BLOG: Power Perspectives

[#1]

The start of a new year greeted me with annual renewals at my house. One of those renewals was my personal insurance, both home and auto. I don't know about you, but whether it's automobile insurance or my home owner's premium, I cringe at the fact of paying my annual insurance premiums. In essence, I always feel like I'm paying too much for what I get, and for the most part, I never seem to realize the true value. But, all that said, it's one of those “products” I simply can't go without. Do you feel the same way?

Deductible or no deductible, experience tells me you probably feel the same way. That is until we have to use that insurance for a claim, or in other words, when something unexpected happens.

The sentiment seems to be the same in the electric power business. When a customer purchases an electric power product, from any OEM, that carries a standard warranty – that customer has an expectation that that product will perform flawlessly, at least throughout its standard warranty period, and typically beyond. In most cases, that's exactly what happens, until of course, something unexpected happens.

What makes you feel comfortable after the standard warranty period expires? Do you look to the OEM to provide insurance on the product? Do you look outside the OEM for insurance? Maybe you decide to roll the dice and manage potential failures on your own. Bank the money and simply pay as you go. As a fact of my personal life, I know I can't afford to roll the dice against my assets. But in this business, I see it happen all too often. The biggest reason: it's perceived as being too expensive. But is it?

With continuous technology advances in the electric power business, how can your business sustain the risk of the unknown? I've seen simple failures turn into insurance claims of $100K or more. How do you bank your money successfully knowing, that if a catastrophic failure occurs, your company, and your job is secure because you have budgeted enough... no matter what? What's the right amount?

Tell me how you feel about insurance for the electric power business. Do you view it as good risk avoidance and money well spent for your business, or do you simply perceive it as paying too much for something you may or may not use? Post your thoughts below.

[#2]

Our company owns and operates two G3512 CHP plants. The newer one was commissioned by ourselves, not so the older, so this one is covered by a damage insurance with a limit of liability set to the 30 % of the plant value and a franchise of 1 %.

For the first four years only damages below the franchise happened, but now a problem in exhaust gas heat exchanger (all the U-pipes have to be replaced) will probably let us save more than all the premiums paid until now.

My strategy is normally to cover only the costs not retroactively valuable, with a franchise relatively high.

Adolfo

[#3]

Extended Service coverage plans and/or PPP (when they were available...not sure if they are now) where viable to certain markets.  For prime units the biggest factor for any type of insurance or additional warranty types was the cost of operation and the ROI if it allowed provisions for planned and unplanned issues.  Granted, the whole idea is to never have to use it...but in my experience most end users in high risk and dollar applications will invest in the option of the protection to avoid writing a check they really dont want to.  

One item that comes to play is the correct commissioning and initiation of these plans by authorized agents, CAT commissioning tech, independent companies, (Lloyds of London, for ex) to certify equipment is correctly operating and repaired with correct parts, etc.  This is often overlooked by alot of end users as they often do not read the fine print in warranty contracts, etc.  

For non prime applications, a basic warranty is usually all that is offered.  One major disconnect is that often the end user is not aware of extended options of coverage from a factory OEM and will source elsewhere.  

High risk applications- data centers, government work, power plants, cogen, etc... all probably have some mitigation risk assessments that most likely come into play at some point of the project if cost effective.  In my experience, additional coverage is important, but not marketed or explained very well by OEM dealers.

In today's financial world, CAT finance most likely has many competitors for this business, potentially.