A Path to a Promising Future

 
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At the July 23, 2019 JEA Board Meeting, the Board of Directors voted to pursue one of three scenarios presented as part of JEA’s ongoing strategic planning process, permitting the exploration of a non-governmental ownership path for JEA. 

Download meeting agenda and package (PDF)
Watch a video of the meeting on YouTube

A successful outcome of this strategic planning process will give JEA the ability to succeed in the face of trends, proactively shape its internal talent and culture, drive growth in customer, community impact, financial and environmental value, identify and enable growth investments, and maintain affordable, reliable service to customers.

JEA recognizes the Board’s approval to explore a “non-traditional utility response” has created numerous questions from the community. The questions and answers at the bottom of this page are a response to the most common questions received.

Invitation to Negotiate Strategic Alternatives for JEA's Future

On August 2, 2019, JEA released an Invitation to Negotiate (ITN 127-19 Strategic Alternatives) to evaluate proposals on strategic alternatives to build upon JEA’s strengths and seek to eliminate certain existing business constraints. Following the organization's Purchasing Code, the timeframe to collect bids closed on October 7, 2019. 

Learn more about ITN 127-19 Strategic Alternatives

Key Facts of JEA's Procurement Process Misrepresented in the Media

In a recent column written by Nate Monroe in the Florida Times Union, certain facts about JEA's procurement process have been misrepresented. The misinformation in his column has been corrected below:

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Closed Title:FALSE: "JEA will not reveal the identity of any of the 16 bidders, and it’s withholding any details and records of their bids, for as long as six months while some group of anonymous staffers negotiate with these unnamed companies."
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JEA is holding a public meeting on Monday, October 14, 2019 to identify the eligible applicants that are able to move forward in the procurement process. There will be no “six month” wait for the names of these applicants. 

Get Meeting Details

The entirety of the final applications will be made public once any final decision for action has been made on the ITN, to either move forward or cancel the process. 

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Closed Title:FALSE: "JEA leaders tried to take it a step further: They made sure City Council members got weird legal advice instructing them they are “strictly prohibited” from speaking with anyone about their concerns over the sale process."
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The rules governing the ITN process adhere to the JEA procurement code along with any other applicable state and local laws and regulations. They are aimed at ensuring applicants to an ITN do not gain unfair advantage or leverage over the government entity seeking a private service by getting information from government staff or others that could unfairly benefit one applicant over their competitors. It is meant to ensure a level playing field for all applicants seeking a government role or service.

 

There is no restriction on any individual speaking about their views for or against privatization, only from sharing the specifics of the applicants and their applications put forward in the ITN process. 

Download Our Purchasing Code to Learn More (PDF)

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Closed Title:FALSE: "The ethics director and the city inspector general have stepped in, too, informing Zahn, JEA’s CEO, that they plan to monitor these secret negotiations."
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There is no ethics investigation into JEA or the ongoing procurement process. JEA welcomed the Inspector General into the procurement process to ensure there is complete adherence to all procurement laws and rules throughout the process.

JEA CEO Aaron Zahn sent a letter to Inspector General Lisa Green on October 7, 2019, saying that he welcomed the IG’s participation in the process. He wrote in the letter, “given the magnitude of the discussion, our community will be best served if our entire government structure is working together to ensure integrity in the ITN 127-19 process and its eventual outcome."

Zahn went on to request a meeting with the Inspector General to coordinate on how to best involve them in the process as it moves forward. A first meeting is expected to take place Friday, October 11, 2019. 

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Closed Title:Why the rush to do all of this now? Is this the right time?
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The utilities industry is changing rapidly and JEA and its peers face new market realities, including more engaged homeowners and businesses, connected “smart” technologies, data analytics and distributed energy resources (e.g. solar, battery storage and electric vehicles). JEA is leading the way to proactively understand and embrace these forces. Its value will only diminish over time if it does not explore opportunities afforded now as a non-governmental entity through a recapitalization event.

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Closed Title:What is recapitalization? Is JEA being sold?
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“Recapitalization event” means the closing and funding of a transaction or a series of related transactions in accordance with Article 21 of the Charter of the City of Jacksonville and any other applicable law that results in at least 50 percent of the net depreciated property, plant and equipment value of either JEA’s electric system or JEA’s water and wastewater system being transferred, assigned, sold or otherwise disposed of. 

JEA’s recapitalization could take one of many forms. The concept of recapitalization doesn’t necessarily mean selling entire assets to an investor-owned entity. Private entities can be sole proprietorships, partnerships, limited liability corporations, non-profits, or any other organized group that is not government-affiliated. The key words are ‘not government-affiliated.’ For instance, the Clay County Cooperative, in the community adjacent to Duval County, is a utility co-op—a private, non-profit business owned and governed by the community and customers it serves. 

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Closed Title:What are the benefits of recapitalization, and the ITN process, for customers, employees and the community?
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JEA’s value will only diminish if it relies on the status quo or traditional utility response—Scenarios 1 and 2—to guide its path forward. As the data clearly show, neither of these scenarios are serving or have served JEA favorably. By advancing an ITN process now, JEA can not only start to begin the process of exploring alternative, non-governmental options, but also ensure its employees, the community, its financial health and the environment are taken care of in the best possible way. 

Using JEA’s four corporate measures of value (customer, community impact, financial and environmental) as a guide, the Senior Leadership Team recommended – and the Board of Directors approved – a list of “minimum requirements” that any outside entity responding to JEA’s ITN would have to meet to even be considered as an option by the Board: 

  • Financial
    • At least $3 billion of net cash proceeds provided to the City of Jacksonville.
  • Customer
    • At least $400 million of value distributed to customers ($350+ paid to each JEA account - $1,400+ for customers with electric, water, sewer and irrigation accounts).
    • At least three years of contractually guaranteed base rate stability.
  • Environmental
    • Commitment to fund and provide City of Jacksonville and Duval County Public Schools with 100 percent renewable electricity by 2030.
    • Commitment to fund and provide 40 million gallons per day of alternative water capacity for Northeast Florida by 2035.
  • Community Impact
    • Protection of certain employee retirement benefits.
    • Guarantee of employee compensation and benefits for three (3) years.
    • Retention payments to all full-time employees at 100 percent current base compensation.
    • Commitment to new headquarters and employees in downtown Jacksonville contributing to the economic development of the community. 

The overall purpose of exploring recapitalization is to give JEA the strategic flexibility to adapt to an industry-wide transformation and help it achieve its vision to improve service and enhance quality of life in Northeast Florida.

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Closed Title:What’s the outlook for today’s electric and water utilities sector?
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For decades, the electric and water utilities sector has been driven by two values: reliability and affordability. As long as the lights and water were kept on without breaking the bank, utilities were winning. Today, while still focused on reliability and affordability, forces including more engaged homeowners and businesses, connected “smart” technologies, data analytics and distributed energy resources (e.g., solar, battery storage and electric vehicles) are changing and reshaping the sector as we know it. At the same time, the Laws and regulations that govern municipal utilities neither reward innovation nor incentivize the infrastructure or business models needed to create long-term value. 

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Closed Title:How does that outlook impact JEA and its operations?
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JEA, as the primary deliverer of electricity in Northeast Florida, is facing many challenges. The number of customers JEA serves is increasing, but revenues are decreasing due to forces shaping the overall electric and water utilities sector. 

  1. JEA has increased its electric customer base by 112,000 since 2000. That’s equivalent to the population of West Palm Beach.
  2. Catalyzed by the Energy Policy Act of 2005, which promoted more widespread adoption of renewable energy and energy efficiency standards, JEA has seen a 10 percent decline in revenue since 2007—and revenue continues to decline.
  3. Each new customer is projected to add approximately $2,500 in energy capital costs and $100-200/year in ongoing operating costs. By 2030, it is estimated that JEA will have 16 percent more electric customers.
  4. Within about seven years, alternative forms of energy like solar with battery backup may be cheaper than JEA’s rates.
  5. Technology innovation is lowering competitive barriers to entry (e.g., Nest, Google, Amazon), while also giving customers more choice outside of JEA.

JEA, as a municipally-owned (i.e., government-affiliated) utility, is governed by regulations that limit its ability to grow in today’s dynamic marketplace. 

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Closed Title:How is JEA going to address its challenges?
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In the past, JEA was able to take a traditional approach to strategic planning because the electric and water utilities sector was a predictable, low-uncertainty business environment. A sufficiently precise plan to operate the municipal utility the way it’s “always been done” worked. In fact, it has worked for nearly 125 years. Today, the way it’s “always been done” will no longer work. Therefore JEA’s approach to strategic planning evolved from traditional responses such as employee layoffs and rate increases to “scenario strategic planning” to reflect this new, uncertain business reality.

 For the past several months, JEA has been undergoing a scenario-based strategic planning process to determine how the utility can continue to meet the demands of and stay relevant to its customers in the face of industry-wide challenges. At its core, this process introduced a critical community conversation: Does JEA want to eventually become irrelevant to its customers (shrink), or stay relevant (and even innovative) now and into the future (grow)?

What were the scenarios as presented at JEA’s Board meetings?

Scenario 1, Status Quo (presented at May 28, 2019 Board Meeting)

Assumes JEA will continue to operate as if it is still working within a predictable, low-uncertainty environment. By ignoring market and industry disruptions and opportunities, this scenario leads to steep revenue declines, rate increases and growing insignificance.

Download agenda and package (PDF)
Watch video of May 28, 2019 Board Meeting (YouTube)

Scenario 2, Traditional Utility Response (presented at June 25, 2019 Board Meeting)

Assumes a focus only on stabilizing profitability in order to pay down debt and maintain standard electric, water and wastewater services for customers. Scenario 2 also included significant headcount reductions, along with negative impacts to service quality and rate increases. 

Although no Board members commented that Scenario 2 is the right path for JEA in the June Board meeting, they asked that JEA produce an implementation plan for the scenario, including a timeline for workforce reductions (Scenario 2a). The Board also requested senior leadership work with McKinsey and other specialized consultants to create a plan that reduces or eliminates JEA’s constraints to growth (Scenario 2b). The Board reviewed presentations focused on Scenarios 2a and 2b at the July 23, 2019 Board meeting.

Download agenda and package (PDF) 
Watch video of June 25, 2019 Board Meeting (YouTube)

Scenario 3, Non-Traditional Utility Response (presented at July 23, 2019 Board Meeting)

Assumes proactive approach to innovation, focusing on growth, new business models and public-private partnerships with extension of core service offerings and removal of government-affiliated constraints. This would require changes to JEA’s operating model, which would allow JEA to proactively create the circumstances to enable it to grow and remain relevant today, tomorrow and in the future.

Download agenda and package (PDF)
Watch video of the July 23, 2019 Board Meeting (YouTube)

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Closed Title:What are the next steps and the timeline in the Invitation to Negotiate (ITN) process?
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Should City Council approve to move the recommendation forward to a voter referendum, the public will have the opportunity to vote on the JEA Board recommendation in mid-2020. See slide 190 of the July 2019 JEA Board meeting package (PDF) for additional details.

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Closed Title:How did JEA’s Board of Directors vote in the July Board meeting?
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At the July 23, 2019 Board meeting, JEA’s Board of Directors unanimously voted to approve a resolution authorizing JEA’s CEO and Managing Director to explore options outlined in Scenario 3—the unconstrained, non-traditional utility response. This approval essentially permits the CEO and Managing Director to explore any and all options, including non-governmental options, to allow JEA to grow and remain relevant to its customers now and in the future. This approval will require JEA to issue an Invitation to Negotiate (ITN) to explain its alternatives, a formal process of bid solicitation and selection guided by JEA.

Transitioning JEA from a government-owned utility to a non-governmental entity could take one of several different forms—community ownership, initial public offering, private placement, technology conversion, oil and gas conversion or a utility buyout. JEA is calling any such option a “recapitalization event” because it would re-cast JEA’s entire capital structure under the alternatives outlined. If any of the recapitalization events discussed should occur, the Board of Directors also approved a set of minimum requirements to protect employees’ pensions and benefits, customers and the community.

View this slide from the Board Meeting to learn more (PDF)

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Closed Title:How does the new requirement that voters approve by referendum a sale of at least 10 percent of JEA assets impact a potential recapitalization event?
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The proposed recapitalization event would first require approval by the JEA Board before going to Jacksonville City Council for consideration. Based on a city charter amendment approved in 2018, Duval County voters would need to approve any recapitalization event through a voter referendum should the Jacksonville City Council approve to move such a proposal forward.

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Closed Title:How would a recapitalization event affect JEA customers? Will there be a need for an increase in utility bills, and if so, how soon will that take effect?
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One of the minimum requirements for a recapitalization event is a guarantee from the successful bidder that customers will receive more than $400 million in rebates ($350 per account, or $1400 for customers with all four accounts – electric, water, wastewater and reclaimed water). Base rates for customers will remain stable for at least three years after a recapitalization, contrasted with no rebates to customers and base rate increases under a status quo. Above all, customers will continue to receive the same high-quality, reliable utility services they have come to expect from JEA with a recapitalization event.

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Closed Title:Is there any truth that JEA may move to the Southside rather than stay Downtown if a recapitalization event does not occur?
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Construction of JEA’s new Downtown Jacksonville Headquarters is included as one of JEA’s “minimum requirements” in the Invitation to Negotiate and would proceed with a recapitalization event. Should the JEA Board instead opt for Scenario 2 implementation, its cost-reduction priorities would call for the relocation of existing office space to the Southside and cancelation of the Headquarters construction. 

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Closed Title:What if there are no entities that come forward through the ITN process or a recapitalization event otherwise falls through?
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While that would need to be fully considered by the JEA Board at that time, the Board may, at its discretion, determine that if the non-traditional utility response does not achieve its stated minimum requirements to no longer pursue this approach and to possibly select Scenario 2 for implementation.