By Katie Kuehner-Hebert
Blackouts are on the rise, but experts say that companies can mitigate losses from power outages if they install backup power for critical processes, have "redundant" facilities in separate locations and make sure they have the right insurance coverages.
The increased incidents of blackouts, such as the recent Superbowl outage, has raised awareness that much of the U.S. power grid infrastructure is aging and needs to be replaced, said Larry Hunter, senior account engineer, power generation at Allianz Risk Consulting.
"Just like much of the rest of the United States' infrastructure -- like highways, bridges, levees, and airports, the grid is becoming very aged," Hunter said. "The grid is miles and miles of basically a large antenna which connects us all, right down to the transformer on the pole outside your house or in the pit next to your office building."
The aging equipment is slowing being improved or replaced by "smart grids," in which power plants can be disconnected from the grid if there are ground faults -- short circuits due to events like falling trees, or surges such as lightning strikes hitting the wires, he said. However, due to the slow economic recovery, many of the companies which own portions of the distribution do not currently have the funds for great improvements.
impact companies, particularly those with glass or metal plants, Hunter said. For molten metal plants that heat metal to a liquid form or concrete plants that make batches of concrete, power outages can prevent liquid materials from being pumped out of the machinery to a safer area, causing damage to the machinery as the materials harden.
Companies can mitigate these impacts if they install backup power sources for "critical loads," such as power to pump liquid materials to a safe location in the above examples, or power for life safety apparatus and lighting for egress and emergency evacuation, he said.
"Manufacturing process critical loads can be found by analyzing your production line and determining the bottleneck pieces of machinery which can cause server damage if power was to be lost," Hunter said. "Damage can be physical to machinery or it can be loss of product if there is a delay in getting the plant back up and running after the power outage."
Companies should also look at the geographic concentration of their business as well as their suppliers and build "redundant" facilities or supply chains, said Nicole L. Homeier, senior staff scientist, space weather and effects division at Atmospheric and Environmental Research, a Verisk Analytics Co. in Lexington, Mass., who has been studying the effects of space weather on blackouts.
"The more concentration you have, the more chance that a single power outage could affect your business," Homeier said. "If your company has the resources, you should have data backups in different locations, and backup power on-site for critical processes."
Duncan Ellis, U.S. property practice leader for Marsh in New York, said companies should also make sure their commercial property damage and business interruption policies have service interruption or off-premises power coverage as an extension of coverage under their time element. That will cover them fordamages as a result of the power being lost off site.
"So if a power plant blows up because it's old and can't supply power, that would be covered by the insurance policy," Ellis said. "Service interruption is an extension of time element coverage, and as such, is not automatic -- you have to ask for it."
For service interruption or off-premises power coverage to be triggered by a property policy, there has to have been damage to the type of property by a "covered peril," he said.
"So let's assume a policy does not cover floods, but a flood wipes out a power plant and shuts it down. A company's coverage would not be triggered if it did not have flood coverage," said Ellis. So it's very important that clients buy business interruption policies for all risks, loss and damage, including flood and earthquake. Policies' perils extendto these extensions of coverage."
April 10, 2013
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