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Fitch maintains ratings on JEA despite lawsuit over Vogtle power contract

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Fitch maintains ratings on JEA despite lawsuit over Vogtle power contract

Fitch Ratings said Oct. 17 said that JEA's lawsuit tied to the Vogtle nuclear plant expansion will not affect the ratings of the municipal utility and the city of Jacksonville, Fla.

On Sept. 11, JEA filed a lawsuit asserting that its power purchase agreement with Municipal Electric Authority of Georgia, or MEAG, related to the Vogtle nuclear plant is invalid because the agreement and its associated money-borrowing provisions did not receive approval by the Jacksonville City Council when it was signed in 2007.

In a complaint submitted to Florida's Fourth Judicial Circuit Court, JEA and the city of Jacksonville lamented the "exorbitant and ever-ballooning cost" of the Vogtle project. The expansion project is years behind schedule and billions of dollars over budget, and Vogtle's owners in September voted to continue construction despite a $2.3 billion cost increase.

The power contract requires JEA to pay MEAG for a portion of the output of Vogtle units 3 and 4 upon completion for the first 20 years of operation. If the units are not completed and construction is terminated, JEA is mandated to pay for 50% of the construction costs.

"However, in regards to JEA's and the city's ratings, Fitch does not believe that the filing of litigation specific to this PPA represents a repudiation by the city and/or JEA of the PPA, or an unwillingness on the part of the city or JEA to pay its debts generally. The ratings on the city and the JEA continue to reflect their fundamental credit quality," Fitch Ratings wrote in a report.

JEA intends to settle all payment under the PPA and has allotted $50 million in funds for it, unless and until a court invalidates the agreement. "Any change in JEA's current intention to continue paying its obligations under the PPA absent a court ruling striking down its validity would cause Fitch to reevaluate all relevant ratings," according to the rating agency.

Fitch assigned an AA rating to JEA's outstanding electric system, bulk power supply and St. John's River Power Park revenue bonds, and AA to the city of Jacksonville's issuer default rating.

On Oct. 16, JEA's board moved to increase the company's revolving credit facility to $500 million in an effort to regain the confidence of rating agencies, who downgraded the utility's bonds because of exposure to the Vogtle nuclear plant expansion.