There is growing apprehension for many water and sewer utilities surrounding the impact of the COVID-19 pandemic. An American Water Works Association (AWWA) commissioned reportestimates that U.S. drinking water utilities will lose $13.9 billion in revenue due to fallout from the coronavirus pandemic. The report, prepared by Raftelis and commissioned by the AWWA and the Association of Metropolitan Water Agencies, predicts significant decreases in industrial/commercial water consumption, shutoff fees, late fees and customer delinquencies.
Additionally, less development, growth and connection fees and a possible decline in property tax revenues are expected to impact the water utility industry. On the positive side, there is a small anticipated rise in residential consumption; however, it’s not enough to offset the other revenue losses.
Clean water utilities nationwide are projected to lose $12.5 billion worth of revenue because of the pandemic, according to the National Association of Clean Water Agencies (NACWA). Some utilities are anticipating closer to a 30% or 40% loss in revenue.
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How will these losses impact utilities?
These financial losses will likely result in an effort to decrease expenses, including:
For many agencies, the spending cuts will not be enough to mitigate the loss of revenue, and reserves will need to be used. For agencies whose reserves are already stretched thin, there may be a need for some sort of government intervention, whether through financial aid or consolidation into another agency.
There are roughly 50,000 drinking water providers in the United States. The effect on any individual utility depends on its mix of industrial, commercial and residential customers. For example, utilities at a high level of risk are those that serve areas that rely heavily on tourism, convention centers, industry and business. College towns are also being impacted with the closure of colleges and related restaurants, bars and other commercial establishments.
The report also estimates an additional revenue loss of $1.6 billion if utilities delay planned rate increases. Most water and sewer utilities in the U.S. have aging infrastructures that will require deliberate rate increases to fund the replacement and repairs. With the loss of revenues and increased costs due to Covid-19, water and sewer rate increases will have to be higher than originally planned. However, with rising unemployment and financial distress in many areas, raising rates in any amount is going to be a political and public relations challenge.
The Future is Unclear for Water Utilities
There are many proposals in Congress and at the state-wide level proposing to offer aid to both water consumers and water utilities, all recognizing the significant financial impacts of Covid-19. Water is critical to life, so while the future is unknown, it is almost certain that there will be some sort of financial assistance to ensure the water and sewer systems keep freely flowing.
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