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 Steve had to say on the topic.
Utilities must act swiftly to ensure the financial well-being of their organization.
There’s no denying a utility company’s mandate to provide clean and affordable water to their community. However, the rapid spread of COVID-19 changes the paradigm in which a utility company must think and operate. The closure of businesses, schools and other non-essential services nationwide has created a set of challenges no modern utility has prepared for.
Even in a healthy economy in 2019, an estimated 15 million Americans lost access to running water after failing to pay their water bill. While a striking figure, all of this came before the ravages of COVID-19.
It’s critical to know the facts so that the rapid pace of these events doesn’t paralyze decision making. Many states and local municipalities will attempt to regulate or prevent service interruption, but will have increasingly diminished resources. Depending on the relative size of your utility, this may leave an unacceptable level of exposure, or worse, force draconian cutbacks or closure.
Unless the water utility acts early, municipal and state leaders are likely to make choices for the utility. So what can a utility do to prepare? Consider actions such as installing restrictor plates on state-mandated service reconnections. This will limit the flow of water to rates still acceptable to state or local policy, while reducing water treatment and distribution costs for the utility. More advanced utilities can take advantage of automated shutoff, or limited flow states, through Advanced Metering Infrastructure technology.
The American Water Works Association report issued on the financial impact of COVID-19 references “revenue loss to increased delinquencies” as the second largest projected impact to water utilities (annualized at $4.9B). Most utilities will need to look for ways to mitigate that lost revenue – such as limiting generous grace periods for delinquent ratepayers. Utilities should also anticipate increased business and individual bankruptcies in the U.S., recognizing that once bankruptcy is filed, federal law provides a (temporary) prohibition against disconnecting or refusing utility services.
In cases like these, utility leaders will need to consider the more prudent path to turn off the water before the filing. Municipal and state governments are more than likely to step in with funding – and will force reconnection of terminated services. Yet the utility now has leverage with the government as they are told to drive service disconnections to zero.
Signals indicate this recession will be more like a depression that could linger. This introduces the key element of time. A utility manager must play the long game – acting swiftly and with tempered compassion. There will necessarily be a tradeoff between contributing to a social benefit and keeping the utility’s doors open. But planning for lean conditions for a sustained period of time makes it easier to focus on the utility’s long term viability.
Click here for Christine Boyle’s advice to utilities