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The Cost of Katrina

Debate continues on how to safeguard America's energy infrastructure.

Fortnightly Magazine - October 2005

the insurance industry after Hurricane Andrew in 1992 may have limited some of the damage from the 2004 storms. 

One hurdle, admittedly, which was voiced many times at a recent meeting with the insurance industry sponsored by the DOE and the Critical Infrastructure Protection Program at George Mason University School of Law, was the problem of adverse selection—a phenomenon where the only parties interested in the insurance are those that need coverage the most. Participants at the conference called for a range of possible alternatives to the traditional avenues for cost recovery, such as requiring mandatory insurance for all transmission systems or using various insurance instruments as a supplement to self-insured reserve funds.

Incentives for sorely needed infrastructure investment (particularly in transmission) are a major focus of the Energy Policy Act of 2005. It will be up to federal and
state regulators to make good on that promise. Creating a consistent plan for utility restoration cost recovery would be a good start.