Evaluating the Financial Vulnerability of a Major Electric Utility in the Southeastern U.S. to Drought under Climate Change and an Evolving Generation Mix.

There is increasing recognition of the vulnerability of electric power systems to drought and the potential for both climate change and a shifting generation mix to alter this vulnerability. Nonetheless, the considerable research in this area has not been synthesized to inform electric utilities with respect to a key factor that influences their decisions about critical infrastructure: financial risk for shareholders. This study addresses this gap in knowledge by developing a systems framework for assessing the financial exposure of utilities to drought, with further consideration of the effects of climate change and a shifting generation mix. We then apply this framework to a major utility in the Southeastern U.S. Results suggest that extreme drought could cause profit shortfalls of more than $100 million if water temperature regulations are strictly enforced. However, even losses of this magnitude would not significantly impact returns for shareholders. This may inadvertently reduce pressure internally at utilities to incorporate drought vulnerability into long-term strategic planning, potentially leaving utilities and their customers at greater risk in the future.