Current Issue #488

Slings and Arrows: Power paralysis

Slings and Arrows: Power paralysis

Power supply and power point presentations collide in Ash Whitefly’s latest dispatch.

Where’s your insurer now?

The next time Adelaide’s power supply drops out, those in the city’s high-rises could be in for some downtime. Same goes for those in the heritage shops and cottages in the streets below. And the restaurants, with fridges full of food, slowly thawing. That was the picture contemplated by the city council in mid-winter 2018, when assessing how to cope if the power ceases and the lights go out. But the conclusion was blunt. “Businesses and households can discuss their specific insurance needs with their insurer to mitigate the effects of prolonged power outages,” concluded an administrator’s advice to city councillors.

Easy for him to say. The city council has unlimited civil liability protection in the event of a catastrophe. Despite that, in June 2018 it was advised: “Examples of financial impact [for ratepayers] include increased operating and capital costs, write-offs, asset impairment and early retirement of existing assets, costs to adopt/deploy new practices and processes, abrupt and unexpected shifts in energy costs, change in revenue mix, increased insurance premiums and potential for reduced availability for ‘high risk’ assets.” Ouch.

That month, as the rain fell, suits upstairs in Pirie Street were entertained by a lawyer presenting a show-and-tell about ‘corporate climate change risk’. Turns out that the likelihood of natural catastrophes is fifth on a list of 10, and extreme weather events is number two. The September 2016 event that turned off Adelaide’s lights (actually the entire state’s lights) was extreme and underscored that rating.

A different kind of green

“This is a different kind of green: the weight of money,” warned the lawyer. “When capital markets and regulators are on board, political ‘beliefs’ become irrelevant. Key to efficient risk management and value capture is a whole-of-council approach.”

Yessir! And just to emphasise that lawyers, having got a PowerPoint foot in the door, waste no time in selling their expertise, the advocate threw down the big questions as the executives gazed about the room. “How robust are the scenarios and assumptions used in strategy, policy and planning? How will the decisions we make now (she meant ‘you make now’) position our economy and society for this disruption?” She then diplomatically outlined some implications: ‘Widening insurance gap between natural disaster damage and private insurances’, and ‘flow through to mortgage defaults and property prices’. Dark, fearsome scenarios for Adelaide businesses.

Council steps up

Last July, the city’s administrators, bean counters, electricians and lawyers got together and investigated ‘power outage support for ratepayers’, aware of the risks of food spoilage in shops and harm to people relying on power to run ventilators and other medical devices. They explored buying small domestic generators for homes, larger commercial generators for businesses, or installing three-way generator changeover switches, to allow property owners to buy their own generators. The downsides were multiple. On the idea of small generators ($3000 each) there were public safety and legal complications about refuelling and troubleshooting; connection to the home power system; and liability.

With option two (most appropriate for groups of shops; $38,000 each), things were similarly complicated, in addition to council’s entire electrical staff having to be hands-on throughout a crisis. In contrast, there was a real threat – how the council would decide, when disaster strikes, who got first dibs “with no easy mechanism to weight up the merits of applicants apart from ‘first come, first served’.”

Option three, the generator switch idea, had upside: “We would be supporting residents in the event of a blackout without the inherent liability and resource implications of providing alternative power source.” But the downside was that: “We would be obliged to provide a certificate of compliances for each installation, and given the age of many dwellings in the city, most of those installations would not meet current AS3000 standards [which] would therefore preclude us from performing the modification…” There also was liability risk.

Too hard, today

In the end, the administrator determined it was all too hard. The consideration, at least, was comforting in the candlelight as the low-probability of a big blackout was contemplated, noting that the September 2016 ‘big dark’ was a one-in-50-year weather event. “This report concludes that in considering the logistical and administrative impacts, risks and opportunities, the three options are not considered reasonably practicable.” The council instead would wait for “alternative options, which could eventuate through the energy sector”.

It may have been that the woman who wrote that in July 2018 hadn’t attended the June workshop with the lawyer from the big firm. The lawyer’s advice had been a little different. “The days of viewing climate change within a purely ethical, environmental or long-term frame have passed. The legal imperative for robust consideration is clear.” Translated, that probably means that waiting for something to eventuate isn’t reasonable, while ratepayers are left in the hands of their insurers – who almost certainly have revised their policies to avoid climate-linked catastrophe risk. But at least if dark days ahead prompt property damage insurance litigation with the council, there’s always a good lawyer ready, willing and able to fend off any ratepayer’s claims. She still has the PowerPoint file doc to remind council of the warnings.

*Ash Whitefly is Executive Director of the Adelaide Whitefly Institute of Diplomatic Studies.

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