Written by: Christian Lutz, Data Analyst, Environmental Finance Center at UNC


Local governments have an increased public health responsibility to ensure that people have access to clean water during the COVID-19 pandemic. During this time, many utilities are refraining from shutting off customers’ water, despite unpaid bills. In more than a dozen states, mandates have even been put in place to prevent utility service shut-offs for customers. While it is a common practice during the crisis, utilities lose a tool to ensure collections from customers. Furthermore, many utilities will experience significant declines in water use from non-residential customers. The reduction in revenue could put utilities in a difficult financial position.

Many utilities may not be able to generate the revenues needed to cover their expenses this year. In that case, utilities may have to rely on their reserves to cover the gap. How long will utilities be able to last during this pandemic without recovering all of their expenses through revenues? This leads us to analyze a key financial indicator that approximates unrestricted reserves: days cash on hand. To put it simply, days cash on hand is the amount of saved and unrestricted cash a system has and how long it will be able to pay for daily operations before it runs out. For additional information on days cash on hand see our previous blog post.

At this point, it is unknown how long utilities might expect to operate under current COVID-19 conditions, which dictates how much they will need to rely on their reserves.  According to Washington Post’s William Wan, it was two and a half months from the time of outbreak before COVID-19 peaked in China and restrictions began to lift. Given the uncertainty, it is important to examine the financial sustainability of utilities at various lengths of time. Here we will be analyzing the impact of the virus shutdown continuing for two, three, and four months. Additionally, we will compare present regional differences between  utilities in North Carolina and Arizona. 

How long will utilities be able to stay afloat?

First we will examine the degree to which utilities will be able to continue operations during the reduced revenue period of  COVID-19 conditions. While utilities may be experiencing various degrees of revenue losses under COVID-19 conditions, ranging from virtually no losses to more than 50% revenue losses, in this analysis we will assume the extreme case of utilities not generating any revenues during this crisis to stress test their reserves in a worst case scenario. In reality, utilities should fare better than what is determined in this worst case scenario.

North Carolina

According to the audited financial data from local governments collated by the North Carolina Department of State Treasurer, it appears that most utilities in North Carolina will be able to remain viable for at least several months.

The dotted lines on the histogram act as a timestamp for two, three, and four months in terms of days  cash on hand. These aid in showing the small portion of local government utilities in North Carolina that will be immediately financially affected by the pandemic. Specifically, only 2% of utilities would be in financial trouble if they lose significant revenues over two months, 8% of utilities over three months, and 9% of utilities over four months. It is important to note that these figures are based on what utilities reported as of June 30, 2019. Figures may have changed significantly since then, and are certain to change as the crisis continues.

NC Utilities

While some utilities will be affected by the current pandemic, many utilities are in a good position to relieve financial stress on customers.  The graph below shows this more clearly as it displays the amount of utilities at a given level of days cash on hand. With 64% of utilities having more than 365 days cash on hand, a large majority of utilities display the ability to last over a year with no revenue.


In Arizona, the situation isn’t much different, as many utilities have unrestricted cash that can offset losses for several months during the current pandemic. However, we do see a slightly larger portion of utilities at risk than in North Carolina. If the current economic conditions were to only continue for two months, we see a higher rate of 12% of utilities being affected. At three and four months, we see an increase to 16% and 19% of utilities that may not have sufficient unrestricted reserves to cover revenue losses, respectively.

AZ Utilities

On the other hand, the remaining utilities seem to be in good standing or at least have sufficient unrestricted cash to weather some losses in revenues over several months, as there are 65% of utilities that have more than a year’s days cash on hand. Similar to North Carolina, it appears that generally most utilities are prepared for the short-term revenue shock caused by the current pandemic and will remain so for at least a year. However, 18% of the utilities in Arizona have imminent concerns if revenue losses continue for four months. There are various additional challenges that Arizona utilities may face. These may be higher operation costs or lower rates resulting in less revenue. In the western US, operation costs may be higher due to lower availability of water and other regional operational cost differences associated with supplying water. As we face more crises such as the one we find ourselves in now, it may be more difficult for states similar to Arizona to maintain a secure level of reserves.

Trends in Revenue Shock Preparation

Since many utilities are creating their budgets for the upcoming year, this is an important time to discuss the importance of reserves among utilities. Utilities should be prepared for revenue shocks like the one we are currently experiencing with the conditions surrounding COVID-19. However, how much should be set aside in reserves is largely subjective and should be determined by the local governing body. We recommend at least several months of cash on hand to weather short and medium term shocks to revenues. While it was advised in a previous blog post to have reserves that exceed at least the length of the billing period as a bare minimum, situations like this show a strong reasoning for having  more unrestricted cash in reserves as opposed to less. Many utilities across the country will have to go through a few billing periods with significantly reduced revenues due to COVID-19. In order to prepare for situations that result in revenue loss, it is important to set financial targets and minimum reserve levels in addition to  raising rates in order to supply funding to reserves for future economic crises.

The data suggest that most utilities are prepared to ensure access to water during this pandemic. However, the EFC is also interested in the trend over time of the level of reserves among utilities. Are utilities more prepared for this revenue shock compared to previous years? The most recent revenue shock that we can compare the outbreak of COVID-19 to is the Great Recession.

Looking at past years’ financial data in North Carolina, it seems that more and more utilities are raising their level of reserves, placing them in better position now to offset shocks to revenue than in the past. Analyzing the graph below, there is an increasing number of utilities that have enough saved in unrestricted cash to last one year. The trendline shows that in general there has been an increase in the number of utilities having 365 days  cash on hand or more, and in particular since 2011, which was after the Great Recession.

Government utilities

In narrowing down the data to only years after the Great Recession (since 2011), there is an increasing trend in the number of utilities with a year’s worth of days cash on hand. The general trend that utilities in North Carolina are putting more money into their reserves, preparing them more for economic downturns.

Data suggest that utilities in North Carolina are much more prepared to deal with recessions that may occur. From 1997 to 2019, there was a growth of 18% in the amount of utilities that have a year of days  cash on hand. In addition to the number of utilities that have 365 days cash on hand or more, the median days cash on hand show an increase in level of reserves among utilities overall.

Cash on hand

The data show that generally over the years, utilities are in much better shape to deal with conditions similar to those present during the COVID-19 pandemic. In fact, since the Great Recession in 2009, there has been an increase in the median days  cash on hand from 334 days to 489 days in 2019.

Days Cash on Hand 

Days cash on hand is a financial indicator based on unrestricted cash and their operating expenditures (excluding depreciation) that utilities have when creating their annual audited financial statement. Because unrestricted cash varies from day to day, days cash on hand is a measure that is captured as a snapshot of the point in time in which it is calculated. Days cash on hand will vary from day to day, and it is difficult to use the annually-estimated number as a permanent measure of the current reserves at the utility unless it  is certain the unrestricted cash has been stable during the current fiscal year. As a result, utilities should review their finances or seek out consulting to discover whether their current unrestricted cash total is steady throughout the year.

Additional Resources

There is a lot of uncertainty due to the conditions presented by the outbreak of COVID-19 that will continue to impact utilities across the country. For more information concerning financial implications this pandemic will have, please refer to our recent blog post. Additionally, there are a variety of resources by the EFC and other organizations available at our COVID-19 Resources webpage.