5 Questions Utility Finance Leaders Should Be Asking About Their Cash

For utility organizations, managing cash has traditionally centered on a few fundamental priorities: protecting principal, maintaining adequate liquidity, and ensuring funds are available when needed.

Those priorities haven’t changed. But the environment around them has.

Interest rates have shifted significantly in recent years, cash balances and capital needs can fluctuate, and finance teams have a variety of options for managing deposits and investments. A strategy that made sense a few years ago may not necessarily be the best fit today.

Based on conversations we’re having with utility finance leaders, we’ve identified five questions that can serve as a simple framework for reviewing your cash strategy:

The goal isn’t to chase yield or overhaul a strategy that’s working. It’s to make sure each dollar is being managed intentionally based on its purpose, timeline, liquidity needs and applicable requirements.

1. How much of our cash needs to be immediately liquid?

Liquidity is critical for utilities, but that doesn’t necessarily mean every dollar needs the same level of liquidity.

Operating cash, reserves, capital project funds and other balances can have very different purposes and timelines. Some funds may be needed tomorrow. Others may not be needed for several months or longer.

Yet it’s not uncommon for organizations to manage these different pools of cash in much the same way.

Understanding when funds are likely to be needed can help finance teams determine how much truly requires immediate access and where there may be an opportunity to take a different approach.

Takeaway: Segment your cash.

Start by grouping major cash balances by their expected use and time horizon. Identify what you anticipate needing in the next 30 days, 90 days, six months and beyond, then compare those needs with where the funds are currently held.

The objective isn’t to forecast every dollar perfectly. It’s to understand whether cash with different purposes and timelines is being managed the same way.

2. Is our cash appropriately protected—and earning a competitive return?

For utility organizations holding millions of dollars in public funds, protecting principal is foundational. Before considering return, finance teams should understand exactly how their cash is protected and whether that protection remains appropriate as balances fluctuate.

Large balances can exceed standard deposit insurance limits, making it important to understand what protections are in place—whether through deposit insurance, collateralization or other permissible structures—and how those protections apply to the organization’s total balances.

Once safety requirements are satisfied, the next question is whether those funds are earning a competitive return.

Safety and return don’t necessarily have to be an either/or decision. Depending on an organization’s policies and applicable requirements, there may be opportunities to maintain the appropriate level of protection and liquidity while also improving what idle cash earns.

Takeaway: Evaluate safety and benchmark your rates.

For each major pool of cash, answer three questions:

• How is this money protected?
• How quickly can we access it?
• What is it earning?

Then compare your current approach with other appropriate and permissible options based on all three factors—not yield alone.

For example, a 0.50% difference on a $20 million balance represents approximately $100,000 over a year. But that additional return only matters if the solution also meets the organization’s requirements for safety, liquidity and compliance.

3. Are we prepared for the next change in interest rates?

Today’s rate environment won’t last forever.

Federal Reserve policy and broader market conditions can affect cash and investment options differently. Some rates may adjust quickly when market rates change. Others may lag, while certain investments may provide a fixed rate for a specified period.

Rather than trying to predict exactly where rates are headed, finance teams can evaluate whether their current strategy provides enough flexibility for different scenarios.

Consider a simple question: If rates moved materially in either direction, would our current approach still make sense?

Takeaway: Stress-test rate changes.

Run a few simple scenarios. What happens to your organization’s interest income if short-term rates fall by 0.50%, 1.00% or more?

Identify which balances would be impacted immediately, which rates are fixed for a period of time and which parts of the strategy might need to change.

You don’t need to correctly predict the Federal Reserve’s next move. Understanding your exposure ahead of time can put your organization in a better position to respond when the market does change.

4. Are we managing bond proceeds differently from everyday operating cash?

Bond proceeds can present a different cash-management challenge than everyday operating funds.

The money may need to remain available according to a construction or capital schedule while also being managed within applicable investment, arbitrage and compliance requirements.

That creates a balancing act between safety, liquidity, compliance and return.

If all bond proceeds remain fully liquid from issuance through the final construction draw, an organization may be maintaining liquidity it doesn’t actually need. Alternatively, extending funds without a clear understanding of upcoming draws can create unnecessary constraints.

The starting point is understanding the timing of the money.

Takeaway: Map your bond proceeds.

Create a simple schedule of anticipated construction or capital draws for the next 6–12 months and compare it with where proceeds are currently held.

Which dollars need to be available soon? Which aren’t expected to be needed for several months? Where is there uncertainty?

From there, finance teams can evaluate appropriate options for each time horizon while keeping applicable investment policies, arbitrage considerations and other requirements front and center.

The goal isn’t simply to maximize yield on bond proceeds. It’s to make sure the cash strategy supports the purpose and timing of the funds.

5. When was the last time we challenged our overall cash-management strategy?

Sometimes the biggest opportunity isn’t finding a new investment or predicting the next interest-rate move. It’s simply revisiting decisions that have become routine.

Banking relationships, investment policies and established processes all serve important purposes. But cash-management strategies can remain unchanged even as balances, rates, organizational needs and available options evolve.

That’s why it can be useful to periodically look at your strategy with fresh eyes.

Ask yourself:

If we were designing our cash-management strategy from scratch today, would we structure it the same way?

If the answer is no—or even “we’re not sure”—there may be value in taking a closer look.

Takeaway: Conduct a review.

At least annually, ask three simple questions about each significant pool of cash:

• Where is our cash?
• Why is it there?
• Would we make the same decision today?

If there’s a clear reason for each answer, your current approach may be doing exactly what you need it to do.

If the answer to “Why is it there?” is primarily “because that’s where we’ve always kept it,” that may be an area worth reviewing.

Turning the Five Questions Into a Cash-Management Review

Ultimately, effective cash management isn’t about finding the highest rate available. It’s about making sure each pool of cash is positioned appropriately for when you’ll need it, how it needs to be protected and what it could reasonably be earning in the meantime.

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