Coronavirus: Critical Considerations for the Energy Industry
The Situation: Energy industry participants have been, and continue to be, greatly affected by the sustained and continued spread of the novel coronavirus disease ("COVID-19").
The Issues: Power generators, owners, operators, and developers are encountering issues related to power generation and supply as well as how they should interact with guests, employees, contractors, supply chain counterparties, and customers.
Looking Ahead: All utilities, power generators, operators, and developers should review and implement the latest guidance from the relevant public health authorities and should carefully consider and plan how to respond to guidance from relevant regulatory authorities. They should also follow routine preventive measures, manage illness, exposure, and any confirmed COVID-19 diagnoses, and carefully evaluate force majeure clauses and contractual risk.
The appropriate response for owners, operators, and developers of power generation assets to the continued spread of the novel coronavirus disease ("COVID-19"), will vary with geographic region and the particular facts and circumstances of each individual situation. We encourage all utilities, power generators, operators, and developers to review and implement the latest guidance from the relevant public health authorities and to adapt their COVID-19 policies and procedures accordingly. We also encourage them to stay informed regarding guidance from federal, state and local regulatory authorities and to develop a plan with respect to plant operation in the event of a localized outbreak.
Routine Preventive Measures
- Stay Informed. Given the rapidly changing environment, it is critical to stay informed of evolving guidance coming from health and regulatory authorities, including instructions that may affect power generation, ownership, operation, and development in specific local areas.
- Communicate Regularly. Utilities and other plant owners and operators should consider providing regular communications to their employees and to their contract counterparties, respectively, as needed, in light of evolving conditions and health and regulatory authority guidance affecting COVID-19 protocols.
- Post Notices. Owners and operators of power plants should consider distributing to their employees and posting in common areas, general COVID-19 guidance from the relevant public health authorities, practices for limiting the spread of COVID-19, symptoms of COVID-19, and steps to take if an individual believes they may have been exposed to or infected by COVID-19. This may include notices encouraging individuals who are under self-quarantine or self-isolation pursuant to guidance issued by the relevant public health authorities to remain home.
- Hand Sanitizer. Owners and operators of facilities should consider making hand sanitizer available at the entries and in high-traffic common areas under their control.
Managing Illness, Exposure, and Confirmed COVID-19 Diagnoses
- Instruct Sick Employees to Stay Home. Plant owners and operators should consider giving their employees clear instruction that individuals should not come to work if sick, especially those that are experiencing any symptoms such as fever, new cough, sore throat, runny nose, or new shortness of breath. In addition, owners and operators should consider having a policy in place regarding management of persons arriving or becoming sick at the facility as well as procedures for any return, consistent with public health authority guidance.
- Establish a Policy to Manage Known Exposure to COVID-19. If someone in an individual's household, their intimate partner, or someone they have cared for has tested positive for COVID-19, that individual should not come to work and should notify their supervisor. Similarly, if any individual has been in close proximity (within 6 feet) of a person with known and confirmed COVID-19, the individual should not come to work and should notify their supervisor. Individuals with known exposures should be encouraged to follow the guidance of the applicable public health authority to assess potential exposure. These individuals should not come to work and should self-quarantine for at least 14 days to monitor for development of illness.
- Establish a Policy to Inform Employees and Guests of Possible Exposures. Should any plant owner or operator determine that an individual confirmed to have COVID-19 has entered a plant or its premises, consideration should be given as to whether it is appropriate to notify other employees and guests accordingly. In the event such a notice is given, it should not disclose the identity of the infected individual.
- Establish a Policy to Respond to Confirmed COVID-19 Diagnosed Individuals. Power plant owners and operators should consider developing an emergency plan for the isolation and temporary closure of space impacted by an individual confirmed to have COVID-19.
- Establish a Policy to Manage High-Risk Travel. If an individual has traveled to a "Level 3" country (currently China, Iran, South Korea, most European countries, United Kingdom and Ireland, and Malaysia) or other region that a health authority may designate in the future, the individual should not come to work and should self-quarantine for at least 14 days to monitor for development of illness.
- Cleaning Procedures. Those parties with the obligation to provide janitorial service to building space, including plant operators, should consider implementation of procedures for the thorough cleaning, in accordance with guidance from the relevant public health authorities and industry practice, of any space known to be occupied by an individual who has been in close proximity (within 6 feet) of a person who has been confirmed to have COVID-19 or any individual who has travelled to a "Level 2" or "Level 3" country. Special care should be given to confirming employees and contractors performing this cleaning are equipped with adequate protective equipment.
- Notify Local Public Health Authorities. In the event that a plant owner or operator is notified that one of its guests or employees, as applicable, has a known and confirmed exposure to or has a confirmed diagnosis of COVID-19, such owner or operator should follow relevant public health authority guidance to notify the authority.
Contingency Planning Regarding Plant Operation During COVID-19
Given that public utilities could see a significant portion of their workforce out sick or quarantined due to COVID-19, it is critical that utilities and other power plant generators and operators have a contingency plan in place regarding plant operation.
Federal, state and local officials have broad emergency and public health authorities. On the one hand, these could in theory be invoked to compel a plant shutdown or area quarantine in the event of a localized COVID-19 outbreak to prevent the spread of the virus. On the other hand, these authorities could be invoked to dictate that a plant continue to operate in order to provide critical power needs.
Utilities and power generation owners and operators should carefully monitor the directives of the federal government and the Department of Energy during COVID-19. The federal government may invoke one or more emergency or defense-related authorities, such as those contained in the Federal Power Act or the Defense Production Act, to respond to a COVID-19 related scenario—such as by mandating electricity generation, delivery or transmission in an affected area, or placing priority orders to address specific COVID-19 response needs.
Entities that are registered on the North American Electric Reliability Corporation's ("NERC") Compliance Registry must plan for and conduct operations during emergency conditions. Indeed, registered entities are required to provide responses to a NERC COVID-19 Alert addressing their coronavirus epidemic emergency preparedness. In addition, the Federal Energy Regulatory Commission and NERC, using regulatory discretion, provided industry guidance outlining how the effects of the coronavirus will be considered for certain compliance matters for defined periods of time, and postponing Regional Entities' "on-site audits, certifications and other on-site activities at least until July 31, 2020."
Power generators and owners should also pay close attention to the guidance of industry associations during COVID-19. In order to further assist power generators and operators in addressing plant operations during the spread of COVID-19, many such industry associations, including the Electricity Subsector Coordinating Council and the Edison Electric Institute, have issued industry-wide guidance. Given the fluid nature of the COVID-19 pandemic, various RTOs and ISOs have also been rolling out region-specific guidance.
Moreover, state and local authorities have broad emergency and public health authority, including health and safety based quarantine authority that in many cases is broader than that currently exercised by the federal government to address COVID-19-related scenarios. Certain states, for example, have used this authority to order utilities to suspend service disconnections in an effort to mitigate the challenges faced by customers during the spread of COVID-19.
Evaluate Force Majeure Clauses and Contractual Risk
In addition to preparing for and responding to the imminent health threat posed by COVID-19, parties are increasingly invoking force majeure clauses for contractual relief in situations where the COVID-19 outbreak prevents or impedes contractual performance. This applies to utilities, developers and operators who may be facing supply chain interruptions as a result of COVID-19 as well as to plant owners who may be receiving force majeure delay notices from contractual counterparties providing long term service and parts. COVID-19 force majeure claims could also put in jeopardy renewable energy projects seeking to take advantage of production tax credits and investment tax credits.
In situations where force majeure appears imminent, it is important to closely analyze the contract language and the applicable law in the governing jurisdiction to determine whether COVID-19 would likely be determined to excuse performance, particularly in circumstances where "epidemic" or "illness" are not specifically referenced in the force majeure provision.
Where the impact of COVID-19 may be interpreted as a force majeure event and a potential basis for relief, it should be confirmed that the delay or failure at issue is actually related to COVID-19 rather than other unrelated issues that may have arisen.
Insurance policies relating to the relevant property and/or project should be reviewed to confirm whether coverage may apply and, if so, whether there are specific notice requirements applicable to a claim for coverage. Other legal concepts specific to the relevant jurisdiction or situation may also be applicable, such as frustration, impossibility, material adverse effect clauses, and break clauses.
Three Key Takeaways
- In the case of any force majeure situation, careful attention should be given to the contractual notice provisions and other conditions under the contract that must be satisfied in order to claim relief (including the discharge of mitigation duties).
- It is critical to stay informed of evolving guidance coming from health and regulatory authorities, including instructions that may affect power generation, ownership, operation, and development in specific local areas.
- Given that public utilities could see a significant portion of their workforce out sick or quarantined due to COVID-19, it is critical that utilities and other power plant generators and operators have a contingency plan in place regarding plant operation.