The Mendenhall Report: Bleak JEA report setting up a charter change?

City-owned utility predicts rate increases of more than 50% and elimination of its annual contribution to the city budget.


JEA CEO and Managing Director Aaron Zahn.
JEA CEO and Managing Director Aaron Zahn.
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JEA’s “status quo baseline” report released Tuesday detailed a stark scenario for residential customers — a potential $500 annual increase on their electric and water bill.

It also proposed a future where JEA’s contribution to the city’s general fund shrinks from an estimated $118 million in 2019-20 – about 12% of the city’s annual spending plan – to $0 by 2023.

JEA executives called the report one in a series of possible outcomes they will offer to the public as part of an overall strategic planning process.

Expanding into providing rooftop solar cells and in-home battery installation could be something JEA proposes to shore up sinking energy sales.

“Those will be part of one of the scenarios. The problem is we’ll need charter changes that will enable JEA to be a part of those markets,” said Aaron Zahn, JEA CEO and managing director.

According to Zahn, Tuesday’s presentation was aimed at members of the City Council whose approval would be needed to amend the public utility’s charter.

After the meeting, Zahn couldn’t identify specifically what charter changes are needed or why it’s necessary to expand JEA’s energy business.

But he made it clear one of the planning scenarios would request changes.

“There are tools like cost-saving measures we can employ. There are some businesses that do not need a charter change that we can participate in. There are things we can do as a community and as a company that this scenario doesn’t become reality,” Zahn said.

“That being said, (the status quo) is a potential scenario and potential outcome,” he said.

JEA’s immediate financial outlook, because of early debt retirement and cuts in employee overhead in the past 10 years, is better and the utility has proposed no rate increases for residential or commercial customers for the 2019-20 fiscal year.

But absent change, over the next 10 years JEA officials forecast a:

• 52% electric rate increase

• 15% water and sewer rate increase

• 87% rise in operating expenses

• $5 billion debt load

That debt load includes payments associated with JEA’s ownership stake in the Plant Vogtle nuclear plant expansion in southeast Georgia.

District 13 City Council Member Bill Gulliford was chair of the committee that in 2015 negotiated JEA’s current interlocal agreement that sets the utility’s minimum financial contribution to the city.

Eliminating the annual contribution, Gulliford said Wednesday, will likely be a move JEA will consider when the legislation expires in four years.

In their presentation, JEA CFO Ryan Wannemacher, Zahn and JEA President and COO Melissa Dykes said eliminating the utility’s annual contribution to the city budget is possible under the “status quo” scenario.

By 2023, a JEA budget with no contribution to the city from the electric side of the business still would require a base rate increase of 40%. On the water side, it would mean a 9% rate increase.

Energy efficiency, Dykes said, has resulted in lowering the power utility’s projected city contribution by $80 million per year since 2006.

“(City Council members) need to ask, are you willing to give up millions of dollars per year?” said Gulliford, who is term-limited and will retire from council June 30.

“I think the City Council has a stake in this they may not realize,” he said.

The District 13 Republican said it’s “obvious” the report is meant to set the stage for a charter debate between JEA and council, but he hopes the city will allow JEA to diversify its business ventures.

“In times of peace you prepare for war,” Gulliford said. “If you prepare for the worst and it doesn’t come to pass, are you in a bad position? No.”

One point in the charter Zahn claims JEA “cannot work with” is prohibiting JEA from independently selling off more than 10% of its assets.

An attempt to lift the cap was rejected by Jacksonville voters last year amid talks of JEA possibly being sold to a private company.

“I’m not here to change what the voters had to say,” Zahn said. “But if that ends up being a constraint to one of the business strategies we recommend, we’ll just let the public know about it. And absent changing this constraint, JEA won’t be in the following businesses. That simple.”

Continuing trends

Federal energy efficiency programs like the Energy Policy Act of 2005, Dykes said, have been one of the biggest drivers in declining sales for JEA’s power business.

Wannemacher says the biggest challenge to electricity sales in the next two decades is grid parity with solar and battery technology — the point where the combined form or renewable sources are at the same cost as purchasing electricity produced by power companies.

“By the mid-2020s we expect customers to be able to self-serve with a battery and solar system at a cheaper cost than JEA can provide,” Wannemacher said.

JEA has seen 67% annual growth in customer solar use since 2014. That has reduced the public utility’s income by $2.5 million per year. In the next 10 years, JEA officials project a loss of 1 million megawatt hours in sales.

Zahn suggested subscription services for hot water heaters, LEDs and electric vehicles as examples of possible solutions. He said revenue from these areas could increase JEA’s energy sales from $1.2 billion to $2 billion, putting the public utility in a situation where it’s competing with companies like Google and Facebook, which are entering the energy sector.

Any concrete proposal for JEA’s portfolio diversification is still steps down on its strategic planning list.

 

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