Fitch Ratings assigns an 'AA-' rating to the following JEA's St. Johns
River Power Park System revenue bonds, which will total $32.8 million:
--Issue Three, Series 4;
--Issue Three, Series 5
NEW ISSUE DETAILS:
The bonds are expected to sell via competition in early May 2010.
Proceeds will be used to pay for capital additions at St. John's River
Power Park System, most of which will support environmental upgrades. In
addition, bonds will finance capitalized interest, cost of issuance and
a debt service reserve account.
In addition, Fitch affirms the ratings on the following JEA obligations:
--$1.538 billion JEA electric system senior revenue bonds at 'AA-';
--$1.325 billion JEA electric system subordinate revenue bonds at 'AA-';
--$842 million St. Johns River Power Park revenue bonds, Issue Two at
'AA-';
--$339 million St. Johns River Power Park revenue bonds, Issue Three at
'AA-';
--$126 million bulk power supply system revenue bonds at 'AA-';
--$97 million JEA electric system tax exempt commercial paper (CP) notes
at 'F1+'.
The Rating Outlook is Stable.
SECURITY:
The St. John's River Power Park, Issue Three bonds are secured solely by
and paid for as an operating expense of JEA's electric system. Unlike
the Issue Two bonds outstanding, the Issue Three security does not
include Florida Power & Light (FPL) payment obligation.
RATING RATIONALE:
--JEA electric system's 'AA-' rating and Stable Outlook by Fitch
continue to reflect its strong financial performance in 2009 (2.97 times
[x] annual debt service coverage) and increased liquidity levels (62
days cash on hand from 33 days cash on hand in 2008), despite the
economic slowdown and corresponding decline in sales and usage.
--Management continues to demonstrate its flexibility by adjusting
operations and capital expenditures in response to lower than expected
demand.
--The customer base is diverse, and rates are among the lowest in the
state of Florida.
--The utility's risk management policy (in its fifth year) has proven an
effective means of monitoring counterparty risk, managing fuel exposure,
and identifying potential other exposures.
KEY RATING DRIVERS:
--Thirty-four percent of JEA's outstanding debt (electric, bulk power,
and SJRPP) is variable rate. While JEA has enjoyed very favorable
interest rates over the past few years, JEA's debt service coverage
levels could be affected if interest rates were to rise sharply. After
long-term swaps, variable rate exposure is 14%, and management has
indicated that it is reviewing ways to reduce this variable interest
rate exposure as market opportunities arise.
--Maintenance of financial metrics at levels consistent with the 'AA-'
rating category is key to maintaining the current rating, given the
increased pressure to invest in renewable resources and the economic
challenges facing the City of Jacksonville.
--JEA has identified carbon emission and climate change legislation as a
major risk and is actively working to reduce its dependence on
carbon-emitting resources. JEA's 20-year power purchase agreement (PPA)
with MEAG Power will entitle it to 206 megawatts (MW) of non-carbon
emitting nuclear capacity in 2017 (through 2037). In addition, JEA's
efforts to increase its renewable energy portfolio are expected to
improve its position pertaining to climate change. Nonetheless, JEA's
dependence on fossil fuels will be significant and could result in
increased costs in the long term.
CREDIT SUMMARY:
St. John's River Power Park is a coal- and pet-coke fired generating
station consisting of two units, each of which has a capacity of 638 MW
(1,276 MW total). The Power Park is jointly owned by Florida Power and
Light (20%, rated 'A', with a Negative Outlook) and JEA (80%). Under a
purchase power agreement scheduled to expire in April 2022, JEA sells
37.5% of its ownership interest back to FPL. While FPL's purchase power
obligation is required in order to make debt service payments on the
Issue Two bonds, it is not required for the Issue Three bonds.
JEA is the seventh largest municipally-owned electric utility in the
United States in terms of customers served. As of fiscal year end Sept.
30, 2009, the JEA electric system served 417,225 customers located
throughout its 900 square mile service area covering the City of
Jacksonville and portions of neighboring counties.
In addition to its 729 miles of transmission lines and 6,488 miles of
distribution lines, JEA meets its electric capacity and energy needs
from a combination of owned generating resources and firm purchased
power. JEA electric system's electric supply resources are sufficient to
meet the 3,250 MW winter peak demand. While JEA's future generation
planning focuses on reducing carbon profile, initially JEA's
construction will increase its natural gas capacity to replace its solid
fuel generation (coal and pet coke), which accounts for 44% of JEA's
total capacity mix and 82% of its energy mix.
Financial projections through 2014 are based on conservative sales
growth estimates, modest rate increases, and a portion of capital
improvements being funded with cash. Based on these assumptions, JEA's
financial metrics should remain adequate for the 'AA' rating category,
with debt service coverage projected to remain in the 2.4x-2.5x from
2010 to 2014.
For more information on the JEA electric system, see Fitch's full rating
report at 'www.fitchratings.com'.
CONSIDERATIONS FOR TAXABLE/BUILD AMERICA BONDS INVESTORS
The following sector credit profile is provided as background for
investors new to the municipal market.
Public Power Bonds - key credit points:
Public power utility bonds in most cases are unsecured debt obligations
supported solely by a pledge of net revenues generated by the utility
including other legal structural protections, such as rate covenants,
and debt service reserve fund requirements. Public power utilities
(municipal and cooperative) are effectively owned by their customers
with a mission to provide essential, reliable, relatively low cost
electric service. The average rating is 'A+', compared to their
corporate counterparts' average rating of 'BBB+', with approximately 31%
rated at or above 'AA-' and 8% rated at or below 'BBB+'. The key credit
underpinning supporting the high average rating is their self regulating
authority (or local rate setting ability). Municipal utilities are
generally not subject to state/federal regulatory oversight as compared
to corporate utilities. This regulatory autonomy provides for a more
timely recovery of costs (operating and debt service) through electric
rates, and also gives public power issuers the ability to set financial
targets/policies as well as renewable energy goals/standards. In
addition, public powers predominantly residential customer composition
provides for more stable energy sales and in turn more predictable
financial performance. Those with below average ratings or low
investment-grade or below-investment-grade ratings generally have a
limited economic base, above average leverage (or debt burden) resulting
in a high cost structure that may constrain financial flexibility.
Applicable criteria available on Fitch's web site at 'www.fitchratings.com':
--'Revenue-Supported Rating Criteria' (Dec. 29, 2009);
--'Public Power Rating Guidelines' (June 11, 2009).
Additional information is available at 'www.fitchratings.com'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE.
