This series tackles the prevailing dilemmas happening in utility boardrooms across the United States, first covering the daunting question: How do we meet current community needs without sacrificing the organization’s future?
Two leaders in the water utility sector – Dr. Christine Boyle, Solution Area Lead for Xylem’s Metering Insights group and Steve Toteda, Vice President of Global Marketing and Technology for Xylem’s Measurement and Control Solutions segment – were asked what utility leaders must do now to ready their organization for what is ahead. Should they take aggressive action to ensure their organization can remain solvent for many years to come, or do they deprioritize their organization to serve their community? Here’s what Christine had to say on the topic.
Utilities provide clean and affordable water to their communities. However, there is an important caveat to this statement. The utility customers must pay to receive water services. In crisis situations we are more familiar with (such as an economic downturn), customer shutoffs have been used as a tool for water utilities to ensure customers pay their bills and the utility maintains its revenue levels. However, COVID-19 has introduced hygiene imperatives that make this crisis, and the potential responses, unique.
The guidelines from the Centers for Disease Control on COVID-19 prevention emphasize hygiene, especially frequent handwashing, to help curb the spread of the disease. In response, many communities and even states have ordered utilities to halt water shutoffs temporarily (see California’s moratorium on water shutoffs). According to a recent report by the American Water Works Association on the financial impact of the COVID-19 crisis, 92% of surveyed utilities have suspended customer water shutoffs.
The reality is that the longer utilities go without enforcing delinquency policies, the more likely they are to face serious financial consequences. Utilities must walk a tightrope between supporting their customers in need, and carrying out their own fiduciary responsibility to pay for core infrastructure and staff needed to provide clean drinking water.
Balancing customer care and financial prudence will force utilities to adopt creative approaches they have not tried before. For example, Akron, Ohio and Phoenix, Arizona have both introduced low-flow restrictors for delinquent accounts. These restrictors do not allow for full water flow, but allow for basic needs such as cleaning and cooking. Other utilities are introducing payment plans, expanding customer assistance programs and finding other creative ways to help customers while maintaining enough revenue to sustain operations.
As many utilities are in the midst of FY2021 budget planning, the prudent water manager will model a range of virus-related demand and revenue scenarios, so they can plan a range of interventions.
The economic/virus scenario models I’ve seen look similar to the following:
Scenario 1 – Good Virus: Single wave of the virus, it subsides over the season, social distancing ends in summer, the economy gradually reopens. Tourism/travel lags, isolated business failures, but growth resumes at end of year.
Scenario 2 – Bad Virus: There’s a second wave of the virus in fall. Testing/vaccine development languishes, health care still reeling from the first wave, considerable uncertainty with businesses reopening but not thriving, unemployment ~15%, into years 2021-2022.
Scenario 3 – Worst Virus: Multiple waves of the virus, into and through 2021. Testing and vaccines largely unavailable, extremely low consumer confidence, unemployment >20% widespread business failures.
With each scenario, a range of expenses, headcount, credit alternatives and operational considerations should be considered.
Click here for Steve Toteda’s advice to utilities.