Co-authored by Justin Stevens & Eric Hanson
Building Resilient Energy Systems in an Era of Extreme Weather
As society’s dependence on electricity for heating and cooling, communication, computation,
and transportation increases, so do expectations of utilities to provide reliable service. As
extreme weather events (already the leading cause of service interruptions) become more
frequent and intense, utilities need to ensure their system is sufficiently resilient—defined here
as the ability of an energy system to withstand or reduce the duration of service disruptions
caused by extreme weather—to deliver consistently reliable power.
Evolving Stakeholder Landscape
Though weather risks have always existed, their rising frequency, duration, severity, and
recovery costs have drawn increased attention from a diverse set of stakeholders. Each of
these groups brings their own unique concerns and expectations that must be addressed by
utilities.
Regulators: More than a dozen states now require utilities to develop formal resilience plans.
Often established after prolonged weather-related outages, they typically require utilities to
assess weather and climate-related risks to their systems and operations under a variety of
scenarios and identify mitigation strategies. Beyond these requirements, utilities are also
increasingly subject to completing resiliency plans as part of rate case settlements or broader
system planning efforts (e.g., integrated resource or grid modernization plans).
Customers: Historically, customers impacted by weather-induced service interruptions had little
recourse beyond voicing frustration to elected officials and utility commissioners. This is rapidly
changing as customers with the financial means in jurisdictions with frequent outages are
increasingly taking reliability into their own hands by installing solar panels, batteries, and
generators.
Insurance Companies: Utilities, particularly those located in wildfire-prone areas in the western
United States, are facing skyrocketing insurance costs. Several utilities in this area have seen
insurance premiums rise by several multiples, while others have been forced to self-insure or
seek government safety nets. In response, utilities are increasingly seeking regulatory approval
to recover the cost of weather-related damage, rising insurance premiums, and prevention
efforts (e.g., vegetation management, grid hardening, etc.).
Credit Rating Agencies: The potential financial impact of extreme weather and physical climate
risks is increasingly a factor in utility credit decisions. Between 2018 and 2023, 19 utilities were
downgraded due to exposure to extreme weather—a sharp rise from just two in the prior 12
years. However, not all credit actions have been negative, as evidenced by the recent upgrades
of electric utilities in California after they had demonstrated sustained progress in wildfire
mitigation efforts and improved relations with legislative and regulatory bodies that reduced
wildfire-related financial risks.
Investors: For some investors, perhaps most famously Warren Buffet, extreme weather and
accompanying uncertainties over legal liability and cost recovery are reshaping the utility
investment thesis. The sector, once viewed as low risk and stable, now carries greater
uncertainty as demonstrated by several recent utilities filing for bankruptcy or facing severe
financial liabilities stemming from wildfires, hurricanes, and extreme cold.
Steps to Increase Resilience
Facing growing risks and stakeholder scrutiny, utilities must focus on increasing resilience.
Though there is no “one-size-fits-all” approach, below are several “no-regrets” actions utilities
should take to improve the resilience of their system and operations:
1. Conduct a Vulnerability Assessment
This process involves identifying and quantifying how extreme weather could affect utility assets
and operations. Perfect accuracy isn’t the goal, rather utilities should focus on identifying the
highest impact risks. Keys to success include:
Assembling a cross-functional team to ensure all perspectives are considered
Combining utility-specific experiences and operating data with external data sets and
assessments
Engaging customers, regulators, first responders, and local governments to align on
expectations and educate stakeholders
2. Develop a Formal Resilience Plan
Once vulnerabilities are identified, utilities should develop actionable plans to mitigate the
greatest risk areas. These plans, which will likely be subject to regulatory scrutiny, should clearly
outline the solution, associated costs/benefits, and evaluation methods. Important
considerations include:
Collaborating with regulators on cost-recovery mechanisms and performance metrics
Pursuing federal or state funding to offset potential rate impacts
Starting with proven, near-term actions (e.g., vegetation management)
Incorporating resilience into asset design and maintenance processes
Working with community groups and government agencies on joint solutions
3. Integrate Resilience into Everyday Operations
The most mature utilities are embedding weather and climate resilience considerations into
standard business practices. This includes using climate data in planning tools, updating
engineering design standards, and continuously reassessing asset vulnerabilities as new
information becomes available.
Utilities that proactively identify and mitigate the highest risks to their system and operations will
be the most prepared for the challenges posed by extreme weather. While no system can be
made invulnerable, building resilience is no longer optional—it is essential to ensuring reliable
electric service. For a more in-depth exploration of these recommendations, visit our article.
Sources
U.S. Department of Energy: https://doe417.pnnl.gov/
Wall Street Journal
Utility Dive
o https://www.utilitydive.com/news/moodys-upgrades-pge-pacific-gas-credit-wildfire/743811/
Lawrence Berkley National Laboratory: https://emp.lbl.gov/publications/grid-resilience-plans-state
ScottMadden research, analysis, and project experience