Are residential time-of-use prices only effective for middle class households, or do low-income customers benefit too—as authors Lisa Wood and Ahmad Faruqui asserted in their October 2010 article...
What Price, Resiliency?
Evaluating the cost effectiveness of grid-hardening investments.
Recent experience has demonstrated that the nation’s electric infrastructure can be highly susceptible to widespread power outages due to severe weather and related events ( e.g., hurricanes, winter storms, tornadoes, earthquakes, climate induced changes in sea level, etc.). To this could be added manmade impacts such as physical or cyber-attack. For instance, in 2008 Hurricane Ike caused 2.15 million customer outages in the territory of CenterPoint Energy, while Hurricane Irene caused more than 4.0 million homes and businesses across the Eastern United States to lose power. In June last year a major storm system, Derecho, moved through 11 states and the District of Columbia traveling around 600 miles in 10 hours. Roughly 4.2 million utility customers lost power. It took as many as seven to 10 days to restore power in many cases. More than 2 million customers lost power in New York due to Superstorm Sandy, and a week after the event, more than 200,000 customers were still without power. Figure 1 shows the timeline of power restoration by utilities in New York City following Sandy.
As our economy and well-being are heavily dependent upon electricity, there’s been increasing attention to making our electric system more resilient. This resiliency takes the form of hardening critical infrastructure so it’s less vulnerable to failure, as well as improving response time and decreasing the time it takes to restore electric power if it does go down.
However, as with all such issues, accomplishing these things has costs. A key question being faced by energy company executives, shareholders, regulators, and other stakeholders is how much cost is appropriate. What is an appropriate level of investment, both in capital and operations and maintenance (O&M) expense, to achieve a given level of resiliency?
Stakeholders involved in making these decisions would benefit from a reasonably straightforward cost-benefit structure that would inform these decisions. An example construct is the California Manual of Standard Practice 1 adopted decades ago by California and many other states to make decisions about investments in utility energy efficiency programs. Summarizing in a simplistic manner, a series of cost-benefit tests was developed against a defined benchmark (the long run avoided cost of new generation). If energy efficiency programs could meet demand growth at a cost lower than constructing new generation, energy efficiency programs should be pursued. Otherwise, utilities should build new generation. These cost-benefit tests were run from several perspectives, the most commonly used one being the Total Resource Cost (TRC) test. Regulators could feel comfortable in reviewing these analyses and making decisions based on a reasonably sound analytical construct.