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COVID-19: What it means for the power and utilities industry
Practical steps for responding to the coronavirus crisis
Power and utility companies have a strong track record when it comes to preparing for emergencies. As a provider of critical infrastructure, the industry should plan for — and be prepared to respond to — many foreseeable hazards, including health emergencies. But, even the best thought-out and thoroughly tested business continuity plans should be adaptable to fully address the fast-moving and unknown variables of an outbreak like COVID-19.
Typical contingency plans enable operational effectiveness following events like natural disasters, cyber incidents and power outages, among others. Health emergencies add distinctive twists, including the potential of widespread quarantines, workforce disruptions and travel restrictions that may complicate previously tested continuity plans.
What are your top 3 concerns with respect to COVID-19? (Select up to three.)
Source: PwC COVID-19 US CFO Pulse Survey
April 22, 2020: base of 305
April 22, 2020: base of 305
Considerations for power and utility companies
When it comes to disaster preparedness, we know you’re laser focused. However, here are some areas to think about as you address potential issues related to COVID-19.
Crisis management and response
Possible issues
Given how widespread COVID-19 is in the US, companies may need to build added flexibility into the already robust business-continuity capabilities they have demonstrated during past emergencies. Since these firms enable the generation and/or delivery of electricity, natural gas and water to customers, their service must remain dependable and consistent, even if a health emergency severely limits the number of employees and contractors who are able to work.
Also top of mind? Contingency planning in the case of a “double whammy” situation, such as the possibility of a natural disaster occurring in the midst of an ongoing health emergency.
Steps to consider:
- Draw on the long tradition of resource sharing and mutual assistance during emergencies. Depending on the severity of the COVID-19 spread, utilities may have to ramp up coordination efforts to accommodate numerous and simultaneous health emergencies impacting their workforce, especially field workers.
- Coordinate, as necessary, with the CEO-led Electricity Subsector Coordinating Council (ESCC), which works with federal agencies during emergencies that affect the nation’s electricity grids. Recently the North American Electric Reliability Corp. and several Regional Transmission Organizations Independent System Operators provided preparedness guidance to their members.
Workforce
Possible issues
While some functions can be done remotely or outsourced, the industry faces a unique challenge that many others don’t. A large portion of the workforce is critical to the continued operation of the business and the safe, reliable delivery of power, gas and water. The industry is accustomed to relying on mutual aid assistance when resources are needed. However, there’s the possibility that typical partners may not have available capacity to help.
While cybersecurity is always a top priority for industry firms, we note that there could be additional threats and vulnerabilities now. This is because workers will have significantly higher levels of remote access to core systems, and because employees and management could be more susceptible to social engineering efforts in the midst of a crisis.
Steps to consider:
- Evaluate staffing for functions identified as critical to the business. Put risk mitigation programs in place for employees who need to work in large gatherings at a common worksite (e.g., both existing and enlisted field and construction crews).
- Build flexible work arrangements, where viable, for non-essential staff.
- Consider ways to increase automation and use emerging technology to minimize person-to-person contact but still get the work done.
- Remind employees about being suspicious of emails from unfamiliar sources to prevent successful phishing and business email compromise.
- Conduct a phishing exercise now to reveal gaps in your defenses.
- Strengthen your perimeter, using security tools to identify and deflect threats before bad actors can intrude.
- Strengthen your remote access management policy and procedures. Make sure work-at-home doesn’t mean work-without-security; it’s now possible to transition to rapid, secure, remote work models within days rather than months.
Supply chain and operations
Possible issues
While regulated utilities are mandated to have access to adequate supplies of critical parts, components, equipment and materials for emergencies, utilities might encounter shortages due to constrained production of supplies produced in countries highly affected by COVID-19.
Developers of renewable energy projects could potentially experience difficulties in getting critical components (e.g., photovoltaic cells, turbines) from suppliers in affected countries, especially those in Asia.
Additionally, we expect some utilities to experience load reductions due to dampened demand for power, gas and water from the commercial and industrial sectors. They also may find that some customers are struggling to pay their bills.
Steps to consider:
- Get a clear picture from foreign suppliers about any current or expected production declines that may cause delays in order fulfillment of critical infrastructure supplies such as transformers and other restoration materials. Firms may need to explore other sourcing options as a contingency plan.
- Drawing on the culture of mutual assistance, companies should set plans for sharing physical resources (parts, components, wires, etc.) that might be in short supply due to supply chain disruption.
- Companies should lift their business continuity plans and emergency-response playbooks to a higher level to maintain normal operations. That could involve enabling employees to work remotely, resolving supply chain sourcing issues, quarantining personnel or restricting travel.
Financial reporting
Possible issues
Utilities may experience continued supply-chain disruptions surrounding parts for grid-wide maintenance and repairs — as well as necessary components for renewable energy projects (e.g., solar cells and wind-turbine components). COVID-19 could also impact business continuity. Both scenarios could carry financial-reporting implications. Additionally, companies experiencing significant workforce disruptions may struggle to meet required quarterly financial reporting, annual FERC and state reporting deadlines.
Steps to consider:
- Evaluate if risk factor disclosures may need to be added or modified to address the risks of coronavirus or other pandemics (e.g., impact on operations, supply chains and business continuity).
- Consider second-order effects, such as reduced demand due to businesses being shut down.
- Determine if recent events may impact current and future judgments and estimates inherent in financial reporting (e.g., receivables collectibility, debt covenants, impairments of investments).
- Examine the current and potential future impact on operations, liquidity and capital resources (including consideration of trends and uncertainties).
Tax and trade
Possible issues
Due to the COVID-19 outbreak, power and utility companies are reacting to and planning for changes to supply chains and, possibly, workforce mobility. These changes require careful consideration of potential tax implications.
In particular, power and utility companies are concerned about the impact that supply-chain disruptions could have on the new construction of wind facilities, some of which may need to be placed in service in 2020 to qualify for maximum production tax credits. IRS guidance to provide extended placed-in-service dates would be a welcome relief.
Steps to consider:
- Plan for the tax implications of any supply-chain-related changes due to COVID-19, including changes to the utilization of tax attributes if declining demand and commodity prices continue for an extended period.
- Developers of new utility-scale renewable energy (wind and solar) facilities need to consider if their projects would be disqualified from maximum production tax credits if they were delayed due to supply-chain or other disruptions. These credits stipulate that projects be placed in service in 2020 to meet safe harbor or investment tax credits (based on when construction begins).
The way forward
As COVID-19 continues to be a health emergency, power and utility companies may need to expand efforts to keep their workforce safe and have the necessary skills in place at all times. Thanks to the industry’s century-long tradition of resource-sharing (both in workers and in supplies), utilities will likely be able to extend those initiatives to previously unseen levels, creating an all-for-one, one-for-all collaborative response.
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Michael (Casey) A. Herman
Energy, Utilities and Resources Co-Leader; US Power & Utilities Leader, PwC US
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