by Bradley Parsons
Staff Writer
Recent rate increases at JEA are part of the utility’s plan to shore up its bond ratings, CEO Jim Dickenson told the City Council last week.
Dickenson’s presentation of JEA’s proposed $1.3 billion budget to the City Council Thursday projected a record $89 million contribution to the City’s general fund and cheap rates for water and electricity when compared to other Florida utilities. But electricity rates, while still the state’s lowest, rose from $66 per 1,000 kilowatt hours last year to $88 and water rates are expected to climb as well. The extra revenue is necessary in part to help JEA prop up its bond ratings, said Dickenson.
Bond ratings essentially tell lenders how good a bet a borrower is to pay back a loan. In general, it’s more expensive to borrow with lower ratings, because lenders charge more in interest to mitigate increased risk. Dickenson said he hoped to boost JEA’s ratings by 2010, when the utility will have to borrow heavily to finance a $1.5 billion expansion project.
“We haven’t felt too much impact recently, we really have less dependence on debt over the next few years,” he said. “But when we look at construction costs to add a major facility in 2010, there will be a good bit of debt out there.”
JEA’s bond ratings aren’t broken down, but they are starting to leak oil. The utility’s ratio of income to debt is dropping. And Fitch, one of three major rating firms, downgraded JEA Electric’s bonds from AA to AA- earlier this year. The bonds still carry a rating of AA from Moody’s, and Fitch still gives the higher rating to JEA Water. But with increased borrowing on the horizon, Dickenson said now is the time for some preventive maintenance.
Most important, he said, is to bolster the utility’s debt coverage ratio. That measurement has tumbled from 2.6 in 2003 to 2.0 in 2004 before rebounding to 2.3 this year. That number generally corresponds to dollars of revenue for every dollar of debt. Dickenson wants the number back to 2.5 by 2008. Steady or improving bond ratings should follow, he said.
The ratio isn’t the only thing rating firms look at. They will also examine the utility’s leadership, cash reserves and relationship with the City, said Dickenson. But the quickest path to improved bond ratings starts with increased revenue, he said.
“Getting the debt coverage ratio to 2.5 is the biggest thing they’re going to look at,” said Dickenson. “But they look at things like the strength of your management team and your relationship with the City, so we need to maintain those things in other areas.”
Dickenson expects healthier revenues due to rate increases, a growing Duval County customer base and increased hook up fees for individuals, developers and businesses. JEA has also cut millions from its operating budget through a line-by-line review of its expenditures. For instance, Dickenson said the utility saved more than $1 million by getting rid of surplus minutes from its employees’ cell phone plans.
Dickenson expects to restore JEA’s debt coverage ratio by 2008; in time for expected heavy borrowing to finance construction of a $1.4 billion, 800-megawatt power plant in north Florida. The plant is planned as part of a joint venture among JEA and two other Florida utilities. The North Florida Power Project would build the coal-fueled plant in Taylor County, then split the plant’s output among JEA, Florida Municipal Power Agency in Orlando and Reedy Creek Improvement District, which supplies parts of Orange and Osceola counties.