How much are you willing to pay to reduce risks in your life? Almost all risks can be lowered or even eliminated – but there's always a price. Which risks should we spend finite resources reducing, and which should we leave be? And what to do when the cost of harm reduction turns out to be greater than the harm itself? Those are the questions and calculations that Toronto Hydro, and power utilities across Canada, have to consider in the wake of 2013's Christmas blackout, which hit 300,000 customers in Toronto alone.
What is risk? It is the odds of suffering a loss in the future. It is a cost. And what about the reduction or elimination of that risk? Also a cost. In deciding whether to pay the price, utilities – and all of us – end up having to weigh three factors: the size of the possible damage, the likelihood of its occurrence, and the price of mitigation.
Extreme weather events like the 2013 ice storm or Alberta's summer flood are enormously costly. Insured losses in southern Ontario, Quebec and New Brunswick are likely to top $1-billion, while severe flooding in Calgary and surrounding towns cost an estimated $1.7-billion in insured losses. And those figures don't include the myriad costs borne by homeowners and businesses – financial, emotional and physical.
That's why utilities like Toronto Hydro must make every reasonable effort to ensure they are prepared. But what is a "reasonable effort"? How much does it cost? And is it ever more costly than a large but rare accident?
For example, Toronto Hydro could have lowered ice storm damage to its grid by adopting more aggressive "vegetation management" practices. It could have pruned more trees, keeping them away from power lines. But the more aggressive the pruning, the higher the cost. There could be other unintended consequences, too. A leafy canopy over a city is aesthetically pleasing, and that matters. It also provides cooling during hot summer months – which are predicted to become hotter as a result of climate change.
Toronto Hydro also should have done a better job of communicating with powerless customers. Then again, there are limits: What would be the cost of having the personnel available to handle every call at the height of the outage, when hundreds of thousands of households were without electricity?
The utility clearly needs to re-assess its emergency plans – after all, more than week to restore power to many customers, in the dead of winter, is unduly slow.
The thing is, all preventive measures carry benefits, but also come with a price tag. And the question faced by utilities like Toronto Hydro is: How much should be spent to prepare for an ice storm that happens on average once every 25 years? Keeping in mind that they also have to prepare for another kind of storm – the severe summer rain and flooding – that brought down parts of their system just six months previously.
The Ontario government recently issued a long-term plan that projects a 42-per-cent hike in electricity prices over the next five years. At least some of that increase will result from investments in the grid aimed at improving reliability. In order to do more, utilities would have to spend more – and pass those costs along to consumers. The risk of an outage can be lowered, but to pay for that, electricity bills might have to go up.
Consider another means of reducing the risk of storm damage: The simplest way of preventing ice-encrusted trees from taking down power lines is to bury the lines. In most new subdivisions, utilities have done just that. Toronto Hydro has had its own program – including an ambitious effort to bury all its infrastructure near the waterfront, while also making it flood-proof. But in established urban neighbourhoods where backyards abut each other, burying power lines is a more costly challenge.
After the ice storm of 1998 brought down its transmission lines, Hydro Quebec reinforced every tenth tower in its vast network, lessening the odds of the kind of cascading effect that caused so much damage. The giant utility could have made its system even stronger by reinforcing every tower – at ten times the price – but it chose to accept some risk, because the up-front cost of further reducing that long-term risk was calculated to be unacceptably high.
These calculations are never without controversy. Following super-storm Sandy that flooded coastal areas in the mid-Atlantic states in November, 2012, New Jersey's PSG&E proposed a 10-year, $3.9-billion plan to harden its gas and electricity system. Some critics claim the plan is too expensive and narrowly focused.
As they respond to the immediate fallout from severe storms, utilities and their regulators need to be more pro-active in assessing the risks, particularly with scientists warning that more severe weather events can be expected due to climate change.
In many places, that work is already under way. The Canadian Standards Association is working with utilities and their suppliers to assess weather-related risk from a changing climate with a view to adopting more stringent standards for things like wires and transformers, to reduce the vulnerability of the grid.
The City of Toronto funded a report on climate adaptation that dealt with, among other issues, the need to strengthen the grid against severe weather, and Toronto Hydro has done its own report that identifies some of its major vulnerabilities.
The effort will never entirely eliminate the risk that Canada's largest city could suffer another major blackout, nor should it. Utilities should take a hard-headed, cost-benefit approach to minimizing risk, and they should be supported by energy regulators willing to help sort out what spending is justified.
Utilities are in the business of managing risk, and lowering it. But they also need to do a better job of communicating a hard reality: the limits of risk management.