build upon.
Finally, PG&E is making progress on climate change adaptation without having experienced a
major climate-related disaster. They certainly have had heat waves, droughts, and wildfires, but they
have not resulted in widespread power outages for PG&E. Instead, there driving force for adaptation has
been state policy and research on climate change.
Resiliency and Transformation
Based on these cases, as climate change adaptation is currently being practiced by utilities, it
does not appear to be contributing to transformation of the sector. For example, Entergy and Con Ed are
putting forth hardening strategies as the way to reduce their key vulnerabilities, which further cements
the status quo. It does not appear that the utilities are pursuing resiliency in the form of adjustments to
institutions and organizational form.
With PG&E, adaptation is one step closer towards transformation in that they are pursuing
energy efficiency, demand response, and distributed generation to deal with some of their key
vulnerabilities. The widespread deployment of those measures would require considerable changes to
institutional and organizational form in the electricity sector. However, those efforts originate with the
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California Energy Commission (CEC) recommending adaptation strategies for the electricity sector that
clearly connect with goals in the state to dramatically reduce GHG emissions. The CEC has put forth a
vision of a system that relies on local and decentralized sources of energy and enables consumers to
better manage their energy use to help balance supply and demand as the climate changes. This is an
agency that is making the connection between climate change adaptation and a modernized electricity
sector and is helping achieve that by supporting research on climate change risks and adaptation.
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IX. Recommendations
Given the findings from the survey analysis and case study analysis, this section puts forth
recommendations for the primary stakeholders that have formed the backbone of these stories:
regulators, state and local governments, and utilities. I also provide suggestions for future areas of
research.
For Regulators
Regulators should consider playing a more proactive role in requiring and reviewing utility
climate change adaptation activities. While the CDP survey analysis has limitations, it hints at a potential
lack of awareness and action on adaptation by a large percentage of utilities in the U.S. Utilities may
need the regulatory push to start assessing their vulnerability to climate change risks and developing
adaptation strategies. Based on this study and the literature, regulators may want to require that
utilities submit a climate change vulnerability assessment and a plan for reducing those vulnerabilities.
In addition, the cases have demonstrated that some utilities are moving forward on adaptation
activities without regulatory guidance or oversight, but with an eye towards making the case to
regulators that these investments are prudent. Regulatory guidance could help reduce uncertainty
regarding what types of adaptation-related investments may be approved and what kinds of supporting
analyses are needed. Regulatory guidance also provides the opportunity to ensure that utilities are
assessing their vulnerability to a range of climate change risks, not just the most obvious and near-term
risks. There may be a tendency for utilities to overlook extreme heat and drought, because they have
less material impact on infrastructure than storms and flooding. Regulatory guidance could also help
ensure that utilities are grappling with uncertainty: that they are not just trying to optimize for a
projected future, but rather assessing options under a wide range of future scenarios. Lastly, regulatory
oversight or guidance could help ensure that utilities are not only using technological (i.e. capital
intensive) strategies for managing risks and that they are considering a portfolio of behavioral and policy
strategies as well.
The cases also illustrate that some utilities are starting to develop strategies for getting
regulatory approval of their adaptation-related investments. Regulators should consider developing
their own expertise on the issue so they can effectively evaluate utility capital investment plans that
address climate change risks. Regulators may want to consider what type of information they want
utilities to present with regards to adaptation-related investments. At the same time, regulators have
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more tools in the toolbox than just evaluating and deciding rate cases. The Moreland Commission
highlighted the opportunity presented by managerial audits that have been underutilized for many years
(NYS 2013). In addition, regulators could use collaborative decision-making processes, such as policy
dialogues, technical sessions, and advisory committees to help utilities and their stakeholders develop
practical agreements on adaptation-related activities.
Regulators should consider improving the coordination between mitigation and adaptation
efforts. PG&E is pursuing several mitigation strategies that also serve adaptive purposes, but they are
driven largely by the mitigation agenda, and it's not clear that they are being evaluated to make sure
they achieve adaptation benefits. One way to achieve greater coordination is for regulators to make
climate change adaptation one of the explicit goals of the process, even when the process has typically
been considered a domain for mitigation, such as resource planning (McAllister 2012).
Further study is needed to understand if utility commissions might benefit from enabling
legislation so that climate change adaptation is a specific part of their statute. While managing longterm climate change risks benefits public health and welfare, some commissions interpret their statute
narrowly (RAP 2011). Enabling legislation may also give regulators the impetus to coordinate across
various functions and agencies.
The utilities studied in this paper were relatively large utilities with considerable financial
resources. Smaller utilities, especially municipal utilities and cooperatives, may not have access to as
many resources of staff capacity for assessing climate change risks and developing adaptation strategies.
The Environmental Protection Agency has a "Climate Ready Water Utilities" program that provies tools
for water utilities to use in developing risk assessments and adaptation plans. The Department of Energy
or other agencies may want to consider developing a similar program for power utilities.
For State and Local Governments
Cities and states that would like to see greater consideration of climate change risks by their
local electric utilities should consider publishing research on local climate change projections and
potential impacts on the electricity sector. Governments at various scales have an important role to play
in the provision of information about climate change projections and impacts in the electricity sector
(McAllister 2012), but City and State provision of climate change risk information has been especially
effective in enabling adaptation planning in the cases studied. The political influence of having state and
local officials highlight local impacts seems to make a strong impression on utility management. Also,
utilities appear to be very interested in more localized climate change impact information to guide
infrastructure design, which city and state government might be more likely to fund that the federal
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government. The State of California funding climate change research with funding from the system
benefits charge is model that other states may want to follow to provide a steady financing source for
research.
Given the unique regulatory context in New Orleans, where the City Council Utility Committee has
regulatory authority over Entergy, if the City government makes climate change adaptation a priority, it
would likely have a major influence on Entergy. To date, Entergy's resiliency efforts have been focused
on hardening transmission and distribution outside of the levy system. The City Council could play an
important role in asking the company to assess a greater range of climate change risks and assess a
greater range of adaptation options, such as demand side management. Even a short report that
includes downscaled climate change projections, their potential impacts on the local electricity system,
adaptation options, and potential next steps would likely raise awareness within Entergy that this issue
is important to the City and would raise stakeholder awareness of the issue. I understand that it's
challenging for a City to put limited resources towards long-term risk management when facing
considerable vulnerabilities in current conditions. However, raising awareness of climate change risks
and adaptation options in the electricity sector would dovetail nicely with the work the Utility
Committee is already doing with Entergy on demand side management programs.
Given the challenges in the cases for involving utilities in local adaptation planning, a study of best
practices would be very helpful. The cases brought up several important issues that cannot be answered
in these pages, such as what information should planners expect that private companies will be willing
or legally required to provide regarding vulnerabilities? Do the planners running these processes have
sufficient expertise in electricity issues to facilitate the conversation in a useful direction? Are utilities
being engaged at the right time in the planning process? As more cities engage utilities in local
adaptation planning, the lessons learned from their experienced should be gathered and shared.
For Utilities
Based on the case studies, its apparent that utilities don't need to wait for regulators to start
planning for and adapting to the impacts of climate change. Incorporating climate change risks into
existing risk management processes, conducing a climate change risk assessment, and developing
adaptation strategies are approaches to adaptation that utilities are already pursuing without waiting
for formal orders from regulators. Utilities may also want to consider expanding their risk management
toolkit beyond incorporating climate change projections into infrastructure design. Scenario planning
could help utilities grapple with risks they had not yet considered and develop a portfolio of options that
perform well under a range of future conditions.
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Utilities should not only consider technological measures, such as hardening or smart grid, but also
soft measures such as changes to their organizational structure or change to policy that would allow for
enhanced risk management. For example, as currently structured, utilities may find participating in local
level adaptation planning challenging. In addition, the literature recommends incentivizing innovation in
risk management, but none of the utilities in the survey and cases reported providing incentives for their
staff to innovate in this area.
For Researchers
The Carbon Disclosure Project may want to consider revising its survey questions on adaptation.
For example, more direct questions about strategies for managing the physical risks of climate change
would be helpful. Upon interviewing a representative from Entergy, I learned that the company had
been engaged in efforts to strengthen their infrastructure to make it more resilient to hurricanes.
However, those efforts were not apparent from their survey, because the respondent focused more on
the company's stakeholder outreach. A government agency may want also consider requiring climate
change adaptation reporting among electric utilities. Mandatory reporting would likely help raise
awareness of the issue among utilities more than a voluntary survey and would make more reliable data
available for research.
Researchers may want to consider evaluating the benefits of non-hardening activities for storm
resiliency. Increased frequency or intensity of storms appears to be one of the major risks facing utilities
and it also appears to be the impetus for a lot of adaptation-related investments, especially hardening of
transmission and distribution. More research on the range of options for dealing with that risk would be
helpful.
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Epilogue
If you hopped in a time machine and traveled twenty years into the future to study an electric
utility sector that has adapted effectively to climate change impacts, what would you find? The utilities
will probably have made strategic investments in strengthening and flood-proofing their infrastructure.
More importantly, they will probably be using demand side management to the fullest extent possible
to reduce the need for large investments in facilities that could be particularly vulnerable to climate
change impacts. As a result, you'll see that cities are less dependent on large power plants and longdistance, constrained transmission lines. Instead, you'll probably find that electricity supply sources are
more diversified, relying more heavily on local distributed systems such as rooftop solar panels or
combined heat and power generation. You are also likely to find that customers have taken steps to
reduce vulnerabilities on their side of the meter as well. For example, power supplies are not located on
the ground floor in flood-prone areas and buildings have been retrofitted to use less energy, even during
heat waves.
I also imagine that you will find utilities using elaborate Scenario Planning exercises to better
understand their vulnerabilities and assess their adaptation options. These exercises will probably
involved multiple departments inside the utility as well as outside stakeholders, such as power plant
owners and grid operators. Utilities will be monitoring climate change indicators very carefully and
reappraising their adaptation strategies on a regular basis.
Regulators will probably have convened collaborative adaptation planning efforts, inviting a
range of stakeholders, including city officials, customers (especially critical services), environmental
groups, and consumers advocates. Through these collaborative efforts, stakeholders will probably be
more directly involved in the development, monitoring, and evaluation of adaptation options. Indeed,
there is a good chance that, careful consideration of climate change risks has been fully integrated into
all investment planning in the electricity sector, from facility siting to energy efficiency program design.
Electric utilities could be considered key partners in local adaptation planning. Their staffs are
open to discussing how their infrastructure might be vulnerable to climate change impacts and ready to
accept suggestions regarding expanded resiliency efforts. There is likely to be an open dialogue between
electric utilities and other infrastructure providers about the linkages between their systems and
possible strategies for reducing vulnerabilities.
93
If all this has happened, it is because customers decided that they would rather pay a little more
on their electricity bills than suffer frequent outages and massive losses every time there is a major
storm.
94
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Zimmerman, Rae and Craig Faris 2010. "Chapter 4: Infrastructure impacts and challenges" in New York
City Panel on Climate Change 2010 Report. Annals of the New York Academy of Sciences.
101
Appendix A. Interviews
Con Ed
*
*
e
e
e
*
Case Study
Adam Freed, Former Deputy Director of Long Term Planning & Sustainability, City of New York
Susan Waltman, Executive Vice President, Greater New York Hospital Association
Alison Burke, Vice President, Regulatory and Professional Affairs, Greater New York Hospital
Associaiton
Dave Westman, Energy Efficiency Manager, Con Ed
Confidential Interview, Regional Energy Planner
Confidential Interview, Public Service Commission Staff
Confidential Interview, Environmental NGO
Entergy Case Study
* Jeff Williams, Director of Climate Consulting, Entergy
* Bradford Case, Hazard Mitigation Administrator, City of New Orleans
- Confidential Interview, Local Government Official
s
Forest Bradley-Wright, Energy Policy Specialist, Alliance for Affordable Energy
- Sidney Coffee, Senior Advisor, America's Wetland Foundation
PG&E Case Study
* Xantha Bruso, Principal of Long Term Energy Policy, PG&E
e
Laura Tam, Sustainable Policy Development Director, SPUR
e
Bruce Riordan, Climate Strategist, Bay Area Joint Policy Committee
e
Matthew Sturm, Senior Program Manager of Climate Change, PG&E
e
Confidential Interview, Local Government Official
- Confidential Interview, State Government Official
102
Appendix B. Coding from CDP Survey Analysis
Sub-Category
Code
Code Definition
Examples
Water
procurement
Purchasing additional
water resources
Solar programs
Investments in solar
energy
"Projects include being a co-owner of a
reservoir"- Excelon.
"ACE's Solar Financing program is designed
to promote the use of solar energy and
reduce electricity demands on its
distribution system during periods of high
electricity demand."
Acquire resources
Hydroelectric
investments improve or
maintain capacity in the
face of climate change
impacts
Purchasing new or
different supply
resources
Greater
redundancy in
generation
Greater investment in
generation
water efficiency;
reduce water use;
municipal effluent
for cooling
Reducing water use for
power plant cooling
"Under the SDG&E solar initiative, 26 MW of
utility-owned generation is slated for
construction..."
" Ameren... increased its cooling capabilities
via the addition of supplemental cooling
ponds to address thermal issues that
occurred during a period of drought"
"We have also been working with the U.S.
Army Corps of Engineers and other agencies
to have pump intakes lowered." - AEP
"In an effort to promote maximum value
and use of existing hydroelectric generation
facilities the company is integrating cloud
seeding operations and aquifer recharge
while performing turbine upgrades at
several plants."
"The methods Xcel Energy is using to
manage this risk include acquiring resources
that use less water,"
"To ensure the reliability of each island grid,
the company plans its electric generation
system with greater levels of redundancy
than typical for a mainland, interconnected
system. " - Hawaiian Electric
"Exelon has invested in a number of projects
related to ensuring adequate water supply
for its power plants and to identify
opportunities to increase water use
efficiency, reduce water supply
vulnerabilities and reduce water supply
costs."
Changes in fuel delivery
and inventory to
account for climaterelated disruptions
"Ameren addressed fuel supply disruption
risks via implementation of new fuel
inventory policies and the development of
alternative delivery options at many of its
facilities."
Solar generation
construction
Cooling ponds
Capital
investments in
supply
Lower pump
intakes
Hydroelectric
investments
Changes in
supply
operation
Fuel inventory;
fuel delivery;
supply delivery;
fuel diversity
Investments in solar
energy generation
Building more cooling
ponds for thermal
generation to address
drought
Lowering cooling water
intakes for thermal
power plants
103
Capital
investments in
transmission
and
distribution
Dredge channels
Distribution
equipment;
submersible
transformers;
investment in
substations
Smart grid
Grid
improvements
Hardening;
reinforcement
Dredging channels to
increase water flow for
power plant cooling or
fuel delivery
"We have been working with the U.S. Army
Corps of Engineers and other agencies to
dredge channels to improve water flow"
Investment in
distribution equipment
that can better handle
climate change impacts
"The company is purchasing and installing
submersible transformers for use in areas
most susceptible to flooding during
hurricanes and nor'easters " - ConEd
Investments in grid
modernization
"In 2012, Ameren Illinois created a 10-year
Modernization Action Plan to build a smart
grid and perform thousands of infrastructure
projects to enhance reliability, provide faster
service, and improve efficiency."
Investments in grid
modernization
Investments in the
distribution system to
better withstand climate
change impacts
Advanced
metering
Investment in the
transmissions system to
better withstand climate
change impacts
Being able to
automatically restore
electricity after an
outage
Installing meters that
record usage more
frequently and
communicate with the
utility
Asset design
Incorporated climate
change impacts into the
design of assets
Transmission
investment
System
automation
EV integration
" PG&E's adaptation strategies for potential
increased electricity demand include...
improvements to our electric grid"
"The company has developed a number of
initiatives to reduce system vulnerability to
outages, including structural and electrical
reinforcement...."-Northeast Utilities
" Over the next five years, Ameren plans to
invest over $1.7 billion in transmission
system improvements to ensure that we will
be able to provide reliable, safe service now
and in the future."
"The company has developed a number of
initiatives to reduce system vulnerability to
outages, including.... system automation and
real time monitoring." -Northeast Utilities
"To manage these risks, PHI has installed
Advanced Metering Infrastructure (AMI)
technology to improve restoration
response"
"The company is ... factoring flood levels
into the design of its new substations."
ConEd
"These vehicles ... could act as distributed
resources for the electric grid when not in
driving use. Con Edison's customers have
more than six million room air conditioners.
Approximately 750,000 PEVs would have to
be on the road in our region to match the
Using electric vehicles as electric demand of those six million room air
, a distributed resource
,Iconditioners."
104
Undergrounding
Enhanced visual
inspection
Maintaining equipment
so that it can better
withstand climate
Operating
pratm
practice.
T&D
Maintenance
change impacts
Vegetation
management;
tree trimming
Trimming trees to
prevent outages,
especially given longer
growing seasons
Energy efficiency;
conservation; onbill financing;
Using energy efficiency
to avoid increased load
associated with higher
temps or supply issues
Demand response
Using demand response
to cope with higher
system peaks due to
higher temps
Dynamic pricing
Using pricing to help
enable energy efficiency
and demand response
Demand Side
Management
Changes to
Staffing
Enaond
monitoring
Putting distribution
equipment, such as
wires, underground
Increasing visual
inspection of
distribution equipment
due to severe weather
Team
Developing staffing
teams or groups to work
on climate change
adaptation
Change in
leadership
Changes in leadership
with regard to climate
change adaptation
Tracking;
Tracking climate change
indicators
Weather
monitoring
Monitoring weather
conditions to for
operational purposes
105
" In 2007, Ameren Missouri initiated the
PowerOn program to improve reliability and
environmental performance. Program
highlights have included: undergrounding
wiring systems in key areas..."
"implement enhanced visual inspections of
critical system infrastructure in extreme
heat or cold conditions. "- Excelon
"This risk is also mitigated by maintaining
our infrastructure in good working order." CMS
" The company has developed a number of
initiatives to reduce system vulnerability to
outages, including a significantly enhanced
vegetation management program..."
Northeast utilities
"PG&E's adaptation strategies for potential
increased electricity demand include
expanded customer energy efficiency and
demand response programs and
improvements to our electric grid."
"PG&E's adaptation strategies for potential
increased electricity demand include
expanded customer energy efficiency and
demand response programs and
improvements to our electric grid."
"In addition, PHI will soon be able to
provide "dynamic" price signals to
customers through in-home, easy- to-use
visualization technology. ...Dynamic pricing
has important implications for peak demand
reduction..."
"Since 2008, PG&E has maintained a crossfunctional team to explore and
communicate these risks within the
company. This team has conducted biannual reviews of relevant scientific
literature."
" In 2011, CL&P also announced changes in
senior leadership, appointing officers to lead
emergency preparedness"- Northeast
Utilities
"PG&E is proactively tracking and evaluating
the potential impacts of reductions to SN
snowpack on our hydroelectric system."
"AEP has an internal meteorological
department which monitors meteorological
conditions and potential trends to help us
adjust our operations to changes in
precipitation and temperature as needed."
Monitoring risk
Emergency
planning;
Plans for storm
preparedness, response,
and recovery
Plans for emergency
preparedness, response,
and recovery
Contingency
planning;
Continuinty
planning
Plans for getting the
business back up and
running as soon as
possible after a
disruption
Storm plan; storm
preparedness
Internal
Planning:
emergency
preparedness
and recovery
Internal
planning: CC
risk,
assessment
adaptation
strategy
Monitoring climate
change risks
Adaptation costs
assessment
Assessment probability
and consequences of
climate change risks
Assessing the costs of
adaptation measure for
planning purposes
Water supply
planning
Planning water supply
resources
Resource
planning
Planning for energy
resources
Participated in
planning process;
Participated in planning
processes with outside
stakeholders
Risk assessment
Internal
planning:
resource
planning
External
Planning
Activities
Stakeholder
engagement
Customer
Education
Increasing
awareness
Participated in planning
processes with outside
stakeholders
Public education
activities that increase
awareness of climate
change impacts and
adaptation issues
106
"AEP is committed to evaluating and
monitoring this risk through several efforts
and organizations."
"Recent experience of Tropical Storm Irene
and October 2012 snowstorms have led to
changes in storm preparedness and
response processes and procedures."
National Grid
"NSTAR has also developed an Emergency
Response Plan (ERP) to address storm
events."
"Contingency planning takes place across
our business. Each department annually
develops and tests its own business
resumption plan. This enables the
continuous operation and/or resumption of
critical business functions in the event of a
major business disruption stemming from
climate change and environmental or
weather-related disasters." - SDG&E
"Work is ongoing in the US to assess risk
drivers and impact on ability to deliver
energy." - National Grid
" Entergy is carefully studying this issue to
better understand the adaptation costs it is
facing today and in the decades to come.
" ...Involvement in water use studies and
water supply planning." -Excelon
"Meeting peak summer demand is an
integral part of network management and
planning. NU electric operating companies
produce annual integrated resource plans
which anticipate and meet forecasted
demands." Northeast Utilities
" PG&E is participating in the Adapting to
Rising Tides project, community planning for
sea level rise."
"The company participates in/funds research
in adaptation responses and works
collaboratively with stakeholders and
effected communities in developing these
responses."
"Worked with local communities in N. CA to
increase awareness of decreasing water
flows so that they can explore local
adaptation measures"
Research;
Publishing research on
investigation
climate change impacts
" SDG&E has filed a request with the CPUC
for a new mechanism for the future
recovery of all wildfire- related expenses for
claims, litigation expenses and insurance
premiums in excess of amounts authorized
by the CPUC for recovery in rates."
" Examples include improved building codes,
wetland restoration and stronger levee
systems. The Gulf Coast study has identified
$49 billion in investments over the next 20
years that will cost-effectively avert $137
billion in losses over the lifetime of the
measures."
"PG&E has taken several steps to help
identify and adapt to the impacts of climate
change on our hydroelectric system. Some
of these include the following: ... presented
and published several scientific papers on
our research and investigations into how
climate change is impacting the N. SN and S.
Cascade watersheds that supply our
hydroelectric system." - PG&E
Funded research
Funding research on
climate change impacts
"AEP funds climate change research within
the Electric Power Research Institute (EPRI)
and the Massachusetts Institute of
Technology (MIT) Joint Program on the
Science and Policy of Global Change."-AEP
Insurance
Purchasing insurance to
enhance recovery from
climate change impacts
"In addition, during 2011 CenterPoint Energy
took steps to mitigate potential risks posed
by wildfires (e.g., ... procurement of
insurance specific to wildfires)."
Revenue
recovery;
Recovering the costs of
responding to climate
change impacts through
rates
Building codes;
wetlands
Advocacy for policies
that would help the
restoration;
levees
electricity sector adapt
to climate change
Regulatory
advocacy
Other policy
advocacy
Research
Sharing risk
107
Appendix C. CDP Survey Analysis, Count of Adaptation Measures by Utility
Utilities
Transmission &
Distribution
Supply
________________________________
Operating
practice
Capital
investments changesin
T&D
in T&O
Operating
Capital
investments changesin
supply
in supply
1
1
4
DlepoGas &Electric)
Semnpra(San
1
1
3
1
CMVS
(ConsumersEnergy)
1
1
Excelon (Commonwealth Edisonand PECO)
1
2
____
AEP
11
1
__
Xcel
1
2
___
Hawaiian Electric
1
CenterPoint
____
1,
_____
;Internal
!Internal
1planning: !planning:
resource
rNsk,
adaptation iplanning
1
2
____
Pinnacle West (ArizonaPublicServiceCompany)
_____
Wiaconain Energy
_____
1
1
3
1
____
1
__
9
7
1____
_
_____4
1
1
____
1
__
_4
3
1
11
1
1
____
________
________
1____
____1
__
2
___________________
____
1
9
___
1 _____9
1____
____
____
1
1
1
1
1
21
_________
1
2
1____
_______________
3
2
1
_1
1,
U
1le___
_11
___________
____
1
1_____
1
1
1
_
2
2
N of
measures
__________
____
__ 1
1
Funding/
Other policy participating Additional
in research insurance
advocacy
Regulatory
advocacy
Customer
education
External
planning
1
1
1
Advoacy,Research__________
____Education,
13
____
2
41_
_________
National Grid
2
____
1________
________
3
3
2
___
_
____
________
1
1
___________________________________0
Edison: none reported
CH Energy: none reported
Duke: none listed
____
_
I
________________2
Idacorp
DT'E: none fit adaptation
1
1
1___
___
2
1
Entergy
Pepco(Potomac Electric PowerCompany,Delmarva
Altanic City Electric
Power and Light Company,
Company)
NSTAR
1
4
Northeast Utilities
Pacific Gas&Electric
Internal
planning:
emergency
preparedne
Enhanced ss and
monitoring recovery
in
Changes
Staffing
6
Consolidated Edison
Amneren(Ameren Illinois, Ameren Missouri)
Planning Acitivites
Internal CapacityBuilding
DemandSide
Management
____
____
____
____
____
____
____
____
____
____
____
____
____
____
0____
____
________
Southern Company: none listed
Dominion: none fit adaptation
108
0____
0
___________________________________________________
________
_____________
0________