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Jax Daily Record Tuesday, Jun. 25, 201905:42 PM EST

As energy sales decline, JEA considers path for future including layoffs, charter changes

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CEO Aaron Zahn sees product subscription and other services as a way for the utility to gain revenue and reduce cuts.
by: Mike Mendenhall Staff Writer

JEA says it is facing large-scale staffing cuts and rate increases over the next decade because of declining revenue from shrinking energy and water sales.

The public utility’s board of directors voted unanimously Tuesday to order staff to develop an implementation plan over the next 90 days that includes the layoff of 30% of JEA’s workforce and a reduction in long-term capital investment. 

But cuts aren’t the only strategy the utility is considering. The resolution, issued at JEA’s monthly meeting, also ordered staff to find changes to the City Charter and Florida law that would allow JEA to expand its services to regain lost revenue. 

Managing Director and CEO Aaron Zahn labeled certain charter restrictions as “constraints” to adding new businesses at JEA, such as subscription appliance services or public electric vehicle infrastructure.

Zahn, along with other JEA executives and senior leaders, would be included in the layoffs. Zahn said the layoffs and cuts to capital projects are part of a “traditional approach” taken by public utilities facing declining revenue and market disruptions.

In total, JEA would cut 574 jobs and drop plans to build a new headquarters Downtown in favor of existing office space located somewhere between Atlantic and Butler boulevards, west of St. Johns Bluff Road.

The traditional approach also would require JEA to raise electric rates 26% by 2030.

“This was a terrible process to go through,” JEA President and COO Melissa Dykes told board members. “It’s a very human process. … Especially when it starts touching your team members.”

What charter and Florida law changes JEA will seek will be determined in the coming months.

Tuesday’s action is a response to the declining sales of electricity driven by more efficient home appliances, rooftop solar, LED bulbs and other energy-saving technologies. 

Home solar and battery storage are now costing JEA $2.5 million a year in revenue. By the mid-2020s, JEA officials expect customers to be able to produce power at home with a solar system and battery at a cheaper cost than JEA can provide.

The “traditional approach” is the second scenario released by JEA in the past month as part of a strategic planning process.

A “status quo” report in May showed a 52% electric rate increase, 15% rise in water rates and a reduction is JEA’s city contribution from a projected $118 million in fiscal year 2020 to nothing by 2023 if the utility doesn’t change course. 

According to Zahn, each of the scenarios is a possible long-term outlook meant to show what happens if JEA keeps the status quo, makes changes within their current legal authority, or diversifies service offerings with city and state code changes. 

In an interview following Tuesday’s meeting, Zahn said subscription model services for energy efficient appliances, solar and software development for services like JEA’s Flex Pricing Pilot program are product categories that could bring new revenue to JEA.

“It would require (city) charter changes in order to elevate some of the constraints allowing JEA to be a participated in these markets,” Zahn told the board Tuesday.

Any changes to JEA’s charter would have to be approved by the City Council and could be addressed by city’s Charter Revision Commission that will convene for its once-per-decade charter review later this year.

New headquarters in question

Despite saying it may cancel the deal, JEA moved forward with approving a lease agreement with Ryan Companies US Inc. — the developer of the proposed $2.6 million JEA office tower at 325 W. Adams St. 

A 90-day exit clause was added to the lease agreement with Ryan in the event JEA abandons the project in favor of relocating to south Jacksonville.

Budget breakdown

The financial year 2020 budget JEA will send to City Council for final consideration by July 1 shows a better outlook for JEA in the short-term and is in line with the status quo.

The budget sticks to staff expectations outlined in May and does not include an increase in water or energy rates in 2020. The $1.25 billion energy system budget includes a $36.8 million decrease in operating expenses from last year because of a 2.8% decrease in sales in FY2019.

On the water side, JEA staff drafted a $494 million budget, down $33.9 million from last year. The drop is because of a 4.7% decline in unit sales in 2019.

The utility will reportedly make its largest city contribution to date, sending $118.8 million into the city’s general fund for FY2020. 

JEA’s water and energy businesses will both decrease their debt in FY2020 — $65.5 million in energy and $41.6 million in water. 

A provision included in the board’s resolution allows Zahn to make adjustments within the budget after approval as long as it doesn’t change the bottom lines of the water or energy system.

A City Council committee will hold hearings in July to debate and examine JEA’s budget recommendation before final approval later this summer.

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