Regulation of Public Utilities in the Face of Disasters

1. Regulation of Public Utilities in the Face of Disasters Thomas Pearce Chair, NARUC Staff Subcommittee on Critical Infrastructure Senior Utility Specialist, Public Utilities Commission of Ohio 7 July 2011 Workshop: Risk Management and Economic Regulation for Water and Sanitation Utilities Bogotá, Columbia

2. DISCLAIMER • Nothing contained within this presentation shall be deemed to represent any positions or views of the National Association of Regulatory Utility Commissioners (NARUC), its officers, its staff, its Committees, its Subcommittees, any or all of its individual member commissions, the state of Ohio, its governor, the Public Utilities Commission of Ohio, its commissioners, its staff, nor even those of the author…1 1Remainder of the legal disclaimer: if you’re paying attention, that last item was injected for purposes of humor; it’s okay to laugh and to take neither the presenter nor the presentation too seriously

3. The future dependson what we doin the present. Mahatma Gandhi

4. Critical Infrastructure and the Role of Public Utilities Commissions

5. Public Utilities Comission Public Health Agencies National, State & Local Police; Military Surrounding Nations/ States Other National Governmental Agencies Executive Office/President/Governor Emergency Managers Local Government Utilities & Interdependent Systems Governmental Response in Emergencies

6. Public Utilities Commission Responsibilities in the U.S. • Ensure adequate reliability and emergency planning by regulated utilities • Manage interdependencies • Optimize planning through utilities facility siting process • Approve cost recovery for infrastructure investments.

7. Issues • Measuring infrastructure reliability • Prioritizing spending • Maintaining affordability yet justifying costs • Benefits of enhanced system redundancy • Improving the safety of operations • Establishing performance goals for utility

8. Threats to the System and Emergency Preparedness

9. Paradigm Shift • From Response/Recovery to Utility System Reliability/Resiliency: • Continuity of Operations Plans • System Redundancy • No choke points • Diversity Plan not only for predictable events, but low probably/high consequence events. How to integrate these modes of thinking into operations?

10. Phase V Review lessons learned Phase IV Take actions and respond to feedback The Five Phases of an Emergency Phase III Assess and decide action Phase II Monitor and alert Phase I Planning Who is involved and who leads at each stage? What specific actions are taken at each stage?

11. RECAP • Know your network: identify critical infrastructure and key assets • Assess risk, vulnerabilities, criticality & nature of threat • Identify Protective Measures • Build partnerships with public/private sectors, federal, state, local and adjacent governments

12. Utility Emergency Preparedness &Utility AssuranceGuidelines

13. What is Utility Assurance? All Hazards Approach: • People – Sabotage, Terrorism, Civil Disturbance, Public Health Emergencies • Nature – Flooding, Hurricanes, Tornados, Earthquakes, Ice Storms and others • Technological failures – Cybersecurity, Failure of Other Infrastructure

15. Effects of A “Dry” Hurricane

16. Mitigation Risk & Vulnerability Assessment • Reliability • Redundancy • No choke points • Diversity • Security • Physical • Insider • Cyber 1. Protecting Critical Infrastructure Planning Training/Exercises Coordination Assessment Scope and Duration 2. Preparedness for Emergency Response

17. Ten Actions to Assure Emergency Preparedness • Ensure you & your staff are prepared & trained to deal with the emergency situation • Know your utility infrastructure and profile • Know key government & industry contacts • Maintain current file of legal authorities • Remember infrastructure locations & keep them current

18. Ten Actions to Assure Emergency Preparedness (cont.) • Be familiar with response measures • Work with the private (or public) sector • Review & update plans regularly • Develop standard operating procedures for access or credentialing • Prepare a media plan

19. Emergency Response Plan “WHAT’S IN YOUR PLAN?”

20. Communicating Interdependencies In an emergency, • what you know is only as important as • who you tell.

21. Communicating with the Public • Be prepared – know who will to talk to the press • Provide a clear and consistent message • Facts (always) versus speculation (never) • Provide authoritative, accurate and timely information • Provide background information that helps them understand the nature of the problem

22. Responsibilities In An Emergency Public Utilities Commission • monitor for outages & emergencies • e.g.:equipment failure, utility response issues (access to affected areas, etc.) • make recommendations to the Governor • *facilitate governmental response coordination Utilities • institute “Emergency Procedures” • know priority customers • coordinate with other utilities • restoration, reports

23. Cyber Security • What are we trying to protect? • What are the threats? • What are the challenges of instituting cyber security? • Where are the vulnerabilities?

24. Summary Observations: Regulatory Roles & Responsibilities For Critical Infrastructure Protection • Participate in emergency planning • Ask utilities key questions about their infrastructure • Protect sensitive information • Designate an information point-of-contact • Keep updated emergency contact lists • Recognize interdependencies • Coordinate and communicate regionally & internationally

25. Interdependencies

26. What are interdependencies? • The functional reliance of an essential service (e.g., networked utility service) on another network/system • Disruption/outage in one area/sector has implications beyond that area/sector, and vice versa What interdependencies exist among your utility systems? How can a domino effect be avoided?

28. What are some types of interdependencies? • Types: • Physical • Cyber • Geographical • Institutional • Infrastructure integrity – interdependency is intimately related to security and reliability

30. Regional and International Coordination

31. Why is coordination important? • Utility services are typically provided by network industries (scale economies & large service territories) • Utility regions may be international • Regional and international governance issues • Lack of coordination and communication undermine reliability and security

32. Cost Recovery

33. Cost Recovery and Prudence of Investment Decisions Who has a specific role in domestic security and critical infrastructure protection? Who has a role in the recovery of the costs of utility investments? Utilities need to exercise due diligence to protect the investments of their shareholders and assure a reliable supply to customers.

34. Cost Recovery • Who pays? • Stockholder • Customer • Federal, State, Local Government • How do we pay? • Lower return • Higher rates • Securities (bonds) • Increased tax liability • Increased efficiency

35. How are costs recovered? • Regulatory Agencies implement protocols to determine whether a utility may recover money • Most cost recovery is done through rate cases • Cost recovery is implemented through rate adjustments

36. Reliability Standards: Some Related Approaches

37. Distribution Quality: (1) What is to be measured?(2) What are the indicators? • MEASUREMENT = the reliability of each distribution system • INDICATORS = Service reliability indices to be matched against performance targets.

38. “Reliability” is defined by • Adequacy The ability of a utility system to supply the aggregate demand and customer requirements at all times 2. Security The ability of the utility system to withstand sudden disturbances such as unanticipated loss of system elements or power supply disruptions

39. EXAMPLE MEASURES Number of service interruptions Duration of service interruptions Call center response Cost thresholds

40. In the USA, certain measurements are used to determine how well a utility system is performing • CAIDI (customer interruptions) • CAIFI (the frequency of customer interruptions) • SAIDI (system interruptions) and • SAIFI (the frequency of system interruptions) The measurement of how well a system is performing provides an indicator of “reliability.”

41. CAIDI • CAIDI (measurement) - The customer average interruption duration index, represents the average interruption duration or average time to restore service per interrupted customer. • CAIDI (percentage indicator) is expressed by: Sum of customer interruption durations ÷ number of interruptions

42. CAIFI • CAIFI (measurement) is the customer average interruption frequency index, represents the average number of customers interrupted • CAIFI (percentage indicator) is expressed by: Sum of customer interruptions ÷ number of customers who had at least 1 interruption

43. SAIDI • SAIDI (measurement) is the system average interruption duration index, represents the average time each customer is interrupted. • SAIDI (percentage indicator) is expressed by: Sum of customer interruption durations ÷ number of customers

44. SAIFI • SAIFI (measurement) is the system average interruption frequency index, represents the average number of interruptions per customer. • SAIFI (percentage indicator) is expressed by: Sum of customer interruptions ÷ number of customers

45. How To Use Measurements and Indicators • Performance targets are determined for each utility as a basis for service reliability indicator • Performance targets (next succeeding calendar year) revised as system performance patterns become more recognizable • Performance targets should reflect historical system performance, system design, service area geography, and other relevant factors

46. Recognition of system performance aids in targeting maintenance and system improvements • Annual performance levels for each service reliability indicator during a major weather event such as a storm should be recorded and reported for future use • Performance data during a “major storm”, or other uncontrollable interruption of service can be used by the operator to develop an emergency plan

47. Recognition of system performance aids in targeting maintenance and system improvements • If the annual performance level is worse than the target for any indicator, the operator can develop an action plan to improve performance to a level that meets or exceeds the target level for each missed reliability indicator

48. KEY INGREDIENTS Performance targets must be achievable Utilities AND Stakeholders set goals Utility has discretion in how to get there Observable and verifiable The measures actually reflect utility performance and efforts

49. IMPLEMENTATION ISSUES Start too high=>no room for improvement or only at extremely high costs Start too low=>easy improvements, high reward with little or no effort Look for needed improvements

50. Role of Standards • Standards important because: • Pipeline assets fail at different rates • Some newer generation pipes fail sooner than earlier vintage pipes • Spending money to reduce average age of infrastructure not necessarily most cost-effective measure to address