Climate Change Adaptation in the U.S.

Electric Utility Sector

By ARCHNES
MASSACHUSETTS INSTrE
OF TECHNOLOGY
Melissa Higbee
JUN 2021
BA in Geography
University of California Berkeley
Berkeley, California (2007) S, -

Submitted to the Department of Urban Studies and Planning

in partial fulfillment of the requirements for the degree of

Master in City Planning

at the

MASSACHUSETTS INSTITUTE OF TECHNOLOGY

June 2013

@ 2013 Melissa Higbee. All Rights Reserved

The author here by grants to MIT the permission to reproduce and to distribute
publicly paper and electronic copies of the thesis document in whole or in part in
any medium now known or hereafter created.

Author - - I /1
V
Depart ent of Urban Studies and Planning
A.,1/I / 1 May 23, 2013

Certified by
Professor Stephen Hammer
Department of Urban Studies and Planning
This Supervisor

Accepted by
Associate Profess topher Zegras
Cha CP Committee
Department of Urban Studies and Planning
 Climate Change Adaptation in the U.S. Electric Utility Sector
by
Melissa Higbee

Submitted to the Department of Urban Studies and Planning

on May 23, 2013 in Partial fulfillment of the
requirements for the degree of Master in City Planning

ABSTRACT

The electric utility sector has been a focus of policy efforts to reduce greenhouse gas emissions,
but even if these efforts are successful, the sector will need to adapt to the impacts of climate change.
These are likely to include increased heat waves, drought, extreme precipitation events, and sea level
rise. Electric utilities play a key role in providing electricity services in cities that will be facing all of these
difficulties. Cities depend on electricity service for public health, safety and economic development. This
thesis examines how electric utilities in the United States are approaching climate change adaptation
and the factors enabling and constraining these efforts. The thesis draws on an analysis of electric utility
responses to surveys distributed by the Carbon Disclosure Project as well as case studies of Consolidated
Edison, Entergy, and Pacific Gas & Electric.

The case study utilities are incorporating climate change projections into their risk management
and capital planning activities. Integrating climate change projections into risk management efforts
helps utilities use replacement opportunities to build greater resilience into infrastructure systems and
ensure that adaptation strategies take competing demands on resources into account. Both approaches
to adaptation are generally recommended by adaptation experts. However, existing internal decision-
making may not be well suited for incorporating the uncertainties of climate change impacts. The case
study utilities could be using Scenario Planning to develop strategies likely to be effective given a range
of possible futures, but they are not.

I argue that state utility regulatory commissions should consider taking a more active role in
providing guidance and oversight to utilities regarding climate change adaptation. They should consider
(1) requiring utilities to submit climate change vulnerability assessments and detailed adaptation plans;
(2) incorporating climate change risk and adaptation considerations into existing electricity plans; and
(3) convening joint climate change planning efforts with utilities, municipal governments, and a range of
other stakeholders. Cities and states that would like to see electric utilities put more emphasis on
climate change adaptation should consider sharing climate change projections and forecasts of potential
climate change impacts. Provision of such information has been effective in encouraging adaptation
planning in the case studies. The actual adaptation strategies that utilities have adopted depend largely
on the risks they face and the regulatory and policy environment in which they find themselves.

Thesis Supervisor: Stephen Hammer

Title: Lecturer in Energy Planning

Thesis Reader: Lawrence Susskind

Title: Ford Professor of Urban and Environmental Planning

3
Acknowledgements
I would like to dedicate this thesis to my grandparents, Jose and Aura Alarcon.

I am grateful to my thesis advisor, Steve Hammer, for his guidance throughout this process and my
reader and academic advisor, Larry Susskind, for his thoughtful feedback.

I would like to thank my mom, dad, and brothers for their support. Thanks to the "Thesis Groupies"
Louise Yeung, Christine Curella, and Daniel Rinzler for encouraging me to start writing early. Thanks to
Jenna Kay for sitting me down for some thesis advice as soon as she finished her thesis during my first
year at DUSP. Thanks to the whole MCP 2013 class. Your fun spirit and good humor helped make the
hard work a little less hard.

A most heartfelt thanks to Daniel Rinzler for encouragement, support, and company during many thesis-
writing hours.

I am grateful to all those who participated in interviews. I could not have written this without their
insights, but any errors are ultimately my own.

4
Table of Contents
1.Introduction .............................................................................................. ....... 7

11.Resea rch Design ....................................................................................................................... 11

Ill. Literature Review .......................................................................................................... ... .17

IV. Survey Findings ...................................................................................................................... 33

V. Con Edison Case Study ............................................................................................................. 39

VI. Entergy Case Study ................................................................................................................. 53

VII. Pacific Gas and Electric Case Study ..................................................................................... 67

Vill. Cross Cutting Analysis and Findings ................................................................................... 79

IX. Recom m endations .................................................................................................................. 89

Ep ilo g u e........................................................................................................................................ 93

W orks Cited .................................................................................................................................. 95

Appendix A. Interview s .............................................................................................................. 102

Appendix B. Coding from CDP Survey Analysis .......................................................................... 103

Appendix C. CDP Survey Analysis, Count of Adaptation Measures by Utility ............................ 108

5
6
I. Introduction
Greenhouse gas (GHG) emissions are now estimated to surpass the worst-case emissions

trajectory from the Intergovernmental Panel on Climate Change (IPCC) third assessment report (2001;

Ebginer & Vergara 2011). Not only does this demonstrate the urgent need to reduce GHG emissions, but

it also highlights the need for cities to figure out how they can adapt to the unavoidable impacts of
climate change. The electricity sector has been a focus of international and national policy efforts to

reduce GHG emissions for good reason: electricity generation contributes to 40 percent of carbon

dioxide emissions in the United States (EIA 2012). The electricity sector will also need to adapt to the

impacts of climate change, which are likely to include increased heat waves, drought, extreme

precipitation events, and sea level rise (IPCC 2007). However, how the electricity sector might adapt has

not received as much scholarly or policy attention as GHG mitigation and very few cities have explored

how their local electricity system may need to adapt to climate change impacts (Ebginer & Vergara

2011; Hammer et al. 2011b).

The electricity sector demonstrates considerable vulnerability to severe weather and climate

variability under current climate conditions. For example, during the summer of 2012, severe storms

caused power outages across the Eastern Seaboard that left nearly 1.8 million people without power in

extreme heat conditions (Anon 2012). During the same summer, drought conditions in the Midwest

forced power plants to shut down, reduce capacity, or receive special permission to operate, because

cooling waters reached extremely high temperatures or low levels (Wald & Schwartz 2012). Most

recently, 2.1 million people lost power in New York and New Jersey during the peak of Hurricane Sandy

(NYS 2013). The electricity outage also severely affected other vital services, such as communications,

healthcare, transportation, drinking water supplies, and wastewater treatment (NYS 2013).

There is no way to know if these events were actually the result of climate change or not, but

the outcomes are evidence that the electricity sector has existing vulnerabilities to climactic variability

and extreme events, which can have profound impacts on cities. Climate change could exacerbate these

vulnerabilities and create new vulnerabilities through affects on both supply and demand (CCSP 2007;

Hammer et al. 2011b). On the supply side, for example, drought may reduce hydropower capacity. On

the demand side, hotter summer temperatures may increase peak electricity demand for cooling.

Furthermore, electricity infrastructure has a long life span, so infrastructure built today may need to
cope with the next fifty years of climate change impacts.

7
 Some would argue that the electricity sector has significant capacity to adapt to climate change

impacts, because it already frequently responds to weather-related impacts and has considerable

financial and managerial resources (Wilbanks et al. 2012a). However, there could be significant

obstacles to turning the sector's capacity to adapt into a reality, such as high costs, the number of actors

involved, lack of supportive policies, short-term planning horizons, and uncertainty (UKCIP 2007; Vine

2008). It is important that the electricity sector is able to overcome potential obstacles and adapt to

climate change, because it provides a service that is critical for economic development, public health,

and safety (Ebginer & Vergara 2011; Wilbanks et al. 2012a). A well functioning electricity system is

especially critical for cities due to their concentration of population and economic activity.

Electricity systems in U.S. cities are often centralized systems with large power generation

plants adjacent to sources of cooling water, such as the ocean, rivers, or lakes (Hammer et al. 2011b).

Cities are also home to a complex web of transmission (high voltage) and distribution (low voltage) wires

(Hammer et al. 2011b). Climate change could increase the vulnerability of both generation and

transmission and distribution (T&D) systems serving cities. For example, extreme precipitation events

could result in flooding of power plants located near rivers and heat waves could damage T&D systems.

Cities are also major drivers of electricity demand. In 2008, the International Energy Agency

calculated that 76 percent of global electricity demand is associated with urban areas (EIA 2008).

Climate change is expected to increase electricity demand in cities, particularly peak electricity demand,

which could lead to reliability problems (Hammer et al. 2011b). As such, cities will likely be important

places to focus efforts to manage electricity demand in the face of climate change.
Electric utilities are key providers of electricity services in cities. Utilities own T&D infrastructure

and often own and operate power plants. Utilities are often involved in the provision of demand side

services, such as energy efficiency retrofits and demand response programs. Lastly, utilities are the

entities of electricity sector that most often interface with end-use customers (i.e. a City's residents and

business) for billing, customer service, and some educational activities.

Given the significant role that utilities play in providing electricity services in cities, they are also

one of the primary organizations responsible for implementing climate change adaptation strategies

(Hammer et al. 2011a, table 8.15). Nevertheless, electric utilities' current practice of climate change

adaptation is an under-researched area. This study seeks to begin to fill that gap by examining the

climate change adaptation strategies that utilities are employing and sorting out which factors are

enabling or constraining their efforts. This research is intended to help utilities understand what their

counterparts across the country are currently doing about climate change adaptation and raise issues

8
for their consideration as they move forward in this relatively new field. This research also intends to

provide policymakers and utility regulators with an enhanced understanding of what they can do to help
utilities pursue climate change adaptation.

This study seeks to answer the following questions:

1. What strategies are U.S. investor-owned electric utilities currently employing in an effort to
adapt to climate change impacts?
2. What factors are enabling and constraining climate change adaptation efforts at investor-owned

electric utilities?

9
10
11. Research Design
This study examines climate change adaptation strategies being employed by electric utilities

because utilities carry out many of the key functions of the electricity sector, including owning and

operating infrastructure, providing demand side services, and interfacing with customers. The utility
industry is comprised of both investor-owned (IOUs) and consumer-owned utilities (such as municipal

utilities and rural cooperatives), but due to time limitations this study focuses on IOUs, because of their

dominant role in the economy. Although IOUs are less numerous than consumer owned utilities, they

serve nearly 70 percent of customers in the U.S. (APPA 2012). 1OUs are also the most prevalent service

provider in the largest metropolitan areas in the U.S: 1OUs provide electricity service in the ten largest
metropolitan regions.' Many of the findings are applicable to consumer-owned utilities, such as
municipal utilities, but they are less influenced by state-level utility regulation and shareholders, and

more so by local government policy (Shively & Ferrare 2007: 84).

The goal of examining the factors that enable and constrain climate change adaptation is to

provide recommendations regarding what various actors inside and outside a utility can do to create a

policy, regulatory, or business environment that fosters utility adaptation efforts. I identify constraints
to adaptation so that actions might be taken to lessen those constraints over time and I identify

enabling factors so that those lessons might be transferred to other utilities and cities.

Methodology

I employed a mixed methods approach by analyzing publicly available survey data that U.S.

electric utilities submitted to the Carbon Disclosure Project and by also conducting case studies of three

utilities. The survey analysis provides a broad snapshot the adaptation measures utilities across the

country are using and the cases allow for more detailed study of the adaptation strategies that utilities

are employing as well as an examination of the context surrounding electric utility adaptation efforts in

order to identify enabling and constraining factors.

1 Inthe Los Angeles-Long Beach- Santa Ana metropolitan region, a municipal utility, serves the City of
Los Angeles, but an IOU serves the rest of the metropolitan area.

11
Carbon Disclosure Project Survey

To better understand what measures and approaches electric utilities in the U.S. are using to

adapt to climate change, this study analyzed investor-owned utility responses to 2012 Carbon Disclosure

Project (CDP) surveys. The CDP is a not-for-profit organization that requests information from the

world's largest companies on their greenhouse gas emissions, energy use, and the risks and

opportunities from climate change. The CDP makes this information public with the goal of increasing

transparency around climate-related risk and opportunity. The analysis includes 23 U.S. investor-owned

utility CDP submissions from 2012 and 3 submissions from 2011, for a total of 26 surveys 2. The analysis

focuses on the most recent year CDP submission to provide a current snapshot of utility adaptation

efforts.
The 26 surveys represent utilities located across the country. Of the 25 most populous

metropolitan areas in the U.S., nine did not have a utility included in this analysis. Three out of the nine

metropolitan areas are served by publically owned utilities that are not included in the CDP survey. The

other six metropolitan areas are served by IOUs that did not participate in the survey: TXU in Dallas,

Reliant in Houston, Florida Power & Light in Miami, Tampa Electric, Duquense Light in Pittsburg, and

Portland General Electric.

The CDP survey has fourteen sections with a total of approximately 80 questions, the majority of

which concern the management of GHG emissions. This analysis focused on three sections of the survey

that included questions about "adaptation" and "managing the physical risks of climate change." The

text box below shows the seven questions analyzed for this study. Particular attention was placed on
questions 5.1d and 6.1.d, because those questions encouraged respondents to describe their adaptation

strategies.

23 utilities submitted surveys in 2011, but did not submit in 2012

12
Survey questions analyzed

2.3 Do you engage with policy makers to encourage further action on adaptation? Please
explain (i) the engagement process and (ii) actions you are advocating

5.1 Have you identified any physical climate change risks (current or future) that have
potential to generate a substantive change in your business operations, revenue or
expenditure?
5.1c Please describe your risks that are driven by change in physical climate parameters
5.1d Please describe the methods you are using to manage this risk

6.1 Have you identified any opportunities (current or future) driven by physical climate
change parameters that have the potential to generate a substantive change in your
business operations, revenue or expenditure?
6.1c Please describe the opportunities that are driven by changes in physical climate
parameters
6.1d Please describe the methods you are using to manage this opportunity

Limitations

A small sample size and potential response bias limit my ability to generalize about the findings.

Approximately 15 percent of all investor-owned utilities in the U.S. responded to the survey and because

this is a voluntary survey, the utilities that responded may be those that are more inclined to engage in

climate change-related activities. Researchers have found that firm size and foreign sales are related to

whether firms disclose information about climate change requested through the Carbon Disclosure

Project, so this analysis may not be as generalizable to smaller utilities (Stanny & Ely 2008).
Another limiting factor is that the CDP survey was not designed for the purposes of this study.

For example, the responses are largely open-ended, so survey respondents can describe in their own

words how they are managing climate change risks. As a result, respondents may have omitted certain

activities because they forgot about them, were unaware, did not think they were important, or did not

want them made public. In addition, the primary focus of the survey is on managing GHG emissions, so

respondents may have put less effort into answering questions related to climate change adaptation.

Data Analysis

I used content analysis, which involves coding phrases in open-ended text that represent

adaptation measures found in the literature, aggregating measures into categories, and counting the

total number of measures in each category. The central idea in content analysis is that the many words

of a text are classified into fewer categories, allowing for a quantitative analysis of text (Weber 1990). In

13
addition, compared with interviews, content analysis is a method where the author of the message is

not aware that it is being analyzed, which reduces the danger that the research effort will act as a force

for change that skews the data (Weber 1990). Below are the data analysis steps in greater detail:

1. Developed categories that represent all possible adaptation measures based on the adaptation

literature. For example, one category is "capital investments in transmission & distribution"

2. Coded the survey responses for different types of adaptation measures found in the literature.

For example, one code is "undergrounding." Therefore, survey text that says, "Program

highlights include undergrounding wiring systems in key areas," is coded as "undergrounding."

3. Attributed each adaptation measure "code" to a category. For example, the code

"undergrounding" is attributed to the category "capital investment in transmission and

distribution." All codes and categories are listed in Appendix B.

4. Recorded the number of adaptation measure "codes" found in the survey texts.

5. Counted the total number of adaptation measures found in the text according to category and

utility (Appendix C).

Case Studies

To overcome some of the limitations of survey analysis, this study also includes case studies of

three utilities: Consolidated Edison, Entergy New Orleans, and Pacific Gas & Electric. Compared to the

survey analysis, the case studies provide a more in-depth look at the approach and strategies utilities

are using to adapt to climate change and the factors that are enabling and/or constraining their efforts.
Given that climate change adaptation in the electricity sector is a nascent area of activity and research,

three cases were selected that would allow for a discussion of an array of adaptation strategies and

enabling and constraining factors. According to the CDP surveys, these utilities are employing a

relatively high number of adaptation measures, a variety of adaptation measures, and stakeholder

engagement. The cases were also selected for their regional variation to allow for exploration of

potential enabling or constraining factors that vary in different regions of the country: the role of

participating in restructured or vertically integrated electricity markets, the role of different utility

commissions, the role of cities and states with different levels climate change adaptation efforts, and

the role of past experiences with climate-related hazards.

14
Table 1: Case Study Utilities

Case Study Utility Market Major Cities State & Local Regulatory
Adaptation Commission
Activity
Consolidated Edison Restructured New York High New York State
(Con Ed) Public Service
Commission
Pacific Gas & Electric Restructured San Francisco, High California Public
(PG&E) Oakland, San Utility
Jose Commission
Entergy New Orleans Vertically New Orleans Low New Orleans City
(ENO) Integrated Council

Data Collection
Data collection involved reviewing publically available reports and meeting notes, all available CDP

submissions (2007 to 2012), internal presentation materials, and semi-structured interviews with:

e Utility managers involved in climate change adaptation

* State and local planning officials who have engaged with the utility on climate change

adaptation

- State public utility regulators

* Environmental, consumer, and public health organizations that have engaged with the utility on

climate change adaptation

The interviews with utility managers were particularly important sources of information and

information provided by those interviews was corroborated with publically available documents

whenever possible. Additional interviewees were selected using a snowball sampling technique, which

involved asking each interviewee for recommendations of other people with whom I should speak, with

a particular focus on the utilities' adaptation partners and stakeholders. I conducted a total of 18

interviews, six for each case study. Interviewees were able to choose whether they wanted their name,

title, and direct quotes included in the research. Interviews are cited as confidential if the interviewee

chose not to have identifying information in the study. For a list of interviews, please see Appendix A.

15
16
Ilil. Literature Review

Climate Change Vulnerabilityand Adaptation

Climate change vulnerability is the degree to which a system is susceptible to, and unable to cope

with, the adverse impacts of climate change (IPCC 2001; Adger 2006). The key factors of vulnerability are
exposure, which is the degree to which a system experiences a climate change impact, sensitivity, which

is the degree to which a system is affected by the impact, and adaptive capacity, which is the ability of

the system to adjust practices, processes, or structures to offset potential damage (IPCC 2001; Adger

2006). Climate change vulnerability does not exist in isolation, but rather it is driven by human actions
that interact with political, economic, physical, and ecological systems (Adger 2006).
Climate change may increase the vulnerability of the electricity sector through both supply side

and demand side impacts, which are summarized in Tables 2 and 3 below (CCSP 2007; Ebinger & Vergara

2011; Wilbanks et al. 2012). For both supply and demand, the primary vulnerability is disruptions from
extreme weather events, but climate change impacts will likely make it more challenging for electricity

supply and demand to remain in balance (Wilbank et al. 2012). On the supply side, climate change could
increase vulnerabilities if storms become more intense, if regions dependent on hydropower and power

plant cooling water experience drought, and if hotter temperatures decrease generation and

transmission efficiencies (CCSP 2007; Wilbanks et al., 2012).

On the demand side, climate change will likely reduce total heating requirements and increase

total cooling requirements for buildings (CCSP 2007; Wilbanks et al. 2012). This change implies an

increased demand for electricity, which supplies almost all of the energy for cooling services, namely air

conditioning (CCSP 2007). Climate change may also exacerbate urban heat island conditions in cities,

which refers to the fact that cities are full of surfaces that trap heat, leading to higher air temperatures

(Hammer at al. 2011b). In the summer, urban heat island conditions can significantly increase local

electricity demand for air conditioning (Hammer et al. 2011b). As a result, climate change is expected to

have a larger impact on peak electricity demand than average demand (Wilbanks et al. 2012). Growth in

peak demand can result in shortages of supply capacity, increasing the risk of blackouts and brownouts

(Miller et al. 2008).

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Table 2: Potential Supply Side Electricity Sector Vulnerabilities

Climate Change Specific Potential

Supply-Side Assets Impacts Electricity Sector Vulnerabilities
Impacts
Damage to equipment,
Increased intensity of Flooding, ice, supply chain disruption,
storms wind reduced reliability
Reduced plant Reduction in supply
Thermal Power Plants Higher temperatures efficiency availability
Reduced water Reduction in supply
Drought availability for availability
cooling
Increased intensity of Flooding, ice, Damage to equipment,
Transmission and storms wind reduced reliability
Distribution Heatwaves, Damage to equipment,
Higher temperatures extreme heat reduced reliability

Changesin Changes in
Chi i s npatiming and Reduction in supply
Hydropower precipitation and quantity of availability
snowpack runoff
Reduction in Reduction in supply
Solar Power Higher temperatures solar cell availability
efficiency

Wind Power Change in wind speed Uncertainty of Increased uncertainty

and direction expected output
Source: Adapted from CCSP 2007; Wilbanks et al. 2012; Ebinger & Vergara 2011.

Table 3: Potential Demand Side Electricity Sector Vulnerabilities

Climate Change Impacts Specific Electricity Sector Impacts Vulnerabilities

Hotter average Increased demand for cooling, Reduced reliability, increased
temperatures, extreme Increased peak demand; Reduced revenue uncertainty
heat events demand for heating
Increased intensity of Damage to customer-side energy Increased revenue uncertainty
storms using assets (buildings, equipment
etc).
Source: Adapted from CCSP 2007; Wilbanks et al. 2012; Ebinger & Vergara 2011.

In addition to vulnerabilities, climate change impacts could result in opportunities for the

electricity sector (CCSP 2007). For example, milder winters could reduce some operational challenges,
such as fuel delivery disruptions due to snowstorms, and if managed properly, increased demand for

cooling services could be a business opportunity for utilities (CCSP 2007). Nevertheless, a study on the

climate change impacts facing the energy sector in New York State found that climate change impacts

18
will likely present more vulnerabilities than opportunities (Hammer et al. 2011a). Climate change will

likely increase the difficulty of ensuring enough electricity supply during peak demand periods, increase

the difficulty of ensuring reliability during extreme weather events, and exacerbate problematic

conditions, such as the urban heat island affect and coastal flooding (Hammer et al. 2011a).

An additional concern for policymakers is that vulnerabilities in the electricity sector could result

in cascading failures with other infrastructure services due to their interconnectedness (Wilbanks et al.

2012a). Electricity infrastructure is highly interconnected with communications, transportation, potable

water, and wastewater infrastructure (Wilbanks et al. 2012a). Furthermore, infrastructure failures have

consequences that go beyond the physical infrastructure itself to the services that the infrastructure

provides. The loss of those services entails economic, social, and environmental consequences (Wilbanks
et al. 2012a), such as illness from contaminated water or lost earnings from business closures.

Adaptation is a way for a system to reduce vulnerabilities and take advantage of opportunities

(IPCC 2007: 6). Climate change adaptation is defined as an adjustment in response to observed or
expected changes in climate and their affects in order to reduce the adverse impacts of change (IPCC

2007; Adger 2006). Two different concepts of adaptation apply to the strategies that electric utilities can

employ to adapt to climate change: (1) Adaptation as reducing vulnerabilities and (2) adaptation as
enhancing resilience.

The framework of adaptation as reducing vulnerabilities leads us to define adaptation strategies as

those that seek to reduce exposure, reduce sensitivity, or enhance adaptive capacity (IPCC 2001).

* Reduce Exposure: Take steps to reduce the degree to which utility assets and operations

experience a climate change impact. For example, relocate substations away from areas prone
to coastal flooding.

* Reduce Sensitivity: Take steps to reduce the degree to which the utility assets and operations

are affected by the climate change impact. For example, install saltwater resistant

transformers in areas prone to coastal flooding.

* Increase Adaptive Capacity: Take steps to enhance the ability of the electric utility to undertake

adaptation. For example, provide utilities with coastal flooding maps that include exposure
from sea level rise.

A second concept of adaptation is actions that enhance resilience. The IPCC defines resilience as

"the ability of a system to absorb disturbances while retraining the same basic structure and ways of
functioning, the capacity for self organization and the capacity to adapt to stress and change" (2007:

880). Resilience involves strategies that seek to secure the continuation of desired system functions in

19
the face of changing climate. Resilience does not mean ensuring an asset, organization, or system looks

exactly the same before and after a disturbance. Rather, resilience means ensuring that the asset,

organization, or system provides the same functionality, such as reliable electricity service, in the face of

disturbance. Resiliency strategies may take the form of adjustments in the physical electricity

infrastructure, such as deploying technologies that allow the grid to recovery more quickly from an

outage (Wilbanks et al 2012b). Resiliency strategies may also take the form of adjustments to

institutions and organizational form that "enable technological evolution, new information exchange or
decision making procedures" (Pelling 2010: 56).

Adaptation Strategies

Given the vulnerabilities described above, there are many adaptation strategies that utilities can

implement to reduce their vulnerability and enhance their resilience. Several studies have examined and

organized potential adaptation strategies for the electricity sector found in the literature (Hammer et al.

2011b; Ebinger & Vergara 2011). Table 4, below, organizes adaptation strategies from the literature

according to the different functions and responsibilities of an electric utility, such as transmission and

distribution, internal capacity building, and planning activities. This table serves as a framework from

which to examine the adaptation strategies utilities are pursuing in subsequent sections of this paper.

20
Table 4: Electric Utility Adaptation Measures by Category
Category Sub-Category Example Adaptation Measure Adaptation Purpose
Capital investments in Reduce system sensitivity to an
Diversify supply sources climate change impact
Changes in operating Adjust hydropower operations to Reduce sensitivity to changes
practices changes in river flow patterns in precipitation

Transmission Capital investments in Bury wires underground Reduce exposure to high winds
& T&D
Operating practice . . Reduce sensitivity to high
Distribution Increased tree trimmingwid
changes in T&D winds
Conservation, energy Establish demand response Reduce sensitivity to peak
Demand efficiency, demand programs demand during extreme heat
Side response
Support investment in rooftop Enhance resiliency with
Distributed generation solar panels decentralized power sources
Enhance adaptive capacity by
Create internal adaptation saigifrain
Ineral Changes in Staffing .oknru sharing information,
Internal working group developing partnerships
Capacity Enhanced monitoring Enhance
Enhncdldniorng Early warning systems for rdcn adaptive
epnetm capacity by
of climate change temperaturereducing response time
indicators
Enhance resiliency of the
Internal: emergency Storm contingency planning system if the face of severe
planning weather
Internal: vulnerability Enhance adaptive capacity by
assessment; adaptation Vulnerability assessment increasing awareness of
vulnerabilities
Planning strategy
PlanningReduce system sensitivity by
Activities Integrated resource plan that seleingea res tio
Internal: resource includeselecting a resource portfolio
planning projections/scenarios that performs well in a range of
future conditions
Enhance adaptive capacity by
External planning Patation in sharing information and
adaptation plan developing partnerships
Encourage widespread customer Reduce sensitivity to peak
Stakeholder education action to manage electricity use demand conditions or supply
more efficiently shortages
Advocacy for more energy Reduce exposure to peak
Education, Policy advocacy efficient building codes demand during extreme heat.
Advocacy, Advocacy for formal review of
Research Regulatory advocacy adequacy of regulatory policies in Enhance adaptive capacity by
the face of climate change reducing regulatory barriers

Funding/ participating Provide data to researchers Enhance adaptive capacity by

in research compiling a climate change risk increasing awareness of risks
database
Enhance adaptive capacity
Purchase a stronger isurance
through the availability of
Sharing Risk Insurance policy for an area at risk of
financial resources after a
damaging flood
Source: Adapted from Ebinger & Vergara, 2011; Hammer 2011b; Wilbanks et al 2012b.

21
 It is possible to distinguish between technological, behavioral, and sector-wide strategies. In the

table above, the capital investment in supply and T&D are considered technological strategies (Ebinger

& Vergara 2011). One subset of technological strategies is "hardening" strategies, which involve physical

improvements to infrastructure, such as installing transformers that can tolerate higher temperatures or

building a berm around a power plant for flood-proofing (Hammer et al. 2011a). Another subset of

technological strategies is known as "smart grid," which is the integration of information technologies

into the grid to improve customer management of energy use, system reliability, and integration of

cleaner sources of electricity (Schwartz 2010). Smart grid investment are under way for reasons other

than adaptation, but some smart grid technologies that allow for greater monitoring, control, efficiency,

and flexibility of the grid "would appear to be highly useful" for climate change adaptation (Wilbanks et

al. 2012: 54).

Many of the categories in the table above are considered behavioral strategies: operational

changes, planning, and internal capacity building. Behavioral strategies could include the

reconsideration of the location of electricity investments based on climate change risks (Ebinger &

Vergara 2011). These measures hinge upon future climate risks being integrated into decision-making

and management processes, including relevant planning and management decisions (Ebinger & Vergara

2011).

There are also sector-wide adaptation strategies (Hammer et al. 2011a; Ebginer & Vergara

2011). One example is the adoption of policy frameworks that facilitate the internalization of adaptation
concerns into electricity systems (Ebginer & Vergara 2011). Other examples under consideration in New

York include a regional working group, a climate change risk database, or a formal review process of the

appropriateness of current regulatory policies in the face of climate change impacts (Hammer et al.

2011a). Utilities would likely not be the primary entity responsible for implementing sector-wide

strategies, but they play a critical role in supporting these strategies, which is represented by the

category "Education, Advocacy, and Research" in Table 4.

Approaches to Adaptation

Climate change adaptation is often considered a risk-management strategy (NRC 2010; Wilbanks et

al. 2012b). Risk is defined as the probability of an impact multiplied by the consequences if the impact

occurs. Electric utilities manage many risks in their normal operations, such as the risk that prices will

move in an unexpected direction, the risk that a customer does not use as much electricity as

22
expected (Shively & Ferrare 2007). These risks are often managed through internal risk management
programs, which involve measuring risk levels frequently, structuring physical transactions, the use of
financial instruments, and management of stakeholder relationships (Shively & Ferrare 2007).

The risks associated with climate change impacts can also be managed through internal programs,

but climate change risk management is different from traditional risk management given the complexity

and uncertainty around climate change and its impact on the electricity system (Ebinger & Vergara

2011). There is uncertainty regarding the severity and timeframe of climate change, uncertainty

regarding if and how changing climate parameters will result in impacts on the electricity system, and
uncertainty regarding the costs, benefits, and effectiveness of adaptation options (Ebinger & Vergara

2011; NRC 2010).

Given these uncertainties, "nearly every credible source indicates that the appropriate adaptation

strategy is rooted in risk management for an uncertain future rather than precise projections for optimal

decisions" (Wilbanks et al. 2012b: 49). Climate change risk management requires developing strategies

that perform well in multiple possible future scenarios. A critically important step towards developing

such strategies is conducting a vulnerability assessment that considers possible exposures to risk under a

range of possible future trends and conditions (Wilbanks et al. 2012b; NRC 2010). Climate change risk

management also requires frequent engagement with the latest climate science to identify changes that
are relevant to the system and it also requires frequent monitoring and reevaluation of adaptation

options as information and conditions change (NRC 2010). Climate change risk management needs to be
rooted in flexibility and a continuous learning process in order to manage uncertainty (Wilbanks et al

2012b).

In addition to vulnerability assessments, Scenario Planning is another tool for exploring alternative

futures and assessing strategies for reducing vulnerability and increasing resiliency of critical services

(Susskind 2010). Instead of focusing on a single prediction, scenarios focus on uncertain drivers and

complex interactions (Susskind 2010). A carefully constructed set of scenarios can highlight future risks
and opportunities, providing managers with the information needed to assess the effectiveness of

alterative strategies and expanding an organization's understanding of future risk by systematically

exploring plausible futures (Susskind 2010). Scenarios presume that in a highly uncertain and dynamic
situation there is no single best strategy, but rather a portfolio of strategies that allows an organization

to be prepared as conditions change (Susskind 2010).

23
Figure 1: Climate change adaptation as a risk management process

ldentifvI current and

tbtffl-v ChIll-Itt-'
clia ngcs t elevan t to
the ,,vstenl

sI
Monitor and
,kcsse.,I s Vtdilerabilitic's
mnplemented to Ow svStctm undor a
adaptation option
futurc, C(Mdition-

Develop an
adaptation strategy
adaptation options bascd (In ;ul appraisal
option",
L Identifyoprtiie L ,Idaptatioll
Ir co-benefits across

Source: NRC 2010.

"No-regrets" or "reversible" adaptation strategies tend to perform well in light of an uncertain

future (Hallegatte 2008). No-regrets strategies yield benefits even if climate change impacts do not

materialize as predicted and reversible strategies allow a utility to change course if unanticipated

problems arise or the measure proves ineffective (Hallegatte 2008). Energy efficiency is an example of a

no-regrets strategy, because it delivers cost savings regardless of how exactly the climate changes

(Hammer et al. 2011b). No-regrets and reversible strategies tend to be "soft" strategies because they

imply much less path dependency and irreversibility than "hard" adaptation investments (Hallegatte

2008). For example, demand side management can help avoid large-scale investments in generation or

reinforcement and extensions of T&D networks that are not easily undone (Ebinger & Vergara 2011).

Nevertheless, demand side management faces significant barriers to implementation, such as

behavioral, policy, and institutional barriers (Ebinger & Vergara 2011).

Because electricity infrastructure is highly connected to other forms of essential services and

because there are many demands on electricity systems (i.e. reliability, economic development, reduced

emissions) risk management process should also seek to identify adaptation strategies with co-benefits
across sectors and across policy goals (Wilbanks et al. 2012b) Identifying strategies with co-benefits

across sectors requires engagement with stakeholders outside of the utility. No one institution can

24
assess all of the risks and adaptation options in the electricity sector. As such, collaborative risk

management that enables stakeholder groups to engage in constructive discourse, information sharing,
strategy development, implementation, and monitoring and evaluation is critical (Wilbanks et al. 2012b;

Susskind 2010; NRC 2010). Furthermore, bundling climate change adaptation with other agendas is

"virtually certain to attract more widespread buy-in" (Wilbanks et al. 2012b: 53).

The timing of adaptation investments should also be a consideration in climate change risk

management. Given that many electricity infrastructure investments are long lived, early adaptation
action will generally be less costly and more effective than repairs or retrofits (Ebinger & Vergara 2011).

In addition to being long lived, electricity infrastructure and equipment have finite lifetimes, so in any

given year, many items are due for replacement (Wilbanks et al. 2012). Taking advantage of

opportunities provided by infrastructure and equipment replacement can help move systems towards

being better adapted at a lower cost (Wilbanks et al. 2012; Hammer et al. 2011a). Smaller investments
in infrastructure with a shorter lifespan span may allow for greater flexibility in upgrading and

incorporating of the latest climate knowledge in system design (Hallegatte 2008).

Innovation can also help reduce the costs of adaptation. There are likely alternatives for reducing

risks that require going beyond currently available technologies and practices (Wilbanks et al. 2012).

Innovative approaches can often reduce the net cost, but legal, regulatory, and policy barriers may need
to be addressed in some cases (Wilbanks et al. 2012). Utilities can promote innovation with internal

incentive structures that promote and reward innovative risk management. In addition, utilities can

advocate for changes to regulation or policy that would help unlock innovation.

Summary ofAppropriate Approach to Electric UtilityAdaptation

- Assess vulnerabilities under a range of possible future trends and conditions using tools such as

vulnerability assessments and scenario planning (Wilbanks et al. 2012b; NRC 2010; Susskind

2010).

e Reduce known vulnerabilities to climate change impacts through changes to technologies,

materials, and business strategies (Wilbanks et al. 2012b).

e Prioritize flexible adaptation strategies that do not close off future options (Hallegatte 2008).

- Monitor, evaluate and learn from emerging experience with impacts and adaptation responses
(Wilbanks et al. 2012b).

e Focus on replacement opportunities provided by infrastructure and equipment toward the end

of their lifetime for greater cost-effectiveness (Wilbanks et al. 2012b; Hammer et al. 2011b).

25
 e Through collaborative risk management, develop strategies with co-benefits with other sectors

and other agendas to address the interconnected nature of electricity infrastructure and attract

more widespread buy-in (Wilbanks et al. 2012b; Susskind 2010).

e Identify and engage stakeholders and ensure they are well-informed and their input is taken

into account (UKCIP 2007). Stakeholder engagement should enable constructive discourse,

information sharing, and partnerships that allow institutions to take on risk management roles

for which they are best suited (Wilbanks et al. 2012b; Susskind 2010).
e Promote innovation through internal structures and incentives and policy and regulatory

advocacy when needed (Wilbanks et al. 2012). Search for strategies to reduce risk that go

beyond currently available technologies and practices.

A concept that is related to climate change adaptation is disaster risk reduction (DRR). Disaster

risk reduction seeks to minimize disaster risks through prevention, mitigation, preparedness, and

recovery (Weaver, 2009). DRR is also a risk management activity, but it addresses both environmental

and human induced hazards, such as hurricanes, earthquakes, and oil spills. Climate-related hazards are

only one type of hazard that DRR addresses (Weaver 2009).

Climate change adaptation is different than DRR, because it seeks to address the long-term

impacts of climate change (Weaver 2009). Whereas DRR focuses on reducing foreseeable risks based on

previous experience, climate change adaptation seeks to manage risks outside of the realm of historical

experience (Weaver 2009). As such, climate change adaptation originates with and requires continued
engagement with scientific projections of how the climate will change over the long-term (Weaver

2009). Due to the uncertainty associated with climate change, adaptation also has a greater emphasis

on adaptive management and flexibility, that is, monitoring both the climate science and effectiveness

of adaptation options over time and being able to adjust to new and unexpected conditions (NRC 2010).

Key Enabling and ConstrainingFactors

A firm's approach to adaptation is strongly influenced by the regulatory context, market

context, external resources (financing, skills, and expertise), and by interactions with actors outside the

organization (Berkhout et al. 2006: 149). Given that utilities are regulated as natural monopolies,

regulation and other government policies are undoubtedly key factors for enabling or constraining

adaptation, but financial rewards will remain a prime motivator for investments (Ebginer & Vergara

2011: 70). As such, this section discusses the utility business model, regulatory policies, and other

26
government policies surrounding electric utilities that are likely to play a significant role in enabling or
constraining adaptation efforts.

Business Model

Electric utilities carry out many of the core functions of the electricity sector, but exactly which

functions an electric utility carries out depends on whether it is vertically integrated or restructured

(RAP 2011). A vertically integrated utility (1) generates electricity at power plants that they own, (2)

purchases additional electricity needed for distribution, (3) distributes electricity, and (4) sells electricity
to its customers and other utilities (RAP 2011). This type of utility earns revenue by generating electricity

at their own plants and transporting it to customers. A restructured utility participates in two functions:

(1) purchasing electricity in wholesale markets and (2) distributing it to customers (RAP 2011). This type
of utility generates revenue by transmitting electricity to customers or other utilities (RAP 2011).

There are also different ownership models for utilities. Investor-owned utilities (1OUs) are for-

profit corporations owned by public or private shareholders (Shively & Ferrare 2007). They serve almost

70 percent of customers in the U.S. and sell almost 60 percent of the electricity consumed (APPA 2012).
Consumer-owned utilities (COUs) are comprised of municipal utilities, utility districts, and cooperatives

(RAP 2011). They are more numerous than IOUs and serve about 30 percent of the population (APPA
2012). Due to time constraints, this paper focuses primarily on investor owned utilities because of their

dominant economic role in the sector. Many research findings are applicable to COUs, but they are less

influenced by state regulatory policy and more influenced by local policy (RAP 2011).

Regulatory Context

Electric utilities are regulated as "natural monopolies," so regulators determine how a utility

recovers its costs and its rate of return on investment (RAP 2011). Because utility profits and incentives

are tied to regulation, utilities care a great deal about regulation and the opinion of regulators (RAP

2011). Most utility regulation takes place at the state level with state regulatory commissions that are

elected or appointed by governors and are charged with protecting public health and safety while also

keeping electricity affordable (RAP 2011).

Each state regulatory commission's authority differs according to its authorizing statute and its

interpretation of that statute (RAP 2011). Some commissions are cautious in their interpretation while

others interpret public interest obligations as providing authority to regulate more widely (RAP 2011).

Most state regulatory commissions, however, perform the functions described below in Table 5 (RAP

27
2011). The table also includes ways that these functions could service as factors enabling adaptation at

electric utilities. These functions could also be constraints if carried out without sensitivity to climate

change impacts.

Table 5: Utility Commission Regulatory Functions and Potential Adaptation Enabling Role

Common Regulatory Commission Functions Potential Enabling Roles for Adaptation

Determine the revenue requirement and
utility rates
Set service quality standards and consumer
protection requirements
Oversee the financial responsibilities of the
utility, including reviewing and approving
capital investments and long-term planning
Review and approve comprehensive supply
resource plans
Approve the entry of competitive retailers into
the state's market
Source: Adapted from RAP 2011
Guidance on eligibility of adaptation-related
investments for rate reimbursement; Structure
utility rates to enable demand responsiveness
(Ex: dynamic pricing)
Require robust storm plans and conduct
evaluations and drills.
Examine adaptation-related investment and
require long-term planning take climate
change impacts into account.
Require that resource plans are tested against
future scenarios that include climate change
projections and uncertainties; Provide
opportunities for collaborative decision
making.
Allow microgrids and ESCOs to operate in
utility service territory to provide customers
with energy management options

In addition to the potential enabling role that regulation can play, traditional utility regulation

has the potential to constrain adaptation in at least two important ways: the tendency to overvalue
capital-intensive investment and the tendency to increase throughput of electricity. Traditional utility

regulation may cause utilities to use capital-intensive adaptation strategies even if "soft" strategies have

greater efficacy. This tendency is due to the Averch-Johnson Effect, which suggests that utilities will

overbuild because their allowed rate of return is a function of their capital investment (Averch &

Johnson 1962; RAP 2011). According to this theory, a company that is allowed a return on investment in

excess of its actual cost of capital will tend to over-build its system (RAP 2011).

Regulators try to overcome this tendency through "prudence reviews," in which regulators

determine if a new facility was built in an economic fashion (RAP 2011). If a regulatory commission

deems the planning or construction imprudent, it may disallow a portion of the investment, refusing to

pass along the costs to customers (RAP 2011). Prudence reviews reduce the incentive to over-

28
investment in capital-intensive projects or "gold-plate" the system and help protect consumers from
exceedingly high rates (RAP 2011).

Like other utility investments, adaptation-related investments will likely need to be deemed

"used and useful" under prudency review if the costs are to be passed on to customers. Recent research

has raised the concern that regulators and utilities "may increasingly find themselves in situations

where, because of uncertainty over the exact severity or timeliness of climate change risks...it is unclear

whether capital investments proposed by utilities to enhance the climate resilience of their distribution

system will be eligible for rate reimbursement" (Hammer et al. 2011b: 280). Although adaptation-
related investments may serve public interest goals, such as safety and reliability, regulators must

balance those goals with keeping prices at reasonable levels. Hammer et al. suggests that guidelines

clarifying this matter may be helpful for utility capital investments and maintenance planning (2011b).
Under traditional regulation, utilities also have a throughput incentive, which refers to the

incentive to increase the volume of electricity utilities transmit through their wires to increase revenue

(RAP 2011). Demand side strategies, such as energy efficiency and distributed generation, are key
strategies for reducing the electricity system's sensitivity to climate change impacts, such as peak

demand during heat waves (Ebinger & Vergara, 2011; Hammer et al. 2011b). However, demand side

managment often reduces the amount of electricity being transmitted through a utility's wires.
Therefore, an important element of regulation is whether utilities can generate revenue independently

of transmitting more electricity, otherwise they are likely to resist demand side strategies that would

reduce electricity sales and their revenues (RAP 2011).

Regulators have devised a number of policy tools to overcome the throughput incentive,
including decoupling, incentives, and mandates (RAP 2011). Decoupling policies are designed to ensure

that utilities' revenue is independent of their sales volume (RAP 2011). This policy removes the utility's

disincentive for energy efficiency or other measures that reduce consumer usage levels. Another tool is

incentives for preferred actions or performance (RAP 2011). Some commissions have established

incentives to reward utilities achieve specific goals, such as a bonus to the rate of return for exceeding

energy efficiency goals or penalties for failure to maintain commission-established goals for reliability

(RAP 2011). Regulators could potentially use incentives for preferred actions in accordance with

adaptation strategies. Lastly, commissions often require utilities to meet mandates on investment in

energy efficiency and renewable energy (RAP 2011).

29
Other regulatory tools
Integrated Resource Planning (IRP) requires a utility to develop a publicly available plan for the

best way to meet consumer needs over time, usually from ten to twenty years (RAP 2011). IRPs are

developed with the involvement of the regulator and often include other stakeholders, such as the grid

operator and environmental and consumer advocates (RAP 2011). IRPs evaluate how electricity demand

could change over time and the range of supply and demand options for meeting future needs, including

new power plants, distributed generation, and energy efficiency (RAP 2011). IRPs evaluate resource

mixes for cost-effectiveness across a range of future scenarios (RAP 2011). Weather and population

change are often included in the future scenarios and researchers have argued that IRPs can also include

climate change impacts and uncertainties in existing analysis methods (Coughlin & Goldman 2008). One

challenge that arises, however, is that resource planning is distributed across several types of

organizations that operate at different spatial scales (Coughlin & Goldman 2008). For example, a utility

may operate within a single county, whereas a grid operator may cover several states. It's important

that the incorporation of climate change impacts in the analysis preserve the spatial variations in

weather systems (Coughlin & Goldman 2008).

Forward-looking planning processes, such as IRPs, provide an opportunity for regulators to

incorporate collaborative decision-making into the processes for developing plans and agreements.

Compared to traditional regulatory procedures, collaborative processes allow for greater stakeholder

participation, improved working relationships, and joint fact-finding (Raab 1994). These efforts tend lead

to agreements that all parties are more committed to, leading to improved implementation and fewer

appeals (Raab 1994). Collaborative efforts have been used to design demand side management
programs and integrated resource management plans (Raab 1994). Given the complexity and

uncertainty of climate change impacts, regulators utilities, and other stakeholders would likely benefit

from collaborative problem solving regarding adaptation.

Regional Regulation

In many parts of the country, regional grid operators, also known as independent system

operators (ISOs), control the electric grid and operate regional wholesale electric markets (RAP 2011).

They determine when and which power plants input electricity on the grid and ensure that it flows

where needed. ISOs also plan transmission infrastructure (RAP 2011). ISOs could play an indirect role

enabling utility adaptation by incorporating climate change impacts in the transmission planning process

30
(Coughlin & Goldman 2008) and by managing their wholesale markets so that energy efficiency and
demand response can participate as resource providers (Ebinger & Vergara 2011).

Federal Regulation
The Federal Energy Regulatory Commission (FERC) regulates the transmission of electricity

across states and the regional wholesale markets administered by the Independent System Operators

(RAP 2011). FERC also regulates the planning processes that the ISOs undertake and their tariffs and
conditions of service. Except when a utility owns interstate transmission, FERC does not directly regulate

electric utilities, but it greatly shapes the electricity markets in which utilities are participants.
FERC also regulates reliability of the interstate power system. In 2003, the Commission

designated the North American Reliability Corporation with the responsibility to develop and enforce
standards to ensure the reliability of the interconnected interstate power system, including standards

that address vegetation management, emergency preparedness, and transmission planning (FERC 2012;

NERC 2013). Lastly, to help support the modernization of the Nation's electric system FERC is focusing

on advancing issues associated with a smarter grid, such as demand response and advanced metering

(FERC 2012).

State and Local Policy Context

State and local governments play an important role in shaping the policy context around utilities

and climate change adaptation. As of 2012, at least 13 states have climate adaptation plans and

numerous states have created sector specific plans that consider long-term climate change, such as

coastal management plans (Bierbaum et al. 2012). Most adaptation efforts to date, however, have

occurred at the local and regional levels (Bierbaum et al. 2012). Local governments are using the tools in

their authority for adaptation: land use planning, provisions to protect infrastructure and ecosystems,

building codes, and emergency preparation, response, and recovery (Bierbaum et al. 2012). Several

cities have moved passed the planning stage and are now implementing adaptation strategies

(Bierbaum et al. 2012), but adaptation is still a relatively new concept among local governments (Carmin
et al. 2009). Moreover, the energy sector has been less often studied in local-level adaptation planning

than sea level rise, health, and water resources (Hunt & Watkiss 2010).
One of the challenges for local government involvement in electricity sector adaptation is that

many cities lack direct regulatory authority over the local utility (Hammer et al. 2011a). As such, in order

to advance an agenda of increased climate resiliency of the electricity system, local officials must pursue

31
advocacy, education, or partnerships rather than direct regulation (Hammer et al. 2011a). An exception

is municipal utilities, which are generally subject to control by the City Council (RAP 2011).
Despite these challenges, some of the limited literature on the subject indicates that local level

adaptation planning can influence electricity sector adaptation. For example, in New York State, climate

change adaptation is a new area of focus for energy companies and few have engaged in comprehensive

assessments of their climate change-related operating vulnerabilities (Hammer et al. 2011a). The

exception, however, were companies operating in New York City, many of whom were involved in a

climate change adaptation initiative led by the city's Office of Long Term Planning and Sustainability

(Hammer et al. 2011a). These companies tended to have internal working groups, developed new

policies or procedures, or began to make operational changes with climate change impacts in mind

(Hammer et al. 2011a).

32
IV. Survey Findings
This chapter discusses findings from the analysis of investor owned utility responses to Carbon

Disclosure Project (CDP) surveys regarding the climate change adaptation activities they are currently

pursuing. For a more detailed discussion of the methodology, please see Chapter II.
Approximately a quarter of utilities that responded to the CDP survey reported no adaptation

measures or the measures they did report did not qualify as adaptation according to the literature. An

example of a reported measure that does not qualify as adaptation is "Dominion ... focuses on
monitoring weather and responding to weather events," because it only discusses weather and not

climate nor does it discuss a enhancement of weather monitoring as a result of considering climate

change impacts. Another example of a reported measure that does not qualify is "The company is not
actively planning to manage or adapt to changes in Great Lakes water levels or temperatures," which

recognizes a potential climate change risk, but indicates that the company is not currently planning on
managing that risk.

Given the limitations of the CDP survey, including potential response bias due to its voluntary

nature, it's difficult to extrapolate from this data to say that a quarter of utilities are not engaged in

climate change adaptation. Nevertheless, the finding of a quarter of utilities not reporting any

adaptation is not surprising given that, according to the literature, the electricity sector has been very

focused on mitigation while adaptation has been underrepresented in action and investment (Ebginer &

Vergara 2011).
The adaptation measures reported in the surveys were analyzed according to the categories and

subcategories found in Table 4 of the literature review. The most common categories of adaptation

measures that utilities reported were (1) transmission & distribution, (2) planning activities, and (3)

supply. These three categories account for nearly three-quarters of all adaptation measures.

33
Figure 2: Number of adaptation measures by category

40
35
30--
25
20 -
15
10 +
5-
0 +----- ---- -----

Supply Transmission Demand Side Internal Planning Education, Additional

& Management Capacity Activities Advocacy, Insurance
Distribution Building Research

Source: Author analysis of 2012 CDP survey data

Transmission and distribution (T&D) adaptation measures are heavily concentrated in the sub-

category of capital investments while operational changes were much less common. In fact, the most
commonly reported adaptation measure across all categories was capital investments in T&D: it

accounts for 24 percent of all adaptation measures reported in the surveys. Examples of reported T&D

capital investments include investments in smart grid technologies, including automation and advanced

metering, investment in new transmission lines, hardening T&D to better withstand wildfires, hardening

T&D to withstand extreme weather, and undergrounding lines. The T&D operational changes reported

were nearly all enhancements in vegetation management.

Figure 3: Detail on transmission & distribution-related adaptation measures

30
25
20
----- - ~ ~..
15
101
5
0
Capital investments in T&D Operating practice changes in
T&D

Source: Author analysis of 2012 CDP survey data

34
 There could be several reasons for the concentration of adaptation measures in capital

investment in T&D. According to the literature, T&D systems are potentially vulnerable to flooding,

extreme heat, high winds, and ice (Ebinger & Vergara 2011; Wilbanks et al. 2012b). Perhaps the physical

characteristics of T&D systems require considerable investment in order to maintain and upgrade the

complex network of wires, poles, transformers, circuits, and substations in the face a changing climate.

Another potential reason is that electric utilities may also be influenced by the fact that capital
investments, if approved by regulators, contribute to their revenue requirement (RAP 2011). More
focused research is needed to understand if in fact regulatory incentives are leading to a concentration

of adaptation measures in capital investment in T&D and the potential implications.

Compared to transmission & distribution, supply-related adaptation measures are more evenly

distributed between capital investments and operational changes. Examples of reported capital
investment in supply include solar power development, building more cooling ponds, lowering pump

intakes, and acquiring generation resources that use less water. Examples of operational changes in

supply include water efficiency measures, using a different water source, fuel diversification, and

changes to fuel delivery and inventory.

Several factors may contribute to supply adaptation measures being more distributed across

capital investment and operations. Compared to the T&D system, supply infrastructure is more

concentrated in large assets, namely power plants. As such, utilities may make less frequent, but larger

one-time adaptation-related investments compared to more frequent investments in T&D

infrastructure. In addition, the operational changes to supply reported in the surveys consisted primarily

of changes in water use and fuel management. Power plants have these inputs (water and fuel) that

have the potential to be modified to help cope with climate change impacts.

Figure 4: Detail on supply-related adaptation measures

12
10
8
6
4

0
Capital investments in Operating changes in
supply supply

Source: Author analysis of 2012 CDP survey data

35
 After transmission & distribution, the second most frequently reported category was planning.

The vast majority of reported planning measures are internal to the utility rather than driven by external

stakeholders. It is encouraging that utilities consider these planning processes as useful measures for

adaptation. However, it's unclear from the CDP responses if these planning processes are sufficiently

taking into account climate change risks. Behavioral strategies, such as planning, need to incorporate

climate change risks in order to be effective as adaptation strategies (Ebinger & Vergara 2011). Half of

the internal planning measures were in the sub-category of emergency preparedness and response,
which may reflect that utility planning is more focused on disaster risk reduction than on climate change

adaptation. Emergency planning is important considering that extreme events may be the most

disruptive element of climate change for electric utilities (Wilbanks et al. 2012b). However, emergency

plans may not be taking into account the increased uncertainty of weather-related impacts as a result of

climate change and may not sufficiently account for climate change risks that are not extreme weather

events, such as drought or sea level rise.

Another issue that is left unresolved by the survey analysis is whether the planning processes

being used have sufficiently long planning horizons to account for climate change risks. While Integrated

Resource Plans are considered long-range plans, their planning horizon is 10 to 20 years (RAP 2011),

which is not long-term with regards to climate change risks and the lifespan of a lot of electricity

infrastructure. Climate change risk assessment and adaptation strategy development is long-term in

nature, but it was the least frequently reported type of planning. In addition, given that "the starting

point for any risk management strategy is a vulnerability assessment," it is disappointing to see that
more utilities did not report conducting climate change risk or vulnerability assessments (Wilbanks et al.

2012b: 53).

36
Figure 5: Detail on planning-related adaptation measures

12----
10
8
- - ~ -
6
4 --- ~ ---
2
0
Internal planning: Internal planning: Internal planning: risk External adaptation
emergency resource planning assessment, planning
preparedness and adaptation strategy
recovery

Source: Author analysis of 2012 CDP survey data

"Demand Side Management," which includes energy efficiency, demand response, energy

conservation, and distributed generation, accounted for 8 percent of adaptation measures. The low

reporting of demand side management is surprising considering that the literature calls energy
efficiency an excellent "no-regrets" strategy (Hallegatte 2008). In addition it provides greater flexibility

by helping to avoid investments in fixed T&D or generation infrastructure (Hallegatte 2008). Perhaps
barriers to demand side management are resulting in the comparatively low reported use of that

strategy or perhaps demand side management does not provide as many adaptation benefits as the

literature would suggest.

"Education, Advocacy, and Research," accounted for 9 percent of adaptation measures. Only

two utilities reported a customer education activity, two utilities reported regulatory advocacy, which

was revenue recovery advocacy in both cases, and one utility reported other forms policy advocacy. The

lackluster reporting in this adaptation category is of concern, because one of the principles of

adaptation is to engage stakeholders and ensure that they are well informed (UKCIP 2007; Susskind

2010).

Conclusions
The CDP survey is not as powerful a tool for understanding the current state of electric utility

adaptation as I had anticipated. The limited participation and open-ended nature of the questions limit

the generalizability and reliability of the findings. Given these limitations, a government agency, such as

FERC, should consider developing a mandatory climate change adaptation survey for electric utilities,

37
similar to the surveys and assessment about the state of demand response and advanced metering that

FERC conducts. A mandatory survey would provide a much more robust and reliable picture of the state
of climate change adaptation among electric utilities. Furthermore, the act of a government agency

asking these questions would raise the level of interest and concern about managing climate change

risks among decision-makers in utilities. Raising awareness among utilities is an important goal in and of

itself, because a quarter of the utilities responding to the CDP survey did not report any adaptation

measures, or those measures that they did report did not qualify as adaptation according to the

literature. Lastly, as opposed to open-ended questions, a climate change adaptation survey of utilities

should be structured similarly to Table 4, according adaptation categories and subcategories that pertain

to the electric utility functions.

Despite the limitations of this CDP survey analysis, the findings point to interesting trends. First,

adaptation measures are highly concentrated in capital investment in T&D. More research is needed to

understand why this is the case. The study has put forth two hypothesis based on the literature: (1) T&D

systems are particularly vulnerable to climate change impacts, (2) regulation incentivizes capital

investments over other types of activities. Planning was also a common category of adaptation measure,

but climate change risk assessments and adaptation strategies were rarely reported. Instead, emergency

planning and resource planning were much more common. However, these types of plans may not have

long-enough time horizons to sufficiently account for the climate change risks facing utilities. Lastly,

demand side management only accounted for 8 percent of the reported adaptation measures, which is

surprising given the literature's description of demand side strategies as being "no-regrets" and
"flexible."

38
V. Con Edison Case Study

Background
Consolidated Edison (Con Ed) serves New York City and Westchester County with electricity,

natural gas, and steam (SEC 2012a). The company provides electricity to approximately 3.3 million

customers (SEC 2012a). Con Ed operates in a restructured market, so it is primarily a transmission and

distribution (i.e. wire only) company that purchases, rather than produces, 90 percent of the electricity

it delivers to customers (SEC 2012a). Although Con Ed sold most of its electricity generation units during

industry restructuring in the mid 1990s, it continues to own and operates steam generators for the

network in Manhattan (SEC 2012a). The New York State Public Service Commission (PSC) has regulatory

authority over Con Ed and sets the rate of return and revenue requirement.

Con Ed's distribution network is one of the densest in the world: it consists of 90,000 miles of

underground distribution lines and 55 distinct networks (Zimmerman & Faris 2010). While the

underground nature of the network in New York City makes it less vulnerable to high winds, much of the

infrastructure is located in low-lying, coastal areas that are vulnerable to flooding and sea level rise

(Zimmerman & Faris 2010). In addition, the highly urbanized nature of New York City makes it more

prone to the heat island affect (Rosenweig et al. 2006). As discussed in the literature review, the urban

heat island affect refers to higher temperatures in cities compared to surrounding regions as a result of

the large amount of surfaces that absorb heat. The potential for heat waves to be exacerbated by

climate change and the urban head island affect means Con Ed's system is potentially vulnerable to

reliability problems from high temperatures and peak demand (Hammer et al. 2011a). Con Ed's

distribution system in Westchester County, on the other hand, is primarily above ground and in

suburban context. The tree canopy in the area makes the system vulnerable to high winds, which can

cause trees to fall and bring down wires (Westman Interview 2013).

39
Figure 6: Con Ed Service Territory Map

Source: www.coned.com

The climate change impacts identified by Con Ed in publically available documents and

interviews closely matches the climate change impacts identified in the literature. Nevertheless, Con Ed

appears to be more concerned about extreme events, such as hurricanes, extreme winds, and heat
waves, than potential gradual changes in climate (Westman 2012; Interview 2013). This pattern matches

the literature on climate change vulnerability in the electricity sector, which says that extreme events

will likely have a greater impact on electricity infrastructure than gradual changes (Wilbanks et al.

2012b). Decision-makers also often perceive that adapting to risks of extreme events is different and
more challenging than adapting to gradual changes (Wilbanks et al. 2012b).

Summary of Potential Climate Change Impacts in Con Ed Service Territory (Horton et al. 2010).
* Long-term changes in mean annual temperature
* Increases in frequency, intensity, and duration of heat waves
e Long-term change in mean annual precipitation
* More frequent and intense precipitation events
* More frequent drought

40
 - Sea Level Rise
e Likely increase in intense hurricanes
- Likely increase in extreme winds

Approach to Adaptation
Understanding and evaluating the company's overall risks and opportunities from climate

change is a primary responsibility of the Environmental Health & Safety (EH&S) group and is overseen by
the Climate and Sustainability Manager (Westman 2012). EH&S works with the Emergency Management

group to assess overall physical impacts and risks posed by climate change to company-owned assets

(Westman 2012). The EH&S Committee of the Board of Directors meets four times a year, at which time
it receives internal updates. Con Ed's EH&S Vice President reports directly to the Board on the

company's climate change activities (Westman 2012).

Although the Emergency Management Department and EH&S Departments can identify climate

change risks and impacts, the business operating units have the primary responsibility for managing the
risks (Westman 2012). These operating units develop infrastructure assessments and capital plans that

incorporate strategies to deal with those climate change risks (Westman 2012). Those capital plans can

then be incorporated into rate cases that are submitted to the PSC and if approved, the costs are passed

on to customers in their billable rates (Westman 2012). As a result of using this risk management

approach, "a lot of adaptation strategies are paired on top of existing business model type valuations"

(Westman Interview 2013). Incorporating climate change risks into capital plans makes it more likely
that the company is using replacement opportunities to upgrade infrastructure and developing

strategies that recognize competing demands for resources.

Con Ed's participation in the New York City Adaptation Task Force in 2008 was influential for Con

Ed in terms of providing information about the long-term climate change risks that the company is

facing (Westman Interview 2013). The New York City Mayor's office launched The York City Adaptation

Task Force to identify risks and opportunities for the city's critical infrastructure (Major & O'Grady

2010). Con Ed was one of 40 members of the Task Force comprised of public authorities and private

companies that operate, maintain, or regulate critical infrastructure in the region (Major & O'Grady

2010). While working with the Adaptation Task Force, Con Ed completed a comprehensive risk

assessment of key pieces of its infrastructure potentially at risk from climate change impacts (Westman
2012). The assessment considered capital cost and operational impacts on the company as well as the

health, economic and environmental impacts on New York City (Westman 2012; Major & O'Grady 2010).

A panel of experts from academia, and the legal, engineering, and insurance industries called the New

41
York Panel on Climate Change (NPCC) advised the Task Force (Major & O'Grady 2010). The NPCC was

funded by a $350,000 grant from the Rockefeller Foundation (NYC 2009).

The risk assessment that Con Ed completed during the NPCC process has not been made

publically available, but the risk assessment tools that Con Ed and the rest of the Adaptation Task Force

used have been published as an "Adaptation Assessment Guidebook" (Mayor & O'Grady 2010). The

Guidebook includes infrastructure questionnaires, a risk matrix, and a prioritization framework. The

infrastructure questionnaires were created in partnership with the Boston Consulting Group to help
infrastructure operators identify infrastructure at risk to climate change impacts. The Risk Matrix is a

tool to help categorize risks based on the probability of a climate hazard, likelihood of an impact, and

magnitude of consequence should the impact occur. The Prioritization Framework is a tool to help

stakeholders develop and prioritize adaptation strategies.

The risk assessment was completed in conjunction with the Climate Risk Information (CRI)

workbook that contains downscaled climate change projections for the New York Region provided by

the NPCC (Horton & Rosenzweig 2010). When Con Ed participated in the Adaptation Task Force,

representatives from Con Ed engaged with scientists from the NPCC regarding the types of climate

change projections would be most useful to them (Freed Interview 2013). The CRI includes projections

for temperature, precipitation, and sea level rise for three emissions scenario and for three time periods

(2020, 2050, 2080) (Horton & Rosenweig 2010). The CRI also includes projections for extreme events:
heat waves, cold events, intense precipitation, drought, coastal floods and storms (Horton & Rosenweig

2010). It also includes qualitative projections for extreme events that are too uncertain at local scales to
allow for quantitative projections: heat indices, frozen precipitation, downpours, lightning, and large-

scale storms (Horton & Rosenweig 2010).

The impacts from Hurricane Sandy in 2012 have forced Con Ed to reevaluate some of its

previous assessments of risk and the effectiveness of its adaptation strategies. "We have this

infrastructure, we thought we were taking good management approaches and yet some of those

systems still catastrophically failed. We are asking ourselves what is our appetite for risk and what are

the costs of managing the risks? That's where we have to take a step back and think about the real

probability that this will happen again and the repercussions" (Westman Interview 2013). Hurricane

Sandy resulted in 825,000 million Con Ed customers losing power when storm surge flooded

underground equipment and high winds brought down overhead power lines (Con Ed 2012; NYS 2013).

The power outages severely affected other vital services, such as communications, healthcare,

transportation, drinking water supplies, and wastewater treatment (NYS 2013). While the New York

42
region has been hit by several destructive storms in recent years, such as Hurricane Irene, Tropical
Storm Lee, and an ice storm in 2008 (NYS 2013), the power outages resulting from Hurricane Sandy far

exceeded previous storms. The previous record number of storm outages in Con Edison service territory

was 203,000 customers from Hurricane Irene in 2011 (Con Ed 2012).

According to Mr. Westman, since Hurricane Sandy, a group of senior management has come

together to develop a storm-hardening strategy (Interview 2013). Mr. Westman said that it was too

early to comment on their progress, but that the formation of this group provides the opportunity to
consider more expensive options for reducing storm damage, such as undergrounding of electric

systems. The group would be looking at cost-benefit analyses, for example, comparing the costs of

undergrounding with the costs of frequent repairs and vegetation management for above ground lines.

The evidence of this thinking is evident in Con Ed's latest rate case proposal to the PSC in January 2013.

The company plans to spend $1 billion through 2016 on transmission and distribution capital

improvements to avoid a repeat of damage caused by Hurricane Sandy, including flood- proofing

equipment in low-lying areas, undergrounding power lines, and building higher flood walls around
substations (Johnsson 2013).

Adaptation Strategies

Capital Investment in Transmission and Distribution (T&D)

Con Ed considers investments in maintaining and upgrading their transmission and distribution

infrastructure an important part of their climate change adaptation strategy (Westman Interview 2013).

These investments include installing upgraded cables and transformers that can better withstand heat

waves or installing new poles that can better withstand high winds (Westman Interview 2013). These

types of investments are financed through rate cases, but have not been labeled as climate change

adaptation, but rather as old infrastructure in need of replacement and upgrading (Westman Interview
2013).

In addition to the effort to upgrade and maintain T&D infrastructure, Con Ed is also making

capital investments to manage coastal flooding risks. The company has engaged in efforts to both

retrofit existing equipment and factor risks into the design of new equipment. Since 2007, the company

has been replacing transformers in areas most prone to flooding with saltwater submersible
transformers (Hammer et al. 2011a; Westman 2012; Marritz 2013). This initiative was undertaken

voluntarily at a cost of $7 million (Hammer et al. 2011a). The company is also factoring flood levels into

the design of new substations (Westman 2012).

43
 Con Ed has also been evaluating investments in smart grid technologies through pilot projects.

As discussed in the literature review, smart grid has the potential to provide adaptation benefits
including quicker recovery from outages and the integration of distributed resources (Schwartz 2010;

Wilbanks et al. 2012). The company appears to be taking an incremental and measured approach to

smart grid. In 2009, Con Ed implemented a smart meter pilot project that installed and evaluated the

impact of 1,500 smart meters in Queens (Akam 2009; Westman 2012). In 2010, the company also

received a $136 million grant from the Department of Energy (DOE) to help finance automation

improvements to the T&D system, including installing more switches, monitoring devices, and

technologies to help integrate renewable energy and electric vehicles into the distribution system (DOE

2011; Westman 2012). While DOE did not name adaptation to climate change impacts as an explicit

purpose of the project, goals included deferring additional investment in increasing the capacity of the
distribution network and to increase efficiency and reliability of the grid. These goals closely resemble

some of the no-regrets adaptation strategies discussed in the literature review (DOE 2011; Hallegatte

2008).

Con Ed also works with the Electric Power Research Institute (EPRI) and electric cable

manufacturers to develop and install new cable technology that could help accommodate distributed

generation (Westman 2012). Con Ed is also developing strategies for integrating electric vehicles (EVs)

into their distribution system (Westman 2012). Con Ed considers electric vehicles as a business

opportunity as a source of more demand for electricity (Westman 2012). Nevertheless, there is a lack of

research that explicitly evaluates the usefulness of EVs as an adaptation strategy.

Coastal Storm Plan

Con Ed considers its Coastal Storm Plan an important part of its adaptation strategy (Westman

2012; 2013). Dave Westman describes this strategy as "creating a management structure that facilitates

rapid response" (2013). The Coastal Storm Plan guides the company before, during and after a coastal

storm (Westman 2012; 2013). Con Ed also has an Emergency Management Team and an Incident

Command Center coordinate emergency planning and response (Westman Interview 2013).

After Hurricane Sandy, Governor Cuomo appointed the "Moreland Commission" to study utility

storm preparedness (NYS 2013). In an interim report, Commission found that, "while on paper, Con Ed's

storm response plan may appear adequate, the application of that plan during Sandy appears to

demonstrate that the plan provided little guidance to the utility in addressing the impact of the kind of

significant tidal flooding that occurred" (NYS 2013). Dave Westman of Con Ed also remarked that the

44
tidal flooding seen during Sandy was out of the range that they had expected to see: "The numbers were
so far of the charts. 14-foot storm surge was unbelievable. The highest we expected was 12 feet"

(Interview 2013).

Since climate change is expected to cause more extreme events, which can be highly disruptive

for the electricity sector, enhanced emergency plans that guide utility response and recovery to such

events can be an important part of a climate change adaptation strategy (Wilbanks et al., 2012b; Ebinger
& Vergara 2011). However, the findings from the Moreland Commission raises questions of whether Con

Ed had adequately assessed the risks associated with extreme storm events that have a low probability

of occurrence, but high consequences if it they do occur. Moreover, plans that rely on historical

baselines more closely resemble disaster risk reduction than climate change adaptation, which requires

testing strategies against a range of possible future conditions (Weaver 2009; NRC 2010).

Demand side management

Con Ed has several energy efficiency and demand response programs that can help reduce strain

on the electricity system during extreme heat events resulting in high demand (Westman 2012). For

example during a heat wave in 2011, demand response programs were credited with reducing peak

demand by 500 MW (about a 4 percent demand reduction) (Westman 2012).

Con Ed's energy efficiency and demand response efforts are largely driven by the New York Public

Service Commission, which has authorized a system benefits charge to support comprehensive energy

efficiency programs (ACEEE 2013). The New York Public Service Commission also passed an Energy

Efficiency Portfolio Standard in 2008 with the goal of reducing energy consumption by 15 percent by

2015 (ACEEE 2013). While energy efficiency is a no-regrets adaptation strategy and can help address

risks associated with extreme heat, the commission's rulemaking does not discuss climate change

adaptation or climate change risk management (NYPSC 2008). However, other reports sponsored by the

State of New York, such as ClimAID and the Climate Action Council's Interim report (described below)

recommend energy efficiency and demand response as adaptation strategies (Hammer et al. 2011a; NYS

2010).

Stakeholder Activities

Con Ed also considers its participation and engagement with stakeholder adaptation efforts as

part of its adaptation strategy (CDP 2012). In addition to the New York City Adaptation Task Force

described above, Con Ed has also participated in three other climate change adaptation processes

45
convened by external stakeholders. In 2007, Con Ed participated in the New York Sea Level Rise Task

Force created by the state legislature to assess impacts to the state's coastlines and recommend

adaptation measures (DEC 2010). The Department of Environmental Conservation organized the process

and The Task Force delivered their final report to Legislature in late 2010 (DEC 2010). According the CDP

submission, Con Ed "worked with the DEC to determine the affects of sea level rise ...on energy

infrastructure" (Westman 2012). The energy sector does not appear to have been a major focal point of

the assessment as the final report has one paragraph on the risks that sea level rise poses to energy

facilities (DEC 2010). The paragraph describes how flooding of power plants can result in total loss of

service for an area, frequent inundation of T&D systems can cause deterioration potentially causing

more frequent outages, and flooding and higher water table can impede access for repair and

maintenance of underground equipment (DEC 2010: 34). The paragraph does not discuss the risk of

flooding of T&D systems causing equipment failures that result in total loss of service for an area, which

is what occurred as a result of the storm surge during Hurricane Sandy.

The final report also includes 14 recommendations regarding sea level rise vulnerability and

adaptation strategies, but the Task Force considered the recommendations a first step and in need of

further analysis (DEC 2010: 5). Furthermore, the recommendations did not have unanimous consent of

all the Task Force members. For example, the City of New York "does not support recommendations,

2,3,4,5, and 7" (DEC 2010: 6). Con Ed was also not in agreement with all recommendations, particularly

on a coastal migration zone and regulating more land as wetlands (Westman Interview 2013). In fact,

Con Ed's 2012 CDP submission says that "changes to tidal wetland regulation that restrict activities
adjacent to tidal wetlands" are a regulatory risk that could disrupt generation capacity (Westman 2012).

It's likely that participating in this process raised awareness among Con Ed management that coastal

land use regulation is an issue they will have to contend with considering they own and depend on

infrastructure in the coastal zone.

In 2009, Con Ed participated in the Climate Action Council, which Governor Paterson's office

convened with the primary task of determining how to meet the Governor's goal of reducing GHG

emissions 80 percent below 1990 levels by 2050 (NYS 2010). The Governor's office also asked the

Council to develop a plan to increase New York's resiliency to climate change. The interim report was

released in November 2010 with a chapter on climate change adaptation, which includes climate change
impacts and adaptation recommendations for the energy sector. The chapter includes several

recommendations that are pertinent to electric utilities: Incorporating climate change impacts into

electricity demand projections; Meeting demand growth and improving system resiliency with demand

46
response and energy efficiency, distributed generation, energy storage, and smart grid technologies;
Survey and assess best practices for electric and gas utility resiliency efforts; And ensure detailed maps

are available for identifying areas and infrastructure at high risk from storm and flood damage (NYS

2010). Con Ed contributed to those final recommendations.

In 2011, New York State Energy Research and Development Authority undertook ClimAID to

provide up to date information on the state's climate change vulnerabilities to assist in the development
of adaptation strategies (Rosenweig & Solecki 2011). The ClimAID report was published in 2011 and it
covers many sectors, one of them being energy. Con Ed played an advisory role in that process, meeting

with researchers and providing background information. The chapter on the energy sector details New

York's energy sector climate change vulnerabilities and discusses adaptation strategies found in the

literature (Hammer et al. 2011a). The report has a detailed analysis of how climate change might affect

energy demand in New York State with a focus on the short-term time frame (Hammer et al. 2011a:
268). The ClimAID researchers found that climate change may increase summertime peak demand by up
to 497 MW in New York City and a 4 percent increase over current peak demand in the 2020s (Hammer

et al. 2011a). The report discussed flooding and sea level rise vulnerabilities for power plants, but not

transmission and distribution infrastructure. The adaptation options in the report include using

equipment replacement cycles as opportunities to enhance resiliency, protecting or elevating

infrastructure in flood prone areas, and using side management as a no-regrets and flexible strategy for

coping with impacts (Hammer at al. 2011a).

The state level planning processes do not appear to have been as directly influential as the City

of New York Adaptation Task Force in informing Con Ed's management of climate change risks, because

they were not as focused on downscaled climate change projections and risk assessments. Nevertheless,

they raised awareness among Con Ed management and stakeholders about energy sector vulnerabilities

and potential adaptation strategies. For example, the Sea Level Rise Task Force raised awareness in Con
Ed of some regulatory challenges that they may face as a result of adaptation efforts. ClimAID and the

Sea Level Rise Task Force seem like missed opportunities to have examined the vulnerability of Con Ed's

transmission & distribution system to storm surge in advance of Hurricane Sandy.

47
Table 6: Summary of externally driven planning process

Date Name Con Ed's Role Outcomes

2007 New York State Provided input on energy Disagreement among stakeholders on
Sea Level Rise sector vulnerabilities and final recommendations. Con Ed realizes
Task Force SLR adaptation strategies. that costal land regulation may be an
issue in the future.
2008- New York City Developed an internal risk Provision of climate change projections
2010 Adaptation Task assessment. Helped inform to senior engineers and managers for
Force format of climate change risk management and capital planning
projections.
2009 Climate Action Advisory, input on Con Ed contributes to recommendations
Council recommendations for more precise information on
potential impacts
2011 ClimAid Advisory Greater detail on potential climate
change impact on energy demand

Enabling and Constraining Factors

Information Resources from New York City Panel on Climate Change (NPCC)

The City of New York's Panel on Climate Change and Con Ed's participation on the Adaptation

Task Force has enabled Con Ed to incorporate climate change variables in the company's risk

management activities. According to Dave Westman of Con Ed, "partially through work at the City, we

embraced a risk-based approach to adaptation strategies.... For the last 4 or 5 years we have been

bringing the information and studies from the NPCC to the senior executives and chief engineers and
saying this is what the scientists, policymakers, and Mayor's office are saying that we should be planning

for" (Westman Interview 2013). The NPCC provided climate change projections and risk framing pieces

that the company could begin to disseminate to executives, engineers, and designers (Westman

Interview 2013). In addition, as a participant of the Adaptation Task Force, con Ed was able to engage

with the scientists to inform the type of information provided in the projections, shaping the process to

make it useful to them. The company continues to want more precise and localized projections of

climate change impacts to inform the design and operation of equipment (Westman Interview 2013).

Experience with Climate-Related Hazards

Con Ed's recent experience with storms has brought the issue of climate change risk

management and adaptation to the attention of the highest levels of the company (Westman Interview

2013). According to John Miksad, SVP for electric operations, four of the five worst storms that that

affected the company have occurred over the last two and a half years (Marritz 2013). There's a sense

48
among management that these storms are indications of a changing risk profile from climate change

(Westman Interview 2013). The perception of increasing climate change related risks among high levels

managers at Con Ed has made the company more receptive to incorporating climate change impacts
into their risk management process (Westman Interview 2013).

Experience with these climate-related hazards has also enabled the company to test their risk

management strategies. For example, Hurricane Irene contributed to the company's understanding of
"which facilities may need to be hardened to remain operational ... during a hurricane event" (Westman

2012). The outcomes from Hurricane Sandy forced the company to evaluate how their adaptation
strategies actually performed and re-evaluate the costs of managing storm risks and how much risk the

company is willing to bear (Westman Interview 2013; Freed Interview 2013).

In addition to changing Con Ed's internal dynamics, these climate-related events changed the

external policy environment by increasing attention to risks and spurring efforts examine ways to make

the City of New York more climate-resilient (Rosenweig & Solecki 2010). These activities include the

planning processes described above that Con Ed has participated in and others that Con Ed has not

participated in, such as a 4-year climate change adaptation initiative launched by the New York City
Department of Environmental Protection focused on water supply, sewer, and wastewater treatments

systems (Rosenweig & Solecki 2010). Hurricane Sandy in particular, however, has ignited interest in
examining actions to make the electricity sector more resilient. For example, in November 2012,

Governor Cuomo convened the Moreland Commission, which is studying and putting forth

recommendations for how to improve utility storm response (NYS 2013). The Governor also convened

the 2100 Commission to recommend actions that should be taken to improve the resilience of critical

infrastructure systems (NYS 2100 Commission 2013). These Commissions are bringing greater public

attention to the issue of adaptation of the state's electricity sector. For example, leading environmental

organization signed a letter to the Public Service Commission urging that they require utilities to develop

hazard mitigation plans that explicitly deal with climate change impacts (Siders et al. 2012). The letter

drew directly upon material from the Moreland Commission and 2100 Commission. It's too early to tell

how much of this attention will translate into concrete climate change adaptation efforts in the

electricity sector, but the political attention may lead to more resources being put towards enhanced

risk management.

49
Communicating Adaptation

Especially with the increased public attention to climate change risks after Hurricane Sandy, Con

Ed is frequently asked what they are doing and how much they are spending on climate change

adaptation (Westman Interview 2013). Company managers are realizing that it's challenging to quantify

their investment in adaptation measures, because they are integrated into investments that also serve

other purposes (Westman Interview 2013). "There's no line item in the rate case for climate change

adaptation. Our best adaptation strategies are our infrastructure and housekeeping items too"

(Westman Interview 2013). Although it is unlikely likely that this communications issue is constraining

the types of adaptation measures or extent to which Con Ed is pursing adaptation, it illustrates how the

integrated nature of climate change risk management can make it difficult to measure and communicate

those efforts with stakeholders.

Limited Means to Finance Infrastructure Upgrades

Some of the key adaptation strategies from the literature that will need to be implemented by

the utility (rather than policymakers or regulators) have to do with upgrading and modernization the

T&D system for greater reinforcement and flexibility (Wilbanks 2012b; NYS 2100 Commission 2013).

Anything from elevating substations or replacing wood poles with steal or installing new smart grid

technologies requires investment in the T&D system. The utility business model is set up so that utilities

finance this investment through the revenue requirement set by regulators, which is passed on to

customers in the form of their electricity rates (Shively & Ferrare 2007). Thus, barring state or federal

investment or new financing models, increased capital investment in T&D infrastructure will most likely

require higher electricity rates. For example, in Con Ed's most recent rate case proposal to the PSC, the

company plans to spend $1 billion through 2016 on T&D capital improvements to avoid a repeat of

damage caused by Hurricane Sandy. Under this proposal, the average electricity bill would increase 3.3

percent (Johnson 2013).

However, Con Ed operates in "an atmosphere in which customers feel that they are already

paying to much for a service" (Freed Interview 2013). For example, City Council Speaker Christine Quinn

was quoted at a speech as saying that she "would not tolerate" Con Ed passing the costs of underground

lines to ratepayers (Powel 2013). This sentiment among customers and their elected representatives

makes it challenging for the PSC to increase rates to fund capital investment in infrastructure. In the

current model, with limited ways to finance improvements to the grid, regulators are balancing

politicians and citizens who do not want rates to rise and an aging electricity system facing increasing

risks.

50
Conclusions
Con Ed operates in an environment with considerable state and local adaptation activity. One of

the most influential of those activities was the New York City Panel on Climate Change and Adaptation

Task Force in 2008, which provided Con Ed with localized climate change projections that they

incorporated into internal risk management programs. Despite all of the state and local planning

processes that Con Ed participated in and their use of downscaled climate change projections, Con Ed's
T&D system remained very vulnerable to storm surge and high winds as illustrated with Hurricane Sandy

in 2012.

The company continues to be receptive of and in want of increasingly localized climate

projections around which to design its infrastructure. However, it's not clear if the company's risk

management approach grapples enough with the uncertainty around future and even current climate
conditions and the risk that remains after the hardening measures have been applied. Con Ed may not

be sufficiently considering behavioral strategies, such as internal capacity building, stakeholder

education, and policy changes that could help the company perform well in a range of possible future

conditions.

51
52
VI. Entergy Case Study

Background
Entergy is comprised of six utility subsidiaries: Entergy Louisiana, Entergy Gulf States Louisiana,

Entergy New Orleans, Entergy Mississippi, Entergy Arkansas, and Entergy Texas (SEC 2012b). The

subsidiaries are connected by the Entergy corporate office and they are also part of a "System

Agreement" that allows for coordinated planning (SEC 2012b). This case study focuses on adaptation

efforts on the part of Entergy New Orleans, Entergy Louisiana, and Entergy's corporate office. Entergy

New Orleans serves approximately 165,000 customers with electricity and gas in the West Bank of

Orleans Parish (SEC 2012b). In what is a very unique regulatory context, the Utility Committee of the

New Orleans City Councils regulates Entergy New Orleans. Entergy Louisiana serves the Algiers (East

Bank) section of Orleans Parish and other areas of Louisiana for a total of 670,000 customers and is

regulated by the Louisiana Public Service Commission (SEC 2012b).

Figure 7: Entergy New Orleans Service Territory

A
N

East Dank - Electric & Gas

West Bonk - Gas Only

Source: Entergy in New Orleans Fact Sheet, Entergy, 2011

As a vertically integrated utility, Entergy owns a significant amount of power generation in

addition to transmission and distribution infrastructure (SEC 2012b). Entergy New Orleans owns and

operates a 764 MW natural gas fueled power plant, 1,438 miles of distribution lines, 158 miles of

53
transmission lines, and 22 substations (Entergy 2011). Entergy New Orleans' overall electricity supply

portfolio relies heavily on natural gas and nuclear generation (SEC 2012b). Entergy Louisiana owns or

leases 5,413 MW of oil, gas, and nuclear generation facilities (SEC 2012b).

Much of Entergy's service territory along the Gulf Coast is at very low elevation and faces

exposure to storm surge flooding and/or permanent inundation from sea level rise (USGCRP 2009). The

City of New Orleans is below sea level and a levy system is designed to protect the city from inundation
and storm surge (USACE 2013). The region's exposure to sea level rise is heightened by non-climate

change factors. First, relative sea levels are increasing faster in Louisiana than other regions because of
land subsidence (Wilbanks et al. 2007). In addition, wetlands that act as a buffer between development

and the Gulf are retreating due to disruption of the natural hydrology of the region (Wilbanks et al.

2007).

Outcomes from recent hurricanes demonstrate that Entergy and the region as a whole are

vulnerable to hurricanes even in current climate conditions (Wilbanks et al. 2007). In 2005, Hurricanes

Katrina and Rita caused immense damage, with economic damages totaling more than $100 billion. 80

percent of the City of New Orleans was flooded during Hurricane Katrina (Wilbanks et al. 2007). The

Hurricanes also had a debilitating impact on energy infrastructure, halting all oil and gas production

from the Gulf (USGRPC 2009). Ecosystems were devastated as well: 217 square miles of land and

wetlands were lost to open water during hurricanes Rita and Katrina. (USGCRP 2009). The region's

vulnerability to hurricanes is expected to increase with sea level rise (USGCRP 2009).

An increase in the intensity and frequency of hurricanes and sea level rise are not the only climate
change risks facing the Entergy service territory. The region is also at risk to increased drought, extreme

heat, and extreme precipitation events (USGCRP 2009).

Climate Change Risks in Entergy Service Territory (UCGCRP 2009; IPCC 2007)

e Increase in average temperatures

e Increase in very hot days
- Change in mean annual precipitation
e Increase in extreme precipitation events
e Likely increase in drought
e Sea Level Rise
e Potential increase in intensity or frequency of hurricanes

54
Adaptation Approach
Entergy evaluates the physical impacts to facilities in areas at risk of severe weather,

subsidence, wetlands loss, and sea level rise on an ongoing basis (Barlow 2012). The Internal Audit

department facilitates a process through which all businesses groups analyze risks for their particular

area, including climate change risks (Barlow 2012). The risks are described and evaluated based on

probability of occurrence and severity of outcome (Barlow 2012). Results are reported to business group
executive management with priorities identified. The Chief Financial Officer has general responsibility

for the process of ensuring that risks are identified and evaluated (Barlow 2012). Business group

management is responsible for participating in this process to ensure that risks associated with its
operations are accurately represented (Barlow 2012).

In addition to the ongoing risk evaluation process, Entergy has devoted considerable attention

to hardening the transmission and distribution (T&D) system in response to the impacts from

hurricanes. After Hurricanes Katrina and Rita in 2005, Entergy conducted an assessment of the

performance of the T&D system in coastal areas in 2006. The Entergy Operation Committee approved a
T&D Hardening Plan in 2007 (Dawsey 2012). Entergy developed the hardening plan by creating a model

that predicts damages by applying historical storm tracks and wind speeds to a catalog of Entergy's

assets (Olivier 2009). Entergy also evaluated the cost-effectiveness of various hardening strategies

(Olivier 2009). The new standards included enhancements for transmission (concrete instead of wood,
and steel instead of concrete within 20 miles of coast, increased wind design speeds, case by case

elevation of substations) and distribution (install storm guys in marshy areas, use steel or concrete poles
along evacuation routes, and upgrading poles) (Olivier 2009).

In response to Hurricane Ike in 2008, the Public Utilities Commission of Texas commissioned

Quanta Technologies for a benchmarking study on hardening and vegetation management best

practices (Dawsey 2012). As a result of this study, Entergy enhanced its hardening and vegetation

management standards again in 2009 (Dawsey 2012; Williams Interview 2013). Hardening strategies
from the 2009 standards upgrade included using extreme wind load criteria on new or rebuilt

transmission lines South of 1-10, building new substations above the 100-year flood plain elevation

(previously building them at grade), elevating critical substation components at existing substations, and
targeting substations where outages would have national significance (Dawsey 2012).

55
 In 2010, Entergy and America's Wetland Foundation (AWF)3 sponsored a $4 million study of

climate change risks and adaptation options called the Gulf Coast Adaptation Study (Barlow 2012;

Entergy 2010). The major contribution that this study provided to Entergy was projections on potential

future business/economic losses based on climate change projections instead of relying on outcomes

from past hurricanes (Williams Interview 2013). The study modeled the risks associated with three

climate hazards: wind, sea-level rise, and storm surge (AWF 2010). The study used three climate change

scenarios from the IPCC: no climate change, average climate change, and extreme climate change. The

study modeled economic losses for 23 types of assets in 2030, 2050 and 2100 with help from Swiss Re, a

reinsurance company (AWF 2010). The study also included a detailed analysis of oil, gas, and electricity

infrastructure (AWF 2010).

The study found that climate change is expected to increase economic losses over time in the

Gulf region (AWF 2010). In 2050, in a scenario with no climate change, average annual economic losses

from those three hazards are calculated to be $26.3 billion, but could be as much as $39.5 billion in an

extreme climate change scenario (AWF 2010). The study found that just over 30 percent of economic

losses in 2030 under a mid-range climate change scenario would occur in the oil as gas sector, largely

driven by losses to offshore assets. Residential assets contribute to 27 percent of losses, commercial

assets 30 percent, and utility assets 5 percent. The study also found that regardless of how the climate

changes, the Gulf Coast can expect increased economic losses due to asset growth and subsidence alone

(AWF 2010).

The study calculated the cost-benefit ratio for nearly 50 different adaptation measures under a
mid-range climate scenario in 2030. Several electric utility adaptation measures were included in the

cost-benefit analysis: generation growth in low risk areas, generation levees, resilience for new

distribution, resilience retrofits for distribution, resilience for new transmission, resilience retrofits for

transmission, and vegetation management for transmission and distribution. The study found resilient

distribution lines (both new builds and retrofits), and vegetation management to be measures that

reduce losses with a cost-benefit ratio of less than one. Transmission resilience efforts tend to be

economically attractive only in high-risk areas. While it's unclear from the Gulf Coast Adaptation Study

exactly what is meant by "resilient" transmission and distribution, it's clear from other documents that

3 America's Wetland Foundation is a private foundation started in 2002 with the goal of raising public
awareness of Louisiana's wetland loss and to gain support for coastal restoration efforts
http://www.americaswetland.com/custompage.cfm?pageid=280

56
these are hardening investments in stronger poles, stronger wires, and elevated substations (Dawsey

2012).

Figure 8: Cost curve for electric utility measures from Gulf Coast Adaptation Study

g PonteInyaactie - CUmUtabvecap .x cumulative

measures, dotada foNOW requtied
Coet eneWM ratIot requred
8.5

18
3.5 16
3.0 14
12
2.5
10
2.0 Afttive neaures car avert
24630 MM in2030lose"
A e 6
100 0 1.0

0.5 D - Resilience new LP 2

0
o 200 400 600 80C 1,000 1,200 1,400 1,600
T - Vegetaton Mgmt - HP D - Vegetation Mgmt - HP
T- Resi
D- Resrience new HP T - Resiience new HP Restience retrofit LP
Generation growth in D-esienc T - Vegetation Mgmt - LP retrofit HP
low risk areas retrof HP Generation ievees HP

*Resilient distributionlines (both now builds and retrofits) are key actions
*Vegetation management has potential to reduce losses at C/8 < 1
STransmission resilience efforts tend to be attractive only in high risk areas

Source: Gulf Coast Adaptation Study, America's Wetland Foundation, 2010

The study also examined the cost-benefit ratios of a range of measures outside of the electric

utility sector and assembled them into a cost curve (AWF 2010). The study recommended measures with

a cost benefit ratio of less than two instead of one, noting that many of these measures have co-benefits

besides reducing losses that were not captured in the study, and organized those measures into nine

broad efforts to reduce risk across all sectors (AWF 2010). The study called for greater leadership and

coordination on these efforts: "Actions will need to be taken by policy makers (federal, state and local),

electric utilities, the oil and gas industry and infrastructure developers. There will be a strong need for

leadership and coordination across stakeholders." (AWF 2010: 11).

57
Figure 9: Recommended adaptation measures from Gulf Coast Adaptation Study
Los CapEx Average C/B ratio
avertad, 2030 requr
* Public funding
.. Aen- 0 Improved buiding codes 1.4 2 * Private uning
enelnerrchl
O Beach nourishment 0.1

Wetlands restoration' 0.4 25 - The govemment

may need to
0.3 suppor or
0 Levee systems' incenbivze somfe
Simproved standards for 1.7 16
private capital
offshore platform investment, e.g.,
by subsfzng
0 Floafing production homes in low-
systems income areas
ON and ga
Replacing semi-subs with built to higher
0.5 1 buiding codes
drinl ships

0 Levees for refineries anid

petrochemical plants
Elctvlc utifty 0 imrvn resiic of 0.7.1.3 15 Q
electric utility systems
Total 7. LA121
I Included dftpft high CA3 Mibos duO ID*trong C04-t. fla
ik aersOii
2 Total capital investment. non-discounted. across 20 years

The CEO of Entergy was directly engaged in the 2010 Gulf Coast Adaptation Study (Barlow

2012). He delivered a key address at the Deltas 2010 conference during which the study was released

and discussed (Barlow 2012). Energy has used information from the Gulf Coast Adaptation Study to

support two pilot project proposals and a stakeholder outreach effort, described in greater detail below

(Barlow 2012). Jeff Williams from the corporate office has also sent climate change projections from the

Gulf Coast Adaptation Study to Entergy's different business units for use in their risk management and

capital planning efforts (Williams Interview 2013).

Adaptation Strategies
In 2011, the CEO of Entergy asked his staff to prepare a strategy to make use of the new

information from the Gulf Coast Adaptation Study (Williams 2012b). As a result, a newly formed "T&D

Resiliency Team" developed two Pilot Hardening Strategies: Port Aurthur in Texas and Port Fourchon in

Louisiana, a critical port for the offshore oil industry (Dawsey 2012). Entergy chose to develop a pilot
strategy for Port Fourchon, because it faces exposures to sea level rise and hurricanes and because the

58
company uses potential business losses to prioritize adaptation investment and disruption of the oil

industry results in high economic losses (Williams Interview 2013; Dawsey 2012).

The pilot hardening strategy at Port Fourchon calls for investing $119 million in hardening

transmission and distribution infrastructure and enhancing vegetation management in three phases. For

example, Phase 1 calls for replacing 10 percent of distribution poles per year, rebuilding a transmission

line, elevating a substation, and reducing the vegetation management to a 6-year cycle. Even with the
new information from the Gulf Coast Adaptation Study, the strategies proposed look similar to the
hardening standard upgrades developed in 2007 and 2009.

Entergy has also used the pilot project proposal as a conversation piece with external

stakeholders on hardening strategies and adaptation (Williams Interview 2013). In 2012, Entergy hosted

two technical conferences regarding their Pilot Hardening Strategies to build public support for their

adaptation activities.

"At the technical conference, we had a discussion of some pilot projects as a

demonstration and the whole idea was to get customers standing shoulder to shoulder
with us at the commissions saying this is a good deal, this is important, this
complements what I'm doing. Instead of us just drawing a line down 1-10 to harden
assets because we think it's a good idea and then all the sudden the customers are up in
arms about spending. At the technical conference we had the conversations to have our
customers stand with us" (Williams Interview 2013).

Entergy also sponsored and participated in an outreach effort about the findings from the Gulf

Coast Adaptation Study. Entergy provided $450,000 in grants to America's Wetland Foundation in 2010
and 2012 (Entergy 2013). Through 2011 and 2012, America's Wetland Foundation (AWF) and its

America's Energy Coast partners4, including Entergy, conducted eleven Blue Ribbon Resilient Community
Leadership Forums as part of the company's effort to "engage key customers, allies, and other

industries" (Williams 2012b). These forums were designed to build political support for adaptation

activities. For example, the Louisiana Resiliency Assistance Program describes the purpose of the forums

as being to "bring leaders together to push political boundaries, assess local vulnerabilities and better

plan for greater Gulf-wide resiliency" (LRAP 2012). Sidney Coffee, the Executive Director of AWF

describes AWF's role as being to "bring diverse interests together to the table and try to come to

consensuses on practical, common sense solutions" (Interview 2013). The purpose of the forums "was

4 America's Energy Coast is an initiative of America's Wetland Foundation. It is comprised of

representatives from business, industry, government, scientists, and environmental groups. The goal is
to provide a forum to develop solutions for sustaining the economy and environment of the region.
http://www.americasenergycoast.org/

59
to get these communities to envision the future and what it would take to be sustainable" (Coffee
2013).
The forums resulted in some agreement on general adaptation-related principles (AEC 2012).

For example, the findings from the New Orleans events included a list of community values and

adaptation-related principle, such as "thinking long-term," "addressing coastal restoration," and

"becoming source of global expertise on disaster and water management issues" (AEC 2012). The forum

resulted in more specific recommendations regarding coastal restoration activities, such as

"immediately begin improving drainage and internal levees while working to ramp up coastal

restoration and protection projects." However, the forum did not result in findings or recommendations

specific to adaptation in the electricity sector (AEC 2012). Jeff Williams, Director of Climate Consulting

for Entergy, spoke at the forum. His presentation discussed the Gulf Coast Adaptation Study' findings on

potential losses and adaptation options across various sectors (William 2012a). Mr. William's

presentation, however, did not go into detail about adaptation options for the electricity sector. At the

forum, Mr. Williams also sought to get input on community perception of vulnerability and where

communities would like Entergy to prioritize investment (Williams Interview 2013). It is unclear,

however, that the forums led to concrete changes to Entergy's adaptation strategies or approach, as the

conversation appears to have been rather broad.

America's Wetland Foundation compiled the recommendations from the 11 forums into a

report called "Beyond Unintended Consequences: Adaptation for Gulf Coast Resiliency and

Sustainability." The report offers 30 recommendations in the areas of seeking federal action, increasing
inter-agency cooperation, increasing innovation, and revitalizing the regional economy. AWF has

presented the report to officials in Washington D.C. and around the Gulf Coast (Coffee 2013).

Both the Technical Conference and Blue Ribbon Resilient Communities forums are intended to

contribute to Entergy's regulatory strategy. The company hopes to be able to present proposals to the

regulatory commissions for climate change adaptation related investments have sufficient technical and

economic justification as well as political support to gain regulatory approval.

"The next step is to put this into a regulatory strategy... A way to take this to the
commissions in a rational way so they can judge for themselves" (Williams Interview
2013).

60
Enabling and Constraining Factors

Experience with Hurricanes

New Orleans and Louisiana have been hit by several devastating hurricanes in the last decade:

Hurricanes Katrina and Rita in 2005, Hurricanes Gustav and Ike in 2008. These disasters generate a

particular and repeated dynamic with regards to adaptation-related activities. First, Entergy is under
incredible pressure and scrutiny to repair infrastructure that was damaged in the storm in order to get

electricity service restored (Williams Interview 2013; Case Interview 2013). After the repairs and

restoration work is done, there is pressure on the company to develop a strategy so similar damage and

resultant power outages do not happen again (Williams Interview 2013). For example, that kind of

political and regulatory pressure was the impetus for the 2007 and 2009 updates to Entergy's hardening
standards (Dawsey 2012). However, those efforts resemble disaster risk reduction more than climate

change adaptation. As discussed in the literature review, adaptation needs to be informed by future
climate change risks, not only past events (NRC 2010; UKCIP 2007).
The destructiveness of recent hurricanes, particularly Hurricane Katrina, has contributed to

Entergy's unique approach to adaptation. Entergy's language on adaptation in public documents, such
as the Carbon Disclosure Project survey, speeches, and presentations, puts emphasis on preserving the

region's economic vitality in the face of increasing environmental risks. Even though Entergy has put

significant effort into hardening the transmission and distribution system, their CDP submission focused
almost entirely on their efforts on funding research, customer engagement, and policy advocacy. In a

presentation to an internal working group, Jeff Williams presented Entergy's vision of resilience as

"Communities that are thriving, prosperous, and protected in the face of a changing and more

challenging environment" (Williams 2012b).

Before Hurricane Katrina, the company's adaptation-related activities were focused on business

continuity and emergency planning (Williams Interview 2013). Hurricane Katrina resulted in devastation

across Entergy's service territory and especially in New Orleans where 80 percent of the City was

flooded (Wilbanks et al. 2007: 377). Entergy New Orleans' losses were so high and their customer base

so significantly reduced, that the company declared bankruptcy (SEC 2005). According to Jeff Williams,

after Hurricane Katrina, Entergy realized they had to start thinking about the resiliency of the assets and
the communities on the other side of the meter, not only their own infrastructure (2013). Entergy

became much more concerned about "protecting the economic base that the company depends on"

(Williams Interview 2013). This concern about the impacts of climate change on the region's economy is

61
part of the reason that Entergy funded the Gulf Coast Adaptation Study, which examined potential

losses and adaptation options across many sectors (Williams Interview 2013).
Entergy is a unique case of utility funding and participating in advocacy for adaptation

strategies outside the realm of the electricity sector. Entergy's approach to adaptation is not out of

altruism or charity, but rather it stems a business interest. Even if Entergy's infrastructure is undamaged

during a hurricane, if customer-side assets are not functioning, Entergy cannot sell electricity and collect

revenue. If people move away from Entergy's service territory, fixed costs will be spread to fewer

customers resulting in higher rates and increasing the potential for ratepayer backlash. Entergy's

business and regulatory model depend on population growth or growth in electricity demand to

maintain profitability.

Furthermore, at the state level, there is no policy in place that decouples utility profits from

sales5 (ACEEE 2012). Entergy Louisiana's profits are closely associated with throughput of electricity. The

damage and population displacement associated with Hurricane Katrina threw the traditional utility

business proposition into question. Unlike other companies, a utility cannot relocate to another region

or country with more growth. Under the current business and regulatory model, Entergy cannot succeed

unless the economy in its service territory continues to grow and consume electricity.

Climate Change Skepticism

"Climate change is a dirty word here." (Williams Interview 2013)

The politicization of climate change and widespread climate change skepticisms in Louisiana

constrains Entergy's adaptation activities. Firstly, "climate change skepticism" makes stakeholder

engagement more difficult for the company. According to Jeff Williams, conversations with stakeholders

at the Blue Ribbon Resilience Community Forums were often difficult: "We had to convince [them] that

climate change is not a hoax and we are working in their interest. And then deal with the conflicting

issues.... It's hard to get people in the right frame of thinking" (Interview 2013). When communicating

with stakeholders, Entergy prefers to call their climate change adaptation activities, "risk management

in the face of more storms or sea level rise" rather than publically make the connection between more

storms or sea level rise and anthropogenic climate change (Williams Interview 2013).

s Entergy New Orleans offers energy efficiency programs and a rate rider that provides for the
recovery of lost contribution to fixed costs from efficiency measures, but ENO only accounts for 6
percent of Entergy's total sales (SEC 2012).

62
 Even regulators, the institution most directly capable of influencing Entergy's adaptation

activities, do not directly address climate change issues. According to Forest Bradley-Wright, an energy

policy expert with many years of experience working with utility commissions in the Southeast,

"Regulators in our region are pretty disengaged from direct decision making associated with climate

change. There is an ideological divide that makes it a non-starter to even discuss the subject matter as

any basis for a cost that would expended by the utility and passed on the ratepayer" (Interview 2013).

According to interviewees, climate change is not a decision-making priority among local elected leaders

(Bradley-Wright 2013; Case Interview 2013).

One of the potential downsides of not making connections between risk management and

climate change is missing opportunities to pursue adaptation strategies that have climate change

mitigation co-benefits. Entergy's adaptation strategies have been focused on hardening rather than
demand side strategies that could provide both resiliency and mitigation benefits.

Utility Business Model

In Louisiana, the utility business model as structured by regulation is such that demand side

strategies that reduce throughput of electricity are potentially a threat to profits. Louisiana does not

have in place the enabling policies for demand side management discussed in the literature review, such

as mandates, incentives, or decoupling. Every year, the American Council for an Energy Efficient

Economy (ACEEE) publishes ranking of states according to their efforts to advance energy efficiency. In

2012, the State of Louisiana ranked 43 out of 50 (Foster et al. 2012).

The New Orleans City Council has been working with Entergy to develop energy efficiency

programs, and there is a rate rider that provides for recovery of lost contribution to fixed costs for

Entergy. However, even in New Orleans, advocates of demand side management are not publically

making the connection between those programs and climate change, but rather frame the benefits of

the programs in terms of cost savings (Bradley-Wright 2013). As a result, stakeholders may not be aware

of the climate resiliency benefits of demand side management.

This business model appears to be constraining the types of adaptation strategies that Entergy is

putting on the table. Meanwhile, a local official in New Orleans expressed frustration with Entergy's

focus on hardening and vegetation management during the New Orleans Hazard Mitigation Planning

process.
"When it comes to power utilities, the conversation goes to burying everything. That's a
pretty bad idea here. It's kind of wet. For some reason that was where the conversation
was allowed to die.... Are there other options? To bury or not to bury? There's got to be

63
 more to it than that. To my knowledge, that's the only conversation we had. When [an
Entergy representative] makes the point, dig a hole in your yard and see how long it
takes to fill up with water, we've got to move past that. That option is off the table, so
what is next? The 'what's next?' never happened" (Case Interview 2013).

Representatives from Entergy New Orleans and Entergy Louisiana declined to participate in

interviews for this study, instead referring me to Jeff Williams in Entergy's Corporate office.

Nevertheless, the conversation at the hazard mitigation planning meetings demonstrates that the

company is focused on hardening and vegetation management and may be missing opportunities to

explore other adaptation options.

Lack of Government-Led Adaptation Planning

While there are a number of non-profits and government agencies working on energy efficiency and

wetlands restoration, there is no local or state government agency in Louisiana that has explicitly taken
6
up the banner of climate change adaptation. In this void, Entergy is moving forward on adaptation with
approach centered on minimizing business losses through selective hardening and vegetation

management. They have focused attention on coastal assets outside of the levy system, where they can

clearly demonstrate high risk from sea level rise and hurricanes. Entergy's use of the metric of potential

economic losses to prioritize investment points them towards protecting electricity service to high

earning industries, such as the offshore oil and gas industry.

This approach could in many ways meet the public interest, but without transparent dialogue and

decision-making among relevant stakeholders, it may fall short. For example, there could be other
factors that need to be prioritized besides economic losses, such as human health and safety or

environmental quality. There could be other places that merit consideration for Entergy's adaptation

investments besides Port Fouchon. The Blue Ribbon Resilient Communities Forums could have been an

opportunity to introduce other decision-making criteria into Entergy's adaptation approach or discuss a

range of adaptation options for the electricity system, but the conversation at those forums was not

focused on electricity. The meeting reports and communication materials from the Forums do not go

into detail about the utility specific adaptation efforts from the Gulf Adaptation Study or other electric

utility adaptation measures from the literature. One of the recommendations from the Technical

Conference in June 2012 was "Determine how to best prioritize assets that need storm hardening,"

6 The City of New Orleans has a climate action plan, but it does not address adaptation

64
indicating that the company continues to look for input from stakeholders on their adaptation

investments.

Conclusion
Entergy updated its T&D hardening and vegetation management standards in 2007 and 2009 in

response to hurricane damage (Dawsey 2012). An important turning point in Entergy's approach to

adaptation is when it sponsored the Gulf Coast Adaptation Study in 2010, which provided projections of
economic losses for three hazard types (wind, storm surge, and sea level rise) for three climate change

scenarios (AWF 2010). This study allowed Entergy to make the case for adaptation strategies based on

projected rather historic impacts (Williams Interview 2013). Even with this new study, however, the

proposed adaptation strategies largely remained the same: T&D hardening and vegetation

management. However, the company is now able to make the case that these strategies have a cost-
benefit ratio of less then one when compared with potential losses in 2030 under a mid-range climate

change scenario. This study also allowed Entergy to advocate for adaptation strategies and policies
outside of the electricity sector that could reduce potential losses economy-wide and ostensibly support

growth in demand for electricity (Williams Interview 2013; AWF 2010).

Entergy also used the Gulf Coast Adaptation Study as a jumping off point for increased customer

engagement and policy advocacy on adaptation (Barlow 2012; Williams Interview 2013). Entergy plans
to use both the analysis from the study and subsequent stakeholder engagement in their regulatory

strategy (Williams Interview 2013). They hope to be able to submit proposals to the Louisiana PSC or

New Orleans City Council for investment in proactively hardening T&D and gain approval (Williams

Interview 2013). At the same time, some have expressed frustration with Entergy's focus on hardening

and vegetation management and would like to see more discussion of more options for managing risk.

The regulatory model in Louisiana that has not been amended to enable demand side management

strategies may be limiting the adaptation options that Entergy is putting on the table.

65
66
V1I. Pacific Gas and Electric Case Study

Background

Pacific Gas & Electric Company (PG&E) is an electric and natural gas utility with service in

Northern and Central California, including the Bay Area metropolitan region. In 2012, it served 5.2

million customers with electricity (SEC 2012c).

Figure 10: PG&E Service Area

Source: http://resource-em.com/areas-served/

PG&E operates in a restructured electricity market and divested of most of its generation

resources during deregulation in the early 2000s (SEC 2012c). The company still owns a large

hydroelectric system, a nuclear power plant, several fossil fuel power plants, and 100 MW of solar

generation (SEC 2012c). Comprised of nearly 100 reservoirs in California's Sierra Nevada and Southern

Cascade mountain ranges, PG&E's hydroelectric system is the largest investor-owned and operated

system in the nation (Barlow 2012; SEC 2012c). FERC oversees the licensing of the utility's hydroelectric
generation (SEC 2012c).

PG&E's revenues are generated mainly through transmission and distribution (SEC 2012c). PG&E

owns over 18,000 miles of transmission lines and 91 transmission substations. The California Integrated

System Operator (CAISO), which is regulated by FERC, controls the operation of the transmission service
and is responsible for ensuring reliability and setting tariffs (SEC 2012c). PG&E's distribution system

67
consists of approximately 141,000 miles of distribution lines (20% underground and 80% overhead), 58

transmission-switching substations, and 601 distribution substations (SEC 2012c). The California Public
Utility Commission (CPUC) regulates the utility's rates, terms of service, and performance for electricity

distribution. The CPUC has also adopted rules and regulations to implement state laws regarding energy

efficiency, demand response, renewable energy, and the reduction of GHG emissions (SEC 2012c).

PG&E faces a number of climate change risks. California's hot and dry summers could become

even hotter and drier as a result of climate change (Franco et al. 2011). Extreme heat could increase

demand for electricity as air conditioning use grows (Franco et al. 2011). More urban development is

projected to take place in the Central Valley and other inland areas that already experience higher

summer temperatures and are expected to warm at a faster rate than coastal areas (Franco et al. 2011).

The hotter and drier conditions could also contribute to more frequent and intense wildfires that could

damage transmission and distribution equipment, potentially causing widespread outages (Franco et al.

2011). Higher temperatures could also reduce the generation capacity of thermal power plants.

Changing temperature and precipitation patterns could also affect the snowpack in the Sierra

Nevada Mountains. Historically about 74 percent of the hydropower generated in California comes from

high-elevation hydropower units that use snow as their main water source (Franco et al. 2011). A

reduction in electricity generation during the hot summer months, a period traditionally relied on for

hydroelectricity to satisfy peak cooling demand, is projected for all climate scenarios (Franco et al.

2011).

Lastly, PG&E's infrastructure located near the coast could be affected by sea level rise. Sea level
rise could inundate low-elevation coastal areas, exacerbate coastal flood events, erode beaches and

cliffs, and alter sediment transport patterns (Franco et al. 2011).

Summary of climate change risks in PG&E service territory (Franco et al. 2011)

* Increase in average temperatures, especially during summer

* Increase in extreme heat
* Long-term decrease in mean annual precipitation
* Likely increase in drought
- Loss of spring snowpack
- Sea level rise
* Increase in wildfire risk

68
Adaptation Approach

PG&E incorporates climate change impacts into its internal risk management process. In 2008,

the company started the "Climate Change Operational Impact Team," an internal climate change risk
communications team that meets two to four times a year to review the latest research on climate

change impacts that could affect the company (CDP 2012; Bruso Interview 2013; Sturm Interview 2013).

This team is led by three scientists and an electric and gas operations manager (Sturm Interview 2013).

The team communicates relevant information about climate change risks to the company's various
business units.

Each business unit has a risk assessment and strategic planning team, which determines how to

categorize, prioritize, and manage the risks, whether the risks are related to climate change or otherwise

(CPD 2012; Sturm Interview 2013) The team incorporates risk management and adaptation investments

into their regular plans for investment and replacement (Garrett 2012; Bruso Interview 2013; Sturm

Interview 2013). The risk management and adaptation strategies are reported back up the Board of

Directors, Chief Risk and Audit Officers, and V.P of Environmental, who are accountable for the risk

management process as it pertains to adaptation (Garrett 2012; Bruso Interview 2013; Sturm Interview

2013).

According to a company representative, PG&E has a comprehensive assessment of assets

potentially at risk to climate change impacts (Bruso Interview 2013). However, the assessment is

completely internal and is closely guarded (Bruso Interview 2013; Sturm Interview 2013).

Adaptation Strategies

Supply side

PG&E's most significant adaptation effort on the supply side has been tracking climate change

risks associated with their hydroelectric system and developing adaptation strategies. PG&E has been

motivated to do so because it owns and operates this system that is a critical part of California's

electricity supply and PG&E has already observed changing trends in precipitation and snowpack (Sturm

Interview 2013). The company is currently tracking and evaluating the potential impacts of snowpack

changes and is working with the United States Geological Survey (USGS) and the Department of Water

Resources to test a model that predicts how watershed hydrology will respond to changes in climate and

land use (Garrett 2012; USGS 2013). The company has developed several strategies to reduce potential

69
impacts, which primarily entail adjusting operations of the reservoirs and conveyance systems (Garrett

2012).
PG&E is also pursuing investment in solar generation as a supply side adaptation strategy. PG&E

considers increased solar generation a strategy to help meet peak demand during increasingly hot

summers (Garrett 2012). This investment, however, is primarily driven by the state's Renewable

Portfolio Standard, which requires that 33 percent of the electrons that PG&E delivers to its customers

come from renewable energy sources by 2020 (SEC 2012c; Sturm Interview 2013). Currently, about 1.5

percent of the electrons that PG&E delivers are from solar, but PG&E plans to increase that share to

approximately 10 percent by 2020 (SEC 2012c; Sturm Interview 2013). PG&E recently shifted the solar

investment strategy from investing directly in utility-owned solar generation to purchasing solar supply

through a new state-run auction program (SEC 2012c).

Transmission & Distribution

Capital investment in T&D features less prominently in PG&E's adaptation strategies compared

to Con Ed and Entergy. PG&E reported on the CDP survey that they have made investments in the T&D

system to better deal with extreme heat, but company representatives interviewed for this study were

uncertain of the details of those investments. According to Xantha Bruso, Principal of Long Term Energy

Planning at PG&E, climate change impacts are only one of many factors that influence decisions to

invest or upgrade the T&D system, making it challenging for the company to disaggregate exactly which

investments were made as a result of considering potential climate change impacts (Interview 2013).

The company is also investing in smart grid technologies, which can help create a more resilient

grid, but these investments are largely driven by other policy factors. Some of PG&E's smart grid

investments include the installation of a total of 8.9 million advanced electric and gas meters and

beginning to install automated switches to reduce outage durations and number of customers affected

by outages (SEC 2012c). Starting in 2010, the CPUC requires that the investor-owned utilities in

California submit annual Smart Grid Deployment Plans (CPUC 2010). The 2010 rule discussed the goals

of integrating renewable energy, increasing customer control of energy use, reducing outages, and

reducing GHG, but does discuss climate change adaptation or managing climate change risks (CPUC

2010).

Demand Side Management

PG&E considers its energy efficiency, demand response, and distributed renewable generation

programs as strategies for managing the risks associated with higher temperatures and higher demand.

70
The CPUC oversees PG&E's energy efficiency and demand response programs, meaning that the CPUC

works with PG&E to develop programs using ratepayer funds and PG&E is responsible for

implementation. The CPUC has authorized $823 million to fund PG&E's 2013 and 2014 energy efficiency

programs and $192 million to fund its 2012-2014 demand response programs (SEC 2012c). For
distributed renewable generation, PG&E offers customer rebates through the California Solar Initiative,

which is also overseen by the CPUC (CPUC 2013). The state-wide program has a budget of over $2 billion

from 2007 to 2016 (CPUC 2013). '

These programs were not initiated with the goal of responding to climate change impacts, but

rather they were initiated with the goal of reducing GHG emissions. For example, California's Long Term

Energy Efficiency Strategic Plan discusses the need to minimize GHG emissions, but does not discuss
climate change adaptation or risk management goals (CPUC 2008). It's likely that recent publications by

the California Energy Commission and Natural Resources Agency has brought attention to the fact that

these mitigation strategies are also important for adaptation. In the 2009 California Adaptation Strategy,

the first adaptation strategy listed for the energy sector is to "increase energy efficiency efforts in

climate vulnerable areas" and "facilitate access to local, decentralized renewable resources to help meet

expected increase in demand due to climate change" (CNRA 2009: 131).

External Adaptation Planning

Since 2011, PG&E has been participating in "Adapting to Rising Tides (ART)," a sea level rise

planning pilot project led by the Bay Conservation and Development Commission (BCDC). The plan is for
a stretch of coastline along the San Francisco Bay in Alameda County and it involves twelve different

asset categories, one of them being "Energy, Pipelines, and Communications," which includes PG&E

(ART 2013). To date, the ART project has developed two reports: "Existing Conditions and Stressors" and
a "Vulnerability and Risk Assessment." The risk assessment examined the exposure and sensitivity of

power plants and substations to inundation and flooding impacts from sea level rise, including ten
substations that PG&E owns and operates in the project area. Thus far, PG&E's role in the project has

been in helping provide background information for the reports (Sturm Interview 2013). The next phase

of the project will involve developing adaptation strategies. PG&E considers sea level rise to be a longer

term-risk and "will address it over time." (Garrett 2012:44).

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Figure 11: Sea level rise exposure analysis from Adapting to Rising Rides

Source: ART Vulnerability and Risk Assessment Report, 2012

Enabling and Constraining Factors

Climate Change Adaptation Research from State of California

The publication of climate change research from the State of California has informed PG&E's climate

change risk management. The company uses information on climate change projections and impacts in

their internal risk management process (Garrett 2012; Bruso Interview 2013; Sturm Interview 2013). Ms.

Bruso says that PG&E's adaptation strategies "roll up from the science," and much of the science has

been published by the State of California's climate change assessment process (Interview 2013). The

Public Interest Energy Research (PIER) Program at the California Energy Commission sponsors many of

the studies on climate change projections and climate change impacts on the electricity sector. PIER is

funded by a system benefits charge on California's utility bills and matching grants (Sotero 2013).

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 California's climate change assessment process has its origin in an Executive Order S-3-05, which

charges the Secretary of the California Environmental Protection Agency to report to the Governor and
the State Legislature on the impacts of climate change on California. Beginning in 2006, the State began

publishing downscaled climate change projections and assessments of climate change impacts. The
state updated those assessments in 2008 and 2012, with increasing detail on impacts to particular

sectors. The 2012 update included several electricity-specific studies that highlighted potential

challenges in meeting summertime peak demand, leading to the conclusion that "the electricity system
is more vulnerable than previously understood" (CEC 2012: 1). A zip-code level analysis of the impacts of

extreme heat on energy demand shows that in the next decade higher temperatures could increase

demand by up to 1 Gigawatt during the summer, an amount that would require the construction of one

large power plant or the purchase of costly peak power from external sources (CEC 2012). Another study
found that that hydro-electric generation will be substantially reduced in the summer when it is needed

most to meet peak demand (CEC 2012). High temperatures will also affect transmission, resulting in a 7-

8 percent reduction in transmitting capacity. In addition, key transmission corridors are vulnerable to
wildfire. One study found a 40 percent increase in probability of fire for some transmission lines,

including the line bringing hydropower from the Pacific Northwest into California during peak demand

periods (CEC 2012).

In 2009, the California Natural Resources Agency published the first Climate Adaptation Strategy, a

multi-sector guide to climate change impacts and adaptation strategies (CNRA 2009). Adaptation

strategies for the energy sector were developed by the California Energy Commission, which included:
* Meet energy efficiency goals from AB32 Scoping Plan
* Facilitate access to local, decentralized renewable resources
e Assess environmental impacts from climate change in siting and re-licensing of new energy
facilities
e Identify most vulnerable communities
- Develop hydropower decision-support tools to better asses and manage climate change
variability
- Identify how renewable energy goals could be impacted by future climate change impacts
These assessments provided the company with downscaled climate change projections and

information on impacts that could be given to operating units for use in their risk management and

capital planning. At a strategic level, these publications guide policy efforts by the state, especially on

energy efficiency and renewable energy, which has implications for the activities carried out by PG&E.
These studies also contribute to a broader understanding of how existing energy efficiency, demand

response, and distributed generation programs contribute to climate change adaptation.

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Climate Mitigation Policy from State of California

Several of PG&E adaptation strategies, such as energy efficiency, demand response, and

renewable energy generation, are driven by policies and programs intended meet the requirement of

Assembly Bill 32 (2006), which sets a cap on California greenhouse gas emissions. The Renewable

Portfolio Standard, which is driving PG&E's investment in solar, is part of the implementation of AB 32.

Energy efficiency goals, including "more aggressive utility programs to achieve long-term savings" are

also a part of the implementation of AB 32. Even though AB 32 is intended to reduce GHG emissions,

representatives from PG&E and other agencies consider it an important enabler of PG&E's adaptation

strategies (Sturm Interview 2013; Bruso Interview 2013; Confidential Interview 2013).
In addition, PG&E considers energy efficiency, demand response, and renewable energy

generation as business opportunities. Over the years, CPUC decisions have created a regulatory

framework to motivate the state's IOUs to continuously expand their energy efficiency programs. These

policies include the State's adopted loading order, aggressive goals, decoupling of sales from revenues,

performance based incentives, and a public goods charge (CPUC 2008). As a result of this regulatory

framework, demand side management activities contribute to PG&E's profitability and leads to PG&E

considering it a business opportunity (Garrett 2012).

Stakeholder Pressure

According to Xantha Bruso, Principal of Long Term Energy Planning at PG&E, stakeholders,

including customers, government officials and NGOs, frequently inquire as to what the company is doing

about climate change adaptation (Interview 2013). This stakeholder pressure greatly influences the

company's activity on adaptation. For example, Ms. Bruso noted that one of the primary reasons the

company participates in external climate change planning processes is to demonstrate to stakeholders

that they are actively preparing for climate change impacts (2013).

There have also been highly publicized efforts to plan for sea level rise. The Pacific Institute

published a report in 2009 about sea level rise that included maps that have captivated the public's

attention (Heberger et al. 2009; Franco et al., 2011). In addition, in 2009, The Bay Conservation and

Development Commission (BCDC) proposed amending its guiding policy document to address sea level

rise (BCDC 2013). Due to considerable controversy and public debate, the review of this policy change

lasted for over two years, with 36 public meetings, workshops, and stakeholder meetings (BCDC 2013)

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 Laura Tam, Sustainable Development Policy Director at SPUR, a planning and research non-profit

in San Francisco, recognized a surge in public interest in adaptation over the last 4 or 5 years (Interview

2013). Motivated by this public interest, Ms. Tam went on to write a report about climate change

impacts and adaptation in the Bay Area, called "Climate Change Hits Home. " The report was released in
2011 and includes a discussion of potential climate change impacts on the energy sector, largely drawing

on research published by the State of California, and recommends next steps for adaptation. The report

calls for utilities to conduct vulnerability assessments, develop plans to close a potential supply gap due

to reduced hydropower capacity, and evaluate existing energy efficiency and demand response

programs for their effectiveness in more frequent and prolonged heat events (SPUR 2011).
Stakeholder awareness and interest in adaptation, however, is not evenly distributed across the

company's service territory. A significant amount of the NGO and local government activity on

adaptation in PG&E's service area is focused in the Bay Area. Matthew Sturm, Senior Program Manager
at PG&E, noted that that there are communities in the PG&E service territory that are skeptical about

climate change (Interview 2013). Nevertheless, PG&E's adaptation strategies are not Bay Area specific,

but rather system-wide.

Corporate Structure and Governance

Government officials running planning and research projects expressed a couple areas where

they think PG&E has room to improve: greater transparency about risks, greater ease with sharing data,

and more robust participation (Confidential Interviews 2013). The company's structure, staffing, and

perspective on expertise are sources of challenges for collaborative adaptation planning.

Local, regional, and state planners are increasingly trying to assess potential climate change

vulnerabilities of infrastructure in their jurisdictions. However, PG&E is sensitive about risk assessment

information being made public and a subject of debate and scrutiny (Bruso Interview 2013). There are a

few reasons behind PG&E's sensitivity. There are concerns that debating risk assessment findings with

stakeholders would be a large cost in terms of staff time without clear added value (Bruso Interview

2013). PG&E considers themselves to be the most knowledgeable and expert about their infrastructure
and unsure of how outside stakeholders' input in their planning would be helpful (Bruso Interview 2013;

Sturm Interview 2013). Other potential reasons for the reluctance to share risk assessment information

is concern about competitors or critics using that information against the company. There are also

potential security reasons for not disclosing specific asset vulnerabilities. At the same time, recent

literature and experiences have highlighted the complex connections between urban infrastructure

system and the potential for cascading impacts and have called for more multi-sector planning efforts to

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identify and manage the risks between infrastructure systems (Wilbanks et al. 2011; Neumann & Price

2009).

The company's structure and staffing does not easily lend itself to participation in local climate

change adaptation planning. Planning jurisdictions, such as cities, counties, or coastal zones, are

geographically very different than the way the company is structured. PG&E has system-wide engineers

and managers for certain types of business functions, such as electricity operations. They don't, for

example, have a manager that integrates all infrastructure operations and planning along the San Mateo

County coastline. As the company is currently structured, providing information and a high level of

participation in local planning requires a staff person communicating with many different system

managers across the company (Sturm Interview 2013). The decentralized nature of risk management in

the company also makes it hard for those working on external stakeholder relations to stay abreast of all

risk management activities (Sturm Interview 2013). Furthermore, some staff members find it challenging

to fulfill some information requests, because they require input from engineers who are busy with their

regular job duties and consider information requests as detracting from those duties (Bruso Interview

2013).
"We need to evolve to engage at the local level about our infrastructure. We have a
good system in place for tracking the science and impacts, but engaging local
stakeholders will continue to be an issue for us" (Sturm Interview 2013).

Conclusions
PG&E's approach to adaptation is predicated upon using research sponsored by the State of

California on climate change projections and potential impacts. That information is organized by an

internal team and then distributed to business units to incorporate into existing risk management

process and capital investment plans. The Public Interest Energy Research (PIER) Program at the

California Energy Commission plays an important role in sponsoring the climate change research that

PG&E uses.

The adaptation strategies that PG&E is pursuing to help meet increased demand during extreme

heat events, namely energy efficiency, demand response, and solar power development, are strongly

connected to state-level GHG mitigation policies and the business opportunities that the regulatory

structure has created for the company. In addition, state level adaptation planning has identified energy
efficiency, demand response, and distributed solar generation as key adaptation strategies for the

electricity sector. PG&E has also developed adaptation strategies to help cope with the impacts of

reduced snowpack in the Sierra Nevada on their hydroelectric system. However, the company's

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structure, which is set up to serve a very large service territory, and its decentralized risk management

process poses challenges for the company's participation in local-level adaptation planning.

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78
Vill. Cross Cutting Analysis and Findings

Risk Management Approach

All three case study utilities have similarities in their approaches to climate change risk

management. A central department or person, such as EH&S, Emergency Management, Climate Change

Operational Impact Team, or Director of Climate Change Consulting, gathers downscaled climate change

projections and information on potential climate change impacts from research conducted by
government agencies or consultants. The person or group then passes that information on to business
units that are responsible for incorporating that information into their existing risk management process

and capital planning. The risk management and/or capital investment strategies developed by the
business units are reported back up to the groups that manage those processes, such the Chief Risk and

Audit Officer, or V.P of Environmental, or the Chief Financial Officer. This integration of climate change

risks into risk management processes helps utilities use replacement opportunities to build greater

resilience into the system and ensure that adaptation strategies are taking into account other competing

demands on resources, which are both approaches to adaptation recommended by the literature.
Utilities are using existing processes to tackle a new challenge. As discussed in the literature

review, climate change has more uncertainty and complexity associated with it than the issues typically

addressed by corporate risk management programs. There is some evidence from this study to indicate

that the existing processes might not be enough to deal with the uncertainty of climate change. Many of

the strategies discussed in this study hinge upon building infrastructure to meet enhanced climate

specifications, for example, higher wind speeds or higher temperatures or elevating equipment above
flood heights. The approach is based on providing engineers with climate change projections around

which they can design infrastructure. Updating design standards to account for future climate change is

an important strategy, but the logic of this approach seems to be that if climate scientists tell us what

the future is going to be like, then we can build the system needed for it. But scientists don't know

exactly what the future is going to be like. "Every credible source indicates that the appropriate strategy

is rooted in risk management for an uncertain future rather than precise impact projections for optimal

decisions," yet the approach from the utilities appears to be largely one of projections-based planning
(Wilbanks et al. 2012b). It's not clear that the existing risk management processes puts sufficient

attention on being able to respond to a range of future conditions with a portfolio of adaptation

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options. For example, none of the case study utilities reported using Scenario Planning, a tool described

in the literature review, to assess uncertain risks and develop risk management strategies.

Despite these similarities, each of the companies is largely obtaining climate change risk

information from different types of sources. Con Ed has been obtaining downscaled climate change

projections from the New York City Panel on Climate Change, which was funded with a grant for

Rockefeller Foundation. PG&E has been getting their climate change risk information largely from

research published by the State of California, which was funded by a system benefits charge on utility

bills. The Entergy case provides a contrasting situation in which neither the City of New Orleans nor the

State of Louisiana has published downscaled climate change projections or research on climate change

impacts on the electricity sector. Instead, Entergy sponsored research on climate change impacts and

adaptation options in the form of the Gulf Coast Adaptation Study (Williams Interview 2013).

Comparing these cases sheds light on some potential disadvantages of private, rather than

public, sponsorship of climate change research. The privately sponsored Gulf Coast Adaptation only

considers two climate change impacts, hurricanes and sea level rise, even though the region is also at

risk for increased drought and extreme heat, which have important implications for electricity supply

and demand. The heat and drought impacts may be lower probability, lower impact, or longer-term, so

Entergy may have had strategic reasons not to invest in the research at this time. However, it could also

be a major oversight in that Entergy is very dependent upon fossil fuel generation, which requires access

to cooling water supplies that could be impacted by drought (SEC 2012b). In comparison, the NPCC and

State of California have published a range of climate change projections. Private companies may be less
likely to sponsor research on risks that have a lower probability of occurrence or are longer-term and

instead focus on current vulnerabilities. Addressing current vulnerabilities can be a good place to start,

but the literature on climate change adaptation also recommends taking a long-term view of risk

management and taking a multi-hazard approach (NRC 2010).

An advantage for Entergy, however, in sponsoring the Gulf Coast Adaptation Study is the cost-

benefit analysis of adaptation options. None of the studies developed by government agencies from

New York or California include a cost-benefit analysis. While it is likely that PG&E and Con Ed have done

internal cost-benefit analyses, Entergy's publically published analysis allows Entergy to make the

economic case to its stakeholders for adaptation strategies that the analysis points to as having a cost-

benefit ratio of less than one. Building public support for adaptation-related investments is part of

Entergy's regulatory strategy. Nevertheless, one must also recognize some of the limitations of this
analysis. Only avoided business losses were used to determine the benefits of adaptation strategies, so

80
they don't capture the full range of benefits (AWF 2010). Furthermore, the study looked at a limited
number of adaptation measures, focused primarily on hardening and vegetation management for the

transmission and distribution system.

Although the information came from different sources, all three companies quickly responded

to having more information on climate change risks. During a period when the State of California started

publishing a significant amount of climate change research, PG&E set up a "Climate Change Operations
Impact Team" to review the latest science and provide updates to business units. After having the Gulf
Coast Adaptation Study, a newly formed "T&D Resiliency Team" developed two pilot hardening

strategies. Management at these companies was ready to recognize a changing risk profile due to

climate change and information in the form of downscaled climate change projections and impacts on

the electricity sector spurred a response. The types of strategies the utilities go on to develop with that

information depends largely on the types of risks they face and the regulatory and policy environment

around them.

Demand Side Management

Supportive regulatory policies and state sponsored adaptation plans recommending demand

side management were strong pre-conditions for utilities to consider demand side management

adaptation strategies in the case studies. Both Con Ed and PG&E consider energy efficiency and demand

response as part of their adaptation strategies for coping with extreme heat in their reporting and in

interviews. These programs, however, are driven by regulatory policies that do not explicitly mention

climate change adaptation, such as AB32 in California and the Energy Efficiency Resource Standard in

New York. Although the original policies do not include climate change adaptation, in both cases, the

state government subsequently published adaptation plans that recommended using demand side

management to respond to more extreme heat events and increased demand (NYS 2010; CNRA 2009).

These publications helped the utilities and other stakeholders recognize demand side management as

an important part of adapting to climate change impacts in addition to reducing GHG emissions. This re-

framing is important, because connecting adaptations strategies with other goals helps build more

widespread support (Wilbanks et al. 2012b).

Re-framing existing efforts, however, is not likely to provide as effective adaptation benefits as

the integration of climate change risk management in program development. Demand side
management for GHG mitigation purposes tends to have less place-based specificity. For example, GHG

reductions from San Francisco are the same as GHG reductions from Fresno for meeting a statewide cap

on emissions. Energy efficiency savings in Buffalo are no different than energy efficiency savings in the

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Bronx when counted towards a statewide Energy Efficiency Resource Standard. However, demand side

management for adaptation purposes may need to be more differentiated based on differential impacts

of climate change across the electricity system and across populations (Franco et al. 2011).

Incorporation of climate change risk management in program development is important because it may

direct investment to places where they are most critical, such as neighborhoods susceptible to urban

heat island affect, or cities with transmission constraints, or regions where air conditioning use is likely

to grow.

Con Ed's and PG&E's reporting of demand side management as adaptation strategies are

currently reframing existing efforts, because climate change risk management is not integrated into the

overall regulatory development and oversight of these programs. Studies sponsored by the California

Energy Commission (CEC) and New York State Energy Research and Development Agency (NYSERDA) are

helping develop research on the impacts of climate change on electricity demand that could help inform

the development of demand side management strategies for adaptation purposes (Auffhammer &

Aroonruegsawat 2011; Hammer et al. 2011a).

Entergy did not report using demand side management as an adaptation strategy. This is not to

say that Entergy has no demand side management programs in place, but they are not considered part

of climate change risk management (Williams Interview 2013). Part of the reason for this perspective is

that the company is focused on managing risks from hurricanes and sea level rise, and demand side

strategies are often considered strategies for extreme heat and peak demand. Nevertheless, more local

and decentralized sources of energy also contribute to resiliency to extreme events (Ebinger & Vergara
2011).

The more important driver of this perspective is that Louisiana does not have in place the

enabling policies for demand side management discussed in the literature review, such as mandates,

incentives, or decoupling. In California and New York, regulators have turned demand side management

into a business opportunity for the utilities, but in Louisiana, the utility business model as structured by

regulation is such that demand side strategies that reduce throughput of electricity are potentially a

threat to profits. Even when equipped with information on climate change risks, it appears that utility

adaptation activities are largely guided by the financial considerations dictated by the regulatory

structure.

Transmission & Distribution

Hardening strategies for transmission & distribution, such as undergrounding wires,

strengthening poles, or elevating substations, featured prominently Con Ed's and Entergy's adaptation

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strategies, whereas hardening played a much more minor role in PG&E's adaptation strategies. Based on

these cases, utilities that are at risk of tropical storms or hurricanes may be more inclined towards

hardening adaptation strategies compared to those whose primary risk is around extreme heat and

precipitation changes. However, as discussed in the literature review, utilities have an incentive to

pursue capital-intensive strategies, because if approved by regulators, it relates directly to their

profitability. It merits further evaluation to better understand if utilities are overlooking behavioral or

policy-based strategies, because of this incentive. Researchers may also want to consider whether there

are more flexible options for places at risk of hurricanes than hardening transmission and distribution.

Supply Side Strategies

The three cases were selected to include both restructured and vertically integrated utilities. I

thought that a vertically integrated, Entergy, utility would help illuminate supply-side adaptation

strategies since they own electricity generation. However, Entergy is focused on transmission &

distribution strategies. PG&E was on the only case pursuing supply side adaptation strategies, namely

adaptation strategies for hydropower and solar investment. PG&E's most developed supply side strategy

is its hydropower adaptation strategy. Again, this is enabled by the fact that PG&E is the sole owner and

operator of this critical piece of California's electricity supply and it has received considerable attention

from policymakers. Also, a PG&E representative said that they are already observing the impacts of

climate change with regard to the snowpack, which is motivating them to act (Sturm Interview 2013).

Information, ownership, and the perception of climate change impacts appear to be important factors

enabling supply side adaptation strategies.

Regulators not using their Full Enabling Potential

As discussed in the literature review, utility regulation has the potential to be the source of

several enabling factors for electric utility adaptation, but the utility commissions have largely been

absent on enabling adaptation in all three cases. One exception is that regulators in the cases have been

working on creating an environmental that enables energy efficiency, demand response, and renewable

energy programs. However, those programs have been driven by a GHG mitigation agenda in California

and New York and a cost savings agenda in the case of the City of New Orleans.

The utility commissions in the three cases have not required that utilities engage in the core risk

management activities of climate change adaptation, such as conducting climate change vulnerability

assessments, developing strategies to reduce their vulnerability or enhance resilience, or engaging with

their customers and stakeholders on these issues. The lack of regulatory guidance regarding adaptation

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has not prevented the case study utilities from pursuing climate change risk management and

adaptation strategies. However, there has been no regulatory oversight of the process and the
commissions have left these issues to the discretion of the utilities. As regulated monopolies, utilities

don't have the threat of competition to spur them to better manage risks. They are primarily motivated

by the incentives set up by the regulatory structure and pressure from their stakeholders. Long-term risk

management is not often seen as contributing to short-term profitability and therefore is at risk of being

sacrificed (NYS 2013).

Several issues from the cases demonstrate that greater regulatory involvement may be

warranted. First, with regards to extreme events with a low probability but high consequences, such as

Hurricane Sandy, Con Ed may not have adequately assessed those risks and done enough to manage

uncertainty. Entergy is focused largely on existing vulnerabilities of sea level rise and hurricanes and not

done as much to assess the risks or prepare for extreme heat, drought, or other changes in

precipitation. PG&E's internal structure and perspective on expertise may not be well suited for

participation in local level adaptation planning, which is a barrier to developing strategies that have co-

benefits with other interconnected infrastructure services. These challenges are probably not unique to

these companies, but rather they are likely challenges faced by utilities across the country in adapting to

climate change. Furthermore, these cases were chosen because they were doing far more than the

average utility on climate change adaptation based on their CDP survey responses. It is likely that many

other utilities lag behind these ones in some of the more fundamental elements of adaptation, such as

conducting a vulnerability assessment and integrating climate change risks into internal risk
management processes and capital planning.

After Hurricane Sandy, the Governor Cuomo initiated the Moreland Commission to study utility

storm response and the role of the New York Public Service Commission (NYS 2013). The commission

found several areas in which the PSC oversight was lacking. While the focus of the Commission was on

utility storm response, the findings on regulatory oversight of investor owned utilities sheds light onto

potential reasons for the lack of regulatory oversight of climate change adaptation, such as a

philosophical shift towards less active regulation, reduction in staff capacity, and ceasing to use audits

and formal orders.

First, since "deregulation" in the 1990s, the philosophy of utility oversight has changed to favor

a less active approach towards regulation and the commission's staff numbers have been in decline (NYS
2013). As a result of the philosophical shift and the staffing capacity reduction, the PSC stopped

performing some of its required functions, such as operational and management audits (NYS 2013).

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These audits have the potential to be an appropriate mechanism for investigating, reviewing, and

bolstering how utilities are planning for climate change impacts in New York, but they have been

completely underutilized. The PSC also stopped issuing as many formal orders and the PSC cannot

impose a penalty if a utility fails to implement a recommendation without a formal order. This has
rendered the PSC a "toothless tiger" (NYS 2013).
An additional challenge is that regulatory authority is fragmented across several state and

federal agencies. In California, for example, the Energy Commission oversees the siting of new energy
facilities, but the Federal Energy Regulatory Commission overseas permitting of hydropower and nuclear

facilities. The Energy Commission oversees resources planning, but relies on projections from the

Independent System Operator. Finally, the Public Utility Commission oversees the investor-owned
utilities' investments and rate of return. Without a legislative mandate to address climate change

adaptation in the electricity sector, it's difficult to imagine that these agencies would adopt a
coordinated approach to address how utilities are adapting to climate change. A high level official from

one of California's state agencies expects that such a mandate may not be too far down the road.

State and Local Adaptation Planning Faces Challenges in Enabling UtilityAdaptation

Local planning processes that provide climate change projections to utilities appear to enable

utility adaptation efforts with relative ease. The utilities in the cases appear eager to have climate

change projections to inform risk management and capital planning. On the other hand, planning

processes that ask the utility to provide information to researchers or planners, such as specific
locations of assets or asset-level vulnerability, appear to be more challenging. The Entergy and PG&E

cases have elucidated that utilities are not always well positioned to participate in these processes due

to staffing assignments, geographic incongruence between planning areas and utility service territories,

and a reluctance to make vulnerabilities public. The utilities appear to be motivated to participate in

local adaptation planning for reputational reasons, but may not be convinced of the value of stakeholder

input in their risk management strategies.

Despite the challenges, there's evidence from the cases these kinds of planning activities

provide value to both the utility and planners. The New York Sea Level Rise Task Force raised awareness
within Con Ed about their stakeholder's interests around coastal zone management. The New York

Climate Action Committee provided Con Ed an opportunity to report out to policymakers and

researchers some of their needs around adaptation. A planner with the Adapting to Rising Tides project

learned that one of the vulnerabilities associated with sea level rise is lack of information. The planner

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learned how private companies that own infrastructure in the coastal zone are not very inclined to share

information about their vulnerabilities.

The Role of Climate-Related Disasters

Entergy has faced several highly destructive hurricanes in the last decade. They have led the

company to have a greater appreciation for how the climate resiliency of the region has important

implications for the company's bottom line. As a result, the company has sponsored research on the

impacts of sea level rise and hurricanes on the region's economy. Nevertheless, the company does not

appear to be grappling with the overall set of long-term climate change risks they are facing. The climate

change skepticism among elected leaders appears to be one of the major factors leading to a focus on

managing hurricane risks rather than a comprehensive approach to climate change risks.

While it is still early, it appears that Hurricane Sandy has opened the window for climate change

adaptation policy-making. For example, Governor Cuomo called for the 2100 Commission to explicitly

recommend ways that the state's infrastructure will need to change in the long-term as a result of

climate change impacts. However, even before Sandy, several climate change adaptation planning

processes had already taken place. While the political and media attention on climate change

adaptation has stepped up a notch after Sandy, these efforts have a significant base of knowledge and a

social capital from which to build upon.

Finally, PG&E is making progress on climate change adaptation without having experienced a

major climate-related disaster. They certainly have had heat waves, droughts, and wildfires, but they

have not resulted in widespread power outages for PG&E. Instead, there driving force for adaptation has

been state policy and research on climate change.

Resiliency and Transformation

Based on these cases, as climate change adaptation is currently being practiced by utilities, it

does not appear to be contributing to transformation of the sector. For example, Entergy and Con Ed are

putting forth hardening strategies as the way to reduce their key vulnerabilities, which further cements

the status quo. It does not appear that the utilities are pursuing resiliency in the form of adjustments to

institutions and organizational form.

With PG&E, adaptation is one step closer towards transformation in that they are pursuing

energy efficiency, demand response, and distributed generation to deal with some of their key

vulnerabilities. The widespread deployment of those measures would require considerable changes to

institutional and organizational form in the electricity sector. However, those efforts originate with the

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California Energy Commission (CEC) recommending adaptation strategies for the electricity sector that

clearly connect with goals in the state to dramatically reduce GHG emissions. The CEC has put forth a

vision of a system that relies on local and decentralized sources of energy and enables consumers to

better manage their energy use to help balance supply and demand as the climate changes. This is an

agency that is making the connection between climate change adaptation and a modernized electricity

sector and is helping achieve that by supporting research on climate change risks and adaptation.

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IX. Recommendations
Given the findings from the survey analysis and case study analysis, this section puts forth

recommendations for the primary stakeholders that have formed the backbone of these stories:

regulators, state and local governments, and utilities. I also provide suggestions for future areas of

research.

For Regulators

Regulators should consider playing a more proactive role in requiring and reviewing utility

climate change adaptation activities. While the CDP survey analysis has limitations, it hints at a potential

lack of awareness and action on adaptation by a large percentage of utilities in the U.S. Utilities may
need the regulatory push to start assessing their vulnerability to climate change risks and developing

adaptation strategies. Based on this study and the literature, regulators may want to require that

utilities submit a climate change vulnerability assessment and a plan for reducing those vulnerabilities.

In addition, the cases have demonstrated that some utilities are moving forward on adaptation

activities without regulatory guidance or oversight, but with an eye towards making the case to
regulators that these investments are prudent. Regulatory guidance could help reduce uncertainty

regarding what types of adaptation-related investments may be approved and what kinds of supporting

analyses are needed. Regulatory guidance also provides the opportunity to ensure that utilities are

assessing their vulnerability to a range of climate change risks, not just the most obvious and near-term

risks. There may be a tendency for utilities to overlook extreme heat and drought, because they have

less material impact on infrastructure than storms and flooding. Regulatory guidance could also help

ensure that utilities are grappling with uncertainty: that they are not just trying to optimize for a

projected future, but rather assessing options under a wide range of future scenarios. Lastly, regulatory

oversight or guidance could help ensure that utilities are not only using technological (i.e. capital

intensive) strategies for managing risks and that they are considering a portfolio of behavioral and policy

strategies as well.

The cases also illustrate that some utilities are starting to develop strategies for getting

regulatory approval of their adaptation-related investments. Regulators should consider developing

their own expertise on the issue so they can effectively evaluate utility capital investment plans that

address climate change risks. Regulators may want to consider what type of information they want

utilities to present with regards to adaptation-related investments. At the same time, regulators have

89
more tools in the toolbox than just evaluating and deciding rate cases. The Moreland Commission

highlighted the opportunity presented by managerial audits that have been underutilized for many years

(NYS 2013). In addition, regulators could use collaborative decision-making processes, such as policy

dialogues, technical sessions, and advisory committees to help utilities and their stakeholders develop

practical agreements on adaptation-related activities.

Regulators should consider improving the coordination between mitigation and adaptation

efforts. PG&E is pursuing several mitigation strategies that also serve adaptive purposes, but they are

driven largely by the mitigation agenda, and it's not clear that they are being evaluated to make sure

they achieve adaptation benefits. One way to achieve greater coordination is for regulators to make

climate change adaptation one of the explicit goals of the process, even when the process has typically

been considered a domain for mitigation, such as resource planning (McAllister 2012).

Further study is needed to understand if utility commissions might benefit from enabling

legislation so that climate change adaptation is a specific part of their statute. While managing long-

term climate change risks benefits public health and welfare, some commissions interpret their statute

narrowly (RAP 2011). Enabling legislation may also give regulators the impetus to coordinate across

various functions and agencies.

The utilities studied in this paper were relatively large utilities with considerable financial

resources. Smaller utilities, especially municipal utilities and cooperatives, may not have access to as

many resources of staff capacity for assessing climate change risks and developing adaptation strategies.

The Environmental Protection Agency has a "Climate Ready Water Utilities" program that provies tools
for water utilities to use in developing risk assessments and adaptation plans. The Department of Energy

or other agencies may want to consider developing a similar program for power utilities.

For State and Local Governments

Cities and states that would like to see greater consideration of climate change risks by their

local electric utilities should consider publishing research on local climate change projections and

potential impacts on the electricity sector. Governments at various scales have an important role to play

in the provision of information about climate change projections and impacts in the electricity sector

(McAllister 2012), but City and State provision of climate change risk information has been especially

effective in enabling adaptation planning in the cases studied. The political influence of having state and
local officials highlight local impacts seems to make a strong impression on utility management. Also,

utilities appear to be very interested in more localized climate change impact information to guide

infrastructure design, which city and state government might be more likely to fund that the federal

90
government. The State of California funding climate change research with funding from the system

benefits charge is model that other states may want to follow to provide a steady financing source for

research.

Given the unique regulatory context in New Orleans, where the City Council Utility Committee has

regulatory authority over Entergy, if the City government makes climate change adaptation a priority, it

would likely have a major influence on Entergy. To date, Entergy's resiliency efforts have been focused

on hardening transmission and distribution outside of the levy system. The City Council could play an

important role in asking the company to assess a greater range of climate change risks and assess a
greater range of adaptation options, such as demand side management. Even a short report that

includes downscaled climate change projections, their potential impacts on the local electricity system,

adaptation options, and potential next steps would likely raise awareness within Entergy that this issue

is important to the City and would raise stakeholder awareness of the issue. I understand that it's

challenging for a City to put limited resources towards long-term risk management when facing

considerable vulnerabilities in current conditions. However, raising awareness of climate change risks

and adaptation options in the electricity sector would dovetail nicely with the work the Utility

Committee is already doing with Entergy on demand side management programs.

Given the challenges in the cases for involving utilities in local adaptation planning, a study of best

practices would be very helpful. The cases brought up several important issues that cannot be answered

in these pages, such as what information should planners expect that private companies will be willing

or legally required to provide regarding vulnerabilities? Do the planners running these processes have

sufficient expertise in electricity issues to facilitate the conversation in a useful direction? Are utilities

being engaged at the right time in the planning process? As more cities engage utilities in local

adaptation planning, the lessons learned from their experienced should be gathered and shared.

For Utilities

Based on the case studies, its apparent that utilities don't need to wait for regulators to start

planning for and adapting to the impacts of climate change. Incorporating climate change risks into

existing risk management processes, conducing a climate change risk assessment, and developing

adaptation strategies are approaches to adaptation that utilities are already pursuing without waiting

for formal orders from regulators. Utilities may also want to consider expanding their risk management
toolkit beyond incorporating climate change projections into infrastructure design. Scenario planning

could help utilities grapple with risks they had not yet considered and develop a portfolio of options that

perform well under a range of future conditions.

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 Utilities should not only consider technological measures, such as hardening or smart grid, but also

soft measures such as changes to their organizational structure or change to policy that would allow for

enhanced risk management. For example, as currently structured, utilities may find participating in local

level adaptation planning challenging. In addition, the literature recommends incentivizing innovation in

risk management, but none of the utilities in the survey and cases reported providing incentives for their

staff to innovate in this area.

For Researchers

The Carbon Disclosure Project may want to consider revising its survey questions on adaptation.

For example, more direct questions about strategies for managing the physical risks of climate change

would be helpful. Upon interviewing a representative from Entergy, I learned that the company had

been engaged in efforts to strengthen their infrastructure to make it more resilient to hurricanes.

However, those efforts were not apparent from their survey, because the respondent focused more on

the company's stakeholder outreach. A government agency may want also consider requiring climate

change adaptation reporting among electric utilities. Mandatory reporting would likely help raise

awareness of the issue among utilities more than a voluntary survey and would make more reliable data

available for research.

Researchers may want to consider evaluating the benefits of non-hardening activities for storm

resiliency. Increased frequency or intensity of storms appears to be one of the major risks facing utilities

and it also appears to be the impetus for a lot of adaptation-related investments, especially hardening of

transmission and distribution. More research on the range of options for dealing with that risk would be
helpful.

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Epilogue
If you hopped in a time machine and traveled twenty years into the future to study an electric
utility sector that has adapted effectively to climate change impacts, what would you find? The utilities

will probably have made strategic investments in strengthening and flood-proofing their infrastructure.

More importantly, they will probably be using demand side management to the fullest extent possible

to reduce the need for large investments in facilities that could be particularly vulnerable to climate

change impacts. As a result, you'll see that cities are less dependent on large power plants and long-
distance, constrained transmission lines. Instead, you'll probably find that electricity supply sources are

more diversified, relying more heavily on local distributed systems such as rooftop solar panels or

combined heat and power generation. You are also likely to find that customers have taken steps to

reduce vulnerabilities on their side of the meter as well. For example, power supplies are not located on

the ground floor in flood-prone areas and buildings have been retrofitted to use less energy, even during
heat waves.

I also imagine that you will find utilities using elaborate Scenario Planning exercises to better

understand their vulnerabilities and assess their adaptation options. These exercises will probably

involved multiple departments inside the utility as well as outside stakeholders, such as power plant

owners and grid operators. Utilities will be monitoring climate change indicators very carefully and

reappraising their adaptation strategies on a regular basis.

Regulators will probably have convened collaborative adaptation planning efforts, inviting a
range of stakeholders, including city officials, customers (especially critical services), environmental

groups, and consumers advocates. Through these collaborative efforts, stakeholders will probably be

more directly involved in the development, monitoring, and evaluation of adaptation options. Indeed,

there is a good chance that, careful consideration of climate change risks has been fully integrated into

all investment planning in the electricity sector, from facility siting to energy efficiency program design.
Electric utilities could be considered key partners in local adaptation planning. Their staffs are

open to discussing how their infrastructure might be vulnerable to climate change impacts and ready to
accept suggestions regarding expanded resiliency efforts. There is likely to be an open dialogue between

electric utilities and other infrastructure providers about the linkages between their systems and
possible strategies for reducing vulnerabilities.

93
 If all this has happened, it is because customers decided that they would rather pay a little more

on their electricity bills than suffer frequent outages and massive losses every time there is a major
storm.

94
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Appendix A. Interviews

Con Ed Case Study

* Adam Freed, Former Deputy Director of Long Term Planning & Sustainability, City of New York
- Susan Waltman, Executive Vice President, Greater New York Hospital Association
* Alison Burke, Vice President, Regulatory and Professional Affairs, Greater New York Hospital
Associaiton
e Dave Westman, Energy Efficiency Manager, Con Ed
e Confidential Interview, Regional Energy Planner
e Confidential Interview, Public Service Commission Staff
* Confidential Interview, Environmental NGO

Entergy Case Study

* Jeff Williams, Director of Climate Consulting, Entergy
* Bradford Case, Hazard Mitigation Administrator, City of New Orleans
- Confidential Interview, Local Government Official
s Forest Bradley-Wright, Energy Policy Specialist, Alliance for Affordable Energy
- Sidney Coffee, Senior Advisor, America's Wetland Foundation

PG&E Case Study

* Xantha Bruso, Principal of Long Term Energy Policy, PG&E
e Laura Tam, Sustainable Policy Development Director, SPUR
e Bruce Riordan, Climate Strategist, Bay Area Joint Policy Committee
e Matthew Sturm, Senior Program Manager of Climate Change, PG&E
e Confidential Interview, Local Government Official
- Confidential Interview, State Government Official

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Appendix B. Coding from CDP Survey Analysis
Sub-Category Code Code Definition Examples
Water Purchasing additional "Projects include being a co-owner of a
procurement water resources reservoir"- Excelon.
"ACE's Solar Financing program is designed
to promote the use of solar energy and
reduce electricity demands on its
Investments in solar distribution system during periods of high
Solar programs energy electricity demand."
"Under the SDG&E solar initiative, 26 MW of
Solar generation Investments in solar utility-owned generation is slated for
construction energy generation construction..."
Building more cooling " Ameren... increased its cooling capabilities
ponds for thermal via the addition of supplemental cooling
generation to address ponds to address thermal issues that
Cooling ponds drought occurred during a period of drought"
Capital Lowering cooling water "We have also been working with the U.S.
investments in Lower pump intakes for thermal Army Corps of Engineers and other agencies
supply intakes power plants to have pump intakes lowered." - AEP
"In an effort to promote maximum value
Hydroelectric and use of existing hydroelectric generation
investments improve or facilities the company is integrating cloud
maintain capacity in the seeding operations and aquifer recharge
Hydroelectric face of climate change while performing turbine upgrades at
investments impacts several plants."
Purchasing new or "The methods Xcel Energy is using to
different supply manage this risk include acquiring resources
Acquire resources resources that use less water,"
"To ensure the reliability of each island grid,
the company plans its electric generation
Greater system with greater levels of redundancy
redundancy in Greater investment in than typical for a mainland, interconnected
generation generation system. " - Hawaiian Electric
"Exelon has invested in a number of projects
related to ensuring adequate water supply
Changes in for its power plants and to identify
supply water efficiency; opportunities to increase water use
operation reduce water use; efficiency, reduce water supply
municipal effluent Reducing water use for vulnerabilities and reduce water supply
for cooling power plant cooling costs."

"Ameren addressed fuel supply disruption

Fuel inventory; Changes in fuel delivery risks via implementation of new fuel
fuel delivery; and inventory to inventory policies and the development of
supply delivery; account for climate- alternative delivery options at many of its
fuel diversity related disruptions facilities."

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 Dredging channels to
increase water flow for "We have been working with the U.S. Army
power plant cooling or Corps of Engineers and other agencies to
Dredge channels fuel delivery dredge channels to improve water flow"
Distribution
Capital
equipment;
investments in
submersible Investment in "The company is purchasing and installing
transmission
transformers; distribution equipment submersible transformers for use in areas
and
investment in that can better handle most susceptible to flooding during
distribution
substations climate change impacts hurricanes and nor'easters " - ConEd
"In 2012, Ameren Illinois created a 10-year
Modernization Action Plan to build a smart
grid and perform thousands of infrastructure
Investments in grid projects to enhance reliability, provide faster
Smart grid modernization service, and improve efficiency."
" PG&E's adaptation strategies for potential
Grid Investments in grid increased electricity demand include...
improvements modernization improvements to our electric grid"
Investments in the "The company has developed a number of
distribution system to initiatives to reduce system vulnerability to
Hardening; better withstand climate outages, including structural and electrical
reinforcement change impacts reinforcement...."-Northeast Utilities
" Over the next five years, Ameren plans to
Investment in the invest over $1.7 billion in transmission
transmissions system to system improvements to ensure that we will
Transmission better withstand climate be able to provide reliable, safe service now
investment change impacts and in the future."
Being able to "The company has developed a number of
automatically restore initiatives to reduce system vulnerability to
System electricity after an outages, including.... system automation and
automation outage real time monitoring." -Northeast Utilities
Installing meters that
record usage more "To manage these risks, PHI has installed
frequently and Advanced Metering Infrastructure (AMI)
Advanced communicate with the technology to improve restoration
metering utility response"
"The company is ... factoring flood levels
Incorporated climate into the design of its new substations."
change impacts into the ConEd
Asset design design of assets
"These vehicles ... could act as distributed
resources for the electric grid when not in
driving use. Con Edison's customers have
more than six million room air conditioners.
Approximately 750,000 PEVs would have to
be on the road in our region to match the
Using electric vehicles as electric demand of those six million room air
EV integration , a distributed resource ,Iconditioners."

104
 " In 2007, Ameren Missouri initiated the
PowerOn program to improve reliability and
Putting distribution environmental performance. Program
equipment, such as highlights have included: undergrounding
Undergrounding wires, underground wiring systems in key areas..."
Increasing visual
inspection of "implement enhanced visual inspections of
Enhanced visual distribution equipment critical system infrastructure in extreme
inspection due to severe weather heat or cold conditions. "- Excelon

Operating Maintaining equipment

pratm so that it can better "This risk is also mitigated by maintaining
practice. withstand climate our infrastructure in good working order." -
change impacts CMS
T&D Maintenance
" The company has developed a number of
Trimming trees to initiatives to reduce system vulnerability to
Vegetation prevent outages, outages, including a significantly enhanced
management; especially given longer vegetation management program..."
tree trimming growing seasons Northeast utilities
"PG&E's adaptation strategies for potential
Using energy efficiency increased electricity demand include
Energy efficiency; to avoid increased load expanded customer energy efficiency and
conservation; on- associated with higher demand response programs and
bill financing; temps or supply issues improvements to our electric grid."
"PG&E's adaptation strategies for potential
Using demand response increased electricity demand include
Demand Side to cope with higher expanded customer energy efficiency and
Management system peaks due to demand response programs and
Demand response higher temps improvements to our electric grid."
"In addition, PHI will soon be able to
provide "dynamic" price signals to
customers through in-home, easy- to-use
Using pricing to help visualization technology. ...Dynamic pricing
enable energy efficiency has important implications for peak demand
Dynamic pricing and demand response reduction..."
"Since 2008, PG&E has maintained a cross-
functional team to explore and
Developing staffing communicate these risks within the
teams or groups to work company. This team has conducted bi-
Changes to on climate change annual reviews of relevant scientific
Staffing Team adaptation literature."
" In 2011, CL&P also announced changes in
Changes in leadership senior leadership, appointing officers to lead
Change in with regard to climate emergency preparedness"- Northeast
leadership change adaptation Utilities
"PG&E is proactively tracking and evaluating
Enaond Tracking climate change the potential impacts of reductions to SN
monitoring Tracking; indicators snowpack on our hydroelectric system."
"AEP has an internal meteorological
department which monitors meteorological
Monitoring weather conditions and potential trends to help us
Weather conditions to for adjust our operations to changes in
monitoring operational purposes precipitation and temperature as needed."

105
 "AEP is committed to evaluating and
Monitoring climate monitoring this risk through several efforts
Monitoring risk change risks and organizations."
"Recent experience of Tropical Storm Irene
and October 2012 snowstorms have led to
Plans for storm changes in storm preparedness and
Storm plan; storm preparedness, response, response processes and procedures."
preparedness and recovery National Grid
Plans for emergency "NSTAR has also developed an Emergency
Internal Emergency preparedness, response, Response Plan (ERP) to address storm
Planning: planning; and recovery events."
emergency "Contingency planning takes place across
preparedness our business. Each department annually
and recovery develops and tests its own business
resumption plan. This enables the
Plans for getting the continuous operation and/or resumption of
Contingency business back up and critical business functions in the event of a
planning; running as soon as major business disruption stemming from
Continuinty possible after a climate change and environmental or
planning disruption weather-related disasters." - SDG&E
Internal Assessment probability "Work is ongoing in the US to assess risk
planning: CC and consequences of drivers and impact on ability to deliver
risk, Risk assessment climate change risks energy." - National Grid
assessment Assessing the costs of " Entergy is carefully studying this issue to
adaptation Adaptation costs adaptation measure for better understand the adaptation costs it is
strategy assessment planning purposes facing today and in the decades to come.
Water supply Planning water supply " ...Involvement in water use studies and
planning resources water supply planning." -Excelon
Internal "Meeting peak summer demand is an
planning: integral part of network management and
resource planning. NU electric operating companies
planning produce annual integrated resource plans
Resource Planning for energy which anticipate and meet forecasted
planning resources demands." Northeast Utilities

Participated in planning " PG&E is participating in the Adapting to

Participated in processes with outside Rising Tides project, community planning for
External planning process; stakeholders sea level rise."
Planning "The company participates in/funds research
Activities in adaptation responses and works
Participated in planning collaboratively with stakeholders and
Stakeholder processes with outside effected communities in developing these
engagement stakeholders responses."
Public education
Customer activities that increase "Worked with local communities in N. CA to
Education awareness of climate increase awareness of decreasing water
Increasing change impacts and flows so that they can explore local
awareness adaptation issues adaptation measures"

106
 " SDG&E has filed a request with the CPUC
for a new mechanism for the future
Regulatory Recovering the costs of recovery of all wildfire- related expenses for
advocacy responding to climate claims, litigation expenses and insurance
Revenue change impacts through premiums in excess of amounts authorized
recovery; rates by the CPUC for recovery in rates."
" Examples include improved building codes,
wetland restoration and stronger levee
systems. The Gulf Coast study has identified
Other policy Building codes; Advocacy for policies $49 billion in investments over the next 20
advocacy wetlands that would help the years that will cost-effectively avert $137
restoration; electricity sector adapt billion in losses over the lifetime of the
levees to climate change measures."
"PG&E has taken several steps to help
identify and adapt to the impacts of climate
change on our hydroelectric system. Some
of these include the following: ... presented
and published several scientific papers on
our research and investigations into how
climate change is impacting the N. SN and S.
Research Research; Publishing research on Cascade watersheds that supply our
investigation climate change impacts hydroelectric system." - PG&E

"AEP funds climate change research within

the Electric Power Research Institute (EPRI)
and the Massachusetts Institute of
Funding research on Technology (MIT) Joint Program on the
Funded research climate change impacts Science and Policy of Global Change."-AEP
"In addition, during 2011 CenterPoint Energy
Purchasing insurance to took steps to mitigate potential risks posed
enhance recovery from by wildfires (e.g., ... procurement of
Sharing risk Insurance climate change impacts insurance specific to wildfires)."

107
 Appendix C. CDP Survey Analysis, Count of Adaptation Measures by Utility

Transmission &
________________________________ Supply Distribution Internal CapacityBuilding Planning Acitivites _ ____Education, Advoacy,Research__________
Internal I
DemandSide planning:
Operating Management emergency ;Internal !Internal
Capital Operating Capital practice preparedne 1planning: !planning: Funding/
investments changesin investments changesin Changes in Enhanced ss and rNsk, resource External Customer Regulatory Other policy participating Additional N of
Utilities in supply supply in T&O T&D Staffing monitoring recovery adaptation iplanning planning education advocacy advocacy in research insurance measures
Consolidated Edison 6 1 ____ ____ 13 __________ 1

Amneren(Ameren Illinois, Ameren Missouri) 1 1 4 1 1 ____ 1 1 ____ 1_____ U

DlepoGas &Electric)
Semnpra(San 1 1 3 ___ 1___ __ 1 2 1le___ 3

Northeast Utilities 4 1, 2 1 1 _________ ___ 9

Pacific Gas&Electric 1 2 _____ 1 1 1 1 1 1 _____9
Entergy ________________2 1 1 1 3 1 ____ 9
Pepco(Potomac Electric PowerCompany,Delmarva
Power and Light Company,Altanic City Electric
Company) 1 41_ _ _11

(ConsumersEnergy)
CMVS 1 1 2 2 ___________ 2 1____

Excelon (Commonwealth Edisonand PECO) 1 2 ____ ____ 1 1 1 1 1____ 7

AEP 11 1 __ _1 2 1 __ _

1, 1 ____ 1 1 _____4
NSTAR _________

Xcel 1 2 ___ 1 __ _4

Hawaiian Electric 1 1____ 11 1 3

CenterPoint _______________ 1 1 ____ 1 3

Idacorp 21 ____ ________ ________ 3

National Grid ____ ____ ____1 1____ __ _ ___ 2

Pinnacle West (ArizonaPublicServiceCompany) _____ ____ ___________________ 2 ____ ____ 2

Wiaconain Energy _____ 1 ________ ________ 1________ 1

Edison: none reported ___________________________________0

____ ____ ____ ____ ____ ____ 0____

CH Energy: none reported
____ ____ ____ ____ ____ ____ ____ ____ 0____
DT'E: none fit adaptation ____

Duke: none listed ___________________________________________________ 0

________ ________ _____________ 0________

Southern Company: none listed
Dominion: none fit adaptation

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