At the end of a long dirt road, past bayous and housing developments west of New Orleans, sits a tranquil swamp of cypress and tupelo trees that could prove key to this region’s future. In September, the power utility Entergy (ETR), which serves 2.8 million customers along the Gulf Coast and in Arkansas, announced that it had developed a new framework to compensate landowners for preserving swamps like this one.
At first glance, Entergy’s interest in wetlands could be dismissed as a public-relations exercise—the kind that falls under the rubric of corporate sustainability. Yet it ties into one of the more aggressive climate risk management plans in the country. The Gulf Coast faces a double threat from global warming. At the same time that seas are rising, the land here is sinking because silt once replenished by the Mississippi River is channeled out to sea by decades-old levees and canals. As a result of these forces, Louisiana’s coast loses some 16 square miles of wetlands every year. Without the buffer of extensive marshes, which serve as natural levees, even routine tropical storms cause widespread flooding.
After Hurricane Katrina devastated the region in 2005, executives at Entergy realized that climate change threatened not just the company’s infrastructure but its customer base. “Katrina was kind of a focusing moment where you could see what the future might be if we didn’t get our arms around climate change,” says Jeff Williams, the company’s director of climate consulting. Five months after the storm, Entergy had fewer than 500,000 customers in Louisiana, a 40 percent drop. “We had tremendous damage to our system, and yet no revenue coming in to pay for repairing it.”
Weather-related insured losses across the U.S. economy have leapt from an average $3 billion per year in the 1980s to about $35 billion in 2011, according to reinsurance giant Swiss Re (SSREY)—although some of the increase is a factor of economic growth. Utilities, with their vast infrastructure, are particularly vulnerable to severe weather. In August a Connecticut nuclear reactor operated by Dominion (D) had to shut down for nearly two weeks when temperatures in the Long Island Sound, from which the facility draws cooling water, rose above the limit set in the plant’s operating license. Global warming is “still an issue that needs to get better visibility from the utilities,” says Joseph Kwasnik, senior adviser in the electric power program at Ceres, an advocacy group that pushes for sustainable business practices.
Entergy, which owns the second-largest group of nuclear reactors in the U.S., is one of the few focusing on climate adaptation. After Katrina, the company began replacing wooden transmission poles with steel ones, though some of that work was required by new national standards. At one vulnerable substation, Entergy built a new control house on concrete stilts above the 100-year flood level. And it moved teams once housed at its New Orleans headquarters to offices farther inland, so a big storm wouldn’t cripple operations.
The utility also commissioned a $4 million study led by Swiss Re that estimated there will be $350 billion in losses along the Gulf Coast by 2030 due to rising seas and sinking coastline. The 2010 report identified $120 billion in potential investments, from stronger building codes to wetland restoration, with most of the funds coming not from Entergy’s own coffers but from governments and private developers.
Photograph by Brady Fontenot for Bloomberg Businessweek
Entergy Chairman and Chief Executive Officer J. Wayne Leonard, who’s retiring in January after 13 years in the job, has called repeatedly for federal legislation to reduce greenhouse gas emissions. Most recently, he has argued in favor of a tax on carbon—a policy that would give Entergy, with only 11 percent of its capacity coming from coal, an advantage over many other utilities.
While Leonard’s advocacy has won praise from environmentalists, Casey Roberts, executive director of the Alliance for Affordable Energy in New Orleans, questions whether the company has done enough to strengthen its infrastructure, particularly after more than 700,000 customers lost power during this summer’s Hurricane Isaac. The company estimates Isaac caused $400 million to $500 million in damages to its system, but says that’s less than it has suffered in previous storms.
Entergy hasn’t started any of the costly infrastructure work called for in the 2010 report. Instead, it has spent the last two years working with energy companies and communities along the coast to identify risks and build a consensus on what needs to be done, no small task in a region where many people, including some on the commissions that regulate the utility, don’t believe global warming is real. “That’s been the challenge,” Williams says, “to get people thinking in terms of the potential risks without having everyone turn their hearing aids off when you mention the words ‘climate change.’”
The one infrastructure project that’s furthest along only highlights the magnitude of the challenges. Two years ago, Entergy began a $71 million pilot program to strengthen the lines that bring power to Louisiana’s Port Fourchon, a vital conduit to offshore oil rigs in the Gulf of Mexico. Half of the road to the port sits about two feet above sea level and is prone to flooding even in minor storms. The other half was raised last year at a cost of more than $360 million in state and federal funds, and now soars over open water, much of which was marshland just decades ago. The same goes for the water that now laps at the edges of the nearby Leeville substation, site of the elevated control house. At both places, the encroaching water drives home why the company is investing not only in infrastructure but in wetlands. “We can’t just decide to pick up and go somewhere else. We’re here,” says Steve Tullos, Entergy’s manager of environmental initiatives. “So we need to make here as good a place as it can be.”