August has been a key transition month for local government utilities in North Carolina as EO 124/142 (which prohibited disconnections due to non-payment for residential utility accounts) has expired, payment plans are required to be in place, and Governor Cooper just announced $175 million in relief money, including $122 million for assistance in paying rent and utility bills. We’ve put together an impact assessment to get a better view of how these funds will help NC water and wastewater utilities.
How are water and wastewater utilities across the state faring under COVID-19 conditions? We’ve been keeping track here at the EFC and though the circumstances are constantly changing, we’ve been able to create an impact assessment of COVID-19 on utilities during the last five months.
We have just released a report funded by Division of Water Infrastructure in the Department of Environmental Quality, outlining results from a poll, analysis of the EO 124/142 data that utilities reported to the North Carolina Utilities Commission (NCUC) for the full April through July period that covered the statewide moratorium, stories of individual utilities (blog post coming soon), and an overview of our financial resiliency tool.
For now, let’s focus on the data that were reported by utilities, as mandated by Governor Cooper’s EO 124/142 and collected by the NCUC in the last 4 months. These data points give us a snapshot of what is going on across the state, though only 182 water and wastewater utilities reported for all months (April-July), and a total of 347 reported at least once during the four month period. Among the active local government utilities, 58% reported their data at least once, with the response rate increasing as the size of utility increased. Although limited by response, the data give us some idea of total number of reported arrears, accounts past due, accounts eligible for disconnection, and total late fees that were not charged to the customers during the moratorium.
Table 1: Aggregated EO 124/142 Data, Reported by Water and Wastewater Utilities in the NCUC Reports.
Not Inclusive of all Drinking Water/Wastewater Utilities Statewide
These numbers give us a picture of what is happening to utilities that reported, but we also wanted to estimate the impact of the moratorium on all utilities statewide. To estimate the total statewide arrears and avoided late fees, we extrapolated the data to estimate the amounts for all active utilities, including those that did not report data to the NCUC.
| Reported
From utilities with number of service connections and reported amounts. |
Estimated for Entire State
Including utilities that did not report EO 124/142 data. |
|
| Total water and wastewater arrears as of July 31, 2020 | $52,875,263 | $61,700,000 – $81,500,000 |
| Total water and wastewater late fees and penalties not charged between April and July 2020 | $20,142,034 | $23,200,000 – $30,800,000 |
While $62-$82 million are high numbers, they account for a small portion of total revenues collected by utilities across the state. In FY 2019, local government water and wastewater utilities alone collected more than $3 billion in operating revenues. Among 150 local government utilities that reported arrears past due as of July 2020, half of them had arrears that were 1.5% or less of their FY2019 operating revenue. However, nearly a quarter of utilities had arrears that were double that percentage or higher (Figure 1). This highlights one of the main takeaways from this report: impacts of COVID-19 and EO 124/142 vary greatly across utilities.
Figure 1. Arrears past due on July 31, 2020 as a portion of FY 2019 total operating revenues of local government water and wastewater utilities.
The effects of COVID-19 appear to be manageable from the perspective of utilities statewide, but at some utilities, conditions have worsened. Several utilities have arrears that are more than 5% of annual revenue, have more than 40% of their customers with arrears, and/or more than 20% of their customers eligible for disconnection. These figures don’t take into account lost revenue from decreased or changing usage under the state’s reopening plan (Phases 1 and 2), which impacts some utilities greatly. While the report also highlights that many utilities have enough unrestricted cash to help in the short term, some do not, and the consequences of other actions, such as delaying rate raises and capital projects, remains to be seen.
In summary, from the utility’s financial health perspective, the effects of COVID vary widely—some utilities are prepared to weather the consequences for a long period of time, while others are already struggling with lost revenues and high arrears. Collections, rate changes, and budget planning in the coming months will continue to be greatly affected by COVID-19 and as utilities adjust to the expiration of EO 124/142.
From the customer account perspective, many utilities are reporting fairly stable numbers of accounts that are past due from April to July, though the average arrear per account did increase from $160 in April to $223 in July among the 139 utilities that reported each month.
Figure 2. Average Arrears with a Past Due Bill at the End of Each Month, April-July 2020
Although the percentage of accounts past due varied by utilities, half of the utilities reported 15% or more of their customer accounts had past due bills as of July 31. For the utilities that reported last year’s information, there was a 17-29% increase in the number of accounts past due compared to the same months last year and a 42% increase in arrears as of the end of July.
Figure 3. Percent of Accounts with Past Due Bills as of July 31, 2020
We see from these figures that (unsurprisingly) customers who were unable to pay in April may have accumulated greater bills that are past due at the end of July. For many utilities, arrears on past due accounts will be recovered as customers enroll in payment plans and start paying the bills that are past due. How much is recovered, and when, remains to be seen. However, the assistance that Governor Cooper announced on August 25th, as well as efforts by local non-profits and utilities that have (or are setting up) customer assistance programs, will help customers pay off their accumulated bills because of COVID-related hardships.
So now what the impact assessment mean?
Although EO 124/142 have expired, the impacts of COVID-19 and catching up customers on their delinquent bills in the wake of the moratorium will continue to affect utilities and their customers throughout the state. The EFC is continuing to track these financial impacts on North Carolina water and wastewater utilities as part of a project funded by the NC Policy Collaboratory, with the goal of providing information to state policy-makers that may consider additional ways to assist local governments and residents. We are currently recruiting utilities to share usage data with us, as well as report monthly numbers similar to the EO 124/142 monthly reports that were submitted to the NCUC. Any North Carolina water or wastewater utility willing to continue providing short monthly reports or share usage data with the EFC is encouraged to contact Elsemarie Mullins at mullins@sog.unc.edu This information will enable us to summarize a mid-term impact assessment and customer payments through the end of 2020 to policy-makers, and help us in developing more training and direct assistance for utilities in the state. Additionally, any utility currently seeking advice or direct assistance in dealing with the financial consequences of the pandemic and planning for recovery is encouraged to contact us.