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Cruiseline Bailouts - Are Utilities Next?

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Utilities and Bailouts, a Likely Future

 

“It does not do to leave a live dragon out of your calculations, if you live near him.”

Gandalf, “The Hobbit”

 

Our industry is now facing what may turn out to be a dragon. Many utilities have been ordered by their regulatory bodies to suspend disconnections during the Coronavirus Emergency, a policy that  could have very serious consequences for these utilities. I do not disagree with the policy, our customers are out of work and simply cannot afford to pay, but, unfortunately no one has instituted a suspension of our payments for fuel etc. This disparity will leave  many utilities in a negative cash flow position. I am aware of one rather large utility which experienced a decrease in revenue collection of over 20% in the first week of the “No Cut-Off” Order.

Just a quick look at the numbers shows that if we  “flatten the coronavirus curve” we will need to remain in isolation for an extended period until a vaccine or cure is developed. There are 300 million people in the United States. If we had 300,000 new cases a week (far more than we are having now) It would take 1,000 weeks or just over 19 years to work through the population. Of course developing “Herd Immunity” will shorten that dramatically but still result in an extended period until a vaccine is developed.

Further due to the worldwide spread even if we were to miraculously decrease cases in the United States, we would still need to practice Social Distancing to prevent the reemergence of the problem.

The very reason the “No Disconnect” orders were issued is due to the indispensable public Service we perform. But to continue this vital service cashflow negative  utilities ,at some point, will require some form of Federal or State Aid.

There is a fundamental difference between a  utilities  bailout and an airline bailout. The airlines are in trouble because their customers refuse to fly. Utilities are in trouble because their commissions have told their constituents it is okay not to pay the utility. Further airlines can furlough workers and park their planes, utilities cannot. Due to these differences any aid should be in the form of grants not loans as the aid is not to  benefit the  utility but its’ customers. If the government does not want to give money to the utility it can simply pay the customer’s bill thus not giving money to the utility.

There is also a fundamental difference between the Corona Virus “No Disconnect” rules and the typical “No Winter” or “No Summer” disconnect many utilities have. The Summer and Winter “No Disconnect” rules have operated  in normal economic times. Tines  most customers could pay their bills and only a few needed to take advantage of the rules. That is not the case now and millions of customers nationwide will simultaneously and suddenly be forced to take advantage of the new rules.  

Utilities need to model cash flows assuming the crises continuing for months, updating the models in real time to reflect the latest collections-to-billing numbers and keep their Commissions informed on a daily basis about  their projections. We must also inform Creditors, Stockholders and make the appropriate SEC Filings. Further it is essential to inform our Legislators so as not to surprise them when requesting help.

Commissions should think about modifying rules by putting generous dollar limits on them to force customers to think about conservation.

“The unknown future rolls towards us.” Sarah Conner

 

 

Charles Bayless's picture

Thank Charles for the Post!

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Discussions

Matt Chester's picture
Matt Chester on Mar 24, 2020 9:48 pm GMT

well said, Charles. Listening to some leaders these days determine what is essential vs. what isn't, it's watering down what it is to be essential. Without the men and women pushing through and keeping the power grid humming, people would be in danger and people would die. It's a service that is needed direly, and it should be treated as such (while others may not have such claims)

Richard Brooks's picture
Richard Brooks on Mar 24, 2020 11:09 pm GMT

Speaking of cruise line bailouts; too bad the cruise line customers who bought travel insurance from AON are unable to get their insurance premiums reimbursed, for a cruise to Italy that is now off limits due to a Level Four Travel Advisory. Hopefully the US Government will intervene. FYI: I'm all for saving businesses that deserve to be saved, especially those serving our critical infrastructure capabilities.

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