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Jax Daily Record Tuesday, Oct. 6, 201512:00 PM EST

JEA restructure could net $32M; former Brown chief of staff says report is 'vindication'

by: David Chapman

In February 2014, Mayor Alvin Brown pitched a pension reform plan.

It was a plan to save $130 million in the short term and $2.75 billion over 35 years.

It had JEA providing an extra $40 million each year, breaking its employees from the city’s pension plan in return.

And it ultimately went nowhere. City Council rejected it. JEA officials said the revenue wouldn’t allow it and the rating agencies would penalize the utility.

A report distributed Monday paints a slightly different picture.

Within JEA there “were likely savings to be had in excess of $32 million per year,” according to a study done by the MAEVA Group, which with Pew Charitable Trusts assisted the city with pension reform.

That money could be secured without sacrificing service, raising rates or negatively impacting JEA’s credit, the report said. It could be achieved through “major organizational restructuring.”

“It would be surprising if a thorough restructuring of a utility like the JEA couldn’t achieve significant savings,” it said.

Jonathan Trichter, a MAEVA principal, said restructuring in JEA’s case refers to a “deep look” at operations, capital structure and management with a goal of reworking it to achieve maximum efficiencies.

The study said the savings could be used to pay for pension costs. The utility would be more effective, although “organizational restructuring” wasn’t defined in the seven-page report.

The savings would come from improvement in JEA electric’s operating margin, which has fallen to just below 20 percent in the past two years while peer utilities like Florida Power & Light Co. and Tampa Electric Co. have stayed in the low 20 percent range.

A 2 percentage point increase could net about $30 million. A 3 percentage increase could boost it to about $44 million.

The report said it seems “implausible” that a restructuring project couldn’t improve the operating margins by at least those amounts.

With the boost, JEA could contribute more to the city without risk, according to the report.

For Brown’s former administration, the report was affirmation.

“I won’t say we told you so, but this report is vindication,” said Chris Hand, Brown’s former chief of staff, in a statement. “A highly respected financial organization has affirmed what our administration steadfastly believed: the City of Jacksonville’s $2 billion subsidiary has a large capacity for annual savings which can be utilized to help taxpayers and ratepayers.”

A year after the initial partnership plan, another was pitched but scuttled. That one had JEA borrowing $120 million to give the city in exchange for paying the city lower annual amounts, among other concessions.

Hand said the analysis should ease skepticism about JEA partnering with the city to address pension debt.

JEA CEO Paul McElroy said in a statement he looked forward to seeing MAEVA’s suggestions and agreed all organizations should continuously look for ways to improve efficiencies. The utility, he said, has reduced its operating budget more than $140 million over the past three years while still delivering reliable service with rates at or below national and regional average.

The report was provided to the council Finance Committee on Monday by chair Bill Gulliford, who also is heading a special committee discussing the city’s agreement with the utility.

“I think it’s something the (JEA) board should absolutely dig deeper into,” Gulliford told the Finance Committee.

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