Modern society depends on electric service to meet essential needs like heating and cooling, light, communications and computation, and increasingly transportation. As this reliance continues to grow, most customers view any form of service interruption as unacceptable. While utilities are committed to providing reliable service, extreme weather events (historically the leading cause of service interruptions),1 are becoming more frequent and intense, making it more challenging to deliver on this commitment.
Evolving Stakeholder Landscape
In this article, we define resilience as the ability of an energy system and its composite assets to withstand, or reduce, the duration of service interruptions from disruptive extreme-weather events. Although the risks of extreme weather have been present since the days of Pearl Street Station (the country’s first centralized power generating station), the rising frequency, intensity, and duration of weather-driven events – and accompanying recovery costs – has drawn attention from a broad range of stakeholders. Several of the more prominent stakeholder groups are described below.
Figure 2: States with Resiliency Planning Requirements for Regulated Utilities
Regulators: Currently, over a dozen states have or are finalizing some form of requirement for regulated utilities to engage in comprehensive resiliency planning efforts (see Figure 2 above). Most of these requirements were established after an extreme weather event resulted in prolonged customer outages that drew the ire of elected officials and state utility commissions. Though requirements for these plans vary by jurisdiction, most require utilities to conduct proactive analysis to assess and quantify potential weather/climate-related risks and to develop mitigation plans.
Figure 3: Grid Resilience Plans: State Requirements, Utility Practices , and Utility Plan Template (July 2024)
Resiliency planning can be required as part of a standalone regulatory proceeding or incorporated as part of other efforts. In North Carolina, a utility was required to conduct a climate vulnerability assessment as part of a rate case settlement agreement. Illinois utilities are required to consider climate change as part of multi-year integrated grid plans required by the state’s Climate and Equitable Jobs Act. In Mississippi, utilities have been subject to post-event infrastructure reviews.
Beyond these proactive planning requirements, utility executives are more frequently being asked or compelled to testify before utility commissions and elected officials after weather event-linked outages to justify actions (or perceived inactions) that resulted in lengthy service interruptions. They are also asked to justify the costs of investments utilities deem necessary to ensure safe and reliable service during extreme weather conditions.
Customers: As reliance on electricity to power homes, businesses, and vehicles continues to accelerate, so has the frequency and duration of outages. Over a ten-year period ending in 2022, weather-related outages occurred about 20% more frequently and lasted approximately 46% longer when compared to the previous ten years.2
In the past, customers who experienced reliability issues had few avenues of recourse other than voicing frustration to the local utility, elected officials, and regulators. This is no longer the case as customers with financial means are increasingly taking reliability into their own hands by installing backup generators, solar panels, and batteries.
Insurance Companies: As the risk and cost of extreme weather events rise, so do insurance premiums. Nowhere is this playing out more than in the western U.S. where recent wildfires linked to utility equipment failures have resulted in billions of dollars in damages and fines. These losses have resulted in some utilities seeing commercial insurance premium increases of several multiples.3
In response, utilities are increasingly seeking regulatory approval to recover costs of past wildfire expenses not covered by insurance, pay for more expensive insurance coverage, and cover the costs of enhanced wildfire planning and management activities.4 In more extreme instances, utilities unable to access commercial insurance have been forced to either self-insure or rely on government programs to serve as the insurer of last resort.
Credit Rating Agencies: The rise in physical risks to utility assets due to extreme weather events is increasingly a factor in credit actions. Between 2018 and 2023, 19 utilities were downgraded due to the physical risks of climate change—a jump from only two downgrades over the prior 12 years.5 Though this is a trend to watch, not all recent credit actions that cite physical risks have been negative. In 2023, the ratings of two California utilities that had previously been downgraded in the aftermath of wildfires were upgraded in part due to, “progress made…to address wildfire risk,” “ongoing efforts to enhance system resilience,” and “ongoing management efforts to reduce wildfire risk.”6 Despite the recent LA wildfires, Moody’s recently upgraded PG&E’s credit rating stating, “[the] upgrade reflects the organization’s continued improvement in mitigating wildfire risk over the last few years, as well as its ability to strengthen both its financial profile and its relationships with key stakeholders.”7
Investors: The financial impacts of extreme weather have altered the investment thesis for utilities. Utilities filing for bankruptcy or experiencing significant financial distress – once a rare occurrence – has become more common. In the past seven years, there have been over a half-dozen instances where the cost of recovery and accompanying legal liabilities and penalties, stemming from wildfires (as experienced by utilities in Hawaii and the western U.S.); hurricanes (Puerto Rico); and extreme cold (Texas and merchant generators in the northeastern U.S.), have resulted in bankruptcy or severely impaired balance sheets.
Addressing Stakeholder Concerns
In response to the increasing risks posed by extreme weather and the heightened interest of key stakeholders, utilities are increasingly focused on improving the resiliency of their systems and operations. As there is no “one-size-fits-all” approach, we highlight several “no-regrets” actions for utilities to pursue .
Step 1: Conduct a Vulnerability Assessment: This is a formal process where a utility identifies, quantifies, and assesses the risks posed by extreme weather events to its assets and operations under various potential scenarios. Though the process can seem like an overwhelming endeavor, akin to trying to predict the weather, some keys steps may include:
- Establishing a team comprised of individuals from across the business to ensure there is a comprehensive process to identify and assess the potential impacts across assets and operations.
- Leveraging existing information and assessments performed by peers, government agencies, and others.
- Including external stakeholders—particularly customers, regulators, first responders, and local government—to capture their feedback, provide education on the evolving risks posed by extreme weather, and establish expectations as to the effort (and investment) required to achieve the desired impact.
Do not let perfect be the enemy of good—no assessment is perfect; therefore, the focus should be on identifying the risks that have the greatest potential impact.
Step 2: Develop a Formal Resilience Plan: Once vulnerabilities are identified and quantified, the next step is to identify potential solutions and develop actionable plans to address the most significant risks. The plan should include an assessment of financial costs, as well as mechanisms to evaluate the effectiveness of proposed investments. To ensure prudence and cost recovery, the processes used to evaluate and ultimately select the actions to be taken should be thoroughly documented with clear linkage to how they will address identified risks.
Key considerations during this phase include:
- Engaging with regulators to align on how the costs were calculated, how they could be recovered, and how to show the benefits of improved reliability outweigh the costs.
- Exploring alternative funding mechanisms available (e.g., through federal programs) to offset the cost of resilience/grid hardening investments.
- Starting with proven investments with immediate impact (e.g., enhanced vegetation management and more frequent asset inspections) before tackling longer-term and costlier approaches (e.g., undergrounding lines or building out a network of sensors).
- Incorporating resiliency considerations into existing asset management processes (e.g., examining if design criteria for specific assets or geographies should be modified).
- Engaging with government agencies, owners/operators of critical infrastructure, community groups, and other stakeholders to develop coordinated solutions.
Step 3: Embed Resilience Considerations into Everyday Operations: For the most mature utilities, resiliency planning has been incorporated into everyday operations and business planning activities. This may include incorporating climate risk data in planning models or reassessing engineering design criteria for specific assets or geographies.
Conclusion
With increases in extreme weather events and a heightened focus on utility preparedness, it is important to proactively plan for such events and incorporate resiliency considerations into planning processes. ScottMadden has advised utility clients on developing resiliency plans, communicating risks and mitigation plans to key stakeholders, and modifying internal processes to incorporate resilience considerations. We believe these no–regrets actions are important steps in preparing for the storms to come.
- “Texas electricity company Griddy declares bankruptcy as winter storm fallout continues,” CBS News (March 15, 2021).
- “Texas Energy Co-Op Files For Bankruptcy After Storm, High Bill”, NPR (March 1, 2021).
- “Just Energy seeks bankruptcy after hit from Texas freeze,” Financial Post (March 9, 2021)
- “Lincoln Power files for bankruptcy after $38.9M PJM charge for failing to run during Winter Storm Elliott,” Utility Dive (April 3, 2023).
- “Investor-owned utilities facing physical climate risks should expand cost recovery options: S&P,” Utility Dive (December 8, 2023).
- “Q4 2023 Credit Ratings Summary,” Edison Electrical Institute (January 21, 2024).
- “Moody’s upgrades PG&E on reduced credit risks from wildfires,” Utility Dive (March 28, 2025).
