Whether classified as a Generation, Distribution, or Transmission entity, such 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 to employment exposures, legal and regulatory changes or the risks associated with 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, not to mention the issue of Cyber Intrusion. Other considerations might include balancing the high cost of capital for infrastructural development, financial or operational risk associated with changes in environmental, state or federal laws and the difficulties in establishing technical teams with expertise in their respective field(s). These are all factors that management should address in this industry. Furthermore, management’s fiduciary responsibilities have expanded based on new case precedents that address their legal liability.
To build an adequate risk management framework in this very complex industry, a holistic risk management program that should address the Enterprise Risk Management needs of a company in the energy sector should be a serious consideration by management.
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