Open Letter to All JEA Customers

2010-06-15

Jacksonville, FL - At the JEA Board meeting this week, the Board approved an increase to JEA’s Adjustable Fuel Rate effective October 1. So far in this fiscal year, because of fuel price volatility, JEA’s actual fuel expense will exceed actual fuel revenue by $71 million or 13%. We must make an adjustment to the fuel rate in order to cover this shortfall. This will be in addition to the electric base rate increase, and water/sewer base rate and excess consumption increase approved by the Board in the last few years.

Deciding to raise rates is never an easy decision for the Board; however, it is necessary to guarantee the financial stability of JEA. In the ‘90s and early ‘00s, JEA was able to go for a very long time—14 years in fact—without raising rates. Today, I often hear from our customers and they want to know why we keep raising rates. You ask me, “What has changed?” The reality is, almost every aspect of our business has changed.

During the long period when we had no rate increases, fuel costs were nearly flat. The fuel cost chart shows almost a flat line from 1989 to 2003. Then in 2003/2004, fuel prices started being extremely volatile. In November 2004, JEA established an Adjustable Fuel Rate to help manage this volatility. The two things that drive the fuel expense are the cost of fuel used and how much electricity our customers consume. If either increases beyond our budgeted projection, then we need additional revenue to cover the difference. The Adjustable Fuel Rate allows us to better manage our fuel cost which also affects your overall costs.

To further put this fuel rate increase into perspective, JEA actually lowered its fuel rate by $10.98 for the fiscal year we are currently in (starting October 1, 2009). When the fuel rate goes up $6.48 in October 1, 2010, it will actually still be lower than it was in our fiscal year that started October 1, 2008.

Another major influence on JEA’s rates is environmental regulations. Today, we know more about the effects of industry on the environment; therefore, state and federal agencies have implemented more and more regulations to assure the minimum impact to the environment with an emphasis on sustainability for the future. JEA is required to do more and more to meet these regulations which have added tremendous cost to our business. For instance, through 2010 JEA has spent $116 million to meet state requirements for nitrogen reduction to the St. Johns River, and is projected to spend another $34 million by 2013. Another example is the federal requirement to put additional environmental equipment at the St. Johns River Power Park so far costing $141 million. What we see ahead in terms of cost for new regulations is far greater than anything we have experienced as a utility or a community in the past. And, it appears that fuel volatility and environmental regulations are going to continue to drive utility costs up far into the future.

The other rate increases for electric and water/sewer services, that I mentioned earlier, were put in place to help reduce debt, pay for system improvements and to pay for steadily increasing environmental regulations.

Beginning in October 2007, JEA implemented a four year base rate increase for the electric system that will increase that portion of customer bills approximately 3% effective October 1, 2010. This four-year annual electric base rate increase has helped us meet our objective to fund a larger portion of JEA’s electric system renewal and replacement expenses directly from revenue instead of by adding new debt, and has helped to reduce our current debt load.

A rate structure change and a four year adjustment to water and sewer rates first went into effect October, 2009. A residential customer utilizing 6000 gallons per month will see a $5.67 increase in their monthly bill effective October 1, 2010. Since JEA was given responsibility for the City’s water and sewer department in 1997, JEA has invested $3 billion (now mostly debt) in the City’s water and sewer infrastructure. Many other cities around the country have not made these types of investments and suffer today from service interruptions and higher costs to repair. The rates adjustments were structured to move towards a more balanced recovery of this fixed expense through higher fixed monthly charges, while limiting adjustments to residential volume charges to consumption greater than 6000 gallons per month—generally considered essential use—and to fund specific environmental programs. To give you a frame of reference on water costs, a 16 oz. bottle of water you might purchase at a store typically costs around $1.50. One thousand (1,000) gallons of water from JEA costs $0.93—for the whole 1,000 gallons.

The members of the JEA Board and staff understand that you are frustrated and upset by having to pay more for your utility services. We are paying those same bills. We understand that this economic downturn makes it even more difficult. However, we have a charge to provide electric, water and sewer services 24 hours a day, seven days a week, 365 days a year—no exceptions—and the Board must assure that JEA has the resources to meet that commitment. Our commitment to you is that we are doing everything possible to manage our costs and keep rates low.

Ron Townsend
Chair
JEA Board

Category:

• board
• corporate
• customer
• electric
• rates
• water