How to enhance resilience in utilities in an era of growth, volatility

Navigating this evolving landscape will require utilities to transition from a framework that emphasizes short-term profitability to one that defines success according to service performance, resilience measures and enhanced visibility across the entire enterprise. Industry needs to approach this future with a renewed sense of urgency as extreme weather events continue to challenge the industry’s aging power infrastructure. Between 2013 and 2022, utility companies experienced a 20% increase in outage frequency, with durations extending by more than 46% over previous averages.1 Projections indicate this reality will become even more acute.

As they prepare for a more volatile future, utilities will likely need to invest up $165 billion annually to move forward with critical upgrades and maintenance over the next several years, according to the Edison Electric Institute (EEI). To fund these upgrades, utilities will need to rely on rate hikes as well as commitments from investors. But investors, regulators and even customers will not be ready to write a blank check for these improvements and utilities will need to demonstrate greater operational resilience. Many investors are skeptical about the industry’s risk management plans. In fact, our recent survey of utility investors revealed that six out of 10 were dissatisfied with the way utilities manage risk.

To counter this perception, utilities will need to renew their focus on risk management, moving forward with a comprehensive plan to address a wide range of issues, of which aging assets are only one. Utilities must contend with complex and evolving regulatory requirements, from mandates to lower carbon emissions to continually evolving standards for cybersecurity. And as they do this, they will also need to upgrade legacy systems prone to failure and inefficiency, while dealing with disjointed data systems that hinder timely decision-making during times of crisis.

In a new three-part series, we will address the critical areas in enterprise risk management (ERM) that are challenging utilities to improve their operational resilience and ability to prepare for extreme weather events. The first paper touched on the evolving maturity of ERM programs and new capabilities that are helping utilities to cope with a changing landscape. The second and third white papers will address the role that ERM plays in risk mitigation, with a specific deep dive into wildfire risks. Future papers will also discuss how utilities are using dynamic assessment to continuously monitor both recurring and emerging mega risks.

ERM teams for the utilities sector find themselves in the midst of a critical inflection point as the industry contends with rapidly increasing demand for energy. While this brings significant growth potential, it also represents greater operational and external exposure to risk. In this changing landscape, the role of risk management and the expectations of value for executives and boards has sharpened to a risk focus that is not only viewed through the prism of the business, but also seeks to enable the organization to plan, prepare and see around corners. This new approach is also pragmatic, recognizing that not all risks can be completely mitigated.

Looking ahead, the time is now for utilities to redouble their efforts to improve operational resilience and develop a more robust risk management framework. Investing in mature ERM programs, routinely performing dynamic risk assessments and following a comprehensive resilience strategy will enable utilities to address vulnerabilities and ensure sustainable service delivery. This strategic approach not only fosters investor confidence but also aligns with regulatory expectations and safeguards infrastructure and communities against multifaceted future challenges.

Special thanks to Crystal Corley Partner, Consulting, Risk Consulting.