Fitch Ratings has assigned a rating of 'AA-' to the JEA 20-year fixed-rate series three 2008E $44 million senior and series 2008E $24 million subordinate electric system revenue bonds. Fitch also affirms the 'AA-'rating on outstanding senior and subordinate electric revenue bonds and outstanding St. John's River Power Park bonds. The Rating Outlook for all of the bonds is Stable. Proceeds from the fixed-rate bonds will be used to refund existing bonds, deposit funds to the construction reserve account, and restructure upcoming bullet payments. The bonds are expected to price September 10th.
Fitch notes that JEA like many other utilities throughout Florida (municipal and investor-owned utilities) must cope with volatile fuel prices, a weakened Florida economy, and more limited options for fuel diversification due to the state's moratorium on coal plant development. While these factors have the potential to put pressure on JEA's rating, the utility has demonstrated a willingness to manage its exposure to these risks and position itself to increase its financial and operating predictability.
Consequently, the 'AA-'rating is based upon the following:
--JEA benefits from solid manage practices, financial performance in line with the rating category, and a diverse customer base. While debt service coverage decreased slightly over the last 10 months, recent rate increases are expected to bring this ratio back to historical levels well above 2 times by year end.
--While natural gas prices have spiked, JEA's retail electric rates remain competitive in the region. Fitch believes that JEA's plan to add nuclear generation to its fuel portfolio should support long-term electric rate competitiveness.
--Although increased unexpected outages at the St. John's River Power Park coal plant briefly increased JEA's reliance on natural gas, the utility's overall generating portfolio is efficient.
--JEA hedged 100% of its coal and 81% of its natural gas supply for fiscal year 2009 adding some measure of predictability to its power costs.
--Fitch will monitor the potential for changes in JEA's total annual payments to the city of Jacksonville (general fund transfers, franchise fees, and other payments) as the state of Florida copes with a weakened economy.
Key credit drivers that could affect JEA's future rating include:
--Maintenance of financial metrics (debt service coverage, liquidity, and equity) consistent with the 'AA-' rating category, especially given fuel cost pressures, Florida's economic challenges, and payments to the city of Jacksonville.
--Ability to recover volatile fuel costs in a timely manner and replenish the rate stabilization fund, which has been depleted due to rising fuel costs.
--Implementation of a large capital plan ($1.8 billion) balanced with debt and cash funding.
--Increased diversification of long-term power supply and the impact to JEA's regional rate competitiveness.
JEA is an integrated utility providing electric and water service within the city of Jacksonville, FL. and surrounding portions of three neighboring counties. JEA serves over 400,000 electric customers, and is one of the largest public power systems in the United States, with 3,300 megawatts net generating capacity.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
Contacts:
Yvette M. Dennis, 212-908-0668
Karl
Pfeil, III, 212-908-0516
Sandro Scenga, 212-908-0278 (Media
Relations)
Cindy Stoller, 212-908-0526 (Media Relations)
