Community Engagement

JEA board authorizes privatization of utility to be explored

The Board of Directors at Florida public power utility JEA on July 23 voted to authorize JEA’s CEO Aaron Zahn to explore the privatization of the utility.

At a JEA board meeting, JEA Senior Management presented the results of a strategic planning process it has undertaken with consulting firm McKinsey. 

JEA executives told the board that without changes to the JEA charter, applicable state laws and Florida Constitution that would allow the utility to pursue new lines of business and revenue, JEA will experience substantial loss of load to distributed generation and technology advances. 

JEA officials outlined several scenarios for JEA, including a “traditional utility” response, a “traditional utility response with the removal of some legal barriers,” and a “non-traditional utility” response.

Melissa Dykes, President and Chief Operating Officer at JEA, said that the traditional utility response “doesn’t fix the problem with the declining business” and because JEA has not “changed the constraints we operate under today, we haven’t created the opportunities that are needed to change the trajectory of the business and our large debt burden will severely limit business flexibility into the future.”

Ryan Wannemacher, JEA’s chief financial officer, outlined several non-governmental options that the utility could develop in the coming months under the “non-traditional utility” response:

  • Conversion of JEA to an organization that is owned and run jointly by its customers as members, who would share the profits or benefits;
  • An initial public offering under which JEA would convert to a corporation and offer shares to the public in a new stock issuance;
  • Conversion of JEA to a corporation and a placement of equity shares with private sector investors such as pension funds or investor funds;
  • Conversion of JEA to a corporation and a tech-focused company buys a controlling interest in JEA;
  • Conversion of JEA to a corporation and a vertically integrated oil and gas company purchases a controlling interest in JEA; and
  • Conversion of JEA to a corporation and a utility company purchases a controlling interest in JEA (investor-owned utilities NextEra, Duke and Emera were cited as examples).

The board voted to allow Zahn to pursue the non-traditional utility response. 

There was been substantial coverage of the Board’s meeting in the local media.  Among other outlets, the Florida Times-Union (a leading Jacksonville paper) has covered these events closely.  The paper reached out to the Association for its reaction to the JEA Board action, asking whether other public power utilities are reacting to the technological changes in the electric industry in the same manner as JEA.  Sue Kelly, the Association’s CEO, explained that JEA’s move toward possible privatization is the exception among the nation’s municipal utilities.

“That’s the right of every public power community to do that,” she said. “But you need to really consider all the scenarios and all the things you could do with your public power utility because once you sell it, it’s gone. Then you have another entity that’s not part of your local community family, and they will dictate to you what the rates and service offerings are.”

She said JEA faces the same challenge as other utilities: energy-efficient products mean less electricity is needed by homes and businesses. Solar power is becoming more economical for customers wanting to generate their own power on-site.

“What we’re generally seeing is our members trying to figure out strategies for working with their customers to implement these new technologies,” she said.

She cited CPS Energy, based in San Antonio, for its SolarHost program that installs rooftop solar panels at no cost to customers. The panels then provide power to the rest of the CPS energy grid and customers get a credit on their bill for the solar power that’s generated.

JEA hires financial, legal advisors

JEA on July 25 announced it had hired J.P. Morgan Securities LLC. and Morgan Stanley & Co. LLC as financial advisors and Pillsbury Winthrop Shaw Pittman LLP and Foley & Lardner LLP as legal advisors “to assist the utility with the execution of a competitive and open solicitation process.”

The public power utility said that these companies will work closely with JEA and its Board of Directors to develop a strategic plan for JEA.

JEA said it will proceed with a competitive process requesting responses from industry sectors including financial, technology and energy and water.

To be considered, an offer made by an outside entity responding to JEA’s Invitation to Negotiate must meet a list of minimum requirements, the public power utility said, including:

  • $3 billion of value to the City of Jacksonville;
  • $400 million of value distributed to customers;
  • At least 3 years of contractually guaranteed base rate stability;
  • Protection of certain employee retirement benefits;
  • Guarantee of employee compensation and benefits for three years; and
  • Commitment to new headquarters and employees in downtown Jacksonville contributing to the economic development of the community.

Privatization and municipalization trends in the U.S.

From 1980–2018, 82 public power utilities were privatized. In the past decade, 10 public power utilities across the country have been sold, while four new public power utilities have been formed.

Oftentimes, a community decides that its local utility is worth more to the community than it is to a potential buyer.

A recent example of that occurred in Louisiana with public power utility Lafayette Utilities System. The Lafayette, La., City-Parish Council in November approved a resolution expressing its opposition to any possible sale, lease, third party management agreement, partnership, “or disposition, in whole or in substantial part,” of Lafayette Utilities System.

Meanwhile, there has been a growing trend across the U.S. to explore or actively pursue the formation of public power utilities.

In the West, efforts are ongoing to municipalize the utility systems in Boulder and Pueblo, Colorado, while in California, the San Francisco Public Utilities Commission in May released a preliminary study that found that public ownership of the city’s electric grid has “the potential for significant long‐term benefits relative to investment costs and risks.”

In Maine, the governor this month signed legislation directing the state’s Public Utilities Commission to evaluate the creation of a consumer-owned electric utility that would take over the functions of the state’s existing investor-owned utilities.

Also this month, New York City Mayor Bill De Blasio raised the idea of municipalizing investor-owned Con Ed in the wake of recent power outages in the city.

And in Chicago a proposal was submitted this month in the city council that calls for study on the feasibility of a municipal takeover of Commonwealth Edison’s infrastructure in Chicago.