Municipal Services Committee to Hear Details of 81 Percent Insurance Increase for City’s Power Plant

The city of Pasadena will be paying higher insurance premiums – up by about 81 percent – in the 2020-2021 policy for coverage of five electric generating units at the Glenarm Power Plant.

The policy is due for renewal by July 1.

Earlier this month, members of the Pasadena City Council’s Finance Committee asked Pasadena Water and Power why there was such a steep increase in insurance premiums for the Power Plant, from the previous $429,500 to $756,000.

The insurance program provided by Alliant Insurance Services affords coverage for risks of loss or damage, including boiler explosion and machinery breakdown for the City’s power plant facilities.

The committee members asked whether the lack of testing at the power plant could be responsible for the increase in premium payments, and if the power plant were complying with normal maintenance protocol.

In a preliminary to be presented to the Municipal Services Committee Tuesday, PWP General Manager Gurcharan Bawa explained some of the reasons behind the steep insurance premium increase.

Bawa said the power plant is maintained and tested in accordance with the manufacturer’s recommendations and standard industry practices, including those now required by the new 2020-2021 insurance policy. The difference now is that the insurance carrier requires certain tests to be performed more frequently than recommended by manufacturers or standard industry practices.

“Increase in insurance premium is not for lack of testing,” Bawa said in the report. “The higher premium, reduced coverage and much more frequent testing requirements are indicative of the insurance industry’s shift towards lower risk tolerance and risk appetite driven by rather large electric utility claims, social inflation, and now exacerbated by COVID-19 and social unrest.”

Bawa also said Alliant’s representative did not physically visit the power plant due to COVID-19 restrictions. Instead, the insurance company asked for specific documentation that PWP promptly provided.

Bawa also said PWP continues to meet all new testing and normal maintenance requirements within the prescribed time frame, as outlined in the insurance program.