The Impact of COVID-19 on your LDC

June 09, 2020

We all have an interest in the electricity that is provided to our businesses, offices and homes.  During the COVID-19 emergency, attention and programs have been focused on us, the consumers.  However, for electricity to be delivered to us, the Local Distribution Company (LDC) has to be operational, viable, in good financial shape.  It essential that we have power, it is essential that the companies that deliver this power survive.

What should Councils be thinking about when it comes to the LDC right now?  First, find out if your LDC has a cash flow issue.  The LDC still has to pay for the electricity they supply, even if customers may not be able to pay their electricity bills.  The Emergency Orders are protecting consumers by forbidding disconnections.  So customers in need can still use power without payment and fear of disconnection.  This is good for folks and businesses that are struggling.  However, it does mean the LDC income is not meeting its expenses.  In a sense the LDC is ‘bankrolling’ the shortfall.  The LDC may have a way to cover these costs in the short run, but this cash gap could create some longer-term problems.  So, have a conversation with the LDC to see where things stand.

Second be aware that electricity use overall has declined, even though residential use has risen.  Also, the change in electricity rates and rules around time of use may also mean less income for some LDCs.  Less income translates into less ability to pay the shareholder a dividend.  For municipal governments this may mean an in-year loss of revenue that you may not have considered.  Of course, if the LDC is struggling financially, it doesn’t make sense to request the dividend.

These impacts are just starting to show up.  Over the next 60 to 90 days the seriousness of a cash flow shortage at the LDC will become clearer.   In this timeframe we will see if people and companies are better able to pay their bills, we may see some permanent closures of businesses and we may see an uptick in electricity use as businesses gear up again.  This issue is being watched by the Ministry, IESO and OEB.  They are working on ways to help not just customers but also LDCs.  We all want to be confident that LDCs are financially healthy well into the future.

 

Category
COVID-19
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