Fitch Ratings assigns an 'AA' rating to the following JEA, --Approximately
The bonds are scheduled to price via negotiation on
In addition, Fitch affirms the 'AA' rating on the following outstanding JEA revenue bonds (par amounts outstanding as of
The Rating Outlook is Stable.
The bulk power supply system bonds are contract debts of JEA, payable as an operation and maintenance expense of the electric system on a take-or-pay basis.
Outstanding electric system revenue bonds are secured by a first lien on net revenues of the electric system, including offsetting transfers from JEA's rate stabilization fund. The pledge of net revenues for outstanding subordinated revenue bonds is junior to the senior bonds. A default of the subordinate revenue bonds does not trigger a cross default of the senior revenue bonds.
KEY RATING DRIVERS
LARGE RETAIL PROVIDER: JEA is a large, vertically integrated retail electric provider serving nearly 427,000 customers. The authority serves an economically sound and stable service area with a highly diverse customer base. Residential users account for a considerable 47 percent and 41 percent of system revenues and sales, respectively, and no meaningful customer concentration exists.
STRONG FINANCIAL MANAGEMENT: Financial operations and capital planning are guided by an effective management team and highly engaged board.
SOUND FINANCIAL PROFILE: Debt service coverage (DSC) has averaged a strong 3.1x over the prior five fiscal years while liquidity has steadily grown over the same period to a healthy 190 days cash. Both metrics are consistent with Fitch's median ratios for the given rating category. Fitch expects future financial performance to continue at a comparably strong level based on JEA's most recent financial forecast.
INCREASINGLY DIVERSE RESOURCE PORTFOLIO: The electric system's diverse resource portfolio includes capacity that is approximately two-thirds natural gas-fired; however, coal and other solid fuels are used to generate over half of required energy supply. The planned addition of nuclear capacity in 2018 will further diversify JEA's resource portfolio.
ANTICIPATED DEBT REDUCTION: Leverage metrics have moderated in recent years but remain high for the rating category. Continued improvement is expected given plans to fund capital needs through at least fiscal 2018 from excess operating cash flow and existing reserves.
RISING NUCLEAR CONSTRUCTION COSTS: Revisions to the Vogtle nuclear expansion project completion schedule and budget in 2013 are a concern, but appear manageable for JEA as the project will account for an estimated 5 percent of the electric utility's total resource capacity and 12 percent of forecasted energy supply in 2018. Future challenges to completing construction and resolving contractor litigation remain and will be evaluated going forward.
PROPOSAL TO INCREASE TRANSFERS: The recent proposal made by city of
ADDITIONAL LEVERAGE: While not anticipated, a failure to reduce debt levels as currently forecast and bring leverage ratios more in line with median ratios for the 'AA' category could ultimately pressure the rating.
NUCLEAR PROJECT DEVELOPMENTS:
PLANT SCHERER PROJECT
JEA's contract debts stem from its partial ownership interests in Plant Scherer Unit 4 and the St. Johns
SJRPP consists of two coal-fired generating units each with a capacity of 638 MW. The facility is operated by JEA and owned jointly with FP & L, to which it sells 37.5 percent of its 80 percent interest under a take-or-pay contract (effectively creating a 50-50 share).
SOLID OPERATING RESULTS CONTINUE IN 2013
JEA's financial metrics remained strong in fiscal 2013 and continue to compare well to Fitch's medians for the 'AA' rating category. DSC coverage remained healthy at 2.7x and close to the 2012 rating category median of 3.0x, despite a sizeable drop in funds available for debt service (FADS). The decline in FADS was driven principally by a reduction in sales coupled with the board's decision to hold rates steady. Coverage of full obligations (including transfer payments) is lower at 1.7x, but still appropriate for the rating.
Balance sheet resources, including available reserves in the system's renewal and replacement fund, increased to a robust 190 days cash at the close of fiscal 2013, also in line with the median for comparably rated utilities. The utility has no additional debt plans through at least fiscal 2018, which should result in a favorable reduction in leverage ratios. Capital spending for the electric system totals approximately
HIGHER TRANSFERS COULD WEAKEN FINANCIAL METRICS
The authority currently makes an annual transfer to the city's general fund equal to 5.5 mills per kilowatt hour delivered to retail users in its service territory, plus a
The current transfer is made after the payment of operating and maintenance (O&M) expenses and annual debt service obligations. JEA also collects a 3 percent franchise fee (included in O&M) as part of its monthly electric bill, which is automatically remitted to
The decline in sales in fiscal 2013, while modest, marks the fifth year out the prior six years that sales declined. The 0.5 percent reduction follows a considerably higher 10.4 percent drop in the prior year. By contrast, JEA's adopted budgets assumed growth of 1.5 percent in fiscal 2012 and 0.5 percent in fiscal 2013.
Factors driving the more recent declines include cooler weather conditions as well as conservation and ongoing energy efficiency programs. Fitch believes recent rate increases compounded by declining income levels are also contributing factors. Load growth through fiscal 2018 is projected to rise modestly annually, which Fitch considers to be a somewhat aggressive assumption given more recent trends.
RATES REMAIN COMPETITIVE
Residential electric rates remain average relative to other regional providers, despite the imposition of annual base rate increases between fiscals 2008-2012 that totaled 20 percent. The authority's fuel and purchased power rate is adjusted annually based on purchased power costs, although the rate can be modified as needed with board approval if costs vary by more than 10 percent from JEA's budget. JEA's average monthly bill (based on usage of 1,000 kWh) totaled about
CONCERNS OVER VOGTLE COST INCREASES AND CONSTRUCTION DELAYS
JEA is participating in the development of the 2,204 MW Vogtle expansion project, via a 20-year purchase power agreement signed in 2008 with the Municipal Electric Authority of
JEA's total estimated cost of the project has increased by approximately
BROAD SERVICE TERRITORY
JEA is one of the largest municipally-owned electric utilities in
Employment grew by 1.3 percent in 2011, 2.5 percent in 2012, and remained flat through the first 11 months of 2013, reducing the city's
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Fitch Ratings assigns an 'AA' rating to the following JEA,