Bad debts on the rise
Mike Zaccardi, CFA, CMT
A significant concern among utility risk managers is the risk of bad debts related to customers being unable to pay their electric bills as a result of losing income from the economic effects of COVID-19.
Gulfpower, a subsidiary of the massive Nextera Corporation, has asked Florida regulators for assistance with rising missed payments from its customers. This issue is not isolated to the sunshine state as utility companies across the country experience a rise is deferred payments.
Stimulus packages set forth by the federal government did not do much to ensure utility bills could be met, aside from the broad $600 per week federal unemployment benefit. Gulf Power reports that their monthly potential bad debt expense could be about seven times the usual amount.
Gulfpower could be in for a rough next few months as missed payments may continue to be on the rise despite the Florida economy reopening for business as of this month. Also a big risk is the potential for a very active hurricane season – there have already been a pair of tropical waves that have brought about torrential rains to south Florida.
I imagine other areas of the country are seeing even bigger financial strain from COVID-19. Florida has navigated the pandemic relatively well compared to states across the Great Lakes to the Northeast. Certain areas in those regions remain on full lockdown, likely resulting in major and long lasting missed payments from ratepayers.
Utilities that service industrial customers may be in a particularly perilous position as factories and manufacturing facilities were forced to shut down. Much has been made regarding pork manufacturing plants closing due to Coronavirus outbreaks. And automotive plants have had to halt production in recent weeks.
And it's not just utilities - Bloomberg reports that about 75% of store owners in malls skipped their rent payments in April.
It is just another unfortunate outcome from COVID-19.
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Chart used with permission from Tradingview.com