Equipment Breakdowns in an E-world

With hurricane season upon us, many people’s lives are disrupted due to storms shutting down businesses, causing undue hardships and loss of incomes. People feel vulnerable and at the mercy of nature. But for many businesses, a more common vulnerability is the breakdown of their equipment and the infrastructure that supports this equipment.

The risks business and industry face are exacerbated by four converging trends:

• aging infrastructure;

• demand for equipment in a global economy;

• rising energy demands and costs; and

• proliferation of technology.

Fortunately, there are ways to mitigate and manage risk. What’s needed are innovative strategies focused on engineering, risk assessment, loss prevention and contingency planning.

Aging infrastructure

Aging equipment and the proliferation of power-hungry new technology is straining the North American infrastructure, including the power grid and the equipment that distributes electricity inside commercial buildings. Much of the transmission grid system was developed more than a half century ago. The electrical systems in many buildings were not designed to carry the loads that are necessary today. Consider these facts:

• Electricity consumption at peak demand times is growing at twice the pace that committed power generation capacity is being added.

• A recent North American Electric Reliability Corporation (NERC) survey of utility industry professionals ranked aging infrastructure and limited new construction as the Number 1 challenge to electric reliability — both in likelihood of occurrence and potential severity.

• The electric transmission system is increasingly operating close to its capacity margin; many areas of the grid are regularly under stress.

• Construction of new transmission facilities is still slow and continues to face obstacles.

• The average age of transformers used within the utility industry is more than 30 years old; many units are nearing the end of their expected life.

• Electrical systems within buildings are often overlooked and under-maintained. Too many building owners don’t realize that electrical equipment requires preventive maintenance.

• Estimates on the annual costs to North American industry from power surges and other related anomalies have ranged from US$30 billion to US$200 billion.

• Despite reliance on sensitive digital technology, equipment owners too often neglect to install adequate electrical surge protection, placing equipment and business activity at risk. Such trends increase the risk for more frequent and severe blackouts and brownouts, electrical system breakdowns, equipment damage, business interruption and structure fires. In fact, the National Fire Protection Association (NFPA) reports electrical distribution failures each year are responsible for about 9% of fires in commercial buildings.

The loss of power or poor power quality presents other exposures. In our information-based society, with its explosive data growth, any power interruption can result in a commercial disaster. Data can be lost due to equipment breakdown and it can be expensive, and sometimes impossible, to restore the information due to rapid changes in technology.

Global competition

Demand for equipment and equipment components is increasing around the world. As developing nations’ GDP and per capita income have grown, so too has their middle class. China and India alone account for about 40% of the planet’s population. Their citizens want what Canadians want: reliable electric power and technology and modern equipment that make life better. Yet worldwide manufacturing capacity for some critical infrastructure equipment, such as transformers, has remained relatively flat. Emerging domestic markets in these and other developing countries are consuming more of that available capacity. The result is an unprecedented competition for equipment as economies expand and standards of living rise.

Given that more equipment is manufactured abroad, delivery times for equipment — including spare and replacement parts — have lengthened significantly. Prices also continue to rise, with no end in sight. This fierce competition for equipment creates serious risks for businesses, including supply chain disruptions, production delays, lost customers, rising operating costs and even legal liability.

Rising energy demands, costs

No business is immune from the increasing costs of power and the threat of power shortages and disruptions. Peak demand for electricity in Canada, which occurs in summer, is forecasted to increase by 18% in the next 10 years, but committed power generation to meet peak demand is projected to rise just 8.4%, according to a study published by the North American Electric Reliability Corporation.

As the reliability of the power supply becomes a greater concern, increasingly businesses and institutions are installing and operating their own power generation equipment to offset costs and ensure the availability of electricity. More businesses are exploring or turning to alternative fuels and renewable energy sources, including wind, solar, photovoltaic, fuel cells and geothermal power.

New equipment and technology is now located in places it has never been before, being operated and maintained By Personnel Who Might Lack Experience and training. Hospitals and schools, for example, might have micro turbines, or office buildings might rely on fuel cells and diesel generators. This trend is adding to the equipment, property and business interruption exposures facing commercial operations.

Proliferation of technology

The acquisition of new sophisticated equipment for a range of business applications is on the rise. The result is rapidly increasing equipment values occurring in virtually all types and sizes of businesses and industries. In many cases, however, both a business’s property and its contents valuations are underestimated and understated, and therefore underinsured.

Main Street has gone high-tech, with self-checkout and point-of-sale systems and other electronics that track inventory, manage energy systems and operate fire and security alarms. You might find a sensitive and expensive Magnetic Resonance Imaging (MRI) scanner in a medical office located in a strip mall. Auto service centers routinely use digital diagnostic equipment. As Computer Numerical Control (CNC) machines become more affordable, smaller machine shops rely on automation.

This widespread use of electrical and electronic equipment, which is highly vulnerable to power surges and other disturbances, is creating equipment and business risks for commercial operations whose owners may not understand their exposures. Moreover, technology is advancing so rapidly that much of it becomes obsolete quickly, making it difficult to repair or find replacement parts. In many cases, if key components are unavailable, it must be completely replaced.

We are also experiencing a data tsunami, meaning that data loss exposures are severe and growing. Surgesensitive technology — critical to every business — makes today’s equipment even more vulnerable to a breakdown. With new technologies and applications that store digital data, business data exposures are growing so fast that the cost of-data recovery may easily eclipse the expense of equipment repair and replacement.

INNOVATIVE SOLUTIONS

As these trends emerge, they also converge. For instance, aging utility equipment increases the risk of power blackouts; in turn, blackouts increase the risk of damage to the surge-sensitive technology upon which business and industry relies.

Faced individually, each trend presents new challenges. But the combination of these risks can threaten a business as never before. It is therefore important for equipment owners to assess their exposures, improv e equipment maintenance and operation, develop business contingency plans and include appropriate insurance protection, loss prevention and loss control programs.

Much can and is being done to improve the quality and broaden the sources of the energy supply, which is vital to our economic future.

Industries dependent on large transformers, for instance, can maximize the lifespan of their equipment with dissolved gas analysis and other testing that can identify transformer defects and help set priorities about repairing, refurbishing or replacing equipment.

PREVENTATIVE MAINTENANCE

This is more important than ever, since high demand in China and other fast-growing countries has driven up the cost and greatly extended the delivery time for new transformers. Most transformers greater than 20 MVA, the size used in industrial plants, are sold out until 2009. Even smaller transformers used in commercial businesses such as shopping malls and office buildings can have delivery times of three to six months. Every business, meanwhile, should have an effective electrical preventative maintenance program. It should include a multi-zone surge suppression system for each facility to help prevent breakdowns in the electrical distribution system and protect essential electrical and electronic equipment.

Why is this important? The Institute of Electrical and Electronics Engineers (IEEE) reports the failure rate of electrical components is three times higher for systems on which preventive maintenance is not performed. An effective electrical preventative maintenance program also can save energy, reduce the risk of fires, help protect worker safety and improve power quality, which is so important to the operation of electronic equipment and protection of valuable data.

Over the past two decades, there has been an increase in the frequency and severity of electrical system breakdowns. Professional engineers can analyze and troubleshoot conditions, while tools such as infrared and ultrasound testing can help spot potential problems. A qualified and experienced contractor can help a business decide how extensive an electrical preventive maintenance program is needed, based on the characteristics of the facility and the vulnerability of the business.

PLAN FOR CONTINGENCIES

In a competitive business environment, with just-in-time delivery systems and maximized productivity, facility up-time is critical to business and maintaining a leadership position in your market. Given global competition, increasing demands for power, an aging infrastructure and the explosion of new technology, business and industry must protect critical equipment and plan for contingencies.

Should those protections and contingencies fail, equipment breakdown insurance should be purchased to protect the viability of the business.