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Public Power Mutual Aid Crews Deploy In Advance Of Hurricane Ida

August 30, 2021

by Paul Ciampoli
APPA News Director
August 30, 2021

Public power utility crews from nine states deployed to Louisiana in the days leading up to the arrival of Hurricane Ida, which made landfall in Louisiana on Sunday, August 29 as a category 4 hurricane resulting in widespread power outages in the state.

According to Poweroutage.us, Louisiana had just over one million customers without power as of the morning of Monday, Aug. 30. Ida knocked out power to New Orleans. The city reported on Aug. 29 that all eight transmission lines that deliver power into the New Orleans area were currently out of service. When this occurred, it caused a load imbalance in the area and resulted in generation in the area coming offline. The city is served by investor-owned utility Entergy.

Public power utilities deployed 65 crews and 300 personnel to Louisiana from the following states:

Public Power Crews Deployed Prior To Ida’s Arrival

On Friday, Aug. 27, utility electric line crews from Missouri public power communities started preparations to leave for Louisiana. Organized by the Missouri Public Utility Alliance (MPUA), lineworker crews from Missouri cities were traveling to Alexandria, La., to be ready for power restoration after the storm passes. Preparedness coordinators for the City of Alexandria issued a call on Thursday to MPUA for mutual aid assistance, and the crews departed for Louisiana the morning of Saturday, August 28.

The combined response of 32 lineworkers involves crews from the seven Missouri cities of Carthage, Higginsville, Independence, Lebanon, Nixa, Palmyra, and Poplar Bluff.

The workers will stage in Alexandria, La., equipped with eight bucket trucks, four digger/derrick trucks, and 11 other utility vehicles and machines, ready to restore power to Alexandria’s municipal utility after the storm passes.

Mutual aid crews from Missouri public power utilities assisted Alexandria and other area utilities twice in storm recoveries last year, repairing damage caused by Hurricane Laura (August 2020) and Hurricane Delta (October 2020).

Missouri’s utility mutual aid response is coordinated through MPUA’s mutual aid network. Assisting cities are reimbursed by the municipal utilities receiving assistance.

MPUA’s mutual aid network is part of a national public power mutual aid network coordinated by the American Public Power Association (APPA).

Meanwhile, a crew from Oklahoma’s Grand River Dam Authority (GRDA) headed to Lafayette, La., to help repair any damage Ida may cause to that city’s electric system.

The GRDA crew of 20 volunteers, including powerline maintenance and vegetation management personnel, mechanics and law enforcement, left Pryor at 6 a.m. Saturday morning to make the nearly 600-mile drive to the Lafayette area. The crew planned to be staged on Sunday and ready to move in for any possible repair work as soon as Ida passes through the area.

The trip is a familiar one, as GRDA also provided aid to Lafayette Utilities Systems (LUS) in October 2020, after Hurricane Delta made landfall, GRDA noted.

Along with Hurricane Delta and now Ida, GRDA has also helped restore power and provide water rescue assistance following Hurricanes Rita, Irma, Matthew, and Harvey. Over the years, GRDA personnel have responded to Florida, North Carolina, Louisiana, and Texas to offer that aid.

GRDA is lending a hand in Louisiana as part of the nationwide APPA mutual aid effort.

South Carolina’s Santee Cooper also sent crews to help LUS. Santee Cooper, the state-owned public power utility, sent two crews to Louisiana.

From neighboring North Carolina, the following public power communities sent crews to help LUS: Greeneville, Wilson, Statesville, High Point, Tarboro and Wake Forest.

Florida Public Power Utilities Deploy

On Aug. 27, the Florida Municipal Electric Association (FMEA) said that it had assembled public power crews from across the state to aid with power restoration efforts in Louisiana following Ida.

FMEA, the mutual aid coordinator for Florida’s 33 public power utilities, said that nearly 85 personnel from seven Florida public power utilities would arrive in Louisiana through Monday to assist affected communities.

Mutual aid crews from the City of Tallahassee deployed Saturday to arrive in Lafayette, Louisiana, Sunday morning before the storm to assist LUS.

Additional mutual assistance line crews and other field personnel from JEA in Jacksonville, Orlando Utilities Commission (OUC), Kissimmee Utility Authority and Lakeland Electric were set to arrive in Lafayette on Monday to restore power.

Meanwhile, the City of New Smyrna Beach, Fla., and Fort Pierce Utilities Authority are sending mutual aid crews to assist utilities personnel in the City of Plaquemine, Louisiana. The Florida public power utility teams were set to deploy on Sunday to arrive in Plaquemine Monday to begin restoring power once the storm passes.

“Yesterday was Florida Lineworker Appreciation Day and we couldn’t be more thankful for the public power lineworkers and crew members who leave behind the comforts of home and their own families to help restore power in other communities that are impacted by such major natural disasters,” said Amy Zubaly, FMEA Executive Director. “Florida has many times been the recipient of mutual aid assistance when we have faced down hurricanes and other severe storms. It is always a great honor to return the favor.”

Lincoln Electric System

Nebraska-based Lincoln Electric System (LES) deployed staff and vehicles to help utilities in Louisiana with anticipated power restoration efforts due to Hurricane Ida.

Three crews comprised of 14 LES employees were sent to Lafayette, La. LES crews deployed as the sun rose on Saturday morning, Aug. 28, and were expected to arrive in Lafayette Sunday.

Georgia Public Power Utilities Also Send Crews

Crews from the following public power communities in Georgia have also been deployed to various communities in Louisiana to assist with Ida restoration efforts:

Crews From Kentucky, Tennessee Deployed To Help LUS

Crews from Kentucky public power utility Paducah Power System and the City of Paris, Tenn., and Greeneville, Tenn., also deployed to assist LUS with recovery efforts.

LUS Helps Customers Prepare For Ida

Prior to Ida’s arrival, LUS took a number of steps to help its customers prepare.

For example, the utility leveraged social media to provide customers with telephone numbers to call should they experience power outages or experience any water/wastewater issues or to report downed power lines.

LUS also provided a link to its hurricane handbook, which provides information for customers to refer to before, during, and after a storm.

LUS also utilized its social media channels to say thanks to all of the public crews that arrived in advance of Ida to assist with restoration efforts.

APPA Resources

Along with its role as a mutual aid coordinator during events such as Ida, APPA also provides a number of disaster planning and response resources including a Restoration Best Practices Guidebook and All-Hazards Guidebook.

Additional details is available here.

Tracey LeBeau Named Administrator And CEO Of Western Area Power Administration

August 27, 2021

by Paul Ciampoli
APPA News Director
August 27, 2021

U.S. Secretary of Energy Jennifer Granholm on Aug. 26 announced Tracey LeBeau as Administrator and CEO of Western Area Power Administration (WAPA).

LeBeau has served as Acting Administrator since March and has been a member of the WAPA senior executive team for more than seven years, leading operational and administrative enterprise and regional functions. LeBeau’s appointment is effective August 29, 2021. 

LeBeau has more than 20 years of executive experience in management, clean energy and infrastructure development, public-private partnerships, utility business operations, and federal program leadership and policy.

LeBeau joined WAPA in 2014 as the organization’s Transmission Infrastructure Program manager where she oversaw the operations and management of WAPA’s $3.25 billion borrowing authority to support and finance critical infrastructure in WAPA’s territory. 

LeBeau will be the first woman and, as a member of the Cheyenne River Sioux Tribe, the first Native American to lead the organization. 

In this role, LeBeau is responsible for managing DOE’s largest power marketing administration, which markets an average of 25,000 gigawatt-hours of carbon-free hydropower from 57 hydroelectric dams across a 15-state footprint.

WAPA also owns, operates, and maintains a more than 17,000 circuit-mile, high-voltage transmission system that delivers hydropower and other sources of energy to cities and towns, rural electric cooperatives, irrigation districts, Native American tribes, and federal and state agencies, among others. 

Government, Power Sector Have Made Major Strides Tied To Infrastructure Cybersecurity Initiative

August 27, 2021

by Paul Ciampoli
APPA News Director
August 27, 2021

Key federal government agencies and the electricity industry have made significant strides in support of White House goals   aimed at boosting the cybersecurity of critical infrastructure in the U.S., the Department of Energy (DOE) recently reported.

In April 2021, the Biden Administration launched an Industrial Control Systems (ICS) Cybersecurity Initiative to meet its goal of strengthening the cybersecurity of the critical infrastructure across the country.

The initiative was kicked off with a 100-day action plan for the U.S. electricity subsector led by the DOE’s Office of Cybersecurity, Energy Security, and Emergency Response (CESER) in close coordination with the U.S. Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA), and the Electricity Subsector Coordinating Council (ESCC).

On July 28, 2021, President Biden further emphasized the importance of this initiative and broader cybersecurity efforts through his National Security Memorandum on Improving Cybersecurity for Critical Infrastructure Control Systems.

The electricity subsector action plan is the first in a series of sector-by-sector efforts to protect the country’s critical infrastructure from cyber threats and leverages the important public-private partnerships established by Sector Risk Management Agencies, such as DOE for the energy sector, and CISA, DOE said.

Since the launch, CESER, CISA, and the electricity industry have made significant strides in support of the initiative, DOE said.

At least 150 electric utilities have adopted or committed to adopting technologies to further improve the security of the operational technologies (OT) and ICS that manage the nation’s electric systems, by enhancing the visibility, detection, and monitoring of these critical networks. The American Public Power Association (APPA) continues to reach out to members regarding participation in the initiative.   

DOE said that in furtherance of the initiative, control system cybersecurity experts at CESER, CISA, and the National Security Agency’s Cyber Directorate developed a set of ICS monitoring technology evaluation considerations for reference by the electricity subsector. These evaluation considerations, as recently updated, can be found here.

In addition to accelerating the deployment of OT/ICS cyber monitoring technologies, the initiative has also sparked a range of activities in the electricity subsector like incentivizing cybersecurity investments and discussing the value of cyber insurance, according to DOE.

DOE said that it is committed to continue working with the ESCC in support of this initiative and broader cybersecurity efforts.

DOE is also providing technical and analytical support to some of the smaller utilities in the U.S., municipal and rural cooperative electric utilities, through collaborations with APPA and the National Rural Electric Cooperative Association. “These collaborations will provide financial support to ensure that those utilities can deploy OT/ICS monitoring capabilities, perform risk assessments and architectural reviews, and provide training to utility workers using the technologies,” DOE said.

Meanwhile, DOE also recently issued an updated version of the Cybersecurity Capability Maturity Model (C2M2) to help utilities assess and improve the cybersecurity of their information and operational technology systems. DOE is encouraging all electric utilities to leverage C2M2 to assess the cybersecurity posture of their organizations to help make informed cybersecurity investment decisions.

Salt River Project To Expand Gas-Fired Plant to Integrate More Renewables, Boost Reliability

August 25, 2021

APPA News
August 25, 2021

Arizona public power utility Salt River Project (SRP) is seeking board approval to expand its Coolidge Generating Station, a quick-start natural gas power plant located in Arizona’s Southeast Valley.

The expansion will help SRP integrate more renewable energy resources into the power grid and allow SRP to provide reliable power to its rapidly growing customer base during times of peak electricity demand, including some of the hottest days in Arizona’s summer season, it noted in an Aug. 24 news release.

The Phoenix metropolitan area is experiencing population growth more than three times the national average and SRP is projecting significantly increased, near-term residential and commercial energy needs. This demand is rising especially as large industrial customers develop new and existing local operations.

If approved by the SRP Board, the expansion of the Coolidge Generating Station would add 820 megawatts (MW) of capacity produced by 16 natural gas turbines capable of ramping up to full production within 10 minutes.

“With the West facing power capacity constraints and lacking available power generation during peak energy usage periods, the proposed expansion of Coolidge Generating Station will help SRP reliably and safely serve energy at times of highest demand,” SRP said.

plant
SRP’s Coolidge Power Plant (Photo courtesy of SRP)

It will also steadily facilitate the addition of more renewable energy resources like solar and wind which can produce intermittent and varying power output. Added natural gas turbines will provide SRP customers quick-start, dependable energy that is available when renewable resources have fluctuations in output or are not producing power, and when battery systems are charging.

Because the proposed new gas turbines at Coolidge Generating Station can start quickly and will run in times of peak demand or when there is reduced renewable output, the added natural gas generation would not impact SRP’s ability to meet its sustainability goals, the utility noted.

SRP has committed to reducing carbon intensity by more than 65 percent in 2035 and by 90 percent in 2050 from 2005 levels. SRP’s sustainability commitments also include an increased pledge to add 2,025 MW of utility-scale solar energy by 2025. In addition, SRP plans to add 1,600 megawatt-hours of battery storage by 2023.

Rebates From Anaheim Public Utilities Help School District With EV Charging Infrastructure

August 25, 2021

by Paul Ciampoli
APPA News Director
August 25, 2021

The Anaheim Elementary School District in California recently dedicated four new electric school buses along with 14 electric vehicle (EV) chargers at its district office. Four additional buses are expected to arrive later this year.

The buses and a portion of the chargers were funded through a grant from the California Energy Commission and rebates from Anaheim Public Utilities assisted with EV charging infrastructure.

Replacing diesel buses with electric buses is an important goal for the school district, which serves 18,000 students, due to its many benefits – slashing gas emissions by up to 54,000 pounds per bus a year, significantly improving air quality inside and outside of the bus, and reducing operation and maintenance costs by 60%.

ev
Photo courtesy of Anaheim Public Utilities

The dedication event, which took place in July, was hosted by the school district and included school board trustees, city officials, and state agencies.

Electric buses are part of a larger partnership with Anaheim Public Utilities. Two campuses have solar shade parking structures that provides renewable energy to the local grid. The school district has expressed interest in pursuing additional solar projects.

To learn more about public power utilities and bus electrification, click here.

Special Series: Potential Alternatives To Managing Insurance Risks – Part Three

August 25, 2021

by Tonya DeRivi
APPA News
August 25, 2021

Historically we have seen the insurance market cycle from either being competitive with few utilities seeing coverage problems, or “tight” as we explained earlier and see now. The American Public Power Association concludes our three-part insurance risk series by exploring ways in which public power utilities have sought, or could seek, alternatives to the increasingly limited availability and expense associated with traditional individualized commercial insurance options.  

One model that has been successfully used is “pooling” insurance coverage across multiple entities. This is common practice across state and local governmental entities – but it necessarily covers a broader spectrum of services, from police and fire to libraries and public utilities, and therefore may not offer industry-specific coverage that high-risk enterprises may need. Fortunately, this model can also be tailored to a specific industry – provided there is the capital available and know-how to do so.

Nearly four decades ago, some public power utilities in the Tennessee Valley found themselves in an untenable position: some had no options to buy liability insurance – at any price, according to Anthony Salvatore, an area senior vice president with Gallagher.

The Tennessee Valley Public Power Association (TVPPA) – a regional organization representing public power utilities within the Tennessee Valley Authority’s (TVA) multi-state service area – set out to fix that problem. They formed Distributors Insurance Company (DIC) in 1983 with a small amount of start-up cash and a $1 million letter of credit backed by TVA. Its goal was to make coverage available to all TVPPA members, tailor coverage to exposures unique to public power utilities, and to do so at competitive pricing. In the beginning, DIC had three member accounts with approximately $200,000 in total premium. Their portfolio has grown astronomically since: DIC now has 80 accounts with approximately $40 million in assets and $26 million in surplus. They spend a large amount on safety and loss control efforts, mission-critical endeavors specifically designed to help participating members.

Today’s insurance market issues – especially given what is happening in California – are not easily solved. “California is an incredibly difficult state for insurance companies; it’s not easy to do business in, it’s expensive, and there are problems there that the insurance industry simply cannot fix. These are issues that the state needs to address,” Salvatore said. “The wildfire situation has spooked the entire insurance industry to the point where liability and property insurance capacity has almost entirely dried up. We’ve even seen some of this reactivity from the Western states spread to our area here in the Southeast” he noted. “The market overall is very tight and has been tightening for many years. Then the pandemic pushed everyone over the edge.”

Indeed, one California-based public power utility saw their general liability rate increase 111% with their 2021 policy renewal, further indicative of how wildfire exposure is driving liability coverage and pricing. The insurance carrier has already said they will not offer a renewal in 2022. This utility also saw its total premiums for all lines of coverage nearly double over the last three years, with increasingly restrictive coverages. One of their insurance carriers has already said they may not offer a property insurance renewal in 2022.

What, then, could public power utilities do in this hardening insurance market?

We spoke with Washington, D.C.-based Arnold & Porter lawyers Charles Landgraf and Paul Howard to explore options. Together they have nearly 60 years of pertinent energy and insurance policy experience. 

The “pooling” model described above has worked for decades. Forming a model like DIC or the Public Utility Mutual Insurance Company (now a risk retention group) or Aegis (which provides liability and property coverage to mainly investor-owned utilities in the energy industry) would first require conducting a feasibility study, according to Landgraf.

Actuaries would conduct an actuarial study to explore allocations, lawyers would be needed to identify and work through issues, it would have to identify who could serve in the captive manager function – whether for one state, multiple states in a region, or nationally – and then work with brokers and deliver the necessary capital. The more narrowly it is applied, the easier the issues are to work through. Landgraf also noted that while a study exploring only one state’s regulatory law and liability systems would be easier, that also reduces the spread of risk and therefore limits the competitive pricing advantages of the pooling model.

Howard added that the federal Risk Retention Act is relevant because it allows a group captive manager to go national; an entity could be formed in one state to sell insurance to local public power utilities, for example, and then sell or “front” to public power utilities in other states without the added burden of becoming licensed in each state. This offers a nice tool as a multi-state solution – but is limited only to liability lines of business.

They estimated that such a study may cost anywhere from the low six-figures, for a limited regional approach, or high six-figures for a national feasibility study.

Landgraf and Howard suggested there may be intermediate steps public power utilities could take too.

“If this became an acute enough problem for state governments in the West, for example, you could in theory work to develop a multi-state compact,” Howard said. Community-owned utilities may carry a much more sympathetic message to relevant state leaders – namely, their governors and insurance commissioners – seeking regulatory relief through a mini risk retention policy model. Politically like-minded state leaders could work together to reach a mutual agreement allowing public power utilities to pool their capacity for self-insurance and to leverage access to global reinsurance. Landgraf explained that having the backing of state leaders through an interstate agreement to simplify and streamline regulations could, for example, allow a single entity to be domiciled and licensed in one state and serve the other states too.

“This may be something the Pacific Rim states could explore” given their like-minded politics and prior efforts by state leaders to work through climate change policies together, Landgraf said. Similarly, other like-minded states in a region could explore such interstate agreements to help their public power utilities navigate this increasingly difficult insurance market.

Landgraf noted that the insurance industry itself may be inclined to explore such efforts. “They are acutely aware of the different regional impacts climate change is having,” he said. The situation may be acute enough now that a mutual effort to work through region-specific solutions is primed. There is credibility on all sides: the insurance companies would want to help public power utilities create an insurance solution they could support, provided that the states work through existing regulatory problems, like multi-state licensing rules and to simplify regulatory hurdles; state leaders have seen first-hand the resulting damages of a changing climate and that more needs to be done to incentivize preventive measures within their own and nearby states; and publicly-owned utilities need affordable insurance solutions.

Another challenge with seeking multi-state relief is political. One must also consider that agreement across states in this arena involves elected governors and elected or appointed insurance commissioners, Howard added.    

The American Public Power Association is the voice of not-for-profit, community-owned utilities that power 2,000 towns and cities nationwide.  We celebrate our members that strengthen their communities by providing superior service, engaging citizens, and instilling pride in community-owned power.

Special Series: How Utilities Are Addressing Rising Risks And Insurance Premiums – Part Two

August 24, 2021

by Peter Maloney
and Tonya DeRivi
APPA News
August 24, 2021

Per member requests, the American Public Power Association presents this in-depth Public Power Current newsletter series on managing insurance risks. Thank you to the utility systems and industry experts for their contributions about what is happening in the insurance market that is affecting policy coverage and prices (Part 1); types of “best practices” utilities can utilize to minimize their exposure (Part 2); and what potential alternatives may be available to help in a challenging insurance market (Part 3). 

Yesterday we detailed how risks to utility operations are rising and, with them, the cost of insurance.

Several utilities are grappling with this problem, particularly in areas that have recently suffered through disasters.

“Insurance rates have gone up and it’s not just wildfires; everything seems to be elevated,” Russell Mills, director of risk management and treasurer at California’s Sacramento Municipal Utility District (SMUD), said.

Historically, SMUD has not made any wildfire claims, but the utility does have some assets in wildfire areas and, more broadly, operates in a region where wildfires are prevalent, and that proximity can affect perceptions of the risks SMUD faces.

In April 2019, Moody’s Investors Service revised its ratings outlook on SMUD’s outstanding revenue bonds to negative from stable to reflect the more challenging operating environment in California resulting from the impact of wildfires. Moody’s revised its rating on SMUD in May 2020, returning the public power utility’s outlook to stable.

The risks were addressed, but the lesson was clear. The risk environment is changing, and it is best to stay ahead of the problem. In returning the outlook to stable, Moody’s cited SMUD’s “comprehensive actions to shield itself from wildfire risk.”

Mills at SMUD said he is seeing premium increases “across the board.” To address that challenge, he said SMUD tries to differentiate its risk profile from that of other utilities when it makes its annual presentation to underwriters and brokers when it comes time to renew its insurance coverages.

In those meetings, SMUD is able to highlight the steps it has taken with its Upper American River project, a series of 11 dams and eight power houses in a high wildfire risk area on the slopes of the Sierra Nevada Mountains. There, SMUD has focused on vegetation management efforts, undergrounding wires, and hardening assets.

When it returned the utility to a stable outlook, Moody’s cited SMUD’s actions and the utility’s “multi-pronged approach” that included “a sizeable insurance policy and strengthening liquidity.”

Increasing insurance coverage is not the only tool in SMUD’s kit, though. The utility takes proactive steps by conducting probable maximum loss (PML) studies to better understand its risk exposures. SMUD also has been hardening its balance sheet as a precaution against possible disasters.

In 2015-16, SMUD had about $100 million in excess liability wildfire insurance coverage. Over a span of three years, the utility raised its coverage to $300 million and then trimmed it back down to about $250 million.

SMUD also bolstered its commercial paper program by 30 percent to $400 million, raised its operating cash on hand by one month, and is paying down debt to have the capacity to issue bonds if the need arises.

“All three work together – insurance, ratings, and reserves,” Mills said. “It shows our intent and wherewithal.” It also sends a message to the underwriter that the brunt of any liability is not solely on them, he said.

Overall, Mills recommends utilities prepare themselves against natural disasters by taking on mitigation projects, such as grid hardening or undergrounding, that can provide a utility with data they can present to underwriters. For cyber security threats, he recommends utilities take similar steps, such as following the North American Electric Reliability Corp.’s Critical Infrastructure Protection (CIP) standards and conducting in-house training programs and be prepared to show that the procedures are being followed.

So far, Mills said, no insurance company has turned them down or refused to renew a policy. SMUD also has been able to negotiate cuts in proposed premium increases for fire coverage on the order of 10 percentage points.

“At the end of the day, insurance is a means of transferring risk,” Mills said. “You have to own the risk, show that ‘we are part of this.’”

The Northern California Power Agency (NCPA) has worked with their new property insurer to identify further ways the joint action agency could prevent losses and manage their insurance risk exposure, according to Monty Hanks, chief financial officer and assistant general manager of administrative services.

“As many utilities across the nation have experienced, NCPA was faced with a continuation of a hardening property insurance market. Last year was the most challenging one due to some underwriters quoting our program at the last minute,” he said, which left NCPA with little time or negotiating room for better terms or lower premiums. “Despite this, we made a commitment to our members to hit the ‘reset’ button in our approach to procuring property insurance for our facilities,” Hanks said.

NCPA contacted new property insurance market players with expertise in the power generation sector – including FM Global, which insures more than a third of the Fortune 1000 companies. Hanks said that NCPA had traditionally marketed their program about three months prior to the policy’s expiration, but FM Global had never quoted it. “I never understood why – they are a huge player.”

Hanks learned that three months was not enough time for FM Global to perform their own due diligence. 

He found that the company’s engineering-first philosophy and approach, which helps clients become more resilient against natural disasters, matched NCPA’s core principles. 

“We engaged FM Global in early 2021 to build a plan, and that started with scheduling loss control visits,” he explained. “We learned very quickly that they were not like other property insurance companies. They were guided by the belief that most losses can be prevented, and they will dig deep to understand your business needs to help you reduce your risk,” Hanks said. Indeed, the company has its own research campus where they have studied floods, wind, fire, hail, explosions, etc. that provides them with the data spec sheets to help validate and support their engineering recommendations.

Because NCPA’s members are dependent upon power plants running to provide stable, cost-effective resources, their resiliency is critical.     

calif
Photo courtesy of NCPA

“One of FM Global’s recommendations was to improve our wildland fire vegetation management around our geothermal plant,” Hanks said. The plant is in a relatively high fire risk area, and although NCPA had always taken a proactive approach to vegetation management, “their studies indicated that we should do more, and recommended we create a clearance zone around the plant that maintains forested areas 330 feet away from plant buildings, especially the cooling towers.” Hanks said.

NCPA agreed and implemented the recommendation. “Now, NCPA feels like we have found a partner in the property insurance business. Working with FM Global to evaluate risk and complete recommended improvements will help us increase the resiliency of our plants against natural disasters – the work that we’ve done as a result will ultimately help us better manage our risks and control operational and maintenance costs,” Hanks said. 

calif
Photo courtesy of NCPA

Midwest Flooding

In the middle of the country, Nebraska’s Omaha Public Power District (OPPD) is facing similar challenges, though from a different type of natural disaster. In Nebraska, flooding is more of a concern than wildfires, but the effects can be just as devastating.

OPPD filed a claim as a result of the severe flooding that hit Nebraska in 2019. Researchers at the University of Iowa have linked such flood events to warmer weather, particularly higher temperatures in the Gulf of Mexico, a phenomena they say triggers “The Midwest Water Hose.”

For many utilities, rising flood waters have also meant rising premiums. For OPPD, that challenge is made even more difficult because they have coal-fired assets in their generation portfolio.

 Insurance coverage for new coal projects is already difficult to find in Europe, but it is a trend that is becoming more widespread and could become prevalent in America in the coming years, Daniel Laskowsky, director of risk management at OPPD, said.

In 2019, Chubb, a major insurer in the U.S., said it would no longer underwrite the construction and operation of new coal-fired plants or companies that generate more than 30 percent of their revenues from coal generation or mining. By one count, 19 major insurance companies now refuse or restrict their coverage of new coal projects.

“We are doing all we can” in the face of rising threats from natural disasters and increasing premiums, Laskowsky said. The insurance environment is “very challenging.” In the renewal process, OPPD has seen “some very large increases, double digit increases,” he said.

The district’s approach to rising insurance rates includes having a solid understanding of the utility’s risk tolerance, using market competition to his favor, and working with underwriters and brokers as partners where he can.

“Understanding your organization’s risk tolerance” is critical, Laskowsky said. “Internally you need to know how much risk you can take.” The usual way to do that is to look at historical risks. The challenge is predicting the future. That is something OPPD is trying to better understand. “It is not a perfect science,” Laskowsky said.

Laskowsky also recommends shopping around to compare insurance coverages and rates. “Competition is good,” he said. “It may not be something you do every year because you don’t want to burn the market,” he said, but if you can find a lower rate, “you have to be willing to fight for it” and “you have to be willing to commit” when that time comes in the negotiating process.

Laskowsky also says OPPD tries to form strong partnerships with its insurance underwriters and brokers. A utility should lean on its insurance brokers and use them as a resource because they have a broader view of the market and know what the rest of the industry is doing, he said. “We know them, and it helps when it comes to negotiations.”

In addition, Laskowsky said the district works with insurance underwriters that are structured as mutual companies that cater to the public power and energy sector. There is more of a partnership approach to doing business and, if a utility participates in the governance process as a member of the organization, “you can have some say in the insurance company’s processes,” he said.

Those are all considerations that public power utilities should consider when shopping for insurance or when they are engaged in coverage renewal process, Weber said. Insurance still remains the top method of risk transference, he said, and most public power utilities buy insurance for at least one line of coverage, but every utility differs in terms of size, location, assets and services offered.

Weber advised that insurance programs should be structured differently to provide proper coverage for a given utility’s risk exposures. A utility with generation assets is much different than a transmission and distribution utility, he said. “It’s not a one size fits all approach.”

Weber also noted that there are a handful of insurers that specialize in the public power space for American Public Power Association members. “Therefore, each insurance carrier has a pretty good idea of the exposures and landscape of the public power sector.” He recommended that members “should make sure their trading partners are financially stable and know what coverages they are getting from their insurance provider.”

Utilities can “differentiate themselves in the market by providing thorough underwriting data and starting the renewal process well in advance,” Weber said. “Underwriters are requiring more data than ever before, and it is important for each utility to be ready to answer and have prepared the underwriting data that might be requested.”

“We recommend also getting to know your underwriter and building the relationship,” Weber said. “At the end of the day, it is a relationship business.”

In Part 3, tomorrow, we will explore ways in which public power utilities have sought, or could seek, alternatives to traditional individualized commercial insurance options.

Ann Arbor, Mich., Council Member To Make Proposal Related To Public Power Feasibility Study
August 24, 2021

August 24, 2021

by Paul Ciampoli
APPA News Director
August 24, 2021

Ann Arbor, Mich., Council Member Elizabeth Nelson plans to introduce a resolution at an upcoming city council meeting that will ask the Ann Arbor Energy Commission to consider and vote on the question of a public power feasibility study for the city.

“The recent multi-day power outage has prompted a lot of conversation in our community about improving the reliability of our electricity and the city’s relationship with DTE, specifically,” wrote Nelson in a recent blog posted on her website.

“For some time now, many local leaders have advocated for a public municipal power utility, similar to what already exists in over forty municipalities in Michigan. Arguments in favor of a public utility include: reliability, sustainability, accountability, and affordability,” she wrote.

The city’s Energy Commission is close to concluding what has been many months of discussion about a public utility. In February, the Commission heard a presentation about public power, as well as advocacy from Michigan State Rep. Yousef Rabhi and State Sen. Jeff Irwin.

In July, the Energy Commission heard another presentation on the topic of a municipal utility, including legal advice about how to achieve it in the state of Michigan. At that meeting, the Commission was asked to recommend funding for a feasibility study.

“Because public utilities exist across Michigan, there is a lot that we know already in terms of how it would function in Ann Arbor,” wrote Nelson. “However, a feasibility study is the appropriate first step in exploring this option. There is significant support in the community for a public power utility, but it is also appropriate that Council receive advice from the Energy Commission regarding this feasibility study.”

Nelson said that she will have a resolution on the agenda for the next city council meeting on Sept. 7, 2021, that asks the Energy Commission to consider and vote on the question of a feasibility study.

She wants the Energy Commission vote to be taken at their next meeting on Sept. 14, so that the Ann Arbor City Council can receive their recommendation in time to vote on it at the council’s next meeting on Sept. 20.

Nelson said that a recommendation for a feasibility study does not bring immediate action, “but does push our efforts in a specific direction: establishing the parameters of the study and identifying the appropriate entity to do that study.”

The American Public Power Association offers a wide range of resources and information related to municipalization on its website.

Special Series: Managing Insurance Risks Takes On Greater Significance With Natural Disasters, Cyber Attacks – Part One

August 23, 2021

by Paul Ciampoli
APPA News Director
and Peter Maloney
August 23, 2021

Per member requests, the American Public Power Association presents this in-depth Public Power Current newsletter series on managing insurance risks. Thank you to the utility systems and industry experts for their contributions about what is happening in the insurance market that is affecting policy coverage and prices (Part 1); types of “best practices” utilities can utilize to minimize their exposure (Part 2); and what potential alternatives may be available to help in a challenging insurance market (Part 3). 

Risks to utility operations are rising and with them the cost of insurance is rising too.

In this environment, it can be difficult for a public power utility to retain essential insurance coverage while containing costs. The fact of the matter is that insurance companies have had to make large payouts to customers who have suffered massive losses.

Losses from natural disaster hit $133 billion in 2017, a historic high, according to the Insurance Information Institute. That year saw a deadly combination of hurricanes – Harvey, Maria and Irma – as well as costly California wildfires. Losses due to natural catastrophe fell in 2018 and 2019, but rose again in 2020, hitting $74.4 billion, an 88 percent increase from $39.6 billion of losses in 2019.

In 2020, the most costly losses came from storms and cyclones, which accounted for about 75 percent of the $119 billion in losses, followed by wildfires, accounting for nearly 20 percent of losses, and flooding, which accounted for 4 percent of losses, according to the Insurance Information Institute.

Insurance company SwissRe ranked 2020 as the fifth costliest year on record since 1970 for the insurance industry with global losses totaling $83 billion. The losses were driven by a record number of severe convective storms (thunderstorms with tornadoes, floods and hail) and wildfires in the United States. Those and other secondary events around the world accounted for 70 percent of the $76 billion of insured losses from natural catastrophes, the institute said.

In order to recapitalize after those losses, insurance companies have a few options that are not necessarily exclusive of each other. They can increase the premiums they charge customers, or they can raise the bar in terms of which entities they will insure.

“Insurance carriers have been affected by storms and claim payouts for their insureds, social inflation, and record setting verdicts,” Ryan Weber, vice president at Marsh USA, said. Pricing has increased the past 15 consecutive quarters, he noted.

The good news, Weber said, is that there were signs in the second quarter that the market could be adjusting in insureds’ favor for coverage lines such as property and liability. “Cyber liability pricing appears to be heading in the wrong direction, however, due to the severity and frequency of the recent cyber breaches in 2021,” Weber said.

The cyber ransomware attack on Colonial Pipeline in the U.S. earlier this year, as well as other ransomware attacks, has resulted in increased attention to the risk insurance market. Colonial Pipeline is the largest refined products pipeline in the United States, transporting more than 100 million gallons of fuel daily to meet the energy needs of consumers from Houston, Texas to the New York Harbor.

In May 2021, the Government Accountability Office (GAO) issued a report on cyber insurance. It said that key trends in the current market for cyber insurance include the following:

Meanwhile, in a recent podcast, CAC Specialty’s Adam Lantrip addressed the current cyber insurance market, recent ransomware events, and some tips for coordinating insurance and the technology and legal venders who assist companies in responding to attacks.

CAC Specialty is a specialty insurance brokerage firm.

“Where things are going is clients are going to have to demonstrate a much higher baseline level of security in order to qualify for coverage,” said Lantrip on the podcast. Lantrip is CAC’s senior vice president for professional liability and cyber practice leader.

A year and a half ago, “we could have taken just about any company into the marketplace with whatever their controls were and probably been able to get them a pretty good option from somebody in the insurance marketplace,” Lantrip said.

“Today, we’re seeing clients that we would objectively think are generally pretty good risks but they’re answering ‘no’ to one or two or three very specific questions about their security posture and those ‘no’ responses” are resulting in an automatic refusal “from a huge section of the marketplace.” When that happens, “the ability to get coverage starts to shrink.”

A robust cybersecurity insurance market could help reduce the number of successful cyberattacks by: (1) promoting the adoption of preventative measures in return for more coverage; and (2) encouraging the implementation of best practices by basing premiums on an insured’s level of self-protection, notes the U.S Cybersecurity and Infrastructure Security Agency (CISA), which is part of the Department of Homeland Security.

“Many companies forego available policies, however, citing as rationales the perceived high cost of those policies, confusion about what they cover, and uncertainty that their organizations will suffer a cyberattack,” in recent years CISA says. CISA has engaged key stakeholders to address this emerging cyber risk area.

Since 2012, CISA has engaged academia, infrastructure owners and operators, insurers, chief information security officers (CISOs), risk managers, and others to find ways to expand the cybersecurity insurance market’s ability to address this emerging cyber risk area. More broadly, CISA has sought input from these same stakeholders on the market’s potential to encourage businesses to improve their cybersecurity in return for more coverage at more affordable rates. 

CISA is currently facilitating dialogue with CISOs, Chief Security Officers, and insurers about how a cyber incident data repository could foster both the identification of emerging cybersecurity best practices across sectors and the development of new cybersecurity insurance policies that “reward” businesses for adopting and enforcing those best practices.

In Part 2, tomorrow, we will explore some of the “best practices” utilities have undertaken to minimize their exposure to higher insurance rates.

APPA Resources

APPA has numerous member resources available to help risk managers.

Moody’s Says Hydrogen’s Potential As Power Sector Fuel Is Enormous

August 23, 2021

by Paul Ciampoli
APPA News Director
August 23, 2021

Hydrogen’s potential as a fuel in the power sector and the broader economy is enormous, although electric and gas utilities are unlikely to be the primary demand growth driver of the hydrogen market over the next decade, Moody’s Investors Service says in a new report.

“Hydrogen’s growth potential rests in large part on its green appeal – specifically, its potential role in decarbonizing the economy, particularly the transportation, industrial, gas and power sectors,” the rating agency said in the Aug. 11, 2021 report.

Moody’s said that while hydrogen has enormous potential in power and heating applications, electric and gas utilities are unlikely to be the primary demand growth driver of the hydrogen market over the next decade, either in the U.S. or globally.

“In addition to high costs, there are significant efficiency losses associated with its production, which can range anywhere from around 30% to over 70% based on the technology used, making its production more expensive than the electricity or natural gas used to produce it. However, hydrogen is likely to play an important role in US efforts to eliminate carbon emissions from the power sector by 2035,” the report said.

While the U.S. consumes more than 11 million metric tons of hydrogen per year, its use is practically nonexistent in the power sector, Moody’s said.

At the same time, Moody’s said that hydrogen’s potential as a fuel in the power sector and the broader economy is huge.

The report notes that the National Renewable Energy Laboratory (NREL) expects U.S. demand for hydrogen to surge two- to fourfold by 2050, to around 1% to 14% of energy demand. Over the same period, the Department of Energy (DOE) estimates that the hydrogen economy could grow to $750 billion in annual revenue from an estimated $17.5 billion today.

Most of this demand growth is likely to come from the transportation sector, followed by industrial uses (refining, chemical, iron and steel and other), with building heat and power and power generation expected to account for around 19% of the demand by 2050, according to a report coordinated by the Fuel Cell and Hydrogen Energy Association, the rating agency went on to note.

Moody’s points out that hydrogen can already be blended with natural gas for use as a fuel for power generation, albeit with some limitations. Power equipment manufacturers are developing a new generation of gas turbines that can run on 100% hydrogen and there are several pilot projects and at least two larger power plants being developed in the U.S. that will initially burn blends of hydrogen and natural gas, before transitioning to 100% hydrogen, Moody’s said.

“Hydrogen can also be used as an energy carrier for long-term seasonal storage, reducing the need to curtail excess renewable energy production or using nuclear power and providing dispatch flexibility to the grid to help manage peak demand,” the report said.

Moody’s also said that national and state policies and regulations could help increase hydrogen use. It noted that DOE this year unveiled $160 million in federal funding for projects to develop technologies for the production, transport, storage and use of hydrogen. “Wider implementation of carbon instruments, such as allowances and taxes, could help make hydrogen more cost-competitive,” the report said.

Federal and state incentives are also available for the development of carbon capture, utilization and storage technology, an essential component in the production of “blue” hydrogen, which is produced from natural gas, according to Moody’s.

The American Public Power Association (APPA) recently issued a report that provides a perspective on where the emerging hydrogen market is in the U.S. and globally, what is driving the growing interest in hydrogen and what obstacles are preventing hydrogen technology from being able to scale-up.

In a recent blog, Patricia Taylor, Senior Manager, Regulatory Policy and Business Programs at APPA, notes that there are different motivations for the interest in hydrogen in the energy sector these days.