City not sweating IPL's big operating loss
Pandemic has caused lag in revenue, but Independence officials think that will be made up later
Public financial statements for Independence Power & Light’s first half of the fiscal year show an $18 million operating loss.
But city staff believe that figure will be far less severe by the end of June, when the fiscal year ends, and the utility’s cash reserves and financial policy make even a multimillion-dollar loss sustainable.
That six-month deficit comes after a $3 million operating loss in the 2019-20 fiscal year, due in small part to less energy demand and suspended late fees and non-payment shutoffs in the early months of the COVID-19 pandemic. A 6 percent rate reduction also took effect during the year, and Assistant City Manager Adam Norris notes the city had its lowest total load (demand) since 2004.
A variety have reasons caused the $18 million operating loss thus far:
• With relatively mild weather over the summer and continued less usage amid pandemic-related restrictions, IPL’s load has been consistently down about 5 percent from projections, Norris said.
• Precautions taken after the ransomware attack on the city’s computer systems shortly after Thanksgiving meant IPL customers didn’t get billed for about two months, and COVID-19 has affected some customers’ ability to pay for longer. The city has been waiving late payment fees and suspending shutoffs for nonpayment during the pandemic, and Norris said the billing delay meant, at the end of January, about $10.5 to $11 million worth of charges not yet billed.
• COVID-19 has also hampered meter readers’ ability to be out in the field as much as normal, leading to many estimated bills and some that undoubtedly were less than an actual reading would have produced. During January, meter readers were able to visit every single meter in the city, Norris said, and any remaining bills will have been sent by next week.
“At which time,” he said, “we will have a better sense of demand and revenue.”
Because a bill for two months or longer has caused or will cause sticker shock for some utility customers, the city has offered all of them a chance to arrange a payment plan over a couple months. While the economy is anything but certain right now, and timing of payments will vary over several months based on customers’ unique circumstances, “We do anticipate eventually receiving a majority of this revenue,” Norris said.
The city’s recently adopted financial policy on utilities makes a cash balance target based on revenue and expense risks, allowing for some fluctuation such as sudden expenses or less revenue from a recession (the current situation).
The ideal cash balance right now to cover those risks and regular capital needs, as recommended by the city’s financial advisor, is about $67 million, and IPL had more than $15 million above that.
Given that, the City Council voted to use $10.6 million to pay off some bonds early, saving more than $4.5 million in interest down the road, and a council majority voted Monday to give all IPL customers a $200 credit to help many during continued pandemic struggles – about $11.2 million worth against the reserves.
With the customer credit and bond payment totaling nearly $22 million, that pushed IPL into what the financial advisor deemed the high limit for its excess cash. Norris said staff was working this week to iron out how that credit will be applied. A $200 credit will be more than many residential customers’ average monthly bill for IPL.
Also Monday, the City Council voted to close out the remaining $12.5 million emergency loan for the general fund from the utility reserves. A council majority had approved a $25 million loan, essentially a line of credit, last spring early in the pandemic.
City Manager Zach Walker had asked the council to approve that credit to avoid any calamity or giant cuts in the general fund that covers most city services. The council had voted a couple months ago to cut the loan in half, and ultimately city staff have negotiated the pandemic waters to avoid layoffs, furloughs and any borrowing from the line of credit.