Hold on tight as the next shoe drops with the pandemic, recession, and utility bills. Smaller utility operations in particular could have a tough time.
Here’s a blunt assessment: “One looming problem involves the more than 80 N.C. cities that operate their own electric-power distribution systems. ‘I have serious concerns that this extension could risk default for many municipalities that are already stretched thin dealing with the impact of COVID-19,’ Lt. Gov. Dan Forest told [NC Governor] Cooper in an email last week.” That is from a news brief from BusinessNC magazine.
Tough times on several fronts. “More than 150 local governments in North Carolina were on a watch list for risk of insolvency before the pandemic,” according to Carolina Journal. NC’s state auditor said, “They were having trouble meeting their bills before the pandemic set in. It’s a domino effect.” A concern is how that can cascade to capital projects and infrastructure.
Turbulence in utility revenues has been predicted. Customers have been given leeway on payments. Electric use is down. Utility revenues are down.
This isn’t relegated to one area of the nation. Check these stories, then how we see the issue.
- Minnesota utilities are bracing for a stack of unpaid bills and increased costs as the pandemic continues to upend the economy. As jobs are lost, late notices are expected to grow, which could cause rates to rise to recover those losses.” (Source)
- “More than two months after [Virginia] state regulators imposed a ban on utility disconnections for nonpayment of bills … the State Corporation Commission is warning that the current situation ‘is not sustainable on an unlimited basis.’ … an ongoing moratorium could not only lead to customers being burdened with higher bills in the future but put smaller utilities like electric cooperatives at risk of running out of cash. ” (Source)
- Large utility company AEP is “adapting as the pandemic upends its predictions for the year. … The company now expects residential sales will increase 3% while commercial sales contract 5.6% and industrial sales contract 8% in 2020, as many companies shift to online and work-from-home. Overall sales will decline 3.4% from Covid-19.” (Source)
- “Utility revenue could also face headwinds from emergency measures to ease financial hardships due to unprecedented pandemic-related job loss, including suspension of past due collections and late fees,” says Yahoo Finance.
- “[Ten of] Indiana’s gas and electric companies are asking state regulators to allow them to recover lost revenue from customers due to the pandemic, but critics argue that it would burden struggling consumers even more. (Source)
Worth noting: The decline in revenue is across the board with electric utilities. Large and small. Investor-owned, public power, coops. Southeast, Midwest…
The pandemic tests every utility, and not just on revenue. “As the pandemic stretches longer into 2020, some may cut back on capital-intensive projects if the level of power demand doesn’t return to support new power plants or transmission lines.” (Source)
Cutting back on grid maintenance is like not servicing your car. It catches up and costs more in the end.
The test is not only on utilities, but on families, too. Energy burden is the percentage of income that people spend on monthly energy bills. It could increase for many as incomes drop and use of energy at home goes up. That means higher bills. Bigger burden.
Some advocate for a longer moratorium on utility bill payments. The leeway in payments may come to an end, though.
- Georgia is set to remove the moratorium next month (Source)
- Three Connecticut utilities are readying a payment plan for customers (Source)
- Baltimore Gas & Electric Co. is proposing to freeze customers’ base rates for delivery for the next two years, then raise them by 8.3% in 2023. (Source)
- New Orleans says its moratorium ends July 1. (Source)
However, some utilities hurt more than others.
Utilities that have been smart in their approach to finances, planning, and caring for customers are still pressed hard, but their good planning – their good stewardship of resources – makes them much more of a help for customers.
On the other hand, those utilities that operate on much leaner budgets, have higher debt loads going into the crisis, and with much less of a base to tap can have a tougher time. An example would be Santee Cooper.
Hunkering down is appropriate to stop a pandemic; hunkering down on logic during an emergency does not add up. This blog isn’t about scaring anyone but framing-up current events. What to do?
Check the quote from management expert Peter Drucker. Think about those utilities in turmoil. It’s true. The long-term prognosis on utilities in big trouble demands different thinking.