The COVID-19 pandemic has shut down numerous Lincoln businesses and put thousands of local residents out of work.
That's having a ripple effect on Lincoln Electric System, which is experiencing a huge drop in energy use and a significant rise in both individuals and companies not paying their bills.
Both the size of the decline in energy use and the duration are unprecedented, at least in modern history.
Jason Fortik, vice president of power supply, said LES saw large declines in power use in the week after the October 1997 snowstorm, and it saw slight drops in customer energy use during the recession years of 2008 and 2009, but nothing compared to what it's seen over the past couple of months.
"The COVID-19 effects since late March have resulted in sustained weekly energy reductions in the 7-10% range compared to historical data," Fortik said. "We can’t find another situation in recent memory that has caused this type of sustained reduction in customer energy consumption."
Power generation and use is LES' main revenue generator, and while the amount being used has gone down, so has the number of people paying their bills for it.
As of May 15, the company's amount of bills that were at least two months behind was more than $360,000, almost double what they were in March, and nearly triple what they were in May 2019.
Those amounts are rising so quickly because LES has pledged not to disconnect anyone's service right now, said Lisa Hale, vice president of customer service.
While most of the drop in power usage has come from commercial customers, the majority of delinquent accounts are residential customers, she said.
Nearly 85% of all accounts that are two months behind on payment are residential energy users.
Unfortunately, Hale said, those residential customers not paying their bills also for the most part aren't taking advantage of available assistance programs, even though LES is doing what it can to spread the word.
"We're quite frankly struggling to get people to apply for certain assistance right now," she said.
Despite the decline in revenue and increase in delinquent accounts, LES has not seen a drop in its available cash on hand. In May, it had been averaging more than 200 days' worth of cash on hand to cover expenses, more than double its target minimum of 75 days.
Laura Kapustka, vice president and chief financial officer, said LES proactively drew down one of its revolving credit facilities in March to bolster its cash position and does have more credit to draw on, but that seems unlikely to be necessary at this point.
In scenarios presented to the LES board at its May meeting, the company's cash on hand was not projected to drop below 100 days even in a worst-case scenario.
Kapustka said one thing that has helped mitigate the drop in on-time customer payments and the revenue decline from lower power sales is a decline in costs.
"LES’ largest expense is for generating and purchasing energy for our customers," she said. "To the extent that customer energy requirements are decreased, we are able to reduce the expense for purchased power and the cost for fuel when we are generating less energy."
Kapustka said LES has also been able to reduce some other costs, such as for travel.
One area where projections are not quite as rosy is debt service, or the amount of money LES has to cover its debt payments. Its current target is having 2 times its actual debt payments covered.
The worst-case scenario presented to the board projects the amount to cover debt payments could drop below 1.5 times this year and not return to the target level until sometime in 2022. Under a best-case scenario, the level would drop below 1.7 times this year and move back above the target level next year.
Kapustka said that because most of its debt is tax-exempt, LES has limits as to when it can refinance, and none of its current debt is eligible. It was, however, able to do a debt refinancing in January that saved $19 million.
LES also is planning to defer some capital projects to save money, although its new headquarters building at 98th Street and Rokeby Road is far enough along that mostly finishing work is being done right now, and the building is still on schedule to be ready for move-in early next year.
Hale also said that LES has not laid off or furloughed any employees nor has it instituted pay cuts.
And though the company is just now starting its budgeting process, it is not planning any customer rate increases for 2021. However, increases of 2.5% or more could be on the table for 2022.
Though LES has a thorough disaster plan, the unknowns about how long the pandemic will last and how deep its economic effects will be are tough, Hale said.
For example, will things mostly go back to normal by the end of the summer, or will restrictions last through the end of the year? Then there's always the possibility that a second wave of the disease could hit.
Currently, the company does not have a specific set of conditions to govern when it will resume collection efforts or institute disconnections on delinquent accounts.
Hale said LES is keeping in touch with elected officials, monitoring changes to directed health measures and also tracking what its industry peers are doing.
"We're being very cautious and aware of what's going on in the community," she said.