Catastrophe is in the Eye of the Beholder

Published: Mon 23 Sep 2013
A blog entry by Christine Hertzog

Contributed by:

Christine Hertzog
Managing Director
Smart Grid Library

Christine Hertzog's Blog

Catastrophes happen all over the world, but their definitions are unique.  For a utility confronting a death spiral, that’s a catastrophe.  For a state regulatory policy agency assessing devastating infrastructure damage, that’s a catastrophe.  The responses are unique to each region – particularly in terms of policy and finance.  But technology has the potential to be globally applied.

Ergon Energy is an electricity distribution and retail company serving a large chunk of northwest Australia.  It has a large territory (1.7M sq km) and a relatively small customer base (700,000).  The Australian electricity market is competitive.  As a regulated distributor Ergon has to compete with alternative energy suppliers who do not have a farflung transmission grid to support.  If Ergon raises their rates to cover expenses, then customers move to alternative energy solution competitors with cheaper prices and/or secure more energy efficient appliances and change their behaviors to reduce consumption and bills.  This has the cumulative effect of dropping Ergon’s sales volume and revenues even more, meaning prices have to be further increased to recover costs incurred accelerating alternative energy solutions for customers.  This is the utility death spiral.  It is happening in Australia, and US-based utilities fear it could happen there too.

This is the potential downside to Transactive Energy, which is why some utilities are resisting this concept.  However, Philip Keogan, Executive General Manager Energy Sustainability and Market Development emphasized that Ergon “chose to define the challenge as one to transform the purpose and value proposition of the grid in the eyes of our customers, shareholders, regulators, and people.”  That’s an embrace of Transactive Energy.  Ergon is deploying asset management technologies to reduce operational costs, including an innovative asset management geo-spatial simulation system called Remote Observation Automated Modelling Economic Simulation or ROAMES that enables them to move from reactive to proactive practices and faster resolutions to human and natural disasters.

Superstorm Sandy, like Hurricane Katrina, was one natural disaster that affected multiple American states (24), but few suffered the devastation experienced in New Jersey, New York, and Connecticut.   New Jersey had over 2.5 million outages reported at its peak – more than double the number of any other impacted state.  Jeanne Fox, whose distinguished titles include member of the National Association of Regulatory Utility Commissioners (NARUC) Board of Directors and co-vice chair of NARUC's Committee on Critical infrastructure, had an up-close and personal perspective as a New Jersey resident and Commissioner on its Board of Public Utilities.

Critical infrastructure was already the subject of investment from a grid modernization effort. New Jersey has been a leader in solar deployments in the distribution grid.  However, climate change adaptation has become a hotter topic for a state that has over 1700+ miles of ocean and tidal coastline and the second highest population density in the USA.

Commissioner Fox noted that the damage from Sandy to electrical and gas infrastructure across 8 utilities in the state is estimated to be over $1.1B.  These impacts are influencing regulatory policy directions in a number of states. New Jersey is just one of many states encouraging utilities to make the needed investments in hardening their infrastructure to better withstand extreme weather events.   In her role as co-Vice Chair of NARUC’s Committee on Critical infrastructure, Jeanne stated, “Planning for grid infrastructure reinforcements is a reality for every state, although the situations, assessments, and plans of action vary.   New Jersey suffered 5 unusually damaging storms between 2011 and 2012, and other states have their own catalog of catastrophic events.  The threats are not just from weather though –many NARUC conversations in our committee are also focused on the need to improve the grid to withstand cyber attacks.”

We’ll hear more about Ergon responses to catastrophe through technology innovation as part of Philip’s presentation at the Building Resiliency in the Distribution Grid session at European Utility Week on October 17. Commissioner Jeanne Fox will share more perspectives about how regulatory policy is incorporating climate change adaptation planning and cybersecurity responses into utility directives.  Join us there!

Christine Hertzog
Smart Grid LIbrary