BUSINESSES IN THE DARKPosted On: Jul. 5, 1998 12:00 AM CST
Most businesses affected by the power shortages that hit the Midwest and parts of New England late last month will probably not be covered for losses, experts say.
Reductions in businesses' production time were likely not long enough to trigger coverage under most business interruption policies.
Spokespeople for utilities in the Midwest and Northeast said the problems on June 25 and June 26 were created by a combination of factors. The hot weather in the Eastern half of the United States increased power demand in many states, and maintenance work and storm damage to power plants and transmission lines in some Midwestern states reduced the availability of power.
"It was a unique and unprecedented circumstance," said a spokeswoman for Commonwealth Edison in Chicago.
Spokespeople for Wisconsin Electric Power in Milwaukee, Cinergy in Cincinnati and American Electric Power in Columbus, Ohio, said they had to buy additional power on the wholesale market to manage. The high demand lifted prices.
"On Thursday, we paid $20 million for energy," the ComEd spokeswoman said. "Normally, we would pay $200,000."
The utilities coped with the situation partly through "interruptable contracts" that many large industrial customers have signed. These contracts allow a utility to turn off power from time to time in exchange for rate cuts for the customer of up to two-thirds off the normal rate.
The utilities also issued news releases and public service announcements asking the public to reduce energy consumption.
Power was in such short supply that many businesses, especially in the steel, auto and chemical industry, received phone calls from their utility asking them to cancel shifts or cut their operations to their basic needs.
Riverdale, Ill.-based Acme Metals Inc. had to shut down for six hours on Thursday, the third time this year, a spokesman said. "But our utility called us in advance, and we picked a window that suited us," he said.
A Sun Oil Co. refinery in Toledo, Ohio, had to start reducing energy usage as early as Tuesday, frontline supervisor Walter Rogalinski said. The producer of chemicals "never went to lights out," he said. "But the utility said that if we don't get down to basically zero, they would pull the plug on us."
Recovering business losses will be difficult, however, insurance brokers say.
"If there was just not enough power to serve you, you won't be able to claim anything," said Ken Gladkowski, senior vp of Sedgwick of Illinois in Chicago. Only damages from an insured peril could be recovered, such as property damage, injuries or business interruption losses caused by lengthy outages. Most business interruption policies have a waiting-period deductible so that claims can be filed only after an interruption lasts a specified amount of time.
To be covered for damages to the utility that disrupt customer service for a long period, "you would need property damage and business interruption insurance and certain extensions," said John Michnya, vp at J&H Marsh & McLennan Inc. in Los Angeles. Endorsements that would come into effect in this case are off-premises power interruption coverage and a service-interruption endorsement of the boiler and machinery policy, Mr. Michnya said.
Mr. Michnya advises companies to check with their insurers if in doubt about their coverage.
Neither Mr. Michnya nor Mr. Gladkowski had received any claims by Wednesday.
While utilities said the circumstances of the shortages were unusual, some said they had expected them. "We knew that at some point this summer there would be a demand-offer problem," a spokeswoman for American Electric Power said.
While all utilities avoided blackouts, "I understand that some utilities in the region were close to them," a spokeswoman for Wisconsin Electric Power said. Most utilities emphasize that partial blackouts remain very unlikely in the future, especially with some power plant maintenance work scheduled to be finished by mid-July.
But, said the spokeswoman for American Electric Power: "We are not out of the woods. We expect a long hot summer.'