With public power utilities potentially losing up to $5 billion in revenues this year due to the COVID-19 pandemic, it is vital that Congress provide direct aid to these community-owned utilities, the American Public Power Association said, adding that a forgivable loan program would ensure that aid goes to the utilities that need it.
“Such a program also would be cost effective in that loan proceeds would be forgivable only insofar as they were used as a credit against pandemic-related delinquencies or to partly offset pandemic-related declines in electric power load,” APPA said in a June 16 Statement for the Record submitted for a Senate Energy and Natural Resources Committee hearing that examined the impacts of the pandemic on the energy industry.
APPA noted that since March, health care personnel and first responders have been on the front lines facing the COVID-19 pandemic. “Likewise, Americans – and American businesses – have done their part to help stop the spread of this coronavirus through social distancing and quarantining. But critical to their success is the electricity that powers homes, businesses, and hospitals.”
Without electricity there would be no ventilators, lighting, cellphones, modems, sterilizing equipment, testing equipment, emergency dispatch, “and the list goes on,” APPA pointed out. “Likewise, ambulances, fire trucks, and police cars may burn gasoline and diesel, but it takes electric pumps to refuel them. And it is electricity that makes our homes habitable and powers the devices that allow us to work remotely.”
In providing this critical service, the top priorities for public power utilities throughout the pandemic have been the physical, logistical, and financial resources needed to operate while keeping workers and customers safe.
APPA said that some of the out-of-the-ordinary steps public power utilities have taken in response to the pandemic include:
- Redesigning work procedures and work sites to meet CDC recommendations;
- Acquiring resources – including testing, personal protective equipment (PPE), and other equipment;
- Building virus contact tracing programs and applications;
- Slowing and altering construction work, and work schedules, to minimize the possibility of infection spread;
- Quarantining and isolating workers in their homes or on site to ensure reliability; and
- Partnering with local organizations or setting up shops internally to create and manufacture PPE and sanitizer.
Public power utilities are also responding to their own financial challenges, including increased costs and reduced revenues. “Financial concerns may seem secondary when life safety is on the line, but workers must be paid, the fuel that drives our power plants is not free, and equipment must be paid for when repairs are needed,” the trade association said.
Public power also faces the added costs all employers are facing, including increased sick time for workers infected by COVID-19 and the overtime paid to other workers who must take up the slack. In addition, as governmental employers, all public power providers are required by the Family First Coronavirus Response Act (FFCRA) to pay emergency paid sick leave and paid family leave but are specifically precluded from receiving the payroll tax credits intended to offset the cost of providing these benefits.
Costs matter because public power utilities provide retail power at cost-based rates, APPA noted. That keeps rates lower, but also means that when costs increase, then rates must increase accordingly.
As units of local government, public power utilities have no shareholders or equity partners to tap as a resource, but generally must rely on one source of funds: the fees their customers pay. Ultimately all utility operations are paid with revenues from the sale of electric power. Some utilities manage day-today and month-to-month cash flow fluctuations by issuing short-term notes. Some also finance longer-term capital investments by issuing municipal bonds. “But, again, ultimately both notes and bonds are repaid from revenue raised via the sale of electric power,” APPA pointed out.
The problem is that utility customers across the country are facing their own financial challenges.
Against the backdrop of tens of millions of Americans newly unemployed, delinquency in bill payments is increasing and the volume of uncollectable accounts is expected to rise as the effects of the pandemic play out.
Most public power utilities suspended shutoffs. They have also provided their customers with flexible payment plans, informed them about the Low-Income Home Energy Assistance Program or other emergency assistance, and eliminated late fees and other charges for missed payment.
They have done all this while still incurring the fuel, operation, and maintenance expenses necessary to provide their customers power and not receiving the revenue necessary to pay these expenses, APPA said.
APPA surveyed members on financial effects of the pandemic
APPA surveyed its members in May on the financial effects of the pandemic, including arrearages.
Historically, delinquent accounts total, on average, 7.3 percent of monthly revenue – or between $300 and $400 million. On average, the survey found that this amount has nearly doubled, increasing to just under 13 percent of monthly revenue. The increase in delinquents is therefore in the range of $300-$400 million monthly. The survey was conducted just one full billing cycle after the pandemic emergency began.
“With the effect of another 20 million job losses, we believe arrearages will be substantially higher in the next billing cycle. We also expect arrearages to continue to grow after June. The economy began creating new jobs in May, but there still has been a net job loss of 19.6 million jobs since February,” APPA said.
Likewise, a recent Electric Power Research Institute survey shows 40 percent of respondents who are concerned or very concerned about being able to pay their electric utility bill and 26 percent of unemployed respondents saying they had skipped -- or would skip -- paying their utility bills.
With an almost guaranteed increase in arrearages in June and highly likely continued increases in such non-payments throughout the remainder of the year, APPA projects that arrearages are likely to reach at least $1 billion, and possibly more, by the end of 2020.
APPA members surveyed in May also reported, on average, an overall decline in energy use. While there are wide regional variations, public power utilities nationwide report a modest increase in residential sales of approximately three percent but declines in commercial and industrial load of approximately 10 percent.
APPA said these load shifts are in line with broader trends in the sector. Smaller utilities tended to have smaller residential growth, but also smaller losses of commercial and industrial load.
Several factors reduce the negative effective of declining sales. The prices paid for purchased power and/or fuel may have declined. Likewise, a decline in sales also means a decline in the need to generate and/or purchase power.
To correct for these affects, APPA member utilities were also asked to project the net revenue effects of the pandemic, the Statement for the Record noted. Most estimated revenue losses from zero to five percent, but two out of five estimated net losses of five percent to 10 percent or even more, with the impact felt harder in select states.
Based on these survey results, APPA used 2019 Energy Information Administration data to create several scenarios converting revenue reductions experienced to date into revenue reduction projections for all of 2020.
Under these scenarios, projected retail revenue losses ranged from $2 billion to $3 billion and projected wholesale revenue losses were roughly $1 billion.
Combined projected net revenue losses from wholesale and retail sales for 2020 were from $3 billion to $4 billion.
By way of comparison, revenues to public power utilities totaled $58 billion in 2017. “Again, this is in addition to revenue declines due to arrearages,” APPA said.
APPA said its top priorities in the ongoing pandemic are that public power utilities have the physical, logistical, and financial resources to continue to operate while keeping their workers and customers as safe as possible.
Logistical and operational concerns are largely being addressed through APPA’s interaction with various stakeholder groups and federal departments and agencies.
“However, we believe our members’ financial concerns should be dealt with through a collection of options including primarily the provision of direct aid to public power utilities. It is worth noting that while almost all of the 2,000 public power utilities operating in the U.S. would meet the Small Business Administration standard for being small – in fact nearly 1,300 have 10 or fewer employees – they do not qualify for the forgivable loans provided by the Paycheck Protection Program (PPP) from which other small businesses are benefiting.”
However, APPA believes a mechanism similar to the PPP to help cash-strapped public power utility customers to replace the direct financial costs of pandemic-related declines in power usage would be appropriate.
Under such a program, loan proceeds would be forgivable insofar as they were used as a credit against pandemic-related delinquent customer accounts or as a partial offset to pandemic-related declines in electric power load.
The Statement for the Record, which is available here, also outlines APPA’s priorities with respect to LIHEAP, bond modernization, comparable incentives, and power marketing administrations.
APPA also submitted a Statement for the Record for the House Energy and Commerce Committee's Subcommittee on Energy June 16 hearing on COVID-19’s impact on the energy sector in which APPA discussed the impact of COVID-19 on public power utilities and the need for direct assistance for public power.