Jacksonville’s JEA meets with potential buyers in Atlanta

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JEA is meeting with prospective suitors in Atlanta, the same place where the municipal utility and the city of Jacksonville are in federal court trying to invalidate a power purchase agreement with Georgia’s MEAG Power.

JEA officials said the utility’s senior team and negotiators are meeting with representatives of nine bidders responding to the utility’s invitation to negotiate for the purchase of all or parts of the utility, which consists of electric and water and sewer divisions.

Gina Kyle, the utility’s spokeswoman, said she believed the meetings began Tuesday but had no other details. The meetings are providing bidders with a final opportunity to ask questions before they make final offers to buy JEA, the eighth-largest municipal utility and a city-owned asset for 125 years.

Atlanta was chosen as the meeting site due to its proximity to Jacksonville, its designation as an international airport hub and the number of available business accommodations, JEA said in a release. Jacksonville, which has its own international airport, is about 345 miles south of Atlanta.

The out-of-town meeting location didn’t sit well with City Council member Matt Carlucci, who opposes the sale of JEA and has called for the resignation of its Chief Executive Officer, Aaron Zahn.

“So JEA’s executives couldn’t convince the respondents to connect a 1 hour flight to Jacksonville, where the investment they seek to buy is located,” Carlucci said in a Dec. 7 tweet. “Poor show of commitment by the respondents to our hometown. Unbelievable......”

Carlucci also said the meetings are exempt from public meeting laws under Florida statutes. “Proceedings are recorded for release after decision made,” he tweeted. “So the negotiations could have happened in good old Jacksonville!”

Council member Brenda Priestly Jackson asked the council Tuesday night to declare an emergency and immediately pass a resolution asking the JEA board of directors to halt the process of getting bids, a procedure that she said has been tainted by lapses in public notices and the lack of communications with City Council.

“This process we’ve been going through is corrupt with corrupt players,” said Council member Garrett Dennis, who listed why he thinks JEA’s process has been “shady,” including the hiring of Zahn who was a board member for only a few meetings before becoming CEO.

Although there was heated discussion in support of Jackson’s emergency motion, and clapping by the audience when talks turned to ending the recapitalization effort, the emergency was voted down when it failed to get the required two-thirds vote necessary for passage from the 19-member council.

Jackson’s resolution will be considered by three council committees during the first week of January, and will be brought back to the full council for a vote on Jan 14.

The City Council voted to hire the Jacksonville law firm of Smith, Hulsey & Busey to represent it in matters involving JEA. The city set aside $1.8 million for the legal representation.

As JEA negotiates with bidders, the utility and the city of Jacksonville are continuing to challenge the validity of JEA’s take-or-pay power purchase agreement with the Municipal Electric Authority of Georgia, a nonprofit joint action agency.

The PPA requires JEA to pay debt service on bonds and federal loans issued by MEAG to pay a portion of its 22.7% ownership interest in two nuclear reactors under construction at Plant Vogtle. The agreement also entitles JEA to the first 20 years of electricity generated by the project.

JEA and Jacksonville have said in court documents that they want to void the PPA because it “purports to saddle JEA and its ratepayers with an unlimited obligation to fund the exorbitant and ever-ballooning cost of constructing units of a nuclear power plant that JEA does not own.”

The complaint claims that the PPA, first approved in 2008 and amended in 2014, should be vacated because it was never approved by the Jacksonville City Council as required by Florida’s constitution, and that it violates the city charter as well as Florida’s public policy.

Dan Aschenbach, a partner at the public finance and clean energy investment consulting firm AGVP Advisory, said Tuesday that JEA's litigation was mentioned at the Smith’s Research and Gradings’ High Yield Municipal Bond Conference in Greenwich, Connecticut Oct. 2-3.

During a panel on risks facing bondholder protections and the importance of being able to trust legal pledges, he said a speaker referred to JEA “as the next Puerto Rico.”

“It was striking that JEA would be brought up at a high-yield conference,” Aschenbach said. “Bondholders remain fearful that a sale of the utility could result in JEA negating the take-or-pay contact with MEAG Power despite the legal strengths underlying it.”

JEA senior electric revenue bonds are rated AA by Fitch Ratings, A2 by Moody's Investors Service and A-plus by S&P Global Ratings, according to the EMMA municipal bond disclosure website.

U.S. District Judge Mark Cohen is overseeing the litigation in the Atlanta Division of the Northern District of Georgia. MEAG has asked the court to declare the PPA enforceable, and is seeking an order requiring JEA to perform on its contract. MEAG is also requesting damages for JEA’s alleged breach of contract and attorneys' fees and expenses.

JEA filed three counterclaims against MEAG for breach of fiduciary duty, failure to perform in good faith, and negligent performance of an undertaking.

On Nov. 25, Cohen granted MEAG’s motion to dismiss JEA’s claims for breach of fiduciary duty and failure to perform in good faith. The judge denied the motion to dismiss the third counterclaim.

“The court agrees with JEA that a claim for negligent performance of undertaking does not require physical harm,” Cohen wrote. “Thus, JEA appears to state a claim for negligent performance of undertaking under Georgia law.”

On Nov. 7, Cohen denied JEA’s motion to disqualify Orrick, Herrington & Sutcliffe LLP because the law firm represents MEAG in the PPA litigation. Orrick had previously represented JEA as bond counsel.

JEA contended that Orrick drafted documents analyzing the scope of JEA’s authority under Florida law to enter into power transactions and financing arrangements, but Cohen said the evidence and statements of Orrick attorneys didn’t support that claim. The city’s office of general counsel and a non-Orrick lawyer represented JEA is connection with drafting and negotiating the PPA, Cohen found.

JEA previously attempted to have the Federal Energy Regulatory Commission to take jurisdiction and determine the validity of the PPA, a move that generated backlash from municipal power agencies across the country that want to remain exempt from FERC oversight.

In February, FERC declined JEA’s request and said it only has authority over such agreements with investor-owned public utilities, and not nonprofit entities such as JEA and MEAG.

JEA officials have said that the “expensive uncapped nuclear contract” is one of three reasons why the utility is considering different strategic plans for the utility’s future, including a sale. The other reasons are JEA’s “high” $3.4 billion in outstanding debt and declining sales due to energy-saving technology such as solar panels.

Ryan Wannemacher, JEA’s chief financial officer, discussed the utility’s finances with City Council members on Monday during a fact-finding workshop on the “future of JEA.” Eight more workshops are scheduled between January and May.

Wannemacher said JEA’s debt continues to grow because of the PPA obligation. Currently, annual debt service is about $131 million and is expected to increase to around $200 million, he said.

“They’re not done yet,” he added, referring to MEAG’s financing of the Vogtle project. “There’s no cap” on the contract.

Wannemacher said that Unit 3 is still expected to begin commercial operations in November 2021 and Unit 4 will go online in November 2022. He also said JEA has been told to expect a certain budget, which he did not disclose.

In July, MEAG issued $619 million of tax-exempt serial and term bonds in a limited offering to finance a portion of the reactors’ cost related to its contract with JEA.

MEAG said that deal, along with $111.5 million in an as-yet undrawn Department of Energy loan guarantee, are estimated to fund the remaining construction costs based on the current budget for JEA’s power agreement.

Georgia Power Co., an investor-owned utility that owns 45.7% of the project, is heading up construction at Plant Vogtle. GPC said in September that work on the two units is 79% complete and that construction and the budget remains on track.

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