At the start of the pandemic, there was uncertainty about how water and wastewater utilities’ revenues and finances might be affected. Many utilities and local governments were concerned with loss of revenue from the commercial sector, as well as the financial implications of statewide moratoria on late fees and disconnections for non-payments designed to ensure that everyone has adequate access to water and sanitation during a designated public health emergency. Various polls and case studies were analyzed to gauge early and ongoing effects on the utilities’ financial condition. Now, the release of audited data in local governments’ annual financial statements provides additional information and insights. This blog post summarizes how over 300 local government water and wastewater utilities in North Carolina fared at the end of Fiscal Year 2020 (end of June 2020 for all local governments in the state) compared to previous years. The audited data include the first three months of the pandemic.
This is the first of a series of three posts on utility data management. The Environmental Finance Center collects all sorts of data for projects. The EFC uses data from regulatory agencies, financial reports, and data on area residents from the US Census Bureau.
The project design questions the EFC asks are:
- Know the users! Are they:
- The public?
- What should be shown?
- Decisionmakers need reliable data on cost and benefits
- Staff may need to drill down on details
- Overall, tell a story
- What data exists to support and analyze how can different data sources be connected?
For water and wastewater rates dashboards, the EFC’s primary audience is staff of utilities and the secondary audience are utility board members and decisionmakers. The EFC shows utility rates and, importantly, the context for those rates. Multiple dials show the user the balance between factors such as operating ratio and affordability. Comparison groups let the user look at their rates in comparison with other utilities in their watershed or with utilities serving similar numbers of customers. This year, the EFC has added dials for non-revenue water and for wastewater inefficiency to the North Carolina dashboard.
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
How financially healthy are the municipal residential electric utilities in North Carolina? That is a broad question, and one of keen interest to many customers of those utilities. This is especially true at a time when Duke Energy Progress and the North Carolina Eastern Municipal Power Agency (NCEMPA) are discussing the possibility of Duke Energy Progress purchasing NCEMPA’s electric generating assets, and where rate payers may be wondering what such a sale could mean for their future electric rates, as discussed in this previous blog post on affordability of residential electricity in N.C. Continue reading
A $napshot is a graphic revealing an interesting environmental finance finding accompanied by a short post. This $napshot was created by Shadi Eskaf.
Changes to Rates and Revenues among 566 Utilities
While revenues usually rise as water and wastewater rates increase, revenues generally rise slower than rates. The graphs show how 566 utilities in three states changed rates over a three or four year period, and the subsequent change to annual revenues in the same time period. Four observations can be made. Continue reading