Combating Risks to the Electric Grid

Electricity is the foundation of society, making the electric grid one of our most critical infrastructures. It is also one of the most vulnerable, and is subject to a number of variables, according to, Lights Out: The risks of climate and natural disaster-related disruption to the electric grid, a study by students of Johns Hopkins University’s School of Advanced International Studies, funded by Swiss Re.

According to the report, in recent years there has been a trend of more natural disasters globally, with 191 natural catastrophes in 2016 and a 24% increase from the level in 2007. In the United States, 43 natural catastrophes caused huge property losses in 2016, almost double those of 2007.

Lights Out focuses on the Pacific Northwest, which is an “illustrative case study in climate and natural disaster related electric grid disruption. The region is prone not only to high-frequency, low-intensity natural disasters such as droughts and flooding, but also at risk of catastrophes like the Cascadian Subduction Zone (CSZ) event, an earthquake-tsunami combination that is expected to devastate the coastline from northern California to southern British Columbia,” according to the report.

As climate change alters the seasonality of water runoffs in the Pacific Northwest, the study found that electricity generation and the operation and maintenance of hydroelectric dams face greater challenges. What’s more, different parts of the grid are vulnerable to different perils. For example, above-ground lines are vulnerable to weather events, while underground lines are susceptible to earthquakes. In Oregon, for example:

More than 50% of substations would be damaged beyond repair in the event of a magnitude 9.0 earthquake. In addition, the vulnerability of the electric grid is highly interdependent with other critical infrastructure systems, including roads, water and sewage treatment, and natural gas pipelines. In the event of a major earthquake, damage to road networks can make it impossible to repair transmission and distribution lines, thereby preventing the restoration of all other electricity-dependent lifeline services (water, sewage, telecommunications).

The costs of outages for construction and restoration of the grid are estimated to be 1.59 times higher in highly populated locations versus flat land areas with fewer inhabitants. Costs are also higher when infrastructures such as emergency roads are destroyed, which would slow down repairs to roads, in turn delaying restoration of electric power and impacting telecommunications, water and sewage services.

There may be long-term financial implications as well, as entire communities would be impacted, leading to a possible migration of residents to areas not effected by the disaster. Following Hurricane Katrina in 2005, for example, the population of New Orleans dropped dramatically, and 10 years later, had only returned to 90% of its pre- 2005 levels.

Total population of New Orleans 2000-2015; Hurricane Katrina hit New Orleans in 2005:

With the increase in natural disasters, the recent destruction caused by Hurricane Katrina and Superstorm Sandy as well as the prospect of a magnitude 9.0 Cascadia earthquake, “It is imperative that public and private sector entities explore potential solutions for combating and mitigating damage to the electrical grid and disruption from power outages.” The report urged utilities to increase the resilience of their systems in a number of ways, beginning with conducting utility vulnerability assessments to identify vulnerable infrastructure and develop resilience plans. While many utilities have taken the initial step of identifying the resilience and mitigation strategies that they intend to implement, their implementations after these assessments vary widely by utility.

Utilities have several options for hardening the resilience of their systems, depending on the specific types of natural hazards they face. For example, checking poles for rot and moving infrastructure out of flood zones and landslide-prone areas helps to maintain distribution and transmission infrastructures, keeping them from going down in regions with heavy rainfall and flood risk. Pruning trees to protect wires from falling branches is also important in regions experiencing higher intensity storms, according to the report.

Highlighted trends:

  • Climate change is causing more severe and frequent natural disasters, meaning power systems face increased strain from catastrophes.
  • The interdependence of systems creates further complications: if the electric grid is down for an extended period, collateral effects can lead to disruptions in other services such as water, sewage and telecommunications.
  • The economic implications are challenging governments and energy providers. Not only do they require pre-disaster financing provided by insurance, they must address how to make their systems more resilient to future flooding, droughts and earthquakes.

Record Snowpack Brings Mixed Blessings to California

This year’s Sierra Nevada snowpack, one of the largest on record, has brought relief to California, which is still reeling from a five-year drought followed by record flooding. The snowpack is twice its average size, with some areas as deep as 80 feet, according to NASA. But with some rivers and dams still at higher than average levels, the fear is that warm temperatures or heavy rainfall will cause the snows to melt faster and bring more flooding.

Colorado and other mountain states, which also experienced heavy snowfall this winter are also concerned with runoff issues. Canada has faced severe runoff problems, after a heat wave earlier this spring resulted in major flooding in Quebec and British Columbia, the Wall Street Journal reported.

“The real wild card is if we get hit with a big rain event,” Frank Gehrke, chief snow surveyor for the California Department of Water Resources, told the Wall Street Journal as he monitored a rushing stream in late May. “That could throw the whole system into tilt.”

The Los Angeles Times reported last month that the rapid snowmelt has kept public agencies busy managing water levels across the state’s network of reservoirs. Water district managers must conduct daily conference calls to coordinate releases of water in order to monitor the amounts released into California’s rivers, creeks, bypasses and canals. This coordination is critical, as reservoir releases impact water levels downstream for days. Since one reservoir’s release may meet with another, managers must determine how much water the rivers and levees can support before overflowing.

A number of dams levees and weirs in the state are at least 60 years old, and in some areas more than 100 years old, according to a state Legislative Analyst’s Office report. It noted that flood-management responsibilities in California are spread across more than 1,300 agencies managing an infrastructure of more than 20,000 miles of levees and channels and more than 1,500 dams and reservoirs.

One reservoir in Los Angeles, the Silver Lake Reservoir, is benefiting from the snowpack and ample water supply. No longer used to store drinking water, the reservoir was drained in 2015. It sat empty and was seen as an eyesore, until recently when it was able to be refilled ahead of schedule.

According to the L.A. Times, the Silver Lake Neighborhood Council expressed its pleasure that the reservoir was refilled. The council’s co-chair, Anne-Marie Johnson, a second-generation Silver Lake resident, said she is “more than excited” that the landmark will no longer be an eyesore. “I am grateful to Mother Nature for providing us an abundance of snow. I don’t take that for granted,” she said.

Flood, Wind Dominant Natural Hazards in 2016

While most natural hazards occurring in the United States last year saw average or below average activity, the exceptions were flood and wind, according to the CoreLogic report Natural Hazard Risk Summary and Analysis, released today.

Severe flood events driven by substantial rainfall were the dominant natural hazards, with Louisiana and North Carolina floods being the major loss contributors. As in 2015, hurricanes and tropical storms in 2016 continued to cause inland flooding through increased and intense rainfall—even when not making landfall, according to the report.

The National Oceanic and Atmospheric Administration (NOAA) said there were 12 individual weather and climate disaster events in the U.S. with losses exceeding $1 billion in 2016.

According to the report:

  • Based on NOAA and CoreLogic analysis, the overall flood loss in 2016, driven by six, 1,000-year plus rain events, was approximately $17 billion, which is six times greater than the overall flood damage experienced in 2015.
  • The U.S. Geological Survey (USGS) recorded 943 earthquakes of magnitude 3.0 or greater in 2016, with more than 60 percent of these earthquakes located in Oklahoma.
  • The National Interagency Fire Center (NIFC) reported a total of 5,415,121 acres burned from 62,864 separate fires in 2016. While the total acres burned in 2016 fell below the 10-year average, significant losses occurred, with thousands of homes in California and Tennessee destroyed by several smaller fires that burned in populated areas.
  • Wind activity in 2016 was slightly above average, due in large part to strong winds brought by Hurricane Matthew.
  • Hail activity in 2016 was near the average, and Texas experienced the worst of this natural hazard.
  • Tornado activity in 2016 was near average compared with previous years.
  • Hurricane Matthew developed late in the year and grew to a Category 5 storm, resulting in substantial damage along the southeastern seaboard.
  • There were below-average levels of tropical cyclone activity in the western North Pacific Basin encompassing East and Southeast Asia in 2016.

However, 2016 became known as the year without a winter. Nine winter storms impacted the U.S. in 2016, the most notable being the late-January winter storm in New York.

“History has continually shown us that it is impossible to determine exactly when or where the next wildfire, flood or earthquake will strike, which is why preparedness, response and post-loss assessment are paramount,” CoreLogic said.

Business Interruption Seen as Top Risk Globally

A survey of more than 1,200 risk managers and corporate insurance experts in over 50 countries identified business interruption as the top concern for 2017. According to the sixth annual Allianz Risk Barometer of top business risks, this is the fifth successive year that business interruption has been seen as the biggest risk.
top-10-risks

“Companies worldwide are bracing for a year of uncertainty,” Chris Fischer Hirs, CEO of AGCS said in a statement. “They are concerned about rather unpredictable changes in the legal, geopolitical and market environment around the world. A range of new risks are emerging beyond the perennial perils of fire and natural catastrophes and require re-thinking of current monitoring and risk management tools.”

While natural disasters and fires are what businesses fear most, non-damage events such as a cyber incident, terrorism or political violence resulting in denial of access are moving higher up on the scale, according to the report. These types of incidents can cause large loss of income to companies, without actual physical loss.

The second concern, market developments, could result from stagnant markets or M&As, or from digitalization and use of new technologies.

Cyberrisk, third on the list of perils, has jumped up from 15th place in just four years. Cyber was identified as the second concern in the United States and Europe.

According to Allianz:

The results indicate that cyber risk occupies a significant portion of a company’s exposure map. The risk now goes far and beyond the issue of privacy and data breaches. A single incident, be it a technical glitch, human error or an attack, can lead to severe business interruption, loss of market share and cause reputational damage. Of the top 10 global risks in the 2017 Allianz Risk Barometer, a cyber incident could be a potential root cause or trigger for 50% of them. In addition, the toughening of data protection regulation regimes around the world is also contributing to this risk being at the forefront of risk managers’ minds, as penalties for non-compliance are increasingly severe.

Fourth on the list, natural catastrophes added up to $150 billion in total economic losses in 2016—with insured losses accounting for $42 billion of those losses—up from $28 billion in 2015, according to the report. Businesses also are more concerned about the impact of climate change and increasing weather volatility year-on-year.

Trump outlook for 2017

“Opportunities and challenges,” says Ludovic Subran, head of Euler Hermes Economic Research and deputy chief economist of Allianz research. “Companies which are domestic, either a regional multinational or national, will benefit. However, the business environment for large multi-national corporations who do have global, strongly regionally diversified business models will be more challenging. Stronger regional interests will make the lives of companies more complicated as there will be increasing protectionist regulation.”