It is possible the taxpayers missed out on a big opportunity when they nixed the sale of the JEA, based on an analysis of the situation by a former employee of the city-owned utility company.
In his estimation, the sale could have produced big bucks. The question that would remain is: What to be done after the city’s “golden goose” was traded for a pot of gold?
Ross Byers was debt and investment manager of JEA for 25 years. Whenever the recurring question of selling the utility came up, the JEA Finance Department would always run the numbers.
Generally, it showed that it was a bad idea. JEA had low interest rates but a large amount of debt, which would make it unattractive to a private investor-owned utility that would not be able to issue tax-exempt bonds for the debt.
But, Byers told Eye on Jacksonville, things have changed. JEA debt has declined and the difference between the rates on tax-exempt and non-tax-exempt bonds has shrunk.
He reckons the JEA is worth a net $4 billion.
But, JEA, the mayor and other proponents of the sale did a very poor job of making a case, Byers said — echoing what many others have concluded.
Had they held town meetings and talked about the advantages, and put forward a sensible plan for using the proceeds of the sale, things might have gone differently.
Instead, a series of colossal blunders caused the plan to blow up and it was discarded.
One of many mistakes used to justify a sale was presenting the utility as being in a “death spiral” with customer demand shrinking, which would necessitate huge rate increases.
The most recent audit of the JEA shows its debt declining steadily and its revenues soaring.
“Income before contributions,” which is synonymous with profit, was $105.7 million in the last quarter of 2019, compared with $71.7 million the previous year. That’s a 50 percent increase. Net cash flow also was up substantially.
If the utility were sold, and the city were to net $4 billion, then what?
That is the crucial question. Byers says, “First, put about $1.4 billion in a conservative fixed-income account paying 3+% interest and it would provide the same cash flows over 25 years that JEA pays to the city annually today–about $120 million. Secondly, make a $500-$750 million payment to the pension fund to shore up the unfunded liability. Use $500 million for the Northside water septic tank removal process (currently spending $30 million per year).
“There is still $1.4 billion or more left to spend.”
That’s where things get dicey. Byers suggests the city might use the cash for something like building a new stadium for the Jacksonville Jaguars, which might infuriate taxpayers who are not rabid football fans..
As Eye and others have said, that is a major concern for many people. Can politicians be trusted with several billion dollars in cash? Would it be used wisely or simply to buy votes and reward friends?
Certainly by its handling of the JEA matter, Mayor Lenny Curry and his chums have not exactly bolstered the confidence of the taxpayers.
Byers says he was the one back in early 2018 who helped start the discussion in City Council that led to the initial sale process unraveling.
The entire process started back in late 2017 when the JEA Board Chairman (Tom Petway) publicly asserted that it was time to find out the “fair value” of JEA. Then, JEA’s financial advisor, PFM of Orlando, performed an analysis that was presented in February 2018 to City Council.
“What you may not know or remember, is that in December 2017, the (mayor’s office) sent out a request for proposal (RFP) through PFM that was meant to begin the process to sell JEA. The RFP never stated specifically this was for JEA but, in my opinion it was,” Byers said.
“… I discovered this RFP in February 2018 and sent it to Kyle Billy, City Council auditor. I am sure you remember what happened next with all the City Council special meetings with the end result being the resignation of the JEA CEO.”
Byers says JEA’s financial management team did not know about the RFP. “Therefore, you can easily come to the conclusion that it was no coincidence that Mr. Petway raised the valuation request in November 2017 and a ‘secret’ RFP to sell JEA was sent out in December 2018 from the city. The mayor denied the purpose was to sell JEA, but, once again, it is very clear to me the mayor wanted to sell JEA. Also, why would a city of Jacksonville RFP for such a huge issue not be sent directly from the city? It was sent directly from the advisor with the results coming back to the advisor. Plus, I worked on many RFP’s during my career at JEA. A RFP takes many weeks to put together–and always goes through the procurement process. Interesting that this RFP did not appear to do that and also went out shortly after Mr. Petway raised the valuation issue.”
With the proposal dead in the water, the better route might be to allow the developments in the utility industry continue to evolve.
Much has changed. Talk of a sale first began in 1973, when JEA had to greatly increase its rates because it was 100 percent dependent on oil to produce electricity and locked into long-term contracts when the Arab oil cartel tripled the price of a barrel of oil overnight.
Today, the JEA uses almost no oil and has much more flexibility switching between energy sources such as natural gas and coal, and purchased power. It also is delving into solar power, which is becoming cheaper as technology, such as batteries, improves.
There’s another thing to consider. It looks as if the JEA easily could implement a rate reduction for its customer-owners. That would be a nice dividend and might earn it back some lost good will.
One thing that might prevent such a happy event is the cloud hanging over the utility from its ill-considered deal to purchase power from an unbuilt power plant in Georgia.
That huge liability is in the courts as the city tries to wiggle free from its contract.
Should it prevail, a rate decrease should be on the table.