A recent report prepared by Raftelis for the American Water Works Association (AWWA) and the Association of Metropolitan Water Agencies estimated the financial impact of the coronavirus pandemic on U.S. water utilities. The report estimates drinking water utilities will suffer a loss in revenue of $13.9 billion; this equates to approximately 17% of the 2018 U.S. drinking water sector revenue total.
The financial impact on the drinking water sector will translate to further impacts on the entire U.S. economy. According to the report, the financial impacts will result in drinking water utilities across the U.S. to delay and reduce capital expenditures to help manage cash during and after the pandemic. The delay in capital expenditures will have a negative effect on economic activity in communities across the U.S., including but not limited to loss of jobs and increased infrastructure failures. It is estimated that communities will experience a reduction in economic activity by as much as $32.7 billion (annualized).
The estimated financial losses are based on data obtained from utility survey respondents of current and anticipated financial impacts, as well as general drinking water sector and U.S. census information.
The analysis consisted of the following components to estimate the financial impact on the US drinking water industry (estimated financial impact bolded):
- Financial Losses due to Changes in Utility Policies
Includes considerations for not shutting off water service to customers with delinquent accounts and providing forgiveness of late penalty fees. Net loss of $5.49B
- Revenue Loss due to Reduced Consumption
Includes considerations for loss in revenue from non-residential customers (i.e. commercial, industrial, institutional, etc.) and increase in revenue from residential customers caused by stay at home orders for non-essential workers. Net loss of $4.74B
- Financial Impact of Operational Policy Changes
Includes considerations for new operational policies such as new or additional operating hours for essential water utility staff, isolating operations staff, and providing increased compensation for essential employees (i.e. hazard pay). Net loss of $0.63B
- Financial Loss Due to Slower Development and Growth
Includes considerations for a slowdown in growth and new development, which further negatively impacts the revenues of drinking water utilities. Net loss of $3.01B
- Economic Impact from Reduced and Delayed Capital Expenditures
Includes considerations for reducing and/or delaying capital expenditures in order to manage cash. This component estimated total economic loss but specific loss to water utilities was not quantified
The total estimated financial impact on U.S. drinking water utilities is shown in the table below.
Annualized Financial Impact
|Marginal Cost of Non-Shut Offs
|Revenue Loss Due to Increased Delinquencies
|Reduction in Commercial Revenues
|Increase in Residential Revenues
|Increase in Personnel Expenses
|Reduction in System Development Charges
|Reduction in Revenues from Reduced Customer Growth
|Aggregate Financial Impact
Water utilities may suffer additional future revenue losses estimated at approximately $1.6 billion as a result of delaying once planned rate increases. These numbers do not include projected financial losses for wastewater utilities, which has been estimated at $12.5 billion according to the report, bringing the combined water sector and wastewater sector estimated financial impact to over $27 billion.
The information, data, and analysis used to prepare this article was obtained from the report – “The Financial Impact of the COVID-19 Crisis on Drinking Water Utilities,” prepared by Raftelis for the American Water Works Association and the Association of Metropolitan Water Agencies.