JEA Privatization Uniquely More Complicated Than Other Efforts Around The State

Dec 6, 2017

Following a regular board meeting that saw departing member Tom Petway charge his soon-to-be former colleagues with exploring privatization, JEA’s board chair is calling for a swift examination of the utility’s assets.


Shortly after Petway’s original comments at the Nov. 28 meeting, Jacksonville Mayor Lenny Curry released a statement backing up Petway.

“With his challenge to explore privatization, he has made a simple request that citizens and city leaders explore the value of their public assets and how utility customers in our city can best be served,” Curry said. “As a reform-minded mayor, I welcome this challenge and will work with city council leadership to answer these questions.”

Should the board and Jacksonville’s political leaders decide privatization is the right path, JEA would not be the first municipal utility to do so in Florida. In fact, there are even examples of voters deciding to go the opposite direction: From private to public.

Still, according to one expert, the massive tentacles of JEA’s electric grid, water service and sewer system — which serve more than 450,000 electric, 337,000 water and 261,000 sewer customers in Northeast Florida — would represent one of the largest and most complicated such conversions in Florida’s history.

JEA’s board chairman Alan G. Howard sent a letter to the utility’s CEO Paul McElroy Tuesday asking him to “consider the question of whether JEA’s customers would be better served by the private marketplace.”

Howard is requesting the utility, helmed by McElroy, take between 60 and 90 days to “appraise the value of JEA’s constituent utilities: electric, water/wastewater and district cooling.” That appraisal should be done by a third party firm selected following a competitive bidding process, he wrote.

But Howard makes clear that after such an analysis is completed and forwarded to the mayor, city council and the JEA Board, that’s when the debate over whether the country’s eighth-largest community-owned utility should convert to an investor-owned model should really begin.

“I am mindful of the fact that this question has been asked before and answered in the negative,” he wrote, ending his letter.

After a lengthy 2012 exploration of JEA’s assets and the logistics of the city splitting with the utility, the decision was ultimately made to shelve the privatization idea. The last time an audit of JEA’s value was conducted in 2007, it was pinpointed at $2 billion as a municipal utility and more than $3 billion if it went private.

Regardless of previous privatization explorations, JEA spokeswoman Gerri Boyce said the independent authority is already readying a market value report.

“It is important to note that this question has been asked a number of times in the past. In the next several weeks, JEA will develop a framework and a work plan to guide us in answering the questions raised by Mr. Petway, and communicated and directed by JEA Board Chairman Mr. Howard to Mr. McElroy,” Boyce wrote in an emailed statement.

Recent Examples

Voters in Vero Beach, Florida decided four years ago to convert their small electric utility — which served little more than 34,000 customers — to a private enterprise. After a bidding process, Florida Power & Light announced a move to buy the little power producer for $185 million.

But the plan took years of negotiations and planning and FPL is just now getting around to a final filing asking the state’s Public Service Commission to approve the sale.

Ted Kurry, the University of Florida Public Utility Research Center’s Director of Energy Studies, said even a small operation like Vero Beach’s contains a multitude of entanglements with companies, governments and other utilities.

“Vero Beach was a partner through the Florida Municipal Power Agency, with a number of other municipal utilities in the state,” Kurry said “So, while they are physically interconnected, there were still a number of contractual issues. Vero Beach has certain rights and responsibilities with other utilities and other utilities have responsibilities with Vero Beach … and all those responsibilities had to be worked out.”

Kurry said between mutual aid agreements, which allow disaster-affected utilities “borrow” workers and equipment, and physical grid connections, FPL had a lot of details to iron out.

JEA, Kurry said, would be orders of magnitude more labyrinthine.

Rates and Customer Satisfaction

Most recently, Winter Park successfully booted Progress Energy (now Duke Energy) and municipalized. Meanwhile voters in South Daytona Beach rejected a similar effort to turn their utility public.

Kurry said data on customer satisfaction is mixed. Winter Park voters are generally happier with their choice and so are those in South Daytona Beach.

“You look at Winter Park and they’ll tell you that their quality of service has improved. South Daytona Beach was looking to municipalize their electric system and ultimately [a] voter referendum defeated that effort. So, while the government in South Daytona Beach at least took the effort to explore forming their own municipal utility, ultimately the voters decided against it,” he said.

Kurry added that most municipal utilities have rosier customer outlooks because they tend to be smaller, and even the bigger ones don’t always have a large geographic territory to service, meaning local ratepayers are always prioritized.

Just as murky as ratepayer views on service quality, customer perception of pricing fairness is mixed across the sector.

JEA’s own October survey of what other utilities charge showed a JEA residential customer pays close to $10 more for 1,000 kilowatt hours than FPL ratepayers.

Kurry said it’s not easy to figure out whether private utility customers pay more or less on average than their municipal counterparts.

The data just isn’t clear.

“There is nothing conclusive. We have examples that go both ways. When you look in terms of broadly, the kindest thing you can say is that we just don’t know,” he said. “There is really no getting around this. The one constant is that people always think their rates are higher than they should be.”

More Than Electricity

Like most public utilities, JEA combines a number of services under one roof. The utility began as a power provider in 1967, but took over city water and wastewater services 30 years later.

Kurry said if the utility does decide to privatize, JEA would probably have to return those services to the city, or appraise the water/sewer service’s separate value for sale to a private water utility.

Large power companies like FPL don’t generally provide other services.

“It is unlikely that just a single private entity would acquire the utility as a whole. It is more likely that, for example a private water utility would want to purchase the water infrastructure and a private electricity company would want to purchase the electricity infrastructure,” he said. “But then you start running into other complications.”

Kurry said because both parties would have to purchase services from each other, in addition to renegotiating mutual aid contracts with other utilities, the two prospective private buyers of JEA would also need to figure out how to charge each other for needed services.