How to Handle Earthquake Power Outage Challenges and Business Resumption
Loss of power for a sustained period of time, especially when caused by an earthquake, can be scary to a household, to a business, to a community. That’s what we discussed on March 8th at a BCLC Disaster Assistance and Recovery forum, co-hosted by the San Diego County Office of Emergency Services. We focused on three themes:
- power restoration preparedness and effects of sustained outages
- business risk management and continuity planning
- how to pay for losses
The first two themes are interwoven. The 12-hour so-called Pacific Southwest power outage on last September 8th that struck almost 2.8 million customers of six electric utilities in Arizona, southern California, and northwestern Mexico sparked interest for holding such a forum. The power outage could have lasted longer. Why it happened is not clear. The Federal Energy Regulatory Commission is investigating.
The power outage could have lasted longer. Why it happened is not clear. ... The good news is that the utilities were prepared.
The good news is that the utilities were prepared. San Diego Gas & Electric has a business continuity plan and procedures for power restoration. In fact, its team just completed exercising their “black start” plan (starting up from a total shutdown of power) shortly before the September power outage. It has standing mutual agreements with other utilities.SDG&E informed the media, local and state government, residential customers, life support/medical baseline customers, commercial and industrial customers, and local trade and other associations of the situation and status using a variety of communications channels.
This is not to say that there would not be challenges to restoring power. Discussion on power restoration also touched on the interdependencies and cascading effects on other resource sectors and on business operations. Lack of power can affect pipelines supplying fuels and natural gas, as well as other products.
It came as a surprise to some attending the forum when Ed Hahn, a very knowledgeable product movement director from Kinder Morgan Energy Partners, LP, pointed out that pipeline companies don’t own the product they are transporting. For a local government agency or anyone else to direct the use of the product to someone other than the intended recipient, e.g., even emergency vehicles, requires authorization from the product owner. And state laws may inhibit transport of products outside of a state.
It came as a surprise to some attending the forum that pipeline companies don’t own the product they are transporting.
Delivery of water, a critical resource, can also be interrupted by an earthquake and a sustained power outage. Gravity flow only goes so far. As Lorrie Teates of the San Diego County Water Authority noted, in southern California, water supplies are pumped hundreds of miles. In the San Diego area, about 70% of the water supply comes from outside of the area. Emergency plans are in place to use stored and trucked-in water until pumps can be brought back on line.
A panel on risk management and business continuity planning furthered the message that a critical part of running a business is preparing for the events of greatest risk. Ed Langmaid, a business continuity consultant and former head of business continuity planning for BAE Systems in San Diego, cited information that less than 50% of those who claim to be safety and business continuity people are adequately prepared. The percentage is lower for small business.
Katie Wiest, Qualcomm’s director of operations and president of the San Diego chapter of the Association of Contingency Planners, defined “business continuity planning” (BCP) as, “the creation and validation of a tactical plan for how an organization will recover and restore partially or completely interrupted critical functions within a predetermined time after a disaster or extended disruption.” She outlined BCP five steps worth noting:
- Risk assessment
- Business impact analysis
- Defining and selecting a strategy
- Plan development and execution
- Testing or exercising the plan and keeping it up-to-date
She also gave a piece of advice – have a checklist of what to do. As Ms. Wiest reminded the audience, “A pilot flies a plane every day, but he still has a checklist. Just like this, business continuity planning managers need to have a checklist to make sure they haven’t forgotten anything.” In a small business, a sole proprietorship, the owner may be that person.
Target is an example of a global company with 375,000 employees that has a robust crisis management program and a business continuity plan with checklists. They have severity levels of disasters. The bottom levels are dealt with locally. The middle levels are required to be escalated for visibility (like media inquiries). The top levels are crises that need to be handled by headquarters. After tornadoes last year in Alabama, all of their stores were open within 36 hours.
A part of business continuity planning is thinking ahead of risky events how to pay for losses. Large companies may be self-insured or insured by multiple policies that, in turn, may be reinsured. Small businesses need to do their homework, talk to insurance professionals, and make sure that they are adequately insured against potential risks.
Businesses need to make judgments weighing premium costs vs. risks. Farmers Insurance representatives pointed out that less than 10% of California businesses carry earthquake insurance. After the 1994 Northridge earthquake, 300,000 people were without power for a week. Business income coverage with utility interruption endorsements can be important considerations.
After insurance claims payments and other assistance, the Small Business Administration makes available disaster home loans as well as loans to business for physical damage and working capital (SBA calls it economic injury).
Those who have taken risk into their business decisions, prepared for risks through business continuity planning, and exercised those plans, stand a greater chance of restoring their businesses and thriving.
The take away for all is that earthquakes and sustained power outages can create a number of challenges to business restoration. However, those that have taken risk into their business decisions, prepared for risks through business continuity planning, and exercised those plans, stand a greater chance of restoring their businesses and thriving.