Climate inaction could put utilities in legal peril: New report warns that climate resilience planning could have legal implications for many utility companies

By Niina H. Farah December 22, 2020

Power companies may soon find themselves in legal trouble if they don’t protect their operations and infrastructure against flooding, severe storms and other climate impacts, legal experts say.

Not only could utilities face challenges if they fail to account for rising global temperatures in rate proceedings before state commissions, but they could also be held legally responsible in state courts for power failures from extreme weather events that posed foreseeable risks, a new report finds.

As the nation’s electricity infrastructure faces more frequent threats of outages and other problems from hurricanes or wildfires, very few utilities have undertaken a meaningful examination about how the changing environment will affect their investments, said Romany Webb, a senior fellow with Columbia University’s Sabin Center for Climate Change Law and lead author of the white paper on the issue released this month.

“It’s not only a practical problem in that utilities are not prepared to deal with these impacts that we know are coming and in some cases are already being felt, but it’s also a legal issue,” said Webb.

Utilities have various legal obligations to ensure service reliability; to ensure just and reasonable rates; and to avoid, in a tort law context, foreseeable risks of harm,” she said.

Failing to adequately prepare for climate change could mean utilities are breaching those legal obligations, Webb argued.

Utilities that have a strategy for protecting themselves against unusual weather events are more likely to enjoy strong relationships with policymakers and customers who are increasingly interested in environmental issues, said Travis Miller, an equity strategist at Morningstar, a financial services company.

The ones that have fared the best economically are the ones that took proactive steps to work with regulators so their system withstood some of those events,” Miller said.

Webb’s paper, written in collaboration with the Environmental Defense Fund, drives home the point that utilities that address climate risks will see benefits in their bottom lines, said Justin Gundlach, a senior attorney at the New York University School of Law’s Institute for Policy Integrity.

“The fundamental point here is that it would be cheaper if they just looked at this hard and made prudent investments,” he said.

Rate cases

One of the most immediate ways advocates can push utilities to be more proactive on climate is by intervening in regularly held rate proceedings. Ratepayer and environmental advocates can put pressure on utility commissions to prevent companies from fully recovering their costs from customers if they didn’t adequately plan for how the investments could be made vulnerable from more severe storms, wildfires or flooding. Webb described rate proceedings as an underused method for pressuring utilities to assess climate risks.

“The system controls so much infrastructure, and [utilities] have really dropped the ball so far,” she said.

While they weren’t the focus of the paper, regional grid operators should also be taking similar steps to assess infrastructure risks, Webb added.

This approach is similar to the types of analyses commissions already conduct to ensure that utilities are making prudent investment decisions and aren’t taking actions that will lead to unreasonably high costs for customers, said James Van Nostrand, a law professor at West Virginia University and a reviewer of the white paper.

“Utilities now have to be mindful,” he said. “There’s a new factor that needs to be considered as you make these investment decisions, and all we’re saying is you can’t ignore climate change anymore, and so you need to incorporate that in your decisions.”

Addressing climate risks through rate proceedings is appealing because it is something states could implement on their own and because it’s within utility commissions’ authority to analyze climate risks, said Thad Culley, senior regional director and regulatory counsel at Vote Solar, who also reviewed the paper.

“Even short of federal legislation or federal regulation that would put a price on carbon or otherwise limit it, this is — I don’t want to say a back door, but this is something that immediate action could be taken on without relying on any federal consensus,” he said.

Utilities are also likely to feel pressure from rating agencies that are tracking how well utilities are accounting for climate risks. Negative reviews could hurt utilities’ credit, which is another factor regulators will consider, said Van Nostrand, who previously represented energy clients in state regulatory proceedings as a partner at the firm Perkins Coie LLP.

The Edison Electric Institute, which represents investor-owned electric companies, did not provide comment for this story.

A Biden plan?

The incoming Biden administration may also be sympathetic to efforts to push for more climate analysis from utilities.

For example, Brian Deese, Biden’s pick for director of the National Economic Council, developed research on climate risk impacts to utilities and equity markets during his time at the investment management company BlackRock Inc., Culley said.

“I think it’s an idea whose time has come,” he said. “Regulators of utilities pay attention to what the market is paying attention to, what the insurance market is paying attention to, and I think those things have really come to a head.”

The Sabin Center successfully used this approach to challenge Consolidated Edison Inc. in New York, following outages after Superstorm Sandy in 2012. Two years later, the New York Public Service Commission ordered ConEd and other utilities in the state to consider climate risks.

ConEd’s subsequent climate change vulnerability study measured the likelihood of various climate risks between 2020 and 2080 and is now the “gold standard” of climate resilience planning for the electric utility sector, according to the paper. ConEd did not respond to a request for comment on this story.

Vote Solar recently employed a similar approach in challenging Duke Energy Corp.’s grid modernization plan in North Carolina.

In that case, Vote Solar did not seek to prevent Duke from recovering its costs but instead asked the North Carolina Utilities Commission to require power companies in the state to consider climate change, said Van Nostrand, who served as a witness for Vote Solar in the rate proceeding.

The parties reached a settlement with Duke in which the utility agreed to start a climate risk and resilience working group and to include stakeholders to look at how the company could incorporate climate data. The company may also conduct an assessment and compile a resilience plan, said Culley.

The commission has yet to issue any order on what sort of analysis utilities may be required to conduct, though a decision could be made this winter.


Still, state commission requirements for more climate analysis won’t necessarily be enough to prevent harm to the public.

Experts warned that utilities could draft reports that are too general to be useful or simply fail to act on the threats they identified, leaving both the power providers and customers vulnerable.

Like in New York, the California Public Utilities Commission in 2016 also pushed companies, including Pacific Gas & Electric Co., to include climate in risk assessments required before each rate case.

PG&E’s assessment at the time was obviously flawed and highlighted the importance of including outside experts to review the plan, said NYU’s Gundlach.

In its analysis, PG&E predicted that in 2022, its workforce and the public would experience one to three deaths a year from climate impacts.

This year, the utility pleaded guilty to 84 counts of involuntary manslaughter related to the 2018 Camp Fire, which was started by a PG&E transmission line that came into contact with dry vegetation, the report noted.

“It’s not enough to just say that you’ve looked at it and congratulate yourself publicly for your great degree of concern,” Gundlach said.

California’s largest utility companies have continued to be buffeted this year by a record summer heat wave that forced rolling blackouts, followed by another devastating fire season. Windy, dry conditions throughout the fall led PG&E to cut off power to customers several times to prevent grid equipment from blowing down and sparking blazes (Energywire, Oct. 8).

In a statement, PG&E spokeswoman Ari Vanrenen said the utility was working proactively to understand its climate risks and incorporate its research into its planning.

PG&E filed its latest risk management filing with the CPUC in June, which describes climate change as a “cross-cutting risk.” The utility company is also in the process of conducting its second “Climate Change Vulnerability Assessment,” following its initial 2016 report.

“PG&E is integrating climate projections and climate hazard risk information into the company’s approach to risk assessment and asset management, with the goal of proactively addressing climate risk as standard practice,” Vanrenen said in an email.

“We are also using climate data to update our design standards, with a focus on vulnerable, high priority assets, and have already made progress in accounting for hazards like sea-level rise and other flooding risk, extreme heat, and wildfire risk in our standards,” she wrote.

Foreseeable risk

Advocates could also pursue tort proceedings against utilities after disasters, if they could show that utilities had not studied and taken into account how climate change could damage their infrastructure.

Under tort law, utilities could be considered liable for violating a “duty of care” if challengers can demonstrate that a company’s lack of preparation directly harmed customers.

As advancements in the burgeoning field of attribution science allow experts to draw links between climate change and specific weather events, and more granular data draws a clearer picture of at-risk areas, advocates can more clearly show that utilities should have been aware of risks and acted to protect their infrastructure (Climatewire, Nov. 3).

“They are liable for that because there was a foreseeable risk that they should have done something about,” said Webb, the lead author of the Columbia report.

The approach is similar to lawsuits the Conservation Law Foundation has brought against Exxon Mobil Corp. and Royal Dutch Shell PLC in the northeastern United States for failing to prepare their coastal storage facilities for climate impacts (Climatewire, Aug. 14).

“It’s a pretty new idea that utilities haven’t thought about in the past,” said Webb.

In theory, advocates could bring a case even for damages not caused by a catastrophic disaster, as long as they are able to show that a meaningful injury can be attributed to the utility’s failure to protect its equipment to a certain standard, said Gundlach.

Of the two approaches, advocates are likely to turn to rate proceedings first, because they happen regularly as utilities turn to commissions to recover the costs of their investments, he said.

“Utilities definitely want to appear reasonable,” Gundlach said. “They are going to want to arrive at a settlement and move ahead and demonstrate their concern to the public.

“In a tort case, that’s a lot harder, and so I think they will be more responsive,” he continued. “They won’t be pushed into a complete defensiveness in the context of a commission proceeding in the same way.”

Then again, Gundlach said, even the threat of a lawsuit could force a utility to act. “These are not fights utilities want to wage,” he said.