Tag: covid-19 (page 1 of 2)

Financial Resilience: Tools to test a utility’s ability to “weather the storm”

These are unprecedented times. As the COVID-19 pandemic continues, social norms have changed and unemployment has risen sharply across the nation. As states have pushed residents to stay home, water usage patterns have altered for both commercial and residential customers. In many cases, commercial customers have decreased use while residential customers have increased. Schools have been closed for months, some of which are the largest water customers in a small town or county. Executive orders have been passed, mandating that service cannot be cut-off for non-payment.

In short, revenues have changed. The level of change varies based on the makeup of the utility’s customer base and the specific hardships within the area, but the change exists in every case. These changes in revenues are typically associated with losses, meaning that budget predictions are off and the actual revenue collected will be much lower than planned.

Utilities will need time to recover these losses. But how do we measure a utility’s ability to bounce back? Bring in the buzz word: Resilience.

At the EFC, we see this pandemic as both very different than anything the US has ever experienced, and also very similar to some of the short-term shocks experienced by utilities in past emergencies. For example, a drinking water utility serving a coastal community that has been walloped by a hurricane.  In both cases, utilities that are more financially resilient are more likely to bounce back faster. Continue reading

How are North Carolina Utilities Faring During the Pandemic? Four Key Insights from Survey Results

With the ongoing COVID-19 pandemic, utilities across the nation continue to adapt to rapidly changing conditions through a number of measures, from suspending water shut-offs to implementing cost-saving maneuvers like reducing energy costs.

To better understand some of the financial implications of the pandemic, the Environmental Finance Center surveyed 93 water and wastewater utilities in North Carolina in early May on a range of topics, including payment plans for delinquent customers, how long they can pay all operating and capital expenses, changes in total revenue collected, staffing for utility operations, plans for the next fiscal year’s rates, and the scope, funding, or timing of capital infrastructure projects for the year.

Four key insights from the survey are detailed below. Each finding is coupled with graphs showing the response distribution for the survey question connected to the key finding. Continue reading

How Utilities in the Past have Saved Money during Economic Hardship: Similarities and Differences for COVID-19

Co-written by Erin Ansbro

Right now, water utilities are facing great uncertainty about the coming months and years. When will moratoria on water shut-offs end? When will water consumption be back to “normal”? Will utility staff get COVID-19? And the “Big One” — What will revenue loss be for utilities in the coming months and years? While answers to these questions remain unknown during these unprecedented times, guidance from the past can help utilities think through strategies that may save them money now and in the future. Here, we distill information from a previous EFC report about approaches utilities took in response to the Great Recession of 2008-2009 and discuss how the findings relate to circumstances under COVID-19 conditions.

The report, written in partnership with the Water Research Foundation, comes from ideas discussed during a two-day forum with 17 CEOs of utilities which serve between 78,000 to 19 million customers. During the forum, leaders “discussed how they acted to mitigate the recession’s impact and adapt to a changed financial and economic environment” (p. xi). Although these approaches were used by large utilities, some may be appropriate for smaller utilities. These approaches are starting points for consideration, but are NOT intended to be a specific road map or a recipe for success. In addition to the overarching themes and summary, the report lists some future research needs and then gives details on the 48 strategies implemented by the forum participants. Continue reading

Municipal Finance in a Pandemic: How is the Market Responding?

Municipal Bonds & COVID-19: What is going on?

Prior to the outbreak of COVID-19 in the US, the municipal (“muni”) bond market was strong. Investors looking for a non-taxable rate of return were hungry for municipal bonds, driving interest rates down for borrowers (state and local governments) and pushing more debt into the marketplace. Most governments have a cap on the amount of non-taxable municipal bonds they can issue, so many had expanded to include taxable bonds (at a higher rate of return for investors and a higher interest rate for borrowing).

Historically, muni bonds have been very low risk. The rate of default on municipal bonds is very low, and investors see muni bonds as a safe haven for return. The rate of return is often quite low, as determined by the safety of investment, but from a portfolio standpoint, they are a safe addition. As of the end of 2019, the muni bond market was incredibly strong; perhaps the strongest it has ever been. Many state and local governments had strong “rainy day funds” or days of cash on hand, making the risk of default even lower and the bond rating even higher. 

Then, COVID-19 made its way to the US and changed the marketplace. Muni bonds have historically performed well during economic downturns, as issuers rarely default– specifically those with great bond ratings. COVID-19 changed this perspective within the market. Investors began selling off everything, including municipal bonds, leaving issued debt sitting in the market unclaimed and driving up interest rates for borrowers. The stock market followed suit, dropping rapidly over just a matter of days, pushing many to wonder if the US was headed for another recession. Why did this happen? And most importantly, what is next? Continue reading

Water System Reserves During the COVID-19 Pandemic

Local governments have an increased public health responsibility to ensure that people have access to clean water during the COVID-19 pandemic. During this time, many utilities are refraining from shutting off customers’ water, despite unpaid bills. In more than a dozen states, mandates have even been put in place to prevent utility service shut-offs for customers. While it is a common  practice during the crisis, utilities lose a tool to ensure collections from customers. Furthermore, many utilities will experience significant declines in water use from non-residential customers. The reduction in revenue could put utilities in a difficult financial position.

Many utilities may not be able to generate the revenues needed to cover their expenses this year. In that case, utilities may have to rely on their reserves to cover the gap. How long will utilities be able to last during this pandemic without recovering all of their expenses through revenues? This leads us to analyze a key financial indicator that approximates unrestricted reserves: days cash on hand. To put it simply, days  cash on hand is the amount of saved and unrestricted cash a system has and how long it will be able to pay for daily operations before it runs out. For additional information on days cash on hand see our previous blog post

At this point, it is unknown how long utilities might expect to operate under current COVID-19 conditions, which dictates how much they will need to rely on their reserves.  According to Washington Post’s William Wan, it was two and a half months from the time of outbreak before COVID-19 peaked in China and restrictions began to lift. Given the uncertainty, it is important to examine the financial sustainability of utilities at various lengths of time. Here we will be analyzing the impact of the virus shutdown continuing for two, three, and four months. Additionally, we will compare present regional differences between  utilities in North Carolina and Arizona.  Continue reading

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