Utility companies are traditionally financially strong organizations. However even organizations of strength are not immune to financial swings or negative impacts experienced by customers. As the COVID-19 pandemic affects communities across the country, it’s imperative to continue service delivery—and to focus on utility financial management.
Your utility should prioritize these key areas of short and long-term financial management.
- Revise budgets and cash flow models for current expectations and run variations for different scenarios. This will provide insight into potential options.
- Watch for spikes in customer delinquent or deferred payments. Some states have passed legislation allowing utility customers to defer payments on their bills for up to 60 days. This may impact payments from large industrial customers. Hopefully your utility has rate stabilization or other reserves from which to draw. If your utility does not have reserves but is part of a multi-service utility, consider inter-fund loans if cash is available in one utility versus another. Another option may be local bank short-term financing or lines of credit.
- Revise capital budgets and defer or suspend non-essential projects using outside contractors to conserve cash. However, if internal labor and on-hand materials are being used, projects should continue. Internal labor is a sunk cost and will have no adverse impact on cash flow.
- Communicate with your customers through press and social media on payment assistance programs for those in need.
- Your utility is part of the leadership fabric of your community. Advertise messages of hope and donate to local medical and basic needs organizations that are on the front lines of addressing the COVID-19 pandemic.
- Once the storm has passed, perform a debrief of your approach. Make mitigation strategies part of your utility’s enterprise risk management evaluation process—and build rate stabilization reserves.
Financial management is a building block that positions utilities to emerge from the current environment with financial strength and more quickly recover.
For more information on this topic, or to learn how Baker Tilly power and utilities specialists can help, contact our team.