Whether classified as a Generation, Distribution, or Transmission entity, all of these entities that facilitate industrial economic development and consumer well-being, must take extreme care in preserving their operational health, recoverability from loss, and business continuity. Since the efficiency of harvesting or harnessing electrons determines the energy sector’s sustainability, energy leaders should find no surprise in the complexities of risk that run parallel to their organizations.
Industry professionals expect claims to be on the rise for entities in this sector, due to aging infrastructure, construction defects or malfunctions, and key personnel loss due to attrition that would result in a workforce skills gap. Uncovered losses from unforeseeable weather perils, global or local changes that affect supply chain resourcing, or transformation could devastate any operator in the energy industry. Furthermore, a business interruption loss in the energy sector could rapidly extend to power interruption for other industries and consumers, in which case a disaster response and recovery plan would need to be carefully considered by the entity seeking necessary protection. Whether industry professionals attribute the expected rise in claims as a result of employment exposures, legal and regulatory changes, or the risks associated to maintaining energy infrastructure, the fact remains that energy industry decision makers must be prepared to face the existing and new risks that may face them.
Key issues for energy leaders to consider for the purpose of proactive business management and enterprise-focused decision-making in the future may involve addressing the pressure placed on existing operators from new entrants, fluctuations in the commodity pricing of various energy resources, as well as the potential disruption to an energy business if its budget or profit margins are affected by its failure to maintain compliance and its inability to receive credits. Other considerations might include balancing the high cost of capital for infrastructural development, financial or operational risk associated to changes in environmental, state, or federal laws, and the difficulties in establishing technical teams with expertise in their respective field(s), which are potential conduits for shaping a new risk landscape. Furthermore, as changes take effect within the energy sector, case precedent could indicate that fiduciary responsibilities may create new exposes to energy companies, if held legally liable for violations of financial obligations stipulated within their operational agreements.
To build an adequate risk management framework, a multi-layered program that addresses the energy sector’s known risks, and other potential sources of loss, should not exclude the factor of claims rising due to a transient energy industry operating within a litigious environment.
Contact ICA for a comprehensive list of client references.