In 1973, JEA seemingly was sitting pretty: 100 percent dependent on oil to produce electricity and invested in a long-term fuel contract to buy oil.
Suddenly, a little known outfit called OPEC – an Arab oil cartel – decided to triple the price of oil.
The wise men who had secured that contract now looked like fools and the public was irate as electricity rates soared.
Over the next few decades, OPEC’s power waned and the city-owned independent authority managed to diversify its fuel supply and make its plants adaptable. For many years local rates were among the lowest in Florida.
Ten years ago, the JEA made another bet. It decided to “go nuclear” in a big way by entering into a contract with Georgia municipal electric utilities to help build a nuclear plant and buy the electricity it would produce.
That, too, has gone south.
Nuclear is risky. Although it produces clean energy it is opposed by environmentalists and heavily regulated by the government.
Last year, South Carolina dropped plans to build a nuclear plant after pouring $10 billion into the project.
Plant Vogtle in Georgia has been a mess almost from the start. Local politicians have eyed the deal nervously, trying to assess how much the cost could be to the city if it failed.
With the JEA’s estimated cost moving into the billions, the city now has sued to get out of the contract. Its partner also is suing JEA for breaching the contract.
In effect, the city is asking the court to nullify the contract because the city failed to protect itself adequately.
That’s a rather stark admission and it raises the question of why didn’t the General Counsel’s Office do a better job?
The irony is that in the 1970s, it was the city’s general counsel who blew up a deal with Offshore Power Systems to provide nuclear power plants in Jacksonville. Harry Shorstein argued that the proposed contract did not provide the city with adequate protection. Civic leaders enamored of the prospect of thousands of jobs fumed, but the deal fell apart.
The city also is complaining that the City Council never approved the agreement.
As I recall, when the JEA partnered with Florida Power & Light to build the St. Johns River Power Park on the Northside at a cost of $2 billion, the council voted to approve it – but only with the stipulation that the city would have no part in building or operating the plant.
The late Councilman Bill Carter said he didn’t think the businessmen involved in the project wanted to have a bunch of politicians involved in the deal.
The council also approves JEA bond sales and the JEA’s budget.
But JEA has said a new “unlimited cost-plus reimbursement agreement” was implemented without its approval in June 2017 after the project’s original general contractor, Westinghouse, declared bankruptcy. The amended agreement reportedly increased JEA’s liability to more than $2.9 billion, and the original cap of $1.4 billion is no longer in effect.
The Vogtle Electric Generating Plant, near Waynesboro, Ga., near the South Carolina border, is one of Georgia Power’s two nuclear facilities and is one of three nuclear facilities in the Southern Company system. Construction of the plant started in 1974. Two units began operating in the late 1980s.
The current project is to add two units. If it is ever completed, Plant Vogtle would be the largest power station in the nation.
Although it is large to local ratepayers, the JEA stake is relatively small in the overall deal. Its agreement is with the Municipal Electric Association of Georgia (MEAG), which has a 23 percent stake in the overall project that now exceeds $27 billion.
Last month, JEA’s CEO Aaron Zahn sent a sharply worded letter to the head of MEAG demanding that MEAG withdraw from the troubled project. Under the agreement, JEA has to pay 41 percent of MEAG’s share of the cost, and that obligation exists even if the project is not built, MEAG contends.
A vote by the three majority owners is scheduled Sept. 24 on whether the project will continue.
Another irony is that Westinghouse — the original owner of Vogtle that went bankrupt last year from the financial burden – also was the parent of OPS, which built a plant on Blount Island in the 1970s from which it planned to build floating nuclear power plants that would be used by JEA and other utilities worldwide.
The mess is affecting everyone. Georgia Power’s bond rating has been lowered, and the holding company, Southern Co., says failure of the project could significantly affect its earnings. Moody’s credit rating service has moved JEA’s financial outlook from “stable” to “negative,” citing major concerns with JEA’s financial ties to Plant Vogtle.
JEA has entered into an agreement that obligates it to a huge cost, yet it has no ownership in the project. In its suit, the city says “the City and JEA are uncertain as to the validity of the PPA (power purchase agreement) and seek a declaration of JEA’s rights, duties and obligations thereunder. “
If JEA is stuck with having to pay a share of the rising cost of units that may never produce power, JEA customers could take a drubbing, although the utility says it is taking steps to prevent that from happening.
Many questions remain, such as: How did the original agreement come into being without City Council approval? Did the General Counsel’s Office help negotiate and write the agreement the city now is calling unfair?
We asked the General Counsel’s Office those questions and got a big, fat “No comment.”
In my experience, when everyone clams up, it means somebody dropped the ball.