INTRODUCTION
A key trend in U.S. investor-owned utility
investments in reliability and resilience is
targeted or larger-scale undergrounding that
includes a mix of work on main feeder lines and
laterals. There are also similar developments
internationally in countries such as Australia,
Finland, and Sweden. The key drivers are
addressing reliability and resilience issues and
improving aesthetics (visual amenity).
While it’s typical for new feeder lines
and laterals in urban areas to be installed
underground, converting existing overhead
main feeder lines and laterals to be
underground has traditionally been viewed
2
THE CHANGING ECONOMICS OF UTILITY INVESTMENT IN UNDERGROUNDING
as a high-cost option for improving reliability
and resilience relative to the benefits created.
However, the economics are changing,
and undergrounding is becoming much
more common.
Climate change is increasing the frequency
and severity of major events, such as
severe storms, hurricanes, ice storms, and
wildfires, meaning there are greater benefits
from undergrounding. At the same, time
the electrification of transport and the
electrification of space heating underway
as part of the energy transition means the
importance of reliable and resilient electricity
distribution grids is growing.
Underground cables are sheltered from
environmental and other hazards on both clear
and inclement weather days, so they benefit
both grid reliability (as measured by the System
Average Interruption Duration Index [SAIDI]
and System Average Interruption Frequency
Index [SAIFI] excluding major events days) and
resilience to major storms (as measured by
SAIDI and SAIFI including major event days).
Innovation in technologies for underground
and hybrid networks means the reliability
performance of underground networks can
be improved further, addressing historical
challenges that previously had no reasonable
solution. For example, some protection
devices now use low-energy fault-testing
on underground and hybrid feeders and
automated switching on single-phase
underground residential distribution (URD)
loops, resulting in fewer customers being
affected by faults on these parts of the grid and
achieving faster restoration.
Some policymakers and regulators are taking
action to allow for additional funding for
resilience measures, either through general
rate cases or separate funding mechanisms,
based on benefit-cost analysis and other forms
of justification. However, to enable more
widespread improvements in performance
through undergrounding, others importantly
must undertake similar initiatives.
This paper considers the drivers for the increase
in undergrounding and potential challenges;
the changing economics of undergrounding,
including the role of innovative technical
solutions that can further improve the
performance of underground networks; key
examples of undergrounding programs; and
policy or regulatory levers that can help such
developments.
3
THE CHANGING ECONOMICS OF UTILITY INVESTMENT IN UNDERGROUNDING
KEY DRIVERS OF
UNDERGROUNDING
Several key factors support the trend toward
increased undergrounding.
1. Increasing frequency and
severity of major events
The most important driver is the increasing
frequency and severity of major events
associated with climate change, which can lead
to widespread, prolonged electricity outages
and have a profound effect on customers and
the local economy. Florida Power and Light
(FPL) has estimated one day of improved
storm recovery in its service territory is
worth up to $2 billion in avoided damage to
economic output.1
1 https://seekingalpha.com/article/4552241-nextera-energy-and-nextera-energy-partners-winning-together
Frequent and severe weather events include
severe winds and hurricanes, but they also
include a greater risk of extremely high
temperatures and wildfires and greater risk
of extreme cold weather, such as ice and
snow events.
Consider the National Oceanic and Atmospheric
Administration (NOAA) data on severe weather
events that cost more than $1 billion for the
U.S. economy. See Figure 1. Over the past two
decades, there has been a significant rise in
the frequency and severity of events, thereby
increasing the cost impact. The number of
events has tripled between 2002 and 2022.
Similar trends are also being experienced in
other countries, including Canada, the United
Kingdom, Australia, and New Zealand.
Figure 1. Severe Weather Events Costing More Than US$1 billion
1 https://www.ncei.noaa.gov/access/billions/ Event Count
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
25
20
15
10
5
0
Cost ($ bN—CPI Adjusted)
400
A number of utilities have named a major
event period as a driver for establishing an
undergrounding program, such as Dominion
Energy, which experienced major storms in
2010-11 with prolonged restoration periods,
and FPL following Hurricane Irma in 2017.
As we highlighted in our paper, “Trends
in Reliability and Resilience–The Growing
Resilience Gap,”2
and illustrated in Figure 2,
we see a growing gap between the U.S.
SAIDI performance when both including and
excluding major event days. This U.S. resilience
gap is increasing by more than 30 minutes per
year, and this must be addressed through a
range of options to improve performance.3
This
trend is not unique to the U.S. and can be seen
in several other countries, including Canada
and Ireland.
2 https://www.sandc.com/globalassets/sac-electric/documents/public---documents/sales-manual-library---
external-view/technical-paper-100-t135.pdf?dt=637961663037312086
3 The equations for the trend lines show the estimated intercept and slope of the trend lines. The estimated
slopes show the rates at which average SAIDI excluding and including major events are increasing per year.
4 https://www.tandfonline.com/doi/full/10.1080/23789689.2022.2138163
When considering planned reliability and
resilience investment, utilities must consider
not only present weather patterns, but also the
likely much greater frequency and severity of
weather events in 2030, 2040, and 2050.
Undergrounding main feeder lines and laterals
increases the robustness of the distribution grid
to most weather events, such as high winds and
storms, lightning, snow and ice, and wildfires. It
also reduces the risk of tree contact. However,
undergrounding does not eliminate resilience
risks completely. For example, underground
networks may be vulnerable to events such as
flooding and some lightning impacts. Leibowicz
(2023) notes that Hurricane Sandy in October
2012 caused large storm surges in and around
New York City. Nearly 20% of the city’s land
area was flooded, shutting down numerous
substations and networks, and 2 million
customers lost power.4
Figure 2. U.S. SAIDI With and Without Major Event Days
1 https://www.eia.gov/electricity/data/eia861/
U.S. Average SAIDI
Without Major
Events
U.S. Average SAIDI
With Major Events
Linear (U.S. Average
SAIDI Without Major
Events)
Linear (U.S. Average
SAIDI With Major
Events)
Average SAIDI (minutes)
2013 2014 2015 2016 2017 2018 2019 2020 2021
500
450
400
350
300
250
200
150
100
50
0
y = 33.54x + 154.49
y = 1.86x + 103.24
Growing resilience gap
U.S. Average SAIDI
Without Major
Events
U.S. Average SAIDI
With Major Events
Linear (U.S. Average
SAIDI Without Major
Events)
Linear (U.S. Average
SAIDI With Major
Events)
Average SAIDI (minutes)
2013 2014 2015 2016 2017 2018 2019 2020 2021
500
450
400
350
300
250
200
150
100
50
0
y = 33.54x + 154.49
y = 1.86x + 103.24
Growing resilience gap
A line chart showing an upward trend (worsening) in U.S. average SAIDI without major event days. This grew from 102.8 minutes per customer per year in 2013 to 119.5 minutes per customer per year in 2021. The linear trendline shows growth at a rate of 1.86 minutes per year.
U.S. average SAIDI, with major event days, grew much faster, from 207.8 minutes per customer per year in 2013 to 439.6 minutes per customer per year in 2021. The linear trendline shows this is growing at a rate of 33.54 minutes per customer per year. So, the gap between SAIDI with and without major event days is growing at a rate of 31.68 minutes per customer year.
Source: Annual Electricity Power Industry Report, EIA Form 861 data.1
5
THE CHANGING ECONOMICS OF UTILITY INVESTMENT IN UNDERGROUNDING
2. Growing importance of
reliability and resilience
The need for reliable and resilient electricity
distribution grids is also increasing as electricity
users become more reliant on electricity for
digital services, transportation, and heat.
Customers increasingly expect to never be
interrupted. This was highlighted during the
COVID-19 pandemic as people sheltering
and working from home began placing a
higher value on the reliability and resilience
of electricity supplies. The electrification
of transport and heat also reinforces this
trend because distribution system reliability
and resilience will now be important for the
transportation sector and a greater proportion
of heating requirements. This means the
economic benefits of undergrounding are
increasing.
Larsen (2016) highlights a strong statistical
correlation between the share of underground
lines on transmission and distribution grids
and reliability and resilience.5
Larsen notes an
increase of 10% in the share of the transmission
and distribution miles that are underground
corresponds with a 14% reduction in SAIDI
including major events.
3. Resilience strategies
Historically, major events affecting the
distribution grid tended to be relatively
infrequent, allowing for a reactive approach
to managing them. However, resilience
challenges are becoming increasingly common,
and utilities are having to develop proactive
5 https://eta-publications.lbl.gov/sites/default/files/lbnl-1006394_pre-publication.pdf
6 https://www.tandfonline.com/doi/full/10.1080/23789689.2022.2138163
resilience strategies that consider a range
of options for increasing resilience, such as
grid hardening, distribution automation and
reclosing, and undergrounding. These plans are
typically supported by a qualitative assessment
of options or benefit-cost analysis.
Leibowicz et al. (2023) notes that “since 2006,
FPL and the other Florida utilities have been
required to develop and submit detailed
storm-hardening plans for the (Florida Public
Service Commission [FPSC]) review on a 3-year
cycle.” Since 2019, the Florida utilities have
been required to consider “the estimated costs
and benefits to the utility and its customers
of making the improvements proposed in the
(storm protection) plan”.6
Similarly, as part of the British energy regulator
Ofgem’s performance-based regulations—
the RIIO framework—utilities are required
to develop climate-resilience strategies,
including carrying out a risk assessment of key
climate threats for their grids and a benefitcost assessment of options to address them.
Selected options have then been included as
part of their investment plans.
4. Increasing environmental concerns
and aesthetic benefits
Another important driver of greater levels of
undergrounding is environmental concerns,
particularly related to aesthetic or visual
amenity benefits. EEI (2013) notes customers
prefer underground construction, and one of
the major benefits is to help create positive
community relations by mitigating visual impact.7
For example, San Diego is focused on
enhancing aesthetics and improving reliability
in local neighborhoods.8
San Diego Gas and
Electric was tasked with avoiding or removing
high concentrations of overhead conductors
and devices along streets, roads, and rights of
way, particularly where they are close to civic,
public-recreation, or scenic areas. The program,
funded through a surcharge on bills approved
by the California Public Utilities Commission,
will eventually convert all of the city’s
residential overhead lines to underground.
Ofgem has a visual amenity scheme as part of
its latest rate cases for 2023-2028. It allows
for the undergrounding of existing overhead
distribution lines in “areas of outstanding
natural beauty and national parks.” This is the
continuation of a scheme in place since 2010
that has been refined over time. There is a
£68 million expenditure cap over five years
based on customer willingness to pay for these
improvements.
POTENTIAL CHALLENGES
OF UNDERGROUNDING
Several important challenges of undergrounding
require consideration.
1. Costs of undergrounding
Historical cost differentials between
underground and overhead distribution
networks have varied from a factor of 2
times to 10 times the cost for electricity
7 https://www.eei.org/-/media/Project/EEI/Documents/Issues-and-Policy/Reliability-and-EmergencyResponse/UndergroundReport.pdf?la=en&hash=7E2DB1E527AA94410D64121EE340AF3D8BD07694
8 https://www.sandiego.gov/undergrounding/overview
9 EEI (2013) as above
distribution. EEI (2013) notes the conversion
costs often do not differ much from the cost
of new underground distribution construction.
However, the salvage value of the overhead
system that would be removed during a
conversion can offset some of the costs.9
Such
cost differences are a key consideration for
utilities and regulators at a time when there is
pressure on customer bills. However, there is an
important efficiency debate in terms of higher
upfront costs from undergrounding being
offset by avoided longer-term costs associated
with improved reliability and resilience to
major storms.
2. Outage restoration
Because visual inspections are typically not
possible, it may be more difficult to locate and
repair faults. This means it can take longer to
repair faults and restore customers’ electrical
service. Repairs may require specialized
equipment and crews, which can take longer to
mobilize.
Underground circuit failures increase with
operating temperatures, and during prolonged
periods of high temperatures underground
circuits may experience large numbers of
failures. Outage restoration can be hastened
by technology that assists with fault location,
such as increased visibility by sensors or more
granular segmentation by automatic switching
equipment.
7
THE CHANGING ECONOMICS OF UTILITY INVESTMENT IN UNDERGROUNDING
3. Protection challenges caused by
underground or hybrid overhead
and underground feeders
Underground lines present both new challenges
and opportunities. Protection devices and
philosophies for overhead distribution systems
do not translate to underground systems.
In fact, the equipment used and the main
purposes of the equipment are almost mutually
exclusive.
Reclosers and fuses interrupt faults at many
points along overhead feeders to minimize
the outage area. Pad-mounted gear’s main
purpose is to distribute power. It is often used
for sectionalizing but not for fault interruption
on the main line. So, new technology using
low-energy fault-testing should be considered
as protection schemes are adapted to
accommodate underground sections.
4. Environmental remediation
Placing lines underground can also result in
greater environmental disturbance and costs
associated with remediation. For example,
Larsen (2016) notes “the process of installing
underground power delivery infrastructure
could significantly disturb sensitive wetlands,
forests, or other valuable ecosystems within
the T&D corridor.” It also likely will increase the
area of environmental disturbance compared to
traditional overhead line replacement.10
10 https://eta-publications.lbl.gov/sites/default/files/lbnl-1006394_pre-publication.pdf
5. Third party cable strikes
There are risks of cable strikes by third parties,
such as other utilities or contractors, carrying
out work, which can lead to lengthy outages.
So how do the key drivers and potential
drawbacks of undergrounding impact the
overall case for undergrounding?
CHANGING ECONOMICS
OF UNDERGROUNDING
At a high level, the economics of
undergrounding should be considered
based on the net benefits or costs that will
result for the utilities, end-customers and
residents, and society more broadly. These
include incremental costs to lay underground
cables versus overhead conductors or
to convert existing overhead conductors
to underground, impacts on safety and
environmental restoration, and benefits such as
reduced outages on blue-sky days and during
major events.
Table 1 on page 8 provides a high-level
illustrative view of the costs and benefits of
undergrounding and how they are changing
over time given environmental trends such
as weather impacts, customer expectations
for improved reliability Generally, the trends favor increased
undergrounding. For example, new
technologies are addressing the historical
challenge of longer outage durations
associated with underground faults. There
are opportunities to use modern automation
equipment, such as S&C’s IntelliRupter®
PulseCloser® Fault Interrupter that uses 5%
or less fault energy to test for faults, meaning
a softer version of conventional reclosing
can confidently be applied on three-phase
underground or hybrid underground and
overhead feeders with much less risk of
further damage to the system. This allows
for further improvements in performance
through segmentation and minimizing the
number of customers affected by a fault,
essentially making traditional overhead feeder
protection philosophies a practical reality on
underground lines.
Automated switching using S&C’s EdgeRestore®
Underground Distribution Restoration System
on single-phase URD loops (laterals) means
customers’ supplies can be restored quickly
following a fault without a sustained outage.
Newer techniques for undergrounding, such
as horizontal directional drilling, reduce the
need for costly digging, large crews, and road
closures, and they make it easier to install
cables under rivers, driveways, etc. New
standards for the design and construction
of underground lines optimize the type of
materials, equipment, and construction
approaches, depending on the local
environment. Economies of scale for larger
programs can also significantly reduce the
costs through bundling work geographically
(for example, targeting all laterals on a feeder)
and having a single contractor carry out a
broad scope of work, including the engineering
design, construction, and customer interaction.
Larsen (2016) highlights that policymakers
should consider requiring undergrounding
11 https://eta-publications.lbl.gov/sites/default/files/
lbnl-1006394_pre-publication.pdf
where most of the following conditions
are present:11
There is a large number of customers per
line mile.
There is an expected vulnerability to
frequent and intense storms.
There is the potential for underground line
installation economies of scale.
Overhead line utility easements are larger
than underground T&D utility easements.
Overall, the combined impact of lower costs
associated with undergrounding, addressing key
challenges, and greater benefits means targeted
or larger-scale undergrounding initiatives are
becoming more attractive.
10
THE CHANGING ECONOMICS OF UTILITY INVESTMENT IN UNDERGROUNDING
UTILITY INVESTMENT
STRATEGIES AND TRENDS
United States
Some key examples of undergrounding
investment with strong justifications are
the programs being carried out by FPL,
Dominion Energy, Pacific Gas and Electric
Company (PG&E), and Potomac Electricity
Company (Pepco).
FPL is carrying out a $4 billion undergrounding
initiative. Its undergrounding activity includes
its Storm Secure Underground Program (SSUP),
which focuses on laterals, and its municipality/
community-initiated underground conversions,
which include main feeder lines as well
as laterals.
FPL’s SSUP is justified based on reductions in
O&M costs and the avoided costs associated
with a major hurricane every three to five years.
In addition, there are major GDP benefits for
the local economy from avoiding power outages
following a hurricane. Lateral undergrounding
allows for faster outage restoration following
hurricanes because often the overhead laterals
are most affected by such events, and by
necessity lateral repairs are completed after the
main feeder lines have been restored.
Dominion Energy is undertaking a $2 billion,
4,000-mile strategic undergrounding program,
which began in 2014 and will run until
2028.12 The aim of this program is to shorten
restoration times following major storms by
targeting the most outage-prone laterals.
12 https://www.dominionenergy.com/projects-and-facilities/electric-projects/strategic-underground-program
13 https://www.dcpluginfo.com/
The justification for the program identified a
reduction in Virginia’s Gross Domestic Product
(GDP) per customer outage hour of $35,458,
and shortening outage durations yielded $1.76
in saved GDP per $1 spent on the program.
Dominion Energy has already seen its stormrestoration time drop by 50% in areas with
undergrounding.
PG&E in 2021 committed to undergrounding
10,000 miles of its power lines in high firethreat areas. This represents approximately
40% of its overhead system in High Fire Threat
Districts and 12% of its overall overhead power
system. This program is concentrating on main
feeder lines because PG&E has other solutions
for fire mitigation on laterals.
The District of Columbia Power Line
Undergrounding (DC PLUG) initiative is a $500
million partnership between the district and
Pepco to improve the reliability and resilience
of the most outage-prone power lines in
Washington, D.C., by placing select feeders
underground.13
At an aggregate level for the U.S., as shown in
Table 2 and Table 3 on page 11, investment
in underground conductors, devices, and
conduits increased significantly from 2010 to
2019, slightly exceeding the growth in total
distribution capital expenditures, or capex. The
increase in the proportion of capex from 21.4%
to 22.2% over this period is likely driven by a
combination of increasing work on existing
underground circuits and new circuits, along
with targeted and larger scale undergrounding.