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US utilities in earnings calls discuss hurricane impacts, grid hardening plans

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US utilities in earnings calls discuss hurricane impacts, grid hardening plans

More than a dozen electric utilities and related companies in third-quarter earnings calls discussed climate change-related topics, including the impacts of hurricanes Michael and Florence, challenges recouping certain storm recovery costs, importance of addressing investors' concerns, and plans for tackling wildfire risks in California.

Some companies also boasted about ongoing grid hardening and resilience initiatives and outlined how past related investments have paid off. The following is a highlight of some of those climate-related discussions.

Scientists increasingly are linking climate change to extreme weather events, including hurricanes, heat waves, coastal flooding and dramatic changes in rain and snow patterns. Those changes could threaten existing infrastructure and natural ecosystems and could disrupt the global supply chain if the world does not drastically slash emissions over the next decade, the United Nations' Intergovernmental Panel on Climate Change recently reported.

While only a few executives used the phrase "climate change" in their presentations to analysts, a number of officials noted the increase in weather volatility.

"We are all too familiar with the tragedies of major hurricanes that are occurring more frequently and with greater severity than ever before," said K.R. Sridhar, co-founder, chairman and CEO of Bloom Energy Corp., a fuel cell distributed generation company, in a Nov. 5 call. "Such events expose the vulnerability of the centralized grid as power lines come down and major power outages compound misery, threaten health, disrupt society and impact our economy."

Sridhar continued, "While it remains imperative to combat the causes of climate change, we also have to be become resilient enough to address the disruptive impacts that are already occurring."

A run of large and numerous small storms led to an unexpected financial problem for Avangrid Inc., which serves electric and natural gas customers in New York and New England. The storms tied up workers and resources that the utility had planned to dedicate to capital projects and caused the company to have lower capitalization of overhead, interest and labor than forecast, Avangrid CEO and Director James Torgerson said.

While rate mechanisms exist to deal with the cost impacts of major storms, minor storms for the most part are not deferrable and recoverable, according to Bob Kump, president and CEO of Avangrid Networks Inc. "So it's been a very frustrating year, a very difficult year for us." The utility plans to file proposals in New York and Maine to adjust its rate plans to recover more of the costs of smaller storms, Kump said. He also noted that Avangrid is developing a $2.5 billion plan to harden the power grid against future storms, including by replacing wooden poles and performing more aggressive tree trimming.

"We need to focus on how (to) minimize these impacts going forward, because I can't say that the weather is going to materially change to the better," Kump said.

Hurricanes, grid hardening

Recovering from hurricanes Florence and Michael, which respectively pummeled the southeastern portions of Duke Energy Corp.'s service territories in September and October, cost Duke hundreds of millions of dollars in operations and maintenance expenses, the utility said in its call. Florence cost about $450 million, the majority of which impacted Duke subsidiary Duke Energy Progress LLC, Steven Young, Duke executive vice president and CFO, said. DEP plans to request to defer about $370 million of incremental costs for recovery in the utility's next rate case. Duke also estimates that Hurricane Michael may have cost the company about $200 million, which will be recorded in the fourth quarter.

But Duke's previous storm resiliency investments, specifically self-healing grid technologies that reroute electricity from damaged power lines, also helped the company avoid about 27 million outage minutes across the Carolinas during Hurricane Florence, Duke President and CEO Lynn Good said. Building on that success, Duke aims to expand the technology from 16% of its system to 80% over the next decade, Good said.

Several more utilities also boasted about the benefits of their grid hardening efforts or outlined related future investments in the earnings calls. Ameren Corp. officials said storm-resilient utility poles, automated switches and an upgraded distribution grid have reduced annual electricity service interruptions, on average, by 19% since 2012. Grid hardening investments NextEra Energy Inc.'s Florida Power & Light Co. made since 2006 helped FPL "quickly restore service" to its customers following Hurricane Michael, NextEra CFO and Executive Vice President of Finance John Ketchum said.

FirstEnergy Corp.'s Jersey Central Power & Light Co. in July filed an infrastructure investment proposal with the New Jersey Board of Public Utilities that sought to help the company's system withstand flooding at substations and decrease customer outages through distribution automation. And Public Service Enterprise Group Inc. is awaiting a ruling from the New Jersey BPU on its proposed $2.5 billion, 5-year extension of its infrastructure resiliency program that would include the installation of stronger poles and wires to reduce wind and tree damage and the deployment of advanced technology to quicken restoration.

Dominion Energy Inc. is working on reducing the potential future impacts of hurricanes and major storms by placing up to 4,000 circuit miles of certain outage-prone overhead electric distribution lines and equipment underground. As of October, the utility had moved about 1,000 miles underground.

Wildfire risk management

Edison International and PG&E Corp. both praised the recent signing of legislation in California that provided limited financial shelter for investor-owned utilities from billions of dollars in damages that could result when their electrical equipment ignites wildfires. But both companies noted that more needs to be done and also outlined their efforts to increase awareness and their ability to shut off parts of the system, as a last resort, to mitigate the potential for more wildfires.

"Climate change has resulted in long-term drought conditions that weaken and kill trees due to bark beetle infestation and more severe weather events," Edison International President and CEO Pedro Pizarro said. Further work is required to "establish a set of prudent manager standards for wildfire prevention and event response, and reform current policies on post-event liability."

Southern California Edison Co. in September filed a proposal to spend $582 million on wildfire mitigation and prevention, including by replacing 600 circuit miles of bare wire with insulated wire in high fire risk areas in 2018 through 2020.

For its part, PG&E plans to propose additional situational awareness, infrastructure hardening and enhanced operational practices tied to fire detection and prevention. It aims to install high-definition cameras and additional weather stations in key areas and, over the next decade, to bolster its infrastructure in highest-risk areas with stronger and more weather-resistant poles and insulated wires.

Climate disclosures, investor relations

A small number of utilities also discussed how they are appeasing investors' appetite for climate change disclosures and for demonstrating a company's stance on environmental, social and governance metrics. Investors use ESG metrics as one way to measure the long-term sustainability of a company.

Dominion Chairman, President and CEO Thomas Farrell II in a Nov. 1 call said the company recently launched an initiative to improve its engagement with investors and plans to launch an ESG-dedicated website in the coming days. He said ESG is a "board-level priority."

AES Corp. President, CEO and Director Andrés Weilert in a Nov. 6 call said the company expects in the next week to release a climate scenario report in line with the guidelines of the Task Force on Climate-related Financial Disclosures and include updated carbon intensity reduction targets.

Entergy Corp. CEO and Chairman Leo Denault noted, "Our investors are increasingly aware of the importance of environmental and sustainability responsibilities." He also said Entergy has incorporated the United Nations' sustainable development goals into its social responsibility business plan and strategy.