JEA’s residential and commercial customers won’t pay higher energy, water and wastewater rates in fiscal 2020.
That was the recommendation from the public utility’s top administrators during its Finance and Audit Committee meeting Monday at JEA headquarters in Downtown Jacksonville.
In the short term, that is considered good news for Jacksonville-area businesses and homeowners.
But the decision comes as Florida’s largest municipal utility works to pay down its outstanding debt and fights ongoing trends of shrinking energy sales.
The market is demanding more energy-efficient products, and renewable resources are incorporated into the energy mix.
In its proposed 2020 budget, JEA staff reduced revenue projections in its energy budget to $1.25 million from $1.28 million in fiscal 2019 to align sales with growth trends.
JEA staff also is planning for a decrease of $11.9 million in fuel and purchased power next year.
Staff also projects a decrease in operating revenue and expenses in water and wastewater systems because of a projected lower sales volume.
The JEA board will review the 2020 budget next week and is required by its charter to deliver it to Jacksonville City Council President Aaron Bowman by July 1.
Adapting to the trends
JEA Managing Director and CEO Aaron Zahn attributes a large portion of the declining energy sales to energy efficiency reinforced by the federal Energy Policy Act and, to a lesser extent, the advent of renewables like solar energy.
Energy efficiency efforts have meant lower bills for consumers and less environmental impact, but for utilities like JEA, it’s been a hit to the bottom line.
Since 2006, JEA has seen an 8% decrease in megawatt hour demand.
From 2007 through 2017, that translates to an average $130 million loss in projected revenue per year.
The declining sales come during a period of growth for Jacksonville and JEA’s customer base. From 2006 to 2018, JEA grew by 64,269 accounts, a rise of 16%.
Zahn shared these figures during JEA’s State of the Authority annual meeting in April at City Hall.
To keep up with growth in renewables, power companies like JEA have to adapt quickly.
On Feb. 6, a 1,900-square-foot home on Jacksonville’s Southside effectively became independent of JEA. The home filed an interconnect agreement with JEA — a contract signed by every customer using home generation and puts power back on to the public power grid.
“This customer put in about 12 kilowatts of solar, 40 kilowatts of battery and, ultimately, is no longer a JEA customer. They’ll pay us $5 per month for a backup system,” Zahn said.
“This is an initial adopter,” he said. “Just like the person standing in line in 2007 for the iPhone, they’re a signal of what’s happening around us.”
According to Zahn, solar use has seen a compounded annual growth rate in JEA’s territory of 67% since 2014.
That is a net income loss of $2.5 million annually for the utility to decentralized power systems, independent of JEA.
In the 2020s, as batteries for decentralized storage become more affordable, JEA expects similar losses. According to the April presentation, categories like home solar generation plus storage will have similar cost JEA’s product by 2025.
Reducing debt
Part of the solution to ensure JEA’s financial health is paying down debt. In December, the utility announced an initiative to pay down nearly $480 million in debt over the next fiscal year.
JEA decreased its total energy and water system debt in fiscal 2019 by $107.2 million, mostly due to Phase I of the utility’s Strategic and Timely Asset Realignment plan to reduce and eliminate debt service.
Since the plan’s introduction, there has been $200 million in early debt retirement, according to JEA staff. JEA wants to reduce its debt by another $90 million in Phase II at the end of this year.
“The long story short, absent the STAR plan, we’d be talking about rate increases,” Zahn said.
JEA and the city budget
JEA’s health also is important to the city’s bottom line. The 2020 budget report shows JEA will pay an estimated $118.8 million to city coffers in the coming fiscal year. If franchise fees and public service and sales taxes collected by JEA are factored in, JEA’s total transfers to the city have grown to $246 million — a 55.4% increase since 2007.
Employee overhead costs also present a challenge for JEA. Due to rising insurance claims, employee benefits costs at JEA are expected to rise 65% this year to an estimated $58.9 million in fiscal 2020, up from $35.7 million in 2019.
Thinking long-term
Zahn expects initiatives to reduce the costs of future liabilities, like a $1.5 million research and development study on processes and new techniques hoping to reduce the $2.4 billion price associated with septic tank removal in Jacksonville.
JEA committed $15.5 million toward an initial phase-out program in February to underserved Jacksonville neighborhoods. The R&D for the broader phase-out is in its early stages.
“When you have a $2.5 billion problem, spending a million dollars to try and make it substantially less is a very good return on investment,” Zahn said.
At next week’s JEA board meeting, staff will present a status quo budget forecast — the business outlook for JEA absent substantial changes to its operating model.
Eventually, Zahn expects JEA will need additional cost-saving measures as well as growth initiatives, additional offerings to customers and adjusted rate structures to remain healthy.
The board meeting is scheduled for 9 a.m. Tuesday at JEA headquarters, 21 W. Church St.