Regulation of Public Utilities in the Face of Disasters

Thomas PearceChair, 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

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

1 Remainder 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

The future dependson what we doin the present.

Mahatma Gandhi3

Critical Infrastructure and the

Role of Public Utilities Commissions

Emergency Managers

Surrounding Nations/ States

National, State & Local Police; Military

Local Government

Public Health Agencies

Public UtilitiesComission

Utilities & Interdependent Systems

Other National Governmental Agencies

Executive Office/President/Governor

Governmental Response in Emergencies

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.

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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

Threats to the System and

Emergency Preparedness

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?

Paradigm Shift

The Five Phases of an Emergency

Phase III Assess and

decide action

Phase I Planning

Phase IV Take actions and respond

to feedback

Phase V

Review lessons learned

Phase II Monitor and

alert

Who is involved and who leads at each stage?

What specific actions are taken at each stage?

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

Utility Emergency Preparedness

&Utility Assurance

Guidelines

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

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Effects of A “Dry” Hurricane

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PlanningTraining/Exercises

Coordination

AssessmentScope and Duration

MitigationRisk & Vulnerability

Assessment

Security• Physical• Insider• Cyber

Reliability• Redundancy• No choke points• Diversity

2. Preparedness for Emergency Response

1. Protecting Critical Infrastructure

Ten Actions to Assure Emergency Preparedness

1. Ensure you & your staff are prepared & trained to deal with the emergency situation

2. Know your utility infrastructure and profile

3. Know key government & industry contacts

4. Maintain current file of legal authorities

5. Remember infrastructure locations & keep them current

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Ten Actions to Assure Emergency Preparedness (cont.)

6. Be familiar with response measures

7. Work with the private (or public) sector

8. Review & update plans regularly

9. Develop standard operating procedures for access or credentialing

10.Prepare a media plan

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Emergency Response Plan

“WHAT’S IN YOUR PLAN?”19

Communicating Interdependencies

In an emergency,–what you know is only as

important as

–who you tell.

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

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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 22

Cyber Security

• What are we trying to protect?

• What are the threats?

• What are the challenges of instituting cyber security?

• Where are the vulnerabilities?

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

Interdependencies

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?

What are some types of interdependencies?

• Types:– Physical– Cyber– Geographical– Institutional

• Infrastructure integrity – interdependency is intimately related to security and reliability

Regional and International Coordination

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

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Cost Recovery

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Cost Recovery and Prudence of Investment Decisions

Utilities need to exercise due diligence to protect the investments of their shareholders and assure a reliable supply to customers.

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?

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

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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

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Reliability Standards:

Some Related Approaches

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.

“Reliability” is defined by

1. 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

EXAMPLE MEASURES

• Number of service interruptions

• Duration of service interruptions

• Call center response

• Cost thresholds

In the USA, certain measurements are used to determine how well a utility

system is performing

1.CAIDI (customer interruptions)

2.CAIFI (the frequency of customer interruptions)

3.SAIDI (system interruptions) and

4.SAIFI (the frequency of system interruptions)

The measurement of how well a system is performing provides an indicator of “reliability.”

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

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

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

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

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

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

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

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

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

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

Role of Standards - continued

• Standards important because :– Quantify types of breaking mains and #

customers served– Can result in economic waste and failure

to substantially improve service to address

– According to AWWA, many late 1800s cast iron pipes still functioning well

Achieving Optimal Infrastructure Performance

• Is difficult • Optimization process• Understand water infrastructure failure

causes• Define acceptable level of rate of failure• Evaluating costs of reducing threat risk• Refine through continuous improvement

process• Begin then develop and refine as you

proceed

Achieving Optimal Infrastructure Performance - continued

• Set reliability goals which quantity

– Risk of failure

– Value of reliability

• Example: critical care facilities usually have backup power, but don’t have backup water supply facilities

• Lesson: you need different reliability standards for different customers

APPLICABILITY TO WATER UTILITIES

US water systems

– Some reliability goals or standards for water supply sources

– But not for entire water systems

Issues • Main breaks

– Main break history (frequency, repair costs)– Outage impact history: Duration; Customer impact (#,

type, need for extraordinary flushing, disinfection, complaints)

• Material integrity– Undesirable material– Known corrosion (internal, external)– Known problems by batch, vintage or manufacturer

Issues • Pipe age/useful life

– Approaching/exceeding expected useful life– Range of expected useful life– Material – cast iron, cement, steel, ductile iron– Installation

• Location• Conditions• Date/age

– Pressure or other factors known to affect useful life

Issues

• Critical system impact– Transmission or other large-diameter main– Potential failure impact on customers (#, type,

nature & magnitude of failure impact)• Impact on priority customers (schools,

critical care facilities, significant commercial/industrial/military)

– Valve operation/location issues

Issues

• Water quality issues– Customer complaints– More frequent flushing needs– Utilizing bleeders for quality control– Pipe material contributing to water quality

problems

• Leakage– Losses due to system integrity– Losses due to theft of service

Issues

• Hydraulic capacity– Does not meet system hydraulic needs– Customer complaints or operational issues related to

flow and/or pressure– Hydrants on mains less than desired diameter– Fire flow adequacy

Issues

• Scheduled work coordination– State or locality other government project– Required government agency relocations– Potential for restoration/paving savingd due to third

party work

• Other (specified by utility provider)– Unique customer or community considerations– Other mitigating or unanticipated factors or conditions

New Orleans, September 2005

Hope for the best, plan for the worst, and you should

always find yourself prepared.

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Muchas Gracias!

Thomas PearceSenior Utility Specialist, Public Utilities Commission of Ohio

Chair, NARUC Staff Subcommittee on Critical Infrastructure

+1 614 4661846

thomas.pearce@puc.state.oh.us