| Charles Starling, a lineman with Team Fishel, is pelted with rain as he walks by a row of line trucks staged in a field in The Villages, Florida, on Sept. 26, 2024. Duke Energy staged thousands of trucks in preparation for Hurricane Helene. |
Electric utilities serving the US Southeast, a region increasingly being ravaged by the effects of climate change, are looking to recover billions of dollars in storm damage following an "unprecedented" and "catastrophic" 2024 hurricane season.
The devastation of 2024's hurricanes — particularly Helene's September path through southern Appalachia and other inland areas unused to such storms — may prompt utilities to rethink the region's grid, though it is likely too early to say what changes they may implement following the year's storms.
"Outages and restoration costs from severe weather events, such as hurricanes, winter storms and wildfires, increasingly impact utility financial outlooks ... driving an active rate case agenda nationwide at a time when regulators and policymakers are particularly sensitive to affordability issues," said Lillian Federico, energy research director at Regulatory Research Associates, a group within S&P Global Commodity Insights.
Distributed energy resources could also help but are undervalued in many power resource planning processes, especially in the Southeast, said Tyler Norris, former vice president of development at independent power producer Cypress Creek Renewables LLC and now a doctoral student at Duke University's Nicholas School of the Environment.
"Microgrids can play a meaningful role, but capturing this value does not require large-scale microgrids," Norris said. "Solar paired with storage behind the meter and at distribution scale is mature and proven and can be deployed today."
In states where storm recovery is a major part of financial planning for utilities, lawmakers have increasingly approved securitization option to help manage such costs, creating a new financing tool for utilities.
Utilities in those states have "set themselves up for success in terms of any recovery of these expenses quite quickly" because of those new laws, said Dan Lowrey, senior research analyst at RRA.
In October, President Joe Biden announced $612 million for six US Energy Department projects to improve grid resilience in areas often affected by hurricanes, including Arkansas, Florida, Georgia, North Carolina and Tennessee.
Duke Energy
Duke Energy Corp. estimated that restoration and rebuild costs from the "catastrophic" effects of three hurricanes in 2024 total $2.4 billion to $2.9 billion.
Damage from hurricanes Debby, Helene and Milton primarily impacted subsidiaries Duke Energy Carolinas LLC and Duke Energy Progress LLC in North and South Carolina and Duke Energy Florida LLC.
Duke Energy Chair and CEO Lynn Good said total storm restoration costs would be recognized in the third and fourth quarters of 2024 and estimates would be finalized by year-end.
The company missed third-quarter 2024 consensus estimates largely due to storm damage, and the company is working on mitigation measures, Good said.
Duke is pursuing insurance recovery and securitization, and the three subsidiaries have entered into term loan facilities to meet incremental financing needs for a total of $1.75 billion, with the option to increase by another $850 million.
"We don't see any difference between funding with a term loan or putting it on the revolver, and they carry very similar interest rates," CreditSights analyst Andy DeVries told Commodity Insights. "Duke has been dealing with major storms for decades, and to the extent they are getting worse with climate change, the company, like all utilities, is making a lot of efforts to harden the grid."
So far, Duke has replaced 20,000 poles, 2,100 miles of wire and 16,000 transformers. But a complete system rebuild is required in parts of the Carolinas and on the Florida coast, Duke President Harry Sideris said.
US Rep. Chuck Edwards (R-NC), who represents the western part of the state, said in the immediate wake of Helene that 360 substations were offline in western North Carolina, though Duke later clarified that a significant number of the substations were out of service because of transmission damage, not damage to the substations themselves.
While much of Duke's grid hardening efforts in the Carolinas have been focused in coastal areas, Duke Executive Vice President and CFO Brian Savoy told Commodity Insights those plans are likely to change after Helene devastated western North Carolina.
"We're looking more inland, given what we experienced," Savoy said.
Duke is targeting rider recovery in Florida beginning in early 2025 and receipt of securitization proceeds in the Carolinas by the end of 2025, Savoy said. Storms also temporarily impacted Duke's credit in 2024, though as the company recovers costs, Savoy said that will likely resolve.
Florida Power & Light
Storm costs for Florida Power & Light Co. (FPL) for the year total about $1.2 billion, though the utility's grid sustained significantly less damage, due largely to storm hardening investments including line undergrounding, parent company NextEra Energy Inc. executives said Oct. 23 on a third-quarter earnings call.
Performance data showed FPL's underground distribution power lines performed as much as 14 times better in terms of outage rates than existing overhead distribution power lines in Florida, NextEra spokesperson Neil Nissan told Commodity Insights on Dec. 6.
Smart grid technology helped FPL avoid about 824,000 customer outages, Nissan said.
"While no electric grid is 100% stormproof, this hurricane season showed that our grid enhancements are making us more resilient during severe weather," Nissan added.
Following Hurricane Debby in August, FPL had depleted its storm reserve, NextEra Executive Vice President of Finance and CFO Brian Bolster said. Remaining incremental costs for Debby, along with costs incurred from Helene and Milton, have been deferred to the balance sheet.
"We intend to recover those deferred costs and replenish the storm reserve via storm surcharge in customers' bills over the calendar year 2025," Bolster said. In September, Florida regulators approved annual storm recovery costs of $786.6 million for FPL.
The Florida Public Service Commission on Dec. 3 approved FPL's $1.2 billion in incremental storm restoration costs for Debby, Helene and Milton, subject to further review once total actual costs are known, according to the commission.
Georgia Power
Storm restoration and rebuild costs for Southern Co. subsidiary Georgia Power Co. total about $1.1 billion, executives said.
Hurricane Helene, "the most destructive in Georgia Power's 140-year history," exceeded the combined damage caused by the three previous largest storms to impact the utility, Southern President, CEO and Chairman Chris Womack said on the company's third-quarter earnings call.
"Much of our utility infrastructure was damaged beyond near repair," Womack said. "A significant portion of our system in the affected regions requires a complete rebuild."
Helene broke more than 11,800 Georgia Power poles, downed more than 1,500 power lines, damaged more than 5,800 transformers, and more than 575 transmission structures will need to be rebuilt or repaired, according to the company's earnings presentation.
The "unprecedented destruction" combined with impacts of inflation on the cost of contract labor, supplies, food, fuel and lodging contributed to the overall $1.1 billion cost, Southern Executive Vice President and CFO Daniel Tucker said.
While it is too early to say how much of the storm costs might be replacement assets versus repairs, management expects it to "likely skew at least a little more capital than historically ... because of the magnitude of rebuilding," Tucker said.
Past storm cost recovery proceedings for Georgia Power have taken as long as six years to complete.