This is In response to someone’s demand for a Return on Investment Calculation for electric utilities.

I propose a Return on Up Time Calculation. What is the value of 99.8% uptime compared to 96% uptime? How much more would you pay to have electricity 99.8% of the time compared to 96% of the time? To the casual observer, 3.8% is not a large number. But to business and industry that represents 10 business days and to a residential customer that represents 15 calendar days.

Business and Industry

What would be the cost of area businesses if they could not conduct their operations if they had no electricity for 2 out of every 48 weeks of normal operations? Reduce their current gross sales by 4%. If the firm’s normal net operating margin is 15% of gross sales, and their gross sales declined by 4%, then how much would the lose?

• Assume $30 million in normal annual gross sales and 15% net operating margin, then their net profit is $4.5 million.
• Reduce gross sales to $28.8 million, their new net is $4.32 million.
• Therefore, it they are willing to pay 85% of a cost to reduce the risk of losing another $180,000 in net profits per year, then they should be willing to pay $153,000 per annum for 99.8% uptime, or $12,750 per month.

Residential

What is the cost to residential customers of not having electricity 15 calendar days out the year?

• Lost Food from lost refrigeration. 97.75% of US households, 48.75 million, do not have an automatic backup generator. (Source Wall Street Journal, November 6, 2012) http://online.wsj.com/news/articles/SB10001424127887324894104578103334072599870
• Assuming that most of the 97.75% of homes have homeowners or renter’s insurance, residential customer is still out the $250-$500 deductible on their insurance for lost food, unless they pay more for a special appliance or loss of power rider.
• The U.S. CDC recommends that perishable food be disposed of after 48 hours in an unopened refrigerator or freezer during an extended power outage. Without insurance, the average household would lose $300 in perishable food (USDA) after a 2-day power outage.
• How many citizens die when the electricity is off for an extended period of time? The U.S. CDC reports that during an average year in the U.S. 430 deaths are attributable to non-fire related CO poisoning from temporary heat sources during power outages. If 430 people die when the uptime is 99.8%, how many would die if the uptime dropped to 96%?

• If 430 out of 317 million die at 99.8% uptime, then 1,585 would die at 96% uptime.