Investor-owned utilities might seem fairly robust, but they’re not impervious to unpredictable black-swan events. Ensuring the industry’s survival might depend on our ability to reduce our...
The Cost of Katrina
Debate continues on how to safeguard America's energy infrastructure.
It has been an unimaginable human tragedy on every score. In the wake of Hurricane Katrina hundreds of lives were lost, the city of New Orleans was decimated, the Gulf Coast ravaged, and major portions of our nation’s energy infrastructure left in tatters. The central question: Could any of this have been avoided?
According to a study by the Rand Corp. from 2003 (Assessing Federal Research and Development for Hazard Loss Reduction) , the United States has seen a decline recently in the number of lives lost to natural disasters (volcanoes, earthquakes, landslides, tsunamis, etc.). Rand attributes building code improvements and efforts to sustain infrastructure with reducing the number of lives lost due to natural disasters.
Yet at the same time, Rand found (citing GAO numbers) that financial damage has grown: “Between 1978 and 1989, Federal Emergency Management Agency (FEMA) disaster relief fund expenditures totaled about $7 billion. In the next dozen years, however, that number increased almost fivefold, to over $39 billion.”
And these costs include repairs to utility systems.
A report conducted early this year by the Edison Electric Institute, After the Disaster: Utility Restoration Cost Recovery , analyzes the various tools the electric utilities use to deal with the financial impacts of disaster restoration. The study, based on data obtained for 81 major storms and from 14 utilities between 1994 and 2004, found that utilities spent approximately $2.7 billion to recover from these storms.
Is Global Warming to Blame?
Policymakers and scientists are at odds over the impact of global warming. According to press reports, most climate change models predict more frequent hurricanes, and as mean temperatures rise worldwide, it’s hard not to make a connection between the two. But some experts say hurricane-scale storms occur all over the world, and in some places—including the North Indian Ocean and the region near Australia—the number has actually fallen. Rand finds that “it does appear claims that a dramatic rise in the numbers and intensities of hazards are not generally supportable.”
In fact, the Rand report says that much of the destruction hurricanes have wrought is due to swelling numbers of coastal residents and the proliferation of property development in coastal areas, both of which contribute heavily to economic loss. Moreover, more than 50 percent of U.S. citizens now live in coastal areas, where they are vulnerable to flooding and hurricanes .
“Such demographic changes have contributed noticeably to the rise in losses—the more people and property in a high risk area, the more … damages.”
The EEI report supports these findings. It states, for example, that during the 10-year period from 1993 to 2004, Florida utilities expanded their electrical system to serve approximately 1 million additional customers. EEI finds the 20 percent increase in customers likely contributed significantly to the total costs Florida utilities incurred to repair their electrical systems after the 2004 hurricanes. Of course, the four hurricanes that hit Florida in 2004 and the devastation from Katrina in 2005