Iberian blackout puts business continuity failures under the spotlight
The mega power outage that left Spain and Portugal without electricity for several hours at the end of April made crystal clear the importance of companies having efficient business continuity strategies – and that means going well beyond drafting a well-thought-out plan.
Experts say that being ready for large-scale catastrophic events such as the Iberian blackout requires investment, training and testing, sometimes on a monthly or even weekly basis.
Companies must prioritise which activities they cannot afford being interrupted, track potential interruptions down their supply chains, and think about the welfare of staff members and their families.
Sometimes the most improbable scenarios can bring about situations that few people expected in even their most pessimistic risk-mapping exercises. In Spain and Portugal, the impact of the electricity outage was compounded by the collapse of the telecommunications system, which left millions of people unable to contact family members, and cut off companies from their different units.
“The most important measure to ensure the provision of electricity and to mitigate the impact a blackout can have on a business would be the definition, implementation and triggering of a business continuity plan,” said Óscar Estrada, deputy director of engineering at Mapfre Global Risks.
He noted that such planning should be based on business impact analysis, or BIA, to define which activities must remain operational if the lights go off. The provision of electricity can be maintained for a while with the installation of uninterruptible power supply (UPS) equipment or battery energy storage systems (BESS) to keep critical tasks going. Supply chains must be tracked to identify suppliers that need to have similar systems in place.
But developing a business continuity plan is a tougher task than it sounds. Javier Llorente, managing director and international head of claims solutions at Marsh, estimates that only 50-60% of large companies in Spain have such a plan in place. How many of those plans will prove their mettle when the next catastrophic event hits is a matter of debate.
Oliver Hoeck, a risk consultant for energy and construction at Allianz Commercial in Germany, said that continuity plans can only be as good as their tests. He noted that UPS structures, along with other emergency equipment and procedures, must be tried out regularly. But this commitment is not always a priority for companies.
“We are very focused on processes, but companies may not be,” said Hoeck. “When you look at the details, they are often interested in producing whatever they do, but not all that interested in paperwork. Sometimes they see the testing process as a waste of time because it is aimed at events that have never happened to the company in the past 100 years.”
Willem van der Meij, a senior property risk consultant at Allianz Commercial in Rotterdam, said western European companies have been spoiled by energy structures that have worked well for many decades. In countries such as South Africa or Canada, where power outages are frequent, levels of preparedness tend to be higher, with companies often deploying powerful diesel-powered self-generators and other strategies.
Even when such measures are implemented, making sure they will be of any help demands plenty of extra preparation. For example, companies must make sure that enough diesel is stocked for significant amounts of time. The recent Iberian blackout lasted 12 hours, but in Puerto Rico some regions were without electricity for weeks in 2017 after Hurricane Maria.
The diesel in stock must also be usable. The fuel contains bio additives that may turn bad over time. In the case of a blackout, demand for diesel will boom because companies and families will need it for their own generators. Fuel pumps may not work if they rely on electricity, and the authorities may confiscate stocks for hospitals and other emergency services.
All of this means a lot of variables and planning must be constantly tested, experts say. “The company needs a procedure, and the procedure must say that it has to be tested at least once a week,” Hoeck said.
And then there is the human part of the equation. Karla Gahan, head of resilience services at law firm Barnett Waddingham, reminds companies that they must try to guarantee the safety and security of staff, and even their families, when a catastrophe strikes.
“It is important to consider the practical aspects of an emergency,” she said. “How would companies feed people? How would they give them water, and how would they make sure that people will be able to go to the toilet? Those are really fundamental things.”
Insurance planning plays a part in the process too, and once again, the Iberian experience helps to show why. According to financial daily Expansión, electricity utilities in Spain are receiving a thousand complaints a day about losses suffered by users during the blackout. A tug of war is under way over who is to blame for the event. Utilities are locking horns with Red Eléctrica de España, the national grid operator, which is partly owned by the state.
Experience of previous, smaller blackouts in the country indicate that litigation may last up to a decade, and insurers are set to swallow a significant slice of the bill. Experts say that other firms, such as telecoms, may be taken to court over losses suffered by their failure to remain operational during the blackout. This is another argument to have an efficient and tested business continuity plan in place for such contingencies.
An investigation into the causes of the blackout is under way and is likely to be controversial. But according to José Antonio Galdón, the head of Spanish engineering associations COGITIM and INGITE, one thing is sure – he believes Spain’s national risk prevention plan for its energy system needs to be urgently reviewed, not least because nobody can be sure that another, similar catastrophe will not occur.
“The plan must be updated and rethought, stressing the worst possible scenario,” he said. “What would have happened if, on the day of the blackout, the temperature was below zero or above 35 degrees? We have to learn from that experience.”
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