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Financial challenges of the COVID-19 emergency for U.S. water utilities

  • Financial challenges of the COVID-19 emergency for U.S. water utilities

Two recently released publications give some insights into the financial implications of the COVID-19 emergency on the American water sector.

First, the American Water Works Association (AWWA) published the results of an online survey on the impact of the COVID-19 emergency on its member organisations. Done March 25-30, it is the second survey by the AWWA on this issue: respondents include more than 500 utilities as well as other water sector organizations, mostly from the U.S. with some Canadian participants.

According to the survey, utilities are reacting swiftly to the crisis to guarantee essential services and business continuity, but two thirds expect revenue/cash flow problems within the next two months. In an earlier survey done March 10-16, only 14% anticipated financial implications. The two factors causing financial uncertainty are changes in water demand from non-domestic customers and customer payments during the coronavirus pandemic.

The two major challenges utilities identified are ensuring social distancing of the work force and supply chain issues for PPE. In terms of regulatory compliance, an issue noted problems to access sampling sites. Most utilities have implemented measures to help customers: more than 90% have suspended water shut-offs, and nearly 50% have restored service to suspended accounts.

Second, an analysis on the Financial Impact of the COVI-19 Crisis on U.S. Drinking Water Utilities prepared for the AWWA and the Association of Metropolitan Water Agencies (AMWA) indicates that the decline in revenue could lead to reductions in economic activity of up to $32.7 billion, and the loss of 75,000 to 90,000 private sector jobs.

The report’s estimations are based on recent and relevant data regarding observed or anticipated financial and operational water utility impacts, (2) monetizing the impacts, and (3) scaling up or aggregating the impacts to estimate the impacts on a national level.

The aggregate financial impact of COVID-19 on drinking water utilities has been estimated at $13.9 billion, amounting to 16.9 per cent overall on the drinking water sector. The factors contributing to revenue losses include elimination of shut-offs, anticipated increased delinquencies, and decreased commercial revenues; increased residential consumption partially offsets losses.

In addition, future revenue losses due to deferrals of water rate increases are estimated to reach $1.6 billion, so the total impact of the crisis will exceed $15 billion. These figures are not far off from the conservative estimate of a $12.5 billion impact on clean water utilities as a result of lost revenue due to coronavirus calculated by the National Association of Clean Water Agencies.

Drinking water utilities in the U.S. are anticipated to delay and reduce capital expenditures due to these financial impacts, up to $5 billion (annualized). The reduced investment will have consequence on economic activity, resulting in the above quoted reduction in economic activity of $32.7 billion (annualized) when taking into account economic multiplier effects.

Although the report focuses on drinking water utilities, it extrapolates similar impacts to wastewater utilities, obtaining an impact on the wastewater sector in the range of $12 billion; therefore, the combined water and wastewater sector impact of the COVID-19 crisis is calculated to be more than $27 billion.

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