JEA's solicitation for alternative ownership structures is again facing major roadblocks from local government officials seeking greater control over the future of the Florida municipal utility.
Jacksonville Mayor Lenny Curry sent a letter to JEA's board of directors with a list of several requests, including that utility management relinquish decision-making power over its inquiry for potential business models. Instead, Curry wants the Jacksonville City Council to pick the winning response and JEA's strategic future.
Curry also wants JEA to conclude the solicitation process by the end of January 2020 and change the terms so the utility has "a top tier of proposals" instead of picking one option. The mayor is also calling on JEA to consider an additional scenario where the independent utility is moved into a municipal department with city council oversight.
"While much attention is focused on one scenario related to possible sale, I know and appreciate that JEA continues to simultaneously explore several scenarios and options that can ensure clean, consistent energy and water for our city," Curry said in the Dec. 12 letter. "Unfortunately, facts about JEA's strategic planning and exploration of all scenarios in this process remain misunderstood or unknown by the community."
The news complicates JEA's quest to stabilize the utility's financials and future.
Facing a potential $2.3 billion cash gap in 2030, JEA's board of directors has expressed a view that JEA's government-affiliated status has left the utility unable to make the necessary investments to modernize its infrastructure and generation portfolio. The exploration of new ownership structures was the result of findings that JEA could be forced to dramatically raise rates or cut staff if it maintains a business-as-usual approach. According to an audit of JEA's financials by Ernst & Young, the utility's total operating revenues for its fiscal year 2019 ending Sept. 30 declined by $66 million, or 4.8%, year over year, including a $7 million decrease in electric revenues.
JEA officially launched its solicitation for strategic ownership models in August, with minimum requirements for bids including maintaining the utility's value to at least $3 billion, distributing at least $400 million to customers and protecting certain employee retirement benefits. A slow M&A climate in the utility sector makes JEA an attractive target. As of October, the company has whittled its list to nine proposals, with participation from three investor-owned utilities with Florida operations: Duke Energy Corp., Emera Inc. and NextEra Energy Inc.
In a Nov. 22 report, S&P Global Ratings analyst Jeffrey Panger said that while the rating agency was not taking a position on the merits of JEA remaining a public entity, "the strategic plan scenarios incorporated in the strategic planning assessment paint a direr picture of the financial challenges JEA faces than does its financial forecast." That financial forecast "presents a more accurate picture of the utility's financial health."
If JEA proceeds with privatization, the utility "would necessitate the defeasance of about $1.9 billion of debt outstanding and the buyer's assumption of substantial power purchase obligations" from its power contract for output at the Alvin W. Vogtle Nuclear Plant, Panger said.
The utility has said it is considering all options, such as a cooperative model, an IPO or privatization. However, Jacksonville officials including Curry are questioning JEA's transparency in the process, echoing previous opposition from Curry's administration when JEA explored privatization in 2017 and 2018, which led to the tabling of potential privatization discussions in May 2018.
JEA said Dec. 6 that it would meet the remaining parties in Atlanta instead of Jacksonville, prompting criticism from local government officials. That also led to City Councilwoman Brenda Priestly Jackson introducing an emergency resolution encouraging JEA to "take formal action to rescind" its solicitation at the utility's Dec. 17 board meeting. The council, however, decided to not vote on the item and move it to its Jan. 6, 2020 meeting.
Gina Kyle, JEA's manager of media relations, said in an email that the utility's management is reviewing Curry's letter and will not comment at this time.