When Public Utility Risks Converge: Planning for Growth, Resilience and Insurability

Public power and water utilities today face significant pressure to increase output. The consequences of failing to meet rising demands are severe, yet costs and logistical complexities make it challenging to keep up with delivering critical services to citizens.

Growing pressures facing public power and water utilities include:

• Surging electricity demands on the United States power grid.

• New infrastructure demands for the alleviation of PFAS in water and wastewater treatment systems.

• Increasing lead time for the replacement of critical equipment and infrastructure, which can take months or even years for a utility to replace.

• Growing cyber threats to vulnerable public utility systems.

All these pressures are intricately connected. For example, the construction of a new data center within a city may require significant electrical capacity as well as additional water for cooling its infrastructure.

To meet that demand, public utilities will need the following:

• Additional power generation.

• Significant transmission and distribution capability upgrades.

• Increased water supply.

• Increased water treatment requirements and regulations.

• Appropriate plans that provide the capital for all these projects.

For the public utility, the challenge goes beyond identifying each individual risk; organizations need to formulate a conceptual understanding of how one disruption adversely affects other services within the city, and risk managers across the nation should prepare for these exposures before they happen.

Growth is Reshaping Utility Risk Management

The increasing need for reliable power has been driven by the explosive growth of data centers, the expansion of manufacturing, the electrification of city infrastructure, increasing charging stations for the rise of electric vehicles, and other energy-intensive uses.

According to the North American Electric Reliability Corporation’s (NERC) 2025 Long-Term Reliability Assessment, “North American summer peak demand is forecast to grow by more than 224 gigawatts and winter peak demand by more than 245 gigawatts over the next ten years. NERC attributes most of the projected increase to new data centers serving artificial intelligence and the digital economy. These are forecasts based on utility and system-planner projections, not guaranteed outcomes.”

While that significant growth is projected to create opportunities for utilities and their communities, it is the responsibility of city developers and utility management to ask practical questions, such as:

• Can public power generation & transmission keep up with the pace of this accelerated growth?

• Are the forecasts and capital project plans keeping up with the proposed development?

• How will these new loads affect my community’s power demand and reliability, and keep rates affordable for our citizens?

• What happens if key substations, power generation plants or transmission infrastructure become unavailable due to a loss or significant natural catastrophe?

The same questions certainly apply to municipal water and wastewater treatment entities. Many cities and counties are evaluating new developments to consider the source of their water, the capacity of their treatment process and the infrastructure to adequately distribute throughout their community.

Likewise, communities are also evaluating the capacity of their wastewater systems, as well as anticipating changes to the demand during periods of significant heat or drought. The planning throughout the utility department must be effectively coordinated with city leadership, developers and regulators so that all parties can identify any constraints on the systems during the initial phases of project development. This gives everyone the time and ability to adjust the project as needed, find adequate means to respond to changes in needed capital or adjust to any conflicts in scheduling that could delay the project.

Equipment Delays Can Compound the Impact of a Loss

Furthermore, the cost of critical equipment has risen drastically, increasing the pressure on public utilities throughout the U.S. Control systems, motors, transformers, circuit breakers and other specialized components throughout a modern utility system may be difficult to sort quickly. Along with that, the increased demand for power generation and water infrastructure components from data centers have exacerbated the continual rise of replacement values on the equipment.

In fact, the U.S. Department of Energy (DOE) reports that distribution-transformer lead times increased from 3-6 months in 2019 to 12-30+ months in 2023. The DOE also reports that some transformer prices rose by four to nine times over the past five years—pressures that can increase both project costs and the time needed to restore services after equipment damage.

These increases in lead times and cost have a significant impact on a municipal utility after a loss, including:

• Extended service interruption.

• Increased expenses for temporary operations.

• Emergency procurement.

• Reliance on aiding equipment.

Furthermore, increased lead times and replacement costs can have a significant impact on insurance premiums for business interruption coverage. A business interruption insurance policy can help offset lost income, contract penalties or capacity payments after an insured loss, but it cannot make a replacement transformer arrive any sooner.

However, there are strategies that public utilities can leverage to prepare themselves to be resilient beyond interference and risk transfer. For example, utilities may review their property values and equipment replacement assumptions to identify critical equipment with long lead times and evaluate their equipment strategy. This could include documenting recreation plans, contingency plans and emergency response procedures.

Experience reviews will assist the utility in considering how the policy will respond to the breakdown of equipment, the extra expense to move it to restore operations, and the effect of the interruption of service on their bottom line. The goal will be to understand the protection available well before a loss happens, rather than waiting for the initial stages of a prolonged outage.

Water Quality and Compliance Require Long-Range Planning

Municipal water providers across the country are currently managing aging infrastructure while simultaneously responding to evolving drinking water requirements, including PFAS and lead service line obligations.

Compliance with the new regulations will require testing, treatment, infrastructure upgrades, communication with the public and adequate funding for these projects to be completed within the required timeline. Furthermore, regulatory requirements continue to develop. In May of 2026, the Environmental Protection Agency (EPA) proposed retaining the previously required drinking-water limits while allowing municipalities to request two additional years — until 2031 — for full compliance. The EPA is also proposing other changes involving PFAS, and while these deadlines have been expanded, utilities across the nation must continue to track the final rules and applicable state requirements.

For public utility leaders, this increases the work both technically and financially. They need to understand where contaminants may be present within their systems, what treatment options are available and how the project will be funded.

Along with that, utility leaders are tasked with communicating with their citizens about these projects, and the effects they could have on water bills or city taxes. Leaders additionally shoulder the responsibility of reviewing how the environmental and pollutant-rated policies address the investigation, cleanup, third-party claims and regulatory requirements. Insurance policy wording and exclusions vary across carriers, with many of them excluding PFAS exposures altogether, so it is imperative to review their coverage based on the actual exposures and contracts.

Turn Utility Risk Awareness into Practical Action with Alliant Public Entity

Fortunately, public entities and municipal utilities do not need to solve every exposure at once. Progress can be made by bringing operations, leadership, finance, engineering, information technology, procurement, insurance and risk management into the same conversation.

Useful reviews typically start with the following questions:

• Which assets or systems would take the longest to repair or replace?

• Where could failure disrupt more than one service for our citizens?

• Are property values, business interruption assumptions and restoration timelines valid and current?

• Do our contracts clearly assign responsibility for insurance, indemnity and emergency response?

• Are insurance terms aligned with the utility's actual operations, risk tolerance and budget?

Working with an experienced insurance and risk management specialist at Alliant Public Entity can help municipal utilities translate that review into an actionable work plan. Alliant works with public utility teams nationwide to evaluate these exposures, review loss history, assist in the validation of property data, work to coordinate risk control and engineering resources, assess insurance structures, and present coverage and risk financing options in a clear format to our clients.

The strongest plans connect insurance to operational resilience, and that means completely understanding what coverages can fund, where limits or exclusions may constrain the utility recovery efforts, and what mitigation strategies and loss prevention methodologies the utility can incorporate into the risk management plan that reduces the chance or severity of a loss. As public utilities continue to invest to meet the growing demands and evolving needs of the public, it is imperative to coordinate early to protect those investments and support reliable services to their communities.

The risks facing public utilities have and will continue to evolve, and those who regularly revisit their exposures, capital planning, business continuity strategies and insurance programs will be better positioned to make informed decisions and maintain essential service delivery when disaster strikes.

Contact an Alliant Public Entity specialist today to strengthen your public utility’s risk management approach.