22nd November 2022
Last month, the National Grid’s Electricity System Operator warned that the UK could potentially face three hour rolling energy blackouts this winter, as part of a contingency plan to safeguard supply. It is unlikely that such a drastic step will need to be taken. However, with warnings having been given, businesses should ensure that they implement suitable policies, procedures and practical measures to protect employees, to facilitate business continuity, and to counter any potential complaints or claims should energy blackouts actually go ahead and cause disruption.
In this article, Walker Morris’ Commercial Dispute Resolution, Supply Chain and Infrastructure & Energy experts Nick Lees, Nick McQueen, Gwendoline Davies and Ben Sheppard offer legal and practical advice to help businesses keep trade moving, and to mitigate risks potentially associated with energy blackouts.
The problems energy blackouts might pose will differ from business to business. It is not possible to identify every possible risk scenario. However, some of the below ‘brainstormed’ risks will be common to many businesses. This article also aims to help prompt senior managers and in-house counsel to more comprehensively anticipate the particular problems that may affect their own businesses.
Some of the likely risks are obvious. An energy blackout will involve the temporary cessation of vital commodities such as lighting, heating and refrigeration. That will impact working conditions and, in many cases, employees’ ability to continue working at all. Depending on the sector/business, it may impact the ability to continue/keep open at all during affected periods. For example, businesses within the leisure and catering sectors will be severely affected by an inability to light and heat premises frequented by consumers, as well as by an inability to store or serve food and drink safely at the correct temperature. A lack of lighting may prevent shops opening during dark mornings and afternoons/evenings and may impact the ability to operate tills, doors, lifts and other IT-related, energy-dependent equipment. Factories and storage/logistics depots may struggle to operate their automated, IT-dependent systems. Of particular concern, perhaps, will be the likely impact on the healthcare sector, where so many of today’s medical records and care-related communications are held and conducted online, and where so many treatments are dependent upon IT and machinery that require electricity.
Some risks potentially arising from energy blackouts are indirect and/or less immediately obvious. Quite apart from IT operational failings, what about IT security vulnerability during system shutdowns? And what about security risks more generally, for example where buildings or restricted areas are protected by IT/electricity-dependent systems? What if employees can’t get to work, at all or on time, because of public transport failures or an inability to charge electric vehicles? What if energy blackouts prevent disabled employees or visitors from being able to access certain premises or vital services? In addition to apparent health and safety/regulatory concerns, what about employee wellbeing more widely? Having to work in additionally challenging conditions may be contrary to employees’ statutory or contractual rights and might negatively impact physical or mental health. For example, where employees are already experiencing stress, perhaps arising from personal/health/financial concerns, changes to working conditions or patterns may exacerbate the situation, including potentially causing or increasing worries about job security overall.
And then there are a raft of supply chain-, contract- and operational-related risks which could be occasioned by temporary energy blackouts. The mooted three hour rolling energy blackouts, which would occur at different times across different parts of the UK, could result in a ‘swings and roundabouts’ scenario. Different businesses, or even different parts/departments/employees within any individual business, could be affected at different times. That could make things easier or more difficult to manage, depending on the particular business. Energy blackouts could also cause supply chain disruption at a variety of levels. Sometimes an energy blackout could leave businesses vulnerable to contractual failings by counterparties, and sometimes it could prompt default and liability on the part of businesses themselves. In addition to commercial contract failures, some businesses may find themselves in breach of conditions in their leases. Perhaps landlords will be unable to supply services to which they have committed. Perhaps tenants will fall foul of ‘keep open’ provisions.
And what about the more long-term effects of energy blackouts? The financial implications of a business defaulting on commercial or lease terms can prove far-reaching. Similarly, businesses dependent on supply or custom from other businesses or individuals who themselves suffer financial harm this winter may have to scrabble for new suppliers or customers, and to deal with contractual and commercial fall-out, in the months to come.
So what can businesses do to protect themselves and their employees in the face of potential energy blackouts this winter?
Walker Morris’ Commercial Dispute Resolution and Supply Chain specialists are experienced and expert in dealing with all aspects of commercial disruption and dispute. Working cross-discipline with our dedicated Infrastructure and Energy specialists, as well as with our specialists in Employment, Regulatory and Commercial, we are ideally placed to provide business- and case- specific advice to help anticipate and mitigate issues which could arise if threatened energy blackouts occur this winter.
In the event that any complaints or claims follow energy blackouts and consequential commercial disruption, we would also be able to provide urgent, sensitive and strategic dispute resolution advice.
(FCIArb) Head of Commercial Dispute Resolution