The widespread power outage caused by natural disasters has become a rising and evolving risk all over the world. Superstorm Sandy, which struck the New Jersey shore in 2012, damaged 650,000 homes and knocked out power for 8.5 million customers. Similarly, power outages after the 2008 Wenchuan Earthquake also caused economic disruption. Imagine you are in a major earthquake and all lights go out, what actions can governments and public utilities take to keep the power grids running and better prepare ourselves in face of natural disaster risks?
During the week of mid-March, a group of four M.A. candidates from Johns Hopkins University School of Advanced International Studies (SAIS) traveled to the Pacific Northwest (British Columbia Province, Washington State, and Oregon State), an area highly vulnerable to earthquakes as well as climate-related flooding and droughts. The team engaged officials from state governments, public agencies, private businesses, and electric utilities in dynamic conversations about regulating and operating one of the region’s most critical infrastructures--the electric grid. In addition to developing a better understanding of how to manage risks associated with the electricity sector in the United States, this article also sheds light on natural disaster risks in China in order to better communicate natural disaster risks at a broader scale.
Lessons from the U.S. Pacific Northwestern region:
With widespread outages caused by devastating natural disasters such as Superstorm Sandy in the nation’s recent memory, the public needs to know whether the electric utility industry is prepared to withstand and respond to such risks in the future. However, it’s incredibly difficult to determine whether electricity-industry players are adequately prepared for earthquakes or extreme weather events in the Pacific Northwest without first looking at the actions and decisions of state governments and electricity regulators.
In the U.S. States of Washington and Oregon, state governments are playing an active role in managing natural disaster risks instead of relying solely on federal relief. For example, Oregon Governor Kate Brown established the position of Oregon State Resilience Officer (SRO) to set and implement resilience goals, which includes working with state agencies to improve Oregon's ability to respond to a 9.0 magnitude Cascadia Earthquake and minimize its impacts on critical infrastructure such as electricity facilities. Mike Harryman, the first SRO, is currently working with state legislators on an earthquake insurance bill following the model used by the California Earthquake Authority. It requires all insurance companies doing business in Oregon to offer earthquake insurance to residential owners. According to Harryman, the option to purchase earthquake insurance would be a great mitigation effort for Oregon to reduce possible disaster deductibles considered by the Federal Emergency Management Agency (FEMA) when the state requests Public Assistance from FEMA. The state government’s effort to align the interests of private sector entities (such as insurance and reinsurance companies) and the state and federal government enhances its ability to allocate resources among sectors in face of devastating natural hazards.
For the electricity sector, the states’ public utility commissions are among the key stakeholders to analyze the electricity industry’s preparedness for natural disasters, as they have the authority to require or incentivize actions by electric utilities including hardening and resiliency planning. State commissions are also in the best position to take the lead in these areas as they are best able to identify and prioritize local vulnerabilities. For example, many predicted climate change trends affect the Pacific Northwest in diverse ways. The availability of water for BC dams would actually increase, due to earlier and longer spring runoffs. However, for utilities in Washington, changes in water seasonality are so great that they need to adjust operations or perform load-feeding to meet load requirements of Bonneville Power Administration (BPA), the power marketing administration in the Northwest. For Oregon, the electric grids are highly vulnerable to a 9.0 magnitude earthquake, and it is modeled to take more than 2 years to recover only 10-20% of the transmission system. The variety of local vulnerabilities to climate change and seismic risks was also confirmed by the Oregon Public Utilities Commission, which is engaging utilities to reveal risk assessments and contingency plans.
Although it is difficult and sometimes controversial to translate scientific predictions into corporate or regulatory decisions, the Washington and Oregon State are developing a multilevel risk management mechanism which aims to better prepare the critical electricity sector in face of natural disasters. It aligns the interest of the public and private sector by encouraging innovative insurance and reinsurance solutions, while directly engaging the electricity industry in conversations about minimizing their own vulnerabilities.
Looking beyond the U.S. experience:
When we look at natural disaster risks at the global level, the World Economic Forum’s Global Risk Report 2017 placed “Extreme weather events” as the number one global risk in terms of likelihood and the number two global risk in terms of impact. “Major natural disasters” were also ranked in the top five risks measured by impact. The latest research from Swiss Re also supports the evidence of more catastrophic events, with 199 natural catastrophes in 2015, and China being one of the hardest hit with the devastating earthquake in 2008 and recent severe flooding.
China is subject to frequent natural disasters such as earthquakes and flooding, which incur huge economic losses and human casualties. However, the country is heavily dependent on public finance from national budgets and voluntary donations from the civil society for post-disaster recovery. Commercial insurance companies have not played a robust role in managing the country’s catastrophic risks. One of the most important lessons China could learn from the Pacific Northwest region is to develop a government-driven risk management system, drawing PNW earthquake insurance experiences. It allows the country to take advantage of its ability to quickly mobilize national resources into emergency responses, and at the same time integrates resources from the regional governments and private sector. By incentivizing the participation of insurance and reinsurance companies, China would move closer to a multilevel risk management system (involving municipal, provincial, central government and private sector entities) for natural disasters.
It is also worth noting that Chinese cities undergoing rapid urbanization are becoming more vulnerable to natural disasters, with denser concentrations of industrial parks and urban populations. So do the critical infrastructures such as electric grid and power plants. The regional governments should work with city planners and the electricity sector to better analyze the localized vulnerabilities from natural disasters, in order to build a more resilient living environment.
The Chinese version of this article can be accessed here: https://openminds.swissre.com/stories/1220/
Make sure you download the report Lights out: The risks of climate and natural disaster related disruption to the electric grid.
Category: Climate/natural disasters: Climate change, Disaster risk, Earthquakes, Floods/storms, Resilience