City's top attorney: Voter approval not needed to sell JEA

General Counsel Jason Gabriel says sale would need a supermajority vote of the City Council.
By: 
Feb. 14, 2018

A voter referendum would not be required if the city decides to sell JEA, its public utility company, to a private buyer, according to the city’s top attorney.

General Counsel Jason Gabriel issued the opinion in a six-page memo sent to City Council members and Mayor Lenny Curry’s office Tuesday outlining how to navigate a potential sale of JEA.

The memo came the day before a special joint meeting between council members and the JEA board of directors to discuss the findings of a financial audit being prepared by the utility’s financial adviser.

Gabriel’s memorandum said selling JEA and its assets requires a supermajority of council members to approve amending or repealing a section of the city Charter.  That’s 13 of the 19 council members.

Article 21 of the Charter outlines JEA’s authority with Section 21.04, stating that JEA cannot “transfer any function or operation which comprises more than ten percent of the total of the utilities system by sale, lease or otherwise to any other utility, public or private without approval of the council.”

Any transaction to modify the authority or powers of JEA would require an amendment to or repeal of Article 21. Section 21.11 authorizes council to appeal or amend any portion of the JEA Charter.

Gabriel states that since the council’s right to make that change was authorized by state lawmakers, “no referendum would be required to amend or repeal the JEA Charter to affect a privatization transaction.”

JEA released a financial audit detailing the utility’s worth on the open market at a council meeting Wednesday.

Adviser Public Financial Management Inc. released a draft audit Feb. 2 providing some insight into how JEA would fare on the open market.

It said Wednesday the value could range from a gross sales price range of $4.7 billion to $11 billion.

The audit was initiated by JEA board Chair Alan Howard after former board member Tom Petway suggested Nov. 28 that privatization be considered.

Since then, several council members, including Brosche, asked the Office of General Counsel whether voters should be allowed to weigh in through a referendum.

 Other challenges

JEA also would need to address its franchise and interlocal agreements for customers outside of Jacksonville if a sale were to be explored.

While most of JEA’s electric, water and sewer customers live in Duval County, the authority also provides electricity to Orange Park, Baldwin, Atlantic Beach and parts of St. Johns County, and water and wastewater services to parts of Nassau and St. Johns counties.

Both counties would have the first right of refusal over a private company to purchase their portion of the water and sewer system, a 90-day negotiating window summarized by their respective interlocal agreements.

According to Gabriel’s memo, those agreements are being reviewed by the Office of General Counsel, along with others that could affect a potential transaction.

The city also would need approval from federal and state agencies, including the Federal Energy Regulatory Commission and the Florida Public Service Commission.

For JEA’s real estate holdings, Gabriel states that a review will be done by both JEA with the assistance of his office and specialized outside legal counsel to “assess the rights, obligations, benefits and burdens,” of the property it owns.

Gabriel explains the city would follow the six-phase process explained in Public Financial Management’s draft audit, which says that any transaction will likely take years to complete. That would begin with council adopting a resolution to amend the charter that would allow JEA to pursue a sale.

First steps after decision

If council were to move ahead with a sale, it first would retain an investment adviser, merger and acquisition counsel and “other necessary professional services,” including someone who handles employee and labor relations.

This group would help with preparing any marketing and disclosure documentation and setting minimum transaction parameters for potential buyers to begin reviewing.

Those investors would be assisted in doing their own due diligence before any initial negotiations take place. The city would then narrow the list of serious bidders.

Council will then have to approve any proposal before a sale could move forward. That would coincide with JEA settling its franchise and interlocal agreements. From there, the sale would need regulatory approval.

“Please note that this memo provides basic procedural information on a comprehensively large first-of-its-kind transaction and accordingly is subject to further modification,  amendment, elaboration and analysis as the evaluation, exploration and consideration process is undertaken,” he said.