CEO Paul McElroy, Board Chairman Alan Howard and Chief Legal Officer Jody Brooks at JEA's Feb. 20 board meeting. |
City and utility officials in Jacksonville, Fla., have officially started exploring whether to sell JEA, the municipally owned power company.
JEA could be valued anywhere from $7.5 billion to $11 billion, according to a third-party consultant hired by the utility's board.
Although the board as a whole has not taken an official position on a possible sale, individual members at a Feb. 20 meeting expressed support for the idea. Board Chairman Alan Howard tasked Managing Director and CEO Paul McElroy with scheduling a workshop on a sale.
The same day, Jacksonville's City Council president created a special committee charged with holding hearings on the matter and ultimately making a recommendation. Council President Anna Lopez Brosche wants a status update at the body's June 26 meeting.
"Looking at the market, it looks like an ideal time to actually look at [a sale] more seriously," Council Member Matt Schellenberg told the JEA board. "People might disconnect from a big-bulk JEA, and I think that we should look forward."
"The world in which we live is changing faster than sometimes we can observe and be ahead of it," he said, invoking the disruption of the taxi industry by ride-hailing services. "What I would like to do is have an opportunity for JEA to look forward, to see what they see in the future about electricity."
Husein Cumber, a JEA board member, shared a similar sentiment. "We don't know what the utility industry is going to look like five years from now, 20 years from now," he said. "And so, for the first time, a monopoly, I believe, is on the verge of potentially not being a monopoly anymore."
Cumber cautioned that innovations such as battery storage could upend JEA's business, prompting large customers to disconnect from the grid. "What does that leave you with?" he asked. "When a monopoly is threatened, that's usually when you decide to sell, right?"
Board member April Green is open to a sale workshop but wants the utility to proceed with caution. "This process has started a scare amongst the ratepayers as well as the employees," she said. "So maybe we should put some thought to how we should communicate and put them at ease that a decision has not been made, that this is just a phase of discovery."
JEA valuation
Michael Mace, managing director of Public Finance Management Inc., presented his valuation findings to the Jacksonville City Council at its Feb. 14 meeting. His company does not work for investor-owned utilities and is not a broker or lender in any utility transactions.
Depending on which methodology is used, JEA can be appraised in four ways. The highest price range comes from the rate base multiple model, which values the utility at $8.1 billion to $11 billion. The cash flow multiple model produces a range of $7.5 billion to $10.3 billion, Mace said.
A price-to-earnings ratio model values JEA at $8.5 billion to $10.5 billion, and a discounted cash flow model produces a range of $7.9 billion to $10.1 billion, he said.
Mace called the utility "a very attractive asset in the current marketplace" due to the low interest-rate environment, constrained opportunities for organic growth by investor-owned utilities and a shrinking number of those companies because of market consolidation, according to the council meeting's minutes.
He said these valuations are conservative, based on moderate assumptions and representing gross transaction value before retiring $6.3 billion of debt and settling other outstanding long-term contracts and obligations — including a power purchase agreement with the Vogtle nuclear plant.
Moody's Investors Service in December 2017 downgraded its rating of JEA to "negative" for its exposure to the over-budget, behind-schedule expansion of that facility.
Under current market conditions, Mace said reasonable expectation for net proceeds for a sale of JEA would be $2.9 billion to $6.4 billion.
Other considerations include what rates would be if JEA was acquired by an investor-owned utility. A rate freeze could be negotiated as a condition of the sale, along with workforce guarantees for JEA employees, he added
Mace said the utility generates $240 million annually for Jacksonville and the city would have to consider the ramifications of lower cash flow were a sale to occur.

