A.G. Gancarski
Legislation is imminent for the city of Jacksonville to extend its agreement with municipal utility JEA, a contribution/funding formula that makes up roughly 10 percent of the city’s general fund budget.
The Interagency Agreement, last ratified in 2016 to extend through Sept. 2021, would have two more years added if the City Council passes the legislation.
This would ensure that the agreement is valid through Aug. 2023, though another extension will likely be necessary before the end of Mayor Lenny Curry‘s second term, should he be re-elected next spring.
The timing is of greatest interest here, on a deal that includes an additional one-time contribution of $15,155,000, proceeds from the sale of the Southside Generating Station property that will go to sewage projects, of which there could be a billion dollars worth of work still to go.
JEA’s contribution this year of $117,647,535 would continue to increase annually as agreed, with $122,424,496 expected by FY 22-23.
The renewed agreement comes at a time when the financial commitments of the utility and city are earning harder looks from ratings agencies, which looked askance at moves to privatize the utility, leadership changes, and most critically, attempts to shirk jointly-held obligations in 2008’s ill-fated Plant Vogtle nuclear plant deal.
Earlier this month, Moody’s downgraded $2.1 billion of Jacksonville debt, pinning a negative outlook on issues resulting from the city’s misadventures with utility JEA.
“The downgrade of the city’s debt reflects our concurrent downgrade of JEA’s electric, water and sewer and District Energy System utility debt ratings,” Moody’s contends.
Not all ratings agencies agree with this read: S&P Global Ratings, despite concerns about high fixed costs, maintained on Tuesday a stable outlook on Jacksonville issues in light of Jacksonville’s “very strong budgetary flexibility … proactive management … robust economic growth.
Still, even S&P harbors concerns about Plant Vogtle fallout: “We will continue to monitor the city’s intent and willingness to support … long-term obligations.”
Long-term, indeed.
In the Plant Vogtle deal, the city yoked itself to an agreement without price caps to subsidize out-of-state power companies building a nuclear plant, one that could be the last one built stateside. Cost overruns and a changing landscape of electrical power generation have made the deal look worse over time.
But Moody’s didn’t care. The issue: “the city’s participation as a plaintiff in litigation with JEA, a component unit of the city, against Municipal Energy Authority of Georgia (MEAG), in which JEA and the city are seeking to have a Florida state court invalidate a ‘take-or-pay’ power contract between JEA and MEAG.”
This is a problem for Moody’s, raising questions about the city’s “willingness to support an absolute and unconditional obligation of its largest municipal enterprise, which weakens the city’s creditworthiness on all of its debt and is not consistent with the prior Aa rating category.”
“The negative outlook reflects the uncertainty surrounding the disposition of the city’s litigation during the outlook period,” Moody’s adds.
JEA, meanwhile, is on a negative credit watch from Standard & Poor’s.
“In our view, JEA’s assertions that its board acted beyond the scope of its authority raises questions about the quality of the utility’s internal controls,” S&P analyst David Bodek said, according to the Florida Times-Union.
“In our opinion, the utility’s legal claims seeking to repudiate the board’s actions after a decade call into question the utility’s willingness to meet its contractual financial obligations.”
In a statement released Wednesday, JEA accentuated the positive.
“S&P Global Ratings today affirmed its ‘AAA’ long-term rating on JEA’s water and sewer revenue bonds and its ‘AA+’ long-term rating to the authority’s water and sewer system subordinate revenue bonds. S&P Global Ratings has conducted a comprehensive review of JEA’s operations, its water and sewer financial metrics, and the legal claims and public discussion concerning Plant Vogtle. In its statement affirming JEA’s credit ratings, S&P Global Ratings also offers clear analysis stating that recent Plant Vogtle-specific litigation “does not constitute a lack of willingness to meet long-term obligations,” asserted Aaron Zahn, JEA Interim CEO/Managing Director.
Perhaps everything is copacetic. But even if the ratings agencies have been reassured, their eyeballs factor into the decision making process.
“Stable contribution policy through 2023 is viewed as a positive by rating agencies,” asserted an agenda item from an October JEA Board meeting.
