The Drowning Power Grid: CenterPoint’s Plight to Keep the Lights On
With the increasing number of superstorms resulting from climate change, utility companies, such as CenterPoint Energy, are faced with securing power substations from storm surges and flooding.
Over the course of August and September 2017, the United States was hit with major storm systems which had a huge impact on regional power grids. Hurricane Harvey inflicted severe damage along the Texas Coast, Hurricane Irma barreled through Florida, and Hurricane Maria devastated Puerto Rico. The latter of these storms left Puerto Rico in the dark for over 55 days, representing the largest power outage in the United States in over a decade and contributing to the over 50 deaths . These are not the first major storms affecting these regions, but according to David Katz of CFO Magazine, “there was something different about this year. Maybe it was the awareness that the Gulf of Mexico’s waters were ‘freakishly warm’ this summer, as the Chicago Tribune reported in March, and that such warming could indeed intensify storms originating in those waters” . As companies responsible for the power grid think about the effects of climate change, such as intensifying storms, leaders need to focus on how to maintain service in the event of catastrophes. One company currently dealing with a storm’s aftermath is CenterPoint Energy (“CenterPoint”).
CenterPoint, headquartered in Houston, Texas, owns and operates electric transmission and distribution facilities, natural gas distribution facilities, and supplies natural gas to commercial and industrial customers . In the aftermath of Hurricane Harvey, 950,000 customers experienced power outages due to flooding as a result of 16 of 200 substations (transform voltage from high to low) being flooded. The company was faced with analyzing it’s response to the storm and how it could improve its ability to supply power to customers. When reflecting on the effects of the storm, CFO, William Rogers, also realized that the effects could have been worse had digital meters not been installed in 2009, enabling CenterPoint to quickly pinpoint where outages were occurring and quickly reroute power to those areas through alternative substations .
As the company looks forward, one opportunity to mitigate the risk, as stated by SVP, Kenneth Mercado, is raising facilities aboveground. Currently, most substations are located belowground and experience electrical shorts when flooding occurs leading to power outages. By raising the facilities aboveground you are protected from flooding; however, this also exposes the facilities to the potential adverse effects of hurricane force winds. As such, CenterPoint needs to be very thoughtful about restructuring infrastructure . Another factor when evaluating moving substations is the cost. For example, following Superstorm Sandy in New Jersey, The Public Service Electric and Gas Company (PSE&G) launched a 5-year $1.2 billion project to elevate 18 substations that flooded. Additionally, Jersey Central Power and Light (JCP&L), invested $1.5 billion to upgrade 20 substations through installing flood barriers, elevating equipment, and installing real-time monitoring devices . CenterPoint had 16 failed substations, and both PSE&G and JCP&L highlight the cost of renovating a similar number of substations.
CenterPoint needs to examine where the current power grid and substations are located and optimize for different natural disasters resulting from climate change. When power outages occur, CenterPoint looks to reroute power from other substations. To ensure this can take place effectively, back up plans should include a source of power from a substation at a different elevation (i.e. if the primary power for an area is from an underground substations, then an aboveground substation should be the backup plan). Implementing changes to the power grid will be costly and take place over a longer time horizon, but the question remains how to determine the optimal layout. One option to determine the optimal layout of the power grid, and how to mitigate other weather-related fallout, is a predictive model that is being developed by Texas A&M Regent Professor, Dr. Mladen Kezunovic. According to Dr. Kezunovic, Big data such as “utility company’s operational records, weather forecasts, altitude and vegetation around the power systems can be used to customize the applications of the model” . If the model can be customized to determine which areas are most susceptible to outages based on different natural disasters, then CenterPoint will have a blueprint detailing where to invest resources. Currently, CenterPoint is partnering with Texas A&M and providing data to prove the model’s validity for vegetation trimming. Given that the data is already being provided, the aforementioned customization should be a near-term reality .
In the last three years, Houston has seen two 500-year floods and one 1,000-year flood (as classified by FEMA), and CenterPoint needs to have a better understanding of how superstorms will continue to impact the region. More work needs to be done around understanding the cost associated with upgrading the power grid. Additionally, is upgrading the power grid more than just a supply chain issue, but a humanitarian issue? And if it is a humanitarian issue, should the government help pay for the upgrades?
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 Lu, Denise and Alcantara, Chris. “Most of Puerto Rico Has Been in the Dark For.” The Washington Post, November 15, 2017, https://www.washingtonpost.com/graphics/2017/national/puerto-rico-hurricane-recovery/?utm_term=.fdc0a69951b7, accessed November 2017.
 Katz, David M. “The Weight of Water.” CFO Magazine, November 6, 2017, http://ww2.cfo.com/risk-management/2017/11/the-weight-of-water-flooding/, accessed November 2017.
 CenterPoint Energy. February 28, 2017 Form 10-K. [http://investors.centerpointenergy.com/secfiling.cfm?filingID=1130310-17-6&CIK=1130310], accessed November 2017.
 O’Neill, James M. “Superstorm Sandy: 5 years later, New Jersey is Still Storm Proofing.” NorthJersey.com, October 25, 2017, http://www.northjersey.com/story/news/new-jersey/2017/10/25/superstorm-sandy-5-years-later-new-jersey-still-storm-proofing/713669001/, accessed November 2017.
 “Researchers develop model to predict and prevent power outages using big data.” EurekAlert! The Global source for Science News. July 26, 2017, https://www.eurekalert.org/pub_releases/2017-07/tau-rdm072617.php, accessed November 2017.
Student comments on The Drowning Power Grid: CenterPoint’s Plight to Keep the Lights On
Interesting piece on the effects of climate change on power supply. In response to your questions I’d argue that a more resilient power system is absolutely a humanitarian issue as evidenced by the 50+ deaths in Puerto Rico, many of which arose from power loss after the Hurricane. In terms of whether the government should pay for upgrades to infrastructure there are ways that they can make upgrades more economically favorable without simply paying for them out of pocket. For example, they could allow for CenterPoint and other providers to slightly increase utility costs, which are currently government regulated, in order to cover the costs of necessary upgrades. This would pass on the costs in a distributed way to a broad network of customers. The government should also think not just about how to encourage utilities providers to mitigate the effects of climate change but also about how to play a central role in prevention of climate change long-term. This could mean more seriously experimenting with a national cap and trade system for carbon credits or imposing a tax on carbon production. This would make it more economically attractive for providers like CenterPoint to build alternative, more climate friendly production plants as they would now forced to internalize the negative climate externalities of carbon production.
Interesting read. I wonder whether there’s a way to quantify the amount of lost economic activity due to power outages from these superstorms, and then use that figure as a negotiating tool when trying to convince local governments to help underwrite the capital projects necessary to flood-proof the substations. I also wonder whether alternative power sources, like solar for example, can play a role in reducing the reliance on certain substations in general. If alternatives can help diversify sources of energy in times of crisis, I wonder whether the correct approach involves both proactively fortifying existing infrastructure while encouraging new, flood resistant sources of energy. Finally, what shocks me after reading the article is the scale of devastation that arises from a relatively small percentage of the substations flooding (<10%) — imagine what would happen if far more substations were effected!
As you pointed out, extreme weather is increasingly becoming a huge threat to distribution service providers like CenterPoint. I think it is critical for CenterPoint to continue to invest in improving infrastructure to prevent power outage as well as develop the ability to react quickly to such situations and minimize the impact. I agree with you that a back up plan for the power grid should be available to mitigate the unexpected risks. Finding the ideal solution seems to be very challenging. Placing the grid overground is exposing the risk of damage from storms or wind and snow. To add to CenterPoint’s optimizing the layout of the power grid, I learnt that CenterPoint has developed an intelligent grid using digital technology that provides real-time data, which enables them to respond to floods very efficiently and deploy the appropriate resources.
Following up to your question on government subsidy, I wonder if the government be willing to spend millions of dollars to a system for major outages that may happen only once in a decade. I agree with the comment above that it would be helpful to quantify the amount of lost economic activity to convince the government.
Great article! Regarding the government stepping in to help with funding, something interesting here is how vast the need is. This year it was Houston that saw truly disastrous flooding but all Gulf coasts (as well as the majority of the eastern seaboard of the US) are susceptible to this sort of weather event. It will be interesting to see how different coastal cities (New Orleans, Miami, Baltimore) respond to this threat.
Thanks for sharing this article. It is very interesting how CenterPoint looks at rerouting power from substations at different elevations. The predictive model, developed by Texas A&M is one way to address the rerouting challenge, however, I wonder how this might be even further complicated when more energy sources, such as wind, solar and energy storage, are incorporated in the grid.
Furthermore, addressing the last paragraph in your article around the cost implications and echoing John Smith’s comment, I wonder whether developing Micro Grids is a potential alternative. If the grid is split into smaller and independent to an extent micro grids, the flooding of some substations will have a much smaller impact in contrast to the current arrangement. The question is which option is more economically viable, considering that renewable energy is on the rise!