economic consideration for power utilities during disasters

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AORC-CIGRE Technical Meeting 2012Power System Restoration Under Disasters & Emergencies

– Strategy, Planning & Operation2-4 May 2012

Sunway Hotel, Malaysia

“Economic consideration for power utilities during disasters and emergencies– selected

literature review and case studies of qualitative approach for mission-critical

facilities”

Sabar Md HashimSenior Manager

RRM DeptCorporate Affairs

TNB Malaysia

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Caveat

The opinion and position suggested in this paper do not necessarily reflect the official position of the institution(s)/company that the author has been associated with.

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Table of content

1. Background2. Options - Planned/reactive/remedial3. Selected literature review4. Impact5. Costs – direct and indirect 6. Selected incidences7. Methodology, observation, comparative

analysis8. Consideration/what to institute?9. Hypothetical observation

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1. Background

• While utilities are expected to focus on technical resolve during disasters and emergencies, attention should also be given on economic considerations during the whole dynamic period and stabilized aftermath so as to avoid or thwart knee-jerk reactions.

• Utilities must be prepared for any game-changing situation more so if it invites various ramifications in the aftermath of a major calamity.

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1. Background (cont.)

• An electric system must not allow itself to be in vulnerable state but major n-X incident could happen beyond our wildest imagination. The system must not have an Achilles’ heel and potential problems left unaddressed.

• Utilities’ resolve in mitigating, remedying and preempting technical challenges could also matched with financial constraints amid call by the Government to arrest any major disturbance that may disrupt power supply to consumers.

• Not only we must be good in strategy and planning, but we must also excel in the operation by means of resuscitating the defence details that would arrest any major disturbance and fault. Even at worse, we must be able to ensure proper islanding and afterwards re-integrating the islands into the national grid again.

• At all times, we must ensure safety to the staff, civilian and property which has no two ways about it.

…Litmus test for utilities, countries

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2. Options -planned/reactive/remedialPrevailing norm and logic:• Prevention from blackout

– Autoreclose if it could be executed– Otherwise tripping out load via opening circuit-breakers– System islanding– Manual and auto loadshedding

• Restoration – reversing the process, manual reclosure etc• If there is blackout, needs system Restoration plan

– Speedy restoration • black start; fastest to stabilise (hydro etc) • Security-checked switching• Islanded detected system• DTS• Improve SCADA• Redundant communication network

– Decentralised operations– Reconnect island– Inter-utility/transnational assistance

..Is preemptive better than reactive? But there are times when we can’t do much if they are calamitous..

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3. Selected literature review

• literature review on the subject– Power utilities and things at their disposal– Complex coupling of technical and economic

concerns– focus of mission-critical facilities(defined as an activity, device, service or system whose failure or

disruption will cause a failure in business operations http://www.investopedia.com/terms/m/mission-critical.asp)

…inexhaustive and overarching in analysis

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3. Selected literature review (cont.)

• Rose (2004) illustrated indirect effects with the example of a utility plant being damaged resulting in utility customers (businesses) not being able to operate.

• Rose et al also postulated that direct and indirect business interruption losses can be as large as physical losses [Rose, A. (2004). Defining and measuring economic resilience to disasters. Disaster Prevention and Management, 13(4), 307-314.]

• Disaster planning - Rose (2004) defined economic resilience as follows – “the capacity of an economy to absorb or diminish the effects of shocks – that can enhance the ability of planners and disaster responders to enable individuals and communities to avoid some potential losses.”.

• Similarly estimation fund required to re-channel perhaps via distribution of mitigation funds, could be made based on measures of economic vulnerability and event risks (Adrianto and Matsuda, 2004; Cole, 2004).

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• The modeling spatial economic impacts of disasters in a regional context was extensively addressed in Yasuhide Okuyama’s Economics of Natural Disasters: A Critical Review. RESEARCH PAPER 2003-12. Regional Research Institute, West Virginia University, USA. Paper presented at the 50th North American Meeting, Regional Science Association International. November 20-22, 2003, Philadelphia, PA http://www.ibcperu.org/doc/isis/14698.pdf

• Economic parameter and variables were exhaustively analysed in Terry L. Clower’s Economic applications in disaster research, mitigation, and planning. Center for Economic Development and Research, University of North Texas.http://training.fema.gov/EMIWeb/edu/docs/EMT/Disciplines%20Disasters%20and%20EM%20Book%20-%20Chapter-Econ%20appli%20in%20disasters%20research.doc

• Disaster recovery as analysed via consumer model as in Robert J. Barro’s“Rare Disasters, Asset Prices, and Welfare Costs” American Economic Review 2009, 99:1, 243–264http://www.aeaweb.org/articles.php?doi=10.1257/aer.99.1.243 andhttp://www.economics.harvard.edu/faculty/barro/files/consumption+risk+paper+

aer+0309.pdf

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• US Senate commissioned a comprehensive study to evaluate the potential for long-term electric power outages following natural disasters and deliberate sabotage. This product is released as Physical Vulnerability of Electric Systems to Natural Disasters and Sabotage June 1990. OTA-E-453. U.S. Congress, Office of Technology Assessment, Physical Vulnerability of Electric System to Natural Disasters and Sabotage, OTA-E-453 (Washington, DC: U.S. Government Printing Office, June 1990). http://www.fas.org/ota/reports/9034.pdf

• Handbook for Estimating the Socio-economic and Environmental Effects of Disasters. Economic Commission for Latin America and the Caribbean United Nations / Economic Commission For Latin America And The Caribbean / ECLAC.http://www.gdrc.org/uem/disasters/disenvi/VOLUME%20II.pdf

• Critical infrastructure measurement is an intriguing subject as it could lend some insights in preparedness and planning. However, preparedness is not uniform in nature as elaborated in work by Carrie Beth Lasley, David M. Simpson, Thomas D. Rockaway, Terry Weigel.“Understanding Critical Infrastructure Failure“Examining the experience of Biloxi and Gulfport Mississippi after Hurricane Katrina”. Working : Paper 07-09, August 2007. Center for Hazards Research and Policy Development. School of Urban and Public Affairs. University of Louisville, USA.

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• Interesting studies on economic and insured losses were addressed in “Natural Hazards and Economic Development: Policy Considerations”Organization of American States, General Secretariat, Unit for Sustainable Development and Environment, USAID-OAS Caribbean Disaster Mitigation Project. April 1999. http://www.oas.org/cdmp/document/econpoly.htm

• Environmental risk management is one area where modern planners and operators need to pay attention too as rigorously addressed in R.J. Wenning, S. Della Sala and V. Magar’s, ”Role of Risk Assessment in Environmental Security Planning and Decision-making”. Environmental Security in Harbors and Coastal Areas. NATO Security through Sceience Series, 2007.http://www.springerlink.com/content/vr0h3628l2p04655/

• Facts and Lessons of Fukushima comprehensively dealth with in “Fukushima Nuclear Accident and Safety Improvement -The Operator Viewpoints” by Kimitoshi YAHAGI, Tokyo Electric Power Company. March, 2012. TEPCO’saccount on disaster management and supply restoration during earthquake and tsunami disaster in Fukushima-Sendai area. Seminar on Nuclear Energy – Lessons learnt from Fukushima. Majlis Professor Negara, Malaysia, March 2012

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4.Impact

• Direct – impact business of utilities – huge amount of money to repair/resuscitate operations

• Regional and sectoral impact – crosscuts economies and industries

• Policy-making & regulatory challenge [perhaps tighter regulation; systemic change in electricity supply industry]

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5.Costs – direct and indirect

Physical Vulnerability of Electric Systems to Natural Disasters and Sabotage June 1990. OTA-E-453. U.S. Congress, Office of Technology Assessment, Physical Vulnerability of Electric System to Natural Disasters and Sabotage, OTA-E-453 (Washington, DC: U.S. Government Printing Office, June 1990).

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5.Costs – direct and indirect (cont.)Severity - estimates for outages

Vulnerability, 1990

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6. Selected incidences

• NY blackout 1977 – caused by lightning• TNB – flood, landslip, extreme supply gas

shortage 2011-12• TEPCO – earthquake, tsunami 2011• PLN – earthquakes (plenty)• EGAT – massive flood 2011 in central plains• NPC – flood 2010• CSG – winter storm 2008

… will focus on a few…

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NY blackout 1977

Cited verbatim in Vulnerability, 1990

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NY Blackout 1977

Vulnerability, 1990

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China CSG ice-stricken debacle 2008

• Widespread icy situation – total shutdown of infrastructure and mission-critical facilities[Please see CSG presentations AORC-CIGRE Technical Meeting 2012,

Malaysia]

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TEPCO – Fukushima/Sendai 2011

38.63,093.8Total (*All figures up to December 31, 2011)

11.55.1

920.7408.6

Loss on Natural Disaster•expenses for Fukushima Daiichi NPP 1-4 (Cooling down, decommissioning, etc.)•Other expenses such as cold shutdown of FD 5&6, cancellation of FD 7&8, restoring damaged thermal power plants, restoration of supply facilities, etc.

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22.01,764.5Expenses for Nuclear Damage Compensation •to individuals and businesses for evacuation, mental blow, damages, etc.

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USD (bildollars)

JPY (bil yen)

DescriptionNo

Reference: TEPCO FY2011 Q3 (Apr-Dec 2011) Financial Result, dated Feb 13, 2012 (http://www.tepco.co.jp/en/corpinfo/ir/tool/presen-e.html)The above value is TEPCO’s financial report to shareholders. TEPCO incurred USD38.6 billion for nuclear compensation and losses due to the tsunami/earthquake.

Damage control while still needed to continue supply electricity to Tokyo

Import of coal, LNG dramatically increase short-medium term!•TEPCO has estimated its extra costs for fossil fuels in Apr-2011 to March-2012 will be about JPY830 billion (USD$10.7 billion). (Source: http://www.world-nuclear.org/info/fukushima_accident_inf129.html)

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TEPCO- worse off• Tepco’s Market Cap on March 11, 2011: JPY3,376.20B. Tepco’s Market

Cap on May 1, 2012: JPY308.55B. Value is down by more than 90% (Source: Murphy, P. M. (2012), Nuclear Power Asia 2012, http://www.bloomberg.com/quote/9501:JP).

• TEPCO is proposing a restructuring plan by offering controlling stake to Japan Govt in return for JPY1 trillion (USD$12 billion) cash injection. This will result in the nationalisation of TEPCO. This plan is expected to be passed in early-May. (Source: AFP)

• By the first anniversary of the accident, Tepco had paid JPY 446 billion (USD$5.4 billion) in compensation, based on decisions of the Nuclear Damage Compensation Facilitation Corporation. At that point, some 40% of the people entitled to apply for compensation had done so(Source: http://www.world-nuclear.org/info/fukushima_accident_inf129.html)

21Reference: TEPCO FY2011 Q3 (Apr-Dec 2011) Financial Result, dated Feb 13, 2012

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Reference: TEPCO FY2011 Q3 (Apr-Dec 2011) Financial Result, dated Feb 13, 2012

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Reference: TEPCO FY2011 Q3 (Apr-Dec 2011) Financial Result, dated Feb 13, 2012

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Facts and Lessons of the Fukushima Nuclear Accident and Safety Improvement -The Operator Viewpoints-Kimitoshi YAHAGI, Tokyo Electric Power CompanyMarch, 2012

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Yahagi, 2012

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TNB – gas shortages 2011-2012

27Yap Leng Kuen “Long-term supply solution needed”, The Star, November 12, 2011

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TNB - Flood

• Johore flood December 2006• TNB had to spend/budget RM5mn to

repair, replace and put personnel to remedy situation, and that is only one scenario

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7. Methodology, observation, comparative analysis

• Selected qualitative approach on mission-critical facilities on recent spate of events of mega magnitude

• Assymmetrical – not necessarily economic consideration based on utilities’ perspective alone; other concerns might prevail among public policy planners at macro level

• Regulatory risk/intervening – policies might change• Institutional:

– VIU- structured; what if it is not VIU?

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8. Consideration/what to institute?Technical (and Economic) stocktaking:• Safety

– people (staff, civilian)– Plants including fitness test

• Security• Communications Plan

– Operations Room – targeted audience, bureaucracy, heirarchy, stakeholders– Evacuation– Remedial actions– Defence-plan

• Utilities:– at its own accord and using its own money - power Utility to serve the

consumer/area affected– national service – utilities must lead the way

• Economy:– Local economies– Overarching with national resolve and impact cross-sectorally– National economy and growth – nation first!

Can be financially quantifiable…

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8. Consideration/what to institute? (cont.)

Technical (and Economic) stocktaking:• Operations

– Emergency Response System/Plan (ERS/ERP)– Black Start– Gen-sets (at RM5000/=/500kW genset/8hr (est.)) – �Coordinated Restoration – Load Shedding – �Islanding Scheme – Special controls – damping etc– �Prolonged Overloads – Outage mgt

• Technologies: Disturbance recorder, specially modified accessories like ERS tower, communications etc

• Financial – insurance?– Hedging/swap/short-term contract –fuel supply

• Institutional Structure– Comprehensive/integrated response shall come with a integrated utility

structure (VIU)


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Imperative responses/actions

Disaster planning• One issue that many utilities has faced is how to plan for

disaster scenarios and institute defence-plan/countermeasures

• Trial run• Defence set-up design – how much is sufficient?• Logistics• Leadership


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Concerns/solutions: Wire and plants• Equipment and spare parts• Retrofitting requirement/reengineering solutions• Resolve of skilled talents and new skills

Supply – energy security• Weather• Geopolitics/resource nationalism – may need to lobby for supply

Cheaper options:• Disaster avoidance in mission-critical facilities• Strategic storage• Central planning

8. Consideration/what to institute?(cont.)

Who is best to do this?

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Risk management

• Focal issue will be on how much utilities should spend on risk studies and mitigation for major calamities.

• ERS/ERP• Strategic Enterprise Wide Risk Assessment (SEWRA)• Hedging – supply situation/regulatory uncertainties• Culture/institutional – SEMS; crisis management; collaboration with

peers

Source: Natural Hazards and Economic Development: Policy Considerations Organization of American States, General Secretariat, Unit for Sustainable Development and Environment, USAID-OAS Caribbean Disaster Mitigation Project. April 1999.


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Regulations enforced

Codes enforced

Lasley, 2007

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9. Conclusion and hypothetical observation• Economic considerations by power utilities are multi-

attributes and crosscuts many sectors as there are overarching issues to consider

• This paper will also culminate with hypothetical position that a vertically-integrated utility (VIU) set-up will best manage such situation.

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Thank you!

economic consideration for power utilities during disasters

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