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“Behind the facade of elected government are a bunch of corporate controlled gangsters running the country.” ― Steven Magee >


By Will Robinson  – Reporter, Jacksonville Business Journal
Mar 15, 2018, 8:00am

City Council and the board of JEA are still debating the potential sale of Jacksonville's municipal utility. The debate has often gotten heated. At one point, the assistant to City Council President Anna Lopez Brosche filed an official complaint against the Mayor's chief of staff, while at a council special session to review the idea, Brosche refused to let Mayor Lenny Curry speak.

What is undisputed, however, is that such a scale would be complex. Brosche has appointed a special committee to take up the issue, while JEA's board voted to schedule a special workshop focused on it. Public Financial Management, a consultant for both JEA and the city, has said the potential sale would likely be "the largest and most complex municipal privatization in the United States."

A report by Public Financial Management, commissioned by JEA and given to City Council Feb. 14, gives many clear indications as to the ramifications such a sale would have. The following are what PFM says about some of the biggest questions raised by the potential sale.


Prior studies have recommended against selling JEA. Why is now different?

Past studies determined that JEA's access to low-cost debt and nonprofit, cost-of-service business model kept costs down for ratepayers more than an investor-owned utility could. Those studies recommended against selling JEA.

However, recent stock market highs and interest rate lows have made debt cheap for businesses. Additionally, investor-owned utilities are facing decreasing energy demand and so are increasingly looking to grow by acquisition. These acquisitive IOUs find themselves bidding on a shrinking pool of utilities, as only 15 percent of the country is served by a public power utility. Motivated buyers, limited targets and cheap debt have resulted in high prices for utility sales.

In essence, market trends indicate that selling JEA would never yield a higher price than it would at present.


Assuming JEA is sold in whole in late 2019, PFM estimates JEA would fetch between $7.5 billion and $11 billion. JEA would then have to pay roughly $3.9 billion to retire its debt. It would also have to resolve its contractual obligations to Plant Vogtle, an unfinished nuclear power plant in Georgia. PFM tossed out $1.2 billion as a "rough estimate for discussion purposes" for the cost of JEA's Vogtle obligations and all but conceded that the final cost would be higher.

If JEA can clear its debt for $3.9 billion and its Vogtle obligations for $1.2 billion, the city would net between $2.9 billion and $6.4 billion from the sale.

Who would buy JEA?

PFM described two types of potential buyers: strategic or financial. A strategic buyer would already own other utilities and would look to bring JEA into their operational structure. A financial buyer would buy JEA under the assumption that its value would go up; such a buyer would try to maximize earnings while holding it, then resell it later.

Would rates go up?

Most likely. The report notes, "JEA's average monthly bills as a percentage of its ratepayers' household income are below the national average," and its rates for both electric and water/sewer systems "are below the medians in the State of Florida." 

Whereas municipal utilities charge only for the cost required to deliver services to customers, IOUs charge ratepayers for profits and shareholder returns, though the amount of profit it is allowed to charge is restricted by a state regulatory agency. An IOU would also have to pay taxes that JEA is exempted for. A buyer of JEA, PFM warns, would also be pressured to generate earnings that justify the high price it will pay upfront.

Furthermore, any capital improvements a buyer needs to make – such as water and sewer infrastructure upgrades – would be passed on to consumers through higher rates. PFM repeatedly assures Council in its report that rates could be frozen as a condition of sale, though that would of course be temporary. While PFM's report says "it is possible" for rates to decrease, its explanations of a buyer's financial position indicate they would rise.

Would a buyer lay off some JEA employees?

Most likely. If the buyer is a strategic buyer, then some staff positions would become redundant. For example, an IOU with five utilities may have one call center to handle complaints, and it would consequently remove JEA employees who handle calls. If the buyer is a financial buyer, it will look to maximize earnings until it can resell the utility, which often leads to cutting the bottom line.

As with rates, PFM again notes that conditions of sale could be imposed that would temporarily delay cuts.

What would the city lose if it sold JEA?

Jacksonville would no longer be eligible for some forms of federal and state assistance for natural disaster recovery. The city government would lose an automatic partner in development efforts, though an IOU might choose to partner with the city on some initiatives. 

It would also lose JEA's annual contribution, worth about $115 million, and franchise fee, worth about $40 million. However, it would get back about $100 million in property taxes. Only $60 million would return to the city, though, with the rest going to public schools. PFM noted that it is possible to "immunize" city government from lost revenue if the proper conditions are imposed.

The city would also lose the authority it holds over JEA, who would no longer be beholden to the Mayor or City Council but to shareholders.

Is it possible to keep parts of JEA?

Yes. A buyer would be most interested in the electric utility function of JEA, and that portion is most often sold. Municipal electric utilities serve only 15 percent of the country, but municipal utilities in the water/sewer sector serve more than 80 percent of the country. JEA serves 464,000 electric customers, 346,000 water customers and 269,000 sewer customers.

The price estimates compiled by PFM assume a sale of JEA as a single asset.

When would JEA be sold?

PFM made its projections assuming a sale in late 2019. However, City Council has created a committee to study the matter and is considering legislation that would allow the city to hold a referendum on the issue, both of which will likely slow the process. PFM estimated it would take five to nine months to evaluate bids, then about a year to get regulatory approval.



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