Fitch Ratings assigns an 'AA-' rating to the following JEA's St.
Johns River Power Park System revenue bonds, which will total $32.8
--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
--$1.538 billion JEA electric system senior revenue bonds at
--$1.325 billion JEA electric system subordinate revenue bonds
--$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
--$97 million JEA electric system tax exempt commercial paper
(CP) notes at 'F1+'.
The Rating Outlook is Stable.
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
--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
--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
--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.
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
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
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
--'Revenue-Supported Rating Criteria' (Dec. 29, 2009);
--'Public Power Rating Guidelines' (June 11, 2009).
Additional information is available at
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,
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.