As the COVID-19 pandemic curve continues to lengthen, it is becoming even more imperative to address the financial management of your utility. Undoubtedly, utilities will yield negative financial results as a consequence of COVID-19, but how successful your utility is at combating the negative impact will be based in part on how focused it is in these key areas:
1. Cash preservation
- Your utility can preserve cash in part by operating lean and adjusting spending plans in the short-term. Eliminate or delay “non-essential” costs.
- Finance what you can and consider going back to retroactively finance projects that were paid with cash but could have been financed.
- Consider interfund transfers or loans between the utility and other municipal departments, but be aware of any bond covenants restricting loans or transfers.
2. Monitor monthly revenues
- It is likely that customer usage patterns and frequency will trend down due to organizational shut downs, layoffs and scale-backs in production.
- Monitor and talk with your ten largest customers to help predict changes in usage patterns.
3. Debt management
- Acknowledge whether you are meeting the minimum cash reserves required to be maintained for operations, debt service and debt service reserves.
- Identify what existing credit enhancements you have in place through bond insurance or debt reserve surety bonds in case you need to access them.
- Understand and comply with your continuing disclosure reportable event requirements. Look for possible downgrades to your bond rating by rating agencies and make sure to properly report.
4. Customer assistance programs
- Some communities are considering immediate economic relief to their local businesses and residents through programs such as reducing utility rates or income-based rates, providing a one-month utility bill holiday, deferring utility bill payment to later this year or waiving late payment fees.
- Recognize how this will affect utility finances.
- Know whether your state prohibits rates based on income or other non-cost based factors.
5. Federal and state assistance.
- Some utility costs incurred as a result of the pandemic such as payroll, benefits and other operating costs may be reimbursable. Remember to accurately track these costs to provide proper documentation.
- Stay tuned for an additional stimulus package forthcoming, which should focus on infrastructure and shovel-ready projects.
Proper planning while keeping these key considerations in mind will help your utility combat the negative financial effects to come from COVID-19 and emerge as an even stronger government entity.
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.