The most-severe space-weather event in recorded history happened in 1859. Intense solar flares were accompanied by huge coronal-mass ejections (CMEs) that created the largest geomagnetic storms on record. Telegraph operators received electric shocks, and telegraph lines melted. Auroras were seen all over the globe. 

If an event of similar magnitude were to occur today, experts estimate it would take down more than half the power grid and damage so many transformers that it would take years to recover.

Such catastrophic events are rare, but how rare? According to records of past events, Earth experienced an occurrence in the last approximately 150 years. Therefore, the yearly chance of occurrence is 1 in 150.

But this estimate ignores the physical details. A rigorous analysis may show that we have simply been lucky (or unlucky) in the past. And it does not take a repeat of the 1859 event to cause catastrophic loss.

In fact, severe space-weather events have occurred much more recently, giving a hint of what could happen again.

At 2:44 a.m. on March 13, 1989, the Hydro-Quebec power grid was humming along smoothly while most grid customers slumbered. Less than two minutes later, however, the entire Quebec power grid had collapsed in a rapid cascade of events.

On the same day throughout North America and the United Kingdom, electrical disturbances barraged power grids for several hours. On the Hydro-Quebec grid, a number of pieces of equipment sustained damage, including two transformers that had to be removed from service. 

In New Jersey, a $12 million generation step-up transformer at the Salem nuclear plant suffered permanent insulation damage.

The cause? A powerful geomagnetic storm triggered by a blast of magnetized plasma from the Sun. 

The magnetic storm spawned electric currents in the ground and in power lines—currents which rapidly incapacitated key power-grid components. As a result, schools and many businesses were closed for the day, and grid customers tried to stay warm at home.

Luckily, within nine hours, power was restored to most customers in Quebec. The Salem nuclear plant also was fortunate. They were able to install a spare transformer within a “short” six-month timeframe.

Over the next two years there were 12 transformer failures in North America suspected to be related to the storm. The outage was a chilling reminder of our reliance on electrical power—and the vulnerability of our grid to geomagnetic storms.

In the 22 years since the Quebec grid was damaged, global companies and regional economies have increased reliance on the electrical grid dramatically, meaning the impact today of a similar solar event would be even more drastic.

RISK-MANAGEMENT PREPaRATIONS

Quantifying financial exposure to space-weather events is challenging. When doing so, risk managers should consider plans for both short-term and long-term power outages. 

In this context, short-term means hours to a day, with a recurrence interval of a few years. Power-outage-mitigation plans could include back-up generators for critical systems, redundant and co-located software and data systems (especially for revenue, customer-facing and customer-service operations), or a contingent business-interruption policy that covers utility outage. Where supply-chain risks are important, a tailored contingent business-interruption policy should be in place. 

A long-term, space-weather-caused outage could last for a week, a month or even a year without electricity. There is no way to prevent it from striking your company; the risk lies in our power grid.

A mitigating strategy, pre-approved and ready for implementation after such an event, should include alternative locations to be used for business operations.

Consider that neighboring companies will be searching frantically for similar locations and services. The risk of a space-weather outage is lower in certain places in the United States than others. Therefore, a company with multiple locations could have a business-continuity plan that includes relocation of critical functions when it becomes clear the outage will last longer than a specified time period. Data access at new locations should also be considered. 

Beyond financial exposure, another non-trivial aspect is communication—how will management communicate with each other, employees, partners and customers? Corporate reputation and employee morale should be addressed within the company's risk-management plan.

Companies that communicate proactively are viewed as trustworthy leaders by their customers, employees, the media and local government. Organizations that appear to change their spokesperson or alter their plans every few days, however, are perceived as unprepared. When the problems continue for days or months, public patience can dissolve into a feeding frenzy. 

While the chance of a space-weather-caused long-term outage is small, it cannot be disregarded—if such an event does occur, the cost would be staggering.