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JEA faces $2.3B cash gap in 2030 if it sticks to status quo

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JEA faces $2.3B cash gap in 2030 if it sticks to status quo

JEA faces a significant cash shortfall in the coming decade if it fails to adapt to the "technology disruption" underway in the power sector, the Florida municipal utility's management team warned the board during a May 28 meeting.

According to its baseline report presented to the board during the Jacksonville, Fla., utility's board meeting, increasing nonfuel operating expenditures and decreasing nonfuel revenues could create a $2.3 billion cash gap in 2030 if JEA maintains a "business as usual" business strategy. Addressing the cash gap would require a 52% base rate increase, or necessitate a 40% increase and termination of the utility's contribution to the city of Jacksonville's general fund, according to the presentation.

Over that same time frame, JEA's customers are likely to increase 16% while energy sales fall 8%, according to projections.

"Our energy business is a story of technology disruption," JEA President and COO Melissa Dykes said during the board meeting. Within the last decade, traditional utilities have gone from being "the only game in town" to seeing commercial and industrial customers such as tech giants with large energy needs capitalize on new technologies more than some utilities have.

"Disruption is becoming the new normal in our industry," Dykes said. "Participating in technology disruption will be key to JEA's future."

For the next step in the process, JEA management will come back with some options to adapt to industry changes at a future board meeting before eventually seeking public comment and city council approval of a new strategy.

JEA has not been as active as other utilities and companies in engaging with new technologies, and that has had financial consequences, Dykes said. The federal Energy Policy Act of 2005 brought a host of changes for the sector, including an emphasis on energy efficiency. JEA underestimated its impact on electric sales and lost $1.4 billion in free cash flow between 2007 and 2017.

Overall, energy efficiency accounted for more than 90% of reductions in JEA's electric sales. Sales were 30% lower in 2017 than what the utility forecast in 2006.

JEA will also need to consider how distributed generation will affect its competitiveness, according to CFO Ryan Wannemacher. Solar in JEA's service territory has had a compound annual growth rate of 67% since its fiscal year 2014, resulting in more than $2.5 million in net income lost to distributed generation annually. With battery storage facing a similar trend, distributed generation paired with storage is expected to be at cost parity with JEA by 2025 if the utility does not make changes to its business.

"You've seen this story before," Managing Director and CEO Aaron Zahn said. Companies in industries on the cusp of dramatic changes, such as the telecom sector transitioning from landlines to mobile phones, inevitably suffer financial hardships because they did not embrace disruptions in their fields.

"You have a management team to make sure that the status quo doesn't become a reality," Zahn said.