Power outages that darkened parts of Houston for more than two weeks after Hurricane Ike were more than just an inconvenience. For many homeowners and business owners, they were also a significant financial burden.
The cost of the outages could surpass $6 billion once the bills are tallied for lost economic activity, repairs to electricity infrastructure and residential losses like spoiled food in refrigerators, according to a rough Houston Chronicle estimate based on figures from power companies and other sources.
The estimate is unscientific and does not account for insurance money that eventually may help recover some of the losses or the surge in spending that often follows a hurricane, spurred by delayed purchases or property repairs.
Given such variables, some experts and insurers say it is impossible to calculate the cost of a widespread power failure. It is also why these costs often fall through the cracks in official estimates of a storm’s economic impact.
But there is consensus on one point — that even a temporary interruption in electricity service in the nation’s fourth-largest city can have sweeping economic consequences.
“All the time the cost of these kinds of disruptions are going up because our society is more and more dependent on electricity,” said Peter Hartley, an economics professor at Rice University.
Ike, which hit the Texas coast Sept. 13, initially knocked out power to more than 2 million homes and businesses in the Houston area.
A week later, about half of those customers were still in the dark. At the 10-day mark, it dropped to roughly half a million.
It wasn’t until late last week that the restoration was essentially done.
The economic activity lost to power outages — from closing down factories, stores and other businesses — was about $5.1 billion, said Ignacio San Martin, an economist in The Woodlands with Madrid, Spain-based BBVA, a global financial services giant.
He came up with the rough estimate — more than one-quarter of what he estimates was Ike’s total $19.1 billion economic impact on Texas — by assuming a total loss of productivity for five days in metro Houston, an area that includes 5.6 million residents.
Apart from that, San Martin estimated, Houston-area households likely spent $250 million more just to replace food spoiled in refrigerators during the blackouts. To make the estimate, he calculated that Houston’s 2.08 million households, each with an average of just under three people, spent about $120 apiece to restock refrigerators.
Yet that still may be only part of Ike’s bill to homeowners.
Doubting reimbursement
Ted Imperato, 37, a lawyer, said his family of five racked up nearly $1,000 in out-of-pocket costs when his Kingwood home lost power for 14 days. The costs include groceries, gasoline to power a generator and many trips to restaurants, he said.
“The kids just got sick of eating hot dogs on the grill and peanut butter and jelly sandwiches,” he said.
Though some insurance policies reimburse property owners for such expenses, others do not. Imperato is not optimistic he will be repaid.
“I’m probably going to eat it,” he said.
Whether business owners are reimbursed for blackout-related costs also depends on the policies they hold, which can be murky.
Joni, a women’s clothing store near Rice University, has business interruption insurance coverage but won’t recover anything from 10 days of lost sales while the power was out, owner Joan Ryman said.
Though sales will be off 80 percent this month, the insurance only applies if her property suffers physical damage, she said.
Two weeks without power also cut into sales for Kegg’s Candy in Meyerland, said manager Stephanie Biffle. Worse still, it put the store behind schedule.
“We were really hoping to ramp up production for the holidays, getting Halloween candies made and ordering boxes and ribbons and other dry goods that we couldn’t get shipments of,” Biffle said, “so our production is delayed by two weeks.”
Employees are working extra hours to make up for the lost time, she said.
Large companies also took hits because of the power failure.
Houston’s U.S. Physical Therapy told investors last week that 40 of its 365 physical therapy clinics had been affected by Hurricane Ike, reducing patient visits and costing $180,000 in lost revenue.
“This is not reimbursable stuff for us,” said Larry McAfee, chief financial officer, who attributed most of the impact to extended power outages.
A mixed bag for refineries
Meantime, Houston-based oil giant ConocoPhillips warned investors that third-quarter earnings could be affected by hurricane-related downtime at its Gulf Coast refineries.
But interruptions at oil refineries underscore why calculating the cost of power outages can be so difficult.
More than a dozen refineries shut down ahead of the storm, and several were delayed in restarting because of a lack of power. Though the cost of the lost fuel production was surely massive, the downtime also tightened supplies nationwide, boosting the price of fuel higher than it would have been without a hurricane. The price increase might help offset the negative effects of the lost production.
Because power-specific calculations are so slippery, companies that estimate the costs of storm damage tend to focus on property damage from high winds and flooding and other concrete metrics.
Equecat, a risk-modeling firm in Oakland, Calif., said onshore losses from Ike could reach $8 billion to $12 billion, the bulk of which pertains to property damage. But the firm has been re-examining its storm-modeling process after Ike.
“We didn’t expect as deep a power outage,” said Tom Lenard, a senior vice president with Equecat.
CenterPoint and Entergy have estimated their combined costs to repair power infrastructure damaged by Ike likely will top $1 billion.
Yet it may be a while before other economic ripple effects of the power outage are fully known.
Data falls behind
Sales tax revenue, which slipped after Hurricane Rita in 2005 but rebounded shortly thereafter, does not yet reflect a decline because of a two-month lag in the data, officials with the Texas Comptroller’s Office said.
Employment statistics, too, are likely to fall before recovering, said Bill Gilmer, an economist with the Federal Reserve Bank of Dallas.
One early measure came last week.
A post-storm decline in water usage, partly because of power outages at wells that require electricity, put the city of Houston $4 million short of its $62 million projection for water fee collections in September, said Alvin Wright, spokesman for the city’s public works department. Higher-than-expected water usage earlier this summer should help offset the loss, he said.
But nothing will offset all the costs that many homes and businesses incurred when the storm left them in the dark.
Credits: Chron