Judge dismisses suit between Florida's JEA and Georgia's MEAG
U.S. District Judge Mark H. Cohen terminated the lawsuit between Florida's JEA, the city of Jacksonville, and Georgia's MEAG Power, after a term sheet was posted in the case settling litigation over JEA's contract to buy nuclear-generated power at Georgia's Plant Vogtle.
On Wednesday, Cohen ended the case with a signed order based on a settlement between the parties agreeing to dismiss all claims and counterclaims against each other.
It also stipulates there will be no further appeals nor will there be a legal challenge of Cohen's June 17 order declaring the power purchase agreement valid.
The settlement includes a six-page term sheet that says JEA agreed to increase the amount it will pay MEAG by 75 cents per purchased megawatt-hour of electricity, or MWh, on rates that already were established in the PPA after the two under-construction reactors come on line.
The terms also give the Jacksonville-owned municipal utility a right of first refusal to purchase additional power in the future. The parties first announced the agreement July 30.
Neither JEA nor MEAG, formerly the Municipal Electric Authority of Georgia, responded to requests for comment.
MEAG posted a disclosure notice about the agreement on the Municipal Securities Rulemaking Board's EMMA website Thursday.
The settlement triggered several bond rating actions for all three entities.
On Aug. 3, S&P Global Ratings said that it expects no changes to be made to its negative outlooks on JEA and MEAG's ratings, despite the legal settlement over the PPA.
It rates JEA's senior-lien power revenue bonds A-plus and assigns A, A-minus and BBB-plus ratings to various MEAG obligations.
"Although we view the settlement as a positive step in resolving our negative outlooks, we expect to keep the negative outlooks on both utilities until there is substantial completion of the Vogtle project, without material additional delay or cost increase," said S&P analyst Jeff Panger.
S&P noted that the twin nuclear reactors are already four years behind the original scheduled completion dates and billions of dollars over the original budget.
Vogtle units 3 and 4 are now expected to achieve commercial operation in November 2021 and November 2022. JEA entered into the PPA with MEAG to receive a portion of the energy produced by the reactors. In return, JEA agreed to pay the first 20 years' debt service on debt issued for the Project J project.
MEAG has issued $2.58 billion of capital market, U.S. Department of Energy, and privately placed debt for the project.
Moody's Investors Service Monday upgraded to Baa2 from Baa3 MEAG's $2 billion of rated outstanding senior lien bonds issued to finance portions of Project J, and placed the ratings on review for further upgrade.
Moody's said the settlement agreement is credit positive for MEAG because all parties in the settlement accepted the court order enforcing the validity and enforceability of the PPA.
Moody's on Monday revised JEA's rating outlook to positive from negative because of the settlement and recent steps to resolve the utility's governance issues. It affirmed JEA's ratings, including its A2 rating on the senior lien electric system revenue bonds and the A3 subordinate lien rating.
"Successfully implementing the settlement terms will eliminate a significant credit negative overhang as the lawsuits between JEA and MEAG Power had called into question JEA's willingness to abide by the take-or-pay 'hell or high water' terms governing the Project J PPA with MEAG Power," said analyst Kevin Rose.
Rose also said the settlement terms eliminate the likelihood of an appeal overturning the court ruling on the validity of the PPA, which could have enabled JEA to cease participation in the Vogtle project.
On Tuesday, Moody's placed Jacksonville's ratings on review for an upgrade because the settlement ended the litigation and resolved questions about the city's willingness to abide by the PPA. Moody's assigns an A2 rating to the city's long-term issuer rating and its senior tax-backed debt.
The news of a potential upgrade comes as the city prepares to issue $136.3 million of special revenue and refunding bonds, $15.7 million of refunding bonds, and $87.5 million of taxable refunding bonds to finance and refinance capital projects.
The bonds are expected to price in a negotiated sale Tuesday with Citi as the book-running senior manager, and BofA Securities, Jefferies LLC, Ramirez and Co., and RBC Capital Markets as co-managers.
Next week's bond issuance is rated AA-minus by Fitch and AA by S&P. Both have stable outlooks.