Critical Infrastructure Protection Program Examines Effects of 2005 Hurricanes

January 16, 2007

Mason’s Critical Infrastructure Protection Program has been studying consequences of the lack of commercial insurance and infrastructure resilience in the energy sector in the aftermath of devastating storms in Florida, Louisiana, Mississippi and Texas. Photo from Hurricane Digital Memory Bank, taken by 102nd Military History Detachment, Kansas Army National Guard, "Area Damage.JPG." Hurricane Digital Memory Bank, Object #14082 (December 13 2006, 12:27)

By David Driver

More than a year later, images of the 2005 hurricane season – when Hurricanes Katrina, Rita and Wilma battered Gulf Coast states – are still haunting.

Mason’s Critical Infrastructure Protection (CIP) Program has been studying the effects of the 2004 and 2005 tropical storm seasons, especially the infrastructure damage caused by hurricanes in Florida, Louisiana, Mississippi and Texas.

John A. McCarthy Creative Services photo

Under the leadership of director and principal investigator John A. McCarthy, a CIP team engaged in months of research, resulting in a recent presentation of initial findings to high-level members of the U.S. Department of Energy (DOE), which sponsored the work. The findings presented in the executive summary, “Critical Electric Power Infrastructure Recovery and Reconstruction: New Policy Initiatives in Four Gulf Coast States after 2005’s Catastrophic Hurricanes,” have been a validation of the consequences of the lack of commercial insurance and infrastructure resilience in the energy sector.

Findings Point to Funding, Manpower Issues
The project’s initial findings include the following:

• With commercial insurance largely unavailable for electric transmission and distribution, states have required energy utilities to set up storm emergency funds. The CIP Program team found that when serial megastorms storms hit Florida in 2004 and with even greater devastation across all the Gulf Coast states in 2005, storm reserves went from surpluses to billions of dollars in deficits in a just few days. All customers of electric utilities would have had to pay unprecedented restoration costs, in addition to higher pass-through costs for fuel and environmental remediation. With all energy customers — domestic, commercial and industrial — facing a sticker shock that would likely hinder the long-term economic recovery of the region, state officials improvised new policies, such as long-term securitization of electric infrastructure reconstruction costs using storm bonds with maturities of 10 to 15 or more years.
  
  
• Some states are developing new policies that will require energy utilities to build to higher engineering, operation and maintenance standards. If these nascent infrastructure-hardening initiatives are implemented over a number of years, they could reduce the cost of rebuilding critical energy infrastructure after future natural disasters. Hardening also should make energy grids more reliable and resilient during normal operations and abnormal situations, whether natural or man-made.
  
  
• Skilled utility workers, technicians and power engineers form the nation’s critical human infrastructure, a collective workforce that is aging and shrinking. Faculty and teachers at postsecondary education institutions are experiencing similar attrition, and research money is contracting. The twin challenges of education inputs and outputs and the aging of a knowledgeable workforce is an emerging issue directly related to the ability to increase the grid’s reliability and respond to future large-scale catastrophes.

Almost 85 percent of energy utilities and their infrastructures are privately owned by investors or individuals and, until about 14 years ago, were heavily regulated by state, local and federal government agencies. Because neither the old regulatory paradigms nor traditional vertically integrated electric utilities now exist, the owners and operators of the electric grid now must manage a real-time commodity in ways for which the system was never designed. Critical energy utilities must rebuild quickly after a disaster because nearly every sphere of American society relies on electricity.

“Electricity is essential to public health and safety, and to every economic sector,” says Michael Ebert, a principal research associate at the CIP Program who led the project. “If state officials allow utility companies, operating in rate-regulated or quasimarket environments, to recover their uninsured losses by increasing customers’ monthly bills, then the velocity of cost recovery becomes a very real area of policy tensions and tradeoffs. Everyone wants the lights to come back on as fast as possible after a disaster, but repaying disaster costs as rapidly as possible may not be feasible. It may hurt remaining customers and retard economic recovery.”

The CIP Program study recommends that federal and state agencies find ways to better share information before, during and after a catastrophe. Large disasters, such as the 2005 megastorms, do not respect political borders. Thus, it is up to state and local governments and the federal government to better plan and coordinate responses well before, during and long after the initial emergency.

Federal Response Deficient
“We certainly are not suggesting that the federal government come in and tell the states what to do on a utility-by-utility basis,” says Ebert. “But it is undeniable that a federal role exists in times of catastrophes. Our research data to date suggest that during these hurricane disasters, the ad hoc manner in which the federal government responded to fill in the seams between jurisdictions and [the localities’] abilities to respond, particularly long after the storms had passed, was not as efficient or equitable as it could have been.”

The project tapped into the rich talent pool at Mason’s School of Law, including law students such as Joseph Maltby and Rosalie Freeman, and external resources. Adept at leveraging previous affiliations with outside experts and scholars, McCarthy invited James Atkins, a former state public service commissioner from South Carolina and a senior consultant during the CIP Program’s 2005 commercial insurance workshop, to join the current project. Atkins opened doors to state commissions for the team and helped researchers better understand the complex decisions facing a commission that must make difficult choices on the cost of essential services such as electricity.

“It would have been difficult for any one federal agency to examine another federal agency, let alone state institutions with long-standing Article X powers,” says Ebert.

Ebert says the report has been well received by a wide array of decision makers. In total, the initial one-year DOE grant, which has now been extended twice beyond its original end date, has awarded the program more than one-half million dollars.

“DOE had a need for an independent, academic institution to examine existing and emerging issues that involve sensitivities and the perception of jurisdictional concerns,” says Ebert. “An academic institution conducting research with federal taxpayers’ money must be academically rigorous yet relevant, not just to its sponsor but to all potential consumers of its research. We believe we have done that.”

Some states are developing new policies that will require energy utilities to build to higher engineering, operation and maintenance standards, the CIP team found. Photo from Hurricane Digital Memory Bank, taken by 102nd Military History Detachment, Kansas Army National Guard, "Area Damage.JPG." Hurricane Digital Memory Bank, Object #14082 (December 13 2006, 12:27 pm)

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