Old(er), Underserved, and Not That Smart

By Regitze Ladekarl, FRM

A couple of weeks back, Hurricane Beryl pummelled her way from the Caribbean, through the Yucatán peninsula, and onto the Gulf Coast of the US. The current death toll is 64. Damages are estimated to $6.2 billion.

Beryl made its US landfall in Texas, and Houston was directly impacted by the eye. There, over 2.7 million people lost power.

The hurricane broke meteorological records for being the strongest/earliest of the season. One is tempted to say of course because extreme weather events are accelerating in frequency and severity and soon—now—we will have to start using another word for them than extreme since extreme implies an outlier, something unexpected which they are not.

In the new book On the Move: The Overheating Earth and the Uprooting of America, Abrahm Lustgarten looks at how the steady and compounding economic effects of climate change, declining crops, rising recovery, health care, and energy costs, uninsurability, etc., will cause migration.

Lustgarten includes this map that shows that the hardest hit areas will see economic damages of up to 60% of the GDP of the county which is so severe the areas will become uninhabitable.

Another point is that while the right side of the scale goes to 60%, the left side goes to -0.7%. There really is very little economic gain in doing nothing.

Fortunately, we don’t have to sit idly by.

Though putting together a prioritized to-do list is a little above my pay grade, it is worth noting that the state of the US power grid did not help recovery from Hurricane Beryl to say the least.

Bloomberg recently brought an article on why the US power grid is a mess (their words!) and it basically boils down to being old(er), underserved, and not that smart.

On average, the transformers that take power from the grid to the consumer are 40 years old. For someone who has been in that age group, I can honestly say that shocks hit harder and take longer to recover from.

And let’s not forget that the demand for electricity is not slowing down. The weather events mean that it takes much more electricity to keep us safe and comfortable. And while coming up with an AI prompt does not seem more strenuous than filling formulas into a spreadsheet, running large language models is estimated to be 33 times more energy-demanding than using task-specific software.

Being underserved has several aspects. The fact that there is not one, but three separate grids and no entity has the full oversight or accountability, creates externalities which is just a fancy word for not enough bang for the maintenance bucks. Also, investment in upgrades is made difficult by the desire to give stakeholders a solid return and not wanting—or being able—to pass the bill onto consumers.

However, there are little rays of sunshine between the dark clouds. One is about a California insurance company, Delos, that uses AI models to offer insurance to homeowners, who have been denied or priced out of insurance elsewhere because their house is in a fire-prone area, even though their specific home has no exposure to wildfire.

Talk about using your superpowers for good!

In terms of smartness, the grid is not the sharpest fork in the attic. It is mainly built to deliver power, not receive or store it, which is a requirement for supplementing with, say, renewable energy sources in a worthwhile manner.

Regitze Ladekarl, FRM, is FRG’s Director of Company Intelligence. She has 25-plus years of experience where finance meets technology.

This article is part of the FRG Risk Report, published weekly on the FRG blog. To read other entries of the Risk Report, visit frgrisk.com/category/risk-report/ .