When City Council convened a special committee in February to study aspects of the proposal for JEA to borrow $120 million to help reduce the city’s $1.6 billion unfunded pension liability, committee Chair Bill Gulliford said evaluating the proposal and making any recommendation could take as long as eight months.
So far, it appears his estimate was accurate.
The committee met Tuesday and discussed issues related to how JEA and the city calculate the utility’s annual contribution to the city general fund.
As part of the pension contribution proposal, JEA seeks to amend how its annual contribution to the city is calculated in hopes of reducing the amount until it is more proportional to JEA’s revenue.
Paul McElroy, JEA CEO, said a survey has been sent to more than 20 of the largest public utilities in the U.S. to assess how they calculate their contributions to government entities.
He expects to receive the responses within 30 days and will present the results to the committee after the survey data can be analyzed.
Bond-rating agencies like to see contributions based on a percentage of a utility’s revenue and the guidelines differ for electric utilities and water and sewer utilities, McElroy said.
He said the median contribution amount for AA-rated utilities like JEA is about 5 percent of revenue. Currently, JEA’s contribution, projected to be $111 million this year, represents about 9 percent.
Another question involved in calculating JEA’s contribution is whether sales of electricity to other utilities should be included in JEA’s revenue total. Such sales are not currently included.
Council member Lori Boyer said wholesale electric transaction revenue should be included when calculating JEA’s annual revenue.
McElroy disagreed because selling electricity to the open market as opposed to JEA end-user customers does not contribute to administrative costs. The amount of electricity JEA sells on the open market is determined on a daily or weekly basis.
“We make all we can sell. It’s not a long-term contract,” he said.
Council member Matt Schellenberg suggested JEA’s annual contribution to the city budget is similar to an investor-owned utility paying an annual dividend to its stockholders.
McElroy said he would research how bond rating agencies look at dividends when it comes to calculating a utility’s net revenue, but that might not be relevant to JEA, since it is owned by the community and operates on a not-for-profit basis.
“We are not an investor-owned utility. We can’t be held to those metrics,” he said.
An item on Tuesday’s agenda that was deferred due to time constraints until the committee next meets April 28 was a report from the council auditor detailing JEA’s projected value if the utility were offered for sale.
Schellenberg is a proponent of considering selling JEA, based on fundamental changes in the electricity business that have occurred in the past 50 years when the city decided to operate the local utility.
“Maybe it was a good idea to own a utility back then,” he said. “We could sell it, take the cash and give it to the pension.”
Gulliford said he’s not sure JEA could be sold, based on the utility’s level of debt and that its primary electric generation cannot easily be switched from solid fuel, such as coal, to natural gas, which is the trend in the industry.
“Someone who would buy this is not stupid,” Gulliford said.
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