Legal Perspectives: Drug Companies Need Reliable Power
The 20 largest pharmaceutical companies each have total revenues of more than approximately $9 billion, with the largest totaling $53 billion. U.S. firms dominate the pharmaceutical market, but non-US pharmaceutical companies also do substantial business and product development in the U.S.
Pharmaceutical companies frequently engage in several types of business activities including manufacturing, administration, sales, R&D, and product testing. Many pharmaceutical company facilities are situated in business park settings not unlike college or university campuses and employ thousands of people. Some of these buildings and facilities are used on a 24/7 or multiple-shift basis, while others are limited to a regular office schedule. The operations and maintenance of these manufacturing, testing, and office facilities create general and mission critical energy supply requirements.
Manufacturing and product development processes, product handling, and distribution (including refrigeration for storage), laboratories, computing equipment, security, and other common building faculties such as elevators, HVAC, and lighting drive the energy and reliability needs of large pharmaceutical companies.
Product development, i.e., the discovery and development of new drugs, is at the heart of the pharmaceutical business. Discovery and development are also cost-intensive and highly competitive. Of the thousands of compounds investigated for possible human use each year, the U.S. Food and Drug Administration (FDA) ultimately approves just a few, necessitating a substantial and continuous R&D investment by each company. In the first six months of 2009, the FDA approved a total of only about 40 original, new drugs for sale and distribution.
Manufacturing and refrigerated storage facilities and buildings where drug research and development take place require a consistent flow of power. Loss of power during the manufacturing process can result in an entire “run” being lost, with a heavy cost in expenses and time. FDA guidelines require sterility and uniformity in the manufacture of drugs (See 21 CFR Parts 210 et seq). Sterility and uniformity can be lost during the manufacturing process or while medicines are stored. Manufacturers cannot guarantee the sterility of most injected medicines and other products in the aftermath of a power outage during the manufacturing run. For this reason, most pharmaceutical companies install backup generation in buildings where manufacturing takes place.
Pharmaceutical products that require refrigeration may continue to be viable for several hours after a loss of refrigeration. The same would be true for products that are kept or shipped frozen, although the length of time during which a power loss could continue would be greater before spoilage would occur. But once those products attain a certain temperature, which would depend on the nature of the drug products, they can no longer be sold, according to 21 CFR Section 211.142.
Tablets can also become contaminated if the power goes out in a manufacturing facility. In large facilities, different drugs are frequently manufactured in adjacent rooms that are walled off from each other. If the air handling system fails, dust or powder from a product in one room can travel to another room, destroying the purity of the product in that other room. Air handling systems must be kept up and running with back-up generation if there is a power outage or the manufacturing “run” will have to be terminated since the products may not meet FDA standards, according to 21 CFR Section 211.46.
Developing and testing drugs involves humane animal experiments that, if interrupted, can result in extensive delays in readying drugs for submission for FDA approval and marketing. Loss of equipment or extreme temperatures in the laboratory can cause tests to be invalidated or sicken or kill the animals used for testing. FDA regulations require that laboratory animals be maintained and controlled in a manner that ensures their suitability for their intended use (21 CFR Section 211.173). Temporary loss of air handling equipment can cause viruses or bacteria to spread from sick animals to healthy animals. Sudden power loss can also disrupt and delay other research and experimentation. These losses can delay the development of new drugs from a few months to more than a year and impose heavy costs upon the pharmaceutical company.
These financial losses are unlikely to be recoverable from the utility in the event that there is a service interruption. Utility tariffs generally protect utilities from the payment of damages to customers that result from outages of electric service unless the utility was negligent. Some utility tariffs even protect the utility from liability for outages unless it was grossly negligent. Utility tariffs can also provide that utilities can cut power to certain subsets of customers in order to avoid a system-wide outage.
In buildings dedicated to manufacturing or R&D, backup generators must be available to pick up electric load on an instantaneous basis if there is a utility power interruption. These generators must be sized to critical building loads. In R&D buildings, this is frequently the entire building load. Backup generators must be serviced in accordance with the manufacturers’ requirements and tested not less than monthly to ensure that they will be operational in an outage.
Emergency generators are and should be used in buildings and areas other than those housing manufacturing facilities and R&D laboratories. These include generators backing up a power supply and essential air conditioning for data/server center computer equipment. Backup generation may also be need for steam generation plants, pilot plant operations, telephone, security, fire, and other equipment that may be essential in the event of an emergency. In addition to the necessary electricity needed to back-up the area surrounding a steam generating plant, back-up steam can be provided by a cogeneration unit, which will also supply all or some percentage of the steam used in processing or for other uses on the site.
Many states limit the hours of operation of generators installed to supply emergency power, for environmental limitations. Appropriately sized emergency generation may be used within such hourly limitations, for other purposes that provide revenues for the company or reduce electric utility costs. These additional purposes might include providing capacity to an Independent System Operator (ISO) or a utility that offers payment to end users for capacity under a demand-response program. In addition to participating in demand-response programs, emergency generators can be used to peak shave and save costs on utility demand charges.
Emergency generators can be operated “behind the fence” such that there is no connection with the utility distribution system. Alternatively, pharmaceutical companies that plan to run their emergency generators at the same time that they take power from the utility system (known as “running in parallel”) must interconnect with the utility in order to offer capacity to the utility system and generally enter into an interconnection agreement with the utility based on a form agreement provided by the utility. These agreements can and should be negotiated, as many provisions tend to favor the utility. The principal concern of the utility is that customer’s generating equipment is equipped to protect the utility’s lines so as to neither damage its equipment nor injure its line personnel as a result of back feeding power from the customer’s generator into the utility’s power lines.
In addition, the generator may require the addition of emissions control equipment to reduce both the type and amount of emissions from fuel burned to power the generator, so that the generator complies with air quality requirements. Emissions agreements may also be form agreements presented to the customer by the equipment supply company. These contracts should be negotiated to ensure that the provisions are not one sided in favor of the supply company and to protect the pharmaceutical company against defects or failure to meet the specifications necessary in order to comply with regulatory requirements. In a large facility, saving could be in excess of $1 million annually.
Emergency generators are generally fueled by diesel (No. 2) oil. One consideration is whether the fuel source can or should be changed to natural gas, which is a cleaner fuel and can be burned for a greater number of hours given lower emissions. Whether or not an emergency generator is participating in a demand-response program or being used for peak shaving, there must be an adequate supply of fuel available on the premises. In addition, the pharmaceutical company must ensure that there is sufficient space for fuel storage and/or a contract that provides for deliveries to guarantee that the plant will not run short of fuel when it is needed.