Florida's JEA and Georgia's MEAG settle power purchase lawsuit

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Jacksonville, its city-owned JEA utility and Georgia-based MEAG Power Thursday announced a settlement of all the legal issues between them.

Since September 2018, JEA has been in court attempting to shed the 20-year, take-or-pay power purchase agreement that requires it to pay debt service on bonds and U.S. Department of Energy-backed loan guarantees issued to pay a portion of MEAG's stake in the two nuclear reactors being built at Plant Vogtle in Georgia.

Interim JEA Manager Paul McElroy said that to date litigation with MEAG has cost the utility more than $9 million.

The JEA board, the city of Jacksonville and the MEAG Power board all approved the settlement, according to a joint statement issued Thursday afternoon.

On June 17, U.S. District Judge Mark Cohen ruled that the PPA is "valid and enforceable," after rejecting numerous arguments by JEA and Jacksonville about why the contract should be abrogated, including some that challenged Georgia's bond validation law. Cohen also rejected the city’s arguments that JEA didn't have the authority to enter into the PPA.

Under the settlement, the city, JEA and MEAG Power agree to accept Cohen's order without challenge or appeal.

JEA has continued to pay debt service, but the utility's bond credit ratings have been downgraded because analysts considered the litigation a sign that JEA didn't want to pay its contractual obligations.

“We are pleased to have reached a settlement with JEA and the City of Jacksonville to put this matter behind us,” James E. Fuller, MEAG Power president and CEO, said in a statement. “We believe this settlement is the best outcome for all involved, and we look forward to a mutually beneficial relationship that helps MEAG Power and JEA deliver cost-effective, emissions-free power to our respective customers in the coming decades.”

JEA was facing a critical juncture to decide whether to pursue counterclaims against MEAG in federal court. Cohen ordered discovery to begin on JEA's claim that MEAG failed to exercise reasonable care when it voted to continue construction on the project in September 2018.

MEAG also had a pending counterclaim against JEA for breach of contract.

In a report for a Tuesday meeting at which the JEA board reviewed what was then a potential settlement, interim Managing Director Paul McElroy told the directors that the utility's "legal expenses have exceeded $9 million and with active discovery now taking place on the counterclaims, it is anticipated that JEA will continue to incur litigation costs and expenses that could last well over a year or more."

During a meeting Tuesday night, the Jacksonville City Council approved a resolution supporting JEA's settlement with MEAG.

In a separate matter Tuesday, JEA’s board also reviewed invoices from various firms related to last year’s failed attempt to sell the water, sewer and electric utility. They agreed to delay paying $8.4 million in bills until they determine which ones are legitimate.

Utility managers have said the “invitation to negotiate” the proposed sale cost more than $13 million. It was called off in December, when the prior board of directors rejected all bids. Since then, lead team members who participated in the endeavor have been fired.

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Municipal utility districts Lawsuits Revenue bonds JEA Municipal Electric Authority of Georgia Florida Georgia