What is JEA worth to City?
JEA has an estimated value to the City of up to $2.5 billion compared to up to $1.2 billion to an investor-owned utility or utilities, according to a report filed by the City Council Auditor’s Office.
The office filed the detailed four-page report Wednesday in response to a request by Council member Matt Schellenberg six months ago.
The special report was prepared by Council Auditor Kirk Sherman and his staff.
Schellenberg filed legislation by way of resolution and introduced it Tuesday.
It encourages the mayor to issue a request for proposal to sell JEA, the city’s not-for-profit, community-owned electric, water and sewer provider.
Schellenberg said Thursday he is interested mainly in selling the electrical side of the utility.
Regarding cash flows, the report provides calculations based on JEA’s contribution to the City and another look at JEA’s contribution to an investor-owned utility for the next 30 years.
The calculations were based on assumptions that reviewers believe to be reasonable but do not include independent experts in utility valuation.
The reviewers relied on consultation with JEA departments.
According to the cash flow analysis:
• The City would receive a figure in the range of $2 billion to $2.5 billion over the 30-year period, based on projected cash flows and anticipated rates-of-return.
• The total JEA contribution for fiscal 2010-11 was $101.7 million and the total combined contribution will increase at a minimum of $2.5 million each year through fiscal 2015-16. After, the report shows that the water/sewer contribution to the City’s general fund will grow between 0.5 percent and 2.5 percent annually for the next 26 years.
• Over the same 30-year-period, the JEA cash flow to an investor-owned utility would be between $1 billion and $1.2 billion. This takes into account a 10.5 percent cash flow from electric systems, which is the approved average return on equity allowed by the Public Service Commission, which exercises regulatory authority over utilities in Florida. For water and sewer, that rate is 9.75 percent. Sales will grow between the same 0.5 percent to 2.5 percent rate.
The report also notes that the investor-owned utility would apply for permission to the commission to increase rates “as soon as possible” to reach its desired return.
Schellenberg said that does not take into account potential competition for electric services that would be available should the opportunity present itself.
Sherman said a similar report was compiled five years ago for then Council President Daniel Davis, with one of the larger differences coming from JEA’s share of the General Employees’ Pension Plan’s unfunded actuarial accrued liability, with JEA’s estimated share being approximately $275 million. “This amount of the sale proceeds would be paid into the GEPP trust fund and would not be available for other uses,” the report said.
An investor-owned utility also would be required to refund more than $6 billion — more than $4 billion in electric, $2 billion in water and sewer — in JEA’s tax exempt debt.
Other points in the review:
• The investor-owned utility would save a combined $72 million a year laying off an estimated 747 employees whose positions are duplicates of existing utility positions. Those savings are from salaries and benefits for JEA upper management and support personnel.
• Instead of a City contribution, the utility would pay ad valorem taxes of up to an estimated $62 million to the City and $47 million to the Duval County Public School Board, but Sherman said those valuations were difficult to estimate and could be far less.
• The City would have an additional electric expense of approximately $2.8 million a year because it would not receive a customer discount that likely would not be offered by the utility.
The report also has additional consideration points, including JEA’s construction of infrastructure through the years to areas like Cecil Commerce Center; the utility’s guaranteed minimum annual contribution as opposed to market value considerations if sold; and the loss of more than 700 jobs and salaries and benefits.
Sherman said Thursday that should the Council discussion warrant further consideration, a valuation consultant should be brought in to further review the utility and associated figures.
Schellenberg said he appreciated the report and viewed it as a starting point in discussions when a Council Ad Hoc committee meets to review a potential JEA sale.
He said he is on the committee and that Council Vice President Bill Gulliford has agreed to join. Schellenberg said he is awaiting response from one other Council member, but hopes to meet Oct. 23.
He said the discussion is one that needs to be periodically conducted to determine if the City is using its assets to the fullest.
The review is a starting point, he said.
“It reinforces the numbers and idea that it (JEA) has value,” Schellenberg said.